Magazine article Insight on the News
Too Many Government Rules Clean out Small Companies
Stop by Capitol Hill's Lustre Cleaners after work on a typical weekday afternoon and the store likely is filled with congressional staffers and Washington careerists picking up and dropping off blouses, shirts and suits. While those responsible for the regulatory burdens imposed on small business are dependent upon the services that dry cleaners and laundries provide, few or any recognize that the cumbersome rules emanating from Congress are increasing prices and forcing many dry cleaners to shut their doors.
Consider the case of Yong Kyun Pak, a Korean immigrant who entered the dry cleaning business in 1985 and operates a store in Newport Beach, Calif. Pak works 13 to 14 hours a day, six days a week, and he spends many of his holidays performing maintenance on his machinery His wife and two pressers work in the store; the Pak children lend a hand when they can.
Regulatory compliance is a significant concern facing Pak. In 1993, his VIP Cleaners needed to replace its dry cleaning machine. As a result, Pak rents one for $1,300 a month - more than $15,000 per year. He could not sell his old machine because it no longer met regulatory requirements. In 1994, he expects to spend an additional $1,000 on wastewater-treatment equipment, and his annual process-waste disposal fees have increased by $1,200. He has to pay an accountant another $1,000 to help him with paperwork requirements - Pak's English is fairly good, but not good enough to fill out government forms - and he pays local fees to the fire department, the municipality and several other local agencies.
While many dry cleaners manage to keep their doors open in the face of escalating regulatory costs, many others have succumbed. Teasdale Fenton Cleaners in Cincinnati filed for bankruptcy last year, citing escalating regulatory costs as the straw that broke the camel's back. In the New York area, more dry cleaners have gone out of business during the past three years than during the 1980s, according to the Neighborhood Cleaners Association.
Because of their size, dry cleaners and other small businesses are particularly vulnerable to the pecuniary impact of regulations. The typical dry cleaning outlet is a small, family-owned business that grosses an average of $200,000 a year, with profits in the neighborhood of $10,000. On average, each dry cleaner employs five people. …