A few individuals have recently suggested that it is time that we here in northern Nevada find “someone” to come in and articulate how we can diversify our local and regional economy.  The only trouble with that is that if you wait for that to happen, the opportunity to capitalize on new innovation and opportunity will have come and gone.  We here in northern Nevada need to just do it, and, despite the current financial difficulties our local, county, and state governments are now facing, the University of Nevada, Reno (UNR) could, and should, step up today by building its own entrepreneurial culture.  How can UNR do that?  Well, the University of Utah in Salt Lake City just might have the answer to that question.

The other day I was listening to National Public Radio about how the University of Utah (U of U) has, since the early 1980’s, embraced an “entrepreneurial culture” that has helped create new start-ups and private sector business spin-offs from the U of U’s ongoing academic research.  For those of you interested in either hearing the story or reading it, you can access the full article online at National Public Radio.

What struck me from the report was that only the Massachusetts Institute of Technology (MIT), which has a research budget five times bigger than the annual research budget at the U of U, currently rivals the entrepreneurial efforts and the number of new business start-ups or spin-offs created at the University of Utah.  Truly an amazing feat – especially given the current economic malaise the United States finds itself in and the tepidness of potential entrepreneurs to start a new business.  But even today, according to the August 24, 2010 NPR article, university officials, faculty, and staff are now flocking to the U of U to learn how that school has built one of the most successful academic-to-private sector transfer programs in the country.

The success of the University of Utah’s entrepreneurial program in transferring research done in various colleges, schools, and departments on campus into private-sector business start-ups and spin-offs is, quite frankly, amazing.  Take just one of the examples from the NPR article of how a multi-million dollar product and business got its start at the U of U.  In 1984, Ted Stanley, a U of U research professor, came up with a (at the time) revolutionary way to deliver medication to patients.  Working with the University of Utah’s business people, other academic people, and patent lawyers, Professor Stanley was able to successfully develop and deliver to the market an “anesthetic lollipop” that eventually become a million-dollar product and business.  Wow.

And even more wow.  Since the 1980’s, the University of Utah has become the nation’s leader in commercializing scientific, medical, and engineering research breakthroughs.  In 2010 thus far, the U of U has helped officials from 80 other universities.  In 2008, 20 different spin-off companies were directly tied to the University of Utah’s efforts.  Who knows how high the number is for  the number of new companies formed and indirectly tied to the University’s efforts.  According to Jack Brittain, U of U’s Vice President of Venture Technology Development (and for those of you wondering, no, UNR does not have a VP of Venture Technology Development), it takes, on average, $100 million in federal research dollars to get just one spin-off company from academic research in the United States.  But at the University of Utah, it takes just $15 million in federal research dollars to create one spin-off company.  Clearly, the University of Utah has figured out how to do small business and entrepreneurial development and tech-transfer and technology-led economic development better than most.

I don’t want to get into the specifics of “how to actually do” small business/entrepreneurial development or tech-transfer/technology-led economic development is this blog.  Why?  Because I’ve written extensively about both in the past on this very site dating as far back as 2008.  For those of you interested in reading more about small business and entrepreneurial development, you can read my blog from October 23, 2008 about this topic here at “What is Entrepreneurship and Small Business-led Development?“  For those of you interested in reading about tech-transfer and technology-led economic development, you can read my blog from November 28, 2008 about this topic here at “Tech-Transfer and Technology-Led Economic Development:  Pushing the Frontier of Local Economic Development.

What I found really interesting about the NPR article from August 24, 2010 is the U of U’s emphasis on creating an “entrepreneurial culture” across the many different colleges, schools, and departments at the University of Utah.  The article uses the experience of Glenn Pestwich, a former student of the University of Utah who is now a medicinal chemist.  In describing the entrepreneurial culture at the U of U, Pestwich argues that, “It’s a cultural difference; it’s a focus on the entrepreneurial process as a scholarly activity.”  Pestwich speaks of the “collaborative spirit” at the U of U and the “deeper focus on the end-users of research” that is regularly conducted at the University of Utah. 

Locally, a “collaborative spirit” means not only finding new ways to support collaboration between the different colleges and departments at the University of Nevada, Reno, but also how to build closer, more collaborative research and entrepreneurial relationships between the University of Nevada, Reno, area community colleges, and the Desert Research Institute.  That said, these institutions (UNR, TMCC, WNCC, DRI, and others) already work very closely on a multitude of research and development projects.  The fact that each of these institutions of higher education all exist within one Nevada System of Higher Education is probably one of our greatest local advantages.  As opposed to a state like California that has a “University of California system”, a “California State University system”, a “California Community Colleges system”, and many competing private research universities like the University of the Pacific, Stanford University, and the University of Southern California, we here in Nevada already have a high degree of cohesion.  So for those individuals out there that say we need more cohesion, I say that we just need to take advantage of the institutional cohesion we already have.

A more cohesive and collaborative spirit among the various institutions of higher education within the Nevada System of Higher Education is already starting to develop and emerge.  The University of Nevada, Reno and the Desert Research Institute (DRI) have already come together to form the UNR-DRI Technology Transfer Office.  Technologies already developed by research faculty at both UNR and DRI are available now for further licensing in the areas of renewable energy, life sciences, physical sciences, and environmental sciences.  The efforts of the UNR-DRI Technology Transfer Office have already proven that it is possible to build a cohesive and collaborative spirit between different institutions of higher education as well between different departments and faculty at both schools.  But the experience of the University of Utah suggests that in order to create tangible economic development results, both schools, UNR and DRI along with the other institutions within the Nevada System of Higher Education, need to take their efforts several steps further in order to create a more tangible “entrepreneurial culture” that emphasizes private sector new business creation, start-up, and spin-off.

There is no doubt that there should always be a place in our nation’s colleges and universities where research for the sole purpose of advancing human understanding of our world and existence is appreciated and supported without the expectation of a financial, economic pay-off.  Research for research-sake is a good thing.  Not all our research, either in the physical/mechanical sciences or social sciences, needs to result in a marketable and profit-making technology, product, service, or process.  But it is critical that any university provide the support, both financially and institutionally, to new business start-ups and potential spin-offs. 

What does this mean locally?  This means that the University of Nevada, Reno needs to commit to institutionalizing its entrepreneurial efforts, today, by building an effective tech-transfer and technology-led development office that helps finance faculty research and facilitates the transfer of new technologies and processes discovered and developed by the University faculty and staff to the private sector.  We can’t wait for someone to wave this flag.  Despite its high-tech nature, this isn’t rocket science.  It’s economic development.  It’s economic diversification.  And it’s possible to do this without significant resources or further study.

Post Script:  As a doctoral student at the University of Southern California, I helped develop, along with several other students, a hypothetical tech-transfer program for the Wilmington neighborhood of the City of Los Angeles that borders the Port of Los Angeles/Port of Long Beach.  This hypothetical tech-transfer program includes a detailed overview of what a tech-transfer and technology-led development program would look like including program goals and costs.  If anyone is interested in seeing this plan, feel free to contact me through the NSBDC office.

Well, let’s face it.  There hasn’t been much in the way of “economic success” to celebrate over the past two years.  Cities in Nevada have had to confront declining revenues, year-after-year increases in the number of foreclosures, rising vacancy rates across the commercial real-estate landscape, rising unemployment rates, and the failure and ultimate closure of many of the small, medium-sized, and large corporate businesses that drive so much of their city-wide economic activity.

But despite the current economic malaise, every city in Nevada can still find those rare bright spots of new and existing small, medium-sized, and even large corporate business success stories.  Now, more than ever, cities need to take stock of these successes, celebrate them, and advertise them to the world!  A current program in the City of Carson, California – a relatively small city sandwiched between the City of Los Angeles and the City of Long in the South Bay of Southern California – is doing just that with its “Annual Business Awards” program.

I thought that cities here in Nevada might find Carson’s “Annual Business Awards” program useful and interesting so I’ve posted some general information about it here.  I start by outlining some general goals and general history of the program followed by the “process” of how the City of Carson nominates, chooses, and awards the businesses that are honored with an “Annual Business Award”.

For the past 21 years, the City of Carson and the Carson Economic Development Commission (as an aside, I think every city in Nevada, without exception, should have its own “Economic Development Commission” – I’ll get into this issue in my next blog) has held an annual event to recognize certain, outstanding businesses in their community by honoring the remarkable contributions these local companies have made to the City’s overall economic vitality.  The Carson “Annual Business Awards” breakfast is part of the City’s wider efforts to promote the success of local businesses while encouraging and facilitating new business entry and future expansion of existing businesses located throughout the City of Carson.

The Carson “Annual Business Awards” is an opportunity for the City and the community to celebrate the success of the City’s own shared community vision to make Carson southern California’s most business friendly community.  Over the past 21 years, those businesses recognized by the City have helped create new jobs and new employment, recreational, entertainment, and retail opportunities for Carson residents and for visitors from across all of southern California and beyond.

The City of Carson and the Carson Economic Development Commission hosted its 21^st Annual Business Awards breakfast this past June on June 17, 2010 at the Congresswoman Juanita Millender-McDonald Community Center.  For 2010, the City and the Carson Economic Development Commission chose “Jobs, Jobs, Jobs” as this years theme.  Awardees for the June 17, 2010 Carson Annual Business Awards breakfast were:  Carl’s Jr., Ducommun Incorporated, Hair Architects, IKEA, NYK Logistics, and Prime Wheel.  Combined, these companies currently employ well over 1,000 people in the City of Carson and have either retained all their staff or added even more to their workforce over the past year.

Although the City of Carson commits some funding and staff resources to this program, the “Annual Business Awards” program is actually funded by the contributions of major donors from various area businesses located throughout the City of Carson.  This financing strategy has helped the City preserve and expand the “Annual Business Awards” program over the last 21 years despite periods of economic tension and budgetary pressures that the City and the entire region have faced in the past.  Being able to maintain this program, even during tight municipal budgetary periods, has helped the City celebrate the accomplishments of local area businesses and has helped Carson maintain a business friendly reputation for nearly the past quarter century!

Each year, the Carson Economic Development Commission, with input from the City and the City’s Economic Development Services Department, chooses a “theme” and then identifies different businesses that have and continue to exemplify that theme – for example, this years theme was “Jobs, Jobs, Jobs” or businesses that have committed themselves to either retaining or growing their existing workforce despite the current economic recession.   The Carson Economic Development Commission chooses different businesses with an eye toward including businesses from different sectors and of sizes – for example, this years recipients included Carl’s Jr. (a fast food restaurant corporate chain) and Hair Architects (a once sole-proprietor full service barber shop and salon that has grown its business to include several locations throughout southern California including a location in Carson).

Once a list of possible recipients has been developed, the Carson Economic Development Commission then selects the eventual winners.  Potential recipients are only notified if they are chosen to receive an actual “Annual Business Award” – that means that there are only winners and no losers as the purpose of the “Annual Business Award” program is to celebrate the success of certain businesses.  This allows the City and the Carson Economic Development Commission to pick businesses that are “right” for the years particular “theme” and who may not otherwise engage in self-promotion.  Both the City and the Carson Economic Development Commission have found that many of these businesses, big and small, can be very shy about applying for an award but whose success in tough times needs to be celebrated, recognized, and marketed by the community.

On face, a program like Carson’s “Annual Business Awards” might not be seen as a high-priority economic development program for cities that are currently feeling the pinch of decreased revenues and increased demand for municipal services.  Some might argue, and rightfully so, that it’s more important to invest the scarce resources we have today on trying to just maintain the current levels of service that a city provides.  But according to City of Carson staff, 2010’s “Annual Business Awards” breakfast cost a grand total of $8,300.  A total of $7,300 was raised through sponsorships putting the “cost to taxpayers” total to only $1,000.  As far as economic development programs go, you can’t beat the price!

Others might also argue that an “Annual Business Awards” program doesn’t really meet the criteria of economic development – i.e. creating mid to high skill level jobs that pay mid to high level wages and offer individuals a meaningful opportunity for general upward mobility.  But I would argue that every city in Nevada should invest in developing its own “Annual Business Award” program today.  By highlighting those businesses that are already creating mid to high skill level jobs that pay mid to high level wages, that offer individuals meaningful opportunities for general upward mobility, and positively contribute to their community’s overall quality of life can help cities communicate to potential new businesses that success is possible in their city despite the current economic trouble.

Now is exactly the time to start an “Annual Business Awards” program.  And if Nevada cities can model their own “Annual Business Award” program after the success Carson has had with its own program, Nevada cities could very well be celebrating the success of local area businesses at their very own Annual Business Awards breakfast!

Are you wondering how health care tax credits will affect your business?

Join SBA’s Web Chat:

Tips on Health Care Tax Credits for Small Biz Owners

Thursday, August 12, 2010, from 10:00 p.m. to 11:00 p.m., Pacific Time

WASHINGTON – The SBA’s Web Chat will highlight small business health care, with a focus on how the Affordable Care Act will benefit small business owners through available tax-saving incentives.  Participants can learn about the newest tax credits they can take advantage of, and additional tax provisions to be implemented during the next several years.

WHO: John Tuzynski, chief of Employment Tax and Specialty Programs for the Small Business Self-Employed (SB/SE) Division at the Internal Revenue Service, will host the August web chat on “Health Care and Small Business.”

WHAT: SBA’s Web chat series provides small business owners with an opportunity to discuss relevant business issues online with experts, industry leaders and successful entrepreneurs.  Chat participants will have direct, real-time access to the Web chats via questions they submit online in advance and during the live session, with instant answers.

WHEN: August 12, 2010, 2010, 1 p.m. ET
Tuzynski will answer questions for one hour.

HOW: Participants can join the live Web chat by going online to www.sba.gov, and clicking “Online Business Chat.”  Web chat participants may post questions before the August 12th chat by visiting http://web.sba.gov/livemeeting/Aug10/ and posting their questions online. To review archives of past Web chats, visit online at http://www.sba.gov/tools/monthlywebchat/index.html

Last week, on Friday, July 30^th, the Los Angeles County Economic Development Corporation (LAEDC, http://laedc.org/) closed out its annual round of “Most Business Friendly City Award” applications for 2010.  The “Most Business Friendly City Award” (MBFC, http://www.laedc.org/eddy/cityaward/index.html) is part of the LAEDC’s ongoing efforts to recognize cities throughout Los Angeles County that are committed to community-wide economic development and improving the “business friendly” reputation of their community.

Okay.  It’s not Nevada but it is a great economic development program developed by one of the most recognized and successful economic development organizations in the United States.  Every year the LAEDC invites cities located throughout Los Angeles County to submit a detailed application outlining their efforts to support the creation and expansion of new and existing businesses, the development of a trained and skilled workforce, and generally improve the business climate within their own city.

For the past 15 years that the award has been given, the LAEDC has developed 11 different “lessons learned” that the LAEDC has learned from the cities that have submitted applications over the years.  Although these “lessons learned” are available online on the LAEDC’s website, I thought that each of these lessons were important enough for cities in Nevada interested in developing their own “business friendly” reputation to reproduce here.  In no particular order, the 11 “lessons learned” by the LAEDC from its “Most Business Friendly Cities” are:

1. LA County’s most business friendly cities have established economic development and quality jobs as a top community priority.  The Mayor, City Council and Staff articulate and demonstrate a high sense of urgency for related programs, services and projects.  The City’s Economic Development office and programs are funded annually providing reasonable funding to perform their services.
2. These communities communicate regularly with their business community through surveys, newsletters and events.  They also communicate to citizens the importance of jobs and viable businesses, which limits NIMBYism.
3. Business friendly cities have an excellent customer service attitude, which is felt throughout the organization.  Systems and processes are established and continually improved upon to facilitate desired development and job creation.
4. Business friendly cities provide high quality services at reasonable costs.  LA County’s most business friendly cities are typically not among the highest cost locations for businesses.  Business friendly cities have impact and extraction fees less than the average in the County.  Fee payment schedules encourage investment and in some cases allow businesses to become operational before payment.
5. Business friendly cities utilize redevelopment, development agreements, special zones and incentives to induce desired economic development results.  They provide one-stop service and parallel processing, in recognition that time is money.  Timely consistent project processing and excellent customer service is the least expensive incentive a community provides.
6. Business friendly cities recognize the best source of testimonials to encourage new business development come from successful and satisfied existing businesses in their communities.  They provide programs and services to retain and expand current employers.
7. Business friendly cities provide an overall business climate conducive to business success and job creation.  Business friendly cities recognize that quality, quantity and price of their services will impact the desirability of their city for investment and business development.
8. Business friendly cities provide a high quality of life for residents and businesses, including employment opportunities for residents, low crime rate (FBI Modified Crime Index), Business Watch, affordable and comprehensive housing options, quality infrastructure, distinguished schools, Community College, 4-year University, trade schools, shopping, cultural and entertainment amenities, parks, etc.
9. Business friendly cities have a current economic development strategy, ideally as part of their General Plan with performance measures, regular reviews, revisions when necessary, flexibility and accountability.  The strategy is understood by elected officials, city leaders and staff and is communicated to the business community and residents.
10. Business friendly cities are enthusiastic about their communities and utilize a variety of vehicles to tell their story and recruit new economic opportunities.
11. Business friendly cities are committed to economic development as shown by having an updated Economic Development Element in their General Plan.

Taken together, these “lessons learned” point to the wider commitment cities must make to economic development in order to become a business friendly city.  These lessons suggest that a business friendly city is one that builds an organization-wide commitment to economic development throughout the entire organization by, first, developing and implementing a strategic economic development plan, and, two, relying on a variety of different economic development strategies.  These strategies should not only focus on streamlining government services and providing these services at a relatively low cost to both businesses and taxpayers, but should also focus on building a community’s overall quality of life through improved affordable housing options, improved infrastructure, top rated and nationally recognized schools, interesting and diverse shopping, cultural, entertainment, and social venues, and great public spaces that positively add to a community’s overall attractiveness. 

 These 11 “lessons learned” can be condensed into a set of economic development recommendations for Nevada cities and counties interested in improving their own “business friendly” reputations and economic development efforts.  For starters, Nevada cities and counties should consider:

• To be successful at building a “business friendly” reputation, Nevada cities and counties should think about committing actual resources to an “economic development office” – within their organization, not separate as an independent entity – that is funded annually from municipal/county sources.
• To be successful at building a “business friendly” reputation, Nevada cities and counties need to think long and hard about the types of economic development policies, programs, and services they develop, implement, and deliver to their communities.  Tailor economic development policies, programs, and services to fit YOUR OWN community needs!
• A “business friendly” organization is built throughout and at all points within the government – city and/or county!  Look at ALL PARTS of the government and identify areas that need improvement and refinement. 
• Don’t forget about your existing businesses!  In fact, your economic development programs, policies, and services should focus PRIMARILY on helping existing and new businesses grow and expand within your jurisdiction.  The “word” will get out to other out-of-area businesses naturally that your community is “business friendly”.  By supporting existing and/or new businesses already located within your community, out-of-area businesses will be naturally attracted to your community! 
• Maybe most important is the need to have an actual “Economic Development Strategy” that is developed, written down, and routinely checked to make sure the city and/or other public agency’s activities are in line with the stated goals of the actual “Economic Development Strategy”.

For those of you interested in the LAEDC’s “Most Business Friendly City” award, I really recommend that you check out the actual application that nominated cities must complete and submit to the LAEDC.  You can download a copy of the LAEDC’s ward application at:  http://www.laedc.org/eddy/cityaward/LAEDC_MostBusinessFriendlyCity_NominationForm2010.pdf.  I think that you’ll find it really interesting.  For example, the LAEDC asks for information like the amount of non-sales tax revenue collected by the city over the past few years, information about various programs, structures, and even activities designed to facilitate existing businesses and business expansion and retention, and even how the city has “cut through the red tape” in order to streamline business-oriented public service delivery.  These “questions” on the application can serve as a general guide as to how Nevada cities might improve their own business friendly reputations through a series of new economic development programs, policies, and services.

I know that there are probably some people out there who are reading this and saying, “But Fred, California sucks!  It’s bankrupt!  It has ridiculously high levels of unemployment and every city and county government, along with the state government, is going bankrupt!”  That said, keep in mind that Nevada isn’t doing all that well these days either.  Nevada has the highest state-wide unemployment rate in the entire country – higher even than the state-wide unemployment rate in California.  California tends to have higher per-capita incomes, higher per-family incomes, higher graduation rates, and certainly, despite our supposed “low tax environment”, continues to expand its regional industry clusters such as the high-tech industry in Silicon Valley and the re-emerging aerospace industry in southern California.  And California still has far greater new business creation rates than Nevada – by a mile.

We here in Nevada can learn a thing or two from California when it comes to economic development and what it takes to make a business friendly city.  Maybe in a few years an organization like the LAEDC will be created in Nevada and present a “Most Business Friendly City” award for cities in Nevada!  Even though there are many areas in which Nevada cities could improve their “business friendly” reputations, Nevada cities, and even counties and other public organizations, should be recognized for the economic development work they are already doing.

By Jeanne H. Yamamura, University of Nevada, Reno

Recently an office manager for a local veterinary surgeon was sentenced to eight years in prison for embezzlement. She stole more than $200,000 over a four-year period. During that time, she took lavish vacations, remodeled her home, and bought herself expensive gifts. During the same time, the surgeon worked longer and longer hours, struggling to keep his business afloat.

Small businesses lose money due to fraud every day. In fact, the Association of Certified Fraud Examiners reported in 2008 that small businesses (defined as businesses with less than 100 employees) suffered a greater percentage of frauds AND a higher median loss than their larger counterparts. The median fraud loss for small businesses was $200,000, the largest amount for any size company.

Small businesses often lack fraud-consciousness and tend to have weak or nonexistent internal controls. Their owners feel that internal controls are only for big companies with many employees. But, even small businesses have assets that others might try to steal. They are also particularly vulnerable due to their size and the nature of their operations. As a result, internal controls are not only desirable for small businesses, they are essential.

Internal controls are checks and balances that are intended to prevent fraud, limit losses and reduce errors. Here are three internal controls that any small business owner can implement today:

1. First, improve fraud-consciousness. There is no such thing as the perfect, trusted employee. Most frauds are committed by first-time offenders. A lack of internal controls invites frauds to be committed. All it takes is one personal financial emergency or unshareable personal problem, and the trusted employee may step over the line. In the beginning, there is usually an excuse, such as “I’m just borrowing the money and I’ll pay it back.” But once started, frauds are very difficult to stop.
2. Second, remember that cash is king and directly monitor cash activity. Receive the bank statement directly, preferably unopened. Open the statement and look at the activity. Does it make sense? Ask questions about anything that seems odd.
3. Third, personally approve all new vendors. Fraudulent billing was the most common fraud suffered by small businesses. It involves billing the company for nonexistent services or using company funds for personal purchases. Fraudulent billing can be prevented by approving all vendors and monitoring cash payments.

Internal controls will enable better management of operations, greater control over cash flow and reduced risk of loss due to error or fraud. Implement essential internal controls today.

Jeanne H. Yamamura is professor of accounting emerita at the University of Nevada, Reno College of Business.

On behalf of United States Senator Harry Reid you are invited to join representatives from the Small Business Administration, Internal Revenue Service, and the office of Senator Reid as they discuss new benefits available to small businesses via recent legislation, including the HIRE Act.

Senator Reid’s Senior Advisor on tax and business will be speaking along with Regional  Administrator  Daniel P. Hannaher for the Small Business Administration Region 8 out of Denver.

Topics to be covered include  incentives and programs such as the Hiring Incentives to Restore Employment (HIRE) Act.  Under the HIRE Act, enacted March 18, 2010, two new tax benefits are available to employers who hire certain previously unemployed workers.

 

 

WHEN:
Tuesday, August 10, 2010
10 a.m.

WHERE:
Cathexes Architecture
250 Bell Street
Reno, Nevada

Space at this event is limited.
Please RSVP to Senator Reid’s Reno office at 775-686-5750

Victor Hugo Mercado
Regional Representative
Office of United States Senator Harry Reid

Since the passage of legislative efforts like Proposition 13 in California and the “tax-shift” legislation in Nevada in the 1970’s, local governments have become increasingly reliant on tourism and, more specifically, sales tax revenue to fund a growing demand for public services.  A shrinking tax base means that local governments, like the City of Reno, have increasingly made economic development policy decisions based upon the amount of increased hotel room and transient occupancy tax revenue and sales tax revenue a particular project can potentially create.

Although local policy makers are quick to point out that new convention centers, new hotels, new malls, and even new automobile dealerships create many needed new jobs, they likely won’t admit that these types of projects create relatively low paying and low skill jobs that really don’t offer individuals any real meaningful opportunity for general upward mobility and rarely contribute positively to a community’s overall quality of life.  Local governments and local economic development policy makers often leverage public revenues to support the development of new commercial-retail real estate development projects or projects designed to encourage increased levels of tourism in the hope of generating new tax revenues that can be “transferred” to out-of-state residents.  Sadly, time and time again, local governments are simply leveraging the long-term, stable, economic growth of their community in order to generate a few increased dollars of new sales tax or hotel room tax revenue.

To make matters worse, local governments and local economic development policy makers tend to have a poor understanding of what drives tourism.  Although there are many things that a local community can do to encourage tourism to their jurisdiction, if the individual “tourist” doesn’t have the money to travel to your jurisdiction (due to a loss in employment or reduced savings or a general uncertainty about their economic future because of the recent economic recession), they simply won’t come.  If tourism doesn’t increase, then the local government is left “holding the bag” for the amount of debt it incurred to finance the construction of the new convention center, the new mall, or the new hotel.  This problem is compounded in the long-run as the money that could have been spent on small business and entrepreneurial development efforts, technology-based economic development efforts, workforce training and development efforts, or even neighborhood and community development efforts, is instead spent on financing crushing levels of accumulated debt – debt that policy makers thought would have been paid by tourists but end up being paid by locals.

In the end, using public debt to finance commercial-retail and tourism oriented projects is about the worst economic development strategy a local government can undertake largely because tourism-based development and commercial-retail based development is not economic development.  These types of development are revenue development projects designed to enhance local government revenues.  No doubt about it – local governments need to enhance local revenue sources in order to finance the year-after-year increase in the demand the public has for more and more publicly provided services.  But the larger goal behind wider economic development efforts is to help create mid to high skill level jobs that pay mid to high level wages, offer individuals meaningful opportunities for general upward mobility, and ultimately contribute to a community’s overall quality of life by contributing to the long-term, stable, economic growth of an entire community and/or region.

Although tourism-based development and commercial-retail based development are important strategies that local governments should undertake and support when they can afford to do so, these types of development projects should never be subsidized with public tax revenues.  Think about it this way.  The goal behind any tourism-based or commercial-retail based project is to enhance publicly collected tax revenues.  But in order to finance the construction of the new convention center, or the new mall, or the new hotel, publicly collected tax revenues are needed.  But why would you give away sales tax dollars or hotel room tax dollars today in order to generate the same sales tax dollars or hotel room tax dollars tomorrow?  Also keep in mind that every other jurisdiction in the country is doing the same thing – in the hopes of getting residents from your community to spend their dollars in their jurisdiction!  So even in the very best case, publicly financing the construction of new convention centers, new malls, and new hotels simply swaps one local dollar in new sales tax revenue for one out-of-state dollar.

A recent article in the Reno Gazette Journal, “Bond Costs Drag Reno Budget” published on May 29, 2010, illustrates how risky it is to bet all your economic development hopes on the construction of a new convention center.  The article reports that the City of Reno will have to pay approximately $2.5 million to finance the debt issued to build the downtown Reno Events Center, completed in 2005.  The City had hoped that a new events center/convention center would be a critical element in the City’s wider efforts to revitalize the City’s downtown area and the overall decline in area-wide tourism.  But an unexpected and very severe nationwide economic recession further collapsed area-wide tourism counts as well as the discretionary spending of local residents on commercial-retail projects.  The May 29, 2010 Reno Gazette Journal article further reported that, “The city finance department estimates room taxes will bring in only $4.7 million in the coming fiscal year, short of the $7.2 million needed for the bond payment.”

The continued decline in area-wide tourism accompanying the decline in hotel room tax revenue collected from downtown Reno hotel and casino properties means that the City of Reno might have to look to other sources in order to continue financing the debt used to build the Reno Events Center if there isn’t an immediate and significant improvement in area-wide visitor counts.  But here is the problem.  What if the recovery never comes?  What if people decide, as a result of this recession, that they will save more and travel less?  The bond issuer and the bond holders of the debt to build the Reno Events Center don’t care about those potential scenarios.  They want the City of Reno to keep making payments on debt that was issued for a project that might never provide the return on investment the City thought that it might return when it first considered this project years ago.

If the City of Reno is forced to look at other revenue sources to finance the debt for the Reno Events Center, along with debt issued to finance other ongoing and wider redevelopment efforts throughout the City, the City might not have the resources needed in the future to pursue broader economic development strategies such as small business and entrepreneurial development efforts, technology-based economic development efforts, workforce training and development efforts, and even neighborhood and community oriented development strategies.  Although the resources might not be available to finance these strategies, these strategies are going to be needed over the next several decades as we struggle to develop a broader economic base and new, more dependable economic engines in order to ensure the long-term, stable, economic growth of our city, our county, our region, and even our state.

by Bryan McNutt

Summary:

The Affordable Care Act formulates quite a few changes to make insurance more affordable for smaller companies (up to 25 employees).  Five billion dollars has been appropriated to the new tax credits, available to small companies, offering their employees insurance, until the end of 2013.  On January 1, 2014 the bulk of this legislation comes in to effect.  The bill is backed by 940 billion dollars, most of which takes effect in 2014, and will force states to set up Small Business Health Options Program (SHOP Exchanges).  “These Exchanges would include web portals that provide standardized, easy-to-understand information that make comparing and purchasing health care coverage easier for small business employees, and reduce the administrative hassle that small businesses currently face in offering plans.”

-      U.S. Department of Health & Human Services

Currently:

• “The U.S. health care system imposes a heavy “tax” on small businesses and their employees.  Due to high broker fees, administrative costs, and adverse selection, small businesses pay up to 18 percent more per worker than large firms for the same health insurance policy.”
  • High Broker Fees: Range from 2-8 percent of premiums.
  • Administrative Costs: Fixed cost of setting up insurance policies is spread between less employees for smaller firms.
  • Adverse Selection: Private insurers know that, among small firms, those with workers who have high health care needs are more likely to seek insurance.

-       Executive Office of the President, Council of Economic Advisers

Effects of the Affordable Care Act:

• Tax Credit Qualifiers:

	Qualifications
Applicable After:	Employee Count	Average Annual Wages	Prerequisites	Applicable Tax Credit
1/1/2010	10 or fewer (full-time)	$25,000 (maximum)	Employers must pay at least half the cost of health insurance for covered employees	35% of premiums
	25 or fewer (full-time)	$50,000 (maximum)		35% of premiums with phase-outs
1/1/2014	25 or fewer (full-time)	$50,000 (maximum)	Same	50% premiums with phase-outs when AAW exceeds $25,000 or employees exceeds 10

• A full-time employee is an employee who works, on average, at least 30 hours per week, when calculated on a monthly basis.
  • Two part-time employees count as one full-time employee for tax credit calculation.

• Gradual phase-outs will apply to companies whose full-time employee’s number between 10 and 25, or companies whose average annual wage is between $25,000 and $50,000.
  • A company will be eligible for more or less credit depending on amount of full time employees and average annual wage.
    • A company that has 12 employees and pays their employees $26,000 on average will be eligible for more tax credit than a company with 18 employees and $45,000.

• Non-Profit Organizations are eligible for 25% tax credit until January 1, 2014, from which time they are eligible for 35% tax credit.

• If you’re an eligible small business you will claim the health insurance credit as part of your general business credit on the 2010 income-tax return.

Premium Cost Eligibility:

• Premium Cost Eligibility is implemented to avoid incentives to choose high-cost plans.
  • “An employer’s eligible contribution is limited to the average cost of health insurance in that state.”

-       U.S. Department of Health & Human Services

The average premium for the small group market in a state (or an area within the state) is determined by the Department of Health and Human Services (HHS). Revenue Ruling 2010-13 sets forth the average premium for the small group market in each state for the 2010 taxable year. For the 2010 taxable year, HHS may provide additional average premium rates for the small group market for areas within some states (sub-state rates). These additional sub-state rates will be published by the IRS and will not be lower than the applicable rate for each state that is set forth in RR-2010-13.

-IRS, The Affordable Care Act

After Implementation of the Affordable Care Act:

• Insurance premiums will stay significantly lower for all employees because the government will be regulating the impact of exchanges through the Government Accountability Office.

• “Reduces ‘job lock’ – the fear of switching jobs or starting a small business due to concerns over losing health coverage – by guaranteeing access to coverage for all Americans.  This will encourage more people to launch their own small businesses, or join existing small employers.

• In Nevada there are 24,000 small businesses that are eligible to apply for the small business tax credit.

-       U.S. Department of Health & Human Services

Directly Affecting Small Business Development Centers:

The part of this act that affects the Small Business Development Centers directly and not just the clients we work with is the awareness grants.  To ensure small businesses are aware of the insurance options available to them, Small Business Development Centers and all Small Business Administration partners will be eligible for awareness grants.  This includes Women’s Business Centers, SCORE, Minority Business Centers, Veteran Business Centers, and others.

-       U.S. Department of Health & Human Services

Regarding PEO’s and how they will fair with the Passing of this Act (Congressional Record, March 24, 2010 {Senate} page S1989):

Mr. NELSON of Florida: There are millions of individuals throughout our country who are working for small businesses which are in PEO arrangements. The clear objective of this legislation is to create incentives for health care coverage and not to provide disincentives. I would like the chairman to clarify that, for purposes of the application of section 2716 of the Public Health Service Act (Prohibition on Discrimination in Favor of Highly Compensated Individuals) and for purposes of Internal Revenue Code sections 45R (Credit for Employee Health Insurance Expenses of Small Businesses) and 4980H (Shared Responsibility for Employers), to any health plans sponsored by a Professional Employer Organization, PEO, or a PEO client organization, the rules would be applied to each client organization separately and eligibility for the small business tax credits and employer shared responsibilities would also apply to each client organization separately, and not at the PEO level.

Mr. BAUCUS: If the individual providing services to the PEO client organization pursuant to the PEO arrangement continues to be an employee of the PEO client organization, the Senator from Florida is correct.

Examples:

Example 1: Main Street Mechanic – Auto Repair Shop with 10 Employees

• Employees: 10
• Wages: $250,000 or $25,000 per worker
• Employer Health Care Costs: $70,000

2010 Tax Credit: $24,500 (35% credit)
2014 Tax Credit: $35,000 (50% credit)

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Example 2: Downtown Diner – Restaurant with 40 Part-Time Employees

• Employees: 40 half-time (equivalent of 20 full-time)
• Wages: $500,000 or $25,000 per full-time equivalent worker
• Employer Health Care Costs: $240,000

2010 Tax Credit: $28,000 (35% credit with phase-out)
2014 Tax Credit: $40,000 (50% credit with phase-out)

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Example 3: 1st Street Family Services – Foster Care Non-Profit with 9 Employees

• Employees: 9
• Wages: $198,000 or $22,000 per worker
• Employer Health Care Costs: $72,000

2010 Tax Credit: $18,000 (25% credit)
2014 Tax Credit: $25,200 (35% credit)

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Example 4: Acme Air Conditioning, LLC- Manufacturing Company with 12 Employees

• Employees: 12
• Wages: $420,000 or $35,000 per full-time equivalent worker
• Employer Health Care Costs: $90,000

2010 Tax Credit: $14,700 (35% credit with phase-out)
2014 Tax Credit: $21,000 (50% credit with phase-out)

-       U.S. Department of Health & Human Services

Calculating Phase-Outs:

If the number of FTEs exceeds 10 or if average annual wages exceed $25,000, the amount of the credit is reduced as follows (but not below zero). If the number of FTEs exceeds 10, the reduction is determined by multiplying the otherwise applicable credit amount by a fraction, the numerator of which is the number of FTEs in excess of 10 and the denominator of which is 15. If average annual wages exceed $25,000, the reduction is determined by multiplying the otherwise applicable credit amount by a fraction, the numerator of which is the amount by which average annual wages exceed $25,000 and the denominator of which is $25,000. In both cases, the result of the calculation is subtracted from the otherwise applicable credit to determine the credit to which the employer is entitled. For an employer with both more than 10 FTEs and average annual wages exceeding $25,000, the reduction is the sum of the amount of the two reductions. This sum may reduce the credit to zero for some employers with fewer than 25 FTEs and average annual wages of less than $50,000.

Example: For the 2010 tax year, a qualified employer has 12 FTEs and average annual wages of $30,000. The employer pays $96,000 in health care premiums for those employees (which does not exceed the average premium for the small group market in the employer’s state) and otherwise meets the requirements for the credit.

The credit is calculated as follows:

(1)  Initial amount of credit determined before any reduction: (35% x $96,000) = $33,600

(2)  Credit reduction for FTEs in excess of 10: ($33,600 x 2/15) = $4,480
(3)  Credit reduction for average annual wages in excess of $25,000: ($33,600 x $5,000/$25,000) = $6,720
(4)  Total credit reduction: ($4,480 + $6,720) = $11,200
(5)  Total 2010 tax credit: ($33,600 – $11,200) = $22,400.

-       IRS, Small Business Health Care Tax Credit

Links:

• Affordable Care Act:  http://www.whitehouse.gov/files/documents/health_reform_for_small_businesses.pdf
• Health Reform in Nevada:  http://www.healthreform.gov/reports/statehealthreform/nevada.html
• Tax Credit Information: http://www.whitehouse.gov/healthreform/small-business/tax-credit
• Tax Credit Examples: http://www.whitehouse.gov/healthreform/small-business/tax-credit/cases
• Council of Economic Advisers:  http://www.whitehouse.gov/assets/documents/CEA-smallbusiness-july24.pdf
• IRS Video: http://www.youtube.com/watch?v=85i1kzIG57k
• IRS Tax FAQ: http://www.irs.treas.gov/newsroom/article/0,,id=220839,00.html

On May 29^th, 2010, the Reno Gazette Journal republished an article originally printed by USA Today titled, “More Older Americans Start Own Business”.  Citing several different studies, including one produced by the Ewing Marion Kauffman Foundation and another by the Global Entrepreneurship Monitor organization, individuals 55 years or older are increasingly becoming the majority of first-time small business owners and entrepreneurs throughout the United States.  Employment data provided by the U.S. Bureau of Labor and Statistics (BLS), reproduced in the table below, illustrates the point that older Americans are increasingly becoming the majority of Americans who are self-employed.

 Number of Self-Employed Americans by Age

Nationwide

December 2008 to December 2009

Age Group	December 2008	December 2009	Dec 08 to Dec 09 Actual Change	Dec 08 to Dec 09 Percent Change
Aged 6 to 19	49,000	30,000	-19,000	-38.8%
20 to 24	256,000	298,000	42,000	16.4%
25 to 34	1,386,000	1,400,000	14,000	1.0%
35 to 44	2,070,000	2,000,000	-70,000	-3.4%
45 to 54	2,460,000	2,400,000	-60,000	-2.4%
55 to 64	1,900,000	2,000,000	100,000	5.3%
Aged 65 or Older	726,000	939,000	213,000	29.3%
TOTAL	8,847,000	9,067,000	220,000	2.5%

Source:  US Bureau of Labor Statistics; “More Americans Start Own Business” by Laura Petrecca USA Today May 29; 2010, Reproduced by the Reno Gazette Journal May 29, 2010.

Between December 2008 and December 2009, when the total number of all Americans who reported to be “self-employed” increased by approximately 220,000 or just 2.5%, the total number of Americans aged 65 years old or older grew dramatically growing by 213,000 individuals or an astonishing 29.3%.  Americans aged 65 years or older accounted for the single largest actual increase and percentage increase in the number of Americans reported as “self-employed in the one-year period between December 2008 and December 2009.

Comparatively, the more “traditional” group of self-employed entrepreneurs (typically individuals aged 20 to 24) accounted for only the third largest actual increase (42,000 new individuals reported to be self-employed) and the second largest percentage increase (16.4% increase) – both measures of growth still well behind the growth in Americans aged 65 years or older and reported to be “self-employed”.

From the perspective of developing effective economic development policies and programs, the changing demographic face of self-employed, small business owning, entrepreneurs in the United States requires some modification to how the federal government, state, and local governments develop and implement their small business and entrepreneurial economic development strategies.  This changing demographic face also requires a rethinking of the types of workforce training and development programs the federal, state, and local governments develop and implement as well.

Two important economic development policy and program development concerns, correctly identified in the May 29, 2010 article reproduced in the Reno Gazette Journal, include:  1) the fact that older entrepreneurs simply have less “time” to make up for the lost money if their self-employed efforts or small business start-up fails when compared to their 40 year old or younger entrepreneurial counterparts, and 2) the older entrepreneur’s “facility with technology” still tends to be less than their 40 year old or younger entrepreneurial counterpart and represents a significant barrier that older entrepreneurs still have to overcome.

Although there are several national programs available through the Small Business Administration (see www.sba.gov/50plusentrepreneur) designed to help older entrepreneurs start-up their own businesses, state and local economic development policies and programs should be better tailored to fit specific area and regional needs.  Generally, state and local economic development policies and programs could be developed in order to mitigate the higher levels of risk that older entrepreneurs face.  For example, special angel investor funds or state/local government funds could be developed and set aside specifically for financing businesses started by entrepreneurs aged 55 years or older.  Loans at discounted interest rates could be made from these funds to older entrepreneurs and more favorable default agreements could also be structured in order to protect entrepreneurs aged 55 years or older from losing their savings needed for later retirement years.

In order to overcome the “facility with technology” difficulties that older entrepreneurs more often struggle with than their younger entrepreneurial counterparts, technology training and education courses could be developed specifically for entrepreneurs aged 55 years or older.  These courses, depending upon local and/or regional needs, could be designed in a way that provides greater emphasis on understanding the basics of spreadsheets, databases, accounting software, word-processing, email, and even online social networking and marketing tools in an environment where the older entrepreneur feels more comfortable surrounded by individuals of similar age and experience.

In fact, because online social networking and marketing tools have become an increasingly important way start-ups and small businesses market their business while also finding important information about how to manage and grow their entrepreneurial efforts, state and local economic development policies and programs should really focus on how to teach these different online social networking and marketing tools to older entrepreneurs.  According to the May 29, 2010 USA Today article reprinted in the Reno Gazette Journal, “A plethora of information exists that small-business owners can glean from their peers — often by logging onto social-networking sites.”

New state and local economic development policies and programs, including small business and entrepreneurial development strategies and workforce training and development strategies, need to be focused as much on older entrepreneurs as they are on more traditional, young entrepreneurs.  Given that the overall demographic trend of the United States is increasingly trending towards an “aging” of the population, more and more of our first-time self-employed, small business owners and entrepreneurs are becoming increasingly older.  The ability of these older entrepreneurs to succeed will rely upon not only their significant business and personal experience and knowledge, but also the ability of state and local governments to develop appropriate state and local economic development policies and programs designed to meet the specific needs of an aging entrepreneurial sector.

SBA Administrator Karen Mills explains the Affordable Care Act, a federal statute enacted in March 2010 as a product of the congressional health care reform, as it relates to the small business owner. Read her letter here and let us know what you think.