CFED Assets & Opportunity Scorecard
State Support for Microenterprise
Small business ownership has consistently been a path to America’s middle class – particularly for minorities, immigrants and the economically disadvantaged. Very small businesses, or microenterprises, represent more than 80% of all businesses in the United States, and are a key job creation strategy in communities with weak job prospects. However, of the estimated 20 million Americans who operate microenterprises, at least 10 million of these microentrepreneurs face disadvantages in establishing and operating their own businesses, including women, minorities, low-income individuals and people with disabilities. States should recognize that microenterprises are an important part of the state’s economy and provide funding to programs that help these individuals succeed as entrepreneurs.
CFED evaluated the strength of each state’s policies to support microenterprise development against the four criteria described in the Elements of a Strong Policy tab. The table below shows which criteria each state met.
CFED uses the following icons to denote the strength of state policies:
Strength of State Policies: State Support for Microenterprise
|State||Does the state fund microenterprise development or codify its support for microenterprise in law? 1||Does the state use federal block grant funding to support microenterprise development? 2||Has the state implemented a Self-Employment Assistance program? 3||Does the state provide funding to its State Microenterprise Association? 4||Rating|
|California||No||Yes (CDBG)||No 5||No|
|Connecticut||Yes||Yes (WIA)||No 5||—|
|District of Columbia||Yes||Yes (CDBG)||No||—|
|Georgia||No||Yes (WIA and TANF)||No 6||—|
|Hawaii||No||Yes (CDBG) 7||No 6||—|
|Kentucky||Yes||Yes (CDBG and WIA)||No||—|
|Louisiana||Yes||Yes (CDBG, WIA and TANF)||No 5||—|
|Maine||Yes||Yes (CDBG, WIA and TANF)||Yes||No|
|Maryland||Yes||Yes (WIA)||No 5||—|
|Massachusetts||Yes||Yes (CDBG)||No 5||—|
|Minnesota||Yes||Yes (CDBG and WIA)||No 5||—|
|Missouri||Yes||Yes (CDBG and WIA)||No||—|
|Nebraska||Yes||Yes (CDBG)||No||Yes 8|
|New Hampshire||No||Yes (CDBG)||No||—|
|New York||Yes||Yes (CDBG)||Yes||—|
|North Carolina||Yes||Yes (CDBG and WIA)||No||—|
|Ohio||Yes||Yes (CDBG, WIA and TANF)||No||—|
|Oregon||Yes||Yes (CDBG, WIA and TANF)||Yes||Yes|
|Rhode Island||Yes||No||No 5||—|
|South Dakota||Yes||Yes (WIA)||No||—|
|Texas||Yes||Yes (CDBG and WIA)||No||—|
|Vermont||Yes||Yes (CDBG)||No 6||—|
|Washington||Yes||Yes (WIA and CDBG)||Yes||Yes|
|Wisconsin||No||Yes (CDBG, WIA and TANF)||No||—|
1. CFED collected data on codified funding or support for microenterprise through a search of state codes, budgets and state agency websites in June, July and August 2012.
2. CFED collected data on federal block grant support through searches of the most recent available state strategic, action and consolidated plans for CDBG, WIA and TANF programs in June, July and August 2012. States receive credit if they use one of the three programs to support microenterprise development or entrepreneurship training, or in the case of TANF programs, recognized self-employment as an allowable work activity.
3. "Self Employment Assistance," United States Department of Labor, Employment and Training Administration, www.workforcesecurity.doleta.gov/unemploy/self.asp. (Accessed 7/24/12). and Wayne Vroman, Self Employment Assistance: Revised Report, (Washington, DC: Urban Institute, 1997).
4. CFED surveyed state microenterprise associations (SMAs) and microenterprise advocacy organizations in June and July 2012 to collect information on state funding for SMAs. Note: "-" indicates that the data is not applicable because the state does not currently have an active SMA or data on state funding was not available.
5. State passed legislation enacting a SEA Program, but the program was not implemented or is currently inactive.
6. A bill to enact a SEA Program has been proposed in the state legislature, but did not or has yet to pass.
7. Hawaii's CDBG funding is administered by HUD. The counties of Hawaii, Maui, and Kauai must individually apply for non-entitlement funding.
8. The Nebraska Enterprise Fund, the State Microenterprise Intermediary, was approved for state funding in 2012.
WHAT STATES CAN DO
States can recognize that microenterprises are an important part of the state’s economy and fund microenterprise development. They can fund microenterprise development programs, which capitalize loan funds and/or provide training, education and business services to entrepreneurs, or they can fund state microenterprise associations (SMAs), which provide support and resources to microentrepreneurs and the field of microenterprise development organizations in a state, most often through assistance with fundraising, organizational capacity building, program evaluation and monitoring and advocacy.
States can also leverage federal funding to support microenterprise. Three federal sources – Temporary Assistance for Needy Families (TANF), the Workforce Investment Act (WIA) and the Community Development Block Grant (CDBG) – may be used to fund microenterprise training, capital and living expenses for start-up microentrepreneurs. Similarly, states can open up the unemployment compensation system to entrepreneurs and allow them to receive unemployment insurance while they are starting new businesses.
WHAT STATES HAVE DONE
Thirty-four states either fund microenterprise development directly or have codified microenterprise in state law. Thirty-two states use one of the three federal block grant programs to support microenterprise or self-employment: 23 use CDBG, 18 use WIA and 8 states use TANF funds or recognize self-employment as an allowable activity. Six states offer a Self-Employment Assistance program as an option for the unemployed, although several other states have introduced legislation to create the program. In May, 2012, the United States Department of Labor made $35 million available to states to develop and promote SEA programs. The deadline to complete an application to receive federal funding is June 30, 2013; the number of states that have a SEA program is likely increase the coming year as a result. Only three states - Nebraska, Oregon, and Washington - provide funding to their SMAs. Overall, only five states meet CFED’s criteria for having strong or very strong policy, with the remaining states having much room for improvement in their support of microenterprise development.
However, even in states with strong policies on the books, there is an ongoing need to invest in the microenterprise support systems to ensure that microentrepreneurs have access to the resources that will help them successfully start and grow their businesses. Due to unavailability of data, CFED does not evaluate states on the adequacy of those policies and programs. Often a policy is passed or a program created, but the work is underfunded to sufficiently meet the need for the services.
ELEMENTS OF A STRONG POLICY
CFED considers a state’s microenterprise policy strong if it meets the following criteria:1
1. Does the state fund microenterprise development or codify its support for microenterprise in law? States can allocate funding to support microenterprise development program operations, entrepreneurship training or provide loan capital. In the absence of funding, codifying support for microenterprise signals that the activity is a priority for the state and lays the groundwork for future funding. States should directly fund microenterprise development or explicitly codify the state’s support for disadvantaged entrepreneurs and microenterprise programs.
2. Does the state use federal block grant funding to support microenterprise development, entrepreneurship training or self-employment? Microenterprise development and services for entrepreneurs are allowable uses in the federal guidelines for the CDBG, WIA and TANF programs,but few states take full advantage of these provisions. States should:
- Include microenterprise as an eligible use in the state’s CDBG consolidated plan and use non-entitlement CDBG funds to support microenterprise development or financing;
- Use WIA funds to support microenterprise development and entrepreneurship training or provide capital to entrepreneurs; or
- Use TANF funds to support microenterprise development or, as a first step, recognize self-employment and entrepreneurship training as allowable work or participation activity.
3. Has the state implemented a Self-Employment Assistance program? Under federal law, a state can create Self-Employment Assistance (SEA) Program that allows eligible individuals to receive unemployment insurance (called a self-employed allowance) while they participate in business training and are establishing a new business. States can allocate as little as 1%-2% of unemployment funds to establish a SEA Program. States should enact and fund such programs.
4. Does the state provide funding to its State Microenterprise Association? SMAs – a term for various statewide associations, coalitions or networks with varying organizational structures, membership and activities – provide a statewide infrastructure for disseminating best practices, conducting public education and advocacy about microenterprise development at the local and state levels, and supporting the development of effective microenterprise services. States should fund SMAs to streamline more efficiently utilize and leverage state microenterprise funding.
To see how each state’s policy stacks up against these criteria, see the State Data tab above.
1 CFED acknowledges the expert assistance of Elaine Edgcomb and Joyce Klein of the Aspen Institute and Deb Markley of the RUPRI Center for Rural Entrepreneurship.
MAKING THE CASE
Effective Messages about Microenterprises1
1. Economic viability. The economic viability of many areas – both rural and urban – lies in part in their ability to support the creation of businesses by local residents. This trend is particularly pronounced in rural areas, where self-employment is a significant source of jobs and income. In addition, during times of economic downturn, the microenterprise sector functions as an economic shock absorber, providing economic opportunity to downsized and dislocated workers.
2. Cost-effectiveness. Annually, states and localities across the country invest billions of public dollars in a variety of incentives to recruit new companies or retain existing ones, yet most economists and policy analysts agree that business attraction incentives are high-cost, and, in a majority of cases, do not produce net new jobs. By contrast, microenterprise development in New York, for example, is estimated to have a return on investment of $2 for every $1 invested.2
3. Appropriateness. Economic and community development strategies are best understood and ultimately most effective at the state and local levels. Block-granting of federal programs, such as CDBG, TANF and WIA, has allowed states the flexibility to design programs that link human and economic investment programs, and has tasked states with the responsibility of efficient administration. Microenterprise development is one promising anti-poverty and economic development strategy for states seeking to support locally-based entrepreneurs.
1 This section is from: State-Level Funding for Microenterprise Development: Guidance for State Microenterprise Associations, (Washington, DC: CFED, 2001), http://cfed.org/assets/documents/publications/effectivePractice/SMABulletin_StateFunding.pdf.
2 These figures were sourced from the Statewide Network for Social and Economic Security in New York.
For each edition of the Assets & Opportunity Scorecard since 2007, CFED has worked with experts in the field to capture detailed stories of noteworthy state policy changes—both policy victories and instructive defeats. These case studies appear in the Resource Guides for each policy priority.
Oregon State Microenterprise Association Key to Ongoing Policy Support (published October 2011)
Through the state’s business development department, Business Oregon, the state has enjoyed long-term state-level support for microenterprise development, including CDBG funding, targeted funding for services to minority-owned businesses, an active Self-Employment Assistance Program, lending capital to emerging entrepreneurs, and funding for the state’s State Microenterprise Association, the Oregon Microenterprise Network (OMEN). OMEN, in turn, has been instrumental in creating and expanding ongoing state support for microentrepreneurs. Click here to read more.
Defending against Budget Cuts in Washington (updated October 2011)
In 2007, the Washington State Microenterprise (WSMA) successfully pushed for enactment of the Microenterprise Development Act, which provided $250,000 per year for microenterprise development, administered by the Department of Commerce. However, in 2010 the Governor’s office and the Office of Finance and Management identified the program for total elimination as a part of their strategy to close a projected $2.9-billion budget deficit. WSMA and its core supporters worked hard to reconnect, educate and advocate with state agencies, legislators and others to protect the Microenterprise Development Program. Click here to read more.
Progress in Iowa (published September 2009)
In the 1980s, Iowa was recognized as a leader in supporting microenterprise development as a welfare-to-work strategy. Iowa was the first state in the country to incorporate microenterprise development training as an eligible activity in its welfare reform program, PROMISE Jobs… Changed priorities, shifts in welfare policy and the economic recession and state fiscal crisis at the beginning of the 21st century resulted in elimination of Iowa’s specific state-supported microenterprise program efforts. Click here to read more.
Microenterprise Support in Nebraska and Georgia (published September 2007)
Since 1994, Nebraska’s statewide microenterprise intermediary and statewide microenterprise association have worked to secure state funding for microenterprise development. These efforts have resulted in state support ranging from $250,000 in 1997 to $1.5 million in 2007, with funding in all years from 1997 through 2009…Georgia has created and funded a number of state-supported programs for microenterprise development since 1998. Click here to read more.
For a two-page overview of state support for microenterprise, download CFED’s Policy Brief.
For an in-depth compendium of analysis, research, and resources on state support for microenterprise, download CFED’s Resource Guide.
- Aspen Institute, Microenterprise Fund for Innovation, Effectiveness, Learning and Dissemination (FIELD)
- Association for Enterprise Opportunity
- RUPRI Center for Rural Entrepreneurship
- U.S. Department of Labor Self-Employment Assistance Program