For Small Business, Year of Disappointments on Legislative Front

A strong economy and a booming stock market made 1999 a year to remember for California’s small-business owners. But it was downright forgettable on a legislative level, at which hoped-for tax-relief measures never materialized and some old headaches reappeared.

Here’s a roundup of key legislation passed last year and a look ahead to what’s coming in 2000.

Federal Legislation

Lots of sizzle but no steak. That was the story line for small-business activists on Capitol Hill this year, who crafted an ambitious agenda that came apart during federal budget negotiations in the fall.

Some of the biggest items on the wish list, including repeal of the estate tax and immediate 100% deductibility of health insurance for the self-employed, were approved by both the House and Senate as part of a nearly $800-billion omnibus tax bill pushed through Congress by the Republicans. However, that legislation was vetoed by President Clinton last September.

While disappointed that these proposals fell victim to the presidential knife, small-business lobbyists say they’re energized to try again when Congress reconvenes in the new year.

* Minimum wage: Ironically, their best chance of winning new concessions could come with accepting defeat in the coming battle to hike the $5.15 federal minimum wage. Business groups historically have opposed any increase in the minimum wage, contending it’s a job killer that ends up hurting entry-level workers. But that’s a tough sell at the time when the economy is booming and the gap between rich and poor is growing.

With public sentiment running strongly in favor of raising wages for America’s lowest-paid workers, small-business lobbyists aren’t fighting the tide this time around. Instead, they’re focusing their efforts on attaching small-business tax breaks to proposed minimum-wage legislation expected to come up in early 2000.

“We stand a good chance of seeing some tax-cut legislation next year,” predicts Donald “Dan” Danner, senior vice president of federal public policy for the National Federation of Independent Business in Washington. “Either as part of the minimum wage package or as stand-alone legislation.”

* Ergonomics: Expect another dust-up on the ergonomics front as well. The federal Occupational Safety and Health Administration in November proposed new regulations to protect an estimated 27 million U.S. workers from repetitive stress injuries. Those rules represent a scaled-back version of somewhat stricter regulations proposed last February.

However, business leaders remain hostile even to the weaker standards, which they say will cost American businesses a lot more than the $4.2-billion annual tab estimated by the federal government. Groups such as the U.S. Chamber of Commerce have vowed to take the government to court if they can’t muster enough lobbying muscle to kill the standards in 2000.

California Legislation

* Overtime pay: Undoubtedly the biggest disappointment of 1999 for state small-business activists was the California Legislature’s decision to restore daily overtime pay for employees who work more than eight hours a day.

The measure, which takes effect Saturday, overturns controversial pay changes made in 1997 under former Gov. Pete Wilson that limited overtime pay to workers who put in more than 40 hours a week. Soon hourly workers who put in more than eight hours in a single day will receive time-and-a-half for each extra hour worked up to 12 hours, after which they’ll receive double time. The new rules will affect about 8 million California private-sector employees who aren’t covered by union contracts.

To placate business owners who have complained that daily overtime prevents them from offering workers flex time or longer weekends in exchange for longer workdays, the new rules allow for a workweek of four 10-hour days without overtime in some circumstances. But that hasn’t stopped the grumbling among critics.

“There is very little flexibility for employers and employees,” said Shirley Knight, assistant state director for the NFIB in California. “Plus, the reversal has been confusing for small-business owners.”

* Ergonomics: In addition to watching what happens at the federal level, California business owners need to be aware of an October appeals court ruling that broadened the state’s ergonomics regulations to apply to even the state’s smallest employers. The state standard now requires all employers to take some remedial measures after two or more workers performing the same task are injured in a single year. California companies that employ fewer than 10 workers originally were exempt from the standard. But the appeals court agreed with a lower court that exempting small businesses would essentially gut the standard, since 80% of California employers would be exempt.

* Kin care: Other new rules taking effect for California employers include the new “kin care” provisions linked to employee sick leave. Beginning Saturday, workers will be able to use at least a portion of their sick leave to care for a sick child, parent or spouse. Unlike family leave, this new law applies even to small businesses, and it does not require that the family members have a serious illness. Employers who do not offer sick leave are not required to begin doing so under the new law. Likewise, the law does not prevent employers from terminating or changing their existing sick-leave plans.

* Insurance lawsuits: Small-business groups have joined a variety of taxpayer, consumer, insurance and business organizations to undo new laws approved by the state Legislature last fall that expand citizens’ rights to sue insurance companies. The new rules essentially allow accident victims to sue the insurance company of the person at fault if they feel the carrier has acted in bad faith by making a low-ball offer or by dragging its feet in settling the claim.

Small-business lobbyists contend the new rules will lead to an explosion of lawsuits and higher insurance premiums for many types of coverage. They helped spearhead a signature drive to qualify two measures for the March 2000 ballot aimed at preventing A.B. 1309 and S.B 1237 from ever being enacted. Those bills originally were supposed to become law on Jan. 1, 2000, but have been delayed until voters give thumbs up or down at the ballot box.

* Minimum franchise tax: Good news for new businesses. Legislation passed last summer and which takes effect Jan. 1 waives the minimum franchise tax for a new corporation’s first two years of business. Small-business activists have been pushing for an end to the hated tax, which they say amounts to little more than a fee for the privilege of doing business in California. It could save a new business owner as much as $1,600 over two years.

* Workers’ compensation: California business owners will likely see their workers’ compensation premiums jump in 2000, following a recommendation by state Insurance Commissioner Chuck Quackenbush in November that insurers hike the price of that coverage by 18.4%. State insurance officials are concerned that competition between carriers has gotten so stiff that some companies are selling the coverage at a loss, threatening the future health of the system.

However, small-business activists are more worried about what could happen in the state Legislature. Sen. Hilda Solis (D-El Monte) led an effort earlier this year to expand workers’ comp benefits from the current cap of $490 a week. Gov. Gray Davis vetoed that measure, but many insiders expect the issue to resurface this year.

“It’s going to be a big issue in 2000,” said Kathy Fairbanks, spokeswoman for the California Chamber of Commerce. “We don’t want to get hit with a benefit increase on top of a premium increase.”

* Minimum wage: California’s Industrial Welfare Commission has begun holding public hearings on hiking the state’s $5.75 minimum wage, a move that many Sacramento watchers say is likely given the sizzling economy and the new pro-worker composition of the board. The five-member panel--four of whom are Davis appointees--has the authority to raise the minimum wage without legislative action. However, the process is a rather lengthy one, so any changes aren’t likely to occur until late 2000.

Local Legislation

* L.A. business tax: Around this time last year, Mayor Richard Riordan took the wraps off his business tax reform plan, which was billed at the time as the largest tax cut in the city’s history. Plans called for $23 million in tax relief, tougher enforcement of scofflaws and a streamlining of the Byzantine code. The Riordan administration hoped to push the plan quickly through the City Council in time to get it on the June 1999 ballot. (The plan raised rates for a handful of industries, thus subjecting it to voter approval under Proposition 218.)

However, politics being what it is, other council members soon emerged with their own versions. A hastily drafted compromise was worked out to keep the measure off the ballot. Then it was back to committees to hammer out the details, where much of business tax reform has remained ever since. The good news is that the City Council appointed a 19-member Business Tax Advisory Committee filled with accountants and other private-sector professionals to examine the hidebound tax system. Their initial recommendations are due out in early January.

The bad news is, the meat of reform--lower rates, fewer categories--is still a long way off, and momentum has slowed markedly from all the hoopla a year ago.

The council did manage to approve a few of Riordan’s original proposals. Beginning Jan. 1, 2000, owners of micro-businesses posting sales of less than $5,000 won’t have to pay city tax (though they are supposed to register their enterprises). New businesses with revenue less than $500,000 are exempt from taxes for the first year. And fiscal-year filing will be allowed for the first time.

* Living wage: Following the lead of Los Angeles city and county, several other California municipalities, including Santa Monica, Oxnard and Ventura County, will consider living-wage ordinances next year. Advocates have won such ordinances in more than 40 U.S. municipalities so far. If the economic boom continues, look for many of them to succeed.