City council president Todd Gloria.
City council president Todd Gloria
In politics, there are 1,000 angles to every issue but only two answers: yes or no.
That’s how San Diego city council president Todd Gloria sums up his response to the restaurant industry, which is not his biggest fan right now.
Spearheaded by Gloria and Raise Up San Diego, San Diego is incrementally raising minimum wage to $11.50 in 2017. Gloria decided not to carve out a separate wage for tipped employees—forcing restaurant owners to give each of their servers a few thousand dollars-a-year raise.
The problem? Some of those servers already make $15, $20, $30, $40-plus an hour when tips are counted. A 2012 survey by National University System Institute for Policy Research estimated San Diego’s servers and bartenders earn $28.74 per hour—triple the minimum wage.
It stands to reason that employees making $28 an hour don’t need a raise. Many restaurants operate on small profit margins. Some owners claim the unjustifiable expense will force them out of business. Others claim it takes money away from lower-paid restaurant employees who actually need it—namely, dishwashers and cooks.
In the U.S., 43 states have “tip credits.” Employers in those states are only required to pay tipped employees $2.13 an hour (many pay $3—$4). The idea is that tips will more than make up for the rest.
Tip credits are illegal in California (Labor Code Section 351). However, in a July 9 memo, San Diego’s city attorneys told city council, “it is unclear whether Section 351 prohibits other alternatives such as a two-tiered minimum wage ordinance, total compensation model or exemption for tipped employees.”
Restaurants had been requesting this “total compensation” model. Gloria decided against it. In this Q&A, he explains why—and publicly answers many of the restaurant industry’s questions/accusations for the first time.
How did you come up with the original proposed minimum wage of $13.09?
We spent about three months meeting with people on all sides of the issue. We asked, ‘What do you think it ought to be?’ Largely what I heard from the business community was, ‘We don’t want to negotiate against ourselves, so we don’t want to give you a number.’ So The Center for Policy Initiatives did a study called “Making Ends Meet” that determined what is needed to live self-sufficiently as a single adult without public subsidy. The study concluded $13.09 was a reasonable amount.
And how did you reach the $11.50 compromise?
Once we put $13.09 on the table, people became very animated and provided a lot of feedback. We had a series of meetings. A lot of small business owners said, “$13.09 would kill us.” So $11.50 was a compromise that came out of those discussions.
The restaurant industry claims they weren’t adequately included in the discussions. How much did you consult the industry?
A lot. A majority of discussions were held with the hospitality industry—hotels and restaurants—probably because of the tip issue, which is significant. There were leaders of the restaurant industry present. There were a number of meetings with me directly, and meetings with my staff (see “NOTE” at bottom of page). There were also a lot of meetings with people on the other side of the issue to see if there was some common ground.
What did the hospitality industry request?
They provided opinions about trying to work around the tip credit in California. We forwarded those things to the city attorney’s office. Ultimately we weren’t able to get to a place where they could endorse it. I understand why they didn’t. It’s largely the tip issue. It’s regretful we couldn’t get the consensus we’ve seen in other communities. But at the same time there are people on the left who say anything short of $15 is inadequate.
If tip credit was legal in California, would you support it?
That’s a hard one. I’ve looked at the issue on both sides. The current situation does have significant flaws. The fact that restaurateurs are taxed on the tips, but can’t count that toward wages—that strikes me as unfair. I don’t disagree with them that a piece of state legislation (Section 351) that’s roughly 40 years-old ought to be looked at for updating to current circumstances. The game-changer has been the transition to credit cards, right? It is far easier to track tips and see what people really make. That’s different than when this was originally envisioned. I think the legislation needs to be looked at. On the flip side, I think plenty of data shows when tips are worked into the minimum wage, those folks are really struggling. My advice to the industry—and they don’t have to take it—is to work with the state to reexamine this.
Did you feel at all it was YOUR responsibility to reexamine the state law?
That wasn’t the request from the restaurant industry. In my sense of the discussion, this was always about working around that law, rather than changing that law. I’ve experienced this before on marijuana dispensaries and food trucks. If you don’t like a law, you really need to change it. Our attorneys looked at that and the answer was, ‘It’s likely prohibited by state law.’ We couldn’t do that. The recent Convention Center financing experience really illustrates why we have to be cautious with this. If you try to break new legal ground and you’re unsuccessful, everyone is harmed. I get where the hospitality industry is coming from, but it really imperiled the overall ordinance. Instead, we decided to reduce the overall wage rate in order to try and address that in another way. I realize it’s not perfect to the concerns of the restaurant industry. Could we have had a scenario through this negotiation where the city advocated for a change? Possibly. But that’s not what we were being asked to do. We were being asked to work around that law.
Would you be open to advocating a change to California’s tip credit law in the future?
We could. Although we have this current situation on our hands. It doesn’t really allow us to have those discussions. The city does take on legislation in Sacramento. Sometimes successfully. I think it’s fairly complex to come together and work out a compromise. I don’t think it’s a matter of adopting what some of these other states have—where there’s no guarantee that the tip is there. There probably is an elegant solution somewhere in there that the city could support. That never ended up being part of the conversation because, for whatever reason, the restaurant industry has not had success with that in Sacramento and we’re not really in the position to affect the state law.
In a July 9 memo, the city attorney’s office said it was possible for you to consider a two-tier system or total compensation package—which the restaurant industry had requested. You chose not to. Why?
It was a possibility. But it opened us up to legal challenges. We needed to do something sooner rather than later. The potential for litigation, class action or otherwise, was pretty significant. I had an overall principle for this ordinance: Keep it as simple as possible. Some of my colleagues also raised concern about the cost to administer it. That’s one of the challenges Seattle’s going to have going forward. It’s very hard to make sure employers are following the law. With the relatively straightforward approach we took, our belief is that enforcement will be significantly less expensive. Obviously that’s to the benefit of the city and the taxpayer.
Your approach will force some restaurateurs to give a few thousand dollars-a-year raise to servers who currently make $25-$40 an hour. Is the restaurant industry the dolphin caught in the tuna net? Is it fair?
It’s the world that it is. With the law as it is, we have this predicament. I have heard the representations about the waiter or waitress at the fine dining establishment or a bartender at a pretty happening bar. There are just as many people who are that waiter at Denny’s. When looking at this ordinance in its totality, we’re not looking only at restaurants. We’re looking at gardeners, maids, car wash attendants. The equal protection issue—which is now a part of litigation in Seattle—was one of the concerns we had. I’m willing to do my very best to help the 200,000-some-odd people who will benefit from this ordinance. I think the route we went was the right thing to do.
To justify minimum wage raises for servers, your partners at the Center for Policy Initiatives have pointed to research by the Employment Development Department. The research concluded “waiters and waitresses” in San Diego averaged $9.08 an hour in 2013. Minimum wage was $8 at the time of the study. So that means waiters only averaged $1.08 an hour in tips. Does this research pass the sniff test for you?
I can think about my experiences dining at Urban Solace. I get owner Matt Gordon’s point—there. Juxtapose that with the Denny’s and the answer may be somewhere in between, right? When you throw in every tipped employee it seems like that number might be reasonable.
The same research concluded coffee shop workers in San Diego make $10.69 cents an hour. That suggests baristas make 17 percent more than restaurant servers. That doesn’t seem at all strange/wrong?
It does sound low. With a lot of different studies you can get different numbers. But all of them approximate certainly lower than some of the numbers touted by those who are opposed to our ordinance. As policymakers, we try to take in all the information. That includes our local CRA (California Restaurant Association), who talk about waiters making $25, $30 an hour. Lower wage workers came in and testified that’s just not their experience. This about the totality of lower wage workers. As much as I understand that there are unique aspects to the hospitality industry that minimum wage impacts, because of the state law and our city attorney’s opinion, that really wasn’t something we could engage deeply on. It doesn’t mean we shouldn’t or can’t in other venues. But I’m limited to the field of play that I’m playing on. You can take concession with that report, but we did not write the entire ordinance based on that report. The CPI study was the basis of the $13.09, the $11.50 was the basis of multiple conversations.
Would you cite this research again?
There are a substantial amount of tipped employees who do need a new minimum rate. To deal with the inevitable concerns raised by the CRA and others, I think it’s very appropriate to cite that study and other studies to make that point.
Restaurateurs say that by forcing them to give raises to highly paid waiters, they have less money to allocate to people who need it—dishwashers, cooks, etc.
Those arguments should be shared with our state legislators to talk about how you can adjust for this new world where you have the ability to track tips very, very closely and where you do have this situation where employers are taxed on this but not allowed to credit it. There is a case to be made here. The effort that was expended was really about evading the law, rather than changing the law. To the extent that they’re spending a substantial amount of resources to repeal our ordinance, those resources would’ve been well-placed trying to affect policy change at the state level.
So you feel comfortable with your ordinance in regards to the restaurant industry?
It’s a compromise. That’s what we do. That’s how you make change. I was wiling to support a much higher figure. I just left a long transit hearing. I would love to use every dollar to make biking, walking and mass transit more plentiful. But my vote is equal to the vote of suburban communities, who don’t have the same attitude. So we compromise and do some here, some there. I don’t expect restaurateurs to lead a parade for raising wages. I know it comes out of their pockets. But at the same time, I’m someone who has the responsibility to represent 150,000 people in my district. It’s not just the 18,000 tipped employees in the restaurant industry. I’m not oblivious to the fact that there are impacts to this. But I also realize that there are incredible impacts to the people who are trying to live in this community on minimum wage. In this discussion, that is something that hasn’t come up as much as I’d like it to. Reporters typically ask me about the impacts on business. It’s not commonly referenced about what individuals are having to do to make ends meet.
You’re taking the “Live the Wage” challenge this week. How’s it going?
You know the first thing I’m not doing? Going to restaurants. The barista has not seen me this week and he’s not going to. You can’t do that if you have $51 to live on for the week for food and gas and whatever. That’s also something that’s not always represented well in this discussion. There’s a reason why in communities where this has been done, you see reduction in unemployment and increase in economic activity. Because people are spending this money. That is nothing I expect the restaurateurs you’ve been talking to embrace, but it’s a very practical consideration.
Some restaurants say that, because of your ordinance, they’ll move to an 18 precent service charge and get rid of tipping. That would hurt low-waged servers. Thoughts?
I’m not sure we’ve seen that in the other communities that have done this, like San Jose or D.C. I would anticipate changes in the industry. I think industries on a whole are adjusting to the world we live in now. A good industry that’s being changed because of technology is taxicabs. I imagine that will be true with the restaurant industry.
According to a prominent real estate developer, a large restaurant group recently decided not to invest in San Diego because of the minimum wage increase. How do you feel about the potential loss of business?
There is plenty of investment that is going on with the understanding that this is occurring. I’ve had a number of hotel developers who are proposing projects in my district. I’m up front with them. ‘Hey, this is what we’re doing, does that affect your decision-making?’ The answer is no. As far as I know, Seattle is not an economic wasteland. DC is not one either. I would ask to what extent high real estate costs, high energy costs and some other things are driving the hospitality industry in terms of costs. It is not just the wages. Of course, that’s also been an argument to oppose this. ‘Hey, I’ve got these other increasing costs—I don’t need this additional one.’ But my answer has been: All those additional costs are also borne by your workers. SDG&E is just not raising rates on commercial folks. Gas is the same cost for everyone.
Restaurants have always operated on very small profit margins. Does any part of you want to tell restaurants, ‘Look, your business model is broken—time to fix it’?
Well, I wouldn’t feel comfortable telling people their business is lousy. But I do have a great deal of faith in the entrepreneurial spirit. I think people will make adjustments. We did a lot of research looking at other communities that have done this. And that’s exactly what happened. You have these stories of businesses that said, ‘Gosh, I was scared. Yeah I had to make some adjustments—not all of them I like, but ultimately I can live with this.’ I came into this process really open and hoping we could achieve something that was broadly supported. Change is scary, but people are able to find their way through—exactly in the same way that minimum wage workers do every single day when they’re dealing with limited resources in a high-cost environment.
FInal thoughts?
I appreciate the focus on restaurants—an important industry to our community and my council district. But the issue is much broader than that. When you think about the 279,000 folks who will get sick days because of this ordinance or the 170-some-odd thousand who will get the pay increase… the restaurant industry is not even a majority of the folks who are going to be impacted by it.
Your job isn’t very straightforward.
A lot of times when people say, ‘Well, I didn’t like your position on that,’ I tell them I only have a binary choice. Up on the bench at council meetings, there is a ‘Yes’ button and a ‘No’ button that we can push. There is no ‘Maybe’ or ‘Kind Of’ button.
NOTE: Regarding a record of Gloria’s meetings with the restaurant industry prior to solidifying his minimum wage plan, deputy chief of staff Katie Keach combed the calendar history and reports: “From March until July, the office of Council President Gloria had at least six formal meetings that were attended by CRA or a restaurant industry representative. CRA was also invited to two additional meetings that they did not attend. This does not count dozens of less formal phone calls with the Council President, his chief of staff, and between other stakeholders. I believe Council District 8 also spoke with the restaurant industry quite a bit.”
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