[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
STRUGGLING TO GROW: ASSESSING THE
CHALLENGES FOR SMALL BUSINESSES IN RURAL AMERICA
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON ECONOMIC GROWTH, TAX AND CAPITAL ACCESS
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
SECOND SESSION
__________
HEARING HELD
SEPTEMBER 8, 2016
__________
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 114-070
Available via the GPO Website: www.fdsys.gov
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HOUSE COMMITTEE ON SMALL BUSINESS
STEVE CHABOT, Ohio, Chairman
STEVE KING, Iowa
BLAINE LUETKEMEYER, Missouri
RICHARD HANNA, New York
TIM HUELSKAMP, Kansas
CHRIS GIBSON, New York
DAVE BRAT, Virginia
AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
STEVE KNIGHT, California
CARLOS CURBELO, Florida
CRESENT HARDY, Nevada
WARREN DAVIDSON, Ohio
NYDIA VELAZQUEZ, New York, Ranking Member
YVETTE CLARK, New York
JUDY CHU, California
JANICE HAHN, California
DONALD PAYNE, JR., New Jersey
GRACE MENG, New York
BRENDA LAWRENCE, Michigan
ALMA ADAMS, North Carolina
SETH MOULTON, Massachusetts
Kevin Fitzpatrick, Staff Director
Jan Oliver, Chief Counsel
Adam Minehardt, Minority Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Tim Huelskamp............................................... 1
Hon. Judy Chu.................................................... 2
WITNESSES
Mr. John Dearie, Author, ``Where the Job Are: Entrepreneurship
and the Soul of the American Economy'', Washington, DC......... 3
Mr. Robert Boyd, County Commissioner, Riley County, Manhattan,
KS, testifying on behalf of the National Association of
Counties....................................................... 5
Mr. Hugh Middleton, Co-Founder, Kopis Mobile LLC, Flowood, MS.... 7
Ms. Linsley Kinkade, Deputy Director, U.S. Programs, Winrock
International, Little Rock, AR................................. 9
APPENDIX
Prepared Statements:
Mr. John Dearie, Author, ``Where the Job Are:
Entrepreneurship and the Soul of the American Economy'',
Washington, DC............................................. 18
Mr. Robert Boyd, County Commissioner, Riley County,
Manhattan, KS, testifying on behalf of the National
Association of Counties.................................... 26
Mr. Hugh Middleton, Co-Founder, Kopis Mobile LLC, Flowood, MS 34
Ms. Linsley Kinkade, Deputy Director, U.S. Programs, Winrock
International, Little Rock, AR............................. 38
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
None.
STRUGGLING TO GROW: ASSESSING THE CHALLENGES FOR SMALL BUSINESSES IN
RURAL AMERICA
----------
THURSDAY, SEPTEMBER 8, 2016
House of Representatives,
Committee on Small Business,
Subcommittee on Economic Growth,
Tax and Capital Access,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:00 a.m., in
Room 2360, Rayburn House Office Building, Hon. Tim Huelskamp
[chairman of the Subcommittee] presiding.
Present: Representatives Huelskamp, Brad, Radewagen, Kelly,
and Chu.
Chairman HUELSKAMP. It has been about 8 years since the
2008 financial crisis, and yet for many Americans it still
feels like the economy has yet to recover. Just last year, 36
percent of counties in the United States had a negative GDP
growth rate. Much of this poor economic growth can be traced
back to a lack of new business creation in rural America. When
businesses cannot create jobs in rural America, economic growth
suffers nationwide.
From 2010 to 2014, half of all new businesses were started
in just 20 of our nation's counties, all near large
metropolitan centers. For these major coastal metro areas,
small business growth is fairly strong. Cities like San
Francisco and Miami are major hubs for business creation, and
the population in these areas has reached record highs.
Meanwhile, from 2010 to 2014, more Americans left
nonmetropolitan counties than ever before. Rural counties have
also seen a net decrease in business establishment. These two
forces have combined to create a lost generation of
entrepreneurs in a significant portion of the United States.
If the United States is to remain economically vibrant in
the near future, there needs to be economic growth, not in just
major coastal cities, but all across America. As we stress time
and time again in this Committee, the engine of economic growth
and job creation and opportunity in this country comes from
small businesses.
While there are several reasons for this decline in
entrepreneurship in rural America, many of the initiatives this
Committee has focused on this Congress, including reducing
regulatory burdens and improving avenues for small businesses
to acquire capital, still remain at the forefront. The loss of
community banks in this country due to regulatory challenges
like Dodd-Frank have also hurt the rural communities served by
these banks very hard.
Today's hearing will be an opportunity for a distinguished
panel from across the country to discuss how to promote small
business growth in America's heartland. By understanding how
small businesses can be successful in rural areas like my
district in Kansas, we can not only improve the economic growth
of the entire country but create the businesses and the
products of the future right at home.
I thank the witnesses for being here this morning and we
look forward to your testimony.
I now yield to Ranking Member Chu for opening remarks.
Ms. CHU. Thank you, Mr. Chairman.
Six years ago, the nation was in the early stages of
recovery from one of the worst economic downturns in history.
We lost 4 million jobs, 7 million people faced foreclosure, and
families saw over $16 trillion in wealth disappear as the
housing and stock market crashed. Now, as a nation, we have
rebounded. Unemployment is below 5 percent, over 10 million new
jobs have been created. We have reached record highs in stock
market and retirement portfolios. New consumer protection laws
have been implemented and consumers are confident that the
United States is recovering.
But we must acknowledge that this recovery has not been
perfect. In fact, it is unlike any recovery that we have seen
before. For example, the smallest rural counties saw more
business establishments close than open, resulting in a
negative growth rate.
As a result, the U.S. economy is becoming more reliant on a
small number of super performing counties for new institutions.
As a matter of fact, only 20 counties were responsible for half
of the net national increase in business establishments from
2010 to 2014. In contrast, the economic expansion of the 1990s
was driven by more rural economic development wherein counties
under 100,000 people averaged 16 percent job growth, while
counties over 1 million averaged just 7.7 percent.
A look at why rural America is struggling shows a number of
causes. Over the last 2 decades, there have been massive
manufacturing job loss in areas that were once the epicenter
for manufacturing in America. The U.S. lost 5 million
manufacturing jobs between January 2000 and December 2014. The
North American Free Trade Agreement, or NAFTA, also resulted in
a $181 billion trade deficit with Mexico and Canada, and
experts estimate it has cost us approximately 1 million
American jobs.
Furthermore, studies have shown that the rural population
is increasing while jobs are decreasing, forcing, young
talented workers to leave for urban areas with better job
opportunities. These factors have created an atmosphere that is
not attractive to entrepreneurs and one that we in Congress
must work to turn around.
While the problem and its many causes are clear, we must
assess what solutions are possible. Fortunately, congressional
Democrats have taken steps to address these conditions. For
instance, Congressman Hoyer's Made in America plan includes
enhancing vocational training, expanding entrepreneurship and
innovation, and matching worker skills with job opportunities.
These ideals are accomplished by investing in education,
providing access to capital for small institutions, as well as
alleviating tax and regulatory burdens.
Another area of great importance is access to capital.
During the recession, many entrepreneurs have struggled to
receive the funding necessary to open a new business or expand
an existing one. As shown in research, young firms are where
most new jobs are created, and the lack of capital has directly
lead to a slower recovery in rural areas.
Congress has put forth solutions to rectify these issues.
For example, I spearheaded changes to the SBA's 504 loan
program which freed up more capital for small firms. The 504
program is a useful financing tool for economic growth that
provides small business with long-term fixed rate loans. By
making the 504 refinancing program permanent, more small
businesses will be able to reduce debt, increase liquidity, and
ultimately create new jobs.
Looking ahead, we need to gain an even better understanding
of the extent of the problem and its root causes. Bringing new
and innovative ideas to Congress will help us shape public
policy to revitalize rural America.
I thank the witnesses for being here today and I look
forward to your comments.
I yield back.
Chairman HUELSKAMP. I thank the Ranking Member for her
opening comments.
Now I would like to introduce our first witness this
morning, John Dearie, author of Where the Jobs Are:
Entrepreneurship and the Soul of the American Economy. His book
was published in 2013 and focuses on the fact that job creation
and economic growth in this country are largely dependent on
new business formation. Mr. Dearie is also the acting CEO of
the Financial Services Forum in Washington, D.C., and is a
member of the Policy Council at the Economic Innovation Group.
Mr. Dearie, you have 5 minutes, and you may begin. Thank
you for being here.
STATEMENTS OF JOHN DEARIE, AUTHOR, WHERE THE JOBS ARE:
ENTREPRENEURSHIP AND THE SOUL OF THE AMERICAN ECONOMY; ROBERT
BOYD, COUNTY COMMISSIONER, RILEY COUNTY; HUGH MIDDLETON,
COFOUNDER, KOPIS MOBILE LLC; AND LINSLEY KINKADE, DEPUTY
DIRECTOR, U.S. PROGRAMS, WINROCK INTERNATIONAL
STATEMENT OF JOHN DEARIE
Mr. DEARIE. Thank you, Chairman Huelskamp and Ranking
Member Chu. The views I will be expressing today are my own, of
course.
Since emerging from the Great Recession more than 7 years
ago, the U.S. economy has grown at an average annual rate of
just 2.2 percent, more than a full percentage point slower than
the post-World War II average of 3.4 percent. Indeed, the U.S.
economy has not grown at 3 percent or better since 2005.
In an economy the size of the U.S. economy, percentage
points matter. Had the U.S. economy grown at 3.5 percent since
emerging from the Great Recession in 2009, the GDP last year
alone would have been more than $1 trillion greater. Over a 25-
year period, the difference between a U.S. economy growing at
2.2 percent versus 3.5 percent is more than $100 trillion in
additional economic output.
Weak economic growth experienced since 2005 is the
principal cause, in my view, of America's most serious
challenges, including persistently high unemployment and
underemployment, high and rising long-term debt, stagnant
wages, wide and worsening income wealth and opportunity
inequality, the highest poverty rate since the mid-1960s and
record numbers of Americans reliant on government programs like
food stamps and disability insurance.
To meaningfully address these challenges and the anger,
cynicism, and populism they inspire, we must accelerate
economic growth back to the historical average of 3.5 percent
on a sustained basis.
In 1957, American economist Robert Solow demonstrated that
most of economic growth cannot be attributed to increases in
capital and labor, as most economists have previously believed,
but rather only to gains in productivity driven by innovation.
The great significance of Solow's work is that it not only
defined the nature of economic growth, it also identified its
principal source. That is because economists have long
understood that innovation, a particularly major or disruptive
innovation comes disproportionately from new businesses or
startups.
Unfortunately, us scholars at the Kauffman Foundation, the
Brookings Institution and elsewhere have documented,
entrepreneurship in America is in trouble. After remaining
remarkably consistent for decades, the number of new businesses
launched in the United States peaked in 2006 and then began a
precipitous decline, a decline accelerated by the Great
Recession. Perhaps most alarming, the number of new firms as a
percentage of all firms has fallen near a 30-year low and this
decline is occurring across a broad range of industry sectors,
including high tech and in all 50 States.
Circumstances in rural areas of America, as you alluded to
in your opening statements, are particularly worrisome. A
recent report by the Economic Innovation Group shows that most
of the new business formation that has occurred since the Great
Recession has been concentrated in high density urban or
suburban areas. Indeed, since 2009, small counties have
experienced net negative growth in the number of business
establishments in their area. Such circumstances amount to
nothing short of a national emergency.
To find out why startup rates are falling, a colleague and
I conducted roundtables with entrepreneurs in 12 cities across
the United States asking them quite simply, what's in your way?
Here is what they told us: We have the jobs and we need to fill
them in order to survive and grow. We cannot find enough people
that have the skills that we need. Our immigration policies
don't effectively attract and retain the world's best and most
innovative talent. Access to startup capital is even more tough
in the wake of the financial crisis. Overregulation is killing
us. Tax complexity and uncertainty is diverting far too much of
our time and attention away from our new businesses, our
products, and services.
Finally, there is too much economic uncertainty and it is
Washington's fault. It is the bickering and partisanship, the
fiscal cliff, the debt ceiling, the government shutdowns, the
inability to achieve tax reform or immigration reform, or to
effectively deal with the national debt. Washington, they told
us at roundtable after roundtable, is a generator of problems
not solutions and it is killing the economy.
With those insights in mind, my colleague and I developed a
30-point policy plan for unleashing the growth and job-creating
capacity of the entrepreneurial economy, based on what American
entrepreneurs told us they need. The complete list of those
proposals are in the appendix to my written testimony and I am
happy to answer any questions about them.
Economic growth is driven by gains in productivity, which
are driven by innovation, which comes disproportionately from
new businesses. Revitalization of American entrepreneurship,
therefore, is the essential pathway to faster economic growth
and the Nation's ability to meaningfully address its most
serious socioeconomic problems.
Thank you for the invitation to be here.
Chairman HUELSKAMP. Thank you, Mr. Dearie. We appreciate
your testimony.
Our next witness is Robert Boyd, a Riley County
commissioner from my district in Manhattan, Kansas. This
morning he will be testifying on behalf of the National
Association of Counties. Mr. Boyd's first term as county
commissioner was elected in November of 2012. He also owns a
dry cleaning business in the district.
Mr. Boyd, I thank you for being here today, and I also
thank you for service as a combat veteran on behalf of our
country, and you may begin your testimony.
STATEMENT OF ROBERT BOYD
Mr. BOYD. Mr. Chairman, thank you very much.
Chairman Huelskamp, Ranking Member Chu, and members of the
Subcommittee, my name is Robert Boyd, and I serve on the Board
of County Commissioners for Riley County, Kansas. I am here
today representing the National Association of Counties. As
both a county-elected official and small business owner, I am
honored to participate in today's hearing.
Located in northeast Kansas, Riley County has a mix of both
rural and urban areas. Manhattan is our largest city and county
seat. We have over 75,000 residents and are home to Fort Riley
and Kansas State University, two major economic engines for our
region.
We often hear that the U.S. economy is recovering from the
Great Recession, but it is hard to feel this recovery on the
ground in our State and counties. National and statewide
economic data do not always paint an accurate picture of the
local situation, because every county has its own unique
challenges and opportunities. To provide a national perspective
on the state of county economic conditions, National
Association of Counties releases County Economies, an annual
report on economic recovery and growth patterns across the
nation's 3,069 county economies.
The report looks at annual changes in four economic
performance indicators in each county: Economic output or GDP,
employment, unemployment rates, and median home prices.
In 2015, counties across the country showed some signs of
economic recovery, particularly on unemployment and home
prices. For instance, more than 400 county economies closed
their unemployment gaps and saw their home prices reach
prerecession levels. On the other hand, only 7 percent of
county economies have fully recovered to prerecession levels,
on all four indicators, and 16 percent have yet to recover on
any of the four economic indicators. In other words, many
counties are still experiencing the recession.
The outlook for our nation's small and rural counties is
even more challenging. 70 percent of counties are considered
small with populations of less than 50,000. Of those, only
about 300 small county economies closed their unemployment gaps
in 2015. Furthermore, almost half small county economies saw a
decline in GDP, particularly those in the South and the
Midwest.
In Kansas, 100 out of 105 county economies saw job losses
or flat employment. Let me repeat that, 100 out of 105 counties
saw job losses or flat employment. Only one of the county
economies in the State saw higher job growth. Additionally,
over 60 percent experienced a decline in GDP. In Riley County,
we have only recovered in GDP and home prices but are still
struggling with jobs and unemployment rates.
Many of our surrounding counties are experiencing an even
slower recovery. None of our six neighboring counties have
recovered all four indicators. Most of them saw declines in GDP
and jobs, and we are not alone. Many rural counties faced
similar headwinds. At the same time, small county governments
must provide mandatory service and comply with the same
regulations as our suburban and urban counterparts, and we have
to do it all with limited ability to generate revenue and
without economies to scale.
While we face serious challenges, we are addressing these
issues and strengthening our communities. We are supporting
small business incubators and training programs, facilitating
access to capital, and making major investment in critical
local infrastructure. All of our efforts are aimed at fostering
conditions for economic growth and improving the quality of
life.
In Riley County, we have partnered with Fort Riley, Kansas
State University, the Kansas Department of Transportation, the
U.S. Department of Transportation, and other local governments
in the region to develop the Flint Hills Area Transportation
Agency. This collaboration helps to connect our people to jobs,
education, and health care. Programs like this help small
businesses like mine to tap into regional workforce and
positions for future growth.
In conclusion, while some county economies have seen
improvements, there is still a long way to go, especially for
small rural counties. With improved collaboration and
flexibility from our intergovernmental partners at the Federal
and State levels, we can continue to provide the public
services and basic infrastructure needed for economic growth
and prosperity.
Thank you for the opportunity to testify and I look forward
to your questions.
Chairman HUELSKAMP. Commissioner Boyd, I appreciate your
testimony. Thank you for being with us here today.
I now yield to Congressman Trent Kelly for the introduction
of our third witness.
Mr. KELLY. Thank you, Mr. Chairman. Our third witness this
morning is Hugh Middleton, cofounder of Kopis Mobile in
Flowood, Mississippi. Although Kopis Mobile is located in my
colleague Mr. Harper's district, one of the cofounders, Henry
Jones, is a fellow graduate of my alma mater Ole Miss, which is
in my district also.
Started in 2009, Kopis Mobile designs apps and app-enabled
equipment for Department of Defense, law enforcement, and
private security markets. They are represented today by
cofounder Mr. Hugh Middleton, a former Navy SEAL officer.
Thank you for your service to our country and for being
here this morning, Mr. Middleton, and you may begin.
STATEMENT OF HUGH MIDDLETON
Mr. MIDDLETON. Thank you. I appreciate it.
Good morning, Chairman Huelskamp, Ranking Member Chu, and
members of the Committee. Thank you for hosting this hearing on
the challenges that small businesses face in rural America and
for your invitation to provide remarks at this hearing.
My name is Hugh Middleton. I am cofounder of Kopis Mobile,
a small startup tech company headquartered in Flowood,
Mississippi. Flowood is located just outside of Jackson,
Mississippi. Before I get into what Kopis Mobile does, I would
like to provide a little background about myself that I feel is
pertinent to the work that we do.
I am a former Navy SEAL officer. While on the SEAL teams, I
was assigned to SEAL Teams 1, 3, 5, 6, and spent times in
various overseas assignments, including Special Operations
Joint Staffs. I have also worked in several U.S. embassies and
consulates. I separated from the Navy in 2005, taking a
management position in a large defense contracting company that
supported then ongoing operations in Afghanistan and Iraq.
Following that, I moved on to another defense company where I
managed a staff of highly skilled intelligence analysts
conducting intelligence and data exploitation focused on
improvised explosive devices threat characterization.
In January 2013, I cofounded Kopis Mobile with three super
smart engineers who all worked at the same company that I did
at the time. It may seem like an odd paring of backgrounds, and
you are correct it is. We often can't understand what the other
is saying, but we have made it work to develop some very
leading edge products that didn't exist prior to us starting
the company.
Kopis Mobile is in a unique position as a provider of
advanced mobile technology and products for the Department of
Defense, law enforcement agencies, and the private security
industry. We develop mobile technology to minimize the weight
and enhance the equipment of soldiers, first responders, and
law enforcement officers. This technology saves lives, saves
time, and saves money.
What we do is vitally important, especially to me, because
I was on the other side of the fence at one time. I witnessed
how long it takes to get the right equipment because of the
overburdened bureaucracy of the procurement process. For a
small company like us it really is a killer. We have equipment
quotes sitting in the hands of military units for over 6 months
before they are able to obligate funds for critically needed
items. The problem is the same for first responders. The
process equates to birthing a baby. It takes 9 months often to
get through the grant process for them to obligate funds to
buy, again, critically needed items.
As with any startup business, it has been a struggle for
us. I will go out on a limb and say it has been harder for us,
given the industry that we are in. Not only are we a tech
company from rural Mississippi, but we also have been trying to
gain access into an industry dominated by the likes of Northrop
Grumman, Raytheon, and Lockheed Martin. We have spent over 3
years just trying to educate people on who we are and what we
do. We obviously don't have any buildings with Kopis Mobile on
the top of them across from the Pentagon.
Most senior leaders think that because of digitization that
they are more productive because of less paperwork. Actually,
the opposite is happening. They have more paperwork than ever,
and this translates to a 3 percent decrease in annual
productivity within the military. Bureaucracy is increasing
faster than automation, which means that over the past 20
years, nearly half the military's productivity has been sucked
dry by the time vampires of administrative tasks.
The Federal Government spends about $20 billion a year on
development of later stage technology for commercialization.
Majority of this money is spent in large acquisition programs
that incorporate technology that is not proven, which means the
equipment takes way too long to get to the warfighter. This
results in huge cost overruns, frustrated operators, and
projects that are way behind schedule.
The reason for this, most new technology dies on the vine
because of the bureaucracy of the military. The GAO said
technologies do not leave the lab because their potential has
not been adequately demonstrated. The DOD is simply unwilling
to fund final stages of development of a promising technology,
preferring to invest in other aspects of the program that are
viewed as more vital to success. The DOD's budgeting process
requires investments to be targeted at least 2 years in advance
of their activation, which makes it difficult for DOD to seize
opportunities to introduce technological advances into
acquisition programs.
The problem is that only 5.71 percent of new technology
ever gets into the hands of those that really need it. That is
4 out of every 70 projects. When you realize that small
business accounts for 99.7 percent of all new technology
introduced, it becomes incredibly important for small
businesses to be involved in technology development and
transfer.
The Under Secretary of Defense for Acquisition, Technology,
Logistics reported the Federal Government has missed its small
business goals for the last 16 years, despite the fact that
buying from small businesses is far less painful. Frankly,
buying from small guys like us eliminates red tape, shortens
the technology transfer, speeds the time to get the operator
equipment they really need, and makes life for the contracting
officer easier.
What this really means is that it is vitally important to
partner with small businesses who talk directly to operators in
order to cocreate useful technology. I am sure you are already
aware small businesses are the backbone of the country. We
create opportunity, generate jobs, invent new technology, and
keep the economy going. We do all of this while being
overregulated, overtaxed, and undersupported by the Federal
Government. Everything from ObamaCare to mountains of paperwork
are hindrances to the growth and health of a small business.
With lower taxes and healthcare costs, we could hire more
people, increase salaries, and bring better talent to
Mississippi.
Thank you. I look forward to your questions.
Chairman HUELSKAMP. Thank you, Mr. Middleton. We appreciate
your testimony.
I next yield to Ms. Chu for introduction of our next
witness.
Ms. CHU. It is my pleasure to introduce Ms. Linsley
Kinkade, Deputy Director of U.S. programs at Winrock
International. In this role, Ms. Kinkade is responsible for
developing and implementing entrepreneurship, community and
workforce development projects in underserved areas. These
projects work directly with disadvantaged population seeking
training and support to enter the workforce and have lead to
the employment of more than 200 previously unemployed or
underemployed Arkansans to date.
She is a certified professional community and economic
developer and also chairs the Central Advisory Board at the
Community Development Institute. Prior to joining Winrock, Ms.
Kinkade spent a number of years on Capitol Hill working for
Representative Vic Snyder and Senator Blanche Lincoln. She has
a bachelor's degree in journalism and political science degree
from the University of Arkansas.
STATEMENT OF LINSLEY KINKADE
Ms. KINKADE. Chairman Huelskamp, Ranking Member Chu,
distinguished members of the Committee, thank you for inviting
me here today. My name is Linsley Kinkade, and I am the Deputy
Director of U.S. programs at Winrock International. Winrock is
a nonprofit organization that works with people in the United
States and around the world to empower the disadvantaged,
increase economic opportunity, and sustain natural resources.
Winrock is based in Little Rock, Arkansas, the home state
of our namesake, former governor, and Arkansas' original
economic developer, Winthrop Rockefeller. I am pleased to be
here today to discuss innovative and sustainable economic and
community development models taking a place across rural
America.
Winrock's U.S. Programs is extensively involved in
developing solutions for the challenges facing rural
communities. Our on-the-ground technical assistance to
community leaders, local organizations has been funded by
grants and cooperative agreements from agencies and partners
such as the United States Department of Agriculture, the Delta
Regional Authority, the United States Department of Labor, the
State of Arkansas, the Kellogg Foundation, and the Walton
Family Foundation.
Winrock is based in Little Rock, Arkansas, the heart of a
six-county metropolitan region, which accounts for fewer than
720,000 people. Compared to large counties in Florida, New
York, or Texas, our metro area is certainly rural. However,
Arkansas is home to more than 500 cities, with only 22 having a
population above 20,000 and only 60 cities with a population
above 5,000, thereby making the Little Rock metro area one of
Arkansas' most urban environments.
Winrock has seen successful economic and community
development models blossom in both our urban and rural areas.
The Arkansas Women's Business Center based in El Dorado,
Arkansas, which is a city of a population of about 18,000,
provides technical assistance and training tailored to meet the
needs of women business owners across the state. Funded in part
through a cooperative agreement with the Small Business
Administration, since 2011, the Women's Business Center has
provided training to more than 700 clients, helped 35 new
businesses start, and assisted companies that have created 65
jobs.
The Innovate Arkansas initiative, funded by the State of
Arkansas through its economic development commission, convened
startup technology entrepreneurs in Arkansas and works with
them as they become mature companies. Since 2008, Innovate
Arkansas clients have launched more that 150 startups, created
more than 600 jobs, and received more than $295 million in
public and private investment.
Entrepreneurs and business owners in these programs are to
provide quality training, counseling, access to capital, and
other resources needed to empower and equip them to ensure
business success, with the ultimate goal of creating a
sustainable entrepreneurial ecosystem.
The Innovation Hub at Winrock is a perfect example of an
innovative and broad-based approach to talent and enterprise
development that can be applied to rural and urban communities
alike. The Innovation Hub provides facilities and programs that
support education and entrepreneurship for all age groups
across a wide range of disciplines.
The Innovation Hub has planned, developed, and administered
a broad array of entrepreneurial programs, including HubX-
LifeSciences, a privately funded, world-class healthcare
accelerator program that recently completed its initial cohort
with seven highly accomplished companies from across the world.
Those seven companies leveraged approximately $2 million of
private capital from Arkansas-based investors.
Economic development occurs in communities where people can
live, work, and grow. The revitalization of main streets and
courthouse squares across rural America can be the catalyst for
new community investment. For example, municipal leaders in
Lake Village, Arkansas, a community of about 2,500, recently
realized that to compete and grow, the redevelopment of
downtown was critical. By combining more than $2 million in
funding from various Federal and State agencies and the city's
own coffers, the city renovated a dilapidated downtown historic
structure on its Main Street into a LEED-certified municipal
building housing all city services. The project increased
downtown foot traffic and convinced investors to renovate
nearby buildings to house new small businesses interested in a
downtown location.
Our rural communities remain hopeful for the future.
Coupling innovative entrepreneurship programs with quality of
life and place-making revitalization efforts can bring
increased economic development in urban and rural areas alike.
Chairman Huelskamp, Ranking Member Chu, distinguished
members of the Committee, thank you for having me here today. I
appreciate the opportunity to speak with you and I am happy to
answer any questions you may have.
Chairman HUELSKAMP. Thank you, Ms. Kinkade. I appreciate
your testimony.
We will now begin our questioning, and I recognize myself
for 5 minutes.
First, Commissioner Boyd, representing a rural county, at
least rural by definition nationally, could you provide some
insight, particularly from yourself as a small businessman, of
the challenges of operating a rural county in light of some of
the difficulties we have discussed here today?
Mr. BOYD. Yes, sir. Thank you very much, that is a very
good question. We do struggle operating a small county today.
We have partnerships, economic partnerships with private
enterprises. We do economic development with our Chamber of
Commerce, the Manhattan Area Chamber of Commerce. They provide
our economic development guidance and activities.
We also struggle with things such as labor. The recent
labor legislation that takes effect here in December is going
to be a burden on us. It is a burden on the small business. It
is going to change how I do business, it is going to change how
my people do it. It will change the county's employment.
We also struggle with regulations. In the dry cleaning
business, we are seeing huge increases in disposal fees that we
are required to maintain. We are seeing things, in the county,
such as waters of the U.S. that are impacting us as we go
forward. So it is a struggle.
What we need is partnerships, things such as working with
us in formulating some of these challenges as you go forward.
Each one of these people that have addressed us today are known
to their local governments. We can help you partner, as we go
forward, creating legislation that helps us to be the economic
engines that we are.
Chairman HUELSKAMP. Thank you.
Mr. Dearie, a question. As you point out in your testimony,
across America, there are more deaths than births of new
businesses. If you had to pick one particular category amongst
the litany of complaints, and most of them are centered around
our problems in Washington, if you had to pick one, if we could
change one, that would have the most impact, what would it be?
Mr. DEARIE. It is a very good question and a very hard one
to answer. I would start by answering, it is very important to
keep in mind the simple things that startups need to thrive,
entrepreneurs need to thrive. They need great new ideas. They
need the talent and the capital to pursue those ideas and they
need as few distractions, particularly unnecessary
distractions, with regard to regulatory and tax burden
complexity, uncertainty, et cetera.
Because as new businesses, they simply don't have the
resources or the time that existing businesses, even existing
small businesses might have. Things my colleague just
described, can be significant headaches to existing small
businesses, can kill new businesses, even viable new
businesses, simply because very often it is three or four folks
around a conference room table and they are trying to focus on
their new product, their new service and to penetrate the
market. Anything that takes their eye off the ball dramatically
increases the chances that they can fail.
If there was one thing, if I were forced to mention one
thing, which is the nature of your question, and I appreciate
that, I would create a dual category, and that is this
unnecessary distraction that I was just mentioning, and its
regulatory and tax-related burden, uncertainty and complexity.
The other categories of needs in terms of new ideas and the
talent and capital to pursue them are incredibly important, of
course. But if we had to focus on one thing that I think would
provide enormous relief and increase the chances of new
business formation, survival, and growth, it would be to pursue
the idea that we put forward, my colleague and I, in our list
of proposals, and that is to create a preferential, if you
will, regulatory and tax framework treatment for new businesses
during the critical first 5 years.
Research shows that if new businesses can survive those
first 5 years, the chances of them surviving long term go way
up. You don't want to kill new businesses in the cradle, as it
were, by burdening them with unnecessary regulatory and tax
burden complexity, uncertainty. So, we propose a streamline,
strip down, an on-ramp to viability. If I were forced to pick
one thing, I think that is what it would be.
Chairman HUELSKAMP. Thank you. I appreciate that testimony.
Next, I recognize Ms. Chu for her 5 minutes of questions.
Ms. CHU. Ms. Kinkade, today, the largest counties in the
U.S. have produced 58 percent of the country's new businesses.
The largest counties also produced more than twice as many jobs
during the 2010 recovery as they did in past recoveries. Are
there any economic philosophies that you believe can be taken
from urban areas and implemented in rural areas to spur growth?
Ms. KINKADE. Yes, absolutely. One thing we have seen quite
successful across the State of Arkansas is focusing on industry
clusters in regions. Whether that be an urban area or a rural
area, working with industry that is already existing in a
community and discovering what businesses are needed and
suppliers are needed to continue to have that business in your
community.
When you look at it that way, you are not only creating new
small business opportunities, but you are also providing
business retention and expansion programs for industries that
already exist by creating a community where that industry can
stay and thrive and grow.
Ms. CHU. Access to capital, of course, is extremely
important for these small businesses to grow and to be
maintained. In your opinion, what can be done to improve rural
small businesses' access to capital?
Ms. KINKADE. Access to capital is obviously a critical
component of all small business development, and in rural areas
it can be a challenge. We have seen microlending programs work
in smaller areas where small businesses that don't need large
loans or may not yet be bankable are receiving smaller funds
from organizations that are able to provide the need for the
startup capital to get a business going.
I would also say developing venture capital in rural
communities, angel investors, is extremely important as we get
out into our rural areas. Arkansas is overall a rural state, so
you could have venture capital funds across the state that may
also provide funding into more urban and rural areas alike.
Ms. CHU. Now, there are several programs that have been
created at the state level that help to finance small
businesses. For example, the rural entrepreneurship assistance
program, REAP, has provided services to numerous small
businesses throughout Nebraska. REAP has placed over $10
million in loans and leveraged over $17 million in additional
funds from other sources.
Can you describe this model in more detail? In your
opinion, does this program provide a realistic and effective
model for other States to emulate?
Ms. KINKADE. Absolutely. Access to capital in any form,
whether from the state, federal, or local, or private
investors, is critical to small business development. I find
those programs to be extremely successful across the state,
across the South in particular. I would say yes, that is a
model that could very well be addressed in states and across
the Federal and State Governments.
Ms. CHU. Mr. Middleton, because of their capital intensive
needs and the cost of new technology, small manufacturers
frequently encounter what economists call the valley of death,
and that is a period in the early stages of development where
it becomes difficult to move past initial startup phase and
enter into the mass production phase. As a technology company
outside of Silicon Valley, what was your experience with growth
and expansion?
Mr. MIDDLETON. As I said in my testimony, it has been quite
a struggle for us, again, because of the industry that we are
in. It is dominated by very, very large companies that have
lobby up here in D.C. We don't have any of that. The fact that
we are literally inventing new technology for soldiers and
first responders, again, we spend a great deal of time just
traveling around trying to educate people on who we are and
what we do.
The battle of that new technology and trying to introduce
it into the DOD and side step the large acquisition programs--
because what we do revolves around smartphones and tablets, and
you know new phones come out every 6 months. By the time a
soldier tells us what a requirement is, one of their pain
points, we develop a product that will fix that, make them more
efficient, and save them money. By the time it gets to them, it
is already out of date and it is useless to them.
So for us, it would be great to eliminate some of the
roadblocks to get this new technology to first responders and
to DOD members, especially the folks out on the pointy end of
the spear that are out there running around in some pretty bad
places of the world. We ought to get them these critically
needed technology pieces of gear to them as fast as possible.
Ms. CHU. Thank you. My time is up, I appreciate it.
Chairman HUELSKAMP. Next, I recognize Congressman Trent
Kelly for his 5 minutes of questions.
Mr. KELLY. I wanted to first thank you, Mr. Chairman. I
want to thank the staff and members of the Small Business
Committee for reaching out to rural America and specifically to
witnesses like these who represent most of our districts and
our small business owners, so I wanted to thank y'all.
We regularly hear from small business that testify before
us about how the bureaucracy is such a great impediment to
small businesses working with the Federal Government. Mr.
Middleton, I will summarize, but you note in your testimony an
interesting observation, that in an ever increasing digitized
world, there is actually more paperwork than ever before. Your
quote, ``bureaucracy is increasing faster than automation.''
I would imagine that the bureaucracy plays a large part of
DOD, as you mention in your testimony, being unwilling to fund
final stages of development of a promising technology. What
specific improvements would businesses like yours like to see
with technology development programs to encourage more small
businesses to do business with the Federal Government?
Mr. MIDDLETON. There really has to be an incentive for
doing business with the Federal Government. We are in the
business that we do because of my background, and our goal is
to increase the survivability of soldiers and first responders,
again, to make them more efficient and try to make them save
more money. There are so many roadblocks that impede a small
company like us, that a lot of them, and there has been all
kinds of things in the press, small tech companies refuse to do
business with the Federal Government because of these hurdles.
It is far easier in the commercial world to develop a
product and get it out quickly. There is funding, there is less
bureaucracy, less roadblocks, and there is a need there. We
know there is a need within the military and first responder
environments. The roadblocks that we face, we fortunately have
been able to side step somewhat and be able to get around just,
frankly, because of the people that I know, and being allowed
to get in and talk to folks that I used to serve with, that
have helped us out significantly. But if a company the size of
ours doesn't have a person like me, their chances of
survivability are significantly decreased.
Mr. KELLY. This question is to all of you. If you can just
briefly give maybe one or two or three examples very briefly so
each of you get to respond. What are some of the largest
barriers to entry for new businesses, and are rural businesses
more affected by these barriers than urban counterparts? So,
just one or two examples from each of you.
We can start with you, Ms. Kinkade.
Ms. KINKADE. One of the largest barriers is one of the
things we have already addressed today, which is access to
capital. Small businesses are growing. Finding the resources to
get that business started, as my colleagues have mentioned
today, is one of the most critical components and one of the
hardest things to address in rural America.
Mr. MIDDLETON. We were super fortunate that we had some
investors, we raised a little bit of money, and we were able to
take advantage of a small loan from the State of Mississippi,
again, because of our background and folks willing to take a
chance on a small company like us, a tech company. But with a
company like ours in Mississippi, it is exceptionally hard to
bring talent. There is a preconceived notion about Mississippi,
you know, country, back woods, and it is absolutely not the
case.
There are exceptionally smart people we hire. We are
currently hiring folks out of Ole Miss and Mississippi State
that are brilliant young folks, and we are fortunate that we
have access to that type of thing. But again, if you don't have
that, you are really way behind the power curve.
Mr. KELLY. Mr. Middleton, just to your point, I tell people
all the time my area in north Mississippi is one of the fastest
growing, industry and tech companies are coming all the time
and we can't get people to come. They come down kicking and
screaming, and the problem is once they come there, we can't
get them to leave, they want to retire there and stay there
forever. The press has a tendency to show things that are
negative towards Mississippi, but the people who come there
love the people, love the place, love the environment, and they
stay there. So thank you for that comment.
Mr. Boyd.
Mr. BOYD. Thank you, sir. That is a very good question. I
agree with Ms. Kinkade that financing is the number one hurdle
that small business has to overcome.
Second is creating a business plan. In our region, what we
are seeing is a lack of workforce, and that is where we can
come in and help partner developing the workforce people that
we need, getting the community that we need to support that
kind of business.
Mr. DEARIE. As I said a minute ago, what entrepreneurs--and
my focus is on entrepreneurs, not so much on small business,
but I think there are overlapping priorities here. What
entrepreneurs need to thrive is great new ideas and the talent
and capital to pursue them. So echoing what my colleagues have
said, it is workforce readiness and it is access to capital.
Great new ideas stay in entrepreneurs' heads if they don't have
those two resources.
With regard to funding of new businesses, obviously, with
regard to small business, community banks and their ability to
thrive and do what they do best is incredibly important, and
there has been a lot of conversation about the implications of
Dodd-Frank on smaller community banks. It is my recollection,
off the top of my head, that the launching of new banks has
fallen to an 85 year low. There has only been about 3 new banks
launched since 2010. It is absolutely unprecedented in this
country. The numbers of banks who are either failing or
merging, more merging with other banks to achieve some heft,
which makes it easier to deal with regulation like Dodd-Frank,
means that there are fewer and fewer community banks, and
therefore fewer options for small businesses to go to.
In the context of angel investment and venture capital,
which are incredibly important for new businesses, it tends to
be very lumpy. Venture capital rates, in terms of the amount of
capital being raised and invested in recent years, is at record
levels. But something like 80 percent is spent in either
Silicon Valley; Cambridge, Massachusetts; or New York City, and
everywhere in between it is a desert.
Mr. KELLY. Thank you, Mr. Chairman. I yield back.
Chairman HUELSKAMP. Next, I recognize Representative
Radewagen for her 5 minutes of questions.
Mrs. RADEWAGEN. Thank you, Chairman Huelskamp and Ranking
Member Chu. I too would like to welcome the panel. Thank you
for being here today.
Almost all businesses in my home district in American Samoa
are small businesses. Ms. Kinkade mentioned the microlending
programs that could work very well, I think, in American Samoa.
There are some of them that are starting up.
I have a question for you, Mr. Dearie. Why has there been
such a large number of startups in places like California,
Florida, New York, and Texas? How can Washington promote
similar growth in the rest of the country?
Mr. DEARIE. Again, at the risk of repeating myself, what
entrepreneurs and new business formation requires is new ideas
and the capital and the talent to pursue those ideas. There are
certain parts of the country, and you know what they are, it is
Silicon Valley; it is New York City; it is Cambridge,
Massachusetts; it is Austin, Texas; Boulder, Colorado. There
are certain areas of the city that have extremely effective and
efficient ecosystems for entrepreneurship. They tend to be
characterized by having one or more top universities that are
generators, not only of great new research, but great new
talent. Because they are generators of new talent and new,
ideas they tend to attract capital, so you have another element
of success there.
The question of what constitutes a really effective
entrepreneurship ecosystem is one that is the subject of great
debate, and what government can do to try to promote those
kinds of circumstances elsewhere around the country is a very
important one. It can be very tough for government to simply
create ecosystems around the country. But I think what they can
do, government public policymakers both here in Washington and
at the state and local level across the country, they can
promote the circumstances by which talent and capital and ideas
find each other. If you look at the proposals that I submitted
in the appendix to my written testimony, there are 30 specific
policy ideas there that I think taken together can go a long
way to promote the kind of ecosystems that you are talking
about elsewhere outside of these traditional areas of
entrepreneurship.
Mrs. RADEWAGEN. Thank you, Mr. Dearie. Nothing wrong with
repeating. As you may know, the United States territories,
particularly my home district of American Samoa, are both
geographically and economically isolated, so thank you.
Mr. Boyd, please describe some of the challenges associated
with making infrastructure investments with the limited
resources of a smaller county. Do challenges keeping technology
infrastructure up to date make it hard to attract businesses in
rural areas?
Mr. BOYD. Very good question, ma'am, thank you very much.
It is a challenge. We would like to have high-speed Internet
for all our citizens; we can't. We struggle with that. That
because of how the State and the Federal Government have
regulated the disbursement of those rights and certain entities
do not want to participate. The communities aren't populous
enough for them to render a profit.
We also work with economic development groups in our
county, such as the Manhattan Area Chamber of Commerce, to
develop these innovative programs. I myself invest in an angel
investment group with the chamber.
Infrastructure. The hard infrastructure, roads and bridges,
are always a struggle because it links into the national
transportation system. We need help with those things. Counties
have 54 percent of all the bridges in the United States and
they are in terrible repair. We know that more than half are
beyond their useful life. We have to address those. The FAST
Act was a great program coming down to us, but it is only one
step. We have a lot farther to go. So there are significant
challenges.
Mrs. RADEWAGEN. I yield back, Mr. Chairman.
Chairman HUELSKAMP. Thank you for participation and series
of questions from my colleagues. I appreciate the opportunity
to discuss something very critical to many of our districts and
indeed the entire country.
I ask unanimous consent that members have 5 legislative
days to submit statements and supporting materials for the
record.
Without objection, so ordered.
This hearing is now adjourned.
[Whereupon, at 10:52 a.m., the Subcommittee was adjourned.]
A P P E N D I X
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Introduction
Chairman Huelskamp, Ranking Member Chu and Members of the
Subcommittee, thank you for the opportunity to testify today on
both the challenges and opportunities that small and rural
economies and small businesses are facing in our current
economic climate.
My name is Robert Boyd and I serve on the board of county
commissioners for Riley County, Kansas. I am also here today
representing the National Association of Counties (NACo).
In addition to serving as a county commissioner, I am a
military veteran and small business owner. I hail from a
military family and served in the U.S. Army from 1968 to 1988.
After retiring as an Army Aviator, I worked for Northwest
Airlines as a commercial pilot. Prior to retiring as a
commercial pilot in 2008, I started a local dry-cleaning
business, which I still own and operate today. Our small
company has grown into partnerships of dry cleaners and
laundromats in our area, along with business consulting
services, aviation management services and franchise
restaurants in the Midwest.
In 2012, my desire to help others thrive in the local
marketplace led me to run for office and I was elected to serve
on the Riley County Board of Commissioners. As a county
commissioner, I carry with me that same commitment to
developing entrepreneurs and small businesses in an effort to
strengthen our local economy which is why I am honored to
participate in this hearing today.
Stronger Counties, Stronger America
Founded in 1935, NACo is the only national organization
that represents our nation's 3,069 counties and brings together
county officials from across the country to advocate with a
collective voice on national policy, exchange ideas and build
new leadership skills, pursue transformational county
solutions, enrich the public's understanding of county
government and exercise exemplary leadership in public service.
As key intergovernmental partners with the states and
federal government, counties are responsible for delivering a
broad array of programs and services that provide a foundation
for prosperous communities with strong and stable economies. To
achieve this foundation, counties make significant investments
in our nation's essential infrastructure; maintain our nation's
justice and public safety system; and invest in public health,
including hospitals, nursing homes and mental health programs.
And in an election year such as this, counties are responsible
for administering fair and transparent federal, state and local
elections.
County government provides these vital services to more
than 308 million residents, collectively investing over $554.5
billion annually and employing over 3.6 million people to serve
the public.
Specifically, as it relates to this hearing, counties also
make significant contributions to economic development at the
regional and local levels and take a leadership role in
coordinating local workforce development and job training
programs. Nationally, counties invest close to $11 billion in
housing and community development annually.
Although we have various governmental structures,
authorities and responsibilities under state law, all county
governments are on the front lines working to build healthy,
vibrant and safe communities across America.
About Riley County, Kansas
Counties are highly diverse, not only in my home state of
Kansas, but across the nation, and vary immensely in size,
natural resources, social and political systems, and cultural,
economic, public health and environmental responsibilities.
My county, Riley County, Kansas, is a small to mid-sized
county with a mix of both rural and urban components. We
currently have 75,247 residents across 622 square miles and are
blessed to be the home of the Fort Riley military base and
Kansas State University which are major economic engines for
our local economy and our surrounding communities.
Located right in the middle of the country, Kansas has long
been known for our agriculture, transportation and energy
industries. Since much of the state is rural, small businesses
are also a critical component of our local economy. In fact, in
the state of Kansas, there are over 246,000 small businesses
that employ almost 600,000 workers.\1\
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\1\ U.S. Small Business Administration, 2016 Small Business
Profiles for the States and Territories. Available at https://
www.sba.gov/sites/default/files/advocacy/Kansas.pdf
While we hear on the news almost daily that the national
economy has recovered after the Great Recession, it has been
more challenging to see those positive effects in our state and
county--and in rural counties across America. National or state
economic data do not tell what is happening on the ground,
where every county and local communities also has its own
unique set of circumstances and its own challenges and
---------------------------------------------------------------------------
opportunities.
Although the national economy has recovered, many county
economies are still struggling
To help provide a national perspective on how county
economies are faring from year to year, NACo releases County
Economies, an annual report examining economic recovery and
growth patterns across the nation's 3,069 county economies. The
report is developed from an analysis of data from Moody's
Analytics and focuses on the annual changes in four economic
performance indicators in each county: economic output (GDP),
employment, unemployment rates and median home prices. For the
2015 edition, the report also has an analysis of wage growth
for county economies, based on U.S. Bureau of Labor Statistics
(BLS) data.
Nationally, counties across the country showed signs of
economic recovery in 2015, particularly on unemployment rates
and home prices. For instance, 462 county economies closed
their unemployment gaps and 448 counties saw their median home
prices reach pre-recession peaks.
But the outlook specifically for our nation's rural and
small counties is more challenging. Only 306 small county
economies closed their unemployment gap in 2015--up from 150 in
2014--and just over 100 small county economies closed their
economic output (GDP) gap in 2015. Further, almost half of our
nation's small counties saw a decline in economic output (GDP)
for 2015--particularly rural and small counties in Southern and
Midwestern states such as Georgia, Illinois, Kansas, Kentucky,
Mississippi, Missouri, Nebraska and Texas.
In total, only 214 county economies have fully recovered to
their pre-recession levels by 2015 and 16 percent, or 478
counties, have yet to recover on any of the four economic
indicators. Many counties are still experiencing the severe
impacts of the latest recession.\2\
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\2\ Istrate, Emilia, Brian Knudsen, County Economies 2015:
Opportunities and Challenges, Washington, D.C.: National Association of
Counties. Available at http://www.naco.org/sites/default/files/
documents/2016%2OCET-report--01.08.pdf
My home state of Kansas has also struggled to recover.
Prior to the Great Recession, Kansas' economic output was
actually growing at a must faster rate than the rest of the
country. However, when the recession hit in 2008, our statewide
economic output (GDP) fell further and continues to grow slower
than the rest of the nation, particularly slower since 2011.\3\
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\3\ Menzie Chinn, Kansas in (Technical) Recession. Available at
http://econbrowser.com/archives/2016/06/kansas-in-technical-recession
The overwhelming majority of Kansas county economies (100
of 105) have seen job losses or flat employment levels. Sixty-
four of the 105 Kansas counties have seen declines in their
---------------------------------------------------------------------------
economic output.
Further, only one of the 105 county economies in the state
has seen higher job growth in 2015 relative to the previous
year.
Riley County has only recovered to pre-recession levels in
two of the four economic indicators NACo examines. While we
have seen progress in economic output (GDP) and home prices, we
are still struggling with jobs and unemployment rates which
have not returned to pre-recession levels. As a result, we
observe that young people graduating from Kansas State
University do not seem as inclined to stay here to establish
new businesses as they once were. Today's graduates are largely
moving to other states and communities with greater employment
opportunities.
Many of the surrounding rural counties in my area are
experiencing an even slower economic recovery than ours. None
of the six counties around Riley County have recovered on all
four economic indicators. While some have recovered on economic
output (GDP), four of the six surrounding counties saw a fall
in their GDP within the last year. In addition, five of the six
neighboring counties saw job losses in 2015.
Wabaunsee County, Kansas has experienced the hardest time
recovering to levels seen before the recession. This a small
county with about 7,000 residents. The county economy has not
closed its recession gaps on any of the four indicators
analyzed. For example, for five consecutive years, the economy
lost jobs between 2004 and 2009. This is much longer than the
national rate, as the job gap for an average county economy
lasted only three years (between 2007 and 2010). Its
unemployment rate almost doubled between 2006 and 2009, soaring
from 3.7 percent to 7.2 percent.
Our nation's small and rural counties face unique
challenges
Unfortunately, many rural counties across the country face
similar headwinds. Small counties have to provide the same
mandatory services and comply with the same regulations as our
suburban and urban counterparts do. And we must do so with
limited ability to raise revenue.
Local property taxes remain the major source of revenue for
small counties like Riley County--accounting for 56 percent of
total revenue for Kansas counties in 2014. Thus, trends in
property values can significantly impact county revenues and
expenditures. Declining property values push tax rates up and
force counties to either find alternate revenue sources or cut
spending. In addition, 43 states impose some type of limitation
on counties' ability to increase property taxes, further
limiting our options.
Moreover, we also confront complex and costly regulatory
mandates that can limit local recovery and economic growth.
Federal agencies have issued an increasing number of
regulations in recent years. In 2015, only 114 laws were
enacted by Congress, compared to the 3,140 rules issued by
federal agencies.\4\ According to the White House Office of
Management and Budget (OMB), unfunded mandates from federal
rules and regulations cost local governments, our citizens and
businesses between $57 billion and $85 billion a year.\5\
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\4\ Competitive Enterprise Institute, Ten Thousand Commandments: An
Annual Snapshot of the Federal Regulatory State (2016 Edition)
\5\ Office of Management and Budget, Office of Information and
Regulatory Affairs, Executive Office of the White House, 2015 Draft
Report to Congress on the Benefits and Costs of Federal Regulations and
Agency Compliance with the Unfunded Mandates Reform Act, (2015)
In fulfilling our mission to deliver public services to our
residents, we are not only subject to state and federal
regulations, but also help to implement them at the local
level. Therefore, as both regulated entities and regulators, it
is critical that counties are fully engaged as
intergovernmental partners throughout the entire federal
---------------------------------------------------------------------------
regulatory process.
This growing number of regulations comes at a time when
counties--regardless of size--are experiencing significant
fiscal constraints and our capacity to fund compliance
activities is often limited.
We thank this Committee for its ongoing work to examine the
impacts of proposed federal regulations on small jurisdictions
and small businesses, and we will continue to work with our
federal partners to ensure that the challenges facing small
jurisdictions are fully considered.
Despite these challenges, small and rural counties play an
important role in strengthening our local communities and
economic opportunity
The vitality of rural county economies can be as unique as
the county itself. While small and rural economies face
distinctive challenges, we also possess unique opportunities.
Today, rural counties must work together to leverage our assets
to ensure the stability and strength of our local and
regulation economies.
Together with partners, we find solutions to the most
pressing economic development problems facing our communities.
Each initiative is unique, aimed at solving an economic problem
within the framework of specific local resources and
constraints. State authority, county capacity and resources,
and the convening power of counties, all shape our response to
local challenges.
Counties work to strengthen their local economies in
several ways.
First, we are increasingly collaborating regionally. We
work with our neighboring counties to look at not only our
individual assets, but our combined assets and market this
greater regional economy. Effective marketing for economic
development involves not only identifying a region's unique
competitive advantage, but also communicating the value of that
advantage to companies both inside and outside the region. The
marketing effort must rely on tangible assets that create
comparative advantages for the region.
Second, counties are also engaging in a range of
entrepreneurship and small business development programs from
financing to training in order to help businesses create jobs
in the community.
Business accelerators exchange small amounts of equity for
capital and mentorship, while business incubators support
start-up companies through subsidized or free office space or
an ongoing mentorship program with established businesses. This
support system may take a variety of organizational formats,
including county economic development programs or initiatives
delivered through non-profit organizations or universities.
Counties also participate in developing training programs
for entrepreneurs and small-business owners to help them grow
their businesses and in the process generate more jobs, greater
revenues for the business and increased tax revenues for the
county. Training programs can take many different forms, but
most emphasize the importance of equipping trainees with skills
in creative thinking, best business practices and problem-
solving.
We also provide financing to small businesses by
facilitating their access to federal or state loan programs or
by leveraging private lenders through matching funds for
capital access programs. Some counties have their own loan
programs, such as revolving loan funds, to target business
owners who might not otherwise qualify for a traditional bank
loans. These programs can be capitalized by a county's own
revenue, bonds and state appropriations.
For example, Renville County, Minn. operates a revolving
loan fund to help local businesses create and retain jobs, with
a goal of securing one job for each $10,000 of loans. NACo's
2014 report Cultivating a Competitive Advantage, highlights how
Yellowstone County, Montana is using a multi-pronged approach
to economic development. Through the Big Sky Economic
Development organization (BSED), the Billings-Yellowstone
County Metropolitan Planning Organization (MPO) and the City
College at Montana State University Billings (MSU Billings),
Yellowstone County is able to leverage regional assets to
attract businesses and pursue various economic development
goals. This public private partnership has highlighted the
region's high quality of life and economic opportunities to
attract existing and expanding businesses while creating
hundreds of new jobs in Yellowstone County alone.
Fourth, we make substantial investments in infrastructure.
Investments in infrastructure systems--roadways, bridges,
transit, railroads, water, sewer, intermodal connectors and
telecommunications systems--result in higher property values
and quality-of-life improvements, affect business decisions and
connect communities into thriving regional economies.
Telecommunication infrastructure is especially helpful in rural
or technologically underserved counties. Specifically,
investment in broadband access helps counties to attract a
skilled workforce or overcome issues of geographic isolation.
Due to high capital costs associated with public
infrastructure, counties frequently collaborate with regional
public or private partners to finance, build and maintain
infrastructure projects of all sizes and levels of complexity.
Many counties also engage in long-term planning for
disaster preparedness and industry diversification to stay
resilient in the face of disruptive events. Such events can
range from immediate-impact incidents including natural
disasters, closings of a main plant in a county to more long-
term processes--the decline of a major industry and slowing
demand in internal markets. Some federal policy decisions such
as the U.S. Department of Defense or U.S. Department of Energy
facilities realignment or specific environmental regulations
can also have a disruptive effect on some counties. Diverse
local economies, with employment, sales and tax revenue
distributed broadly across a number of sectors, are more
resilient to economic shocks. This leads to more certainly in
county budgeting and planning and better quality of life for
residents.
These examples are just a snapshot of the ways that
counties are working to help our local economies. Regardless of
the economic uncertainty faced by many counties throughout the
country, we must continue to deliver critical services to our
residents in order to provide the basic building blocks for
future growth.
Conclusion
In conclusion, Chairman Huelskamp, Ranking Member Chu and
members of the committee, while some county economies have seen
improvement, there is still a long way to go, especially in
rural America. With improved collaboration and flexibility from
our intergovernmental partners at the federal and state levels,
counties can provide the public services and basic
infrastructure needed for economic growth and opportunity.
NACo will continue to monitor the progress of our national
economy through the lens of our nation's counties. Small
businesses are a critical to the local economy and even drive
some of our nation's largest corporations. As intergovernmental
partners, it is our shared responsibility to ensure the
strength and stability at all levels of our economic portfolio.
It is imperative that we move forward together for our families
and children, businesses, large and small and all our
communities. Stronger counties mean a stronger America.
We thank you once again for holding this important hearing
and I look forward to your questions.
``Struggling to Grow: Assessing the Challenges for Small Businesses in
Rural America.''
Testimony of:
Hugh Middleton
Co-Founder
Kopis Mobile
Flowood, MS
Before the
Committee on Small Business
United States House of Representatives
September 08, 2016
The Honorable Tim Huelskamp (R-KS), Chairman
The Honorable Judy Chu, (D-CA), Ranking Member
Good morning Chairman Huelskamp, Ranking Member Chu, and
members of the Committee. Thank you for hosting this hearing on
the challenges small businesses face in rural America and for
your invitation to provide remarks at this hearing. My name is
Hugh Middleton and I am the Co-Founder of Kopis Mobile, a small
start up, Tech Company headquartered in Flowood, MS. Flowood is
located just outside of Jackson, MS.
Before I get into what we do at Kopis Mobile, I would like
to provide a little background about myself that I feel is
pertinent to the work we do. I am former Navy SEAL Officer.
While in the SEAL Teams, I was assigned to SEAL Teams One,
Three, Five, Six and spent time in various overseas assignments
including a Special Operations Joint Staff. I have also worked
in several U.S. Embassies and Consulates. I separated from the
Navy in 2005, taking a management position with a large defense
contracting company that supported then ongoing operations in
Afghanistan and Iraq. Following that, I then moved on to
another defense company where I managed a staff of highly
skilled intelligence analysts conducting intelligence and data
exploitation focused on Improvised Explosive Device threat
characterization.
In January 2013, I Co-Founded Kopis Mobile with three super
smart engineers, who all worked at the same company I did at
the time. It may seem like an odd pairing of backgrounds and
you are correct, it is. We often can't understand what the
other is saying, but we have made it work to develop some very
leading edge products that didn't exist prior to us starting
the business. Kopis Mobile is in the unique position as a
provider of advanced mobile technology and products for the
Department of Defense, Law Enforcement Agencies, and the
Private Security industry. We develop mobile technology to
minimize the weight and enhance the equipment of soldiers,
first responders, and law enforcement officers. This technology
saves lives, saves time, and saves money. It also improves
training and reduces SWaP (size weight and power). Just about
everything we do revolves something you use everyday,
smartphones and tablets. We get every ounce of computing power
out of these wonders of technology. We actually refer to some
of our products as time machines. Our customers typically have
plenty of equipment, food, weapons and ammunition. What they
don't have enough of is time. We try to give them some of that
time back.
What we do is vitally important especially to me since I
was on the other side of the fence at one time. I witnessed how
long it takes to get the right equipment because of the over
burdened bureaucracy of the procurement process. For a small
company like us, it is a killer. We have equipment quotes
sitting in the hands of military units for over 6 months before
they are able to obligate the funds for critically needed
items. The problem is the same for first responders. The
process is like birthing a baby. It often takes 9 months to go
through the grant process. Internally, we joke about it, but it
isn't funny.
As with any start up business, it has been a struggle for
us. I will go out on a limb and say it has been harder for us
given the industry we are in. Not only are we a tech company
from rural Mississippi, but also we have been trying to gain
access into an industry dominated by the likes of Northrup
Grumman, Raytheon, and Lockheed Martin.
We have spent over three years just trying to educate
people on who we are and what we do. We obviously don't have
any buildings with Kopis Mobile on the top of them across from
the Pentagon.
General Officers and senior level decision makers of all
ranks that are in today's military are without doubt some of
the best leaders this country have ever seen. Several years of
fighting wars on two fronts have positively molded the lives of
many in uniform and shaped them into formidable leaders.
Those at that level are super educated, motivated, and
strive to do the best they can to improve the lives of those
under their command. However, those at the top of the
leadership pyramid are often bogged down by administrative
tasks, countless meetings and unending travel. They have little
time to really dig into alternative ways to simplify
entrenched, long standing ways of doing business. Many rely on,
``This is the way we are doing it because this is how it's
always been done.'' In many ways, tried and true methods work
just fine. It is easier to do ``what we have been doing''
rather to look for ways to do things better.
Most senior leaders think that because of digitization,
they are more productive because of less paperwork. Actually,
the opposite is happening. Despite all of this digitization,
you have more paperwork than ever. This translates to a 3%
decrease in annual productivity.
Bureaucracy is increasing faster than automation. Which
means that over the past 20 years, nearly half of the
military's productivity has been sucked dry by the time
vampires of administrative tasks.
The federal government spends about $20B per year on
development of later stage technology for commercialization.
Majority of this money is spent in the large acquisition
programs that incorporate technology that is not proven which
means the equipment takes way too long to get the warfighter.
This results in huge cost overruns, frustrated operators, and
projects that are way behind schedule.
The reason for this, most new technology dies on the vine
because the bureaucracy of the military. The GAO said
``technologies don't leave the lab because their potential has
not been adequately demonstrated'' and ``the DoD is simply
unwilling to fund final stages of development of a promising
technology, preferring to invest in other aspects of the
program that are viewed as more vital to success.''
And ``DoD's budgeting process, which requires investments
to be targeted at least two years in advance of their
activation, makes it difficult for DoD to seize opportunities
to introduce technological advances into acquisition
programs.''
The problem is only 5.71% of new technology ever gets into
the hands of those that really need it. That is 4 out of every
70 projects!
When you realize that small business accounts for 99.7% of
all new technology introduced, it becomes incredibly important
for small businesses to be involved in technology development
and transfer.
The Undersecretary of Defense, Acquisition, Technology and
Logistics reported the Federal Government has missed its small
business goals for the last 16 years despite the fact that
buying from small businesses is far less painful. Frankly,
buying from small guys like us eliminates red tape, shortens
the technology transfer, speeds the time to get the operator
the equipment they really need, and makes life for a
contracting officer easier.
There are really only two types of new technology product
development, that being ``Top Down'' and ``Bottom Up''. In
``Top Down'' tech development, academics invent something big
and hopes it gets good in DoD. In ``Bottom Up'' tech
development, small business invents something good and hopes it
big in DoD. The big problem is 95% of it is ``Top Down'' and
rarely includes the folks at the pointy end of the spear in the
development process.
As stated in the GAO Report to Congress (GAO-05-480), the
best approach to new technology is a, ``least structured
process and criteria, believing that a high degree on
flexibility is needed in order to get technology prototypes
quickly out to the field, where they can immediately impact
military operations.''
What this really means is it is vitally important to
partner with small businesses who talk directly to the
operators in order to co-create useful technology. This is the
holy grail of warfighter improvement.
As I am sure you are already aware, small businesses are
the backbone of America. We create opportunity, generate jobs,
invent new technology and keep the economy going. We do all of
this while being over regulated, over taxed and under supported
by the Federal Government. Everything from Obama Care to
mountains of paperwork are hindrances to the growth and health
of a small business. With lower taxes and healthcare costs, we
could hire more people, increase salaries and bring better
talent to Mississippi.
Thank you and I look forward to your questions.
[GRAPHIC] [TIFF OMITTED] T3765.010
Chairman Huelskamp, Ranking Member Chu, distinguished
members of the committee, thank you for inviting me here today.
My name is Linsley Kinkade. I am the Deputy Director of U.S.
Programs at Winrock International.
Winrock International is a nonprofit organization that
works with people in the United States and around the world to
empower the disadvantaged, increase economic opportunity, and
sustain natural resources. Winrock is based in Little Rock,
Arkansas, the home state of our namesake, former Governor and
Arkansas's original economic developer, Winthrop Rockefeller.
I am pleased to be here today to discuss innovative and
sustainable economic and community development models taking
place across rural America.
Winrock's U.S. Programs is extensively involved in
developing solutions for the challenges facing rural
communities. Our on-the-ground technical assistance to
community leaders and local organizations has been funded by
grants and cooperative agreements from agencies and partners
such as the United States Department of Agriculture, the Delta
Regional Authority, the United states Department of Labor, the
State of Arkansas, Kellogg Foundation and the Walton Family
Foundation.
Winrock is based in Little Rock, the heart of a six-county
metropolitan region which accounts for fewer than 720,000
people. Compared to large counties in California, Florida, New
York or Texas, our metro area is certainly rural. However,
Arkansas is home to more than 500 cities, with only 22 having a
population more than 20,000 and only 60 cities with a
population above 5,000; thereby making the Little Rock metro
area one of Arkansas's most urban environments. Winrock has
seen successful economic and community development models
blossom in both our urban and rural areas.
The Arkansas Women's Business Center located in El Dorado,
Arkansas, a city with a population of 18,000, provides
technical assistance and training tailored to meet the needs of
women business owners across the state of Arkansas. Funded in
part through a cooperative agreement with the U.S. Small
Business Administration, since 2011 the Women's Business Center
has provided training to more than 700 clients, counseled more
than 350 clients, helped 35 new businesses start, and assisted
companies that have created 65 jobs.
The Innovate Arkansas initiative, funded by the State of
Arkansas through its Economic Development Commission, convenes
startup technology entrepreneurs in Arkansas and works with
them as they become mature companies. Since 2008, Innovate
Arkansas clients have launched more than 150 startups, created
more than 600 jobs, and received more than $295 million from
public and private sources.
Entrepreneurs and business owners in these programs are
provided quality training, counseling, talent, access to
capital, and other resources to empower and equip them to
ensure business success with the ultimate goal of creating a
sustainable entrepreneurial ecosystem.
The Innovation Hub at Winrock is a perfect example of an
innovative and broad-based approach to talent and enterprise
development that can be applied to rural and urban communities
of any size. The Innovation Hub provides facilities and
programs that support education and entrepreneurship for all
age groups across a wide range of disciplines.
The Innovation Hub has planned, developed, and administered
a broad array of entrepreneurial programs, including HubX-
LifeSciences, a privately-funded world-class healthcare
accelerator program that recently completed its initial cohort
with seven highly accomplished companies from across the world.
Those seven companies leveraged approximately $2 million of
private capital from Arkansas-based investors.
Economic development occurs in communities where people can
live, work, and grow. The revitalization of Main Streets and
courthouse squares across rural America can be the catalyst for
new community investment.
For example, municipal leaders in Lake Village, Arkansas, a
community of approximately 2,500 realized that to compete and
grow the redevelopment of downtown was critical. By combining
more than $2 million in funding from various federal and state
agencies and the city's own coffers, the city renovated a
dilapidated historic structure on its Main Street into a LEED-
certified municipal building housing all city services. The
project increased downtown foot traffic and convinced investors
to renovate nearby buildings to house new small businesses
interested in a downtown location.
Our rural communities remain hopeful for the future.
Coupling innovative entrepreneurship programs with quality of
life and place-making revitalization efforts can bring
increased economic development in urban and rural areas alike.
Chairman Huelskamp, Ranking Member Chu, distinguished
members of the committee, thank you for inviting me here today.
I appreciate the opportunity to speak with you, and am happy to
answer any questions you may have.
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