NONPROFITS AND THE PROPOSED MINIMUM WAGE LAW FOR SANTA MONICA

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1 NONPROFITS AND THE PROPOSED MINIMUM WAGE LAW FOR SANTA MONICA K e n J a c o b s S e p t e m b e r U n i v e r s i t y o f C a l i f o r n i a, B e r k e l e y C e n t e r f o r L a b o r R e s e a r c h a n d E d u c a t i o n h t t p : / / l a b o r c e n t e r. b e r k e l e y. e d u

2 OUTLINE Los Angeles minimum wage: model for Santa Monica Impacts on workers, businesses and the local economy Impacts on nonprofits Challenges What has been done in other cities

3 MINIMUM WAGE SCHEDULE Year (July 1) 2016 $10.50 Large Business (over 25 Employees) Wage 2017 $12.00 $ $13.25 $ $14.25 $ $15.00 $ $15.00 $15.00 Small Business and certain Nonprofits 2022 Indexed to CPI Indexed to CPI

4 NONPROFIT DEFERRAL 25 or fewer employees, or seek a deferral. To qualify must establish that: CEO earns a salary which, when calculated on an hourly basis is less than five times the lowest wage paid by the corporation; or Transitional employer; or Child care provider; or Funded primarily by City, County, State or Federal grants.

5 UC BERKELEY LOS ANGELES REPORT Examined impact of proposed $15.25 by 2019 Final bill differs somewhat in level ($15) and timing by (2021) Available at

6 COVERAGE OF LOS ANGELES LAW Private sector workers only: for-profit and non-profit Excludes state, federal and LAUSD employees Excludes In-Home-Support-Service (IHSS) workers Next few slides refer to covered workers only

7 PROPORTION OF LOS ANGELES WORKERS GETTING PAY INCREASES Year Number of Affected Workers (cumulative) Number of Directly Affected Workers (cumulative) Number of Indirectly Affected Workers (cumulative) Percent of Covered Workforce (cumulative) Percent of Covered Workforce Directly Affected (cumulative) Percent of Covered Workforce Indirectly Affected (cumulative) , ,000 78, , ,000 93, , ,000 96, , ,000 88, , ,000 98,

8 WORKERS PROJECTED TO RECEIVE PAY INCREASES ARE CONCENTRATED IN A FEW INDUSTRIES Sector Share of Workers with pay increases Food services, largely restaurants 17.3% Health care and social assistance 12.9% Retail trade 14.0% Admin. & waste management services 9.4% (temp agencies, janitorial, security) Nonprofit sector 6.3%

9 ESTIMATED PAY INCREASES Cumulative Pay Increases for Workers Affected by the Proposed Minimum Wage Policy (in 2014 dollars) Average Cumulative Hourly Wage Increase $0.72 $1.05 $1.82 $2.33 $2.73 Average Cumulative Annual Earnings Increase $800 $1,800 $3,200 $4,000 $4,800 Average Cumulative Percent Annual Earnings Increase Source: Authors analysis of ACS and QCEW data. Notes: Estimates were calculated using the mid-range wage growth and inflation scenario and include both directly and indirectly affected workers. Results are cumulative across the phase-in years.

10 IMPACT ON THE ECONOMY Multiple adjustment channels Reduced employee turnover and improved employee performance Automation: substitution of equipment for labor Small increases in prices and smaller decline in sales Increased consumer demand-- from wage increases-- offsets decline in sales.

11 NONPROFITS Little research has been done on the impact of minimum wage increases on nonprofits. Nonprofits receive revenues from a variety of sources including program revenues, contributions and governmental contract, which will affect their ability to absorb increases in costs without cuts to services.

12 NON-PROFITS ARE HIGHLY DIVERSE Nonprofit Organizations in the City of Los Angeles Industry Category Arts, Culture, and Humanities Count % of Total Total Revenue (millions) % of Total Total Net Assets (millions) % of Total Average Net Assets (in 000s) Average Revenue (in 000s) $ $2, $5,840 $2,130 Education, Higher $4, $7, $276,320 $169,820 Education, Other $1, $2, $7,280 $3,470 Environment $ $ $970 $850 Hospitals $1, $2, $266,380 $211,460 Health, Other $1, $1, $4,350 $4,890 Human Services $2, $1, $1,710 $2,740 International $ $ $1,550 $1,700 Mutual, Public and Societal Benefit $ $3, $10,010 $2,910 Religion $ $ $590 $440 Total 2, $13, $20, $7,950 $5,170 Source: Urban Institute, National Center for Charitable Statistics NCCS Enhanced Extract of IRS Financial Data. Data is from IRS 990 and 990-EZ forms. Four nonprofits are included in the total

13 SANTA MONICA Nonprofit Organizations in the City of Santa Monica Industry Category Count % of Total Total Revenue (millions) % of Total Total Net Assets (millions) % of Total Average Net Assets (in 000s) Average Revenue (in 000s) Arts, Culture, and Humanities Source: Urban Institute, National Center for Charitable Statistics. Data is from 2013 or $ $ $919 $451 Education, Higher $ $ $17,421 $7,357 Education, Other $ $ $1,205 $440 Environment $ $ $525 $540 Hospitals Health, Other $ $ $7,297 $2,683 Human Services $ $ $6,685 $2,557 International $4 0.5 $2 0.1 $150 $257 Mutual, Public and Societal Benefit $ $ $14,683 $9,717 Religion $3 0.4 $2 0.1 $146 $215 Total $ $1, $5,295 $2,566

14 IMPACT ESTIMATES BY SELECTED NONPROFIT INDUSTRIES % of Covered Workers % of Covered Workers Getting a Raise by 2019 % of Industry That Is Getting a Raise by 2019 Nonprofit Sector Educational Services Elementary and Secondary Schools Colleges and Universities, including Junior Colleges Health Care and Social Assistance Ambulatory Care Hospitals Residential Care Facilities Social Assistance Child Day Care Services Other Services Religious organizations Civic, social, advocacy organizations, and grantmaking and giving services

15 CHANGE IN OPERATING COSTS Direct and indirect wage increases, employer taxes, workers compensation. Overall nonprofit payrolls would increase by 2.4 percent when the policy is fully phased in; 2.1 percent with savings from reduced turnover. Largest increases in payroll costs: Childcare services 8.1 percent Residential care 7.0 percent On average payroll costs are 38 percent of operating costs in the nonprofit sector. Total change in operating costs in nonprofit sector in Los Angeles estimated at 0.8 percent. Will vary by sector and specific nonprofit.

16 CHALLENGES Nonprofits relying on government funding Services for people with developmental disabilities Early care and education Historically insufficient reimbursement rates Time to renegotiate contracts

17 BETTER JOBS BETTER CARE Services for people with developmental disabilities: High vacancies associated with lower consumer and family satisfaction. Wage increases reduce turnover and vacancies. Childcare quality measures strongly associated with wages.

18 SOLUTIONS Longer phase in periods for nonprofits facing greatest challenges Need to address public funding State level Local level: San Francisco C-Wages Program Evaluation and reporting

19 DISCUSSION