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25–855 PDF 2017

S. HRG. 115–58 

THE CHALLENGES AND OPPORTUNITIES 

OF RUNNING A SMALL BUSINESS IN RURAL 

AMERICA 

HEARING 

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

AND ENTREPRENEURSHIP 

UNITED STATES SENATE 

ONE HUNDRED FIFTEENTH CONGRESS 

FIRST SESSION 

APRIL 26, 2017 

Printed for the Committee on Small Business and Entrepreneurship 

( 

Available via the World Wide Web: http://www.fdsys.gov 

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(II) 

COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP 

ONE HUNDRED FIFTEENTH CONGRESS 

JAMES E. RISCH, Idaho, Chairman 

JEANNE SHAHEEN, New Hampshire, Ranking Member 

MARCO RUBIO, Florida 

RAND PAUL, Kentucky 

TIM SCOTT, South Carolina 

JONI ERNST, Iowa 

JAMES M. INHOFE, Oklahoma 

TODD YOUNG, Indiana 

MICHAEL B. ENZI, Wyoming 

MIKE ROUNDS, South Dakota 

JOHN KENNEDY, Louisiana 

MARIA CANTWELL, Washington 

BENJAMIN L. CARDIN, Maryland 

HEIDI HEITKAMP, North Dakota 

EDWARD J. MARKEY, Massachusetts 

CORY A. BOOKER, New Jersey 

CHRISTOPHER A. COONS, Delaware 

MAZIE K. HIRONO, Hawaii 

TAMMY DUCKWORTH, Illinois 

SKIFFINGTON E. HOLDERNESS, Republican Staff Director 

SEAN MOORE, Democratic Staff Director 

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C O N T E N T S 

OPENING STATEMENTS

Page 

Risch, Hon. James E., Chairman, and a U.S. Senator from Idaho ..................... 1 

Shaheen, Hon. Jeanne, a U.S. Senator from New Hampshire ............................ 2 

WITNESSES

Lettieri, John, Co-Founder and Senior Director for Policy and Strategy, Economic Innovation Group, Washington, DC ........................................................ 3 

Hobart, Jim, Co-Founder, Alpaca Direct, LLC, Hayden, ID ................................ 22 

Riley, Rob, President, Northern Forest Center, Canter ....................................... 26 

ALPHABETICAL LISTING

Chapman Industrial Park 

Statement dated April 25, 2017 ...................................................................... 39 

Hobart, Jim 

Testimony .......................................................................................................... 22 

Prepared statement .......................................................................................... 24 

Answers to questions for the record ................................................................ 74 

Lettieri, John 

Testimony .......................................................................................................... 3 

Prepared statement .......................................................................................... 6 

Answers to questions for the record ................................................................ 68 

Oklahoma Bankers Association 

Letter dated April 25, 2017 ............................................................................. 64 

Riley, Rob 

Testimony .......................................................................................................... 26 

Prepared statement .......................................................................................... 29 

Answers to questions for the record ................................................................ 77 

Risch, Hon. James E. 

Opening statement ........................................................................................... 1 

Shaheen, Hon. Jeanne 

Opening statement ........................................................................................... 2 

The Stress of Streaming Delays 

Ericsson Mobility Report Excerpt dated February 2016 ............................... 49 

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THE CHALLENGES AND OPPORTUNITIES 

OF RUNNING A SMALL BUSINESS 

IN RURAL AMERICA 

WEDNESDAY, APRIL 26, 2017 

UNITED STATES SENATE, 

COMMITTEE ON SMALL BUSINESS

AND ENTREPRENEURSHIP, 

Washington, DC. 

The Committee met, pursuant to notice, at 10:00 a.m., in Room 

SR–428A, Russell Senate Office Building, Hon. James E. Risch, 

Chairman of the Committee, presiding. 

Present: Senators Risch, Scott, Ernst, Inhofe, Young, Rounds, 

Kennedy, Shaheen, Cantwell, and Heitkamp. 

OPENING STATEMENT OF HON. JAMES E. RISCH, CHAIRMAN, 

AND A U.S. SENATOR FROM IDAHO 

Chairman RISCH. Well, I want to thank everyone for coming 

today. We are—Senator Shaheen and I are holding this meeting on 

the challenges and opportunities of running a small business in 

rural America. We both come from states that have substantial 

rural components, and that has both benefits and challenges, and 

the purpose of this meeting today is to talk about those. 

And so we—we are going to let the witnesses do the talking here, 

I think, and explore with questions when we are done. 

And we have three witnesses. First, Mr.—how is it pronounced? 

Lettieri? Lettieri. All right. Mr. Lettieri leads the Economic Innovation Group’s policy development, economic research, and legislative 

affairs efforts. His work has been focused on the trends of declining 

innovation and mobility in rural and economically distressed areas 

of the United States. We will be interested in hearing your point 

of view on those matters, Mr. Lettieri. 

And Mr. Hobart comes to us from the great State of Idaho, and 

he began raising alpacas in Hayden, Idaho, in 2005, when his 

daughter asked to raise the animals as a 4–H project. After discovering that a market existed for alpaca fiber and yarn, the Hobarts 

opened Alpaca Direct, LLC, in Hayden, Idaho, one of the most 

beautiful spots in America, and a companion online store. Utilizing 

a variety of online and social media platforms, this small, family 

owned company grew into a hugely successful business that sells 

yarn from rural Idaho around the globe. 

With that I will turn it over to the Ranking Member to introduce 

Mr. Riley. 

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OPENING STATEMENT OF HON. JEANNE SHAHEEN, RANKING 

MEMBER, AND A U.S. SENATOR FROM NEW HAMPSHIRE 

Senator SHAHEEN. Well, thank you very much, Mr. Chairman, 

and like you I am very excited about hearing what our witnesses 

have to say this morning, because we know that rural America has 

not been recovering at the same rate, in many places, as urban 

America, and so I am anxious to hear what you all have to say, 

and particularly pleased that one of our witnesses this morning is 

Rob Riley, who is the President of the Northern Forest Center. 

He comes to the Center after a career in a number of other areas 

in New Hampshire that are also critical to this discussion, because 

he served as director of a state-wide microenterprise program of 

the New Hampshire Community Loan Fund, that provides financing for small businesses. He also served as the founding executive 

director of Main Street Plymouth. Plymouth is a small town in 

New Hampshire. And his interest in the forest economy and rural 

communities really is rooted in his early days working on his family farm in southern Vermont, and he understands very well how 

the changing timber economy in New Hampshire has affected people and what we need to do to try and restore many of those communities. 

And, Mr. Chairman, I just want to take a minute, because as we 

all know, small businesses are the backbone of rural communities, 

in your State of Idaho and my State of New Hampshire, and in so 

much of the country, and they really face a unique set of challenges, and I look forward to the insights that you all have to give 

us this morning on some of those challenges, because they have a 

more difficult time getting access to credit, they may be located far 

from major infrastructure projects, broadband and wireless are 

often difficult in rural areas, in New Hampshire in particular, and 

in much of the area that is served by Rob Riley, cell phone coverage is even challenging. 

And then, in New Hampshire, we hear from our small businesses 

that they are having trouble getting access to skilled labor. And I 

saw a very dramatic example of that, and the difference that public 

policy can make for some of those businesses when I was in New 

Hampshire during the break, a couple of weeks ago. I visited a 

small town, or a small business in the town of Claremont, in the 

western part of New Hampshire. The business is called Costa Precision Manufacturing. It is an area of the State that has a really 

rich history in doing precision tool and die work. And they had just 

gotten a HUBZone designation from SBA, after waiting for literally 

years to get that, and fortunately, because—or unfortunately, from 

Vermont’s perspective, that they had a closed—because of BRAC 

they had a base closing in Vermont and so Sullivan County, where 

Costa is, qualifies. 

And one of the things they told me, right now they have 32 employees. He said, ‘‘If we could find the skilled labor, we could hire 

6 of them tomorrow, and by the end of the month we could be up 

to 10, and we are looking at many more in the future.’’ And they 

said one of the reasons that they see the growth as being so promising is because of this HUBZone designation. He said there are approximately 200 businesses in the United States that do the kind 

of work that Costa does, that has the same certifications, but the 

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HUBZone designation is setting them apart because there are only 

six companies in the United States, in their industry, that have a 

HUBZone designation, which means that they can do business with 

the government in a way that really gives them a leg up on many 

other of their competitors. 

So, for me, that was a really dramatic example of the difference 

that SBA can make for our small businesses and that policy 

changes that we make here in Washington can really do to help encourage small business growth. So I look forward to the testimony 

of our witnesses this morning and to hearing what more we can do 

to try and encourage that kind of growth in our small businesses. 

Thank you, Mr. Chairman. 

Chairman RISCH. Thank you, Senator Shaheen. As you and I 

both know, living in states that have substantial components of 

rural areas, it is very different than what people are used to on the 

East Coast or the West Coast, and so I am going to try to highlight 

that a little bit and show that life is not exactly the same everywhere here in America. 

So, with that, Mr. Lettieri, the floor is yours. 

STATEMENT OF JOHN LETTIERI, CO-FOUNDER AND SENIOR 

DIRECTOR FOR POLICY AND STRATEGY, ECONOMIC INNOVATION GROUP, WASHINGTON, DC 

Mr. LETTIERI. Thank you. Chairman Risch, Ranking Member 

Shaheen, members of the Committee, good morning. It is an honor 

to testify again before this committee. 

Rural entrepreneurship and economic dynamism are at an important inflection point, as the geography of economic growth and 

opportunity has shifted decisively towards denser and more metropolitan areas in recent years. 

Let me begin today by underscoring the fact that rural America 

is not monolithic. In fact, it is quite diverse. It includes many of 

the most prosperous and upwardly mobile places in the country, as 

well as places that suffer from the deepest and most persistent poverty. Furthermore, it is important to think of urban and rural as 

part of a gradient rather than a dichotomy. Fully 54 percent of the 

country’s officially rural population actually resides within a metropolitan area. These communities share deep economic ties to their 

broader regions, and their fates are often tied to larger metropolitan fates. That is why I believe that the true fault line in our economy today is not between rural and urban communities but rather 

between communities that are highly connected and those that are 

isolated. 

Highly connected communities, ones linked to global markets, 

human capital, modern infrastructure, and knowledge centers will 

be best positioned to thrive in the economy of the future. Such communities can be urban, rural, and everything in between. There 

are, however, widespread and irreversible shifts in the modern 

economy that present unique challenges for rural and small-town 

entrepreneurship. 

Since the 1990s, the economic dividends to urbanization and density have increased enormously, thanks to the transformation of 

the geography of economic growth and dynamism. Consider that 

from 1992 to 1996, small counties, those with fewer than 100,000 

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in population, averaged more than twice the job and establishment 

growth of denser, high-density counties of over 1 million people. 

But by 2010, that had inverted completely. Small counties now lag 

far behind the national growth rates in both of those categories, 

and in some cases struggle to achieve positive growth at all. 

Indeed, in spite of years of steady economic recovery nationally, 

more than 1 in 5 small counties have experienced a net loss of 

business establishments, employment, and population since the end 

of the Great Recession. 

It is important to note, however, that denser and more populous 

places have not seen any substantial increase in their own startup rates or local dynamism. Rather, they have simply been more 

resilient in the face of a broad national decline in the dynamism 

in the U.S. economy as a whole. This national trend includes not 

only widespread collapse of new firm formation but also historically 

low rates of labor market fluidity and geographic mobility among 

American workers, as well as a rapid market concentration in most 

industries. In such an environment, rural entrepreneurs face a reality that looks nothing like that of only 20 years ago. 

In particular, the slow-down in new business formation started 

earlier and has been more severe in rural areas than elsewhere in 

the economy. One misperception is that rural firms are suffering 

from disproportionately high rates of firm closure, and this is simply not the case. The closure rate is, in fact, lower in non-metropolitan areas than in metropolitan areas. Businesses are not dying 

faster than they used to in rural America. What has changed is 

that far fewer new companies are being born to take the place of 

those that do. 

For example, in absolute terms, the number of new companies 

formed in non-metropolitan United States in 2014 dipped below 

50,000 for the first time on record, and this means that only half 

as many firms started in non-metropolitan regions in the 2010s as 

did in the late 1970s or early 1980s. 

There are, however, positive signs related to entrepreneurial activity in other forms. For example, as traditional business formation stalled in small counties, several studies indicate that so-called 

platform-enabled entrepreneurship is on the rise through platforms 

like eBay and Etsy. Nevertheless, with diminished start-up activity 

comes reduced flexibility, less resiliency, and fewer job opportunities within local economies, so it is important to strengthen rural 

entrepreneurship if these areas are going to be successful in an 

ever-changing global economy. 

In closing, as members of this committee consider policy solutions, I recommend focusing on policies that grow and expand 

connectivity for rural areas in all its various forms. Modernizing 

and repairing U.S. infrastructure is one obvious example. So, too, 

is ensuring that rural entrepreneurs have better access to capital. 

Another priority should be closing the significant digital divide between urban and rural areas. For example, 39 percent of rural 

Americans lack access to broadband compared to only 4 percent of 

urban Americans. 

While ultimately I believe the most important solutions will come 

from State and local stakeholders, at the Federal level our primary 

focus should be on the urgent task of ensuring a broader economy 

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that remains as flexible, dynamic, and adaptable as possible. Policies that help restore higher rates of dynamism, innovation, and 

growth for the Nation as a whole will be good for those who live 

in rural America, and make the challenges facing entrepreneurs a 

little less steep. In crafting such an agenda, we must avoid and 

eliminate policies that, even when well intentioned, tilt the balance 

too far in favor of guarantees versus opportunities, incumbents 

versus upstarts, or certainty versus healthy risk-taking. 

Rural communities no doubt face challenges but they often have 

advantages that can help level that playing field, including quality 

of life, affordable and available land, access to natural resources, 

and strong social cohesion. Matching those local advantages with 

a national policy environment that promotes broad-based growth 

and connectivity is essential. 

Thank you, and I look forward to answering your questions. 

[The prepared statement of Mr. Lettieri follows:] 

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"The Challenges and Opportunities of Running a Small Business in Rural America" 

Senate Small Business and Entrepreneurship Committee 

April 26, 2017 

John Lettieri 

Co-Founder & Senior Director for Policy and Strategy 

Economic Innovation Group (EIG) 

Chairman Risch, Ranking Member Shaheen, and members of the committee, it is an honor to 

again have the opportunity to testify before this committee. 

The state of rural America is an issue of much interest and debate today. Rural 

entrepreneurship and economic dynamism are at a particularly important inflection point, as the 

geography of economic growth and opportunity has shifted decisively toward denser and more 

metropolitan locations in recent years. 

My testimony today can be summarized as follows: 

• Rural America is not monolithic; many areas are doing quite well, and dramatic regional 

variations limit the usefulness of broad generalities in describing rural economies. 

• The true fault line is not between rural and urban communities but rather between 

communities that are highly connected and those that are isolated. Increasing the 

connectivity of rural communities in terms of access to infrastructure, global markets, 

capital markets, the Internet, and human capital is essential for their future success. 

• Nevertheless, there is a widespread and irreversible shift towards density in the modern 

economy that presents unique challenges for rural and small town entrepreneurship. 

• Meeting these challenges will require rural America to reinvent itself for the future, not 

cling to past models of growth and industry. In doing so, state and local stakeholders will 

be the most essential. There is simply no substitute for local leadership. 

• Policies that help restore higher rates of dynamism, innovation, and growth for the nation 

as a whole will be good for those who live in rural America-whether or not they choose 

to remain in rural communities. Such policies should be the primary focus of federal 

policymakers, with secondary considerations given to place-specific initiatives. 

Defining "Rural" 

One of the key challenges in evaluating rural America lies in defining it. There is simply not a 

single definition of what constitutes a rural community, and the statistical agencies use a variety 
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of methods and metrics to assess rural economies. My testimony will draw from the three most 

common approaches. First, rurality can be determined by the population density of a 

community, which the Census Bureau does. Rural areas can also be defined at the county level 

as those outside of metropolitan areas, as the Bureau of Economic Analysis and Department of 

Agriculture do. Finally, it often makes sense to classify counties based on their population size, 

since counties of similar size classes seem to encounter similar economic trends in an age in 

which the returns to size and density appear to be rising. This is an approach EIG often takes in 

its work. 

Definitional complexities aside, there is much we can glean from available data, beginning with 

the fact that rural America is not monolithic. While frequently lumped together, rural economies, 

histories, and communities in fact vary greatly. A prosperous farming community in the northern 

plains has little in common with the deep-rooted poverty of the Mississippi River basin. 

Fully 54 percent of the country's officially "rural" population actually resides in a metropolitan 

area.' These communities share inextricable economic ties to their broader regions, and their 

fates are often tied to larger metropolitan fates. As categories, "urban" and "rural" are better 

understood as a gradient than a dichotomy. In many ways small and even mid-sized cities stand 

right alongside many rural areas in navigating the same economic headwinds. 

Indeed, the true dichotomy today is not between urban and rural but rather between connected 

and isolated. Highly connected communities-ones linked to global markets, human capital, 

infrastructure, and knowledge centers-will be best positioned to thrive in the emerging 

economy. 

Survey of Rural America 

It is no secret that cities are increasingly important as centers for economic growth and vitality. 

The rural economy, however, has in many ways been remarkably resilient and is not, as a 

whole, doing as poorly as is commonly believed. 

Demographics 

Rural demographics show characteristics of stability, but not necessarily in ways that are likely 

to provide an economic boost. Rural Americans are older than their urban peers, with a median 

age of 43.5 versus 36.6 in cities. Nearly 60 percent of rural households are married (compared 

to 46 percent in urban areas), and more than three quarters of children live in a married couple 

household-which research shows is good for fostering upward mobility.2 Only 3.3 percent of 

1 U.S. Census Bureau Rural America: A Story Map. and Berube, Alan, "Political Rhetoric Exaggerates 

Economic Divisions Between Rural and Urban America." (Brookings Institution, 2016). 2 U.S. Census Bureau American Community Survey 5 Year Estimates for 2010-2014. Chetty, Raj and 

Nathaniel Hendren. "The Effects of Neighborhoods on lntergenerational Mobility 11: County-Level 

Estimates." (National Bureau of Economic Research. Working Paper No. 22910, 2016). 

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the rural population was born outside of the United States.3 That figure is nearly five times 

higher in urban areas. As the United States faces its slowest population growth rate since the 

Great Depression, this urban-rural disparity in immigrant population will likely exacerbate rural 

demographic challenges in the years to come. While depopulation doesn't afflict all rural 

communities and population growth was stable in 2015, small counties comprised 95 percent of 

the 1,700 counties that lost population from 2010 to 2014.4 Attesting to the diversity of rural 

regions, Figure 1 below shows that immigration from abroad did either offset the loss of 

native-born residents or slow the overall rate of population decline across a large swath of the 

central plains. 

Population trends matter because population is a proxy for the size of the market or customer 

base in a location. As the number of local customers entrepreneurs can reach declines, 

connectivity to larger markets becomes all the more important to sustain their business. Nearly 

three-quarters ofthe small counties that lost population from 2010 to 2014 also lost business 

establishments, according to EIG's research. 5 Furthermore, population growth, immigration, and 

business dynamism are closely linked, as we will explore later in my testimony. 

Figure 1 

Population change by metroJnonmetro status, 1976~2015 

Percent change from previous year 

1.6,--------------------, 

1.2 

0.8 

0.4 

0.0 

-0.4+----~----~----~-------1 1976 1980 1985 1990 1995 2000 2005 2010 2015 

Note: Metro status changed for some counties in 1980, 1990, 2000, and 2010. 

Source: USDA, Economic Research Service using data from U.S. Census Bureau. 

The size of the country's rural population has held remarkably stable for decades: the 59.5 

million Americans living in rural areas in 2010 was the same number as in 1980 and only slightly 

higher than the 57.5 million in 1940.6 The difference is that the urban population has grown 

3 Economic Innovation Group's analysis of U.S. Census Bureau American Community Survey 5 Year 

Estimates for 2010-2014. 4 U.S. Department of Agriculture Economic Research Services' and Economic Innovation Group's 

analysis of U.S. Census Bureau data. 5 EIG's analysis of Census' Business Dynamics Statistics and Population Estimates. 6 "Measuring America: Our Changing Landscape." U.S. Census Bureau (2016). 

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inexorably, which is likely to continue. The rural economy has evolved with the country, and 

policymakers' challenge today is to ensure that it can continue to find new economic purposes 

in the decades to come. 

Employment, eamings and poverly 

Employment increased by 4 percent between 2010 and 2015 in nonmetropolitan counties, but 

nonmetropolitan counties still contained fewer jobs in 2015 than they did in 2007. By contrast, 

metropolitan employment increased by 11 percent over the same period-adding more than 10 

million jobs to metropolitan America's pre-recession peak.7 

While median household income is lower in rural areas ($52,400) compared to urban areas 

($54,300), the differential is offset somewhat by lower costs of living.• The real gap is between 

metropolitan and nonmetropolitan areas: Median household income outside of metropolitan 

areas is only 75 percent of median household income within metropolitan areas ($44,700 

compared to $59,300 in 2016).9 

Rural residents are more likely than their urban peers to live above the poverty line. The rural 

poverty rate was 13.3 percent in 2015 compared to 16.0 percent in urban areas.10 However, 

new research by the Brookings Institution finds the "working poor" is more rural than urban, 

relatively speaking. According to Brookings, 22 percent of the rural population is EITC-eligible, 

compared to 18 percent in large metro areas.11 The gap between rural and urban poverty rates 

is highest in the South. 12 And the vast majority-85 percent-of the country's persistently poor 

counties are rural. These are counties that have had over a 20 percent poverty rate for at least 

30 years. Not coincidentally, many of these post low educational attainment rates. 13 

Economic specializations 

Rural areas specialize in a wide variety of economic activities, from agriculture to natural 

resource extraction to tourism and recreation. The USDA's Economic Research Service 

classifies nonmetropolitan counties according to the dominant economic activity taking place 

within them, providing a useful way for differentiating across rural America and disentangling the 

variety of economic trends facing different types of rural communities. 

7 EIG's analysis of Bureau of Economic Analysis data. 8 Bishaw, Alemayehu and Kirby Posey, "A Comparison of Rural and Urban America: Household Income 

and Poverty." (U.S. Census Bureau, 2016). 9 U.S. Census Bureau Current Population Survey, 2016. 10 Bishaw and Posey, 2016. 11 Murray, Cecile and Elizabeth Kneebone, "The Earned Income Tax Credit and the White Working 

Class." (Brookings Institution, 2017}. 12 Bishaw and Posey, 2016. 13 USDA, Economic Research Service Geography of Poverty, 2017. 

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For example, farming-dependent rural economies are depopulating fastest as agriculture 

automates and workforce requirements change. By contrast, many mining-dependent counties 

have seen large recent increases in population thanks to the boom in oil and gas drilling, 

although this growth may soon start to reverse as the boom subsides. Manufacturing-dependent 

counties, representing nearly one in five nonmetropolitan counties, have struggled alongside 

small and mid-sized metro areas battling the same headwinds. Recreation-dependent counties, 

often endowed with spectacular natural amenities, register high population growth rates and the 

highest median incomes among the different categories. By contrast, both public 

sector-dependent and non-specialized counties suffer with low wages and high poverty rates in 

the absence of robust private-sector activity. 14 

Of course, some counties combine multiple specializations to build a diversified economic base. 

The prospering rural Shenandoah Valley, for example, combines recreation with farming as well 

as warehousing and distribution and even high-end services, thanks to good infrastructure, 

proximity to metropolitan hubs, and a network of universities. 

The differentiation of rural economies underscores the need for policy solutions to be organic 

and rooted in the rural economy. Policies can be neither top-down nor one-size-fits-all. Policy 

should seek to nurture rural entrepreneurship in its own ecosystem, reducing barriers, shrinking 

distances, promoting access to markets and capital. 

Upward Mobility in Rural America 

Rural areas have historically provided some of the highest rates of upward economic mobility in 

the United States. EIG analyzed data from its Distressed Communities Index and the Equality of 

Opportunity Project's estimates of place-based impacts on children's future earnings potential 

and found that 64 percent of all U.S. counties that are both prosperous today and have a history 

of fostering economic mobility are counties with fewer than 100,000 people. As shown in Figure 

2 below, more than four out of five of these counties are scattered across the Midwest and 

Mountain West, painting a broad swath of prosperity and upward mobility across the northern 

tier of the nation. 

14 USDA, Economic Research Service Description and Maps: County Economic Types, 2015 Edition. 

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Figure 2 

Counties that are both prosperous and foster upward mobility for poor kids 

Source: EIG's analysis Of Distressed Communities Index and Equality of Opportunity Project Data 

These places have unique histories, strong social capital, and a deeply ingrained culture of 

work. Unemployment rates in the region are some of the lowest and labor force participation 

rates some of the highest nationwide. On average, 92 percent of the adult population has 

completed high school in these counties (compared to 86 percent nationwide), and only 35 

percent of the over-16 population (which includes retirees) is not working (compared to 42 

percent nationwide). Approximately 75 percent of children in these counties are raised in 

traditional married two-parent households. These counties (prosperous, upwardly mobile, and in 

the Midwest or Mountain West} are far less diverse than the country as a whole, however, with 

average minority populations of only 9 percent. 15 

At the same time, another large swath of rural America is a land of missing opportunity and of 

perpetual, persistent poverty. An astonishing 98 percent of counties that are both economically 

distressed and have a history of dragging down children's future earnings potential are small 

counties, and of those, 85 percent are located in the South. In these counties, nearly a quarter 

of adults have not graduated high school and 55 percent of the adult population (everyone over 

15 EIG's analysis of Census' ACS 5 Year Estimates for 2010-2014. 

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16) is not working. Approximately 44 percent of children in these counties grow up in 

non-traditional family arrangements. 16 

A Challenging Recovery 

The Great Recession and the subsequent uneven recovery were unkind to small and rural 

counties. Nationally, a dismal 59 percent of U.S. counties saw more business establishments 

close than open during the first five years of the national recovery. 17 But in small counties, it was 

even higher at 64 percent Likewise, 36 percent of counties under 100,000 residents saw 

employment declines over the same period, versus 31 percent of all U.S. counties. 18 Population 

shifts are also a factor, as 63 percent of small counties saw a net loss of population during the 

recovery. 19 In spite of broader national growth, more than one in five small counties experienced 

a net loss in all three categories: business establishments, employment, and population. On the 

other hand, 21 percent of small counties still managed to match the national establishment 

growth rate. These counties could be found throughout the country, from North Dakota to West 

Virginia, underscoring the resilience of many rural counties in bucking broader trends. 20 

The current recovery period also seems to have cemented a rather dramatic reversal of fortune 

in favor of densely populated areas in the distribution of job and business establishments. As 

recently as the mid-1990s, small counties led the nation in the rates of establishment and 

employment growth, while large counties posted the lowest rates in both categories. EIG's 

research shows that patterns of economic growth now strongly favor large urban counties, 

which is demonstrated in Figures 3 through 5 below. 21 

Figure 3 

Average establishment growth rates by county size class 

10% 

6% 

"' 

1992·1996 

16 EIG's analysis of Census' ACS 5 Year Estimates for 2010-2014. 17 EIG, May 2016: 6-7. 18 EIG's analysis of Census' County Business Patterns data. 19 EIG's analysis of Census' Population Estimates data. 

il 

20 EIG's analysis of Census' County Business Patterns and Population Estimates data. 21 "The New Map of Economic Growth and Recovery." Economic Innovation Group (May 2016): 22-25. 

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Figure4 

Average employment growth rates by county size class 

'"' 

"' 

<% 

0% 

Figure 5 

Share of net U.S. establishment creation by county size class 

1992-1996 

~002-2006 

2010·2014 

0% 20% 40% 60% 80% '100% 

The regional reversal is especially stark when considering small counties' share of national net 

growth in business establishments. From 1992 to 1996, nearly one third of the net growth in 

U.S. establishments was housed in counties with under 100,000 residents. By the 2010s, these 

counties, which had once been such a promising engine of business growth, actually saw a net 

decline in their total number of establishments. Meanwhile, the counties with over one million in 

population had seen their share of net establishment growth go from 13 percent to a whopping 

58 percent.22 

Two Key Divergences: Education Attainment and the Services Economy 

The present reality of rural economies diverges starkly from the trajectory of the U.S. economy 

in two deeply important ways that will impact the future of rural entrepreneurship and access to 

opportunity. 

22 EIG, May 2016: 22-25. 

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The first divergence is that educational attainment in rural areas badly lags the rest of the 

country. In an economy increasingly defined by "knowledge" work and cognitive skills, this limits 

opportunities from the individual perspective but also undermines the ability of firms or 

industries to locate operations in rural areas. In short, the education gap makes it harder for 

rural individuals to obtain jobs and harder for companies to consider rural locations. 

• Only 19 percent of the rural population has a bachelor's degree, compared to 33 percent 

in metropolitan areas. Fully 51 percent of rural residents have no schooling beyond high 

school, compared to 39 percent in metro areas. 23 

• Even for the younger 25-34 year old cohort, the college attainment rate increased by 5 

percentage points to 20 percent in rural areas compared to 7 percentage points to 36 

percent in metropolitan areas from 2000 to 2015.24 

• The gap in college attainment between the rural and metropolitan population has 

actually widened over the past 15 years. 25 

Figure 6 

Educational attainment in rural and urban areas, 2000 and 2015 

Percent 

100 

75 

50 

25 

0 

!Ill Bachelor's degree 

or Higher 

Associate's degree 

Sonia college,. no 

degree 

li'High school 

diploma or 

8!1Uivalent 

Less than a high 

school 

diploma/equivalent 

Note: Educational attainment for adults ages 25 and older; urban/rural status is determined 

by 2015 metropolitan area definitions from the Office of Management and Budget. 

Source: USDA, Economic Research Service using data from the U.S. Census Bureau, 

Census 2000 and 2015 American Community Survey. 

23 USDA, Economic Research Service analysis of Census' ACS for 2000 and 2015. 24 EIG's analysis of Census' ACS 5 Year Estimates for 2010-2014. 25 USDA, Economic Research Service analysis of Census' ACS for 2000 and 2015. 

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It is difficult to overstate the importance of this trend. Recent research presents a bleak and 

somewhat stunning picture of economic and social malaise for Americans, notably white 

Americans, of lower education attainment. Mortality itself is rising within that group.26 

The second and related divergence is that one of the largest, fastest growing, and highest 

paying sectors in the economy-business services-is extremely urbanized, much more so than 

manufacturing. Rural areas are home to 13 percent of all U.S. employment and 19 percent of all 

manufacturing employment but only 6 percent of all jobs in the information and professional, 

scientific, and technical services sectors.27 These "knowledge economy" industries thrive in 

urban environments with deep talent pools and high levels of connectivity. The story of diverging 

economic performance is rooted in the concentration of this sector in particular. 

The undersized rural services sector underscores why increasing connectivity is so important: to 

increase the number of potential customers and clients rural entrepreneurs can reach. The 

policy question is how to reduce the barriers facing rural individuals to tapping into opportunities 

in this growing, future-oriented sector. 

Rural Entrepreneurship and Economic Dynamism 

Before looking specifically at rural entrepreneurship, let's take a moment to consider the 

national picture. Since the onset of the Great Recession, the United States has experienced a 

rapid and persistent collapse in the rate of firm formation {the "startup rate"). The national drop 

in startup activity is at the heart of a broader decline of economic dynamism that extends to 

historically low rates of labor market fluidity and geographic mobility among American workers, 

rapid market consolidation and growing advantages for large incumbents in most industries, and 

steep differences in the distribution of new jobs and businesses between regions. 

The starlup slowdown 

These national trends harbor troubling signs for rural regions. The slowdown in new firm 

formation started earlier and has been more severe in rural areas than in non-rural economies. 

• New companies are much less likely to form in rural areas than in urban ones today. 

Nationally, as of 2014, 8.0 percent of all firms in the economy were started in the past 

year; in metropolitan areas the figure was 8.3 percent and in non-metropolitan areas it 

was 6.1 percent.'6 

• In absolute terms, over 355,000 new companies formed in the metropolitan United 

States in 2014; in non-metropolitan areas the figure dipped below 50,000, to 49,100, for 

26 Case, Ann and Angus Deaton, "Mortality and Morbidity in the 21st Century,' Brookings Papers on 

Economic Activity, 2017. 27 EIG's analysis of Bureau of Economic Analysis data. 26 EIG's analysis of Census' Business Dynamics Statistics data. 

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the first time on record. This all-time low means that half as many firms started in 

nonmetropolitan regions in the 201 Os as did in the late 1970s or early 1980s, even 

though the rural population has remained relatively stable. The steep national slowdown 

in new firm formation started earlier and has cut even deeper in rural areas. 29 

• Rural areas do not suffer from disproportionate rates of firm closures. In 2014, 7.1 

percent of firms closed in non metropolitan areas, compared to 7.8 percent of firms in 

metropolitan areas. 

• Taken into consideration with the firm startup rate, the key differentiating factor between 

metropolitan and nonmetropolitan counties is subdued dynamism in general-and 

depressed rates of new firm formation in particular. In other words, the crisis isn't that 

shops on Main Street are closing; they're doing that at roughly the same rate they have 

for many years. Rather, with a startup rate now a full percentage point below the closure 

rate, the problem is new businesses are no longer emerging quickly enough to take the 

place of those dying out through the natural course of competition and economic 

change. 

Rural economies today are simply experiencing less change than metropolitan economies and 

producing fewer new "shots on goal"-new companies. With that comes reduced flexibility, less 

resiliency, and fewer new enterprises experimenting with new business models and taking new 

risks. Rural entrepreneurship is an absolute prerequisite for rural economic adaptation and for 

ensuring that rural areas find new lives in an ever-changing global economy. 

Figure 7 

Trends in absolute number of new companies created annually (Indexed to 1977=100) 

125 

100 

75 

50 

25 

0 

~~~~~#~~~~#~~####~~ 

-Metropolitan -Nonmetropolltan 

Source: E.IG's analysis of U.S. Census Bureau Business Dynamics Statistics data 

29 EIG's analysis of BEA data. 

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The state of economic dynamism in rural areas 

EIG has conducted a significant amount of research into what makes a dynamic, 

entrepreneurial economy. Density certainly fosters dynamism, but the ingredients of a dynamic 

local economy are not confined to urban areas. 

Dynamism starts with entrepreneurship but extends much more widely to encompass individuals 

migrating to economic opportunity, workers moving into more productive work arrangements, 

and markets remaining competitive. Forthcoming research from EIG finds that dynamism trends 

across states tend to hold over long periods of time, making inertia difficult to reverse. 

Population growth in particular provides substantial fuel for economic dynamism; places without 

it face an uphill-but by no means impossible-climb. 

Several rural states suffer neither from exceptionally low startup rates nor from exceptionally 

high firm closure rates. Instead, it is the gap between the two rates locally that signals a 

dynamism problem-notably in West Virginia, Mississippi, Arkansas, Alabama, New Hampshire, 

and lowa.30 With already relatively low rates of firm closures, boosting the firm creation rate is 

required to make sure these economies remain "above water" when it comes to 

entrepreneurship and the economic opportunity and local dynamism it fosters. 

Another measure of economic dynamism is the share of a state's workforce employed in firms 

less than one year old. Here the Dakotas, both among the 1 0 most rural states, land in the top 

1 0 for jobs in new companies, too. Wyoming is not far behind in terms of startup jobs and ranks 

in the top 1 0 nationwide in terms of both net in-migration and the rate at which workers turn over 

among firms, an important metric of economic resilience and input into productivity growth. 

Montana, Wyoming, and Idaho all have among the smallest shares of their population employed 

in old incumbent firms, suggesting that their economies are relatively young-and incumbent 

interests perhaps features less prominently on the economic (and therefore political) landscape. 

At the end of the day, high rates of labor force participation signal an economy that's working 

well and working for working people. The top 10 states in terms of employed persons per share 

of the adult population are: North Dakota, Nebraska, Iowa, South Dakota, Minnesota, New 

Hampshire, Utah, Wisconsin, Kansas, and Vermont. 

In general, rurality seems to be most disadvantageous when it comes to population growth 

(absent an economic boom such as drilling in the Dakotas) and in the sheer volume of turnover 

among companies-both openings and closings combined. 

30 EIG's analysis of Census' Business Dynamics Statistics data. Unless otherwise cited, all statistics cited 

in this section are from this source. 

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The mentality of self-help and initiative found in many rural areas is inherently entrepreneurial. 

We need to harness that energy and those natural inclinations to make sure that viable 

enterprises can start and scale wherever someone wants to try. 

The Changing Face of Entrepreneurship 

Much has been made of the potential of the Internet to provide rural areas with a new lease on 

economic life. While the Census Bureau's statistics on "non-employer businesses" (which 

capture sole proprietors and other independent workers) shows steady growth in urban areas 

but no real uptick in rural ones, evidence can be found elsewhere that the so-called 

"platform-enabled gig economy" has indeed opened up new avenues for entrepreneurial activity 

in rural America (provided a fast Internet connection is available, of course). As the expansion of 

traditional firms and business establishments has stalled in small counties, platform-enabled 

entrepreneurship is on the rise. 

• According to Etsy's Seller Census, 28 percent of the platform's 1. 7 million sellers live in 

rural communities, compared to 17 percent of non-farm business owners nationwide and 

18 percent of the total population.31 

• A recent report from eBay compiling statistics on their commercial sellers found that new 

sellers who started operations from 2010 to 2014 were significantly less geographically 

concentrated than the formal business establishments that opened over the same time 

(and which EIG analyzed in its "New Map of Economic Growth and Recovery" report). 

Furthermore, 32 of the 100 counties with the highest number and revenue of eBay 

commercial sellers per capita are rural counties-one of the very few lists on which you'll 

see small rural counties such as Essex County, VT; Clay County, NC; and Flagler 

County, FL score right alongside Santa Clara County, CA; New York County 

(Manhattan), NY; and Miami-Dade County, FL.32 

• Thumbtack, a relatively new online marketplace for local services, has connected 

independent providers with customers in every county in the country bar one.33 

• Upwork's Freelancing in America survey estimates that 18 percent of freelancers live in 

rural areas-roughly equivalent to the rural share of the population. The survey 

reinforces the fact that Internet connectivity is crucial to making sure that the "future of 

work" is open to rural residents: 66 percent of all freelancers said that the amount of their 

31 "Crafting the Future of Work: The Big Impact of Microbusinesses." Etsy (2017). 32 "Platform-enabled Small Businesses and the Geography of Recovery: Evidence of More Inclusive New 

Enterprise Growth on eBay than Reflected in Official Statistics." eBay (January 2017). 33 Information provided by Thumbtack, April 21, 2017. 

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work done online in the past year increased and 54 percent obtained jobs online in 2016, 

up from 42 percent two years prior.34 

The nature of entrepreneurial behavior in rural areas is inherently different than more densely 

populated areas, but the penchant often runs deep. In certain rural areas, especially in the 

plains, self-employment and multiple job-holding already run high. 35 Taking advantage of the 

reach and scale enabled by web-based platforms should be a natural step. However, the rise in 

platform-enabled opportunities, while welcome, is not likely to provide an ample substitute for a 

missing generation of new firms in much of rural America. This is because new firms have a 

greater impact in terms of hiring, innovation, and a host of other economic activities. 

Looking to the Future: What is a "connected" rural economy? 

As mentioned at the outset, highly-connected local economies are those best positioned to 

thrive in the new economy. The most important economic divide today is not between urban and 

rural but rather between connected and isolated. For example, Headwaters Economics, a 

research organization based in the Mountain West, classifies western counties according to 

three categories: those that are metropolitan, those that are rural but connected via daily air 

service to a larger hub, and those that are rural and isolated. Rural but connected economies 

have higher median incomes, lower income volatility, more high-wage service jobs, lower 

median ages, higher population growth, and greater educational attainment than their isolated 

peers.36 

Thus, policyrnakers should be focused on policies that help to strengthen and expand 

connectivity in all its different forms for rural communities. Modernizing and repairing U.S. 

infrastructure is one obvious example. So too is ensuring rural entrepreneurs have better 

access to capital, especially via new platforms like crowdfunding and smart regional incentives 

that avoid hollowing out the local tax base. Another priority should be closing the "digital divide" 

between urban and rural areas: 39 percent of rural Americans lack access to broadband 

compared to only 4 percent of urban Americans. 37 

Access to global markets is another key element of connectivity. Trade and foreign direct 

investment (FDI) support millions of American jobs, including a great many in rural and small 

34 "Freelancing in America: 2016." Upwork and Freelancer's Union commissioned study conducted by 

Edelman Intelligence (October 2016). 35 Hippie, Steven and Laurel Hammond, "Self-employment in the United States." U.S. Bureau of Labor 

Statistics (2016) and U.S. Bureau of Labor Statistics Multiple Job Holdings in States in 2015,2017. 36 Headwaters Economics, "Three Wests: The Impact of Access to Markets on Economic Performance in 

the West," 2015. 37 "2016 Broadband Progress Report." Federal Communications Commission (2016) and Karsten, Jack 

and Darrell West, "Rural and Urban American Divided by Broadband Access." (Brookings Institution, 

2016). 

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town communities.38 These "insourcing" jobs tend to be higher-paying and disproportionately 

linked to manufacturing and innovation-in other words, exactly the kind of jobs rural 

communities need. In Alabama, for example, over 80 percent of all jobs in foreign-owned 

establishments are located outside of the Birmingham metropolitan area. 39 

Connectivity extends to human capital, as well. Physical and digital infrastructure support flows 

of people and ideas, but cognitive openness is important too. Workers need skills that are 

up-to-date and in-demand. Entrepreneurs need to be plugged in to broader market trends. 

Workers need to be unencumbered in their ability to move to areas of greater economic 

opportunity-urban as well as rural. Community colleges and workforce training programs need 

to support life-long learning. Universities, embedded in national and global knowledge networks, 

will be linchpins of local economic development efforts. The economy is evolving in directions 

that demand more human capital; rural areas have significant ground to make up· if they hope to 

thrive. 

Conclusion 

People are generally quite bad at predicting the future. This includes, unfortunately, policy 

experts. For example, leading thinkers in the postwar period were actually worried about what 

they believed to be a looming crisis of too much leisure time as the need for long work hours 

diminished. In 1959 the Harvard Business Review bemoaned that "boredom, which used to 

bother only aristocrats, had become a common curse."4

° Few today would say too much leisure 

is a defining characteristic of American life. More recently, the rise of the Internet was supposed 

to flatten the world and make location irrelevant; instead, the relationship between geography 

and opportunity appears more profound than ever. 

These examples illustrate a fundamental truth: we don't know what the world of the future will 

look like. Rather than trying to predict or prescribe the economy of the future, our goal should be 

to ensure the broader economy remains as flexible, dynamic, and adaptable as possible. Rural 

communities no doubt face challenges-most importantly, the challenge of adapting to an 

economy that increasingly rewards density and knowledge-based industries. It is important not 

to overstate or misinterpret those challenges. Rural communities also often have advantages 

that can help level the playing field, including quality of life, affordable and available land, 

access to natural resources, and strong social cohesion. Matching those local advantages with 

a national policy environment that promotes connectivity is essential. There is no substitute, 

however, for local leadership or local solutions. Therefore, an element of caution is needed 

when considering place-based federal solutions. When designed well, they can be of 

tremendous benefit. But even the best place-based policies will be of limited use absent a 

38 "Top Level Facts: Operations of Majority-Owned U.S. Affiliates of Foreign Multinational Enterprises 

August 2016 BEA Release." Content First, LLC. 39 Saha, Devashree, Kenan Fikri, and Nick Marchio, "FDI in U.S. Metro Areas: The Geography of Jobs in 

Foreign Owned Establishments." Brookings Institution and JPMorgan Chase & Company (2014). 40 Rosen, Rebecca, "Money-Rich and Time-Poor: Life in Two-Income Households." (The Atlantic, 2015). 

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broad-based, pro-growth policy framework. In crafting such an agenda, we must avoid and 

eliminate policies that-even when well intentioned-tilt the balance too far in favor of 

guarantees versus opportunities; incumbents versus upstarts; today's jobs versus tomorrow's; 

or certainty versus healthy risk-taking. 

Thank you and I look forward to answering your questions. 

16 
22 

Chairman RISCH. Thank you much. 

Mr. Hobart. 

STATEMENT OF JIM HOBART, CO-FOUNDER, ALPACA DIRECT, 

LLC, HAYDEN, ID 

Mr. HOBART. Good morning, Chairman Risch, Ranking Member 

Jeanne Shaheen, and members of the Committee. Thank you for 

the opportunity to testify today. 

I am James Hobart, co-owner of Alpaca Direct, and I am honored 

to share my experience as a small business owner in north Idaho 

and how we transformed my daughter’s 4–H project with pet alpacas into a thriving click-and-mortar business serving over 

100,000 customers in 30 countries. 

For my wife, Kelley, and I and our two children, there is nothing 

more important than a close-knit family and community. When our 

daughter was asked if she could raise alpacas on our ranch in 

2005, we discovered many of the unique benefits of alpaca fiber, 

and wanted to share these products with others. 

We opened Alpaca Direct and a companion online store to share 

the durable, eco-friendly yarn with knitting and apparel enthusiasts all over the world. For a small business in north Idaho, our 

sales demographics may surprise you. Ninety-two percent of our 

annual sales are online. Our customers are 85 percent female, 75 

percent of them are 45 and older, and 30 percent are 65 and older. 

In the U.S.A., our top four selling states are New York, California, 

Texas, and Florida. 

We have used the internet and social sites like Facebook, 

Pinterest, and Google+ to stitch together a modern click-and-mortar business. We rely on web search advertising and social networks to find customers who will be interested in our products, and 

we start conversations with them to better understand their needs. 

Today’s advertising platforms like Google AdWords and Facebook 

allow us to be very specific in utilizing our advertising dollars and 

measuring the ROI on our marketing efforts. YouTube allows our 

staff to share knitting techniques and product reviews with our 

global audience. There are people all over the world who do not 

have a local yarn shop and we want to become their local yarn 

shop, even though we are based in north Idaho. With online social 

tools we can do that, and they have become part of our community. 

You know, creating a loyal customer is no different in the online 

world than in the physical world. Here are seven key principles we 

established for our business. Listen to our customers and create 

conversations with them versus talking at them. Treat our employees and customers as part of our family. Build trust by selling 

great products we can stand behind. Deliver great customer service 

every day. Do what is best for the customer and that will be best 

for our company. Offer the best products at competitive prices by 

operating efficiently. And continuously evolve to serve our customers. 

The internet has allowed us to amplify our message and openly 

share these principles, and I am happy to say our customers have 

responded by telling us—and telling others actually—having over 

51,000 Facebook fans, and it grows daily. The amplification and 

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23 

transparency effect of the internet is a huge benefit for small businesses who do what they say and live by their principles. 

We are a small business in a small town. For hundreds of years, 

in a small town, to thrive you needed to treat your customers well 

since they were your neighbors. Now the internet has made this 

type of transparency true for everyone, not just the small town and 

not just small businesses. When you do not treat your customers 

well, everyone knows, and everyone is your neighbor, as we have 

witnessed so clearly in recent weeks with some of America’s largest 

companies. 

The growth we have enjoyed has not come without challenges. 

Two key areas we feel need attention are improved internet access 

and affordable health care for our employees. 

Essentially, the on-ramps to the digital highway need more access for rural areas. Our competitors in large cities are operating 

on the equivalent of a 12-lane freeway while our access to that 

freeway is like a worn-out toll road, with potholes, maintained by 

a single-source provider with little incentive to make improvements. This limits our ability to livestream events with our customers and limits their engagement with us. In the very near future, this will become a differentiator for our ability to deliver competitive service. 

As for health care, we all know the issues around high costs and 

limited access. Despite this, we are blessed to have phenomenal 

employees who love their jobs and truly care for our customers. 

Most of our employees are part-time moms. They drop off their kids 

in the morning and pick them up in the afternoon, with an average 

commute of about five minutes. We recently lost a great bookkeeper. She worked for us for five years but had to take another 

job at a larger company just to get health care for her husband. He 

was a local plumber in his late 50s and needed a hip replacement. 

Entrepreneurs have realized the world is flat and you can run 

your business from where you want to live, not where you must 

live. In our case, we discovered Coeur d’Alene, Idaho, on vacation 

back in 2005, and left Silicon Valley for a simpler life and a more 

efficient place to run our business. This trend will continue to play 

out in small towns across America, and I want to thank you for giving me the opportunity to share my perspective on how small businesses can grow and thrive in today’s internet economy. 

[The prepared statement of Mr. Hobart follows:] 

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U.S. Senate Committee for Small Business & Entrepreneurship 

"Growing Small Businesses in Rural Areas" Hearing, April 26th, 2017 

Good Morning. 

TESTIMONY 

James E Hobart 

Alpaca Direct LLC 

Chairman Risch, ranking member Jeanne Shaheen and members of the committee thank 

you for the opportunity to testify today. I am James Hobart, Co-Owner of Alpaca Direct, and 

I am honored to share my experience as a small business owner in North Idaho and how 

we transformed my daughter's 4H project with pet alpacas into a thriving 'Click and Mortar' 

business serving over 100,000 customers in 30 countries. 

For my wife, Kelley and I and our two children, nothing is more important than a close-knit 

family and community. When our daughter asked if she could raise alpacas on our ranch in 

2005, we discovered the many unique benefits of alpaca fiber and wanted to share these 

products with others. We opened Alpaca Direct and a companion online store to share this 

durable, eco-friendly yarn with knitting and apparel enthusiasts all over the world. 

For a small business in northern Idaho, our sales demographics may surprise you. 92% of 

our annual sales are online. Our customers are 85% female, 75% of them are 45+, and 

30% are 65+. In the USA, our four top selling states are New York, California, Texas, and 

Florida. 

We have used the Internet and social sites like Facebook, Pinterest and Google+ to stitch 

together a modern 'Click and Mortar' business. We rely on web search advertising and 

social networks to find customers who will be interested in our products and start 

conversations with them to better understand their needs. Today's advertising platforms 

like Google AdWords, and Facebook allows us to be very specific in utilizing our advertising 

dollars and measuring the ROI on our marketing efforts. 

You Tube allows our staff to share knitting techniques and product reviews with a global 

audience. There are people all over the world who don't have a local yarn shop. We want 

to become their local yarn shop even though we're based in northern Idaho. With online 

social tools, we can do that, and they have become part of our community. 

Creating a loyal customer is no different in the online world than in the physical world. Here 

are seven key principles we established for our business. 

1. Listen to our customers and create conversations with them vs. talking at them 

2. Treat our employees and customers as part of our family 

3. Build trust by selling great products we can stand behind 

4. Deliver great customer service ... every day 

5. Do what's best for the customer, and it will be what's best for us as a company 

6. Offer the best products at competitive prices by operating efficiently 

7. Continuously evolve to serve our customers 

The internet has allowed us to amplify our message and openly share these principles. I'm 

happy to say our customers have responded by telling others resulting in over 51,000 active 
25 

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TESTIMONY 

James E Hobart 

Alpaca Direct LLC Page 2 

Facebook fans and it grows daily. The amplification and transparency effect of the internet 

is a huge benefit for small businesses who do what they say and live by their principles. 

We're a small business in a small town. For hundreds of years, in a small town, to thrive 

you needed to treat your customers well since they were your neighbors. Now the internet 

has made this type of transparency true for everyone, not just the small town and not just 

the small businesses. When you don't treat your customers well, everyone knows, and 

everyone is your neighbor as we have witnessed so clearly in recent weeks with some of 

America's largest companies. 

Challenges 

The growth we've enjoyed has not come without challenges. Two key areas we feel need 

attention are improved internet access and affordable healthcare for our employees. 

Essentially, the on-ramps to the digital highway need more access for rural areas. Our 

competitors in larger cities are operating on the equivalent of a 12-lane freeway while our 

access to that freeway is a like a worn-out toll road, with potholes maintained by a singlesource provider with little incentive to make improvements. This limits our ability to livestream store events with our customers and limits their engagement with us. In the very 

near future, this will become a differentiator for our ability to deliver competitive service. 

As for healthcare, we all know the issues around high costs and limited access. Despite 

this, we are blessed to have phenomenal employees who love their jobs and truly care for 

our customers. Most of our employees are part-time moms who drop their kids off at school 

and pick them up in the afternoons with an average commute of about 5 minutes. We 

recently lost a great bookkeeper who worked five years for us but had to take another job 

with a large company just to get healthcare for her husband who was a local plumber in his 

late 50's and needed a hip replacement. 

We like to think we're making an impact on our community. Our weekly knitting groups fill 

our store with knitting enthusiasts who share their skills and create lifelong friendships. They 

are constantly knitting for specific causes and charities to help veterans and people in need. 

Our alpaca socks keep our customer's feet warm all winter better than any other socks on 

the market. We get customer comments every year thanking us for the gift of warm feet 

during cold winters. 

Entrepreneurs have realized the world is flat and you can run your business from where you 

want to live. not where you must live. In our case, we discovered Coeur d'Alene, Idaho on 

vacation back in 2005 and left Silicon Valley for a simpler life and a more efficient place to 

run our business. Burt Rutan a famous aerospace designer and 1st winner of the Space-X 

award recently made Coeur d' Alene his home along with many other entrepreneurs and 

technologists. Even the co-founder of C-Span Robert Titsch has discovered our town and 

lives nearby. This trend will continue to play out in small towns across America, and I want 

to thank you for giving me the opportunity to share my perspective on how small businesses 

can grow and thrive in today's internet economy. 
26 

Chairman RISCH. Thank you, Mr. Hobart. 

Mr. Riley. 

STATEMENT OF ROB RILEY, PRESIDENT, NORTHERN FOREST 

CENTER, CANTERBURY, NH 

Mr. RILEY. Thank you, Chairman Risch, Ranking Member Shaheen, and members of the Committee. 

My name is Rob Riley and I serve as the President of Northern 

Forest Center, a nonprofit organization which works to crate economic opportunity and community vitality from healthy working 

forests in the northern parts of Maine, New Hampshire, Vermont, 

and New York. We work across a 30-million-acre area with a population of two million people, to help businesses and communities 

adapt to a changing economy. 

Over a century ago, the Northern Forest region supplied the timber that built East Coast cities and gave birth to the modern pulp 

and paper industry. Vertically integrated timber and paper companies literally built communities to support their mills and owned 

millions of acres of land. With good wages and—excuse me—wages 

and jobs for almost everyone, our rural communities thrived 

through the 1970s. 

In the 1980s and 1990s, however, globalization and changing 

markets resulted in nearly 50 Northern Forest communities losing 

their forest products mills and tens of thousands of manufacturing 

jobs. Mill towns like Berlin, New Hampshire, have dropped from 

10,000 people in population to 5,000. Median household incomes 

have not kept up with the Nation as a whole. Some places are successful at attracting tourists and second homeowners but not new 

residents, particularly young people and families, and businesses 

that can maintain a thriving community or reinvigorate a waning 

one. 

However, there is a lot of reimagining, reshaping, and redevelopment underway, and there is a lot to build on. We have a beautiful 

region full of small communities and iconic landscapes—the Adirondacks, the Green Mountains, the White Mountains, the North 

Woods of Maine. Our challenge is to figure out how to use the natural resources in new and sustainable ways. We need to develop 

new ideas for what it means to be a forest-based economy. 

Federal agencies and business development programs play a crucial role as rural places across the country adapt to changes in 

their historic economies and work to take advantage of new economic opportunities. These include the SBA’s Small Business Development Center and the USDA Rural Business Cooperative programs; the New Markets Tax Credit Program supported by the 

U.S. Department of Treasury; Manufacturing Extension Partnership; and in our region, Northern Border Regional Commission. 

Let me give you an example of how these programs have worked 

together to help a small business located in Lancaster, New Hampshire. Ten years ago, Bill Rutherford and his wife, April, decided 

to move their family from New Jersey to this North Country town 

and started NorthWoods Manufacturing, which manufactures custom cabinetry and kitchens. 

To pursue his entrepreneurial dream and succeed in a rural community, Bill used several Federal programs, made available 

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27 

through local nonprofit organizations, to secure business and specialized assistance to overcome obstacles: ensure quality and consistent broadband connection for his home for his wife to work remotely and connect to business in regional markets, extending as 

far as New York City; financing from a community development financial institution, the Northern Community Investment Corporation, to assist in growth and product development; tailored business 

counseling from the Small Business Development Center. And, finally, we, the Northern Forest Center used a U.S. Department of 

Agriculture Rural Business Development Grant to bring in specialized lean manufacturing assistance to help the company to streamline their manufacturing space and processes. 

Since this support was provided, the business’ revenues have increased over 20 percent, with a goal this year of an increase of 60 

percent revenues. It is a good return on investment. 

In addition to carrying the responsibility of 12—of employing 12 

residents, Bill is also deeply involved in his community, volunteering, among other pursuits, as a leader of his son’s scouting 

troop. 

Bill and April came looking for a community they wanted to live 

in and brought their entrepreneurial skills with them. We need to 

enhance the programs that help the small business and countless 

others, and we define ways to expand their reach and effectiveness 

in rural America. 

Cutting rural business development programs, which the President has proposed doing, to all of those that I previously mentioned, and more, reflects a lack in knowledge around the effective 

deployment of these programs, and will have a direct and seriously 

negative impact on struggling rural communities and the small 

businesses that help them survive and grow. 

Rural places have a lot to offer, of course, and the assets include 

natural and cultural amenities, but also the private sector. Leadership in these communities is critical, but investment tends to follow 

the public sector and is usually only leveraged by matching funds, 

loan guarantee, or other incentives. Instead of cutting these programs we should identify ways to improve them. 

To that end, the Center is partnering with the Aspen Institute 

and the U.S. Endowment for Forestry and Communities to form 

the Rural Development Innovation Group, a group of 12 grounded 

practitioners guided by our experiences in rural places across the 

country. This group believes that effective rural investment programs should care—should share two common characteristics. One, 

programs should invest in people, ideas, and markets, not just 

projects; and, two, programs should offer investment that is appropriately scaled for modern rural realities and seek diverse outcomes that are rooted in the rural experience. 

The Small Business Committee, along with the Agriculture Committee and other congressional stakeholders have a strong legacy 

in supporting the essential programs that have sustained an entrepreneurial fabric in this country. We look forward to working with 

you to ensure that rural small businesses have the certainty, and 

that the tools they need to succeed in this ever-changing economy 

are there for them, when they need them, and by the organizations 

they trust. 

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Thank you. 

[The prepared statement of Mr. Riley follows:] 

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Statement by Rob Riley 

President, Northern Forest Center 

Concord, NH 

Before the Committee on Small Business & Entrepreneurship United States Senate 

"America's Rural Opportunity: Unlocking entrepreneurial potential to create jobs, leverage 

investment and steward the landscape" 

April 26, 2017 

Thank you, Chairman Risch, Ranking Member Shaheen and members of the committee. My name is Rob 

Riley and I serve as President of the Northern Forest Center, a non-profit organization which works to 

create economic opportunity and community vitality from healthy working forests in the northern parts 

of Maine, New Hampshire, Vermont and New York. We work across a 30-million-acre area with a 

population of 2 million people to help businesses and communities adapt to a changing economy. 

Over a century ago, the Northern Forest region supplied the timber that built east coast cities and gave 

birth to the modern pulp & paper industry. Vertically integrated timber and paper companies literally 

built communities to support their mills and owned millions of acres of land. With good wages and jobs 

for almost everyone, our rural communities thrived through the 1970s. 

Things began to shift in the 1980s and 90s as globalization and changing markets spurred the forest 

products industry to consolidate. 

Nearly SO Northern Forest communities have lost their forest products mills and tens of thousands of 

manufacturing jobs. Service sector jobs, particularly in tourism, have filled some of the void, but they 

usually don't offer the consistency of wages or job security that manufacturing once did. 

Today our region is dealing with population decline or stagnation. Mill towns like Berlin, NH, have 

dropped from 10,000 people to 5,000. Median household incomes have not kept up with the nation as a 

whole. Some places are successful at attracting tourists and second-home owners, but not the new 

residents- particularly young people and families- and businesses that can maintain a thriving 

community, or reinvigorate a waning one. 

However, there is a lot of reimagining, reshaping and redevelopment underway. And there is a lot to 

build on. We have a beautiful region full of small communities and iconic landscapes- the Adirondacks, 

the Green Mountains, the White Mountains, the North Woods of Maine. Our challenge is to figure out 

how to use the natural resources that have always sustained this region in new and sustainable ways. 

We need to develop new ideas for what it means to be a "forest-based economy." 

More broadly, we know the following to be statistically true and anecdotally supported about rural 

communities: 

o Rural communities were hit hard by the Great Recession and have been slower to recover 

than more urban areas. 

o The key to addressing poverty, providing livable wage jobs and unlocking the potential of 

these areas is small business, which is now the predominant backbone of rural communities. 
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o For small businesses in rural areas to succeed, we need to understand and focus on their 

unique challenges and think differently HOW we deploy our resources. Challenges include: 

infrastructure, including transportation/water treatment; broadband (both the 'last mile' 

and wireless deployment); access to appropriately priced capital and financing, specific 

financial management and business development services to business owners; development 

of value-added rural industries (including manufacturing, natural resource businesses, and 

outdoor recreation and tourism); and education and training to build and attract a skilled 

workforce. 

o The federal government and its various agencies are a critical partner to help rural 

communities meet these challenges. There are a number of programs that exist, that 

combined with local and state public investment and private capital and philanthropy, truly 

make a significant difference in our communities. 

Federal agencies and business development programs play a crucial role as rural places across the 

country adapt to changes in their historic economies and work to take advantage of new economic 

opportunities. In rural places like New Hampshire opportunity exists and yet we seek strong publicprivate partnerships to offer complementary programs that meet different small business needs, 

including: 

o Business and entrepreneurial development through technical assistance programs- such as 

the SBA's Small Business Development Center and USDA Rural Business Cooperative 

programs 

o Innovative tools to leverage traditional financing- such as the SBA 504 loan guarantee 

program and the New Markets Tax Credit Program supported by the US Department of 

Treasury Community Development Financial Institutions Fund 

o Support to retool rural manufacturing for new markets and opportunities assistance 

through the Manufacturing Extension Partnership 

o Programs that support infrastructure for community and economic development such as the 

US Department of Agriculture Rural Business Community Facilities programs, the Northern 

Border Regional Commission, and HUD Community Development Block Grants. 

o Grant and loan dollars to build and rebuild community-scale infrastructure such as 

broadband, transportation and water and sewer projects. 

Rural Entrepreneurs 

let me give you an example of how these programs have worked together to help a small business 

located in lancaster, New Hampshire. Ten years ago, Bill Rutherford his wife, April, decided to move 

their family from New Jersey to this rural town and started North Woods Manufacturing, which 

manufactures custom designed cabinetry and kitchens. It is important to recognize that modern rural 

business creation stories like this one can only come to fruition with access to high speed and consistent 

broadband, which lancaster had. 

To pursue his entrepreneurial dream and succeed in a rural community Bill used several federal 

programs-made available through local non-profit organizations-to secure business and specialized 

assistance to overcome obstacles: 

Ensure quality and consistent broadband connection for his home for his wife to work remotely 

and connect his business to regional markets extending as far as New Jersey 

• Financing from a CDFI-Northern Community Investment Corp- to assist in growth and product 

development 
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Tailored business counseling from the Small Business Development Center 

And finally, the Northern Forest Center used a US Department of Agriculture Rural Business 

Development Grants to help Bill with refinancing and bring in specialized lean manufacturing 

assistance to help the company to streamline their manufacturing space and processes, 

resulting in significant avoided capital cost and growth in revenue. 

Bill is an active member of his community. In addition to volunteering as a leader of local scouting troop 

for his son, Bill carries the responsibility of employing 12 residents and knows that the quality of the job 

he provides to his employees is in their and his best interests! Bill and April came looking for the 

community they wanted to live in and sought entrepreneurial opportunities. His success is due to his 

own persistence, commitment, smarts, and his ability as a small business owner to pursue and find 

assistance to fill the gaps in his knowledge. 

Across the state border in Gilman, VT a pair of entrepreneurs are close to breaking ground on a new 

manufacturing facility- Kingdom Pellets- that will manufacture wood pellets for local, renewable fuel 

to heat homes, businesses, schools and more. Tabitha Bowling is a relative new comer to the Northeast 

Kingdom of Vermont but relocated from Washington DC with her son and wife whose family goes back 

for generations in the region. Tabitha saw an opportunity and harnessed her business background to 

help the region transition to modern, automated, efficient technology using wood to heat homes. She 

also saw a need to tap into the regional economic development tool box: 

Various state agencies that provided technical assistance, financing and regulatory guidance; 

USDA-Rural Development, which guaranteed the lead loan with a local bank. 

And through the Northern Forest Center, grant support from USDA Rural Development Rural 

Business Development Grants to assist with legal and engineering work required to secure 

construction financing. 

Once the mill is in full operation, Tabitha expects to produce 22-23,000 tons of pellets a year, drawing 

on wood harvested within 30 miles of the mill. She'll ultimately employ 21 people directly and support 

more than 60 additional jobs in the forest supply chain. Kingdom Pellets will be the town's largest 

employer and one of the larger employers in the county. 

The Northern Forest Center's role has gone beyond direct assistance to Tabitha. We working to make 

sure that there is market demand for her product by helping to install wood pellet heating systems in 

local community facilities to demonstrate their use, effectiveness, and economic benefit. This critical 

market development for new technologies, with financial support from the Northern Border Regional 

Commission, US Department of Agriculture Rural Development, the Economic Development 

Administration and substantive philanthropy capital, has been critical to help create this new economic 

opportunity for the region. 

Bill and Tabitha are just two examples of the many small businesses owners who are key to the longterm health of Rural America. 

Investing in America's Rural Opportunity 

We need to enhance the programs that helped this small business and countless others- and we need 

to find ways to expand their reach and effectiveness in rural America. Cutting these programs --which 

the President has proposed doing to some key ones, like many US Department of Agriculture Rural 

Development programs, the Economic Development Administration, the Northern Border Regional 

Commission, the Community Development Financial Institutions Fund and the Community Development 

Block Grant program- reflects a lack of knowledge around the effective deployment of these programs 
32 

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and will have a direct and seriously negative impact on struggling rural communities and the small 

businesses that help them survive and grow. 

The need in rural for additional sources of capital is especially acute- there are fewer investors, longer 

distances to market and aging infrastructure. Rural does have its assets, however, upon which suburban 

and urban populations rely and that we should recognize, celebrate and seek to enhance. Rural: 

o Is both the home and the steward of abundant natural resources on which the American 

economy depends, and through which the American spirit is nourished. 

o Is the primary domestic source of food and energy consumed by all of America -with the 

potential to supply even more and reduce dependence on outside sources. 

o Is critical to the nation's ability to provide clean water through healthy forests and 

sustainable agriculture. 

o Is the locus for the manufacturing, energy, agriculture and forestry sectors that drive much 

of the wealth generation at the foundation of America's economy. 

o Shelters nearly one-fifth of America's population- and raises more than that share of its 

children. 

o Is called home by a disproportionately larger share of America's current combat forces as 

compared to urban America- based on Iran and Afghanistan casualty rates. 

o Is diverse in its people; people of color accounted for three-quarters of rural and small town 

population growth since 2000. 

o Is increasingly a place where immigrants settle, start and grow new businesses that create 

local jobs. 

o Provides a willing and able testing ground for policy and practice innovation that can be 

adapted in cities, towns and regions nationwide. 

The private sector, of course, plays an important role in rural places, as does philanthropic investment 

and direct business investment. These two sources, however, tend to follow public investment and in 

many cases can only be leveraged by a loan guarantee or other incentive from the public sector. 

Without this public-private leverage, deal flow is slow to develop and emerging businesses and 

entrepreneurs don't have the tools they need to navigate the many hurdles facing sole proprietors and 

self-employed people. 

Current programs need to be accountable and justified, but in my experience, they are not abused, 

wasteful or duplicative. They actually reflect the spectrum of needs that must be addressed to help spur 

innovation, create jobs and provide livelihoods to people and communities seeking a better tomorrow. 

Instead of cutting these programs, we should identify ways to improve them so that we can maximize 

taxpayer support, leverage private sector resources, and enhance rural communities. 

Rural Development Innovation Group 

To that end, the Northern Forest Center has recently partnered with the Aspen Institute and the US 

Endowment for Forestry and Communities to form the Rural Development Innovation Group, a group of 

grounded practitioners guided by experience in rural places across the country. We have identified 

shared realities and principles that seek to make federal tools the most effective they can be in their 

service to rural entrepreneurs and small businesses. 

The Group's principal goals are to accelerate the adoption, adaptation and impact of innovative rural 

development strategies and convene key innovators to increase leadership, learning and dissemination 

to the field. 
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In 2017, the Rural Development Innovation Group is hosting a six-part series, America's Rural 

Opportunity, to explore innovative and proven approaches to rural economic development. In tandem, 

the group is developing new partnerships to turn our proven ideas into better opportunities for rural 

places via federal policy and philanthropic strategy. 

Based on our experience working in rural places, the group believes that effective rural investment 

programs should share two common characteristics: (1.) They invest in people, ideas, and markets, not 

just projects; and (2.) they offer investment that is appropriately scaled for modern rural realities and 

seeks diverse outcomes that are rooted in the rural experience. Details are as follows: 

Innovation is driven by people, ideas and markets. 

Investment in entrepreneurial people is as important as capital investment. Many programs 

provide capital for specific business transactions, but few support the other tools necessary for 

entrepreneurial success. Just as in venture capital, investing in enterprising people is critical to 

build competency in rural places, which must dig deeper into their talent pool to fill leadership 

positions. 

Capitalizing on market opportunities requires integrated and collaborative solutions. Because 

they wear multiple hats in the community, rural people are naturally resourceful. However, the 

"project" funding available to rural places does not allow the flexibility they need to work in 

integrative, systemic ways to achieve results that last. 

Regional approaches are required to effectively connect rural and urban markets. In 

geographically large rural places with small populations, assembling the critical mass of people, 

ideas, resources and connections needed for success often requires working across sectors and 

geographic boundaries. 

Community-centered intermediary organizations are essential to successful rural community 

and economic development. These organizations engage the community in developing visions 

and solutions. They provide the technical and financial support to conceive and complete 

complex initiatives. 

Innovation requires investment scaled to modern rural realities. 

Short term investments will not yield desired long-term results. Many government and financial 

resources available to rural places miss this reality. Those who want lasting solutions must 

recognize the need to be patient investors committed for the longer term. 

The entry thresholds for investments often lock out rural players. Rural organizations often 

cannot operate at the numerical threshold- e.g., deal size, jobs created, population served 

that investors require. For federal funding, meeting local match requirements can be a barrier to 

entry. 

Rural projects are often of a smaller scale than investors seek. Investors typically are looking for 

"scale" -large numbers and volume. In rural, a project's progress from its starting point is more 

important than its size. Indeed, well-structured rural investments can provide rates of return 

comparable to those in urban areas. 

Investors in rural must have a different expectation for return on capital. The expectations for 

return must go beyond financial to include a broader range of rural outcomes- natural, social, 
34 

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economic and infrastructure -that are essential to building thriving rural-urban markets over 

time. 

Use of existing federal programs is not without challenges as we continue to adapt to changing rural 

realities. As we partner with other analogous organizations nationally- to learn from each other, 

replicate innovative practices, seek business development opportunities and secure resources across 

landscapes- we are working to develop specific recommendations for changes in federal programs to 

make them more effective in rural places. 

For example, we're in the process of drafting report cards for specific federal programs that support 

business development in rural areas and we grade the functionality of the program against the 

principles outlined above. In the case of the Rural Business Development Grant, we score the program 

high for its ability to invest in business capacity and those organizations providing technical assistance. 

We score it low because it is limited to businesses whose revenues are under $1 million. This rules out a 

vast number of businesses that could otherwise use assistance. These report cards will also provide 

recommendations, such as lifting that revenue cap to allow services to be provided to businesses with 

revenues under $2 million. In the coming months, we'll circulate these report cards to share our insight 

with decision makers seeking to sustain and improve programs that support rural business 

development. 

In conclusion: The Small Business Committee, along with the Agriculture committee and other 

Congressional stakeholders, can help shape policies that provide the critical tools that serve the 

entrepreneurial fabric of this country. We believe that Rural America represents an opportunity, and we 

look forward to working with you to ensure that rural small businesses have the tools they need to 

succeed. 

Thank you for your commitment to the business community and for providing opportunities to share 

this perspective from the Northern Forest. I welcome any questions the committee may have. 
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Rural Development Innovation Group 

Participant List 

Nils Christoffersen 

Executive Director, Wallowa Resources 

Enterprise, OR 

www.wallowaresources.org 

John T. Cooper Jr. 

Director, Texas Target Communities 

College of Architecture I Texas A&M University 

College Station, TX 

http:/lttc.arch.tamu.edu/ 

Mariano Diaz 

Lead Partner, R&M Consulting Group 

San Diego, CA 

Travis Green* 

Program Manager, Regional Economic Success 

Aspen Institute Community Strategies Group 

Washington, DC 

www.aspencsg.org 

LaMonte Guillory 

Chief Communications Officer, LOR Foundation 

Jackson, WY 

http:/llorfoundation.org/ 

Marten R. Jenkins, Jr. 

President, Natural Capital Investment Fund 

Shepherdstown WV 

www.ncifund.org 

Deborah M. Markley 

Co-Founder and Managing Director 

Center for Rural Entrepreneurship 

Chapel Hill, NC 

www.energizingentrepreneurs.org 

Bernie Mazyck 

President & CEO 

South Carolina Association for Community Economic 

Development 

Charleston, SC 

www.scaced.org 

*Organizing Partners 

Alan McGregor* 

Vice President 

U.S. Endowment for Forestry & Communities 

Asheville, NC 

http://www.usendowment.org/ 

John Molinaro 

President and CEO 

Appalachian Partnership for Economic Growth 

Nelsonville, OH 

www.APEG.com 

lnes Polonius 

CEO, Communities Unlimited, Inc. 

Fayetteville, AR 

https:Uwww.communitiesu.org/ 

Rob Riley* 

President, Northern Forest Center 

Concord, NH 

www.northernforest.org 

Kelly Ryan 

President & CEO, lncourage Community Foundation 

Wisconsin Rapids, WI 

https://incouragecf.org/ 

Joe Short* 

Vice President, Northern Forest Center 

Concord, NH 

www.northernforest.org 

Connie Stewart 

Executive Director, California Center for Rural Policy 

Arcata, California 

http://www2.humboldt.edu/ccrp/ 

Janet Topolsky* 

Executive Director 

Aspen Institute Community Strategies Group 

Washington, DC 

www .aspencsg.org 

Dennis West 

President, Northern Initiatives 

Marquette, Ml 

www.northerninitiatives.org 
36 

Chairman RISCH. Thank you very much, Mr. Riley. In the forest 

industry, the loss of forest jobs certainly is not unique to your area. 

The West Coast has suffered a tremendous amount of loss. 

My first year in the State legislature was 1975, and we had 44 

operating sawmills south of the Salmon River, which essentially divides the State north and south. Those 44 mills were located in virtually any town of any size in southern Idaho. Today they are all 

gone. I think there is one left that is operating. And it was the 

source of employment for people in those towns, and now they are 

just flat gone. 

So the challenges are there—there is no question about it—and 

it is the result of changes. 

I want to talk for a minute about your perspectives on—each of 

you give me your thoughts on your perspectives on the advent of 

the internet and how it has affected small business. Mr. Hobart, 

you are in the internet—you use the internet as the heart of your 

business. We have all seen substantial changes, and now we are 

seeing it not only to small businesses but we are seeing it to large 

businesses. There is more of the big-box stores that are going to 

cave because of—in fact, some outright companies are going to fail 

because of the internet and people using the internet to purchase, 

as opposed to going to stores. 

I would like to get your thoughts on the advent of the internet, 

what has happened, where we are, and where you think it is going. 

Mr. Lettieri, I would like to hear from you first. 

Mr. LETTIERI. That is a great question. Really important. So 

when the internet first became a big platform for commerce, I 

think one of the big expectations that folks had was that geography 

would become obsolete, that you could start a business anywhere 

and that this would level the playing field between urban centers 

and non-urban centers. And that is just not the case. That is not 

how it has played out. Mr. Hobart’s example is a remarkable one, 

of what is possible in the age of the internet, coming from a rural 

community, but it is the exception and not the rule. 

And so, in many ways, the internet has sped up the pace and the 

intensity of competition, which means that if you can do it from a 

rural community, anyone else can do it from a rural community 

too, and you are facing a much broader competitor pool, because of 

connectivity. 

The other challenge, of course, is that between places that have 

really strong broadband and internet connectivity and those that 

do not, you see a clear dividing line of economic prosperity and opportunity, and so it has become a really important factor. But I just 

hasten to note that even in e-commerce, e-commerce in retail only 

represents a relatively small proportion of total sales. It is still in 

the low double digits, is my understanding. And so even something 

as transformational as that is still working its way through the 

system. We have not, I think, yet seen the full effect of what that 

is going to do to that industry. It just means that people need to 

be more—companies need to be more attuned to the adaptation 

that is required to keep pace, and that just was not true in the 

same way before the internet. 

Chairman RISCH. Thank you. I appreciate your thoughts. It 

seems to me, though, that what I see in Idaho, particularly, is a 

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lot of small businesses. As you said, it is the exception that you can 

do business from a rural area the same as you can anywhere else. 

The financial industry, people that are in the—that are trading 

commodities or trading equities, seem to be able to operate from 

anywhere. Of course, they have to have the high-speed internet or 

they cannot do that. But that seems to be more of an exception because there are a lot of those, I know, in Idaho. 

Mr. LETTIERI. There are certainly certain types of businesses and 

models that work well remotely, but as a general rule in the economy, we have not seen a flattening. We have seen a concentration 

of economic activity in denser places, and that corresponds with the 

rise of the internet as an important platform for commerce. 

Chairman RISCH. Mr. Hobart, your thoughts? 

Mr. HOBART. Thank you, Chairman Risch. Well, first, one observation. Starting an e-commerce business today is probably a factor 

of 10 easier than it was even 10 years ago, so there is great opportunity for small businesses all over the United States to start up 

a business around their passion, and start selling online, and I 

think that trend will continue as the learning curve gets easier. 

That said, as you mentioned, a lot of e-commerce businesses are, 

you know, supplanting the brick-and-mortar businesses today. But 

I firmly believe, in our experience, that the social experience of 

shopping is going to help small businesses like ours to succeed in 

the future. Where I talked about better internet access for us and 

our ability to engage our customers, it means a much more social 

experience with them. Imagine 5 or 10 years from now, where a 

customer somewhere else in the United States, can literally, virtually walk through our store and look at the shelves as if they are 

in the store. That is the vision that I want to make for our company, but we need the internet access for both them and for us to 

make that happen. 

The other thing I would say is that we are a big partner with 

the Postal Service. They are our delivery partner. And I will be 

happy to say that in our area, in Hayden, they are a great partner. 

In fact, their delivery has been—has vastly improved over the 10 

years—or 12 years, actually—that we have been in business, and 

now we can literally ship from Hayden, Idaho, to almost anywhere 

in the United States in about two to three days, so—and sometimes 

even less than that. So they have been a great partner, and having 

that rural partner in the USPS right up the street from us has 

been great. 

Chairman RISCH. Thank you. 

Mr. Riley. 

Mr. RILEY. When I lived in your great State about 25 years ago 

now, the internet was just, you know, an idea. It seemed like an 

e-mail was just seeing the beginning. I would say there are a few 

different things now that are coming into play. Access is one. Does 

the fiber come to the place of business in a rural place? The second 

is affordability. It may be there, but to get that last not even mile, 

last few feet, is a critical challenge. And then as you talked about 

before, the upload/download speeds are inconsistent. So we face 

those every day in rural places, about actually accessing what is 

the digital highway here. You know, that is a challenge. 

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But I would say one of the businesses, particularly in the manufacturing space, that we are seeing, is that the ability to use the 

internet to interface with customers, real-time, to do custom design 

furniture and then deliver to the 70 million customer base within 

one day’s drive of the Northern Forest is a game-changer to compete with imports. So our ability to provide that custom design type 

of piece is only there because of having high-speed internet available, and it is critical to our companies. 

And I would say we are finding a lot of people who are relocating 

to small towns because they have the opportunity to work remotely, and they are contributing in significant ways. The example 

I shared before with NorthWoods Manufacturing, Bill’s wife stayed 

with her job in New Jersey but worked remotely. She could not do 

that if not for high-speed broadband. 

So I believe it has changed the ability of rural places to participate. It is not without its challenges, as I outlined, but I would say 

that the advent of the internet does allow rural places to participate in a different way, and also, I think, when people are in rural 

places, they like to be connected. So our ability to have wireless 

link and cell phone service, internet connection, is critical to people 

wanting to vacation and access the amenities of a natural landscape without being disconnected from their day jobs. 

So both of those things are important for real-time, ongoing residents but also visitors to that place. 

Chairman RISCH. Thank you, Mr. Riley. 

Senator Shaheen. 

Senator SHAHEEN. Thank you. Mr. Chairman, you talked about 

what you have seen in Idaho, in terms of the closure of the timber 

mills. We have seen a similar situation in New Hampshire, in 

northern New Hampshire. And one of those communities that has 

experienced that kind of closure has been a town called Groveton, 

which is in very northern New Hampshire. So they have been trying to think about how can they redevelop some of those closed 

mills. And they have a local investor, a man named Bob Chapman, 

who invested $15 million in the site, to attract manufacturing companies. But, unfortunately, the mill had neither water nor sewage. 

So the town supported a $400,000 bond, which, for that small 

town, was a huge investment, and they did the bond so that they 

could get another $600,000 grant from the Economic Development 

Administration. And I got a letter from Bob Chapman who said 

that—and I am quoting him now—‘‘These public/private investments in broadband internet and wireless cell service and water 

and wastewater infrastructure, as well as investments in transportation, education, and workforce, are all absolutely necessary to attract companies to move here and to put people to work.’’ 

And he continued that ‘‘cutting or eliminating the investment, 

like the EDA, the Northern Border Regional Commission, USDA 

Rural Development, and transportation projects would be particularly harmful to small businesses in rural areas.’’ 

Mr. Chairman, I ask unanimous consent to enter his statement 

into the record. 

Chairman RISCH. Surely. 

[The letter follows:] 

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CHAPMAN BUSINESS GROUP 

April25, 2017 

The Honorable Jeanne Shaheen 

Ranking Member 

Senate Committee on Small Business & Entrepreneurship 

428A Russell Senate Office Building 

Washington, DC 20510 

Dear Ranking Member Shaheen, 

I'm writing to you today on behalf of the Chapman Industrial Park, to submit a Statement for the 

Record, for the upcoming hearing on rural small business issues. Thank you for the opportunity 

to submit these comments. 

The economy of the North Country has been hit hard by the closure of paper mills over the past 

two decades, but Groveton has had a particularly hard time regaining any economic footing. I 

never set out to build an industrial park at the paper mill site that I had been hired to clean up, but 

I couldn't walk away from a community that needed jobs so badly. 

I have invested $15 million of my capital in this project and have been encouraged by a fmancial 

commitment of the townspeople, as well as public investments in the form of grants from the 

Northern Border Regional Commission, the Economic Development Administration, and 

Community Development Block Grants. 

These public-private investments in broadband internet, wireless cell service, water and 

wastewater infrastructure, as well as investments in transportation, education, and workforce 

development, are all absolutely necessary to attract companies to move here and put people to 

work. We already have one company set up and manufacturing in a 73,000 square foot building 

and we have many other companies in looking at this site. 

Cutting or eliminating important programs that make these investments -like EDA, the Northern 

Border Regional Commission, USDA Rural Development, and transportation projects- would 

be particularly harmful to small businesses in rural areas. We should focus on ways to enhance 

these programs and other ways to help leverage investment in rural communities and small 

businesses, including boosting small business lending and Increasing federal contracting 

opportunities for rural small businesses. 

Please don't hesitate to reach out to me if you need anything else. 

Sincerely, d. . . Brf!Er rl47cY? 

Chapman Industrial Park 

Page 1 
40 

Senator SHAHEEN. And I know, Mr. Riley, you talked about that, 

because you are dealing with these kinds of communities and you 

see what a little bit of public investment can do to leverage private 

investment. 

So can you talk about what we can do to ensure that both those 

programs can leverage the kind of investment that we are talking 

about and how we make communities aware of what is available, 

and what the impact would be if we eliminate all of those programs, which I just mentioned that are targeted for elimination in 

the President’s proposed budget for 2018? 

Mr. RILEY. Thank you, Senator. I think what is—what I need to 

say first with these communities is that they have skin in the 

game. They are interested in their own investment. They are looking at leverage opportunities. In a State like New Hampshire, we 

have very little State resource that goes into these programs, but 

the towns—and here is an entrepreneur that is clearly committed 

to the future of his enterprise and to that community, and I do not 

believe that he is from Groveton. I think he came from another 

community—saw the opportunity there, and the need, and invested 

in that site. 

In some cases, Federal programs are criticized for being perceived as duplicative. Well, we look at this as a broad toolbox that 

serves a number of different sources and uses, from business term, 

people might want to use. EDA funds, for example, only cover certain portions of a project. In this case, economic adjustment programs are critical to allow for studies and assessments to be done 

on certain sites. 

CDBG, Community Development Block Grants, for example, are 

important to bring water and sewer and other infrastructure onto 

the site. Northern Border Regional Commission, a Federal commission analogous to the Appalachian Regional Commission in our region, brings the ability to invest in capacity, which is clearly critical for that business itself to run, and for support organizations to 

help him and others really prosper on that site. 

So those rural development programs, the Rural Business Development Grant, the Intermediary Relending Program, a whole other 

cast of rural development programs, are a critical toolbox to allow 

entrepreneurs to build out their businesses and access the markets 

that are within that region. So it is a multi-tiered opportunity here 

to return on the investment that the public sector has to offer. 

And I do have to say that, on other pieces, that you go into New 

Hampshire and people know about these funds, and people have a 

high level of—what is the word I am looking for—of wanting to 

make sure that it is done right. They know these are visible, they 

know that the Senator will come by, and they want them to succeed, and they do their absolute best to leverage the other types 

of resources that are available, and we really pride ourselves in the 

region of being proper stewards of public money. 

Senator SHAHEEN. I think that is very true, and thank you. I 

think, again, as we talk about rural areas of the country, there is 

a real pride that people have in what they are doing, and making 

sure that people see that and appreciate the commitment that individuals have. 

LAP51NQ082 with DISTILLER

41 

Mr. Lettieri, you talked about the uneven recovery between rural 

America and urban America, and I was particularly struck by your 

point that while we have not necessarily seen businesses in rural 

America close at greater rates, we are not seeing the new start-ups 

come in to replace the ones that do close. 

So as we think about what we can do at the Federal level, 

through the Small Business Administration, through policy, to help 

encourage those new start-ups, what kinds of things do you think 

are important for us to think about? 

Mr. LETTIERI. Thank you, Senator. There are two broad categories I would lay out. One is that national policy environment. 

What does our tax code look like? What does our regulatory environment look like? What does our infrastructure look like? How are 

we investing in basic research? All of those things are linked, and 

where there is a strong Federal role to play, if we are not playing 

it, the problem is getting worse and it gets more expensive to reverse, more challenging to reverse. 

Then there is the more micro kind of interventions we can do 

where there are market failures in policy. One of those is access 

to capital, clearly. So you see a regionalization of access to capital 

that is really harmful and challenging for entrepreneurs outside of 

major hubs. And so that is an area where I think public policy can 

play a really important role in a market-based way, but nudging 

investors into different areas by helping to change the risk profile 

of those investments and also leveraging public and private co-investments, as had been mentioned earlier. I think that is—there 

are some models that we know work. 

But in all of that I think it is important to remember that organic, ground-up type of solutions are going to be the most important of all, and so where can the Federal Government come in and 

support a race to the top of what we know is successful in certain 

local communities, and help to export that to other areas. I think 

that is a really important primary goal to have in mind. 

Senator SHAHEEN. Thank you. Thank you, Mr. Chairman. 

Chairman RISCH. Thank you, Senator. 

Senator Ernst. 

Well, it is—we are doing early bird first. Okay, so you guys figure it out. 

Senator ERNST. Go ahead. 

Okay. We will arm wrestle. Okay. I will make mine brief. How 

is that? 

Thank you. I appreciate it. Thank you very much for being here 

and for your testimony, and thank you to our Ranking Member and 

our Chairman for holding this discussion. Mr. Lettieri, earlier this 

week, one of our local publications in Iowa ran a story titled ‘‘Workforce Worries Keep Iowa Manufacturers Up At Night,’’ and it is a 

very timely article, considering the topic that we are discussing 

today. The article reiterated what I routinely hear from businesses 

as I am out on the 99-county tour in Iowa. Their growth is constrained by workforce limitations. The jobs are there, they exist, 

but it is increasingly hard to find those qualified applicants. And 

in Iowa, we have great schools and a favorable work climate, but 

we still struggle with this particular issue. 

LAP51NQ082 with DISTILLER

42 

And what are your thoughts on what can be done by the private 

sector? What can our high schools and colleges be doing to help 

with this workforce shortage? And what can the government do to 

address this issue? 

Mr. LETTIERI. Thank you, Senator. A similar article just came 

out on New Hampshire, actually, a tight labor market, regionally 

and nationally, is making it challenging for employers and places 

like your State, places like New England, to find enough talent to 

fill job openings that are there. This is a real problem for employers, and you hear this more and more around the country. 

So one thing that we see that works is where mayors, in particular, are really engaged in convening local businesses and local 

community college and vocational schools to make sure that these 

skills that they are teaching actually match up with the opportunities that emerge on the other side locally. And you would think this 

is a very simple thing, but many communities are just not putting 

enough effort into making sure those dots connect. It is really not 

magic. It is just you have to go through the exercise of doing that, 

and being thoughtful in closing that information gap for people who 

want to increase their skills or get a higher education of some type. 

Making sure that what we are teaching them and what we are funneling them into actually has opportunity on the other side, is the 

first step. 

And so that is really much more a local stakeholder and local private sector type of challenge than it is nationally, but if we saw 

more of that, and if we saw more models that took that head-on, 

I think we would be able to close that gap quite a bit. 

The other thing that has to be mentioned is we have a slowing 

population growth rate. We are currently the lowest—slowest period of population growth U.S. has seen since the Great Depression. 

And so that is going to further constrict the labor forces. We see 

the prime age workforce is only growing at something like 0.1 percent. So there are only a couple of ways to counteract that. One is 

people have to have more babies, or we have to let more people 

who want to be here, who have the skills, come here. 

And so both of those are ways that we can approach dealing with 

that challenge and opening up the labor market for folks who want 

to be here, who have the skills, and who match with what employers are trying to do, in terms of their own hiring. 

Senator ERNST. Thank you, and just a comment. Mr. Riley, you 

addressed the internet challenges that we have, and I just want to 

express that is an issue that I hear about all the time, as well, in 

Iowa. And Mr. Hobart, you experienced this as well, challenges 

with internet access and broadband. 

And I just want to share a quick story about a constituent. She 

was in an area that did not have good internet access, a rural area. 

She lived on a farm, was trying to start a home business. And exorbitant costs to get satellite dish internet. She, in the evening, 

would sneak into town, the little rural community, and sit outside 

a local business and kind of pull off of their internet. 

So, you know, it is a concern out there. It is something that we 

need to address for our small businesses, and it needs to be looked 

at as we move into an infrastructure package. 

So that is all I have. I will yield back my time. Thank you. 

LAP51NQ082 with DISTILLER

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Chairman RISCH. Thank you. 

Senator Scott. 

Senator SCOTT. Thank you, Mr. Chairman. Good morning to the 

panel. Thank you for taking the time and making the investment 

to be here. It is such an important conversation. 

Mr. Lettieri, thank you for your testimony. I appreciate the extensive work that EIG has done on the geographic nature of entrepreneurship and economic growth, as well as upward mobility. 

As you have pointed out in the past, the country is trending towards greater geographic divides when it comes to job creation, 

particularly in new, start-up businesses. This geographic divide is 

causing already struggling communities to fall further and further 

behind, which has broad social economic impacts. 

As your latest report points out, the economic environment of a 

community has far-reaching consequences for the future of poor 

children. South Carolina counties, like Williamsburg County, 

Saluda, that are distressed, present a barrier to upward mobility 

for poor children. In fact, very few of the counties you have identified as distressed also have a high probability of social upward mobility. In contrast, prosperous counties with dynamic economies 

seem to lead the way in offering opportunities for financially challenged families. 

As you know, and we have talked about in the past, I have reintroduced my bipartisan legislation, the Investing in Opportunity 

Act, which tries to address this growing concern and this great geographic divide by giving the governor of each state the ability to 

designate targeted opportunity zones, contiguous regional areas 

that meet certain criteria. These opportunity zones would then be 

eligible to receive investment from an opportunity fund established 

by the bill that allows temporary tax deferment of capital gains 

and dividends to incentivize investment into distressed communities. 

My question is, how do we go about solving the problems related 

to upward mobility in rural areas? Could we use the tax code to 

do so under a system like the one that is described in the Investing 

in Opportunity Act? 

Mr. LETTIERI. Thanks for your question, Senator. You mentioned 

upward mobility. Our research finds this is one of the clearest divides between rural communities we find in the country and between regions. The best engines for upward mobility in the entire 

country are prosperous rural counties, and, likewise, some of the 

worst are impoverished rural counties. And so in the South, in particular, you see a real dead zone of upward mobility among even 

prosperous rural counties, and that is troubling. It speaks to a couple of regional challenges and also some of the broader national 

challenges. 

So the short answer to your question is yes, I think the tax code 

is one of our best opportunities, and with tax reform on the agenda 

it is one of our best opportunities to help correct market failure in 

terms of new business formation and access to capital that we are 

seeing emerge around the country. And what your bill does, I 

think, is important in that it collectivizes that problem among investors. Rather than incentivizing individual investors to do things 

on their own, it really incentivizes them to pool resources and capLAP51NQ082 with DISTILLER

44 

ital and go en masse in a way that is linked with State and local 

economic development priorities, and that is really important. 

And it is also not putting the taxpayer on the hook, which is 

something that, in our work, we have looked at other incentive programs for investors, or for local businesses, and in too many cases 

we see that the taxpayer is really on the hook for most of the risk, 

rather than the investor, him or herself, and your bill inverts that 

in a positive way. So I think that is important. 

Linked back to upward mobility, we see that rural areas that are 

doing very well with giving poor kids a chance to rise is that the 

broader environment is one in which human capital is really highly 

engaged in the productive economy—really high rates of labor force 

participation. And these do not have to necessarily be prosperous 

areas, but if people are generally working, it really has a huge impact on poor kids being able to rise later in their lives. 

And so the kind of investment that increases labor market opportunities and gets people off the sidelines and into productive work 

is the kind of investment you will see linked to upward mobility 

in the future, and that is what we think your bill will do. 

Senator SCOTT. Thank you very much. One final question on the 

opportunity zones component of it, where we provide the governor 

an opportunity to name those areas. We typically use the New 

Market Tax Credit designation of distressed communities as a way 

for us to define, since that sort of codified them and used by the 

Federal Government. Thoughts on that, as an opportunity zone 

area? 

Mr. LETTIERI. Yeah. I think that is an important marriage of a 

Federal standard that is necessary to have clarity and also local 

input. Giving governors the discretion to say, within the census 

tracts, in this bill’s case, that qualify according to that Federal 

standard, to allow governors to lead in allocating exactly where 

those zones would go is a good marriage of, again, a strict national 

standard but intense local input and control. 

Senator SCOTT. Thank you very much. I would note that we have 

been very pleased to have a bipartisan coalition of senators in 

this—on this task. Senator Bennett, Senator Peters, Senator Booker, Senator—no, not yet? Okay. We will chat later then. 

Senator ROUNDS. I am on board. 

Senator SCOTT. Thank you. I was just marketing to my friends 

across the aisle. 

Chairman RISCH. No pressure. No pressure. 

[Laughter.] 

Senator SCOTT. That is why I love her so much. 

Chairman RISCH. Thank you, Senator Scott. Senator Heitkamp. 

Senator HEITKAMP. Thank you, and I have got a bill for you too. 

[Laughter.] 

You know, I was recently in—not recently—about a year ago I 

was in northeast North Dakota. That is potato country, some of the 

best farmland in the world, an amazing resource of just bright, 

challenged—you know, people who challenge the system and get 

things done. There are 80 primary sector jobs open, because they 

cannot find workforce. Too big of challenges is convincing people 

that they want to live in communities that are less than, you know, 

LAP51NQ082 with DISTILLER

45 

100,000 people. And the other big challenge is affordable housing, 

the lack of infrastructure for communities. 

So these are things that, you know, we keep—simply, you know, 

providing tax credits or doing the things that we are trying to do 

around the edges to jump-start, you know, entrepreneurship may 

not—I mean, we may be missing the real opportunity here. So I 

just want to kind of say that, that this is a bigger problem than 

just simply creating primary sector jobs in rural America. 

We used to do that, when I was involved in economic development in my State. I still am involved in economic development. We 

used to say, if we build the jobs they will stay here. That is not 

always true. And so we need to be really careful. 

But the one area that I care about is start-ups. You know, not 

letting the two coasts have all the opportunity here but to build the 

opportunity for young people to think, man, I can do that in Fargo. 

I can even do it in Walcott. You do not know where Walcott is but 

it is a very small town. 

Anyway, so I am curious about my bill, which would be a very 

small investment. We would take about $1.2 million and we would 

say, this is only for communities under 100,000 people, and what 

we are going to do with this money is we are going to give it to 

the cities and they can provide some really small amounts, about 

$120,000, to young entrepreneurs. Because what young entrepreneurs in my community tell me is that they have a really hard 

time figuring out how they can go to work, start their young families, and still invent, still create. And so this would be a way to 

provide some bridge funding before that idea could be utilized. 

What do you guys think of that idea? Do you think that would 

actually have impact, if we could provide just some of that seed 

money to individuals so that they could have that period of time 

to create, maybe a two-year period, and still feed their families? Do 

you think that is a good idea, Mr. Hobart? 

Mr. HOBART. Thank you. I can tell you, speaking from our experience, we bootstrapped it from the beginning. So it was a family experience. My daughter helped, you know, raising, originally, the alpacas but also in running the business. My son built the servers. 

And they have both gone on to college and they are actually, one 

works for a vet and one works with computers. So it was an education as part of that. Everything we have done we have financed 

itself, you know, by no financing from outside people. 

That said, it was sometimes a struggle. I can tell you right now, 

in Coeur D’Alene, probably at the end of this month, beginning of 

next month, there is something being started called an Innovation 

Hub. It is a collective, where they have taken an old Elks Lodge, 

which is a big building in downtown Coeur D’Alene, and taken people who are interested in innovation. There is a robotics company. 

There is a company doing fiber optics, et cetera. And they are renovating that building and we are all going to be working in there 

together. I have actually taken a space in that area as well. 

Senator HEITKAMP. Good for you. 

Mr. HOBART. So it is a way for us, at least, to be around each 

other and bounce ideas off each other, and get that energy. But 

again, I believe that was all self-funded, so, obviously, any help we 

LAP51NQ082 with DISTILLER

46 

could have would be great. But in the case of what we have done 

in Idaho, we did it on our own. 

Senator HEITKAMP. Mr. Lettieri, can you just respond to this 

idea? 

Mr. LETTIERI. So, with apologies that I would want to take a closer look at the bill details, I think the problem you are identifying 

is exactly right, that in many areas of the country, and particularly 

rural areas, even if you are a promising entrepreneur with a good 

idea, it is very hard to find investors willing or motivated to support you. Add to that the fact that Millennials are now the biggest 

proportion of the workforce, but also have record levels of debt and 

other obligations that have changed the way that they think about 

accessing entrepreneurship compared to previous generations. 

I think we have a real generational challenge there, and so providing more resources, and particularly ones that are more locally 

directed, where there is community involvement and the community is taking a stake in local entrepreneurs, I think is a great concept, and again, the need is one that is very clear. 

Senator HEITKAMP. Thank you. I think I am out of time, but just 

an idea. We are looking for those things that would be small investments with big rewards, and I think I am intrigued by other 

ideas. I would be interested in hearing any additional ideas you 

guys have on—with only this, then we could see greater activity in 

rural America. 

Thank you. 

Chairman RISCH. Thank you, Senator. Senator Rounds. 

Senator ROUNDS. Thank you, Mr. Chairman. Gentlemen, I am 

going to begin and preface my first question with another question 

that I would like to have answered after my first question is completed, so if that makes sense. 

Chairman RISCH. It does not. 

[Laughter.] 

Senator ROUNDS. Like a lot of things in D.C. 

What I am curious about is if you could be thinking about it, if 

there was one regulatory issue out there that you would like to see 

addressed by this Congress, that would improve the opportunities 

for small businesses, rather than asking you to just jump up with 

it, I want to give you a few seconds to think about that. 

But, in the meantime, what I really wanted to kind of spend 

some time on was the concept of trying to level the playing field 

and how it impacts small business with regard to sales tax collections. And the reason why I bring it up is the Main Street Fairness 

Act, which has not been passed yet, would have allowed for states 

to collect sales tax on internet sales that was on products that were 

received within their state. 

In about 1992, there was a U.S. Supreme Court Decision, Quill 

v. State of North Dakota, which said that if you did not have 

nexus within the state, they could not tax you, and yet, at the same 

time—you could not collect sales tax on a product. And yet now, 

with the advent of internet sales, it has gone wild with regard to 

individuals purchasing items over the internet. And sometimes this 

is a very successful thing for small businesses. 

But the Main Street—or the streamlined sales tax organization 

has put together some very simple software that has been in testLAP51NQ082 with DISTILLER

47 

ing, beta testing, successfully now since about 2005, which is very 

easy for an internet company to be able to identify the amount of 

tax to be collected, and to have it submitted through one central 

location, which would then distribute—take the responsibility for 

distributing it back to those states and municipalities. 

Sales taxes amount anywhere from 41⁄2 to 6, in some cases 7 percent. Brick-and-mortar businesses compete against that. They have 

to collect the sales tax. Internet taxes are not required right now 

unless Congress authorizes that to occur. 

I would like your thoughts, and I understand, Mr. Hobart, you 

are on the other side of this, where you actually sell over the internet, as a small business, successfully. But I would like to have each 

of you perhaps suggest what you think the impact is. I mean, nationally we are talking about the loss of income to states and local 

units of governments of perhaps somewhere in the neighborhood of 

$25 to $34 billion a year, but that is also money, then, that is a 

competitive disadvantage for a brick-and-mortar, small-town business competing against an internet sales giant that has this economic advantage as well. 

Could I ask each of you to comment on that, and what you think, 

and whether this is a good thing, a bad thing, or your thoughts? 

Mr. RILEY. Thank you, Senator. I will answer in an indirect kind 

of way. I think one of the things that—I am not an expert on the 

tax code, but what I see, based upon my career working on downtown revitalization, small business development, is that the 

changes in commerce have impacted small towns. Where you used 

to go down and you would get your shoes, you would get your shirt, 

you would get your clothing, what have you, that does not exist in 

small towns now. So we do have an infrastructure issue that we 

have to look at repurposing those buildings for some other type of 

economic activity. 

When we look at working across the four states we work in, 

where there is different State-based policies on sales tax, and that 

one that the business community navigates, I think some sort of— 

but regardless of that, these small towns are still impacted because 

of the different changes in commerce. 

So without commenting directly on that provision that you are 

talking about, I think it is something that needs to be really looked 

at because it is changing the use of, and the population of how 

these communities survive, and—— 

Senator ROUNDS. The impact is there. 

Mr. RILEY. It is very much there. 

Senator ROUNDS. Mr. Hobart. 

Mr. HOBART. Our average sale is about $35, so the impact to us 

per customer is negligible. But I can tell you we started our business in California, and we used to spend sometimes two days trying to figure out the tax we owed California, because it was not 

just a straight sales tax. You got into counties and then ZIP codes 

within counties. So when I think about the complexity of trying to 

pay tax in—and I do not know how other states are, but I know 

when we left that, you know, that whole challenge, as we moved 

up to Idaho it was much simpler. 

Senator ROUNDS. So, and that is the reason why the streamlined 

sales tax plan that is out there right now takes that burden away 

LAP51NQ082 with DISTILLER

48 

from the internet salesperson. That is the reason why I was curious. 

Mr. HOBART. Right. 

Senator ROUNDS. Thank you. 

Sir. 

Mr. LETTIERI. I would just echo the same point, that complexity 

is really just as much of an issue, especially for entrepreneurs, as 

rate, when it comes to the tax code. And so the more we can do 

to simplify that, the more we can do to provide clarity and remove 

that uneven playing field that disproportionately affects smaller 

and newer entrepreneurs, is a good thing. 

Senator ROUNDS. Well, and I am out of time, but I am just curious, if there was one single regulation, very quickly, that you 

could—— 

Mr. HOBART. I will say one thing. I talked, in my testimony, 

about internet speed, and I just brought this report—sorry I did 

not put that in the testimony but it is a report from Ericsson. And 

just to give you an idea, when I put out a vision of, let us say our 

virtually walking through our store in a video experience, I will 

just kind of share this graph here. 

But they talk about—what Ericsson did is they studied stresslevel people, both EEG, pulse, and also with eye tracking, to see 

what levels of stress people go through, with different interactions. 

And they compared things like waiting in line at a retail store— 

brick-and-mortar. They also looked at standing at the edge of a virtual cliff, and then watching a horror movie. And in their study, 

it shows that waiting, slow waiting on media on mobile devices is 

higher than watching a horror movie—— 

Chairman RISCH. They did not need a study for that. 

[Laughter.] 

Mr. HOBART [continuing]. Or standing at the edge of a cliff. 

So my bottom line is, that is great, but if we can actually have 

these great experiences, not a horror movie experience, for our customers in the future, that will be critical for our success. 

Chairman RISCH. Can we put that in the record? 

Mr. HOBART. Absolutely. 

Chairman RISCH. Would you leave that for us? I would like to 

put that in the record. 

[The report follows:] 

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49 

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Insert offset folio 27 here 25855.027

....., ~ 

ERICSSON 

TI-1E STRESS 

OF STREAMI~~G 

DELAYS 

EXTRACT FROM THE 

ERICSSON MOBILITY REPORT 
50 

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When consumers turn 

an instantaneous response. 

network performance has 

completing tasks under 

increase. Both !in1<>··tO··"'"'tAnt 

decreases in Net Promoter Scores (NPS). On the 

video streaming lead to increased NPS 

' Copenhagen-based Neorons !nc. 

The study revealed that delays in 

loading web pages and videos lead to 

increased heart rates and stress levels, 

On average, singie delays resulted in 

a 38 percent increase in heart rate. 

As for stress, participants already 

exhibited an increase from pre-task 

base!lne levels, which was attributed 

to the pressure of having to complete 

tasks within a set time limit. With the 

introduction 

levels then 

2 EXTRACT FROM THE ERICSSON MOB!UTY REPORT MWC F:O!TION FEBRUARY 201-6 
51 

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Insert offset folio 29 here 25855.029

Stress and streaming 

Participants' responses to initial toad 

time (time· to-content) and pauses due 

tore-buffering while watching videos 

were assessed by measuring cognitive 

load2, an indicator of stress. With no 

delays, stress levels during the video 

tasks averaged 13 percent above the 

pre-task baseline. A medium delay of 

2 seconds when loading videos led 

to average stress levels to go from 

13 percent to 16 percent above the 

baseline. Once a video started to 

stream, a pause due tore-buffering 

caused stress levels to further 

increase by 15 percentage points. 

With high time-to-content delays of 

6 seconds, half of the participants 

exhibited a 19 percent increase 

relative to baseline levels while 

the other half exhibited signs of 

resignation - their eye movements 

indicated distraction and stress 

levels dropped. 

To put the findings of this study in 

context, the measured levels of stress 

can be compared to other situations 

In everyday life. For example, the 

stress response to delays was similar 

to that of watching a horror movie or 

solving a mathematical problem and 

greater than waiting in a check-out 

line at the grocery store. 

Average change in stress when facing streaming video delays 

35 

30 . 

c 

'a=; 25 ~ .0 

g 20 " t 

) 10 

Time-to-content 

Source: Ericsson Consumerlab neuro research, 2015 

Base: Smartphone users aged 18-52 from Copenhagen, Denmark 

Cognitive load associated with stressful situations 

0.9 

0.8 

07 

0.6 

0.5 

0.4 

0.3 

0.2 

0.1 

Source: Ericsson Consumerlab, Neurons Inc., 2015 

z Cognitive load is described on page 7 

FEBRUARY 2016 MWC EDITION EXTRACT FROM THE ERICSSON MOB!UTY REPORT 3 
52 

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Patience is a virtue, but not for users 

Participants that experienced no perfonnance delays 

demonstrated a net increase tn brand engagement, 

measured using a motlvatlon index.3 This suggests that 

they became happier with their mobile service provider. In 

comparison, the groups subjected to medium and l1igh delays 

displayed neutral and even negative bra"ld engagement. 

Interestingly, medium delays resulted in a double negative 

effect on the service provider, as they not only decreased 

brand engagement with consumers but a!so caused 

an increase in engagement witt\ competitor brands. 

Meanwhile, users who faced high 

negatively to all mobile service 

surprising finding suggests that major delays can even 

cause the whole Industry to suffer a loss of brand equity. 

Similar effects were observed when looking at changes 

in NPS\ which were calculated 

from a survey administered to participants 

before and after they experienced delays. On a scale 

of 0-10, NPS fell by 4 and 2.5 points for those who 

faced medlum and high delays, respectively. 

Change in NPS score for mobile service providers 

4 EXTRACT FROM THE ERiCSSON MOB!UTY REPORT MWC EDITJON FEBRUARY 2016 

The !ower drop in NPS for those subjected to high 

delays was attributed to users transferring some of 

the blame to the content provider. 

For those who faced no delays while completing the 

assigned tasks under time pressure, NPS increased 

significantly for their own service provider (4.5 points), 

suggesting that offering customers good network 

performance when it ls needed ls a key to improving 

brand equity. 
53 

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Insert offset folio 31 here 25855.031

Methodology~ Measuring user respohse 

to netwotkperfonnance 

A tOtal of 30 volunteers <.iged 18-52 in Copeh}'i::igen were 

randomJy,setected from' an existing panel of onUmHJsers. All 

of the participants were m?bile'proadbant;l subscribers that 

regularly browsed and streamed Vldeo on th€llr sinartphones: 

The particlp~nts were fltted'with pulse meters and 

eye-tracking glasses, as well as EEG electrode hea,tlsets 

to record brain activity. They were' eat!) rssued an Androtd 

smartj)hone, and,asked to complete 18 tasks wlthlfl a 

20 minute tiff!e period. The smaf'tphMes were programmed 

to :appear as, if. the!Y were using i mobHe broa~baild network 

connection, "fhe 'tasks corrslstet! of navigating thrOUgh 

nGws <::l(tleles on ~,¥eb pages ~nd YouTube videos which 

were set up with a rar\ge of pre~deterrnii1ed delays. 

J"fte subjects wer-e split into s,groups of 10, and each 

group was exposed to a different level of network 

perfdr~~nce "Yhl!e,attempti'ng to complete the tnobHe 

web and video tasks. None of the respondents knew 

they WOU!d ~ subjected to prtH.:iete'rmined delays, 

> ~royp 1 {no delays) 

> Group 2 (rnedlurri delays): 4-6 seconds of web page 

load time; 2 ~econds ot videO toad time and 3 video 

pauses,of 3 seconds'due to buffering events 

>, ~roup 3 (high delays): 10-"14 se-conds in we? page 

loa9ing; ~ se,conds of video toad tlme and 3 video 

pauSes o13 seyonds due to buffering events 

To, measure cpnsymeis' unconsciouS responses to brands, 

t~~,NrtlCipants we:e S!'lown a series of images !nc!~ding 

logos of mobile operatorS,and content providers. Participants 

were ats~ aske~ w~ether they ,~er~ willing to recommend 

th~lcm?~ue:nro-~Q.b~nd service provider, The t¢sts we~e 

administered po.th before and after the web and video , 

taSks in urderto meaSure~~hanges,in responses. 

The study was designed around three types of measurements: 

electrical activity in the brain, eye movements, and pulse. 

Brain actlvlty captured with EEG headsets was,uSed to 

assess the' tWO neUro metricS described ~low. 

Cognitive load is a $~ore that measures the amoun~ of 

informatlO:n that a person is proce![>sir'ig B!Jd "M!d!ng active" 

in the dorsolateral prefrontal cortex (DL-PFC) part of the 

brahi, A high cognltlve load ls part of a stress response. 

A score up to 0.7 is accept~b!e,and con~idered norm~! 

for proper information processing, However, scores 

oyer 0.8 are considered very f:li9h and stressfUl. 

The ,motivation indk!x is a calculation of the relative iictivation 

of thaleft versus right orbltofrontal Cortex,' and hlc!osely 

Hnked to approa~h~a~oida!)ce behaviOrs. ~ud!e$ have 

demonstrated that, a stronger)eft: than right ~ct!vation Js 

relat~d to approach motivation and a9tlon, wflile a stronger 

right than_ feft activation is lhdicative ,of avoidance m~tlvation 

a11d m;havior~. The phenom?nqn has been studied ~.!Sing EEG, 

functional magnetic reson~nce imaging ~MRJ) and patient 

studies, and is considered a-simple but rObust phenomenon. 

ft was used !n this, study by having the participants focus on a 

screen where bratJd logos we~ shown for a,few SeCOnds at? 

time while motivation response wa's 'me-a$ured with EEG. 

Functional areas of the brain relating tb the neuro mettles used 

FEBRUARY Z016 MWC EDIT10N ERICSSON MOBILITY REPORT 5 
54 

LAP51NQ082 with DISTILLER


Insert offset folio 32 here 25855.032

Ericsson is the driving force behind the Networked Society - a world leader in 

communications technology and services. Our long-term relationships with every 

major telecom operator in the world allow people, business and society to fulfill 

their potential and create a more sustainable future. 

Our services, software and infrastructure - especially in mobility, broadband and 

the cloud - are enabling the telecom industry and other sectors to do better business, 

increase efficiency, improve the user experience and capture new opportunities. 

With approximately 115,000 professionals and customers in 180 countries, we combine 

global scale with technology and services leadership. We support networks that 

connect more than 2.5 billion subscribers. Forty percent of the world's mobile traffic 

is carried over Ericsson networks. And our investments in research and development 

ensure that our solutions - and our customers - stay in front. 

Ericsson 

SE-126 25 Stockholm, Sweden 

Te!ephnne +46 10 719 0000 EAB-16:00123711 Uen 

©Ericsson AB 2016 
55 

Chairman RISCH. Thank you. 

Senator Rounds. 

Senator ROUNDS. Thank you. 

Chairman RISCH. You know, that complexity issue, I think all of 

us had concerns about that when they had the Main Street Fairness Act, but, Senator Rounds, you are more of an expert on this 

than I am, but correct me if I am wrong. I think what they did is 

they got it where the retailer was not responsible for figuring out 

whether there was a tax from the city, the county, the mosquito 

abatement district, or whatever. 

Senator ROUNDS. That is correct. That was the nice thing about 

it, is it actually absolves the retailer from liability. And so if they 

collected—and they do not use the streamlined process, and they 

collect it and remit it, if they collect it wrong they are liable to 

have to go back in and fix it. We have got large companies, within 

places like South Dakota, that actually use the streamlined process, because if they use it and they remit the approp—or they 

remit the tax based upon what the streamlined system estimates 

it to be, they do not have to worry about a liability in the future, 

and the streamlined process actually takes responsibility for distributing it. You do not have to distribute it out to everybody, because you are absolutely correct—it would be impossible to go to 

all the places. 

But the streamlined system, and the organization, actually takes 

responsibility for collecting the correct amount and then distributing it out to the different segments, and all of the organizations 

that are part of the streamline, the vast majority of the states and 

communities now, they had to simplify their sales tax processes in 

order to join in the first place. And in doing so, it makes it a whole 

lot easier for someone on the internet. One stop shop. Go to the 

internet, look up, in the software, which is free. Pick it up, put it 

on your software, and it will determine the amount of tax, based 

upon where the address of delivery is. And then you can collect it. 

You remit it one single location. You do not have to worry. Even 

in your home state you do not have to worry about a separate collection location. So you are correct, sir. 

Chairman RISCH. When we were debating that, the question I 

had was the cost of that software for a small business, so if it is 

available free, that is—— 

Senator ROUNDS. It is either free or it is a very minimal charge, 

but I think it is free right now. 

Chairman RISCH. Senator Shaheen, you have a comment? 

Senator SHAHEEN. Well, I just wanted to point out that for those 

states like New Hampshire that do not have a sales tax, it would 

not solve all the compliance burdens, because states—some states 

might not opt in. I think there is a real question about whether 

New Hampshire would opt in, and that would then leave the small 

business on the hook to deal with the problem. 

So I am not sure that the way the bill is currently fashioned that 

it would actually solve all the problems that you suggest. 

Senator ROUNDS. Yeah, and actually, if the internet sales tax is 

being collected, if you did not have any to collect in New Hampshire, it would not—it should not impact New Hampshire, if you 

do not—— 

LAP51NQ082 with DISTILLER

56 

Senator SHAHEEN. Then you are on the hook for it. Yeah, sadly. 

Chairman RISCH. They were—when that bill was drawn, we had 

a robust discussion about it, and I think myself and Senator Crapo 

voted against that, simply because they would not up the threshold. I thought that there should be a safe haven for small businesses, and the threshold they had was $1 million in sales, and I 

thought that was kind of light, that it should be $3 million. They 

would not even give us a vote on the amendment, so we voted 

against it. But there were—you know, there is a lot of—— 

Senator SHAHEEN. That is another issue. 

Chairman RISCH. Yeah. Another issue, but an important one. 

Senator Young. 

Senator YOUNG. Thank you, Chairman. Mr. Lettieri, I thank you 

for your appearance here today. I really found your testimony compelling. I think your point that—this is not really about rural 

versus urban. As important as this hearing is, I am glad we are 

intently focused on the distressed communities and how we can 

bring them into a more prosperous environment that happened to 

be in a rural area. But this is about connectivity, and you lay out 

a number of areas where connectivity is important, not just in an 

urban setting but a rural setting as well. Access to infrastructure, 

global markets, capital markets, the internet, human capital— 

there are probably others we could conceive of. 

And with that in mind, let me start with just talking about a 

lack of connectivity in my State of Indiana. In Owen County, Indiana, Hoosiers experienced a 25 percent decline in job growth between 2010 and 2014. I know so much of this has to do with the 

lack of job creation in places like Owen County. People are not 

starting enough new businesses. We know that. That has been said 

here by a number of individuals today. Start-up growth in rural 

counties with less than 100,000 residents decreased from 9 percent 

growth in the mid 1990s to ¥1 percent between 2010 and 2014. 

We do not have all the answers here, Mr. Lettieri, and all the 

solutions, frankly, should not emerge from the Federal level, something that, again, has been emphasized by a number of you. My 

hope would be that if we focus intently on this we can come up 

with either some obvious solutions—I think there are some: simplifying the tax code and reducing regulatory burdens, and so forth— 

maybe some creative solutions as well—focusing on access to capital as a limiting factor in connectivity. 

Mr. Lettieri, can you speak to the impact that consolidation within the banking sector has had on small business lending, or a lack 

thereof, in recent years, and what we might do at the Federal level 

to address that dynamic? 

Mr. LETTIERI. Thank you, Senator, for the question. So this is a 

question that comes up a lot because, really, folks in every state 

and community are hearing about this from their constituents and 

from business owners. As you know, small business lending is 

down to about late 1990s levels, in absolute terms, and there is 

rapid consolidation within the banking sector, and that has been 

happening for a while. 

So there are a number of components to that, but really, fundamentally, it is a lack of new entrants into the sector rather than, 

LAP51NQ082 with DISTILLER

57 

again, like we see so much in the economy, it is not too many 

deaths, it is too few births, in terms of businesses. 

And so that is having an impact in this conversation, in this context, because small and community banks are obviously a lifeline 

for many communities, and many businesses in those communities 

really only have very few options, and community banks are among 

the top options for how to get financing. 

I want to distinguish that, though, from start-up financing, because most start-ups do not use banks to get their initial financing. 

It is much more credit—personal credit, personal savings, friends 

and family, and that is really where the bulk of it comes from. And 

lending is important from traditional institutions. That comes 

much further on in the process. 

So for a healthy ecosystem you need all of that, and what we are 

seeing is at the very early stage there are some signs of ill health, 

and then at the community banking stage, later on, for many of 

these communities there is a lot of reason to be concerned. 

Part of this also has to do with low interest rate environment. 

We have—you know, we have had a long-standing low interest rate 

environment. That is unusual, in terms of the history of the banking sector, and that makes it harder to find profitability. If you are 

a small firm, you have got to amortize these costs out among a, you 

know, a smaller infrastructure. It is tough. It is tough. 

So there is—it is more than just regulation, but regulation obviously does play a part of it. 

Senator YOUNG. And to the extent some of these younger firms, 

those that have been around for a couple of years, looks like they 

are going to make it, they are profitable, they want to expand, that 

is where your community banks come in. And I think of reducing 

the burden of regulation, where we can, so that we ensure we have 

smart regulations which are streamlined, to meet the needs of protecting consumers and a broader economy but not stifling growth 

of firms in our rural communities, and urban communities. 

If I could pivot to our labor markets in my remaining time, internal migration, EIG has noted in their Dynamism and Retreat Report, that has declined within the United States, both within states 

and across states. Half as many American workers are moving 

across State lines for employment opportunities today as they were 

in the 1990s. This is not only an economic shift. When you really 

think about it, it is a cultural shift. We are a pioneering people, 

if you look back, historically, who moves wherever their jobs are, 

wherever opportunities might exist. I know a number of people 

have been stuck, in the course of this recent financial crisis. They 

are underwater in their houses, so that has been one of the drivers 

of this. 

Can you think of, or have you put forward any ideas, or perhaps 

problems we should work—focus intently on trying to solve or mitigate that would help address this mobility issue, get more people 

moving to where the jobs are? 

Mr. LETTIERI. It is a really important issue and I think it is fairly stunning. We have seen a decline of over half the rate of acrossborder mobility, just since the late 1990s. And so that has been traditionally—we have had a high rate of mobility, which meant that 

we could really have a nice corrective mechanism in the economy 

LAP51NQ082 with DISTILLER

58 

as people moved out of areas of distress into areas of higher opportunity. The labor market was more fluid as a result, and with that 

slowing down that really does change. It is economic and cultural. 

I think you said that well. 

So one thing—I am going to cheat a little bit because obviously 

we are here in the Senate, but I am going to point to something 

that is much more state and local, which is occupational licensing. 

Although the FTC, I will note, has taken an active interest in this 

now, and I think there is an opportunity from the Federal and regulatory side to do something about it, occupational licensing is pervasive. 

Eleven hundred occupations nationwide are licensed but only 60 

are licensed in every state, so that tells you something. It means 

that there is a huge mismatch. It tells you that it is way beyond 

the boundaries of what is good for consumers or what is necessary, 

in terms of consumer safety, and it is an inhibitor for mobility purposes. If I have a license in one state, I have gone through the time 

and expense of doing that, often unpaid. Then if I move across 

State lines I have to go through that whole process all over again. 

So again, I am stuck in place. Or it is a tax on people who cannot 

afford it. So this disproportionately affects low-income people and 

low-income entrepreneurs the worst. 

So if we want to do something in a low-dynamism environment 

that is going to free up labor mobility, it is going to free up access 

to talent for business, it is going to free up entrepreneurship, this 

is an area that is the lowest of low-hanging fruit, and there is 

broad bipartisan consensus that it has become an abusive—basically an incumbent protection racket for a lot of businesses that 

perversely control the licensing boards themselves, so they get to 

tell you who is going to compete against their industry. In a competitive market economy, we should find that unacceptable, and so 

I think this is something we should do about—do something about 

now. 

Senator YOUNG. Thank you for shining a bright light on that important issue. 

I yield back. 

Chairman RISCH. Thank you. 

Senator Kennedy. 

Senator KENNEDY. Thank you, Mr. Chairman. I apologize, gentlemen, for missing your testimony. I was in another committee. 

I am embarrassed by the fact that it is so hard in our country 

today to start a small business and to expand that business. I do 

not think it has ever, ever been harder. If each of you were king 

for a day, and you did not have to worry about the politics, or— 

you just had unfettered discretion, what would you do to make it 

easier to start a business, and to make it easier to expand a small 

business? And I would like to hear from each of you, if I could. 

Mr. LETTIERI. I will keep mine brief because it is—— 

Senator KENNEDY. No, that is okay. 

Mr. LETTIERI [continuing]. It piggybacks on what I just said to 

Senator Young. I think because of how pervasive it is and because 

of how many different types of industries and what part of the population it really afflicts the most, I would say starting with local 

and State occupational licensing, and business licensing, which is 

LAP51NQ082 with DISTILLER

59 

often kind of the cousin of the occupational challenge. We are just 

doing too much to protect incumbents in this country, really, top 

to bottom—Federal policy, State policy, local policy—and that is 

misguided, because, frankly, when we talk about tax reform or regulatory reform, all these things, complexity favors larger companies. It favors scale. And it is exactly what we are seeing in the 

economy today. There is increasing scale. Older incumbent companies are doing much better than they ever have before. They are 

more profitable. 

So the idea that we have to keep in mind is for whom are we 

doing certain things in the policy space? And I think your initial 

point was exactly right—it is too hard to start and expand a business now, in part because policy and regulatory decisions have 

been made too far on the incumbent end of the spectrum and not 

enough on the start-up end of the spectrum. 

Mr. HOBART. As I stated in my testimony, we have started an 

internet business from the ground up, grew it as a family business, 

and are continuing to grow it. That said, it has been a long journey. It has been 12 years now, and we are growing slow. So I came 

out of Silicon Valley where I was surrounded by people who wanted 

to, you know, get the big payout in two years, and that is not what 

we are doing here. 

What we are doing is listening to our customers and growing, 

and what I would like to see is any kind of reducing of any kind 

of burdens that we have, as far as reporting and just legislation 

that burdens us, to run our business, obviously, but also growing 

our staff. We do have great employees. They do a great job for us. 

But on the technical side, we have to sometimes bring in people 

from outside of our area. 

Now, being an e-commerce business we can do that with the click 

of a button, literally. So we literally have people who do graphics 

or—in fact, one of my first employees, a very talented kid, he has 

now moved to New Hampshire, and he is now the global editor for 

Wikipedia, actually, but he got his start with me, and he was in 

San Francisco. He moved to New Hampshire. 

So—and so I have adapted our business by bringing in people 

who are not physically there, but obviously if they were in our location, and we were working as a team, we would have a better team, 

and we would even grow more fluidly. 

Mr. RILEY. Thank you, Senator, for the question. And so it is one 

that keeps some of us up at night and thinking about what could 

we be doing better to stimulate the entrepreneurial fiber in this 

country and in our region we work in. And I think there is—let me 

go to more of a people side. I have got two young kids, 12 and 15, 

and I think about the opportunities within the school environment 

they have to be thinking outside the box, thinking about using 

technology, thinking about how they are driven to be individuals 

within the system. And I think that there is an element where 

there was a period where we were trying to get everybody all to 

think the same, and I think we need to think about how difference 

can really be an exceptional way in which we mix things up. That 

is an entrepreneurial spirit to me. 

The second piece is, where do we place people who are trying to 

come into this country into existing open jobs that need to be filled 

LAP51NQ082 with DISTILLER

60 

by people who are here who are not filling them? So how do we add 

to the labor force? And I think there are people who are coming 

with great ideas that can do that. 

I think the third piece is, what is the component within a community that sets up the notion of entrepreneurs, and I think that 

there are other comments before about how you look at the infrastructure within a community to allow things to happen, whether 

it be water and sewer or broadband. You look at the support structures that allow people to navigate through the complexity. And I 

believe that people are pretty smart and capable and can move 

through that complexity if they need to, but they need certain certainties. 

The business community, in my opinion—and I—I mean, I run 

a nonprofit, but it is a small business. I have got 15 employees. 

Every year we have to go back and look at what our health insurance costs are, and it is an enormous time and resource challenge 

to look at the uncertainty of that specific type of market. 

But to the entrepreneur, they need to look in their community 

and see what is the stability of the school system, what is the certainty of the health care system, what is the certainty of the tax 

code—all these different uncertainties. I think that, in and of itself, 

is a barrier to people getting into this very dynamic place. 

Senator KENNEDY. Thank you, gentlemen. Thank you, Mr. Chairman. 

Chairman RISCH. Thank you, Senator. 

Senator Shaheen, anything else for the good of the order? 

Senator SHAHEEN. Yes. Thank you, Mr. Chairman. I wanted to 

follow up on a couple of things. One, Mr. Lettieri, I wanted to follow up on your licensing restriction issue, because, I mean, that is 

a very—as you point out—it is really based mostly on states and 

how states decide what should be licensed or certified and what 

should not. 

So what could we do at the Federal level that could help address 

this problem? 

Mr. LETTIERI. This is going to be an unsatisfactory answer, so 

here is your warning. But shining a spotlight on it, even as a first 

step, really does have an effect. We have seen since—there was a 

2015 Supreme Court case that really changed the conversation 

about occupational licensing and brought a lot of new attention to 

it. And since then you have seen a proliferation of states taking the 

initiative to roll back and reform their licensing regimes and make 

them much more competitive and open to transparency. 

So sometimes legislation is not required, at any level, just to 

start the inertia towards change and reform, and I think using the 

bully pulpit that you have here in the Senate, and this committee 

in particular, to shine a spotlight on the worst abuses, would be an 

enormously good use of your time, because there are many motivated constituencies that want to bring more attention to this and 

actually help effect change at the State level. They need your support. 

Senator SHAHEEN. Sounds like a good hearing. 

Chairman RISCH. It was an excellent hearing. Mr. Lettieri, certainly you are not suggesting that the Federal Government could 

do this better than the State governments could, are you? 

LAP51NQ082 with DISTILLER

61 

Senator SHAHEEN. No. He is suggesting we have a hearing on 

it—— 

Chairman RISCH. I see. 

Senator SHAHEEN [continuing]. Which I think is a great idea. 

Mr. LETTIERI. There you go. 

Senator SHAHEEN. Let me also follow up with, Mr. Riley, you 

talked about the Rural Development Innovation Group and the 

principles to improve programs designed to aid rural communities. 

Can you talk a little bit about some of those? 

Mr. RILEY. Sure. Thank you for the question, Senator. The Rural 

Development Innovation Group, as I said before, is a partnership 

of the Aspen Institute and the U.S. Endowment for Forestry and 

Communities, and has a number of—dozen different practitioners 

from across the country that are in many different districts across 

the country. 

We have come down to thinking about two major buckets, as I 

said before—investing in people ideas and markets, not just transactions, and the second is really making sure that investment is 

scaled to the rural opportunity. 

Two examples. One, the Rural Business Development Grant, the 

RBDG, is a great program in its flexibility to invest not only in the 

capacity of my organization to provide support to entrepreneurs but 

direct assistance to those—or direct investments in those businesses themselves. We want to keep that. 

Part of that program that is more challenging is that the threshold for investment is that the revenues of that company have to be 

below $1 million. Back when this legislation was put in place, that 

might have been a significant number. Now it is—you know, you 

are just getting interesting—I mean, not to sound, you know, derogatory, but that is where things are starting to really happen. 

So at the million-dollar threshold, we have to tell NorthWest 

Manufacturing, because they have been successful in the last year, 

we cannot work with them anymore with that grant source. So 

that—the group is really highlighting, within specific programs, the 

positive components that we want to keep, because it serves a constituency that is important, and those elements that need improvement, because they do not work in the context of today’s rural environment. 

And to your question you asked before, I just want to follow up 

on that. The tools that we have, the Community Development 

Block Grant, the Manufacturing Extension Program, EDA, if not 

for these programs, these businesses would not be positioned for 

growth that they are today, to be employing 12 people, which, as 

you all know, in rural places, is significant. 

So we have—and I shared with one of your staff—a draft of one 

of our recommendations on the RBDG program, and this group 

that we are working with nationally is going to come out with 

about 12 of them. It is really focused on key programs, CDBG being 

one, MEP being another—sorry for the acronyms—that will look at 

aiding your staff and agency folks as how we, from the field, see 

those programs working better, in addition to the good work that 

they are already doing right now. 

Senator SHAHEEN. That would be very helpful. Senator Risch and 

I have both been governors and so we have seen those programs, 

LAP51NQ082 with DISTILLER

62 

many of them from the State perspective as well, and as you point 

out, for so many of our small businesses in New Hampshire, what 

we are trying to do gets done because we have lots of partners to 

contribute to that. 

Mr. Hobart, you talked about innovation hubs. Well, the CDBG 

grants have been critical in getting several innovation hubs going 

in New Hampshire, as well as affordable housing. I mean, they 

have been really critical to affordable housing. And without some 

of those partners to participate, it would be really hard to do some 

of the things that are challenging anyway, but become impossible 

without that kind of support. 

And I have to say that the SBA and the Small Business Development Centers and the Women’s Business Centers, the effort to help 

veterans, all of those are also critical as we think about how can 

we help small businesses, and what we want to do is try and make 

those programs better. Thank you. 

Thank you, Mr. Chairman. 

Chairman RISCH. Senator Inhofe. Welcome. 

Senator INHOFE. Thank you. 

Chairman RISCH. Good to have you. 

Senator INHOFE. You know, we have got to do something about 

this. We have—I think we have more than 50 percent of the membership of this committee are also on EPW, and they meet at the 

same time, so that is a—— 

Chairman RISCH. I am supposed to be in Foreign Relations right 

now. 

Senator INHOFE. Yeah, okay. Well, I will make this quick. 

Chairman RISCH. It is all right. 

Senator INHOFE. But the problem we have is I do not know what 

has already been discussed, and puts this in a—— 

Chairman RISCH. We will fill you in. 

Senator INHOFE. All right. Well, let me just—Mr. Lettieri—did I 

pronounce that right? 

Mr. LETTIERI. Nailed it. 

Senator INHOFE. I am sorry? Oh, okay. That is nice of you. We 

have got a—— 

Chairman RISCH. This is actually where the committee—this is 

actually where the hearing started, because I did not know how to 

pronounce it. 

[Laughter.] 

Senator INHOFE. Okay. Since 1980, the number of small banks— 

I am sure you have been talking about that. In my case, of Oklahoma, we have had 500 banks chartered in the 1980s. Now it is 

down to 209, and this is a serious problem, and the Dodd-Frank 

has made it a lot worse. If you ask any of our people in Oklahoma 

as to what is mostly accountable for it, they will say Dodd-Frank. 

And I would ask you the question, have you see this as well, or, 

have you already discussed this in a lot of detail before my arrival? 

Mr. LETTIERI. We did discuss it in some detail. I am happy to address it again, though. 

Senator INHOFE. But you—Oklahoma is not alone. 

Mr. LETTIERI. It is not alone, no. I mean, this is something we 

see industry-wide. It is also a trend that, in some ways, predates 

Dodd-Frank. So I think we should be careful to separate out some 

LAP51NQ082 with DISTILLER

63 

of the parts of this. Some of it is a trend more broadly in the economy towards market consolidation. Some of it is a different regulatory environment. Across the board you hear small community 

banks saying their compliance costs have gone up, and that is obviously an issue and a disadvantage. 

Part of it is a low interest rate environment. Part of it is a demand environment that is different. So all of those things contribute, and should be considered kind of separately but relatedly. 

Senator INHOFE. Well, good. And, Mr. Chairman, I have a letter 

here from our community banks and our Oklahoma Bankers Association I want to be made a part of the record in this—at this hearing. 

Chairman RISCH. Thank you, Senator. So ordered. 

[The letter follows:] 

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~'~' i\S.'O(l(;~A\ION Ql'OKt.\J-lOMA. 

;;t.._..,_.,.,A .... ~f'Ao...4' 

April 25, 2017 

The Honorable JamesM. Inhote 

UnitedStates Senate 

205 Russell Senate. Office Building 

Washington, DC 20510-3603 

Dear Senator Inhofe: 

(fj_ 

O,KI.Ati·OMA 

8ANK£R$ 

The Communicy.Bankers Association of Oklahoma and the Oklahoma Bankers Association are 

working tq reduce the unnecessary over regulation of the community banking: industry ofthis 

country and help our rural communities. As applied to community banks, Dodd-Frank limits 

consumer cl1oice and denies bank c.ustomers access to the credit and capitalthey need that will 

enable theh1 to capture their di'eamS. Your continued support of our issues is very much 

appreciated. 

Since 1980, the number of smaller b~1ks in the U.s.- those with less than $100 million in 

total assets and the ~mes that are most likely to help small business customers start or add to 

their dream of owning and operating their own business- have declined by 88.6 percent. This 

is alarming considering that community banks provide nearly l1alf of all small business loans. 

The industry in Oklahoma is continuing to consolidate, which means fewer options aJ!d less 

competition for Oklahoma consumers, particularly in the mortgage lending &pace. In 1988, 

Oklahoma had roughly 500 charters and today that number has dropped to 269. 

Dodd Fr.ank only e:Xacerbat¢d this problem. Since Dodd-Frank, as a nation, we have lost 

approximately 25 percent ofthe nation's banks, yet at the same.iime, ti1e nation's iargest 

institutions have grown significantly. The overarching regulations of Dodd Frank have put 

many banks and their customers out of business, especially those in smal!J'l.rral communities. 

At the same time; Oklahoma has not had a new bank charter open in the last seven years. TI1is 

means fewer options for rural small business looking fur capital to start or grow their business. 

The lack of growth of the banking industry is 11ot the only problem small community banks 

face today. Smaller banks. can be less competitive wfth the ever-growing pile of regulations 

that are coming down on tliem from Washh1gtoil, as a result of Dodd Frank. In Oklal1oma 

alone; regulatory complimwe costs havt: increased by 30~40% since Dodd• Frank was enacted 

in 2010. 

Congress. can help community bi:mks; and in turn; rural small businesses by allowing 

exe.mptions for smaller banks fmm s_orne ofthe m()St onerous provisions of Dodd Frank 

in\:luding unnecessary data collection requirements demanded by regulators; which has made 

some small banks less willing to lend at all. 
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To reach their full potentia[ as catalysts for entrepreneurship, economic growth, and job 

creation, community banks, and especially their customers, need relief from ~uffocating 

regulator:y mandates. The exponential growth of these mandates affects nearly every aspect of 

.community banking. The very nature of the industry is shifting away from community 

investment and community l:milding to paper\vork, compliance, and examination. 

Thank you for your continued support of our industry. 

Craig Buford 

President & CEO 

Community Bankers Association 

of Oklahoma 

Roger Beverage 

President & CEO 

Oklahoma Bankers Association 
66 

Senator INHOFE. Now, the letter outlines all these issues and articulates that it hurts not just the banks but the communities that 

they support, which will continue if we do not roll back the burdensome Dodd-Frank regulations. Among the regulations these banks 

are facing from Dodd-Frank are numerous data collection requirements demanded by the regulators, which has made them less willing to lend at all, and that is a problem that we are having in our 

rural areas in Oklahoma. 

What specific things can we do to help encourage these banks to 

lend to small businesses? Have you thought about this? 

Mr. LETTIERI. Well, we also talked a little bit earlier about the 

distinction between small and new businesses and the fact that 

new businesses tend not to seek bank lending for start-up capital, 

but that is important later on as they grow in scale and are more 

established. 

So again, it is a demand environment that is weak, as well as 

a regulatory environment that is more pervasive. And the way I 

would think—at least the way that I personally think about regulation, it is a lot like antibiotics—they are very important but overprescription tends to be harmful. And so I think in some areas we 

have gotten into that over-prescription case and we should be, especially in an environment where we see fewer new businesses 

being formed, including in the banking sector, we have to be really 

thoughtful about how every new regulation is going to tilt the balance more towards consolidation and incumbency rather than new 

entry into the sector. 

But we can do a lot by creating a healthier demand environment, 

and that will also help community banks to thrive more. And that 

gets back to some more basic pro growth simplicity of the tax 

codes, simplicity of regulation, connectivity to the global market 

economy through FDI and through trade, and I think on all of 

those areas there is pretty widespread agreement we are falling behind. And so doing that will create a healthier demand environment that will help banks and other types of businesses do better. 

Senator INHOFE. Good. Good. That is good. You know, I just came 

to the meeting in Environment and Public Works, and it seems— 

the chief criticism—one of the criticisms I had with the previous 

Administration was overregulation. I mean, everything has to be 

regulated more. The water regulation, for example, if you talk to 

anyone in the farm communities throughout the country, they will 

say the biggest problem that farmers and ranchers have is the 

overregulation of the EPA, and then, specifically, the water regulation, which is what the hearing was about that we just had. 

So regulation is regulation. Overregulation is overregulation, and 

I think you are going to see some changes here. I think they will 

be welcome changes. 

Thank you, Mr. Chairman. 

Chairman RISCH. Thank you very much, Senator. And with that, 

we will conclude the hearing. 

I want to thank our witnesses. This has been informative, certainly thought-provoking, and your assistance and participation is 

greatly, greatly appreciated. 

So with that, we are adjourned. 

[Whereupon, at 11:28 a.m., the Committee was adjourned.] 

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APPENDIX MATERIAL SUBMITTED 

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Questions from: 

Senator Hirono 

In your recent study, "Is the American Dream Alive or Dead? It Depends on Where You Look, " 

you conclude there is a correlation between the degree of prosperity or distress in a county and 

the extent to which it boosts or hinders the future earnings potential of the children who grew up 

there. 

QUESTION 1: 

Can you elaborate on the factors that positively affect the future earnings potential of children in 

prosperous counties? 

In the report, EIG built on research done by scholars at the Equality of Opportunity Project 

(EOP) and discovered that the degree of overall economic prosperity or distress in a county and 

the historical income mobility of children growing up there tend to be correlated-meaning that 

in general, more prosperous counties are also more upwardly mobile ones. EIG gauges the 

prosperity of a place using the seven metrics that constitute our Distressed Communities Index 

(DCI). These metrics include: 

• Percent of the population 25 years and over without a high school degree 

• Housing vacancy rate 

• Share of population 16 years and over that is not currently employed 

• Percent of population living under the poverty line 

• Median income relative to state 

• Change in the number of individuals employed between 2010 and 2013 

• Change in the number of business establishments between 2010 and 2013. 

These metrics are important for understanding the broader economic context of a place or a 

neighborhood. As demonstrated in the figure below, Hawaii outscores the national average on 

many of these metrics, and only 1.2 percent of Hawaii's population resides in a distressed zip 

code compared to 16.! percent nationally. 
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%of Adults % 

wfoaHigh %of Adults Housing %Change in %Change in Population 

State School Poverty Rate Not in Work Vacancy Employment Establishments in 

Rate Distressed 

Hawaii 9.3% 11.3% 42.3% 7.9% 4.9% 

National 13.7% 15.6% 42.3% 8.5% 5.6% 1.2% 16.1% 

Research conducted by EOP scholars goes much further into the factors that more directly affect 

the economic mobility of poor children. Various academics associated with that project have 

found that racial segregation, income inequality, poverty, as well as sprawl are negatively 

correlated with future earnings. EOP scholars also found that education, in both K-12 school 

quality and colleges per capita, social capital, measured through access to recreational centers 

and organizations, 1 two-parent families, and lower crime rates are positively correlated with 

future eamings.2 

1 Rupasingha, A. and S. J. Goetz (2008). US county-level social capital data, 1990-2005. The Northeast Regional 

Center for Rural Development. 2 Chetty, Raj and Nathaniel Hendren. The Impacts of Neighborhoods on Intergenerational Mobility II: County Level 

Estimates. (Equality of Opportunity Project, NBER, May, 2017). 
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QUESTI0]112: 

Are there examples of successful investments, partnerships, or other community initiatives that 

other rural communities-like those in Hawaii-could or should replicate in order to increase 

opportunities? 

EIG believes it is important for all places-rural or urban-to have a vibrant pipeline of new 

businesses to create new employment opportunities and seed industries of the future. I ,400 new 

companies started in Hawaii in 2014, representing 6.3 percent of all companies in the state (the 

startup rate). The state's startup rate trails the national average by 1.5 percentage points, 

however, and is 2.6 percentage points lower than the state's own average in the 1990s and 2000s. 

In employment terms, too, Hawaii's new companies fall short of the national average. Boosting 

entrepreneurship is essential to ensuring that Hawaiians have an economic future rich in new, 

well-paying job opportunities. 

Furthermore, initiatives aimed at increasing the connectivity of rural communities-such as 

strengthening physical and digital infrastructure, and easing access to financial capital-should 

be priorities for fostering economic opportunities in rural Hawaii. 

Connectivity-in terms of access to infrastructure, human capital, and financial capital-is the 

major differentiating factor between prospering and struggling areas across the United States 

today. Often (but not always) rural areas confront a connectivity disadvantage. Given its unique 

geography, Hawaii faces a different-and in some ways more substantial-connectivity 

challenge when compared to the continental United States. However, it also has a relatively 

small rural population, with a little over 8 percent of the state living in rural areas (defined by the 

Census Bureau as non-urban areas) compared to the national average of 19 percent.3 

Physical and digital infrastructure supports the flow of people, goods, and ideas across the 

national economy and such infrastructure is important for supporting rural economic 

3

"Urban and Rural Areas in the State of Hawaii, by County: 2010." Hawaii State Data Center, Research and 

Economic Analysis Division (September, 2013). 
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development in Hawaii too. Hawaii has shown positive commitments to closing the "digital 

divide" between urban and rural areas, evidenced through 96 percent of Hawaii's population 

having access to broadband. 4 On the other hand, Hawaii's physical infrastructure lags the 

national average-ranking third in the nation for rural roads that are deficient.5 

Finally, connectivity to financial markets and investor networks is a major problem for rural 

communities. Nudging investors to look at geographies outside of the familiar coastal hubs 

would help facilitate rural development. This is the goal, for example, of the Investing in 

Opportunity Act (S.293 and H.R.828), which provides a targeted incentive to encourage 

investment in startups, small businesses, and other enterprises in capital-starved communities in 

every state. 

4 Reese, Nick and Duane Anderson. "Broadband Internet in Hawaii." Broadband Now. 5 "Rural Connections: Challenges and Opportunities in America's Heartland." TRIP (May, 2015). 
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Question from: 

Senator Duckworth 

QUESTION 1: 

Mr. Lettieri, in your testimony you discussed challenges in recruiting and retaining skilled 

workers. In your view, what are the top three challenges in acquiring skilled workers and what 

specific actions would you recommend the Federal Government take to help rural small 

businesses address these challenges? 

Three interrelated challenges depress the recruitment of skilled workers across the United States: 

I) lagging population growth, 2) a proliferating number of restrictions on the supply of eligible 

workers, and 3) declining geographic mobility. Any Federal action should draw light to these 

challenges to help rural small businesses better recruit skilled workers. 

First, and as highlighted in my testimony, the population growth rate has fallen to less than 1 

percent nationally. We are currently experiencing the slowest rate of population growth since the 

Great Depression. Many non-metropolitan counties now contend with outright population 

declines: Counties with under 100,000 people represented 95 percent of the 1,700 counties that 

lost population from 2010 to 2014.6 Immigration from abroad counteracts some of these 

demographic headwinds. Immigrants populate or repopulate not only big gateway cities but also 

myriad small cities and rural communities in need of newcomers to rekindle their economies. 

Occupational licenses are a second form of restriction that impede the smooth working of the 

labor market. Nearly one quarter of the national workforce is required to obtain a license to do 

their job. 7 Non-compete agreements are another form of restriction that depress the supply of 

workers. An estimated 18 percent ofthe national workforce is subject to a non-compete 

agreement.8 Affected workers face restrictions on switching employers or even starting their own 

6 EIG's analysis of U.S. Census Bureau's Business Dynamics Statistics and Population Estimates. 7 Furman, Jason and Laura Guiliano. "New Data Show that Roughly One-Quarter of U.S. Workers Hold an 

Occupational License." (The White House of President Obama, June, 20 16). 8

"Non-compete Contracts: Economic Effects and Policy Implications." U.S. Department of Treasury, Office of 
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businesses. These restrictions are not only deeply unfair in many cases, but they also depress the 

stock of eligible workers for employers seeking talent. 

Another challenge to recruiting skilled workers is declining geographic mobility. The domestic 

migration rate has more than halved since the 1980s. 9 High internal migration rates historically 

provided flexibility in the national labor market with workers packing up and moving to 

opportunity when the occasion presented itself. Depressed internal migration rates today can lead 

to local mismatches between available jobs and workers that are eligible to fill them. Coupling 

depressed migration rates with large educational attainment gaps in rural areas makes it harder 

for businesses to obtain qualified workers. Only 19 percent of the rural population has a 

bachelor's degree, compared to 33 percent in metropolitan areas. Moreover, 51 percent of rural 

residents have no schooling beyond high school, compared to 39 percent in metro areas. 10 

Closing the "digital divide" between urban and rural areas, where only 4 percent of urban 

Americans but a much larger 39 percent of rural Americans lack broadband access, may provide 

a way for the Federal government to rectifY some of these mismatches in a space dominated by 

state-level policies. 11 With the increasing prevalence of online job opportunities, greater internet 

connectivity could help small rural businesses access talent outside of their local labor pool. 

Workers based in rural areas, for their part, could also use digital platforms to find opportunities. 

outside of the local community that match their specific skill sets. 

Economic Policy (March, 20 16). 9 "Dynamism in Retreat: Consequences for Regions, Markets, and Workers." Economic Innovation Group 

(February, 2017). 10 U.S. Department of Agriculture, Economic Research Service analysis of Census' ACS for 2000 and 2015. 11"2016 Broadband Progress Report." Federal Communications Commission (20!6) and Karsten, Jack and Darrell 

West, "Rural and Urban American Divided by Broadband Access." (Brookings Institution, 2016). 
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Senate Committee on Small Business and Entrepreneurship Hearing 

April 26, 2017 

Follow-Up Questions for the Record 

Questions for Mr. James E. Hobart 

Questions from: 

Senator Hirono 

In your written testimony, you indicated you have customers for your alpaca products in 30 

countries. 

QUESTION!: 

As a small business, what resources made you successful in exporting your products to other 

countries? 

At the hearing, you stated you had not received outside funding when establishing your business. 

The Small Business Administration offers a number of programs to assist small businesses with 

access to capital, including export-financing support. 

Answer: 

Our exports to other countries are directed to consumers within those countries vs. Business to 

Business transactions. We performed our research online and utilize USPS to assist in shipping 

outside the USA. On the import side, many of our products originate in Peru where alpacas are 

commercially raised for their fiber. We were contacted by the Peru export ministry and have 

been hosted by their organization on numerous trips to Peru to connect us with suppliers. This 

has been critical to our success. 

QUESTION2: 

Were you aware these programs existed? 

Answer: 
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Yes, we were aware these programs existed but there seemed to be a lot of constraints and strings 

attached to the funding so we opted for self-funding and grew our business in more of a 

'Bootstrap' mode over the years. 

QUESTION3: 

If not, what can the Small Business Administration due to help make small business owners 

aware of these programs? 

Answer: 

I revisted the SBA website and found it very confusing to navigate as a small business owner. 

The first thing I would do is redesign the website around a few key user goals and make the 

process for getting funding much simpler. 

Question from: 

Senator Duckworth 

QUESTION 1: 

Mr. Hobart, in your testimony you discussed challenges in recruiting and retaining skilled 

workers. In your view, what are the top three challenges in acquiring skilled workers and what 

specific actions would you recommend the Federal Government take to help rural small 

businesses address these challenges? 

Answer: 
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I. To clarify my answer, the challenges we face in recruiting are around technology workers 

more than our warehouse and customer service workers. Going back to my original 

testimony, with the help of the federal government to build better internet access and 

infrastructure, companies will attract more technology workers to these rural areas where 

they can work from home at least some days of the week. As I'm sure you are aware, the 

traditional 9~5 job is transforming to blended work environments in many of our 

industries where employees work with people remotely much of the time. Rural areas 

offer a better life-work balance, little to no commute, and more productive employees. 

However, if they cannot participate in real-time video conferencing and real-time 

collaboration they will not be attracted to rural areas where high-speed internet access 

and reliability is still a challenge. 

2. Support more programs to promote innovation hubs like the one we are part of in nearby 

Coeur d'Alene Idaho. These innovation hubs bring together like-minded entrepreneurs 

and stimulate new businesses that can grow outside the main technology corridors. 

3. Align education programs at the local levels to better align with current technology and 

business needs. I frequently interview new college graduates who feel compelled to 

spend the first I 0-15 years of their career in a 'Big city' to make use of their college 

degree while expressing a desire to live and raise their family in rural areas like Northern 

Idaho without compromising their career. 
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May 24,2017 

Senator James E. Risch 

United States Senate 

Committee on Small Business and Entrepreneurship 

Washington, DC 20510 

Dear Senator Risch, 

Northern 

Forest Center 

Thriving Communities 

& Healthy Forests 

Thank you for the opportunity to provide testimony before the Committee on Small Business and 

Entrepreneurship on April 26, 2017, at the hearing entitled, "The Challenges and Opportunities of 

Running a Small Business in Rural America." I appreciate the committee's interest in this important 

topic and the attention on rural opportunities. 

As I mentioned in my testimony and written submission, rural businesses and entrepreneurs face many 

challenges: affordable and accessible broadband, transportation infrastructure, workforce development, 

access to business technical assistance and capital, and more. Resources to overcome these challenges 

are harder to access in rural places and yet are critical to business success. 

We look forward to continuing to lend our voice to provide concrete examples of successful deployment 

and use of federal programs, such as USDA Rural Development Rural Businesses Development Grants, 

HUD Community Development Block Grants, and US Treasury Community Development Financial 

Institution New Markets Tax Credits, to catalyze job creation and business development in the Northern 

Forest. These programs aren't duplicative or ineffective; they are the fundamental toolbox for rural 

economic development that states like New Hampshire and Idaho utilize to extend state services and 

enhance entrepreneurial activity. 

Enclosed are responses to the questions for the record posed by Senators Hirono and Duckworth. 

Again, thank you for your leadership of the committee and for your support for rural small business and 

entrepreneurial development. Please feel free to contact me at (603) 229-0679 extension 115 with any 

questions. 

Sincerely, 

Rob Riley 

President 

The Northern Forest Center builds economic and community vitality while fostering sound forest stewardship 

across the Northern Forest of Maine. New Hampshire. Vermont and New York. 

P.O. Box 210. Concord. NH 03302-0210 • 603.229.0679 • www.northernforest.org 
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Senate Committee on Small Business and Entrepreneurship Hearing 

April26, 2017 

Follow-Up Questions for the Record 

Questions for Mr. Rob Riley 

Questions from: 

Senator Hirono 

Many people advocate for using public-private partnerships to promote investment in 

infrastructure. However, while these types of partnerships have existed for a long time, financing 

needed road and bridge maintenance and other initiatives have not been attractive opportunities. 

QUESTION l: 

Do you have any experience with these partnerships in your area? 

Funding for infrastructure through public-private partnerships has long been desired to address 

deferred maintenance in rural places. In the Northern Forest region in the past, we have seen private 

roads built for logging and trucking of harvested trees to be processed at local mills. The public has 

access to these roads but is dependent on the owner of the road for ongoing maintenance. 

More recently, with the authorization of the Northern Border Regional Commission, federal funds are 

providing valuable resources with the expressed intent of investing in infrastructure. In fact, the 

Commission's statute mandates that 40% of grants made annually support community infrastructure. 

This unique funding source leverages other public programs such as the HUD Community Development 

Block Grants and other resources to fund necessary infrastructure needs. 

One unique tool we have seen used with great success to increase private investment through public 

sector partnership is the New Markets Tax Credit program. While we have not helped to facilitate deals 

involving road and bridges, we have worked with partners to create deals to support forestland 

ownership, recreation infrastructure development, and forest products manufacturing. This unique tool 

provides, in specific distressed census tracts, a tax credit for investors in eligible projects, essentially 

bringing in new investors to rural places. 

Another tool has been the USDA Community Facilities Program. This program does effectively connect 

public funding with local investment in community facilities. Other USDA programs support broadband 

deployment, business development and more, all of which are effective public-private partnerships 

utilizing regional intermediaries as technical assistance and financing partners. 

In the Obama Administration, USDA Secretary Vilsack created a USDA Rural Opportunity Investment 

Initiative run by Matt McKenna. This office was established to establish relationships with large 

institutional investors and national foundations. This office saw some success in these efforts and 
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hosted rural investment conferences, created a rural investment fund, and helped to bring attention to 

the investment opportunities in rural. Matt may have thoughts to share on this issue. 

Private infrastructure funding, however, has tended to focus on different forms of infrastructure- water 

and sewer, ports, downtown development, and more- and less on roads and bridges, relying on state 

and federal sources to cover this important need. Whereas water and sewer have a capital payback 

period based on use and revenue, roads and bridges tend not to have a similar built in revenue model 

and are therefore not seen as investment opportunities in their traditional structure. Toll roads and 

bridges may have a future in the region where a unique public private partnership could be utilized, but 

it is not immediate. 

QUESTION2: 

Were they successful in improving the local infrastructure for small businesses and 

entrepreneurs, particularly in rural communities? 

The programs outlined above- Northern Border Regional Commission, USDA Rural Development 

programs, New Markets Tax Credit program, and more- all provide funding to leverage private 

investment in infrastructure in rural places and have resulted in positive business outcomes. Investment 

in broadband, transportation, and business supportive services are all necessary structural supports that 

create an entrepreneurial ecosystem and each find appropriate capital based on the revenue models. It 

is my opinion that highways and bridges are a core public sector investment required on every level of 

government. 

Questions from: 

Senator Duckworth 

QUESTION 1: 

Mr. Riley, in your testimony you discussed population decline and stagnation in rural 

communities, particularly in the Northeast region of the United States. As you may be aware, 

Illinois faces similar challenges related to an aging population and potential shortages of skilled 

workers to fill manufacturing jobs. In your experience, what obstacles have you confronted in 

recruiting and retaining talented new workers and how have you attracted these workers to rural 

areas? 

Manufacturing used to be the lifeblood in many rural communities, where a high school graduate would 

be virtually guaranteed a well-paying job. This is no longer the case and finding and recruiting qualified 

employees for the jobs available is proving to be challenging as rural communities decline in population. 
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Professional management positions in manufacturing companies seem to slightly easier to fill through 

recruiters, whereas production workers are more challenging, partly due to the pay scale and the 

physical labor and monotony of the work required. Employers, however, tell us that increasingly, 

applicants do not have the communication, leadership, adaptability or conflict-resolution skills 

necessary for the modern workplace and higher technology CNC machines or other equipment. And, 

employers are increasingly finding that applicants are not passing drug tests. These issues are eroding 

the opportunity for business growth and expansion in some areas. 

In the Northern Forest region, we have partnered with Manufacturing Extension Partnerships to assist 

companies to implement lean manufacturing strategies to allow them to produce more with fewer 

employee. In addition, building lean manufacturing to employ mass customization techniques can fully 

integrate consumer needs, inventory, lean manufacturing and order fulfillment and result in increased 

revenues per employee. In many cases the strategy is to do more, more efficiently. 

Regarding wood products manufacturing, we have engaged the national Woodworker Career Alliance 

(WCA) and their Woodworker Skills Standards to help create a professional pathway for workers while 

offering employers customized training to their employees on specific tools and procedures. This 

program has also been extended to community and technical colleges for students in the trades. The 

WCA Passport program is a passbook outlining the individual's proficiency on multiple tools; it allows 

future employers assess the skills of graduates as they seek to hire and place them in the company. 

We are just beginning to look more concertedly at recruiting workers to rural places. In some cases, the 

quality of the job is paramount to the potential employee. In other cases, the quality and condition of 

the local community is a key issue when employees are investigating opportunities. Communities that 

have quality school systems and heath care, access to affordable and accessible broadband, a strong 

downtown core and a diverse economic base have a higher likelihood of attracting and securing long 

term manufacturing employees. We have moved beyond the time when a job alone would bring and 

keep workers in rural communities; rural places must now examine a broader set of competitive 

offerings that will enable them to compete for quality employees. 

QUESTION2: 

Mr. Riley, in your testimony you discussed challenges in recruiting and retaining skilled 

workers. In your view, what are the top three challenges in acquiring skilled workers and what 

specific actions would you recommend the Federal Government take to help rural small 

businesses address these challenges? 

As mentioned above, the top three challenges include: 

1. Employees lack the communication, leadership, adaptability or conflict-resolution skills 

necessary for success in today's business. 

2. Prospective employees fail drug tests during their application process 

3. Employers, based on increasing carrying costs such as health care, workers compand others, are 

shifting these burdens to employees and eroding the consistency of the quality of the job. 
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Variable paychecks are resulting in employees dipping below the poverty line for certain months 

over the course oft he year and not fitting the previous assumptions about those living on 

poverty throughout the year. 

Fundamentally, the federal government has an important role to partner with the private sector, helping 

to create the conditions for rural business success. In some cases, this means providing funding to 

support business development programs that look beyond past approaches to consider that: 

Investment in entrepreneurial people is as important as capital investment. Many programs 

provide capital for specific business transactions, but few support the other tools necessary for 

entrepreneurial success. Just as in venture capital, investing in enterprising people is critical to 

build competency in rural places, which must dig deeper into their talent pool to fill leadership 

positions. 

Capitalizing on market opportunities requires integrated and collaborative solutions. Because 

they wear multiple hats in the community, rural people are naturally resourceful. However, the 

"project" funding available to rural places does not allow the flexibility they need to work in 

integrative, systemic ways to achieve results that last. 

Regional approaches are required to effectively connect rural and urban markets. In 

geographically large rural places with small populations, assembling the critical mass of people, 

ideas, resources and connections needed for success often requires working across sectors and 

geographic boundaries. 

Community-centered intermediary organizations are essential to successful rural community 

and economic development. These organizations engage the community in developing visions 

and solutions. They provide the technical and financial support to conceive and complete 

complex initiatives. 

Short term investments will not yield desired long-term results. Many government and financial 

resources available to rural places miss this reality. Those who want lasting solutions must 

recognize the need to be patient investors committed for the longer term. 

The entry thresholds for investments often lock out rural players. Rural organizations often 

cannot operate at the numerical threshold- e.g., deal size, jobs created, population servedthat investors require. For federal funding, meeting local match requirements can be a barrier to 

entry. 

Rural projects are often of a smaller scale than investors seek. Investors typically are looking for 

"scale" -large numbers and volume. In rural, a project's progress from its starting point is more 

important than its size. Indeed, well-structured rural investments can provide rates of return 

comparable to those in urban areas. 

Investors in rural must have a different expectation for return on capital. The expectations for 

return must go beyond financial to include a broader range of rural outcomes- natural, social, 

economic and infrastructure- that are essential to building thriving rural-urban markets over 

time. 

Each of these principles has a direct bearing on supporting rural business and entrepreneurs and, if 

deployed properly can help unleash the latent potential across rural America.