March 08, 2005
Small Business Bulletin
The following issues are addressed in this third edition of our newsletter in 2005.
LEGISLATIVE & ISSUE UPDATE:
-Universal Service Fund Wasting Millions But Telephone Customers Still Paying
-Ways & Means Adopts Half of Workers Comp Reform Request
-Bi-Partisan Senate Bill Targets Small Business Income Tax Reduction
-Tort Reform Passes House and Progresses in Senate
-Environmental Crimes Bill Reaches Senate Calendar, Awaits House Judiciary Action
-Sales Tax Exemption for Medical Equipment Introduced in House
-Bill Excludes Non “Check Cashing” Businesses From Stringent Regulations
-Blue Laws To Be Eliminated In House Bill, Employees to be Protected
-Small Business Development Center Completes 25 Years
LEGISLATIVE & ISSUE UPDATE
Universal Service Fund Wasting Millions
But Telephone Customers Still Paying
In May of 2004, The SC Small Business Chamber of Commerce called for an audit of the universal service fund (USF), a 2.9% surcharge on every telephone bill. The USF’s original purpose was to subsidize local telephone companies for providing affordable service to rural areas, service the companies claimed no one else wanted to offer. From 2001 to 2004 the fund transferred nearly $119 million from business and residential customers to the local telephone companies. The fund will collect and dole out $51 million this fiscal year. (The complete 5-year history of the Small Business Chamber’s opposition to the USF can be found at the end of this section of the newsletter.)
In response to the Small Business Chamber’s request, thirteen Senators signed a letter to the Legislative Audit Council asking for a review of the USF. Last month the LAC’s issued its scathing report (http://www.state.sc.us/sclac/Reports/2005/USF.htm) declaring that the USF should be scaled back, focus changed and lack of administrative oversight corrected:
· “The goals of the USF have largely been met.”
· “The state USF focuses on replacing companies’ revenue rather than providing support to areas with high costs for local phone service. The companies do not have to provide evidence of revenue losses or use the funds provided to support basic local service.”
· “The PSC has not ensured that companies receiving distributions from the USF comply with requirements for receiving the funds or have an ongoing need for them.”
· “No financial audits of the USF by an independent third party have been done” as required by the PSC’s own guidelines and administrative procedures.
· “The PSC did not have adequate policies and procedures to administer the state USF.”
· “The PSC did not establish an adequate system to audit information provided by USF participants.”
The universal service fund has been a multi-million dollar big piggy bank for local telephone companies. Small business and residential telephone customers have been forced to put money into this piggy bank and now find out that they may have been ripped off and even helping these companies unfairly keep their competition out of the market (page 18 of the LAC review).
The Small Business Chamber strongly encourages the General Assembly and the Office of Regulatory Staff to quickly implement the Legislative Audit Council’s recommendations. This report makes it quite clear that without immediate reform, small business and residential customers are paying up to $50 million or more a year in unnecessary fees to local telephone companies.
Ways & Means Adopts Half of Workers Comp
When the House takes up the state budget next week, it will find additional funding for the Workers Comp Commission. What it won’t find are funds for a Workers Comp Fraud Unit in the Attorney General’s Office. Both were budget items supported by the Small Business Chamber.
Last September the Small Business Chamber started a process to develop recommendations for reforming our Workers Comp system to control and hopefully reduce premiums. Following an educational workshop on the subject, a task force comprised of diverse organizations was formed to develop consensus reform recommendations.
The task force proposed Workers Comp reforms that addressed glaring systemic problems that were resulting in costly delays, poor information management, classification problems, insufficient control of provider costs, fraud and shifting of claim responsibility. Three recommendations were budgetary in nature, one was regulatory and the other was legislative.
Thanks to the work of Rep. Lewis Vaughn and his subcommittee with the support of Rep. Herb Kirsh and Rep. Harry Cato, the Ways and Means Committee budget includes additional funding requested by the Workers Comp Commission and supported by the Small Business Chamber. Included is the first installment on replacing the Commission’s 1989 vintage computer system. The efficiency and effectiveness of the Commission will be greatly enhanced with this new system.
The budget also includes funding for three positions. An Ombudsman will facilitate cases that may otherwise remain unresolved for long periods of time causing ill will, unnecessary hearings and ultimately higher costs. A Coverage & Compliance Officer will be the system’s first line of defense for preventing and uncovering fraud. A Medical Policy Analyst will be responsible for keeping the cost of health care services for Workers Comp claimants as low as possible through negotiations with providers.
The Small Business Chamber also sought $400 thousand for the funding of a Workers Comp Fraud Unit in the Attorney General’s Office (the AG’s Office did not include these funds in their budget). With a conservative estimate of $41 in premium fraud a year and concerns about claimant fraud, the two SLED agents and one prosecutor in the AG’s office dedicated to insurance fraud simply can’t handle this massive problem. Consequently, businesses playing by the rules are paying higher Workers Comp premiums because of those cheating the system.
Businesses currently pay about $13 million in Workers Comp premium fees every year with only about $3 million going to the Workers Comp Commission. Dedicating only a small portion of these premium fees, now going to the general budget, to the budget recommendations of the Small Business Chamber will ultimately pay off with stabilized and hopefully reduced Workers Comp premiums.
Bi-Partisan Senate Bill Targets
Small Business Income Tax Reduction
For the fifth year in a row, the Small Business Chamber is supporting legislation that would reduce the state income tax on small businesses (S-corps, LLC’s, partnerships and sole proprietors) from 7% to 5%, the same rate paid by C-corps. This year’s bill was introduced last week by Senators Moore, Knotts, Reese, Land, Gregory, Short, Hutto, Grooms and Setzler. Senate Bill 591 would phase the reduced tax rate in over 6 years with the economic impact being approximately $76 million when fully implemented.
Tort Reform Passes House and Progresses in Senate
The House has already passed H.3008, tort reform dealing with venue, joint & several liability, statute of repose and frivolous lawsuits. This week the full Senate is debating S.345 dealing with the same issues. The Senate bill also calls on the Department of Insurance to review data reported from insurance companies to determine if any savings resulting from tort reform are being passed on to their insurance customers. The Small Business Chamber supports reform on these issues.
Environmental Crimes Bill Reaches Senate Calendar Awaits House Judiciary Action
With all apparent concerns to the bill resolved, the effort to give subpoena power to the State Grand Jury to investigate environmental crimes seems to be on track. The Small Business Chamber continues its support of both S.22 and H.3189 in order to prevent and prosecute major environmental crimes that destroy the property value of small businesses and cost tax dollars for clean-up.
Sales Tax Exemption for Medical Equipment Introduced in House
Recognizing that it’s patently unfair for the state to require a small business to pay sales tax on goods they cannot legally collect sales tax, Rep. Ted Pitts has introduced H.3504, which would phase out sales tax on durable medical equipment reimbursed through Medicare or Medicaid. Federal and state law prohibits sales tax on these purchases. Also co-sponsoring the Small Business Chamber supported bill are Representatives Kirsh, Herbkersman, Ott, Haley, J. Brown, J.E. Smith, Bingham, Cobb-Hunter, Hayes, Limehouse and McGee
Bill Excludes Non “Check Cashing” Businesses From Stringent Regulations
Small businesses such as convenience stores and local groceries won’t have to worry about breaking the law when they cash a payroll check for a customer if Representatives Duncan and Cato are successful with H.3490. The bill supported by the Small Business Chamber would exclude businesses that aren’t primarily in the business of cashing checks from the strong state regulations covering true “check cashing” enterprises. These small businesses would still be bound by the fee schedule for cashing checks set by statute.
Blue Laws To Be Eliminated In House Bill
Employees to be Protected
The Small Business Chamber is supporting legislation sponsored by Rep. Ted Pitts and others that repeals Sunday Blue Laws while protecting employees who are “conscientiously opposed to Sunday work.” Statutes prohibiting and regulating the sale of alcohol, beer and wine on Sunday would not be affected.
The issue is one of economics and principle. Economically, businesses in our state’s border counties are losing money to business in other states. This not only hurts our small businesses but also the state’s tax revenue. Within South Carolina, businesses in some counties are unfairly losing customers to business in neighboring counties that have been able to legally change their blue laws.
On principle, the issue is whether government should be telling businesses when they can open and what they can sell at any given time. The Small Business Chamber believes that in most cases the free market should determine these matters.
Universal Service Fund History
In 2000, BellSouth asked the Public Service Commission (PSC) to fund the legislature-created state USF to the tune of $340 million annually. The company argued that new competitors coming into the market did not have to provide costly rural basic telephone service and therefore they needed this large pot of money in order to be subsidized for providing affordable service to rural areas. The Small Business Chamber argued that there was no justification for a $360 million USF, which could cost consumers up to $13 per line per month. If the PSC determined that a USF was needed, the Small Business Chamber advocated a fund of only $36 million. The PSC ruled in April of 2001that the USF should be funded initially at $36 to $40 million and the fund was created.
In 2004, BellSouth and other local telephone companies supported legislation that, among other things, would allow rural telephone companies to raise rates without getting approval from the PSC. They argued that competition from cellular, Internet and cable providers justified being relieved of the legal responsibility to justify a rate increase to the PSC. The legislation they supported specified that two cellular companies serving a rural area constituted real competition for basic telephone line service. The Small Business Chamber opposed this legislation saying that cellular service was not a real alternative for a business’s basic telephone service and that the PSC should continue to hear rate increase requests.
In the ensuing debate in the Senate on this bill that had already been passed by the House, the Small Business Chamber realized that the legislation was going to pass and urged the Senate to support an amendment offered by Senator Jake Knotts calling for a review of the need for USF. The Small Business Chamber argued that if there now was competition for local telephone service in rural areas as BellSouth and other local telephone companies were insisting, then these companies no longer needed to be subsidized through the USF for providing the service.
Senator Knott’s amendment was withdrawn when Senator Scott Richardson suggested that the LAC would be the appropriate agency to review the USF, an action needing only a written request from legislators. Senators Richardson, Cromer, Elliott, Ford, Gregory, Grooms, Knotts, Malloy, Martin, Mescher, Ritchie, Ryberg and Verdin made this request to the LAC immediately following the passage of the BellSouth supported bill. The LAC review was released on February 23, 2005, and largely confirmed the position of the Small Business Chamber.
Small Business Development Center
Completes 25 Years
The Frank L. Roddey Small Business Development Center (SBDC) has just completed its 25th year of service to the small-business community of South Carolina. The fledging program, which started in 1979 as one of the first SBDC programs in the country, is located in the University of South Carolina’s Moore School of Business. John M. Lenti, who serves on the Board of Directors for the Small Business Chamber, is the SBDC’s state director.
In 2004, the statewide program trained or assisted approximately 4,500 clients (almost half of them women and minorities), assisted more than 400 veterans, and conducted 144 training programs across the state. Consultants helped clients raise almost $50 million in capital formation and loans for their business ventures, which saved or created more than 2,500 jobs.
The state SBDC provides quality managerial and technical assistance to the small-business community in South Carolina. The program is a consortium of four universities: Clemson, South Carolina State University, Winthrop, and the University of South Carolina. South Carolina’s SBDC also provides assistance to any size business interested in contracting with the federal government. During the past 10 years, this assistance has helped SBDC clients win more than $160 million in government contracts.
The SBDC is also part of the S.C. Coalition for Small Business and Entrepreneurship, which is composed of the SBDC District Director, the Small Business Administration, SCORE, the S.C. Department of Commerce, the S.C. Export Consortium, the Women’s Business Center, and the S.C. Manufacturing Partnership.