Testimony to the Small Business & Entrepreneur Committee on Succession Planning — Theresa Hildreth, January 24, 2024

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Testimony dated January 24, 2024 by Theresa Hildreth, CFO of Martin Hildreth Company, Inc. and Executive Director of the Calhoun County Economic Development Corporation, to the Small Business & Entrepreneur Committee on succession planning, addressed to Chairperson Jeanne Shaheen and Ranking Member Joni Ernst. The testimony is organized around personal, professional and policy perspectives on succession in rural Iowa. It describes the family underground utility contracting business extending its succession plan from three to five years, and lists challenges raised by other business leaders, including capital gains tax, program accessibility, workforce shortage and rising costs. It reports Calhoun County population figures of 9927 and 9725 residents and a 15% loss of businesses, and calls for policy alignment and a collaborative approach.

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                                                                            Theresa Hildreth
                                                         CFO, Martin Hildreth Company, Inc.
                       Executive Director, Calhoun County Economic Development Corporation
                                                                           January 24, 2024


   Testimony to the Small Business & Entrepreneur Committee on Succession Planning

The Honorable Jeanne Shaheen, Chairperson; the Honorable Joni Ernst, Ranking Member;
Members of the Committee; and Distinguished Guests,

Thank you for the opportunity to testify today on the critical topic of Succession Planning and
the challenges facing small business owners today, especially in rural communities. My
testimony comes from my diverse roles as Executive Director of the Calhoun County Economic
Development Corp. (CCEDC), as an owner of a family business, and as a dedicated leader
engaged in various community and civic initiatives.

My assessment on succession planning in rural Iowa is multifaceted, shaped by my various
personal, professional, and policy perspectives.
    • Personal – Succession planning for my family’s business, Martin Hildreth Company,
       Inc., is a crucial consideration. Addressing challenges related to retirement and ensuring a
       smooth transition for our family business is not only a personal concern but also has
       broader implications for the local community as our business provides essential services.
    • Professional – As Executive Director of Economic Development in Calhoun County, my
       role involves assisting and guiding the sustainability and growth of the rural economic
       area designated as an Opportunity Zone. Succession planning on a broader scale becomes
       essential for the economic well-being of the entire community. Balancing local
       businesses’ continuity with the need for innovation and growth is a key aspect of our
       endeavors. In support of the commitment of local businesses Calhoun County Economic
       Development is developing a written Strategic Plan to assist us in navigating the
       challenges of the immediate future.
    • Policy – Concern for the current state of Iowa, the United States, and the economic future
       of the nation reflects my policy perspective. Succession planning, in this context,
       involves considerations for policy advocacy and engagement with political stakeholders
       to shape a favorable climate for rural economic development.


Personal Perspective
My family’s business, Martin Hildreth Company Inc., is a three-generation, 70-year-old
underground utility contracting business, which faces complexities in transitioning to our third
generation. We made the decision to extend our succession plan from three to five years due to
the current economic uncertainties, similar to those faced by other rural small businesses. The
rising cost of conducting business, including interest rates, supply and material costs, taxes,
insurance, ever-fluctuating fuel costs, and wages, significantly impacts our transition timeline.
The unknown of continued success of our business in a disproportionately high inflation
environment heavily weighs in on our decisions toward a solid succession.
The essential role of our business services in Northwest Iowa adds another factor and layer of
responsibility. Martin Hildreth Company maintain several components of critical infrastructure
such as sewage and water service lines. This essential role is only compounded during the
extreme weather events Iowa recently experienced, underscoring our importance to the
community and economy.

Comparing today’s challenges to the previous generation’s transition in 2009 reveals a
significantly more volatile economic landscape. Concerns of inflation, company valuation, and
long-term success exacerbates the complexity of succession. To complicate matters, the current
national economic climate further amplifies these uncertainties.

Challenges beyond Martin Hildreth Company
My interactions with other business leaders, particularly aging farmers, reveal that these are
common concerns and challenges, reflective of broader issues impacting rural economic
development:

   •   Capital Gains Tax: Like our business, farmers often prioritize inheritance over selling
       assets to mitigate capital gains tax (reference: Internal Revenue Code Section 1001).
       Iowa’s recent inheritance tax initiatives (reference: Iowa Code chapter 450, particularly
       Iowa Code § 450.3) reflect a positive step towards supporting retirees.

       The perspective shared by farmers on the transfer of land in succession planning aligns
       with a common sentiment in the agricultural sector. The concern over capital gains tax
       often influences decisions regarding the timing and method of transferring land to the
       next generation. The preference for inheritance over selling to the ultimate successor is a
       strategy aimed at mitigating the impact of capital gains tax.

       It's noteworthy that in Iowa, both the proactive efforts of Governor Reynolds and our
       state legislature in addressing inheritance taxation reflects a commitment to the creation
       of a favorable environment for retirees. Striving to be one of the leading states in the
       nation in which to retire reflects the consideration of financial implications in succession
       planning and dedication to the preservation of family-owned assets.

   •   Program Accessibility: Many businesses struggle to access relevant programs and grants
       for operations and growth. A 2023 study by the Rural Policy Research Institute found
       that 42% of rural businesses lack awareness of available government programs.

   •   Workforce Shortage: The agricultural sector and many small businesses face a scarcity
       of qualified and available employees. A 2022 report by the USDA National Institute of
       Food and Agriculture cites a 30% decline in young farmers since 2010, while a 2023
       report by the Small Business Administration found that 22% of small businesses struggle
       to find skilled workers in the uncertain economy.

   •   Rising Cost of Business: Beyond capital gains tax, many small businesses struggle with
       the rising cost of doing business, including rising interest rates, supply chain
       disruption, taxes, insurance, high fuel costs, and wages. Already this year the National
       Federation of Independent Businesses reported that 82% of small businesses are
       concerned about inflation impacting their operations. This uncertainty is compounded by
       the disproportionate impact of inflation facing rural businesses.

       Access to financially positioned employees willing to accept the risks associated with
       farming is also a recurring challenge. The agricultural sector often requires individuals
       with a strong financial position to navigate the uncertainties inherent in farming.

       Business leaders express challenges in accessing relevant programs that can support their
       operations. This includes government programs, grants, or educational initiatives that
       contribute to the growth and sustainability of rural businesses. The need for education on
       specific programs is another common theme. Business leaders may require information
       and guidance on available programs, their eligibility, and how to leverage them for the
       benefit of their businesses.

Calhoun County Impact

Calhoun County, Iowa is in the northwest quadrant of the state.




The population of Calhoun County according to US Census Quick Facts April 2020 reflects 9927
residents. The estimated population in July 2022 data reflects a change to 9725 residents. A
startling 23% of Calhoun County residents are 65 years and older.
                Total Jobs in Calhoun County by Year
 4200

 4100

 4000

 3900

 3800

 3700

 3600

 3500




Specifically in Calhoun County, the economic landscape bears the scars of an overall 17-year
decline, etched in the steady erosion of businesses and jobs. Available data portrays a stark
reality: a once-thriving county is steadily shrinking, with a 5% loss of employees and a startling
15% loss of businesses succumbing to the pressures of current economic conditions. rising costs,
changing demographics, and a lack of readily available skilled workers.

The lack of succession of business is a vital factor in the downward trend rippling through our
communities, casting a long shadow on tax revenue, essential services, and the very culture of
our towns. Each shuttered storefront and lost job represent not just lost revenue, but the dimming
opportunity, weakening of our social economy, and fading hope for a vibrant future. This is not
merely a statistic; it is a human story unfolding before our eyes, a story demanding immediate
attention and decisive action.

One example of the human cost of economic decline in Rockwell City, the county seat of
Calhoun County, is the loss of a second-generation plumber. The 52-year-old plumbing
professional suddenly passed away this past December. Now, his 73-year-old father has
abandoned retirement to resume leadership of the only plumbing business in the community.

The shortage of nurses and direct care professionals at Opportunity Living, an Intermediate Care
Facility in Lake City, Iowa is concerning, especially when it directly affects the care for
individuals with intellectual disabilities. The impact on the most vulnerable members of the
community underscores the broader challenges faced in the healthcare sector and the need for
solutions to address workforce shortages.

Collaborative efforts involving leaders from various levels of government and the community are
essential in tackling complex issues, especially those related to succession planning for current
businesses to curb economic decline, workforce shortages, and healthcare challenges.

Policy Perspective
These challenges, while impacting individual businesses, resonate with larger economic issues
facing rural communities and the nation. Engaging policy makers and advocating for supportive
legislation is crucial. We need:

   •   Policy alignment: Rural concerns resonate with national economic issues. The 2023
       Congressional Budget Office report highlights the disproportionate impact of inflation on
       rural communities. In rural areas the CBO quote is 12.9% compared to 1% in urban areas.
   •   Collaborative approach: A 2024 bipartisan report by the National Governors
       Association emphasizes the need for private-public partnerships to foster rural economic
       development.

Addressing succession planning challenges requires understanding of the complexities faced by
individual businesses and the interconnectedness of the rural economy with national issues.
Through collaborative efforts and supportive policies, we can build a more resilient and
sustainable future for rural communities and enhance business succession planning for
generations to come.

Thank you for allowing me to share my testimony with you.


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