Congratulations to you both. With the 1984 Presidential elections still more than a year away, you have already made the coming election season an historic one for small business. For the first time since I can remember, the two national political committees will go into the next campaign armed with their own small business groups. By creating these groups within the national committees, you have shown that you understand the importance of the small business constituency to your parties' futures.

When the second session of the 98th Congress opens in January, these small business groups will be in an excellent position to aid you in forming and evaluating legislative issues. The timing could not be better for some healthy party competition, cooperation, or a mix of both on small business issues in the government. It is these legislative issues that I would like to focus on in my letter to you.

By now there is almost a tradition of timing significant small business legislative advances with an eye toward two factors. First, such advances are most often made in the second, or preelection, session of a Congress. Further, it is helpful if the Congress is one in which the parties share control of the government, with one party in control of the White House and the other in control of one or both houses of Congress.

Thus, in 1953, the Small Business Act was passed by a Democratic Congress and signed by a Republican President. It was the congressional session directly before the 1958 election that enacted the Small Business Investment Act. The passage of the Small Business Innovation Act took place when both favorable factors were present. The Republicans had the Presidency and a majority in the Senate, while the Democrats controlled the House of Representatives. Both factors will be present again in the congressional session that opens in January.

Three major kinds of small business legislative issues are likely to be before the next session. There will be at least five or six "continuation" or "rear guard" actions. They will either improve or extend previously won advances or protect past gains from present or future erosion. A second type of issue is "process improvement," either for Congress or the Executive Branch. This sort of bill would make the federal bureaucracy more responsive to the needs of small business. Finally, there are the "big new gain" issues. The major possibility in this category is a group of bills that would open up federal procurement to a wider range of small businesses.

Another possible big-new-gain issue might be a bill to allocate more fairly the benefits of the 1981 tax cut so that small business will receive a proportionate share of the cut. Right now, with the deficit where it is, small business will not consider anything that adds to it a gain -- even if it looks like the beneficiary will be small business itself. That may not apply if there is a prospect of offsetting revenue gains.

It is my belief that legislative efforts are most needed where large-scale bureaucracy resists changes that may, or clearly will, help small business and new entrepreneurs. Small business has had bipartisan support ever since World War II. However, Republicans have always found it easier to support small business on economic issues that do not offend big companies. Democrats are more likely to be interested in small business issues that do not put them at odds with labor

But there are always plenty of party crossovers in Congress, and they are growing in number.

Carryover bills introduced in the first session provide examples of continuing action or reaction that can be taken. For example, Sens. Charles Grassley (R-Iowa) and Dennis DeConcini (D-Ariz.) are sponsoring a bill (S.919) to improve and make permanent the "Equal Access to Justice Act." This law allows small companies and individuals improperly harassed by government agencies to recover their legal costs if they successfully resist such actions. Its commendable goal is to discourage overzealous government lawyers and administrators from starting inappropriate actions. Congress was frightened into passing it for only three years by wild cost estimates that have since been proven false. It can, and should, now be made permanent.

Another example of a carryover bill is a new loan-guaranty set-aside requirement added to the Export-Import Bank's authorizing legislation. Rep. Andy Ireland (D-Fla.) led a successful fight to require the bank to use at least 6% of its loan authority for small business. Reps. Buddy Roemer (D-La.) and Marcy Kaptur (D-Ohio) fought hard for it; outspoken support from Reps. David Dreier (R-Calif.) and Bill McCollum (R-Fla.) made it a bipartisan victory. Sens. Rudy Boschwitz (R-Minn.) arid John Glenn (D-Ohio) have said they will fight for a version of it in the Senate.

The Regulatory Flexibility Act is a prospect for the "process-improvement" category. The present law was introduced by Ireland and later co-sponsored by more than 200 members of the House. Federal agencies have slowly begun to learn from it about the need to apply regulatory burdens that are scaled to the size of different businesses. There is no legislation pending yet to strengthen the RFA, but it is likely to be offered in the second session. Applying the RFA unequivocally to agencies that still resist it, and mandating a clearer enforcement role for the Small Business Administration's chief counse for advocacy, are being discussed by members of both Houses.

When you read this, Congress will still be in its first session. Thus far there is no big-gain issue, one that clearly affects the whole small business community, or a very large share of it. The best preserit prospect for a big-gain issue coming out of the first session is a double play made up of two bills dealing with different aspects of federal procurement. One (S.1746) is called the "Freedom from Government Competition Act of 1983" and was introduced by Sen. Warren Rudman (R-N.H.). The other (S.1730) is called the "Small Business Competition in Contracting Act of 1983," and was introduced by Sen. Alan Dixon (D-Ill.).

The Rudman bill deals with the estimated $32.5 billion spent by the government for commercially available goods and services in 1981. It proposes a seemingly simple piece of procedural surgery to get rid of what business considers the festering cancer of government competition. Rudman points out that commercial goods and services produced by the government, rather than bought from the private sector, increased from 40% in 1967 to 60% in 1981.

Senator Rudman would junk what he considers the wholly improper cost-benefit standard that has been used (and, in my view, abused) to keep the government in competition with business. He attacks the underlying theory that government is justified in making or providing services for itself if it can do either more cheaply than the private sector can. The competitive private enterprise system, he argues, allowed to function over time, will be more efficient. Sooner or later, it will bring down any ostensibly higher price.

In place of complex statistical comparisons between the cost of the government making what it needs or buying it, he offers three simple criteria.

First, are the goods or services to be bought by the government available commercially? If so, the government should simply not make them. Second, only if the goods are for "legitimate national defense," or, third, if they are "necessary to the managerial or fiduciary functions of government" will the government be allowed to produce them itself.

To Senator Rudman, that "simple and direct" standard will do the job. He argues that 71% of the commercial activities engaged in by government are activities that have been contracted out extensively by large, private corporations for years. He is right in my view, but not n the opinion of the fastest-growing unions in the country -- unions of government workers. They will surely oppose the bill. Passage of the bill would produce an estimated savings to taxpayers of about $1 billion a year.

Senator Dixon's bill toughens the requirement that small companies be used to add competition in federal procurement. It adds authority to the Small Business Administration's Certificate of Competency Program, which rules on whether a small company is competent and fiscally responsible to do a specific federal job. It pushes federal procurement officers to buy and make available to others "technical data packages" needed to subcontract parts competitively.

It is alleged by the Government Accounting Office, the House Small Business Committee, and several other congressional committees that these packages are now improperly squirreled away by prime contractors, a practice that denies the government the opportunity to have components and spare parts taken out of prime contracts and purchased competitively. If the savings found by the SBA in a sample study are typical of what exists generally, notes Senator Dixon, taxpayers should be saved about $4 bilion a year.

As favorably as small business may view these bills, there is a great limitation to their appeal as a big new gain. Of all the small companies that attempted to sell to the government in 1981, only 47,000 succeeded. That is a small, although not insignificant, portion of our 10 million nonagricultural smaller enterprises, and in that sense, the issue is indeed a crucial one for small business. Cutting waste or needless expense will benefit all these companies as taxpayers. A stronger rampart keeping the government out of competition with private business should have broad appeal across the board.

The only other big-gain issue that seems likely at this time arises from proposals for deficit-cutting "tax enhancement." These proposals may lead to an effort to take from small business some of its regrettably small share of the 1981 tax cut. If there is a flat, across-the-board change in tax rates, for example, it will deepen the bias against small business. Such a blatantly unfair scenario could then provide a defensive "big issue." Still-better positive "big gain" prospects mayyetturnup.

The national committees of both parties can play a key role in the upcoming congressional session. Why not prove that you are making an honest commitment to the future of small business interests in this country? Give the small business groups the specific task of advising you and, through you, your party's elected and appointed officials as to how to compile the best possible record for your party. For example, make it plain that you are setting these groups up for five years, rather than just for the campaign months. Let them plan issues, goals, and priorities for the next one, three, and five years. That means recruiting people with little interest in favors, contracts, or ego-stretching fun and games. They are really not hard to find. There are many small business stalwarts in your ranks who want nothing so much as a chance to strengthen entrepreneurship in our country. Many of the most successful entrepreneurs take very seriously a self-imposed duty to give some of their expertise and their money back so that the system will work even better for others.

What, if any, added clout your party groups can give small business we cannot know until you have tried for several sessions of Congress. Small business can certainly use any help anyone gives it in the clout department -- although it has made some real gains and more symbolic ones in recent years. Dispassionate observers agree that the political parties have lost ground as policymaking centers. The creation of small business advisory groups within the structure of the national political parties may help you to formulate some new policies. If it does, that in turn will strengthen the parties within a very significant portion of the country. Small business owners and managers and their employees represent more than half of the private sector. The way you handle your new commitment to small business vill effect more than the votes in one election.