What is the sound of bad policy? We’re hearing it now

The Lobster Pound in Lincolnville. BiBo’s Madd Apple Cafe in Portland. Black Mountain of Maine in Rumford. What do they all have in common?

They’ve all been hit with repercussions from November’s referendum questions.

The two restaurants are both closing, despite more than 100 years in business between them. It is too simplistic to lay 100 percent of the blame on Question 4’s abolition of the tipped wage, but it is naive to think it had no effect. The owners of each restaurant have nothing to gain from expressing their opinion now; we should take them at their word. The elimination of tipped wages was a factor in each business closing.

Meanwhile, Black Mountain of Maine’s decision to raise its ticket prices can be completely blamed on Question 4. Organizations — whether businesses, nonprofits, governments, or families — make plans in advance. For Black Mountain, the Board of Directors previously adopted a budget for the 2016-17 ski season. They made estimates about the cost of electricity, fuel, maintenance, and supplies.

And, as is generally the case, they planned for their largest expected cost: employees. Wages are the big driver, but you need to tack on payroll taxes, unemployment insurance, workers’ compensation insurance — the list goes on and it adds up.

They also budgeted a certain amount of revenue from lift ticket sales, based on the type of winter they expected to have, number of visits, and probably numerous other factors. And they found a way to make their budget work without any price increase on their customers.

Then came November. Once it was clear the new law would require them to pay high school kids working part time $9 an hour, they were forced to change course and raise their ticket prices.

The Lobster Pound Restaurant in Lincolnville. Micky Bedell | BDN

The Lobster Pound Restaurant in Lincolnville. Micky Bedell | BDN

These aren’t academic models filled with assumptions of economists; this is real life in Maine. And this shouldn’t be seen as a knock on Black Mountain. They made the prudent decision. It is far better to have a higher price and remain open — hiring people and providing a great experience to the community — than lose money and close. Hopefully they will continue to attract customers and succeed, but it is a fickle industry. You only have to go slightly north to Rangeley to see what happens when a ski resort’s costs outpace its customers’ ability to pay.

There are other examples with other referenda. With Question 2’s tax increase, small businesses in Maine will now pay taxes at a higher top rate than Fortune 500 companies. Didn’t see that in the commercials, did you?

Tax law is one of the most boring and complicated subjects around, yet it has a significant impact on our economy. Most small businesses file taxes under the fiction that the owners pocket all the profit. But, of course, they don’t. They use profit to build buildings or buy new equipment, continuing their trade and maybe even growing. They sock some away in a rainy day fund so they can weather an economic storm, keeping their employees working instead of going under.

So when Question 2 passed, the top tax rate for small businesses in Maine went to 10.15 percent. For Bath Iron Works, or Wal-Mart, or Bank of America? It’s less than 9 percent.

Taken together, this is why it is crucial the Legislature take a considered look at these new laws. Real economic harm can come from poorly-designed policy.

And before the cries of, “but the people voted!,” begin, let’s consider voters’ involvement with these questions. Did they have a hand in drafting it? No, that was done with lawyers paid by the advocacy organizations pushing them. Did they get an opportunity to consider alternatives? No, that door was slammed shut at the end of the last legislative session. Surely then Maine voters were the biggest financial supporters of passing these laws? Strike three; the vast majority of dollars spent to litter our roadsides and airwaves came from out of state.

Maine voters were only given a black-or-white choice on issues filled with hues of gray. If you polled them today and asked whether they want to see restaurants close or small businesses pay a higher tax rate than Nestle, they would say no to both, resoundingly.

Let’s just hope the Legislature hears it and takes action. If we wait for the sound of other business to fail, it could be too late.

Michael Cianchette

About Michael Cianchette

Michael Cianchette was the chief counsel to Gov. Paul LePage from 2012-2013 and deputy counsel from 2011-2012. A Navy reservist, he was deployed to Afghanistan from 2013-2014 as a trainer and adviser to the Afghan National Police. He is an alumnus of the Leadership Maine program and holds a BA in economics and political science from Boston College along with a JD and an MBA from Suffolk University. He works as in-house counsel and financial manager for a number of affiliated companies in southern Maine.