January 27, 2011
President Barack Obama delivered the annual State of the Union address with a bit less of the partisan, pep-rally atmosphere than speeches of recent years, and it certainly veered away from a celebratory tone over achievements of the last year. Much of the speech read like yet another love letter from the president to the business community, especially smaller operations, indicating that the White House is serious about improving conditions for U.S. industry.
Though much of the speech revolved around looking forward, "doing better" and "reinventing ourselves," Obama quickly and decisively pointed out ways the administration was willing to extend the olive branch to businesses. Key among them was restating the plan unveiled in January to eliminate unnecessary regulatory overlap, such as 12 different agencies having a hand in certain business mandates or, in a somewhat joking aside, that two departments are responsible for salmon, depending on the step of the production process.
Additionally, Obama shined a light on an issue dear to the GOP: trade. He made no less than four references in the speech to South Korea, with whom the United States just signed a new free trade agreement. He also strongly reaffirmed the plan to step up exporting activity not just in the long term, but right now:
"To help businesses sell more products abroad, we set a goal of doubling our exports by 2014 because the more we export, the more jobs we create at home," said Obama. "Already, our exports are up. Recently, we signed agreements with India and China that will support more than 250,000 jobs in the United States. And last month, we finalized a trade agreement with South Korea that will support at least 70,000 American jobs. This agreement has unprecedented support from business and labor, Democrats and Republicans; and I ask this Congress to pass it as soon as possible."
Obama, while noting he was open to improvements but not a full repeal of last session's passed health care overhaul, did take a thinly veiled swipe at one provision passed in the bill that is in need of a fix: 1099 requirements. It drew loud applause from Democrats and Republicans alike. "If you have ideas about how to improve this law by making care better or more affordable, I am eager to work with you," said Obama. "We can start right now by correcting a flaw in the legislation that has placed an unnecessary bookkeeping burden on small businesses." (See related story below.)
Obama also intimated that a higher level of importance, and perhaps looser restrictions, would be placed on much needed American innovation on the part of U.S. businesses:
"That dream—that American Dream—is what drove the Allen Brothers to reinvent their roofing company for a new era. It's what drove those students at Forsyth Tech to learn a new skill and work towards the future. And that dream is the story of a small business owner named Brandon Fisher. Brandon started a company in Berlin, Pennsylvania that specializes in a new kind of drilling technology. One day last summer, he saw the news that halfway across the world, 33 men were trapped in a Chilean mine...Brandon thought his company could help. And so he designed a rescue that would come to be known as Plan B...Thirty-seven days later, Plan B succeeded, and the miners were rescued."
Brian Shappell, NACM staff writer
Thought for the Day
"Leaders should certainly make sure they are walking in a commendable fashion so that people will want to follow them. If they are just out there spouting proclamations, speaking words and dictating to people, you'll find that the ability to lead is not as great as it could be."
—Tom Flick, Speaking of Success: World Class Experts Share Their Secrets
Flick is this year's General Session keynote speaker at Credit Congress. To find out more about Flick, Speaking of Success and Credit Congress in Nashville, click here.
A pair of high-ranking Senate Democrats kicked off the New Year by introducing a bill to repeal the upcoming 1099 reporting requirements on small businesses. These onerous measures would go into effect in 2012 and require all businesses to file 1099 forms for all companies and individuals from whom they purchase more than $600 worth of goods or services annually.
The new reporting requirements have been among the most universally disliked provisions of the Affordable Care Act, generally referred to as the health care reform bill. Businesses and advocates have uniformly opposed the measure, arguing that the last thing companies should be worrying about in the current economic climate is an enormous increase in paperwork requirements.
"We have heard small businesses loud and clear and are responding to their concerns," said Sen. Max Baucus (D-MT), chairman of the Senate Finance Committee, who, along with Senate Majority Leader Harry Reid (D-NV), introduced the newest repeal bill. Baucus had introduced a similar measure in the previous Congress, but it was ultimately rejected by the Senate at large. "Small businesses need to focus on creating good-paying jobs, not filing paperwork," said Baucus. "Many of my colleagues on both sides of the aisle want to work with the small business community to eliminate these requirements, and it is my hope we can come together to pass legislation quickly."
Reid expressed his hope that the bill could pass with bipartisan support, which is less important in the Senate than it is in the House, where republicans hold a new majority. "Small businesses, the engine of our economy, told us the 1099 provision was burdensome, and we are responding quickly to ensure that they can keep running smoothly," said Reid. "Making it easier for small businesses to thrive should be something Republicans and Democrats can agree on. I hope we can come together on common-sense reforms like these to improve a law that is already saving money and saving lives."
While it's true that no one on Capitol Hill has a bad word to say about small businesses, disagreements have previously surrounded how the repeal should work from a budgetary standpoint. Despite its unpopularity, the new 1099 reporting requirements would generate a hefty amount of revenue. Democratic approaches have typically been geared toward a full repeal of the requirements without much in the way of off-setting revenue increases or spending cuts. Republicans, however, have remained skeptical of any approach that adds to the country's already massive deficit.
Stay tuned to NACM's eNews and Credit Real-Time Blog for future updates.
Jacob Barron, NACM staff writer
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The discussion needs to start with some basic factors, at least the facts as they stand today. The first fact is that some of the states, but not most, are in desperate fiscal crisis. Analysts assert that there are perhaps six to 10 in dire condition: Illinois, California, Nevada, Rhode Island, Michigan, Florida, South Carolina, Oregon, Ohio and Arizona. The second fact is that there is no desire on the part of Congress to bail out any of these states. The third fact is that most of the states in trouble put themselves there with past decisions and policies that they would very much like to wiggle out of today.
These states have limited options as far as rescuing themselves and there are major problems with each of the options. Most can't make the cuts required without severely compromising basic state functions; the states also know that imposing heavy tax burdens will force business and residents out of the state. The bond market is not an option anymore either—yields are too high—and many of these states would be hard pressed to find buyers. The only real option left is to revisit the promises that got them to this point and that is why some have suggested that states be allowed to declare bankruptcy.
The opposition to this notion has been fierce thus far, but that doesn't mean that it will not come up at some juncture. Public sector unions are furious, as they know they will be the primary target. State leaders are denying they have any intention of exercising this option and most financial analysts assert that this would be a truly desperate option for any state, as it would render them highly uncompetitive for decades to come. The remarks from the current House Majority Leader would suggest that the GOP is not supportive, despite the fact that Newt Gingrich has been an advocate.
The assumption is that state legislatures and governors will be unable to bring the unions and other interested parties to the table without the threat of bankruptcy. The only real option for some of the most troubled states will be to change the rules for groups of people who will resist these moves with every ounce of their strength. The unions will not give up their pensions regardless of how flawed the system has been over the years, and those who bought bonds will not take one penny less than they are owed unless there is a threat of some kind. It has been asserted by many in the House and Senate that these various sides can be brought together for negotiation, but there is no precedent for such a discussion without some kind of doomsday event in the background.
State leaders do not want to pursue the bankruptcy route either and would use it as the ultimate weapon to force these negotiations. The alternative would be to engage in the kind of budget-slashing and taxation policies that would cripple the states for decades. The fact is that many people and businesses would simply leave the affected states, and it will be exceedingly hard to regain that investment.
Source: Chris Kuehl, PhD, managing director, Armada Corporate Intelligence
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Tight bank-to-business lending conditions have been a noticeable and significant problem for the last two years. However, help is on the way, if a pair of federal regulators is correct in their predictions. Granted, they offered an eerily similar message about one year ago that failed to be fulfilled amid the lackluster economic recovery.
The Federal Deposit Insurance Corporation (FDIC) hosted a mid-January small business lending forum at which FDIC Chairman Shelia Bair and Federal Reserve Chairman Ben Bernanke projected a much better atmosphere for business borrowing in 2011. While neither predicted a huge rebound in the next couple of weeks or months, both seem to believe the stage is set for looser conditions and more agreeable terms. Bernanke admits part of the prediction is tied to the stabilization of the economy and signs of a stronger rebound for 2011.
Additionally, community banks that are crucial to small business lending in theory will have better access to funds through the Treasury Department's new Small Business Lending Fund. Granted, money from that fund won't get out in any meaningful way until the spring, at the earliest, and some small banks may be tentative to take part. Remember, government bailout fund participation carried the stigma of cumbersome red tape and over-the-top snooping that community banks said they could not afford to endure.
However, a disconnect has existed between what banks have said for months about conditions and the reality being reported by small business owners on the ground.
"Banks have been saying 'we're easing up conditions' and, basically, 'we're ready to start lending again'; but that's not what you hear from the small businesses," said Dan North, chief economist and vice president of risk with Euler Hermes ACI. "Still, I do believe we're on the verge of loosening up for several reasons."
Among those reasons are that the long dormant activity on the part of banks is bound to reverse itself, the payroll tax break that "will be very helpful in putting money into people's pockets" and, perhaps most importantly, a simple psychological shift regarding the U.S. political landscape. Going into the November elections, much uncertainty existed. Now, consumers and businesses know the winners and losers and, in some quarters, the Republican victory has likely brought about some new optimism for a more pleasant atmosphere for businesses and regulation.
"If you think about it, in the first two years, they hauled up a large number of S&P 500 companies before Congress for some types of investigation; it was a decidedly unfriendly atmosphere," said North, who will present the keynote speech at FCIB's New York Round Table on February 9. "That's changed. The administration has changed and seemed to say, 'Maybe businesses aren't the bad guys here; they do create jobs."
(Editor's Note: For more information on FCIB's New York International Round Table or to register, click here).
Brian Shappell, NACM staff writer
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A duet of NACM teleconferences next week will tackle a diverse pair of subjects, one focused on internal audits and the other focused on customer bankruptcies.
NACM Past National Chairman and credit veteran Phyllis Truitt, CCE will present "Internal Audit Controls" on February 7 at 3:00pm EST, taking attendees through the value of internal controls and how they apply to a company's credit and accounting departments. The key to successfully adhering to these controls is to find a way to integrate them seamlessly with pre-existing company procedures, a process that Truitt will delve into in her presentation.
Using specific examples, Truitt will also examine the best internal audit practices and control measures. She'll also tackle the best way to process and implement controls for handling funds, purchase orders, check requests, credit cards, accounts payable and identity theft mitigation. Being able to handle these tasks and to remain in compliance with enacted regulations ultimately guards a company's assets from a number of potential dangers. To learn more, or to register, click here.
Just two days later, star attorney and frequent NACM presenter Deborah Thorne, Esq., of Barnes & Thornburg LLP, will lead attendees through a 90-minute "Added Advantage" program titled "Bankruptcy For Beginners." As its name implies, this is a session that will give novice credit professionals an excellent look into the bankruptcy process, as it applies to their creditor companies. However, as the economy continues to face significant strains, this presentation will also be exceedingly valuable to more experienced credit professionals looking for a thorough review of their bankruptcy knowledge.
Thorne will also cover recent trends in the courts, including a decline in Chapter 11 filings that isn't necessarily a good thing for businesses nationwide. "The reason they're down is that there's very little money out there to help people finance a Chapter 11," said Thorne. "Even though Chapter 11s are down, we all know that businesses are closing and liquidating, and there are other tools that are used to get through that. I'll discuss how they fit into this process."
To learn more, or to register, click here.
Jacob Barron, NACM staff writer
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Though manufacturing was identified as the major factor carrying the American economy from recession to growth conditions, agriculture more than held its own in 2010. Moreover, early 2011 has been positive as well, aside from the deep freeze in Florida, but there are signs that such a surge may not continue well into this year.
The latest statistics from the U.S. Department of Agriculture indicated that prices are on the rise for U.S. producers, in part because of a number of international issues that include drought-fueled wildfires in Russia and Ukraine and an overabundance of rain in places like Australia and Canada. The latest USDA export numbers indicated significant gains in both monthly and weekly indexes for products like wheat. Additionally, weekly statistics show corn and soybean exports up by at least 50% and cotton up by about two-thirds. As such, futures on the Chicago, Kansas City and Minneapolis exchanges have spiked as well.
However, the U.S. "Farm Belt" faces potential problems later in 2011 because of poor soil quality and moisture levels that could impact future crops unless precipitions levels and temperatures are ideal during the late winter weeks. Also, the southeastern U.S. agriculture situation has been bleak because of ongoing cold temperature that have done yet unknown levels of damage to crops such as citrus fruits and tomatoes, among others.
"A lot of response from the growers is ‘we really don't know what we're going to do yet,'" said Valerie Novakoski, controller for Intergro Inc. and a former Credit Congress panelist. In the new issue of NACM's Business Credit magazine, Novakoski said potential problems with growers need to be monitored closely because of the amount of loans coming due this year. And while agriculture producers are generally good to their word and almost always make their payments at some point, delays in paying vendors are a real concern. And that's not even broaching the topic of food inflation, which some economists see as a looming problem not just for the agriculture industry or business credit, but also for the entire economy.
See much more on agriculture trends in this month's Business Credit, now available both in print and at www.nacm.org.
Brian Shappell, NACM staff writer
Federal agencies have made major improvements to the E-Verify employment eligibility system, but errors persist and continue to hamper the program's effectiveness.
That's what the Government Accountability Office (GAO) said in a new report detailing E-Verify's successes, which have come to greatly outnumber the program's failures in recent years. According to data collected by U.S. Citizenship and Immigration Services (USCIS), one of the three agencies that operates E-Verify, the system immediately confirmed 97.4% of almost 8.2 million newly hired employees as work authorized in fiscal year 2009, compared to only 92% from fiscal year 2006 to the second quarter of fiscal year 2007.
"However, E-Verify errors persist," said the report. "Also, if an authorized employee's name is recorded differently on various authorizing documents, the E-Verify system is to issue a TNC for the employee," they added, referring to tentative nonconfirmations (TNCs). "Because such TNCs are more likely to affect foreign-born employees, they can lead to the appearance of discrimination. USCIS has not disseminated information to employees advising them of the importance of consistently recording their names on documentation provided to employers, and doing so could help USCIS reach its goal to ensure data accuracy."
The report drew cheers from certain lawmakers, who cited the report as proof of E-Verify's value in the battle against illegal employment practices. "E-Verify is a remarkably effective tool that preserves jobs for U.S. citizens and legal immigrants by helping employers make sure that they are hiring legal workers," said Rep. Lamar Smith (R-TX), newly-minted chairman of the House Judiciary Committee. "While today's GAO report acknowledges some areas for refinement, such as guarding against identify theft, the report reaffirms what we already know about E-Verify: that it is a very successful program."
The House Judiciary Committee is scheduled to hold a hearing next month to discuss ways to improve E-Verify, including ways to expand the program to better protect jobs for legal workers. Smith continued, noting that the nation's current unemployment rate makes improving E-Verify's effectiveness even more vital.
"While more than 14 million Americans are struggling to find jobs, seven million illegal workers remain in the U.S. workforce. U.S. citizens and legal immigrants should not have to compete with illegal workers for scarce jobs," he noted. "E-Verify is used by over 225,000 employers, and an average 1,300 businesses are signing up for the program every week. Expanding E-Verify and encouraging more businesses to use the program is an important step toward protecting jobs for American workers and eliminating the jobs magnet that draws millions of illegal workers to the U.S."
Jacob Barron, NACM staff writer
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