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Living wage: Rising costs but murky benefits

By   /   Friday, April 19th, 2013  /   Comments Off on Living wage: Rising costs but murky benefits

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The city of Santa Barbara’s living wage, the highest in California, has tacked more than $1 million on to city services contracts during the past six years.

But the city has never determined whether the increased wages are actually reaching workers because no contractor has ever been formally audited for compliance.

The living wage ordinance was enacted in 2006 after a push by community organizing groups who initially wanted both contractors and the city itself to pay a living wage to all workers. The resulting ordinance — described as a comprise by all sides — set a floor of $14 an hour for workers and applied only to city contracts worth more than $15,000 for landscaping and janitorial services, among others.

The wages and contract sizes are tied to a Southern California inflation index and increase each year. Santa Barbara’s living wage is currently $16.08 per hour. Hourly rates for other areas with living wages were $12 for unincorporated Ventura County and $13.75 for the city of Ventura in 2011. San Jose’s current rate is $14.73, and Santa Monica’s is $13.82.

This July, Santa Barbara’s living wage will rise to $16.39, the equivalent of about $34,000 if the work were a yearlong full-time job.

“The rates are going up and the city still has no real method to see if contractors are keeping ‘living wage money’ for themselves or paying workers a living wage,” Gabe Dominocielo, a member of the city’s advisory committee on the ordinance, said in an email. “The increased costs and possible fraud to the city cannot be justified without proof that anyone is actually being paid a living wage.”

What critics and proponents alike agree on is that good data on the Santa Barbara ordinance is hard to come by because no funds were set aside to collect it. The ordinance is complicated by the fact that it gives wage discounts to employers who give benefits such as health care and paid time off.

Bill Hornung, the general services manager for Santa Barbara, said the law applies to about 80 to 90 of the city’s contractors. Only a handful of those say they’ve needed to make changes because of the ordinance, Hornung said.

But the numbers — and even the data on how much extra the city is spending because of the ordinance — are scarce and voluntary. The city calculates how much extra it is spending based on a survey sent to winning contractors asking them how much the living wage ordinance caused them to increase their prices. In fiscal year 2007, that amount was $194,000. In fiscal year 2010, it was $171,725.

The city did not have a lifetime estimate of the cost of the ordinance available as the Business Times went to press, so the newspaper used the lower of the two estimates to calculate the six-year cost of the ordinance to the city.

Dick Flaks, a member of a the living wage advisory committee and a proponent of the ordinance, said that while the number of affected workers is likely small, the ordinance does send a signal of about what constitutes a living wage to other employers.

“I would estimate a couple of hundred families have benefited greatly by having significantly higher wages than they otherwise would have had,” he said. “The effect of having a standard of this kind is to affect the way that people determine wages across the city. In a kind of role where there’s no clear wage scale, having this wage is a kind of anchor point or benchmark for determining what the wages in the city should be.”

But Flaks, who formerly taught sociology at UC Santa Barbara, said that it would be ambitious and costly to determine the ordinance’s full impact on citywide wages. “We don’t have the resources as a committee or as a city to really do what would be a difficult study,” he said.

In 2010, Santa Barbara officials hired a Ventura-based audit firm to generate reports on three employers receiving contracts under the living wage ordinance. In those reports — which were not full audits — an analysis of payroll records showed that the living wage was paid. But when the accountants tried to dig deeper and asked for the time cards of individual employees to verify hours worked, none of the employers provided them, most saying that formal time cards were not kept.

In one case, the accountants tried to work out the number of hours worked per employee by dividing the paycheck amount by the living wage, but the results were not in whole hours —  they amounted to hours and minutes.

“This finding does not appear to be consistent with the assertion that formal time sheets/cards were not maintained,” the report said. The accountants said they weren’t asked to perform a full audit and couldn’t express an opinion on whether the contractors had followed the rules of the ordinance.

But critics say the implication of those reports is clear. At worst, they say, employers can simply forge top-level records to feign compliance and at best pay a living wage only after being probed by the city.

The living wage ordinance did not include any funding for enforcement, and the city estimates that audit reports cost about $3,500 each. Hornung, the city’s general services manager, said enforcement is initiated only when an employee or competitor complains.

“If they think something is unfair, we would initiate an investigation,” Hornung said. “The initial process is for staff to do a cursory investigation, and if they see something that doesn’t make sense, then we bring in an auditor to look at the books.”

Under the ordinance, the city does have the right to demand compliance information — including time cards — and if contractors don’t provide it, they can be terminated.

“We now have debarment procedure. In addition to somebody having their contract canceled, they can also be precluded from future business with the city,” Hornung said. “It’s kind of the other stick.”

In 2009, California Lutheran University professor Jamshid Damooei studied the city of Ventura’s living wage ordinance via interviews and surveys. He found that overall, the living wage ordinance led workers to say they were more motivated and less likely to miss work. Companies told researchers that their payrolls didn’t spiral and profitably didn’t suffer because they shifted work to more productive employees who could do the same work in fewer hours.

Daraka Larimore-Hall, chairman of the Santa Barbara Democratic Central Committee, said that while enforcement measures and funding could be revisited, that’s not enough reason to scrap the living wage.

“The core, fundamental argument about whether the public has the right to demand that an employer pay above poverty wages with the public’s resources is one that shouldn’t be back up for debate — a debate that we won by putting the living wage ordinance in,” he said.

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