The Wages of Hope and Fear: An In Depth Look at the Living Wage Proposal

Jorge Casuso

September 6, 1999 -- On a night late in June in a government conference room overlooking Santa Monica's booming Third Street Promenade, a community activist - accompanied by a hotel dish washer - presented downtown officials with an unprecedented proposal.

As a matter of fairness, community organizer Liz Barr told the wary officials, a group of union workers and their backers were urging Santa Monica to become the first municipality in the nation to impose a living wage on businesses that received neither direct subsidies nor contracts from the city. The proposal, which would directly affect some 3,000 workers, would force an estimated 35 businesses along the coast with more than 50 employees to pay at least $10.69 an hour, a hike that would nearly double the minimum wage overnight.

The affected employers included national restaurants and retailers who reaped the benefits of a city-funded tourism boom, but the main target were luxury hotels, some of which paid their housekeepers the $5.75-an-hour minimum wage to clean $400-a-night rooms. Barr bolstered her arguments - which were moral as well as economic -- with charts showing the glaring discrepancy between room rates and wages and with the testimony of hotel dish washer Jose Natividad Casillas.

"My work is very hard," said Casillas, who makes $7.85 an hour at the Miramar Sherton Hotel, one of the local haunts frequented by President Clinton. "I feel it in my back, my lungs…. Sometimes I have to go to the food bank…. I'm asking for a dignified wage to give a better education to my children."

It didn't take long for the downtown officials and business leaders to react. This, clearly, was a truly radical proposal that could force some businesses to shut down or move out of town, they argued. Sure, other cities, including Los Angeles, had imposed a living wage on their contractors, but no city had ever told a company what they had to pay workers in the everyday course of their private business. That was unheard of.

"This thing is discriminating as hell," snapped Herb Katz, who presided over the meeting as chair of the board of the Bayside District Corp., which runs the downtown area. "You can ruin a lot of businesses by doing it."

"This is a very, very serious and very complex issue," Kathleen Rawson, the Bayside District Corp.'s executive director, said recently. "There is a potential for a domino effect that can be devastating for Santa Monica businesses."

The business community has reason to worry. This was no veiled threat. The proposal was crafted by the local hotel and restaurant workers union and Santa Monicans Allied for Responsible Tourism (SMART), two groups with close ties to members of the City Council. In fact, leaders of Santa Monicans for Renters' Rights - which controls five of the seven council seats - had attended meetings to help hammer out the terms of the proposal. What's more, some of the leaders of the powerful grassroots tenants group belonged to SMART, and the union was credited with helping the group win a super majority on the City Council, canvassing precincts and staffing phone banks during the last three council races.

"If a vote were held today," predicted Tom Larmore, a politically savvy attorney picked by the Santa Monica Chamber of Commerce to head a special subcommittee on the living wage proposal, "it would win six to one."

By the time the Santa Monica City Council considers the issue at its meeting Tuesday -- when it is expected to do nothing more than green light a study of the proposal - the battle lines will have already been clearly drawn. Both camps have outlined their strategies behind closed doors and started pondering the legal and economic implications - poring over studies and seeking the advice of experts in the field. The union has carefully organized a public relations blitz, making workers available to the press for interviews, while opponents have mounted a fundraising drive that incumbent council members fear marks the early start of the November 2000 elections.

"I'm very aware of the political minefield into which we're headed," said Councilman Kevin McKeown, one of the key proponents of the proposal. "If we go forward with this, it shows an incredible commitment to doing the right thing. In a way, it's like they've already started the campaign. The war drums are pounding loud over at the chamber office."

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Ever since it was publicly unveiled on June 5 during a spirited labor rally attended by a standing room crowd of more than 300 cheering supporters, Santa Monica's living wage proposal has sparked a political and ideological war that recalls the early days of rent control two decades ago. The setting, in both cases, was the stained-glass confines of the Church in Ocean Park, a liberal bastion fit for what proponents view as a "moral" war.

"The essential argument is a moral one - the right to lead a decent life," local union leader Kurt Peterson told the crowd. "It's not just the wage, but the right to fight for that wage."

The life of Jose Natividad Casillas, union leaders say, illustrates the moral inequities. For four years, Casillas, 36, has washed dishes at the Miramar Sheraton, the city's only unionized hotel. A hard and loyal worker, Casillas' salary has gone from $6.47 to $7.85-an-hour, which helps to support his wife and six children. In his four years on the job, Casillas has only missed one day of work, after cutting his finger on a broken glass. He took an unpaid day off to get six stitches, and, after a timely paid federal holiday, was back at work.

Despite the low wages, Casillas is proud of his job, which helps to feed the hotel's $200 to $1,000-a-night guests, including the nation's president. "Sometimes I think that perhaps I'm washing the dishes that a president eats from," Casillas said. "It fills me with pride. We need each other, those at the top and those at the bottom. But we need to make a dignified wage. It's a moral question. The workers need it."

Thanks to the union and support from the community, Casillas has become a success of sorts. He has been able to trade the rat and roach infested $475-a-month one-room apartment in Echo Park for a clean, federally subsidized $448-a-month four-bedroom apartment in downtown Santa Monica. Instead of taking a bus to work at 5:45 a.m., Casillas nows walks three blocks to his 7 a.m. job. "I'm very lucky now," he said. "I live like a rich man." Still, Casillas, is worried he could be stuck in a dead end rut that won't allow him to give his children the education he never had. Earning the living wage would help change things, maybe buy his children a computer for their homework.

"My daughter won a bronze medal (for her grades) and graduated from junior high school," said Casillas, who only finished the third grade in Mexico. "All she had was a paper and pencil. I don't make enough to raise a family and prepare for the future."

Casillas said he is fighting the battle for a living wage not only for himself, but for his fellow workers. "I've seen the need. I've suffered and lived and many of my coworkers are still suffering like I did. You go home, sleep, get up and go to work. You don't have time for the family."

According to a sample poll conducted by SMART, many of the 3,000 workers affected by the proposal - the department store clerks and floor workers, the restaurant dish washers and cooks, the hotel housekeepers and parking attendants -- earn the minimum wage, group organizers said. On the other hand, the corporations that run many of the businesses are multi-million - if not multi-billion-dollar-a-year - enterprises such as Fujita, Sunstone and the Gap that pay their top executives in one week what the low-end workers make in a lifetime.

Union leaders scoff at the notion that the Santa Monica hotels can't afford to absorb the living wage. They note that the Radisson Huntley in Santa Monica pays housekeepers the $5.75-an-hour minimum wage without health benefits, while the Radisson Miyako in San Francisco pays $12.09-an-hour plus full family medical benefits. Yet, both hotels charge $189-a-night for a king-size room. "I don't understand why it's so hard for them to pay $21,000-a-year," union leader Peterson said. "They talk about letting the market ride, but they haven't been living by market rules for 15 years."

Proponents of the living wage argue that although the 35 businesses affected receive no direct subsidies or contracts from the city, they have reaped the benefits of the city's investment in the coastal zone, a state designated area. During the past decade, city funds have turned the sagging Santa Monica Pier and deserted Third Street into booming regional attractions that have made tourism a $700-million-a-year industry, generating some $17 million in annual tax revenues.

In addition, a 1990 voter initiative banning new hotels along the coast has frozen out competition for existing establishments, which boast among the highest occupancy and room rates in the county. Yet, despite the windfalls from public investment - the city continues to pump nearly a million dollars a year into its Convention and Visitors Bureau - taxpayers continue to subsidize many of the workers, who are among the lowest paid in the county and who often must count on food stamps or other forms of public aid to make ends meet.

"Why is it now that these businesses are profitable?" said former Mayor Dennis Zane, who helped oversee the transformation of Santa Monica into a tourist haven. "It's the city's commitment. What changed was the city's investment, which was concentrated in the coastal zone. And the major beneficiaries are the hotels. It is morally questionable to operate a business at that level of profitability and have a workforce that can't make ends meet without a public subsidy."

The $10.69 living wage was arrived at by calculating what a family of four needs to no longer qualify for food stamps (Opponents, however, argue that most workers don't have families of four and that many are single). The proposal also would add full health coverage for a workers' family and provide seven federal holidays a year and one sick day and vacation day per month.

"We don't want to hurt the business climate in Santa Monica, we just want to make it fair," said longtime community activist Vivian Rothstein, a member of SMART who will start working with the union next month. "The profit margins have gone up and up and up. This is close to what happened with rent control. If the landlords hadn't been so greedy, there wouldn't be rent control. If the wages were more equitable, there wouldn't be the emergency for this now. It's the greediness and the disparity that creates this emergency."

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Restaurant owner Tony Palermo feels that he's caught in the middle of a war against the big hotels he has no part in. Teasers, which he opened on the Third Street Promenade when the strip was a row of struggling and boarded up storefronts, is now a bustling business with 82 employees. The proposed living wage ordinance, he said, would drive him out of business.

"I just want to know where I send my keys," Palermo said. "There's no way to take that hit. It's like taking water out of a rock. They're trying to go after the hotels, and we're caught in the middle."

Palermo argues that the living wage doesn't just apply to the dishwashers and busboys at the bottom the food-serving chain, it triggers raises all the way up to the chefs and restaurant managers at the top. Pay your $6-an-hour dish washer $10.69-an-hour, and you have to pay your $7-an-hour prep cook $11.25. You also have to hike up the wages of the worker in charge of the salad station, the fryer and sandwich maker, the saute and broiler cook, the assistant kitchen manager and, finally, the chef. And what about the hostess, or the waiters and waitresses who make the minimum wage but cash in on the tips? They too would have to be paid at least $10.69.

"We don't make enough profit," said Palermo. "We'd have to shut down. It's the biggest bullshit catch 22 you've ever heard in your life."

Ruth Elwell, who owns Ye Olde King's Head near the Third Street Promenade, said the proposal will discourage her from hiring more than her current 48 employees. Once you go above the 50 employee threshold, she said, the proposal would trigger a domino effect. "After the last minimum wage increase of 50 cents, everybody wanted an increase of 50 cents. This would put restaurants out of business, we are so labor intensive. I don't think people will pay $18.95 for fish and chips."

The wage hikes, Larmore agrees, will send businesses scrambling for ways to either cut costs or jack up prices. The era of the $14 hamburger by the beach is about to dawn. "You'll have businesses figuring out how do you adapt," Larmore said. "Can we scale back to fewer employees? Increase automation? Raise prices?"

The proposal would also have a devastating, and unintended, fallout on businesses that employ less than 50 workers. "They compete in the same labor pool," Larmore said. "They will have a hard time filling their jobs and may need to increase wages to be competitive. Something has to give here." In fact, the very workers the proposal is designed to help could end up being the hardest hit, since a $10.69-an-hour job with benefits will lure better prepared employees. "The workforce is going to start to look like Orange County," Larmore said.

Ironically, the large hotels targeted by the proposal will likely be the least affected, since their upscale clientele won't likely blink at the higher prices, opponents predict. They note that the current proposal stems from an effort by the Miramar Sheraton to decertify the union. If the union wants higher wages, they argue, maybe they should focus on organizing the workers better. "If the union is strong enough and organizes well, that's where the battle's to be fought," said John Worfel, who sits on the Bayside District board. "To use the back door to have a union wage is blatantly hypocritical and unfair."

Opponents of the proposal also argue that imposing the wage in only one section of the city is discriminatory. Businesses in the coastal zone - a state-designated area that runs from the coast to Fourth Street north of Pico Blvd. and to Lincoln Boulevard south of Pico - may have reaped benefits from the infusion of city funds. But they also have more than repaid their debt in assessments and taxes.

"This money came from sales taxes, bed taxes, utility user taxes," Larmore said. "Businesses pay for assessments to be there. There's no giveaway. They (the city) got more than they ever put into it.

"Business owners take big risks," Larmore added. "They borrow money, they work hard, and then if they're successful, then they're the bad guys. This is like the inquisition."

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With the council poised to pass some form of living wage ordinance -- SMRR officially endorsed the concept at its annual summer convention last month --, what remains to be determined is just how far the proposal will go. For now, any proposal that increases the minimum wage on businesses with no direct ties to the city would be unprecedented. Since Baltimore imposed a $6.10 living wage on its contractors in 1994, more than two dozen other cities, including New York, Los Angeles, Boston, Milwaukee, Minneapolis and Portland, Oregon have followed suit, but they only apply to businesses that receive direct city subsidies or contracts.

Other similar measures have failed to win political support. A proposed ordinance in Montgomery County, Maryland was defeated after stiff opposition from the business community. "The campaign made it out to look like something that would ruin the economy," said Matt Nisenoff, a confidential aid to Council member Blair Ewing, who was absent for the vote. "They had people jumping out of windows. It was worse than the stock market crash. It was said this will destroy your economic life."

Economists who have studied the history of the minimum or living wage in this country note that the dire predictions have seldom panned out. "There is no reason why a municipal living wage ordinance should be seen as seriously burdensome for cities," Robert Pollin and Stephanie Luce concluded in their landmark study "The Living Wage: Building a Fair Economy." Pollin, however, concedes that Santa Monica's proposal is "probably a new idea."

While enterprise zones carve out areas - like Santa Monica's coastal zone - they are intended to benefit businesses, not workers. And none of the current laws has literally doubled wages overnight. In fact, the study the council commissions may raise more questions than it answers. Already the chamber is raising money to commission a study of its own, and SMART has already spent months analyzing the legal ramifications.

Still, it may not be until at least next February that the council receives the results of the consultant's study and crafts an ordinance of its own. Some members of SMRR have argued for raising the employee threshold to100 instead of 50, while others have argued for lowering it. The $10.69 living wage also is still open to debate. In addition, the current proposal calls for establishing a local hiring hall and a board to protect workers against harassment for speaking out, measures businesses view as empowering the union. And a hardship clause that exempts vulnerable businesses is viewed as an invasion of privacy. For now, what is certain, is that the biggest ideological and economic war since rent control is looming on the shores of what opponents have long dubbed the Peoples Republic of Santa Monica.

"It's going to be the hottest issue in recent memory," said Councilman Paul Rosenstein, a union electrical worker who has served on city commissions for more than a decade. "Not only will we have the local employers we've heard from so far, but the chains, the state, national, regional. Local businesses are on the warpath, and the biggies haven't even jumped in yet."