City staff sees potential flaws in mayor’s minimum wage proposal, recommends further study

Sales tax rates in El Cerrito and Richmond increase on Wednesday

City employees are recommending delaying any decision about increasing Richmond’s minimum wage until experts can further study its potential effects, according to a report provided by Councilman Tom Butt’s e-forum Monday.

The minimum wage ordinance is scheduled to go before City Council on Tuesday.

The mayor-backed proposal would increase the minimum wage in the city from the state’s minimum of $8 to $12.30 by 2017. The increase would be implemented in phases, with the wage going up to $9 on July 1, $9.60 in 2015 and $11.52 in 2016.

San Francisco’s minimum wage is currently the region’s highest at $10.74 an hour, while San Jose’s is $10.15.

Table courtesy of Councilman Tom Butt’s e-forum (typo alert: 2105 should read 2015)

Mayor Gayle McLaughlin and her Richmond Progressive Alliance (RPA) colleagues have been pushing hard for the wage increase, saying it is long overdo and will benefit the economy. Last month, however, the ordinance failed to pass council after some councilmembers criticized the mayor for neglecting to consult with them and with the local business community, and for failing to properly study the impacts. The council then directed city staff to further study the wage proposal and offer recommendations.

On Tuesday, according to Councilman Tom Butt, city staff will recommend hiring economists to study the impacts even further, as they believe the studies that McLaughlin and the RPA have presented supporting a wage hike don’t do enough to show whether the proposal is good for Richmond.

One issue, staffers said, is that while the current wage proposal would help people working within city limits, it would not apply to Richmond residents who work outside the city. That could negate assertions from McLaughlin and her supporters that residents would spend more in Richmond, boosting the economy, as a result of a wage hike.

There is also concern over whether businesses will slash jobs in reaction to the wage increase. There could be a “significant” impact on teen employment, the city report said.

If no jobs are lost as a result of the wage increase, additional wages paid in Richmond could range from $6.7 million to $13.3 million, the city said. Also, the proposal would cost the cash-strapped city about $150,000 annually to enforce the wage increase and also to pay the higher wages for Recreation Department aides.

The city noted that some studies say wage increases have little to no impact on a local economy, others say otherwise, such as a survey that said San Jose restaurants cut jobs by 42-percent and reduced hours by 45-percent after wages were increased.

“Just because research shows a specific positive or negative impact of minimum wage increases in a jurisdiction, or at the state or federal level, does not mean that the same will necessarily hold true in Richmond,” city staffers reported. “It is important to recognize a jurisdiction’s industrial structure, demographic characteristics, and other factors, when comparing different minimum wage laws.”

Here is how city staff recommends moving forward:

  • Consider commissioning a study by an economist or other experts to provide an economic analysis on the impacts of a minimum wage increase specifically for Richmond. The study could provide better estimates regarding the number of employees and employers impacted by the minimum wage legislation.
  • Conduct additional outreach and provide sufficient opportunity for interested stakeholders to provide feedback on the ordinance.
  • Define a clear and comprehensive enforcement strategy, which includes determining penalties and examining personnel needs and costs for the City in performing enforcement activities.
  • Clarify the purpose, interpretation, and enforcement of the exemptions regarding small businesses (10 or fewer employees) and the credit for businesses that pay at least $1.50 in to medical benefits plan.Continue to examine the exemptions included in the ordinance. For example, San Francisco gradually folded in businesses with less than 10 employees and non-profits to give them more time to adjust but they did not exempt any group. Should additional exemptions be considered?
  • Understand the impacts of the minimum wage increase on specific sectors of the community. For example, there is a need to fully understand how business that provide support to the disabled population and receive reimbursements fromthe state or federal government, that may or may not be sufficient to cover the mandated minimum wage rates, will be impacted.
  • Create an outreach and education plan to ensure successful implementation of the ordinance is achieved. The plan would provide dates for outreach, determine which groups will receive outreach, decide on outreach methods, and identify organizations and City staff that would be responsible for outreach.
  • Develop a set of Frequently Asked Questions for both employees and employers to ensure that all stakeholders clearly understand the ordinance and their rights.
  • Consider adding other benefits to the $1.50 credit toward the minimum wage (i.e. paid sick leave and vacation)In light of the City’s focus on Health in All Policies, the City Council could consider partnering with the Contra Costa Health Department, Health Impact Partners and others, to conduct a Health Impact Assessment to examine at the health impacts of the minimum wage increase on Richmond residents. Los Angeles completed one in 2005 to estimate the relative health effects of the income and health insurance provisions of the Los Angeles City living wage ordinance (