[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
THE LOCAL IMPACT OF ECONOMIC GROWTH
=======================================================================
HEARING
before the
SUBCOMMITTEE ON ECONOMIC GROWTH, TAX, AND CAPITAL ACCESS
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
SECOND SESSION
__________
HEARING HELD
SEPTEMBER 27, 2018
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 115-091
Available via the GPO Website: www.govinfo.gov
_________
U.S. GOVERNMENT PUBLISHING OFFICE
31-559 WASHINGTON : 2019
HOUSE COMMITTEE ON SMALL BUSINESS
STEVE CHABOT, Ohio, Chairman
STEVE KING, Iowa
BLAINE LUETKEMEYER, Missouri
DAVE BRAT, Virginia
AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
STEVE KNIGHT, California
TRENT KELLY, Mississippi
ROD BLUM, Iowa
JAMES COMER, Kentucky
JENNIFFER GONZALEZ-COLON, Puerto Rico
BRIAN FITZPATRICK, Pennsylvania
ROGER MARSHALL, Kansas
RALPH NORMAN, South Carolina
JOHN CURTIS, Utah
NYDIA VELAZQUEZ, New York, Ranking Member
DWIGHT EVANS, Pennsylvania
STEPHANIE MURPHY, Florida
AL LAWSON, JR., Florida
YVETTE CLARKE, New York
JUDY CHU, California
ALMA ADAMS, North Carolina
ADRIANO ESPAILLAT, New York
BRAD SCHNEIDER, Illinois
VACANT
Kevin Fitzpatrick, Majority Staff Director
Jan Oliver, Majority Deputy Staff Director and Chief Counsel
Adam Minehardt, Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Dave Brat................................................... 1
Hon. Dwight Evans................................................ 2
WITNESSES
Mr. Larry Lopez, President, Green JobWorks LLC, Baltimore, MD,
testifying on behalf of Associated Builders and Contractors.... 3
Mr. Mansour Azimipour, President, A&K Development Corporation,
Locust Grove, VA............................................... 5
Ms. Brenda Jones Barwick, President and CEO, Jones Public
Relations, Oklahoma City, OK, testifying on behalf of Women
Impacting Public Policy........................................ 7
Ms. Valarie J. Cofield, President and CEO, Eastern Minority
Supplier Development Council, Philadelphia, PA................. 9
APPENDIX
Prepared Statements:
Mr. Larry Lopez, President, Green JobWorks LLC, Baltimore,
MD, testifying on behalf of Associated Builders and
Contractors................................................ 17
Mr. Mansour Azimipour, President, A&K Development
Corporation, Locust Grove, VA.............................. 24
Ms. Brenda Jones Barwick, President and CEO, Jones Public
Relations, Oklahoma City, OK, testifying on behalf of Women
Impacting Public Policy.................................... 29
Ms. Valarie J. Cofield, President and CEO, Eastern Minority
Supplier Development Council, Philadelphia, PA............. 35
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
IAHC - International Association for Health Coaches.......... 43
THE LOCAL IMPACT OF ECONOMIC GROWTH
----------
THURSDAY, SEPTEMBER 27, 2018
House of Representatives,
Committee on Small Business,
Subcommittee on Economic Growth,
Tax and Capital Access,
Washington, DC.
The Subcommittees met, pursuant to call, at 10:00 a.m., in
Room 2360, Rayburn House Office Building. Hon. Dave Brat
[chairman of the Subcommittee] presiding.
Present: Representatives Brat, Knight, Kelly, Gonzalez-
Colon, Fitzpatrick, Balderson, Evans, and Clarke.
Chairman BRAT. Good morning. I would like to call this
hearing to order.
As I am sure you all know, I used to teach economics for a
number of years, and on that note, I would like to welcome one
of our college students out here. Kira came and she has got
relatives on the panel. Thanks for being with us today.
And I think this Subcommittee has done an excellent job
this Congress of having both sides of the aisle coming together
to examine and promote policies that promote economic growth
and small business.
At the beginning of this Congress, this Subcommittee held a
hearing examining the state of small business economy. The
economy had just come off a 1.6 percent growth rate in 2016.
There are a lot of economists beginning to ask the question,
have we reached a new normal? Can we rise above the 2 percent
GDP growth that seems to characterize Europe?
However, 2018 has marked a stark difference to those years
of slow growth. In the second quarter of 2018, economic growth
hit 4.2 percent according to the Council of Economic Advisors.
GDP is on track to hit its highest mark since 2005 and the
Atlantic Fed has us growing at I think 4.6 percent next
quarter. So this Committee obviously wants to keep that
rolling.
This growth has also allowed companies to make long-term
investments. According to UBS, capital spending, the primary
variable that drives economic growth rose 21 percent in the
first quarter and 24 percent in the second quarter this year,
which are both the highest increase seen since 2011. Increased
capital spending means that businesses are using more resources
to make needed renovations, research the next great idea, and
maximize economic growth. In economics, we also know that
capital investment in the hands of workers increases
productivity, and in macroeconomics, productivity is equated
with wage growth. And in August we had 3 percent wage growth.
So the capital investment is making people's lives better
across the board.
This recent expansion has not just benefitted a select few,
but rather helped Americans in small businesses across a
variety of economic and demographic backgrounds. Unemployment
rates across every demographic are at or near historic lows,
decade lows. Wage growth since the beginning of 2017 for
nonwhite Americans has outpaced the national average.
Furthermore, minority-owned small businesses are growing faster
than the national average, and their impact will continue to
grow even greater in the years to come.
This morning, we have an excellent panel. I met with all of
them--we discussed sports for a while--to discuss how the
recent surge in economic growth and the policies and acts of
this Congress have impacted minority-owned small businesses. By
hearing their stories, we hope to further understand how
Congress can continue to promote pro-growth policies to help
small businesses of all industries and backgrounds.
And I would now like to yield to the Ranking Member, my
friend, for his opening statement.
Mr. Evans?
Mr. EVANS. Thank you, Mr. Chairman. And good morning.
Minority entrepreneurs play a significant role in the U.S.
economy. They own almost 8 million firms generating nearly $1.4
trillion in revenue and employ over 7 million workers. I am
glad we are here taking time today to talk about minority small
business owners and how the entrepreneur successes are critical
to the prosperity of the United States.
Despite these impressive numbers, minority-owned businesses
still face many barriers starting and growing their businesses.
The policies of the Trump Administration have not helped
minority entrepreneurs. Since the tax reform bill passed last
December, it has become clear that the majority of the benefits
from the tax reform bill go to larger corporations and the very
wealthy. Some small firms are seeing, at best, marginal
benefits. Many others have yet to see meaningful advantages.
Additionally, the tax plan jeopardized health coverage for
13 million Americans. The future deficit pressures could impair
Social Security, Medicaid, and Medicare. Ultimately, ACA and
vital Social Security net programs impose indirect costs on
responsible entrepreneurs who want to do the right thing by the
employees.
Additionally, the Congress has played a critical role in
ensuring regulations are not too burdensome while at the same
time protecting the American public. It is, therefore,
irresponsible for the legislative or the executive branch to
haphazardly get rid of regulations without thoroughly looking
at the impact and the long-term consequences. Although on its
face, Executive Order 1371, which says that for every new
regulation issued at least two prior regulations should be
identified for elimination, may seem like a good idea, it has
very real impact on the lives of small business owners. We must
collaborate to thoroughly produce streamlined regulations for
small firms, while keeping in mind our ultimate goal to protect
consumers and public safety.
If the Trump Administration truly wants to support minority
businesses, they would not have eliminated the Minority
Business Development Agency (MBDA) in the President's Fiscal
2017 Budget Proposal. Even after objections from the business
community, the Trump administration's proposed budget only
resulted in $6 million for the MBDA. This number is
significantly less than the $34 million appropriated in fiscal
year 2017. How can they say we are serving the needs of
minority businesses when the administration continues to attack
the sole agency focused on the needs of minority-owned
businesses? Trying to get rid of the agency is just
irresponsible.
And I would like to add that we sent a letter to the
appropriators in the House and the Senate, along with my
Pennsylvania colleague, Senator Casey, stressing the importance
of the MBDA in Philadelphia, which is run by a woman by the
name of Della Clark.
Minority business owners offer an invaluable contribution
to our economy and they need help.
Today's hearing offers two opportunities to discuss how
Congress can better help our nation's minority entrepreneurs
prosper. I look forward to hearing from our witnesses on how we
can ensure American minority entrepreneurs have the resources
they need to grow and prosper.
I want to thank the Chairman especially, and I yield back
the balance of my time.
Chairman BRAT. Great. Thank you very much, Mr. Evans.
If Committee members have an opening statement prepared, I
ask they be submitted for the record.
I would like to take a moment to explain the timing lights
for you. I doubt they will come into play.
You will each have 5 minutes to deliver your testimony. The
light will start out as green. When you have 1 minute
remaining, the light will turn to yellow. Finally, at the end
of your 5 minutes, it will turn red. I ask that you try to
adhere somewhat within the parameters of that. If you go over a
little, do not worry about it.
And with that, I would like to start introducing our first
witness with us today, Mr. Larry Lopez, President of Green
JobWorks in Baltimore, Maryland. This morning, Mr. Lopez is
testifying on behalf of the Associated Builders and
Contractors, where he chairs their Diversity Committee.
Thank you very much for being with us today, Mr. Lopez, and
you may begin your testimony. Thank you.
STATEMENTS OF LARRY LOPEZ, PRESIDENT, GREEN JOBWORKS LLC;
MANSOUR AZIMIPOUR, PRESIDENT, A&K DEVELOPMENT CORPORATION;
BRENDA JONES BARWICK, PRESIDENT AND CEO, JONES PUBLIC
RELATIONS; VALARIE J. COFIELD, PRESIDENT AND CEO, EASTERN
MINORITY SUPPLIER DEVELOPMENT COUNCIL
STATEMENT OF LARRY LOPEZ
Mr. LOPEZ. Good morning, everyone. Chairman Brat, Ranking
Member Evans, and members--well, we only have the two of you
today but Committee, Subcommittee, and members of the
Committee, Subcommittee on Economic Growth, Tax, and Capital
Access. Thank you for allowing me to be with you today to
discuss this positive impact that the Congress and
administration's policies have had on my small business, and
businesses of all kinds.
As you stated, my name is Larry Lopez, and I am the
President of Green JobWorks.
Today, I am testifying on behalf of ABC, Associated
Builders and Contractors. They are a national construction
industry trade association, who were established in 1950, and
they represent more than 21,000 members throughout the country.
We were founded on the merit shop philosophy, and ABC and its
70 chapters help members develop people, win work and deliver
that work safely, ethically and profitably for the betterment
of the communities which the members live and work in.
So my company, Green JobWorks is a construction staffing
company. We were founded in 2011 in Baltimore, and we provide
labor to the industry. We really believe that we take the
burden away from hiring people, which can be very challenging.
We find the right people for the right job for our clients to
help them deliver work the right way.
We also have expanded and grown and developed several other
divisions in our company in construction. So we do demolition,
we move asbestos, and we do post-construction cleaning. So we
kind of dip on both sides here.
My company today, I wanted to tell you how it has
benefitted from tax cuts and the regulatory changes that have
happened. The Tax Cuts, and the Jobs Act, specifically, really
helped my business. With the increase in the construction
industry, all its growth, companies having higher profit
margins, being more comfortable just really doing business and
growing, it has really built up, I feel, a lot of confidence in
the industry. And that specifically has helped my company grow
and be able to reinvest that growth with benefits to my
employees. So I have been able to implement annual raises from
a staffing perspective, which is pretty unheard of. Pay
increases for folks after working for me 30 days. We promote
people internally. Positions like crew leaders on projects. We
have obviously implemented more technology on our projects. We
use iPads on job sites now. We use iPads to do applications and
onboarding. So all the changes have really helped my company
tremendously.
And as far as the divisions that I mentioned earlier, the
growth in my demolition, asbestos, and post-construction
cleaning has been really kind of off the charts. At one point
it was probably about 10 percent of my revenue and it is at
around 30, 35, and it continues to grow.
All this happens, in my opinion, due to the changes that
have taken effect in the last year or so. Because of all this
growth, obviously, I have had to hire more staff. We are
continuing to even look to hire more. So given the challenges
in the workforce, we believe that, you know, training is
critical, on-the-job training even more so. So we are looking
to create a full-time training position from a staffing model
to allow our clients to have our employees trained on the job.
The last point that I think is important as far as
workforce is diversity. I would be remiss if I did not talk
about--you mentioned that I was the Chair of the ABC Diversity
Committee. I take that role very seriously. It is really
important, I think, to make it clear that as a country, we are
not going to make it if we do not understand the importance of
the fact that we have to diversify our workforce. We have to
diversify--we could go all day on it, but as the industry
itself, I think it is critical that we understand we have to
look at different places to find folks right now because of the
workforce shortage. While it is great that unemployment is low,
it is very difficult, I feel, to be able to fill all these
positions if we do not start training people. And I know we
talk about it a lot, but there is not enough.
So what I will ask Congress is that continuing to pass
legislation like H.R. 2353, which is the Strengthening Career
and Technical Education for the 21st Century Act, that allows
dollars to go to private organizations to do training, because
that is really important if we are going to continue to
backfill the workforce that is aging out right now.
There are a lot more things I really wanted to say, but I
will close by saying this: The contributions that Congress and
the administration have made in the past year on tax reform and
regulatory relief have unlocked the potential for my small
business to create growth and opportunities for everyone.
So I want to thank Chairman Brat, Member Evans, again, for
inviting me today to participate in this hearing. I look
forward to answering any of your questions about how my small
business has benefitted from economic growth in my community
and become more successful in this really competitive market.
Thank you.
Chairman BRAT. Thank you. It is not every day we have a
good news Committee panel. So great to hear the good news that
is happening out there.
Our next witness is a business leader in my own community
and a good friend over the years, Mansour Azimipour. And he is
President of the Construction and Development Company, A&K
Development Corporation in my district in Virginia. Mr.
Azimipour also established the Economic Development Partners
Group of Orange County, which actively works with new and
existing businesses in the county to maximize investment and
job creation. He is a good friend of the community. He knows
how to make friends across the aisle, across every demographic
and friendship group you can have. He is an ideal person to
have testimony today.
Thank you for being here with us, and you may now testify.
STATEMENT OF MANSOUR AZIMIPOUR
Mr. AZIMIPOUR. Thank you, Mr. Chairman. Thank you, Mr.
Evans. I am honored to be here today. I am talking on behalf of
myself. I am not debt master with anybody.
I am here and proud to be a part of Virginia small
business, the state that is one of the top states to do
business in and the best place for me to live in.
My story starts from about 50 years ago, 50-plus years ago
when I was just 9 years old when I started my corporate-like
business hiring kids twice as much my age, teenagers, to sell
my fireworks in neighborhoods and get their commission. And
they were acting actually, because their livelihood depends on
that money, they were acting like my bodyguard to make sure
that I am safe to give them the product to sell. And I am proud
of that time.
And since then I am proud also to say that all these years
I never received a paycheck from anybody. I am the one who
actually provided paychecks to other people.
I consider myself a live statute of American dreams and
born to be an entrepreneur. I am proud to say in my entire life
I have really done that.
I served on a Board of Directors of a community bank for 7
years from late 1990s to early 2000, and that experience was
one of the best experiences I had because it has helped me to
see the problems going through the financial situation and a
slowdown in 2005. And that helped me to save my business and my
life during the financial crisis.
I am also a board member of a Board of Trustees of a
private school of PK-12 in Virginia. And with a few local
friends we made an economic partnership in Orange County that
has been outstanding with the results we have. The economic
development brings every month the leaders of the company at
the same table. We have a Board of Supervisors, Planning
Commission, elected officials, the Chamber of Commerce, a local
community college, business leaders, a school board, and all
the people who can make a decision, they come in and they make
actually an informed decision and that helps the county to make
an amazing result out of it.
About a year ago, I asked you, Mr. Chairman, give me
something that I would be happy for to get out and give it to
my kids that they would be happy, and this is what you said:
``The free market platform we have for small businesses and its
owners in our system is what will help us to move forward at
any time.'' And that was the best ever I got from my
representative. And still I remember it because that was it.
Small business owners take risk unlike other businesses.
They take 100-plus persons of risk on all they have to make the
business work. The risk is not an abstract concept for a small
business. A small business is there to make it work. And
always, when you get a loan, they want your personal guaranty.
Even they do not give you enough money but they do that.
My time is getting a little bit short. Okay.
Many external factors impacted a level of risk the small
business owner must take. Regulation, especially adding a new
requirement that could not have been anticipated, greatly
impact a small business. Regulation affects the ability to
borrow, to start or expand a business. Regulation diverts times
and resources away from the main business. Regulation can slow
implementation of a new project or the movement of the new
product to the market. I encourage all legislators to truly
evaluate the risk that examines for new regulation imposed to
the business climate, especially the regulation that crosses
the line and adds risk to a level that discourages business
startup or expansion.
Small business is a critical part of our economy. In Orange
County, Virginia, where I have my business, we have about 900
employers. Over 90 percent of them employ less than 20 people.
But that represents nearly 30 percent of the entire workforce.
At the local level, the financial ability of a community and
sensitivity to impact of rules and regulation are helping the
environment that encourage investment by a small business
owner. In the last 24 months, we have 84 new startup companies
in Orange County.
Availability of capital to a small business. To start this
part of my testimony, I should say I believe most of the banks
are almost closed when it comes to providing much needed
capital to small businesses. Because that happened in our
economy after 2007, banks are so afraid of making loans to a
small business after they made millions of bad loans between
2000 and 2006, which that was one of the reasons we had the
financial crisis. The present banking behavior reminds me of
two things that I heard from my parents. A person was standing
on the flat roof of a high-rise. Someone told him, be careful,
do not fall. He walked back and fell from the other side. And
the banking underwriters are like someone who was bitten by a
rattlesnake. And for their entire life they want to be afraid
of black and white rope. And that does not really work.
During the recession, most of the small business owners'
credit got hit, and the banks that were giving loans to those
businesses, up to more than 80 percent loan-to-value, now I
have seen many cases that they are not even approving 30 to 40
percent even if the owner does the personal guaranty with all
of their assets. This is unfortunate that most of the available
capital to small businesses are in the hands of the secondary
market with 12 to 18 percent APR with very difficult terms
which barely any small business owner can afford the
consequences of that financing.
My hope is to see the banks, which are one of the most
tools of our economy growth, find a way to be able to help
small business owners with the much-needed capital for their
new and expansion ideas. About the taxes, I am not an expert. I
just can tell you as a business owner, right now the tax
dollars and the change is helping small businesses and the
biggest help we got started from President Bush, and President
Obama extended that when they said companies were making money
and paying taxes between 2001 and after and they were losing
money after 2006. They could go back and consider that. I
believe that regulation saved tens of thousands of businesses
by doing that. Thank you very much.
Chairman BRAT. Thank you very much, Mansour. That was
great.
The next witness will be Ms. Brenda Jones Barwick,
President and CEO of Jones PR in Oklahoma City, Oklahoma. This
morning, she will be testifying on behalf of Women Impacting
Public Policy. Jones PR helps clients in several industries
with public affairs, corporate communications, and consumer
marketing needs.
Thank you very much for being here all the way from
Oklahoma, and you may begin your testimony. Thank you.
STATEMENT OF BRENDA JONES BARWICK
Ms. BARWICK. Chairman Brat, Ranking Member Evans, and
members of the Subcommittee. Thank you for the opportunity to
testify today.
My name is Brenda Jones Barwick, and I am President and CEO
of Jones Public Relations, located in Oklahoma City, Oklahoma,
and I am testifying today on behalf of the Women Impacting
Public Policy, of which I am a board member.
WIPP is a national, nonpartisan policy organization that
advocates on behalf of women business owners. And when I
started my business in 2001, not many people would have really
given me much of a chance because I came primarily from a
political background that included a position in the White
House West Wing, and with U.S. Ambassador to Switzerland, among
several other positions at several international agencies. This
year, I am proud to say that my company, Jones Public
Relations, is ranked the 109th largest PR agency in America.
But I would like to set the stage by giving you a snapshot
of Oklahoma's economy. 99.4 percent of all businesses are
considered small, the majority of which are nonemployers or
businesses without employees, and women-owned firms have an
average of nine employees, which is lower than the male-owned
counterpart companies. Small businesses created over 13,000 net
jobs in 2015, with firms employing fewer than 20 employees
experiencing the largest gains. As for the state and local
economy, so far in 2018, Oklahoma City has hit a 10-year
employment high, and this begs the observation that small
business policy is not one dimensional. Policies affect
companies differently depending on their size and their
business purpose and their business segment.
Tax policy, for example, affects every business in America,
and yet, until this year's tax reform bill, the Congress only
recognized C corps, and now for the first time, the tax bill
treats income from businesses organized as pass-through
entities as business income. So my company is organized as an S
corp, and this change has allowed me to pay bonuses to my
employees, hire more personnel, and increase salaries up to 10
percent for all employees.
Another difference that requires new rules but has
tremendous consequences for small companies is how retirement
is treated. More than one-third of small business owners do not
have a retirement plan, and many small companies find offering
401(k)s to be cumbersome and expensive. My company does offer a
401(k) plan to its employees with an up to 4 percent match.
However, rule changes are needed to specifically help small
businesses remain competitive in their retirement plan
benefits. President Trump's recent executive order and
consequent legislation is beneficial, not only for the owner,
but also for the employees of small businesses, and we applaud
this effort.
Additionally, health insurance continues to be one of the
biggest financial challenges for small businesses, as it is
expensive and often without many choices. Since its inception,
WIPP has advocated for small business pools across state lines
and we were encouraged to see that the Department of Labor
supports the notion of association health plans, but we do not
think these plans will work as long as the pool is limited by
state boundaries. One brought spot on this issue has been
recent House action to change the definition of full-time
employees from 30 hours to 40 hours a week with respect to the
required health insurance coverage. And WIPP has been pushing
for this change since the ACA was enacted.
WIPP has also long advocated for an end to the ``one size
fits all'' approach to banking regulation. We applaud the new
law enacted this year, which gives small and midsize banks
regulatory relief. Access to capital continues to be
problematic for women-owned businesses who only receive 16
percent of all conventional small business loans.
Regulations and compliance costs impact Jones PR in a
couple of ways. We serve many clients in the energy and
financial sectors, and as regulations are rolled back, it
allows these companies to have more funds to invest in
marketing. And second, Jones PR will be forced to hire an
independent professional employment organization company in
order to reduce our risks of being in compliance with federal
regulations.
While we have seen many positive changes initiated by this
Committee, there is still more work to be done. The Federal
Government has continued to miss its 5 percent goal of
contracting with women-owned businesses, and the consequences
of this missed goal means fewer dollars flowing to women-owned
businesses and to their local economies. In addition, the
government actively discourages small business growth for
federal contractors, limiting these companies from reaching
their full potential.
So we applaud the passage of H.R. 6330. That is the 5-year
look back legislation passed by this Committee to help address
this problem.
In summary, the economy is healthy and unemployment is at a
record low. In today's regulatory landscape with recent
legislative changes and a strong economy offers an environment
for small businesses to thrive. And we especially want to thank
this Committee for paying attention and playing such an
important role in the success of small businesses in this
country. Thank you.
Chairman BRAT. Thank you very much for that testimony.
And now I would like to yield to our Ranking Member, Mr.
Evans, for the introduction of the final witness.
Mr. EVANS. Thank you, Mr. Chairman.
It is my pleasure to introduce Valarie J. Cofield, Chief
Executive at the Eastern Minority Supply Development Council. I
can tell you she is very active in my district and in the City
of Philadelphia. Valarie's background includes expertise in the
area of supply diversity, MBA, MBE, WBE, and WE business
development. She has previously worked at INTECH Construction
and the City of Philadelphia Minority Business Enterprise
Council. Ms. Cofield is a board member of the Philadelphia
Habitat for Humanity, member of the Philadelphia Board of Labor
Standards, and an active member of the Girl Scouts, serving
Girl Scout leaders of monthly level troop. She holds a
bachelor's degree from Franklin and Marshall College in
Lancaster, Pennsylvania, and we welcome you, Ms. Cofield.
STATEMENT OF VALARIE J. COFIELD
Ms. COFIELD. Thank you, Congressman Evans.
Good morning, Chairman Brat, and Congressman Evans, and
members of the Subcommittee. Thank you for the opportunity to
provide testimony about the growth and development of minority
businesses, particularly as it relates to three key areas: the
economic impact and importance of development and growth of
minority-owned businesses, the impact of H.R. 1, Public Law No.
115-697, the Tax Cut and Jobs Act, and the continued funding of
the Minority Business Development Agency.
As previously stated, my name is Valarie J. Cofield, and I
am the President and CEO of the Eastern Minority Supplier
Development Council, EMSDC as I will refer to it going forward.
EMSDC is headquartered in Philadelphia, Pennsylvania, with
a satellite office in Pittsburgh, Pennsylvania. EMSDC is one of
23 regional affiliates of the National Minority Supplier
Development Council operating in Pennsylvania, Southern New
Jersey, and Delaware. As the President of EMSDC, my mission is
to ensure that all diverse businesses have access to and
opportunity in the private sector and public supply chains.
In March of 1969, recognizing the impact and importance of
minority businesses, President Nixon signed Executive Order
11458, requiring government agencies and their contractors to
contract with minority-owned companies and to report the
results against pre-established goals to the Office of Minority
Business Enterprise, which became the Minority Business
Development Agency in 1971. In 1972, as a result of several
federal grants focused on private sector engagement of minority
businesses, the National Minority Supplier Development Council
was formed. Formation of NMSDC in 1972 represented a private-
public partnership to provide increased procurement and
business opportunities for minority businesses of all sizes. By
1974, the newly formed NMSDC contracted with the U.S.
Department of Commerce's Office of Minority Business Enterprise
to encourage major corporations to increase their purchases of
goods and services from minority businesses. Today, NMSDC, a
privately funded organization, represents over 1,400 Fortune
100 and Fortune 500 businesses and over 12,000 certified
businesses.
EMSCD's foundation as an NMSDC affiliate directly aligns us
with the most powerful minority supply organization in
corporate America. EMSDC boasts corporate membership of over
120 Fortune 100 and Fortune 500 companies either headquarter in
or doing business in Pennsylvania, Southern New Jersey, and
Delaware, all with organizational commitment to supplier
diversity. Our corporate members' revenues are estimated to
exceed $1.1 trillion annually.
Corporations throughout America understand the value and
importance of diversity and inclusion in business. On average,
supplier diversity programs add $3.6 million to the bottom line
for every million dollars in procurement operation costs.
In 2017, EMSDC's MBEs, our 495 MBEs had average annual
revenues of $7.8 million and collective revenues of $3.9
million. That is in Pennsylvania, Southern New Jersey, and
Delaware. In 2017, of our 495 certified businesses, we employed
17,612 individuals, or an average of 35.6 employees per
business, far outpacing the rate of employment for the average
small business of 20 employees.
Minority-owned businesses are growing at a much faster rate
than that of the U.S. businesses overall. At the time of the
2007 survey of businesses, minority-owned businesses accounted
for 21.3 percent of the Nation's businesses, employed 5.8
million persons, and generated $1 trillion in receipts.
Given the rate of growth of diverse businesses, it is
important to examine and understand the implications of H.R. 1,
the Tax Cut and Jobs Act. The initial read of the benefits
offers optimism as we have heard from the other witnesses in
reduction of the effective tax rate for all businesses. The
concern is the past-through deduction that is not equally
applied to all businesses. The structure of H.R. 1 creates
concerns because most small businesses, specifically diverse
businesses, are not C corps and are passthroughs, and
therefore, the effective tax rate of 21 percent will not apply
to these businesses. Since small businesses are typically
passthroughs, the impact is too soon to fully measure. There
are several immediate observations, however, that can be made
and must be reviewed. This disparate application of the 20
percent pass-through bonus adversely impacts professional
services businesses, which represent 40 percent of all small
diverse businesses and therefore, may provide little to no tax
saving to these business owners. Savings that will result in
investment in new talent, technology, business development
tools, and resources will not be necessarily realized for these
businesses, and ultimately will negatively impact long-term
growth and viability.
The various business tax deductions and credits that have
been eliminated will have a direct impact on small businesses
as well, who use these deductions and credits to offset tax
liability and provide additional benefits to employees.
Further, the provisions of H.R. 1 are too short-term to have
sustainable impact on small businesses as the potential for
savings and investment will be mitigated by limited access to
capital and rising healthcare costs.
Pass-through businesses will bear the burden of H.R. 1 and
receive the least benefit or relief. These businesses are
disproportionately minority owned. The sustainable,
immeasurable benefits to small businesses may ultimately be
indirect and the result of increased demand from current and
potential customers that may increase spending and seek their
services due to their realized savings as larger C
corporations. EMSDC and the NMSDC network, along with agencies
like MBDA will continue to monitor and report on the impact of
H.R. 1 to minority-owned businesses.
Speaking of MBDA, MBDA has been the premier Federal Agency
dedicated to supporting the expansion of minority and native-
owned businesses for over 45 years. Unlike the Small Business
Administration and other Federal Agencies, their focus on
broader demographic and emerging businesses, the MBDA's
directive is focused on unique challenges and needs of
minority-owned businesses. It is the only Federal Agency
dedicated to growth and global competitiveness of our nation's
minority business enterprises, which according to the U.S.
Census Bureau contributed $1.4 trillion in total economic
output and employed nearly 4 million Americans.
MBA continues to be important because minority owned
businesses are growing significantly faster than nonminority
owned businesses. Their employment grew by 33 percent, their
receipts by 57 percent, versus the shrinkage by nonminority
firms of 5 percent. And yet despite these gains, MBEs overall
receipts versus nonminority firms, that is 196K versus 650K on
average, do not reflect a balance between the rate of growth
and market share. While there has been an increase in the
number of minority-owned businesses from 21 percent to 29
percent, this growth has lagged behind the pace of growth of
the nation's minority population.
Currently, the administration's fiscal year 2019 budget
blueprint recommends the reduction of the agency through the
elimination of the network of MBDA centers nationwide. The
elimination of these 40 business centers would reduce needed
hands-on assistance and facilitate an access to capital and
contract opportunities. It is important that MBDA remain fully
funded and that the network of MBDA centers nationwide have
adequate resources to support minority businesses doing work to
assist these businesses in overcoming the barriers to growth
and economic parity that they disproportionately encounter.
You may ask why I am lobbying on behalf of MBDA. As you
know, MBDA and NMSDC started at approximately the same time and
we have worked in partnership as organizations bringing
services to the minority business community. And while I do not
personally operate an MBDA center, I work in collaboration with
the Philadelphia-based MBDA center, as do my other council
partners throughout the Nation.
In conclusion, the sustainability of small businesses,
particularly small diverse businesses, is bolstered by private-
public partnerships, programs, and initiatives. The NMSDC and
its network of affiliate councils, including the EMSDC, is well
equipped to support the continued development and growth of
minority businesses.
However, continued support is needed in the form of the
MBDA from the Federal Government to ensure the small diverse
businesses are well-positioned for continuous growth and long-
term economic impact. Through business development and access,
supplier diversity fuels the broadest economic growth
opportunities for diverse businesses by creating equity and
equality in a marketplace and allowing diverse businesses to
succeed while overcoming extraordinary barriers. Thank you very
much.
Chairman BRAT. Thank you very much for your testimony.
At this time we will open it up for questions, and I think
we will give ourselves about 5 minutes each.
So I would just like to go down through the whole panel in
a minute or so. If you had to rank the most important work we
can do up here. Everybody mentioned capital access is pretty
important, and everybody mentioned skilled workforce, the human
capital side, and so if you had to focus on one or two things,
what would they be? And I taught economics at the college level
for 20 years, and so I was shocked that the incoming freshman
class had not received significant economic and business
training. Right? The kids did not know what a price was or a
cost, accounting, profits, what an entrepreneur is. Half the
kids coming out of high school will not go to college, and so
the good news is education is still at the local level,
primarily. Local and state. We do mandates up here and fund
about 10 percent of it. So the good news is education is still
in your hands at the local and state level. And so if you have
got any comments on what we can all work on there to get the
skills development going. But I am just curious, access to
capital or education, human capital.
And your comments, Mr. Lopez, we will start with you.
Mr. LOPEZ. I am going to stick to the human capital side of
things and I will say that I really think that just training
dollars, somehow having on a national level, because this issue
of the shortage of people out here, it is around the country.
Being part of ABC on a national level, I travel around the
country and I get the same conversation. You are a staffing
company? Do you have people? Do you have an office here? I
mean, it is a serious issue. So if you could somehow put some
legislation in place that allows those organizations easier
access to capital to train people so that these companies can
actually hire them with some skills rather than have to figure
out a way to do it on the job, that would be really, really
helpful, I think.
Chairman BRAT. Great. Thank you.
Mansour?
Mr. AZIMIPOUR. I believe we need to start to teach our kids
at a young age, to show them how to look outside of the box.
Unfortunately, all of our student kids, they have been framed
with certain kinds of curriculum and there is nothing really
you can expect out of it. When they come to college, they even
do not know how to understand a credit card. Still, they are
using parents' credit card.
For someone like me that I bought my first house on my 18th
birthday because that was the day I could sign it, I believe we
need to help our kids to understand it. First, the school needs
to make a platform for them to understand. They need to change
some real-life curriculum to the system. They need to bring the
expert on a regular basis to talk to them, show them how they
can look out of what they just go after. They need to learn
money management. That is the most important part of any
education we can give our kids. They need to have communication
skills, especially face to face. They need to go after their
interests, their wishes. They need to try those ones.
And one very good program that I have seen it, and it is in
Culpepper County, some citizens, they made a group called E
Squared. They are making the kids to come in and present their
ideas, like Shark Tank, and show how valuable is that one. And
this is about five or six years. I am familiar with that. So
far, several of the high school kids, actually, they did go out
and their ideas got to the point that investors have invested
in their ideas. And if we can really put the foundation for
those kind of stuff at the schools, I believe we are going to
be a winner.
Mr. BRAT. Thank you very much.
I think we will circle back. I am going to let our Ranking
Member go for 5 minutes on his round of questions and then we
will get to other members as they may show up.
Mr. EVANS. Thank you, Mr. Chairman.
Valarie, I would like to start with you, then go down the
list from what I heard you say, and I thought you gave
excellent testimony.
Obviously, the Chairman and the mission of this discussion
is impact and review. We talked about tax policy, regulatory
reform, obviously workforce, and you talked about MBDA. And I
really want to get that message across from what I have heard
you say in terms of its potential impact. Obviously, it was
started under Richard Nixon, and here we are in the 21st
century. So help me understand again the value that you think
that entity is versus all the other things we talked about. I
do not think it is an either-or on tax policy, regulatory, or
workforce, but I heard you really emphasize that in terms of
minority business development.
Ms. COFIELD. So one of the reasons why those three issues
bucket together very well is that MBDA is focused specifically
on minority businesses. I want to go back to the point, it is
the only Federal Agency that is focused on minority businesses.
The Small Business Administration has programs that focus on
veterans, on women, on the disabled, but they do not have a
program that focuses on minority-owned businesses. So it is
critically important to understand that. And while you have the
8(a) program, the 8(a) program is for socially and economically
disadvantaged individuals and minorities are presumed to be but
it is not specifically only for minorities. MBDA is
specifically designed to focus on the needs and challenges that
minority-owned businesses have. And within that bucket, you are
talking about access. You are talking about capital. You are
talking about understanding the implications of tax reform for
expansion and long-term sustainability. MBDA has 40 centers.
That means that it is reaching every part of our Nation in
providing services to minority-owned businesses. The growth
that you see in our minority business community does not happen
in a vacuum. It happens with the supportive services that come
out of agencies like MBDA, like the National Minority Supplier
Development Council, because each of those organizations, and
we do this in partnership. I will let you know that nine of my
counterparts run MBDA centers in partnership with the National
Minority Supplier Development Council affiliates.
Mr. EVANS. And your point, I heard you say your point is as
a result of the administration's recommendation from a budget
investment standpoint, you obviously see an impact?
Ms. COFIELD. Absolutely. You are talking about 40 centers.
Forty centers that are providing day-to-day services to
minority-owned businesses. Whether they are helping them gain
access to the Federal procurement process, whether they are
helping them with access to capital, whether they are helping
them with business development and business planning, those
services now go away from a Federal standpoint and they go away
as a resource in the various marketplaces.
Mr. EVANS. Let me go to the next witness because you raised
the issue about the Federal Government not getting to that 5
percent. And you have heard just what Valarie said. You know,
how do you juxtapose what I just heard, you know, in terms of
working towards that objective of getting women?
Ms. BARWICK. I believe the 5 percent goal is still not a
priority within the departments. And, in fact, I met with a
major federal agency 3 weeks ago and I had mentioned about the
sole source for women-owned businesses that was passed, I
believe, in December 2015, and the contracting officer was
unaware of that, which stunned me. So when a lot of the
contracting officers are not even aware of the sole source
opportunity for women-owned businesses, that impedes reaching
the 5 percent goal. And I believe it just has not been made a
priority among the departments. And I would like to find a way
to make it absolutely mandatory that the departments reach at
least 5 percent. And that is a really small goal when you look
at the complete landscape. WIPP is not asking for a lot, a mere
5 percent, and there should not be any reason why they cannot
meet that 5 percent goal.
Mr. EVANS. Real quick, Val, what is your response to that,
what you just heard? I mean, it sounds like even though we talk
about tax policy, regulatory policy, workforce, you know, in
two particular cases for minorities and women, it seems like it
is going in the wrong direction.
Ms. COFIELD. Well, absolutely. I mean, I agree. Five
percent is not an aggressive goal, particularly when you look
at the population distribution of our company. Five percent
should be low-hanging fruit, as it should be for minority-owned
businesses. The fact that we are still having to enforce goals
in order to get access for minority and women-owned businesses
in the Federal Government supply chain is alarming. And I think
at this point, the importance of the programs out of the SBA
for women and the importance of making sure that the Federal
Government is doing their part. You see private industry
stepping forward and taking more responsibility. We are your
customers ultimately as your constituents. We are your
customers and it needs to be a priority that diverse businesses
have a seat at this table and are sharing in the opportunities
that are presented through the Federal Government.
Mr. EVANS. Thank you, Mr. Chair. I yield back the balance
of my time.
Chairman BRAT. If anyone wants to follow up on Dwight's
question, feel free. We have a few minutes left.
Ms. BARWICK. Mr. Chairman, may I follow up on your initial
question regarding education?
Chairman BRAT. Sure. You bet. Please.
Ms. BARWICK. Thank you.
There are thousands of entrepreneurs, future entrepreneurs
sitting in high school and college right now, but they do not
even know they are entrepreneurs. And they are not receiving
any type of financial education. They do not even know what
liabilities, assets, income. I mean, they have no concept of
that. And I would say especially for young girls, I want to
make a statement, but it seems like young boys, maybe because
they have the influence of their fathers, seem to have an
understanding of business, but young girls do not. And so when
a young girl out of high school or college wants to start her
own business, she is already handicapped because she does not
have that knowledge. So I would love to see some kind of effort
of getting small business, which will continue to fuel our
economy, into high schools and colleges.
And then I would also add on another point. In Oklahoma,
our top two industries are energy and aerospace. And college is
a great place to learn about energy and aerospace, but our
career techs are booming. And young people can have amazing, a
very livable life in the energy and aerospace industry by going
through career techs. And especially for women as that being a
more viable option. They do not always have to go to college,
but we are desperately needing more people to come from the
career tech area in aerospace and energy.
Ms. COFIELD. Mr. Chairman, may I respond as well?
Chairman BRAT. Please.
Ms. COFIELD. It is interesting because in my position,
education is critically important. And as you know, I have my
daughter here, so she is getting her education. But what I want
to say more importantly though is as we educate our young
people, we need to educate them around entrepreneurship. We are
talking about creating new talent in terms of a new employee
base. But wealth is built through ownership. And
entrepreneurship is that pathway to wealth. And when you talk
about the lack of exposure of women, you also can speak to the
diminished exposure that minorities have to entrepreneurship as
being a viable opportunity for them to build wealth and to have
that as a career path. And so that education of our young
people is critically important, but also the education of
adults. I mean, what do you do when you are unemployed? You
know, entrepreneurship becomes a way of survival. You build a
business, but how do you create a business that moves from
being a lifestyle business to a legacy business? And that is
what we need to be focusing on from my standpoint when you look
at entrepreneurs is not only building lifestyle businesses that
are not necessarily employers but building legacy businesses
that are building wealth in communities and employing people.
Chairman BRAT. Well said. And thank you very much to the
entire panel.
Dwight, do you have any other? You are good.
I just want to thank you all for being with us. I think we
are starting to zoom in on the end. There seems to be a
consensus across the board on the capital and education side.
I am on the Education Committee, K-12, just so you know,
the Feds have been mandating high stakes testing for years now,
and there is a consensus, kids surely do not like it, I have
got a few myself. And the teachers do not like it, and the
principals do not like it, and the incentives. And so we
lightened that up somewhat. Now the mandate has been lightened
from all the subjects to just math and English. So that fees up
the states and localities. They may not know that. It is a
little bit more play. And so when you go back to your local
school boards, they have the latitude. Getting changes through
bureaucracies is hard but there is a little play there. And
then the higher ed, we did some good work on career and
technical this year, and so there is some good news there as
well.
But most importantly, just follow up with us. Zoom in. We
are all on the same page on these kind of things. So get
exactly what you want and write up, help our staffs, work with
our staffs to write up very specifically in terms of goals and
what we can do, and we will all work together because I think
we have shared goals in the room today.
And so I just want to close by thanking all of the
witnesses. Excellent job to everybody.
I ask unanimous consent that members have 5 legislative
days to submit statements and supporting materials for the
record.
Without objection, so ordered.
This hearing is now adjourned, and thank you all again.
[Whereupon, at 10:57 a.m., the Subcommittee was adjourned.]
A P P E N D I X
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