For several decades Steve Fazio, head of the Fazio Cleaners’ chain of dry cleaning and tailoring shops throughout Los Angeles and the San Fernando Valley — including Sherman Oaks and Woodland Hills — has worked hard to develop his business.
But increasing costs, and now the signing of a statewide minimum wage hike by Gov. Jerry Brown, are making it harder to be competitive and stay in business, he said Fazio, who is also a candidate for the state senate (27th District).
“It’s not just one thing. It’s the collection of taxes and fees — in addition to regulation — that makes it very difficult to get a bottom line and makes California an unattractive place for business,” Fazio told the San Fernando Valley Sun/El Sol.
It also makes it very hard for labor growth, he noted.
“We can no longer add employees. By the time you get done with paid sick leave, unemployment and workers’ comp benefits, in order to hire an employee you’ve gone beyond the dollar amount that is sustainable,” Fazio said.
He said that business growth has been based on the premise that “you hire people for an entry-level job and if people prove themselves, they get raises,” and that’s how things have worked over the years.
“But if you set the bar to where it’s difficult to hire new employees, you start to look for ways to reduce labor, not grow labor,” Fazio said.
The New Law
On Monday, April 4, before a boisterous downtown Los Angeles crowd of legislators, union leaders and workers, Brown signed the legislation to raise the state’s minimum wage to $15 an hour by 2022.
During the ceremony at the Ronald Reagan State Building, Brown said the new law doesn’t mark the end of the struggle for livable wages. But it’s a big step in the right direction.
“It’s about people,” Brown said. “It’s about creating a little tiny balance in a system that every day becomes more unbalanced.”
Under the legislation, California’s $10-an-hour minimum wage increases to $10.50 in January 2017, then $11 an hour on Jan. 1, 2018. The minimum wage will then rise by a dollar in each of the following years until it reaches $15 in 2022, after which it would continue to increase each year by up to 3.5 percent to account for inflation.
Businesses with 25 or fewer employees have an extra year to raise their wage, so those workers reach $15 an hour by 2023.
The Governor still has the ability to temporarily halt raises if there is a forecasted budget deficit of more than one percent of annual revenue, or poor economic conditions such as declines in jobs and retail sales.
Officials said the increase hike affects 5.6 million workers, or about one-third of the statewide workforce.
It’s not only the minimum wage increase that leaves businesses with smaller bottom lines, Fazio said.
“People are fixated on the minimum wage. But we get hit with additional costs, like water and electricity. Supply costs keep going up. There’s frivolous lawsuits, and workers’ comp and insurance because we have the Affordable Healthcare Act,” said Fazio, in detailing what he sees as obstacles to business growth.
He said the increased minimum wage also brings an issue that is often overlooked, so-called “wage inflation.”
“The person that was making $15 before, now you bring a new employee and you have to pay him that. You’re not going to pay (the other person with experience) the same. You’re going to have to pay them more,” Fazio explained.
“Your bottom line continues to get compressed, and your revenue is not moving. Before long, you don’t want to be in business anymore.”
And the idea that you can simply pass on the added costs to clients is often not the case in his business, Fazio adds.
He said other business can pass along increased costs like certain big item purchases, and other service associated with the minimum wage increase. But restaurants and dry cleaners like his can’t do that, Fazio said, because they must stay competitive in order to stay in business.
If things cost more, customers simply start using those services less.
“You won’t lose customers, but they get [fewer] services,” Fazio said. “If they came in three times a week, now they’ll use it twice. They’ll say ‘I can wear the suit one more time’ before having it cleaned.”
He added that many business owners are frustrated, and there is little appreciation by politicians for those who take all the risks when opening a business, with no guarantee it will be successful.
For him, the politicians are simply “pandering to people who are the voters to make them feel they are on their side.”
“This is something where most of the people in elected office say they want to support small businesses, but their policies make it more difficult to produce a bottom line,” Fazio said.