Restaurants Challenge City-funded Living Wage Study

By Jorge Casuso

Oct. 24 -- Half a dozen restaurants issued a statement Wednesday challenging the update to a City-commissioned study that found that only one restaurant would be covered by the Living Wage law on the November ballot.

Operators of five restaurants in the affected Coastal Zone -- PF Chang's, the Lobster, Ocean Avenue Seafood, Houston's and Yankee Doodles -- said they expect to have gross revenues that exceed the $5 million a year threshold set under the proposed law.

"All of them said they were definitely over the threshold," said UCLA Professor Rick Sander, who conducted a study also released last week that found the ordinance would cover 10 restaurants. "There were a number of others who didn't want to go on the public record. Our original estimate of ten is accurate."

The statement issued by the restaurants said, "We write to give personal testimony that Professor Pollin, the author of the taxpayer-funded study of the ordinance, is demonstrably wrong about the number of restaurants affected."

Prepared by the Political Economy Research Institute (PERI) at the request of Mayor pro tem Kevin McKeown and issued last week, Pollin's update relied on 1998 figures for gross receipts as a baseline. It then factored in sales tax receipts for the city, which grew roughly 20 percent between 1998 and 2001. "Careful not to underestimate the number of firms covered," Pollin increased the gross receipt data by 25 percent.

Pollin concluded that only one restaurant would be covered. (The Broadway Deli has publicly stated that it grosses more than $5 million a year and would not be able to operate unless it is granted an exemption under the law's hardship clause.)

Pollin's report, which estimated that 47 businesses would be covered under Prop JJ, did not include new restaurants -- such as P.F. Chang's, The Lobster and Houston's -- which were not open when the 1998 figures were compiled.

"We believe from an examination of public information that no new firms with annual gross receipts greater than $5 million have located within the coastal zone since 1999," Pollin wrote in his report

Pollin's update differs dramatically from a report released last week by Sander, who estimated 100 businesses would be covered by the ordinance. Sander based his findings on a 2001 commercial database and interviews with businesses that would likely be covered by the measure. Sander questioned Pollin's findings.

"The fact that the city would rely so heavily on a study authored by someone who so clearly misunderstands the facts about Santa Monica's economy indicates that the entire premise for the study and its conclusions should be reevaluated and questioned," Sander said.

Proponents of the Living Wage law on the November 5 ballot countered that Sander's findings were biased and noted that the Employment Policies Institute, a conservative think tank that consistently opposes all minimum wage and living wage laws, funded the study.

The statement issued by the restaurants is biased and lacks credibility, said Danny Feingold, a spokesman for the Santa Monica Coalition to Support the Living Wage.

"It doesn't have a lot of credibility," said Feingold. "It's a biased source. Of course they would say that. The most reliable source is the City data" used by Pollin.

The restaurants' statement predicted that restaurants with gross revenues that fall just short of $5 million would scale back services to avoid being covered by the ordinance, which sets a minimum wage of $10.50 an hour if benefits are included..

"Several other restaurants in the proposed Prop. JJ area are just under the $5 million threshold," said Lee Maen, a partner at Sushi Roku, which has revenues of between $4.5 million and $5 million. "These firms will become covered unless they take affirmative steps to slow business growth."

Maen said he already is scaling back plans to expand the restaurant. "I planned to add sidewalk tables to the restaurant, but that would push me over the limit," he said. "My partners and I also cancelled plans to add a second Santa Monica restaurant."

Despite the vastly different findings, both Pollin and Sander agree that that Prop JJ -- the nation's first municipal wage law covering private businesses with no direct financial ties to the city -- would deal a hard economic blow to restaurants because the ordinance does not exempt tipped workers.

"For this one restaurant," Pollin wrote in his update, "the elimination of the tipped worker exemption is likely to raise the costs of the ordinance from around 10 percent to something close to 20 percent of gross revenues. That would certainly be a cost burden that would be difficult to absorb through raising prices and productivity or distributing the firm's revenues more evenly.

"In short, this one remaining covered restaurant would likely now have good case for receiving an exemption from the living wage ordinance through the ordinance's hardship provision," Pollin concluded.

Sander predicted that the law would lead to restaurant closures and the loss of approximately 300 restaurant jobs.