FBA has prepared a new video to promote membership in the Association. Produced by Marquee Media US, it features several FBA officers, board members, and company owners saying why FBA is crucial to the continued success of family businesses in California and how more members can expand our influence at the Capitol.
Thanks to Chairman Ken Monroe, Treasurer/Secretary Grant Deary, Board Members Kurt Glassman, Carol Burger, and Alfred Garcia, and Corrie Nichols Davis, the managing partner of Founding Member Gorrill Ranch, for assisting in the production.
The video can be viewed on the About Us page. Please feel free to share it with fellow members and prospects!
The U.S. economy is, at present, growing very rapidly, and 2018 is shaping up to be the best year for economic growth since 2006. As a result, the Federal Reserve is a lock to raise rates by a quarter-point in September, and there is at least a 70% chance that they will do so again in December to cool down growth and prevent inflation from taking hold. But plenty can go wrong with this forecast. Contagion from an emerging market or financial crisis is always possible, but the biggest immediate threat comes from the rapidly escalating trade war we are in.
Elliot Eisenberg
The most likely outcome of rising trade tariffs is a premature pause in the current interest rate rising cycle. This is because a trade war will cause business demand for physical plant, equipment, and employees to contract due to heightened economic uncertainty. Trade wars will also cause consumer demand to lessen due to rising unemployment, higher prices, and falling consumer confidence, exacerbated by a decline in equity values. While such a slowdown would not be expected to be that large, it would still slow GDP growth and interest rate increases. If, however, the hit to GDP is bigger than anticipated, because the quantity of imported goods facing steep tariffs rises substantially, rates could be reduced to ward off a possible recession. That would only occur if other factors came into play, as the current $50 billion in products facing tariffs along with any retaliatory actions by other nations is not nearly large enough to meaningfully reduce GDP, let alone drive us into recession.
The bigger fear is that a trade war has the opposite effect on monetary policy and forces the Fed to raise interest rates. If this occurs, it would be very destructive to both Main Street and Wall Street. For this to happen, the economy would need to experience a series of strong negative supply shocks. It might happen like this: global trade conflicts quickly escalate, significantly driving up the cost of many imported goods as well as domestically-produced substitutes. This sudden rise in prices would raise production costs, which would, in turn, lead to inflation and a rise in the dollar and unemployment as exports decline and policy uncertainty rises. Worse, the rise in inflation could cause long-term inflation expectations to not only rise but also become somewhat permanently embedded in markets, such that higher inflation expectations persist even after the economy returns to normal. This is precisely what happened in the late 1960s and eventually led to 20% interest rates in the late 1970s and early 1980s.
With this history still quite fresh in the institutional memory of the Federal Reserve, policy makers would be expected to respond to such a situation by raising interest rates to wring out any permanent rise in inflation expectations. This is precisely what was done in the early 1980s by then Fed Chairman Paul Volker. Of course, this rise in rates would slow growth and weaken the economy even more.
While the chances of seeing rates rise to ward off a rise in inflation expectations is highly unlikely, it is a worst case-scenario for both the economy and financial markets. This is because it offers a combination of faster inflation, weaker growth, and tighter monetary policy. My baseline is that the impacts of rising tariffs and protectionism are too limited to meaningfully alter the course of monetary policy. But, in the fog of (a trade) war, things inevitably go awry — just think of Harley-Davidson’s unexpected decision to shift to offshore manufacturing — and adversaries respond in ways not anticipated; be prepared.
Elliot Eisenberg, Ph.D. is President of GraphsandLaughs, LLC and can be reached at Elliot@graphsandlaughs.net. His daily 70-word economics and policy blog can be seen at www.econ70.com. You can subscribe and have the blog delivered directly to your email by visiting the website or by texting the word “BOWTIE” to 22828.
The Legislature has adjourned for a month long summer recess and will return on August 6th for the final four weeks of this legislative year. A month “off of work” is hardly the summer dream it sounds like. All statewide offices, Assembly seats and half of the Senate is up for election in November and the summer will be spent shaking hands, kissing babies, and negotiating the final compromises on the remaining 1,800 bills that can be voted on prior to the August 31 Final Recess.
The Assembly remains under the leadership of Speaker Anthony Rendon and the Senate is being captained by former Assembly Speaker turned President Pro Tem Toni Atkins, who recently replaced Kevin de León. After the special elections in June, both leaders enjoy near-supermajorities in their houses, with the Senate one Democrat short after the recall of Josh Newman. This ensures relative ease of passage for leadership priorities that require a simple majority vote. However, there remains a small handful of bills that would need to garner a two-thirds majority vote. Chief among those bills are tax measures SB 993 and SB 623.
Earlier this year, FBA legislative advocates and a coalition of employer groups were successful in temporarily stopping a huge tax increase proposed in SB 993 (Hertzberg). This bill would impose a tax on all services purchased by California businesses with gross receipts of more than $100,000 a year with limited exceptions. FBA Treasurer/Secretary Grant Deary provided key testimony in the Senate Governance and Finance Committee on the significant competitive disadvantage this would force on family business employers at a time when we should be providing incentives for family businesses to continue to create jobs and invest in California. This bill was held in the committee but the fight continues as an informational hearing to discuss imposing taxes on services used by businesses has been scheduled for August 8.
This hearing is intended to provide a broad overview of our existing tax structure as well as discuss concerns with implementing and administering a tax on services. As an informational hearing, the committee does NOT plan to vote on SB 993 on August 8. Additional informational hearings may be scheduled during the legislative recess in Northern and Southern California. We will keep members apprised of related developments and will continue to lead efforts to stop this tax increase of tens of billions of dollars a year which would hurt working families by causing less economic growth, lower wages, and fewer jobs.
The other bill we’re keeping a close eye on is SB 623 (Monning), which would provide a monthly assessment on every water user in California. The legislation would create the Safe Drinking Water Account to provide grants and loans to water entities located in disadvantaged communities to clean up contaminated groundwater. The assessment would be $10 a year for residential customers and would not exceed $12 a month on commercial and industrial customers.
The bill also would includes an assessment on fertilizer and animal agriculture to address nitrate contamination but provides agricultural interests participating in the program a safe harbor from enforcement by the Water Resources Control Board. Many in agriculture are supporting the assessment due to aggressive enforcement actions being implemented by the current Water Board but many water districts oppose it because of the cost.
Apart from the spirited farewell speech from former Senator Josh Newman, who was recalled in the primary election last week, the days of vigorous debate and floor fights appear to be over in the deep blue California Legislature. Of the hundreds of bills that reached the Senate and Assembly Floors for the House of Origin deadline on June 1, only 16 bills in total were not passed. Five bills were held in the Senate and 11 in the Assembly.
However, among the handful of bills that were defeated, we are pleased to report that as a part of an employer coalition, FBA advocates were able to stop several bills that would have been horrible for family businesses. Among them was AB 2613 (Reyes) that would have imposed Labor Code penalties for wage statement violations in addition to the penalties already available under the Private Attorney General Act (PAGA), regardless of whether or not the violation was intentional.
Also defeated by the coalition was AB 2946 (Kalra), which would have extended from six months to three years the time a worker would have to allege they have been discharged or otherwise discriminated against and file a complaint with the Division of Labor Standards Enforcement. Furthermore, the bill would require a one-sided plaintiff attorney’s fee provision that would have incentivized further frivolous litigation against California employers.
These successes build on earlier accomplishments when several bills opposed by FBA were held in committee. Most notably, SB 993 (Hertzberg), which would place a sales tax on services, was held in committee without a vote. FBA Treasurer/Secretary Grant Deary testified in opposition last month. There will be a series of hearings on the bill and the concept of imposing sales taxes on services later in the year.
Additionally, AB 2841 (Gonzalez-Fletcher) would have extended the number of paid sick days employers are required to provide from 3 days to 5 days. Also held on the Suspense File was AB 2069 (Bonta), which would have declared the medical use of cannabis by an employee is subject to “reasonable accommodation.”
Of the bills that did pass through to the second house, a priority bill for FBA to significantly amend or kill is AB 1867 (Reyes), which is set to be heard in the Senate Labor & Industrial Relations Committee in a few days. For employers with more than 50 employees, this bill would more than triple the current requirement for keeping employee personnel documents relating to harassment complaints by extending the retention requirement to 10 years. This will overburden employers who are already inundated with contradictory and confusing retention requirements. Not only is AB 1867 burdensome, but also it is unclear because the term “complaint” is not defined. Is the employer required to document that discussion and retain it for 10 years? Without clarifying language, AB 1867 leaves employers guessing as to what is exactly required of them.
Workforce development has been a priority for FBA and the first half of the session provided several wins. The budget, which will be passed later this week, includes $314 million for Career Technical Education and workforce development. In a major policy shift to make these programs better aligned with industry and career focused, half the funds will be allocated to K-12 education but distributed through the Community Colleges Workforce Development system. The other half will be allocated through the Incentive Grant System at Department of Education.
The remining $14 million will be used to hire and coordinate with industry professionals to better align the instruction statewide. In addition, AB 1743 (O’Donnell) has obtained bipartisan support to reform the Career Technical Education Incentive Grant program. FBA has been integral in both of these actions and will be finalizing their success later this year.
FBA Government Affairs Chair Grant Deary testified last week before the Senate Governance and Finance Committee in opposition to SB 993 (Hertzberg). The bill would impose a 3 percent tax on professional services purchased by businesses in exchange for a 2 percent reduction in the statewide sales and use tax. The bill has already been given the “job-killer” label by the California Chamber of Chamber due to tremendous impact it would have on all businesses in California.
Deary, who of nearly 50 speakers in opposition to the bill was the only business owner, testified on behalf of the FBA and discussed the specific impact on family businesses that may contract out professional services at a higher rate since several may not have the in-house expertise of multinational firms or to reduce needs for capital. In addition, he made reference to the challenges that firms like his, Nor-Cal Beverage, may have in apportioning the tax on contracts that contain both a good, that is untaxed, and a service, that may be taxed. This will increase tax liability and the entire bill will have significant compliance costs to family businesses.
While proponents argue that this service tax would only “target high-end services” — such as lawyers or accountants — these services are a part of doing business and the definitions in the bill of “qualified businesses” are broad. The result of any tax increase means increased costs for customers or businesses paying the difference. While the measure does include some exemptions including utilities, equipment, and machinery repair, as well as services necessary in food production, the result will still be higher costs. SB 993 also creates confusion for multistate businesses because the service tax only applies to services received in California. Additionally, all businesses will have increased costs of compliance attempting to understand and implement the tax requirements.
The hearing, which lasted nearly two hours and included robust discussion on all sides of the issue, was the first in a series of hearings intended to hear feedback on the proposed bill. The next hearing will take place on June 13.
FBA is earning the respect of business allies and opponents in the never-ending struggle to enact pro-business legislation and defeat bills that would make it even harder to do business in California, the Association’s lobbyists told FBA members on May 2 during the sixth annual Family Business Day event.
“We’re now getting called by the state Chamber of Commerce to ask us to testify on their bills,” Dennis Albiani told about 70 members and guests at the afternoon conference in downtown Sacramento. “There is a brand that family businesses have and that’s a nice dynamic.”
Albiani and fellow lobbyist Faith Lane Borges said FBA is focused on several key issues this year:
• Continuing our leadership role to prevent a state inheritance tax from being enacted.
• Fighting proposals to weaken Proposition 13 and enact a split roll that would allow business properties to be reassessed more frequently.
• Regulatory relief.
• And supporting workforce development.
So far this year, FBA leaders and lobbyists have held 15 one-on-one meetings with lawmakers, building relationships that are essential educating lawmakers about the impacts on family businesses.
Albiani and Lane updated attendees about key bills that are still pending this year.
FBA opposes numerous bills, including ACA 22, which would more than double the state’s corporate tax rate; SB 993, which would impose a tax on most services purchased by businesses; SB 1284, which would require employers to report wages paid to employees to the state, which could be used to subject businesses to unfair criticism and litigation; and AB 2841 that would expand the number of paid sick days from three to five, while allowing local governments to adopt more stringent requirements.
The Association supports a number of bills as well, including AB 1743, which would continue funding for career technical education, and AB 2023, which would make the child care tax credit refundable, meaning more working families could benefit from a tax refund.
Martin Wilson
Martin Wilson, the executive vice president and chief political strategist for the state Chamber, walked attendees through a number of statewide and legislative races taking place this year, including the race to replace Gov. Jerry Brown, where Democratic Lt. Gov. Gavin Newsom is almost certain to be one of the top-two vote-getters in June but the second finalist could be a Democrat as well.
“Newsom’s support of split roll and imposing a services tax on business people should be very worrisome to you,” Wilson told attendees.
He also said polling clearly shows that Californians are generally liberal but still have a conservative bent on many issues. He said the major issues voters identified were immigration, the economy, politics and corruption, and taxes. They are not hearing enough from candidates about crime, job creation, building more highways, and keeping energy costs low – but are hearing too much about making California a sanctuary state for undocumented immigrants.
“The gas tax increase is very unpopular,” he noted.
Sam Shane
Also speaking was former TV anchorman Sam Shane, who now consults with businesses on communication strategies. He urged businesses to ensure their websites were informative and up to date since a majority of consumers visit them to find out more about a company for making a purchase.
In addition, he said it’s more important than ever to use video online and in social media. Research shows that 90 percent of shoppers find video helpful in making buying decisions and Internet video now makes up 79 percent of global consumer Internet traffic.
With cell phones and computers, businesses have the tools they need to produce quality videos in-house or by hiring a firm to assist. He said it was particularly important to make sure website and video are professional and attractive because unattractive content can chase customers away.
Ken Monroe, Mark Haney, Carol Burger, and Corrie Nichols Davis
New this year was a panel discussion moderated by FBA Chair Ken Monroe that featured Carol Burger, owner of Burger Rehabilitation Services; Corrie Nichols Davis, managing partner and chair of Gorrill Ranch; and serial entrepreneur Mark Haney who now specializes in helping Saramento-area entrepreneurs discussing how they survive in California.
Davis, whose family has owned its farming operation for four generations, said one thing business owners should do is build relationships with regulators, so you can educate them about how regulations affect your business and work with them to come up with solutions that achieve the goal without significantly harming your operations.
Haney said lawmakers should relax tough overtime laws that even employees think are too restrictive and instead give employers more flexibility.
Asm. Frank Bigelow, FBA CEO Robert Rivinius, and Asm. Steven Choi at reception.
And Burger said business owners should engage in lobbying. “When you go in and start complaining, they’ve heard that before but they don’t know what to do to solve the problem. The hard part is telling them ‘this is what I need.’ The answers are complex and you really need to have a plan for what you need.”
At one point, Monroe quipped, “So what you’re saying is in spite of these guys across the street (in the Capitol), we’re going to be successful.”
State Sen. Ted Gaines – an FBA member – wrapped up the session with a few insights about activity in the Legislature.
The day concluded with a legislative reception that featured a number of lawmakers in attendance.
