In many ways San Diego is a model of free enterprise. The city encourages and assists myriad small and fledgling businesses and promotes a vigorous pro-business philosophy. But the city's regulatory reality does not always measure up to its noble aspirations. While the City and County assist start-up enterprises in various ways, it remains difficult for people with little experience or capital to navigate the regulatory thicket. Regulations restricting entry into entry-level occupations like taxicabs and street vending are voluminous, complex, oppressive and anticompetitive. Moreover, governmental jurisdictions are overlapping.
This report examines both San Diego's successes in fostering entrepreneurship as well as the obstacles that remain. On the whole, we find San Diego is far more hospitable to enterprise than many other large cities, and its leaders seem genuinely committed to fostering new and small businesses. Still, too many barriers to entrepreneurship remain. San Diego's overriding challenge is to harmonize its policies and practices with its pro-entrepreneurial philosophy. This report is aimed at helping San Diego identify and remove unnecessary regulatory barriers so that the city can make a reality of its promise of opportunity.
Título original
Brightening the Beacon: Removing Barriers to Entrepreneurship in San Diego
In many ways San Diego is a model of free enterprise. The city encourages and assists myriad small and fledgling businesses and promotes a vigorous pro-business philosophy. But the city's regulatory reality does not always measure up to its noble aspirations. While the City and County assist start-up enterprises in various ways, it remains difficult for people with little experience or capital to navigate the regulatory thicket. Regulations restricting entry into entry-level occupations like taxicabs and street vending are voluminous, complex, oppressive and anticompetitive. Moreover, governmental jurisdictions are overlapping.
This report examines both San Diego's successes in fostering entrepreneurship as well as the obstacles that remain. On the whole, we find San Diego is far more hospitable to enterprise than many other large cities, and its leaders seem genuinely committed to fostering new and small businesses. Still, too many barriers to entrepreneurship remain. San Diego's overriding challenge is to harmonize its policies and practices with its pro-entrepreneurial philosophy. This report is aimed at helping San Diego identify and remove unnecessary regulatory barriers so that the city can make a reality of its promise of opportunity.
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In many ways San Diego is a model of free enterprise. The city encourages and assists myriad small and fledgling businesses and promotes a vigorous pro-business philosophy. But the city's regulatory reality does not always measure up to its noble aspirations. While the City and County assist start-up enterprises in various ways, it remains difficult for people with little experience or capital to navigate the regulatory thicket. Regulations restricting entry into entry-level occupations like taxicabs and street vending are voluminous, complex, oppressive and anticompetitive. Moreover, governmental jurisdictions are overlapping.
This report examines both San Diego's successes in fostering entrepreneurship as well as the obstacles that remain. On the whole, we find San Diego is far more hospitable to enterprise than many other large cities, and its leaders seem genuinely committed to fostering new and small businesses. Still, too many barriers to entrepreneurship remain. San Diego's overriding challenge is to harmonize its policies and practices with its pro-entrepreneurial philosophy. This report is aimed at helping San Diego identify and remove unnecessary regulatory barriers so that the city can make a reality of its promise of opportunity.
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Attribution No-Derivs (BY-ND)
Formatos disponíveis
Baixe no formato PDF, TXT ou leia online no Scribd
cnn y, AA Project of the Institute for Justice 4( ( ; he author and the
Institute for Justice
wish to thank the Jacobs
Family Foundation for the
generous support that made
this study possible.Executive Summary
In many ways San Diego is a model of free enterprise. The city encourages
and assists myriad small and fledgling businesses and promotes a vigorous pro-
business philosophy. But the city’s regulatory reality does not always measure up
to its noble aspirations. While the City and County assist start-up enterprises in
various ways, it remains difficult for people with little experience or capital to
navigate the regulatory thicket. Regulations restricting entry into entry-level
occupations like taxicabs and street vending are voluminous, complex, oppressive
and anticompetitive. Moreover, governmental jurisdictions are overlapping,
This report examines both San Diego's successes in fostering
entrepreneurship as well as the obstacles that remain. On the whole, we find San
Diego is far more hospitable to enterprise than many other large cities, and its
leaders seem genuinely committed to fostering new and small businesses. Still. too
many barriers to entrepreneurship remain. San Diego's overriding challenge is to
harmonize its policies and practices with its pro-entrepreneurial philosophy. This
report is aimed at helping San Diego identify and remove unnecessary regulatory
barriers so that the city can make a reality of its promise of opportunity.
REGULATORY BARRIERS & ZONING
Depending on the type and complexity, the planning process for review of a
business application can take anywhere from a few weeks to several months or
more.
Complaints about the zoning process are among the most frequent cited by
‘San Diego business owners and people starting businesses. The zoning process—
even for simple matters like obtaining permission for outdoor restaurant seating—
can be cumbersome, time-consuming, complex, and expensive.
This report recommends that the Office of Small Business and Small
Business Advisory Board conduct an audit of all business regulations to determine
in each case whether the regulation is narrowly tailored to fulfill a legitimate
governmental objective without unduly hampering enterprise. All ordinances and
regulations that do not meet this standard should be repealed.
BARRIERS TO ENTRY
Some businesses are subjected to special regulations that create additional
barriers to entry. Many such businesses, such as street vending, require relatively
little skill or capital, and should provide plentiful opportunities for entry-level
entrepreneurs, But even in the post-welfare-reform world, numerous arbitrary
regulations remain blocking the efforts of people who want to work.Among other conclusions, this report recommends that San Diego should
substantially relax restrictions on street and park vendors, recognizing them as an
important and legitimate means of enterprise. The government should also lift the
prohibition against street vending outside the downtown and Old Town areas.
CHILD CARE
Certainly the State has a strong interest in ensuring the health and safety of
children entrusted to the care of others. But not only are small and informal
childcare businesses an ideal means of entrepreneurship for people outside the
economic mainstream, convenient and affordable child care is a prerequisite for
people to be able to work.
‘This report recommends that the City prioritize encouraging zoning approval
for daycare centers, including programs operated as part of existing businesses. In
addition, to remove obstacles to daycare centers in the inner cities, the State should
ease indoor space requirements for children in daycare centers, and allow centers
that do not have their own outdoor space but are accessible to parks or
playgrounds. Finally, the State should eliminate the requirement that daycare
providers have formal college-level education.
‘TRANSPORTATION
Absent regulatory obstacles, private transportation services can provide an
excellent opportunity for entry-level entrepreneurship. Taxi-cabs, jitney vans, and
Kmousines are ideal small enterprises because startup costs are limited to the cost
of the vehicle and insurance plus driving skill and knowledge of geography.
Moreover, private transportation services benefit consumers by providing safe and
efficient alternatives to bighly subsidized public transit.
Unfortunately, in many cities this entrepreneurial avenue is thwarted by
regulations that exceed legitimate public health and safety objectives. Instead, they
protect public transit and established transportation companies from competition.
In San Diego, restraints on entry are not as harsh as in some other cities, but they
remain unduly restrictive.
This report recommends that San Diego eliminate the de facto ceiling on the number
of taxicab permits, allowing the market to determine the number of services rather than
insulating existing companies from competition. ‘The report also recommends that
taxicabs should be regulated only to the extent necessary to protect public health
and safety; e.g. insurance, safety inspections, and driver background check.
HOME-BASED BUSINESSES
Cottage industries were once a mainstay of American enterprise. Those days are
returning for advances in technology, increasing number of single-parent families and
stay-at-home parents, and other social forces have fomented an explosion of home-
based businesses.While San Diego has a comparatively progressive attitude toward such
enterprises, State regulations prohibit such activities as commercial food
preparation in the home. That restriction not only precludes home catering
businesses, it also prohibits food vendors such as the “tamale ladies” in San Diego's
impoverished immigrant neighborhoods.
This report recommends that San Diego ease rules on home-based
businesses, increasing the permissible number of employees, customers by
appointment, and vehicles, in addition, the State should rescind its prohibition of
‘commerefal food preparation in the home, allowing local governments to apply
ordinary health requirements to ensure public health and safety.
OCCUPATIONAL LICENSING LAWS
Occupational licensing laws artificially restrict entry into dozens of
professions. Indeed, an entire chapter of the California statutes regulates
businesses and professions. Rules for entry into a profession typically are set by
licensing boards comprised of members of the regulated profession with the
coercive power of government at their disposal, Often the rules far exceed legitimate
public health and safety objectives, and instead protect current practitioners
against competition from newcomers.
Few people would object to licensing of occupations that require high sisill
levels or present serious threats to public health or safety. But California's
licensing laws extend to many occupations that could be privately regulated,
such as land surveyors, landscape architects, interior designers, and court
reporters. ‘These regulations on entry unnecessarily limit competition,
particularly among those who have few economic resources to combat the
legalized cartels.
Among other suggestions, this report recommends that the State of California
should review all occupational licensing laws to (1) determine whether they are
necessary at all, or whether private certification instead adequately could protect
the public; and (2) ensure that requirements are narrowly tailored to ensure
proficiency and to protect public health and safety.
ACCESS TO CAPITAL
The largest real-world impediment to most new enterprises is access to
capital. Banks rarely make small business loans to start-up enterprises,
particularly to those that have no collateral or credit history.
‘This report recommends that the State release economic development
lenders from regulations that unnecessarily stifle microloans to new small
enterprises. Finally, the San Diego business and philanthropic communities
also should lend their acumen and resources to assist prospective
entrepreneurs in developing basic business management skills.PUBLIC EDUCATION
Undergirding other challenges is perhaps the most systemic barrier to
opportunity: the abysmal public education system. Although San Diego schools
are roughly on par with the state as a whole, that is not saying much: the National
Assessment of Education Progress reports that last year, California tied Louisiana
for the nation’s lowest reading and mathematics test scores. In the 1993-94 school
year, SDUSD reported a 16 percent dropout rate. Test scores of minority students
in San Diego lag behind non-minorities.
Because education is the foundation upon which business can flourish, the
report recommends that the business and philanthropic communities encourage
business internship opportunities in the public school system; fund scholarships
to allow children from low-income families to attend private schools; and support
the creation of new private schools in low-income neighborhoods. The California
legislature should adopt the Little Hoover Commission's recommendations to
increase the number, flexibility, and autonomy of charter schools, And finally, the
California legislature should adopt remedial school choice legislation, such as that
proposed by Governor Pete Wilson, to allow children in the worst public schools to
opt out into private schools.
‘This report presents concrete actions that can be taken—by the City of San
Diego, the State of California and business leaders—to open opportunities and
strengthen substantially the region's economic base. The dominant regulatory
philosophy should be that businesses are good for the community, and that whatever
regulations are necessary should impede entrepreneurship as little as possible.Contents
Introduction.
State of Entrepreneurship in San Diego ....
Navigating the Regulatory Maze
Barriers to Entry...
Access to Capital . 0... ccc csc eee eer eee ee eee 17
Conclusion 6... eee ee eee eee eee 22
Endnotes... 6.6... eee eee eee eel 23,
T=) Uy) AOSSARSGRSERD ONDE RSERBERDESNEGSERSERSESBESREEEEEE 26Introduction
“If something disturbs people in this country, it's illegal.”
—Sergey Autandilov, recounting what a realtor told him
upon immigrating to this country from Russia,!
Mexican immigrants pushing carts selling “paletas” (fruit-juice bars) on hot
summer days are a common sight in Logan Heights and along Imperial Avenue in
San Diego. But despite selling a popular product and earning a living for
themselves and their families, the pushcart vendors are outlaws, subject to
frequent harassment by police. Any effort to operate the pushcarts as lawful
enterprises is futile: street vending is prohibited in most areas of the city,
‘The spectacle of hauling people away for no greater crime than selling frozen
juice bars is a blight to the city’s reputation, for in many ways San Diego is a model
of free enterprise. The city provides encouragement and assistance to myriad small
and fledgling business enterprises and promotes a vigorous pro-business
philosophy. But the city’s regulatory reality does not always measure up to its
noble aspirations. While the City and County provide various forms of assistance
to start-up enterprises, it still remains difficult for people with little experience or
capital to navigate the regulatory thicket. Regulations restricting entry into such
businesses as taxicabs and street vending are oppressive and anticompetitive.
State laws regulating small-business lending and occupational licensing also
impede entry-level entrepreneurship. This report examines both San Diego's
successes in fostering entrepreneurship as well as the obstacles that remain.
‘This report is prepared by the Institute for Justice, a nonprofit public interest
law firm in Washington, D.C. that litigates to expand individual autonomy and
restrict the scope of the regulatory welfare state. One of the Institute's core
objectives is restoring economic libertythe freedom to earn an honest living in a
chosen business or occupation—as a fundamental civil right. In recent years, that
precious liberty has eroded, with devastating ramifications for people outside the
economic mainstream. Especially in light of national reforms emphasizing the
transition from welfare to work, it is essential to identify and remove unnecessary
regulatory impediments to entrepreneurship.2
‘The Institute recently has completed reports on regulatory barriers to
entreprencurship in six cities: New York, Baltimore, Boston, Charlotte, Detroit, and
San Antonio, We focused on entry-level enterprises—businesses and occupations
that require relatively little skill and capital. So that we could compare the relative
regulatory burdens, in each city we examined regulations covering the same entry-
level businesses and occupations—such as taxi-cabs, cosmetology, daycare, street
vending, and home-based businesses—as well as additional regulatory barriers
that came to our attention. As expected in a survey of cities that differ widely in
geography and demographics, the regulatory climates facing would-beentrepreneurs also vary widely. In each city, however, regulatory obstacles block
entry into many businesses and occupations.
In San Diego, we began by researching general regulations governing
business start-ups, and proceeded to investigate regulations governing the specific
entry-level businesses and occupations we studied in the other cities. In each case,
we interviewed both government officials and entrepreneurs. We have reported our
findings whether or not we found regulatory barriers in each of those areas. We
also interviewed local experts on the subject of business formation, and obtained
leads about other regulatory problems. Although we always attempted to obtain
justifications for regulations from appropriate government officials, in most
instances no explanations were provided.
On the whole, we find that San Diego is far more hospitable to enterprise than
many other large cities, and its leaders seem genuinely committed to fostering new
and small businesses. Still, too many barricrs to entrepreneurship remain. San
Diego's overriding challenge is to harmonize its policies and practices with its pro-
entrepreneurial philosophy. ‘This report is aimed at helping San Diego identify and
remove unnecessary regulatory barriers so that the city can make a reality of its
promise of opportunity.
State of Entrepreneurship
in San Diego
San Diego is blessed with a beautiful location, a nearly perfect climate, and a
diverse and enterprising population. Its population of 1.15 million people makes it
the sixth largest city in the United States.3 Its steady population increase makes
San Diego the sixteenth fastest-growing large city. San Diego's population is 9.4
percent black, 11.8 percent Asian, and 20.7 percent Hispanic. Nearly 21 percent
of its inhabitants are immigrants, giving San Diego the nation’s thirteenth largest
immigrant population,
As social analyst Joel Kotkin observed, San Diego “has benefited from what it
fortunately does not have: no vast municipal welfare state, no entrenched urban
underclass, no powerful municipal employee unions to skew spending priorities,
and no industrial union tradition to make its labor force rigid."* Though Kotkin's
assessment may be overly upbeat, the local economy is strong. Substantial pockets
of poverty exist, however. Among the city’s population, 13.4 percent live below the
poverty Jevel. Nearly one-quarter of the city's households are headed by a single
parent, and nearly nine percent of San Diego residents derive income from public
assistance,According to the Office of Small Business, 50,000 businesses are registered
in the City of San Diego. The city understands that enterprise offers a major part
of the solution to problems of poverty, and it has aggressively promoted and
supported business. Elected in 1992 in the midst of a serious recession, Mayor
Susan Golding reduced the size of government and cut fees and regulations for
businesses moving to or starting in San Diego. As a result, San Diego's combined
business taxes and fees are the lowest of all major cities.
Perhaps the strongest signal of the city’s commitment to new and small
enterprises was its creation In 1992 of the Office of Small Business. Likewise, the
‘Small Business Advisory Board was established in 1982 to develop a supportive
atmosphere for small business, to act as an ombudsman, to review existing laws
and regulations, and to explore opportunities for privatization. These entities have
compiled an impressive track record. Among other accomplishments, they have
twice fomented reduction in business permit fees for small businesses, and have
aided particular businesses to make the regulations that govern them clearer and
Jess onerous.?
‘The Office of Small Business administers numerous programs to assist small
businesses, including 14 business improvement districts in different areas of the
city, an urban main street pilot program, a storefront improvement program, a seed
capital grant program, and a business resource center.
In particular, the City's business “incubator,” the Business Innovation Center,
helps launch new businesses. Offices and business services are provided to small
businesses at below-market rates. Clients are also taught the City’s contract
bidding process, and the center posts bid information for government contracts.
‘The center has helped foster numerous successful businesses, including such
enterprises as Ric T's Tea Cakes and a carpet cleaning business.8
But the City’s pro-entrepreneurial philosophy does not always trickle down
the bureaucratic ranks, Entrepreneurs complain that the City's zoning, health,
and business regulations—and the bureaucrats who enforce them—too often
stymie the very entrepreneurs the city does so much to foster. "You go to the
regulators, and they feel their job is to say no, rather than to let their creative juices
flow,” says Ken M. Clark, Small Business Programs Coordinator at South-wesiern,
University. “They talk about self-sufficiency, then tie your hands, make you walk
the plank, and say “we hope you're self-sufficient’
“Artificial barriers eat people up psychologically,” Clark observes. “People
have a nonaccommodating mindset when they're in public service. Why do they
look for a way to say no to an entrepreneur, rather than a way to say yes?”Navigating the Regulatory Maze
‘A number of regulatory requirements are common to starting all new
businesses in San Diego. Some are particularly onerous and are discussed in
greater detail below. But the overall process that confronts all new entrepreneurs
seeking to operate any lawful business deserves separate initial treatment.
‘The process entails both good and bad news for entrepreneurs. The good
news is that San Diego has taken several steps to help guide prospective businesses
through the regulatory process. The County of San Diego Office of Trade and
Business Development has prepared a comprehensive guide titled Getting Down to
Business, which lists federal, state, county, and city requirements as well as the
names and addresses of agencies and resources. The City’s Office of Small
Business has created a similar brochure for businesses within the city. The San.
Diego Regional Permit Assistance Center was established downtown to assist
prospective businesses with obtaining requisite city, county, state, and federal
permits. As Ken Clark correctly observes, “The people there try to be facilitators,
rather than regulators.”
‘The bad news is that the regulatory requirements are voluminous and complex.
Moreover, governmental jurisdictions are overlapping and confusing. The state,
county, and city governments all tax and regulate businesses.!0 San Diego County
includes 18 cities as well as unincorporated areas. Technically, a business needs @
permit in every jurisdiction in which it does business. Some county requirements
apply to all businesses; others apply only to businesses in unincorporated areas.
Each city has different processes and regulations. Several observers mentioned that
the City of Chula Vista has an especially progressive and business-friendly regulatory
system; other cities earn lower marks, Navigating this regulatory maze is
treacherous, particularly for people with little experience and few resources.
“The county business guide lists the following as some of the requirements for
starting a business!
Check Zoning. Business owners may have to obtain zoning permission for
“discretionary uses,” “conditional uses,” new or remodeled buildings, new
businesses in existing buildings. or temporary uses. If the business is not
compatible with existing zoning, the business must of course obtain special
permission. The depiction of that process is chillingly stark:
Depending on the type and complexity of the application, the planning
process for review and approval or denial can take anywhere from a few
weeks to several months or more. The process may involve
environmental review in order to comply with the California
Environmental Quality Act (CEQA).
Public hearings may be required, 12
eae ees ene cetObtain Commercial Building Permits. Building permits are required
whenever a business makes physical or cosmetic changes to the exterior or
interior of a building or constructs a new building; and for any electrical,
plumbing, or mechanical work.
Obtain Sign Permit. Businesses must obtain approval and pay a fee for all
exterior signs or promotional banners.
Check Fire District Requirements and Obtain Safety Inspection.
File a Fictitious Business Name Statement. All businesses operating under
anything other than the owner's full legal name must file a statement and
publish a newspaper notice.
Obiain a Business Certificate. All businesses and people engaged in
professions and trades must obiain a business certificate and pay a business
certificate tax. ‘The certificate does not evidence authority to operate or
compliance with regulations, but merely that the tax has been paid. In the
City of San Diego, the business tax is $34 per year for most businesses with
fewer than 12 employees, plus a zoning use clearance fee of $12.
Certain businesses require special licenses and/or permits from local
authorities. San Diego County issues special licenses or permits for 30 types
of businesses, such as teenage dances, swap meets, fortune telling, and
taxicabs, The city maintains similar requirements.
File Articles of Incorporation/Register a Trademark/Pay Franchise Tax. The
state charges an annual minimum franchise tax of $800 for all corporations
authorized to issue stock (along with a $100 incorporation fee). No
‘exemption exists for small businesses. The Small Business Advisory Board
staff reports that many new and small businesses do not incorporate in
order to avoid the annual franchise tax.!9
Obtain a Seller's Permit, If Needed. In addition to local regulations, the
California Board of Equalization requires seller's permits for certain
activities.
Obtain Agricultural Permits or Registrations, If Necessary.
Register Weights and Measures Devices Used in Business.
Apply for Alcoholic Beverage License, If Needed.
Determine if Business is “Police-Regulated”. Certain businesses and
professions, such as adult entertainment, carnivals, explosives, fortune
telling, and taxicabs, require investigations by the county sheriff.
NAARObtain State Licenses for Specific Businesses and Professions. At least 35
regulatory boards exist to provide licenses for professions ranging from
accountants and landscapers to barbers and shorthand reporters.
Obtain Environmental Health Permits for Certain Businesses.
Obtain Air Pollution Control Permits for Certain Businesses,
Obtain Wastewater Discharge Permit. All new buildings and new occupants
in existing buildings must obtain this permit.
State Requirements Related to Employees. Applicable state regulations
include workers’ compensation, fair employment, occupational safety, wage-
hour, and child labor requirements.
Pay Business Personal Property Tax. All businesses must pay an annual
state tax on property held for business purposes, appraised at market value.
Pay State Income or Corporate Income Tax. Every business must pay an
annual state income or corporate income tax,
Obtain State Employer Tax Identification Number,
‘Once a business has successfully completed this regulatory process and
paid the requisite fees and taxes, then—and only then—can it operate lawfully.
Many of the requirements are justifiable, but the sum total is overwhelming. Little
wonder that many new and small businesses fail or operate outside the mainstream
economy.
Zoning. Complaints about the zoning process are among the most frequent,
cited by business owners and people starting businesses in San Diego. AS
described above, the zoning process—even for so simple a matter as obtaining
permission for outdoor seating at a restaurant~can be cumbersome, time:
consuming, complex, and expensive. The City’s zoning process, to put it mildly,
conflicts with the City's policy of fostering small businesses
‘A prime example is the recent practice of imposing “sunset” limits on
conditional use permits. Such permits are necessary for uses of property that are
inconsistent with local zoning requirements, For the past few years, the City has
begun a policy of approving conditional use permits that will expire upon a date
certain—therefore imperiling the business that depends on the permit. The City
has no standards to guide its discretion on such matters,
One frustrated businessman, Philip Linssen of Iskate Inc., remarks, “It's
scary, the Planning Commission is not committed to seeing small business
succeed."14 He should know: his company has invested over $250,000 in a
business, the San Diego Ice Arena, which transformed a deteriorating property into
eens
6a family-oriented recreation facility. But a sunset provision on the company's
conditional use permit threatens its future.
The Small Business Advisory Board has made a priority of reforming the
City’s zoning practices. A recent letter to Mayor Golding from board chairman
George P. Chandler, Jr., set forth the board's views on the Iskate controversy and
the sunset practices generally:
Such a sunset provision clouds the economic viability of the business by
prohibiting long term planning and financing of its facilities. Furthermore, it
restricts the firm's future salability as an ongoing commercial concern. It is the
Board's opinion that this virtually constitutes what amounts to a de facto
condemnation. Consequently, we recommend that this CUP be issued without the
sunset provision. Additionally, we believe the Council should review Planning
Commission policies and procedures to assure that they are “business friendly."15
Recommendations
1. The Office of Small Business and Small Business Advisory Board—in
concert with entrepreneurs, the San Diego Business Partners, and community
leaders—should conduct an audit of all business regulations to determine in
each case whether the regulation is narrowly tailored to fulfil a legitimate
governmental objective without unduly hampering enterprise. They should
recommend repeal or reform of all ordinances and regulations that do not meet
this standard. All new regulations should be measured against this standard.
2. The City should conduct a summit with the heads of all City agencies to
make sure they understand and support the City’s policy of encouraging
enterprise.
3. San Diego-area governments should coordinate and harmonize their
business regulatory requirements to reduce confusion among jurisdictions.
‘That effort also could commence with a summit among all local governments
with a goal of reducing and streamlining regulations.
4, Local governments should expand the one-stop permit centers to
encompass more of the requisite approvals, to make the paperwork simple and
efficient and to take as little time as possible. Counselors should be available
to walk entrepreneurs through the entire process, including as many federal
and state requirements as possible. Entrepreneurs should be able to leave the
center with all they need from the government to commence a lawful business.
One possibility is to provide a “provisional business permit,” evidencing that the
applicant has fulfilled the essential basic requirements applicable to most start-
up enterprises. City agencies that have additional requirements could then
contact the businesses rather than placing the initial burden on the
entrepreneurs to scour the regulatory universe and determine which
regulations apply.5. The City and County should implement its zoning and planning
department functions in a manner that does not interfere with economic
development, so that the local government's business-friendly philosophy is
not inadvertently subverted by the zoning bureaucracy. Zoning and
planning approvals, particularly for new and small businesses, should be
streamlined, with strict time limits for consideration of applications, adverse
decisions made with specificity in writing, and prompt appeals. Processes
should be simple and inexpensive so that small and fledgling businesses can
understand and afford them.
6. The City should repeal “sunsets” on conditional use permits and abandon
the practice.
7. In accord with oft-repeated recommendations from small business
advocates including the Small Business Advisory Board, the State should
abolish the minimum franchise tax for new and small businesses.
Barriers to Entry
In addition to the regulatory thicket that all new businesses face, some
businesses are subjected to special regulations that create additional barriers to
entry. We have surveyed below regulations on businesses that ordinarily require
relatively little skill or capital, and that in a rational regulatory environment should
provide plentiful opportunities for entry-level entrepreneurs.
STREET VENDORS
Scratch the surface of many of America's greatest business success stories
and you'll find their roots in street enterprise. But that won't happen anytime soon
in San Diego.
Nowhere is the dichotomy between San Diego's dominant free enterprise
philosophy and the regulatory reality more stark than in the local government's
strict restrictions of street vendors.!® Of the seven cities surveyed by the
Institute for Justice, San Diego maintains the most restrictive regulations on
street vendors. The city’s proximity to the Mexican border and its flourishing
tourist trade lend themselves to a bustling street vendor industry—a promising
avenue for bootstraps enterprise thwarted by the City's strict regulations. The
juxtaposition between the large number of street vendors actually operating in
‘San Diego and the severe limits of the law suggests that the vast majority of
street vendors are operating illegally,Sylvia Martinez of the Metro Area Advisory Committee on Anti-Poverty in San
Diego County (MAAC) puts the matter succinctly: “There's a lot of people who
‘would like to retail, near their homes and on their own streets, but they can't."17
Not only pushcarts selling paletas, but “tamale ladies" selling home-prepared
Mexican foods and purveyors of all manner of food and merchandise are precluded
from street-hased enterprise by the City’s regulations.
Anyone doing business on public property must obtain approval from the
Development Services Center.” However, stationary vending and pushcarts on
public property are prohibited altogether except in the downtown and Old Town
areas. Pushcarts may offer only food or flowers; merchandise may be sold only at
stationary locations. Pushcart operations also require permission from the
adjacent owners of private businesses. The pushcarts must maintain an eight-foot
area away from buildings or other obstructions. They must also be located within
25 feet of toilet facilities, with written permission from the owners allowing patrons
to use them. All vendors located on public property must secure $1,000,000 of
liability insurance.
‘The Development Services Center issues “discretionary permits” to authorized
vendors for a one-time fee of $475. If the cart is sold, a new permit must be
obtained by the purchaser. Although technically no limit exists to the number of
vending permits, the overall effect of the restrictions is severe: City officials report
that only two new permits were issued over the past year, both of them to replace
previous vendors at the same locations.
Vendors selling flowers, fruit, or vegetables grown by someone else must
obtain a Cash Buyer's License each year from the California Department of Food
and Agriculture. The fee ranges from $100-$600 based on the amount of
purchases,
‘The county Health Department also issues permits and inspects pushcarts.
‘The permits cost $50 per year for prepackaged nonperishable foods and $225 for
perishable foods or foods prepared on-site, No food prepared off-site may be sold
unless it was prepared in a licensed commercial kitchen. Pushcart vendors selling
food must take a three-hour food handler's course and examination, renewable
every three years by taking the examination again.
Public parks in San Diego also have restrictive vendor policies. The City does
not allow any vending in community or neighborhood parks except during special
events, such as softball tournaments. Permits must serve a "park need” and are
limited to specific dates, times, and locations. Pushcarts must possess all other
requisite government permits, and may sell food only. With all these requirements,
the Parks Department only issues approximately six permits per year. Ice cream
reportedly is sold illegally in some community and neighborhood par!
*Vending may take place on private property if consistent with zoning regulations. It is stil
subject to the general vendor regulations discussed in this section.
9Regional parks maintain their own regulations regarding vendors. At Balboa
Park, the Parks Department leases out one concession stand and issues permits for
five or six pushcarts, The rules specify that no commercial gain may be made on
park land, and the City enforces that rule by taking 22 cents of every dollar grossed
by pushcarts. Still, pushcarts can gross between $1,000 to $2,000 per day in
Balboa Park.
At Mission Bay Park, the government allows major lessees (such as Water
World, Princess Cruises, and the Hilton) to permit vendors and concessions that
comply with applicable regulations. As part of their lease agreements, the lessees
must provide between three and seven percent of their profits from food and
merchandise to the City. The City forbids other vendors to operate within one-half
mile of the lessee pushcarts. In the remainder of its land, the park uses a request-
for-proposals process to award pushcart permits. Presently, a single company has
‘a contract to operate all pushcarts within the park. However, because of its desire
to support small businesses, the park plans to divide up vendor sites and award
multiple permits in future RFPs.
Recommendations
1. Local government should substantially relax restrictions on street and
park vendors, recognizing them as an important and legitimate means of
enterprise.
2, The government should lift the prohibition against street vending outside
the downtown and Old Town areas.
3. Legitimate public health and safety considerations can be met by
maintaining the current rule requiring minimal clearance between street
vendors and buildings or other forms of obstruction; and through health
inspections of food vending operations. The government reasonably may
limit the number of permits in certain areas to avoid congestion, but the
burden should be on the government to demonstrate the necessity of any
limits.
4, The requirements of approval from adjacent businesses and access to
toilet facilities should be repealed.
CHILD CARE
Of all the possible types of businesses, it is perhaps most essential to avoid
over-regulation of child care. Certainly the State has a strong interest in ensuring
the health and safety of children entrusted to the care of others. But not only are
small and informal child-care businesses an ideal means of entrepreneurship for
people outside the economic mainstream, conventent and affordable child care is a
prerequisite for still other people to be able to work, State and local governments
10should take all possible steps to encourage child-care businesses and to tailor
regulations to ensure they are not unduly expensive or obstructive.
Regulation of child care takes place primarily at the state level. Fortunately,
the regulations generally seem reasonable. Reports vary on whether a child-care
shortage exists in San Diego. The YMCA says that 7,000 families and 10,000
children are currently wait-listed for child care in San Diego.18
Home child care. Two types of family (at-home) day-care licenses are
available; small family day care, which allows up to six children below age ten; and
large family day care, which allows up to 12 children under age ten and requires a
helper.!® Both licenses require a $25 application fee, as well as a license fee of $25
for small family day care and $50 for large family day care. All persons living in the
hhome must be tested for tuberculosis, and providers must submit to fingerprinting
and a background check. The state requires triennial inspection of small homes,
and requires a “fire clearance” inspection for large homes. Providers may have up
to 12 children without zoning approval from the city; more than that number
requires a conditional use permit 20
Family day-care providers must be at least 18 years old and fulfill minimal
training requirements: a total of 15 hours of CPR, First Aid, and preventative health
practices. Helpers must be at least 14 years old and have training in CPR and First
Aid. The state does not provide training but approves vendors, many of whom
provide training in languages other than English. Day-care providers need not
speak English, making the business accessible to immigrants.
Day-care centers. Day-care centers also must obtain a state license. The
cost of application and license fees is the same, and is based on the center's size,
starting at $100 for a day-care center with up to 30 children. The center must
maintain at least 35 square feet of indoor space per child and 75 square feet of
outdoor space. Generally the maximum teacher-to-children ratio is 1:6 for toddlers
and 1:12 for older children.
Day-care center directors must meet one of the following qualifications: (1) a
high school diploma or GED, 15 semester units in early childhood education, and
four years teaching experience in a licensed day-care center or group child-care
program; (2) an associate degree with a major in early childhood education and at
least two years teaching experience; (3) a bachelor's degree with a major in early
childhood education; or (4) a Children’s Center Supervisory Permit issued by the
California Commission for Teacher Preparation and Licensing. Teachers must
obtain at least six units of early childhood education before employment, and must.
obtain at least two additional units per semester for a total of 12 units following
employment. Additional formal training is required for infant care center directors
and teachers.
WRecommendations
1, ‘The City should assign a priority to encouraging and providing zoning
approval for day-care centers, including programs operated as part of
existing businesses.
2. To remove obstacles to day-care centers in the inner cities, the State
should ease indoor space requirements for children in day-care centers, and
allow centers that do not have their own outdoor space but are accessible to
parks or playgrounds.
3. The State should allow day-care center teachers to obtain training
through apprenticeships and/or community programs rather than requiring
formal college-level ecucation.
TRANSPORTATION
Among the odder sights a person can see in San Diego are white Volkswagen
Beetles transporting passengers around town. The reconditioned cars are owned
by Bug Express, a company launched in 1994 by entrepreneurs Rick Reed and
Chris Brady, who invested everything they owned in the enterprise. They offer
prearranged transportation for a fixed price less than the cost of a taxicab. But they
cannot pick up street hails or use a meter. The reason: as a “charter” service, the
company is regulated by the California Public Utilities Commission, which imposes
few restrictions on such services. Taxicabs, by contrast, are tightly regulated by the
Metropolitan Transit Development Board (MTDB), and new entrants are
discouraged
Entrenched taxicab companies want to keep it that way. “What most of the
taxi owners are saying is, we want a level playing field with our competition,”
remarks Anthony Leone of Yellow Cabs, which owns more than one-third of the
scarce taxicab permits. Or maybe not so level: many local taxicab owners, Leone
says, favor rewriting state rules to forbid competition from charters and squash
companies like Bug Express.2}
Absent regulatory obstacles, alternative transportation services can provide
an excellent opportunity for entry-level entrepreneurship. Taxi-cabs, jitneys
(usually vans that operate along fixed routes and charge a flat fee), and limousines
are ideal small enterprises. Such services typically require only the cost of the
vehicle and insurance plus driving skill and knowledge of geography. Moreover,
private transportation services benefit consumers by providing alternatives to
highly subsidized public transit.
Unfortunately, in many cities this entrepreneurial avenue is thwarted by
regulations that exceed legitimate public health and safety objectives. Instead, they
protect public transit and established taxicab companies from competition.22_In
12San Diego, restraints on entry are not as harsh as in some other cities, but they
remain unduly restrictive and thereby stifle entrepreneurship and valuable
transportation options.
All “paratransit” vehicles—taxicabs, jitney vans, and limousines—in San
Diego are regulated by the MTDB. All vehicles require an MTDB?8 permit, a
driver's identification card that costs $65, insurance, and an annual inspection that
costs $245. Drivers must take an MTDB course that teaches personal safety and
courtesy.
Taxicabs. Approximately 900 taxicab permits exist in San Diego, which is the
de facto limit because the board has issued few if any new permits in recent years.
About 150 taxicab businesses consist of a single cab, while the remaining permits
are spread among 70 owners. Because of the limit on new permits, existing permits
are sold on the market for prices ranging from $20,000 to $50,000, depending on
whether the permit is accompanied by a car, an airport permit, and “bell” (dispatch)
service. A permit transfer also requires a $2,000 fee plus $200 for each additional
vehicle. These numbers illustrate the state of the taxicab market in San Diego:
they provide an opportunity for small enterprises, but are out of reach to
entrepreneurs with little capital.
‘An additional permit from the Unified Port District 1s required for airport
pickups. The airport issues only 200 permits.
By artificially limiting entry into the taxicab industry and making the limited
permits economically precious, the City may unwittingly contribute to an
atmosphere of fear. One official of a company that wants to expand from charter
car services into the taxicab business canceled an appointment with me out of fear
of unspecified “retaliation” from existing taxicab companies, and others who hope
for a permit also refused to meet with me. When I recounted this experience to an
informed observer, he remarked of the would-be taxicab entrepreneurs, “they'll
wind up in a car trunk" if they complain publicly. The City should not abet a
system that serves to protect entrenched economic interests against competition.
Jitneys. Jitneys operated within San Diego until approximately 15 years ago,
serving primarily military personnel and afrport passengers. As military bases
closed and hotels started offering their own airport shuttles, jitneys within the city
declined as a viable transit option.
But as the public transportation costs and trafiic congestion grow, jitneys can
provide a solution, along with a means of entry-level enterprise. “Particularly in
low-income communities, people have serious transportation issues,” says MAAC’s
Sylvia Martinez. But MTDB must approve all routes, and opposes allowing jitneys
to compete on public transit routes.
One entrepreneur, Sergey Autandilov, calls jitneys an “excellent family
business” because of the low capital required. But he found the best routes within
13the city blocked by government regulation. “In an open competitive market, it is
not government's business to control the market,” he declares. “People should be
able to choose the best service for themselves.”
In contrast with the dearth of jitneys operating within the city, most jitney
businesses in the area today cross municipal lines and therefore are subject to less-
onerous regulation by the California Public Utilities Commission.24 The PUC
issues “passenger stage corporation” permits for door-to-door transportation
services, including airport service. Permanent permits cost $500, with additional
costs for expanded service or permit transfers, The PUC requires at least $750,000
of insurance coverage depending on vehicle capacity, as well as alcohol and drug
certification for drivers. The commission does not limit the number of permits, and
estimates it has issued more than 1,000 statewide.
Charter services. The PUC also issues “charter party” permits for all pre-
arranged transportation businesses that charge a group rate. The fee is $500 for a
permit that is renewable every three years. The commission requires insurance
ranging from $750,000 to $5,000,000, depending on vehicle capacity. No limit
exists on the number of permits, and the PUC estimates approximately 2,000
charter party permits exist state-wide, with about 200 in the San Diego area. The
proliferation of intensely competitive charter services demonstrates what can
happen when regulations are reasonable rather than protectionistic.
Recommendations
1. The Office of Small Business and Small Business Advisory Board should
canvass opportunities for privatization out of City services, and should ensure
that contracting out procedures are accessible to small businesses and
community economic development organizations.
2. San Diego should eliminate the de facto ceiling on the number of taxicab
permis, allowing the market to determine the number of services rather than
insulating existing companies from competition,
3, The MTDB should reduce the cost of taxicab permit transfer fees.
4. The MTDB should regulate taxicabs only to the extent necessary to protect
public health and safety; e.g. insurance, safety inspections, and driver
background check.
5. The San Diego District Attorney should investigate the taxicab industry to
determine whether corruption or illegal intimidation exists.
6. The City should study whether it could turn over or contract out city bus
routes to private jitney enterprises, including possibly nonprofit community
operated services. Such services might also be used as feeders for public
transportation or to provide transportation for workers to jobs outside the city,
4HOME-BASED BUSINESSES
Cottage industry at one time was a mainstay of American enterprise. Those
days are returning for advances in technology, the proliferation of single-parent
families and stay-at-home parents, and other social forces have fomented an
explosion of home-based businesses. “Now not only are there mom and pop
operations, but you've got professionals who use all the resources their home can
offer,” observes Katrina Newby, executive director of the Home Business Network.
“It's an entire industry."25
In many areas, regulations have not kept pace with reality and unduly restrict
home-based businesses. Obviously, home-based businesses lend themselves to
concealment, so any excessive regulatory obstacles will drive such businesses
underground. In such instances, “people feel they have to do something behind the
government's back,” reports Newby.
Fortunately, San Diego has a comparatively progressive attitude toward such
enterprises, though not progressive enough. People doing business in their homes
must comply with all regulations applicable to businesses generally, and must
obtain from the Development Services Department a home occupation permit,
which costs $150, and a zoning use certificate.2° The businesses must not serve
customers at the home or disrupt the residential neighborhood. Home-based
businesses may request a variance to have more than one employee, to allow
customers by appointment, or to have more than one vehicle. Variances are
granted after a hearing and requires the approval of neighbors.
State regulations prohibit commercial food preparation in the home
altogether2?, although local zoning rules apparently do not forbid home-based food
preparation. Not only does that restriction preclude home catering businesses, it
adds another layer of regulatory prohibition against food vendors such as the
“tamale ladies” in San Diego’s impoverished immigrant neighborhoods.
Recommendations
1, San Diego should ease rules on home-based businesses, increasing the
number of employees, customers by appointment, and vehicles that home-
based businesses can have without obtaining a variance.
2. The State should rescind its prohibition of commercial food preparation
in the home, allowing local governments to apply ordinary health
requirements to ensure public health and safety in such enterprises,
OCCUPATIONAL LICENSING LAWS
Occupational licensing laws, usually enforced at the state level, artificially
restrict entry into dozens of professions. Indeed, an entire chapter of the Californiastatutes regulate businesses and professions. Rules for entry into a profession
typically are set by licensing boards comprised of members of the regulated
profession with the coercive power of government at their disposal. Often the rules
far exceed legitimate public health and safety objectives, and instead protect
current practitioners against competition from newcomers.
Few people would object to licensing of occupations that require high skill
levels or present serious threats to public health or safety. But California's
licensing laws extend to many occupations that certainly could be privately
regulated, such as land surveyors*8, locksmiths29, landscape architects90,
interior designers?!, and court reporters®2, To the extent that regulations on entry
exceed legitimate public health or safety objectives, they unnecessarily limit
competition, particularly among those who have few economic resources to combat
the legalized cartels,
A prime example is hairbraiding, a centuries-old art brought to this country
by Africans. Today, thousands of hairbraiders operate across the country, usually
in their own homes. Nearly all operate outside the law.
California's rules are particularly oppressive. Anyone who arranges hair must
obtain a cosmetology or barber license from the California Board of Cosmetology
and Barbering ® A cosmetology license requires 1,600 hours of prescribed formal
training, virtually none of it directly related to hairbraiding, followed by a practical
examination that does not test hairbraiding, No specialized license is available,
Applications are available only in English, and it Is difficult if not impossible for
people who do not speak English to complete the courses and pass the
examination.
‘The effect of the licensing rules is that well-trained hairbraiders either must
spend vast time and resources to learn and demonstrate proficiency in practices
unrelated to hairbraiding, or operate illegally without a license. The law works
particular hardship on African immigrants, who could teach the cosmetology board
how to braid hair but can't pass its test. “Why can't they take the exam in Swahili?”
asks MAAC'’s Alexei Ochola.34 The licensing process is “totally irrelevant to what
they want to do,” adds Sylvia Martinez.
Italso deprives the industry of legitimate status. JoAnne Cornwell, who chairs
the Africana Studies Department at San Diego State University, braids hair in her
hhome.35 She is so proficient that she has created a unique braiding style called
“sisterlocks,” which was featured in the fall 1996 issue of Black Hair Styles. “I
should be teaching other people, but there's no way can do it," Comwell laments.
“To think that every time I train somebody I'm breaking the law, that's absurd.”
Like most home-based braiders. the state ignores JoAnne Cormwell, But when
she tries to open a salon in the near future, she knows the regulators will swoop
down on her, and she will have trouble obtaining capital. “There's no way in for me.
There’s no way to make this legitimate, without a change in the law,” Comwell
16declares, She favors private certification rather than a specialized license. “There's
nothing the Board of Cosmetology could add to that,” Cornwell argues.
In driving the industry underground, the regulations also have the perverse
effect of diminishing tax revenues and removing businesses from the scrutiny of
health inspectors. By vastly overregulating the business, the State's cosmetology
rules serve the interests of neither producers nor consumers—only the narrow
interest of economic protectionism.
In January 1997, the Institute for Justice filed a lawsuit challenging the
constitutionality of the cosmetology regulations on behalf of JoAnne Cornwell and
the American Hairbraiders and Natural Haircare Association. Federal District Judge
Rudi Brewster denied the government's motion to dismiss the lawsuit on May 2,
1997.56 The case is a significant step toward ensuring economic liberty for
entrepreneurs.
For the time being, at least, the Board of Cosmetology and Barbering has
ceased to exist, a deserving victim of California's regulatory agency “sunset” law. But
the laws remain on the books, passing to other regulatory hands to administer. The
agency's nebulous status only adds to the uncertainty of hairbraiders who are trying
to earn an honest living
Recommendations
1, The State of California should review all occupational licensing laws to (1)
determine whether they are necessary at all, or whether private certification,
instead adequately could protect the public; and (2) ensure that requirements
are narrowly tailored to ensure proficiency and to protect public health and
safety.
2. The State should deregulate the hairbraiding profession, allowing local
officials to apply ordinary health and safety standards.
Access to Capital
‘The largest real-world impediment to most new enterprises is access to
capital. Banks rarely make small business loans, particularly to compantes that
have no collateral or credit history. San Diego is not a banking center and lost
three of its largest financial institutions in the early 1990337, with the result that
it has little indigenous capital for lending.
‘The regulatory barriers to business formation discussed in the preceding
sections compound this challenge. For in order to have any chance at securing the
capital necessary for survival and growth, a company must be legal. Regulations
7and excessive taxes that drive businesses into the underground economy also
forever sentence those businesses to economic marginality. Furthermore, state
regulations governing loans for small and startup businesses—and the nonprofit
entities that make such loans—are burdensome, further limiting access to capital
for entry-level entrepreneurs.
A number of efforts are underway in San Diego to make capital more readily
available to promising new enterprises. The City itself has a seed capital program,
which in the last fiscal year made grants totaling $131,000 to groups providing
assistance to underserved populations of small business owners.98
Private organizations are directly providing “micro-loans" to new small
businesses that cannot obtain capital through traditional sources. Through the
efforts of 20 local banks, the Bankers Small Business Community Development
Corporation (Bankers CDC) makes loans from $2,500 to $35,000 available to
businesses that do not meet criteria for conventional bank loans or Small Business
Administration loans.99 At an even more basic level, a nonprofit group called
ACCION makes loans from $300 to $25,000 to small enterprises.4° According to
‘Villa Mills, who heads ACCION San Diego, the group's purpose is “to build a good
credit history” so the businesses can secure capital through ordinary channels
thereafter, Last year, the microlender made 175 loans, with a high repayment rate.
ACCION emphasizes a quick and simple application process, basing its
lending decisions on personal credit history and on the community and human
capital resources available to the new business. ACCION is housed in the San
Diego World Trace Center, where the city provides free rent in exchange for services.
The group is “not a social service agency, but we would be remiss not to evaluate
the ability of the person and the family to sustain a business,” Mills explains.
ACCION tries to transition companies to the regular banking community after one
year and for loans above $7,500.
Not surprisingly, lending regulations hamper this effort. ACCION operates in
five states, but California poses by far the most onerous regulatory obstacles.4!
“This is not banking, it's economic development,” Mills stresses; but unfortunately
the regulations do not comprehend the distinction. Even after companies establish
a successful credit history with ACCION, she reports, banks sometimes still are
reluctant to make loans because “regulators are beating down on them.” Moreover,
despite its nonprofit status, ACCION is forced to comply with myriad California
regulations covering ordinary lenders like Bank of America, because no special
rules or exemptions exist for non-profit lenders or economic development. Among
other things, the group is required to post a $50,000 bond, maintain $25,000 on
hand (‘If youre a nonprofit, that's a large amount of money to have sitting in the
bank,” Mills observes), comply with extensive disclosure requirements for directors.
submit to unannounced government audits for which the group must pay $75 per
hour, obtain pre-approval for advertising, and endure a complex annual licensing
process with hefty fees. ACCION has had to devise creative strategies to help loan
applicants deal with collateral requirements. “We have to play all these stupid
18games,” Mills complains. An official at the California Department of Corporations
could not explain why nonprofits such as ACCION were forced to abide by the same
regulations as large commercial lenders, or why regulations in California are more
onerous than in other states.42
Beyond securing loans, a challenge for new enterprises is developing the basic
management skills necessary to operate a successful business and acquire capital.
“We have found that government agencies have not been any good at technical
assistance for start-ups,” recounts Art Goodman of Bankers CDC. That means
nonprofit lenders like ACCION must tale on training functions to ensure the long-
term success of new enterprises—functions that the regulations do not contemplate.
A recent economic summit of San Diego entrepreneurs sponsored by the
Jacobs Family Foundation underscores these twin challenges: nearly every
participating entrepreneur responded that greater access to capital and technical
assistance are needed in San Diego.*2 Though government regulations seriously
impede microlending, it is the private sector that ultimately can best overcome
those challenges.
Recommendations
1. Policymakers should understand that excess business regulation and
taxation have the effect of driving businesses underground, which deprives
the society of legitimate enterprises and tax revenues, and deprives the
businesses of access to capital. This reality has special resonance for
companies started by people with little skill, capital, or proficiency in
English.
2. The State should release economic development lenders from regulations
that unnecessarily stifle microloans to new small enterprises.
3. The San Diego business and philanthropic communities should lend
their acumen and resources to assist prospective entrepreneurs in
developing basic business management skills.
PUBLIC EDUCATION
Undergirding other challenges is perhaps the most systemic barrier to
opportunity: the abysmal public education system. “Education is the backbone of
entrepreneurship,” remarks Art Goodman of the Bankers CDC. “They have to have
the foundation.” But that foundation is sorely lacking for many in San Diego. The
San Diego Entrepreneurs Economic Summit identified a lack of education, training
and skilled labor among the critical causes of gaps in services in San Diego. ‘There
is “absolutely no awareness about what entrepreneurship is all about in the
schools,” says ACCION's Villa Mills, She notes that in impoverished areas, kids are
much more likely to learn about economics from drug transactions rather than in
_eeeeeemammennnennerenantsnenarepeinent esc
19school. “Redirecting that into process and curriculum" would help greatly, she
suggests.
Although San Diego schools are roughly on par with the state as a whole, that
is not saying much: the National Assessment of Education Progress reports that
last year, California tied Louisiana for the nation’s lowest reading and mathematics
test scores.44 In the 1993-94 school year, SDUSD reported a 16 percent dropout
rate. The school district is heavily minority, with 26 percent Hispanic and 17.8
percent black students."5 Test scores of minority students in San Diego lag behind
nonminorities.45
Business and philanthropic groups have poured resources into the public
schools, The Girard Foundation, for instance, has strived to increase parental
involvement in the public schools through support for the Parent Institute for
Quality Education, which serves first-gencration immigrants, and the Center for
Parent Involvement in Education.47 Some of the schools have instituted
entrepreneurship programs with community support,
One of the most promising education reforms in California is charter
schools—innovative public schools that control their own educational programs
and are exempted from some state regulations. San Diego has six operational
charter schools. ‘Two others were shut down last year by the San Diego school
district.
Despite their promise, charter schools are heavily restricted under state law.
‘The charter school legislation limits the number to 100, and places substantial
limits on the schools’ autonomy.‘8 The Little Hoover Commission in March 1996
found that current charter school regulations artificially restrict innovative
educational options, and it urged such reforms as lifting the 100-school cap,
funding charter schools directly from the state rather than through local school
districts, creating alternative sponsors and petition mechanisms, and recognizing
charter schools as separate legal entities.19
Charter schools in San Diego have received strong support from the business
community, particularly the San Diego Business Education Roundtable.50 But
because charter schools operate only with the blessing of local school districts,
support from those entities is crucial not only for the charter schools’ existence but
for their success. Among charter school experts, the San Diego school district has
a reputation for hostility toward charter schools. Pamela Riley of Pacific Research
Institute in San Francisco says that “charter schools in San Diego are a round peg
in the district's square hole."5!
The bitter conflict between the school district and the Johnson
Elementary/Urban League Charter School bears out that claim. The San Diego
Board of Education granted a five-year charter in February 1995 as a collaboration
between Johnson Elementary School and the San Diego Urban League. The
charter school was established to address poor academic performance among the
ene eee eet SRSEANe
20school's predominantly black students. The school encompassed three
components: a pre-school Head Start program; an ethnocentric K-6 program
focusing on educational basics; and a Family Service Center providing health
education, parent skills training, and crisis intervention. The school trimmed
$140,000 in operational costs, which it planned to reinvest in the classroom, and
created a partnership with Hewlett-Packard that provided new computer
technology. The efforts paid off: after one year, most Johnson students improved
their test scores in reading, language, and mathematics.52
But the school experienced constant conflict with the San Diego school
district over issues of autonomy—the very feature that distinguishes charter
schools from ordinary public schools. District officials accused the school of
asserting independence from the district by hiring its own legal counsel, and the
Board of Education voted on November 26, 1996 to rescind the charter after only
one year, Shutting down a school not for performance but for independence
negates the very idea of charter schools.
Still, six charter schools continue to operate in San Diego; and the School
Futures Research Foundation, backed by businessman John Walton, opened a new
charter school in San Diego called the Nubia Leadership Academy. Approved last
July by the San Diego Board of Education, the Nubia Leadership Academy
emphasizes academics, business principles, the arts, character development and
leadership. This September, the school welcomed 180 predominantly low-income,
minority children from kindergarten through fourth grade with the student body
expanding in the coming years through eighth grade, Meanwhile, efforts to provide
educational competition and private sector alternatives are being proposed by
reform advocates, including Governor Pete Wilson. Private scholarships and
publicly funded voucher systems are expanding educational opportunities for low-
income youngsters in cities around the nation. They could do the same for children
in San Diego and throughout California.
Education is the foundation upon which business can flourish. The
willingness of San Diego education officials to allow innovation, autonomy, and
competition may go far in determining the educational opportunities available to
youngsters who desperately need them.
Recommendations
1. The business and philanthropic communities should encourage and help
develop an entrepreneurial curriculum and business internship
opportunities in the public school system.
2. The California legislature should adopt the Little Hoover Commission's
recommendations to increase the number, flexibility, and autonomy of
charter schools.
3. The business and philanthropic communities should support
21scholarships to allow children from low-income families to attend private
schools; and should support the creation of new private schools in low-
income neighborhoods.
4, The California legislature should adopt remedial school choice legislation,
such as that proposed by Governor Pete Wilson, to allow children in the
worst public schools to opt out into private schools,
Conclusion
‘Walk down the pleasant streets of San Diego's Gaslamp Quarter and you will
see the fruits of free enterprise, Vibrant new restaurants abound, featuring every
type of cuisine. Skilled artisans roll cigars at the Havana Cigar-Factory. New
barbers learn their trade in a storefront barbering college. ‘The spirit of enterprise
is ubiquitous.
One of the new businesses is a restaurant called the Kabob House. It was
established by Russian immigrants, who started out selling kabobs from a vending
stand at a swap meet. When the exorbitant rents started devouring their profits,
the family decided to try its hand at running a restaurant. They faced a plethora
of regulatory obstacles, such as obtaining a liquor license and permission for
outdoor seating. But now the restaurant is flourishing, introducing native San
Diegans to Russian cuisine and Russian patrons to California wines. “It's kind of
like the American Dream,” a waiter remarked to me.
It is the American Dream—a dream sometimes dimmed when regulations
grow too onerous. This report presents concrete actions that can be taken—by local
government officials, state officials, and business leaders—to open opportunities
and strengthen substantially the region's economic base. The dominant regulatory
philosophy should be that businesses are good for the community, and that
whatever regulations are necessary should impede entrepreneurship as little as
possible. Instead, regulations too often are protectionistic, revenue-generating, and
otherwise unjustifiable. The result of over-regulating is all too predictable: the
stifling of entry-level enterprises, the backbone of America’s economy—and the
foundation for America’s future.
San Diego's beacon burns brightly for entrepreneurs. With renewed resolve
and implementation of the reforms outlined in this report, that beacon can bum
brighter still in the 21st century,10.
LL,
12.
13.
14,
15.
16.
17.
18.
19.
20,
21
Endnotes
Interview with Sergey Autandilov, Business Counselor, Metro Area Advisory
Committee on Anti-Poverty in San Diego County (MAAC),
See, e.
‘Source for statistics: U.S. Department of Commerce, Bureau of the Census, County
‘and City Data Book (1994),
William H. Mellor, “No Jobs, No Work,” New York Times (August 31, 1996).
. Joel Kotkin, “San Diego: A City for the New Millenium,” City Journal (Winter 1997),
p. 74,
Kotkin, p. 77
Interview with Santo Fragale, Community Development Specialist, Office of Small
Business. The author expresses special appreciation to Mr. Fragale for his generous
contribution of time and expertise and for making available the office's records.
The business tax is now $34, with $20 dedicated to the Small Business
Enhancement Program. Minutes, Small Business Advisory Board, July 26, 1995.
Minutes, Small Business Advisory Board, March 27, 1996.
Interview with Ken M. Clark, Small Business Programs Coordinator, Southwestern
College Small Business Development & International Trade Center.
Interview with Santo Fragale, Office of Small Business.
. County of San Diego, Office of Trade & Business Development, Getting Down to
Business in San Diego County. The city maintains similar requirements. See City
of San Diego, Office of Small Business, Quick Reference Directory for Starting a
Business in San Diego.
Getting Down to Business, p. 10.
Minutes, Small Business Advisory Board, May 1, 1996.
Minutes, Small Business Advisory Board, June 26, 1996.
Letter to Mayor Susan Golding from George P. Chandler, Jr, chairman, Smali
Business Advisory Board, June 5, 1996.
Information about applicable regulations is based on primary source materials and
on interviews with Kathy Henderson, County of San Diego Development Services
Center; Alice Boyd, City Treasury; Robert Romaine, Department of Environmental
Health; Mary Ann Oberle, Community Parks and Recreation Department; Penny
Scott, Balboa Park; and Michael Beehan, Mission Bay Park.
Interview with Sylvia Martinez, MAAC.
Interview with Nan Mitchell, Day Care Supervisor, YMCA Child Care Resource
Center.
Interviews with Donna Brown and Stephanie Daniels, California Department of
Social Services, Community Care Licensing Board.
Interview with Kathy Henderson, Development Services Center.
Jim Okerblom, “Pair's Bug Express May Be Beachy Idea,” San Diego Union-Tribune
(September 3, 1994).
23&
22. See, e.g., William H. Mellor, Institute for Justice, Is New York City Killing Entrepre-
neurship? (1996).
23. Interview with Barbara Lupro, Taxi Administrator, Metropolitan Transit Development
Board,
24. Interviews with Rosalind White, Passenger Stage Permits, and Santos Flores, Charter
Party Permits, California Public Utilities Commission.
25. Interview with Katrina Newby, executive director, Home Business Network.
26. Interview with Kathy Henderson, Development Services Center.
27. Interview with Robert Romaine, Department of Environmental Health.
28. Cal, Bus. & Prof. Code § 8740, et. seq.
29. Cal. Bus. & Prof, Code § 6980.17, et. seq.
30, Cal, Bus. & Prof. Code § 5650, et. seq.
31. Cal. Bus. & Prof. Code § 5800, et. seq.
32. Cal. Bus. & Prof. Code § 8020, et. seq.
33. Interviews with Liz Scherer and Gary Winkelman, California Board of Cosmetology
and Barbering,
34. Interview with Alexei Ochola, Community Development Specialist, MAAC.
85. Interview with Joanne Cornwell.
86. Cornwell v. California Board of Barbering and Cosmetology, 962 FSupp. 126 (S.D.
Cal., 1997).
37. See Kotkin, pp. 76-77.
38. See Office of Small Business, “Small Business Enhancement Program FY 1996
Accomplishments.”
39. Interview with Art Goodman, Bankers Small Business Community Development
Corporation.
40, Interview with Villa Mills, ACCION San Diego.
41, Interview with David Chong, ACCION International. Information about ACCION San
Diego and the California requirements were obtained in interviews with Chong and
Villa Mills. Regulations are set forth in various provisions of the California Financial
Code, § 22001, et seq., and the California Code of Regulations, § 1401, et seq.
42, Interview with Wayne Mortis, Licensing Specialist, California Department of
Corporations.
43. Materials from Jacobs Family Foundation, San Diego Entrepreneurs Economic
Summit (March 2-3, 1995),
44, Virginia Butterfield, “Our Schools in Crisis,” San Diego Magazine (November 1996)
p. 82.
45, San Diego Schools News Release (May 9, 1995).
46, Susan Gembrowski, “Minority Students Still Lag on Tests.” San Diego Tribune
(October 29, 1996), p. Be]
47. Interview with Laura Fleming. Girard Foundation.
2448, See Chester E, Finn Jr. and Bruno V. Manno, “Better Schools: A Promising Reform
Challenges Education’s Status Quo.” San Diego Union-Tribune (September 22, 1996),
p. G-I, The charter school legislation is codified at Cal. Educ. Code § 47602, et seq.
49. Little Hoover Commission, The Charter Movement: Education Reform School by
‘School (March 1996}
50. Interview with Kay Davis, Business Education Roundtable of San Diego,
51. Interview with Pamela Riley.
. “A Noble Experiment,” San Diego Union-Tribune (November 26, 1996).
25Biography
CLINT BOLICK
Vice President and Director of Litigation
Clint Bolick serves as vice president and director of litigation at the Institute
for Justice, which he co-founded in 1991 to engage in constitutional litigation
protecting individual liberty and challenging the regulatory welfare state. The
Institute also teaches public interest litigation skills to lawyers, law students, and
policy activists.
Among the cutting-edge cases Bolick has litigated are the successful defense
of the nation’s first school voucher program in Milwaukee and challenges to
entrepreneurial barriers around the country. Bolick is credited with leading the
opposition to President Bill Clinton's nomination of Lani Guinier as assistant
attorney general for civil rights.
Bolick has authored several books and articles, including the recently
published The Affirmative Action Fraud: Can We Restore the American Civil Rights
Vision? (Cato Institute, 1996); and Grassroots Tyranny: The Limits of Federalism
(Cate Institute, 1993).
Bolick received his law degree from the University of California at Davis in
1982, and his undergraduate degree from Drew University in 1979.
The Institute for Justice was co-founded by its president and genoral counsel, William H. (Chip)
Melior III, and Bolick.
26The Institute for Justice is a nationally acclaimed public interest law firm
that pursues strategic public interest litigation and outreach to ensure that
individuals have the opportunity to pursue an honest living and gain a foothold on
the economic ladder. Scripps Howard News Service wrote, “the Institute for Justice
[is] a public interest group fighting for something our cities desperately need more
of economic opportunity at the grassroots.”
The Institute for Justice has analyzed government-created barriers to entry-
level entrepreneurial opportunity in seven cities across the country: Baltimore,
Boston, Charlotte, Detroit, New York, San Antonio and San Diego. Ata time
when there is widespread recognition of the need for less government and more
opportunity, these first-of-their-kind studies identify specific laws and regulations
that stand in the way of people trying to earn an honest living
This report, Brightening the Beacon: Removing Barriers to Entrepreneurship
in San Diego, by Institute for Justice Vice President and Litigation Director Clint
Bolick, analyzes significant barriers to economic opportunity at the grassroots in
San Diego.
For more information, please contact:
INSTITUTE FOR JUSTICE
1717 PENNSYLVANIA AVENUE, N.W.
Surrs 200
WasHINGTON, D.C. 20006
Tex: (202) 955-1300
Fax: (202) 955-1329
www.1J.0RG