U.S. GOVERNMENT PRINTING OFFICE

67–559 WASHINGTON : 2000

IMPACT OF FEDERAL AND COMMUNITY-BASED PROGRAMS ON

MAIN STREET AMERICA AND VARIOUS SEGMENTS OF THE

SMALL BUSINESS COMMUNITY

FIELD HEARING

BEFORE THE

SUBCOMMITTEE ON

GOVERNMENT PROGRAMS AND OVERSIGHT

OF THE

COMMITTEE ON SMALL BUSINESS

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

SECOND SESSION

ELLICOTT CITY, MD, APRIL 25, 2000

Serial No. 106–55

Printed for the use of the Committee on Small Business

(
(II)

COMMITTEE ON SMALL BUSINESS

JAMES M. TALENT, Missouri, Chairman

LARRY COMBEST, Texas

JOEL HEFLEY, Colorado

DONALD A. MANZULLO, Illinois

ROSCOE G. BARTLETT, Maryland

FRANK A. LOBIONDO, New Jersey

SUE W. KELLY, New York

STEVEN J. CHABOT, Ohio

PHIL ENGLISH, Pennsylvania

DAVID M. MCINTOSH, Indiana

RICK HILL, Montana

JOSEPH R. PITTS, Pennsylvania

JOHN E. SWEENEY, New York

PATRICK J. TOOMEY, Pennsylvania

JIM DEMINT, South Carolina

EDWARD PEASE, Indiana

JOHN THUNE, South Dakota

MARY BONO, California

NYDIA M. VELA ́ZQUEZ, New York

JUANITA MILLENDER-MCDONALD,

California

DANNY K. DAVIS, Illinois

CAROLYN MCCARTHY, New York

BILL PASCRELL, New Jersey

RUBEN HINOJOSA, Texas

DONNA M. CHRISTIAN-CHRISTENSEN,

Virgin Islands

ROBERT A. BRADY, Pennsylvania

TOM UDALL, New Mexico

DENNIS MOORE, Kansas

STEPHANIE TUBBS JONES, Ohio

CHARLES A. GONZALEZ, Texas

DAVID D. PHELPS, Illinois

GRACE F. NAPOLITANO, California

BRIAN BAIRD, Washington

MARK UDALL, Colorado

SHELLEY BERKLEY, Nevada

HARRY KATRICHIS, Chief Counsel

MICHAEL DAY, Minority Staff Director

SUBCOMMITTEE ON GOVERNMENT PROGRAMS AND OVERSIGHT

ROSCOE G. BARTLETT, Maryland, Chairman

MARY BONO, California

PATRICK J. TOOMEY, Pennsylvania

RICK HILL, Montana

DANNY K. DAVIS, Illinois

RUBEN HINOJOSA, Texas

CHARLES A. GONZALEZ, Texas

NELSON CROWTHER, Counsel
(III)

C O N T E N T S

Page

Hearing held on April 25, 2000 .............................................................................. 1

WITNESSES

Glover, Jere, Chief Counsel, Office of Advocacy .................................................... 3

Howard, John, Executive Director, Economic Development Commission,

Washington County .............................................................................................. 6

Story, Richard, Chief Exectutive Officer, Economic Development Authority,

Howard County .................................................................................................... 9

Lyburn, John, Director, Department of Economic Development, Carroll County ............................................................................................................................ 12

Nixon, Randall, Nixon’s Farm ................................................................................ 23

Schulze, John, Vice President, Pizza Hut of Maryland ........................................ 28

Williams, Ken, CEO Director, Howard County Chamber of Commerce ............. 31

APPENDIX

Glover, Jere .............................................................................................................. 38

Howard, John ........................................................................................................... 55

Story, Richard .......................................................................................................... 60

Lyburn, John ............................................................................................................ 65

Nixon, Randall ......................................................................................................... 70

Schulze, John ........................................................................................................... 78

(1)

IMPACT OF FEDERAL AND COMMUNITYBASED PROGRAMS ON MAIN STREET AMERICA AND VARIOUS SEGMENTS OF THE

SMALL BUSINESS COMMUNITY

TUESDAY, APRIL 25, 2000

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON GOVERNMENT

PROGRAMS AND OVERSIGHT,

COMMITTEE ON SMALL BUSINESS,

Washington, DC.

The subcommittee met, pursuant to call, at 10 a.m., in the

Banneker Room, Howard Building, 3430 Courthouse Drive, Ellicott

City, Maryland, Hon. Roscoe G. Bartlett (chairman of the subcommittee) presiding.

Chairman BARTLETT. We will call our Subcommittee meeting to

order. Good morning and welcome to this hearing of the Subcommittee on Government Programs and Oversight of the Committee on Small Business. A special welcome to those who have

come some distance to participate.

This is one in a series of hearings begun in April of 1997 to determine the impact of Federal and community-based programs on

Main Street America and various segments of the small business

community. The last hearing in this series was held in Chicago, Illinois and focused on the importance of Federal procurement opportunities for small businesses.

One of the goals of these hearings is to learn how small business

owners have succeeded and continue to grow, whether by reliance

solely upon the private sector or with assistance by Federal, State

and local programs, in order to help others become or continue to

be successful small business owners. It is important to know what

works and what does not work.

Another focus of the hearing is to obtain your views as to the

causes of the present economic prosperity. How can the present

economic conditions be sustained? Has the prosperity touched every

segment of the small business community or are there segments of

the small business community that need assistance? If so, what

kind of assistance? Small businesses have been leading the economy both in innovation and job creation. What is needed to maintain this record well into the 21st century?

This hearing will provide you with a forum for expressing your

views with respect to Federal Government programs for the purpose of addressing any problems, where feasible, with remedial legislation. The Federal Government should be user friendly since it
2

is the taxpayers who pay for every Federal program and the salaries of those that administer them. Also, your views with respect

to any burden created by Federal regulations and paperwork, together with suggestions for improvements, would be most helpful.

Why the emphasis on small businesses? For the simple reason

that small businesses are presently the main engine driving the

economy of this country. It is a statistical fact that small businesses are the creators of new jobs and the stimulus behind our

present economic prosperity.

Independently owned businesses, the free market economy in

this country, with fewer than 500 employees, and many with far

fewer than that, created 76 percent of the net new jobs from 1991

to 1995; employ 53 percent of the private non-farm workforce; contributed 47 percent of all sales in the country; are responsible for

51 percent of the private gross domestic product, and produced 55

percent of innovations—small businesses produce twice as many

both product innovations and significant innovations per employee

as large firms.

However, I have previously found almost universal agreement

among small business owners that Federal Government overregulation and meddlesome approaches to the regulatory process is a pervasive problem that is detrimental to small business viability. I

want to know if this has been your experience.

Those who work in Washington, D.C. need your views as to the

success or failure of Federal programs in Maryland and locally here

in Howard and Ellicott City.

Do Federal programs designed to help small businesses actually

work? Are they helpful? Are they outdated? Should the present

Federal Government programs be restructured to meet present conditions? Is the Federal Government too intrusive and meddlesome?

It is your answers to these and many other questions that are

important. The Committee on Small Business welcomes your testimony. I look forward to a lively and informative discussion. Thank

you again for being here today.

Our hearing today is focused on Main Street USA. Are Government programs for small business effective? What are the causes

of the present economic prosperity? How can the present economic

conditions be sustained?

We have two panels, and the first panel is made up of the Honorable Jere Glover, Chief Counsel, Office of Advocacy; John Howard,

Executive Director, Economic Development Commission, Washington County; Richard Story, Executive Director, Economic Development Authority, Howard County; and John Lyburn, Director, Department of Economic Development, Carroll County. Thank you all

very much for joining us.

There is a joke that never fails to get a response from an audience. I guess the best jokes are those that have some relevance to

real life. It is about a well dressed person who shows up at the

farm or the small business, and tells the hardworking farmer or

small business owner, ‘‘I am from the Government and I am here

to help you’’, at which point the farmer or the small business person bursts out laughing. This never fails to get a response from an

audience because that is a generally true representation of the re-
3

sponse of people when somebody tells them ‘‘I am from the Government and I am here to help you’’.

But the four people sitting at this table don’t have that experience. I know from personal experience that when the Economic Development Director comes and says ‘‘I am from the County Government and I am here to help you’’, that the small business person

says ‘‘Thank you very much for coming’’. I will tell you that for Jere

Glover, I know from a number of hearings and personal communications with him, that is certainly not true of him, which is quite

rare for Federal employees, by the way, Mr. Glover.

You will hear in his presentation today when he uses the pronoun ‘‘them’’ he is talking about Federal bureaucrats, and when he

uses the pronoun ‘‘us’’ he is talking about small business people.

He truly identifies with small business people and their problems.

The Office of Advocacy is, what, 25 years old?

Mr. GLOVER. Yes, sir.

Chairman BARTLETT. And it has been reinvigorated recently with

legislation that gives them some real teeth. It was created by the

Small Business Committee, by the Congress, 25 years ago, in recognition of the fact that regulations that can be borne by large

businesses frequently are killers for small business, that the Government agencies in the promulgation of their rules needed to consider what the effects would be on small business, and that small

business people needed an advocate, and so the Office of Advocacy

was created.

If you have small business people who need an ombudsman with

the Federal Government, this is the office to go to. They are very

effective, and I am really pleased that Jere Glover can be with us

here today and will turn to him first for his testimony.

STATEMENT OF THE HONORABLE JERE W. GLOVER, CHIEF

COUNSEL, OFFICE OF ADVOCACY

Mr. GLOVER. Thank you, Mr. Chairman, it’s delightful to be here

with you.

Chairman BARTLETT. Let me say first of all that all of your prepared statements will be made a part of the record, so you can feel

free to summarize.

Mr. GLOVER. Thank you, Mr. Chairman. It is good to be here

with you, and what I thought I would do is to talk about a few

areas where your unique experience as a scientist, as an inventor,

as an entrepreneur and a farmer, have helped the Congress better

understand the issues and issues that we worked together. And

what I find is that a lot of people don’t understand the real significance of that unique set of skills.

The first one is the patent bill, and in this past Congress there

were proposals that were going to significantly weaken the inventor’s protection under the patent bill. And it is hard to find in Government, and it is hard to find in Congress, someone who has been

an inventor. We have small business people in Congress, probably

not enough, but we certainly have some, and we certainly have

some farmers, probably not enough again, but as an inventor has

a unique set of skills. Understanding that and speaking from personal experience, really helped to keep some bad things from happening in that patent legislation, and I wanted to thank you for
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your efforts in that regard. It was a situation where, if we change

our patent structure, we may change the fiber of how small business succeeds better in this country than anywhere else in the

world, and the patent is one of those areas of unique protections

that we have that is better than anywhere else in the world. Whenever that is threatened it is important that people rally to that

cause, and I appreciate your efforts.

The next area again deals with innovation and invention, it is

the Small Business Innovation Research Program. This is a billion

dollar program that is designed to make the Federal procurement

officials recognize the importance of small business. Without this,

they had been ignoring small business, despite the fact that today

more scientists and engineers work for small business than for big

business, the Government or universities.

The marketplace has made a huge shift to small business. Large

firms are now buying the technology, they are buying the innovations, in some cases buying the businesses rather doing it themselves inhouse. So, we have seen degreed scientists and degreed engineers move into small business. Despite that, Federal procurement from small business for R&D is still very low. But the innovation program which you worked to get reauthorized has not only

a billion dollars nationwide, but Maryland is the fourth largest

state in number of dollars received under that program, after California and Massachusetts. It received over 200 awards and over

$53 million of money. That, of course, is money that is used as seed

venture fund to help those companies take the technology to the

next level and provides the Government with what it needs.

This economic development initiative in Maryland is putting venture capital into the right businesses at the right time, and I think

that you are to be commended for your work in that regard as well.

The other area that I wanted to mention is regulatory burdens.

We in Washington have, for years, heard people complain about the

regulatory burdens. It is one of those things that I guess everybody

says everybody talks about but nobody does anything about it.

Well, in 1996, the Congress passed and the President signed legislation called the Small Business Regulatory Enforcement Fairness

Act. It did several things, but it provided for judicial review of

agency regulatory proceedings, and it strengthened the Office of

Advocacy’s power to go and work with the agencies. We have been

working hard to implement that and trying to educate Government

officials as to the importance of the law and importance of small

business, and the ease with which they can often exempt or modify

their regulations to lessen the burden on small business.

I have attached to my testimony the Executive Summary where

we quantify from some independent source the amount of regulatory burdens that have been reduced for small business—$5.3 billion of regulatory burden has been eliminated, from regulations

that were going to be proposed or were proposed, and how they ultimately came out, and it goes across the gamut from different—

all kinds of different regulations.

Now, I am not here to tell you that we have solved the problems

with this legislation, but we are beginning to change the culture so

that small business is taken into consideration by the people making regulations, and we are very proud of the fact that we have
5

been able to do this. This is the second year that we have eliminated savings.

You will remember the Universal Service phone fight that we

worked together on, where the FCC was proposing to eliminate the

charges that supported universal lines. They basically said that

businesses only needed one telephone line in rural America. The

Federal Communications Commission had proposed to let small

businesses pay full prices on all their phone lines outside of the

urban areas, but they could only have one line that would fit under

that. The savings from the sales charge was not counted in these,

and it also doesn’t include regulations that weren’t proposed or the

regulations that have not gone to fruition. These are the ones that

simply have had final action during one fiscal year.

We often, in small business, look for the perfect world, and we

look for how things should be, but we don’t always take time to

think about how things have improved. You cited some statistics in

your opening remarks. More businesses have been started in each

of the last six years than at anytime in the history of the country.

So the climate for small business development has never been better.

Most people don’t think about or go back to look at—as I did just

recently—the number of tax bills that have been passed that

changed the taxing on small business. We started off with capital

gains reductions. Since the White House Conference in 1995—I use

as a base point, other people use different years—we have had targeted capital gains for small business reduced by 50 percent. We

have had all capital gains reduced from 28 to 20 percent. We have

had estate tax improvement and reduction on estate tax for family

farms and for small businesses. We have had the home office deduction restored. We have had the health insurance deduction increased for small businesses, encouraging self-employed individuals

to have that. We have had direct expensing increased, the amount

of money that you can write off for your capital expenditures instead of having to depreciate it over a number of years. And we

have had dramatic and significant pension changes.

In this tight labor market where it is hard to find good employees, it is important for small business to have good pension plans.

And here is one of the most significant regulatory changes we accomplished. What we try to do is put small business people together with the people who are making the regulations, and then

facilitate coming out with good regulations. It just came out the

first of the year, something we have wanted to happen for a long

time. Now small businesses don’t have to declare in advance that

they are going to make pension contributions, they can wait until

November of the year, so they know they have got the money.

The reason small businesses don’t have pension plans is because

we don’t know until near the end of the year whether we are going

to have a good year or bad year. If one of our major customers gets

in financial trouble, if one of our major customers leaves—there are

a variety of things that can affect whether we have money, but by

changing and letting small business decide in November—so we

have seen a bunch of regulatory changes and climate improvements. We have a lot more to do, and I am not here to say we have
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accomplished it, but I think the goal is to continue improving the

environment.

If we expect to sustain the economic growth that we have had,

we are going to have to continue to have new businesses being created, new businesses growing, new ideas, and moving from one

idea to the next idea, and that is a function that we have had. We

have improved the climate significantly, but there is a lot more we

have to do to continue that. Thank you.

[Mr. Glover’s statement maybe found in Appendix.]

Chairman BARTLETT. Thank you very much.

Mr. Howard.

STATEMENT OF MR. JOHN C. HOWARD, EXECUTIVE DIRECTOR,

ECONOMIC DEVELOPMENT COMMISSION, WASHINGTON

COUNTY

Mr. HOWARD. Thank you, Mr. Chairman. I feel compelled to

speak to the characterization of ‘‘them’’ and ‘‘us’’ that you evidenced

with Mr. Glover here because I think it is an important backdrop.

I, in a former life, worked 18 years for American Telephone and

Telegraph Company back when it was ‘‘the’’ Bell system, arguably,

second only to the Federal Government in terms of span and control at that point in time, but I also owned a small business as a

men’s store in a very rural area of North Carolina for three years

thereafter, and I believe that my understanding of both of those

poles brackets me appropriately for being able to bring you comments today on the plight and needs of small business.

So, Mr. Chairman, and for those other distinguished members of

your Committee as well, my name is John C. Howard, I am the Executive Director of the Hagerstown, Washington County, Maryland

Economic Development Commission, and our offices are right in

Hagerstown. Ours is a not-for-profit agency funded through out

County Commissioners’ annual budget process, using county tax

proceeds exclusively. I serve at the pleasure of a 12-member Commission, all of whom are volunteers.

With members appointed by the County Commissioners representing the Chamber of Commerce, our Greater Hagerstown

Committee, our principal city of Hagerstown, and the eight other

incorporated municipalities in our county, we are able to offer a

broad perspective to our two basic challenges: First, the retention

and expansion of existing business and industry and, second, the

recruitment of new business and industry.

Washington County is a mid-sized cosmopolitan area in Western

Maryland. Our population is slightly in excess of 125,000 people.

Hagerstown, our county seat, lies in the geographic center of the

county, with a population within the city limits and contiguous

areas exceeding 60,000, approximately one-half of the county’s

total.

Although we enjoy many quality of life features, at best we remain classified as a semi-urban area, rich in America’s historic

past and founded from a strong agricultural work ethic. In the 20th

century, our development and commerce was spurred by our locational advantages for the nation’s rail companies.

As the Director of Economic Development, I currently serve a

county that is blessed by most development standards. We are
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served by both north-south and east-west U.S. interstate highways,

and are within approximately one hour of major economic generators in the Baltimore and Washington, D.C. areas.

We have a very diverse economy, bolstered by our service sector,

and with manufacturing employment over twice the average for the

State of Maryland. But we are part of a region of the state that

does not enjoy all the traditional urban benefits from which continued and sustained growth just naturally evolve. We have to work

at it. And a very recognizable component of our growth these days

rests squarely with our success in retaining and expanding the

growth of our small business sector.

Procurement opportunities abound here. It is important that

small business procurement activities continue to receive your nurture and visible support. Areas such as ours require the opportunity to acquire supply-line contracts to spur our local economy,

rather than see the diminution of entrepreneurial aggressiveness

due to mandated national account contracting. We would ask, as

well, that programs be simplified further, to the extent possible, to

ease the opportunities for such competition on a local basis, rather

than intimidate the small business provider.

I would also ask that the Congress continue to adequately fund

the Economic Development Administration of the U.S. Department

of Commerce. Related programs for small business development in

the U.S. Small Business Administration and U.S. Department of

Agriculture will continue to also require your support and attention

for communities my size to continue to thrive, even on our currently sparkling national growth economy, for it is the small business sector that ultimately benefits the most from your attention

to these programs.

Whether by definition ‘‘small business’’ is 100 jobs or less, or 500

jobs or less, small business remains the force that turns our County’s economic engine. We must never lose sight of the fact that

somewhere around 70 percent of the new jobs created in areas like

mine have sprung from a small businessperson’s dreams, diligence,

and drive. With the exception of education, no other force in America compares with the ability of small business to foster upward

mobility, but not without risktaking.

As champions of American ‘‘can-do-ism’’, these folks are near-miracle workers. Usually undercapitalized and frequently operating on

the slimmest of margins, small business men and women are constantly beset by the never-ending woes of regulatory and employeerelated impediments. Taxes, health care costs, restrictive Government standards and practices, worker’s compensation—all are

major issues affecting many small businesses just like the big businesses are affected.

In my region of Western Maryland, we are part of the nation’s

sector known as Appalachia. The Appalachian Regional Commission, in 1971, designated our Tri-County Council a Local Development District serving Washington, Allegheny and Garrett Counties

in Maryland. Subsequently, the U.S. Department of Commerce designated us as an Economic Development District. Since that time,

the Council has been successfully utilizing state and Federal resources to carry out an annual investment strategy across the region.
8

More recently, the Council has been able to expand into new economic development initiatives consistent with a regional approach

to economic growth and job creation. The Tri-County Council now

offers a range of business services to the region, including a Manufacturing Network that utilizes computerized data to match buyers

with potential local suppliers; a Procurement Technical Assistance

Center that can help small businesses successfully enter the Federal procurement system; an Export Assistance Center that can assist local businesses in developing international markets for the

goods and services they produce; and, finally, a Revolving Loan

Fund which can provide gap financing to encourage business development and expansion. We need your support and your Committee’s support and the Congress’ support for the continuation of all

such programs that sustain this means of growth for us.

I also feel it essential to reinforce to you the benefits we derive

from our Maryland Small Business Development Center partnership. This engagement between the U.S. Small Business Administration and the University of Maryland, College Park, links private

entrepreneurs, Government, higher education, and our local economic development organizations so as to provide management

training and technical assistance to Maryland’s fledgling entrepreneurs and small business owners. The no-cost consulting services provided by this resource make a great impact on our economies by developing and refining business plans, solving problems,

locating sources of capital, and imparting innovative strategies to

support growth and profitability. Your congressional support of

these programs must continue.

Now turning to some facts I have secured from the Office of Advocacy, U.S. Small Business Administration, Baltimore District Office, I think it is important for us to reflect on why hearings such

as these are important, and I will be reciting some of the statistics,

Mr. Chairman, that you opened with your comments.

For the record, small businesses in Maryland employ 54.6 percent of the workforce; small businesses in Maryland account for

97.8 percent of all business firms; small businesses produce 55 percent of innovations, producing twice as many product innovations

per employee as large firms. Clearly, these statistics indicate that

small business is the avenue by which more and more are reaching

out for the American Dream.

As the Congress goes forth, please consider the importance of the

global economy to the small businessperson. Trade barriers must

not be restrictive as companies depend more and more on the international marketplace for their success. In my county, for example,

a medical products company currently exports to over 30 foreign

countries and, by any definition, is a ‘‘small’’ business. Companies

like these need your attention. And telecommunications regulations, including Internet standards, must invite, rather than constrain, their global commerce. Your continued help in these areas

will be appreciated.

Finally, in our quest at the local level for stimulating new and

existing businesses, it would be my request that this Subcommittee

maintain its sensitivity to the passthroughs affecting our county

levels of government which stem from federally-mandated programs or cutbacks. Main Street America provides the core strength
9

of our great nation, but the domino effect of passthrough actions

stops with those of us who are employed not to ‘‘massage’’ the economy in place, but to stimulate it to new heights.

All too often, we who can provide a return on the investment

from our work by way of new jobs, increased tax base, and a richer

quality of life, become constrained by the losses from local funding

which necessarily gets deferred to ‘‘maintenance’’ or caretaker programs. Since the pot is only so deep, these mandated passthroughs

detract from our progressive activities, and must be curbed where

at all possible.

In conclusion, I would ask for the Federal Government to be the

positive force in its programs to focus on health care in America.

Our aging population and its impact on older worker programs in

the small business realm, alone, command new and creative resolutions to maintain a fit and ready workforce of all ages, today and

in the future.

Thank you, Mr. Chairman, for providing me this opportunity to

appear today.

[Mr. Howard’s statement may be found in Appendix.]

Chairman BARTLETT. Thank you for your testimony.

We now turn to Mr. Story.

STATEMENT OF MR. RICHARD STORY, CHIEF EXECUTIVE OFFICER, ECONOMIC DEVELOPMENT AUTHORITY, HOWARD

COUNTY

Mr. STORY. Mr. Chairman, I agree with Mr. Howard, but let me

add a little bit. Mr. Chairman, I am Richard Story. I am Chief Executive Officer of the Howard County Economic Development Authority, which is a public-private partnership for economic development involving Howard County Government, as our single largest

shareholder, and approximately 80 other private companies who invest in the economy of Howard County through participation in our

Economic Development Authority.

I report to a 13-member Board of Directors. It is a volunteer

group that gives incredible amounts of time in the name of economic development here.

Howard County, has a growing population approaching 250,000.

Mr. Chairman, your question leading off dealt with continuing this

period of prosperity in which Howard County certainly is fully participating.

Over the last three months for which reports are available—February, January and December, respectively—our unemployment

rate was 1.5, 1.4 and 1.3. So, certainly we are fully employed in

Howard County. That is not to say there aren’t opportunities to do

better in the job creation and other economic development activities.

Our average household income now is over $70,000. Because of

these dynamics Howard County is not eligible for designation as an

enterprise zone, we are too affluent. Yet there are opportunities

which I have outlined in testimony that I supplied to you and to

Committee staff.

Let me just summarize my five points. The single most important constraint we have on continuing our success in Howard
10

County is workforce. There are three points I would like to bring

to the attention of the Committee.

We held our Business Appreciation Week in Howard County several weeks ago, back in March, where we visited nearly 100 companies, the overwhelming majority were small businesses, and the

single theme that reoccurred in all of those meetings was ‘‘We need

workers’’. We need people to fill jobs and we are currently turning

contracts away because we can’t staff up to meet the new business.

We just need to find ways to solve that problem. It is a people problem and not so much training anymore.

Training, however, is still an issue. Federal resources should be

available to complement a very aggressive state program both in

MITP, Maryland Industrial Training Program, and the Partnership

for Workforce Quality. Federal resources should be available to enhance those programs for both new employee training programs

and retraining for existing workforces keeping up with evolving

technology. We think training an important solution to our workforce challanges.

Workforce mobility issues are important, too. Howard County is

in the middle of the Baltimore-Washington common market. We

are situated between two major metropolitan areas, or the

‘‘bullseye of the target’’ which contains 7 million people. There are

higher levels of unemployment in both core cities, certainly a lot

higher than the 1.5 that we enjoy today.

We have made some fragmented attempts to reach primarily into

the Baltimore Metropolitan Area where today more than 500 people are taking advantage of Federal HUD monies, through a pilot

program called ‘‘Bridges to Work’’. It transports people out of urban

areas in Baltimore who need the jobs, to places like Howard and

Anne Arundel County where the jobs are being created. We can do

much more to have a true suburban mass transit system. One that

does not exist today. It would bring people who are willing to work

to the companies who are turning work away because they can’t

staff up.

We are also toying with a notion, and would like for you to explore, a National Job Service Database. In Mr. Howard’s community, for example, a worker can be in any one of four states within

an hour’s drive on Interstate 81. That is a truly regional workforce

work pool. We need to have a database that defies county, and

sometimes even state, lines to be able to identify who is available

to new employers or growing companies in those geographic areas.

We should look beyond territorial/jurisdictional boundaries when

we evaluate economic areas and job pools.

Issue 2 relates to how the community college system can participate in this process. Today, employers are requiring fewer degreed

people in favor of employees who are certified in certain disciplines.

Howard Community College has done very well in providing customized training or retraining programs specifically designed for

the businesses they serve.

In Maryland, the community college systems are coming together

for a regional program that’s called MarylandTraining.com. It

should be up and running in September. To date all financial resources have been provided by the State of Maryland. We think

there is probably a role for the Federal Government. The Federal
11

Government could participate in Maryland and in similar programs

nationwide.

Issue number three, like Mr. Howard suggested, the Small Business Development Centers have been a wonderful way to counsel

fledgling businesses or businesses who have issues, to help them

past specific crises free of charge.

In the past the Small Business Administration’s relationship was

with the State of Maryland’s Department of Business and Economic Development.

This system has been less effective over the recent past, here in

Central Maryland, where it has been partnered with a variety of

colleges or universities. There has been incontinuity in this program, where the contract has changed three times over that period.

I would respectfully suggest that the SBDC program, at least in

Central Maryland, be realigned with the State Government

through DBED. This would restore a Government-to-Government

partnership in serving us small businesses. I personally think that

would be more effective.

Issue number four has to do with agricultural marketing. As you

know Mr. Chairman, all of the counties in your district have farmland preservation programs, including Howard County, where we

are approaching the 20,000 acre mark in preserving farmland and/

or open space.

We have developed an agricultural marketing program within

my agency to help farmers and owners of farm property in these

districts to be more successful in farming. We think, therefore, that

agriculture and agribusiness should be perceived by the Federal

Government just like any other business, and all SBA and other

Federal programs should be available to the farmers. Priority

should be given to those who have participated in farmland preservation programs, who have sold their development rights and who

are looking for ways to continue farming.

Startup farming practices are also a unique challenge for a

young person wanting to get into farming today. Farming is the

quintessential small business, and we think special attention

should be given to new, first-time farmers.

My fifth point is streamlining the procedures. Mr. Howard and

Mr. Glover both mentioned that, but the time that it takes dealing

in SBA 504 and 7(a) programs to complete the documentation can

be shortened, and therefore made much more user friendly to the

business that we are trying to assist.

I do have two other points I would like to mention that are not

in my written testimony. One is small business incubation. We are

starting a small business incubator. We are moving in over the

weekend, so next Monday we will have our first two tenants in a

building that was formerly occupied by Allied Signal Technical

Services, and now owned by the County. Ten percent of that building is available to the Economic Development Authority and an incubator will start there.

We think business incubators, especially technology incubators

are perfect places to cluster companies. This allows us to serve

more of them better, mentor them and provide them with venture

capital. By having startup companies in one place, we are able to
12

serve more small businesses who have tremendous growth potential more frequently and in a more efficient way.

A final note, Mr. Chairman, has to do with minority businesses.

We define minority businesses as businesses owned by minorities,

women and persons with disabilities.

We have an equal business opportunity function in the Economic

Development Authority. All economic development programs should

give special emphasis to minority businesses, not at the competitive

disadvantage of non-minority businesses, but in answer to one of

your opening questions. Some of these companies have historically

not fully participated in all the programs that are available to

them. We should make an extra effort to help minority businesses.

That is certainly the case in Howard County and probably an agenda of yours as well. That is my testimony.

[Mr. Story’s statement may be found in Appendix.]

Chairman BARTLETT. Thank you.

Now Mr. Lyburn.

STATEMENT OF MR. JOHN T. LYBURN, JR., DIRECTOR,

DEPARTMENT OF ECONOMIC DEVELOPMENT, CARROLL

COUNTY

Mr. LYBURN. Congressman, I would like to thank you for all you

have done for small business, especially in Carroll County. I would

like to disagree with one thing you did say, though, when you said

if you need to know anything you can call Mr. Glover. I can tell

you, we call your office and you have given us all the answers. So,

I thank you.

I am Jack Lyburn, the Executive Director of Economic Development for Carroll County. Carroll County is north of Baltimore

County. We are 456 square miles, 297,000 acres. We have 33,000

acres that are Ag. Ag is our number one industry, over $100 million.

However, I believe that—and we talk about partnership is extremely important—I believe that small business economic development is a very local issue. And we have a lot of drivers of it—the

Federal Government drives it, the State drives it. We are where

the rubber hits the road, and I think the three of us on the right

side of the table—we have to make the deals happen and we do.

I took the liberty of coming up with three problems, three examples, and I have given you the, I guess, solutions to them, as I

guess economic developers usually do. The first one is the banking,

I would like to talk to you about the Federal regulation in banking.

The problem that I see is that the Federal Government is really

encouraging banks to get into the insurance and the brokerage

business, and there is an et cetera, et cetera, after that.

This puts smaller banks at a competitive disadvantage as well as

negatively impacts small local insurance agencies and stock brokers who may be put in position of selling out to a larger company

or going out of business altogether, and we are seeing that, especially in Carroll County. In the last two years, we have had three

of our local banks bought out by larger banks.

The local economy loses its ability to influence these newer, larger lenders. It takes the ability and decisionmaking away from local

and it goes to national, and what we are trying to do is in a correc-
13

tive action would be an assessment or study of the impact of Federal rules and regulations and their effect on small businesses

might be considered before these rules are put into effect. Please

look at that before you do that, especially with—I want to say ‘‘gobbling up’’, but the larger banks are doing that—and we think

that—I think that the rules and regulations are encouraging them

to do that.

Banking with the SBA. It is a problem. The SBA must comply

with standard operating procedures in order to issue a loan guarantee. However, the operating manual is extremely long, making it

difficult for smaller community banks, the ones that are still left,

to comply with. Sometimes, these banks must hire an outside attorney to review the documentation. I have spoken with several community banks—and a lot of banks refuse to do an SBA loan just

because of the documentation. This makes it more difficult for

them to compete with larger banks and can also add a significant

expense to the borrower.

Corrective action: I think to create a simple one- or two-page

‘‘check list’’ and let people know what you need for a loan guarantee. This list can be reviewed quickly by the SBA and a lender

would feel secure that the guarantee would be there for the term.

These are just a few of the examples that could be given on insurance and banking.

We talk about Main Street Revitalization. When I say it is a local

issue, it is a local issue but it is a Federal funding and local and

State issue. The State funds the local Neighborhood Business Development Program. We have eight towns, the same as Washington

County has. These types of projects are extremely important to

Carroll County. While this program has been very successful, our

local Main Street in Westminster wouldn’t be the success it is without these types of programs.

I feel Federal dollars could be used to increase the current funding level. In general, I feel more funds need to be put aside for

startups and expansions especially in small business, and these are

retails and small manufacturers that we have on Main Street. I

would like to see more money fed into the State programs.

Programs that also have had a positive impact on small business,

the main thrust of the Economic Development Office is to retain

and attract major employers, and we have all said that—retention,

retention. About 90 percent of our economic development has all

been retention, especially in Carroll, and I know in Washington

County and Howard County. Given this mission with the limited

staff and budget, it is impossible to provide the level of assistance

required to assist small businesses in our county.

For this reason, I strongly support the SBDC. They have been invaluable. I can tell you that we have seen over 200 people just in

Carroll County in the last year to start up operations. We need

support. In the past two years, we worked with at least eight Main

Street businesses in financing programs. We need to do a lot more

with that.

The public needs to be better informed on the type of assistance

programs, I feel that is a problem. We don’t educate the public. We

have many times businesses are not fully aware of the array of

services offered by the SBDC—and this is from the Federal, State
14

and also local level. While we make every effort at the local level

to make the community more aware of our services, I would like

to see more Federal environment in the promotion of these services. Education is the key to let the people know we have the programs. People walk in and say, ‘‘Gee, we are surprised, we didn’t

even know about these programs’’. I think education is important.

I agree with Dick when he talked about the SBDC works better

when it is working out of a local community economic development

office. I think it should be in a local community economic development office. When looking to start a business or expand, people

typically contact a local economic development office, they don’t call

a college and they don’t call universities. This applies at the state

level as well. SBDCs often ask the state for matching funding. It

may be easier for the state to provide SBDC funding to assure

some level of control and input.

I feel also that this program would better be fit under the Maryland Department of Business and Economic Development. I have

been in this position five years now, and I have seen three changes

with very little continuity between the universities. This would provide a ‘‘one-stop-shop’’. When we talked about labor with the WEA

program, it is a one-stop-shop. I think we need a one-stop-shop for

business development.

We have been criticized, all of us sitting at this table, that we

deal more with larger companies and not smaller companies. I feel

if it comes under DBED where the consolidated programs are

there, I think that is where it needs to be.

In conclusion, there are many Federal programs that have good

intentions, but end up causing undue burdens on small businesses.

Especially in Carroll County, where 95 percent of our businesses

are small—and that is under 100—a lot of it can be devastating on

the local community.

I hope my testimony today helps, and look forward to working

with you. Thank you.

[Mr. Lyburn’s statement may be found in Appendix.]

Chairman BARTLETT. Thank you very much. I want to thank all

the witnesses. Several of you have defined ‘‘small business’’ by various numbers. Technically, I think Jere said it is 5,000 and

under——

Mr. GLOVER. No, 500 and under.

Chairman BARLETT [continuing]. 500 and under——

Mr. GLOVER. For statistical purposes, yes.

Chairman BARTLETT. Okay. Many of you have defined it as 200

and under, 100 and under—okay—but 500 is pretty big business

for a lot of people.

Who establishes the definition of a small business?

Mr. GLOVER. There are two different general parts. In the 1980

White House Conference, the delegates were asked what number

made most sense for general purposes and economic analysis and

all that. The answer was 500.

The SBA, for procurement purposes, has a number that depends

on the size of the industry, the makeup, the characteristics, and

they adjust that from time to time, and so SBA’s numbers are fairly low in things like architecture and fairly high in things like

manufacturing. They can go as high as 1500 employees for SBA
15

purposes, but for statistical purposes we look at a variety of different breaks, but generally anything under 500.

The important thing is to make sure the regulation or the program meets the size of businesses that need it. Some programs are

great for startup businesses, some are great for companies who

have been around for a while, and you need different definitions.

And so we don’t want to put a fixed number for exemptions for all

businesses under ten, for example, because that is a huge incentive

never to grow above ten. So those numbers jump all over the place,

and that is not by accident.

Chairman BARTLETT. There are, in fact, some regulations that

are limiting the growth of businesses. Restaurants, I think, when

they get over 50, respond to different regulations. And I have

talked to some restaurant people—I don’t know what threshold

they get over at 50, but some of them want to stay under 50 because when they cross that threshold they have additional regulatory burdens.

What is the size of a contracting company now that above which

OSHA will come, below which they will not come?

Mr. GLOVER. OSHA does not have a fixed number. OSHA says

they will go into anyplace that has a significant hazard. For example, if you have one employee and that employee is testing dynamite blasting caps, then that company would be covered. But they

have changed their policy. In the old days, they used to focus primarily on small firms, now it is more evenly balanced they say.

Chairman BARTLETT. Was it just a general consensus that under

ten employees they generally did not come?

Mr. GLOVER. That is the case. If they have a complaint, they will

now send the company a letter asking that them to respond, but

then they will send an inspector.

Chairman BARTLETT. So the only time they will visit really small

companies is when there is a specific complaint?

Mr. GLOVER. They will tell you that occasionally they will do

something different, but generally speaking that is correct.

Chairman BARTLETT. Okay. Mr. Glover, you mentioned the patent bill. I think I am probably the only member of Congress who

has patents, and so I was much involved in that debate with some

very good friends of mine who, with all the best intentions, I

thought, were doing something that was counterproductive.

We were successful finally in getting an amendment through, as

you noted. It was Marcy Kaptur from Ohio who was the author of

that amendment because we needed to pull some Democrat votes

as well, that I worked very closely with Dana Rohrabacher making

sure that small businesses and individual inventors and universities were excepted from the requirements of this legislation.

Generally, what the legislation did was to require publishing of

the invention. When you are a big company and you file for patents

in every major jurisdiction in the world, that publishing point is

moot because it is, by definition, ‘‘published’’ anyhow. But they

wanted to start the clock running with publishing that would run

for 20 years. For the average inventor, it starts with the issuance

of the patent, and it runs for 17 years, and this was going to be

a major detriment to small people. Half the clock would have run
16

out by the time you got your patent protection. So we were very

pleased to get that through.

Mr. GLOVER. Mr. Chairman, when we were involved in that fight,

it was pretty lonely the first few months of that fight. There were

you, Congressman Rohrabacher and a few others. When I submitted my testimony early on in that debate—actually, comments

to Congress—it was a pretty lonely fight. I was awfully glad when

we got a good many reinforcements to come in near the end of the

fight, but it was pretty lonely there for a while.

Chairman BARTLETT. Well, some of those fights are primarily a

matter of education. A majority of people agreed with us when we

had an adequate opportunity to articulate the problem, and you do

that through protracted debates on the Floor, and we were able to

do that, and we fortunately had a majority of people who agreed

with us.

The sponsors of that bill were two of my best friends, Howard

Coble from North Carolina, a very good guy, and his boss, Henry

Hyde, who is about my favorite Congressman, and it was kind of

unpleasant doing battle with these really good people, but I just

felt that they didn’t understand small business.

One of you mentioned the number of people in small business.

We probably have about 30 people who were members of NFIB before they came to the Congress, that is about it in terms of small

business representation in the Congress.

You mentioned the SBREFA Act. I wonder if you would, for the

record, indicate the major advances that were—we have had your

Office of Advocacy now for 25 years, but SBREFA gave you some

additional teeth. I wonder if you could very succinctly indicate

what those were.

Mr. GLOVER. The Office of Advocacy was created under President

Carter. When it was first created, I had the privilege of serving

then as Deputy Chief Counsel.

The Regulatory Flexibility Act requires the Government agencies

to look at the impact of their regulations on small business, and

evaluate—if there are alternatives or options that would put less

burden on small business. But they put a provision in there that

prohibited judicial review, so that basically the legislation didn’t

have any teeth. Although, it was a laudatory, good idea, agencies

sometimes complied and sometimes didn’t.

The Small Business Regulatory Enforcement Fairness Act passed

in 1996 put some real teeth into it. It did several things. For one,

it created a national ombudsman where if you think an agency is

being unfair in its enforcement against you, you can go to it. It created judicial review for the Regulatory Flexibility Act, which I

think is probably the most significant part of that.

It also did something that was fairly unique. It requires two

agencies, OSHA and EPA, before they have a regulation, before

they even propose it, to convene a panel consisting of myself, the

Chief Counsel, senior regulatory personnel at the White House, and

a senior person at the agency.

We then bring in a group of small businesses—in some cases individual—but we bring them in to look at not only the proposed

regulation, but the economic analysis, the cost analysis, and the

justifications for the regulation. And then we have a meeting and
17

we discuss the information. After the small entities tell us what

they think of the data information and analyses the agencies have

conducted, we then prepare a report which is given to the head of

the agency. While it is not binding, it has to date been very successful in having the agency adopt the recommendations in the report. So the regulations that come out are much less burdensome

on small entities and small businesses.

The agencies will often even exempt small businesses so they

don’t even have to go through the rule making process, which is a

very good outcome in many of the cases. We get into situations—

and an EPA rule affecting small refiners is very clear in my mind

because it is one very much before us—it turned out that all the

small refiners in the country, about 25 of them, produced only 3

percent of the pollution problems among the refineries, but were

going to be put out of business if the regulation was adopted as

originally proposed.

So, by having EPA recognize the impact on small refineries led

EPA to a decision that allowed them to wait until the technology

develops to come into compliance. We are not talking about very

much pollution, we are talking about de minimis when you think

of 3 percent. The change in the rule enables us to sustain competition. And the important thing is that small business is not just nice

people creating jobs, they provide the competitive thrust to maintain competitive low prices. This reality was an important factor in

this instance.

Let me just mention a couple of things that I think are sort of

important, after listening to my friends on the panel talking. One

is we started a program to recognize state and local government

models of excellence, and we give awards each year to programs

that do something well. We can’t tell people what to do because we

are not smart enough to understand how a state can do something

better, or how a local government can do something better. But we

can pull together a panel and judge who is doing something. We

share those models of excellence with the governors and we share

those with various state officials. I send them a copy because they

may see some ideas they like. And they also may have some programs that they want to nominate next time for that.

Bank mergers is a major concern, and I am glad to hear you

folks raise that because we are really worried about what is happening. We publish banking studies in which we look even at farm

loans and what is happening to farm lending. We are going to have

a conference on June 15th on bank mergers, in Washington, in

which we are bringing together some of the top economists in the

country, with some of the top regulators in the country. We are

going to ask the questions just asked about what is happening in

bank consolidations and how is that affecting small business.

We did one of those three years ago, and at that point the data

and evidence was inconclusive. We don’t know what the data is

going to show by June 15th, but we are scheduling the conference

so that we will have the latest CRA data, Community Reinvestment Act data, and the latest call report data. We will also have

our studies out so that we can begin to look at this question. I

think there will be a time in which the large banks decide to pull

out of rural America or pull out of small business or pull back, and
18

when that happens we need to know about it from a public policy

point of view.

Chairman BARTLETT. We have been trying to add—I have been

particularly personally aggressive—in trying to add IRS to the

SBREFA process. Where does support for that now stand within

the Administration?

Mr. GLOVER. I think that no agency ever voluntarily chooses to

have a burden—in this case, regulatory burden—placed on them,

and they are opposing it, the IRS. And I think that some version

of it should be worked out because I think we can benefit from it.

Let me just share with you the pension example. In three different instances, we put together what is, in effect, a panel which

is informal. It consists of small business people getting together,

talking with the Government officials about problems. In each of

those cases, to the shock and surprise of small business people,

they are getting the government agency to understand their problems. They are beginning to see major changes. So, we are facilitating that dialogue informally, but I think a more formal relationship would have to happen in areas other than just pensions.

We just had a situation that developed—that I know you were

involved with—on installment sales tax policy. When small businesses using the accrual basis of accounting, decide to sell your

business, most times they don’t get cash money up front. They get

the proceeds over time—but they would not be able to pay tax on

the installation basis, even though they didn’t get the money for up

to ten years. That was a very significant burden and at the very

least depressed the value of small businesses.

When that IRS rule came out, we got the small business community together, as we often do, with all the trades, got together and

talked about the issue. We then went to Treasury. They never

talked to us about that issue. Now, in the pension area, we worked

very well. I went to the senior person on pensions and said, ‘‘Will

you give your boss this letter that I am sending, saying why this

is a concern and what should happen’’.

We eventually got their attention at the same time Congress

scheduled hearings. We find often the combination of our involvement within the Administration and congressional hearings facilitates good decisionmaking, and we ended up being able to facilitate

that kind of a situation where the Administration did not oppose

legislation, but immediately put an administrative fix in if you had

sales of under $1 million. But that requires this combination of

things. And I think if we were able to look at some of these issues

in advance, we wouldn’t have those problems popping up.

Chairman BARTLETT. Our legislation to include IRS in the

SBREFA process along with OSHA and EPA, and one of the Committees it had sequential referral to was Ways and Means. It would

be very helpful if you could help us with Bill Archer, who genuinely

wants to do the right thing, to get that pried loose from Ways and

Means so that we can proceed with that legislation.

Just as an example of one of the potential—one of the real problems with IRS—not a potential problem—we had a full Small Business Committee hearing on the IRS and the accounting methods

that they are requiring of small businesses.
19

If you are a small business of less than a million dollars, you can

elect any accounting method you choose. If you are between $1 million and $5 million a year, the reality is that IRS will determine

what method you will use because you may use one and they will

decide you should have used the other one and you will be enormously penalized for that. We had one person, a drywall contractor, who was essentially being put out of business by an

$80,000 IRS lien simply because he was using cash basis, they

wanted him to use accrual basis. If you are over $5 million, they

are going to require that you do accrual.

I asked the IRS person who was there—and I was a small business person. When I retired, I liquidated my corporation. And I

asked him would it have made any difference how much tax I

would have paid at the end of the day, whether I used cash or accrual method of accounting—after I liquidated my business.

He said, ‘‘No, you would have paid exactly the same amount of

money’’. I said, ‘‘It is not a question then of whether they paid the

tax, it is simply a question of when they paid the tax, is that true?’’

He said, ‘‘Yes, that is true’’. Then I said, ‘‘Why don’t you let them

alone?’’ The small business people, you ultimately get the same

amount of tax from, whether they do accounting on a cash basis

or on an accrual basis’’.

But this is one of the instances where having IRS involved in the

SBREFA process would be very helpful to small business because

then you could go to bat for them. This is perfectly silly for the

Federal Government to be harassing small businesses.

I carry a copy of the Constitution, I just wanted to refer to something—this also has the Declaration of Independence in it—that I

thought was very interesting. One of the reasons that they felt that

they had a right to declare their independence—this is one of the

complaints against the King—‘‘He has erected a multitude of new

offices and sent hither swarms of officers to harass our people and

eat out their substance’’. And I thought, what better definition

could you have of our regulatory agencies—‘‘erected a multitude of

new offices’’, that never existed when I was a boy, ‘‘and sent hither

swarms of officers that harass our people and eat out their substance’’, was their definition of what the King was doing to them.

And I thought, you know, our Federal Government here is pretty

much doing the same thing to us.

Mr. GLOVER. One of the real advantages of SBREFA is I think

most Government officials are well intended. They don’t go out and

set out their goal is to do something bad to small business, it is

they don’t realize it. And when you put them in a room with the

people, they begin to understand for the first time, and we don’t

get the unintended, accidental impacts that are negative by having

that process.

So, I think the process really is an educational process, and often

the individuals have no understanding at all of what this is going

to do in the real world. And this education process that SBREFA

forces, I think, is a very important trigger to making those

changes.

Chairman BARTLETT. They have to sit and listen, and then justify their actions. You mentioned before the hearing to me that you

had been effective in reducing by $5.3 billion the regulatory bur-
20

den. I asked you out of what total number, and the number you

gave me was about $700 billion a year as the regulatory burden.

I would just like to note for the record that this consumes about

15 percent of the working time of every American just to meet this

regulatory burden. You will not be free of working to support Government until about July 1. About May 10 you will have paid all

of your taxes—Federal, State and local—but you are not yet free

to earn a dime for yourself because for about the next six weeks

you will be working full-time to pay the cost of unfunded Federal

mandates.

I have a question. You know, we are all very supportive of these

Government programs. Once the Government has taken your

money, then everybody would like to get it back in some helpful

way, but I have often asked myself the question, if you had the option of the Government not taking your money and leaving it in the

private sector, or letting them take it and then getting it back from

them, which would you choose?

In other words, the question I am asking is, how much of this

support for these Federal programs is simply because they have already taken your money and you would like to get it back, and how

much of it is because the Federal Government really does something important?

Would you be just as well off in your local communities if the

Federal Government didn’t take that money and you have to go on

bended knee to get it back, or is there some inherent benefit in

some of the Government programs that you really would ask them

to take your money so that they could do these good things for you?

Mr. GLOVER. One of the things that I have found in assisting

small business is that no one program helps all small businesses,

and no one program helps any small business all of the time.

But having the programs there to give a lift up at the right time

is something that is worthwhile. And while I think that we may

go overboard from time to time, I think that there are common

goals and common needs that we have. Small businesses perhaps

pay far too much of a burden, their tax burden is higher than it

should be, their regulatory burden certainly is higher than it

should be. On the other, we need a skilled workforce, we need to

educate the workforce, and quite frankly we have situations like

now where certain parts of the country—in this case, in certain

parts of this State—we need more help than others, I think that

it is not unfair for us to be helping some of the rural parts of the

State that are having a tougher time in terms of employment, in

terms of education, so I think that some balancing goes on.

I think the problem perhaps is how it is allocated and the degree

and the percentage, more than just saying there shouldn’t be any

governmental regulation, perhaps it is the question of the wisdom

how we do it.

Chairman BARTLETT. All of our community development people

have emphasized the usefulness of the SBDC centers, and without

mentioning them, several of you mentioned the free consultation

you get. How much of that was provided by SCORE?

Mr. HOWARD. None in my case.

Chairman BARTLETT. None in your case?

Mr. HOWARD. No.
21

Mr. STORY. The answer in Howard County is both. We provide

free offices in our Business Resource Center both to SBDC and

SCORE, and they complement each other.

Mr. LYBURN. We have none in Carroll County.

Chairman BARTLETT. You have no SCORE?

Mr. LYBURN. We have no SCORE at all.

Chairman BARTLETT. Well, we need to get SCORE there.

Mr. HOWARD. We have a SCORE, but they are mutually exclusive from the SBDC in terms of referrals.

Chairman BARTLETT. Is that so?

Mr. HOWARD. Yes.

Chairman BARTLETT. Why is that not coordinated?

Mr. HOWARD. It is just established as different entities, and our

agency seeks to determine best which one to refer them to, or to

refer them to both, but the SCORE chapter is a subagency of the

Chamber of Commerce, while the SBDC is housed in our community college. And the community college, as you well know, with

our incubator and technical innovation center there, has a whole

higher plateau of knowledge of how to give assistance.

I would like to comment on the question here, too, Congressman,

about whether it is better to take your money or whatever. I think

that there are both sides to that question, I could possibly give you

an argument lasting an hour and a half on each, but one program

that none of us have mentioned that comes to mind that I think

merits some attention on this question is the Community Development Block Grant program.

I think that it is well intended that we should socialize and make

funds available to those communities that have less as the program

originally was intended for, but I believe that we should be looking

carefully as to whether or not we are perpetuating a low and moderate income level to the detriment of the per capita income needs

of quality communities.

Case in point is my own where our per capita income average for

the 24 jurisdictions in the State of Maryland is below midpoint in

the State. We still enjoy the benefits of the Community Development Block Grant program, but must comply with the percentages

of low to moderate income workforce.

When you are in good employment times, as we are right now,

it is not a matter of having to make sure that you can supply a

job to a person because most workers out there are already in some

kind of job, but being forced to go find 51 percent low to moderate

income in good economic times like this does nothing more than

continue to constrain the per capita income level that we have. So

I think maybe as we move into new times of technology and fewer

jobs in the workplace in many instances because of technological

innovation, we will find it tougher to comply with CDBG guidelines.

Chairman BARTLETT. I personally believe that there are some

Federal Government programs that are inherently beneficial, but I

think we always need to ask the question when we are coming to

defend a Federal program, are we defending it because we are just

happy to get some of our money back, or are we defending it because it is inherently a good program, and we need to make that

differentiation.
22

For those who are just happy to get our money back, then I think

they never should have taken it to begin with, but we need to be

careful that we are supporting Government programs because they

are inherently beneficial, not simply because they have already

taken our money and, let us see if we can’t get some of it back.

I want to thank you all very much for your testimony. Before we

close, I would just like to mention the Community Reinvestment

Act and the small banks. That is a burden on small banks, from

my experience, which is totally unjustified and unnecessary.

The small banks in the community that I live in would advertise

for customers, and their advertisement would be ‘‘You should bank

with us because we invest more of our money in the community

than our competitor does’’. Now, when a bank is getting its customers that way, why do they have to be burdened with this Community Reinvestment Act?

Mr. GLOVER. Most small banks, community banks, are exempted

from the CRA.

Chairman BARTLETT. Well, the ones that I deal with—okay, you

can be a small bank and be a national bank, then you are not exempted, are you?

Mr. GLOVER. It depends on asset size, and I don’t remember

what the break is, $20 million or $100 million in assets. I think it

is $100 million.

Chairman BARTLETT. Well, you have to be pretty small then not

to be exempted from it because the banks that I deal with are burdened with it because they mentioned that as one of the specific

things they have to deal with. Maybe that line needs to be drawn

at a different—not really so much talking about the size of the

bank as where the bank is located.

A bank in Baltimore City may need community reinvestment obligation because reinvesting in that community is an economically

tough thing to do. In Frederick, Maryland, reinvesting in our community is a desirable thing for the bank to do. They vie with each

other to see who can reinvest a bigger percent of their money in

the community because that is how they attract customers.

Mr. GLOVER. This is one thing that I think the Community Reinvestment Act data will show. It is going to be very important for

us to look to see how much big bank holding companies, which

bought up a bunch of local banks, are they pulling out of that local

bank and how much are they putting back in loans. If they pull out

too much, the data are one of the only things that we have got that

monitors that.

So, the local bank information is very important for this. You

don’t need it to show that they lend at home that is the only market they have. But, the big banks can decide it is not economical.

So, we are watching that. We have spent a good bit of time studying banking and looking at banking.

Chairman BARTLETT. You mentioned to me the reaction of large

businesses and small businesses to regulations, that large businesses just consider it a part of the cost of doing business and they

build it into their cost. Another incentive they have is that frequently the biggest competitor for large business is small business,

and since small businesses are disproportionately affected by regulations, the large businesses actually encourage regulations, or not
23

discourage them, because it helps to tilt the playing field in their

favor.

That is particularly true for banks. I have just had a number of

small bankers come to me, showing me large stacks of regulations.

They have to hire full-time people that do nothing but read these

regulations and respond to them. If you have a big bank—if you

have 100 people and you have to hire three to keep up with the

regulations, that is not bad.

If you have four people and three of them have to keep up with

the regulations, obviously that won’t work, so that is where our

small banks are, and I think there needs to be some way to relieve

them of many of these regulatory obligations or they are simply

going to cease to exist.

Mr. GLOVER. You are absolutely right. We don’t see enough new

banks being started to replace those that are leaving, and we don’t

have the community involvement when the bankers and the bank

decisions are being made in North Carolina or California or New

York and not in the local community, and sometimes not even the

local state. And that is a real problem, it is a real concern. It is

something we have got to watch for, but at the same time we need

to change the regulatory burdens to encourage more new banks to

be created, and you are right, the small banks are disproportionately affected by the burdens.

Chairman BARTLETT. I want to thank you all very much for your

testimony. As Mr. Glover mentioned, we are continually trying to

improve the legislation, and so if you have suggestions, specific

suggestions, for improving the legislation, please let us know because each year we have a new or can have a new authorization

bill which will include changes that would be beneficial to the

small business community. It is not that the Congress is insensitive, we just generally are somewhat ignorant, and so we need your

help.

Thank you all very much for your testimony.

Chairman BARTLETT. I thank the members of our second panel.

This is where the rubber hits the road. These are the small business people. Our first witness is Randall Nixon of Nixon’s Farm.

I have had the privilege of visiting his farm, and thank you very

much for being a witness.

Our second witness is not Robert Schulze, it is John Schulze, and

we visited your organizations, and thank you very much for being

a witness.

And Ken Williams, CEO Director, Howard County Chamber of

Commerce. Thank you very much, and we will start with Mr.

Nixon. By the way, your full written testimony, without objection,

is made a part of the record, so you can feel free to summarize, and

in our discussion and questions and answers which follows you will

have ample opportunity to expand on issues that are of importance.

STATEMENT OF MR. RANDALL NIXON, NIXON’S FARM

Mr. NIXON. Thank you, Congressman. I first want to thank you

and the members of the Committee for giving us an opportunity to

testify and getting outside of the bubble which is known as Washington, D.C. and actually coming to Main Street.
24

I was very pleased to see Major Clark, my former immediate

boss, who is the Assistant Chief Counsel for Advocacy for the Small

Business Administration, and Major and I actually worked on the

Small Business Committee together several decades ago. In another life, I was a Legislative Assistant to a Congressman and actually served on the Committee that you now sit on. And I learned

several things when I worked in Washington.

One was that everyone thinks that every other Congressman is

a bum except their Congressman, and the other thing is that most

people really don’t know very much about what Congress does, and

I am very pleased to say that I have observed you in action, and

I do follow Congress very closely. I am one of the few people I know

that actually subscribes to the Congressional Record and actually

reads it. I think it is the greatest unedited newspaper in America.

And I know what kind of work you do, and I am very, very pleased

that you represent us in Howard County and in the Western part

of the State.

For the record, my name is Randall Nixon. I own Nixon’s Farm

which is located in West Friendship. As a business, we are both a

farm and an entrepreneurial business. We are in the agri-tourism

business. We provide services ranging from large corporate picnics

and parties to wedding receptions, bar mitzvahs, conferences, retreats, we do a great many church events, and we essentially keep

the land ‘‘pretty’’ so that people can come and eat our food. And by

the way, I am going to summarize most of my testimony. I am

going to read part of it because I want to emphasize some of it and

articulate from some of it.

We, as one of the State’s oldest minority businesses, are interested in expanding our business. We think we have some very

unique opportunities that are available to us both by virtue of geography and of extremely hard work and perseverance, and just

plain, sheer pigheadedness. We just are not going anywhere else.

And I have summarized some of our history and our business. We

are in the midst of a million-dollar expansion.

Congressman, you haven’t been to the Farm since last August,

so you have got to come back and look at our new ballroom. We

just redesigned and expanded our 137-year-old barn, it is now a

gorgeous, what I call, a 19th century country ballroom. I literally

take brides in there and they look at it and they say, ‘‘Oh, my God,

how much is the deposit’’. So, we have done very, very well with

it so far.

We are in the midst of completing a large commercial commissary from which we hope to expand dramatically and become

the dominant caterer in Western Howard County and beyond. So

we have some very substantial plans for expansion.

We currently have 15 full-time employees, and about 30 parttime employees, and our aspiration is to grow quite dramatically.

We think we can actually grow to be one of those larger small businesses with 400–500 employees over the next ten years. We think

the opportunities are that great.

I have to say that Isaac Newton, when he was elected to the

Royal College of Sciences, said, ‘‘If I see farther than other people,

it is because I have stood on the shoulders of giants’’. And it is because of the dedication and passion that my parents have had in
25

literally keeping the farm when land really wasn’t worth very

much in the 1950s. My parents purchased the farm in 1956 for

about $150 an acre, and I have since had it reassessed and it has

appreciated about 15,000 percent, so I would say it was a very good

return on investment.

I want to highlight some of the things that we have experienced

with respect to the Federal Government and how we think the Federal Government both helps and has hurt us, and what things we

think need to change in that process.

I first want to talk about the SBA Guaranteed Loan process and

our experience in it, and I am pleased to say that for the most part

it has been a pleasant experience. As I said, we are one of Maryland’s oldest and most successful minority businesses. When I say

successful, I mean we survived. The vast majority of minority businesses do not survive, and that is a great tragedy. It is an

unspoken tragedy in America. So we have gone through the process

of trying to expand.

And we always thought—because up until relatively recently we

have been a debt-free business. We have run on cashflow, like a lot

of small businesses do. And we thought that when it came time to

borrow money, that it would be a relatively simple process because

we are sitting on over $4 million worth of real estate, we have impeccable credit, we have positive cashflow.

We said, well, when we are ready to expand, we will simply go

expand. And we found that banks were quite reluctant to talk to

us, and we were astonished. And we said, well, wait a minute, we

are the Nixons, don’t you know who we are? We have done all

kinds of charitable activities in the community. We support the

community. We are fixtures in the community, we are an icon. And

their response was, ‘‘Well, we think you are not collateral short,

but cash short’’. And we said, look at these rosy projections. Look

at all these wonderful things we are doing. Look at what we have

done in the past. And the banks were quite reluctant to make that

leap.

And so the SBA has been very instrumental in, number one, providing the loan guarantees and, number two, helping to clear the

path. Bankers and entrepreneurs speak a different language, as I

have often said, it is sort of a private language issue, and entrepreneurs see things that can happen, as you know, and make them

happen one way or the other, and bankers tend to be very risk

averse people, which is not to denigrate them. Government lawyers

tend to be risk averse people, and I was one of those once, but I

got over it. I improved.

But the SBA really did help us in giving us the credibility that

we needed to overcome the reluctance of the banks, and we have

been able to—we told the banks what we would do, precisely how

we would do it, we had a superb business plan—and, parenthetically, there are basically two kinds of business plans. There is the

business plan that you write to give to the bank, and you say, boy,

done with that, and you are finished with it.

And there is what I call the ‘‘battle plan’’, and the battle plan is

my real passion in the business, and that is the plan that you actually work from, and I use a very crass and mundane example and

it is one I use all the time, and I say, how do we clean the bath-
26

rooms here? How do we do that? What is the system? What is the

methodology? How do we do it? How was it done? How was it

checked? And Mr. Schulze might—and his passion for cleanliness

in his establishments is well known.

So that is the kind of detail that we work on. It is very important

to us. It is as much a moral issue as it is a cleanliness issue. So,

the SBA has helped us in that process, and I want to publicly

thank Allen Stevenson, who is the District Director of the SBA in

Baltimore, and his assistants, Frank Henson and Rick Miller, who

are just outstanding public servants, people who have a passion for

small business and really want small business succeed.

I do have several criticisms of the process, of the SBA Guaranteed Loan process. It is very expensive, and it is expensive because

of the regulatory requirements that it entails. You have to spend

a great deal of time and money in the process, and in order to do

that—very few minority businesses can do that because it is just

very pricey. You have to have a lot of cash to be able to go out and

borrow cash.

And because we have always been a profitable business, we were

able to do that, but it takes a lot of time. You have to hire accountants and attorneys and you have to go through the process. And

I am sure that there is a better way that it can be done, something

which would be less costly and less timely. We have literally been

in this process—it took us about a year to go through the entire

process, and a lot of businesses, a lot of business people, don’t believe that we can actually—they are amazed that it has taken us,

with our reputation and our collateral, that it has taken us as long

as it has to actually obtain the cash that we needed to expand. So,

I do think that there is room for improvement there.

You did mention the Community Reinvestment Act. I do think

that with respect to the banks that we spoke to, that the Community Reinvestment Act is both a burden and a benefit to banks, depending on whom you speak to, and I do think—and we did speak

to several small rural banks, and they have a very different view

of CRA than large urban banks—and there has to be some way to

rationalize the process so that—and let me say parenthetically that

the small rural banks have been far more cooperative in talking to

us than the large urban banks, I think, partly because they understand land as collateral, and a lot of large urban banks do not.

They are not looking for that. And I think small rural banks are

much more hungry for customers who can actually produce the

goods. And so I think they have a very different view of things.

And I have anecdotally, from Major Clark and from other people

who are involved in small business, heard some real horror stories

about small rural banks that are put in the position where they

have to make loans that they really don’t know very much about

because of CRA. So I think that is something that needs to be

looked at in a rational way as opposed to a regulatory way.

I do want to talk about the Federal 8(a) application process

which we are currently involved in. As a former staffer on this

Committee, I have heard and seen very many horror stories regarding the 8(a) loan process, the time that it takes. Again, you have

to be a very successful business to apply for the 8(a) process because it is extremely expensive.
27

It is very costly. To date, we have spent over $10,000 in administrative and professional costs, just to be eligible to apply for the

8(a) process. And I recognize and I have always applauded the

goals of the 8(a) program because it is very important that we

grow, all business in all sectors of the country, and minority business in particular has been left behind in these prosperous times.

And I recognize the need to police the process.

The phenomenon we experience in minority business of businesses that masquerade as minority businesses and in fact aren’t

is a terrible blight on the process, and I think it is a wonderful concept that we try to ferret out those people that are trying to defraud the taxpayer.

By the same token, it is a very expensive and elaborate and

sometimes mindless process as you go through the regulatory

issues which we are currently going through. We are in the throes

of this right now. We expect to be finished in the next several

weeks, and we are looking forward to competing, and we are looking forward to having the opportunity to receive procurement opportunities.

And let me say again parenthetically, Congressman, that the 8(a)

program and the prospects of our getting to the program were a

significant carrot in attracting lenders to us, enabling us to do

what we are currently doing now.

And I am going to read this last paragraph of my testimony, and

it is called The Final Plea for Small Business As A Vehicle For Social Change. And I feel privileged to sit beside John Schulze today,

who has done a great deal for young people in this County and

throughout the State and in his own very quiet way—he doesn’t

know I know this—in his own very quiet way has been a tremendous advocate for social change and for opportunities for young

people and young people of color in the State of Maryland.

And I say that the story of Nixon’s Farm is an aspiring one. We

have always aspired to be the small business that could and did.

Profitability and quality for our family are major motivations for

us, but our social mission is also very important. As a third generation entrepreneur, I have always held that Thomas Jefferson’s observation, God save us from governments that would save us from

ourselves. Government cannot be called upon to save every social

ill, nor can it be all things to all people. Government is at its best,

it seems to me, when it facilitates the process of people trying to

live their lives better. Government is at its worst when it tries to

live their lives for them.

Our mission, the Nixon’s Farm mission, is to touch people in extraordinary ways, and it has applications that far transcend government. I am always deeply suspicious of young people when they

get into government, particularly on the regulatory side—but I

have seen it when I was a young staffer in Congress as well—people love government so much that they want to do it all the time,

and I think that my journey is instructive.

I went to Capitol Hill, I learned all about Washington and, like

Cincinnatus, I left and I came home to run my family business, and

I think that is a good migration to take place. We need to understand government and the apparatus of government, how it works,

and then we need to go home and earn a living.
28

I know of no better way of helping someone improve his life than

by giving him a job and pointing him toward a morally sound environment. We do this at Nixon’s Farm all the time. Every small

business does it. It is slow, it is incremental, and it is messy, but

it is the most effective method I know of.

Winston Churchill once said, ‘‘Some think that industry should

be exploited, others think it should be punished, but they do not

see it for what it is, the sturdy horse that pulls the plow’’. When

we think about small business and we think about how we can affect social change, and when you think about the mission of government versus the mission of small business, we really don’t see the

remarkable little stories—and I have dozens of them to tell you,

and I would probably tell you ad nauseam if I didn’t constrain myself—about young people who have come to me or come to John

Schulze and have said, ‘‘I need a job’’, and in the process of taking

this young person, you literally teach them how to work. You teach

them how to conduct themselves. You help them get through high

school or college.

It is a wonderful, fulfilling transcendent process, and it is as

much a part of our vision about what we do as a minority business,

as a small business, as making a profit. And as you know, our political views are similar, Congressman, and I have long said that

the difference between Conservatives and Liberals is that Liberals

want to constrain people because they are afraid people are going

to fly off and do terrible things. The Conservatives believe that people should be set free. And as a general rule of thumb, I do think

that we need to liberate small business in America, constrain government, and let small business do what it does best.

Thank you, Congressman.

[Mr. Nixon’s statement may be found in Appendix.]

Chairman BARTLETT. Thank you very much for your testimony.

Mr. Schulze.

STATEMENT OF MR. JOHN SCHULZE, VICE PRESIDENT, PIZZA

HUT OF MARYLAND

Mr. SCHULZE. Thank you. I won’t be nearly as long, I’m not nearly as eloquent. I have to read a lot of what I am going to say here.

Pizza Hut of Maryland was started back in 1969 by my dad, and

we took over an area that had no stores in it, no development, and

we have several counties, Howard and Carroll in your district, and

then Baltimore all the way to Delaware. We presently have 49

stores. We have 1,400 employees and, coincidentally, before I came

over here, I left a meeting we were having in our office with all

of our management people. I was put on the agenda first so I could

get over here to speak.

And one of the things I said to them, which may sound a little

corny—but I think it is true of anybody who has a business—I feel

a very keen responsibility to all 1,400 that tomorrow morning I can

open the doors to my business and they have a place to work. Is

it self-serving? Yes, sure it is. But it is what I think drives most

people that are in business.

I sat here listening to the last segment of the previous testimony,

and I was struck by two comments that were made. One was the

unintended consequences of regulatory burdens—and I don’t re-
29

member, which gentleman actually said it. People of good mind try

to do something and they mess it up because they don’t know

enough about your business to really do it right. And that is taking

it out of context a little bit, what I heard, but it is exactly what

they said.

And the other thing that I thought was kind of humorous was

the IRS is being asked to take on a regulatory burden and they are

fighting it. I almost started laughing, and I realized I shouldn’t be

laughing back there while somebody was testifying.

In small business, regulatory burdens just come at us. We accept

it. Small business accepts it as a part of doing business. We accept

it because we don’t have the time nor the energy nor the money

to fight it, and we know that.

And based on that statement—I will probably read a lot of this

because I don’t want to miss—I have gone over it several times, but

I don’t want to just ad lib it and miss something.

When I received the request to testify, I was concerned and expressed that concern to Phil Straw of your office, that possibly

there was not a great deal for me to add to the agenda, as there

was no pending, current legislation that we were, per se, looking

at. I did advise Mr. Straw that I was one of those people who believe very strongly that any time Government, be it Federal or

State, involves themselves in my business to any extent, it is never

good. They don’t know it like we know it, they just can’t possibly

do it.

There is a need for Government and I don’t want anything that

is said during this testimony to be misconstrued on that subject.

When it comes to the general welfare of its citizens, the Government does have a role, and that role, I believe, is very clearly stated in the Constitution. However, as each Congress is elected, there

is a desire of legislators to continually add to the regulatory bureaucratic burden that is carried by small businesses.

In reviewing our files on various legislation that we have commented on, I think an excellent example of the point I am trying

to make is the action that was issued by President Clinton to the

Department of Labor to enact regulations allowing states to pay

persons up to 12 weeks for parental leave.

In a letter to the entire Maryland delegation dated December 2,

1999, I asked each member if, indeed, this issue does get to them,

to vote against it. It does, however, point up exactly what happens

to small business when some good-intentioned ideas are made into

law and government does this believing they have to be the sole

arbiter of what is in the employees’ and businesses’ best interests.

The Parental Leave Act may have been a good idea to protect an

employee from not having the ability to care for a loved one during

a time of crisis. Possibly during the Industrial Revolution this type

of legislation may have been needed but in all the years I have

been involved with Pizza Hut of Maryland, employees are not only

assets to our company but, as time goes by, they almost become

part of our family. I know of no employer who doesn’t believe this

and who hasn’t tried to do everything they can for their employees.

Let me stop right there and say something else. Congress is now

passing, or just currently passed, I believe, an increase of the minimum wage. We are paying $8.00 an hour. You guys have to hurry
30

to catch up. And I think that ought to explain exactly what we are

talking about. We don’t need Congress to tell us what we have to

pay to get people because we know. We know how bad it is right

now to hire people, how difficult it is to find employees.

I have served on several committees in Howard County, and everyone who has been in those rooms have heard me say this—we

are going to choke on our own prosperity. We continually build and

build and build service-related industry at the same time refusing

to build the infrastructure of blue collar, industrial, the type that

gives you the employees necessary.

Well, at the same time, in Howard County up until a few years

ago, the only lots you could build on were 3-acre lots. People

couldn’t afford to live where they worked, which is here in Howard

County, because they couldn’t find a place to live.

Therefore, we can argue the merits of the Family Leave Act, but

that is not the point of my testimony. The point is that as soon as

the Family Leave Act was passed, then we have in this case a

President, or it could have been a Senator or Congressman, who

sees a way to try and buy more votes by giving 12 weeks of paid

leave. This cannot happen under the law through the Federal Government, so we have a back door approach through the States.

Whether or not this passes the Congress again is not the point

of my testimony. The fact is, the effort to do it is the point—who

is going to pay for it? Certainly not the insurance companies. Who

is going to pay for the replacement of the employee for 12 weeks?

Not the insurance companies and not the Federal or State Government.

And who is going to handle the separation of the new employee

when the original employee comes back? It is just one question

after another because of one original piece of legislation, and how

long will it take the same legislators to mandate that the same

businesses compensate the employees that are leaving? Left alone,

businesses will do this on their own. It is a precious commodity to

any employer you can talk to.

Consider this, over time, when any regulation or law is passed,

it significantly ties our hands as responsible people to fairly treat

and adequately compensate our employees.

My dad—and I hate to sound like Brett Maverick, but some of

us in this room probably remember who Brett Maverick is and

some of you probably don’t—my dad used to say certain things that

I have grown up with, and as I have gotten older I found out he

was right. He said, when you define, you limit, and when you limit,

you constrain, and that is what is happening, and it happens to us

every day.

I would ask in the deliberations of this Subcommittee that you

use the premise that the law of supply and demand works. It works

at every level. It works for every instance and, if left alone, small

business will do the right thing many more times than not which—

here again not trying to be judgmental—I doubt the Department of

Labor or any other department of the Federal Government can say.

These are our interests. I thank you for your time.

[Mr. Schulze’s statement may be found in Appendix.]

Chairman BARTLETT. Thank you very much for your testimony.

Mr. Williams.
31

STATEMENT OF MR. KEN WILLIAMS, CEO DIRECTOR, HOWARD

COUNTY CHAMBER OF COMMERCE

Mr. WILLIAMS. Mr. Chairman, thank you very much for having

me here this morning, and I feel quite honored and privileged to

work with gentlemen like Mr. Nixon and Mr. Schulze with small

business.

As President and CEO of the Howard County Chamber of Commerce, we have a membership of 850 businesses in Howard County, 85 percent of our membership is 50 employees or less. So, when

I talk about small business, I am really talking about the small

businesses that make up business in not only Howard County, but

my experience as a Chamber professional over the last seven years

where I have served as a Chamber executive in both Martha’s

Vineyard and Geneva, New York in Central New York.

I am pleased to present testimony on the subject of the success

of Federal and community-based small business assistance programs and their impact on various segments of the small business

community.

As I said, as a Chamber professional, I have seven years of experience in serving what I feel is the backbone of our economy, community-based small business. It is from that perspective that I

have outlined my comments in the following categories: What small

businesses want, what they need to succeed, and the Federal assistance picture and how best to create successful public-private

partnerships.

What businesses want: A successful public-private partnership

designed to meet small business startup and growth needs must

start here. When I talk about public-private partnership, I am not

talking about big Government programs that help small business,

but where small businesses need assistance, and that is with counseling such as the Small Business Development Centers and

SCORE programs run through SBA, Economic Development Authorities and Chambers of Commerce.

Businesses need easy access to information, a streamlined business registration system, low interest loans and financial assistance—and what Mr. Nixon was talking about—take away some of

the burden of the paperwork and the financial requirements it

takes to go out and get the funding that you need to start a business. There are many people out there with terrific ideas on businesses that will enhance and grow a community, but are burdened

by too much paperwork. It is not easy to find information and not

too easy to apply and get to.

Many small businesses also need access to micro-loans for startup costs, particularly related to technology. They might just need

a computer, some computer training, computer hardware, and web

development—a startup cost in the range of $5,000–$10,000 for

some of these small home-based businesses that are beginning that

banks won’t traditionally make loans for. They will say, ‘‘Go ahead

and put it on your credit card’’, at 19.9 percent, and that is not

helpful or assisting with small business needs.

Small businesses want a map for taking their idea to the marketplace, to be a success, their vision needs to be successful and guidance to that vision. And I think one thing that both Mr. Nixon and

Mr. Schulze were discussing, to be left unfettered in their efforts
32

to start and grow their business. That means keep Government

away from adding new programs and new things that slows their

growth and development.

Paying $8.00 an hour. It takes Government longer to catch up

where small business is and knowing the marketplace of supply

and demand than will be of assistance to helping business grow.

What business needs. Simply understanding what small business

owners want and delivering it will not help them achieve success.

Often there are a number of unidentified needs to be met on the

path to achieving a vision of success. They include the ability to

test their assumptions, coaching and expertise from a mentor, access to best practice information about small business and their

business interests, technical assistance, and a trained and educated

workforce.

Many of those topics I just covered really come into play through

Small Business Development Centers and SCORE programs where

just some coaching and basic information to test their assumptions

on what it takes to get a business up and going can be extremely

helpful.

Programs designed to assist small business development. I think

one of the critical areas—and both Mr. Story and Mr. Nixon discussed it—was continuing assistance for women and minority

owned businesses. In communities that I have worked in, those

have been some of the main areas where small retail shops and

other businesses have been opening, and they need to have guidance. They need to have information provided to them, and we

need to continue to enhance those programs because it does do a

social good for a community and enhances the growth of a community.

I think one of the key things about Government programs, and

particularly SBDC—and I keep going back to this because I have

worked with it in three different areas of the country and they

have been successful in the three areas of the country that I have

been in—and that is the value at the local level, having a point of

contact that can help them navigate through local, State and Federal landscape, but here locally is of great assistance, helping them

not only design a business plan, but design a business plan that

will help them get the money they need to start up a business, to

grow their business, or take their business to the next level—and

to reiterate, the delivery of service at the local level, to me, is of

the utmost importance.

One of your questions was talking about the current economic

prosperity that we have. I am certainly not an expert in that area,

why we have the prosperity that we do. There are a number of factors and a number of statistics out there pointing to it, but I think

the discussion cannot go along without the discussion of technology

and the importance of technology and ebusiness.

Now, I will go off-track just a little bit and make a statement

that we hope that we have continued support of Congress for a

moratorium on new taxes, particularly on Internet taxes. I think

one of the reasons why we have been growing is that business has

been successful and technology has been successful, that the marketplace is really taking hold and really guiding the prosperity that

we have.
33

Mr. Chairman, thank you for having me this morning, and thank

you for listening to me ramble a little bit.

Chairman BARTLETT. Thank you. Thank you all very much for

your testimony.

Mr. Nixon, you quoted Thomas Jefferson. He is perhaps my favorite President, and the quote that I like best of his is, ‘‘The Government which governs best is the Government which governs

least’’, and all of you have expressed that in one way or another,

but he expressed it very succinctly at the very beginning of our

country.

You also mentioned helping young people, and your industry, the

restaurant industry, the food industry in general, does a very, very

good job of doing that. I know personally the managers of several

different kinds of fast food establishments that have a real commitment to young people, incenting them to go to school, sometimes

even providing scholarships when they go to school.

Not everybody will be flipping hamburgers all their life, or making pizzas, but what you learn there as a young person is invaluable later on. You learn to show up for work when you are supposed to be at work. You learn to do what you are told. You learn

to work with your colleagues. You learn to interface with customers

frequently. These are skills that will serve you well no matter

where you go.

Mr. Schulze, you mentioned the reasons for regulation. I remember eight years ago when I first started running for this office, that

I mentioned the two premises that I thought were the basis of most

regulations. One premise is that you, as an employer, are inherently evil and greedy and you are going to take advantage of your

employees, or if you are dealing with the public you are going to

take advantage of your customers unless ‘‘Big Brother’’ prevents

you from doing that.

The other premise, the other basis for regulations, is that every

citizen, every consumer, is incredibly stupid, and they are going to

do something to hurt themselves unless Big Brother has lots of regulations to prevent them from hurting themselves.

I personally reject both of those hypotheses. I think they are both

false. And I think that your assertions, all three of you, that small

business people really do care about their employees—I was a

small business person—more than any other person in all the

world, I was affected when one of my employees got hurt. They

were my friends as well as my employees. I lost them as a part of

the team. They could not be replaced.

I did homebuilding, and you really have a team when you are

building homes. They learn to work together. And I lost them as

a member of the team, and I couldn’t replace them. I couldn’t go

to the local ‘‘job shop’’ and get somebody to come in and replace

them as a member of that team. They would work all day and

hardly speak to each other about the job because they didn’t need

to, because they had worked together, they knew what the next

step was and what they needed to be doing.

Family leave, you mentioned. I remember I protested that, Mr.

Schulze, when we first debated it in the Congress. I pointed out to

them then that what we really were saying was that we had the

ability in the Congress to mandate prosperity. Of course you are
34

prosperous enough to give your employees family leave. And I

pointed out to them that if we really have that kind of power, then

I would like that we mandate some other things, like happiness.

If we can mandate prosperity, you can just as well mandate happiness. And from a personal perspective, I would be very interested

in mandating longevity. And I think that both of these are just as

doable as mandating prosperity.

Just a few weeks ago when the minimum wage came up—and

you mentioned that, Mr. Schulze—I went to the Floor, and Bill

Goodling from Pennsylvania, Chairman of the Education and Work

Force Committee, was managing the bill, and I asked him if he had

any time. And he said, ‘‘You can have all the time you want’’.

Ordinarily, you can’t get time because the Committee members—

and I am not on that Committee—consume all the time, but he

said they were afraid to come down and talk about minimum wage.

Well, I wasn’t afraid to talk about minimum wage, and so I took

five minutes of time. And what I did was to point out that what

we were really trying to do in that bill was to mandate prosperity,

that that was manifestly impossible to do because if we really

wanted to help these entry level workers who were heads of family—and very few of them are, over 85 percent of all the people

making minimum wage are either seniors who just want something

to do or they are kids, young people, who just need some more

spending money—for those who are heads of family, I want to give

them back all their payroll taxes.

I am delighted they are working rather than on welfare. I want

to give them health care insurance also, and if they need additional

help I want to give them that because you should live just as well

when you are working as you do when you are on welfare, and the

average family of four on welfare lives as well as if they made

$22,600 a year. You are not going to make entry level $11.00 an

hour gross, over $7.00 an hour net, which is the equivalent. You

have to earn to live as well as you live on welfare, and I figure that

when you are working, you ought to live at least as well as you do

on welfare. So I have no problem helping these people who want

to get off welfare and want to work.

I, of course, voted against minimum wages, it is not an issue in

our district. They are hanging out signs at Sheets, $7.50 an hour.

Mr. Schulze, you say you are offering $8.00 an hour to try to get

employees for your business. But I will tell you where it really is

important, is in those few places in our country where what you

are doing is cutting off the bottom rung of the economic ladder.

You cannot mandate—what I pointed out in my testimony was,

there when I was debating this—that if we really do have the

power to mandate prosperity, why are we so stingy? Why only another dollar an hour? Why don’t we make minimum wage $10 an

hour, or even $20 an hour, if we have the power to mandate? Why

would we want to be so stingy.

The response was, ‘‘Oh, we would kill jobs if you do that’’. You

are right. You also kill some jobs when you make it $6.15 an hour

rather than $5.15—not in our district, but in those places where

these young people desperately need that bottom rung of the economic ladder.
35

You cannot, in Congress, determine what a job is worth, the marketplace does that. All we can do in Congress is to help those

where the marketplace has set a remuneration which is not equivalent to what it takes to live, then we have an obligation to help

them. They will not always be there. They stay very short time at

minimum wage. They get seniority, they get experience, they move

up, and soon they won’t need our help. We have been having far

too many handouts, we need to give some hand-ups, and that is

what we tried to do in our Welfare Reform. It was enormously successful.

Mr. Schulze, you also mentioned service industry versus manufacturing. We have, I think, far too big a focus on service industries

rather than manufacturing. Our balance of trade deficit now is

about $300 billion. There is no way of looking at that, I think, but

that that is $300 billion of wealth every year leaving our country.

We are a very wealthy country. How long can we continue to do

that and still be a wealthy country?

One of my staff members who is here with me today, John

Darnell, pointed out to me several years ago that if you push to the

ultimate this service-based industry, you come to the point that all

we do is cut each other’s hair. Obviously, we can’t have a viable

economy if all we do is cut each other’s hair.

Manufacturing produces wealth. Farming produces wealth. I am

a wealth consumer now. I used to be a wealth producer, but now

I am a wealth consumer. All of the other industries simply consume wealth or are a part of the structure necessary for producing

wealth, but they don’t produce wealth. You produce wealth only by

manufacturing and only by farming where the cost, the value, of

what goes into the process is less than the value of what comes out

of the process, and most of our industries, as a matter of fact, don’t

produce wealth, and what we are doing is systematically moving

the wealth producing industries overseas, and we need to reverse

that process.

Mr. Williams, you mentioned the Internet tax and your hope that

we wouldn’t have one. You won’t with my vote. That doesn’t mean

we won’t have one because Congress loves to spend money, and if

you are going to spend it you have got to get it somewhere, and

we now have a commitment not to go into debt again, not to have

a deficit, so there are going to be increasing pressures to tax the

Internet because ecommerce is growing very, very, very rapidly.

In closing, let me ask you if you have suggestions for changes in

legislation that would be helpful to small business, please let us

know. I am very pleased that Mr. Nixon worked as a staffer on the

Small Business Committee a number of years ago. You don’t look

old enough to have done that really in another life.

Mr. NIXON. I have heard that before, Congressman. I tell people

I am like Dorian Gray, I have got a picture in my closet that looks

like him.

Chairman BARTLETT. When were you on the Hill?

Mr. NIXON. From 1978 to 1982.

Chairman BARTLETT. Okay. That was a couple of decades ago.

Mr. NIXON. It was a while ago.

Chairman BARTLETT. Okay.
36

Mr. NIXON. Congressman, if I may, the idea—this idea has been

bandied about for about 40 years now, and it shows no more chance

of passing than it did four years ago, but I have long supported the

concept of a wage differential, a youth wage differential, a senior

wage differential. When you look at the commitment that we here,

John and I, go through to hire a young person, to train that person,

to literally in some instances—I mean, you literally have to train

this young person how to talk, and let me give you an anecdote,

and I will try and be brief.

A few years ago, one of my employees came to me and said, ‘‘I

really don’t know what to do with my son. He is growing up, and

we live in a very rough section of Baltimore, and I just can’t leave

it at home anymore because he is starting to associate with the

older boys and he is starting to get in with a rough crowd. Would

you mind if he came out here to work with me at the Farm?’’ And

she was one of my best employees, and I said, ‘‘Sure, you can’’.

Well, we are talking about a young man who literally had never

learned how to talk. He had never learned how to dress appropriately for work. And I literally had to stand behind him for three

months, throughout the summer months, and mimic the things

that I wanted him to say. I would stand behind him and I would

say, ‘‘Hello, how are you?’’ And he would say, ‘‘Hello, how are you?’’

And I would say, ‘‘Would you like some fries with that?’’ ‘‘Would

you like some fries with that?’’

And it literally took this young man about 18 months to get up

to speed, and I want to tell you, he was not worth what I was paying him. And if we had a youth differential and if we had some sort

of program in place where I would not have to come out of my

pocket to train this young man, I would have taken on five or six

young men that summer instead of the one project that I had to

take on, and five or six young men would have been helped, five

or six young people would have been able to get out of their rough

neighborhood and come to my beautiful Farm and work for me.

And I am very pleased to say that that young man now is very interested in going to the culinary college in Baltimore, and perhaps

one day he will be able to come back to me and I can hire him as

a chef for $40,000.

So that is the kind of thing that Congress needs to take a real

world look at. One of the things that we—because we tend to put

labels on and we tend to get focused on whether we are black or

white, or Republican or Democrats or Liberals or Conservatives—

and many of your colleagues tend to think so much in terms of labels that they really don’t think in terms of helping people, and

this is one area we can help vast numbers of people while we help

the productivity of our businesses.

Chairman BARTLETT. Of course, from a personal perspective,

what I would like to do is abolish the minimum wage and recognize

the reality that the marketplace determines the wage, not some bureaucrat sitting in Washington, or some Congressman or some Senator. Then I think that society—and a part of that society is Government—has an obligation that once the marketplace has determined the value of a job, that nobody will be hungry, that nobody

will be cold, that nobody will be on the street in this great country,

but I do not think that it is a rational function of Government for
37

us to pretend that we can mandate prosperity and determine what

the minimum wage ought to be.

And you have made a very effective argument that establishing

minimum wage is hurting two groups of people, one are seniors

who want to come back—emotionally, psychologically, they need to

be involved in the workforce, they want to come back—and young

people that are not worth the minimum wage, but they need training, and you would be happy to work with several of those where

now you are limited to working with one, if you didn’t have this

constraint imposed on you.

I just think that everybody would be better off if we saw Government’s role as supporting the private sector rather than mandating

what the private sector does. And you can’t mandate prosperity,

that is manifestly impossible. As long as we are lagging what is actually happening—and we are doing that certainly in your district,

Mr. Schulze, where you have your stores, and if you are paying

$8.00 an hour, $6.15 is not going to be relevant at all—but there

are some places where that is relevant, and in those few places it

will really raise the minimum wage, you are simply hurting the

people that you are pretending that you want to help.

I tell audiences that I know that Liberals love poor people because they keep making more of them.

Well, thank you all very much for your testimony. Again, if you

have suggestions for changes that we can make in legislation that

are going to be beneficial to the small business community, please

let us know. Thank you for your testimony, and our Subcommittee

hearing is in adjournment.

[Whereupon, at 12:20 p.m., the Subcommittee was adjourned.]
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