Capital News Service

of the Michigan State University School of Journalism

Small businesses face borrowing barriers

By YANAN CHEN

Capital News Service

LANSING—Michigan wants to rely on small businesses to rebuild its economy, but since the financial crisis, it is much harder for small businesses to borrow from banks, according to a new Michigan State University study.

The report by J.D. Snyder at the MSU Center for Community and Economic Development showed that the number of small business loans under $100,000 dropped nearly 20 percent between 2007 and 2010 in Northern Lower Michigan.

Snyder said although the study looked at a 21-county region, it’s relevant to all rural areas in the state.

Startup companies and small businesses have suffered the most from reduced access to credit because they rely on loans to hire people and expand, he said.

Michael Rogers, vice president for communications at the Small Business Association of Michigan, said it is difficult for some small businesses to borrow money, so the association provides information about loans.

“We give them some magazines and websites to make them familiar with how to apply,” Rogers said, “and we also talk with the credit union industry and bank industry and hope they can increase the chances for small businesses.”

He said the association encourages small business to apply for loans and wants banks to simplify the application process and reduce paperwork.

Sridhar Sundaram, a finance professor at Grand Valley State University, said, “Part of what happened in 2008 was the economy went down and business became more risky, especially small business which is exposed to lower revenues.”

When talking about banks tightening the restrictions on loans, he said, “Banks are under pressure themselves.”

Sundaram said banks suddenly found themselves holding bad loans because the value of real estate went down and owners could not afford their loan payments.

On the one hand, banks saw some of loans were not being paid so they were under pressure to tighten the standards, he said.

On the other hand, banks are looking to see how they can protect their loans.

“There should be more funds available for small business,” he said. “The only solution for developing the small business while preventing banks from going back into crisis is that either government or other groups guarantee the funds that the banks gave to small businesses.

“It is a difficult and controversial program because it is risky,” Sundaram said.

The U.S. Small Business Administration (SBA) provides loan guarantees.

Allen Cook, an assistant district director at the SBA in Detroit, said the agency plays an important role for people who want to finance or grow their business. SBA provides a guarantee to banks or credit unions to show the small business will repay the loan as promised.

Cook said SBA has several loan programs.

• 7(a) program: It provides financial help for businesses that handle exports to foreign countries, operate in rural areas and meet other requirements.

• Microloan program: It provides small, short-term loans to small businesses.

• 504 program: It encourages the development of community-based small businesses.

Michigan also has business resource centers in Macomb, Jackson, Alpena, Grand Traverse and Marquette counties that aim to help small businesses get more access to loans.

 

Filed under: Business

Private sector starting to hire new lawyers

By JONATHAN GANCI

Capital News Service

 

LANSING – There may be light at the end of the tunnel for job-hungry law school graduates.

While the state’s economic recovery continues and competition for jobs remains high among an abundance of new and recent law school graduates, lawyers say the legal market is showing signs of growth.

Maureen McGinnis, chair of the Young Lawyers Section of the State Bar of Michigan, said the job climate seems to be improving.

“There was definitely a time period that many of the new lawyers I was meeting were going down different career paths, looking more out of state or opening up their own practice,” said McGinnis, who practices in Troy. “At this point I’ve seen more movement to firms and more opportunities opening up.”

McGinnis said while positions are opening in private practice, the public sector remains stagnant.

“There are so many budget constraints for municipalities across the state that there isn’t much movement in the governmental side of practice. It’s the private side that is showing improvement.”

Charles Toy, the associate dean of career and professional development for Thomas M. Cooley Law School, said that there is a market for legal expertise.

Toy said in every county, at least 40 percent of people who need  representation are unable to afford lawyers.

Toy said that number climbs to 70 percent in some counties.

“There is a lot of demand for attorneys,” Toy said. “The problem is a lot of attorneys are not charging rates and giving services that a lot of our population can afford or needs.”

According to Toy, new graduates need to go to where the bulk of the market is, rather than believing big-firm jobs with high salaries are readily available.

“Most of the work is in small law firms,” Toy said. “The pay and employment rate there is pretty good.”

According to the State Bar, 38 percent of members of its Young Lawyers Section work in firms of two to 10 people.

Toy said that the retirement of baby boomers could have a positive effect on young attorney who are job-hunting.

“For those just getting out of law school, that demographic is going to help,” Toy said. “Attorneys are going to retire and there will be a lot of openings.”

According to Ross Bower, an Okemos attorney, some fields show growth.

For example, Bower said that his firm used to have a heavy load of zoning cases, but now sees growth in tax cases.

Even with improvements in the market, students “can’t graduate law school and expect a job to be waiting,” Bower, who is president of the Young Lawyers Section of the Ingham County Bar Association, said.

“Graduates have to get out there and start networking,” Bower said “They have to make personal contacts to get their foot in the door for that first job. They have to develop personal relationships with people so when a job is available, they’re thought of.”

Rob Tyree, a third-year law student at Cooley’s Lansing campus, said networking is the biggest factor in finding work after academic performance.

Tyree said building connections has landed him a judicial clerkship and will help him get a job after passing the bar examination.

“ It’s important to make professional contacts and to do things in the community,” Tyree said. “That way people could put a face to my name and see what kind of worker I am.”

For some soon-to-be graduates, networking hasn’t been enough.

Jessica Robison, who will graduate from Michigan State University College of Law in May, wants to stay in the Midland area.

“In general it’s tough right now,” Robison said. “It’s an even harder market for me because I‘m more limited in where I want to be.”

After passing the bar, Robison said that bar associations, coupled with experiences with externships, could help her land a job.

According to McGinnis, bar associations can provide recent graduates with networking opportunities, as well as other services.

“A lot of programming has been geared toward resume writing, job interview skills, debt management and alternative career opportunities,” McGinnis said. “There has been a shift in programs offered by bar associations dealing with those types of topics that will benefit someone coming out of law school without a job.”

© 2011, Capital News Service, Michigan State University School of Journalism. Not to be reproduced without permission.

 

Filed under: Business

Startups seek new tax credits

By LAUREN WALKER
Capital News Service

LANSING — A new state tax credit designed to encourage the development of startup companies in one of Michigan’s fastest-growing industries is now available.

Paul Brown, vice president of capital markets at the Michigan Economic Development Corp. said there has been exponential growth in the number of technology startups, but limited access to early-stage capital meant Michigan lost some of them to states with more funding sources.

The Small Business Investment Tax Credit promotes access to capital for early-stage companies by offering a 25 percent personal tax credit on investments in young Michigan-based technology companies.

While the tax credit was modeled after other states’ in the Midwest including Wisconsin, Ohio and Minnesota, it offers less credit to investors, Brown said.

However, he said the appeal for technology seed companies to root themselves in Michigan soil goes beyond the tax credit.

“We don’t need to have a credit that is a higher percentage than other states because we already have a competitive advantage with the large number of incredibly talented engineers, students and the higher education that spends a lot of money on research and development,” he said.

Skip Simms, president of Ann Arbor SPARK, an organization that promotes business expansion, said that the effects of the credit are unknown because of its newness, but ideally the credit will act as a catalyst for releasing more private equity.

He said that the credit encourages potential investors to provide more capital. Those investments will draw the attention of people wanting to grow their business, he said.

Charles Bisgaier, president of ProNAi Therapeutics, said access to capital has been a concern for his pharmaceutical company, which is in the clinical stage. He said that the credit may be the necessary catalyst to attract investments.

ProNAi Therapeutics, in Ann Arbor and Kalamazoo, does research and development of cancer therapeutic agents.

“Any incentive for any businesses which are starting up is valuable,” he said.

“It’s extremely hard to raise money these days. You’re relying on investors who have had profitable investments in the past to reinvest money and the economy has been pretty bad,” he said.

“There haven’t been returns in the investment funds so investors are reluctant to invest,” he said.

ProNAi recently received preliminary qualification for the tax credit program.

The Michigan Strategic Fund can certify up to $9 million in credits and each investor can receive a maximum of $250,000 in credits per year. If each investor received the maximum, 36 investors could receive the credit in one year.

Brown said that 18 investment groups have registered with the Michigan Strategic Fund to receive the credit and more than a half dozen businesses were qualified.

Brown said the response of technology-based startups and investors was expected and that he hopes the entire $9 million will be allocated to companies this year.

“It’s always the first year of any new program — it takes a while to get awareness in the community,” he said.

“I would be very impressed if we were able to use the full $9 million in the first year, and then in years two and three,” he said.

Simms said he believes that the program will serve as a valuable incentive to promote the entrepreneurial culture in Michigan.

Rick O’Connor, chief executive officer of Knowledgewerks in Bloomfield Hills, said that by targeting seed companies, the credit will have positive results for the technology industry.

The company consolidates news from around the world to help businesses make informed decisions.

Knowledgewerks has received preliminary approval for the program.

“The hardest money to get is seed capital. It’s like propagation; one of the basic strategies of it is to be prolific,” he said.

“If I’m a plant, I don’t generate a couple of seeds, I put millions of seeds out there and some of those seeds fall on fertile ground and sprout and take hold and reproduce,” he said.

© 2011, Capital News Service, Michigan State University School of Journalism. Not to be reproduced without permission.

 

Filed under: Business

Prevailing wage law stirs debate

By DAN SMALLWOOD

Capital News Service

 

LANSING – Pay for workers on state-funded projects could drop significantly if legislation introduced in the Senate becomes law.

The GOP proposal would repeal Michigan’s 45-year-old Prevailing Wage Law that mandates construction workers on such projects be paid at prevailing levels.

The lead sponsor, Sen. Arlan Meekhof, R-Olive Township, cited a school construction project in his district as a motivating force behind the legislation.

But proponents of the current law, including union leaders, say prevailing wage is an important safeguard for workers and project quality.

The law requires contractors on projects receiving state funds to pay at least the average wage levels of skilled workers in the fields necessary for the project.

Meekhof said current law meant taxpayers paid far more than they would have for labor costs and too much of a $58 million millage passed by Allendale voters in May of 2007 went to labor costs.

The people “could have gotten a much better price” without the prevailing wage requirement, he said, and “any contractor” in the area could have matched the price the district paid for the project.

In 1994 the prevailing wage law was temporarily repealed due to a court ruling. Before its reinstatement in 1997, a study by the Mackinac Center for Public Policy found the potential savings on labor costs topped 10 percent.

In Ohio, an exemption of public schools from prevailing wage laws allowed that state to save $487.9 million, 10.7 percent of construction spending, according to the Ohio Legislative Service Commission.

Repealing the law, Meekhof said, would remove barriers to state contracts, increase competitiveness and get taxpayers more for their money.

School and university construction projects and many municipal projects fall under the law.

Projects with federal funding fall under the Davis-Bacon Act of 1931, which provides similar protections.

Mark Gaffney, president of the Michigan AFL-CIO, said despite the federal protections, a “very significant amount” of work is covered under state law. He said repealing it would make it easier to give construction jobs to out-of-state firms, calling the proposal “insulting” to Michigan construction workers.

Construction workers, he said, are “easily exploited” because of their field’s temporary nature. Taxpayer-funded jobs must “come back to local firms and local workers at local wage rates.”

Patrick Devlin, treasurer-secretary of the Michigan Building and Construction Trades Council, also said the law should remain unchanged. Far from saving money, repeal would cost the state money in the long term, with less-trained workers lowering the quality of construction.

“Skilled labor doesn’t come cheap and cheap labor doesn’t come skilled,” he said.

Losing prevailing wage, Devlin said, would create an uneven playing field, hurting skilled workers and lowering wages without decreasing costs.

But Paul Kersey, the director of labor policy at the Mackinac Center in Midland, a free market-oriented think tank, called prevailing wage law a “waste of money” that “drives up the cost of construction.”

The law favors unionized workers at a time when they are just over one-fifth of the construction workforce, he said.

Kersey said that the money saved on repeal could keep the state from having to cancel construction projects, something he said is important given the state’s budget crisis.

Meanwhile, in the House, some Democrats want to punish state contractors that repeatedly violate the prevailing wage law or employ undocumented workers. Sponsors include Reps. Tim Melton of Pontiac, Vicki Barnett of Farmington Hills, Jon Switalski of Warren and Jimmy Womac of Detroit.

David Reynolds, professor of labor studies at Wayne State University, called the prevailing wage law “very important,” saying it “guarantees that you have high-quality work” on state-funded projects, keeping construction at “union-quality” levels and making contractors hire “highly trained workers.”

The price of labor, he said, “reflects paying for that high level of training.”

Meekhof disagreed, saying state projects already require a standard that any contractor would have to meet.

Even if workers receive a lower wage, he said those standards would maintain current quality.

However, several studies, including one by an economist at the University of Utah, suggest that repealing such laws doesn’t lower construction costs.

And Wayne State’s Reynolds said the cost of wages must be distinguished from overall project costs. While workers might receive more an hour, those same workers are often better trained and work faster and better.

“What are the ultimate hidden costs?” he asked, adding that the adage “you get what you pay for” applies.

Meekhof, however, insisted he doesn’t look at it as a wage issue, but about “peace of mind” for taxpayers by ensuring the state gets the most for their money.

And the Mackinac Center’s Kersey said the state should “let the taxpayers benefit” from the full scope of the private construction market, insisting that quality wouldn’t decline.

The legislation is pending in the Senate Economic Development Committee. Co-sponsors include Dave Hildenbrand, R-Grand Rapids; Jack Brandenburg, R-Harrison Township; Howard Walker, R-Traverse City and Tonya Schuitmaker, R-Lawton.

© 2011, Capital News Service, Michigan State University School of Journalism. Not to be reproduced without permission.

 

 

Filed under: Business

Local businesses need more nurturing, Snyder says

By KATHLEEN LOFTUS
Capital News Service

LANSING- Gov. Rick Snyder’s pledge to bolster economic gardening to rebuild Michigan means his administration will focus on encouraging in-state businesses.

Economic gardening through entrepreneurship is a development strategy highlighting in-state businesses that produce Michigan jobs instead of concentrating on recruitment of out-of-state companies.

Snyder said in his first State of the State address, “We need to put more emphasis on economic gardening as opposed to hunting. We’ll focus first and foremost on building businesses that are already here in the state.”

Rob Fowler, president of the Small Business Association of Michigan, (SBAM), describes gardening as an entrepreneurial approach to economic development.  It includes identifying expert talent and matching it with businesses that need it, he said.

SBAM’s economic scorecard benchmarks the state in the bottom five nationally.  Business Leaders for Michigan, an advocacy group, wants to move it up to a “top 10” state.

Rapidly growing industries in Michigan include alternative energy, advanced manufacturing, life sciences and homeland security and defense, according to the Michigan Economic Development Corp. (MEDC).

Mike Shore, vice president of communications at MEDC, said there are a variety of programs and training sessions that help local businesses.           “We are empowered by the state to help businesses faster than they would on their own. We are ramping up efforts to help business owners and operators regardless of the circumstances,” Shore said.

According to Fowler, Snyder’s priorities for Michigan coincide with what many small business owners want.

Fowler said, “Of the seven candidates who ran for governor, none understand gardening better than Snyder.  Gardening is a blueprint for what Michigan companies can and will do.” Incentives do not create jobs like gardening will, he said.

Fowler said most businesses that would prosper from such an approach are second-stage companies that have a strong backbone but aren’t fully developed.  They have a staff of 10 to 100 employees.  However, incentives remain part of the state’s strategy.

The Michigan Economic Growth Authority this month awarded tax incentives to nine companies to come to the state or expand here.

They are Avon Protection Systems Inc. in Cadillac; Changan US Research and Development Center Inc. in Plymouth Township; Chemetall US Inc. in Jackson; Crain Communications Inc. in Detroit; Macomb Group in Sterling Heights; Macprofessionals Inc. in Novi; Martinrea Jonesville in Jonesville; MTU Detroit Diesel Inc. in Brownstown Township; and NU-VU Food Service Systems in Menominee.

“MEDC is trying to attract and help young people in school look forward to making career plans with growing Michigan companies,” Shore said.

Michigan is not the only state considering Snyder’s economic growth strategy. California, Florida, Colorado and Washington are exploring it as well, according to Fowler.

© 2011, Capital News Service, Michigan State University School of Journalism. Not to be reproduced without permission.

 

Filed under: Business

Business tax repeal sparks debates, concerns

By DAN SMALLWOOD
Capital News Service

LANSING ­– Republican lawmakers and the governor have made repeal of the oft-criticized Michigan Business Tax one of their top priorities. Despite agreement across party lines that state business taxes are in dire need of change, sharp differences exist about how to do so.

Gov. Rick Snyder has proposed outright repeal of the tax, replacing it with a flat 6 percent tax on corporations. Snyder’s approval echoed a bill introduced by Sen. Dave Hildenbrand, R-Lowell, that would eliminate the existing MBT.

Hildenbrand said the MBT needs to be repealed because it doesn’t meet the criteria for a good business tax. An ideal tax, he suggested, needs to be simple, at a low rate, and must treat all businesses fairly. By contrast, the complexity of the MBT creates too many difficulties.

“The MBT has been a huge hurdle for us to strengthen our state,” he said.

Estimates place taxes lost by repeal at around $2.2 billion per year, which raises concerns about compensating for the decline in revenues. A replacement would mitigate some of this cost, but Hildenbrand said he wasn’t prepared to endorse Snyder’s 6 percent proposal.

Hildenbrand said changes to the budget under the new administration could greatly reduce the amount of revenue the state needs to take in, but stressed the uncertainty of the budgeting process.

“If it looks like we need more revenue, we will look at the various proposals then,” he said.

But Judy Putnam, communications director for the Michigan League for Human Services, said her organization is concerned with cutting business taxes when the state can’t pay for existing services.

“We’re hoping that Gov. Snyder will recognize that people are caught up in all of these difficult changes,” she said.

The state shouldn’t cut services to vulnerable working families, just for the sake of a balanced budget while also cutting taxes for businesses, she said.

Michigan has a projected $1.8 billion deficit for the upcoming fiscal year.

However, Tricia Kinley, senior director of tax and regulatory reform at the Michigan Chamber of Commerce, welcomed Republican moves as a step toward a fair tax system.

Kinley said she is encouraged by the early focus on revising the business tax structure. “Our members are willing to pay taxes, because they use services,” but the current business tax burden, approximately $2.2 billion, is too heavy and its members want a “fair tax” level.

While the chamber supports repeal, Kinley said it stopped short of endorsing Snyder’s proposed flat 6 percent corporate tax because “we haven’t seen anything on paper.”

In the House, Rep. Kenneth Horn, R-Frankenmuth, introduced a bill that would change the MBT without repealing it. Horn emphasized House Republicans’ desire to make Michigan’s business tax “modest and understandable,” but recognized that the costs of some proposals haven’t been worked out.

Horn’s proposal would remove many tax credits in the MBT, eliminate the gross receipts tax and increase the base business income tax from 4.5 percent to 6 percent.

A separate bill by Rep. Kurt Heise, R-Plymouth Township, would eliminate a controversial MBT surcharge on some businesses, retroactive to when it was implemented in 2008. Under his proposal, the state would refund an estimated $1.5 billion.

Republicans, Horn said, are “going to try and simplify it without being too invasive.”

“We’re not going to do this hastily,” he said. “We’re going to do this one right.”

Democrats, led by Rep. Mark Meadows of East Lansing, have proposed their own package, agreeing in principle that the existing tax is onerous and that the surcharge needs to go.

The difficulty, Meadows said, is finding a “measured way to promote business expansion,” while recognizing “changes from a goods-based to a service-based” economy.

Meadows said Republicans are “asking for a lot of faith” in proposing business tax cuts without a clear method of paying for them and called some measures, such as Heise’s retroactive repeal of the surcharge, “not fiscally responsible.” As an alternative, he proposes changing the way the MBT works without drastically altering its structure.

Meadows would remove the surcharge and cut the gross receipts tax in half. To make up for lost revenue, he would reduce tax exemptions, expand sales tax to most services — but cut the rate from 6 to 5 percent — and cut some tax breaks to corporations.

Sen. Bruce Caswell, R-Hillsdale, said that although the MBT has some good points, the law is convoluted, makes Michigan uncompetitive in attracting business and undermines efforts to revive the state economy.

Companies must be able to easily compare the cost of doing business, he said, noting the differences between Michigan’s business tax structure and those of Illinois and Indiana.

And the chamber, Kinley said, hopes any replacement for the MBT will “make Michigan’s business tax climate more competitive.”

© 2011, Capital News Service, Michigan State University School of Journalism. Not to be reproduced without permission.

Filed under: Business

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