Small Business Size Standards: Accommodation and Food Services Industries, 53913-53924 [E9-25204]

Download as PDF Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules days two-year period ending on the date of the general election for the office or seat that the candidate seeks; and * * * * * systematically organized, work on the communication. * * * * * 8. Section 109.21 is amended by revising paragraphs (d)(4)(ii) and (d)(5)(i) to read as follows: § 109.21 What is a ‘‘coordinated communication’’? * * * (d) * * * * * Conduct Alternative 1 (No Change) (4) * * * (ii) That commercial vendor, including any owner, officer, or employee of the commercial vendor, has provided any of the following services to the candidate who is clearly identified in the communication, or the candidate’s authorized committee, the candidate’s opponent, the opponent’s authorized committee, or a political party committee, during the previous 120 days; * * * * * (5) * * * (i) The communication is paid for by a person, or by the employer of a person, who was an employee or independent contractor of the candidate who is clearly identified in the communication, or the candidate’s authorized committee, the candidate’s opponent, the opponent’s authorized committee, or a political party committee, during the previous 120 days; and * * * * * pwalker on DSK8KYBLC1PROD with PROPOSALS Conduct Alternative 2 (Two-Year Period) (4) * * * (ii) That commercial vendor, including any owner, officer, or employee of the commercial vendor, has provided any of the following services to the candidate who is clearly identified in the communication, or the candidate’s authorized committee, the candidate’s opponent, the opponent’s authorized committee, or a political party committee, during the two-year period ending on the date of the general election for the office or seat that the candidate seeks; * * * * * (5) * * * (i) The communication is paid for by a person, or by the employer of a person, who was an employee or independent contractor of the candidate who is clearly identified in the communication, or the candidate’s authorized committee, the candidate’s opponent, the opponent’s authorized committee, or a political party committee, during the previous 120 VerDate Nov<24>2008 17:49 Oct 20, 2009 Jkt 220001 Conduct Alternative 3 (Current Election Cycle) (4) * * * (ii) That commercial vendor, including any owner, officer, or employee of the commercial vendor, has provided any of the following services to the candidate who is clearly identified in the communication, or the candidate’s authorized committee, the candidate’s opponent, the opponent’s authorized committee, or a political party committee, during the current election cycle; * * * * * (5) * * * (i) The communication is paid for by a person, or by the employer of a person, who was an employee or independent contractor of the candidate who is clearly identified in the communication, or the candidate’s authorized committee, the candidate’s opponent, the opponent’s authorized committee, or a political party committee, during the current election cycle; and * * * * * ■ 9. Section 109.21 is amended by adding new paragraphs (i) and (j) to read as follows: § 109.21 What is a ‘‘coordinated communication’’? * * * * * (i) Safe harbor for Federal candidates’ support of public policies or legislative initiatives. A public communication paid for by an organization described in 26 U.S.C. 501(c)(3) and exempt from taxation under 26 U.S.C. 501(a), in which a candidate for Federal office expresses or seeks support for that organization, or for a position on a public policy or legislative proposal espoused by that organization, is not a coordinated communication with respect to the candidate unless the public communication promotes, supports, attacks, or opposes the candidate or another candidate who seeks election to the same office as the candidate. (j) Safe harbor for commercial transactions. A public communication in which a Federal candidate is clearly identified only in his or her capacity as the owner or operator of a business that existed prior to the candidacy is not a coordinated communication with respect to the clearly identified candidate if (1) The medium, timing, content, and geographic distribution of the public PO 00000 Frm 00021 Fmt 4702 Sfmt 4702 53913 communication are consistent with public communications made prior to the candidacy; and (2) The public communication does not promote, support, attack, or oppose that candidate or another candidate who seeks the same office as that candidate. Dated: October 15, 2009. On behalf of the Commission. Steven T. Walther, Chairman, Federal Election Commission. [FR Doc. E9–25240 Filed 10–20–09; 8:45 am] BILLING CODE 6715–01–P SMALL BUSINESS ADMINISTRATION 13 CFR Part 121 RIN 3245–AF71 Small Business Size Standards: Accommodation and Food Services Industries AGENCY: U.S. Small Business Administration. ACTION: Proposed rule. SUMMARY: The U.S. Small Business Administration (SBA) proposes to increase small business size standards for five industries in North American Industry Classification System (NAICS) Sector 72, Accommodation and Food Services—namely NAICS 721110, Hotels and Motels, from $7.0 million to $30 million; NAICS 721120, Casino Hotels, from $7.0 million to $30 million; NAICS 722211, Limited Service Restaurants, from $7.0 million to $10 million; NAICS 722212, Cafeterias, from $7.0 million to $25.5 million; and NAICS 722310, Food Service Contractors, from $20.5 million to $35.5 million. As part of its ongoing initiative to review all size standards, SBA has evaluated each industry in Sector 72 to determine whether the existing size standards should be retained or revised. This proposed rule is one of a series of proposals that will examine industries grouped by an NAICS Sector. As part of this series of proposed rules SBA is publishing concurrently in this issue of the Federal Register a proposed rule to modify small business size standards in Sector 44–45, Retail Trade, and Sector 81, Other Services. SBA has established its ‘‘Size Standards Methodology’’ and published elsewhere in this issue of the Federal Register a notice of its availability on SBA’s Web site at http: //www.sba.gov/size. SBA has applied ‘‘Size Standards Methodology’’ to this proposed rule. E:\FR\FM\21OCP1.SGM 21OCP1 pwalker on DSK8KYBLC1PROD with PROPOSALS 53914 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules DATES: SBA must receive comments to this proposed rule on or before December 21, 2009. ADDRESSES: You may submit comments, identified by RIN 3245–AF71 by one of the following methods: (1) Federal eRulemaking Portal: https:// www.regulations.gov. Follow the instructions for submitting comments; or (2) Mail/Hand Delivery/Courier: Khem R. Sharma, Chief, Size Standards Division, 409 Third Street, SW., Mail Code 6530, Washington, DC 20416. SBA will post all comments on www.regulations.gov. If you wish to submit confidential business information (CBI) as defined in the User Notice at www.regulations.gov, please submit the information to U.S. Small Business Administration, Khem R. Sharma, Chief, Size Standards Division, 409 Third Street, SW., Mail Code 6530, Washington, DC 20416, or send an email to sizestandards@sba.gov. Highlight the information that you consider to be CBI and explain why you believe SBA should hold this information as confidential. SBA will review the information and make the final determination of whether it will publish the information or not. FOR FURTHER INFORMATION CONTACT: Carl J. Jordan, Program Analyst, Size Standards Division, (202) 205–6618 or sizestandards@sba.gov. SUPPLEMENTARY INFORMATION: To determine eligibility for Federal small business assistance programs, SBA establishes small business definitions (referred to as size standards) for private sector industries in the U.S. SBA’s existing size standards use two primary measures of business size—receipts and number of employees. Financial assets, electric output, and refining capacity are used as size measures for a few specialized industries. In addition, SBA’s Small Business Investment Company (SBIC) and the Certified Development Company (CDC) Programs determine small business eligibility using either the industry based size standards or net worth and net income size standards. Currently, SBA’s size standards consist of 45 different size levels, covering 1,141 NAICS industries and 17 sub-industry activities. Of these size levels, 32 are based on average annual receipts, eight are based on number of employees, and five are based on other measures. In addition, SBA has established 11 other size standards for its financial and procurement programs. Over the years, SBA has received comments that its size standards have not kept up with changes in the economy and, in particular, that they do VerDate Nov<24>2008 17:49 Oct 20, 2009 Jkt 220001 not reflect the changes in the Federal contracting marketplace. The last overall review of size standards occurred during the late 1970s to early 1980s. Since then, most reviews of size standards have been limited to in-depth analyses of specific industries in response to requests from the public and Federal agencies. SBA also makes periodic inflation adjustments to its monetary based size standards. The latest inflation adjustment to size standards was published in the Federal Register on July 18, 2008 (73 FR 41237). SBA recognizes that industrial changes over time have rendered existing size standards for some industries no longer supportable by current data. Accordingly, SBA has begun a comprehensive review of its size standards to ensure that existing size standards have supportable bases and, where necessary, to make revisions to current size standards. This proposed rule affords the public an opportunity to review and comment on the data and methodology SBA uses to evaluate and revise a size standard. Rather than review all size standards at one time, SBA believes that a more manageable approach would be to examine a group of related industries within an NAICS Sector in phases. Except for manufacturing, an NAICS Sector generally consists of 25 to 75 industries. Once a review of size standards for industries within an NAICS Sector is completed, SBA will issue a proposed rule for those industries in which the analysis of industry data supports a change to the existing size standards. SBA expects to complete a review of all NAICS Sectors in two years. Below is a discussion of SBA’s size standards methodology, including analyses of industry structure, Federal procurement trends and other factors for industries within Sector 72, Accommodation and Food Services, and the impact of the proposed revisions to size standards on Federal small businesses assistance. Size Standards Methodology SBA has recently developed a ‘‘Size Standards Methodology’’ that it uses for developing and modifying size standards when necessary. SBA has published the document which is available at https://www.sba.gov/size. SBA does not apply all features of its ‘‘Size Standards Methodology’’ to all cases because not all are appropriate. However, SBA does make it available in its entirety for parties with an interest in SBA’s overall approach to evaluating, establishing and modifying small business size standards. SBA always PO 00000 Frm 00022 Fmt 4702 Sfmt 4702 explains its analysis in the proposed and final rules that relate to size standards for specific industries. The following discussion is of SBA’s size standard analysis applied to industries in Sector 72, Accommodation and Food Services. SBA welcomes comments from the public on a number of issues. SBA is aware that different choices among size standards can involve complex tradeoffs among relevant variables; SBA invites comments on how to identify and weigh those variables. Suggestions are invited on alternative methodologies for determining small businesses; on how these size standards affect competition in general and within the specific industry; on alternative or additional factors that SBA should consider; on whether SBA’s approach to small business size standards makes sense in the current economic environment; on whether SBA’s using anchor size standards is appropriate in the current economy; on whether there are gaps in SBA’s methodology because of the lack of comprehensive data; and on alternative datasets SBA should consider for a specific sector. Congress granted SBA’s Administrator discretion to establish detailed small business size standards (15 U.S.C. 632(a)(2)). Section 3(a)(3) of the Small Business Act (15 U.S.C. 632(a)(3)) requires that size standards vary by industry to the extent necessary to reflect differing characteristics among various industries. Accordingly, the economic structure of an industry serves as the underlying basis for developing and modifying small business size standards. By examining data on economic characteristics defining the industry structure (as described below), the small business segment of an industry is identified. In addition to the industry structure, SBA also takes into consideration its program objectives and whether a size standard successfully excludes businesses that are dominant in the industry. Discussed below is SBA’s analysis of the economic characteristics of each industry in Sector 72, Accommodation and Food Services, the impact of proposed size standards on SBA programs, and the evaluation of whether a revised size standard would exclude dominant firms in the industry from being considered as small. Industry Analysis For the current comprehensive size review, SBA has established three ‘‘base’’ or ‘‘anchor’’ size standards that apply to most industries—$7.0 million in average annual receipts for industries that have receipts based size standards, E:\FR\FM\21OCP1.SGM 21OCP1 pwalker on DSK8KYBLC1PROD with PROPOSALS Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 500 employees for manufacturing and other industries that have employee based size standards (except for Wholesale Trade), and 100 employees for industries in the Wholesale Trade Sector. SBA established 500 employees as the anchor size standard for the manufacturing industries at SBA’s inception in 1953 and shortly thereafter established a receipts based anchor size standard of $1 million in average annual receipts for the nonmanufacturing industries. The receipts based anchor size standard has been adjusted periodically for inflation. The inflation adjustment over the years has increased it to $7.0 million today. Since 1986, all industries in the Wholesale Trade Sector have had the 100-employee size standard for non-procurement SBA programs. For procurement purposes, the size standard for a non-manufacturer is 500 employees. These long standing anchor size standards have gained legitimacy through practice and general public acceptance. An anchor size standard is neither a minimum nor a maximum size standard. It is a common size standard for a large number of industries that have similar economic characteristics and serves as a reference point in evaluating size standards for individual industries. SBA uses the anchor in lieu of trying to establish precise small business size standards for each industry. Otherwise, theoretically, that could require that the number of size standards be as high as the number of industries for which SBA establishes size standards. SBA presumes an anchor size standard is appropriate for a particular industry unless that industry displays significantly different economic characteristics, as compared to the characteristics of industries with the anchor size standard, thereby suggesting a need for revision to an existing size standard. When evaluating a size standard, the economic characteristics of a specific industry under review are compared to the average characteristics of industries with one of the three anchor size standards (referred to as ‘‘anchor comparison group’’) to assess industry structure and to determine whether the industry displays significant differences relative to the industries in the anchor size standard group. If the characteristics of a specific industry under review are similar to the average characteristics of the anchor comparison group, the anchor size standard would be considered appropriate for that industry. SBA will consider adopting a size standard below the anchor size standard only when (1) all or most of the industry characteristics are VerDate Nov<24>2008 17:49 Oct 20, 2009 Jkt 220001 significantly smaller than the average characteristics of the anchor comparison group, or (2) other industry considerations strongly suggest that the anchor size standard would be an unreasonably high size standard for the industry. If the specific industry’s characteristics are significantly higher than those of the anchor comparison group, a size standard higher than the anchor size standard may be considered appropriate. The larger the differences are between the characteristics of the industry under review and those in the anchor comparison group, the larger will be the difference between the appropriate industry size standard and the anchor size standard. To determine the level of a size standard above the anchor size standard, the characteristics of a second comparison group are analyzed. For industries with receipts based size standards, SBA has developed a second comparison group consisting of industries with the highest levels of receipts based size standards. The size standards for this group of industries range from $23 million to $35.5 million in average receipts, with the weighted average size standard for the group equaling $29 million. SBA refers to this comparison group as the ‘‘higher level receipts based size standard group.’’ The primary factors that SBA evaluates in analyzing the structural characteristics of an industry include average firm size, startup costs and entry barriers, industry competition, and distribution of firms by size (13 CFR 121.102(a) and (b)). SBA also evaluates the possible impact of both existing and revised size standards on Federal contracting assistance to small businesses as an additional primary factor. SBA generally considers these five factors as the most important ones for establishing or revising a size standard for an industry. However, SBA will also consider and evaluate other information that it believes relevant to the decision on a size standard for a particular industry (such as technological changes, growth trends, SBA financial assistance and other program factors, etc.). Public comments on a proposed size standard rule also provide important additional information. SBA thoroughly reviews all public comments before making a final decision on its proposed size standard. Below is a brief description of each of the five primary evaluation factors. A more detailed description of this analysis is provided in the ‘‘SBA Size Standards Methodology’’ paper which is available at https://www.sba.gov/size. PO 00000 Frm 00023 Fmt 4702 Sfmt 4702 53915 1. Average firm size. SBA computes two measures of average firm size: simple average firm size and weighted average firm size. For industries with receipts based standards (including Accommodation and Food Services industries), the simple average firm size is calculated as total receipts of an industry divided by the total number of firms in that industry. The weighted average firm size is computed as the sum of weighted simple average firm size in different receipts size classes where weights are the shares of total industry receipts for respective size classes. The simple average firm size weighs all firms within an industry equally regardless of their size. The weighted average overcomes that limitation by giving more weights to larger firms. If the average firm size of an industry under review is significantly higher than the average firm size of industries in the anchor comparison industry group, this would generally support a size standard higher than the anchor size standard. Conversely, if the industry’s average firm size is similar to or significantly lower than that of the anchor comparison industry group, it would be a basis to adopt the anchor size standard or, in rare cases, a standard lower than the anchor. 2. Startup costs. Startup costs reflect a firm’s initial size in an industry. New entrants to an industry must have sufficient capital to start and maintain a viable business. If firms entering a particular industry have greater capital requirements than firms do in industries in the anchor comparison group, this will form a basis for establishing a size standard higher than the anchor standard. In lieu of data on actual startup costs, SBA uses average assets size as a proxy measure to assess the levels of capital requirements for new entrants to an industry. SBA calculates the average assets size within a particular industry by applying the sales to total assets ratios from the Risk Management Association’s Annual Statement Studies, 2006–2008 to the average receipts size of firms in that industry. An industry with a significantly higher level of average assets size than that of the anchor comparison group is likely to have higher startup costs, which would support a size standard higher than the anchor size standard. Conversely, if the industry has a significantly smaller average assets size compared to the anchor comparison group, the anchor size standard, or in rare cases one lower than the anchor, would be considered appropriate. E:\FR\FM\21OCP1.SGM 21OCP1 pwalker on DSK8KYBLC1PROD with PROPOSALS 53916 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 3. Industry competition. Industry competition is generally assessed by measuring the share of total industry receipts obtained by firms that are among the largest in an industry. In this proposed rule, SBA evaluates the share of industry receipts generated by the four largest firms in the industry. This is referred to as the ‘‘four-firm concentration ratio.’’ SBA then compares the four-firm concentration ratio for an industry under review to the average four-firm concentration ratio for industries in the anchor comparison group. If a significant share of economic activity within the industry is concentrated among a few relatively large companies, SBA would establish a size standard relatively higher than the anchor size standard. SBA would not consider the four-firm concentration ratio as an important factor in assessing a size standard if its value for an industry under review is less than 40 percent. For industries in which the four largest firms account for 40 percent or more of an industry’s total receipts, SBA examines the average size of the four largest firms in determining a size standard. 4. Distribution of firms by size. SBA examines the shares of industry total receipts accounted for by firms of different receipts and employment size classes in an industry. This is an additional factor SBA evaluates in assessing competition within an industry. If the preponderance of an industry’s economic activity is attributable to smaller firms, this would indicate that small businesses are competitive in that industry and supports adopting the anchor size standard. A size standard higher than the anchor size standard would be supported for an industry in which the distribution of firms indicates that most of the economic activity is concentrated among the larger firms. Concentration among firms is a measure of inequality of distribution. To evaluate the degree of inequality of distribution within an industry, SBA computes the Gini coefficient by constructing the Lorenz curve. The Gini coefficient values vary between zero and one. If receipts are distributed perfectly equally among all the firms in an industry, the value of the Gini coefficient would equal to zero. If an industry’s total receipts are attributed to a single firm, the Gini coefficient would equal to one. SBA compares the degree of inequality of distribution for an industry under review with that for industries in the anchor comparison group. If an industry shows a higher degree of inequality of distribution (i.e., higher VerDate Nov<24>2008 17:49 Oct 20, 2009 Jkt 220001 Gini coefficient) compared to industries in the anchor comparison industry group this would, all else being equal, warrant a higher size standard than the anchor. Conversely, for industries with similar or more equal distribution (i.e., similar or lower Gini coefficient values) than the anchor group, the anchor standard, or in some cases a standard lower than the anchor, would be adopted 5. Impact on SBA programs. SBA examines the possible impact a size standard change may have on the level of Federal small business assistance. This assessment most often focuses on the share of Federal contracting dollars awarded to small businesses in the industry in question. In general, if the share of Federal contracting dollars awarded to small businesses in an industry that receives a significant amount of Federal contracting dollars is significantly less than the small business share of the industry’s total receipts, a justification would exist for considering a size standard higher than the existing size standard. The disparity between the small business Federal market share and industry-wide share may be attributed to a variety of reasons, such as extensive administrative and compliance requirements associated with Federal contracts, the different skill set required on Federal contracts as compared to typical commercial contracting work, and the size of contracting requirements of Federal customers. These, as wells as other factors, are likely to influence the type of firms within an industry that compete for Federal contracts and, hence, the firms receiving such contracts are expected to possess different characteristics than the average characteristics for all firms in that industry. By comparing the small business Federal contracting share with the industry-wide small business share, SBA includes in its size standards analysis the latest Federal contracting trends. This analysis may indicate a size standard larger than the current standard. For this proposed rule, SBA considered Federal procurement trends in the size standards analysis only if (1) the small business share of Federal contracting dollars is at least 10 percentage points lower than the small business share of total industry receipts and (2) the amount of total Federal contracting averages $100 million or more during fiscal years 2006–2008 (the latest years for which complete Federal procurement data are available). SBA has selected these thresholds because they reflect a significant level of contracting in which a revision to a size PO 00000 Frm 00024 Fmt 4702 Sfmt 4702 standard may have an impact on expanding small business opportunities. Another factor that SBA evaluates is the impact of a proposed size standard on SBA’s loan programs, that is, the volume of SBA guaranteed loans within an industry and the size of firms obtaining those loans. This factor is examined to assess whether the existing or the proposed size standard for a particular industry may be restricting the level of financial assistance to small firms in that industry. If the analysis shows a reduction in financial assistance to small businesses, a higher size standard would be supportable. If small businesses have already been receiving significant amounts of financial assistance through SBA’s loan programs, or if the financial assistance has been provided mainly to businesses that are much smaller in size than the existing size standard, consideration of this factor for determining the size standard may not be necessary. Sources of Industry and Program Data The primary source of data for SBA’s industry analysis is a special tabulation of the 2002 Economic Census (see http: //www.census.gov/econ/census02/) prepared by the U.S. Bureau of the Census (Census Bureau) for SBA. The special tabulation provides SBA with industry-specific data on the number of firms, number of establishments, number of employees, annual payroll and annual receipts of companies by the size of firm reporting the data to Census. That is, the data are by the size class of the total company; however, the data itself, within a particular size class, represents the company’s total data in that industry only. The special tabulation enables SBA to evaluate average firm size, the four-firm concentration ratio, and distribution of firms by receipts and employment size. In some cases, where Census data were not available due to disclosure prohibitions, SBA either estimated missing values using available relevant data or, examined data at a higher level of industry aggregation, such as at the 2or 3-digit NAICS level. In some instances, SBA had to base its analysis only on those factors for which data were available or missing values could be estimated. Data sources and estimation procedures SBA uses in its size standards analysis are documented in detail in the ‘‘SBA Size Standards Methodology’’ paper, which is available at https://www.sba.gov/size. Sales to total assets ratios used to calculate average assets size are from the Risk Management Association’s Annual Statement Studies, 2006–2008. E:\FR\FM\21OCP1.SGM 21OCP1 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules To evaluate Federal contracting trends, SBA examined Federal contract award data for fiscal years 2006–2008 from the U.S. General Service Administration’s Federal Procurement Data System—Next Generation (FPDS– NG). SBA’s internal data on its guaranteed loan programs for fiscal years 2006–2008 were analyzed to assess the impact on financial assistance to small businesses. pwalker on DSK8KYBLC1PROD with PROPOSALS Dominant in Field of Operation Section 3(a) of the Small Business Act (15 U.S.C. 632(a)) defines a small business concern as one that is (1) independently owned and operated, (2) not dominant in its field of operation, and (3) within a specific small business definition or size standard established by the SBA Administrator. SBA considers as part of its evaluation of a size standard whether a business concern at a proposed size standard would be considered dominant in its field of operation. For this, SBA generally examines the industry’s market share of firms at the proposed standard or other factors that may indicate whether a firm can exercise a major controlling influence on a national basis in which significant numbers of business concerns are engaged. If SBA’s analysis indicates that a proposed size standard would include a dominant firm, a lower size standard would be considered to exclude the dominant firm from being defined as small. Selection of Size Standards To simplify size standards, for the ongoing comprehensive size standards review, SBA has proposed to select a size standard for an industry from a limited number of receipts based size standard levels. For many years, SBA has been concerned about the complexity of determining small business status caused by a large number of varying receipts based size standards (see 69 FR 13130, March 4, 2004, and 57 FR 62515, December 31, 1992). Currently, there are 32 different levels of receipts based size standards, ranging from $0.75 million to $35.5 million, with many of those levels applying to one or just a few industries only. SBA believes that such a large number of variations with small variations are both unnecessary and difficult to justify analytically. Simplifying the administration of SBA’s size standards to a fewer number of size standard levels will produce more common size standards for businesses operating in multiple related industries and greater consistency in the size standards among industries that are VerDate Nov<24>2008 17:49 Oct 20, 2009 Jkt 220001 similar in their economic characteristics. This proposed rule, therefore, applies one of eight receipts based size standards to each industry in Sector 72. These eight ‘‘fixed’’ size standard levels are $5 million, $7 million, $10 million, $14 million, $19 million, $25.5 million, $30.0 million and $35.5 million. These eight receipts based size standard levels are established by taking into consideration the minimum, maximum, and the more commonly used receipts based size standards. Currently, the more commonly used receipts based size standards cluster around the following six levels—$2.5 million to $4.5 million, $7 million, $9.0 million to $10 million, $12.5 million to $14.0 million, $25.0 million to $25.5 million, and $33.5 million to $35.5 million. SBA has selected $7 million as one of eight fixed levels of receipts based size standards because this is also an anchor standard for receipts based standards. A lower or minimum receipts based size level is established at $5 million. Excluding monetary standards for agriculture and those based on net commissions (such as real estate brokers and travel agents), $5 million is in the close neighborhood of the current minimum receipts based standard of $4.5 million. Among the higher levels size clusters, $10 million, $14 million, $25.5 million, and $35.5 million are selected as other four levels of the fixed size standards. Because of a large gap between two of the size standard intervals, SBA has established intermediate levels of $19 million between $14 million and $25.5 million, and $30 million between $25.5 million and $35.5 million. These two intermediate size levels reflect roughly similar proportional differences between the two successive size standard levels. In a further effort to simplify size standards, SBA may propose a common size standard for certain closely related group of industries. Although the size standard analysis may support a specific size standard level for each industry, SBA believes that establishing different size standards for closely related industries may not be appropriate. For example, in cases where many of the same businesses operate in the same two industries, establishing the common size standard would better reflect the industry marketplace than establishing separate size standards for each of those industries. This situation has led SBA to establish a common size standard for the information technology (IT) services industries (NAICS 541511, NAICS 541112, NAICS 541513 and NAICS 541519), even though the industry data PO 00000 Frm 00025 Fmt 4702 Sfmt 4702 53917 might support a distinct size standard for each industry. Businesses engaged in IT related services typically perform activities in two or more other related industries. Whenever SBA proposes a common size standard for closely related industries it will provide a justification for that in the proposed rule. Evaluation of Industry Structure SBA has evaluated the structure of each industry in the Accommodation and Food Services Sector to assess the appropriateness of the current size standards. As described above, SBA compared data on the economic characteristics of each industry in that Sector to the average characteristics of industries in two comparison groups. The first comparison group is comprised of all industries with $7.0 million size standards—referred to as the ‘‘receipts based anchor comparison group.’’ Because the goal of SBA’s size review is to assess whether a specific industry’s size standard should be at or different from the anchor size standard, this is the most logical set of industries to group together for the industry analysis. In addition, this group includes a sufficient number of firms to provide a meaningful assessment and comparison of industry characteristics. If the characteristics of an industry under review are similar to the average characteristics of industries in the anchor comparison group, the anchor size standard would be considered an appropriate standard for that industry. If an individual industry’s structure is significantly different from that of the anchor group, a size standard lower or higher than the anchor size standard would be selected. The level of the new size standard is determined based on the difference between the characteristics of the anchor comparison group and a second industry comparison group. As described above, the second comparison group for receipts based standards consists of industries with the highest receipts based size standards, ranging from $23 million to $35.5 million, with the average size standard for the group equaling $29 million. SBA refers to this group of industries as the ‘‘higher level receipts based size standard comparison group.’’ Differences in industry structure between an industry under review and the industries in the two comparison groups are determined by comparing data on each of the industry factors, including average firm size, average assets size, four-firm concentration ratio, and the Gini coefficient of distribution of firms by size. Table 1 shows two measures of the E:\FR\FM\21OCP1.SGM 21OCP1 53918 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules average firm size (simple and weighted), average assets size, four-firm concentration ratio, average receipts of the four largest firms, and the Gini coefficient for both anchor level and higher level comparison groups for receipts based size standards. TABLE 1—AVERAGE CHARACTERISTICS OF RECEIPTS BASED COMPARISON GROUPS Avg. firm size ($ million) Receipts based comparison group Simple average Anchor Level ............................... Higher Level ................................ a Weighted average 1.19 .................. 4.77 .................. 17.64 ................ 52.27 ................ Avg. assets size ($ million) Avg. fourfirm concentration ratio (%) Avg. receipts of four largest firms ($ million) a 0.71 .................. 2.05 .................. 18.7 .................. 22.3 .................. 189.9 ................ 639.4 ................ Gini coefficient 0.599 0.725 To be used for industries with a four-firm concentration ratio of 40% or greater. Derivation of Size Standards Based on Industry Factors For each of the industry factors shown in Table 1, SBA derives a separate size standard based on the amount of differences between their values for an industry under review and those for the two comparison groups. An estimated size standard that is supported by each industry factor is derived by comparing its value for a specific industry under review to the corresponding value for the two comparison groups. If the industry value for a particular factor is near that for the anchor comparison group, the $7.0 million anchor size standard would be considered appropriate for that factor. If an industry’s value for a factor is significantly above or below the anchor comparison group value, a size standard above or below the $7.0 million anchor size would be warranted. The level of the new size standard in these cases is derived based on the proportional difference between the industry value and the values for the two comparison groups. For example, if an industry’s simple average receipts size equals $3.0 million, SBA’s analysis would supports a size standard of $19 million. The $3.0 million level is 50.6 percent between the average firm size of $1.19 million for the anchor comparison group and $4.77 million for the higher level comparison group (($3.00 million—$1.19 million) ÷ ($4.77 million—$1.19 million) = 0.506 or 50.6%). This proportional difference is applied to the difference between the $7.0 million anchor size standard and average size standard of $29 million for the higher level size standard group and then added to $7.0 million to estimate a size standard of $18.12 million ([{$29.0 million—$7.0 million} * 0.506] + $7.0 million = $18.12 million). The final step rounds the estimated size standard of $18.12 million to the nearest fixed size standard level, in this case to $19 million. SBA applies the above method of calculation to derive a size standard for each industry factor. Detailed formulas involved in these calculations are presented in ‘‘SBA Size Standards Methodology’’ which is available at https://www.sba.gov/size. Table 2 shows ranges of values for each industry factor and the levels of size standards supported by those values. TABLE 2—VALUES OF INDUSTRY FACTORS AND SUPPORTED SIZE STANDARDS Or if weighted avg. receipts size ($ million) Or if avg. assets size ($ million) Or if avg. receipts of largest four firms ($ million) Or if gini coefficient < 1.03 ..................................................... 1.03 to 1.43 ............................................ 1.44 to 2.00 ............................................ 2.01 to 2.74 ............................................ 2.75 to 3.67 ............................................ 3.68 to 4.57 ............................................ 4.58 to 5.38 ............................................ > 5.38 ..................................................... pwalker on DSK8KYBLC1PROD with PROPOSALS If simple avg. receipts size ($ million) < 16.07 .................. 16.07 to 20.00 ....... 20.01 to 25.51 ....... 25.52 to 32.59 ....... 32.60 to 41.65 ....... 41.66 to 50.30 ....... 50.31 to 58.17 ....... >58.17 ................... < 0.65 .................... 0.65 to 0.80 ........... 0.81 to 1.02 ........... 1.03 to 1.29 ........... 1.30 to 1.64 ........... 1.65 to 1.97 ........... 1.98 to 2.28 ........... > 2.28 .................... < 169.4 .................. 169.4 to 220.5 ....... 220.6 to 292.0 ....... 292.1 to 384.0 ....... 384.1 to 501.5 ....... 501.6 to 613.8 ....... 613.9 to 716.1 ....... > 716.1 .................. < 0.593 .................. 0.593 to 0.608 ....... 0.609 to 0.628 ....... 0.629 to 0.653 ....... 0.654 to 0.686 ....... 0.687 to 0.718 ....... 0.719 to 0.746 ....... > 0.746 .................. Table 3 shows the results of industry analysis for each industry in Sector 72, Accommodation and Food Services. Each NAICS industry row in columns 2, 3, 4, 6 and 7 shows two numbers. The upper number is the value for the industry factor shown on the top of the column and the lower number is the size standard supported by that factor. For the four-firm concentration ratio, a VerDate Nov<24>2008 17:49 Oct 20, 2009 Jkt 220001 size standard is estimated based on the average receipts of the top four firms if its value is 40 percent or more. If the four-firm concentration ratio for an industry is less than 40 percent, no size standard is estimated for that factor and column 5 is left blank. Column 8 shows the proposed or revised size standard for each industry, calculated as the average of size standards supported by PO 00000 Frm 00026 Fmt 4702 Sfmt 4702 Then size standard is ($ million) 5.0 7.0 10.0 14.0 19.0 25.5 30.0 35.5 each industry factor and rounded to the nearest fixed size level. Analytical details involved in the averaging procedure are described in the SBA ‘‘Size Standards Methodology’’ paper which is available at https:// www.sba.gov/size. For comparison, the current size standards for industries in Sector 72 are also shown in column 9 of Table 3. E:\FR\FM\21OCP1.SGM 21OCP1 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 53919 TABLE 3—SIZE STANDARDS SUPPORTED BY EACH INDUSTRY FACTOR [Millions of dollars] NAICS Simple average firm size Weighted average firm size Average assets size Four-firm ratio (%) Four-firm average firm size Gini coefficient Revised size standard Current size standard (1) (2) (3) (4) (5) (6) (7) (8) (9) $2.5 $14.0 $203.8 $35.5 $118.5 $35.5 $523.8 $35.5 $4.9 $35.5 $179.8 $35.5 .................... 22.4% .................... 42.6% .................... .................... $3,557.7 $35.5 0.765 $35.5 0.611 $10.0 .................... $30.0 .................... $30.0 .................... $7.0 .................... $7.0 $0.3 $5.0 $0.7 $5.0 .................... .................... .................... 3.0% .................... .................... 0.061 $5.0 .................... $5.0 .................... $7.0 $0.3 $5.0 $1.1 $5.0 .................... .................... .................... 9.9% .................... .................... 0.123 $5.0 .................... $5.0 .................... $7.0 $0.4 $5.0 $2.5 $5.0 $0.5 $5.0 .................... 9.1% .................... .................... 0.287 $5.0 .................... $5.0 .................... $7.0 $0.6 $5.0 $1.7 $5.0 0.8 $10.0 .................... 5.1% .................... .................... 0.276 $5.0 .................... $7.0 .................... $7.0 0.3 $5.0 $1.2 $5.0 .................... .................... .................... 6.6% .................... .................... 0.187 $5.0 .................... $5.0 .................... $7.0 $0.9 $5.0 $46.1 $25.5 $0.3 $5.0 .................... 8.6% .................... .................... 0.467 $5.0 .................... $7.0 .................... $7.0 $1.0 $5.0 $1.3 $7.0 $52.3 $30.0 $61.3 $35.5 $0.3 $5.0 .................... .................... .................... 10.2% .................... 39.2% .................... .................... .................... .................... 0.599 $7.0 0.729 $30.0 .................... $10.0 .................... $25.5 .................... $7.0 .................... $7.0 $0.5 $5.0 $29.9 $14.0 $0.2 $5.0 .................... 24.6% .................... .................... 0.454 $5.0 .................... $7.0 .................... $7.0 $7.7 $35.5 $0.6 $5.0 $471.8 $35.5 $2.4 $5.0 $2.3 $35.5 $0.1 $5.0 .................... 64.4% .................... 2.1% $3,357.8 $35.5 .................... .................... 0.937 $35.5 0.333 $5.0 .................... $35.5 .................... $5.0 .................... $20.5 .................... $7.0 $0.4 $5.0 $9.1 $5.0 .................... .................... .................... 24.7% .................... .................... 0.464 $5.0 .................... $5.0 .................... $7.0 $0.3 $5.0 $1.4 $5.0 $0.1 $5.0 .................... 2.2% .................... .................... 0.151 $5.0 .................... $5.0 .................... $7.0 721110—Hotels (except Casino Hotels) & Motels 721120—Casino Hotels ... 721191—Bed-and-Breakfast Inns ........................ 721199—All Other Traveler Accommodation ..... 721211—RV (Recreational Vehicle) Parks & Campgrounds ........... 721214—Recreational & Vacation Camps (except Campgrounds) ...... 721310—Rooming & Boarding Houses .......... 722110—Full Service Restaurants .................. 722211—Limited Service Restaurants .................. 722212—Cafeterias ......... 722213—Snack & Nonalcoholic Beverage Bars 722310—Food Service Contractors ................... 722320—Caterers ............ 722330—Mobile Food Services ........................ pwalker on DSK8KYBLC1PROD with PROPOSALS 722410—Drinking Places (Alcoholic Beverages) .. As can be seen in Table 3, the results of SBA analyses of industry data would support lowering size standards from $7 million in annual receipts to $5 million in annual receipts for seven industries in Sector 72. Those seven industries are NAICS 721191, Bed and Breakfast Inns; NAICS 721199, All Other Traveler Accommodation; NAICS 721211, Recreational Vehicle Parks and Campgrounds; NAICS 721310, Rooming and Boarding Houses; NAICS 722320 Caterers; NAICS 722330, Mobile Food Services; and NAICS 722410, Drinking Places. However, SBA believes that lowering size standard for those industries would not be in the best interests of small VerDate Nov<24>2008 17:49 Oct 20, 2009 Jkt 220001 businesses when the economy is in a deep recession. Aiming to promote economic recovery and to preserve and create jobs the U.S. Congress passed and the President signed the American Recovery and Reinvestment Act of 2009 (Recovery Act). The purposes and goals of the Recovery Act are to promote economic recovery and to preserve and create jobs. Under the Recovery Act, SBA has changed its various programs to assist small businesses, including the following: (1) Temporary reduction or elimination of fees in the 7(a) and 504 loan guarantee programs; (2) creation of a temporary 90 percent guarantee loan program; (3) creation of a temporary Secondary Market Guarantee Authority PO 00000 Frm 00027 Fmt 4702 Sfmt 4702 to provide a Federal guarantee for pools of first lien 504 loans that are to be sold to third-party investors; (4) new authority for refinancing community development loans under the 504 program; (5) revision of the job creation goals of the 504 program; (6) simplification of the maximum leverage limits and aggregate investment limits required of Small Business Investment Companies; (7) temporary authority to provide loans on a deferred basis to viable small business concerns that have a qualifying small business loan and are experiencing immediate financial hardship; (8) temporary increase in the surety bond maximum amount; (9) establishment of a Secondary Market E:\FR\FM\21OCP1.SGM 21OCP1 53920 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules Lending Authority to make loans to systemically important broker dealers in SBA’s 7(a) secondary market; and (10) application of SBA’s Certified Development Company (CDC) alternative size standard to its 7(a) Business Loan Program (see 13 CFR 121.301). SBA believes that to reduce size standards and thereby reduce eligibility for those programs, or to reduce the number of firms that can participate in financial and Federal procurement assistance programs would run counter to what it is trying to do for small businesses. Reducing size eligibility for Federal procurement opportunities would not preserve or create more jobs; rather, it would have the opposite effect. Therefore, SBA has decided not to propose to reduce the size standards for those industries. SBA has decided to retain their current size standards. Further, SBA does not anticipate that it will propose to lower size standards after the Recovery Act terminates on September 30, 2010. SBA intends for the proposed size standards, if adopted, to remain in effect unless and until it receives information or data that suggests a change is needed. Evaluation of Federal Contracting and SBA Loan Data Besides industry structure, SBA also evaluates Federal contracting data to assess the extent to which small businesses are successful in getting Federal contracts under the existing size standards. However, the available data on Federal contracting are limited to identifying businesses as small or other than small, with no information on exact size of businesses receiving Federal contracts in order to conduct a more precise analysis. Given limited data, for the current comprehensive size review, SBA has decided to designate a size standard at one level higher than their current size standard for industries where the small business share of total Federal contracting dollars is between 10 and 30 percentage points lower than their shares in total industry receipts and at two levels higher than the current size standard if the difference is higher than 30 percentage points. SBA has chosen not to designate a size standard for the Federal contracting factor alone that is higher than two levels above the current size standard because doing so would result in most cases of designating a size standard more than twice the current size standard. Given the limitations of the FPDS data, and the complex relationships among a number of variables affecting small business participation in the Federal marketplace, SBA believes that a larger adjustment to size standards based on Federal contracting activity should be based on a more detailed analysis of the impact of any subsequent revision to the current size standard. In limited situations, however, SBA may conduct a more extensive examination of Federal contracting experience to support a different size standard than indicated by this general rule to take into consideration significant and unique aspects of small business competitiveness in the Federal contract market. SBA welcomes comment on its methodology of incorporating the Federal contracting factor in the size standard analysis and suggestions for alternative methods and other relevant information on small business experience in the Federal contract market. Only two industries in Sector 72, Accommodation and Food Services, received an average of $100 million or more annually in Federal contracting dollars during fiscal years 2006–2008. These industries are NAICS 721110, Hotels (except Casino Hotels) and Motels, and NAICS 722310, Food Service Contractors. However, because the small business share of total Federal contracting dollars was already higher than small business share of total industry receipts for both of these industries, the Federal procurement factor was not considered in determining the level of size standard. The latest data show that Federal contracting activity is insignificant for most of the industries in Sector 72 and, for those two industries where it is significant, small businesses seem to be doing well in terms of their share in Federal marketplace relative to their share in industry’s total sales. Before deciding on an industry’s size standard, SBA also considers the impact of new or revised standards on SBA’s loan programs. SBA examined 7(a) Loan Program data for fiscal years 2006–2008 to assess whether the existing or proposed size standards need further adjustments to ensure credit opportunities for small businesses through that program. For the industries reviewed, primarily small businesses that are much smaller than the size standards use the 7(a) Loan Program. Based on that analysis, no size standard Sector 72, Accommodation and Food Services, needs an adjustment based on this factor. Summary of Size Standards Changes The analyses of industry structure, Federal contracting data and SBA loan information, support retaining the existing $7.0 million standard for three industries in Sector 72, Accommodation and Food Services. These are NAICS 721214, Recreational and Vacation Camps (except Campgrounds); NAICS 722110, Full Service Restaurants; and NAICS 722213, Snacks and Nonalcoholic Beverage Bars. The analyses support an increase to the current size standard for five industries, namely NAICS 721110, Hotels and Motels, from $7.0 million to $30 million; NAICS 721120, Casino Hotels, from $7.0 million to $30 million; NAICS 722211, Limited Service Restaurants, from $7.0 million to $10 million; NAICS 722212, Cafeterias, from $7.0 million to $25.5 million; and NAICS 722310, Food Service Contractors, from $20.5 million to $35.5 million. These revisions are summarized in Table 4. TABLE 4—SUMMARY OF PROPOSED SIZE STANDARD REVISIONS Current size standard ($ million) pwalker on DSK8KYBLC1PROD with PROPOSALS NAICS 721110—Hotels (except Casino Hotels) & Motels .......................................................................................... 721120—Casino Hotels ................................................................................................................................... 722211—Limited Service Restaurants ............................................................................................................ 722212—Cafeterias ......................................................................................................................................... 722310—Food Service Contractors ................................................................................................................ VerDate Nov<24>2008 17:49 Oct 20, 2009 Jkt 220001 PO 00000 Frm 00028 Fmt 4702 Sfmt 4702 E:\FR\FM\21OCP1.SGM $7.0 7.0 7.0 7.0 20.5 21OCP1 Revised size standard ($ million) $30.0 30.0 10.0 25.5 35.5 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules SBA’s analyses support a decrease to the current standard for seven industries from $7.0 million to $5.0 million. These industries are NAICS 721191, Bed and Breakfast Inns; NAICS 721199, All Other Traveler Accommodation; NAICS 721211, Recreational Vehicle Parks and Campgrounds; NAICS 721310, Rooming and Boarding Houses; NAICS 722320 Caterers; NAICS 722330, Mobile Food Services; and NAICS 722410, Drinking Places. However, as discussed above, SBA has decided that proposing to lower small business size standards would be inconsistent with its ongoing effort to promote small business assistance under the Recovery Act. Therefore, SBA proposes to retain the current size standards for those industries. SBA intends for the proposed size standards, if adopted, to remain in effect unless and until it receives information or data that suggests a change is needed. pwalker on DSK8KYBLC1PROD with PROPOSALS Evaluation of Dominance in Field of Operation SBA has determined that for the industries in Sector 72, Accommodation and Food Services, no firm at or below the proposed size standard would be large enough to dominate its field of operation. A firm at the proposed size standard within these industries generates less than one percent of total industry receipts. This level of market share effectively precludes a firm at or below the proposed size standard from exerting a controlling effect on this industry. Request for Comments SBA invites public comments on the proposed rule, especially on the following areas. 1. In an effort to simplify size standards, for this proposed rule SBA has proposed a set of eight fixed size levels for receipts based size standards: $5.0 million, $7.0 million, $10.0 million, $14.0 million, $19.0 million, $25.5 million, $30.0 million, and $35.5 million. SBA invites comments on whether simplification of size standards in this way is necessary and if these proposed fixed size levels are appropriate, or suggestions on alternative approaches to simplifying small business size standards. 2. For all industries in Sector 72, Accommodation and Food Services, SBA has proposed receipts based size standards ranging from $7 million to $35.5 million. SBA seeks feedback on whether the levels of size standards it proposes seem right given the economic characteristics of each industry. SBA also seeks feedback and suggestions on alternative standards, if they would be VerDate Nov<24>2008 17:49 Oct 20, 2009 Jkt 220001 more appropriate, including whether an employee based standard for certain industries is a more suitable measure of size, and what that employee level should be. 3. SBA’s proposed standards are based on its evaluation of five primary factors—average firm size, average assets size (as proxy of startup costs and entry barriers), four-firm concentration ratio, distribution of firms by size, and the level and small business share of Federal contracting dollars. SBA welcomes comments on these and other factors that interested parties believe are important to consider for describing industry characteristics when SBA evaluates its size standards. Please provide relevant data sources, if available. 4. SBA derives its proposed standards by applying equal weights to each of the five primary factors in all industries. Should SBA continue with the equal weighting of each factor or should it give more weight to one or more factors in size standard determination of certain industries? If it is more appropriate to weigh some factors more than others, SBA welcomes suggestions on specific weights for each factor along with supporting information. 5. For some industries, SBA proposes to increase the existing size standards by a large amount, while for others the proposed increase is less. Should SBA, as a policy, limit the amount of increase or decrease to a size standard? Also should SBA, as a policy, establish certain minimum or maximum values for its size standards? SBA seeks suggestions on appropriate levels of change to size standards and on their minimum or maximum levels. 6. For analytical simplicity and efficiency, SBA has refined its size standard methodology to obtain a single value as a proposed size standard instead of a range of values as was SBA’s methodology in its past size regulations. SBA welcomes any comments on this procedure and suggestions for alternative methods. Public comments on above issues are very critical for SBA to validate its size standard methodology and move forward in a timely manner with review of size standards of other industry groups under the two-year comprehensive size review. Compliance With Executive Orders 12866, 12988, and 13132, the Paperwork Reduction Act (44 U.S.C. Ch. 35), and the Regulatory Flexibility Act (5 U.S.C. 601–612). Executive Order 12866 The Office of Management and Budget (OMB) has determined that this PO 00000 Frm 00029 Fmt 4702 Sfmt 4702 53921 proposed rule is a ‘‘significant’’ regulatory action for purposes of Executive Order 12866. Accordingly, the next section contains SBA’s Regulatory Impact Analysis. This is not a major rule, however, under the Congressional Review Act, 5 U.S.C. 800. Regulatory Impact Analysis 1. Is there a need for the regulatory action? SBA believes that adjustments to certain size standards in Sector 72, Accommodation and Food Services, are needed to better reflect the economic characteristics of small businesses in those industries. SBA’s mission is to aid and assist small businesses through a variety of financial, procurement, business development, and advocacy programs. To assist effectively the intended beneficiaries of these programs, SBA must establish distinct definitions of which businesses are deemed small businesses. The Small Business Act (15 U.S.C. 632(a)) delegates to SBA’s Administrator the responsibility for establishing small business definitions. The Act also requires that small business definitions vary to reflect industry differences. The supplementary information section of this proposed rule explains SBA’s methodology for analyzing a size standard for a particular industry. 2. What are the potential benefits and costs of this regulatory action? The most significant benefit to businesses obtaining small business status as a result of this rule is eligibility for Federal small business assistance programs, including SBA’s financial assistance programs, economic injury disaster loans, and Federal procurement preference programs for small businesses. Federal procurement provides opportunities for small businesses under SBA’s business development programs, such as 8(a), Small Disadvantaged Businesses (SDB), small businesses located in Historically Underutilized Business Zones (HUBZone), women owned small businesses, and service disabled veteran owned small businesses (SDVOSB). Other Federal agencies also may use SBA size standards for a variety of regulatory and program purposes. Through the assistance of these programs, small businesses become more knowledgeable, stable, and competitive businesses. In five industries under Sector 72 for which SBA has proposed to increase their size standards, about 2,050 additional firms are estimated to obtain small business status and become eligible for these E:\FR\FM\21OCP1.SGM 21OCP1 pwalker on DSK8KYBLC1PROD with PROPOSALS 53922 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules programs. In the seven industries for which SBA’s analyses indicated a lower size standard as appropriate, there are about 450 firms that might have lost their small business status, had SBA proposed lowering them. That number is less than 0.6 percent of total number of firms in those industries defined as small under the current standards. Thus, the net impact for the sector as a whole is about 2,050 additional firms gaining and none losing small business status under the proposed rule. This will increase the small business share of total industry receipts for the Sector from about 46 percent under the current size standards to nearly 50 percent under the proposed standards. The benefits of increasing certain size standards to a more appropriate level would accrue to three groups: (1) Businesses that benefit by gaining small business status from the higher size standard that also use small business assistance programs; (2) growing small businesses that may exceed the current size standards in the near future and that will retain small business status from the higher size standard; and (3) Federal agencies that award contracts under procurement programs that require small business status. Nearly 90 percent of Federal contracting dollars spent in Sector 72 during fiscal years 2006–2008 was accounted for by two of five industries for which size standards have been proposed to increase. SBA estimates that additional firms gaining small business status in those two industries under the proposed size standards could potentially obtain Federal contracts totaling up to $75 million per year under the small business set-aside program, the 8(a), HUBZone, and SDVOSB Programs, or unrestricted procurements. This represents about 5.5 percent of the $1.13 billion in average Federal contracts awarded to the Accommodation and Food Services Sector during fiscal years 2006–2008. The added competition for many of these procurements also would likely result in a lower price to the Government for procurements reserved for small businesses, but SBA is not able to quantify this benefit. Under SBA’s 7(a) Guaranteed Loan Program and Certified Development Company (504) Program, SBA estimates only a few additional loans totaling $1 million to $2 million in Federal loan guarantees could be made to these newly defined small businesses. Because of the size of the loan guarantees, however, most loans are made to small businesses well below the size standard. Moreover, under the Recovery Act, effective February 17, VerDate Nov<24>2008 17:49 Oct 20, 2009 Jkt 220001 2009, SBA is temporarily raising guarantees on its SBA’s 7(a) loan program and also temporarily eliminating fees for borrowers on SBA 7(a) loans and for both borrowers and lenders on 504 Certified Development Company loans, through calendar year 2009, or until the funds are exhausted. The fee elimination is retroactive to February 17, 2009, the day the Recovery Act was signed. Furthermore, SBA is developing a mechanism for refunding fees paid on loans since then. In addition, since SBA has applied its CDC alternative size standard to its 7(a) Business Loan Program, more capital is available to small businesses. Thus, increasing the size standards will likely result in an increase in small business guaranteed loans to businesses in these industries, but it would be impractical to try to estimate the extent of their number and the total amount loaned. The newly defined small businesses would also benefit from SBA’s Economic Injury Disaster Loan (EIDL) Program. Since this program is contingent upon the occurrence and severity of a disaster, no meaningful estimate of benefits can be projected for future disasters. To the extent that 2,050 additional firms could become active in Federal procurement programs, this may entail some additional administrative costs to the Federal Government associated with additional bidders for Federal small business procurement opportunities, additional firms seeking SBA guaranteed lending programs, additional firms eligible for enrollment in the Central Contractor Registration’s Dynamic Small Business Search database, and additional firms seeking certification as 8(a) or HUBZone firms or qualifying for SDB status. Among businesses in this group seeking SBA assistance, there could be some additional costs associated with compliance and verification of small business status and protests of small business status. These additional costs are likely to be minimal because mechanisms are already in place to handle these additional administrative requirements. The costs to the Federal Government may be higher on some Federal contracts. With a greater number of businesses defined as small, Federal agencies may choose to set aside more contracts for competition among small businesses rather than using full and open competition. The movement from unrestricted to set-aside contracting is likely to result in competition among fewer bidders. In addition, higher costs may result if additional full and open contracts are awarded to HUBZone and PO 00000 Frm 00030 Fmt 4702 Sfmt 4702 SDB businesses because of a price evaluation preference. The additional costs associated with fewer bidders, however, are likely to be minor since, as a matter of law, procurements may be set aside for small businesses or reserved for the 8(a) or HUBZone Programs only if awards are expected to be made at fair and reasonable prices. The proposed size standards may have distributional effects among large and small businesses. Although the actual outcome of the gains and losses among small and large businesses cannot be estimated with certainty, several likely impacts can be identified. There will likely be a transfer of some Federal contracts to small businesses from large businesses. Large businesses may have fewer Federal contract opportunities as Federal agencies decide to set aside more Federal contracts for small businesses. Also, some Federal contracts may be awarded to HUBZone or SDB concerns instead of large businesses since those two categories of small businesses may be eligible for an evaluation adjustment for contracts competed on a full and open basis. Similarly, currently defined small businesses may obtain fewer Federal contracts due to the increased competition from more businesses defined as small. This transfer may be offset by a greater number of Federal procurements set aside for all small businesses. The number of newly defined and expanding small businesses that are willing and able to sell to the Federal Government will limit the potential transfer of contracts away from large and currently defined small businesses. The potential distributional impacts of these transfers may not be estimated with any degree of precision because the data on the size of business receiving a Federal contract are limited to identifying small or other than small businesses, without regard to the exact size of the business. The proposed revisions to the existing size standards for Accommodation and Food Services industries is consistent with SBA’s statutory mandate to assist small business. This regulatory action promotes the Administration’s objectives. One of SBA’s goals in support of the Administration’s objectives is to help individual small businesses succeed through fair and equitable access to capital and credit, Government contracts, and management and technical assistance. Reviewing and modifying size standards, when appropriate, ensures that intended beneficiaries have access to small business programs designed to assist them. E:\FR\FM\21OCP1.SGM 21OCP1 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules Executive Order 12988 For purposes of Executive Order 12988, SBA has determined that this rule is drafted, to the extent practicable, in accordance with the standards set forth in that Order. Executive Order 13132 For purposes of Executive Order 13132, SBA has determined that this rule does not have any federalism implications warranting the preparation of a federalism assessment. Paperwork Reduction Act For the purpose of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA has determined that this rule would not impose new reporting or record keeping requirements, other than those required of SBA. Initial Regulatory Flexibility Analysis Under the Regulatory Flexibility Act (RFA), this rule, if finalized, may have a significant impact on a substantial number of small entities in Sector 72, Accommodation and Food Services. As described above, this rule may affect small entities seeking Federal contracts, SBA (7a) and 504 Guaranteed Loan Programs, SBA Economic Injury Disaster Loans, and other Federal small business programs. Immediately below, SBA sets forth an initial regulatory flexibility analysis (IRFA) of this proposed rule addressing the following questions: (1) What is the need for and objective of the rule? (2) what is SBA’s description and estimate of the number of small entities to which the rule will apply? (3) what are the projected reporting, record keeping, and other compliance requirements of the rule? (4) what are the relevant Federal rules which may duplicate, overlap or conflict with the rule? and (5) what alternatives will allow the Agency to accomplish its regulatory objectives while minimizing the impact on small entities? (1) What is the need for and objective of the rule? pwalker on DSK8KYBLC1PROD with PROPOSALS Most of SBA’s size standards for Accommodation and Food Services industries have not been reviewed since the early 1980s. Technology, productivity growth, international VerDate Nov<24>2008 17:49 Oct 20, 2009 Jkt 220001 competition, mergers and acquisitions, and updated industry definitions may have changed the structure of many industries. Such changes can be sufficient to support a revision to size standards for some industries. Based an analysis of the latest data available to the Agency, SBA believes that the revised standards in this proposed rule more appropriately reflect the size of businesses in those industries that need Federal assistance. (2) What is SBA’s description and estimate of the number of small entities to which the rule will apply? If the proposed rule is adopted in its present form, SBA estimates that approximately 2,050 additional firms will become small because of increases in size standard in five industries. That represents 1.1 percent of total firms in those industries. This will result in an increase in the small business share of total industry receipts for this Sector from about 46 percent under the current size standard to nearly 50 percent under the proposed standards. (3) What are the projected reporting, record keeping, and other compliance requirements of the rule and an estimate of the classes of small entities which will be subject to the requirements? A new size standard does not impose any additional reporting, record keeping or compliance requirements on small entities. Revising size standards alters the access to SBA programs that assist small businesses, but does not impose a regulatory burden as they neither regulate nor control business behavior. (4) What are the relevant Federal rules which may duplicate, overlap or conflict with the rule? This proposed rule overlaps with other Federal rules that use SBA’s size standards to define a small business. Under § 3(a)(2)(C) of the Small Business Act, 15 U.S.C. 632(a)(2)(c), Federal agencies must use SBA’s size standards to define a small business, unless specifically authorized by statute. In 1995, SBA published in the Federal Register a list of statutory and regulatory size standards that identified the application of SBA’s size standards as well as other size standards used by Federal agencies (60 FR 57988–57991, PO 00000 Frm 00031 Fmt 4702 Sfmt 4702 53923 dated November 24, 1995). SBA is not aware of any Federal rule that would duplicate or conflict with establishing size standards. However, the Small Business Act and SBA’s regulations allow Federal agencies to develop different size standards if they believe that SBA’s size standards are not appropriate for their programs, with the approval of SBA’s Administrator (13 CFR 121.903). The Regulatory Flexibility Act authorizes an Agency to establish an alternative small business definition, after consultation with the Office of Advocacy of the U.S. Small Business Administration (5 U.S.C. 601(3). Thus, there may be instances where this rule conflicts with other rules. (5) What alternatives will allow the Agency to accomplish its regulatory objectives while minimizing the impact on small entities? SBA is required to develop numerical size standards for identifying businesses eligible for Federal small business programs. Other than varying the size standards, no viable alternative exists to the systems of numerical size standards. List of Subjects in 13 CFR Part 121 Administrative practice and procedure, Government procurement, Government property, Grant programs— business, Individuals with disabilities, Loan programs—business, Reporting and recordkeeping requirements, Small businesses. For the reasons set forth in the preamble, SBA proposes to amend part 13 CFR Part 121 as follows. PART 121—SMALL BUSINESS SIZE REGULATIONS 1. The authority citation for part 121 continues to read as follows: Authority: 15 U.S.C. 632, 634(b)(6), 636(b), 637(a), 644, and 662(5); and Pub. L. 105–135, sec. 401 et seq., 111 Stat. 2592. 2. Amend the table in § 121.201 by revising all entries under Sector 72 to read as follows: § 121.201 What size standards has SBA identified by North American Industry Classification System codes? * E:\FR\FM\21OCP1.SGM * * 21OCP1 * * 53924 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules SMALL BUSINESS SIZE STANDARDS BY NAICS INDUSTRY NAICS codes Size standards in millions of dollars NAICS U.S. industry title * * * * * Sector 72—Accommodation and Food Services * Subsector 721—Accommodation 721110 ............. Hotels (except Casino Hotels) and Motels ............................................................................... 721120 ............. Casino Hotels ............................................................................................................................ 721191 ............. Bed-and-Breakfast Inns ............................................................................................................ 721199 ............. All Other Traveler Accommodation ........................................................................................... 721211 ............. RV (Recreational Vehicle) Parks and Campgrounds ............................................................... 721214 ............. Recreational and Vacation Camps (except Campgrounds) ..................................................... 721310 ............. Rooming and Boarding Houses ................................................................................................ Subsector 722—Food Services and Drinking Places 722110 ............. Full-Service Restaurants ........................................................................................................... 722211 ............. Limited-Service Restaurants ..................................................................................................... 722212 ............. Cafeterias .................................................................................................................................. 722213 ............. Snack and Nonalcoholic Beverage Bars .................................................................................. 722310 ............. Food Service Contractors ......................................................................................................... 722320 ............. Caterers ..................................................................................................................................... 722330 ............. Mobile Food Services ............................................................................................................... 722410 ............. Drinking Places (Alcoholic Beverages) ..................................................................................... * * * * * Dated: October 9, 2009. Karen G. Mills, Administrator. [FR Doc. E9–25204 Filed 10–20–09; 8:45 am] BILLING CODE 8025–01–P SMALL BUSINESS ADMINISTRATION 13 CFR Part 121 RIN: 3245–AF69 Small Business Size Standards: Retail Trade pwalker on DSK8KYBLC1PROD with PROPOSALS AGENCY: U.S. Small Business Administration. ACTION: Proposed Rule. SUMMARY: The U.S. Small Business Administration (SBA) proposes to increase small business size standards for 48 industries in North American Industry Classification System (NAICS) Sector 44–45, Retail Trade, and retain the current standards for the remaining 28 industries in the Sector. As part of its ongoing initiative to review all size standards, SBA has evaluated each industry in Sector 44–45 to determine whether the existing size standards should be retained or revised. This proposed rule is one of a series of proposals that will examine industries grouped by an NAICS Sector. As part of this series of proposed rules SBA is publishing concurrently in this issue of the Federal Register a proposed rule to modify small business size standards in Sector 72, Accommodation and Food Services, and in Sector 81, Other Services. SBA has established its ‘‘Size VerDate Nov<24>2008 17:49 Oct 20, 2009 Jkt 220001 Standards Methodology’’ and published elsewhere in this issue of the Federal Register a notice of its availability on SBA’s Web site at https://www.sba.gov/ size. SBA has applied ‘‘Size Standards Methodology’’ to this proposed rule. DATES: SBA must receive comments to this proposed rule on or before December 21, 2009. ADDRESSES: You may submit comments, identified by RIN 3245–AF69 by one of the following methods: (1) Federal eRulemaking Portal: https:// www.regulations.gov. Follow the instructions for submitting comments; or (2) Mail/Hand Delivery/Courier: Khem R. Sharma, Chief, Size Standards Division, 409 Third Street, SW., Mail Code 6530, Washington, DC 20416. SBA will post all comments on https://www.regulations.gov. If you wish to submit confidential business information (CBI) as defined in the User Notice at https://www.regulations.gov, please submit the information to U.S. Small Business Administration, Khem R. Sharma, Chief, Size Standards Division, 409 Third Street, SW., Mail Code 6530, Washington, DC 20416, or send an e-mail to sizestandards@sba.gov. Highlight the information that you consider to be CBI and explain why you believe SBA should hold this information as confidential. SBA will review the information and make the final determination of whether it will publish the information or not. FOR FURTHER INFORMATION CONTACT: Carl J. Jordan, Program Analyst, Size Standards Division, (202) 205–6618 or sizestandards@sba.gov. PO 00000 Frm 00032 Fmt 4702 Sfmt 4702 Size standards in number of employees * $30.0 30.0 7.0 7.0 7.0 7.0 7.0 ........................ ........................ ........................ ........................ ........................ ........................ ........................ 7.0 10.0 25.5 7.0 35.5 7.0 7.0 7.0 ........................ ........................ ........................ ........................ ........................ ........................ ........................ ........................ To determine eligibility for Federal small business assistance programs, SBA establishes small business definitions (referred to as size standards) for private sector industries in the U.S. SBA’s existing size standards use two primary measures of business size—receipts and number of employees. Financial assets, electric output, and refining capacity are used as size measures for a few specialized industries. In addition, SBA’s Small Business Investment Company (SBIC) and the Certified Development Company (CDC) Programs determine small business eligibility using either the industry based size standards or net worth and net income size standards. Currently, SBA’s size standards consist of 45 different size levels, covering 1,141 NAICS industries and 17 sub-industry activities. Of these size levels, 32 are based on average annual receipts, eight are based on number of employees, and five are based on other measures. In addition, SBA has established 11 other size standards for its financial and procurement programs. Over the years, SBA has received comments that its size standards have not kept up with changes in the economy and, in particular, that they do not reflect the changes in the Federal contracting marketplace. The last overall review of size standards occurred during the late 1970s to early 1980s. Since then, most reviews of size standards have been limited to in-depth analyses of specific industries in response to requests from the public and Federal agencies. SBA also makes SUPPLEMENTARY INFORMATION: E:\FR\FM\21OCP1.SGM 21OCP1

Agencies

SMALL BUSINESS ADMINISTRATION

[Federal Register Volume 74, Number 202 (Wednesday, October 21, 2009)]
[Proposed Rules]
[Pages 53913-53924]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-25204]

=======================================================================
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SMALL BUSINESS ADMINISTRATION

13 CFR Part 121

RIN 3245-AF71

Small Business Size Standards: Accommodation and Food Services
Industries

AGENCY: U.S. Small Business Administration.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: The U.S. Small Business Administration (SBA) proposes to
increase small business size standards for five industries in North
American Industry Classification System (NAICS) Sector 72,
Accommodation and Food Services--namely NAICS 721110, Hotels and
Motels, from $7.0 million to $30 million; NAICS 721120, Casino Hotels,
from $7.0 million to $30 million; NAICS 722211, Limited Service
Restaurants, from $7.0 million to $10 million; NAICS 722212,
Cafeterias, from $7.0 million to $25.5 million; and NAICS 722310, Food
Service Contractors, from $20.5 million to $35.5 million. As part of
its ongoing initiative to review all size standards, SBA has evaluated
each industry in Sector 72 to determine whether the existing size
standards should be retained or revised. This proposed rule is one of a
series of proposals that will examine industries grouped by an NAICS
Sector. As part of this series of proposed rules SBA is publishing
concurrently in this issue of the Federal Register a proposed rule to
modify small business size standards in Sector 44-45, Retail Trade, and
Sector 81, Other Services. SBA has established its ``Size Standards
Methodology'' and published elsewhere in this issue of the Federal
Register a notice of its availability on SBA's Web site at https://www.sba.gov/size. SBA has applied ``Size Standards Methodology'' to
this proposed rule.

[[Page 53914]]

DATES: SBA must receive comments to this proposed rule on or before
December 21, 2009.

ADDRESSES: You may submit comments, identified by RIN 3245-AF71 by one
of the following methods: (1) Federal eRulemaking Portal: https://www.regulations.gov. Follow the instructions for submitting comments;
or (2) Mail/Hand Delivery/Courier: Khem R. Sharma, Chief, Size
Standards Division, 409 Third Street, SW., Mail Code 6530, Washington,
DC 20416.
SBA will post all comments on www.regulations.gov. If you wish to
submit confidential business information (CBI) as defined in the User
Notice at www.regulations.gov, please submit the information to U.S.
Small Business Administration, Khem R. Sharma, Chief, Size Standards
Division, 409 Third Street, SW., Mail Code 6530, Washington, DC 20416,
or send an e-mail to sizestandards@sba.gov. Highlight the information
that you consider to be CBI and explain why you believe SBA should hold
this information as confidential. SBA will review the information and
make the final determination of whether it will publish the information
or not.

FOR FURTHER INFORMATION CONTACT: Carl J. Jordan, Program Analyst, Size
Standards Division, (202) 205-6618 or sizestandards@sba.gov.

SUPPLEMENTARY INFORMATION: To determine eligibility for Federal small
business assistance programs, SBA establishes small business
definitions (referred to as size standards) for private sector
industries in the U.S. SBA's existing size standards use two primary
measures of business size--receipts and number of employees. Financial
assets, electric output, and refining capacity are used as size
measures for a few specialized industries. In addition, SBA's Small
Business Investment Company (SBIC) and the Certified Development
Company (CDC) Programs determine small business eligibility using
either the industry based size standards or net worth and net income
size standards. Currently, SBA's size standards consist of 45 different
size levels, covering 1,141 NAICS industries and 17 sub-industry
activities. Of these size levels, 32 are based on average annual
receipts, eight are based on number of employees, and five are based on
other measures. In addition, SBA has established 11 other size
standards for its financial and procurement programs.
Over the years, SBA has received comments that its size standards
have not kept up with changes in the economy and, in particular, that
they do not reflect the changes in the Federal contracting marketplace.
The last overall review of size standards occurred during the late
1970s to early 1980s. Since then, most reviews of size standards have
been limited to in-depth analyses of specific industries in response to
requests from the public and Federal agencies. SBA also makes periodic
inflation adjustments to its monetary based size standards. The latest
inflation adjustment to size standards was published in the Federal
Register on July 18, 2008 (73 FR 41237).
SBA recognizes that industrial changes over time have rendered
existing size standards for some industries no longer supportable by
current data. Accordingly, SBA has begun a comprehensive review of its
size standards to ensure that existing size standards have supportable
bases and, where necessary, to make revisions to current size
standards. This proposed rule affords the public an opportunity to
review and comment on the data and methodology SBA uses to evaluate and
revise a size standard.
Rather than review all size standards at one time, SBA believes
that a more manageable approach would be to examine a group of related
industries within an NAICS Sector in phases. Except for manufacturing,
an NAICS Sector generally consists of 25 to 75 industries. Once a
review of size standards for industries within an NAICS Sector is
completed, SBA will issue a proposed rule for those industries in which
the analysis of industry data supports a change to the existing size
standards. SBA expects to complete a review of all NAICS Sectors in two
years.
Below is a discussion of SBA's size standards methodology,
including analyses of industry structure, Federal procurement trends
and other factors for industries within Sector 72, Accommodation and
Food Services, and the impact of the proposed revisions to size
standards on Federal small businesses assistance.

Size Standards Methodology

SBA has recently developed a ``Size Standards Methodology'' that it
uses for developing and modifying size standards when necessary. SBA
has published the document which is available at https://www.sba.gov/size. SBA does not apply all features of its ``Size Standards
Methodology'' to all cases because not all are appropriate. However,
SBA does make it available in its entirety for parties with an interest
in SBA's overall approach to evaluating, establishing and modifying
small business size standards. SBA always explains its analysis in the
proposed and final rules that relate to size standards for specific
industries. The following discussion is of SBA's size standard analysis
applied to industries in Sector 72, Accommodation and Food Services.
SBA welcomes comments from the public on a number of issues. SBA is
aware that different choices among size standards can involve complex
tradeoffs among relevant variables; SBA invites comments on how to
identify and weigh those variables. Suggestions are invited on
alternative methodologies for determining small businesses; on how
these size standards affect competition in general and within the
specific industry; on alternative or additional factors that SBA should
consider; on whether SBA's approach to small business size standards
makes sense in the current economic environment; on whether SBA's using
anchor size standards is appropriate in the current economy; on whether
there are gaps in SBA's methodology because of the lack of
comprehensive data; and on alternative datasets SBA should consider for
a specific sector.
Congress granted SBA's Administrator discretion to establish
detailed small business size standards (15 U.S.C. 632(a)(2)). Section
3(a)(3) of the Small Business Act (15 U.S.C. 632(a)(3)) requires that
size standards vary by industry to the extent necessary to reflect
differing characteristics among various industries. Accordingly, the
economic structure of an industry serves as the underlying basis for
developing and modifying small business size standards. By examining
data on economic characteristics defining the industry structure (as
described below), the small business segment of an industry is
identified. In addition to the industry structure, SBA also takes into
consideration its program objectives and whether a size standard
successfully excludes businesses that are dominant in the industry.
Discussed below is SBA's analysis of the economic characteristics of
each industry in Sector 72, Accommodation and Food Services, the impact
of proposed size standards on SBA programs, and the evaluation of
whether a revised size standard would exclude dominant firms in the
industry from being considered as small.

Industry Analysis

For the current comprehensive size review, SBA has established
three ``base'' or ``anchor'' size standards that apply to most
industries--$7.0 million in average annual receipts for industries that
have receipts based size standards,

[[Page 53915]]

500 employees for manufacturing and other industries that have employee
based size standards (except for Wholesale Trade), and 100 employees
for industries in the Wholesale Trade Sector. SBA established 500
employees as the anchor size standard for the manufacturing industries
at SBA's inception in 1953 and shortly thereafter established a
receipts based anchor size standard of $1 million in average annual
receipts for the nonmanufacturing industries. The receipts based anchor
size standard has been adjusted periodically for inflation. The
inflation adjustment over the years has increased it to $7.0 million
today. Since 1986, all industries in the Wholesale Trade Sector have
had the 100-employee size standard for non-procurement SBA programs.
For procurement purposes, the size standard for a non-manufacturer is
500 employees.
These long standing anchor size standards have gained legitimacy
through practice and general public acceptance. An anchor size standard
is neither a minimum nor a maximum size standard. It is a common size
standard for a large number of industries that have similar economic
characteristics and serves as a reference point in evaluating size
standards for individual industries. SBA uses the anchor in lieu of
trying to establish precise small business size standards for each
industry. Otherwise, theoretically, that could require that the number
of size standards be as high as the number of industries for which SBA
establishes size standards. SBA presumes an anchor size standard is
appropriate for a particular industry unless that industry displays
significantly different economic characteristics, as compared to the
characteristics of industries with the anchor size standard, thereby
suggesting a need for revision to an existing size standard.
When evaluating a size standard, the economic characteristics of a
specific industry under review are compared to the average
characteristics of industries with one of the three anchor size
standards (referred to as ``anchor comparison group'') to assess
industry structure and to determine whether the industry displays
significant differences relative to the industries in the anchor size
standard group. If the characteristics of a specific industry under
review are similar to the average characteristics of the anchor
comparison group, the anchor size standard would be considered
appropriate for that industry. SBA will consider adopting a size
standard below the anchor size standard only when (1) all or most of
the industry characteristics are significantly smaller than the average
characteristics of the anchor comparison group, or (2) other industry
considerations strongly suggest that the anchor size standard would be
an unreasonably high size standard for the industry.
If the specific industry's characteristics are significantly higher
than those of the anchor comparison group, a size standard higher than
the anchor size standard may be considered appropriate. The larger the
differences are between the characteristics of the industry under
review and those in the anchor comparison group, the larger will be the
difference between the appropriate industry size standard and the
anchor size standard. To determine the level of a size standard above
the anchor size standard, the characteristics of a second comparison
group are analyzed. For industries with receipts based size standards,
SBA has developed a second comparison group consisting of industries
with the highest levels of receipts based size standards. The size
standards for this group of industries range from $23 million to $35.5
million in average receipts, with the weighted average size standard
for the group equaling $29 million. SBA refers to this comparison group
as the ``higher level receipts based size standard group.''
The primary factors that SBA evaluates in analyzing the structural
characteristics of an industry include average firm size, startup costs
and entry barriers, industry competition, and distribution of firms by
size (13 CFR 121.102(a) and (b)). SBA also evaluates the possible
impact of both existing and revised size standards on Federal
contracting assistance to small businesses as an additional primary
factor. SBA generally considers these five factors as the most
important ones for establishing or revising a size standard for an
industry. However, SBA will also consider and evaluate other
information that it believes relevant to the decision on a size
standard for a particular industry (such as technological changes,
growth trends, SBA financial assistance and other program factors,
etc.). Public comments on a proposed size standard rule also provide
important additional information. SBA thoroughly reviews all public
comments before making a final decision on its proposed size standard.
Below is a brief description of each of the five primary evaluation
factors. A more detailed description of this analysis is provided in
the ``SBA Size Standards Methodology'' paper which is available at
https://www.sba.gov/size.
1. Average firm size. SBA computes two measures of average firm
size: simple average firm size and weighted average firm size. For
industries with receipts based standards (including Accommodation and
Food Services industries), the simple average firm size is calculated
as total receipts of an industry divided by the total number of firms
in that industry. The weighted average firm size is computed as the sum
of weighted simple average firm size in different receipts size classes
where weights are the shares of total industry receipts for respective
size classes. The simple average firm size weighs all firms within an
industry equally regardless of their size. The weighted average
overcomes that limitation by giving more weights to larger firms.
If the average firm size of an industry under review is
significantly higher than the average firm size of industries in the
anchor comparison industry group, this would generally support a size
standard higher than the anchor size standard. Conversely, if the
industry's average firm size is similar to or significantly lower than
that of the anchor comparison industry group, it would be a basis to
adopt the anchor size standard or, in rare cases, a standard lower than
the anchor.
2. Startup costs. Startup costs reflect a firm's initial size in an
industry. New entrants to an industry must have sufficient capital to
start and maintain a viable business. If firms entering a particular
industry have greater capital requirements than firms do in industries
in the anchor comparison group, this will form a basis for establishing
a size standard higher than the anchor standard. In lieu of data on
actual startup costs, SBA uses average assets size as a proxy measure
to assess the levels of capital requirements for new entrants to an
industry.
SBA calculates the average assets size within a particular industry
by applying the sales to total assets ratios from the Risk Management
Association's Annual Statement Studies, 2006-2008 to the average
receipts size of firms in that industry. An industry with a
significantly higher level of average assets size than that of the
anchor comparison group is likely to have higher startup costs, which
would support a size standard higher than the anchor size standard.
Conversely, if the industry has a significantly smaller average assets
size compared to the anchor comparison group, the anchor size standard,
or in rare cases one lower than the anchor, would be considered
appropriate.

[[Page 53916]]

3. Industry competition. Industry competition is generally assessed
by measuring the share of total industry receipts obtained by firms
that are among the largest in an industry. In this proposed rule, SBA
evaluates the share of industry receipts generated by the four largest
firms in the industry. This is referred to as the ``four-firm
concentration ratio.'' SBA then compares the four-firm concentration
ratio for an industry under review to the average four-firm
concentration ratio for industries in the anchor comparison group. If a
significant share of economic activity within the industry is
concentrated among a few relatively large companies, SBA would
establish a size standard relatively higher than the anchor size
standard. SBA would not consider the four-firm concentration ratio as
an important factor in assessing a size standard if its value for an
industry under review is less than 40 percent. For industries in which
the four largest firms account for 40 percent or more of an industry's
total receipts, SBA examines the average size of the four largest firms
in determining a size standard.
4. Distribution of firms by size. SBA examines the shares of
industry total receipts accounted for by firms of different receipts
and employment size classes in an industry. This is an additional
factor SBA evaluates in assessing competition within an industry. If
the preponderance of an industry's economic activity is attributable to
smaller firms, this would indicate that small businesses are
competitive in that industry and supports adopting the anchor size
standard. A size standard higher than the anchor size standard would be
supported for an industry in which the distribution of firms indicates
that most of the economic activity is concentrated among the larger
firms.
Concentration among firms is a measure of inequality of
distribution. To evaluate the degree of inequality of distribution
within an industry, SBA computes the Gini coefficient by constructing
the Lorenz curve. The Gini coefficient values vary between zero and
one. If receipts are distributed perfectly equally among all the firms
in an industry, the value of the Gini coefficient would equal to zero.
If an industry's total receipts are attributed to a single firm, the
Gini coefficient would equal to one.
SBA compares the degree of inequality of distribution for an
industry under review with that for industries in the anchor comparison
group. If an industry shows a higher degree of inequality of
distribution (i.e., higher Gini coefficient) compared to industries in
the anchor comparison industry group this would, all else being equal,
warrant a higher size standard than the anchor. Conversely, for
industries with similar or more equal distribution (i.e., similar or
lower Gini coefficient values) than the anchor group, the anchor
standard, or in some cases a standard lower than the anchor, would be
adopted
5. Impact on SBA programs. SBA examines the possible impact a size
standard change may have on the level of Federal small business
assistance. This assessment most often focuses on the share of Federal
contracting dollars awarded to small businesses in the industry in
question. In general, if the share of Federal contracting dollars
awarded to small businesses in an industry that receives a significant
amount of Federal contracting dollars is significantly less than the
small business share of the industry's total receipts, a justification
would exist for considering a size standard higher than the existing
size standard. The disparity between the small business Federal market
share and industry-wide share may be attributed to a variety of
reasons, such as extensive administrative and compliance requirements
associated with Federal contracts, the different skill set required on
Federal contracts as compared to typical commercial contracting work,
and the size of contracting requirements of Federal customers. These,
as wells as other factors, are likely to influence the type of firms
within an industry that compete for Federal contracts and, hence, the
firms receiving such contracts are expected to possess different
characteristics than the average characteristics for all firms in that
industry. By comparing the small business Federal contracting share
with the industry-wide small business share, SBA includes in its size
standards analysis the latest Federal contracting trends. This analysis
may indicate a size standard larger than the current standard.
For this proposed rule, SBA considered Federal procurement trends
in the size standards analysis only if (1) the small business share of
Federal contracting dollars is at least 10 percentage points lower than
the small business share of total industry receipts and (2) the amount
of total Federal contracting averages $100 million or more during
fiscal years 2006-2008 (the latest years for which complete Federal
procurement data are available). SBA has selected these thresholds
because they reflect a significant level of contracting in which a
revision to a size standard may have an impact on expanding small
business opportunities.
Another factor that SBA evaluates is the impact of a proposed size
standard on SBA's loan programs, that is, the volume of SBA guaranteed
loans within an industry and the size of firms obtaining those loans.
This factor is examined to assess whether the existing or the proposed
size standard for a particular industry may be restricting the level of
financial assistance to small firms in that industry. If the analysis
shows a reduction in financial assistance to small businesses, a higher
size standard would be supportable. If small businesses have already
been receiving significant amounts of financial assistance through
SBA's loan programs, or if the financial assistance has been provided
mainly to businesses that are much smaller in size than the existing
size standard, consideration of this factor for determining the size
standard may not be necessary.

Sources of Industry and Program Data

The primary source of data for SBA's industry analysis is a special
tabulation of the 2002 Economic Census (see https://www.census.gov/econ/census02/) prepared by the U.S. Bureau of the Census (Census
Bureau) for SBA. The special tabulation provides SBA with industry-
specific data on the number of firms, number of establishments, number
of employees, annual payroll and annual receipts of companies by the
size of firm reporting the data to Census. That is, the data are by the
size class of the total company; however, the data itself, within a
particular size class, represents the company's total data in that
industry only. The special tabulation enables SBA to evaluate average
firm size, the four-firm concentration ratio, and distribution of firms
by receipts and employment size.
In some cases, where Census data were not available due to
disclosure prohibitions, SBA either estimated missing values using
available relevant data or, examined data at a higher level of industry
aggregation, such as at the 2- or 3-digit NAICS level. In some
instances, SBA had to base its analysis only on those factors for which
data were available or missing values could be estimated. Data sources
and estimation procedures SBA uses in its size standards analysis are
documented in detail in the ``SBA Size Standards Methodology'' paper,
which is available at https://www.sba.gov/size.
Sales to total assets ratios used to calculate average assets size
are from the Risk Management Association's Annual Statement Studies,
2006-2008.

[[Page 53917]]

To evaluate Federal contracting trends, SBA examined Federal
contract award data for fiscal years 2006-2008 from the U.S. General
Service Administration's Federal Procurement Data System--Next
Generation (FPDS-NG). SBA's internal data on its guaranteed loan
programs for fiscal years 2006-2008 were analyzed to assess the impact
on financial assistance to small businesses.

Dominant in Field of Operation

Section 3(a) of the Small Business Act (15 U.S.C. 632(a)) defines a
small business concern as one that is (1) independently owned and
operated, (2) not dominant in its field of operation, and (3) within a
specific small business definition or size standard established by the
SBA Administrator. SBA considers as part of its evaluation of a size
standard whether a business concern at a proposed size standard would
be considered dominant in its field of operation. For this, SBA
generally examines the industry's market share of firms at the proposed
standard or other factors that may indicate whether a firm can exercise
a major controlling influence on a national basis in which significant
numbers of business concerns are engaged. If SBA's analysis indicates
that a proposed size standard would include a dominant firm, a lower
size standard would be considered to exclude the dominant firm from
being defined as small.

Selection of Size Standards

To simplify size standards, for the ongoing comprehensive size
standards review, SBA has proposed to select a size standard for an
industry from a limited number of receipts based size standard levels.
For many years, SBA has been concerned about the complexity of
determining small business status caused by a large number of varying
receipts based size standards (see 69 FR 13130, March 4, 2004, and 57
FR 62515, December 31, 1992). Currently, there are 32 different levels
of receipts based size standards, ranging from $0.75 million to $35.5
million, with many of those levels applying to one or just a few
industries only. SBA believes that such a large number of variations
with small variations are both unnecessary and difficult to justify
analytically. Simplifying the administration of SBA's size standards to
a fewer number of size standard levels will produce more common size
standards for businesses operating in multiple related industries and
greater consistency in the size standards among industries that are
similar in their economic characteristics.
This proposed rule, therefore, applies one of eight receipts based
size standards to each industry in Sector 72. These eight ``fixed''
size standard levels are $5 million, $7 million, $10 million, $14
million, $19 million, $25.5 million, $30.0 million and $35.5 million.
These eight receipts based size standard levels are established by
taking into consideration the minimum, maximum, and the more commonly
used receipts based size standards. Currently, the more commonly used
receipts based size standards cluster around the following six levels--
$2.5 million to $4.5 million, $7 million, $9.0 million to $10 million,
$12.5 million to $14.0 million, $25.0 million to $25.5 million, and
$33.5 million to $35.5 million. SBA has selected $7 million as one of
eight fixed levels of receipts based size standards because this is
also an anchor standard for receipts based standards. A lower or
minimum receipts based size level is established at $5 million.
Excluding monetary standards for agriculture and those based on net
commissions (such as real estate brokers and travel agents), $5 million
is in the close neighborhood of the current minimum receipts based
standard of $4.5 million. Among the higher levels size clusters, $10
million, $14 million, $25.5 million, and $35.5 million are selected as
other four levels of the fixed size standards. Because of a large gap
between two of the size standard intervals, SBA has established
intermediate levels of $19 million between $14 million and $25.5
million, and $30 million between $25.5 million and $35.5 million. These
two intermediate size levels reflect roughly similar proportional
differences between the two successive size standard levels.
In a further effort to simplify size standards, SBA may propose a
common size standard for certain closely related group of industries.
Although the size standard analysis may support a specific size
standard level for each industry, SBA believes that establishing
different size standards for closely related industries may not be
appropriate. For example, in cases where many of the same businesses
operate in the same two industries, establishing the common size
standard would better reflect the industry marketplace than
establishing separate size standards for each of those industries. This
situation has led SBA to establish a common size standard for the
information technology (IT) services industries (NAICS 541511, NAICS
541112, NAICS 541513 and NAICS 541519), even though the industry data
might support a distinct size standard for each industry. Businesses
engaged in IT related services typically perform activities in two or
more other related industries. Whenever SBA proposes a common size
standard for closely related industries it will provide a justification
for that in the proposed rule.

Evaluation of Industry Structure

SBA has evaluated the structure of each industry in the
Accommodation and Food Services Sector to assess the appropriateness of
the current size standards. As described above, SBA compared data on
the economic characteristics of each industry in that Sector to the
average characteristics of industries in two comparison groups. The
first comparison group is comprised of all industries with $7.0 million
size standards--referred to as the ``receipts based anchor comparison
group.'' Because the goal of SBA's size review is to assess whether a
specific industry's size standard should be at or different from the
anchor size standard, this is the most logical set of industries to
group together for the industry analysis. In addition, this group
includes a sufficient number of firms to provide a meaningful
assessment and comparison of industry characteristics.
If the characteristics of an industry under review are similar to
the average characteristics of industries in the anchor comparison
group, the anchor size standard would be considered an appropriate
standard for that industry. If an individual industry's structure is
significantly different from that of the anchor group, a size standard
lower or higher than the anchor size standard would be selected. The
level of the new size standard is determined based on the difference
between the characteristics of the anchor comparison group and a second
industry comparison group. As described above, the second comparison
group for receipts based standards consists of industries with the
highest receipts based size standards, ranging from $23 million to
$35.5 million, with the average size standard for the group equaling
$29 million. SBA refers to this group of industries as the ``higher
level receipts based size standard comparison group.'' Differences in
industry structure between an industry under review and the industries
in the two comparison groups are determined by comparing data on each
of the industry factors, including average firm size, average assets
size, four-firm concentration ratio, and the Gini coefficient of
distribution of firms by size. Table 1 shows two measures of the

[[Page 53918]]

average firm size (simple and weighted), average assets size, four-firm
concentration ratio, average receipts of the four largest firms, and
the Gini coefficient for both anchor level and higher level comparison
groups for receipts based size standards.

Table 1--Average Characteristics of Receipts Based Comparison Groups
--------------------------------------------------------------------------------------------------------------------------------------------------------
Avg. firm size ($ million) Avg. four- firm Avg. receipts of
Receipts based comparison group ------------------------------------------ Avg. assets size ($ concentration ratio four largest firms Gini
Simple average Weighted average million) (%) ($ million) \a\ coefficient
--------------------------------------------------------------------------------------------------------------------------------------------------------
Anchor Level.................... 1.19............... 17.64.............. 0.71............... 18.7............... 189.9............. 0.599
Higher Level.................... 4.77............... 52.27.............. 2.05............... 22.3............... 639.4............. 0.725
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ To be used for industries with a four-firm concentration ratio of 40% or greater.

Derivation of Size Standards Based on Industry Factors

For each of the industry factors shown in Table 1, SBA derives a
separate size standard based on the amount of differences between their
values for an industry under review and those for the two comparison
groups. An estimated size standard that is supported by each industry
factor is derived by comparing its value for a specific industry under
review to the corresponding value for the two comparison groups. If the
industry value for a particular factor is near that for the anchor
comparison group, the $7.0 million anchor size standard would be
considered appropriate for that factor.
If an industry's value for a factor is significantly above or below
the anchor comparison group value, a size standard above or below the
$7.0 million anchor size would be warranted. The level of the new size
standard in these cases is derived based on the proportional difference
between the industry value and the values for the two comparison
groups.
For example, if an industry's simple average receipts size equals
$3.0 million, SBA's analysis would supports a size standard of $19
million. The $3.0 million level is 50.6 percent between the average
firm size of $1.19 million for the anchor comparison group and $4.77
million for the higher level comparison group (($3.00 million--$1.19
million) / ($4.77 million--$1.19 million) = 0.506 or 50.6%). This
proportional difference is applied to the difference between the $7.0
million anchor size standard and average size standard of $29 million
for the higher level size standard group and then added to $7.0 million
to estimate a size standard of $18.12 million ([{$29.0 million--$7.0
million{time} * 0.506] + $7.0 million = $18.12 million). The final
step rounds the estimated size standard of $18.12 million to the
nearest fixed size standard level, in this case to $19 million.
SBA applies the above method of calculation to derive a size
standard for each industry factor. Detailed formulas involved in these
calculations are presented in ``SBA Size Standards Methodology'' which
is available at https://www.sba.gov/size. Table 2 shows ranges of values
for each industry factor and the levels of size standards supported by
those values.

Table 2--Values of Industry Factors and Supported Size Standards
----------------------------------------------------------------------------------------------------------------
Or if avg.
Or if weighted Or if avg. receipts of Then size
If simple avg. receipts size avg. receipts assets size ($ largest four Or if gini standard is ($
($ million) size ($ million) firms ($ coefficient million)
million) million)
----------------------------------------------------------------------------------------------------------------
< 1.03...................... < 16.07........ < 0.65......... < 169.4........ < 0.593........ 5.0
1.03 to 1.43................ 16.07 to 20.00. 0.65 to 0.80... 169.4 to 220.5. 0.593 to 0.608. 7.0
1.44 to 2.00................ 20.01 to 25.51. 0.81 to 1.02... 220.6 to 292.0. 0.609 to 0.628. 10.0
2.01 to 2.74................ 25.52 to 32.59. 1.03 to 1.29... 292.1 to 384.0. 0.629 to 0.653. 14.0
2.75 to 3.67................ 32.60 to 41.65. 1.30 to 1.64... 384.1 to 501.5. 0.654 to 0.686. 19.0
3.68 to 4.57................ 41.66 to 50.30. 1.65 to 1.97... 501.6 to 613.8. 0.687 to 0.718. 25.5
4.58 to 5.38................ 50.31 to 58.17. 1.98 to 2.28... 613.9 to 716.1. 0.719 to 0.746. 30.0
> 5.38...................... >58.17......... > 2.28......... > 716.1........ > 0.746........ 35.5
----------------------------------------------------------------------------------------------------------------

Table 3 shows the results of industry analysis for each industry in
Sector 72, Accommodation and Food Services. Each NAICS industry row in
columns 2, 3, 4, 6 and 7 shows two numbers. The upper number is the
value for the industry factor shown on the top of the column and the
lower number is the size standard supported by that factor. For the
four-firm concentration ratio, a size standard is estimated based on
the average receipts of the top four firms if its value is 40 percent
or more. If the four-firm concentration ratio for an industry is less
than 40 percent, no size standard is estimated for that factor and
column 5 is left blank. Column 8 shows the proposed or revised size
standard for each industry, calculated as the average of size standards
supported by each industry factor and rounded to the nearest fixed size
level. Analytical details involved in the averaging procedure are
described in the SBA ``Size Standards Methodology'' paper which is
available at https://www.sba.gov/size. For comparison, the current size
standards for industries in Sector 72 are also shown in column 9 of
Table 3.

[[Page 53919]]

Table 3--Size Standards Supported by Each Industry Factor
[Millions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Simple Weighted Four-firm Revised Current
NAICS average average Average Four-firm average Gini size size
firm size firm size assets size ratio (%) firm size coefficient standard standard
(1) (2) (3) (4) (5) (6) (7) (8) (9)
--------------------------------------------------------------------------------------------------------------------------------------------------------
721110--Hotels (except Casino Hotels) & Motels.. $2.5 $118.5 $4.9 ........... ........... 0.765 ........... ...........
$14.0 $35.5 $35.5 22.4% ........... $35.5 $30.0 $7.0
721120--Casino Hotels........................... $203.8 $523.8 $179.8 ........... $3,557.7 0.611 ........... ...........
$35.5 $35.5 $35.5 42.6% $35.5 $10.0 $30.0 $7.0
721191--Bed-and-Breakfast Inns.................. $0.3 $0.7 ........... ........... ........... 0.061 ........... ...........
$5.0 $5.0 ........... 3.0% ........... $5.0 $5.0 $7.0
721199--All Other Traveler Accommodation........ $0.3 $1.1 ........... ........... ........... 0.123 ........... ...........
$5.0 $5.0 ........... 9.9% ........... $5.0 $5.0 $7.0
721211--RV (Recreational Vehicle) Parks & $0.4 $2.5 $0.5 ........... ........... 0.287 ........... ...........
Campgrounds....................................
$5.0 $5.0 $5.0 9.1% ........... $5.0 $5.0 $7.0
721214--Recreational & Vacation Camps (except $0.6 $1.7 0.8 ........... ........... 0.276 ........... ...........
Campgrounds)...................................
$5.0 $5.0 $10.0 5.1% ........... $5.0 $7.0 $7.0
721310--Rooming & Boarding Houses............... 0.3 $1.2 ........... ........... ........... 0.187 ........... ...........
$5.0 $5.0 ........... 6.6% ........... $5.0 $5.0 $7.0
722110--Full Service Restaurants................ $0.9 $46.1 $0.3 ........... ........... 0.467 ........... ...........
$5.0 $25.5 $5.0 8.6% ........... $5.0 $7.0 $7.0
722211--Limited Service Restaurants............. $1.0 $52.3 $0.3 ........... ........... 0.599 ........... ...........
$5.0 $30.0 $5.0 10.2% ........... $7.0 $10.0 $7.0
722212--Cafeterias.............................. $1.3 $61.3 ........... ........... ........... 0.729 ........... ...........
$7.0 $35.5 ........... 39.2% ........... $30.0 $25.5 $7.0
722213--Snack & Nonalcoholic Beverage Bars...... $0.5 $29.9 $0.2 ........... ........... 0.454 ........... ...........
$5.0 $14.0 $5.0 24.6% ........... $5.0 $7.0 $7.0
722310--Food Service Contractors................ $7.7 $471.8 $2.3 ........... $3,357.8 0.937 ........... ...........
$35.5 $35.5 $35.5 64.4% $35.5 $35.5 $35.5 $20.5
722320--Caterers................................ $0.6 $2.4 $0.1 ........... ........... 0.333 ........... ...........
$5.0 $5.0 $5.0 2.1% ........... $5.0 $5.0 $7.0
722330--Mobile Food Services.................... $0.4 $9.1 ........... ........... ........... 0.464 ........... ...........
$5.0 $5.0 ........... 24.7% ........... $5.0 $5.0 $7.0
722410--Drinking Places (Alcoholic Beverages)... $0.3 $1.4 $0.1 ........... ........... 0.151 ........... ...........
$5.0 $5.0 $5.0 2.2% ........... $5.0 $5.0 $7.0
--------------------------------------------------------------------------------------------------------------------------------------------------------

As can be seen in Table 3, the results of SBA analyses of industry
data would support lowering size standards from $7 million in annual
receipts to $5 million in annual receipts for seven industries in
Sector 72. Those seven industries are NAICS 721191, Bed and Breakfast
Inns; NAICS 721199, All Other Traveler Accommodation; NAICS 721211,
Recreational Vehicle Parks and Campgrounds; NAICS 721310, Rooming and
Boarding Houses; NAICS 722320 Caterers; NAICS 722330, Mobile Food
Services; and NAICS 722410, Drinking Places.
However, SBA believes that lowering size standard for those
industries would not be in the best interests of small businesses when
the economy is in a deep recession. Aiming to promote economic recovery
and to preserve and create jobs the U.S. Congress passed and the
President signed the American Recovery and Reinvestment Act of 2009
(Recovery Act). The purposes and goals of the Recovery Act are to
promote economic recovery and to preserve and create jobs. Under the
Recovery Act, SBA has changed its various programs to assist small
businesses, including the following: (1) Temporary reduction or
elimination of fees in the 7(a) and 504 loan guarantee programs; (2)
creation of a temporary 90 percent guarantee loan program; (3) creation
of a temporary Secondary Market Guarantee Authority to provide a
Federal guarantee for pools of first lien 504 loans that are to be sold
to third-party investors; (4) new authority for refinancing community
development loans under the 504 program; (5) revision of the job
creation goals of the 504 program; (6) simplification of the maximum
leverage limits and aggregate investment limits required of Small
Business Investment Companies; (7) temporary authority to provide loans
on a deferred basis to viable small business concerns that have a
qualifying small business loan and are experiencing immediate financial
hardship; (8) temporary increase in the surety bond maximum amount; (9)
establishment of a Secondary Market

[[Page 53920]]

Lending Authority to make loans to systemically important broker
dealers in SBA's 7(a) secondary market; and (10) application of SBA's
Certified Development Company (CDC) alternative size standard to its
7(a) Business Loan Program (see 13 CFR 121.301).
SBA believes that to reduce size standards and thereby reduce
eligibility for those programs, or to reduce the number of firms that
can participate in financial and Federal procurement assistance
programs would run counter to what it is trying to do for small
businesses. Reducing size eligibility for Federal procurement
opportunities would not preserve or create more jobs; rather, it would
have the opposite effect. Therefore, SBA has decided not to propose to
reduce the size standards for those industries. SBA has decided to
retain their current size standards. Further, SBA does not anticipate
that it will propose to lower size standards after the Recovery Act
terminates on September 30, 2010. SBA intends for the proposed size
standards, if adopted, to remain in effect unless and until it receives
information or data that suggests a change is needed.

Evaluation of Federal Contracting and SBA Loan Data

Besides industry structure, SBA also evaluates Federal contracting
data to assess the extent to which small businesses are successful in
getting Federal contracts under the existing size standards. However,
the available data on Federal contracting are limited to identifying
businesses as small or other than small, with no information on exact
size of businesses receiving Federal contracts in order to conduct a
more precise analysis.
Given limited data, for the current comprehensive size review, SBA
has decided to designate a size standard at one level higher than their
current size standard for industries where the small business share of
total Federal contracting dollars is between 10 and 30 percentage
points lower than their shares in total industry receipts and at two
levels higher than the current size standard if the difference is
higher than 30 percentage points.
SBA has chosen not to designate a size standard for the Federal
contracting factor alone that is higher than two levels above the
current size standard because doing so would result in most cases of
designating a size standard more than twice the current size standard.
Given the limitations of the FPDS data, and the complex relationships
among a number of variables affecting small business participation in
the Federal marketplace, SBA believes that a larger adjustment to size
standards based on Federal contracting activity should be based on a
more detailed analysis of the impact of any subsequent revision to the
current size standard. In limited situations, however, SBA may conduct
a more extensive examination of Federal contracting experience to
support a different size standard than indicated by this general rule
to take into consideration significant and unique aspects of small
business competitiveness in the Federal contract market.
SBA welcomes comment on its methodology of incorporating the
Federal contracting factor in the size standard analysis and
suggestions for alternative methods and other relevant information on
small business experience in the Federal contract market.
Only two industries in Sector 72, Accommodation and Food Services,
received an average of $100 million or more annually in Federal
contracting dollars during fiscal years 2006-2008. These industries are
NAICS 721110, Hotels (except Casino Hotels) and Motels, and NAICS
722310, Food Service Contractors. However, because the small business
share of total Federal contracting dollars was already higher than
small business share of total industry receipts for both of these
industries, the Federal procurement factor was not considered in
determining the level of size standard. The latest data show that
Federal contracting activity is insignificant for most of the
industries in Sector 72 and, for those two industries where it is
significant, small businesses seem to be doing well in terms of their
share in Federal marketplace relative to their share in industry's
total sales.
Before deciding on an industry's size standard, SBA also considers
the impact of new or revised standards on SBA's loan programs. SBA
examined 7(a) Loan Program data for fiscal years 2006-2008 to assess
whether the existing or proposed size standards need further
adjustments to ensure credit opportunities for small businesses through
that program. For the industries reviewed, primarily small businesses
that are much smaller than the size standards use the 7(a) Loan
Program. Based on that analysis, no size standard Sector 72,
Accommodation and Food Services, needs an adjustment based on this
factor.

Summary of Size Standards Changes

The analyses of industry structure, Federal contracting data and
SBA loan information, support retaining the existing $7.0 million
standard for three industries in Sector 72, Accommodation and Food
Services. These are NAICS 721214, Recreational and Vacation Camps
(except Campgrounds); NAICS 722110, Full Service Restaurants; and NAICS
722213, Snacks and Nonalcoholic Beverage Bars.
The analyses support an increase to the current size standard for
five industries, namely NAICS 721110, Hotels and Motels, from $7.0
million to $30 million; NAICS 721120, Casino Hotels, from $7.0 million
to $30 million; NAICS 722211, Limited Service Restaurants, from $7.0
million to $10 million; NAICS 722212, Cafeterias, from $7.0 million to
$25.5 million; and NAICS 722310, Food Service Contractors, from $20.5
million to $35.5 million. These revisions are summarized in Table 4.

Table 4--Summary of Proposed Size Standard Revisions
------------------------------------------------------------------------
Current size Revised size
NAICS standard ($ standard ($
million) million)
------------------------------------------------------------------------
721110--Hotels (except Casino $7.0 $30.0
Hotels) & Motels...................
721120--Casino Hotels............... 7.0 30.0
722211--Limited Service Restaurants. 7.0 10.0
722212--Cafeterias.................. 7.0 25.5
722310--Food Service Contractors.... 20.5 35.5
------------------------------------------------------------------------

[[Page 53921]]

SBA's analyses support a decrease to the current standard for seven
industries from $7.0 million to $5.0 million. These industries are
NAICS 721191, Bed and Breakfast Inns; NAICS 721199, All Other Traveler
Accommodation; NAICS 721211, Recreational Vehicle Parks and
Campgrounds; NAICS 721310, Rooming and Boarding Houses; NAICS 722320
Caterers; NAICS 722330, Mobile Food Services; and NAICS 722410,
Drinking Places. However, as discussed above, SBA has decided that
proposing to lower small business size standards would be inconsistent
with its ongoing effort to promote small business assistance under the
Recovery Act. Therefore, SBA proposes to retain the current size
standards for those industries. SBA intends for the proposed size
standards, if adopted, to remain in effect unless and until it receives
information or data that suggests a change is needed.

Evaluation of Dominance in Field of Operation

SBA has determined that for the industries in Sector 72,
Accommodation and Food Services, no firm at or below the proposed size
standard would be large enough to dominate its field of operation. A
firm at the proposed size standard within these industries generates
less than one percent of total industry receipts. This level of market
share effectively precludes a firm at or below the proposed size
standard from exerting a controlling effect on this industry.

Request for Comments

SBA invites public comments on the proposed rule, especially on the
following areas.
1. In an effort to simplify size standards, for this proposed rule
SBA has proposed a set of eight fixed size levels for receipts based
size standards: $5.0 million, $7.0 million, $10.0 million, $14.0
million, $19.0 million, $25.5 million, $30.0 million, and $35.5
million. SBA invites comments on whether simplification of size
standards in this way is necessary and if these proposed fixed size
levels are appropriate, or suggestions on alternative approaches to
simplifying small business size standards.
2. For all industries in Sector 72, Accommodation and Food
Services, SBA has proposed receipts based size standards ranging from
$7 million to $35.5 million. SBA seeks feedback on whether the levels
of size standards it proposes seem right given the economic
characteristics of each industry. SBA also seeks feedback and
suggestions on alternative standards, if they would be more
appropriate, including whether an employee based standard for certain
industries is a more suitable measure of size, and what that employee
level should be.
3. SBA's proposed standards are based on its evaluation of five
primary factors--average firm size, average assets size (as proxy of
startup costs and entry barriers), four-firm concentration ratio,
distribution of firms by size, and the level and small business share
of Federal contracting dollars. SBA welcomes comments on these and
other factors that interested parties believe are important to consider
for describing industry characteristics when SBA evaluates its size
standards. Please provide relevant data sources, if available.
4. SBA derives its proposed standards by applying equal weights to
each of the five primary factors in all industries. Should SBA continue
with the equal weighting of each factor or should it give more weight
to one or more factors in size standard determination of certain
industries? If it is more appropriate to weigh some factors more than
others, SBA welcomes suggestions on specific weights for each factor
along with supporting information.
5. For some industries, SBA proposes to increase the existing size
standards by a large amount, while for others the proposed increase is
less. Should SBA, as a policy, limit the amount of increase or decrease
to a size standard? Also should SBA, as a policy, establish certain
minimum or maximum values for its size standards? SBA seeks suggestions
on appropriate levels of change to size standards and on their minimum
or maximum levels.
6. For analytical simplicity and efficiency, SBA has refined its
size standard methodology to obtain a single value as a proposed size
standard instead of a range of values as was SBA's methodology in its
past size regulations. SBA welcomes any comments on this procedure and
suggestions for alternative methods.
Public comments on above issues are very critical for SBA to
validate its size standard methodology and move forward in a timely
manner with review of size standards of other industry groups under the
two-year comprehensive size review.
Compliance With Executive Orders 12866, 12988, and 13132, the
Paperwork Reduction Act (44 U.S.C. Ch. 35), and the Regulatory
Flexibility Act (5 U.S.C. 601-612).

Executive Order 12866

The Office of Management and Budget (OMB) has determined that this
proposed rule is a ``significant'' regulatory action for purposes of
Executive Order 12866. Accordingly, the next section contains SBA's
Regulatory Impact Analysis. This is not a major rule, however, under
the Congressional Review Act, 5 U.S.C. 800.

Regulatory Impact Analysis

1. Is there a need for the regulatory action?

SBA believes that adjustments to certain size standards in Sector
72, Accommodation and Food Services, are needed to better reflect the
economic characteristics of small businesses in those industries. SBA's
mission is to aid and assist small businesses through a variety of
financial, procurement, business development, and advocacy programs. To
assist effectively the intended beneficiaries of these programs, SBA
must establish distinct definitions of which businesses are deemed
small businesses. The Small Business Act (15 U.S.C. 632(a)) delegates
to SBA's Administrator the responsibility for establishing small
business definitions. The Act also requires that small business
definitions vary to reflect industry differences. The supplementary
information section of this proposed rule explains SBA's methodology
for analyzing a size standard for a particular industry.

2. What are the potential benefits and costs of this regulatory action?

The most significant benefit to businesses obtaining small business
status as a result of this rule is eligibility for Federal small
business assistance programs, including SBA's financial assistance
programs, economic injury disaster loans, and Federal procurement
preference programs for small businesses. Federal procurement provides
opportunities for small businesses under SBA's business development
programs, such as 8(a), Small Disadvantaged Businesses (SDB), small
businesses located in Historically Underutilized Business Zones
(HUBZone), women owned small businesses, and service disabled veteran
owned small businesses (SDVOSB). Other Federal agencies also may use
SBA size standards for a variety of regulatory and program purposes.
Through the assistance of these programs, small businesses become more
knowledgeable, stable, and competitive businesses. In five industries
under Sector 72 for which SBA has proposed to increase their size
standards, about 2,050 additional firms are estimated to obtain small
business status and become eligible for these

[[Page 53922]]

programs. In the seven industries for which SBA's analyses indicated a
lower size standard as appropriate, there are about 450 firms that
might have lost their small business status, had SBA proposed lowering
them. That number is less than 0.6 percent of total number of firms in
those industries defined as small under the current standards. Thus,
the net impact for the sector as a whole is about 2,050 additional
firms gaining and none losing small business status under the proposed
rule. This will increase the small business share of total industry
receipts for the Sector from about 46 percent under the current size
standards to nearly 50 percent under the proposed standards.
The benefits of increasing certain size standards to a more
appropriate level would accrue to three groups: (1) Businesses that
benefit by gaining small business status from the higher size standard
that also use small business assistance programs; (2) growing small
businesses that may exceed the current size standards in the near
future and that will retain small business status from the higher size
standard; and (3) Federal agencies that award contracts under
procurement programs that require small business status.
Nearly 90 percent of Federal contracting dollars spent in Sector 72
during fiscal years 2006-2008 was accounted for by two of five
industries for which size standards have been proposed to increase. SBA
estimates that additional firms gaining small business status in those
two industries under the proposed size standards could potentially
obtain Federal contracts totaling up to $75 million per year under the
small business set-aside program, the 8(a), HUBZone, and SDVOSB
Programs, or unrestricted procurements. This represents about 5.5
percent of the $1.13 billion in average Federal contracts awarded to
the Accommodation and Food Services Sector during fiscal years 2006-
2008. The added competition for many of these procurements also would
likely result in a lower price to the Government for procurements
reserved for small businesses, but SBA is not able to quantify this
benefit.
Under SBA's 7(a) Guaranteed Loan Program and Certified Development
Company (504) Program, SBA estimates only a few additional loans
totaling $1 million to $2 million in Federal loan guarantees could be
made to these newly defined small businesses. Because of the size of
the loan guarantees, however, most loans are made to small businesses
well below the size standard. Moreover, under the Recovery Act,
effective February 17, 2009, SBA is temporarily raising guarantees on
its SBA's 7(a) loan program and also temporarily eliminating fees for
borrowers on SBA 7(a) loans and for both borrowers and lenders on 504
Certified Development Company loans, through calendar year 2009, or
until the funds are exhausted. The fee elimination is retroactive to
February 17, 2009, the day the Recovery Act was signed. Furthermore,
SBA is developing a mechanism for refunding fees paid on loans since
then. In addition, since SBA has applied its CDC alternative size
standard to its 7(a) Business Loan Program, more capital is available
to small businesses. Thus, increasing the size standards will likely
result in an increase in small business guaranteed loans to businesses
in these industries, but it would be impractical to try to estimate the
extent of their number and the total amount loaned.
The newly defined small businesses would also benefit from SBA's
Econom

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