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Jan. 15, 2021 - Epoch Times
34:21
How California’s Laws and Overregulation Are Hurting Small Businesses | John Kabatack of NFIB
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What is it going to take for California to become more business friendly?
It's going to take, I think, enough nervous energy among voters to say, look, enough is enough.
We need to get things moving again, and we need to get small business owners elected to office.
What is the California government doing to help these businesses?
What's going on?
Unfortunately, there's a lot more rhetoric than action.
When we found bills that made it to the governor's desk, out of about 200 plus bills, only two bills were ones that we thought were pro-small business that would actually help the mom and pops.
You're talking about that there's a disconnect between the legislative body and actual, the small businesses.
Where is this disconnect and how do you see it?
Yeah, I think with the disconnect, we just continue to find a great powerful labor union force in California.
You know, the public employee unions, you know, are still very, very powerful.
But unfortunately, what's happened is over the years, unions have become so powerful They do actually require, as part of the union dues, that part of that actually goes towards political causes.
What do you see will happen if things like this continue, if there's more laws and regulations that are not very friendly to these small businesses?
The doomsday scenario, unfortunately, if hopefully it doesn't come to this, is with these terrible laws that are coming down out of the capital that are not small business friendly, Combined with a pandemic and combined with terrible things like wildfires, we may see a lot of business owners shutting their doors.
As a result of the CCP virus pandemic, shutdown, and riots, many small businesses in California are not doing well.
Based on the survey done by the National Federation of Independent Business, 20% of businesses in California may shut down by the end of the year, if this trend continues.
Today, my guest is John Kabatak.
Regional Director of the National Federation of Independent Business.
He will share with us what laws are passing in Sacramento and how they could affect the future of small businesses in California.
Welcome to California Insider.
Great to be here, Samak, always.
I want to talk to you about small businesses in California.
And I was down the street, I saw this big, it was a donut shop that I'd seen the closed sign for a while because of the pandemic.
And then one day, it was really sad.
I saw the business owner moving his stuff out.
And then the other day, I was going to the dry cleaners, and I talked to them.
I said, you know, how's your business?
And he says, it's better.
I said, how much is it now?
He's like, well, it's 25% of what it used to be.
And I said, how bad was it?
He's like, well, it was 20% last month.
And with this going on in California, down the street from us, What is the California government doing to help these businesses?
What's going on?
Well, it's very frustrating and heart wrenching to see, like your donut shop owner, so many of these stories around the state and the country.
Hearing the Golden State, you know, where really it should be the California dream like the mamas and the papas sing, right?
So many of them are finding those dreams being more dimmed almost on a weekly basis, it seems.
But, you know, and we hear from so many small business owners and I will say I'm so inspired by so many of them who really have taken their dream and they're still working very hard to try and keep that dream alive in these very difficult, tragic times.
And when we see so many of them doing everything they can to not renew a contract with a vendor, to scale back on their utilities, to do all that they can, not expanding another store so that they can keep the people who work with them employed.
I hear so many stories about employers who are doing all they can because this is their extended family.
At NFIB, we represent about 15,000 small businesses here in California.
And no matter where we go, whether it's Orange County, in the northern state, in Lassen County, down in San Diego, in LA, Central Valley and Central Coast, they all are saying the same thing.
I'm doing all I can to hold on to my employees.
But we ran a survey very recently that showed that if signs of economic conditions don't improve soon, before the end of 2020 or beginning of 2021, we could see about one in five small businesses shutting their doors.
So it's harrowing.
It's heartbreaking.
And then when you ask about what policymakers are doing, unfortunately, there's a lot more rhetoric than action.
And when we found this past year in the Sacramento, so many legislators talking about helping the mom and pops, helping the donut shop owner, the retailer, the farmer.
When we found bills that made it to the governor's desk, out of about 200 plus bills, only two bills were ones that we thought were pro-small business that would actually help the mom and pops.
Many of the others were really terrible and really, really devastating.
So would those other bills hurt the small businesses?
Is that...
A lot of them.
A lot of them will do damage because I think what we have in Sacramento, we have either policymakers who either are just never signed the front of a check, you know, like small business owners say, you know, they signed plenty of the backs of checks, but they've not signed the front of the check.
Or many of them are just out of touch and have never experienced what it's like to be a small business owner, making payroll, hiring people, keeping your utilities going.
But then many of them, I think their special interests in Sacramento still have such a stranglehold, still such a very big control over them, especially in election years.
And that's not a left or right comment.
I think we find that on both sides of the political aisle, Unfortunately, special interests have these great grips.
But unfortunately, small businesses are 99.2% of all businesses in the state and employ most Californians.
We really are the interest that should be the most special and concerning because when a small business is successful, Our communities and our state are successful.
And how's the disconnect?
So you're talking about that there is a disconnect between the legislative body and actual, the small businesses.
Where is this disconnect and how do you see it there?
That's a great question.
Yeah, I think with the disconnect, we just continue to find a great, powerful The labor union force in California.
You know, the public employee unions, you know, are still very, very powerful.
And I am always one to say, look, we respect employees of all stripes.
Some have been union employees for years, and I know people have fathers and parents who were union.
But unfortunately, what's happened is over the years, unions have become so powerful They do actually require, as part of the union dues, that part of that actually goes towards political causes.
They don't give the employees the ability to make that choice.
Now there was a Supreme Court decision in the United States Supreme Court, the Janus decision, that has Given some more freedom to that.
But still, I can tell you that we find the public employee unions, the plaintiff's attorney's bar, because they're very powerful, two of those forces in Sacramento that business community is constantly fighting an uphill battle.
I often said, I talked to a small business owner and I said, sir, it must be like swimming upstream for you.
And he grabbed me by the shoulder and he said, son, swimming upstream in peanut butter.
Yeah.
So I said, I can only imagine how that feels.
But for a small mom and pop like the donut shop owner, the gas station owner, a farmer, a person who's got a bookstore, a little restaurant, it's not uncommon for them to feel that because of those forces.
So I think until those really, there's some more moderation to that.
We have progressives in Sacramento who are just feeding from those troughs instead of really doing what they should do, which is help Main Street get back on track.
And so what are some of the examples of these laws?
If there's laws that are hurting these small businesses and getting passed during this pandemic, do you have any examples?
Yeah, you know, this was a very difficult year, too.
I want to put it in perspective that, you know, when you have policymakers and constituents out there who are feeling the pain of this very terrible pandemic, and then coupled with challenges such as the riots and the civil unrest in communities, the wildfires that are devastating many of our communities this past year, It's understandable to say, look, we need to, you know, for people to say, we want to make sure that we're taking care of those very disheartened, disadvantaged employees.
But there's been, as you asked about the disconnect, there's a disconnect because I think there is an expectation with some of these laws that we just saw passed this year.
That an employer, a small employer, can go to the back of their little business, go into the tree in their back business in their yard and grab $100 bills willingly and just bring them out.
Most of them are dying on the vine and they literally don't have the kind of funds right now because customers Aren't coming through the door because so many government closures have forced them to shut down or scale back.
So some of the bills we've seen this year that the governor did sign that are very challenging are a workers' compensation bill that basically places what's called a rebuttable presumption on the small employer that an employee that contracted COVID in any way, that it's up to the employer to prove that it didn't happen within their small business.
I see.
The challenge with that is we all know not even Dr. Fauci and the greatest experts right now are understanding the depth and breadth of this terrible, terrible virus, which we should all take very seriously.
And we trust in our leaders that they're getting the best information they can.
But to put the onus on a small business owner that the employee contracted it within the business and now they must pay heaping workers' comp costs because of that is a very difficult thing.
Workers' comp is in place for employees who are harmed in the workplace already.
But to now put that rebuttable presumption opens up a world of costs and liability.
So does it cost more for them to cover workers' comp?
It would, absolutely.
And then the governor had issued an executive order last year for a very short period during the summer that placed that rebuttable presumption on the small employer.
This legislation that was sent to him would actually extend and expand that longer term.
That's a problem.
That's a real problem.
We should find ways to fix this.
We should find ways to protect our employees in the workplace.
And we're doing that with good workers' comp laws and other things already in place.
And great employee leave programs, which we can talk about.
But to put that pressure and that onus on an employer, once that employee could have gotten COVID at a restaurant Well, they could have gotten it at the park, dropping their kids off.
They could have gotten it from family members coming to visit them.
It's very difficult.
So workers' comp law that was signed is going to be very devastating for those small employers.
But we hope to come back next year and really see how we can reform some things there.
And what about, you mentioned the leave law that's going to hurt employers.
What is that one about?
Yeah, so it's important to first point out that California actually has more employee leave, protected leave programs than any other state in the nation.
We've got about 14 plus employee leave programs in the state already.
Many of which employers or small businesses are required to provide and pay for.
Those come with a cost, as you can imagine.
But this one was passed and signed by the governor, which would just make bad matters worse.
Again, in a state where we already have the most generous leave programs, it would provide 12 weeks of unpaid but protected leave for employees in the workplace Businesses that have five or more employees.
And basically it expands it to include the California Family Leave Act to now include domestic partners, grandparents, siblings, some other family members.
When we really don't need to do that, it assumes that employers aren't providing leave programs.
NFIB did a study that showed that more than 75% of our members are providing some sort of employee paid medical leave, paid sick leave.
More than 90% of our members are providing some sort of leave program period.
So this is going to be a new cost for employers.
They now have to provide medical benefits to that employee, and they have to ensure that that position is there when the employee returns if they have gone home.
So they have to find somebody to do that job for a few months and then...
Have them come back.
They have to find somebody for that job, which is a high cost in training.
And then as we're finding, again, we found that in a recent NFIB study, as I might have said, that if things don't improve before 2021 comes about, one in five small businesses will be forced to close.
The problem with an expanded leave bill like this is you need to now guarantee the position for the employee, but if that business is now forced to close or scale back, They're going to be liable, and the plaintiff's attorneys will absolutely have a field day with this.
Now, why would a law like this pass?
Is it because people are concerned about there's not enough leave time?
How does a law like this pass?
Again, I think it's a combination of two things.
I think it's policymakers who just don't really understand small businesses, which is why NFIB is constantly working to recruit and hone really good small business owners to run for office, because they understand what it's like to run A business and to keep the economy going.
But I think many of them, again, just don't understand.
But again, to my earlier point, I think in many ways we have a very powerful union lobby, and then we have a trial bar lobby that are very big.
And a bill like this would actually stand to benefit nobody else other than really unions who want nothing more than small businesses to Get their employees off the payroll.
So why would the unions benefit from this?
What would they see?
Is it that their members want to get these benefits?
Or how does it work?
Well, what we've seen is I think a lot of unions right now are seeing, even though we see them grow more powerful, over the years they have witnessed many of their employee roles slowly decline.
So this is a great opportunity, I think, when they see something like this.
Number one, they have the bank account to fund a number of these types of legislator candidate races, which is what happens.
But we also see their great fear in losing their power.
And as such, I think the one area, where can they go and find more employees to ultimately join unions and create a more unionized California than private sector?
So I think they see especially a great opportunity during a terrible time like this for Main Street, that they see the ripe pickings of employees.
And as they make it more difficult for small businesses to operate on Main Street, more employees now, we were talking earlier, what are they going to do?
Well, they're not going to have many more options here if they do stay here.
And joining a union, unfortunately, may be one of the options, and they're seeing that as an opportunity.
So, is it that when they have a benefit like that for, if you say, okay, when we pass a benefit like that, then people want to join the union because of that benefit?
Or is that...
They're passing that on the business.
So this is where I'm not a little bit confused.
Why would they want this law to pass on businesses, on the small businesses?
Yeah.
Well, I think first of all, there's a big clamoring that employees are not given or getting enough of the benefits during this very terrible time.
But this has been before the COVID. They constantly are pushing for new expanded leave programs.
I think what we found is that They are leveraging this unfortunate tragedy as a way to really convince, and they ultimately did convince the governor and other policymakers, that we need to do more.
We need to do more.
And again, make no mistake, our members, our small employers say we want to make sure we're taking care of our employees, but it's false to assume they're not providing employee leave programs.
Or that they can't afford it and they simply choose not to.
Many of them are just stressed right now.
But to answer your question, I think what we are finding is the unions see the ripe pickings with employees of the private sector to try and grow their roles.
So the more that they can try and decimate the mom and pop shops, the more employees will be out there unemployed saying, where do I go?
What better place for the unions to pick than those who are now displaced from what was once a thriving mainstream?
I see.
So John, you mentioned that the unions are pushing this law, they were behind this law, the paid family leave.
And why would they do that?
Well, unions are really looking to grow their roles.
And they're really finding that in some ways in California, they've been losing the numbers that they've had, but yet their strength continues to be strong because they do require that the employees of unions, that their money goes towards political, that portion of it goes towards political causes.
What they're finding is the best place that they can go, whereas they're finding they need to rebuild those numbers of union employees and their strength, is the private sector.
So the more that they can make it difficult for the private sector to survive, the more people that will be unemployed, out on the street, and then boy, they've got right pickings, great people out there that they can immediately bring into unions and say, have we got a place for you.
That may sound like a political statement, but it really is a fact in Sacramento that the more they can really strangle the life out of a small business from even being able to survive, the more that they'll have displaced employees.
And with millions of employees in California and an unemployment rate that has been going up, boy, what a perfect opportunity to unionize.
So the goal is to unionize.
When you have things like increased workers comp, expanded sick leave, they all sound well-intentioned.
But at the end of the day, make no mistake, unions want to grow their roles and they'll find them on Main Street if people are displaced because of higher taxes.
Because they're saying that it's impossible for small businesses to do it.
That's the perfect place for them to be able to gather up.
And I think what they will do in this pandemic is couch it as a terrible tragedy and we need to take care of our employees.
Again, employers are doing all they can.
And they already have provided more than 13 types of leave programs.
But to add another one to say that we're now needing to take care of more, you're going to strangle the life out of a mom and pop.
They're going to shut their doors.
The employees are going to be now gone.
And those employees who still need a job are going to find no place else but come into our union tent.
And that destroys not only the California and American dream, but it really is a backwards way of thinking in California when we should be talking about growing our economy.
And Main Street does that.
So it's sad, but it's been a political motive of theirs for years.
And I think they see because they can really support those kinds of candidates who are progressive in Sacramento, it's an easy way for them to try and get that to happen.
But it's absurd.
It's reverse logic.
And we ought to be helping Main Street and getting more people to pursue the private sector, free enterprise dream, not send them into unions.
And again, that doesn't mean that unions, all unions are bad.
If people want to go work for one, that's fine.
But they've gotten way too powerful.
And mom and pops and small businesses are the backbone of our economy.
We should not be destroying them, especially in this economy.
Now, what do you see will happen if things like this continue, if there's more laws and regulations that are not very friendly to these small businesses?
And given the pandemic that we have, where do you think things are going to go?
I think everybody's trying to understand that new normal, aren't we?
I think we're all in that boat trying to figure it all out.
We're all just kind of understanding and trying to learn.
My hope and my prayer is that, obviously, the I think that hopefully we find a more responsible way to reopen businesses and give them a chance to get more money flowing.
We were talking about cash flow.
And that ends up resulting in more people employed and it's kind of a cycle.
So my hope is that we will start to see some systems that will work better for reopening.
You know, I think one of the things policymakers ought to be doing is looking and talking to the different sectors Talk to the restaurants, talk to the auto shops, talk to the retail store owners.
Everybody's a little different, but I think there's ways to certainly create some better guidelines and standards.
While at the same time, allowing more businesses to reopen.
And then, of course, if there are bad actors out there, make sure that they are held to full account.
But many businesses need to reopen.
If we start to see that happening, that'll be good.
The doomsday scenario, unfortunately, if hopefully it doesn't come to this, is with these terrible laws that are coming down out of the capital that are not small business friendly, Combined with a pandemic and combined with terrible things like wildfires, we may see a lot of business owners shutting their doors.
As we were talking earlier also, though, the challenge is unlike a big business, a small business just has nowhere to go usually.
They don't have the money to afford to move to Wyoming or Montana or Texas.
And so what we would find with many of them is they're landlocked here.
They'll have to shut their doors, unfortunately file bankruptcy of some sort, which is our worst hope, and then ultimately those displaced employees will either go, unfortunately, work for a union or the big box stores.
So we lose those independent...
But my hope is that I'm really hoping, I'm putting all of my money and my betting on the former scenario, which is we start to find a willingness to work to reopen, to reopen more responsibly, and to make sure that locally there's opportunities for things to happen.
There's been discussion about maybe instead of county-wide, there's been discussion in Sacramento about reopening per zip code.
Letting the zip codes based on the zip code.
Even in a county like Orange, which is very large, there may be a very different dynamic in the zip code that includes Lake Forest or Tustin than it might Costa Mesa.
But there could be some validity to that.
We have not taken a position on that, but I think the governor and policymakers need to talk to the sectors more directly and drill down on the sectors on how they can take guidelines and an auto shop, what they can do to create better open air procedures and I think a lot of it has been a dog
and pony show, unfortunately.
But in fairness to our policymakers, this is a rodeo.
Speaking of dog and pony shows, this is a rodeo we've never been to before.
So we hope for the best.
And now with the ballots that are coming up, tell us about those.
Which ones are business friendly and how are they going to impact the businesses?
Sure.
Well, we have 12 ballot measures that are on the November ballot.
And so what we will be looking at, what is being looked at, are some discussions around a number of them affecting business.
The NFIB, our small business group, has taken positions on five of the 12.
The nice thing about our organization is we ballot our members.
We ask our 15,000 members here to And 300,000 nationwide.
What do you want us to do?
So we don't have a board of six people with a white board and a piece of paper saying, this is what we're going to do.
Small business Main Street tells us how to act and what we should do.
And then our members told us there are a few measures I can happily talk about.
I think the one we've talked about before is property taxes.
Prop 15, right?
Prop 15, Proposition 15, which NFIB is strongly recommending a no position.
It would, it would basically, what would basically Prop 13, which was passed by voters in 1978, was a property tax protection, which basically said that businesses cannot be reassessed any more than a particular 1% over, you know, per year.
Cannot increase property taxes.
And that has been a last bastion of hope for small employers.
But it was for both residential and commercial and industrial property owners.
For years, the legislature, progressives in the legislature, have been pushing an effort, and now with Prop 15, to what they call split the role.
Take business and industrial property and commercial property out of those protections.
That the business community has not been, can you believe this, not been paying their fair share of taxes.
And how did they come up with this Prop 15?
Yeah, so Prop 15 is a reiteration.
It's kind of, you know, the old saying, everything old is new again, right?
Like a recycled coin, that we have seen an effort by Labor over the years to try and really push for this split role by making commercial and industrial businesses not be protected by property taxes and pay higher property taxes.
So this is just a rehash of what we've seen in years past.
The sad thing is the business community and Labor came together with Governor Brown years ago, about three or four years ago, To really come together and talk about a good reassessment plan that would be fair for both sides.
But for labor, it just isn't enough.
And again, as they see their numbers decline...
Well, I would just say labor because who is the beneficiary out of this?
Is it going to go to the unions or how does it work?
It would.
And again, I think what we are finding is that, well, it's continuously been pushed by the teachers union.
It's been pushed by the public employee unions, who again, make no mistake, we do see our state budget stressed right now and challenged, no doubt.
So I think another big driver for them is this is one of our last opportunities and our last opportunities.
Pots of gold that we can try and get money out of.
But what they don't understand and why Prop 15 is so dangerous is that they claim that they are smacking it to big business, that it will this time around they will only be affecting businesses with three million dollars in value or more in a property.
The hard part is that when a small business owner signs a lease with most of our members rent, when they sign that lease with the owner of the property, There's what's called triple net.
So the costs that are passed on to them are maintenance, insurance, and third, property taxes.
So it's a big farce when we hear the proponents of Prop 15 saying, don't worry, Main Street's not going to be hurt here.
Well, they're actually going to be devastated because those costs will be passed from the big business owners, the $3 million.
To the renter.
To the renter.
And then what will they have to do?
Either raise prices.
Or lay people off.
Or the worst we're hearing is laying people off.
So Prop 15 is a farce.
It's the $11.5 billion a year property tax increase, and it would be the largest property tax increase in California history.
John, how does rent control hurt the renters?
I would assume that it would hurt the investors of real estate, but how does it hurt the renters?
Well, in many ways, and Proposition 21 really will devastate that.
It's a backwards logic, again, very well-intentioned because you try and think about taking care of these people in this very terrible time.
Who are paying rent and we certainly want to make sure people have a roof over their heads.
But what rent control does is it basically says, hey, you're the owner of an apartment.
Let's say you're the owner of an apartment.
Rent control now will severely limit your ability To increase rents, if there is a maintenance or a serious problem with your place, you need to deal with some upgrades because you want to take care of your tenants, but you now will be forced, the government will force you to absorb all of those costs.
The problem with that is nobody wants to see rents go up significantly, but you can't ask a small business owner, which are most property owners, an apartment owner, a condo owner, to absorb that cost and pay for that completely without some way of dealing with it.
So by government saying, no, you've got to suck it up and pay for that, it's going to have the opposite effect.
Because what we're hearing from many condo owners, apartment owners, property owners who do rent out to people is if you're going to force me to absorb that, I'm either going to have to sell, I'm going to have to close this place down, I'm going to have to kick people out, or I'm going to have to downsize my size of my place because I can't afford and I can't make those ends meet.
So rent control sounds like a great, glorious thing, but ultimately what it does is it's going to force the property owner to not be able to even make some marginal decisions.
Increases in rent of the people there to make sure that those costs are offset.
And most of them do have mortgages, right?
Is that the case?
Many of them do.
You know, what would be a better discussion is let's have a discussion in this pandemic about, as we somewhat have been doing, about how to work with the lending institutions, with the SBA, with other funding streams for the owners of the property so that they actually can make things work.
But to severely limit a small business owner who is owning that property from not being able to increase slightly even their rents and have to pocket that, many of them are either going to say, forget it, I'm shutting my place down.
And then what we're also seeing as we're trying to see construction and development in California grow is we're seeing already a number of building and developers saying, if Prop 21 passes, it's going to be a disincentive for me to continue to build.
So people wouldn't want to invest in real estate?
They wouldn't.
And then as a result of it, there will be less.
So then it would become limited and the prices probably would go up, right?
Absolutely.
And to your point about investment, those who are from outside of California looking to invest in California, it's just one other message that says this is the wrong approach.
It has the backwards effect.
And actually, I should note, you know, one person who, in addition to business groups, Republicans, Democrats, Governor Newsom has come out strongly in opposition to Proposition 21.
And I think in many ways it is that he's owned property.
He understands the dynamics of that.
We hope that it would translate to other decisions that he's made with bills coming to his desk.
But on this one, we really appreciate him coming out because he's saying, look, it's going to have the opposite effect.
It will put people on the street.
We'll have a larger homeless population.
We're going to force business owners, property owners to shut down.
And we're going to disincentivize investment in California.
Terrible idea.
Sounds like a great line, buzz line when you're saying rent control, but it does the opposite of protecting tenants.
It actually imperils them.
So John, what is it going to take for California to become more business friendly?
A few things.
I think most importantly, what it's going to take is when we see an election cycle like we've seen this time around, it's going to take, I think, enough nervous energy among voters to say, look, enough is enough.
We need to get things moving again and we need to get small business owners elected to office.
I think also we're finding a lot of small business owners, many of them who have been displaced, who are now saying, you know what?
I'm going to throw on my shoe leather.
I'm going to get out there and I'm going to run for office, either Congress or school board or city council or the legislature.
So I think part of it is we're going to see it's going to take more people getting involved to understand what it's like to run a business.
And make sure we're more friendly.
Maybe we will never be fully Republican.
Maybe we'll never be fully Democrat.
But we need to make sure that our capital is filled with the right people who understand economies.
And small businesses, I think, will see more of that.
The other thing that's going to get us to bounce back, I think, is really making sure that we are having a really good relationship between our state legislature and Washington, D.C., I think we need to have that symbiosis.
And it's going to take that relationship, whether it's blue and red, red and blue, whatever the colors are of the politics, that we need to make sure that there is that symbiosis and that nexus there.
Because I think if we're not seeing that relationship working well, we're going to see a lot more divisions and a lot more people, sadly, mom and pops and the people that work for them out in the cold.
So binding together, I think people get to the polls.
Make sure you're supporting small business friendly issues.
Make sure you're finding good people out there to run for office.
But most importantly, being heard and getting your voice heard.
As a person out there, whether you're on Main Street or you're not, make sure that you're being heard and people know that a thriving small business economy means a thriving California economy.
And I'm confident we're going to return to that.
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