ESTABLISHMENT OF SMALL BUSINESS ADMINISTRATION AND LIQUIDATION OF RECONSTRUCTION FINANCE

CORPORATION

JULY 18 (legislative day, JULY 6), 1953.—Ordered to be printed

Mr. CAPEHART, from the Committee on Banking and Currency, submitted the following

REPORT

[To accompany S. 1523]

The Committee on Banking and Currency to whom was referred the bill (S. 1523) to dissolve the Reconstruction Finance Corporation, to establish the Small Business Administration, and for other purposes, having considered the same, report favorably thereon with amendments and recommend that the bill as amended do pass.

PURPOSE

The purpose of this bill is twofold. It establishes as an independent agency the Small Business Administration to assist small business, to make loans to small business, and to make disaster loans. It provides for the termination of the Reconstruction Finance Corporation and the transfer to other Federal agencies of certain of its functions deemed still to be in the public interest.

After July 31, 1953, the functions of the Small Defense Plants Administration will be assumed by the newly created Small Business Administration.

This bill has the full approval of the present administration and is in accord with the program of the President.

GENERAL STATEMENT

I. SMALL BUSINESS ADMINISTRATION

Your committee recognizes that small and independent business is an essential element of free, American, competitive enterprise. While in this as in all other fields, primary reliance should be placed upon individual initiative and private enterprise, the Congress cannot

lose sight of the fact that in some areas Federal machinery is still required to enable small business to play its full part in the American economic system.

The opportunity for small business to develop and make its maximum contribution to the national economy is an expressed aim of the administration.

It is only through full and free competition that the opportunities for expression and growth of personal initiative and individual judg ment can be assured. The existence of a healthy economic climat for small business and the opportunity for its expansion constitut the best safeguards against the evils of monopoly and the best assur ance for the security of our Nation, as well as the best means o assuring that consumers receive a quality product at a fair price.

Present Federal assistance to small business is limited primarily t enabling it to make its maximum contribution to the defense effor during the current emergency. After extended hearings, your com mittee is of the opinion that such assistance is not tailored to mee the most pressing current needs of small business as to matters withi the primary jurisdiction of your committee. This bill is designed t adjust the present Federal program of small business assistancei order to help small business achieve its maximum development unde current conditions. Your committee gave considerable thought t the advisability of shrinking the scope of present Federal organiza tions operating in the small business field in order to meet the preser requirements of small business. However, it is the best judgment your committee that a more effective program for small busine assistance at less cost to the taxpayers can be achieved by creating new agency of the Federal Government possessing the exact authorit required to assist small business in making its full contribution to tl national economic system.

Your committee held extensive hearings on eight different bill each of which had as its purpose the rendering of appropriate assistan to small business. These hearings were held on May 20, 21, 22, 2 26, and 27, and on July 13 and 14, 1953. Your committee receive the benefit of the views of many witnesses, both governmental ar nongovernmental. Not all witnesses had the same ideas as to wh particular type of legislation would best serve small business. The was divergence of opinion even among your committee members : to the most effective approach to provide financial assistance small business. However, upon deliberation, the sentiment of you committee crystallized in favor of the approach adopted in this b as best meeting the current needs of small business.

The present bill provides a 2-year period for the Small Busine Administration to carry out the purposes expressed in the legislatio During that time it is the intention of your committee to give co tinuing consideration to this problem and to observe the operation of the agency created by this bill to determine whether the progra here established fully meets the needs of small business.

In this bill your committee has attempted to assure that sm business will be given the requisite help without interfering with t operation of private institutions likewise rendering service in th field. To that end the lending functions of the Small Business Admi istration are limited in such a manner as to encourage small busine

to seek financial aid first from private institutions. When such aid is not forthcoming, the bill enables small business to receive aid through loans participated in by private institutions with the Federal Government. Finally, it is only when funds for small business are not available from private institutions that the bill provides authority for direct loans by the Federal Government. Such direct loans are authorized only when they are in the public interest.

The Government's share in any loan is limited to the amount of $200,000 to any single borrower on the theory that this limit is sufficient to provide the true needs of small business for Federal assistance when such assistance is not otherwise available. Maturities of such

oans may run for as long as 10 years, except for the purpose of constructing industrial facilities. In the latter case the maturity may extended beyond 10 years by the additional period required for construction.

Authority of the Small Business Administration to participate with private institutions in a loan on a deferred basis is limited to 90 percent of the outstanding balance of the loan. This is to assure that the private institution will give careful consideration to the advisauity of making the loan by reason of the risk to be assumed by the private lender.

In order to guide the Small Business Administration in its lending functions, the bill creates a Small Business Loan Policy Board consisting of the Administrator, as Chairman, and the Secretary of the Treasury and the Secretary of Commerce as additional members. The bill authorizes the creation of a revolving fund in the United States Treasury in the total amount of $275 million. Of this sum, $150 million is earmarked for loans to small business. An additional 25 million is earmarked for disaster loans. Finally, $100 million s earmarked for the purpose of enabling the Small Business Adminstration to take prime contracts from the Government and subntract them to small-business concerns for performance.

The authority for the Small Business Administration to act as a rime contractor for the Government is similar to that exercised by he Small Defense Plants Administration. In the past such authority as not been exercised extensively but has proven to be a tool which an be used to benefit small business.

Among the other powers granted the agency are the following:

1. authority to certify to Government procurement officers as to the credit and capacity of small-business concerns to undertake a specific Government procurement contract;

2. authority to consult and cooperate with Government procurement officials in order to obtain the full use of the productive capacity of small business;

3. authority to encourage the letting of subcontracts to small business by prime contractors having Government contracts; 4. authority to obtain from material suppliers information as to the method used in distributing materials for defense production to small-business concerns unable to obtain them from normal sources;

5. authority to recommend to Federal agencies measures to insure a fair and equitable share of materials for small-business concerns to carry out defense programs;

6. authority to make a complete inventory of the productive facilities of small-business concerns usable for defense production; and

7. authority to provide technical and managerial aids to small business.

To avoid duplication and waste of effort and expense, your committee expects the Small Business Administration to utilize to the fullest extent the services provided by existing agencies of the Federal Government. It is not intended that the Small Business Administra tion use the powers granted by this bill in such a manner as to duplicate the services provided by other Federal agencies.

The bill contains a definition of a small-business concern. It is expected by your committee that this definition will be interpreted to include producers of strategic minerals and metals who meet the criteria of the definition.

This bill concentrates in one independent agency of the Federa Government the responsibility for administering programs to stimu late the development of small business. It is intended that thi agency shall operate in such a manner as to afford small business equal ity of opportunity with other business enterprises.

Authority to make disaster loans is also vested in the Small Busines Administration. These loans are presently authorized to be made b the Reconstruction Finance Corporation. However, with the term nation of that Corporation, it becomes necessary to find anothe agency of the Federal Government best equipped to handle the disaster-loan program. In the opinion of your committee, the Sma Business Administration created by this bill constitutes the appropriat and best equipped agency to administer such a program. Disaste loans are usually small in amount and most of them are made t individuals, nonprofit institutions, or small-business enterprise This program will provide a source of financial aid for victims of flood or other catastrophes who need such aid.

II. RECONSTRUCTION FINANCE CORPORATION

With the establishment of a Small Business Administration to rend financial assistance to small-business enterprises, the principal ne for the continuation of the Reconstruction Finance Corporation I longer exists. To continue that Corporation would entail unnece sary duplication of effort and expense.

Specific provision is contained in the bill for transfer to the Secreta of the Treasury of the duties performed by the Reconstruction Finan Corporation under section 409 of the Federal Civil Defense Act 1950.

Certain other functions performed by the Corporation are to transferred under the provisions of the bill to such other departme or agency of the Government as the President deems appropriat These include the tin, rubber, and abaca programs and defense lo program under section 302 of the Defense Production Act of 1950, amended. The continuation of these functions is desirable in t public interest.

The remaining functions of the Corporation will be liquidated the Reconstruction Finance Corporation up to the close of busin on June 30, 1954, and thereafter by the Secretary of the Treasury.

Your committee recognizes that a reasonable period of time will be required to place the Small Business Administration in operating condition insofar as its lending functions are concerned. Therefore, the bill provides that the Reconstruction Finance Corporation may continue its lending functions for 60 days after the passage of this bill. MAJOR DIFFERENCES BETWEEN H. R. 5141, AS PASSED BY THE HOUSE, AND S. 1523, AS REPORTED

On two occasions the House passed a bill containing provisions dentical with those contained in H. R. 5141. On June 5, 1953, the House adopted H. R. 5141, introduced by Congressman Hill, of Coloado. Again on June 9, 1953, the House added the identical context of that bill to S. 1081, as a new title II.

The bill recommended by your committee is similar generally to the ill twice approved by the House. It differs only in the following ajor respects.

. Revolving fund

Instead of a $250 million revolving fund in the United States Treasury, as provided under section 4 (b) of the Hill bill, this bill in ection 204 (b) authorizes a revolving fund of $275 million. The ncrease was required because the disaster loan program is included in he bill reported by your committee; $25 million of the authorized evolving fund is earmarked specifically for the purpose of making lisaster loans.

Loan policy board

Section 4 (d) of H. R. 5141 establishes a Small Business Advisory Board composed of the Secretary of the Treasury, as Chairman, the ecretary of Commerce, and the Administrator of the Small Business iministration. While retaining the same membership, your comittee's bill, in section 204 (d), creates a Small Business Loan Policy Board and designates the Administrator of the Small Business Adinistration as Chairman. During the debate on the conference ort on S. 1081, protest was voiced by some members of this body gainst the provision in H. R. 5141 which named the Secretary of the Treasury as Chairman of the Board. Those Senators doubted the sdom of such a provision. Your committee recognizes that this bjection is not without some merit. Consequently, it has changed he provision by designating the Administrator as Chairman of the board. The modification of that provision in H. R. 5141 in this espect should satisfy completely all of those who raised the objection. H. R. 5141 permits each of the Cabinet members of the Board to signate an officer in his respective department, appointed by the resident by and with the advice and consent of the Senate, to act his stead as a member of the Board. The bill recommended by our committee deletes this provision. It is the opinion of your comttee that the nature of the duties to be performed by the Secretary of the Treasury and the Secretary of Commerce as members of the Loan Policy Board is of such importance as to require the personal consideration of each of those Cabinet officers.

Under section 4 (d) of H. R. 5141 the Board is charged with stablishing general policies governing all activities of the Small Business Administration, reviewing its operations and coordinating