[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]





                 MAKING THE WORK OPPORTUNITY TAX CREDIT
                      A SUCCESS FOR SMALL BUSINESS

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

                                HEARING

                               BEFORE THE

               SUBCOMMITTEE ON TAX, FINANCE, AND EXPORTS

                                 OF THE

                      COMMITTEE ON SMALL BUSINESS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                             WASHINGTON, DC

                               __________

                              MAY 4, 2000

                               __________

                           Serial No. 106-57

                               __________

         Printed for the use of the Committee on Small Business


                   U.S. GOVERNMENT PRINTING OFFICE
66-395                     WASHINGTON : 2000


                      COMMITTEE ON SMALL BUSINESS

                  JAMES M. TALENT, Missouri, Chairman
LARRY COMBEST, Texas                 NYDIA M. VELAZQUEZ, New York
JOEL HEFLEY, Colorado                JUANITA MILLENDER-McDONALD, 
DONALD A. MANZULLO, Illinois             California
ROSCOE G. BARTLETT, Maryland         DANNY K. DAVIS, Illinois
FRANK A. LoBIONDO, New Jersey        CAROLYN McCARTHY, New York
SUE W. KELLY, New York               BILL PASCRELL, New Jersey
STEVEN J. CHABOT, Ohio               RUBEN HINOJOSA, Texas
PHIL ENGLISH, Pennsylvania           DONNA M. CHRISTIAN-CHRISTENSEN, 
DAVID M. McINTOSH, Indiana               Virgin Islands
RICK HILL, Montana                   ROBERT A. BRADY, Pennsylvania
JOSEPH R. PITTS, Pennsylvania        TOM UDALL, New Mexico
MICHAEL P. FORBES, New York          DENNIS MOORE, Kansas
JOHN E. SWEENEY, New York            STEPHANIE TUBBS JONES, Ohio
PATRICK J. TOOMEY, Pennsylvania      CHARLES A. GONZALEZ, Texas
JIM DeMINT, South Carolina           DAVID D. PHELPS, Illinois
EDWARD PEASE, Indiana                GRACE F. NAPOLITANO, California
JOHN THUNE, South Dakota             BRIAN BAIRD, Washington
MARY BONO, California                MARK UDALL, Colorado
                                     SHELLEY BERKLEY, Nevada
                     Harry Katrichis, Chief Counsel
                  Michael Day, Minority Staff Director
                                 ------                                

               Subcommittee on Tax, Finance, and Exports

                 DONALD A. MANZULLO, Illinois, Chairman
STEVEN J. CHABOT, Ohio               CAROLYN McCARTHY, New York
PHIL ENGLISH, Pennsylvania           RUBEN HINOJOSA, Texas
PATRICK J. TOOMEY, Pennsylvania      CHARLES A. GONZALEZ, Texas
                                     GRACE F. NAPOLITANO, California
           Philip Eskeland, Senior Professional Staff Member


                            C O N T E N T S

                              ----------                              

                               WITNESSES

                                                                   Page
Hearing held on May 4, 2000:.....................................     1
    Weller, Jerry, a Representative in Congress from the State of 
      Illinois...................................................     1
    Littlejohn, Roger, Coordinator, Work Opportunity Tax Credit 
      Program of Tennessee Department of Labor & Workforce 
      Development................................................     8
    Carroll, Rodney, Chief Operating Officer, Welfare to Work 
      Partnership................................................    10
    English, Ron, Franchise Owner, Burger King, Abilene, TX......    11
    Kramer, Fred, Director of Community Employment and Training, 
      Marriott International.....................................    13

                                APPENDIX

Opening statements:
    Manzullo, Hon. Donald A......................................    26
    McCarthy, Carolyn............................................    27
Prepared statements:
    Rangel, Charles..............................................    28
    Weller, Jerry................................................    32
    Littlejohn, Roger............................................    36
    Carroll, Rodney..............................................    40
    English, Ron.................................................    55
    Kramer, Fred.................................................    61
Additional material:
    CRS Report...................................................    63
    Remarks of Rep. Amo Houghton.................................    65
    House Resolution 2101........................................    66
    Letter to Manzullo from Carroll..............................    77
    Letter to Manzullo from Signer...............................    78
    Letter to Manzullo from Kramer...............................    81
    Letter to Manzullo from English..............................    83
    Work Opportunity and Welfare-to-Work Tax Credits.............    85
    Instructions for Form 8850 and Form 8850.....................    87
    U.S. Department of Labor Form................................    89

 
  MAKING THE WORK OPPORTUNITY TAX CREDIT A SUCCESS FOR SMALL BUSINESS

                              ----------                              


                         THURSDAY, MAY 4, 2000

                  House of Representatives,
          Subcommittee on Tax, Finance and Exports,
                               Committee on Small Business,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10 a.m., in room 
2360, Rayburn House Office Building, Hon. Donald A. Manzullo 
[chairman of the Subcommittee] presiding.
    Chairman Manzullo. We are going to call this Subcommittee 
to order. The first order of business is the testimony of 
Congressman Jerry Weller. Congressman Rangel, who has been 
working on the African trade bill for many years with 
Congressman Crane, is understandably excused from not appearing 
this morning because after all the years of work it is finally 
coming to the floor. What we are going to do is take 
Congressman Weller's testimony and we will put Congressman 
Rangel's statement into the record. And if it is not here, we 
will leave the record open for at least a week in order to put 
it in.
    [Mr. Rangel's statement may be found in appendix.]
    Chairman Manzullo. Then we will start with Congressman 
Weller. If we have any questions, we can ask him. Then after 
that, if the ranking minority member, Mrs. McCarthy, has an 
opening statement, we will read it at that time. Did you want 
to say anything up front, Mrs. McCarthy?
    Congressman Weller.

 STATEMENT OF HON. JERRY WELLER, A REPRESENTATIVE IN CONGRESS 
                   FROM THE STATE OF ILLINOIS

    Mr. Weller. Thank you, Mr. Chairman, Mrs. McCarthy. I 
appreciate the opportunity to appear before your committee 
today to testify about an important initiative which has been 
working. One message I learned as we worked on enacting the 
first real welfare reform in over a generation was whether you 
were liberal or conservative on the issue of welfare reform, we 
all agreed that if people were going to move off welfare, they 
needed a job. Of course the Work Opportunity Tax Credit, which 
I am before you to testify on today, enlisted the private 
sector to help provide jobs and give those that were on welfare 
the opportunity to move up the economic ladder and have a 
chance by moving from the welfare rolls to the employment 
rolls.
    I am very pleased to have this opportunity to talk about a 
success story today before your Committee. As you know, the 
Work Opportunity Tax Credit was created in 1996 as part of the 
Small Business Job Protection Act. This program offered 
employers a tax credit for hiring employees which were part of 
the following groups: families receiving AFDC or TANF benefits, 
veterans participating in the food stamp program, 18- to 24-
year-old members of families receiving food stamps, high-risk 
youth, which could be defined as 18- to 24-year-olds, living in 
empowerment zones or enterprise communities, at risk-summer 
youth, SSI recipients, and economically disadvantaged ex-felons 
trying to find work soon after prison release.
    Once employees in these categories work 400 hours with a 
company, employers can claim a 40 percent tax credit on the 
first $6,000 earned in the first year, and for employees 
working with a company 120 to 399 hours, the employer can claim 
a 25 percent credit. I am proud to report to the Subcommittee 
that the Work Opportunity Tax credit has been a success. 
According to the Department of Labor, over 600,000 individuals 
have been hired under WOTC thus far. Over 80 percent of these 
individuals had been on public assistance in the form of 
welfare or food stamps. In 1999, the Department of Labor issued 
more than 335,000 certifications for WOTC hires. This was 
50,000 more than 1998. In my home State of Illinois last year, 
over 23,419 individuals went from the welfare public assistance 
rolls and were put into meaningful employment through the Work 
Opportunity Tax Credit.
    These 23,419 individuals will no longer rely on the 
Government to support themselves and their families. They have 
been able to enter the workforce and learn the job training 
skills they need to be successful in today's workforce. Last 
year, the Ways and Means committee and the Congress extended 
the Work Opportunity Tax Credit for 2\1/2\ years. I am proud to 
say this is the longest extension since its creation in 1996. 
That is so important. We need that long-term extension if you 
are going to encourage more employers to participate so they 
have the confidence that the tax code is not going to change if 
it is going to have a tax consequence for their bottom line. It 
is my understanding that prior to the extension, more than 20 
of our Nation's governors and 400 employers contacted the Ways 
and Means Committee in support of a multiyear extension of the 
program.
    At this time, supporters of the Work Opportunity Tax Credit 
are discussing possible ways to improve the existing program. 
One suggestion I have heard recently would lift the 18- to 24-
year age restriction to qualify for the program if a family is 
receiving food stamps. While revenue estimates are not 
complete, this may be a way to include more people in the 
successful program at this program's relatively low cost. Mr. 
Chairman, Mrs. McCarthy, the Work Opportunity Tax Credit 
represents a powerful public-private sector partnership 
designed to encourage businesses to help individuals enter the 
workforce and leave the welfare rolls. This takes these hard-
to-place individuals off the public welfare rolls, and places 
them into the working labor pool. Once they enter the 
workforce, individuals are trained by employers in basic skills 
to make them more employable in the future.
    I would note, Mr. Chairman, one thing I have learned in 
talking with those that are trying to move off the welfare 
rolls is that just by getting a chance, they have the 
opportunity to learn some of the basic skills. Of course thanks 
to this program, they have the opportunity to gain those basic 
skills, enter the job market, and then of course frankly be 
more attractive to other employers who are working looking for 
workers in this good economy today because they have the 
skills, they have a work record, and of course thanks to this 
public-private partnership, we give them that opportunity.
    I want to thank you and the members of this committee for 
the opportunity to speak about this worthwhile initiative which 
has proven to be a success. I do want to note that Congressman 
Amo Houghton of New York as well as Congressman Charlie Rangel, 
we have all worked together in a partnership that has been a 
bipartisan effort, one of those success stories we are all 
proud to talk about.
    [Mr. Weller's statement may be found in appendix.]
    Chairman Manzullo. Thank you, Congressman Weller. Could you 
explain to us technically how it works?
    Mr. Weller. The way the program essentially works is you 
have somebody that qualifies, so you have a qualified 
candidate. The employer hires them. Of course there is an 
approval process, and the employer has to apply for the actual 
tax credit. There is a form they need to fill out. Of course 
one of the issues we have been working to resolve for the Work 
Opportunity Tax Credit is to make it user friendly. Over the 
last several years we have tried to improve this program, 
minimizing the paperwork and reducing the red tape in order to 
encourage more employers to participate.
    If an employer hires someone who falls into the various 
categories that qualify, they then can hire this individual. Of 
course, there is a minimum number of hours this individual must 
be on the payroll working for this employer before they qualify 
for the tax credit. As I pointed out in my testimony, for 
employees working with a company from 120 to 399 hours, the 
employer can claim a 25 percent credit and for those that are 
working over 400 hours, the employer can claim a 40 percent tax 
credit on the first $6,000 earned in the first year.
    Now, that threshold was one of the changes we made to the 
program in the last budget, or in the last tax package. The 
reason that was important, we found in many cases this program 
has been successful; and one thing I have found is sometimes 
there is a little hesitation by an employer to hire someone off 
of welfare. They are concerned about the cost of training this 
individual; they are concerned about the work ethics or work 
habits, if this person does not have any work experience. Of 
course with this incentive, we are encouraging them to hire 
these individuals. At the same time employers say, you know, I 
have helped train this individual and given them the 
experience, in many cases they work less than 400 hours but the 
business across the street sees they are a good worker and 
offers them a job at a little bit higher wage.
    Chairman Manzullo. So an employer can essentially pay 
$2,400 less in corporate taxes or personal income taxes if it 
is a sole proprietorship based upon 40 percent of the $6,000. 
Is that correct?
    Mr. Weller. That is correct. If they work over 400 hours, 
the employer can have 40 percent of the tax credit on the first 
$6,000 in wages. And 40 percent would be about $2,400 in 
relief, means that they would pay $2,400 less on their taxes as 
a result of that tax credit.
    Chairman Manzullo. Is there still, Congressman, a need for 
a program like this in light of the low unemployment rate 
across the Nation?
    Mr. Weller. Mr. Chairman, I think we can all agree we want 
this good economy to continue growing. Since 1991, we have been 
enjoying a very strong economy over the last 9 years as a 
result of our efforts to balance the budget and reduce the tax 
burden, particularly on employers as well as on working 
families. That has kept our economy moving forward. I believe 
there is a continued need to the Work Opportunity Tax Credit, 
because regardless of how strong the economy is, there are 
still those on welfare. There are still those who need the 
opportunity. And because of welfare reform, we have seen almost 
7 million Americans who have gone from the welfare rolls to the 
employment rolls. The Work Opportunity Tax Credit has helped 
make that success.
    I would point out that many of those who are hired through 
the Work Opportunity tax Credit have no previous job 
experience, so essentially this is an incentive for an employer 
to give that individual a chance to get off of welfare and 
develop some work skills and a work history which helps them 
move up the economic ladder. I strongly believe that this 
program should continue. But I would also point out that we 
should also consider some other ideas.
    As I mentioned, one idea that we should consider is lifting 
the age ceiling for food stamp recipients and individuals who 
reside in empowerment zones and enterprise communities. Right 
now that age ceiling is only 18- to 24-year-olds, of those who 
can currently participate in this program if they receive food 
stamps. Recognizing food stamps are an income supplement, is a 
program for those who are in need. This may be a way of 
providing help for more individuals to move up the economic 
ladder.
    Chairman Manzullo. The experience that we have seen in our 
congressional district is that welfare rolls have plummeted by 
87 percent. In one county, McHenry county, which has 250,000 
people there are seven families on welfare. In Winnebago 
County, another county I represent, Rock Valley College, a 
community college, has an office within the welfare office so 
that there is a hand-off as people come off welfare. They are 
immediately working in contact with Rock Valley Community 
College. Then that college makes the contacts with the 
employers. It makes it a lot easier because I could imagine one 
of the big problems with people going on employment for the 
first time is saying would you hire me and then you have to 
ask, well, are you an ex-felon, are you on welfare. I don't 
even know if an employer can ask those questions legally. But 
with the bridge that the community colleges are providing, that 
appears to be working extremely well in our district. Do you 
have the same experience in yours, Jerry?
    Mr. Weller. I am pretty proud that welfare reform has been 
working in Illinois. We have seen statewide in Illinois, 
welfare rolls have been cut well over in half. My home county 
of Grundy County--and I, of course, live in the county seat of 
Morris--we have seen about an 85 percent reduction in the 
welfare rolls. Clearly the Work Opportunity Tax Credit has 
contributed to that success. I think as I noted earlier, as we 
debated welfare reform emphasizing work, family and 
responsibility, while giving States flexibility to design 
welfare programs that meet the needs of individual communities 
and individual States, recognizing that North Dakota and South 
Dakota are different than New York or Illinois, by giving that 
kind of flexibility, we have succeeded. I am very proud of 
that. It took us three times. We passed that legislation three 
times before we signed it, but the bottom line is it is 
working. I believe that the Work opportunity Tax Credit helped 
contribute job opportunities for, in this case, well over 
600,000 individuals who now are working rather than receiving a 
welfare check.
    Chairman Manzullo. Thank you. Mrs. McCarthy.
    Mrs. McCarthy. Thank you, Mr. Chairman. I thank you for 
calling this hearing. I thank Congressman Weller for his 
testimony. One of the things that I had heard is that, most 
States when they are going through the work process for the 
opportunity tax credit certification, they can complete that 
usually in 30 days, but yet we have heard in some States there 
is a backlog of anywhere from 6 months to 2 years. Could you 
briefly discuss the processing backlog problem with the 
Committee. Specifically, what are the costs that a business 
experiences when processing is delayed? And if you know, how 
many States are experiencing significant backlogs? And is there 
anything we can do on the Federal level to help alleviate this 
problem?
    Mr. Weller. Mrs. McCarthy, what I would like to do is get 
back with you on some of the details. We can provide that to 
your Committee, some of the details. I am proud to say Illinois 
is one of the States that is leading in ensuring the timeliness 
of the processing of the paper, paperwork. Let me get back with 
you some statistics. There has been an analysis done of the 
various States. The bottom line is what we can do here in the 
Congress is to minimize the paperwork, to listen to the 
employers who want to participate about the potential 
roadblocks that have been there. Of course, paperwork has been 
one of them. The timeliness of the processing of the paperwork 
has been another. I will be happy to provide to the Committee 
essentially a ranking of the various States and of course where 
they compare.
    Mrs. McCarthy. I thank you. I think it is important 
especially for the small businesses. Since I have been here 
3\1/2\ years, I can't believe the amount of paperwork we ask of 
our people, things that we mandate our businesspeople to 
respond to. We are doing a better job, but we have to even do a 
better job than what we have been doing. I thank you for that. 
I will look forward to the information.
    Mr. Weller. Mrs. McCarthy, and this is a small business 
Committee, of course the more paperwork and more red tape 
roadblocks that stand in the way, the harder it is for a 
smaller employer to participate. The large employers have 
plenty of people to fill out paper, but the small employers do 
not. By minimizing the paperwork, by reducing the red tape 
wherever we have the opportunity to, we make it easier for a 
small employer to step forward and give that welfare recipient 
down the street an opportunity through the Work Opportunity Tax 
Credit.
    Mrs. McCarthy. I thank you for your testimony.
    Chairman Manzullo. Congressman Hinojosa.
    Mr. Hinojosa. Thank you, Chairman Manzullo. Thank you for 
coming to visit with us, Congressman. I would like to ask you 
about that last point you made, that some of the businesses 
talk about the vast amount of paperwork that has to be filled 
out to participate in this WOTC. Will allowing the electronic 
filing of the IRS form 8850 help, and should we be considering 
reducing the business form to something much shorter?
    Mr. Weller. From my personal perspective, I think, 
Congressman, that as we move to e-filing of all tax forms, it 
simplifies the process, and more and more taxpayers have taken 
advantage of that opportunity as are small businesses. We have 
wrestled with the issue of electronic filing of Federal 
Government-related documents and particularly in the small 
business community over the last several years as they have 
worked, become more online, as they have worked to be able to 
participate more in e-commerce. But I believe that is the 
direction that we should head towards, because it does simplify 
the process.
    Mr. Hinojosa. The second option, should we consider a 
shorter form? And you understand, some people just don't find 
the computer as friendly as you and I; but for those people, 
wouldn't it be advisable to look at a shorter form?
    Mr. Weller. I think any way to minimize the amount of 
paperwork and bureaucratic red tape is a step in the right 
direction.
    Mr. Hinojosa. I agree with you. Thank you, Mr. Chairman. 
That is the only question I had.
    Chairman Manzullo. I have another question. I am at this 
point opposed to the bill and will vote against it based upon 
the fact that it would allow nonprofits, 501(c)(3)'s, to 
participate in the program. Nonprofits pay no income tax. 
Essentially, it would allow nonprofits the ability to pay less 
in Social Security taxes. Somebody is shaking their head back 
here; maybe this is wrong.
    Mr. Weller. Mr. Chairman, currently nonprofits such as your 
community hospitals or your community colleges do not 
participate in the Work Opportunity tax Credit. One of the 
things we have looked at in the Ways and Means committee is 
finding ways to enlist the nonprofits in a way that they could 
also provide work opportunities for those that are currently on 
welfare. In communities like my hometown of Morris, our largest 
employer in town is Morris Community Hospital. Joliet Junior 
college is a major employer in Joliet, as well as the two 
hospitals there.
    Chairman Manzullo. How do you extend the tax credit to 
people who don't pay taxes?
    Mr. Weller. The approach that has been looked at is some 
way to essentially syndicate the tax credit so that the 
employers could use it but they would then sell that to a 
private sector employer who could use the tax credit because 
they do pay taxes. That is an option that we have explored. 
However, the Committee has not approved that idea yet, but it 
is something that has been----
    Chairman Manzullo. It is presently in the bill. I am just 
really troubled because of where this is going to lead. The 
earned income tax credit has enough problems in terms of fraud; 
I think the GAO has estimated fraud is close to 20 percent in 
the EITC program. In terms of what is happening here, I just 
have some very serious problems. Perhaps the next panel--I 
think we have not-for-profits that may be testifying--would be 
able to clear it up.
    Mr. Weller. I would point out that the current provision in 
the current law is in effect for a period of 2\1/2\ years. So 
in about another 2 years this provision will expire; we will 
consider extending it. At that point there will be changes 
made. What we are discussing today, of course, Mr. Chairman, 
is, in fact, law. As for the prospect of nonprofits 
participating in a greater way, that is an idea that is being 
considered. We would certainly welcome as a member of the Ways 
and Means Committee--I can't speak for Chairman Archer--but as 
a member of the Committee, I would welcome the input of the 
Small Business Committee on what role you feel that nonprofits 
can play in participating in the Work Opportunity Tax Credit 
and recognizing in many communities they are the largest 
employer in town.
    Chairman Manzullo. I think our largest employer is the 
school district, and that is followed by the three hospitals. 
So I could understand that. I will take a fresh look at it. We 
obviously have time to work on it. Mrs. McCarthy, did you have 
a follow-up question on that?
    Mrs. McCarthy. No, actually what you were referring to was 
a follow-up question that I was going to have, but I figured we 
did have time to try and work it out. I also have a lot of 
nonprofits in my district. But I think we are looking at the 
larger scope of things, but we have the time to do it. I would 
appreciate if we could work on this committee with our 
suggestions.
    Mr. Weller. I know I would welcome them. I look forward to 
working with you. It has been a bipartisan effort with Chairman 
Houghton, Mr. Rangel, myself and others have been actively 
involved in this issue. The bottom line is we want to give 
those who are on welfare an opportunity to move up the economic 
ladder. It should be a bipartisan priority. This program works. 
If there are new ideas, new approaches that we can be using to 
better the program, simplify the program, reduce red tape, 
remove the barriers that discourage employers from enlisting in 
the program, we would love to hear your ideas and look forward 
to working with the Small Business Committee.
    Chairman Manzullo. Congressman, as a follow-up to my 
question, park districts, municipalities, school districts 
presently cannot avail themselves of any revenue benefits as a 
result of this statute in its present form. Is that correct?
    Mr. Weller. That is correct.
    Chairman Manzullo. That is the reason for trying to 
experiment with the not-for-profits. That would include local 
governments, I presume.
    Mr. Weller. There are other programs that provide economic 
opportunity that are utilized by municipalities and local 
governments and park districts. Summer jobs program is one 
example.
    Chairman Manzullo. Of course that got wiped out.
    Mr. Weller. That is an issue every year. I have always been 
a supporter of the summer jobs program. But it is one program 
which is important to Chicago and the suburban area that I 
represent. When you think of the nonprofits, the nonprofits 
that I have looked at in playing a role in trying to find a way 
where they can participate in the Work Opportunity Tax Credit 
are the hospitals as well as our institutions of higher 
learning, such as St. Francis or Lewis University or Olivet 
Nazarene University, which are three nonprofit universities in 
the district that I represent.
    Chairman Manzullo. I appreciate it very much. Thank you for 
coming, Congressman.
    Mr. Weller. Thank you, Mr. Chairman and Mrs. McCarthy.
    Chairman Manzullo. If we could have our next panel please 
take a seat at the table.
    Good morning. On our next panel is Roger Littlejohn. He is 
the coordinator of the Work Opportunity Tax Credit program of 
the Tennessee Department of Labor and Workforce Development 
from Nashville, Tennessee. I am sure will answer the question I 
just posed the last time. Rodney Carroll is the chief operating 
officer of the Welfare to Work Partnership here in Washington, 
D.C. Ron English is the owner of a small business franchise of 
the Burger King Corporation in Abilene, Texas. Finally, Fred 
Kramer, director of community employment and training at 
Marriott International in Bethesda, Maryland will testify.
    Let's start first with Mr. Littlejohn. We are going to get 
the clock going to 5 minutes for your testimony. Please stick 
to that as much as possible. If you would like to read your 
statement or better yet please just like to paraphrase it. Mr. 
Littlejohn.

 STATEMENT OF ROGER LITTLEJOHN, COORDINATOR, WORK OPPORTUNITY 
   TAX CREDIT PROGRAM OF THE TENNESSEE DEPARTMENT OF LABOR & 
              WORKFORCE DEVELOPMENT, NASHVILLE, TN

    Mr. Littlejohn. I appreciate being here this morning. I 
would like to paraphrase it a little bit. I am a little bit 
nervous this morning but not for the normal reasons. I am just 
not usually surrounded by so many people that have a different 
accent than I do.
    I think we have been very successful in Tennessee because 
we have seen an increased usage of the WOTC program since day 
one. In my prepared statement, which you are more than welcome 
to read, we quote some of those figures. Employers use of the 
program increases from 5,000 to 7,000 each year. We anticipate 
receiving about 32,000 requests for the tax credit this year. 
Last fiscal year we finished sixth in the Nation in terms of 
the number of tax certifications that we got out the door, and 
we are proud of that.
    For a State the size of Tennessee to finish sixth in the 
nation for tax certifications issued does not mean we have the 
market cornered on welfare recipients. We think it is because 
we have done a good job of marketing the program to the 
employment community. That is one of the things I wanted to 
focus on with you today.
    We mass market the program to all 105,000-plus employers in 
Tennessee through a quarterly newsletter that is tied to our 
unemployment insurance program. Although Tennessee employers 
are being notified, each month we will get a call from someone 
who is just learning about the program for the first time. You 
are always going to have that problem. We are finding that 
small business employers know about the program, but do not 
utilize it because of a reluctance for increased government 
involvement. That is a problem that I think we have perpetuated 
over the years, but is a big drawback to this program. The only 
way to overcome the reluctance is to go out and meet with 
employers one on one. That is something we try to do when we 
have time.
    There are some things, the paperwork burden. I don't think 
that it is a burden. There are two forms to fill out, IRS form 
8850 and ETA form 9061. They are pretty much a check-the-box 
kind of form. I was around in the old TJTC days. Now, that was 
a nightmare. I don't know how much simpler the current process 
could be. An employer fills out two forms and sends it to us. 
In Tennessee, we are lucky, we have computer access to almost 
everything. We prove that the person is a target group member 
or not. I tell employers all the time, if you spent more than 5 
minutes perfecting a tax application under WOTC, you need to 
give me a call, I can help shorten just walking you through the 
process and making some suggestions.
    We do feel there needs to be some changes to the program in 
the future, particularly in the ex-felons target group. Right 
now the ex-felons, must also be economically disadvantaged. 
Well, if you have been locked up for a year, that is almost a 
no-brainer. However, I have to spend an inordinate amount of 
time proving a negative. Eliminating the economically 
disadvantaged criteria from this target group would speed up 
the process for us. In the areas of the EZ/EC enterprise zones, 
and Empowerment Communities the age criteria does not present a 
problem. Should Congress want to adjust the age limits, we have 
no opinion.
    We are having problems with the HUD EZ EC locator system, 
which is the computer system we use to prove that the person's 
address is within an empowerment zone. We would like to see the 
locator system enhanced because we often know that a person's 
address is in an enterprise zone, but we can't get confirmation 
from the HUD locator system. Although HUD has made great 
improvements to the locator system, we experience the most 
trouble with addresses in the rural areas. Hopefully they will 
continue to work to improve the system, and that will help. I 
know I am running out of time, but, we would like to see a 
longer or permanent extension of the tax credit, because the 
stop-and-go legislation causes a lot of problems. Employers 
hear that the program is over, but they don't necessarily hear 
when it is extended. The last extension was signed off on 
December the 27th. We started off with a 6-month backlog and 
tax time for most employers was right around the corner. That 
is a problem.
    Some States may be reluctant to invest in computer and data 
systems that help make the certification process go faster 
because maybe of the inconsistency in funding. If the program 
is extended here for a year, a year and a half, some States are 
reluctant to make the necessary long-term commitments. This 
reluctance also crosses over into the staffing patterns at the 
State level. The program has been successful in Tennessee, it 
is going to continue to be successful in Tennessee because we 
are going to continue our marketing efforts. However, we hope 
that Congress would address some of the issues we have raised. 
With that, I will be happy to answer any questions you have. I 
was sitting in the back earlier wanting to jump up and answer 
questions.
    Chairman Manzullo. Thank you.
    [Mr. Littlejohn's statement may be found in appendix.]
    Chairman Manzullo. Mr. Carroll.

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

    Mr. Carroll. Thank you. Good morning Mr. Chairman and 
members of the Subcommittee. My name is Rodney Carroll. I am 
honored and delighted to be here. I was a UPS manager for 22 
years, but I am on loan to the Welfare to Work Partnership. 
Soon after the legislation was passed in 1996, there began this 
partnership with five companies: United Parcel Service, United 
Airlines, Monsanto, Burger King, and Sprint. The objective of 
these companies was first of all to recruit more companies, all 
surrounded by the idea of hiring people from welfare to work 
without displacing the current workers. Now there are currently 
over 12,000 companies throughout the country hiring people from 
welfare to work as a part of this partnership. The partnership 
is a nonpartisan not-for-profit organization. It is primarily 
funded by the private sector through grants to engage this 
effort. I was a UPS employee and part of the deal was that UPS 
would provide a loaned executive. My job is primarily to talk 
to businesses, business to business, and tell them why it is a 
good idea for them to get involved in hiring people from 
welfare to work. There are several reasons that I tell them. 
The first reason I tell them is that hiring people from welfare 
is a smart solution for their business. I tell them about the 
employees and how they will have a greater retention rate when 
they are hiring people from welfare and how they will find that 
a lot of the stereotypes and myths are just that, stereotypes 
and myths.
    And also I talk to employers about how they can receive the 
tax credit. I am always amazed that I get two responses. If it 
is a large company, they kind of say, okay, tax credits, what 
else can you tell me? But the smaller companies are more 
interested in the tax credit because sometimes I tell them that 
it is true that people that have been on welfare for some time 
in some cases need more training or some education and may need 
to do something to bring them up to the standard you are used 
to. Of course they say, who is going to pay for all this? How 
am I going to be able to afford that? Sometimes you are only 
talking a few hundred dollars, depending on what the trainee 
may need. I say, well, you might be able to take advantage of 
this tax credit, because what that would do, you would be able 
to invest in the employee, the human capital, in this case 
human resources. So it is always an effective tool.
    We are not happy as a partnership of how this has been 
going as far as small businesses. About 75 percent of the 
12,000 companies I mentioned have less than 250 employees and 
almost 50 percent have less than 50 employees. So a lot of the 
companies are, even though I named a lot of big companies, are 
small businesses. We send them out a fax every week and we talk 
to them. We are not as happy as we would like to see people 
taking advantage of it. I go out and say, why not? Why aren't 
you? I am getting a lot of answers. Some of them are that it is 
perceived that the form is more difficult than it is; and as 
the speaker just before me said, that is not necessarily the 
case when you really educate them.
    One of the barriers might be because when you hire for 
example UPS, a person comes in, this is a large human resources 
department, people talk, the person comes on Monday, they might 
not get hired until the next Monday or the following Monday. A 
lot of processes, background checks and so on. Part of the 
checks might be if they were on welfare, an ex-felon, et 
cetera. And the form could be filled out at that time. A person 
being hired from a small business could be on the spot. One of 
the parts of this form is you have to have that, it almost has 
to be immediately done, it can't work for a while and then come 
back and say, oh, by the way such and such was a welfare 
recipient, take advantage of the tax credit. That is one of the 
issues.
    Also being on welfare, although we have talked about it for 
several years, it is still a sensitive topic for employees and 
employers. It really has to be a shrewd employer interview in 
order to be able to get around that topic at that particular 
first interview and find out indeed whether the person was on 
welfare or not. We would like to see this continue. We think 
that although we have made a lot of progress in the country as 
far as reducing the rolls, we still have quite a ways to go. We 
think that any incentive that we can give for the business 
community would be great, and we perceive this as that, an 
incentive to hire people from welfare to work.
    There are all kinds of extraordinary programs around the 
country that people are doing; they are thinking out of the box 
and the tax credit just allows them one more way to be able to 
think out of the box and also sell their stockholders in some 
cases or even partners and say well, look, besides getting good 
employees, we are getting this tax credit. That is why I think 
this is a good idea. The Welfare to Work Partnership continues 
to move on. We are out in the communities now. We have started 
five offices throughout the country in major cities. But our 
small businesses are still our primary objective and anything 
we can do to help small businesses hire people from welfare to 
work, we will certainly agree with that. Thank you very much.
    Chairman Manzullo. Thank you.
    [Mr. Carroll's statement may be found in appendix.]
    Chairman Manzullo. Our next witness is Ron English. Mr. 
English.

    STATEMENT OF RON ENGLISH, FRANCHISE OWNER, BURGER KING, 
                          ABILENE, TX

    Mr. English. Good morning, Mr. Chairman, Congressman 
McCarthy, and members of the Committee. My name is Ron English, 
and I am a small business owner from Abilene, Texas, which is 
an all-American city about 3 hours west of Dallas. I am also 
one of the 12,000 business partners of the Welfare to Work 
Partnership. We employ approximately 370 people in our Burger 
King restaurants. In my community and in the fast food industry 
nationwide, I am a vocal advocate for welfare to work programs 
because I believe they work for the employee and the employer. 
I applaud your efforts to reform welfare. From my vantage point 
as an employer and taxpayer, welfare reform has plugged the 
drain on a failed program that depleted our communities of 
trained workers and customers.
    The welfare system also depletes our Nation of children who 
grow up with a healthy respect for the value and dignity of 
work, education, business and labor. I had a more selfish 
interest in the welfare to work programs initially. The 
motivation was not incentives like WOTC. However, I have 
quickly learned that the WOTC is a vital part of any successful 
welfare to work program for small businesses like mine. At the 
beginning, my primary interest was simply finding employees, 
employees that I desperately needed in my business and I know 
are needed nationwide in the restaurant industry. In the fast 
food business, turnover often runs as high as 300 percent. A 
new source of potential employees is extremely necessary.
    I soon learned that the biggest challenge to participating 
in the welfare to work program was not the paperwork but the 
workforce, the quality of the workforce. It takes a lot of time 
and expense to turn a typical WOTC eligible person into a 
productive employee. When we hire former welfare recipients, we 
have to do much more than train them in the nuances of having 
it your way because they lack skills and workplace experience. 
We must also teach them how to keep a job. Our training 
includes how to find reliable child care, how to practice 
necessary personal hygiene for the workplace, how to use the 
public transportation system, and how to budget from one 
paycheck to the next, to name a few.
    Teaching these skills is expensive and has a direct effect 
on my bottom line and my ability to expand and create more 
jobs. Even so, we believe the investment is worthwhile, and we 
have developed some excellent employees. Marie is a good 
example. Marie is a single mother raising three children. She 
has an eighth grade education and before welfare reform she had 
never been employed. We had to teach and Marie had to learn, 
the basic job survival skills. Now Marie is a manager. She is 
teaching her own kids the importance of employment and of 
education. She talks about no longer being embarrassed when 
checking out at the grocery store because instead of using a 
welfare card, she now writes a check, something she had never 
done. Marie is a great success story. Marie went through our 
self-funded, five 2-hour sessions job survival training course, 
and it made a difference. Employees like Marie will stay on the 
job 45 to 50 percent longer than traditional hired employees if 
they get the training. Were it not for the WOTC, we could not 
afford the extra effort needed to train, educate, and work with 
employees like Marie.
    If you were to ask any of the 12,000 business partners of 
the Welfare to Work Partnership, they would tell you that job 
survival training is a critical component in a successful 
welfare to work program. Unfortunately, more small employers 
don't have the stories to tell because accessing WOTC sometimes 
is difficult. The paperwork seems overwhelming, the minimum 
hours requirement oppressive, and the future of the program 
uncertain. That is why it is so critical to make the WOTC 
program more small business friendly.
    I hope we can rewrite the program requirements to reward 
companies who take the added risk. Only about 20 percent of 
those we hire and train actually make it to the 120-hour 
threshold. Eliminating or significantly reducing the 120-hour 
requirement would, in my opinion, have an immediate impact on 
small business participation. Second is the uncertainty of the 
program. While reauthorization wanes from one Congress to the 
next, employers like me continue to recruit, hire, and train 
employees not knowing whether the tax credits will exist to 
offset the higher costs. The uncertainty discourages employers 
from participating. Most small businesses cannot afford to 
employ a human resources manager. So for the small employer and 
his limited staff, the administration of WOTC is a cumbersome 
and time-consuming investment for a minimal financial return.
    I would be unlikely to participate if it weren't for a 
vendor to whom I outsource the paperwork. Of course that 
service comes at a fee and reduces the net reimbursement 
advantage of the tax credit. Our purpose today is to encourage 
you to put some Congressional muscle behind a program that 
works. Give the Work Opportunity Tax Credit the clout it 
deserves by making it permanent, eliminating the administrative 
headaches as much as possible and reducing the minimum hours 
requirement. Small business owners like myself will respond 
affirmatively. Those are my thoughts. I hope you find them 
useful. I appreciate your listening.
    Chairman Manzullo. I appreciate that very much. I notice 
you put in your statement ``Have it your way.'' That is pretty 
subtle, isn't it?
    Mr. English. Thank you.
    [Mr. English's statement may be found in appendix.]
    Chairman Manzullo. Our next witness is Fred Kramer. Mr. 
Kramer.

STATEMENT OF FRED KRAMER, DIRECTOR OF COMMUNITY EMPLOYMENT AND 
         TRAINING, MARRIOTT INTERNATIONAL, BETHESDA, MD

    Mr. Kramer. Thank you, Mr. Chairman, members of the 
Committee. My name is Fred Kramer, and I am the director of 
community employment and training programs for Marriott 
International. Although I work for a large employer, I am here 
on behalf of small businesses that use the work opportunity and 
welfare to work tax credits. Specifically, I am here to ask you 
to consider a permanent extension of these tax credit programs. 
The fact that these programs continue to be extended, although 
for a short period of time, shows the Congress supports these 
initiatives because they do work.
    They offer an incentive for businesses to consider hiring 
individuals who do not necessarily possess the requisite skills 
needed. These individuals require extra training to enable them 
to become work ready. This extra attention requires time and 
costs money. The problem exists when the program expires and 
there is a hiatus between expiration and renewal. When the 
hiatus occurs, State agencies often reassign the staff that was 
once dedicated to the certification process. This slows down 
the paperwork process and in some instances may stop it 
completely. Once renewal occurs, the States may have to train 
new employees to start up the certification unit once again.
    A company the size of Marriott has the infrastructure in 
place usually through its human resources function to handle 
the paperwork and procedures to participate in this program. 
These requirements are extensive and time consuming. Think of 
the small businesses that participate in these tax credit 
programs. The unit managers handle the interviews and 
paperwork, follow the procedures and in some cases are offered 
incentives by the home office. When the program expires and the 
certification is delayed or never materialize, the unit manager 
loses motivation to participate in the program. They followed 
the established procedures, offered the extra attention and 
time to the individuals, but did not receive the tax credit.
    Fair or not, this gives the impression that Congress is not 
fully committed to the program and makes it difficult for small 
businesses to continue with it. A permanent extension would go 
a long way toward solving these issues as well as keeping unit 
managers and small businesses motivated to continue 
participation in these important initiatives. The Work 
opportunity Tax Credit program which Congress established has 
been very successful and opened up the doors of employment 
opportunity for thousands of individuals. A permanent extension 
would build upon these successes and result in employment 
opportunities for thousands more.
    If I may, I would like to just share a few numbers and 
statistics within our corporation, with Marriott. Since the 
WOTC program began, we have hired over 9,000 individuals 
through the program and another 2,000 through the welfare to 
work tax credit program. After they have maxed out on their tax 
credits, just under 50 percent of those individuals are still 
with us. And after a full year of employment, it is around 20 
percent that are still with us. If you think about those 
numbers for people, this is their first job, those are very 
good numbers, because people tend to job hop in their first few 
jobs. So we are very proud of those numbers.
    I also wanted to share a few success stories. I had put 
together seven different ones. Unfortunately, three of those 
folks left Marriott for higher paying jobs with other 
companies. I am not going to brag on that but good for them. 
All these individuals I am going to give you a little blurb 
about have maxed out on the credit. They have been with 
Marriott for well over a year.
    One individual is a female who completed the tax credit and 
the special training that we put some of our welfare recipients 
through, has been awarded the Associate of the Month for her 
excellent performance in food service at her hotel. Another 
individual has been nominated as the associate of the Corridor, 
which is a very high honor for outstanding performance in 
housekeeping. She actually maxed out on the welfare to work tax 
credit. So she has been with us for a very good period of time.
    Another individual, and this is a gentleman, was awarded 
the Rookie of the Year Award in their hotel for outstanding 
performance in food service. So the extra training, it does 
cost some money; but it definitely--we do get some very, very 
good associates out of the program. It does require some extra 
time on behalf of the managers. But these success stories go a 
long way for spreading the good word about the advantage of 
hiring people off welfare.
    So I want to thank you for allowing me to address the issue 
today. I believe that WOTC is essential in motivating employers 
to hire and train individuals with barriers to employment. 
Thank you.
    Chairman Manzullo. Thank you very much.
    [Mr. Kramer's statement may be found in appendix.]
    Chairman Manzullo. We welcome Congressman Napolitano with 
us. We are going to start first with questions from Mrs. 
McCarthy.
    Mrs. McCarthy. Thank you, Mr. Chairman; and thank you, 
everyone, for your testimony. I found it very interesting and 
certainly have written down your ideas. Mr. Littlejohn, one of 
the things that I was curious on, what you had said as far as 
felons coming out of prison and then trying to come into the 
workforce and proving that they obviously have no money. That 
is common sense. One of the things that I know happens an awful 
lot of time, obviously when you come out of prison, I am sure a 
small businessperson depending on what the crime was would be 
reluctant to hire that person, anyhow. Yet if we don't have 
some sort of an incentive to hire that person, most likely they 
will go into crime or whatever they were doing to survive again 
before they go back to prison. How can we, besides going 
through HUD, not HUD; but how can we encourage businesses, 
because I would find it very hard. If someone told me someone 
came out with a violent felony, I would be reluctant to hire 
them, to take that chance; and I am liberal.
    Mr. Littlejohn. Obviously, some employers because of the 
products that they have, they can't hire ex-felons. My comment 
is more related to the administrative burden of getting the tax 
credit back to the employer, because the target group, why do 
we want to make them a target group, it is because their 
barrier is that they are an ex-felon. Why put the economically 
disadvantaged criteria on top of it which slows down the 
paperwork and costs additional administrative dollars for me to 
prove a negative? When OIG comes in after the program and wants 
to start looking around, we prove that a person is what they 
say they are before we issue the tax certificate.
    So if it was Congress' intent to identify this target group 
and their barrier being that they are an ex-felon, then making 
the requirement that they also be economically disadvantaged 
makes it extremely cumbersome, and many times it delays getting 
the tax certificate to the employer for many months because one 
of the ways we verify in a negative way that the person has had 
no income is through our unemployment insurance wage records 
which run generally about 5 months behind. So it just delays 
the process, and we wind up trying to prove a negative.
    Mrs. McCarthy. I thank you. The Chairman just showed me 
something on what you have to do for someone that is just 
coming out of jail. Pay stubs. How can you come up with a pay 
stub? Employment contacts. You are not going to have any of 
those.
    Mr. Littlejohn. In Tennessee, we check the unemployment 
wage record files and if no employers have shown that they paid 
wages to that individual, that is a negative confirmation with 
us. We don't fool with the pay stubs. We go for the negative 
confirmation, because it is something that we can do and don't 
put the burden on the employer of trying to get some pay stub. 
If they have worked, it is going to show up on the UI system, 
anyway. It can be very cumbersome if a State doesn't have 
access to--let's say the State coordinator doesn't have access 
to the UI records and things like that.
    Mrs. McCarthy. I thank you for that. Going back, when you 
said you were sitting in the back and ready to jump up because 
you wanted to answer some questions, I have been in that 
situation many times.
    Mr. Littlejohn. I was told to restrain myself once I got 
out of town.
    Mrs. McCarthy. I am going to give you an opportunity on 
what you felt you needed to make a comment because sometimes 
those that are sitting there--and I know you only have 5 
minutes time and we only have 5 minutes at a time. I would be 
interested in what comments you wanted to make.
    Mr. Littlejohn. One of the things I wanted to comment on 
was the backlogs that the States have. I would venture to say 
that a majority of the States are working on a backlog. I think 
we are about as efficient as most States, and we are running 
probably 3 to 4 months back into 1999, and those employers, 
they have already needed to fill out their 1999 returns. We 
just simply--because in our situation it is a staffing 
problem--can't get them out the door. But that backlog was 
created by the break in the legislation from July of 1999 till 
it was reauthorized in December. I couldn't process them.
    So I started off right after Christmas with an automatic 
backlog that went to July of 1999. Again, a permanent extension 
of the legislation or extensions that are longer in nature 
certainly helps us. We are going to get the backlog 
straightened up, but it takes awhile because all of a sudden it 
is dumped in your lap when you start out 6 months behind.
    Mrs. McCarthy. What backlogs are you actually talking 
about, though, as far as paperwork?
    Mr. Littlejohn. Processing and issuing tax certifications 
for hires that were made since July of 1999.
    Mrs. McCarthy. Thank you very much, and I appreciate that. 
We will see what we can do. That obviously leads back to having 
permanent status.
    Mr. Littlejohn. That would be one of the things, yes.
    Chairman Manzullo. Thank you, Mrs. McCarthy. We have your 
testimony here. What I would like you to do on the 
recommendations that you make is to send us a letter on your 
stationery to explain very succinctly the things that you would 
like changed. Try to keep it to one page. For example, on the 
ex-felon issue asking for pay stubs, that is great. To verify 
an ex-felon, all you should have to do is to make a phone call 
and just verify it with within a matter of a very short period 
of time. But if you could examine each of your recommendations. 
For example, eliminating the economically disadvantage for 
felons, completely do away with that, put that in the letter, 
and explain why. Also you had----
    Mr. Littlejohn. I hope I don't have to spend a lot of time 
trying to explain that one, though.
    Chairman Manzullo. No, that is self-explanatory. Why would 
the felon even be applying unless he was economically 
disadvantaged? Being without employment for some time might 
presume that you don't sit there with a lot of money.
    Mr. Littlejohn. They have to be within a year of release or 
conviction, whichever is later. In most cases they have been 
locked up for at least a year. Again, we are proving a 
negative.
    Mrs. McCarthy. Something just hit me. I don't know anything 
about this; but when someone, maybe within the last 3 months 
before they are going to be released, are they going through 
any process to say, all right, we have these kind of jobs lined 
up for you out there?
    Mr. Littlejohn. I think the Department of Paroles, they 
tell them about the WOTC program. And when a person is in a 
transition period like that, they oftentimes try to utilize the 
program by telling employers when they go for job interviews. I 
know in Tennessee, I think that is part of their release 
package. They take them through these things, tell an employer 
you are an ex-felon, there may be a tax credit available to 
them if they hire them. They are incorporating that. We get a 
lot of calls. We would like to be able to respond to the 
employers by getting the tax certificates back to them in a 
more timely fashion because they have made the commitment and 
hired these individuals. This little glitch, if we could 
eliminate it, would speed that process up a great deal.
    Chairman Manzullo. Is there a way when the employer applies 
for the tax credit that he can't do the self-verification as 
you do all the time when you file your income tax is that you 
check the boxes, et cetera? Is there a way to make it a lot 
easier to eliminate a lot or most of the paperwork that we are 
talking about?
    Mr. Littlejohn. From an employer's standpoint in 
Tennessee--and it varies from State to State--the employer 
submits those two forms.
    Chairman Manzullo. To you.
    Mr. Littlejohn. To me. We verify--I have no trouble 
verifying a person's ex-felon status. That is as easy as 
getting on the computer or verifying that they are receiving 
AFDC or food stamps. What causes me the problem is when I have 
to wait for 5 months to get verification of a negative, no 
wages being paid by going to the UI system in order to prove 
the economic status of an ex-felon. I can prove he is an ex-
felon in 4 or 5 minutes. That is not the problem with that 
particular target group.
    Chairman Manzullo. Maybe this law should be written so that 
if there is proof given to the employer that this person has 
not had a job within a certain period of time then the employer 
does not have to contact a government agency to verify the 
information. There has to be an easier way for small businesses 
to be able to do this without contacting a government agency. 
Anybody have any thought on that? What does Marriott do on 
that, Mr. Kramer?
    Mr. Kramer. We actually have a vendor that we utilize. I 
think the gentleman from Burger King also utilizes that.
    Chairman Manzullo. A regular employment agency?
    Mr. Kramer. It is a group out of Indianapolis that 
specializes in the tax credit program. If I remember back to 
TJTC, as an employer, as a recruiter, I would interview folks 
that I am going to consider to hire; and once I have hired 
them, then I would ask them to bring in some information to me, 
various IDs, paycheck stubs and things like that. Then I would 
physically take them to the local job service. I would present 
the paperwork to the job service.
    Chairman Manzullo. There must be an easier way. That is why 
small businesses are not involved in it. That is precisely the 
point. I would welcome any comment in your letters to us as to 
any creative way that you can come up with to bypass the 
Government on a certification document or something. I hate to 
eliminate some of your jobs up here, but you have more 
important things to do than sit around waiting to see whether 
or not somebody has received unemployment benefits from the 
past 4 or 5 months. My brother has a restaurant business, and 
it is rough for him getting employees. When you have half a 
dozen employees, the WOTC is not worth it, it is not worth it 
to make the phone call. Even though these forms may be minimal, 
for Marriott and for Burger King, my brother Frank has 10 or 15 
employees. Ron, you have 370 employees and you have somebody 
that does the WOTC application process full time. My brother 
doesn't. So he would just bypass the program, which is 
unfortunate because teaching somebody to be a good Italian cook 
is a real profession. That is true. Mrs. Napolitano.
    Ms. Napolitano. Thank you, Mr. Chairman. In thinking about 
what you just said in regard to finding a way to be able to 
make this easier, I have always felt that the Department of 
Corrections should have a release form to give to every felon 
they are releasing, with some of that information to be able to 
assist the felon. Unfortunately, they don't talk to Department 
of Employment--Corrections doesn't; and so you have kind of a 
situation where there is no communication for the need, either 
by the Department of Employment--and I call it the Department 
of Employment because I am used to being in California, to 
anybody else. Sometimes agencies do not communicate as to what 
would be helpful to the interviewers at the time of being able 
to do referrals. If they were able to standardize something to 
every single individual, even the felon could fill it out upon 
release and have it verified by somebody in the Department of 
Corrections. Because then they would be assisting not only an 
employer but the felon to be able to get back without having to 
go through a whole period of suspense, if you will, trying to 
figure out what you do next. That would be easier to verify it.
    Then I have other questions.
    I was looking at this instruction form, and I dare anybody 
to read it with any expediency. The words are run in together. 
I looked down here, and it is just unbelievable the way this 
form has been set out. Mr. Carroll, could you address that? The 
words--there is hardly any spacing between any of the language 
in this form.
    Mr. Carroll. Sure. You would like me to disagree with that?
    Ms. Napolitano. Is this standard? This is what goes out to 
an employer?
    Mr. Carroll. I believe so, yes. Is that the 8850?
    Ms. Napolitano. Employers, any comments on the form?
    Mr. Kramer. If that is the 8850, that is the standard form, 
yes.
    Ms. Napolitano. I am sure most of you already have read it. 
What about the employer who is going to try to utilize this and 
try to figure out what the world it says?
    Mr. Kramer. They won't read it. They will put it somewhere 
else.
    Ms. Napolitano. Have you noticed the form?
    Chairman Manzullo. Mrs. Napolitano, look on the second 
page, the words are all bundled together.
    Ms. Napolitano. That is what I am referring to. Everything 
is run in together. Look at it. The front and back.
    Chairman Manzullo. That is a lousy printing job.
    Ms. Napolitano. I think first I would suggest we start at 
home trying to figure out what is a better and--facilitate this 
for the new employer who may want to at least read it and take 
part in it.
    I am very interested in comments in regard to felons. Right 
now I have a program in California for the women and infants. 
There are four pilots set up. One of them is in my district. 
The women who are ready to be released with their infant 
children are looking for jobs but they are felons, they cannot 
find employment; and there is no employment office saying, 
here, we will help you. How do we go about that, Mr. Carroll? 
What would be the most expedient way for us to be able to find 
this felon a job with an employer by trying to get them to fill 
out these forms?
    Mr. Carroll. We had a conference in New York just a couple 
of months ago based on just that, having employers consider ex-
felons. A very interesting conference, very touching. Part of 
the concern is you have to educate the employers on who these 
ex-felons are. Most of us have this impression of something we 
see in the movies or something and 70 percent of them are 
nonviolent. That is the first thing.
    Ms. Napolitano. This program is women who have abused drugs 
or alcohol. When I asked this woman what she did, she says, I 
sold. But she has got 25 years facing her; and she is not going 
to do it again. At least this is what she is professing.
    Mr. Carroll. When we talk about that, we educate the 
employers on who this population is; and then we say in 
addition to that, we encourage the employers to get a 
relationship with some kind of service provider to help the ex-
felon make the transition. Part of it--we might not want to 
admit it or not--but we don't necessarily agree that ex-felons 
are being rehabilitated. So once they go----
    Ms. Napolitano. They are not.
    Mr. Carroll. Once they go through some process, we have a 
certification provider join on board to help in training, then 
the employers are more willing to take this opportunity. Now, 
the tax credit as Mr. Littlejohn said, needs to be, number one, 
we shouldn't have to worry about whether it is in or out or 
expired or not. That should probably be ongoing. That is the 
very least we can do. We are paying, what, 50-some thousand 
dollars to house a felon, and it is like $3,000 or so if we can 
get them into a job. So we need to put our energies toward 
that.
    Ms. Napolitano. Wouldn't it make sense then to try to 
establish a program directly with the department of Corrections 
and have employers come in and actually provide some of the on-
site training so when they are released, somebody is going to 
go to a job?
    Mr. Kramer. May I comment?
    Ms. Napolitano. Yes.
    Mr. Kramer. I was actually--when I was in the hotels, I had 
gone to Lorton penitentiary and done job training with the 
inmates that were going to be released over a certain period of 
time. Lorton at that point had a culinary skills program. The 
population that was involved in that were actually separated 
from the general population because these guys were trying to 
do something with their lives.
    If you want an employer to consider hiring someone coming 
out of prison, that training needs to take place while they are 
in prison, and you are going to need at least 3 to 4 months. 
You may be surprised how many employers may be willing to come 
out and do some job training because it is in their own 
interest as well. The one big barrier that exists in hiring ex-
felons is the difference between nonviolent and violent 
offenders. Because with violent offenders, you run the risk of 
a negligent hiring liability lawsuit. But with nonviolent, drug 
offenders and things like that--and they are ready to come out 
and they have learned their lesson--they want a second chance 
as we all do at one point or another. An effective training 
program with a partnership with various employers in that area 
could definitely work.
    Mr. English. One other thing I would add to that is that in 
the State of Texas, we have what we call halfway houses, people 
who are about to be released. They are released during the day 
to go and work, and then they go back at night. We have 
participated in that program for a couple of years and found it 
quite useful for us. As the gentleman on my left had said, part 
of the problem that we have is a concern about violence in the 
workplace. Bringing those people into the workplace sometimes 
creates a problem for us even if it is just someone who sold 
drugs before. We are concerned because drugs, as you probably 
are aware, run rampant. With the kids that we work, we just 
don't want them associated with that as well.
    Ms. Napolitano. Anybody else? Thank you, Mr. Chairman. 
Maybe we ought to consider a program to be able to assist 
employers finding a way to work with prisons.
    Chairman Manzullo. I appreciate that. I had a question back 
at the beginning about not-for-profits. Did anybody here want 
to comment on that? Sir, you were nodding as though you would 
know the program. Would you mind taking a seat up here and 
introducing yourself.
    Mr. Signer. Sure. My name is Bill Signer; and I am general 
counsel to NEON, the National Employment Opportunities Network, 
which represents the consultants and a number of the companies 
that are involved in the Work Opportunity Tax Credit. The 
proposal on the not-for-profits that was put forth by 
Congresswoman Lowey and Congresswoman Johnson and which Mr. 
Houghton has actively supported was one which basically says 
that in a lot of inner city and rural communities, the largest 
employers are not-for-profits. The thought was, how do you 
encourage those employers to participate in hiring entry-level 
workers, especially since hospital and universities have a lot 
of entry level workers. The proposal, specifically, was to 
allow them to take a credit against their payroll tax 
liability, which is a tax that they do pay. Mr. Houghton has 
been very articulate on the fact that payroll taxes are a tax 
employers are paying to the Federal Government.
    Chairman Manzullo. Would that be Social Security?
    Mr. Signer. Social Security and unemployment insurance. 
That was what the proposal was at that point.
    Chairman Manzullo. Has anybody scored that with the CBO?
    Mr. Signer. With the Joint Committee on Taxation. It came 
out to be about $40 million a year.
    Chairman Manzullo. That would be solely Social Security or 
Social Security and unemployment?
    Mr. Signer. I included all payroll taxes.
    Chairman Manzullo. Do you see a problem with that? Your 
name again is?
    Mr. Signer. Bill Signer. S-i-g-n-e-r.
    Chairman Manzullo. Do you see a problem with that, Mr. 
Signer, or is there another way to allow for non-profits to 
participate in the WOTC. For example, someone had mentioned 
being able to take a certificate and exchange it with a private 
employer for reimbursement but at a discounted rate.
    Mr. Signer. Congressman Weller talked about syndication of 
tax credits. There are a lot of problems with that. Basically 
you are paying middle people a lot of money and the value to 
the employer goes down very, very much. In terms of grants, 
which is what the administration it testified in favor of when 
they say that they have money for welfare to work for grants, 
the problem, especially for small businesses and small 
companies, is they don't want to go through the whole process 
of applying for a grant. They don't have anyone on staff who 
can do a grant proposal. They don't want to participate in that 
and the odds of them receiving a grant is very, very low. The 
advantage of the tax incentive is everybody pays payroll taxes; 
it is universally available. If you want to participate in the 
program, you can do it that way.
    Chairman Manzullo. I guess I would have to think that one 
through. Does anybody else have any other suggestions as to how 
we could include colleges, universities, local government 
units, libraries besides this tax credit bill?
    Mr. Signer. One other point, that bill did not go to local 
governments. Some local governments don't pay payroll taxes. 
They aren't in the Social Security system. Also it was felt 
that one government should not be giving another government a 
tax incentive.
    Chairman Manzullo. But on the other hand, the government 
should set the standard, for example, in the hiring of ex-
felons. If a government agency doesn't do that, why would they 
expect the private employer to do that? First of all, I 
appreciate your shaking your head over there and serving as an 
indication that your insight is extremely valuable. I think I 
speak on behalf of the members here in saying that this program 
is not being used to its maximum, if at all, by most small 
businesspeople. I am convinced that unless you have somebody 
who does full-time payroll, whether it be a government 
compliance officer or somebody in accounting, that this program 
simply is not going to be utilized by small business. Small 
businesses comprise over half of the employment. Is that 
correct, Mrs. McCarthy?
    Mrs. McCarthy. It sounds pretty close.
    Chairman Manzullo. It is a huge figure. I am not saying 
this obviously in criticism of the tremendous efforts that all 
of you are doing, but I am just really dismayed that we have 
made it so difficult for small employers to get involved. I 
would appreciate if you want to make it part of your letter. 
Rodney, as you have reached out to the different groups, I 
think you hit it right on the head. You just can't seem to 
break through. It is the little people that have the most 
difficult time getting the employees because they don't have 
the recruiting staff, they don't pay the benefits, et cetera.
    Mr. English, in your letter you stated that about 20 
percent of the people will stay with you for up to 299 hours. 
And most of that, at least in my experience after talking with 
our agencies back home and verified through Mr. Kramer, is 
because they are moving up the economic ladder and going to 
other jobs. But your point is that you are doing all the 
training. The money that you receive through the tax credit, is 
spent by you, anyway. So it is not as though you are getting a 
bonus. In fact I found out after was talking to one of your 
employees, is that Marriott has an English program for people 
that are struggling with it, and also they have a Spanish 
program to teach people different languages. This is valuable 
especially in Washington, D.C., working with people that have 
the incredible language backgrounds.
    If you could work on your letters, try to keep them as 
short as possible. You are practitioners; you understand this 
better than Members of Congress who are theoreticians, but that 
is the reason why we have these committee hearings. In all of 
your letters to us, if you could work either collectively or 
individually and let us know if there is a whole new way to go 
about opening this up to small employers, we would make that 
recommendation to the Ways and Means Committee as part of the 
extension of the credit so that more and more businesses could 
avail themselves of it.
    Mr. Littlejohn. Mr. Chairman, I would like to add one 
comment. The instruction page that I believe you had for the 
IRS form 8850, the IRS wrote that. What happens at the State 
levels is that, particularly in Tennessee, we broke it down 
into a little Southern-ese and it made it--the print is a lot 
larger, and it is a lot simpler; but it is something that the 
States had to do in order to make it function. The State 
coordinators that are out there are doing things such as 
rewriting the instruction manual so people can understand it.
    We have our own instruction manual for this program. The 
instruction package that you were looking at, that scares me. I 
don't think I have ever read the thing before--I have seen it--
but we had to rewrite our own to make it user friendly for the 
employers. I understand why the IRS had to put all the 
bureaucratic-ese in there; but when it gets down to where the 
rubber meets the road, we have made it a lot simpler; and most 
of the States that I am in contact with, I know Texas, Georgia, 
we have all issued our own instruction manual that is much 
easier to follow.
    Chairman Manzullo. I have a final question. I guess this 
would be to you, Rodney. When any of your agencies or groups 
see an ad in the paper, with a request for help to find 
employers in a particular business or industry, does your 
agency sometimes contact the employer?
    Mr. Carroll. Sure.
    Chairman Manzullo. Tell us how that works.
    Mr. Carroll. We have several ways. One, a lot of it depends 
on the employer and how they are advertised. For example, when 
I was at UPS, I would have agencies contact me directly all the 
time wanting to know about the specific requirements for the 
job and so forth.
    Chairman Manzullo. I know it would be very difficult, 
because the want ad pages are tremendous. But does anybody 
contact those employers and say, look it, we may have something 
here that we can help you with? Or that is just too much?
    Mr. Signer. Mr. Chairman, what is going out there is that 
the management assistance corporations have done an extensive 
job of contacting all the groups that work with ex-offenders, 
work with welfare recipients and do training. What they have 
done is put in their computer database the location of groups 
involved with people who are eligible for the Work Opportunity 
Tax Credit. So that when a Marriott wants to hire somebody, 
they will place a job order with their consultant. The 
consultant will then go out and say, here is what the job is, 
here are what the requirements are, please refer people to us. 
That is going on extensively. That has really happened 
extensively bit since WOTC came into effect because only a 
narrow pool of people are eligible and employers need people. 
So there has been a partnership going on between the employers 
and the consultants, and they have been engaging in extensive 
outreach.
    The other comment I wanted to make was on the ex-offenders. 
The reason you have to provide all those pay stubs in to prove 
income. There was a belief on the Committee on Ways and Means 
that if you did not require proof of income, you would have 
somebody like Michael Milken, qualify. It is an incredible 
burden. What ends up happening is that employers say they don't 
want to hire in the ex-offender--they have enough problems with 
hiring an ex-offender in the first place. But they are told, 
okay, hire somebody and get a tax incentive for doing it, and 
then they don't get it or it is 5 or 6 months down the road. 
The intersection between the act by the employer and when they 
get rewarded from it is so long, and it is not the fault of the 
job services. It is the fault of the system. The system really 
needs to be changed in that area.
    Chairman Manzullo. Mrs. McCarthy.
    Mrs. McCarthy. Just out of common sense--and I know we are 
in the Government--but the average salary starting off when you 
take these people into the programs I don't think would quite 
live up to his life style.
    Mr. Signer. I understand that. We explained that to them, 
but they wouldn't listen.
    Mrs. McCarthy. Maybe we will have----
    Chairman Manzullo. That is the difference between Ways and 
Means and Small Business Committees.
    Mr. Signer. There are other areas here where I think you 
could make some major improvements and as a result you would 
get more small businesses to participate in it.
    Chairman Manzullo. Please.
    Mr. Signer. Congressman Weller talked about the 18- to 24-
year-old category. It applies both to EC, empowerment zones and 
enterprise communities, as well as to the food stamp category. 
If you are over 24 years old, you don't qualify. What that 
means is and what we are seeing now is predominately women are 
qualifying for their tax incentives. Eighty percent of the 
people who qualify now in WOTC are women on welfare. So if you 
are a small businessperson and people coming through your door, 
the only ones you are going to get qualified for WOTC are 
women. If you only have a couple of jobs a year, and you hire a 
man and he doesn't qualify, yet he is from a poverty household, 
the employee learns very quickly not to make that mistake 
again. If you expanded the number of people who were eligible 
so that more people coming through the door with have very 
similar characteristics to the people who are on welfare, 
quality you would see more small employers participating. The 
irony here is that the mother of a child on welfare qualifies 
but the father from the same household does not.
    Very few States have unemployed parent programs. So the 
husband doesn't qualify. There are about 12 million people on 
welfare. Of that, about 600,000 are men. So what you are 
finding is a very small pool of men. If you expanded WOTC to 
cover men, you would end up having more small businesses 
participating because more of the people coming through the 
door would qualify. The other problem is----
    Chairman Manzullo. Back up a second on that, Bill. Is that 
becaused the 18 to 24 age category?
    Mr. Signer. It is because it is a very small category of 
18- to 24-year-old individuals qualify. So what you have is a 
woman on welfare who is 30 years old----
    Chairman Manzullo. This is a single mom?
    Mr. Signer. Or she could be married. Her husband or the 
father of the child may be living in the household, but they 
are not on welfare, so they don't qualify. They are 30 years 
old; the family is on food stamps, but it is only the 18- to 
24-year-old on food stamps or 18 to 24-year-olds and living in 
an EZ or an EC that qualify. They are living in the household, 
they are on food stamps, but they are not qualifying for the 
program. So the employers who are going out and recruiting and 
getting people are not looking for those men. They are looking 
for the women on welfare.
    So what you end up having is that very few men are 
qualifying in this program. Small businesses are saying, wait a 
second, I am hiring only a couple of people a year, maybe one 
out of the five people I hire is eligible, yet if I hired a man 
from the same household or a similar household, he doesn't 
qualify. Yet he has got problems in terms of his ability to 
work. I was looking at a statistic the other day that were in 
Time magazine. One in nine African Americans age 20 to 39 are 
in prison. The reason they are in prison is----
    Chairman Manzullo. Is that males?
    Mr. Signer. Males. What they were saying is the reason they 
are in prison is because they don't have any other 
opportunities to get a job. We are seeing welfare moms come off 
of welfare and go into work. We are not seeing African American 
males going to work. It is 1 in 25 Hispanic Americans age 20 to 
29 are in jail. Yet only 1 in 65 white men in the same group 
are incarcerated. We are giving no opportunity for those people 
to get a job. We have succeeded in welfare. Why can't we 
succeed in the other areas?
    Chairman Manzullo. Bill, if you could also be so kind as to 
submit a letter on your letterhead. This has been very 
interesting. I guess the missing witness here is somebody like 
my brother, but we could understand that. Rodney, I think you 
are totally frustrated with the fact that you have worked so 
hard but been unable to bring them into the fold. We will take 
your letters. We will work with the Ways and Means Committee. 
Apparently we do have time to put more effort into this. What I 
would like to see--I don't know if it is going to happen--is a 
permanent extension of the present law. You can always tweak 
the present qualifications to be more expansive, as Mr. Signer 
had requested.
    Thank you all for coming here. We appreciate your taking 
the time. This Subcommittee is adjourned.
    [Whereupon, at 11:30 a.m., the subcommittee was adjourned.]

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