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2010 JUNE

HubZone Dilemma Carries Wide Impact for SDVOBs

Entrepreneur’s Guide to Health Care Reform

STRATEGIC RETREAT FOR
NATIVE AMERICAN VETERAN OWNED BUSINESSES

7th Annual Elite National Convention Fast Approaching

HubZone Dilemma Carries Wide Impact for SDVOBs

CONTRACTING PROGRAM "PARITY," RECENT COURT DECISION, AND PROPOSED NEXT STEPS

BACKGROUND:
(Editor’s Note: For more than a year, Service Disabled Veteran Business Owners doing business with the Federal government have been in a quandary over contracting rules. Also in a quandary are contracting officers for federal agencies. The following is a look at the situation.)

Under SBA’s Parity policy and regulations, before setting aside a contract for small businesses, federal agency contracting officers may choose among SBA’s procurement and business development programs [8(a), HUBZone, Service Disabled Veteran-owned small business (SDVOSB), and the soon-to-be Women-owned small business (WOSB1) programs], without giving one preference over the others.

1. SBA is currently analyzing comments for the proposed Women-owned small business contracting rule that is expected to be promulgated in final form during 2010.

2. Although the holding is limited to the facts and parties involved in that particular case, the concern is that contracting officers, fearing protests, litigation and related uncertainty, will feel bound by the decision in any event.

In Mission Critical v. U.S. (09-864 C, Ct. of Fed Claims, Feb. 26, 2010), the Court of Federal Claims held that the Small Business Act requires contract opportunities to be set aside for HUBZone firms whenever two HUBZone firms are available to perform the contract at a fair price. The Department of Justice has appealed the decision and will be reviewed de novo by the Court of Appeals for the Federal Circuit.

In a protest decision arising out of an Air Force contract, the Government Accountability Office (GAO) has made clear that it believes HUBZone small businesses are entitled to absolute contracting priority over 8(a) in all cases where two or more HUBZones are available to perform the task. At present, GAO has taken the position that it will decide ALL HUBZone protests in favor of this absolute HUBZone priority on a summary, expedited basis.

SBA strongly supports legislation to clarify and reiterate Congress’s original intent not to prioritize one small business program over another. SBA is aware of legislation that would clarify parity (S. 3190 and H.R. 3729).

POTENTIAL IMPACT OF THESE DECISIONS:
Potentially undermines program opportunities for socially and economically disadvantaged, SDVOSBs and WOSBs.c Substantial federal contracting dollars potentially will NOT go to non-HUBZone 8(a) (socially and economically disadvantaged small businesses), SDVOSBs, or WOSBs.

Based on contracting data for FY2008, $29.3 BILLION went to SDBs (of which $16.2 BILLION went to 8(a) firms); $14.7 BILLION to WOSBs; and $6.5 BILLION to SDVOSBs.

The Court of Federal Claims’ reading of the Act, if applied to other procurements, could re-direct to HUBZone firms tens of BILLIONS in federal procurement dollars currently spread across small businesses, including HUBZone, 8(a), SDVOSBs, and WOSBs.

An absolute HUBZone preference could have a devastating economic impact upon thousands of non-HUBZone 8(a), SDVOSB and WOSB firms that currently participate in government contracting, and the hundreds of thousands of jobs they provide.

This could cause a flood of protests in any non-HUBZone procurement, paralyzing the procurement process and making litigation avoidance a primary contracting objective.

SBA’S POSITION ON NEXT ACTIONS:
1. SBA supports substituting “shall” with “may” in Section 31(b)(2)(B) of the Small Business Act to clarify and confirm contracting officers’ discretion to treat SBA’s programs in parity with one another.

2. Message to the contracting community that Mission Critical controls only the contract at issue in the Mission Critical procurement and the SBA’s regulations remain in force. The Administration maintains a firm commitment to the principle of parity while Congress considers potential statutory clarifications.

OTHER KEY FACTS:
Time is of the essence in clarifying parity since a significant share of spending takes place in the final four months of the Fiscal Year (June – September). In FY 2008, nearly four percent of all contract dollars were obligated in the final four months.

There is significant overlap between the industries in which HUBZone firms receive contracts and the industries in which SDB, SDVOSBs, and WOSBs receive contracts.

• Nearly 40 percent of SDB dollars are in the 10 largest industries for HUBZone firms.
• The largest SDVOSB NAICS code (building construction) is also the largest HUBZone NAICS code.
• 30 percent of women-owned small business contracts are in the 10 largest HUBZone industries.

Entrepreneur’s Guide to Health Care Reform

Separate fact from fiction and get your business ready for what's ahead.

By Gwen Moran
Entrepreneur.com

On March 23, the face of health care in the United States changed dramatically when President Barack Obama signed the Patient Protection and Affordable Care Act (PPACA) into law. The legislation makes sweeping changes in the nation's health-care system, including how health coverage is obtained and what it covers.

Before you worry too much about the changes, know that if your business has fewer than 50 employees, there are no penalties if you don't provide insurance, even after the law goes into full effect in 2014. But that leaves small to midsize businesses trying to make immediate sense of the changes that are coming and prepare for them as the bill's execution is finalized and implemented. Adding to the confusion is a rampant mix of misunderstanding and misinformation--not to mention that some elements just haven't been finalized yet. However, there are some important facts you need to know now, as well as some that are coming at various intervals over the next several years.

Immediate Provisions
The bill made some "immediate" provisions to insurance policies, which need to be met within one year of the date the law was signed. Beginning in September 2010, children cannot be excluded from coverage due to pre-existing conditions. (This provision applies to adults in 2014.) Also in September, insurance companies will be prohibited from dropping insured people after they get sick, and the provision bans limits on lifetime coverage limits, prohibits policies that provide insurance only to higher-wage employees, and allows dependent children to be insured on their parents' policies until their 27th birthdays. In all, the bill has 18 such short-term provisions affecting everything from coverage limits to Medicare.

Of course, these changes are just the start of reform. After all, the bill is approximately 2,600 pages of "broad strokes." It will be up to the government agencies that implement and oversee the new system--such as the Department of Health and Human Services, the Internal Revenue Service, state insurance commissions, and others--to figure out how the details will be carried out. That is happening now.

At the heart of the bill are state-based exchanges called the American Health Benefit Exchanges and the Small Business Health Options Program (SHOP) Exchanges. Administered in each state by the government or a nonprofit institution, these insurance marketplaces will offer qualified health insurance options for individuals and small businesses with up to 100 employees. They will be in place by 2014. In 2017, businesses with more than 100 employees will be able to purchase insurance through the SHOP exchanges.

Tax credits:
Starting this year, businesses with 25 or fewer full-time equivalent employees and that pay an average annual wage per employee of less than $50,000 are eligible for tax credits for a portion of their premium contributions. These employers must contribute at least 50 percent of the premium cost. Through 2013, the tax credit will equal 35 percent of the employer's contribution. However, that maximum will only be available to businesses with 10 or fewer employees whose annual wages average $25,000 or less. As the number and employee wage average increases, the credit amount decreases. After tax year 2014, eligible businesses that purchase their insurance through a state exchange can receive tax credits of up to 50 percent of their contributions on the same sliding scale for two years.

"There should be about 4 million small businesses that can take advantage of this," says Hayley K. Matz, spokesperson for the Small Business Administration. Analysis by the Congressional Budget Office and Joint Tax Commission in November 2009 estimated that only about 12 percent of those with coverage in the small group market would benefit from the credits in 2016. The IRS has devoted a section of its website to information about the bill, including tax credits.

Help insuring early retirees:
PPACA also provides $5 billion to fund the temporary Early Retiree Reinsurance Program, which will help businesses continue to provide health-care coverage for early retirees age 55 and older who are not yet eligible for Medicare. The program started June 1, and assistance is available by contacting the U.S. Department of Health & Human Services (HHS). The program will end on Jan. 1, 2014, when other options will be available through the bill's state-run exchanges.

The fund will reimburse employer plans up to 80 percent of claims costs for health benefits provided to retirees, as well as their covered spouses and dependents, totaling between $15,000 and $90,000. Expenses incurred prior to June 1 in the calendar year are credited toward the $15,000 threshold. Only medical expenses incurred after June 1 or after the threshold is met, whichever is later, are eligible for reimbursement. However, a study by the Employee Benefits Research Institute estimates that the $5 billion provision will only sustain the program for two years.

Grandfathered insurance plans:
Starting in 2014, all employer-offered coverage will need to comply with some of the bill's basic provisions, such as pre-existing condition coverage and increased dependent minor coverage until age 27. However, the bill also "grandfathers" policies that were in place on March 23, 2010, when the bill was signed into law, as long as they don't make major changes to benefits coverage or employee contributions. "Some policies are changing to comply with the law now, before it's required. If it's a change the insurance industry is required to make to a grandfathered plan, it will not bump people out," says Amanda L. Austin, director of federal public policy for the National Association of Independent Business, a national business advocacy group with headquarters in Washington, D.C.

High-risk pools:
Another immediate provision in the bill is an additional $5 billion in funding for high-risk pools, which offer health insurance to those who cannot obtain coverage due to pre-existing conditions. Some states have opted not to set up their own high-risk pools and instead have opted to let the federal government set up pools they can access, says John Arensmeyer, CEO of Small Business Majority, a small-business advocacy group with headquarters in Sausalito, Calif. "Twenty-eight percent of self-employed people don't have health insurance. They should immediately check with their state's high-risk pool to see if they might be eligible to buy insurance there when they perhaps haven't been able to buy it through traditional sources," he says. That would apply primarily to self-employed people with a pre-existing condition, he adds.

Compliance and fines:
In navigating the health-care reform maze, size matters. Businesses that have 50 or more full-time employees and that have at least one employee who is assessed a premium tax credit--tax credits that will be available to individuals, based on income level, to offset premium costs--could face a fine of $2,000 per full-time employee beyond their first 30 full-time employees. If your company has more than 50 full-time employees, offers coverage, and has one or more employees receiving a tax credit, it will be assessed the lesser amount of $3,000 for each employee receiving a premium credit or $2,000 per employee beyond the first 30 employees.

What's Coming
In addition to these immediate aspects, small businesses also need to take a look at what's coming in the years ahead, Arensmeyer says. "You need to be aware of the changes that are coming and how they're being implemented."

And there are plenty more changes coming. National Federation of Independent Business analysis cites fewer deductible medical expenses, an increase in Medicare payroll taxes on wages and self-employment income in excess of $200,000 ($250,000 joint) will increase to 2.35 percent and is not indexed to inflation, and flexible savings account contribution limits will be capped at $2,500 per year. In addition, if you offer more than "minimum essential coverage" under the law, your policy may face an additional tax to the insurance company, which will likely be passed along to you, says Arensmeyer. Employees may opt out of employer-offered plans and are then entitled to employer-sponsored vouchers that help them purchase individual policies in the exchanges.

There will also be changes at the individual level that may affect small-business owners and shareholders, including new taxes of 0.9 percent for individuals earning more than $200,000 individually ($250,000 for married couples) and a new 3.8 percent tax on unearned income, such as income from investments, real estate and business investments for high-income taxpayers. The Kaiser Family Foundation has published an excellent overview of the changes and when they take effect.

What You Need to Do Now
If you have or plan to have more than 50 employees by 2014, it's probably a good idea to sit down with an accountant or qualified financial advisor and take a look at which provisions apply to you to begin planning for them, says the National Association of Independent Business Austin.

"There are several different phases of the bill, as far as implementation," she says. "It's important to know what is going to affect you and when it will affect you."

Arensmeyer agrees that it's critical for business owners to educate themselves and speak out through the channels available to them to help shape implementation. Various state and federal agencies are in the process of determining exactly how these changes will be implemented, so it's time to make your voice heard. He encourages business owners to voice their opinions directly to government entities, including their state insurance commissioners, which will be very involved in setting up the exchanges, as well as through organizations like Small Business Majority, Chambers of Commerce, trade groups, and other business-related organizations.

"This is going to be a constant process of providing input to the states and to the federal government, which is writing regulations," Arensmeyer says. "This is not the end of the game. This is a dynamic process and an interactive process going forward. It's not too early to start weighing in on these issues, even though they don't take effect until 2104."

Fact or Fiction?
Rumors are flying about health-care reform. Here are a few that we've heard, as well as the real deal on each.

1. Health-care coverage is now reported as income on W2 forms and taxed as such.

Real Deal: No.
While the cost of health insurance and some other related expenses must now be reported on an employee's W2 form, it is for information purposes only and not considered taxable income. The total is not used in calculating the individual's tax liability.

2. Businesses need to start sending 1099 forms to Staples.

Real Deal: Maybe.
Beginning in tax year 2012, if you spend $600 or more on business-related purchases with any supplier or vendor over the course of a year, you must gather that entity's tax identification number and issue a 1099 for the total purchased. However, several of the small-business advocates and agencies interviewed for this piece are awaiting further direction from the IRS on this matter, so keep an eye on the agency's website for updates.

3. Businesses that offer tanning services face a new tax.

Real Deal: Yes.
As of July 1, 2010, there is a new 10 percent tax on indoor tanning services. Some medical devices will also be assessed new taxes. In 2013, certain medical devices will also face a new 2.3 percent tax.

4. Employees who belong to certain religious groups, such as Muslims, Christian Scientists and Amish citizens, are exempt from health-care reform requirements.

Real Deal: Unclear.
At this point, it appears that the exemption primarily applies to Amish citizens. However, more guidance on this matter will likely be issued by the Department of Health and Human Services.

TUCK SCHOOL OF BUSINESS AT DARTMOUTH
in collaboration with
SMALL BUSINESS ADMINISTRATION and the
OFFICE OF INDIAN ENERGY AND ECONOMIC DEVELOPMENT,
U.S. DEPARTMENT OF THE INTERIOR

STRATEGIC RETREAT FOR
NATIVE AMERICAN VETERAN OWNED BUSINESSES

Gila River Reservation (Phoenix), Arizona September 14-16

The Office of Native American Affairs, SBA, and the Office of Indian Energy and Economic Development (DOI) are offering the opportunity for a select set of Native American/Alaska Native Veteran –owned businesses from all over the country to participate in a strategic retreat/intensive learning experience. Each Native Veteran-owned business will send its top-management group—accompanied, as appropriate, by key managers, board-level overseers, economic development officers, etc. There is no charge for the program; participants must pay for their own travel, lodging and meals.

The strategic retreat format will feature learning from Tuck School’s professors, followed by application of the learning to the business. The tailored learning experience will update leaders’ knowledge and skills, to understand how their business can be improved, diversified, and positioned for the future. The business leadership group will be guided towards agreement on a course of action to achieve optimum long term results.

Here’s what the leadership team will get from participating in the program:

• A three-day top-management development program tailored to Native businesses
• A strategic retreat to gain consensus on strategic direction
• Self-diagnosis of the business’s strengths and weaknesses
• Training in cutting-edge business thinking (there are no pre-requisites)
• A certificate from Dartmouth’s Tuck School of Business (rated the nation’s Number One business school by The Wall Street Journal).

The three-day program combines the best features of a strategic planning retreat, a tailored executive development program, and coaching by leading subject-matter experts. There will be a single case study for the three days—their own businesses. The outcome will be an understanding of the improvements needed in the business, a strategic plan for achieving and sustaining competitive advantage within their chosen industries, and an explicit To-Do list that the leadership group has committed to implement.

Sign up by contacting Rebecca Naragon at Rebecca.naragon@bia.gov or on (202) 208-4401. Hotel and Program site is the Wild Horse Pass Hotel and Casino, 5040 Wild Horse Pass Blvd., Chandler, AZ. 85226. Reservations for rooms at $99 can be made by calling 1-800-946-4452. Name of room block: Department of the Interior.

WHO SHOULD ATTEND?
The program is designed to accelerate the progress of high-potential Native-owned businesses. The leadership group typically includes the chief executive officer, the chief operating officer, the chief financial officer, the head of sales, etc. They can bring their key managers, so that everyone who is involved in implementing the strategy is “on the same page.” In the case of tribally-owned businesses, we’ve found it invaluable to have members of the governing body attend, too, such as board members, Chiefs, Economic Development directors, or Tribal Council members. Groups of 3-5 people are typical, but it could be reasonable to have as many as 12 people attending from a tribe. The off-site strategic retreat offers an opportunity to gain consensus on a visionary course of action.

7th Annual Elite National Convention Fast Approaching

Elite Service Disabled Veteran Owned Business Network
August 19 – 20, 2010
MGM Grand at Foxwoods
Mashantucket, Connecticut

Register NOW for one of the most important conferences of the year, exclusively serving SDVOB’s Nationwide! This conference WILL get SDVOB’s in touch with corporate and government agencies through seminars, business matchmaking and numerous networking events.

Register now: sdvobconference.com

Early Bird Price:
Members: $265.00
Non-Members: $335.00

July 1 – August 14:
Members: $315.00
Non-Members: $395.00

At the door prices:
Members: $450.00
Non-Members: $450.00

For more information visit the website:
sdvobconference.com or
call toll free (877)838-3548

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