2 Studies Differ on Plan for Living Wage

Picture the desk of a Santa Monica City Council member now considering a living wage proposal that experts argue would either lift hundreds of workers out of poverty or force massive layoffs in the city’s tourist-heavy coastal district.

On one side is an exhaustive, 254-page analysis done for Santa Monica by University of Massachusetts-Amherst economics professor Robert Pollin, a nationally recognized expert on wage issues.

He proposed a $10.75-an-hour minimum--more than twice the federal standard--that would hike family income, he contended, by an average of 20% for about 2,500 low-wage workers in Santa Monica’s beach area while causing no more than 186 job cuts.

On the other side is the 68-page report by UCLA law professor Richard H. Sander, who is also an expert on the issue and was hired by a group of Santa Monica’s luxury hotels to analyze the local wage proposals.

Sander predicted that a living wage plan, as originally suggested to the city by a group of labor activists, would force the layoffs of about 1,000 workers, drive property values down as much as $400 million and cripple the city’s beach-side shopping district.

Recently, the City Council has spent many late nights debating the merits of these strikingly different opinions and hearing pleas from local business owners, who predict catastrophic losses, and low-wage workers, who say they’re one paycheck away from homelessness.

Still, council members say they need more time to weigh all sides before they consider writing an ordinance. Their starting point was the labor activists’ plan to require that businesses located up to a mile east of the beach pay more than $10 a hour. Pollin then modified some details.

“I read it all,” City Councilman Kevin McKeown said of the dueling reports. “Inevitably, more information complicates the thinking process, but we knew going in this was a complex issue.”

Council member Pam O’Connor agreed. “I’ve got both the reports,” she said. “I’ve read them and I’m going to have to read them again. They’re dense.”

Both sides stress that the outcome to Santa Monica’s living wage debate could set an important national precedent. Yet, anything the council does on the issue may be futile.

The hotel industry and other opponents of the living wage plan placed on the November ballot a local proposition that, among other things, would retroactively bar the City Council from passing any wage ordinance that applies to private businesses that don’t have government contracts.

As an attraction to some voters, the Proposition KK amendment to Santa Monica’s city charter would also require the city to raise wages for workers on municipal contracts with private firms.

“It’s relatively controversial when a proposition is retroactive,” said Jim Sutton, the San Francisco-based attorney who crafted Proposition KK. “But it’s perfectly legal.”

Recent council meetings have been standing room only with kitchen workers, janitors and housekeepers alongside men and women in expensive suits representing high-powered law firms and marketing agencies.

Even the social scientists have exchanged barbs.

Sander called Pollin’s study “a joke,” stating: “As far as we can tell, he simply made his numbers up.”

In his 27-page response to criticisms, Pollin equated Sander’s analysis to “hyperbole, sarcasm” and “vague appeals to authority.”

Adding to the antagonism are threats of lawsuits.

Union organizers and community activists say they are prepared to sue hotels for misleading the public to win votes for Proposition KK. They claim that a hotel-backed group, named Santa Monicans for a Living Wage, tricked voters into signing a ballot petition.

Hotels have promised legal action if Proposition KK fails and the City Council goes ahead with a living wage ordinance for the coastal zone.

Washington, D.C.-based attorney Richard P. Bress, who represents two Santa Monica luxury beach hotels, argued that the city’s proposal was discriminatory and unconstitutional because it would impose wage standards on a select group.

Meanwhile, the executives who run the amusement park on the Santa Monica Pier, the movie theaters on the Third Street Promenade and even cafes on Montana Avenue say they’ll go out of business if an ordinance forces higher wages on beach-side businesses.

Merchants outside the boundaries of the proposed ordinance say they fear that wage increases at coastal businesses would lure away their workers and put them out of business.

The debate began about a year ago when the City Council voted to study the wage proposal for the beach area suggested by a group of union organizers, clergy and residents known as Santa Monicans Allied for a Responsible Tourism, commonly called SMART.

“It’s all a question of what’s important to us as a country,” SMART spokeswoman Vivian Rothstein said. “Is it unrestrained profits or healthy families and healthy communities?”

Perceiving a serious threat, hotels launched a petition drive and invested more than $400,000 to qualify Proposition KK for the ballot. Even more money is being spent to rally voters to pass it.

About 50 other local governments in the country have passed laws that set higher wage standards for government-contracted employees, and dozens of others are weighing similar moves.

The Los Angeles County Board of Supervisors last year required that businesses with county contracts pay workers at least $8.32 an hour, but exempted very small firms. Santa Monica’s beach zone proposal is different because it would apply to private businesses without government contracts in a targeted area.

And it may be the most painstakingly studied proposal of them all.

After interviewing about 200 workers and 150 business owners and managers from March to August, Pollin modified the SMART wage proposal.

He proposed that the wage standard be applied to an estimated 72 businesses with annual gross sales of $3 million or more, which would exempt most boutique shops, cafes and other small businesses.

This plan would increase by as much as 20% the net family income of low-wage workers in the coastal zone, according to Pollin’s research.

To pay those wage hikes and sustain profits, several luxury hotels and restaurants would have to increase their prices by as much as 10%, while retailers would have to raise prices by about 2.5%, he said.

“At least in part, the hotels are able to raise prices while continuing to maintain high occupancy rates . . . because the city of Santa Monica has restricted the supply of available hotel rooms in the coastal zone as a matter of public policy,” Pollin states in his report.

Sander surveyed 60% of coastal zone businesses, but relied on census and other demographic data for detailed information on workers.

He said Pollin’s living wage proposal would decrease Santa Monica’s poverty rate just a half-percent and prompt employers to hire fewer low-skilled workers.

That’s because as many as one-fourth of the low-wage workers in Santa Monica’s beach-side businesses are “particularly affluent” upper middle-class teenagers and struggling actors who come from families with an income of more than $100,000 a year, Sander reported.

Instead, Sander proposed that the city pass an ordinance entitling Santa Monica workers to a local earned income tax credit similar to federal subsidies.

He estimates that such a plan would cost the city about $2 million--funding that could be raised with an increase in local sales taxes or business license fees. This proposal, unlike Pollin’s plan, would raise living standards while saving jobs, Sander said.

“If Santa Monicans believe their community is affluent enough to take extra steps in helping the poor, it is appropriate, we think, for them to take direct responsibility for those steps,” Sander writes.

City Manager Susan McCarthy summarized the dilemma faced by the council and her staff.

“It’s no wonder in an arena this complex, and [given] the diversity of opinion, that we need to do more work on the issue,” McCarthy said. “When it comes right down to it, people on both sides are concerned about having enough.”