BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                       SB 3


                                                                    Page  1





          Date of Hearing:  July 8, 2015


                     ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT


                               Roger Hernández, Chair


          SB  
          3 (Leno) - As Amended March 11, 2015


          SENATE VOTE:  23-15


          SUBJECT:  Minimum wage: adjustment.


          SUMMARY:  Increases the state's minimum wage in two increments  
          over two years then ties the wage increases to inflation  
          annually.  Specifically, this bill:  


          1)Increases the minimum wage to $11 an hour beginning on January  
            1, 2016.

          2)Increases the minimum wage to $13 an hour beginning July 1,  
            2017.



          3)Indexes automatically the minimum wage to inflation annually  
            beginning January 1, 2019. 



          4)Requires the minimum wage to be calculated annually by  
            multiplying the minimum wage in effect on December 31 of the  








                                                                       SB 3


                                                                    Page  2





            previous year by the percentage of inflation that occurred  
            during that year and adding that product to the minimum wage.



          5)States that the minimum wage applies to all industries,  
            including public and private employment.





          EXISTING LAW:   

          1)Set minimum wage at $7.25 an hour under federal law.  (Fair  
            Labor Standards Act of 1938, 29 U.S.C. Chapter 8)

          2)States under state law that when state and federal laws  
            differ, one must comply with the more restrictive requirement.  
            In California, the minimum wage is $9.00 an hour. (Labor Code  
            §1182.12)

          3)States under state law that on January 1, 2016, the minimum  
            wage in California will increase to $10.00 an hour. (Labor  
            Code §1182.12)

          FISCAL EFFECT:  According to the Senate Appropriations  
          Committee:


          The Department of Industrial Relations will incur costs  
          (materials, printing and postage) of about $500,000 (General  
          Fund) to issue new Minimum Wage Orders to approximately 800,000  
          employers statewide each time the minimum wage is adjusted  
          pursuant to this bill. 

          State Controller's Office data previously supplied to the Senate  
          Appropriations Committee indicated that state government employs  
          approximately 4,500 minimum wage workers, mostly student  








                                                                       SB 3


                                                                    Page  3





          assistants and seasonal employees. Based on this figure, as a  
          direct employer, this bill leads to an estimated increase in the  
          low tens of millions of dollars (General Fund, and various  
          special funds). Because of this bill's annual inflation  
          adjustment, state payroll costs would continue to rise relative  
          to existing law in the out-years and will be driven by future  
          inflation rates.

          Additionally, the state pays the minimum wage to private  
          individuals who provide certain services at the local level  
          (heath care, social services, after-school programs, etc.). The  
          related impact of this bill's raising the minimum wage is  
          unknown (and partially dependent on interactions with the  
          federal government), but likely to be in the hundreds of  
          millions of dollars annually (primarily General Fund and federal  
          funds).  



          This bill will result in cost pressures to increase wages for  
          state employees who at present earn slightly more than the  
          current minimum wage to avoid salary compaction.   


          


          COMMENTS:  According to the author, although California took an  
          important and much needed first step in 2013 with the passage of  
          AB 10 (Alejo), it is essential that California increase the  
          speed with which boosts in the minimum wage will occur, and it  
          is equally essential that future annual increases be automatic  
          and tied to the rate of inflation in order to protect low wage  
          employees' purchasing power. The current federal minimum wage is  
          $7.25. According to the Congressional Research Service, the  
          purchasing power of the federal minimum wage has decreased  
          steadily since 1968 when it was equal to about $10.77 in today's  
          dollars. Under existing law, California will reach a minimum  
          wage of $10 in 2016, still below the inflation purchasing power  








                                                                       SB 3


                                                                    Page  4





          of the federal minimum wage in 1968. The author contends that SB  
          3 will reduce the state's level of income inequality while  
          boosting the economy by increasing the minimum wage to $11 per  
          hour in January 2016 and $13 per hour in July 2017. Beginning in  
          January 2019, the statewide minimum wage would be increased  
          annually based on inflation. 


          There are 16 states including District of Columbia that have  
          adopted an automatic indexing system to determining minimum  
          wages. According to National Conference on State Legislatures  
          June 1, 2015 web posting titled "State Minimum Wages: 2015  
          Minimum Wage by State," of the 16 automatically indexing minimum  
          wage states, 7 states use the Consumer Price Index ("CPI") as is  
          proposed in this bill. Furthermore, the states who do not use  
          the CPI, instead use cost of living or another form of annual  
          indexing.


          A 2012 data brief by National Employment Law Project (NELP)  
          titled,  "The Low-Wage Recovery and Growing Inequality," reports  
          there was a significant loss of jobs during the recession of  
          2007-2009 in mid-wage jobs, however there has been an increased  
          rate of employment in minimum wages jobs. Most of these jobs are  
          provided by service sector businesses like fast food, retail  
          stores, and home health care services. (NELP).  One  
          interpretation is that a higher minimum wage will result in less  
          of a turn-over rate because of increased employee satisfaction  
          and because the cost to hire and re-train an employee will be  
          greater than the cost of keeping an existing employee.  


          ARGUMENTS IN SUPPORT


          This bill is co-sponsored by the Service Employees International  
          Union - California State Council, the United Food and Commercial  
          Workers Union, and the Western Center on Law and Poverty.  They  
          argue that this bill will help lift Californians out of poverty  








                                                                       SB 3


                                                                    Page  5





          by increasing the state's minimum wage in two steps and,  
          beginning in 2019, would adjust the minimum wage annually to the  
          rate of inflation.  They argue that it is essential that  
          California increase the speed with which boosts in the minimum  
          wage will occur, and it is essential that future increases be  
          indexed in order to protect low-wage employees' purchasing  
          power.





          The Western Center on Law and Poverty (WCLP) particularly notes  
          this bill's potential to help lift individuals and families out  
          of poverty. It cites research by Greg Duncan and Katherine  
          Magnuson of Stanford University that suggests that children are  
          hindered in school and their earnings as adults shrink due to  
          poverty at a young age. For example, it reports that children  
          are less likely to finish high school, more likely to be poor,  
          less likely to be working as a young adult, and that the longer  
          children are poor during their early years, the worse are the  
          adult outcomes. WCLP contends that this bill reduces poverty now  
          and poverty in the future when young children become adults.


          Additionally, evidence suggests that an increase in household  
          income has a positive impact of health. A Health Impact Partners  
          (HIP) report on SB 935 (Leno), a minimum wage bill that failed  
          passage in 2014, and its health effects suggests that minimum  
          wages have a direct relationship with employees' poor health  
          relative to employees at three times the poverty level. Such  
          health outcomes include exercise, smoking rates, and mental  
          health. An increase in minimum wages may improve health and  
          well-being by the fulfillment of material needs, living  
          conditions, access to health care, and interpersonal  
          relationships. (HIP).  According to predictions by the federal  
          Congressional Budget Office in 2014 regarding the impacts of  
          raising federal minimum wage, the majority of low-wage workers  
          would have higher wages and a greater family income as a result  








                                                                       SB 3


                                                                    Page  6





          of such an increase.  Overall, according to the CBO predictions  
          cited in the HIP report, net incomes would increase for families  
          with incomes less than six times the poverty threshold.


          Supporters also argue that raising the minimum wage will benefit  
          the state by reducing state spending on health care through  
          moving individuals' eligibility from Medi-Cal to Covered  
          California.  According to a recent study by UC Berkeley  
          economists Sylvia Allegretto and Michael Reich, and Rachel West  
          of the Center for American Progress, state health care spending  
          is projected to be reduced as a result of an increased minimum  
          wage.  This study contends that because of increased wages,  
          there will be a lifting of individuals from Medi-Cal coverage to  
          qualify for Affordable Care Act's (ACA) Covered California.  
          Those using Covered California as a vehicle to have health  
          insurance at lower costs, where more than three-quarters of  
          current enrollees (77%) pay less than $150 per month, do so by  
          receiving premium federal subsidies meant to keep health care  
          affordable.  They argue that the state may benefit from workers  
          using Medi-Cal, paid by the state and federal government, now  
          being eligible for subsidized private coverage through Covered  
          California.   In addition, parents in some households affected  
          by wage increases will remain eligible for Medi-Cal but will  
          shift from a pre-ACA category where state and federal government  
          split the costs to a "newly eligible" category under the ACA  
          that's almost entirely federally-funded.  


          In addition, the California Labor Federation, AFL-CIO is in  
          support of this bill and presents evidence of how many persons  
          will be affected positively by a minimum wage increase and  
          annual indexing as well as why this bill will not cause lost  
          jobs. It cites an Economic Policy Institute from June 30, 2013  
          entitled, "The demographics of workers who would be affected by  
          a federal minimum wage increase state-by-state." This study  
          states that 92% of workers affected by a minimum wage increase  
          are over 20 years old and that 25% of all children live in a  
          house with at least one minimum wage earning parent. This  








                                                                       SB 3


                                                                    Page  7





          amounts to around 2.4 million California children who would  
          benefit from this raise. Lastly, it cites a Center for American  
          Progress study that compared minimum wages with job growth  
          figures and found no correlation between minimum wage increases  
          and job losses.


          Finally, the California Catholic Conference of Bishops supports  
          this bill, quoting Pope Francis as follows: "For it is through  
          free, creative, participatory and mutually supportive labor that  
          human beings express and enhance the dignity of their lives.  A  
          just wage enables them to have adequate access to all other  
          goods which are destined for our common use." 


          ARGUMENTS IN OPPOSITION


          Opponents, including the California Chamber of Commerce, argue  
          that this bill will overwhelm many businesses that are already  
          struggling with the current minimum wage increase under AB 10  
          and will result in job loss.  Opponents contend that indexing  
          the minimum wage to inflation has always been troubling to the  
          business community because it fails to take into account other  
          economic factors or cumulative costs to which employers may be  
          subjected to including higher taxes under Proposition 30, paid  
          sick leave, and increased costs associated with the  
          implementation of the Affordable Healthcare Act. 


          Additionally, opponents argue that another increase in the  
          minimum wage will negatively impact any economic recovery either  
          by limiting available jobs or creating further job loss,  
          pointing to various articles and studies. Opponents point to an  
          article, "Minimum Wages: A Poor Way to Reduce Poverty" (Joseph  
          Sabia) as well as a January 2015 study from Professor Jonathan  
          Meer from Texas A&M and Jeremey West from MIT that reached  
          similar conclusions: increasing the minimum wage reduces the  
          number of jobs available, most likely harming low-wage workers.  








                                                                       SB 3


                                                                    Page  8





          Opponents note the findings in these reports that increasing the  
          minimum wage could potentially harm those living in poverty if  
          low-wage jobs are reduced due to the increase cost on  
          businesses. Opponents also bring attention to a Congressional  
          Budget Office report from February 2014 regarding the impact of  
          a $10.10 federal minimum wage which concluded that while  
          low-wage workers would receive a higher income through the  
          increase, other low wage jobs would probably be eliminated,  
          resulting in the income of most workers who became jobless to  
          fall substantially. Therefore, a result in a net job loss could  
          be caused by a limitation to business operations from raising  
          minimum wage and  potential that an employer may no longer be  
          able to employ as many individuals due to limited resources.


          Further, opponents contend that an increase in the minimum wage  
          would not only increase hourly employees' wages, but also  
          salaried employees' compensation as well. They note that for  
          employees to qualify as "exempt" they must pass the salary-basis  
          test, which is two times the monthly minimum wage.  Opponents  
          contend that if this bill passes, in January 2017 the "exempt"  
          salary amount will rise from $34,560 to $49,920 - which is an  
          increased cost to employers of over $15,000 per exempt employee.  
          Opponents argue that such an increase will significantly burden  
          companies that may not pay the minimum wage, yet will suffer a  
          negative impact as a result of this bill. For example, where an  
          employer has employees working at the minimum wage and just  
          above it, it may be liable to raise the pay for each of those  
          employees. Therefore some business interests argue that an  
          increased minimum wage is not only an additional cost but also a  
          burden on doing business.


          The California Restaurant Association (CRA) also opposes this  
          bill, arguing that the restaurant industry has been struggling  
          for the last several years to cope with one of the worst  
          economies since the great depression.  CRA contends that the  
          minimum wage is a starting wage - not a forever wage.  Minimum  
          wage increases often have a perverse effect on the restaurant  








                                                                       SB 3


                                                                    Page  9





          industry. CRA argues that wage increases typically benefit those  
          who are the best paid individuals - minimum wage earners that  
          are often tipped well above and beyond minimum wage.  A minimum  
          wage increase would ultimately hurt those it intends to help -  
          hardworking non-tipped employees who are paid an hourly wage  
          greater than the minimum wage, but are still at the lower end of  
          the pay scale.  Tipped employees earn substantially more than  
          the state minimum wage.  The added cost pressure from the  
          mandatory annual wage increase for the employees already earning  
          the most takes the finite labor dollars an operator may have and  
          reduces, if not eliminates, their ability to provide non-tipped  
          employees with a wage increase.  CRA notes that, to help lessen  
          this negative effect, 43 other states acknowledge tips to offset  
          the unintended detrimental effects of a minimum wage increase.   
          However, California is one of just a few states that lack such a  
          provision.  In addition, CRA argues that arbitrarily increased  
          minimum wage rates eliminate jobs for young workers, and cites a  
          2014 Brookings Institution report that states that California is  
          home to six of the nation's ten worst regions for teen  
          employment.


          A number of groups, including the California School Funding  
          Coalition and the California School Boards Association, oppose  
          this bill and/or express concerns regarding the impact it will  
          have on public school districts in California.  First, they  
          argue that the proposed timeline for implementation will have  
          significant short and long term fiscal impacts on school  
          districts' operating budgets.  Second, they note that increasing  
          the minimum wage will impact school districts' entire salary  
          schedules, given that the minimum wage establishes the baseline  
          for the wages of all other employees.  Third, they argue that  
          combined with other "new "costs, the "erosion" of the Local  
          Control Funding Formula growth dollars will be accelerated.  In  
          addition, they contend that this bill further erodes the  
          principle of local control by mandating wages rather than  
          allowing for collaborative agreements between school employees  
          and school boards.  They conclude that, unless schools are  
          provided funding to pay for the significant new costs associated  








                                                                       SB 3


                                                                    Page  10





          with this bill, school districts will be forced to either make  
          cuts in other programs or reduce staffing.


          OPPOSE UNLESS AMENDED


          A number of organizations that support individuals with  
          intellectual and developmental disabilities in a wide variety of  
          programs throughout the state oppose this bill unless amended.   
          These organizations include, but are not limited to, The  
          Alliance, The Arc & United Cerebral Palsy California  
          Collaboration, the California Disability Services Association,  
          the California Respite Association, and Easter Seals.


          They argue that direct service workers supporting people with  
          intellectual and developmental disabilities are among the lowest  
          paid workers in the state.  However, they note that their  
          agencies are forced to pay these low wages because the state,  
          for the past two decades, has either cut or frozen rates and  
          funding to these programs.  Increasing the minimum wage without  
          providing adequate funding will further push these organizations  
          toward insolvency and collapse.


          They state that while recent budget proposals would have  
          included language to provide payment to such organizations for  
          such costs, the budget that was ultimately signed by the  
          Governor did not contain such language.  Instead, they state  
          that the only relevant budget language requires the Department  
          of Developmental Services to report back to the Legislature  
          during the 2016-17 budget process, "long after the dramatic  
          impact of this bill would be felt by our community."


          Therefore, they request that the bill be amended to fully fund  
          specified budget items, including all direct and indirect costs  
          increases associated with raising the minimum wage, address wage  








                                                                       SB 3


                                                                    Page  11





          scale compaction, and cover minimum wage increases that occur at  
          the state or local level.


          REGISTERED SUPPORT / OPPOSITION:




          Support


          9to5 California, National Association of Working Women 


          ACLU


          AFSCME


          Alliance of Californians for Community Empowerment 


          American Academy of Pediatrics, California


          American Association of University Women, CA


          CA Child Care Resource and Referral Network


          CA School Employees Association


          California Alliance for Retired Americans 










                                                                       SB 3


                                                                    Page  12





          California Association of Food Banks 


          California Catholic Conference of Bishops


          California Communities United Institute  


          California Conference Board of the Amalgamated Transit Union


          California Conference of Machinists


          California Employment Lawyers Association


          California Federation of Teachers


          California Hunger Action Coalition


          California Immigrant Policy Center


          California Labor Federation, AFL-CIO


          California Nonprofits


          California Partnership 


          California Rural Legal Assistance Foundation










                                                                       SB 3


                                                                    Page  13





          California School Employees Association


          California Teachers Association


          California Teamsters Public Affairs Council


          California Women's Law Center


          California Work and Family Coalition


          Californians United for a Responsible Budget  


          Career Ladders Project


          Child Care Law Center


          Children's Defense Fund-California 


          Cities Association of Board of Directors, Santa Clara County


          Cities of Long Beach, Los Angeles, Mountain View, Santa Ana,  
          Oakland and San Jose


          City and County of San Francisco


          City of Sunnyvale









                                                                       SB 3


                                                                    Page  14






          Coalition of California Welfare Rights Organizations, Inc. 


          Consumer Federation of California 


          County of Napa


          County Welfare Directors Association of California


          Courage Campaign


          Engineers and Scientists of CA, IFPTE Local 20, AFL-CIO


          Equal Rights Advocates


          Family Economic Security Partnership 


          Friends Committee on Legislation


          International Longshore and Warehouse Union


          LIUNA Locals 777 & 792


          Long Beach Mayor Robert Garcia


          Lutheran Office of Public Policy - California 









                                                                       SB 3


                                                                    Page  15






          Mayor Eric Garcetti, Los Angeles


          Mujeres Unidas Y Activas


          Napa County Board of Supervisors


          National Association of Social Workers, California Chapter


          National Council of Jewish Women


          National Domestic Workers Alliance


          National Employment Law Project


          Oakland Mayor Libby Shaaf 


          Older Women's League Sacramento Capitol


          Organization of SMUD Employees,


          Organize Sacramento


          Parent Voices


          Peace and Freedom Party of California









                                                                       SB 3


                                                                    Page  16
                  





          Professional and Technical Engineers, IFPTE Local 21, AFL-CIO


          Raising California Together


          Roots of Change


          Sacramento Central Labor Council, AFL-CIO


          San Bernardino Public Employees Association


          San Diego County Court Employees Association


          San Diego Hunger Coalition


          San Francisco Mayor Ed Lee


          San Francisco Unified School District


          San Jose Mayor Sam Liccardo 


          San Luis Obispo County Employees Association


          Santa Ana Mayor Miguel Pulido 


          SEIU-California State Council (co-sponsor)









                                                                       SB 3


                                                                    Page  17






          Some Individuals


          The Center for Popular Democracy


          The Women's Foundation of California


          TradesWomen Inc.


          Ultra Violet


          United Domestic Workers of America/AFSCME Local 3930  


          United Food and Commercial Workers (co-sponsor)


          UNITE-HERE, AFL-CIO


          Utility Workers Union of America


          Ventura County Board of Supervisors


          Western Center on Law and Poverty (co-sponsor)


          Western Regional Advocacy Project 


          Young Invincibles









                                                                       SB 3


                                                                    Page  18








          Oppose Unless Amended


          California Respite Association


          California Supported Living Network


          Easter Seals Superior California


          Harmony Home, Associated


          New Advances for People with Disabilities


          Pleasantview Industries


          ResCoalition


          Strategies to Empower People


          The Alliance


          The Arc California and United Cerebral Palsy CA Collaboration


          Vocation Plus Services, Inc.










                                                                       SB 3


                                                                    Page  19







          Opposition


          Agricultural Council of California 


          Air Conditioning Trade Association


          Alhambra Chamber of Commerce 


          American Pistachio Growers


          Auburn Chamber of Commerce


          Automotive Service Councils of California


          California Agricultural Aircraft Association


          California Ambulance Association


          California Association of Bed and Breakfast Inns


          California Association of Health Services at Home


          California Association of Nurseries and Garden Centers


          California Association of School Business Officials  (Concerns)








                                                                       SB 3


                                                                    Page  20







          California Association of Winegrape Growers


          California Attractions and Parks Association


          California Autobody Association


          California Automotive Business Association


          California Business Properties Association


          California Chamber of Commerce 


          California Citrus Mutual


          California Cotton Ginners Association


          California Cotton Growers Association


          California Dairies, Inc. 


          California Delivery Association


          California Disability Services Association


          California Farm Bureau Federation








                                                                       SB 3


                                                                    Page  21







          California Fresh Fruit Association 


          California Golf Course Owners Association


          California Grocers Association


          California Hotel and Lodging Association


          California Landscape Contractors Association 


          California League of Food Processors


          California Manufacturers and Technology Association


          California Professional Association of Specialty Contractors


          California Restaurant Association


          California Retailers Association 


          California School Boards Association


          California School Funding Coalition


          California Taxpayers Association








                                                                       SB 3


                                                                    Page  22







          California Travel Association 


          Camarillo Recycling, Inc


          CAWA - Representing the Automotive Parts Industry


          Chamber of Commerce Alliance of Ventura and Santa Barbara  
          Counties


          Compass


          Culver City Chamber of Commerce


          El Dorado Hills Chamber of Commerce and California Welcome  
          Center


          Family Business Association


          Fullerton Chamber of Commerce


          Greater Bakersfield Chamber of Commerce


          Greater Fresno Area Chamber of Commerce


          Greater Riverside Chambers of Commerce









                                                                       SB 3


                                                                    Page  23






          Howard Jarvis Taxpayers Association


          InHome Care Solutions


          Innovative Healthcare Consultants


          Irvine Chamber of Commerce


          Long Beach Area Chamber of Commerce


          National Federation of Independent Business


          Nisei Farmers League


          Numerous Individuals


          Official Police Garages Association of Los Angeles


          Orange County Business Council


          Oxnard Chamber of Commerce


          Pleasantview Industries, Inc.


          Plumbing-Heating-Cooling Contractors Association of California 









                                                                       SB 3


                                                                    Page  24






          Redondo Beach Chamber of Commerce & Visitors Bureau


          Roseville Chamber of Commerce


          Sacramento Metropolitan Chamber of Commerce


          San Diego Regional Chamber of Commerce


          Santa Clara Chamber of Commerce & Convention/Visitors Bureau


          South Bay Association of Chambers of Commerce


          Southwest California Legislative Council


          The Greater Corona Valley Chamber of Commerce


          Torrance Area Chamber of Commerce


          Valley Industry & Commerce Association


          Western Agricultural Processors Association


          Western Carwash Association


          Western Electrical Contractors Association









                                                                       SB 3


                                                                    Page  25






          Western Growers Association


          Western United Dairymen


          Zia's Italian Caffe & Gelato Bar




          Analysis Prepared by:Diego Vera / Ben Ebbink / L. & E. / (916)  
          319-2091