Why the economy is sucking.

First, some very generalized food for thought:

http://www.cato-at-liberty.org/obamas-right-in-a-perverse-way-about-government-playing-an-important-role-for-small-businesses/

Here's a little explanation on why the economy is sucking despite the efforts of the government to "stimulate" it.

Let's say you're starting a business, and you want to pave highways in New Mexico and get some of that "shovel-ready job" stimulus money that was talked about. (I say this because I'm most familiar with the highway paving industry's foibles, and I truly believe infrastructure projects like the highway system are one of the few legitimate responsibilities of government.)  For the purposes of this thought experiment, we'll assume you already own the necessary equipment and have the personnel available to perform the work satisfactorily.

First, you need to have met all of the federal, state, and local regulations required to even have a business. Requirements such as workman's compensation insurance, business licences, and the like all come with their own application processes and fees from the various entities that govern these matters.

Second, before you can be considered to bid for a project, your company needs a general contractor's license, another set of applications, approvals, and fees.  In addition, you need to go through a State pre-qualification application process (with associated fees) to be allowed to compete for the work.

If your company does not qualify as a Disadvantaged Business Enterprise (minority owned business, whose application process also includes its own fees), a portion of the prospective work will most likely HAVE TO be subcontracted to a company that does meet the requirements, even if you are capable of performing every aspect of the project yourself. This portion is frequently given a minimum threshold between 2 to 7 percent of the total dollar amount of the project, carries legal penalties if not met at project finalization, and must be delineated at the time of bid.

Once all of the above requirements are met, you are required to furnish a bid bond (another expense) from an approved company in order to be allowed to complete for the prospective work.

Whew! You haven't even applied for a project yet, and already the expenses are piling up.  So, now comes bid day.  You are competing with a double handful of companies, both local and national for one of the four construction projects that are up for bid this month.  Competition is tight, and margins are small.  Plans are always terrible, but you're familiar with this section of road, so you feel you have a good idea how to build the project at the lowest price, and still make some profit (because without profit, you and your workers cannot continue to eat).  You place your bid into the proprietary software system you were, as a result of your choice to compete in this market, required to buy (another hidden fee!).  All bids are accepted, processed by the software, and congratulations, you're the prospective low bidder!

At this point, you still may not have the job.  The State can reject your bid for any number of reasons including errors in the mountain of paperwork provided, preference for another contractor whose headquarters are in-state, or the ever nebulous "unbalanced bid" (i.e. you found a place to make a profit that the State feels others missed).

None of that happens though, and a month later, you receive a preliminary notice of award.  At this point, it's generally accepted you have been awarded the project, although there is still a window for the bureaucracy to pull your bid for whatever technicality they find.  Still, this is an infrequent event, and you now have a job! It's time to get your business machine moving in order to start the project. An appointment is made to schedule a pre-construction conference with the state, federal, and local overseeing agencies, as well as your representatives and those of any subcontractors, in order to discuss the scope and construction plan for the project.

Now we get into the meat of things.  You have work, finally, but it's halfway across the state and nowhere near any material or equipment facilities you own.  Your equipment setup is mobile, but you need a source of aggregates, and yards to set up your portable manufacturing plant.  These things take time, so the project is immediately placed in suspension while you mobilize.  You receive payment for one-quarter of your bid mobilization amount (an item to allow you to have operating capital at the beginning - I'll explain why - but restricted to a maximum percentage of  the total bid price of the project).

When it comes to aggregate sources, you have two options, a state/federal free-use pit or a private source.  Private sources are generally scarce, and almost universally tied to a static facility supplying materials to one or more communities.  Because of this competition for the materials produced, royalties are usually higher than your margin will allow.  A free-use pit it is, then.

You've scouted a good source for aggregates on BLM owned land, and begin the process to make use of the land and the first of your major delays hit.  The Bureau of Land Management, a Federal entity, has to first transfer the land in question to the Federal Highway Administration, another Federal entity.  Both entities insist the other has to begin the transfer process before their rules will allow them to begin their own process. you sit in this catch-22 for a month arguing with both agencies before the transfer finally begins to be processed.  Another month later, the transfer is complete, and the FHWA processes a second transfer to State Highway Department control in a much faster process.  You now have access to the rocks you need to make the road.

But they're still buried.  Your mining and crushing equipment needs to be moved in, set up, and configured.  To do this, an air quality permit (with it's associated fee) was applied for once you identified your desired material source, because we can't be putting dust in the air all willy-nilly; it's a pollutant, after all.  While the BLM and FHWA were stonewalling each other, your mandatory notification process and thirty day wait period was running.  Once you're allowed to use the land, you move your mining and crushing operations in.

Yay! Now you're starting to produce materials.  In the first few days you remove the overburdening soil to get at your rock source, and begin test crushing to get your blend and production rate optimized.

Bam! Surprise MSHA inspection!  You're now running a surface mining operation, and fall under the authority of the Mine Safety and Health Act oversight.  You've been expecting this, and have spent the time and money to ensure you're fully compliant.  Everyone's training is up to date (expense!), and everything that moves is guarded such that no one could - even intentionally - reach in and be injured.  The inspector commends you on one of the best operations he's seen this year, then writes you a $5,000 housekeeping citation for the burrito wrapper on the table next to the control house microwave.  You know further inspections are to be expected.

A week later, an Air Quality Bureau inspector walks into the office with a citation and fine for the dust raised by a worker's personal truck on its way down the haul road prior to the operation startup, but the inspector commends you on the lengths you have gone to (expense!) to keep all dust from the actual crushing and screening operation minimized.  You expect him to return periodically as well.

The Highway Department's audit of your Storm Water Pollution Prevention Plan (because rain and runoff are a pollutant, too!) measures turns up a couple of minor deficiencies, but you're not fined and merely given a short list of things to address.

Still you're producing the materials you need to build the project.  After a month, you turn in the quantity to the State for a stockpiled materials payment, and have met the work completed requirement to receive the remainder of the mobilization item.  Your paving plant is moved in, surveying is begun, and you're becoming fully geared up to build the project.

The project starts in earnest, and you're finally earning money as a company.  The end of the next month rolls around, and you turn in your pay application for the work completed to that point. A week later (the time the State's procurement law allows), you ask the Highway Department the status of the payment, as your monitoring of the status has shown that they haven't even generated the payment in their system.  You're told they're not paying you because Subcontractor Bob has not submitted his certified payrolls to the State's system yet.

So you call Bob, and it turns out that Bob has not submitted his payrolls because the State has not authorized him to enter them to that project yet.  You inform the local State office.  A week later, the bureaucracy in the capital finally authorizes subcontractor Bob, and the payroll is entered.  The next day the payment is generated in the system, approved by the local office and yourself, and sent up the chain.

The payment sits at the audit level for a week.  You harass the local office about it, after all, you've been financing a multi-million public works project for nearly two months, without payment or interest.  You find out that audit "didn't realize it was out there for approval, because they usually are in at the beginning of the month".  The next day audit has approved the payment.  One week later (a full month after you submitted your pay application) the check arrives at your office, just in time to submit a new pay application to the State. You're several months into the project, with all of the associated payroll, equipment, and material expenses that come along with it, and are operating on the relative pittance the specifications allow on day 1 of work.

Meanwhile, Bob has been threatening to pull off the project because he hasn't been paid.  The subcontract you have with him states clearly "pay when paid" terms, but he's a small cash-run company and can't afford to finance this amount of work for so long. He's about to go bankrupt. The trouble is, you're deep in the red yourself now.You need him to keep working because he meets the DBE requirements in the contract, and if he walks you're looking at penalties from the very entities causing the problems.

The apply - delay -get paid cycle repeats, for various paperwork reasons, multiple times across the next few months. And the whole time, you know it can take years to close out and receive the final payment for the project, once it's complete.

Heaven forbid you run into something that is not addressed in the plans; you may never get paid for the delays incurred or work to correct the issue.

In conclusion, please respect greatly the entrepreneurs who head out into the jungle of red tape - and it is just as bad for any industry - and willingly take on all these obstacles in order to make their dream come true.  We've moved from a country where productivity and success are actively encouraged to one where it is punished or inhibited in increasingly numerous and insidious ways.

We need to change that paradigm if we're going to return to success as a country.