Businesses Blast Living Wage Study

By Jorge Casuso

Santa Monica businesses reacted swiftly and harshly to a long-awaited report that concludes that an unprecedented living wage measure being considered by the City Council will not take a major toll on their bottom line.

But while business owners denounced the findings, they also said that the conclusions of the 370-page report were not unexpected, since its author, Massachusetts professor Dr. Robert Pollin, is a leading living wage advocate.

"It's subjective and one-sided as everyone suspected, but no one knew how one-sided it would be," said Jeff King, who owns two of the restaurants covered by the proposal. "This thing is ludicrous and we're not backing down."

"He did what I expected," said Tom Larmore, who heads the Chamber of Commerce's Living Wage Task Force. "He concluded that this is all fine, that it won't have any effect."

Business owners contend that, contrary to the report's conclusions, many of the 72 businesses in the city's Coastal Zone covered by the proposal will have a difficult time absorbing the cost of raising their employees wages to at least $10.75 an hour.

According to the report, the 11 hotels covered by the proposed ordinance -- which employ half of the 2,477 covered workers -- are profitable enough to absorb the costs with little impact, while the six restaurants can absorb the costs by raising prices. Other businesses, the report concludes, will see a minimal impact. Business owners scoffed at the conclusions.

"We don't just arbitrarily raise rates, we provide services and those services are expensive," said Sig Ortloff, general manager of Le Merigot Beach Hotel, which opened in January and expects to operate in the red for its first three years. "I wager you that my profit margin is less than restaurants. We haven't made any money.

"This is totally unfair," Ortloff said. "You have to look at the investment."

"I'd assume if they (businesses) could charge 10 percent more, they'd already do it," Larmore said.

The chamber, which opposed the City's choice of Pollin to conduct the report, released a statement Wednesday questioning the criteria used to determine which businesses would be covered. Instead of the original threshold of 50 workers, Pollin chose to include businesses that gross at least $3 million. (Gross receipts are not a measure of a business' profitability.)

"Businesses at that level of revenue are not large by anyone's definition," said the statement sent to chamber members.

The statement also expressed concern that the measure could be extended citywide, in which case the number of businesses covered would swell to 326 firms with 7,269 workers covered. (The City Council requested that Pollin include a citywide analysis in his study.)

"If implemented, such a law would include hundreds of Santa Monica businesses, most of which are not large," the chamber's statement said. "Please do not ignore this threat to the viability of your business!"

Not surprisingly, restaurant owners expressed the greatest opposition to the report, which concluded that they would be the hardest hit, but that the increased costs could be passed on to their upscale clientele, who can easily afford a $3 per meal price hike.

"There's probably a dozen restaurants in town that won't be able to recover," said Marvin, Zeidler, who owns the Broadway Deli on the Third Street Promenade. "We're a family restaurant and unfortunately can't handle that kind of increase.

"Our average bill is $12," Zeidler said. "The bulk of our business is local people. We can't raise our prices."

Robert Lumsden, an operating partner of the local P.F. Chang's Chinese Bistro franchise near the Promenade, says raising prices is especially risky for chains.

"There are a number of P.F. Chang's in close proximity," Lumsden said. "If one unit has to charge more for an item, I don't know where we would be. It will be a challenge.

"A substantial portion of our clientele is local," Lumsden added. "Our sales did not dramatically increase with the tourist season. Our local clients are really supporting us and driving our sales."

King, who owns two restaurants covered under the proposal -- Ocean Avenue Seafood and I Cugini --, said that suddenly raising salaries could be "suicide."

"Nobody overnight can absorb this kind of cost," King said. "Let it go up in stages where everybody can prepare for it."

King contends that the proposal discriminates against businesses grossing more than $3 million.

"I think the whole thing is the most discriminating thing since the Jim Crow laws in the South," King said. "Why just take people with $3 million?"

Business owners also argue that the proposal discriminates against firms inside the coastal zone, which stretches from Fourth Street to the coast north of Pico Boulevard and from Lincoln Boulevard to the coast south of Pico.

For example, Puzzle Zoo, an independent toy store on the Third Street Promenade, would have to pay their workers more than Toys 'R Us on the east side of Fourth Street, making it more difficult to compete with a chain outlet that can keep its costs low.

"That (the proposed wages) would almost double my payroll," said Jay Demircift, who owns Puzzle Zoo, which has been on the Promenade for seven years. "It would make no sense for me to have a business anymore because I wouldn't make a profit. Maybe they can talk to the landlords to decrease the rent.

"I'm already at a maximum (in prices) with Toys 'R Us next to me," Demircift said. "As it is I have one store and they have a thousand."

But one retailer agreed with Pollin that raising wages could also have its benefits. (Pollin contends that higher salaries can decrease turnover and increase worker productivity and morale.)

"The bottom line is that you would be spending more per employee, but you might get a better quality person too," said Eric Silberman, general manager of the Restoration Hardware outlet on the Promenade. "Maybe I'll get the pick of the litter, you never know."

Silberman, who said that higher wages might attract those who apply to other Restoration Hardware outlets, is resigned to paying $10.75, which he said is "not a big increase," if the proposal is enacted.

"It's just something you can't change," Silberman said. "What are you going to do?"