Using Work Incentives to Fund Micro-Enterprises Presenter: David Hammis, Senior Partner Griffin - Hammis Associates, LLC

Self-Employment & Micro-Enterprise I.Overview: Key SSI/SSDI, Work Incentives, VR, WIA, Housing, etc…. Opportunities, Issues, & Interactions with Self Employment Income and Small Business Start-Up Funding II.Example: Blending & understanding multi-level financial resources available through Social Systems, Families and Communities

Self-Employment & Micro-Enterprise III.Recommendations: Providing all prospective business owners with disabilities self employment funding options & choices

I. Overview

NESE for SSI & SSDI purposes: (Gross Sales – IRS Deductible Business Expenses) x.9235 Ex.: $20,000 Sales & $10,000 Expenses ($20,000 - $10,000) = $10,000 $10,000 x.9235 = $9,235 NESE

Property Essential to Self Support (PESS): SI Essential Property Excluded Regardless of Value or Rate of Return: (A) 2. Trade Or Business Property –Property essential to self-support used in a trade or business is excluded from resources regardless of value or rate of return effective May 1, 1990 (C) 5. Liquid Resources Used In A Trade Or Business –Effective May 1, 1990, all liquid resources used in the operation of a trade or business are excluded as property essential to self-support

Plan for Achieving Self-Support (PASS) PASS Funding: –PASS directly infuses operating cash into a business, assuming PASS is paying for business operating or capital expenses –PASS does not influence Profit & Loss (P&L) –PASS significantly influences Cash Flow

Related PASS POMS (Program Operations Manual System) covering small businesses: SI A.10. Self-Employment Goals A PASS with a self-employment goal must include a detailed business plan. The lack of a business plan should not delay an individual's submittal of a request for a PASS. As with a VR Evaluation, the PASS could initially cover any costs associated with the person developing a business plan, a Business Plan Evaluation.

Related PASS POMS SI B.4. Start-up Costs: For someone opening a business, the start-up costs include the expenses to start the business through the first 18 months, or longer if needed, of the business' operation. The use of an item as a business expense in determining net earnings from self-employment does not preclude its use as a PASS expense during the calendar years (or fiscal years) that encompass the start-up period of a business.

Related PASS POMS SI D.4. Self-Employment A business will be given a minimum start-up period of 18 months unless the individual indicates that less time will be needed for the business to sustain its operations. A request for a start-up period of a longer duration than 18 months must be justified.

Related PASS POMS SI B.5.b. Business Start-up Costs Treat all expenses, including ongoing costs, to be incurred during the first 18 months, or longer if warranted, of a PASS that involves starting a business as excludable start-up costs if the expenses meet the necessary and reasonable criteria.

Related Work Incentives Impairment Related Work Expenses, - same effect as wages employment – yet not as common in small business Blind Work Expenses – powerful when applicable All SSI Work Incentives apply (1619(b), Student Earned Income Exclusion, etc. SSDI has two additional work incentives – UnPaid Help and Unincurred Business Expenses for self employment

Other Self-Employment Social System Startup Resources VR – Direct Purchases of Equipment and other possible expenses –VR Retains ownership of equipment typically – for some time frame that varies by state –VR purchases of deductible business expenses directly impacts P&L –VR funding tends to artificially inflate profits

Other Self-Employment Social System Startup Resources WIA – WIA Direct Purchases of Equipment and other possible expenses –WIA to date does not retain ownership of equipment typically – via innovation and/or customized employment grants –WIA purchases of deductible business expenses directly impact P&L –WIA funding often artificially inflates profits

Other Self-Employment Social System Startup Resources SBA Guaranteed Loans, Bank Loans & Non- Bank Loans – follow typical business interactions Medicaid funding – has been used to fund business expenses, and again, similar to VR, artificially inflates profits Other grants, Native American, Developmental Disability Planning Council, etc… artificially inflate profits

Self-Employment Research High Success Rate: 80 – 90%, Iowa and Rural Institute High preference rate when presented as an informed choice (20 to 30%) Very Limited Choice currently in Developmental Disability Employment Services – perhaps less than 1% (no clear data), VR at roughly 4 to 5% Wide variance in VR Policies nationally

Self-Employment & DD Experiential Assumptions Families Taking the Lead – Highest Use Is Self-Employment a Cop-Out Concerns Training and Technical Assistance is Needed

II. Example

Nicks Business Video Analysis $18,000 VR $10,000 PASS Medicaid Waiver

$564 per month SSI Monthly Check & Medicaid Issues: After High School – no employment for 2 years –VR initial resistance to self employment –Medicaid Supported Living Waiver, fears of losing SSI and Medicaid – Low Assets (Cash below $2000), no Community Rehab Provider would consider Self Employment

$564 per month SSI Monthly Check & Medicaid Solution: Self Employment Family Developed Business Plan – VR & SSA funded –Unlimited Cash and Property Assets –$64,000 Net Profits and Still Medicaid Eligible (1619(b) Policies via Individualized Medicaid Threshold

Without a PASS Scenario 2004 Totals Gross Sales:$32,703 - Business Expenses:$10,742 Net Profit:$21,961 Starting Cash $ Capital Expenses- $ 3,300 + Depreciation Adjustment:+$ 1,950 Owners Draw:- $21,961 Ending Cash:- ($1,095)

WITH a PASS Scenario 2004 Totals Gross Sales:$32,703 - Business Expenses:-$10,742 Net Profit:$21,961 Starting Cash$ 2,121 - Capital Expenses-$3,300 + Depreciation Adjustment:+$1,950 + PASS+$8,828 - Owners Draw:-$21,961 Ending Cash:+$ 9,599

With a PASS Scenario 2004 Highlights: –SSI Only and no other income prior to PASS and Business NESE Projections Higher Starting Cash in 2004 – due to PASS effects in 1st 7 Months of Startup in 2003 Higher Ending Cash – Directly due to PASS – without a PASS = Negative $1,095 vs. with a PASS = Positive $9,599

With a PASS Scenario 2004 Highlights: –Both scenarios (with or without a PASS) assume that the owner is paid all the net earnings of the business as an owners draw –The IRS, SSI, Medicaid, Section 8, & Food Stamps all use the net earnings of the business to calculate taxes owed to the IRS, to reduce SSI, to increase rent and to decrease food stamps – even if not paid to the owner

III. Recommendations

Recommendations 1.Directive to Disability Employment Service Providers: Provide Self Employment as an employment option Participate in Training and T/A

Recommendations 2.Coordinate with SSA BPAO Funded local outreach staff, and VR & Medicaid, Food Stamps, Section 8 Housing

Recommendations 3.National/State Grant Sponsored Self Employment Efforts Initial Demonstration & coordinated data & research Followed by Systems Change Policies

Recommendations 4.Develop Capital (CASH) Loans Guaranteed Employment & Self Employment Loans VR Guarantee Principal Payments Similar to Guaranteed Student Loans Ticket to Work Long Term Payment Approach

Recommendations 5.Develop a Professional National Trade Organization To provide structure to professional development & credibility

Recommendations 6.Provide Blended Funding On-going Training and T/A Within Social Services Including SBDC, SCORE, Banks and Non- Banks, Corporations, Chambers, et al

Recommendations 7.Develop a Medicaid Waiver Task Force To review all existing & new waivers for self employment support authority, and concurrence with SSA policies

Recommendations 8.Create Baseline data quickly and then clear goals to increase less than 1% usage suspected by targeted increases to research verified 20 to 30% desired Within Existing Employment Services