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