City of Santa Monica
California

Staff Report
1411

Introduction for First Reading of an Ordinance Setting a Santa Monica Minimum Wage

Information

Department:Finance DepartmentSponsors:Director Andy Agle
Category:07. Ordinances

Recommended Action

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

Staff Report Body

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 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 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 minimum 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-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

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.

·         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 creates 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.

 

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. 

·         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 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.  

 

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 employment[1].

 

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 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 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 jobs 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. 

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 was 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 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 bargainingSanta Monica’s Council directed staff to include an exemption for employers whose staff are protected 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 chargesAccording 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 language 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 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 as 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.

 

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 make 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 help 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 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 encourage 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

 

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 personal 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 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 changes, 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, Council 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 maintaining services, can increase turnover and vacancies, leading to service cuts and decreased quality of service.  Similarly, exempting seasonal employees from the minimum wage could 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 selected; 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.  

 


[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. 

Meeting History

Sep 29, 2015 5:30 PM  City Council Special Meeting
draft Draft