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86–509 2014

FIELD HEARING IN SOUTH CAROLINA: GETTING 

RURAL AMERICA BACK TO WORK: SOLUTIONS 

TO LOWER UNEMPLOYMENT 

HEARING 

BEFORE THE

SUBCOMMITTEE ON ECONOMIC GROWTH, TAX AND 

CAPITAL ACCESS 

OF THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

SECOND SESSION 

HEARING HELD 

JANUARY 24, 2014 

Small Business Committee Document Number 113–051 

Available via the GPO Website: www.fdsys.gov 

SBREP-219 with DISTILLER


Congress.#13
(II) 

HOUSE COMMITTEE ON SMALL BUSINESS 

SAM GRAVES, Missouri, Chairman 

STEVE CHABOT, Ohio 

STEVE KING, Iowa 

MIKE COFFMAN, Colorado 

BLAINE LUETKEMER, Missouri 

MICK MULVANEY, South Carolina 

SCOTT TIPTON, Colorado 

JAIME HERRERA BEUTLER, Washington 

RICHARD HANNA, New York 

TIM HUELSKAMP, Kansas 

DAVID SCHWEIKERT, Arizona 

KERRY BENTIVOLIO, Michigan 

CHRIS COLLINS, New York 

TOM RICE, South Carolina 

NYDIA VELA ́ ZQUEZ, New York, Ranking Member 

KURT SCHRADER, Oregon 

YVETTE CLARKE, New York 

JUDY CHU, California 

JANICE HAHN, California 

DONALD PAYNE, JR., New Jersey 

GRACE MENG, New York 

BRAD SCHNEIDER, Illinois 

RON BARBER, Arizona 

ANN McLANE KUSTER, New Hampshire 

PATRICK MURPHY, Florida 

LORI SALLEY, Staff Director 

PAUL SASS, Deputy Staff Director 

BARRY PINELES, Chief Counsel 

MICHAEL DAY, Minority Staff Director 

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(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Hon. Tom Rice .......................................................................................................... 1 

WITNESSES 

Richard Kaglic, Regional Economist, Federal Reserve Bank of Richmond, 

Charlotte, NC ....................................................................................................... 4 

Chuck Bundy, Deputy Director, Small Business and Existing Industry, South 

Carolina Department of Commerce, Columbia, SC ........................................... 7 

Joe Jacobs, Senior Vice President of Operations, South Carolina Manufacturing Extension Partnership, Columbia, SC .................................................... 9 

Ben Chastain, Director, Duke Energy Center for Innovation, Hartsville, SC .... 12 

Jeff McKay, Executive Director, North Eastern Strategic Alliance, Florence, 

SC .......................................................................................................................... 14

APPENDIX 

Prepared Statements: 

Richard Kaglic, Regional Economist, Federal Reserve Bank of Richmond, 

Charlotte, NC ................................................................................................ 30 

Chuck Bundy, Deputy Director, Small Business and Existing Industry, 

South Carolina Department of Commerce, Columbia, SC ......................... 42 

Joe Jacobs, Senior Vice President of Operations, South Carolina Manufacturing Extension Partnership, Columbia, SC ............................................. 50 

Ben Chastain, Director, Duke Energy Center for Innovation, Hartsville, 

SC ................................................................................................................... 52 

Jeff McKay, Executive Director, North Eastern Strategic Alliance, Florence, SC ......................................................................................................... 57 

Questions for the Record: 

None. 

Answers for the Record: 

None. 

Additional Material for the Record: 

None. 

SBREP-219 with DISTILLER

SBREP-219 with DISTILLER

(1) 

GETTING RURAL AMERICA BACK TO WORK: 

SOLUTIONS TO LOWER UNEMPLOYMENT 

FRIDAY, JANUARY 24, 2014 

HOUSE OF REPRESENTATIVES, COMMITTEE ON SMALL BUSINESS, SUBCOMMITTEE ON ECONOMIC GROWTH, TAX AND CAPITAL ACCESS, Washington, DC. 

The Subcommittee met, pursuant to call, at 2:00 p.m., in the 

Multi-Purpose Room, Dillon Wellness Center, 1647 Commerce 

Drive, Dillon, South Carolina, Hon. Tom Rice [Chairman of the 

Subcommittee] presiding. 

Present: Representative Rice 

Also Present: Former Representative Robin Tallon 

Chairman RICE. Good afternoon. 

AUDIENCE. Good afternoon. 

Chairman RICE. I want to thank everybody so much for being 

here today. What a great crowd we have, we have people from all 

over the district. I know I saw people from Chesterfield County, I 

saw people from Horry County, I saw people from Marion County 

and people from Florence County. So we have got people from all 

over the district. And what an honor that you would take time out 

of your day to come and learn more about economic development 

in rural counties. I appreciate very much your participation. 

You know, we can hold all the hearings we want to, we can get 

the brightest people in the world here, but if nobody is here to 

learn, it does not accomplish anything. And if we do not work together, nothing is going to happen. And I appreciate very much all 

of y’all taking your time to do this. 

I would especially like to thank each of our witnesses for taking 

time out of their undoubtedly busy schedules to provide testimony 

on ways we can all work together to lower unemployment in our 

rural communities and grow the economy. We have an excellent 

panel of local leaders, experts, and folks who know how to create 

jobs and I am looking forward to their testimony and their discussion. 

Ladies and gentlemen, we are mired in the worst recovery from 

a recession since World War II. The great recession ended in June 

of 2009—so they say. That was 54 months ago. Since the end of the 

downturn, we have seen tepid GDP growth, uneasy economic conditions, uncertainty all around the marketplace, and a lagging labor 

market. By most accounts, our economy has not recovered—quoteunquote—recovered in those 54 months, not even close. 

What do you say here in Dillon County? 

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2 

VOICES. Not close. 

Chairman RICE. Anybody who follows it closely must have serious concerns about whether the country is on the right track. Our 

economy is large and complex with many factors influencing its 

trajectory. As we examine these factors, we must take a hard look 

at the policies coming out of Washington and determine what we 

can do differently and better, because I will tell you, Washington 

is a big part of the problem. 

Take for instance, the most recent jobs report coming from Washington. By November of 2013, the country was still 1.3 million jobs 

short of its pre-recession peak. In December, however, only 74,000 

jobs were created in this country. That is 130,000 less than the 

month before. While the national unemployment rate dropped to 

below seven percent for the first time in five years, it was only because 374,000 people simply gave up and left the workforce. They 

gave up because they just could not find work. This is absolutely 

unacceptable. Clearly we must do better. 

One of those places where we need to do better is in our rural 

communities with the stubbornly high levels of unemployment. As 

a sector of the economy rural areas, particularly right here in 

northeastern South Carolina have significantly higher levels of unemployment when compared to urban areas. For instance, right 

here in Dillon County, the unemployment rate is 10.4 percent. That 

is almost 50 percent higher than the national average. It is even 

worse in neighboring Marion County where it stands at 13.1 percent. When you compare that to those of Charleston or Greenville 

areas at 5.5 percent, the dichotomy becomes more troubling. 

With new technology, rural communities have the capability to 

be connected to the world economy in ways not previously encountered—from high speed internet to participation in international 

trade. By identifying what impediments rural counties face, we can 

work together to remove those obstructions and get our rural 

economies growing along with their more urban brethren. 

Various studies conducted by organizations such as the United 

States Chamber of Commerce and the National Federation of Independent Business continuously point to high levels of taxation, regulation and a general uncertainty about where the economy is 

going, as a significant impediments to growth. 

I believe we have a real opportunity to enact changes to give 

local economies and small businesses the tools they need to lead an 

economic revival. Government does not create jobs or produce longterm economic growth—the private sector does. The faster Washington releases the reins, the faster we will see America back on 

the job and our nation back on the path to economic prosperity. 

Again, I would like thank each of you for taking time to provide 

my subcommittee with testimony. I am really looking forward to it. 

What I am going to do is introduce each of my panelists individually and they will have five minutes to present their testimony. 

Before I do that, I want to introduce to y’all, my friend, former 

Congressman Robin Tallon. Robin served in the old Sixth District, 

which is essentially the same district that I have. I know most everybody in the room knows Robin and I asked him if he would sit 

on this panel with me today. 

Mr. TALLON. Thank you, Congressman. 

SBREP-219 with DISTILLER

3 

Chairman RICE. Thank you. It is my honor. Do you want to say 

a couple of words? 

Mr. TALLON. Tom, thank you. 

For me, it is good to be home. I grew up in this county, in 

Lakeview and in Dillon, and have long been concerned both while 

having the privilege to serve in the United States Congress and 

since, about a situation where we just have not seen the economic 

growth in these rural counties, whether it is Marion or Marlboro 

or Chesterfield and Dillon. 

And I am just so delighted at the leadership our Congressman 

has shown in bringing this hearing here in Dillon and I want to 

thank all of the citizens that are interested and involved and care 

deeply about our rural Pee Dee counties and, of course, the presenters here today who are going to give us some insight and ideas 

on things that we might look forward to. 

And again, Tom, I cannot thank you enough for your leadership 

and for reaching out and caring for areas like these rural counties. 

Thank you so much. 

Chairman RICE. Thank you, my friend. 

All right, panelists, I will be quite lenient on your time limit as 

we are all friends here. And besides, nobody is here to tell me that 

I cannot. 

[Laughter.] 

Chairman RICE. After y’all finish, we will begin questions and 

discussion, in the discussion portion of the hearing. With that, I 

would like to introduce our first witness, Richard Kaglic, Senior 

Regional Economist at the Federal Reserve Bank of Richmond. Before I proceed with his introduction, I have to tell y’all, I was 

speaking with Congressman Tallon and Mr. Kaglic—it’s Kaglic, 

right? 

Mr. KAGLIC. Kaglic. 

Chairman RICE. Kaglic. Before the meeting, and Congressman 

Tallon said he grew up across the street from Ben Bernanke and 

I said, ‘‘Did you teach him how to balance his checkbook because 

it has not been balanced in awhile.’’ 

[Laughter.] 

Mr. TALLON. Above my ability. 

Chairman RICE. Mr. Kaglic joined the research department in 

2009 and is responsible for analyzing regional economic conditions 

and developments as well as educating the region’s diverse constituents on the role of the Federal Reserve and its district banks. 

Prior to joining the Richmond Fed, Mr. Kaglic served as senior 

economist for Eaton Corporation, a diverse manufacturing firm 

headquartered in Cleveland, Ohio; as chief economist for the Washington State Employment Security Department; and spent 11 years 

as senior business economist for the Federal Reserve Bank of Chicago. He served in leadership roles in Chicago and Cleveland Association for Business Economics, and has provided economic analysis 

for the Governor’s Economic Advisory Council in four states. 

He completed both is undergraduate and graduate work at 

Youngstown State University, with specializations in regional and 

urban economics. 

Thank you for being here, Mr. Kaglic. Please begin, sir. 

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4 

STATEMENTS OF RICHARD KAGLIC, REGIONAL ECONOMIST, 

FEDERAL RESERVE BANK OF RICHMOND, CHARLOTTE, 

NORTH CAROLINA; CHUCK BUNDY, DEPUTY DIRECTOR, 

SMALL BUSINESS AND EXISTING INDUSTRY, SOUTH CAROLINA DEPARTMENT OF COMMERCE, COLUMBIA, SOUTH 

CAROLINA; JOE JACOBS, SENIOR VICE PRESIDENT OF OPERATIONS, SOUTH CAROLINA MANUFACTURING EXTENSION 

PARTNERSHIP, COLUMBIA, SOUTH CAROLINA; BEN 

CHASTAIN, DIRECTOR, DUKE ENERGY CENTER FOR INNOVATION, HARTSVILLE, SOUTH CAROLINA; JEFF McKAY, EXECUTIVE DIRECTOR NORTH EASTERN STRATEGIC ALLIANCE, 

FLORENCE, SOUTH CAROLINA 

STATEMENT OF RICHARD KAGLIC 

Mr. KAGLIC. Good afternoon and thank you, Mr. Chairman. It is 

certainly an honor to be asked to speak before the Subcommittee 

this afternoon regarding the economic outlook. 

I will be focusing my comments today. I will want to share with 

you some of my thoughts on economic conditions nationally as well 

as here in South Carolina. And I do want to be careful to say that 

these views are my own and do not represent those of my colleagues at the Federal Reserve System. 

As you alluded to a little earlier, we are talking about economic 

indicators. Some of the economic indicators that we have been seeing recently have come in a little better than expected. Most notably, gross domestic product, the unemployment rate at 6.7 percent. 

So, gross domestic product is our measure, our best measure, of 

total output of goods and services in the economy. And in the third 

quarter, it expanded at a pace of better than four percent, which 

is about as good as we have seen in two years. And the unemployment rate came down to about 6.7 percent, that is the lowest it has 

been since October of 2008. With relatively solid readings in measures of consumer and business confidence, as well as some of the 

significant gains that we saw in equity markets over the course of 

2013, many economic forecasters are predicting that we are finally 

going to see a breakout of this low-trajectory GDP growth rate that 

has been the norm since this recovery got underway. 

I, however, do not see sufficient evidence that suggests that a 

more robust economic expansion is on the near-term horizon. I 

think when we start to look down a little deeper into the data included in gross domestic product and the unemployment rate, there 

are still signs that growth is going to be constrained as we move 

forward. And more importantly, when we look at some of the economic fundamentals that typically drive economic growth, they do 

not appear to be materially different than what has dominated 

since this recovery got underway. So these factors have tempered 

my own outlook, which calls for basically a continuation of recent 

trends. That is, relatively sluggish output growth accompanied by 

these modest improvements that we have been seeing in labor markets. 

Here in South Carolina, I think our economic prospects are a little brighter than the national average but at the same time, at the 

end of the day, I do not believe that the state, nor any other state 

for that matter, can completely escape the gravitational pull of 

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5 

some of the drags that are weighing on the national economy. So 

for that reason, I am going to begin by talking about some of those 

economic—national economic conditions. 

So, first, let us take a closer examination of that third quarter 

GDP report. If you delve down into the details, you will find that 

the acceleration growth from the second quarter to the third quarter, was largely a function of inventory accumulation. So what that 

means is that firms were building stuff that they had not yet sold. 

If that is indeed the case, what that means as we move forward 

is that firms will now have to readjust their production schedule 

to get those inventories back in line with their sales expectations. 

That being the case, domestic demand in the third quarter, was not 

nearly as robust as what was being reflected in those top line gross 

domestic product numbers. 

Now one of the reasons for that is something that we see being 

reflected in household spending. Personal consumption expenditures make up the majority of gross domestic product in the United 

States, accounting for about 70 percent. And throughout the course 

of this economic expansion, the increases in real personal consumption expenditures have been averaging about 2.2 percent, which is 

very weak when you compare it to recoveries from prior deep recessions, such as those in the mid-1970s and again in the early 1980s. 

Now some analysts have pointed out that fourth quarter spending appears to have picked up. And that is certainly the case. But 

at the same time, when you take a look at real disposable income 

growth—so this is income adjusted for inflation and for taxes—that 

growth has remained relatively weak. Now at the end of the day 

when households make their decisions on spending, they are basing 

their spending decisions based on what they are earning today and 

what they expect to be earning in the future. With little evidence 

to suggest that that real income growth is about to break out and 

grow any faster, my own expectations for personal consumption expenditures growth is basically what we have been seeing over the 

past couple of years. That is, roughly two percent. 

So, if you have got 70 percent of your economy growing at two 

percent, where is the other marginal growth going to come from? 

Well, some people look to the housing markets and certainly the 

housing markets are recovering but at the same time, they only account for about three percent of gross domestic product these days, 

and while the housing recovery continues into 2014, it is likely to 

do so at a slower pace than what was the case in 2013, if for no 

other reason than mortgage interest rates are higher. 

Now businesses continue to report firming demand for the goods 

and services that they provide, but at the same time, they are only 

increasing their investment in equipment and software moderately, 

and one of the big factors driving that growth is uncertainty in the 

economy, some of which you alluded to earlier. But that uncertainty emanates from how strong the economic recovery is going to 

be, the pathway for monetary policy, the short-term tax and regulatory issues, as well as our longer-term fiscal imbalances. 

But whatever the driver of that uncertainty, it seems that that 

uncertainty is not just affecting business investment decisions, it is 

also affecting hiring decisions. As you mentioned, we are now four 

and a half years into this economic recovery, we have not yet recovSBREP-219 with DISTILLER

6 

ered all of the jobs that were lost. Same is true here in South Carolina. In fact, in South Carolina, as a percentage of total employment, we actually lost more jobs than the rest of the nation. So 

even while we have seen, over the course of the last year, jobs 

growth has basically exceeded the national average here in South 

Carolina, we still have a longer ways to go before we are back to 

pre-recession levels of employment because we fell deeper into the 

hole. 

Now the unemployment rate, I mentioned the unemployment 

rate currently is at its lowest level since 2008, but there are certainly still plenty of signs of duress to be seen. One of them you 

alluded to, labor force participation. It has declined through the recession, it continued to decline through the recovery to the point 

where today we are looking at labor force participation rates in the 

United States as low as we have seen them since the late 1970s 

or early 1980s. South Carolina, similar trends. We see the unemployment rate coming down. In fact, we are within one-tenth of the 

national average right now, which is quite a development when you 

consider that at the worst of the recession we were two percentage 

points above the national average. But like the rest of the nation, 

we have seen—accompanying that improvement in the unemployment rate, we have seen a decline in labor force participation. Of 

the 40 counties in South Carolina for which there was a decrease 

in unemployment year over year in November, 34 of them saw an 

accompanying decline in labor force participation. 

Ultimately, your economy can only grow as fast as your labor inputs and changes in productivity will allow it to grow. Admittedly 

it is very difficult to predict changes in labor force participation 

and productivity, but the dynamics driving those have not changed 

recently. So that being the case, the most likely outcome for output 

growth in 2014 is something similar to what we have seen, that 

two percent or a little bit above that. And that is going to be accompanied by sustained but modest increases in payroll employment and a continuing downward trend in the unemployment rate. 

The outlook for South Carolina is a little better than the national 

average, owing in part to its low cost of doing business and positive 

migration trends, as well as some of the recent high-profile successes like Boeing, Continental, Bridgestone and others. But at the 

end of the day, it too will be hampered by some of those factors 

that are weighing on economic conditions nationally. 

With that, I thank you for the time and the privilege of testifying 

today. 

Chairman RICE. Thank you, sir. 

Up next is Chuck Bundy, Deputy Director for Small Business 

and Existing Industry with the South Carolina Department of 

Commerce. Do they not do a great job—my goodness. 

In this role, he oversees small business and existing industry 

strategy, resource support and company outreach, all designed to 

increase the growth and competitiveness of South Carolina businesses. He has been with the South Carolina Department of Commerce for 24 years and prior to that, he spent nine years in commercial banking in North Carolina. 

Mr. Bundy currently serves on the South Carolina Chamber of 

Commerce Manufacturers Steering Committee, their Small BusiSBREP-219 with DISTILLER

7 

ness Council, and represents the Department of Commerce on the 

University of South Carolina-Columbia Technology Incubator 

Board. 

He received his B.A. in economics and business administration 

from Furman University and his M.B.A. from the University of 

South Carolina. 

Thank you for taking the time to be with us today, Mr. Bundy. 

STATEMENT OF CHUCK BUNDY 

Mr. BUNDY. Thank you, Chairman Rice. 

The Department of Commerce respects and appreciates the Subcommittee’s interest in small business and small business in rural 

South Carolina. Thank you for this opportunity, and to your staff 

too, they do a great job. 

The 2010 census showed that about 33 percent of South Carolinians live in rural areas of this state. Small business is an integral part of South Carolina’s economy in employment, wages, investment and revenue, and equally so for rural South Carolina. 

What I want to do with the following initiatives is talk about 

some that typify the things that the agency and the state are doing 

to encourage small business development in rural South Carolina. 

Commerce begins by looking at structural elements for small 

business success. These are the same for any business, including 

rural South Carolina: 

General business planning 

New business development 

Financing 

Operations 

Workforce 

Regulations. 

Our agency seeks to connect programmatic support for these 

basic elements with the small business community. 

First, Commerce established the Small Business Advisory Council, which was set up to help coordinate statewide support for small 

business. These are organizations that are engaged daily with 

small business. They are: 

The SBA, Small Business Administration 

The USDA 

The Small Business Development Centers 

Manufacturing Extension Partnership 

Michelin Development Corp. 

And of course the Department of Commerce. 

Important groups that help us guide what we do based on what 

is going on with the small business community. 

We provide direct assistance to small businesses and fielded over 

500 inquiries from companies, small businesses, throughout the 

state of South Carolina this past year. Fifteen percent of those 

were from rural South Carolina counties. 

The BuySC Program is specifically oriented toward buyer/supplier matching, helping the larger OEM in Tier 1 and Tier 2 countries meet small businesses and vice versa, those small businesses 

who need those larger ones. We keep a database of those companies, 23 percent of those companies in the database are from rural 

South Carolina counties. 

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Thanks to the Fed, we have had a series of successful lender 

matchmaker sessions across the state. We held one in the Florence 

area. And these are just an opportunity for—well, let us just call 

it speed dating between small businesses and lenders, a chance to 

put them together. Twenty-one rural counties were represented in 

that effort, seven of those across the state. 

Access to small business information is an issue, and it is an 

issue for rural South Carolina as well. We created the 

SCBIZNetwork, which is an interactive website with a lot of resources, like a resource finder helping companies wherever they 

are, whatever they are, find specific resources they need. We have 

got a calendar of events, over 500 and something small business 

events held throughout the state this past year. It also houses our 

BuySC program, a Q&A section and access to the Small Business 

Regulatory Review Committee. The point is, we are trying to be intentional about providing access to rural South Carolina. 

The State Trade and Export Promotion Program is one of the 

SBA programs to help small businesses penetrate foreign markets 

with goods and services. Two years into that program, we have 

helped 59 small companies enter 24 different markets resulting in 

$3.7 million in export sales. Fourteen percent of those companies 

are located in rural South Carolina. We are interested in rural 

South Carolina. 

Small businesses and rural communities quickly feel a plant layoff or closure. They also quickly feel new economic development 

projects that come to fruition. The Department of Commerce provides rural counties with financial support for speculative buildings, industrial park development, site certification, and even redevelopment in downtown areas. If you do not have product, nobody 

is coming—important area. 

We also recently just established the Office of Innovation where 

we are looking at ways to improve capital access and also ways to 

promote faster innovation among South Carolina companies. 

Partners—we partner closely with the Small Business Development Centers. We consider them a gateway provider, frontline 

technical, face-to-face business assistance. We got a grant that we 

provided to them for expressly providing assistance to rural communities. It is just from Commerce. 

Other partner is the Manufacturing Extension Partnership. We 

have got a great partnership with a group that provides technical, 

production, and process support for South Carolina’s small and 

mid-size business communities. We love these guys, they are a 

positive game changer, particularly for the small manufacturing 

community in South Carolina and in rural South Carolina. 

So areas for federal consideration, I would just mention a couple 

in closing. We think that consideration and perhaps better recognition and support of the small business development centers and the 

SCMEP should be considered. They are frontline groups, they have 

a comprehensive offering and they are set up to cover rural South 

Carolina. 

And with great appreciation and respect, regulatory burden. All 

federal agencies should continue to examine their regulations for 

adverse impact on small business. Quite frankly, probably not 

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enough attention is going to that area. Some examples are enclosed 

in the written testimony. 

Small business is vitally important to South Carolina. Small 

business in rural South Carolina is vitally important to South 

Carolina. 

Thank you, Mr. Chairman, for your time and interest and this 

concludes my testimony. 

Chairman RICE. Thank you, Mr. Bundy. 

Our third witness is Joe Jacobs, Senior Vice President of Operations at the South Carolina Manufacturing Extension Partnership. 

He has been with the South Carolina Manufacturing Extension 

Partnership for nearly 14 years. He is a certified Lean trainer, professional business advisor, a certified Black Belt in innovation engineering. Mr. Jacobs has more than 40 years of manufacturing experience in various industries. He has been consistently successful in 

introducing strategic plans, manufacturing management practices 

and operating concepts that have supported the highest levels of efficiency and productivity and has been a key member of five separate management teams that successfully launched startup operations in the United States and Canada. 

Mr. Jacobs earned his bachelor’s degree in psychology from the 

University of North Carolina and a master of science degree in administration from Central Michigan University. 

Welcome to our Subcommittee, Mr. Jacobs. You may begin your 

testimony. 

STATEMENT OF JOE JACOBS 

Mr. JACOBS. Thank you very much, Mr. Chairman. It is a pleasure to be in Dillon and it is always good to see you again. 

A lot of other people, when they think of SCMEP, one of the first 

questions that come to mind is who are those guys. Although we 

have been around since 1989, we still go places where people do not 

know who we are and what we do and we try to do a lot of education to correct that. 

MEP was started in 1989. Senator Fritz Hollings out of Charleston was kind of the father of the group during the initial days. 

South Carolina was one of the first three in the nation to get started. In order to have an MEP, each state had to agree to provide 

some type of support, so our model over the years has been kind 

of a third federal, a third state, and we had to generate about a 

third in order to survive. That has changed a little bit over the 

years but we were established particularly to provide services to 

small and medium-sized manufacturers and make them more competitive globally. And we do that in a number of ways. 

One of the things that we like to do initially going into an operation, is to learn as much about the company as we can. We definitely do what we call a competitiveness review and it’s an assessment of the systems of the company, kind of model idea of the systems of the company that was developed in South Carolina, the 

methodology of utilizing that tool. Other MEPs, there is about 14 

other MEPs in the nation that decided they wanted to use it, they 

actually pay us a licensing fee in order to use it. 

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The competitiveness review is not very time consuming, but we 

can go into a facility and within—part of the survey, the assessment, they can do online, but once we get to a facility, it takes us 

about four hours on site and we like to follow the process from 

entry through shipping. We will go back and put our heads together and come up with a plan based on what has been successful 

in the past and come up with about three or four recommendations 

that we know if they take those and move forward with it, they are 

going to be successful. 

The areas that we particularly concentrate on is continuous improvement, workforce development, supply chain acceleration, sustainability. The services that we provide in those areas range from 

one end of the spectrum to the other. Like we take a look at the 

assessment, maybe 9.2 out of every 10 that we do, have a tendency 

to take those and move forward with it. Everything that we do 

with a company is—we do not do it if it is not measurable and 

every three months we go through a round of surveys that is done 

by the National Institute of Standards and Technology. We utilize 

a third party resource to do it. 

Typically, about six months after we complete a project with a 

company, they will get a call to see did they do what they said they 

were going to and if they did, what was the impact on the bottom 

line. I do not have our 2013 results yet, it will be about another 

month or so before those come in. 

But in 2012, we had a financial impact on new and retained sales of $170 million; a cost savings of $14.4 million; capital investment, $50.4 million and jobs created or retained, 1792. When we 

look at each one of those numbers, there is a ripple effect on jobs 

created. For every one job created, there is another one that is a 

spinoff somewhere. 

When you look at it, if it is in a manufacturing facility, the aver- age wage for someone in manufacturing now is close to $46.000. 

The average wage in all other sectors together is around $35,000. 

So there is a huge difference there. That is where the true—that 

is where wages came from years ago, from the manufacturing sector. That is what we try to do is get back there. 

There was one company, as a matter of fact, I think we made a 

visit there, but about six months ago, we started with the president 

of the company, he was getting ready to go through one of the 

NIST surveys and he made a comment to me, he said you know, 

when I first started working with you, we were sort of inefficient. 

But if you guys had not came in, the plant would not be here now. 

Chairman RICE. Are you talking about the one we went through? 

Mr. JACOBS. Yes. And that company is within 15–20 minutes 

from here. 

We worked closely with a lot of the other agencies in this state. 

Mr. Bundy and I, in addition to getting support from the federal 

government, the DOC, we work with them, get some support from 

the state but we work in the Existing Industry Program with the 

DOC and what we are doing there is going out visiting firms. Mr. 

Bundy and his staff will go out, letters are sent out to manufacturers and we go out and make visits on behalf of the DOC, but at 

the same time we get a chance to tell them who we are, what we 

do. 

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We also work with the Department of Employment and Workforce, and they get funds from the DOL every year. Twenty percent 

of what they get from the DOL is to work with incumbent workers, 

20 percent of those funds goes to what they call layoff aversion. 

And the layoff aversion, last year, we went into I think it was 33 

companies. Typically when we go into a company on layoff aversion, they are about to close the doors. We saved 28 of those 

through new sales and helping them improve efficiency, 28 companies, a lot of them in rural South Carolina. So that is one program 

that we want to make sure that we continue to stay on top of. 

One of the other things that MEP, we are a small group, there 

is only 21 of us and about 60 percent of what we do project-wise, 

we use third party experts to do it. So we do not do it all ourselves, 

we have got five or six people that go out and do the hands-on work 

but we do utilize a lot of third party resources. Typically in any different year, we use third party resources. 

Two years ago, I added on two additional folks, regional vice 

presidents, we have seven in the state now. Up until two years ago, 

one person covered 26 counties and those 26 was right in this region. So you did not get a chance to see that person very much. 

Right now, we have got seven and the person that covers this area 

covers from Richmond to Marion. So we are doing everything we 

can helping the small guys. About 75 percent of the manufacturers 

in South Carolina are under 50 employees, and there is a lot of opportunity there if they know what is available to them. A lot of 

people claim they cannot do business with the government because 

they are in Dillon or they are in Marion. You can do business 

there, you have just to know how to get qualified to do business 

with them. 

What the federal government can do to help the MEPs be successful and be around for many years to come and help companies 

in rural America continue to grow, the mission that we initially 

had and still have is to work with small and medium sized manufacturers to help them become more competitive globally. The one 

thing that works against that is the fact that in order to receive 

a dollar from the federal government, we have got to show we 

spent three. And instead of being measured on merits, that encourages us to try to be profitable. So we do not get a chance to spend 

as much time as we would like with the smaller guys. 

It would be like an increase in what we get revenue-wise, 

through a grant from the federal government, if it was a one-to-one 

match instead of three to one. 

That concludes my testimony and I think for the opportunity to 

speak. 

Chairman RICE. Thank you, Mr. Jacobs. 

One of the misfortunes is that the crowd has a disadvantage because you cannot see these people’s faces when they are talking to 

you. But you should see the pride in his eyes when he is talking 

about what he has accomplished with these South Carolina companies. And I have been through one of his companies with him and 

let me tell you, they were very, very thankful. 

Our next witness is Ben Chastain, Director of the Duke Energy 

Center for Innovation which serves as an incubator of local technology companies. Developed to support and diversify Hartsville’s 

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economy, the center helps newly established enterprises find the 

needed resources and knowledge base to help them transform technology ideas into successful businesses. 

Prior to joining the center, Mr. Chastain worked for Coker College for two years as director of their students in free enterprise 

program. During his tenure there, he started their entrepreneurship education initiative. 

He is a graduate of Coker College with a degree in management 

and is currently finishing his M.B.A. at Francis Marion University. 

Thank you for being with us today, Mr. Chastain. Please begin 

your testimony. 

STATEMENT OF BEN CHASTAIN 

Mr. CHASTAIN. Thanks, Chairman, and thank you for allowing 

me to speak today. 

I am going to talk about, of course, the Duke Energy Center for 

Innovation and how it is directly impacting the Pee Dee region. We 

are located in Hartsville, downtown storefront. As you mentioned, 

our goal is focused on supporting and fostering new technology 

company formation in our region. 

On our website, wherever you look, we look at about a 50-mile 

radius, but with the hybrid technology we are using through the 

Clemson partnership, we can service the entire region. 

Partners involved with this, of course, the Duke Energy Foundation is one of our primary funders, a local foundation in Hartsville; 

the City of Hartsville; and of course, Clemson University. This is 

a pilot program, a three-year pilot that has come out of Clemson’s 

research team and the development office. It was developed by Karl 

Kelly, who is the director of commercialization and technology incubation at Clemson. 

When looking at some statistics, the 2010 census and SBA numbers, 65 percent of all jobs are created by emerging companies, 

small emerging companies, employing in between one and 499, 500. 

What we are trying to do in Hartsville and for the surrounding 

areas with this pilot program with Clemson is be one of five technology centers across the state. There are currently three that are 

open, one is ours in Hartsville, the other in Bluffton, South Carolina and the third being in Rock Hill, with two more to be named 

this quarter 2014. 

But what we find is that these programs are already available 

in urban areas such as Greenville, Columbia and Charleston. We 

are at a disadvantage in rural areas because we do not have the 

capital resources needed to support these two million dollar annual 

budgets that takes place in some of these centers. 

So Clemson’s pilot program is to have all five centers working together at Clemson’s core hub on their campus at the Regional Entrepreneurship Development Center. Then we can mitigate some of 

these costs, and currently our estimate is to operate each center at 

a $200,000 budget. Our center, and of course every center has to 

find its funding independently, but now half of that is being funded 

through the Duke Energy Foundation and the other half through 

a private foundation in Hartsville. So we are currently receiving no 

federal or state money. 

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13 

Access to services and technology is probably the second thing. 

We have this misconception in South Carolina and especially in 

rural areas that we cannot do it as good as other areas. We have 

to change this opinion and change this image across the state. And 

it begins at each one of the centers. That is part of the lacking of 

confidence in the network, not knowing that this technology or 

these technologies can be developed here, that they have to go either to California or go up in the northeast. 

I have to brag on our community leaders, of course in Hartsville 

as this was a community-led initiative through a private foundation. And it has allowed us to take part in this initiative for the 

last eight months and we are looking forward to moving into the 

future. It is a hybrid-internet consultant model designed for nonmetro areas. The components include a community owned incubator which we currently have. The training is provided by 

Clemson, it is a 12-week program, certificate program, through 

Clemson. Myself as the director and our board members as well as 

many individuals taking part in this program. And we all use the 

regional entrepreneurship center at Clemson for different services 

that the entrepreneurs can have access to when we talk about the 

services, business planning, cost projections, finances, et cetera, all 

the things that go into creating these businesses. 

What we do primarily at the center is walk them through a fivestep process with a preliminary evaluation of their technology and 

of the individual. We do not have an application process. We take 

anyone off the streets. We are seeing the unemployed, we are seeing those with full time jobs that just have a hobby that they would 

like to turn in and find out if it can be scalable into a commercialization application. 

If they are viable, we put them through a detailed analysis with 

a partnership group that we have at Clemson, and we begin that 

business development, and strategic planning. We then try to find 

them funding sources, recruit their staff and have formation of 

their new company. And then at that time, they are on their way, 

moving into product and company development, leaving our center 

into partnership centers that we currently have like the one at 

SIMT, a manufacturing incubator, or to a viable storefront or contract manufacturing or to build a manufacturing site in the area. 

We do not require that these individuals stay in the Pee Dee, but 

we hope after the resources that we help them with, that they will 

want to stay within our region. 

We have partnerships of course with SIMT, Sonoco, Duke Energy. We work closely with SBDC and SBA. And we move these individuals to proof-of-development stage, and I would say that is 

probably our strongest limitation, is financing or funding these different innovators that come through our doors. So I can say that 

new programs or existing programs could be evaluated to help that 

proof-of-concept stage become a reality. When we see Shark Tank 

on TV, all of these ideas, technology ideas, have already passed 

through that proof-of-concept stage. It is finding the funding for 

some of these individuals that are either unemployed or have full 

time jobs and are paying the rent, paying the mortgage, to get 

them enough financing to just get them to prototype development. 

And then at that point, find venture capitalists or angel investors. 

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I want to talk real briefly on a new or most recent press release 

that we have had come out. One of our five current entrepreneurs 

that are working in our center just received $300,000 in venture 

capital and is developing a risk mitigation app in the nuclear industry for Duke Energy. This app will be developed in the next 

three weeks, phase one, and he has currently put an offer on a 

building downtown Hartsville, will be housed in a building in 

downtown Hartsville going forward. So we are real excited about 

that. That is our first success story in the first eight months that 

we have been established. 

So more to come. There are four that we are currently working 

with in the pipeline. We look to support anywhere between seven 

to eight entrepreneurs at any time at our center. With five of these 

across the state, you can imagine maybe 10 or 12 different businesses, small tech companies, coming out after year one. 

It is a pilot program, we are still in the process of collecting all 

the raw data and developing our metrics as to how this program 

will be successful in the coming years. But we look forward to seeing the output and the success stories that we have in the pipeline. 

So thanks for having me here today. I really enjoy being able to 

spread the word of what is going on in Hartsville that benefits not 

only our city, but the entire region. So, thank you. 

Chairman RICE. Thank you, Mr. Chastain. 

Our final witness today is Jeff McKay. Most of you in the room 

know Jeff, Executive Director of the North Eastern Strategic Alliance. NESA is a regional economic development organization that 

serves nine counties in northeast South Carolina. NESA’s primary 

objective is to enhance the quality of life for residents of the region 

by creating jobs and capital investment within the existing industry base as well as through recruitment of new companies and expansion of tourism-related development. 

Mr. McKay started his career in North Carolina as the director 

of the Polk and then the Stokes County Economic Development 

Corporations. He then went on to the North Carolina Department 

of Commerce, and from there became the director of the Greater 

Statesville Development Corporation. 

He is affiliated with the South Carolina Chamber of Commerce 

Tourism Task Force Committee, South Carolina Developers Association and currently the President of the South Carolina Economic 

Developers Association. 

Thank you for your participation today. 

STATEMENT OF JEFF McKAY 

Mr. MCKAY. Mr. Chairman, thank you for allowing us this opportunity and on a personal note, thank you for your commitment to 

this region. I appreciate it and we certainly are a lot better with 

your commitment to help us. Thank you. 

I also want to start out by saying that there are a lot of good 

programs that are currently going on within the state and this region to try to better the rural economies and the economy of this 

region, and for that we are appreciative as well. 

You mentioned at the beginning of your comments about working 

together in collaboration, and as you know, our organization is 

based on that, that is the linchpin of what we try to do and the 

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success or failure of our organization is our ability to cooperate and 

collaborate. So we are on board with you 100 percent. 

I have prepared some comments and my staff implored upon me 

that I need to read them or we will be here for another 45 minutes, 

so with that, if you will bear with me. 

One of the great things that we have the opportunity to do as 

a regional economic development organization is to meet with a lot 

of individuals who are looking to make, potentially make investments or try to create jobs within our region. And during these conversations, we have uncovered a few things based on their needs 

that I would like to share with you today, which we feel could better our opportunities to grow jobs and more capital investment in 

the region. 

There are basically three key points that I wanted to bring forward: 

Number one, in talking to these folks, it seems that there is a 

real need for greater mentoring opportunities that would assist entrepreneurs with navigating the pitfalls and challenges of starting 

a new business. 

Number two, access to capital for small businesses and particularly entrepreneurs in rural areas is vital to the economic health 

of our region. 

And then finally, the continuing improvement of our region’s infrastructure, including interstates, ports, and broadband, presents 

a crucial fulcrum on which rural small businesses balance. 

To begin with, there is a need for an outlet whereby individuals 

seeking to start a new business can consult with tried and true entrepreneurs who have a need for business guidance from experienced individuals that have been through the process and challenges of creating a profitable venture. Rural America is desperately in need of an apparatus that allows for the knowledge and 

wisdom of experienced business people and entrepreneurs to be imparted to a younger generation. 

Similar to Teach for America, a non-profit organization that is focused on providing high quality teachers in rural and low-income 

areas, business-oriented mentoring programs could be a vital tool 

in improving rural job growth opportunities. 

An effort such as this would allow individuals seeking to start a 

new business to consult with experienced entrepreneurs who have 

an understanding of the business world and can share their experiences with these individuals on common business issues such as 

healthcare, understanding how a business is taxed, the process of 

creating a long-term business plan, et cetera. This would allow entrepreneurs to focus on the management of their business with the 

insight and counsel of an experienced professional. A linchpin of 

this endeavor could rest in the initiative’s flexibility to accommodate the needs of business within diverse environments throughout 

our region and other regions of the nation. 

Secondly, improving access to capital. Access to capital for rural 

businesses is also an issue that needs to be addressed. Small, rural 

businesses still struggle with access to credit, which affects their 

ability to grow. Sometimes it is a small amount of money for minor 

facility improvements or equipment purchases. If a rural initiative 

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were established to provide low level loans, it would be a great 

asset to rural businesses. 

In rural areas especially, current practices and economic conditions now make it difficult for entrepreneurs to access capital. One 

idea to help this situation could be the possibility of the creation 

of a rural capital access program or a revolving loan program with 

terms and conditions that are simple in nature and more easily accessible in rural areas. 

On the infrastructure front, one of the most pressing needs of our 

region in terms of strengthening our rural workforce and creating 

a better business climate is an improved infrastructure. Regarding 

our region’s infrastructure, interstate, ports, and broadband access 

all must continue to be improved to create a more high quality 

business environment. 

I–73, a planned interstate that traverses our region, is a key to 

future growth within our region and continued support and passage of the Federal Highway Reauthorization Bill will be important 

to the road’s future. The completion of the South Carolina portion 

of I–73 will allow the region to continue to grow unmitigated by 

travel and distribution constraints and will provide a greater level 

of connectivity to the rest of the nation. 

According to a report by Chmura Economics, I–73 can provide $120.8 million in annual cost savings for current businesses as a 

result of increased travel efficiency and the annual impacts of the 

road are estimated at $2 billion and will sustain over 22,000 jobs 

in South Carolina in 2030 and beyond. 

Additionally, a study by Coastal Carolina University concluded 

I–73 will spurn the creation of 7700 jobs, along with the injection 

of $170 million into the local economies within the path of the road 

during the proposed five years of construction. 

The Port of Georgetown should also be dredged in order to sustain a strong manufacturing base in that part of the state. This is 

a project of great significance to our region as it will provide an additional selling point to potential businesses considering locating 

within our area. 

This project was moved much closer to reality in October as Congressman Rice assisted mightily with the passage of the Water Resources Reform and Development Act, which allowed for the allocation of federal funding for dredging of the Port of Georgetown. 

The impact, both planned and unplanned, that the dredging of 

the Port of Charleston will have on South Carolina and the entire 

eastern half of the United States stands to be immense. There are 

many companies who are currently using the port and that number 

will only grow with access that the dredging brings. Companies 

may relocate if they cannot take advantage of post-Panamax shipping opportunities via the Port of Charleston. Money for dredging 

is imperative to assure South Carolina’s place as a home to a major 

east coast port. 

The region’s broadband internet access must continue to be improved as well, to ensure continued economic growth. Currently, 26 

million Americans living in rural areas are without high-speed 

internet access. This restricts their ability to find jobs, customers 

within and outside of their market, and research information to 

better their businesses. 

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The federal government could assist with the dissemination of 

broadband internet access by working with telecommunications 

providers to either incentivize the creation of rural broadband networks and work with the providers to ensure small communities 

are covered or work with state and local governments to ease the 

restrictions on publicly-owned broadband networks and assist with 

the funding of these capital projects. 

In many cases, broadband could allow for greater job growth 

within rural communities. Work-from-home opportunities abound 

in today’s workforce and even many call centers are focusing on 

virtual call centers as a more efficient means of reaching their 

workforce without having to procure a building, paying the subsequent cost of the facility and many of the other hindrances that are 

created with a new call center. 

Greater broadband access in rural areas will create a more 

streamlined process for potential employees as they search for jobs, 

as well as making it easier for businesses to find qualified employees. 

In conclusion, the need for continued support along these three 

areas is vital to our region’s continued economic growth. The creation of mentoring opportunities that could assist new business 

owners in navigating the issues of running a business is crucial. 

Currently, there are a number of organizations that are able to 

help businesses during the infantile phases of the process, but 

there is a distinct need to create a flexible apparatus that is able 

to help guide entrepreneurs through the common issues and pitfalls of running a business. 

Access to capital, especially for small rural businesses must be 

made available. Currently, regulations, both new and revised, 

hinder the loan process for many small banks, leaving only larger 

banks as a source for capital. New and innovative programs in 

rural areas could spur new business opportunities. 

The continued support of and improvement of the area’s infrastructure will also help in improving the economic standing of our 

region’s rural areas. Within our region, the completion of I–73, the 

dredging of the Georgetown and Charleston ports, along with the 

improvement of the dearth of broadband access will make continued economic growth possible. 

Thank you for the opportunity to speak with you this afternoon. 

Chairman RICE. Thank you, Mr. McKay. 

Congressman Tallon, do you have any questions? 

Mr. TALLON. Mr. Chairman, I do. Thank you again so much for 

allowing me to be here today. And I thank the panelists. 

I think I would like to make a comment. I grew up in this county, Lakeview and Dillon. I think about Chesterfield County, Marlboro County, Marion County—and who did I leave out? Dillon 

County. And you know, the recession we have been through, it has 

affected the country. I think, Mr. Kaglic, it may be more structural 

than just cyclical this time, I do not know. But things have been 

tough in these four counties that I am specifically speaking of for 

a long, long time. 

The government has helped and the government has hurt. If we 

go back to the 1960s, one of the best things the federal government 

ever did was pass civil rights legislation that allowed our kids to 

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go to school together, to be able to work in the plants on assembly 

lines side by side. I remember as a boy growing up where there 

were men, women and colored restrooms and there was a water 

fountain for white and you had to look to find the black water fountain—the colored, excuse me, water fountain. But that is how I 

grew up. We were largely, in these four counties, agricultural in 

nature. But agriculture changed, and that is when the textile mills 

started moving into our regions. And the two things that allowed 

that, again, was the civil rights legislation and technology—air conditioning made a huge difference. And we grew, these rural counties, and provided jobs and opportunities. And for generations, 

these families and their children and grandchildren could stay here 

in the county. 

In 1965, I opened a business here in Dillon County and it grew 

and grew and the economy was great, everything was going well. 

I came back a few years ago and I was waiting to pick someone 

up on the train and I walked up and down, Sylvia, Main Street, 

and only one business was still open in Dillon County—on Main 

Street of Dillon that was here in 1970 when I sold my business out 

and moved to other places. 

I think we would be astounded if we looked at the income and 

where it comes from in these counties today, Jeff. Government 

transfer payments and government employees, I would guess—and 

I am talking the school system and county seats and state employees and massive government transfer payments because of the 

socio-economic plight of so many people. 

Again, I am just trying to express to anyone, especially, Mr. 

Bundy, to the state of South Carolina, I forgot what percentage the 

rural population was. 

Mr. BUNDY. Thirty-three. 

Mr. TALLON. Thirty-three or so. But we just, I think, feel like 

sometimes hopeless. But there are good people in these rural areas, 

Tom, very good people. And they need a hand up. One of the biggest mistakes, Mr. Jacobs, I think was a policy of the federal government was NAFTA, North American Free Trade Agreement. 

VOICE. Here, here. 

Mr. TALLON. And it cost the rural areas of this state and your 

district, Tom, thousands upon thousands upon thousands of jobs. 

The tax base for the schools and other public entities that were so 

important was diminished, wiped out. Farming did change. We obviously went through a mechanical revolution and then later I 

guess a chemical revolution. It is very efficient now. And so that 

is kind of where we are today. 

Joe, I really appreciate what you had to say. But as I was thinking, you know, a lot of the things that the panel talked about here 

with some exceptions, if I lived in Florence—I do live in Florence— 

but if I was in the Florence community or Sumter or Rock Hill or 

even Hartsville—Sonoco, Duke Power, Robinson, we do not have 

that in these counties. We are—you are speaking to us and we 

wish we were in a position to take advantage of these opportunities. 

Mr. Chastain, I am very excited about the Duke—what is it—— 

Mr. CHASTAIN. Duke Energy Center for Innovation. 

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Mr. TALLON. Duke Energy Center for Innovation. We need one 

of those in Dillon County for Chesterfield County and Marlboro 

County and Dillon County and Marion County. We want to know 

how we can get one. And that is my question to you. 

Mr. CHASTAIN. Sure. And through this pilot program, there will 

be five across the state and I believe it is Clemson’s goal to have 

them located geographically so that they do not interfere with one 

another, but they can also serve the entire state. After the pilot is 

finished, their goal is to then use the metrics and the curriculum 

and this program and introduce it to other areas of not only South 

Carolina, but if it is successful, the nation. 

For now, take advantage of the one here in Hartsville. Through 

our hybrid model, we do most everything on a virtual basis, so you 

do not have to come over to Darlington County or to downtown 

Hartsville to participate in this program. We will help people 

across the region with any tech idea that we can think is scalable 

and market ready, and we will try to get them to that point if it 

is not there already, to move them forward. 

Our goal is to develop technology companies in our region and 

keep them in our region. So if they are developed in Dillon County, 

we will keep them in Dillon County. That is our goal. 

Mr. TALLON. Well, I believe your said your initial budget was $200,000 a year and that Duke Endowment funded—— 

Mr. CHASTAIN. Duke. $200,000 is the estimated budget. Com- parable to other programs that are close to $2 million in urban 

areas. And Duke funded half of that for the first year, and we are 

currently in a process of going through a grant cycle to find out if 

we will get funded for the second year. The other came from local 

support, whether it was a small donation from a local foundation, 

and others were community engaged individuals that mustered up 

$5000, $2000, $10,000 checks. 

Mr. TALLON. Well, if you—and I know you will be available to 

talk to the Congressman and people who are interested, but if we 

could get one that was a center for these four counties that I am 

specifically discussing, I just hope that Duke would consider participating the way they have in Hartsville. And I know we can internally come up with the other half of it. I am very interested in 

getting over to Hartsville and learning more about this. 

Jeff, last question—Tom, thank you, I am just so pleased to be 

here today—you mentioned available credit and you had some suggestions. Were you thinking about the possibility of some of the regional banks creating an entity? What do they need, do they need 

some sort of government insurance for these loans, something the 

Small Business Administration or have you developed that 

thought? 

Mr. MCKAY. Congressman, I have not developed—I do not think 

there is one tried and true I guess program. And that is part of the 

challenge that we are hearing. It may be as small as a micro-loan 

of a couple thousand dollars when someone is, you know, needing 

immediate access to capital to solve an immediate critical need of 

their business regarding whatever the scale is. I think some of the 

challenges that we are seeing now is particularly on some of the 

federal agencies, the length of time to access that money may precede the viability of the business itself, if that makes sense. 

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I started to say—I am a little older maybe than most of the 

panel, there may be one or two here that is close to the age, but 

I remember the good old days, I will say, when communities had 

the ability to develop revolving loan funds at the city level. I think 

it was—I may be wrong on this, but the community development 

block grant program that had a revolving loan component. 

Mr. TALLON. It did. 

Mr. MCKAY. But if a city, for instance, saw that there was an opportunity to work with a business that had a good plan, they could 

develop 10, 15 jobs over a year by allowing them to participate in 

a revolving loan fund for $5000, you know, they had the opportunity to do that. I do not know that that is available now, but in 

some instances, perhaps $5000 could mean the life or death of an 

emerging business. 

Mr. TALLON. Exactly. Well, I appreciate those suggestions, Mr. 

Chairman, and of course a mentoring program is vitally important. 

Thank you again. I just want to say I have got two wonderful, 

beautiful grandchildren that are living in Dillon County today and 

they are bright and they have so much to contribute, and they 

want to stay here in Dillon County. And it could be Chesterfield 

or Marion County or Marlboro County because we are sort of all 

in the same boat. And I want to see them have that opportunity 

to stay here and contribute, Mr. Chairman. 

And again, thank you for holding this hearing, appreciate it. 

Chairman RICE. How about our former Congressman Robin 

Tallon. 

[Applause.] 

Chairman RICE. I am proud to call him a friend. 

Mr. Kaglic, before I start, I just want to make a couple of comments based on his questions. One, I have got three sons, a 24 year 

old, a 26 year old and a 28 year old. I have already had one move 

away—I live in Horry County—because there is not a whole lot for 

them there. They are all three fine, bright, college-educated sons. 

It is not just a rural problem, it is all over the whole country. 

With respect to these rural counties, I have a lot of hope for 

them. And if you look at what is happened in Horry County in the 

last year, we have had two decent sized manufacturers, I mean, 

small companies obviously, gun manufacturers come. Where did 

they go? They didn’t go to the coast, they didn’t go to Myrtle Beach. 

You know where they went? Ada—they went to Ada, South Carolina. There was product there, there was a place to work, decent 

transportation. And, of course, we have had Essex Holdings coming 

to Marion County. So, you know, there is room for us to improve 

and with wages rising in developing countries around the world 

from what were essentially non-existent wages to still very, very 

low wages. But that makes us more competitive. In fact, I have 

seen studies that showed southeastern United States will be among 

the most competitive regions in the world in the next decade. So, 

you know, we have got a lot of things to look forward to and a lot 

of things to hope for. 

But I do believe that a lot of our problems, not just in rural 

America, not just in South Carolina, not just in my district, but 

throughout the nation in terms of employment, are coming out of 

Washington. When I was Chairman of the Horry County Council, 

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we looked at how to make our county more competitive, we applied 

it and it worked. Nikki Haley, I think has done a great job in 

South Carolina in bringing jobs and I think, what are they now, 

Mr. Bundy, 40,000 jobs that she has done, something like that, 

40,000. South Carolina’s unemployment rate has dropped to essentially to the national average. Wow. She is delivering what she said 

she was going to do. 

We have got to apply that same competitive spirit, that same 

logic. It is not that complicated. You know, what are we doing that 

is wrong, what are the other guys doing that is right. When the 

corporate tax rate in the United States is 35 percent, 40 percent 

when you add everything into it and it is 13 percent in Ireland or 

it is 15 percent in Canada, that is a big obstacle. When a business 

can choose where they are going to locate and they can go somewhere and pay half the tax rate, what are they going to do? You 

know, when the regulatory burden in our country costs a small 

business an average of $10,000 per employee, higher than the tax 

burden and they can locate elsewhere with a much lower regulatory burden, what are they going to do? The world has gotten a 

lot smaller, it is a lot easier to compete. 

So, you know, a lot of this comes out of Washington, at a time 

when—to stimulate the economy you lower regulatory burden, you 

lower taxes, you put more money in people’s pockets, but over the 

last five years we have done exactly the opposite. Dodd-Frank and 

the Affordable Care Act were two of the biggest regulatory expansions in the history of the United States. Tens of thousands of 

pages of additional regulations. That is anti-competitive. And plus, 

Dodd-Frank particularly hurts access to capital. 

And then you have got additional taxes with the fiscal cliff deal, 

additional taxes from the Affordable Care Act, that is money out 

of people’s pockets, stifles the economy. 

And then you have got a constant bickering, the quarterly fights 

and all the uncertainty that creates, coming out of Washington. 

And uncertainty creates doubt in business, cuts back on investment. That hurts the economy. 

You have got anti-jobs provisions in the Affordable Care Act, the 

30-hour per week limit, over which you will be counted as a full 

time employee. I have people all the time that—had a large employer here today in Dillon County tell me today that he was going 

to move a lot of his employees to part time so he could stay under 

50 employees so he would not be hit by the effects of the Affordable 

Care Act. You know, the 50 employee limitation. I had an employer 

today at lunch tell me that they were not going to—they were holding back on hiring because they had to stay under 50 employees. 

You know, these regulations, they matter, they affect, they ripple 

through the economy, they affect everywhere from large urban 

areas on down to rural areas. And people think we can do these 

things in a vacuum and it does not matter. It absolutely does matter. And I hear about it every day from people in my district. 

Mr. Kaglic, was what I said correct? If you want to stimulate the 

economy, do you increase taxes or decrease taxes? Do you increase 

regulation or do you decrease regulation as a general proposition? 

Mr. KAGLIC. Mr. Chairman, are you expecting a yes or no answer 

on that? 

SBREP-219 with DISTILLER

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[Laughter.] 

Chairman RICE. Answer the way you want to. 

Mr. TALLON. It depends. 

Mr. KAGLIC. Is the way to stimulate jobs, adding regulations, reducing regulations; adding taxes or reducing taxes. I would say, 

Mr. Chairman, that the way you stimulate economic growth is providing businesses with visibility. Whether the visibility is on regulations or with taxes, businesses need visibility because businesses 

can deal with regulations if they know what they are. They can 

deal with increases in taxes or decreases in taxes. Ultimately, we 

want as little taxation as is feasible. But at times, there are going 

to be times when—currently right now, the government is on a 

long-term path that is clearly unsustainable and somewhere along 

the line we have got to bring that down. It is going to happen either through spending cuts, it is going to happen through tax increases, it is going to be a combination of both. 

But I would get back to my original point, you mentioned business leaders you talk to. We talk to business leaders as well, in a 

variety of forums, including our boards of directors’ meetings and 

district roundtables throughout our district. And I was talking to 

a manufacturer, a large manufacturer, not from South Carolina but 

close by in North Carolina. And we were talking specifically about 

the problems that we were having with the unemployment insurance tax programs in North Carolina. South Carolina ran into a 

similar problem, defaulted on their program and ultimately had to 

come up with a plan to do that. Part of that plan was to increase 

taxes on employers. It had to happen. 

Our manufacturer told me, said, ‘‘I do not care what you do, just 

tell me what you are going to do. I know that something is going 

to change, just tell me what it is going to cost and I will deal with 

it.’’ 

So reiterating my original point, Mr. Chairman, provide them 

with visibility and they will grow. 

Chairman RICE. Thank you, sir. 

In your opinion, does the law Dodd-Frank and the regulations 

under the law, make it more or less easy for small, startup businesses, small businesses, to access capital? 

Mr. KAGLIC. Again, you are not expecting a yes or no answer. 

[Laughter.] 

Mr. KAGLIC. Let me take a step back. I know that we want clear 

and concise answers to these issues but these are complex issues. 

When it comes to small businesses, there are many challenges that 

small businesses face and there are particularly many challenges 

that small businesses have faced since the great recession. And it 

really started with the significant decline in asset values that we 

experienced in 2007, 2008, 2009. Small businesses are much more 

likely than larger businesses to rely on the bricks and mortar, 

whether it is their homes or the actual structure of their business, 

as a source of collateral for loans to expand their business. When 

those asset values declined precipitously, it did two things. Number 

one, you no longer had those assets on your balance sheet that you 

could use as a collateral; and it increased the inherent riskiness associated with that asset. When you increase the riskiness of that 

asset, that means that ultimately banks or any lender who is going 

SBREP-219 with DISTILLER

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to come into a market and fill the need of someone who is borrowing money is going to charge a larger risk premium for that. 

Chairman RICE. But that is market, that is not Dodd-Frank. 

Mr. KAGLIC. Absolutely, that is market. 

But there are other factors—what I am trying to do, Mr. Chairman, is lay out that there are a lot of factors that are affecting 

small business borrowing. And regulation, I think is part of it because again, lack of visibility around what Dodd-Frank means to 

them could be an indicator in those lending decisions, but there is 

a lot more to it as well. 

Chairman RICE. So the answer is yes, Dodd-Frank is having 

some negative effect on it. 

[Laughter.] 

Mr. KAGLIC. Lack of visibility into the regulation, yes. 

Chairman RICE. All right. 

Mr. Bundy, I am so impressed with the state Department of 

Commerce and what they have done in terms of making South 

Carolina a business destination. I have seen various polls naming 

South Carolina from number two in the country to number six in 

the country in terms of places to do business and I think y’all play 

a pivotal role in that. 

Can you talk to me somewhat about the role you play in navigating various levels of government and various government agencies when you have got a potential employer looking at South Carolina? 

Mr. BUNDY. Are you talking more at the state level? 

Chairman RICE. I am talking about the state and local level. 

Mr. BUNDY. Okay. Mr. McKay can testify I think for sure, economic development is a team sport. Tony McNeal is here, I think, 

somewhere. 

Chairman RICE. Dillon County, you know, they have their new 

announcement today for their new revitalized public-private partnership, they have got their new logo out today and that is exactly 

what I want you to talk to them about, how important it is for 

them to work together. 

Mr. BUNDY. Well, it is. And when companies start looking at the 

state, I mean they start subscribing to a newspaper before you 

know they are coming in the neighborhood, they want to know 

what kind of community it is. 

The good thing about South Carolina is, we are fairly small and 

we kind of know each other and we do work together. And not only 

from a community level, at the regional level, county level, at the 

town, but also with state agencies. We have a great relationship 

with the Department of Health and Environmental Control. We 

work well with them. We have got a good Department of Employment and Workforce. Our technical college system is still one of the 

best in the country as far as training goes. 

So we look at—when we talk to companies about what they are 

looking for, they are looking for people, they are looking for transportation and logistics. And we try to bring—we call our friends 

who are in those areas and we bring those resources to bear on 

solving their issues and their needs and their problems, whether it 

is harbor freight, roads, whatever it might be. And that is what 

makes, you know, for success. 

SBREP-219 with DISTILLER

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Jeff knows everybody in the region, he knows everybody here in 

Dillon. So occasionally we are doing the quarterbacking, sometimes 

Jeff is. We do not have to rotate quarterbacks out. 

But anyway, I guess to answer your question, team sport, and 

everybody is conscious of the team and in South Carolina generally—you cannot go it alone when most folks do not try. 

Chairman RICE. Do you have any specific suggestions that you 

would make to Dillon County or Marion County or Marlboro County to make them a more desirable location for a potential employer? 

Mr. BUNDY. I think the things that we are all pretty cognizant 

of anyway, but I will repeat them, a couple of them—workforce development, focusing on workforce. I know we are all aware of that, 

I know we are all working on that, we have got a great technical 

college system. We need to continue to work on K through 12. 

Those are things that communities can do to make a difference. So 

workforce is always an item. 

Product—we talked about product. I cannot tell you exactly our 

engagement in each of the counties, but I suspect—Jeff, you may 

know that better than I do—the state has been engaged and wants 

to continue to engage in helping communities with product development. So I work for a gentleman, Maceo Nance, many of y’all probably know Maceo, he probably knows more about this state than 

a lot of folks. But call us and use us to help you develop product. 

We work closely with Jeff and his team, with Tony and his team. 

And my suggestion would be workforce and then infrastructure and 

product development. Folks want to get into a location and they 

want to get into it fast and every day faster and faster. 

Chairman RICE. Thank you, sir. 

Mr. Jacobs took me through a little company in Florence, I guess 

I should not name, but he is a specialist in Lean Six Sigma, right? 

And Lean Six Sigma analyzes manufacturing processes and makes 

them more efficient in a number of ways. But one of the things 

they told me, and I cannot cite the example correctly, but this company makes mass volumes of a particular product and they would 

take custom orders but it would take like six weeks for them to get 

it done. And after he got through with them, it took four hours. 

Wow. Talk about making people competitive in a worldwide environment. This man knows what he is doing and he can help any 

business and he can help South Carolina a lot. 

Tell them a little bit about Lean Six Sigma, if you would, Mr. 

Jacobs. 

Mr. JACOBS. Lean Six Sigma, that is reducing variation and I 

will give you just two minutes worth of history. 

Chairman RICE. That is about how long we have got. 

Mr. TALLON. Speak up just a little bit. 

Mr. JACOBS. There was a guy named Deming back during World 

War II, all of the men went to fight the war and the women went 

into the factories to work. And Deming came up with a process of 

how to standardize things and train people to do it correctly the 

first time, make sure the cost was where it should be, delivery was 

on time and the quality was good. When the war was over, the men 

came back and the women went home. Japan heard about Deming 

and Japan took him over there to work with Toyota and that is 

how what they call the Toyota Production System got started. 

SBREP-219 with DISTILLER

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It is really simple tools, you get rid of the waste, you increase 

your throughput and you reduce the variation. And that is the 

process that we used with the company you are speaking of. We 

also use the same methodology—if you remember when you read 

my bio, there are 65 innovation engineers in the United States 

right now. I am number 62, 63 and 65 is also in South Carolina 

and the same methodology is used there to basically cut down on 

the speed from the time you have an idea until you get it on the 

retail shelf. The gentleman that came up with it, he had three inventions before he got out of high school. They say if you survey 

the average house, you will find 18 products that he invented or 

reinvented. So that is the methodology we use on the innovation 

end. 

But it is a very straight process. The first time I used it was a 

little company in Charleston, and it is cited in some of our literature. He came up with a product to detect moisture damage in 

your house. And SIMT did a virtual prototype of the product and 

Culver came in and tried to buy the product from him before he 

got the actual prototype working. He had $5 million in sales the 

first month he went into production. 

So there are a lot of things that we do and when you speak of 

small manufacturers, that is where my passion is, working with 

manufacturing. I was there when it was done the old way, so the 

least I can do for society is help get them back where they need 

to be. But a lot of the small guys, if they want to call me and ask 

me questions and I kind of coach them through some of the things 

because they do not have any money, I am more than willing to 

do that. 

Chairman RICE. Well, I want to ask you if you would have any 

specific suggestions for a Marion and a Dillon and a Marlboro 

County on what they can do to make themselves—— 

Mr. TALLON. And Chesterfield County. 

Chairman RICE. And Chesterfield County to make themselves 

more attractive to a small manufacturing entity. 

Mr. JACOBS. Well, they hit on a couple of them. Infrastructure for 

sure. You have got to have good infrastructure if you are going to 

attract larger companies in. I will never forget Jim Rozier, you 

probably remember him down in Berkeley County. 

Mr. TALLON. Very well. 

Mr. JACOBS. He made a speech one night after we lost Daimler, 

the Mercedes plant, to Alabama. He says imagine taking the leadership team from Daimler down Carnes Crossroad to Goose Creek. 

About every three feet, there is a pothole. So, the infrastructure is 

definitely in there. But the one thing that you guys have in this 

area—and I have had this conversation with some folks before, that 

you do not toot your own horn enough. 

This I–95 corridor has got a bad reputation and they refer to it 

as the corridor of shame. And some of the facilities, you guys really 

need to showcase them whenever you look at bringing other industries in. Actually we went to two different facilities. One of the facilities we went to was a lot of people blame losing textiles because 

of what this company did to become efficient. Textiles did not 

change their management style and depended on long runs to 

make money. When the size batch order decreased, they were not 

SBREP-219 with DISTILLER

26 

competitive, they had to leave. This particular company, the first 

one you went to, not textiles but same methodology. Their lot size 

was going down and they were not profitable. And we went in 

there and showed them how to make it profitable. A simple tool for 

setup reduction. It took them eight hours to change over from one 

product to another. Whenever we finished in one week’s time, it 

took them 36 minutes to do it. All right? The rest of that eight 

hours was making another product. And the plant is still there. Actually both those facilities was in the same boat, they were losing 

jobs. 

To wrap it up, showcase what you have got. The workforce development piece, you can get the people where you want them. People 

do not get every morning and go to work determined they are going 

to do a bad job. If you give them the tools to work with and teach 

them—and it does not take much to do it. That is part of the example that I give. It does not take a Phi Beta Kappa to do some of 

these things. There is just a certain methodology about doing it. 

But I would encourage you to showcase the facilities that you 

have here that are doing great, because other people see it, and the 

stigma that has been placed on the 95 corridor, I think eventually 

you will see it go away. 

Chairman RICE. Okay. Mr. Chastain, a technology center in Marion, Dillon, Marlboro, Chesterfield. Really? Tell us how that can 

happen. 

Mr. CHASTAIN. Well, I think in talking on behalf of our center 

first and then I can try to apply it to how it could come to another 

rural community. 

But how we are so successful is not—it does not land on myself, 

I do not have enough gray hairs, I am still way too young to really 

know what I am talking about half the time. It is the collaboration 

that we have in Hartsville that makes ours so successful. Our 

board members, just looking at that and I will keep going up the 

ladder, but our board members are retired Sonoco executives with 

backgrounds in manufacturing, partnerships with SIMT, the Governor’s School for Science and Mathematics. 

I am talking about leveraging the individuals and the industry 

you currently have in these areas to bring together the stakeholders and the figureheads that can put the power, energy and 

hopefully ignite themselves, find the capital to put behind an innovation center, a business incubator, an accelerator, whatever you 

want to refer to it as. And then find a model that works and one 

that works for your region. 

Something we have not tapped into, but we want to, is agriculture, that is still a big part of industry across the Pee Dee and 

it is hopefully going to be our niche as we move forward into year 

two and three. Find your niche, find a program you think will be 

successful, one with a track record, as we hope this one will be, and 

then once it is available, go out and seek the opportunity. 

Of that $200,000 that we operate on as an estimate, we do pay 

Clemson for their fees and their programming for this, so have the 

resources available. It is not as much about the individual storefront, the physical location, as the resources that you can provide 

to the innovators or entrepreneurs to have them have a higher success rate and develop their technology. And whether this is a techSBREP-219 with DISTILLER

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nology or retail or anything else, it has to have the stakeholders 

around it to make it succeed. And I think we all know that. 

Leveraging that in any community, but I think in these four counties you referred to, it is going to take a pool of collaboration from 

different individuals to make it successful. 

And I hope, as this pilot becomes long term, that it can be expanded to more regions across the state. The goal of Clemson is to 

make the state of South Carolina better. The goal of Hartsville is 

to make our town and our region better, and have an impact across 

the state. 

Chairman RICE. Thank you, sir. 

Mr. McKay, you said that one of the issues for businesses is access to capital. 

Mr. MCKAY. Yes, sir. 

Chairman RICE. Where is the primary source of capital for a 

small business? 

Mr. MCKAY. Presently? 

Chairman RICE. Yes. 

Mr. MCKAY. Well, I agree with my colleague, a lot of it, particularly on the small business side, tends to be financed from personal 

assets or personal debt that can be leveraged to start the business, 

at least from what I have seen. 

Chairman RICE. So they use their personal assets at the local 

bank, is that what you are saying? 

Mr. MCKAY. Yes. 

Chairman RICE. So the bank really—— 

Mr. MCKAY. Right, exactly. 

Chairman RICE. Is the access to capital. Do you know many 

bankers? 

Mr. MCKAY. Quite few. 

Chairman RICE. What do they feel about the federal regulatory 

process? 

Mr. MCKAY. I can give a yes or no answer—— 

[Laughter.] 

Mr. MCKAY. No, they do not like it, at least for the most part. 

It is making it more challenging. 

Chairman RICE. Yes, I hear from bankers a good bit about the 

increased federal regulation. And from what I am hearing, it is a 

lot harder for a small business or a small individual to get a loan 

than it was five years ago. Is that what you are hearing? 

Mr. MCKAY. Exactly. If they can get one at all. 

Chairman RICE. We had—in this exact Subcommittee in Washington, we had a group of community bankers come in, one from 

D.C. and one from down here. We had Fred Reames, state banking 

association, and others come in. And it was pretty well universal 

that, but you know, the funny thing about this Dodd-Frank law is 

that we need to protect the middle class, is what they say, protect 

the middle class. But the bankers across the board say, you know, 

with these increased lending standards, it is not the wealthy people 

that are going to be prevented from borrowing money, it is not the 

people with high incomes that are going to be prevented from borrowing money. It is the people on the borders. You know, the community banks, they are called community banks for a reason. They 

are in the community and they know the people in the community. 

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And they might know somebody that, hey, may not have a 37 percent loan-to-value or income-to-debt ratio. It might be 31. But they 

know these people and know their history, they are willing to take 

a chance. But these regulations take away that ability. 

So we have got to get the—the federal government, one size fits 

all has been proven over and over and over again not to work. And 

that is what concerns me about these one size fits all banking regulations. 

Do you have any specific suggestions that you would make to 

these individual counties? 

Mr. MCKAY. No, but I do want to make a point. I have been in 

this region for eight years now and one of the things I noticed in 

a couple of our counties in this region when I first got here is, and 

I made the statement, I think sometimes they could not see an opportunity in front of them because they are always hanging their 

head because, as the Congressman said earlier, they did not see a 

lot of hope. 

One thing I am seeing now though is there is a lot of pride and 

a lot of hope being brought back into the region. And, you know, 

these counties have just as good or better people than any other 

place in the world, and they have got an attitude that if you put 

a challenge in front of them, they will accept it and they will exceed your expectations. And the mantra that we are trying to pursue for our organization is we are not asking anybody to give us 

anything, we are just asking for the chance to compete for the business. And I think our friends at Commerce have seen, when given 

the opportunity to compete for jobs and investment with the rest 

of the nation, southeast and the state, we can make them proud. 

So, keep your head up, keep the challenge going and we are going 

to win. 

Chairman RICE. And not only that, but look here, I mean we 

have got the federal government, we have got the state Department 

of Commerce, and wow, they are being great and aggressive. I 

think they may be your best ally in terms of economic development. 

MEP, Clemson, Coker, and then regional and down to the local. 

Where is my staff here, you guys stand up—Rodney Berry, John 

Sweeney—I mean everybody is here to help. So I think the level 

of collaboration is fantastic and maybe something we have not had 

in the past. 

So I am excited about our possibilities and I am sure going to 

work hard to make sure they come to fruition. 

Do you have any other questions, Congressman Tallon? 

Mr. TALLON. Well—— 

[Laughter.] 

Mr. TALLON. I just cannot thank you enough again for being here 

and the panel. Going back to that access to capital, these are, as 

you have said, hard-working, smart, innovative people. How many 

times—and I guess I am relatively speaking about that $5000 that 

you are talking about—how many times have I see where $5000 or 

in that ball park, made the differences in businesses that do employ 50 and 60 and 100 people. So we definitely want to continue 

to focus on that aspect. 

And again, Tom, thank you, thank everybody. 

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Chairman RICE. Okay, clearly something is still damaged in our 

economy, but holding hearings like this, like the one we have had 

here today, allows us to examine what is broke and to take steps 

to fix the problems. By holding hearings like this, by talking with 

real people from real communities, not lobbyists in Washington, 

our Subcommittee learns first hand from difference makers about 

how to jump start our rural economies. 

I believe we must find some common ground on which to stand 

because the American people deserve better than the weak recovery that they have been subjected to, and I remain committed to 

exploring all options to unleash America’s most potent engines of 

growth, our small businesses. 

With that, I ask unanimous consent that members have five legislative days to submit statements and supporting materials for the 

record. Without objection, so ordered. 

Thank you all for being with us today. The hearing is adjourned. 

[Whereupon, at 3:40 p.m., the Subcommittee was adjourned.] 

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A P P E N D I X 

Statement 

Subcommittee on Economic Growth, Tax and Capital Access of the 

House Committee on Small Business 

January 24, 2014 

Richard Kaglic 

Senior Regional Economist 

Federal Reserve Bank of Richmond 

The House Committee on Small Business 

Rayburn House Office Building 

Washington, D.C. 

Good morning, I am honored to speak to the subcommittee this 

afternoon regarding the economic outlook. In my comments today, 

I will share with you some of my thoughts on the factors affecting 

economic conditions in the nation, as well as in South Carolina, 

and what that may portend for the remainder of 2014. Before I do 

any of that, however, please note the views I express in this testimony are my own and do not represent the views of the Federal 

Reserve System. 

Many of the broad measures of the nation’s economic activity 

have been coming in slightly better than expected in recent 

months. Most notable among those were the robust readings of 

total output in the third quarter of 2013 and a material decrease 

in the nation’s unemployment rate over the second half of the year. 

Real gross domestic product, the best measure of the production of 

goods and services in our economy, advanced more than 4 percent 

in the third quarter, the fastest pace in two years. And factory output has recently regained its footing, an important development for 

South Carolina, which has a heavy concentration in manufacturing 

industries. Meanwhile, the nation’s unemployment rate fell in December to 6.7 percent and, while still elevated, was the lowest it’s 

been since October 2008. With relatively solid readings in consumer and business confidence, and a material increase in equity 

market values, there is a renewed optimism among some economic 

forecasters that growth in 2014 is finally going to break out of the 

low-trajectory GDP growth that has been the norm over the course 

of this now four-and-half-year recovery. 

I, however, do not see sufficient evidence that a meaningfully 

stronger economic recovery is on the near-term horizon. A more detailed examination of some of the broad economic indicators alluded 

to earlier indicate that growth may remain constrained moving forward. Moreover, the most basic underlying economic fundamentals 

SBREP-219 with DISTILLER

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for 2014 are not materially different than those that have dominated since the recovery got under way in the summer of 2009. 

These factors have tempered my own outlook for growth, which 

calls for a continuation of recent trends in output growth accompanied by modest improvements in labor market conditions. South 

Carolina’s economic prospects are slightly better than the national 

average, but the state cannot completely escape the gravitational 

pull of those factors that are weighing on economic growth nationally. For this reason, I will begin by talking about those national 

trends. 

A closer examination of the broadest measure of national economic activity, real gross domestic product, is revealing. In its simplest form, real GDP is the sum of household purchases and residential construction, business investment, our purchases from and 

our sales to the rest of the global economy, and government spending and investment. This is illustrated in Chart 1 of the appendix, 

which shows real GDP growth in the second and third quarters of 

2013, as well as the contributions to growth from the various segments of the economy—personal consumption expenditures (PCE), 

business investment in structures (Nres), business investment in 

equipment (Equip), residential investment (Res), changes in business inventory (Inv), exports (Ex), imports (Im), and government 

spending and investment (Gov). 

With the exception of imports, each of these categories made a 

positive contribution to real GDP growth in the third quarter. However, it is readily evident that changes in business inventories (Inv) 

accounted for more growth than any of the other breakouts (1.7 

percent of the 4.1 percent total GDP growth). That suggests firms 

produced more goods in the third quarter than were sold during 

the period. If that is indeed the case, then firms will have to adjust 

their production plans going forward to bring inventories back in 

line with their sales (and sales expectations). Another perspective 

on the robustness of the domestic economy can be attained by examining sales rather than output. By accounting for the inventory 

build, as well as the demand from overseas (exports), the government can calculate real final sales to domestic purchasers—that is, 

the total sales of all goods and services within the geographic 

bounds of the United States. At times, this measure can provide a 

better sense of domestic economic activity. In the third quarter, 

real final sales to domestic purchasers advanced 2.1 percent, a very 

small acceleration from the 2.0 percent pace recorded in the second 

quarter (Chart 2). 

Personal consumption expenditures (PCE) comprises the largest 

component of sales in the economy and accounts for roughly 70 percent of GDP. Real PCE is the aggregation of all household spending, which falls into three broad categories—durable goods (such as 

automobiles and computers), nondurable goods (such as food and 

clothing), and services (such as dry cleaning and hair cutting). Over 

the course of the recovery, increases in real PCE have averaged 2.2 

percent, with slightly smaller gains in 2013. More recent monthly 

data is mixed on the outlook for consumer spending. Chart 3 in the 

appendix shows the percent change in real PCE over the year and 

the percent change in real disposable personal income. On the one 

SBREP-219 with DISTILLER

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hand, growth in consumer spending (given by the dark blue solid 

line on this graph) picked up the pace in October and November 

and would point toward a bigger contribution from PCE to GDP 

growth in the fourth quarter. Households have seen some restoration in wealth as equity and home prices have risen, and they are 

feeling a little more confident about their situations as reflected in 

various measures of consumer confidence. 

On the other hand, however, growth in real disposable personal 

income (total income adjusted for changes in prices and taxes) has 

remained weak in recent months. Even though year-over-year 

growth in such income accelerated through the first half of 2013 (as 

illustrated by the dashed red line in Chart 3), it accelerated up to 

about only 2 percent before easing in the second half of the year. 

While the rise in asset prices has boosted confidence, consumers’ 

spending decisions are primarily driven by income growth and expectations for income growth in the future. Prior to the Great Recession, during a roughly quarter-century period known as the 

Great Moderation, growth in real income increased 3.3 percent on 

average, the same as GDP. With little evidence to suggest that real 

income growth is poised to accelerate, and households still reluctant to borrow, my own outlook for PCE growth is for a continuation of recent trends. 

Residential investment (another part of household outlays) continues to trend up, albeit at a slower pace than what persisted 

early in 2013. Existing home sales appeared to bounce up toward 

the end of the year following a soft patch in the fall that was at 

least partly due to potential homebuyers adjusting to increases in 

mortgage interest rates. Inventories continue to move toward balance in the market, which is helping to restore pricing for existing 

homes, adding a self-sustaining element to the housing recovery. 

New home sales also moved higher toward the end of 2013, and 

residential construction, as evidenced by single-family housing 

starts (see Chart 4), is up more than 20 percent over last year, although both remain well below pre-recession levels. With relatively 

healthy job gains, growth in residential investment is likely to continue throughout 2014 at a pace that is slightly constrained by 

higher mortgage interest rates. 

Businesses continue to report firming demand for the goods and 

services they produce, but their investment in structures and 

equipment has grown only modestly of late as firms continue to 

deal with uncertainties surrounding the strength of the economic 

expansion, the course of monetary policy, near-term tax and regulatory policy, and longer-term fiscal imbalances. Growth in business investment in equipment, which had been a major contributor 

to GDP growth during the first two years of the expansion, slowed 

considerably in the latter half of 2012 and remained softer throughout 2013 (Chart 5). The fundamentals that drive equipment spending are profitability, the outlook for revenue growth, and the availability of credit; there has been little change in those areas recently. 

Business investment in structures grew modestly in 2013 and is 

likely to continue doing so throughout 2014. Nationally, vacancy 

SBREP-219 with DISTILLER

33 

rates are still moving lower in office, industrial, and commercial 

properties, which has firmed rents and improved cash flow for 

landlords. As was the case in residential construction, nonresidential investment remains well below pre-recession levels in spite of 

recent gains. 

The uncertainties cited above contribute to a persistent cautiousness that may be manifesting itself not only in investment decisions, but also in hiring decisions. We are now four and half years 

into the expansion and have not yet recovered all of the jobs that 

were lost as a result of it. And that is as true for South Carolina 

as it is for the nation. Payroll employment growth in the nation 

was above the long-term average rate for most of 2013, and it has 

been relatively broad based across industry and geographic breakouts. Yet, it still feels ungratifying after losing about 8.7 million 

jobs nationally during the Great Recession. In South Carolina, the 

recession led to a net loss of nearly 170,000 jobs. Relative to the 

nation, South Carolina lost a larger share of its employment during 

the downturn (see Chart 6), a phenomenon attributable in part to 

the state’s reliance on manufacturing and construction heading into 

the recession. Over the past year, job growth in the state has mostly surpassed that of the nation, but because it’s coming out of a 

deeper trough, South Carolina still has a longer way to go to reach 

pre-recession levels of payroll employment. 

The general outlook for job growth remains favorable as business 

surveys (including the Federal Reserve Bank of Richmond’s Carolinas Business Activity survey) suggest that firms continue to hire; 

temporary help employment rises; and job destruction (as illustrated in initial unemployment claims data) remains very low. 

As mentioned earlier, the nation’s unemployment rate is currently at its lowest point since October 2008. Yet it’s still more 

than 2 percent higher than it was prior to the onset of the downturn, and other measures of duress in the labor markets (the incidence of long-term unemployment, involuntary part-time employment, discouraged workers, etc.) remain elevated. Moreover, there 

has been a disconcerting trend toward lower labor force participation. In fact, the nation’s labor force participation rate continued to 

fall even after the recovery began and today remains near the lowest it has been since the late 1970s. In South Carolina, similar 

trends have been evident and, most recently, even more pronounced. The state’s unemployment rate has fallen to within 0.1 

percent of the national rate, which is quite a development considering it stood more than 2 percentage points higher during the 

worst of the downturn (Chart 7). Like the nation, the decrease in 

South Carolina’s unemployment rate has been accompanied by a 

decrease in the labor force. In fact, of the 40 counties in the state 

that showed year-over-year declines in their unemployment rates 

in November, 34 saw an accompanying decrease in labor force participation. While the decline in unemployment is a welcome development, lower labor force participation will ultimately hamper 

longer-term growth potential by limiting the available pool of labor. 

And this decline comes at a time when employers here in South 

Carolina and elsewhere around the country lament a dearth of 

qualified workers to fill open positions. 

SBREP-219 with DISTILLER

34 

Finally, if we look past the plethora of economic indicators that 

can often send mixed signals about the economy and focus on the 

most basic of economic fundamentals, the U.S. economy (as well as 

South Carolina’s) has a built-in speed limit. And that speed limit 

is a function of two factors: how fast labor inputs are increasing, 

and how fast productivity (our ability to produce goods and services 

in a given period of time) is changing. Since the beginning of 2011, 

employment has increased at an average of a little more than 1 

percent per year, and productivity rose, on average, a little less 

than 1 percent. There are many factors that affect flows into the 

labor force (population growth, skills attainment, demographics, 

etc.), as well as a plethora of reasons that productivity can change 

(technological advances, process improvements, regulations, etc.). 

Most of them, however, only change slowly over time. 

Admittedly, it is very difficult to predict changes in labor force 

participation and productivity, but there is no evidence to suggest 

that there is something on the near-term horizon that will materially alter the national dynamics that have weighed on economic 

growth over the past three years. Thus, the most likely outcome for 

2014 is a continuation of recent trends—a little more than 2 percent GDP growth nationally accompanied by modest improvements 

in payroll employment and the unemployment rate. The outlook for 

South Carolina’s economy is a little better than average due to its 

low cost of doing business, positive migration trends, and recent 

high-profile successes (such as attracting Boeing, Bridgestone, Continental, etc.), but it too will be hamstrung by the same forces that 

are adversely affecting the national economy. 

Once again, I’d like to thank the committee for inviting me to 

testify today. 

SBREP-219 with DISTILLER

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SBREP-219 with DISTILLER


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Nikki R. Haley 

Governor 

SOUTH CAROLINA Robert M. Hltt III 

DEPARTMENT OF COMMERCE 

South Carolina Department of Commerce 

Small Business Testimony 

before the 

Subcommittee on Economic Growth, Tax, and Capital Access 

Committee on Small Business 

U.S. House of Representatives 

Congress of the United States 

January 24, 2014 

Dillon, South Carolina 

Secretary 
43 

Preamble 

The South Carolina Department of Commerce respects and appreciates the Subcommittee’s interest in small business in rural 

America, and in South Carolina. We would like to thank Congressman Rice and the other Subcommittee members, and their staff, for 

this opportunity. 

The South Carolina Department of Commerce is heavily engaged 

in support of small business in South Carolina, and in rural South 

Carolina. We recognize the impact of over 280,000 non-employer 

firms, and over 90,000 employer firms with less than 100 employees, employing half of all the South Carolina private sector labor 

force. Moreover, the 2010 census showed that thirty-three percent 

(33%) of South Carolinians live in a rural area. Small business is 

an integral part of South Carolina’s economy in employment, 

wages, investment and revenue, and equally so for rural South 

Carolina. 

The SC Department of Commerce (Commerce) in recent years 

has been increasingly focused on a broader range of economic development opportunities, including and especially small business 

support. In 2004 the Commerce created the Small Business Ombudsman’s Office, and then in 2011 created the full Small Business 

and Rural Development Division. As Commerce has instituted initiatives aimed at supporting small business growth, the Agency has 

remained cognizant of rural small business impacts and outreach. 

South Carolina Department of Commerce and State Initiatives 

The following initiatives typify the Agency’s interest in and commitment to the start-up, sustainment, and growth of small business 

in South Carolina, and in rural South Carolina. They are provided 

in the spirit of sharing with other communities and states, practices which may benefit small businesses in their rural communities. The SC Department of Commerce is pleased to provide additional specific information to any local, state, regional or national 

entity interested in furthering support for small business. 

The Commerce division of Small Business and Rural Development is actively engaged in a variety of support, from direct oneon-one counsel, to regional and state-wide small business events, to 

web related outreach and resource consolidation. 

Commerce begins by looking at the structural elements for small 

business success. These are the same for small businesses in rural 

areas, and apply to the diversity in small business, whether ethnicity, gender, veteran, etc. These elements are: 

• General business planning 

• New business, marketing and business development 

• Financing 

• Operations (product/process and administrative) 

• Workforce development 

• Regulations, permits and licenses 

SBREP-219 with DISTILLER

44 

The work carried on by the Agency seeks to connect programmatic support for each of these elements with the small business community. 

Small Business Advisory Council 

Commerce established the Small Business Advisory Council to 

improve and coordinate statewide support and resources for small 

business. The Council provides insights on the needs of small business, and coordinates with Commerce to focus on those needs. 

Members include agencies and organizations engaged in daily support of small business, making them attuned to both needs and delivery. They include: 

U.S. Small Business Administration (SBA) 

U.S. Department of Agriculture (USDA) 

SC Small Business Development Centers (SBDC) 

SC Manufacturing Extension Partnership (SCMEP) 

Michelin Development Corporation 

SC Department of Commerce 

The Council provides diversity in geographic representation, obtaining rural perspective from the USDA, SBA and SBDCs. The 

council meets quarterly with the most recent focus being on the 

best means of connecting financing resources to small business. 

Offshoots being the Lender Matchmaker program and the 

SCBizNetwork outlined further below. 

Direct Company Contact 

Commerce provided through its Small Business Development 

staff direct assistance to inquiries from South Carolina businesses. 

These may be direct from the companies, or may come from economic development allies throughout the state. These inquiries 

cover all of the areas of special interest and support for small business. 

The largest number of inquiries, one-third, represent requests for 

new business and supply chain assistance, while other requests relate to financing, regulatory questions and other general operations 

and business plan advice. Additionally, 15% of all the one-on-one 

requests received came from rural counties. Their needs dovetail 

with the larger state small business interests. 

BuySC - Supplier Outreach 

BuySC is a specific program which matches business opportunities for South Carolina companies, especially small businesses, 

through both a supplier database program and supplier outreach 

events. The Agency provides ‘‘buyer’’ companies with a strong 

group of potential, and diverse, suppliers. Likewise, small business 

‘‘suppliers’’ are introduced to buyer companies as well. 

BuySC program maintains a database of specific company information, from NAICS codes to company quality designations. Businesses can sign up on-line, providing information, which Commerce 

uses to match in-state buyer needs, as they are received. The onSBREP-219 with DISTILLER

45 

line aspect is continually publicized, encouraging businesses from 

across the state to sign-up. There are no fees involved. 

Additionally, Commerce holds outreach sessions on behalf of buyers, whether Boeing, Continental Tire, or Wal-Mart aimed specifically at letting South Carolina small business know about the opportunities available at an OEM, their one or two company. Commerce also partners with the SBA and SC Chamber of Commerce 

in helping product a Salute to Small Business, a matchmaking 

event for large and small businesses, associated with the SBA’s 

Small Business Person of the Year Awards. 

These buyer needs might be a service, part, raw material or process. The outreach events are widely advertised, including to rural 

counties and diversity-oriented organizations. Commerce has held 

or directly supported 10 of these larger events over the last three 

years, involving over 1,000 small businesses. 

Commerce also works with local communities to help connect 

public project spending with sub-contractors and suppliers. After a 

penny sales tax increase was voted in, Commerce lead the effort in 

rural Marion County to have the project director and county planner host an open solicitation information meeting inviting all area 

contractors and sub-contractors to hear the details on each of 12 

projects. The goal was to make sure local contractors and suppliers 

had an opportunity to compete for the project. 

Financing - Lender Matchmaker Events/Capital Access 

In cooperation with local economic development offices, local 

chambers and other business organization, and the Federal Reserve - Richmond, Commerce has spearheaded seven Lender 

Matchmaker events across the state. These events consist of lender 

panels, peer to peer panels, and a speed-dating session for small 

businesses and lenders. The object is to educate businesses on lender requirements and opportunities, and then allow for one-on-one 

meetings between lenders and businesses. The goal is for businesses to find the financial information, and the financing, they 

need to start and/or grow their businesses. 

This idea started with the Small Business Advisory Council, and 

has included participation from 184 small businesses, 166 banks 

and 104 service providers. Twenty-one (21) rural counties were included in the seven Lender Matchmaker events. The Federal Reserve is conducting a longitudinal study on several of the sessions 

to help determine who has obtained information that forwarded the 

company’s business plan, or lead to success in obtaining financing. 

Exit surveys of both lenders and small businesses yielded an average 4.7 satisfaction score out of a possible 5 - with 5 being ‘‘Most 

Useful’’. 

More Lender Matchmaker events are planned for 2014 and continuing. 

SCBizNetwork.com 

Access to useful small business information, especially for the 

rural business community, can be a challenge. To make informaSBREP-219 with DISTILLER

46 

tion more accessible Commerce created an interactive website, 

SCBizNetwork. Here businesses can find assistance in answering 

many of their business questions, including: business planning, financing, and vendor and supplier development. 

The SCBizNetwork site contains a ‘‘Resource Guide’’ of all state 

business resources, e.g. marketing assistance, finance, business 

planning, and workforce support. The site also hosts a ‘‘Resource 

Finder’’, where the user can self-select criteria of interest and the 

program prints out a road map of resources that can address the 

need. For example a business might be looking for a $150,000 loan, 

and they want to see who the potential finance providers are with 

a 50 mile radius; the Resource Finder provides those leads. 

SCBizNetwork also hosts a calendar of small business events; 

512 small business related events were posted in 2012. The site 

also houses the BuySC supplier/buyer surveys, a Question and Answer section for on-line business questions, and a link to the state’s 

Small Business Regulatory Review Committee. The site has received an average of 1,615 visits per month. The site is intentional 

about its availability to all South Carolina Counties, including 

rural South Carolina. 

SC Regulatory Review Committee 

In 2004, South Carolina passed the Regulatory Flexibility Act. 

This act established the SC Small Business Regulatory Review 

Committee, (supported by Commerce staff). The Committee, 11 

small business persons, is dedicated to reviewing all proposed state 

regulations for adverse impact on small business. 

While this effort is statewide in nature, the net effect is that 

rural small businesses benefit evenly with other small businesses, 

as their costs of operation are hopefully held in check, vis-a`-vis, 

any onerous regulations where small business was not considered. 

The Committee has reviewed and commented on a variety of regulations, e.g. worker’s compensation, in-home day care, underground 

storage tank regulations, and the definitions of contract labor. 

In the last two and a half years the Committee has reviewed 201 

proposed regulations. 

State Trade and Export Promotion (STEP) Program 

STEP is an SBA-originated program designed to help small businesses penetrate foreign markets with their goods and services. 

South Carolina successfully applied for and received SBA funds for 

this program in-state. In the two years of the program SC Commerce has provided export assistance to 59 small to medium sized 

SC companies, entering 24 different markets, resulting in $3.7 million in export sales. Fourteen Percent (14%) of the companies were 

located rural counties in South Carolina. 

County presentations: getting the message out 

Commerce is active in making local presentations to small business and community leaders about the various resources offered to 

small business. One of the Small Business Development staff just 

SBREP-219 with DISTILLER

47 

completed a swing through the Northeastern part of South Carolina, a predominantly rural area of the state, over a four month period speaking to four different business and community groups on 

how to access specific support for their businesses. 

Existing Industry Visitation 

Part of the work of the Small Business and Rural Development 

division includes an existing industry call program. Commerce representatives call on manufacturers across the state, primarily larger employers, looking for expansion opportunities and problems and 

concerns. The state wants to address both very quickly to minimize 

a lay-off situation, or to provide comprehensive support for an expansion opportunity. 

Existing Industry staff has called on 47 companies in 20 rural 

counties since the program’s inception in 2012. This is 28% of all 

existing industry visits, in almost half of the state’s counties. These 

companies, many larger than 100 employees provide vital support 

for the small business infrastructure in a rural community. 

Emergency Support Function (ESF) 24 - Business and Industry 

Commerce coordinates ESF-24, helping coordinate public and private sector response in support of the business community in case 

of an emergency or natural disaster. One area of focus is getting 

assistance to small businesses as quickly as possible, as the closure 

rate for adversely affected small businesses following a disaster is 

high. 

Commerce spearheaded business support for a downtown fire 

that destroyed fire eight structures, affecting 22 small businesses 

in coastal Georgetown County. Insurance, finance, local government, the SBA and the Small Business Development Centers were 

all involved in assistance. While not a rural county per se, this is 

the type of service available to urban and rural communities. 

Community Development in Rural South Carolina 

The work of Community Development can have a direct impact 

on small business. Small businesses in rural communities quickly 

feel both plant lay-offs closures and new economic development 

projects that come to fruition. 

Product Development 

The Dept. of Commerce has been involved in product development for years providing financial support for speculative 

buildings, industrial park development and even redevelopment of rural downtowns. 

During the first six months of 2014 the Rural Product Development Initiative will be launched. $2 million has been designated from the state’s Rural Infrastructure Fund for this 

competitive grant program. Eligible rural counties may apply 

for up to $350,000 to support the development of speculative 

buildings (at least 50,000 sq. ft. in size), industrial park upSBREP-219 with DISTILLER

48 

grades or pad-ready sites. Counties developing 100,000 sq. ft. 

speculative buildings may apply for up to $500,000. 

Site Certification 

The Dept. of Commerce provides financial support to rural 

communities to help offset the costs associated with site certification. South Carolina’s site certification program has been 

recognized by Area Development magazine as the #1 site certification program in the country. 

Education 

Commerce provides two educational opportunities for rural 

leaders and those involved in rural economic development, the 

South Carolina Rural Summit (160 community leaders), and 

the South Carolina Economic Development Institute (60 community and ally leaders will attend the 2014 session). Both include components which cover the importance of small business to the rural community, and discuss ways to support 

those businesses locally. 

Partners 

South Carolina Small Business Development Centers 

(SBDC) 

The SC SBDC is recognized as the gateway provider of small 

business assistance driving entrepreneurial growth and success. Commerce considers the SBDC to be on the front line of 

technical face to face business assistance, helping companies 

with everything from QuickBooks to government procurement. 

The SBDC operates through 17 offices across South Carolina, 

covering every area of the state. The SBDC advises companies 

on business planning, new markets, and financing and 

cashflow, among other areas. The SBDC can also offer advice 

on exporting and technology commercialization. Commerce provides a grant to the SBDC, expressly to support rural initiatives and outreach within eight rural South Carolina counties: 

Cherokee, Chester, Lancaster, Union, Chesterfield, Darlington, 

Lee and Williamsburg. www.scsbdc.com 

SC Business One Stop (SCBOS) 

SCBOS is a true One Stop for starting a business. In addition 

to getting general reference information on starting and growing a 

business, the site’s unique feature is the ability to get tax payer ID 

numbers, file for LLC incorporation, and conduct various other online filings with the Department of Revenue, Department of Health 

and Environmental Control, Department of Employment and Workforce (unemployment insurance tax filings), and others. 

The purpose behind SCBOS is to allow persons to deal with 

a variety of permits and licenses without having to travel from 

agency to agency. A small business can effectively get started 

and operate from any rural setting in South Carolina, all online. Commerce is a part of the SCBOS Executive Advisory 

Board. www.scbod.sc.gov. 

SBREP-219 with DISTILLER

49 

SC Manufacturing Extension Partnership (SCMEP) 

The SCMEP is a 501 C 3 chartered to provide technical production and process support to South Carolina’s Small and 

mid-sized business community, focused primarily on manufacturing. (There is one in about every state.) They operate under 

the auspices of NIST (National Institute of Standards and 

Technology), and are generally funded a third state, one third 

federal and one-third from fees. Manufacturers with fewer 

than 100 employees are one of the SCMEP’s prime targets, 

which make them available to all of rural South Carolina. The 

SCMEP is a very effective organization as a positive change 

agent. (A Small Business and Rural Development staff member 

serves on the SCMEP Board.) 

Areas for Federal Consideration 

Several suggestions are offered for federal consideration that 

could have positive benefit for rural small business. 

Support for the SBDCs and SCMEP 

Greater recognition and support of the SBDCs and SCMEP 

should be considered for these institutions. They provide frontline support for small businesses, and have comprehensive offerings for clients from specific issues like how to obtain a federal contract (SBDC), or training in LEAN manufacturing 

(SCMEP); to more general, but equally important, providing 

business plan advice (SBDC), or a full business competitiveness review (SCMEP). More resource allocation could be made 

to both organizations in direct support of business in rural 

counties. These organizations have the opportunity to provide 

needed technical advice to small business in rural communities. 

Regulatory Burden 

The regulatory burden on all small businesses is significant; 

all federal agencies should continue to examine their regulations for adverse impact on small business. The frequent unintended consequence of regulations can affect rural small business in particular. As an example, when a regulation or law is 

made requiring all real estate appraisers to have a four year 

bachelor’s degree, this requirement by default can put those in 

rural communities at a disadvantage. The candidate must now 

have the four year degree. Those who enter the profession are 

also most likely to become small businesses themselves. This 

example illustrates the impact changes to professional certification can have on an industry and group of professionals, and 

their opportunity to start a business or break into a profession. 

Other regulations that impact small business often stem 

from the reporting requirements of agencies like the EPA or 

OSHA. No one wants worker safety or the environment to be 

compromised. However, comprehensive review of all proposed 

regulations can serve small business well. 

SBREP-219 with DISTILLER

50 

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Insert offset folio 50 here 86509.009

South Carolina 

SUltll:'ll)rtiil'lll" ovef 4,000 small to medium 

Who is SCMEP? 

SCMEP was established in 1989 

Commerce's NIST MEP Program. 

named Southeast Manufacturing Technology or 

manage the Center in 1992 and independent in an 

independent, non-profit SOlc3 organization with its own charter and independent fiduciary Board of 

Directors made up of SC manufacturing company owners and senior executives, and representatives 

from the state technical colleges, research universities and Department of Commerce. 

Methodology 

.. SCMEP's major areas of focus are: continuous improvement, workforce development, technology 

acceleration, supply chain development and sustainability. 

SCMEP's approach enables our Manufacturing Specialists to use constraint theory to quickly identify 

bottle necks in companies' operations, regardless of where those limiting factors occur. Focusing on 

these limiting factors permits rapid improvement and shortens the "time-to-value" of projectsdelivering maximum impact in the minimum time possible. 

SCMEP works with companies willing to invest in themselves and who commit the necessary time, 

money and human resources to improve their businesses. Through SCMEP's role as a facilitator in the 

engagement process, our Manufacturing Specialists coach clients as strategic "professional business 

advisors." Company personnel are trained in techniques and supplied with tools that allow them to 

develop the skills required to expand the company's capabilities and improve its performance. The 

goal is to internalize these changes and make them self-sustaining so they become standard 

operating procedure enabling the company to work independently instead of becoming consultant 

dependent. 

Accountability 

Since 1996, NIST has used an independent third party organization to conduct surveys of MEP client 

companies collecting data on the economic "impact" measured in dollars earned, saved and 

invested - of the centers' services provided. 

" These surveys provide objective, factual data that NIST uses to evaluate all MEP centers through a 

competitive process where funding is contingent upon successful annual reviews of their impact 

.. SCMEP is advised by a fiduciary Board of Directors. 

SCMEP Client Results 2012 

New and Retained Sales 

Cost Savings 

Capital Investment 

Jobs Created/Retained 

Total Bottom Une Impact for Clients 

$170.0 MM 

$l4AMM 

$50.4 MM 

1,792 

$234,8MM 

These numbers are reported by our clients though surveys conducted by The Notlanallnstitute of Standards and 

Technology (N/ST) using an independent survey firm. 
51 

SBREP-219 with DISTILLER


Insert offset folio 51 here 86509.010

Why We Are Different: With SCMEP you get the benefits of: 

Premium consulting services at competitive rates (starting with the no-cost Competitiveness 

Review) 

• Customized services adapted to meet your company's individual needs 

• Assets of the national MEP network and federal agencies 

• Statewide contacts, relationships, and networking 

• Diverse knowledge and practices ofthird party experts 

• Support from Manufacturing Specialists who live and work locally 

A large & diverse network of state-wide resources including universities, technical colleges, SCRA 

and SCDoC 

• A merit-based (vs. profit driven) organization that is measured independently 

• An approach based on obtaining results quickly while developing competencies to raise longterm performance 

Contact: 

Joe Jacobs 

Senior Vice President of Operations 

SCMEP 

Office: (803) 978-1623 

Mobile: (843) 729-3442 

Fax: (803) 254-8512 

Email: rutl£l.&!2.l!):C;&!)(!..;1::£.!Jl 

Website: ~'£1:!..,gJ1l'i.l2&'!Jl 
52 

U.S. House of Representatives Committee on Small Business

January 24, 2014 

Founded by the Community Foundation for a Better Hartsville 

(‘‘CFBH’’) and located in downtown Hartsville, The Duke Energy 

Center for Innovation (‘‘DECI’’) is designed to support new technology company formation and development. Representing a unique 

private-public collaboration, the City of Hartsville and others, are 

committed to linking innovators to business development resources 

and seed financing and to providing support services through 

Clemson University’s Regional Entrepreneurial Development Center to commercialize emerging-technology products and services. 

Components of the DECI structure include a community owned and 

operated storefront incubator, community consultant training provided by Clemson, use in partnership of Clemson’s Regional Entrepreneurial Development Center to offer high levels of professional 

support, and a web-based service network provided by Clemson. 

This is all done via a hybrid internet—consultant model designed 

for non-metro areas across the state of South Carolina. 

Leaders from the City of Hartsville learned of the program from 

counterparts in Bluffton, S.C., which had started a similar technology incubator twelve months earlier. They learned there would 

be four other communities identified by Clemson to locate regional 

technology centers. The Community Foundation was quickly convinced that this economic development tool would be ideally suited 

to the Hartsville community. The Community Foundation created 

a separate advisory board for the DECI, which largely functions as 

a standing-committee of the CFBH. 

In addition to winning support from another local foundation, 

The Byerly Foundation, and the Duke Energy Foundation, who, 

sharing our vision for economic development for Hartsville and the 

surrounding community and are serving as major partners in the 

DECI, numerous individual and institutional stakeholders including Sonoco, Coker College, Florence Darlington Technical College, 

The Governors School for Science and Mathematics, and downtown 

business leaders are playing important, collaborating roles in the 

project’s success. 

The Duke Energy Center for Innovation is a part of the Clemson 

Technology Villages Pilot Program. The Clemson Technology Village program is a hybrid internet-consultant program designed to 

support new technology company formation and development in 

non-metropolitan areas. Clemson developed this pilot program after 

eight years of research and launched its first Center in Bluffton, 

SC. The Hartsville site is one of three currently operating centers 

across the state of South Carolina. The third location is located in 

Rock Hill, South Carolina. There are plans for two additional centers to be located in other areas in South Carolina, bringing the 

number of centers to five across the state. 

The Technology Village hybrid model is set up in away to deter 

technology start up challenges in non-urban communities. When 

we look at the state of South Carolina, we can fine incubator programs focused on technology start-ups in the three densely popuSBREP-219 with DISTILLER

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lated areas: Columbia, Charleston, and Greenville/Spartanburg. 

This program sets out to overcome obstacles of funding, access to 

services and technology, and lack of confidence and networks. A 

typical budget for a Technology Village Center site is projected to 

operate at an annual budget of $200,000. This is a fraction of the 

amount that most centers use in larger urban areas. The reduced 

cost, access to service and technologies, and increased credibility 

can be attributed to the partnership with Clemson University and 

the hybrid model of sharing resources using technology among all 

the centers at Clemson’s Regional Entrepreneurial Development 

Center. 

Each center operates independently from one another finding 

their own funding sources, hiring their own director and recruiting 

entrepreneurs. It is to be made clear that each center is owned and 

operated by the community it supports. These centers are not 

Clemson run programs. However, Clemson University plays a vital 

role in the vitality of each center. This is a Clemson pilot program 

that the Community Foundation for a Better Hartsville pays to 

take part in for three years. With this partnership members of the 

community and the director of DECI received a twelve week training course ‘‘Building a Community Technology-Oriented Incubator 

Program’’ that included course materials relevant to building, managing, and maintaining a community incubator program. Course 

sections included: technology acquisition and evaluation, conducting a detailed analysis and evaluation of patents, technologies, 

and markets, strategy development, developing a service cost model 

and product development, developing a pro forma, developing a 

business and operation plan, company staffing, formation and 

building a board, seed funding strategies, communication skills for 

an investor presentation, and future partnerships. 

As a partner with Clemson, the DECI has access to the Clemson 

Regional Entrepreneurship Development Center and its staff and 

students. These MBA students and their director provide resources 

needed to help entrepreneurs succeed within their business development. Some of the resources they provide in collaboration with 

the Duke Energy Center for Innovation include: entrepreneur/company assessment and evaluation, new company development plan 

and schedule, intellectual property acquisition, strategy development, marketing research, operational plan development, business 

plan development, technical resources, special university services 

or studies, advisory committee access, staffing assistance, corporate 

relationships, seed/angel funding, company formation, legal and accounting services, innovation network access, and additional local 

and state support services. These services are offered in a collaborative effort with Clemson University’s staff, students, the director, 

and advisory council of DECI. 

The incubator is currently working with five entrepreneurs: 

Houston Penny III, Alan Hubbard, Jonathan Britt, Shernard Robinson and Mark Nankervis, Mr. Hubbard, who introduced himself 

at the Center’s first idea night event, has built a prototype communication device to support game trapping. His system can notify 

trappers when their game traps close. This idea, which emerged as 

a solution to challenges associated with controlling populations of 

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feral hogs in the southeast, may have multiple applications in the 

field of animal conservation and trapping. 

Current efforts involve working with partners at Clemson University to complete the marketing analysis and with Southeastern 

Institute for Manufacturing Technology, and Florence Darlington 

Technical College to build a new, more market-ready prototype. 

Maryland native Houston Penny III works as a nuclear technician charged with overseeing RNP Reactor Services at the Duke 

Energy Robinson Plant. He is in the process of developing a software application to improve inventory control of materials that are 

used in and out of foreign material exclusion areas of the plant. 

This application will minimize risk and has the potential to save 

members of this highly regulated industry millions of dollars. Earlier this month Penny recently received unofficial news that his 

proposal for $300,000 seed financing has been approved. If developments proceed as he expects, Houston will rent or buy a building 

downtown from which he will operate his new business. In addition, he is developing plans to take advantage of other business opportunities to which the new software may be applied. He expects 

his business to create two jobs in 2014 and four more in 2015. 

Jonathan Britt, a senior at Coker College, has developed a webbased buying and selling platform that is linked with the social 

media account Facebook. He and a group of his friends have built 

a web platform over the past three months. The incubator is providing assistance with recruiting coders as well as helping with the 

development of market research, cost models, the business plan 

and practical marketing strategy. The site, sailtrail.org is live in 

bet format and is currently being tested with students at Coker 

College. 

Finally, the Center’s most recent clients are the very early stages 

of developing their businesses. Shernard Robinson is a Hartsville 

native living both here and in Columbia. He has recently returned 

from New York where he studied at NYU. His technology is a software/web platform for aspiring urban gospel artists and speakers. 

The Center is supporting Mr. Robinson’s efforts to develop a feasibility study. 

Mark Nankervis is a Coker senior working with his two uncles 

who have a patented technology in the Midwest Region of the 

United States. Nankervis Enterprises has a pond sediment reduction technology first built for cattle feed lots. Since its invention, 

the device has also been used for pig lots, erosion control and sediment reduction applications. Patterned with Clemson Agriculture 

Department and research team the Center is helping to evaluate 

opportunities within the Pee Dee Region and across the Southeast 

Region of the United States. 

In addition to working directly with local entrepreneurs, the Center is engaged in a number of outreach activities designed to reveal 

and cultivate relationships with future entrepreneurial tenants. 

For example, the Center created an idea competition, which was 

open to students and faculty at Coker, Florence Darlington Technical College, and the GSSM. Although the program was not embraced as fully as had been hoped, we will review the program, 

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looking for ways to improve it, and will likely expand it in 2014 to 

include students and faculty at Hartville High School. 

Beyond direct outreach efforts that designed to reach regional 

educational groups, the center has developed and presented formal 

presentations for numerous civic and economic development groups 

throughout the Pee Dee Region. 

Beginning in 2014, the Center will being monthly after-hours 

learning sessions open to the public and encourage high school and 

college students to attend business development workshops to discuss timely topics such as entrepreneurship, patent research, 

branding, advertising, Google Ad Words, social media, etc. Another 

idea under consideration involves doing more individual interactive 

learning sessions with high school and college classrooms. We want 

to encourage students to take advantage of the Center as much as 

possible and invite faculty to use their resources and expertise to 

develop new technology-based ideas with potential to grow in 

Hartsville. 

As a specific example of outreach activities planned for January 

2014, at 8:30 a.m., Wednesday, January 22, the Center will host a 

public breakfast reception with Bruce McIndoe, CEO and founder 

of iJet International, a global risk intelligence company that began 

as an IT-based travel service focused on providing security support 

for corporate executives. 

The Factors most critical to the success of the Duke Center for 

Innovation include political and administrative support, financial 

backing, community buy-in, and a knowledge/innovation pool. Since 

its inception in June 2013, the Center has seen tremendous success, recruiting five entrepreneurs to the incubator. The technologies being developed by these innovators have tremendous application potential, and if this potential is realized, the region will 

benefit from the creation of new jobs. The city administration has 

demonstrated their support of this endeavor by providing the building and community resources needed to help it succeed. The community has illustrated tremendous buy-in through their continued 

participation in public education outreach initiatives. Local businesses provide mentoring opportunities for burgeoning entrepreneurs hosted by the Center, and in turn will benefit from the 

draw of high-skilled workers that high-tech start-ups bring. Educational institutions are finding partnerships with the Center mutually beneficial, as the Center allows for engaged learning opportunities beyond the classroom and an outlet for students to further 

hone crucial career skills. The Center benefits from the passion, 

creativity, and technical savvy of local students. Continued success 

will be realized through healthy relationships with all of these 

agencies and more. Successful programs to fund the top technology 

companies that come out of our center and sister centers will be 

crucial for a constant full pipeline of new technology start-ups in 

the State of South Carolina. 

After year one, our goal in Hartsville remains the same, supporting the Pee Dee region as a technology accelerator/business incubator program providing the business development resources, 

support services, and network needed to have a greater success 

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rate for new technology companies. We then believe these companies will remain in the Pee Dee region supporting one another and 

growing to offer more jobs, recruiting the talent needed to support 

the high-tech fields they represent. Ultimately, with success we 

project to change the image in our region and across the state of 

South Carolina to an innovative technology hub of activity. Our 

goal is to graduate three to five new start-up companies a year 

after our year one. We are still within the first year and will continue to collect data to develop future impact studies to identify 

how successful this program is moving forward. 

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January 24, 2014 

Testimony of 

Jeff McKay 

Before the 

Subcommittee on Economic Growth, Tax and Capital Access 

of the 

Committee on Small Business 

United States House of Representatives 

Getting Rural America Back To Work: 

Solutions to Unemployment 

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Tesimony of 

Jeff McKay 

Before the 

Subcommittee on Economic Growth, Tax and Capital Access 

of the 

Committee on Small Business 

United States House of Representatives 

January 24, 2014 

Chairman Rice and members of the Committee, my name is Jeff 

McKay. I am the executive director of the North Eastern Strategic 

Alliance (NESA). NESA is a regional economic development alliance that is constituted by all eight counties of the Seventh Congressional District, with the addition of Williamsburg County. 

I am pleased to be sharing the experiences I’ve had working with 

rural businesses. Working with our member counties, businessmen 

and women and entrepreneurs throughout our region, I and the 

staff of NESA have the opportunity to hear many of the needs and 

wants of the business community. 

In my testimony, I would like to make three key points: 

• There is a need for mentoring opportunities that would 

assist entrepreneurs with navigating the pitfalls and challenges of starting a new business 

• Access to capital for small businesses and entrepreneurs 

in rural areas is vital to the economic health of our region 

• The continuing improvement of our region’s infrastructure, including interstates, ports and broadband, presents a 

crucial fulcrum on which rural small businesses balance 

Providing mentoring and backing for new business and 

entrepreneurs 

Currently, there is a need for an outlet whereby individuals seeking to start a new business can consult with entrepreneurs who 

have a need for business guidance from experienced individuals 

that have been through the process and challenges of creating a 

profitable venture. Rural America is desperately in need of an apparatus that allows for the knowledge and wisdom of experienced 

business people and entrepreneurs to be imparted to a younger 

generation. 

Similar to Teach for America—a non-profit organization that is 

focused on providing high quality teachers in rural and low-income 

areas—business-oriented mentoring programs could be a vital tool 

in improving rural job growth opportunities. 

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An effort such as this would allow individuals seeking to start a 

new business to consult with experienced entrepreneurs who have 

an understanding of the business world and can share their experiences with these individuals on common business issues such as 

healthcare, understanding how a business is taxed, the process of 

creating a long-term business plan, etc. which can sometimes overwhelm a new business owner. This would allow the entrepreneurs 

to focus on the management of their business with the insight and 

counsel of an experienced professional. A lynchpin of this endeavor 

could rest in the initiative’s flexibility to accommodate the needs of 

businesses within diverse environments throughout our region and 

other region’s throughout the nation. 

Improving access to capital 

Access to capital for rural businesses is also an issue that needs 

to be addressed. Small, rural businesses will struggle with access 

to credit, which affects their ability to grow. Sometimes it’s a small 

amount of money for minor facility improvements or equipment 

purchases. If a rural initiative were established to provide low level 

loans, it would be a great asset to rural businesses. 

In rural areas especially, current practices and economic conditions now make it difficult for entrepreneurs to access capital. One 

idea to help with this situation could be the possibility of the creation of a rural capital access program or a revolving loan program 

with terms and conditions that are simple in nature and more easily accessible in rural areas. 

Continued improvement of our region’s infrastructure 

One of the most pressing needs our region has in terms of 

strengthening the rural workforce and creating a better business 

climate is an improved infrastructure. Regarding our regions infrastructure, interstate, ports and broadband access all must continue 

to be improved to create a more high quality business environment. 

I-73, a planned interstate that traverses our region, is a key to 

future growth within our region and continued support and passage of the Federal Highway Reauthorization Bill will be important 

to the road’s future. The completion of the South Carolina portion 

of I-73 will allow the region to continue to grow unmitigated by 

travel and distribution constraints and will provide a greater level 

of connectivity to the rest of the nation. 

According to a report by Chmura Economics, I-73 can provide $120.8 million in annual cost savings for current businesses as a 

result of increased travel efficiency and the annual economic impacts of the road are estimated at $2 billion and will sustain 22,347 

jobs in South Carolina in 2030 and beyond. 

Additionally, a study by Coastal Carolina University concluded I73 would spurn the creation of 7,700 jobs, along with an injection 

of $170 million into the local economies within the path of the road 

during the proposed five years of construction. 

The Port of Georgetown should also be dredged in order to sustain a strong manufacturing base in that part of the state. This is 

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a project of great significance to our region as it will provide an additional selling point to potential businesses considering locating 

within our area. 

This project was moved much closer to reality in October as Congressman Rice assisted mightily with the passage of the Water Resources Reform and Development act, which allowed for the allocation of federal funding for dredging of the Port of Georgetown. 

The impact, both planned and unplanned, that the dredging of 

the Port of Charleston will have on South Carolina and the entire 

eastern half of the U.S. stands to be immense. There are many 

companies that are currently using the port and that number will 

only grow with the access that dredging brings. Companies may relocate if they cannot take advantage of post-Panamax shipping opportunities via the Port of Charleston. Money for dredging is imperative to assure South Carolina’s place as a home to a major east 

coast port. 

The region’s broadband Internet access must continue to be improved as well to ensure continued economic growth. Currently, 26 

million Americans living in rural areas are without high-speed 

Internet access. This restricts their ability to find jobs, customers 

within and outside of their market and research information to better their business. 

The federal government could assist the dissemination of 

broadband Internet access by working with telecommunications 

providers to either incentivize the creation of rural broadband networks and work with the providers to ensure small communities 

are covered or work with state and local governments to ease the 

restrictions on publically-owned broadband networks and assist 

with the funding of these capital projects. 

In many cases, broadband access could allow for greater job 

growth within rural communities as well. Work-from-home opportunities abound in today’s workforce and many call centers are focusing on virtual call centers as a more efficient means of reaching 

their workforce without having to procure a building, paying the 

subsequent cost of the facility or many of the other hindrances to 

creating a call center. 

Greater broadband access in rural areas would create a more 

streamlined process for potential employees as they search for jobs, 

as well as making it easier for businesses to find qualified employees. 

Conclusion 

The need for continued support along these three areas is vital 

to our region’s continued economic growth. The creation of mentoring opportunities that could assist new business owners in navigating the issues of running a business is crucial. Currently, there 

are a number of organizations that are able to help businesses during the infantile phases of the process, but there is a distinct need 

to create a flexible apparatus that’s able to help guide entrepreneurs through the common issues and pitfalls of running a business. 

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Access to capital, especially for small-rural businesses must be 

made available. Currently, regulations, both new and revised, 

hinder the loan process for many small banks, leaving only the 

larger banks as a source for capital. New and innovative programs 

in rural areas could spur new business opportunities. 

The continued support of the improvement the area’s infrastructure will also help in improving the economic standing of our region’s rural areas. Within our region, the completion of I-73, the 

dredging of the Georgetown and Charleston ports along with the 

improved of the dearth of broadband access will make continued 

economic growth possible. 

Thank you for the opportunity to speak. 

Æ 

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