TITLE
Recommendation to request City Council to receive and file a report on a proposed Long Beach Minimum Wage for Hotel Workers, and direct City Manager on next steps; and
Request City Attorney to prepare a ballot measure for consideration during the March 2024 municipal election amending the Long Beach Hotel Worker Wage Ordinance (LBMC Chapter 5.48) to authorize a market pay adjustment that ensures fair and competitive wages for hotel workers. (Citywide)
DISCUSSION
Background
On November 6, 2012, voters adopted Measure N, a ballot initiative requiring minimum compensation and sick days for hotel workers. Approval of the measure established the Long Beach Hotel Worker Wage Ordinance, Long Beach Municipal Code Chapter 5.48.020 (LBMC Chapter 5.48.020), increasing hotel workers minimum compensation to $13.00 per hour for hotels with 100 or more guest rooms. This rate is adjusted annually by the amount of increase in the federal minimum wage or by the Consumer Price Index (CPI), whichever is greater. The current minimum wage for Long Beach hotel workers is $17.55 per hour.
On July 11, 2023, the City Council requested the City Manager and Economic Development staff to conduct a labor market analysis on hotel workers wage rates across the Southern California region and trends where these salary rates are headed between now and 2028. Staff were directed to refer the report to the Economic Development and Opportunity Committee for public input and discussion. The City Council further requested the City Attorney to prepare a ballot measure for consideration during the March 2024 municipal election amending the Long Beach Hotel Worker Wage Ordinance (LBMC Chapter 5.48.020) to authorize a market pay adjustment that ensures fair and competitive wages for hospitality industry employees. Because the original Ordinance was established by ballot initiative and popular vote, amending the Ordinance would require the same process.
Economic Development staff reached out to consultants and academic institutions to assist in the development of the requested analysis, several of whom politely declined. Two of the contacted consultants expressed a possible interest, but due to the timeline to accommodate a March ballot, they cannot assist us at this time. However, staff have assembled as much relevant information available to help inform the City Council on this complex issue.
Long Beach Hotel Industry
There are approximately 27 Long Beach hotels in the vicinity of Downtown and the Long Beach Airport. Of these, 12 hotels have fewer than 100 guest rooms and are exempt from the current hotel worker minimum wage requirement. These 27 hotels are estimated to employ about 2,500 hotel workers, with approximately 2,000 of those workers in hotels with 100 or more guest rooms. The current minimum wage for Long Beach hotel workers is $17.55 per hour.
Hotels play a critical role in the broader hospitality industry which has an estimated $1.8 billion economic impact and supports almost 18,000 related jobs. In the City of Long Beach, Transient Occupancy Tax (TOT), including revenues generated from the additional one percent from Measure B, ended Fiscal Year 2022 (FY 22) at $23.0 million.
Minimum Wage: Theory and Evidence
On August 2, 2022, the City Council was presented with an economic analysis prepared by the Los Angeles County Economic Development Corporation (LAEDC) in consideration of the proposed Long Beach Minimum for Wage for Hotel Workers ballot measure. Some of the conceptual analysis prepared for that report is applicable to the broader discussion of minimum wage, and so staff have included the relevant section titled “The Minimum Wage: Theory and Evidence” as Attachment A.
A summation in the LAEDC report states, “While economic theory generally supports the idea that a minimum wage increase will result in a variety of unintended negative economic effects, the empirical evidence is more mixed. While empirical findings are not unanimous, particularly for the US, evidence suggests that minimum wages lead to a number of negative economic consequences in the long run for significant real inflation-adjusted minimum wage increases including a potential reduction in the number of jobs available to low-skill workers.” Broad potential benefits and risks are described below.
General Benefits and Risks:
Benefits:
• Increased labor income to low wage hotel workers in covered businesses.
• Potential increase in labor supply and retention for covered hotel workers.
• Potential short run increase in morale and productivity for covered hotel workers.
• Potential increase to TOT due to increases in average cost of stay for guests.
Risks:
• Short run employment losses, particularly for low wage workers.
• Potential long run business exits, employment losses and reduced future employment growth and business entry for covered occupations.
• Potential non-labor adjustments such as decreased business profits and quality/access reductions to pay for increased labor costs.
• Potential decrease to TOT due to reduction in guest visits from increased costs of stay that may lead to less visitor spending impacting the local economy.
Status of Other Local Communities:
While a full market analysis could not be conducted due to the timing and resources available, staff have provided a summary of recent local activity specific to hotel workers wages in the region. The communities of Los Angeles, Santa Monica, Anaheim, and Culver City all have pending activity related to minimum wage considerations for hotel workers:
Los Angeles:
On April 12, 2023, the Los Angeles City Council directed the Chief Legislative Analyst to prepare an economic analysis of a proposal to amend certain wage related ordinances in the City of Los Angeles, including the Hotel Workers Minimum Ordinance. Specific to hotel workers, the proposal would increase their minimum wage to $25 per hour this year and increase on an annual basis up to $30 per hour by 2028. The City of Los Angeles released a request for proposals the week of August 14, 2023 for the related economic analysis, with a response period of 45 days. They are still in the selection process. The minimum wage in Los Angeles for hotel workers is currently $18.86 per hour.
Santa Monica:
On July 18, 2023, Unite HERE Local 11 filed a ballot initiative that would require Santa Monica hotels to pay a minimum wage of $30 per hour, which would be the highest in the nation. Under the proposed measure, the minimum wage would increase annually based on the Consumer Price Index (CPI) for the Los Angeles area or by 5 percent, whichever is greater, through July 1, 2029, when it would be aligned with the CPI. Union hotels could be exempted if waived during collective bargaining discussions. Proponents of the initiative are currently in the process of obtaining signatures to qualify for public vote. The timing for that public vote has not yet been determined. The minimum wage in Santa Monica for hotel workers is currently $19.73 per hour.
Culver City:
On May 18, 2023, hotel workers with Unite HERE Local 11 filed an initiative for consideration to increase the hotel minimum wage to $25 and increasing the minimum wage to $30 by 2028. Proponents of the initiative are currently in the process of obtaining signatures to qualify for public vote. The timing for that public vote has not yet been determined. The current minimum wage in Culver City is $15.50.
Anaheim:
On May 16, 2023, the Anaheim City Council voted not to adopt a proposal that would increase the minimum wage for hotel workers to $25 per hour, including a minimum 3 percent cost of living adjustment. Anaheim commissioned a report on the potential impact on Anaheim’s TOT (Attachment C). The report’s Executive Summary concluded the proposed increase to hotel workers’ minimum wage would have an adverse effect on the long-term financial health of Anaheim’s hotel industry but may have a slightly positive impact on TOT revenue over the next two or three years. The report noted however, that in the long run, the proposed increase will lower the growth trajectory of TOT and turn the net effect negative.
On June 13, 2023, the Anaheim City Council voted to send the proposal to special election. The minimum wage in Anaheim for hotel workers is currently approximately $17.00 per hour.
Public Feedback
This report was presented at the September 12, 2023 meeting of the Economic Development and Opportunity Committee providing the community with an opportunity for public input and discussion. A summary of this feedback is provided as Attachment B.
Current and Potential Wage Comparison
Based on the various proposed initiatives, new and future minimum wage levels would drastically increase in the communities considering such proposals. Currently, minimum wage for hotel workers in these communities, including Long Beach, range from $15.50 per hour to $19.37 per hour. Of the four peer communities, three are proposing an initial minimum wage increase to $25 per hour, while one is proposing a $30 per hour initial minimum wage. Through 2028, based on minimum proposed adjustments hotel workers’ minimum wage in these communities, minimum wage would range from $28.14 per hour to $36.47 per hour.
Potential Options:
Based on the research and stakeholder feedback provided at the September 12, 2023 meeting of the Economic Development and Opportunity Committee meeting, we have developed some options for a proposed prevailing wage to help with Council’s discussion of this matter.
Option A is the stated position of Tourism Workers Rising of $25 dollars per hour in 2024, which represents an increase of approximately 42.45%, followed by specific annual increases to get to $30 by 2028. This is similar to the stated proposals currently under consideration in Los Angeles and Culver City.
Option B proposes a phased approach as suggested by hotel interests. The proposal still looks at a goal of $30 per hour by 2028, but does this through equally phased increases of over 11% over the next five years.
Options C represents a middle position with an initial 31.05% increase to $23 per hour in 2024, followed by prescribed increases of a $1.50 each year over the following four years averaging approximately 6.45% annually.
These options are meant to spur discussion. City Council may also consider amending other provisions of the ordinance that were referenced by community stakeholders, such as the following:
Service Charge Language: Hotel worker stakeholders requested strengthening the Service Charge provision of the current ordinance. This provision requires that service charge revenue go directly to hotel workers and not to the hotel. Adding clarification or stronger definition of service charges was mentioned as a possible path to strengthening this provision.
Future Wage Adjustments: Hotel Worker stakeholders have requested that the City Council amend the ordinance such that future amendments to the ordinance could be done under City Council authority. One approach to this that would address this request but also allow future predictability for the hotel industry is to allow the City Council to review wage rates once every five years.
In summary, the literature and practical application of minimum wage suggests mixed results, although there seems to be some consensus that in the long-term there may be negative impacts to the hotel industry and broader labor market. It should be noted, though, that none of the studies that were reviewed quantified the human level impacts of a stronger living wage, or its effects on families. Additionally, it should be noted that hotel prevailing wages are being considered and evaluated in different ways in our neighboring communities. While a formal labor market analysis could not be prepared within the time constraints, we hope the information provided can help inform the City Council’s direction to the City Attorney’s office on the scope and content of any proposed ordinance contemplated for a March 2024 ballot.
Staff will need direction on the particular wage level, any proposed escalators, and direction on any other proposed provision amendments in order to bring back a specific ordinance for consideration.
This matter was reviewed by Deputy City Attorney Atoy H. Wilson on September 5, 2023 and by Budget Management Officer Nader Kaamoush on September 1, 2023.
TIMING CONSIDERATIONS
City Council action is requested on September 12, 2023 to accommodate the timing necessary for the March 2024 municipal election. October 24, 2023 is the last day for the City Council to add a measure to the March ballot. Some other significant dates and deadlines include:
• July 11, 2023: City Council direction to study Hotel Workers Minimum Wage
• September 12, 2023: Report to the Economic Development and Opportunity Committee
• September 19, 2023: Report to City Council, City Council refers recommendation to Clerk and City Attorney
• October 16, 2023: Last day to submit City Council letter, Ordinance, and Resolution for ballot initiative to City Clerk
• October 24, 2023: City Council adopts Resolution calling for the March 5, 2024 Election
• October 24, 2023: Mayor announces argument writers for ballot items
• November 11, 2023: City Council approves Mayor's list of argument writers
• December 8, 2023: Last day to submit City Council Resolution to Los Angeles County Registrar-Recorder/County Clerk (LARRCC)
• January 25, 2024: Beginning of Sample Ballot Mailing
• February 5, 2024: Beginning of Vote by Mail ballots
• March 5, 2024: Election Day
FISCAL IMPACT
The upcoming March 2024 election was initially planned for even districts only. The addition of the Healthcare Minimum Wage ballot initiative considered in November of 2022 triggers a citywide election and increases the estimated election costs from $551,000 to $1,901,000 which is currently budgeted. A second citywide ballot initiative, such as this one, increases the estimated election cost by $150,000 for a total estimated cost of $2,051,000. Election costs are incurred in the General Fund Group in the City Clerk’s Office. The Fiscal Year 2024 Budget includes one-time appropriations of $1,922,000 to support the 2024 election cost. If additional appropriation is needed, staff will return to City Council with the amount and potential offsets later.
The exact impacts to TOT are currently unknown but is expected to potentially increase TOT in the short term due to increases in average cost of stay for guests. The long-term effects can potentially decrease TOT due to reduction in guest visits from increased costs of stay. Depending on the details of a final City Council recommendation there may be some staffing impact beyond the normal budgeted scope of duties, but there are currently staff assigned to enforcement of the exiting hotel minimum wage. Significant local job impacts, consistent with the benefits and risks noted in this report, will likely result from this recommendation.
SUGGESTED ACTION
Approve recommendation.
Respectfully Submitted,
BO MARTINEZ
DIRECTOR
ECONOMIC DEVELOPMENT
APPROVED:
THOMAS B. MODICA
CITY MANAGER