Sunday, January 1, 2006

Minimum Wage Goes Up Today

By Emily Crawford
Journal Staff Writer
    The controversial increase in Santa Fe's city-mandated minimum wage goes into effect today, boosting the required hourly rate for qualifying employees from $8.50 to $9.50.
    The impact, some business owners say, is expected to play out in dollars and cents— more dollars on the payroll, more cents added onto consumer prices.
    Others say only a few of their workers will be affected by the increase and one restaurateur said other costs are having a more significant impact than the living wage law.
    Michael O'Reilly bought Pranzo Italian Grill on Montezuma Avenue in March. He estimates the mandatory wage increase will cost his business $50,000 in 2006, mostly for kitchen employees like prep cooks, pastry chefs and dishwashers.
    Menu prices are going up— 30, 45, 55 cents "across the board," O"Reilly said. It's like one of Newton's laws of physics, he said: "For every action, there is an equal reaction."
    "It's a big hit," O'Reilly said of the wage increase. "It's great for the employees but now the test is: Will the consumer pay higher prices?"
    He said the $8.50-an-hour minimum wage in place since July 2004 has already meant changes at Pranzo. Since March, O'Reilly has reduced the restaurant's staff by 11 employees and cut part-time shifts and overtime.
    Wages for staff who make above the new minimum of $9.50 an hour are also going up. Sous chefs, food runners and line cooks who were paid $11 to $12 an hour previously are now making $12 to $13.50 an hour.
    "It isn't just the $8.50 people," O'Reilly said. "It's the whole wage structure in the place."
    Al Lucero, the owner of Maria's New Mexican Kitchen, concurred.
    "You can't give somebody who is an unskilled laborer a dollar increase and not give somebody who has worked 10 years in their craft an increase," Lucero said.
    With more than 50 employees, Maria's has a million-dollar payroll each year, not including what Lucero and his wife and co-owner, Laurie, make.
    Last year, Lucero's payroll increased $80,000, which included costs from the $8.50 living wage and annual raises. This year, the wage costs are expected to be up $140,000 with the $9.50 minimum wage in place, Lucero said.
    Given his payroll, $80,000 "is not that much," Lucero admits. But Lucero feels he has always treated his employees fairly.
    Prior to the living wage law, Maria's paid $6.50 for entry-level positions, Lucero said. And his employees have Presbyterian health insurance, paid vacations and Christmas bonuses.
    "It's things like that the City Council doesn't think about," he said.
    The city ordinance allows the cost of employee benefits to be applied toward the minimum wage requirements. But Lucero is not adding in the cost of health insurance for his workers to get to the minimum wage rate. He said his employees told him they'd drop the Presbyterian health plan to get higher pay and that he wants his workers to be insured.

Mixed signals
    City Councilor Patti Bushee, who recently stopped running her own landscaping business after more than 20 years to take a state government job, isn't buying gloom-and-doom forecasts about the living wage increase.
    "I just didn't see the negative impacts like everyone suspected," she said of the $8.50 rate that's been in place for 18 months.
Bushee found a recent report on the impacts of the $8.50 minimum wage by the University of New Mexico's Bureau of Business and Economic Research to be "fairly positive."
    The report said many sectors of the local economy have experienced "strong growth" since the wage law went into effect in mid-2004 and that the workforce is expanding.
    But unemployment is also up, although still lower than in Albuquerque and the state as a whole, the report said. The number of families on welfare has fallen, while the number on food stamps has increased. Santa Fe's cost of living, already high, is increasing faster than the national rate.
Bushee said the decision to raise the wage to $9.50 for 2006, a step called for in the original ordinance, did not happen without a lot of consideration.
    And another increase to $10.50, previously scheduled for 2008, is no longer definite. The City Council decided any future increases would be subject to approval by the council after the review of the impact of the previous wage increase.
    "We are not going to continue on up to the $10.50 until we have a lot more research on it," Bushee said.
Bushee said she is open to hearing from businesses that "may have had an impact we may not have expected."

Hotels' bottom line
    For some businesses, particularly hotels, the initial hourly increase to $8.50 only slightly dented their bottom line. But $9.50 will take a bigger bite.
    "We continue to try to operate an extremely efficient operation... to not pass the costs onto the consumer," said Richard Verunni, the managing director of the Eldorado Hotel. "Santa Fe continues to be much more expensive for any business to operate."
    The living wage affects 30 of the luxury hotel's employees, primarily in housekeeping and similar occupations, he said.
    At the Inn of the Governors, the living wage will come out of the hotel's profit-sharing program. This initially upset employees who were used to receiving a bonus at the end of the month, said Sam Gerberding, the general manager of the inn.
    But the inn is keeping the profit-sharing plan, and minimum-wage workers will make more than $9.50 an hour for the months when bonuses are available after expenses, he said.
    The change put the hotel in "particular high gear" to eliminate waste like high phone bills, increase revenue by scoring every reservation possible and maximizing employee efficiency.
    "When someone leaves, we figure out a way not to replace them," Gerberding said.
    "There are pros and cons on both sides," he said. "We like our system"— the profit-sharing plan— "and it encourages a certain level of employee participation. Money in reservations can be money that they put in their pockets."

Raising expectations
    Walter Burke of Walter Burke Catering said he can't fathom how anyone can live in Santa Fe at pay rates around $6 an hour. The federal minimum wage is $5.15 an hour.
    "I know what (the workers) do to survive; they do everything from sharing rooms to sharing cars," he said. "And they still send money home."
    Burke employs two dishwashers who will get the bump up to $9.50. The rest of the catering company's 30 regular employees already make more than $9.50 an hour, so the new wage "is not a significant issue for us," Burke said.
    Carolyn Lee, the owner of three Santa Fe bed and breakfasts, said that the living wage affects all businesses, even those without 25 employees like hers. Though most of her staff already makes $9.50 and she is not required by the law to pay her housekeepers the citywide minimum wage, Lee said she will likely pay the wage in the future in order to find quality workers.
    "If that is the going rate at bigger places, if you want to get anybody decent it seems to me you probably have to be there," she said.
    The wage increase was one factor in her decision to close Alexander's Inn on Palace Avenue next spring or summer, since payroll is her biggest expense, she said. By closing Alexander's, Lee can reduce her staff by four.
    That the living wage ordinance does not apply to businesses with less than 25 employees irks Toni Maryol, the owner of Diego's Cafe at DeVargas Center.
    "I was frankly disappointed that not everyone is going to get this," she said. Maryol employs over 25 people. The new wage will only impact two new employees at her restaurant, she said.
    What hurts her business more is the price of processing debit card sales and higher food prices due to increased energy costs, she said.
    "When I looked at that in comparison to the living wage, I realized the living wage was easy," Maryol said.
    There is one thing most business people agree on: The increased wage will increase expectations of employee performance.
    "If you hire a dishwasher at $9.50, (and) they don't pull their weight, they are going to have to be gone," Maryol said.
Santa Fe's local minimum wage law— one of only a few around the country that extend broadly into the private sector— so far has withstood one legal challenge. The state Court of Appeals recently ruled in favor of the ordinance, and the Santa Fe Chamber of Commerce and other business plaintiffs decided against taking the case to the state Supreme Court.
    But a home-health care company has filed a new suit against the ordinance in federal court, and legislation to preempt Santa Fe's wage standard with a new statewide minimum wage is expected to be considered at the Legislature's session that starts in mid-January.