SR-09-25-2015-7A
City Council
Report
City Council Special Meeting: September 29, 2015
Agenda Item: 7.A
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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
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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
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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 -
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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
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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.
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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.
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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.
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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
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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.
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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.
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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
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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.
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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
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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
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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.
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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
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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
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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
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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.