Culminating more than three months of public testimony, research and analysis, the Long Beach City Council is scheduled to consider whether to establish a minimum wage policy at its meeting tonight, January 19, at 5 p.m. at city hall.
The item comes after a community review process in which Mayor Robert Garcia arranged six public forums, including two roundtable discussions, giving workers and employers a chance to speak publicly about the issue.
Also, the city council commissioned the Los Angeles County Economic Development Corporation (LAEDC) to conduct a study, including a survey of businesses and nonprofits, on potential impacts of a higher minimum wage. The results of the study were released in November.
The forums and study were intended to help prepare the 11-member Long Beach Economic Development Commission (EDC) to craft a recommendation to the city council. The commission met January 6, with two members absent. Following more than four hours of debate and presentations on two separate independently conducted studies, the EDC agreed unanimously to recommend that the city council adopt a policy to raise the minimum wage to $13 an hour incrementally over the next three years.
During his second “State of the City” address on January 13, Mayor Garcia said he supports the EDC’s recommendations. He added that a citywide minimum wage policy in Long Beach would advance the economy and workers alike.
“Too many of our residents still struggle with wages that lag behind the cost of living,” Garcia said. “I support the commission’s recommendations, and I know this is an important issue to the council, and they will have their own ideas for how best to address it, but as we debate the final law, let’s use the work of the commission to build an ordinance that works for everyone – and gives Long Beach the raise it deserves. An increased minimum wage will stimulate our economy and help many families who struggle to make ends meet.”
The proposal, brought forward by EDC Chair Frank Colonna, a former councilmember and local real estate agent, and already analyzed by city staff, is considered a “compromise” between the needs of the business community and a union-backed campaign advocating for a minimum wage of $15 an hour by 2020, a track approved by the city and county of Los Angeles.
After clashing on certain considerations and at one point coming to a deadlock, the commission eventually voted 9-0 to recommend that the city’s minimum wage be increased to $10.50 an hour on January 1, 2017, $12 an hour on January 1, 2018, and $13 an hour on January 1, 2019. Commissioner Cyrus Parker-Jeannette and Commissioner Paul Romero were absent.
The recommended proposal gives a one-year delay for nonprofits and small businesses, with small businesses being defined as those with 25 or fewer employees.
The EDC also recommended that the city council request a report in 2021 to evaluate the impacts of the minimum wage ordinance after full implementation.
Colonna had originally proposed defining small businesses as those with 50 or fewer employees. However, Commissioner Michelle Molina, managing partner of a downtown property management and development firm, requested that small businesses be defined as those with 25 or fewer employees since businesses with 50 or fewer employees account for a majority of businesses in the city.
“Doesn’t that put in a year delay for just about everyone?” Molina asked, referring to the 50-employee cutoff. Colonna accepted her friendly amendment, calling it a compromise.
The commission also agreed that the city council should “explore and consider actions that may help to mitigate negative effects on businesses” and also look into “training programs.”
In addition, the commission recommended that the city council consider enforcement to prevent wage theft and to ensure employers are providing paid sick days, a consideration brought forward by Commissioner Robert Olvera, Jr., vice president of the International Longshore and Warehouse Union (ILWU) Local 13 who openly supports a $15-an-hour minimum wage.
Meanwhile, the Long Beach Council of Business Associations (COBA), which represents business improvement districts (BIDs) and business associations across the city, has recommended that the city council raise the minimum wage to $12.50 an hour over a five-year period ending in 2020.
COBA also recommended that there be a one-year delay for small businesses with 25 or fewer employees and a two-year delay for nonprofits in addition to advocating that workers 21 years old or younger be exempt from the city’s mandate and be paid the state’s minimum wage.
The recommendation from COBA also proposes a “total compensation” model that employers be allowed to use medical benefits, paid sick days and paid time off as part of the obligation to meet the city’s minimum wage. Employers wouldn’t, however, be allowed to use workers’ tips.
Kraig Kojian, president and CEO of the Downtown Long Beach Associates (DLBA), said in a statement that COBA’s proposal is a “meet-in-the-middle” recommendation that came about through a study that involved an online survey and seven focus groups conducted by Long Beach-based research firm S. Groner Associates, Inc. (SGA).
When informed of the EDC’s recommendation to the city council, Business Journal Publisher George Economides, who has written numerous articles opposing the city council telling business owners what they should pay their employees, said, “I believe the business community has been duped into thinking they had to find a compromise when they should have been united in opposition.
“This is a state issue, not a municipal one,” he continued. “That’s how you ensure a level playing field. Nearly every independent study in the country – by public and private sector groups – and most economists conclude this approach is not the way to lift people out of poverty, and that a lot of low-income people will lose their jobs and entry-level jobs for young people will dwindle. Who do you think is affected the most when prices are increased to cover these unearned wage increases? I’m surprised to hear the mayor say this will stimulate the economy. It’s just the opposite. But facts are irrelevant since this action is nothing more than elected officials appeasing their L.A. unions rather than doing what is best for Long Beach.”
‘Stimulus’ Or Bust?
Throughout the community review process, the issue has been extremely polarized.
One group of people, mostly fast-food workers and other minimum-wage employees in support of labor unions, have stated that raising the minimum wage to $15 an hour would lift workers out of poverty and create an economic stimulus effect.
On the other hand, another group of people, mostly small business owners including restaurateurs, have stated that raising the minimum wage so high would put businesses at a competitive disadvantage with businesses in other cities and force them to raise prices, lay off workers or possibly close.
Both groups have brought forward statistics to back their assertions.
Daniel Flaming, president of the nonprofit research firm the Economic Roundtable who was hired by the union-sponsored Los Angeles County Federation of Labor (AFL-CIO), presented findings of a study at the EDC meeting.
He said raising the minimum wage to $15 an hour would be “sustainable” and could be absorbed by businesses, adding that higher labor costs would be offset by the financial benefits of workers spending more at local businesses in low-income neighborhoods. Flaming estimates that each $1 increase in the minimum wage would create $73 million in additional earnings for workers.
Raising the minimum wage to such a level, he added, would cut the amount of people in poverty in the city by half and would create thousands of jobs. Currently about 36 percent of workers living in Long Beach make less than $15 an hour, Flaming said.
Some commissioners, however, challenged his findings.
Commissioner Walter Larkins, who owns a small business, particularly pressed Flaming, stating that it’s wrong to assume business owners wouldn’t raise prices, lay off workers or reduce some employees to part-time status. He said raising the minimum wage too high might have the unintended consequence of increasing the unemployment rate.
Furthermore, Larkins pointed out that small businesses, which have high failure rates and low margins and that make up most of the businesses in the city, would have a particularly hard time absorbing the mandated higher labor costs.
In contrast to Flaming’s assertions, most employers (34 percent) in an online survey commissioned by COBA stated that they would raise prices to deal with a higher minimum wage while 30 percent stated they would eliminate employees. Only 9 percent of respondents said they would cut costs internally.
The survey, which involved 408 respondents (355 businesses and 53 nonprofits) and was presented at the commission meeting by SGA President Stephen Groner, also found that support of a straight minimum wage increase was “very low,” with only about 30 respondents stating they strongly support such a proposal and about 140 stating they are strongly against.
Adding mitigation strategies, however, “bolstered support” for a minimum wage hike, the survey concluded.
Still, some speakers challenged the validity of the survey, stating that conducting a survey online rather than through a random sample creates a high amount of bias in the findings.
Exempting Tipped Employees
Economic Development Commissioner Randal Hernandez, meanwhile, stressed the need for the city to take a leadership role in advocating changes to state legislation to allow the city to exempt businesses with tipped employees.
Restaurant owners have stated that raising the minimum wage on all businesses without exemptions would unfairly give servers a wage increase when they already make significantly more than minimum wage when their tips are counted.
The mandated higher labor costs may inadvertently force restaurants to ban tips altogether and go to a different business model, restaurant owners warned.
Hilary Habib, an attorney with Los Angeles-based law firm Sheppard Mullin, however, stated during the commission meeting that Long Beach would in fact have a legal right to exempt employers with tipped workers through a “total earnings exemption” model despite claims that such a provision would violate the state’s labor code.
Habib argues that all earnings, including hourly pay, commissions, piece-rate earnings, bonuses, salaries or other taxable income, are “the employee’s to save or spend as the employee chooses.”
“This issue has inarguably not been litigated or resolved by any appellate court,” she said, adding that including a total earnings exemption in the minimum wage policy for the city is “the most important issue for the over 1,000 restaurants in Long Beach.”
Fiscal Impact On City
Prior to the commission meeting this month, city staff analyzed the potential impact that raising the minimum wage to $13 an hour incrementally over three years would have on the city’s budget in addition to potential costs of enforcement and incentives for small businesses.
In a memo dated December 31 from John Gross, Long Beach’s director of financial management, city staff states that raising the minimum wage to such a level would increase costs for all city departments in Fiscal Year (FY) 2019 by $850,303, $798,254 of which would come out of the General Fund.
The increase in labor costs for businesses contracting with the city is estimated to be $558,000 to $1.2 million, $115,000 to $202,000 of which is expected for contracts purchased through the General Fund.
After evaluating options, city staff recommends that the city provide communications, outreach and support to employers and employees regarding a minimum wage policy but have the state labor commissioner provide enforcement, including issuing citations for noncompliance, instead of the city.
According to city staff, recently passed laws expand the powers and mechanisms afforded to the labor commissioner and the State Division of Labor Standards Enforcement (DLSE), with regard to enforcing local minimum wage and overtime laws.
Costs to the General Fund by FY 2021 for this enforcement approach would range from $430,500 to $724,500, along with one-time costs for partial funding of staff in FY 2016, according to city staff.
Although not recommended by city staff, another option would be to create a whole new division to conduct communications, outreach and support as well as local enforcement. However, this approach is estimated to cost a total of $1.28 million by FY 2021 in addition to $404,833 for partial funding of staff in FY 2016 and the acquisition of some vehicles, city staff states.
With regard to whether the city will have more or less sales tax revenue as a result of raising the minimum wage, city staff concluded, “We do not have adequate information to assess the impact [of] a minimum wage ordinance on the City of Long Beach’s general economic status.”