By: Joseph Zender
In September, New York City’s Board of Health (“Board”) passed an ordinance that requires restaurants to post warnings on items on their menus that are have high sodium content.[1] The National Restaurant Association is challenging the new law in state court on the grounds that it is overly burdensome and that it circumvents the legislative process.[2] The new law would require restaurants with more than 15 locations nationwide to place a black triangle next to any item on their menu that contains more than 2,300 milligrams (0.08 ounces) of sodium.[3] Not only is the New York City Board of Health’s move legally dubious by circumventing the legislative process and overly burdening the restaurants, it will also have unintended consequences that will affect the community at large in adverse ways.
The sodium posting requirement is reminiscent of another action by the Board back in 2012, when they attempted the so-called ‘Soda Ban’.[4] The Soda Ban restricted restaurants and convenience stores from selling soft drinks greater than 16 ounces, in the name of obesity prevention.[5] In the instant case, just like the Soda Ban case, the Board has worked without any legislative guidance and sidestepped the city council to pass a first in the nation type rule.[6] The sodium plan is enacted to prevent cardiovascular disease much like the Soda Ban was enacted to prevent obesity.[7] And while less cardiovascular disease is a scourge, it is not likely that the Board can legally regulate it by enacting such a law.
The Soda Ban was struck down by the New York Court of Appeals in 2014 for three reasons.[8] Firstly, the city Board of Health did not have inherent legislative powers separate and apart from the City Council to enact the law.[9] Secondly, the Board, when promulgating the rule, chose between public policy ends, thereby engaging in law-making beyond its regulatory authority.[10] And lastly, the board did not supplement existing legislation when promulgating the Soda Ban.[11] Because the Board is appointed by the Mayor, they are not a designated legislative body in New York and thus do not have the power to legislate.[12] In addition, only regulations are within the purview of the Board because the New York Court of Appeals held that policy making, which is the process of solving difficult social problems, is reserved to the legislature.[13] It likely will not be difficult for the National Restaurant Association to show that the board is participating in policy making by attempting to legislate on this difficult social issue. By doing so, the board is exceeding its powers as a mere regulatory agency and the sodium labeling scheme will likely be struck down.
Beyond the legality, which will likely be in favor of the National Restaurant Association, the institution of a sodium labeling program will have many unintended consequences. For example, a new study of the comprehensive literature surrounding the health consequences of sodium intake reduction at a community level is inconclusive.[14] Startlingly, the study was completed by a former member of the Board and states that there is a true polarization of the literature, between those who posit no health changes across the population when sodium intake is decreased and those who think there is.[15] So while the consequences of sodium consumption are in doubt, the Board desires to pass a law warning of its consumption. Thus, burdening the restaurants in New York City with this addition law is potentially unnecessary.
In addition to the dubious legality and rationale surrounding the passage of the Board’s new ordinance, there are far ranging economic ramifications. The first and most obvious of which is adding an addition cost to restaurants in New York City. Proponents of the new law may say that the requirement of adding black triangles to a menu is not particularly expensive and only targets restaurant ‘chains’ with more than 15 locations nationwide.[16] However, if individual franchise owners are forced to comply without the help of the corporate entities, it may do more to burden individuals than the corporate ‘chains’. This is just one more cost placed on business owners who are tasked with creating jobs and products for consumers. It is difficult to consider how burdensome additional regulations are without considering how expansive regulation already is in the United States. Just on the federal level, the total costs of business regulation was over 2 trillion dollars in 2012.[17] Forcing restaurants to research and analyze each product in order to determine if menu items exceeds the 2,300 milligram threshold just burdens restaurant businesses even further. Moreover, for every new product these businesses want to develop, they’ll have to do the same analysis for fear of accidently violating the regulation. This type of increased regulation in business only creates higher costs, which in turn effects the services businesses can provide and the prices of those services.
These higher costs are not all going to be paid by the corporate entities or persons who own restaurants in New York City, a portion of them will be passed off to the consumer. The restaurant industry in New York City would be considered in monopolistic competition. Monopolistic competition is a form of imperfect competition where sellers sell products that are differentiated and thus not perfect substitutes.[18] Which means restaurants have some price setting power and can profit in the short run by setting their marginal revenue of producing another good at the marginal cost of producing another good.[19] This allows some of the costs to be passed onto the consumer through higher prices.[20] The consequences of this is that some consumers will be pushed out of the market. The greatest burden may be felt by those that can least afford it. By increasing the costs and thus the prices, the Board is making it more difficult for those in poverty to find a cost effective meal. All governmental regulations pick winners and losers, in this case, the losers are both the restaurants and the consumers.
Furthermore, the higher costs associated with the regulation may prevent some companies from expanding into the New York City market. As the barriers to entry increase, the amount of competition will decrease overtime as firms exit the market due to higher costs more quickly than firms enter it.[21] With less competition, prices will rise further.[22] This would create even worse outcomes for the consumers. Not only would existing firms increase prices in the short run due to the market structure, but the lack of new competition due to the higher costs of moving into the market may lead to even higher prices.[23] Which would disadvantage consumers even further. As Christin Fernandez, the spokesperson for the National Restaurant Association, said in a statement to announce their suit, “While the Board of Health thinks they are targeting corporate ‘chains’, in reality they are dealing yet another blow to many of New York’s small businesses that have been working and continue to work hard to provide nutritional access to their customers.”[24]
Lastly, the Board is using a paternalist rationale to pass a regulation, when consumers are better placed to know their own preferences. Each individual has preferences that through rationality allow them to choose what they want to spend their money on and thus the restaurants they want to go to in order to maximize their utility. If consumers prefer to not eat sodium, determined through their own rational decision making, they can choose not to eat salty foods. It is much simpler, and conforms much more closely with notions of liberty than allowing a quasi-governmental board of health to make decisions for others by marking foods with an ominous black symbol.
New York City’s Board of Health attempted to pass a restrictive law in September for which is had no legal authority. And beyond the move’s legal dubiousness, it will increase costs for businesses and prices for consumers. If the Board truly was concerned about the wellbeing of the residents of New York, they would make nutritional access and competition more accessible not less. The sodium regulation should easily be struck down by the New York Court of Appeals, but hopefully this ‘first of its kind’ regulation does not start a trend across the nation.
[1] National Restaurant Association Sues New York City Over Sodium Warnings on Menus, Entrepreneur (Dec. 4, 2015), http://www.entrepreneur.com/article/253591.
[2] Id.
[3] Dan Goldberg, Restaurant group to sue NYC over sodium rule, Politico (Nov. 30, 2015), http://www.capitalnewyork.com/article/city-hall/2015/11/8584218/restaurant-group-sue-nyc-over-sodium-rule.
[4] Declaratory Judgment Petition, Nat’l Rest. Ass’n v. The New York City Dep’t of Health & Mental Hygiene, (Dec. 3, 2015).
[5] Id.
[6] Id.
[7] Notice of Public Hearing and Opportunity to Comment on Proposed Amendment to Article 81 of the New York City Health Code, Department of Health and Mental Hygiene – Board of Health (July 29, 2015), https://www1.nyc.gov/html/doh/downloads/pdf/notice/2015/noi-repeal-article81.pdf.
[8] New York Statewide Coal. of Hispanic Chambers of Commerce v. New York City Dep’t of Health & Mental Hygiene, 23 N.Y.3d 681, 16 N.E.3d 538 (2014)
[9] Id.
[10] Id.
[11] Id.
[12] Id.
[13] Id.
[14] Ludovic Trinquart et al., Why do we think we know what we know? A metaknowledge analysis of the salt controversy, International Journal of Epidemiology (Feb. 17, 2016), https://ije.oxfordjournals.org/content/early/2016/02/17/ije.dyv184.abstract.
[15] Id.
[16] Dan Goldberg, Restaurant group to sue NYC over sodium rule, Politico (Nov. 30, 2015), http://www.capitalnewyork.com/article/city-hall/2015/11/8584218/restaurant-group-sue-nyc-over-sodium-rule.
[17] The Cost of Federal Regulation to the U.S. Economy, Manufacturing and Small Business, National Association of Manufacturers (2014), http://www.nam.org/Data-and-Reports/Cost-of-Federal-Regulations/Federal-Regulation-Executive-Summary.pdf.
[18] Libby Rittenberg et al., Monopolistic Competition: Competition Among Many, Microeconomic Principles (2012).
[19] Id.
[20] Id.
[21] William F. Shughart II, Industrial Concentration, The Concise Encyclopedia of Economics, http://www.econlib.org/library/Enc/IndustrialConcentration.html.
[22] Id.
[23] Id.
[24] Dan Goldberg, Restaurant group to sue NYC over sodium rule, Politico (Nov. 30, 2015), http://www.capitalnewyork.com/article/city-hall/2015/11/8584218/restaurant-group-sue-nyc-over-sodium-rule.