Using Work Incentives to Fund Micro-Enterprises

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

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

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

4. I. Overview

5. 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

6. Property Essential to Self Support (PESS): SI 01130.501 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

7. 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

8. Related PASS POMS (Program Operations Manual System) covering small businesses: SI 00870.006A.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. 

9. Related PASS POMS SI 00870.006B.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.

10. Related PASS POMS SI 00870.006D.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.

11. Related PASS POMS SI 00870.025B.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.

12. 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

13. 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

14. 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

15. 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

16. Self-EmploymentResearch 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

17. Self-Employment & DDExperiential Assumptions Families Taking the Lead � Highest Use Is Self-Employment a �Cop-Out� Concerns  Training and Technical Assistance is Needed

18. II. Example

19. Nick�s Business Video Analysis $18,000 VR $10,000 PASS Medicaid Waiver

21. $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

22. $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

23. Without a PASSScenario 2004 Totals Gross Sales: $32,703 - Business Expenses: $10,742 Net Profit: $21,961 Starting Cash $ 255 - Capital Expenses - $ 3,300 + Depreciation Adjustment: +$ 1,950 Owner�s Draw: - $21,961 Ending Cash: - ($1,095)

24. WITH a PASSScenario 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 - Owner�s Draw: -$21,961 Ending Cash: +$ 9,599

25. With a PASSScenario 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

26. With a PASSScenario 2004 Highlights: Both scenarios (with or without a PASS) assume that the owner is paid all the net earnings of the business as an owner�s 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

27. III. Recommendations

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

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

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

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

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

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

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

35. Recommendations 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