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PERSONAL FINANCE

Briefings: February 2003
 

The company owner's guide to laws, news, trends, and regulations.
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Briefings

The Disappearing States of Child Care


One of the nicer aspects of many states' tax codes is this: if you subsidize your workers' child-care expenses, you get a generous credit. You can almost hear politicians cheering about how kids win and companies win, right? Well, only in theory. Few businesses are actually taking advantage of these incentives in the 24 states that offer them.

The numbers are so bad, they're absurd. According to a National Women's Law Center report assessing these programs, only a handful of corporations claimed the credits in a majority of states that offered them -- and in five states, no companies participated. In fact, four states (pictured in green above) have recently dropped child-care credits.

Most entrepreneurs don't take the credits because they simply aren't aware of them, says Deron Zeppelin of the Society for Human Resource Management. "Less than 20% of HR professionals and accountants know about these credits, and much fewer than that actually use them," he says. "State governments do a poor job of marketing these things." Given the lack of interest in the programs, neither Zeppelin nor other experts are optimistic that companies will take full advantage of a federal child-care credit that's being introduced for tax year 2002. --Tahl Raz

Debt Becomes You


Despite tough times, entrepreneurs are running wild with debt. Federal Reserve data show that debt levels at private companies are swelling today, whereas during and after the last recession companies predictably moved to reduce their debt. The housing market seems to be one of the reasons behind business owners' devil-may-care attitude. Americans have been borrowing against the rising values of their homes, increasing home-equity debt to $331 billion as of June 30, 2002 -- nearly 20% higher than a year earlier, according to Federal Deposit Insurance Corp. data. But what if home prices fall? Says Jane D'Arista of the Virginia-based think tank Financial Markets Center, "It's a very precarious situation for business owners, should interest rates increase or the housing market take a hit."

Whether or not you believe that real estate values are set to swoon -- and many economists think that's unlikely -- more people are having trouble making their mortgage payments. A September report from the Mortgage Bankers Association of America reported that the highest percentage of U.S. home mortgages in 30 years were in the process of foreclosure in the second quarter of last year.

And there are signs that entrepreneurs are among those who now find themselves overleveraged. The number of personal bankruptcies has soared, setting a record in the 12 months ended in September, according to the Administrative Office of the U.S. Courts. And one in seven of those bankruptcies is a failed entrepreneur, says Harvard Law School professor Elizabeth Warren.

Of course, if interest rates rise, entrepreneurs who have variable-rate home-equity loans could have trouble servicing their debt, risking default and foreclosure. The bottom line, says Doug Duncan, the Mortgage Bankers Association's chief economist, is that business owners with a hefty mortgage may want to take that money out of their company if they can -- or consider buying a more modest home. --Tahl Raz

The Chamber's Diversity Outreach



With women and minorities starting businesses at two and four times the national average, respectively, the U.S. Chamber of Commerce has invested $500,000 to start a program to serve them. Reta Lewis, director of the Access America initiative, says she'll spend her new budget on staff, training programs, and networking events. Of the constituencies she'll serve, Lewis says, "there's going to be a continuing growth not only in the numbers but also in the clout that they bring economically." --Kate O'Sullivan



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Last updated: Feb 1, 2003




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