How illegal immigration is dividing a town's business owners

Geno's Steaks owner Joey Vento was vocal in his support of anti-immigration legislation.

Doug Bell opposed anti-immigration legislation.

Doug Bell, inside his Riverside discount store

Joey Vento, owner of Geno's Steaks restaurant

The owners of Pavilion Barbecue opposed anti-immigration legislation.

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RIVERSIDE, N.J. (FORTUNE Small Business) -- A barbershop quartet sings "The Girl From Ipanema" in Portuguese on a television dialed to a Brazilian satellite channel inside Pavilion Barbecue, where the air is piquant with the aroma of the house specialty, frango de churrasco - slow-roasted chicken braised in red chili sauce.

Three years ago Celeste Martiniano Martinez, a Portuguese-American immigrant, sank her life's savings into opening this restaurant in downtown Riverside, N.J. Business was booming until the Riverside Township Committee unanimously passed the Illegal Immigration Relief Act, which made hiring or renting property to an illegal immigrant punishable by a $2,000 fine and jail time.

Since then, immigrants have fled Riverside in droves, and now there are more chickens turning on Martinez's rotisserie than customers sitting at her tables.

Riverside has become a microcosm of the raging national debate over immigration. Local residents who feared that the character and culture of their town were being altered for the worse joined forces with local business owners who resented rivals who hired cheap, illegal laborers and avoided paying their payroll taxes and workers' comp. Together this group clashed with the many small-business owners, such as Martinez, who argue that without immigrants Riverside's economy would wither.

A hamlet of about 8,000 situated across the Delaware River from Philadelphia, Riverside is just one of more than 30 small towns and suburbs across the country that have recently enacted immigration ordinances, including Escondido, Calif.; Farmers Branch, Texas; and Valley Park, Mo. At the same time, statewide laws that punish business owners for employing illegal immigrants have been passed in Arizona, Oklahoma, and South Carolina.

When Martinez, 52, opened Pavilion Barbecue in 2005, the township was enjoying a renaissance sparked by an influx of immigrants who were drawn to the area by abundant construction and service-sector jobs. Their presence began to reverse decades of blight in Riverside. Boarded-up storefronts reopened as coffeehouses, minimarts, music shops, nail salons, pharmacies, and restaurants.

Hundreds of residents gathered downtown in February 2006 to watch a wrecking ball destroy the W.F. Taubel Mill, a decrepit hosiery factory that was once Riverside's largest employer. The crowd cheered as the mill was razed to make way for a condominium project located along the new state-funded light-rail line.

"Riverside, the tide is turning and you are on the way up," proclaimed state senator Diane Allen as the dust settled. "Riverside is going to be a shining star once again."

But not everyone appreciated the demographic shift. Some business owners resented the thousands of Spanish-speaking newcomers, 80% of whom were in the county illegally, according to estimates by local officials. Joey Vento, owner of Geno's Steaks, a landmark South Philly cheese-steak joint established in 1966, donated $10,000 to a legal fund set up to support the nearby city of Hazleton, Pa., which passed the country's first anti-illegal-immigration law just weeks before Riverside.

"Business owners who support illegal immigration are short-sighted and unpatriotic," says Vento, 67. "Plus, they're cheaters. Any business that has to depend on illegals to survive is not a legitimate business, period."

Vento spoke out passionately in favor of Riverdale's ordinance, and the town council agreed, passing it in July 2006. Since then, town officials estimate, as many as 2,500 immigrants, or nearly one-third of Riverside's population, have fled. Downtown merchants and restaurateurs report declines in revenue of as much as 70%.

"Business was good before - very good," Martinez says. "Now it's down 50%. Every day I pray, but it's an uphill struggle."

Ironically, the Riverside ordinance was never actually enforced. It was almost immediately tied up in court after 62 Riverside business and property owners filed a lawsuit claiming that the Illegal Immigration Relief Act was unconstitutional and improperly superseded federal authority.

"The law basically forced local business owners to become enforcers of federal immigration policies, which I didn't appreciate," says Ed Robins, 53, who opened a musical instrument and record store in downtown Riverside in 2005. "I took less than a 20% hit. But I opposed [the ordinance] on principle."

Riverside officials spent $82,000 in attorney fees, forcing the delay of road-improvement projects and repairs to City Hall. It then became the nation's first town to rescind an immigration ordinance, in September 2007 - but only after a federal judge had struck down Hazleton's law. (Riverside Mayor Robert Conrad declined to comment for this article.)

More recently, three federal judges issued separate rulings that shifted the momentum in favor of local immigration laws. Last December a federal judge in Oklahoma threw out a lawsuit against a statewide law that forbids hiring illegal immigrants. In January a Missouri judge ruled in favor of a local ordinance passed in Valley Park, a suburb of St. Louis, that fines and suspends the business licenses of those who fail to verify employees' immigration status. Then, in February, a federal judge in Arizona upheld a law that suspends for ten days the business license of any employer who hires an illegal immigrant, and then revokes it permanently on the second offense.

Even though the U.S. Chamber of Commerce, local chambers, and other business consortiums, such as farm bureaus and restaurant and hospitality associations, have consistently rallied against such laws, 32 state legislatures are considering sanctioning those who hire illegal immigrants.

The Greater Oklahoma City Chamber of Commerce is now dealing with the fallout on its economy. It estimates that 20% of the city's construction labor force - about 2,000 workers - has left the city in the past four months. More than 70 businesses closed in the first two months of 2008 because many of their employees left the state. In Tulsa, sales at small businesses in Latino areas have dropped by about 50%, and the Tulsa Metro Chamber of Commerce estimates that 15,000 to 25,000 Hispanic workers have left the area since the law passed.

"The Tulsa region was outpacing the rest of the nation in job growth," says Mike Neal, president of Tulsa's chamber. "This law requires our businesses to police immigration through an erroneous system and harms the ability of Oklahoma businesses to grow."

Back in Riverside, officials estimate that a few hundred Brazilians have returned to the town since its immigration ordinance was repealed, maybe more. It's hard to measure the influx; now more than ever, immigrants are keeping to the shadows.

"I rent out a one-bedroom apartment. Sometimes I see four or five pairs of shoes outside the door," says Doug Bell, 50, owner of a Riverside discount store as well as a commercial painting business and a residential leasing agency. "Their standard of living is different than ours. It's just a question of, if they're here to stay, are they going to eventually rise to our standard of living, or are they going to bring us down? Right now, all I know is I'm barely making it, and the Brazilians are good shoppers."

Most business owners seem to agree on one point: The U.S. needs a uniform national policy on immigration.

Says Robin Conrad, executive vice president of the National Chamber Litigation Center, the public-policy law firm of the U.S. Chamber: "This patchwork of inconsistent requirements is not the answer and will have a negative effect on the economy."