[House Hearing, 117 Congress] [From the U.S. Government Publishing Office] SUPPLY CHAIN RESILIENCY AND THE ROLE OF SMALL MANUFACTURERS ======================================================================= HEARING BEFORE THE SUBCOMMITTEE ON ECONOMIC GROWTH, TAX, AND CAPITAL ACCESS OF THE COMMITTEE ON SMALL BUSINESS UNITED STATES HOUSE OF REPRESENTATIVES ONE HUNDRED SEVENTEENTH CONGRESS FIRST SESSION __________ HEARING HELD APRIL 29, 2021 __________ [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] Small Business Committee Document Number 117-010 Available via the GPO Website: www.govinfo.gov __________ U.S. GOVERNMENT PUBLISHING OFFICE 44-563 WASHINGTON : 2020 ----------------------------------------------------------------------------------- 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 JUDY CHU, California DWIGHT EVANS, Pennsylvania ANTONIO DELGADO, New York CHRISSY HOULAHAN, Pennsylvania ANDY KIM, New Jersey ANGIE CRAIG, Minnesota BLAINE LUETKEMEYER, Missouri, Ranking Member ROGER WILLIAMS, Texas JIM HAGEDORN, Minnesota PETE STAUBER, Minnesota DAN MEUSER, Pennsylvania CLAUDIE TENNEY, New York ANDREW GARBARINO, New York YOUNG KIM, California BETH VAN DUYNE, Texas BYRON DONALDS, Florida MARIA SALAZAR, Florida SCOTT FITZGERALD, Wisconsin 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. Sharice Davids.............................................. 1 Hon. Dan Meuser.................................................. 3 WITNESSES Mr. Claudio Dente, President, DenTec Safety Specialists, Lenexa, KS............................................................. 6 Mr. Wes Hampp, Co-Founder & Managing Partner, Holleway Capital Partners, LLC, Overland Park, KS............................... 7 Ms. Kimberly Glas, President & CEO, National Council of Textile Organizations, Washington, DC.................................. 9 Mr. David Taylor, President & CEO, Pennsylvania Manufacturers' Association, Harrisburg, PA.................................... 10 APPENDIX Prepared Statements: Mr. Claudio Dente, President, DenTec Safety Specialists, Lenexa, KS................................................. 21 Mr. Wes Hampp, Co-Founder & Managing Partner, Holleway Capital Partners, LLC, Overland Park, KS................... 26 Ms. Kimberly Glas, President & CEO, National Council of Textile Organizations, Washington, DC...................... 34 Mr. David Taylor, President & CEO, Pennsylvania Manufacturers' Association, Harrisburg, PA................. 43 Questions for the Record: None. Answers for the Record: None. Additional Material for the Record: Alliance for American Manufacturing.......................... 47 American Fashion Network (AFN)............................... 50 CATO......................................................... 53 Job Creators Network (JCN) Statement of Carlos Ruiz.......... 120 Job Creators Network (JCN) Statement of Guy Berkebile........ 121 Manufactured Housing Institute (MHI)......................... 123 National Waste & Recycling Association....................... 125 SUPPLY CHAIN RESILIENCY AND THE ROLE OF SMALL MANUFACTURERS ---------- THURSDAY, APRIL 29, 2021 House of Representatives, Committee on Small Business, Subcommittee on Economic Growth, Tax, and Capital Access, Washington, DC. The Subcommittee met, pursuant to call, at 1:00 p.m., via Zoom platform. Hon. Sharice Davids [chairwoman of the Subcommittee] presiding. Present: Representatives Davids, Newman, Evans, Andy Kim, Meuser, Van Duyne, and Donalds. Chairwoman DAVIDS. Good afternoon, everybody. I call this hearing to order. Without objection, the Chair is authorized to declare a recess at any time. I want to thank everyone, especially our witnesses for joining us today for our Subcommittee's remote hearing. I want to make sure to note some important requirements. Let me begin by saying that the standing House and Committee rules and practice will continue to apply during remote proceedings. All members are reminded that they are expected to adhere to these standing rules including decorum when they are participating in any remote event. With that said, the technology we are utilizing today requires us to make some small modifications to ensure that the members can fully participate in these proceedings. House regulations require members to be visible through a video connection throughout the proceeding, so please keep your cameras on. Also, if you participate in another proceeding, please exit and log back in later. 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. Should a member's time be interrupted by technical issues, I will recognize that member for the next appropriate spot for the remainder of their time once their issues have been resolved. In the event a witness loses connectivity during testimony or questioning, I will preserve their time as the staff addresses the technical issue. I may need to recess the proceedings to provide time for the witness to reconnect. And finally, remember to remain muted until you are recognized to minimize background noise. In accordance with the rules established under H.R. 965, staff have been advised to mute participants only in the event that there is inadvertent background noise. Should a member wish to be recognized, they must unmute themselves and seek recognition at the appropriate time. All right. Well, the COVID-19 pandemic has exposed longstanding weaknesses in global supply chains. As countries around the world shut down to slow the spread of the virus, entire sections of the domestic and global economies were brought to a standstill. In the United States, businesses across every sector suffered supply shortages. Gaps in supply chain had a substantial impact on our fight against COVID. The scarcity of personal protective equipment forced medical professionals on the frontlines to fight the virus with garbage bags as gowns and coffee filters as masks. At the same time, we saw insufficient supply in critical industries like clothing manufacturing, electronic components, and agriculture. In total, nearly 80 percent of U.S. businesses experienced a disruption in their supply chain. These disruptions often hit small businesses the hardest. Small firms regularly have limited inventory, depend on lower costs from overseas suppliers, and do not have the margins to sustain extended product shortages. While small businesses are uniquely vulnerable to disruptions, they also play a pivotal role in building more resilient supply chains. Small firms are agile and adapt to changing market conditions more quickly than large corporations. Small manufacturers can also quickly adapt their business models to meet changing demands. As we saw last year when small distillers began producing hand sanitizer, independent manufacturers can shift operations to meet the needs of their communities. These small domestic manufacturers will play a critical role as we seek to strengthen our supply chains and prepare for future economic disruption. That is why we have to recognize the significant obstacles that these enterprises face in a post-COVID world and work to address those. The overall manufacturing sector could take longer than 5 years to recover to the pre-crisis GDP levels. To return to pre-pandemic output, factories are going to need to address various challenges related to meeting new health and sanitation requirements. This will require the implementation of new systems, the adoption of digital technologies to protect their workers, and modernization in the wake of the pandemic. To meet these challenges, small manufacturers will need reliable access to affordable capital. Unfortunately, these firms traditionally have a much harder time obtaining funding than their larger counterparts. This leads many to rely on antiquated equipment and facilities with lower productivity. Without increased access to affordable capital, small manufacturers will find it difficult to find the upgrades necessitated by the pandemic further weakening America's manufacturing base. Fortunately, the Small Business Administration has several programs in place that small manufacturers can take advantage of. Every year, the 7(a) loan guarantee program, the 504/CDC loan guarantee program, and the Small Business Investment Company Program supply small manufacturers with billions of dollars in capital on favorable terms. This money helps these businesses pay for fixed assets, purchase new equipment, access venture capital, and finance a variety of other expenditures. We must utilize these programs and others to strengthen our manufacturing base and avoid future supply chain disruptions. That is why I fought to secure $10 billion for the Defense Production Act in the American Rescue Plan, to ramp up domestic production of critical supplies. It is also why I recently introduced the Supplies Act, a bill that would create $100 million grant program to increase domestic manufacturing of medical supplies by our small businesses. I hope that today's hearing gives us a chance to find more ways to empower small manufacturers and improve the SBA lending program to serve them. I now yield to the Ranking Member for his opening statement. Mr. MEUSER. Thank you, Madam Chairwoman. I appreciate it very much. I certainly appreciate our witnesses appearing with us today. Am I coming through okay, Madam Chair? Okay, great. Coming from a manufacturing background, I am very much looking forward to this hearing and hearing from all on some ideas, suggestions that the Federal Government and the U.S. Congress can engage in to improve our strength and ability for small manufacturers, and all manufacturers for that matter. And I thank you, Madam Chairwoman. I appreciate your convening today's hearing on this very important topic. Given the great influence these businesses have on our national economy, I think it is particularly appropriate that we dedicate the Subcommittee's first hearing for one of America's most vital industries. In fact, it is difficult to overstate the importance of manufacturing to our economy. At a microlevel, manufacturing is a significant job creator, reaching higher than average salaries, raising the standard of living for millions of Americans across the country. Pennsylvania manufacturers account for over 12 percent of the total output in the state, employing nearly 600,000 individuals directly and 10 percent of our workforce. Pennsylvania manufacturers help sustain millions of additional jobs up and down the supply change. Prior to the pandemic, total manufacturing was almost $100 billion in 2019. Manufacturing is also a most significant of a multiplier effect. It generates more economic activity than any other economic sector. For every dollar spent in manufacturing from the private sector, another $1.89 is added to the overall economy. At a microlevel, manufacturing drives productivity growth which drives R&D growth. Productivity growth is the lifeblood of technological development. The bulk of innovation happens in manufacturing growth from other sectors and springs from innovation within the sector. Given its significance, this hearing should help us understand top concerns threatening the industry. The workforce crisis in manufacturing in Pennsylvania, and I am sure in most states, is exasperated by the gradual retirement of an aging workforce and negative perception of manufacturing by the younger generation. That is why we need more tours and more career technical investments because these manufacturing facilities are far cleaner and they are not the traditional manufacturing of our fathers' days. A skills gap resulting from declining science, technology engineering in the U.S. and the inability to recruit qualified candidates in skilled production line positions. These struggles are only one piece of the broader picture. Outsourcing of U.S. manufacturing to foreign nations, from China, most of Southeast Asia and down the list, we have driven supply chains vulnerable to failure and exploitation by foreign actors weakening our national position in defense, health, and all other sectors. The aggressive economic tactics by competitive Nations creating global market distortions which will depress competition. On top of all this, the maze of Federal acquisition processes, like the contract timelines and emergency clearances and accounting requirements creates significant hurdlers for U.S. manufacturers and all businesses for that matter seem to grow and thrive in the Federal marketplace, as well as a tendency for the U.S. not to create the most competitive atmosphere and truly appreciate that is what draws manufacturing to the U.S. from other countries who compete on a global scale. All manufacturers in particular hit hardest by such challenges. Even though the overall picture might seem quite challenging, the silver lining in this is the power of the small manufacturers will reshape our Nation. Many small manufacturers do not make finished products but are a source for many domestic manufacturers of finished products. From my business career in manufacturing, close to 25 years, I know firsthand the importance of reliable, quality, cost-effective, financially solvent supply chain. Given any impact to small manufacturers, positive or negative that can cause a significant ripple throughout the rest of our economy, we as members of Congress need to consider carefully our policies and their impact on these essential businesses, especially now as we are recovering from the pandemic. In short, manufacturing matters. I look forward to the testimony of the witnesses today and I yield back. Thank you. Chairwoman DAVIDS. Thank you, Mr. Meuser. The gentleman yields back. I would like to take a moment to explain how this remote hearing will proceed. Each witness will have 5 minutes to provide a statement, and each Committee 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 you have finished. I would now like to introduce our witnesses. Our first witness is Mr. Claudio Dente. Mr. Dente is the president of Dentec Safety Specialists, a manufacturer of personal protective equipment located in Lenexa, Kansas, which is in my home district. His business had to pivot at the height of the pandemic in order to meet the sharp increase in demand for PPE and face severe supply chain management challenges. I am looking forward to hearing about how Dentec adapted to the market conditions brought on by the pandemic. Welcome, Mr. Dente. Our second witness is Mr. Wes Hampp. Mr. Hampp is the cofounder and managing partner of Holleway Capital Partners, an SBA-licensed small business investment company (SBIC) located in my district that targets small manufacturers in the Greater Midwest and Southern U.S. His insights are critical for us to learn how SBA's capital programs, such as SBIC, can play a role in helping finance the future of our domestic manufacturing base. Welcome, Mr. Hampp. And then our third witness today is Ms. Kimberly Glas, president and CEO of the National Council of Textile Organizations. NCTO represents and advocates for domestic textile manufacturers, the vast majority of whom are small businesses. Prior to joining NCTO, Ms. Glass held positions at the Department of Commerce as the deputy assistant secretary for textiles, consumer goods and materials, and led the Blue Green Alliance. Your long history and expertise in this industry will certainly help us craft a path forward for small business manufacturers. Welcome, Ms. Glass. And I would like to now yield to our Ranking Member, Mr. Meuser, to introduce our final witness. Mr. MEUSER. I thank you, Madam Chairwoman, very much. I would like to welcome our final witness who is from the great Commonwealth of Pennsylvania, Mr. David Taylor. Mr. Taylor is the president and chief executive officer of the Pennsylvania Manufacturers' Association (PMA), the century-old statewide trade organization representing the hardworking manufacturers throughout the Commonwealth. PMA is the official Pennsylvania state partner of the National Association of Manufacturers (MAN), the Nation's foremost advocate for manufacturers representing 14,000 member companies across the country in every industrial sector. Mr. Taylor brings with him a wealth of knowledge and experience having spent over 2 decades with PMA as its spokesman in the state capitol and as a leader. Mr. Taylor is a frequently sought-after guest and commentator by media outlets across the Commonwealth, and we are fortunate to have him here with us today. In addition to his role at PMA, Mr. Taylor serves as Chairman of the Pennsylvania Leadership Council. He is a member of the American Institute's Leadership Network. He currently serves as a member of the Executive Committee of the Conference of State Manufacturers' Association. He is on the Board of Directors of the Pennsylvania Steel Alliance, Foundation for Free Enterprise Education, Business Industry Political Action Committee, the Lincoln Institute for Public Opinion Research. He serves as the board president of REACH cyber charter school, an online public school providing a broad range of science, technology, engineering, and math enrichment of students. Prior to joining PMA, Mr. Taylor worked for the United States Senate and the Senate of Pennsylvania. He is a native of Huntington, Pennsylvania where I was just last weekend and a graduate of Dickinson College. Mr. Taylor, thank you for all that you do for Pennsylvania and for your participation today. We look forward to your testimony and I yield back. Chairwoman DAVIDS. Thank you for doing that introduction. Mr. Dente, we are going to go ahead and get started. You are recognized for 5 minutes. STATEMENTS OF CLAUDIO DENTE, PRESIDENT, DENTEC SAFETY SPECIALISTS; WES HAMPP, CO-FOUNDER & MANAGING PARTNER, HOLLEWAY CAPITAL PARTNERS, LLC; KIMBERLY GLAS, PRESIDENT & CEO, NATIONAL COUNCIL OF TEXTILE ORGANIZATIONS; DAVID TAYLOR, PRESIDENT & CEO, PENNSYLVANIA MANUFACTURERS' ASSOCIATION STATEMENT OF CLAUDIO DENTE Mr. DENTE. Sorry about that. Wrong button. I appreciate it very much, Madam Chair. I appreciate the opportunity to participate in this conversation. I would like to let you know first that I am a 41-year veteran of personal protective equipment and manufacturing, distribution, and design. I know nothing but this industry. I am going to share with you my journey through this experience. I purchased a respirator manufacturing operation located in the Kansas City, Kansas area called U.S. Safety. That company had been manufacturing reusable respirators, filters, and cartridges for some 40-plus odd years. My interest in the business was because respiratory protection is a critical product in our industry and because I have been through all the viruses, and I wanted to be able to bring a product to market that was manufactured and assembled in the United States. The effect of COVID, what happened, I was in New York when it first hit. I was traveling on business. It was in February. The news started to spread. From New York I went to Kansas and then, of course, COVID blew up. It was like something I have never seen or experienced, all of us have. Quickly, the supply or disposable N95 respirators, surgical masks from overseas, and also from domestic supply completely collapsed. Nothing was available. Fortunately for us and our business, we manufacture reusable rubber half masks and an N95 filter in our facility. We quickly deployed a marketing campaign to the marketplace, and it became an incredible success because we were able to help not only healthcare workers but general industry for those that could keep working. However, folks, the orders were overwhelming for a company of our size. They were massive. They continued to hit us with orders every single day. My team worked 6-, 7-day weeks, 2 shifts, 10-12 hour days. I do not know how they did it and I do not know how they still do it. God bless them. We experienced everything that you could imagine--raw material shortages, equipment breakdowns, employees coming and going. Very, very difficult. So, in summary, surge demand orders, which I had been through in the past unlike what I have seen here during COVID, are absolutely enormous. Not only for a small business but also for a big business. And the challenges that when you have to set up and get going are equipment, which are molds. Everything I make is plastic or rubber, so we are dependent on molds and injection molding machines. We are dependent on cycle time. My product has a lot of hand assembly to it. So, you have to make arrangements to acquire those goods in a fashionable time. Fortunately, we received a grant and funding from the CARE/ SPARKS program, and we have modernized our facility in a manner that I did not dream was possible in the next 10 years. The next time you come, Ms. Davids, I think you will be quite impressed. We also had enormous space challenges, as you can appreciate. When you have to make product of this magnitude, it is absolutely incredible. So, all of these are expenses that we have to incur. And as an entrepreneur and an owner of a business, you are fearful of committing yourself beyond when the pandemic resides. So, a couple of recommendations that I would like to pose to the Committee are that instead of not only subsidizing people during a time, critical businesses like ours, help us hire people by subsidizing an additional wage to them, an hourly wage. Rather, this would create tax income as well and not just debt. Staffing, of course, was a challenge to hire people. What I ask, when you identify critical businesses such as ours, perhaps we could have access to some military personnel to help us ramp up. They are process oriented, great workers, wonderful personalities, and if we could have access to people like that for a short period of time while we ramp up it would make an enormous difference for us as a business. And then finally, financing. We want to be careful again as an entrepreneur and an owner, I do not want to extend myself beyond because it as quickly as COVID came upon us, all of a sudden it will stop and then you are stuck with the overhead, capital investment and so forth and loans. So, my suggestion would be to--of course, grants are fantastic for those that are worthy of it, but also loans in a manner that are not as challenging and maybe recognize the concerns of when the event subsides. Thank you very much. Chairwoman DAVIDS. Mr. Hampp, you are now recognized for 5 minutes. STATEMENT OF WES HAMPP Mr. HAMPP. Thank you, Chair Davids, Ranking Member Meuser, and members of the Subcommittee. Thank you for inviting me to testify at this important hearing. My name is Wes Hampp. As Chair Davids said, I am a cofounder and managing partner of Holloway Capital Partners. We are a small business investment company (SBIC). We are headquartered in St. Louis but we have an office in Overland Park, Kansas where I sit. We focus on investing in small manufacturers throughout the Midwest. I am going to highlight several challenges with the U.S. supply chain we are experiencing in our portfolio companies and suggest a few solutions. Challenge 1. COVID-19 exposed our country's massive reliance on China and our supply chain across nearly all industry sectors. While U.S. businesses compete successfully in a global economic environment, there are positive economic arguments for global supply chains but COVID-19 exposed an urgent need for more domestic manufacturing to reduce our reliance on imports. Manufacturing is an interconnected ecosystem where the impacts on any one business can affect other associated businesses. The Paycheck Protection Program (PPP) was a lifesaver and helped stabilize the financial uncertainty many small businesses faced in the early days of the pandemic. Today, however, domestic supply chains are in a state of chaos. Prices are rising, in some cases 25 percent week to week, and lead times have been extended in some cases four times longer than pre-pandemic levels. PPP allowed many small businesses to surge back but many of their larger company suppliers lost their workforces and were unable to quickly restart and return to pre-pandemic production levels which has led to domestic supply chain disruptions. After COVID-19 hit last year, some large companies that supply products to smaller manufacturers stopped making growth investments, shuttered capacity, and even laid off employees. As demand rebounded in late 2020 and so far this year, these larger suppliers are now struggling to hire and train employees to ramp output to meet demand. In some cases, it appears that supply chain disruptions may have been an unintended consequence of limiting PPP to small businesses. Challenge 3, our biggest challenge facing small manufacturers is labor supply. Small manufacturers are unable to find employees to fill open positions which is hindering our growth. In some cases, our companies have raised starting wages 20 percent but positions remain unfulfilled. This issue is currently more acute for unskilled entry-level positions but is a challenge for skilled labor as well. These are the key challenges. Let me offer a few solutions. Solution 1. Access to patient capital is critical for domestic small businesses in order to keep the U.S. competitive and strengthen supply chains. Since SBICs invest exclusively in domestic companies, and heavily in manufacturing, they are an excellent vehicle to get capital to small manufacturers. Congress should support policies that reward and encourage SBIC investments and not do anything to hinder the program's success. Particularly, lawmakers should support more equity investing in U.S. small businesses that otherwise need to rely on debt financing where in some cases equity is more appropriate. Congress should write tax policies that encourage, not discourage, long-term investing in America's small businesses. Before Congress doubles the capital gains rate, I would implore you to consider what doing so would do to small business owners across the country, especially older entrepreneurs that are beginning to explore retirement. Small business owners build their businesses over years, even the majority of a lifetime. They typically get to sell that investment once. And when the entrepreneur sells their business it is commonly going to generate more than $1 million in income but that nest egg kind of becomes what they expect to live on for the rest of their lives. If capital gains taxes are raised, there should be serious consideration given to investments in American small businesses. Solution 3. Our leaders in government, business, and education should work together to promote and provide opportunities to learn skilled trades through apprenticeships and technical education. Finding workers is one of the biggest problems in the manufacturing sector and it is holding back small business growth and national economic growth. Four-year college degrees are not for everyone and people can make good livings working in the trades and support manufacturing. And these types of careers should be supported and encouraged. Thank you again for the opportunity to testify before the Subcommittee, and I welcome your questions. Chairwoman DAVIDS. Thank you, Mr. Hampp. Ms. Glas, you are now recognized for 5 minutes. STATEMENT OF KIMBERLY GLAS Ms. GLAS. Thank you so much for the opportunity to testify before you today. I am the president and CEO of the National Council of Textile Organizations and I represent the domestic textile industry and the 539,000 workers it employs. We are predominantly comprised of small businesses. Today's focus on supply chains and bolstering our small businesses is an incredible opportunity. There are immense challenges faced by our industry as a result of this pandemic. Literally, overnight, billions of orders were canceled. And I was looking out at an industry that was really confronting bankruptcy. In the spring of last year when PPE shortages were hitting every front line, and workers were wearing garbage bags as gowns or reusing N95 masks, our industry really stepped up. But it is important for me to highlight that the reason that these supply chains broke down was that our predominant supply for these items was in China. And Chinese subsidies, coupled with significant global demand, exacerbated by export controls placed by the Chinese on certain products and raw materials, had a cascading impact that we were reading on the front pages. Simply put, it was like fighting a fire with a garden hose on every front. U.S. textile manufacturers quickly mobilized. Virtually overnight, our members were able to retool supply chains to make over a billion face masks, isolation gowns, and other textile components. In fact, I am in New York's garment district right now and this garment district played a significant role in retooling their supply chain. In order to help the Nation's PPE crisis, manufacturers retooled overnight, but they had to purchase expensive equipment at a time when capital was really uncertain and at a considerable expense. In addition, industry needed to expend significant resources to ensure safe workplaces to get workers back to work and purchase the raw materials necessary to making lifesaving PPE. Please note that while PPE was important for our frontline workers, it did not make up for the significant loss of orders of normal business in our industry. Industrial expenses were vast and wide-ranging, including everything from health and safety measures, to thermometers, to more pay for workers, to bringing them back on the job. We appreciate that there are many solutions necessary for small textile manufacturers to weather the challenges of the pandemic and the crisis that we are still confronting. For many of our small businesses, SBS programs serve an important role. Many of our companies take advantage of everything from the Paycheck Protection Program to Main Street lending, 7(a) loans and 504 loans. Our members really appreciate the aspect of the SBA loans, including the lower down payment and extended payment term. These advantages, however, are sometimes offset by other factors that disincentivize their use. And I have several key solutions to project for the Committee, and for you all to consider moving forward. First, we think that we need to reform our domestic procurement rules for federal purchases of PPE. Right now, we need to extend the Berry Amendment rules for our military for PPE items that are purchased by other agencies across the Federal Government. We appreciate the president's ``Build Back Better'' initiative to strengthen our supply chains, but we need legislation to move forward. We want to highlight that Congressman McHenry from North Carolina and Congressman Bill Pascrell from New Jersey have co-sponsored the American PPE Supply Chain Integrity Act which does just that. In addition, we believe that there needs to be more tools and investments in small businesses to manufacture these products moving forward. We appreciate the support for the Defense Production Act, but we also need Federal protection grants and tax credits to ensure manufacturing capacity. Chairwoman Davids, I want to highlight your bill as well. The $100 million fund set aside for small businesses is an important tool moving forward, but we need more tools moving ahead. Further, private sector investment is important to U.S. supply chains and can be bolstered by contracting reforms that promote long-term contracts for U.S. suppliers. We need a demand signal. In fact, our industry is starting to see orders dry up for PPE. We have had 60-day contracts and 90-day contracts. We need certain set-asides for small businesses, but we should ensure that when we are providing contracts to small businesses, those companies can deliver and have the capital necessary to help the U.S. Government. And the last recommendation I had is to ensure that the SBA loan process is streamlined and that communication is better with borrowers. During the height of the pandemic, it was difficult for some of our manufacturers to tap into the resources because they simply did not know where the paperwork trail would eventually begin. Our industry is ready to work with this Committee. I want to amplify the comments made about workforce. We really do need more funding to help bring workers back on the job, and our industry stands ready to help this Committee in any way possible. Chairwoman DAVIDS. Thank you, Ms. Glas. And Mr. Taylor, you are recognized for 5 minutes. STATEMENT OF DAVID TAYLOR Mr. TAYLOR. Thank you, Chairwoman Davids and Ranking Member Meuser and members of the Subcommittee, thank you for the privilege of testifying today. As Congressman Meuser was so kind to introduce me, I am David Taylor. I am the president and CEO of the Pennsylvania Manufacturers' Association. We are the statewide not-for-profit group representing the people who make things and Pennsylvania's public policy sector. I also want to thank Congressman Evans from Philadelphia, my great friend. It is good to see you, sir. I want to express three important points. First, the workforce crisis is real and is a hard cap on America's economic growth. Second, the Federal Government becomes a competitor to employers when it pays people more to stay home than they would earn at work. And third, Congress can help address the workforce crisis by working with the states to reinvent the existing tangle of taxpayer-funded workforce development and job training programs. And I will expand on each of those points as I go on. Manufacturing is the sector of our economy that adds the most value, pays the highest wages and benefits, and has the strongest multiplier effect on job creation. No matter what product is being made, manufacturing takes raw materials or component parts and goes through a multi-stage process to yield a finished good, almost always consuming a large amount of energy and usually deploying some kind of chemical process. Because of that multi-stage process of adding value, manufacturing sustains not only the jobs on the plant floor but also jobs through supply chains, distribution networks, and vendors of industrial services. In that way, the major manufacturer is often the small business owner's best customer. I know the Subcommittee is looking to examine the supply chains for small business, however the most critical input that is lacking for manufacturers today is the supply of qualified workers. Nationally, manufacturers are facing an alarming problem: our workforce is aging and retiring and there is a shortage of skilled hands to succeed them. Pennsylvania is no exception to this problem. According to our sources at the Manufacturing Institute, at any given point in time there are about 6,000 open manufacturing positions in Pennsylvania. When you couple the current shortage with the fact that some companies have more than half of their current workforce within just a few years of retirement, then we could consider this workforce problem a workforce crisis. The manufacturing sector and the workforce at large face an increasingly pressing problem: the glut of unfilled jobs due to a skills gap. As a result of employers' inability to find enough qualified new hires, businesses are not able to grow to meet current levels of customer demand. Those employers are ``leaving money on the table'' because they cannot find the quality employees they need to increase production capacity to be able to bid on new work, which is available. This is what I am trying to express when I say that the workforce crisis is a hard cap on growth. Of course, to get people into the workforce, they first have to want to work. This is one of the problems of the current moment because of Congress's policy of subsidizing state unemployment compensation payments. The Federal Government was correct to respond to the needs of our citizens caused by the economic shutdown triggered by the pandemic. Many people are still dealing with both the health crisis and the economic consequences of the shutdown. The impulse to be generous is understandable, but regrettably, the Federal taxpayer subsidy to state unemployment benefits is keeping many employees out of the workforce. One final thought that I want to share with you concerns the efficacy of the Nation's job training and workforce development programs. In Pennsylvania, roughly $2 billion dollars in state and Federal taxpayer money is spent annually on more than four dozen programs that run through at least five different state cabinet agencies. Following a 2019 audit of the state's workforce development system, Pennsylvania's Auditor General at the time, Democrat Eugene DePasquale said, and I quote, ``I think it needs to be restructured entirely. You have to envision nothing exists right now and how you would create it. None of us would have it look the way it does today.'' I am convinced that there are hundreds of millions of dollars in efficiencies that could be realized if Pennsylvania, working in partnership with Congress and the respective Federal departments, could realign, rework, and move dollars between programs. The existing waiver process has been used to great effect by the state of Indiana, and I would recommend using their experience as a model for future reforms. So thanks again for the great honor of speaking with you and I will do my best to answer your questions. Chairwoman DAVIDS. Thank you, Mr. Taylor. And thank you to all our witnesses. We appreciate your expertise and everything you have shared today. We will go ahead and get started with the questions. I will begin by recognizing myself for 5 minutes. Mr. Dente, in your testimony you gave both recommendations and a bit about the story of the difficulty that you faced in pivoting and transitioning. I am wondering if you could speak specifically to the challenges that Dentec faced while searching for capital to produce the N95s during the height of their shortage here domestically. Mr. DENTE. Thank you. Please understand, I do not manufacture disposable N95s. We manufacture reusable product. Right? So again, when the volume of orders which were massive came to us, right now I am self-funded but I was at a point where I was saying, what the heck am I going to do? We were fortunate when the CARES Act grant program came out, we qualified for that. We also qualified for a loan from the Department of Commerce for Kansas as well. Had I not qualified for those programs I would have had to go to the street, but the problem is the speed, trying to get things accomplished during a chaotic time like that, I do not know how we would have done it. Do not know how we would have done it. I hope that answers. Chairwoman DAVIDS. Thank you, Mr. Dente. I am going to switch over. Mr. Hampp, I know that a lot of manufacturers had to reassess their supply chains following the pandemic-related disruptions and realized that there was a lot of risk and vulnerability in the supply chains that they were making use of. I am wondering if you could tell us a little bit about the role that SBICs can play in establishing a more stable supply chain for our small and mid-size domestic manufacturers. Mr. HAMPP. Sure. I will talk about, you know, we focus on manufacturing. And you know, as the supply chain stretched out and it became very difficult, prices are increasing regularly. Sometimes products that we would get come just in time basis were not even available. What we did was we encouraged our portfolio companies to invest in inventory. To take down as much inventory as they could as quickly as they could to get through what was an uncertain time. Again, the PPP program helped. But what happens in those situations where we have a company that needs capital to address a short-term issue, the SBICs would typically stand behind those portfolio companies and inject capital if needed. But all of our companies were able to, through the PPP loan, keep employees employed and then they had capacity to buy the inventory more than they would normally hold to get through the situation. But knowing that you have got a financial partner in an SBIC makes making that investment easier unlike Claudio. You know, it is not all on the individual to source that capital when you have an institutional investor alongside as an investor. Chairwoman DAVIDS. I appreciate that. I guess in the remaining time, Ms. Glas, I would love to hear from you. You mentioned quite a bit in your testimony, and as you know, last year I introduced the Supplies Act which would provide grant funding to small manufacturers who are able to produce PPE and other emergency medical items during the crisis. I am curious if you see a role for the SBA and other Federal agencies to support domestic PPE manufacturing in the long term. Ms. GLAS. Absolutely. In fact, our industry collectively is really seeking a long-term Federal Government plan associated with onshoring PPE production. Our industry responded, provided materials for the Strategic National Stockpile, FEMA, and Defense Logistics Agency. And with the kind of investment that you are talking about in your bill--about people being able to invest in manufacturing equipment--we can be a globally competitive industry. There is no doubt our industry has become much more efficient since March of last year when they were making products for the first time. They want to invest in equipment in their manufacturing facilities to be more globally competitive, but they also want a strong demand signal. We think working with the Small Business Committee here; the SBA leveraging those loans or grant opportunities; and working with your agency partners across the Federal Government on procurement policies and long-term contracts will ensure that this small business community is supported in the long term, so that we are bringing these supply chains home and reshoring essential production like PPE. Chairwoman DAVIDS. Thank you, Ms. Glas. And thank you to everyone who answered my questions. My time is now expired. The Ranking Member, Mr. Meuser, is now recognized for 5 minutes. Mr. MEUSER. Thank you again, Madam Chair. Pennsylvania, my home state, the great Commonwealth of Pennsylvania, is known as a manufacturing state. We have a long history of coal, steel, garments is mentioned. Concrete, masonry, fabricators, candy, beer, crayons, guitars, batteries, airplanes to name a few. We have, however, suffered over the last several years or over the last we will say 40 years and for the last several years we made somewhat of a comeback. Mr. Taylor, you and I both know well the statewide burdens that exist in Pennsylvania related to taxes and regulations. Can you speak about the importance of natural gas on how natural gas creates competitiveness for our small and large manufacturers? Mr. TAYLOR. Yes, sir. I will be glad to. Mr. MEUSER. As well as provides what is necessary for manufacturing? Mr. TAYLOR. Yes, sir. I will be glad to do my best with that. So in 2005, the Marcellus Shale Play was discovered and starting 2008, production began in earnest. And the discovery really is world historic. We are talking about trillions of recoverable feet of natural gas. And so this has helped very much to power our economy, but in thinking about what the other testifier said about the need to reshore supply chains, that Pennsylvania, along with having the methane, the natural gas that is used for fuel and for electricity generation and industrial furnaces, that we also have abundant natural gas that comes with natural gas byproducts--ethane, butane, pentane, propane, and natural gasoline and that there has been an $8 billion investment by Royal Dutch Shell in Western Pennsylvania for a facility to produce polyethylene, which again is at the top of a value chain that can derive every kind of plastic, Styrofoam and rubber and every kind of coating in the marketplace. So that domestic source of this industrial input I think is critical to making our supply chains resilient and price competitive domestically. Chairwoman DAVIDS. Thank you, Mr. Taylor. It appears as though our Ranking Member might have had a technical difficulty and dropped off. I think that we will probably come back with approximately 2 minutes 40 seconds remaining for the Ranking Member's questioning and then hopefully he will get to get back on this so he can finish his questions. So I think what we will do is go next to Rep. Marie Newman from Illinois. You are recognized for 5 minutes. Ms. NEWMAN. well, thank you, Chairwoman. And thank you, Ranking Member. I hope you come back soon. So thank you to all our guests this afternoon. It has been great hearing your testimony. And thank you for offering solutions. We love it when guests come with both problem and solution, so thank you for that. I am going to I think start with Ms. Glas because I think she is the logical person to ask this question. But I would open it to others if they have commentary. In Illinois 3, we have an unusually high concentration of manufacturers, and I work with a partner organization called IMEC here in Illinois. And I think it is well-known in the industrial Midwest, we have a lot of micromanufacturers. So in my district, about 70 percent of all manufacturers are under 20 employees. And what that means is that that is a huge employment base but we are particularly productive. And so with that I have a couple of questions around that. Those are the types of manufacturers that have kind of suffered the most around things like reshoring. What I mean by that is that I am a fan of bringing everything back here and making sure our workforce and our production process, our supply chain and our partners stay here. Some of the things that I think are helpful in that mix are incentivizing business partners. And so I guess I wanted to hear what your thoughts are on incentivizing the customers of our micromanufacturers so that they buy here, stay here, workforce is here, all of those good things. So I will put myself on pause and I would love for you to give us your thoughts. Ms. GLAS. Congressman, thank you so much for that question. You know, it is clear to me that you are very proud of the work that is being done in your congressional district and the ingenuity that exists with a lot of those small manufacturers in a really dynamic period of time. When you look at the customers for PPE, the biggest buyer is not the U.S. Government. It is an important buyer, okay, and we need to make sure we get all those roles right and help reshore production. But I think a lot of our manufacturers, similar to yours, are looking to sell their products in the private marketplace--to hospitals, to other kinds of customers. And are there ways that Congress can incentivize the customers or even incentivize the actual manufacturers to produce these products or purchase these products. We, as an industry, have all collectively been talking about the fact that there may be unique arrangements that can be made with hospitals and nursing homes and others that would get an incentive for buying Made in the USA product or get a better Medicare-Medicaid reimbursement rate as a result. I think this is a time for creative thinking, similar to the micro-manufacturers in your district who all probably came together in unique partnerships during this period; to think about what it would take to actually bring some of these production teams on shore and how to incentivize the private marketplace. Ms. NEWMAN. And if any of our other guests have any suggestions, I am all ears. If you would like to go, Claudio, that would be great to hear from you. Mr. DENTE. I am sorry; I keep pressing the button up there, not down there. I apologize for that, Representative Newman, thank you. Great comments there, Kim. The issue is not the end user. And I hope there are no distributors on this call. Distribution is what I sell through, and they are the people, the carrier to move product to the end-user. The distributors are the challenge because they are the ones that do not want to disrupt their current supply chain which may be overseas. Right? So, your idea, Kim, about incentivizing the end-user is great. So, think about it like this: in our industries, in all industries, there are buying groups. And buying groups create and collect rebates. So why not create some type of rebate program, some type of funds that go back to the end-user that rewards them for working with American made manufacturers. That is my comment. Ms. NEWMAN. Great. Any of our other guests like to share any thoughts? Mr. TAYLOR. Yes, if I may. Ms. NEWMAN. David. Mr. TAYLOR. Thank you very much. The kind of smaller companies that you are describing, very important job creators, very important part of the overall ecosystem of manufacturing. The smaller companies are more vulnerable to disruptions and to pitfalls. One of the things about the pandemic that has been hard to see is that you had companies that really stuck their necks out by retooling to go from the product that they knew to do something different that was needed to cope with the pandemic, whether it was the distillers putting out hand sanitizer or there was a company in Pennsylvania that would make airplane parts and they converted over to make ventilator parts. These companies took a risk and one of the things that they really need from Congress is some kind of safe harbor for protection against predatory lawsuits. And that is something that in good faith I would like to see Congress take up. Ms. NEWMAN. When you say ``predatory lawsuits,'' give me an example, David. Mr. TAYLOR. Well, I mean, just being exploited---- Chairwoman DAVIDS. The gentlelady's time has expired. Ms. NEWMAN. Oh, okay. Mr. TAYLOR. Okay. Well, I will do my best to respond just to say that opportunistic, inevitably when you are doing something new you do not get it 100 percent right the first time. Chairwoman DAVIDS. Mr. Taylor, thank you for the follow up. Thank you. Ms. NEWMAN. Thank you, Chairwoman. Thank you, Chairwoman. Chairwoman DAVIDS. Thank you. And we are actually going to go back to Ranking Member Meuser who has returned. I believe you had about 2 minutes and 45 seconds left. Mr. MEUSER. Thank you, Madam Chair. I apologize about that operational difficulty. So Mr. Taylor, thanks for your answer related to natural gas. Obviously, very important from a competitive standpoint as well as manufacturing via the packer plants. At the Federal level, what can we do? You brought up workforce development. On a Federal level, what are your suggestions providing for a stronger, more available workforce availability, as well as comment on do you believe that manufacturers who are not being able to bring their workforce into their operation today will invest in robotics and other machines so as those manufacturing jobs could be done forever if they do not get fulfilled within the next year? Mr. TAYLOR. Okay, Congressman, I will try to respond to that. Certainly, the trend towards automation continues at pace. And new technologies enable manufacturers to innovate and increase their operational tempo. And so as a result of those technology efficiencies that you see the manufacturing workforce tighten but that those jobs that remain become much more valuable. You know, certainly to have a pro-growth, pro- production agenda for American manufacturing, valuing the way that manufacturing is a positive dynamic for the quality of life for our citizens, certainly in the communities where a manufacturing entity is located, they are also, along with being major employers they are also major taxpayers which makes them important to state and local government as well. So it is just the whole spectrum of competitiveness and having our Federal Government recognize the contribution of domestic manufacturing and to support it through all of those competitive fundamentals. As for the workforce issue, I have got to say it is the phoniest most multifaceted challenge that we face. I do think that the one opportunity that is before us as I mentioned, is working to reinvent our highly fragmented job training and workforce development system. If Congress would partner with the states to help to rationalize that, and I am not just asking for the feds to block grants although that would be awesome, but to work in partnership to allow the state authorities to realign the program, to move money between the silos, I think that there are huge savings that could be realized. And again, we could get more bang out of what is being spent without having to increase expenditures. Mr. MEUSER. Thank you. The plan to increase corporate net income tax, income taxes, capital gains tax, what effect will that have on U.S. manufacturing? Mr. TAYLOR. It is very negative. And I would say that there were two really positive things from the previous administration's tax changes. Number one, bringing the rate down to just slightly below the OECD average, that that greatly improved competitiveness. And also, that there was an existing penalty as it were for U.S. companies that earned profits overseas that prevented them from bringing that money back to the U.S. I actually know of one instance where a company in Minnesota, it was easier for them to invert and become a foreign company to be able to reinvest their overseas earnings back in the U.S. and that is just perverse. We do not want that. We want American global corporate leadership. And so I would argue very strongly against changing the improvements that were recently made. Mr. MEUSER. Thank you. I yield back, Madam Chair. Chairwoman DAVIDS. Thank you. The Ranking Member yields back. And next I would like to recognize Rep. Evans for 5 minutes. Mr. EVANS. Thank you. Thank you, Madam Chair. Thank the Ranking Member. It is good to see Mr. Taylor. It is a pleasure. Ms. Glas, you stated that the U.S. needed stronger workforce training programs. What percentage of textile manufacturing businesses provide on-the-job training? Would on- the-job training be more flexible with government assistance? And what tools do textile manufacturers need to do more recruiting? Ms. GLAS. This is a quintessential and timely question, Congressman Evans. You know, actually, business is starting to come back but we simply do not have the workforce to fulfill the orders, which is a missed opportunity for our industry. Our industry does provide onsite worker training. We do heavy recruitment at technical colleges. A lot of our manufacturers do not have 4-year degrees. There is a pathway forward for good paying jobs in our field, but we are having a hard time retaining a workforce in this environment. And so if there are incentives or ways to help bolster the domestic supply chain in clusters for textile manufacturers to recruit additional workers, or ways to incentivize small manufacturers to actually help pay some of their workforce an additional bonus to work during this time, those are all important tools in the toolbox. But right now it is a real challenge across our industry to retain a workforce in this environment. And part of it is because COVID has impacted manufacturers' ability. People are staying at home with their children. I mean, lives have been disrupted incredibly and it has been really hard to recruit people back into the workforce because they have other things that are pulling at them at this time. Mr. EVANS. Thank you. I yield back the balance of my time, Madam Chair. Chairwoman DAVIDS. Thank you. The gentleman yields back. Next, I would like to recognize Rep. Van Duyne for 5 minutes. Ms. VAN DUYNE. Great. Thank you. I think all the panelists today have hit on issues with the workforce. Mr. Taylor, you made a point in your testimony that small employers are having to compete with the Federal Government for workers thanks to the luxurious unemployment benefits that are being offered currently. So not only is the Federal Government hurting employers with extended benefits, but they are also stagnating the workforce on learning skills that they will eventually need to return to work. Can you elaborate on how the extended unemployment benefits have affected hiring and the workforce? And can you also explain a little bit about your concern with workers not having the skills needed when they do return to work? Mr. TAYLOR. Yes. I will do my best to respond to that. And again, it is an unintended consequence I am sure, but that impulse to be generous of raising unemployment benefits beyond what people would earn if they returned to work, it is keeping people on the sidelines. It is essentially making the government a competitive employer, like you are outbidding the market. Surely there is a precedent in history with the New Deal three letter agencies to give unemployed people work. But at least in those instances they were actually engaging the program participants. That they were doing work. They were hopefully upgrading their skills. They were at least keeping current and would have something that they could list on a resume that employers know the longer somebody is on the sidelines the more their skills degrade, the longer that gap comes on their resume and the more difficult it is for somebody to reenter the workforce. Ms. VAN DUYNE. I appreciate that. It is also evident by the testimony we have heard today that small manufacturers, while agile and highly resilient, has faced a tough time during COVID-19. President Biden has proposed increasing corporate taxes among other tax hikes. So Mr. Taylor, how would increased taxes affect small manufacturers? Mr. TAYLOR. Well, I mean, in Pennsylvania, about 80 percent of our manufacturing employers, they are not C corporations. They are S corps or LLCs or partnerships. So the higher corporate tax rate again would hurt the big fish in the ocean but because of supply chains and distribution networks, those smaller companies that are suppliers or vendors or part of the distribution for the major manufacturers, they would see less business. In my lifetime, the example, it would be when Bethlehem Steel left Johnstown. And that not only do you lose that major employer, but because so many of the smaller businesses were part of that ecosystem as suppliers, they were part of logistics, you know, forklift and warehouse jobs, you know, people who do payroll or HR or legal services or any of those things, if you lose what happens on the plant floor, all the rest of it goes away. And so with our eye to competitiveness, especially with reshoring in a very demanding global marketplace, I would recommend strongly against raising the U.S. tax rates. Ms. VAN DUYNE. I appreciate that also. Also in your testimony you mentioned the potential to cast a wider hiring net, including those that had been incarcerated before. Are there any regulatory burdens that make it difficult to hire these types of workers and can they be changed to allow employers to cast that wider net? Mr. TAYLOR. Well, that is a great question and I really believe it is the question of our time. I want to stay in my lane here. I am an advocate in Pennsylvania on state public policy but I would ask our Nation's leaders to look to Pennsylvania because we have made a lot of progress. And that in particular, our secretary of corrections, John Wetzel, has been a real leader with corrections reform. Secretary Wetzel is, himself, a former corrections officer so he has walked the block. He was the only African American in Governor Corbett's cabinet. He is now the only Republican in Governor Tom Wolf's cabinet. And so there really is a bipartisan consensus on this. And that is the upswing. I remember being at a company out in Allegheny County and most of their workforce is ex-military. They have very tough standards and that they were one of those companies leaving work on the table because they could not find enough new people. And it was the owners there who said we are going to have to cast the net wider. We are going to have to do better. And so this is a moment where everybody needs to level up. But if we do it, we can have real social progress because the jobs in manufacturing that go wanting are really good paying, family sustaining jobs with great wages and benefits and pensions. And so I do not have all of the answers to know how we can make that happen. Maybe Representative Evans and I need to work on this together because we need to find a way to get those citizens who have been outside the workforce, who have not succeeded in our society. This gravitational pull of demography, because there are more jobs available than people looking for work, this should be the time when we help to bring those marginalized folks back into the workforce, into productive living, and into the dignity of work and the real sense of identity that can come from having a profession and still trade. Ms. VAN DUYNE. Thank you very much. Chairwoman, I appreciate that you extended time. Chairwoman DAVIDS. Thank you, Rep. Van Duyne. The gentlelady yields back. First of all, I would like to say thank you to all our witnesses for taking the time, for joining us today and sharing your expertise. Your testimony has certainly given the Subcommittee members valuable insight into the problems that have been created because of the pandemic. And particularly for our small manufacturers and the challenges that they are facing moving forward. The pandemic has taught us a hard lesson in the value of domestic manufacturing and a robust supply chain. Today, we continue to feel the effects of supply chain disruptions and shortages on our economy. And we obviously want to avoid a repeat of this situation which means we have to find ways to empower small manufacturers. One of the most common sense ways to do that is by ensuring that they have ample access to affordable capital, and I hope today's hearing has shed light on critical SBA lending programs. And I am looking forward to working with all of you to find ways to improve them. I would ask unanimous consent that members have 5 legislative days to submit statements and supporting materials for the record. Without objection, so ordered. And if there is no further business to come before the Committee, we are adjourned. Thank you very much. [Whereupon, at 2:03 p.m., the subcommittee was adjourned.] A P P E N D I X [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] [all]