Senate Small Business & Entrepreneurship Committee Issued Report on Activities During 114th Congress (Part 1 of 3)

WASHINGTON, April 28 -- The Senate Small Business and Entrepreneurship Committee issued a report (S.Rpt. 115-33) on the activities during the 114th Congress. The report was advanced by Sen. James E. Risch, R-Idaho, on April 24.

LETTER OF TRANSMITTAL

U.S. Senate, Committee on Small Business and Entrepreneurship

Washington, DC.

Hon. Michael R. Pence,

President of the Senate,

Washington, DC.

Dear Mr. President: Senate Rule XXVI.8(b) requires the submission of a report of the activities of the Senate Committee on Small Business and Entrepreneurship for the previous Congress.

In accordance with the requirements, I am submitting the report of the activities of the Committee during the 114th Congress. This report outlines the most noteworthy legislative achievements and other achievements and activities of our Committee.

Sincerely,

James E. Risch,

Chairman.

MEMBERSHIP

COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP

One Hundred Fourteenth Congress

(1st Session)

----------

DAVID B. VITTER, Louisiana, Chair

BENJAMIN L. CARDIN, Maryland, Ranking Member/

JEANNE SHAHEEN, New Hampshire, Ranking Member1

JAMES E. RISCH, Idaho ..... MARIA CANTWELL, Washington

MARCO RUBIO, Florida ..... BENJAMIN L. CARDIN, Maryland

RAND PAUL, Kentucky ..... JEANNE SHAHEEN, New Hampshire

TIM SCOTT, South Carolina ..... HEIDI HEITKAMP, North Dakota

DEB FISCHER, Nebraska ..... EDWARD J. MARKEY, Massachusetts

CORY GARDNER, Colorado ..... CORY A. BOOKER, New Jersey

JONI ERNST, Iowa ..... ..... CHRISTOPHER A. COONS, Delaware

KELLY AYOTTE, New Hampshire ..... MAZIE K. HIRONO, Hawaii

MICHAEL B. ENZI, Wyoming ..... GARY C. PETERS, Michigan

Zak Baig, Republican Staff Director

Ann Jacobs/Robert Diznoff, Democratic Staff Director

---------- 1The Democratic leadership of the Committee transferred from Senator Cardin to Senator Shaheen on April 14, 2015.

MEMBERSHIP COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP

One Hundred Fourteenth Congress

(2d Session)

----------

DAVID B. VITTER, Louisiana, Chair

JEANNE SHAHEEN, New Hampshire, Ranking Member

JAMES E. RISCH, Idaho ..... MARIA CANTWELL, Washington

MARCO RUBIO, Florida ..... BENJAMIN L. CARDIN, Maryland

RAND PAUL, Kentucky ..... HEIDI HEITKAMP, North Dakota

TIM SCOTT, South Carolina ..... EDWARD J. MARKEY, Massachusetts

DEB FISCHER, Nebraska ..... CORY A. BOOKER, New Jersey

CORY GARDNER, Colorado ..... CHRISTOPHER A. COONS, Delaware

JONI ERNST, Iowa ..... MAZIE K. HIRONO, Hawaii

KELLY AYOTTE, New Hampshire ..... GARY C. PETERS, Michigan

MICHAEL B. ENZI, Wyoming

Zak Baig/Meredith West, Republican Staff Director

Robert Diznoff, Democratic Staff Director/Chris Neary, Acting Democratic Staff Director

R E P O R T

Jurisdiction

The jurisdiction of the Committee on Small Business and Entrepreneurship is outlined in paragraphs 1(o)(1-3) of rule XXV of the Standing Rules of the Senate. The following is a reproduction of the relevant sections:

Rule XXV

STANDING COMMITTEES

1. The following standing committees shall be appointed at the commencement of each Congress, and shall continue and have the power to act until their successors are appointed, with leave to report by bill or otherwise on matters within their respective jurisdictions:

(o)(1) Committee on Small Business, to which committee shall be referred all proposed legislation, messages, petitions, memorials, and other matters relating to the Small Business Administration.

(2) Any proposed legislation reported by such committee which relates to matters other than the functions of the Small Business Administration shall, at the request of the chairman of any standing committee having jurisdiction over the subject matter extraneous to the functions of the Small Business Administration, be considered and reported by such standing committee prior to its consideration by the Senate; and likewise measures reported by other committees directly relating to the Small Business Administration shall, at the request of the chairman of the Committee on Small Business, be referred to the Committee on Small Business for its consideration of any portions of the measure dealing with the Small Business Administration, and be reported by this committee prior to its consideration by the Senate.

(3) Such committee shall also study and survey by means of research and investigation all problems of American small business enterprises, and report thereon from time to time.

Per paragraph 3(a) of the Standing Rules of the Senate, the Committee on Small Business and Entrepreneurship shall be composed of 18 members.2

2For the 114th Congress, the Committee had 19 members.

Overview

The 114th Congress began on January 3, 2015 and ended two years later on January 3, 2017. Throughout the entirety of the Congress, Barack H. Obama was President, consisting of his final two years in office.

During this session of Congress, Republicans were the majority party in both the House and Senate. In the Senate, the Republicans held 54 seats, with the Democrats controlling 44 in addition to two Independents who caucused with them (Senators Bernie Sanders of Vermont, and Angus King of Maine).

As the 114th Congress began, Republican Senator David B. Vitter of Louisiana was the Chair, and Democratic Senator Benjamin L. Cardin of Maryland was the Ranking Member. Senator Cardin served as Ranking Member until April 14, 2015, when Senator Jeanne Shaheen of New Hampshire became the Ranking Member of the Committee, per S. Res. 135. It should be noted that while Senator Cardin resigned from his position as Ranking Member of the Small Business Committee to serve as the Ranking Member of the Senate Committee on Foreign Relations, he remained a member of the Small Business Committee.

The makeup of the Committee is established in the Standing Rules of the Senate, which prescribes there to be 19 members of the Committee. However, for the 114th Congress, the Committee had 19 members. See S. Res. 21, S. Res. 22, and S. Res. 23, which named the members and divided the membership of the Committee between ten Republicans, and nine Democrats. The Republican members of the Committee were Chairman Vitter, Senators James E. Risch of Idaho, Marco Rubio of Florida, Rand Paul of Kentucky, Tim Scott of South Carolina, Deb Fischer of Nebraska, Cory Gardner of Colorado, Joni Ernst of Iowa, Kelly Ayotte of New Hampshire, and Mike Enzi of Wyoming. The original Democratic members of the Committee were Ranking Member Cardin, Senators Jeanne Shaheen of New Hampshire, Maria Cantwell of Washington, Heidi Heitkamp of North Dakota, Ed Markey of Massachusetts, Cory Booker of New Jersey, Chris Coons of Delaware, Mazie Horono of Hawaii and Gary Peters of Michigan.

On April 14, 2015, Senator Cardin left his position as Ranking Member of the Committee and was succeeded by Senator Jeanne Shaheen. It should be noted that while Senator Cardin resigned from his position as Ranking Member of the Committee to serve as the Ranking Member of the Senate Committee on Foreign Relations, he remained on as a member of the Committee for the remainder of the Congress. Throughout the entirety of the Congress the Committee held 50 hearings, field hearings, roundtables and markups, and heard testimony from over 175 witnesses. Witness and expert testimony at these events centered on issues of importance to small businesses. Additionally, in exercise of its oversight responsibilities, the Committee sent more than 90 letters to various agencies, agency heads, members of Congress, and the White House.

Key Legislative Activities

Promoting Women's Entrepreneurship. The Committee continued its interest from previous Congresses in promoting and advancing women's entrepreneurship. On October 5, 2015, Chairman Vitter along with Ranking Member Shaheen and Senator Cantwell led the Committee in passing legislation to reauthorize the Women's Business Center (WBC) program to assist women entrepreneurs and small business owners. By creating public-private partnerships, providing education, and conducting outreach, the program addresses concerns regarding nascent and existing small businesses owned by women. It also continues the work of identifying gaps where female participation could be increased . Senate bill S. 2126:

Requires the SBA Office of Women Business Ownership to develop training and accreditation plans;

Reauthorizes the WBC program with an increased authorization of $21.75 million from 2016 to 2020 (consistent with SCORE's authorization increase); and

Sets requirements for WBC applications and quality standards to ensure transparency, accountability, and quality controls.

On March 16, 2015, Chairman Vitter convened a roundtable with Louisiana women small business owners and the National Women's Business Council to discuss success stories and the struggles women-owned small businesses face in gaining access to capital, navigating federal regulations, competing for government contracts, and other significant issues affecting how small businesses grow.

In July 2015, Chairman Vitter and Ranking Member Shaheen led a group of 12 bipartisan Senators to introduce S. Res 225, a Senate resolution honoring the National Association of Women Business Owners. That resolution passed the Senate unanimously on July 28, 2015.

In October of 2015, Chairman Vitter and Ranking Member Shaheen passed a Senate resolution declaring October to be National Women's Small Business Month.

Making the Case for Regulatory Reform. The Committee continued to focus on ways to strengthen the Regulatory Flexibility Act (RFA), which was enacted in 1980 as a comprehensive effort to protect small business interests and minimize economic burdens on them due to federal regulations. An important aspect of the law was the implementation of the initial regulatory flexibility analysis (IRFA), which requires agencies to conduct an economic analysis for small businesses when a respective rule will have a significant economic impact on a substantial number of small entities. This forces agencies to be sensitive to the needs of small businesses when proposing regulations, a provision that was widely praised by both Democrats and Republicans.

In the 114th Congress, the Environmental Protection Agency's (EPA) came under heavy criticism when it concluded that its 2015 Waters of the United States Rule (WOTUS) would not have a significant economic impact on a substantial number of small entities, thereby allowing the EPA to bypass writing an IRFA. Contrary to the EPA's claims, the rule significantly expanded the scope of federal jurisdiction under the Clean Water Act across the country. EPA claimed that the impact on small businesses would be indirect, which allowed the Agency to cut corners and avoid performing an IRFA, thus denying small businesses the protections that were supposed to be offered to them under the law.

In addition to mandating an IRFA, Congress passed the Small Business Regulatory Enforcement Fairness Act (SBREFA) in 1996 requiring EPA and the Occupational Safety and Health Administration (OSHA) to convene small business advocacy review (SBAR) panels when those agencies concluded that a proposed rule would have a significant economic impact on a substantial number of small entities. The Consumer Financial Protection Bureau (CFPB) was later added to the list when it was created in 2011. This law allows small businesses to participate earlier in an agency's rulemaking process.

The Committee consistently received feedback from the small business community that regulatory agencies were not fully complying with the RFA and held a hearing entitled "Drowning in Regulations: The Waters of the U.S. Rule and the Case for Reforming the RFA" on April 27, 2016. This hearing focused on the need to ensure an accurate representation of economic impacts on small businesses stemming from regulations. During the hearing, industry experts and SBA's Office of Advocacy presented testimony regarding the RFA with examples of agencies' failure to comply and solutions for strengthening the existing law.

The Committee focused on four specific areas where the RFA could be improved. These were discussed at the hearing and throughout the Committee's review of the RFA.

Third Party Certification_Currently, when an agency avoids implementing an IRFA or SBREFA by claiming no significant economic impact on a substantial number of small entities, there is no accountability for the agency even when SBA's Office of Advocacy requests for said agency to reconsider their assessment. Republicans on the Committee recommended having a system set in place for a third party to certify whether a rule has a significant economic impact when the Office of Advocacy and one or more Executive Branch agencies disagree on the matter. As such, Sen. Ernst introduced S. 2847, the Prove It Act, on May 24, 2016, which would allow the Chief Counsel to request third party review through the Office of Information and Regulatory Affairs (OIRA) and create greater accountability for the IRFA process. That legislation passed the Committee on a party line vote on May 24, 2016.

Expand SBREFA Panels_Republicans on the Committee also support expanding SBREFA panels to every federal regulatory agency. As such, Chairman Vitter introduced S. 1536, the Small Business Regulatory Flexibility Improvements Act on April 27, 2016, which would include all federal regulatory agencies in the SBREFA process, as the Committee has consistently heard from some stakeholders that more federal regulatory agencies should be subject to SBREFA. For example, the Committee had heard from a broad range of stakeholders that Department of Labor (DOL), which proposed overtime, fiduciary, and sick leave rules during the 114th Congress, was particularly egregious in the regulatory burdens of its rules for small firms. The Committee heard from small business interests that all three rules would have substantial economic impacts and with which would be, at minimum, very difficult to comply.

Include Indirect Economic Effects_Currently, when determining whether to conduct an IRFA or not, agencies are only required to include direct economic effects. This often results in inaccurate assessments because it neglects to recognize economic effects of a rule on small entities resulting from their transactions with other businesses and entities directly regulated by the rule. This is the loophole EPA used in the WOTUS rule to avoid conducting a SBREFA panel and IRFA. In S. 1536, Chairman Vitter included a provision to require agencies to include indirect economic effects.

Strengthen the Periodic Review Process_Agencies are required to conduct a review within 10 years of the promulgation of those regulations that have or will have a significant economic impact on a substantial number of small entities. The Government Accountability Office (GAO) conducted a number of studies on the periodic review process and identified a number of challenges regarding agency compliance with that ten-year review process. GAO determined that the problem relates to the threshold determination of whether the regulation will have a significant economic impact on a substantial number of small entities. The current language can be easily misinterpreted to avoid compliance and needs to be revised to clarify that the law requires the agencies to review regulations which have a significant economic impact on small entities. Chairman Vitter clarified the periodic review requirements in S. 1536.

Expanding Opportunities for Veteran-Owned Small business. The SBA's Office of Veterans Business Development (OVBD) was created by P.L. 106-50, the Veterans Entrepreneurship and Small Business Development Act of 1999, with the intent to address concerns that the government was not doing enough to meet the needs of veteran entrepreneurs. The OVBD administers several programs including:

Veterans Business Outreach Center Program (VBOC)_ The VBOC Program provides entrepreneurial development services to eligible veterans owning or considering starting a small business.

Operation Boots to Business: From Service to Start-up/Boots to Business Reboot_Boots to Business is a veteran entrepreneurship initiative for transitioning service members developed by Syracuse University, which is designed to introduce more than 250,000 service members each year to the opportunities of small business ownership and entrepreneurship.

Veteran Women Igniting the Spirit of Entrepreneurship (VWISE)_VWISE is an entrepreneurial development program that specifically targets female veterans and spouses from all services and branches of the military interested in either starting a new business or growing an existing business.

Entrepreneurship Boot Camp for Veterans with Disabilities (EBV)_Created through collaboration between Syracuse University and the SBA's OVBD, the Entrepreneurship Boot Camp offers a hands-on one-year training program for service-disabled veterans of the wars in Iraq and Afghanistan who want to start or grow a small business.

On June 25, 2015, the Committee held a hearing entitled "Opening Doors to Economic Opportunity for Our Veterans and Their Families through Entrepreneurship." The hearing examined entrepreneurship programs available to veterans, especially those with disabilities, as they transition to civilian life. Although veterans leave military service with tremendous leadership skills, discipline, and determination, they may not have the know-how to start and run a business. The SBA's core technical assistance programs, including Small Business Development Centers (SBDCs), SCORE and Women's Business Centers serve and have outreach initiatives specific to veterans, and the SBA has supplemented their efforts with several new, innovative initiatives aimed at post 9/11 veterans and their families.

On June 23, 2016, the Committee held a hearing entitled, "Beyond the Bench: Ramifications of the Supreme Court Kingdomware Decision." This hearing examined the unanimous Supreme Court of the United States (SCOTUS) ruling in the Kingdomware Technologies vs. United States case, and what the decision meant for federal government contracting as it relates to veteran-owned small business and service-disabled veteran- owned small businesses. During the hearing, representatives from the SBA and Department of Veterans Affairs, Kingdomware Technologies, veteran advocates and contracting policy experts testified on the case and the ramifications of the SCOTUS ruling.

The Committee also passed several important pieces of legislation relevant to that mission, including:

S. 957, Veterans Entrepreneurship Act

S. 1400, Veterans Small Business Enhancement Act

S. 1866, Veterans Small Business Ownership Act

S. 1870, VET Act of 2016

S. 3009, National Guard and Reserve Entrepreneurship Support Act

During the 114th Congress, two resolutions were passed by unanimous consent: S. Res 295 and S. Res 595. Both resolutions recognize the National Veteran Owned Small Business Week, a week which celebrates and calls awareness to the role veteran- owned small businesses play in strengthening the nation's economy.

Reauthorizing and Strengthening the SBIR / STTR Programs. The Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs allocate a portion of extramural federal research and development dollars for which small businesses can compete, based on scientific merit. The programs are an effective way to meet national innovation needs, jump start entrepreneurs, grow our economy, and create jobs. These public-private partnerships enable small businesses to explore promising ideas that help the agencies meet their mission and provide incentives to small businesses that can profit from the commercialization of their SBIR and STTR projects.

The SBIR program was created as part of the Small Business Innovation Development Act of 1982 (P.L. 97-219). The program was designed to increase the participation of small innovative companies in federally funded R&D; opportunities. Government agencies with extramural research and development (R&D;) budgets of at least $100 million must allocate a portion of these funds (currently 3.0 percent for FY16) to support research and development in small firms through the SBIR program. Prior to FY 2012, Agencies were required to allocate 2.5 percent of their extramural R&D; budgets for SBIR awards, but the percentage increased to 2.6 percent in FY 2012 and increased by 0.1 percent each year until FY 2016 when it reached 3.0 percent. The percentage will increase to 3.2 percent for FY 2017 and will remain at that minimum value of 3.2 percent each year thereafter unless subsequently modified by statute.

Eleven departments and agencies currently participate in the program: the Department of Defense, Department of Health and Human Services, National Aeronautics and Space Administration, National Science Foundation, Department of Energy, Department of Agriculture, Department of Homeland Security, Environmental Protection Agency, Department of Education, Department of Commerce and Department of Transportation. Additionally, the SBA coordinates the program across the federal government and directs its implementation at participating agencies. A hallmark of the SBIR program is administrative flexibility, which allows each department or agency the ability to implement the program in a manner that serves its unique goals and needs. According to SBA data on SBIR projects,3 agencies awarded more than $1.9 billion to small business awardees in FY15, including $460.7 million in Phase I awards and $1.4 million in Phase II awards.

3SBIR.gov, SBIR, Year 2015, https://www.sbir.gov/analytics- dashboard

Congress established the Small Business Technology Transfer (STTR) program as part of the Small Business Research and Development Enhancement Act of 1992 (P.L. 102-564). The STTR program is similar to the SBIR program in structure (e.g. a three-phase process), but STTR awards are made to small firms pursuing technological innovation through collaborative R&D; with Federal laboratories as well as non-profit educational and scientific institutions. Departments and agencies with annual extramural R&D; budgets of at least $1 billion are required to allocate a portion of these funds (currently 0.45 percent) to support research and development in small firms through the STTR program. Five agencies have STTR programs: Department of Defense, Department of Health and Human Services, National Aeronautics and Space Administration, National Science Foundation and Department of Energy.

According to SBA data on STTR projects, agencies awarded more than $257 million to small business in FY15, including $98.5 million in Phase I awards and $158.5 million in Phase II awards.4

4SBIR.gov, STTR, Year 2015, https://www.sbir.gov/analytics- dashboard

On October 6, 2015, Chairman Vitter introduced S. 2136, the Improving Small Business Innovative Research and Technologies Act, to make certain changes and additions to the SBIR/STTR programs. This bill would have established the Regional SBIR State Collaborative Initiative Pilot Program, providing one- year renewable grants of up to $300,000 to a regional collaborative, consisting of a research institution or a small business located in at least three eligible states, to address the needs of small businesses in order to: (1) be more competitive in the proposal and selection process for SBIR and STTR Program awards, and (2) increase technology transfer and commercialization.

On January 28, 2016, the Committee held a hearing entitled "Reauthorization of the SBIR/STTR Programs--The Importance of Small Business Innovation to National and Economic Security." The hearing was convened to discuss the importance of, and hear testimony on, reauthorization of the SBIR and STTR programs before they expire on September 30, 2017. Witnesses discussed issues relating to the success of the SBIR and STTR program and offered opinions on the future reauthorization of the program. Witnesses emphasized the need for Congress to provide stability and certainty for the program by acting early and authorizing the programs permanently or for the longest time possible.

On March 4, 2016, Ranking Member Shaheen--a member of the Senate Armed Services Committee--and Chairman Vitter sent a letter to Chairman McCain and Ranking Member Reed of the Senate Armed Services Committee, urging them to include several provisions in the FY2017 National Defense Authorization Act. Among other things, those provisions included permanency of the SBIR and STTR programs, Chairman Vitter's Regional SBIR State Collaborative Initiative Pilot Program and permanency of the Rapid Innovation Fund. The Senate Armed Services Committee adopted a provision to make the SBIR and STTR programs permanent at the Department of Defense, and permanency of the Rapid Innovation Fund, in the Chairman's mark. Those provisions served as the anchor in conference to expand permanency of the SBIR and STTR programs to all 11 agencies for five years, and became law on December 23, 2016, along with permanency of the Rapid Innovation Fund.

On April 18, 2016, Ranking Member Jeanne Shaheen introduced S. 2812, the SBIR/STTR Reauthorization Act of 2016, for herself and Chairman Vitter. Other cosponsors included Senators Ayotte and Markey. The "SBIR/STTR Reauthorization Act of 2016" would have permanently authorized the SBIR and STTR programs, increased commercialization, expanded the participation of small businesses in more regions of the country, increased the participation of small businesses owned by women and minorities, reduced administrative and reporting burdens on small businesses and agencies, accelerated application reviews and disbursements of awards, and strengthened oversight and compliance.

On May 11, 2016, the Committee passed S. 2812, the SBIR and STTR Reauthorization and Improvement Act. That legislation included Chairman Vitter's Regional Pilot in S. 2136, along with amendments from Senators Coons and Gardner to increase commercialization, and amendments from Senator Peters to increase the participation of women and minorities.

On August 4, 2016, the Committee held a field hearing in Hawaii entitled, "Expanding Hawaii's STEM Pipeline: Examining Opportunities to Grow Small Businesses, Entrepreneurs, and the STEM Workforce."

Reducing the Tax Burden for Small Businesses. The Committee also took an active interest in ways to reduce the tax compliance burden for small businesses. The Internal Revenue Service (IRS) has estimated that businesses with less than $1 million in revenue bear nearly two-thirds of business compliance costs, which are significantly higher than large businesses scaled to each firm's revenue. Small business owners usually contract outside help for the tax process but are left facing a daunting and complex compliance process on a day-to- day basis. With an ever-changing federal tax landscape, small business owners are forced to spend time on compliance issues that they would otherwise be spending on the operation and expansion of their businesses. Generally, small businesses do not have the resources of many larger businesses with departments and personnel devoted to compliance issues. The Committee continues to believe that these compliance costs and requirements make it exceedingly difficult for small business to grow in the United States.

The Committee held a hearing on these issues on July 22, 2015, titled, "Targeted Tax Reform: Solutions to Relieve the Tax Compliance Burden(s) for America's Small Businesses." The hearing examined the significant tax compliance burden on small businesses and potential legislative opportunities for addressing them. Specific issues discussed include cash accounting, giving small businesses a greater legal platform to challenge penalties if they operated in good faith, rollover and holding periods for angel investors.

On July 27, 2015, the Committee reported a Sense of the Committee resolution aimed at reducing the tax burden for small businesses. The resolution outlined several reforms to the tax code that have previously received consideration from Congress, including increasing the cash accounting threshold to $25 million and the de minimis safe harbor threshold to $2500. Health insurance purchased by the self-employed would be made permanently fully deductible as all other businesses utilize. The resolution also established a standard inflationary adjustment to numerous fixed limitation amounts to reflect inflation. The resolution also called for shortening the holding period for reduced capital gains tax rate from five to three years and extending the rollover period on qualified small business stock from sixty days to one year. These provisions provide incentives for investors to put more money into newly formed small businesses.

Assessing Potential Changes to U.S. Patent System and Impacts on Small Businesses. Patents play a critical role in the American tradition of invention and innovation. Increasingly, however, claims have come forward that small businesses from a variety of sectors have experienced abusive patent practices. The rise in prominence of "patent assertion entities" and the concept of "patent trolls" have led to increased scrutiny of enforcement and litigation practices in the patent system.

The Committee entered this debate with an interest in whether the patent litigation abuse problem demands a major rewrite of our patent laws and if the changes taking place are having the desired effect, specifically on small businesses. In hearings held on March 19, 2015 and February 25, 2016, the Committee reviewed recent court decisions and policy changes that have impacted the U.S. patent system, how overly broad changes in the future could hurt small business, and how technology-based economic development impacts the U.S. economy. Committee members also discussed the importance of property rights generally and intellectual property rights specifically (both accessibility to and defensibility by small inventors and small business). Additionally, the hearing examined how the America Invents Act (AIA), other relevant legislation (such as the PATENT Act), and subsequent court decisions may have affected the overall patent system, including unintentionally stalling innovation and/or harming small businesses.

On April 25, 2016, Senator Peters introduced S. 2846, the Small Business Innovation Protection Act, with Chairman Vitter and Senator Risch as cosponsors. The bill amended the Small Business Act to expand intellectual property education and training for small businesses through a Small Business Administration-U.S. Patent and Trademark Office partnership. On May 11, 2016, the Committee passed S. 2846, but the bill did not make it to consideration by the full Senate.

Examining the Commercial Applications of Unmanned Aircraft for Small Businesses. In 2016, Congress enacted the FAA Modernization and Reform Act of 2012 (FMRA), calling for the integration of Unmanned Aircraft Systems (UAS) into the national airspace by September 2015. Unfortunately, the FAA is yet to finalize regulations and continues to grapple with safety, privacy, liability, and other issues related to potential widespread commercial use of drones. This delay is having a disproportionate impact on small businesses that either wish to utilize drones to expand their operations or are in the manufacturing supply chain for these products.

The FAA currently prohibits the use of UAS for commercial purposes, except where it has granted an exemption permitting specific activities. The FAA has granted such exemptions since May 2014, primarily to firms wishing to use UAS for agricultural, real estate, film and broadcasting, oil and gas, and construction activities. As of September 2015, it had granted only about 1,400 commercial exemptions. These exemptions are issued on a case-by-case basis. According to the Association of Unmanned Vehicle Systems International (AUVSI), which analyzed the first 1,000 commercial UAS exemptions, small businesses comprised 94.5 percent of approvals. The top industries were aerial photography, real estate, aerial survey and inspection, agriculture, construction, film and TV and others. It is estimated that companies with exemptions accounted for nearly $500 billion in revenue and represented over 600,000 jobs in 2014.

On March 10, 2016, the Committee held a hearing to examine the commercial applications of UAS by small businesses. The hearing focused on the need to create a culture of safety, compliance, and innovation to ensure that FAA regulations, once finalized, do not prevent small businesses from reaping the many benefits of drone use.

Assessing Federal Response to Disasters that Impact Small Businesses. This Congress, the Committee continued a long- standing focus on the impacts of disasters on small business and oversight of the federal agencies that respond to them. To put this issue in context, SBA and FEMA have responded to a number of disasters this year, including a Northeast blizzard in January, tornado outbreaks in the lower Midwest in February, and massive flooding in Louisiana and across the South in March. By September 2016 alone, FEMA has had 70 major disaster declarations and SBA has had 55 Agency declarations.

In order to enhance the ability of small business owners to recover after disasters, in 2015 Congress passed, and the President signed into law, the RISE Act. The primary focus of the Act was to address small business' access to capital post- disaster, as well as prioritize funding and assistance for small business from the federal government. The main provisions focused on improving the SBA's loan programs and their administration, including the establishment of the Recovery Opportunity Loan program, which provides long-term disaster recovery assistance to affected businesses after the SBA's application period for the traditional disaster loan programs has closed. The inclusion of provisions to give small businesses affected by a disaster federal contracting preferences, special consideration when applying for Federal and State Technology (FAST) program grants, and access to surplus federal property also all serve to meet this need for capital and business opportunities that small businesses require to rebuild.

In addition to these provisions, the Act also provided more time to those impacted by Hurricane Sandy in 2012 to apply for assistance if they had not done so already. In addition, these Sandy- related provisions also included important improvements to the SBA's notification and loan administration processes in order to reduce delays in the application process, in particular the closing and disbursement of loan funds and the requirement for the SBA to improve on their disaster plan, in order to eliminate the unacceptable delays in processing applications following Hurricane Sandy.

Finally, the RISE Act also authorized a number of actions aimed at supporting and protecting small business owners beyond their capital needs. This includes allowing for nationwide assistance from Small Business Development Centers (SBDCs), additional counseling and technical assistance funding, and allowing physical damage disaster loans to be used for preventative measures like safe rooms.

On April 6, 2016, the Committee held a hearing entitled "Federal Disaster Response and SBA Implementation of the RISE Act." The hearing focused on the federal government's response to these disasters and steps that can be taken by both agencies to ensure that small businesses in affected areas are able to rebuild and thrive after the devastation of a disaster. The witnesses were Douglas J. Kramer, Deputy Administrator at the SBA, and Elizabeth Zimmerman, Associate Administrator for response and recovery at FEMA.

On August 15, 2016, Chairman Vitter wrote SBA Administrator Contreras-Sweet, requesting a copy of locations in Louisiana that SBA had identified in advance of the flooding disaster experienced there. As part of the RISE Act, the SBA was required to compile a list for every county, parish, and borough. SBA's response was incomplete and requires substantial follow-up, particularly in light of reports from field staff that not only had complete lists been provided to administrators but that, in some cases, secondary and tertiary locations were also provided by field staff in the event that pre-identified locations were also impacted by a disaster.

Improving Access to Capital. The Kauffman Foundation has noted in several studies that new firm formation has yet to return to pre-recession levels. While data indicates that seed- stage and early-stage startups are struggling to get venture capital funding in the U.S., many other countries are becoming increasingly competitive. Given the important role that small business startups play in generating economic growth, the Committee took an active interest in trends affecting new startups, including the availability of venture capital that startups need to establish and grow.

On July 14, 2016, the Committee held a hearing entitled "Searching for Capital: How Venture Capitalists and Angel Investors Fund Entrepreneurs and Startup Companies." The hearing examined current trends and strategies in the venture capital ecosystem, and witnesses discussed different options startup companies have to raise capital throughout different stages of business development. Committee members will also look at the challenges investors and entrepreneurs face in the marketplace when searching for capital resources.

Encouraging Entrepreneurship. Entrepreneurship plays an important role in our economy, and the Senate Committee on Small Business and Entrepreneurship worked during the 114th Congress to address specific areas affecting entrepreneurial activity. On June 29, 2016, the Committee held a hearing entitled "America Without Entrepreneurs: The Consequences of Dwindling Startup Activity." That hearing examined why entrepreneurship has declined, particularly among millennials, and ways to encourage and assist more Americans in starting and growing their own small business. Committee members examined potential issues impacting the rate of entrepreneurship including access to capital, intergenerational differences in entrepreneurship and the federal regulatory burden.

The Committee took an initial look into rural entrepreneurship, specifically in areas previously unserved by high-speed ("broadband") Internet. Given the importance of broadband, Chairman Vitter and Ranking Member Shaheen explored how SBA should modify its programs to help small businesses use broadband to connect with the stream of commerce. On March 1, 2015, Ranking Member Shaheen with Chairman Vitter, introduced S. 2116, the Small Business Broadband and Emerging Information Technology Enhancement Act. This bill would modernize the approach that the SBA and its resource partners use broadband to maximize small business potential. On October 7, 2015, the Committee passed S. 2116, but the bill was not considered by the Senate before the end of the 114th Congress.

Given the increase of cyberattacks and the high costs this crime creates for small businesses, the Committee considered how the SBA's existing support structures and services should be updated to provide greater cybersecurity assistance to small businesses. On June 6, 2016, Chairman Vitter and Senators Peters and Coons introduced S. 3024, the Small Business Cyber Security Improvements Act of 2016. The bill would amend the Small Business Act to authorize the SBA, working with the Department of Homeland Security, to use Small Business Development Centers to distribute cybersecurity resources to small businesses. The bill passed the Committee on June 8, 2016, after which the House and Senate Armed Services and the House Small Business Committee passed a modified version of the bill in the FY2017 National Defense Authorization Act.

Export-Import Bank and Small Business Export Credit Programs. In recent years, Congress has vigorously debated the role and future of the Export-Import Bank (Ex-Im). The program has been reauthorized four times since 2012; two of those authorizations were short-term, as disagreements in Congress over the proper role of the program precluded the House and Senate from coming to an agreement on a longer-term reauthorization. On July 1, 2015, Ex-Im's operating authority lapsed as a result of Congress not reauthorizing the program, and that authority remained lapsed until December 3, 2015. For several months preceding that lapse in authority, a range of small business exporters approached the Committee regarding their need for continued access to small business export loans and export credit insurance once the authorization lapsed. As such, Chairman Vitter introduced S. 1546, the Ensuring Small Business Can Export Act, on June 10, 2016. The legislation would effectively transfer the Ex-Im Bank's export credit insurance program to the U.S. Small Business Administration (SBA). In introducing the legislation, Chairman Vitter raised the point that the SBA and Ex-Im Bank--two government agencies--are competing for small business clients under the current structure.

Chairman Vitter also pushed both the SBA and Ex-Im Bank to take action and work together in advance of the Ex-Im Bank's lapse in authority, in order to lessen the burden on small firms once the Bank closed its doors. On June 11, Chairman Vitter wrote the Honorable Maria Contreras-Sweet, Administrator of the SBA, to request that the SBA begin working immediately with Ex-Im to find ways to mitigate impacts to small businesses resulting from the lapse in authority. Specifically, Vitter asked that the two agencies begin discussions on "how to communicate to small businesses that SBA export loan programs can meet their financing needs." He also urged the SBA to work with Ex-Im in order to "effectively set up an export credit insurance program under the SBA and transition services as seamlessly as possible."

On June 23, 2015, Chairman Vitter wrote Fred P. Hochberg, Chairman and President of the Ex-Im Bank, warning of the then- impending expiration of the bank's authorization and calling on the Bank to do more to prepare for it. Chairman Vitter criticized Mr. Hochberg's approach to the imminent expiration of the Bank's authorization, arguing that Mr. Hochberg "appear(ed) to be playing a game of chicken with Congress." Vitter quoted a previous statement by Mr. Hochberg that "there is no plan B (to authorization). We are plan B." Chairman Vitter urged the Bank to "stop playing games and instead take immediate steps today to coordinate with the (SBA) on alternatives for small businesses that use Ex-Im when your authorization lapses."

Through written and verbal follow-up with both agencies, it was conveyed that the agencies were either unable or unwilling to comply with the Committee's request. As such, once the Bank's charter expired on July 1, credit export insurance was no longer available until the Bank was reauthorized several months later. Small businesses were able to continue receiving SBA export loans, however.

The Ex-Im Bank Reform and Reauthorization Act of 2015 was included in a long-term surface transportation reauthorization bill on December 4, 2015 and will expire on September 30, 2019.

Conducting Oversight of Burdensome Federal Regulations. The Committee has taken an active interest in a broad range of regulations from agencies across the federal government and the impacts those regulations have on small firms. The Committee's activities included hearings, letters to relevant agencies and other oversight measures to ensure that impacts to small businesses were documented and well understood. The Committee also explored opportunities for small business that could result from doing away with such burdensome regulations.

Energy, Environment and Natural Resources

Energy Exports--The United States began exporting both natural gas and crude oil in recent years, and exports of both products are helping mitigate some of the impacts of historically low oil and natural gas prices. While actual export operations for oil and natural gas are large, capital intensive operations, small businesses play a critical role in both processes, mainly via contractors in the service sector and secondary businesses that provide needed support services for those firms. On July 14, 2016, the Committee held a hearing entitled "Challenges and Opportunities for Small Businesses Engaged in Energy Development and Energy Intensive Manufacturing." The hearing explored the role that small businesses play particularly in the LNG export business, and also explored the role of technical colleges in providing training for blue-collar workers to transition into higher-paid positions in the energy export fields.

Waters of the United States--In 2015, the EPA improperly certified that its rule to alter the definition of Waters of the United States under the Clean Water Act would not have a significant economic impact on a substantial number of small entities. Subsequently, the Office of Advocacy at the SBA concluded that the EPA had improperly made that certification and that the rule would, in fact, have such impacts on small firms. The Committee held a hearing to examine that improper certification on May 19, 2015, where the Office of Advocacy explained its position and forcefully argued that by improperly certifying the proposed rule, it had failed to comply with its obligations under SBREFA. In another hearing on April 27, 2016, the Committee examined the need for regulatory reform and again referred to this particular example as a case study of why the RFA was not providing sufficient protections for small businesses. Additionally, on June 3, 2015, the Committee passed the resolution stating that the EPA had failed to comply with SBREFA when it improperly certified that the rule would not have a significant economic impact on a substantial number of small entities.

Well Control Rule Small Business Amendment--In April of 2016, the Department of Interior, Bureau of Safety and Environmental Enforcement (BSEE), promulgated a rule entitled Oil and Gas and Sulphur Operations in the Outer Continental Shelf--Blowout Preventer Systems and Well Control, also known as the Well Control Rule. That rule was written in response to the 2010 Deepwater Horizon oil spill that occurred off of Louisiana's coast, which resulted in the tragic loss of 11 workers and billions of dollars in environmental and economic damage in Louisiana and throughout the Gulf Coast. The rule will require the oil and gas industry to take a broad range of steps in order to prevent a similar tragedy from occurring in the future. During the process of writing the rule, Chairman Vitter heard concerns from some oil and gas industry stakeholders regarding the potential for negative economic impacts to occur to small businesses in the offshore oil and gas supply chain. As a result, during Senate consideration of S. 2012, the Energy Policy Modernization Act, Senator Vitter introduced an amendment that would require BSEE, within one year of the rule's promulgation, to complete a review and assess the economic impacts of the rule for small businesses. The amendment was approved by voice vote and included in S. 2012, as reported by the Senate.

Animas River Spill--On October 1, 2015, the Committee held a hearing entitled "Examining the Significant Costs and Related Burdens for Small Businesses Resulting from the Gold King Mine Waste Water Spill near Silverton, Colorado." The purpose of the hearing was to assess the impacts of that spill on small businesses in southwestern Colorado. Witnesses included Rep. Scott Tipton, a local county commissioner, a representative of the Silverton Area Chamber of Commerce and the owner of a small watersports business. Policy issues discussed included the failures of the Environmental Protection Agency to timely notify relevant state and local stakeholders as the spill was occurring, and the agency's failures to provide sufficient information in a transparent manner during the early stages of the response. Senator Gardner presided over the hearing and his home-state colleague, Senator Michael Bennet, joined him on the dais as a guest of the Committee.

Clean Air Act--The Obama Administration has undertaken a broad range of regulatory actions under the Clean Air Act in recent years, many of which would have impacts on small businesses in many industries. The Committee has taken an active interest in those issues. For example, on June 10, 2015, Chairman Vitter and several Republican Committee members sent a letter to EPA Administrator Gina McCarthy raising concerns that EPA was not fully complying with its responsibilities under the RFA in the context of its federal implementation plan for regulating greenhouse gas emissions from new power plants. Additionally, in a letter to Administrator McCarthy dated August 16, Chairman Vitter and Environment and Public Works Committee Chairman James Inhofe referenced "EPA's history of submitting rules to OMB for review before the SERs have been able to submit their comments to EPA, particularly in the case of EPA's rule to regulate methane emissions from new oil and natural gas infrastructure." The Chairman has raised this particular recurrent issue (of EPA submitting a rule to OMB before the SBREFA process has concluded) with EPA on many occasions during the 114th Congress.

Ivory--Cracking down on the illegal trade and trafficking in elephant ivory has been a priority of the United States for many years, and the Department of Interior's Fish and Wildlife Service (FWS) have developed a policy that further restricts the export, import, and commercial sale of lawfully owned elephant ivory. While the Committee shares the goals of the Administration and stakeholders to stop such harmful, illegal activity, the Committee heard from small business stakeholders with concerns that any such new regulations would have on law-abiding small business owners, particularly small businesses in the antique industry. Those stakeholders expressed concerns that by banning the possession and sale of items containing ivory that they already have in inventory, such federal actions would eliminate substantial value from their businesses, particularly when the products were legally- acquired.

On June 30, 2015, the Committee sent a letter to FWS Director Dan Ashe, expressing concerns that FWS had essentially begun laying out the rule through an executive order before officially proposing it. The letter argued that the rule as envisioned at the time would disproportionately impact small firms and requested that the FWS conduct a comprehensive economic analysis of the proposed rule.

Hard Rock Mining--The Obama Administration has spent roughly six years considering whether and how to implement financial assurance requirements under the Superfund law for hard rock mines in the western United States. While the process was initiated early in the President's first term, only in the last year has the process been expedited. Under a court order, EPA must publish a notice of proposed rulemaking no later than December 1, 2016. On August 16, 2016, In August of 2016, Chairman Vitter and Senator Inhofe, Chairman of the Committee on Environment and Public Works, sent a letter to Administrator McCarthy, once again expressing concerns "regarding EPA's insufficient compliance with SBREFA." In that letter, the Senators raised concerns that the SBREFA process currently underway was highly unlikely to be completed before the court-ordered deadline for proposing the rule on December 16, 2016. The Senators asked that if "EPA cannot complete the SBAR panel with adequate amount of time to incorporate the final Panel Report recommendations in the proposed rule before OMB's interagency review," that EPA seek an extension of the court-ordered deadline.

Federal Fisheries--The fishing industry is affected by a number of regulations that have a considerable impact on the local small business economy. The red snapper is a species of fish found in the South Atlantic and the Gulf of Mexico with a known range in the United States from the Carolinas to Texas. Over the last forty years, multiple efforts have been made to conserve and rebuild this important, but decades of federal mismanagement of red snapper have resulted in economic losses, particularly for the Gulf region's three million saltwater recreational anglers and the small businesses in the supply chain. Additionally, fishing quotas for Gulf of Maine cod have been cut dramatically since 2012. Total fishing allocations are now closer to just five percent of what was allowed previously. On March 3, 2016, the Committee held a hearing entitled "The Impacts of Federal Fisheries Management on Small Businesses"' to explore these issues. The hearing focused on the economic impacts that fishing industry regulations have on small businesses, and how it is greatly ignored in the current management scheme being employed in the Gulf of Mexico and Gulf of Maine regions.

Labor

Overtime Rule--The Committee heard from a variety of small business interests regarding potential impacts likely to result from the proposed Overtime Rule at the Department of Labor. The Committee was concerned to learn stakeholders believes the rule's massive salary threshold increase is too much, too fast. Stakeholders expressed concerns that in order to comply, they would have to limit hours and flexibility for employees and move salaried position to hourly wages. In response, on May 11, 2016, the Committee held a hearing entitled "An Examination of the Administration's Overtime Rule and the Rising Costs of Doing Business." Witness testimony focused on the undue burden on small businesses, and how the one-size-fits-all rule will do far more damage than good. Additionally, on September 4, 2015, Chairman Vitter sent a letter to the U.S. Department of Labor Secretary Tom Perez, requesting that he reconsider the decision not to extend the public comment period for the Department's July 6, 2015 Notice of Proposed Rulemaking on overtime pay and the negative impacts that they would have on small business operations. Additionally, on September 29, 2016, Chairman Vitter introduced the Small Business Survival from Disaster Act (S. 3429), which would delay the implementation of the DOL Overtime Rule in states the President has declared that a major disaster exists until December 1, 2018.

Continues with Part 2 of 3

Myron Struck, editor, Targeted News Service, Springfield, Va., 703/304-1897; [email protected]; http://www.targetednews.com