[Federal Register Volume 59, Number 65 (Tuesday, April 5, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-8138]
[[Page Unknown]]
[Federal Register: April 5, 1994]
=======================================================================
-----------------------------------------------------------------------
SMALL BUSINESS ADMINISTRATION
13 CFR Part 120
Business Loan Policy--Media Policy Rule
AGENCY: Small Business Administration (SBA).
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: SBA is proposing to repeal its present media or opinion molder
policy rule. Under the rule, as proposed, small business concerns
engaged in media activity would be eligible for SBA financial
assistance unless they are otherwise ineligible (such as businesses
engaged in illegal activities or in activities that could not be funded
by SBA under the Constitution, and businesses which are not
creditworthy). This action is being taken to enable SBA to promote job
growth and economic development by making SBA financial assistance
available to a larger number of small business concerns.
DATES: Comments may be submitted on or before May 20, 1994.
ADDRESSES: Comments may be mailed to John R. Cox, Assistant
Administrator for Financial Assistance, Small Business Administration,
409 Third Street, SW., Washington, DC 20416.
FOR FURTHER INFORMATION CONTACT:
John R. Cox, 202/205-6493.
SUPPLEMENTARY INFORMATION: It is timely for the Agency to consider
major substantive changes in the media policy rule. Under SBA's present
regulatory policy, no business loan may be made to an applicant engaged
in the ``creation, origination, expression, dissemination, propagation
or distribution of ideas, values, thoughts, opinions or similar
intellectual property, regardless of medium, form or content.'' (13 CFR
120.101-2(b) (1993)). There are several express exceptions to this
prohibition.
This policy was originally adopted by SBA in 1953 under the
authority granted by section 4(d) of the Small Business Act (15 U.S.C.
633(d)) which authorizes the Agency to ``establish general policies
(particularly with reference to the public interest * * *), which shall
govern the granting and denial of applications for financial assistance
by the Administration.'' The Reconstruction Finance Agency, the
predecessor to SBA, had a similar media policy rule.
There were three basic reasons for the policy: First, the
prohibition is based upon SBA's desire to avoid any possible accusation
that the Government is attempting to control editorial freedom by
subsidizing media or communication for political or propaganda
purposes. Second, the Agency has generally sought to avoid Government
identification through its business assistance programs with concerns
which might publish or produce matters of a religious or controversial
nature. Third, SBA recognizes that the constitutionally protected
rights of freedom of speech and press ought not to be compromised
either by the fear of Government reprisal or by the expectation of
Government financial assistance.
Over the years, Congress has considered the policy and has not
objected to SBA's approach. In H.R. Rep. No. 840, 94th Cong., 2d Sess.
28 (1976), the Subcommittee on SBA Oversight and Minority Enterprise
acknowledged that SBA's statutory duty to assist small business ``must
be in balance with supervening First Amendment prohibitions. The
Subcommittee does not believe that the SBA should engage in activities
which would necessitate its assumption of a censorship role. By
censorship we mean the ability of SBA to direct a business as to what
it can do or cannot do, relative to First Amendment protected activity,
coupled with the power to enforce its will through the use of
sanctions. The subcommittee believes such censorship would exist if SBA
were to place in its loan agreements a prohibition against the
promulgation of certain ideas and values, a breach of which would allow
the Agency to liquidate the loan.''
Many individual members of Congress have expressed concern with the
substance of SBA's regulations in this area. Several bills have been
introduced to deal with the rule legislatively, although none has been
enacted. For example, S. 2084, 98th Cong., 2nd Sess. (1984), would have
abolished the rule except in cases where the financial assistance would
have been used primarily to (1) advance or inhibit religion; (2)
threaten the overthrow of organized Government by unlawful means; or
(3) engage in any illegal activity or the dissemination of obscene
materials which may be unlawful in any jurisdiction in which the small
concern may operate. S. 2084 also would have required SBA to look at
the content of the publications or communications in making its
decision to assist a particular small concern.
H.R. 1157, 98th Cong., 1st Sess. (1983), would have required SBA to
hold a hearing, if the business was covered by the media policy rule,
in order to ascertain if the SBA financial assistance would have been
(1) adverse or detrimental to a legitimate public interest, or (2) used
primarily to promote or criticize political or religious ideas. This
approach would have led to lengthy hearings on applications for
assistance every time the Agency interpreted the law adversely to an
applicant.
SBA testified on both of these bills and supported a legislative
remedy to the problems associated with administration of the rule.
However, no legislation has been forthcoming.
In hearings on March 7, 1984, before the House Subcommittee on
Export Opportunity and Special Small Business Problems, which was
considering H.R. 1157, an expert in Constitutional Law on the faculty
of the George Washington University Law School testified that the media
policy rule was constitutional and was a justifiable approach in light
of SBA's business and financial orientation and limited First Amendment
expertise. However, there have been concerns raised over the years
regarding the breadth of the present rule.
The regulation presently provides a very broad list of ineligible
enterprises which includes publishers, producers, importers, exporters
or distributors of all types of communications (such as newspapers,
sheet music, posters, film, tape, theatrical productions, greeting
cards, and books), plus transportation concerns limited to the
distribution of such products. Regulatory exceptions have been granted
to commercial printing firms, advertising agencies, technical
production facilities (such as a recording studio), and vocational
schools. Eligible for assistance based on administrative
interpretations are general merchandise stores which sell books,
magazines and newspapers, and general book, music, record or videotape
stores. Not eligible for assistance are specialty book or videotape
stores which sell or rent items in a single or limited subject area.
The rationale underlying the distinction between general and specialty
stores has been that a general store covers a broad range of ideas,
values and thoughts, rather than a particular or narrow set of ideas or
values. SBA no longer regards this distinction as a proper basis for
determining eligibility.
SBA is well aware that small media concerns often have difficulty
in raising capital or borrowing money. The media policy rule applicable
to the financing of business loans has not been applicable to
assistance provided by small business investment companies (SBICs)
which are licensed by SBA. Thus, SBICs are permitted to help businesses
engaged in the media. The policy surrounding SBIC assistance to media
concerns is similar to the approach taken by the Congress in funding
broadcasting through the nonprofit Corporation for Public Broadcasting.
SBICs operate within SBA regulations, but their transactions with small
companies are private arrangements which carry no SBA guaranty. Their
funding comes from private, SBA and other nonprivate sources.
SBA also has been making physical injury disaster loans to media
concerns and academic schools since 1953, based on humanitarian
grounds. The disaster loan program attempts to restore to an injured
party that which was lost due to circumstances beyond its control. No
distinction is made for eligibility purposes between media and non-
media concerns for physical disaster loans, but economic injury
disaster loans are subject to the limitations of the media policy rule.
SBA believes that the assistance it presently makes available under
the exceptions to the media rule and under the SBIC and disaster
programs are not sufficient to assist small businesses in the media
industries which are demonstrably in need of increased aid.
Accordingly, SBA is proposing to change its policy so as to make
assistance available, under the 7(a) business, economic injury disaster
and development company loan programs, to media concerns which are
otherwise eligible for such assistance.
While SBA is proposing to repeal the present rule primarily in
order to make assistance available to a larger universe of small
businesses, it is not unmindful of the implications of a total reversal
of the policy. It has considered whether the policy determinations
which where the underpinnings of the former rule should be maintained.
After careful review, SBA is persuaded that repeal is appropriate.
A revision of the present rule which would attempt to differentiate
among media businesses on the basis of business activity likely would
be challenged in court. There is a risk that such proposed revision
would be found unconstitutional. Keeping the Government from becoming
involved with controversial speech may be a worthy goal, but it
arguably puts the Government in the position of allocating benefits
with reference to the content of speech. This type of decision could be
held by courts to be in conflict with the First Amendment.
SBA believes that it present regulatory apparatus and
administrative practice are sufficient to protect the public interest.
In this regard, the present credit criteria under which applications
for such assistance are reviewed and the prohibition on funding illegal
activities should be sufficient to provide the desired level of
protection. (See 13 CFR parts 120 et seq. and 122 et seq., specifically
13 CFR 120.101-2(d) and 120.103-2.)
Compliance With Executive Orders 12612, 12778 and 12866, the Regulatory
Flexibility Act, 5 U.S.C. 601, et seq. and the Paperwork Reduction Act,
44 U.S.C. Ch. 35
For purposes of the Regulatory Flexibility Act, 5 U.S.C. 601 et
seq., SBA certifies that this proposed rule, if promulgated in final
form, will not have a significant economic impact on a substantial
number of small entities.
SBA certifies that this proposed rule, if promulgated in final
form, will not constitute a significant regulatory action for the
purposes of Executive Order 12866, since the proposed change is not
likely to result in an annual effect on the economy of $100 million or
more. While the proposed rule is intended to make eligible more media
small business concerns, it is reasonable to assume that SBA will not
be requested to process a disproportionate number of additional media
loan applications. For example, in fiscal 1991, 1992 and 1993,
respectively, SBA guaranteed 202, 199 and 241 section 7(a) loans to
eligible bookstores, advertising agencies, video stores and vocational
schools. The aggregate amounts of the SBA guaranteed portions for those
three years for such businesses were, respectively, $27.7, $28.7 and
$35.2 million.
SBA certifies that the proposed rule, if promulgated in final form,
would not impose additional reporting or recordkeeping requirements
which would be subject to the Paperwork Reduction Act, 44 U.S.C.
chapter 35.
SBA certifies that this proposed rule would not have federalism
implications warranting the preparation of a Federalism Assessment in
accordance with Executive Order 12612.
Further, for purposes of Executive Order 12778, SBA certifies that
this proposed rule, if promulgated in final form, is drafted, to the
extent practicable, in accordance with the standards set forth in
section 2 of that Order. (Catalogue of Federal Domestic Assistance
Programs, No. 59.012, Small Business Loans)
List of Subjects in 13 CFR Part 120
Loan programs/businesses; Small businesses.
Accordingly, pursuant to the authority contained in section 5(b)(6)
of the Small Business Act (15 U.S.C. 634(b)(6)), SBA proposes to amend
part 120, chapter I, title 13, Code of Federal Regulations, as follows:
PART 120--BUSINESS LOAN POLICY
1. The authority citation for Part 120 would continue to read as
follows:
Authority: 15 U.S.C. 634(b)(6) and 636 (a) and (h).
2. Section 120.101-2 would be amended by removing paragraph (b) in
its entirety, and redesignating paragraphs (c) through (h) as
paragraphs (b) through (g).
Dated: March 17, 1994.
Erskine B. Bowles,
Administrator.
[FR Doc. 94-8138 Filed 4-4-94; 8:45 am]
BILLING CODE 8025-01-M
