STATE OF CALIFORNIA
DEPARTMENT OF INDUSTRIAL RELATIONS
INDUSTRIAL WELFARE COMMISSION
June 10, 2002
State Capitol, Senate Room 112
P A R T I C I P A N T S
Industrial Welfare Commission
BILL DOMBROWSKI, Chair
BRIDGET BANE, Executive Officer
DOUG McCONKIE, Analyst
MARGUERITE STRICKLIN, Legal Counsel
DAVID ZAHEDI, Analyst
I N D E X
Approval of Minutes of October 29, 2001 Meeting 4
New Business (Out of Order) 4
WARDELL JACKSON, California Care Operators 5
SR. MARY GRACE 13
SHELTON DENT, Department of Developmental 14
Statement as to the Basis - Wage Order #1 - 24
Meal Periods in the Manufacturing Industry
Petition to Review and Index the Minimum Wage 25
JULIANNE BROYLES, California Chamber of Commerce 25
JIM ABRAMS, California Hotel and Lodging 27
TOM RANKIN, California Labor Federation, AFL-CIO 33
WILLIAM POWERS, Congress of California Seniors 35
Closed Session 41
New Business (Continued) 42
Certificate of Reporter/Transcriber 46
P R O C E E D I N G S
(Time noted: 10:07 a.m.)
COMMISSIONER DOMBROWSKI: My mike is on, and Ill just make an announcement that we have to vacate the room by 1:15 because the Senate needs the room for an afternoon session. So, I dont think well go to 1:15, but maybe Ill be surprised.
We have all the commissioners here. Id like to call the meeting to order. Let it show that Commissioners Cremins, Rose, Bosco, Dombrowski, and Coleman are present.
The first item on the agenda is approval of minutes of the public meeting held October 29th.
Do I have a motion?
COMMISSIONER ROSE: I so move.
COMMISSIONER CREMINS: Second.
COMMISSIONER DOMBROWSKI: Motion and second.
All in favor, say "aye."
(Chorus of "ayes")
COMMISSIONER DOMBROWSKI: Any opposed?
COMMISSIONER DOMBROWSKI: That passes.
I want to go a little out of order. We have some people who came in from the Bay Area.
Mr. Jackson, you have your contingent and you wanted to testify on Wage Order 5, I believe.
Why dont you come forward with your people, the representatives you wish to have speak.
I thought wed bring this up -- its pertinent to the closed session discussion were going to have later, on the litigation. So I just thought wed hear that beforehand.
MR. JACKSON: Good morning. My name is Wardell Jackson. I requested that we speak early because we are residential care providers. We care for small group homes, taking of developmentally disabled, mentally ill, elderly people in the State of California. And a lot of us run our own homes.
Would you please stand, those of you who are with me today?
(Audience members stand.)
MR. JACKSON: Most of us are basically from the Bay Area. And like I said, we run our own facilities. We had to put our clients on the bus to go to programs before we left this morning -- a lot of us did, and we need to get back to the Bay Area to get them off the bus to take care of them for the rest of the day. So thats why I wanted -- I requested that we can speak early this morning.
So, first of all, I am Wardell Jackson. Im with the Association of California Care Operators. We represent more than 1,000 members statewide, and thats representing 3,000 or 4,000 consumers who are developmentally disabled, mentally ill, or elderly, across the State of California.
Quite -- for a very long time in this field, we -- well, first of all, we had a system for reimbursement from the state wherein, for ten years, we -- there was no increases in the -- in our rates at all. In 1985, there was a new rate system that came about.
Well, first of all, we are private homes. We are vendorized -- we are licensed through the Department of Social Services. We are vendorized where we receive our consumers, by the Department of Developmental Services, and the Department of Developmental Services -- well, (inaudible) Department of Developmental Services by the State of California, so we are private and most of us are for-profit.
And in 1985, there started a new reimbursement rate for providers. And at that point, they said that at one point -- every year, we would get a cost-of-living increase with our rates. And from 1985 to around 1997, the governor crossed out that rate increase, for ten, almost eleven years. So therefore, there was no rate increases at all. So you can imagine where we are, in a state of the world where, if there was an increase of 3 to 4 percent every year for those 10 years, we are at least 30 percent behind. Now, the last two or three years, we got a 3 percent raise or whatever that has not made up for all those years we did not.
Everythings gone up. I spoke with you a few years ago, and I do have copies of letters -- there are two letters that were sent -- there were two letters and statements that were sent. And in the essence of time, I wont go over those letters now, but I -- and we have testified before you before, where we talked about our plight as residential care providers. Our reimbursement rate is at a point where it does not reimburse us for services that we actually do.
And we -- when we met before, we requested a private meeting with your office, with one of your office staff -- and I dont remember the womans name who was there, but we talked with her, and what she informed us at that point, and what we informed you of, was that the Department of Developmental Services, at the request of the governor, was doing a rate study. And that rate study should have been completed by January of 2001. And that rate study was to show whether we actually needed to have our rates adjusted or not.
Well, as the letter -- the top letter that you have there, you can see that the rate study was completed. And Mr. Shelton Dent, who is from the Department of Developmental Services -- at some point, if you need a copy of that rate study, he can give you that. Its a very thick -- almost an inch thick study. And that study had found that we were almost 40 percent underfunded, across the state, at all levels of service that we have, were basically 40 percent underfunded. And thats just a general statement.
But what it is, is that -- so, therefore, for us to pay our staff and pay our -- pay for all the expenses in our facilities, its impossible to do. With Wage Order Number 5, it makes it impossible to increase our staff wages when, first of all, the minimum wage was increased. Then youre requiring us to pay per hour over 40 hours, whereas we had a wage order before that we could do at least 56 hours. We can no longer do that. To do that, the providers will be out of business.
Its like theres no way in the world -- everything has increased. My workers comp has increased 25 percent last year, across the board. My liability insurance for three facilities increased from $4,200 to $8,400 this past year. Thats double. I have no more money coming in. I have the same rates that I had last year that I have this year. So how do I go -- how do I pay my bills? How do I pay my staff more money? How do I pay more PG&E? How do I pay all these bills when the rates are the same?
Now, the -- an issue that we have, I dont understand. We are -- we take care of the -- of some of the most fragile people in California. They are reimbursed by the state. How do we give good care to people that we serve when we are underfunded? We talk about quality care. We have licensing, community care licensing, Department of Social Services coming to our facilities that will cite us, that will close us down, if theres a broken window, if theres a torn carpet. We have the regional centers who will come and basically do the same thing.
If you dont have a quality service, if you dont have a quality home, if you dont have a certain staffing level -- if we have six consumers in a home and were Level 2, we have to have at least one staff. This is -- doesnt even make any sense, because if three people want to do one thing and two -- three people want to do something else, how does one staff -- that doesnt make any sense. If you have Level 3, you have two staff per three people, and in Level 4, its sometimes a little more.
But how do we -- with the staffing as it is -- and weve complained for years that we cannot operate now as it is -- the state is talking about cutbacks. Theyre even talking about cutting us back now, when we have been underfunded for the last fifteen years.
We are not state employees and we are not state facilities, but we take care of the states indigent people, and its not being -- its like, you know, like I said when we were before -- here before, we asked you to give us an extension, which you really didnt do. I think you guys are sort of looking the other way. The wage order was already in place. And we had a representative from DDS at that point, and he explained to you that -- to your staff that we -- they were working on the wage order or the service delivery reform for the proposed residential written model.
Well, like I said, that written model showed that were 40 percent behind. Since this state is in a budget crisis now, there is no way that that will even be put in place, because it would cost maybe $1.1 billion to make us whole because of the years that we went without increases.
So now -- so, what Im saying is that all this time, we were underfunded. We continue to be underfunded. There may be cuts coming up. And whats going to happen is that we will close. If you think what was -- you know, what was bad when Reagan was in place, when the mentally ill were on the streets, its going to be worse. Developmentally disabled are just -- you know, theyre just as important. Theyre going to be on the streets, because providers, we -- when the budget was good, they never gave us anything. They took things from us. Now the budget is bad, and then were at the chopping block again.
We cant do it any longer. And there are providers who are closing now because they cannot do business.
And I understand that employees should be paid a good wage. And I really think there should be too. But if the state -- you know, and this isnt so much your problem, but the state runs state facilities, institutions, that their staff are unionized, and they get double the amount of money that we get, that we pay our staff. They pay them $14, $15, $16 an hour, and a lot of our staff, we can only pay the minimum wage, $7, $8, $9 an hour, because that is all we can afford as far as our reimbursements are concerned.
So were in a jam here. And its like one state agency is -- you know, I know youve got your job to protect the employee, and we want to protect them too. But then this other agency over here is saying, "Well, theyre screwing us." What do we do? We cant pay our staff more because wed be out of business, but yet everyones saying, "Pay them more, you have to have the staff, you dont have a quality facility, youre out of compliance if you dont do this."
So were asking for an exemption. I believe the childrens facilities were given exemptions, or they were given like a 56-hour week or whatever. We need more than that, really. I dont know if you have the power to even give us more. But to be -- to have to pay over -- not to have some kind of flexibility in our staffing is almost going to be impossible, because we have staff that sometimes work 12 hours, we have staff that work overnight from maybe 9 oclock until 9 oclock in the morning -- of course, theres time and a half. And that is a major problem, because we cant -- oh, and I know one of the concerns that people in childrens facilities had was that, you know, when some -- when a child goes to bed, they should not have to wake up to a different person in the morning, thats not normalization.
When a person is developmentally disabled, nonverbal, and has a lot of problems, they should not have to wake -- go to bed with one provider and wake up with another provider, you know, in the morning. And then also, with the low rates, we have lots of turnover. So they may go to bed with -- when they come home -- when they go -- leave to go home in one program with one client -- I mean one staff -- and the next day, theres a whole other staff there, a whole other set of staff there, because our staff wont stay because we cant pay them.
So, like I said, the issue with our payments is not so much of a problem, but we are asking that you do give us some kind of exemption so that we can continue to operate and give the quality service.
Thank you very much.
SR. MARY GRACE: Mr. Dombrowski and respected members of the IWC, Im Sister Mary Grace, from the Bay Area, and I represent providers from the East Bay regional center.
And I guess I want to just frame it by saying that we implore you to take a closer look at Wage Order 5 and how it will critically affect residential services for adults. You gave very gracious consideration for children, and you listened to the impact of quality of life, and also services for children, and made a partial exemption. We ask you if you could please look at that for adults with developmental disabilities in residential components, people that are mentally ill, and also for the aging, because of the various things that we talked about, the continuity of staff, the security of people.
And I know that this all has to be within the framework of what is just for employees and what is fair for them, but also to balance off what is the best quality service that we can give to the most frail people in our population.
So we ask you if you could please look at that, and even if a 54-hour, maybe a 48-hour exemption before -- before overtime has to be paid, if that could be looked at, we would be most grateful.
MR. DENT: Thank you, Mr. Chair, members of the Commission. Im Shelton Dent, with the Department of Developmental Services. Im the manager of the Residential Services Branch.
I came down to not reiterate everything theyve said, because Id like to confirm what it is that theyve said. I also need to mention, I guess, for the record, to make sure that you understand that the residential rate model -- its called the alternative residential model, which is the model that serves people with developmental disabilities and the community care providers that work for -- or are vendorized by regional centers. That model started as a pilot back in 85, as Mr. Jackson said. Then it went statewide in 87-88.
The model, the rate model, did not account for overtime. And when the rate model first went into effect, it was supposed to get updated every year based on the Consumer Price Index. We sent -- and the model is also, every year, subject to an appropriation by the state legislature. Every year, we would send up to the state legislature what the CPI had gone up to or down, either way -- it could go either way, but it usually goes up, and the legislature acts on that. For ten years, when that system went into effect, its true, they did not get any rate increases.
So after that ten years went into effect, the first rate increase they got was a 3 percent. The 3 percent wasnt based on how much costs had gone up; it was just to get them something. And every rate increase that theyve gotten since then, whether it had been minimum wage or increases or something like that, all of those were just to get them something. None of them were to account for what
-- how much their costs had gone up.
So, as of today, we have legislation in effect, actually, as part of system reform, to try to develop a new rate system. We had a contractor, Center for Health Policy Studies, out of the East Coast, that came and put together a great -- what really looked like a great rate system. But when they first started their work, it was when the economy was good. When their report was finished and they came back with us and told us that the cost of -- the new rate system would probably go up another $200-something million -- 200
-- yes, over $200 million, and the economy as it was, we, of course, couldnt go to the legislature and says, "Weve finally got this system together now, and we can -- its going to cost another $200 million." And is the legislature going to appropriate those funds for their rate increases? And definitely not.
So, at this point, theyre still behind the eight-ball, way behind the eight-ball. They are not getting funded for overtime. And I can only come and try to support the exemption that theyre requesting because, from our standpoint, theyre not in the business of selling food, theyre not selling clothes. What theyre doing is serving a very vulnerable population, people with developmental disabilities. And if they do go under, then most people that have lived at their homes for ten, twenty -- twenty years, a lot of -- a great deal of time, somebody has to find another place for them to live. And wherever they find to live, somebodys still going to have to pay overtime, so its going to probably end up coming back on possibly -- the worst that we could imagine is that theyd have to go back to a state developmental center, which we certainly dont want that to happen. But depending on how many of them go under because of either $20,000, $30,000 fines or paying back wages or that sort of thing, thats quite possible.
And its the last thing that we want to happen for people that have done nothing wrong, except for they live in a home where somebodys telling them they have to -- people that are trying to make things meet for them have to be paid overtime, and they dont have the funds to do it because the state has not provided the funding for them to pay overtime.
COMMISSIONER DOMBROWSKI: So, basically, youre asking us to look at an exemption.
SR. MARY GRACE: Yes.
COMMISSIONER DOMBROWSKI: And -- excuse me, because Im trying to remember the conversation we had, but who was opposed to your -- to this expansion of the exemption?
MR. JACKSON: Im not sure who was opposed. Im not sure if anyone is opposed, because our staff are not unionized, so theres no union opposing us. I think it -- I think it was just that we were not organized enough, or we didnt -- Im not sure, because weve been here two years ago. Like I said, the letters showed --
COMMISSIONER DOMBROWSKI: Right.
MR. JACKSON: -- you know, the letters that I gave you two years ago -- almost a year ago to the date that I spoke before you, and it was just --
COMMISSIONER DOMBROWSKI: Okay. Bridget.
MS. BANE: I think, Mr. Chairman and members, that there were discussions and there was testimony, as you will recall, and that during the course of the meeting or meetings where people were testifying and you were considering the petition, that there ended up being an agreement of the people before you, right at that time, that there would be a limitation of the consideration of exemptions under Wage Order 5 to children under 18, 24-hour facilities, and that thats how it ended up in front of you at a public meeting. There was an agreement brought to you, and they said, "This is what we want." And then you instructed counsel to issue a wage board charge in agreement with that agreement that was brought to you.
There was discussion at first that the parameters would be broader, but they were narrowed prior to the Commission voting.
COMMISSIONER DOMBROWSKI: Prior to the -- okay. Okay.
I guess theres a couple issues. One is that -- as I know Ive said privately to some of you, we are not funded in the budget on the Assembly side or the Senate side, so theres a question of whether or not the IWC will have any funds going forward after this month. So I think thats one consideration that we have to keep in mind for everything were doing today.
Second, Marguerite, I believe -- does their communication -- is that a petition for us to reopen this? Is that your interpretation that?
MS. STRICKLIN: Yes, you should consider it as such.
COMMISSIONER DOMBROWSKI: So could you -- could you walk through, then, the procedural process for them so that they understand what were -- if we are funded -- if we are refunded, what would have to happen?
MS. BANE: I believe its just that we have, from this date where the petition is brought before you, today, under "Other Business," that we would have 120 days to decide what to do. The Commission has the same time as though it were an agendized item. Its just brought before you under "Other Business."
MS. STRICKLIN: At this meeting, yeah.
COMMISSIONER DOMBROWSKI: Okay.
MS. STRICKLIN: And that would be 120 days from today to either call a wage board or deny the petition.
COMMISSIONER DOMBROWSKI: Okay. And then, lastly, if its all right with everyone -- I mean, youre now on the record. I mean, you understand the process. What Id like is maybe, Bridget, if you could have an off-line conversation with their -- either by phone or -- I mean, you dont have to do this in person, but possibly you could explore what are all the issues around their segment of the industry and maybe gather some intelligence for the Commission. If we do get funded, we have to come back and meet on this.
MS. BANE: I will do that. And I think that Ill be able to make it clear that there is some -- there is a possibility that the Commission will or will not meet in the future, depending on funding. But the petition is before you.
COMMISSIONER CREMINS: I would ask also, in those conversations, that you include folks who testified in the past, both labor and management, to clarify their positions.
MS. BANE: I will get those people and get in touch with them.
COMMISSIONER DOMBROWSKI: Okay.
MR. JACKSON: Okay. Excuse me. I thought there had been a wage board. I believe theres a -- Lonnie Nolta, who works with another organization similar to mine, and she said -- and I know of one point last year that you said that a wage board would have been convened, and I think she had worked on a wage board.
COMMISSIONER DOMBROWSKI: Bridget can explain what happened.
MS. BANE: Lonnie Nolta was a member of the wage board, and she did speak representing the issues that you have brought today. And she also submitted a letter representing your issues to the IWC, but at that time, the charge to the wage board, the directions to the wage board as to what they were allowed to consider, did not include your issues. Thats why you would have to -- we would have to regard this as a new petition.
COMMISSIONER DOMBROWSKI: Thank you.
SR. MARY GRACE: Thank you, sir.
COMMISSIONER DOMBROWSKI: Questions?
COMMISSIONER BOSCO: Marguerite, is there any way that we can reopen the Wage Board 5, given other problems we have with that?
MS. STRICKLIN: Well, its just that you begin the process again. And that would be reopening it, if you decided to act on this petition.
COMMISSIONER BOSCO: So wed have to, in effect, start over --
MS. STRICKLIN: Right.
COMMISSIONER BOSCO: -- with the entire process.
I dont remember how this came about. It seemed like we were trying to resolve this problem. I remember the testimony, and I dont think anybody on the Commission particularly -- I mean, Ill speak for myself, but I thought that we had resolved their problem.
MS. BANE: No, there was some -- there was some confusion. And at first, the wage order was drafted in one direction, and it came back before the Commission and the Commission said, "No, thats not what the discussion was, thats not what was meant." It was narrowed and then the direction was given to make sure that the charge was narrowed.
And I think that it happened right in the testimony. And then, when the final motion was made regarding the petition, it was a narrowed motion, even though the discussion had been broader.
COMMISSIONER DOMBROWSKI: Harold.
COMMISSIONER ROSE: Thats correct. It was narrowed to 24-hour facilities with children, and thats -- it was narrowed right down to that. Thats what we agreed on.
COMMISSIONER BOSCO: Well, I think we ought to try to help this folks. I mean, their argument is pretty compelling, unless somebody out there knows something else.
But -- so we would have a 120-day process, or just till we get started on it is 120 days?
MS. STRICKLIN: Yeah. You would have 120 days at your next meetings to explore the issue and then decide whether or not -- you would either deny the petition or go forward with wage board procedures.
MS. BANE: And you can always -- you can do that as quickly as you wish, or you can extend your investigation as much as you wish within the 120 days.
COMMISSIONER BOSCO: If we were to start from today with the determination to do this -- and I dont know whether thats the Commissions decision -- but if we were, how long would the shortest period of time that we could accomplish this be?
MS. STRICKLIN: The first thing you would have to do is to direct staff to set, on the next -- a hearing, an investigative hearing, and that would require 30 days. And then you would have a meeting, assuming you chose to call a wage board. That would another 10 days for a meeting, or you could set the meeting after the hearing. Then, of course, the wage board would have -- notice for that meeting would be another 30 days. So youre talking at least 70 days before the wage board could meet.
COMMISSIONER BOSCO: And then it has to meet several times, doesnt it?
MS. STRICKLIN: Not necessarily. They could meet once and come back with a recommendation for the Commission.
COMMISSIONER BOSCO: Okay. So, from what the chair has asked, that well discuss this informally first and then come up with some sort of --
COMMISSIONER DOMBROWSKI: Have the executive director discuss it with them, talk to the other parties, as Commissioner Cremins has outlined, and then, at our next meeting, if we have a next meeting, put it on the -- put it on the agenda and find out where everybodys at.
MR. JACKSON: I really want to thank you very much for giving us the time, and also just realizing that it really makes me -- hurts my heart that we are -- some of us are in violation still, because this -- because this law actually is an order, is in place. And I think a lot of people have just been going by the -- and I hate to admit this, but a lot of people just were not aware of it, or whatever, but they have not been paying. And there have been people that have been fined, like $70,000 -- and Im sure this is the wrong place to say this, but you understand what Im saying, you know?
COMMISSIONER DOMBROWSKI: If its all right with the other commissioners -- and Im just trying to be considerate for the audience here -- if, without objection, we go to Item Number 4, on the Statement of Basis, Wage Order 1, regarding the meal periods in the manufacturing industry.
I dont know if -- I dont think anybody wants to comment on that. If Im wrong, please step forward.
COMMISSIONER DOMBROWSKI: Marguerite and Bridget, procedurally, what do we need to do on Number --
MS. BANE: Regarding the Statement as to the Basis that has been included for you in your packet, I would like to report that I have been in consultation with Cal OSHA, California Occupational Safety and Health Agency, and that there is no conflict between the amendments which the IWC has passed and anything that Cal OSHA has done.
MS. STRICKLIN: Also, wed like to report that there has been publication in newspapers, as required by the Labor Code, of the amendments. And wed like to have the Commission also vote or make a finding that there has been publication of the amendments.
So, two things: it would be to approve the Statement as to the Basis and making a finding that there has been publication in the newspapers.
COMMISSIONER DOMBROWSKI: Mr. Bosco?
COMMISSIONER BOSCO: I move that we approve the Statement as to the Basis on Wage Order Number 1 and that we find that it has been properly published.
COMMISSIONER CREMINS: Second.
COMMISSIONER DOMBROWSKI: We have a second. All in favor, say "aye."
(Chorus of "ayes")
COMMISSIONER DOMBROWSKI: Any opposed?
COMMISSIONER DOMBROWSKI: That measure passes.
Lets go back up to Item Number 2, consideration of a petition requesting the Industrial Welfare Commission to conduct a review to raise and index the minimum wage in California.
I have two cards I believe are on this, Juli Broyles and Jim Abrams.
Any others who wish to speak on this?
MS. BROYLES: Good morning, Mr. Chairman and members. Julianne Broyles, from the California Chamber of Commerce. Ill be very brief.
Certainly we are looking to the Industrial Welfare Commission to not go forward with the petition at this time. The California Chamber of Commerce opposes increasing the minimum wage, based on the economic conditions and a number of other factors currently affecting the California business community. Some of them were brought up by the previous testifiers in the home healthcare industry. We are facing double-digit increases in our workers comp, in our health insurance, certainly highly escalated energy costs, and a number of other factors that are really an item that our business are trying to deal with in the post-9/11 world.
Additionally, we do want to point out that the indexing component, if that actual item had been in place, say, last year, then if this -- an indexing proposal had been in place, we would have been looking at a $550 million cost to California businesses, on top of every other item. Thats based on a 4.1 percent inflation rate that the CPI would have been at. If you did it this year, it would be 1.8 percent in the last year. Thats a $250 million additional cost, at a minimum, on California businesses. We do not believe this is an appropriate new cost to add on. Its certainly not one that you would be placing on businesses in perpetuity in California. And for that reason, were asking you to deny the petition.
MR. ABRAMS: Thank you, Mr. Chairman, members of the Commission. Im Jim Abrams, with the California Hotel and Lodging Association.
The California travel and tourism industry is either the second or third largest industry in the state, depending on what numbers you look at, employing over a million people. I want to speak specifically to the lodging industry, all of the bed-and-breakfast inns and hotels and guest ranches and resorts in the state, which employ more than 170,000 people in California.
First of all, just from a legal standpoint, I want to raise the issue -- not for resolution today -- I think there is a serious question whether or not, if the IWC were to take steps to index the minimum wage, that it might be an abrogation of your responsibility, both under the constitution and legislative delegation, to look at the minimum wage every two years. And I think that the wisdom of that is that the IWC, in doing that every two years, being required to look at the adequacy of the minimum wage, can look at that in the context of the realities that are in existence at any particular point in time.
If the minimum wage or any other change in wages and hours and working conditions change automatically, itll be --
COMMISSIONER DOMBROWSKI: You mean we would never have to hold another hearing on the minimum wage?
MR. ABRAMS: I hate to tell you that that might be a possibility, and deprive you of that pleasure, but thats a possibility.
But these changes will then take place in a vacuum, without any reference to whats going on, either with respect to the economy as a whole or with respect to any particular industry. And so, I want to raise at least the legal question of whether or not that is something that the Commission has the authority to do.
But with respect particularly to the petition that is in front of you right now, I think its important, number one, to recognize that the minimum wage has gone up as of the 1st of this year. Good, bad, or indifferent, it was something that you all looked at. Its something that you got input from a broad cross-section of society, on all sides of the issue, and the minimum wage is now, in California, higher than almost anyplace else in the country. And Im not saying that that is necessarily good or bad. Its an issue, and its one that you need to face. And that happened just recently.
With specific respect to the lodging industry, I need to tell you that -- and this may sound a bit hyperbolic -- but this is just not the time, that, in fact, regardless of what happens generally with respect to minimum wage increases tying into losses of jobs -- and there is nothing but academic study after academic study that, with respect to the lodging industry, it really has a tremendous impact that has been -- has been researched and has been validated.
A study conducted by Purdue University about three or four years ago established that any time the cost of a hotel room -- and thats a bed-and-breakfast inn, a Hilton, a Sheraton, a guest ranch -- whenever it goes up 10 percent, that there is a 2 percent decrease in demand. And thats in a good time. We dont have that right now, unfortunately.
So anything that adds to the cost of a hotel room -- and there are many things that now do that -- California has no tip credit, California is one of the very few states with daily overtime, workers compensation insurance is going up here uniquely compared to a lot of the rest of the country -- the cost of a hotel room is going up. And every 10 percent increase results in a 2 percent decrease in occupancy demand, which means fewer and fewer jobs.
Secondly, speaking to the convention business that this state does, we are and have been for many years at a very significant competitive disadvantage. And again, this is not to cast blame anyplace, but the cost of doing business in California is much, much higher than it is in most of the states, if not all the states, with which we compete for convention business, whether its in the Silicon Valley, whether its here in Sacramento, all throughout the state.
We did a study -- we took a hypothetical convention, about 500 people, over three days, using about 300 room nights a year. We assumed some banquet functions, food and beverage functions, and we priced them out here in California and then in cities with which we -- a lot of the places where you all come from -- compete for that convention business in other states. And depending on a variety of factors, basically the result was that the cost of holding that hypothetical convention in California was between 20 percent and 50 percent higher in California than it was in cities with which we compete for that business. Granted, the minimum wage and the cost of labor on an hourly basis is just one of the considerations that goes into that cost, but it is very, very significant.
Also, one of the problems that were facing is that the Internet has changed the way that the lodging industry goes about creating its costs and its charge model, its rate model, if you will. The advent of the Internet has now meant that the way people compete in the lodging industry, by and large, particularly for leisure travel, is through the Internet, and the way you compete is to have the absolutely lowest room rate, so that when people go on the Net to figure out where theyre going to stay -- are they going to go to California, are they going to go to San Francisco, or are they going to go at all -- they want to find the very, very lowest prices that they can. And thats where they go. And now the Internet allows you instantaneously, as a buyer, to figure out exactly whos got the lowest rate, i.e., the lowest cost.
And unfortunately, the cost of labor and all of the ramifications, with workers compensation and UI and DI, particularly with part-time workers and temporary workers, adds to that cost. And to the extent that California is going to continue to higher-than-normal -- compared to the rest of the country -- cost of doing business, this is going to impact the industry significantly in California.
So, for these reasons, we feel that regardless of whether one believes or does not believe that minimum wage increases do or do not systemically cause a loss of jobs, there is no question that it will -- a minimum wage increase at this time will cause jobs to be lost in the lodging industry. There is no question about that, that since 9/11 we -- just reading the papers, we note that the Hotel Employees and Restaurant Employees Union, in the national, has seen between 25 to 35 percent of their union members -- across the country, granted, not just in California -- lose their jobs. Some of that is starting to come back. But again, now is just not the time.
Thank you very much.
COMMISSIONER DOMBROWSKI: Questions?
COMMISSIONER CREMINS: I would just mention, on the issue of indexing, that I dont think were giving away the Commissions right to continue to review it. I think the issue of indexing is to expedite it, should you need to raise or lower the minimum wage. But were not giving our way our right to -- not to review the minimum wage itself.
MS. BROYLES: Chairman Dombrowski -- Juli Broyles, from the California Chamber -- on the issue of indexing, certainly that issue has been examined before, on the ability of the Industrial Welfare Commission to actually go forward and index in perpetuity the state minimum wage. And that has always ended up not being something that was considered proper for the Industrial Welfare Commission to do.
But when you look at indexing and you look at the impact that it would have on the business community in terms of the indirect costs -- I mean, we mentioned some of the direct ones -- but the indirect costs are there are well. And certainly the issue of the exempt worker and the cost it would have on -- what it would change over on the -- on that issue, its certainly an item that we hope would come into play, because you would be increasing, again, not just the minimum wage, but then also the exempt worker base wages in order to maintain that exempt status.
Again, we do not think its appropriate to do so, and certainly not in this forum.
COMMISSIONER DOMBROWSKI: Maybe -- a personal viewpoint is -- because I just want to move this along a little bit, but in my mind, the question isnt whether we could or couldnt index; the question is whether we should. And from my perspective, indexing is a pretty significant step that I am uncomfortable, at least, taking the step on. And theres legislation out there. Im much more comfortable with the legislature handling an issue like that, but thats just one perspective. And were not going to resolve that today.
Mr. Rankin and Mr. Powers.
MR. RANKIN: Good morning. Tom Rankin, California Labor Federation.
Were here to ask you to do your duty and convene a wage board to continue the process of increasing the minimum wage. Its already overdue, in terms of your timelines, which you are just so concerned about on another issue. I think youve missed your 120 days on this one.
Your duty is to determine whether the minimum wage may be inadequate to support a single worker or a worker, to make sure that worker can have a minimal standard of living, an adequate standard of living. There are all sorts of measurements of this. If you go by the old Minnies Budget, minimum wage would be well over $8 an hour now. That used to be an accepted standard by the IWC.
Id just like to say whats happening in some of our neighboring states. Alaska just increased their minimum wage, effective January 1, 2003, to $7.15 an hour and indexed it. Washingtons minimum wage is already, I think, $7.12 an hour and will be increased to an index January 1st. Oregon is now considering a petition to -- an initiative to index the minimum wage.
COMMISSIONER DOMBROWSKI: Tom, Ive got a quick question. In those states, is there also the ability -- is there like an equivalent IWC reviewing, or is it just theyre indexed, and thats it?
MR. RANKIN: Well, in Washington it was done through an initiative. In Alaska they did an initiative, and then they have a procedure whereby the legislature can act to preclude the initiative, and the legislature decided, in its wisdom, to act and to do it. I think they also have a wage commission in Alaska that can increase it.
I mean, what -- you have to understand, what the petition asks for is an increase and indexing. And you also should understand that the wage board is just another step in the process. It goes back to you for a final decision.
Finally, in terms of "now is not the time," Ive been doing this for many years, and Ive never known the time when employers think it is the time to increase the minimum wage.
Id just like to point out that a recent Forbes study found that of the best places to do business in the United States, six out of ten were located in California, of all places.
COMMISSIONER BOSCO: Santa Rosa is number two. Harold and I come from there.
COMMISSIONER CREMINS: But youre not there now.
MR. POWERS: Bill Powers, with the Congress of California Seniors.
I just want to echo what Tom just said. We have historically been asking low-wage workers to subsidize our good society that we have here, and its unreasonable and its unfair. People who work should not have to live in poverty. And thats the case right now with the minimum wage in this state.
So wed urge the establishment of a board.
Thank you very much.
COMMISSIONER DOMBROWSKI: Any questions?
MS. BANE: Mr. Chair, I believe that there is someone here who might have knowledge of the -- in fact, Mr. Rankin might -- have knowledge of the bill that Senator Koretz is proposing regarding the indexing. It does mention the IWC, I believe.
Mr. Rankin, do you --
COMMISSIONER DOMBROWSKI: I think it preserves the IWCs ability to review it, if my memory is right.
MS. BANE: Regarding the bill by Senator Koretz?
MR. RANKIN: Yeah, definitely. It doesnt take -- we would not be proposing a bill that would tie the minimum wage to indexing with the possibility of further increases when the minimum wage should be over $8 an hour and indexing would bring it up to -- who knows? -- less than $7. So it definitely preserves your ability to consider further increases in the minimum wage.
MS. BANE: Thank you.
And also, I believe it provides that the IWC would be responsible for promulgating the indexed increases, as it is written now.
COMMISSIONER DOMBROWSKI: The pleasure of the committee?
COMMISSIONER BOSCO: Well, obviously, we are not in the best of times economically in the state, although I think Mr. Rankins point was well made, that when we were in the best of times, I think about the same group of people opposed the minimum wage then as they do now -- not to say that theyre disingenuous or somehow incorrect. But having gone through these minimum wage hearings even long before the IWC, they do tend to get generic with the people opposing and supporting them.
One -- and also, Ive been reading all of the materials that weve been getting, and there seems to be a good body of evidence that increasing the minimum wage doesnt necessarily hurt business, and to some degree, helps it. So I think that is a factor to consider.
Another factor that I think needs to be considered is what effect any increase in the minimum wage has on the state budget, because although were not particularly charged with responsibility for the state budget, I think all citizens, including ourselves, have to be concerned with that.
But Im going to move that we empanel a wage board to consider the petition requesting that the Industrial Welfare Commission conduct a review to raise and index the minimum wage.
COMMISSIONER ROSE: Second.
COMMISSIONER DOMBROWSKI: Any discussion?
COMMISSIONER ROSE: Yes.
COMMISSIONER DOMBROWSKI: Harold.
COMMISSIONER ROSE: I think that we should proceed as fast as we can to get what we can get done in June, no matter what happens after July 1st. But I -- weve got to set this in motion now.
COMMISSIONER DOMBROWSKI: Any other discussion?
COMMISSIONER CREMINS: Ive got what may be a na´ve question. Will this meet our requirements in the Labor Code to review the minimum wage on a two-year -- were mandated to review the minimum wage every two years, I believe.
MS. STRICKLIN: Yes.
COMMISSIONER CREMINS: Its going to meet that requirement?
MS. STRICKLIN: Yes.
MS. BANE: Actually, I think that -- let me defer to counsel, but the requirement to review the minimum wage has already been met, even prior to convening a wage board.
MS. STRICKLIN: The review begins with the investigations and the hearings.
COMMISSIONER COLEMAN: So, just to clarify, so the wage boards are not part of the official review? The review is a broader term?
MS. STRICKLIN: The review means everything from the date people come in to testify, either at a meeting or a hearing. And the wage board is all part of that process, assuming that, based on those -- that testimony and the documentation that you receive, you decide to call one, yeah.
COMMISSIONER COLEMAN: I have a question which might be na´ve as well. Do we know what the timing is on our own budget, to decide whether this is a realistic charge?
COMMISSIONER DOMBROWSKI: Were funded to the end of the month.
COMMISSIONER COLEMAN: This month, end of June?
COMMISSIONER DOMBROWSKI: Yeah. I mean, really, depending on what happens to the budget is going to depend on what happens with this wage board. If we dont get funded, I dont think the wage board can get its work done.
COMMISSIONER BOSCO: We might want to have a very small wage board thats willing to meet in peoples living rooms, I would guess.
COMMISSIONER DOMBROWSKI: Well, procedurally, I think we have a 30-day notice for names or something, right?
MS. STRICKLIN: Well, you have names submitted now, but you would have to send out a notice, which would require 30 days, before the meeting could be set.
MS. BANE: A 10-day notice or 30-day notice?
MS. STRICKLIN: Its a 30-day notice for a wage board meeting.
COMMISSIONER DOMBROWSKI: All right. Any other questions, comments, observations?
Can we call the roll?
MS. BANE: I will call the roll.
COMMISSIONER DOMBROWSKI: No.
MS. BANE: Ms. Coleman.
COMMISSIONER COLEMAN: Aye.
MS. BANE: Mr. Bosco.
COMMISSIONER BOSCO: Aye.
MS. BANE: Mr. Rose.
COMMISSIONER ROSE: Aye.
MS. BANE: Mr. Cremins.
COMMISSIONER CREMINS: Aye.
MS. BANE: The motion passes, four to one.
COMMISSIONER DOMBROWSKI: Thank you.
The next item on our agenda is our closed session. Id ask the --
MS. BANE: Excuse me, Mr. Chair. Regarding the wage board process, the next step -- I wanted to get the timeline set -- the next step is to receive nominations and for the Commission to then name the wage board. And there would be a 10-day notice before an IWC meeting would be able to name the participants in a wage board, if they are not ready to be named today.
COMMISSIONER DOMBROWSKI: Well, were not ready to name today, so --
MS. BANE: So there would have to be a 10-day notice, a meeting held, the wage board nominees named, and then there would -- after that, there would be a 30-day notice before the wage board could meet.
COMMISSIONER ROSE: Mr. Chairman, what Bridget said is what I would like to do. I would like to proceed as soon as possible, put a 10-day notice out, get the two sides together and come up with a list of names, and appoint those names. Then, if were funded, we continue on. If were not, say, for a month, then at least when the time comes, we can proceed with the procedure.
COMMISSIONER DOMBROWSKI: Any other comments?
COMMISSIONER DOMBROWSKI: All right. Can we move to closed session?
MS. STRICKLIN: Im not aware of whether or not --
COMMISSIONER DOMBROWSKI: We need to go to closed session.
MS. STRICKLIN: Okay.
COMMISSIONER DOMBROWSKI: We need to vacate the room.
(Thereupon, at 11:05 a.m., the Industrial
Welfare Commission adjourned to closed
(Time noted: 11:29 a.m.)
COMMISSIONER DOMBROWSKI: All right. We are back in session -- all of you back in session. And we are at any other business that may be brought up.
Bridget, I believe you have something to get on the record.
MS. BANE: Yes. Id like to get it on the record that we have received a petition regarding Wage Order 16 that we will put on the agenda at the next future meeting. And we have distributed copies to the Commission members. And well go into the particular issues on that at a later date.
COMMISSIONER CREMINS: Is it the apprenticeship issue?
MS. BANE: Yes.
COMMISSIONER DOMBROWSKI: Which issue was that? Is that the apprenticeship issue in Wage Order 16?
MS. BANE: Yes. Yes, it is.
COMMISSIONER DOMBROWSKI: Okay.
With that, any other business?
COMMISSIONER CREMINS: Ive been asked to make a motion -- I think were going to withdraw that motion on -- but on two things. Theres this notion that its not an administrative matter, the product of my motion dealing with Wage Order 5, that its a motion we took, and thus it needs Commission action to undo it.
COMMISSIONER DOMBROWSKI: Can we -- you lost me.
COMMISSIONER CREMINS: There was some discussion on my proposed motion, whether it could be done just administratively. Theres an opinion out there that says we cant because the Commission took some action on that, so to undo that action or portions of it, you need to reconvene the Commission again to do that.
And Im somewhat assured, if we need to do this -- and its an open question -- that we can do this before the 25th.
Is that right?
MS. BANE: Yes, we did discuss the possibility of having the emergency meeting, and thats what were talking about now. If it becomes necessary to make a decision -- I thought that was regarding the decision as to whether to appeal. I was not sure that it included this motion.
COMMISSIONER CREMINS: It does include this motion. If we can have some assurance that we will -- if we need to, we will meet before the 25th to be in compliance with the judges order.
COMMISSIONER DOMBROWSKI: Well, I dont -- thats -- I dont have any problem with that. I mean, thats fine.
COMMISSIONER CREMINS: Okay. Youre sure.
COMMISSIONER BOSCO: I think our status is this, and correct me if Im wrong: that if we want to appeal, we must do so by statute before the 25th, because thats the time that the amount of days that we have to appeal lapses. And that is a separate decision from rescinding what we have already done. Rescinding what we have already done certainly doesnt have to be done before we decide whether to appeal, because if we appeal, we wouldnt rescind what weve done. But we would then have the -- certainly, if were going to rescind what weve done, that we would have to do by --
COMMISSIONER CREMINS: Right. Gotcha.
COMMISSIONER BOSCO: -- by vote. But not -- whether we appeal or not may or may not be done by vote, because if we dont do anything, our time for appealing will lapse.
COMMISSIONER CREMINS: Right.
MS. BANE: Correct.
COMMISSIONER CREMINS: Is there some holdup why we dont know if were going to appeal? Is there -- theres some major roadblock?
MS. BANE: No. I thought that was what was gone over in the executive session.
COMMISSIONER CREMINS: Okay.
COMMISSIONER DOMBROWSKI: Okay. Any other business?
COMMISSIONER BOSCO: I move we adjourn.
COMMISSIONER ROSE: Second.
COMMISSIONER DOMBROWSKI: Motion and a second. All in favor, say "aye."
(Chorus of "ayes")
COMMISSIONER DOMBROWSKI: All opposed?
COMMISSIONER DOMBROWSKI: A deathly silence. We are adjourned.
(Thereupon, at 11:34 a.m., the public
meeting was adjourned.)
CERTIFICATE OF REPORTER/TRANSCRIBER
I, Cynthia M. Judy, a duly designated reporter and transcriber, do hereby declare and certify under penalty of perjury under the laws of the State of California that I transcribed the tape recorded at the Public Meeting of the Industrial Welfare Commission, held on June 10, 2002, in Sacramento, California, and that the foregoing pages constitute a true, accurate, and complete transcription of the aforementioned tape, to the best of my ability.
Dated: June 26, 2002 ______________________________CYNTHIA M. JUDY