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FINANCIAL-
June 2002 by Chris Kellogg Sidebar-
The butcher, baker, dry cleaner, lawyer, farmer and local franchise owner, among countless others, make up 97 percent of Kentucky’s 230,000 businesses and account for 51 percent of the state’s workforce with a payroll of $18 billion. Of the Greater Lexington Chamber of Commerce’s 1,900 members, 1,500 are businesses with 50 or fewer employees. Greater Louisville, Inc. has 2,400 members, 2000 of which are small businesses that employ 100 or less. Defining a small business differs depending on the source. The KCSBA – which was launched last year – defines a small business as one that employs up to 100 people. The U.S. Small Business Association (SBA) tops out their definition at 500. Chambers of commerce use different numbers – usually 50 or 100 employees. The KCSBA has estimated the federal regulatory impact for Kentucky businesses is $7.8 billion for businesses with one or more employees and $1.3 for self-employed individuals – a total of $9.1 billion. Small Business Administration statistics that include all business sectors state that federal regulations cost businesses with fewer than 20 workers nearly $7,000 per employee. They also reported that in 2000 alone, the administration and enforcement of federal regulations cost $843 billion, or eight percent of the nation’s gross domestic product. The KCSBA is addressing how to determine what state and local regulatory compliance costs mean for Kentucky businesses and for government to administrate. Bobby Clark, CEO of Lexington-based Clark Publishing, Inc., chairs the KCSBA. Clark’s interest in this area grew after he attended a 1994 White House Conference on Small Business as one of 17 Kentucky delegates. Initially motivated to go to Washington by his own business interest, Clark sat on the technology and issues committee at the conference and was stunned when about 2,000 people testified about their problems managing federal regulations. Congress subsequently enacted the Small Business Regulatory Enforcement Fairness Act of 1996 that established a national ombudsman to hear, substantiate and report on complaints and comments from small businesses, non-profit organizations and government entities concerning enforcement and compliance difficulties. After the White House conference, Clark expanded his interest to the state and local regulatory impact on Kentucky small businesses owners. Rep. Ruth Ann Palumbo (D–Lexington) agreed that study was warranted and established the legislative Task Force on Small Business Regulation in 1998. Members heard testimony from owners, associations and trade groups and surveyed and studied small businesses throughout the commonwealth. Then Palumbo acted on task force recommendations by sponsoring legislation that established the KCSBA as an independent agency under the auspices of the governor’s office. Both houses passed the bill unanimously. Smoothing the
way “Small business is the life blood of Kentucky’s economy,” Clark says. “The commission is discussing whether Kentucky is better served by training and assisting small businesses about compliance rather than a punitive approach which discourages businesses from solving problems.” Often small businesses are simply not aware of the huge number of regulations that exist or changes that are made; they don’t intentionally ignore the law. “We’re generally talking about mistakes, not chronic offenders,” Clark says. “A $25,000 fine or the cost of hiring an attorney or engineer to be heard by the state would wipe out some small businesses. Resources might be better used for education and training that could reduce the state’s enforcement and litigation costs.” Problems can be compounded when federal government agencies delegate enforcement authority and expense to state governments that can, in turn, delegate to city or county governments. Provisions as basic as constitutional rights that are part of federal regulations don’t always make it into versions adopted down the line. Latit Sarin, who serves on the KCSBA as well as boards for the Associated Industries of Kentucky and the state chamber of commerce, objected after a county agency changed an ordinance that affected his business several years ago. He owns Shelby Industries in Shelbyville and sought recourse through the courts. “We’d been doing business for years and years when the water and sewer agency made changes without discussion or due process. Federal procedures include checks and balances but this local interpretation did not. Only the manager or board members could call a meeting,” he says. Others complained about the lack of public input but no one acted – in some cases because of fear of reprisal – until Sarin retained an attorney at a cost of about $14,000. “My objection was based on my constitutional right to due process. Bureaucrats can overpower small businesses and small businesses don’t always have the resources to fight.” Sarin ended up working with the agency to draft changes in the process. No one on the KCSBA suggests that state regulations don’t serve the public. However they can be duplicative (within a government entity and at different government levels), cumbersome, and complicated. Government agencies aren’t always knowledgeable about each other’s procedures so the commission is exploring ways to improve working relationships between state agencies and small businesses. “Right now Kentucky is at a disadvantage compared to other states that are more user-friendly to this sector,” Clark says, adding that small businesses account for 75 percent of the net growth in the state. Hawaii is the only state that has an advocate who intervenes with other government agencies on behalf of small businesses. That state’s strategy follows a notion that businesses are more apt to correct problems without the fear of retribution that could discourage finding remedies. The fear of retaliation is real. At a Small Business Regulatory Enforcement Fairness Roundtable held in Frankfort in January, a Kentucky business owner asked federal ombudsman Michael Barrera to turn off the recording device before he would testify. “The last time I participated in a public forum,” he said, asking that his name not be recorded, “it cost me $10,000 [in attorney’s fees].” Creating a support
system Betsy Nowland-Curry, the KCSBA’s CEO, emphasizes that because the agency is attached to the governor’s office, it has a unique position to address issues from an enterprise-wide perspective. “Small business is the fastest-growing business segment in Kentucky and across the nation,” she says. “The state has no how-to book so businesses can inadvertently find themselves misunderstanding laws and regulations.” To that end, the KCSBA is enthusiastically proposing an on-line resource that would support its ombudsman, advocacy and education roles. This Web site nexus would include a help-desk and resource library that pulls procedures, policies and laws into an interactive “portal” with a mechanism to register and track complaints. It could effectively eliminate the need to leave a shop or business to make costly trips to Frankfort for meetings. According to KCSBA member Shelia Bales, owner of Shelia’s Fine Jewelry in Lexington and a past president of the Lexington chapter of the National Association of Women Business Owners, one commodity all small business owners lack is time. The “portal” would afford 24-hour accessibility to the IRS, labor laws, regulatory requirements and other resources that are specific to small businesses. It would also provide Frankfort policy makers with a tool to disseminate information as well as receive feedback. “We know the information is out there but sometimes don’t know where to find it,” Bales says, adding that she often reads business e-mail at home at midnight for lack of time during the day. “That’s when I need access. How could [a portal concept] not be beneficial?” Like all state agencies, the KCSBA’s funding has suffered because of state budget woes. Initiated in 2000 with $300,000 for the biennium, Patton’s budget request before the 2002 legislature asked for half that. The cut presents a substantial challenge to the group’s success. However, the dynamism of the commission members and two-person staff (shared with another agency) fuels the KCSBA, says Mike Ridenour, vice president for public affairs at the Greater Lexington Chamber. “It behooves all of us to make sure successive administrations understand what small businesses offer the state,” he says. “In the long term we need to do everything we can to make sure this effort is more fully funded for the future.” Undeterred by their circumstances, the KCSBA is investigating other funding sources to implement the online resource center as well as other avenues to partner with businesses and organizations to meet the charges set out in Palumbo’s bill. “If we only accomplish this one particular goal,” Bales says, “I think it will make a huge difference. We have to be more creative when funds are scarce and if we can do this, it will be fabulous.” For more information
about the KCSBA on the Internet, go to smallbusiness.state.ky.us . Chris Kellogg
is a staff writer for The Lane Report. |
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Small
businesses are big business in Kentucky. That’s the message that
the Kentucky Commission on Small Business Advocacy (KCSBA) intends to
penetrate into the consciousness of the commonwealth.