Using Work Incentives to Fund Micro-Enterprises

Presenter: David Hammis, Senior Partner Griffin - Hammis Associates,

LLC

Self-Employment& Micro-Enterprise

I. Overview: Key SSI/SSDI, Work Incentives, VR, WIA, Housing, etc…. Opportunities, Issues, & Interactions with Self Employment Income and Small Business Start-Up Funding

II. Example: Blending & understanding multi-level financial resources available through Social Systems, Families and Communities

Self-Employment& Micro-Enterprise

III. Recommendations: Providing all prospective business owners with disabilities self employment funding options & choices

I. OverviewI. Overview

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

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

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

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.

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.

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.

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.

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

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

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

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

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

Self-Employment & DDExperiential Assumptions

• Families Taking the Lead – Highest Use

• Is Self-Employment a “Cop-Out” Concerns

• Training and Technical Assistance is Needed

II. ExampleII. Example

Nick’s Business

Video Analysis

$18,000 VR

$10,000 PASS

Medicaid Waiver

$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

$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

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)

WITH a PASSScenario 2004 Totals

Gross Sales: $32,703- Business Expenses: -$10,742Net Profit: $21,961

Starting Cash $ 2,121- Capital Expenses -$3,300+ Depreciation Adjustment: +$1,950+ PASS +$8,828- Owner’s Draw: -$21,961Ending Cash: +$ 9,599

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

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

III. RecommendationsIII. Recommendations

Recommendations

1. Directive to Disability Employment Service Providers:

Provide Self Employment as an employment option

Participate in Training and T/A

Recommendations

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

Recommendations

3. National/State Grant Sponsored Self Employment Efforts

Initial Demonstration & coordinated data & research

Followed by Systems Change Policies

Recommendations

4. Develop “Capital” (CASH) LoansGuaranteed Employment & Self Employment Loans

VR Guarantee Principal Payments Similar to Guaranteed Student Loans Ticket to Work Long Term Payment

Approach

Recommendations

5. Develop a Professional National Trade Organization

To provide structure to professional development & credibility

Recommendations

6. Provide Blended Funding On-going Training and T/A

Within Social Services Including SBDC, SCORE, Banks and Non-

Banks, Corporations, Chambers, et al

Recommendations

7. Develop a Medicaid Waiver Task Force

To review all existing & new waivers for self employment support authority, and concurrence with SSA policies

Recommendations

8. 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