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[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]

                   STRUGGLING TO GROW: ASSESSING THE 
            CHALLENGES FOR SMALL BUSINESSES IN RURAL AMERICA

=======================================================================

                                 HEARING

                               BEFORE THE

        SUBCOMMITTEE ON ECONOMIC GROWTH, TAX AND CAPITAL ACCESS

                                 OF THE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD
                           SEPTEMBER 8, 2016

                               __________

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT] 

                               

            Small Business Committee Document Number 114-070
              Available via the GPO Website: www.fdsys.gov
              
              
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                     U.S. GOVERNMENT PUBLISHING OFFICE
23-765                        WASHINGTON : 2017                     
                  
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                   HOUSE COMMITTEE ON SMALL BUSINESS

                      STEVE CHABOT, Ohio, Chairman
                            STEVE KING, Iowa
                      BLAINE LUETKEMEYER, Missouri
                        RICHARD HANNA, New York
                         TIM HUELSKAMP, Kansas
                         CHRIS GIBSON, New York
                          DAVE BRAT, Virginia
             AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
                        STEVE KNIGHT, California
                        CARLOS CURBELO, Florida
                         CRESENT HARDY, Nevada
                         WARREN DAVIDSON, Ohio
               NYDIA VELAZQUEZ, New York, Ranking Member
                         YVETTE CLARK, New York
                          JUDY CHU, California
                        JANICE HAHN, California
                     DONALD PAYNE, JR., New Jersey
                          GRACE MENG, New York
                       BRENDA LAWRENCE, Michigan
                       ALMA ADAMS, North Carolina
                      SETH MOULTON, Massachusetts

                   Kevin Fitzpatrick, Staff Director
                       Jan Oliver, Chief Counsel
                Adam Minehardt, Minority Staff Director
                            
                            
                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Tim Huelskamp...............................................     1
Hon. Judy Chu....................................................     2

                               WITNESSES

Mr. John Dearie, Author, ``Where the Job Are: Entrepreneurship 
  and the Soul of the American Economy'', Washington, DC.........     3
Mr. Robert Boyd, County Commissioner, Riley County, Manhattan, 
  KS, testifying on behalf of the National Association of 
  Counties.......................................................     5
Mr. Hugh Middleton, Co-Founder, Kopis Mobile LLC, Flowood, MS....     7
Ms. Linsley Kinkade, Deputy Director, U.S. Programs, Winrock 
  International, Little Rock, AR.................................     9

                                APPENDIX

Prepared Statements:
    Mr. John Dearie, Author, ``Where the Job Are: 
      Entrepreneurship and the Soul of the American Economy'', 
      Washington, DC.............................................    18
    Mr. Robert Boyd, County Commissioner, Riley County, 
      Manhattan, KS, testifying on behalf of the National 
      Association of Counties....................................    26
    Mr. Hugh Middleton, Co-Founder, Kopis Mobile LLC, Flowood, MS    34
    Ms. Linsley Kinkade, Deputy Director, U.S. Programs, Winrock 
      International, Little Rock, AR.............................    38
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    None.

 
 STRUGGLING TO GROW: ASSESSING THE CHALLENGES FOR SMALL BUSINESSES IN 
                             RURAL AMERICA

                              ----------                              

                      THURSDAY, SEPTEMBER 8, 2016

                  House of Representatives,
               Committee on Small Business,
                   Subcommittee on Economic Growth,
                                    Tax and Capital Access,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:00 a.m., in 
Room 2360, Rayburn House Office Building, Hon. Tim Huelskamp 
[chairman of the Subcommittee] presiding.
    Present: Representatives Huelskamp, Brad, Radewagen, Kelly, 
and Chu.
    Chairman HUELSKAMP. It has been about 8 years since the 
2008 financial crisis, and yet for many Americans it still 
feels like the economy has yet to recover. Just last year, 36 
percent of counties in the United States had a negative GDP 
growth rate. Much of this poor economic growth can be traced 
back to a lack of new business creation in rural America. When 
businesses cannot create jobs in rural America, economic growth 
suffers nationwide.
    From 2010 to 2014, half of all new businesses were started 
in just 20 of our nation's counties, all near large 
metropolitan centers. For these major coastal metro areas, 
small business growth is fairly strong. Cities like San 
Francisco and Miami are major hubs for business creation, and 
the population in these areas has reached record highs.
    Meanwhile, from 2010 to 2014, more Americans left 
nonmetropolitan counties than ever before. Rural counties have 
also seen a net decrease in business establishment. These two 
forces have combined to create a lost generation of 
entrepreneurs in a significant portion of the United States.
    If the United States is to remain economically vibrant in 
the near future, there needs to be economic growth, not in just 
major coastal cities, but all across America. As we stress time 
and time again in this Committee, the engine of economic growth 
and job creation and opportunity in this country comes from 
small businesses.
    While there are several reasons for this decline in 
entrepreneurship in rural America, many of the initiatives this 
Committee has focused on this Congress, including reducing 
regulatory burdens and improving avenues for small businesses 
to acquire capital, still remain at the forefront. The loss of 
community banks in this country due to regulatory challenges 
like Dodd-Frank have also hurt the rural communities served by 
these banks very hard.
    Today's hearing will be an opportunity for a distinguished 
panel from across the country to discuss how to promote small 
business growth in America's heartland. By understanding how 
small businesses can be successful in rural areas like my 
district in Kansas, we can not only improve the economic growth 
of the entire country but create the businesses and the 
products of the future right at home.
    I thank the witnesses for being here this morning and we 
look forward to your testimony.
    I now yield to Ranking Member Chu for opening remarks.
    Ms. CHU. Thank you, Mr. Chairman.
    Six years ago, the nation was in the early stages of 
recovery from one of the worst economic downturns in history. 
We lost 4 million jobs, 7 million people faced foreclosure, and 
families saw over $16 trillion in wealth disappear as the 
housing and stock market crashed. Now, as a nation, we have 
rebounded. Unemployment is below 5 percent, over 10 million new 
jobs have been created. We have reached record highs in stock 
market and retirement portfolios. New consumer protection laws 
have been implemented and consumers are confident that the 
United States is recovering.
    But we must acknowledge that this recovery has not been 
perfect. In fact, it is unlike any recovery that we have seen 
before. For example, the smallest rural counties saw more 
business establishments close than open, resulting in a 
negative growth rate.
    As a result, the U.S. economy is becoming more reliant on a 
small number of super performing counties for new institutions. 
As a matter of fact, only 20 counties were responsible for half 
of the net national increase in business establishments from 
2010 to 2014. In contrast, the economic expansion of the 1990s 
was driven by more rural economic development wherein counties 
under 100,000 people averaged 16 percent job growth, while 
counties over 1 million averaged just 7.7 percent.
    A look at why rural America is struggling shows a number of 
causes. Over the last 2 decades, there have been massive 
manufacturing job loss in areas that were once the epicenter 
for manufacturing in America. The U.S. lost 5 million 
manufacturing jobs between January 2000 and December 2014. The 
North American Free Trade Agreement, or NAFTA, also resulted in 
a $181 billion trade deficit with Mexico and Canada, and 
experts estimate it has cost us approximately 1 million 
American jobs.
    Furthermore, studies have shown that the rural population 
is increasing while jobs are decreasing, forcing, young 
talented workers to leave for urban areas with better job 
opportunities. These factors have created an atmosphere that is 
not attractive to entrepreneurs and one that we in Congress 
must work to turn around.
    While the problem and its many causes are clear, we must 
assess what solutions are possible. Fortunately, congressional 
Democrats have taken steps to address these conditions. For 
instance, Congressman Hoyer's Made in America plan includes 
enhancing vocational training, expanding entrepreneurship and 
innovation, and matching worker skills with job opportunities. 
These ideals are accomplished by investing in education, 
providing access to capital for small institutions, as well as 
alleviating tax and regulatory burdens.
    Another area of great importance is access to capital. 
During the recession, many entrepreneurs have struggled to 
receive the funding necessary to open a new business or expand 
an existing one. As shown in research, young firms are where 
most new jobs are created, and the lack of capital has directly 
lead to a slower recovery in rural areas.
    Congress has put forth solutions to rectify these issues. 
For example, I spearheaded changes to the SBA's 504 loan 
program which freed up more capital for small firms. The 504 
program is a useful financing tool for economic growth that 
provides small business with long-term fixed rate loans. By 
making the 504 refinancing program permanent, more small 
businesses will be able to reduce debt, increase liquidity, and 
ultimately create new jobs.
    Looking ahead, we need to gain an even better understanding 
of the extent of the problem and its root causes. Bringing new 
and innovative ideas to Congress will help us shape public 
policy to revitalize rural America.
    I thank the witnesses for being here today and I look 
forward to your comments.
    I yield back.
    Chairman HUELSKAMP. I thank the Ranking Member for her 
opening comments.
    Now I would like to introduce our first witness this 
morning, John Dearie, author of Where the Jobs Are: 
Entrepreneurship and the Soul of the American Economy. His book 
was published in 2013 and focuses on the fact that job creation 
and economic growth in this country are largely dependent on 
new business formation. Mr. Dearie is also the acting CEO of 
the Financial Services Forum in Washington, D.C., and is a 
member of the Policy Council at the Economic Innovation Group.
    Mr. Dearie, you have 5 minutes, and you may begin. Thank 
you for being here.

    STATEMENTS OF JOHN DEARIE, AUTHOR, WHERE THE JOBS ARE: 
 ENTREPRENEURSHIP AND THE SOUL OF THE AMERICAN ECONOMY; ROBERT 
   BOYD, COUNTY COMMISSIONER, RILEY COUNTY; HUGH MIDDLETON, 
   COFOUNDER, KOPIS MOBILE LLC; AND LINSLEY KINKADE, DEPUTY 
         DIRECTOR, U.S. PROGRAMS, WINROCK INTERNATIONAL

                    STATEMENT OF JOHN DEARIE

    Mr. DEARIE. Thank you, Chairman Huelskamp and Ranking 
Member Chu. The views I will be expressing today are my own, of 
course.
    Since emerging from the Great Recession more than 7 years 
ago, the U.S. economy has grown at an average annual rate of 
just 2.2 percent, more than a full percentage point slower than 
the post-World War II average of 3.4 percent. Indeed, the U.S. 
economy has not grown at 3 percent or better since 2005.
    In an economy the size of the U.S. economy, percentage 
points matter. Had the U.S. economy grown at 3.5 percent since 
emerging from the Great Recession in 2009, the GDP last year 
alone would have been more than $1 trillion greater. Over a 25-
year period, the difference between a U.S. economy growing at 
2.2 percent versus 3.5 percent is more than $100 trillion in 
additional economic output.
    Weak economic growth experienced since 2005 is the 
principal cause, in my view, of America's most serious 
challenges, including persistently high unemployment and 
underemployment, high and rising long-term debt, stagnant 
wages, wide and worsening income wealth and opportunity 
inequality, the highest poverty rate since the mid-1960s and 
record numbers of Americans reliant on government programs like 
food stamps and disability insurance.
    To meaningfully address these challenges and the anger, 
cynicism, and populism they inspire, we must accelerate 
economic growth back to the historical average of 3.5 percent 
on a sustained basis.
    In 1957, American economist Robert Solow demonstrated that 
most of economic growth cannot be attributed to increases in 
capital and labor, as most economists have previously believed, 
but rather only to gains in productivity driven by innovation. 
The great significance of Solow's work is that it not only 
defined the nature of economic growth, it also identified its 
principal source. That is because economists have long 
understood that innovation, a particularly major or disruptive 
innovation comes disproportionately from new businesses or 
startups.
    Unfortunately, us scholars at the Kauffman Foundation, the 
Brookings Institution and elsewhere have documented, 
entrepreneurship in America is in trouble. After remaining 
remarkably consistent for decades, the number of new businesses 
launched in the United States peaked in 2006 and then began a 
precipitous decline, a decline accelerated by the Great 
Recession. Perhaps most alarming, the number of new firms as a 
percentage of all firms has fallen near a 30-year low and this 
decline is occurring across a broad range of industry sectors, 
including high tech and in all 50 States.
    Circumstances in rural areas of America, as you alluded to 
in your opening statements, are particularly worrisome. A 
recent report by the Economic Innovation Group shows that most 
of the new business formation that has occurred since the Great 
Recession has been concentrated in high density urban or 
suburban areas. Indeed, since 2009, small counties have 
experienced net negative growth in the number of business 
establishments in their area. Such circumstances amount to 
nothing short of a national emergency.
    To find out why startup rates are falling, a colleague and 
I conducted roundtables with entrepreneurs in 12 cities across 
the United States asking them quite simply, what's in your way? 
Here is what they told us: We have the jobs and we need to fill 
them in order to survive and grow. We cannot find enough people 
that have the skills that we need. Our immigration policies 
don't effectively attract and retain the world's best and most 
innovative talent. Access to startup capital is even more tough 
in the wake of the financial crisis. Overregulation is killing 
us. Tax complexity and uncertainty is diverting far too much of 
our time and attention away from our new businesses, our 
products, and services.
    Finally, there is too much economic uncertainty and it is 
Washington's fault. It is the bickering and partisanship, the 
fiscal cliff, the debt ceiling, the government shutdowns, the 
inability to achieve tax reform or immigration reform, or to 
effectively deal with the national debt. Washington, they told 
us at roundtable after roundtable, is a generator of problems 
not solutions and it is killing the economy.
    With those insights in mind, my colleague and I developed a 
30-point policy plan for unleashing the growth and job-creating 
capacity of the entrepreneurial economy, based on what American 
entrepreneurs told us they need. The complete list of those 
proposals are in the appendix to my written testimony and I am 
happy to answer any questions about them.
    Economic growth is driven by gains in productivity, which 
are driven by innovation, which comes disproportionately from 
new businesses. Revitalization of American entrepreneurship, 
therefore, is the essential pathway to faster economic growth 
and the Nation's ability to meaningfully address its most 
serious socioeconomic problems.
    Thank you for the invitation to be here.
    Chairman HUELSKAMP. Thank you, Mr. Dearie. We appreciate 
your testimony.
    Our next witness is Robert Boyd, a Riley County 
commissioner from my district in Manhattan, Kansas. This 
morning he will be testifying on behalf of the National 
Association of Counties. Mr. Boyd's first term as county 
commissioner was elected in November of 2012. He also owns a 
dry cleaning business in the district.
    Mr. Boyd, I thank you for being here today, and I also 
thank you for service as a combat veteran on behalf of our 
country, and you may begin your testimony.

                    STATEMENT OF ROBERT BOYD

    Mr. BOYD. Mr. Chairman, thank you very much.
    Chairman Huelskamp, Ranking Member Chu, and members of the 
Subcommittee, my name is Robert Boyd, and I serve on the Board 
of County Commissioners for Riley County, Kansas. I am here 
today representing the National Association of Counties. As 
both a county-elected official and small business owner, I am 
honored to participate in today's hearing.
    Located in northeast Kansas, Riley County has a mix of both 
rural and urban areas. Manhattan is our largest city and county 
seat. We have over 75,000 residents and are home to Fort Riley 
and Kansas State University, two major economic engines for our 
region.
    We often hear that the U.S. economy is recovering from the 
Great Recession, but it is hard to feel this recovery on the 
ground in our State and counties. National and statewide 
economic data do not always paint an accurate picture of the 
local situation, because every county has its own unique 
challenges and opportunities. To provide a national perspective 
on the state of county economic conditions, National 
Association of Counties releases County Economies, an annual 
report on economic recovery and growth patterns across the 
nation's 3,069 county economies.
    The report looks at annual changes in four economic 
performance indicators in each county: Economic output or GDP, 
employment, unemployment rates, and median home prices.
    In 2015, counties across the country showed some signs of 
economic recovery, particularly on unemployment and home 
prices. For instance, more than 400 county economies closed 
their unemployment gaps and saw their home prices reach 
prerecession levels. On the other hand, only 7 percent of 
county economies have fully recovered to prerecession levels, 
on all four indicators, and 16 percent have yet to recover on 
any of the four economic indicators. In other words, many 
counties are still experiencing the recession.
    The outlook for our nation's small and rural counties is 
even more challenging. 70 percent of counties are considered 
small with populations of less than 50,000. Of those, only 
about 300 small county economies closed their unemployment gaps 
in 2015. Furthermore, almost half small county economies saw a 
decline in GDP, particularly those in the South and the 
Midwest.
    In Kansas, 100 out of 105 county economies saw job losses 
or flat employment. Let me repeat that, 100 out of 105 counties 
saw job losses or flat employment. Only one of the county 
economies in the State saw higher job growth. Additionally, 
over 60 percent experienced a decline in GDP. In Riley County, 
we have only recovered in GDP and home prices but are still 
struggling with jobs and unemployment rates.
    Many of our surrounding counties are experiencing an even 
slower recovery. None of our six neighboring counties have 
recovered all four indicators. Most of them saw declines in GDP 
and jobs, and we are not alone. Many rural counties faced 
similar headwinds. At the same time, small county governments 
must provide mandatory service and comply with the same 
regulations as our suburban and urban counterparts, and we have 
to do it all with limited ability to generate revenue and 
without economies to scale.
    While we face serious challenges, we are addressing these 
issues and strengthening our communities. We are supporting 
small business incubators and training programs, facilitating 
access to capital, and making major investment in critical 
local infrastructure. All of our efforts are aimed at fostering 
conditions for economic growth and improving the quality of 
life.
    In Riley County, we have partnered with Fort Riley, Kansas 
State University, the Kansas Department of Transportation, the 
U.S. Department of Transportation, and other local governments 
in the region to develop the Flint Hills Area Transportation 
Agency. This collaboration helps to connect our people to jobs, 
education, and health care. Programs like this help small 
businesses like mine to tap into regional workforce and 
positions for future growth.
    In conclusion, while some county economies have seen 
improvements, there is still a long way to go, especially for 
small rural counties. With improved collaboration and 
flexibility from our intergovernmental partners at the Federal 
and State levels, we can continue to provide the public 
services and basic infrastructure needed for economic growth 
and prosperity.
    Thank you for the opportunity to testify and I look forward 
to your questions.
    Chairman HUELSKAMP. Commissioner Boyd, I appreciate your 
testimony. Thank you for being with us here today.
    I now yield to Congressman Trent Kelly for the introduction 
of our third witness.
    Mr. KELLY. Thank you, Mr. Chairman. Our third witness this 
morning is Hugh Middleton, cofounder of Kopis Mobile in 
Flowood, Mississippi. Although Kopis Mobile is located in my 
colleague Mr. Harper's district, one of the cofounders, Henry 
Jones, is a fellow graduate of my alma mater Ole Miss, which is 
in my district also.
    Started in 2009, Kopis Mobile designs apps and app-enabled 
equipment for Department of Defense, law enforcement, and 
private security markets. They are represented today by 
cofounder Mr. Hugh Middleton, a former Navy SEAL officer.
    Thank you for your service to our country and for being 
here this morning, Mr. Middleton, and you may begin.

                  STATEMENT OF HUGH MIDDLETON

    Mr. MIDDLETON. Thank you. I appreciate it.
    Good morning, Chairman Huelskamp, Ranking Member Chu, and 
members of the Committee. Thank you for hosting this hearing on 
the challenges that small businesses face in rural America and 
for your invitation to provide remarks at this hearing.
    My name is Hugh Middleton. I am cofounder of Kopis Mobile, 
a small startup tech company headquartered in Flowood, 
Mississippi. Flowood is located just outside of Jackson, 
Mississippi. Before I get into what Kopis Mobile does, I would 
like to provide a little background about myself that I feel is 
pertinent to the work that we do.
    I am a former Navy SEAL officer. While on the SEAL teams, I 
was assigned to SEAL Teams 1, 3, 5, 6, and spent times in 
various overseas assignments, including Special Operations 
Joint Staffs. I have also worked in several U.S. embassies and 
consulates. I separated from the Navy in 2005, taking a 
management position in a large defense contracting company that 
supported then ongoing operations in Afghanistan and Iraq. 
Following that, I moved on to another defense company where I 
managed a staff of highly skilled intelligence analysts 
conducting intelligence and data exploitation focused on 
improvised explosive devices threat characterization.
    In January 2013, I cofounded Kopis Mobile with three super 
smart engineers who all worked at the same company that I did 
at the time. It may seem like an odd paring of backgrounds, and 
you are correct it is. We often can't understand what the other 
is saying, but we have made it work to develop some very 
leading edge products that didn't exist prior to us starting 
the company.
    Kopis Mobile is in a unique position as a provider of 
advanced mobile technology and products for the Department of 
Defense, law enforcement agencies, and the private security 
industry. We develop mobile technology to minimize the weight 
and enhance the equipment of soldiers, first responders, and 
law enforcement officers. This technology saves lives, saves 
time, and saves money.
    What we do is vitally important, especially to me, because 
I was on the other side of the fence at one time. I witnessed 
how long it takes to get the right equipment because of the 
overburdened bureaucracy of the procurement process. For a 
small company like us it really is a killer. We have equipment 
quotes sitting in the hands of military units for over 6 months 
before they are able to obligate funds for critically needed 
items. The problem is the same for first responders. The 
process equates to birthing a baby. It takes 9 months often to 
get through the grant process for them to obligate funds to 
buy, again, critically needed items.
    As with any startup business, it has been a struggle for 
us. I will go out on a limb and say it has been harder for us, 
given the industry that we are in. Not only are we a tech 
company from rural Mississippi, but we also have been trying to 
gain access into an industry dominated by the likes of Northrop 
Grumman, Raytheon, and Lockheed Martin. We have spent over 3 
years just trying to educate people on who we are and what we 
do. We obviously don't have any buildings with Kopis Mobile on 
the top of them across from the Pentagon.
    Most senior leaders think that because of digitization that 
they are more productive because of less paperwork. Actually, 
the opposite is happening. They have more paperwork than ever, 
and this translates to a 3 percent decrease in annual 
productivity within the military. Bureaucracy is increasing 
faster than automation, which means that over the past 20 
years, nearly half the military's productivity has been sucked 
dry by the time vampires of administrative tasks.
    The Federal Government spends about $20 billion a year on 
development of later stage technology for commercialization. 
Majority of this money is spent in large acquisition programs 
that incorporate technology that is not proven, which means the 
equipment takes way too long to get to the warfighter. This 
results in huge cost overruns, frustrated operators, and 
projects that are way behind schedule.
    The reason for this, most new technology dies on the vine 
because of the bureaucracy of the military. The GAO said 
technologies do not leave the lab because their potential has 
not been adequately demonstrated. The DOD is simply unwilling 
to fund final stages of development of a promising technology, 
preferring to invest in other aspects of the program that are 
viewed as more vital to success. The DOD's budgeting process 
requires investments to be targeted at least 2 years in advance 
of their activation, which makes it difficult for DOD to seize 
opportunities to introduce technological advances into 
acquisition programs.
    The problem is that only 5.71 percent of new technology 
ever gets into the hands of those that really need it. That is 
4 out of every 70 projects. When you realize that small 
business accounts for 99.7 percent of all new technology 
introduced, it becomes incredibly important for small 
businesses to be involved in technology development and 
transfer.
    The Under Secretary of Defense for Acquisition, Technology, 
Logistics reported the Federal Government has missed its small 
business goals for the last 16 years, despite the fact that 
buying from small businesses is far less painful. Frankly, 
buying from small guys like us eliminates red tape, shortens 
the technology transfer, speeds the time to get the operator 
equipment they really need, and makes life for the contracting 
officer easier.
    What this really means is that it is vitally important to 
partner with small businesses who talk directly to operators in 
order to cocreate useful technology. I am sure you are already 
aware small businesses are the backbone of the country. We 
create opportunity, generate jobs, invent new technology, and 
keep the economy going. We do all of this while being 
overregulated, overtaxed, and undersupported by the Federal 
Government. Everything from ObamaCare to mountains of paperwork 
are hindrances to the growth and health of a small business. 
With lower taxes and healthcare costs, we could hire more 
people, increase salaries, and bring better talent to 
Mississippi.
    Thank you. I look forward to your questions.
    Chairman HUELSKAMP. Thank you, Mr. Middleton. We appreciate 
your testimony.
    I next yield to Ms. Chu for introduction of our next 
witness.
    Ms. CHU. It is my pleasure to introduce Ms. Linsley 
Kinkade, Deputy Director of U.S. programs at Winrock 
International. In this role, Ms. Kinkade is responsible for 
developing and implementing entrepreneurship, community and 
workforce development projects in underserved areas. These 
projects work directly with disadvantaged population seeking 
training and support to enter the workforce and have lead to 
the employment of more than 200 previously unemployed or 
underemployed Arkansans to date.
    She is a certified professional community and economic 
developer and also chairs the Central Advisory Board at the 
Community Development Institute. Prior to joining Winrock, Ms. 
Kinkade spent a number of years on Capitol Hill working for 
Representative Vic Snyder and Senator Blanche Lincoln. She has 
a bachelor's degree in journalism and political science degree 
from the University of Arkansas.

                  STATEMENT OF LINSLEY KINKADE

    Ms. KINKADE. Chairman Huelskamp, Ranking Member Chu, 
distinguished members of the Committee, thank you for inviting 
me here today. My name is Linsley Kinkade, and I am the Deputy 
Director of U.S. programs at Winrock International. Winrock is 
a nonprofit organization that works with people in the United 
States and around the world to empower the disadvantaged, 
increase economic opportunity, and sustain natural resources.
    Winrock is based in Little Rock, Arkansas, the home state 
of our namesake, former governor, and Arkansas' original 
economic developer, Winthrop Rockefeller. I am pleased to be 
here today to discuss innovative and sustainable economic and 
community development models taking a place across rural 
America.
    Winrock's U.S. Programs is extensively involved in 
developing solutions for the challenges facing rural 
communities. Our on-the-ground technical assistance to 
community leaders, local organizations has been funded by 
grants and cooperative agreements from agencies and partners 
such as the United States Department of Agriculture, the Delta 
Regional Authority, the United States Department of Labor, the 
State of Arkansas, the Kellogg Foundation, and the Walton 
Family Foundation.
    Winrock is based in Little Rock, Arkansas, the heart of a 
six-county metropolitan region, which accounts for fewer than 
720,000 people. Compared to large counties in Florida, New 
York, or Texas, our metro area is certainly rural. However, 
Arkansas is home to more than 500 cities, with only 22 having a 
population above 20,000 and only 60 cities with a population 
above 5,000, thereby making the Little Rock metro area one of 
Arkansas' most urban environments.
    Winrock has seen successful economic and community 
development models blossom in both our urban and rural areas. 
The Arkansas Women's Business Center based in El Dorado, 
Arkansas, which is a city of a population of about 18,000, 
provides technical assistance and training tailored to meet the 
needs of women business owners across the state. Funded in part 
through a cooperative agreement with the Small Business 
Administration, since 2011, the Women's Business Center has 
provided training to more than 700 clients, helped 35 new 
businesses start, and assisted companies that have created 65 
jobs.
    The Innovate Arkansas initiative, funded by the State of 
Arkansas through its economic development commission, convened 
startup technology entrepreneurs in Arkansas and works with 
them as they become mature companies. Since 2008, Innovate 
Arkansas clients have launched more that 150 startups, created 
more than 600 jobs, and received more than $295 million in 
public and private investment.
    Entrepreneurs and business owners in these programs are to 
provide quality training, counseling, access to capital, and 
other resources needed to empower and equip them to ensure 
business success, with the ultimate goal of creating a 
sustainable entrepreneurial ecosystem.
    The Innovation Hub at Winrock is a perfect example of an 
innovative and broad-based approach to talent and enterprise 
development that can be applied to rural and urban communities 
alike. The Innovation Hub provides facilities and programs that 
support education and entrepreneurship for all age groups 
across a wide range of disciplines.
    The Innovation Hub has planned, developed, and administered 
a broad array of entrepreneurial programs, including HubX-
LifeSciences, a privately funded, world-class healthcare 
accelerator program that recently completed its initial cohort 
with seven highly accomplished companies from across the world. 
Those seven companies leveraged approximately $2 million of 
private capital from Arkansas-based investors.
    Economic development occurs in communities where people can 
live, work, and grow. The revitalization of main streets and 
courthouse squares across rural America can be the catalyst for 
new community investment. For example, municipal leaders in 
Lake Village, Arkansas, a community of about 2,500, recently 
realized that to compete and grow, the redevelopment of 
downtown was critical. By combining more than $2 million in 
funding from various Federal and State agencies and the city's 
own coffers, the city renovated a dilapidated downtown historic 
structure on its Main Street into a LEED-certified municipal 
building housing all city services. The project increased 
downtown foot traffic and convinced investors to renovate 
nearby buildings to house new small businesses interested in a 
downtown location.
    Our rural communities remain hopeful for the future. 
Coupling innovative entrepreneurship programs with quality of 
life and place-making revitalization efforts can bring 
increased economic development in urban and rural areas alike.
    Chairman Huelskamp, Ranking Member Chu, distinguished 
members of the Committee, thank you for having me here today. I 
appreciate the opportunity to speak with you and I am happy to 
answer any questions you may have.
    Chairman HUELSKAMP. Thank you, Ms. Kinkade. I appreciate 
your testimony.
    We will now begin our questioning, and I recognize myself 
for 5 minutes.
    First, Commissioner Boyd, representing a rural county, at 
least rural by definition nationally, could you provide some 
insight, particularly from yourself as a small businessman, of 
the challenges of operating a rural county in light of some of 
the difficulties we have discussed here today?
    Mr. BOYD. Yes, sir. Thank you very much, that is a very 
good question. We do struggle operating a small county today. 
We have partnerships, economic partnerships with private 
enterprises. We do economic development with our Chamber of 
Commerce, the Manhattan Area Chamber of Commerce. They provide 
our economic development guidance and activities.
    We also struggle with things such as labor. The recent 
labor legislation that takes effect here in December is going 
to be a burden on us. It is a burden on the small business. It 
is going to change how I do business, it is going to change how 
my people do it. It will change the county's employment.
    We also struggle with regulations. In the dry cleaning 
business, we are seeing huge increases in disposal fees that we 
are required to maintain. We are seeing things, in the county, 
such as waters of the U.S. that are impacting us as we go 
forward. So it is a struggle.
    What we need is partnerships, things such as working with 
us in formulating some of these challenges as you go forward. 
Each one of these people that have addressed us today are known 
to their local governments. We can help you partner, as we go 
forward, creating legislation that helps us to be the economic 
engines that we are.
    Chairman HUELSKAMP. Thank you.
    Mr. Dearie, a question. As you point out in your testimony, 
across America, there are more deaths than births of new 
businesses. If you had to pick one particular category amongst 
the litany of complaints, and most of them are centered around 
our problems in Washington, if you had to pick one, if we could 
change one, that would have the most impact, what would it be?
    Mr. DEARIE. It is a very good question and a very hard one 
to answer. I would start by answering, it is very important to 
keep in mind the simple things that startups need to thrive, 
entrepreneurs need to thrive. They need great new ideas. They 
need the talent and the capital to pursue those ideas and they 
need as few distractions, particularly unnecessary 
distractions, with regard to regulatory and tax burden 
complexity, uncertainty, et cetera.
    Because as new businesses, they simply don't have the 
resources or the time that existing businesses, even existing 
small businesses might have. Things my colleague just 
described, can be significant headaches to existing small 
businesses, can kill new businesses, even viable new 
businesses, simply because very often it is three or four folks 
around a conference room table and they are trying to focus on 
their new product, their new service and to penetrate the 
market. Anything that takes their eye off the ball dramatically 
increases the chances that they can fail.
    If there was one thing, if I were forced to mention one 
thing, which is the nature of your question, and I appreciate 
that, I would create a dual category, and that is this 
unnecessary distraction that I was just mentioning, and its 
regulatory and tax-related burden, uncertainty and complexity.
    The other categories of needs in terms of new ideas and the 
talent and capital to pursue them are incredibly important, of 
course. But if we had to focus on one thing that I think would 
provide enormous relief and increase the chances of new 
business formation, survival, and growth, it would be to pursue 
the idea that we put forward, my colleague and I, in our list 
of proposals, and that is to create a preferential, if you 
will, regulatory and tax framework treatment for new businesses 
during the critical first 5 years.
    Research shows that if new businesses can survive those 
first 5 years, the chances of them surviving long term go way 
up. You don't want to kill new businesses in the cradle, as it 
were, by burdening them with unnecessary regulatory and tax 
burden complexity, uncertainty. So, we propose a streamline, 
strip down, an on-ramp to viability. If I were forced to pick 
one thing, I think that is what it would be.
    Chairman HUELSKAMP. Thank you. I appreciate that testimony.
    Next, I recognize Ms. Chu for her 5 minutes of questions.
    Ms. CHU. Ms. Kinkade, today, the largest counties in the 
U.S. have produced 58 percent of the country's new businesses. 
The largest counties also produced more than twice as many jobs 
during the 2010 recovery as they did in past recoveries. Are 
there any economic philosophies that you believe can be taken 
from urban areas and implemented in rural areas to spur growth?
    Ms. KINKADE. Yes, absolutely. One thing we have seen quite 
successful across the State of Arkansas is focusing on industry 
clusters in regions. Whether that be an urban area or a rural 
area, working with industry that is already existing in a 
community and discovering what businesses are needed and 
suppliers are needed to continue to have that business in your 
community.
    When you look at it that way, you are not only creating new 
small business opportunities, but you are also providing 
business retention and expansion programs for industries that 
already exist by creating a community where that industry can 
stay and thrive and grow.
    Ms. CHU. Access to capital, of course, is extremely 
important for these small businesses to grow and to be 
maintained. In your opinion, what can be done to improve rural 
small businesses' access to capital?
    Ms. KINKADE. Access to capital is obviously a critical 
component of all small business development, and in rural areas 
it can be a challenge. We have seen microlending programs work 
in smaller areas where small businesses that don't need large 
loans or may not yet be bankable are receiving smaller funds 
from organizations that are able to provide the need for the 
startup capital to get a business going.
    I would also say developing venture capital in rural 
communities, angel investors, is extremely important as we get 
out into our rural areas. Arkansas is overall a rural state, so 
you could have venture capital funds across the state that may 
also provide funding into more urban and rural areas alike.
    Ms. CHU. Now, there are several programs that have been 
created at the state level that help to finance small 
businesses. For example, the rural entrepreneurship assistance 
program, REAP, has provided services to numerous small 
businesses throughout Nebraska. REAP has placed over $10 
million in loans and leveraged over $17 million in additional 
funds from other sources.
    Can you describe this model in more detail? In your 
opinion, does this program provide a realistic and effective 
model for other States to emulate?
    Ms. KINKADE. Absolutely. Access to capital in any form, 
whether from the state, federal, or local, or private 
investors, is critical to small business development. I find 
those programs to be extremely successful across the state, 
across the South in particular. I would say yes, that is a 
model that could very well be addressed in states and across 
the Federal and State Governments.
    Ms. CHU. Mr. Middleton, because of their capital intensive 
needs and the cost of new technology, small manufacturers 
frequently encounter what economists call the valley of death, 
and that is a period in the early stages of development where 
it becomes difficult to move past initial startup phase and 
enter into the mass production phase. As a technology company 
outside of Silicon Valley, what was your experience with growth 
and expansion?
    Mr. MIDDLETON. As I said in my testimony, it has been quite 
a struggle for us, again, because of the industry that we are 
in. It is dominated by very, very large companies that have 
lobby up here in D.C. We don't have any of that. The fact that 
we are literally inventing new technology for soldiers and 
first responders, again, we spend a great deal of time just 
traveling around trying to educate people on who we are and 
what we do.
    The battle of that new technology and trying to introduce 
it into the DOD and side step the large acquisition programs--
because what we do revolves around smartphones and tablets, and 
you know new phones come out every 6 months. By the time a 
soldier tells us what a requirement is, one of their pain 
points, we develop a product that will fix that, make them more 
efficient, and save them money. By the time it gets to them, it 
is already out of date and it is useless to them.
    So for us, it would be great to eliminate some of the 
roadblocks to get this new technology to first responders and 
to DOD members, especially the folks out on the pointy end of 
the spear that are out there running around in some pretty bad 
places of the world. We ought to get them these critically 
needed technology pieces of gear to them as fast as possible.
    Ms. CHU. Thank you. My time is up, I appreciate it.
    Chairman HUELSKAMP. Next, I recognize Congressman Trent 
Kelly for his 5 minutes of questions.
    Mr. KELLY. I wanted to first thank you, Mr. Chairman. I 
want to thank the staff and members of the Small Business 
Committee for reaching out to rural America and specifically to 
witnesses like these who represent most of our districts and 
our small business owners, so I wanted to thank y'all.
    We regularly hear from small business that testify before 
us about how the bureaucracy is such a great impediment to 
small businesses working with the Federal Government. Mr. 
Middleton, I will summarize, but you note in your testimony an 
interesting observation, that in an ever increasing digitized 
world, there is actually more paperwork than ever before. Your 
quote, ``bureaucracy is increasing faster than automation.''
    I would imagine that the bureaucracy plays a large part of 
DOD, as you mention in your testimony, being unwilling to fund 
final stages of development of a promising technology. What 
specific improvements would businesses like yours like to see 
with technology development programs to encourage more small 
businesses to do business with the Federal Government?
    Mr. MIDDLETON. There really has to be an incentive for 
doing business with the Federal Government. We are in the 
business that we do because of my background, and our goal is 
to increase the survivability of soldiers and first responders, 
again, to make them more efficient and try to make them save 
more money. There are so many roadblocks that impede a small 
company like us, that a lot of them, and there has been all 
kinds of things in the press, small tech companies refuse to do 
business with the Federal Government because of these hurdles.
    It is far easier in the commercial world to develop a 
product and get it out quickly. There is funding, there is less 
bureaucracy, less roadblocks, and there is a need there. We 
know there is a need within the military and first responder 
environments. The roadblocks that we face, we fortunately have 
been able to side step somewhat and be able to get around just, 
frankly, because of the people that I know, and being allowed 
to get in and talk to folks that I used to serve with, that 
have helped us out significantly. But if a company the size of 
ours doesn't have a person like me, their chances of 
survivability are significantly decreased.
    Mr. KELLY. This question is to all of you. If you can just 
briefly give maybe one or two or three examples very briefly so 
each of you get to respond. What are some of the largest 
barriers to entry for new businesses, and are rural businesses 
more affected by these barriers than urban counterparts? So, 
just one or two examples from each of you.
    We can start with you, Ms. Kinkade.
    Ms. KINKADE. One of the largest barriers is one of the 
things we have already addressed today, which is access to 
capital. Small businesses are growing. Finding the resources to 
get that business started, as my colleagues have mentioned 
today, is one of the most critical components and one of the 
hardest things to address in rural America.
    Mr. MIDDLETON. We were super fortunate that we had some 
investors, we raised a little bit of money, and we were able to 
take advantage of a small loan from the State of Mississippi, 
again, because of our background and folks willing to take a 
chance on a small company like us, a tech company. But with a 
company like ours in Mississippi, it is exceptionally hard to 
bring talent. There is a preconceived notion about Mississippi, 
you know, country, back woods, and it is absolutely not the 
case.
    There are exceptionally smart people we hire. We are 
currently hiring folks out of Ole Miss and Mississippi State 
that are brilliant young folks, and we are fortunate that we 
have access to that type of thing. But again, if you don't have 
that, you are really way behind the power curve.
    Mr. KELLY. Mr. Middleton, just to your point, I tell people 
all the time my area in north Mississippi is one of the fastest 
growing, industry and tech companies are coming all the time 
and we can't get people to come. They come down kicking and 
screaming, and the problem is once they come there, we can't 
get them to leave, they want to retire there and stay there 
forever. The press has a tendency to show things that are 
negative towards Mississippi, but the people who come there 
love the people, love the place, love the environment, and they 
stay there. So thank you for that comment.
    Mr. Boyd.
    Mr. BOYD. Thank you, sir. That is a very good question. I 
agree with Ms. Kinkade that financing is the number one hurdle 
that small business has to overcome.
    Second is creating a business plan. In our region, what we 
are seeing is a lack of workforce, and that is where we can 
come in and help partner developing the workforce people that 
we need, getting the community that we need to support that 
kind of business.
    Mr. DEARIE. As I said a minute ago, what entrepreneurs--and 
my focus is on entrepreneurs, not so much on small business, 
but I think there are overlapping priorities here. What 
entrepreneurs need to thrive is great new ideas and the talent 
and capital to pursue them. So echoing what my colleagues have 
said, it is workforce readiness and it is access to capital. 
Great new ideas stay in entrepreneurs' heads if they don't have 
those two resources.
    With regard to funding of new businesses, obviously, with 
regard to small business, community banks and their ability to 
thrive and do what they do best is incredibly important, and 
there has been a lot of conversation about the implications of 
Dodd-Frank on smaller community banks. It is my recollection, 
off the top of my head, that the launching of new banks has 
fallen to an 85 year low. There has only been about 3 new banks 
launched since 2010. It is absolutely unprecedented in this 
country. The numbers of banks who are either failing or 
merging, more merging with other banks to achieve some heft, 
which makes it easier to deal with regulation like Dodd-Frank, 
means that there are fewer and fewer community banks, and 
therefore fewer options for small businesses to go to.
    In the context of angel investment and venture capital, 
which are incredibly important for new businesses, it tends to 
be very lumpy. Venture capital rates, in terms of the amount of 
capital being raised and invested in recent years, is at record 
levels. But something like 80 percent is spent in either 
Silicon Valley; Cambridge, Massachusetts; or New York City, and 
everywhere in between it is a desert.
    Mr. KELLY. Thank you, Mr. Chairman. I yield back.
    Chairman HUELSKAMP. Next, I recognize Representative 
Radewagen for her 5 minutes of questions.
    Mrs. RADEWAGEN. Thank you, Chairman Huelskamp and Ranking 
Member Chu. I too would like to welcome the panel. Thank you 
for being here today.
    Almost all businesses in my home district in American Samoa 
are small businesses. Ms. Kinkade mentioned the microlending 
programs that could work very well, I think, in American Samoa. 
There are some of them that are starting up.
    I have a question for you, Mr. Dearie. Why has there been 
such a large number of startups in places like California, 
Florida, New York, and Texas? How can Washington promote 
similar growth in the rest of the country?
    Mr. DEARIE. Again, at the risk of repeating myself, what 
entrepreneurs and new business formation requires is new ideas 
and the capital and the talent to pursue those ideas. There are 
certain parts of the country, and you know what they are, it is 
Silicon Valley; it is New York City; it is Cambridge, 
Massachusetts; it is Austin, Texas; Boulder, Colorado. There 
are certain areas of the city that have extremely effective and 
efficient ecosystems for entrepreneurship. They tend to be 
characterized by having one or more top universities that are 
generators, not only of great new research, but great new 
talent. Because they are generators of new talent and new, 
ideas they tend to attract capital, so you have another element 
of success there.
    The question of what constitutes a really effective 
entrepreneurship ecosystem is one that is the subject of great 
debate, and what government can do to try to promote those 
kinds of circumstances elsewhere around the country is a very 
important one. It can be very tough for government to simply 
create ecosystems around the country. But I think what they can 
do, government public policymakers both here in Washington and 
at the state and local level across the country, they can 
promote the circumstances by which talent and capital and ideas 
find each other. If you look at the proposals that I submitted 
in the appendix to my written testimony, there are 30 specific 
policy ideas there that I think taken together can go a long 
way to promote the kind of ecosystems that you are talking 
about elsewhere outside of these traditional areas of 
entrepreneurship.
    Mrs. RADEWAGEN. Thank you, Mr. Dearie. Nothing wrong with 
repeating. As you may know, the United States territories, 
particularly my home district of American Samoa, are both 
geographically and economically isolated, so thank you.
    Mr. Boyd, please describe some of the challenges associated 
with making infrastructure investments with the limited 
resources of a smaller county. Do challenges keeping technology 
infrastructure up to date make it hard to attract businesses in 
rural areas?
    Mr. BOYD. Very good question, ma'am, thank you very much. 
It is a challenge. We would like to have high-speed Internet 
for all our citizens; we can't. We struggle with that. That 
because of how the State and the Federal Government have 
regulated the disbursement of those rights and certain entities 
do not want to participate. The communities aren't populous 
enough for them to render a profit.
    We also work with economic development groups in our 
county, such as the Manhattan Area Chamber of Commerce, to 
develop these innovative programs. I myself invest in an angel 
investment group with the chamber.
    Infrastructure. The hard infrastructure, roads and bridges, 
are always a struggle because it links into the national 
transportation system. We need help with those things. Counties 
have 54 percent of all the bridges in the United States and 
they are in terrible repair. We know that more than half are 
beyond their useful life. We have to address those. The FAST 
Act was a great program coming down to us, but it is only one 
step. We have a lot farther to go. So there are significant 
challenges.
    Mrs. RADEWAGEN. I yield back, Mr. Chairman.
    Chairman HUELSKAMP. Thank you for participation and series 
of questions from my colleagues. I appreciate the opportunity 
to discuss something very critical to many of our districts and 
indeed the entire country.
    I ask unanimous consent that members have 5 legislative 
days to submit statements and supporting materials for the 
record.
    Without objection, so ordered.
    This hearing is now adjourned.
    [Whereupon, at 10:52 a.m., the Subcommittee was adjourned.]
                            A P P E N D I X

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    Introduction

    Chairman Huelskamp, Ranking Member Chu and Members of the 
Subcommittee, thank you for the opportunity to testify today on 
both the challenges and opportunities that small and rural 
economies and small businesses are facing in our current 
economic climate.

    My name is Robert Boyd and I serve on the board of county 
commissioners for Riley County, Kansas. I am also here today 
representing the National Association of Counties (NACo).

    In addition to serving as a county commissioner, I am a 
military veteran and small business owner. I hail from a 
military family and served in the U.S. Army from 1968 to 1988. 
After retiring as an Army Aviator, I worked for Northwest 
Airlines as a commercial pilot. Prior to retiring as a 
commercial pilot in 2008, I started a local dry-cleaning 
business, which I still own and operate today. Our small 
company has grown into partnerships of dry cleaners and 
laundromats in our area, along with business consulting 
services, aviation management services and franchise 
restaurants in the Midwest.

    In 2012, my desire to help others thrive in the local 
marketplace led me to run for office and I was elected to serve 
on the Riley County Board of Commissioners. As a county 
commissioner, I carry with me that same commitment to 
developing entrepreneurs and small businesses in an effort to 
strengthen our local economy which is why I am honored to 
participate in this hearing today.

    Stronger Counties, Stronger America

    Founded in 1935, NACo is the only national organization 
that represents our nation's 3,069 counties and brings together 
county officials from across the country to advocate with a 
collective voice on national policy, exchange ideas and build 
new leadership skills, pursue transformational county 
solutions, enrich the public's understanding of county 
government and exercise exemplary leadership in public service.

    As key intergovernmental partners with the states and 
federal government, counties are responsible for delivering a 
broad array of programs and services that provide a foundation 
for prosperous communities with strong and stable economies. To 
achieve this foundation, counties make significant investments 
in our nation's essential infrastructure; maintain our nation's 
justice and public safety system; and invest in public health, 
including hospitals, nursing homes and mental health programs. 
And in an election year such as this, counties are responsible 
for administering fair and transparent federal, state and local 
elections.

    County government provides these vital services to more 
than 308 million residents, collectively investing over $554.5 
billion annually and employing over 3.6 million people to serve 
the public.

    Specifically, as it relates to this hearing, counties also 
make significant contributions to economic development at the 
regional and local levels and take a leadership role in 
coordinating local workforce development and job training 
programs. Nationally, counties invest close to $11 billion in 
housing and community development annually.

    Although we have various governmental structures, 
authorities and responsibilities under state law, all county 
governments are on the front lines working to build healthy, 
vibrant and safe communities across America.

    About Riley County, Kansas

    Counties are highly diverse, not only in my home state of 
Kansas, but across the nation, and vary immensely in size, 
natural resources, social and political systems, and cultural, 
economic, public health and environmental responsibilities.

    My county, Riley County, Kansas, is a small to mid-sized 
county with a mix of both rural and urban components. We 
currently have 75,247 residents across 622 square miles and are 
blessed to be the home of the Fort Riley military base and 
Kansas State University which are major economic engines for 
our local economy and our surrounding communities.

    Located right in the middle of the country, Kansas has long 
been known for our agriculture, transportation and energy 
industries. Since much of the state is rural, small businesses 
are also a critical component of our local economy. In fact, in 
the state of Kansas, there are over 246,000 small businesses 
that employ almost 600,000 workers.\1\
---------------------------------------------------------------------------
    \1\ U.S. Small Business Administration, 2016 Small Business 
Profiles for the States and Territories. Available at https://
www.sba.gov/sites/default/files/advocacy/Kansas.pdf

    While we hear on the news almost daily that the national 
economy has recovered after the Great Recession, it has been 
more challenging to see those positive effects in our state and 
county--and in rural counties across America. National or state 
economic data do not tell what is happening on the ground, 
where every county and local communities also has its own 
unique set of circumstances and its own challenges and 
---------------------------------------------------------------------------
opportunities.

    Although the national economy has recovered, many county 
economies are still struggling

    To help provide a national perspective on how county 
economies are faring from year to year, NACo releases County 
Economies, an annual report examining economic recovery and 
growth patterns across the nation's 3,069 county economies. The 
report is developed from an analysis of data from Moody's 
Analytics and focuses on the annual changes in four economic 
performance indicators in each county: economic output (GDP), 
employment, unemployment rates and median home prices. For the 
2015 edition, the report also has an analysis of wage growth 
for county economies, based on U.S. Bureau of Labor Statistics 
(BLS) data.

    Nationally, counties across the country showed signs of 
economic recovery in 2015, particularly on unemployment rates 
and home prices. For instance, 462 county economies closed 
their unemployment gaps and 448 counties saw their median home 
prices reach pre-recession peaks.

    But the outlook specifically for our nation's rural and 
small counties is more challenging. Only 306 small county 
economies closed their unemployment gap in 2015--up from 150 in 
2014--and just over 100 small county economies closed their 
economic output (GDP) gap in 2015. Further, almost half of our 
nation's small counties saw a decline in economic output (GDP) 
for 2015--particularly rural and small counties in Southern and 
Midwestern states such as Georgia, Illinois, Kansas, Kentucky, 
Mississippi, Missouri, Nebraska and Texas.

    In total, only 214 county economies have fully recovered to 
their pre-recession levels by 2015 and 16 percent, or 478 
counties, have yet to recover on any of the four economic 
indicators. Many counties are still experiencing the severe 
impacts of the latest recession.\2\
---------------------------------------------------------------------------
    \2\ Istrate, Emilia, Brian Knudsen, County Economies 2015: 
Opportunities and Challenges, Washington, D.C.: National Association of 
Counties. Available at http://www.naco.org/sites/default/files/
documents/2016%2OCET-report--01.08.pdf

    My home state of Kansas has also struggled to recover. 
Prior to the Great Recession, Kansas' economic output was 
actually growing at a must faster rate than the rest of the 
country. However, when the recession hit in 2008, our statewide 
economic output (GDP) fell further and continues to grow slower 
than the rest of the nation, particularly slower since 2011.\3\
---------------------------------------------------------------------------
    \3\ Menzie Chinn, Kansas in (Technical) Recession. Available at 
http://econbrowser.com/archives/2016/06/kansas-in-technical-recession

    The overwhelming majority of Kansas county economies (100 
of 105) have seen job losses or flat employment levels. Sixty-
four of the 105 Kansas counties have seen declines in their 
---------------------------------------------------------------------------
economic output.

    Further, only one of the 105 county economies in the state 
has seen higher job growth in 2015 relative to the previous 
year.

    Riley County has only recovered to pre-recession levels in 
two of the four economic indicators NACo examines. While we 
have seen progress in economic output (GDP) and home prices, we 
are still struggling with jobs and unemployment rates which 
have not returned to pre-recession levels. As a result, we 
observe that young people graduating from Kansas State 
University do not seem as inclined to stay here to establish 
new businesses as they once were. Today's graduates are largely 
moving to other states and communities with greater employment 
opportunities.

    Many of the surrounding rural counties in my area are 
experiencing an even slower economic recovery than ours. None 
of the six counties around Riley County have recovered on all 
four economic indicators. While some have recovered on economic 
output (GDP), four of the six surrounding counties saw a fall 
in their GDP within the last year. In addition, five of the six 
neighboring counties saw job losses in 2015.

    Wabaunsee County, Kansas has experienced the hardest time 
recovering to levels seen before the recession. This a small 
county with about 7,000 residents. The county economy has not 
closed its recession gaps on any of the four indicators 
analyzed. For example, for five consecutive years, the economy 
lost jobs between 2004 and 2009. This is much longer than the 
national rate, as the job gap for an average county economy 
lasted only three years (between 2007 and 2010). Its 
unemployment rate almost doubled between 2006 and 2009, soaring 
from 3.7 percent to 7.2 percent.

    Our nation's small and rural counties face unique 
challenges

    Unfortunately, many rural counties across the country face 
similar headwinds. Small counties have to provide the same 
mandatory services and comply with the same regulations as our 
suburban and urban counterparts do. And we must do so with 
limited ability to raise revenue.

    Local property taxes remain the major source of revenue for 
small counties like Riley County--accounting for 56 percent of 
total revenue for Kansas counties in 2014. Thus, trends in 
property values can significantly impact county revenues and 
expenditures. Declining property values push tax rates up and 
force counties to either find alternate revenue sources or cut 
spending. In addition, 43 states impose some type of limitation 
on counties' ability to increase property taxes, further 
limiting our options.

    Moreover, we also confront complex and costly regulatory 
mandates that can limit local recovery and economic growth. 
Federal agencies have issued an increasing number of 
regulations in recent years. In 2015, only 114 laws were 
enacted by Congress, compared to the 3,140 rules issued by 
federal agencies.\4\ According to the White House Office of 
Management and Budget (OMB), unfunded mandates from federal 
rules and regulations cost local governments, our citizens and 
businesses between $57 billion and $85 billion a year.\5\
---------------------------------------------------------------------------
    \4\ Competitive Enterprise Institute, Ten Thousand Commandments: An 
Annual Snapshot of the Federal Regulatory State (2016 Edition)
    \5\ Office of Management and Budget, Office of Information and 
Regulatory Affairs, Executive Office of the White House, 2015 Draft 
Report to Congress on the Benefits and Costs of Federal Regulations and 
Agency Compliance with the Unfunded Mandates Reform Act, (2015)

    In fulfilling our mission to deliver public services to our 
residents, we are not only subject to state and federal 
regulations, but also help to implement them at the local 
level. Therefore, as both regulated entities and regulators, it 
is critical that counties are fully engaged as 
intergovernmental partners throughout the entire federal 
---------------------------------------------------------------------------
regulatory process.

    This growing number of regulations comes at a time when 
counties--regardless of size--are experiencing significant 
fiscal constraints and our capacity to fund compliance 
activities is often limited.

    We thank this Committee for its ongoing work to examine the 
impacts of proposed federal regulations on small jurisdictions 
and small businesses, and we will continue to work with our 
federal partners to ensure that the challenges facing small 
jurisdictions are fully considered.

    Despite these challenges, small and rural counties play an 
important role in strengthening our local communities and 
economic opportunity

    The vitality of rural county economies can be as unique as 
the county itself. While small and rural economies face 
distinctive challenges, we also possess unique opportunities. 
Today, rural counties must work together to leverage our assets 
to ensure the stability and strength of our local and 
regulation economies.

    Together with partners, we find solutions to the most 
pressing economic development problems facing our communities. 
Each initiative is unique, aimed at solving an economic problem 
within the framework of specific local resources and 
constraints. State authority, county capacity and resources, 
and the convening power of counties, all shape our response to 
local challenges.

    Counties work to strengthen their local economies in 
several ways.

    First, we are increasingly collaborating regionally. We 
work with our neighboring counties to look at not only our 
individual assets, but our combined assets and market this 
greater regional economy. Effective marketing for economic 
development involves not only identifying a region's unique 
competitive advantage, but also communicating the value of that 
advantage to companies both inside and outside the region. The 
marketing effort must rely on tangible assets that create 
comparative advantages for the region.

    Second, counties are also engaging in a range of 
entrepreneurship and small business development programs from 
financing to training in order to help businesses create jobs 
in the community.

    Business accelerators exchange small amounts of equity for 
capital and mentorship, while business incubators support 
start-up companies through subsidized or free office space or 
an ongoing mentorship program with established businesses. This 
support system may take a variety of organizational formats, 
including county economic development programs or initiatives 
delivered through non-profit organizations or universities.

    Counties also participate in developing training programs 
for entrepreneurs and small-business owners to help them grow 
their businesses and in the process generate more jobs, greater 
revenues for the business and increased tax revenues for the 
county. Training programs can take many different forms, but 
most emphasize the importance of equipping trainees with skills 
in creative thinking, best business practices and problem-
solving.

    We also provide financing to small businesses by 
facilitating their access to federal or state loan programs or 
by leveraging private lenders through matching funds for 
capital access programs. Some counties have their own loan 
programs, such as revolving loan funds, to target business 
owners who might not otherwise qualify for a traditional bank 
loans. These programs can be capitalized by a county's own 
revenue, bonds and state appropriations.

    For example, Renville County, Minn. operates a revolving 
loan fund to help local businesses create and retain jobs, with 
a goal of securing one job for each $10,000 of loans. NACo's 
2014 report Cultivating a Competitive Advantage, highlights how 
Yellowstone County, Montana is using a multi-pronged approach 
to economic development. Through the Big Sky Economic 
Development organization (BSED), the Billings-Yellowstone 
County Metropolitan Planning Organization (MPO) and the City 
College at Montana State University Billings (MSU Billings), 
Yellowstone County is able to leverage regional assets to 
attract businesses and pursue various economic development 
goals. This public private partnership has highlighted the 
region's high quality of life and economic opportunities to 
attract existing and expanding businesses while creating 
hundreds of new jobs in Yellowstone County alone.

    Fourth, we make substantial investments in infrastructure. 
Investments in infrastructure systems--roadways, bridges, 
transit, railroads, water, sewer, intermodal connectors and 
telecommunications systems--result in higher property values 
and quality-of-life improvements, affect business decisions and 
connect communities into thriving regional economies. 
Telecommunication infrastructure is especially helpful in rural 
or technologically underserved counties. Specifically, 
investment in broadband access helps counties to attract a 
skilled workforce or overcome issues of geographic isolation. 
Due to high capital costs associated with public 
infrastructure, counties frequently collaborate with regional 
public or private partners to finance, build and maintain 
infrastructure projects of all sizes and levels of complexity.

    Many counties also engage in long-term planning for 
disaster preparedness and industry diversification to stay 
resilient in the face of disruptive events. Such events can 
range from immediate-impact incidents including natural 
disasters, closings of a main plant in a county to more long-
term processes--the decline of a major industry and slowing 
demand in internal markets. Some federal policy decisions such 
as the U.S. Department of Defense or U.S. Department of Energy 
facilities realignment or specific environmental regulations 
can also have a disruptive effect on some counties. Diverse 
local economies, with employment, sales and tax revenue 
distributed broadly across a number of sectors, are more 
resilient to economic shocks. This leads to more certainly in 
county budgeting and planning and better quality of life for 
residents.

    These examples are just a snapshot of the ways that 
counties are working to help our local economies. Regardless of 
the economic uncertainty faced by many counties throughout the 
country, we must continue to deliver critical services to our 
residents in order to provide the basic building blocks for 
future growth.

    Conclusion

    In conclusion, Chairman Huelskamp, Ranking Member Chu and 
members of the committee, while some county economies have seen 
improvement, there is still a long way to go, especially in 
rural America. With improved collaboration and flexibility from 
our intergovernmental partners at the federal and state levels, 
counties can provide the public services and basic 
infrastructure needed for economic growth and opportunity.

    NACo will continue to monitor the progress of our national 
economy through the lens of our nation's counties. Small 
businesses are a critical to the local economy and even drive 
some of our nation's largest corporations. As intergovernmental 
partners, it is our shared responsibility to ensure the 
strength and stability at all levels of our economic portfolio. 
It is imperative that we move forward together for our families 
and children, businesses, large and small and all our 
communities. Stronger counties mean a stronger America.

    We thank you once again for holding this important hearing 
and I look forward to your questions.
``Struggling to Grow: Assessing the Challenges for Small Businesses in 
                            Rural America.''

                         Testimony of:

                         Hugh Middleton

                           Co-Founder

                          Kopis Mobile

                          Flowood, MS

                           Before the

                  Committee on Small Business

             United States House of Representatives

                       September 08, 2016

          The Honorable Tim Huelskamp (R-KS), Chairman

         The Honorable Judy Chu, (D-CA), Ranking Member
    Good morning Chairman Huelskamp, Ranking Member Chu, and 
members of the Committee. Thank you for hosting this hearing on 
the challenges small businesses face in rural America and for 
your invitation to provide remarks at this hearing. My name is 
Hugh Middleton and I am the Co-Founder of Kopis Mobile, a small 
start up, Tech Company headquartered in Flowood, MS. Flowood is 
located just outside of Jackson, MS.

    Before I get into what we do at Kopis Mobile, I would like 
to provide a little background about myself that I feel is 
pertinent to the work we do. I am former Navy SEAL Officer. 
While in the SEAL Teams, I was assigned to SEAL Teams One, 
Three, Five, Six and spent time in various overseas assignments 
including a Special Operations Joint Staff. I have also worked 
in several U.S. Embassies and Consulates. I separated from the 
Navy in 2005, taking a management position with a large defense 
contracting company that supported then ongoing operations in 
Afghanistan and Iraq. Following that, I then moved on to 
another defense company where I managed a staff of highly 
skilled intelligence analysts conducting intelligence and data 
exploitation focused on Improvised Explosive Device threat 
characterization.

    In January 2013, I Co-Founded Kopis Mobile with three super 
smart engineers, who all worked at the same company I did at 
the time. It may seem like an odd pairing of backgrounds and 
you are correct, it is. We often can't understand what the 
other is saying, but we have made it work to develop some very 
leading edge products that didn't exist prior to us starting 
the business. Kopis Mobile is in the unique position as a 
provider of advanced mobile technology and products for the 
Department of Defense, Law Enforcement Agencies, and the 
Private Security industry. We develop mobile technology to 
minimize the weight and enhance the equipment of soldiers, 
first responders, and law enforcement officers. This technology 
saves lives, saves time, and saves money. It also improves 
training and reduces SWaP (size weight and power). Just about 
everything we do revolves something you use everyday, 
smartphones and tablets. We get every ounce of computing power 
out of these wonders of technology. We actually refer to some 
of our products as time machines. Our customers typically have 
plenty of equipment, food, weapons and ammunition. What they 
don't have enough of is time. We try to give them some of that 
time back.

    What we do is vitally important especially to me since I 
was on the other side of the fence at one time. I witnessed how 
long it takes to get the right equipment because of the over 
burdened bureaucracy of the procurement process. For a small 
company like us, it is a killer. We have equipment quotes 
sitting in the hands of military units for over 6 months before 
they are able to obligate the funds for critically needed 
items. The problem is the same for first responders. The 
process is like birthing a baby. It often takes 9 months to go 
through the grant process. Internally, we joke about it, but it 
isn't funny.

    As with any start up business, it has been a struggle for 
us. I will go out on a limb and say it has been harder for us 
given the industry we are in. Not only are we a tech company 
from rural Mississippi, but also we have been trying to gain 
access into an industry dominated by the likes of Northrup 
Grumman, Raytheon, and Lockheed Martin.

    We have spent over three years just trying to educate 
people on who we are and what we do. We obviously don't have 
any buildings with Kopis Mobile on the top of them across from 
the Pentagon.

    General Officers and senior level decision makers of all 
ranks that are in today's military are without doubt some of 
the best leaders this country have ever seen. Several years of 
fighting wars on two fronts have positively molded the lives of 
many in uniform and shaped them into formidable leaders.

    Those at that level are super educated, motivated, and 
strive to do the best they can to improve the lives of those 
under their command. However, those at the top of the 
leadership pyramid are often bogged down by administrative 
tasks, countless meetings and unending travel. They have little 
time to really dig into alternative ways to simplify 
entrenched, long standing ways of doing business. Many rely on, 
``This is the way we are doing it because this is how it's 
always been done.'' In many ways, tried and true methods work 
just fine. It is easier to do ``what we have been doing'' 
rather to look for ways to do things better.

    Most senior leaders think that because of digitization, 
they are more productive because of less paperwork. Actually, 
the opposite is happening. Despite all of this digitization, 
you have more paperwork than ever. This translates to a 3% 
decrease in annual productivity.

    Bureaucracy is increasing faster than automation. Which 
means that over the past 20 years, nearly half of the 
military's productivity has been sucked dry by the time 
vampires of administrative tasks.

    The federal government spends about $20B per year on 
development of later stage technology for commercialization. 
Majority of this money is spent in the large acquisition 
programs that incorporate technology that is not proven which 
means the equipment takes way too long to get the warfighter. 
This results in huge cost overruns, frustrated operators, and 
projects that are way behind schedule.

    The reason for this, most new technology dies on the vine 
because the bureaucracy of the military. The GAO said 
``technologies don't leave the lab because their potential has 
not been adequately demonstrated'' and ``the DoD is simply 
unwilling to fund final stages of development of a promising 
technology, preferring to invest in other aspects of the 
program that are viewed as more vital to success.''

    And ``DoD's budgeting process, which requires investments 
to be targeted at least two years in advance of their 
activation, makes it difficult for DoD to seize opportunities 
to introduce technological advances into acquisition 
programs.''

    The problem is only 5.71% of new technology ever gets into 
the hands of those that really need it. That is 4 out of every 
70 projects!

    When you realize that small business accounts for 99.7% of 
all new technology introduced, it becomes incredibly important 
for small businesses to be involved in technology development 
and transfer.

    The Undersecretary of Defense, Acquisition, Technology and 
Logistics reported the Federal Government has missed its small 
business goals for the last 16 years despite the fact that 
buying from small businesses is far less painful. Frankly, 
buying from small guys like us eliminates red tape, shortens 
the technology transfer, speeds the time to get the operator 
the equipment they really need, and makes life for a 
contracting officer easier.

    There are really only two types of new technology product 
development, that being ``Top Down'' and ``Bottom Up''. In 
``Top Down'' tech development, academics invent something big 
and hopes it gets good in DoD. In ``Bottom Up'' tech 
development, small business invents something good and hopes it 
big in DoD. The big problem is 95% of it is ``Top Down'' and 
rarely includes the folks at the pointy end of the spear in the 
development process.

    As stated in the GAO Report to Congress (GAO-05-480), the 
best approach to new technology is a, ``least structured 
process and criteria, believing that a high degree on 
flexibility is needed in order to get technology prototypes 
quickly out to the field, where they can immediately impact 
military operations.''

    What this really means is it is vitally important to 
partner with small businesses who talk directly to the 
operators in order to co-create useful technology. This is the 
holy grail of warfighter improvement.

    As I am sure you are already aware, small businesses are 
the backbone of America. We create opportunity, generate jobs, 
invent new technology and keep the economy going. We do all of 
this while being over regulated, over taxed and under supported 
by the Federal Government. Everything from Obama Care to 
mountains of paperwork are hindrances to the growth and health 
of a small business. With lower taxes and healthcare costs, we 
could hire more people, increase salaries and bring better 
talent to Mississippi.

    Thank you and I look forward to your questions.
    [GRAPHIC] [TIFF OMITTED] T3765.010
    
    Chairman Huelskamp, Ranking Member Chu, distinguished 
members of the committee, thank you for inviting me here today. 
My name is Linsley Kinkade. I am the Deputy Director of U.S. 
Programs at Winrock International.

    Winrock International is a nonprofit organization that 
works with people in the United States and around the world to 
empower the disadvantaged, increase economic opportunity, and 
sustain natural resources. Winrock is based in Little Rock, 
Arkansas, the home state of our namesake, former Governor and 
Arkansas's original economic developer, Winthrop Rockefeller.

    I am pleased to be here today to discuss innovative and 
sustainable economic and community development models taking 
place across rural America.

    Winrock's U.S. Programs is extensively involved in 
developing solutions for the challenges facing rural 
communities. Our on-the-ground technical assistance to 
community leaders and local organizations has been funded by 
grants and cooperative agreements from agencies and partners 
such as the United States Department of Agriculture, the Delta 
Regional Authority, the United states Department of Labor, the 
State of Arkansas, Kellogg Foundation and the Walton Family 
Foundation.

    Winrock is based in Little Rock, the heart of a six-county 
metropolitan region which accounts for fewer than 720,000 
people. Compared to large counties in California, Florida, New 
York or Texas, our metro area is certainly rural. However, 
Arkansas is home to more than 500 cities, with only 22 having a 
population more than 20,000 and only 60 cities with a 
population above 5,000; thereby making the Little Rock metro 
area one of Arkansas's most urban environments. Winrock has 
seen successful economic and community development models 
blossom in both our urban and rural areas.

    The Arkansas Women's Business Center located in El Dorado, 
Arkansas, a city with a population of 18,000, provides 
technical assistance and training tailored to meet the needs of 
women business owners across the state of Arkansas. Funded in 
part through a cooperative agreement with the U.S. Small 
Business Administration, since 2011 the Women's Business Center 
has provided training to more than 700 clients, counseled more 
than 350 clients, helped 35 new businesses start, and assisted 
companies that have created 65 jobs.

    The Innovate Arkansas initiative, funded by the State of 
Arkansas through its Economic Development Commission, convenes 
startup technology entrepreneurs in Arkansas and works with 
them as they become mature companies. Since 2008, Innovate 
Arkansas clients have launched more than 150 startups, created 
more than 600 jobs, and received more than $295 million from 
public and private sources.

    Entrepreneurs and business owners in these programs are 
provided quality training, counseling, talent, access to 
capital, and other resources to empower and equip them to 
ensure business success with the ultimate goal of creating a 
sustainable entrepreneurial ecosystem.

    The Innovation Hub at Winrock is a perfect example of an 
innovative and broad-based approach to talent and enterprise 
development that can be applied to rural and urban communities 
of any size. The Innovation Hub provides facilities and 
programs that support education and entrepreneurship for all 
age groups across a wide range of disciplines.

    The Innovation Hub has planned, developed, and administered 
a broad array of entrepreneurial programs, including HubX-
LifeSciences, a privately-funded world-class healthcare 
accelerator program that recently completed its initial cohort 
with seven highly accomplished companies from across the world. 
Those seven companies leveraged approximately $2 million of 
private capital from Arkansas-based investors.

    Economic development occurs in communities where people can 
live, work, and grow. The revitalization of Main Streets and 
courthouse squares across rural America can be the catalyst for 
new community investment.

    For example, municipal leaders in Lake Village, Arkansas, a 
community of approximately 2,500 realized that to compete and 
grow the redevelopment of downtown was critical. By combining 
more than $2 million in funding from various federal and state 
agencies and the city's own coffers, the city renovated a 
dilapidated historic structure on its Main Street into a LEED-
certified municipal building housing all city services. The 
project increased downtown foot traffic and convinced investors 
to renovate nearby buildings to house new small businesses 
interested in a downtown location.

    Our rural communities remain hopeful for the future. 
Coupling innovative entrepreneurship programs with quality of 
life and place-making revitalization efforts can bring 
increased economic development in urban and rural areas alike.

    Chairman Huelskamp, Ranking Member Chu, distinguished 
members of the committee, thank you for inviting me here today. 
I appreciate the opportunity to speak with you, and am happy to 
answer any questions you may have.

                                 [all]
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