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Calendar No. 350
115th Congress} { Report
SENATE
2d Session } { 115-449
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SPURRING BUSINESS IN COMMUNITIES ACT OF 2017
_______
December 20, 2018.--Ordered to be printed
_______
Mr. Risch, from the Committee on Small Business and Entrepreneurship,
submitted the following
R E P O R T
[To accompany S. 1995]
[Including cost estimate of the Congressional Budget Office]
The Committee on Small Business and Entrepreneurship, to
which was referred the bill (S. 1995) to amend the Small
Business Investment Act of 1958 to improve the number of small
business investment companies in underlicensed States, and for
other purposes, having considered the same, reports favorably
thereon without amendment and recommends that the bill do pass.
I. INTRODUCTION
S. 1995 was introduced by Senator Marco Rubio, for himself,
on October 24, 2017. The bill's cosponsors include Senator
Tammy Baldwin and Senator John Kennedy.
This bill requires the Small Business Administration (SBA)
Administrator to give first priority to Small Business
Investment Company (SBIC) program applicants located in
underlicensed and under-financed states, expands a provision in
the Small Business Investment Act of 1958 providing certain
exemptions from full private capital requirements to include
applicants from underlicensed states, and directs the
Administrator to include additional information in the SBA's
annual report to Congress on small business investment
activities.
During the markup of the bill, the bill was approved
unanimously by a roll call vote as part of a manager's package.
II. HISTORY (PURPOSE & NEED FOR LEGISLATION)
The SBIC program was authorized in the 85th Congress by the
Small Business Investment Act of 1958 to bridge the gap between
entrepreneurs' need for capital and traditional financing
sources. The SBIC program participants are made up of private
equity funds that use their own capital in addition to leverage
gained through SBA guaranteed loans to invest in small
businesses. In fiscal year 2017, the SBA committed to guarantee
$1.96 billion in SBIC small business investments. SBICs
invested another $3.77 billion from full private capital for a
total of $5.73 billion in financing for 1,077 small businesses.
While the investments of Small Business Investment
Companies (SBICs) are broadly distributed, the geographic
locations of the investment firms receiving SBA backing are
not: 72 percent of all SBICs are located in ten states. The
Small Business Investment Act of 1958 declares a mission to
``ensure the provision of small business investment company
financing to all areas of the country.'' As a government-backed
venture, the SBIC program should be resistant to market
pressures that concentrate investment in finance-heavy regions,
instead using its funds to ensure a broader distribution of its
benefits. The legislation would increase the ability of the SBA
to meet this standard, and increase the SBA's accountability to
Congress.
III. HEARINGS & ROUNDTABLES
In the 112th Congress, the Committee held a roundtable on
March 22, 2012 entitled, ``A Spotlight on Small Business
Investment Companies and Their Role in the Entrepreneurship
Ecosystem.'' The roundtable included a discussion about
entrepreneurial education in relation to SBICs and the display
of a map demonstrating that there were few SBICs located
outside of a small number of states.
In the 114th Congress, the Committee held a hearing on July
14, 2016 entitled, ``How Venture Capitalist and Angel Investors
Fund Entrepreneurs and Startup Companies.'' During this
hearing, Mr. Joe Schocken, President of Broadmark Capital,
observed in his opening statement that there were enormous
regional disparities in access to startup financing and that
regional concentrations in venture capital were concerning.
During the course of questioning, Senator Peters also noted and
expressed concern about the regionalization of innovation.
Senator Hirono expressed similar concerns about her home state
of Hawaii.
In the 115th Congress, Small Business Administrator Linda
McMahon responded to a question pertaining to the importance of
equity funding for startups and small businesses when the
majority of venture funding is concentrated in cities on the
west and east coasts. Administrator McMahon noted that
geographic diversity is essential to the growth of
entrepreneurship and innovation that drive our economy.
Also in the 115th Congress, the Committee held a hearing on
April 26, 2017 entitled, ``The Challenges and Opportunities of
Running a Small Business in Rural America.'' During this
hearing, Senator Shaheen asked Mr. John Lettieri, of the
Economic Innovation Group, what public policy changes could be
made to encourage rural business. He observed that regional
disparities in access to capital were concerning and that
public policy could help leverage private investment and
change, in a market-based way, the risk profile of investments
in rural areas.
IV. DESCRIPTION OF BILL
This bill requires the Small Business Administration (SBA)
Administrator to give first priority to Small Business
Investment Company (SBIC) program applicants located in
underlicensed and under-financed states, expands a provision in
the Small Business Investment Act of 1958 providing certain
exemptions from full private capital requirements to include
applicants from underlicensed states, and directs the
Administrator to include additional information in the SBA's
annual report to Congress on small business investment
activities.
V. COMMITTEE VOTE
In compliance with rule XXVI (7)(b) of the Standing Rules
of the Senate, the following vote was recorded on March 14,
2018.
A motion to adopt the Spurring Business in Communities Act
of 2017, a bill to amend the Small Business Investment Act of
1958 to improve the number of small business investment
companies in underlicensed States, and for other purposes, was
approved unanimously by a roll call vote as part of a manager's
package. Senators Risch, Rubio, Paul, Scott, Ernst, Inhofe,
Young, Enzi, Rounds, Kennedy, Cardin, Cantwell, Shaheen,
Heitkamp, Markey, Booker, Coons, Hirono, and Duckworth voted
for the bill.
VI. COST ESTIMATE
In compliance with rule XXVI (11)(a)(1) of the Standing
Rules of the Senate, the Committee estimates the cost of the
legislation will be equal to the amounts discussed in the
following letter from the Congressional Budget Office:
U.S. Congress,
Congressional Budget Office,
Washington, DC, November 16, 2018.
Hon. James E. Risch,
Chairman, Committee on Small Business and Entrepreneurship,
U.S. Senate, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for S. 1995, the Spurring
Business in Communities Act of 2017.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Stephen
Rabent.
Sincerely,
Keith Hall,
Director.
Enclosure.
S. 1995--Spurring Business in Communities Act of 2017
The Small Business Administration (SBA) operates a program
that provides loan guarantees to Small Business Investment
Companies (SBICs) that make investments in qualifying small
businesses. The SBA must approve applications for an SBIC to
operate. S. 1995 would direct the SBA to give first priority to
applicants that wish to operate SBICs in states where the
number of SBICs per person is below the median number of SBICs
per person for all states. The bill also would make an SBIC
operating in an under-licensed state eligible to receive loan
guarantees from SBA if it was otherwise ineligible. Lastly, the
bill would expand existing SBA reporting requirements for the
SBIC program.
Using information from the SBA, CBO estimates that
establishing a prioritization process would increase the number
of SBIC applications that the SBA would review. CBO estimates
that implementing the bill would increase gross costs by about
$2 million a year over the 2019-2023 period for the agency to
hire about 15 additional staff to review a larger number of
applications on an expedited basis; such spending would be
subject to the availability of appropriated funds. A portion of
those costs could be offset by SBIC licensing fees that the
agency typically charges under current law; therefore, CBO
estimates that S. 1995 would increase net costs to the SBA by
about $8 million over the 2019-2023 period, assuming agency
action consistent with that authority.
CBO also estimates that expanding the availability of loan
guarantees to SBIC's that otherwise would not be eligible would
increase the amount and the gross cost of loan guarantees that
the SBA could make; however, CBO estimates that the estimated
net subsidy cost to the government would not be affected
because the SBA would raise fees to cover any such costs.
Enacting S. 1995 would not affect direct spending or
revenues; therefore, pay-as-you-go procedures do not apply.
CBO estimates that enacting S. 1995 would not increase net
direct spending or on-budget deficits in any of the four
consecutive 10-year periods beginning in 2029.
S. 1995 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act.
VII. EVALUATION OF REGULATORY IMPACT
In compliance with rule XXVI (11)(b) of the Standing Rules
of the Senate, it is the opinion of the Committee that no
significant additional regulatory impact will be incurred in
carrying out the provisions of this legislation.
VIII. SECTION-BY-SECTION ANALYSIS
Section 1. Short title
This section provides the short title for the Act, the
``Spurring Business in Communities Act of 2017''.
Sec. 2. Improving the number of small business investment companies in
underlicensed states
This section provides a definition for an ``under-
licensed'' state. It also directs the SBA Administrator to give
first priority to SBIC applicants located in underlicensed and
under-funded states, while expanding an exemption from full
private capital requirements in the Small Business Investment
Act of 1958 to include underlicensed states. Finally, this
section requires the SBA to include information on SBIC
licensing, the identification of underlicensed states, and the
SBA's plans to increase the number of licensees in
underlicensed states in their annual report to Congress on
small business investment activities.
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