Using Work Incentives to Fund MicroEnterprises

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Using Work Incentives to Fund Micro-Enterprises

• Presenter David Hammis, Senior Partner Griffin -
  Hammis Associates, LLC

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Self-Employment Micro-Enterprise

• Overview Key SSI/SSDI, Work Incentives, VR, WIA,
  Housing, etc. Opportunities, Issues,
  Interactions with Self Employment Income and
  Small Business Start-Up Funding
• Example Blending understanding multi-level
  financial resources available through Social
  Systems, Families and Communities

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Self-Employment Micro-Enterprise

• Recommendations Providing all prospective
  business owners with disabilities self employment
  funding options choices

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I. Overview

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NESE for SSI SSDI purposes

• (Gross Sales IRS Deductible Business
  Expenses) x .9235
• Ex. 20,000 Sales 10,000 Expenses
• (20,000 - 10,000) 10,000
• 10,000 x .9235 9,235 NESE

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Property Essential to Self Support (PESS)

• SI 01130.501 Essential Property Excluded
  Regardless of Value or Rate of Return (A) 2.
  Trade Or Business Property
• Property essential to self-support used in a
  trade or business is excluded from resources
  regardless of value or rate of return effective
  May 1, 1990
• (C) 5. Liquid Resources Used In A Trade Or
  Business
• Effective May 1, 1990, all liquid resources used
  in the operation of a trade or business are
  excluded as property essential to self-support

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Plan for Achieving Self-Support (PASS)

• PASS Funding
• PASS directly infuses operating cash into a
  business, assuming PASS is paying for business
  operating or capital expenses
• PASS does not influence Profit Loss (PL)
• PASS significantly influences Cash Flow

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Related PASS POMS

• (Program Operations Manual System)
• covering small businesses
• SI 00870.006A.10. Self-Employment Goals
• A PASS with a self-employment goal must include a
  detailed business plan.
• The lack of a business plan should not delay an
  individual's submittal of a request for a PASS.
• As with a VR Evaluation, the PASS could initially
  cover any costs associated with the person
  developing a business plan, a Business Plan
  Evaluation.

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Related PASS POMS

• SI 00870.006B.4. Start-up CostsFor someone
  opening a business, the start-up costs include
  the expenses to start the business through the
  first 18 months, or longer if needed, of the
  business' operation.
• The use of an item as a business expense in
  determining net earnings from self-employment
  does not preclude its use as a PASS expense
  during the calendar years (or fiscal years) that
  encompass the start-up period of a business.

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Related PASS POMS

• SI 00870.006D.4. Self-Employment
• A business will be given a minimum start-up
  period of 18 months unless the individual
  indicates that less time will be needed for the
  business to sustain its operations.
• A request for a start-up period of a longer
  duration than 18 months must be justified.

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Related PASS POMS

• SI 00870.025B.5.b. Business Start-up Costs
• Treat all expenses, including ongoing costs, to
  be incurred during the first 18 months, or longer
  if warranted, of a PASS that involves starting a
  business as excludable start-up costs if the
  expenses meet the necessary and reasonable
  criteria.

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Related Work Incentives

• Impairment Related Work Expenses, - same effect
  as wages employment yet not as common in small
  business
• Blind Work Expenses powerful when applicable
• All SSI Work Incentives apply (1619(b), Student
  Earned Income Exclusion, etc.
• SSDI has two additional work incentives UnPaid
  Help and Unincurred Business Expenses for self
  employment

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Other Self-Employment Social System Startup
Resources

• VR Direct Purchases of Equipment and other
  possible expenses
• VR Retains ownership of equipment typically for
  some time frame that varies by state
• VR purchases of deductible business expenses
  directly impacts PL
• VR funding tends to artificially inflate profits

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Other Self-Employment Social System Startup
Resources

• WIA WIA Direct Purchases of Equipment and
  other possible expenses
• WIA to date does not retain ownership of
  equipment typically via innovation and/or
  customized employment grants
• WIA purchases of deductible business expenses
  directly impact PL
• WIA funding often artificially inflates profits

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Other Self-Employment Social System Startup
Resources

• SBA Guaranteed Loans, Bank Loans Non-Bank Loans
  follow typical business interactions
• Medicaid funding has been used to fund business
  expenses, and again, similar to VR, artificially
  inflates profits
• Other grants, Native American, Developmental
  Disability Planning Council, etc artificially
  inflate profits

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Self-EmploymentResearch

• High Success Rate 80 90, Iowa and Rural
  Institute
• High preference rate when presented as an
  informed choice (20 to 30)
• Very Limited Choice currently in Developmental
  Disability Employment Services perhaps less
  than 1 (no clear data), VR at roughly 4 to 5
• Wide variance in VR Policies nationally

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Self-Employment DDExperiential Assumptions

• Families Taking the Lead Highest Use
• Is Self-Employment a Cop-Out Concerns
• Training and Technical Assistance is Needed

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II. Example

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Nicks Business

• Video Analysis
• 18,000 VR
• 10,000 PASS
• Medicaid Waiver

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564 per month SSI Monthly Check Medicaid

• Issues After High School no employment for 2
  years
• VR initial resistance to self employment
• Medicaid Supported Living Waiver, fears of
  losing SSI and Medicaid
• Low Assets (Cash below 2000), no Community
  Rehab Provider would consider Self Employment

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564 per month SSI Monthly Check Medicaid

• Solution Self Employment Family Developed
  Business Plan VR SSA funded
• Unlimited Cash and Property Assets
• 64,000 Net Profits and Still Medicaid Eligible
  (1619(b) Policies via Individualized Medicaid
  Threshold

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Without a PASSScenario 2004 Totals

• Gross Sales 32,703
• - Business Expenses 10,742
• Net Profit 21,961
• Starting Cash 255
• - Capital Expenses - 3,300
• Depreciation Adjustment 1,950
• Owners Draw - 21,961
• Ending Cash - (1,095)

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WITH a PASSScenario 2004 Totals

• Gross Sales 32,703
• - Business Expenses -10,742
• Net Profit 21,961
• Starting Cash 2,121
• - Capital Expenses -3,300
• Depreciation Adjustment 1,950
• PASS 8,828
• - Owners Draw -21,961
• Ending Cash 9,599

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With a PASSScenario 2004

• Highlights
• SSI Only and no other income prior to PASS and
  Business NESE Projections
• Higher Starting Cash in 2004 due to PASS
  effects in 1st 7 Months of Startup in 2003
• Higher Ending Cash Directly due to PASS
  without a PASS Negative 1,095 vs. with a PASS
  Positive 9,599

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With a PASSScenario 2004

• Highlights
• Both scenarios (with or without a PASS) assume
  that the owner is paid all the net earnings of
  the business as an owners draw
• The IRS, SSI, Medicaid, Section 8, Food Stamps
  all use the net earnings of the business to
  calculate taxes owed to the IRS, to reduce SSI,
  to increase rent and to decrease food stamps
  even if not paid to the owner

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III. Recommendations

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Recommendations

• Directive to Disability Employment Service
  Providers
• Provide Self Employment as an employment option
• Participate in Training and T/A

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Recommendations

• Coordinate with SSA BPAO Funded local outreach
  staff, and VR Medicaid, Food Stamps, Section 8
  Housing

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Recommendations

• National/State Grant Sponsored Self Employment
  Efforts
• Initial Demonstration coordinated data
  research
• Followed by Systems Change Policies

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Recommendations

• Develop Capital (CASH) LoansGuaranteed
  Employment Self Employment Loans
• VR Guarantee Principal Payments
• Similar to Guaranteed Student Loans
• Ticket to Work Long Term Payment Approach

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Recommendations

• Develop a Professional National Trade
  Organization
• To provide structure to professional development
  credibility

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Recommendations

• Provide Blended Funding On-going Training and T/A
• Within Social Services
• Including SBDC, SCORE, Banks and Non-Banks,
  Corporations, Chambers, et al

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Recommendations

• Develop a Medicaid Waiver Task Force
• To review all existing new waivers for self
  employment support authority, and concurrence
  with SSA policies

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Recommendations

• Create Baseline data quickly and then clear goals
  to increase less than 1 usage suspected by
  targeted increases to research verified 20 to 30
  desired
• Within Existing Employment Services