Laid-off workers lose COBRA health subsidy

WASHINGTON — Howard Kornblum has been watching every penny for the past 15 months, and it's about to get worse.
After being laid off from his job as a consulting director in Michigan, he took advantage in March 2009 of a federal subsidy to help pay for health insurance. With the government picking up 65 percent of the tab, Kornblum's share of the premiums was $236 a month.

Last Tuesday, the subsidy expired for the first people who got it, and Kornblum's benefits ended Friday.

Under the federal COBRA law, a laid-off worker can stay on his employer's plan for 18 months, but the employee must pay the entire cost of the coverage. The COBRA subsidy — initially part of the 2009 stimulus package — provided the funding for 15 months for people who lost their jobs.

A U.S. Treasury study found that up to a third of eligible unemployed workers took advantage of the benefit. The average cost of a family plan is more than $13,000 annually — not affordable on an unemployment check. The Obama administration estimates that 500,000 workers each month since March 2009 who lost their jobs were eligible for the COBRA subsidy, said Sandra Salstrom, a Treasury spokeswoman.

Extension is unlikely

Some might consider Kornblum one of the lucky ones. Starting this month, the newly unemployed aren't eligible to get the subsidy at all. The proposal to extend subsidies to those who get laid off through the end of the year is languishing in Congress, a casualty of worries about the federal budget deficit in an election year.

Congress has extended the subsidies four times since February 2009, but the latest effort stalled before the Memorial Day recess. Congress may consider extending them again when members return this week, but it's unclear how long such a proposal would take to make its way through and what support there would be for it.

So the unemployed may pay more to remain on COBRA without subsidies, look for insurance on the individual market, go on Medicaid if they qualify or lose coverage altogether. That could further tax a health-care system that's already struggling to keep up with the number of uninsured.

Some who have expiring COBRA coverage or didn't get the benefit could be eligible to join existing state high-risk pools or soon-to-be-launched federal high-risk pools, but the federal pools require participants to have pre-existing conditions and to have been uninsured for six months.

State option

Karyn Schwartz, a senior policy analyst with the Kaiser Family Foundation, said some people who continued their COBRA coverage might have another option: a state "HIPAA-eligible" plan.

Each state offers one for people with pre-existing conditions whose coverage on COBRA has expired, but the premiums are often very expensive, and people must meet exacting criteria to qualify: They must have had COBRA for 18 months, have been covered the entire time, have pre-existing conditions that would preclude them from getting other coverage and be able to pay the higher premiums such plans would charge. Many people may not be able to meet such a high threshold.

Kaiser Health News is an editorially independent news service and a program of the Kaiser Family Foundation, a nonpartisan health-care policy organization that isn't affiliated with Kaiser Permanente.

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Get back to bootstrapping roots to speed your business' recovery

Now that the floodwaters have receded, the process of rebuilding small businesses affected by the flood of 2010 is beginning to unfold.
While homeowners received assistance from the Federal Emergency Management Agency and private charity groups, there are no grants to help small-business owners recover from flood-related losses. There are emergency loans available through the Small Business Administration for businesses with losses from the early May floods.

While new business loans may be necessary to get a business operational after the flood, it is important to think carefully about the long-term impact of taking on additional debt. The use of debt brings added risks.

New debt will add to the overhead of a business. This means that additional sales and profits are necessary to cover the additional monthly expense associated with repaying a loan. And, just like most small-business loans, this new debt will need to be personally guaranteed by the entrepreneur and secured with personal assets, such as the owner's home.

My advice to entrepreneurs trying to get back on their feet after the flood is to minimize the use of any new debt. You can do this by getting back to your startup roots, becoming a bootstrapper once again.

Keep operating costs down

Bootstrapping — the collection of tools and tactics that entrepreneurs use when they have limited resources — already has become a crucial business skill in today's tough economic climate. The added financial pressures facing small-business owners because of the flood make the use of bootstrapping that much more imperative. The goals are simple:

• Keep your monthly overhead to a bare minimum as you rebuild, to allow cash flow to support your growth as much as possible. This will help you get back to break-even sooner.

• Maximize the use of marketing that can be done without spending a lot of money, using things like word of mouth, social media and viral marketing. Your message should always be directed toward a specific niche. Know who is in your company's market niche and find the most effective, targeted ways to reach those consumers.

• Also, keep close watch over employee costs. Rehire your staff only as you can afford to with existing cash flow.

• Keep your operating costs down. Operating costs include expenses necessary to produce a product or provide a service. Controlling operating costs by using temporary outsourcing can help your business get back to break-even that much sooner.

Help is available for those who want to use bootstrapping to recover from the flood. A Nashville-based group called Better Bootstrap meets monthly to share ideas and best practices.

Recovering from the flood will not be easy, but with a return to one's bootstrapping roots and careful planning, many companies will bounce back stronger than ever.

Jeff Cornwall is director of the Belmont University Center for Entrepreneurship and the Massey Chair in Entrepreneurship. He writes a column on issues facing new business owners and would-be owners. Contact him at jeff.cornwall@belmont.edu. His daily blog can be seen at http://www.drjeffcornwall.com.

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Logan's Roadhouse parent company to go public

Nashville-based LRI-Holdings, Inc., parent company of the bar & grill chain Logan’s Roadhouse, filed for an initial public offering on Monday, another sign that more confidence in consumer spending is trickling into restaurant and retail businesses.
Logan’s wants to raise $200 million to pay down debt and redeem outstanding preferred stock, according to documents filed with the U.S. Securities and Exchange Commission.

The filing comes nearly four years after three private equity firms and company executives bought the company from Nashville-based Cracker Barrel Old Country Store for $485 million. The three investors, New York-based Bruckmann Rosser Sherrill, Los Angeles-based Black Canyon and Canyon Capitol, will continue to own a controlling interest, the SEC filing said.

Neither the price per share nor the number of shares to be offered was identified in the initial filing. The chain got its start in 1991 with a flagship restaurant in Lexington, Ky.

A total of 180 company-operated and 26 franchise restaurants now operate in 23 states. Two-thirds of its locations are in the Southeast, including 22 in Tennessee. Eleven are in the Nashville area.

The company’s total revenue was $416 million for the 39 weeks ended May 2, an increase of $12.3 million, or 3 percent compared to same period a year earlier.

Company shares are to trade on Nasdaq under the symbol LGNS. The lead underwriter for the public offering will be Credit Suisse Securities LLC.

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TN faces a slow economic recovery

Tennessee's economy has finally found a "sustainable path" to slowly recover from the Great Recession, but jobs and other key measures of consumers' well-being probably won't return to pre-recession levels until 2013, University of Tennessee economists say.
"The employment situation across the state has been nothing less than grim," wrote UT economist Matt Murray, who directed the UT Center for Business and Economic Research's 87-page spring update used by state government in budgeting.

"It will take a considerable period of time to erase the job losses that mounted over the course of the recession," Murray said.

The latest UT report says the "state economy should begin seeing improvement as 2010 unfolds. However, a strong and vigorous rebound is not expected. Even if rapid growth does emerge … it would be at least two years before economic conditions return to their pre-recession levels."

One bright spot is that taxable sales — a key measure of consumer and business spending — are starting to recover and could rise 2.1 percent this year, a significant improvement over the 7.6 percent drop in 2009.

However, Murray cautioned that the state's economy isn't likely to fully recover until 2012 or 2013 and that employment might not completely rebound until even later.

Between the first quarter of 2007 and the first quarter of 2010, Tennessee's manufacturing sector shed 88,000 jobs. Manufacturing jobs dropped 14.2 percent in 2009 alone.

The study predicts better hiring days but said non-farm employment is likely to fall slightly in 2010 before growing 1.8 percent in 2011. Manufacturing is expected to continue to slide by
2.5 percent in 2010 before gaining traction in 2011.

Looking ahead, the report notes that the state economy will benefit from investments in the automobile industry, specifically Nissan's plan to build the Leaf in Rutherford County and the Volkswagen manufacturing plant that will begin production soon in Chattanooga.

Personal income to rise

Economists say that the Tennessee unemployment rate probably won't drop below 10 percent until 2011 and that, even then, some workers who lost jobs in the recession will find it hard to market their skills.

The April unemployment rate statewide was 10.5 percent.

There was at least one other morsel of good news in the UT study: personal income.

Researchers say people who have jobs can expect to see their income grow by 2.8 percent in 2010 and
4 percent in 2011.

Also, tax collections rose $27.2 million for the first time in two years, from April 2009 to April 2010, with sales and use tax collections increasing 5.6 percent, the report found.

Although Tennessee's economy is improving, the state still faces tough questions on possible tax increases and spending cuts when federal stimulus funds run out next year, the UT study adds.

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Stocks slide on weak jobs report

NEW YORK — Stocks tumbled Friday after the Labor Department said hiring remains weak and Hungary became the latest European country to report its economy is in crisis. Interest rates dropped as investors moved money into the safety of Treasury bonds and notes.
The Dow Jones industrial average dropped 323 points, its third-worst slide of the year. The index closed below 10,000 for the second time in two weeks. All the major indexes were down more than 3 percent. The concerns about Hungary pounded the euro to a four-year low.

The drop pushed major stock indexes back into "correction" mode, meaning a decline of at least 10 percent from recent highs.

Retailers were among the hardest hit stocks after investors bet that a weak job market would discourage consumers from spending. Financial stocks also fell sharply on concerns that borrowers would continue having problems paying their bills. Banks were further hurt by worries about their vulnerability to Europe's increasing troubles.

Jobs report disappoints

The government's May jobs report was an unpleasant surprise for investors who had grown a little more upbeat about the domestic economy the past few days. The Labor Department said private employers hired just 41,000 jobs in May, down dramatically from 218,000 in April and the lowest number since January. The unemployment rate fell to 9.7 percent from 9.9 percent in April. That was slightly better than the 9.8 percent unemployment rate economists had forecast.

The jobs report was the latest in a series this week that showed the economy isn't as robust as hoped. But investors had sent stocks higher as they bet on stronger job growth in May.

The reality of the report erased that optimism.

"It's almost as if the worst fears of the market were realized, at least in this one report," said Richard Sparks, senior equities analyst at Schaeffer's Investment Research.

Investors were worried that employers' reluctance to hire would further hurt consumers. Investors were already nervous about consumer spending after retailers reported Thursday that their sales were sluggish during May. Clothing retailer stocks were among the big losers after the jobs report Friday as investors bet that shoppers would stick to buying only necessities.

Credit card companies and regional banks also fell sharply.

Meanwhile, the spokesman for Hungary's prime minister described the country's economy as being in a "grave" situation. However, he said, the government is ready to avoid a crisis like the one being faced by Greece, which had to be bailed out by the European Union.

The Dow fell 323.31, or 3.2 percent, to 9,931.97, its steepest drop since May 20. All 30 stocks that make up the index fell.

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Struggling O'Charley's restaurant chain ousts CEO Jeff Warne

Jeff Warne's resignation Friday as president and chief executive officer of O'Charley's was not much of a surprise for those watching the recession-weary restaurant business and its recent hard times.
The company has had declining revenues for each of the past three years and lost money during the past two years.

"When the team is losing, the coach gets fired,'' said Bryan Elliott, an analyst with Raymond James & Associates. "They are losing market share, and the brands have been suffering."

Elliott said the O'Charley's brand is smaller than its competitors, such as Applebee's or T.G.I Friday's, meaning it can't afford to do daily TV advertising like the bigger chains. Despite that, Elliott maintains an outperform rating on the stock because he thinks it is undervalued.

The stock ended the trading day Friday down 32 cents per share to $6.92, less than one-third of its value three years ago.

"They are not in financial peril,'' Elliott said. "They have a modest amount of debt and are cash flowing reasonably well."

Warne declined to comment on his departure, and the company's chairman, Philip Hickey, who will take over temporarily as chief executive officer until a replacement can be found, was not available.

Hickey will be paid $50,000 per month for June, July and August, the company said in a securities filing.

Jeff Omohundro, a senior analyst with Wells Fargo, wrote in a note that Warne's departure signals "a new direction at the company given the continued challenging economic environment."

What that new direction will be remains unclear.

New value menu

O'Charley's recently rolled out a new value menu with entrees as low as $8 to try to attract the cash-strapped consumer. Although previous value meals have driven profits lower, the new menu encourages people to buy an extra soup, salad or dessert for $2.99, which could bump up profits, Elliott said.

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Denny's restaurants to return to Nashville

After a seven-year hiatus, Denny's is coming back to Nashville.
Longtime Nashville restaurateurs Craig Barber and Bob Langford, who formerly worked for Denny's competitor Shoney's, have signed a deal to open four Denny's restaurants in the Nashville area at Pilot Travel Centers.

Without divulging the locations, Barber said the first should open in about six months.

"There aren't that many Denny's in Tennessee,'' Barber said. "I think there are only three or four now in the state. We think it's going to be a good opportunity for us and the brand."

The closest Denny's restaurant to Nashville has a Bowling Green, Ky., ad-
dress. The chain has some 1,500 restaurants across the country, but Shoney's dominated here for decades.

Denny's is open 24 hours and features meals as low as $2 in a family diner atmosphere.

Up to 15 locations

Barber said he and Langford believe there is room to grow. They hope to open 10 to 15 Denny's restaurants in the Nashville area over about five years, most of them independent of truck stops.

The two business partners own 33 Denny's franchise locations, mostly in Florida. They also own the Black-eyed Pea, a mostly Texas-focused brand with 30 locations. There is one Black-eyed Pea restaurant in Hendersonville.

Both Barber and Langford grew up in the Nashville area. Langford graduated from Stratford High School and Barber from McGavock. They spent some time trying to work on distressed restaurants. Their company, Dynamic Management Co., owned the Barnhill's Buffet, which filed for bankruptcy protection in 2007.

Contact business reporter Naomi Snyder at 615-259-8284 or nsnyder@tennessean.com.

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