With Washington states minimum wage having jumped 15 cents to $7.16 an hour on Jan. 1, restaurant owners here say their plates now are so full of labor costs that theres little room for profits.


Washingtons minimum-wage law, which is linked to the U.S. Consumer Price Index, doesnt make exceptionsunlike laws in 43 other statesfor tips, which sometimes can double employees pay, owners say. Thus, restaurants must pay those employees the states full minimum-wage amount, which is the highest in the nation, for every hour they work in addition to their tips.


Restaurants get beat up every which way, having to pay minimum wage and taxes on tips employees declare, contends Erkki Oranen, owner of Cyrus OLearys and co-owner of the Tomato Street restaurant here and the one in Coeur dAlene. Its very difficult to make good money in the state of Washingtons restaurant business.


Oranen estimates that the minimum-wage hike will add more than $5,000 to his labor costs this year at Cyrus OLearys. He says he hasnt raised menu prices or cut employees, but to save money, also hasnt filled some vacant positions.


Under federal law, the federal $5.15 minimum-wage standard can be reduced to as little as $2.13 an hour in a state as long as employees make at least $5.15 in tips alone.


In the upcoming legislative session, the Washington Restaurant Association, which represents Cyrus OLearys, the Tomato Street here, and 12,000 other restaurants and food-service outlets, plans to renew efforts to seek a tip credit.


Stan Bowman, the associations director of government affairs, says owners of restaurants in the state pay a minimum wage thats more than three times the federal $2.13 an hour standard for tipped employees. The lack of the tip credit in Washington state puts a financial crunch on restaurant owners, he says.


Tipped employees often earn more than managers and owners, since owners typically get paid last, Bowman says.


Studies suggest that added labor costs have driven some restaurants out of business, with the number of restaurants per capita in Washington state shrinking 24 percent since 1995, and falling 17 percent in 2001 alone, he says.


Oranen says Cyrus OLearys, which now employs 90 people, is lucky to have survived for 23 years while other restaurants like Chevys, Thaddeus T. Thudpuckers, and Cucina Cucina Italian Caf shut down. The annual minimum-wage increase often forces restaurants to raise menu prices, which pressures customers.


Larry Brown, owner of Landmark Restaurants, which operates the Onion, Italian Kitchen, and Franks Diner restaurants, says hes had to raise menu prices a total of about 8 percent over the last few years, and may increase prices again this year to cover payroll costs.


We have to pass the minimum-wage increase on to the customer because theres no way we can absorb it, he says. Its essentially a tax on the public.


Landmark Restaurants, which employs about 210 restaurant workers, pays minimum wage to tipped employees who work a total of about 94,000 hours a year. With waiters and waitresses sometimes making hourly tips more than double the minimum-wage amount, those minimum-wage costs add up, Brown says.


Everyone thinks, The restaurant guys have to give up all that money they have, he says. Well, the money isnt there.


Landmark Restaurants has trimmed employee benefits, including modifying vacation and paid-parking policies and decreasing the company-paid share of health-insurance costs, Brown says. It hasnt, however, cut any employees because of the minimum-wage increase, he says.


The public wont be as excited about a meal thats already expensive, and then have us be short-handed, he says.


Rock Ray, supervisor of Spokane-based Spokane Food Services Inc., which operates 26 McDonalds restaurants in the Spokane area and North Idaho, says hell have to continue cutting employees hours and any labor that isnt necessary because of the minimum-wage hike. Minimum-wage increases eventually could force the company to reformat work hours, in which case a work force of 50 part-time employees might change to 25 full-time employees, he says.


About half of McDonalds 1,200 employees are under 18 years old. Minimum-wage increases, though, ultimately may turn such entry-level jobs that are well-suited for teenagers into career positions, Ray says.


The entry-level job was never meant to support a family of four, he says. If minimum wage keeps going like this, its probably going to drive the student and non-career-type person out of the work force.


The state restaurant association cites an Ohio University study released last year that estimates Washingtons poverty rate of 10.8 percent in 2000 to 2001 was almost one-third higher than the 8.14 percent rate than an analysis done for the study would have predicted. The study said its analytical model explained well over 82 percent of the interstate variations in the poverty rate. The unique event in Washington was the sharp increase in the minimum wage, not observed in any other state. The study also says that from 1997 to 1998 to 2000 to 2001, the poverty rate rose far more in Washington than in any other state in the union.


Bowman says the study showed that the minimum-wage hikes cost the state about 30,000 jobs and the states restaurant industry about 3,850 jobs.


Bowman says he hopes the Washington Legislature will approve a tip-credit bill this year.


Oranen says many restaurant owners would find relief from a tip-credit bill.


Theres not a magic wand we can wave over the restaurant business to make it more profitable, other than a tip credit, he says. It wouldnt make us millionaires, but it would help with other increases.


The restaurant association also has proposed tying the minimum wage to the states unemployment rate. That way, in essence, when times are good and unemployment is low, the minimum wage would go up, and when times are bad, it would stay flat to protect jobs.


Similarly, the Washington Policy Center in its Agenda for Reform, which is part of the groups Small Business Project, has recommended limiting minimum-wage increases. The center suggests that delaying minimum-wage increases when the states unemployment rate is higher than the national average may help improve the business climate.


Dan Nagy, owner of Spokane-based Bar NZ Inc., which operates 12 Wendys Old-Fashioned Hamburgers restaurants in the Spokane area, says other reforms, such as a training wage, which would pay younger employees a lower rate, would help his business more than a tip credit, since he doesnt have any tipped employees.


Bar NZ, which employs about 300 restaurant workers, has increased its menu prices to compensate for higher labor costs, but that repels customers looking for value meals, he says.


Customers have to realize that if base wages are going up, the cost of goods sold to them will go up, he says.


Nagy, like a number of other restaurant operators here, owns outlets in North Idaho, which sticks to the $5.15 federal minimum wage and allows a tip credit. He says he pays his Idaho employees about $6.25 to $6.50 an hour to retain staff.


We cant pay people Idahos minimum wage because were closer to the Washington border, where people can just go across the state line and make $1.50 more, he says.


Bowman claims that comparing Kootenai County to Spokane County shows that Washingtons minimum-wage hikes have increased unemployment here. Researchers in the Ohio University study compared the two counties and found that from 1998 to 2001, the unemployment rate fell 0.3 percent in Kootenai County, but rose by about 1.6 percent in Spokane County. The data imply that Spokane County lost about 3,200 jobs attributable to increases in Washingtons minimum-wage rate, the Ohio University researchers assert.


The Washington Restaurant Association claims that the restaurant industry is the largest private employer in the state and contributes about $7.1 billion to the state economy annually.