[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

[[Page 160]]

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).