Small business owners brace for new regulations in Minneapolis and St. Paul

Customers pushed Afro Deli owner Abdirahman Kahin to offer eco-friendly takeout containers, so he made that switch before the city demanded it. Then Minneapolis and St. Paul required employers to provide sick time, and he agreed to bump up his employees' benefits.

But now Minneapolis is looking into increasing the minimum wage — and Kahin isn't sure how he would absorb that cost.

"It's a lot and it's not good for the small businesses," said Kahin, who has a restaurant in St. Paul and is opening another in Minneapolis. "We're not against people getting more money, but we are worried about how to keep running our business."

Across the Twin Cities, small business owners are starting the year warily, bracing for dramatic changes as city leaders in St. Paul and Minneapolis impose sick-leave rules and weigh proposals to increase the minimum wage. City leaders, pushed hard by residents and activists advocating for low-wage workers, say the regulations are necessary and being phased in carefully. Anxious business owners say the changes are confusing, and taken together, could be financially devastating.

Both cities are still attracting new businesses and seeing economic growth. Yet adding regulations is a high-stakes experiment and business community leaders warn that there will be a tipping point when too many rules will prompt employers to leave or avoid the Twin Cities.

It's already difficult for business owners to develop budgets because they don't know what extra expenses they may face, said Jonathan Weinhagen, president of the Minneapolis Regional Chamber of Commerce. Sick time and minimum wage issues have dominated the discussion, but smaller changes are also stacking up: a plastic bag ban will go into effect in Minneapolis, and St. Paul may prohibit plastic foam containers, already banned in Minneapolis.

"Styrofoam ban, earned sick and safe time, scheduling, minimum wage — what's next?" he said.

The Minnesota Chamber of Commerce and other members of the business community sued Minneapolis, arguing the city's sick leave plan is illegal. A judge ruled this month that the city can move forward with the bulk of its ordinance — as long as companies are inside the city's boundaries. The business advocacy organizations appealed the ruling last week.

Meanwhile, there is a push for a statewide sick leave law. And state lawmakers have talked about blocking cities' ability to add such workplace standards by pre-empting local laws.

Nonetheless, Minneapolis is kicking off a series of listening sessions this month about raising the minimum wage, potentially from $9.50 for large employers to $15 an hour.

Kris Kowalski Christiansen, chief operating officer of Kowalski's Markets, supports state pre-emption of the local ordinances and said a city-by-city approach means Kowalski's will have to sort through different sets of regulations in Minneapolis and St. Paul.

That could result in equity issues, with employees working at stores outside of the Twin Cities getting different benefits, she said.

Along with the new regulations, both cities are trying to make it easier and faster for businesses to open shop. Minneapolis created a small business office to help employers navigate city regulations. St. Paul recently announced that it will give annual local business awards as part of its new "Open for Business" program.

But Gary Huffman, owner of Grand Ole Creamery, said efforts like the awards program make the city seem like it's supporting businesses, while it's doing the opposite by chipping away at businesses' bottom line.

If the Twin Cities work with business owners to create rules that are simple to comply with and implement them in a common-sense way, that will alleviate concerns, Minneapolis City Council Member Andrew Johnson said.

Minneapolis is not enforcing sick leave regulations for the first year and if the city approves a minimum-wage increase it would be rolled out slowly, Johnson said.

In St. Paul, Mayor Chris Coleman said he would wait and give businesses time to adjust to the sick leave rule before considering minimum wage changes. But this is Coleman's last year as mayor and his replacement could try to speed up the timeline.

"We have to achieve a balance between these consumer-driven demands, or requests, vs. the practical business side of it, about how you actually can keep your doors open?" he said.

St. Paul and Minneapolis are looking at other cities, like Seattle, to see how sick leave and minimum wage increases impacted businesses. A University of Washington report showed mixed results in the first year of the minimum wage ordinance. The lowest-paid workers got more money, but employees worked fewer hours and the city's employment rate was lower than expected, researchers found.

Molly Moon Neitzel, who owns seven Seattle-area ice cream shops, raised the cost of a scoop of ice cream by less than 5 cents a year to cover the new costs. She has not cut hours and is looking at adding two new stores, said Neitzel, a member of the progressive business group Main Street Alliance.

"It's been really worth it," she said, as the labor regulations reduced staff turnover and gave Seattle residents more spending money. But she said a gradual minimum wage roll out — over five to seven years — is appropriate.

In Minneapolis, Butter Bakery Cafe owner Daniel Swenson-Klatt has stayed ahead of the city regulations. Cafe employees get sick leave and he is working to raise wages.

"There are folks whose main goal is not to be the best run workplace," he said. "Their goal is to make the money and just keep making the money."

Jessie Van Berkel • 612-673-4649