Title
Review and Comment on Minimum Wage Presentation
Body
Date: June 21, 2018
To: Members of the Mayor’s Economic Development Advisory Panel
From: Lois RP Butler, Economic Development Manager
Re: Review and Comment on Minimum Wage Presentation
BACKGROUND
Income disparity-the gap between rich and poor-is growing in the United States. In the Bay Area, low-wage earners are at a further disadvantage because the cost of living in the Bay Area is higher than the national average.
In April 2016, the State of California adopted legislation (SB 3, Leno) to reach a statewide $15.00 per hour minimum wage by January 1, 2023. After 2023, the minimum wage will be adjusted annually for inflation (national Consumer Price Index, CPI), with a floor of zero percent and a ceiling of 3.5 percent.
Many Bay Area cities have enacted minimum wage ordinances with more aggressive timetables than the State’s for reaching the $15 per hour level. In most of these local ordinances, once the $15 per hour level is reached, the minimum wage will continue to increase annually by the rate of the CPI. Hence, by reaching the $15 level sooner, and including the annual CPI adjustment, these jurisdictions will continually be above the State’s minimum wage requirements.
Three Bay Area cities-Emeryville, Mountain View, and Sunnyvale-have already achieved a $15 minimum wage, and Berkeley’s minimum wage will increase to $15 in October 2018. Large employers located in Emeryville will pay the highest rate in the region, which is currently $15.20 and expected to reach $15.60 in July 2018. By comparison, the City of Alameda’s current minimum wage, which follows the State baseline standards, is $10.50 for small employers with 25 or fewer employees and $11 for those with over 25 employees (see Exhibit 1).
On April 17, 2018, the Alameda City Council directed staff to prepare a minimum wage ordinance to reach the $15 level before 2023. Staff plans to present a draft ordinance to the City Council at its September 18, 2018 meeting.
DISCUSSION
In the Bay Area, 18 cities have implemented minimum wage measures that are more aggressive than State law. The majority, eleven, are in the South Bay/Silicon Valley region. In addition to San Francisco, the remaining six are along the 80/880 corridor. No cities in Marin County or in the interior part of Contra Costa County have adopted minimum wage ordinances (see Exhibit 2).
Many of the minimum wage ordinances in the South Bay are coordinated to reach $15 per hour in January 2019. This coordination was fostered by a regional study commissioned by the Cities Association of Santa Clara County (Cities Association) and the City of San Jose and conducted by the U. C. Berkeley Labor Center. The Cities Association adopted a model ordinance recommendation for implementing minimum wage increases in Santa Clara County.
In the East Bay, Berkeley, Oakland, San Leandro, Emeryville, El Cerrito, and Richmond have adopted minimum wage ordinances. Oakland’s ordinance was a ballot initiative approved by voters in 2014; the other ordinances were passed by respective city councils. While the minimum wages in these jurisdictions vary, almost all will reach $15 per hour sooner than the statewide minimum wage.
The exception is Oakland. Oakland’s minimum wage increases are based on the CPI and are projected to reach $15 at approximately the same time as the State minimum wage. Oakland’s minimum wage has no ceiling on its annual CPI adjustment. Consequently, when the CPI first climbs above the State’s ceiling of 3.5 percent annual increase, Oakland’s minimum wage will perpetually be above the State’s.
Three Scenarios for Increasing Alameda’s Minimum Wage
Based on direction from the City Council at its April 17, 2018 meeting, staff has prepared three different scenarios for increasing Alameda’s minimum wage to $15 before 2023. These scenarios have two common characteristics:
1. Staff suggests that the initial adjustment under the ordinance be effective March 1, 2019. If the City Council approves an ordinance in September 2018, this will give local businesses five and one-half months to adapt their cost structure and pricing to reflect the increase. Among the 18 local jurisdictions that have implemented a minimum wage ordinance, the average period between approval and implementation date was 4½ months, ranging from two months (e.g. Berkeley and Mountain View) to 8½ months (San Leandro). It will also provide staff adequate time for noticing and conducting public education regarding the final ordinance.
2. The scenarios make no distinction between small and large employers (i.e. small employers are not given a deferred period of time, one year in the State standard, to reach $15). If the purpose of the ordinance is to benefit the employee, then it should not matter whether the person works for a small or large business; the minimum wage should be the same. This also simplifies an ordinance, eliminating the need for record-keeping and calculations to determine a business size at any point in time. Only one of the 18 cities in the Bay Area with a minimum wage ordinance (Emeryville) bifurcates businesses between small and large employers.
Staff is asking the Mayor’s Economic Development Advisory Panel to review the following scenarios and provide comment on their desirability and appropriateness and/or if there are specific components that are not recommended. Staff is also seeking any suggestions to change or modify these scenarios. These comments will help inform the City Council when it considers the issue later this year.
Scenario 1: San Leandro Model
The first scenario follows the San Leandro example (see Exhibit 3). San Leandro’s minimum wage ordinance sunsets once it reaches $15 in July 2020. After that, it follows the State’s minimum wage standards. In San Leandro, the minimum wage will stay at $15 until 2024 when the State’s wage starts increasing above $15. Some of the key components of Scenario 1 include:
• Minimum wage of $15 reached in March 2020, 1¾ years ahead of the State.
• The initial step would occur in March 2019.
• The initial step would be $13.50.
• The ordinance in Scenario 1 would sunset after reaching $15 per hour in 2020.
• The City’s minimum wage would then stay at $15 until State’s annual CPI adjustments begin in 2024.
|
Effective Date |
State of CA (<26 employees) |
State of CA (26+ employees) |
Scenario 1 |
|
January 2019 |
$11.00 |
$12.00 |
$12.00 |
|
March 2019 |
|
|
$13.50 |
|
January 2020 |
$12.00 |
$13.00 |
|
|
March 2020 |
|
|
$15.00 and sunsets* |
|
January 2021 |
$13.00 |
$14.00 |
|
|
January 2022 |
$14.00 |
$15.00 |
|
|
January 2023 |
$15.00 |
|
|
|
January 2024 |
$15.00 + CPI |
*Remains at $15 until State’s annual CPI adjustments begin in 2024.
Scenario 2: Modified San Leandro Model
The second scenario is slightly more aggressive than the first (see Exhibit 4).
• It does not sunset after it reaches $15. Instead, it continues with annual CPI increases two years ahead of the State’s timeframe.
• Under this scenario, the local minimum wage will always be higher than the State’s.
|
Effective Date |
State of CA (<26 employees) |
State of CA (26+ employees) |
Scenario 2 |
|
January 2019 |
$11.00 |
$12.00 |
$12.00 |
|
March 2019 |
|
|
$13.50 |
|
January 2020 |
$12.00 |
$13.00 |
|
|
March 2020 |
|
|
$15.00 |
|
January 2021 |
$13.00 |
$14.00 |
$15.00 |
|
January 2022 |
$14.00 |
$15.00 |
$15.45* |
|
January 2023 |
$15.00 |
|
$15.91* |
|
January 2024 |
$15.45* |
$16.39* |
*assumes a hypothetical annual CPI increase of 3 percent.
Scenario 3: Modified Redwood City Model
The third scenario is the most aggressive of the three. It is based on the Redwood City ordinance, which was approved on March 26, 2018. The most salient characteristic is that after it reaches $15, it then jumps to a CPI adjustment in January 2021 (see Exhibit 5).
|
Effective Date |
State of CA (<26 employees) |
State of CA (26+ employees) |
Scenario 3 |
|
January 2019 |
$11.00 |
$12.00 |
$12.00 |
|
March 2019 |
|
|
$13.50 |
|
January 2020 |
$12.00 |
$13.00 |
|
|
March 2020 |
|
|
$15.00 |
|
January 2021 |
$13.00 |
$14.00 |
$15.45* |
|
January 2022 |
$14.00 |
$15.00 |
$15.91* |
|
January 2023 |
$15.00 |
|
$16.39* |
|
January 2024 |
$15.45* |
$16.88* |
*assumes a hypothetical annual CPI increase of 3 percent.
Summary. All three scenarios reach $15 by March 2020, 1¾ years ahead of the state’s schedule. The major difference between the scenarios is when the annual CPI adjustment starts. In Scenario 1, the annual CPI adjustment starts in January 2024; in Scenario 2, the CPI adjustment starts in January 2022; and in Scenario 3, it is in January 2021 (see Exhibit 6).
Summary of the Scenarios
|
Effective Date |
Scenario 1 |
Scenario 2 |
Scenario 3 |
|
January 2019 |
$12.00 |
$12.00 |
$12.00 |
|
March 2019 |
$13.50 |
$13.50 |
$13.50 |
|
January 2020 |
$13.50 |
$13.50 |
$13.50 |
|
March 2020 |
$15.00 and sunsets |
$15.00 |
$15.00 |
|
January 2021 |
$15.00 |
$15.00 |
$15.45* |
|
January 2022 |
$15.00 |
$15.45* |
$15.91* |
|
January 2023 |
$15.00 |
$15.91* |
$16.39* |
|
January 2024 |
$15.45* |
$16.39* |
$16.88* |
*assumes a hypothetical annual CPI increase of 3 percent.
Other Policy Considerations
Staff is seeking guidance from the Mayor’s Economic Development Advisory Panel about the inclusion of various exemptions and policy issues in a minimum wage ordinance.
In particular, youth employment is emerging as a common concern in staff’s initial discussions with small businesses and business associations. A few people have mentioned that a significant change in minimum wage may create a disincentive for hiring young, entry-level employees, with little or no work experience, and thus increase teen unemployment. However, exempting teenagers from a minimum wage ordinance may create a two-tier labor structure with unintended consequences: employers may choose to hire teenagers (who can afford to work at a lower rate) rather than low-income adult workers.
Staff is researching if and how other cities address youth employment in their minimum wage ordinances. Staff has found no California jurisdiction with a minimum wage ordinance that allows paying less than the minimum wage to youth solely based on their age. However, some cities have combined an age range or age limit with an exemption for training programs. The State has a “learner” designation or standard (regardless of age) for transitional jobs programs (TJP) that provide short-term, subsidized employment and supportive services to help participants overcome barriers to employment. California law provides that learners may be paid 85 percent of the minimum wage for the first 160 hours of employment. In applying this to youth employment, the cities of Los Angeles and Pasadena, for example, explicitly state that employees who are 14-17 years of age would not be paid less than 85 percent of the minimum wage during their first 160 hours of employment.
Similarly, other cities exempt specially defined “youth training programs” from minimum wage. Berkeley, for example, has a delayed minimum wage schedule for youth job training programs operated by nonprofit corporations or government agencies.
In addition to youth employment and “learner”/job training programs, below are various exemptions contained in minimum wage ordinances from around the Bay Area (see Exhibit 7). Staff will continue to research these alternatives and discuss them with stakeholder groups and in community workshops to see if there are compelling reasons to address any of them in a local ordinance. Staff is requesting guidance from the Mayor’s Economic Development Advisory Panel about the possible inclusion of any of these exemptions/policies in an ordinance.
• Non-profit (one year deferral)-Non-profits tend to rely heavily on fundraising cycles and public funding streams and thus may have constraints on their ability to adjust to minimum wage increases. A number of cities with minimum wage ordinances have provided slower phase-ins for non-profit organizations, such as Los Angeles, Santa Monica, Pasadena, and San Mateo. Typically, these jurisdictions expect wages paid by non-profit organizations to eventually catch up to those paid by for-profit employers, but they defer the increase in the minimum wage for one year or more.
• Health benefits- Almost all cities with an ordinance require that the minimum wage be paid regardless of whether an employer provides medical benefits to employees. Some minimum wage ordinances explicitly state and emphasize that an employer may not pay less than the minimum wage even if they provide medical benefits. An exception is the City of Richmond, which allows employers to pay Richmond’s minimum wage minus $1.50 per hour if the employer pays at least $1.50 per hour towards an employee medical benefits plan.
• Housing or meal benefits-- Some cities (Cupertino, Los Altos, Milpitas, San Jose, and Santa Clara) allow employers to offset a portion of the minimum wage for housing and meal costs, as long as the offsets are the same as those available under the California Minimum Wage Law. The ordinances that allow the offset for housing and meal costs state that there must be a prior voluntary agreement between the employer and the employee.
• Distinction between small and large employers-The State of California, Los Angeles, Los Angeles County, Long Beach, Santa Monica, Malibu, and Pasadena delay the schedule by one year for businesses with less than 25 employees. Besides Emeryville, which has separate provisions for employers with less than 55 employees, no other city in the Bay Area has adopted this delayed schedule.
• Tipped employee exemption-Tipped employees who primarily work at restaurants often make more than minimum wage with tips. However, California is one of several states that does not allow employers to use an employee's tips as a credit toward its obligation to pay the minimum wage; all employees must receive minimum wage regardless of receipt of tips.
Some cities include an explicit statement emphasizing that discretionary tips cannot be counted toward meeting the minimum wage. However, several South Bay cities--Cupertino, Los Altos, Santa Clara, and Sunnyvale--allow guaranteed gratuities and commissions to constitute part of the wage when “the commissions or guaranteed gratuities are earned and paid together with other compensation paid to an employee and are equal to or greater than the current minimum wage.”
• Collective bargaining agreement-Many cities have ordinances that include language to allow for all or any portion of the minimum wage requirements to be waived in a bona fide collective bargaining agreement if such a waiver is explicitly set forth in an agreement.
• Exemption for government agencies-A number of local jurisdictions exempt the employees of state and federal agencies, as well as school districts, from the local minimum wage ordinance.
The Redwood City ordinance has an "exempt organizations" section that states: "State, federal, and county agencies, including school districts, shall not be required to pay minimum wage when the work performed is related to their government function. However, for work that is not related to their governmental function, including, but not limited to: booster or gift shops, non-K-12 cafeterias, on-site concessions and similar operations, minimum wage shall be required to be paid."
§ Cap on CPI index-The State has a ceiling of 3.5 percent for its annual CPI adjustment. Only six cities in the Bay Area have ceilings (Belmont, Cupertino, Los Altos, Milpitas, Palo Alto, and San Jose). All of these are capped at 5 percent, except for Belmont at 3.5 percent.
§ Off-ramps-There are also variations in whether local ordinances include provisions for pausing wage increases due to economic circumstances, so-called “off-ramping provisions,” modeled after State law. Under the State law, the wage increase schedule may be temporarily suspended by the governor during an economic downturn. For both the State and the local ordinances, the off-ramps do not apply once the minimum wage reaches $15 per hour.
The five Bay Area cities with off-ramp provisions are Cupertino, Los Altos, Milpitas, San Jose, and Santa Clara. These off-ramp provisions are nearly identical to one another. The conditions that warrant a pause in the minimum wage increases are:
• Total non-farm employment for California, seasonally adjusted, decreased over the three-month period from April to June, or over the six-month period from January to June.
• California state retail sales and use tax cash receipts are less than those from the previous fiscal year.
In each of these cities, determinations are made annually, several months in advance of the next scheduled wage increase.
ENVIRONMENTAL REVIEW
This is an informational report for the discussion of alternatives and is not subject to environmental review under the California Environmental Quality Act (CEQA).
If the City were to adopt a minimum wage ordinance in the future, the action would be categorically exempt from CEQA pursuant to Section 15324 of the CEQA Guidelines, actions taken by regulatory agencies to regulate employee wages, hours of work, or working conditions.
FISCAL IMPACT
The City of Alameda’s Human Resources (HR) Department identified that the City has approximately 366 part-time, hourly positions, a significant portion of which are seasonal employees with the Alameda Recreation and Parks Department. With no increase in benefits, preliminary calculations by the HR Department estimate that an annual cost of a $15 an hour minimum wage with benefits could cost up to $252,207 annually.
This staff report does not have a complete estimate of the cost to the City of Alameda of adopting a minimum wage ordinance. Also, this does not take into account the compression of the pay scale among different employment classifications that would result from raising the minimum wage. Raising the minimum wage will likely lead to comparable adjustments for other employee classifications. Additional costs may also include:
• The cost of hiring contractors, particularly for jobs such as crossing guards and janitorial services, which rely heavily on low-wage workers, and
• Monitoring and enforcement costs.
RECOMMENDATION
Review and Comment on Minimum Wage Presentation
Respectfully submitted,
By,
Eric Fonstein, Development Manager
Exhibits:
1. Chart of California’s Minimum Wage Standards
2. Bay Area Cities with Minimum Wage Ordinances
3. Chart of Scenario 1
4. Chart of Scenario 2
5. Chart of Scenario 3
6. Chart of All Scenarios
7. Menu of Exemption and Policy Options