Small-Business Services Suffer Under Shutdown

October 9, 2013

pic-capitol-cloudsThe federal government is now in week two of a massive shutdown. The shutdown is the result of a series of failed votes and maneuvers from House and Senate leaders to pass necessary spending bills by the Sept. 30, 2013 deadline. Congress ultimately walked away from approving any kind of spending bill and party leaders remain entrenched and by all appearances, unwilling to budge even as a bigger problem–the debt ceiling deadline–is just around the corner.

For the first time in 17 years, under the shutdown, federal workers deemed “non-essential” have been required to stay home and conduct no government business until Congress can approve some kind of spending language. The major breakdown was over House insistence in including a variety of options relating to the Patient Protection and Affordable Care Act (PPACA) ranging from complete defunding to eliminating the individual mandate. The Senate refused to negotiate on any changes to PPACA while the House refused to promulgate any legislation absent such language.

NSBA is joining millions of Americans in expressing disappointment in policymakers’ failure and unwillingness to conduct business. Coming on the heels of NSBA’s 2013 Mid-Year Economic Report, which shows an improved overall economic outlook for America’s small-business owners, this failure to govern could seriously hamper economic growth and optimism.

“This kind of fiscal irresponsibility cannot simply be accepted as the new normal,” stated NSBA President and CEO Todd McCracken. “This failure will hurt many small businesses relying on any number of critical government programs—ranging from much-needed capital access programs under the U.S. Small Business Administration (SBA) to IRS taxpayer compliance assistance programs.”

During the shutdown, the Treasury Department will continue disbursements of Social Security funds, automated revenue collections and the work of daily cash management for the government, in addition to paying interest on the federal debt. However, the IRS will cease some of its key functions, such as audits, examinations of returns, processing of paper returns and call-center operations for taxpayers with questions. Approximately 91 percent of Treasury department’s employees are being furloughed meaning that, while online and automated telephone support services still will be operational, walk-in assistance centers and live telephone support hotlines will be suspended during the shutdown.

Additionally, all IRS audit activities will be suspended, however any small business which a received six-month extension on their 2012 returns—making their new deadline Oct. 15—must still file by that deadline. IRS has stated that E-filers are likely to see processing delays, however tax payments will continue to be processed.

With regards to the SBA, the only programs that will continue to operate throughout the shutdown are those related to disaster loans and inspector general functions pertaining to investigatory activities. This means that the various other SBA programs ranging from 7(a) and 504 loans to Small Business Development Centers (SBDC) and the Small Business Innovation Research (SBIR) programs are closed and that roughly 62 percent of SBA employees will be furloughed bringing the lending activity, procurement assistance, and countless other functions to a grinding halt.

According to McCracken: “Small businesses looking to the SBA for a loan to take advantage of a current business opportunity are left in an impossible position. Do they wait a day, a week, a month for the government to re-open and risk losing the opportunity? Or do they cut their losses and move on? Real jobs and real economic growth hang in the balance.”

Despite the economic gains in the last year, according to NSBAs’ recent Economic Report, just two-thirds of small businesses (65 percent) report they are able to obtain adequate financing, down from 73 percent six months ago, making SBA lending all the more important.

For exporters, the Department of Commerce has suspended most services and activities provided by the International Trade Administration, while the Export-Import Bank of the U.S. (Ex-Im Bank) has shut down the majority of its capabilities, including online assistance and other educational programs pursuant to the National Export Initiative. Under the shutdown, Ex-Im Bank is operating as temporarily closed and all new obligations as well as delegated authority to exporters and/or banks under insurance and guarantee programs—such as the Working Capital Delegated Authority Program—will be suspended for the duration of the shutdown. However—similar to IRS—the Bank will continue to process and deposit funds received. Unless significant issues arise, Ex-Im will only retain four percent of the Bank’s workforce during the shutdown.

On the intellectual property front, the U.S. Patent and Trademark Office (USPTO) will use reserve fee collections from last year to continue to operate on a normal basis. The USPTO estimates that said reserves will be exhausted in approximately four weeks at which time they would be required to proceed with shutdown procedures.

One of the more significantly impacted groups is federal contractors and subcontractors. Small firms doing business with the government are facing halts on projects impacting countless employees and though the government has stated it will continue paying bills to these contractors, the absence of most contracting staff could pose major problems for any project in the pipeline. Additionally, no new contracts will be offered during the shutdown, making any kind of planning or regular business operations nearly impossible for the small firms who rely on government contracts.

Firms either optionally using the Department of Homeland Security’s E-Verify system to verify the legal status of workers, or those federal contractors required to use the system will also experience delays. The entire system is closed for the duration of the shutdown which means no new enrollments, verifications, updates on pending cases or changes to existing accounts can take place. Customer support and related services also are closed, so no calls or emails will be addressed, and self-checks are unavailable as is any casework assistance. During this time, employers still must complete the I-9 form by the third business day after an employee starts, but the three-day rule for E-Verify is suspended. The time periods for resolving tentative non-confirmations will be extended. Federal contractors are instructed to contact their contracting officer—many of which are likely furloughed as well—leaving these firms with little useful guidance.

“Economic uncertainty is still the number one challenge small businesses face and this latest debacle has firmly cemented Congress’ role as not merely failing to improve the situation—they ARE the problem,” stated McCracken.

The number one issue small business wants our elected officials to address isn’t even a policy imperative, it’s for them to end the partisan gridlock and work together. Today, our lawmakers have gravely disappointed America’s small businesses.

NSBA is urging all small businesses to contact their lawmakers about the fiscal impasse facing the U.S. and urge them to work together to formulate a responsible long-term solution to both U.S. spending and our rising debt.

 

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National Small Business Association

National Small Business Association