Text: S.Hrg. 115-58 — THE CHALLENGES AND OPPORTUNITIES OF RUNNING A SMALL BUSINESS IN RURAL AMERICA
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[Senate Hearing 115-58]
[From the U.S. Government Publishing Office]
S. Hrg. 115-58
THE CHALLENGES AND OPPORTUNITIES
OF RUNNING A SMALL BUSINESS IN RURAL AMERICA
COMMITTEE ON SMALL BUSINESS
UNITED STATES SENATE
ONE HUNDRED FIFTEENTH CONGRESS
APRIL 26, 2017
Printed for the Committee on Small Business and Entrepreneurship
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COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
ONE HUNDRED FIFTEENTH CONGRESS
JAMES E. RISCH, Idaho, Chairman
JEANNE SHAHEEN, New Hampshire, Ranking Member
MARCO RUBIO, Florida MARIA CANTWELL, Washington
RAND PAUL, Kentucky BENJAMIN L. CARDIN, Maryland
TIM SCOTT, South Carolina HEIDI HEITKAMP, North Dakota
JONI ERNST, Iowa EDWARD J. MARKEY, Massachusetts
JAMES M. INHOFE, Oklahoma CORY A. BOOKER, New Jersey
TODD YOUNG, Indiana CHRISTOPHER A. COONS, Delaware
MICHAEL B. ENZI, Wyoming MAZIE K. HIRONO, Hawaii
MIKE ROUNDS, South Dakota TAMMY DUCKWORTH, Illinois
JOHN KENNEDY, Louisiana
Skiffington E. Holderness, Republican Staff Director
Sean Moore, Democratic Staff Director
C O N T E N T S
Risch, Hon. James E., Chairman, and a U.S. Senator from Idaho.... 1
Shaheen, Hon. Jeanne, a U.S. Senator from New Hampshire.......... 2
Lettieri, John, Co-Founder and Senior Director for Policy and
Strategy, Economic Innovation Group, Washington, DC............ 3
Hobart, Jim, Co-Founder, Alpaca Direct, LLC, Hayden, ID.......... 22
Riley, Rob, President, Northern Forest Center, Canter............ 26
Chapman Industrial Park
Statement dated April 25, 2017............................... 39
Prepared statement........................................... 24
Answers to questions for the record.......................... 74
Prepared statement........................................... 6
Answers to questions for the record.......................... 68
Oklahoma Bankers Association
Letter dated April 25, 2017.................................. 64
Prepared statement........................................... 29
Answers to questions for the record.......................... 77
Risch, Hon. James E.
Opening statement............................................ 1
Shaheen, Hon. Jeanne
Opening statement............................................ 2
The Stress of Streaming Delays
Ericsson Mobility Report Excerpt dated February 2016......... 49
THE CHALLENGES AND OPPORTUNITIES
OF RUNNING A SMALL BUSINESS
IN RURAL AMERICA
WEDNESDAY, APRIL 26, 2017
United States Senate,
Committee on Small Business
The Committee met, pursuant to notice, at 10:00 a.m., in
Room SR-428A, Russell Senate Office Building, Hon. James E.
Risch, Chairman of the Committee, presiding.
Present: Senators Risch, Scott, Ernst, Inhofe, Young,
Rounds, Kennedy, Shaheen, Cantwell, and Heitkamp.
OPENING STATEMENT OF HON. JAMES E. RISCH, CHAIRMAN, AND A U.S.
SENATOR FROM IDAHO
Chairman Risch. Well, I want to thank everyone for coming
today. We are--Senator Shaheen and I are holding this meeting
on the challenges and opportunities of running a small business
in rural America. We both come from states that have
substantial rural components, and that has both benefits and
challenges, and the purpose of this meeting today is to talk
And so we--we are going to let the witnesses do the talking
here, I think, and explore with questions when we are done.
And we have three witnesses. First, Mr.--how is it
pronounced? Lettieri? Lettieri. All right. Mr. Lettieri leads
the Economic Innovation Group's policy development, economic
research, and legislative affairs efforts. His work has been
focused on the trends of declining innovation and mobility in
rural and economically distressed areas of the United States.
We will be interested in hearing your point of view on those
matters, Mr. Lettieri.
And Mr. Hobart comes to us from the great State of Idaho,
and he began raising alpacas in Hayden, Idaho, in 2005, when
his daughter asked to raise the animals as a 4-H project. After
discovering that a market existed for alpaca fiber and yarn,
the Hobarts opened Alpaca Direct, LLC, in Hayden, Idaho, one of
the most beautiful spots in America, and a companion online
store. Utilizing a variety of online and social media
platforms, this small, family owned company grew into a hugely
successful business that sells yarn from rural Idaho around the
With that I will turn it over to the Ranking Member to
introduce Mr. Riley.
OPENING STATEMENT OF HON. JEANNE SHAHEEN, RANKING MEMBER, AND A
U.S. SENATOR FROM NEW HAMPSHIRE
Senator Shaheen. Well, thank you very much, Mr. Chairman,
and like you I am very excited about hearing what our witnesses
have to say this morning, because we know that rural America
has not been recovering at the same rate, in many places, as
urban America, and so I am anxious to hear what you all have to
say, and particularly pleased that one of our witnesses this
morning is Rob Riley, who is the President of the Northern
He comes to the Center after a career in a number of other
areas in New Hampshire that are also critical to this
discussion, because he served as director of a state-wide
microenterprise program of the New Hampshire Community Loan
Fund, that provides financing for small businesses. He also
served as the founding executive director of Main Street
Plymouth. Plymouth is a small town in New Hampshire. And his
interest in the forest economy and rural communities really is
rooted in his early days working on his family farm in southern
Vermont, and he understands very well how the changing timber
economy in New Hampshire has affected people and what we need
to do to try and restore many of those communities.
And, Mr. Chairman, I just want to take a minute, because as
we all know, small businesses are the backbone of rural
communities, in your State of Idaho and my State of New
Hampshire, and in so much of the country, and they really face
a unique set of challenges, and I look forward to the insights
that you all have to give us this morning on some of those
challenges, because they have a more difficult time getting
access to credit, they may be located far from major
infrastructure projects, broadband and wireless are often
difficult in rural areas, in New Hampshire in particular, and
in much of the area that is served by Rob Riley, cell phone
coverage is even challenging.
And then, in New Hampshire, we hear from our small
businesses that they are having trouble getting access to
skilled labor. And I saw a very dramatic example of that, and
the difference that public policy can make for some of those
businesses when I was in New Hampshire during the break, a
couple of weeks ago. I visited a small town, or a small
business in the town of Claremont, in the western part of New
Hampshire. The business is called Costa Precision
Manufacturing. It is an area of the State that has a really
rich history in doing precision tool and die work. And they had
just gotten a HUBZone designation from SBA, after waiting for
literally years to get that, and fortunately, because--or
unfortunately, from Vermont's perspective, that they had a
closed--because of BRAC they had a base closing in Vermont and
so Sullivan County, where Costa is, qualifies.
And one of the things they told me, right now they have 32
employees. He said, ``If we could find the skilled labor, we
could hire 6 of them tomorrow, and by the end of the month we
could be up to 10, and we are looking at many more in the
future.'' And they said one of the reasons that they see the
growth as being so promising is because of this HUBZone
designation. He said there are approximately 200 businesses in
the United States that do the kind of work that Costa does,
that has the same certifications, but the HUBZone designation
is setting them apart because there are only six companies in
the United States, in their industry, that have a HUBZone
designation, which means that they can do business with the
government in a way that really gives them a leg up on many
other of their competitors.
So, for me, that was a really dramatic example of the
difference that SBA can make for our small businesses and that
policy changes that we make here in Washington can really do to
help encourage small business growth. So I look forward to the
testimony of our witnesses this morning and to hearing what
more we can do to try and encourage that kind of growth in our
Thank you, Mr. Chairman.
Chairman Risch. Thank you, Senator Shaheen. As you and I
both know, living in states that have substantial components of
rural areas, it is very different than what people are used to
on the East Coast or the West Coast, and so I am going to try
to highlight that a little bit and show that life is not
exactly the same everywhere here in America.
So, with that, Mr. Lettieri, the floor is yours.
STATEMENT OF JOHN LETTIERI, CO-FOUNDER AND SENIOR DIRECTOR FOR
POLICY AND STRATEGY, ECONOMIC INNOVATION GROUP, WASHINGTON, DC
Mr. Lettieri. Thank you. Chairman Risch, Ranking Member
Shaheen, members of the Committee, good morning. It is an honor
to testify again before this committee.
Rural entrepreneurship and economic dynamism are at an
important inflection point, as the geography of economic growth
and opportunity has shifted decisively towards denser and more
metropolitan areas in recent years.
Let me begin today by underscoring the fact that rural
America is not monolithic. In fact, it is quite diverse. It
includes many of the most prosperous and upwardly mobile places
in the country, as well as places that suffer from the deepest
and most persistent poverty. Furthermore, it is important to
think of urban and rural as part of a gradient rather than a
dichotomy. Fully 54 percent of the country's officially rural
population actually resides within a metropolitan area. These
communities share deep economic ties to their broader regions,
and their fates are often tied to larger metropolitan fates.
That is why I believe that the true fault line in our economy
today is not between rural and urban communities but rather
between communities that are highly connected and those that
Highly connected communities, ones linked to global
markets, human capital, modern infrastructure, and knowledge
centers will be best positioned to thrive in the economy of the
future. Such communities can be urban, rural, and everything in
between. There are, however, widespread and irreversible shifts
in the modern economy that present unique challenges for rural
and small-town entrepreneurship.
Since the 1990s, the economic dividends to urbanization and
density have increased enormously, thanks to the transformation
of the geography of economic growth and dynamism. Consider that
from 1992 to 1996, small counties, those with fewer than
100,000 in population, averaged more than twice the job and
establishment growth of denser, high-density counties of over 1
million people. But by 2010, that had inverted completely.
Small counties now lag far behind the national growth rates in
both of those categories, and in some cases struggle to achieve
positive growth at all.
Indeed, in spite of years of steady economic recovery
nationally, more than 1 in 5 small counties have experienced a
net loss of business establishments, employment, and population
since the end of the Great Recession.
It is important to note, however, that denser and more
populous places have not seen any substantial increase in their
own start-up rates or local dynamism. Rather, they have simply
been more resilient in the face of a broad national decline in
the dynamism in the U.S. economy as a whole. This national
trend includes not only widespread collapse of new firm
formation but also historically low rates of labor market
fluidity and geographic mobility among American workers, as
well as a rapid market concentration in most industries. In
such an environment, rural entrepreneurs face a reality that
looks nothing like that of only 20 years ago.
In particular, the slow-down in new business formation
started earlier and has been more severe in rural areas than
elsewhere in the economy. One misperception is that rural firms
are suffering from disproportionately high rates of firm
closure, and this is simply not the case. The closure rate is,
in fact, lower in non-metropolitan areas than in metropolitan
areas. Businesses are not dying faster than they used to in
rural America. What has changed is that far fewer new companies
are being born to take the place of those that do.
For example, in absolute terms, the number of new companies
formed in non-metropolitan United States in 2014 dipped below
50,000 for the first time on record, and this means that only
half as many firms started in non-metropolitan regions in the
2010s as did in the late 1970s or early 1980s.
There are, however, positive signs related to
entrepreneurial activity in other forms. For example, as
traditional business formation stalled in small counties,
several studies indicate that so-called platform-enabled
entrepreneurship is on the rise through platforms like eBay and
Etsy. Nevertheless, with diminished start-up activity comes
reduced flexibility, less resiliency, and fewer job
opportunities within local economies, so it is important to
strengthen rural entrepreneurship if these areas are going to
be successful in an ever-changing global economy.
In closing, as members of this committee consider policy
solutions, I recommend focusing on policies that grow and
expand connectivity for rural areas in all its various forms.
Modernizing and repairing U.S. infrastructure is one obvious
example. So, too, is ensuring that rural entrepreneurs have
better access to capital. Another priority should be closing
the significant digital divide between urban and rural areas.
For example, 39 percent of rural Americans lack access to
broadband compared to only 4 percent of urban Americans.
While ultimately I believe the most important solutions
will come from State and local stakeholders, at the Federal
level our primary focus should be on the urgent task of
ensuring a broader economy that remains as flexible, dynamic,
and adaptable as possible. Policies that help restore higher
rates of dynamism, innovation, and growth for the Nation as a
whole will be good for those who live in rural America, and
make the challenges facing entrepreneurs a little less steep.
In crafting such an agenda, we must avoid and eliminate
policies that, even when well intentioned, tilt the balance too
far in favor of guarantees versus opportunities, incumbents
versus upstarts, or certainty versus healthy risk-taking.
Rural communities no doubt face challenges but they often
have advantages that can help level that playing field,
including quality of life, affordable and available land,
access to natural resources, and strong social cohesion.
Matching those local advantages with a national policy
environment that promotes broad-based growth and connectivity
Thank you, and I look forward to answering your questions.
[The prepared statement of Mr. Lettieri follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT
Chairman Risch. Thank you much.
STATEMENT OF JIM HOBART, CO-FOUNDER, ALPACA DIRECT, LLC,
Mr. Hobart. Good morning, Chairman Risch, Ranking Member
Jeanne Shaheen, and members of the Committee. Thank you for the
opportunity to testify today.
I am James Hobart, co-owner of Alpaca Direct, and I am
honored to share my experience as a small business owner in
north Idaho and how we transformed my daughter's 4-H project
with pet alpacas into a thriving click-and-mortar business
serving over 100,000 customers in 30 countries.
For my wife, Kelley, and I and our two children, there is
nothing more important than a close-knit family and community.
When our daughter was asked if she could raise alpacas on our
ranch in 2005, we discovered many of the unique benefits of
alpaca fiber, and wanted to share these products with others.
We opened Alpaca Direct and a companion online store to
share the durable, eco-friendly yarn with knitting and apparel
enthusiasts all over the world. For a small business in north
Idaho, our sales demographics may surprise you. Ninety-two
percent of our annual sales are online. Our customers are 85
percent female, 75 percent of them are 45 and older, and 30
percent are 65 and older. In the U.S.A., our top four selling
states are New York, California, Texas, and Florida.
We have used the internet and social sites like Facebook,
Pinterest, and Google+ to stitch together a modern click-and-
mortar business. We rely on web search advertising and social
networks to find customers who will be interested in our
products, and we start conversations with them to better
understand their needs.
Today's advertising platforms like Google AdWords and
Facebook allow us to be very specific in utilizing our
advertising dollars and measuring the ROI on our marketing
efforts. YouTube allows our staff to share knitting techniques
and product reviews with our global audience. There are people
all over the world who do not have a local yarn shop and we
want to become their local yarn shop, even though we are based
in north Idaho. With online social tools we can do that, and
they have become part of our community.
You know, creating a loyal customer is no different in the
online world than in the physical world. Here are seven key
principles we established for our business. Listen to our
customers and create conversations with them versus talking at
them. Treat our employees and customers as part of our family.
Build trust by selling great products we can stand behind.
Deliver great customer service every day. Do what is best for
the customer and that will be best for our company. Offer the
best products at competitive prices by operating efficiently.
And continuously evolve to serve our customers.
The internet has allowed us to amplify our message and
openly share these principles, and I am happy to say our
customers have responded by telling us--and telling others
actually--having over 51,000 Facebook fans, and it grows daily.
The amplification and transparency effect of the internet is a
huge benefit for small businesses who do what they say and live
by their principles.
We are a small business in a small town. For hundreds of
years, in a small town, to thrive you needed to treat your
customers well since they were your neighbors. Now the internet
has made this type of transparency true for everyone, not just
the small town and not just small businesses. When you do not
treat your customers well, everyone knows, and everyone is your
neighbor, as we have witnessed so clearly in recent weeks with
some of America's largest companies.
The growth we have enjoyed has not come without challenges.
Two key areas we feel need attention are improved internet
access and affordable health care for our employees.
Essentially, the on-ramps to the digital highway need more
access for rural areas. Our competitors in large cities are
operating on the equivalent of a 12-lane freeway while our
access to that freeway is like a worn-out toll road, with
potholes, maintained by a single-source provider with little
incentive to make improvements. This limits our ability to
livestream events with our customers and limits their
engagement with us. In the very near future, this will become a
differentiator for our ability to deliver competitive service.
As for health care, we all know the issues around high
costs and limited access. Despite this, we are blessed to have
phenomenal employees who love their jobs and truly care for our
customers. Most of our employees are part-time moms. They drop
off their kids in the morning and pick them up in the
afternoon, with an average commute of about five minutes. We
recently lost a great bookkeeper. She worked for us for five
years but had to take another job at a larger company just to
get health care for her husband. He was a local plumber in his
late 50s and needed a hip replacement.
Entrepreneurs have realized the world is flat and you can
run your business from where you want to live, not where you
must live. In our case, we discovered Coeur d'Alene, Idaho, on
vacation back in 2005, and left Silicon Valley for a simpler
life and a more efficient place to run our business. This trend
will continue to play out in small towns across America, and I
want to thank you for giving me the opportunity to share my
perspective on how small businesses can grow and thrive in
today's internet economy.
[The prepared statement of Mr. Hobart follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT
Chairman Risch. Thank you, Mr. Hobart.
STATEMENT OF ROB RILEY, PRESIDENT, NORTHERN FOREST CENTER,
Mr. Riley. Thank you, Chairman Risch, Ranking Member
Shaheen, and members of the Committee.
My name is Rob Riley and I serve as the President of
Northern Forest Center, a nonprofit organization which works to
crate economic opportunity and community vitality from healthy
working forests in the northern parts of Maine, New Hampshire,
Vermont, and New York. We work across a 30-million-acre area
with a population of two million people, to help businesses and
communities adapt to a changing economy.
Over a century ago, the Northern Forest region supplied the
timber that built East Coast cities and gave birth to the
modern pulp and paper industry. Vertically integrated timber
and paper companies literally built communities to support
their mills and owned millions of acres of land. With good
wages and--excuse me--wages and jobs for almost everyone, our
rural communities thrived through the 1970s.
In the 1980s and 1990s, however, globalization and changing
markets resulted in nearly 50 Northern Forest communities
losing their forest products mills and tens of thousands of
manufacturing jobs. Mill towns like Berlin, New Hampshire, have
dropped from 10,000 people in population to 5,000. Median
household incomes have not kept up with the Nation as a whole.
Some places are successful at attracting tourists and second
homeowners but not new residents, particularly young people and
families, and businesses that can maintain a thriving community
or reinvigorate a waning one.
However, there is a lot of reimagining, reshaping, and
redevelopment underway, and there is a lot to build on. We have
a beautiful region full of small communities and iconic
landscapes--the Adirondacks, the Green Mountains, the White
Mountains, the North Woods of Maine. Our challenge is to figure
out how to use the natural resources in new and sustainable
ways. We need to develop new ideas for what it means to be a
Federal agencies and business development programs play a
crucial role as rural places across the country adapt to
changes in their historic economies and work to take advantage
of new economic opportunities. These include the SBA's Small
Business Development Center and the USDA Rural Business
Cooperative programs; the New Markets Tax Credit Program
supported by the U.S. Department of Treasury; Manufacturing
Extension Partnership; and in our region, Northern Border
Let me give you an example of how these programs have
worked together to help a small business located in Lancaster,
New Hampshire. Ten years ago, Bill Rutherford and his wife,
April, decided to move their family from New Jersey to this
North Country town and started NorthWoods Manufacturing, which
manufactures custom cabinetry and kitchens.
To pursue his entrepreneurial dream and succeed in a rural
community, Bill used several Federal programs, made available
through local nonprofit organizations, to secure business and
specialized assistance to overcome obstacles: ensure quality
and consistent broadband connection for his home for his wife
to work remotely and connect to business in regional markets,
extending as far as New York City; financing from a community
development financial institution, the Northern Community
Investment Corporation, to assist in growth and product
development; tailored business counseling from the Small
Business Development Center. And, finally, we, the Northern
Forest Center used a U.S. Department of Agriculture Rural
Business Development Grant to bring in specialized lean
manufacturing assistance to help the company to streamline
their manufacturing space and processes.
Since this support was provided, the business' revenues
have increased over 20 percent, with a goal this year of an
increase of 60 percent revenues. It is a good return on
In addition to carrying the responsibility of 12--of
employing 12 residents, Bill is also deeply involved in his
community, volunteering, among other pursuits, as a leader of
his son's scouting troop.
Bill and April came looking for a community they wanted to
live in and brought their entrepreneurial skills with them. We
need to enhance the programs that help the small business and
countless others, and we define ways to expand their reach and
effectiveness in rural America.
Cutting rural business development programs, which the
President has proposed doing, to all of those that I previously
mentioned, and more, reflects a lack in knowledge around the
effective deployment of these programs, and will have a direct
and seriously negative impact on struggling rural communities
and the small businesses that help them survive and grow.
Rural places have a lot to offer, of course, and the assets
include natural and cultural amenities, but also the private
sector. Leadership in these communities is critical, but
investment tends to follow the public sector and is usually
only leveraged by matching funds, loan guarantee, or other
incentives. Instead of cutting these programs we should
identify ways to improve them.
To that end, the Center is partnering with the Aspen
Institute and the U.S. Endowment for Forestry and Communities
to form the Rural Development Innovation Group, a group of 12
grounded practitioners guided by our experiences in rural
places across the country. This group believes that effective
rural investment programs should care--should share two common
characteristics. One, programs should invest in people, ideas,
and markets, not just projects; and, two, programs should offer
investment that is appropriately scaled for modern rural
realities and seek diverse outcomes that are rooted in the
The Small Business Committee, along with the Agriculture
Committee and other congressional stakeholders have a strong
legacy in supporting the essential programs that have sustained
an entrepreneurial fabric in this country. We look forward to
working with you to ensure that rural small businesses have the
certainty, and that the tools they need to succeed in this
ever-changing economy are there for them, when they need them,
and by the organizations they trust.
[The prepared statement of Mr. Riley follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT
Chairman Risch. Thank you very much, Mr. Riley. In the
forest industry, the loss of forest jobs certainly is not
unique to your area. The West Coast has suffered a tremendous
amount of loss.
My first year in the State legislature was 1975, and we had
44 operating sawmills south of the Salmon River, which
essentially divides the State north and south. Those 44 mills
were located in virtually any town of any size in southern
Idaho. Today they are all gone. I think there is one left that
is operating. And it was the source of employment for people in
those towns, and now they are just flat gone.
So the challenges are there--there is no question about
it--and it is the result of changes.
I want to talk for a minute about your perspectives on--
each of you give me your thoughts on your perspectives on the
advent of the internet and how it has affected small business.
Mr. Hobart, you are in the internet--you use the internet as
the heart of your business. We have all seen substantial
changes, and now we are seeing it not only to small businesses
but we are seeing it to large businesses. There is more of the
big-box stores that are going to cave because of--in fact, some
outright companies are going to fail because of the internet
and people using the internet to purchase, as opposed to going
I would like to get your thoughts on the advent of the
internet, what has happened, where we are, and where you think
it is going.
Mr. Lettieri, I would like to hear from you first.
Mr. Lettieri. That is a great question. Really important.
So when the internet first became a big platform for commerce,
I think one of the big expectations that folks had was that
geography would become obsolete, that you could start a
business anywhere and that this would level the playing field
between urban centers and non-urban centers. And that is just
not the case. That is not how it has played out. Mr. Hobart's
example is a remarkable one, of what is possible in the age of
the internet, coming from a rural community, but it is the
exception and not the rule.
And so, in many ways, the internet has sped up the pace and
the intensity of competition, which means that if you can do it
from a rural community, anyone else can do it from a rural
community too, and you are facing a much broader competitor
pool, because of connectivity.
The other challenge, of course, is that between places that
have really strong broadband and internet connectivity and
those that do not, you see a clear dividing line of economic
prosperity and opportunity, and so it has become a really
important factor. But I just hasten to note that even in e-
commerce, e-commerce in retail only represents a relatively
small proportion of total sales. It is still in the low double
digits, is my understanding. And so even something as
transformational as that is still working its way through the
system. We have not, I think, yet seen the full effect of what
that is going to do to that industry. It just means that people
need to be more--companies need to be more attuned to the
adaptation that is required to keep pace, and that just was not
true in the same way before the internet.
Chairman Risch. Thank you. I appreciate your thoughts. It
seems to me, though, that what I see in Idaho, particularly, is
a lot of small businesses. As you said, it is the exception
that you can do business from a rural area the same as you can
anywhere else. The financial industry, people that are in the--
that are trading commodities or trading equities, seem to be
able to operate from anywhere. Of course, they have to have the
high-speed internet or they cannot do that. But that seems to
be more of an exception because there are a lot of those, I
know, in Idaho.
Mr. Lettieri. There are certainly certain types of
businesses and models that work well remotely, but as a general
rule in the economy, we have not seen a flattening. We have
seen a concentration of economic activity in denser places, and
that corresponds with the rise of the internet as an important
platform for commerce.
Chairman Risch. Mr. Hobart, your thoughts?
Mr. Hobart. Thank you, Chairman Risch. Well, first, one
observation. Starting an e-commerce business today is probably
a factor of 10 easier than it was even 10 years ago, so there
is great opportunity for small businesses all over the United
States to start up a business around their passion, and start
selling online, and I think that trend will continue as the
learning curve gets easier.
That said, as you mentioned, a lot of e-commerce businesses
are, you know, supplanting the brick-and-mortar businesses
today. But I firmly believe, in our experience, that the social
experience of shopping is going to help small businesses like
ours to succeed in the future. Where I talked about better
internet access for us and our ability to engage our customers,
it means a much more social experience with them. Imagine 5 or
10 years from now, where a customer somewhere else in the
United States, can literally, virtually walk through our store
and look at the shelves as if they are in the store. That is
the vision that I want to make for our company, but we need the
internet access for both them and for us to make that happen.
The other thing I would say is that we are a big partner
with the Postal Service. They are our delivery partner. And I
will be happy to say that in our area, in Hayden, they are a
great partner. In fact, their delivery has been--has vastly
improved over the 10 years--or 12 years, actually--that we have
been in business, and now we can literally ship from Hayden,
Idaho, to almost anywhere in the United States in about two to
three days, so--and sometimes even less than that. So they have
been a great partner, and having that rural partner in the USPS
right up the street from us has been great.
Chairman Risch. Thank you.
Mr. Riley. When I lived in your great State about 25 years
ago now, the internet was just, you know, an idea. It seemed
like an e-mail was just seeing the beginning. I would say there
are a few different things now that are coming into play.
Access is one. Does the fiber come to the place of business in
a rural place? The second is affordability. It may be there,
but to get that last not even mile, last few feet, is a
critical challenge. And then as you talked about before, the
upload/download speeds are inconsistent. So we face those every
day in rural places, about actually accessing what is the
digital highway here. You know, that is a challenge.
But I would say one of the businesses, particularly in the
manufacturing space, that we are seeing, is that the ability to
use the internet to interface with customers, real-time, to do
custom design furniture and then deliver to the 70 million
customer base within one day's drive of the Northern Forest is
a game-changer to compete with imports. So our ability to
provide that custom design type of piece is only there because
of having high-speed internet available, and it is critical to
And I would say we are finding a lot of people who are
relocating to small towns because they have the opportunity to
work remotely, and they are contributing in significant ways.
The example I shared before with NorthWoods Manufacturing,
Bill's wife stayed with her job in New Jersey but worked
remotely. She could not do that if not for high-speed
So I believe it has changed the ability of rural places to
participate. It is not without its challenges, as I outlined,
but I would say that the advent of the internet does allow
rural places to participate in a different way, and also, I
think, when people are in rural places, they like to be
connected. So our ability to have wireless link and cell phone
service, internet connection, is critical to people wanting to
vacation and access the amenities of a natural landscape
without being disconnected from their day jobs.
So both of those things are important for real-time,
ongoing residents but also visitors to that place.
Chairman Risch. Thank you, Mr. Riley.
Senator Shaheen. Thank you. Mr. Chairman, you talked about
what you have seen in Idaho, in terms of the closure of the
timber mills. We have seen a similar situation in New
Hampshire, in northern New Hampshire. And one of those
communities that has experienced that kind of closure has been
a town called Groveton, which is in very northern New
Hampshire. So they have been trying to think about how can they
redevelop some of those closed mills. And they have a local
investor, a man named Bob Chapman, who invested $15 million in
the site, to attract manufacturing companies. But,
unfortunately, the mill had neither water nor sewage.
So the town supported a $400,000 bond, which, for that
small town, was a huge investment, and they did the bond so
that they could get another $600,000 grant from the Economic
Development Administration. And I got a letter from Bob Chapman
who said that--and I am quoting him now--``These public/private
investments in broadband internet and wireless cell service and
water and wastewater infrastructure, as well as investments in
transportation, education, and workforce, are all absolutely
necessary to attract companies to move here and to put people
And he continued that ``cutting or eliminating the
investment, like the EDA, the Northern Border Regional
Commission, USDA Rural Development, and transportation projects
would be particularly harmful to small businesses in rural
Mr. Chairman, I ask unanimous consent to enter his
statement into the record.
Chairman Risch. Surely.
[The letter follows:]
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Senator Shaheen. And I know, Mr. Riley, you talked about
that, because you are dealing with these kinds of communities
and you see what a little bit of public investment can do to
leverage private investment.
So can you talk about what we can do to ensure that both
those programs can leverage the kind of investment that we are
talking about and how we make communities aware of what is
available, and what the impact would be if we eliminate all of
those programs, which I just mentioned that are targeted for
elimination in the President's proposed budget for 2018?
Mr. Riley. Thank you, Senator. I think what is--what I need
to say first with these communities is that they have skin in
the game. They are interested in their own investment. They are
looking at leverage opportunities. In a State like New
Hampshire, we have very little State resource that goes into
these programs, but the towns--and here is an entrepreneur that
is clearly committed to the future of his enterprise and to
that community, and I do not believe that he is from Groveton.
I think he came from another community--saw the opportunity
there, and the need, and invested in that site.
In some cases, Federal programs are criticized for being
perceived as duplicative. Well, we look at this as a broad
toolbox that serves a number of different sources and uses,
from business term, people might want to use. EDA funds, for
example, only cover certain portions of a project. In this
case, economic adjustment programs are critical to allow for
studies and assessments to be done on certain sites.
CDBG, Community Development Block Grants, for example, are
important to bring water and sewer and other infrastructure
onto the site. Northern Border Regional Commission, a Federal
commission analogous to the Appalachian Regional Commission in
our region, brings the ability to invest in capacity, which is
clearly critical for that business itself to run, and for
support organizations to help him and others really prosper on
So those rural development programs, the Rural Business
Development Grant, the Intermediary Relending Program, a whole
other cast of rural development programs, are a critical
toolbox to allow entrepreneurs to build out their businesses
and access the markets that are within that region. So it is a
multi-tiered opportunity here to return on the investment that
the public sector has to offer.
And I do have to say that, on other pieces, that you go
into New Hampshire and people know about these funds, and
people have a high level of--what is the word I am looking
for--of wanting to make sure that it is done right. They know
these are visible, they know that the Senator will come by, and
they want them to succeed, and they do their absolute best to
leverage the other types of resources that are available, and
we really pride ourselves in the region of being proper
stewards of public money.
Senator Shaheen. I think that is very true, and thank you.
I think, again, as we talk about rural areas of the country,
there is a real pride that people have in what they are doing,
and making sure that people see that and appreciate the
commitment that individuals have.
Mr. Lettieri, you talked about the uneven recovery between
rural America and urban America, and I was particularly struck
by your point that while we have not necessarily seen
businesses in rural America close at greater rates, we are not
seeing the new start-ups come in to replace the ones that do
So as we think about what we can do at the Federal level,
through the Small Business Administration, through policy, to
help encourage those new start-ups, what kinds of things do you
think are important for us to think about?
Mr. Lettieri. Thank you, Senator. There are two broad
categories I would lay out. One is that national policy
environment. What does our tax code look like? What does our
regulatory environment look like? What does our infrastructure
look like? How are we investing in basic research? All of those
things are linked, and where there is a strong Federal role to
play, if we are not playing it, the problem is getting worse
and it gets more expensive to reverse, more challenging to
Then there is the more micro kind of interventions we can
do where there are market failures in policy. One of those is
access to capital, clearly. So you see a regionalization of
access to capital that is really harmful and challenging for
entrepreneurs outside of major hubs. And so that is an area
where I think public policy can play a really important role in
a market-based way, but nudging investors into different areas
by helping to change the risk profile of those investments and
also leveraging public and private co-investments, as had been
mentioned earlier. I think that is--there are some models that
we know work.
But in all of that I think it is important to remember that
organic, ground-up type of solutions are going to be the most
important of all, and so where can the Federal Government come
in and support a race to the top of what we know is successful
in certain local communities, and help to export that to other
areas. I think that is a really important primary goal to have
Senator Shaheen. Thank you. Thank you, Mr. Chairman.
Chairman Risch. Thank you, Senator.
Well, it is--we are doing early bird first. Okay, so you
guys figure it out.
Senator Ernst. Go ahead.
Okay. We will arm wrestle. Okay. I will make mine brief.
How is that?
Thank you. I appreciate it. Thank you very much for being
here and for your testimony, and thank you to our Ranking
Member and our Chairman for holding this discussion. Mr.
Lettieri, earlier this week, one of our local publications in
Iowa ran a story titled ``Workforce Worries Keep Iowa
Manufacturers Up At Night,'' and it is a very timely article,
considering the topic that we are discussing today. The article
reiterated what I routinely hear from businesses as I am out on
the 99-county tour in Iowa. Their growth is constrained by
workforce limitations. The jobs are there, they exist, but it
is increasingly hard to find those qualified applicants. And in
Iowa, we have great schools and a favorable work climate, but
we still struggle with this particular issue.
And what are your thoughts on what can be done by the
private sector? What can our high schools and colleges be doing
to help with this workforce shortage? And what can the
government do to address this issue?
Mr. Lettieri. Thank you, Senator. A similar article just
came out on New Hampshire, actually, a tight labor market,
regionally and nationally, is making it challenging for
employers and places like your State, places like New England,
to find enough talent to fill job openings that are there. This
is a real problem for employers, and you hear this more and
more around the country.
So one thing that we see that works is where mayors, in
particular, are really engaged in convening local businesses
and local community college and vocational schools to make sure
that these skills that they are teaching actually match up with
the opportunities that emerge on the other side locally. And
you would think this is a very simple thing, but many
communities are just not putting enough effort into making sure
those dots connect. It is really not magic. It is just you have
to go through the exercise of doing that, and being thoughtful
in closing that information gap for people who want to increase
their skills or get a higher education of some type. Making
sure that what we are teaching them and what we are funneling
them into actually has opportunity on the other side, is the
And so that is really much more a local stakeholder and
local private sector type of challenge than it is nationally,
but if we saw more of that, and if we saw more models that took
that head-on, I think we would be able to close that gap quite
The other thing that has to be mentioned is we have a
slowing population growth rate. We are currently the lowest--
slowest period of population growth U.S. has seen since the
Great Depression. And so that is going to further constrict the
labor forces. We see the prime age workforce is only growing at
something like 0.1 percent. So there are only a couple of ways
to counteract that. One is people have to have more babies, or
we have to let more people who want to be here, who have the
skills, come here.
And so both of those are ways that we can approach dealing
with that challenge and opening up the labor market for folks
who want to be here, who have the skills, and who match with
what employers are trying to do, in terms of their own hiring.
Senator Ernst. Thank you, and just a comment. Mr. Riley,
you addressed the internet challenges that we have, and I just
want to express that is an issue that I hear about all the
time, as well, in Iowa. And Mr. Hobart, you experienced this as
well, challenges with internet access and broadband.
And I just want to share a quick story about a constituent.
She was in an area that did not have good internet access, a
rural area. She lived on a farm, was trying to start a home
business. And exorbitant costs to get satellite dish internet.
She, in the evening, would sneak into town, the little rural
community, and sit outside a local business and kind of pull
off of their internet.
So, you know, it is a concern out there. It is something
that we need to address for our small businesses, and it needs
to be looked at as we move into an infrastructure package.
So that is all I have. I will yield back my time. Thank
Chairman Risch. Thank you.
Senator Scott. Thank you, Mr. Chairman. Good morning to the
panel. Thank you for taking the time and making the investment
to be here. It is such an important conversation.
Mr. Lettieri, thank you for your testimony. I appreciate
the extensive work that EIG has done on the geographic nature
of entrepreneurship and economic growth, as well as upward
As you have pointed out in the past, the country is
trending towards greater geographic divides when it comes to
job creation, particularly in new, start-up businesses. This
geographic divide is causing already struggling communities to
fall further and further behind, which has broad social
As your latest report points out, the economic environment
of a community has far-reaching consequences for the future of
poor children. South Carolina counties, like Williamsburg
County, Saluda, that are distressed, present a barrier to
upward mobility for poor children. In fact, very few of the
counties you have identified as distressed also have a high
probability of social upward mobility. In contrast, prosperous
counties with dynamic economies seem to lead the way in
offering opportunities for financially challenged families.
As you know, and we have talked about in the past, I have
reintroduced my bipartisan legislation, the Investing in
Opportunity Act, which tries to address this growing concern
and this great geographic divide by giving the governor of each
state the ability to designate targeted opportunity zones,
contiguous regional areas that meet certain criteria. These
opportunity zones would then be eligible to receive investment
from an opportunity fund established by the bill that allows
temporary tax deferment of capital gains and dividends to
incentivize investment into distressed communities.
My question is, how do we go about solving the problems
related to upward mobility in rural areas? Could we use the tax
code to do so under a system like the one that is described in
the Investing in Opportunity Act?
Mr. Lettieri. Thanks for your question, Senator. You
mentioned upward mobility. Our research finds this is one of
the clearest divides between rural communities we find in the
country and between regions. The best engines for upward
mobility in the entire country are prosperous rural counties,
and, likewise, some of the worst are impoverished rural
counties. And so in the South, in particular, you see a real
dead zone of upward mobility among even prosperous rural
counties, and that is troubling. It speaks to a couple of
regional challenges and also some of the broader national
So the short answer to your question is yes, I think the
tax code is one of our best opportunities, and with tax reform
on the agenda it is one of our best opportunities to help
correct market failure in terms of new business formation and
access to capital that we are seeing emerge around the country.
And what your bill does, I think, is important in that it
collectivizes that problem among investors. Rather than
incentivizing individual investors to do things on their own,
it really incentivizes them to pool resources and capital and
go en masse in a way that is linked with State and local
economic development priorities, and that is really important.
And it is also not putting the taxpayer on the hook, which
is something that, in our work, we have looked at other
incentive programs for investors, or for local businesses, and
in too many cases we see that the taxpayer is really on the
hook for most of the risk, rather than the investor, him or
herself, and your bill inverts that in a positive way. So I
think that is important.
Linked back to upward mobility, we see that rural areas
that are doing very well with giving poor kids a chance to rise
is that the broader environment is one in which human capital
is really highly engaged in the productive economy--really high
rates of labor force participation. And these do not have to
necessarily be prosperous areas, but if people are generally
working, it really has a huge impact on poor kids being able to
rise later in their lives.
And so the kind of investment that increases labor market
opportunities and gets people off the sidelines and into
productive work is the kind of investment you will see linked
to upward mobility in the future, and that is what we think
your bill will do.
Senator Scott. Thank you very much. One final question on
the opportunity zones component of it, where we provide the
governor an opportunity to name those areas. We typically use
the New Market Tax Credit designation of distressed communities
as a way for us to define, since that sort of codified them and
used by the Federal Government. Thoughts on that, as an
opportunity zone area?
Mr. Lettieri. Yeah. I think that is an important marriage
of a Federal standard that is necessary to have clarity and
also local input. Giving governors the discretion to say,
within the census tracts, in this bill's case, that qualify
according to that Federal standard, to allow governors to lead
in allocating exactly where those zones would go is a good
marriage of, again, a strict national standard but intense
local input and control.
Senator Scott. Thank you very much. I would note that we
have been very pleased to have a bipartisan coalition of
senators in this--on this task. Senator Bennett, Senator
Peters, Senator Booker, Senator--no, not yet? Okay. We will
chat later then.
Senator Rounds. I am on board.
Senator Scott. Thank you. I was just marketing to my
friends across the aisle.
Chairman Risch. No pressure. No pressure.
Senator Scott. That is why I love her so much.
Chairman Risch. Thank you, Senator Scott. Senator Heitkamp.
Senator Heitkamp. Thank you, and I have got a bill for you
You know, I was recently in--not recently--about a year ago
I was in northeast North Dakota. That is potato country, some
of the best farmland in the world, an amazing resource of just
bright, challenged--you know, people who challenge the system
and get things done. There are 80 primary sector jobs open,
because they cannot find workforce. Too big of challenges is
convincing people that they want to live in communities that
are less than, you know, 100,000 people. And the other big
challenge is affordable housing, the lack of infrastructure for
So these are things that, you know, we keep--simply, you
know, providing tax credits or doing the things that we are
trying to do around the edges to jump-start, you know,
entrepreneurship may not--I mean, we may be missing the real
opportunity here. So I just want to kind of say that, that this
is a bigger problem than just simply creating primary sector
jobs in rural America.
We used to do that, when I was involved in economic
development in my State. I still am involved in economic
development. We used to say, if we build the jobs they will
stay here. That is not always true. And so we need to be really
But the one area that I care about is start-ups. You know,
not letting the two coasts have all the opportunity here but to
build the opportunity for young people to think, man, I can do
that in Fargo. I can even do it in Walcott. You do not know
where Walcott is but it is a very small town.
Anyway, so I am curious about my bill, which would be a
very small investment. We would take about $1.2 million and we
would say, this is only for communities under 100,000 people,
and what we are going to do with this money is we are going to
give it to the cities and they can provide some really small
amounts, about $120,000, to young entrepreneurs. Because what
young entrepreneurs in my community tell me is that they have a
really hard time figuring out how they can go to work, start
their young families, and still invent, still create. And so
this would be a way to provide some bridge funding before that
idea could be utilized.
What do you guys think of that idea? Do you think that
would actually have impact, if we could provide just some of
that seed money to individuals so that they could have that
period of time to create, maybe a two-year period, and still
feed their families? Do you think that is a good idea, Mr.
Mr. Hobart. Thank you. I can tell you, speaking from our
experience, we bootstrapped it from the beginning. So it was a
family experience. My daughter helped, you know, raising,
originally, the alpacas but also in running the business. My
son built the servers. And they have both gone on to college
and they are actually, one works for a vet and one works with
computers. So it was an education as part of that. Everything
we have done we have financed itself, you know, by no financing
from outside people.
That said, it was sometimes a struggle. I can tell you
right now, in Coeur D'Alene, probably at the end of this month,
beginning of next month, there is something being started
called an Innovation Hub. It is a collective, where they have
taken an old Elks Lodge, which is a big building in downtown
Coeur D'Alene, and taken people who are interested in
innovation. There is a robotics company. There is a company
doing fiber optics, et cetera. And they are renovating that
building and we are all going to be working in there together.
I have actually taken a space in that area as well.
Senator Heitkamp. Good for you.
Mr. Hobart. So it is a way for us, at least, to be around
each other and bounce ideas off each other, and get that
energy. But again, I believe that was all self-funded, so,
obviously, any help we could have would be great. But in the
case of what we have done in Idaho, we did it on our own.
Senator Heitkamp. Mr. Lettieri, can you just respond to
Mr. Lettieri. So, with apologies that I would want to take
a closer look at the bill details, I think the problem you are
identifying is exactly right, that in many areas of the
country, and particularly rural areas, even if you are a
promising entrepreneur with a good idea, it is very hard to
find investors willing or motivated to support you. Add to that
the fact that Millennials are now the biggest proportion of the
workforce, but also have record levels of debt and other
obligations that have changed the way that they think about
accessing entrepreneurship compared to previous generations.
I think we have a real generational challenge there, and so
providing more resources, and particularly ones that are more
locally directed, where there is community involvement and the
community is taking a stake in local entrepreneurs, I think is
a great concept, and again, the need is one that is very clear.
Senator Heitkamp. Thank you. I think I am out of time, but
just an idea. We are looking for those things that would be
small investments with big rewards, and I think I am intrigued
by other ideas. I would be interested in hearing any additional
ideas you guys have on--with only this, then we could see
greater activity in rural America.
Chairman Risch. Thank you, Senator. Senator Rounds.
Senator Rounds. Thank you, Mr. Chairman. Gentlemen, I am
going to begin and preface my first question with another
question that I would like to have answered after my first
question is completed, so if that makes sense.
Chairman Risch. It does not.
Senator Rounds. Like a lot of things in D.C.
What I am curious about is if you could be thinking about
it, if there was one regulatory issue out there that you would
like to see addressed by this Congress, that would improve the
opportunities for small businesses, rather than asking you to
just jump up with it, I want to give you a few seconds to think
But, in the meantime, what I really wanted to kind of spend
some time on was the concept of trying to level the playing
field and how it impacts small business with regard to sales
tax collections. And the reason why I bring it up is the Main
Street Fairness Act, which has not been passed yet, would have
allowed for states to collect sales tax on internet sales that
was on products that were received within their state.
In about 1992, there was a U.S. Supreme Court Decision,
v. State of North Dakota, which said that if you did not
have nexus within the state, they could not tax you, and yet,
at the same time--you could not collect sales tax on a product.
And yet now, with the advent of internet sales, it has gone
wild with regard to individuals purchasing items over the
internet. And sometimes this is a very successful thing for
But the Main Street--or the streamlined sales tax
organization has put together some very simple software that
has been in testing, beta testing, successfully now since about
2005, which is very easy for an internet company to be able to
identify the amount of tax to be collected, and to have it
submitted through one central location, which would then
distribute--take the responsibility for distributing it back to
those states and municipalities.
Sales taxes amount anywhere from 4\1/2\ to 6, in some cases
7 percent. Brick-and-mortar businesses compete against that.
They have to collect the sales tax. Internet taxes are not
required right now unless Congress authorizes that to occur.
I would like your thoughts, and I understand, Mr. Hobart,
you are on the other side of this, where you actually sell over
the internet, as a small business, successfully. But I would
like to have each of you perhaps suggest what you think the
impact is. I mean, nationally we are talking about the loss of
income to states and local units of governments of perhaps
somewhere in the neighborhood of $25 to $34 billion a year, but
that is also money, then, that is a competitive disadvantage
for a brick-and-mortar, small-town business competing against
an internet sales giant that has this economic advantage as
Could I ask each of you to comment on that, and what you
think, and whether this is a good thing, a bad thing, or your
Mr. Riley. Thank you, Senator. I will answer in an indirect
kind of way. I think one of the things that--I am not an expert
on the tax code, but what I see, based upon my career working
on downtown revitalization, small business development, is that
the changes in commerce have impacted small towns. Where you
used to go down and you would get your shoes, you would get
your shirt, you would get your clothing, what have you, that
does not exist in small towns now. So we do have an
infrastructure issue that we have to look at repurposing those
buildings for some other type of economic activity.
When we look at working across the four states we work in,
where there is different State-based policies on sales tax, and
that one that the business community navigates, I think some
sort of--but regardless of that, these small towns are still
impacted because of the different changes in commerce.
So without commenting directly on that provision that you
are talking about, I think it is something that needs to be
really looked at because it is changing the use of, and the
population of how these communities survive, and----
Senator Rounds. The impact is there.
Mr. Riley. It is very much there.
Senator Rounds. Mr. Hobart.
Mr. Hobart. Our average sale is about $35, so the impact to
us per customer is negligible. But I can tell you we started
our business in California, and we used to spend sometimes two
days trying to figure out the tax we owed California, because
it was not just a straight sales tax. You got into counties and
then ZIP codes within counties. So when I think about the
complexity of trying to pay tax in--and I do not know how other
states are, but I know when we left that, you know, that whole
challenge, as we moved up to Idaho it was much simpler.
Senator Rounds. So, and that is the reason why the
streamlined sales tax plan that is out there right now takes
that burden away from the internet salesperson. That is the
reason why I was curious.
Mr. Hobart. Right.
Senator Rounds. Thank you.
Mr. Lettieri. I would just echo the same point, that
complexity is really just as much of an issue, especially for
entrepreneurs, as rate, when it comes to the tax code. And so
the more we can do to simplify that, the more we can do to
provide clarity and remove that uneven playing field that
disproportionately affects smaller and newer entrepreneurs, is
a good thing.
Senator Rounds. Well, and I am out of time, but I am just
curious, if there was one single regulation, very quickly, that
Mr. Hobart. I will say one thing. I talked, in my
testimony, about internet speed, and I just brought this
report--sorry I did not put that in the testimony but it is a
report from Ericsson. And just to give you an idea, when I put
out a vision of, let us say our virtually walking through our
store in a video experience, I will just kind of share this
But they talk about--what Ericsson did is they studied
stress-level people, both EEG, pulse, and also with eye
tracking, to see what levels of stress people go through, with
different interactions. And they compared things like waiting
in line at a retail store--brick-and-mortar. They also looked
at standing at the edge of a virtual cliff, and then watching a
horror movie. And in their study, it shows that waiting, slow
waiting on media on mobile devices is higher than watching a
Chairman Risch. They did not need a study for that.
Mr. Hobart [continuing]. Or standing at the edge of a
So my bottom line is, that is great, but if we can actually
have these great experiences, not a horror movie experience,
for our customers in the future, that will be critical for our
Chairman Risch. Can we put that in the record?
Mr. Hobart. Absolutely.
Chairman Risch. Would you leave that for us? I would like
to put that in the record.
[The report follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT
Chairman Risch. Thank you.
Senator Rounds. Thank you.
Chairman Risch. You know, that complexity issue, I think
all of us had concerns about that when they had the Main Street
Fairness Act, but, Senator Rounds, you are more of an expert on
this than I am, but correct me if I am wrong. I think what they
did is they got it where the retailer was not responsible for
figuring out whether there was a tax from the city, the county,
the mosquito abatement district, or whatever.
Senator Rounds. That is correct. That was the nice thing
about it, is it actually absolves the retailer from liability.
And so if they collected--and they do not use the streamlined
process, and they collect it and remit it, if they collect it
wrong they are liable to have to go back in and fix it. We have
got large companies, within places like South Dakota, that
actually use the streamlined process, because if they use it
and they remit the approp--or they remit the tax based upon
what the streamlined system estimates it to be, they do not
have to worry about a liability in the future, and the
streamlined process actually takes responsibility for
distributing it. You do not have to distribute it out to
everybody, because you are absolutely correct--it would be
impossible to go to all the places.
But the streamlined system, and the organization, actually
takes responsibility for collecting the correct amount and then
distributing it out to the different segments, and all of the
organizations that are part of the streamline, the vast
majority of the states and communities now, they had to
simplify their sales tax processes in order to join in the
first place. And in doing so, it makes it a whole lot easier
for someone on the internet. One stop shop. Go to the internet,
look up, in the software, which is free. Pick it up, put it on
your software, and it will determine the amount of tax, based
upon where the address of delivery is. And then you can collect
it. You remit it one single location. You do not have to worry.
Even in your home state you do not have to worry about a
separate collection location. So you are correct, sir.
Chairman Risch. When we were debating that, the question I
had was the cost of that software for a small business, so if
it is available free, that is----
Senator Rounds. It is either free or it is a very minimal
charge, but I think it is free right now.
Chairman Risch. Senator Shaheen, you have a comment?
Senator Shaheen. Well, I just wanted to point out that for
those states like New Hampshire that do not have a sales tax,
it would not solve all the compliance burdens, because states--
some states might not opt in. I think there is a real question
about whether New Hampshire would opt in, and that would then
leave the small business on the hook to deal with the problem.
So I am not sure that the way the bill is currently
fashioned that it would actually solve all the problems that
Senator Rounds. Yeah, and actually, if the internet sales
tax is being collected, if you did not have any to collect in
New Hampshire, it would not--it should not impact New
Hampshire, if you do not----
Senator Shaheen. Then you are on the hook for it. Yeah,
Chairman Risch. They were--when that bill was drawn, we had
a robust discussion about it, and I think myself and Senator
Crapo voted against that, simply because they would not up the
threshold. I thought that there should be a safe haven for
small businesses, and the threshold they had was $1 million in
sales, and I thought that was kind of light, that it should be
$3 million. They would not even give us a vote on the
amendment, so we voted against it. But there were--you know,
there is a lot of----
Senator Shaheen. That is another issue.
Chairman Risch. Yeah. Another issue, but an important one.
Senator Young. Thank you, Chairman. Mr. Lettieri, I thank
you for your appearance here today. I really found your
testimony compelling. I think your point that--this is not
really about rural versus urban. As important as this hearing
is, I am glad we are intently focused on the distressed
communities and how we can bring them into a more prosperous
environment that happened to be in a rural area. But this is
about connectivity, and you lay out a number of areas where
connectivity is important, not just in an urban setting but a
rural setting as well. Access to infrastructure, global
markets, capital markets, the internet, human capital--there
are probably others we could conceive of.
And with that in mind, let me start with just talking about
a lack of connectivity in my State of Indiana. In Owen County,
Indiana, Hoosiers experienced a 25 percent decline in job
growth between 2010 and 2014. I know so much of this has to do
with the lack of job creation in places like Owen County.
People are not starting enough new businesses. We know that.
That has been said here by a number of individuals today.
Start-up growth in rural counties with less than 100,000
residents decreased from 9 percent growth in the mid 1990s to
^1 percent between 2010 and 2014.
We do not have all the answers here, Mr. Lettieri, and all
the solutions, frankly, should not emerge from the Federal
level, something that, again, has been emphasized by a number
of you. My hope would be that if we focus intently on this we
can come up with either some obvious solutions--I think there
are some: simplifying the tax code and reducing regulatory
burdens, and so forth--maybe some creative solutions as well--
focusing on access to capital as a limiting factor in
Mr. Lettieri, can you speak to the impact that
consolidation within the banking sector has had on small
business lending, or a lack thereof, in recent years, and what
we might do at the Federal level to address that dynamic?
Mr. Lettieri. Thank you, Senator, for the question. So this
is a question that comes up a lot because, really, folks in
every state and community are hearing about this from their
constituents and from business owners. As you know, small
business lending is down to about late 1990s levels, in
absolute terms, and there is rapid consolidation within the
banking sector, and that has been happening for a while.
So there are a number of components to that, but really,
fundamentally, it is a lack of new entrants into the sector
rather than, again, like we see so much in the economy, it is
not too many deaths, it is too few births, in terms of
And so that is having an impact in this conversation, in
this context, because small and community banks are obviously a
lifeline for many communities, and many businesses in those
communities really only have very few options, and community
banks are among the top options for how to get financing.
I want to distinguish that, though, from start-up
financing, because most start-ups do not use banks to get their
initial financing. It is much more credit--personal credit,
personal savings, friends and family, and that is really where
the bulk of it comes from. And lending is important from
traditional institutions. That comes much further on in the
So for a healthy ecosystem you need all of that, and what
we are seeing is at the very early stage there are some signs
of ill health, and then at the community banking stage, later
on, for many of these communities there is a lot of reason to
Part of this also has to do with low interest rate
environment. We have--you know, we have had a long-standing low
interest rate environment. That is unusual, in terms of the
history of the banking sector, and that makes it harder to find
profitability. If you are a small firm, you have got to
amortize these costs out among a, you know, a smaller
infrastructure. It is tough. It is tough.
So there is--it is more than just regulation, but
regulation obviously does play a part of it.
Senator Young. And to the extent some of these younger
firms, those that have been around for a couple of years, looks
like they are going to make it, they are profitable, they want
to expand, that is where your community banks come in. And I
think of reducing the burden of regulation, where we can, so
that we ensure we have smart regulations which are streamlined,
to meet the needs of protecting consumers and a broader economy
but not stifling growth of firms in our rural communities, and
If I could pivot to our labor markets in my remaining time,
internal migration, EIG has noted in their Dynamism and Retreat
Report, that has declined within the United States, both within
states and across states. Half as many American workers are
moving across State lines for employment opportunities today as
they were in the 1990s. This is not only an economic shift.
When you really think about it, it is a cultural shift. We are
a pioneering people, if you look back, historically, who moves
wherever their jobs are, wherever opportunities might exist. I
know a number of people have been stuck, in the course of this
recent financial crisis. They are underwater in their houses,
so that has been one of the drivers of this.
Can you think of, or have you put forward any ideas, or
perhaps problems we should work--focus intently on trying to
solve or mitigate that would help address this mobility issue,
get more people moving to where the jobs are?
Mr. Lettieri. It is a really important issue and I think it
is fairly stunning. We have seen a decline of over half the
rate of across-border mobility, just since the late 1990s. And
so that has been traditionally--we have had a high rate of
mobility, which meant that we could really have a nice
corrective mechanism in the economy as people moved out of
areas of distress into areas of higher opportunity. The labor
market was more fluid as a result, and with that slowing down
that really does change. It is economic and cultural. I think
you said that well.
So one thing--I am going to cheat a little bit because
obviously we are here in the Senate, but I am going to point to
something that is much more state and local, which is
occupational licensing. Although the FTC, I will note, has
taken an active interest in this now, and I think there is an
opportunity from the Federal and regulatory side to do
something about it, occupational licensing is pervasive.
Eleven hundred occupations nationwide are licensed but only
60 are licensed in every state, so that tells you something. It
means that there is a huge mismatch. It tells you that it is
way beyond the boundaries of what is good for consumers or what
is necessary, in terms of consumer safety, and it is an
inhibitor for mobility purposes. If I have a license in one
state, I have gone through the time and expense of doing that,
often unpaid. Then if I move across State lines I have to go
through that whole process all over again. So again, I am stuck
in place. Or it is a tax on people who cannot afford it. So
this disproportionately affects low-income people and low-
income entrepreneurs the worst.
So if we want to do something in a low-dynamism environment
that is going to free up labor mobility, it is going to free up
access to talent for business, it is going to free up
entrepreneurship, this is an area that is the lowest of low-
hanging fruit, and there is broad bipartisan consensus that it
has become an abusive--basically an incumbent protection racket
for a lot of businesses that perversely control the licensing
boards themselves, so they get to tell you who is going to
compete against their industry. In a competitive market
economy, we should find that unacceptable, and so I think this
is something we should do about--do something about now.
Senator Young. Thank you for shining a bright light on that
I yield back.
Chairman Risch. Thank you.
Senator Kennedy. Thank you, Mr. Chairman. I apologize,
gentlemen, for missing your testimony. I was in another
I am embarrassed by the fact that it is so hard in our
country today to start a small business and to expand that
business. I do not think it has ever, ever been harder. If each
of you were king for a day, and you did not have to worry about
the politics, or--you just had unfettered discretion, what
would you do to make it easier to start a business, and to make
it easier to expand a small business? And I would like to hear
from each of you, if I could.
Mr. Lettieri. I will keep mine brief because it is----
Senator Kennedy. No, that is okay.
Mr. Lettieri [continuing]. It piggybacks on what I just
said to Senator Young. I think because of how pervasive it is
and because of how many different types of industries and what
part of the population it really afflicts the most, I would say
starting with local and State occupational licensing, and
business licensing, which is often kind of the cousin of the
occupational challenge. We are just doing too much to protect
incumbents in this country, really, top to bottom--Federal
policy, State policy, local policy--and that is misguided,
because, frankly, when we talk about tax reform or regulatory
reform, all these things, complexity favors larger companies.
It favors scale. And it is exactly what we are seeing in the
economy today. There is increasing scale. Older incumbent
companies are doing much better than they ever have before.
They are more profitable.
So the idea that we have to keep in mind is for whom are we
doing certain things in the policy space? And I think your
initial point was exactly right--it is too hard to start and
expand a business now, in part because policy and regulatory
decisions have been made too far on the incumbent end of the
spectrum and not enough on the start-up end of the spectrum.
Mr. Hobart. As I stated in my testimony, we have started an
internet business from the ground up, grew it as a family
business, and are continuing to grow it. That said, it has been
a long journey. It has been 12 years now, and we are growing
slow. So I came out of Silicon Valley where I was surrounded by
people who wanted to, you know, get the big payout in two
years, and that is not what we are doing here.
What we are doing is listening to our customers and
growing, and what I would like to see is any kind of reducing
of any kind of burdens that we have, as far as reporting and
just legislation that burdens us, to run our business,
obviously, but also growing our staff. We do have great
employees. They do a great job for us. But on the technical
side, we have to sometimes bring in people from outside of our
Now, being an e-commerce business we can do that with the
click of a button, literally. So we literally have people who
do graphics or--in fact, one of my first employees, a very
talented kid, he has now moved to New Hampshire, and he is now
the global editor for Wikipedia, actually, but he got his start
with me, and he was in San Francisco. He moved to New
So--and so I have adapted our business by bringing in
people who are not physically there, but obviously if they were
in our location, and we were working as a team, we would have a
better team, and we would even grow more fluidly.
Mr. Riley. Thank you, Senator, for the question. And so it
is one that keeps some of us up at night and thinking about
what could we be doing better to stimulate the entrepreneurial
fiber in this country and in our region we work in. And I think
there is--let me go to more of a people side. I have got two
young kids, 12 and 15, and I think about the opportunities
within the school environment they have to be thinking outside
the box, thinking about using technology, thinking about how
they are driven to be individuals within the system. And I
think that there is an element where there was a period where
we were trying to get everybody all to think the same, and I
think we need to think about how difference can really be an
exceptional way in which we mix things up. That is an
entrepreneurial spirit to me.
The second piece is, where do we place people who are
trying to come into this country into existing open jobs that
need to be filled by people who are here who are not filling
them? So how do we add to the labor force? And I think there
are people who are coming with great ideas that can do that.
I think the third piece is, what is the component within a
community that sets up the notion of entrepreneurs, and I think
that there are other comments before about how you look at the
infrastructure within a community to allow things to happen,
whether it be water and sewer or broadband. You look at the
support structures that allow people to navigate through the
complexity. And I believe that people are pretty smart and
capable and can move through that complexity if they need to,
but they need certain certainties.
The business community, in my opinion--and I--I mean, I run
a nonprofit, but it is a small business. I have got 15
employees. Every year we have to go back and look at what our
health insurance costs are, and it is an enormous time and
resource challenge to look at the uncertainty of that specific
type of market.
But to the entrepreneur, they need to look in their
community and see what is the stability of the school system,
what is the certainty of the health care system, what is the
certainty of the tax code--all these different uncertainties. I
think that, in and of itself, is a barrier to people getting
into this very dynamic place.
Senator Kennedy. Thank you, gentlemen. Thank you, Mr.
Chairman Risch. Thank you, Senator.
Senator Shaheen, anything else for the good of the order?
Senator Shaheen. Yes. Thank you, Mr. Chairman. I wanted to
follow up on a couple of things. One, Mr. Lettieri, I wanted to
follow up on your licensing restriction issue, because, I mean,
that is a very--as you point out--it is really based mostly on
states and how states decide what should be licensed or
certified and what should not.
So what could we do at the Federal level that could help
address this problem?
Mr. Lettieri. This is going to be an unsatisfactory answer,
so here is your warning. But shining a spotlight on it, even as
a first step, really does have an effect. We have seen since--
there was a 2015 Supreme Court case that really changed the
conversation about occupational licensing and brought a lot of
new attention to it. And since then you have seen a
proliferation of states taking the initiative to roll back and
reform their licensing regimes and make them much more
competitive and open to transparency.
So sometimes legislation is not required, at any level,
just to start the inertia towards change and reform, and I
think using the bully pulpit that you have here in the Senate,
and this committee in particular, to shine a spotlight on the
worst abuses, would be an enormously good use of your time,
because there are many motivated constituencies that want to
bring more attention to this and actually help effect change at
the State level. They need your support.
Senator Shaheen. Sounds like a good hearing.
Chairman Risch. It was an excellent hearing. Mr. Lettieri,
certainly you are not suggesting that the Federal Government
could do this better than the State governments could, are you?
Senator Shaheen. No. He is suggesting we have a hearing on
Chairman Risch. I see.
Senator Shaheen [continuing]. Which I think is a great
Mr. Lettieri. There you go.
Senator Shaheen. Let me also follow up with, Mr. Riley, you
talked about the Rural Development Innovation Group and the
principles to improve programs designed to aid rural
communities. Can you talk a little bit about some of those?
Mr. Riley. Sure. Thank you for the question, Senator. The
Rural Development Innovation Group, as I said before, is a
partnership of the Aspen Institute and the U.S. Endowment for
Forestry and Communities, and has a number of--dozen different
practitioners from across the country that are in many
different districts across the country.
We have come down to thinking about two major buckets, as I
said before--investing in people ideas and markets, not just
transactions, and the second is really making sure that
investment is scaled to the rural opportunity.
Two examples. One, the Rural Business Development Grant,
the RBDG, is a great program in its flexibility to invest not
only in the capacity of my organization to provide support to
entrepreneurs but direct assistance to those--or direct
investments in those businesses themselves. We want to keep
Part of that program that is more challenging is that the
threshold for investment is that the revenues of that company
have to be below $1 million. Back when this legislation was put
in place, that might have been a significant number. Now it
is--you know, you are just getting interesting--I mean, not to
sound, you know, derogatory, but that is where things are
starting to really happen.
So at the million-dollar threshold, we have to tell
NorthWest Manufacturing, because they have been successful in
the last year, we cannot work with them anymore with that grant
source. So that--the group is really highlighting, within
specific programs, the positive components that we want to
keep, because it serves a constituency that is important, and
those elements that need improvement, because they do not work
in the context of today's rural environment.
And to your question you asked before, I just want to
follow up on that. The tools that we have, the Community
Development Block Grant, the Manufacturing Extension Program,
EDA, if not for these programs, these businesses would not be
positioned for growth that they are today, to be employing 12
people, which, as you all know, in rural places, is
So we have--and I shared with one of your staff--a draft of
one of our recommendations on the RBDG program, and this group
that we are working with nationally is going to come out with
about 12 of them. It is really focused on key programs, CDBG
being one, MEP being another--sorry for the acronyms--that will
look at aiding your staff and agency folks as how we, from the
field, see those programs working better, in addition to the
good work that they are already doing right now.
Senator Shaheen. That would be very helpful. Senator Risch
and I have both been governors and so we have seen those
programs, many of them from the State perspective as well, and
as you point out, for so many of our small businesses in New
Hampshire, what we are trying to do gets done because we have
lots of partners to contribute to that.
Mr. Hobart, you talked about innovation hubs. Well, the
CDBG grants have been critical in getting several innovation
hubs going in New Hampshire, as well as affordable housing. I
mean, they have been really critical to affordable housing. And
without some of those partners to participate, it would be
really hard to do some of the things that are challenging
anyway, but become impossible without that kind of support.
And I have to say that the SBA and the Small Business
Development Centers and the Women's Business Centers, the
effort to help veterans, all of those are also critical as we
think about how can we help small businesses, and what we want
to do is try and make those programs better. Thank you.
Thank you, Mr. Chairman.
Chairman Risch. Senator Inhofe. Welcome.
Senator Inhofe. Thank you.
Chairman Risch. Good to have you.
Senator Inhofe. You know, we have got to do something about
this. We have--I think we have more than 50 percent of the
membership of this committee are also on EPW, and they meet at
the same time, so that is a----
Chairman Risch. I am supposed to be in Foreign Relations
Senator Inhofe. Yeah, okay. Well, I will make this quick.
Chairman Risch. It is all right.
Senator Inhofe. But the problem we have is I do not know
what has already been discussed, and puts this in a----
Chairman Risch. We will fill you in.
Senator Inhofe. All right. Well, let me just--Mr.
Lettieri--did I pronounce that right?
Mr. Lettieri. Nailed it.
Senator Inhofe. I am sorry? Oh, okay. That is nice of you.
We have got a----
Chairman Risch. This is actually where the committee--this
is actually where the hearing started, because I did not know
how to pronounce it.
Senator Inhofe. Okay. Since 1980, the number of small
banks--I am sure you have been talking about that. In my case,
of Oklahoma, we have had 500 banks chartered in the 1980s. Now
it is down to 209, and this is a serious problem, and the Dodd-
Frank has made it a lot worse. If you ask any of our people in
Oklahoma as to what is mostly accountable for it, they will say
Dodd-Frank. And I would ask you the question, have you see this
as well, or, have you already discussed this in a lot of detail
before my arrival?
Mr. Lettieri. We did discuss it in some detail. I am happy
to address it again, though.
Senator Inhofe. But you--Oklahoma is not alone.
Mr. Lettieri. It is not alone, no. I mean, this is
something we see industry-wide. It is also a trend that, in
some ways, predates Dodd-Frank. So I think we should be careful
to separate out some of the parts of this. Some of it is a
trend more broadly in the economy towards market consolidation.
Some of it is a different regulatory environment. Across the
board you hear small community banks saying their compliance
costs have gone up, and that is obviously an issue and a
Part of it is a low interest rate environment. Part of it
is a demand environment that is different. So all of those
things contribute, and should be considered kind of separately
Senator Inhofe. Well, good. And, Mr. Chairman, I have a
letter here from our community banks and our Oklahoma Bankers
Association I want to be made a part of the record in this--at
Chairman Risch. Thank you, Senator. So ordered.
[The letter follows:]
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Senator Inhofe. Now, the letter outlines all these issues
and articulates that it hurts not just the banks but the
communities that they support, which will continue if we do not
roll back the burdensome Dodd-Frank regulations. Among the
regulations these banks are facing from Dodd-Frank are numerous
data collection requirements demanded by the regulators, which
has made them less willing to lend at all, and that is a
problem that we are having in our rural areas in Oklahoma.
What specific things can we do to help encourage these
banks to lend to small businesses? Have you thought about this?
Mr. Lettieri. Well, we also talked a little bit earlier
about the distinction between small and new businesses and the
fact that new businesses tend not to seek bank lending for
start-up capital, but that is important later on as they grow
in scale and are more established.
So again, it is a demand environment that is weak, as well
as a regulatory environment that is more pervasive. And the way
I would think--at least the way that I personally think about
regulation, it is a lot like antibiotics--they are very
important but over-prescription tends to be harmful. And so I
think in some areas we have gotten into that over-prescription
case and we should be, especially in an environment where we
see fewer new businesses being formed, including in the banking
sector, we have to be really thoughtful about how every new
regulation is going to tilt the balance more towards
consolidation and incumbency rather than new entry into the
But we can do a lot by creating a healthier demand
environment, and that will also help community banks to thrive
more. And that gets back to some more basic pro growth
simplicity of the tax codes, simplicity of regulation,
connectivity to the global market economy through FDI and
through trade, and I think on all of those areas there is
pretty widespread agreement we are falling behind. And so doing
that will create a healthier demand environment that will help
banks and other types of businesses do better.
Senator Inhofe. Good. Good. That is good. You know, I just
came to the meeting in Environment and Public Works, and it
seems--the chief criticism--one of the criticisms I had with
the previous Administration was overregulation. I mean,
everything has to be regulated more. The water regulation, for
example, if you talk to anyone in the farm communities
throughout the country, they will say the biggest problem that
farmers and ranchers have is the overregulation of the EPA, and
then, specifically, the water regulation, which is what the
hearing was about that we just had.
So regulation is regulation. Overregulation is
overregulation, and I think you are going to see some changes
here. I think they will be welcome changes.
Thank you, Mr. Chairman.
Chairman Risch. Thank you very much, Senator. And with
that, we will conclude the hearing.
I want to thank our witnesses. This has been informative,
certainly thought-provoking, and your assistance and
participation is greatly, greatly appreciated.
So with that, we are adjourned.
[Whereupon, at 11:28 a.m., the Committee was adjourned.]
APPENDIX MATERIAL SUBMITTED
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