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Franchise businesses cite ‘fiscal cliff’ fears

Already slowing growth in the sector could come to ‘screeching halt’ in 2013

- Associated Press - Thursday, December 20, 2012

Add the nation's franchise operators to the list of those worried about what happens if the federal government tips over the "fiscal cliff."

Franchise businesses warned Thursday that growth at their restaurants, hotels and other small businesses could slow to a "screeching halt" in the coming year as they struggle with uncertainty related to the budgetary fiscal cliff, tax hikes and new, more expensive health care rules.

The International Franchise Association on Thursday released its economic outlook survey for 2013, which found that business growth will slow slightly from this year, even if the White House and Congress resolve their differences on tax hikes and spending cuts in the next two weeks.

Steve Joyce, president and CEO of Choice Hotels International, called the forecast "sobering," because "we are not growing at levels that we are capable of."

"Franchise companies are poised for growth, but many of us are standing by, waiting to see what our economic policy is going to be in this country," he said. "We want to grow. We want to hire. But how can you be a responsible business leader and make decisions if you don't know what the rules are going to be?"

According to the survey, franchise establishments will grow to 757,055 in 2013, an increase of 1.4 percent, which is slightly lower than the 1.5 percent growth in 2012. Franchise owners now project to add 162,000 jobs in 2013. Employment will move up 2 percent to 8.26 million jobs, but lower than the 2.1 percent gain it achieved this year. Franchises account for about 3.4 percent of total U.S. GDP.

Franchise businesses would like to accelerate their growth plans, said Steve Caldeira, president and CEO of the International Franchise Association, but "the lack of confidence in our leaders in Washington" to address the economy's problems "is keeping them and prospective investors on the sidelines."

"We could be growing much faster, creating more new jobs and businesses, if Washington addressed the tax, spending and regulatory uncertainty plaguing the small business community in a meaningful way," he added.

Mr. Caldeira said excessive spending is "choking and holding back" the economy. The franchise leaders called for a short-term deal by the end of the year that would avert the fiscal cliff, but they also warned that business growth will not take off until Washington comes up with plan that reduces spending.

Franchisees appear resigned to an increase in tax rates, whether by returning to pre-George W. Bush-era tax rates if Washington goes over the fiscal cliff or from higher rates even if lawmakers and President Obama reach a deal.But a cliff dive would be far more painful: 79 percent of franchisees and 73 percent of franchisors warn that the failure to extend the Bush tax cuts would hurt hiring and growth, according to the survey.

Aziz Hashim, owner of NRD Restaurant Holdings, which owns franchises such as Domino's Pizza and Popeyes, said that higher taxes would hurt his business growth.

"Unless Congress and the president develop tax policy that does not overly burden small businesses, I'm afraid that franchisees across the country will continue to be cautious in our expansion plans," he said.

President Obama's Affordable Care Act is the most commonly cited concern contributing to uncertainty in the months ahead. In the survey, 31 percent of franchisees and 20 percent of franchisors cited the new health care policies — including rising premiums and changing coverage requirements — as the biggest question mark inhibiting long-term planning.

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