[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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                   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.

                                 
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