Making the Most of the Middle

Business direction background with two people

The Indiana Chamber Foundation conducted research on Indiana middle-market firms nearly a decade ago and initiated programming efforts (that continue today) to help grow those companies.

Now, American Express and Dun & Bradstreet offer the Middle Market Power Index.

The latest report rates Indiana fourth for growth in the number of middle market firms – defined as between $10 million and $1 billion in annual revenues) from 2011 to 2016. The current 3,916 firms in this category constitute an increase of more than 101% from five years earlier.

While small businesses (less than $10 million in revenues in this case) comprise more than 98% of all businesses, Indiana is one of 10 states – in a somewhat Midwest-dominated category – in which middle market firms comprise a greater than average share of companies. The numbers: Illinois and Wisconsin, 1.5% share; Michigan and New Jersey, 1.3%; Indiana, Kansas, Massachusetts, North Dakota, New York and Ohio, 1.2% each.

Maybe part of the explanation for the above is that middle market firms are much more likely to be found in manufacturing (18%) and wholesale trade (17%).

Just as the Chamber found previously, these firms makes an outstanding economic contribution. While comprising just less than 1% of all businesses, they employ more than one in four workers (27%) in the private sector and contribute 26% of revenues.

Waiting … and Waiting on a Highway Funding Fix

30449450Federal highway funding is running low. Nothing new there. The Indiana Chamber, and many others, have called for long-term solutions from Washington instead of short-term fixes that simply extend the uncertainty.

How are states reacting to the current dilemma. According to the Kiplinger Letter:

  • Arkansas, Georgia, Wyoming and Tennessee have postponed 440 projects totaling more than $1.3 billion
  • Iowa, South Dakota and Utah have increased gas taxes. Others that may follow include Georgia, Idaho, Minnesota, Nebraska and South Carolina
  • Seeking funds from advertisers: Virginia sells space on highway rest stop signs to GEICO; Travelers Marketing sponsors highway patrols in Massachusetts
  • Partnering with private investors: Florida is seeking private funds to rebuild portions of Interstate 4; New Jersey, Pennsylvania and Virginia are seeking similar ventures

Kiplinger editors add:

But states can only do so much on their own. Ultimately, Congress must act. Odds favor another temporary fix this fall. A long-term solution will likely wait until 2017. Congress and a new president will have a fresh opportunity to tackle broad tax reform, including a possible hike in federal fuel taxes, which no longer approach what’s needed to pay for highway work.

Not what many want to hear in terms of the time frame.

Summer, Sharks and Spielberg

“After seeing Jaws for the first time, I was scared to even get in the bath tub.”
That’s the story a family friend has told me over the years. He’s exaggerating, of course, but there is a grain of truth in what he says. When Steven Spielberg’s Jaws hit theaters in 1975, it freaked people out.

One of my summer highlights is watching Discovery Channel’s Shark Week (I’m counting down the days until it airs in August), which got me thinking about two stories that always have fascinated me and pulled at my heartstrings. Both have a connection to Jaws.

In 1916, four people were killed and one injured after being attacked by a shark along the New Jersey shore. There have been several books written about the events, including one called Twelve Days of Terror: A Definitive Investigation of the 1916 New Jersey Shark Attacks. It’s on my summer reading list.

Two victims were killed while swimming near popular resorts. Two more died in Matawan Creek – yes, a creek! Lester Stillwell, just 11 years old, was enjoying an afternoon of fishing when he was attacked. When 24 year-old tailor Stanley Fischer rushed to his aid after hearing cries for help, he heroically lost his life. Not long after and further upstream, teenager Joseph Dunn was bitten, but survived. These events are said to have inspired Jaws.

Another story hits close to home.

One of the most powerful scenes in Jaws is a monologue by Captain Quint about the USS Indianapolis, which sank on July 30, 1945 in shark-infested waters after it was hit by Japanese torpedoes. The crew was returning from a mission in the South Pacific where they delivered components of the Hiroshima bomb.

There were 1,196 men on board. Only 317 survived. Every time I read about this horrific event, I get goose bumps. The History Channel recounts the story.

Way Too Early for 2016 Hype, But…

It’s way too early for this, but I can’t help myself. Hillary Clinton and Chris Christie appear to be favorites as nominees for the 2016 election, and NBC News reports on a recent poll showing Clinton had the edge thus far. She also appears to benefit from more cohesive support from her party than Christie, as Tea Partiers don’t seem to be enthusiastic about the Springsteen-loving East Coaster.

Christie vs. Clinton

Christie’s challenges extend beyond his own party: The poll finds Clinton getting the support of 44 percent of all adults in a hypothetical match up against the New Jersey governor, who gets 34 percent. The rest of respondents either preferred another candidate, said they would not vote, or were undecided.

And while Election Day 2016 is still more than 1,000 days away, the survey shows Clinton benefiting from the same demographic trends that helped propel President Barack Obama to win the election in 2008 and re-election in 2012.

Clinton leads Christie among African Americans (83 percent to 4 percent), respondents ages 18 to 29 (45 percent to 31 percent) and Latinos (44 percent to 33 percent).

Clinton also holds the advantage with residents from the Northeast (52 percent to 35 percent), West (43 percent to 30 percent), the South (43 percent to 35 percent) and Midwest (41 percent to 37 percent). And she has a narrow edge among independents (39 percent to 35 percent).

Christie, meanwhile, leads among whites (41 percent to 37 percent), seniors (44 percent to 41 percent) and respondents with an annual income of $75,000 or more (46 percent to 34 percent).

States Turning Tuition World Upside Down

Recently, Oregon was the first state to propose a "Pay it Forward" college tuition plan. While many questions remain on whether the dramatic proposal is valid, that isn't stopping a legislative leader from another part of the country from recommending further study of the concept. NJ.com reports:

Under the plan, New Jersey public colleges could waive tuition and fees for students who pledge to give the state a portion of their salaries after graduation.

In theory, the idea would reduce the amount of loans students take out to go to college.

"When kids are getting out of college, they’re buried in debt," Sweeney said. "It gives another pathway to higher education. As someone who didn’t go to college and recognizes how fortunate I am that things worked out for me, you don’t want to leave things up to luck."

New Jersey’s public colleges have some of the highest tuitions in the nation. For example, the average in-state Rutgers University undergraduate will pay $13,499 in tuition and fees for the 2013-14 school year. Once room and board are added in, the total cost of attending Rutgers will be $25,077 for students living on campus.

New Jersey would not be the first state to explore the idea of delaying tuition payments.

On July 29, the governor of Oregon signed a bill to appoint a commission to study a "Pay it Forward" plan and recommend whether the state should institute a trial program.

Although details have not been finalized, proponents of Oregon’s plan have called for the state to waive tuition for students who agree to pay 3 percent of their incomes over 24 years.

Supporters say the program will help alleviate the nation’s growing student loan problem since many graduates leave college encumbered with tens of thousands of dollars of debt before they ever find their first job.

But critics say the "Pay it Forward" idea has too many holes.

While students would get free tuition and fees while they are in school, they will still have to take out loans to cover the cost of living on or off campus, buying books, paying for transportation and other costs that often account for more than half of the expense of attending college.

It is also unclear if asking students in Oregon to repay 3 percent of their income for a quarter century would cover the cost of running a college or if the schools would have enough cash to operate in the first few years of the program. Critics also questioned whether the state would be able to keep track of the incomes of students who move out of state or out of the country.

Double the Taxing ‘Pleasure’ on April 17

There’s something ironic (not pleasant, but ironic) about Tax Freedom Day this year occuring on April 17 — the same day taxes are due. The day, according to the Tax Foundation, is when people finally work long enough to pay their taxes for the year.

The latest Tax Freedom Day took place on May 1, 2000. With the economy booming that year, Americans paid 33% of their total income in taxes. A century earlier was more pleasant with "freedom" arriving on January 22, 1900.

State tax burdens vary the tax timeframe. Indiana residents will "celebrate" on April 14, which ranks 26th nationally. As for the best of 2012:

  • Tennessee, March 31
  • Louisiana and Mississippi, April 1 (no foolin’)
  • South Carolina, April 3
  • South Dakota, April 4

And the worst:

  • Connecticut, May 5
  • New Jersey and New York, May 1
  • Washington, April 24
  • Wyoming and Illinois, April 23

Education Reaction: They Really Do These Things

We’ve noted here before some strong reporting on K-12 follies by the Education Action Group. A recent newsletter from the group was different, sadly, by the volume of news and developments across the country that reinforce the concept that far too many people still put the adults ahead of the students.

Consider the following:

  • A student in Danville, Illinois who made online comments about contract negotiations between the school district and teachers union was reportedly harassed by a teacher
  • In Franklin, New Jersey teachers seeking a larger pay raise picketed outside of the home of the school board president. The volunteer leader was not home, but his daughter was there to witness some of her own teachers "attacking" her father.
  • National Education Association membership is declining as several states have freed teachers from compulsory union membership. While union leaders have verbally (and beyond) assaulted state and local officials for cutting aid and seeking union concessions during difficult economic times, the NEA is now cutting employees and asking its affiliates to do with less.
  • Meaningful education reforms in Washington state were stopped in their tracks by Democratic lawmakers. The reaction from one major Democrat fundraiser:  “It is impossible to escape the painful reality that we Democrats are now on the wrong side of every important education-reform issue. Today, the (teachers union) is literally strangling our public schools to death with an almost infinite number of institutionalized rules that limit change, innovation and excellence." Seattle Times columnist Lynne Varner adds, “People are starting to see the light about the Democrats’ intransigence.” Refusing to stand up to the special interest teacher unions could be “a matter of political life or death” for the Dems, she adds.  
      

Online vs. Main Street Tax Debate Continues

The dispute over collection of online sales taxes is not a new one. The Alliance for Main Street Fairness argues that online-only retailers have a distinct advantage, but the author offers that convenience (not avoiding sales taxes) drives the buying decisions for many. TechJournal South offers analysis:

Federal law currently requires retailers to collect sales taxes in states where they have a nexus (a physical presence such as a store, warehouse or other facilities). Since Internet-only retailers do not have a nexus in most states, they are not currently required to collect the taxes.

Other states wrestling with the problem include Arkansas, California, Florida, Illinois, Indiana, Minnesota, New Jersey, Pennsylvania, Tennessee and Texas. The National Conference of State Legislatures says states lost about $8.6 billion in 2010 in failing to collect sales tax from online and catalog sales. The number is projected to be approximately $37 billion from 2009 to 2012.

Personally, we can see how buying a big ticket item from an online retailer might save a significant pieces of change, but even there, we doubt that most people buy online just so they won’t have to pay sales taxes. We buy online because it is convenient. We can do our shopping from our desks, which has inherent advantages that will not disappear when online retailers collect sales taxes.

We shop online because we often find a much wider selection available at the lowest possible prices online, whether we are looking for a book, a camera, or a refrigerator. We save gas and wear and tear on our vehicles and ourselves. But we have never bought an item online to avoid paying a sales tax.

Sooner or later, we suspect, this problem will be resolved through legal means that require online retailers to collect state sales taxes. That’s fine with us, although we think states threatening to collect years of back taxes are certainly wrong-headed as well as on legally shaky ground.

In the meantime, the way states and the online retailers are going about dealing with the problem is just causing more problems: such as Amazon dismissing its associates in North Carolina and other states attempting to use their status to say the reatailer has the physical presence in the state to create a nexus.

That move causes grief for many online startup businesses. Some larger ones actually left North Carolina when Amazon fired its state associates, and others complain it makes it harder to get that early revenue necessary to achieve outside growth funding.

Amazon is not helping matters by negotiating not to pay sales taxes even in states such as Texas, Indiana, Nevada and Tennessee where they have distribution centers.

The whole mess will likely require action on the part of the US Congress.  “The Main Street Fairness Act,” H.R. 5660 was introduced in the US House in July 2010, and it would behoove Congress to vote on the bill.

Booker on Budgets, Being Mayoral

Up-and-coming political star and Mayor of Newark, N.J. Cory Booker, whose first campaign was documented in the entertaining documentary "Street Fight," recently sat down for a Q&A with Huffington Post. He offered some interesting thoughts on what it’s like to run a city in today’s America, and the challenges facing leaders in terms of both budget cuts and communication:

HuffPost: A trailer for the new season of Brick City starts with a quote from you, on the screen, where you say, "Squeeze everything else but police and fire." But late last year, the city laid off 164 officers, about 13 percent of the force. How did it come to that?

Booker: Look, budgets across the country — 60 percent of American cities have had reductions in their forces of public safety. And, so, this is not something that’s unique to Newark. In fact, right now it’s plaguing major cities in New Jersey. Camden has had major layoffs. Paterson is facing layoffs. Atlantic City. Jersey City. We’re facing, literally, the worst economy of our lifetimes.

So, we have dramatic losses in revenue. And public safety, frankly — police and fire — make up the significant majority of our budget. We were squeezing and starving every other area of our city. Furloughing employees, cutting staff. But it came to a point where we couldn’t cut enough to make up for the tremendous budgetary shortfall.

Challenges demand creativity. I’m grateful that the police director and my team really came forward with a substantive plan to make sure that the loss of those police officers didn’t affect the progress we were making in the street.

And, look, it’s been a difficult adjustment. We had really some challenges in the month of December. But now, as we’re going through January, things are really getting back on track. And I’m really encouraged. Remember, the first three years in office, we led the nation in percentage reduction of shootings and murders. And I’m really confident that now we’re beginning to get back to that nation-leading pace.

HP: I’ve heard that there are the same number of officers patrolling the street. But I also have heard from some of the union officials that in order to accomplish that, older officers have had to be re-deployed: People who were looking at retirement are now on street patrol. Are you concerned about officer safety?

CB: I’m always concerned about officer safety. I think when you are the leader of men and women who put their lives on the line — whether it’s firefighters and police, or national guard members in the military — that’s the most horrific thing, I think, for an executive, when guys who put their lives on the line get hurt or injured.

That’s a concern that hasn’t changed as a result of the layoffs. But in many ways, we have more experienced officers on the streets. Guys with more years under their belts, not people that are six months out of the academy. It’s a give-and-take in many ways.

Look, I’m very happy: We have our chief, who used to be doing other jobs, now in precincts, running our precincts. In many ways, we have the best talent of the agency closer to the street and closer to the ground on a daily basis.

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“Anyone Aboard?”

If you’re like me, you curse America’s lack of — or at least not so convenient — cross-country passenger train access whenever you head to New York City, or some such locale. Even before TSA gropes became the law of the land, my disdain for large commercial airports could hardly be quantified. Although, I must say Indy’s new airport is about as delightful as an airport can be; in fact, it made LaGuardia feel like I’d landed in a toilet. (And Indiana business travelers are also blessed to have wonderful facilities like the Indianapolis Executive Airport, operated by Montgomery Aviation.)

But the fact is rail development requires serious infrastructure dollars, and as Governing reports, don’t expect that money to be invested in rail anytime soon, as American passenger train commuting may be stuck in the station for some time:

The Obama administration is more sympathetic to rail transit than its predecessors. It proposed a historic expansion of the rail passenger system, including building a national high-speed network of bullet trains with an initial $8 billion down payment in stimulus money (with more promised) to a few states for some modest projects to get things going.

The problem is that the newly elected Republican governors of states where much of the money was supposed to go — like Ohio and Wisconsin, and maybe Florida — don’t want it, at least not for high-speed rail. They’ll gladly take it for auto infrastructure like roads, bridges and highways. But U.S. Transportation Secretary Ray LaHood, a former Republican congressman from Peoria, Ill., won’t agree to that: It’s accept rail or hit the trail, and the money will go to states that want it.

Recently the greater New York area was stunned by New Jersey Gov. Chris Christie’s decision to pull his state out of a long-planned project — described as the largest public transit program in the country — to build a second rail tunnel beneath the Hudson River to ease the commute by 45 minutes for Jersey residents who work in New York City. With substantial overruns, it was estimated to cost as much as $13 billion. Christie’s state was on the hook for $2.7 billion, plus the added costs for its share of the project, which already is under construction. Much is at stake, including 6,000 construction jobs.

Making significant improvements in rail service in this country seems like a no-brainer. Ridership is increasing. The highways and airways are overburdened. It’s far more energy efficient and cleaner, and compared to cars, it’s safer. If done right, it can be one of the most effective economic development tools available. But it’s also very expensive and requires a sustained commitment over many decades. And right now, governments are deep in debt.

Critics of Obama’s high-speed rail plan make several points. The project will cost far too much in initial outlays and subsidies to justify the benefits, siphoning off the funding of worthier programs, including commuter mass transit. The United States has become a suburbanized society, sprawling over a large land mass, with only a few places having sufficient population density to warrant intercity rail service. To be successful in any area except the Northeast Corridor, high-speed trains would have to make too many stops, and therefore would be too slow to compete.

Given the political changes in the new Congress and in many states, it’s hard to imagine that we’ll see many bullet trains whizzing through our future. But that doesn’t necessarily mean that all is lost for rail advocates. The incoming chairman of the U.S. House Transportation and Infrastructure Committee, Florida Republican John Mica, is outspoken in his opposition to the administration’s plan, which he claims is likely to lead to many “slow-speed trains to nowhere.” But he does support what he calls “a better directed high-speed rail program.”