[Federal Register Volume 59, Number 135 (Friday, July 15, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-17187]
[[Page Unknown]]
[Federal Register: July 15, 1994]
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SMALL BUSINESS ADMINISTRATION
13 CFR Parts 108, 120, and 123
Media Policy Rule
AGENCY: Small Business Administration (SBA).
ACTION: Final rule.
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SUMMARY: SBA is repealing its media policy or opinion molder rule.
Under this final regulation, creditworthy small business concerns
engaged in media activity will be eligible to be considered for SBA
financial assistance unless they are otherwise ineligible. Under the
final regulation, SBA reserves the right to withhold financial
assistance on a case-by-case basis when the extension of assistance
would be in violation of a statute or the Constitution. 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.
EFFECTIVE DATE: July 15, 1994. The amendment of Part 123 is effective
for disasters which occur on or after July 15, 1994.
FOR FURTHER INFORMATION CONTACT:John R. Cox, Assistant Administrator
for Financial Assistance, 202/205-6490.
SUPPLEMENTARY INFORMATION: On April 5, 1994, SBA published in the
Federal Register a proposed regulation repealing its media policy rule
(59 FR 15872). SBA received 143 comments which favored the repeal, and
two comments against it. The majority of the affirmative commenters
represented the owners of motion picture theaters and bookstores. They
noted that the proposed repeal by the Agency would allow many small
business concerns throughout the country, but particularly in rural
areas, to obtain urgently needed financial assistance for maintenance,
upgrading, and growth. While one of the commenters favored the proposed
repeal, he voiced concern about SBA providing financial assistance to
adult motion picture theaters. As is noted below, SBA will consider the
constitutional and legal implications of the repeal of the present
rule, as they arise on a case-by-case basis. However, the Agency does
not consider the need to deal with these implications as sufficient to
prevent it from going forward with the general repeal. Accordingly, the
Agency is promulgating the repeal is proposed.
Under SBA's existent regulatory policy, no SBA direct or guaranteed
business loan, economic injury disaster loan, or development company
assistance has been 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 Sec. 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 USC
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 was based upon SBA's desire to avoid any possible
accusation that the Government was 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 recognized 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.
However, many individual Members of Congress have expressed concern
with the substance of SBA's regulations in this area. Several bills
have been introduced to revise 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 applied 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.
SBA also has been making physical injury disaster loans to media
concerns and academic schools since 1953, based on humanitarian
grounds. The SBA's 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 have been 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 is not sufficient to assist small businesses in the media
industries which are demonstrably in need of increased aid.
Accordingly, SBA is changing 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.
SBA believes that its present regulatory apparatus and
administrative practice for screening applicants for such assistance
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 Secs. 120.101-
2(d) and 120.103-2). SBA's Office of General Counsel plans to address
constitutional and other legal issues which may arise as a result of
this repeal on a case by case basis. The General Counsel's Office will
provide SBA field personnel with guidance and advice with respect to
loan applications which are referred to that office because of
constitutional or other legal concerns.
Since SBA is repealing the media rule in Part 120 of its
regulations, it is also eliminating the cross-reference to the rule
which is in Part 123 of its regulations, relating to economic injury
disaster loans. Because the repeal of the opinion molder necessitates
renumbering subparagraphs in Part 120, SBA is also changing a cross-
reference to Part 120 in Part 108 of its regulations, relating to
development companies.
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 final rule will have a significant
economic impact on a substantial number of small entities. From the
limited amounts of data that the SBA had at the proposed rulemaking
stage, SBA certified that repeal of the media policy rule would not
have a significant economic impact upon a substantial number of small
entities. Based upon data received from various sources and comments
received by SBA concerning the proposed rulemaking, SBA, upon further
consideration, believes that this rule could have a significant
economic impact upon a substantial number of small entities.
Repeal of the media policy rule would increase the eligibility for
small entities in certain industries. Material from unpublished data
prepared under contract by the United States Bureau of the Census for
the SBA in May, 1994, show that approximately 75,000 small business
concerns in the affected industries would become eligible for
participation in the SBA's loan guaranty program. These small business
concerns account for approximately 95% of the businesses in those
industries.
In compliance with the Regulatory Flexibility Act, the SBA has
examined alternatives other than the repeal of the media policy rule.
The alternatives included modification of the rule and maintenance of
the status quo. The SBA has determined that of those courses of action,
repeal of the rule would be most beneficial to those entities.
This final rule was reviewed by OMB under Executive Order 12866.
This final 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 final rule 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 final 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 final rule 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
13 CFR Part 120
Loan programs/businesses; Small Businesses
13 CFR Part 123
Disaster Assistance; Loan programs--business
13 CFR Part 108
Loan programs--business; 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 is amending parts
108, 120 and 123, chapter I, title 13, Code of Federal Regulations, as
follows:
PART 120--BUSINESS LOAN POLICY
1. The authority citation for Part 120 continues to read as
follows:
Authority: 15 U.S.C. 634(b)(6) and 636 (a) and (h).
2. Section 120.101-2 is amended by removing paragraph (b) in its
entirety, and redesignating paragraphs (c) through (h) as paragraphs
(b) through (g).
PART 123--DISASTER--PHYSICAL DISASTER AND ECONOMIC INJURY LOANS
1. The authority citation for part 123 continues to read as
follows:
Authority: Sections 5(b)(6), 7 (b), (c), (f) of the Small
Business Act (15 U.S.C. 634 (b)(6), 636 (b), (c), (f)); and Pub. L.
102-395, 106 Stat. 1828, 1864, and Pub. L. 103-75, 107 Stat. 739.
2. Section 123.41(b)(2) is revised to read as follows:
Sec. 123.41 General Provisions.
* * * * *
(b) Eligible applicants. (1) * * *
(2) Small business concerns regardless of their business activity
are eligible to apply for these loans, except for (i) gambling
concerns--see Sec. 120.101-2(b); (ii) concerns engaged in illegal
activities--see Sec. 120.101-2(c); (iii) lending or investment
concerns--see Sec. 120.101-2(d); (iv) concerns with principals
incarcerated, on parole or probation--see Sec. 120.101-2(e); (v) multi-
level sales distribution (``pyramid'') concerns--see Sec. 120.101-2(f);
(vi) loan packagers--see Sec. 120.101-2(g); (vii) concerns engaged in
speculation--see Sec. 120.102-5; (viii) concerns investing in
property--see Sec. 120.102-8.
* * * * *
PART 108--LOANS TO STATE AND LOCAL DEVELOPMENT COMPANIES
1. The authority citation for part 108 continues to read as
follows:
Authority: 15 U.S.C. 687(c), 695, 696, 697a, 697b, 697c.
2. Section 108.8(g) is revised to read as follows:
Sec. 108.8 Borrower requirements and prohibitions.
* * * * *
(g) Other loan eligibility requirements. Sections 120.101-2 (except
paragraph (d)), 120.102-5 and 120.102-9 of this chapter shall apply to
loans made or guaranteed under this part.
Dated: June 29, 1994.
Erskine B. Bowles,
Administrator.
[FR Doc. 94-17187 Filed 7-14-94; 8:45 am]
BILLING CODE 8025-01-M
