[House Hearing, 117 Congress] [From the U.S. Government Publishing Office] BUILDING SUSTAINABLE BUSINESSES THROUGH EMPLOYEE OWNERSHIP AT SBA ======================================================================= HEARING before the SUBCOMMITTEE ON OVERSIGHT, INVESTIGATIONS, AND REGULATIONS OF THE COMMITTEE ON SMALL BUSINESS UNITED STATES HOUSE OF REPRESENTATIVES ONE HUNDRED SEVENTEENTH CONGRESS SECOND SESSION __________ HEARING HELD DECEMBER 6, 2022 __________ [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Small Business Committee Document Number 117-069 Available via the GPO Website: www.govinfo.gov ______ U.S. GOVERNMENT PUBLISHING OFFICE 49-736 WASHINGTON : 2023 HOUSE COMMITTEE ON SMALL BUSINESS NYDIA VELAZQUEZ, New York, Chairwoman JARED GOLDEN, Maine JASON CROW, Colorado SHARICE DAVIDS, Kansas KWEISI MFUME, Maryland DEAN PHILLIPS, Minnesota MARIE NEWMAN, Illinois CAROLYN BOURDEAUX, Georgia TROY CARTER, Louisiana JUDY CHU, California DWIGHT EVANS, Pennsylvania CHRISSY HOULAHAN, Pennsylvania ANDY KIM, New Jersey ANGIE CRAIG, Minnesota SCOTT PETERS, California BLAINE LUETKEMEYER, Missouri, Ranking Member ROGER WILLIAMS, Texas PETE STAUBER, Minnesota DAN MEUSER, Pennsylvania CLAUDIA TENNEY, New York ANDREW GARBARINO, New York YOUNG KIM, California BETH VAN DUYNE, Texas BYRON DONALDS, Florida MARIA SALAZAR, Florida SCOTT FITZGERALD, Wisconsin MIKE FLOOD, Nebraska Melissa Jung, Majority Staff Director Ellen Harrington, Majority Deputy Staff Director David Planning, Staff Director C O N T E N T S OPENING STATEMENTS Page Hon. Dean Phillips............................................... 1 Hon. Beth Van Duyne.............................................. 3 WITNESSES Ms. Mo Manklang, Policy Director, United States Federation of Worker Cooperatives, Philadelphia, PA.......................... 5 Mr. Corey Rosen, Founder, National Center for Employee Ownership, Covina, CA..................................................... 7 Mr. Keith D. Butcher, Partner, Mosaic Capital, Saint Louis, MO... 8 Mr. Scott Lockard, President, Hampton Enterprises, Lincoln, NE... 10 APPENDIX Prepared Statements: Ms. Mo Manklang, Policy Director, United States Federation of Worker Cooperatives, Philadelphia, PA...................... 23 Mr. Corey Rosen, Founder, National Center for Employee Ownership, Covina, CA...................................... 25 Mr. Keith D. Butcher, Partner, Mosaic Capital, Saint Louis, MO......................................................... 33 Mr. Scott Lockard, President, Hampton Enterprises, Lincoln, NE......................................................... 39 Questions and Answers for the Record: Questions from Hon. Velazquez to Ms. Manklang and Responses from Ms. Manklang.......................................... 42 Questions from Hon. Velazquez and Hon. Houlahan to Mr. Rosen and Responses from Mr. Rosen............................... 45 Questions from Hon. Velazquez and Hon. Houlahan to Mr. Butcher and Responses from Mr. Butcher..................... 48 Additional Material for the Record: Bipartisan Policy Center..................................... 51 California Center for Cooperation Development................ 53 CooperationWorks (CW)........................................ 55 Cooperative Development Services (CDS)....................... 57 Cooperative Fund of the Northeast (CFNE)..................... 59 Current barriers of access for use of SBA lending for conversion to an ESOP...................................... 61 Keystone Development Center (KDC)............................ 63 National Cooperative Business Association CLUSA International (NCBA CLUSA)............................................... 65 Ownership America Education Fund............................. 68 Submitted Comments of R.L. Condra............................ 72 Submitted Comments of Carol Fraser........................... 75 Submitted Comments of Linda D. Phillips...................... 77 Submitted Comments of Indiana Cooperative Development Center. 79 Sustainable Economies Law Center............................. 81 Statement from Hilary Abell.................................. 84 Statement from Sarah S.H. Assefa............................. 87 Statement from Andy Browne, MPA, CPA......................... 89 Statement from George Cassiere............................... 91 Statement from Andrew Crow................................... 92 Statement from Ted Lauer..................................... 94 Statement from Jasmin Segura................................. 95 Statement from Kirk Vartan................................... 96 Statement from Jason Wiener P.C.............................. 98 Statement from the Worker-Owned Recovery California (WORC) Coalition.................................................. 99 BUILDING SUSTAINABLE BUSINESSES THROUGH EMPLOYEE OWNERSHIP AT SBA ---------- TUESDAY, DECEMBER 6, 2022 House of Representatives, Committee on Small Business, Subcommittee on Oversight, Investigations, and Regulations, Washington, DC. The Subcommittee met, pursuant to call, at 10:30 a.m., in Room 2360, Rayburn House Office Building, Hon. Dean Phillips [chairman of the Subcommittee] presiding. Present: Representatives Phillips, Davids, Houlahan, Craig, Meuser, Van Duyne, Donalds, Fitzgerald, and Flood. Chairman PHILLIPS. Good morning. I call this hearing to order. Without objection, the Chair is authorized to declare a recess at any time. And I would like to begin by noting some important requirements for this meeting. Standing House and Committee rules will continue to apply during hybrid proceedings. All Members are reminded that they are expected to adhere to these rules, including decorum. House regulations require Members to be visible through a video connection throughout the proceeding so please keep your cameras on. Also, please remember to remain muted until you are recognized to minimize background noise. In the event a Member encounters technical issues that prevent them from being recognized for their questioning, I will move to the next available Member of the same party. I will recognize that Member at the next appropriate time slot provided they have returned to the proceeding. And with that, I am going to move to my opening statement. For many, owning and operating a successful small business is the embodiment of the American Dream. Of course running a small business is not for the faint of heart. It requires hard work and brings new challenges every single day. But the payoff can be immense, successful entrepreneurs create jobs, invest in their communities and drive our country forward. This Committee serves as the voice for entrepreneurs in the U.S. Congress. It is our responsibility to ensure that this dream is as accessible to as many Americans as humanly possible. And that is why I am such a proponent of the concept of employee ownership. I grew up in a family in which business was a means to an end. And the end was not just making as much money as possible, rather, sharing as much with the employees and the communities that made it possible. I have had opportunities to visit employee-owned companies in my district, like Rainbow Treecare, and learning more about employee-owned structures has been very enlightening to me. Employee-owned companies take various forms, but they are united by the fact that they align with the interest of workers and the owners. When an employee-owned business grows, the workers and the communities benefit directly. I have seen the countless benefits of this model back home in Minnesota, home to 265 employee-owned businesses, the most per capita of any State in the Union. In many cases, workers at these businesses boost higher pay, greater job security and better benefits, such as higher retirement savings. In addition to helping workers, the employee ownership model also provides a way for retiring small business owners to pass their businesses along to the people that know it the very best, their employees. Employee ownership is an innovative way to address this retirement wave that is forthcoming. Moreover, converting to an employee-owned structure is an effective succession plan to preserve a firm's continuity, foster employee commitment, and build lasting economic value in a community. Given the long list of benefits associated with this model, it is vital that we ensure that these businesses have access to the federal initiatives meant to support all small firms. Unfortunately, despite the efforts of Chairwoman Velazquez, myself and Members of this Committee, ESOPs and co- ops continue to be virtually locked out of key Small Business Administration programs. Take the SBA 7(a) loan guarantee program for example. In the last 4 years, SBA has only approved 17, that is right, just 17 7(a) program loans to insist in ESOP in requiring 51 percent or more of a business. The loan numbers for co-ops are even worse. ESOPs and co-ops are often kept out of the 7(a) program because of their unique ownership structure and SBA's unwillingness to align their programs to meet the needs of these entrepreneurs. These obstacles have led the SBA in a previous hearing before the Committee and in a recent proposed rulemaking to acknowledge that its current policies are not achieving its goals of increasing employee ownership. Congress took steps to address these issues in 2018 with the passage ever Chairwoman Velazquez's Main Street Employee Ownership Act. The bill included provisions to ease burdensome guarantee restrictions and ultimately encourage more SBA-backed lending to cooperatives and to ESOPs. But unfortunately, the SBA has failed to follow congressional intent and many of the challenges the bill sought to address continue to vex employee- owned enterprises to this very day. It is clear that Congress must do more to support employee- owned small businesses. And that is why last month, Chairwoman Velazquez and I introduced two bills that would build on the Main Street Employee Ownership Act. And finally, finally eliminate burdensome requirements put in place by the SBA. Today, I look forward to examining the potential impact of this legislation as well as other actions that Congress and SBA can take to encourage more employee ownership. I am also excited to hear from our panel today about the benefits of employee ownership, the ongoing challenges that these firms face and the ways that this Committee can better support them all. With that, I would like to yield to the Ranking Member, Ms. Van Duyne, for her opening statement. Ms. VAN DUYNE. Thank you very much, Chairman Phillips, for holding this hearing. And we can all agree that a business' structure and foundation are critically important to their success and longevity. However, amending requirements at the SBA should always be viewed with caution. And it cannot be done without considering all possible ramifications and potential unintended consequences. I look forward to discussing the employee ownership model this morning. However, we must also address that we are currently in the fourth quarter, and the small businesses that I speak to in north Texas have been battling significant market conditions that threaten their success. They continue to struggle with rampant inflation labor shortages, ongoing supply chain disruptions, and a growing regulatory burden. And it is no wonder why small business optimism continues to decline in this country. The National Federation of Independent Businesses, NFIB, the small business optimism index, lists October as the 10th consecutive month below the 49-year average. It is also no surprise that increasing costs continue to remain one of the more pressing issues facing small businesses. With 7.7 percent year-over-year inflation, how could it not be? The total energy index has risen a staggering 17.6 percent over the last 12 months. And many small businesses simply can't sustain in this environment. And as a result of this inflationary time period, the Federal Reserve has moved to increase interest rates repeatedly, thus challenging small businesses even further. Labor shortages continue to be a top concern for our constituents and their businesses. Not only does finding workers pose a major problem, but finding the right skilled workers is seemingly impossible. The latest NFIB report shows 46 percent of owners reported job openings that were hard to fill. Ninety percent of business owners searching for employees found few or zero qualified candidates to fill their open positions. And how can we expect small businesses to succeed if 90 percent of owners are having a hard time finding qualified candidates to fill their positions? Unfortunately, even when our community businesses do have workers, they often struggle with stocking their shelves. Supply chain disruptions continue to impact many small businesses on a daily basis. In October, 31 percent of business owners reported supply chain disruptions have had a significant impact on their businesses. If inflation which has caused rising interest rates, labor shortages in supply chain disruptions weren't enough, the regulatory burden imposed by the Biden administration is also taking a toll. According to the American Action Forum, during the first 2 years of the Biden administration 443 final rules we are creating with a whopping cost of $309.1 billion, along with a staggering 193.1 million new paperwork hours. This is a stark difference compared to President Trump's first 2 years in office. While the previous administration created final rules, they actually saved small businesses $3.4 million and had half of 1 percent of the paperwork hours. Small businesses continue to face these challenges daily and these are the issues this Committee should be focused on trying to solve. Pro-growth policies that support deregulation in the reduction in spending levels must be, first and foremost, on the congressional agenda as they have a true real-world impact on the nation's small businesses, entrepreneurs and startups. I look forward to today's conversation. And I would like to welcome all of today's witnesses. And thank you, Mr. Chairman. I yield back. Chairman PHILLIPS. Thank you. The Ranking Member yields back. And I would like to take a moment to explain how this hearing is going to proceed. The witnesses will have 5 minutes to provide a statement. And each Subcommittee Member will have 5 minutes for questions. Please ensure that your microphone is on when you begin speaking and that you return to mute when finished. Just an announcement, Members of Congress are expected in the Rotunda at 10:45 for the Gold Medal ceremony. So I plan to introduce each of our witnesses, try to get at least through a couple of the opening statements and then we will probably have to break and then reconvene around 1 p.m. So with that, I would like to introduce Ms. Mo Manklang who serves as a policy director for the U.S. Federation of Worker Cooperatives. The USFCW is a national grassroots membership organization for worker cooperatives. Its membership consists of 350 businesses and organizations. And they represent the estimated 1,000 worker co-ops and their 10,000 workers across the country. Additionally, Ms. Manklang is a founding board member of the Philadelphia Area Cooperative Alliance and serves on the board of directors for the Sustainable Business Network of greater Philadelphia. She is a graduate of Drexel University, and we welcome Ms. Manklang. Or next witness is Mr. Corey Rosen, who is the founder of the National Center for Employee Ownership. NCEO is a nonprofit organization with a mission to help employee owners thrive. Mr. Rosen has authored numerous books articles and research papers on employee ownership and has been recognized as one of the world's leading experts on employee ownership. Prior to founding NCEO he taught politics at Ripon College, and worked in the Senate for 5 years where is he helped initiate and draft legislation on ESOPs and employee ownership. Mr. Rosen received his Ph.D. in political science from Cornell university. We thank you for joining us today, Mr. Rosen. Our third witness is Mr. Keith Butcher. Mr. Butcher is the founder and partner at Mosaic Capital. Mosaic Capital is a small business investment company that is licensed and regulated by the SBA. The fund focuses on acquiring companies through an employee stock ownership plan buyout. He also serves as managing director with Butcher Joseph & Company, which is an ESOP-focused investment bank. Prior to founding Mosaic, Mr. Butcher served as an executive president of Purcell Tire and Rubber Company, and as an executive director with Morgan Stanley. He received his B.A. in international business and finance from Bradley University and his Doctor of Jurisprudence from Wake Forest University School of Law. We thank you, Mr. Butcher, for being here today. I now yield to the Ranking Member to introduce our final witness. Ms. VAN DUYNE. And our final witness would like to be introduced by Congressman Flood, who he is from his home district. Chairman PHILLIPS. I recognize Congressman Flood. Mr. FLOOD. Thank you, Chairman Phillips. Thank you, also, Ranking Member Van Duyne. It is my pleasure to introduce Mr. Scott Lockard of Hampton Enterprises. Scott Lockard is a lifelong Nebraskan. He grew up in Stella, Nebraska, studied construction engineering in Omaha and has worked with Hampton Enterprises, a company based in Lincoln since 2007. Earlier in his career, Mr. Lockard worked as a project manager on the construction of Pinnacle Bank Arena. The basketball arena for the University of Nebraska Cornhuskers. Since then, Mr. Lockard had progressed quickly through the ranks within the company he works. He currently occupies a position of president of construction. Mr. Lockard's experience in construction gives him unique insight into some of the economic headwinds facing small businesses across the country. He can also speak with authority about the challenges of wrestling with inflation, supply-chain issues and labor shortages. His perspective will be valuable to the Members of this Committee. Mr. Lockard, I look forward to your testimony. Mr. Chairman, I yield back. Chairman PHILLIPS. Thank you, Mr. Flood. With that, I would like to recognize Ms. Manklang for 5 minutes for your opening statement. Ms. Manklang. STATEMENTS OF MO MANKLANG, POLICY DIRECTOR, UNITED STATES FEDERATION OF WORKER COOPERATIVES; COREY ROSEN, FOUNDER, NATIONAL CENTER FOR EMPLOYEE OWNERSHIP; KEITH D. BUTCHER, PARTNER, MOSAIC CAPITAL; AND SCOTT LOCKARD, PRESIDENT, HAMPTON ENTERPRISES. STATEMENT OF MO MANKLANG Ms. MANKLANG. Hello. Thank you very much. As Representative Phillips said, my name is Mo Manklang. I am here to represent the U.S. Federation of Worker Cooperatives. Thank you so much to the Subcommittee, especially Subcommittee Chairman Rep. Phillips for creating a space to address this important issue. As policy director, I have a ground-level view of challenges and successes of our employee-owned businesses. And I am attuned to the needs of the growing field. Worker co-ops are increasingly recognized and a valued solution to economic challenges. They strengthen companies, they reward workers and they prevent job loss in the case of converted businesses. Over the next decade, this converts massive job losses in the succession crisis for the 2.34 million businesses that are currently owned by baby boomers, eminently facing closure or sale. This gives the workers opportunity to fill the shoes of originating owners as Representative Van Duyne mentioned a little bit earlier. The worker coop model offers many benefits to its Members, there is typically small and strong small businesses. Typically in what it is paying its workers, paying an average of $19.67 per hour often in insecure industries like retail, manufacturing, food service, home care and childcare. Worker co-ops allow people like Mr. Lockard on this panel to benefit directly from the value that they create, allowing them to build skills, to grow professionally. And worker co-ops also have a higher success rate than typical small businesses. In 2018, we were proud and we were energized by the passage of the Main Street Employee Ownership Act, which passed with overwhelming bipartisan support. This legislation aimed to improve access to capital and technical assistance, including financing the sale of business to their employees, working with small business development centers to provide training and education on employee-ownership options and reporting on the SBA's lending and outreach to employee-owned businesses. This clear mandate from Congress that recognized employee ownership was really important for this highly underserved sector that has really long sought reasonable access to these programs. Unfortunately, we haven't seen any meaningful support from the SBA since the passage of Main Street Act with regard to financing outreach or education. In the 5 years that I have been on staff with the Federation, I have only been able to find 2 cases ever of worker co-ops being able to actually access 7(a) loan programs. It was our hope and expectation that we would see this number rise, and that we would see more worker co-ops being able to access these vital resources provided by the Small Business Administration. This is about an even the playing field with other small businesses, in particular, regarding the personal guarantee requirement which has created a distinct disadvantage for co- ops. Asking a single member, or the selling owner to take on ultimate responsibility for the loan is directly at odds with the shared ownership structure of cooperatives which shares the financial burden across multiple co-op members who are all deeply connected to the business. We see two big issues in regard to support of employee ownership, it is education and it is opportunity. Education is needed for business owners, service providers, financial institutions and the SBA itself. We know at least two different worker co-ops who were actively discouraged from pursuing a co- op model in their startup days, which we believe was because of a lack of understanding of model. Financial institutions that are unfamiliar with co-ops and ESOPs deprioritize their applications during the COVID-19 pandemic with many of the worker co-ops who applied for the Economic Injury Disaster Loans and the Paycheck Protection Programs were denied or ran into significant challenges in accessing these business saving resources. And we simply also need access to opportunity. We understand the importance of ensuring that people have skin in the game, but they have deep commitment to ensuring the success of the business, the repayment of their loans. The shared ownership structure of worker coops actually make employee- owned businesses more dependable, more resilient, better able to weather economic downturns, and less likely to lay off their workers as we have seen over the past several years. There are many examples of co-op loan programs that resulted in lower default rates that SBA loans with no personal guarantee. For instance, Intermediary Lending Pilot Program, which actually was a SBA program, but not the 7(a), resulted in 17 worker co-op loans with a zero default in 16 of those businesses still operating. Workers co-ops need the full access to the full range of SBA's tools to foster and create stable, higher retention jobs that empower people and provide workplace flexibility. We know that the SBA has programs and assets that will spark significant growth in the worker co-op sector and save jobs and keep businesses rooted in their communities. On behalf of a co-op community, we thank the Small Business Committee for their attention to this issue. And we looked forward to working with you to ensure a prosperous future for all small businesses across the U.S. Chairman PHILLIPS. Thank you, Ms. Manklang. Now I will recognize Mr. Rosen for 5 minutes. And after Mr. Rosen's opening statement, we are going to go into recess for the Gold Medal ceremony and reconvene at 12 noon sharp. Mr. Rosen, you are recognized for 5 minutes. STATEMENT OF COREY ROSEN Mr. ROSEN. Thank you very much. I really appreciate this opportunity to talk to you today. 45 years ago I was a Staff Member for the Senate Small Business Committee working on a bill to create the Small Business Employee Ownership Act, which would authorize the SBA to make loans to ESOPs. The SBA didn't really do anything on that, much like it hasn't done very much on the Main Street Act. In 2018, I had the privilege of working with Members of both this Committee's staff and the Senate Committee's staff to try to fix these problems and we thought that the legislation that was passed would, in fact, do that. But again, the SBA for reasons I really don't know has decided that it doesn't want to pursue any of this. Why should it? Well, there are about 6,500 privately held ESOP companies in the United States, and those companies have a long track record. First, they have an impressive political track record. The tax benefits for ESOPs have been supported unanimously by Members of both parties. It is one of the few political ideas that can claim that. Secondly, these companies perform well. With respect, for instance, to Representative Van Duyne's comment about turnover, ESOP companies have about 70 percent lower voluntary turnover than comparable companies in the food industry, according to a study we did this year. And they have turnover rates in general, about half of those of comparable industries. At a time when retirement is increasingly unavailable to people--fifty percent of the private-sector workforce participates in no retirement plan at all. They have a median account balance of zero. The mean account balance for participants in ESOPs is $132,000, and most ESOP companies have a 401(k) plan on top of it. ESOP companies grow faster, and they lay people off one-third to one-fifth the rate of comparable companies. And really importantly for this program, the default rate on ESOP loans is two per 1,000 per year. Let me repeat that: two per 1,000 per year. This is a program you think the SBA would love to finance with a default rate like that. So what are the problems? Why aren't there more ESOPs given the tax benefits and performance benefits? Well, one is, and Mo alluded to this in respect to co-ops too, that companies simply don't know they can do this. There are all sorts of misperceptions about what ESOPs are and how they work. And we know from efforts at State level programs to create more outreach on ESOPs, a handful of States that do that, that when information is provided to people, a lot of companies will do ESOPs without any further intervention because of all the benefits that these plans have. And we envision that the Small Business Administration would conduct these outreach programs, which could be done at an extraordinarily low cost via partnerships with the nonprofit and for-profit sector. But they didn't do anything on it, even though the law specifically required it. They also threw up all sorts of obstacles: the personal guarantee, the equity guarantee. They require that there be a separate valuation when ERISA already requires an extremely detailed valuation for an ESOP company. Requiring a separate valuation takes a great deal of additional time, and for reasons I can explain in questions if you are interested, raises additional fiduciary risk. We were expecting, and the law said, that the SBA should make these loans available through the 7(a) preferred lender program, but the SBA didn't do that. So companies say, ``Well, do I really want to go through this detailed bureaucracy with the SBA to try to get one of these loans?'' And for many people it is just not worth it. The SBA is asking companies to get a letter of determination before they do these, and that is not practical either. All of these things have made the SBA Main Street Employee Ownership Act a failure. And the regulations that it proposed to try to fix this problem don't even address it. Thank you very much. I really appreciate this opportunity. Chairman PHILLIPS. Thank you, Mr. Rosen. With that, our Committee will recess and reconvene at 12 noon sharp. And with that, we will see you in an hour. [Recess.] Chairman PHILLIPS. Everybody, I will call the meeting back to order and begin with Mr. Butcher, who I will recognize for 5 minutes for your opening statement. Mr. Butcher. STATEMENT OF KEITH D. BUTCHER Mr. BUTCHER. Well, thank you and good afternoon to everyone. My name is Keith Butcher, and I am the founder of-- one of the founding partners of Mosaic Capital Partners, which is a small business investment company that is licensed by the SBA, and also the founder of an ESOP M&A advisory firm called Butcher Joseph & Company. I started my career in 1998 as a young lawyer and worked on my first ESOP transaction back then, in 1998-1999, an ESOP buyout. And coming from a small town in Nebraska, it really was a fortunate opportunity for me to see it in action and to watch a company transition from a family business, family-owned business to the employees. And, frankly, I didn't even know this structure existed back then when I entered my law practice from law school. Over the last 25 years, I have devoted my practice to employee ownership. I have worked on 300-plus transactions, enabling companies to transition into employee ownership of every size, of every place in the United States, and frankly, almost any industry you can imagine. And through that process, I have watched how valuable this can be for communities and for employees. I come to this meeting with a little different perspective, I think, than the prior speakers, because I view Mosaic Capital as a success of the SBA in entering the employee ownership world and creating impact on it. And so the first thing that I would say is, if we assume that it is truth that employee ownership and all the benefits of it align with the SBA's mission, then to me, there is just a massive opportunity for the SBA, and that it is more of--I focus more on the opportunity in front of us. And that opportunity presents itself because we have this epic number of baby boomer entrepreneurs who have to do something with their businesses. Over the next 10 years, a massive number of businesses are going to need business succession, and they are going to have to figure out who is going to take the lead for these businesses. The vast majority of them, but for a solution from the SBA or some other capital provider, are going to get sold to consolidators. And if there is a market for their business, that is what will occur. And it is going to happen in a-- private equity has become a massive pool of capital, and they are going to consolidate into those industries. And so, the opportunity is for the SBA to do what it does best, which is, it creates capital programs and it provides solutions in a really risk-adjusted fashion to be able to enable those markets to go. I give the example of Mosaic Capital. We received our license in 2014. We have invested roughly $150 million into enabling 12 companies to move into employee ownership. We created 1,400 employee owners. And ultimately, we project that we will produce something in the range of $130 million to $150 million of retirement value for these employees, all of that enabled by the SBA, allowing us to go through the process and issuing us a license, because it is the ultimate public-private sort of partnership. What I see with the 7(a) program is, is that there is the capability at the SBIC program level for companies of those sizes--the 7(a) program would be a lower size one. It would be sort of $15 million and below valuation companies. And if the 7(a) program would embrace that market, then it would be a viable solution to consolidators. To date, it is not. Corey said it earlier. There are 6,500--I think for 20 years, I have been telling people there are 6,500 companies that are ESOP-owned. And the reason for the lack of net growth is lack of capital availability. It is the reason we created Mosaic, so that we could create a market-competitive transaction. We enter a traditional M&A market process and we win over other options, because owners want to do this if it is a good idea for their families. And they ultimately are stewards for their families and they have to have a good risk-adjusted alternative. The same thing is true of smaller businesses, where if we had the 7(a) program, if they would embrace this structure, then you would allow professionals out there to be able to offer up to these business owners a viable solution that would compete with other options, which today, it is really a seller note work your way out of the business market, and it is not competitive. Chairman PHILLIPS. Thank you, Mr. Butcher. Thank you. And last but not least, Mr. Lockard, you are recognized for 5 minutes for your opening statement. STATEMENT OF SCOTT LOCKARD Mr. LOCKARD. Good afternoon. First of all, I would like to thank the Committee for allowing me to testify today and share some of the challenges that we small businesses are facing. This is certainly an unprecedented time and challenges that we face are, in some cases, crippling. My name is Scott Lockard of Hampton Enterprises, located in Lincoln, Nebraska. We are a nearly 75-year-old small business that has two main focuses: commercial construction, as well as leasing and development. With just over 70 employees, we own and lease nearly 900,000 square foot of commercial property. We built out, lease it, and maintain it with our own staff. Since the majority of our tenants are also small businesses, we have the unique perspective of seeing how small businesses are being impacted and affected due to the current economy. Like many businesses around the country, labor has been a major factor to our business and industry. On the construction side, we struggle to find an adequate supply of employees who are skilled in the construction industry, or willing to learn. We offer on-the-job training, and we have worked with both vocational schools as well as local universities in order to find and train workers. However, there continues to be a lack of skilled workers in our industry. The majority of the subcontractors that we deal with have also felt this pain. Unfortunately, since there is a scarcity of skilled workforce, typically the subcontractor market gains its employees by poaching from their competition. This, along with the historic amount of construction work over the past few years, has led to higher-than-normal wages. We are having an increase of wages for current employees as well as starting out wages higher for new employees who are not skilled yet. This has been a huge impact to our construction cost. Additionally, the supply chain has had significant impact to the construction industry. We have seen major projects that have delayed due to the availability of materials. We have seen switchgear and components, electrical components, that typically take 6 to 8 weeks to deliver, now take 6 to 12 months to be delivered. HVAC equipment, like rooftop units, typically would take 12 weeks from the time the order was placed, are now taking almost a year or longer in order to be delivered. This, again, is a combination of parts not being available at the factory and labor not being available at the factory to build these components. These delays have added to the construction cost, but they also impact our ability to get our projects complete. I had one tenant that was delayed for several months because the switchgear that we needed for their space was unavailable. We tried multiple avenues to find another solution. Ultimately, we had to complete the project and wait until these components arrived, thus delaying their move-in and delaying our revenue. We have another project where the rooftop units were ordered on time, but the delivery date has moved multiple times to the point that it ended up delaying the completion of the project. In both of these cases, not only did it add cost to the construction project, but also lost revenue for us, as the landlord, for the months of delays that they sat until the tenants were able to move in. These are only a couple examples, but I certainly could speak all day of the impact of these delays and the short supply of material. The combination of labor shortage and supply-chain issues have increased construction costs nearly 40 percent of what we saw just 2 years ago. Supply chain issues will be solved and, hopefully, after another 6 to 12 months we will see improvement. However, we likely won't see costs return to a reasonable range, particularly in the labor market. I question the long-term impact on our industry with these rising costs. As a landlord, our tenants have had many struggles. We have had some retail tenants that have struggled when COVID hit, with the shutdowns that affected their businesses. It seems that the labor market has not returned to the same level it was prior to COVID. For the most part, their customers have returned to the stores. However, supply chain issues and labor costs have affected them. Their cost for labor and product increases significantly. They are only able to adjust their cost of their goods slightly, for fear of losing customers. In some cases, our tenants have had significant fears that they will not be able to survive, and will have to shut down. Not only would that be tragic for these businesses to close, but the impact to us, as landlords, would also be significant. We are looking at an apartment development and adding market rate apartments in Lincoln. Our town has a housing shortage and with the current market, due to construction costs as well as rising interest rates, we have looked at our pro formas and we have had to put this on the back burner. Even though there was a huge demand for housing, the cost associated with it and rate of return is just not effective. At the end of the day, we still hope that we can improve, and we have to have hope for where things will change. We continue to look for ways to overcome challenges that we face and keep moving forward. However, we need to see policies put in place that will reduce these challenges, not restrictions that will add cost and frustration to how we operate. Thank you again for your time today. Chairman PHILLIPS. Thank you, Mr. Lockard. And thank you to all our witnesses to for being with us today. I am going to begin by recognizing myself for 5 minutes. Starting with you, Mr. Rosen. Recently, Chairwoman Velazquez and I introduced two bills to address the barriers that have been put in place by the SBA to increase lending to ESOPs and co-ops and facilitate transfers of ownership. So, Mr. Rosen, is it safe to say that these bills are essentially technical changes, at best, and that the SBA already has the authority to make these changes in order to streamline 7(a) lending to ESOPs and co-ops? Mr. ROSEN. Absolutely. Having had the chance to discuss this with your staff and to look at the legislation, what these two bills are doing, basically, is just telling to do the SBA what I know from personal experience with the Main Street Act was what we expected the SBA to have done on its own initiative. And, frankly, the ESOP community and the co-op community were shocked when the SBA came out with the operating procedures that were directly contrary to the law. So there is nothing in the current law that the SBA couldn't do to enact all these things. And I hope that they will. And maybe the legislation, if it passes, will further cement that. Chairman PHILLIPS. And, Mr. Rosen, quickly, in your opinion, any reason why you think the SBA has failed to do so? Mr. ROSEN. It is hard for me to speculate. I have not talked to anyone at the SBA who has told me why they don't want to do it. But there is this long four-decade-plus experience with the SBA resisting these ideas. And I can only guess that one of the reasons is that this is something new. This is an added responsibility. The SBA has, of course, had a lot of things thrust upon it in the last couple of years. But historically, the SBA just has viewed employee ownership as kind of an outlier that they don't really want to get into. They did, in their regulation, say something very interesting, which was that it really would be better, actually, if the SBA just loaned to a few employees to buy the company, because that would be cheaper than doing all the compliance with an ESOP. It is expensive to do an ESOP, for these small companies maybe $100,000 to $200,000 to set these plans up. Of course, selling your company any way is expensive, so that is an important comparison. But if a group of employees tries to buy the company with after-tax dollars, a $3 million business would require $4.5 million or so in pretax profits to buy out the business, imposing enormous risk on those individuals and $1.5 million more in cost than an ESOP would, because an ESOP is all pretax. Chairman PHILLIPS. So, Mr. Rosen, we are very like-minded. I want to get to Mr. Butcher, but I appreciate your perspective on that subject, and we are like-minded. Mr. Butcher, as you are well aware, the formation of employee-owned businesses has relied primarily on an especially dedicated subset of sellers who are willing to forego liquidity at closing and instead self-finance a significant portion, usually of the transaction, with a note that is paid back by the company over 5 to 10 years. So can you please share your perspective on the seller financing issue and the barriers to adoption that it presents to the expansion of employee ownership around the country? Mr. BUTCHER. Yeah. I mean, as you stated, that is the traditional structure, particularly for the lower end of valuation. So if you are, you know, below, I would say, $25 million to $15 million of valuation, there aren't a lot of capital markets available to you. Part of the reason the SBA 7(a) program exists in the first place, right, for companies of that size. And it is so different for ESOP transactions. So, to your point, what you end up with is really two groups of folks that will support doing an ESOP, either companies that don't have another viable option, and, so, it is kind of like a transaction of last resort, or companies where it is a true believer family entrepreneur who will forego liquidity in order to do the ESOP transaction, because they value that legacy so greatly. And there are those folks for sure. But what that creates is a niche of a niche of a niche, and it is why it is not growing. If you enable capital, you will create a competitive alternative. It may not be complete liquidity in these transactions, and I don't think you have to in the lower middle market like that. But you will create a competitive option that will enable the mainstream of owners to make that practical decision for their family and do that instead of selling, which is what we have been doing at Mosaic. Chairman PHILLIPS. Thank you, Mr. Butcher. My time is expired, so now I recognize my colleague, Ms. Van Duyne Texas, the Ranking Member of this Subcommittee on Oversight, Investigations, and Regulations. Ms. VAN DUYNE. Thank you very much, Mr. Chairman. Mr. Lockard, I want to thank you for being here today and for being so patient with our schedule moving around. But I also want to congratulate you on being with a business that has a 75-year successful career. You are obviously doing something right. How do you see--given the longevity of your business, how do you compare these times of uncertainty to times in the past? Mr. LOCKARD. Well, there are definitely a lot of questions as far as what the next year, year and a half will look like for us. As I alluded to earlier, we have projects of our own that we put on hold due to construction cost and rising interest rates. They are not economically feasible for us to move forward. We are conservative as a whole. We have weathered some pretty tough times in the past. In 75 years, we have a history of laying off one time. That was in the nineties. And we were able to bring most of those employees back into the company. We try to keep everybody as if they are part of our family. You know, we want them to have a stable job, stable employment. Values are very driven within our company. We have had a lot of success over the past couple of years with the economy, especially on the construction side, and we have done very well to build up our company to be strong, to weather the next storm that we are going to face. Ms. VAN DUYNE. So can you share with this company how your small business is handling the current environment, you know, during which time prices have skyrocketed and capital has become much harder to get, with the rising interest rates. And are there any projects that you decided not to go through with as a result of interest rate hikes? Mr. LOCKARD. We have a customer who just decided not to build a new grocery store in Columbus. It was about a 55,000- square-foot facility. We were looking forward to trying to build that store for them. And the plug was just pulled on that due to construction costs being significantly higher than what they had expected. We also have an apartment development that we were looking to build on one of our properties. Again, as I alluded to in my testimony, the market is there for housing. There is a shortage of housing. This particular development is not low-income housing. It would have been market rate. It wouldn't have made sense to do low-income housing in this development. But, again, due to construction cost and interest rates, the rate of return is just not there to where it makes sense for us at this time to move forward with that project. Ms. VAN DUYNE. So we are losing grocery stores and housing? Mr. LOCKARD. Uh-huh. Ms. VAN DUYNE. So more often than not, we see the federal government hinder growth of small business instead of helping. What do you think is the biggest burden that you see coming from the government right now? Mr. LOCKARD. Well, locally, there is always red tape to get through anything. I mean, even permits in our city. Unfortunately, it used to take 2 to 4 weeks to get a permit done, complete on time. Right now, it is taking as much as 4 to 6 months to get a building permit, which is absolutely ridiculous. I don't see a lot of just help from our local government, at least. And then, obviously, with inflation issues, as I alluded to, they are very real, especially for our small businesses. It is not a political term in our industry. It is not a political term with our tenants. It is something that we face every day, inflation and rising cost. And when our tenants don't have the same profitability they have, because their cost of labor and their cost for goods is up, but yet, they can't raise their prices because they are afraid they can't get any more customers, it is sending them out of business. And if they go out of business, they affect our business. Ms. VAN DUYNE. I represent north Texas, Dallas-Fort Worth area. And small businesses are telling me all the time that they are having a really hard time trying to find labor, especially skilled labor. Are you seeing the same thing in your area? Mr. LOCKARD. Yeah. It has been a challenge for about 6, 7 years now. It is a combination of a lot of things. One, at least on the construction side, for decades, we have told students, Hey, stay out of construction and go get a college degree, you need that in order to get ahead in life. And so we have steered people away from the trades. Additionally, with COVID, when it hit, and, unfortunately, the unemployment benefits that were added, it was a negative impact to us and our industry. I had an electrician friend of mine who was offering jobs to electricians, but they were getting paid for unemployment and they refused to come work for him while those unemployment benefits were in place. Now, I believe those unemployment benefits were a good thought. Unfortunately, it had a negative impact to our industry where we had a huge need for labor. Ms. VAN DUYNE. Awesome. All right. I yield back. Thank you very much for your testimony. Chairman PHILLIPS. The gentlelady yields back. And now I recognize the gentleman from Nebraska, Mr. Flood, for 5 minutes. Mr. FLOOD. Thank you, Mr. Chairman. I mentioned this during my introduction to Mr. Lockard, but I would like to reiterate how pleased I am that I have a witness from my district in Lincoln, Nebraska. It sounds like Mr. Butcher is also from Nebraska. This is a fantastic opportunity for the Committee to hear firsthand what people on the front lines of small business are hearing, what they are seeing. Your testimony, Mr. Lockard, tells really a troubling story. The construction and commercial real estate sectors have been some of the hardest hit, between the shutdowns on COVID-19 and the inflation that has followed. You were talking specifically about supply chain issues. And you were talking about heating, ventilation, air conditioning in units, something that a lot of Americans don't think about every day. But in construction, when those delays happen, that is very real. Can you just really walk us through what is behind the extreme delay in getting these units and affecting the end of a construction project? Mr. LOCKARD. Sure. I believe it is a combination of multiple things, again: One, the construction volume is at high levels right now. So the availability for product is down just due to the demand of these products. Rooftop units are typically custom-made for a project. They may have different components in there for humidity, humidity control, as well as energy efficiencies. So they are basically built at the time of the order. Some of those parts are coming from overseas, and are not available at the factories, as well as labor at the factories, just they don't have enough bodies to build for all the orders that are there. The delay to us, as a contractor, and to our customers, as owners, is pretty significant. Added cost of what we call general conditions, which is supervision, dumpsters, anything that actually you need to manage the project, the longer it takes the more those costs increase. And then the lost revenue of not having a tenant in there or having a business not being able to operate is significant. Mr. FLOOD. Thank you, Mr. Lockard. I would like to pivot for just a second. I am interested in this topic of ESOPs. And I have a question for Mr. Butcher and maybe one of our other witnesses. Have you, Mr. Butcher, experienced a transaction where you are dealing instead of with an ESOP, a limited cooperative association? Have you used one of those before? I know in Nebraska, we made this possible in 2008 by passing a law. Do you have any experience with limited cooperative associations? Mr. BUTCHER. I don't. I am familiar, actually, with the structure, but we haven't executed on it. Mr. FLOOD. Would it be possible that one of these limited cooperative associations would be more cost-effective as opposed to setting up the Employee Stock Ownership Plan? Mr. BUTCHER. I don't know that it would be any different. I mean, I think if you look at--and I think the cost piece, from a contextual thing, is kind of overblown in the sense that if you look at the real cost of putting these transactions in place versus the tax savings and the efficiency of that company, and just the retention of employees, particularly today, it far outweighs that initial cost. But I think that it is more they are different types of structures and they probably apply to different kinds of companies. And I am not an expert on co-ops, but I generally see them as being on the smaller end of business, whereas ESOPs can scale really big. I mean, there are numerous multibillion revenue companies out there that are in the ESOP structure. Mr. FLOOD. Thank you very much. You know, I appreciate this topic. I think that finding ways to make businesses work, especially in rural America, is important. And it does require some creativity and structure. One of the benefits of cooperatives--and we have seen cooperatives scale very large in ag areas in Nebraska. And one of the benefits I see with the limited cooperative association is you have the ability to bring in that private investment to help affect the buyout and allow the rest of the employees to have the opportunity to enjoy some meaningful ownership and build some wealth. That said, I want to thank Mr. Lockard for coming from Lincoln, Nebraska, today. His testimony about the frontline struggles of where we are at with business and the ability to deliver for customers and ultimately to grow our community is really important. And the fact that he made time to come today is really appreciated. With that, I yield back. Chairman PHILLIPS. The gentleman yields back. And now I recognize the gentleman from Pennsylvania, Mr. Meuser, the Ranking Member of the Subcommittee on Economic Growth, Tax, and Capital Access. You are recognized for 5 minutes, Dan. Mr. MEUSER. Thank you very much, Mr. Chairman. And I thank the Ranking Member as well. And thanks very much, Mr. Lockard, for being here and to our other witnesses. So ESOPs are certainly a very interesting subject, I think a very important concept. There are some great situations where ESOPs have worked out very well, or in the intended manner. There are also a number of times that ESOPs don't work out very well, particularly if the company fails. Right after the loans are taken out, the current owners cash out in many ways, right, and then move forward with less- than-favorable returns, and the company starts declining. Then those loans that took place as well as the new shareholders that don't do very well, right? I mean, you know, an ESOP is based upon future growth, based upon the future. And the thing is this, and I am interested in what some of the witnesses have to say. Mr. Lockard, I am all for it. I think the SBA loan program should work with ESOPs in a far better way. Mr. Chairman, you brought up there were 17 or something of that nature. So yeah, that doesn't make any sense at all. It should be utilized more effectively. But the problem is--and I have had enough experience in business, when you have got urgent and important other matters taking place, such as company survival, you are not necessarily--you are thinking about next year, but you are working for survival for today, not so much on growth and such restructuring in the matter of ESOPs. So in our Committee--and it is not a reflection of the Chairman of this Subcommittee--we have not focused on some of the urgent and important matters that small businesses are taking right now. And meanwhile, we are the only Committee that advocates--not necessarily by definition, but as far as I am concerned--for small business, 100 percent. So energy issues that our small businesses face, gasoline, diesel, utilities. I mean, I just visited a company just recently that changed over to natural gas for the purpose of saving maybe as much as $1 million a year. You know, they are about a $40 million company, about $3 million in central overhead costs. It cut back to $1 million, because of the increased natural gas. They are up to $5 million-$6 million, thus losing $3 million off their bottom line before we get out of the gate, just for the year, and moving into 2023. That, of course, lowers profits, lowers wages, lowers tax revenues, right, because their profitability is down. But we are not talking about that. Grocery stores. Grocery stores are hurting, right? I mean, they are in a place where they feel it is a perfect storm between workforce problems, increases in their cost, increases of their products, delivery issues. I mean, the list goes on and on with grocery stores. They are barely surviving, small mom-and-pop grocery stores to larger grocery stores. So, you know, these are the things that are going to keep all these grand ideas of employee ownership from happening. And we have got to stop it. We need a far more competitive economy. We need to make small business tax cuts permanent. We need to reduce the assault on domestic energy. We need to bring down diesel costs, and we need to stop wasteful spending that sometimes creates incentives for people not necessarily to work--not my words, the words of many, many, many small businesses I talk to. So, Mr. Lockard, I would like to start with you. What are your thoughts on some of my comments? Please. Mr. LOCKARD. I appreciate your comments greatly. I think it is spot on. There are a number of things that we can do as a country to try to help small businesses, but I think you are right, the focus needs to be with what are the problems that we are facing today and attack those first. Some things won't be solved quickly. They may take time, take a lot of strategy. But I think we do need to make small businesses and their--we need to make them successful in our country and make it easy for them. Mr. MEUSER. Does your industry, do you anticipate, as many do, a recession, whether mild or severe, going into 2023? Mr. LOCKARD. We do. Construction tends to kind of lag behind what the economy is doing. And, again, we have been in a boon for quite a while. But, again, due to construction costs as well as interest rates, I see that slowing down. Mr. MEUSER. Yeah. And interest rates play a big role there, and we seem to be trying to fight inflation with interest rates when, meanwhile, that is not really affecting the price of gasoline or diesel. But that is being done by policy. But, Mr. Chairman, I yield back. Thank you. Chairman PHILLIPS. Thank you, Mr. Meuser. With that, I think we are going to go to just a second round of questions. We have some time. And I will start with myself. Returning to you, Mr. Butcher, how does Mosaic operate differently as an active participant in the M&A market? Mr. BUTCHER. Well, I mean, we have constructed a transaction that provides the same economic reward for a seller than they would get from any other market-based transaction. And so, for the most part, when we come, we compete direct head-to-head with private equity, with strategic buyers. Our offer just looks a little different, because our offer says, We will invest in this company to support it in transitioning to employee ownership as opposed to us owning the business, which we do not. And so that is how--and because of that, we are able to compete head to head with those other options. Instead of being the exception transaction, we are now in the mainstream transaction. And we have found it to be really effective. And rarely have we had to match the market, which is, you know, absolute truth. We have never been the high bidder in any of these processes, and owners will choose us at the end of the day. And we have proven that for all walks of life of people. And so it gives me great like--it gives me great hope and as sort of the future that we have proven this out. Chairman PHILLIPS. And anything you might recommend to this Committee and the SBA about how it can better tailor its programs to generate more interest from investors to pursue ESOPs? Mr. BUTCHER. I think a couple of things. One is--and I know there is frustration around the 7(a) program not allowing the PLP sort of channel in order to do those loans. And I guess that surprises me, because I hope everybody recognizes that the banking partners that are the major partners in the 7(a) program, they all have dedicated ESOP lending teams. I mean, if you look at every major bank and pretty much every regional bank, they all have a lending group not doing 7(a) but doing traditional ESOP lending into supporting these transactions. And so, it seems to me that if there was a concern around the structuring of these transactions and the complexity of them, boy, they could lean on those groups within those banks that already exist and the infrastructure is already there. And so I would love to see that. And the other, if I had a wish, I mean, it would be great if at some point within the SBIC program, if perhaps, you know, the size limitation would get increased for these transactions, only because an ESOP have a really hard time competing for those really high-quality companies that are sort of sized up from where we are limited. And those companies, if you want to move the needle on employee ownership, those are where there is vast amount of employees. So that would be interesting, but that is for sort of future dreaming. Chairman PHILLIPS. Thank you very much, Mr. Butcher. Ms. Manklang, we have not forgotten about you. The USDA's Business and Industry Loan Program does not require a personal guarantee from co-ops. Instead, it requires co-op members to sign a covenant to withhold profit distributions until the agency loan is paid in full. So could this work for SBA loans to co-ops in lieu of a personal guarantee, in your estimation? Ms. MANKLANG. Yes, I think so. This is one of a few different solutions provided by the USDA, which has had a really long history of working with cooperatives to great success. You know, worker cooperatives, in general, you know, the structure of it is that, you know, workers get paid a salary. They also get paid patronage. So that is where the profit goes. And, you know, the average of that is more than $8,000 per year across all worker co-ops. And being able to pay that back right away is definitely a solution. But right now, the USDA's model is only limited to populations of 50,000 or less. So I think the SBA is really well-positioned to create a complementary program, or a set-aside, to fill that gap for businesses outside of these areas. And I think it is about, you know, the strength of the shared risk. You know, the USDA doesn't require a personal guarantee, and the reason for that is that co-ops are not seen as an exception at the USDA. You know, we have heard a lot of talk about like the exception of cooperatives or ESOPs, but it is really just a different business model, and a lot of times, a small business model. And the USDA has outlined requirements that co-ops can equally participate, and because these businesses are ones that are able to address survival, to some of the points that have been brought up before by Representatives. You know, there are longstanding businesses that are able to address the immediate survival needs, like businesses that make plans. You know, like, for instance, South Mountain Company in Massachusetts made a plan after the downturn of 2008, and they were ready. And there are people that are innovating on creating/using limited co-op associations to pivot and meet the needs of the market and create businesses and create jobs where there are none. Chairman PHILLIPS. Great. And since my time is expired, just a quick question and a yes-or-no answer if you would. Do you believe the SBA is doing enough outreach and education to inspire more co-op creation? Ms. MANKLANG. No, I do not. Chairman PHILLIPS. Thank you. With that, I am going to recognize the Ranking Member, Ms. Van Duyne, for 5 minutes. Ms. VAN DUYNE. I actually don't have any questions, so I yield back. Chairman PHILLIPS. Okay. Any other Members wishing to ask an additional question? Mr. FLOOD. Mr. Chair. Chairman PHILLIPS. Mr. Flood is recognized for 5 minutes. Mr. FLOOD. I would like to, once again, thank Mr. Lockard for being here. Thank you for making a trip to Washington, D.C. And I guess just one final opportunity for you to react to the testimony that you have heard today. Your business depends on other businesses thriving enough that they can expand into new space or build a new commercial facility. When you talk to prospective clients of your company in construction, and not so much about building a building, what do they tell you are limiters on their growth? What do you hear from other Members of the Lincoln Independent Business Association? When you go to those LIBA meetings in Lincoln, what are people talking about that are really the barriers for companies like yours and theirs from growing? Mr. LOCKARD. Right now, I think for a lot of them it is just straight uncertainty, and again, when will costs come down? Will they actually come down or is this a new normal for us? The labor market, you know, we just voted in Nebraska to raise minimum wage over the next 3 years. That doesn't affect a business like mine as much, because all of our workers are skilled and they are not at the minimum wage level. But my sister-in-law has a company who--it is called The Chocolate Season. They make artisan chocolates and coffee they ship across the United States. Labor is very impactful to them. So there are a lot of limiters, I would say, and most of them are just uncertain about what are things going to look like. Mr. FLOOD. Mr. Phillips, our Chairman, talked about--his question to the last witness was, you know, is the SBA doing enough to reach out? Let's ask a similar question: Is the SBA a relevant agency for businesses in Lincoln, Nebraska, that are looking to grow, maybe young businesses? Do you hear much about the SBA? Do you feel like the SBA loans are working or that there is enough outreach? Mr. LOCKARD. I think, for the most part, they are working. And, I mean, obviously, even my sister-in-law, she was able to get an SBA loan for her business to start it up in Lincoln. And without that, she would not have been able to open up her business. Other companies that I work with, they are able to get SBA loans as well. And we work with the local banks and credit agencies in Lincoln and around Lincoln, but for the most part, I think they have been very successful in getting what they need. On a few occasions, they have been turned down or hit regulation that may not have made sense to them or to us, but it caused them to not be able to get the loan that they wanted. Mr. FLOOD. I am pleases to hear that. And I will end with this: There is a cigar bar in my district that just got an SBA loan, but in order to qualify for the SBA loan they had to do an environmental impact statement that was costly and took time away from the process and delayed the opening. Now, this was a small--this is a small-size shop. Very fortunate to have the SBA option, but that environmental impact statement set the process back as they went through the process. So I think there are things that we can streamline when it makes sense. And, Mr. Lockard, I am pleased to hear that you have seen good things, and I am pleased to hear your sister had success with the SBA loan. I yield back. Thank you. Chairman PHILLIPS. Thank you, Mr. Flood. Absent any more questions, I will move to my closing statement and ask that Mr. Flood maybe consider a congressional delegation to the cigar bar at some point. I think two things can be true at once. These are tough times for all businesses, small businesses in particular. I am a small business owner. I have been in business my whole life. I recognize how inflation, workforce development, and permitting--and permitting--are complicated. And I look forward to working with my colleagues on both sides of the aisle on this Committee to doing this important work. I think we are in violent agreement, and I find that a great opportunity. I also heard some very promising comments from both sides about the importance of sharing more ownership. I think it is terribly important and particularly, as Mr. Flood pointed out, for rural America, where I want to see more businesses developed. I want to see more ownership. I want to see people work hard and be able to retire with dignity and possibility. And I think that we can do that together if we work together, and I surely look forward to doing so here in the next Congress. I come from a family that, as I said earlier, believe business is a means to an end. The end isn't just collecting as much money as possible; rather, sharing as much as possible. And I brought with me my family's bonus and profit sharing-plan from 1941, 1941. We have been doing this for generations, because we have seen the impact it makes on individuals and the communities in which we live and our businesses operate. And I refer to information from the National Center for Employee Ownership that indicates that in ESOPs, employees earn wages that are 5 to 12 percent higher than employees in conventional firms. The net worth of employee owners aged 28 to 34 is 92 percent higher than in nonemployee-owned firms. And the retirement savings for an ESOP employee is $170,000, which is twice the national average. I can't imagine anybody objecting to my premise that more ownership is better in America, and we should be working together to inspire that and I look forward to so doing. There are challenges. I think the SBA can surely be doing a better job to educate, inform, advise and encourage. It is our job to provide oversight and the resources to do so, because I think this can be a legacy-making opportunity for this Committee and the businesses that pursue them. Aligning workers' and owners' interests is an American interest, not a Democratic or Republican one, and I look forward to inspiring that as well. So to anybody interested in this kind of work, let's keep it going. I think there is a lot of shared sentiment and great opportunity. With that, I will ask for unanimous consent that Members have 5 legislative days to submit statements and supporting materials for the record. Without objection, so ordered. If there is no further business to come before the Committee, we are now adjourned and I thank all of our witnesses and my colleagues for showing up today. Thanks, everybody. [Whereupon, at 12:40 p.m., the Subcommittee was adjourned.] A P P E N D I X [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]