The 1099 Economy: The New “Old” Entrepreneurs

Each year the U.S. Chamber of Commerce Foundation analyzes data to determine what states have done over the previous year to create jobs and expand the economy.  The analysis is broken down into two parts, one that discusses what states should be doing and one that details what states are doing and then ranking the states using a performance, data-driven model.  The Chamber calls the annual report, Enterprising States, and provides a copy of the 2013 analysis HERE.

The Enterprising States study found a significant shift in the types of new start ups and entrepreneurs in America since the Great Recession.  The Chamber refers to this new economy as a "1099 Economy," which reflects an increase in single owner businesses that do not employ any additional staff and typically work as a consultant or provide professional services under contract to larger corporations.  The "1099" refers to the tax form these self employed contractors receive from their clients that report income – think of them as W2s for the self-employed.  More than one million self employed contractors have started business since 2005 and some estimate more than 10 million people operate similar one-person businesses.  This is almost 8% of the national labor force.  An additional 31 million people claim self-employment income to supplement their primary job, which represents a 52% increase since 2001. 

Often cited reasons for the growth in these 1099 entrepreneurs are layoffs and shutdowns at larger companies that dump older, experienced workers into the job market where they are unable to find equivalent full-time employment.  However, they are able to use their skills, contacts and experience to land contracts for companies not willing or feeling too uncertain about the future to commit to a full-time hire.  Further evidence of this trend is the self-employment rate for workers aged 55 and over is 16.4% compared to 10% for other age groups. 

Arkansas follows that trend as self employment increased by 11% to 136,000 over the last decade.  Plus more than three out of four Arkansas businesses employ just a single person.  Over the course of the Great Recession in 2008 and 2009, firms employing five or more employees lost net jobs and the only category that added net jobs were businesses employing one to four people.

Self employed, 1099ers require similar support and policies that would benefit any small business: improved access to capital, specialized training, networking opportunities and guidance on expanding into new markets.  The Rogers-Lowell Area Chamber can help 1099ers grasp these opportunities to benefit their business.  Visit RogersLowell.com or call 479-636-1240 to learn how the Chamber might be able to help you improve your business.

What’s Working in Job Creation: US Chamber Releases Enterprising States Study

Each year the U.S. Chamber of Commerce Foundation analyzes data to determine what states have done over the previous year to create jobs and expand the economy.  The analysis is broken down into two parts, one that discusses what states should be doing and one that details what states are doing and then ranking the states using a performance, data-driven model.  The Chamber calls the annual report, Enterprising States, and provides a copy of the 2013 analysis HERE.

This year Enterprising States focuses on the importance of supporting small business as a means of economic development and job creation in the United States.  Historically, small businesses have been the country’s primary job creator, but following the latest recession these economic engines have failed to return to their traditional roles.  The Chamber warns that, “[p]olicymakers ignore small business at their own peril and that of the economy.” 

Last year, only 16% of small businesses added employees and businesses five-years-old or younger now employ just 8% of the total work force, which is a decrease of 33% over the past two decades.   Small and new businesses continue to struggle in the post-Great Recession economy for a number of reasons, including significantly lower consumer spending and reduced lending by community banks.  These factors contribute to a less than rosy outlook by small business owners.  The U.S. Chamber surveyed small businesses in January 2013 and found more than half expected business to be worse over the next two years.  This is more than twice as high as the same survey revealed a year earlier.  Lower optimism results in fewer new hires, smaller investment and more defensive operations.

If small and new businesses are not adding jobs, what can states do to encourage small and new business startups?  The U.S. Chamber recognized ten initiatives that appear to be working to support and grow small and new businesses in the country. 

·         Business plan competitions – identify and assist entrepreneurs turn ideas in start ups.

·         Accelerator initiatives – programs that assist startups become stand-alone companies.

·         Economic gardening initiatives – provide resources to existing firms so they can expand.

·         Ecosystem initiatives – focus programs and projects on areas where a concentration of like-mission companies exist.

·         Workforce development initiatives – help business train and locate qualified employees.

·         Seed and venture capital – provides access to funding to help replace diminished availability of bank loans.

·         Networking and collaboration initiatives – match small business with mentors in large business and higher education.

·         International trade – reaching new global markets is vital for start ups and small business

·         Streamlined state administrative processes – efforts to eliminate rules, regulations and uncertainty

·         Broadband investment – high speed online access is critical being competitive

Thankfully, Arkansas utilizes many of these initiatives, but unfortunately many lack sufficient funding to be fully implemented on a statewide basis.  A future blog post will highlight what Arkansas is doing to support small and new businesses.  For more information contact Michael Lindsey at Michael@RogersLowell.com

89th General Assembly - Week 7

The past week was full of new developments that possibly signals the start of a new emphasis on the major pre-session issues of Medicaid and tax reform. Those are the two key questions that everyone expected to consume the General Assembly in 2013, but which have not been the topic of much official debate. Although, apparently, legislators have been hard at work behind the scenes on both issues.

On the Medicaid front, Governor Mike Beebe met with federal Health and Human Services officials to discuss the possibility of using federal Medicaid funding to help subsidize private insurance premiums for Arkansans with incomes below 138% of the federal poverty limit. This option is finding quite a bit of positive feedback from Republicans who hold the majority in the House and Senate. Any decision to appropriate state funds for either adding Arkansans to the Medicaid program or subsidizing private insurance will require 75% of the House and Senate to agree.

By helping these neediest of Arkansans obtain insurance coverage with federally subsidized private insurance 250,000 Arkansans could receive insurance coverage while the state would not grow its Medicaid rolls and hospitals will be able to reduce losses from charity care.

Our state's hospitals are facing reduced reimbursement rates from Medicare patients and when this is coupled with continued massive losses from charity care, many of our healthcare systems are struggling to survive much less expand and improve care. Therefore, any efforts to reduce charity care by moving uninsured Arkansans into an insurance plan will be a tremendous benefit to hospitals. In Northwest Arkansas, our hospitals employ thousands and are a major quality of life component and driver of the local economy. The Chamber strongly supports efforts to reduce charity care losses for our hospitals, whether it is through an expansion of Medicaid or supporting private insurance coverage for low-income Arkansans.

Also this week, Speaker of the House Davy Carter told the Revenue and Tax Committee that he felt the General Assembly could pass up to $150 million in tax cuts during the session without cutting the state's budget.

This is the first person in legislative leadership to offer a value for total tax reductions. Governor Beebe has proposed cutting the grocery tax, but only as selected state funding commitments expire (like desegregation funding for Pulaski County public schools).

Proposed changes to state income taxes were also addressed this week when Representative Charlie Collins (R, Washington County) filed bills detailing his recommendations. Collins has long argued that reducing the state's income tax would make Arkansas more attractive for new businesses. He has offered two options for the legislature to consider. HB1586 would gradually lower all tax rates, including the highest bracket which kicks in at $34,000. For residents earning more than $34,000 their income tax would fall to 6% from the current 7% level. HB1585 proposes identical tax brackets as HB1586, but HB1585 would phase in the reductions more quickly. So what would this mean for someone with $50,000 adjusted annual income? Using a very simplistic analysis this may equate to around $20 more per paycheck.

 
There are a number of other tax cut options on the table as well. The Chamber endorses two tax cuts that support manufacturing in Arkansas and we encourage you to join us in advocating for their passage.

HB1218 - Eliminates the state sales tax on utilities used by manufacturers. Only one of our surrounding states tax manufacturer's utilities, which places Arkansas at a competitive disadvantage in both recruitment and retention of manufacturers. In order to have a diverse economy, Northwest Arkansas must continue to support and protect its manufacturers by creating an operating environment that allows them to be the most competitive in the world. This bill continues a steady reduction in this tax and improves our ability to recruit and retain jobs.

SB334 - Eliminates the sales tax on parts used to repair or replace equipment used by manufacturers. This reduction is important to retain industry in Northwest Arkansas since many of our local manufacturers not only have competitors from around the world, they also have other facilities in the United States When a company is looking to expand production or make their facilities more efficient we want them to choose their Northwest Arkansas location to improve and expand instead of moving production to somewhere less costly. Reducing the sales tax on repair and replacement parts and equipment gives the state an advantage that might save hundreds if not thousands of existing jobs.

CALL TO ACTION - I ENCOURAGE YOU TO JOIN WITH US AND CONTACT YOUR LEGISLATORS IN SUPPORT OF HB1218 AND SB334. WE MAKE IT EASY TO SUBMIT AN EMAIL TO THE REVENUE AND TAX COMMITTEE.

CLICK HERE TO TAKE ACTION

If you want to see a list of committees, their members and pending legislation you can find that information HERE.

 

89th General Assembly Recap - Week 2

This is likely the last really placid week at the Arkansas General Assembly. They did not meet on Monday in honor of Martin Luther King Day and are not meeting today due to a lack of pressing issues. So they really were in session for about two and a half days this week.

They are approaching 300 bills filed so far, but most are standard appropriation bills that will be considered in context of an overall budget. The only political heat generated this week came from gun-related legislation as the national debate over gun-control spilled into the General Assembly. 

The House State Agencies Committee recommended passage of HR1003, which would encourage preservation of Arkansans' right to bear arms. This is what I call a "soap box" bill since it cannot directly impact policy and is simply an opportunity to publicly take a position on an issue. With one out of every two southerners being a gun owner and more than 127,000 concealed carry permits in Arkansas, being pro-gun is usually safe political ground in this state.
 

The General Assembly also saw legislation (SB71) filed to allow concealed carry permit holders to take their handguns into churches if that church allows it. While, HB1035 would authorize staff or faculty at higher education institutions to carry a concealed weapon on campus.

 

The Senate also dipped its toe into the Medicaid expansion debate this week as the Public Health Committee heard testimony from Arkansas Surgeon General Joe Thompson and University of Arkansas Medical System Chancellor Dan Rahn. Both Drs. Thompson and Rahn support expansion of Medicaid to Arkansans earning up to 138% of the federal poverty level. Both were questioned about the possibility of partially expanding the program to Arkansans earning up to 100% of the federal poverty level. The federal government has not indicated a partial expansion is possible at this time. Roby Brock with Talk Business reported on this story, which can be found HERE.
 

Without some sort of partial expansion solution allowed by the federal government, Medicaid expansion could hinge on developing a plan to fund the future state share that Arkansas must assume beginning in 2017 and what happens if the federal government reduces their current funding commitment. Leadership in the House have stated that once the new Medicaid recepients are added to the system the possibility that the state would throw them off if federal funding is reduced seems very unlikely. So mitigating future budget risks will be an important component of the expansion negotiation.

New Study Identifies Successful Economic Development Public Policies

Last week the U.S. Chamber of Commerce released their annual analysis of public policies that are driving economic development around the United States.  This study also identified the states that are “most likely to grow, create jobs and prosper” in the next decade.

The U.S. Chamber finds that the traditional model of recruiting industry and jobs by offering incentives is no longer enough.  The most successful states over the past few years shared a number of commonalities.   Part of their success derives from location and part is through proactive policies that encourage economic development.

In part, the states with the highest growth in jobs and gross domestic product are the result of having a state economy that is heavily invested in agriculture and energy.   The United States is the world leader in food production, exporting $135 billion in agricultural products in 2011.  Last year represented a record year as worldwide demand for food continues to increase.  Having a base economy anchored by agriculture provides stability and growth that tends to be recession-proof.

If agriculture provides a stable base then the energy sector supercharged states’ economies in 2011.  The growth of natural gas and the tapping of new oil formations have turned this country into a net EXPORTER of petroleum products for the first time since 1950.  This surprising turn-around has not only created lots of jobs, but the jobs are generally high wage positions.

Over the past few years, Arkansas benefited from a stable agricultural base as well as an energy sector economy that has helped carry the state through the latest recession.  The state cannot rely on its natural advantages alone to create jobs and grow our economy.  So what are the public policies that are working in other states?

A highly trained workforce with a strong background in math, science, technology and engineering is critical in attracting, retaining and growing jobs.  The report finds that even during periods of high unemployment, like those experienced over the past four years, “thousands of jobs throughout America cannot be filled because of a growing skills gap.”  Not all of these high-demand jobs require a four-year degree.  Many need specialized training or a two-year degree so states must support both types.  States also need to support programs that connect high tech graduates to jobs. These efforts typically utilize a statewide job bank and partnerships with employers.  The good news is that Arkansas scores well in several higher education rankings - #5 in higher education efficiency, #5 in high school advance placement and #17 in job placement efficiency, according to the study.

Infrastructure investment also plays an important role in economic development.  The U.S. Chamber finds that “States and cities must continually upgrade their highways, airports, harbors, utility distribution systems, railways, water and sewer systems, and communications networks to keep pace with the requirements of an ever-changing business environment.”  Roads must be sufficient to meet the demands of the business and residents while access to high speed broadband is vital for businesses to compete.  According to the analysis, Arkansas does not rank high in road quality.  However, voters will have an opportunity in November to authorize a temporary half-cent sales tax to fund new highways in the state, which would significantly improve our state’s infrastructure.  According to the U.S. Chamber, in Arkansas “[t]ransportation infrastructure improvements are especially critical in maintaining affordable shipping options for the state’s product-centric industries, increasing economic competitiveness and long-term job creation.”

Taxes and regulations are also important aspects of a strong economic climate.  They find that a “reasonable tax code and a sensible, predictable regulatory environment can encourage investment.”  Many of the states that have seen tremendous growth over the past decade have made a concerted effort to review business regulations and eliminate those that are overly burdensome and streamline governmental processes especially those related to payment of business taxes.

Finally, policies that encourage and support innovation and entrepreneurship are producing a tremendous return on investment for states around the country.  In Maryland, the state invested $70 million to support startup and early-stage companies that emerged from that state’s research universities.  They found that for each $1 invested by the state, an additional $38 dollars of private funding was raised to support entrepreneurs in Maryland.  Supporting innovation goes hand-in-hand with supporting higher education’s efforts to increase graduates in science, math, technology and engineering.

So, applying the U.S. Chamber's analysis to Arkansas finds that the state enjoys a solid agricultural base as well as a strong energy sector presence.  Both sectors should be support and encouraged to continue to grow and produce jobs.  The state should continue to fund higher education and encourage students to pursue high tech related degrees and certifications.  Additionally, support for programs that encourage entrepreneurship and fund early stage companies is important.  A review of existing business regulations may be in order to find rules that unnecessarily waste time and create added business expense.  Finally, investment in infrastructure is vital to Arkansas’ economy and necessary if the state hopes to add jobs and compete with our surrounding states.

Download the full report HERE.