BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 3| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- UNFINISHED BUSINESS Bill No: SB 3 Author: Leno (D), De León (D), and Leyva (D), et al. Amended: 3/28/16 Vote: 21 SENATE LABOR AND IND. REL. COMMITTEE: 4-1, 4/8/15 AYES: Mendoza, Jackson, Leno, Mitchell NOES: Stone SENATE APPROPRIATIONS COMMITTEE: 5-2, 5/28/15 AYES: Lara, Beall, Hill, Leyva, Mendoza NOES: Bates, Nielsen SENATE FLOOR: 23-15, 6/1/15 AYES: Allen, Beall, Block, De León, Hall, Hancock, Hernandez, Hertzberg, Hill, Hueso, Jackson, Lara, Leno, Leyva, Liu, McGuire, Mendoza, Mitchell, Monning, Pan, Pavley, Wieckowski, Wolk NOES: Anderson, Bates, Berryhill, Cannella, Fuller, Gaines, Huff, Moorlach, Morrell, Nguyen, Nielsen, Roth, Runner, Stone, Vidak NO VOTE RECORDED: Galgiani, Glazer SENATE LABOR AND IND. REL. COMMITTEE: 4-1, 3/31/16 (pursuant to Senate Rule 29.10) AYES: Mendoza, Jackson, Leno, Mitchell NOES: Stone ASSEMBLY FLOOR: 48-26, 3/31/16 (ROLL CALL NOT AVAILABLE) SUBJECT: Minimum wage: in-home supportive services: paid sick days SB 3 Page 2 SOURCE: Author DIGEST: This bill requires paid sick days for the In-Home Supportive Services (IHSS) workers, creates a schedule for a phased increase in the minimum wage from $10.50 per hour to $15 per hour over seven years, depending on the size of the employer and general economic conditions, and links the minimum wage to the U.S. Consumer Price Index (CPI) once the minimum wage reaches $15 per hour. Assembly Amendments create a schedule for a phased increase in the minimum wage from $10.50 per hour to $15 per hour over seven years, depending on the size of the employer and general economic conditions, specify annual increase of the minimum wage to the CPI once the minimum wage reaches $15 per hour, require paid sick days for IHSS workers, and create a schedule for the annual accrual of paid sick days for IHSS workers. ANALYSIS: Existing federal law sets the minimum wage at $7.25 an hour. (Fair Labor Standards Act of 1938, 29 U.S.C. Chapter 8) Existing state law: 1)States that when state and federal laws differ, one must comply with the more restrictive requirement. In California, the minimum wage is $10.00 an hour. (Labor Code §1182.12) 2)Excludes In-Home Supportive Services (IHSS) employers from the requirement that employers provide paid sick days. (Labor Code §245.5) This bill incrementally increases the state's minimum wage, depending on the size of the employer, and then ties annual minimum wage increases to the CPI, which is a measure of SB 3 Page 3 inflation. This bill phases in the following increase for employers with 26 or more employees: 1)From January 1, 2017, to December 31, 2017, inclusive,- $10.50 per hour. 2)From January 1, 2018, to December 31, 2018, inclusive,- $11 per hour. 3)From January 1, 2019, to December 31, 2019, inclusive,- $12 per hour. 4)From January 1, 2020, to December 31, 2020, inclusive,- $13 per hour. 5)From January 1, 2021, to December 31, 2021, inclusive,- $14 per hour. 6)From January 1, 2022, and until adjusted by the CPI-$15 per hour. This bill phases in the following increase for employers with 25 or fewer employees: 1)From January 1, 2018, to December 31, 2018, inclusive,- $10.50 per hour. 2)From January 1, 2019, to December 31, 2019, inclusive,- $11 per hour. 3)From January 1, 2020, to December 31, 2020, inclusive,- $12 per hour. 4)From January 1, 2021, to December 31, 2021, inclusive,- $13 per hour. 5)From January 1, 2022, to December 31, 2022, inclusive,- $14 per hour. 6)From January 1, 2023, and until adjusted by the CPI-$15 per hour. This bill requires that, after January 1, 2023, the minimum wage will be increased annually from the seasonally adjusted the CPI, but no more than 3.5% in a year, with the resulting amount rounded to the nearest $0.10. The increase shall be calculated on August 1 to take effect on January 1 of the following year. This bill allows the Governor to suspend the incremental minimum wage increases if the following occurs: 1)Total nonfarm employment for California, seasonally adjusted, SB 3 Page 4 decreased over the three-month period from April to June, inclusive; or 2)Total nonfarm employment for California, seasonally adjusted, decreased over the six-month period from January to June, inclusive. And: 3)Retail sales and use tax cash receipts from July 1 to June 30, inclusive, period is less than retail sales and use tax cash receipts for the July 1 to June 30, inclusive, period ending 13 months prior to the July 28 determination. Or: 4)The Director of Finance finds that a minimum wage increase would push the state budget into deficit in the current fiscal year, or in either of the following two fiscal years. The Governor may suspend the minimum wage increase due to a General Fund deficit only twice. Minimum wage suspensions may occur until the minimum wage reaches $15 per hour. If suspended, all remaining phased minimum wage increases are advanced by a year. This bill also: 1)Removes the exemption for IHSS workers from the paid sick days statute; 2)Sets the paid sick days annual accrual rate for IHSS workers to eight hours or one paid sick day in 2018; 3)Sets the paid sick days annual accrual rate for IHSS workers to 16 hours or two days in 2019, or when the minimum wage hits $13.00 per hour for employers of 26 employees or more, whichever is later; and 4)Sets the paid sick days annual accrual rate for IHSS workers to 24 hours or three paid sick days in 2020, or when the minimum wage hits $15 per hour for employers of 26 employees or more, whichever is later. SB 3 Page 5 Comments 1)Minimum Wage Federally and in Other States In 1938, the Fair Labor Standards Act established a national minimum wage for workers in the United States. On a federal level, the minimum wage has been periodically raised. Beginning in the 1980s and 1990s, the federal minimum wage saw few significant increases which led to more than half of the states to enact higher state-level minimum wages, including California. According to the National Conference of State Legislatures, as of February 24, 2015, 29 states and D.C. have minimum wages above the federal minimum wage of $7.25. Additionally, 15 states, plus the District of Columbia, index their minimum wage to rise automatically with cost of living. Eleven states, including all of California's neighbors, currently index minimum wage increases each year: Arizona, Colorado, Florida, Missouri, Montana, Nevada, New Jersey, Ohio, Oregon, South Dakota, and Washington. Four more states, plus the District of Columbia, will index minimum wage increases annually beginning in future years: Alaska (2017), Michigan (2019), Minnesota (2018), and Vermont (2019). 2)Impact of Minimum Wage on Employment: Research Findings Conventional economic theory would predict that a rise in minimum wage leads perfectly competitive employers to reduce their workforce. David Card and Alan Krueger authored a minimum wage study in 1992 entitled "Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania" which evaluated the effects of New Jersey and Pennsylvania's minimum wage on employment. The authors also compared employment, wages, and prices at stores before and after the wage increase in both states and found no evidence that the rise in New Jersey's minimum wage reduced employment at fast-food restaurants in the state. In a more recent economic study published in 2012 by Arindrajity Dube, T. William Lester, and Michael Reich looked SB 3 Page 6 at the effects of minimum wages on employment flows in the U.S. labor market in "Minimum Wage Shocks, Employment Flows and Labor Market Frictions." They used nationally representative data to provide the minimum wage elasticities of earnings as well as employment flows and stocks for teens and the restaurant industry. Dube, Lester, and Reich concluded that minimum wage increases can reduce the turnover that characterizes the low-wage segment of the labor market and even allows for the possibility of improving the structure and functioning of the low wage labor market without substantially affecting employment. A Center on Wage and Employment Dynamics policy brief from the Institute for Research on Labor and Employment at University of California, Berkeley compared the effects of state minimum wage increases in California, specifically the effects of $10, AB 10 (Alejo 2013) and $13 minimum wage SB 935 (Leno 2014). Entitled "Ten Dollars or Thirteen Dollars? Comparing the Effects of State Minimum Wage Increases in California," the report found that while AB 10 restores some of the lost ground in recent years, it maintains the inflation-adjusted minimum wage at about the same level as in 1988. The authors found that an increase to $13 goes farther, raising the real minimum wage to just about the peak value obtained in 1968. The authors concluded that California businesses are likely to absorb the increased labor costs of an increase in the minimum wage with offsets from increased worker productivity, declines in recruitment and retention costs, and with small price increases in the restaurant industry. 3)What is the CPI? As was noted above, annual increases to the minimum wage after it reaches $15 per hour are tied to increases in the CPI. CPI is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. This market basket is based on 200 categories in eight major goods and services groups. The groups are: a) FOOD AND BEVERAGES (breakfast cereal, milk, coffee, chicken, wine, full service meals, snacks); b) HOUSING (rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture); SB 3 Page 7 c) APPAREL (men's shirts and sweaters, women's dresses, jewelry); d) TRANSPORTATION (new vehicles, airline fares, gasoline, motor vehicle insurance); e) MEDICAL CARE (prescription drugs and medical supplies, physicians' services, eyeglasses and eye care, hospital services); f) RECREATION (televisions, toys, pets and pet products, sports equipment, admissions); g) EDUCATION AND COMMUNICATION (college tuition, postage, telephone services, computer software and accessories); and h) OTHER GOODS AND SERVICES (tobacco and smoking products, haircuts and other personal services, funeral expenses). The CPI is calculated by the federal Department of Labor every year from detailed spending information from families and individuals. The specific CPI used for annual minimum wage increases is Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which is a subset of the total CPI the measures spending for families and individuals where more than one-half of the household's income must come from clerical or wage occupations, and at least one of the household's earners must have been employed for at least 37 weeks during the previous 12 months. The CPI-W population represents about 32 percent of the total U.S. population. As such, CPI-W can be seen as a cost-of-living index for the purchase price of goods and services, such as food, clothing, and housing, for working individuals and families. FISCAL EFFECT: Appropriation: No Fiscal Com.:YesLocal: No According to the Assembly Appropriations Committee: 1)Current year costs of approximately $19 million General Fund SB 3 Page 8 (GF), and Budget Year costs of approximately $40 million GF, to increase state minimum wages for IHSS, Department of Developmental Services and civil service employees from $10 an hour to $10.50 an hour starting January 1, 2017. These costs include offsetting savings to Medi-Cal and CalWORKS programs, assuming increases in the minimum wage will result in individuals and families no longer qualifying for all or a portion of these services. The Administration estimates costs of $3.6 billion GF assuming a minimum wage of $15 an hour is provided by 2022-23. 2)GF costs of approximately $90 million GF in 2018-19 to provide one day of sick leave to the approximately 468,000 IHSS providers in California. These costs are estimated to increase to approximately $227 million GF in 2022-23, when the state provides three paid sick days per year. Medi-Cal does not provide federal funding for services not rendered by IHSS providers, therefore, the state is responsible for the costs of a provider's wage while on paid sick leave. These cost estimates also include back up provider costs, Case Management, Information and Payroll System automation changes and Department of Social Services administrative costs. SUPPORT: (Verified3/31/16) SEIU - California State Council (co-source) United Food and Commercial Workers (co-source) Western Center on Law and Poverty (co-source) Insurance Commissioner Dave Jones 9to5 California, National Association of Working Women ACLU AFSCME Council 57 AFSCME, AFL-CIO Alliance of Californians for Community Empowerment American Academy of Pediatrics, California California Alliance for Retired Americans 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 SB 3 Page 9 California Employment Lawyers Association California Equity Leaders Network California Federation of Teachers California Hunger Action Coalition California Immigrant Policy Center California Labor Federation California Nonprofits California Partnership California Rural Legal Assistance Foundation California School Employees Association California Teachers Association California Teamsters Public Affairs Council Californians United for a Responsible Budget Children's Defense Fund-California Cities Association of Board of Directors City and County of San Francisco City of Long Beach City of Los Angeles City of Mountain View City of San Jose City of Sunnyvale Coalition of California Welfare Rights Organizations, Inc. Community Food and Justice Coalition Consumer Federation of California County of Napa County Welfare Directors Association of California Engineers and Scientists of California, IFPTE Local 20, AFL-CIO Family Economic Security Partnership Friends Committee on Legislation Glendale City Employees Association International Longshore and Warehouse Union Long Beach Mayor Robert Garcia Los Angeles Mayor Eric Garcetti National Association of Social Workers, California Chapter National Employment Law Project Oakland Mayor Libby Shaaf Older Women's League Sacramento Capitol Organization of SMU Employees Organize Sacramento Professional and Technical Engineers, IFPTE Local 21, AFL-CIO Redlands Area Democratic Club Roots of Change Sacramento Central Labor Council, AFL-CIO San Bernardino Public Employees Association SB 3 Page 10 San Diego County Court Employees 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 The Women's Foundation of California United Domestic Workers of America AFSCME Local 3930 UNITE-HERE, AFL-CIO Utility Workers Union of America Western Regional Advocacy Project Young Invincibles OPPOSITION: (Verified3/31/16) Agricultural Council of California Air Conditioning Trade Association Alhambra Chamber of Commerce American Pistachio Growers Associated Builders and Contractors - San Diego Chapter Association of California Egg Farmers Auburn Chamber of Commerce Brea Chamber of Commerce California Agricultural Aircraft Association California Ambulance Association California Asian Pacific Chamber of Commerce California Association of Nurseries and Garden Centers California Association of Wheat Growers California Association of Winegrape Growers California Attractions and Parks Association California Bean Shippers Association California Building Industry Association California Business Properties Association California Chamber of Commerce California Citrus Mutual California Cotton Ginners Association California Cotton Growers Association California Craft Brewers Association California Dairies, Inc. California Farm Bureau Federation California Grain and Feed Association SB 3 Page 11 California Grocers Association California League of Food Processors California Pear Growers Association California Pool and Spa Association California Professional Association of Specialty Contractors California Restaurant Association California Retailers Association California Seed Association California State Floral Association California Taxpayers Association Camarillo Chamber of Commerce Carlsbad Chamber of Commerce Chamber of Commerce Alliance of Ventura and Santa Barbara Counties Culver City Chamber of Commerce Desert Hot Springs Chamber of Commerce El Centro Chamber of Commerce El Dorado Hills Chamber of Commerce and California Welcome Center Family Business Association of California Greater Bakersfield Chamber of Commerce Greater Conejo Valley Chamber of Commerce Greater Fresno Area Chamber of Commerce Greater Riverside Chamber of Commerce International Franchise Association Irvine Chamber of Commerce Lake Elsinore Chamber of Commerce Los Angeles Area Chamber of Commerce Molly Maid of Placer County Montclair Chamber of Commerce Murrieta Chamber of Commerce National Federation of Independent Business Nisei Farmers League North Orange County Chamber of Commerce Official Police Garages Association of Los Angeles Ojai Valley Chamber of Commerce Orange County Business Council Oxnard Chamber of Commerce Palm Desert Area Chamber of Commerce Plumbing-Heating-Cooling Contractors Association of California Porterville Chamber of Commerce Redondo Beach Chamber of Commerce & Visitors Bureau Roseville Area Chamber of Commerce Santa Ana Chamber of Commerce SB 3 Page 12 Santa Maria Valley Chamber of Commerce Visitor & Convention Bureau South Bay Association of Chambers of Commerce Temecula Chamber of Commerce The Chamber of the Santa Barbara Region The Greater Corona Valley Chamber of Commerce Torrance Area Chamber of Commerce United Ag Valley Industry & Commerce Association Victor Valley Chamber of Commerce VinoPRO Western Agricultural Processors Association Western Electrical Contractors Association Western Growers Association ARGUMENTS IN SUPPORT: Proponents note that SB 3 will raise the minimum wage gradually to $15 per hour, as well as grant paid sick days to IHSS workers. Proponents argue that the existing minimum wage is simply too little for a family to survive on, noting that a minimum wage worker currently earns less than $21,000 per year, assuming he or she works 40 hours in a workweek. Proponents also cite a recent study that found the current minimum wage, when adjusted to inflation, is at about the same as the minimum wage paid in 1988 and far from the inflation-adjusted minimum wage paid in 1968. Proponents argue that SB 3 will ensure that the minimum wage is sufficient to keep families above the poverty line by increasing the minimum wage to $15 per hour and tying the minimum wage to the CPI. Yet, Proponents also argue that SB 3 includes important "pause" provisions that will ensure that the minimum wage increase will be delayed in the event of a recession or budget deficit. ARGUMENTS IN OPPOSITION:Opponents argue that SB 3 is an unacceptably large wage increase in a short period of time, threatening to overwhelm California's small businesses. Specifically, opponents note that a $15 per hour minimum wage will impact different areas of the state differently, as some areas of the state have completely emerged from the Great Recession and others have not. Opponents also note that the "off-ramps" which suspend the increases to the minimum wage are discretionary and not applicable once the minimum wage crosses the $15 per hour threshold, which opponents argue is not sufficient protecting for California's economy. Opponents also cite several studies which suggest that increasing the minimum SB 3 Page 13 wage creates job losses for unskilled labor and does not target individuals living in poverty. Prepared by: Gideon Baum / L. & I.R. / (916) 651-1556 3/31/16 12:34:14 **** END ****