COST – Cost of Doing Business to Go Up, Again

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It seems that wherever local employers turn these days, someone is trying to get more money out of them.

There are living wage proposals in L.A. and Santa Monica, hundreds of thousands of union members demanding higher pay and benefits, and the threat of a multibillion-dollar hike in workers’ compensation benefits.

In the current booming economy, most employers can probably afford these hits for now. But when the torrid rate of growth slows, as it inevitably will, a different story will emerge. Economists say the costs will hit hard, prompting employers to defer expansions, cut costs and even lay off workers.

“When that rainy day comes, it’s going to pour,” said Esmael Adibi, director of the Anderson Center for Economic Studies at Chapman University.

Added Carol Schatz, president of the Central City Association: “We acknowledge that there are serious problems out there that may require some funds from business. But we want to be a partner with others in solving these problems, not just an endless wallet for others to turn to.”

If all that sounds vaguely familiar, it should. After all, it was only seven or eight years ago that businesses in Los Angeles and around the state were reeling from the cumulative effects of the recession and onerous government fees and regulation.

Hundreds of businesses simply packed up and left L.A. for lower-cost places like Arizona, Nevada and Texas; thousands of others that couldn’t move simply closed their doors.

In response, government leaders hastily convened economic summits. They pledged to cut taxes and fees and streamline bloated and unresponsive bureaucracies. They proclaimed that government had learned its lesson and would listen to businesses and keep them happy.

Today, it’s a different story.

Cost of doing business

Both L.A. city and county have adopted living wage ordinances requiring companies doing business with them to pay employees at least $7.50 an hour, over the objections of the business community. Santa Monica is now contemplating imposing the first-ever geographic-based living wage of $10.69 an hour in its coastal zone. And the L.A. Community Redevelopment Agency is considering a move to require companies moving into new redevelopment projects to pay a living wage of at least $7.50 an hour.

Add to that proposals to increase fees on developers in Los Angeles to help fund affordable housing and new school construction, and it’s clear that more than wages and benefits could be impacted.

All this is taking place against a backdrop of union activism, as demonstrated by the janitors’ strike against cleaning contractors. More labor actions could be in the offing later this year when even more contracts expire and the Democratic National Convention provides a high-profile backdrop for activists.

But the most sweeping additional cost of all could come from Sacramento, where a hike in workers’ comp benefit premiums is now being debated. Gov. Gray Davis vetoed a $2 billion increase last year, but there’s no telling what might happen in an election year when Democrats are relying heavily on union support. When coupled with double-digit increases in workers’ comp insurance premiums, the move could hit employers very hard.

And L.A. could be among the areas to feel it most given all the other fees being pushed in the area.

“In Sacramento, there still seems to be some concern, especially from Gov. Gray Davis, about the impact of major tax and benefit hikes on business,” said Fred Main, senior vice president of the California Chamber of Commerce. “But in L.A., San Francisco, Oakland and other areas, where public employee unions carry significant weight, there seems to be less concern about these impacts and more willingness to bow to labor demands.”

Sharing the wealth

Of course, every new fee and mandate targeting employers has its own supporters. For example, as the economic boom has rolled on, unions have argued that increases are needed to help lift the huge numbers of working poor out of poverty.

“Workers deserve their fair share of the tremendous wealth that is being generated in today’s economy,” said Miguel Contreras, executive secretary and treasurer of the L.A. County Federation of Labor and the region’s top labor official.

Even L.A. Mayor Richard Riordan has joined in the chorus of those calling for living wages. In years past, the Republican mayor had opposed such measures. But in recent months he has changed his tune. “I believe in a livable wage for all human beings and I define livable as starting at about $10 an hour,” Riordan said at a press conference last week in response to a question about the janitors’ strike. “The unions (representing janitors) aren’t even asking for that much right now.”

Along with addressing the plight of the working poor, government entities are turning to businesses for help with a number of other issues. It’s the cumulative effect of these bites out of the bottom line that most concern business leaders.

“The consequences of each of these things occur so gradually that they aren’t even noticed,” said Eze Burts, president of the Los Angeles Area Chamber of Commerce. “But as they begin to accumulate, they can hit very hard, very rapidly.”

Short memories

What’s more, Burts said, four years of a strong local economy have caused memories of the last downturn to fade. “We’re in such a gleeful period of celebration that we’re forgetting just how difficult a time we had in our recovery process,” he said.

It’s not just government agencies that seem to have forgotten the rough times. With a couple of exceptions most notably in Santa Monica where the chamber has launched a counter living-wage ballot proposal the response from businesses has been muted.

The same holds true on a statewide level, according to Shirley Knight, assistant state director of the National Federation of Independent Business, which represents small businesses in Sacramento. “Every day, we get anywhere from eight to 20 calls from our member companies. But typically, only one of those calls is from a business concerned about keeping its doors open in the face of these rising costs.”

One of those businesses is Valencia Technical Services, which services medical equipment. “Workers’ comp costs are a big issue for us,” said President Gary Angelotti. “But there is only so much of those costs we can pass on to our customers. We simply can’t jack up our rates every time our workers’ comp bill increases. We just have to eat some of it.”

But the Valencia-based firm is an exception in speaking out. Many companies are simply accepting the costs as the price of good economic times.

“I’ve seen these issues come around again and again for 25 years,” said Tom Lieser, executive director of the UCLA Anderson Forecast. “What it really took to derail California in the early 1990s was the loss of a key industry, namely aerospace. That’s when these other cost-differential issues came into play in corporate boardrooms and decisions were made to consolidate out of the region.”

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