Campaigns are by nature unpredictable, with issues and candidates thrust into the spotlight seemingly without notice. Earlier this week, Minnesota’s hospitality industry found itself in the middle of the race to replace Gov. Tim Pawlenty. By now I am sure that many, if not all, of you know that during a campaign stop in St. Paul, GOP-endorsed candidate Tom Emmer found himself discussing the issue of tip credit. (Click here for a July 5 article from the Star Tribune and here for a July 6 article from Minnesota Public Radio which depict how the issue has been covered by Twin Cities media). Although as an industry we appreciate the opportunity and attention being paid to the slim-margins we operate on each and every day, the manner in which the issue has been presented has caused the general public to be inundated with a great deal of misinformation.

I spent a great deal of time this week fielding calls from restaurateurs around the state seeking clarification on the required wages for servers and other employees. We have also, through conversations with the media and policymakers, sought to clarify the facts and tell the tip credit story.

As part of a broader discussion of how to best grow Minnesota’s economy, we welcome the opportunity to discuss the issue of tip credit. Our approach has always been to find a “go-forward” solution that does not incorporate take-backs or reductions. Instead, as demonstrated in our Super Wage proposal in 2009, we have sought legislation to level the playing field for all restaurant employees through the creation of a super wage for tipped employees. Click here for our Super Wage issue briefing provided to lawmakers during the 2010 legislative session.

In the midst of the hotly contested race for Governor, it is likely that this issue will gather attention for some time to come. Gubernatorial Candidate Margaret Anderson Kelliher has now seized on this issue and is proposing an increase in the state’s minimum wage. Read her proposal here. Emmer has arranged for a meeting with servers to discuss the issue, covered here.

The Association issued this minimum wage / tip credit statement to help clarify the issue:

WE DO NOT ADVOCATE A PAY CUT
First, we want to make it clear that the industry has never advocated for pay cuts. Our position for more than two decades of seeking to accomplish a tip credit has always been a going forward position. In other words, when the minimum wage increases in the future, Minnesota law should allow servers to continue to make what they are presently making, and not subject them to the increase. To be clear, our industry has not advocated reducing server pay at all.

INTERPLAY BETWEEN FEDERAL AND STATE LAW
Second, there is a great deal of confusion as to the present rate of pay for servers. In the interplay between state and federal law, the statute that most benefits the employee applies. Federal law says that any restaurant that is grossing above $500,000 per year annually is subject to federal standards. Today, while Minnesota’s minimum wage is $6.15 per hour, the federal minimum wage is $7.25 per hour. Thus, any restaurant grossing more than $500,000 per year annually or whose employees are engaged in interstate commerce is required to pay its servers $7.25 per hour. This covers the vast majority of servers in our state. For those restaurants performing at less than $500,000 per year and whose employees are not engaged in interstate commerce, the Minnesota minimum wage for smaller operations applies, which is $5.25 per hour. Most restaurants in Minnesota gross at least $500,000 per year or have employees engaged in interstate commerce, thus the higher $7.25 wage applies to the vast majority of servers in Minnesota.

WHY IS THIS SUCH A BIG ISSUE WITH RESTAURANTS?
There are a few key reasons why this is such a passionate issue for restaurant owners. Because Minnesota statute does not allow for a tip credit (the use of tip income to offset minimum wage), when either the federal or state government mandates a minimum wage increase, the restaurateur is forced to pay what are often the highest paid employees in her or his establishment a higher base wage. This uses up whatever available capital the restaurant has that might pay raises for back-of-the-house cooks, bussers and dishwashers. It does so without even providing an opportunity for the owner and his or her staff to have a conversation about compensation. Thus, minimum wage increases without tip credit create huge disparity between front-of-the-house and back-of-the-house.

Second, tipped employees work for tips and have the opportunity to function as their own entrepreneurs. The restaurant operator provides the facility, the cooks and support staff, designs the menu, provides the ambiance, advertises the business, pays for the light and heat, buys the point of sale system. This creates the opportunity for servers to make substantial income. For the restaurateur to continue to provide this opportunity, reinvest in the facility, offer benefits, and grow, he or she needs economics that work.

Third, tips ARE wages. One of the injustices of present law is that even though their customers give tips to servers, employers must still pay FICA (social security tax) and unemployment compensation taxes on these gratuities. Tips are considered wages for purposes of Social Security (FICA), Federal Department of Labor, Federal Unemployment Taxes (FUTA), Internal Revenue Service, Minnesota Workers’ Compensation, Minnesota Unemployment Compensation (SUTA) and the Minnesota Department of Revenue. The only instance in which tips are not considered wages is by the state when determining minimum wage compensation

MINNESOTA RESTAURANTS WANT TO CREATE JOBS
Minnesota restaurant owners want nothing more than to create quality jobs and grow their operations, while serving their customers well. These are extraordinarily difficult times and it appears it will be years before restaurant traffic returns to previous highs. Restaurant owners need the flexibility to work with their employees to create productive work environments. Going forward, as the minimum wage increases, restaurant operators seek the reasonable provision to continue paying servers what they presently make, while ensuring that they make the minimum wage at all times.

David Siegel, CAE, IOM
Minnesota Restaurant, Lodging and Resort & Campground Associations and Hospitality Minnesota

Sen. Ken Kelash and Eric Sandrock, American Burger Bar, Visit on Issues

We wanted to recognize and thank Senator Ken Kelash, DFL-Minneapolis, for stopping by our Minnesota Restaurant Association Peer to Peer mixer at Woolley’s Restaurant in Bloomington. The event was an informal gathering of area restaurant operators, and Senator Kelash took the opportunity to visit with members of the industry.

Several restaurant operators shared with the Senator the challenges they continue to face in this economy and their hopes for more positive signs in the future.

David Siegel, CAE, IOM
Minnesota Restaurant, Lodging and Resort & Campground Associations and Hospitality Minnesota

I have seen several other recent references to vacation home rentals. Here’s what Ewoldt suggests: “Thanks to the recession, more second home owners have discovered that renting our their cabins, lake homes, condos and townhouses can make a second mortgage pay for itself.”

We argue the same and it is for this reason that the Minnesota Resort & Campground Association and Minnesota Lodging Association have for several years now pushed to have these properties regulated in the same manner as resorts, hotels and other licensed lodging facilities. The Minnesota Department of Health does have basic authority to license such facilities, but clarity in language would be helpful.

In the meantime, if you know of a vacation home being rented to the general public on a fairly consistent basis, please tell Gary Edwards, Minnesota Department of Health, (651) 201-4513, gary.edwards@state.mn.us.

David Siegel, CAE, IOM
Minnesota Restaurant, Lodging and Resort & Campground Associations and Hospitality Minnesota

Rep. John Kline describes the mood of the electorate as he campaigns

The Minnesota Restaurant Association attended a fundraising event for Congressman John Kline yesterday.  Kline said Republican candidates across the country are working very hard at getting elected in the upcoming fall elections.

Kline talked about key current issues such as the war in Afghanistan, health care reform, immigration reform and the gulf oil spill.

The Minnesota Restaurant Association and National Restaurant Association have long supported Congressman Kline and are appreciative of his pro-business views and track record.

David Siegel, CAE, IOM
Minnesota Restaurant, Lodging and Resort & Campground Associations and Hospitality Minnesota

Voters were asked that if the primary election were held today, which DFL candidate they would support to face Republican Tom Emmer and the endorsed Independence Party candidate, Tom Horner. The same poll showed Dayton as the only DFL candidate capable of beating Tom Emmer, the Republican candidate. The poll had a 500 sample size and a 4.5 percent margin of error.

I have been saying for more than a month that likely to win the DFL primary. Here are my reasons: First, Dayton knows how to craft a simple and effective message and stay on task. Second, he appeals to the senior voters. This is important because we’ve moved the primary one month earlier to August, and seniors will be among the most likely to vote. Senior also like Dayton for his earlier work on the cost of prescription drugs. Third, he brings tremendous personal resources to the campaign. Money isn’t everything, but it means a great deal in politics these days, and Dayton has the money to get out his message.

Of course, I thought R. T. Rybak would gain the DFL endorsement and Marty Seiffert would win the Republican endorsement, so what do I know?

On the other side of the aisle, it seems almost assured that Rep. Tom Emmer will take the Republican primary. He is a formidable candidate with tremendous passion and a strong vision for change in Minnesota. While Dayton, Kelliher and Entenza have all publicly supported tax increases as a major piece of solving our state’s budget shortfall, Emmer has not. He has talked much more about reforming government and restructuring the delivery of our services.

For political watchers, this is quite a time.

David Siegel, CAE, IOM
Minnesota Restaurant, Lodging and Resort & Campground Associations and Hospitality Minnesota

The issue, as raised by the Fire Department, is that some of the cleaning companies aren’t doing an adequate job. The inspection fee was established to require the cleaning companies to take digital pictures of each cleaning job and provide those in order for the permit to be validated. We understand the issue. Our problem is that restaurants are now facing a minimum $130 cleaning permit fee in Minneapolis each time they have a hood cleaned. This amounts to a disincentive to hood cleaning.

Our approach would suggest a different strategy – have the fire department conduct periodic inspections of work done by the cleaning companies (they license them and know who they are, after all). Eliminate the $130 per cleaning fee and instead, charge a penalty of the cleaning company if the work completed is inadequate.

We have been working behind the scenes with various Minneapolis City Council members to try and achieve these changes, or at least, gain a reconsideration of the current ordinance. But in the midst of this effort, Heidi’s Restaurant in Minneapolis went up in flames due to what is reported as a hood fire, and in another tragic incident, members of a family were killed when the apartment in which they were staying went up in flames, also destroying a bar below. These two incidents have cast huge attention on the work of the Fire Department and getting changes to our hood cleaning permit fees, which are a projected $200,000 or more revenue generator for the department, is proving difficult.

Nonetheless, we continue to work the system. It appears there will be a more comprehensive review of the city’s fire codes in 2011. That might provide an opportunity for change. But we can’t wait that long. The hood cleaning permit fee is slated for review after one year of implementation, and we’ll be on hand seeking to eliminate (or at a minimum reduce) the fees.

We express our appreciation with the Minneapolis Area Chamber of Commerce for working with us on this important issue. If you have a relationship with any Minneapolis council members, now is the time to talk to them about this onerous fee and its impact on your business.

David Siegel, CAE, IOM
Minnesota Restaurant, Lodging and Resort & Campground Associations and Hospitality Minnesota

Our folks on the inside suggest that this is not likely to happen this year for a couple of reasons. First because Governor Pawlenty has been resolute in his opposition to tax increases. Second, because we believe DFL leadership has liquor in its sights for the coming legislative session next year, when the state faces again a huge budget shortfall and a new governor sits at the State house.

So, though it’s still too early to bring out the cheering squad, we are cautiously optimistic that we escape this session without any statewide lodging, liquor, food or beverage taxes. If we do avoid a tax consider that a tremendous victory for our industry.

What about the impact of this session regarding other areas of operation? Thus far, we’ve managed to fend off virtually all harmful legislation, and to modify those we haven’t defeated, such as ignition interlocks. We’ll be sure to provide an industry wrap up outlining the impacts of the session overall.

David Siegel, CAE, IOM
Minnesota Restaurant, Lodging and Resort & Campground Associations and Hospitality Minnesota

With just a few weeks left in the session, the legislature and Governor must now agree on a course of action. The legislature could simply ratify the cuts Pawlenty made, thereby making “legal” his previous action. The legislature could ratify some of the Governor’s unallotments, such as the $1.5 billion education shift, and then argue over other cuts to achieve a balanced budget as mandated by law. The legislature could reject all of the Governor’s actions, creating a situation in which the full deficit must be addressed with new cuts or revenue streams (and it seems unlikely that Pawlenty would support any tax increase). This ruling will likely throw this session into many late nights over the next few weeks.

To read more about the unallotments, check out the Minnesota Public Radio NewsCut Blog or MPR NewsQ.

David Siegel, CAE, IOM
Minnesota Restaurant, Lodging and Resort & Campground Associations and Hospitality Minnesota

The new taxes that were initially proposed to fund the stadium were removed from the bill, and an alternative version that captured revenue from existing Minneapolis taxes instead became the focus of the funding. The bill under consideration this morning takes entertainment, lodging and sales taxes that were first applied in Minneapolis to pay off the Minneapolis Convention Center (MCC) bonds, which generate approximately $50 million per year, and shifts a portion of them to pay off football stadium bonds ten years from now, when the MCC debt is retired. For the first 10 years, the Minnesota Vikings contribution to the project would be used to pay the debt service.

The vote was close, but ultimately it failed in Gov Ops by a 10-9 vote. The bill thus remains in the Gov Ops Committee and it appears unlikely it will get another hearing this session. At the same time, a similiar bill was heard before the Senate State and Local Government Operations and Oversight Committee, chaired by Senator Ann Rest.

John Luke, General Manager of the Hilton Hotel Minneapolis, was among those to testify in support of the bill on behalf  of Hospitality Minnesota and its three Associations. The City of Minneapolis expressed concerns with the bill, as it has designs on the funds that will become available once the MCC bonds are retired. The city would like to use the money for convention center renovation, capital improvements, the Target Center and perhaps other projects.

With the stadium action over the past few days, it appears the issue will not be resolved this session. It will have to be resolved next session as the Vikings lease at the Metrodome expires and they will not re-sign there.

As these two hearings were being conducted, the Minnesota Supreme Court handed down a ruling regarding Governor Palwenty’s unallottment last year of $2.7 billion. The court ruled 4-3 that the Governor had overstepped his authority with regard to one particular unallotment, which calls into question the legality of the remaining unallottments. More in my next post.

David Siegel, CAE, IOM
Minnesota Restaurant, Lodging and Resort & Campground Associations and Hospitality Minnesota

Key issues we discussed included food safety (H.R. 2749 and S. 510); Restaurant Depreciation (H.R. 4306); Business Meal Deductiion (H.R. 3333 and S. 2905); Interchange Fees (H.R. 2382, H.R. 2695 and S. 1212) and Paid Sick Leave.

The general consensus among the delegation was that Paid Sick Leave will not move this year. Democrats and Republicans alike are loathe to consider any legislation that might have a negative impact on jobs, and mandating paid sick leave is recognized as one issue that would likely result in job loss. Several key speakers also suggested that the “Card Check” legislation, otherwise known as Employee Free Choice Act, will not see movement in the near future. But they cautioned that the industry needs to remain vigilant.

Food safety will likely be taken up by the Senate in the next few weeks and can have a major impact on our industry. The National Restaurant Association is deeply engaged in the discussion and we support efforts to improve the safety of products that are purchased by restaurants.

David Siegel, CAE, IOM
Minnesota Restaurant, Lodging and Resort & Campground Associations and Hospitality Minnesota