CITY COUNCIL STAFF REPORT
MEETING DATE: May 18, 2016
PREPARED BY: John Lang, Economic Development Coordinator
APPROVED BY: City Manager
Title
UPDATE ON REGIONAL MINIMUM WAGE EFFORTS AND ADOPTION OF A LOCAL MORGAN HILL MINIMUM WAGE
END
RECOMMENDATION(S)
RECOMMENDATION
1. Accept a report on San Jose's regional minimum wage study;
2. Provide direction on Morgan Hill’s position for the Cities Association June discussion;
3. Discuss local minimum wage Ordinance per March 2, 2016, City Council direction; and
4. Do not adopt a local minimum wage at this time.
BODY
COUNCIL PRIORITIES, GOALS & STRATEGIES:
Ongoing Priorities
Supporting youth
Fostering a positive organizational culture
Preserving and cultivating public trust
2016 Focus Areas
Participating in Regional Initiatives
Improving our Communication
REPORT NARRATIVE:
This report is broken down into two parts. The first part of the report provides some background on past Council activity and a summary of the report on the discussion of adopting a regional minimum wage for Santa Clara County. The second part discusses the proposed ordinance for adoption of a local Morgan Hill minimum wage and associated enforcement and implementation costs if the Council decides to do so at this time.
Background
On December 16, 2015, City Council was provided an update on the regional minimum wage efforts currently being undertaken by local jurisdictions as well as information on local community engagement conducted by the City to residents and businesses of Morgan Hill. City Council provided direction to return March 2016 with the results of the consultant report being funded by the City of San Jose on a proposed $15 an hour minimum wage for the region.
On March 2, 2016, City Council received updates on the timing of the consultant report regarding a regional minimum wage being funded by the City of San Jose. This included an analysis of the various impacts that Consumer Price Indices can have on inflating a minimum wage. In addition, City Council was provided information on local enforcement costs related to minimum wage.
On March 2, 2016 the City Council directed staff to bring back an ordinance for consideration to augment the State of California Minimum Wage annually by the National All Urban Wage Earners Consumer Price Index starting January 2017.
Update on Regional Minimum Wage Report
On April 18, 2016, the San Jose City Council held a special study session to review the initial findings of a proposed regional minimum wage. The Institute for Research and Labor and Employment (IRLE) at U.C. Berkeley did a qualitative analysis on increasing the minimum wage regionally from $10.00 an hour to $15 an hour by 2019. BW Research, a sub-consultant, did a statistically significant survey of Santa Clara County businesses regarding the impact of raising the minimum wage. The two summary reports are attached to this report; Attachment A, Institute Research Labor Employment Report and Attachment B, BW Research. The full reports and findings from the consultants will be made available in June 2016.
Below is a high level summary of their combined findings.
• Raising the minimum wage to $15 per hour by 2019 throughout Santa Clara County would generate an average pay increase of $3,200 or 19.4% of annual earnings for 250,000 workers, representing one quarter of the county's total workforce.
• 96% of the workers who would receive pay increases are over 20 years of age; 57% are over 30. Affected workers are household breadwinners, bringing home half of their families' income on average.
• The estimated impact to businesses countywide would be an average payroll cost increase of 1.0%. Restaurants, which have the highest share of minimum wage workers compared to other industries, would experience an average payroll increase of 9.6%.
• Prices charged by businesses as a result of the higher minimum wage would increase 0.2% across all industries and 2.9% for restaurants.
• A majority of surveyed employers anticipate that they will likely have to increase prices for customers (66%) and that their employees will be more satisfied and productive given a minimum wage increase (63%).
• 76% of respondents believe a minimum wage increase makes sense given the region's high cost of living, but that it will make it harder to start and grow businesses locally (61%).
Santa Clara County Regional Effort
The Santa Clara Cities Association discussed the Regional Minimum Wage Report at their April 2016 meeting. The Santa Clara Cities Association Board encouraged members to share the presentations and the results of the study with their respective cities and to come back in June 2016 to review a potential regional recommendation. Current discussions by Santa Clara Cities Association are to adopt a more aggressive implementation of a $15 minimum wage. Column C in both Table A and Table B that appear later in the memorandum demonstrate what a regional minimum wage might look like if the region adopts a more aggressive approach to increasing minimum wage. Column C reflects Mountain View's current approach to adopt a minimum wage of $15 by 2018.
Morgan Hill Proposed Minimum Wage Ordinance
On March 2, 2016, the City Council directed development of an ordinance to increase the State of California minimum wage annually by the National All Urban Wage Earners Consumer Price Index. This direction was received prior to the State approving a new minimum wage.
The new State of California Minimum Wage has a phased implementation based upon the size of businesses. SB3-Minimum Wage has amended the California Labor Code to include Section 1182.12(b)(1) which delineates a minimum wage for employers with 26 or more employees versus a minimum wage for employers with less than 26 employees. The Labor Codes states that Starting in January 2017, for employers with greater than 26 employees, will be required to pay a minimum wage of $10.50 an hour. For employers with less than 26 employees, minimum wage will remain at $10.00 an hour in 2017. SB3- Minimum Wage delays the wage increase implementation for employers with less than 26 employees by a year. In Column A, Tables A and B reflect increases in the State Minimum Wage starting January 2017 for employers with more than 26 employees. The proposed ordinance for Morgan Hill is based upon the California State Minimum Wage for employers with greater than 26 employees.
Per Council’s direction, staff has invested a significant amount of time drafting an Ordinance and understanding the City’s long-term responsibility if a local minimum wage is adopted. The proposed Ordinance as drafted would analyze the August release of the National All Urban Wage Earners Consumer Price Index to calculate any future adjustment to the following year’s minimum wage. If there is deflation, a decline in consumer prices, there would be no adjustment made to the State of California Minimum Wage for the following year. Please note that Senate Bill 3, Minimum Wage, does allow the Governor to temporarily suspend any increase in the State of California Minimum Wage if the following occurs:
• Total nonfarm employment in California decreases over the three month period from April to June; and
• Cash collections of the State of California portion of Retail Sales tax declined year over year; and
• The State of California's General Fund is in deficit.
The drafted Ordinance does not add any exemptions or provisions for suspension. Thus even though the State Minimum Wage may be suspended there is the possibility of Morgan Hill increasing the minimum wage by an adjustment through the Consumer Price Index.
Based upon a history of Consumer prices, an analysis below shows a range of changes in Minimum Wage when pegged to historical averages of Consumer Price Index. Both Table A and Table B are for meant to be illustrative of a CPI adjustment. There is no way to predict the actual change associated with future prices.
In Table A below is an approximate analysis of the impact on increasing the Consumer Price Index by the current National Consumer Price Indices rates.
Table A. Impact of Current CPI Rates on Local Minimum Wage
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Column A |
Column B |
Column C |
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State of CA Minimum Wage |
MH City Council Direction 3/2 |
Mountain View Minimum Wage |
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2016 |
$10.00 |
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11.25 |
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2017 |
$10.50 |
$10.55 |
$13.00 |
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2018 |
$11.00 |
$11.05 |
$15.00 |
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2019 |
$12.00 |
$12.06 |
$15.45 |
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2020 |
$13.00 |
$13.06 |
$15.91 |
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2021 |
$14.00 |
$14.07 |
$16.39 |
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2022 |
$15.00 |
$15.07 |
$16.88 |
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2023 |
$15.07 |
$15.15 |
$17.39 |
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State Adjustment |
National CPI adjust |
Regional CPI |
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Column A. State adopted Minimum Wage for employers with 26 employee or more (Section 1182.12(b)(1)). Increase based upon an Index starting in 2023 |
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Column B. MH Council direction to augment new adopted State of CA minimum wage |
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Column C. Mountain View's Adopted Ordinance, supersedes State minimum wage every year. Pegged to Regional CPI |
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CPI Adjustments use an average of .5%, Most recent month National CPI Change. SF MSA Adjustment for Mountain View using 1st Quarter 2016 3.0% |
Given the cyclical nature of consumer prices, a ten year historical average of Consumer Prices is used in Table B to highlight the impact of local minimum wages pegged to Consumer Price Indices.
Table B. Impact of Historical CPI Rates on Local Minimum Wages
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Column A |
Column B |
Column C |
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State of CA Minimum Wage |
MH City Council Direction 3/2 |
Mountain View Minimum Wage |
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2016 |
$10.00 |
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11.25 |
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2017 |
$10.50 |
$10.71 |
$13.00 |
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2018 |
$11.00 |
$11.22 |
$15.00 |
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2019 |
$12.00 |
$12.24 |
$15.37 |
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2020 |
$13.00 |
$13.25 |
$15.75 |
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2021 |
$14.00 |
$14.27 |
$16.13 |
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2022 |
$15.00 |
$15.29 |
$16.53 |
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2023 |
$15.29 |
$15.59 |
$16.94 |
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State Adjustment |
National CPI adjust |
Regional CPI |
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Column A. State adopted Minimum Wage for employers with 26 employees or more (Section 1182.12(b)(1)). Increase based upon an Index starting in 2023 |
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Column B. MH Council direction to augment new adopted State of CA minimum wage |
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Column C. Mountain View's Adopted Ordinance, supersedes State minimum wage every year. Pegged to Regional CPI |
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For the past 10 years, annual CPI Adjustments have averaged 1.96% (10 Yr Average-Aug), the local San Francisco MSA Adjustment for Mountain View averaged 2.46% (10 Years Average-Aug) Fiscal implications for the City of Morgan Hill adopting a local minimum wage ordinance are further described in Fiscal and Resource impacts. Now that the State has adopted a minimum wage that includes annual increases even after 2022, staff recommends that the Council not adopt a local minimum wage. Enforcement Costs Whether voter initiated or Council adopted, a local minimum wage in excess of the State of California minimum wage, requires enforcement to be conducted locally instead of by the State of California Department of Industrial Relations. If Morgan Hill does adopt a minimum wage in excess of the State's Minimum Wage, it will be required to provide enforcement. Currently the cities of Mountain View, Sunnyvale and Palo Alto contract directly with the City of San Jose's Office of Equality Assurance for enforcement. The enforcement method is a complaint based process. Depending on local business adoption, first year enforcement costs are anticipated to be higher than subsequent years. First year enforcement costs could be up to $5,000. The City of Morgan Hill will also be responsible for developing Annual minimum wage bulletins to be posted by all employers. |
COMMUNITY ENGAGEMENT: Involve
The December 16, 2015 Council memorandum on minimum wage outlined outreach and community engagement on the topic of increasing the minimum wage in Morgan Hill.
For this particular informational update, no additional community outreach was conducted.
ALTERNATIVE ACTIONS:
1. Adopt a local minimum wage consistent with the attached ordinance.
2. Adopt a local minimum wage with revisions to the attached ordinance.
PRIOR CITY COUNCIL AND COMMISSION ACTIONS:
On December 16, 2015 the City Council received a report on community and business outreach proposed for a potential minimum wage in Morgan Hill.
At the March 2, 2016 City Council meeting, Council received an overview of the regional minimum wage report being procured by City of San Jose. City Council directed staff to return with an ordinance that modifies the State of California minimum wage by the consumer price index for all urban wage earners for the City of Morgan Hill. Additional direction included providing a budget analysis associated with enforcement of an adoption of a local minimum wage.
FISCAL AND RESOURCE IMPACT:
The City’s five year budget forecast and Fiscal Years 2016-2017 and 2017-18 recommended budgets include the impact of the State of California Minimum Wage as adopted in Senate Bill 3. Should the City Council choose to adopt a local minimum wage, the impact to the City of Morgan Hill as an employer will be an increase between $1,000 and $15,000 per year depending upon the Consumer Price Index.
While past enforcement efforts of local minimum wage have been relatively minor, the City should also assume up to $5,000 for any potential enforcement compliance through a contract with the City of San Jose's Office of Equality Assurance.
With the adoption of a local minimum wage, the City of Morgan Hill will be responsible for posting an annual minimum wage bulletin for local businesses. The cost of this is estimated to be $1,500 annually.
CEQA (California Environmental Quality Act):
Not a Project
LINKS/ATTACHMENTS:
Attachment A: Institute Research Labor Employment Report
Attachment B: BW Research
Attachment C: Draft Morgan Hill Ordinance