Minimum wage issue stirs mixed reactions

Major cities across the country are discussing the minimum wage.  The City of Los Angeles joined the growing list approving an annual wage increase from the current state minimum of $9.00 per hour to $15.00 per hour effective July 1, 2020. 

The Los Angeles Board of Supervisors adopted a similar proposal for the unincorporated areas of the County but gave small businesses until 2022 to meet the $15.00 per hour minimum.  They also created a task force to recommend a package of initiatives to help small businesses with tax credits, reductions in the cost of permitting or business licenses fees, and streamlined permitting.

While any reasonable person knows that the minimum wage needs to incrementally increase, at least to keep pace with inflation, the current proposals have raised many questions and complexities.  To begin a regional discussion, the San Gabriel Valley Economic Partnership recently held a forum for advocates and opponents of the minimum wage increase to offer their perspectives.

Peter Dreier, E.P. Clapp Distinguished Professor of Politics and Urban & Environmental Policy at Occidental College, described the plight of the working poor.  There are three million people living in poverty in LA County.  This is a drag on the economy.  Professor Dreier believes that increased wages will move people out of poverty.  With additional money to spend, minimum wage could mean increased revenues for local businesses.

Ruben Gonzalez, Senior Vice President of the Los Angeles Area Chamber of Commerce, quoted H.L. Menken in describing the Chamber’s perspective on minimum wage - “For every complex problem there is a clear, simple and wrong answer.”  Calling minimum wage increases the politically easy answer; he believes the way to move people out of poverty lies in education and training.  

Michael Hawkins, Founding Partner of Green Street Restaurant in Pasadena, asked elected officials to remember that decisions made by governments have real life impacts on people.  He gave a real life example.  Based on his existing staffing level, his payroll, income tax and worker’s compensation tax would increase by just over $1 million if the minimum wage rises to $15.00 in 2020.  That doesn’t take into account increasing costs he may experience from suppliers who have minimum wage impacts on their bottom lines.  He doesn’t see how his revenues can keep-up even if he increases prices. That could mean fewer jobs, reduced benefits, or even closing the restaurant.

Dr. Mark Maier, Professor of Economics at Glendale Community College, supports increasing the minimum wage but believes that it needs to be at a regional level.  While the panelists didn’t agree on many things, everyone admitted it is a big problem having a patchwork of minimum wage rates across an economic region.  It’s disruptive to competition and confusing to employers, employees and consumers alike.

Some audience members were concerned about the impact on non-profits.  Non-profits can’t raise prices.  Fundraising is difficult especially for existing services.  Many believe reducing services to clients could be the only option.

Warren Buffet recently penned an article in the Wall Street Journal saying that the best means to provide a livable income for those working below the poverty line is to expand the federal Earned Income Tax Credit.  He argues it could provide everyone willing to work an income that provides a decent standard of living without distorting the market system.

Are current proposals to raise minimum wages 66 percent over five years too much too fast?  Is it a necessary moral response to wage stagnation and economic inequality? Will it reduce poverty or reduce jobs?  Will it hurt the economy or help the economy? Are there better ways to reach the same goal?  Difficult questions.  Few answers.

Groundwater management needed during a drought

Managing water in California is no small task.  State legislators took a major step with the enactment of the 2014 Sustainable Groundwater Management Act. Prior to this Act, there were no comprehensive regulations governing groundwater in California.  Individual court decisions provided the only governing rules.

While much of the public attention related to water supply has been focused on the depth of the snow cap and the conditions on the Colorado River, local groundwater typically provides approximately 38 percent of the state’s water.  The State Department of Water Resources has identified 515 alluvial groundwater basins and sub-basins which provide this important water source.

The courts have adjudicated 22 of these basins - 20 in Southern California.  Where there are multiple users and development or other pressures have threatened to overwhelm the limits of the water supply in the basin, courts have been asked to establish rules determining the pumping rights of each user.

Adjudication takes years, even decades, as court must unravel established practices and water rights.  After adjudication, the court usually appoints a water master to make sure that going forward the court imposed limits are adhered to by all users having rights in the basin.

In non-adjudicated basins, the courts have upheld landowners “overlaying rights” – the right to extract and use water from the groundwater basin beneath their lands - as long as the water is used only on the land directly above the basin.  Of course, not everyone owns land over a basin but may still have a right to pump water.  So-called “appropriative rights” allow these owners to pump water for use on land not located above the basin or sell it to other customers.

But it isn’t just where your land is, it is also when you can show a chain of title to the land. Riparian rights - land abutting a waterway - that are pre-1914 are senior rights. 

This all works fine when there is plenty of water but when there is a drought, things quickly become complicated.   Disputes trudge through the courts.  Holders of “overlaying rights” and “senior rights” generally win leaving “appropriative rights” and later rights holders and their water uses high and dry. 

During the drought groundwater pumping around the state has increased to an unprecedented level with devastating results.  In some areas over pumping has caused land to sink at an alarming rate - as much as one foot per year. This is an irreversible condition.  The inequities of the current system were apparent.  The need for better groundwater management was clear. 

The new regulations require that non-adjudicated basins form local “groundwater sustainability agencies” (GSA).  Each GSA must measure how much water is being pumped in its basin, estimate future demands, and develop a plan that protects the basin from over-pumping.  If the basin is in a critical condition because of over-pumping, a plan must be completed within five to seven years.  If the basin is not endangered, a GSA may be given up to twenty years to complete its plan. If a plan is not completed on schedule, the state may intervene to impose its own plan.

Every person and business needs water.  Until the Legislature acted, California was one of the few western states that did not have a comprehensive statutory framework for groundwater management.  There remains much more to do and additional legislation will be needed as the plans are developed but this is a great first step to protect California’s future water supplies.

Business launch can be aided by crowdfunding

Have a great idea for a new product? Maybe you figured out how to make a cheaper phone or tastier pizza or even a better mousetrap. Perhaps you have a new service in mind that you are sure everyone is going to want to buy.

There are a lot of things you need to pull together before you start - a business plan, customer analysis, production and capacity contingencies - and don’t forget money.  You are going to need some money. 

Often traditional funding institutions aren’t as excited as a new entrepreneur is about that great idea. So many entrepreneurs are shifting the task of raising capital into their own hands by utilizing crowdfunding. 

Crowdfunding involves raising funds directly from a large number of people - friends, family and strangers - then using the money to launch your business. The internet is the preferred means for contacting the potential funding sources and telling them about your new project.

If you think this must just be for small players or is a passing fad, think again. According to the 2015 Crowdfunding Industry Report prepared by Crowdsourcing.org, a professional industry organization serving crowdsourcing and crowdfunding entities, crowdfunding “experienced accelerated growth in 2013, expanding by 167 percent to reach $16.2 billion raised, up from $6.1 billion in 2013.  In 2015 the industry is set to more than double once again.”

Crowdfunding can be structured in different ways. The vast majority - over 68 percent - is debt based, in other words, receiving a loan that you have to repay. But crowdfunding can also be reward-based with investors not expecting to be repaid directly but instead opting to be the first to receive your new product or service.

In 2012 the passage of the Jumpstart our Business Startups (JOBS) Act opened the door for equity participation allowing crowdfunders to become shareholders in your company.

You need to consider all your options before jumping on the crowdfunding bandwagon.  If your project doesn’t attract investors or customers, it is unlikely that you can later turn to traditional funding sources.  Banks and venture capitalist (VC) will be leery of the marketability of your great idea if crowdfunding fails.

On the plus side, if you attract a lot of interest with early crowdfunding, it will serve as validation of your idea when you need more capital from a bank or VC.

Reward based crowdfunding may sound like the best option. You get to keep all the equity in your company and the crowd funders share the risk. Crowdfunding can have tax implications. You are receiving income that may be taxable. Laws vary state by state so do your homework before starting out and taking any money.

The Small Business Development Center (SBDC) cautions that “no one like to be the first to a party.” Contributors will be hesitant to commit their dollars until you have reached about 30 percent of your stated goal. That means finding other sources up front - friends, family and selling the second car may all be part of the funding plan.

Don’t confuse crowdfunding with pennies from heaven. It is hard work. Don’t expect to do this in your spare time. You are introducing your idea to your future funders, customers, and competitors. Crowdfunding is a full-time commitment.

With the right plan and preparation, crowdfunding just may be the answer to funding your dream.

California Roads and Bridges are Hurting

California has the worst roads in the nation. The Road Information Program (TRIP), a national transportation research group, released a study in July on pavement conditions in large and mid-size urban areas ranking 25 of each size area which have the worst roads.

First on the large urban area list is San Francisco-Oakland with 74 percent of the roads in poor condition.  A close second is Los Angeles-Long Beach-Santa Ana with 73 percent of the roads in poor condition.  San Jose is 4th (53%), Riverside-San Bernardino 14th (46%) and Sacramento 24th (42%).  Six California cities - Antioch, Santa Rose, Temecula, Hemet, Stockton, Modesto and Oxnard - made the list of 25 mid-size urban areas with poor roads. 

And it’s not just roads.  Transportation for America ranks California as being the 18th worst state for bridge repairs.  Of the 24,542 bridges that are elements of California’s roads and highways, 12.8 percent or over 3,000 bridges are structurally deficient. 

So it is pretty clear we have a problem. Caltrans estimates the state has a $59 billion backlog while cities and counties have an additional $78 billion maintenance backlog..

If all these numbers only bore you, the collapse of the bridge on Interstate 10 near the Arizona border during a rain storm should serve as a wakeup call.  Bridges should not fall down because of rain storms.

You may wonder how we got in this predicament.  There are many reasons.  During a recession the politically easiest way to cut down spending is by deferring maintenance and repair so the transportation system went wanting.  Gas tax revenues - the traditional funding source for roads and bridges - are shrinking due to fuel efficient and alternative fuel vehicles.  And transportation funds have been diverted for other purposes.

As soon as the current state budget was passed, which didn’t include any new funding for road or bridge repairs, the Governor called a special session of the Legislature “To consider and act upon legislation necessary to enact pay-as-you-go, permanent and sustainable funding to adequately and responsibly maintain and repair the state’s transportation and other critical infrastructure…”

That includes finding money without resorting to borrowing. No easy task. The Legislature has not reached an agreement on where to find this funding - some $6 billion per year.  The sources being discussed include both existing ones such as cap-and trade funds and vehicle weight fees and new ones such as increasing the gas tax, diesel fuel tax, vehicle registration fees, vehicle weight fees and a new fee on clean fuel vehicles that don’t pay gas taxes.

The final legislation will most likely include something for everyone to like - the promise of safer, smoother roads - and something for everyone to dislike - new taxes and fees to pay for them.

If we don’t fix our roads and bridges, we will “save” on repair costs. However, poorly maintained highways and bridges raise vehicle maintenance costs, contribute to accidents, and slow down commerce. We “pay” for poorly maintained roads with increased vehicle operating costs, increased insurance costs, and higher prices for goods and services.  You know the lesson: pay me now or pay me later.