Virginia Small Business Commission

October 1, 1997, Richmond

The Virginia Small Business Commission convened its second meeting of 1997, focusing on credit access, health care, and small business growth and development. It received reports on (i) an important small business micro-loan program, (ii) the Regional Competitiveness Act, (iii) a small business health insurance premium subsidy demonstration project, and (iv) revitalizing retail small business in Virginia's downtowns and main streets. The commission also received a briefing on the activities of the Commonwealth Competition Council.

Health Insurance Premium Subsidies

Approximately 850,00 Virginians are currently without health care coverage. A high percentage of them are low-income individuals with jobs, employed by businesses financially unable to offer health care benefits. A new demonstration, or pilot, project coordinated by the Department of Medical Assistance Services (DMAS), will address this problem, providing health insurance premium subsidies to qualifying small businesses in selected regions. The pilot's subsidies will be funded through the Indigent Health Care Trust Fund. The fund, established in 1989, operates on legislative appropriations and hospital contributions to reimburse Virginia hospitals providing a disproportionate amount of unreimbursed care to indigent individuals.

The demonstration project will provide premium subsidies to full-time employees of small businesses who have not offered employer-sponsored health care coverage for the past 12 months. Eligible businesses must pay at least 50 percent of the premium cost for employee-only coverage, and eligible employees must have gross incomes of less than 200 percent of the current federal poverty guideline. Participating employees must also be ineligible for Medicaid.

According to DMAS, the subsidies will provide about 30 percent of the pilot's total cost. For example, if an eligible employee seeks family coverage requiring a $375 monthly premium, a $127.50 premium subsidy will be paid by DMAS. The employee would pay $187.50, and the employer would contribute $60 (representing 50 percent of an assumed $120 monthly premium for single coverage). The program is slated to begin in the summer of 1998 and will be marketed through HMOs utilizing Essential Health Benefits Plans.

Small Business Micro-Loans and Initiatives

The smallest of Virginia's small businesses are commonly referred to as micro-enterprises, and loans made to meet their credit needs are known as micro-loans. A business needing a $10,000 loan to start a dry cleaning business, for example, may experience difficulty obtaining a business loan from banks, credit unions or other conventional lenders. The reason: loan underwriting and processing costs relative to this loan size make such lending barely profitable, if at all.

The Virginia Enterprise Initiative (VEI), a lending program developed in 1995 in conjunction with the Small Business Development Center (SBDC) program and administered by the Department of Housing and Community Development (HCD), addresses this lending gap. An HCD representative updated the commission on VEI's current status. VEI provides modest start-up loans—many under $10,000—to low- and moderate-income individuals who want to start businesses but are unable to qualify for conventional business loans supported by the SBDC program. VEI has four components: training, technical assistance, micro-loans and follow-up support.

VEI is funded principally through legislative appropriations. In the Commonwealth's current budget biennium, VEI will receive approximately $1 million per year. The funding has helped leverage an impact beyond this amount, through VEI-funded loan loss reserves provided to private financial institutions. According to HCD, VEI's early impact in its first 18 months of operation has been significant. HCD statistics show that over 343 loans were made, creating 261 new businesses and 824 new jobs. Moreover, nearly 1,500 individuals received business training in the process.

HCD also briefed the commission on the small business implications of the Regional Competitiveness Act (RCA), a 1996 General Assembly initiative designed to encourage regional cooperation in resolving key economic competitiveness issues. The Governor announced in September awards of nearly $6 million in RCA economic development incentive grants. The grants were awarded to seven regional economic development partnerships, including partnerships in the Hampton Roads, Northern Virginia, and Shenandoah regions.

The grants are important to small businesses because one criterion heavily weighted in the award selection process is economic development and job creation. According to HCD, small business-related activities in regional plans included micro-enterprise programs, technology workforce training, workforce assessment, and military privatization opportunities. HCD administers the program and will conduct annual reviews of each region's progress in achieving its stated goals.

Competition Council Report

The 1997 General Assembly directed the Commonwealth Competition Council to furnish an annual report on its activities to the commission, in addition to the Governor and the General Assembly. The council, established by the 1995 General Assembly, is designed to identify government services that could or should be better performed, in whole or in part, by the private sector. Additionally, the council is required to develop competitive programs to encourage innovation and competition within state government.

The council's executive director briefed the commission on the council's mission and accomplishments, explaining a five-step process by which the council identifies government programs or services that could be aided by competition. The privatization and competition review process focuses on cost, quality and impact. Several government services currently under review by the council include debt collection by the tax department, bookstore operations at a community college, and computer repair services by a criminal justice agency. The council will be releasing a full report on its 1997 activities in December.

Revitalizing Retail Business

Vacant storefronts in aging retail business districts are a sight familiar to most Virginians. In many communities, retail shopping has moved to suburban shopping malls or to regional super stores offering a wide variety of retail goods under one roof. The commission asked representatives of Virginia's retail, government and economic development communities whether retail small business can be revitalized in the Commonwealth's aging shopping districts.

A representative of the Greater Richmond Retail Merchants' Association told the commission that retail small business's departure from old retail districts has resulted, in some degree, from burdensome business climates some cities and towns create with high BPOL and energy surtaxes, inadequate parking, and poor security—to name several problem areas. He suggested that localities wanting to redevelop their core retail districts should pay attention to how they are taxing their small business base; examine their small retail business permitting processes; and focus on furnishing better security in their shopping areas.

A Metro Richmond Convention and Visitors Bureau representative told the commission that one way to revitalize a core city's downtown is to provide a substantial downtown destination that will create collateral retail opportunities. He discussed a proposed expansion of the Richmond Convention Center in which the center's exhibition space would be nearly tripled. The expansion plan envisions new retail establishments clustered in the convention center's expansion zone, including copy centers and other service-oriented businesses.

The Town of Warrenton's economic development director furnished a different perspective, noting that finding money to do simple things—like painting retail buildings' rear facades to encourage customer use of off-street parking—is often a key ingredient in revitalizing a main street shopping area. Encouraging residential development in main street areas is also important to revitalization and is an area where state and local tax credits could be helpful in encouraging mixed-use building redevelopment (e.g., where bottom floors are renovated for retail and the upper floors for residential use). Also suggested: possibly expanding the state's enterprise zone program (providing business tax credits to qualifying businesses) to include redevelopment and revitalization of retail districts in non-blighted areas.