U.S. GOVERNMENT PRINTING OFFICE

66–395 WASHINGTON : 2000

MAKING THE WORK OPPORTUNITY TAX CREDIT

A SUCCESS FOR SMALL BUSINESS

HEARING

BEFORE THE

SUBCOMMITTEE ON TAX, FINANCE, AND EXPORTS

OF THE

COMMITTEE ON SMALL BUSINESS

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

SECOND SESSION

WASHINGTON, DC

MAY 4, 2000

Serial No. 106–57

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

MICHAEL P. FORBES, New York

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

RUBE ́ N 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 TAX, FINANCE, AND EXPORTS

DONALD A. MANZULLO, Illinois, Chairman

STEVEN J. CHABOT, Ohio

PHIL ENGLISH, Pennsylvania

PATRICK J. TOOMEY, Pennsylvania

CAROLYN MCCARTHY, New York

RUBE ́ N HINOJOSA, Texas

CHARLES A. GONZALEZ, Texas

GRACE F. NAPOLITANO, California

PHILIP ESKELAND, Senior Professional Staff Member

(III)

C O N T E N T S

WITNESSES

Page

Hearing held on May 4, 2000: ................................................................................ 1

Weller, Jerry, a Representative in Congress from the State of Illinois ....... 1

Littlejohn, Roger, Coordinator, Work Opportunity Tax Credit Program

of Tennessee Department of Labor & Workforce Development ................ 8

Carroll, Rodney, Chief Operating Officer, Welfare to Work Partnership .... 10

English, Ron, Franchise Owner, Burger King, Abilene, TX ......................... 11

Kramer, Fred, Director of Community Employment and Training, Marriott International ......................................................................................... 13

APPENDIX

Opening statements:

Manzullo, Hon. Donald A ................................................................................. 26

McCarthy, Carolyn ........................................................................................... 27

Prepared statements:

Rangel, Charles ................................................................................................ 28

Weller, Jerry ..................................................................................................... 32

Littlejohn, Roger ............................................................................................... 36

Carroll, Rodney ................................................................................................. 40

English, Ron ...................................................................................................... 55

Kramer, Fred .................................................................................................... 61

Additional material:

CRS Report ....................................................................................................... 63

Remarks of Rep. Amo Houghton ..................................................................... 65

House Resolution 2101 ..................................................................................... 66

Letter to Manzullo from Carroll ...................................................................... 77

Letter to Manzullo from Signer ....................................................................... 78

Letter to Manzullo from Kramer ..................................................................... 81

Letter to Manzullo from English ..................................................................... 83

Work Opportunity and Welfare-to-Work Tax Credits ................................... 85

Instructions for Form 8850 and Form 8850 ................................................... 87

U.S. Department of Labor Form ..................................................................... 89

(1)

MAKING THE WORK OPPORTUNITY TAX

CREDIT A SUCCESS FOR SMALL BUSINESS

THURSDAY, MAY 4, 2000

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON TAX, FINANCE AND EXPORTS, COMMITTEE ON SMALL BUSINESS, Washington, DC.

The Subcommittee met, pursuant to call, at 10 a.m., in room

2360, Rayburn House Office Building, Hon. Donald A. Manzullo

[chairman of the Subcommittee] presiding.

Chairman MANZULLO. We are going to call this Subcommittee to

order. The first order of business is the testimony of Congressman

Jerry Weller. Congressman Rangel, who has been working on the

African trade bill for many years with Congressman Crane, is understandably excused from not appearing this morning because

after all the years of work it is finally coming to the floor. What

we are going to do is take Congressman Weller’s testimony and we

will put Congressman Rangel’s statement into the record. And if it

is not here, we will leave the record open for at least a week in

order to put it in.

[Mr. Rangel’s statement may be found in appendix.]

Chairman MANZULLO. Then we will start with Congressman

Weller. If we have any questions, we can ask him. Then after that,

if the ranking minority member, Mrs. McCarthy, has an opening

statement, we will read it at that time. Did you want to say anything up front, Mrs. McCarthy?

Congressman Weller.

STATEMENT OF HON. JERRY WELLER, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF ILLINOIS

Mr. WELLER. Thank you, Mr. Chairman, Mrs. McCarthy. I appreciate the opportunity to appear before your committee today to testify about an important initiative which has been working. One

message I learned as we worked on enacting the first real welfare

reform in over a generation was whether you were liberal or conservative on the issue of welfare reform, we all agreed that if people were going to move off welfare, they needed a job. Of course the

Work Opportunity Tax Credit, which I am before you to testify on

today, enlisted the private sector to help provide jobs and give

those that were on welfare the opportunity to move up the economic ladder and have a chance by moving from the welfare rolls

to the employment rolls.

I am very pleased to have this opportunity to talk about a success story today before your Committee. As you know, the Work

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Opportunity Tax Credit was created in 1996 as part of the Small

Business Job Protection Act. This program offered employers a tax

credit for hiring employees which were part of the following groups:

families receiving AFDC or TANF benefits, veterans participating

in the food stamp program, 18- to 24-year-old members of families

receiving food stamps, high-risk youth, which could be defined as

18- to 24-year-olds, living in empowerment zones or enterprise communities, at risk-summer youth, SSI recipients, and economically

disadvantaged ex-felons trying to find work soon after prison release.

Once employees in these categories work 400 hours with a company, employers can claim a 40 percent tax credit on the first

$6,000 earned in the first year, and for employees working with a

company 120 to 399 hours, the employer can claim a 25 percent

credit. I am proud to report to the Subcommittee that the Work

Opportunity Tax credit has been a success. According to the Department of Labor, over 600,000 individuals have been hired under

WOTC thus far. Over 80 percent of these individuals had been on

public assistance in the form of welfare or food stamps. In 1999,

the Department of Labor issued more than 335,000 certifications

for WOTC hires. This was 50,000 more than 1998. In my home

State of Illinois last year, over 23,419 individuals went from the

welfare public assistance rolls and were put into meaningful employment through the Work Opportunity Tax Credit.

These 23,419 individuals will no longer rely on the Government

to support themselves and their families. They have been able to

enter the workforce and learn the job training skills they need to

be successful in today’s workforce. Last year, the Ways and Means

committee and the Congress extended the Work Opportunity Tax

Credit for 21⁄2 years. I am proud to say this is the longest extension

since its creation in 1996. That is so important. We need that longterm extension if you are going to encourage more employers to

participate so they have the confidence that the tax code is not

going to change if it is going to have a tax consequence for their

bottom line. It is my understanding that prior to the extension,

more than 20 of our Nation’s governors and 400 employers contacted the Ways and Means Committee in support of a multiyear

extension of the program.

At this time, supporters of the Work Opportunity Tax Credit are

discussing possible ways to improve the existing program. One suggestion I have heard recently would lift the 18- to 24-year age restriction to qualify for the program if a family is receiving food

stamps. While revenue estimates are not complete, this may be a

way to include more people in the successful program at this program’s relatively low cost. Mr. Chairman, Mrs. McCarthy, the

Work Opportunity Tax Credit represents a powerful public-private

sector partnership designed to encourage businesses to help individuals enter the workforce and leave the welfare rolls. This takes

these hard-to-place individuals off the public welfare rolls, and

places them into the working labor pool. Once they enter the workforce, individuals are trained by employers in basic skills to make

them more employable in the future.

I would note, Mr. Chairman, one thing I have learned in talking

with those that are trying to move off the welfare rolls is that just

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by getting a chance, they have the opportunity to learn some of the

basic skills. Of course thanks to this program, they have the opportunity to gain those basic skills, enter the job market, and then of

course frankly be more attractive to other employers who are working looking for workers in this good economy today because they

have the skills, they have a work record, and of course thanks to

this public-private partnership, we give them that opportunity.

I want to thank you and the members of this committee for the

opportunity to speak about this worthwhile initiative which has

proven to be a success. I do want to note that Congressman Amo

Houghton of New York as well as Congressman Charlie Rangel, we

have all worked together in a partnership that has been a bipartisan effort, one of those success stories we are all proud to talk

about.

[Mr. Weller’s statement may be found in appendix.]

Chairman MANZULLO. Thank you, Congressman Weller. Could

you explain to us technically how it works?

Mr. WELLER. The way the program essentially works is you have

somebody that qualifies, so you have a qualified candidate. The employer hires them. Of course there is an approval process, and the

employer has to apply for the actual tax credit. There is a form

they need to fill out. Of course one of the issues we have been

working to resolve for the Work Opportunity Tax Credit is to make

it user friendly. Over the last several years we have tried to improve this program, minimizing the paperwork and reducing the

red tape in order to encourage more employers to participate.

If an employer hires someone who falls into the various categories that qualify, they then can hire this individual. Of course,

there is a minimum number of hours this individual must be on

the payroll working for this employer before they qualify for the

tax credit. As I pointed out in my testimony, for employees working

with a company from 120 to 399 hours, the employer can claim a

25 percent credit and for those that are working over 400 hours,

the employer can claim a 40 percent tax credit on the first $6,000

earned in the first year.

Now, that threshold was one of the changes we made to the program in the last budget, or in the last tax package. The reason that

was important, we found in many cases this program has been successful; and one thing I have found is sometimes there is a little

hesitation by an employer to hire someone off of welfare. They are

concerned about the cost of training this individual; they are concerned about the work ethics or work habits, if this person does not

have any work experience. Of course with this incentive, we are encouraging them to hire these individuals. At the same time employers say, you know, I have helped train this individual and given

them the experience, in many cases they work less than 400 hours

but the business across the street sees they are a good worker and

offers them a job at a little bit higher wage.

Chairman MANZULLO. So an employer can essentially pay $2,400

less in corporate taxes or personal income taxes if it is a sole proprietorship based upon 40 percent of the $6,000. Is that correct?

Mr. WELLER. That is correct. If they work over 400 hours, the employer can have 40 percent of the tax credit on the first $6,000

in wages. And 40 percent would be about $2,400 in relief, means

4

that they would pay $2,400 less on their taxes as a result of that

tax credit.

Chairman MANZULLO. Is there still, Congressman, a need for a

program like this in light of the low unemployment rate across the

Nation?

Mr. WELLER. Mr. Chairman, I think we can all agree we want

this good economy to continue growing. Since 1991, we have been

enjoying a very strong economy over the last 9 years as a result

of our efforts to balance the budget and reduce the tax burden, particularly on employers as well as on working families. That has

kept our economy moving forward. I believe there is a continued

need to the Work Opportunity Tax Credit, because regardless of

how strong the economy is, there are still those on welfare. There

are still those who need the opportunity. And because of welfare reform, we have seen almost 7 million Americans who have gone

from the welfare rolls to the employment rolls. The Work Opportunity Tax Credit has helped make that success.

I would point out that many of those who are hired through the

Work Opportunity tax Credit have no previous job experience, so

essentially this is an incentive for an employer to give that individual a chance to get off of welfare and develop some work skills

and a work history which helps them move up the economic ladder.

I strongly believe that this program should continue. But I would

also point out that we should also consider some other ideas.

As I mentioned, one idea that we should consider is lifting the

age ceiling for food stamp recipients and individuals who reside in

empowerment zones and enterprise communities. Right now that

age ceiling is only 18- to 24-year-olds, of those who can currently

participate in this program if they receive food stamps. Recognizing

food stamps are an income supplement, is a program for those who

are in need. This may be a way of providing help for more individuals to move up the economic ladder.

Chairman MANZULLO. The experience that we have seen in our

congressional district is that welfare rolls have plummeted by 87

percent. In one county, McHenry county, which has 250,000 people

there are seven families on welfare. In Winnebago County, another

county I represent, Rock Valley College, a community college, has

an office within the welfare office so that there is a hand-off as people come off welfare. They are immediately working in contact with

Rock Valley Community College. Then that college makes the contacts with the employers. It makes it a lot easier because I could

imagine one of the big problems with people going on employment

for the first time is saying would you hire me and then you have

to ask, well, are you an ex-felon, are you on welfare. I don’t even

know if an employer can ask those questions legally. But with the

bridge that the community colleges are providing, that appears to

be working extremely well in our district. Do you have the same

experience in yours, Jerry?

Mr. WELLER. I am pretty proud that welfare reform has been

working in Illinois. We have seen statewide in Illinois, welfare rolls

have been cut well over in half. My home county of Grundy County—and I, of course, live in the county seat of Morris—we have

seen about an 85 percent reduction in the welfare rolls. Clearly the

Work Opportunity Tax Credit has contributed to that success. I

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think as I noted earlier, as we debated welfare reform emphasizing

work, family and responsibility, while giving States flexibility to

design welfare programs that meet the needs of individual communities and individual States, recognizing that North Dakota and

South Dakota are different than New York or Illinois, by giving

that kind of flexibility, we have succeeded. I am very proud of that.

It took us three times. We passed that legislation three times before we signed it, but the bottom line is it is working. I believe that

the Work opportunity Tax Credit helped contribute job opportunities for, in this case, well over 600,000 individuals who now are

working rather than receiving a welfare check.

Chairman MANZULLO. Thank you. Mrs. McCarthy.

Mrs. MCCARTHY. Thank you, Mr. Chairman. I thank you for calling this hearing. I thank Congressman Weller for his testimony.

One of the things that I had heard is that, most States when they

are going through the work process for the opportunity tax credit

certification, they can complete that usually in 30 days, but yet we

have heard in some States there is a backlog of anywhere from 6

months to 2 years. Could you briefly discuss the processing backlog

problem with the Committee. Specifically, what are the costs that

a business experiences when processing is delayed? And if you

know, how many States are experiencing significant backlogs? And

is there anything we can do on the Federal level to help alleviate

this problem?

Mr. WELLER. Mrs. McCarthy, what I would like to do is get back

with you on some of the details. We can provide that to your Committee, some of the details. I am proud to say Illinois is one of the

States that is leading in ensuring the timeliness of the processing

of the paper, paperwork. Let me get back with you some statistics.

There has been an analysis done of the various States. The bottom

line is what we can do here in the Congress is to minimize the paperwork, to listen to the employers who want to participate about

the potential roadblocks that have been there. Of course, paperwork has been one of them. The timeliness of the processing of the

paperwork has been another. I will be happy to provide to the

Committee essentially a ranking of the various States and of course

where they compare.

Mrs. MCCARTHY. I thank you. I think it is important especially

for the small businesses. Since I have been here 31⁄2 years, I can’t

believe the amount of paperwork we ask of our people, things that

we mandate our businesspeople to respond to. We are doing a better job, but we have to even do a better job than what we have

been doing. I thank you for that. I will look forward to the information.

Mr. WELLER. Mrs. McCarthy, and this is a small business Committee, of course the more paperwork and more red tape roadblocks

that stand in the way, the harder it is for a smaller employer to

participate. The large employers have plenty of people to fill out

paper, but the small employers do not. By minimizing the paperwork, by reducing the red tape wherever we have the opportunity

to, we make it easier for a small employer to step forward and give

that welfare recipient down the street an opportunity through the

Work Opportunity Tax Credit.

Mrs. MCCARTHY. I thank you for your testimony.

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Chairman MANZULLO. Congressman Hinojosa.

Mr. HINOJOSA. Thank you, Chairman Manzullo. Thank you for

coming to visit with us, Congressman. I would like to ask you

about that last point you made, that some of the businesses talk

about the vast amount of paperwork that has to be filled out to

participate in this WOTC. Will allowing the electronic filing of the

IRS form 8850 help, and should we be considering reducing the

business form to something much shorter?

Mr. WELLER. From my personal perspective, I think, Congressman, that as we move to e-filing of all tax forms, it simplifies the

process, and more and more taxpayers have taken advantage of

that opportunity as are small businesses. We have wrestled with

the issue of electronic filing of Federal Government-related documents and particularly in the small business community over the

last several years as they have worked, become more online, as

they have worked to be able to participate more in e-commerce. But

I believe that is the direction that we should head towards, because

it does simplify the process.

Mr. HINOJOSA. The second option, should we consider a shorter

form? And you understand, some people just don’t find the computer as friendly as you and I; but for those people, wouldn’t it be

advisable to look at a shorter form?

Mr. WELLER. I think any way to minimize the amount of paperwork and bureaucratic red tape is a step in the right direction.

Mr. HINOJOSA. I agree with you. Thank you, Mr. Chairman. That

is the only question I had.

Chairman MANZULLO. I have another question. I am at this point

opposed to the bill and will vote against it based upon the fact that

it would allow nonprofits, 501(c)(3)’s, to participate in the program.

Nonprofits pay no income tax. Essentially, it would allow nonprofits the ability to pay less in Social Security taxes. Somebody is

shaking their head back here; maybe this is wrong.

Mr. WELLER. Mr. Chairman, currently nonprofits such as your

community hospitals or your community colleges do not participate

in the Work Opportunity tax Credit. One of the things we have

looked at in the Ways and Means committee is finding ways to enlist the nonprofits in a way that they could also provide work opportunities for those that are currently on welfare. In communities

like my hometown of Morris, our largest employer in town is Morris Community Hospital. Joliet Junior college is a major employer

in Joliet, as well as the two hospitals there.

Chairman MANZULLO. How do you extend the tax credit to people

who don’t pay taxes?

Mr. WELLER. The approach that has been looked at is some way

to essentially syndicate the tax credit so that the employers could

use it but they would then sell that to a private sector employer

who could use the tax credit because they do pay taxes. That is an

option that we have explored. However, the Committee has not approved that idea yet, but it is something that has been—— Chairman MANZULLO. It is presently in the bill. I am just really

troubled because of where this is going to lead. The earned income

tax credit has enough problems in terms of fraud; I think the GAO

has estimated fraud is close to 20 percent in the EITC program. In

terms of what is happening here, I just have some very serious

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problems. Perhaps the next panel—I think we have not-for-profits

that may be testifying—would be able to clear it up.

Mr. WELLER. I would point out that the current provision in the

current law is in effect for a period of 21⁄2 years. So in about another 2 years this provision will expire; we will consider extending

it. At that point there will be changes made. What we are discussing today, of course, Mr. Chairman, is, in fact, law. As for the

prospect of nonprofits participating in a greater way, that is an

idea that is being considered. We would certainly welcome as a

member of the Ways and Means Committee—I can’t speak for

Chairman Archer—but as a member of the Committee, I would

welcome the input of the Small Business Committee on what role

you feel that nonprofits can play in participating in the Work Opportunity Tax Credit and recognizing in many communities they

are the largest employer in town.

Chairman MANZULLO. I think our largest employer is the school

district, and that is followed by the three hospitals. So I could understand that. I will take a fresh look at it. We obviously have time

to work on it. Mrs. McCarthy, did you have a follow-up question

on that?

Mrs. MCCARTHY. No, actually what you were referring to was a

follow-up question that I was going to have, but I figured we did

have time to try and work it out. I also have a lot of nonprofits in

my district. But I think we are looking at the larger scope of

things, but we have the time to do it. I would appreciate if we

could work on this committee with our suggestions.

Mr. WELLER. I know I would welcome them. I look forward to

working with you. It has been a bipartisan effort with Chairman

Houghton, Mr. Rangel, myself and others have been actively involved in this issue. The bottom line is we want to give those who

are on welfare an opportunity to move up the economic ladder. It

should be a bipartisan priority. This program works. If there are

new ideas, new approaches that we can be using to better the program, simplify the program, reduce red tape, remove the barriers

that discourage employers from enlisting in the program, we would

love to hear your ideas and look forward to working with the Small

Business Committee.

Chairman MANZULLO. Congressman, as a follow-up to my question, park districts, municipalities, school districts presently cannot

avail themselves of any revenue benefits as a result of this statute

in its present form. Is that correct?

Mr. WELLER. That is correct.

Chairman MANZULLO. That is the reason for trying to experiment

with the not-for-profits. That would include local governments, I

presume.

Mr. WELLER. There are other programs that provide economic opportunity that are utilized by municipalities and local governments

and park districts. Summer jobs program is one example.

Chairman MANZULLO. Of course that got wiped out.

Mr. WELLER. That is an issue every year. I have always been a

supporter of the summer jobs program. But it is one program

which is important to Chicago and the suburban area that I represent. When you think of the nonprofits, the nonprofits that I

have looked at in playing a role in trying to find a way where they

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can participate in the Work Opportunity Tax Credit are the hospitals as well as our institutions of higher learning, such as St.

Francis or Lewis University or Olivet Nazarene University, which

are three nonprofit universities in the district that I represent.

Chairman MANZULLO. I appreciate it very much. Thank you for

coming, Congressman.

Mr. WELLER. Thank you, Mr. Chairman and Mrs. McCarthy.

Chairman MANZULLO. If we could have our next panel please

take a seat at the table.

Good morning. On our next panel is Roger Littlejohn. He is the

coordinator of the Work Opportunity Tax Credit program of the

Tennessee Department of Labor and Workforce Development from

Nashville, Tennessee. I am sure will answer the question I just

posed the last time. Rodney Carroll is the chief operating officer of

the Welfare to Work Partnership here in Washington, D.C. Ron

English is the owner of a small business franchise of the Burger

King Corporation in Abilene, Texas. Finally, Fred Kramer, director

of community employment and training at Marriott International

in Bethesda, Maryland will testify.

Let’s start first with Mr. Littlejohn. We are going to get the clock

going to 5 minutes for your testimony. Please stick to that as much

as possible. If you would like to read your statement or better yet

please just like to paraphrase it. Mr. Littlejohn.

STATEMENT OF ROGER LITTLEJOHN, COORDINATOR, WORK

OPPORTUNITY TAX CREDIT PROGRAM OF THE TENNESSEE

DEPARTMENT OF LABOR & WORKFORCE DEVELOPMENT,

NASHVILLE, TN

Mr. LITTLEJOHN. I appreciate being here this morning. I would

like to paraphrase it a little bit. I am a little bit nervous this morning but not for the normal reasons. I am just not usually surrounded by so many people that have a different accent than I do.

I think we have been very successful in Tennessee because we

have seen an increased usage of the WOTC program since day one.

In my prepared statement, which you are more than welcome to

read, we quote some of those figures. Employers use of the program

increases from 5,000 to 7,000 each year. We anticipate receiving

about 32,000 requests for the tax credit this year. Last fiscal year

we finished sixth in the Nation in terms of the number of tax certifications that we got out the door, and we are proud of that.

For a State the size of Tennessee to finish sixth in the nation for

tax certifications issued does not mean we have the market cornered on welfare recipients. We think it is because we have done

a good job of marketing the program to the employment community. That is one of the things I wanted to focus on with you today.

We mass market the program to all 105,000–plus employers in

Tennessee through a quarterly newsletter that is tied to our unemployment insurance program. Although Tennessee employers are

being notified, each month we will get a call from someone who is

just learning about the program for the first time. You are always

going to have that problem. We are finding that small business employers know about the program, but do not utilize it because of

a reluctance for increased government involvement. That is a problem that I think we have perpetuated over the years, but is a big

9

drawback to this program. The only way to overcome the reluctance is to go out and meet with employers one on one. That is

something we try to do when we have time.

There are some things, the paperwork burden. I don’t think that

it is a burden. There are two forms to fill out, IRS form 8850 and

ETA form 9061. They are pretty much a check-the-box kind of

form. I was around in the old TJTC days. Now, that was a nightmare. I don’t know how much simpler the current process could be.

An employer fills out two forms and sends it to us. In Tennessee,

we are lucky, we have computer access to almost everything. We

prove that the person is a target group member or not. I tell employers all the time, if you spent more than 5 minutes perfecting

a tax application under WOTC, you need to give me a call, I can

help shorten just walking you through the process and making

some suggestions.

We do feel there needs to be some changes to the program in the

future, particularly in the ex-felons target group. Right now the exfelons, must also be economically disadvantaged. Well, if you have

been locked up for a year, that is almost a no-brainer. However, I

have to spend an inordinate amount of time proving a negative.

Eliminating the economically disadvantaged criteria from this target group would speed up the process for us. In the areas of the

EZ/EC enterprise zones, and Empowerment Communities the age

criteria does not present a problem. Should Congress want to adjust the age limits, we have no opinion.

We are having problems with the HUD EZ EC locator system,

which is the computer system we use to prove that the person’s address is within an empowerment zone. We would like to see the locator system enhanced because we often know that a person’s address is in an enterprise zone, but we can’t get confirmation from

the HUD locator system. Although HUD has made great improvements to the locator system, we experience the most trouble with

addresses in the rural areas. Hopefully they will continue to work

to improve the system, and that will help. I know I am running out

of time, but, we would like to see a longer or permanent extension

of the tax credit, because the stop-and-go legislation causes a lot

of problems. Employers hear that the program is over, but they

don’t necessarily hear when it is extended. The last extension was

signed off on December the 27th. We started off with a 6-month

backlog and tax time for most employers was right around the corner. That is a problem.

Some States may be reluctant to invest in computer and data

systems that help make the certification process go faster because

maybe of the inconsistency in funding. If the program is extended

here for a year, a year and a half, some States are reluctant to

make the necessary long-term commitments. This reluctance also

crosses over into the staffing patterns at the State level. The program has been successful in Tennessee, it is going to continue to

be successful in Tennessee because we are going to continue our

marketing efforts. However, we hope that Congress would address

some of the issues we have raised. With that, I will be happy to

answer any questions you have. I was sitting in the back earlier

wanting to jump up and answer questions.

Chairman MANZULLO. Thank you.

10

[Mr. Littlejohn’s statement may be found in appendix.]

Chairman MANZULLO. Mr. Carroll.

STATEMENT OF RODNEY CARROLL, CHIEF OPERATING OFFICER, WELFARE TO WORK PARTNERSHIP, WASHINGTON, DC

Mr. CARROLL. Thank you. Good morning Mr. Chairman and

members of the Subcommittee. My name is Rodney Carroll. I am

honored and delighted to be here. I was a UPS manager for 22

years, but I am on loan to the Welfare to Work Partnership. Soon

after the legislation was passed in 1996, there began this partnership with five companies: United Parcel Service, United Airlines,

Monsanto, Burger King, and Sprint. The objective of these companies was first of all to recruit more companies, all surrounded by

the idea of hiring people from welfare to work without displacing

the current workers. Now there are currently over 12,000 companies throughout the country hiring people from welfare to work as

a part of this partnership. The partnership is a nonpartisan notfor-profit organization. It is primarily funded by the private sector

through grants to engage this effort. I was a UPS employee and

part of the deal was that UPS would provide a loaned executive.

My job is primarily to talk to businesses, business to business, and

tell them why it is a good idea for them to get involved in hiring

people from welfare to work. There are several reasons that I tell

them. The first reason I tell them is that hiring people from welfare is a smart solution for their business. I tell them about the

employees and how they will have a greater retention rate when

they are hiring people from welfare and how they will find that a

lot of the stereotypes and myths are just that, stereotypes and

myths.

And also I talk to employers about how they can receive the tax

credit. I am always amazed that I get two responses. If it is a large

company, they kind of say, okay, tax credits, what else can you tell

me? But the smaller companies are more interested in the tax credit because sometimes I tell them that it is true that people that

have been on welfare for some time in some cases need more training or some education and may need to do something to bring them

up to the standard you are used to. Of course they say, who is

going to pay for all this? How am I going to be able to afford that?

Sometimes you are only talking a few hundred dollars, depending

on what the trainee may need. I say, well, you might be able to

take advantage of this tax credit, because what that would do, you

would be able to invest in the employee, the human capital, in this

case human resources. So it is always an effective tool.

We are not happy as a partnership of how this has been going

as far as small businesses. About 75 percent of the 12,000 companies I mentioned have less than 250 employees and almost 50 percent have less than 50 employees. So a lot of the companies are,

even though I named a lot of big companies, are small businesses.

We send them out a fax every week and we talk to them. We are

not as happy as we would like to see people taking advantage of

it. I go out and say, why not? Why aren’t you? I am getting a lot

of answers. Some of them are that it is perceived that the form is

more difficult than it is; and as the speaker just before me said,

that is not necessarily the case when you really educate them.

11

One of the barriers might be because when you hire for example

UPS, a person comes in, this is a large human resources department, people talk, the person comes on Monday, they might not get

hired until the next Monday or the following Monday. A lot of processes, background checks and so on. Part of the checks might be

if they were on welfare, an ex-felon, et cetera. And the form could

be filled out at that time. A person being hired from a small business could be on the spot. One of the parts of this form is you have

to have that, it almost has to be immediately done, it can’t work

for a while and then come back and say, oh, by the way such and

such was a welfare recipient, take advantage of the tax credit. That

is one of the issues.

Also being on welfare, although we have talked about it for several years, it is still a sensitive topic for employees and employers.

It really has to be a shrewd employer interview in order to be able

to get around that topic at that particular first interview and find

out indeed whether the person was on welfare or not. We would

like to see this continue. We think that although we have made a

lot of progress in the country as far as reducing the rolls, we still

have quite a ways to go. We think that any incentive that we can

give for the business community would be great, and we perceive

this as that, an incentive to hire people from welfare to work.

There are all kinds of extraordinary programs around the country that people are doing; they are thinking out of the box and the

tax credit just allows them one more way to be able to think out

of the box and also sell their stockholders in some cases or even

partners and say well, look, besides getting good employees, we are

getting this tax credit. That is why I think this is a good idea. The

Welfare to Work Partnership continues to move on. We are out in

the communities now. We have started five offices throughout the

country in major cities. But our small businesses are still our primary objective and anything we can do to help small businesses

hire people from welfare to work, we will certainly agree with that.

Thank you very much.

Chairman MANZULLO. Thank you.

[Mr. Carroll’s statement may be found in appendix.]

Chairman MANZULLO. Our next witness is Ron English. Mr.

English.

STATEMENT OF RON ENGLISH, FRANCHISE OWNER, BURGER

KING, ABILENE, TX

Mr. ENGLISH. Good morning, Mr. Chairman, Congressman

McCarthy, and members of the Committee. My name is Ron

English, and I am a small business owner from Abilene, Texas,

which is an all-American city about 3 hours west of Dallas. I am

also one of the 12,000 business partners of the Welfare to Work

Partnership. We employ approximately 370 people in our Burger

King restaurants. In my community and in the fast food industry

nationwide, I am a vocal advocate for welfare to work programs because I believe they work for the employee and the employer. I applaud your efforts to reform welfare. From my vantage point as an

employer and taxpayer, welfare reform has plugged the drain on a

failed program that depleted our communities of trained workers

and customers.

12

The welfare system also depletes our Nation of children who

grow up with a healthy respect for the value and dignity of work,

education, business and labor. I had a more selfish interest in the

welfare to work programs initially. The motivation was not incentives like WOTC. However, I have quickly learned that the WOTC

is a vital part of any successful welfare to work program for small

businesses like mine. At the beginning, my primary interest was

simply finding employees, employees that I desperately needed in

my business and I know are needed nationwide in the restaurant

industry. In the fast food business, turnover often runs as high as

300 percent. A new source of potential employees is extremely necessary.

I soon learned that the biggest challenge to participating in the

welfare to work program was not the paperwork but the workforce,

the quality of the workforce. It takes a lot of time and expense to

turn a typical WOTC eligible person into a productive employee.

When we hire former welfare recipients, we have to do much more

than train them in the nuances of having it your way because they

lack skills and workplace experience. We must also teach them how

to keep a job. Our training includes how to find reliable child care,

how to practice necessary personal hygiene for the workplace, how

to use the public transportation system, and how to budget from

one paycheck to the next, to name a few.

Teaching these skills is expensive and has a direct effect on my

bottom line and my ability to expand and create more jobs. Even

so, we believe the investment is worthwhile, and we have developed some excellent employees. Marie is a good example. Marie is

a single mother raising three children. She has an eighth grade

education and before welfare reform she had never been employed.

We had to teach and Marie had to learn, the basic job survival

skills. Now Marie is a manager. She is teaching her own kids the

importance of employment and of education. She talks about no

longer being embarrassed when checking out at the grocery store

because instead of using a welfare card, she now writes a check,

something she had never done. Marie is a great success story.

Marie went through our self-funded, five 2-hour sessions job survival training course, and it made a difference. Employees like

Marie will stay on the job 45 to 50 percent longer than traditional

hired employees if they get the training. Were it not for the WOTC,

we could not afford the extra effort needed to train, educate, and

work with employees like Marie.

If you were to ask any of the 12,000 business partners of the

Welfare to Work Partnership, they would tell you that job survival

training is a critical component in a successful welfare to work program. Unfortunately, more small employers don’t have the stories

to tell because accessing WOTC sometimes is difficult. The paperwork seems overwhelming, the minimum hours requirement oppressive, and the future of the program uncertain. That is why it

is so critical to make the WOTC program more small business

friendly.

I hope we can rewrite the program requirements to reward companies who take the added risk. Only about 20 percent of those we

hire and train actually make it to the 120-hour threshold. Eliminating or significantly reducing the 120-hour requirement would, in

13

my opinion, have an immediate impact on small business participation. Second is the uncertainty of the program. While reauthorization wanes from one Congress to the next, employers like me continue to recruit, hire, and train employees not knowing whether the

tax credits will exist to offset the higher costs. The uncertainty discourages employers from participating. Most small businesses cannot afford to employ a human resources manager. So for the small

employer and his limited staff, the administration of WOTC is a

cumbersome and time-consuming investment for a minimal financial return.

I would be unlikely to participate if it weren’t for a vendor to

whom I outsource the paperwork. Of course that service comes at

a fee and reduces the net reimbursement advantage of the tax

credit. Our purpose today is to encourage you to put some Congressional muscle behind a program that works. Give the Work Opportunity Tax Credit the clout it deserves by making it permanent,

eliminating the administrative headaches as much as possible and

reducing the minimum hours requirement. Small business owners

like myself will respond affirmatively. Those are my thoughts. I

hope you find them useful. I appreciate your listening.

Chairman MANZULLO. I appreciate that very much. I notice you

put in your statement ‘‘Have it your way.’’ That is pretty subtle,

isn’t it?

Mr. ENGLISH. Thank you.

[Mr. English’s statement may be found in appendix.]

Chairman MANZULLO. Our next witness is Fred Kramer. Mr.

Kramer.

STATEMENT OF FRED KRAMER, DIRECTOR OF COMMUNITY

EMPLOYMENT AND TRAINING, MARRIOTT INTERNATIONAL,

BETHESDA, MD

Mr. KRAMER. Thank you, Mr. Chairman, members of the Committee. My name is Fred Kramer, and I am the director of community employment and training programs for Marriott International.

Although I work for a large employer, I am here on behalf of small

businesses that use the work opportunity and welfare to work tax

credits. Specifically, I am here to ask you to consider a permanent

extension of these tax credit programs. The fact that these programs continue to be extended, although for a short period of time,

shows the Congress supports these initiatives because they do

work.

They offer an incentive for businesses to consider hiring individuals who do not necessarily possess the requisite skills needed.

These individuals require extra training to enable them to become

work ready. This extra attention requires time and costs money.

The problem exists when the program expires and there is a hiatus

between expiration and renewal. When the hiatus occurs, State

agencies often reassign the staff that was once dedicated to the certification process. This slows down the paperwork process and in

some instances may stop it completely. Once renewal occurs, the

States may have to train new employees to start up the certification unit once again.

A company the size of Marriott has the infrastructure in place

usually through its human resources function to handle the paperVerDate 11-MAY-2000 11:44 Feb 15, 2001 Jkt 010199 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 E:\HEARINGS\66395.XXX pfrm08 PsN: 66395
14

work and procedures to participate in this program. These requirements are extensive and time consuming. Think of the small businesses that participate in these tax credit programs. The unit managers handle the interviews and paperwork, follow the procedures

and in some cases are offered incentives by the home office. When

the program expires and the certification is delayed or never materialize, the unit manager loses motivation to participate in the program. They followed the established procedures, offered the extra

attention and time to the individuals, but did not receive the tax

credit.

Fair or not, this gives the impression that Congress is not fully

committed to the program and makes it difficult for small businesses to continue with it. A permanent extension would go a long

way toward solving these issues as well as keeping unit managers

and small businesses motivated to continue participation in these

important initiatives. The Work opportunity Tax Credit program

which Congress established has been very successful and opened

up the doors of employment opportunity for thousands of individuals. A permanent extension would build upon these successes and

result in employment opportunities for thousands more.

If I may, I would like to just share a few numbers and statistics

within our corporation, with Marriott. Since the WOTC program

began, we have hired over 9,000 individuals through the program

and another 2,000 through the welfare to work tax credit program.

After they have maxed out on their tax credits, just under 50 percent of those individuals are still with us. And after a full year of

employment, it is around 20 percent that are still with us. If you

think about those numbers for people, this is their first job, those

are very good numbers, because people tend to job hop in their first

few jobs. So we are very proud of those numbers.

I also wanted to share a few success stories. I had put together

seven different ones. Unfortunately, three of those folks left Marriott for higher paying jobs with other companies. I am not going

to brag on that but good for them. All these individuals I am going

to give you a little blurb about have maxed out on the credit. They

have been with Marriott for well over a year.

One individual is a female who completed the tax credit and the

special training that we put some of our welfare recipients through,

has been awarded the Associate of the Month for her excellent performance in food service at her hotel. Another individual has been

nominated as the associate of the Corridor, which is a very high

honor for outstanding performance in housekeeping. She actually

maxed out on the welfare to work tax credit. So she has been with

us for a very good period of time.

Another individual, and this is a gentleman, was awarded the

Rookie of the Year Award in their hotel for outstanding performance in food service. So the extra training, it does cost some money;

but it definitely—we do get some very, very good associates out of

the program. It does require some extra time on behalf of the managers. But these success stories go a long way for spreading the

good word about the advantage of hiring people off welfare.

So I want to thank you for allowing me to address the issue

today. I believe that WOTC is essential in motivating employers to

hire and train individuals with barriers to employment. Thank you.

15

Chairman MANZULLO. Thank you very much.

[Mr. Kramer’s statement may be found in appendix.]

Chairman MANZULLO. We welcome Congressman Napolitano

with us. We are going to start first with questions from Mrs.

McCarthy.

Mrs. MCCARTHY. Thank you, Mr. Chairman; and thank you, everyone, for your testimony. I found it very interesting and certainly

have written down your ideas. Mr. Littlejohn, one of the things

that I was curious on, what you had said as far as felons coming

out of prison and then trying to come into the workforce and proving that they obviously have no money. That is common sense. One

of the things that I know happens an awful lot of time, obviously

when you come out of prison, I am sure a small businessperson depending on what the crime was would be reluctant to hire that person, anyhow. Yet if we don’t have some sort of an incentive to hire

that person, most likely they will go into crime or whatever they

were doing to survive again before they go back to prison. How can

we, besides going through HUD, not HUD; but how can we encourage businesses, because I would find it very hard. If someone told

me someone came out with a violent felony, I would be reluctant

to hire them, to take that chance; and I am liberal.

Mr. LITTLEJOHN. Obviously, some employers because of the products that they have, they can’t hire ex-felons. My comment is more

related to the administrative burden of getting the tax credit back

to the employer, because the target group, why do we want to

make them a target group, it is because their barrier is that they

are an ex-felon. Why put the economically disadvantaged criteria

on top of it which slows down the paperwork and costs additional

administrative dollars for me to prove a negative? When OIG

comes in after the program and wants to start looking around, we

prove that a person is what they say they are before we issue the

tax certificate.

So if it was Congress’ intent to identify this target group and

their barrier being that they are an ex-felon, then making the requirement that they also be economically disadvantaged makes it

extremely cumbersome, and many times it delays getting the tax

certificate to the employer for many months because one of the

ways we verify in a negative way that the person has had no income is through our unemployment insurance wage records which

run generally about 5 months behind. So it just delays the process,

and we wind up trying to prove a negative.

Mrs. MCCARTHY. I thank you. The Chairman just showed me

something on what you have to do for someone that is just coming

out of jail. Pay stubs. How can you come up with a pay stub? Employment contacts. You are not going to have any of those.

Mr. LITTLEJOHN. In Tennessee, we check the unemployment

wage record files and if no employers have shown that they paid

wages to that individual, that is a negative confirmation with us.

We don’t fool with the pay stubs. We go for the negative confirmation, because it is something that we can do and don’t put the burden on the employer of trying to get some pay stub. If they have

worked, it is going to show up on the UI system, anyway. It can

be very cumbersome if a State doesn’t have access to—let’s say the

16

State coordinator doesn’t have access to the UI records and things

like that.

Mrs. MCCARTHY. I thank you for that. Going back, when you said

you were sitting in the back and ready to jump up because you

wanted to answer some questions, I have been in that situation

many times.

Mr. LITTLEJOHN. I was told to restrain myself once I got out of

town.

Mrs. MCCARTHY. I am going to give you an opportunity on what

you felt you needed to make a comment because sometimes those

that are sitting there—and I know you only have 5 minutes time

and we only have 5 minutes at a time. I would be interested in

what comments you wanted to make.

Mr. LITTLEJOHN. One of the things I wanted to comment on was

the backlogs that the States have. I would venture to say that a

majority of the States are working on a backlog. I think we are

about as efficient as most States, and we are running probably 3

to 4 months back into 1999, and those employers, they have already needed to fill out their 1999 returns. We just simply—because in our situation it is a staffing problem—can’t get them out

the door. But that backlog was created by the break in the legislation from July of 1999 till it was reauthorized in December. I

couldn’t process them.

So I started off right after Christmas with an automatic backlog

that went to July of 1999. Again, a permanent extension of the legislation or extensions that are longer in nature certainly helps us.

We are going to get the backlog straightened up, but it takes

awhile because all of a sudden it is dumped in your lap when you

start out 6 months behind.

Mrs. MCCARTHY. What backlogs are you actually talking about,

though, as far as paperwork?

Mr. LITTLEJOHN. Processing and issuing tax certifications for

hires that were made since July of 1999.

Mrs. MCCARTHY. Thank you very much, and I appreciate that.

We will see what we can do. That obviously leads back to having

permanent status.

Mr. LITTLEJOHN. That would be one of the things, yes.

Chairman MANZULLO. Thank you, Mrs. McCarthy. We have your

testimony here. What I would like you to do on the recommendations that you make is to send us a letter on your stationery to explain very succinctly the things that you would like changed. Try

to keep it to one page. For example, on the ex-felon issue asking

for pay stubs, that is great. To verify an ex-felon, all you should

have to do is to make a phone call and just verify it with within

a matter of a very short period of time. But if you could examine

each of your recommendations. For example, eliminating the economically disadvantage for felons, completely do away with that,

put that in the letter, and explain why. Also you had—— Mr. LITTLEJOHN. I hope I don’t have to spend a lot of time trying

to explain that one, though.

Chairman MANZULLO. No, that is self-explanatory. Why would

the felon even be applying unless he was economically disadvantaged? Being without employment for some time might presume

that you don’t sit there with a lot of money.

17

Mr. LITTLEJOHN. They have to be within a year of release or conviction, whichever is later. In most cases they have been locked up

for at least a year. Again, we are proving a negative.

Mrs. MCCARTHY. Something just hit me. I don’t know anything

about this; but when someone, maybe within the last 3 months before they are going to be released, are they going through any process to say, all right, we have these kind of jobs lined up for you

out there?

Mr. LITTLEJOHN. I think the Department of Paroles, they tell

them about the WOTC program. And when a person is in a transition period like that, they oftentimes try to utilize the program by

telling employers when they go for job interviews. I know in Tennessee, I think that is part of their release package. They take

them through these things, tell an employer you are an ex-felon,

there may be a tax credit available to them if they hire them. They

are incorporating that. We get a lot of calls. We would like to be

able to respond to the employers by getting the tax certificates

back to them in a more timely fashion because they have made the

commitment and hired these individuals. This little glitch, if we

could eliminate it, would speed that process up a great deal.

Chairman MANZULLO. Is there a way when the employer applies

for the tax credit that he can’t do the self-verification as you do all

the time when you file your income tax is that you check the boxes,

et cetera? Is there a way to make it a lot easier to eliminate a lot

or most of the paperwork that we are talking about?

Mr. LITTLEJOHN. From an employer’s standpoint in Tennessee—

and it varies from State to State—the employer submits those two

forms.

Chairman MANZULLO. To you.

Mr. LITTLEJOHN. To me. We verify—I have no trouble verifying

a person’s ex-felon status. That is as easy as getting on the computer or verifying that they are receiving AFDC or food stamps.

What causes me the problem is when I have to wait for 5 months

to get verification of a negative, no wages being paid by going to

the UI system in order to prove the economic status of an ex-felon.

I can prove he is an ex-felon in 4 or 5 minutes. That is not the

problem with that particular target group.

Chairman MANZULLO. Maybe this law should be written so that

if there is proof given to the employer that this person has not had

a job within a certain period of time then the employer does not

have to contact a government agency to verify the information.

There has to be an easier way for small businesses to be able to

do this without contacting a government agency. Anybody have any

thought on that? What does Marriott do on that, Mr. Kramer?

Mr. KRAMER. We actually have a vendor that we utilize. I think

the gentleman from Burger King also utilizes that.

Chairman MANZULLO. A regular employment agency?

Mr. KRAMER. It is a group out of Indianapolis that specializes in

the tax credit program. If I remember back to TJTC, as an employer, as a recruiter, I would interview folks that I am going to

consider to hire; and once I have hired them, then I would ask

them to bring in some information to me, various IDs, paycheck

stubs and things like that. Then I would physically take them to

18

the local job service. I would present the paperwork to the job service.

Chairman MANZULLO. There must be an easier way. That is why

small businesses are not involved in it. That is precisely the point.

I would welcome any comment in your letters to us as to any creative way that you can come up with to bypass the Government on

a certification document or something. I hate to eliminate some of

your jobs up here, but you have more important things to do than

sit around waiting to see whether or not somebody has received unemployment benefits from the past 4 or 5 months. My brother has

a restaurant business, and it is rough for him getting employees.

When you have half a dozen employees, the WOTC is not worth it,

it is not worth it to make the phone call. Even though these forms

may be minimal, for Marriott and for Burger King, my brother

Frank has 10 or 15 employees. Ron, you have 370 employees and

you have somebody that does the WOTC application process full

time. My brother doesn’t. So he would just bypass the program,

which is unfortunate because teaching somebody to be a good

Italian cook is a real profession. That is true. Mrs. Napolitano.

Ms. NAPOLITANO. Thank you, Mr. Chairman. In thinking about

what you just said in regard to finding a way to be able to make

this easier, I have always felt that the Department of Corrections

should have a release form to give to every felon they are releasing,

with some of that information to be able to assist the felon. Unfortunately, they don’t talk to Department of Employment—Corrections doesn’t; and so you have kind of a situation where there is

no communication for the need, either by the Department of Employment—and I call it the Department of Employment because I

am used to being in California, to anybody else. Sometimes agencies do not communicate as to what would be helpful to the interviewers at the time of being able to do referrals. If they were able

to standardize something to every single individual, even the felon

could fill it out upon release and have it verified by somebody in

the Department of Corrections. Because then they would be assisting not only an employer but the felon to be able to get back without having to go through a whole period of suspense, if you will,

trying to figure out what you do next. That would be easier to

verify it.

Then I have other questions.

I was looking at this instruction form, and I dare anybody to

read it with any expediency. The words are run in together. I

looked down here, and it is just unbelievable the way this form has

been set out. Mr. Carroll, could you address that? The words—

there is hardly any spacing between any of the language in this

form.

Mr. CARROLL. Sure. You would like me to disagree with that?

Ms. NAPOLITANO. Is this standard? This is what goes out to an

employer?

Mr. CARROLL. I believe so, yes. Is that the 8850?

Ms. NAPOLITANO. Employers, any comments on the form?

Mr. KRAMER. If that is the 8850, that is the standard form, yes.

Ms. NAPOLITANO. I am sure most of you already have read it.

What about the employer who is going to try to utilize this and try

to figure out what the world it says?

19

Mr. KRAMER. They won’t read it. They will put it somewhere

else.

Ms. NAPOLITANO. Have you noticed the form?

Chairman MANZULLO. Mrs. Napolitano, look on the second page,

the words are all bundled together.

Ms. NAPOLITANO. That is what I am referring to. Everything is

run in together. Look at it. The front and back.

Chairman MANZULLO. That is a lousy printing job.

Ms. NAPOLITANO. I think first I would suggest we start at home

trying to figure out what is a better and—facilitate this for the new

employer who may want to at least read it and take part in it.

I am very interested in comments in regard to felons. Right now

I have a program in California for the women and infants. There

are four pilots set up. One of them is in my district. The women

who are ready to be released with their infant children are looking

for jobs but they are felons, they cannot find employment; and

there is no employment office saying, here, we will help you. How

do we go about that, Mr. Carroll? What would be the most expedient way for us to be able to find this felon a job with an employer

by trying to get them to fill out these forms?

Mr. CARROLL. We had a conference in New York just a couple of

months ago based on just that, having employers consider ex-felons. A very interesting conference, very touching. Part of the concern is you have to educate the employers on who these ex-felons

are. Most of us have this impression of something we see in the

movies or something and 70 percent of them are nonviolent. That

is the first thing.

Ms. NAPOLITANO. This program is women who have abused drugs

or alcohol. When I asked this woman what she did, she says, I sold.

But she has got 25 years facing her; and she is not going to do it

again. At least this is what she is professing.

Mr. CARROLL. When we talk about that, we educate the employers on who this population is; and then we say in addition to that,

we encourage the employers to get a relationship with some kind

of service provider to help the ex-felon make the transition. Part

of it—we might not want to admit it or not—but we don’t necessarily agree that ex-felons are being rehabilitated. So once they

go——

Ms. NAPOLITANO. They are not.

Mr. CARROLL. Once they go through some process, we have a certification provider join on board to help in training, then the employers are more willing to take this opportunity. Now, the tax

credit as Mr. Littlejohn said, needs to be, number one, we shouldn’t

have to worry about whether it is in or out or expired or not. That

should probably be ongoing. That is the very least we can do. We

are paying, what, 50–some thousand dollars to house a felon, and

it is like $3,000 or so if we can get them into a job. So we need

to put our energies toward that.

Ms. NAPOLITANO. Wouldn’t it make sense then to try to establish

a program directly with the department of Corrections and have

employers come in and actually provide some of the on-site training

so when they are released, somebody is going to go to a job?

Mr. KRAMER. May I comment?

Ms. NAPOLITANO. Yes.

20

Mr. KRAMER. I was actually—when I was in the hotels, I had

gone to Lorton penitentiary and done job training with the inmates

that were going to be released over a certain period of time. Lorton

at that point had a culinary skills program. The population that

was involved in that were actually separated from the general population because these guys were trying to do something with their

lives.

If you want an employer to consider hiring someone coming out

of prison, that training needs to take place while they are in prison, and you are going to need at least 3 to 4 months. You may be

surprised how many employers may be willing to come out and do

some job training because it is in their own interest as well. The

one big barrier that exists in hiring ex-felons is the difference between nonviolent and violent offenders. Because with violent offenders, you run the risk of a negligent hiring liability lawsuit. But

with nonviolent, drug offenders and things like that—and they are

ready to come out and they have learned their lesson—they want

a second chance as we all do at one point or another. An effective

training program with a partnership with various employers in

that area could definitely work.

Mr. ENGLISH. One other thing I would add to that is that in the

State of Texas, we have what we call halfway houses, people who

are about to be released. They are released during the day to go

and work, and then they go back at night. We have participated

in that program for a couple of years and found it quite useful for

us. As the gentleman on my left had said, part of the problem that

we have is a concern about violence in the workplace. Bringing

those people into the workplace sometimes creates a problem for us

even if it is just someone who sold drugs before. We are concerned

because drugs, as you probably are aware, run rampant. With the

kids that we work, we just don’t want them associated with that

as well.

Ms. NAPOLITANO. Anybody else? Thank you, Mr. Chairman.

Maybe we ought to consider a program to be able to assist employers finding a way to work with prisons.

Chairman MANZULLO. I appreciate that. I had a question back at

the beginning about not-for-profits. Did anybody here want to comment on that? Sir, you were nodding as though you would know the

program. Would you mind taking a seat up here and introducing

yourself.

Mr. SIGNER. Sure. My name is Bill Signer; and I am general

counsel to NEON, the National Employment Opportunities Network, which represents the consultants and a number of the companies that are involved in the Work Opportunity Tax Credit. The

proposal on the not-for-profits that was put forth by Congresswoman Lowey and Congresswoman Johnson and which Mr. Houghton has actively supported was one which basically says that in a

lot of inner city and rural communities, the largest employers are

not-for-profits. The thought was, how do you encourage those employers to participate in hiring entry-level workers, especially since

hospital and universities have a lot of entry level workers. The proposal, specifically, was to allow them to take a credit against their

payroll tax liability, which is a tax that they do pay. Mr. Houghton

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has been very articulate on the fact that payroll taxes are a tax

employers are paying to the Federal Government.

Chairman MANZULLO. Would that be Social Security?

Mr. SIGNER. Social Security and unemployment insurance. That

was what the proposal was at that point.

Chairman MANZULLO. Has anybody scored that with the CBO?

Mr. SIGNER. With the Joint Committee on Taxation. It came out

to be about $40 million a year.

Chairman MANZULLO. That would be solely Social Security or Social Security and unemployment?

Mr. SIGNER. I included all payroll taxes.

Chairman MANZULLO. Do you see a problem with that? Your

name again is?

Mr. SIGNER. Bill Signer. S-i-g-n-e-r.

Chairman MANZULLO. Do you see a problem with that, Mr. Signer, or is there another way to allow for non-profits to participate

in the WOTC. For example, someone had mentioned being able to

take a certificate and exchange it with a private employer for reimbursement but at a discounted rate.

Mr. SIGNER. Congressman Weller talked about syndication of tax

credits. There are a lot of problems with that. Basically you are

paying middle people a lot of money and the value to the employer

goes down very, very much. In terms of grants, which is what the

administration it testified in favor of when they say that they have

money for welfare to work for grants, the problem, especially for

small businesses and small companies, is they don’t want to go

through the whole process of applying for a grant. They don’t have

anyone on staff who can do a grant proposal. They don’t want to

participate in that and the odds of them receiving a grant is very,

very low. The advantage of the tax incentive is everybody pays payroll taxes; it is universally available. If you want to participate in

the program, you can do it that way.

Chairman MANZULLO. I guess I would have to think that one

through. Does anybody else have any other suggestions as to how

we could include colleges, universities, local government units, libraries besides this tax credit bill?

Mr. SIGNER. One other point, that bill did not go to local governments. Some local governments don’t pay payroll taxes. They aren’t

in the Social Security system. Also it was felt that one government

should not be giving another government a tax incentive.

Chairman MANZULLO. But on the other hand, the government

should set the standard, for example, in the hiring of ex-felons. If

a government agency doesn’t do that, why would they expect the

private employer to do that? First of all, I appreciate your shaking

your head over there and serving as an indication that your insight

is extremely valuable. I think I speak on behalf of the members

here in saying that this program is not being used to its maximum,

if at all, by most small businesspeople. I am convinced that unless

you have somebody who does full-time payroll, whether it be a government compliance officer or somebody in accounting, that this

program simply is not going to be utilized by small business. Small

businesses comprise over half of the employment. Is that correct,

Mrs. McCarthy?

Mrs. MCCARTHY. It sounds pretty close.

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Chairman MANZULLO. It is a huge figure. I am not saying this

obviously in criticism of the tremendous efforts that all of you are

doing, but I am just really dismayed that we have made it so difficult for small employers to get involved. I would appreciate if you

want to make it part of your letter. Rodney, as you have reached

out to the different groups, I think you hit it right on the head. You

just can’t seem to break through. It is the little people that have

the most difficult time getting the employees because they don’t

have the recruiting staff, they don’t pay the benefits, et cetera.

Mr. English, in your letter you stated that about 20 percent of

the people will stay with you for up to 299 hours. And most of that,

at least in my experience after talking with our agencies back

home and verified through Mr. Kramer, is because they are moving

up the economic ladder and going to other jobs. But your point is

that you are doing all the training. The money that you receive

through the tax credit, is spent by you, anyway. So it is not as

though you are getting a bonus. In fact I found out after was talking to one of your employees, is that Marriott has an English program for people that are struggling with it, and also they have a

Spanish program to teach people different languages. This is valuable especially in Washington, D.C., working with people that have

the incredible language backgrounds.

If you could work on your letters, try to keep them as short as

possible. You are practitioners; you understand this better than

Members of Congress who are theoreticians, but that is the reason

why we have these committee hearings. In all of your letters to us,

if you could work either collectively or individually and let us know

if there is a whole new way to go about opening this up to small

employers, we would make that recommendation to the Ways and

Means Committee as part of the extension of the credit so that

more and more businesses could avail themselves of it.

Mr. LITTLEJOHN. Mr. Chairman, I would like to add one comment. The instruction page that I believe you had for the IRS form

8850, the IRS wrote that. What happens at the State levels is that,

particularly in Tennessee, we broke it down into a little Southernese and it made it—the print is a lot larger, and it is a lot simpler;

but it is something that the States had to do in order to make it

function. The State coordinators that are out there are doing things

such as rewriting the instruction manual so people can understand

it.

We have our own instruction manual for this program. The instruction package that you were looking at, that scares me. I don’t

think I have ever read the thing before—I have seen it—but we

had to rewrite our own to make it user friendly for the employers.

I understand why the IRS had to put all the bureaucratic-ese in

there; but when it gets down to where the rubber meets the road,

we have made it a lot simpler; and most of the States that I am

in contact with, I know Texas, Georgia, we have all issued our own

instruction manual that is much easier to follow.

Chairman MANZULLO. I have a final question. I guess this would

be to you, Rodney. When any of your agencies or groups see an ad

in the paper, with a request for help to find employers in a particular business or industry, does your agency sometimes contact

the employer?

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Mr. CARROLL. Sure.

Chairman MANZULLO. Tell us how that works.

Mr. CARROLL. We have several ways. One, a lot of it depends on

the employer and how they are advertised. For example, when I

was at UPS, I would have agencies contact me directly all the time

wanting to know about the specific requirements for the job and so

forth.

Chairman MANZULLO. I know it would be very difficult, because

the want ad pages are tremendous. But does anybody contact those

employers and say, look it, we may have something here that we

can help you with? Or that is just too much?

Mr. SIGNER. Mr. Chairman, what is going out there is that the

management assistance corporations have done an extensive job of

contacting all the groups that work with ex-offenders, work with

welfare recipients and do training. What they have done is put in

their computer database the location of groups involved with people

who are eligible for the Work Opportunity Tax Credit. So that

when a Marriott wants to hire somebody, they will place a job

order with their consultant. The consultant will then go out and

say, here is what the job is, here are what the requirements are,

please refer people to us. That is going on extensively. That has

really happened extensively bit since WOTC came into effect because only a narrow pool of people are eligible and employers need

people. So there has been a partnership going on between the employers and the consultants, and they have been engaging in extensive outreach.

The other comment I wanted to make was on the ex-offenders.

The reason you have to provide all those pay stubs in to prove income. There was a belief on the Committee on Ways and Means

that if you did not require proof of income, you would have somebody like Michael Milken, qualify. It is an incredible burden. What

ends up happening is that employers say they don’t want to hire

in the ex-offender—they have enough problems with hiring an exoffender in the first place. But they are told, okay, hire somebody

and get a tax incentive for doing it, and then they don’t get it or

it is 5 or 6 months down the road. The intersection between the

act by the employer and when they get rewarded from it is so long,

and it is not the fault of the job services. It is the fault of the system. The system really needs to be changed in that area.

Chairman MANZULLO. Mrs. McCarthy.

Mrs. MCCARTHY. Just out of common sense—and I know we are

in the Government—but the average salary starting off when you

take these people into the programs I don’t think would quite live

up to his life style.

Mr. SIGNER. I understand that. We explained that to them, but

they wouldn’t listen.

Mrs. MCCARTHY. Maybe we will have——

Chairman MANZULLO. That is the difference between Ways and

Means and Small Business Committees.

Mr. SIGNER. There are other areas here where I think you could

make some major improvements and as a result you would get

more small businesses to participate in it.

Chairman MANZULLO. Please.

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Mr. SIGNER. Congressman Weller talked about the 18- to 24-

year-old category. It applies both to EC, empowerment zones and

enterprise communities, as well as to the food stamp category. If

you are over 24 years old, you don’t qualify. What that means is

and what we are seeing now is predominately women are qualifying for their tax incentives. Eighty percent of the people who

qualify now in WOTC are women on welfare. So if you are a small

businessperson and people coming through your door, the only ones

you are going to get qualified for WOTC are women. If you only

have a couple of jobs a year, and you hire a man and he doesn’t

qualify, yet he is from a poverty household, the employee learns

very quickly not to make that mistake again. If you expanded the

number of people who were eligible so that more people coming

through the door with have very similar characteristics to the people who are on welfare, quality you would see more small employers participating. The irony here is that the mother of a child on

welfare qualifies but the father from the same household does not.

Very few States have unemployed parent programs. So the husband doesn’t qualify. There are about 12 million people on welfare.

Of that, about 600,000 are men. So what you are finding is a very

small pool of men. If you expanded WOTC to cover men, you would

end up having more small businesses participating because more of

the people coming through the door would qualify. The other problem is—— Chairman MANZULLO. Back up a second on that, Bill. Is that

becaused the 18 to 24 age category?

Mr. SIGNER. It is because it is a very small category of 18- to 24-

year-old individuals qualify. So what you have is a woman on welfare who is 30 years old—— Chairman MANZULLO. This is a single mom?

Mr. SIGNER. Or she could be married. Her husband or the father

of the child may be living in the household, but they are not on

welfare, so they don’t qualify. They are 30 years old; the family is

on food stamps, but it is only the 18- to 24-year-old on food stamps

or 18 to 24-year-olds and living in an EZ or an EC that qualify.

They are living in the household, they are on food stamps, but they

are not qualifying for the program. So the employers who are going

out and recruiting and getting people are not looking for those

men. They are looking for the women on welfare.

So what you end up having is that very few men are qualifying

in this program. Small businesses are saying, wait a second, I am

hiring only a couple of people a year, maybe one out of the five people I hire is eligible, yet if I hired a man from the same household

or a similar household, he doesn’t qualify. Yet he has got problems

in terms of his ability to work. I was looking at a statistic the other

day that were in Time magazine. One in nine African Americans

age 20 to 39 are in prison. The reason they are in prison is——

Chairman MANZULLO. Is that males?

Mr. SIGNER. Males. What they were saying is the reason they are

in prison is because they don’t have any other opportunities to get

a job. We are seeing welfare moms come off of welfare and go into

work. We are not seeing African American males going to work. It

is 1 in 25 Hispanic Americans age 20 to 29 are in jail. Yet only 1

in 65 white men in the same group are incarcerated. We are giving

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no opportunity for those people to get a job. We have succeeded in

welfare. Why can’t we succeed in the other areas?

Chairman MANZULLO. Bill, if you could also be so kind as to submit a letter on your letterhead. This has been very interesting. I

guess the missing witness here is somebody like my brother, but

we could understand that. Rodney, I think you are totally frustrated with the fact that you have worked so hard but been unable

to bring them into the fold. We will take your letters. We will work

with the Ways and Means Committee. Apparently we do have time

to put more effort into this. What I would like to see—I don’t know

if it is going to happen—is a permanent extension of the present

law. You can always tweak the present qualifications to be more

expansive, as Mr. Signer had requested.

Thank you all for coming here. We appreciate your taking the

time. This Subcommittee is adjourned.

[Whereupon, at 11:30 a.m., the subcommittee was adjourned.]

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