    [Public Papers of the Presidents of the United States: William J. Clinton (1996, Book I)]
    [February 3, 1996]
    [Pages 155-162]
    [From the U.S. Government Publishing Office www.gpo.gov]

    Remarks in a Roundtable Discussion on Small Business in Merrimack,
    New Hampshire
    February 3, 1996

    [Tony Halvatzes, president, New Hampshire Hydraulics, welcomed the
    President and briefly described how the Small Business Administration
    had helped him expand his business.]

        The President. Tony, I'd say you've seeded this crowd pretty well.
    That's what all of us politicians try to do; we try to go to crowds
    where the people are going to cheer for us. You did a good job.
        Mr. McGowan, do you want to say anything?

    [Patrick McGowan, Regional Administrator, Small Business Administration,
    discussed making the SBA program more user-friendly and introduced the
    first participant.]

        The President. Tell all the people here about your business, first.

    [The participant described her business and how the Government shutdown
    had affected her SBA application. Another participant indicated that
    small businesses were often financially unable to provide all benefits
    they would like for their employees and said a national health care bill
    would help small business. A third participant said that he had to turn
    some business away because of the limited size of SBA loan guarantees
    for small businesses.]

        The President. So it would help you if the SBA could guarantee a
    larger sized loan?

    [The participant responded that the SBA limit was $750,000, aimed at
    very small businesses, but that when a small business began to grow, the
    owner was left wondering whether it would still receive help.]

    [[Page 156]]

        The President. And what would be the size loan that you think that
    we ought to look at? Let me back up and say--you know how the SBA
    program works, the SBA loan guarantee program works, and one of the
    things that I'm proudest of about our administration and all this work
    we've done to try to give the American people a Government that costs
    less and does more is that we have reduced the budget of SBA by about 40
    percent and we've doubled the loan volume.
        But one of the things that we were compelled to do, given the
    budgetary situation we were in, is to go from a maximum loan of, I think
    it used to be $1 million, down to three-quarters of a million. But what
    I gather you're saying is that you need a bigger one even than that. You
    think there should be some sort of a program for nonbankable loans for a
    modest sized business that goes up to, what, $2 million?

    [The participant said that $2 million would serve to get small
    businesses over the hurdle to the point where they would be bankable
    without an SBA guarantee. Mr. McGowan indicated that SBA limitations
    were partially a result of success, because SBA had gone from 26,000
    loans to 56,000.]

        The President. But I think, you know--again, this is the sort of
    thing that I hope will come out of this budget debate. That is, it seems
    to me that you can conclusively demonstrate that the SBA has done what
    the taxpayers wanted. We've cut the cost of operating the program. We
    have now more than doubled the loan volume, you just heard him say that.
    And the only reason we had to change the ceiling is because we wanted to
    accommodate as many people as possible. So it may be possible now to go
    back and say we ought to have a bigger loan volume ceiling because our
    administrative costs are very, very low. And we have--the form used to
    be an inch thick and it used to take 5 or 6 weeks to approve. And now
    with the LowDoc program it's just one page, either side, and we try to
    give just a couple days' turnaround, and it's been very well received.

    [The participant noted that although the SBA application fees had
    increased, the higher fees were not a problem as long as the program
    continued.]

        The President. By increasing the fees, what that's enabled us to do
    is to run the program and continue to maintain a high volume of loans
    while we're reducing the deficit. And by charging--getting a little more
    of the fees we can still fill that gap between the banks, you know,
    where you can't get the bank loans, and still the borrowers come out
    ahead net, financially.
        So we went out and sampled, sort of, the small-business community
    and asked them, how about this, because this way we can keep volume up
    even as we're bringing the budget deficit down. And I'm glad you said
    that, because you're the first person I've had a chance to ask since we
    did it. I didn't know if I'd be dodging hydraulic equipment or not.
    [Laughter] Thank you.

    [A participant suggested that SBA should assist small businesses when
    they were just starting up and capital was hard to find, in a manner
    similar to the small loans made to locally organized entrepreneurs in
    foreign countries.]

        The President. If I could just interject here, the general title of
    what she's talking about, getting very small loans to start businesses,
    is microenterprise loans. For many years our Government--which believe
    it or not only spends one percent of your tax dollars on foreign aid,
    contrary to popular belief. We have the smallest foreign aid program as
    a percentage of our budget of any advanced government in the world, but
    we have gotten a lot out of it, because, among other things, there's a
    country in Central America where, a few years ago, in cooperation with
    some American religious groups that were operating development programs,
    we put $1 million into a small loan program. The average loan program
    was $300.
        Now, in that country, in terms of the per capita income it would
    probably be about, say, a $2,000 loan here; that would be about the
    equivalent. But anyway, over the next few years that $1 million
    generated enough business loans to create 43,000 jobs, which is one
    percent of the total employment in that country. Everybody paid the
    loans back with interest. There's now $4 million in that account that
    started off at $1 million. My premise is, if we can do that in another
    country, we ought to do that in our country, and that in the inner
    cities, in these very isolated rural areas where the per capita income
    is low and the unemployment rate is high, I believe we should be making
    those kinds of loans.

    [[Page 157]]

        So we have--another part of our economic outreach to small business
    was a fund called the Community Development Financial Institutions Fund,
    CDFI. And if it survives this budget round, what we're going to try to
    do is to get banks to establish themselves with branches in areas where
    there's very high unemployment, low per capita income, and make these
    kinds of loans to try to set up businesses. They can also make
    conventional small-business loans as well.
        But I think for a little bit of money, you can do a huge amount. We
    established a bank like that in a rural part of my State when I was
    Governor, and my wife went on the board of the bank, and we modeled it
    after the only American project I know of, which was a bank in Chicago
    which helped to redevelop the south side of Chicago by making small
    loans to individual carpenters, individual electricians, individual
    builders, and then they went in and took all this decrepit housing,
    rebuilt it, and got middle class people and poor people to live
    together, and totally turned around a neighborhood. So I'm glad to hear
    you say that, because there's not enough Government money to rescue the
    inner cities and the isolated rural areas, but free enterprise could do
    it if we did it in this way.
        You're the first citizen that had never had a direct contact with
    this program overseas that ever suggested it, but it looks to me like if
    we're financing small businesses in another country like--we ought to do
    it here in our country. We ought to give the Americans the same break
    that other people have.
        Thank you.

    [A participant voiced her concern that States and local businesses could
    not afford to support the arts and asked if the Federal Government could
    help.]

        The President. Well, you making that argument to me, you're
    preaching to the choir, because I agree with you. But I would like to
    put it--just briefly, I'd like to put this in proper context. Let's just
    take this as an example of the budget debate we're having in Washington
    everywhere. You should know, first of all, that the deficit has been cut
    in half in the last 3 years. What makes the deficit go down in a hurry
    is if you have a combination of real discipline on the money you spend
    and a growing economy, because if you have a growing economy, then
    unemployment's less, the Government has to make fewer payouts. For
    example, in the last 3 years the welfare rolls are down; the food stamp
    rolls are down; the poverty rolls are down. We're not paying out as much
    money because the economy is in better shape, more people are working,
    and we have pretty tight controls on the spending.
        We have reduced the size of the Government by 200,000 since I've
    been in office. Your Federal Government is now the same size it was in
    1965. We have cut 16,000 of the 86,000 pages of Federal regulations,
    including half the Federal regulations in the SBA; 50 percent have been
    slashed. So we're trying to get rid of all of the inessential things and
    all of the waste.
        Now, there's a big debate now of what should the National Government
    do. And you can make an argument, once you get beyond national defense--
    defending the country, you can argue that nothing else should be done,
    or you can argue that it should be done. How do you decide? I believe we
    have to ask ourselves: What should be the role of the Federal
    Government? My view is, when you move beyond national defense, our role
    ought to be to focus on problems that are national in scope, but if they
    have to be dealt with at the local level we should focus on helping
    individuals and families make the most of their own lives or enabling
    communities to address these challenges.
        Now, the reason I have favored continued Federal funding of the arts
    is that once you get out of the really big cities where there is a
    massive amount of wealth and a huge population base to attract the
    orchestra, the art gallery, the you-name-it, once you get out of that
    where they don't have a big population base, isn't it still a good thing
    nationally for people in small rural towns in north Arkansas or northern
    New Hampshire to have a traveling artist or to hear musicians directly
    or to be exposed to these things? I think it is. It's a tiny part of our
    national budget.
        So what I have proposed is sort of a split in your position and
    theirs. I said, we can't increase this right now until we get the
    deficit under control. So let's just flat-fund it, but let's keep it
    flat for several years so at least we can tell the local arts council in
    Merrimack, okay, this is what New Hampshire will get next year, the year
    after, and the year after, and you can plan accordingly. And that's what
    I hope we

    [[Page 158]]

    will do, and I think there's a fair chance that's what will happen.
        Q. I understand, Mr. President, that only 68 cents per family, per
    year, is spent on the arts by the Federal Government?
        The President. That's right. Most of your money--let me just say
    where most of the money goes. Most of the money goes to Social Security,
    national defense, Medicare, interest on the debt, you know, from
    accumulated debt. In the past, we quadrupled the debt in the 12 years
    before I became President. If we didn't have to make interest payments
    on the debt that was run up in the 12 years before I took office, the
    Federal budget would be in surplus today--not balanced, in surplus. So
    we've got to get the deficit down. You've got to get the debt down,
    because otherwise the interest payments eat you alive, just like your
    home mortgage payments or anything else.
        Those things are the lion's share of the budget. Everything else you
    think about being in the Federal budget--I mean, the national parks, the
    highway system, you name it, everything else, the Labor Department,
    small business--is only about a third of the budget, actually, slightly
    less. So you're right, the arts funding, it's quite small.

    [A participant thanked the SBA for helping her business become a
    success.]

        The President. Tell them a little about your company. This
    illustrates another point I've been out here on the stump making in New
    Hampshire and around the country. There is still a huge debate in
    Washington that I believe we should have resolved by now about whether
    you can grow the economy without hurting the environment. There are a
    lot of people who still assert that you have to have a certain amount of
    environmental degradation to have an acceptable amount of job creation.
        I think you can argue that your business is good for the
    environment, right? Because what you're doing here is you're recycling,
    you're repairing, you're minimizing the use of raw resources. I think
    that--my own view is that in the United States and every other advanced
    country in the world, we have to find ways to try to grow the economy
    while we nourish the environment. That's what her business is about. So
    just give them a couple of minutes about that. I think that's important.

    [The participant described her company, which produced tote bags made of
    natural materials to replace plastic bags which would otherwise go to
    landfills. She then asked if welfare could be reformed in a way to
    provide the semiskilled and unskilled workers needed for her business.]

        The President. I agree with that. Let me give you one--first of all,
    now that the New Hampshire unemployment rate is down to about 3.2
    percent, all the economists say that at any given time in a country like
    ours 3 percent of the people will be walking around somewhere. That will
    be--you know, they'll be moving home with their parents, they'll be
    moving to another State, something will be happening.
        So when you get an economy down to 3 percent or a little below--
    there are two or three States that have unemployment rates below 3
    percent, but it's very difficult to get below 3 percent, so the labor
    markets get very tight. So then the question is, how do you move people
    from welfare into the work force? I think the rules have to be changed
    to put time limits on welfare for anybody that can go to work that has
    access to a job. I think they are entitled to some support. I think that
    the problem is, if you take a job and you have very low wages and there
    is nobody giving you any child care help, you may actually lose ground.
    Or if your child loses Medicaid health insurance coverage because you go
    to work, that's tough.
        But one of the things that--this started in Oregon--we have given 50
    experiments freedom from Federal rules and regulations in 35 States to
    try to move people from welfare to work. One of the things that I think
    all of the low unemployment States should consider doing is what Oregon
    has done. We gave them permission to do this. They have the right to
    take the cash value of the monthly welfare check and the food stamps and
    give it to the employer for 6 to 9 months as an income supplement to
    hire people off welfare. So people have to work for the money. They're
    going to get the money anyway, but now they have to go to work for it,
    and it's recycled through the employer.
        You have to give them, I think, a little more than that. But you
    would have to anyway just to meet the minimum wage requirements. But
    still, it's a subsidy that you get for 6 to 9 months, than you can
    decide whether to keep the employee or not. But then by that time,

    [[Page 159]]

    the employee's acquired work experience, the confidence of going to work
    every day, something you can put on a resume. And I think it is probably
    the quickest, easiest way to move people from welfare to work in areas
    that have low unemployment.
        In areas with high unemployment it won't work, and people would be
    upset because they'd be, you know, you'd be picking employees over
    another. But once the unemployment rate gets pretty low in a given area,
    I think it's one thing that would really make a huge difference. And I
    think we've got four or five States that are trying it now, and I'm
    trying to urge everybody to do it. When I spoke in Vermont last year, I
    spoke to the Governors, and I said, there are five things that if you
    will do with your welfare proposal, these five things will give you
    immediate approval. And that's one of the things that I'd like to see
    done. And that would give small-business people like you the opportunity
    to deal one-on-one with people who are moving from welfare to work,
    you'd be able to teach them things about the work force, you'd be able
    to--you know, even if at the end of the period you decided you couldn't
    keep them, it could make a big difference in their lives. So that's one
    of the things.
        And if the version--if what I'm asking the Congress to do or some
    variation thereof passes in welfare reform legislation, then the States
    would automatically be able to do this. They wouldn't even have to ask
    us for permission. I wish they didn't today, but under the present law
    they have to.

    [A participant explained that one of her employees, who was an unwed
    teen mother, was told that she had to go on welfare in order to receive
    health insurance for her baby. She asked if the programs could be
    split.]

        The President. Yes. As a matter of fact, this is--ironically, again,
    these are just glitches in the law. That's why I'm trying to pass a law,
    because otherwise you have to do it State by State. If that same woman
    had gone on welfare for 30 days and then come to work for you, she could
    have kept her Medicaid for, depending on what the State does here, but
    for a minimum of 9 months, a transitional period, because we never want
    to discourage anybody.
        You can't ask anybody to hurt their children. In the perverse world
    we live in, a lot of small-business people can't afford health
    insurance. So if you're on welfare, your kid has Medicaid. And then if
    you go to work, you lose the health insurance for your kids, and if you
    make $4.25 an hour--which is what the minimum wage is, I think it should
    be higher, but there it is--and your child gets sick and you don't have
    health insurance, then all of a sudden your income is much lower than it
    was if you were idle.
        So under the law now, that young woman, had she drawn one welfare
    check, could have then come to work for you and in every State gotten to
    keep that Medicaid coverage for her children for some time, for her
    child for some time, and in some States over a year.
        So what we're trying to do is--let me just give you--one of the
    things that we could give a State permission to do is to let someone
    immediately go to--you're the first person who has ever told me about
    this incident; I've never heard this example before--but we could give,
    easily give the State permission to just tell people like you, you can
    hire them before they ever have to go on welfare, but if they would have
    been on welfare otherwise, maybe their income level, we'll deem their
    income level to be what it would have been and for a few months they can
    be covered. If our welfare reform legislation passes, then the Federal
    Government would be out of that and the State could just make a decision
    to do it, which is what I would like to see happen.
        The real problem in all this welfare business is--besides developing
    sort of the self-esteem and sense of responsibility of people on
    welfare--most people on welfare would like to work, and most people on
    welfare are not better off financially not working. The problem is that
    welfare, real welfare payments in almost every State in America are
    lower in terms of what they'll buy than they were 20 years ago. Welfare,
    per se, is not a good deal. What helps you is the Medicaid for your kids
    and the fact that if you're home you don't have to hire anybody to do
    child care.
        Those are the big barriers to moving people from welfare to work.
    And if we can overcome them, if we could have very tough requirements
    requiring people to work if they want to get any help, I think that's
    what we ought to do. But I see all your employees have got their kids
    here today; what we want for America is for everybody to be successful
    as a parent and successful in the workplace. And we don't want

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    people to have to choose one over the other. We want people to succeed
    at home--that's the most important job any of us have--and to succeed in
    the workplace.

    [A participant stated the need for a program that would allow minimum
    wage employees to work and have child care.]

        The President. Let me just make a suggestion, all of you in this.
    This is something that you might--you don't have to have a specific
    answer, but if you feel this way and if the small-business community in
    New Hampshire feels this way, one thing you could do is just write your
    Senators and your Members of Congress and tell them that. Because we're
    having two debates over tax cuts in Washington. One is: How big a tax
    cut can you afford if your first job is to balance the budget? But the
    second is: Let's assume we agreed on how much we could afford; what kind
    of tax cut is best?
        My belief is that the best kind of tax cut is the kind that helps
    people raise their children or educate them, or that helps businesses
    deal with the family-based problems or the education problems they have
    with their own employees. So I would--for example, I'd be more than
    happy to have a really significant increase in the financial incentives
    we give to small businesses to help their employees with child care. And
    I think most families with children would be better off having a tax
    deduction for the cost of sending their kids to college than having what
    would be a much smaller across-the-board tax cut. But these are the
    decisions that we have to kind of grapple with.
        And let me give you another example. The White House Conference on
    Small Business said we ought to do something to make it cheaper and
    easier for smaller businesses to take out pension plans for themselves
    and their employees. So we've got a bill in Congress now that would make
    it possible for businesses with 5, 10, 6, 15 employees less expensive
    and more reliable to take out pension plans for the owners and the
    employees.
        These are the kinds of things we're going to have to do if more and
    more jobs are going to be created by you and more and more jobs are
    going to be abolished by big companies. Because big companies could do
    this on their own: They could have good health care, they could have a
    good pension, they could have continued education benefits. But people
    will still need them if they go to smaller companies. So if the big
    companies aren't going to be there to aggregate the money, then the
    Government has to come in and help give some incentive or support to
    small business to do the same thing.

    [A participant suggested a low cost loan fund to help textile businesses
    adversely affected by the North American Free Trade Agreement (NAFTA).]

        The President. You know, first of all, I'll look and see what the
    possibility of that is. That's a good idea.
        NAFTA was the first trade agreement ever that actually required any
    country to meet certain labor standards or environmental standards. And
    one of the--we have slowed down some of the compliance with NAFTA, like
    on truck safety and all, because we think it's so important to see that
    these standards are met. And in fairness, they are very difficult to
    impose and enforce, as you know. I honestly believe that it's a good
    idea. I don't think we should be subsidizing people to live substandard
    lives there. What we want them to do is to raise--lift our standard of
    living.

    [A participant asked that the American workers get a fair share under
    NAFTA.]

        The President. Thanks. [Applause] Yeah, give him a hand.
        Q. We are big supporters of you, Mr. President.
        The President. Thank you.
        Q. So you are not going to lose our vote over this, but we think
    it's a critical issue.
        The President. Thank you. I appreciate that.

    [A participant discussed problems that small businesses incurred in
    paying taxes on projected profits from long-term manufacturing
    contracts.]

        The President. Let me ask you something. Could you write that up for
    me, or have you written it up for me? I would be glad to look into that.
    [Laughter] You know exactly what happened. What happened was they had
    all these big companies with multiple, multiyear contracts so they were
    always rolling their costs over to look like they were complying with
    this contract and that one and the other one, and never paying the taxes
    on the profits they were earning.

    [[Page 161]]

        Q. I understand, and that door should have been slammed shut, and
    I'm glad to see that it was.
        The President. But what we ought to be able to do is to say that, at
    least in the years when you realize no net gain, in the early years of a
    contract, you shouldn't be subject to taxation.

    [The participant stated that when his business incurred 50 percent of
    its costs, it had to pay 50 percent of the tax on 50 percent of profit
    that was years away.]

        The President. That's why people want to change the tax system.
    That's good. Thank you.
        Let me ask you a general question, if I might, and get you to
    comment on it. When I was here in 1992, the biggest problem small
    businesses were having was that all the banks were shutting down, so
    nobody was making any loans. And you didn't have any bank failures last
    year, and that's good.
        One of the reasons we really tried to turn up the capacity of the
    SBA to make loans is, we were afraid as the banks worked their way out
    of the last recession, with the particular impact it had on the banking
    industry, and more in New England than almost any other place in the
    country, if we could find a way to give more SBA loans and--even while
    doing our part to cut the costs of Government, that would make a real
    difference.
        We also were asked to do two other things. One was to increase the
    expensing provision. I'd be interested to know if it has benefited any
    of you. You know, we--the expensing provision when I took office gave
    you the right to expense $10,000, now it's up to $17,500. The NFIB asked
    for $25,000, and I tried to get that in '93, and I think that may well
    come out of this present tax law. Would that make a difference to you?
    Is that an important part of the Tax Code as far as you're concerned?
        Is the bank loan situation now measurably better than it was in
    1992, and if not, what else can we do about it? I'd like to ask those
    two questions.

    [A participant stated that the bank loan situation had improved and
    agreed that expensing would make a big difference.]

        The President. But it has--when we write----
        Q. It hasn't yet----
        The President.  ----17, you haven't felt it?
        Q. No, not just filing taxes--I mean----
        The President. So you wouldn't--under the old system?
        Q. Right.
        The President. But for you, it's not enough money to make any
    difference, is it?
        Q. For me, no. It's not.
        The President. It's too small to make any difference one way or the
    other, isn't it?
        Q. What I found--definitely the banking industry is changed. And I'd
    just like to say one thing that I think we can forget is, SBA isn't a
    handout. We're paying back our loans.
        The President. Absolutely.
        Q. And we're keeping people employed to pay taxes and that type of
    thing, where without the SBA a lot of jobs could be lost and that type
    of thing. So I don't, you know, I just hope it's not a handout type
    thing.
        The President. Yes. I think the taxpayers, including the taxpayers
    in this room, should know that at any given time nationwide we have
    under 10 percent of our loans in arrears and ultimate failures are under
    1\1/2\ percent. So our record at the SBA for making loans that default
    is about the same as any conservative bank in America. But we take a
    chance on people with a new idea that can't quite get there.
        Pat, what were you going to say?

    [Mr. McGowan stated that SBA had increased the number of loans to women-
    owned businesses in that region. A participant then praised the Boston
    SBA office for increased productivity with a reduced work force.]

        The President. You know, when I tell people that the Federal work
    force is over 200,000 smaller than it used to be--just folks, you know.
    When I go home and tell people that, they have a hard time believing it.
    But the reason is--there are two reasons for that. One is, we had the
    money to give humane severance programs to the people who left the
    Federal employment. That is, we gave them good early retirement packages
    or good early-out packages and time to work out a new education program
    or a new line of work.
        The other reason is that the people that are left are doing a better
    job. I mean, there's a dramatic increase in productivity of these
    Federal workers that are left. And I know it kind of contradicts a lot
    of people's preconception about the Government, but I think it's
    interesting that you can cut the Federal work force that much and
    literally nobody knows it hap-

    [[Page 162]]

    pened because there's been no undermining of the quality of service that
    these Federal employees have given. I think it's really--and I thank you
    for saying that about it.

    [A participant suggested a tax incentive for something other than a
    fixed asset, such as payroll taxes.]

        The President. Let me just say, that's an interesting point. Small-
    business people in America, particularly when they first start, is the
    only economic unit that's in the same position as most American families
    are; most American families now pay more tax on the payroll than they do
    on the income tax. And the problem with the payroll tax is you have to
    pay it whether you make any money or not.
        Now, since it supports the Social Security system that, no matter
    what they tell you, is still solvent until the year 2019--we are going
    to have to make some changes in Social Security for when the people my
    age, the big baby boomer generation, retires because you'll have fewer
    people working and more people drawing. But we have to have some
    mechanism of keeping the system funded--but it really--I think that's a
    good point because the payroll tax is something--since you have to pay
    it whether you make any money or not is an extraordinary burden on both
    a lot of middle class families and small businesses.
        Q. Mr. President, we want to thank you for coming here and sitting
    with this forum today. Tony has probably got another shift coming in the
    door here in a little bit, but we want to thank you for listening to the
    issues, and it's been a great opportunity.
        The President. Let me say too, I thank all of you for your support
    of the SBA. I thank you, Pat, and Administrator Phil Lader and his
    predecessor Erskine Bowles. I put two people in charge of the SBA; one
    of them, Erskine Bowles, spent 20 years starting small businesses--it
    occurred to me that for a change we ought to have somebody in there that
    had actually done that--and then Mr. Lader has spent most of his life
    running them. And it makes a big difference if you have people that have
    actually lived with this and know what they're doing. I'm very proud of
    them and all the people that work at SBA. I thank you for your support.
    It looks to me like from your example that's money well spent.
        Thank you. Thank you all.

    Note: The roundtable discussion began at 1:40 p.m. at the New Hampshire
    Hydraulics Co. In his remarks, the President referred to the National
    Federation of Independent Business (NFIB).