[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
FIELD HEARING IN SOUTH CAROLINA: GETTING RURAL AMERICA BACK TO WORK:
SOLUTIONS TO LOWER UNEMPLOYMENT
=======================================================================
HEARING
before the
SUBCOMMITTEE ON ECONOMIC GROWTH, TAX AND CAPITAL ACCESS
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
__________
HEARING HELD
JANUARY 24, 2014
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 113-051
Available via the GPO Website: www.fdsys.gov
_____
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86-509 WASHINGTON : 2014
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HOUSE COMMITTEE ON SMALL BUSINESS
SAM GRAVES, Missouri, Chairman
STEVE CHABOT, Ohio
STEVE KING, Iowa
MIKE COFFMAN, Colorado
BLAINE LUETKEMER, Missouri
MICK MULVANEY, South Carolina
SCOTT TIPTON, Colorado
JAIME HERRERA BEUTLER, Washington
RICHARD HANNA, New York
TIM HUELSKAMP, Kansas
DAVID SCHWEIKERT, Arizona
KERRY BENTIVOLIO, Michigan
CHRIS COLLINS, New York
TOM RICE, South Carolina
NYDIA VELAZQUEZ, New York, Ranking Member
KURT SCHRADER, Oregon
YVETTE CLARKE, New York
JUDY CHU, California
JANICE HAHN, California
DONALD PAYNE, JR., New Jersey
GRACE MENG, New York
BRAD SCHNEIDER, Illinois
RON BARBER, Arizona
ANN McLANE KUSTER, New Hampshire
PATRICK MURPHY, Florida
Lori Salley, Staff Director
Paul Sass, Deputy Staff Director
Barry Pineles, Chief Counsel
Michael Day, Minority Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Tom Rice.................................................... 1
WITNESSES
Richard Kaglic, Regional Economist, Federal Reserve Bank of
Richmond, Charlotte, NC........................................ 4
Chuck Bundy, Deputy Director, Small Business and Existing
Industry, South Carolina Department of Commerce, Columbia, SC.. 7
Joe Jacobs, Senior Vice President of Operations, South Carolina
Manufacturing Extension Partnership, Columbia, SC.............. 9
Ben Chastain, Director, Duke Energy Center for Innovation,
Hartsville, SC................................................. 12
Jeff McKay, Executive Director, North Eastern Strategic Alliance,
Florence, SC................................................... 14
APPENDIX
Prepared Statements:
Richard Kaglic, Regional Economist, Federal Reserve Bank of
Richmond, Charlotte, NC.................................... 30
Chuck Bundy, Deputy Director, Small Business and Existing
Industry, South Carolina Department of Commerce, Columbia,
SC......................................................... 42
Joe Jacobs, Senior Vice President of Operations, South
Carolina Manufacturing Extension Partnership, Columbia, SC. 50
Ben Chastain, Director, Duke Energy Center for Innovation,
Hartsville, SC............................................. 52
Jeff McKay, Executive Director, North Eastern Strategic
Alliance, Florence, SC..................................... 57
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
None.
GETTING RURAL AMERICA BACK TO WORK: SOLUTIONS TO LOWER UNEMPLOYMENT
----------
FRIDAY, JANUARY 24, 2014
House of Representatives,
Committee on Small Business,
Subcommittee on Economic Growth,
Tax and Capital Access,
Washington, DC.
The Subcommittee met, pursuant to call, at 2:00 p.m., in
the Multi-Purpose Room, Dillon Wellness Center, 1647 Commerce
Drive, Dillon, South Carolina, Hon. Tom Rice [Chairman of the
Subcommittee] presiding.
Present: Representative Rice
Also Present: Former Representative Robin Tallon
Chairman Rice. Good afternoon.
Audience. Good afternoon.
Chairman Rice. I want to thank everybody so much for being
here today. What a great crowd we have, we have people from all
over the district. I know I saw people from Chesterfield
County, I saw people from Horry County, I saw people from
Marion County and people from Florence County. So we have got
people from all over the district. And what an honor that you
would take time out of your day to come and learn more about
economic development in rural counties. I appreciate very much
your participation.
You know, we can hold all the hearings we want to, we can
get the brightest people in the world here, but if nobody is
here to learn, it does not accomplish anything. And if we do
not work together, nothing is going to happen. And I appreciate
very much all of y'all taking your time to do this.
I would especially like to thank each of our witnesses for
taking time out of their undoubtedly busy schedules to provide
testimony on ways we can all work together to lower
unemployment in our rural communities and grow the economy. We
have an excellent panel of local leaders, experts, and folks
who know how to create jobs and I am looking forward to their
testimony and their discussion.
Ladies and gentlemen, we are mired in the worst recovery
from a recession since World War II. The great recession ended
in June of 2009--so they say. That was 54 months ago. Since the
end of the downturn, we have seen tepid GDP growth, uneasy
economic conditions, uncertainty all around the marketplace,
and a lagging labor market. By most accounts, our economy has
not recovered--quote-unquote--recovered in those 54 months, not
even close.
What do you say here in Dillon County?
Voices. Not close.
Chairman Rice. Anybody who follows it closely must have
serious concerns about whether the country is on the right
track. Our economy is large and complex with many factors
influencing its trajectory. As we examine these factors, we
must take a hard look at the policies coming out of Washington
and determine what we can do differently and better, because I
will tell you, Washington is a big part of the problem.
Take for instance, the most recent jobs report coming from
Washington. By November of 2013, the country was still 1.3
million jobs short of its pre-recession peak. In December,
however, only 74,000 jobs were created in this country. That is
130,000 less than the month before. While the national
unemployment rate dropped to below seven percent for the first
time in five years, it was only because 374,000 people simply
gave up and left the workforce. They gave up because they just
could not find work. This is absolutely unacceptable. Clearly
we must do better.
One of those places where we need to do better is in our
rural communities with the stubbornly high levels of
unemployment. As a sector of the economy rural areas,
particularly right here in northeastern South Carolina have
significantly higher levels of unemployment when compared to
urban areas. For instance, right here in Dillon County, the
unemployment rate is 10.4 percent. That is almost 50 percent
higher than the national average. It is even worse in
neighboring Marion County where it stands at 13.1 percent. When
you compare that to those of Charleston or Greenville areas at
5.5 percent, the dichotomy becomes more troubling.
With new technology, rural communities have the capability
to be connected to the world economy in ways not previously
encountered--from high speed internet to participation in
international trade. By identifying what impediments rural
counties face, we can work together to remove those
obstructions and get our rural economies growing along with
their more urban brethren.
Various studies conducted by organizations such as the
United States Chamber of Commerce and the National Federation
of Independent Business continuously point to high levels of
taxation, regulation and a general uncertainty about where the
economy is going, as a significant impediments to growth.
I believe we have a real opportunity to enact changes to
give local economies and small businesses the tools they need
to lead an economic revival. Government does not create jobs or
produce long-term economic growth--the private sector does. The
faster Washington releases the reins, the faster we will see
America back on the job and our nation back on the path to
economic prosperity.
Again, I would like thank each of you for taking time to
provide my subcommittee with testimony. I am really looking
forward to it. What I am going to do is introduce each of my
panelists individually and they will have five minutes to
present their testimony.
Before I do that, I want to introduce to y'all, my friend,
former Congressman Robin Tallon. Robin served in the old Sixth
District, which is essentially the same district that I have. I
know most everybody in the room knows Robin and I asked him if
he would sit on this panel with me today.
Mr. Tallon. Thank you, Congressman.
Chairman Rice. Thank you. It is my honor. Do you want to
say a couple of words?
Mr. Tallon. Tom, thank you.
For me, it is good to be home. I grew up in this county, in
Lakeview and in Dillon, and have long been concerned both while
having the privilege to serve in the United States Congress and
since, about a situation where we just have not seen the
economic growth in these rural counties, whether it is Marion
or Marlboro or Chesterfield and Dillon.
And I am just so delighted at the leadership our
Congressman has shown in bringing this hearing here in Dillon
and I want to thank all of the citizens that are interested and
involved and care deeply about our rural Pee Dee counties and,
of course, the presenters here today who are going to give us
some insight and ideas on things that we might look forward to.
And again, Tom, I cannot thank you enough for your
leadership and for reaching out and caring for areas like these
rural counties. Thank you so much.
Chairman Rice. Thank you, my friend.
All right, panelists, I will be quite lenient on your time
limit as we are all friends here. And besides, nobody is here
to tell me that I cannot.
[Laughter.]
Chairman Rice. After y'all finish, we will begin questions
and discussion, in the discussion portion of the hearing. With
that, I would like to introduce our first witness, Richard
Kaglic, Senior Regional Economist at the Federal Reserve Bank
of Richmond. Before I proceed with his introduction, I have to
tell y'all, I was speaking with Congressman Tallon and Mr.
Kaglic--it's Kaglic, right?
Mr. Kaglic. Kaglic.
Chairman Rice. Kaglic. Before the meeting, and Congressman
Tallon said he grew up across the street from Ben Bernanke and
I said, ``Did you teach him how to balance his checkbook
because it has not been balanced in awhile.''
[Laughter.]
Mr. Tallon. Above my ability.
Chairman Rice. Mr. Kaglic joined the research department in
2009 and is responsible for analyzing regional economic
conditions and developments as well as educating the region's
diverse constituents on the role of the Federal Reserve and its
district banks.
Prior to joining the Richmond Fed, Mr. Kaglic served as
senior economist for Eaton Corporation, a diverse manufacturing
firm headquartered in Cleveland, Ohio; as chief economist for
the Washington State Employment Security Department; and spent
11 years as senior business economist for the Federal Reserve
Bank of Chicago. He served in leadership roles in Chicago and
Cleveland Association for Business Economics, and has provided
economic analysis for the Governor's Economic Advisory Council
in four states.
He completed both is undergraduate and graduate work at
Youngstown State University, with specializations in regional
and urban economics.
Thank you for being here, Mr. Kaglic. Please begin, sir.
STATEMENTS OF RICHARD KAGLIC, REGIONAL ECONOMIST, FEDERAL
RESERVE BANK OF RICHMOND, CHARLOTTE, NORTH CAROLINA; CHUCK
BUNDY, DEPUTY DIRECTOR, SMALL BUSINESS AND EXISTING INDUSTRY,
SOUTH CAROLINA DEPARTMENT OF COMMERCE, COLUMBIA, SOUTH
CAROLINA; JOE JACOBS, SENIOR VICE PRESIDENT OF OPERATIONS,
SOUTH CAROLINA MANUFACTURING EXTENSION PARTNERSHIP, COLUMBIA,
SOUTH CAROLINA; BEN CHASTAIN, DIRECTOR, DUKE ENERGY CENTER FOR
INNOVATION, HARTSVILLE, SOUTH CAROLINA; JEFF McKAY, EXECUTIVE
DIRECTOR NORTH EASTERN STRATEGIC ALLIANCE, FLORENCE, SOUTH
CAROLINA
STATEMENT OF RICHARD KAGLIC
Mr. Kaglic. Good afternoon and thank you, Mr. Chairman. It
is certainly an honor to be asked to speak before the
Subcommittee this afternoon regarding the economic outlook.
I will be focusing my comments today. I will want to share
with you some of my thoughts on economic conditions nationally
as well as here in South Carolina. And I do want to be careful
to say that these views are my own and do not represent those
of my colleagues at the Federal Reserve System.
As you alluded to a little earlier, we are talking about
economic indicators. Some of the economic indicators that we
have been seeing recently have come in a little better than
expected. Most notably, gross domestic product, the
unemployment rate at 6.7 percent. So, gross domestic product is
our measure, our best measure, of total output of goods and
services in the economy. And in the third quarter, it expanded
at a pace of better than four percent, which is about as good
as we have seen in two years. And the unemployment rate came
down to about 6.7 percent, that is the lowest it has been since
October of 2008. With relatively solid readings in measures of
consumer and business confidence, as well as some of the
significant gains that we saw in equity markets over the course
of 2013, many economic forecasters are predicting that we are
finally going to see a breakout of this low-trajectory GDP
growth rate that has been the norm since this recovery got
underway.
I, however, do not see sufficient evidence that suggests
that a more robust economic expansion is on the near-term
horizon. I think when we start to look down a little deeper
into the data included in gross domestic product and the
unemployment rate, there are still signs that growth is going
to be constrained as we move forward. And more importantly,
when we look at some of the economic fundamentals that
typically drive economic growth, they do not appear to be
materially different than what has dominated since this
recovery got underway. So these factors have tempered my own
outlook, which calls for basically a continuation of recent
trends. That is, relatively sluggish output growth accompanied
by these modest improvements that we have been seeing in labor
markets.
Here in South Carolina, I think our economic prospects are
a little brighter than the national average but at the same
time, at the end of the day, I do not believe that the state,
nor any other state for that matter, can completely escape the
gravitational pull of some of the drags that are weighing on
the national economy. So for that reason, I am going to begin
by talking about some of those economic--national economic
conditions.
So, first, let us take a closer examination of that third
quarter GDP report. If you delve down into the details, you
will find that the acceleration growth from the second quarter
to the third quarter, was largely a function of inventory
accumulation. So what that means is that firms were building
stuff that they had not yet sold. If that is indeed the case,
what that means as we move forward is that firms will now have
to readjust their production schedule to get those inventories
back in line with their sales expectations. That being the
case, domestic demand in the third quarter, was not nearly as
robust as what was being reflected in those top line gross
domestic product numbers.
Now one of the reasons for that is something that we see
being reflected in household spending. Personal consumption
expenditures make up the majority of gross domestic product in
the United States, accounting for about 70 percent. And
throughout the course of this economic expansion, the increases
in real personal consumption expenditures have been averaging
about 2.2 percent, which is very weak when you compare it to
recoveries from prior deep recessions, such as those in the
mid-1970s and again in the early 1980s.
Now some analysts have pointed out that fourth quarter
spending appears to have picked up. And that is certainly the
case. But at the same time, when you take a look at real
disposable income growth--so this is income adjusted for
inflation and for taxes--that growth has remained relatively
weak. Now at the end of the day when households make their
decisions on spending, they are basing their spending decisions
based on what they are earning today and what they expect to be
earning in the future. With little evidence to suggest that
that real income growth is about to break out and grow any
faster, my own expectations for personal consumption
expenditures growth is basically what we have been seeing over
the past couple of years. That is, roughly two percent.
So, if you have got 70 percent of your economy growing at
two percent, where is the other marginal growth going to come
from? Well, some people look to the housing markets and
certainly the housing markets are recovering but at the same
time, they only account for about three percent of gross
domestic product these days, and while the housing recovery
continues into 2014, it is likely to do so at a slower pace
than what was the case in 2013, if for no other reason than
mortgage interest rates are higher.
Now businesses continue to report firming demand for the
goods and services that they provide, but at the same time,
they are only increasing their investment in equipment and
software moderately, and one of the big factors driving that
growth is uncertainty in the economy, some of which you alluded
to earlier. But that uncertainty emanates from how strong the
economic recovery is going to be, the pathway for monetary
policy, the short-term tax and regulatory issues, as well as
our longer-term fiscal imbalances.
But whatever the driver of that uncertainty, it seems that
that uncertainty is not just affecting business investment
decisions, it is also affecting hiring decisions. As you
mentioned, we are now four and a half years into this economic
recovery, we have not yet recovered all of the jobs that were
lost. Same is true here in South Carolina. In fact, in South
Carolina, as a percentage of total employment, we actually lost
more jobs than the rest of the nation. So even while we have
seen, over the course of the last year, jobs growth has
basically exceeded the national average here in South Carolina,
we still have a longer ways to go before we are back to pre-
recession levels of employment because we fell deeper into the
hole.
Now the unemployment rate, I mentioned the unemployment
rate currently is at its lowest level since 2008, but there are
certainly still plenty of signs of duress to be seen. One of
them you alluded to, labor force participation. It has declined
through the recession, it continued to decline through the
recovery to the point where today we are looking at labor force
participation rates in the United States as low as we have seen
them since the late 1970s or early 1980s. South Carolina,
similar trends. We see the unemployment rate coming down. In
fact, we are within one-tenth of the national average right
now, which is quite a development when you consider that at the
worst of the recession we were two percentage points above the
national average. But like the rest of the nation, we have
seen--accompanying that improvement in the unemployment rate,
we have seen a decline in labor force participation. Of the 40
counties in South Carolina for which there was a decrease in
unemployment year over year in November, 34 of them saw an
accompanying decline in labor force participation.
Ultimately, your economy can only grow as fast as your
labor inputs and changes in productivity will allow it to grow.
Admittedly it is very difficult to predict changes in labor
force participation and productivity, but the dynamics driving
those have not changed recently. So that being the case, the
most likely outcome for output growth in 2014 is something
similar to what we have seen, that two percent or a little bit
above that. And that is going to be accompanied by sustained
but modest increases in payroll employment and a continuing
downward trend in the unemployment rate.
The outlook for South Carolina is a little better than the
national average, owing in part to its low cost of doing
business and positive migration trends, as well as some of the
recent high-profile successes like Boeing, Continental,
Bridgestone and others. But at the end of the day, it too will
be hampered by some of those factors that are weighing on
economic conditions nationally.
With that, I thank you for the time and the privilege of
testifying today.
Chairman Rice. Thank you, sir.
Up next is Chuck Bundy, Deputy Director for Small Business
and Existing Industry with the South Carolina Department of
Commerce. Do they not do a great job--my goodness.
In this role, he oversees small business and existing
industry strategy, resource support and company outreach, all
designed to increase the growth and competitiveness of South
Carolina businesses. He has been with the South Carolina
Department of Commerce for 24 years and prior to that, he spent
nine years in commercial banking in North Carolina.
Mr. Bundy currently serves on the South Carolina Chamber of
Commerce Manufacturers Steering Committee, their Small Business
Council, and represents the Department of Commerce on the
University of South Carolina-Columbia Technology Incubator
Board.
He received his B.A. in economics and business
administration from Furman University and his M.B.A. from the
University of South Carolina.
Thank you for taking the time to be with us today, Mr.
Bundy.
STATEMENT OF CHUCK BUNDY
Mr. Bundy. Thank you, Chairman Rice.
The Department of Commerce respects and appreciates the
Subcommittee's interest in small business and small business in
rural South Carolina. Thank you for this opportunity, and to
your staff too, they do a great job.
The 2010 census showed that about 33 percent of South
Carolinians live in rural areas of this state. Small business
is an integral part of South Carolina's economy in employment,
wages, investment and revenue, and equally so for rural South
Carolina.
What I want to do with the following initiatives is talk
about some that typify the things that the agency and the state
are doing to encourage small business development in rural
South Carolina.
Commerce begins by looking at structural elements for small
business success. These are the same for any business,
including rural South Carolina:
General business planning
New business development
Financing
Operations
Workforce
Regulations.
Our agency seeks to connect programmatic support for these
basic elements with the small business community.
First, Commerce established the Small Business Advisory
Council, which was set up to help coordinate statewide support
for small business. These are organizations that are engaged
daily with small business. They are:
The SBA, Small Business Administration
The USDA
The Small Business Development Centers
Manufacturing Extension Partnership
Michelin Development Corp.
And of course the Department of Commerce.
Important groups that help us guide what we do based on
what is going on with the small business community.
We provide direct assistance to small businesses and
fielded over 500 inquiries from companies, small businesses,
throughout the state of South Carolina this past year. Fifteen
percent of those were from rural South Carolina counties.
The BuySC Program is specifically oriented toward buyer/
supplier matching, helping the larger OEM in Tier 1 and Tier 2
countries meet small businesses and vice versa, those small
businesses who need those larger ones. We keep a database of
those companies, 23 percent of those companies in the database
are from rural South Carolina counties.
Thanks to the Fed, we have had a series of successful
lender matchmaker sessions across the state. We held one in the
Florence area. And these are just an opportunity for--well, let
us just call it speed dating between small businesses and
lenders, a chance to put them together. Twenty-one rural
counties were represented in that effort, seven of those across
the state.
Access to small business information is an issue, and it is
an issue for rural South Carolina as well. We created the
SCBIZNetwork, which is an interactive website with a lot of
resources, like a resource finder helping companies wherever
they are, whatever they are, find specific resources they need.
We have got a calendar of events, over 500 and something small
business events held throughout the state this past year. It
also houses our BuySC program, a Q&A section and access to the
Small Business Regulatory Review Committee. The point is, we
are trying to be intentional about providing access to rural
South Carolina.
The State Trade and Export Promotion Program is one of the
SBA programs to help small businesses penetrate foreign markets
with goods and services. Two years into that program, we have
helped 59 small companies enter 24 different markets resulting
in $3.7 million in export sales. Fourteen percent of those
companies are located in rural South Carolina. We are
interested in rural South Carolina.
Small businesses and rural communities quickly feel a plant
layoff or closure. They also quickly feel new economic
development projects that come to fruition. The Department of
Commerce provides rural counties with financial support for
speculative buildings, industrial park development, site
certification, and even redevelopment in downtown areas. If you
do not have product, nobody is coming--important area.
We also recently just established the Office of Innovation
where we are looking at ways to improve capital access and also
ways to promote faster innovation among South Carolina
companies.
Partners--we partner closely with the Small Business
Development Centers. We consider them a gateway provider,
frontline technical, face-to-face business assistance. We got a
grant that we provided to them for expressly providing
assistance to rural communities. It is just from Commerce.
Other partner is the Manufacturing Extension Partnership.
We have got a great partnership with a group that provides
technical, production, and process support for South Carolina's
small and mid-size business communities. We love these guys,
they are a positive game changer, particularly for the small
manufacturing community in South Carolina and in rural South
Carolina.
So areas for federal consideration, I would just mention a
couple in closing. We think that consideration and perhaps
better recognition and support of the small business
development centers and the SCMEP should be considered. They
are frontline groups, they have a comprehensive offering and
they are set up to cover rural South Carolina.
And with great appreciation and respect, regulatory burden.
All federal agencies should continue to examine their
regulations for adverse impact on small business. Quite
frankly, probably not enough attention is going to that area.
Some examples are enclosed in the written testimony.
Small business is vitally important to South Carolina.
Small business in rural South Carolina is vitally important to
South Carolina.
Thank you, Mr. Chairman, for your time and interest and
this concludes my testimony.
Chairman Rice. Thank you, Mr. Bundy.
Our third witness is Joe Jacobs, Senior Vice President of
Operations at the South Carolina Manufacturing Extension
Partnership.
He has been with the South Carolina Manufacturing Extension
Partnership for nearly 14 years. He is a certified Lean
trainer, professional business advisor, a certified Black Belt
in innovation engineering. Mr. Jacobs has more than 40 years of
manufacturing experience in various industries. He has been
consistently successful in introducing strategic plans,
manufacturing management practices and operating concepts that
have supported the highest levels of efficiency and
productivity and has been a key member of five separate
management teams that successfully launched startup operations
in the United States and Canada.
Mr. Jacobs earned his bachelor's degree in psychology from
the University of North Carolina and a master of science degree
in administration from Central Michigan University.
Welcome to our Subcommittee, Mr. Jacobs. You may begin your
testimony.
STATEMENT OF JOE JACOBS
Mr. Jacobs. Thank you very much, Mr. Chairman. It is a
pleasure to be in Dillon and it is always good to see you
again.
A lot of other people, when they think of SCMEP, one of the
first questions that come to mind is who are those guys.
Although we have been around since 1989, we still go places
where people do not know who we are and what we do and we try
to do a lot of education to correct that.
MEP was started in 1989. Senator Fritz Hollings out of
Charleston was kind of the father of the group during the
initial days. South Carolina was one of the first three in the
nation to get started. In order to have an MEP, each state had
to agree to provide some type of support, so our model over the
years has been kind of a third federal, a third state, and we
had to generate about a third in order to survive. That has
changed a little bit over the years but we were established
particularly to provide services to small and medium-sized
manufacturers and make them more competitive globally. And we
do that in a number of ways.
One of the things that we like to do initially going into
an operation, is to learn as much about the company as we can.
We definitely do what we call a competitiveness review and it's
an assessment of the systems of the company, kind of model idea
of the systems of the company that was developed in South
Carolina, the methodology of utilizing that tool. Other MEPs,
there is about 14 other MEPs in the nation that decided they
wanted to use it, they actually pay us a licensing fee in order
to use it.
The competitiveness review is not very time consuming, but
we can go into a facility and within--part of the survey, the
assessment, they can do online, but once we get to a facility,
it takes us about four hours on site and we like to follow the
process from entry through shipping. We will go back and put
our heads together and come up with a plan based on what has
been successful in the past and come up with about three or
four recommendations that we know if they take those and move
forward with it, they are going to be successful.
The areas that we particularly concentrate on is continuous
improvement, workforce development, supply chain acceleration,
sustainability. The services that we provide in those areas
range from one end of the spectrum to the other. Like we take a
look at the assessment, maybe 9.2 out of every 10 that we do,
have a tendency to take those and move forward with it.
Everything that we do with a company is--we do not do it if it
is not measurable and every three months we go through a round
of surveys that is done by the National Institute of Standards
and Technology. We utilize a third party resource to do it.
Typically, about six months after we complete a project
with a company, they will get a call to see did they do what
they said they were going to and if they did, what was the
impact on the bottom line. I do not have our 2013 results yet,
it will be about another month or so before those come in.
But in 2012, we had a financial impact on new and retained
sales of $170 million; a cost savings of $14.4 million; capital
investment, $50.4 million and jobs created or retained, 1792.
When we look at each one of those numbers, there is a ripple
effect on jobs created. For every one job created, there is
another one that is a spinoff somewhere.
When you look at it, if it is in a manufacturing facility,
the average wage for someone in manufacturing now is close to
$46.000. The average wage in all other sectors together is
around $35,000. So there is a huge difference there. That is
where the true--that is where wages came from years ago, from
the manufacturing sector. That is what we try to do is get back
there.
There was one company, as a matter of fact, I think we made
a visit there, but about six months ago, we started with the
president of the company, he was getting ready to go through
one of the NIST surveys and he made a comment to me, he said
you know, when I first started working with you, we were sort
of inefficient. But if you guys had not came in, the plant
would not be here now.
Chairman Rice. Are you talking about the one we went
through?
Mr. Jacobs. Yes. And that company is within 15-20 minutes
from here.
We worked closely with a lot of the other agencies in this
state. Mr. Bundy and I, in addition to getting support from the
federal government, the DOC, we work with them, get some
support from the state but we work in the Existing Industry
Program with the DOC and what we are doing there is going out
visiting firms. Mr. Bundy and his staff will go out, letters
are sent out to manufacturers and we go out and make visits on
behalf of the DOC, but at the same time we get a chance to tell
them who we are, what we do.
We also work with the Department of Employment and
Workforce, and they get funds from the DOL every year. Twenty
percent of what they get from the DOL is to work with incumbent
workers, 20 percent of those funds goes to what they call
layoff aversion. And the layoff aversion, last year, we went
into I think it was 33 companies. Typically when we go into a
company on layoff aversion, they are about to close the doors.
We saved 28 of those through new sales and helping them improve
efficiency, 28 companies, a lot of them in rural South
Carolina. So that is one program that we want to make sure that
we continue to stay on top of.
One of the other things that MEP, we are a small group,
there is only 21 of us and about 60 percent of what we do
project-wise, we use third party experts to do it. So we do not
do it all ourselves, we have got five or six people that go out
and do the hands-on work but we do utilize a lot of third party
resources. Typically in any different year, we use third party
resources.
Two years ago, I added on two additional folks, regional
vice presidents, we have seven in the state now. Up until two
years ago, one person covered 26 counties and those 26 was
right in this region. So you did not get a chance to see that
person very much. Right now, we have got seven and the person
that covers this area covers from Richmond to Marion. So we are
doing everything we can helping the small guys. About 75
percent of the manufacturers in South Carolina are under 50
employees, and there is a lot of opportunity there if they know
what is available to them. A lot of people claim they cannot do
business with the government because they are in Dillon or they
are in Marion. You can do business there, you have just to know
how to get qualified to do business with them.
What the federal government can do to help the MEPs be
successful and be around for many years to come and help
companies in rural America continue to grow, the mission that
we initially had and still have is to work with small and
medium sized manufacturers to help them become more competitive
globally. The one thing that works against that is the fact
that in order to receive a dollar from the federal government,
we have got to show we spent three. And instead of being
measured on merits, that encourages us to try to be profitable.
So we do not get a chance to spend as much time as we would
like with the smaller guys.
It would be like an increase in what we get revenue-wise,
through a grant from the federal government, if it was a one-
to-one match instead of three to one.
That concludes my testimony and I think for the opportunity
to speak.
Chairman Rice. Thank you, Mr. Jacobs.
One of the misfortunes is that the crowd has a disadvantage
because you cannot see these people's faces when they are
talking to you. But you should see the pride in his eyes when
he is talking about what he has accomplished with these South
Carolina companies. And I have been through one of his
companies with him and let me tell you, they were very, very
thankful.
Our next witness is Ben Chastain, Director of the Duke
Energy Center for Innovation which serves as an incubator of
local technology companies. Developed to support and diversify
Hartsville's economy, the center helps newly established
enterprises find the needed resources and knowledge base to
help them transform technology ideas into successful
businesses.
Prior to joining the center, Mr. Chastain worked for Coker
College for two years as director of their students in free
enterprise program. During his tenure there, he started their
entrepreneurship education initiative.
He is a graduate of Coker College with a degree in
management and is currently finishing his M.B.A. at Francis
Marion University.
Thank you for being with us today, Mr. Chastain. Please
begin your testimony.
STATEMENT OF BEN CHASTAIN
Mr. Chastain. Thanks, Chairman, and thank you for allowing
me to speak today.
I am going to talk about, of course, the Duke Energy Center
for Innovation and how it is directly impacting the Pee Dee
region. We are located in Hartsville, downtown storefront. As
you mentioned, our goal is focused on supporting and fostering
new technology company formation in our region.
On our website, wherever you look, we look at about a 50-
mile radius, but with the hybrid technology we are using
through the Clemson partnership, we can service the entire
region.
Partners involved with this, of course, the Duke Energy
Foundation is one of our primary funders, a local foundation in
Hartsville; the City of Hartsville; and of course, Clemson
University. This is a pilot program, a three-year pilot that
has come out of Clemson's research team and the development
office. It was developed by Karl Kelly, who is the director of
commercialization and technology incubation at Clemson.
When looking at some statistics, the 2010 census and SBA
numbers, 65 percent of all jobs are created by emerging
companies, small emerging companies, employing in between one
and 499, 500. What we are trying to do in Hartsville and for
the surrounding areas with this pilot program with Clemson is
be one of five technology centers across the state. There are
currently three that are open, one is ours in Hartsville, the
other in Bluffton, South Carolina and the third being in Rock
Hill, with two more to be named this quarter 2014.
But what we find is that these programs are already
available in urban areas such as Greenville, Columbia and
Charleston. We are at a disadvantage in rural areas because we
do not have the capital resources needed to support these two
million dollar annual budgets that takes place in some of these
centers.
So Clemson's pilot program is to have all five centers
working together at Clemson's core hub on their campus at the
Regional Entrepreneurship Development Center. Then we can
mitigate some of these costs, and currently our estimate is to
operate each center at a $200,000 budget. Our center, and of
course every center has to find its funding independently, but
now half of that is being funded through the Duke Energy
Foundation and the other half through a private foundation in
Hartsville. So we are currently receiving no federal or state
money.
Access to services and technology is probably the second
thing. We have this misconception in South Carolina and
especially in rural areas that we cannot do it as good as other
areas. We have to change this opinion and change this image
across the state. And it begins at each one of the centers.
That is part of the lacking of confidence in the network, not
knowing that this technology or these technologies can be
developed here, that they have to go either to California or go
up in the northeast.
I have to brag on our community leaders, of course in
Hartsville as this was a community-led initiative through a
private foundation. And it has allowed us to take part in this
initiative for the last eight months and we are looking forward
to moving into the future. It is a hybrid-internet consultant
model designed for non-metro areas. The components include a
community owned incubator which we currently have. The training
is provided by Clemson, it is a 12-week program, certificate
program, through Clemson. Myself as the director and our board
members as well as many individuals taking part in this
program. And we all use the regional entrepreneurship center at
Clemson for different services that the entrepreneurs can have
access to when we talk about the services, business planning,
cost projections, finances, et cetera, all the things that go
into creating these businesses.
What we do primarily at the center is walk them through a
five-step process with a preliminary evaluation of their
technology and of the individual. We do not have an application
process. We take anyone off the streets. We are seeing the
unemployed, we are seeing those with full time jobs that just
have a hobby that they would like to turn in and find out if it
can be scalable into a commercialization application.
If they are viable, we put them through a detailed analysis
with a partnership group that we have at Clemson, and we begin
that business development, and strategic planning. We then try
to find them funding sources, recruit their staff and have
formation of their new company. And then at that time, they are
on their way, moving into product and company development,
leaving our center into partnership centers that we currently
have like the one at SIMT, a manufacturing incubator, or to a
viable storefront or contract manufacturing or to build a
manufacturing site in the area.
We do not require that these individuals stay in the Pee
Dee, but we hope after the resources that we help them with,
that they will want to stay within our region.
We have partnerships of course with SIMT, Sonoco, Duke
Energy. We work closely with SBDC and SBA. And we move these
individuals to proof-of-development stage, and I would say that
is probably our strongest limitation, is financing or funding
these different innovators that come through our doors. So I
can say that new programs or existing programs could be
evaluated to help that proof-of-concept stage become a reality.
When we see Shark Tank on TV, all of these ideas, technology
ideas, have already passed through that proof-of-concept stage.
It is finding the funding for some of these individuals that
are either unemployed or have full time jobs and are paying the
rent, paying the mortgage, to get them enough financing to just
get them to prototype development. And then at that point, find
venture capitalists or angel investors.
I want to talk real briefly on a new or most recent press
release that we have had come out. One of our five current
entrepreneurs that are working in our center just received
$300,000 in venture capital and is developing a risk mitigation
app in the nuclear industry for Duke Energy. This app will be
developed in the next three weeks, phase one, and he has
currently put an offer on a building downtown Hartsville, will
be housed in a building in downtown Hartsville going forward.
So we are real excited about that. That is our first success
story in the first eight months that we have been established.
So more to come. There are four that we are currently
working with in the pipeline. We look to support anywhere
between seven to eight entrepreneurs at any time at our center.
With five of these across the state, you can imagine maybe 10
or 12 different businesses, small tech companies, coming out
after year one.
It is a pilot program, we are still in the process of
collecting all the raw data and developing our metrics as to
how this program will be successful in the coming years. But we
look forward to seeing the output and the success stories that
we have in the pipeline.
So thanks for having me here today. I really enjoy being
able to spread the word of what is going on in Hartsville that
benefits not only our city, but the entire region. So, thank
you.
Chairman Rice. Thank you, Mr. Chastain.
Our final witness today is Jeff McKay. Most of you in the
room know Jeff, Executive Director of the North Eastern
Strategic Alliance. NESA is a regional economic development
organization that serves nine counties in northeast South
Carolina. NESA's primary objective is to enhance the quality of
life for residents of the region by creating jobs and capital
investment within the existing industry base as well as through
recruitment of new companies and expansion of tourism-related
development.
Mr. McKay started his career in North Carolina as the
director of the Polk and then the Stokes County Economic
Development Corporations. He then went on to the North Carolina
Department of Commerce, and from there became the director of
the Greater Statesville Development Corporation.
He is affiliated with the South Carolina Chamber of
Commerce Tourism Task Force Committee, South Carolina
Developers Association and currently the President of the South
Carolina Economic Developers Association.
Thank you for your participation today.
STATEMENT OF JEFF McKAY
Mr. McKay. Mr. Chairman, thank you for allowing us this
opportunity and on a personal note, thank you for your
commitment to this region. I appreciate it and we certainly are
a lot better with your commitment to help us. Thank you.
I also want to start out by saying that there are a lot of
good programs that are currently going on within the state and
this region to try to better the rural economies and the
economy of this region, and for that we are appreciative as
well.
You mentioned at the beginning of your comments about
working together in collaboration, and as you know, our
organization is based on that, that is the linchpin of what we
try to do and the success or failure of our organization is our
ability to cooperate and collaborate. So we are on board with
you 100 percent.
I have prepared some comments and my staff implored upon me
that I need to read them or we will be here for another 45
minutes, so with that, if you will bear with me.
One of the great things that we have the opportunity to do
as a regional economic development organization is to meet with
a lot of individuals who are looking to make, potentially make
investments or try to create jobs within our region. And during
these conversations, we have uncovered a few things based on
their needs that I would like to share with you today, which we
feel could better our opportunities to grow jobs and more
capital investment in the region.
There are basically three key points that I wanted to bring
forward:
Number one, in talking to these folks, it seems that there
is a real need for greater mentoring opportunities that would
assist entrepreneurs with navigating the pitfalls and
challenges of starting a new business.
Number two, access to capital for small businesses and
particularly entrepreneurs in rural areas is vital to the
economic health of our region.
And then finally, the continuing improvement of our
region's infrastructure, including interstates, ports, and
broadband, presents a crucial fulcrum on which rural small
businesses balance.
To begin with, there is a need for an outlet whereby
individuals seeking to start a new business can consult with
tried and true entrepreneurs who have a need for business
guidance from experienced individuals that have been through
the process and challenges of creating a profitable venture.
Rural America is desperately in need of an apparatus that
allows for the knowledge and wisdom of experienced business
people and entrepreneurs to be imparted to a younger
generation.
Similar to Teach for America, a non-profit organization
that is focused on providing high quality teachers in rural and
low-income areas, business-oriented mentoring programs could be
a vital tool in improving rural job growth opportunities.
An effort such as this would allow individuals seeking to
start a new business to consult with experienced entrepreneurs
who have an understanding of the business world and can share
their experiences with these individuals on common business
issues such as healthcare, understanding how a business is
taxed, the process of creating a long-term business plan, et
cetera. This would allow entrepreneurs to focus on the
management of their business with the insight and counsel of an
experienced professional. A linchpin of this endeavor could
rest in the initiative's flexibility to accommodate the needs
of business within diverse environments throughout our region
and other regions of the nation.
Secondly, improving access to capital. Access to capital
for rural businesses is also an issue that needs to be
addressed. Small, rural businesses still struggle with access
to credit, which affects their ability to grow. Sometimes it is
a small amount of money for minor facility improvements or
equipment purchases. If a rural initiative were established to
provide low level loans, it would be a great asset to rural
businesses.
In rural areas especially, current practices and economic
conditions now make it difficult for entrepreneurs to access
capital. One idea to help this situation could be the
possibility of the creation of a rural capital access program
or a revolving loan program with terms and conditions that are
simple in nature and more easily accessible in rural areas.
On the infrastructure front, one of the most pressing needs
of our region in terms of strengthening our rural workforce and
creating a better business climate is an improved
infrastructure. Regarding our region's infrastructure,
interstate, ports, and broadband access all must continue to be
improved to create a more high quality business environment.
I-73, a planned interstate that traverses our region, is a
key to future growth within our region and continued support
and passage of the Federal Highway Reauthorization Bill will be
important to the road's future. The completion of the South
Carolina portion of I-73 will allow the region to continue to
grow unmitigated by travel and distribution constraints and
will provide a greater level of connectivity to the rest of the
nation.
According to a report by Chmura Economics, I-73 can provide
$120.8 million in annual cost savings for current businesses as
a result of increased travel efficiency and the annual impacts
of the road are estimated at $2 billion and will sustain over
22,000 jobs in South Carolina in 2030 and beyond.
Additionally, a study by Coastal Carolina University
concluded I-73 will spurn the creation of 7700 jobs, along with
the injection of $170 million into the local economies within
the path of the road during the proposed five years of
construction.
The Port of Georgetown should also be dredged in order to
sustain a strong manufacturing base in that part of the state.
This is a project of great significance to our region as it
will provide an additional selling point to potential
businesses considering locating within our area.
This project was moved much closer to reality in October as
Congressman Rice assisted mightily with the passage of the
Water Resources Reform and Development Act, which allowed for
the allocation of federal funding for dredging of the Port of
Georgetown.
The impact, both planned and unplanned, that the dredging
of the Port of Charleston will have on South Carolina and the
entire eastern half of the United States stands to be immense.
There are many companies who are currently using the port and
that number will only grow with access that the dredging
brings. Companies may relocate if they cannot take advantage of
post-Panamax shipping opportunities via the Port of Charleston.
Money for dredging is imperative to assure South Carolina's
place as a home to a major east coast port.
The region's broadband internet access must continue to be
improved as well, to ensure continued economic growth.
Currently, 26 million Americans living in rural areas are
without high-speed internet access. This restricts their
ability to find jobs, customers within and outside of their
market, and research information to better their businesses.
The federal government could assist with the dissemination
of broadband internet access by working with telecommunications
providers to either incentivize the creation of rural broadband
networks and work with the providers to ensure small
communities are covered or work with state and local
governments to ease the restrictions on publicly-owned
broadband networks and assist with the funding of these capital
projects.
In many cases, broadband could allow for greater job growth
within rural communities. Work-from-home opportunities abound
in today's workforce and even many call centers are focusing on
virtual call centers as a more efficient means of reaching
their workforce without having to procure a building, paying
the subsequent cost of the facility and many of the other
hindrances that are created with a new call center.
Greater broadband access in rural areas will create a more
streamlined process for potential employees as they search for
jobs, as well as making it easier for businesses to find
qualified employees.
In conclusion, the need for continued support along these
three areas is vital to our region's continued economic growth.
The creation of mentoring opportunities that could assist new
business owners in navigating the issues of running a business
is crucial. Currently, there are a number of organizations that
are able to help businesses during the infantile phases of the
process, but there is a distinct need to create a flexible
apparatus that is able to help guide entrepreneurs through the
common issues and pitfalls of running a business.
Access to capital, especially for small rural businesses
must be made available. Currently, regulations, both new and
revised, hinder the loan process for many small banks, leaving
only larger banks as a source for capital. New and innovative
programs in rural areas could spur new business opportunities.
The continued support of and improvement of the area's
infrastructure will also help in improving the economic
standing of our region's rural areas. Within our region, the
completion of I-73, the dredging of the Georgetown and
Charleston ports, along with the improvement of the dearth of
broadband access will make continued economic growth possible.
Thank you for the opportunity to speak with you this
afternoon.
Chairman Rice. Thank you, Mr. McKay.
Congressman Tallon, do you have any questions?
Mr. Tallon. Mr. Chairman, I do. Thank you again so much for
allowing me to be here today. And I thank the panelists.
I think I would like to make a comment. I grew up in this
county, Lakeview and Dillon. I think about Chesterfield County,
Marlboro County, Marion County--and who did I leave out? Dillon
County. And you know, the recession we have been through, it
has affected the country. I think, Mr. Kaglic, it may be more
structural than just cyclical this time, I do not know. But
things have been tough in these four counties that I am
specifically speaking of for a long, long time.
The government has helped and the government has hurt. If
we go back to the 1960s, one of the best things the federal
government ever did was pass civil rights legislation that
allowed our kids to go to school together, to be able to work
in the plants on assembly lines side by side. I remember as a
boy growing up where there were men, women and colored
restrooms and there was a water fountain for white and you had
to look to find the black water fountain--the colored, excuse
me, water fountain. But that is how I grew up. We were largely,
in these four counties, agricultural in nature. But agriculture
changed, and that is when the textile mills started moving into
our regions. And the two things that allowed that, again, was
the civil rights legislation and technology--air conditioning
made a huge difference. And we grew, these rural counties, and
provided jobs and opportunities. And for generations, these
families and their children and grandchildren could stay here
in the county.
In 1965, I opened a business here in Dillon County and it
grew and grew and the economy was great, everything was going
well. I came back a few years ago and I was waiting to pick
someone up on the train and I walked up and down, Sylvia, Main
Street, and only one business was still open in Dillon County--
on Main Street of Dillon that was here in 1970 when I sold my
business out and moved to other places.
I think we would be astounded if we looked at the income
and where it comes from in these counties today, Jeff.
Government transfer payments and government employees, I would
guess--and I am talking the school system and county seats and
state employees and massive government transfer payments
because of the socio-economic plight of so many people.
Again, I am just trying to express to anyone, especially,
Mr. Bundy, to the state of South Carolina, I forgot what
percentage the rural population was.
Mr. Bundy. Thirty-three.
Mr. Tallon. Thirty-three or so. But we just, I think, feel
like sometimes hopeless. But there are good people in these
rural areas, Tom, very good people. And they need a hand up.
One of the biggest mistakes, Mr. Jacobs, I think was a policy
of the federal government was NAFTA, North American Free Trade
Agreement.
Voice. Here, here.
Mr. Tallon. And it cost the rural areas of this state and
your district, Tom, thousands upon thousands upon thousands of
jobs. The tax base for the schools and other public entities
that were so important was diminished, wiped out. Farming did
change. We obviously went through a mechanical revolution and
then later I guess a chemical revolution. It is very efficient
now. And so that is kind of where we are today.
Joe, I really appreciate what you had to say. But as I was
thinking, you know, a lot of the things that the panel talked
about here with some exceptions, if I lived in Florence--I do
live in Florence--but if I was in the Florence community or
Sumter or Rock Hill or even Hartsville--Sonoco, Duke Power,
Robinson, we do not have that in these counties. We are--you
are speaking to us and we wish we were in a position to take
advantage of these opportunities.
Mr. Chastain, I am very excited about the Duke--what is
it----
Mr. Chastain. Duke Energy Center for Innovation.
Mr. Tallon. Duke Energy Center for Innovation. We need one
of those in Dillon County for Chesterfield County and Marlboro
County and Dillon County and Marion County. We want to know how
we can get one. And that is my question to you.
Mr. Chastain. Sure. And through this pilot program, there
will be five across the state and I believe it is Clemson's
goal to have them located geographically so that they do not
interfere with one another, but they can also serve the entire
state. After the pilot is finished, their goal is to then use
the metrics and the curriculum and this program and introduce
it to other areas of not only South Carolina, but if it is
successful, the nation.
For now, take advantage of the one here in Hartsville.
Through our hybrid model, we do most everything on a virtual
basis, so you do not have to come over to Darlington County or
to downtown Hartsville to participate in this program. We will
help people across the region with any tech idea that we can
think is scalable and market ready, and we will try to get them
to that point if it is not there already, to move them forward.
Our goal is to develop technology companies in our region
and keep them in our region. So if they are developed in Dillon
County, we will keep them in Dillon County. That is our goal.
Mr. Tallon. Well, I believe your said your initial budget
was $200,000 a year and that Duke Endowment funded----
Mr. Chastain. Duke. $200,000 is the estimated budget.
Comparable to other programs that are close to $2 million in
urban areas. And Duke funded half of that for the first year,
and we are currently in a process of going through a grant
cycle to find out if we will get funded for the second year.
The other came from local support, whether it was a small
donation from a local foundation, and others were community
engaged individuals that mustered up $5000, $2000, $10,000
checks.
Mr. Tallon. Well, if you--and I know you will be available
to talk to the Congressman and people who are interested, but
if we could get one that was a center for these four counties
that I am specifically discussing, I just hope that Duke would
consider participating the way they have in Hartsville. And I
know we can internally come up with the other half of it. I am
very interested in getting over to Hartsville and learning more
about this.
Jeff, last question--Tom, thank you, I am just so pleased
to be here today--you mentioned available credit and you had
some suggestions. Were you thinking about the possibility of
some of the regional banks creating an entity? What do they
need, do they need some sort of government insurance for these
loans, something the Small Business Administration or have you
developed that thought?
Mr. McKay. Congressman, I have not developed--I do not
think there is one tried and true I guess program. And that is
part of the challenge that we are hearing. It may be as small
as a micro-loan of a couple thousand dollars when someone is,
you know, needing immediate access to capital to solve an
immediate critical need of their business regarding whatever
the scale is. I think some of the challenges that we are seeing
now is particularly on some of the federal agencies, the length
of time to access that money may precede the viability of the
business itself, if that makes sense.
I started to say--I am a little older maybe than most of
the panel, there may be one or two here that is close to the
age, but I remember the good old days, I will say, when
communities had the ability to develop revolving loan funds at
the city level. I think it was--I may be wrong on this, but the
community development block grant program that had a revolving
loan component.
Mr. Tallon. It did.
Mr. McKay. But if a city, for instance, saw that there was
an opportunity to work with a business that had a good plan,
they could develop 10, 15 jobs over a year by allowing them to
participate in a revolving loan fund for $5000, you know, they
had the opportunity to do that. I do not know that that is
available now, but in some instances, perhaps $5000 could mean
the life or death of an emerging business.
Mr. Tallon. Exactly. Well, I appreciate those suggestions,
Mr. Chairman, and of course a mentoring program is vitally
important. Thank you again. I just want to say I have got two
wonderful, beautiful grandchildren that are living in Dillon
County today and they are bright and they have so much to
contribute, and they want to stay here in Dillon County. And it
could be Chesterfield or Marion County or Marlboro County
because we are sort of all in the same boat. And I want to see
them have that opportunity to stay here and contribute, Mr.
Chairman.
And again, thank you for holding this hearing, appreciate
it.
Chairman Rice. How about our former Congressman Robin
Tallon.
[Applause.]
Chairman Rice. I am proud to call him a friend.
Mr. Kaglic, before I start, I just want to make a couple of
comments based on his questions. One, I have got three sons, a
24 year old, a 26 year old and a 28 year old. I have already
had one move away--I live in Horry County--because there is not
a whole lot for them there. They are all three fine, bright,
college-educated sons. It is not just a rural problem, it is
all over the whole country.
With respect to these rural counties, I have a lot of hope
for them. And if you look at what is happened in Horry County
in the last year, we have had two decent sized manufacturers, I
mean, small companies obviously, gun manufacturers come. Where
did they go? They didn't go to the coast, they didn't go to
Myrtle Beach. You know where they went? Ada--they went to Ada,
South Carolina. There was product there, there was a place to
work, decent transportation. And, of course, we have had Essex
Holdings coming to Marion County. So, you know, there is room
for us to improve and with wages rising in developing countries
around the world from what were essentially non-existent wages
to still very, very low wages. But that makes us more
competitive. In fact, I have seen studies that showed
southeastern United States will be among the most competitive
regions in the world in the next decade. So, you know, we have
got a lot of things to look forward to and a lot of things to
hope for.
But I do believe that a lot of our problems, not just in
rural America, not just in South Carolina, not just in my
district, but throughout the nation in terms of employment, are
coming out of Washington. When I was Chairman of the Horry
County Council, we looked at how to make our county more
competitive, we applied it and it worked. Nikki Haley, I think
has done a great job in South Carolina in bringing jobs and I
think, what are they now, Mr. Bundy, 40,000 jobs that she has
done, something like that, 40,000. South Carolina's
unemployment rate has dropped to essentially to the national
average. Wow. She is delivering what she said she was going to
do.
We have got to apply that same competitive spirit, that
same logic. It is not that complicated. You know, what are we
doing that is wrong, what are the other guys doing that is
right. When the corporate tax rate in the United States is 35
percent, 40 percent when you add everything into it and it is
13 percent in Ireland or it is 15 percent in Canada, that is a
big obstacle. When a business can choose where they are going
to locate and they can go somewhere and pay half the tax rate,
what are they going to do? You know, when the regulatory burden
in our country costs a small business an average of $10,000 per
employee, higher than the tax burden and they can locate
elsewhere with a much lower regulatory burden, what are they
going to do? The world has gotten a lot smaller, it is a lot
easier to compete.
So, you know, a lot of this comes out of Washington, at a
time when--to stimulate the economy you lower regulatory
burden, you lower taxes, you put more money in people's
pockets, but over the last five years we have done exactly the
opposite. Dodd-Frank and the Affordable Care Act were two of
the biggest regulatory expansions in the history of the United
States. Tens of thousands of pages of additional regulations.
That is anti-competitive. And plus, Dodd-Frank particularly
hurts access to capital.
And then you have got additional taxes with the fiscal
cliff deal, additional taxes from the Affordable Care Act, that
is money out of people's pockets, stifles the economy.
And then you have got a constant bickering, the quarterly
fights and all the uncertainty that creates, coming out of
Washington. And uncertainty creates doubt in business, cuts
back on investment. That hurts the economy.
You have got anti-jobs provisions in the Affordable Care
Act, the 30-hour per week limit, over which you will be counted
as a full time employee. I have people all the time that--had a
large employer here today in Dillon County tell me today that
he was going to move a lot of his employees to part time so he
could stay under 50 employees so he would not be hit by the
effects of the Affordable Care Act. You know, the 50 employee
limitation. I had an employer today at lunch tell me that they
were not going to--they were holding back on hiring because
they had to stay under 50 employees.
You know, these regulations, they matter, they affect, they
ripple through the economy, they affect everywhere from large
urban areas on down to rural areas. And people think we can do
these things in a vacuum and it does not matter. It absolutely
does matter. And I hear about it every day from people in my
district.
Mr. Kaglic, was what I said correct? If you want to
stimulate the economy, do you increase taxes or decrease taxes?
Do you increase regulation or do you decrease regulation as a
general proposition?
Mr. Kaglic. Mr. Chairman, are you expecting a yes or no
answer on that?
[Laughter.]
Chairman Rice. Answer the way you want to.
Mr. Tallon. It depends.
Mr. Kaglic. Is the way to stimulate jobs, adding
regulations, reducing regulations; adding taxes or reducing
taxes. I would say, Mr. Chairman, that the way you stimulate
economic growth is providing businesses with visibility.
Whether the visibility is on regulations or with taxes,
businesses need visibility because businesses can deal with
regulations if they know what they are. They can deal with
increases in taxes or decreases in taxes. Ultimately, we want
as little taxation as is feasible. But at times, there are
going to be times when--currently right now, the government is
on a long-term path that is clearly unsustainable and somewhere
along the line we have got to bring that down. It is going to
happen either through spending cuts, it is going to happen
through tax increases, it is going to be a combination of both.
But I would get back to my original point, you mentioned
business leaders you talk to. We talk to business leaders as
well, in a variety of forums, including our boards of
directors' meetings and district roundtables throughout our
district. And I was talking to a manufacturer, a large
manufacturer, not from South Carolina but close by in North
Carolina. And we were talking specifically about the problems
that we were having with the unemployment insurance tax
programs in North Carolina. South Carolina ran into a similar
problem, defaulted on their program and ultimately had to come
up with a plan to do that. Part of that plan was to increase
taxes on employers. It had to happen.
Our manufacturer told me, said, ``I do not care what you
do, just tell me what you are going to do. I know that
something is going to change, just tell me what it is going to
cost and I will deal with it.''
So reiterating my original point, Mr. Chairman, provide
them with visibility and they will grow.
Chairman Rice. Thank you, sir.
In your opinion, does the law Dodd-Frank and the
regulations under the law, make it more or less easy for small,
startup businesses, small businesses, to access capital?
Mr. Kaglic. Again, you are not expecting a yes or no
answer.
[Laughter.]
Mr. Kaglic. Let me take a step back. I know that we want
clear and concise answers to these issues but these are complex
issues. When it comes to small businesses, there are many
challenges that small businesses face and there are
particularly many challenges that small businesses have faced
since the great recession. And it really started with the
significant decline in asset values that we experienced in
2007, 2008, 2009. Small businesses are much more likely than
larger businesses to rely on the bricks and mortar, whether it
is their homes or the actual structure of their business, as a
source of collateral for loans to expand their business. When
those asset values declined precipitously, it did two things.
Number one, you no longer had those assets on your balance
sheet that you could use as a collateral; and it increased the
inherent riskiness associated with that asset. When you
increase the riskiness of that asset, that means that
ultimately banks or any lender who is going to come into a
market and fill the need of someone who is borrowing money is
going to charge a larger risk premium for that.
Chairman Rice. But that is market, that is not Dodd-Frank.
Mr. Kaglic. Absolutely, that is market.
But there are other factors--what I am trying to do, Mr.
Chairman, is lay out that there are a lot of factors that are
affecting small business borrowing. And regulation, I think is
part of it because again, lack of visibility around what Dodd-
Frank means to them could be an indicator in those lending
decisions, but there is a lot more to it as well.
Chairman Rice. So the answer is yes, Dodd-Frank is having
some negative effect on it.
[Laughter.]
Mr. Kaglic. Lack of visibility into the regulation, yes.
Chairman Rice. All right.
Mr. Bundy, I am so impressed with the state Department of
Commerce and what they have done in terms of making South
Carolina a business destination. I have seen various polls
naming South Carolina from number two in the country to number
six in the country in terms of places to do business and I
think y'all play a pivotal role in that.
Can you talk to me somewhat about the role you play in
navigating various levels of government and various government
agencies when you have got a potential employer looking at
South Carolina?
Mr. Bundy. Are you talking more at the state level?
Chairman Rice. I am talking about the state and local
level.
Mr. Bundy. Okay. Mr. McKay can testify I think for sure,
economic development is a team sport. Tony McNeal is here, I
think, somewhere.
Chairman Rice. Dillon County, you know, they have their new
announcement today for their new revitalized public-private
partnership, they have got their new logo out today and that is
exactly what I want you to talk to them about, how important it
is for them to work together.
Mr. Bundy. Well, it is. And when companies start looking at
the state, I mean they start subscribing to a newspaper before
you know they are coming in the neighborhood, they want to know
what kind of community it is.
The good thing about South Carolina is, we are fairly small
and we kind of know each other and we do work together. And not
only from a community level, at the regional level, county
level, at the town, but also with state agencies. We have a
great relationship with the Department of Health and
Environmental Control. We work well with them. We have got a
good Department of Employment and Workforce. Our technical
college system is still one of the best in the country as far
as training goes.
So we look at--when we talk to companies about what they
are looking for, they are looking for people, they are looking
for transportation and logistics. And we try to bring--we call
our friends who are in those areas and we bring those resources
to bear on solving their issues and their needs and their
problems, whether it is harbor freight, roads, whatever it
might be. And that is what makes, you know, for success.
Jeff knows everybody in the region, he knows everybody here
in Dillon. So occasionally we are doing the quarterbacking,
sometimes Jeff is. We do not have to rotate quarterbacks out.
But anyway, I guess to answer your question, team sport,
and everybody is conscious of the team and in South Carolina
generally--you cannot go it alone when most folks do not try.
Chairman Rice. Do you have any specific suggestions that
you would make to Dillon County or Marion County or Marlboro
County to make them a more desirable location for a potential
employer?
Mr. Bundy. I think the things that we are all pretty
cognizant of anyway, but I will repeat them, a couple of them--
workforce development, focusing on workforce. I know we are all
aware of that, I know we are all working on that, we have got a
great technical college system. We need to continue to work on
K through 12. Those are things that communities can do to make
a difference. So workforce is always an item.
Product--we talked about product. I cannot tell you exactly
our engagement in each of the counties, but I suspect--Jeff,
you may know that better than I do--the state has been engaged
and wants to continue to engage in helping communities with
product development. So I work for a gentleman, Maceo Nance,
many of y'all probably know Maceo, he probably knows more about
this state than a lot of folks. But call us and use us to help
you develop product.
We work closely with Jeff and his team, with Tony and his
team. And my suggestion would be workforce and then
infrastructure and product development. Folks want to get into
a location and they want to get into it fast and every day
faster and faster.
Chairman Rice. Thank you, sir.
Mr. Jacobs took me through a little company in Florence, I
guess I should not name, but he is a specialist in Lean Six
Sigma, right? And Lean Six Sigma analyzes manufacturing
processes and makes them more efficient in a number of ways.
But one of the things they told me, and I cannot cite the
example correctly, but this company makes mass volumes of a
particular product and they would take custom orders but it
would take like six weeks for them to get it done. And after he
got through with them, it took four hours. Wow. Talk about
making people competitive in a worldwide environment. This man
knows what he is doing and he can help any business and he can
help South Carolina a lot.
Tell them a little bit about Lean Six Sigma, if you would,
Mr. Jacobs.
Mr. Jacobs. Lean Six Sigma, that is reducing variation and
I will give you just two minutes worth of history.
Chairman Rice. That is about how long we have got.
Mr. Tallon. Speak up just a little bit.
Mr. Jacobs. There was a guy named Deming back during World
War II, all of the men went to fight the war and the women went
into the factories to work. And Deming came up with a process
of how to standardize things and train people to do it
correctly the first time, make sure the cost was where it
should be, delivery was on time and the quality was good. When
the war was over, the men came back and the women went home.
Japan heard about Deming and Japan took him over there to work
with Toyota and that is how what they call the Toyota
Production System got started.
It is really simple tools, you get rid of the waste, you
increase your throughput and you reduce the variation. And that
is the process that we used with the company you are speaking
of. We also use the same methodology--if you remember when you
read my bio, there are 65 innovation engineers in the United
States right now. I am number 62, 63 and 65 is also in South
Carolina and the same methodology is used there to basically
cut down on the speed from the time you have an idea until you
get it on the retail shelf. The gentleman that came up with it,
he had three inventions before he got out of high school. They
say if you survey the average house, you will find 18 products
that he invented or reinvented. So that is the methodology we
use on the innovation end.
But it is a very straight process. The first time I used it
was a little company in Charleston, and it is cited in some of
our literature. He came up with a product to detect moisture
damage in your house. And SIMT did a virtual prototype of the
product and Culver came in and tried to buy the product from
him before he got the actual prototype working. He had $5
million in sales the first month he went into production.
So there are a lot of things that we do and when you speak
of small manufacturers, that is where my passion is, working
with manufacturing. I was there when it was done the old way,
so the least I can do for society is help get them back where
they need to be. But a lot of the small guys, if they want to
call me and ask me questions and I kind of coach them through
some of the things because they do not have any money, I am
more than willing to do that.
Chairman Rice. Well, I want to ask you if you would have
any specific suggestions for a Marion and a Dillon and a
Marlboro County on what they can do to make themselves----
Mr. Tallon. And Chesterfield County.
Chairman Rice. And Chesterfield County to make themselves
more attractive to a small manufacturing entity.
Mr. Jacobs. Well, they hit on a couple of them.
Infrastructure for sure. You have got to have good
infrastructure if you are going to attract larger companies in.
I will never forget Jim Rozier, you probably remember him down
in Berkeley County.
Mr. Tallon. Very well.
Mr. Jacobs. He made a speech one night after we lost
Daimler, the Mercedes plant, to Alabama. He says imagine taking
the leadership team from Daimler down Carnes Crossroad to Goose
Creek. About every three feet, there is a pothole. So, the
infrastructure is definitely in there. But the one thing that
you guys have in this area--and I have had this conversation
with some folks before, that you do not toot your own horn
enough.
This I-95 corridor has got a bad reputation and they refer
to it as the corridor of shame. And some of the facilities, you
guys really need to showcase them whenever you look at bringing
other industries in. Actually we went to two different
facilities. One of the facilities we went to was a lot of
people blame losing textiles because of what this company did
to become efficient. Textiles did not change their management
style and depended on long runs to make money. When the size
batch order decreased, they were not competitive, they had to
leave. This particular company, the first one you went to, not
textiles but same methodology. Their lot size was going down
and they were not profitable. And we went in there and showed
them how to make it profitable. A simple tool for setup
reduction. It took them eight hours to change over from one
product to another. Whenever we finished in one week's time, it
took them 36 minutes to do it. All right? The rest of that
eight hours was making another product. And the plant is still
there. Actually both those facilities was in the same boat,
they were losing jobs.
To wrap it up, showcase what you have got. The workforce
development piece, you can get the people where you want them.
People do not get every morning and go to work determined they
are going to do a bad job. If you give them the tools to work
with and teach them--and it does not take much to do it. That
is part of the example that I give. It does not take a Phi Beta
Kappa to do some of these things. There is just a certain
methodology about doing it.
But I would encourage you to showcase the facilities that
you have here that are doing great, because other people see
it, and the stigma that has been placed on the 95 corridor, I
think eventually you will see it go away.
Chairman Rice. Okay. Mr. Chastain, a technology center in
Marion, Dillon, Marlboro, Chesterfield. Really? Tell us how
that can happen.
Mr. Chastain. Well, I think in talking on behalf of our
center first and then I can try to apply it to how it could
come to another rural community.
But how we are so successful is not--it does not land on
myself, I do not have enough gray hairs, I am still way too
young to really know what I am talking about half the time. It
is the collaboration that we have in Hartsville that makes ours
so successful. Our board members, just looking at that and I
will keep going up the ladder, but our board members are
retired Sonoco executives with backgrounds in manufacturing,
partnerships with SIMT, the Governor's School for Science and
Mathematics.
I am talking about leveraging the individuals and the
industry you currently have in these areas to bring together
the stakeholders and the figureheads that can put the power,
energy and hopefully ignite themselves, find the capital to put
behind an innovation center, a business incubator, an
accelerator, whatever you want to refer to it as. And then find
a model that works and one that works for your region.
Something we have not tapped into, but we want to, is
agriculture, that is still a big part of industry across the
Pee Dee and it is hopefully going to be our niche as we move
forward into year two and three. Find your niche, find a
program you think will be successful, one with a track record,
as we hope this one will be, and then once it is available, go
out and seek the opportunity.
Of that $200,000 that we operate on as an estimate, we do
pay Clemson for their fees and their programming for this, so
have the resources available. It is not as much about the
individual storefront, the physical location, as the resources
that you can provide to the innovators or entrepreneurs to have
them have a higher success rate and develop their technology.
And whether this is a technology or retail or anything else, it
has to have the stakeholders around it to make it succeed. And
I think we all know that. Leveraging that in any community, but
I think in these four counties you referred to, it is going to
take a pool of collaboration from different individuals to make
it successful.
And I hope, as this pilot becomes long term, that it can be
expanded to more regions across the state. The goal of Clemson
is to make the state of South Carolina better. The goal of
Hartsville is to make our town and our region better, and have
an impact across the state.
Chairman Rice. Thank you, sir.
Mr. McKay, you said that one of the issues for businesses
is access to capital.
Mr. McKay. Yes, sir.
Chairman Rice. Where is the primary source of capital for a
small business?
Mr. McKay. Presently?
Chairman Rice. Yes.
Mr. McKay. Well, I agree with my colleague, a lot of it,
particularly on the small business side, tends to be financed
from personal assets or personal debt that can be leveraged to
start the business, at least from what I have seen.
Chairman Rice. So they use their personal assets at the
local bank, is that what you are saying?
Mr. McKay. Yes.
Chairman Rice. So the bank really----
Mr. McKay. Right, exactly.
Chairman Rice. Is the access to capital. Do you know many
bankers?
Mr. McKay. Quite few.
Chairman Rice. What do they feel about the federal
regulatory process?
Mr. McKay. I can give a yes or no answer----
[Laughter.]
Mr. McKay. No, they do not like it, at least for the most
part. It is making it more challenging.
Chairman Rice. Yes, I hear from bankers a good bit about
the increased federal regulation. And from what I am hearing,
it is a lot harder for a small business or a small individual
to get a loan than it was five years ago. Is that what you are
hearing?
Mr. McKay. Exactly. If they can get one at all.
Chairman Rice. We had--in this exact Subcommittee in
Washington, we had a group of community bankers come in, one
from D.C. and one from down here. We had Fred Reames, state
banking association, and others come in. And it was pretty well
universal that, but you know, the funny thing about this Dodd-
Frank law is that we need to protect the middle class, is what
they say, protect the middle class. But the bankers across the
board say, you know, with these increased lending standards, it
is not the wealthy people that are going to be prevented from
borrowing money, it is not the people with high incomes that
are going to be prevented from borrowing money. It is the
people on the borders. You know, the community banks, they are
called community banks for a reason. They are in the community
and they know the people in the community. And they might know
somebody that, hey, may not have a 37 percent loan-to-value or
income-to-debt ratio. It might be 31. But they know these
people and know their history, they are willing to take a
chance. But these regulations take away that ability.
So we have got to get the--the federal government, one size
fits all has been proven over and over and over again not to
work. And that is what concerns me about these one size fits
all banking regulations.
Do you have any specific suggestions that you would make to
these individual counties?
Mr. McKay. No, but I do want to make a point. I have been
in this region for eight years now and one of the things I
noticed in a couple of our counties in this region when I first
got here is, and I made the statement, I think sometimes they
could not see an opportunity in front of them because they are
always hanging their head because, as the Congressman said
earlier, they did not see a lot of hope.
One thing I am seeing now though is there is a lot of pride
and a lot of hope being brought back into the region. And, you
know, these counties have just as good or better people than
any other place in the world, and they have got an attitude
that if you put a challenge in front of them, they will accept
it and they will exceed your expectations. And the mantra that
we are trying to pursue for our organization is we are not
asking anybody to give us anything, we are just asking for the
chance to compete for the business. And I think our friends at
Commerce have seen, when given the opportunity to compete for
jobs and investment with the rest of the nation, southeast and
the state, we can make them proud. So, keep your head up, keep
the challenge going and we are going to win.
Chairman Rice. And not only that, but look here, I mean we
have got the federal government, we have got the state
Department of Commerce, and wow, they are being great and
aggressive. I think they may be your best ally in terms of
economic development. MEP, Clemson, Coker, and then regional
and down to the local. Where is my staff here, you guys stand
up--Rodney Berry, John Sweeney--I mean everybody is here to
help. So I think the level of collaboration is fantastic and
maybe something we have not had in the past.
So I am excited about our possibilities and I am sure going
to work hard to make sure they come to fruition.
Do you have any other questions, Congressman Tallon?
Mr. Tallon. Well----
[Laughter.]
Mr. Tallon. I just cannot thank you enough again for being
here and the panel. Going back to that access to capital, these
are, as you have said, hard-working, smart, innovative people.
How many times--and I guess I am relatively speaking about that
$5000 that you are talking about--how many times have I see
where $5000 or in that ball park, made the differences in
businesses that do employ 50 and 60 and 100 people. So we
definitely want to continue to focus on that aspect.
And again, Tom, thank you, thank everybody.
Chairman Rice. Okay, clearly something is still damaged in
our economy, but holding hearings like this, like the one we
have had here today, allows us to examine what is broke and to
take steps to fix the problems. By holding hearings like this,
by talking with real people from real communities, not
lobbyists in Washington, our Subcommittee learns first hand
from difference makers about how to jump start our rural
economies.
I believe we must find some common ground on which to stand
because the American people deserve better than the weak
recovery that they have been subjected to, and I remain
committed to exploring all options to unleash America's most
potent engines of growth, our small businesses.
With that, I ask unanimous consent that members have five
legislative days to submit statements and supporting materials
for the record. Without objection, so ordered.
Thank you all for being with us today. The hearing is
adjourned.
[Whereupon, at 3:40 p.m., the Subcommittee was adjourned.]
A P P E N D I X
Statement
Subcommittee on Economic Growth, Tax and Capital Access of the
House Committee on Small Business
January 24, 2014
Richard Kaglic
Senior Regional Economist
Federal Reserve Bank of Richmond
The House Committee on Small Business
Rayburn House Office Building
Washington, D.C.
Good morning, I am honored to speak to the subcommittee
this afternoon regarding the economic outlook. In my comments
today, I will share with you some of my thoughts on the factors
affecting economic conditions in the nation, as well as in
South Carolina, and what that may portend for the remainder of
2014. Before I do any of that, however, please note the views I
express in this testimony are my own and do not represent the
views of the Federal Reserve System.
Many of the broad measures of the nation's economic
activity have been coming in slightly better than expected in
recent months. Most notable among those were the robust
readings of total output in the third quarter of 2013 and a
material decrease in the nation's unemployment rate over the
second half of the year. Real gross domestic product, the best
measure of the production of goods and services in our economy,
advanced more than 4 percent in the third quarter, the fastest
pace in two years. And factory output has recently regained its
footing, an important development for South Carolina, which has
a heavy concentration in manufacturing industries. Meanwhile,
the nation's unemployment rate fell in December to 6.7 percent
and, while still elevated, was the lowest it's been since
October 2008. With relatively solid readings in consumer and
business confidence, and a material increase in equity market
values, there is a renewed optimism among some economic
forecasters that growth in 2014 is finally going to break out
of the low-trajectory GDP growth that has been the norm over
the course of this now four-and-half-year recovery.
I, however, do not see sufficient evidence that a
meaningfully stronger economic recovery is on the near-term
horizon. A more detailed examination of some of the broad
economic indicators alluded to earlier indicate that growth may
remain constrained moving forward. Moreover, the most basic
underlying economic fundamentals for 2014 are not materially
different than those that have dominated since the recovery got
under way in the summer of 2009. These factors have tempered my
own outlook for growth, which calls for a continuation of
recent trends in output growth accompanied by modest
improvements in labor market conditions. South Carolina's
economic prospects are slightly better than the national
average, but the state cannot completely escape the
gravitational pull of those factors that are weighing on
economic growth nationally. For this reason, I will begin by
talking about those national trends.
A closer examination of the broadest measure of national
economic activity, real gross domestic product, is revealing.
In its simplest form, real GDP is the sum of household
purchases and residential construction, business investment,
our purchases from and our sales to the rest of the global
economy, and government spending and investment. This is
illustrated in Chart 1 of the appendix, which shows real GDP
growth in the second and third quarters of 2013, as well as the
contributions to growth from the various segments of the
economy--personal consumption expenditures (PCE), business
investment in structures (Nres), business investment in
equipment (Equip), residential investment (Res), changes in
business inventory (Inv), exports (Ex), imports (Im), and
government spending and investment (Gov).
With the exception of imports, each of these categories
made a positive contribution to real GDP growth in the third
quarter. However, it is readily evident that changes in
business inventories (Inv) accounted for more growth than any
of the other breakouts (1.7 percent of the 4.1 percent total
GDP growth). That suggests firms produced more goods in the
third quarter than were sold during the period. If that is
indeed the case, then firms will have to adjust their
production plans going forward to bring inventories back in
line with their sales (and sales expectations). Another
perspective on the robustness of the domestic economy can be
attained by examining sales rather than output. By accounting
for the inventory build, as well as the demand from overseas
(exports), the government can calculate real final sales to
domestic purchasers--that is, the total sales of all goods and
services within the geographic bounds of the United States. At
times, this measure can provide a better sense of domestic
economic activity. In the third quarter, real final sales to
domestic purchasers advanced 2.1 percent, a very small
acceleration from the 2.0 percent pace recorded in the second
quarter (Chart 2).
Personal consumption expenditures (PCE) comprises the
largest component of sales in the economy and accounts for
roughly 70 percent of GDP. Real PCE is the aggregation of all
household spending, which falls into three broad categories--
durable goods (such as automobiles and computers), nondurable
goods (such as food and clothing), and services (such as dry
cleaning and hair cutting). Over the course of the recovery,
increases in real PCE have averaged 2.2 percent, with slightly
smaller gains in 2013. More recent monthly data is mixed on the
outlook for consumer spending. Chart 3 in the appendix shows
the percent change in real PCE over the year and the percent
change in real disposable personal income. On the one hand,
growth in consumer spending (given by the dark blue solid line
on this graph) picked up the pace in October and November and
would point toward a bigger contribution from PCE to GDP growth
in the fourth quarter. Households have seen some restoration in
wealth as equity and home prices have risen, and they are
feeling a little more confident about their situations as
reflected in various measures of consumer confidence.
On the other hand, however, growth in real disposable
personal income (total income adjusted for changes in prices
and taxes) has remained weak in recent months. Even though
year-over-year growth in such income accelerated through the
first half of 2013 (as illustrated by the dashed red line in
Chart 3), it accelerated up to about only 2 percent before
easing in the second half of the year. While the rise in asset
prices has boosted confidence, consumers' spending decisions
are primarily driven by income growth and expectations for
income growth in the future. Prior to the Great Recession,
during a roughly quarter-century period known as the Great
Moderation, growth in real income increased 3.3 percent on
average, the same as GDP. With little evidence to suggest that
real income growth is poised to accelerate, and households
still reluctant to borrow, my own outlook for PCE growth is for
a continuation of recent trends.
Residential investment (another part of household outlays)
continues to trend up, albeit at a slower pace than what
persisted early in 2013. Existing home sales appeared to bounce
up toward the end of the year following a soft patch in the
fall that was at least partly due to potential homebuyers
adjusting to increases in mortgage interest rates. Inventories
continue to move toward balance in the market, which is helping
to restore pricing for existing homes, adding a self-sustaining
element to the housing recovery. New home sales also moved
higher toward the end of 2013, and residential construction, as
evidenced by single-family housing starts (see Chart 4), is up
more than 20 percent over last year, although both remain well
below pre-recession levels. With relatively healthy job gains,
growth in residential investment is likely to continue
throughout 2014 at a pace that is slightly constrained by
higher mortgage interest rates.
Businesses continue to report firming demand for the goods
and services they produce, but their investment in structures
and equipment has grown only modestly of late as firms continue
to deal with uncertainties surrounding the strength of the
economic expansion, the course of monetary policy, near-term
tax and regulatory policy, and longer-term fiscal imbalances.
Growth in business investment in equipment, which had been a
major contributor to GDP growth during the first two years of
the expansion, slowed considerably in the latter half of 2012
and remained softer throughout 2013 (Chart 5). The fundamentals
that drive equipment spending are profitability, the outlook
for revenue growth, and the availability of credit; there has
been little change in those areas recently.
Business investment in structures grew modestly in 2013 and
is likely to continue doing so throughout 2014. Nationally,
vacancy rates are still moving lower in office, industrial, and
commercial properties, which has firmed rents and improved cash
flow for landlords. As was the case in residential
construction, nonresidential investment remains well below pre-
recession levels in spite of recent gains.
The uncertainties cited above contribute to a persistent
cautiousness that may be manifesting itself not only in
investment decisions, but also in hiring decisions. We are now
four and half years into the expansion and have not yet
recovered all of the jobs that were lost as a result of it. And
that is as true for South Carolina as it is for the nation.
Payroll employment growth in the nation was above the long-term
average rate for most of 2013, and it has been relatively broad
based across industry and geographic breakouts. Yet, it still
feels ungratifying after losing about 8.7 million jobs
nationally during the Great Recession. In South Carolina, the
recession led to a net loss of nearly 170,000 jobs. Relative to
the nation, South Carolina lost a larger share of its
employment during the downturn (see Chart 6), a phenomenon
attributable in part to the state's reliance on manufacturing
and construction heading into the recession. Over the past
year, job growth in the state has mostly surpassed that of the
nation, but because it's coming out of a deeper trough, South
Carolina still has a longer way to go to reach pre-recession
levels of payroll employment.
The general outlook for job growth remains favorable as
business surveys (including the Federal Reserve Bank of
Richmond's Carolinas Business Activity survey) suggest that
firms continue to hire; temporary help employment rises; and
job destruction (as illustrated in initial unemployment claims
data) remains very low.
As mentioned earlier, the nation's unemployment rate is
currently at its lowest point since October 2008. Yet it's
still more than 2 percent higher than it was prior to the onset
of the downturn, and other measures of duress in the labor
markets (the incidence of long-term unemployment, involuntary
part-time employment, discouraged workers, etc.) remain
elevated. Moreover, there has been a disconcerting trend toward
lower labor force participation. In fact, the nation's labor
force participation rate continued to fall even after the
recovery began and today remains near the lowest it has been
since the late 1970s. In South Carolina, similar trends have
been evident and, most recently, even more pronounced. The
state's unemployment rate has fallen to within 0.1 percent of
the national rate, which is quite a development considering it
stood more than 2 percentage points higher during the worst of
the downturn (Chart 7). Like the nation, the decrease in South
Carolina's unemployment rate has been accompanied by a decrease
in the labor force. In fact, of the 40 counties in the state
that showed year-over-year declines in their unemployment rates
in November, 34 saw an accompanying decrease in labor force
participation. While the decline in unemployment is a welcome
development, lower labor force participation will ultimately
hamper longer-term growth potential by limiting the available
pool of labor. And this decline comes at a time when employers
here in South Carolina and elsewhere around the country lament
a dearth of qualified workers to fill open positions.
Finally, if we look past the plethora of economic
indicators that can often send mixed signals about the economy
and focus on the most basic of economic fundamentals, the U.S.
economy (as well as South Carolina's) has a built-in speed
limit. And that speed limit is a function of two factors: how
fast labor inputs are increasing, and how fast productivity
(our ability to produce goods and services in a given period of
time) is changing. Since the beginning of 2011, employment has
increased at an average of a little more than 1 percent per
year, and productivity rose, on average, a little less than 1
percent. There are many factors that affect flows into the
labor force (population growth, skills attainment,
demographics, etc.), as well as a plethora of reasons that
productivity can change (technological advances, process
improvements, regulations, etc.). Most of them, however, only
change slowly over time.
Admittedly, it is very difficult to predict changes in
labor force participation and productivity, but there is no
evidence to suggest that there is something on the near-term
horizon that will materially alter the national dynamics that
have weighed on economic growth over the past three years.
Thus, the most likely outcome for 2014 is a continuation of
recent trends--a little more than 2 percent GDP growth
nationally accompanied by modest improvements in payroll
employment and the unemployment rate. The outlook for South
Carolina's economy is a little better than average due to its
low cost of doing business, positive migration trends, and
recent high-profile successes (such as attracting Boeing,
Bridgestone, Continental, etc.), but it too will be hamstrung
by the same forces that are adversely affecting the national
economy.
Once again, I'd like to thank the committee for inviting me
to testify today.
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Preamble
The South Carolina Department of Commerce respects and
appreciates the Subcommittee's interest in small business in
rural America, and in South Carolina. We would like to thank
Congressman Rice and the other Subcommittee members, and their
staff, for this opportunity.
The South Carolina Department of Commerce is heavily
engaged in support of small business in South Carolina, and in
rural South Carolina. We recognize the impact of over 280,000
non-employer firms, and over 90,000 employer firms with less
than 100 employees, employing half of all the South Carolina
private sector labor force. Moreover, the 2010 census showed
that thirty-three percent (33%) of South Carolinians live in a
rural area. Small business is an integral part of South
Carolina's economy in employment, wages, investment and
revenue, and equally so for rural South Carolina.
The SC Department of Commerce (Commerce) in recent years
has been increasingly focused on a broader range of economic
development opportunities, including and especially small
business support. In 2004 the Commerce created the Small
Business Ombudsman's Office, and then in 2011 created the full
Small Business and Rural Development Division. As Commerce has
instituted initiatives aimed at supporting small business
growth, the Agency has remained cognizant of rural small
business impacts and outreach.
South Carolina Department of Commerce and State Initiatives
The following initiatives typify the Agency's interest in
and commitment to the start-up, sustainment, and growth of
small business in South Carolina, and in rural South Carolina.
They are provided in the spirit of sharing with other
communities and states, practices which may benefit small
businesses in their rural communities. The SC Department of
Commerce is pleased to provide additional specific information
to any local, state, regional or national entity interested in
furthering support for small business.
The Commerce division of Small Business and Rural
Development is actively engaged in a variety of support, from
direct one-on-one counsel, to regional and state-wide small
business events, to web related outreach and resource
consolidation.
Commerce begins by looking at the structural elements for
small business success. These are the same for small businesses
in rural areas, and apply to the diversity in small business,
whether ethnicity, gender, veteran, etc. These elements are:
General business planning
New business, marketing and business
development
Financing
Operations (product/process and
administrative)
Workforce development
Regulations, permits and licenses
The work carried on by the Agency seeks to connect
programmatic support for each of these elements with the small
business community.
Small Business Advisory Council
Commerce established the Small Business Advisory Council to
improve and coordinate statewide support and resources for
small business. The Council provides insights on the needs of
small business, and coordinates with Commerce to focus on those
needs. Members include agencies and organizations engaged in
daily support of small business, making them attuned to both
needs and delivery. They include:
U.S. Small Business Administration (SBA)
U.S. Department of Agriculture (USDA)
SC Small Business Development Centers (SBDC)
SC Manufacturing Extension Partnership (SCMEP)
Michelin Development Corporation
SC Department of Commerce
The Council provides diversity in geographic
representation, obtaining rural perspective from the USDA, SBA
and SBDCs. The council meets quarterly with the most recent
focus being on the best means of connecting financing resources
to small business. Offshoots being the Lender Matchmaker
program and the SCBizNetwork outlined further below.
Direct Company Contact
Commerce provided through its Small Business Development
staff direct assistance to inquiries from South Carolina
businesses. These may be direct from the companies, or may come
from economic development allies throughout the state. These
inquiries cover all of the areas of special interest and
support for small business.
The largest number of inquiries, one-third, represent
requests for new business and supply chain assistance, while
other requests relate to financing, regulatory questions and
other general operations and business plan advice.
Additionally, 15% of all the one-on-one requests received came
from rural counties. Their needs dovetail with the larger state
small business interests.
BuySC - Supplier Outreach
BuySC is a specific program which matches business
opportunities for South Carolina companies, especially small
businesses, through both a supplier database program and
supplier outreach events. The Agency provides ``buyer''
companies with a strong group of potential, and diverse,
suppliers. Likewise, small business ``suppliers'' are
introduced to buyer companies as well.
BuySC program maintains a database of specific company
information, from NAICS codes to company quality designations.
Businesses can sign up on-line, providing information, which
Commerce uses to match in-state buyer needs, as they are
received. The on-line aspect is continually publicized,
encouraging businesses from across the state to sign-up. There
are no fees involved.
Additionally, Commerce holds outreach sessions on behalf of
buyers, whether Boeing, Continental Tire, or Wal-Mart aimed
specifically at letting South Carolina small business know
about the opportunities available at an OEM, their one or two
company. Commerce also partners with the SBA and SC Chamber of
Commerce in helping product a Salute to Small Business, a
matchmaking event for large and small businesses, associated
with the SBA's Small Business Person of the Year Awards.
These buyer needs might be a service, part, raw material or
process. The outreach events are widely advertised, including
to rural counties and diversity-oriented organizations.
Commerce has held or directly supported 10 of these larger
events over the last three years, involving over 1,000 small
businesses.
Commerce also works with local communities to help connect
public project spending with sub-contractors and suppliers.
After a penny sales tax increase was voted in, Commerce lead
the effort in rural Marion County to have the project director
and county planner host an open solicitation information
meeting inviting all area contractors and sub-contractors to
hear the details on each of 12 projects. The goal was to make
sure local contractors and suppliers had an opportunity to
compete for the project.
Financing - Lender Matchmaker Events/Capital Access
In cooperation with local economic development offices,
local chambers and other business organization, and the Federal
Reserve - Richmond, Commerce has spearheaded seven Lender
Matchmaker events across the state. These events consist of
lender panels, peer to peer panels, and a speed-dating session
for small businesses and lenders. The object is to educate
businesses on lender requirements and opportunities, and then
allow for one-on-one meetings between lenders and businesses.
The goal is for businesses to find the financial information,
and the financing, they need to start and/or grow their
businesses.
This idea started with the Small Business Advisory Council,
and has included participation from 184 small businesses, 166
banks and 104 service providers. Twenty-one (21) rural counties
were included in the seven Lender Matchmaker events. The
Federal Reserve is conducting a longitudinal study on several
of the sessions to help determine who has obtained information
that forwarded the company's business plan, or lead to success
in obtaining financing. Exit surveys of both lenders and small
businesses yielded an average 4.7 satisfaction score out of a
possible 5 - with 5 being ``Most Useful''.
More Lender Matchmaker events are planned for 2014 and
continuing.
SCBizNetwork.com
Access to useful small business information, especially for
the rural business community, can be a challenge. To make
information more accessible Commerce created an interactive
website, SCBizNetwork. Here businesses can find assistance in
answering many of their business questions, including: business
planning, financing, and vendor and supplier development.
The SCBizNetwork site contains a ``Resource Guide'' of all
state business resources, e.g. marketing assistance, finance,
business planning, and workforce support. The site also hosts a
``Resource Finder'', where the user can self-select criteria of
interest and the program prints out a road map of resources
that can address the need. For example a business might be
looking for a $150,000 loan, and they want to see who the
potential finance providers are with a 50 mile radius; the
Resource Finder provides those leads.
SCBizNetwork also hosts a calendar of small business
events; 512 small business related events were posted in 2012.
The site also houses the BuySC supplier/buyer surveys, a
Question and Answer section for on-line business questions, and
a link to the state's Small Business Regulatory Review
Committee. The site has received an average of 1,615 visits per
month. The site is intentional about its availability to all
South Carolina Counties, including rural South Carolina.
SC Regulatory Review Committee
In 2004, South Carolina passed the Regulatory Flexibility
Act. This act established the SC Small Business Regulatory
Review Committee, (supported by Commerce staff). The Committee,
11 small business persons, is dedicated to reviewing all
proposed state regulations for adverse impact on small
business.
While this effort is statewide in nature, the net effect is
that rural small businesses benefit evenly with other small
businesses, as their costs of operation are hopefully held in
check, vis-a-vis, any onerous regulations where small business
was not considered. The Committee has reviewed and commented on
a variety of regulations, e.g. worker's compensation, in-home
day care, underground storage tank regulations, and the
definitions of contract labor.
In the last two and a half years the Committee has reviewed
201 proposed regulations.
State Trade and Export Promotion (STEP) Program
STEP is an SBA-originated program designed to help small
businesses penetrate foreign markets with their goods and
services. South Carolina successfully applied for and received
SBA funds for this program in-state. In the two years of the
program SC Commerce has provided export assistance to 59 small
to medium sized SC companies, entering 24 different markets,
resulting in $3.7 million in export sales. Fourteen Percent
(14%) of the companies were located rural counties in South
Carolina.
County presentations: getting the message out
Commerce is active in making local presentations to small
business and community leaders about the various resources
offered to small business. One of the Small Business
Development staff just completed a swing through the
Northeastern part of South Carolina, a predominantly rural area
of the state, over a four month period speaking to four
different business and community groups on how to access
specific support for their businesses.
Existing Industry Visitation
Part of the work of the Small Business and Rural
Development division includes an existing industry call
program. Commerce representatives call on manufacturers across
the state, primarily larger employers, looking for expansion
opportunities and problems and concerns. The state wants to
address both very quickly to minimize a lay-off situation, or
to provide comprehensive support for an expansion opportunity.
Existing Industry staff has called on 47 companies in 20
rural counties since the program's inception in 2012. This is
28% of all existing industry visits, in almost half of the
state's counties. These companies, many larger than 100
employees provide vital support for the small business
infrastructure in a rural community.
Emergency Support Function (ESF) 24 - Business and Industry
Commerce coordinates ESF-24, helping coordinate public and
private sector response in support of the business community in
case of an emergency or natural disaster. One area of focus is
getting assistance to small businesses as quickly as possible,
as the closure rate for adversely affected small businesses
following a disaster is high.
Commerce spearheaded business support for a downtown fire
that destroyed fire eight structures, affecting 22 small
businesses in coastal Georgetown County. Insurance, finance,
local government, the SBA and the Small Business Development
Centers were all involved in assistance. While not a rural
county per se, this is the type of service available to urban
and rural communities.
Community Development in Rural South Carolina
The work of Community Development can have a direct impact
on small business. Small businesses in rural communities
quickly feel both plant lay-offs closures and new economic
development projects that come to fruition.
Product Development
The Dept. of Commerce has been involved in product
development for years providing financial support for
speculative buildings, industrial park development and
even redevelopment of rural downtowns.
During the first six months of 2014 the Rural Product
Development Initiative will be launched. $2 million has
been designated from the state's Rural Infrastructure
Fund for this competitive grant program. Eligible rural
counties may apply for up to $350,000 to support the
development of speculative buildings (at least 50,000
sq. ft. in size), industrial park upgrades or pad-ready
sites. Counties developing 100,000 sq. ft. speculative
buildings may apply for up to $500,000.
Site Certification
The Dept. of Commerce provides financial support to
rural communities to help offset the costs associated
with site certification. South Carolina's site
certification program has been recognized by Area
Development magazine as the #1 site certification
program in the country.
Education
Commerce provides two educational opportunities for
rural leaders and those involved in rural economic
development, the South Carolina Rural Summit (160
community leaders), and the South Carolina Economic
Development Institute (60 community and ally leaders
will attend the 2014 session). Both include components
which cover the importance of small business to the
rural community, and discuss ways to support those
businesses locally.
Partners
South Carolina Small Business Development Centers
(SBDC)
The SC SBDC is recognized as the gateway provider of
small business assistance driving entrepreneurial
growth and success. Commerce considers the SBDC to be
on the front line of technical face to face business
assistance, helping companies with everything from
QuickBooks to government procurement. The SBDC operates
through 17 offices across South Carolina, covering
every area of the state. The SBDC advises companies on
business planning, new markets, and financing and
cashflow, among other areas. The SBDC can also offer
advice on exporting and technology commercialization.
Commerce provides a grant to the SBDC, expressly to
support rural initiatives and outreach within eight
rural South Carolina counties: Cherokee, Chester,
Lancaster, Union, Chesterfield, Darlington, Lee and
Williamsburg. www.scsbdc.com
SC Business One Stop (SCBOS)
SCBOS is a true One Stop for starting a business. In
addition to getting general reference information on starting
and growing a business, the site's unique feature is the
ability to get tax payer ID numbers, file for LLC
incorporation, and conduct various other on-line filings with
the Department of Revenue, Department of Health and
Environmental Control, Department of Employment and Workforce
(unemployment insurance tax filings), and others.
The purpose behind SCBOS is to allow persons to deal
with a variety of permits and licenses without having
to travel from agency to agency. A small business can
effectively get started and operate from any rural
setting in South Carolina, all on-line. Commerce is a
part of the SCBOS Executive Advisory Board.
www.scbod.sc.gov.
SC Manufacturing Extension Partnership (SCMEP)
The SCMEP is a 501 C 3 chartered to provide technical
production and process support to South Carolina's
Small and mid-sized business community, focused
primarily on manufacturing. (There is one in about
every state.) They operate under the auspices of NIST
(National Institute of Standards and Technology), and
are generally funded a third state, one third federal
and one-third from fees. Manufacturers with fewer than
100 employees are one of the SCMEP's prime targets,
which make them available to all of rural South
Carolina. The SCMEP is a very effective organization as
a positive change agent. (A Small Business and Rural
Development staff member serves on the SCMEP Board.)
Areas for Federal Consideration
Several suggestions are offered for federal consideration
that could have positive benefit for rural small business.
Support for the SBDCs and SCMEP
Greater recognition and support of the SBDCs and
SCMEP should be considered for these institutions. They
provide frontline support for small businesses, and
have comprehensive offerings for clients from specific
issues like how to obtain a federal contract (SBDC), or
training in LEAN manufacturing (SCMEP); to more
general, but equally important, providing business plan
advice (SBDC), or a full business competitiveness
review (SCMEP). More resource allocation could be made
to both organizations in direct support of business in
rural counties. These organizations have the
opportunity to provide needed technical advice to small
business in rural communities.
Regulatory Burden
The regulatory burden on all small businesses is
significant; all federal agencies should continue to
examine their regulations for adverse impact on small
business. The frequent unintended consequence of
regulations can affect rural small business in
particular. As an example, when a regulation or law is
made requiring all real estate appraisers to have a
four year bachelor's degree, this requirement by
default can put those in rural communities at a
disadvantage. The candidate must now have the four year
degree. Those who enter the profession are also most
likely to become small businesses themselves. This
example illustrates the impact changes to professional
certification can have on an industry and group of
professionals, and their opportunity to start a
business or break into a profession.
Other regulations that impact small business often
stem from the reporting requirements of agencies like
the EPA or OSHA. No one wants worker safety or the
environment to be compromised. However, comprehensive
review of all proposed regulations can serve small
business well.
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U.S. House of Representatives Committee on Small Business
January 24, 2014
Founded by the Community Foundation for a Better Hartsville
(``CFBH'') and located in downtown Hartsville, The Duke Energy
Center for Innovation (``DECI'') is designed to support new
technology company formation and development. Representing a
unique private-public collaboration, the City of Hartsville and
others, are committed to linking innovators to business
development resources and seed financing and to providing
support services through Clemson University's Regional
Entrepreneurial Development Center to commercialize emerging-
technology products and services. Components of the DECI
structure include a community owned and operated storefront
incubator, community consultant training provided by Clemson,
use in partnership of Clemson's Regional Entrepreneurial
Development Center to offer high levels of professional
support, and a web-based service network provided by Clemson.
This is all done via a hybrid internet--consultant model
designed for non-metro areas across the state of South
Carolina.
Leaders from the City of Hartsville learned of the program
from counterparts in Bluffton, S.C., which had started a
similar technology incubator twelve months earlier. They
learned there would be four other communities identified by
Clemson to locate regional technology centers. The Community
Foundation was quickly convinced that this economic development
tool would be ideally suited to the Hartsville community. The
Community Foundation created a separate advisory board for the
DECI, which largely functions as a standing-committee of the
CFBH.
In addition to winning support from another local
foundation, The Byerly Foundation, and the Duke Energy
Foundation, who, sharing our vision for economic development
for Hartsville and the surrounding community and are serving as
major partners in the DECI, numerous individual and
institutional stakeholders including Sonoco, Coker College,
Florence Darlington Technical College, The Governors School for
Science and Mathematics, and downtown business leaders are
playing important, collaborating roles in the project's
success.
The Duke Energy Center for Innovation is a part of the
Clemson Technology Villages Pilot Program. The Clemson
Technology Village program is a hybrid internet-consultant
program designed to support new technology company formation
and development in non-metropolitan areas. Clemson developed
this pilot program after eight years of research and launched
its first Center in Bluffton, SC. The Hartsville site is one of
three currently operating centers across the state of South
Carolina. The third location is located in Rock Hill, South
Carolina. There are plans for two additional centers to be
located in other areas in South Carolina, bringing the number
of centers to five across the state.
The Technology Village hybrid model is set up in away to
deter technology start up challenges in non-urban communities.
When we look at the state of South Carolina, we can fine
incubator programs focused on technology start-ups in the three
densely populated areas: Columbia, Charleston, and Greenville/
Spartanburg. This program sets out to overcome obstacles of
funding, access to services and technology, and lack of
confidence and networks. A typical budget for a Technology
Village Center site is projected to operate at an annual budget
of $200,000. This is a fraction of the amount that most centers
use in larger urban areas. The reduced cost, access to service
and technologies, and increased credibility can be attributed
to the partnership with Clemson University and the hybrid model
of sharing resources using technology among all the centers at
Clemson's Regional Entrepreneurial Development Center.
Each center operates independently from one another finding
their own funding sources, hiring their own director and
recruiting entrepreneurs. It is to be made clear that each
center is owned and operated by the community it supports.
These centers are not Clemson run programs. However, Clemson
University plays a vital role in the vitality of each center.
This is a Clemson pilot program that the Community Foundation
for a Better Hartsville pays to take part in for three years.
With this partnership members of the community and the director
of DECI received a twelve week training course ``Building a
Community Technology-Oriented Incubator Program'' that included
course materials relevant to building, managing, and
maintaining a community incubator program. Course sections
included: technology acquisition and evaluation, conducting a
detailed analysis and evaluation of patents, technologies, and
markets, strategy development, developing a service cost model
and product development, developing a pro forma, developing a
business and operation plan, company staffing, formation and
building a board, seed funding strategies, communication skills
for an investor presentation, and future partnerships.
As a partner with Clemson, the DECI has access to the
Clemson Regional Entrepreneurship Development Center and its
staff and students. These MBA students and their director
provide resources needed to help entrepreneurs succeed within
their business development. Some of the resources they provide
in collaboration with the Duke Energy Center for Innovation
include: entrepreneur/company assessment and evaluation, new
company development plan and schedule, intellectual property
acquisition, strategy development, marketing research,
operational plan development, business plan development,
technical resources, special university services or studies,
advisory committee access, staffing assistance, corporate
relationships, seed/angel funding, company formation, legal and
accounting services, innovation network access, and additional
local and state support services. These services are offered in
a collaborative effort with Clemson University's staff,
students, the director, and advisory council of DECI.
The incubator is currently working with five entrepreneurs:
Houston Penny III, Alan Hubbard, Jonathan Britt, Shernard
Robinson and Mark Nankervis, Mr. Hubbard, who introduced
himself at the Center's first idea night event, has built a
prototype communication device to support game trapping. His
system can notify trappers when their game traps close. This
idea, which emerged as a solution to challenges associated with
controlling populations of feral hogs in the southeast, may
have multiple applications in the field of animal conservation
and trapping.
Current efforts involve working with partners at Clemson
University to complete the marketing analysis and with
Southeastern Institute for Manufacturing Technology, and
Florence Darlington Technical College to build a new, more
market-ready prototype.
Maryland native Houston Penny III works as a nuclear
technician charged with overseeing RNP Reactor Services at the
Duke Energy Robinson Plant. He is in the process of developing
a software application to improve inventory control of
materials that are used in and out of foreign material
exclusion areas of the plant. This application will minimize
risk and has the potential to save members of this highly
regulated industry millions of dollars. Earlier this month
Penny recently received unofficial news that his proposal for
$300,000 seed financing has been approved. If developments
proceed as he expects, Houston will rent or buy a building
downtown from which he will operate his new business. In
addition, he is developing plans to take advantage of other
business opportunities to which the new software may be
applied. He expects his business to create two jobs in 2014 and
four more in 2015.
Jonathan Britt, a senior at Coker College, has developed a
web-based buying and selling platform that is linked with the
social media account Facebook. He and a group of his friends
have built a web platform over the past three months. The
incubator is providing assistance with recruiting coders as
well as helping with the development of market research, cost
models, the business plan and practical marketing strategy. The
site, sailtrail.org is live in bet format and is currently
being tested with students at Coker College.
Finally, the Center's most recent clients are the very
early stages of developing their businesses. Shernard Robinson
is a Hartsville native living both here and in Columbia. He has
recently returned from New York where he studied at NYU. His
technology is a software/web platform for aspiring urban gospel
artists and speakers. The Center is supporting Mr. Robinson's
efforts to develop a feasibility study.
Mark Nankervis is a Coker senior working with his two
uncles who have a patented technology in the Midwest Region of
the United States. Nankervis Enterprises has a pond sediment
reduction technology first built for cattle feed lots. Since
its invention, the device has also been used for pig lots,
erosion control and sediment reduction applications. Patterned
with Clemson Agriculture Department and research team the
Center is helping to evaluate opportunities within the Pee Dee
Region and across the Southeast Region of the United States.
In addition to working directly with local entrepreneurs,
the Center is engaged in a number of outreach activities
designed to reveal and cultivate relationships with future
entrepreneurial tenants. For example, the Center created an
idea competition, which was open to students and faculty at
Coker, Florence Darlington Technical College, and the GSSM.
Although the program was not embraced as fully as had been
hoped, we will review the program, looking for ways to improve
it, and will likely expand it in 2014 to include students and
faculty at Hartville High School.
Beyond direct outreach efforts that designed to reach
regional educational groups, the center has developed and
presented formal presentations for numerous civic and economic
development groups throughout the Pee Dee Region.
Beginning in 2014, the Center will being monthly after-
hours learning sessions open to the public and encourage high
school and college students to attend business development
workshops to discuss timely topics such as entrepreneurship,
patent research, branding, advertising, Google Ad Words, social
media, etc. Another idea under consideration involves doing
more individual interactive learning sessions with high school
and college classrooms. We want to encourage students to take
advantage of the Center as much as possible and invite faculty
to use their resources and expertise to develop new technology-
based ideas with potential to grow in Hartsville.
As a specific example of outreach activities planned for
January 2014, at 8:30 a.m., Wednesday, January 22, the Center
will host a public breakfast reception with Bruce McIndoe, CEO
and founder of iJet International, a global risk intelligence
company that began as an IT-based travel service focused on
providing security support for corporate executives.
The Factors most critical to the success of the Duke Center
for Innovation include political and administrative support,
financial backing, community buy-in, and a knowledge/innovation
pool. Since its inception in June 2013, the Center has seen
tremendous success, recruiting five entrepreneurs to the
incubator. The technologies being developed by these innovators
have tremendous application potential, and if this potential is
realized, the region will benefit from the creation of new
jobs. The city administration has demonstrated their support of
this endeavor by providing the building and community resources
needed to help it succeed. The community has illustrated
tremendous buy-in through their continued participation in
public education outreach initiatives. Local businesses provide
mentoring opportunities for burgeoning entrepreneurs hosted by
the Center, and in turn will benefit from the draw of high-
skilled workers that high-tech start-ups bring. Educational
institutions are finding partnerships with the Center mutually
beneficial, as the Center allows for engaged learning
opportunities beyond the classroom and an outlet for students
to further hone crucial career skills. The Center benefits from
the passion, creativity, and technical savvy of local students.
Continued success will be realized through healthy
relationships with all of these agencies and more. Successful
programs to fund the top technology companies that come out of
our center and sister centers will be crucial for a constant
full pipeline of new technology start-ups in the State of South
Carolina.
After year one, our goal in Hartsville remains the same,
supporting the Pee Dee region as a technology accelerator/
business incubator program providing the business development
resources, support services, and network needed to have a
greater success rate for new technology companies. We then
believe these companies will remain in the Pee Dee region
supporting one another and growing to offer more jobs,
recruiting the talent needed to support the high-tech fields
they represent. Ultimately, with success we project to change
the image in our region and across the state of South Carolina
to an innovative technology hub of activity. Our goal is to
graduate three to five new start-up companies a year after our
year one. We are still within the first year and will continue
to collect data to develop future impact studies to identify
how successful this program is moving forward.
January 24, 2014
Testimony of
Jeff McKay
Before the
Subcommittee on Economic Growth, Tax and Capital Access
of the
Committee on Small Business
United States House of Representatives
Getting Rural America Back To Work:
Solutions to Unemployment
Tesimony of
Jeff McKay
Before the
Subcommittee on Economic Growth, Tax and Capital Access
of the
Committee on Small Business
United States House of Representatives
January 24, 2014
Chairman Rice and members of the Committee, my name is Jeff
McKay. I am the executive director of the North Eastern
Strategic Alliance (NESA). NESA is a regional economic
development alliance that is constituted by all eight counties
of the Seventh Congressional District, with the addition of
Williamsburg County.
I am pleased to be sharing the experiences I've had working
with rural businesses. Working with our member counties,
businessmen and women and entrepreneurs throughout our region,
I and the staff of NESA have the opportunity to hear many of
the needs and wants of the business community.
In my testimony, I would like to make three key points:
There is a need for mentoring opportunities that
would assist entrepreneurs with navigating the pitfalls and
challenges of starting a new business
Access to capital for small businesses and
entrepreneurs in rural areas is vital to the economic health of
our region
The continuing improvement of our region's
infrastructure, including interstates, ports and broadband,
presents a crucial fulcrum on which rural small businesses
balance
Providing mentoring and backing for new business and
entrepreneurs
Currently, there is a need for an outlet whereby
individuals seeking to start a new business can consult with
entrepreneurs who have a need for business guidance from
experienced individuals that have been through the process and
challenges of creating a profitable venture. Rural America is
desperately in need of an apparatus that allows for the
knowledge and wisdom of experienced business people and
entrepreneurs to be imparted to a younger generation.
Similar to Teach for America--a non-profit organization
that is focused on providing high quality teachers in rural and
low-income areas--business-oriented mentoring programs could be
a vital tool in improving rural job growth opportunities.
An effort such as this would allow individuals seeking to
start a new business to consult with experienced entrepreneurs
who have an understanding of the business world and can share
their experiences with these individuals on common business
issues such as healthcare, understanding how a business is
taxed, the process of creating a long-term business plan, etc.
which can sometimes overwhelm a new business owner. This would
allow the entrepreneurs to focus on the management of their
business with the insight and counsel of an experienced
professional. A lynchpin of this endeavor could rest in the
initiative's flexibility to accommodate the needs of businesses
within diverse environments throughout our region and other
region's throughout the nation.
Improving access to capital
Access to capital for rural businesses is also an issue
that needs to be addressed. Small, rural businesses will
struggle with access to credit, which affects their ability to
grow. Sometimes it's a small amount of money for minor facility
improvements or equipment purchases. If a rural initiative were
established to provide low level loans, it would be a great
asset to rural businesses.
In rural areas especially, current practices and economic
conditions now make it difficult for entrepreneurs to access
capital. One idea to help with this situation could be the
possibility of the creation of a rural capital access program
or a revolving loan program with terms and conditions that are
simple in nature and more easily accessible in rural areas.
Continued improvement of our region's infrastructure
One of the most pressing needs our region has in terms of
strengthening the rural workforce and creating a better
business climate is an improved infrastructure. Regarding our
regions infrastructure, interstate, ports and broadband access
all must continue to be improved to create a more high quality
business environment.
I-73, a planned interstate that traverses our region, is a
key to future growth within our region and continued support
and passage of the Federal Highway Reauthorization Bill will be
important to the road's future. The completion of the South
Carolina portion of I-73 will allow the region to continue to
grow unmitigated by travel and distribution constraints and
will provide a greater level of connectivity to the rest of the
nation.
According to a report by Chmura Economics, I-73 can provide
$120.8 million in annual cost savings for current businesses as
a result of increased travel efficiency and the annual economic
impacts of the road are estimated at $2 billion and will
sustain 22,347 jobs in South Carolina in 2030 and beyond.
Additionally, a study by Coastal Carolina University
concluded I-73 would spurn the creation of 7,700 jobs, along
with an injection of $170 million into the local economies
within the path of the road during the proposed five years of
construction.
The Port of Georgetown should also be dredged in order to
sustain a strong manufacturing base in that part of the state.
This is a project of great significance to our region as it
will provide an additional selling point to potential
businesses considering locating within our area.
This project was moved much closer to reality in October as
Congressman Rice assisted mightily with the passage of the
Water Resources Reform and Development act, which allowed for
the allocation of federal funding for dredging of the Port of
Georgetown.
The impact, both planned and unplanned, that the dredging
of the Port of Charleston will have on South Carolina and the
entire eastern half of the U.S. stands to be immense. There are
many companies that are currently using the port and that
number will only grow with the access that dredging brings.
Companies may relocate if they cannot take advantage of post-
Panamax shipping opportunities via the Port of Charleston.
Money for dredging is imperative to assure South Carolina's
place as a home to a major east coast port.
The region's broadband Internet access must continue to be
improved as well to ensure continued economic growth.
Currently, 26 million Americans living in rural areas are
without high-speed Internet access. This restricts their
ability to find jobs, customers within and outside of their
market and research information to better their business.
The federal government could assist the dissemination of
broadband Internet access by working with telecommunications
providers to either incentivize the creation of rural broadband
networks and work with the providers to ensure small
communities are covered or work with state and local
governments to ease the restrictions on publically-owned
broadband networks and assist with the funding of these capital
projects.
In many cases, broadband access could allow for greater job
growth within rural communities as well. Work-from-home
opportunities abound in today's workforce and many call centers
are focusing on virtual call centers as a more efficient means
of reaching their workforce without having to procure a
building, paying the subsequent cost of the facility or many of
the other hindrances to creating a call center.
Greater broadband access in rural areas would create a more
streamlined process for potential employees as they search for
jobs, as well as making it easier for businesses to find
qualified employees.
Conclusion
The need for continued support along these three areas is
vital to our region's continued economic growth. The creation
of mentoring opportunities that could assist new business
owners in navigating the issues of running a business is
crucial. Currently, there are a number of organizations that
are able to help businesses during the infantile phases of the
process, but there is a distinct need to create a flexible
apparatus that's able to help guide entrepreneurs through the
common issues and pitfalls of running a business.
Access to capital, especially for small-rural businesses
must be made available. Currently, regulations, both new and
revised, hinder the loan process for many small banks, leaving
only the larger banks as a source for capital. New and
innovative programs in rural areas could spur new business
opportunities.
The continued support of the improvement the area's
infrastructure will also help in improving the economic
standing of our region's rural areas. Within our region, the
completion of I-73, the dredging of the Georgetown and
Charleston ports along with the improved of the dearth of
broadband access will make continued economic growth possible.
Thank you for the opportunity to speak.