L.A. Minimum Wage Hike: How Will Businesses React?

Photo courtesy of channone, flickr

Photo courtesy of channone, flickr

The Los Angeles City Council tentatively voted to increase the city’s minimum wage to $15 an hour by 2020. The business community opposed the move. How business will react is unclear but there was much discussion during the debate over issues such as lost jobs and companies eyeing more business-friendly locations.

The wage increase is to be phased in over time, so the immediate impact may not be felt. But businesses ought to keep score when the effects hit so that officials will be cognizant of the consequences. If the wage increase does not cause economic disruptions and businesses do not actually leave Los Angeles, the business community’s credibility will suffer in the face of a mere exercise in rhetoric.

The vote to pass the minimum wage increase was 14 to 1. The council gets to vote once more on the measure after an ordinance is drafted by the city attorney, but the lopsided vote indicates there is no turning back. The council even set the wage above the recommended level offered by Mayor Eric Garcetti, who initially proposed an increase to $13.25 an hour.

The city council’s version contains an inflation clause and offers an extra year for small businesses and nonprofits to comply.

However, the business community does not consider these admissions enough. Ruben Gonzalez of the Los Angeles Chamber of Commerce said, “There is simply not enough room, enough margin to absorb a 50 percent increase in labor costs over a short period of time.”

The chamber’s president and CEO Gary Toebben wrote to his members about the many small business owners who testified in various hearings on the measure. He wrote, “They also talked about the likelihood that in order to provide a wage increase for some employees, they would have to reduce hours for others.”

Toebben noted wryly, “Last week, there were banners hanging throughout City Hall celebrating Small Business Week. There are many small business owners in L.A. who don’t feel like the city is celebrating them today.”

Earlier on the day of the vote, the Los Angeles County Business Federation (BizFed) released a survey on business conditions in the area. According to a release from BizFed, “The city of Los Angeles stood out again as being cited most frequently by employers as unfriendly.  Santa Clarita and Glendale were ranked in the top 5 most business friendly cities, which is notable because officials from those two cities are actively courting city of Los Angeles businesses in light of the proposed city of Los Angeles minimum wage increase.” (Author’s emphasis.)

So what will Los Angeles businesses do? Once the minimum wage law takes effect will there be jobs lost or hours cut? How many businesses move to a different location? Business credibility is on the line. Crying wolf and not acting will damage efforts to turn around what many decry as unfriendly business policies.

Originally published by CalWatchdog.com

AB588 Could Save California Businesses Millions

California needs to make major progress when it comes to preventing abusive lawsuits. The state earned the title of “Judicial Hellhole” again this year, calling attention to the fact that California’s legal climate is out of balance, and things are getting worse each year.

California earned this title because of laws like the Private Attorney General Act of 2004 (PAGA), which allows employees to bring lawsuits directly against their employer for a variety of California Labor Code violations – no matter how trivial. No harm or damages must be shown in order for an employee to sue under PAGA, enabling trial lawyers to file expensive and abusive lawsuits against employers seeking quick settlements over trivial mistakes, such as typos on documents. These abusive lawsuits make California an even more difficult place to own and operate a business.

The current law allows trial lawyers to file multimillion dollar lawsuits over trivial paycheck violations, such as not listing the complete employer’s name and address on pay stubs properly. These minor mistakes have statutory penalties that can go back four years at a cost of $100/$200 per paycheck violation.

A handful of lawyers are currently making a killing finding minor mistakes on an employee’s paycheck stub to file multimillion dollar lawsuits. These lawsuits are not protecting the citizens of California as the law intended. Instead, the law benefits greedy personal injury lawyers who are jeopardizing California’s economy.

For instance, a recent story on KGET-TV in Bakersfield highlighted the case of B and L Casing, a local company that was hit with one of these lawsuits and settled for $1.5 million. The company is now planning to move out of California – taking jobs with it.

Thankfully, California has an opportunity to reverse some of the damage done by PAGA. AB 588 by Assemblywoman Shannon Grove would give businesses a chance to correct a paycheck error within 33 days before getting hit with a lawsuit. Currently, the law does not give businesses a chance to fix insignificant mistakes on their paychecks before getting hit with such penalties.

AB 588 is a reasonable and fair approach that would help stop shakedown PAGA lawsuits against California businesses while still encouraging them to fix issues of minor noncompliance with the California labor board. AB 588 will be heard in the Assembly Labor and Employment Committee on April 22nd.

Tom Scott is executive director, California Citizens Against Lawsuit Abuse

Originally published by Fox and Hounds Daily

New Studies: CA Has 4th-Highest Taxes and 3rd-Worst Business Climate

The newest figures just released by the Tax Foundation show California continues to be one of the highest-taxes states in the country. According to “Facts & Figures 2015: How Does Your State Compare?” the Golden State now ranks fourth-highest for taxation. The only states with higher taxes are Connecticut and New Jersey, tied for the highest; and New York in third place.

A big problem was pointed out to CalWatchdog.com by Esmael Adibi, A. Gary Anderson Center for Economic Research and Anderson Chair of Economic Analysis at Chapman University: Three of our Western States competitors make the Top Ten list of the least-taxed states: Nevada in third place, Utah in 9th and Texas in 10th.

Overall, the state with the least taxes is Louisiana, followed by Mississippi, South Dakota and Tennessee.

Adibi pointed out that California’s high rank derives largely from it having the highest personal income tax in the country, 13.3 percent at the top marginal rate after voters passed Proposition 30 in 2012. “Prop. 30 really pushed us over,” he said.

He added that, despite the Proposition 13 tax limitation measure, California ranked only 14th-best for property-tax collections. If property here cost less, then California would rank much higher. “But property is so expensive, the taxes paid equal the tax rate times the amount you pay for the property,” he calculated.

California also scored low on the overall 2015 State Business Climate Index, with third-worst business climate. Worst of all was New Jersey, followed by Connecticut.

That’s similar to the finding of CEO Magazine’s survey of CEOs, who have ranked California the worst state in which to do business for eight straight years.

And the Kosmont-Rose Institute Cost of Doing Business Survey found, “California dominates the list of the most expensive cities, with a total of 12 cities – nine in Southern California and three in the San Francisco Bay Area. Los Angeles and the San Francisco Bay Area are the two most expensive metropolitan areas in the western United States.”

Leaving the Golden State

California net population outflow“There’s no question high taxes at least affect some people on whether to stay in California or move to a state with lower taxes,” Adibi pointed out. He provided CalWatchdog.com a chart showing “Net Population Outflow and Destination” for California. “Net” means both those coming into the state and those leaving.

From 2005 to 2013: 279,000 Californians left for Texas, 222,500 for Arizona, 157,200 for Oregon, 153,200 for Nevada, 98,300 for Washington State, 76,900 for Colorado and 59,500 for Utah; all other states were 217,500.

Rankings

Some other rankings from the Tax Foundation “Facts & Figures”:

  • Sources of California state and tocal tax collections: 28.1 percent from property tax, 22.3 percent general sales tax, 30 percent individual income tax, 4.3 percent corporate income tax and 15.3 percent all other taxes.
  • Federal aid as a percentage of general state revenue: 25 percent. The national average is 30 percent. That is, California is a “donor state,” it pays more into the federal government than it gets back.
  • State individual income tax receipts per capita: $1,750, ranking fourth; Connecticut was highest, at $2,174.
  • State and local sales tax rate: 7.5 percent, highest of any state. (Some local governments add to that.)
  • State gasoline tax rate per gallon: 45.39 cents, second highest. Pennsylvania is highest, at 50.50 cents.
  • State spirits excise tax rate, per gallon: $3.30, 39th highest; California is Wine Country. The highest was Washington State, at $35.22.
  • Like most states, California exempts groceries from the sales tax. The highest grocery sales tax is Tennesse’s, at 5 percent.
  • California does not have a state inheritance tax, or “death tax.” The highest state rate is Washington State, at up to 20 percent.
  • California state and local debt is $11,094 per capita, 8th highest. At the top is New York, at $17,405.

Originally published by CalWatchdog.com

Cap-And-Trade Costs California Businesses $1 billion

California businesses paid a whopping $1 billion this year buying permits to comply with the state’s cap-and-trade law — the largest sale recorded since the state began regulating carbon dioxide in 2012.

Even with record permit sales, the $1 billion raised was well below market expectations. But environmentalists sold the auction as a huge success, because now oil and gas companies have to buy permits.

“Despite the oil industry’s fear mongering, the sky did not fall,” said Merrian Borgeson, a senior scientist at Natural Resources Defense Council. “California’s carbon market continues to hum along as expected, with this auction’s price right in line with previous auctions.”

Carbon emissions permits for 2015 only sold for $12.21 per metric ton, and permits for 2018 sold for $12.10 per ton. In total, the state sold 73.6 million permits for emissions in 2015 and 10.4 million permits for emissions in 2018.

“We are making progress toward a cleaner future,” Borgeson said. “Our clean energy policies cut dangerous emissions, boost the state’s economy, and drive investment in our most disadvantaged communities.”

But the record permit sales may not be the harbinger of good news that environmentalists and state regulators argue. As of this year, California expanded its cap-and-trade system to cover transportation fuels — meaning oil companies will have to buy carbon credits for the fuel they sell.

Before that, the state’s cap-and-trade law only covered several hundred industrial companies, like food processors, cement makers and other energy-intensive industries. Basically, the state forced more companies to buy permits and expanded the pool of permits — which means prices are lower than they would have been otherwise.

Also, California’s cap-and-trade system has been linked to Quebec’s emissions trading scheme to limit the economic impacts pricing carbon dioxide has on California residents. California officials are trying to convince other states to join their cap-and-trade plan to further disperse costs.

California passed its cap-and-trade law in 2006 under Republican Gov. Arnold Schwarzenegger. The point of the law is to reduce carbon dioxide emissions to 1990 levels by 2030. The law went into full effect in 2012, when the first carbon permit auctions were held.

State regulators are still in the process of implementing a second prong of the 2006 global warming law: a low-carbon fuel standard. This requires oil companies to reduce carbon emission from gasoline 10 percent by 2020 — though the rule is being rewritten in the wake of legal challenges.

But that’s not all. California lawmakers are intent on halving the use of petroleum in the next 15 years. State Democrats have proposed a highly contentious law which would remove 8 billion gallons of fuel from state markets.

The oil industry has come out swinging against the legislation, saying it’s nothing more than an attack on oil companies and jobs.

“Legislative mandates to force reductions in gasoline use are not climate change policies,” Catherine Reheis-Boyd, president of the Western States Petroleum Association, said in a statement. “They are attacks on an important industry in California designed to create conflict and controversy.”

“Achieving so radical a goal in so short a time will require the removal of 8 billion gallons of gasoline and diesel from our fuel supply – with no guarantees that something will be available to replace them,” Reheis-Boyd added.

Originally published by the Daily Caller News Foundation

Follow Michael on Twitter and Facebook

California Business Needs to Go Small or Go Home

NO ESCAPE FROM THE TAX VICE-Here’s the bitter reality for business in much of California: there’s no cavalry riding to rescue you from the state’s regulatory and tax vise. The voters in California have spoken, and with a definitive, distinctive twist, turned against any suggestion of reform and confirmed the continued domination of the state by public employee unions, environmental activists and their crony capitalist allies.

You are on your own, Southern California businesses, and can count on very little help, and, likely, much mischief, from Sacramento and various lower orders of government. To find a way out of stubbornly high unemployment and anemic income growth, the Southland will need to find a novel way to restart its economic engine based almost entirely on its grass-roots business, its creative savvy and entrepreneurial culture.

This shift poses a great challenge, both for California’s interior counties and parts of the coastal region. Unlike Silicon Valley and its hip twin, San Francisco, no one is investing much in the Southland. Among the nation’s largest metropolitan areas, the Los Angeles region has become a corporate stepchild, trailing in new office construction not only to world-beaters like Houston, but also New York, the Bay Area and even slower-growing Philadelphia or Chicago. In fact, although the second largest metro area in the country, LA-Orange County does not even make the top 10 regions for new building.

Nor can we expect much in the way of residential housing growth, particularly single-family homes, as the state’s planners continue their jihad against anything smacking of suburban expansion.

Traditional industries like aerospace, manufacturing and logistics face enormous regulatory barriers, ruinous taxation levels and huge energy price increases that will slow any potential growth, and could lead to yet more departures by existing large firms. Virtually all the region’s former major established aerospace companies have relocated their headquarters elsewhere, which hurts efforts to get them to expand or maintain facilities here.

Despite all this, the Southland is not without considerable assets. Perhaps most promising is the region’s status as the nation’s No. 1 producer of engineers – almost 3,000 annually. This raw material is now being somewhat squandered, with as many as 70 percent of graduates leaving the area to find work.

But there’s no reason for unmitigated despair; overall, Los Angeles-Orange has increased its ranks of new educated workers ages 25-34 since 2011 as much as ballyhooed New York, San Francisco and much more than Portland, Ore. For its part, the Inland Empire ranked fourth among 52 large metropolitan areas in terms of increased presence of bachelor’s degree-holders in this age group, adding almost 19,000 college-educated people since 2011.

There’s also a case to be made for Southern California as an emerging tech hub. As venture capitalist Mark Shuster points out, the region ranks third, just behind the Bay Area and New York, for its percentage of the nation’s tech startups, and is now the fastest-growing. The overall tech base, which includes aerospace, is still the largest in the country, with more than 360,000 employees. As tech moves from basic infrastructure to application, Shuster argues, the Southland’s time may come.

Despite producing MySpace, the region may have lost out in the social media wars, but shifts in tech trends could turn out to be far more advantageous. This relative optimism is remarkable given the losses in so many key engineering-driven industries over recent decades, from electronics and energy to aerospace.

Southern California’s technology community could well benefit from such things as growing demand for content among tech firms, as well as attempts to reboot space exploration. Indeed, investor Peter Thiel recently suggested that the region’s technology industry is the most “underestimated” in the nation.

“I’d definitely be short New York and long LA,” Thiel told the Los Angeles Times, citing both commercial space pioneer SpaceX and Oculus, the Irvine-based maker of virtual-reality headsets.

The case for a grass-roots rebound of tech in Southern California depends heavily on one key asset – the presence of the nation’s largest community of people in the arts. Roughly half of these workers are self-employed, according to the economic forecasting firm EMSI.

The Silicon Valley may be ideal as a place to nurture digitial technologies, but “nerds” as a whole are not cultural mavens or trend-seekers. They are better at transmitting messages than putting something worthwhile in them. In contrast, Southern California excels in filling messages with product.

The large existing base of television, movie and commercial producers has nurtured skills that are sought worldwide. Yet at the same time, with the studio system clearly in decline, as large productions go elsewhere, digital players such as Netflix, Amazon, Apple, as well as Los Angeles-based Hulu, have become more important. Indeed, when my Chapman students, many of them film majors, discuss their futures, it is increasingly these intermediaries, not the studios, that they identify as critical to a successful career.

This suggests a very different picture of the Southland’s industry than the one normally associated with large companies, studios and deep concentrations of talent. In the future, more production will be done by individuals, sometimes working out of their homes, scattered across the region. According to Kauffman Foundation research, the LA area already has the second-most entrepreneurs per 100 people in the U.S., just slightly behind the Bay Area. By necessity, Southern California’s economy will become more entrepreneurial and grass-roots; even as we have been losing large companies, our percentage growth in self-employed is among the highest in the country.

Not surprisingly, this activity appears concentrated not in the traditional bailiwicks in the San Fernando Valley, or in the hyped Downtown-adjacent areas, but along the coastal strip from Santa Monica to Irvine that some promoters have christened “the tech coast.” This epitomizes the growing role of young individuals and startups – as opposed to veteran engineers – in shaping the Southland’s emerging tech economy.

This pattern, however, is not just restrictive to digital entertainment. Southern California’s network of tested aerospace engineers – which, at 5,000 people, is second only to Seattle’s – is one reason why companies like SpaceX have located here. In an economy that relies more and more on individual expertise, this is a critical advantage.

One powerful caveat: We are not likely to see much blue-collar spinoffs of tech here, due largely to high land, regulatory and energy costs. Space X, for example, may have its key brain power in Southern California, but has chosen to construct its spaceport in lower-cost, business-friendly Texas. Another aerospace firm, Firefly Systems, this year decamped entirely for Texas, moving its headquarters to the Austin area and rocket engine facilities to rural Burnett County.

This pattern suggests that many of our emerging firms may remain somewhat limited in scope and largely focused on high-end functions, which reduces the positive impact for the region’s struggling local middle class and working class.

But the new grass-roots economy does not apply only to tech. Los Angeles has seen a huge rise in the number of people working from home, a percentage that since 1980 has more than tripled even as transit’s ridership share has dropped. Small, home-based businesses are common not only in such fields as real estate, but also in business consulting and even trade.

These home-based businesses, and small ones tucked into strip malls or small industrial centers – for example, in food processing – represent the last, best hope for a revived Southland economy. Our corporate community seems destined to continue shrinking, but this does not necessarily mean that the overall economy has to follow suit. Unable to rely on local officials to make things better, our best chance lies with relying on the entrepreneurial spirit and creativity of our people – the very thing that made us such an economic beacon in decades past.

This article was originally puslibhed on City Watch L.A.

(Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study,The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA. This piece was posted most recently at newgeography.com.)

California: The Land of Double Taxation for Small Businesses

Just think: You run a business. Your partner embezzles from you and you are reeling – you feel like you’ve been punched in the gut. Next, California’s state government shows up and slaps you around. When you object, Sacramento offers no apology, no comfort. You’re on your own.

Farfetched? Read on to see what happened to a California Limited Liability Company (LLC) that tried to play by the rules.

First, an LLC is a form of business that permits the owner to avoid double taxation. In California, such companies must pay an annual minimum franchise tax of $800, which is the highest of any state (in 40 other states the fee is $100 or less) and may be subject to additional fees based on revenue.

An article by Mike Dazé in Bloomberg BNA – Corporate Close-Up: The Burden of California’s Taxes and Fees on Limited Liability Companies – points out that the State Board of Equalization “illustrates the challenges businesses face when trying to reduce their liability for taxes and fees in California. A company filing two-short period returns in tax year 2010 unsuccessfully protested the imposition of the minimum tax and LLC fee in each short period.”

In short, they objected to double taxation.

The company, Bay Area Gun Vault, LLC, converted from a two-member entity into a single-member LLC after one of the two members was caught embezzling money and was removed. So the company filed two short-period returns for 2010, one as a two-member LLC and the second as a single-member LLC.

In the first return, the company timely paid the annual tax of $800 and an extra LLC fee on profit. In the return for the second period, the company did not pay the LLC annual fee, but did pay the tax.

Despite two tax returns, the company clarified that the income was for the same business with the same tax ID number and assets and was operating in the same location. So the company should owe only $800 in tax and an LLC fee of $6,000.

But the removal of the embezzler caused a “technical termination” of the original LLC because 50 percent or more of the interests changed hands. Hence, the resulting single-member LLC was a “new entity for tax purposes” and owed the minimum tax and LLC fee during the same year.

Mr. Dazé wrote, “The logic of the company’s argument is appealing: LLC taxes and fees should not be imposed twice in the same year on the same business.”

The Board claims there is no statutory support for that position.

Well, if the Board is correct, why did legislators let an unfair law stand? Do Sacramento lawmakers use no foresight in determining whether technical provisions in business-oriented laws might cause future injury?

Actually, I know the answer to my own questions. Here is why the legislature doesn’t care how its actions harm the business community:

  • First, the Franchise Tax Board (California’s version of the Internal Revenue Service) has projected revenue from LLC taxes and fees to be $753 million in fiscal year 2014-2015. Sacramento wants to collect every single penny of that revenue.
  • Next, California’s legislature is packed with people who will use taxpayer funds to support the latest half-baked ideas. But they routinely turn a deaf ear to requests from the business community for fair taxation and regulatory policies.
  • Finally, most Sacramento politicians are clueless about what it takes to run a business.

To amplify on that last point – only “18 percent of the Democrats who control both houses of California’s full-time legislature worked in business, farming or medicine before being elected,” wrote former California Assemblyman Chuck DeVore. “The remainder drew paychecks from government, worked as community organizers, or were attorneys.”

In business-friendly Texas, “Democrats are more than twice as likely as their California counterparts to claim private-sector experience outside the field of law,” continued DeVore, and “75 percent of the Republicans earn a living in business, farming, or medicine….” All of that can be found in his book, The Texas Model: Prosperity in the Lone Star State and Lessons for America.

The analysis was for a couple of years ago, but the makeup of both legislatures remains virtually the same.

California is replete with demands for “environmental justice,” “social justice,” “income justice,” “sexual justice,” “workplace justice” – oh, the list goes on and on. What California needs more of is “entrepreneurial Justice,” “business justice” and “tax justice.”

Gov. Jerry Brown and legislative leaders should reverse tax-confiscatory policies and refund overpayments to that LLC and others in similar positons. If not, California will perpetuate its mean-spiritedness towards corporations – even the one-person kind.

The Irvine-based Principal of Spectrum Location Solutions helps companies plan and select ideal sites for new facilities across the U.S. and internationally.

This article was originally published at Fox and Hounds Daily

VIDEO: Jim Lacy on the Obama administration picking winners and losers in business

ACU Board Member Jim Lacy appeared on Fox Business Network’s Stuart Varney Show on 8/15 to discuss the problems of government “picking and choosing winners and losers” in business in the case of California’s incentive offer to exempt Tesla from environmental regulations – but not the rest of the businesses in the state.

Wynn: ‘Frightened to Death’ for Future of U.S. Business

AT&T, T-Mobile USA Merger Means Jobs

From CA Majority Report:

California’s dismal economic outlook has squelched many job opportunities, including those that would allow employees to organize and demand better conditions. With the jobless rate hovering somewhere around 12% since 2009, one of the highest in the country, nearly two million Californians are looking for work, but are unable to find jobs. On the street, most visibly in the Occupy Wall Street movement, you can sense the frustration.

Californians are impatient with the state of the economy – and afraid that the future may not bring better circumstances.

During the worst economic downturn in a generation, it’s our job to make sure no opportunity to create new jobs and protect existing jobs is left on the table.

(Read Full Article)

Oakland business owners fear they won’t recover

From SF Chronicle:

Kevin Best and Misty Rasche remember when they had waiting lists for a Friday reservation at their bistro in the historic Old Oakland business district.

That was in 2007, before the recession hit and a series of angry protests that would come to define downtown Oakland.

Most recently, business at their B Restaurant & Bar has been harmed further since Occupy Oakland tents went up at City Hall on Oct. 10. Best and Rasche worry that the collateral damage from the protest may be the final blow for their restaurant.

(Read Full Article)