The Stimulus and Small Business

This week we will examine the timely topic of the American Recovery and Reinvestment Act, a.k.a. the federal "stimulus" plan, and its opportunities and impact on small business.

Scam Letter Alert
Not surprisingly, the thieves have emerged to prey on the hopeful but nondiligent. A scam letter on counterfeit SBA letterhead is currently making its way around small businesses. It asks for bank and account information (Source: http://www.bizjournals.com/triad/stories/2009/02/16/daily62.html) so that the agency can determine eligibility for a tax rebate. If you receive this letter, contact the Office of the Inspector General Fraud Line at 800-767-0385 or OIGHotline@sba.gov, then please shred and recycle it immediately. Want to really get put off your dinner? See below at the amount of money this type of anticipated activity justifies.

Opportunities
The Stimulus--as I will begrudgingly refer to this bill--provides $730 Million for the Small Business Administration for the purpose of providing "new loans to assist small businesses with meeting debt payments," offering, "higher loan guarantees" and lower fees (http://www.ketv.com/money/18755827/detail.html). Here is a breakdown of the SBA's allotment, courtesy of Infozine:

• $375 million for temporary fee reductions or eliminations on SBA loans and increased SBA guaranteed shares, up to 90 percent for certain loans
• $255 million for a new loan program to help small businesses meet existing debt payments
• $30 million for expanding SBA’s Microloan program, enough to finance up to $50 million in new lending and $24 million in technical assistance grants to microlenders
• $20 million for technology systems to streamline SBA’s lending and oversight processes
• $15 million for expanding SBA’s Surety Bond Guarantee program$25 million for staffing up to meet demands for new programs
• $10 million for the Office of Inspector General

(Source: http://www.infozine.com/news/stories/op/storiesView/sid/34149/)

Much of the additional spending is for infrastructure and government facility modernization. Small businesses who deal directly with, or support firms who sell to, the federal government have optimistic outlooks. Similarly, there will be opportunities at the state level,especially for businesses who qualify as a Minority Owned Business, Woman Owned Business or Disadvantaged Business. If you have previously dismissed or are at present conflicted about the considerable time, effort and hundreds of dollars required to become a certified MBE, WBE or DBE, there may be no better time or motivator than this Act, right now.

For Colorado small businesses, here is a document that explains certifications and the process:
http://www.dot.state.co.us/EEO/CERTIFICATION/linkedFiles/CDOT_CertificationRoadMap.pdf.

Complaints

The New York Times (http://www.nytimes.com/2009/02/20/business/smallbusiness/20sbiz.html?ref=business) reports,"a little detective work is needed to reap the full benefits of the law." And to understand whether or not you benefit. Businesses can deduct $250,000 for capital expenditures, for example, but only if they are profitable. Similarly, the bill allows a 50 percent bonus deduction on capital investments made in 2008 or 2009 that normally would be deducted over many years, but if you're not making money, you're probably not purchasing.

The bill provides for companies to use losses from 2008 to offset profits in any full year that two to six years ago and obtain an immediate refund. This is only for 2008 and for companies with annual revenues of $15 million or less...so, in other words, carrybacks are okay...just like they were before this bill.

Opinion

I recently presented at a University of Denver symposium (http://www.estlow.org/) at which Global Voices co-founder Ethan Zuckerman accepted an Anvil of Freedom award. Mr. Zuckerman spoke of the importance of remaining active and diligent in pursuit of facts. When a student asked "Why should we care?" Mr. Zuckerman responded, "Because awful things happen in the shadows."

According to SpeedReadingBlogger (http://www.speedreadingblogger.com/tag/stimulus-bill/), the average person reads 200 words per minute. There are 207,421 words in the stimulus bill. That's 17 hours and 17 minutes; longer if you need to go to the bathroom or blink.

No one in Congress read the whole bill. Why it couldn't be chunked out like all other political agendas? Is this administration using "the politics of fear," which candidate Obama quite rightly condemned, as leverage to promote an ideological agenda? Is it irresponsible to vote "yes" on a bill you haven't read, and does the unprecedented magnitude of expense this bill proportionately increase the darkness of the deed?

Conclusion

Please find and take advantage of the opportunities in the stimulus package. And please hold accountable yourself, your partners and your government. Know that this bill is full of shadows.

Resources for The American Recovery and Reinvestment Act:

http://www.recovery.gov/

http://readthestimulus.org/

Full Text of the Bill http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h1enr.pdf

Obama's Plan: Where's Your Opportunity, Part IV

"Universal Retirement Savings"

Continuing in our analysis and treatment of The Plan by Rahm Emanuel and Bruce Reed:

Prologue
This installment is privileged with the expertise of Jordan Curry, Financial Representative for Northwestern Mutual. The author of this blog wishes the reader to know that the blog is not sponsored by Northwestern Mutual or any other entity.

Background on Subject Matter Expert
Mr. Curry, an alumnus of Arizona State University's Carey School of Business, serves as Chair for the Board of Directors for a Denver-based travel company and actively supports multiple nonprofits, including Save Our Youth, the Pat Tillman Leadership Through Action Program and the Business School Council. He is a member of Denver Young Professionals and the Financial Planner Alliance. Mr. Curry can be reached via email Jordan.Curry@nmfn.com, or his website http://jordancurry.nmfn.com/.

Summary
With "Universal Retirement Savings," The Plan seeks to address the convergence of increasing "demands on...nest eggs" and our aging population; the decline in available pension plans and low percentage of retirement savings; and the wealth gap, by reforming the "complicated" tax code and "alphabet soup" of retirement savings plans and raising the minimum wage.

This installment acknowledges and summarizes the entirety of the initiative as stated in The Plan, but analysis focuses primarily on a single aspect having the greatest potential impact to small business: The 401 (k) requirement. In previous installments, this blog has sought to identify opportunity areas for small businesses in order to empower its readers with advantageous positions on the change curve. While it is the sincere hope of the author that reaction and discussion uncover ideas of that nature, this installment would be incomplete without addressing economic realities past and present and the considerable risks that also accompany this proposal.

To preserve context, the summary provided by the authors is restated
here in its entirety:

From now on, every job ought to come with a 401(k). An aging society cannot afford to keep saving less and risking more. We need new means to create wealth, based on the needs and responsibilties of twenty-first-century employees and employers. Employers should be required to offer 401(K)'s, and workers will be enrolled unless they choose otherwise. If they switch jobs, they can take these accounts with them. When their paycheck goes up, so will their savings. Instead of a workforce in which only half the workers have retirement savings plans, every American will have one.

"More Ownership and More Security"
One stark change since the book's publication in 2006 is a position reversal on the consequences of debt. The Plan criticizes President George W. Bush for, "dig[ging] the country still deeper into debt--an unlikely way to strengthen the nation's long-term finances," and for having "a political vision, not a practical one." In 2009, the "stimulus" plan for which President Obama has been pressing is funded by unfathomable debt and is peppered with political objectives.*

Another is public perception of the 401(k) as a dependable source of retirement income. According to a February 12, 2009, US News and World Report article (http://www.usnews.com/articles/business/retirement/2009/02/12/how-did-your-401k-really-stack-up-in-2008.html), in 2008, the average American employee lost 14 percent of her retirement savings--a $19,000 drop in average account balance.

"Americans aren't savers," says Curry. "The savings rate has historically been negative. That's a large part of the current credit crisis, and it's a result of fiscal mismanagement. Most people look at their paycheck and see a chunk of it sent to Uncle Sam for Social Security, but the reality is that personal savings is a very large part of life after retirement."

The Plan agrees: "71 million Americans work for an employer that doesn't offer a retirement plan, and another 17 million who could take part in an employer plan don't. More than half of all households have no retirement savings beyond social security." First, why don't those 17 million engage?

According to The Plan, its because "the burden of navigating and managing" plans and the sheer number of them is too bewildering. Curry disagrees, offering that having a menu of options
for savings and investment is a result of market demand for specialized services. "Problems arise," Curry offers, "when individuals aren't educated or diligent in learning about, or
managing, their retirement funds," which he admits is the realm of the professional financial advisor. "As you age, your investment portfolio should rebalance. Much of our problem right now is that this hasn't happened; people have portfolios that are in the wrong risk area."
Curry calls attention to The Plan's educational designs (previously discussed in this blog), offering that finance as a pre-college core curriculum item would provide substantial opportunity for long-term economic stability for individuals, business and the nation as a whole.

"A 401(k) with Every Job"
The Plan's proposal is to:

[R]equire all employers to offer workers a pension or 401(k), and expect all workers to contribute unless they make an affirmative step to opt out...[E]very employee would automatically be enrolled in the employer's 401(k), with the choice to opt out at any time. If employees switch jobs, they could take their account with them to a new employer. Employers could enroll each worker in their own plan, or in a state-sponsored retirement plan similar to the Thrift Savings Plan [Author's note: The TSP is currently available only to military and federal government personnel (www.tsp.gov).]

The current Obama position, available on the White House website (http://www.whitehouse.gov/agenda/seniors_and_social_security/)
states:

The Obama-Biden retirement security plan will automatically enroll workers in a
workplace pension plan. Under their plan, employers who do not currently offer a
retirement plan will be required to enroll their employees in a direct-deposit IRA account that is compatible with existing direct-deposit payroll systems. Employees may opt-out if they choose. Experts estimate that this program will increase the savings participation rate for low and middle-income workers from its current 15 percent level to around 80 percent.

The Obama administration also plans to "ensure that all employees who have company pensions receive detailed annual disclosures about their pension fund's investments" by requiring "full disclosure of company pension investments." The Plan calls for similar transparency, and even assigns agency responsibility for enforcement. Neither Obama's position statement nor The Plan make provisions for the size of a company relative to these requirements, nor do they provide for the specifics for creating a state-sponsored savings plan accessible by the private sector.

Opportunity and Risk Areas
The populist motives are clear, but questions and concerns abound for small businesses:

• Will the requirement to provide a retirement plan raise barriers to entry for my competitors?
• Will this requirement require me to employ fewer people? Or decrease
  wages? Will it limit my ability to expand?
• Will transparency in reporting requirements increase my payroll and overhead costs, and by how much?
• Into what actual quantitative and qualitative changes to business operations do these changes translate?
• In the market for talent, this change presents opportunity. Where? How can we seize this change for competitive advantage?

Conclusion
Curry's final observation on the topic is reflective of the fact that such a large majority of Americans are employed by small- to medium-sized businesses. He states, "These owners create the wealth in our society. Raising the minimum wage doesn't promote economic growth,
but economy is just one element of society." Similarly, the challenges posed for small businesses by this administration's agenda will probably provoke a reaction of discomfort and resistance.

It is this blog's hope that its readers will emerge as educated opinion leaders, with solutions at the ready.


*According to the Wall Street Journal, $500 Billion of the $6.2 Trillion Weatherization Assistance Program is for beaureaucratic "expenses;" there's $6 Trillion to help General Services Administration buildings go green; and there's even money for yacht repair (http://online.wsj.com/article/SB123379617394050229.html). The Christian Science Monitor says $300 Million has been set aside for what might be golf carts (http://features.csmonitor.com/economyrebuild/2009/02/14/my-five-favorite-things-in-the-stimulus-bill/). In fairness and if you haven't heard, they did take out the condoms (http://www.politico.com/news/stories/0109/18066.html).

Obama's Plan: Checkpoint I

Summary
Next week this space will return to The Plan by Rahm Emanuel and Bruce Reed to examine its call for “Universal Retirement Savings.” Our expert guest will be Jordan Curry of Northwestern Mutual.


Certain junctures seem to lend themselves to checkpoints. In this case, Mr. Curry needed to borrow my copy of the book and the expert I engaged regarding The Plan’s pre-college educational aspects is unable to meet my timeline. So, we will adjust our sails.


As the previous installment alluded to changes since the book’s publication, this one compares and contrasts The Plan’s 2006 goal of “Universal College Access,” with the current educational agenda espoused by the Obama administration.


We will see that, in sum and especially regarding educational policy, Obama’s current agenda and The Plan’s are virtually identical. This lends merit to our examination of The Plan as a worthwhile pursuit.


Disclaimer?
What concrete indicators show this administration's commitment behind its rhetoric? In just under 3 weeks, President Obama has removed the ban on stem cell research, directed the closure of the Guantanamo Bay prison, bombed Pakistan, picked a fight with China, assigned and dispatched 2 heavily-credentialed envoys to the Middle East, addressed children’s healthcare and pay inequality in the workplace and is on the verge of delivering an economic stimulus package few can comprehend in size or scope. This is not a complete list of the administration’s documented initiatives or actions. The pace is blistering and intense.


A February 7, 2009, Detroit Free Press article (http://www.freep.com/article/20090207/NEWS15/90207027/1285/Stimulus+compromise+cuts+education+spending) notes that much of the reductions in the stimulus package were from spending marked for education, so by the time this article posts we may have a reaction to that item from the administration. However, a February 7, 2009, opinion piece in The Wall Street Journal (http://online.wsj.com/article/SB123396676711659061.html) suggests, convincingly, that much of these educational funds were politically--not economically--motivated and offers a lesson on why Americans should fear a filibuster-proof majority by either party. Politically savvy and pragmatic, Obama will probably not choose this moment to stake his claim on education.

Checkpoint
When Barack Obama and Joe Biden were among those apparently hopeful of finishing second in the nominating process to Hillary Clinton, the former offered these words on November 7, 2007, to a group in Bettendorf, Iowa, that may have well marked the beginning of his surge:

It...means putting a college education within reach of every American...I'll
create a new and fully refundable tax credit worth $4,000 for tuition and fees
every year, which will cover two-thirds of the tuition at the average public
college or university. I'll also simplify the financial aid application process
so that we don't have a million students who aren't applying for aid because
it's too difficult. I will start by eliminating the current student aid form
altogether - we'll use tax data instead. And I'll tap the tremendous resource of
community colleges, which educate half the undergraduates in this country, by
creating a new Community College Partnership Program. We'll help schools
determine what skills and technical education are needed to help local industry;
we'll expand new degrees for emerging fields; and we'll reward schools that
graduate more students. (http://www.barackobama.com/2007/11/07/remarks_of_senator_barack_obam_31.php)

As a review of last week’s post will confirm, most of this is a “copy and paste” from The Plan. These words are reinforced in Obama’s current public policy statements, as he promises to create, “a new American Opportunity Tax Credit:”

This universal and fully refundable credit will ensure that the first $4,000 of
a college education is completely free for most Americans, and will cover
two-thirds the cost of tuition at the average public college or university and
make community college tuition completely free for most students. (http://www.whitehouse.gov/agenda/education/)

Harkening back to, and perhaps an adjustment on, The Plan’s call for “Universal Citizen Service,” the Obama policy statement also states that, “Recipients of the credit will be required to conduct 100 hours of community service.” The statement also promises to heed The Plan’s call for adjustments to the financial aid process, by:

eliminating the current federal financial aid application and enabling
families to apply simply by checking a box on their tax form, authorizing their
tax information to be used, and eliminating the need for a separate application.

Conclusion
While maintaining positions on unaddressed matters 3 weeks into a Presidency is unremarkable, the completeness of the transference of The Plan’s proposals through a full year of campaigning and into White House policy statements may indicate a high level of commitment and elevated intent to execute.


Future checkpoints on this subject will examine the data behind the proposals and the identity and role of key implementors.

Obama's Plan: Where's Your Opportunity? Part III

Continuing in our analysis and treatment of The Plan by Rahm Emanuel and Bruce Reed:

Prologue
This installment is privileged with the expertise of Rhonda Sinnema and Jennifer Marshall of College Assistance Plus (http://www.caplusdenver.com/). The author of this blog wishes the reader to know that the blog is not sponsored, by CA Plus or any other entity.

Background on Subject Matter Experts Experts
CA Plus gives students and their families guidance and direction in choosing a college, comparing financial aid packages, and accepting offers to attend. They work with families and prospective collegians to develop strategies to maximize financial aid. CA Plus clients leave schools of their choice with degrees…not debt. Mrs. Sinnema is the Owner of CA Plus Denver; Miss Marshall serves the firm as Director of Education.

Summary
With “Universal College Access,” The Plan seeks to make college available to those who want to go but can’t (“The main reason young people don’t go to college—or don’t finish—is cost.”); the “achievement gap,” i.e. holding colleges accountable for student dropout rates; to “provide lifelong training” for “any worker at any age…at an accredited institution;” and “to strengthen and reform our system of public education in elementary and secondary school,” the latter of which is identified as, “the weakest link in our educational system.”

This installment will acknowledge and summarize the entirety of the initiative as stated in The Plan, but analysis will focus only on the collegiate aspect. To preserve context, the summary provided by the authors is restated here, in its entirety:

We must make a college degree as universal as a high school diploma. More than ever, America’s success depends on what we can learn. We have an education system built in the last century, with a school year left over from the century before that. In this new era, college will be the greatest engine of opportunity for our society and our economy. Just as Abraham Lincoln gave land grants to endow our great public universities, we will give the states tuition grants to make college free for those willing to work, serve, and excel.

“Closing the College Gap”
Here we find a jarring reminder of what has changed since The Plan was published in 2006 as the authors show disdain for the practice of “subsidizing banks;” perhaps ironically preceding the prediction, “In the years to come, with the strength of our economy on the line, going to college will itself be a form of national service.”

The authors propose, first:
[To] simplify the tax code by replacing the five major existing education tax incentives—the Hope Scholarship, the Lifetime Learning Credit, the deduction for higher-education expenses, the exclusion of employer-provided education benefits, and the exclusion for qualified tuition reductions—with a single $3,000-a-year refundable credit for four years of college and two years of graduate school.

Second, The Plan states we should, “pass a truth-in-tuition law that requires colleges to set multiyear tuition and fee levels so that those in each incoming freshman class know in advance exactly what their degree will cost them.”

Finally and “most important,” the authors propose to, “provide Tuition Grants to states,” so they can, “offer free or low-cost tuition to students who work their way through school, excel in class, or commit to careers in critical professions.”

Other Components
To “hold colleges accountable for producing more graduates,” i.e. increasing graduation rates, The Plan prescribes the US adopt “the accountability system in Britain, which holds back a portion of colleges’ public funding until students actually graduate.” In this way The Plan addresses what it calls, “The Other Dropout Problem.”

The Plan also proposes changes to non-collegiate education and non-traditional collegiate education. Sinnema and Marshall agree with The Plan’s assertions that these areas, particularly pre-college education, are in need of immediate improvement. This component will be addressed in a separate and subsequent blog installment.

Relevancy
CA Plus advises that the only significant change to this Plan item in regard to the shift in our economy is that college affordability is even more prevalent an issue. People who saved in a 529 plan or intended to borrow against their house to pay for college now find their house devalued, their ability to borrow diminished and their retirement accounts in decline.

The brunt, say Sinnema and Marshall, is borne by the middle class. Perkins and Stafford Loans along with Pell Grants, the most common forms of financial aid, are awarded based on financial need, typically low end of middle income. Private loans are more difficult to acquire as well: According to http://www.finaid.org/, the number of private lenders facilitating college loans was 60 just last year; now it is 39.


Opportunity Areas
Anyone able to open cash flow opportunities for middle class families will have fast friends. There is a broad chasm of difference between, “How can I help you?” and, “What can I sell you?” Practitioners of the latter have contributed greatly to our current mess, and should not be welcomed in your network. Allow the market to marginalize the dinosaurs seeking transactional relationships learning the wrong lessons from, or ignoring, Enron and Madoff. Transformational, relationship-enriching, “win/win” opportunities can and will be created with increasing frequency. The sun is setting on the day of the one-sided deal.

The Plan does not address how these changes will be implemented. Opportunities exist within implementation, and may avail to entrepreneurial entities proactively seeking implementation avenues.

Regardless, an increased number of college students increases demand for textbooks, and the design, printing, and delivery thereof. Staff—academic, administrative and support--and facilities will need to be expanded. As a number of students and programs will be nontraditional, the number of internet-based programs will increase. The content and structure of curricula will need to be adapted to fit the medium, and a range of technologies will need to be integrated to collegiate systems and maintained. The initiative(s) may also, Sinnema and Marshall argue, increase the perceived selection available, thereby raising demand for options and research.

Of course, these are what occur to a few minds. Input is welcome. Please check in frequently to leave and read comments, and next week for further analysis of The Plan.