Conventional economists and pundits are puzzled why jobs growth has been so anemic in this “recovery.” Here’s one factor they overlook: our government. In theory, our government is supposed to encourage private sector job growth. In reality, all the hundreds of pages of regulations are killing job growth, one small business and one job at a time.
Correspondent/entrepreneur Ray Z. was kind enough to share his experience of trying to open a bagel shop and create six jobs:
“For many years, many of my friends and family who have come to my home and experienced my cooking, have told me that I should “open a restaurant”. Of course, I took this with a grain of salt, :0 since many people say this exact phrase, to many other people. There are a lot of people who are able to create very delicious meals.
About five years ago, there was a restaurant for sale, not too far from my home and business. I thought about buying the restaurant, but at that time, the economy was not doing well and I wanted to take a wait and see attitude before I committed to anything. Eventually, the restaurant closed down and a different type of business opened up in the space that had been a restaurant. That business went under in the middle of 2014 and I decided it might be time to open a retail food establishment in the space that used to be a restaurant. How hard could it be?
I signed a lease with the property owner for his 1000 square foot space. I contracted with a general contractor and designed the restaurant floor space on a CAD program I have on my office machine.
Having boot-strapped two seven figure companies from the ground up over the past 25 years, I knew all of the permits needed in order to open a regular business. First, I had to have my attorney file for incorporation in my state. Then, I secured my FEIN (Federal Employer Identification Number) from the IRS, opened a bank account, got my sales and use tax permit (to collect sales taxes) from the State and contacted the person at the state level who is responsible for food establishments at the state level. The department that handles such things is the Nevada Health Department.
The inspector who is responsible for my geographic area (since I live in a sparsely populated county, we don’t have a county health department) at the state level told me that since the space had not been a restaurant for a few years, I would need to pay additional fees the first year and my endeavor would be treated as a “new” retail food establishment. The cost was an additional $500, but that’s just the way it is. The property already had a grease interceptor (1500 gallons), floor drains, a mop sink, air exchanger on the roof and was mostly plumbed. I’ll get back to this later.
I submitted plans to the state contact person and was told that my symbology was not standard for the plumbing and electrical. The suggestion was made that I seek the services of an architect. Very well. I did. I found an architect who has done some restaurants in the area and we got to work. I submitted my floor plan to him, which he said was very detailed and seemed to use the space to its maximum potential. However, he did mention that if I were going to serve one single person as a dine-in customer, I would have to have at least one ADA compliant bathroom. The space had two existing bathrooms that were ADA, but not the latest version. So, those would have to be upgraded. Next, he told me that if I served, in-house, I would need to provide two ADA compliant bathrooms. I was going to remove one of the ADA bathrooms, so I could have more seating, but if I had more seating, I would need two bathrooms. Catch-22.
My architect submitted to the state for review and was told that I would need to expand the hallway. That means that the current hallway walls would need to be completely gutted, with plumbing removed and drains moved.
I guess it really did not matter though, since according to the State of Nevada, I was required to have EIGHT (8) sinks in my 1,000 square foot space. I needed two bathroom sinks (which I had), one dirty sink with three wells, clearly labeled “wash, rinse, sanitize”; this sink needed to have two side-boards of not less than 18 inches etc. I also had to have one prep sink, with a wand facet, one dedicated mop sink, two hand wash stations (that could not be near any other sinks) and a bar sink for smoothies. This meant I had to have an extra floor drain put in, while the others needed to be moved. Great. 8 sinks. Cost to bring the plumbing to code and provide engineered drawings and system? $20-25 thousand.
After six revisions to the plans (to make the state happy), I finally gave the plans to a general contractor. He sent it to his electrical and plumbing sub-contractors. They informed the general that due to code issues, they would have to quote an engineered HVAC system that provided balanced air for the replacement needed by the hood exhaust. The hood exhaust would need to be tied into the HVAC, so that my customers would be in an environment that met the state standards for air quality. OK. The plumber also said that I needed a brand new, engineered waste pipe system, one that could only be installed by jack hammering the entire plumbing system, since the state was requiring a detailed drawing of the pipes in the floor, and since it was put in before they had these requirements, they would want it all dug up and put into a plan. Great. Engineered HVAC cost? $40,000 (even though the place seemed to work fine for 25 years with an evaporative cooler and a gas heater).
Next, I was told that since I would need a 200 amp electrical service panel (which I knew), the power company would have to replace the transformer on the pole outside, since new construction (the buildings are 30 years old, but hey, it’s a restaurant) requires new EPA compliant transformers. The power company fee alone would be 12-15 thousand dollars. Cost to upgrade electrical to code? $20,000, including power company costs to install EPA approved transformer.
Next, I was told that I would have to have the gas pipe dug up, jack hammered and replaced with a larger diameter gas line. This would be $20,000 or so dollars. The reason is, of course, that the new code requires a minimum pipe diameter for gas; even though I was only going to have one appliance on gas; the range. Everything else is electric.
Keep in mind that all of this was taking time. In point of fact, from the time I signed the lease in late December, until just this past week, I was doing nothing but getting my paperwork ready and trying to comply with government mandates. Essentially, I spent 7 months trying to not only figure out what I needed to do, while I was paying rent and utilities, but I also spent many hours trying to figure out the complexities of what the state required.
For instance: Each food establishment is required to have at least one Food Service Handling Manager. Each person who serves or prepares food has to take a Food Handler Course. The manager course is about 500 dollars, when all is said and done. The food handler course is about half of that. This is an annual fee.
Aside from what I was being required to do for the construction, the state also required the following:
— A complete list of vendors. Said vendors must be USDA certified wholesale food suppliers. No farmer’s markets, supermarket or home grown.
— A complete menu, listing calories of each ready-made product.
— A sample of my labels for prepackaged product showing nutritional data, ingredients, warnings about any allergens (peanut etc).
— My estimate of how many employees I thought I would need (so they can tax me on each employee, annually, something the county does too)
— Certificates for any employees who would be handling food, including any managers. My Federal EIN and my State tax ID.
— Complete plans, contractors, amount of estimated business (so they can PRE TAX me on estimated sales taxes)
It just goes on and one.
The law in Nevada is called the Nevada Revised Statutes, or NRS. The statutes for retail food are about 500 pages thick. That’s just the codes that cover food. This does not cover the building, electrical, plumbing and service codes (such as ADA compliance, handicap parking, etc.)
So, I quit. They beat me.
It always amazes me when politicians use the sound bite of how they will “create jobs”. Well, I am an entrepreneur and have created thousands of jobs over the past 25 years. I have also be responsible for over 500 million in savings to my customers over that time period. This means that 500 million dollars of wealth that was saved, could be put into new technologies, new business ventures for into savings.
I am a job creator. But here are at least six jobs that I won’t be creating.
Government is not a creator of jobs. It’s a destroyer.”
Thank you, Ray, for this detailed account of what creating a job entails in the real world. Government economists, think-tank pundits and Big Media talking heads prattle on about creating jobs, but they have zero experience in creating even one job. Were they pushed away from the state-cartel trough, they would be clueless about how to start, fund, and profitably operate an enterprise that created jobs.
Every statute, code and regulation has a justification. I’ve sat in on meetings of engineers and government officials tasked with dreaming up “improvements” to the building codes. Cost never comes up, and neither does cost/benefit analysis.
Yes, a hallway that’s a few inches wider might be beneficial. But what are the odds of someone losing their life because the hallway only meets previous codes?
Yes, a 1-inch gas line might have some small advantage over a 3/4-inch gas line, but is that advantage worth $20,000 to a small business or its customers?
Government regulation is supposed to address life safety and the exploitation of workers and the public. But unbeknownst to the status quo, it’s supposed to do so with an eye on cost-benefits and diminishing returns.
Would the bagel shop have been demonstrably less safe if it had four sinks instead of eight sinks? The irony here in over-regulating small business food establishments isthe vast majority of the tainted food scandals originate in the factory-meat processing plants of Big Ag.
The government’s solution to absurdly high costs of opening a small business is: borrow more money. Never mind that the benefits of blowing $120,000 are so marginal they cannot even be calculated; we make the rules, you follow them, and if you can’t afford to follow the rules, then don’t open the business.
This is how you get an economy of bureaucrats justifying their existence with 500-page manuals regulating private enterprise and abandoned Main Streets and malls. The government assumes private enterprise will jump through an endless number of hoops to operate a business, and that there is an endless supply of willing entrepreneurs who will volunteer to put themselves at risk of bankruptcy.
Back in reality, there is not an endless supply of people willing to jump through an insane number of hoops and risk their capital and health on starting a risky enterprise. (Memo to state regulators: unlike your job, every enterprise is risky. It’s called capitalism. You can look it up.)
When the costs of starting and operating a business soar, the odds of succeeding drop accordingly.
Guess what, our government: you forgot that ultimately you live off the private sector. Yes, let’s pile on another 500 pages of regulations–no problem–nothing could be easier for those in secure jobs funded by taxpayers. But if the private-sector jobs go away, who’s left to pay for state employees to shuffle thousands of pages of regulations and enforce countless “improvements”?
There are ways to ensure public safety and make it straightforward to start a business and create jobs. A few cities/counties have one-stop systems where those willing to start a business can get all the permits and paperwork at one counter. Officials actually work with the entrepreneur to figure out how to meet codes or pehaps get a variance to skirt regs that offer little benefit but would kill the business.
Many others have phony facsimiles of one-stop counters, fake props set up for PR purposes. The process isn’t really simplifed; nobody cares if you succeed or not; the purpose was to make the local government appear as if it cares. It doesn’t.
Government has the answer, of course: just borrow more money from our kids and grandkids. If taxes aren’t enough, just borrow more money.
If our government can’t destroy all the private-sector jobs directly, it will do so indirectly by borrowing so much money the system collapses. Good job, regulators; forget costs and cost-benefit analyses; go ahead and add another 500 pages of regs without any regard for costs or consequences. We’ll all end up paying for your blindness and cupidity.