Regulatory Uncertainty in the Obama Administration: Part III

Source: Adapted from the Heritage Foundation, BEA, Yahoo! Finance

So far, I have published two articles showing examples of how the Obama administration’s policy uncertainty has had a negative effect on the economic recovery. In the first piece, I showed four high level examples of how Obama administration policies have negatively impacted the economic recovery. In the second  piece, I noted that private sector growth sharply decelerated following the passage of the Patient Protection and Affordable Care Act (PPACA) of 2010.

The macroeconomic, top-down analysis of the second article did not convince some readers that the passage of the PPACA had a negative impact on job growth. This article takes a bottoms-up approach, by reviewing Congressional testimony about the impact of the PPACA on business owners.

Andrew F. Puzder, CEO of CKE Restaurants Inc.

CKE is a restaurant company that owns or franchises ~3,200 restaurants in 42 states and 23 foreign countries. It directly or indirectly accounts for about 70,000 jobs in the United States. The company owns and operates the popular Carl’s Jr. and Hardee’s restaurants.

The CEO believes several provisions of the PPACA will leave “nothing for growth and job creation.” Below are a few comments from his testimony:

  • CKE estimates an $18 million increase in health care coverage costs would “completely consume the $8.8 million” the company spent “on new restaurant construction last year, leaving nothing for growth and job creation.”
  • “Another option to make up the gap between what we currently spend on health care and what we would spend under the PPACA would be to reduce our labor force.”
  • “It is important to note that the PPACA explicitly makes labor more expensive. It is completely predictable that businesses such as ours will search for ways to take jobs out of our existing restaurants to reduce that expense.”
  • “We would undoubtedly increase the number of part-time employees; decrease the number of full-time employees and attempt to automate positions (such as replacing cashier positions with ordering kiosks).”
  • “These are not actions we would choose to take. They are actions the PPACA will all but compel us to take.”
  • “When I encourage franchisees to build new restaurants, I often hear about the uncertainties they face in deciding whether to make an investment. They speak of uncertainty with respect to future tax rates, energy, labor and commodity costs among other things. However, they prominently mention the certainty that under the PPACA their health care cost are going to significantly increase. In fact, they express concern that they will be unable to keep their current restaurants open, let alone open new ones.”

H. Grady Payne, CEO of Conner Industries, Inc.

Connor Industries is a Texas-based, low margin, commodity business with 450 employees and eleven plant locations.  Below are some highlights from his commentary:

  • “The impact of this law will cost our company $1,000,000 or more no matter which option we choose.”
  • “As the law stands now, our thirty-year business and the jobs of 450 employees are at risk of being legislated out of existence.”
  • “Our current capital expansion and business development plans are stopped and will continue to be halted by this law because expansion and hiring require cash.”
  • “Our goals turn from ‘hire-and-grow’ to ‘cut-and-survive.'”

Victoria J. Braden, President and CEO Braden Benefits Strategies, Inc.

Braden Benefits Strategies is a Georgia-based company that advises small businesses on employee benefits, specifically group health insurance. At its height, the company employed ~6-7 people. Below are some highlights from her commentary:

  • “On March 24th, the day after PPACA passed, I made sweeping changes in my business in anticipation of the cost of the new law.”
  • “I eliminated our expansion into individual health insurance, and terminated the full-time person. The lost revenue from the sales we already had will be $35,000 annually. I also terminated a part-time claims administrator. In January 2011, I terminated the part-time accountant.”
  • “PPACA is devastating to my business, expensive for me and my clients to administer, and works against our goals of helping businesses to expand, and putting more people back to work.”
  • “Under the current law, my business will cease to exist at the end of 2013 as the services it provides will no longer be necessary to the small business owner. At this time the remaining 2 of my 3 employees will be terminated and I will operate my company as a sole proprietor for 12 to 18 months.”

J. Michael Brewer, President, Lockton Companies, LLC

Lockton is a Missouri-based privately held insurance brokerage and consulting firm with 2,300 associates in 24 offices nationwide. Lockton consults with clients (“middle market” employers, employing between 500 and 2,000 employees) on group medical plans, and other insurance programs. Below are some highlights from his commentary:

  • “[A] full 80 percent of our clients said, in responding to a recent survey we conducted, that they were concerned or very concerned about the additional administrative complexity created by the PPACA.”
  • “Our clients…are concerned that the additional costs and headaches will limit corporate growth and in some cases cause a loss of full-time employment, or an outright reduction in jobs.”
  • “‘It is a job killer.'”
  • “A full 17 percent of our survey respondents said they would work to avoid ‘play or pay’ penalties by substituting more part-time employees for full-time workers.”
  • “[Restaurant/Retail/Hospitality/Entertainment Employers], and clients like them who employ a large number of full-time, relatively low paid hourly workers who are not receiving an offer of robust health coverage today, tell us they have but one option: eliminate large numbers of full-time positions. By making full-time employees part-time, the employees are removed from the penalty equation.”

Will Morey, President of Morey’s Piers

Morey’s Piers is a New Jersey-based amusement park that employs ~100 full-time associates and over 1,500 seasonal workers.

  • “PPACA may force businesses like mine to provide health insurance to seasonal workers. This would lead to an immediate loss of jobs, including full-time positions, due to decreased profitability and reduced attraction investment levels, leading to fewer jobs in the future.
  • “Seasonal workers who are temporary and hired on a short-term basis are not ‘full-time’. Appropriate treatment of employers of seasonal workers need to be taken or seasonal businesses like mine will be severely hurt, forced to decrease both our permanent and seasonal workforce, and be impeded from making important capital reinvestment.”

A two-hour video of the July 28, 2011 Congressional hearing is included below.

Brett Parker, Vice Chairman and Chief Financial Officer, Bowlmor Lanes

In separate testimony to the House Committee on Education and the Workforce’s Subcommittee on Health, Employment, Labor and Pensions in March 2011, Brett Parker provided testimony on the impact of the PPACA on his New York-based business, which employs 532 people. Below on some highlights of his commentary:

  • “Having reviewed the new health care law, it seems probable that we will sustain a per capita cost increase on existing full-time employees of at least $2,000 per employee. These fines quickly increase over time and confound Bowlmor’s ability to invest, develop more locations, and create more jobs. As demonstrated by the chart below, the health care law may well incinerate more than $26 million that Bowlmor would have invested, as well as more than 500 jobs we could have created.”
  • “To minimize losses sustained due to this mandate, we will have to do whatever it takes to keep employees part-time, not allowing them to work 30 hours a week.”

Source: Bowlmor Lanes Congressional Testimony

The testimony above has a number of common themes. They all perceive the PPACA to increase labor costs, and that these increased costs will require them to reduce positions and/or shift full-time positions to part-time positions.

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About Sean Patrick Hazlett

Conservative clean energy crusader, national security hawk, financial analyst, engineer, and former military officer.
This entry was posted in Business, Clean Energy, Clean Tech, Finance and Economics, Healthcare, Media, Nuclear Power, Policy, Politics, Taxes, Technology, Unions, Wind and tagged , , , , , . Bookmark the permalink.

10 Responses to Regulatory Uncertainty in the Obama Administration: Part III

  1. This is like the Church saying that you can tell Galileo was wrong because the Pope said so.

    These folks are Republican activists who don’t like stuff Republicans don’t like.

    From the FEC’s website. For Andrew Pudzer, an incomplete list:

    Non-Federal Receipts “Exempt From Limits”
    RESTORE OUR FUTURE, INC. [Romney Super-PAC]
    06/02/2011 100000.00 11931529917
    Total Soft Money: 100000.00
    RYAN, PAUL D.
    VIA RYAN FOR CONGRESS
    11/04/2010 500.00 10931827630
    CAPPS, LOIS G
    VIA FRIENDS OF LOIS CAPPS
    06/23/2009 1000.00 29992455094
    ALLEN, GEORGE
    VIA GEORGE ALLEN FOR US SENATE
    05/04/2011 500.00 11020291134
    BROWN, SCOTT P
    VIA SCOTT BROWN FOR US SENATE COMMITTEE INC
    01/18/2010 2400.00 10020333196
    AKIN, W TODD
    VIA TODD AKIN FOR SENATE
    06/30/2011 1000.00 11020282179
    ANGLE, SHARRON E
    VIA FRIENDS OF SHARRON ANGLE
    11/02/2010 500.00 11020074867
    WATSON, THOMAS C
    VIA TOM WATSON FOR CONGRESS
    10/21/2010 2400.00 10992387538
    CLAY, WILLIAM LACY JR
    VIA CLAY JR. FOR CONGRESS
    04/14/2009 500.00 29934239139
    FEINSTEIN, DIANNE
    VIA FEINSTEIN FOR SENATE
    06/01/2009 2000.00 29020252816
    BARRY, JOAN
    VIA JOAN BARRY IN CONGRESS COMMITTEE
    08/02/2004 1000.00 24962463594
    CALIFORNIA REPUBLICAN ASSEMBLY
    01/06/1998 2000.00 98033010181
    ANGLE, SHARRON E
    VIA FRIENDS OF SHARRON ANGLE
    08/20/2010 500.00 10020701260
    TALENT, JAMES MATTHES
    VIA TALENT FOR SENATE COMMITTEE
    03/28/2005 2100.00 25020173332
    03/28/2005 2100.00 25020173332
    CKE RESTAURANTS, INC. POLITICAL ACTION COMMITTEE
    08/12/2009 5000.00 10930181753
    09/07/2010 5000.00 10931403794
    CALIFORNIA REPUBLICAN PARTY
    10/15/2010 10000.00 10992385307
    COLEMAN, NORM
    VIA NORM COLEMAN FOR U S SENATE
    03/29/2002 -1000.00 22020262275
    03/29/2002 1000.00 22020262275
    03/29/2002 2000.00 22020262275
    TALENT, JAMES MATTHES
    VIA TALENT FOR SENATE COMMITTEE
    03/29/2002 1000.00 22020271387
    03/29/2002 1000.00 22020271387
    MISSOURI REPUBLICAN STATE COMMITTEE-FEDERAL
    06/30/2006 6000.00 26960270331
    10/27/2006 4000.00 27960043762
    FONG, MATTHEW K
    VIA MATT FONG U S SENATE COMMITTEE
    12/15/1997 1000.00 98020052961
    CAMPAIGN FOR WORKING FAMILIES [“A non-partisan political action committee dedicated to electing pro-family, pro-life and pro-free enterprise candidates to state and federal offices.”]
    03/20/2008 1000.00 28931216619
    CAMPAIGN FOR WORKING FAMILIES
    12/20/2007 1000.00 28990397345
    FONG, MATTHEW K
    VIA MATT FONG U S SENATE COMMITTEE
    04/19/1997 1000.00 97020083499
    BLUNT, ROY
    VIA FRIENDS OF ROY BLUNT
    03/31/2009 -2400.00 29020173149
    03/31/2009 -2400.00 29020173150
    03/31/2009 -2400.00 29020173149
    03/31/2009 2400.00 29020173149
    03/31/2009 9600.00 29020173148
    NATIONAL REPUBLICAN CONGRESSIONAL COMMITTEE CONTRIBUTIONS
    04/13/1999 500.00 99034641235
    CALIFORNIA REPUBLICAN PARTY
    10/21/2000 5000.00 20036693456
    THUNE, JOHN R
    VIA JOHN THUNE FOR SOUTH DAKOTA
    03/29/2002 1000.00 22020240752
    03/30/2002 1000.00 22020240753
    FIORINA, CARLY
    VIA CARLY FOR CALIFORNIA INC
    12/28/2009 2400.00 10020063076
    12/28/2009 2400.00 10020063076
    NATIONAL REPUBLICAN SENATORIAL COMMITTEE
    04/29/2011 30800.00 11020212468

    He’s big time enough that he threw a thousand bucks or so to his Dem Rep & Senator, so they have to return his phone calls, but he spends tens of thousands on GOP campaigns.

    Grady Payne appears to be a longtime GOP donor as well.

    The link I gave you yesterday includes a study from McCain adviser Douglas Holtz-Eakin. He’s a legit economist, presumably he did some work to get at bad things about the bill.

    But that the GOP was able to find a few non-economist GOP contributors to say that the ACA was a bad thing really doesn’t establish much.

    These quotes bring to mind the parade of horribles from this link:

    “[T]he child will become a very dominant factor in the household and might refuse perhaps to do chores before six a.m. or after seven p.m. or to perform any labor.”
    —Senator Weldon Heyburn (R-ID), in 1908, on why child labor should remain unregulated

    “I fear it may end the progress of a great country and bring its people to the level of the average European. It will furnish delicious food and add great strength to the political demagogue. It will assist in driving worthy and courageous men from public life. It will discourage and defeat the American trait of thrift. It will go a long way toward destroying American initiative and courage.”
    —Senator Daniel O. Hastings (R-DE), in 1935, listing the evils of Social Security

    “[I]t would make it practically impossible for any publisher in the United States to accept any food, drug, or cosmetic advertising without facing squarely into the doors of a jail.”
    —Federal Trade Commission Chair Ewin L. Davis, in 1935, on the dangers of empowering the Food and Drug Administration to regulate the food, drug, and cosmetic industries

    “[The Act represents] a step in the direction of Communism, bolshevism, fascism, and Nazism.”
    —The National Association of Manufacturers, in 1938, condemning a national minimum wage and guaranteed overtime pay

    “[T]his bill could prevent continued production of automobiles . . . [and] is a threat to the entire American economy and to every person in America.”
    —Lee Iacocca, executive vice president of Ford Motor Company, in 1970, on why the government shouldn’t regulate airborne contaminants that are hazardous to human health

    “The effects include serious long-term losses in domestic output and employment, heavy cost burdens on manufacturing industries, and a resultant gradual contraction of the entire industrial base. The irony of this bleak scenario is that these economic hardships are borne with no real assurance they would be balanced by a cleaner, healthier environment.”
    —The National Association of Manufacturers, in 1987, on the perils of an emissions reduction program to combat acid rain

  2. So you established that at least two of the six examples are Republicans. Most business owners likely are.

    I also don’t understand why you would lend greater credibility to an economist than a business owner. Economists don’t make hiring decisions.

    Regardless of their politics, these individuals testified under oath, that they have or will rein in hiring in response to the PPACA. They aren’t calling the legislation socialism or Nazism. They simply testify that in their experienced opinion, the bill will increase labor costs, and result in their shifting jobs to more automation, or from full time to part time.

    While I would agree that six anecdotes do not constitute overwhelming proof that the bill kills jobs, I also think the views of people who make hiring decisions should not be summarily dismissed.

    And for what it’s worth, J. Michael Brewer donated $1,000 to Democratic Senator, Chris Dodd.

  3. Here’s the leading example of policy uncertainty in the Obama era:

    If Republicans won’t listen to mainstream economic and political commentators, maybe they can listen to a conservative and hawkish Fed President when he pins the blame for the weaker economy on the political fight that took place in August, a fight that Republicans sought.

    • I completely agree that the debt ceiling fight was a classic example of policy uncertainty negatively impacting a weak economy, and I think both sides share the blame, though some sides more than others.

      Admittedly, a no-taxation pledge did not help matters for tea party purists, and probably deserves more blame than some entitlement-minded Democrats who refused spending cuts in Congress.

  4. Scott Erb says:

    I see the point and am still somewhat skeptical. I recall the auto industry complaining loudly that going to lead free gas (yes, I’m old enough to remember that) would decimate them. Then when the first mileage requirements came out, they complained about that too. The auto industry didn’t suffer from those regulations at all, it turns out. This is different, but at this time I think the real problem with the economy is that we’re in the functional equivalent of another great depression and the idea of ending it in 2010 and starting to grow again was overly optimistic. I am starting to feel a bit more bullish on 2012 though, if only because there is now so much fear of a double dip. But it’ll be a weak and slow recovery…if it happens! (Of course, there is also the issue of who pays these costs if it isn’t paid by companies…)

    • I think some of the costs of the PPACA are borne more disproporationately by some industries than others. It is no accident that companies opposing the bill most rely heavily on part-time employees (i.e., amusement parks and restaurants). In those cases, providing full healthcare for employees seems a bit much.

      On recoveries, I feel like the prospect of a double dip is more likely mainly because it is becoming a self-fulfilling prophecy (i.e., people fear a double dip; they stop spending in anticipation; we have a double dip).

  5. Pingback: Proving Obama Is a Failed President | Reflections of a Rational Republican

  6. Pingback: Grading Obama’s Presidency | Poison Your Mind

  7. Disgusted Again says:

    Once again, reflectionephemeral is exactly correct. When you’ve worked with as many people as I have, it’s easy to recognize someone’s bias in the way they make their statements. These sources, used as evidence the healthcare bill has caused regulatory uncertainty that had a major and immediate impact on private sector hiring, are very right-wing biased. Their statements even contradict your point at times (many of your sources quote very specific numbers and plans of action for being “uncertain”). I bet I can find people who swear aliens abduct them on occasion, would that be “proof” or “evidence” enough for you to believe it is a fact? The fact is companies have limited employee hours for decades to keep them from qualifying for full time benefits, long before the current healthcare bill was passed.

    • “When you’ve worked with as many people as I have, ”

      How many exactly? I thought I’d ask as this seems to be your leading argument.

      Also, do you honestly think the healthcare bill will have no impact on the cost of hiring new employees? Seriously?

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