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| [House Hearing, 116 Congress] | |
| [From the U.S. Government Publishing Office] | |
| THE SHUTDOWN: ECONOMIC IMPACT ON SMALL BUSINESSES | |
| ======================================================================= | |
| HEARING | |
| BEFORE THE | |
| COMMITTEE ON SMALL BUSINESS | |
| UNITED STATES | |
| HOUSE OF REPRESENTATIVES | |
| ONE HUNDRED SIXTEENTH CONGRESS | |
| FIRST SESSION | |
| __________ | |
| HEARING HELD | |
| FEBRUARY 6, 2019 | |
| __________ | |
| [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] | |
| Small Business Committee Document Number 116-002 | |
| Available via the GPO Website: www.govinfo.gov | |
| __________ | |
| U.S. GOVERNMENT PUBLISHING OFFICE | |
| 34-637 PDF WASHINGTON : 2019 | |
| ----------------------------------------------------------------------------------- | |
| For sale by the Superintendent of Documents, U.S. Government Publishing Office, | |
| http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, | |
| U.S. Government Publishing Office. Phone 202-512-1800, or 866-512-1800 (toll-free).E-mail, | |
| <a href="/cdn-cgi/l/email-protection" class="__cf_email__" data-cfemail="accbdcc3eccfd9dfd8c4c9c0dc82cfc3c1">[email protected]</a>. | |
| HOUSE COMMITTEE ON SMALL BUSINESS | |
| NYDIA VELAZQUEZ, New York, Chairwoman | |
| ABBY FINKENAUER, Iowa | |
| ANDY KIM, New Jersey | |
| SHARICE DAVIDS, Kansas | |
| JARED GOLDEN, Maine | |
| JASON CROW, Colorado | |
| JUDY CHU, California | |
| MARC VEASEY, Texas | |
| DWIGHT EVANS, Pennsylvania | |
| BRAD SCHNEIDER, Illinois | |
| ADRIANO ESPAILLAT, New York | |
| ANTONIO DELGADO, New York | |
| CHRISSY HOULAHAN, Pennsylvania | |
| VACANT | |
| STEVE CHABOT, Ohio, Ranking Member | |
| AUMUA AMATA COLEMAN RADEWAGEN, American Samoa, Vice Ranking Member | |
| TRENT KELLY, Mississippi | |
| TROY BALDERSON, Ohio | |
| KEVIN HERN, Oklahoma | |
| JIM HAGEDORN, Minnesota | |
| PETE STAUBER, Minnesota | |
| TIM BURCHETT, Tennessee | |
| ROSS SPANO, Florida | |
| JOHN JOYCE, Pennsylvania | |
| Adam Minehardt, Majority Staff Director | |
| Melissa Jung, Majority Deputy Staff Director and Chief Counsel | |
| Kevin Fitzpatrick, Staff Director | |
| C O N T E N T S | |
| OPENING STATEMENTS | |
| Page | |
| Hon. Nydia Velazquez............................................. 1 | |
| Hon. Steve Chabot................................................ 2 | |
| WITNESSES | |
| Dr. Matthew D. Shapiro, Lawrence R. Klein Collegiate Professor of | |
| Economics, University of Michigan--Department of Economics, Ann | |
| Arbor, MI...................................................... 4 | |
| Mr. Bill Butcher, Founder, Port City Brewing Company, Alexandria, | |
| VA............................................................. 5 | |
| Ms. Heidi Gerding, CEO, HeiTech Services, Inc., Landover, MD..... 7 | |
| Mr. Charles Rowe, President & CEO, America's Small Business | |
| Development Centers, Arlington, VA............................. 9 | |
| APPENDIX | |
| Prepared Statements: | |
| Dr. Matthew D. Shapiro, Lawrence R. Klein Collegiate | |
| Professor of Economics, University of Michigan--Department | |
| of Economics, Ann Arbor, MI................................ 31 | |
| Mr. Bill Butcher, Founder, Port City Brewing Company, | |
| Alexandria, VA............................................. 39 | |
| Ms. Heidi Gerding, CEO, HeiTech Services, Inc., Landover, MD. 44 | |
| Mr. Charles Rowe, President & CEO, America's Small Business | |
| Development Centers, Arlington, VA......................... 56 | |
| Questions for the Record: | |
| None. | |
| Answers for the Record: | |
| None. | |
| Additional Material for the Record: | |
| Statement of Hon. Troy Balderson............................. 63 | |
| Chamber of Commerce.......................................... 65 | |
| DataPoint.................................................... 67 | |
| FRANdata..................................................... 68 | |
| IFA - International Franchise Association.................... 69 | |
| NAGGL - National Association of Government Guaranteed Lenders 73 | |
| National Council of Nonprofits............................... 75 | |
| Paychex...................................................... 82 | |
| THE SHUTDOWN: ECONOMIC IMPACT ON SMALL BUSINESSES | |
| ---------- | |
| WEDNESDAY, FEBRUARY 6, 2019 | |
| House of Representatives, | |
| Committee on Small Business, | |
| Washington, DC. | |
| The Committee met, pursuant to call, at 11:00 a.m., in Room | |
| 2360, Rayburn House Office Building. Hon. Nydia Velazquez | |
| [chairwoman of the Committee] presiding. | |
| Present: Representatives Velazquez, Finkenauer, Kim, | |
| Davids, Golden, Veasey, Evans, Schneider, Delgado, Chabot, | |
| Balderson, Hern, Hagedorn, Stauber, Burchett, Spano, and Joyce. | |
| Chairwoman VELAZQUEZ. Good morning. The Committee will come | |
| to order. | |
| We thank everyone for joining us this morning, and I want | |
| to especially thank the witnesses for being here today. | |
| As we are all aware, the recent government shutdown was a | |
| particularly painful experience that will leave a lasting | |
| impact on our small business economy and our workforce. For | |
| many federal workers, contractors, and small business owners, | |
| it was 35 days of missed paychecks, delayed loans, and strained | |
| budgets. Most unsettling to many of us was the shear | |
| uncertainty of just how long this would last. | |
| Despite the shutdown ending, many small business owners and | |
| workers are still feeling its effect. While those direct and | |
| indirect costs are being tallied, there are some things that we | |
| already know. | |
| We know that $3 billion in economic activity has been | |
| permanently lost, according to the latest Congressional Budget | |
| Office figures. | |
| We also know that federal contractors and workers, many of | |
| whom live paycheck to paycheck had to take extraordinary | |
| measures to make ends meet. | |
| We know that the shutdown delayed $18 billion in federal | |
| discretionary spending and shuttered numerous Federal agencies, | |
| including the Small Business Administration. | |
| Because of the shutdown, SBA was forced to suspend many of | |
| its most crucial services, including the approval of small | |
| business loans and contractor certifications. | |
| During the shutdown, we heard one heartbreaking story after | |
| another. From small businesses who have lost customers and | |
| others waiting on SBA loans, to small contractors who are not | |
| getting paid, the impact was felt by many. | |
| But, what we do not know is the shutdown's full cost to the | |
| small business community. | |
| Today's hearing gives us the opportunity to answer this | |
| question. We will hear from a flourishing brewery that had to | |
| postpone the rollout of 2019 beers due to a lack of federal | |
| approval. | |
| We will also be hearing from a federal contractor that had | |
| to take extraordinary measures to ensure her employees were | |
| supported through this difficult time. | |
| These stories, along with many more, will give us insight | |
| into how small businesses, their employees, and local economies | |
| weathered this terrible storm. | |
| It is my hope that we can shed light on the difficulties | |
| entrepreneurs and federal workers alike are still enduring | |
| after the shutdown, and that as lawmakers we can come together | |
| to prevent another one in the future because the consequences | |
| are far too real for our nation's job creators. | |
| I look forward to today's hearing and thank the witnesses | |
| for being here to share their stories with us. | |
| I now would like to yield to the Ranking Member, Mr. | |
| Chabot, for his opening statement. | |
| Mr. CHABOT. Thank you, Madam Chairwoman. | |
| The partial government shutdown left many small businesses | |
| in a state of uncertainty, and it is important that we address | |
| how quickly we can bring the small business economy back up to | |
| speed. | |
| Many American small businesses utilize services from the | |
| Federal Government, and of particular interest to this | |
| Committee, they often turn to the SBA, the Small Business | |
| Administration. The SBA provides small businesses with many | |
| different types of assistance, including aid and competing for | |
| government contracts, gaining access to capital, and | |
| entrepreneurial development. Unfortunately, during this | |
| winter's partial government closure, the majority of the SBA's | |
| employees, with the exception of the Office of Disaster | |
| Assistance, were furloughed. This temporarily halted the SBA's | |
| lending programs and left many small business contractors | |
| without pay. Many small businesses around the country also saw | |
| a drop in consumer spending, especially those most frequented | |
| by government employees. | |
| Yet, even in the most trying of times, I am always | |
| encouraged by the determination of America's entrepreneurs. | |
| Despite the dysfunction in Washington, small businesses started | |
| off 2019 strong. According to the National Federation of | |
| Independent Business (NFIB), small firms added workers, | |
| realizing the best rate gain since last July. Wages also rose | |
| in January with the percentage of business owners reporting | |
| that they increased employee compensation and it continued at | |
| 45-year record highs. | |
| This welcomed news, however, does not mean that small | |
| businesses came out unscathed. Many small businesses' bottom | |
| lines were influenced by the government's closure, and | |
| obviously, adversely. Now that the Federal Government has | |
| reopened, many small businesses are wondering what is next. | |
| Today, I hope we will be able to provide clarity to any | |
| small business affected by the shutdown. While government | |
| shutdowns often prompt people and politicians alike to assign | |
| blame, I hope that today we can put those differences aside and | |
| have a productive conversation to help our nation's small | |
| businesses get back on track so they can continue to prosper, | |
| innovate, expand, and hire folks. | |
| Thank you, Madam Chairwoman, and I yield back. | |
| Chairwoman VELAZQUEZ. Thank you, Mr. Chabot. | |
| The gentleman yields back. And if Committee members have an | |
| opening statement prepared we would ask that they be submitted | |
| for the record. | |
| I would like to take a few minutes to explain the timing | |
| rules. Each witness gets 5 minutes to testify, and each member | |
| gets 5 minutes for questioning. There is a lighting system to | |
| assist you. The green light will be on when you begin and the | |
| yellow light will come on when you have 1 minute remaining. The | |
| red light will come on when you are out of time, and we ask | |
| that you stay within the timeframe to the best of your ability. | |
| I would now like to introduce our witnesses. | |
| Our first witness is Dr. Matthew Shapiro. Dr. Shapiro is | |
| the Lawrence Klein Collegiate Professor of Economics at the | |
| University of Michigan. He is editor of the American Economic | |
| Journal of Economic Policy. Dr. Shapiro is also the Chair of | |
| the Federal Economic Statistic Advisory Committee, the official | |
| advisory Committee of the Census Bureau, the Bureau of Labor | |
| Statistics, and the Bureau of Economic Analysis. Welcome, sir. | |
| Our second witness is Mr. Bill Butcher. Mr. Butcher is the | |
| founder of Port City Brewing Company, an artisanal craft | |
| brewery in Alexandria, Virginia. He is a fourth generation | |
| Alexandrian and is a long-time craft beer aficionado. He | |
| watched the craft beer business evolve and become more like the | |
| fine wine business. It was this evolution that convinced him | |
| and his wife Karen to start Port City Brewing Company in | |
| Alexandria in 2011. Welcome. | |
| Our third witness today is Ms. Heidi Gerding. Ms. Gerding | |
| is the CEO and cofounder of HeiTech Services, a woman- and | |
| service-disabled veteran owned business. HeiTech Services is a | |
| federal programs and technology solutions provider | |
| headquartered in Landover, Maryland. She is the first woman | |
| from Minnesota to graduate from the U.S. Naval Academy. Ms. | |
| Gerding's naval career spanned nearly 10 years during a time | |
| when being an academy graduate, a naval officer, and a woman, | |
| challenged established tradition. Welcome, Ms. Gerding, and | |
| thank you for your service. | |
| I now yield to our Ranking Member, Mr. Chabot, to introduce | |
| our final witness. | |
| Mr. CHABOT. Thank you, Madam Chairwoman. | |
| Our final witness today is Mr. Charles T. Rowe, president | |
| and CEO of America's Small Business Development Centers, a | |
| nationwide network of 975 centers providing no cost business | |
| counseling and training to small business owners. Prior to this | |
| role, Mr. Rowe served as the associate administrator with | |
| Congressional Legislative Affairs for the SBA, the Small | |
| Business Administration, and also served on the House Small | |
| Business Committee, this Committee, as counsel for 10 years. | |
| Welcome back to the Committee, Mr. Rowe, and we thank you for | |
| testifying today. | |
| And we thank all the witness, and Ms. Gerding, thank you | |
| for your service. Appreciate it. | |
| Chairwoman VELAZQUEZ. Thank you, Mr. Chabot. | |
| And now I recognize Dr. Shapiro for 5 minutes. | |
| STATEMENTS OF MATTHEW D. SHAPIRO, LAWRENCE R. KLEIN COLLEGIATE | |
| PROFESSOR OF ECONOMICS, UNIVERSITY OF MICHIGAN - DEPARTMENT OF | |
| ECONOMICS; BILL BUTCHER, FOUNDER, PORT CITY BREWING COMPANY; | |
| HEIDI GERDING, CEO, HEITECH SERVICES, INC.; CHARLES ROWE, | |
| PRESIDENT AND CEO, AMERICA'S SMALL BUSINESS DEVELOPMENT CENTERS | |
| STATEMENT OF MATTHEW D. SHAPIRO | |
| Mr. SHAPIRO. Thank you for the opportunity to testify about | |
| the effects of the recent partial government shutdown. | |
| The recent government shutdown had an immediate and direct | |
| effect on government workers and contractors who were not paid | |
| during the shutdown and businesses who therefore lost sales. | |
| Research on the 2013 government shutdown provides concrete | |
| evidence about how government workers coped with a drop in pay | |
| and provides insights into how the direct effects of the lost | |
| pay affect the economy in general and small businesses in | |
| particular. | |
| Many households live paycheck to paycheck. A typical | |
| government worker had about a week's worth of spending in the | |
| bank prior to the 2013 shutdown. Roughly 20 percent only had 1 | |
| day's worth of spending in the bank prior to the shutdown. | |
| Hence, many government workers needed to take multiple steps to | |
| make payments and meet expenses when they go payless. | |
| In October 2013, government workers took a number of | |
| measures. On average, they cut overall spending by an amount | |
| equal to about half the pay shortfall. Households with a low | |
| cash buffer cut spending more sharply. Many deferred payments, | |
| including mortgage, rent, and credit card payments. | |
| There is little evidence, however, that workers affected by | |
| the 2013 government shutdown borrowed by incurring new charges | |
| on their credit cards. Those who have little cash and | |
| substantial credit card debt appeared very reluctant to | |
| accumulate new debt in the face of the drop in income. | |
| Because the 2013 shutdown resolved quickly and workers were | |
| paid promptly, it had little lasting effect on workers' | |
| financial conditions or on the overall economy. Workers who | |
| deferred mortgage payments or rent were able to make payments | |
| once they received retroactive pay, often within the month, so | |
| there was no discernable effect on their credit. | |
| While the coping strategies of affected workers in the | |
| recent shutdown appear similar to that in 2013, the severity of | |
| the shutdown for affected workers led to much greater economic | |
| impacts. | |
| Few households have sufficient cash buffers to offset a | |
| month with no pay. As the shutdown entered its fifth week last | |
| month, there was considerable risk of a sharp drop in economic | |
| activity. The out-of-pocket costs of coming to work, commuting | |
| costs or childcare expenses are significant and needed to be | |
| paid even by those government worker who were mandated to work. | |
| The temporary expedient of skipping a payment of rent, of | |
| mortgage, of credit card, of cellphone, of utilities, of | |
| insurance, of doctors' bills, you name it, something that might | |
| have seemed at first fairly low risk given the short duration | |
| of previous shutdowns was a looming financial disaster for many | |
| households. Disruption of Federal services, particularly air | |
| transportation, were becoming widespread. | |
| Small businesses provide many consumer needs for | |
| discretionary purposes. Examples include restaurants and coffee | |
| shops, dry cleaners, corner grocery stores, parking lots, movie | |
| theaters, or car dealerships. When households have to make | |
| cutbacks, they focus on discretionary purchases, such as eating | |
| out, or big ticket items that can be deferred, such as a car or | |
| appliance purchase. Businesses and locations where Federal | |
| workers and contractors live or work were disproportionately | |
| affected. | |
| Workers deferring their payments also affect business. Some | |
| of these payments--mortgage, credit cards, utility, phone | |
| bills--were paid to large institutions who presumably had a | |
| financial buffer. In contrast, late rent payments may go to | |
| small landlords who themselves owe payments to creditors and to | |
| the small businesses who service their properties. The shutdown | |
| may have placed such businesses under stress, which could have | |
| been severe had the shutdown continued into a second cycle of | |
| monthly payments. | |
| There are other effects much harder to quantify but equally | |
| important from having the Federal Government operating | |
| partially for 5 weeks. Those doing business with the | |
| government, those awaiting regulatory approvals, those awaiting | |
| loan approvals, or just trying to get information were put on | |
| hold. They face continuing delays as the affected agencies | |
| clear the backlogs associated with the 5-week closure. | |
| These disruptions are likely to have an accumulative and | |
| persistent effect on business output and productivity. | |
| Perhaps a silver lining from the recent shutdown is the | |
| widespread disruptions it caused made salient the many Federal | |
| functions that provide vital services to business and the | |
| public. | |
| Further estimates on the effect of the shutdown are | |
| available from official statistics, macroeconomic models, and | |
| the University of Michigan Consumer Sentiment Survey. I provide | |
| some details in my written testimony. | |
| Thank you for asking me to testify before the Committee, | |
| and I look forward to your questions. | |
| Chairwoman VELAZQUEZ. Thank you so much for being on time. | |
| I really appreciate it. | |
| And now we will recognize Mr. Butcher for 5 minutes. | |
| STATEMENT OF BILL BUTCHER | |
| Mr. BUTCHER. Chairwoman Velazquez, Ranking Member Chabot | |
| and members of the Committee, thank you for asking me to | |
| testify today. I look forward to speaking on behalf of the | |
| small and independent brewers about the impact of the partial | |
| government shutdown. | |
| My name is Bill Butcher. I am the founder of Port City | |
| Brewing Company in Alexandria, Virginia. Port City began | |
| operations in 2011 and since then we have grown to have 56 | |
| employees. We brew a variety of beers, with a number of year- | |
| round staples, seasonal beers, as well as one-offs. | |
| In 2015, we were named Small Brewery of the Year, and our | |
| beers have won, local, national and international awards. I | |
| invite all of you and your staff to come visit Port City any | |
| time and see how our brewery is run. | |
| Port City is committed to being a local and independent | |
| brewery. For example, we purchase close to 400,000 pounds of | |
| Virginia-grown wheat to use in our Optimal Wit, which is our | |
| best-selling beer. We are proud of our work with our supply | |
| chain partners in manufacturing, agriculture, and retail, and | |
| the jobs we have helped to create. | |
| According to the Brewers Association, which is the trade | |
| association that represents small and independent brewers, | |
| breweries like ours contributed $76.2 billion to the U.S. | |
| economy in 2017, and we employ more than 135,000 Americans in | |
| manufacturing and service jobs. | |
| Running a brewery is capital and time intensive. As a small | |
| business, we rely on planning to make sure that we can operate | |
| our brewery, meet our suppliers' needs, and pay our employees. | |
| We know that unexpected issues can arise, and we do everything | |
| we can to prepare for them. Unfortunately, no one could prepare | |
| for the impact the partial government shutdown would have on | |
| breweries. Two major agencies that we rely on to run our | |
| businesses were closed during the shutdown. The Alcohol and | |
| Tobacco Tax and Trade Bureau, also known as the TTB, and the | |
| Small Business Administration (SBA). One of the TTB's main | |
| functions is to process certificate of label approvals, also | |
| known as COLAs, which breweries are required to have if we | |
| package our beer and sell it across state lines. Some states | |
| also require COLAs for all beer packaged and sold in state. | |
| Without a label approval we cannot sell our beer. | |
| You may be surprised to hear that as an industry we get | |
| along with our regulators. Over the past few years, the TTB has | |
| taken steps to increase efficiency and turnaround time of | |
| approvals. Last year they approved more than 34,000 malt | |
| beverage labels. Prior to the shutdown, the turnaround time on | |
| malt beverage label approvals was between 6 and 30 days. As of | |
| February 1, the TTB estimated a 53 day approval time and was | |
| only processing labels that were submitted last December 13. | |
| The backlog is not the fault of the TTB. The employees who | |
| process labels, formulas, and brewers' notices are deemed | |
| nonessential. They were prohibited from reporting to work | |
| during the shutdown. | |
| To give you an idea of how this hurts a brewery, I will use | |
| Port City as an example. We spent months putting together a | |
| release calendar for our 2019 beers to help us determine when | |
| we will purchase ingredients and packaging supplies. On | |
| December 18, we submitted a label for a beer that we were | |
| planning to release in the spring. Until we get that approval, | |
| we cannot sell that beer and the entire supply chain is on | |
| hold. | |
| The uncertainty is not just impacting my business. It is | |
| impacting everyone I do business with. We are just one of the | |
| thousands of businesses who are dealing with these | |
| repercussions. | |
| We are asking that the TTB employees be declared essential. | |
| To our business and thousands of others they are just that. If | |
| you empower a Federal agency to give approvals for basic | |
| business activities, you need to keep them at work. | |
| Unfortunately, time is of the essence. The upcoming | |
| deadline for funding the government has brewers throughout the | |
| country nervous about another shutdown and its long-term | |
| impacts on their business. Port City was also hurt by the | |
| furloughing of SBA staff who were working on a loan application | |
| for our new bottling line. We have been unable to lock down an | |
| interest rate, and I will likely have to pay thousands more | |
| over the life of the loan in interest. Last year, the SBA | |
| provided $1.4 billion in loans to more than 1,900 small | |
| breweries. I can attest firsthand to the importance of those | |
| loans. We ask that the SBA employees who approve federally- | |
| backed loans also be declared essential. | |
| Congress can also help mitigate the effects of the shutdown | |
| by making the Federal excise tax rates from the Craft Beverage | |
| Modernization and Tax Reform Act permanent. In 2018, breweries, | |
| wineries, and distilleries across the U.S. have hired new | |
| employees, increased their economic development, and made | |
| capital improvements to their businesses. Making the lower rate | |
| permanent in 2019 will allow breweries to continue doing these | |
| things and to help cover any losses that resulted from the | |
| government shutdown. | |
| In conclusion, my company and other breweries need reliable | |
| Federal partners to continue to grow. We cannot sell our | |
| product without them. I ask that in the future you work to get | |
| TTB and SBA employees declared essential. | |
| Thank you again for having me here, and I look forward to | |
| any questions you may have. | |
| Chairwoman VELAZQUEZ. Thank you, Mr. Butcher. | |
| And now Ms. Gerding is recognized for 5 minutes. | |
| STATEMENT OF HEIDI GERDING | |
| Ms. GERDING. So thank everyone. | |
| I want to start first of all by thanking Ms. Velazquez and | |
| Mr. Chabot for having us here today. Also, the veterans that | |
| are serving as congressmen today, thank you very much for your | |
| service as well. Nothing is more important to me. I also serve | |
| on a board of directors for the National Veterans Small | |
| Business Coalition and very near and dear to my heart still. | |
| I have in my testimony that you have in front of you, it | |
| was interesting. My son read it and said, Mom, this sounds more | |
| like a proposal for the government than it does testimony. So | |
| you will see exhibits and attachments and all sorts of fun | |
| things in there. | |
| It is based into four areas--background, impact, I | |
| summarize, and then the call to action. My testimony is a very | |
| personal testimony. It does not have a lot of statistics in | |
| there about small business and things. This is an impact to my | |
| business directly. | |
| We are HeiTech Services. This is a government contractor. | |
| The one thing I will say is that we really recognize, spent a | |
| lot of time recognizing the Federal workforce. No time | |
| whatsoever was spent recognizing the government contractors | |
| that support those agencies. Our people were not allowed to go | |
| into food banks and get food, yet they were without pay for a | |
| number of weeks. My company fortunately, after 2 weeks of no | |
| pay, for 36 employees of about 160 billable staff that I had | |
| working, so it is about 22.5 percent of my billable workforce, | |
| were without pay for 2 weeks. The company asked them to take | |
| vacation, personal time, or leave without pay. Normally, we do | |
| not allow our people to take leave without pay. We ask them to | |
| expend their vacation and personal time, but due to the | |
| circumstances, knowing that a couple of our employees were | |
| getting married and had plans, needed to save their leave and | |
| things like that. We had other members that were pregnant and | |
| they knew that maternity leave was coming up. They had plans | |
| for their vacation. So they went without pay for 2 weeks. After | |
| 2 weeks my staff got together and said, you know what? I could | |
| not do this as an owner of a business. This is ridiculous. So | |
| at the third week we put our employees back on the payroll at | |
| our erosion of profits to keep those people. | |
| When you consider the time and the effort it takes to | |
| recruit a new person to fulfill a government contract, which | |
| our costs are about $1,100 per new person. That does not | |
| include the time to get them through a national agency | |
| clearance investigation, a NACI check, which can range from 3 | |
| to 8 weeks once we identify and get an offer letter back from | |
| an employee accepting employment. They then go through 3 to 8 | |
| weeks waiting for the government to say, yes, they can start | |
| work. If in the worst case scenario an agency takes 8 weeks to | |
| approve that person to start on the job and it comes back | |
| denied because they found something that I did not pick up in | |
| my background check that maybe they had access to FBI records | |
| or something that my background people do not have access to, | |
| the whole process starts again. So we have staff that are | |
| performing work extra because of vacancies that are currently | |
| existing on contracts. | |
| When I talked about the impact, I labeled it into three | |
| areas--financial impact on the employees, the financial impact | |
| on the company, and then the emotional toll it took on both | |
| sides which are, I mean, they are just unbearable to even think | |
| about. Probably the biggest thing was the employees that were | |
| not affected, were still working for the FDA, were concerned | |
| that the FDA might run out of money and would they be | |
| furloughed? What would happen then? | |
| The only relief came when they heard that the company put, | |
| after 3 weeks, everybody back on the payroll. It did provide | |
| some relief, but there was a lot of anxiety associated with | |
| that. When people are worried about things, they do not perform | |
| at their top performance level. | |
| Our company processes paper and electronic forms for the | |
| Federal Government. Our work is considered mission critical. At | |
| the Food and Drug Administration, we are processing medical | |
| device applications for approval. We are also processing the | |
| adverse events that come from the result of a malfunction, | |
| serious injury, or a death of a malfunction. Those are mission- | |
| critical services, and they are usually fee-based. So those | |
| employees continued to work. | |
| One employee gave me an acknowledgement that we take a lot | |
| from importers overseas calling the FDA and asking us questions | |
| about registering things. It was an embarrassment he said to | |
| have them have to explain to foreign countries or foreign | |
| companies that our country was shut down in that particular | |
| area and could not process something. It was unfathomable to | |
| another country that this country could not do something. | |
| So I want to summarize things, although please take time to | |
| read my testimony. I personally wrote this testimony because it | |
| was from the heart. I saw what my employees went through. I | |
| know what I would have gone through. But I wrapped it up with | |
| three calls to action. | |
| The first one is, please, please fund these last seven | |
| agencies and departments. Do not have my employees have to go | |
| through this again next week. | |
| The next thing is to treat--do not forget about the | |
| Government contractors. There are so many government | |
| contractors that outnumber Federal employees. Do not forget | |
| about us. The analogy that I use in there is when the Vietnam | |
| War era, people came back from the war, they were not treated | |
| respectfully. And as a result of that, today our veterans are | |
| coming back and being respected. Do not make this analogous to | |
| that situation. Have us be those returning war veterans and | |
| treat us with the same amount of respect. | |
| And finally, something that I just became aware of myself | |
| was the debt ceiling that is looming on March 2. Please do not | |
| lose sight of that. The economic impact to my business and me | |
| personally as a mother is unconscionable. So please do not | |
| forget about the debt ceiling and do a bipartisan piece of | |
| legislation and vote for extraordinary measures to get that | |
| through. | |
| Thank you. | |
| Chairwoman VELAZQUEZ. Thank you, Ms. Gerding. | |
| And now I recognize Mr. Rowe for 5 minutes. | |
| STATEMENT OF CHARLES ROWE | |
| Mr. ROWE. Thank you, Chairwoman Velazquez, Ranking Member | |
| Chabot, members of the Committee. | |
| I am president of America's SBDC, the association that | |
| represents the nationwide small business development center | |
| system. | |
| For 40 years, SBDCs have been assisting small business | |
| owners and aspiring entrepreneurs. | |
| So, what was the effect of the shutdown? Well, luckily, | |
| SBDCs were able to carry on. Our host institutions have the | |
| flexibility to support us for a short period. | |
| Some networks were forced to suspend advisors and reduce | |
| hours, but it was really our clients who bore the brunt of the | |
| shutdown's impact. Our Federal contracting clients had to | |
| suspend work. SBDCs started fielding calls and questions from | |
| them right away. | |
| Small contractors are often the most affected by a | |
| shutdown. Procedures go into place, notices go out, and | |
| sometimes there are more questions than answers. A large | |
| contractor can shift employees, sort out disruptions, absorb | |
| some overhead, but for a small business, the owner and the | |
| employees are hanging out there together and key employees can | |
| actually be lost to a better opportunity. | |
| There were 41,000 small business contractors affected. One | |
| SBDC client supporting the FAA employs 75 people and 90 percent | |
| of those employees were furloughed. Their contract is back now. | |
| They weathered this shutdown. But they are uncertain about what | |
| will happen if there is another one. | |
| And when a small business contractor gets furloughed, there | |
| is no recouping lost revenue. | |
| And it is not just the existing contracts. An SBDC client | |
| was awaiting 8(a) certification. Without that and letters of | |
| support from the local Federal lab which was closed, they could | |
| not go to an Air Force pitch day, so time was lost and | |
| opportunities that will never come back. | |
| SBDCs also have thousands of clients seeking financing. And | |
| when SBA shuts down, 7(a) and 504 lending stops. | |
| A Lynchburg, Virginia borrower was awaiting SBA approval so | |
| he could move to a permanent location. He had given up his | |
| long-term lease expecting that approval. Now he is waiting, | |
| worried that his landlord might evict him if he finds a long- | |
| term lessee. | |
| In Twin Falls, Idaho, the SBDC works closely with a local | |
| 504 lender. Eleven million dollars of financing was halted. In | |
| Twin Falls, that is a lot of money. Another $800,000 there was | |
| stopped when a lender funding a remodel could not get a simple | |
| subordination. | |
| Until SBA reopened, clients could not do simple things like | |
| that. Or get approval for a life insurance payout to a widow | |
| whose spouse was her business partner. It happened all over. A | |
| childcare center in North Carolina waiting for a decision from | |
| SBA may cost the business their building. In Illinois, an 80- | |
| year-old design and engineering company may close because their | |
| loan was not funded by the closing date of December 27. | |
| SBDCs have a partnership with the International Franchise | |
| Association. They told us that roughly $12 million a day in | |
| SBA-backed loans were being delayed for franchises. Now, SBA is | |
| working to clear the backlog, but in the meantime, small | |
| businesses are trying to figure out bridge loans and | |
| alternatives. Hopefully, they will come to us to work it out. | |
| Otherwise, desperation can lead to poor business choices, | |
| something I know the Chairwoman has worked on and we really | |
| support her bill on that. | |
| As I mentioned above, 8(a) certifications were suspended. | |
| So were mentor-protege agreements. So a small business trying | |
| to get approved to team with a large contractor is put on hold. | |
| And if it is a defense contractor, they are still working but | |
| the small business cannot. | |
| And business stopped at the Department of Commerce. | |
| Export.gov was shut down. SBDC clients are okay because we have | |
| certified export counselors, but any small business looking for | |
| help on export regulations on their own was stuck. | |
| SBDCs are providing all the help we can to keep our clients | |
| in the black and help any new small business clients. The DC | |
| SBDC is co-sponsoring an event with Intuit bringing in advisors | |
| to help contractors and hosting a meet and greet for D.C. | |
| restaurants that felt the pinch, too. It is, more than | |
| anything, a morale boost because many of them are wondering | |
| what will happen come February 15th. Our mission is to help | |
| them and prepare them for the future. Small business hates | |
| uncertainty, and that is exactly what a shutdown is. They are | |
| not bad business people. They did not make mistakes. They just | |
| got caught up in the shutdown. | |
| Thank you. I look forward to answering any questions. | |
| Chairwoman VELAZQUEZ. Let me thank all the witnesses for | |
| sharing your stories. You know, sometimes here in Washington we | |
| lose perspective into the incredible long-lasting impact that a | |
| government shutdown will have, not only on federal workers but | |
| on those who really keep this economy growing. | |
| I recognize myself for 5 minutes, and I will start by | |
| asking Dr. Shapiro the first question. | |
| The CBO projects a reduced level of GDP for this first | |
| quarter, nearly $8 billion lower than expected. Even the Wall | |
| Street Journal has also reported small businesses have become | |
| more cautious in their expenditures. What could another | |
| prolonged shutdown possibly mean for the economy, consumer | |
| confidence, workers, and spending? | |
| Mr. SHAPIRO. Thank you very much. | |
| As the last witness said, uncertainty makes planning very | |
| difficult. That is true for both businesses and households. So | |
| even the threat of a shutdown is presumably slowing down | |
| activity this month as workers try to build up cash balances | |
| and businesses are uncertain whether they should hire or buy a | |
| piece of equipment. So the risk of a further shutdown is likely | |
| having effects now. Resolving the uncertainty would be very | |
| important. | |
| At the University of Michigan, we have a Consumer Sentiment | |
| Survey, which asks random sample of households across the | |
| country--how is the economy going to do? The index of consumer | |
| sentiment fell 7 percent in Janaury, a very significant drop. A | |
| number of respondents mentioned the shutdown. These were folks | |
| who were not necessarily directly affected, but were concerned | |
| about its effect on the economy overall. | |
| I also find the CBO estimates highly credible, but they are | |
| based on previous shutdowns where the resolution was fairly | |
| quick and the uncertainty was rapidly resolved. If the impasse | |
| over funding the government drags on, I would expect the CBO | |
| might have to update its estimates and that they would show a | |
| bigger effect on GDP. | |
| Chairwoman VELAZQUEZ. And if this sharp decline in consumer | |
| and business confidence or sentiment were to continue, could | |
| this lead to an economic slowdown this year? | |
| Mr. SHAPIRO. That is potentially the case. The part of the | |
| government that is directly affected is small enough that it | |
| alone would not lead to a recession. But I think there is a | |
| concern with overall confidence, that the government is not | |
| functioning, and that ordinary decisions are not being made | |
| would depress confidence overall and have very dramatic | |
| spillovers. Recessions are hard to predict. The economy is | |
| quite resilient, but it is possible that a further shutdown | |
| could trigger a recession. | |
| Chairwoman VELAZQUEZ. Thank you. | |
| Mr. Butcher, how much of a delay would you say this | |
| unexpected interruption has cost you in time and money? I know | |
| that you put some planning into the 2019 beer rollout, so if | |
| there is any way for you to quantify that. | |
| Mr. BUTCHER. Yeah. We spent the last four months of 2018 | |
| planning for 2019 and introducing new beers to the market. The | |
| craft beer business, growth is driven by innovation. By | |
| releasing new beers. Craft beer drinkers are always looking for | |
| something new. Our restaurant customers are always looking for | |
| something new. And when we submit the label it should take | |
| about 14 days to get approved. And so the labels that we have | |
| caught up in the backlog at the TTB are beers that we plan on | |
| releasing next month, as well as the month following. So March | |
| and April and May. And what that does for us is it just, if we | |
| cannot sell our new beers in the market, those beers just do | |
| not get purchased. We cannot make that up. People going out to | |
| eat or buying beer in a store, they are going to buy something | |
| else. And that effectively slows down our business. | |
| Also, when we look at our suppliers, we buy a significant | |
| amount of wheat from a farm in Heathsville, Virginia, and we | |
| contract that wheat. And if we are not going to buy it when we | |
| say we were going to buy it, it slows their small business down | |
| as well and then they need to figure out what they are going to | |
| do with that excess wheat. Do they send it to the maltster, or | |
| do they have to sell it as animal feed, or do they just not get | |
| to sell that grain? So it really affects us up the supply | |
| stream as well as down the supply stream with restaurants that | |
| are slowed as well. | |
| Chairwoman VELAZQUEZ. Thank you. | |
| Ms. Gerding, you said that, small contractors and their | |
| workers are the silent victims of the shutdown. It seems their | |
| plight is a difficult one to get hard numbers on as we are | |
| gathering anecdotal stories from the press and those who reach | |
| out to us. So I would really like to hear your thoughts on | |
| whether you are worried about the potential for negative past | |
| performance ratings caused by the shutdown and how that could | |
| impede your ability to win future contracts. | |
| Ms. GERDING. So the answer to that question is the | |
| potential is certainly there. I think today all of our | |
| customers completely understand the shutdown and are giving us | |
| a pass, if you will, for deliverables and timeliness and things | |
| that they measure our performance on. My concern is a month or | |
| two from now that will have been forgotten about, the shutdown, | |
| and they will want to know why we were not able to recover, why | |
| we were not able to catch up. So today I am okay, but I am | |
| worried about past performance down the pike. I am still | |
| gathering information from my project managers in the field as | |
| to any backlogs that may have resulted and how that may impact | |
| our performance in the future. But you know, past performance | |
| is key to winning contracts, and if it is marred in any way it | |
| will hinder my ability to grow the business. | |
| Chairwoman VELAZQUEZ. Thank you. | |
| My time has now expired. The Ranking Member, Mr. Chabot, is | |
| now recognized for 5 minutes. | |
| Mr. CHABOT. Thank you, Madam Chair. | |
| And before I ask questions, just kind of a point here. I | |
| think all the witnesses have indicated why we want to avoid | |
| another shutdown occurring in the very near future because | |
| these things impact the economy. They impact real people in | |
| many ways, especially as you mentioned, Ms. Gerding. And it | |
| ought to happen in Congress. The President ought not to have to | |
| take emergency action of any sort. So it seems to me that there | |
| is somewhere between $5.7 billion for border security and zero | |
| that we in good faith when we deal with trillions of dollars | |
| every year we ought to be able to find some area there. We have | |
| not yet but hopefully our leadership, and we in conjunction | |
| with our leadership, will do that. | |
| Mr. Rowe, let me begin with you. What specific forms of | |
| support can SBDCs that you are intimately involved in and | |
| knowledgeable about, obviously, and other entrepreneurial | |
| development centers offer to small businesses during times of | |
| uncertainty such as a government shutdown? | |
| Mr. ROWE. It really depends on the business, Mr. Chabot. If | |
| they are a Federal contractor, we can offer them some advice. | |
| We operate 29 of the 94 PTACs, Procurement Technical Assistance | |
| Centers. And we can offer them some advice on how to handle the | |
| loss of revenue and try and deal with it as Ms. Gerding did. | |
| But honestly, we cannot really tell them anything about what is | |
| going to happen in terms of the government coming back on. | |
| Now, with borrowers, the 7(a) and 504 lenders, they are | |
| stuck. They cannot get approvals from SBA, and very often, the | |
| very reason we have gone with our clients through a 7(a) loan | |
| process or a 504 loan process is because they have exhausted | |
| the other options. So then we are trying to help them find | |
| bridge or alternative financing. Very often there is some | |
| limited ability to do that. Some of the folks in the 504 and | |
| 7(a) community have been really great about stepping up and | |
| finding ways to help the clients, but that is a limited | |
| resource. | |
| Mr. CHABOT. Yes. Yes. | |
| Let me move to Ms. Gerding. Ms. Gerding, I think you very | |
| poignantly highlighted one of the most significant items that I | |
| think oftentimes got ignored in the coverage of the shutdown, | |
| and that is it was not just government employees. You know, you | |
| would sometimes hear cavalier statements about, oh, well, they | |
| are off for 3 weeks or 2 weeks and it is an unpaid vacation at | |
| this point but they are going to get paid and that kind of | |
| thing. But the government contractors, those employed by | |
| private entities, they oftentimes are going to get nothing | |
| back. And literally were receiving nothing. And you talked | |
| about that. | |
| What would you like to comment about that and how it really | |
| affected real people that you knew of? | |
| Ms. GERDING. I think that the back pay situation is | |
| something that Congress should consider reimbursing those | |
| contractors. All four of my contracts that were affected out of | |
| the 20 were firm fixed price contracts. Technically, I should | |
| be reimbursed at the end of the month for the work that was | |
| done or not done because I am based on a firm fixed price. | |
| However, the acquisition workforce is new and many of the | |
| people do not understand the regulations. And so there has been | |
| a lot of pushback in the past that if I have a vacancy or if | |
| there is another presidential mandate because a former | |
| president died and there is a day that is off in this | |
| particular town, that they are not going to reimburse us for | |
| those days because we did not work. And so there has been a lot | |
| of education that has been tried to go back and forth with the | |
| acquisition officers. | |
| SAIC, I know, was reporting that for every week they were | |
| off they were losing something like $10 million for every week. | |
| Certainly, we are not at that size but I think that | |
| extrapolating our information to what they are experiencing, it | |
| is a ripple effect across government contracting. | |
| Mr. CHABOT. If I could stop there because I have only got | |
| less than or about a minute. | |
| Ms. GERDING. Can I just say one quick thing? | |
| Mr. CHABOT. Real quick. | |
| Ms. GERDING. Just recognize them. Just acknowledge that we | |
| exist. I think that will go so far. | |
| Mr. CHABOT. Thank you very much. | |
| Mr. Butcher, I have only got a short time here. | |
| We passed the Tax Cuts and Jobs Act a while back and a lot | |
| of small businesses, individuals, a lot of folks benefitted | |
| from that. Could you comment briefly on how your company has | |
| used the savings in that either to reinvest or for your | |
| employees or what you have done with it? | |
| Mr. BUTCHER. Yes. The savings and when the excise tax was | |
| cut last year, we have used that savings to buy new tanks for | |
| our brewery. We have hired more people at our brewery. | |
| Salespeople out in the field. And we have used that money to | |
| continue that savings, to continue to grow our business. We | |
| also have installed a brand new bottling line that would not | |
| have been possible without the excise tax being cut. | |
| Mr. CHABOT. Thank you very much. | |
| My time is expired, Madam Chair. | |
| Chairwoman VELAZQUEZ. The gentleman's time has expired and | |
| the gentleman yielded back. | |
| The gentlelady from Iowa, Ms. Abby Finkenauer, who is the | |
| Chair of the Subcommittee on Rural Development, Agricultural | |
| Trade, and Entrepreneurship is now recognized for 5 minutes. | |
| Ms. FINKENAUER. Thank you, Madam Chair. | |
| I just want to thank all of you today for being here and | |
| hearing from you. You know, I am one of the freshmen that got | |
| sworn in in the middle of the shutdown, and Ms. Gerding and Mr. | |
| Butcher, your testimony today underscores what I was hearing | |
| back in my district and also across the country, that our | |
| working families and our small businesses should never be used | |
| as bargaining chips when it comes to policy decisions. And Mr. | |
| Shapiro, you underscored that not only is that bad for our | |
| values, it is also bad for our economy. And I am just, again, | |
| very grateful to have you all here today. | |
| Mr. Rowe, I really appreciate your testimony. And one of | |
| the things you highlighted was small businesses, and for me, | |
| especially our farmers, hate uncertainty. And so this question | |
| I am hoping you can help me with here a bit. You know, this | |
| shutdown has had serious impact on Iowa's workers and our | |
| farmers across the board. In my district we heard from small | |
| businesses that could not afford to have their products | |
| inspected and approved for sale, and from farmers who missed | |
| out on key data and loan deadlines. This shutdown hurt Iowa's | |
| families and our farmers, which are quite frankly the lifeblood | |
| of our economy in rural America. And on top of that, our | |
| farmers and workers are getting hit hard every single day from | |
| this trade war. | |
| In Iowa, nearly half of our employees work at small | |
| businesses, which are 99 percent of our businesses. From your | |
| different perspectives, and I know that you all have many of | |
| them, but Mr. Rowe, again, I hope you can help me with this | |
| one, what could we do to help minimize the impact to our | |
| farmers, small businesses, and their employees, in the case of | |
| another shutdown, which I hope we do not see? Should we be | |
| looking at ideas on regulatory relief? Waiving payment | |
| deadlines? Or would a new short-term loan program make sense to | |
| minimize disruptions? Do you have any ideas of what we could be | |
| doing in the future here? Because quite frankly, we should | |
| never be put in this position again, but I want to make sure | |
| that our small businesses and our farmers are taken care of. | |
| Mr. ROWE. Thank you, Ms. Finkenauer. | |
| Well, the easiest thing would be to just come to agreement | |
| and not have a shutdown. But honestly, we do deal with a lot of | |
| value-added agriculture, rural businesses. | |
| While USDA inspections are considered mandatory, there is a | |
| bit of a gap sometimes. And I have heard this actually from one | |
| of our clients in Texas, that there are USDA inspectors who do | |
| not have a company car so they cannot get around to do the | |
| inspections unless they are spending their own money on gas and | |
| using their own car. I think one of the things USDA could look | |
| at is making sure that their inspection force is up and ready | |
| for everybody who is involved. I think waiving the payments, if | |
| you do not have someone to make a payment to, it should | |
| essentially be waived. I do not understand how that system | |
| works, I admit. As far as loans go, USDA's B&I loan program was | |
| shut down just like 504 and 7(a) at SBA. It is the same problem | |
| there. | |
| Chairwoman VELAZQUEZ. The gentlelady yields back. | |
| And now we recognize Representative Troy Balderson, Ranking | |
| Member of the Subcommittee on Innovation and Workforce | |
| Development for 5 minutes. | |
| Mr. BALDERSON. Thank you, Madam Chair. And I would like to | |
| say a few opening statements as the Ranking Member also did | |
| just to bring up a couple points. | |
| It is important that we carefully consider the impacts of | |
| the Federal Government's actions, or inactions, have on the | |
| average American. Unfortunately, even a partial shutdown, like | |
| the one we just experienced, can have a detrimental impact on | |
| Ohioans and their small business. | |
| I have another solution. I have introduced a piece of | |
| legislation called End the Government Shutdowns Act, which will | |
| prevent small businesses from ever suffering again due to | |
| appropriations impasse. I thank the Ranking Member for his co- | |
| sponsorship and support on this important piece of legislation. | |
| Today I plan to listen to these folks at the witness table | |
| who have so graciously volunteered their time so I may learn | |
| from your experiences. I hope my colleagues on both sides of | |
| this dais will join me in finding solutions for small | |
| businesses, the heart of our economy. And I invite my | |
| colleagues to co-sponsor the End Government Shutdowns Act. | |
| My first question is directed to Mr. Rowe. Do you believe | |
| the continued operation of programs such as the 7(a), 504, and | |
| microloan programs is critical? | |
| Mr. ROWE. Yes, sir, I do. The whole point to the 7(a) and | |
| 504 programs, and I worked as Committee counsel, as Mr. Chabot | |
| pointed out, the whole point to these programs is to provide | |
| assistance to solid small businesses that have not been able to | |
| access the financing they need in the private sector. | |
| Mr. BALDERSON. Thank you. | |
| Question for Ms. Gerding. I appreciate you sharing your | |
| insight on the difference between the treatment of Federal | |
| contractors and Federal employees. I had that situation in my | |
| district and I, myself, said the same thing. There are other | |
| folks out there that are being affected by this that the | |
| conversation is not happening with. Could you elaborate on how | |
| a partial lapse in appropriations impacts affect the | |
| contractors differently? | |
| Ms. GERDING. The first point I will make is the | |
| recognition. Just the fact that we are not even being | |
| recognized at the table, I think a lot of our employees feel | |
| not valued and that their work is not important. As I hear the | |
| other speakers here testify about not having gas money and | |
| things like that my head goes to are these government | |
| contractors, which leads to a whole different discussion on how | |
| contracts are being bid and won on low cost, technically | |
| acceptable. So maybe whoever bid this contract did not put that | |
| in there to save money and so, but the public does not know | |
| that they are government contractors maybe performing. So it is | |
| a whole another discussion. | |
| But I think the other thing is the indirect costs that are | |
| associated with this. Many of my customers are uneducated in | |
| how government contracting is bid. And they do not recognize | |
| the fact that when I pay somebody $50,000 an year, they think | |
| that I should charge them $50,000 an year. They do not consider | |
| the overhead, the indirect expenses associated with running the | |
| business. So oftentimes I am having to educate my customers | |
| about that whole process which is maddening sometimes because | |
| they think if I am charging $75 an hour to the government but I | |
| am only paying the employee $50 an hour that $25 is profit | |
| going in my pocket when, in fact, it is not. It is paying for | |
| health insurance. It is paying for all the other insurances and | |
| fringe that I am covering. I am paying for the other staff that | |
| is supporting the company, the payroll people, the CFO, the | |
| chief operating officer, other things just to keep the business | |
| running. So I think there is a big disconnect right there is | |
| that the government contractors, it impacts more than just the | |
| employee. It affects those that are indirectly supporting the | |
| company as well. | |
| Mr. BALDERSON. I agree. Thank you for your answer. | |
| Dr. Shapiro, would you agree that preventing Government | |
| shutdowns from occurring all together would provide more | |
| certainty for small businesses and the American economy? | |
| Mr. SHAPIRO. Yes, I would agree with that. | |
| Mr. BALDERSON. Thank you. I yield back the rest of my time, | |
| Madam Chair. | |
| Chairwoman VELAZQUEZ. The gentleman yields back and now we | |
| will recognize the gentlelady from Kansas, Ms. Davids, for 5 | |
| minutes. | |
| Ms. DAVIDS. Thank you, Madam Chair. | |
| So Ms. Gerding, I am going to start with you because in | |
| Kansas, like in a lot of places, there are a lot of Federal | |
| employees, but also a lot of Federal contractors, specifically | |
| in my district. In fact, in Overland Park there are a lot of | |
| government contractors and all over my district. And yesterday | |
| I spoke with the owner of Veracity, also a woman-owned | |
| business. And the similarities between what I am hearing from | |
| you today and what I heard from her yesterday are stark and | |
| highlight that, although these are anecdotal, that it is across | |
| the board we are seeing similar outcomes. | |
| In January alone, yesterday, she told me that she lost | |
| $135,000 in her business, and continued to pay employees, | |
| although she was not sure, the uncertainty that we have heard | |
| about, was not sure when her contracts would pick back up. | |
| Which leads me to a question about retention, employee | |
| retention, the concern about being able to attract high- | |
| skilled, quality employees, both as Federal civil service but | |
| also in these very important contracting companies. Can you | |
| tell me a bit about your concern? What is your outlook for not | |
| just attracting but also retaining the people who are in your | |
| company now? | |
| Ms. GERDING. So thank you for acknowledging Overland Park. | |
| We actually supported the National Benefits Center out there | |
| for many, many years in Overland Park and Lee's Summit, | |
| Missouri. In fact, I have staff still emailing me and texting | |
| me regularly asking me to bid on the contract and please come | |
| back to work. So you may see me again. | |
| In response to your question, retention was a problem | |
| during this shutdown. I had one employee resign as a result of | |
| the fact that he was new to government contracting and just | |
| thought it was too risky for his family. | |
| I will say that because I am fortunate and come from the | |
| Washington, D.C., area, it is not as big a concern. The one | |
| thing that government contract is, is it will not make you rich | |
| but you are assured of getting paid, whereas other commercial | |
| businesses do not have that same benefit. | |
| So in terms of retention, I think that HeiTech Services won | |
| a lot of brownie points, if you will, with the fact that we put | |
| people back on the payroll. Another shutdown, I am not sure | |
| that I will be able to do that. In fact, the first thing I | |
| thought was when some of my employees said, well, you put those | |
| people back on the payroll so I was not concerned, I thought, | |
| yeah, but I do not know that I could support 160 people on the | |
| payroll for a long period of time. I did not tell them that but | |
| that is what I thought. So I am not sure it has a big impact. I | |
| think that Federal contracting is still a very secure place to | |
| be. | |
| Ms. DAVIDS. I appreciate that. And then just a quick follow | |
| up, or it is not a follow up directly to that question but | |
| something that you mentioned earlier which is education of the | |
| customers that you are servicing in the procurement process and | |
| what specifics are in and the terms of the contracts that you | |
| are filling. | |
| Can you talk a little bit more about that? When you talk | |
| about the customers, who exactly in the negotiation of that are | |
| you talking about? | |
| Ms. GERDING. So it is everywhere form the contracting | |
| officer's representative, the technical person in the Federal | |
| agency that we are actually doing the work for, all the way | |
| through the acquisition officer, the contracting officer. It | |
| just varies as to the level of experience and support. So you | |
| never know when you are talking, you know, you are talking to | |
| your contracting officer's representative on the technical side | |
| about the way things should be done. They call the contracting | |
| officer and we are sure that the contracting officer is going | |
| to support us by saying it is a fixed price contract, pay them. | |
| Instead they say, oh, no, no, no. You had vacancies on the | |
| contract. And we were like, oh, my gosh. So I am going to my | |
| attorney. I am incurring a lot of out-of-pocket expenses to try | |
| to figure out how to get back there without ruining my | |
| reputation with the customer or the contracting officer because | |
| I do not want to be seen as a difficult customer. So it is | |
| just, I think, time and education. | |
| Ms. DAVIDS. I am low on time so I am not sure if you can | |
| give me a yes or a no here but what I feel like I am hearing is | |
| that even in our procurement process there is a lot of | |
| education that needs to be done on the Federal civil service | |
| side around contracts like yours and probably others? | |
| Ms. GERDING. Yes. | |
| Ms. DAVIDS. Okay. Thank you. | |
| I yield back the remainder of my time. | |
| Chairwoman VELAZQUEZ. The gentlelady yields back. | |
| And the gentleman, Mr. Kevin Hern, Ranking Member of the | |
| Subcommittee on Economic Growth, Tax, and Capital Access, is | |
| recognized for 5 minutes. From Oklahoma. | |
| Mr. HERN. Thank you, Madam Chairwoman. | |
| In true bipartisan fashion, I would truly appreciate you | |
| removing the President's name from the original title of the | |
| hearing today. | |
| As we all know, this, in true government fashion, we are | |
| talking about government shutdowns that have been occurring | |
| regularly for almost 40 years now. So today we are probably not | |
| going to solve the problem, but I think it really begs to | |
| understand why we have them. | |
| As a business person, as a person that has been in small | |
| business for 34 years, has been signing his paycheck on both | |
| sides for over 25 years, I certainly would be the first to | |
| acknowledge that anything that disrupts the normal process of | |
| competing with each other as opposed to competing with the | |
| Federal Government's regulations and overburdensome taxation, | |
| it is a problem that when we have something as extraordinary as | |
| a shutdown, regardless of whose name was on the front of it or | |
| why it was caused, quite frankly, many people, and one of the | |
| reasons I am here is because we seem to cannot do our job up | |
| here of just passing something as simple as 12 appropriation | |
| bills, we would not be talking about shutdowns again. | |
| So we could introduce all kinds of new legislation. We | |
| should just introduce a new legislation which I have signed | |
| onto which is No Budget, No Recess. You do not have to have a | |
| constitutional amendment. You do not go home until it gets | |
| passed. We will not even have these hearings anymore because we | |
| will all be getting paid in regular order and this will be a | |
| whole different place to live and breathe in. I know my | |
| business friends certainly would appreciate that, and Dr. | |
| Shapiro, there would probably be less to talk about in your | |
| world. But I would really appreciate that. | |
| Mr. Rowe, as someone who is highly involved in America's | |
| small businesses and you see a lot of different industries, I | |
| have a question for you. If you remember, since we are talking | |
| about what causes shutdowns, and more importantly, what causes | |
| the enthusiasm in small businesses or not, could you describe | |
| based on your thousands of businesses that you are touching, | |
| what drove the enthusiasm so highly, so quickly, in November | |
| 2016? About a 14-point jump enthusiasm on November of 2016 | |
| according to NFIB. | |
| Mr. ROWE. The Small Business Community was very enthused by | |
| the passage of the Tax Act. They thought things were going very | |
| well. As a result, we saw increased economic activity and | |
| involvement. I think the biggest problem we have now is that we | |
| had all that increased activity and a fair amount of it flows | |
| through the SBA's loan program. | |
| Mr. HERN. So, Mr. Rowe, if I may, back in 2016, not 2018. | |
| Mr. ROWE. Oh, 2016. | |
| Mr. HERN. Yeah. It happened to be an election year. | |
| Mr. ROWE. Yes, I know. What enthuses people? Mr. Hern, I am | |
| going to be honest and tell you that I think people are always | |
| seeking change in an election year and I think that is what | |
| they wanted and that is what they got. I think they were a | |
| little bit frustrated, particularly in the small business | |
| community with what they considered to be a low-growth economy. | |
| Mr. HERN. If I may, just to fast forward that, with the | |
| change in 2018 November election, there was a decline in small | |
| business enthusiasm, almost coinciding with an election, | |
| coincidentally or not. But as we go forward here I just want to | |
| ask you, I really appreciate certainly the two business people | |
| at the table talking about what we should do because I think | |
| that is what business people do. They look at the problem and | |
| they try to find an agreement or a solution how to move | |
| forward. And you are asking of us as members of Congress to | |
| stop this madness of repeating history time and time again. It | |
| is insanity. The two gentlemen on each end are describing what | |
| happens when you have these disruptions. And so the combination | |
| of all the testimony here is very important for us all to | |
| listen to and for us to take to back to our members because if | |
| we truly care about 70 percent of the job creation in America, | |
| we truly care about big businesses growth in the future because | |
| our small businesses are incubators for large businesses in the | |
| future, you would think that would be the most important thing | |
| in the world to drive this economy. This economy is found on | |
| job creation and business. You would think that we would take | |
| that back and we would vote accordingly to drive that economic | |
| engine. But you see quite the difference in that. And we were | |
| talking again imminent shutdown over other things that drive | |
| policy. So we have got to determine what is the most important | |
| thing that we are all going to work on in this small business | |
| and take back up to our respective leaderships to move forward. | |
| I will remind us all, the greatest social program in the | |
| world is a job. And there are two job creators up there. I am | |
| one as well. So I appreciate you all's testimony and I yield | |
| back the balance of my time. | |
| Chairwoman VELAZQUEZ. The gentleman's time has expired. | |
| And now I recognize Mr. Jared Golden. He is the Chairman of | |
| the Subcommittee on Contracting and Infrastructure. | |
| Mr. GOLDEN. Thank you, Madam Chair. | |
| The first thing I want to say is to Ms. Gerding. You know, | |
| coming out of the Marines and seeing your background in the | |
| Navy, I am not surprised to hear that just a couple weeks into | |
| this you and the people that help you run your business | |
| instinctually knew that you had to do something to do to help | |
| take care of your workers so you put them back on the payroll. | |
| One of the things that this shutdown I think impressed upon me | |
| in my first few weeks in Congress is that when we fail to | |
| provide that kind of leadership in Congress, that is one of the | |
| embarrassing things about it is people like you have to step up | |
| and fill that leadership gap and I think that is also one of | |
| the positives. We see that we have got people like you out | |
| there running businesses and taking care of workers. So thank | |
| you very much for that. | |
| In looking here at your testimony, there is a bullet here | |
| about financial impact to business. And you noted here that you | |
| are operating off a budget that is predicated on an expected | |
| budget. And you noted a deficit in indirect expenses of about | |
| $100,000. My folks back home run a small business. It is not as | |
| big as yours. It is very small. One hundred thousand dollars | |
| would be a lot. I do not know what the impact is to you, but I | |
| am wondering if you could just tell us a few things relevant to | |
| steps you might have to take to try and get your budget back on | |
| track. | |
| Ms. GERDING. So we have already taken a look at that. The | |
| budget last year when we developed 2019's budget was based on a | |
| $16.5 million revenue stream. From that what we did was we had | |
| to reduce that to $16.25 million, about a quarter of a million | |
| dollars came out of our budget because the revenue is going to | |
| be lost from the company, which means we had to go back in to | |
| all of our indirect expenses and realize where we were going to | |
| reduce costs. I still am assessing the impact right now because | |
| we did have to go into our line of credit to use, especially at | |
| the beginning of the year when we are paying full amounts of | |
| FUTA and SUTA and all those other things that hit you at the | |
| beginning of the year. Plus, you have short months. You know, | |
| 28 days in February, et cetera. And then there is a number of | |
| Federal holidays that hit at the beginning of the year. So we | |
| will have to sharpen our pencils and reduce our costs | |
| throughout the company to make sure that we come in on budget, | |
| which we will do, but it does have an impact on everyone across | |
| the board. | |
| Mr. GOLDEN. Thank you. So there are some short-term steps | |
| that you are going to have to take on a longer term. | |
| Ms. GERDING. We are already talking. Yes. | |
| Mr. GOLDEN. I talked to a constituent back home who runs a | |
| business and contracts with the Federal Government. They noted | |
| that during the shutdown, GSA was not posting any solicitations | |
| for bids. I do not know if that is something that you also had | |
| to deal with during this, but can you talk a little bit about | |
| how that might impact either yourself or a business like the | |
| one I am noting back home in Maine in terms of their long-term | |
| confidence and business planning to deal with the fact that | |
| there is no solicitation of work for them to be competing for | |
| during a shutdown? | |
| Ms. GERDING. So that gets in, I mean, there is an impact | |
| based on the shutdown. There are bigger impacts that impact the | |
| small business community that are successful and grow outside | |
| their size standards and now all of a sudden they are playing | |
| with the big guys but they are only, let us say, a $40 million | |
| company and now all of a sudden I am having to compete with | |
| Lockheed Martin. With the government going to category | |
| management, if you do not have one of those contract vehicles, | |
| you are not going to play. You will always be a subcontractor | |
| to a large contractor. And then you are at their mercy to play | |
| whatever game they want to play. When I get a teaming agreement | |
| I am looking at it saying, this is unfair. I want that if you | |
| get the option here, I get the option here. And they said, | |
| look, either take it or I will find another company that wants | |
| to do the work. So I am forced to kind of negotiate like that. | |
| In terms of the shutdown itself, we were not adversely | |
| affected by the proposal process. What I was anecdotally told | |
| from another company was that the Acquisition Office was | |
| needing approval from another government agency. So it was a | |
| Department of Defense agency that needed approval from another | |
| Federal agency that was closed that shut the acquisition | |
| process down because that agency was not open. So that is going | |
| to slow roll that procurement and move it to the right. | |
| Mr. GOLDEN. All right. Thank you. | |
| Well, one last question shifting gears. Dr. Shapiro, I am | |
| just looking here at some data. This is Vistage Worldwide who | |
| did some work with the Wall Street Journal. They were making | |
| note that in 2018, economic confidence among smaller firms, | |
| actually downward, 14 percent of firms expected the economy to | |
| improve in 2019, but 36 percent expected it to get worse. Could | |
| you just talk a little bit about how something like a shutdown | |
| in the month of January might add to that kind of downward | |
| confidence among small firms in particular? | |
| Mr. SHAPIRO. I do not think that we have direct evidence | |
| that that survey was affected by the confidence. I think for | |
| the reasons stated by the witnesses at this hearing, it is very | |
| hard for businesses to plan. It is very hard for them to know | |
| whether to hire a worker. It is very hard to know whether to | |
| develop a new brew if the government approvals business depends | |
| on are delayed. So I can well imagine that many businesses' | |
| confidence is affected. | |
| Mr. GOLDEN. Thank you. | |
| Chairwoman VELAZQUEZ. The gentleman yields back. | |
| I now recognize Mr. Hagedorn from Minnesota for 5 minutes. | |
| Mr. HAGEDORN. Madam Chair, thank you for the time. I | |
| appreciate the leadership that you and the Ranking Member have | |
| shown on this and all your past work on this Committee. | |
| It is a pleasure to be here helping our Main Street | |
| businesses. Small businesses are certainly very important to | |
| the 1st District of Minnesota and all the people across the | |
| country, the small businesses, the job-creating backbone of our | |
| economy. And I appreciate the testimony of the folks here. | |
| I would like to say to Ms. Gerding, I appreciate you coming | |
| up. It was nice to meet you before the hearing. As a fellow | |
| Minnesotan, welcome. And I think that Congressman Oberstar, | |
| when he nominated you to the Naval Academy, knew what he was | |
| doing, and congratulations on that. And thank you for your | |
| service to our country. | |
| I have heard a lot from the witnesses about certainty, and | |
| obviously, when the Federal Government shuts down that is not a | |
| good thing for you. That is not a good thing for anyone. And we | |
| can debate on why that happens and so forth and what should | |
| happen in the future. That is, I suppose, the ultimate thing | |
| that in your line of work that we could do to create certainty | |
| is to make sure we do not shut down anymore. I get that. | |
| But when you look at the Federal Government and its impact | |
| on small business and our economy, there are lots of ways that | |
| the government can throw a wrench in things and have a lot of | |
| uncertainty across the board. I think what my friend, Mr. Hern | |
| was getting at is before the 2016 election there might have | |
| been a little bit of uncertainty on regulatory policy, whether | |
| or not we were going to have something like Waters of the | |
| United States or the Clean Power Plant, things like that would | |
| drive businesses to maybe look at things different and take a | |
| step back as to whether or not they were going to move forward. | |
| Taxation, obviously. Energy policy. Labor. Trade. You can go on | |
| down the line. | |
| I am drawn to the brewer in the bunch, so I will say to Mr. | |
| Butcher, how does certainty play and uncertainty? And what are | |
| you looking for from the Federal Government, the Executive and | |
| Legislative Branch moving forward, in general? | |
| Mr. BUTCHER. Well, thank you, Mr. Hagedorn. | |
| As far as certainty goes, in founding a small business and | |
| running a small business, you start up in an environment of | |
| uncertainty. You do not know exactly how things are going to go | |
| but you have to go with your gut and you have to do the best | |
| job you can every single day. | |
| As far as the government giving us more of a level of | |
| certainty, we are in a highly-regulated industry and I accepted | |
| that when we decided to get into the brewing industry. We are | |
| regulated by the TTB at the Federal level. We are regulated by | |
| the FDA at the Federal level as well. And so we accept that. | |
| But in order for us to function and introduce our new beers and | |
| keep our innovation pipeline alive, we need those services to | |
| be available. Unfortunately, the only aspect of the TTB that | |
| was operating was they were taking our checks and cashing our | |
| checks. But as far as certainty goes, by having the government | |
| running, by enabling the TTB to allow us to perform our basic | |
| business function at the very least would provide a better | |
| level of certainty. | |
| Mr. HAGEDORN. Sure. And I would say obviously we want your | |
| businesses to expand and you to be successful, but we want | |
| other enterprises to be created and people have ideas right now | |
| that they are thinking about and it is important for the | |
| government to have consistent policies so they can go to the | |
| community banks and others to get the loans needed in order to | |
| be able to show them the case that, yeah, this is what they are | |
| going to spend and these are going to be the costs for | |
| healthcare and everything else. And down the road this is how | |
| they are going to pay it back and expand their businesses and | |
| be successful. | |
| So with that I yield back. Thank you. | |
| Chairwoman VELAZQUEZ. The gentleman yields back. | |
| Now we recognize Mr. Marc Veasey from Texas, for 5 minutes. | |
| Mr. VEASEY. Thank you, Madam Chair. | |
| You know, there has been a lot of talk about how much money | |
| the Federal Government lost and our economy lost because of the | |
| prolonged shutdown. I believe the U.S. Chamber of Commerce, Dr. | |
| Shapiro estimated that the cost of the shutdown of money that | |
| we will never get back ended up being about $2.3 billion. Does | |
| that seem right to you? | |
| Mr. SHAPIRO. That is a reasonable ballpark estimate. The | |
| Congressional Budget Office has estimated the effect on GDP for | |
| the year about one-tenth of 1 percent of GDP. GDP is a big | |
| number so it does add up. | |
| Mr. VEASEY. One of the things the President talked about | |
| last night during the State of the Union was the economy. He | |
| touted the economy. He talked about job numbers. Talked about | |
| how we are experiencing growth. And I wanted to ask you, you | |
| know, we are about to reach another government shutdown here | |
| soon if a deal is not reached, February 15th. In your opinion, | |
| if we do not reach a long-term deal, what would an additional | |
| prolonged government shutdown mean for not just Q1 but for | |
| overall economic activity this year? | |
| Mr. SHAPIRO. I think it would useful to dial back to how it | |
| felt the week the shutdown was resolved. Not only were | |
| businesses and individuals directly affected cutting back; it | |
| looked like the Air Transport System was getting tenuous, which | |
| is very bad for a whole range of businesses. Also, the shutdown | |
| revealed a myriad of details of how the Federal Government | |
| makes the economy run better. Granted, regulation is a burden, | |
| but also there are benefits to regulation. There is a reason | |
| why breweries have to take their labels to the government. The | |
| public expects that what is on the label will be in the bottle | |
| of beer, and similarly for many other food products. We have | |
| inspectors who verify safety and purity of food and beverages. | |
| There is a real partnership between business and the | |
| government. If that partnership appears to be breaking down, | |
| there is substantial risk of indirect effects that could be | |
| very significant for the economy. | |
| Mr. VEASEY. Thank you very much. | |
| And I wanted to ask Ms. Gerding, you know, we have heard a | |
| lot about small contractors, and I know in the district that I | |
| represent that there are just so many hurdles to people that | |
| are trying to start up a small business, people that own small | |
| businesses, and delayed pay, working on projects and not being | |
| paid in a prompt manner and how it can be a lot harder to find | |
| that capital to continue operating your business without that | |
| flow of income coming in, and I wanted to hear how your company | |
| managed through the shutdown if they are not receiving | |
| payments. I would be very curious about how you were able to | |
| work through that. | |
| Ms. GERDING. So we have not seen the impact yet because the | |
| shutdown occurred in December and January. So I do have lines | |
| of credit in place. I will say to your initial part of your | |
| question that starting a business is not for the faint of | |
| heart. And I have a lot of people, because I do a lot of public | |
| speaking, that come up to me afterwards and say I want to be | |
| just like you. How can I get my business going? What is your | |
| advice? And I said, are you currently working now? And their | |
| response is yes. I said stop working. Well, how will I take | |
| care of myself? I said that is what you are going to experience | |
| as a business owner. I said if you do not have enough money put | |
| away for 12 months to live on you should not start a business | |
| because as long as you are working you are not focusing on | |
| growing your business. You cannot do both things, especially in | |
| Federal contracting. Your customers are there during the day, | |
| not in the evening. And so you need to be out there, in their | |
| face during the day. | |
| So, you know, I anticipate a lot of these things that | |
| happen. I do not like to consider myself a victim by these | |
| circumstances. So we have to plan for these events. I am not | |
| happy about them. It erodes my profit. You know, but at the end | |
| of the day, our mission statement in my company is that we help | |
| the government keep Americans safe because of the work we do, | |
| and that is really what drives my workforce. They are not | |
| highly-paid employees. Many of them are Service Contract Act | |
| employees that make minimum wage. And when I ask them why they | |
| get up and come to work every day, especially in places like | |
| Lee's Summit, Missouri, supporting the National Benefits C | |
| enter for Immigration, it is because, Mrs. Gerding, I am | |
| helping keep Americans safe because I am keeping terrorists out | |
| of this country. And I am thinking, you open the mail. But they | |
| feel such a connection to what they are doing every day that | |
| that is what brings them to work. So I think that there has to | |
| be something other than the money. People have to be prepared | |
| for these events if you are going to be in government | |
| contracting. | |
| Mr. VEASEY. Thank you very much. | |
| Chairwoman VELAZQUEZ. The gentleman's time has expired. | |
| And now we recognize the gentleman from Florida, Mr. Spano, | |
| for 5 minutes. | |
| Mr. SPANO. Thank you so much, Madam Chair, Ranking Member. | |
| I appreciate your leadership and look forward to serving under | |
| it these next 2 years. | |
| I am grateful for each of you that have come and offered | |
| your expertise and testimony. I am, as was mentioned earlier, a | |
| small business owner as well, and I have owned my own business | |
| for over a decade now. And frankly, it is one of the things, | |
| the challenges that I was encountering as a small business | |
| owner was one of the things that really prompted me to run for | |
| office, to seek office as a member of the State House because I | |
| really did not feel like government really had my back, that | |
| government really cared about small business. There was a lot | |
| of lip service being paid to small business but there really | |
| was not a whole lot being done to help. And so I am glad for | |
| what the Small Business Administration has done, for what this | |
| Committee has done in that regard, and I look forward to | |
| serving you in an effort to help small business moving forward. | |
| I am trying to get a handle around, and maybe it was | |
| offered before I walked in, but I am not sure who among you | |
| would be willing to offer your testimony on this, maybe Mr. | |
| Rowe potentially, but the percentage of small businesses that | |
| actually directly contract with the Federal Government and/or | |
| have subcontracts that are directly impacted by government | |
| shutdown. | |
| Mr. ROWE. Well, Mr. Spano, I am just going to quickly rely | |
| on some information I got from my friends at the US Chamber of | |
| Commerce. I serve on their Small Business Council. What they | |
| put together working with Bloomberg.gov one agency spending | |
| data. They found 41,107 small business contractors and $2.35 | |
| billion in contracts at risk during the shutdown. I can give | |
| you this document. I am happy to. It has a breakdown state by | |
| state. In Florida, there were 2,359 contractors, small business | |
| contractors. | |
| Mr. SPANO. And thank you for that information. | |
| I guess what I am looking for is a comparison. I understand | |
| the numbers that have been offered, the total projected impact, | |
| but vis-a-vis those small businesses that do not have direct or | |
| even indirect contact with the government in terms of | |
| contracting, what are we looking at in terms of percentages? | |
| Mr. ROSE. Well, if you look at the Office of Advocacy, I | |
| think their numbers say they are around 27 million small | |
| businesses in the United States, but I think if you look at | |
| small businesses with employees, it is probably closer to 8 | |
| million. | |
| Mr. SPANO. Okay. And I did not major in math. That is why I | |
| became an attorney. So just in my head I am trying to figure | |
| out what percentage is that? It seems like, obviously not to | |
| minimize the impact, but it does seem like a fairly small | |
| percentage. | |
| One of the things that I do and have done in the last 6 | |
| years as a member of the Florida House, and I am sure we will | |
| be doing it here as well, is to balance competing policy | |
| interests. There is usually an argument to be made on both | |
| sides. Sometimes you can usually make pretty good arguments on | |
| both sides but you try and do the best you can to weigh those | |
| interests and then come down on what you feel like is the best | |
| thing to do. | |
| One of the things that I would be interested to hear about | |
| at some point, Madam Chair, in the next maybe few months, is | |
| the impact that illegal immigration potentially has on small | |
| businesses. The uncertainty that our inability to come to some | |
| long-term agreement on immigration reform. I would love to hear | |
| the impact that that has on small business because obviously | |
| that is an issue as well, and certainly, we are not going to, | |
| any of us disagree that that is an issue that is of concern, | |
| that has at least in part caused the shutdown. And so it would | |
| be helpful for me to understand the impact of that issue on | |
| small business. And whether or not that interest in the small | |
| business community's interest, the impact that it may have on | |
| them outweighs the potential interest that is served by having | |
| certainty with regard to continued government. | |
| Do you follow my line of questioning? And so I guess I have | |
| got 24 seconds here, but I guess would you acknowledge that | |
| that is an issue of potential concern, the uncertainty that | |
| illegal immigration causes and would it not be a great idea to | |
| have an idea at least from the small business community of how | |
| that impacts our policymaking decisions? | |
| Mr. ROWE. I would never say that there is not an impact | |
| from that. One of our SBDCs testified last Congress for Mr. | |
| Chabot on the impact that opioid awareness and the opioid | |
| crisis is having on small business. All of these things add up. | |
| And I think there are indirect impacts from a shutdown that go | |
| beyond the contractors and the subcontractors. If you just look | |
| at, for instance, all of the restaurants and other businesses | |
| that might surround a Federal facility, you would be amazed at | |
| how many lunches at a large contracting facility, if you have a | |
| restaurant next to it, that you are missing in 3 weeks. That is | |
| a big chunk of their business. It is all, you know, a big, | |
| interconnected ecosystem. | |
| Mr. EVANS. I thank the gentleman. | |
| I am temporarily filling in for the Chairperson. As you can | |
| see, I am not the Chairwoman. However, I want to make sure that | |
| I ask questions myself. I limit myself to 5 minutes to ask | |
| questions. | |
| What I would like to do is start off with my question that | |
| I believe is a discussion that is taking place right now at the | |
| Ways and Means Committee. I am honored to be on that Committee, | |
| and that Committee is holding a hearing today, The Focus on | |
| Improving Retirement Savings for American Workers. | |
| One thing I have been hearing is that many workers are not | |
| offered a retirement savings plan through private employers. | |
| Around 2 million people in my home state of Pennsylvania do not | |
| have access to a retirement plan through their employer. That | |
| is especially true for employers of small businesses. Due to | |
| obstacles these businesses often face them being able to | |
| provide employee benefits. | |
| Ms. Gerding, in your written testimony you discuss some of | |
| the financial impacts of the shutdown on your workforce. Can | |
| you explain how the shutdown impacted benefits small businesses | |
| offer to employees like retirement plans? | |
| Ms. GERDING. So we do offer a retirement plan. In fact, if | |
| you are going to be a government contractor, to keep up with | |
| your competition, you need to have some sort of benefits | |
| package. The really small companies, maybe not. But as you | |
| start to do more and more work with the Federal Government, you | |
| really need to have one. | |
| In our particular case, my concern that we are trying to | |
| pull numbers around is if an employee did not draw a salary | |
| during the shutdown, what did they lose in 401(k) contributions | |
| that they might have had coming out of their paycheck? And then | |
| what was the match that they lost that our company would have | |
| provided? | |
| We had a couple of people who had garnishments in their | |
| paychecks. So when we started talking about this with my HR | |
| person, what came to light was that they were going to have a | |
| reduced paycheck anyway. So let us say they were going to get | |
| $1,500 for a pay period. All of a sudden now, because of the | |
| government shutdown, they took leave without pay, it is now | |
| maybe $750. They now have a garnishment pulled out of that. | |
| They now have flexible spending. So we up front the cost in | |
| their flexible spending accounts at the beginning of the year, | |
| let us say $2,500. In January, they may have had something that | |
| they went to the doctor for. So the first thing we are going to | |
| do before we pay them is pull that money out of their account. | |
| So now when they are expecting about a $750 check, they are | |
| really only going to get, let us say, $350. So we are trying to | |
| assess the costs of that right now and what the impact is. But | |
| the biggest one that I can think of in terms of benefits if | |
| flexible spending. I was concerned about health care because | |
| our SCA employees contribute through their health and welfare | |
| benefit that the Department of Labor under the Service Contract | |
| Act requires that we pay. If an employee took leave without | |
| pay, they were not entitled to the health and welfare benefit. | |
| Those people, the company paid for their health care during | |
| that shutdown period when they were leave without pay. So no | |
| one went without in terms of healthcare benefits. And there is | |
| no discussion right now to pull that money back out of their | |
| pay. | |
| So health care a little bit, although no one was adversely | |
| affected, and 401(k), which no one has brought to my attention | |
| either. I am always concerned about being an older person, I | |
| want to make sure that the young people are looking towards the | |
| future and their 401(k). And do not match that match that the | |
| company is giving you, so. | |
| Mr. EVANS. Thank you. | |
| Mr. Rowe, the agriculture industry, which is critical to my | |
| home state of Pennsylvania, in total agriculture contributing | |
| $75 billion to our state economy, our ability to explore and | |
| promote our products in the global market is critical to not | |
| only our economy but obviously, the livelihood of individuals. | |
| In your written testimony you highlighted the challenges some | |
| of your clients face when attempting to explore goods and | |
| services. Can you elaborate on that, please? And what impact | |
| does this have on the ability of our small businesses to remain | |
| competitive abroad? | |
| Mr. ROWE. Now, when there is a shutdown, you lose access to | |
| the Census Bureau's assistance on export regulations and | |
| information. You lose the Commerce Department's support, the | |
| International Trade Administration's support. Our Small | |
| Business Development Centers, a lot of whom in Pennsylvania and | |
| other states form a backbone for the state's export program, | |
| then we are kind of fighting for the small business with one | |
| hand tied behind our back at that point. | |
| Mr. EVANS. I yield back the balance of my time. | |
| The next person who has questions, I think this will be the | |
| first time on the Small Business Committee, a brand new | |
| gentleman from the great state of New York, Mr. Delgado. You | |
| have 5 minutes. | |
| Mr. DELGADO. Thank you, sir. | |
| I am really excited to be here. I thank each and every one | |
| of you for your testimony and for taking the time. I really | |
| appreciate it. | |
| I did want to, as I heard one of my colleagues speak about | |
| competing interests and how there could be valid positions on | |
| either side, I would be remiss to not make the point that it is | |
| hard to have those interests compete in the absence of an open | |
| government. That is their role. And so I would just encourage | |
| all of my colleagues to understand that we need government for | |
| interests to compete. Otherwise, what are we doing? | |
| And for that reason it is simply inexcusable that we found | |
| ourselves in this position. And as members of this body, we | |
| cannot let us get there again. | |
| Now, over the past 34 days, I have held three public town | |
| halls and met with folks back home who are farmers and | |
| contractors and small business owners. We have over 27,000 in | |
| my district. And Mr. Butcher, I would also note that my | |
| district has one of the most breweries in the country. | |
| The impact is unnecessary, obviously, of a shutdown. In | |
| fact, one of our local cideries received a value-added | |
| production grant from the USDA but they could not receive their | |
| reimbursement for the equipment they purchased during the | |
| shutdown. Other farmers in my district are highly concerned | |
| about the H2B visa program and that migrant farmers will be | |
| arriving a month later than expected. This shutdown has created | |
| uncertainty as discussed and frustration from many in my | |
| district who are working hard to make ends meet. I think we | |
| have all heard the statistics. Seventy-eight percent of folks | |
| in this country living paycheck to paycheck. You miss a check, | |
| it is going to hurt. And it is simply unacceptable that we find | |
| ourselves in this position. | |
| So my question is for you, Mr. Butcher. In your testimony | |
| you mention the deep supply chain that brewers rely on. Can you | |
| talk about how the shutdown has affected the brewers and | |
| farmers you work with and what would happen if the Governments | |
| down again at the end of this week? | |
| Mr. BUTCHER. Thank you, Mr. Delgado. | |
| Our supply chain obviously is crucial to our business. We | |
| rely on our farmers. We work closely with them. We work | |
| directly with a wheat farmer in the Northern Neck of Virginia. | |
| And we plan with them our production schedule. And they plant | |
| their crops according to what our needs are. And we are | |
| fortunate to have a farmer who is able to work with us and who | |
| is able to scale up with us and continue to help us grow our | |
| business. And if we are not able to buy that grain because we | |
| cannot get our label approved because the TTB is shut down, it | |
| directly affects their small family farm as well. So they take | |
| this grain that they have grown for us and they have to figure | |
| out what to do with it. Do they send it to a malting house and | |
| try to find another buyer for it? Are they going to downgrade | |
| it and sell it as animal seed and make a much lower sale price | |
| on it? Or are they just going to lose that business altogether? | |
| We also contract 2 and 3 years out with our hop farmers. | |
| And these are farms in the Pacific Northwest. They are farms | |
| mainly in the Pacific Northwest, but we have to work with them | |
| 2 and 3 years out to plan our purchases of hops. And they also | |
| are putting the hops in the ground that we want to buy a year | |
| from now and 2 years from now. So there is long-term planning | |
| that goes on. And like I said, the last 4 months of the year we | |
| spent with our sales and marketing and our production team | |
| planning out the brewing schedule, planning out our new release | |
| schedule, and planning out our supply chain purchases as well. | |
| So that is really how it affects upstream with our farmers and | |
| with our suppliers. | |
| Mr. DELGADO. Thank you. That was very helpful. | |
| I yield back the rest of my time. | |
| Mr. EVANS. I thank the gentleman. | |
| The next gentleman I would like to, Mr. Kim, who is the | |
| Chairman of the Subcommittee on Economic Growth, Tax, and | |
| Capital Access, I want to let you know that I was the Ranking | |
| Member for that, so you see where I am today as a result of | |
| that. | |
| Mr. KIM. So you will have some good advice for me. | |
| Mr. EVANS. Mr. Kim? | |
| Mr. KIM. Well, I appreciate that. | |
| Thank you so much for coming and sharing your thoughts and | |
| wisdom with us. | |
| My district is very much a small business district in New | |
| Jersey. It stretches from the Delaware River to the Jersey | |
| Shore, and you know, this is an area where I constantly hear | |
| from people about their concerns. And similar to my colleague, | |
| you know, having a town hall, hearing about just the | |
| difficulties with deal with that political uncertainty. And I | |
| think for me, I come at this from an angle. I have been a | |
| public servant my whole career. I have been on the foreign | |
| policy side. Coming into this there is a lot that I need to | |
| learn, and I try to come into this job with a certain amount of | |
| humility to understand what is it that we can be able to | |
| provide? | |
| So when I am asked those types of questions at a town hall | |
| from a small business owner asking me, you know, what advice do | |
| you have for me on how I can best position my business going | |
| forward for these types of political uncertainties, whether | |
| that is government shutdowns or other problems, I wanted to ask | |
| that question to this panel here and just get your collective | |
| thoughts on what is it that I can do to pass that message back? | |
| What should I be telling small business owners in my business | |
| on how best they can try to weather some of those uncertainties | |
| going forward? | |
| I will open that up to anyone who wants to jump in. | |
| Ms. GERDING. So my advice is planning for a crisis. I think | |
| that every company should go through those exercises, whether | |
| they are a cybersecurity attack or a financial impact that hits | |
| the business, and how you are going to handle those things. If | |
| it is not a line of credit that you have in place and worked | |
| out a good relationship with your bank so that if you miss your | |
| covenants on that line they understand, especially if you are | |
| in Federal contracting. You really need to exercise and plan | |
| those events. That is the only way that we would get through | |
| that. | |
| Mr. BUTCHER. As a small business owner, when we were | |
| opening the small business, my wife's advice to me as we were | |
| planning was to not just have a plan B but always love your | |
| plan B. In a situation like this, it is not really, we have | |
| been at a loss. What are we going to do? And it is hard to put | |
| together a plan B when the basic functions of the regulators | |
| that you rely on are just not open for business. So | |
| unfortunately, I do not have a lot of answers. We are still | |
| waiting to hear back from the agencies now that they are | |
| reopened, but I guess my advice would be to find a way to keep | |
| the government functioning. | |
| Mr. KIM. Go ahead. | |
| Ms. GERDING. I want to add one more thing. There is | |
| something that my company tracks called the Z score. It is a Z | |
| score. And we evaluate our performance at the end of every | |
| month based on our Z score. And what that is, is a combination | |
| of looking at different financial factors and what the backlog | |
| in terms of how much money I have. If everything were to stop | |
| in my business today, how long can I sustain my business? And | |
| if business owners, small business owners are not looking at | |
| those kind of numbers and have 3, 4, 5 months of reserves ready | |
| to go, they are in a bad situation. Government contracting is | |
| pretty stable, but then you have these moments like this that | |
| are unpredictable. So when we look at our numbers, and we do a | |
| financial analysis at the end of every month, that is one | |
| number that I focus on is how many months could I operate if | |
| nothing was paid? So I think that is something that business | |
| owners need to start looking at is those numbers. | |
| Mr. KIM. No, that is right. I mean, this is helpful. I | |
| mean, first of all, it is just an unnecessary burden that is | |
| placed on small businesses for having to deal with the failures | |
| of Washington to be able to get their house in order. And I | |
| think not only is it unpredictable in terms of timing, but it | |
| is also unpredictable in terms of what services will be closed | |
| and which ones will be open. And that is constantly difficult | |
| especially when what I heard is small business owners that are | |
| telling me they do not have the time to keep track of | |
| everything that is happening and the political discussions | |
| about what is going to stay open and what is not and that they | |
| were trying to see, you know, what my office might be able to | |
| provide to try to help with some of that clarity. I am | |
| certainly interested in what this Committee and other | |
| institutions in our government can be done so that every small | |
| business owner themselves does not have to go out there and dig | |
| that information up, you know, every time that there is some | |
| moment of potential political instability. So that planning and | |
| that kind of information is key. | |
| Ms. GERDING. Can I say one more thing? | |
| Mr. KIM. Yes. | |
| Ms. GERDING. Industry associations solve that problem for | |
| me. I belong to the Professional Services Council, the Mid-Tier | |
| Advocacy Group, and the National Veterans Small Business | |
| Organization. All three of those groups are focused on | |
| government contracting. It is difficult to stay on top of every | |
| regulation that is passed up on The Hill here. What happens is | |
| they synthesize it and they force feed it to me in things that | |
| I need to know about on a regular basis. So that might be | |
| something they want to consider, is join a professional | |
| organization that will keep them apprised, whether it is the | |
| Chamber of Commerce or an industry association so that they do | |
| not have to try to stay atop of what is going on up here. | |
| Mr. KIM. I appreciate that. | |
| I yield back. | |
| Mr. EVANS. Thank the gentleman. | |
| I want to thank all of the witnesses for taking time out of | |
| your busy schedule. Your comments were very helpful. | |
| It is clear from the testimony today that the government | |
| shutdown had dire economic and real consequences on our small | |
| businesses, the SBA, and our workforce. As we look towards the | |
| next looming deadline, I hope we can all remember what we heard | |
| today and work quickly to find a long-term solution. | |
| I would ask for unanimous consent that members have 5 | |
| legislative days to submit statements and supporting materials | |
| for the record. | |
| Without objection, so ordered. | |
| If there is no further business to come before this | |
| Committee, we are adjourned. Thank you very much. | |
| [Whereupon, at 12:37 p.m., the Committee was adjourned.] | |
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