What If Government Stopped and Nobody Cared

In a previous post, I quoted P.J. O'Rourke, who once wrote, “The mystery of government is not how Washington works but how to make it stop.”

On the state level, we recently found out just how to do that here in New York. For those not familiar with NY politics, there is what is considered the holy trinity of power brokers in state government; the Governor, the Senate majority leader and the Assembly majority leader. A few weeks ago, that included Governor David Paterson, Assembly Majority Leader Sheldon Silver and Senate majority Leader Malcolm Smith.

That was until last week, when two Democratic Senators switched their allegiance to form a coalition with the Republicans to oust Malcolm Smith as Senate Majority Leader. Since this little coup has take place, the remaining Democrats refuse to work with the new leadership. As if this didn’t sound silly enough already, the secretary of the Senate actually refused to turn over the keys to the Senate chamber to the new Republican leaders.

So since June 9th, the legislative branch of NY State Government has ceased operations. The effects of this government stoppage have been monumentally insignificant. Life has continued to go on in the Empire State. It is amazing how we have managed to survive with this huge void in leadership in State government.

To give you a sampling of what New Yorkers are missing, I randomly pulled three pending bills proposed recently in the State Senate. I started with Senate Bill S05700, proposed by Senator Klein, which prohibits issuing a credit card to anyone under the age of 21 unless that person has had parental consent and has completed a course or instruction in financial responsibility and liability. I wish I could propose a bill requiring a course of instruction in financial responsibility and liability for our elected officials.

Then there is S05701, proposed by Senator Schneiderman, that “requires licensure for instructors in religion, dancing, music, painting, drawing, sculpture, poetry, dramatic art, languages, reading comprehension, mathematics, recreation and athletics.” Luckily, my past work as a disc jockey was in NJ, not NY, or I may have been arrested for instructing the guests at the Weinstein Bar Mitzvah how to do the Electric Slide without proper credentials.

Next up is S05702, proposed by Senator Johnson, which “authorizes the metropolitan transportation authority to create a regional bus authority.” After all, we can just never have enough authority.

I will stop there. While this was just a small sampling, in my more in depth search, I was hard pressed to find any bills that appeared to provide any significant action.

My belief is that in regards to small business, the stoppage of the NY State Senate is one of the best things that could have happened. Aside from giving us a break from some pretty silly proposed legislation, the recent stoppage of government is preventing our lawmakers from further raising taxes, imposing new fees or creating a greater regulatory burden. While lawmakers don't like to admit it, New York ranks 49th out of 50 states, topping only New Jersey in the taxes and fee burdens placed on businesses. Here is a link to that study by the Tax Foundation: Tax Foundation

In a previous magazine article, I quoted Governor Mitch Daniels of Indiana, who once said, "It's essential to remember that government does not create jobs or wealth. At its best, it creates the conditions in which men and women of imagination and enterprise create wealth for each other. At its worst, it drives away such people and the jobs they create."

Unfortunately, since the Legislative session started last January, there were no indications that the New York government was doing anything to create better conditions for entrepreneurs in this State. In fact, in the first few months of session, the Legislature was seriously considering raising a number of taxes and fees. I was at a meeting last week and one business leader, whom I hold in high regard, said, "At least now that the State Senate is completely dysfunctional, they aren't doing any more damage."

It is hard to tell whether it will be days, weeks or months until the NY Senate fixes this leadership issue and gets back into session. Inevitably, they will return, but will business owners really care?

Over Stimulated

It has been too long since my last post and I apologize for my absence. I’ve been real busy at work and much of my time hasn’t been as productive as I would like it to be. A major reason is because of the American Recovery and Reinvestment Act passed by Congress last February, which is often referred to as the “Stimulus Bill.”

My problem is not with the American Recovery and Reinvestment Act. The President of the United States and the members of Congress should be given kudos for their efforts to take an active role in trying to get our economy on the right course. While no legislation is perfect, I am not going to waste one ounce of energy noting where this bill falls short of meeting the needs of small businesses. There are still plenty of positive programs that are coming out of this piece of legislation; some have already been implemented and some programs are still under development.

My challenge has been the volume of phone calls that have been coming to my office from both existing and aspiring small business owners who want to know what is in the stimulus package for them. More specifically, I have been getting a number of requests for grants that may be available to businesses from the “stimulus money.” Frankly, I am over stimulated with these requests!

I’ve actually taken the time to read the portion of the American Recovery and Reinvestment Act that relates to the Small Business Administration (it is just one section of a very large piece of legislation). No where in that legislation does it say that grants are being made available directly to for profit businesses. It has been a long standing policy of the US Small Business Administration not to offer grants to for profit enterprises. See this link: http://www.sba.gov/services/financialassistance/grants/index.html

Unfortunately for me, this gets lost on many existing and prospective small business owners. They still call up our office seeking their “stimulus money.” I then explain the programs of which I have been informed. When they find out that there is no free money available, some just hang up, while others give me an explanation why they are more deserving of government money than those “big investment banks that were bailed out.” While I may not disagree with them, I didn't write this legislation. Still, I try to be tactful in my responses and I can honestly say that the same courtesy has not been extended to me.

I understand that many small businesses are facing challenges in this economy. Yet I have said this before and I will say it again; no matter what the state of the economy may be, there will always be challenges for small businesses. The responsibility of dealing with those challenges falls squarely on the shoulders of the small business owner who chose to enter the world of self employment. If a business owner is not prepared to accept accountability for the risks of owning a small business, then they should not enter the field of self employment.

The rationale behind the American Recovery and Reinvestment Act is to spur the economy. Business owners who wish to be candidates for some of the programs available need to put together a strong business plan showing likelihood that they can contribute to economic recovery. This simply entails showing a profitable business model. Yet most of the inquiries I am getting are from people who have yet to think through the business planning process. When I tell people that a business plan showing profitability is going to be a requirement to funding, I am often told that “I just don’t have time to do that.”

Many people forget that most of the troubles with our economy stemmed from lenders who did not do proper diligence in ensuring their customers could service their loans. Part of that is not assessing whether clients had contingency plans to pay back their debts, which is a component of any good business plan.

All of the government programs still require working with lenders and whether they received TARP (bailout) money or not, lenders are not going to approve loans without responsible underwriting practices. In other words, banks cannot afford to make more bad loans. So most lenders are paying closer attention to contingencies, or second form of repayment, should the business model not satisfy the debt paymnets. That is where our economy is faced with a slight dilemma. Banks need to make more credit available if our economy is to grow, but banks can't afford to take too much risk.

There are provisions in the American Recovery and Reinvestment Act that will help loosen these credit markets and allow for more investment in small businesses. Still, there is a fine line between loosening credit and irresponsible lending. That is why any loan application that utilizes government resources needs to include a well thought out business plan making a strong case that the business is likely to generate profit, no matter what the state of the economy may be. Like it or not, our government can't take too much risk. The onus is still on the business owner to assume the lion share of risk.

As more small business owners use their creativity to find ways to be more profitable despite the challenges in the marketplace, we will quickly see a recovery. These successes will create a ripple effect on our economy. Spending will increase, more jobs will be created and our economy will become more vibrant.

There are opportunities for those who wish to be a part of the solution to the current economic challenges. All it takes is a good plan and an unending dedication towards profitability. Now is not the time for small business owners to be looking for the government for solutions, but rather to show the government that they can succeed despite any challenges. Perhaps it would help if more people thought about the American Recovery and Reinvestment Act from the perspective of what they will provide in return for the government's assistance. I think of the inspiring words that John F. Kennedy spoke at his inauguration, “And so, my fellow Americans, ask not what your country can do for you; ask what you can do for your country.”