Pa. small businesses 'being choked' by health care costs

Pennsylvania's small businesses say runaway health-care costs, the bad economy, and the state's personal and business tax rates are the biggest challenges this year.

The Small Business State Opinions 2010 Survey was conducted in February by the SMC Business Councils (SMC), a trade association in southwestern and central Pennsylvania that represents small businesses in the service, manufacturing and commercial sectors. SMC's mission is to help Pennsylvania's small businesses grow and prosper.

• The No. 1 concern among SMC members is the high cost of health care: 71 percent said it was the most severe business challenge.
• The economy was cited as a severe challenge by 45 percent of the members who responded to the survey.
• Other top concerns were personal and business taxes, and compliance with government regulations. More than 70 percent of SMC members said high taxes were a moderate to severe challenge to their businesses.

"Pennsylvania's small businesses need relief to survive in this tough economy. They aren't getting it at the state level, let alone from the federal government," said SMC Business Councils acting president Tom Henschke. "SMC urges the governor and the Legislature to consider these findings and work to help small businesses, instead of pursuing policies that harm them. Small business needs real relief from the damage done by runaway health care costs. There needs to be fewer taxes, not more."

The survey uncovered glimmers of optimism for Pennsylvania small businesses. Most will keep their work force at current levels; some are planning to grow moderately. Few expected job cuts in 2010, but most either didn't plan to make capital acquisitions or weren't sure whether they would.

SMC's Government Relations Committee uses the survey results to set its state legislative agenda. "The intent of the survey is to assess where small business stands after the worst economic crisis in 70 years," said Eileen Anderson, SMC's government relations manager. "It's critical we identify their top concerns and determine what they need to move forward and create the jobs needed to put Pennsylvanians back to work.
 

HEALTH CARE COSTS: A BIG CONCERN
Small businesses have been particularly squeezed by the ever-increasing costs of health care. The costs not only impact small business owners and their employees, but also the growth of one of the key sectors of the business world and the U.S. economy as a whole.

The survey found the high cost of health care and a bad economy are damaging small businesses.

"I did employ up to five people at one time, but between the cost of health insurance and the collapse in the economy, my business has been destroyed and I can no longer employ anyone," said one business owner who responded to the survey.
SMC's Anderson said the state government needs to make it easier for small businesses.

"While Washington, D.C., may be immobilized by health care reform, the states can serve as incubators for change. We will encourage the General Assembly to enact measures to contain health care costs. That's where the real focus of reform should be," she said.

"Small businesses are being choked by health care costs. It's out of control," Henschke said. "In previous recessions, the expense of health care wasn't as big an issue. But now the annual increases are too much for many to bear. We need the governor and Legislature to do more than just pay lip service to this reality. We need them to take strong action to contain health care costs now."

PENNSYLVANIA NOT BUSINESS-FRIENDLY
Health care wasn't the only concern. More than half of businesses say they're either severely or moderately challenged by the cost of labor, salary and benefits, including workers' and unemployment compensation.

The deep recession has shown little sign of abating among Pennsylvania small businesses. Almost half (45 percent) of the businesses that responded to the survey said that slow sales and the bad economy continue to be a severe challenge; 35 percent more said it was a moderate challenge. Consumer confidence and job security have taken a beating in the recession, impacting small businesses.

"My business would be much better if those consumers had confidence in the economy and in their general financial stability," said one Pennsylvania small business owner. "Currently, the 'middle class' is under severe stress and uncertainty."

TAX RATES TOO MUCH OF A BURDEN
Small business owners continue to be concerned by personal and corporate taxes. They are impeding future growth, and furthering the belief that Pennsylvania isn't interested in the concerns of small business. Others also rate compliance with government regulations, cash flow,

Seventy-four percent of small businesses believe business-tax issues are moderate-to-severe challenges; 73 percent see personal income tax issues as moderate-to-severe challenges. Those taxes include corporate net income, capital stock and franchise tax, and a cap on net operating loss.

"The governor's plan to expand the sales and use tax to include non-tangible items, including many essential business services, is a 'non-starter' for us," Anderson said. "Many of our members are struggling with slow sales in this economy. A new tax on services will only compound that problem by deterring consumers and businesses from buying and increasing the cost of doing business in the commonwealth."

GLIMMERS OF HOPE
There was mixed news about Pennsylvania small business' prospects for 2010. The survey found that none of the companies planned to grow substantially this year, although 23 percent expected to grow moderately and 67 percent expected its work force to remain the same. Less than 10 percent saw the need to cut jobs. Yet many small business owners also believe their revenues and profits will stay the same. Few say revenues and profits will fall sharply; even fewer expect substantial growth.

Another measure of growth – expectations of spending on capital acquisitions during the year – is off the table for more than half of Pa. small businesses that responded to the survey. Fifty-six percent said they wouldn't make a capital acquisition in 2010; 31 percent weren't sure. The difficulty of securing capital weighs heavily on the minds of many. The Federal Deposit Insurance Corp. recently reported that in 2009, lending by U.S. banks dropped by the largest percentage in 67 years. Small businesses are feeling the impact. Many are not able to secure the capital they need to grow their businesses. Nearly 40 percent believe that an inability to secure suitable capital, financing or credit is impacting their business.

Survey respondents included SMC members who were self employed (23 percent), had 2 to 20 employees (50 percent) or had more than 20 employees (27 percent). SMC focuses on the issues and concerns of small business, which are not always the same as the big businesses who often dominate the national and local media.

Find more details about the survey at www.smc.org.

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