Minority Report on the Impact of $15 an hour minimum wage without an adjustment on Full Service Restaurants and Bars

Minority Report on the Impact of $15 an hour minimum wage without an adjustment on Full Service Restaurants and Bars

To

St. Paul City Council President Amy Brendmoen, and St. Paul City Council Members Dai Thao, Rebecca Noecker, Chris Tolbert, Mitra Nelson, Jane Prince and Dan Bostrom

and St. Paul Mayor, Melvin Carter, III

From

Capital City Strategies,

The Minnesota Licensed Beverage Association and its’ Saint Paul Liquor Licensees

 

As a response to the Citizens League Minimum Wage Committee report the following recommendations, observations, and concerns are respectfully submitted as a Minority Report:

RECOMMENDATIONS

I. The City Council and the Mayor should adopt the Citizen League recommendation that includes a tip adjustment or one of the Minority Report options for full service restaurants and bars.

II. The City Council and the Mayor should adopt a longer track for micro businesses (defined as 24 employees or less).

III. The City Council and the Mayor should adopt a business size definition of a Large Business as a business that has that has 500+ full-time employees; defines a Small Business as a business that has 499-25 full-time employees; and defines a Micro Business as a business with less than 24 full-time employees.

OVERVIEW OF ISSUE

The Citizens League was hired to do an independent study of the $15 minimum wage ordinance. Phase I of that study was completed and a committee was formed to discuss, debate, and make recommendations to the City Council and the Mayor.

This committee researched, had panel experts and debated the many unintended consequences of a possible ordinance. Ultimately, the committee came to recommendations, but the process failed to include the voices of any of St. Paul’s full service restaurant industry and bars, which totals 480 businesses within the city limits.

This Minority Report offers explanations as to how, and why, the full-service restaurant industry and bars were not included and why it is imperative that City Council strengthens the recommendations made by this report.

I. $15 Minimum wage is a tactic, what is the problem to be solved?

At the outset, proponents of raising the minimum wage to $15 per-hour without a tip adjustment make several arguments as to the need. The Citizens League has included some of the stated rationales without any description, or evaluation, of any counter-argument.

In the Majority Report, the Citizens League states that the Mayor was elected with 50.86% and that his platform had a central theme of $15 minimum wage. While we can agree that platforms and campaigns are important, it is unclear how a vote total relates to how the details of an ordinance should be drafted and implemented. We would like to understand the identified problem in order to find solutions that work for all people.

If the problem is that $15 minimum wage is requiring businesses to share their profits with workers, then a solution would be to create a policy that targets those specific businesses. Large corporations that are not sharing millions of dollars of profits with workers need policy with caps and requirements to take profits over a certain level and pass them down to workers. $15 minimum wage efforts do not solve this problem. Instead, small businesses and full-service restaurants with slim profit margins will be forced to change their model of business or risk negative profits and possible closures. The large corporations have profit margins that allow for regulations like $15 minimum wage and they can look to expand their markets as small businesses fail or change models.

In both Minneapolis and St. Paul, larger corporations advised that they would move to a $15 minimum wage or were able to get there quickly without further engagement. It is the small, local, family owned businesses that will suffer most and this is not a group of business owners failing to share their profits. The profits for a full-service restaurant is somewhere on average between 2-10%. The higher percentage being that of decades long businesses or those that have no rent or mortgage to maintain.

If the problem $15 minimum wage solves is poverty, then $12-$12.50 would be a solution for minimum wage rates. In the Majority Report, the cliff for Public Assistance is between $12-$12.50 an hour. People in poverty are not able to recover all the lost public assistance with an added $3-$3.50 per hour.

In the full-service restaurant and bar industry, St. Paul businesses reported that the number one choice is to look to a service fee and no tipping model or to change the model of the restaurant when minimum wages reach around $12.00-$12.50. Instead of service at the table, businesses will look to cafeteria style ordering, eliminating the server position. We have seen this in Seattle. When businesses have tried the no tipping model, we have seen consumers struggle to change their ways. Consumers are not educated or prepared to not tip, nor do they want the tip going to anyone other than their service provider. A service fee model puts the control of the “tipped dollars” in the hands of the business owner, rather than the hands of the worker. This potential minimum wage ordinance also entices business owners to take a look at investing in iPad ordering and other technological advances over an ever-increasing labor market.

If the problem that 15 minimum wage is solving is empowerment of People of Color, then carve outs for small and micro business is imperative. People of Color obtain generational wealth through entrepreneurship. Non-English speaking immigrants have long been a staple in the micro and small business world. When an immigrant comes to this country and does not speak our language, they can invest and open a small business. We have seen this ever-growing community within the Hmong community and in the Somali community. Full service restaurants are highly popular among those business endeavors.   An exemption model would allow immigrant full service restaurants and bars the ability to continue to grow and build generational wealth. Minimum wage even increased to $15 an hour will not assist in building long term generational wealth.

 

II. The Citizens League report was not independent

The Majority Report states that the Citizens League created the committee and the process operated independently of the City of St. Paul. The Majority Report further states that the Citizens League Executive Director sought out City Council members and the Mayor for advice regarding the committee’s membership. The purported independence of the committee was removed when the Citizen League created a dependent relationship with the City Council and the Mayor. The Citizen League merely became a City Task Force with the Mayor hand picking members. It was far from independent.

The Executive Director of the St. Paul Chamber was appointed as Co-Chair. It is true, that the St. Paul Chamber does represent some full-service restaurants and bars, but the bulk of the Chamber’s members are other, in many cases, larger businesses.

The MLBA, through Capital City Strategies, engaged with the Citizens League and was asked for five names for the committee. One was chosen. Analita Silva, with El Burrito Mercado. She was unable to commit that much time away from her business and had to decline the invitation. She was not replaced with another full-service restaurant. She was replaced with a representative of a neighborhood business association: the East Side Area Business Association (ESABA). Like the St. Paul Chamber, while ESABA has some full-service restaurants in their membership, it also has many other types of businesses including non-profits and other businesses that may not align directly with full service restaurants.

When El Burrito Mercado was unavailable, another St. Paul full service restaurant referral in this spot would have been fair to the industry. The MLBA referred Mike Runyon, the owner of Shamrocks and the Nook, Pat Mancini, the owner of Mancini’s Char House, Jonathan Price, the owner of Johnny Baby, Thomas Herr with Hmong Village, and Jerry Blakey, the owner of Lowertown Wine and Spirits. None of these were picked to replace Analita Silva. The MLBA intentionally recommended micro and small businesses, liquor stores, and full-service restaurants and bars to have a balance of input.

Pahoua Hoffman is new in this role and did not have experience with unions, non-profits and other stakeholders in a way that made it possible to appoint an independent committee. By seeking out City Council and the Mayor for recommendations, this Majority Report cannot be viewed as independent, and when the owner of a full-service restaurant could not attend the meetings, by failing to include a replacement that was representative of full-service restaurant the Majority Report further failed to have a balanced independent report.

 

III. St. Paul Full Service Restaurants were not included

The Majority Report states that full service restaurants were included in this study. However, the full-service restaurant owner, Tim Mahoney, has a business in Minneapolis and the only other full-service restaurant, Kyatchi, just recently opened in St. Paul, and the owner Sam Peterson’s experience and work comes from his business experience in Minneapolis. Mr. Peterson’s experience is in a model with tip pooling that is only legal if done voluntarily. It is not a model others could replicate if even just one server does not want to tip pool. This issue was the subject of recent litigation involving Surly Brewery which the court found illegally required tip pooling.   No other St. Paul full service restaurant was included. Kyatchi was the only full service restaurant that was a member on the Citizens League committee and also was the representative against tip credit on a panel, thus doubling their weight. Sam Peterson represents one St. Paul full service restaurant, not more.

In contrast, the MLBA has corresponded with 480 full service restaurants, bars and liquor stores and has seen more than 100 of those businesses either attend private listening sessions with City Council members or weigh in at MLBA sponsored meetings. The MLBA is only aware of two full service restaurants that are opposed to a tip adjustment..

No full service restaurant in St. Paul that was in favor of a tip adjustment t was included on the committee, nor were there any business owners on any panel that presented to the committee. It seemed like the committee had a pre-determined idea to avoid any conversation about the issue. Tony Chesak, Executive Director of MLBA, repeatedly requested to present to the committee and yet was barred from speaking about server pay at any panel discussion. On one occasion, Mr. Chesak began to present to the committee and was given a stern advisement that there was another panel that would speak to the tip adjustment issues on another day. . In contrast, those opposed to a tip adjustment were given an opportunity to present at two panel presentations.

Thomas LaFleche, with Brunsons Pub, was scheduled to speak on the same panel as MLBA, but the Citizens League presentation held him there for more than an hour and a half past his scheduled speaking time. He was unable to give his input as a result. Small businesses do not have one thing, TIME. Thomas LaFleche had to open his business for the day.

One panel discussion included a business owner from Seattle against tip credit but did not offer a business owner in favor of tip credit. This was one of the two panels against tip credit.

The tip credit and penalty panels lacked any St. Paul business owners on their panels. There were servers, bartenders, owners in Minneapolis and Seattle, but no business owners in St. Paul other than Kyatchi, whom was already weighing in as a committee member.

It makes a favorable statement that a recommendation of tip credit was selected even though no St. Paul business owners were involved and still received 43% in favor as a result.

The Business Review Committee task force recommended that tip credit was the number one priority as full service restaurants would be the most negatively affected group. In this committee, St. Paul full service restaurants were invited and more were asked to attend when word that none were on the Citizens League Committee came to their attention. This was not the case with the Citizens League.

 

IV. Disproportionate Union Representation

The St. Paul Regional Labor Federation (the “RLF”), AFSCME and SEIU (as Co-Chair) sat as paid staff on this committee. Two additional members of the committee had ties to the “15 Now” campaign: the Pizza Luce server, and Sam Callahan, a low wage worker on the committee. 15 NOW originated in Seattle, and is a coalition of unions including SEIU, AFSCME and RLF . The unions were allowed two panels as well as this heavy representation. No other group of stakeholders weighed in multiple times as the unions did. As stated above, the Executive Director for MLBA was not allowed to speak about tip adjustment because there was an upcoming panel already designated to this. In contrast, the unions were allowed to testify at numerous panels This created uneven representation for unions, both on the committee and on the panel.

The unions’ representatives do not represent any stakeholders in the full service restaurant/bar industry . No servers or bartenders are represented by AFSCME, SEIU or RLF. No full service restaurants are represented by any of these unions either. Unions did not give any presentation to support their own workers; they only gave a presentation against tip credit. If unions did not represent their own workers, then it should eliminate them as a stakeholder.

AFSCME represents St. Paul City workers who recently settled their union contracts. In these recent negotiations, AFSCME membership did not request $15 minimum wage to be written into this contract. In contrast, in Hennepin County, AFSCME negotiated the inclusion of a $15 minimum wage into its Collective Bargaining Agreement and then assisted in pushing $15 minimum wage as a city ordinance. There is an alternative for the unions to receive higher wages and it is through negotiations. If the unions could not negotiate $15 minimum wage into their contracts in St. Paul, there might be an argument that AFSCME should seek to impose it by ordinance. In this case, AFSCME did not request it in negotiations with St. Paul, and no elected official in St. Paul suggested it would be appropriate to include it..

 

V. Information that cannot be ignored

Evidence exists that increasing the minimum wage to $15 per your without a tip adjustment will have significant impacts with no concurrent gains.

In the City of Oakland full service restaurants began to pay a $15 an hour without a tip adjustment this year. Since then, over 64 full service restaurants closed in a three-month period.

There is evidence across Minnesota that the State mandate to rising labor costs have already begin to affect the full service restaurant industry. We are seeing more and more counter ordering and no server models opening. This is more evident in Seattle even though they have not reached $15 because of tip credit carve out in their ordinance.

There are more than 300,000 residents in St. Paul. Of the 40,000 affected minimum wage earners, only 8,000 reside within the city limits of St. Paul. Only when you live and earn in the City is the City able to see a circle of economy that supports consumers and owners. All the remaining minimum wage earners will potentially be spending St. Paul owner dollars in other cities, thus leaving no benefit for the business owner. This is a net loss for the City as a whole. Business owner dollars go out, but do not come back in through consumers filling their space.

Often in this conversation there is a suggestion that a tip adjustment is not appropriate because servers are disproportionately female and are harassed. The implication is that raising the wage would lead to less harassment and a tip adjustment would potentially lead to more. There is no data or evidence that sexual harassment is more prevalent based on the wages and or tips one would make. If this potential ordinance was removing tipping from every restaurant, we could have an argument on the merits of sexual harassment in the workplace. This ordinance is not removing the ability to tip and thus this argument is irrelevant and was incorporated to speak to a populous issue in order to agitate opponents.

The Citizens League report does not indicate any outreach to consumers to research whether consumers want to see a change in tipping or who controls the tips. What we have seen and heard from our outreach is that consumers do not want tips to be controlled by a service charge, nor do they want to stop tipping. It is an integral component to American people and dining. Education and input by consumers are necessary.

Tip credit is a controversial issue and we need to remember that this potential ordinance with a tip credit allowance is not traditional in the way tip credit at the state level or federal level is. There is a sub minimum wage attached to traditional tip credit. In this proposed ordinance, tip credit is simply an exemption that allows servers and bartenders to increase minimum wage at the rate of everyone else in the State not subject to a $15 minimum wage ordinance. There is a cost of living attachment to the state level of minimum wage and this ordinance must remain in compliance with that. It is essentially a longer track (The track the State is currently at) to $15 and nothing more.

The newest budget proposal includes an enforcement budget line of $100,000. In Seattle, they have 28 employees, 15 of them attorneys and the cost is over eight million dollars annually. One of our alternatives would require a fee to assist in covering enforcement budgets. About $350 per application would equate to a match of the City budget proposal.

In Seattle, the immigrant community expressed that they don’t understand the policy, they were not educated nor were they given the opportunity to weigh in on the unintended consequences to their community. The same could be said from our immigrant community as no education strategy was implemented, no notices in other languages, and no outreach to this community happened. The Citizens League indicated at the public hearing that outreach to the immigrant community is needed. MLBA through Capital City Strategies referred a representative from Hmong Village to be on the committee, but he was not picked to be on the Citizens League Committee.

 

VI. Creative Alternatives to traditional Tip Credit/Exemption

The full service restaurant industry is willing to creatively come to solution on this potential ordinance and the following are some further options to consider:

  1. Full service restaurants in St. Paul shall apply for exemption for servers and bartenders by application through the St. Paul Dept of Economic Development. A fee can be applied to cover the cost of labor to enact this exemption. The criteria could be; must be a full service restaurant or bar, must have no penalty or violations against labor laws and can be for servers and bartenders only. Could also include proof of average tips and guarantee of $15.00 with tips.
  2. Servers and Bartenders will follow a 10 year incremental track to $15 minimum wage.
  3. Full service restaurants in St. Paul will guarantee a $15 minimum wage if tip credit is implemented. Within a pay period, if a tipped worker does not average $15 minimum wage, by the next pay period, the employer shall submit those wages. This can be attached to any of the solutions.

 

Conclusion

What is laid out in this minority report is what the Citizen League committee could have reported had there been at least one St. Paul full service restaurant owner on this committee or if there had been at least one panel with St. Paul full service restaurants.

There is an option within the recommendations that if you added even one more vote for option three, there would have been over 50% support for this option.

The 480 voices that were not able to weigh in should be included in this majority report and subsequently alter the result of support for option three.

The above evidence and input from this group of business owners that not only pay city tax, but also pay hefty liquor license tax to the City. They are a vital part of what makes St. Paul vibrant. Without the support of these businesses, we may see a broken windows theory throughout our City. Our business owners pay property tax and take rent space that otherwise, may be vacant. No city needs vacant buildings and a lack of vital economy.

Full service restaurants invest in community and support vital services within our City and we should include them when making regulations that will affect their daily ability to provide support for not only their own families, but thousands of families that depend on these businesses to withstand increasing labor and product costs.

Without the ability to raise prices that consumers can afford, and without the wages being spent within the City to increase consumer spending in their restaurant, there is no offset to the business owner and there is no opportunity to recover some of the proposed labor costs. The only option for full service restaurants will be to look to new models that reduce labor, or technology that can take the place of labor.

There was not one opponent to tip credit that will be impacted at all by tip credit if creatively implemented and guarantees of $15 are in place.

Full service restaurant owners want to build a relationship with our city officials and want to be part of an ever-growing economy, but this is not the way we build together. Inclusive practices were not put in place and this is the industry that is most affected by this potential ordinance.

Full service restaurants are willing to creatively work with the City to make this work, but first, we ask City Council and the Mayor to hear this voice and to make decisions that are inclusive to this community as well as all the others.