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Erik Burgess, Published May 21 2013

Moorhead tip credit study runs into resistance from local restaurant owners

MOORHEAD - The lack of restaurants in Moorhead has long been one of the biggest bellyaches for residents here, city leaders say.

So the city decided last fall to study an issue often cited as a top hindrance to opening a new eatery here, with hopes of using the study as leverage in a push to level the playing field with Fargo.

But that effort has been resisted by many restaurant owners, the group it is eventually meant to assist.

The City Council signed off nine months ago on a $10,000 study to gauge how differences in wages affect the bottom lines of restaurants here and in Fargo. But only two restaurants have agreed to take part, throwing a wrench in a project the city expected would only take a few weeks to complete.

The feet-dragging makes Mayor Mark Voxland wonder whether long-standing complaints are even true because so few restaurant owners have stepped up with actual data to prove it.

“I have no idea. I really don’t,” Voxland said. “It’s just all anecdotal. That’s what we’re trying to do, is get away from anecdotal, and get the hard facts so we know what we can do.”

Moorhead ‘more costly’

In North Dakota, hourly wages for most servers are lower than the federal minimum wage of $7.25 because tips are counted toward income. In Minnesota, most employers must pay tipped employees $7.25 per hour.

It’s a complaint city officials have often heard from the restaurant industry. So the study’s goal is analyzing revenue of restaurants – ideally ones with locations on both sides of the river – to see what portion of it goes toward wages.

Eight full-service restaurants in the metro area have been contacted for the study, but as of Tuesday, only two – JL Beers and Juano’s – have agreed to participate, said Amy Thorpe, Moorhead’s economic development program administrator.

The city wants to include at least four restaurants in the study, which is being done by Fargo business advisory firm Eide Bailly.

City Manager Michael Redlinger said two others still being considered are Fryn’ Pan and Village Inn.

Chuck Chadwick, executive director of the Moorhead Business Association, said it’s not that restaurants don’t want to participate, but business owners are “very, very cautious” about releasing private financial information.

But Voxland pointed out that the study is anonymous and would help restaurant growth in both cities, making the lack of participation frustrating.

Amber Ferrie, senior manager at Eide Bailly, said getting restaurants involved has been “more of an education process than we anticipated.” She said the findings of the study will be confidential, in that names will not be attached to numbers, but she’s still had kickback from owners not convinced there’s a lot of benefit to participating.

“It’s just not that easy when you’re dealing with sensitive information,” Ferrie said. “In some cases, you’re dealing with multiple investors (for one restaurant).”

‘Amazing difference’

Randy Thorson, co-owner of JL Beers, said he decided to take part in the study because he wanted to help Moorhead understand the distinct challenges a restaurant owner faces by setting up shop in Minnesota over North Dakota.

JL Beers has locations in Moorhead, Fargo and West Fargo.

“There’s a big difference in wages,” Thorson said. “It’s just more costly to do business (in Moorhead), and it’s easier for them to stay in Fargo and do their business. It’s probably the reason for the growth of Fargo.”

It’s not just about hourly wages, though, Chadwick said. When restaurateurs are scouting locations, the first thing they consider is volume, he said, giving the larger city an immediate edge. Expenses, including wages, come in second on that check list, he said.

Thorson said he’s seen how the volume differences affect even the employees.

“We have people who would rather work on the Fargo side and take less wages because the tips are higher because you do more volume,” he said. “It’s just amazing the difference.”

If there is a problem between the two cities, Voxland said, it’s all speculation until they can get some hard data.

“It’s gotten zeroed in on tip credit,” he said, referring to the North Dakota practice of allowing employers to essentially credit employees for presumed tips. “That might not be the problem. It might be. I don’t know.”

Voxland, who has been mayor since 2001, said it’s unusual for a study to drag on this long. He said the cost shouldn’t increase, as the consulting firm is being paid a flat rate.

The study isn’t the city’s only effort to bring more restaurants to Moorhead. The city is also trying to offer local deals to help spur development, like its tax exemption program for full- and limited-service restaurants, Voxland said.

City officials hope the study will be complete by next January so it can be used to lobby lawmakers in 2014 to even out the wage disparity for servers. It could be a tough climb.

Moorhead’s own legislative lobbyists warned city officials late last year that pushing for a “tip credit” would be unwise with pro-union Democrats controlling both chambers of the Legislature.

Neither chamber took up a tip credit this year. A “tipped employee tier” system proposed as state lawmakers considered raising the minimum wage, which the Minnesota Restaurant Association prefers over a tip credit, also failed to gain traction. Under a tiered system, those making at least $12 an hour with tips included would be paid the federal minimum wage of $7.25 per hour, even after a higher state minimum wage is imposed.

Both the House and the Senate voted to raise the state minimum wage by different amounts this year but could not reach an agreement before the session ended Monday.

The Minnesota Restaurant Association had argued against an across-the-board increase in minimum wage, saying it would hurt restaurants where employees already make much more than minimum wage when tips are included.

Voxland said no matter what happens in the Legislature, the city still wants to study the differences between restaurants in Fargo and in Moorhead.

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Readers can reach Forum reporter Erik Burgess at (701) 241-5518