Landscape Contractor National Publisher Page ?EUR??,,????'??+ June 2005

Take the cash or lose the work?!?

You know . . . Back in the days of prohibition, the drinking of alcohol was hardly, if at all, cut back. It was merely pirated into the speakeasies. While everyone knew it was against the law, it was hard to prove to anyone that it was wrong to sit with a few friends and have a drink on a night out on the town.

Sure, some people got into legal trouble by serving the drink, but it was so widespread it made it all but impossible for a restaurateur to not take the chance. Follow the law and lose business. Break the law and make profit . . . But was it really breaking the law by providing a service to the public that was in great demand?

Obviously those laws spawned both the Eliot Ness?EUR??,,????'???s of the world and the Al Capone?EUR??,,????'???s. Caught in the middle was the public. And while the establishment tried its best to enforce and strengthen the law, the public demand was so strong, and the profit so great, the law eventually had to be removed . . . Wholesale change.

Well today the tax and worker?EUR??,,????'???s comp burden put upon a landscape contractor is so steep that staying legitimate is becoming a very hard thing to do.

It was recently reported that the state of California is losing $6.5 billion in tax revenues because of the growing practice of contractors who solicit their clients to pay in cash. But the incentive to do so is so strong, how can you not do it?

Ethically, of course, it shouldn?EUR??,,????'???t be any different than taking a check, but the reality is that the savings and profit are not only real . . . it?EUR??,,????'???s amazingly profitable to follow the practice.

Say you own a Landscape Construction company in a state where worker?EUR??,,????'???s comp costs you $20.00 a hundred for your labor expense. And say that you do a solid $2 million in gross revenue with the end result being $200,000 in taxable profits.

Now say that you can get your clients to cough up a mere $100,000 in cash. You use that cash to pay your employees, under the table. Well right off the mark you save $20K in worker?EUR??,,????'???s comp and $7,500 in social security matching. Additionally, since you don?EUR??,,????'???t report that $100,000 as revenue you save state and federal taxes to the tune of around $35,000. That equates to a net profit . . . to you in real dollars . . . of somewhere around $62,500. On the other end that equates to about $62,500 that you can cut your bids by to get the work . . .

Now, if your worker?EUR??,,????'???s comp is greater than 20/100, or your tax rate is higher than a combined 35%, that bottom line goes even higher . . . How can you not do it?

Ok . . . the first answer is that it is unethical and illegal . . . but so was drinking back in 1925. The fact is that the profit (read temptation) is so great that to ignore this opportunity is almost criminal itself.

So what are the fixes? Well, the government would love for us to go to a cashless society . . . That would surely solve a part of the problem, but Americans love their freedom and absolute monetary tracking of your expenses by the government is not the most desirable outcome.

The government could set up sting operations and trap those lawbreaking sombitches . . . But where did that get the prohibitionists?

We could reform workers comp and restructure the tax codes . . . Yeah, sure . . .

The truth is, there is no quick fix for this situation. At the same time, it is becoming a fact of life for independents in the construction industry . . . Either you take the cash or lose the work. Either you don?EUR??,,????'???t report the income or you hand your kid?EUR??,,????'???s college fund over to Uncle Sam . . .

I?EUR??,,????'???ve always advocated that in business, and in life, it?EUR??,,????'???s best to make the hard choices, to follow the law, to compete ethically and do what is right, but there is a growing situation out there that is making that choice extremely difficult . . .

Is the problem real? You bet it is. What is the answer? I haven?EUR??,,????'???t a clue . . . What do you think? I?EUR??,,????'???d love to hear your opinion . . .

God Bless . . . George

Pamela Melius wrote: June 16th

Governor Arnold Schwarzenegger

State Capitol Building

Sacramento, CA 95814

June 16, 2005

Dear Governor Schwarzenegger;

Enclosed pleas find an editorial written by the publisher of Landscape Contractor National to which I would like to add the following:

Every night in my office I ponder how I can compete in this industry with this typical mentality. I look at all the wonderful awards on my wall and sadly repeat to myself that all of this hard work doesn?EUR??,,????'???t mean anything when I keep losing bids to unlicensed and uninsured ?EUR??,,????'??contractors?EUR??,,????'?? because the majority of the clients are only looking for the best price. Not only am I (and the State of California) losing income to these so-called ?EUR??,,????'??contractors?EUR??,,????'??, they attempt to lure my trained employees with promise of higher wages in the form of cash.

This evening I watched your video addressing the residents of California regarding a Special Election for Reform. Certainly it must occur to you that if we had some reasonable workers?EUR??,,????'??? compensation rates it would make us more competitive, thereby signing more clients and employing a greater workforce. According to George Schmok?EUR??,,????'???s article ?EUR??,,????'????EUR??,,????'??The state of California is losing $6.5 billion in tax revenues.?EUR??,,????'??

Governor Schwarzenegger, we desperately need your advocacy for the small business owners in California. We voted for you, won?EUR??,,????'???t you help us now?

Sincerely,

Pamela Melius

Southern California Landscape,
Mission Hills, CA

Dave Braatz wrote in on 06/16/05

I enjoyed your ?EUR??,,????'??Publisher?EUR??,,????'???s Page?EUR??,,????'?? question, & I?EUR??,,????'???d have to say that each person should simply do what he or she believes is best. Not that I am advocating ?EUR??,,????'??breaking the law?EUR??,,????'??, but as the article below notes, there are so stinking many laws, and many of them are so goofy and irrational and contradictory, that I do not believe it is humanly possible to be aware of (much less obey) all of the laws we are burdened with. I am certainly not planning to waste my life trying to read them all. Moreover, to the extent that many laws are passed simply as power impulses from scumbags, to impose their subjective beliefs on everyone else (e.g., prohibition), they totally lack any moral criteria, and they deserve to be ignored. Give me something simple like the Golden Rule.

A totally different analytical approach yields the same conclusion: look at the money issue. Taxes are about money. The Constitution says nothing but gold or silver shall be money, yet our government has given us un-backed fiat currency that has lost 95% of its value in the past 40 years. Paraphrasing Federal Reserve Governor Ben Bernanke: ?EUR??,,????'??we have a printing press, and we can print as much money as we want, anytime, at essentially no cost?EUR??,,????'??. Sad but true. Bottom line: tax laws are for controlling people, not for raising any necessary ?EUR??,,????'??revenue?EUR??,,????'??. They can print all the paper they want. We are in Iraq because Saddam started selling Iraq?EUR??,,????'???s oil for Euros rather than for dollars. The US government could care less how much oil costs as long as we can print whatever paper it takes. Just add more zeros. The government spends so much more than it collects in income tax plus corporate tax revenues anyway ?EUR??,,????'??? what?EUR??,,????'???s a little more debt? These jerks are destroying our currency, and the fiat dollar is going down the toilet as has every other paper currency in history. We are pushing $700 billion for our annual trade deficit, a trillion dollar annual budget deficit counting war costs, unfunded liabilities conservatively pegged at about $60 trillion, state pension programs that aren?EUR??,,????'???t in much better shape than GM?EUR??,,????'???s, about $400 trillion in exchange-traded derivatives, and another $250 trillion in over-the-counter derivatives, waiting for the trigger to collapse. Face it, the dollar is toast, and as soon as the US dollar loses its reserve currency status internationally (currently in progress) and we have to pay for our oil and other imports with a currency that has some actual value, our economy will also be toast. Hopefully, people who put in an honest days work can continue to receive and enjoy some form of the fruits of their labor ?EUR??,,????'??? without being bled dry by social parasites. Regards,

Dave Braatz

Mark Woodruff wrote in a general comment on 06/18/05

Writing to let you know how much I appreciated your article ?EUR??,,????'??take the cash?EUR??,,????'?? in the June issue. As well, some of our local competitors also do not pay overtime to the Hispanic workers and work them some 55-60 hours per week. We pay our folks at time and a half any hours worked over 40 per federal law.

It certainly is becoming very difficult to run the business legally with all the under the table work and pay surrounding the construction boom. It is now topped off with the INS threats and inability of Hispanic workers to get driver licenses. Perhaps two weeks nationally without any Hispanic labor might give the leftist liberals a new view. Like, go mow your own lawn, clean your own house, good luck getting house painted, stucco, grocery work etc.

Frankly, I remain flabbergasted at the lack of understanding by political leaders of what is truly going on in labor intense industries. I could find NO qualified people, experienced or not, willing to actually work until Hispanics arrived here. I was planning to sell my business, but now at least I have workers who respect the job and give a fairs days work. I just have to be constantly worried about what might happen if those ignorant of the facts have their way. And, then there?EUR??,,????'???s the cash taking guys that we have to bid against, sometimes I?EUR??,,????'???m not sure it is all worth it. Thanks for your article, it took guts. Wonder if you will get negative feedback now, FOR BEING HONEST!

Mark Woodruff, landscape company owner in southeast, approx 2 million in rev. this year

Todd Williams Wrote in on June 16, 2005

I was very disappointed with your June editorial ?EUR??,,????'??Take the cash or lose the work?EUR??,,????'??. As President of our state landscape contractor association, my primary initiative is to advance the professionalism of our industry. Landscape contracting has always been perceived as an unprofessional business due to factors similar to the issue you reference. This perception is well earned and we have a collective challenge to overcome this. Articles like yours only perpetuate the problem. When individuals inside or outside our industry read your statement ?EUR??,,????'??either you take the cash or lose the work?EUR??,,????'??, their perception of the industry is lowered. There are hundreds of ways to cheat the system, cheat clients or cheat employees to gain a competitive advantage in the marketplace. We all face these temptations daily in our professional and our personal lives. It is OK to honestly discuss temptations, but please be more clear as to the true personal and global consequences of giving in to them. Comparing running a cash business and blatantly disregarding labor laws to prohibition with the perspective of ?EUR??,,????'??everyone is doing it?EUR??,,????'?? is not responsible journalism. Everyone is not doing it. Those that are, are breaking the law and dragging down our industry. We all need to do everything we can to discourage this behavior, not help justify it.

Todd Williams Vice President/Regional Manager American Civil Constructors Rocky Mountain Light Civil