Over the weekend, the city’s Office of Labor Standards Enforcement released to the Chron their list of restaurants, restaurant groups, and other companies that, according to a city audit for the year 2011, collected Healthy S.F. surcharges far in excess of what they spent on healthcare. Now, one might argue that the way the city initially wrote and enacted its universal healthcare law in 2008 was loose enough to allow for this sort of accounting, however the City Attorney and Assemblyman Tom Ammiano are characterizing it far more negatively — and it certainly does look bad on paper. After comparing surcharges collected to health costs outlaid, the total across this group of large businesses is, as Dennis Herrera earlier said, about $5 million. Topping the list of those with large, unspent health care funds are the Mina Group ($328,000), Wayfare Tavern ($235,000), Prospect ($170,000), The Cheesecake Factory ($159,000), and Squat & Gobble ($160,000). But of those, we should note, Squat & Gobble is alone in not having spent a dime on health care (according to this audit), though they collected that full sum from customers.
According to the report, the Mina Group actually spent $212,000 on employee healthcare in 2011, and Prospect spent $85,000, but in both cases there were large surpluses after those expenses that under the original law did not have to be set aside longer than a year. At issue now is what these restaurants should have done with the extra funds, given how they were collected from consumers — something addressed later by a civil grand jury convened to look into the cases.
Rob Black of the Golden Gate Restaurant Association says that the controversy has been blown out of proportion. He told ABC 7 that he believes there will be "a lot of people who can show that this was just reporting error" when all is said and done, because the information was based on forms that they, the restaurants, filled out themselves for the city. He argues that perhaps 90% of them did not understand the nature of the forms, and failed to report all of their costs associated with healthcare.
As Herrera had earlier suggested, not all of the businesses currently targeted are restaurants. High on this list is Trinity Building Services, which provides janitorial and other services, and the audit shows them having collected $248,258 in healthcare surcharges from clients, when they only spent $2,985 of that on healthcare.
We expect a fair number of responses and press releases from restaurateurs in the coming days — much the way Patxi’s Pizza CEO Bill Freeman issued a statement in the company’s defense last week — and the reverberations from this crackdown are likely to last a while. Restaurateurs like Michael Dellar of One Market have earlier argued that while the monies may not have gone directly to paying for healthcare bills, the surcharges were necessary for covering a host of city mandates, including the highest minimum wage in the country, and paid sick leave. And Freeman said that Herrera’s crackdown had mischaracterized what was merely an accounting error that had been corrected before the restaurant even began collecting the surcharges in 2011.
And for those just tuning in, this controversy stems back to September 2011, when the the Wall Street Journal published a small exposé on the subject of how restaurants were using and distributing these Healthy S.F. funds. In the cases discussed at that time, the restaurants were setting aside the funds in reimbursement accounts for employees, but pocketing the unclaimed funds at the end of each year, as was legal under the law as written. The restaurateurs are now likely going to be reaching settlements with the city, as Patxi’s already has, which will include penalties and payouts to employees.
SF businesses listed in health care audit [Chron]
Earlier: Many More Restaurants Facing Consequences From Healthy S.F. Controversy
Patxi’s Wrist Slapped for Pocketing Healthy S.F. Funds [Updated]
Grand Jury Declares Healthy S.F. Surcharges Shady
Restaurants Adding Health-Care Surcharges to Checks Aren’t Using Funds for Health Care