Tom Larmore's Living Wage Update

Partial transcript of the City Council Meeting of Tuesday, March 23, 2004:

Mayor: Madam Clerk, you may call the next item.

City Clerk: Item 9-A, Report from City Staff Regarding Possible Renewal of the Living Wage Ordinance and Public Hearing

Mayor: May we have the staff report please?

City Staff: As you know, in 2001, the City Council adopted a Living Wage Ordinance applicable to certain employers in the Coastal Zone plus the east side of 4th Street north of Pico, the north and south sides of Wilshire between 4th Street and Lincoln Boulevard, and that portion of Montana Avenue within one block of Robert Scheer's home.

The employers which are covered by the Ordinance are those having annual sales of at least $3,000,000 plus those businesses which, in the judgment of the Wage Control Board, are attempting to evade the Ordinance by purposely keeping sales below the threshold level. The Ordinance contains a "sunset" provision under which it will automatically terminate on the earlier of July 31, 2004 or the date upon which all covered businesses are unionized.

As of this date, five of the remaining ten affected businesses in the Zone are non-union and, therefore, the Ordinance remains in effect. While closure of the other 65 businesses originally affected by the Ordinance has been unfortunate, it is consistent with the Vivian Rothstein's philosophy that businesses which cannot afford to pay a "living wage" do not deserve to remain in business.

The purpose of this report is to advise the Council regarding Staff's assessment of the success of the Ordinance in achieving its avowed purpose of raising worker's wages in the Zone as well as its real purpose of forcing hotels to become unionized as a political payoff to the Council's campaign supporters. It is staff's conclusion that the Ordinance has not yet had sufficient time to fully accomplish either purpose.

While the Miramar and the Pacific Shore remain unionized, thereby permitting them to pay their workers less than the mandated living wage required for non-union hotels (for which privilege the workers get to pay union dues), the Loews, Shutters on the Beach, Casa del Mar and Le Merigot remain non-union. Therefore, they remain covered and have been required to meet the living wage pay scale applicable under the Ordinance. Of course, since they were already paying more than the mandated minimum in 2001, it is difficult to credit the Ordinance with any benefits to workers at these hotels.

The effect of the Ordinance at other hotels in the Zone has been less clear. Several smaller hotels along Ocean Avenue, for example, have certainly raised wage levels in compliance with the Ordinance and, therefore, the employees receiving those higher wages have obviously benefited. However, the reductions in staff size which accompanied the wage increases would appear to have been to the detriment of the employees who were terminated. (We understand, however, that many of them have found employment with Professor Robert Pollin's organization, although at lower wage levels.)

While some hotels have survived the economic recession which hit the country soon after George Bush became President, many others have simply closed. Although some blame the Ordinance for these closures, it is clear that several other factors were at work, such as the power blackouts of 2001, construction of the Transit Mall, the continuing sewer repair work which is now scheduled to be complete in 2010, and increases in the transient occupancy tax which were imposed in 2003 to replace revenue lost when 70% of the Third Street Promenade businesses closed in 2002.

Despite assertions to the contrary by opponents of the Ordinance, the loss of Promenade businesses was not entirely due to the Ordinance. For example, closure of the Promenade theaters soon after the Ordinance was adopted was a major factor affecting other businesses. (Of course, many blame the Ordinance for loss of the theaters, a theory supported by the theaters themselves. Others, however, attribute these closures to the proliferation of "reality-based" movies during the writer's strike in 2001.)

Restaurants covered by the Ordinance tried to cope by first reducing staff levels and closing for lunch. This tactic proved unsuccessful, however, when the Wage Control Board issued orders requiring them to comply with the Ordinance's pay scale anyway, based on their attempts to "evade" the Ordinance. One of these restaurants then applied to the Board for a "hardship" exemption.

This strategy was also unsuccessful as the Board was unwilling to grant the exemption unless the employer agreed that its employees would be represented by the Hotel Employees and Restaurant Employees Union. While such representation would have exempted the restaurant from the Ordinance, thereby permitting it to pay lower wages, the Union and the Board demanded that all employees previously terminated be immediately rehired, with back pay, even though there was no work for them to do.

Professor Pollin was brought back as a consultant for another $100,000 to advise employers on strategies for successfully dealing with the Ordinance as well as other sources of financial difficulties. After careful work, including many meetings with officials of the Union and the Green Party, Professor Pollin advised businesses to increase prices, assuring them that they could do so with impunity since everyone wanted to come to Santa Monica to eat sun-dried tomatoes and free-range chicken irrespective of the price. The fact that this strategy failed was primarily attributable to the lack of sufficient public awareness.

At Professor Pollin's suggestion, the City retained the consulting firm of Scheer & Nonsense to conduct an outreach campaign urging residents to patronize businesses covered by the Ordinance even though their prices were substantially higher than competitors outside the Zone. The "PHART" campaign (Pay Hugely Above Retail Today) fizzled out as residents failed to demonstrate the proper spirit.

The impact of the closures of Sears, Macy's and Robinsons-May has been overblown. All of these companies were facing financial difficulties on a nationwide basis and might have closed anyway; however, the Ordinance made closures a certainty. While some in the community have lamented the loss of the City's last department stores, Councilmember Bloom has reassured everyone by advising them to simply watch for the sales at Abercrombie & Fitch and Wilson's Suede & Leather.

Council has asked that we attempt to quantify the number of people who have benefited from the Ordinance. These fall into two classes. First, we estimate that there are150 workers in affected businesses who are making more money now than they did in 2001. Of course, 100 of these were already making more than the "living wage" level and simply received what are referred to as "ripple effect" increases.

Although 50 truly benefited employees may seem rather small, the second group of benefited workers are the 300 new City employees who service the Wage Control Board. We were fortunate to have a ready supply of people anxious to fill these positions because of the high pay levels, the lack of real work (after all, how much work can it be when you have 6 City employees for each privately-employed worker?), the sheer joy of tormenting private businesses, and the large number of Democratic lobbyists who suddenly became unemployed in 2001.

Staff believes that the Council has several options available to it. First, it can let the Ordinance expire without being renewed. However, it is unlikely that this will attract businesses back into the Zone which have already left. It will also have the effect of costing the jobs of 300 City employees who will have no foreseeable source of employment other than signature gatherers for ballot measures establishing price controls for electric power. Second, the Council can simply extend the Ordinance for another three years or adopt it permanently without modification. Third, the Council can choose to extend the Ordinance to encompass the entire City, thereby spreading the benefits and permitting an increase in the size of City staff. City staff recommends the third option.