Small-business owners in Maine are preparing for a perfect storm of regulatory changes and cost increases that they fear will destroy jobs, cause inflation and stifle entrepreneurial activity.

Those changes include two November ballot measures, one to establish a $12 statewide minimum wage by 2020, and another to create a new education tax for households and some small businesses that earn at least $200,000 a year. Added to those possible changes are two certainties: double-digit increases in health insurance costs for 2017, and new federal overtime pay requirements set to take effect Dec. 1.

While some business owners in Maine said they understand the desire to raise living standards for all workers, they said the minimum wage, overtime pay and tax increases on the table will deliver a shockwave of unintended consequences throughout the business community.

“It’s like a whole new level of hell,” said Jason Levesque, CEO of Lewiston-based Argo Marketing, about the confluence of potentially damaging changes. He said the impact of all the changes being proposed at one time is unprecedented.

Attorneys and consultants in Maine said their clients are trying to assess how all of the proposed cost increases would affect their companies, and what they would have to do to remain in business.

“The hardest thing to deal with is the unknown,” said David Ciullo, president of Career Management Associates, an HR consultancy in Portland. “They have to plan for the worst and hope for the best.”

Minimum wage increase

If Mainers approve the proposed minimum wage increase, Funtown Splashtown USA in Saco ultimately will be forced to pay 16-year-old ticket takers, game attendants and ride operators $12 an hour – a wage it cannot afford to pay at current admission prices, said Ed Hodgdon, the amusement park’s marketing manager.

“By 2020, it will raise our payroll expense by a million dollars,” Hodgdon said. “And those are real numbers – I’m not just making that up.”

Because amusement park workers can’t be replaced with machines, he said, Funtown will have to begin raising the price of admission by $1 to $2 every year through 2020 if the ballot measure passes.

Advocates for a higher minimum wage filed more than 76,400 petition signatures in January to place the measure on the November ballot. It would raise the state’s minimum wage from the current $7.50 an hour to $9 an hour in 2017, followed by annual $1 increases until it reaches $12 an hour in 2020. Subsequent increases would be indexed to inflation. The measure also would gradually increase the minimum wage for tipped workers – now pegged at $3.75 an hour – until it reached the $12 minimum in 2024. The proposed increase for tipped workers differentiates the statewide measure from Portland’s recent citywide minimum wage increase to $10.68 by 2017, which does not apply to workers who rely on tips.

A likely outcome of the increase for tipped workers is that many restaurants simply will do away with tipping, said attorney Glenn Israel, a shareholder at Bernstein Shur law firm in Portland. In some markets where tipped workers no longer can be paid reduced wages, restaurants have raised menu prices or added service fees to help cover the higher wages paid to waitstaff, he said.

“It hasn’t caught on everywhere, and it’s risky,” Israel said.

Supporters of Maine’s minimum wage increase say it would enable more workers to meet their financial obligations without help from taxpayer-funded government programs. They also said it would boost consumer spending in the state and help grow the economy. Opponents say it would devastate many small businesses, particularly those in northern and rural Maine. They also said many entry-level jobs would be cut as a result of the higher minimum wage, and prices on consumer goods would increase. Those businesses that can replace entry-level workers with automation would face economic pressure to do it quickly, business owners said. Others would consolidate labor by assigning additional work to fewer employees.

Hodgdon said Maine’s minimum wage initiative should have included an exception for temporary teenage labor, as is allowed by federal law. Most of the park’s summer workers are kids who are not supporting families or shouldering heavy financial obligations, he said.

“We employ hundreds of teenagers, and this is their first job,” Hodgdon said.

Overtime pay expansion

The new overtime rules, which the Obama administration announced in May, will go into effect Dec. 1. Under the rules, salaried workers must get overtime pay – time-and-a-half after 40 hours – if they earn up to nearly $47,500 a year, double the previous threshold of $23,660. Workers making more than $47,476 may still be eligible for overtime pay, unless they perform management, supervisory or professional functions – the so-called “white-collar” duties test.

The change will affect an estimated 16,000 workers in Maine, according to the U.S. Department of Labor. That’s about 3 percent of the state’s workforce, and represents only the second increase in the overtime salary ceiling since the 1970s.

Carolyn Brodsky, CEO of Sterling Rope Co. in Biddeford, said the new overtime rules will force her business to change the way it compensates employees. At a roundtable discussion on the minimum wage in Portland last month, she shared that complying with the pending changes and the effects of the 2013 Obama tax increases meant she had to postpone hiring three additional positions for product development. The company, which makes high-quality ropes and cords for climbing, rescue and other uses, has between 50 and 100 employees (Brodsky does not like to disclose the exact number).

Brodsky said many of them earn more than the $47,476 threshold, but only after profit sharing and bonuses have been included. She said that the average number of overtime hours they work already has been calculated into their base salaries.

“I now have to undo that,” she said.

Tom Hall, president of Hall Internet Marketing in Portland, said the overtime rules will be particularly onerous for startup companies, which usually require workers to put in long hours at relatively low salaries in exchange for an equity stake in the company’s future success. Because the overtime rules don’t take equity into consideration, many startups will struggle to meet the requirements, he said.

“That (equity) option is now gone,” Hall said. “Our company never would have gotten to where it is today under this new law.”

Health insurance costs spike

Health insurance premiums in Maine will jump to unprecedented highs in 2017, with small businesses expected to feel the biggest impact, according to data from the state Bureau of Insurance.

State-approved rate increases for the coming year average in the double digits for all individual health plans and about half of all small group plans in Maine, according to the bureau. Maine’s health insurance rates already rank among the highest in the nation, in part because of the state’s relatively sparse population and high percentage of elderly residents. They are also affected by national trends, including rising prescription prices and treatment costs.

Small businesses are expected to suffer the biggest impact because they don’t have the same access to federal tax breaks and other subsidies that residents covered by individual health plans can use to offset their insurance costs.

Brodsky said the cost of her company’s health insurance plan increased by 15 percent each year for both 2015 and 2016, and that it is now going up another 27 percent for 2017. Sterling Rope covers 75 percent of its employees’ health insurance premiums and 65 percent of their dependents’ premiums, she said.

“Every year, the premiums go up as the plans get worse,” she said. “It’s a disaster.”

Hall said his company pays 100 percent of his 20 employees’ premiums, which is becoming a serious cost issue as prices continue to rise.

“It’s gone no place but up, and it continues to go up every year,” he said.

Income tax surcharge

Some of the business owners reserved their harshest criticism for a ballot measure that would increase taxes for high-income households and some small businesses to help pay for education.

Maine’s top tax rate would become the second-highest in the nation if voters in November approve a ballot measure that would tax the wealthiest Mainers and some small businesses to increase state education funding.

Backers say Question 2, which would add a 3 percent tax on personal income over $200,000 a year, is a countermeasure to tax cuts under Gov. Paul LePage that have reduced state revenue. It would help fund a decade-old voter mandate to have the state pay for 55 percent of the cost of K-12 education.

The income tax surcharge also would apply to thousands of small businesses in Maine whose revenues are taxed under the same rules as personal income tax. The report estimates that nearly 11,500 businesses taxed as “pass-through entities” would be subject to the state’s new marginal tax rate of 10.15 percent on revenue above $200,000. Opponents of the measure say it creates an unfair tax burden that could drive high-income residents and small businesses out of Maine.

“It’s the absolute worst one,” Brodsky said. “Profits are the engines that help businesses grow. You add this in there and it’s going to stop. It’s going to stop economic development.”

The U.S. Small Business Administration often cites small business, defined as 500 or fewer employees, as the major driver of job creation. Since 1990, big businesses have eliminated 4 million jobs while small businesses have created 8 million, according to the SBA.

Another concern is that the new tax will hurt efforts to recruit doctors, engineers and other highly paid professionals from out of state, as well as encourage existing professionals and business owners to leave, said Ciullo, the HR consultant.

“I’ve had one client who has said, ‘Why should I be in Maine anymore?'” he said.

The small-business owners said they couldn’t shake the feeling that they are being targeted by all of the proposed economic changes. They noted that creating and growing a business is grueling work, and that most of their profits go back into the business.

“I’m tired of being treated like the devil,” Hall said, “like I’m Scrooge McDuck, sitting in a hot tub full of gold coins somewhere.”

J. Craig Anderson can be contacted at 791-6390 or at:

[email protected]

Twitter: jcraiganderson

This story was changed from its original version to better explain the impact on Sterling Rope’s planned growth.

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