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SR-09-25-2015-7A City Council Report City Council Special Meeting: September 29, 2015 Agenda Item: 7.A 1 of 21 To: Mayor and City Council From: Gigi Decavalles-Hughes, Director, Finance Department Subject: Introduction for First Reading of an Ordinance Setting a Santa Monica Minimum Wage Recommended Action Staff recommends that the City Council: 1) Receive the attached report and community comment regarding a minimum wage increase in the City of Santa Monica; 2) Introduce for first reading the attached ordinance setting a minimum wage to be effective in the City of Santa Monica following the model of the City of Los Angeles, a phased approach to reach $15 per hour by 2020 for most businesses; 3) Direct staff to return with future modifications as appropriate, including those reflecting potential future changes in the Los Angeles Ordinance; and 4) Direct staff to initiate research and outreach to consider matching the City of Los Angeles Hotel Worker Minimum Wage Ordinance. Executive Summary In September 2014, Los Angeles Mayor Eric Garcetti proposed an increase in the minimum wage for the City of Los Angeles. The Los Angeles City Council adopted a minimum wage ordinance at its June 10, 2015 meeting. The Santa Monica City Council directed staff to review the Los Angeles proposed ordinance and its potential impact on Santa Monica, including the possibility of passing a similar ordinance, in September 2014 and again in June 2015 following the Los Angeles ordinance adoption. Staff coordinated meetings for the Santa Monica business and nonprofit communities to discuss a minimum wage increase. At these meetings, experts in minimum wage economic impacts who analyzed the Los Angeles proposal made presentations on these results and discussed, at a broad level, implications for Santa Monica. Staff recorded concerns raised by the individuals who attended outreach meetings, and experts clarified information through the outreach process. Staff recommends the Council adopt the proposed ordinance increasing the minimum wage in the City of Santa Monica, based on the Los Angeles legislation, and including Council direction for 2 of 21 service charges and union supersession. The result would be a phased increase, starting at $10.50 per hour on July 1, 2016 and reaching $15 per hour by July 1, 2020 for most businesses. Staff recommends returning to Council with modifications related to paid leave and enforcement, and seeks further Council direction for a hotel worker minimum wage and a seasonal workers exemption. Background On August 25, 2015, the City Council unanimously supported preserving Santa Monica as an inclusive and affordable community as one of the City’s top three Priority Strategic Goals. One aspect of affordability is the cost of housing. Another is the ability of low - wage workers to afford the rising cost of housing in Santa Monica. The primary goal of raising the minimum wage is to increase the pay of low wage workers at a time when their share of overall income has declined and the cost of housing has risen faster than inflation. Economic research literature agrees that minimum wage laws achieve this goal, and consistently finds that the affected workers are mostly adults, and disproportionately women and people of color. In addition to the immediate benefits of increased income, research literature suggests longer -term benefits in improved health outcomes for workers and children, and in increases in children’s school achievement and cognitive and behavioral outcomes. The nation as a whole and specific regions have historically prospered when the benefits of economic growth are widely shared. Since Measure JJ, a proposed living wage measure, lost by a narrow margin in 2002, the Santa Monica community has supported minimum wage rules for those employed in the City. Effective July 1, 2005, Council approved a living wage requirement for any contractor providing services to the City of Santa Monica pursuant to a contract in the amount of $54,200 or greater. This living wage, currently $15.37 per hour, is also included in the development agreements for three upcoming hotels. At its September 9, 2014 meeting (Attachment A), the Council directed staff to monitor Mayor Garcetti's proposal to raise the minimum wage in the City of Los Angeles and to analyze the effect that raising the minimum wage in Los Angeles would have on the City 3 of 21 of Santa Monica. Council further directed staff to place a discussion regarding the possibility of raising the minimum wage in Santa Monica on the Council agenda, in the event that the City of Los Angeles implemented the minimum wage increase. The Los Angeles City Council approved its minimum wage ordinance on June 10, 2015. On June 5, 2015 (Attachment B), staff submitted an informational report to the Council on the ordinance, and informed Council of plans to move forward with a study estimating impacts of a similar increase in Santa Monica. At its June 9, 2015 meeting (Attachment C), Council discussed the Los Angeles minimum wage increase and directed staff to initiate community outreach and begin preparation of an ordinance setting a minimum wage and other minimum terms for Santa Monica employers. Council further recommended that staff contract with researchers from the University of California at Berkeley’s Institute for Research on Labor and Employment (IRLE) to conduct outreach with the community. The IRLE has provided analysis for minimu m wage increases in many California and other U.S. cities, and a peer review of several studies related to the Los Angeles minimum wage cited the IRLE report as the best supported and most reasonable assessment of the law’s economic impact. Discussion As a smaller city sharing borders with the City of Los Angeles, Santa Monica coordinates with Los Angeles on many policy issues, and is an active partner in the greater Los Angeles economy. Staff’s recommendation is to match the City of Los Angeles minimum wage policy on a broad level. Doing so would promote fairness, provide regional wage equality, decrease market distortions, and facilitate implementation and compliance. The data necessary to perform an in-depth, City-level economic analysis of a minimum wage increase in Santa Monica is not readily available apart from Census data, quarterly labor market reports and annual Transportation Demand Management (TDM) surveys, all of which report summary data. This data is insufficient for a reliable in - 4 of 21 depth analysis. However, available Santa Monica business and economic data, when compared to the same values for Los Angeles, provide some indication of how Santa Monica and its businesses may respond to a minimum wage increase. The draft Santa Monica ordinance matches the Los Angeles wage levels and schedule, and its exceptions for small businesses, nonprofit organizations, and youth learners. It differs from the Los Angeles ordinance in areas where Los Angeles has not yet come to a decision, and where Council has provided specific direction: union supersession, service charges, and transitional jobs programs. Staff recommends providing for union supersession, which is consistent with the City’s living wage and provides flexibility for employers of employees represented by a valid collective bargaining agreement. In response to Council direction given on June 9, 2015, staff recommends language that requires service charges to be spent on employees providing the service. Based on Los Angeles direction and consistent with community needs, staff recommends a limited transitional jobs program exemption, to be reviewed and revised as necessary following final Los Angeles language. Staff recommends returning to Council with further direction on paid leave and enforcement, pending more research and information. Finally, staff recommends the Council authorize conducting research and outreach for pursuing a hotel minimum wage increase that would mirror the Los Angeles hotel “living wage” as well as consideration of a potential transitional exemption for seasonal and trainee workers and any other changes the Council wishes to consider implementing beyond the provisions of the current proposed ordinance The Los Angeles Minimum Wage The Los Angeles ordinance phases in annual increases to reach $15 per hour by 2020 for most businesses. The increase will be effective July 1 of each year, as follows: Year Rate 5 of 21 2016 $10.50 2017 $12.00 2018 $13.25 2019 $14.25 2020 $15.00 Beginning in 2022, the wage will increase annually by a rolling 20-year average Consumer Price Index (CPI) rate. Independent of the City wage proposal, the State minimum wage is set to increase from the current $9 per hour to $10 per hour on January 1, 2016. The Los Angeles ordinance, like other local wage laws, will not cover self -employed workers, county, state and federal workers, or workers employed by the Los Angeles Unified School District. California labor law also allows for subminimum wage payments to disabled individuals and employees with disabilities through an Industrial Welfare Commission (IWC) special license. The ordinance includes exceptions to this schedule for learners (those working in a position for the first time) aged 14-17, businesses and nonprofit organizations with 25 or fewer employees, and nonprofit organizations meeting certain other criteria. These exceptions are defined in the City of Los Angeles minimum wage ordinance, included as Attachment D. Los Angeles City Council direction for the transitional job program exemption, which Los Angeles has approved but which is not yet incorporated in the ordinance, is included as an exhibit to the ordinance. This language provides the basis for the transitional jobs program exemption included in the draft Santa Monica ordinance. Outstanding Items Los Angeles Council members directed the city’s Chief Legislative Analyst (CLA) to return with additional analysis and clarification on several issues not determined at the law’s signing. The Los Angeles Council expects to vote on these items and amend the ordinance as necessary prior to the wage implementation. 6 of 21  Sick leave. An early amendment had directed staff to develop paid time off policies consistent with previous City wage policies, which most understand to translate to 12 paid and 10 unpaid leave days per year. This is the same as the requirements of the hotel worker minimum wage ordinance. Separately, a new State law effective July 1, 2015 mandates at least three paid sick days annually for workers. The Los Angeles City Council removed this item from the ordinance and directed the Chief Legislative Analyst to review other California cities’ sick leave policies and current State law, and return with a recommendation for a sick leave policy for all employees working in the City of Los Angeles. This item is still pending.  Service charges. An early amendment directed staff to ensure consistency with the City’s hotel worker minimum wage related to service charges. Council removed this item from the ordinance and directed staff to conduct an analysis of mandatory service charges, commissions, and guaranteed gratuities in the City of Los Angeles and to include options for a policy that protects employees. This item is not yet scheduled.  Collective bargaining. A collective bargaining exemption would allow for employees otherwise represented to negotiate below the established minimum wage. This item is not yet scheduled. Enforcement and Reporting Based on the City of San Francisco model, the Los Angeles ordinance c reates a Division of Wage Enforcement with five employees and an outreach and advertising budget of $200,000 in 2015, which would grow to 39 positions and a $2.1 million outreach plan by 2020. The first year also includes two additional attorney positions to provide legal support and interpretation of the new law, and an additional contract administration position. The full position and allowance target will be phased in over four years as the number of employees covered by the wage law increases. The IRLE and other reports stressed the importance of enforcement in realizing the positive benefits projected with a minimum wage increase. 7 of 21 The ordinance requires a study every three years starting July 1, 2016 to review the state of the City's economy, based on data currently collected, and requires annual collection of economic data, including jobs, earnings and sales tax revenue. Projected Impacts in Los Angeles The Los Angeles City Council’s Economic Development Committee (LAEDC) selected the UC Berkeley IRLE to provide an analysis of the projected impact of a minimum wage increase as originally proposed by the Mayor and expanded on by the LAEDC: reaching $13.25 by 2017 and $15.25 by 2019. The study assessed the economic impact of the proposal on workers, businesses and the city’s economy, and analyzed policy design options. While the progression of the increases studied in the report was more aggressive than the adopted wage progression, the results are still indicative of potential impacts of the final proposal, with a longer phase-in and lower ultimate target. The study concluded that positive impacts in income gains to low income residents and regional economic growth would largely outweigh any potential decreases to city economic growth, marginal job losses and slight increases to business operating costs. This is in part due to the benefits produced by a higher wage, such as reduced employee turnover and improved performance offsetting some of the labor cost increases, and increased consumer demand from wage increases offsetting declines in sales from higher prices. Analysis indicates that the benefits from reduced employee turnover and increased performance would apply equally to nonprofit organizations, and would also lead to increased quality of care for service recipients. However, certain types of nonprofits and those relying significantly on government reimbursement rates would benefit from a longer phase-in period. For all covered groups, researchers recommended strong monitoring and a focus on enforcement. Major points from study conclusions include:  Many low wage workers will benefit. By 2019, over 40% of workers, about 609,000 individuals, would receive a pay increase associated with the minimum wage change. 8 of 21  Business operating costs will not change significantly. Across all industries, the minimum wage increase would translate to a 0.9% increase in operating costs. This is a very small impact given the wage change from $9 per hour to $15.25 per hour is a 67% increase. This includes the cost increases necessary to maintain salary level distinctions (i.e. supervisors would require a wage increase to remain at a level higher than their subordinates). Operating costs differ by industry with restaurants affected most at an estimated 7.8% increase in costs.  Economic growth will not be strongly affected. The wage increase would have very little economic impact in either a positive or negative direction. Projections for Los Angeles city are a 0.1% decrease in gross domestic product (GDP) versus a scenario with no increase; for Los Angeles County this number changes to a 0.1% GDP increase.  Some industries will have a harder adjustment. Minimum wage workers are concentrated in a few industries that would be more affected than others. Food services, with 17.3% of minimum wage workers, and among the highest percentage of industry workers receiving an increase at over 75%, would be most impacted.  Small firms will be most impacted. Smaller firms tend to have a larger percentage of low wage workers than larger firms; the study estimates that for businesses with 99 or fewer employees, 50% or more of their employees will receive a raise associated with the minimum wage increase, this number drops to about 40% for firms with 100 to 499 workers, and to 35% for firms with more than 500 workers.  Nonprofit organizations have specific challenges. In Los Angeles, the share of nonprofit workers projected to receive wage increases is substantially lower than in the private sector, at 30.4% compared to 45.2%. However, average nonprofit labor costs represent about 38% of operating costs, compared to 22% in the private sector, so an increase in labor costs would affect a nonprofit organization more. And, unlike the private sector, which may pass through operating cost increases to customers, nonprofit 9 of 21 funding comes from a variety of sources – program revenues, private donations, and government funding – that organizations cannot control or manage to the same extent.  Nonprofit impacts are concentrated in childcare and residential care. The nonprofit sector varies widely, from large hospitals and universities to childcare, religious, and civic organizations. Within these categories, the majority of low wage workers are centered in residential care facilities and childcare services, where more than half of workers would receive wage increases (62.0% and 58.9%, respectively), compared to just 13.6% for hospital workers, who make up the largest segment of nonprofit workers. Similarly, these types of organizations will experience the greatest payroll cost increases, at an estimated 8.1% for childcare and 7.0% for residential care by 2019.  Nonprofits dependent on government funding sources may need assistance. The Los Angeles report cites organizations providing services to people with developmental disabilities and those in early childcare and education as the most impacted. California law guarantees a system of comprehensive support services to people with developmental disabilities and sets reimbursement rates. These rates have been largely frozen since 2003- 2004, and organizations are unable to recoup cost increases by charging clients above reimbursement rates due to State law; so that private fundraising is the only option to avoid service cuts. In childcare and early education, the State subsidy rates have also not kept pace with inflationary increases. In this area, low-income consumers have limited ability to pay higher costs. Projected Impacts in Santa Monica Staff engaged Dr. Michael Reich and Ken Jacobs of the IRLE to assist with community outreach and provide perspective on a Santa Monica increase based on the Los Angeles analysis. 10 of 21 While the Santa Monica and Los Angeles local economies are dissimilar in many ways, there are sufficient similarities to suggest that the analysis conducted for Los Angeles would provide insight into the wage increase’s potential impact on Santa Monica’s economy. In 2014, average total employment in Santa Monica was about 86,000, with an average 9,253 establishments. About 62% of total employment is in five sectors: accommodation and food services (16.1%); professional, scientific, and technical services (12.7%); health care and social assistance (11.3%); information (11.4%); and retail trade (10.7%). The largest contributors to average payroll, making up 40.6%, are information (23.0%) and professional, scientific and technical services (17.7%). In Santa Monica, businesses with fewer than 100 employees make up 67% of total City employment1. According to the 2014 labor market data, the accommodations and food services sector employs approximately 14,000 people in a total of 429 establishments. The majority of the jobs in this sector are in restaurants. Food services and drinking places make up 78% of the sector’s employees (11,000 employees) and have a smaller payroll per employee, with 69% average contribution to payroll. With a large percentage of total employment and relatively low contribution to total payroll (5.3%), food services and accommodations is both a significant part of Santa Monica’s workforce, and one with lower wages. As of 2014, Santa Monica had 307 public charities, with 56% in three categories: human services (24.1%); arts, culture and humanities (18.6%); and education other than higher education (13.7%)2. This distribution tracks roughly with Los Angeles. Santa Monica has a slightly higher percentage of organizations dedicated to arts and 1 State of California Economic Development Department Labor Market Information Division, Quarterly Census of Employment and Wages, North American Industry Classification System (NAICS) Sector Data; City of SM Principal Employers List 2015 2 Data from the Urban Institute’s National Center for Charitable Statistics. To best match the Los Angeles Data analysis, this is limited to public charities (versus private foundations) that have filed a 990 or 990 EZ. Nonprofit data is from 2013 or 2014 – most recent documents available. The comparisons to Los Angeles rely on percentages, which should remain roughly consistent year over year. 11 of 21 culture, the environment, and higher education, and slightly lower percentages in religion and human services. Santa Monica’s nonprofit organizations are on average larger; even when adjusting overall nonprofit industry revenue data to exclude some outliers such as RAND Corporation, average revenue per organization is substantially above that of Los Angeles, at $10.3 million compared to $2.3 million in Los Angeles. Using this information and conclusions drawn from relevant minimum wage research, researchers project that a minimum wage increase in Santa Monica would likely have less impact on employment, prices, and the overall economy than what is estimated for Los Angeles. The following summarizes major points of comparison between the cities and supports staff’s recommendation to adopt a minimum wage ordinance aligned with Los Angeles.  Size and Scope. Los Angeles is the dominant economic force in the region, and its wage increase will impact Santa Monica’s businesses and labor market even if Santa Monica does not act. Absent any Santa Monica action, businesses and nonprofits will need to increase wages to remain competitive with Los Angeles. Several of Santa Monica’s nonprofit organizations also operate in Los Angeles, where they would be subject to the higher minimum wage rate.  Industries. The Los Angeles analysis estimates that over half of the workforce affected by the minimum wage is concentrated in four industries, led by food services. A higher percentage of Santa Monica’s private sector employment is in the accommodations and food services industries (17.5%) than in Los Angeles (10.2%). This suggests that a minimum wage increase could potentially have a greater impact on the City’s economy than it would for Los Angeles. However, some Santa Monica specific elements, such as higher average pay rates and substantial tourism, would offset this impact.  Average weekly pay. Santa Monica businesses already pay higher average wages than Los Angeles employers in the restaurant and accommodations industries. In Santa Monica, the average weekly pay in the accommodations industry is approximately 12% greater than that of LA; in the restaurant 12 of 21 industry that difference is 19%. This means that although a greater proportion of Santa Monica’s industries are among the most vulnerable to minimum wage increases, the effect on labor costs will not be as great.  Tourism. Santa Monica’s economy is more dependent on tourism than that of Los Angeles. Tourism is unlikely to suffer from a Santa Monica minimum wage increase for several reasons:  A large part of Santa Monica tourism is linked to Los Angeles, so that any change occurring in Los Angeles would impact Santa Monica whether or not the City adopts its own ordinance.  Tourists are generally less price-sensitive than other consumers; and Santa Monica has a distinct tourist appeal as a beach city, which makes its visitors less price-sensitive than those in Los Angeles.  Hotels have demonstrated resiliency during the 2008 recession, and Santa Monica continues to have very high hotel occupancy rates, despite being among the highest priced in the region.  Nonprofits. Santa Monica’s nonprofit organizations will be impacted to varying degrees, based on organizations’ funding sources and services. For example, organizations with interim housing services employing staff around the clock will be impacted at a higher rate than other programs. Childcare organizations are likely to be among those most impacted by the minimum wage increase, as a large percentage of their employees are commonly low wage workers. Santa Monica also has a number of nonprofits providing j obs and training to transitional employees. Continued support of these nonprofits through the transition to a higher minimum wage would further the City’s strategic initiative goals related to maintaining an inclusive and diverse community, reducing homelessness, and emphasizing Santa Monica as a learning community from Cradle to Career and beyond. Community Discussions and Input Staff held three sessions for the Santa Monica business and nonprofit communities. 13 of 21 In the business community meetings, Dr. Michael Reich addressed business owners and managers, answered their questions and clarified the analysis. The meetings took place on August 12 and August 18, 2015. Staff recorded each two hour session, and posted links to the recordings on the City’s website (Attachment E). A total of 39 attendees from 34 businesses and organizations attended the sessions. The majority of attendees were from restaurants and business interest groups, including the Chamber of Commerce, Downtown Santa Monica Inc., and the Main Street Business Improvement Association. Most attendees acknowledged the need for a coordinated regional approach to the minimum wage, but expressed concern about treatment of tipped workers, timing, and the magnitude of the increase. Other concerns included the ability to stay in business, concern for independent or smaller restaurants, and student seasonal workers. A full list of questions and responses is included as Attachment F. Staff made a presentation to the Downtown Santa Monica Inc. Board of Directors at the August 27, 2015 meeting. The Board was interested in understanding the potential impact to businesses. Concerns were expressed as to how restaurants would modify their operations to accommodate the proposed increase. Overall, there wa s support of Council’s interest in the issue and effort to address those in the workforce earning a minimum wage. The Board voted in unanimous support of the proposed minimum wage increase. The nonprofit organization meeting took place on September 8, 2015. Twenty-three attendees from 21 organizations attended. Attendees expressed support for the goals of the minimum wage increase, and some concern about managing associated operating cost increases. A full list of questions asked and comments submitted during the meetings and sent to staff directly is available as Attachment F. Santa Monica Ordinance Coordinating minimum wage policies improves fairness and promotes regional economic equality. In addition to the Los Angeles City ordinance, Los Angeles County is expected to adopt the same minimum wage parameters for the unincorporated areas of Los Angeles County, where the Board serves as the wage setting entity, and nearby 14 of 21 cities including Beverly Hills, West Hollywood, Long Beach, and Pasadena are considering similar increases. The proposed Santa Monica ordinance mirrors that of the City of Los Angeles and includes the same conditions and exceptions for youth learners, small businesses, and nonprofit organizations. Like the Los Angeles ordinance, the proposed minimum wage law would apply to all private organizations and those not specifically exempted under California labor law. Santa Monica’s living wage, established in 2005, would still apply to City contractors over the established threshold. The Santa Monica City Council provided staff with specific direction on two policy issues that differ from the Los Angeles ordinance.  Collective bargaining. Santa Monica’s Council directed staff to include an exemption for employers whose staff are p rotected by a collective bargaining agreement. The proposed ordinance includes this requirement. Union supersession is already a condition of Santa Monica’s living wage policy and some development agreements. However, some businesses have expressed concern that including this provision in the minimum wage ordinance could create a competitive disadvantage for nonunion businesses.  Service charges. According to State law, mandatory service charges may be distributed at the employer’s discretion, while voluntary service charges are the property of employees. Santa Monica’s Council directed staff to include language in the ordinance that ensures any service charge remains the property of the staff providing the service. The proposed ordinance includes la nguage to this effect, drawn from the City of Los Angeles Hotel Service Charge Reform Ordinance. This provision does not affect a business owner’s decision to use a service charge, but ensures that the charge is spent on the employees providing the service. However, this is a complex issue and the language from the LA Hotel Ordinance may not achieve the broadest Council objectives. As a result, staff seeks Council direction to work with the business community to identify approaches that provide flexibility in how services charges are distributed to 15 of 21 employees, while ensuring that consumers have good information about how services charges are being used. If alternative ordinance language could better achieve the Council’s goals, staff will return with recommendations. The draft ordinance includes a limited exemption for transitional job programs, based on Los Angeles direction and consistent with community needs. Staff will review the final language in the Los Angeles ordinance once it is adopted, and return with updates to match this language if appropriate. The draft ordinance is included as Attachment G. Enforcement and Reporting State law governs minimum wage in Santa Monica, including posting requirements. Staff currently follows complaint-based enforcement for the State minimum wage, and can withhold or revoke business licenses as a tool to deal with noncompliant businesses per the municipal code. Staff recommends continuing these practices for the City minimum wage, and complementing enforcement with communication and outreach about the change to residents and employees. Based on other cities’ approaches, staff proposes working through existing community partners to communicate the wage increase and build consumer support for local businesses a s they work to manage associated labor cost increases. Enforcement of the minimum wage law, with its various implementation dates and exceptions, would be complicated and could therefore be labor intensive and require substantial additional resources. Even a complaint-based structure would require audits and an eventual legal process. Forming a wage enforcement division, as the larger cities of San Francisco and Los Angeles have done, could bring significant long term costs in personnel, in addition to any added legal costs. Staff will explore these costs, and costs associated with other options like regional enforcement, potentially more suited for a smaller city, and will return to Council with a detailed plan for enforcement prior to the ordinance taking effect. 16 of 21 Staff would monitor business license and sales tax revenue to look for any impact on business health. Staff would include this information in regular biannual financial status updates to Council. Staff would continue to work with the Chamber of Commerce and other organizations supporting businesses in the community, and would engage with the City’s human services and arts grantees to assess ongoing impacts for nonprofit organizations. City Support and Advocacy Staff will research other city methods and work with partners to explore ways that the City can support Santa Monica’s business and nonprofit communities through this policy change. On the business side, staff would continue to partner with the Chamber of Commerce, business improvement districts (BIDs), the Buy Local and Santa Monica Alliance and Santa Monica Travel and Tourism bureau to assist with communication. The Library is also evaluating taking a more active role in having information/messaging tailored to small businesses. For nonprofits, City staff can assist with communication, and partner with other cities and nonprofit organizations to advocate at the County, State, and federal levels for funding changes. Again, staff will research other cities’ best practices and ma ke recommendations to Council. For example, San Francisco has implemented a city task force to work with nonprofits on contracting issues, including incorporating cost-of-living provisions into their contracts, and has created a compensation program to he lp support those childcare organizations serving low income families that are affected by wage- related cost increases. Wage Law Recommendations and Further Considerations The Los Angeles ordinance contains a small number of exceptions to the minimum wage law. These represent deferrals for certain businesses and nonprofits, and exemptions for specific categories of workers working during a limited time period. No organization, apart from public entities not governed by local wage laws, is excluded 17 of 21 from compliance with the law. In general, experts who study the minimum wage recommend against specific carve outs. This is because, while potentially serving a specific interest, they can also create loopholes and incentives to enco urage organizations to hire subminimum wage workers. Staff recommendations and policy options for further Council discussion are based on this logic. Staff recommends consistency with the Los Angeles ordinance. This promotes regional fairness, and makes compliance and enforcement simpler and more effective for businesses and government. Included in the draft Santa Monica ordinance are exceptions for small businesses and some nonprofit organizations, and for limited transitional jobs programs that are in the process of being incorporated into the Los Angeles ordinance. Policy Options for Discussion There are a number of policy options that have not been incorporated into the draft ordinance pending Council direction and further review. These items are outlined below.  Hotel Minimum Wage. Council members have expressed support for matching the City of Los Angeles hotel worker “living wage” ordinance as consistent with the principles underlying matching the minimum wage ordinance for all workers. Staff recommends the Council authorize research and outreach on this proposal. Upon Council direction, staff would return with information about the potential impact of such an action, including timing, how many hotels may be affected, and comparisons between the Los Angeles and Santa Monica hotel industries. Council could also direct staff to prepare an ordinance for Council consideration. The Los Angeles Hotel Worker Minimum Wage Ordinance, adopted in October 2014, sets a living wage of $15.37 for certain hotel workers, with inflation-based increases beginning on July 1, 2017. The ordinance applies to hotels as shown below: o 300 or more rooms: July 1, 2015 o 150 or more rooms: July 1, 2016 o Airport Hospitality Enhancement Zone (AHEZ) Hotels: July 1, 2015 18 of 21 The Los Angeles Hotel Worker Minimum Wage Ordinance also includes compensated and uncompensated leave provisions for full-time workers as outlined below: o 96 compensated hours per year for sick leave, vacation, or personal necessity o 80 additional hours of uncompensated time off for pe rsonal or family sick leave after compensated sick leave is exhausted The City of Santa Monica’s living wage ordinance, which applies to employees of City contractors with contracts of $54,200 or greater, mandates a living wage of $15.37 per hour. This living wage is also incorporated in development agreements for three hotels scheduled to open in Santa Monica in the next three to five years.  Seasonal exception. Pacific Park has provided staff with a proposal to delay paying minimum wage to employees for a period not to exceed six months in any 12 month period, provided that the employer also employs at least 50 other workers at or above minimum wage working at least 35 hours per week on average. This exemption could support businesses providing employment to first time workers, and could mitigate the impact on labor costs of the minimum wage increase for organizations with a significant number of seasonal employees. Minimum wage experts suggest that exempting seasonal employees can create an incentive to substitute full time jobs with short term jobs, which is contrary to the goals of the minimum wage increase. Staff has drafted language to implement this provision in the draft ordinance language if that is Council’s direction.  Paid time off. As discussed above, the Los Angeles City Council has not yet provided direction on paid leave. For the sake of consistency across borders, staff recommends waiting on this item and returning to Council once Los Angeles 19 of 21 has reached a decision, and also with a discussion of the potential impact on businesses and workers. As an alternative, Council could provide specific direction before hearing the Los Angeles decision and other considerations. Should Council direct staff to move forward with a specific paid leave policy, staff would recommend research and outreach on this proposal, its impacts and alternatives.  Enforcement. The draft ordinance includes basic authority to impose penalties, but does not provide a comprehensive enforcement framework. Staff recommends returning to Council with a revised ordinance that would include a detailed enforcement plan suited to community needs. Returning to Council would allow staff additional time to research the most effective structure. Alternately, Council could direct staff to follow a specific plan, such as to create an enforcement division on the model of San Francisco and Los Angeles. This would preclude consideration of other options, like regional enforcement, that could potentially be more efficient. Alternatives Council could provide alternate direction to staff on any of the ordinance conditions, including wage level, timing, exemptions, adopting the Los Angeles “living wage” law for hotels or other policy direction. Depending on the scope of such chan ges, particularly to the basic outlines of wage level and timing, this could exclude benefits to be gained from coordinating with Los Angeles policy, and has the potential to create confusion among businesses, employees, and patrons. As discussed above, C ouncil could choose to exempt or provide waivers for other specific groups or types of businesses. Doing so could provide short-term relief in some areas, but can create incentives that are contrary to minimum wage goals of improving quality of life for low wage individuals. In the nonprofit industry, studies show a strong link between quality jobs and quality care in human services and childcare and early education where there are many low wage jobs. Exempting these organizations, with the goal of maint aining services, can increase turnover and vacancies, leading to service cuts and decreased quality of service. Similarly, exempting seasonal employees from the minimum wage could 20 of 21 create an incentive towards short term jobs. Finally, Council could direct staff to prepare a Hotel Minimum Wage ordinance matching that of Los Angeles. Financial Impacts & Budget Actions There is no immediate financial impact associated with the staff recommendation. However, increasing the City’s minimum wage could impact the City’s expenditures and revenue in a variety of areas. Staff anticipates incurring expenses related to enforcement, including for personnel and communication. The extent of enforcement - related expenses could vary greatly depending on the model sele cted; staff expects that a standalone enforcement division would require a significant investment, possibly requiring tradeoffs with other programs or services. Nonprofit organization needs may increase as a result of the minimum wage increase, which could impact the City’s human services and arts grantee funding requests. And, there may be some impact to sales, transient occupancy, and other tax revenue related to the recommended policy change. Staff would return to Council prior to the ordinance’s July 1, 2016 implementation with an enforcement plan that would include any known budget requests associated with enforcement. Staff would monitor the proposal’s impact on nonprofit organizations, and would return to Council with any budget requests as appropriate. Finally, staff would report to Council on any revenue changes along with its biannual financial status updates. Prepared By: Stephanie Lazicki, Principal Administrative Analyst Approved Forwarded to Council 21 of 21 Attachments: A. September 9, 2014 Minutes (Weblink) B. June 5, 2015 Information Item (Weblink) C. June 9, 2015 Agenda Item (Weblink) D. City of Los Angeles Minimum Wage Ordinance E. City of Santa Monica Minimum Wage Information Website (Weblink) F. Questions and Comments G. City of Santa Monica Minimum Wage Ordinance ORDINANCE NO. An ordinance adding Article 7 to Chapter XVIII of the Los Angeles Municipal Code requiring a minimum wage for employees and amending the title of Chapter XVIII of the Los Angeles Municipal Code. THE PEOPLE OF THE CITY OF LOS ANGELES DO ORDAIN AS FOLLOWS: Section 1. A new Article 7 is added to Chapter XVIII of the Los Angeles Municipal Code to read as follows: ARTICLE 7 LOS ANGELES MINIMUM WAGE ORDINANCE SEC. 187.00. PURPOSE. According to consultants retained by the City and studies submitted to the City for its consideration, Los Angeles is a low-wage city with a high cost of living. Without action to raise the wage floor, the problems caused by incomes that are inadequate to sustain working families will become more acute. The cost of living is continuing to rise in Los Angeles and labor market projections by the California Employment Development Department show that the number of low-wage jobs will grow faster than the number of mid- and high-wage jobs. Inaction will mean that the share of the labor force that does not receive sustaining pay will grow and the gap between stagnating low wages and the cost of a basic standard of living in Los Angeles will continue to widen. Contrary to popular perception, the large majority of affected workers are adults, with a median age of 33 (only three percent are teens). The proposed minimum wage increase will greatly benefit workers of color, who represent over 80% of affected workers. Workers of all education levels will benefit from the proposed law, with less educated workers benefitting the most. Los Angeles also ranks highest in California in child poverty rates. In short, although the City is experiencing strong economic growth which has spurred employment, poverty and inequality remain high and wages continue to stagnate. Affected workers disproportionately live in low-income families; on average, affected workers bring home more than half of their family's income. Affected workers live disproportionately in the lower-income areas of the City. These areas will experience greater earnings gains than the City as a whole due to a higher minimum wage. The research literature suggests that downstream benefits will result from the proposed wage increase, such as improved health outcomes for both workers and their children, and increases in children's academic achievements and cognitive and behavioral outcomes. 1 Studies show that minimum wage increases reduce worker turnover. Turnover creates financial costs for employers. Reduced worker turnover means that workers will have more tenure with the same employer, which creates incentives for both employers and workers to increase training and worker productivity. The City has recognized that income inequality is one of the most pressing economic and social issues facing Los Angeles. Workers, who must live paycheck to paycheck, are frequently forced to work two or three jobs to provide food and shelter for their families. These workers often rely on the public sector as a provider of social support services and, therefore, the City has an interest in promoting an employment environment that protects government resources. Therefore, by paying a higher than state-mandated minimum wage, the City seeks to promote the health, safety and welfare of thousands of workers by ensuring they receive a decent wage for the work they perform. SEC. 187.01. DEFINITIONS. The following definitions shall apply to this article: A. "City" means the City of Los Angeles. B. "Designated Administrative Agency (DAA)" means the Department of Public Works, Bureau of Contract Administration, which shall bear administrative responsibilities under this article. C. "Employee" means any individual who: 1. In a particular week performs at least two hours of work within the geographic boundaries of the City for an Employer; and 2. Qualifies as an Employee entitled to payment of a minimum wage from any Employer under the California minimum wage law, as provided under Section 1197 of the California Labor Code and wage orders published by the California Industrial Welfare Commission. D. "Employer" means any person, as defined in Section 18 of the California Labor Code, including a corporate officer or executive, who directly or indirectly or through an agent or any other person, including through the services of a temporary service or staffing agency or similar entity, employs or exercises control over the wages, hours or working conditions of any employee. E. "Non-Profit Corporation" means a non-profit corporation, duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and, if a foreign corporation, in good standing under the laws of the State of California, which corporation has established and maintains valid non-profit status under Section 501(c)(3) of the United States Internal Revenue 2 Code of 1986, as amended, and all rules and regulations promulgated thereunder. F. "Person" means any person, association, organization, partnership, business trust, limited liability company or corporation. SEC. 187.02. PAYMENT OF MINIMUM WAGE TO EMPLOYEES. A. An Employer shall pay an Employee a wage of no less than the hourly rates set under the authority of this article. B. Employers with 26 or more Employees shall pay a wage of no less than the hourly rates set forth: 1. On July 1, 2016, the hourly wage shall be $10.50. 2. On July 1, 2017, the hourly wage shall be $12.00. 3. On July 1, 2018, the hourly wage shall be $13.25. 4. On July 1, 2019, the hourly wage shall be $14.25. 5. On July 1, 2020, the hourly wage shall be $15.00. C. Employers with 25 or fewer Employees shall pay a wage of no less than the hourly rates set forth: 1. On July 1, 2017, the hourly wage shall be $10.50. 2. On July 1, 2018, the hourly wage shall be $12.00. 3. On July 1, 2019, the hourly wage shall be $13.25. 4. On July 1, 2020, the hourly wage shall be $14.25. 5. On July 1, 2021, the hourly wage shall be $15.00. D. On July 1, 2022, and annually thereafter, the minimum wage will increase based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for the Los Angeles metropolitan area (Los Angeles-Riverside-Orange County, CA), which is published by the Bureau of Labor Statistics. The DAA shall announce the adjusted rates on January 1st and publish a bulletin announcing the adjusted rates, which shall take effect on July 1 of each year. E. Employees, who are "Learners" as defined in Labor Code Section 1192 and consistent with wage orders published by the California Industrial Welfare 3 Commission and are 14-17 years of age, shall be paid not less than 85% of the minimum wage rounded to the nearest nickel during their first 160 hours of employment. After more than 160 hours of employment, Learners shall be paid the applicable minimum wage pursuant to this section. F. For purposes of this article, the size of an Employer's business or Non- Profit Corporation shall be determined by the average number of Employees employed during the previous calendar year. SEC. 187.03. DEFERRAL APPLICATION FOR CERTAIN NON-PROFIT EMPLOYERS. The DAA shall establish a procedure to allow an Employer that is a Non-Profit Corporation with 26 or more Employees to qualify for the deferral rate schedule specified in Section 187.02.C. A Non-Profit Employer seeking the deferral must establish by compelling evidence that: A. The chief executive officer earns a salary which, when calculated on an hourly basis, is less than five times the lowest wage paid by the corporation; or B. It is a Transitional Employer as defined in Section 10.31.1(h) of the Los Angeles Administrative Code; or C. It serves as a child care provider; or D. It is funded primarily by City, County, State or Federal grants or reimbursements. SEC. 187.04. NOTIFYING EMPLOYEES OF THEIR POTENTIAL RIGHT TO THE FEDERAL EARNED INCOME CREDIT. Employers shall inform Employees of their possible right to the federal Earned Income Credit (EIC) under Section 32 of the Internal Revenue Code of 1954, 26 U.S.C. Section 32. SEC. 187.05. RETALIATORY ACTION PROHIBITED. No Employer shall discharge, reduce in compensation or otherwise discriminate against any Employee for opposing any practice proscribed by this article, for participating in proceedings related to this article, for seeking to enforce his or her rights under this article by any lawful means, or for otherwise asserting rights under this article. 4 SEC. 187.06. IMPLEMENTATION. The DAA may promulgate guidelines and rules consistent with this article for the implementation of the provisions of this article. Any guidelines or rules shall have the force and effect of law, and may be relied upon by Employers, Employees and other parties to determine their rights and responsibilities under this article. SEC. 187.07. NO WAIVER OF RIGHTS. Any waiver by an Employee of any or all of the provisions of this article shall be deemed contrary to public policy and shall be void and unenforceable. SEC. 187.08. COEXISTENCE WITH OTHER AVAILABLE RELIEF FOR SPECIFIC DEPRIVATIONS OF PROTECTED RIGHTS. The provisions of this article shall not be construed as limiting any Employee's right to obtain relief to which he or she may be entitled at law or in equity. SEC. 187.09. CONFLICTS. Nothing in this article shall be interpreted or applied so as to create any power or duty in conflict with any federal or State law. SEC. 187.10. REPORTS. Every three years after July 1, 2016, the Chief Legislative Analyst (CLA) with the assistance of the City Administrative Officer (CAO) shall commission a study to review the state of the City's economy; minimum wage impacts; textile and apparel manufacturing impacts; temporary workers, guards and janitors impacts; home health care services impacts; residential care and nursing facilities impacts; child day care services impacts; restaurants and bars impacts; personal and repair services impacts; transitional jobs programs impacts; service charges, commissions and guaranteed gratuities impacts; and wage theft enforcement. On an annual basis, the CLA and CAO shall collect economic data, including jobs, earnings and sales tax. SEC. 187.11. SEVERABILITY. If any subsection, sentence, clause or phrase of this article is for any reason held to be invalid or unconstitutional by a court of competent jurisdiction, such decision shall not affect the validity of the remaining portions of this ordinance. The City Council hereby declares that it would have adopted this section, and each and every subsection, sentence, clause and phrase thereof not declared invalid or unconstitutional, without regard to whether any portion of the ordinance would be subsequently declared invalid or unconstitutional. 5 Sec. 2. CHAPTER XVIII of the Municipal Code is retitled EMPLOYEE WAGES AND PROTECTIONS. 6 Sec. 3. The City Clerk shall certify to the passage of this ordinance and have it published in accordance with Council policy, either in a daily newspaper circulated in the City of Los Angeles or by posting for ten days in three public places in the City of Los Angeles: one copy on the bulletin board located at the Main Street entrance to the Los Angeles City Hall; one copy on the bulletin board located at the Main Street entrance to the Los Angeles City Hall East; and one copy on the bulletin board located at the Temple Street entrance to the Los Angeles County Hall of Records. I hereby certify that this ordinance was passed by the Council of the City of Los Angeles, at its meeting of JUN 1 0 2015 Approved //)- Approved as to Form and Legality MICHAEL N. FEUER, City Attorney By 4/6t ALIAA-)4'( BA JANKOWSKI De ylty City Attorney Date c.5 -/9/9 -/5 File No. HOLLY L. WOLCOTT, City Clerk By Deputy Mayor m:\muni counsel\david michaelson\ordinances\draft la minimum wage ordinance 5-22-15 (final).docx 7 File No. 14-1371-S5 ECONOMIC DEVELOPMENT COMMITTEE REPORT relative to adding an exemption for transitional job programs to the Citywide Minimum Wage Ordinance. Recommenation for Council action, as initiated by Motion (Cedillo - Huizar - Bonin - et al.): REQUEST the City Attorney to: a. Draft an ordinance that would allow for employers of job training programs an exemption from the Citywide Minimum Wage Ordinance during the first 18 months of training for each worker participating in the training program; and, INSTRUCT the Public Works Bureau of Contract Administration (BCA) to certify that the employers meet specific criteria before being granted the exemption as outlined in Los Angeles Administrative Code Section 10.31.3(c), with additional criteria requiring 501(c)(3) status. b. Include, in drafting the ordinance, strict and tightly-defined language regarding the definition of a transitional employee and those that would be considered hardest to employ in order to ensure that employers do not abuse this exemption. Fiscal Impact Statement: Neither the City Administrative Officer nor the Chief Legislative Analyst has completed a financial analysis of this report. Community Impact Statement: None submitted. SUMMARY At tis regular meeting held on June 23, 2015, the Economic Development Committee considered Motion (Cedillo - Huizar - Bonin - et al.) relative to an exemption for transitional or job training programs from the Citywide Minimum Wage Ordinance. During discusssion of this matter, the Committee Chair requested that the City Attorney, in drafting an ordinance for an exemption, include strict and tightly-defined language regarding the definitions of a transitional employee and those who would be considered "hardest to employ," in order to ensure that employers do not abuse the exemption. The Committee member and maker of the original Motion further moved to amend the Motion by asking the City Attorney to draft an ordinance that would allow the exemption from the Citywide Minimum Wage Ordinance for employers of job training programs during the first 18 months of training for those employees in such programs, and for the BCA to certify that employers meet certain specific criteria for the exemption including the requirement of 501(c)(3) status (tax-exempt status under Section 501(c)(3) of the United States Internal Revenue Code). The Committee member and original maker of the Motion also submitted into the record a letter outlining the basis and findings for such an exemption. After providing an opportunity for public comment, the Committee approved the Motion as amended. This matter is now forwarded to the Council for its consideration. EXHIBIT 1 - TRANSITIONAL JOB PROGRAMS Respectfully Submitted, ECONOMIC DEVELOPMENT COMMITTEE MEMBER VOTE PRICE: YES KREKORIAN: YES HUIZAR: ABSENT CEDILLO: YES MARTINEZ: YES WESSON: YES KORETZ: YES REW 6/24/15 FILE NO. 14-1371-S5 -NOT OFFICIAL UNTIL COUNCIL ACTS- EXHIBIT 1 - TRANSITIONAL JOB PROGRAMS ATTACHMENT F – QUESTIONS & COMMENTS Questions & Comments Santa Monica Business Community: 8/12 and 8/18 Cost of Goods Q. Will the Cost of Goods be impacted? A. Yes, but this is less an issue in Santa Monica due to there not being significant manufacturing, farms. etc. There may be some impact since many of our Small / Medium Enterprises / Buy Local SM businesses source local wherever possible and we have many SM-based artisan food production industries popping up e.g. ice cream, beer, candy. They will be affected to some degree, but the impact on Santa Monica as a whole will be minor. Cost of Goods Restaurants Q. What about restaurants that purchase directly from the Farmers’ Market? Won’t this increase our Cost of Goods? A. I don’t think very many of them will be impacted by the minimum wage increase—at least not per City of SM or City of LA. Most of our farmers live in Ventura or the Central Valley or SD County so would be covered by State minimum wage unless their cities / counties have made changes. Service Charge / Tip Q. How to handle tips? Will there be an exemption for employees in the service industry who currently make over minimum wage due to tips? A. Employers will need to pay servers the higher wage. In Oakland, CA some high-end restaurants implemented a 20% service charge at restaurants (in lieu of tips), which can be shared equitably among all the restaurant staff. The money is the property of the employer and not the employees. Front of house staff could be given higher % of this than back of house but it’s up to employer, This is somewhat complicated but it is one solution to dealing with the tip issue. Service Charge / Tip Q. Property managers are compensated with a combination of payment and rent credit (1/3 rent goes to wage rent credit towards compensation). Will the minimum wage law count this credit as part of compensation? A. The State of California does not allow workers to be paid less than a minimum wage (there is no tip credit). There has been no direction specifically on this item. Small Bus. Q. Will the impact be greatest on “mom and pop” retail shops? What about small corporations? A. Small corporations are often franchises. Franchisers have access to greater pools of cash; potential for corp. to reduce the franchise costs to help offset the increased labor costs. A bigger issue for many mom and pop shops is the ATTACHMENT F – QUESTIONS & COMMENTS cost of rent, over labor, particularly in places like Santa Monica. Dr. Reich also cited examples in other cities where higher minimum wage leads to higher local disposable income. Economy Q. What are the CPI/ inflation increase projections in 8-10 years? A. Based on past CPI adjustments and inflation, Dr. Reich estimated 2-4% increase/year. Service Charge / Rest. Q. Full service restaurants typically have ½ staff working off tips (estimating they make $15-40/hr.). Have there been any cities who have allowed them to continue to keep the tips versus pay minimum wage for the cooks? A. 43 states have tip credits. CA is one that does not allow tip credit (along with OR, WA, MN, AL, HI). There has not been a significant effect on wages comparing states with tip credits vs. without. (“Tip Credit” allows an employer to deduct the employee’s tips from their hourly wage so it often results in no increase in actual wage). Dr. Reich was not aware of a study focused just on chefs. Tourism Q. Impact on tourism sector? A. There have not been any studies that Dr. Reich is aware of, in response to minimum-wages causing price increases and the impact on tourism spending. His approach would be to infer visitor response by changes in currency exchange rates versus actual spending. He believes that fluctuations in the exchange rate have a much bigger, rather than prices, impact on tourism. Noted that Santa Monica relies much more heavily on tourism than City of LA or San Francisco. In case of tourism rising operating costs are disproportionately paid by non-residents. Enforcement Q. Impact on Black Market Labor and “Independent Contractors”? A. The impact is tied to the level of enforcement activity to ensure that all businesses are paying their staff minimum wage and operating legally. There has been an increase in some area in “Independent Contractors” (e.g. exempt from full time benefits) but this also depends on enforcement activity. General Study Q. Can you provide a greater breakdown of the Santa Monica economy regarding Hospitality industry (did not see hospitality specifically in industry breakdown - is this accommodations and food services)? A. Hospitality combines accommodations and food services, ancillary services also. Different agencies groups use somewhat different classifications when reporting data, but in general Accommodations and Food Services would cover much of the hospitality industry. Accommodations and food services is a larger fraction of in Santa Monica than of Los Angeles. ATTACHMENT F – QUESTIONS & COMMENTS Cost of Goods Q. How would minimum wage impact cost of other goods (food, manufactured goods, etc.), which in turn would impact operating costs? Does the LA study include these impacts? A. These effects would be very small – in terms of operating costs, changes in rent and labor will have some impact, everything else is likely to be minimal. The pass through effect of minimum wage on these costs is likely to be very small. Restaurants Q. Are restaurants that rely on local sources going to have significantly higher costs than others (sources do not have the min. wage increase)? A. No – – these inputs are likely to be a small proportion of operating costs, so there might be a very marginal cost difference, but not enough to have any measurable effect. The industry as a whole will be facing roughly the same cost challenges, which makes it less of an issue for an individual business. Cost of Goods Q. You stated that wage increases lead to increased consumer demand (spending), and that workers in the lower third of earners tend to spend all their disposable income. Don’t some low wage workers use the money to pay off debts instead (this wouldn’t go back into the economy in the same way)? A. Some may do this, but on average, lower wage workers tend to take on more debt – one study showed that workers’ spending increases were 4-6 times the wage increase. In this study, most of the additional earnings were spent on used cars. Restaurants Q. What is the impact on Section 8 + Food Stamp eligibility? A. Higher wages will lower eligibility for Federal and State assistance. This implies savings for tax payers at both the Federal and State levels. Extraction / Impact on Local Economy Q. What about “extraction” (wages earned in one area will be spent in a different one)? A. Yes, this will happen – Santa Monica workers may spend their money in LA city / county; this is assumed in the LA analysis. Also, workers will definitely spend money earned in different areas – i.e. they will spend money earned in food service on clothes, car repair, groceries, etc. ATTACHMENT F – QUESTIONS & COMMENTS Restaurant / Small Bus. Q. Will full service / independent restaurants be hardest hit? A. It would depend on the type of restaurant / number of workers and how much they’re paid, etc. Higher end restaurants generally already pay employees more. Franchises have had difficulties in the past when franchisees must absorb the additional cost, but franchisees may also have access to additional funds that independent restaurants don’t have. Smaller restaurants tend to experience a larger impact than large ones. Research Q. Should these businesses get some kind of credit / assistance / exemption, etc. to help adjust? A. Other cities have followed various strategies to assist restaurants – longer time to reach minimum wage, tax credits or other benefits for local businesses – mentioned San Francisco as having adopted this strategy. The San Francisco Airport and Berkeley have local business preferences in public contracts to help support and prioritize locally-owned businesses. Small Bus. Q. Do you see an increase in conglomeration as a result of minimum wage laws? A. Conglomeration is different from size; clarified the question was in regards to size (e.g. large businesses). Yes, there is a correlation between wages and size of restaurants. Smaller restaurants tend to pay employees less. Smaller businesses also tend to have more challenges with compliance/regulation. General Study Q. Do the LA calculations take into account other factors occurring in the State like the drought, regulations, etc.? A. No – these events will happen independent of the minimum wage. The study looks only at impacts that can be directly tied to the minimum wage law. Enforcement Q. What about compliance – you’ve mentioned smaller businesses tend to comply less. Any suggested strategies to address this? Are there examples from other cities of assisting small business with awareness campaigns, compliance requirements, etc.? ATTACHMENT F – QUESTIONS & COMMENTS A. Enforcement levels the playing field for all business. Community involvement in enforcement, and in particular having visible enforcement has been very effective in increasing compliance. Bad publicity / press relating to infractions is also effective. In Oakland, there is a positive community enforcement (notices in many languages, posters with slogans to support the community by paying the increased wage—e..g. Support our community. Eat at your local restaurant.) – these could be effective. San Francisco as a model, which Seattle is adopting, that gives grants to community organization to promote awareness of the minimum wage laws in multiple languages including bus shelter signs in Spanish (Mission District) and Chinese/Mandarin (China Town). This also helps make consumers/employees aware of the minimum wage. Service Charge / Restaurant Q. Can you talk about other cities’ experience with a tipped credit / service charge and how this works? A. The use of service charges instead of tips is a fairly new issue. We do have a bit of research on more recent experiments in San Francisco with a service charge, or charge for health insurance. Tipped credit studies show no change in employment between states with tipped credits or without. The service charge effectively shifts money received from the employee to the employer, there are consequences to this if not fully thought out. Restaurant Q. Restaurants may go out of business in Santa Monica because the wage increase is too high and we’ve barely recovered from the recession. A. Evidence in other cities doesn’t support the conclusion that many restaurants will leave and/or go out of business. Some will though, while others are likely to take their place. General Study Q. What is the overall goal for the proposal? A. In the City of LA, the goal was to reduce the growing inequalities. Los Angeles has among the highest rates of urban poverty in the country. The minimum wage increase was seen an instrument to reduce poverty among workers and working families. The original Federal minimum wage law, passed in 1938, was for purposes of creating fair working standards across the country. Another goal is to make minimum wage closer to the actual living wage in an area so that people can afford to live and work in their community. Service Charge / Restaurants Q. If we are not allowed a tip credit and move to the service charge model, this may result in lower wages for some of our staff used to getting tips. Our overall profit margin of 10-20% will also be impacted by the minimum wage increase as we will need to adjust our pay to our other employees (e.g. managers will need to be compensated at higher rates than entry level workers). Our supplier costs will also increase due to their own labor costs increasing, which will further eat up our profit margin. There are also the ATTACHMENT F – QUESTIONS & COMMENTS healthcare benefits. Collectively, this will eat into all our profits and not allow much margin for error. A. Some restaurants in SF have adopted standard language on their bills “e.g. Per new local mandates, a service charge has been added to help pay for our employee’s health insurance. Thank you for supporting them.” Customers are generally happy to help support these items as they know what the funding is being used for. Additional Questions / Comments Q: When was the last time the minimum wage was increased by 50% in a 5 year period and what was the result? Both good and, if any, bad. A: I don't know of any previous increases that spanned five years. However, there have been many that rose at an equal rate over three years, such as the federal increase of 2007 to 2009, from $5.15 to $7.25, an increase of about 40 percent. Others at the local level are mentioned in our Los Angeles report. Many studies of these increases did not find negative employment effects. See the literature review in our Los Angeles report. Q: We'd love to see the study that analyzes other expenses that will increase beyond purely labor costs when the minimum wage jumps 50%. Cost of goods, worker's comp insurance which is tied to payroll, liability insurance which is tied to sales (which will go up as retailers increase their prices to stay in the black), etc. What's the impact of these increases beyond just the 50% increase in minimum wage? A: Our Los Angeles study took into account many of these payroll-related increases. Q: If the city were to implement a total compensation package whereby tips and other benefits would be counted when meeting the minimum wage requirement, what would the results be? Would they be better, worse, same as the proposal on the table? What has happened in other places where this was implemented? Yesterday the consultant said 43 states have a "tipped wage". Why is California one of only 7 states that does not support this approach? A: State law mandates that tips cannot be credited toward a minimum wage. All cities in California have followed state law. I understand that Santa Monica has already decided to do the same. A forthcoming study by Allegretto and Nadler (Industrial Relations Fall 2015) compares states with varying amounts of tip credits. Increasing tip credits did not increase employment among tipped workers. ATTACHMENT F – QUESTIONS & COMMENTS Q: Since Santa Monica is a tourist destination city more so than the greater city of Los Angeles, are there any other implications to take into account with this change? We are very unique as a place so curious to see the study that shows the comparison to non-tourist driven cities. A: (from 8/18 responses and comments re. tourism). There aren’t studies that specifically focus on cities with a large tourism sector. However, Santa Monica tourism should not experience significant impacts. First, because Santa Monica tourists are in a large degree also Los Angeles tourists, a wage change in Los Angeles would affect tourism almost to the same degree as a Santa Monica ordinance. Santa Monica tourism is also less price sensitive than tourism in greater Los Angeles area due to its beach and ocean view advantages, and restaurant and accommodation sectors in Santa Monica already pay higher wages than LA. COMMENTS  Owner of Pioneer Magnetics, the “last” manufacturing business in Santa Monica talked about reduction in his workforce due to higher cost of business compared to global competition.  From my own observation, I would suggest staff give some kind of preview of what the ordinance will look like, including what the rate would be, how it would be phased in, what sectors it would cover, whether or not tipped employees would be exempt, will nonprofits be included and what is the estimated job loss following implementation. I think there is a general consensus amongst business owners to support an increase, however, they want more details so they can weigh in.  I think council's decision to move so swiftly, instead of having a study session in September introducing a draft ordinance and then having another round of outreach meetings, is causing some anxiety.  Please include tipped wages in the minimum (living wage) calculation. It will have a huge impact on employee hours and job reductions. Santa Monica Nonprofit Organizations: 9/8 Q: Is City of Santa Monica looking to mirror City of LA minimum wage ordinance? A: Yes, although it is at the discretion of SM City Council. There’s a big advantage of there being a coordinated, regional minimum wage with all jurisdictions passing the same rules. It’s easier for employers operating office/stores/branches in each of the areas and also easier to inform employees across the region of their rights and the wage requirements, also easier for enforcement. Cited the SF Muni Bus ads on minimum wage with contact info for the region so that people in SF know what they should be getting paid. ATTACHMENT F – QUESTIONS & COMMENTS Q: We have over 25 employees. We’re also concerned about the new Department of Labor (DoL) requirements related to overtime for salaried workers. The combination of overtime, health care benefits and wage increases is a real concern to our non-profit. A: Under current California law, salaried workers may be exempt from overtime if they earn more than twice the state minimum wage, $37,440 a year. Under new federal regulations the threshold for an exemption would be increased to $50,440. These provisions may not cover all nonprofit organizations. The implications are still being reviewed. Q: Would the new minimum wage costs apply to both full time and part time employees? A: Yes. Q: What about interns/stipends? A: CA Law has a narrow definition of interns, including a requirement that they receive academic credit for the internship. If they do not meet the state law definition then they would be subject to the minimum wage. Q: Would the transitional job exemptions for training program participants on a limited term apply to SM too? A: Santa Monica has not officially determined this at this point, but staff is recommending that we follow the Los Angeles ordinance, so likely this will be in Santa Monica’s draft ordinance. Q/ Statement: We partner with Work Source Centers where many of their staff are making minimum wage, which is often substantially lower than the job placement agencies they’re recruiting people for, so it’d be nice to see there be more equality in salaries. A: This is an issue with many non-profits. For employees in the child care sector, approximately 48% are considered low wage workers and are on some form of public assistance. Comment about a “carve out” for summer employees 18 years old or under. Q: Obama paid sick leave policies and impact on SM? As stated, this applies only to federal contractors; it mandates sick leave of one hour of leave for every 30 hours worked, with a cap at seven days of paid time off per year. ATTACHMENT F – QUESTIONS & COMMENTS Q: Many unions have collective bargaining agreements that can supersede minimum wage and living wage requirements. What is City of SM’s approach to this? A: Collective bargaining is where workers organized in a union can collectively decide to trade wages for more benefits/pensions/etc. In City of LA, this is still under review. City of SM Living Wage Ordinance includes collective bargaining and Council will be considering including in the Minimum Wage Ordinance too per direction from the Mayor. Statement from the CA Association of Non-Profits rep: We have over 10k members in CA and have surveyed our members about minimum wage increases. Our members have voiced concerns over the likelihood of needing to reduce staff, decrease services and the impacts of wage compression. 25% plan to increase time spent on fundraising. 15% plan to operate on a budget deficit in the short term, which is a bit worrying. Overall there is support for minimum wage increases and our members want to try to meet the challenge but do acknowledge there will be many challenges. Interestingly enough, 60% felt that it would not impact them—the ones most concerned were in child card and development disability services. The organization will hold a webinar on September 23 to discuss wage increases and strategies for dealing with these. Q: What is the overall % of non-profits you estimate will be impacted? A: (Pulled up the slide from the presentation with the #s). There will be less impact to the large hospitals and universities. Many non-profits rely heavily on volunteers so they will not feel a great impact. The most impact will be on child care services. Comment: I’m a non-profit employee and make the minimum wage. Unfortunately I also still require public assistance in order to live. $20 is not unreasonable and I advocate we achieve this, but even sooner than 2020. Comment: We are grateful the city is doing this and very supportive; this is a moral issue and we should think about the people involved. Quality of life is important.