A Sad Case Study in Failed Immigration Policy

Below are excerpts from testimony I submitted during a Texas State Affairs Committee hearing on April 21st of this year. I submitted my testimony in an effort to alert Texas legislators about the devastating economic effects the Legal Arizona Workers Act has had on Arizona.

As a businessman that is opening up several new locations in Texas, I wanted to do my best to discourage Texas legislators from passing similar legislation that harmed law abiding employers:

I am deeply saddened to submit testimony and discuss an issue that has affected me both professionally and personally. I love Arizona and am proud to be an Arizonan, but I am concerned of the events of late regarding public policy; namely Arizona’s Employer Sanctions Law. Unfortunately a handful of local politicians have garnered support from voters in an effort to represent their narrow “vision” of the State of Arizona. These decisions have been made without consideration for the long term effects on our state.

I offer this testimony today not only to highlight the problems caused by the Arizona law, but because I am building new restaurants in the Great State of Texas. As a new business owner in Texas, I want to make sure that Texas does not experience the same negative consequences that business owners in Arizona face.

Historically, Arizona has had a budget surplus; as recent as one year ago – Arizona’s budget was at or near a record surplus. However, within just one year’s time that budget has plummeted to the worst budget deficit in the country as a percentage of the overall budget deficit. Retail sales in Maricopa County the “hub” of our state are down 14%. Why have sales declined so dramatically? Some local politicians will tell you the downturn in the local economy was a direct result of the recent gas price explosion and housing implosion. This statement however is not supported by local economic statistics or empirical research whatsoever.

Arizona has seen hard times before. We have endured outrageous gas prices and housing crises before and the community fought its way through it. Historically, Arizonans have held their feet firmly on the ground, waited it out and found a way to make due until the worst was over.

This is NOT the case at present. People are fleeing the State of Arizona in droves; packing up their families and belongings; abandoning their homes in a desperate act to maintain their existence. This statement is supported by local contractors in the construction industry. Recently, the construction industry has lost 40,000 skilled workers – 40,000 – workers have fled the state. That is over a billion dollars in local revenue walking out the door.

I offer this testimony to you today bearing witness to the fact that this severe downturn in the local economy is NOT a direct result of the influx of immigrants to our state. Arizona has always been a potpourri of ethnicities and races. Unfortunately, policy makers have failed to do their homework slapping a quick fix onto this problem by pointing the finger at a struggling portion of the population – local immigrants.

One of the main culprits is the Employer Sanctions Law (Legal Arizona Workers Act) that was signed into law by the former Governor of the State of Arizona. Despite all our efforts to struggle against this poorly planned policy, the Employer Sanctions Law has tied the hands of legitimate employers operating within the confines of the law. Local businesses are leaving the state, because the risk of losing your license is too great.

The Employer Sanctions Law states that if an employer were to inadvertently hire an employee without proper documentation, then the county attorney has the authority to go to the licensed, tax- paying business owner and shut them down. For example, I have 1200 employees at 70 different locations. If a manager were to make a mistake based on the documentation provided by the applicant then I, as the business owner, could lose my license. I would be personally and professionally bankrupt as a result.

There is also no provision in the law that protects businesses from the fraudulent hiring of undocumented employees by the managers. The only penalty imposed is against the business owner, the business itself - license revocation, etc. This is unfair to the employers and business community, most of whom, work hard and abide by the laws and regulations.

Subsequently, these liabilities have increased the cost of doing business dramatically. Thus, I have centralized my hiring; all new hire packages have to be sent via FedEx to the corporate office to make sure the managers have done it correctly. I can no longer entrust 70 managers spread out across our state to do the hiring and related paperwork for me as it is too great a risk to myself and the company.

I had to create a new department, a legal hiring department. I employ multiple national law firms to audit my I-9’s just so I can sleep at night. Then we conduct and internal audit every other month or so just to make sure no stone has been left unturned. We do all this because E-Verify is NOT the panacea they say it is. E-Verify has a lot of problems – problems that are very costly. For example, if you are a multi unit operator you have to have a computer and internet connection at every location for each manager.

In addition to the business costs, there is also a cost to the state. Arizona was one of the fastest growing economies in the country, and now we are losing our competitive edge. Recently, a local Mayor of Arizona returned from a business trip. The purpose of the trip was for the Mayor to make a presentation to a company in California looking to relocate to cities in Arizona, Texas or Nevada. Arizona beat these cities in many areas including, education, crime and taxes, but in the spirit of full disclosure the Mayor had to add “you may lose your business license. “ That’s all it took to give this thriving California Company cold feet – thus exacerbating Arizona’s economy even further.

This was a $100 million dollar company that was looking to invest $30 million in the State of Arizona. The company, rightly so, said “that’s not worth the risk, we’ll go elsewhere.”

All this adds up to negative growth. When you bonded and budgeted all our roads and schools with growth scenarios in them, and you have no growth, those few of us that remain in Arizona are left with pretty hefty tax liabilities. One of our largest electrical providers claimed Arizona is experiencing negative growth for the first time since the draft of World War II. This data was gathered by tracking the number of requests for electrical service vs. the number of electrical service shut off requests. This utility company can attest to the fact how many people are leaving the State of Arizona.

One of the arguments that supporters of an employer’s sanctions bill will make is that it will save the state and taxpayers money by eliminating costs. Unfortunately, many legislators look at the state budget very differently than a business owner looks at a profit and loss statement. They look at a line item in the budget and say if we eliminate this cost we can save all this money. However you have to look at a budget or profit and loss statement comprehensively. I can’t look at my electrical line and say just turn off electricity to save money. That affects my top line and that’s exactly what’s happened to the economy in the state of Arizona.

Supporters of employer sanctions laws will claim that I and other employers that oppose these laws because we only want to pay cheap wages under the table. THIS IS FUNDAMENTALLY FALSE. I have always paid at or above minimum wage. The real secret of employer sanctions laws is that they encourages employers to join the cash economy and pay their employees under the table. IF the only threat against an employer is the loss of his business license, it is much easier for an employer to set up shop with no license and pay his employees in cash. That makes it more difficult for me and other legitimate business owners to compete in this economy.

Unfortunately, we are still getting used to the idea as a country that we’re competing with other nations and we are taking our growth and prosperity for granted. Thirty years ago, nobody would have thought about doing business in the Middle East, China, or the countries in Eastern Europe. We must recognize that if we do not have an available workforce to meet the labor needs of our economy, businesses will locate to countries that do.

Another consequence of this debate is that we have forgotten about the real contributions of immigrants. One of the first Marines, Sgt Rafeal Peralta, to die in Iraq originally came to this country illegally. However he so loved this country he gave the ultimate sacrifice. There are 35,000 non-citizens are serving in the military, 12,000 in the reserves; people who can’t even vote in our elections are serving in our military every day. I served next to them, I knew men that hadn’t seen their family in ten years because there were good enough to serve in our military, but their wife or child was stuck waiting in line to gain legal entry to the U.S.

This argument has also shifted our focus away from the real debate. How do we solve the problem now and ensure it doesn’t happen again in the future. In order to provide both physical and economic security, a free market approach must be implemented to solve this problem. Federal, not state, lawmakers must implement a dynamic and market based worker entry/exit visa system that puts the best elements of a free market approach to work while helping solve the United States’ labor shortages.

We must increase the number of worker visas to meet our country’s labor needs. I think we can all agree that the annual limit of 5,000 unskilled worker visas is a grossly inadequate amount of visas to serve the country’s entire agriculture, service, and hospitality industries.

Therefore, we must achieve a comprehensive solution that does not reward individuals that broke our laws while providing immigrants that want to work in the United States a way to legally fill jobs at all levels of the economy.

Instead of trying to control the market force of labor and slowing our economic growth, we should be celebrating our economic growth. Our growth is ending real poverty in North America. People living in cardboard shacks, begging and selling things on the streets are coming here grabbing onto the lower rung of our economy so their next generation can prosper. This is amazing, and we should be proud of our country’s ability to be the economic engine for the entire world.

I humbly ask the individuals that have been elected to serve the great State of Texas to reconsider their support of an employer sanctions law. I have done my best to outline my beliefs on the economic consequences of the Legal Arizona Workers Act, and ask you to recognize that your decisions have consequences. Furthermore, I ask that you consider the real issues in this debate and turn your focus towards those issues that need solving. Together we can solve this problem the right way. Thank you for the opportunity to present my views.


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