Wonks R Us

Where Public Policy and Small Business Meet

Tag Archives: economic stimulus

A Drop in the Bucket

Small businesses are the invisible engine that drives both our local and our national economy. The American Recovery and Reinvestment Act of 2009 allocated $730 million to support small businesses. That is 0.05% (yes, I do mean 5/10 of a percent) of the combined bailout total ($700 billion from the Bush administration and $787 billion from the Obama administration). Want a more current number? That is 1% of the amount AIG has received in bailout funds.

Our attention (and money) is almost always focused on large, international companies who employ thousands of people. But those companies employ less than of third of our nation’s employees—and only 15% of employees in Portland. Annually, over the past decade, 70% of net new jobs were created by small businesses.

How hard has the economic downturn been for small business? The U.S. Small Business Administration (SBA) typically guarantees about $20 billion in loans annually, new lending is trending below $10 billion this year.

Ok, enough with the complaining. What is the Treasury Department doing to support small businesses?

    • Create a market for loans through the direct purchase of securities backed by SBA loans.

      Lenders (want) need assurances that they are sharing risks they take by lending to small businesses. To allay this concern, the Treasury Department has raised the loan guarantees for SBA loans to 90% for SBA 7(a) loans.

      Currently the federal SBA loan guarantees – up to 85 percent for loans at or below $150,000 and up to 75 percent for larger loans – have not been large enough to give banks the confidence they need to lend in the current economy.

      Effective today (March 16, 2009) any who participates in the SBA 7(a) loan program can request the higher level of loan guarantee.

          These fees can be as high as 3.75 percent for larger loans, which significantly increases the cost of borrowing for small businesses. For borrowers or lenders charged any of these fees on loans approved on or after February 17th, the SBA will provide a refund,

              The SBA pledges that complete loan applications will be turned around quickly by the SBA – usually in as little as two to three days.

                  75% of any capital gains derived from investments held for 5 years in small businesses will be tax-free.

                  There are also some important changes to the tax code affecting small businesses.

                      Currently small businesses pay 110 percent of their previous year’s taxes in estimated taxes. The American Recovery and Reinvestment Act allows small businesses to reduce their estimated payments to 90 percent of the previous year’s taxes.

                          Businesses with gross receipts of up to $15 million can now “carry back” their losses for up to five years, effectively allowing them a rebate on taxes paid in previous years. The Joint Committee on Taxation estimates that this measure will increase liquidity for small businesses by $4.7 billion by September 30, 2009.

                              Small businesses may immediately write off up to $250,000 of qualified investment in 2009. Small businesses may also take a larger tax deduction within the first year of a property’s purchase.

                              Reality test

                              I spoke to a small business lender at a community bank last week just after she got off a conference call with the SBA about rolling out the small business loads as laid out in the original legislation.  She said the call consisted primarily of lenders asking the SBA what was happening and when and the SBA responding by shrugging their virtual shoulders.  I know that the local community banks and credit unions are raring to go on the loan roll-out.  I also know that some of the larger banks are now advertising the number of SBA loans they have given in the past.  So, I am curious to see how smoothly this goes, but I am very happy to be pleasantly surprised.

                              Caveat Emptor

                              When a business registers on a government’s procurement website to bid on government projects, all of that information becomes part of the public domain.  It is then perfectly legal for other businesses to either directly harvest that data, or pay the jurisdiction a fee for access to the data.  Every time I have registered any of my businesses, shortly thereafter my mailbox begins to fill up with official-looking ads for fee-based contract listings.

                              Some of the businesses that solicit me offer a useful service in which they track and sort bid opportunities so that the business owner doesn’t have to. Given the number of places where one needs to look for bid opportunities, there can be great value in being able to outsource the process, as long as their advertisements make it clear that they are a non-governmental entity providing a service.

                              There is another class whose advertisements look as through they come directly from a jurisdiction’s procurement department. These ads try to create a sense of urgency through false deadlines and false promises of access to bid information before the general public. In order to stay (just barely) on the right side of the law, these mailers often have a very small disclosure somewhere that they are not speaking on behalf of a government procurement entity.  But even when I know that the mailer is an ad, I have often had a hard time finding the disclosures, even when I am looking for them.

                              Then there are the businesses who offer workshops, seminars and written material to teach people how to access government bidding opportunities.  Once again, some of these businesses offer a valuable service by teaching business people how to navigate through all of the various government procurement sites, how to effectively respond to an RFP and how to become a tier II or tier III provider (Tier I providers are the businesses that secure the full contract, Tier II and Tier III providers are subcontractors to the Tier I supplier). Then there are the scammers that offer great “value” by promising “true wealth” by using “hidden websites” that they will share (for a reasonable fee, of course).

                              Now that everyone is abuzz with opportunities created by the stimulus package, I have been seeing more scam artists trying to cash in. This blog post was prompted by a workshop I went to (although honestly, I was only able to stand it for about 30 minutes) recently where the speaker was using fear tactics and lies to convince everyone in the room that they only way to stay in business and not end up on food stamps is to purchase their materials.

                              Once again, there are some very legitimate service providers out there who offer assistance to business people who don’t have time to check every procurement website or need assistance completing an RFP.  But please, read their mailers carefully, especially the fine print.  And if you go to a free workshop where the speaker is making you fearful or making promises that are too good to be true, walk out.

                              Note: I have not included names or links to any of the scammers websites because I don’t want to drive any traffic or business to them.

                              Simplicity isn’t that Simple

                              This evening I went to the first of several public information meetings for small business trying to participate in the Go Oregon! program. Don’t know what I am talking about?  Well, you are not alone.

                              I consider myself to be more web-savvy than the average bear, and I know I am much more comfortable wading through legislation and government websites than most people (a useful skill, but one that is guaranteed to never make you rich or famous).  This afternoon, I wanted to confirm the meeting time and see in what building the event was to be held.  I then spent approximately 30 minutes searching my email, running several google searches and poring through the Small Business Administration site with a fine tooth comb. I eventually found it (although the announcement did not specify a building after all) and headed west to the Rock Creek campus of PCC.

                              I have to admit, given the difficulty I had in confirming the event, I was surprised at the number of people there and even more shocked to learn that there had been 400 people at the morning session.  I asked some of the folks around me how they had heard about the event.  Almost all of them had accessed some services associated with the SBA in the past and received announcements in the mail.  The other folks I spoke to said they had heard about it from fellow business-people. No one mentioned a web site.

                              The entire event was structured around showing us the landing pages of the Oregon University System, Portland Community College, City of Portland’s and ORPIN (the state’s system) procurement pages.  Each presenter reminded everyone that with the timeline is so short and the actual pool of money available so uncertain, they should be sure to check all of these sites on a daily basis.  As they were only focusing in the stimulus money released through SB 338, there was no discussion of how to keep an eye on opportunities created by the American Recovery and Reinvestment Act.

                              Let me reiterate a key point I would like to make: small business owners were instructed to check multiple web sites  daily in order to keep tabs on opportunities as they arise (all of the sites lack RSS feeds, although you can subscribe to email updates on some of the sites).  That is a lot to ask of people who are already working really hard just to stay in business.  But, I also need to say in defense of these jurisdictions that they have been facing decreasing budgets and increasing needs for over a decade, and setting up RSS feeds (though simple) just doesn’t rise to the forefront in their list of priorities right now.

                              Small businesses are the lifesblood of our city. According to the Portland Development Commission’s draft Economic Development Strategy, 90% of businesses in Portland are small businesses and 3/4 of employees in this city work for small businesses

                              I would like to to make an offer to you, my readers.  I will continue to post links and information about both state and federal stimulus opportunities as I learn about them so that there will be at least one one-stop resource page for the information Portland’s small businesses need.  In exchange, I ask that when you learn about an opportunity or resource that you do not yet see on this blog, please add it to the comments.

                              I love Portland because Portland is a city that values community.  Please share the link to this blog with your fellow-business-owners, neighbors, family and friends.  I want to help local businesses prosper in this challenging time.  Local business owners and employees are part of our community, and I strongly believe that if we work together, we can weather this storm.

                              Transparency

                              Whenever I would walk in front of the tv as a child (and I mean from when I started walking onwards), my father would voice his objection by reminding me that I was not transparent.  Which means I probably learned the word “transparent” before the average kid.

                              I have also known for a long time that the federal budget is a challenging morass verging on incomprehensibility (I say this with a masters in government budgeting & finance.  If I find it challenging to understand, than even the above-average citizen doesn’t have a shot in hell).  Hopefully the Obama administration is going to help reduce the opacity of the federal budget and help everyone understand where our tax dollars are going.

                              The American Recovery and Reinvestment Act has an entire 39 page section laying out the the transparency and oversight requirements in a general way (more details below).  There is now an additional 60 page document that serves as the initial implementation guide for the first wave of money to be released in the next couple of weeks.  More details on implementation in a future post.

                              Local Oversight

                              The chief executive of the jurisdiction (whether that is the governor, mayor, commission chair, etc.) is accountable for the appropriate use of infrastructure stimulus dollars.  There has always been a requirement to report on how government funds are spent (says she who has prepared NSF grant reports more times than she cares to remember), but this time the accountability is to the public.  Each jurisdiction is required to post a certification that includes the following:

                              • A description of what the money is to/or was used for (by project, not in summary)
                              • The estimated total cost of the project
                              • The amount of the project that came from stimulus funds

                              The recipient of recovery funds (including an agency, a business or a jurisdiction–but not an individual) has ten (10) days after each calendar quarter must report on:

                              • The total amount of stimulus funds received
                              • The amount of those funds that have been either expended or obligated to programs, projects or activities
                              • A detailed list of the programs, projects or activities, to include:
                                • The name of the program, project or activity
                                • A description of the program, project or activity
                                • An evaluation of the completion status of the program, project or activity
                                • An estimate of the number of jobs created and retained by the program, project or activity
                                • For infrastructure funds only – The purpose, total cost and rationale for funding the infrastructure project

                              This reporting sounds onerous, but there is a stipulation in the bill that directs that there be a user-friendly means for recipients of the covered funds to meet the reporting requirements.

                              All of these reports are subject to review, both through federal oversight and public comment.  All findings and audits will be available through Recovery.gov.

                              The act also establishes a Recovery Accountability and Transparency Board whose primary responsibility is to prevent fraud, waste and abuse of stimulus funds. They are to do this by reviewing competition requirements, auditing stimulus fund allocations, identifying training inadequacies and ensuring that there are adequate personnel and ensuring that there are overseeing stimulus fund grants, and verifying that there are appropriate mechanisms for interagency collaboration aorund the use of stimulus funds.

                              The website

                              The Recovery Accountability and Transparency Board’s web site needs to explain what this all means to citizens.  That means no governmentese.  It also requires that the website include:

                              • Findings from all groups responsible for oversight
                              • Data on relevant economic, financial, grant and contract information in a user-friendly way.
                              • To whatever extent possible, job information to connect job seekers to employment opportunties that result from stimulus fund investments.

                              To summarize – every entity, whether it be public, private or nonprofit, is required to demonstrate that they are using stimulus funds appropriately and effectively.  In every case, there is an identified party that is responsible should the funds be mis-used.  Finally, there will be an easy to access and to understand way for the public to watch the entire process unfold by accessing Recovery.gov.

                              I know, the devil is in the details, but I am beginning to wade through that information as it emerges.  So stay tuned.

                              Cutting off Portlandia’s Nose to Spite our Face

                              We interrupt our regularly scheduled stimulus bill translation for an update on an issue that refuses to die.

                              I was at City Hall this morning for an early morning meeting.  As I was leaving at about 9am, I saw abut 10 people gathered outside with signs advocating for removing Sam Adams from office.  I am an advocate of free speech, and absolutely support their right to be there, but I do wonder about the possible consequences of their actions.

                              Although the advocates for Sam’s recall cannot even begin to collect signatures for a recall until July 1, 2009, they are visibility beginning their advocacy efforts.

                              The first wave of stimulus money is set to flow into local governments within the next 30 days, with a second pool of funds being released in 90 days from yesterday.  All of the stimulus funds are “use it or lose it” and if the funds aren’t allocated within their designated timeframe, they return back to the pool for redistribution.

                              Historically, Portland economy falls deeper and stays down longer than other comparably-sized cities.  The combination of our economic track record and the stimulus’ short response times,  suggests to me that we all need to keep our focus on keeping Portland’s economy afloat.

                              I have begun to see concerning signals that the ongoing focus on Sam’s previous errors are negatively impacting his actions. On February 16th, there was a press conference at which Senator Ron Wyden, Senator Jeff Merkley, County Chair Ted Wheeler, Metro Council President David Bragdon, and Commissioners Nick Fish and Randy Leonard spoke about what the American Economic Recovery and Reinvestment Act means for Portland and Oregon.  Several people who were at the press conference noted that our mayor was absent from such a visible event.

                              One of the benefits of having a weak mayor system is that the day-to-day work of City Council can go on even if the mayor is distracted by other issues.  But, given the unprecedented economic situation we are facing, I am not sure what those who are advocating for Sam’s recall gain by initiating their campaign 4 months before they can legally begin to take any concerete action.  It seems to me that their disraction tactics will only end up hurting the very city that they are trying to protect.

                              The American Recovery and Reinvestment Act of 2009. Now in English.

                              Yesterday I read through the entire text of the of the American Recovery and Reinvestment Act of 2009.  It is a very long and challenging document to slog through, and I wouldn’t recommend it to many people. However, as a policy wonk, it was important to me to read text of the legislation myself.

                              Since the best way to learn is to teach, I then set myself to the task of providing an executive summary of sorts for the full 496 pages of the appropriations section of the bill.  I am neither a tax attorney nor a CPA, so I am leaving the 577 pages of the tax section for others to summarize. As there is already a plethora of partisan summaries of this landmark legislation, I have done my best to represent an unbiased summary of the contents of the bill.

                              Given the time it has taken me to summarize the first section of the bill, I am going to publish the summary relating directly to small businesses today.  In the coming days I am hoping to do the same for technology and software development and education. I welcome and comments and feedback, and I encourage all readers to share this far and wide.  We (and I mean that collectively for both ours and future generations) are paying for this, so we should all know what we are spending our money on.

                              Small Business
                              Funding the Small Business Association (SBA):
                              * $24m is allocated for “marketing, management and technical assistance… for intermediaries that make microloans under the microloan program,” “$20m is for lender oversight activities…and $20m if for “improving, streamlining and automating information technology systems for  related to lender processes and lender oversight”

                              The entire $69 m is “Provided that no later than 60 days after the date of enactment of this act, the Small Business Administration shall submit to the Committees on Appropriations of the House of Representatives and the Senate a detailed expenditure plan for funds provided…”

                              * An additional $6m is to be made available until September 30, 2010 and an additional $630m for direct loans to remain available until September 2010.  $375m shall be for loan subsidies and loan modifications for most small businesses, with an additional $255m for loan subsidies and loan modifications for small business investment companies.

                              The legislation also eliminates or severely reduces many of the application fees and reduces the amount of capital small businesses need to leverage any loans they receive.  The loan guarantees created by this act sunset 12 months after the date the bill is signed into law.

                              In order to encourage lending by private banks, a Secondary Market Guarantee Authority will be created within the Small Business Administration.

                              In order to increase small business investment, the maximum leverage of a company’s private capital is the smaller of 300% or $150m.

                              Business Stabilization Program
                              Although there is no specific appropriation set-aside for the new Business Stabilization Program, the appropriation for other SBA loans may be used to provide loans on a deferred basis to viable (as defined by the SBA’s Administrator) businesses who have a qualifying small business loan and are experiencing immediate financial hardship.  These loans will be guaranteed100%, with interest subsidized for the period of repayment (a period not to exceed 6 months), and may be used to make payments of principle and interest either in full or in part.  The loan may be amortized over a period not to exceed 5 years, and may not begin until 12 months after the final disbursement of the funds is made. Any available collateral may be used, including subordinated liens. No fees are to be charged for loans falling under this section.  No new loan guarantees under this section may be made after September 30, 2010.

                              Oversight
                              There are a lot of resources dedicated in the legislation for oversight of the appropriate allocation and distribution of economic recovery funds.  Most of the oversight is decentralized, with the Office of the Inspector General (located in the Department of Commerce) overseeing the funds distributed through that department, and the Inspector General overseeing and auditing programs administered by the Department of Labor.

                              The oversight of funds distributed to states and localities will be tracked with bimonthly reviews by the Comptroller General.

                              Overseeing and coordinating these decentralized controls and audits will be a Recovery Act Accountability and Transparency Board, whose mission it is to ensure that the money allocated is spent appropriately and in clear view of the taxpayers underwriting it. All reports produced by this board will be posted on a designated website (presumably Recovery.Gov).  The legislation also creates an appeal process in cases where an agency disagrees with an audit, and endows the board with the authority to conduct its own independent audits and investigations.

                              Think Globally, Act Locally

                              While he was still President-Elect, Barak Obama made it abundantly clear that he wanted no earmarks to be part of the economic stimulus package.  While often perceived as a synonym to “Pork-Barrel spending,” earmarks can serve a useful role.  They are a way that congress can designate funding for specific work.  They are also a way for the congress to negotiate compromises, which, when done within reason, are actually a useful tool to move decisions forward.

                              But, there is also a reason that earmarks have earned a bad name.  As I mentioned in a previous blog post, TARP, the previous stimulus package, was earmarked for banks, despite the fact that banks were clear, in a very public way, that they had no intention of using it as directed.  Negotiating earmarks can also slow congressional decision-making to a halt.  The funding pie is never big enough, so not only are people scrambling for a slice, but arguing like little children over whose piece is bigger.

                              Both the House and Senate are getting very close to agreeing on a stimulus package that President Obama can sign.  Everyone involved seems to recognize the urgency of the situation and the need to get money flowing back into the economy.  At this point in time, it is looking like both the House and Senate will sign on to the idea of having the jurisdictions that receive the money decide how they will spend it. But not without some parameters from congress.  In HB1, the House economic stimulus bill that is currently being debated, there are dates by which the money needs to be released by the federal government (30 days for formula funding, 90 days for competitive funding and 120 days for funding for new programs).  In addition, the funds are released conditionally on a “use it or lose it” basis.  So if 50-75% of funds are not used by the recipient jurisdictions within a pre-determined time-frame, the money goes back into the pool to be redistributed.

                              What happens next?  Well, according to Sarah Binder of the Brookings Institution:

                              When this bill passes, a Niagara Falls of money will flow out of Washington and into the accounts of state highway commissioners, governors and legislatures, local school boards, county executives — even mayors

                              Then local jurisdictions, rather than national legislators, can decide how to best allocate the money to revivify their local economies.

                              I find the resistance to shifting the decision making to the local level very interesting.  From my perspective, localizing the spending decisions promotes greater local accountability because the locus of control is so much more accessible.  When funding decisions are made in Washington DC and they are poorly suited for a state, a county,  a city or a school district, it is way too easy to blame “those folks in Washington.”  The machinations of elected officials in our national capital are mocked as often, if not more so, than they are taken seriously.

                              However, having lived in two large east coast cities (New York and Philadelphia), a small Californian city (Santa Cruz), as well as our lovely medium-sized city of Portland, I have observed that ordinary people (as opposed to policy wonks like me) actually track funding decisions being made on the local level.  When city or county governments are debating whether to pave roads or increase park maintenance or whether to close a community center–citizens pay attention.  They pay attention because the decisions being made will impact their day-to-day existence.  They pay attention because the money being debated is at a scale that is comprehensible (thousands and tens of millions, rather than billions and trillions).  And they pay attention because it is much easier to write letters, call or testify to a legislative body that is driving distance of one’s home.

                              The opposition I have heard thus far to localizing the decision-making is centered around local jurisdictions’ inability to make sound funding decisions.  That will certainly be true in some cases.  But, what will also be true is that decisions will be made that align much more effectively with the needs of the local economy than any decisions that could be made at the federal level. My question is whether the stimulus funding that is being allocated by local jurisdictions will be spent more effectively than the TARP funding allocated by congress.

                              The good news is that we are likely to be able to answer that question within the next couple of years.  U.S. Rep. David Obey (D-WI), the chairman of the House Appropriations Committee explains it this way:

                              We have more oversight built into this package than any package in the history of man. If money is spent badly, we want to know about it so we can hold accountable the people who made that choice.

                              I am looking forward to this grand experiment in local control.  I not only strongly believe that it is the right decision for this time and this place, but I am also optimistic that we, as nation, will learn a lot about how to most effectively spend our public dollars.

                              Recessions = New Businesses=Confusion

                              I have spent the last three years (give or take) working as, with and along-side microbusinesses, and we all sing a variant of the same song: I know there is help out there, and I know some of it is great and some of it is crap.  But, as there is no single point of entry for locating these resources, and who has the time to start a business and locate and vet the wide scattering of available resources.  The end result being that people wanting to start businesses stumble around in the dark and end up working with the folks they hit on first.  Those who were lucky enough to find high-quality assistance early on sing the praises of the resources Portland has to offer startups.  Those (unfortunately, like myself) who have had a series of negative experiences, have just put their heads down and slogged forward alone.

                              Not being a particularly complacent person (sometime to CubeSpace’s or my own detriment), I have gotten to know a lot more about the resources for startups or microbusinesses needing some additional assistance.  I have discovered that there really are a lot of great resources out there as well as people who are genuinely interested in supporting small business owners.  But the problem remains that there is no single point of entry for locating these resources.  Just an alphabet soup of (mostly) publically funded resources.

                              It took an economic crisis, but the Portland Development Commission now has a list, with links, on their website with resources for local businesses: http://pdc.us/resources/economylinks.asp.

                              Fortunately this is not the only thing the City of Portland is doing.  Mayor-elect Sam Adams is very interested in small businesses, having recognized that we make up 85% of Portland’s economy, and we tend to be the primary economic driver during recessions. At the last Small Business Advisory Council,  Sam shared his 4th draft of recommendations to City Council on a Portland economic stimulus package.  While the content of the package remains a moving target, small businesses are an explicit category.  I’ve got to say that its nice to see that we’ve made the big time.

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