B-149685, NOVEMBER 14, 1978

DIGEST: SMALL BUSINESS ADMINISTRATION, SBA, HAS SPECIFIC AUTHORITY IN SECTION 404 OF SMALL BUSINESS INVESTMENT ACT OF 1958, 15 U.S.C. 694-1 (1976), TO DETERMINE WHAT CONSTITUTES "POLLUTION CONTROL FACILITIES" IN PROGRAM UNDER WHICH SBA GUARANTEES PAYMENTS BY SMALL BUSINESS CONCERNS DUE UNDER QUALIFIED CONTRACTS FOR POLLUTION CONTROL FACILITIES. GAO CONCURS WITH SBA'S REVISED INTERPRETATION OF SUCH FACILITIES TO INCLUDE SOLID WASTE DISPOSAL FACILITIES FOR A TRASH HAULING BUSINESS WITHIN THE PROGRAM'S BENEFITS ON BASIS OF PLAIN LANGUAGE OF THE STATUTE, ALTHOUGH IT IS POSSIBLE, ON BASIS OF LEGISLATIVE HISTORY, TO CONSTRUE THE TERM AS EXCLUDING FROM GUARANTEE BENEFITS BUSINESSES THAT HAVE NO POLLUTION PROBLEMS OF THEIR OWN, BUT WHICH ENGAGE IN SELLING POLLUTION ABATEMENT OR SOLID WASTE DISPOSAL SERVICES TO OTHERS FOR A PROFIT. IT IS WITHIN SBA'S STATUTORILY GRANTED DISCRETION TO CHOOSE THAT INTERPRETATION WHICH MOST EFFECTIVELY WILL IMPLEMENT CONGRESSIONAL INTENT AND CARRY OUT THE PURPOSES OF THE PROGRAM.

SBA GUARANTEES FOR POLLUTION CONTROL FACILITIES:

THIS DECISION IS IN RESPONSE TO A REQUEST FROM THE ADMINISTRATOR OF THE SMALL BUSINESS ADMINISTRATION (SBA), THAT THE GENERAL ACCOUNTING OFFICE (GAO) CONCUR IN SBA'S REVISED INTERPRETATION OF SECTION 404 OF THE SMALL BUSINESS INVESTMENT ACT OF 1058, 15 U.S.C. 694-1 (1976), WHICH AUTHORIZES A PROGRAM UNDER WHICH SBA GUARANTEES PAYMENTS BY SMALL BUSINESS CONCERNS DUE UNDER QUALIFIED CONTRACTS FOR POLLUTION CONTROL FACILITIES. HERETOFORE, THE ADMINISTRATOR CONSTRUED THE PROVISIONS OF THE STATUTE AS EXCLUDING FROM GUARANTEE BENEFITS A BUSINESS THAT HAD NO POLLUTION PROBLEM OF ITS OWN, BUT WHICH ENGAGED IN SELLING POLLUTION ABATEMENT OR SOLID WASTE DISPOSAL SERVICES TO OTHER BUSINESSES. HOWEVER, NOW THE ADMINISTRATOR HAS CONSTRUED THE STATUTE AS AUTHORIZING SBA.

"TO ISSUE A GUARANTEE OF THE PAYMENTS UNDER A 'QUALIFIED CONTRACT' ENTERED INTO BY A SMALL CONCERN CONDUCTING A SOLID WASTE DISPOSAL (TRASH HAULING) BUSINESS WHEN THE NEED FOR THE 'POLLUTION CONTROL FACILITY' IS NOT CLEARLY FOR THE PURPOSE OF PREVENTING, REDUCING, ABATING, OR CONTROLLING A POLLUTION PROBLEM CAUSED BY THAT BUSINESS."

HE SEEKS OUR CONCURRENCE PRIOR TO IMPLEMENTING THE MODIFIED CONSTRUCTION.

SUBSECTION 404(B) OF THE SMALL BUSINESS INVESTMENT ACT OF 1958, SUPRA, PROVIDES:

"THE ADMINISTRATION MAY, WHENEVER IT DETERMINES THAT SMALL BUSINESS CONCERNS ARE OR ARE LIKELY TO BE AT AN OPERATIONAL OR FINANCING DISADVANTAGE WITH OTHER BUSINESS CONCERNS WITH RESPECT TO THE PLANNING, DESIGN, OR INSTALLATION OF POLLUTION CONTROL FACILITIES, OR THE OBTAINING OF FINANCING THEREFOR (INCLUDING FINANCING BY MEANS OF REVENUE BONDS ISSUED BY STATES, POLITICAL SUBDIVISIONS THEREOF, OR OTHER PUBLIC BODIES), GUARANTEE THE PAYMENT OF RENTALS OR OTHER AMOUNTS DUE UNDER QUALIFIED CONTRACTS. ANY SUCH GUARANTEE MAY BE MADE OR EFFECTED EITHER DIRECTLY OR IN COOPERATION WITH ANY QUALIFIED SURETY COMPANY OR OTHER QUALIFIED COMPANY THROUGH A PARTICIPATION AGREEMENT WITH SUCH COMPANY. THE FOREGOING POWERS SHALL BE SUBJECT, HOWEVER, TO THE FOLLOWING RESTRICTIONS AND LIMITATIONS:

"(1) NOTWITHSTANDING ANY OTHER LAW, RULE, OR REGULATION OR FISCAL POLICY TO THE CONTRARY, THE GUARANTEE AUTHORIZED IN THE CASE OF POLLUTION CONTROL FACILITIES OR PROPERTY MAY BE ISSUED WHEN SUCH PROPERTY IS ACQUIRED BY THE USE OF PROCEEDS FROM INDUSTRIAL REVENUE BONDS WHICH PROVIDE THE HOLDERS INTEREST WHICH IS EXEMPT FROM FEDERAL INCOME TAX.

"(2) ANY SUCH GUARANTEE SHALL BE FOR THE FULL AMOUNT OF THE PAYMENTS DUE UNDER SUCH QUALIFIED CONTRACT AND SHALL BE A FULL FAITH AND CREDIT OBLIGATION OF THE UNITED STATES.

"(3) NO GUARANTEE SHALL BE ISSUED BY THE ADMINISTRATION UNLESS THE ADMINISTRATION DETERMINES THAT THERE EXISTS A REASONABLE EXPECTATION THAT THE SMALL BUSINESS CONCERN IN BEHALF OF WHICH THE GUARANTEE IS ISSUED WILL PERFORM THE COVENANTS AND CONDITIONS OF THE QUALIFIED CONTRACT."

INITIALLY, WE NOTE THAT THE PROGRAM IS NOT LIMITED BY ANY SPECIAL DEFINITION OF "SMALL BUSINESS CONCERN" IN EITHER THIS OR ANY OTHER PROVISION OF SECTION 404. ACCORDINGLY, THE TERMS OF THE STATUTE WOULD NOT PROHIBIT ANY ENTITY THAT SATISFIES THE REQUIREMENTS FOR A SMALL BUSINESS CONCERN UNDER SECTION 2(3) OF THE SMALL BUSINESS ACT, AS AMENDED, 15 U.S.C. 632 (1976), AS INCORPORATED BY SUBSECTION 103(5) OF THE SMALL BUSINESS INVESTMENT ACT OF 1958, AS AMENDED, 15 U.S.C. 662(5) (1976), FROM PARTICIPATING IN THE GUARANTEE PROGRAM FOR POLLUTION CONTROL FACILITIES UNDER SECTION 404, IF OTHERWISE QUALIFIED. WHETHER A SMALL BUSINESS CONCERN ENGAGED IN SELLING SOLID WASTE DISPOSAL SERVICES TO OTHER BUSINESSES IS EXCLUDED FROM THE PROGRAM DEPENDS ON OTHER PROVISIONS OF SECTION 404 DESCRIBING THE COVERAGE OF THE GUARANTEE PROGRAM.

UNDER SUBSECTION 404(B), SUPRA, GUARANTEE BENEFITS MAY BE AVAILABLE WHENEVER SBA DETERMINES THAT "SMALL BUSINESS CONCERNS ARE OR ARE LIKELY TO BE AT AN OPERATIONAL OR FINANCING DISADVANTAGE WITH OTHER BUSINESS CONCERNS WITH RESPECT TO THE PLANNING, DESIGN, OR INSTALLATION OF POLLUTION CONTROL FACILITIES OR THE OBTAINING OF FINANCING THEREFOR." THE BASIC QUESTION, THEREFORE, IS WHETHER SOLID WASTE DISPOSAL FACILITIES FOR A TRASH HAULING BUSINESS MAY BE ENCOMPASSED WITHIN THE TERM "POLLUTION CONTROL FACILITIES."

POLLUTION CONTROL FACILITIES IS DEFINED AS FOLLOWS IN SUBSECTION 404(A) OF THE SMALL BUSINESS INVESTMENT ACT OF 1958, SUPRA:

"FOR PURPOSES OF THIS SECTION, THE TERM-- "(1) 'POLLUTION CONTROL FACILITIES' MEANS SUCH PROPERTY (BOTH REAL AND PERSONAL) AS THE ADMINISTRATION IN ITS DISCRETION DETERMINES IS LIKELY TO HELP PREVENT, REDUCE, ABATE, OR CONTROL NOISE, AIR OR WATER POLLUTION OR CONTAMINATION BY REMOVING, ALTERING, DISPOSING OR STORING POLLUTANTS, CONTAMINANTS, WASTES, OR HEAT, AND SUCH PROPERTY (BOTH REAL AND PERSONAL) AS THE ADMINISTRATION DETERMINES WILL BE USED FOR THE COLLECTION, STORAGE, TREATMENT, UTILIZATION, PROCESSING, OR FINAL DISPOSAL OF SOLID OR LIQUID WASTE."

THE FACT THAT THE SBA HAS SPECIFIC STATUTORY DISCRETION TO DETERMINE WHAT CONSTITUTES "POLLUTION CONTROL FACILITIES" WITHIN THE CONFINES OF THE STATUTORY DEFINITION IS OF PARTICULAR SIGNIFICANCE. IF THE LANGUAGE ADMITS OF MORE THAN ONE REASONABLE INTERPRETATION, SBA HAS SPECIFIC AUTHORITY TO EXERCISE DISCRETION TO SELECT THAT MEANING WHICH IT BELIEVES MOST EFFECTIVELY WILL CARRY OUT THE CONGRESSIONAL INTENT AND THE PURPOSES OF THE PROGRAM.

IF SBA FEELS THAT THE REALTY OR EQUIPMENT IN QUESTION WOULD HELP "PREVENT, REDUCE, ABATE, OR CONTROL" POLLUTION OR CONTAMINATION BY "REMOVING, ALTERING, DISPOSING, OR STORING" WASTES OR OTHER POLLUTANTS, A GUARANTEE OF PAYMENTS FOR SUCH REALTY OR EQUIPMENT APPEARS TO US TO BE CLEARLY AUTHORIZED BY SECTION 404(B) OF THE ACT. THE LANGUAGE IN THE SECOND PORTION OF THE DEFINITION OF "POLLUTION CONTROL FACILITIES" EVEN MORE CLEARLY ENCOMPASSES SOLID WASTE DISPOSAL FACILITIES. THERE IS NO QUESTION THAT "SUCH PROPERTY" WILL BE USED FOR THE COLLECTION, STORAGE, TREATMENT, UTILIZATION, PROCESSING, OR FINAL DISPOSAL OF SOLID OR LIQUID WASTE. ACCORDINGLY, WE FIND THAT THE LANGUAGE OF THE STATUTE MAY BE INTERPRETED AS INCLUDING SOLID WASTE DISPOSAL FACILITIES FOR A TRASH HAULING BUSINESS.

THERE IS NOTHING IN THE STATUTE ITSELF WHICH REQUIRES THAT SUCH FACILITIES BE FOR THE PURPOSE OF PREVENTING, ABATING, OR CONTROLLING A POLLUTION PROBLEM CAUSED BY THE TRASH HAULING BUSINESS ITSELF. ON THE OTHER HAND, WE HAVE CAREFULLY REVIEWED THE LEGISLATIVE HISTORY OF PUBLIC LAW NO. 94-305, 90 STAT. 663, SECTION 102 OF WHICH ADDED SECTION 404 TO THE SMALL BUSINESS INVESTMENT ACT OF 1958. WE FOUND THAT THE ONLY BENEFICIARIES OF THIS SECTION OF THE LEGISLATION EXPLICITLY DISCUSSED WERE SMALL BUSINESSES REQUIRED TO COMPLY WITH POLLUTION ABATEMENT STANDARDS IN ORDER TO CONTINUE OPERATING. MOREOVER, THERE WERE NUMEROUS REFERENCES TO THE FACT THAT THE PURCHASE OF POLLUTION CONTROL EQUIPMENT IS A NON- PRODUCTIVE OR NON-INCOME PRODUCING INVESTMENT. SEE 121 CONG. REC. 31862 (1975); H. R. REP. NO. 519, 94TH CONG., 1ST SESS. 8 (1975); S. REP. NO. 420, 94TH CONG., 1ST SESS. 5 (1975); SBA ASSISTANCE FOR AGRICULTURAL CONCERNS AND TO MEET POLLUTION STANDARDS, HEARINGS BEFORE THE SUBCOMM. SBA AND SBIC LEGISLATION, HOUSE COMM. ON SMALL BUSINESS, 94TH CONG., 1ST SESS. 9, 31, 73, 87, 88, 98, 144, 324, AND 351 (1975); MISCELLANEOUS SMALL BUSINESS LEGISLATION, HEARINGS BEFORE THE SUBCOMM. ON SMALL BUSINESS, SENATE COMM. ON BANKING, HOUSING AND URBAN AFFAIRS, 94TH CONG., 1ST SESS. 214, 217, 219, AND 222 (1975).

IT IS POSSIBLE TO INFER FROM THESE REFERENCES THAT THE CONGRESS INTENDED TO EXCLUDE FROM GUARANTEE BENEFITS UNDER SECTION 404, THOSE SMALL BUSINESS CONCERNS THAT PROVIDE POLLUTION ABATEMENT SERVICES TO OTHERS FOR PROFIT, BECAUSE INVESTMENTS MADE BY THESE FIRMS IN FACILITIES WOULD BE PRODUCTIVE AND INCOMING PRODUCING AND COULD PROVIDE A SATISFACTORY RETURN. SBA APPARENTLY MADE THAT INFERENCE IN THE PAST, AND CONSTRUED THE LANGUAGE OF THE SECOND PORTION OF THE DEFINITION OF "POLLUTION CONTROL FACILITIES," SET FORTH ABOVE, AS LIMITING SOLID WASTE FACILITY COVERAGE TO THOSE FACILITIES AMELIORATING POLLUTION PROBLEMS CAUSED BY THE SMALL BUSINESS CONCERN'S OWN SOLID WASTE.

THE DECISION TO CHANGE ITS POSITION WAS IN PART MOTIVATED, ACCORDING TO THE ADMINISTRATOR, BY THE FACT THAT UNDER SECTIONS 103(B)(4)(E) AND (F) OF THE INTERNAL REVENUE CODE, INDUSTRIAL REVENUE BONDS WHOSE PROCEEDS WILL BE USED SUBSTANTIALLY TO FINANCE SEWAGE OR SOLID WASTE DISPOSAL FACILITIES OR AIR OR WATER POLLUTION CONTROL FACILITIES, ARE TAX EXEMPT. THE IMPLEMENTING TAX REGULATIONS (INCOME TAX REGULATIONS, SECS. 1.103-8(F) AND (G)) DEFINE THE ABOVE FACILITIES IN LANGUAGE VERY SIMILAR TO THE DEFINITION OF "POLLUTION CONTROL FACILITIES" IN THE SMALL BUSINESS INVESTMENT ACT OF 1958, QUOTED ABOVE. THEY DO NOT EXCLUDE FACILITIES USED TO ABATE SOME OTHER BUSINESS' POLLUTION OR THE OPERATION OF WHICH MAY GENERATE A PROFIT, WITH RESPECT TO SOLID WASTE DISPOSAL FACILITIES.

AT THE VERY LEAST, THE ADMINISTRATOR SUGGESTS, THE SBA AND THE INTERNAL REVENUE SERVICE POSITIONS SHOULD BE CONSISTENT. WE AGREE WITH THIS VIEW. A CAREFUL READING OF PARAGRAPH (1) OF SUBSECTION 404(B) OF THE SMALL BUSINESS INVESTMENT ACT OF 1958, QUOTED ABOVE, INDICATES TO US THAT THERE IS BLANKET AUTHORITY TO ISSUE A GUARANTEE FOR "POLLUTION CONTROL FACILITIES," "NOTWITHSTANDING ANY OTHER LAW, RULE, OR REGULATION OR FISCAL POLICY TO THE CONTRARY," WHENEVER THE PROPERTY IS ACQUIRED BY USE OF PROCEEDS FROM TAX EXEMPT INDUSTRIAL REVENUE BONDS. THE CONNECTION BETWEEN THE GUARANTEE PROVISION IN THE SMALL BUSINESS INVESTMENT ACT, SUPRA, AND INTERNAL REVENUE CODE AND REGULATORY CHANGES EXTENDING TAX EXEMPT STATUS TO A WIDER RANGE OF INDUSTRIAL REVENUE BONDS IS EVIDENCED IN THE DISCUSSION ON "FINANCING OF POLLUTION CONTROL EQUIPMENT" ON PAGE 5 OF SENATE REPORT NO. 94-420 (OCTOBER 8, 1975).

IN SUMMARY, WHILE SBA'S PREVIOUS INTERPRETATION OF SECTION 404 OF THE SMALL BUSINESS INVESTMENT ACT OF 1958, SUPRA, IS LEGALLY ACCEPTABLE, IN VIEW OF THE LEGISLATIVE HISTORY OF THE ACT, ITS PRESENTLY PROPOSED POSITION IS SQUARELY WITHIN ITS SPECIFIC STATUTORY AUTHORITY. SBA IS FREE, IN THE EXERCISE OF ITS DISCRETION, TO CHOOSE A DEFINITION OF "POLLUTION CONTROL FACILITIES" WHICH IT FEELS WILL MOST EFFECTIVELY IMPLEMENT CONGRESSIONAL INTENT AND CARRY OUT THE PURPOSES OF ITS GUARANTEE PROGRAM FOR SUCH FACILITIES.