Government Affairs

April 28, 2003

The Financial Accounting Standards Board voted this week to require public companies to count their employee stock options as expenses prompted two senators to vow a legislative fight against the rules change, National Journal's Technology Daily reported. Sen. Barbara Boxer, D-Calif., said she and GOP Sen. John Ensign of Nevada, chairman of the Senate Republican High-Tech Task
Force, plan to introduce legislation early this week to block the action. The legislation would be a companion bill to a House measure introduced in March by California Reps. David Dreier, a Republican, and Anna Eshoo, a Democrat. The legislation would halt any mandate that stock options be counted as expenses and direct the SEC to review the potential economic impact of that idea. FASB, the independent board that sets the nation's accounting rules, has been signaling for months that it was likely to adopt an expensing mandate -- arguing that the move wouldmake the financial markets and company balance sheets more transparent for investors. Technology firms, which have made heavy use of stock options in employee compensation packages, oppose the action. President Bush, in an interview published last April in the Wall Street Journal, indicated that he also opposes forcing companies to count stock options as expenses.

May 22, 2003

Committee Approves Netting, Housing Bills

The House Committee on Financial Services, chaired by Rep. Michael G. Oxley (OH), approved the following bill today by voice vote:

H.R. 2120, the Financial Contracts Bankruptcy Reform Act:

H.R. 2120 would make it easier and quicker for financial institutions to detangle their obligations in the event a counterparty goes bankrupt. The legislation will prevent the failure of one financial institution from leading to the collapses of other institutions, thus protecting market participants, their investors, and depositors.

The provisions contained within H.R. 2120 most recently passed the House in March as a part of H.R. 975, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2003. On May 15, 2003, Rep. Patrick J. Toomey (PA) introduced H.R. 2120 - a standalone version of the netting provisions. H.R. 2120 has 20 co-sponsors including Chairman Oxley.

The bill was approved without amendment.

June 9, 2003

Chairman Don Manzullo Calls on China to Let Market Determine Currency's Value: Tying Chinese RMB to U.S. Dollar Unfairly Hurts U.S. Exporters

On Thursday, May 29, Small Business Committee Chairman Don Manzullo urged the Chinese government to stop dictating the value of its RMB currency, which artificially lowers the prices of Chinese goods in the U.S. while making U.S. exports more expensive in China.

Chairman Manzullo, also Chairman of the U.S.-China Interparliamentary Exchange, said China's entry into the World Trade Organization (WTO) should prompt the country to stop fixing the value of its currency and instead allow the currency to float against market prices. The United States and China will never maintain a free and fair trading relationship as long as China's currency is fixed to the U.S. dollar, he said.Chairman Manzullo sent a letter on May 29 to China's Premier, Wen Jiabao, explaining the unfair currency policy and calling on the Chinese government to untie the RMB from the U.S. dollar. Economists estimate the Chinese RMB is currently 15 to 40 percent undervalued.

According to Chairman Manzullo, this policy distorts trade and hurts our domestic producers since it artificially lowers the prices of Chinese goods in the U.S. while artificially raising prices of our exports to China. The Chairman believes it is hard to see how this contributes positively to development of political and trade relations between the U.S. and China.

More Credit Available to Small Business

On Tuesday, June 3, the SBA made a long-overdue announcement that over $1.4 billion in additional loan authority would be made available for small business lending for Fiscal Year 2003 (ends on September 30, 2003). As a result, lending authority in the SBA's primary business loan guarantee program, 7(a), will increase to almost $11.0 billion. Small Business Committee Chairman Don Manzullo praised SBA Administrator Hector Barreto for making this common sense decision.

The new loan authority will be made available by applying a new 7(a) econometric subsidy model not just to the regular 7(a) program but also to the STAR program for FY 2003, which was authorized by the passage into law of S. 141 last February (see SBC Notes 108-1).

The STAR, or Supplemental Terrorist Activity Relief, program was established as a subset of the 7(a) program to assist small businesses affected by the terrorist attacks of Sept. 11, 2001,
and was in effect through January 11, 2003. From October 1, 2002 through January 11, 2003, $1.663 billion in STAR loans were made.

By applying the new econometric model to the STAR program, the estimated cost of the program
declines dramatically. This frees up $12.3 million that will now be transferred to the 7(a) program to make loans to small businesses. Since January, some loans approved through the STAR program have been cancelled, allowing the SBA to transfer about $2.8 million in additional funds to the 7(a) program. Together, these transfers support approximately $1.449 billion in additional 7(a) loans.

Export-Import Bank Small Business Lending Statistics

On Wednesday, June 4, the Chairman and President of the Export-Import Bank of the United States (Ex-Im), Philip Merrill, responded back to Small Business Committee Chairman Don Manzullo regarding their progress on meeting the recently increased 20 percent goal for small business exporters. Ex-Im stated that as of May 31, 2003, 16.7 percent of Ex-Im's total authorized amounts have directly involved small business exports.

May 22, 2003

FASB - Accounting Rules

A House panel said on Tuesday it would hold a hearing on the accounting treatment of stock options, a forum sought by lawmakers who hope to stall any rule that options be counted as a business expense.

The House Subcommittee on Capital Markets will hold the hearing, entitled "The Accounting Treatment of Employee Stock Options," on June 3, a statement from the full House Committee on Financial Services said.

It said the session would give both sides of the stock options accounting debate a chance to discuss their views, as well as review legislation proposed by Rep. David Dreier (CA-R) and Rep. Anna Eschoo CA-D). But it did not list any witnesses.

The Dreier-Eschoo proposal would delay for three years any new accounting rule requiring companies to count stock options as an expense in their shareholder reports. During that time a study of the matter would be conducted under the auspices of the Securities and Exchange Commission.

Stock options are blamed by some experts for inflating corporate earnings because companies are allowed to exclude them from compensation costs, disclosing their impact on profits only as a footnote to financial statements.

The Financial Accounting Standards Board (FASB), the nation's accounting rule-maker, has tentatively decided that stock options should in fact be treated as an expense and is trying to figure out the best way to do it.

But the Dreier-Eschoo bill is aimed at stopping FASB, because—the sponsors argue—requiring companies to expense options would slow the economy by effectively eliminating the use of broad-based options plans as an incentive for employees.

FASB backed away from a requirement to expense options in the 1990s under similar pressure from Congress and lobbyists for the high-tech industry. But this time, FASB chairman Robert Herz has said he is determined to proceed.

A companion bill to the Dreier-Eschoo effort will not get a committee airing in the Senate, Finance Committee Chairman Richard Shelby (AL-R)said last week, leaving a question mark over its future in that chamber.

Shelby said he did not think lawmakers should be interfering in FASB's affairs. The measure's Senate sponsors, Nevada Republican John Ensign and California Democrat Barbara Boxer could still seek to bring the bill to the floor as an amendment to another piece of legislation.