Using Work Incentives to Fund
Micro-Enterprises
Presenter: David Hammis, Senior
Partner Griffin - Hammis Associates,
LLC
Self-Employment
& Micro-Enterprise
I.
Overview: Key SSI/SSDI, Work Incentives, VR, WIA,
Housing, etc…. Opportunities, Issues, & Interactions
with Self Employment Income and Small Business
Start-Up Funding
II.
Example: Blending & understanding multi-level
financial resources available through Social Systems,
Families and Communities
Self-Employment
& Micro-Enterprise
III.
Recommendations: Providing all prospective
business owners with disabilities self employment
funding options & choices
I. Overview
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
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
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 (P&L)
– PASS significantly influences Cash Flow
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.
Related PASS POMS
• SI 00870.006B.4. Start-up Costs:
For 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.
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.
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.
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
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 P&L
– VR funding tends to artificially inflate profits
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 P&L
– WIA funding often artificially inflates profits
Other Self-Employment
Social System Startup
Resources
• SBA Guaranteed Loans, Bank Loans & NonBank 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
Self-Employment
Research
• 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
Self-Employment & DD
Experiential Assumptions
• Families Taking the Lead – Highest Use
• Is Self-Employment a “Cop-Out” Concerns
• Training and Technical Assistance is Needed
II. Example
Nick’s Business
 Video Analysis
 $18,000 VR
 $10,000 PASS
 Medicaid Waiver
$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
$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
Without a PASS
Scenario 2004 Totals
Gross Sales:
- Business Expenses:
Net Profit:
$32,703
$10,742
$21,961
Starting Cash
- Capital Expenses
+ Depreciation Adjustment:
Owner’s Draw:
Ending Cash:
$ 255
- $ 3,300
+$ 1,950
- $21,961
- ($1,095)
WITH a PASS
Scenario 2004 Totals
Gross Sales:
- Business Expenses:
Net Profit:
$32,703
-$10,742
$21,961
Starting Cash
- Capital Expenses
+ Depreciation Adjustment:
+ PASS
- Owner’s Draw:
Ending Cash:
$ 2,121
-$3,300
+$1,950
+$8,828
-$21,961
+$ 9,599
With a PASS
Scenario 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
With a PASS
Scenario 2004
• Highlights:
– Both scenarios (with or without a PASS) assume that
the owner is paid all the net earnings of the business
as an owner’s 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
III. Recommendations
Recommendations
1. Directive to Disability Employment
Service Providers:


Provide Self Employment as an employment
option
Participate in Training and T/A
Recommendations
2. Coordinate with SSA BPAO Funded local
outreach staff, and VR & Medicaid, Food
Stamps, Section 8 Housing
Recommendations
3. National/State Grant Sponsored Self
Employment Efforts


Initial Demonstration & coordinated data &
research
Followed by Systems Change Policies
Recommendations
4. Develop “Capital” (CASH) Loans
Guaranteed Employment & Self
Employment Loans



VR Guarantee Principal Payments
Similar to Guaranteed Student Loans
Ticket to Work Long Term Payment
Approach
Recommendations
5. Develop a Professional National Trade
Organization

To provide structure to professional
development & credibility
Recommendations
6. Provide Blended Funding On-going
Training and T/A


Within Social Services
Including SBDC, SCORE, Banks and NonBanks, Corporations, Chambers, et al
Recommendations
7. Develop a Medicaid Waiver Task Force

To review all existing & new waivers for self
employment support authority, and
concurrence with SSA policies
Recommendations
8. 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