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You know what small businesses need to survive this pandemic? Less revenue and higher costs. Sounds like a great idea, right?
Not exactly.
Unfortunately, that seems to be the strategy behind the ballot initiatives of a group calling themselves “People First Portland.”
They have managed to put five questions before voters in Maine’s largest city this November.
The initiatives run the gamut of a left-wing wish list. Rent control, banning facial recognition software, requiring union labor on certain jobs.
Except they have turned some of these up to 11. Consider the “minimum wage” proposal. Unwilling to let a crisis go to waste, they have created a souped-up minimum wage ordinance for this era of coronavirus.
In short, the initiative would require a 50 percent increase during any declared state of emergency. Once it is fully in place, the minimum hourly wage in Portland would be at least $22.50 an hour.
We’ve been in a “state of emergency” — pursuant to President Donald Trump and Gov. Janet Mills’ orders — for nearly seven months, with no end in sight. So, if the proposal had been in effect, small businesses, faced with huge revenue shortfalls from the substantial drop in summer tourism, would somehow need to simultaneously shoulder a big jump in their payroll costs.
To make payroll, they need revenue. Of course, there remain countless restrictions in place that prevent full reopening. The problem is particularly acute for restaurants.
So let’s do the math.
Imagine you are a casual dining restaurant, like a certain famous pizzeria founded in Orono or one of the myriad burger-and-beer joints found around Maine. Mills has permitted you to have 50 people in the place at a time, including staff.
That probably leaves you with 10 4-person tables. If you figure a waiter can reasonably handle five tables at a time, you get two. You’ll probably need a “floater” to host, get drinks, run food, and the like. Gives you three front of the house staff.
Let’s say three people in the kitchen. One on the hot line, one on the cold line, and a dishwasher. So a total of six staff.
Figure each is an eight-hour shift, once you add in prep work for food and side work for service. For simplicity, ignore both payroll taxes and the tip credit; call it a wash. Six people times eight hours times $22.50 equals $1,080. That is what the restaurant needs to cover payroll for a day.
The industry rule of thumb is that a third of revenue pays for labor, a third goes to food suppliers, and the remaining third is overhead. Things like rent, property taxes, equipment and — maybe — even a little profit. We’ll go to a magical land where that holds true, even at greatly reduced capacity.
So that locally owned pizza joint or neighborhood pub needs to generate $300 per table if they are open for a lunch or dinner service. If each guest buys two beers and an entree, they are probably spending around $30.
Each table, then, needs 10 customers. If the average table is 2.5 guests, you need to turn it four times. That holds true any night they are open, be it Tuesday or Friday. It is an incredibly steep hill to climb.
This is but one example applying the well-meaning “People First” policy initiatives to the real world. So what happens next? Well, the restaurant probably goes under; those employees lose their jobs. The asking rent for the space decreases. Good, right?
Well, when rental rates decrease, the value of a property decreases. Which means that property taxes paid by that building decrease. And, so, municipalities either need to spend less or tax others more to make up the difference.
The old saying — “beware of Greeks bearing gifts” — applies to activist groups promising simple solutions. The real world is a difficult, complex, challenging place. And it isn’t made better by one-size-fits-all ballot box regulation.
On Nov. 3, hopefully Portland’s voters will make the right choice.
Michael Cianchette is a Navy reservist who served in Afghanistan and in-house counsel to a number of businesses in southern Maine. He was a chief counsel to former Gov. Paul LePage.