[House Hearing, 107 Congress] [From the U.S. Government Publishing Office] ``LISTENING TO MAIN STREET'' ======================================================================= FIELD HEARING before the SUBCOMMITTEE ON WORKFORCE, EMPOWERMENT, AND GOVERNMENT PROGRAMS of the COMMITTEE ON SMALL BUSINESS HOUSE OF REPRESENTATIVES ONE HUNDRED SEVENTH CONGRESS FIRST SESSION __________ WASHINGTON, DC __________ NOVEMBER 19, 2001 __________ Serial No. 107-37 __________ Printed for the use of the Committee on Small Business U.S. GOVERNMENT PRINTING OFFICE 77-249 WASHINGTON : 2002 ________________________________________________________________________ For Sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512-1800 Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001 COMMITTEE ON SMALL BUSINESS DONALD MANZULLO, Illinois, Chairman LARRY COMBEST, Texas NYDIA M. VELAZQUEZ, New York JOEL HEFLEY, Colorado JUANITA MILLENDER-McDONALD, ROSCOE G. BARTLETT, Maryland California FRANK A. LoBIONDO, New Jersey DANNY K. DAVIS, Illinois SUE W. KELLY, New York BILL PASCRELL, Jr., New Jersey STEVE CHABOT, Ohio DONNA M. CHRISTENSEN, Virgin PATRICK J. TOOMEY, Pennsylvania Islands JIM DeMINT, South Carolina ROBERT A. BRADY, Pennsylvania JOHN R. THUNE, South Dakota TOM UDALL, New Mexico MICHAEL PENCE, Indiana STEPHANIE TUBBS JONES, Ohio MIKE FERGUSON, New Jersey CHARLES A. GONZALEZ, Texas DARRELL E. ISSA, California DAVID D. PHELPS, Illinois SAM GRAVES, Missouri GRACE F. NAPOLITANO, California EDWARD L. SCHROCK, Virginia BRIAN BAIRD, Washington FELIX J. GRUCCI, Jr., New York MARK UDALL, Colorado TODD W. AKIN, Missouri JAMES R. LANGEVIN, Rhode Island SHELLEY MOORE CAPITO, West Virginia MIKE ROSS, Arkansas BILL SHUSTER, Pennsylvania BRAD CARSON, Oklahoma ANIBAL ACEVEDO-VILA, Puerto Rico Doug Thomas, Staff Director Phil Eskeland, Deputy Staff Director Michael Day, Minority Staff Director ------ SUBCOMMITTEE ON WORKFORCE, EMPOWERMENT, AND GOVERNMENT PROGRAMS JIM DeMINT, South Carolina, Chairman FRANK A. LoBIONDO, New Jersey JUANITA MILLENDER-McDONALD, MICHAEL FERGUSON, New Jersey California FELIX J. GRUCCI, Jr., New York DANNY K. DAVIS, Illinois DARRELL E. ISSA, California STEPHANIE TUBBS JONES, Ohio EDWARD L. SCHROCK, Virginia CHARLES A. GONZALEZ, Texas SHELLEY MOORE CAPITO, West Virginia MIKE ROSS, Arkansas DONNA M. CHRISTENSEN, Virgin Islands Nelson Crowther, Professional Staff C O N T E N T S ---------- Page Hearing held on November 19, 2001................................ 1 Witnesses Cooper, Elliott, Regional Administrator, U.S. Small Business Administration................................................. 4 Wilson, Donald, President & CEO, Association of Small Business Development.................................................... 6 Beltram, Richard, Intedge Industries............................. 8 Lennon, June, Senior Partner, Martin & Lennon CPAs............... 10 Hughes, Bob, President, Hughes Development....................... 12 Hammond, Wesley, President, HBJ Home Furnishings................. 13 Appendix Opening statements: Manzullo, Hon. Donald........................................ 21 Prepared statements: Cooper, Elliot............................................... 23 Wilson, Donald............................................... 30 Beltram, Richard............................................. 38 Lennon, June................................................. 42 Hughes, Bob.................................................. 45 Hammond, Wesley.............................................. 47 FIELD HEARING--LISTENING TO MAIN STREET ---------- MONDAY, NOVEMBER 19, 2001 House of Representatives, Committee on Small Business, Subcommittee on Workforce, Benefits and Empowerment, Washington, DC. The subcommittee met, pursuant to call, at 11:00 a.m., in the Spartanburg Chamber of Commerce, 105 North Pine Street, Spartanburg, South Carolina, Hon. Donald A. Manzullo (chairman of the committee), presiding. Chairman Manzullo. We will convene our field hearing for this full committee of the United States House of Representatives Committee on Small Business. I just want to thank you, Congressman, for the opportunity to come down here. Mr. DeMint. Thank you, Mr. Chairman. Chairman Manzullo. And share with the folks down here some of the great things that you've been doing. Let me just share with you a couple of major bills that Jim has been working. A good bill is one thing. Getting it through the House is something else. So it is difficult. Jim is the author of two bills in particular, H.R. 1923. This is a bill that will allow small businesses to accumulate the first five years of so- called profits into a special account. So instead of having to pay taxes on those first five years, that could be used as a method of accumulating capital. The businesses actually do pay a tax, but it would be a deduction of that amount as a warehouse or a storehouse for future capital. Since most businesses fail within the first three to five years, I think it is a tremendous idea. Then Jim's best bill, I think, is H.R. 3062, which talks about small and medium-size growing companies' experience as they try to keep up with demand from expansion. The bill would allow these companies to make a tax deferment of up to two hundred and fifty thousand dollars for use as collateral in a special BRIDGE account that could be used by the company until outside funding becomes available. So Jim has spent his time in Congress in trying to find all types of new and innovative ways so that small businesses could have access to capital, minimizing the tax responsibility, and at the same time realizing that there is a very severe credit crunch going on in the small business industry. Jim has also done a lot of work on his health care account legislation, having a fine contribution plan to serve the poor health care accounts. I just want to tell you that, as a full subcommittee chairman, the tremendous job that he has been doing in Washington. He also serves on the Education and Labor Committee, now known as the committee on--What's it called? Mr. DeMint. I think it's still Education and Workforce. I think we've changed the name a couple of times. Chairman Manzullo. But he takes his experience from that committee and he brings it over to his subcommittee chairmanship and does some tremendous policy review on it. So it's a real pleasure to come down here and share this time with you. We're here to hear the views of the folks here on the state of the economy. The economic downturn has affected small businesses here in South Carolina. Small businesses need help, so what form should that take? And we have the Regional Administrator to the SBA here. Is that correct? Mr. Cooper. Good morning, Mr. Chairman and Congressman DeMint. On behalf of the Administrator, I want to thank you for the opportunity for us to participate in this hearing. Chairman Manzullo. Hang on just a second. What I want to do is--we can start over here and just move on down to the left. And the rules are that testimony is about five minutes. Mr. Cooper. I was told I was first. Chairman Manzullo. That's fine. Mr. DeMint. Thank you, Mr. Chairman. It's great to have you here. You are a real advocate of small business. And the reason, so you'll know, are the six hundred and twenty thousand berets made in China are now in warehouses. When he found out about it, he went wild and made sure that small businesses in America made those black berets; and the ones that came from China are going to sit in the warehouse until he can sell them off with these new calendars. He's a real watchdog for small business, and he's made a big impact already. And I want to welcome you to Spartanburg to study some important issues that relate to small business. Just so you'll know, Mr. Chairman, Spartanburg and the whole Upstate are really on the verge of a visionary growth, particularly here in Spartanburg where they've had a large downtown redevelopment project called Renaissance Project, that's moving forward, which will change the face of the Upstate. We've got some visionary and hard-working people here. We've got folks from Spartanburg and Greenville, two major areas of my district, represented here today. We know that small businesses will be the engine of all that growth. It's important that we recognize their role. The U.S. economy is now on a downturn. Consumer confidence is low, and the government must be particularly sensitive to small businesses. So the point of what we're doing here today is to listen to small businesses on America's Main Street, so to speak. It might be more appropriate to say listen to America's backbone, because that's really what we're talking about when we're dealing with small business. Congress is considering a lot of things right now, a stimulus package that would have impact on large as well as small business. We're still in the middle of debating that. So some of the things you say here today could help guide that debate. And we need to know how different issues affect you, how they're affecting you now, and what else that we need to consider that we might not be thinking about. In addition to short term, the downturn that we're considering now, we need to think long term, what legislative, administrative, or regulatory changes are needed to guarantee that small business will be a success. In the Upstate, Mr. Chairman, we are really a showcase of diversified small businesses. We have many manufacturers, corporate offices, warehouses, distribution centers, packaging companies, metalworking and stamping companies. You name it; we've got the small business here to be represented. We've got many international firms here. BMW and over a hundred international companies are represented here in Spartanburg alone. In fact, Spartanburg is the highest per capita international investment county in the country. And so there's a lot going on here, and we've been referred to as a world class international trading community, actually by a professor at Harvard Business School, Rosabeth Moss Kanter. In her book titled World Class: Thriving Locally in the Global Economy, she mentions the Spartanburg-Greenville area. But while we're proud of our large international firms, it is in fact our small firms that will create most of the new jobs over the next ten years, just as it has in the last ten years. Seventy-five percent of the jobs in South Carolina and around the country have been created by what we refer to as small companies, and they provide hope and opportunity to many. Especially minorities and women are the fastest-growing area of small business owners. And as I had the chance to experience myself in starting a small business, that dream of the freedom you have of owning your own business is a dream that many have and I think we can help with on our committee; although I will have to say I didn't have as much freedom once I started as I thought I would. But that's why we're here, and I want to thank and introduce our witnesses. The point today is not to get a huge public crowd to listen to what we have to say but to get some folks from the different areas of small business in the Upstate community to give us their opinions on things that we can include in the official record and use as reference and resource material as we consider and push legislation. So what we say today, what we say verbally and anything you submit in writing, will be included in the official record so that it can be used not only by us but all members of the committee and other committees in our deliberations. Some of you who have come today are not official witnesses. If you have comments that you'd like to submit to me in writing, I'll make sure that I consider it, and I'll do everything I can to have others consider it too. Chairman Manzullo. Let's keep open the record for two weeks. After today, anybody who wants to submit--I mean, not a tome--brief remarks or something like that. If you could get them to Mr. DeMint's office, his office could get them to the committee. Mr. DeMint. Right. And to communicate to us, the easiest way now, since we're not receiving any mail in Washington is, you could go to our Web site, which is www.demint.house.gov; and you'll find an e-mail location there. You can send us any comments you have. Let me introduce our witnesses and get started. We have Wesley Hammond. I appreciate your being here. He is president of HBJ Home Furnishings. He has been in the family business since he was sixteen. He's been president of Southern Home Furnishings Trade Association. He has been on the board of this Chamber of Commerce where we're at today. He has spent seven years in the U.S. Army Reserve as a combat engineer. We also have Bob Hughes, president of Hughes Development Corporation. He is chairman of the Greenville Chamber of Commerce. Is that currently? Mr. Hughes. Only one more month. Mr. DeMint. He is also on the board of Furman University that's in our district. He is the vice chair of the Small Scale Development Council of Urban Land Institute. I want to thank you for being here. We have June Lennon, who is a partner with Martin and Lennon CPAs. She is a member of the South Carolina Association of CPAs as well as the American Institute of CPAs. She is a member of the National Federation of Independent Businesses, South Carolina Leadership Council. And we have Rick Beltram, a manufacturer. He is president of Intedge Industries, a small privately owned manufacturer of food service equipment here in Spartanburg. He is a third generation owner. His business has been in business since 1914. Don Wilson, who is director of government affairs for the Association of Small Business Development Centers. Prior to that, he was director of government relations for the National Tire Dealers and Retreaders Association. And to show that he does have stamina, he has been chief of staff for three different congressmen, which I question your wisdom. Elliot Cooper, who is the district director of the U.S. Small Business Administration of SouthCarolina since 1991. He is now acting director of the SBA for this region. And before, he has been a co-chair of the South Carolina Rural Economic Development Council. So, folks, we appreciate your being here. And, as I've said, your testimony will be in the official record, and we look forward to hearing from you. And, Mr. Chairman, I'll give it back to you. Chairman Manzullo. The rules are five minutes per person. And when you get to the five minutes, I'll go like this (indicating). If you go much over that, then the book becomes airborne. Jim, did you want to start with Mr. Cooper? Does it make any difference to you? Mr. DeMint. No, I'll leave that to you. Chairman Manzullo. All right. Well, Mr. Cooper, we'll start with you and record your testimony. I notice this is seven typed pages. You're not going to try to read it all, are you? STATEMENT OF ELLIOTT COOPER, ACTING REGIONAL DIRECTOR, U.S. SMALL BUSINESS ADMINISTRATION Mr. Cooper. No, sir, I assure you of that. I've always heard you should be on time, be brief, and be seated. Well, I was on time, and I'm seated. So I'm sure I'll be brief. The South Carolina District Office, like most SBA offices across the country, is working to deliver very innovative ways to help America's small business community, especially after the disaster of September 11. Our basic mission still lies in helping people to get into business, stay in business, and expand and grow that business. And we think the best way to tell that story is to give you a couple of examples of what's gone on in this state, especially in this part of the state. Take Carol DeShields of DeShields Grading from Woodruff, South Carolina. She was our Small Business Person of the Year in the year 2000. And on her own initiative, she told us back in 1970, if it had not been for an SBA Disaster Loan, she wouldn't be in business today. We helped her quite a bit at that time, or the agency did; and she was very appreciative of that. As you know, the agency extended its Economic Injury Development Loan Program to cover areas outside of New York and Virginia. We have taken those applications. We are not at a point yet where we can see the numbers being approved, but we've had over a hundred applications presented in South Carolina. We have another economic injury loan program for companies that have had an impact because one of their key people have been called to active duty as a reservist or a member of the National Guard. These two programs, we think, will go a long way in solving some of the problems created by the disaster of 9/11. Another program that's been very well received in our state--in fact, the state of South Carolina is number four in the country these loans and we are a relatively small state population-wise--is the Economic Adjustment Program, the CAIP program, which was part of the NAFTA. We've done over twenty- four loans, I believe. One company saved about eighty-six hundred dollars in guaranty fees that were paid by the NADBank, and another created five new jobs in a rural area. And any time we can create jobs in a rural area, we feel like we've made a positive impact to these rural areas. Another good story of the use of SBA's programs in this area is Jimmy Bayne of Bayne Machine Works, who thought he'd faced every business challenge that he could possibly face. He was the recipient of two 504 loans, and he has taken his business from a shop in his back yard to a seventy-five thousand square foot facility that he recently sold and told me he would never have to work again. He sold a thing called Thinline Lift Systems. He sold it to an international company, and he is very appreciative of the SBA and what we were able to do for him. Most of our young entrepreneurs think that they can get out and take over the world after they come out of college. We have two over at Clemson. Tom Merrit and Mike Pereyo formed a company called Oobe, Incorporated, and they make sportswear. They say they would not be in business today had it not been for the Small Business Development Center at Clemson and also the SBA LowDoc program. Today, their company is able to meet the challenges that have been brought to them. Here in Spartanburg, you may drive by Tate Metalworks. Mr. Tate started his business in 1972 with a seventeen thousand dollar SBA loan. Our last check with Mr. Tate indicated that sales were more than twelve million dollars and he had eighty employees. Across the state, you'll find many businesses, like JBE, Incorporated, that turned to SCORE for counseling. They are appreciative of what SCORE did for them, and that's another good example of what we try to do. A minority firm, Carlos Garcia, president of RCS Corporation, is one of the many small businesses in the state that has benefited from the 8(a) program. He started with two employees down at the U.S. Department of Energy, Savannah River Plant. He now has a hundred employees, and he credits the 8(a) program with getting him started in the business and being successful. There are many small business stories, and I could go on and on. And especially as Congressman DeMint mentioned, in this part of the state, it's one of our strongest areas. The corridor from Charlotte to Atlanta is really anchored by what goes on in South Carolina around 85. As we continue to do outreach, we could not do it without people helping us. And a good example is the Spartanburg Chamber of Commerce. Chuck Ewart and his staff here have done an outstanding job to support SBA and its programs. And we find that all over the state. So we're able to leverage their membership and do things that we couldn't do with our own limited resources. We feel like that there are a lot of things that can be done and we look forward to working with you and the committee and the Administrator in bringing help to the economy to get it back on its feet. [Mr. Cooper's statement may be found in appendix.] Chairman Manzullo. I appreciate your testimony. Your members are doing a tremendous job. The next witness is Donald Wilson. STATEMENT OF DONALD WILSON, PRESIDENT AND CEO, ASSOCIATION OF SMALL BUSINESS DEVELOPMENT CENTERS Mr. Wilson. Mr. Chairman, thank you very much. It's a pleasure for ASBDC to be represented at this hearing today. As most of you are aware, the SBDC network is comprised of roughly a thousand centers around the country, with roughly five thousand counselors providing management and technical assistance to small businesses. Counseling, of course, is done at no charge. The South Carolina SBDC, Mr. John Lenti, the state director, is here. We're delighted to have him with us. They have, I believe, if I'm correct---- Chairman Manzullo. Spell his name for the record. Mr. Wilson. L-e-n-t-i. The host of the SBDC in South Carolina is the University of South Carolina in Columbia. They see several thousand small businesses a year and have one of the best records in terms of long-distance counseling and also in terms of hours per client. Their average, I believe John has told me, is six hours per client in their counseling, which is an outstanding record compared to the programs nationwide. The program overall, Mr. Chairman, sees roughly six hundred and fifty thousand small business owners and aspiring entrepreneurs for at least an hour face to face. Overall, we probably see about a million and a half. So our counselors have a very close connection with what's happening on Main Street, which is the purpose of the hearing today. Some of the concerns that they have brought to us are obviously the concerns that you share, the downturning of the economy. Manufactured orders are down. New orders for manufactured goods are down sharply. Unemployment is up. I noticed that South Carolina had the third highest new unemployment claims for the week ending November 3. The third quarter, of course, we had an economic downturn. Whether the fourth quarter will show another downturn and put us technically into a recession, we don't know. But small businesses across the country are hurting. We see frequently the headlines where a large company lays off say a thousand people, but we don't see the headlines where thousands and thousands of small businesses are laying off two or three or four people. And so we're concerned that at times small businesses get forgotten when a recession comes along, because the larger firms get the highest headlines. I want to thank both of you, Mr. Chairman and Congressman DeMint, for the role that you have played in bringing to the Congress' attention the needs of small business throughout this year through your chairmanship. There have been a number of major bills; 3230, which recently passed the House, would provide tremendous assistance to small businesses in making loans more available to small businesses, and also expanding the range of management and technical assistance that would be available. We hope that the House will act on that. The companion measure, S. 1499 in the Senate, has over half the senators as co-sponsors; and we hope that measure can be pushed through the Senate and sent to the President before Congress adjourns, because it would make a tremendous difference in the small business community throughout the country. One of the things that's of tremendous concern to small businesses--they're facing rising costs--and I know is a concern of both of you gentlemen, is the increased cost of regulations on small businesses. The Advocate's Office at SBA just recently released a study that indicates that the cost of small businesses per employee is almost seven thousand dollars a year, seven thousand dollars a year per employee, to comply with regulations; and it's primarily EPA regulations and IRS regulations. And, Mr. DeMint, I know that you, Congressman DeMint, have introduced legislation to have a commission to look at IRS regulations and seek to simplify them, and we applaud you on that. The interesting thing about that figure is that's for businesses under twenty employees. For firms with over five hundred employees, the cost per employee for regulations is sixty percent less than that. So there is no question that regardless of the need for the regulation, it has a much heavier burden on small businesses; and I know your brother is a small businessman, Mr. Chairman. I'm sure he's very familiar with the cost of regulation. H.R. 203, which Mr. DeMint passed out of your subcommittee and, with the Chairman's leadership, passed out of the full committee and then on to the House, would provide a pilot program for SBDCs to provide regulatory compliance to small businesses on a twenty-state pilot. We are thrilled that that legislation is through the House, and we are working very hard to try to get it through the Senate. And we thank both of you for the leadership in getting that through. I know that our clients tell us across the country that that legislation would make a big difference if we can provide compliance assistance for small businesses. I'll also mention a concern that I know is a concern of the Chairman, the rising cost of healthcare. We see estimates now that for small businesses, the cost of health care could go up as much as twenty-five percent next year. That would be a tremendous burden. We believe that greater attention needs to be placed on methodologies to help small businesses compete to get pricing that large businesses through self-employment, or obviously they have greater leverage with the insurance companies in pricing. But anything which could be done in that area would be a tremendous help to small businesses. Chairman Manzullo. You're right at the five minutes. Mr. Wilson. Thank you very much. [Mr. Wilson's statement may be found in appendix.] Chairman Manzullo. Mr. Beltram. STATEMENT OF RICK S. BELTRAM, PRESIDENT, INTEDGE INDUSTRIES, INC. Mr. Beltram. My name is Rick Beltram, and I am president of Intedge Industries. We've been in business since 1914. I am the third generation. We moved here from New Jersey in 1988. And what the first two witnesses have been talking about are the things that I feel every day. Thank you for the opportunity to participate in this very important hearing today. We are fortunate that the U.S. Congress has come to Spartanburg. We are especially gratified that our Congressman, Jim DeMint, is a small businessman and has true empathy for our current dilemma. As we all know, the fuel for employment and business development is always concentrated in the small business community. I would like to specifically focus my brief comments on the manufacturing segment. At a recent gathering of textile executives, Mr. Roger Milliken said that all U.S. manufacturing is under great stress. This is particularly true for the small firms who manufacture basic products. This past weekend--and I've attached a copy of this news article from our local newspaper-- stated that industrial activity has had the longest stretch of decline since The Great Depression. Our particular firm manufactures products that service the hospitality industry, which was weak even before the 9/11 tragedy and has significantly weakened since. Thus, we have seen contraction for well over a year already, which is consistent with the news report. We have seen many other local firms cease business; and these, unfortunately, cannot be brought back. The empty shells of factories and lost jobs and economic activity will remain for a long time, well past the current economic cycle. I urge you to consider some rescue efforts for those of us that are still open. We have made great strides in reducing voluntary costs, and we have benefited from lower prices of purchased commodities. However, we cannot control involuntary costs. As one example, our modification rate for Workers' Compensation insurance has actually dropped to .75. However, our premiums still went up with a static payroll. Payroll taxes, medical premiums, property taxes, and utility rates cannot be controlled by us, although they are regulated by the various government entities that can offer rescue plans. Since we consider our employees like family, we are very reluctant to use layoffs as our primary relief to cut costs. Large firms can make wholesale employment reductions and walk away from a devastated community. We just cannot do that. Our property taxes here in South Carolina are based on 10.5 percent of assessment, and we have seen locally that some basic services are only offered if the manufacturing community remains solvent. And by the way, the 10.5 percent relates to commercial at six percent and primary homeowners at four percent. So we pay almost twice what somebody would if they owned a shopping center. Payroll taxes have consistently risen as Congress has raised rates and increased employer contributions to make up for past deficits. In order to get proper financing, we have been able to obtain SBA guaranteed loans through GE Capital. I suggest to you that if the manufacturing base continues to erode, time will run out on the USA to be able to defend itself and be self-sufficient for many basic products. We have all been witnesses to many economic failures in the manufacturing community in just the past few months, particularly in the Upstate region. In the past, South Carolina has performed much better than the U.S. economy because of our strong work ethic and favorable political climate. Now is not that time. This region, along with the rest of the country, needs some very rapid action to a rapidly deteriorating problem. Our instincts tell us that the economy is a long way from recovery. We have seen banks and other vendors become much more cooperative with these difficulties; but, to date, the government, for the most part, has sat on the sidelines. I would suggest the following plan. Since this is a federal hearing, my concept is focused on what Congress can do. However, I hope that your actions will be a role model for state and local governments. One, An immediate reduction of employers' contribution of payroll taxes to include FICA and FUTA. Two, Some amnesty provisions for past-due amounts for all federal taxes, penalties, and interest to be based on individual corporate hardships. Three, Monetary grants to be offered for export marketing. I recently had a visit from the South Carolina Export Consortium, and they offer a wonderful program. But we need government help on that. Four, Review of the set-aside provisions of GSA and other government contracting that exclude small businesses that are not minority owned or are not occupational disability workshops. I have attached to my brief a recent solicitation that we did get from GSA. Number Five, Greater focus on Congressional offices to liaison with district manufacturers to be sure they are participating in available government contracts. Six, Offer subsidies for interest payments for SBA guaranteed loans; rebates for partial return of SBA origination fees. I hope that my brief comments will be of use to passing legislation that will offer quick help to those many thousands of business owners who have ceased having restful nights. I can tell you from personal experience that the past few months have been the most stressful of my business career. A delay in action will only offer an irreversible environment. Thank you. [Mr. Beltram's statement may be found appendix.] Chairman Manzullo. Thank you very much. The next witness is June Lennon, senior partner of Martin and Lennon CPAs. Ms. Lennon. Good morning, Mr. Chairman. Chairman Manzullo. Are you representing NFIB here today? STATEMENT OF JUNE LENNON, SENIOR PARTNER, MARTIN AND LENNON CPAs, PA, REPRESENTING THE NATIONAL FEDERATION OF INDEPENDENT BUSINESS (NFIB) Ms. Lennon. Yes, I am. Good morning, Mr. Chairman and Congressman DeMint. I am pleased to be here this morning to express to you the interests of small businesses and the priorities of the National Federation of Independent Business in the wake of the attacks in New York and Washington, D.C. As you know, these attacks have had a distinct impact on the outlook of business owners nationally, and I believe it is important for the Congress to enact legislation to stimulate the economy. The NFIB Education Foundation measures the state of small business via the Small Business Economic Trends report. This monthly survey, which measures the likelihood of new investments, new hires, and optimism among entrepreneurs, reveals that the SBET index had fallen to its lowest level since 1993 and is solid evidence that the terrorist attacks of September 11 have significantly hurt our national economy and America's small businesses. In short, the terrorist attacks have shaken the confidence of entrepreneurs in the American economy. As a result, it is imperative that the Congress act to reduce the burdens facing America's risk-takers, our entrepreneurs. The tax code is one of the top frustrations entrepreneurs have with their government. The tax code alone, with all of its complexities, takes time away from a business owner's focus on running and expanding his or her business. With small business owners pessimistic about the future, it makes sense to relieve some of the impediments in the tax code that slow economic growth, job creation, and community development. Let me take a few minutes to outline some of the ways that this could be done. Allow small business owners to expense more of the equipment and vital materials they need to run their organizations. This will allow additional investments by small firms to be expensed, therefore enabling those businesses to expand and create new jobs. Under the law right now, small businesses can expense up to twenty-four thousand dollars this year as long as the total investment is less than two hundred thousand dollars. Both of these figures are far too low. Mr. Chairman, I know you agree with me because your legislation, HR 1037, expands Section 179. I also know that the entire House of Representatives and many in the Senate want to expand this section. It is the right thing to do, but we must do it without complexity. Expanding Section 179 to all assets and taxpayers should be the goal of the Congress. The Congress has a temporary tax law in place right now. I urge Congress to permanently enact the Economic Growth and Tax Relief Reconciliation Act of 2001 and to accelerate the benefits of the new law. The benefits of permanently enacting this tax cut will lead to long-term health for the American economy, restore consumer confidence, and reduce complexity associated with the IRC. The President has proposed accelerating the individual rate reduction in his proposal. This is the right thing to do because it will bring immediate, robust growth to the economy. Personal tax rates on entrepreneurs are critical to formation of small businesses. Reducing these rates means more formation of small businesses, because people investing less than ten thousand dollars create many new businesses. The primary source of this money is from personal resources. Thousands of small businesses use vehicles to run their businesses every day. But once again, the tax code penalizes businesses because it does not allow a business owner to deduct the true cost of owning and operating a vehicle. The current thresholds are too low to enable small businesses to take full advantage of the depreciation deduction for business vehicles. They have not kept pace with the actual cost of new cars, light trucks, and vans, which are used by many businesses to deliver products, make service or sales calls, or commute between job sites. Due toheavy mileage, small businesses are often forced to replace the vehicles much faster than the depreciation life allowed. Many businesses make money one year and lose money the next. It is important for businesses to be able to survive tough times. The Congress has recognized this in the past and has written a provision in the tax code that allows businesses to apply for refunds of previous years' taxes in years that they do not make money. This provision is helpful but not broad enough. Right now a business owner is only eligible for refunds on the last two years of taxes collected. This provision should be expanded to allow for more dollars to be available for businesses in down years. Mr. Chairman, NFIB and I could speak much longer on the problems of the tax code. However, we understand the time constraints of this hearing. I hope I have been able to provide you with constructive options that will be germane to the debate in Washington, DC over the stimulus bill. In summation, I think it is clear that the tax code is the largest problem facing small businesses right now. If you simplify the tax code and avoid placing new mandates and taxes on America's entrepreneurs, you will produce legislation that will get our country's economy back on track. If you remember nothing else from my testimony, I would have you remember just two words as you work on tax legislation; simple and equitable. Thank you, Mr. Chairman. I yield back the balance of my time and will be happy to address any questions you may have. [Ms. Lennon's statement may be found in appendix.] Chairman Manzullo. Thank you very much. Our next witness is Bob Hughes, president of Hughes Development. I look forward to your testimony. STATEMENT OF BOB HUGHES, PRESIDENT, HUGHES DEVELOPMENT Mr. Hughes. Thank you. Mr. Chairman, Congressman DeMint, on behalf of both myself as a small businessman and the Greater Greenville Chamber of Commerce, of which I am the volunteer chair this year, I want to thank you for this opportunity to discuss small business issues concerning our community. As the fourth small businessperson in a row to chair our Chamber of Commerce and one of two thousand small business members, I guess my presence here reflects the fact that Greenville is a community that recognizes the values and contributions of small businesses. We love our big businesses and celebrate the jobs and investments they provide, but we know that future big businesses and great innovation will come from our small businesses. And that will be a reflection of how we nurture them. It will certainly come as no surprise that regulations, federal, state, and local, hit small businesses harder than any other. Small businesses, by definition, sell fewer units and therefore have less to amortize the regulatory cost over. Even if you exempt us from the regulation, we have to pay professionals to tell us we're exempt. We operate with no dedicated staff people to watch for and react to new laws and regulations. More important than a tax cut to small business would be a regulatory cut. A regulatory cut would save us money like a tax cut, but it would also free us up to pay more attention to growing our business; raising our top line, not just our bottom line. Congressman DeMint, your capital warehouse idea is a great idea. Please, no new agency for it though. Being located in the area with more international businesses than anywhere else in the nation--Not just per capita; more international businesses than anywhere else in the nation--our small businesses are keenly interested in international markets. Access to these markets through ports, air and sea, is vital; and your attention to those issues is welcome. More ways to do business with foreign countries, more access to foreign small companies, easier paths through the numerous governmental agencies that operate in this area would be valuable to our members. Small businesses don't have enough access to affordable health insurance, and what is available is on less favorable terms than to our big business brethren. Costs have gone up too fast for us to afford good coverage, and we like to be the ones who care more for our employees. More insurance options for small businesses and full deductibility for the self-employed will help level that field. Congressman DeMint, we thank you also for your work in the health care area. We know you hear us. Clemson University is ranked fifth in the nation in commercialized research; that is, having its university research actually represented by products sold in the market. But that is not reflected in our local economy. Those businesses are somewhere else. We need two things. First, we need more access to venture capital. This is, no doubt, partly due to local and state issues. But if we are really serious about this, an elimination or sharp reduction in the capital gains tax would provide instant activity. As I recall, there has never been an instance in U.S. history when a reduction in the capital gains rate has not produced higher tax collections. So this will cost the government nothing, while giving a great return to small businesses and the economy. Second, our Chamber has recognized education as the area's number one economic development priority. This is an especially important issue for small businesses. Although it may not be a traditional small business focus, it is the focus of our business community. We know that where we fund and nurture education, we will find the innovation capitals of the next century. The government's stimulus package, we are supportive of that; but we ask, please don't blow the budget. Deficit spending will raise interest rates. Interest rates will have a far larger impact on the economy than for whatever you can do with the deficit. The government can't fix the economy. Only people in businesses can do that. The government can make it only easier or harder, but you can set the field so the teams can play and play well. The economic revolutions in our society have come from small businesses. The current revolution, fueled by the PC, started in a garage, which interestingly is a direct link to the last great economic revolution, the automobile, which either started in a garage or started garages. We appreciate being here before the committee charged with nurturing the next great revolution. Anything you can do to lessen the distractions and burdens on these pioneers of our future will be repaid many times over. Thank you. [Mr. Hughes' statement may be found in appendix.] Chairman Manzullo. Thank you for your testimony. The last witness is Wesley Hammond, president of HBJ. What does that stand for? Mr. Hammond. Hammond Brown Jennings. Chairman Manzullo. Okay. Home Furnishings. I look forward to your testimony. STATEMENT OF WESLEY HAMMOND, PRESIDENT, HBJ HOME FURNISHINGS Mr. Hammond. Thank you, sir. Thank you, Mr. Chairman, Congressman DeMint. I didn't know what to expect when I was told I would be testifying as a witness. I've been in a court before. I didn't like that too much. It's a little bit like the fellow from Spartanburg who went to Washington, DC and went to a really fancy restaurant. He had on his regular work clothes, and the maitre d' said, sorry, you can't come in without a tie. So the fellow went back to his car and rambled around to see if he could find something that looked like a tie. All he found was a set of jumper cables. So he said, what the heck, and wrapped the jumper cables around his neck and went back to the restaurant. The maitre d' looked him over and said, all right, you can come in, but don't start anything. Small businesses are always starting things. I sell a great product that everybody needs, but it's a purchase that is easily deferred. If your car conks out or your TV dies or your refrigerator stops cooling, you'll fix them or replace them pretty quick. But if the old sofa starts looking kind of shabby, that purchase can often be put off. So I ride with the economy. So when do average folks buy new furniture? Usually it's when these four factors coincide. There is a need; there is a good sale, usually with free financing; they have enough disposable income to feel okay about another monthly payment. And according to a survey I read, couples who earn less than fifty thousand a year have no disposable income. The fourth thing is, when they feel secure about their jobs. How secure can any of us feel today when we've been attacked by a foreign power, seen anthrax come by mail, heard that the airlines may go broke, seen almost all of our textile mills close? You get the picture. In Spartanburg, I thank God for BMW, George Dean Johnson, Arthur Cleveland, Jimmy Gibbs, Roger Milliken, and for the amazing resilience of the American people. My business was started in 1907, and my father's dream was to keep the business strong enough to pass along to the fourth generation. He succeeded in that. I've been fortunate as well. My son and my cousin are partners. We operate with no bank debt. We pay our suppliers in a timely manner. We are well respected in our community and in our industry. And we are typical of thousands of small businesses throughout America. We survive and sometimes thrive because we are close to our customers, close to our employees, and we work very hard. Is the federal government our helper or our adversary? Sometimes both. With the inconsistencies of OSHA, with laws that encourage people to file lawsuits in hopes of personal gain, with excessive taxes that penalize success, with Robin Hood schemes that redistribute income and cause resentment in both the giver and the receiver, with trade agreements that send needed jobs to other countries to be performed by people who would be considered slaves in this country, I think the federal government makes my product more costly and my workdays a lot longer. On the other hand, I know that some of the laws I don't understand lead to important changes that benefit many. And I know what an economy that doesn't work looks like. I spent three weeks this summer, before September 11, in the Middle East. These corrupt and incompetent governments cannot offer their people hope, so they blame us for their miserable plight. I am truly blessed to live and work under the best conditions in the world. So how can the federal government help me and people like me to be more successful so I can prosper and grow and create jobs and pay even more taxes? Here are a few suggestions. Ease up on the taxes. Everybody should pay some taxes, but let people keep more of what they work so hard to earn. Unless they bury it in the back yard, that money is going right into the economy anyway. Give us a break on confusing rules and regulations. My company has two large trucks, and we have the same DOT regulations to follow as a fleet of a thousand trucks. Why? Spend our tax dollars wisely. In my business, I constantly ask myself, is spending this money going to make my business more efficient? Is it necessary to my survival? Will it add to my revenues? If the answer is no, I don't do it. Quit hiding behind the word, nexus, and let the states collect sales tax on Internet and catalog sales made to their citizens. Nexus means the business must have a physical presence in the state for the state to collect sales tax. If you took all the catalogs that I've gotten in the past months before Christmas and stacked them up, I believe they would tower over the largest building in town. That sounds like nexus to me. Let the PX system sell necessities to soldiers on active duty in areas where the same products are not readily available. The PX system was never meant to be a private discount department store competing with the private sector. And, finally, bring us together as a nation of diverse people. Don't make laws that push us apart. Today, national security is your number one job. Tell us how we can help. Tell us the truth. Don't let us lose the confidence, the generosity, the vitality, and the zest for living that make the American spirit the wonder and the envy of the rest of the world. Thank you for your interest and support. [Mr. Hammond's statement may be found in appendix.] Chairman Manzullo. Thank you for your testimony. I just have a couple of comments, if somebody wants to testify on them. The inability to find capital, every administration wants to raise SBDC fees. We go through this nonsense with every administration, Republican or Democrat, wants to make the SBDCs in the position where they have to charge consulting fees. Every year we fight it, and we win; but it comes back again. I think the reason--and I think you would agree with me--I still don't think that Washington gets the picture with small businesses. The NFIB does a great job. The Chamber of Commerce; Don, your organization; and, obviously, the SBA. But small businesses simply do not have the lobbying power. They don't have the clout. They don't have the sustained ability of the big businesses. One corporation received a 1.5 billion dollar forgiveness on a tax. Granted, that comes back down through the ranks. But still, the small businesses have really not gotten the tax breaks that they should have. It's almost embarrassing how small businesses have had to beg to get a hundred percent deductibility for health and accident insurance; and I think it's a disgrace that Congress each year strokes small businesses, gives them a little bit more, and says, well, next year, you'll get a hundred percent. My brother and his wife pay seven hundred dollars a month in health and accident insurance. Insurance companies don't community rate. There again, they could community rate. They could treat all small businesses as one big business and form that giant pool that we've been trying to do with associated health plans. Unfortunately, that hasn't gotten through Congress. So I just want to let you know that you need to continue to inform Mr. DeMint and stay very close to the SBDCs. The Small Business Administration has what's called an Office of Advocacy. It's an in-house law firm that we use constantly with small businesses for fighting federal regulations. It has been very efficient, and we always try to get it expanded. Three years ago, it almost was eliminated because Congress did not understand its function. So I guess the one question that I have is, the inability to access capital. I think, Mr. Hughes--are you a real estate developer? Mr. Hughes. Yes, sir. Chairman Manzullo. Have you had any experience in that line? Mr. Hughes. In real estate, since September 11, it's an unwillingness to commit anything going forward until it is sort of sorted out. I don't face the same kind of problem with capital because I've got a big piece of collateral to offer, not a business plan. Where that actually affects me is in my tenants who can't get capital, so they can't pay the rent. So the access to capital, and South Carolina is notoriously behind the other states in venture capital. And, as I said, I believe some of that is local and state issues. Chairman Manzullo. Well, not just venture capital. I'm talking about a line of credit. I sit on the Financial Services Committee, and we've been seeing bank mergers. There is no need for the banks to constrict when businesses are not even in stress. So what do we want to get out of the commercial lending folks, with the decrease of banks from about ten thousand nationwide to about six or seven thousand, especially in rural areas? Has anybody here expressed that? Mr. Wilson. Mr. Chairman, we're hearing that there is considerable lack of credit, and apparently bank regulators-- and I'm certainly not an expert in that area, but apparently bank regulators are leaning on the banks to make sure that their loan portfolios are sound. And apparently small businesses are often the first ones that they stop lending to. Rates are down, but the credit is just not available. And I noticed the lowering of the ADLI loans and things that have been done will help, but it's hard for a small business without significant collateral and so forth at this point to find the credit that they need. As you know, a great number of small businesses start up and find their capital on the credit card. You can do that when times are extremely good and sales keep going up and you can pay off the credit card every month. You can make it. But if you're relying on a credit card and then the economy turns down, as we've seen, then you're facing astronomical rates. You realize the number of small businesses, Mr. Chairman, that have started in the last ten years. They have never experienced an economic downturn. Those business owners have never been in a distressing time. And so they had adapted a certain pattern. And, once again, so many small businesses use credit cards, and now they're facing the fact that when they can't make those payments, they're facing eighteen and twenty-one percent interest rates. And so small business is facing a credit crunch. There was an excellent editorial on it in the Wall Street Journal just about ten days ago that I will share with your office, and it's a major problem. Chairman Manzullo. I was faxed a copy of that. A major bank cut off a line of credit to a business back home, and the business didn't even want a line of credit. They were in the home building spree. Sales were up dramatically. They were remodeling and decorating, and the bank said, well, we're just going to get out of the commercial lending business. They were supposed to be your SBA preferred lender. Mr. Cooper, what do you think about the SBA fees? Mr. Cooper. My personal opinion is that we've priced ourselves out of the market. Chairman Manzullo. Yes, I wish you would convey that to Washington. Mr. Cooper. I do it every time I have a chance. Chairman Manzullo. I have has introduced a bill, HR 3230, that dramatically decreases the 7(a) and 7(b) fees. The SBA refuses to take a position on it; and for the life of me, I just do not understand why the Small Business Administration is not in favor of lowering the fees, because it's four percent right off the top of a 7(a) loan. Mr. Wilson. Mr. Chairman, can I address that? Chairman Manzullo. Sure. Mr. Wilson. And I know you've experienced the problem, and you said it very clearly; that it's regardless of the administration, Republican or Democrat. And we understand that a president has to have a consistent policy and that his agencies and departments have to follow the goals of the administration. But what is happening is that in administration after administration, OMB so often with SBA programs---- Chairman Manzullo. What are you referring to? Mr. Wilson. The Office of Management and Budget. And we're concerned that the White House at the highest levels, with some programs, is not aware of what OMB is recommending. I'll be perfectly candid with you. President Bush has been an outspoken defender of small business, and I doubt very seriously whether the President is fully aware that OMB has recommended the fees on SBDCs and higher fees for SBA loans and so forth. And what I have yet to understand in my twenty-five years in Washington since moving there from Asheville, I don't understand why the OMB doesn't understand where they get their money from. Small businesses are responsible for fifty-one percent of our gross domestic product. The money that is coming into Congress and into the Treasury in recent years has come because of small business growth. And if OMB wants to manage that money, they need to manage it well and realize where those dollars are coming from, but they continually recommend policies that are impediments to small businesses. And until somebody changes what is going on at OMB, I am afraid that we're not going to see the policy changes that we'd like. Chairman Manzullo. You understand the problem all too well. Mr. DeMint. A lot of things I'd like to follow up on. The capital retention is something that--as a small businessman, has come up several times today about how absurd it is to take money through taxes from growing small businesses when that money could just be plowed back in and create more jobs. And we have gathered a fair amount of support in the House and in the Senate, and the Chairman is sponsoring this BRIDGE Act. We hope we can actually do something with a tax deferral that results in growth, something that would help rather than punish. I think what I would like to help on, Mr. Wilson and Mr. Cooper--and maybe we can discuss it a little bit--is just this whole regulatory aspect of some comprehensive change regarding regulations and, again, to try to deal with some of the absurdities in having to do the same thing with a fleet of two trucks as you would do with a hundred. We see those types of absurdities, but I don't see any comprehensive proposals or legislation that would somehow correct these things for smaller businesses so that the cost per capita for a small business employer is not so much higher than a large business. But we would have to have, I think, a lot of input from your side. These hearings help, and I think some of you have gone to lengths today to list some things that begin to confirm what we're hearing. The frustration that I feel is, where do you get comprehensive legislation that pulls a lot of this regulatory reform in? Because as we look forward to some kind of global economy where we're looking at putting our small businesses in the export business to compete with companies all over the world, we seem to be working at odds back home by making it harder and harder to do business through our tax codes and regulations. Is it something you're considering at the SBA or the Small Business Association? Is there a white paper on regulations, something we can use to put together a comprehensive legislation that doesn't appear to exist now? Mr. Wilson. The Advocate's Office at SBA has been a tremendous watchdog for small business. I think agencies are taking the impact into consideration on small businesses, more than they were a few years ago; but so many of the regulations were already in place. We all know the horror stories. You have to have the beeper on a truck. You put the beeper on the truck when it's in reverse. Then it exceeded EPA noise standards and so forth a few years ago, those kinds ofridiculous contradictions. One of the real problems was that so many of the folks were writing the regulations, and Congress writes laws that are very well intended. And then I think the regulators go beyond what you gentlemen intended in their zeal and advocacy. And it has improved in recent years, and the folks from NFIB have been at the forefront in, I think, advocacy in terms of regulation. But the folks who write the regulations in the agencies have almost no familiarity with small businesses, how they operate; and that's a real problem. They bring in folks who just have never run a business, met a payroll, and so forth, the ones who are writing them; and I think that is a real problem. And also with the regulations, so many different committees. It's difficult to get an ombudsman bill to deal with the regulatory burdens on small businesses; but the numbers that you're very aware of, they're just staggering. And small businesses cannot afford a team of attorneys to read the Federal Register every day, and that's the reason we're hoping the pilot project that came out of your subcommittee and your committee, Mr. Chairman, that has now passed the House, that sets up the pilot for Small Business Development Centers to provide some compliance assistance, may help. If the regulations are going to stay, at least you owe the small businessman information on how you can best comply with them and the most cost-effective way to comply with them. Mr. DeMint. One of the things, as you know, that we added to that bill is not only to help people with small business regulations, but then the SBA is to get back to us. Mr. Wilson. Yes, and that was a very important amendment, and we commend you for that. Mr. DeMint. So, hopefully, we will actually learn and do something. It's one thing to know about these things, but to get them changed is why we're there, Mr. Chairman. Mr. Wilson. It's very difficult. Mr. DeMint. I appreciate the specific comments. As all of you have heard, the others have made comments. Are there any additional statements? Mr. Beltram. I'd just like to address something about the fees and so forth. Since we do have an SBA guaranteed loan, we are a payer of that huge fee you're talking about, so we understand what that's all about. And the reason we went that route rather than conventional banking is that in manufacturing, our biggest assets are receivables and inventory, which instantly, by normal banks, get discounted heavily, because a lot of that is component parts, work in process, and so forth. So it dramatically changes our balance sheets after the conventional banks go and write all that stuff down. So that's always a problem of obtaining credit, that our true assets can never be shown on what the banks will look at to make underwriting decisions. Mr. DeMint. Anything else? Any other comments? Mr. Cooper. I would go along with what Don said. I hope the committee will stay behind that because I think it is a step in the right direction, to look at the impact of all these regulations. I just think it's a good start; but, like most things, we can't let it falter. We've got to stay behind it. Chairman Manzullo. We appreciate you all coming. Mr. Cooper, I just want to let you know how much I appreciate your coming with the rest of the witnesses. The testimony of the regional SBA directors is oftentimes a lot more particular. It's totally unpolitical. It's untouched by the Office of Management and Budget. And your remarks have been extremely refreshing. Mr. Cooper. Thank you, sir. Chairman Manzullo. The new SBA director has to deal with those OMB people all the time. You have the luxury of being down here and separated from them. But I know his troubles also, to try to stay within the President's guidelines and also trying to help the small businesses at the same time. Mr. Cooper. We're very impressed with him at the agency. The first meeting we had with him, he sat and listened to us for a day and a half. Chairman Manzullo. He's a good man. We're very much impressed with him. Let me just throw something out that you might want to chew on. There is an interesting phenomenon going on in the automobile industry that proves conclusively what happens when you have dramatically lowered interest rates. These rates are at zero, and now one of the companies is going to have it tomorrow. But the American people have got just a taste of what it's like to live under low interest rates, and they like it. More Ford trucks have been sold this year than any other year in history. The last quarter was astounding, but the sale of automobiles was up. And the question is, how long can you go with zero percent financing? You can go a long period of time, because we've seen development of this in my own case. If I could convince my wife, it's the fact that I was never intending to look at a new car; but I did see a four-wheel drive pickup truck, club cab, CD player, one that I could put the Dixie Chicks in. And the color of the truck is the same color of my hair. And I could buy that for three hundred dollars a month, and I could see it sitting in my garage with my brown Lab sitting next to me, sleeping, and going across my pasture and putting in a trailer the same color as the pickup truck. But what it's doing is, it's people are rethinking the way they buy things now with the lower rates of interest. I would hope, with all due respect, that the banks would catch on. The banks would make a lot more money, writing a lot more loans out there at affordable interest rates, with people being able to make the payments on it. So as far as the horrible tragedy on 9/11, we're seeing consumers react in many different ways. Again, all the statements of the witnesses will be a part of the record. We will leave the record open for another two weeks. Anybody who wants to make a statement for the record. Do you want them to e-mail to you, Jim? Is that the best way? Mr. DeMint. Well, I think these folks can send additional statements to my staff. The e-mail is www.demint.house.gov. And we'll pass all along to the committee. And thank you. This has been great testimony and a tremendous help. We appreciate you all taking your time. 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