Statement at Small Business and Entrepreneurship Hearing
Small Businesses Speak: Surviving the Government Shutdown
Tuesday, October 15, 2013
Thank you Chair Landrieu for holding this hearing on the impact of the shutdown on small businesses. We all say small business is the backbone of the U.S. economy and we know they are already struggling under an economic recovery that remains too slow. The last thing we should be doing is hurting this nascent recovery by a government shutdown that has such a negative impact on main street businesses and the economy.
Some of the small businesses that are hurt by the shutdown are those that are located near military bases, government offices or national parks. Small businesses that contract with the government, many of which were planning furloughs as a result of the shutdown, are broadly affected. Fortunately, now that most of DoD employees have been called back to work some of those businesses that were being harmed by the DoD furloughs should be doing better. But it is a mistake to just open those portions of the government whose closure has most visibly caused harm. We must open the entire government because there are so many government functions that are critical to a robust economy and to small businesses.
The fact that SBA is not processing loans during the shutdown may be less visible to some, at least at first. But SBA borrowers may have no access to capital without the government guarantee. No SBA loans means that companies may not be able to buy equipment, hire new employees or make payroll.
Some less obvious parts of the federal government that small businesses rely on include customs services, passport services and FAA inspections and maintenance services. Let’s focus on the FAA. With air traffic controllers and TSA inspectors on the job, and thankfully so, many of us don’t think about what other important work the FAA might do to keep airports operating and aircraft flying.
I’d like to share a few Michigan examples.
One example that is affecting small, medium and large businesses in the Traverse City region is the continued cancelation of flights in times of low visibility at Cherry Capital Airport.
Due to the shutdown and FAA furloughs, the FAA is not able to finalize landing procedures for the new instrument landing system and improved runway at the airport. This means the landing equipment necessary during bad weather is not up and running. The result: a total of 55 canceled flights to date.
The Upper Peninsula
Another airport example is the Chippewa County International Airport in the Eastern Upper Peninsula of Michigan. The airport manager told us that electrical navigational aids owned by the FAA have been in need of repair for over a year now. Just this August, the FAA finally secured funding to replace the transformers, but now cannot finish it due to the shutdown. In the meantime, two transformers failed last week. As a result, flights could no longer take off or land. The next closest airport with commercial flights is Alpena (137 miles away) or Traverse City (145 miles away). The airport was recently able to reopen using a generator until replacement can resume.
Gregory Schmidt, President and CEO of Pentastar Aviation, an aviation services company headquartered in Waterford, Michigan, wrote that the shutdown has hit the business aviation hard because it is regulated by the FAA. He wrote, “Airplanes and parts cannot be produced, financed, bought, sold, registered, and in many cases flown, without the active involvement of the federal government.” Despite some furloughed FAA employees being called back to work, he wrote, “large parts of my industry still cannot function, including those requiring the support of organizations like the FAA Aircraft Registry. We have aircraft that are simply unable to fly under existing regulatory requirements as the registration expired just prior to the shutdown.” It has limited the ability of aircraft owners to conduct business domestically and internationally as well as the ability to generate charter revenue. He also pointed out that as the shutdown wears on, the limited availability of aircraft parts will hurt their aircraft maintenance and avionics business.
Manitou Island Transit is the ferry service that runs hikers and hunters from Leland to the Manitou Islands, which are part of the Sleeping Bear Dunes National Lakeshore. The company is the contractor working with the National Park Service since the 1970s. Since the shutdown, they have been told by the Park Service to completely cease their island service. Financially this means the company is losing five runs a week. With an average boat of 50 riders at $35 per person, this equates to lost income of approximately $8,750 in lost fares per week. Manitou Island Transit also runs a supply and gift store where the boat departs, parks cars at nearby parking areas, and makes supply shipments to both Islands. This boosts the lost gross income figure to over $15,000 a week.
Like many businesses in Leelanau County, Cherry Republic's flagship retail location in Glen Arbor is heavily dependent on the traffic from the nearby Sleeping Bear Dunes National Lakeshore. With the park closed, there is noticeably less traffic in the area.
DA Glass America located in Calumet, Michigan, has custom-made equipment coming from the parent company in Poland. The shutdown will delay the ability of DA Glass/Poland technicians to get work visas to come to the UP to set up and calibrate the equipment. With the passport offices shut down in the U.S. and in Poland DA Glass anticipates a delay of 2-4 weeks or more over the time it would normally take for the Polish technicians to get their work visas. The company believes any additional delays will seriously affecting the company’s ability to meet those orders already on the books. DA Glass is one of the companies in Houghton County that is expanding and has to date invested about $10 million in its Calumet facility and has committed at least 102 jobs for Michigan with potential for more. Furthermore, with a company looking to locate next door to DA Glass as a related manufacturer, there is concern DA Glass difficulties due to the shutdown may scare them away.
SBA Loan Program Shutdown
Small businesses across the country are being hurt by the SBA loan program closure. Even though these loans are made by private banks or Community Development Corporations the loans require SBA approval. With SBA employees on furlough, loans are sitting in limbo while the small business projects they were funding such as purchase agreements or expansion plans are being halted. For instance, the Oakland County Economic Development & Community Affairs, a small business lender, said one deal that is in a holding pattern is Culvers Restaurant in Livonia that is awaiting approval on its $2.6 million loan for its new construction. Every day that the loan is delayed pushes the construction further into the winter months.
The Rare Bird Brewpub is a start-up business that is using both a SBA 504 loan with the Economic Development Foundation of Grand Rapids and a SBA 7A loan with Northern Initiatives. The delays in SBA processing will delay their opening for an unknown period of time. They have delayed the build out of their facility with local contractors and a planned December opening indefinitely.
Other examples include:
- a power sport dealership in Almont is waiting on loan for $565,000
- a steel treatment company in South Lyon is waiting on a loan for over $3 million
- a payroll service company in Rochester is waiting on a loan for$1.3 million
- a child day care facility in Livonia is waiting on a loan for over $1.6 million
Similar examples exist of other CDC’s across Michigan and the United States.
The small businesses testifying today will have many more examples of how their businesses are being harmed by the shutdown. This underscores the urgency of reopening the entire federal government as soon as possible.