Washington Retail Insight - May 5, 2006

Volume 11, Number 10
May 5, 2006

In Today's Edition:

• NRF Member Tells Congress State Health Care Mandates Threaten Jobs

• NRF Urges Retailers to Contact Senate on Small Business Health Plans

• Study Shows Sales Tax Collection Costs Retailers $6.8 Billion

• Senate Drops Plan to Repeal LIFO, Could Still Hold Hearings

• House Approves SAFE Port Act, Rejects 100 Percent Scanning

• Retail Ports Operating Smoothly as Summer Approaches

• NRF Outlines New Sourcing Strategy at European Conference

• Congressional Outlook

• NRF Events

NRF Member Tells Congress State Health Care Mandates Threaten Jobs
    
The owner of an NRF member company told a congressional panel this week that health care mandates pending in a number of states threaten to cost workers their jobs and drive up consumer prices while doing nothing to solve underlying cost and quality problems with the nation's health care system.
    
"State health care mandates do nothing to address the real health care challenges: rising health care costs and reduced accessibility," Larry Drombetta, president and CEO of HR Stores Inc., said. "In fact, they make matters worse. Legislation mandating that employers spend arbitrary percentages of their payroll on health care does not solve cost pressures but instead will jeopardize current employment levels, stunt future job growth and raise consumer prices. We believe state health care mandates amount to an ill-advised tax on jobs."
    
Drombetta noted that many pending state health care mandates are written in a way that single out the retail industry, and that many establish percentages of payroll to be spent on health care that far exceed retailers' 2-3 percent average profit margin.
    
"Imposing an arbitrary payroll tax on an industry with already slim profit margins will force retailers to make a choice between laying off workers and raising prices," Drombetta said. "Too often, there is no choice but to look to both options. States that pass mandated health care legislation should not be surprised to see job losses, higher prices, fewer new stores, limited store hours and services as well as diminished tax revenues."
    
Drombetta, who operates a small chain of shoe stores, testified on behalf of NRF Thursday before the House Education and Workforce Committee's Subcommittee on Employer-Employee Relations as part of a hearing on "Examining the Impact of State Mandates on Employer-Provided Health Insurance."
    
The store owner said the retail industry has unique demographics that make it difficult to provide health coverage for all workers. Retailers employ half of the nation's working teenagers and a third of all workers under 24, and a third of the workforce is part-time. Many workers who qualify for coverage decline it because they already have coverage through a family member or another job.
    
Drombetta said health insurance costs for his 35-employee company, based in Owings Mills, Md., with 12 stores in Maryland, Virginia, Pennsylvania and North Carolina, have increased 155 percent since 2000. As employees' cost for coverage has risen, more have dropped out, particularly younger workers who don't expect to need coverage. That raises the average age of his workforce, further driving up the cost of coverage.
    
"My health insurance program is in what insurance industry people call a health insurance death spiral," Drombetta said. "Under current law, there is nothing I can do. The end result will be no more insurance for my employees."
    
Drombetta urged Congress to pass Association Health Plan/Small Business Health Plan legislation that would allow small businesses like his to band together to purchase coverage at large-group rates.
    
NRF is strongly opposed to bills pending in a number of states modeled on legislation enacted in Maryland in January that requires companies with 10,000 or more employees to spend at least 8 percent of payroll on health care benefits. Some pending bills would go significantly further: a new Maryland bill would require companies with fewer than 10,000 employees to pay at least 4.5 percent, and New York legislation would require companies with 100 or more workers to spend at least $3 for every hour worked by each employee. In addition, many states are considering legislation that would mandate coverage for specific medical conditions or procedures.
    
NRF earlier this year formed the Tax on Jobs Coalition to fight state health care mandates, and is working closely with state retail associations and retailers in states where such proposals are pending.
    
For more information, contact NRF Vice President and Employee Benefits Policy Counsel Neil Trautwein or Vice President and Government and Industry Relations Counsel Maureen Riehl at (202) 783-7971.

NRF Urges Retailers to Contact Senate on Small Business Health Plans
    
NRF today opened a telephone hotline that will allow retailers to call members of the Senate and urge that they support Small Business Health Plan legislation scheduled for a vote next week.
    
Retailers can call the hotline at (800) 282-4140 and be connected to the office of either of the senators from their home states. Talking points covering the advantages of Small Business Health Plans have been distributed to retailers in an NRF Grassroots Action Alert available at www.nrf.com/gr.
    
The Senate is scheduled to hold a procedural vote Tuesday on S. 1955, the Health Insurance Marketplace Modernization and Affordability Act, sponsored by Health, Education, Labor and Pensions Committee Chairman Michael Enzi, R-Wyo.
    
If the bill fails to receive at least 60 votes on Tuesday, the legislation would be dead for the remainder of the year. Special interest groups opposed to the measure have mobilized to kill the legislation, making it critical that retailers and other supporters show support.
    
The Enzi bill would allow businesses and trade associations to pool their members in Small Business Health Plans in order to purchase insurance coverage at rates available to large groups.
    
Similar Association Health Plan bills have repeatedly passed the House over the past several years only to stall in the Senate. The Enzi bill -- intended to address opponents' concerns -- differs from AHPs by maintaining state regulatory oversight and not allowing the plans to self-insure. It would also establish a federal commission to streamline various state regulations and reduce administrative costs. It was approved by Enzi's committee in March, but needs approval by the full Senate before it can become law.
    
NRF has strongly supported AHP/SBHP legislation since the concept was first proposed, seeing it as a means to help small retailers bring skyrocketing employee health costs under control and as part of a multi-component plan for addressing health insurance costs for all retailers.
    
Enactment of SBHPs would save small businesses about 13 percent on average and up to 25 percent in some cases -- a savings ranging between $450 and $1,250 annually per covered employee. One recent report showed that as many as 8.5 million previously uninsured workers would receive coverage if the legislation is enacted. 
    
More than 90 percent of retail businesses have fewer than 20 employees, and a quarter of the nation's 45 million uninsured individuals are owners or employees of small businesses and their families.
    
For more information, contact NRF Vice President and Employee Benefits Policy Counsel E. Neil Trautwein or Vice President for Government and Political Affairs Rob Green at (202) 783-7971.

Study Shows Sales Tax Collection Costs Retailers $6.8 Billion
    
NRF this week welcomed a new study showing that it costs retailers $6.8 billion annually to collect state and local sales taxes across the nation, saying the study could help merchants in their long-sought goal of receiving appropriate compensation for the collection costs.
    
"This establishes once and for all what retailers have claimed all along -- that there is an inherent cost in doing the state's business," NRF Vice President and Government and Industry Relations Counsel Maureen Riehl said. "This lays the groundwork for all retailers of all sizes and types and in all channels -- bricks-and-mortar, mail-order or on-line -- to be able to expect to receive reasonable compensation."
    
A study conducted by the accounting firm PricewaterhouseCoopers LLP released Wednesday found that retailers' cost of collecting sales tax -- from training personnel to filing paperwork -- amounts to an average of 3.09 percent of the amount of tax collected, or $6.8 billion annually nationwide.
    
The costs hits hardest on small retailers, with those with annual sales under $1 million averaging 13.47 percent, those between $1 million and $10 million averaging 5.2 percent and those above $10 million averaging 2.17 percent, according to the study. For small and medium-size retailers, the two largest components of the costs are preparation of tax returns and documentation of tax-exempt sales. For small retailers, personnel training is the No. 3 component while for medium retailers the credit and debit card fees attributable to sales tax are the third-highest component. For large retailers, credit/debit card fees are the largest component, followed by unrecovered sales tax paid due to bad debts and training of personnel.
    
The study was commissioned by the Joint Cost of Collection Study group, made up of NRF, some NRF member companies and other retailers, the Council on State Taxation, the Multistate Tax Commission, the Federation of Tax Administrators, the National Conference of State Legislatures and the Government Finance Officers Association.
    
JCCS operates under the auspices of the Streamlined Sales Tax Project, the organization that crafted the 2003 Streamlined Sales and Use Tax Agreement (SSUTA) that is the basis of a current voluntary system making it easier for states to require Internet sellers, mail-order merchants and other out-of-state retailers to collect sales tax on merchandise sold to their residents. Legislation is pending in Congress to make collection mandatory.
    
Riehl said retailers would likely use the data from the new study in two steps, the first being to set appropriate compensation levels under the SSUTA program. The data could later be used to seek appropriate compensation for all channels of retail, including bricks-and-mortar stores. That effort would likely evolve on a state-by-state basis, taking into consideration the revenue conditions of the states involved.
    
While sales tax simplification has been primarily aimed at leveling the playing field between bricks-and-mortar merchants and growing Internet commerce, it also makes sales tax compliance easier for all retailers, Riehl said. If states are required in the future to compensate retailers for the cost of collection, they will be given a strong incentive to adopt simplification agreements that help lower those costs, she said.
    
Only 18 states currently provide retailers with any compensation for the costs of collecting sales tax, and most cap compensation at unrealistically low figures set years ago, typically $100 or $200 per company per month regardless of size, sales volume or number of stores.
    
For more information, contact NRF Vice President and Government and Industry Relations Counsel Maureen Riehl at (202) 626-8121.

Senate Drops Plan to Repeal LIFO, Could Still Hold Hearings
    
Senate Republicans this week dropped a proposal to repeal use of the last-in, first-out (LIFO) method of accounting after NRF and other business groups expressed concern about the impact it would have on companies outside the oil industry.
    
The proposal was unveiled by Senate Majority Leader Bill Frist, R-Tenn., and other Republican senators last week as part of an attempt to address rising gasoline prices. Under the plan, consumers would be given a $100 rebate, and LIFO -- widely used by major oil companies with large reserve inventories -- would be repealed in order to pay for the cost of the rebate.
    
NRF and other business groups quickly began contacting Capitol Hill, telling lawmakers that LIFO repeal could have a significant impact on other industries beyond oil.
    
The LIFO proposal was withdrawn on Monday, when Frist said he would seek other sources of funding for the rebate, which is coming under separate criticism of its own. Frist didn't drop the LIFO plan completely, however, saying Senate Finance Committee Chairman Charles Grassley, R-Iowa, had agreed to hold hearings on repeal.
    
While the issue has been temporarily set aside, NRF is concerned that LIFO repeal could resurface as a revenue-raising proposal now that the issue has been raised. Grassley's hearings could come as soon as this month, and Congress will be looking for revenue offsets as it considers a variety of tax cut bills.
    
LIFO is an accounting method under which the cost of the most recently purchased goods in inventory is considered to be the cost of all items sold during a given time period. Many retailers have used the method for decades, and could see significant retroactive tax increases if it is repealed.
    
For more information, contact NRF Vice President and Tax Counsel Rachelle Bernstein at (202) 626-8168.

House Approves SAFE Port Act, Rejects 100 Percent Scanning
    
The House this week passed a comprehensive port security bill supported by NRF, and agreed to a pilot program for overseas scanning rather than an unworkable plan to immediately mandate 100 percent scanning of all U.S.-bound cargo containers.
    
H.R. 4954, the Security and Accountability for Every Port Act, or SAFE Port Act, sponsored by Representative Daniel Lungren, R-Calif., was approved 421-2 on Thursday. The measure would establish procedures for reopening ports after an attack, require development of standards for container seals and would codify the Customs-Trade Partnership Against Terrorism and other existing port security programs.
    
"Our industry supports strong and effective measures to ensure cargo and port security," NRF Senior Vice President for Government Relations Steve Pfister said in a letter to House members before the vote. "H.R. 4954 is part of a legislative process to take a reasoned and considered approach in ensuring the security of the cargo entering the United States and the U.S. ports through which it transits."
    
Pfister said strong port security measures will help protect retail supply chains from theft and tampering, will safeguard retail brands and will ultimately protect the U.S. economy in addition to protecting the American public.
    
The House voted 222-202 to reject a motion offered by Representative Jerry Nadler, D-N.Y., to send the bill back to the House Homeland Security Committee. Nadler objected to passage because lawmakers refused to include language requiring that all cargo bound for U.S. ports be "scanned" before being loaded at foreign ports. An amendment based on the Nadler legislative was rejected in committee last week when it was offered by Representative Ed Markey, D-Mass.
    
NRF supports appropriate overseas cargo screening but objected to the Nadler/Markey language because it did not define the type of scanning to be done or address issues such as who would pay for installation and operation of equipment or health concerns for port workers using the equipment. The proposal also ignored the difficulties of implementing such a system in less-affluent "feeder" ports that send cargo to major ports like Hong Kong prior to shipment to the United States.
    
"This proposal would significantly impede U.S. commerce, inflict serious harm on the U.S. economy and add little in improved security," NRF said in another letter. "Efforts to construct haphazard regulations based on politics rather than grounded in existing security practices and intelligence will put our nation's security at greater risk by misallocating limited security resources."
    
Instead, the House approved an amendment offered by Representative Christopher Shays, R-Conn., that called for the Department of Homeland Security to conduct a pilot program at a foreign port to test screening and scanning technology similar to the Integrated Container Inspection System used in Hong Kong.
    
Lawmakers rejected an amendment offered by Representative Loretta Sanchez, D-Calif., that would have eliminated C-TPAT benefits for non-validated members of the program.
    
In addition to the House action, the Senate Homeland Security and Governmental Relations Committee on Tuesday approved its own port security bill, S. 2459, the Green Lane Maritime Cargo Security Act, sponsored by committee Chairwoman Susan Collins, R-Maine.
    
The Senate committee rejected language offered by Senator Frank Lautenberg, D-N.J., that would have imposed the same 100 percent scanning requirement sought by Nadler and Markey. Instead, senators adopted a substantially modified amendment calling for the Department of Homeland Security to move as soon as possible to institute 100 percent screening in U.S. ports when technology and screening procedures are "possible and practicable."
    
For more information, contact NRF Vice President and International Trade Counsel Erik Autor at (202) 626-8104.

Retail Ports Operating Smoothly as Summer Approaches
    
The nation's major retail container ports are operating smoothly this month as the busy summer shipping season approaches, according to the May Port Tracker report released this week by NRF and Global Insight.
    
"With summer volume increases soon upon us, monthly port container activity is building toward peak season with all ports operating without congestion," Global Insight Economist Paul Bingham said. "The 2006 peak season outlook is for continued good performance, although continued challenges to system performance remain with the continued growth in trade. There are renewed concerns with port trucking and congestion at the Panama Canal that add a note of caution compared with last month, but we expect the industry will be able to manage without serious terminal or network congestion."
    
"The fallout from the Dubai Ports World issue is exhibiting itself with increased attention to maritime security but we do not expect port congestion to result," NRF Vice President and International Trade Counsel Erik Autor said. "Port Tracker will continue to monitor conditions so retailers can react appropriately."
    
All ports covered by Port Tracker -- Los Angeles/Long Beach, Oakland, Tacoma and Seattle on the West Coast, and New York/New Jersey, Hampton Roads, Charleston and Savannah on the East Coast -- are currently rated "low" for congestion, the same as April.
    
Nationwide, ports surveyed handled 1.27 million Twenty-foot Equivalent Units (TEUs) of container traffic during March, the most recent month for which numbers are available. The figure was up 17.4 percent from February and 20 percent from March 2005. Over the six-month forecast period of the report, volume is expected to climb to a peak of 1.45 million TEU in August, up 9.4 percent from August 2005. Numbers will dip to 1.4 million TEU in September, still up 4.5 percent from the year before. One TEU is a 20-foot cargo container or its equivalent.
    
Port Tracker is produced each month for NRF by the economic research, forecasting and analysis firm Global Insight. Subscription information is available at www.nrf.com/porttracker.
    
For more information, contact NRF Vice President and International Trade Counsel Erik Autor at (202) 626-8104.

NRF Outlines New Sourcing Strategy at European Conference
    
NRF's global outreach continued last week with a major presentation before the International Retail Congress in Cologne, Germany.
    
NRF Vice President and International Trade Counsel Erik Autor told European merchants April 26 that a new global sourcing strategy has emerged for U.S. retailers since worldwide textile and apparel quotas ended last year.
    
"With globalization, retailers' primary focus is finding the best suppliers," Autor said. "Retailers are seeking closer, more collaborative partnerships with fewer full-service providers."
    
The new strategy emphasizes consolidation of sourcing to fewer countries and fewer factories, demands that suppliers be more competitive in return for stronger vendor relations, improves management of risks ranging from political barriers to natural disasters, and strengthens supply chain management.
    
The changes mean retailers are looking more closely at total costs -- including transportation and tariffs -- and taking speed-to-market into account.
    
Vietnam and some other countries are seeing exports grow under the new approach, but China remains the "gold standard" for overseas manufacturing, Autor said. 
    
For more information, contact NRF Vice President and International Trade Counsel Erik Autor at (202) 626-8104.

Congressional Outlook:

House: Returns 2 p.m., Monday, May 8.
Senate: Returns 1 p.m., Monday, May 8.

NRF Events:

• May 16-17, Washington Leadership Conference, Washington, D.C.

     For information on NRF events, contact Eileen Pryor at (202) 626-8114 or pryore@nrf.com.

     Washington Retail Insight is published each week that Congress is in session by the National Retail Federation, 325 7th St. NW, Washington, D.C. 20004.

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