Wednesday, July 14, 2010

Tip credit would boost employment

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By Brian Grogan

Recently, Republican candidate for Governor Tom Emmer spoke of the need for a law to relieve restaurant owners from paying the full minimum wage to employees who earn tips. Unfortunately, this debate has been misstated and it is hurting the many small-business restaurant owners who employ over 100,000 Minnesotans. The debate is not about minimum wage for servers but about government regulation and its unintended consequences on small businesses and jobs development.

The mainstream media has been delinquent in reporting the full story. Prior to this story breaking, I had discussions with the Minnesota Restaurant Association and with real estate developers who specialize in developing restaurant properties. Both groups have expressed the frustration they have with a law in Minnesota that forces small business, restaurant owners to pay an additional 15-20 percent in fixed overhead costs.

In particular, if a restaurant generates $1.5 million in revenues, an additional $200,000 to $300,000 in potential profits is spent paying wages to employees typically earning on average $13 or more per hour. Within a restaurant, a majority of the affected, higher paid employees are single, under 26 years old and do not have dependents. They are earning a great wage and a change to the law would not significantly change their annual wage compensation.

Regionally, this law and added business cost is unique to Minnesota. Wisconsin, Iowa, South Dakota, North Dakota, and 39 other states do not force the higher wage cost on restaurants. This is a classic example of how regulations in Minnesota are hurting local businesses.

One real estate developer commented that this law is directly related to the decision by a number of large, national restaurant franchises to cease opening new locations within the state of Minnesota. He estimates that this reflects a loss of as many as 15,000 new jobs in our state. And, this doesn’t account for the lost tax revenues and ancillary spending related to new construction and other wages.

In addition, this law is negatively affecting many small business restaurant owners who today, due to a slow economy, are close to shutting their doors. In response to the adverse effect of this law, the Restaurant Association approached the Minnesota Senate during the 2010 legislative session and asked for relief.

This is what the mainstream media is not telling you. Senator Kathy Saltzman, SD56, the Senate DFL majority whip, took up the cause for small business restaurant owners and authored the Restaurant Recovery Act. According to association leaders, it had fairly significant support within the senate and the likelihood of passage was looking good.

Unfortunately, according to the restaurant association, the unions found out about the bill and used their political clout to make sure the bill never made it to the Senate floor for a final vote. What is significant is that the unions do not have a foothold within the restaurant industry, so not a single union job or wage would have ever been affected by the law.

The DFL withdrew the bill. During the 2010 session, at a time of anemic jobs growth, Democrats were more concerned about pleasing the unions than passing legislation that would have spurred jobs growth and protected jobs.

Did waiters and waitresses support this bill? Yes! During the bill’s hearing in committee, a significant number of waiters and waitresses spoke out and were present to show their support to their employers and the bill. They understand the difficulty their employers are having meeting payroll in this slow economy.

This is a good debate because it is about government intervention within businesses and its unintended consequences, media biases, the union strangle hold on the DFL party and the loss of Minnesota jobs! If elected to the state House, I will introduce this legislation since I am more concerned about saving jobs and spurring jobs growth than pleasing union officials.

Brian Grogan, Minnetonka, is running for the Minnesota House of Representatives in House District 43B.

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