Small Business in Hawaii
Price of Paradise · Hawaii Public Radio · aired 1994-02-05
Guests: Sam Slom (small businessman; head, Small Business Hawaii); Cliff Slater (businessman; two-time Small Businessman of the Year)
Duration: 0:34:27

[00:00:00] Randall Roth: Good morning. I'm Randy Roth, host of the Price of Paradise radio show. My guests this week are Sam Slom, President of Small Business Hawaii, and Cliff Slater, Chairman of Maui Divers of Hawaii. Sam, if someone called your office to ask about the small business climate in Hawaii, what would you say?
[00:00:30] Sam Slom: I'd say Randy, if you like Dr. Kavorkian, you'd like Hawaii's business climate because it's absolute death to entrepreneurial incentive.
[00:01:01] Randall Roth: Are you overstating it a little bit, Sam?
[00:01:32] Sam Slom: Well, I don't think so. If we look at what's happened over the past couple of years, things that those of us in small business have forecast for a long period of time, we've seen a number of very dramatic trends. One is we lead the nation now in the percentage rate of increase of business bankruptcies. In the past 18 months, we've had more businesses shut down and move away from the state than at any time, even prior to statehood. And we see that our primary industry, tourism, is not only on the rocks, but we don't have any diversification. So for people that really have incentive, ambition and skills, they feel and they perceive Hawaii as a place that is more important for who you know rather than what you know.
[00:02:03] Randall Roth: Cliff, you are a small businessman in Hawaii and you're still here. What do you think about the business climate?
[00:02:34] Cliff Slater: I agree. I agree with Sam. I think we see it in the fact that the kids aren't staying in the state when they're going off to college and then just not coming back. We're seeing too many businesses closed down, and and when you look at the way that the our state government treats these at what are essentially our suppliers, the airlines over [unintelligible — audio glitch] matter for example of of Hawaiian airlines not allowing United Airlines to to fly in the island, that kind of thing. And then the landing fees, tremendous increase in the landing fees for the airlines. It is not an really an encouragement to the airlines. They're not feeling like this you know, that we find them as important as of course, we should do. They are our primary the primary supplier of of visitors to this market.
[00:03:04] Randall Roth: Have we learned our lesson? Sam, I I saw a picture the other day of the governor and a number of business people and including your smiling face. And it had to do with business coalition unity day. Is there unity out there or are people in agreement that things have to change?
[00:03:35] Sam Slom: They smile a lot in mental in mental institutions, Randy. So the the smiling part itself is is not a determinant. Um I think what's happened is small business certainly has come full square on the front burner uh in this economy. I think even in the the least of the knowledgeable politicians recognizes that we don't have very much to fall back on other than the risk takers that create the jobs and pay the taxes in this state. What we were trying to show by that particular demonstration and rally was that all business organizations, all business women and men are now coming together and they're saying in unity, we may have our differences in style, we may have our differences on specific issues, but enough is enough. It is time to provide leadership in this community and it's time to recognize those people that in fact take their own hands, reach them in their own pockets, create the wealth, create the jobs and so far this state administration and state legislature has not shown an indication to do that. Whether we get the final final action on that, there's been a lot of rhetoric, a lot of nice speeches. That remains to be seen but I have a feeling it's going to be determined November 8th this year in the ballot box.
[00:04:06] Randall Roth: Well now Sam, your organization represents I think over 3,000 small businesses. Are you speaking with a unified voice? Is there something real specific other than to complain the way things are now? Is there something real specific that your group is saying needs to be done?
[00:04:37] Sam Slom: Oh absolutely. And you know, often times people say, oh gee, those small business people they're just a bunch of crybabies or whiners. Um small business people by and large really don't cry or whine. They will put up with many more things and and have a patience and tolerance level far greater than most individuals. Uh it always amuses me when people talk about stress today, particularly medical stress. You want stress? Start a business particularly in Hawaii then you'll know about stress 24 hours a day 365 days a year. What I hear what I know I own three businesses of my own. What I see every day is the impact of high taxation in this state which falls unequally on small businesses. The unlevel playing field where special businesses special organizations and government are treated a lot differently than most of the businesses. Uh the regulatory atmosphere um mandated benefits which include such things as prepaid health care, workers compensation, unemployment comp. In other words the non glamour things that have to be paid and that are getting more costly every year. Uh and finally I guess it's a a question really uh as I said earlier people make a lot of speeches and they say how wonderful small business is, we're the backbone of the of the community and the nation which we are but then after they make those speeches they go ahead and raise the taxes, add mandated benefits and assume that we can go on forever, paying the bills assuming that we can absorb the costs or pass them along. And as you know and our listeners know there's a limit to that.
[00:05:08] Randall Roth: Cliff, you agree with all of that?
[00:05:38] Cliff Slater: I agree with all of that.
[00:06:09] Randall Roth: What specifically would you like to see done?
[00:06:40] Cliff Slater: Well I would like to see some real hard looks at the budget from a business perspective and for example, um no businessman worth his salt who really investigates numbers would have even suggested for a minute that we build the rail system. Hey when you looked at those numbers they just didn't pay out. I was like something like 15 or $20 subsidy for each ride. I think the same kind of look should be taken at every other aspect of the state budget. Largest single item, Department of Education. Looks like we spend about $600,000 for one classroom. 1300 square foot classroom. I mean that's absurd. It looks like um less than a third of the budget goes for actual you know, real regular kinds of classroom activities.
[00:07:11] Randall Roth: So you're saying uh even if it's underfunded, um it's not being spent properly and if it is underfunded and it's being misspent, then we've got a double barreled problem?
[00:07:42] Cliff Slater: Yes, it's what what I think what it is is over managed.
[00:08:12] Randall Roth: Over managed.
[00:08:43] Cliff Slater: Yes. Right um I was looking at some numbers yesterday. We shows we have uh far more people with advanced education degrees, okay, in in our uh in our system than than any other state. And that's usually a sign of trouble.
[00:09:14] Randall Roth: Well as an educator, I I'm not sure I agree with that. Uh let me come back to something that Sam mentioned just a few minutes ago that we have uh mandated prepaid health care. Uh some people use the expression universal health care and Hawaii is often times uh described as a model for the rest of the nation. I think right now as President Clinton is trying to sell the country on the notion of uh of mandated benefits universal health care. He's saying look, they did it in Hawaii and it worked. Uh I hear you complaining.
[00:09:45] Sam Slom: Well, I'm not complaining, again, I'm looking at the facts. I've been since I've lived here for 34 years and I lived here prior to prepaid health. I've lived here uh during the past 20 years uh under prepaid health. And as I say from a a business standpoint, looking at it economically and looking at the actual cost, the true cost, you find out that the promises that were made back in 1974 just have not come true. One was universal coverage. Two was uh cost containment. Three was uh more choices, and four was uh a better business climate for businesses because uh it would lessen the burden on them. Let's look at at some of these things very quickly. First of all the universal coverage uh argument and when you say that uh people talk about us being a model, there's only two people that basically talk about that. Governor John Waihee who wants to serve in some federal capacity and Dr. Jack Lewin who wants to serve in some federal capacity. Those are the only two people that call us a model and just as President Clinton's program right now is going through some very tough times as people look at the numbers, they look at what's being promised, the same thing is happening when we look at Hawaii's model. It did not contain costs over the past 20 years, costs have gone up tremendously. It started out it was supposed to be just a safety net operation, just a basic medical and more and more things have been added to it all kinds of add ons including in vitro fertilization and well baby care and substance abuse which you might or might not argue are are useful but to put them on everyone's policy reduces choices and increases premiums. In addition to that, when you say that it's improved the business climate, again, all you have to do is look at all of the businesses that are struggling and the businesses that could point to 20 and 30% increases in their medical premiums, businesses like the Willows uh when Randy Lee shut that landmark restaurant down he mentioned specifically one of the reasons was the 36% increase in in medical. When uh the Outrigger Hotel Chain moved their reservations offices to Denver Colorado, they did so specifically mentioning it was because of prepaid healthcare costs and TDI costs, mandated benefits. Businesses in Hawaii have the largest percentage of additional mandated costs of any business in any state in the union. And so when we talk about these things uh we're looking at it from a perspective that uh is it worth it and has it achieved what it was supposed to do? And finally getting back to the the original question of universal coverage, uh prior to 1974 it was estimated that between 89 and 90% of of Hawaii's population was covered. Notwithstanding the governor and the health director's claims that 98% are covered uh I would make a case that uh now in 1994 the same 89 to 90% figure exists. And the reason I say that is there has never been an independent objective outside economic analysis of this prepaid healthcare plan.
[00:10:16] Randall Roth: You're listening to the Price of Paradise radio show. I'm Randy Roth and my guests this week are Sam Slom of Small Business Hawaii and Cliff Slater um of Maui Divers. Cliff, tell me a little bit about taxes. You suggested they're too high. Uh if taxes come down, what sorts of government services are going to suffer?
[00:10:47] Cliff Slater: Oh nothing needs to suffer. It's just that there is an incredible amount of waste going on, waste for example in in DOE uh Department of Education death on education. Isn't there always going to be some waste in government? Isn't that just the nature of of government that it's not going to be run as efficiently as as a profit oriented business would be run? Exactly um but there's a lot of these services don't have to be run by the government. Uh for example Baltimore um has switched over to having [unintelligible — audio glitch] private firm manage its public school system, the administration at great savings and much greater efficiency. Um take a something as small as uh garbage collection. We are [unintelligible — audio glitch] minority of the municipalities that that uh that have their garbage picked up by the by the city. Okay, most cities these days um have that that's a privatized function.
[00:11:48] Randall Roth: So you're in effect saying small business or business in general should be doing some of the things that government in Hawaii is doing?
[00:12:19] Cliff Slater: Yes, oh whoever can whoever can do it at the least expense to the taxpayer. If if if somebody can provide an equal or better service at less cost to the taxpayer, I don't see the rationale for having it performed by a public agency.
[00:12:50] Sam Slom: Government gets involved in everything that it can, it goes into business ventures and then tries to undercut private business and promises the individual taxpayers, we can do it cheaper because we don't have to make a profit. In fact uh one of the hallmarks of the governor's recent state of the state speech was uh compassion not profit is our bottom line. And then we find out that one of his cabinet officials, Mrs. Rubin uh is guilty as charged by the legislative auditor of mismanaging and misappropriating both state and federal funds and the speaker of the House says well it was only $35 million in federal funds and besides she did it from compassion. Uh we really need to educate not only our public officials but people in general on econ 101. The idea is we are a tax hell. Money magazine gave us that title a couple of years ago and while we may disagree and argue are we number one, number two or number three at this point, the burden falls far un far more unequally on small businesses because small businesses represent 98% of all the businesses in the state right now, roughly 29,000 out of 30,000 total businesses.
[00:13:21] Cliff Slater: Let me add to what Sam's saying there Randy, if if for example um the property taxes are increased for the phone company or for the electric company, all they're going to do is pass those taxes along to the consumer without batting an eye.
[00:13:51] Randall Roth: So big business isn't really directly affected by high taxes, it just passes it on.
[00:14:22] Cliff Slater: Virtually all the big business in this town is only big because government regulations favor them and allow them to be big. Okay, small business is sitting there unprotected and if it's uh if it's property taxes go go up, it cannot necessarily pass those along to the consumer. It will have to over time or move to smaller premises or do something else, but but something will change.
[00:14:53] Randall Roth: A year ago, Small Business Hawaii ran a series of uh print and video ads uh saying that no business pays taxes and technically that's correct, the business does not pay taxes, a business a tax is a cost of doing business and the tax is ultimately on the consumer. It's on the consumer either if it can be passed along either a portion of it or all of it, it's absorbed by the consumer and if the business finds that it has to uh downsize or eventually close down then that cost of that lost operation the cost of the lack of lost tax base also is a cost to the to the consumer. We have a we have a real funny notion in Hawaii that we need more revenues. That's what we always talk about gambling or or let's tax video movies or let's tax guns or let's tax uh automobiles more, whatever it is. Our problem really is not taxes or revenues. We've got plenty of those. Our problem is spending. Any housewife, any family on this island can tell you that they have to prioritize, they have to do without, they have a certain fixed amount of of revenues and they have to adjust their spending stream but somehow we've allowed our public officials both in Washington and here in the state to change the rules and raise their own rates anytime they want. And in in so doing we give them the the best and most luxurious health care plans in the world, the best and most luxurious office space with coa appointments, the best and most luxurious retirement plans and meanwhile they're telling the public, you have to sacrifice more. You have to tighten your belt. Well some of us, our belt is around our neck Randy. It's getting kind of tight up here.
[00:15:24] Randall Roth: Well now has uh small business been saying this for a long time and if so why hasn't the community listened?
[00:15:55] Sam Slom: Ah, we have been saying it for a long time. As a matter of fact, uh you know it's one thing if you talk about a crisis you say gee why didn't anybody warn me about this. You can go back as long as you want 5 years, 10 years, 20 years and look at testimony that's been made to the legislature uh go to the HNA archives and look at newspaper clippings letters to the editor where all these things were laid out. If you continue to tax, if you continue to regulate this is what's going to happen. Um the public officials didn't listen for a number of reasons but chief among those is that small business particularly is not politically uh organized or politically uh well adjusted to getting involved in those things. Uh business people the greatest strength of small business is our independence. The greatest weakness of small business is our independence. We don't join organizations, we don't lobby, we don't follow politics, we don't like politics because politics is very ethereal. We like things that we know what you know, what the chances are going to be and if you do this this is going to happen, that doesn't happen in politics.
[00:16:25] Randall Roth: You agree with Cliff that the only big businesses in Hawaii are are big because government has uh given them some sort of special treatment?
[00:16:56] Sam Slom: Oh absolutely.
[00:17:27] Randall Roth: So so they don't have an incentive to hold government's feet to the fire?
[00:17:58] Sam Slom: Except that what's happening now uh even some of the the biggest businesses are in danger partly because they've over bloated themselves. Uh they've spent so much, they were enjoying themselves without competition, with protection given or guaranteed by the government. And now even they find that their mandated benefit costs and and their other costs are going up their taxes and so forth. So even some of them now are starting to to cry uncle and the problem is that as I mentioned before, 98% of all the businesses here are classified as small business. If you want to use the definition of number of employees, that would be 98% of those businesses having fewer than 100 employees. What's happening is then these businesses wind up subsidizing larger ones and we saw that in the Hamakua situation. Um we saw small businesses uh having to forcibly give uh a loan to Hamakua Sugar and then after Hamakua Sugar went down as it was very clearly predicted it would now small business is picking up the unemployment compensation which they did not pay for their own employees, the workers compensation which they did not pay for their own employees. So the burden is really on small business and it's getting worse.
[00:18:29] Randall Roth: And you're saying they're picking it up because government has paid it but then passed that on in higher Or in most cases government didn't pay it at all. Government says uh they tell people you have a right to this. What the government has done in the case of Hamakua and other businesses they fly over their rapid recovery team. They they jump in the planes and they fly over there with all their briefcases and their forms. And they help people fill out workers' comp applications and unemployment applications and all kinds of things. And then they come back and say, Gee, we got to raise the workers' comp 30%. We got to raise unemployment comp 50% and they're raising it on us.
[00:19:31] Randall Roth: And also with workman's comp, they they really don't administrate it well because it's all kinds of fraudulent things go on with workers' comp. And business pays it and of course, then passes it along to the consumer to the extent that they can. And that's getting harder to do because when you're living in an area where you have a 40% cost differential, people are objecting, they're they're cutting back on their expenditures, as I mentioned earlier. You're listening to the Price of Paradise Radio show. I'm Randy Roth and my guests this week are Sam Slome of Small Business Hawaii and Cliff Slater, Chairman of Maui Divers. Well, Cliff, Sam to me sounds mad as hell. Is that representative of small business owners in Hawaii or is he the exception?
[00:21:07] Randall Roth: No, no. Sam Sam Sam's representing his members. I mean, that small business people are mad, I think disgusted, maybe a better a better word. Um, I think the cartoons of John Pritchett, I think sum up what what uh what the small business people think about government in the state. I mean, it's getting to the point of being bizarre. Randy, I mentioned to you earlier, I mean, you know, we have to have a sense of humor. We have to, you know, keep our perspective. But we we're kind of like the the Rodney Dangerfields of of uh industry. You know, we get no respect. We create the jobs, we do the work, we pay day after day, and the government takes us for granted because they feel that we'll continue to do that forever and ever.
[00:22:11] Randall Roth: And now what's happening is a lot of these businesses, who have been very quiet, they've adopted the island philosophy, hey, no make waves, huh? You know, for a long period of time, they didn't get mad, they didn't get emotional, they didn't get passionate and now they don't have their business. And they've seen that all the things that they've worked for and struggled for and saved for over a period of 10, 15, 20 years, is wiped out like that. And so they're saying now, part of it I think is a great disappointment. And the reason that people move away from here, not because they want to. You think they move away because they're they're tired of plumerias and and mondu and things like that. They move away because they're they're putting in so much time and effort, and there's so little coming back and they find out that the people that really struggle the hardest, the people that try to do things for themselves, become victims.
[00:23:15] Randall Roth: We have about 50% of the people that work for a living and 50% or more that vote for a living and we become a nation and a community of entitlements. Whatever that means, somebody waves a hand and says, you're entitled to this. And by because of that, they don't have to work, they don't have to struggle. There's no fault, there's no obligation and no risk. What does small business uh in general think about labor unions? Is that uh a factor in the high cost of doing business or Basically, we don't think very much. I mean, we don't spend much time thinking about labor unions, we're too busy thinking about the taxes and the the regulations and mandated benefits. One thing I would say is that uh labor unions are real misconception. Um, that they uh they represent such a small percentage of the total workforce now and it's declining.
[00:24:51] Randall Roth: The only thing that's keeping them afloat is government, government uh labor unions, which continues to grow thanks to the the present administration. But I mean, you're talking about roughly 15 to 16% of the total labor force, yet they do their job at the legislature and business does not. I think what we've seen though, in recent years is that there's been a coming together, particularly of the rank and file of union members. And why should that not not be true? Union members and union households, just like small businesses, they're raising their families, they're paying their mortgage, they're trying to provide for healthcare and everything else, and they're finding out that uh all of these costs and all of these things that have been promised, education second to none, Paradise have not come true.
[00:25:55] Randall Roth: Maybe they're going to wise up, maybe small business will become more politically active, maybe the two groups will come together and then watch out for the insiders. Yeah, we well we saw that [unintelligible — audio glitch] rail issue. Um [unintelligible — audio glitch] kind of assuming that the rail the the union people for for the most part be in favor of rail. It turns out that most of the unions, virtually all of them were opposed to it. They for the most part sat quietly on the side, but teamsters were teamsters were openly uh opposed. Most of the others were opposed. Um, UPW was in favor of I, Island workers were in favor, but but for the most part, the union people were looking at it from the perspective of their members that this would be a costly addition with no real benefits to it.
[00:27:31] Randall Roth: So, what I'm hearing is that small business doesn't really consider labor unions to be an adversary, that that maybe at least on the major issues, uh there's a partnership of sorts here in terms of a common interest? I think there is. I think we work together, you know, people in business are are very good at volunteering for community organizations and and education and so forth and you bump heads with somebody that's involved in a union and I mean, you you talk about the project that you're involved in. You don't talk union management, whatever. I would say that probably the only grief that we get are from some of the labor union leaders and many of them are so far out of touch with their uh their own membership uh that that's what's causing causing them problems. They're going to have a greater problem between the two of them than between union members and small business.
[00:29:07] Randall Roth: Cliff, you're a small businessman in Hawaii. Let's make you king for a minute. If you could change something, if you could uh wave your magic wand and it would be different, what would you do? Um, I think I would put in a system requiring economic impact statements uh every time that the government wanted to to increase the legislature wanted to increase spending, okay? And every uh every spending bill uh that would have a life of maybe three or four years when it would be subject to a gain and the economic impact statement. And I think that we would see, we we would see that that spending would be dramatically reduced. You know, a number of a number of Midwest states in the in the '60s uh started with those. They call them fiscal notes or we didn't use economic impact at that time, but fiscal notes. And I know particularly Minnesota had that plan.
[00:30:43] Randall Roth: Um, we talked about it here. There have been bills introduced. I think the last one though was about 3 years ago by representative Jane Tatibue. But the idea was that if you as a legislator, we're going to introduce a bill that uh would require the expenditure of public money, there would have to be a statement attached to it and you'd have to sign your name there. Because what normally happens, as you're well aware, uh there'll be an appropriation for a new program or a new department or something else and the initial appropriation is like $10,000 or $15,000 and people say, gee, why you getting excited about that? And yet over a period of time, that grows to millions. If they had to sign their name, and they had to guarantee that any overage would come out of their pocket, I think we'd save a lot more trees.
[00:31:47] Randall Roth: So you guys are saying maybe the rest of us shouldn't take small business for granted and that we are at a crisis stage and things need to change? You can't take us for granted because um if we go, there's nothing else left here. 10% of small businesses going out of business, every 10% of all businesses going out of business every year in this state right now. Scary thought. My guests this week were Sam Slome of Small Business Hawaii and Cliff Slater, President of Maui Divers of Hawaii. This week's show was produced by Jill Senner with technical assistance from Mark Wagner. You've been listening to the Price of Paradise Radio show. I'm Randy Roth, aloha.