August 17, 2022

Economic Analysis Finds AB 257 Will Increase Costs 20% For CA’s Restaurant Goers

Economist Warns of Increased Cost Akin to a “Food Tax” if Inflationary Legislation is Enacted

SACRAMENTO – Today, nearly 100 small business owners from across California will travel to the Capitol to speak out against the detrimental and costly impacts of Assembly Bill 257, known as the FAST Act.

The campaign to Stop AB 257 released conclusions from an economic analysis by UC Riverside Center for Economic Forecast and Development finding that Californians could expect to pay twenty percent more at local restaurants if Assembly Bill 257, known as the FAST Act, becomes law.

“Historic inflationary pressures have hit many parts of the economy, putting tremendous stress on low-income households,” said Christopher Thornberg, PhD, Director of the UC Riverside Center for Economic Forecast and Development. “If the FAST Act passes, we can expect a very sharp increase in food costs from the affected restaurants, and that could push these families to the breaking point, given the financial pressures working families already feel from rising rents, gas and other necessities.”

According to the economic analysis, AB 257 effectively creates a new food tax at a time when inflation is reaching record highs and could see prices increase by as much as 20%. The UCR Center’s analysis concludes that restaurant prices would quickly climb—on top of record-high inflation—under AB 257.

“AB 257 hurts local small businesses like mine while raising prices for local families and visitors to our state,” said Alex Johnson, owner of 11 Auntie Anne’s and Cinnabon locations in California. “During the highest inflation in 40 years, this bill harms everyone from local businesses and their employees to the millions of Californians who rely on quick-service restaurants each week. This bill is not the way to support a thriving business community.”

Beyond the harm that this legislation would cause for hardworking Californians, experts agree that the bill also harms the State of California at the worst possible time. In June, California’s Department of Finance opposed the legislation due to the burdensome cost it would impose on the state which is already struggling to keep up with the business of California’s bureaucracy.  

“California already has one of the most challenging climates for business, and this bill will make it next to impossible for quick-service operators who operate on razor-thin margins,” said Greg Flynn, who owns a number of quick-service restaurants in California. “The costs associated with the FAST Act will raise prices without improving standards.”

Nearly 300 corporations have moved their headquarters out of California in the past few years, due to increasingly cumbersome and inefficient hurdles created by the state. This legislation would be a catalyst for another wave.

By creating an unelected wage and labor council run through the state government, the bill passes the cost of bureaucratic red tape onto California’s counter-service diners.

“Even during this time of historic prices, we have resisted price increases on our customers because we know they can’t afford it,” said Jesse Lara, El Pollo Loco franchisee in Southern California. “If AB 257 becomes law, small businesses like mine will face no choice but to raise prices to stay afloat or be forced to shut our doors.”

AB 257 creates an unelected wage and labor council with lawmaking authority for California’s counter service restaurant industry. The bill also institutes a joint and several liability clause in franchisor contracts with their franchisees, effectively dismantling the franchisee business model in California.

“Despite record inflation, franchise brands and owners have avoided increasing prices to deliver on their promise of value for customers. The FAST Act would be the straw that breaks the camel’s back due to price increases upwards of 40 percent,” said International Franchise Association President and CEO Matt Haller. “Behind that, this bill will dismantle the franchise business model and all the opportunities it creates, particularly for underrepresented Californians who will be effectively demoted from owners to corporate employees.”

The hallmark of a franchising system is a franchisor who licenses a brand and provides brand standards and guidelines to the franchisee, who is an independent business owner. The franchisee runs his or her business, making employment and operational decisions. The incentives are such that the franchisor is incentivized to license the strongest brand possible to the franchisee and the franchisee is incentivized to comply with all laws in the operation of his or her restaurant. The joint and several liability portion of the bill disrupts these incentives and makes the franchisor liable for things that it does not control, disincentivizing further expansion through franchising.

“One of the worst aspects of AB 257 is the bill would essentially tax Californians’ dining choices,” added Matt Sutton, Senior Vice President of Government Affairs for the California Restaurant Association. “One of the few areas of the food sector where prices have risen slower than overall inflation is the restaurant industry. Proponents of AB 257 who seek to demonize our industry should explain why, at a time of record price increases, they want to make local restaurants even more expensive for working Californians.”