VISITING HOMEMAKER SERVICE of HUDSON COUNTY, Plaintiff/Appellee, V. BOARD of CHOSEN FREEHOLDERS for the COUNTY of HUDSON, and CO

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VISITING HOMEMAKER SERVICE OF HUDSON COUNTY, SUPERIOR COURT OF NEW JERSEY Appellate Division Plaintiff/Appellee, DOCKET NO. A-003180-03T5 v. CIVIL ACTION

BOARD OF CHOSEN Appeal of Decision by the Superior FREEHOLDERS FOR THE COUNTY Court of New Jersey, Law Division, OF HUDSON, and COUNTY OF Hudson County HUDSON DEPARTMENT OF HEALTH AND HUMAN SERVICES, Sat Below:

Defendants/Appellants. Hon. Maurice J. Gallipoli, J.S.C.

BRIEF OF AMICI CURIAE BRENNAN CENTER FOR JUSTICE AT NEW YORK UNIVERSITY SCHOOL OF LAW, NEW JERSEY STATE LEAGUE OF MUNICIPALITIES, JUBILEE INTERFAITH ORGANIZATION, INTERFAITH COMMUNITY ORGANIZATION, NEW JERSEY INSTITUTE FOR SOCIAL JUSTICE, LEGAL SERVICES OF NEW JERSEY, ACORN LIVING WAGE RESOURCE CENTER, AND NEW JERSEY ACORN IN SUPPORT OF APPELLANT HUDSON COUNTY

BRENNAN CENTER FOR JUSTICE AT NEW YORK UNIVERSITY SCHOOL OF LAW 161 Avenue of the Americas, 12th Floor New York, NY 10013-1205 (212) 992-8638 Counsel for Amici Curiae Brennan Center for Justice Jubilee Interfaith Organization Interfaith Community Organization New Jersey Institute for Social Justice Legal Services of New Jersey ACORN Living Wage Resource Center New Jersey ACORN

On the Brief Nathan Newman, Esq. Paul K. Sonn, Esq. Jonathan Gass, Esq.

1 TABLE OF CONTENTS

TABLE OF AUTHORITIES...... III

STATEMENT OF INTEREST OF AMICI...... 1

PROCEDURAL HISTORY...... 2

STATEMENT OF FACTS...... 3

PRELIMINARY STATEMENT...... 3

ARGUMENT...... 5

I. HUDSON COUNTY’S CITIZENS HAVE A RIGHT TO DECIDE HOW THEIR TAX DOLLARS ARE SPENT, AND THEIR ELECTED REPRESENTATIVES HAVE THE POWER TO SET CONDITIONS UNDER WHICH THE COUNTY WILL ENTER INTO A CONTRACT...... 5

II. WITHOUT CLEAR DIRECTION FROM THE STATE LEGISLATURE, COURTS SHOULD NOT TAKE AWAY CITIZENS’ RIGHT TO CONTROL LOCAL GOVERNMENT SPENDING...... 10

A. The New Jersey Supreme Court Requires a Clear Statement by the Legislature Before Finding Local Government Powers Preempted...... 10

B. The Legislature Has Not Even Hinted That Local Minimum Wage Laws Are Preempted, Much Less Given a Clear Statement to that Effect...... 12

C. Even if Minimum Wage Laws Were Preempted, Requirements To Pay a Living Wage as a Condition of Public Contracting Would Not Be...... 19

III. THE TRIAL COURT ERRED BY STRIKING DOWN A LAW SIMPLY BECAUSE IT DISAGREED WITH ELECTED OFFICIALS’ POLICY CHOICES...... 24

A. The Chosen Freeholders Had Ample Reason to Believe a Living Wage Law Would Serve the Public Interest...... 25

B. It Is Not the Courts’ Role to Substitute Their Policy Judgment for That of the Hudson County Freeholders...... 34

1. There Can Be No Equal Protection Violation Considering the Ample Data Supporting the Living Wage Ordinance ...... 34

2. Because No Fundamental Rights Are at Stake, the Trial Court’s Striking Down the Law as “Vague” Was Improper ...... 36

CONCLUSION...... 39

APPENDICES

Appendix 1: Background on Amici

Appendix 2: Examples of Living Wage Laws Enacted Across the United States

Appendix 3: Opinion Letter, New Mexico Attorney General Thomas Udall (Feb. 26, 1998)

Appendix 4: Andrew Elmore, Brennan Center for Justice, Living Wage Laws & Communities: Smarter Economic Development, Lower Than Expected Costs (2003) (Executive Summary & Report)

TABLE OF AUTHORITIES

Cases

Armstrong v. City of Trenton, 137 N.J.L. 332 (1948)...... 6

Atkin v. Kansas, 191 U.S. 207 (1903)...... 7, 9

Barone v. Department of Human Services, 107 N.J. 355 (1987) ...... 36

Building & Constr. Trades Council v. Associated Builders & Contractors (Boston Harbor), 507 U.S. 218 (1993) ...... 6

Caviglia v. Royal Rours of America, 178 N.J. 460 (2004) ...... 24, 35

City of Atlanta v. Assoc. Builders & Contractors of Ga., 240 Ga. 655 (1978) ...... 15

City of Baltimore v. Sitnick, 254 Md.303 (1969)...... 14

Coast Cigarette Sales v. Long Branch, 121 N.J. Super. 439 (1972) ...... 10

Coates v. City of Cincinnati, 402 U.S. 611 (1971)...... 38

George Harms Constr. Co. v. N.J. Turnpike Auth., 137 N.J. 8 (1994) ...... 23

Greenberg v. Kimmelman, 99 N.J. 552 (1985) ...... 34, 35

In re Local 195, IFPTE, 88 N.J. 393 (1980)...... 22

In Re Township of Warren, 132 N.J. 1 (1993)...... 23

Inganamort v. Ft. Lee, 62 N.J. 521 (1973)...... 16

Kennedy v. City of Newark, 29 N.J. 178 (1959)...... 10, 17

Keyes Electrical Service v. Cumberland County, 15 N.J. Super. 178 (Law Div. 1951) ...... 6

L. Pucillo & Sons, Inc. v. Borough of New Milford, 73 N.J. 349 (1977)...... 38

iii

Lott Constructors v. Camden County Bd. of Chosen Freeholders, 1994 U.S. Dist. LEXIS 2767 (D.N.J. 1994) ...... 6

McConnell v. Federal Elections Comm’n, 124 S. Ct. 619 (2003) ...... 35

McDonald v. Board. of Election Comm’rs, 394 U.S. 802 (1969) ...... 35

McMillen v. Browne, 14 N.Y.2d 326, 331 (1964)...... 20

Mental Health Ass’n v. Elizabeth, 180 N.J. Super. 304 (Law Div. 1981) ...... 12

Nebbia v. New York, 291 U.S. 502 (1934) ...... 35

Overlook Terrace Management Corp. v. Rent Control Board, 71 N.J. 451 (1976) ...... 11

People v. Crane, 214 N.Y. 154 (1915)...... 20

Sabri v. United States, 124 S. Ct. 1941 (2003) ...... 38

State v. Ulesky, 54 N.J. 26 (1969)...... 11

Summer v. Teaneck, 53 N.J. 548 (1969)...... 11, 16

Tumino v. Long Beach Township, 319 N.J. Super. 514 (1999) ...... 11

United Bldg. & Constr. Trades Council v. Camden, 88 N.J. 317 (1982) ...... 22-24

United States v. National Dairy Products Corp., 372 U.S. 29 (1963) ...... 38

Visiting Homemaker Service v. County of Hudson, Letter Opinion (Feb.20, 2004) ...... 13, 30, 33, 34

White v. Massachusetts Council of Construction Employers, Inc., 460 U.S. 204 (1983) ...... 7

Wholesale Laundry Bd. of Trade, Inc. v. New York, 12 N.Y.2d 998 (1963) ...... 20

Williamson v. Lee Optical, 348 U.S. 483 (1955)...... 35

Statutes

2003 Bill Text GA H.B. 1258...... 15, 19, 20

29 U.S.C. § 206(a) et seq...... 13

40 U.S.C. §§ 276a through 276a-5...... 8

Ann Arbor City Code, ch. 23 § 1:815...... 37

Ariz. Rev. Stat. § 23-362 (2004)...... 19

Colo. Rev. Stat. § 8-3-102 (2003)...... 19

District of Columbia Code § 32-1001 et seq...... 13

Fla. Stat. § 218.077 (2004)...... 19, 21

La. Rev. Stat. Ann. § 23:642 (2004)...... 17, 18, 19

Madison Gen’l Ords. § 3.45...... 14

Mo. Ann. Stat. § 67.1571 (2004)...... 19

N.J. Const. art. IV, § VII, ¶ 11...... 10

N.J. Stat. Ann. § 34:11-56.25...... 8, 25

N.J. Stat. Ann. § 34:11-56.26(4)...... 8

N.J. Stat. Ann. § 34:11-56.27...... 8

N.J. Stat. Ann. § 34:11-56a...... 3

N.J. Stat. Ann. § 34:11-56a4...... 12, 13

N.J. Stat. Ann. § 40A:9-1.3...... 24

N.J. Stat. Ann. § 40:41A-27...... 21

N.J. Stat. Ann. § 40:41A-27(a)...... 6

N.J. Stat. Ann. § 40:41A-27(f)...... 6

N.Y. Mun. Home Rule § 11(1)(f)...... 19, 20

N.Y.C. Admin. Code § 6-109...... 37

Or. Rev. Stat. § 653.017 (2004)...... 19

San Francisco Admin. Code ch. 12R...... 14

Santa Fe City Code § 28.1 et seq...... 14

S.C. Code Ann. § 6-1-130 (2004)...... 19, 21

Tex. Lab. Code Ann. § 62.0515 (2004)...... 19

Utah Code Ann. § 34-40-106 (2003)...... 19, 20

Other Authorities

Andrew Elmore, Brennan Center for Justice, Living Wage Laws & Communities: Smarter Economic Development, Lower Than Expected Costs (2003)...... 26, 27, 33, 34

Bruce Nissen, Center for Labor Research and Studies, Florida Int’l. Univ., The Impact of a Living Wage Ordinance on Miami-Dade County (1998) ...... 27, 30

Candace Howes, Institute of Industrial Relations, Univ. of Cal. at Berkeley, The Impact of a Large Wage Increase on the Workforce Stability of IHSS Home Care Workers in San Francisco County (2002) ...... 28

Carol Zabin, Arindrajit Dube, and Ken Jacobs, The National Economic Development and Law Center, The Hidden Public Costs of Low-Wage Jobs in California (May 2004) ...... 29, 30

Christopher Niedt, et al., The Effects of the Living Wage in Baltimore (Feb. 1999) ...... 27

David Card and Alan Krueger, Myth and Measurement: The Economics of the Minimum Wage (1995)...... 31

Economic Report of the President (1999)...... 32

Jared Bernstein and John Schmitt, Economic Policy Institute, The Impact of the Minimum Wage: Policy Lifts Wages, Maintains Floor for Low-Wage Labor Market (June 2000) ...... 25, 26, 32

John Kenneth Galbraith, The Good Society (1996) ...... 33

J.W. Mason, Living Wage Junkonomics, City Limits, May 2002 ...... 32, 33

Louis Uchitelle, A Pay Raise’s Impact, New York Times, Jan. 12, 1995; at D1 ...... 32

Mark Weisbrot and Michelle Sforza-Roderick, Baltimore’s Living Wage Law: An Analysis of the Fiscal and Economic Costs of Baltimore’s City Ordinance (Oct. 1996) ...... 27

Maryann Mason and Wendy Siegel, Chicago Institute on Urban Poverty, Outsourcing: Thinking Through the Outsourcing Decision 5 (1997) ...... 9

Michael Reich, Peter Hall, and Ken Jacobs, Institute of Industrial Relations, Univ. of Cal. at Berkeley, Living Wages, Airport Security and Worker Performance: The San Francisco Model (2002) ...... 28

Opinion Letter, New Mexico Attorney General Thomas Udall (Feb. 26, 1998) ...... 14

Robert Pollin and Stephanie Luce, The Living Wage: Building a Fair Economy (1998) ...... 30

vii STATEMENT OF INTEREST OF AMICI

Amici Curiae the Brennan Center for Justice at New York

University School of Law (“Brennan Center for Justice”), the New

Jersey State League of Municipalities, the Jubilee Interfaith

Organization, the Interfaith Community Organization, the New

Jersey Institute for Social Justice, Legal Services of New

Jersey, New Jersey Association of Community Organizations for

Reform Now (“ACORN”) and the ACORN National Living Wage Resource

Center are not-for-profit public interest, religious and

community organizations that have witnessed the long-term

erosion of living standards.

Amici all share a strong interest in ensuring that local

governments in New Jersey retains the power to adopt living wage

laws and other appropriate legislation to safeguard the economic

security of low-income working families and communities. Amici

submit this brief in support of Appellant. (Background and

individual amici statements of interest are listed in Appendix

1. The NJ State League of Municipalities supports reversal of the position below and joins this brief as specified in their individual statement of interest.)

PROCEDURAL HISTORY

In 1999, the Hudson County Chosen Freeholders passed a

living wage ordinance requiring that food service workers,

janitorial workers, and unarmed security guards working at least

20 hours per week under contract to the County receive an hourly

pay rate of at least one hundred and fifty percent of the

Federal Minimum Wage and health benefits. In 2002, the County

amended the ordinance to extend its coverage to health service

workers on County contracts. In 2003, a newly amended

ordinance, number 386-7-2003, was enacted providing employers

with the option of providing either health benefits or, in the

alternative, an additional two dollars per hour of pay on top of

the wages mandated by the ordinance.

In March of 2003, plaintiff filed a Verified Complaint in

the court below seeking declaratory judgment invalidating the

ordinance as violating state law. A request for a temporary

injunction was denied and, after a number of additional

hearings, plaintiff on December 19, 2003 sought an injunction to

block the awarding of contracts by the County under the

ordinance. On January 2, 2004, the court below entered a

judgment invalidating Ordinance number 386-7-2003.

The County sought leave to appeal, which was granted by

order of this Court. The Brennan Center and other amici, whose counsel submitted briefs in proceedings below and participated

in oral arguments, have today moved for leave to participate as

amici curiae in support of the appellant County’s position. In

order not to delay consideration of this appeal, movants submit

this brief simultaneously with the motion.

STATEMENT OF FACTS

Amici curiae adopt the statement of facts of Appellant

Hudson County.

PRELIMINARY STATEMENT

A core principle of our democracy is that the people, through their elected representatives, have the right to control how public funds are spent. Under both federal and New Jersey law, local governments retain the power to pass living wage laws that condition the receipt of public funds on firms meeting basic labor standards.

The New Jersey state minimum wage was designed to be a floor on wage standards, not a ceiling preventing local governments from establishing greater protections for workers in their communities. N.J. Stat. Ann. § 34:11-56a. Nowhere in the

state statute does the New Jersey legislature state an intention

to preempt local governments from adopting local wage

legislation. Without explicit language preempting local action,

the New Jersey Supreme Court has instructed that state laws do

not preempt local regulation. Thus, a New Jersey county would,

in fact, be free to enact an ordinance establishing a county-

wide minimum wages for all private businesses – not simply for businesses performing county contracts as Hudson County has done.

Hudson County’s more modest effort to set a minimum wage for its public contractors is therefore clearly permissible.

The local ordinance merely requires that private employees who perform government services in the place of public employees receive at least a certain defined wage level. Just as the

County is free to pay its own employees more than the minimum wage, it has the power to require that private employees performing the same work receive reasonable compensation.

An extensive body of research, and the experience of cities and counties across the country, demonstrate that living wage laws can help improve the quality of services that local governments receive from city and county contractors. In light of this evidence, the Hudson County Freeholders clearly had a rational basis to support passage of the law. The U.S. and New

Jersey Supreme Courts have stated that, absent a violation of basic constitutional rights, courts should not substitute their judgments for those of elected officials as to the efficacy or fairness of economic or social legislation when they have a rational basis for approving its passage. While the trial court

apparently disagreed with the Chosen Freeholders’ policy judgment, that is not a basis to strike down a democratically enacted law.

For all of these reasons, the decision of the court below should be reversed and the power of Hudson County to enact its living wage law should be affirmed.

ARGUMENT

A foundational principle of American democracy is that citizens have the right, through their representatives, to decide how to spend government revenue. Courts therefore defer to elected officials’ policy choices in spending tax dollars in ways that reflect citizens’ social values and the local government’s economic interests. The trial court’s refusal to defer to Hudson County’s policy choices — unless reversed — threatens to deny the County’s citizens that basic democratic right to control how their money is spent.

That core principle distinguishes the local ordinance at issue in this case — a “living wage” law setting a wage floor for businesses contracting to perform government services — from a true local minimum wage law. Hudson County has not enacted a

County-wide minimum wage applicable to businesses that engage

only in private transactions. It has taken the more modest step

of setting the conditions under which it is willing to spend its

own money in transactions to which it is a party.

This it clearly has the power to do. New Jersey counties

have plenary power over employing individuals directly, see N.J.

Stat. Ann. § 40:41A-27(a) (counties have power to “establish

qualifications for persons holding offices, positions and

employments; and [to] provide . . . for their term, tenure and

compensation.”), and contracting work out to other entities with

employees of their own, see N.J. Stat. Ann. § 40:41A-27(f)

(counties have power to “contract and be contracted with . . .

[and to] appropriate and expend moneys for county purposes.”).

When a county opts to contract work out rather than have it done

by their own employees, local governments have “considerable

breadth of discretion in framing specifications to govern work

to be performed.” Keyes Electrical Service v. Cumberland

County, 15 N.J. Super. 178, 186-87 (Law Div. 1951); See also

Armstrong v. City of Trenton, 137 N.J.L. 332, 334 (1948); Lott

Constructors v. Camden County of Chosen Freeholders, 1994 U.S.

Dist. LEXIS 2767, at * 32 (D.N.J. 1994).

Courts routinely uphold government’s “considerable breadth of discretion” to require that businesses performing publicly funded contracts must meet labor and wage standards dictated by government legislation. Courts owe great deference to

conditions imposed pursuant to government’s “proprietary power,”

such as mandating particular labor conditions for public

contracts. Building & Constr. Trades Council v. Associated

Builders & Contractors (Boston Harbor), 507 U.S. 218, 232 (1993)

(stating that requirement for union labor on a local public contract was not preempted by federal labor law). The law recognizes a long-established distinction between such

“proprietary conduct,” where the government spends its own money, and police-power regulation that covers transactions among private individuals and entities. Even during the so- called “Lochner era” when governments were barred from passing

regulatory labor standards such as minimum wage laws, courts

upheld wage requirements for public contracts as within the

governments’ proprietary powers. “It belongs to the State, as

the guardian and trustee for its people, and having full control

of its affairs, to prescribe the conditions upon which it will

permit public work to be done on its behalf, or on behalf of its

municipalities.” Atkin v. Kansas, 191 U.S. 207, 222-23 (1903).

Accord, White v. Massachusetts Council of Construction

Employers, Inc., 460 U.S. 204, 207 (1983).

In “prescrib[ing] the conditions upon which it will permit

public work to be done,” the Hudson County Freeholders joined a

long tradition of governments — at all levels — conditioning

public contracts on specific wage standards. The first such

requirements, now nearly universal, were “prevailing wage” laws.

These measures require contractors on public construction

projects to pay their workers the prevailing rate of pay in the

locality for their respective trades, usually the union wage.

Because the applicable prevailing wage varies from job

classification to job classification, prevailing wage laws

mandate not a single wage but a scale of wages for different

categories of employees in different locations.

Since 1931, the federal Davis-Bacon Act has required

contractors on public works projects subsidized directly or

indirectly by federal funds to pay their workers no less than

prevailing wages. 40 U.S.C. §§ 276a through 276a-5. New Jersey also has a statewide Prevailing Wage Law, N.J. Stat. Ann. §

34:11-56.25, requiring that every public works contract in

excess of $2000 must provide that workmen be paid at least the

prevailing wage rate. N.J. Stat. Ann. § 34:11-56.27. The law

covers the State of New Jersey, its agencies, authorities, and

political subdivisions such as cities and counties. N.J. Stat.

Ann. § 34:11-56.26(4).

Living wage laws extend the principle of prevailing wages

to government contracts other than those for public construction

projects. The rise of living wage ordinances nationwide

responds to a trend in which local governments have increasingly

outsourced government services to private firms. Many community

members and elected officials only belatedly recognized that

outsourcing often replaces well-trained and reasonably

compensated civil service employees with poorly trained

contracted workers making poverty-level wages.1 Just as federal,

state and local governments have used prevailing wage laws for

decades to ensure high quality public works, local governments

like Hudson County have started enacting living wage laws to

ensure high quality work in other government services performed

by private contractors. (See Appendix 2 for a sample of laws

passed around the country.)

All of these laws are grounded in the basic concept that

the people have the right, through their representatives, to

decide how best to spend tax revenues. Even in a misguided era

when the courts prohibited all levels of government from

regulating wages in private transactions, they recognized that

courts should not force the people’s representatives to give

money to businesses unwilling to satisfy the conditions under

which the people are willing to spend their money. Atkin v.

Kansas, 191 U.S. 207. The trial court, failing to recognize the

1 For an analysis of this impact, see Maryann Mason and Wendy Siegel, Chicago Institute on Urban Poverty, Outsourcing: Thinking Through the Outsourcing Decision 5 (1997) (finding that privatization led to wage and benefit losses of 25% to 49% for workers, dropping pay for most privatized jobs below the poverty line for a family of four.)

fundamental democratic issue at stake, took away one of the most basic powers of local government.

II. WITHOUT CLEAR DIRECTION FROM THE STATE LEGISLATURE, COURTS SHOULD NOT TAKE AWAY CITIZENS’ RIGHT TO CONTROL LOCAL GOVERNMENT SPENDING

The democratic principle that local citizens should control how their own tax money is spent is fundamental. Absent any indication that the legislature meant to disregard that principle, the court below was mistaken in holding that Hudson

County’s living wage law was preempted.

A. The New Jersey Supreme Court Requires a Clear Statement by the Legislature Before Finding Local Government Powers Preempted

Even when local spending is not involved, New Jersey courts hesitate to find local regulations preempted. The New Jersey

Constitution grants local governments broad home-rule powers that “shall be liberally construed in their favor.” N.J. Const. art. IV, § VII, ¶ 11. Local governments have not only the powers explicitly granted to them by constitution or statute but also any powers reasonably implied by those given expressly.

Id. This constitutional policy of respecting the breadth and vitality of local governments’ authority “requires a liberal construction of municipal ordinances, and therefore a finding of pre-emption must be clear.” Coast Cigarette Sales v. Long

Branch, 121 N.J. Super. 439, 444 (1972)(citing Kennedy v. City of Newark, 29 N.J. 178, 187 (1959)). The state Supreme Court

has repeatedly emphasized that preemption cannot be inferred by

courts but rather must be stated explicitly by the legislature.

Even when state legislation already exists in an area where

local government wishes to regulate, home-rule powers are

overridden only if the legislature clearly sought to prevent

local government from enacting similar legislation. As the New

Jersey Supreme Court stressed in Summer v. Teaneck, 53 N.J. 548

(1969):

[A]n intent to occupy the field must appear clearly. It is not enough that the Legislature has legislated upon the subject, for the question is whether the Legislature intended its action to preclude the exercise of the delegated police power.

53 N.J. at 554. A local law should not be struck down unless it

clearly conflicts with state law, either because the state law

contains an explicit preemption clause or because the local

ordinance would “collide with the State’s overall policy.” State

v. Ulesky, 54 N.J. 26, 31 (1969). Local ordinances that the high court has struck down have almost exclusively involved direct conflicts with decisions of state agencies or the explicit language of state statutes. See, e.g., Overlook

Terrace Management Corp. v. Rent Control Board, 71 N.J. 451

(1976) (State Housing Finance Agency board set rents for

buildings under its control, so City of West New York could not

lower rents for state-controlled buildings, although city was

free to set rents for buildings not controlled by that agency);

Tumino v. Long Beach Township, 319 N.J. Super. 514 (1999) (state had approved the building of a dock in direct conflict with a local government seeking to block it); Mental Health Ass’n v.

Elizabeth, 180 N.J. Super. 304 (Law Div. 1981) (state explicitly preempted zoning laws that blocked the placement of homes for the mentally ill or disabled).

B. The Legislature Has Not Even Hinted That Local Minimum Wage Laws Are Preempted, Much Less Given a Clear Statement to that Effect

Under this stringent standard for preemption, the state’s minimum wage law cannot be construed to preempt even a minimum wage law covering all local businesses, let alone the living wage law at issue here that covers only businesses performing public functions. The state law requires that “every employer shall pay to each of his employees wages at a rate of not less

than” the state minimum wage rate. N.J. Stat. Ann. § 34:11-56a4

(emphasis added). No employer violates the state law by paying a higher wage. Therefore, Hudson County has not put employers in a position where they cannot comply with both state and local law at the same time; no conflict exists. And since the state law clearly contemplates that some (indeed, most) employers will pay more than the minimum wage, it can hardly be contended that

Hudson County’s living wage law violates the policy expressed in the state law.

The trial court believed the state law reflected “a clear

legislative intent to deal with minimum wage issues in a uniform

and Statewide way.” Visiting Homemaker Service v. County of

Hudson, Letter Opinion at 4 (Feb. 20, 2004). But neither the

word “uniformity” nor any similar term appears in the statute.

The very term “minimum wage” implies the expectation that wages

will vary, and the whole history of minimum wages is that of

seeking a floor, not a ceiling, on wage standards. This floor-

not-ceiling concept is captured by the statute’s use of the

phrase “a rate not less than” to describe what it requires

employers to pay. N.J. Stat. Ann. § 34:11-56a4.

In this respect, New Jersey’s minimum wage law mirrors that

of the federal government and those of most (but not all) sister

states. The federal minimum wage law, known as the Fair Labor

Standards Act (FLSA), establishes a wage that all employers that

operate in interstate commerce (with various exceptions not

relevant here) must honor. 29 U.S.C. § 206(a) et seq. Yet many states, including New Jersey in the past, have enacted state minimum wage laws covering (at least in part) the same employers with higher rates than the federal minimum.

Not only states, but a number of cities, including

Baltimore, Washington, D.C., and, most recently, Santa Fe, San

Francisco and Madison,2 have passed city-wide minimum wage laws.

In each case, the city rates were higher than those set at the state level. While the specific issue of local power to adopt minimum wage laws has not come before New Jersey courts, other states with similarly expansive home rule powers have upheld local minimum wage regulations. Maryland’s highest court upheld a Baltimore minimum wage because the state minimum wage law did not expressly preempt local action. City of Baltimore v.

Sitnick, 254 Md.303, 324-26 (1969). More recently, in

anticipation of cities like Santa Fe establishing local minimum

wages, the New Mexico Attorney General issued a formal opinion

saying that the state’s minimum wage, like the federal minimum

wage, is designed only “to establish a floor below which wages

2 The District of Columbia has had a city-wide minimum wage law above the federal minimum wage for more than a decade. District of Columbia Code § 32-1001 et seq. Santa Fe passed its city- wide minimum wage in February 2003. Santa Fe City Code § 28.1 et seq. San Francisco passed its city-wide minimum wage in November 2003. San Francisco Admin. Code ch. 12R. Madison passed its city-wide minimum wage in March 2004. Madison Gen’l Ords. § 3.45. In 1964, the City of Baltimore enacted a city- wide minimum wage law, which was upheld by the Maryland Supreme Court. See City of Baltimore, 254 Md. 303. However, the city ceased updating the wage level in the 1970’s, leading it to become irrelevant when it fell below the level of the federal minimum wage.

cannot be paid in municipalities.” Federal and state laws do

“not establish a maximum wage that can be paid.” Opinion

Letter, New Mexico Attorney General Thomas Udall (Feb. 26, 1998)

(attached as Appendix 3). Similarly, the Georgia Supreme Court upheld Atlanta’s right to pass additional wage regulation beyond the state minimum wage because “the local minimum wage law does not detract from or hinder the operation of the state law, but rather it augments and strengthens it.” City of Atlanta v.

Assoc. Builders & Contractors of Ga., 240 Ga. 655, 656 (1978).3

This floor-not-ceiling approach, which is common in other

jurisdictions with respect to minimum wage laws, is the general

approach to all preemption questions in New Jersey. For

example, when the state government passed real estate licensing

laws to deal with the problem of discriminatory “blockbusting,”

local governments were free to pass tougher ordinances dealing

3 While this case involved a city prevailing wage law, the Georgia Supreme Court held more broadly that local governments were free to enact any labor law that “augmented” the minimum standards of the state minimum wage law. The Georgia legislature has recently enacted a new state law explicitly preempting cities in the state from enacting both local minimum wage and living wage laws. See 2003 Bill Text GA H.B. 1258. That action further illustrates that, absent explicit preemption language, state minimum wage laws do not preempt local wage regulation. If employers want to lobby for preemption of local regulation, the proper venue is the legislature, not the courts.

with the same problem. Though an issue may “be the concern of

the State itself,”

. . . it would not be inappropriate to permit the municipalities also to wrestle with it. There is no inevitable need for a single statewide solution or for a single statewide enforcing authority. On the contrary, it may be useful to permit municipalities to act, for, being nearer the scene, they are more likely to detect the practice and may be better situated to devise an approach to their special problems.

Summer v. Teaneck, 53 N.J. at 553. It is the nature of home rule in New Jersey that local governments will often establish their own standards or protections to supplement the minimum requirements established by the state. As the state Supreme

Court explained in upholding a local rent control ordinance,

And it is of no constitutional moment that local decisions will mean diversity of treatment within the State. Diversity is an inevitable incident of home rule, for home rule exists to permit each municipality to act or not to act or to act in a way it believes will best meet the local need.

Inganamort v. Ft. Lee, 62 N.J. 521, 529 (1973). Nothing in New

Jersey case law requires uniform rules unless the state

legislature explicitly requires uniformity. Presumably, the

legislature knows when its policy objectives require uniformity

throughout the state, and it knows how to include express

preemption clauses when necessary. It is not courts’ function

to decide on their own that uniformity is the better policy when

the legislature has chosen to remain silent.

In another case, New Jersey law once required that police

officers, fire fighters, and certain high level municipal

government officials reside in the municipality for which they

worked. Against this backdrop, Newark enacted a broader

ordinance requiring that all city employees reside in Newark.

Again, the local ordinance was held to not be preempted.

[T]he area not covered by [the state] legislation shall be left to local determination upon the principle of home rule. Had the Legislature intended to restrain local action, the more likely course would have been to express that purpose. Before it can be said that the police power delegated to local government must remain inert, it must be clear that the Legislature intended to occupy the field or declared a policy at war with the decision made by the local government.

Kennedy, 29 N.J. at 187. Similarly, while state prevailing wage laws apply to public works, that does not prohibit local government from raising wage standards for other kinds of government contracts.

In the court below, plaintiff repeatedly cited a Louisiana

case invalidating a New Orleans minimum wage.4 But that case was

very different from this one, and in fact supports the County’s

position, not plaintiff’s. The Louisiana legislature in 1997

had enacted a state statute expressly barring local governments

from passing city minimum wage laws, concluding that “decisions

regarding minimum wage policy must be made by the state so that

consistency in the wage market is preserved.” La. Rev. Stat.

Ann. § 23:642(3). When New Orleans voters in 2002 enacted a

city minimum wage law, the court (unsurprisingly) held that it

was preempted by the 1997 statute. But that ruling simply

further illustrates that, absent such express preemption, local

governments are generally presumed to retain the power to

establish wage standards higher than a state minimum. As the

New Jersey legislature has not followed Louisiana’s lead by

4 See Plaintiff’s Brief in Support of Application for Temporary

Restraining Order, Declaratory Judgment and Permanent Injunctive

Relief at 13-14, VHS v. Hudson (March 12, 2003) (citing La. Rev.

Stat. Ann. 23:642 for the proposition that Hudson County’s

ordinance “should be declared invalid.”); Plaintiff’s Brief in

Further Support of Application at 13, VHS v. Hudson County (Apr.

4, 2003) (New Jersey state legislative purpose is “similar to the policy reasons noted by the Louisiana Court. . .”).

enacting preemption legislation, or declaring any state policy

of minimum wage uniformity across the state, it must be presumed

that no such requirement exists in New Jersey.

Like Louisiana, Arizona, Colorado, Florida, Georgia,

Louisiana, Missouri, South Carolina, Oregon, Utah and Texas have

enacted preemption statutes in recent years to ban local minimum

wage laws.5 Since New Jersey, like 80% of its sister states,

has not passed a preemption law, the court below erred in

enacting by judicial decision what other states recognize

requires new legislation to accomplish.

C. Even if Minimum Wage Laws Were Preempted, Requirements To Pay a Living Wage as a Condition of Public Contracting Would Not Be

Even states that have prohibited local governments from

adopting minimum wage laws that extend to all private employers

have preserved their power to adopt living wage laws that apply

solely to employers contracting to perform services for the

local government. Thus, while there is nothing in New Jersey’s

5 Ariz. Rev. Stat. § 23-362 (2004); Colo. Rev. Stat. § 8-3-102 (2003); Fla. Stat. § 218.077 (2004); La. Rev. Stat. Ann. § 23:642 (2004); Mo. Ann. Stat. § 67.1571 (2004); Or. Rev. Stat. § 653.017 (2004); S.C. Code Ann. § 6-1-130 (2004); Tex. Lab. Code Ann. § 62.0515 (2004); Utah Code Ann. § 34-40-106 (2003); 2003 Bill Text GA H.B. 1258. New York preempts higher minimum wage rates in its home rule law prohibiting local laws that “affects...the labor law.” N.Y. Mun. Home Rule § 11(1)(f).

minimum wage statute indicating that a local minimum wage law

would be barred, even if it were, Hudson County’s narrower

living wage law would still be upheld.

The right of a local government to set wages for work

performed on public contracts is little different from its right

to establish other contract specifications that guarantee

quality performance. As the New York Court of Appeals noted in

upholding a New York City living wage requirement for public

contracts:

Such specifications are as much an incident of the city’s power to contract and be contracted with as is its right to specify the quality of the materials to be used under its contracts and, in establishing them, the city acts not as a lawmaker regulating private parties or businesses but ‘in its capacity as proprietor, issuing a mandate to its own agents’ as to the mode of performance of its contracts.

McMillen v. Browne, 14 N.Y.2d 326, 331 (1964) (quoting People v.

Crane, 214 N. Y. 154, 169 (1915), aff’d, 239 U.S. 195 (1915)).

While New York State does not allow local minimum wage laws that extend to all private employers,6 McMillen clearly establishes

that the state does permit local living wage requirements.

6 See N.Y. Mun. Home Rule § 11(1)(f); Wholesale Laundry Bd. of Trade, Inc. v. New York, 12 N.Y.2d 998 (1963).

Of the states whose statutes explicitly preempt local

minimum wages, only Georgia7 and Utah8 also prohibit local

governments from enacting living wage laws for public contracts.

Every other state legislature that has chosen to require

uniformity in minimum wage standards by banning local minimum

wage laws has left local governments’ proprietary control over

public contracts undisturbed.9

That is as it should be for a number of policy reasons

beyond the democratic principle discussed earlier. For one

thing, a local government has the same interest in the working

conditions of people providing public services whether it hires

7 2003 Bill Text GA H.B. 1258.

8 Utah Code Ann. § 34-40-106 (2003).

9 See, e.g. Fla. Stat. § 218.077 (2004) (“a political subdivision may not establish, mandate, or otherwise require an employer to pay a minimum wage, other than a federal minimum wage. . . . This section does not limit the authority of a political subdivision to establish a minimum wage other than a federal minimum wage . . . for the employees of an employer contracting to provide goods or services for the political subdivision.”); S.C. Code Ann. § 6-1-130 (2004)(“A political subdivision of this State may not establish, mandate, or otherwise require a minimum wage rate that exceeds the federal minimum wage rate . . . . This section does not limit the authority of political subdivisions to establish wage rates in contracts to which they are a party.”)

them directly as employees or contracts out the work. The trial

court’s decision would hamstring local governments in exercising

the flexibility they enjoy under N.J. Stat. Ann. § 40:41A-27 to choose between direct employment and outsourcing.

Local governments in New Jersey have broad authority to consider non-fiscal goals when making contracting decisions, just as it considers such non-monetary issues when using government employees. In other words, public contracts can advance public policy, not simply effect necessary economic transactions. In particular, when it comes to deciding whether to perform services through a contractor or through employees, much more is involved than dollars and cents.

The issue of subcontracting does not merely concern the proper technical means for implementing social and political goals. The choice of how policies are implemented, and by whom, can be as important a feature of governmental choice as the selection of ultimate goals. . . . It is a matter of general public concern whether governmental services are provided by government employees or by contractual arrangements with private organizations. This type of policy determination does not necessarily concern solely fiscal considerations.

In re Local 195, IFPTE, 88 N.J. 393, 407 (1980) (emphasis added). The New Jersey Supreme Court has consistently

recognized the right of local governments to promote social

goals through their public contracting powers.

For example, in United Bldg. & Constr. Trades Council v. Camden,

88 N.J. 317 (1982), rev’d on other grounds, 465 U.S. 208

(1984),10 the New Jersey Supreme Court upheld contract specifications adopted by the City of Camden requiring contractors to use a work force made up of at least 40% Camden residents and to meet other affirmative action mandates, even though those goals exceeded those required by state law. See 88

N.J. at 346. The requirement that 40% of contractor employees

be city residents corresponded to Camden’s hiring policies for

its own city employees. The New Jersey Supreme Court found that

Camden could extend standards it required in city employment to

contractors doing similar work:

10Although the ruling of the New Jersey Supreme Court was later reversed by the U.S. Supreme Court, the U.S. Supreme Court ruling did not - and, indeed, could not - address the issues of New Jersey law raised in Camden, since the New Jersey Supreme Court is the ultimate authority on the meaning of New Jersey law. The rulings made by the New Jersey Supreme Court in Camden on issues of New Jersey law thus remain binding precedent, as evidenced by the fact that the New Jersey Supreme Court continues to cite them as authoritative. See, e.g., George Harms Constr. Co. v. N.J. Turnpike Auth., 137 N.J. 8 (1994); In Re Township of Warren, 132 N.J. 1 (1993).

In this case no statute expressly precludes the 40% resident hiring quota that Camden has imposed upon public works contractors. Moreover, the Legislature clearly has not preempted the field in the area of local residency requirements, having given local governing bodies discretion regarding the use of residency requirements for officers and other employees.

88 N.J. at 346 (citing N.J. Stat. Ann. § 40A:9-1.3). Just as

Hudson County clearly has the right to set wages and salaries for its own employees, under Camden it enjoys the power to adopt

similar wage standards for private contractors doing government

work.

III. THE TRIAL COURT ERRED BY STRIKING DOWN A LAW SIMPLY BECAUSE IT DISAGREED WITH ELECTED OFFICIALS’ POLICY CHOICES

The trial court’s letter opinion expresses one overarching

reason for striking down the living wage law: the trial court

thought the law was a bad idea. Even if the court had been

right about that, such policy judgments are the task of the

Chosen Freeholders, not a judge. “Judging whether a statute is

effective is a matter for policymakers. . . . We do not pass

judgment on the wisdom of a law or render an opinion on whether

it represents sound social policy.” Caviglia v. Royal Tours of

America, 178 N.J. 460, 476 (2004).

In any case, the Freeholders’ judgment is backed by the experiences of scores of other cities and counties that have enacted living wage laws, as well as numerous studies of the costs and benefits of such laws.

A. The Chosen Freeholders Had Ample Reason to Believe a Living Wage Law Would Serve the Public Interest

The constellation of federal, state, and local laws establishing wage standards for government contractors reflects a widespread judgment by policymakers that the public benefits in many ways when public contracts are performed by workers who are paid more than the lowest possible wages. One benefit commonly cited by lawmakers and policy experts is the higher quality and efficiency of services provided by higher-wage employers. As the state legislature explained in New Jersey’s prevailing wage statute, refusing to pay public dollars to poverty-wage contractors avoids “the effects of serious and unfair competition resulting from wage levels detrimental to efficiency and well-being.” N.J. Stat. Ann. § 34:11-56.25.

This is not a mere hypothesis; increases in quality from prevailing wage laws are well documented. Dr. Jared Bernstein of the Economic Policy Institute summarizes the published research:

The impact of Davis-Bacon [prevailing wage] laws have been investigated quite carefully by labor

analysts. . . . Under so-called “little Davis-Bacons” (state versions of the federal law), training of employees increased substantially and as a result, occupational injuries fell. Contracts were completed more efficiently and with fewer delays. One study of the effect of repealing the little Davis-Bacon in Utah revealed that total cost overruns on state highway construction tripled after the act was repealed.11

Bernstein also noted that studies of building service contractors, a service typically covered by living wage laws, found that,

higher-wage contractors provide higher quality services leading to improved occupancy rates, a higher probability of lease extension by major tenants, and greater physical integrity of the property. The contractors paying higher wages had less turnover and offered more training, leading to higher customer satisfaction among tenants.12

Studies of the effects of living wage laws have documented similar benefits. When surveyed by the Brennan Center, cities that had enacted living wage laws reported achieving higher quality work at lower costs on city contracts. The report explained how higher-wage contractors can charge lower prices:

11 Jared Bernstein, Economic Policy Institute, Higher Wages Lead to More Efficient Service Provision: The Impact of Living Wage Ordinances on the Public Contracting Process (Aug. 2000).

12 Id.

[C]ontractors may have absorbed some of the increased

labor costs because the costs were offset by savings

resulting from decreased turnover and higher

productivity among the workers whose wages rose

because of the living wage requirements. . . . This

finding is consistent with studies that have concluded

that living wage laws generate countervailing savings

for employers that offset a portion of the increased

labor costs. For example, a study of living wage

costs at the San Francisco International Airport found

that higher labor costs were partially offset by

savings to the companies in the form of reduced

employee turnover and increased productivity.13

See Appendix 4 for the executive summary and full report. The

Brennan Center report follows a series of studies in individual cities that have reported increased efficiency and lower-than- expected costs from living wage laws.14 In fact, in a study of

13 Andrew Elmore, Brennan Center for Justice, Living Wage Laws &

Communities: Smarter Economic Development, Lower Than Expected

Costs 12 (2003).

14 See Mark Weisbrot and Michelle Sforza-Roderick, Baltimore’s

Living Wage Law: An Analysis of the Fiscal and Economic Costs of Baltimore’s City Ordinance 11 (Oct. 1996); Christopher Niedt,

city-contracted home healthcare workers — the service that is at

issue in this case — Professor Candace Howes documented

significant improvements in patient care that resulted when a

living wage increase for such workers was implemented in San

Francisco in 2000.15

Beyond the fact that decently paid workers deliver better

quality services to local governments, there is another

compelling policy reason for counties to be concerned about the

wages paid by their contractors. Outsourcing to low-wage

contractors can be penny wise and pound foolish because low-wage

workers and their families are then forced to rely on public

et al., The Effects of the Living Wage in Baltimore 6 (Feb.

1999); Bruce Nissen and Peter Cattan, Center for Labor Research and Studies, Florida Int’l. Univ., The Impact of a Living Wage

Ordinance on Miami-Dade County 22 (Oct. 23, 1998); Michael

Reich, Peter Hall, and Ken Jacobs, Institute of Industrial

Relations, Univ. of Cal. at Berkeley, Living Wages, Airport

Security and Worker Performance: The San Francisco Model 47-60

(Aug. 2002).

15 Candace Howes, Institute of Industrial Relations, Univ. of Cal. at Berkeley, The Impact of a Large Wage Increase on the Workforce Stability of IHSS Home Care Workers in San Francisco County (2002).

hospitals and other public services paid for by county taxpayers.

Government purchasers of services are in a very different position from private purchasers. When a private company contracts for a service, if the workers are paid poverty wages and have no healthcare, the only cost is the lower quality of services delivered. But when a county government contracts with a low-wage, no-health-care employer, the real cost to the county will be far higher than the nominal contract price. The county must cover many of the healthcare costs of the contractors’ employees and their families, who will inevitably show up at county emergency rooms or draw on other publicly funded social services around the county. When parents receive low wages for full-time work, children may require subsidized day care and after-school programs at taxpayer expense. “Low” bids using low-wage labor effectively shift healthcare and other social costs onto the county purchasing the services. Therefore, unless a bid by a contractor incorporates healthcare coverage or the higher wages that the contractor’s employees will need to pay for it, the bid does not reflect the contract’s real cost to taxpayers.

The reality is that allowing contractors to pay poverty- level wages just means that government ends up paying additional money in the form of public assistance. A recent study, The

Hidden Public Costs of Low-Wage Jobs in California, found that

seventy-six percent ($7.63 billion) of public assistance dollars

in that state went to single earner families with over 35 hours

of work per week or dual earner families with over 70 hours of

work per week. Moreover, 82 percent ($8.26 billion) of public

assistance benefits went to families with the equivalent of at

least one full-time job.16

Requiring a living wage can save the county millions of

dollars in indirect social costs. Researchers Robert Pollin and

Stephanie Luce estimated that a living wage law saved Los

Angeles County $3.3 million in indigent healthcare costs that it

otherwise would have had to pay.17 Similarly, projections in

Miami-Dade were that, with a living wage law, almost $5 million

(out of a total $6.3 million in increased nominal labor costs

due to the proposed law) could be saved by taxpayers through

reduction of government subsidies to poor families.18

16 Carol Zabin, Arindrajit Dube, and Ken Jacobs, The National Economic Development and Law Center, The Hidden Public Costs of Low-Wage Jobs in California 6 (May 2004).

17 Robert Pollin and Stephanie Luce, The Living Wage: Building a Fair Economy 148 (1998).

18 Bruce Nissen, Center for Labor Research and Studies, Florida Int’l. Univ., The Impact of a Living Wage Ordinance on Miami- Dade County (1998).

The evidence also rebuts the policy concerns raised by the

trial court. While the court below feared that non-uniform wage

rates could be economically disruptive (see Letter Opinion at

4), most policy research finds little disruption of labor markets from either raising the minimum wage or having non- uniform wages between bordering jurisdictions. The most prominent recent research about minimum wages was done by

Princeton economists David Card and Alan Krueger, who studied the effects of an increase in the minimum wage in New Jersey in the early 1990s compared to conditions in neighboring states like Pennsylvania that did not raise their minimum wage.

Despite the regional variation in minimum wage rates that resulted, Card and Krueger found that “the employment [i.e., job loss] effects of a minimum wage increase are close to zero.”19

In other words, even when one jurisdiction — New Jersey — has a

higher minimum wage for all employers (not just government

contractors) than a bordering jurisdiction — Pennsylvania — the

labor markets in the two jurisdictions are barely affected at

all, let alone disrupted.

Follow-up studies of other recent minimum wage increases

have similarly found little economic disruption or job losses.

For example, Jared Bernstein and John Schmitt of the Economic

19 See David Card and Alan Krueger, Myth and Measurement: The Economics of the Minimum Wage 383 (1995).

Policy Institute found “no robust, statistically significant

employment changes in response to the 1996-1997 increases”20 in the federal minimum wage. As the President’s Council of

Economic Advisors concluded in 1999:

[T]he weight of the evidence suggests that modest

increases in the minimum wage have had very little or

no effect on employment. . . . Moreover, the

unemployment rates of black teenagers and high school

dropouts ― two groups of workers most likely to be

affected by the wage hike ― are lower today than they

were just prior to the increases.21

20 Jared Bernstein and John Schmitt, Economic Policy Institute,

Economic Policy Briefing Paper, The Impact of the Minimum Wage:

Policy Lifts Wages, Maintains Floor for Low-Wage Labor Market 19

(June 2000).

21 Economic Report of the President 112 (1999). Nobel laureate

Robert Solow of the Massachusetts Institute of Technology has also explained, “The main thing about the research is that the evidence of job loss is weak. And the fact that the evidence is weak suggests that the impact on jobs is small.” Quoted in

Louis Uchitelle, A Pay Raise’s Impact, New York Times (Jan. 12,

1995), at D1. Richard Freeman of Harvard University, perhaps

the country’s foremost labor economist, has said “the entire

The court below also asserted that the ordinance would cost

taxpayers too much money, declaring that the ordinance

“necessarily must increase the bid of all competing vendors, to

the detriment of County’s taxpayers.” Letter Opinion at 3.

First, it is the Chosen Freeholders’ job to determine what is

“to the detriment of County’s taxpayers,” and the voters can throw the Chosen Freeholders out of office if they disagree with their balancing of various policy goals. But even on a factual level, the court’s statement ignores the evidence that living wage laws in other jurisdictions have improved the quality of government services received and increased well-being for workers with minor, if any, budgetary costs.

The Brennan Center report mentioned previously found that for the twenty cities and counties surveyed, “the budgetary

literature on the minimum wage [now agrees] that employment losses are modest.” Quoted in J.W. Mason, Living Wage

Junkonomics, City Limits (May 2002). The eminent Harvard economist John Kenneth Galbraith has said more pointedly, “That

[an adequate minimum wage] will diminish employment opportunity, the argument most commonly made in opposition, may be dismissed out of hand, for that is, invariably, the special plea of those who do not wish to pay the wage, and it is without empirical support.” John Kenneth Galbraith, The Good Society 67 (1996).

impact has been minimal and less than expected.” Living Wage

Laws & Communities at 1. In contrast to the trial court’s

“common-sense” assumption that contractors would pass higher wage rates along to the government, “[a]ll cities that projected a cost increase greatly overestimated the actual impact that living wage laws had on local contract programs” and found that costs were much lower than anticipated. Id. at 10. In some cases, there was no cost to the city budget despite significant increases in wages for affected workers.

B. It Is Not the Courts’ Role to Substitute Their Policy Judgment for That of the Hudson County Freeholders

1. There Can Be No Equal Protection Violation Considering the Ample Data Supporting the Living Wage Ordinance

It is not the Chosen Freeholders’ burden to prove to a judge’s satisfaction that their policy choices are the wisest possible. What the court below deems a violation of “equal protection” (see Letter Opinion at 2) is nothing more than the court imposing a substantive due process requirement on economic regulation, a requirement that both federal and state law forbids when there are no “fundamental rights” at stake and there is a rational basis for the legislation. Greenberg v.

Kimmelman, 99 N.J. 552, 563-64 (1985) (no equal protection

scrutiny for economic legislation unless fundamental rights at

stake).22

The court below found that the ordinance violated equal

protection because it covered only “a select class of

employees.” This holding conflicts with decades of blackletter

law. It was settled long ago that the political branches can

enact reforms that do not reach all instances of the targeted

harm. “[R]eform may take one step at a time, addressing itself

to the phase of the problem which seems most acute to the

legislative mind.” McConnell v. Federal Elections Comm’n, 124

S. Ct. 619, 697 (2003). Accord Williamson v. Lee Optical, 348

U.S. 483, 489 (1955). “A legislature need not run the risk of

losing an entire remedial scheme simply because it failed,

through inadvertence or otherwise, to cover every evil that

might conceivably have been attacked.” McDonald v. Board. of

Election Comm’rs, 394 U.S. 802, 809 (1969).

22 “A state statute generally does not run afoul of federal substantive due process protections if the statute ‘reasonably relates to a legitimate legislative purpose and is not arbitrary or discriminatory.’ If the statute is founded on some conceivable rational basis to promote a public purpose, it will survive constitutional scrutiny.” Caviglia, 178 N.J. at 472 (quoting Greenberg v. Kimmelman, 99 N.J. 552, 563 (1985) and Nebbia v. New York, 291 U.S. 502, 537 (1934)).

The New Jersey Supreme Court has similarly stated that legislative classifications need not be fair or all- inclusive: As long as the classification chosen by the Legislature rationally advances a legitimate governmental objective, it need not be the wisest, the fairest, or the one we would choose. It is not for the courts to determine if there is a better way to allocate resources under these programs.

Barone v. Department of Human Services, 107 N.J. 355, 370

(1987).

The magnitude and quality of evidence supporting the ordinance go far beyond anything that could be required on rational basis review. The County undeniably had a rational basis for believing that an increased living wage would improve the quality of services and the workers’ quality of life while decreasing the social costs of low-wage employment in Hudson

County.

2. Because No Fundamental Rights Are at Stake, the Trial Court’s Striking Down the Law as “Vague” Was Improper

The Hudson County ordinance requires contractors either to provide “healthcare benefits” or to pay a wage premium so that employees can afford to buy health insurance themselves. Like most statutes, the ordinance left the details of carrying out the legislative mandate to the executive branch — in this case, the county purchasing department, which is given the

responsibility of translating the ordinance’s requirements into

contract specifications for each public bidding process. In

this respect, the ordinance uses the same approach that has been

employed by numerous living wage laws around the country. Like

Hudson County’s law, these living wage laws give covered

employers the option of either providing their employees health

benefits, or else paying them a higher wage rate. And like

Hudson County’s law, these laws do not provide a detailed

definition of what constitutes “health benefits,” but instead

leave to the city agency implementing the law the responsibility

for providing any further clarification necessary.23 If all of those laws are unconstitutionally vague, courts in those states have yet to notice.

23 See, e.g., New York City Living Wage Law, N.Y.C. Admin. Code § 6-109(b)(1)(A) (“A city service contractor . . . must pay its covered employees . . . no less than the living wage and must either provide its employees health benefits or must supplement their hourly wage rate by an amount no less than the health benefits supplement rate.”); id. § 6-109(b)(3)(A) (“Health Benefits means receipt by a covered employee of a health care benefits package for the covered employee and/or a health care benefits package for the covered employee and such employee’s family and/or dependents.”); Ann Arbor City Code, ch. 23 § 1:815 (“Every contractor/vendor. . . . shall pay its covered employees a living wage as established in this Section. (a) For a covered employer that provides employee health care to its employees, the living wage shall be $8.70 an hour. . . ”).

It is conceivable that in a particular contracting process,

bidding specifications could frame the healthcare requirement in

terms too vague to provide adequate guidance to bidders. In

that case, an aggrieved bidder might be able to challenge the

flaws in that particular specification. See, e.g., L. Pucillo &

Sons, Inc. v. Borough of New Milford, 73 N.J. 349, 355-56 (1977)

(holding that a plaintiff could challenge the implementation of

a bidding ordinance where the city abused its discretion under

the ordinance). But the trial court cited no authority

justifying facial invalidation of an enabling statute on

purported vagueness grounds.

Even when First Amendment rights are at stake, and even

when a law carries criminal sanctions, courts will not strike

down a law on a facial challenge merely because it presents an

“imprecise but comprehensible normative standard,” but only when

“no standard of conduct is specified at all.” Coates v. City of

Cincinnati, 402 U.S. 611, 614 (1971). See, e.g., United States

v. National Dairy Products Corp., 372 U.S. 29, 32-33 (1963)

(upholding criminal provisions of federal Robinson-Patman Act

concerning unfair competition). See also Sabri v. United

States, 124 S. Ct. 1941, 2004 U.S. LEXIS 3384, at *19 (2003)

(warning that facial challenges lead to "premature interpretation of statutes" on the basis of “factually bare- bones records”). A requirement to provide “healthcare benefits”

to employees is a comprehensible normative standard,

particularly because the requirement will be further specified

in contracting specifications before any contractor has to

prepare its bid, let alone actually provide the required

benefits. Of course, the ordinance does not have to meet even

this test of clarity, for it is not a criminal statute. Indeed,

the trial court cited no authority for applying any constitutional vagueness test to a law that involves neither fundamental rights nor criminal sanctions.

CONCLUSION

For the foregoing reasons, amici respectfully suggest that

the judgment below be REVERSED and the Hudson County living wage

law declared legally valid.

Respectfully submitted,

______

Nathan Newman, Esq. Paul K. Sonn, Esq. Jonathan Gass, Esq. Brennan Center for Justice at New York University of Law Counsel for Amici Curiae

Appendix 1 Background on Amici

APPENDIX 1: BACKGROUND ON AMICI

The Brennan Center for Justice at New York University School of

Law is a national public interest research and legal advocacy organization, one of whose missions is to work with state and local governments across the country to develop and implement new policies to help working families. The Brennan Center has helped dozens of cities and counties in more than ten states draft, implement, and defend living wage laws. It has also litigated cases involving government funding restrictions before numerous courts, including the United States Supreme Court, and has been involved in all of the (very few) lawsuits nationally involving living wage policies.

Interfaith Community Organization is a Hudson County-based coalition of religious congregations. Interfaith Community

Organization helped found amicus Jubilee Interfaith Organization

and its members were among the original sponsors of the Hudson

County living wage law.

The New Jersey State League of Municipalities is a voluntary

association created to help communities do a better job of self-

government and endorses the position of appellant County of

Hudson that they have full power to impose wage requirements on contractors doing business with the government. The League endorses all arguments in this brief except for the suggestion in Section II.B. that the County has the power to impose a minimum wage on cities within their jurisdiction.

New Jersey Institute for Social Justice is a research and advocacy non-profit organization based in Newark, New Jersey.

The Institute’s mission is to identify and address critical issues facing struggling individuals, families and communities throughout the state. The Board of the Institute is comprised of prominent attorneys and public policy experts in the state.

Its officers include former United States Attorney General

Nicholas DeB. Katzenbach, the Honorable Dickinson R. Debevoise,

Douglas S. Eakeley, and Theodore V. Wells, Jr.

Among the issues the Institute focuses on is the ability of individuals and families to attain and maintain economic self- sufficiency. The development of equitable and meaningful economic opportunity is of particular concern to the Institute because its absence falls so disproportionately upon female- headed households and minorities. The provision of living wages to workers employed by government contractors is an appropriate strategy to ameliorate some of these concerns, and has proved effective in localities throughout the country.

Legal Services of New Jersey is the statewide support center for

New Jersey’s six regional Legal Services programs. Legal

Services offices are confronted on a daily basis with the severe difficulties experienced by people working at jobs that provide no benefits and pay wages that are far less than needed to attain economic self-sufficiency. Living wage ordinances significantly improve the lives and economic prospects of thousands of families. They are vital steps in the right direction.

The Association of Community Organizations for Reform Now

(ACORN) National Living Wage Resource Center is a national organization that assists community groups and local governments across the United States working to enact and implement living wage laws. It is part of the nation’s oldest and largest grassroots organization of low and moderate income people with over 120,000 member families organized into 600 neighborhood chapters in 45 cities across the country. Over the past eight years, ACORN chapters have been involved in over twenty living wage campaigns in various cities.

New Jersey ACORN is the state affiliate of ACORN and works on behalf of its low-income member families, including living wage and affordable housing campaigns.

Jubilee Interfaith Organization is a community-religious coalition united for justice and equality, which encompasses over forty churches and judicatory organizations along with community and labor organizations in six counties of northern

New Jersey. It is part of the Gamaliel Foundation, a faith- based network with 45 affiliated organizations in 15 states.

Jubilee members are promoting living wage laws in cities and counties around the state, and its Hudson County congregations helped sponsor the original Hudson County living wage ordinance at stake in this lawsuit. Below is a full list of the churches and other groups that are members of Jubilee.

Member Churches and Organizations of Jubilee Interfaith Organization

Bergen County: Christ Episcopal Church, Hackensack; Most Blessed

Sacrament, Franklin Lakes; Presbyterian Church of Franklin

Lakes; Presentation Roman Catholic, Upper Saddle River

Essex County: Blessed Sacrament, Newark; Grace Community

(Lutheran), Newark ; Notre Dame, North Caldwell; Sacred Heart,

(Vailsburg), Newark; St. Columbus, Newark; St. Mary's, Newark;

St. Peter Claver, Montclair; St. Rocco's, Newark; St. Stephans

(UCC), Newark; Unitarian-Universalist Church, Orange

Morris County: St. Margaret’s Roman Catholic, Morristown

Hudson County: Abundant Joy Christian Center, Jersey City; All

Nations Lutheran Church, Jersey City; All Saints Episcopal,

Hoboken; Assumption/All Saints/ St Patrick's Roman Catholic

Church, Jersey City; Bethany Lutheran, Jersey City; Calvary CME,

Jersey City; Claremont-Lafayette Presbyterian, Jersey City;

First Reformed Church of Secausus; Old Bergen Community

Presbyterian, Jersey City; Our Lady of Grace, Hoboken; Parish of

the Resurrection, Roman Catholic, Jersey City; St John's

Lutheran, Jersey City; St Matthew - Trinity Lutheran, Hoboken;

St Matthew Lutheran, Jersey City

Passaic County: Greater Faith Church of the Abundance, Haledon;

Madison Park/Etworth Presbyterian, Paterson; St. Agnes R.C.

Church, Paterson; St. Helen’s Roman Catholic, Westfield; St.

John Episcopal, Elizabeth; St. Paul's Episcopal, Paterson

Union County: United Presbyterian, Paterson

Judicatory Organizations: Catholic Family & Community Services,

Paterson; Episcopal Diocese of Newark; Hispanic Ministry Office,

Roman Catholic Diocese of Paterson; Jesuit Community of Saint

Peter's College, Jersey City; New Jersey Synod Evangelical

Lutheran Church of America; Office of Human Concerns, Roman

Catholic Archdiocese of Newark; Presbytery of the Pallisades;

Sisters of Charity, Jersey City

Labor Organizations: CWA, Local 1034; Essex-West Hudson Labor

Council, AFL-CIO; Haiti Solidarity Network of the Northeast;

Health Professionals and Allied Employees, AFT; Housing and

Community Development Network, Trenton; Laborers Eastern Region

Organizing Fund; SEIU, Local 1199; SEIU, Local 32B-32J; Seton

Hall University Institute on Work; UNITE

Appendix 2 Examples of Living Wage Laws Enacted Across the United States

APPENDIX 2- EXAMPLES OF LIVING WAGE LAWS ENACTED ACROSS THE UNITED STATES

Summaries adapted from ACORN Living Wage page http://livingwagecampaign.org/victories.php

New York City NY - November 2002 On November 27, Mayor Bloomberg signed into law a living wage ordinance that covers more workers than any other such law in the country. The law will apply to about 50,000 employees of service contractors doing business with the city, principally healthcare workers, as well as a handful of day care, food service and disability service workers. The current living wage is set at $8.60 plus health benefits or $10.10 if benefits are not provided by the employer.

Cincinnati OH - November 2002 In November, the Cincinnati City Council enacted a living wage law that obligates the city itself as well as any city service contractor with a contract worth at least $20,000 to pay a living wage of $8.70 an hour plus health benefits, or else $10.20 an hour, adjusted annually.

Bellingham WA - November 2002 In November of 2002, the City of Bellingham added living wage requirements to their municipal code. The municipal code stated that all service contractors and subcontractors covered under the code would be required to pay their employees a living wage no less than $10.00 if health benefits are included, or $11.50 if health benefits are not included.

Westchester County NY - November 2002 In November, the County Legislature approved a law will ensure pay of at least $10 per hour plus health benefits, or $11.50 an hour without benefits for most service contractors doing at least $50,000 of business with the county, mainly those providing home healthcare workers, janitors, and security guards.

Taylor MI - November 2002 In November, Taylor became the 13th Michigan city to enact a living wage law when the City Council approved an ordinance that sets a minimum hourly rate of $8.98 an hour, or $11.23 an hour without benefits, to be paid to workers who work on city contracts in excess of $50,000.

Broward County FL - October 2002 In October, the Broward County Commission approved a living wage law that sets a floor of $9.57 an hour – or $10.82 an hour if health benefits are not provided – for all County employees and companies entering into contracts with the County to provide the following services: food preparation, security, maintenance, clerical work, transportation, landscaping, printing or reproduction.

Watsonville CA - September 2002 In September, the Watsonville City Council enacted a living wage law requiring firms that enter into city service contracts (14 different services are delineated) to pay a living wage to employees performing work under those projects. The living wage is set at $11.65 an hour if the employer provides health benefits and $12.71 an hour if no benefits are provided, adjusted annually for cost of living.

Fairfax CA - August 2002 In August 2002, the Town Council of Fairfax adopted a living wage ordinance

requiring certain service contractors with city contracts greater than $10,000 and their sub-contractors, as well as business with more than ten employees receiving city subsidies greater than $15,000, to pay a minimum hourly wage of $13.00 with health benefits and $14.75 without.

Southfield MI - July 2002 In July, the Southfield City Council passed a living wage ordinance that requires employers with City contracts greater than $50,000 per year, as well as any employer receiving a tax abatement from the City, to pay hourly wages that annually total no less than 125% of the federal poverty line, currently $11.31 an hour, or 100% of the poverty line, currently $9.05 per hour, if the employer provides health benefits.

Port of Oakland CA - March 2002 In March, Oakland voters overwhelmingly (78%) approved an initiative that extends the City of Oakland’s Living Wage law to 1,500 low wage workers at Oakland’s Airport and Seaport, including baggage handlers, security guards, rental car drivers and food service workers. Oakland’s current living wage is $9.58 an hour if health benefits are provided, $11.02 if they are not.

Marin County CA - January 2002 In January, the Marin County Board of Supervisors passed a living wage ordinance requiring County service contractors – including non-profits - to pay a living wage of at least $9.00 an hour, $10.25 if employer paid health benefits are not included. Direct County employees must also be paid at least this living wage. In- Home Support Services workers whose agencies get County dollars must also be paid at least $8.50 an hour, $9.75 if no benefits are provided.

Pima County AZ - January 2002 In 2002 the Pima County Board of Supervisors voted to pass a living wage ordinance that would cover workers providing specific services to the county. The services specified in the ordinance include those who work in facility building and maintenance, refuse collection and recycling, temporary employee services, janitorial and custodial services, landscape maintenance and weed control, pest control, security, and moving services. The ordinance requires these county employees to be paid no less than $9.00 per hour, or $8.00 per hour if health benefits are provided.

Bozeman MT - December 2001 In December, the Bozeman City Commission approved an ordinance that would require that direct city employees and businesses that receive city financial assistance must pay a living wage, pegged at $8.50 per hour plus health benefits or $9.50 per hour without benefits.

Santa Cruz County CA - December 2001 In December, the Santa Cruz County Board of Supervisors passed a living wage ordinance that was further amended in August of 2002. The wage levels set by the amendment require County service contractors to pay at least $11.65 an hour if health benefits are provided by the employer, or otherwise at least $12.71, indexed annually.

Cumberland County NJ - December 2001 In December, the Cumberland County passed a law requiring firms that enter into service contracts with the county to pay a living wage of at least $8.50 an hour. Firms that do not provide health benefits must pay an additional $2.37 an hour, and those that do not offer a pension must add an additional $1.50 an hour to the base living wage.

Camden NJ - December 2001 In December, the Camden City Council passed a living wage law that would require city contractors to pay workers who receive medical benefits at least $8 an hour. Those not provided with medical benefits would have to be paid at least $9.50 an hour.

Burlington VT - November 2001 In November, the Burlington City Council passed an ordinance providing a living wage for direct city employees and employees working on city service contracts or for businesses that have received grants from the city of at least $15,000. The living wage is at least $11.67 an hour with health benefits, or $13.49 without.

Richmond CA - October 2001 In October, the Richmond City Council passed an ordinance requiring that a living wage be paid by businesses who are awarded city contracts worth over $25,000, are recipients of at least $100,000 in public subsidies, or have leases with the city and revenues over $350,000. The living wage is set at $12.47 with health benefits, $13.44 an hour without health benefits, indexed annually.

Washtenaw County MI - October 2001 In October, the County approved an ordinance that requires companies with county contractors worth at least $10,000 pay workers on those contracts at least $9.09 an hour with health benefits, or $10.66 without.

Ashland OR - September 2001 In September, the Ashland City Council voted to enact a living wage law that covers direct city employees as well as employees of city service contractors and companies that receive city grants of tax abatements worth at least $15,000. The living wage requirement is a wage and benefit package worth at least $11.26 an hour, indexed annually to inflation.

Oyster Bay NY - August 2001 In August, the Town Board passed a living wage law requiring service contractors and subcontractors performing at least $50,000 worth of janitorial or security services for the town to pay at least $9.00 and hour, or $10.25 an hour if health benefits are not provided.

Gloucester Country NJ - August 2001 In August, the Gloucester County Freeholders adopted an stating that all workers employed on contracts for the county must be paid the greater of $8.50 an hour or the federal poverty level. In addition, all such employees must be covered by a health insurance plan and an apprentice training program. If no health benefits are provided, the employer must pay an additional $2.37, to be adjusted yearly with the Consumer Price Index.

Suffolk County NY - July 2001 In July, the Suffolk County Legislature adopted a law establishing a living wage for the county. Under the law, recipients of county assistance in the form of loans, grants or tax abatements valued at $50,000 or more, and service contractors at more than $10,000 must pay a living wage of $9.00 an hour. If health benefits worth at least $1.25 an hour are not offered, the applicable living wage rate is $10.25.

Ventura County CA - May 2001 In May the Ventura County Board of Supervisors passed an ordinance requiring that all county contractors and subcontractors pay workers employed on county-financed projects a living wage of $8. If no health benefits are provided, the required wage rate is $10 an hour. The ordinance exempts in-home support workers, board and care services and printing or copying services.

Miami Beach FL - April 2001 In April, the City of Miami Beach voted to enact a living wage ordinance requiring that the City itself and certain of its service contractors with contracts over $100,000 pay employees a living wage of no less than $8.56 an hour if employer- paid health benefits are offered, or $9.81 without health benefits, indexed annually.

Pittsfield Township MI - April 2001 In April, the Pittsfield Township Board voted to enact a living wage law that requires service contractors and recipients of financial assistance such as tax breaks, loans and grants worth more than $10,000 to pay employees on those projects a living wage. The wage is defined as $8.70 an hour for employers who provide health benefits to their employees and $10.20 for those who do not.

Eastpointe MI - March 2001 The Eastpointe City Council enacted a living wage law that requires companies receiving service contracts or tax incentives of at least $5,000 from Eastpointe to pay their employees a living wage. The wage is defined as 125% of the poverty level for a family of four if health benefits are not provided, or 100% if they are. Currently the rate is $9.20 with benefits and $11.50 without.

Ann Arbor MI - March 2001 In March, the Ann Arbor City Council approved a living wage law that requires recipients of grants, loans, tax abatement and other subsidies or city service contracts that exceed $10,000 to pay at least $9.09 an hour to employees with health benefits and $10.66 an hour to employees without health benefits, indexed annually

Ferndale MI - February 2001 In February, the Ferndale City Council enacted a living wage requirement for firms who receive service contracts worth at least $25,000 from the city. The ordinance sets the living wage at $8.50 an hour for firms that provide employee health insurance, $9.75 an hour for firms that do not, indexed annually.

Rochester NY - January 2001 In January, the Rochester City Council passed an ordinance which requires all employers who enter into city service contracts worth at least $50,000 to pay employees on those contracts a living wage of at least $8.71 an hour, $9.73 if health benefits are not provided, indexed annually to inflation.

Meriden CT - November 2000 In November, the City of Meriden passed an ordinance requiring business that enter into service contracts worth at least $50,000 with the City to pay their employees at least 110% of the poverty level for a family of four, currently $9.35 an hour. If health benefits are not provided, these employers must pay an additional hourly sum to be determined and adjusted annually by the City of Meriden based on average costs of comprehensive health insurance in the state.

Santa Cruz CA - October 2000 In October, the Santa Cruz City Council passed a law such that city employees and employees of non-profit and for-profit city service contractors must earn at least $11.65 an hour with health benefits, or $12.71 an hour if benefits are not provided.

Eau Claire County WI - September 2000 County supervisors passed a law that requires companies that contract with the county in an amount over $100,000 to pay their employees at least $7.34 an hour with health benefits, or $8.07 an hour without the benefits.

San Francisco CA - August 2000 In August, the San Francisco Board of Supervisors passed a living wage law that requires city service contractors, including nonprofit agencies, and leaseholders at San Francisco International Airport to pay workers at least $9 an hour. Wages will jump to $10 an hour next year followed by 2.5 percent raises for three more years. The current rate is set at $10.25. A companion piece of the legislation requires covered employers to provide workers health insurance, join a city-run health insurance pool or pay into the City's public health system fund at the rate of $1.25 an hour per employee.

St. Louis MO - August 2000 In July of 2002, the St. Louis Board of Aldermen passed a new living wage law requiring firms that enter into city service contracts worth at least $50,000 or receive $20 million in economic development subsidies from the City pay their employees at least a living wage. The law also extends to concessionaires at the city’s airport. A living wage is defined as a wage sufficient to lift a family of three above the eligibility level food stamps, currently $9.54 an hour with health benefits and $11.63 if benefits are not provided.

Berkeley CA and Marina - June 2000, amended October 2000 In June, the Berkeley City Council approved a living wage ordinance which required that a living wage be paid to direct city employees, businesses with city contracts, financial assistance recipients, and businesses that lease land from the city after the ordinance goes into effect. In October, the ordinance was amended to provide an immediate living wage to all employees at the Berkeley Marina, which is City-owned public land, creating the first area-based living wage policy in the nation. The living wage is set at $10.76 an hour with health benefits and $12.55 without.

Toledo OH - June 2000 In June, the Toledo City Council voted 12-0 to enact a living wage ordinance that covers employees working on city contracts over $10,000 (and more the 25 employees) and employees working for recipients of subsidies from the city of more that $100,000 (with more than 50 employees). The living wage shall be at least 110% of the federal poverty level for a family of 4, currently $9.57/hour, if health coverage is provided or 130% of the poverty level, currently $11.31, without health coverage.

San Fernando CA - April 2000 In April, the San Fernando City Council voted to adopt an ordinance requiring that a living wage be paid to employees of firms holding city service contracts or receiving city grants of more than $25,000, including employees of temporary employment agencies. The initial living wage rate is set at $7.25 per hour with health benefits or $8.50 per hour if no health benefits are provided.

Warren MI - January 2000 In January, the Warren City Council approved an ordinance requiring firms that receive city contracts or tax breaks worth at least $50,000 to pay workers a wage at least equivalent to the federal poverty line for a family of four, or $8.83 an hour (the ordinance calculates the work year at 40 hrs./50 weeks a year). Firms that do not provide health benefits are required to pay at least 125% of the federal poverty line, currently $11.04 an hour.

Corvallis OR - November 1999 In November, voters in Corvallis passed an initiative prohibiting the City from entering into a contract worth $5000 or more with any company that fails to provide its employees a wage and benefit package of at least $9.00 an hour.

Hartford CT - September 1999 In September, the Hartford Common Council passed a living wage ordinance covering employees on certain city service contracts as well as employees on development projects receiving over $100,000 in city assistance. The living wage is defined as 110% of the federal poverty level for a family of four, with a health benefit plan that requires employee to pay no more than 3% of their annual wages. Without such benefits, employers must make payments to employees in lieu of benefits to be calculated annually by the Director of Human Relations, based on the average cost of comprehensive health insurance in the state. The current rate stands at $9.54, or $11.55 for workers not receiving health benefits.

Tucson AZ - September 1999 In September, the Tucson City Council approved a living wage ordinance requiring contractors providing the following services to the city to pay employees on those contracts at least $8.77 an hour or $9.87 an hour if health benefits are not provided: facility and building maintenance, refuse collection and recycling, temporary employee services, janitorial and custodial, landscape maintenance and weed control, pest control, security, moving services.

Buffalo NY - August 1999 In August, the Buffalo City Council approved an ordinance requiring city service contractors and subcontractors working on contracts greater than $50,000 to pay workers (including workfare workers) to pay a living wage. Required wages are to be phased in over three years starting at $6.22/hour in 2000, $7.15 in 2001, increasing to $8.08 in 2002 for employers providing health benefits. Currently the rate is $8.08, or $9.08 for employees not receiving health benefits.

Los Angeles County CA - June 1999 In June, the Los Angeles County Board of Supervisors became the largest governmental entity in the nation to adopt a living wage law. The ordinance requires that a living wage of $8.32 an hour with health insurance, or $9.46 without.

Ypsilanti MI - June 1999 In June, the Ypsilanti City Council passed a living wage ordinance that requires companies receiving City service contracts or financial assistance valued at over $20,000 in a given year to pay employees on that contract or project at least $8.50 an hour, or $10.00/hr. if no healthcare is provided.

Ypsilanti Township MI - June 1999 In June, the Ypsilanti Township Board passed a living wage ordinance that requires companies receiving City service contracts or financial assistance valued at over $10,000 ($20,000 for non-profits) in a given year to pay employees on that contract or project (and employees of their subcontractors or leaseholders) at least $8.50 an hour, or $10.00/hr. if no healthcare is provided.

Miami-Dade County FL - May 1999 In May, the Board of County Commissioners of Miami-Dade County voted unanimously to enact a living wage ordinance requiring that the County itself, certain of its service contractors, and airport licensees (for ground service personnel) pay employees a living wage of no less than $9.00 an hour if employer-paid health benefits are offered, or $10.30 without health benefits.

Hayward CA - April 1999 In April, the Hayward City Council approved the Hayward Living Wage Ordinance which provided that a living wage be paid to direct employees of the City of Hayward, as well as employees of certain firms contracting with the city for at least $25,000. The living wage is set at no less than $9.26 an hour if health benefits are paid to the employees, or $10.71 per hour if no such benefits are paid.

San Jose CA - November 1998 In November, the San Jose City Council voted to require companies holding city service contracts worth at least $20,000 to pay those employed on such contracts a wage of at least $10.10 an hour with health benefits, or $11.35 if the company does not provide benefits.

Detroit MI - November 1998 At the ballot box on November 3, Detroit voters overwhelmingly approved a living wage measure that requires city service contractors or recipients of city financial assistance worth $50,000 or more to pay employees a wage equivalent to the federal poverty line for a family of four, currently $9.05 an hour (the ordinance calculates the work year at 40 hrs./50 weeks a year), or 125% of the poverty line, $11.31 an hour, if no health benefits are provided.

Pasadena CA - September 1998 On September 14, the Pasadena City Council adopted a living wage ordinance which requires city service contractors (with contracts worth at least $25,000) to pay employees $7.25 per hour, $8.50 if health benefits are not provided.

Oakland CA - March 1998 In March, the Oakland City Council unanimously approved an ordinance requiring companies or non-profits that enter into service contracts with the city worth at least $25,000 or and firms that benefit from at least $100,000 in city subsidies in a year (as well as their tenants and leaseholders) to pay workers a minimum of $9.25 an hour or $8.00 if the firm provides health benefits. The wage level is to be adjusted by April 1 each year in accordance with the Bay Region Consumer Price Index, bringing the current wage requirements to $9.58 and $11.02 an hour.

Duluth MN - July 1997 In July, 1997, the City Council passed a living wage ordinance requiring recipients of city economic development assistance of $25,000 or more to pay at least 90% of employees on the assisted project at least $6.50 an hour, $7.25 if health benefits are provided. As of 2002, the living wage figures have been updated to $7.07 and $7.88.

New York City NY - September 1996 September City Council ordinance requires that employees of city contractors for security, temporary, cleaning and food services be paid the applicable prevailing wage for the industry to be determined by the City Comptroller. Currently the wage is $10.10/hour, or $8.60 without benefits

Santa Clara County CA - October 1995 County Board of Supervisors law requires manufacturing firms applying for tax abatements to disclose jobs, wage and benefit information, additional subsidies they are seeking. Tax-abated firms must pay at least $10/hr. and provide health insurance or a suitable alternative to permanent employees.

Appendix 3 Opinion Letter, New Mexico Attorney General Thomas Udall

Appendix 4 Andrew Elmore, Brennan Center for Justice Living Wage Laws & Communities: Smarter Economic Development, Lower Than Expected Costs (2003) (Executive Summary & Report) Executive Summary

Living Wage Laws & Communities: Smarter Economic Development, Lower Than Expected Costs

Andrew J. Elmore

Economic Justice Project November 2003 Living Wage Laws: Jobs Covered by Living Wage Laws Expanding Nationwide The living wage laws analyzed in this report apply to jobs In one of the most pronounced local policy trends in recent years, generated under two types of city programs: scores of cities and counties across the United States—more than one hundred as of July 2003—have adopted local “living wage” laws. City Contracts Under these laws, employers receiving city contracts or city business Cities (and other local governments) employ private contractors subsidies must pay full-time workers a wage sufficient to support to provide a range of services for the government and the public. themselves and their families at a subsistence level. Living wage laws require firms that perform city service contracts to pay their workers a “living wage”—generally set between $8 The policy goals driving these initiatives—that hard work should and $12 per hour—and to provide health benefits. be rewarded with adequate pay and benefits, and that taxpayer dollars should not support jobs that leave workers and families City Business Subsidies in poverty—have found broad support among local lawmakers and In order to attract or retain jobs in their communities, some the public. cities offer taxpayer-funded business subsidies—usually in the form of grants, tax abatements or below-market bonds or loans—to employers that pledge to open or retain facilities in Questions Raised About the community. Living wage laws require employers receiving Living Wage Laws city business subsidies to pay their workers a living wage and to provide health benefits. In assessing the value of living wage laws as policy tools, it is important to understand their costs and benefits for communities. Especially in a time of budget deficits and job losses, local policy- • Only small increases in city contract costs as a percentage of makers have had two key questions about these laws: city budgets—and less than initially expected. • Will they increase the costs of city contracts? • No significant adverse effects on city business subsidy • Will they limit the ability of cities to use business subsidies to programs—and in some cases such programs were actually increase the number of good jobs in their communities? strengthened.

To answer these questions, we asked local government officials in By collecting the actual findings of government officials in commu- communities with living wage laws to examine the impact of these nities that have implemented living wage laws, this report provides laws after they were implemented. We have collected their findings detailed information that may be valuable to other communities in this report. Significantly, local government officials found: considering whether to enact similar laws.

Table 1: Increases in City Contract Costs After Passage of Living Wage Laws, 2001

Locality City Budget Contract Cost Increase Increase as a % of City Budget Alexandria,VA $395,636,000 $265,000 0.067% Berkeley, CA $289,546,000 $229,000 0.079% Cambridge, MA $296,467,000 $150-$200,000 0.067% Hartford, CT $422,667,000 $160,000 0.038% Hayward, CA $135,400,000 $9,000 0.006% Madison,WI $159,000,000 $29,000 0.018% New Haven, CT $511,071,000 $20,000 0.003% Pasadena, CA $493,596,000 $240,000 0.049% San Jose, CA $645,000,000 $40,000 0.006% Warren, MI $136,490,000 $60,000 0.040% Ypsilanti, MI $13,000,000 $6,000 0.044% Ypsilanti Twnship, MI $24,745,000 $0 0.0%

* The twelve cities in this table represent all of those that had had a living wage law in force for at least one year as of 2001 and that were able to report to us internal assessments of the effects of their living wage laws on costs for city service contracts. Table 2: Increases in Human Services Contract Costs After Passage of Living Wage Laws, 2001

Locality Budget for Human Cost Increase for Increase as a % of Services Contracts Human Services Contracts Human Services Budget Berkeley, CA $6,099,000 $170,000 2.79% Dane Cty,WI $112,000,000 $338,000 0.3% San Francisco, CA $312,000,000 $3,714,000 1.01%

* The three localities in this table were those that covered human services contracts under a living wage law that had been in force for at least one year as of 2001 and that were able to report to us internal assessments of the resulting costs. Because these localities were able to break out their human services contracting budgets from the overall city or county budgets, we compare the cost increases to the human services budgets rather than to the overall budgets as in Table 1.

City Contracts: City Business Subsidies: Lower Than Expected Costs Smarter Economic Development

For city contracts, local officials reported that cost increases For city business subsidy programs, local officials reported that have been small and less than initially expected. they could still attract desired business development, and that living wage laws often reinforced smarter economic develop- • For most cities, contract costs increased by less than 0.1% of ment focused on creating higher quality jobs. the overall local budget in the years after a living wage law was adopted. See Table 1, at left. • Local officials reported that only in a very few instances did • Generally, in each city a few contracts involving large numbers living wage requirements that applied to business subsidy pro- of low-wage workers—for example, contracts for janitorial or grams limit their ability to attract desirable employers to their security guard services—increased substantially in price. For communities. See Table 3, following page. these few contracts, the contracting businesses submitted higher bids, or negotiated for higher prices, to perform the city • Many business subsidy programs already emphasized attracting work once the living wage requirement took effect. higher-wage jobs, so living wage laws effectively formalized and reinforced existing practices. • But the officials interviewed found that most contracts increased little, if any, in cost. In many cases, contracting • Some local officials reported that a living wage requirement employers were reported to have absorbed much or all of the increased public support for their business subsidy programs additional labor costs without demanding increased funds by assuring taxpayers that public funds would be spent to from the cities. attract only high wage jobs. • Living wage requirements encouraged some local governments • Relatively few local officials reported using their business to institute competitive bidding for contracts that had not subsidy programs to attract jobs in low-wage sectors such as been put out for bid in many years, reportedly yielding savings retail, since such jobs are less beneficial to local residents and for the cities. the economy than higher paying jobs. The few that did use subsidies to attract retail jobs reported that they were still • In localities that extended living wage requirements to human generally able to attract such employers, although some cities services such as home healthcare or child care services, cost renegotiated subsidy packages or chose to exempt some busi- increases were slightly larger—ranging from 0.3% to 2.79% of nesses from the living wage requirement. local human services budgets—although still quite moderate overall. See Table 2, above. • These increased costs reflect both the high concentrations of A Guide for Local Policymakers low wages among city-contracted caregivers, and the fact that cities have sometimes agreed to automatically pay for some Local governments, in their findings collected in this study, con- or all of the increased wage costs for such contracts because sistently report that living wage laws cause only small increases in of the vital nature of human services and the budgetary con- city contract costs, and do not interfere with city business subsidy straints faced by the non-profit agencies that often provide programs. This snapshot of the actual effects of fully implemented these services. living wage laws in a range of communities provides useful guidance for policymakers considering adopting such measures. Table 3: Impact of Living Wage Laws on City Business Subsidy Programs, 2001

Number of Projects with Number of Projects Locality Type of Projects Living Wage Conditions Cancelled Because of Each Year Living Wage Law Duluth, MI Health Care,Technology 2 0

Los Angeles, CA Mixed Use 3 0 Minneapolis, MN Technology 6-7 0 Oakland, CA Mixed use 1 0 San Antonio,TX Technology, Finance, 4 0 Manufacturing San Francisco, CA Mixed use 1 1 Toledo, OH Industrial n/a 0 Warren, MI Industrial, Manufacturing 4-6 0 Ypsilanti, MI Industrial 1 0 Ypsilanti Township, MI Technology, Industrial 5 0 * The ten cities in this table represent all of those nationally that had had a living wage requirement for recipients of city business subsidies in force for at least one year as of 2001 and that were able to report to us the impact of those requirements on their economic development programs.

The Study The Brennan Center’s

The information in this report was provided by local officials in Economic Justice Project twenty cities and counties—the entire set of cities and counties that, by late 2001, both a) had a living wage law that had been in Good jobs are essential to the long-term viability of our communities force for at least one year, and b) had the administrative capacity to and our economy. The Brennan Center’s Economic Justice Project produce cost impact estimates, formal internal evaluations, or other works with coalitions of stakeholders to create regional solutions to empirical assessments of the effects of their laws. Collecting such problems of job quality and economic competitiveness. We also work information from larger cities like San Francisco, CA and San at a broader level to help rebuild the core job and safety-net standards Antonio, TX, medium-sized cities like Oakland, CA, and smaller that have been dismantled over the past three decades. We support cities like Madison, WI and Warren, MI, the study reflects the expe- these efforts to combat growing inequality with a unique combina- riences of a broad range of communities with living wage laws. tion of research, legal assistance, and policy analysis. Brennan Center for Justice 161 Avenue of the Americas, 12th Floor New York, New York 10013 212 998 6730 fax 212 995 4550

For more information, contact Paul Sonn at [email protected]

A copy of the complete report is available on the Brennan Center’s website at http://www.brennancenter.org. Economic Justice Project November 2003

Living Wage Laws & Communities: Smarter Economic Development, Lower Than Expected Costs

Andrew J. Elmore Acknowledgments

I would like to thank Annette Bernhardt, Nathan Newman, Paul Sonn, Kate Rubin and Roslyn Powell of the Brennan Center for Justice for invaluable editorial assistance. I would also like to thank Stephanie Luce and Jen Kern for sharing their extensive knowledge about cities and counties with living wage laws, and for their insightful comments on earlier drafts. I am grateful to the University of California Institute for Labor and Employment for generous funding and support of this project. Finally, many thanks to the administrators and policymakers in the participating local governments whose observations and studies of their living wage programs provided the basis for this report.

About the Author

The author graduated from the UCLA School of Law with a concentration in the Program in Public Interest Law and Policy. He is a Staff Attorney and Skadden Fellow with the Legal Aid Society in New York City.

The Brennan Center’s Economic Justice Project

Good jobs are essential to the long-term viability of our communities and our economy. The Brennan Center’s Economic Justice Project works with coalitions of stakeholders to create regional solutions to problems of job quality and economic competitiveness. We also work at a broader level to help rebuild the core job and safety-net standards that have been dismantled over the past three decades. We support these efforts to combat growing inequality with a unique combination of research, legal assistance, and policy analysis.

Brennan Center for Justice 161 Avenue of the Americas, 12th Floor New York, New York 10013 212 998 6730 fax 212 995 4550 For more information, contact Paul Sonn at [email protected]

A copy of the complete report is available on the Brennan Center’s website at http://www.brennancenter.org Table of Contents

Introduction 1

Questions Asked 1

Key Findings 2

Background: What Is a “Living Wage” Law? 3

Methodology 4

Relationship to Other Research 5

Findings 6

City Contracts: Lower Than Expected Costs 6

Table 1: Increases in City Contract Costs After Passage of Living Wage Laws, 2001 6

Table 2: Increases in Human Services Contract Costs After Passage of Living Wage Laws, 2001 7

Table 3: Comparison of Cost Projections with Actual Increases in Contract Costs 8

Factors That May Account for Limited Impact on Contract Costs 9

Relatively Few Service Contracts Have Large Concentrations of Low-Wage Workers 9

Contractors Absorbed Some of the Labor Cost Increases 9

City Business Subsidies: Smarter Economic Development 11

Employers Have Continued to Seek City Business Subsidies in Localities Where 11 Subsidized Jobs Must Pay a Living Wage

Table 4: Impact of Living Wage Laws on City Business Subsidy Programs, 2001 12

Limited Impact Even on Business Subsidy Programs That Target Employers 12 in Lower Paying Sectors Such as Retail

Factors That May Account for Limited Impact on Local Business Subsidy Programs 13

Firms Targeted by Economic Development Agencies Already Paid Higher Wages 14

Living Wage Laws Increased Public Confidence in Business Subsidy Programs 14

Living Wage Laws Helped Focus Business Subsidy Programs 14

Conclusion 16 Living Wages & Communities: Smarter Economic Development, Lower Than Expected Costs

Introduction

In one of the most pronounced local policy trends in recent years, scores of cities and counties across the United States—more than one hundred as of July 2003—have adopted local “living wage” laws. Under these laws, employers receiving city contracts or city business subsidies must pay full-time workers a wage sufficient to support themselves and their families at a subsistence level.

The policy goals driving these initiatives—that hard work should be rewarded with adequate pay and benefits, and that taxpayer dollars should not support jobs that leave workers and families in poverty—have found broad support among local lawmakers and the public.

Questions Asked

In assessing the value of living wage laws as policy tools, it is important to understand their costs and benefits for communities. Especially in a time of budget deficits and job losses, local policymakers have had two key questions about these laws: • Will they increase the costs of city contracts? • Will they limit the ability of cities to use business subsidies to increase the number of good jobs in their communities?

To answer these questions, we asked local government officials in communities with living wage laws to examine the impact of these laws after they were implemented. We have collected their findings in this report. Significantly, local government officials found: • Only small increases in city contract costs as a percentage of city budgets—and less than initially expected. • No significant adverse effects on city business subsidy programs—and in some cases such programs were actually strengthened.

By collecting the actual findings of government officials in communities that have implemented living wage laws, this report provides detailed information that may be valuable to other communities considering whether to enact similar laws.

Jobs Covered by Living Wage Laws The living wage laws analyzed in this report apply to jobs generated under two types of city programs:

City Contracts City Business Subsidies Cities (and other local governments) employ private In order to attract or retain jobs in their communities, contractors to provide a range of services for the gov- some cities offer taxpayer-funded business subsidies— ernment and the public. Living wage laws require firms usually in the form of grants, tax abatements or that perform city service contracts to pay their work- below-market bonds or loans—to employers that ers a “living wage”—generally set between $8 and $12 pledge to open or retain facilities in the community. per hour—and to provide health benefits. Living wage laws require employers receiving city business subsidies to pay their workers a living wage and to provide health benefits.

1 Living Wages & Communities: Smarter Economic Development, Lower Than Expected Costs

Key Findings

For city contracts, local officials reported that cost increases have been small and less than initially expected. • For most cities, contract costs increased by less than 0.1% of the overall local budget in the years after a living wage law was adopted. See Table 1 on page 6. • Generally, in each city a few contracts involving large numbers of low-wage workers—for example, contracts for janitorial or security guard services—increased substantially in price. For these few contracts, the contracting businesses submitted higher bids, or negotiated for higher prices, to perform the city work once the living wage requirement took effect. • But the officials interviewed found that most contracts increased little, if any, in cost. In many cases, contracting employers were reported to have absorbed much or all of the additional labor costs without demanding increased funds from the cities. • Living wage requirements encouraged some local governments to institute competitive bidding for contracts that had not been put out for bid in many years, reportedly yielding savings for the cities. • In localities that extended living wage requirements to contracts for human services such as home healthcare or child care, cost increases were slightly larger—ranging from 0.3% to 2.79% of local human services budgets—although still quite moderate overall. See Table 2 on page 7. • These increased costs reflect both the high concentrations of low wages among city-contracted caregivers, and the fact that cities have sometimes agreed to automatically pay for some or all of the increased wage costs for such contracts because of the vital nature of human services and the budgetary constraints faced by the non-profit agencies that often provide these services.

For city business subsidy programs, local officials reported that they could still attract desired business development, and that living wage laws often reinforced smarter economic development focused on creating higher quality jobs. • Local officials reported that only in a very few instances did living wage requirements that applied to business subsidy programs limit their ability to attract desirable employers to their communities. See Table 4 on page 12. • Many business subsidy programs already emphasized attracting high-wage jobs, so living wage laws effectively formalized and reinforced existing practices. • Some local officials reported that a living wage requirement increased public support for their business subsidy programs by assuring taxpayers that public funds would be spent to attract only high-wage jobs. • Relatively few local officials reported using their business subsidy programs to attract jobs in low- wage sectors such as retail, since such jobs are less beneficial to local residents and the economy than higher paying jobs. The few that did use subsidies to attract retail jobs reported that they were still generally able to attract such employers, although some cities renegotiated subsidy packages or chose to exempt some businesses from the living wage requirement.

2 Living Wages & Communities: Smarter Economic Development, Lower Than Expected Costs

Background:What Is a “Living Wage” Law?

Over the past decade, increasing numbers of cities and counties across the United States have adopted “living wage” laws.1 These local laws typically require that in order to receive service contracts or business subsidies from the local government, employers must agree to pay their workers a wage higher than the current federal and state minimum wages. The “living wage” label communicates that the higher wage levels required—typically from $8.00 to $12.00 per hour—are closer to the pay that full- time workers need to support themselves and their families at a subsistence level.2 The goal of living wage laws, according to many local governments, is to create city contracting and business subsidy programs that prioritize high-wage job creation and do not inadvertently perpetuate poverty. Frequently, living wage laws index the “living wage” at or above the federal poverty level and require employers to provide benefits, such as health care and paid leave.

Cities and counties have long relied on private contractors to provide a range of services for both the government and the public. In recent decades this practice has only increased. Work needed by local governments such as guarding and cleaning public buildings, maintaining public parks, and staffing publicly-owned facilities ranging from parking garages to convention centers is now often performed by employees of private contractors. For some local governments, especially counties, service-contracting programs may also include the purchase from non-profit agencies of human services such as childcare or home healthcare for low-income local residents.

When localities adopt living wage laws, firms that bid for and win city contracts must agree to pay their workers the wages and benefits specified. While many of the first generation of living wage laws exempted from coverage human services contracts performed by non-profit agencies, recent ordinances—especially those adopted at the county level—have increasingly included such programs in their coverage. In promoting living wages for contracted human services workers, local governments emphasize that this sector contains some of the largest concentrations of publicly subsidized low-wage workers, and that low pay in human services programs contributes to staff retention and recruitment problems that can compromise the quality of care provided.3

Many living wage laws also cover local business subsidy programs. Such programs are generally designed to attract or retain desirable jobs in a locality by providing taxpayer-funded subsidies—usually in the form of grants, tax abatements or below-market bonding or loans—to businesses that pledge to open or retain facilities there. Some local business subsidy programs focus chiefly on attracting individual firms to the community. Others focus on subsidizing development projects that will attract clusters of businesses or large numbers of consumers, such as sports stadiums, convention centers or large-scale commercial zones. Local governments explain that by applying living wage standards as eligibility criteria for companies seeking city business subsidies, they maximize the return on taxpayer dollars by targeting the subsidies to employers that create better paying jobs.

Living wage laws vary considerably in coverage and scope. Some laws exempt certain categories of city contractors, such as non-profit agencies. Many apply the requirements only to service contracts or business subsidy awards above a specific size, or to firms with at least a certain number of employees. Most laws require employers to pay the higher wages and benefits only during the time that employees actually perform the publicly funded work. Under some laws, the city or county may grant exemp- tions to individual firms that demonstrate that they cannot reasonably afford to pay their employees a living wage due to budgetary or other constraints.

3 Living Wages & Communities: Smarter Economic Development, Lower Than Expected Costs

Methodology

In order to examine the effects of living wage laws on local governments, we interviewed officials and administrators from twenty cities and counties that had enacted and implemented living wage laws at the time the study was done. The information in this report was provided by local officials in twenty cities and counties—the entire group of cities and counties that, by late 2001, had both (1) a living wage law that had been in force for at least one year, and (2) the administrative capacity to produce cost impact estimates, formal internal evaluations, or other empirical assessments of the effects of their laws.4 In many cases, localities had conducted the necessary analysis to report on the effects of their living wage in just one of the two focus areas—service contracts and business subsidies—but not both. Combining larger cities like San Francisco, CA and San Antonio, TX with medium-sized cities like Oakland, CA and smaller cities like Madison, WI and Warren, MI, the study reflects the experiences of a broad range of communities.

In compiling this report, we (1) conducted structured interviews with government administrators and lawmakers; and (2) analyzed studies done by the localities themselves. In all these communities, some sort of centralized authority possessed information on the local government’s experience with its living wage law. In some localities, this took the form of an administrator charged with overseeing implementation. In a number of the communities, the locality had conducted a formal review of the law’s impact that examined its effects on costs of city contracts or on the operation of city business subsidy programs. We focused our questioning on the living wage laws’ effects on the local governments’ contract costs and city business subsidy programs. In an effort to limit the possible effects of biases by lawmakers and administrators—biases either in favor of or against the living wage policy—we attempted wherever possible to draw data from several sources, including interviews with different city officials and written city reports or analyses.

While this report does not reveal every aspect of the effects of these laws, the experiences and analyses of local officials with firsthand knowledge offer important insights into the impact of living wage laws.

4 Living Wages & Communities: Smarter Economic Development, Lower Than Expected Costs

Relationship to Other Research

As the first comprehensive overview of the direct experiences of a group of cities and counties with living wage laws, this report adds to our understanding of the effects of these policies.

Our findings that living wage laws have resulted in only modest cost increases for cities are consistent with most of the existing research on living wages. Studies conducted prior to the adoption of living wage laws have projected their likely cost impacts on both the payrolls of city contractors and on prices for city contracts. Most have predicted that only a portion of the higher wage costs would be passed on to cities in the form of higher contract prices.5 As more living wage laws have been enacted, researchers have begun to use actual city contracting and budget data to assess the impact of living wage laws in individual cities after their implementation. Several studies analyzing city contract prices relatively shortly after living wage laws were adopted found that cost increases were generally modest.6 More comprehensive recent research analyzing contract costs in three cities several years after living wages were implemented found that contract costs decreased in real terms in the aggregate, although some individual contracts increased in price, particularly those that were bid on an hourly basis and that involved large concentrations of low-wage workers.7

One recent study attempted to assess indirectly the impact of living wage laws on local economies by looking for trends in regional poverty and employment data in cities with living wage laws.8 However, because only a tiny percentage of workers covered by living wage laws are included in those regional data sets, the study’s approach and findings have been called into question by other researchers.9

5 Living Wages & Communities: Smarter Economic Development, Lower Than Expected Costs

Findings

City Contracts: Lower Than Expected Costs

We interviewed administrators and lawmakers from a total of fourteen cities and counties to assess the degree to which living wage laws increased the costs of city service contracts. (Six other localities from the total of twenty cities and counties studied were able to assess the impact of living wage laws on their business subsidy programs, but not on their service contracts.) One would expect that requiring higher wages would result in some increase in the cost of service contracts. However, as summarized in the following tables, the reported increases in service contract prices were consistently very small— generally ranging between 0.003% and 0.079% of the localities’ budgets.

Table 1: Increases in City Contract Costs After Passage of Living Wage Laws, 2001

Locality City Budget Contract Cost Increase Increase as a % of City Budget Alexandria,VA $395,636,000 $265,000 0.067% Berkeley, CA $289,546,000 $229,000 0.079% Cambridge, MA $296,467,000 $150-$200,000 0.067% Hartford, CT $422,667,000 $160,000 0.038% Hayward, CA $135,400,000 $9,000 0.006% Madison,WI $159,000,000 $29,000 0.018% New Haven, CT $511,071,000 $20,000 0.003% Pasadena, CA $493,596,000 $240,000 0.049% San Jose, CA $645,000,000 $40,00010 0.006% Warren, MI $136,490,000 $60,000 0.040% Ypsilanti, MI $13,000,000 $6,000 0.044% Ypsilanti Twnship, MI $24,745,000 $011 0.0%

As expected, contract costs did increase modestly as a result of living wage laws: • Cost increases for mid-sized cities—Alexandria, VA, Berkeley, CA, Cambridge, MA, Hartford, CT, New Haven, CT, Pasadena, CA, and San Jose, CA—ranged from $40,000 to $265,000. • Smaller cities—Hayward, CA, Madison, WI, Warren, MI, and Ypsilanti, MI—reported minor cost increases of between $10,000 and $60,000. • These service contract cost increases represent a very small proportion—in all cases less than 0.08%—of the cities’ operating budgets.12 • This modest impact led most administrators to report that contract costs as a whole did not increase significantly after passage of a living wage law.13

As Madison’s comptroller stated, “[from a] city-wide view, the actual fiscal impact [of the living wage law] has been negligible.”14

However, administrators did note significant increases in costs for specific contracts in sectors involving labor-intensive work performed by large numbers of low-wage workers. In some localities, several such contracts increased substantially in cost:

6 Living Wages & Communities: Smarter Economic Development, Lower Than Expected Costs

• In Hartford, a contract for security services, the first contract covered by the city’s living wage law, increased by $160,392 or 30.5% from the year before.15 • Two of the 23 contracts covered by the Alexandria, VA living wage law increased by over 20%, with an average increase of 10.6%.16 • Similarly, Warren, MI reported a contract price increase of $61,848 or 22% from the previous year following the re-bidding of its janitorial contract.17 • Compliance with Berkeley’s living wage law caused that city’s security contract to increase from $55,000 to $114,000, doubling in price.18 L These significant increases are not sur- prising given living wage laws’ focus on As Madison’s comptroller stated, increasing pay for workers at the bot- tom of the economic scale. One would “[from a] city-wide view, the actual expect contracts for labor-intensive services such as security, groundskeep- fiscal impact [of the living wage law] ing, and janitorial services to increase has been negligible.” because such contracts usually employ a large low-wage workforce. M

The living wage laws in the above cities generally did not cover contracts for social services such as home healthcare or child care, which typically involve large concentrations of low-wage workers. Human and social services contracts were not covered in many communities, either because such services tend to be provided by counties rather than cities, or because some of the earlier living wage laws exempted non-profit human services providers from coverage.

However, three of the localities studied—Berkeley, CA, Dane County, WI, and San Francisco, CA— did have substantial contracting programs in the human services area that were covered by their living wage laws. Moreover, unlike most cities, these localities were able to provide more refined data show- ing the increase in contract costs as a percentage of the annual human services contracting budget rather than as a percentage of the overall municipal budget. We therefore list these increases as a percentage of their human services budgets with the reminder that, as a percentage of the overall municipal budget, these costs would be substantially smaller. In all three cities, the impact on the overall city budget was still manageable. But these figures indicate that cities planning to cover human services programs under their living wage laws should prepare for modest increases in their human services budgets to accommodate the higher labor costs.

Human services contracts covered by living wage laws saw slightly larger average cost increases than did other categories of contracts:

Table 2: Increases in Human Services Contract Costs After Passage of Living Wage Laws, 2001

Locality Budget for Human Cost Increase for Increase as a % of Human Services Contracts Human Services Contracts Services Budget Berkeley, CA $6,099,000 $170,000 2.79% Dane Cty,WI $112,000,000 19 $338,000 20 0.3% San Francisco, CA $312,000,000 21 $3,714,000 22 1.01%

7 Living Wages & Communities: Smarter Economic Development, Lower Than Expected Costs

• Berkeley, CA saw costs increase in its human services budget by $170,000 to meet its living wage requirement of $9.75 an hour. • Dane County, WI increased its human services budget by $676,000 between 2001 and 2002 in order to raise the minimum wages of approximately 645 full-time human services personnel to $8.53 an hour.23 • San Francisco increased its human services contracts by $3,714,000 in order meet its living wage requirement of $9.00 an hour.24 Although these increases were among L the largest average increases reported by the localities reviewed in this study, they These experiences suggest that local still represent a modest proportion of these local governments’ human servic- governments that extend living wage es budgets. The largest proportional laws to non-profit human services increase occurred in Berkeley, CA, where the human services contracts programs can anticipate slightly totaling $6,098,578 increased by larger — but, overall, still quite 2.79% as a result of the living wage law. In San Francisco, where the human modest — increases in the costs services contract budget is $312 million, the living wage resulted in a cost of such contracts. increase of approximately 1%. The M increase in Dane County represents a 0.3% increase in the locality’s current $112 million human services budget. These experiences suggest that local governments that extend living wage laws to non-profit human services programs can anticipate slightly larger—but, overall, still quite modest—increases in the costs of such contracts.

In preparing for implementation of their living wage laws, several cities made budget impact projections based on the assumption that contractors would pass through the entire cost of the increased wages to the city in the form of higher contract prices. However, all of the cities that did so reported to us that their projections substantially overestimated the actual impact that their living wage law had on local contracting costs. As shown in Table 3, actual cost increases ranged from 30% to 50% lower than projections.

Table 3: Comparison of Cost Projections with Actual Increases in Contract Costs

Locality City Budget Projected Increase Actual Increase Difference Alexandria $385,636,353 $500,00 $265,988 -47% Berkeley $289,546,000 $479,425 $228,800 -52% Cambridge $296,466,580 $300,00 $150-200,000 -33%–50% Pasadena $493,596,335 $340,000 $240,000 -30%

Other reports from local governments suggest that many localities experienced smaller contract price increases than they anticipated: • In Dane County, an analysis of four contracts involving low-wage work that county staff had projected would increase in cost revealed that only one did so (by 10.2%) from 2001 to 2002, while the other three contracts actually decreased in cost.26

8 Living Wages & Communities: Smarter Economic Development, Lower Than Expected Costs

• The New Haven Controller reported that “we originally thought [that the living wage law would have] a significant impact [on agency budgets].” However, reports from agencies after the first year of implementation show that New Haven contracts have never exceeded their line in the budget, despite the law’s increased coverage as more contracts have been re-bid with the living wage requirement.

These modest cost increases suggest that only a portion of the higher labor costs resulting from living wage laws end up being passed on to cities in the form of higher contract prices. Factors That May Account for Limited Impact on Contract Costs

The modest increases in contract costs resulting from living wage laws have surprised some observers and have led to an examination of why this is the case. The experiences reported to us by the cities and counties in the sample suggest that two factors contribute to this result: the small number of covered service contracts that involve large concentrations of low-wage workers, and an evident capacity of many contractors to absorb a portion of the higher labor costs.

Relatively Few Service Contracts Have Large Concentrations of Low-Wage Workers

One reason why the cost impact of living wage laws tends to be so small is that, in most localities, relatively few of the covered service contracts involve large concentrations of low-wage workers. To begin with, most living wage laws incorporate minimum size thresholds that exclude from coverage small businesses or businesses with small city contracts. Among those service contracts that are covered, many involve relatively few workers whose pay must be raised to meet the living wage standard. In most cities it is only a handful of contracts—typically those for janitorial and security guard services— in which substantial numbers of workers must be given raises in order to meet the living wage. This is particularly true for city-level living wage laws, which seldom cover non-profit human services programs—the service contracting area generally involving the largest concentrations of low-wage staff.

However, the limited number of covered service contracts involving large concentrations of low-wage workers does not fully explain the small contract cost increases that cities have experienced. As explained earlier, several cities found that contract cost increases were substantially lower than projected—projections that generally took into account the distribution of low-wage workers under the covered contracts.

Contractors Absorbed Some of the Labor Cost Increases

Based on reports from cities and counties, a second key factor contributing to limited con- L tract cost increases appears to have been contractors absorbing some of the new labor costs A policymaker in Ypsilanti Township, rather than fully passing them on to the locali- MI remarked that the Township’s ties through higher contract prices. major contracts had Why did contractors absorb some of the costs? “more bidders than ever before, First, the enactment of living wage laws led sev- at even better rates.” eral local governments to open for competitive bidding some contracts that had not been sub- M ject to this process for some time. Many

9 Living Wages & Communities: Smarter Economic Development, Lower Than Expected Costs administrators believe that this newly competitive contracting environment led contractors to be more willing to absorb some of the increased costs associated with the living wage law in order to remain competitive and secure the highly valued contracts. A policymaker in Ypsilanti Township, MI remarked that the Township’s major contracts had “more bidders than ever before, at even better rates.” She attributed the lower bids to the living wage law, which subjected contracts to a competitive bidding process with fixed wage and benefit requirements. In order to remain competitive, bidders had to “be tighter and provide less of a profit margin.”28 In fact, an administrator from Alexandria found that “[t]here have been some competitive advantages to rebidding. We have seen some incumbents who lost on the second go-round, and it may be due to the bidding process.”29 Contractors plainly saw the contracts as desirable despite costs associated with the living wage laws. L Similarly, costs appear to have been kept down in circumstances where cities nego- A study of living wage costs at the tiated directly with their contractors to share the cost increase. For example, in San Francisco International Airport the first year that it implemented its liv- found that higher labor costs were ing wage law, the Pasadena Purchasing Department projected the additional partially offset by savings to the labor costs that the living wage mandate companies in the form of reduced would generate on five service contracts, and negotiated for a cost split between employee turnover and increased the city and the contractors, with the contractors absorbing nearly half of the productivity. total labor cost increase.30 M

In addition, some contractors appear to have absorbed some of the living wage-related labor cost increases, even in the absence of a competitive bidding process.

• For example, an analysis by the San Jose Contract Compliance office found that in San Jose’s contract with the city’s convention center, the living wage requirement increased labor costs by 4%, yet the cost of the contract increased by only 1.5%.31 The city’s analysis concluded that 61% of the increased costs were simply absorbed by the convention center. • In Hayward, CA, after examining the payroll records of all service contracts covered by the city’s living wage law, Hayward’s auditor concluded that service contractors changed their pay scales to comply with the living wage requirements without demanding an increase in the contract prices from the city. The auditor attributed the contractors’ willingness to absorb the increased labor costs to the modest size of the cost increases created by the living wage on most city contracts.32 • The director of purchasing of San Francisco remarked that the living wage law was a “non-event” among for-profit service contractors, and that contractors typically paid the living wage requirement without complaint or a request to modify in the contract.33

These reported experiences of cities and counties generally suggest that where service contracts reflect generous or above-market profit margins (as may be the case for contracts that have not been com- petitively bid for some time) and a living wage law increases labor costs modestly, contractors are likely to absorb a significant share of the increased labor costs. On the other hand, where contracts have small, defined profit margins and involve large concentrations of low-wage workers (as is often the case for non-profit human services contracts), the cost increases resulting from a living wage law will be larger and it may be necessary for the local government to bear a greater proportion of them.

10 Living Wages & Communities: Smarter Economic Development, Lower Than Expected Costs

Finally, contractors may have absorbed some of the increased labor costs because the costs were offset by savings resulting from decreased turnover and higher productivity among the workers whose wages rose because of the living wage requirements. When the Pasadena Budget Administrator interviewed contractors affected by that city’s living wage requirement, a number reported that the higher wages had reduced turnover in their workforces.34 This finding is consistent with studies that have concluded that living wage laws generate countervailing savings for employers that offset a portion of the increased labor costs. For example, a study of living wage costs at the San Francisco International Airport found that higher labor costs were partially offset by savings to the companies in the form of reduced employee turnover and increased productivity.35 City Business Subsidies: Smarter Economic Development

City and county business subsidy programs typically provide taxpayer-funded grants, tax abatements or subsidized loans to businesses that in exchange pledge to create or retain jobs in the locality. In recent years, localities have begun to include such programs under their living wage laws. As explained by staff in the cities and counties in our study, doing so effectively establishes a city policy that business subsidies must be reserved for creating better-paying jobs in the locality. Our investigation examined the experiences of cities and counties that have extended living wage requirements to their business subsidy programs. Our aim was to learn whether cities and counties found such requirements impeded the efficacy of their programs.

Employers Have Continued to Seek City Business Subsidies in Localities Where Subsidized Jobs Must Pay a Living Wage

Local policymakers have sometimes voiced concerns that living wage laws could harm local economies by deterring firms from participating in business subsidy programs—and therefore from locating or remaining in a community. Some have feared that it might be unrealistic to recruit businesses willing to pay higher wages and that a living wage requirement might prevent a city from attracting minimum wage employers—businesses that, while perhaps less valuable to the local economy, might nonetheless offer some benefits such as generating sales tax revenue.

In order to assess whether businesses might be deterred from participating in business subsidy programs because they are unwilling to pay higher wages to their employees, we looked at ten cities with a living wage requirement for subsidized economic development projects: Duluth, MN; Los Angeles, CA; Minneapolis, MN; Oakland, CA; San Antonio, TX; San Francisco, CA; Toledo, OH; Warren, MI; Ypsilanti, MI; and Ypsilanti Township, MI. These ten cities represented all of those nationally that had had a living wage requirement for subsidized economic development projects in place by 2000— a year before the study began—and where we were able to identify a city administrator able to assess the impact of the living wage policy on the city program.

We interviewed policymakers and economic development personnel in these cities, and examined reports prepared by the economic development departments of Duluth, MN, Toledo, OH and Oakland, CA to determine whether businesses have continued to participate in business subsidy programs in localities where subsidized jobs must pay a living wage. As Table 4 on the next page shows, almost no adverse impact on subsidized economic development projects could be detected.

Overall, administrators concluded that the requirement to pay a living wage and health benefits to employees did not result in fewer applicants for business subsidies.36 In fact, a number of cities reported banner years for economic development in 2001, with correspondingly low local unemployment levels.37 Administrators who noted a decline in economic development since 2001 attributed this to general economic conditions, rather than to business concerns about the living wage requirement.

11 Living Wages & Communities: Smarter Economic Development, Lower Than Expected Costs

Table 4: Impact of Living Wage Laws on City Business Subsidy Programs, 2001

Number of Projects with Number of Projects Locality Type of Projects Living Wage Conditions Cancelled Because of Each Year Living Wage Law

Duluth, MI Health Care,Technology 2 0

• Minneapolis, which has had a living wage requirement in effect since 1998, has seen no drop in applications for business subsidies under its economic development program, and no complaints from businesses since it implemented its living wage policy.38 • In San Antonio, which last year expanded its living wage policy to incorporate a base living wage standard for all of business subsidy recipients’ employees, the Economic Development Department successfully recruited a grocery firm to locate its meat distribution plant in the city, which is expected to create 40 new jobs at or above the $8.75 living wage rate.39 In negotiating the project, the company raised no objections to the wage requirement.40 • In Toledo, which experienced a drop in applications for subsidized loans for machinery and equipment in 2001, the economic development administrator attributed the decrease to current economic uncertainties—not the obligation to pay a living wage.41 • Similarly, administrators in Los Angeles and Oakland attributed any reduction in retail development to the recent decline in tourism, rather than the living wage requirement.

Limited Impact Even on Business Subsidy Programs That Target Employers in Lower Paying Sectors Such as Retail

Generally, few cities use economic development funds to subsidize the creation or retention of jobs in low-wage sectors such as retail. Many localities do not see providing business subsidies to retailers, whose employees generally earn at or just above the minimum wage, as the best use of scarce economic development dollars. As Karen Lovejoy Roe, Supervisor of Ypsilanti Township, explained, “the Township Board . . . feels that if you are going to cut a person’s taxes to promote economic development, it’s only worthwhile if the employees are making a decent living standard.”42 As a result, few of the localities provided subsidies directly to retail establishments.

However, more communities do choose to subsidize mixed-use development projects, which may include some combination of office, housing, and retail space. The economic development departments in San Francisco, Oakland, and Los Angeles have mandated that developers of mixed-use development projects make efforts to ensure that their retail tenants pay the living wage rate. In these instances, local governments have had mixed success with retail establishments.

12 Living Wages & Communities: Smarter Economic Development, Lower Than Expected Costs

• In Oakland, city officials reported that two retail development projects had been cancelled in recent years, but attributed the result to factors other than the living wage law.43 • In Los Angeles, developers of two subsidized projects, including the Staples Center stadium development project, agreed without complaint to the living wage requirement, while a third project proceeded by exempting some retail and restaurant staff from the requirement.44 • In San Francisco, a supermarket, while claiming that it paid its employees a living wage, chose not to accept a business subsidy package citing a desire not to be subject to the living wage reporting requirement.45 L Generally, cities reported that the overall economic climate and traditional eco- The experiences of these cities nomic development concerns were the dominant factors in decisions by devel- and counties suggest that living wage opers whether to seek or accept public business subsidies for economic develop- requirements may help cities in ment projects involving retail compo- directing public funds away from nents. Cities interviewed, such as Oakland, attributed developer decisions retail projects that often bring not to pursue subsidized retail develop- fewer economic returns to ment projects chiefly to traditional considerations, such as project location, their communities. availability of parking, and consumer M spending, rather than the applicability of a living wage requirement.

Finally, the experiences of these cities and counties suggest that living wage requirements may help cities in directing public funds away from retail projects that often bring fewer returns to their communities. In fact, Oakland’s experience indicates that the failure of its proposed retail projects may have been a blessing in disguise. Using the same land and fewer taxpayer resources, Oakland sold most of the city property originally slated for retail development to a telecommunications manufac- turer, which is expected to create 1,200 high-wage jobs without requiring city subsidies.46 The remainder of the property is being developed into an automotive facility by a unionized firm that pays its employees at or above the living wage requirement. Thus, even where a living wage requirement limits the feasibility of economic development strategies focused on low-wage sectors such as retail, this may help cities in re-directing business subsidy resources towards other sectors that more readily yield good jobs for the community.

Factors That May Account for Limited Impact on Local Business Subsidy Programs

Administrators attributed the living wage laws’ limited impact on business subsidy programs to two key factors: (1) the fact that many business subsidy programs were already focused on recruiting businesses in sectors that offer higher wages; and (2) the greater public acceptance of business subsidy programs that they believe living wage policies can generate. At the same time, administrators reported that living wage laws helped sharpen the focus of their business subsidy programs on attracting jobs that generate the greatest benefits for their communities.

13 Living Wages & Communities: Smarter Economic Development, Lower Than Expected Costs

Firms Targeted by Economic Development Agencies Already Paid Higher Wages

Several administrators commented that because their business subsidy programs already aimed to recruit firms paying better than average wages, the living wage law did not change their way of operating but rather formalized a pre-existing policy preference. As a consequence, only two cities identified businesses that they sought to recruit with taxpayer subsidies where the employer had to raise some workers’ pay in order to meet the living wage standard: • Duluth reported that in 2000, a health maintenance organization recruited with a public subsidy package raised wages for 95 workers in order to meet the city’s living wage standard.48 • Toledo reported that in 2000, a telephone answering company seeking a public subsidy raised pay for 25 employees in order to meet the city’s living wage standard.49 • However, Minneapolis, Warren, Ypsilanti and Ypsilanti Township reported that all jobs at businesses targeted by their economic development programs—chiefly firms in the industrial and technology sectors—already paid a living wage and thus no wage adjustments were required by firms recruited with subsidy awards.50

For the majority of the localities, living wage laws did not require changes in the operation of their business subsidy programs because the programs already targeted for recruitment firms that paid living wages.

Living Wage Laws Increased Public Confidence in Business Subsidy Programs

Some cities indicated that their living wage policies actually boosted public acceptance of local business subsidy programs. They found that residents who questioned the value of providing taxpayer subsidies to business were less hostile to an economic development program that guarantees that the jobs created pay at least a living wage. According to a San Antonio economic development agent, the living wage law has “helped eliminate the controversy associated with [the economic development] program [because] . . . groups hostile to incentives in the past aren’t as hostile with the living wage component.”51 A Los Angeles administrator who negotiated with the developer of the Staples Stadium development project echoed this sentiment by noting that project’s acceptance of the living L wage requirement “aided the developer in getting community support.”52 In fact, according to a San Antonio

Living Wage Laws Helped Focus economic development agent, Business Subsidy Programs the living wage law has

Administrators report that living wage “helped eliminate the controversy laws can help focus business subsidy associated with [the economic programs by prioritizing high-wage job creation. For example, the economic development] program [because] . . . development director of Duluth recounted that in the 1970’s, when groups hostile to incentives in Duluth had one of the highest unem- the past aren’t as hostile with the ployment rates in the country, the city used tax dollars to attract any jobs it living wage component.” could, regardless of the wage level. M However, with a more moderate unem-

14 Living Wages & Communities: Smarter Economic Development, Lower Than Expected Costs ployment rate in the 1990’s, it adopted a living wage law to “formalize a strategy of [promoting] living wage jobs.”53 As a result, Duluth now provides subsidies only to firms such as software and healthcare companies that expand the city’s base of better-paying jobs. The manager concluded that the living wage law “sends a strong signal to policymakers that they need to seek higher wage jobs.”54

In fact, seeking to maximize the number of better-paying jobs supported by their busi- L ness subsidy programs, some economic development agencies have extended living Seeking to maximize the number wage requirements to subsidy projects not actually covered by their local ordinances. of better-paying jobs supported The Los Angeles community development by their programs, some economic agency has applied a living wage requirement for developers seeking public subsidies for development agencies have extended retail projects that were not formally covered under the city’s living wage law. According to living wage requirements to subsidy a community development officer, as a result projects not actually covered by of these projects “we’ve set a baseline that any redevelopment project of any size has to their local ordinances. [pay a living wage]. Anyone that deals with M us has got to pay their direct people a living wage. And even if the [living wage law] does- n’t cover retail, it gets put on the table.”55

San Antonio’s living wage law not only provided the city with an incentive to focus on attracting high- wage jobs, but also encouraged its economic development department to think strategically about how to prepare local residents for these positions. Its living wage law helped San Antonio focus its tax abatement pool on recruiting high-wage firms such as Boeing, Chase Bank and a commercial airline overhaul company.56 Turning then to the task of equipping as many residents as possible with the skills necessary to be hired and advance in these jobs, San Antonio designed a workforce development program that combined worker training, financial assistance for students attending college and technical schools, and apprenticeship placements.57

15 Living Wages & Communities: Smarter Economic Development, Lower Than Expected Costs

Conclusion

The experiences of the initial group of twenty cities and counties studied in this report are clear: living wage requirements have not significantly increased contracting costs or adversely affected the operation of business subsidy programs. The overall cost increases were quite low and less than anticipated, generally ranging from 0.003% to 0.079% of the localities’ total budgets. In some communities, a few service contracts involving large concentrations of low-wage workers increased in cost more substantially, but increases were still quite modest overall.

The municipalities that extended living wage laws to their local business subsidy programs found that these policies did not prevent them from attracting new businesses to their communities. Several cities found that applying a living wage standard to these programs focused their economic development agencies on recruiting higher wage employers, and in some cases allayed public doubts about the appropriateness of using taxpayer dollars to support private businesses.

This snapshot of the actual effects of fully implemented living wage laws in a range of localities sheds light on the budget and economic consequences of such measures and provides useful guidance for policymakers considering adopting living wage laws in their communities.

16 Living Wages & Communities: Smarter Economic Development, Lower Than Expected Costs

End Notes

1 Since 1994, more than one-hundred cities and counties have passed local living wage laws, and seventy- five other communities are considering some form of living wage legislation. ACORN Living Wage Resource Center, Living Wage Successes: A Compilation of Living Wage Policies on the Books (available at www.livingwagecampaign.org/victories.php (visited Apr. 16, 2003)). See Greg LeRoy, et al., Good Jobs First, The Policy Shift to Good Jobs: Cities, States and Counties Attaching Job Quality Standards to Develop- ment Subsidies (2000) (listing cities and counties with wage and benefit requirements as a condition of receiving taxpayer-funded subsidies).

2 There is broad consensus among researchers and policymakers that the federal poverty level significantly understates the income that a low-income person needs in order to obtain basic necessities. Developed in the late 1960’s based on the assumption that a typical family spends one third of its income on food, the federal poverty level calculates a subsistence standard by tripling the cost of a basic food budget. Because the poverty level does not directly reflect the costs of actual necessities besides food—for example, housing, healthcare, childcare and transportation—it has become increasingly outdated as those other costs have seen substantial inflation over the past thirty years. See Heather Boushey, Chauna Brocht, Bethney Gundersen & Jared Bernstein, Hardships in America: The Real Story of Working Families, pp. 5-7 (Economic Policy Institute 2001).

3 For example, a Dane County Department of Human Services memorandum states that the inability of human services organizations to pay competitive wages resulted in “difficulty in recruiting qualified staff,” “high staff turnover,” and “increased costs associated with staff recruitment and training.” Dane County Department of Human Services, “Purchase of Service COLA and Living Wage,” p. 1 (July 2000).

4 These reporting cities and counties were drawn from an initial list of 29 localities identified as likely to have available cost impact estimates, formal internal evaluations, and/or other observations of the effects of their living wage laws. The following localities were contacted but could not offer any observations or reports on the impact of their living wage laws: Ann Arbor, Boston, Cleveland, Cook County, Detroit, San Fernando, St. Paul and Tucson. While Milwaukee had available some information on the impact of its living wage law, we did not include it because the city was unable to provide an estimate of the increase in the cost of its contracts as a result of the wage requirement.

5 See, e.g., Robert Pollin & Stephanie Luce, The Living Wage: Building a Fair Economy, pp. 112-14, 119, 121 (1998) (predicting that, in general, the vast majority of contracts will increase in cost by less than 1%, and that contractors will absorb most of that cost); Bruce Nissen & Peter Cattan, The Impact of a Living Wage Ordinance on Miami-Dade County, p. 22 (Ctr, for Labor Research & Studies, Fla. Int’l Univ., Oct. 23, 1998) (predicting that the county would pay between 35% and 55% of the increased labor costs). But see Douglass Williams & Richard Sander, An Empirical Analysis of the Proposed Los Angeles Living Wage Ordinance, pp. 51-52 (Jan. 17, 1997) (predicting that over the long-term, contractors will probably pass through most increased costs to the locality).

6 See Mark Weisbrot & Michelle Sforza-Roderick, Baltimore’s Living Wage Law: An Analysis of the Fiscal and Economic Costs of Baltimore’s City Ordinance, p. 11 (Preamble Ctr. for Public Policy, Oct. 1996) (finding no increase in contract prices after the implementation of Baltimore’s living wage law); Christopher Niedt et al., The Effects of the Living Wage in Baltimore, p. 6 (Economic Policy Inst., Working Paper No. 119, Feb. 1999) (finding that contract prices decreased in real terms after implementation of living wage law); Richard Sander and Sean Lokey, The Los Angeles Living Wage: The First Eighteen Months, p. 8 (Nov. 16, 1998) (finding that 56% of studied firms did not pass on any costs to the City, that 27% passed on all increased costs to the city, and that 17% of firms reduced services in response to cost increases).

17 Living Wages & Communities: Smarter Economic Development, Lower Than Expected Costs

7 See Mark D. Brenner & Stephanie Luce, The Effect of Living Wage Laws in New England (Univ. of Mass., Political Economy Research Inst., Research Report, forthcoming 2003) (finding that contract costs decreased in real terms in Boston and New Haven, but increased in Hartford where only two contracts were covered, both of which were bid on an hourly basis and involved large concentrations of low-wage workers).

8 See David Neumark, How Living Wage Laws Affect Low-Wage Workers and Low-Income Families (Public Policy Institute of California, Mar. 2002).

9 See Mark D. Brenner, Jeannette Wicks-Lim & Robert Pollin, Measuring the Impact of Living Wage Laws: A Critical Appraisal of David Neumark's How Living Wage Laws Affect Low-Wage Workers and Low-Income Families (Univ. of Mass, Political Economy Research Inst., Working Paper No. 43, 2002).

10 San Jose, CA, in 2001 reported that the impact of the city’s living wage law largely occurred in one city contract for janitorial services. While that contract had not been previously let, the city arrived at an estimated increased cost by comparing the living wage requirement with the prevailing wages of janitorial services in the region.

11 In Ypsilanti Township, only one contract was affected by the living wage requirement, resulting in a small wage increase for one temporary contract employee and a negligible total increase in the cost of the contract. Telephone Interview with Karen Lovejoy Roe, Supervisor, Ypsilanti Township, MI (Jan. 23, 2003) (on file with author).

12 This range represents all cities for which we could obtain accurate budget information and which reported an actual cost increase (Alexandria, VA; Cambridge, MA; Hartford, CT; Hayward, CA; New Haven, CO; Pasadena, CA; Madison, WI and Ypsilanti, MI). In addition to reporting their overall operating budgets, Madison and Alexandria were able to share data on their municipal purchasing budgets. The reported living wage contract cost increases represented 0.07% and 0.33% of these cities’ purchasing budgets, respectively.

13 Administrators in Cambridge, Dane County, Hartford, Hayward, Madison, New Haven, Oakland, Pasadena, San Francisco, Ypsilanti, and Ypsilanti Township all described the contract price increases in their cities as “not significant.”

14 Telephone Interview with Daniel Bohrod, Comptroller, Madison, WI (Nov. 14, 2001) (on file with author).

15 Report by City Manager Saundra Kee Borges to the Mayor and Council Members of Hartford, CT, p. 1 (Mar. 2, 2001) (on file with author). In an unpublished estimate of the cost of its living wage law in 2002, the city found that while one contract increased by $7,391 or 22.4% over the prior year, none of the four other impacted contracts increased substantially, accounting for the changes in the scope of services.

16 Telephone Interview with Jack Pitzer, Director of Purchasing Department, Alexandria, VA (Sept. 17, 2002) (on file with author)

17 Telephone Interview with Ronald Guzi, Purchasing Agent, Warren, MI (Nov. 16, 2001) (on file with author).

18 Telephone Interview with Public Works Department, Berkeley, CA (Feb. 28, 2003) (on file with author).

19 Figure reflects the budget for human services in Dane County for fiscal years 2001 and 2002.

20 Figure reflects the average of the annual cost increases for Dane County human services contracts for fiscal years 2001 and 2002.

21 Figure reflects the budget for contracts awarded to non-profit agencies in San Francisco in 2001.

22 Figure reflects the increased cost for San Francisco’s human services contracts in 2001.

18 Living Wages & Communities: Smarter Economic Development, Lower Than Expected Costs

23 Telephone Interview with Travis Myren, Program and Budget Analyst, Dane County, WI (June 26, 2002) (on file with author).

24 Interview with Office of Contract Administration, San Francisco, CA (June 25, 2002) (on file with author).

25 Dane County was also able to provide the marginal increase for human services costs because of the living wage requirement. The 2001 total expenditures for contracts for human serves was $92 million, and increased by $2.6 million above the year before, due to a number of factors, including an increased case load and additional types of services. The $400,000 increase for this year means that the increase in human service costs associated with the living wage was 14.8-15% of the total increase for the human services budget. Telephone Interview with Travis Myren, Program and Budget Analyst, Dane County, WI (June 26, 2002) (on file with author).

26 Myren, supra note 25. The County reports that the level of service did not change for these contracts. Id.

27 Telephone Interview with Mark Pietrosimone, Controller, New Haven, CT (Nov. 1, 2001) (on file with author).

28 Telephone Interview with Karen Lovejoy Roe, Supervisor, Ypsilanti Township, MI (Nov. 16, 2001) (on file with author).

29 Pitzer, supra note 16.

30 Memorandum Requesting Increase in Living Wage Rate, City Manager. Pasadena, CA (Dec. 16, 2002) (on file with author).

31 Draft Report on Effect of San Jose Living Wage, Office of Equality Assurance, San Jose, CA, p. 9 (May 16, 2002) (on file with author).

32 Telephone Interview with Carl Guitonjones, Auditor, Hayward, CA (Dec. 19, 2001) (on file with author).

33 Telephone Interview with Judith Blackwell, Director of Purchasing, San Francisco, CA (Nov. 19, 2001) (on file with author).

34 Memorandum, Pasadena City Manager, supra note 30, p. 2.

35 A recent study of the effect of the living wage law in the San Francisco International Airport found that turnover decreased by 60% among surveyed firms where wage costs increased by 10% or more, and that “high-impact” firms also reported improvements in work performance and employee morale. Michael Reich, Peter Hall & Ken Jacobs, Living Wages and Economic Performance: The San Francisco Airport Model, pp. 52-63 (Institute of Indus. Relations, Univ. of Calif.-Berkeley Mar. 2003).

36 Administrators reported no negative effect from their living wage law on economic development in Cambridge, Hartford, Minneapolis, San Antonio, Toledo, Warren, Ypsilanti Township, and Ypsilanti.

37 Duluth, San Antonio, Toledo, and Ypsilanti Township reported a successful year for economic development in 2000, measured by local job growth and low unemployment levels. Duluth had a 20% unemployment rate in the 1980’s, while 2001 unemployment levels were around 4%. Telephone Interview with Tom Cotruvo, Business Development Manager, Duluth, MN (Nov. 13, 2001) (on file with author). In Toledo, the unemployment rate dropped from 5.9% in September, 2001, to 5.5% that November. Telephone Interview with John Sherburne, Commissioner, Department of Development, Toledo, OH (Nov. 19, 2001) (on file with author).

38 Telephone Interview with the Minneapolis Community Development Agency, Minneapolis, MN (Nov. 13, 2001) (on file with author).

19 Living Wages & Communities: Smarter Economic Development, Lower Than Expected Costs

39 William Pack, “City OK’s tax break for H-E-B: Grocer plans to expand East Side distribution center,” San Antonio Express-News, p. 1B (Feb. 14, 2003).

40 Telephone Interview with Trey Jacobson, Economic Development Department, San Antonio, TX (Mar. 13, 2003) (on file with author).

41 Telephone Interview with John Sherburne, Commissioner, Department of Development, Toledo, OH (Nov. 19, 2001) (on file with author).

42 Lovejoy Roe, supra note 28.

43 Telephone Interview with Jay Musante, Project Manager, CEDA, Oakland, CA (June 28, 2002) (on file with author); Telephone Interview with Jens Hillmer, CEDA, Oakland, CA (June 25, 2001) (on file with author); E-mail from Nancy Nadel, Councilmember, Oakland, CA, to author (Mar. 1, 2002, 7:46 PM EST) (on file with author). See also Kara Platoni, “Die Hard: Sears Has Made Its Fortune by Selling Everyday Things to Everyday People. Maybe That’s Why It’s Oakland’s Only Surviving Department Store,” East Bay Express (Aug. 22, 2001).

44 Telephone Interview with John McCoy, Deputy Administrator of Operations, Community Resources Administration, Los Angeles, CA (June 15, 2001) (on file with author); Telephone Interview with Gerry Miller, Assistant Chief Legislative Analyst, Los Angeles, CA (June 14, 2002) (on file with author).

45 Telephone Interview with Helen Sause, Deputy Director, Redevelopment Agency, San Francisco, CA (June 21, 2002) (on file with author); Rachel Gordon, “Whole Foods Backs Out of San Francisco Store Deal,” San Francisco Chronicle, p. A21 (Dec. 19, 2001).

46 Musante, supra note 43.

47 Id.

48 City of Duluth, MN, Division of Urban Development, Memorandum, “Living Wage Reporting for 2000” (Feb. 2, 2001).

49 Sherburne, supra note 41.

50 Telephone Interview with Tom Zemsta, Economic Development Director, Warren, MI (Nov. 16, 2001) (on file with author); Lovejoy Roe, supra note 28.

51 Jacobson, supra note 40.

52 Miller, supra note 44.

53 Cotruvo, supra note 37.

54 Id.

55 McCoy, supra note 44.

56 Telephone Interview with Trey Jacobson, Economic Development Department, San Antonio, TX (Nov. 14, 2001) (on file with author).

57 Id.