Contacting Government
Background
Obtaining Compliance Requirements
Public Support Programs
a. Specific Types of Assistance
b. Sales to Government
Government as a Library
Contacting Elected Public Officials
Enforcement
Final Comments
Background
Government’s pervasive guidance of economic activity in the United States implies that government and business spend considerable time in one another’s company. The interface has two fundamental dimensions. First, the initiative for interface can come from either side. At times, government wants the attention of business. At other times, business wants the attention of government. Second, the interface can be collaborative or combative. Government and business can jointly undertake productive activity such as the repair of a road or research on a cancer cure. The relationship can also produce friction as government coerces business into doing things it would ordinarily not do such as maintaining additional records, and business coerces government into things it would ordinarily not do such as revising inappropriate rules. Small business and their larger brothers are not fundamentally different in these regards. However, the interface between small business and government is far more personal than with large firms, and arguably far less satisfying. One important influence on this relationship is a small-business owner’s experience with government, particularly the direct contact and its purposes. As a result, this issue of the National Small Business Poll focuses on small-business owners Contacting Government.
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Obtaining Compliance Requirements
Small-business owners are legally bound to follow, and therefore to know and understand, every rule and regulation that impacts them. That includes the differing requirements promulgated by every jurisdiction in which they operate. As a practical matter, this presumption is fiction. No small-business owner, let alone a reasonably large staff of experts, can recognize, understand, and implement the thousands of pages of rules that they must obey. Further, this continuing task must be undertaken while operating a business well enough to make its continuation worthwhile. Despite a legal presumption that is impossible, most small-business owners make a good faith effort to comply with, at least, the most important requirements. That means they must frequently seek information about government rules and how to comply with them. While they usually prefer to get such information from private sources such as another business owner or a trade association, that is not always possible or convenient. They must instead request information or obtain documents directly from government.
Fifteen (15) percent reported that over the last three years they contacted a government unit or agency “many times” to learn about or clarify a government requirement (Q#3). Twenty-six (26) percent said that they had done so a “few times;” another 21 percent indicated that they had done so “once or twice.” Meanwhile, 38 percent reported that not once in the last three years had they contacted government about a requirement.
Two-thirds (66%) of those who contacted government for this purpose responded that their contacts are made primarily to obtain licenses or permits (Q#3a). The remainder make their contacts about other legal requirements. Thus, it is likely that over the last three years a majority have not inquired (of government) about any regulatory requirements impacting them. The reason(s) so comparatively few approach government for such information is not a topic addressed in the survey. Among the potential reasons are: a preference for, and greater trust of, a private sector source; not wanting to draw attention to ones’ self; difficulty locating a source from which appropriate information might be obtained; the need to integrate compliance with the firm’s resources; and, complex, legalistic, impractical, and perhaps inaccurate answers to simple questions.
Thirty-nine (39) percent of small employers who make such contacts make most of them over the telephone (Q#3b). Eighteen (18) percent make most of them in person while 17 percent make most of them by mail. Just 5 percent use the Internet predominantly. A similar distribution of contact means will be repeated for virtually every type of initiative originating with the small-business owner.
Inquiries about legal requirements are made most frequently of state governments. Thirty-nine (39) percent of small-business owners claimed that most of the contacts they initiate to obtain information about government rules and obligations, including licenses, are made with state authorities (Q#3c). The next most frequent target is local officials. Slightly over one in four (26%) said that city hall is the place where most of their contacts about legal requirements are made.
Given that licenses constitute such a significant part of these inquiries, it is almost surprising that localities are not identified by an even greater proportion. Just 16 percent cited the federal government as the unit most frequently contacted with another 19 percent asserting that they could not say that they contacted one unit more than another.
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Public Support Programs
Eighty (80) percent of small-business owners reported that they have not contacted any government unit or agency in the last three years about a government program, financial or management assistance or other possible public support for their business (Q#6). Another 12 percent said they did so once or twice. A total of 7 percent appear to have actively sought public help over the last three years of which just 1 percentage point seems to have explored intensively. Those with firms employing 20 or more people are more active in seeking government resources than are those running
smaller firms, but looking to government for support is unusual even for them.
When occurring, contacts seeking public assistance are made most often by telephone (43%) (Q#6a). In-person communication is the second most frequent type of contact (23%). Though public officials would like to drive inquiries from these two labor-intensive mediums to the more efficient Internet, few small-business owners seem interested. Only 11 percent reported that most of their contacts with government inquiring about public assistance programs are over the Internet. Six (6) percent are by mail. Those who initiated contacts seeking public assistance spread them across all levels of government. Thirty-six (36) percent indicated that most of the contacts they initiated are made at the federal level (Q#6b).
The Small Business Administration (SBA) is the most likely target of these contacts if for no other reason than the name, but communication could have been made with any number of agencies or departments that have assistance programs. Twenty-eight (28) percent cited the state as the place most frequently contacted with 18 percent mentioning local governments. Another 18 percent volunteered that they did not make most of their contacts with any particular level. Rather they scattered inquiries broadly across all levels of government.
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a. Specific Types of Assistance
One specific type of public support program for small business is financial assistance. Programs include various direct loans, loan guarantees, and out-right grants. Six (6) percent reported obtaining a government loan, loan guarantee, grant or other financial assistance for their business within the prior three years (Q#7). Eight (8) percent of those employing 20 or more people said that they had received help. These numbers are surprisingly large, somewhat over 100,000 employing businesses every year, and appear to represent a significant increase over the last decade. They also
underscore that the U.S. Small Business Administration (SBA) is only one, though the largest, player in the provision of financial assistance to small firms. In f.y. 2001, SBA provided non-disaster financial assistance to over 50,000 small-business owners, though not necessarily employers. The policy anomaly with financial assistance is that more money is being provided by public sources precisely when the private markets are flush with cash and competing to lend at favorable rates. This suggests that the purpose of small business finance programs is not simply to finance smaller firms, particularly when many programs require that financing be extended only to credit-worthy borrowers. Rather, they are to achieve political objectives such as broad distribution of public monies, reelection of public officials, etc.
Fewer small-business owners appear to have sought and obtained publicly-supported free or low-cost advisory or consulting services than finance assistance. Just 3 percent said that they had received any such services in the last three years, though 8 percent of those employing 20 or more people said that they had (Q#8). This datum is broadly consistent with an earlier issue in this series that reported 12 percent of small business owners saying they had sought management help or attended a function in the last five years sponsored by Small Business Development Centers (SBDCs), the largest public training/advisory program.
Again, there seems to be a perversion in public policy. Owners of the largest firms are generally in a position to need subsidized management help least; owners of the smallest are generally in a position to need help most. Yet proportionally, subsidized help seems most frequently directed to owners of the larger, small businesses. Still another type of public assistance is special tax abatements that are given to one firm without the same benefits accorded to all firms in similar circumstances. The best known abatements are given to large firms that relocate to particular jurisdictions.
But some small businesses receive them as well. The number is tiny compared either to the number of small businesses or the number of loans/loan guarantees/grants. Just 1 percent reported that they had obtained a special tax abatement in the last three years (Q#9).
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b. Sales to Government
Government is a huge consumer of privately produced goods and services. The Federal government alone procures more than $200 billion worth every year. That is a very large market and it offers small business many opportunities to expand sales. In the last three years, 21 percent of small-business owners won one or more contracts to provide goods and/or services to a government agency or unit (Q#1). Proportionally, those in construction, educational and health services, and professional and business services are the most likely to have had a government contract. Those in the financial services and leisure and hospitality are least likely.
Over the same time frame, 15 percent won one or more contracts to provide goods
and/or services to another business that in turn used its work as part of a sale to government (Q#1a). These small-business owners effectively served as subcontractors to government contractors. Proportionally, manufacturers are the most likely to be a subcontractor, about twice as often as the population in its entirety. Contractors (construction) are also relatively more likely to be one as are those in the professional and business services. But very few from other industries participate in the role of a government subcontractor.
Seven (7) percent sold both directly and indirectly to government. Sales to government are a relatively small portion of total sales for most government contractors (direct and indirect). Half (50%) of those who have any government sales (direct and indirect) reported that they amounted to five percent or less of the total (Q#1b). Just 3 percent who have any sales to government (< 1 % of all small employers) sell to government exclusively. The average proportion is 18.4 percent of sales. Spread across all small businesses, government sales amount to no more than 5 percent of total sales. While indirect sales in particular could have been subject to reporting errors, the primary message these numbers convey is that small business either does not compete or does not compete effectively to supply government. Small business sales to government are spread relatively evenly across all three governmental tiers. However, the plurality of contracts appear to rest with local government.
Thirty-eight (38) percent reported that their largest share of government sales (in dollars) are made at the local level (Q#1c). This could be explained by proximity and smaller contracts. Thirty-one (31) percent said that their largest share is with the federal level, while 26 percent cited the state. Care must be taken when examining these numbers. They do not mean that 38 percent of all government contract dollars won by small business originate in localities. The data were not collected that way. Rather, the numbers mean that the largest amount of government business (measured in dollars rather than contracts) for 38 percent of contractors and sub-contractors comes from local government. Those selling to government seem basically satisfied with their commercial relationship.
Even if the figures might be somewhat more favorable now than during strong economic times, 64 percent said that they would like to increase the amount of sales made to government (Q#1d). Just 9 percent said that they would like to cut back. The remainder would like to keep sales stable (25%) or were undecided (1%). Seventy-two (72) percent have not made sales directly or indirectly to government in the last three years. Eighty-four (84) percent of that number or 61 percent of all small-business owners do not intend to compete for one or more government contracts in the coming three years (Q#2).
The most often cited rationale (51%) for the lack of interest among those currently not doing business with government is the belief that government does not buy what they sell (Q#2a). That is an understandable response from someone who owns a business like a retail shoe store or a restaurant. Still, the breadth of government procurement is remarkable and many would be surprised to learn the goods and service government does purchase. The remainder of the reasons offered for the lack of interest in government contracts are shared by much smaller numbers. Ten (10) percent cited the general hassle including paperwork and excessive rules as a reason for the lack of interest; 12 percent mentioned the lack of knowledge about government contracting or not knowing about such opportunities; 6 percent indicated that they had all the business they now wanted; and 4 percent thought the contracts are too big for them to bid on. A wide variety of other reasons were expressed. However, 2 percent offered slow pay as the most important reason for their intention.
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Government as a Library
Government is a vast library. It produces and houses huge amounts of information. These data and intelligence are useful not only for compliance with government requirements, but for direct commercial activity. For example, property tax records provide information on ownership and valuation of property and structures. Government surveys provide figures on local average pay and benefits by occupation, as
well the number of potential customers. Written publications (or Internet sites) offer information on relevant subject matter from new technologies to strategies for reducing energy consumption (costs).
Despite an abundance of useful information, relatively few small-business owners approach government seeking commercially-valuable material. Just 2 percent said that they sought such information from government “many times” in the last three years (Q#5). Another 9 percent indicated that they had searched a “few times,” and 10 percent “once or twice.” But 78 percent reported not having searched government sources for information that might help them resolve a business opportunity or problem.
Telephone, again, is the favored means of procuring such information when it is sought. Thirty-three (33) percent make their business information contacts primarily over the phone (Q#5a). However, almost as many make them over the Internet (32%). Small employers appear more likely to search for this type of information by electronic means than they are other types. The reason is likely linked to the specificity of the information sought. Electronic searches are especially efficient when trying to see what is available, that is to say, sifting through huge amounts of material quickly. Just 9 percent most often seek this type of information in person and 7 percent by mail. However, 18 percent use no dominant form of communication.
Small-business owners looking for commercially-valuable information have no one favored level of government in their searches. The largest proportion maintained that they made most of their contacts in the state capital (33%), but not even the states received the dominating share of inquiries (Q#5b).
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Contacting Elected Public Officials
Many small-business owners actively participate in the legislative and political processes. In doing so, they often contact elected public officials to complain about a law or rule, or to express support or opposition to possible legislation or regulations.
Ten (10) percent of small-business owners reported that they contacted an elected
public official(s) many times in the last three years to express an opinion on some public matter presumably affecting their business (Q#4). But 57 percent at no point in the last three years said anything to an elected public official about such matters. Given the strong views small-business owners seem to possess about government’s impact on their operations, the lack of contact is surprising. Perhaps there is none because they expect no helpful response from it.
The means used to make contact with elected public officials are widely dispersed. However, 28 percent reported most of their contacts are by telephone (Q#4a). Seventeen (17) percent reported most of theirs are in person; 17 percent by mail, and 15 percent over the Internet. Twenty-three (23) percent did not favor any particular means of contact.
Small employers are most apt to contact state officials about regulatory or legislative matters. One-third (33%) indicated that most of their contacts on public policy matters are with people elected to their state capitals (Q#4b). Officials at city hall draw next most frequent attention (22%). Those in Washington receive the least. Just 15 percent stated that most of their contacts are with federal officials.
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Enforcement
This final item was included in the survey to put small business/government contact initiated by small employers into perspective. It asks about contacts in the government’s role as the enforcer of the laws and regulations it promulgates. In that role, its officers undertake inspections and audits to ensure compliance. Many of the actions involved occur on the premises of the business owner.
Almost one in 10 (9%) small-business owners reported that in the last three years, a government official(s) has entered their premises or work site “many times” to check records or permits or otherwise ensure that small-business owners are complying with government requirements (Q#10). Another 20 percent indicated that these intrusions occurred a “few times;” 26 percent said it happened “once or twice” in the last three years. Forty-four (44) percent reported that no government official had put foot on their premises or work site over the same time frame.
Those employing fewer than 10 people are over 20 percentage points less likely to see the enforcement face of government than are those employing 20 people or more. About half (48%) of the former group have not seen a government enforcement official in their business over the last three years compared to just over one-quarter (26%) of the latter group. Since a single enforcement visit in a larger firm results in more employees and more output impacted, these data corroborate government inspection strategies and anecdotal information.
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Final Comments
Small-business owners initiate contact with public officials routinely, though they
receive no commercial benefit from it in most instances. Seventeen (17) percent reported that they had initiated contact “many times” during the last three years. However, most initiated contact periodically. The most frequent cause for contact is licenses or permits. Effectively, small-business owners initiate contact because they must obtain permission for some necessary business activity, such as driving a vehicle, occupying a building, or operating a machine. A smaller number contact government for other types of information related to compliance with government dictates or taxes. These do not include contact with private sector service providers such as lawyers and accountants who may provide similar information, though often with a charge. Seventeen (17) percent reported that they had not initiated even one contact with government in the last three years.
Not all small-business contacts with government have negative connotations. About one in five have had a contract with government to sell it goods and/or services during the last three years, and most who have had one would like to increase that business. A non-mutually exclusive 8 percent use a government sponsored finance (including guarantees) or management assistance program. However, few use generally available government information for commercial purposes. Therefore, on balance, small-business owners are far more likely to see the negative face of government than the positive, even when they initiate the contact.
Government can also initiate contact. About three of five witnessed at least one government official on their premises or work-site to inspect it, check records, etc. during the last three years. Government can also mail inquiries or demands, burdens that were not included in the survey. The most frequent means of contact are telephone or in person. The least frequent are mail and Internet. The most likely reason that the two personal mediums are most frequently employed is that they allow immediate feed-back, the possibility of posing questions, and the handling of special circumstances that are not conducive to simply checking boxes. The exception seems to be broad searches for information. Relatively more are likely to use the Internet for these purposes. However, the concept of an electronic government bureaucracy to handle small-business inquiries or transactions is certainly not the small-business owner’s idea of customer service.
Different small-business owners focus on different levels of government for different types of contacts. There appears to be no pattern. But one thing is clear: small-business owners initiate contact with government officials at all levels of government. States seem to be the governmental unit that draws most attention. Localities are next followed by the federal government. Still, small-business owners as a group must be prepared to deal with all government levels. These varying sources for rules and permits, let alone the different agencies within a level and/or the joint regulatory initiatives of cooperating levels, can be a source of great frustration to small-business owners, particularly for the inexperienced or those entering a new line of business.