Wage Mandate Puts Jobs on the Line

For months now, the writers of the UC Berkeley policy briefs on the potential impact of a minimum wage hike in Los Angeles have been saying that a proposed 66 percent increase in the minimum wage will have a negligible impact on jobs.

Data now beginning to trickle out from our neighbors to the north – San Francisco and Oakland – should be raising alarm bells here in Los Angeles. Those cities approved wage mandates of $15 an hour and $12.25 an hour just last fall.

A commentary that appeared in the Wall Street Journal last week entitled “The Unappetizing Effect of Minimum-Wage Hikes” reported that in San Francisco and Oakland, restaurants are closing. The Abbot’s Cellar, rated as one of San Francisco’s top 100 restaurants, closed with the owners saying that they had no way to absorb the added costs. A popular vegetarian restaurant, named The Source, closed citing the higher minimum wage. Borderlands Books, a renowned bookstore, was only able to remain open, when customers put on a fundraiser to counter its added costs. In nearby Oakland, 10 restaurants and grocery stores decided to permanently close as a partial consequence of the wage hike.

The commentary reported that Ken Jacobs, one of the authors of the UC Berkeley study, responded to the negative reports by explaining that they were just labor-market “churn”.

I wrote last week that this same Berkeley study has predicted that there will be a net gain of 3,666 jobs by 2017 and 5,262 jobs by 2019 because of the “multiplier” effect of minimum wage workers having more money to spend.

However, Beacon Economics has predicted that the minimum wage increase would have a chilling impact on the creation of jobs by businesses. The Beacon report says that if the plan is put into place “it will reduce job growth in the City from an expected 1.8 percent per year for the next five years to less than half that and potentially eliminate growth altogether. In other words, expected job growth would go from 30,000 jobs per year to somewhere between 2,000 to 15,000 jobs.”

Michael Saltsman, the author of the Wall Street Journal story, concluded by saying “It’s probably too late to save other Oakland and San Francisco businesses. But it’s not too late for cities like New York and Los Angeles to heed the evidence before following their footsteps.”

The final hearing being conducted by the City’s Economic Development Committee on the proposed wage hikes will take place tomorrow evening (Thursday) at the Museum of Tolerance, 9786 Pico Avenue, at 6 p.m. We urge our members to show up and express your concerns about the current proposal.

The Hollywood Chamber has called on the City to take steps to protect our small businesses and nonprofit agencies. At a minimum, any increases for these businesses/agencies must be spread over a longer period of time in smaller increments. Let them know that you agree with our recommendation and that the future of your businesses is on the line.

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Leron Gubler has been serving as the President and CEO of the Hollywood Chamber of Commerce for the past 22 years. His tenure since 1992 continues to oversee the great comeback story of Hollywood.

Putting the Spin on the Minimum Wage Increase

Let’s assume you were trying to secure passage of a major tax increase.  You would want to verbally minimize the effect of the increase in order to head off opposition.

That is exactly what proponents of the proposed minimum wage increase in Los Angeles are doing.  Two hearings have already occurred where they have turned out large numbers and offered information that paints an incomplete picture. (We have a chance to correct that at the remaining two hearings detailed at the bottom of this blog!)

Proponents have ignored the wage increase that has already occurred, which conveniently makes the impact of the current proposal seem less.  As you may recall, the State of California raised the minimum wage from $8 to $9, just last year.  Although proponents may accurately say that they weren’t responsible for that increase, it still needs to be taken into consideration when you discuss what the current proposal would do to businesses.

The fact is that over a four-year period, businesses will be asked to absorb a whopping 66 percent increase in the minimum wage.  And that doesn’t even consider the ancillary costs tied to the wage rate that will be triggered by an increase, including additional Social Security, Workers Comp insurance rates, unemployment insurance fees, etc.

The City hired a consultant who has put a positive “spin” on the impacts.  That is what we have seen in the two studies performed by the Center on Wage and Employment Dynamics from UC Berkeley.  In their most recent report, just released last week, they “estimate that firms’ operating costs will increase by only 0.5 percent by 2017 and 0.9 percent by 2019 as a result of the proposed law.”  They go on to say that these are cumulative estimates and will be spread out over several years, thereby implying that this increase can be implemented virtually pain free.

But think about it for a moment … how can the minimum wage rise by 66 percent with only a .5 percent increase in operating costs?  That just begs believability. The only way such a conclusion can be drawn is to throw into the calculations all of the businesses in Los Angeles and all of the jobs that are already paying above the minimum wage.

The 0.5 percent figure is therefore virtually meaningless, because it is not measuring the effect on the businesses with large numbers of minimum wage workers.

The Hollywood Chamber of Commerce has just completed a study of our members, asking how the proposed increase will impact their individual businesses.  The majority of our members are small businesses, and I believe the results of our study are a much more accurate measure of the effect of the proposed increases.

A total of 35 percent of our members, mostly small businesses, believe that the proposed increase will affect their operations negatively.  These are businesses that actually employ minimum wage workers.  They estimate that their total operating costs will increase by 21 percent and that their profit margins will decline by about 9 percent.

That 9 percent decline in profits is significant because for many businesses that may be the margin between profitability and operating in the red.  Fifty-five percent of our impacted members tell us that they anticipate having to either reduce employee hours or lay off employees to compensate for the increase. Another 25 percent believe the proposed wage increase may force them to close their businesses.

However, the Berkeley study estimates that we will actually see an increase in jobs, because minimum wage workers are expected to spend most of their increased earnings.  Due to the multiplier effect, they are projecting a net gain of 3,666 jobs by 2017 and 5,262 by 2019, thereby countering any losses at existing businesses.

Is this a realistic scenario?  I don’t think so.  Data is beginning to emerge in cities that have already adopted increased minimum wages that would cast doubt on that assessment.  In my next blog, I will share with you some of that information.

In the meantime, let me encourage you to attend the last two community hearings that the City is conducting next week.  If you believe your business will be negatively impacted, you must attend and share your experiences if we are to have any chance of getting some sort of relief for small businesses and non-profit organizations incorporated in the final version that is passed.   The two hearings will both be at 6 p.m. They are at:

Van Nuys City Hall, 14410 Sylvan Street, Tuesday, March 31
Museum of Tolerance, 9786 W. Pico Blvd., Thursday, April 2

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Leron Gubler has been serving as the President and CEO of the Hollywood Chamber of Commerce for the past 22 years. His tenure since 1992 continues to oversee the great comeback story of Hollywood.

The City Needs to Listen to Small Businesses

Over the past month, members of the Hollywood Chamber of Commerce have been pounding the pavement at City Hall, making our case as to why the City needs to give a break to small businesses with the proposed minimum wage increase.

The current proposal would raise the minimum wage from the current $9 to $13.25 an hour by 2017.  This would be achieved through $1.25 increases per year. Some councilmembers have even suggested an additional increase to $15.25 by 2019.

What has impressed me as we have made the rounds at City Hall is the compelling information that our small businesses have shared with City officials.  Let me share some of the insights that I have gained.

When a City raises the costs of doing business, it forces the business to compensate by reducing costs elsewhere.  That means businesses will not expand, fewer jobs will be available, employees’ hours will be cut, summer jobs for students will decrease, and businesses will make do with fewer employees.  That is hardly a recipe for job creation in the nation’s second largest city – which still has fewer jobs today than it did 25 years ago.

One of the industries that will be hardest hit by the minimum wage hike is restaurants.  The L.A. Times recently quoted data that the net profit margin for restaurants averages 3 percent, compared with a nearly 6.3 percent profit margin for all private industries across the country.  … which means that restaurants have a lesser ability to absorb these mandated increases.

Our restaurateurs say that payroll represents between 40 and 60 percent of their overall costs.  They scoff at the City-commissioned Berkeley study’s claim that they will only have to raise their prices by a cumulative 4.1 percent by 2017 in order to cover the minimum wage hike.

One restaurateur said that ancillary costs tied to wages such as Social Security, unemployment insurance and workers’ compensation premiums would add roughly 30 percent to the cost of the 47 percent increase proposed by the City. In addition, they would have to pay increased costs for their restaurant supplies as other vendors within the City raise their prices to also compensate for the wage increase.  He estimated that prices would need to be raised by up to 35 percent to fully recover the added payroll costs.  However, restaurants’ customers are highly price sensitive, which would limit a restaurant’s ability to raise prices significantly.

One retailer explained that the added payroll costs may push them over the brink. They are unable to hike their prices to compensate for the increased costs of the wage mandate, because of internet competition.  If they raise prices, they will lose customers.

A nonprofit organization detailed how they compete for statewide grants.  As they factor in the costs of the hike in the minimum wage, it will place them at a competitive disadvantage with nonprofits from other areas of the state and likely cause them to lose grants and jobs.  They anticipate having to cut their student jobs and hours by 40 percent.

The Hollywood Chamber of Commerce recognizes the need for an increase in the minimum wage and we have offered qualified support if the City takes steps to protect its small businesses.  Of course, the best solution would be for the City to offer an exemption for small businesses below an established threshold of employees. This would be the right step to preserve jobs and small businesses.

If that is not achievable, then the City of Seattle offers a model where they increased the minimum wage for small businesses at the reduced level of 50 cents annually.  An increase of that order, as compared to the $1.25 a year increase now proposed, would be easier for small businesses to absorb.

The City’s justification for raising the wage is to get people out of poverty.  What they have missed in all of this is that the businesses they would hurt the most are the ones that create the most new jobs.  These small businesses hire unskilled and untrained workers.  They train these employees and give them an opportunity to join the workforce and to move up the ladder as they acquire skills.  The proposed wage increase could hurt the very people the City wishes to assist.

Our message to the City Council is not to “kill the goose that lays the golden egg.”  Do the right thing and take steps to protect the small businesses that do so much for our economy.

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Leron Gubler has been serving as the President and CEO of the Hollywood Chamber of Commerce for the past 22 years. His tenure since 1992 continues to oversee the great comeback story of Hollywood.

This Would be a Good Year for City Business Tax Reform

Last week, Mayor Eric Garcetti announced that Yahoo was moving into the City of Los Angeles.  The firm will be relocating from Santa Monica to Playa Vista and will bring 400 jobs.  This is of course very good news for the City.

Of particular interest to me is what enticed Yahoo to make the move to the City of Angels.  The Mayor listed the City’s special incentives, including a three-year business tax waiver for businesses relocating from outside the city as well as L.A.’s special tax incentives for Internet companies.

The fact is taxes are a huge issue when it comes to enticing businesses to locate within a city. Taxes are also a significant issue when it comes to retaining businesses.  Only four years ago, Hollywood lost Legal Zoom and 300 high-paying jobs to Glendale when the City insisted on more than quadrupling that firm’s business taxes.

Years ago, when I worked in San Pedro, we fought a similar battle to retain Logicon, which was being enticed by Long Beach because of the differential in taxes.  It was only when the City found a way to reduce the gross receipts tax, that we were able to retain what was then an important aerospace company.

Last year, UCLA reported that L.A. had one of the worst job creation records of any major city in the nation.  I am convinced that the gross receipts tax is the reason why we lag so far behind.

And yet, it is very difficult to get meaningful action to alter this job-killing tax – primarily because the City garners 10 percent of its budget, about $440-million annually from this tax.  The City Council, facing difficult budget forecasts, is understandably reluctant to give up this source of revenue.

While we appreciate the fact that they did approve a small decrease in the tax last year, it was so small as to be almost meaningless if they really wanted to change the paradigm (16 percent decrease in the highest rate spread over three years).

This city really needs jobs.  Its resident need jobs.  And the city needs all that new companies bring to a city by way of civic engagement and the other contributions that they make.  Recruiting new businesses to relocate to Los Angeles and actively retaining our diverse and vibrant business community will require a new approach to our antiquated business tax structure.

The Hollywood Chamber of Commerce believes that the best tactic to bring jobs to Los Angeles would be to completely do away with the Gross Receipts Tax.  Numerous suggestions have been made on how to phase out the gross receipts tax.  Some have suggested that we replace it with something else – such as a net receipts tax.  One thing is for sure … if you really want to attract jobs, the city cannot replace an onerous tax with another onerous tax.  A great deal of thought needs to be put into whatever is done, so that we are competitive with our neighboring cities.

Wouldn’t it be nice if 2015 were the year when the City Council and Mayor finally tackle this problem and find a real solution?  What a gift that would be to our citizens, to take meaningful action which will help to generate countless new jobs within our city.

Then perhaps there would be even more stories about firms like Yahoo moving to Los Angeles.

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Leron Gubler has been serving as the President and CEO of the Hollywood Chamber of Commerce for the past 22 years. His tenure since 1992 continues to oversee the great comeback story of Hollywood.

It Was A Good Year For Hollywood

As the year 2014 draws to a close, I thought I would write one final column to end the year. Based on the scorecard that I keep, it was a very good year for Hollywood on the jobs front. The momentum for Hollywood continues to build.

Over the past several years, we have averaged three or four significant projects breaking ground on an annual basis. In 2014, by comparison, we had eight. They included: JH Snyder’s Hollywood 959 project with 244,000-sq.ft. of office space in the Media District, Kilroy Realty’s 700,000-sq.ft. Columbia Square project, Lennar’s 1411 N. Highland project with 76 rental units, Hollywood International Regional Center’s 182-room Dream Hotel, Hudson Pacific’s 315,000-sq.ft. Icon at Sunset-Bronson Studios, the 112-room Hampton Inn on Vine by Holivine Investments, Wood Partner’s Alta 5550 with 280-apartments, and finally JH Snyder’s 1601 Vine Street with 100,000-sq.ft. of office space.

This investment is breathing new life into Hollywood. Currently, we have about $1-billion under construction. Almost all of these projects are replacing parking lots or old dilapidated commercial buildings – not residential properties. Each of these projects will add vitality to the street and add to the safety of the neighborhood.

We also had two great leases announced in 2014 – both for Columbia Square. Neuehouse, out of New York, will occupy 93,000-sq.ft., while Viacom has leased 180,000-sq.ft. to house its cable networks, including MTV, Comedy Central, BET, and Spike TV.

With a million square feet of office space under construction and the Westside filling up, Hollywood is well positioned to benefit. We anticipate that Neuehouse and Viacom are the vanguard of new firms who will be coming to Hollywood in the future, bringing jobs that will benefit our community and Los Angeles.

Of course, there were also a few setbacks in 2014. In September, construction ceased on a 160,000-sq.ft. Target that is under construction at the corner of Sunset and Western. A judge ruled that the City should not have granted a variance for a height of 75 feet. Now the City must modify the ordinance to allow this usage. More than 200 permanent jobs are now on hold, construction workers were pulled off the job, and Hollywood residents will lose by having to leave the community to do the shopping they might have done here.

On the legislative front, we had one huge victory in the passage of AB1839 – the film tax credits bill that raises the annual credits available in California from $100-million to $330-million. This was the culmination of years of lobbying the State to take decisive action to save our signature industry. This won’t bring back all of the lost business, but it will mean that thousands of local jobs are saved and that more families will not have to be separated due to jobs outside of California. Kudos to our legislators for making this happen.

As we approach the year 2015, I am optimistic about Hollywood’s future. The investment in this historic neighborhood by responsible developers is something for which we can all be grateful. We are indeed making a difference, and showing that Hollywood can be an example for the rest of the region of how to successfully revitalize a community.

Our very best wishes to you for the holidays and New Year!

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Leron Gubler has been serving as the President and CEO of the Hollywood Chamber of Commerce for the past 22 years. His tenure since 1992 continues to oversee the great comeback story of Hollywood.

Viacom Announcement is Huge for Hollywood

For those of us who have been working to revitalize Hollywood for many years, the news last week that Viacom has agreed to rent 180,000-sq.ft. of space at Kilroy Realty’s Columbia Square development is welcome news indeed. The media titan has agreed to move its cable television networks MTV, Comedy Central, BET and Spike TV to the complex now under construction on Sunset Blvd. at Gower. How big is this for Hollywood and Los Angeles? Well, let’s just say it is H-U-G-E!

For the City of Los Angeles, the announcement makes a statement that Los Angeles can indeed attract major entertainment firms. Some of the jobs are being relocated from other sites in L.A., but a significant portion are coming here from Santa Monica and Burbank. And these are prestige companies, the type that any city would do almost anything to attract. Not only will these businesses strengthen the tax base of the City, but they will also bring jobs here by the hundreds – to the tune of more than 600.

For Hollywood, the announcement is proof that the Hollywood comeback is for real. For most of the past three decades, companies were leaving Hollywood. We can point to this as evidence that the jobs outflow has now reversed. Furthermore, these employees will spend dollars in Hollywood, at restaurants and retailers, which will strengthen our economy. Finally, it substantiates the fact that Hollywood will remain an important commercial district within the metropolitan region.

For the developers, the announcement will create momentum as far as attracting other companies to Hollywood. Kilroy Realty, Hudson Pacific and J.H. Snyder have made a significant bet on the future of Hollywood by investing here. Hollywood currently has one-million-sq.ft. of office space under construction, more than any place else in Los Angeles. Trophy deals such as this confirm that they made the right decision.

For the Community, the arrival of Viacom is also a huge victory. We have touted the goal of creating a truly great live-work community, where people can reside with only an occasional need for a car. That means putting jobs and residences in close proximity to each other and to transit options. And these are companies that give back to the community. Viacom, through its Paramount arm, has for years organized their annual Viacommunity Days of service, and I imagine we will now see more of that from the new Viacom divisions. Furthermore, we can anticipate that these and other new firms moving here will become part of the community by supporting local arts, education and social service programs.

So, this is indeed a big win for Hollywood. And I can’t think of a better way to bring in the holiday season and to end the year than this. May the momentum continue in 2015!

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Leron Gubler has been serving as the President and CEO of the Hollywood Chamber of Commerce for the past 22 years. His tenure since 1992 continues to oversee the great comeback story of Hollywood.

The Elusive Earthquake Fault Zone

So what are we to make of the state geological report released last week by State Geologist John Parrish on the location of the Hollywood earthquake hazard zone as related to the proposed Millennium Hollywood project? Well, let’s just say I wouldn’t lose any sleep over it.

For those of you who may not be up on the details, let me provide a few. Last January, the State Geologist issued a preliminary report that had the Hollywood earthquake fault trace running right through the middle of the Capitol Records Tower (seemed a bit of grandstanding to me). At that time Dr. Parrish said the following: “We feel very confident about where we drew that line, within maybe a 50-ft. accuracy back and forth. But we’re very confident it’s there.”

Since that time, four property owners teamed up and spent more than $1-million on trenching and one of the most extensive private sector earthquake studies ever done that proved it wasn’t there.

Last week, Dr. Parrish issued his final map and moved the earthquake fault trace to the south, still on Millennium property but beyond the area where the study had occurred. This time he said: “We have placed, I think with a great deal of accuracy and information, where we thoroughly believe that the trace of an active fault exists throughout this whole area.”

Whether the fault is at this new location remains to be seen. Millennium Hollywood issued a statement that they are also confident that further testing will corroborate their previous conclusion that the fault is not there and are prepared to conduct additional testing in the area the State has now identified. Eventually, we should have a definitive answer.

In the interim, there is actually some good news that comes from the State Geologist’s report. It appears that he has accepted as accurate the conclusions of the trenching study on where the fault is not. That should clear the way for the project on the former KFWB site and the proposed Argyle hotel to move forward. It also lifts the “cloud” that hung over the Boulevard 6200 project, when the State Geologist said in January that the fault went through the middle of their building.

Making decisions on where buildings can and cannot be placed to avoid earthquake faults is serious business. It is important to ensure the public safety. The drama may continue for a while, but in the end this thorough analysis will result in a project designed to give the public confidence in its safety. And that is something we should all welcome!

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Leron Gubler has been serving as the President and CEO of the Hollywood Chamber of Commerce for the past 22 years. His tenure since 1992 continues to oversee the great comeback story of Hollywood.

Finally, A Little Bit Of Good News For Small Businesses

It has been a very long summer for businesses in the City of Los Angeles. First, the City Council took a timid approach to promised reform of the gross receipts tax. Next, they passed a resolution (with no discussion at Council) calling for a split roll property tax. Then, they approved the second highest minimum wage in the nation for hotels without regarding the economic studies they had commissioned. And finally, they moved forward on a plan to raise the minimum wage across the board by 47 percent over a three-year period.

Last week, we finally received some good news, when Councilmembers Mitch O’Farrell and Bob Blumenfield introduced a motion asking for an economic analysis of the unintended consequences of increasing the minimum wage, especially as it relates to small businesses and nonprofits.

The result of this motion is that the process for a decision would slow down, and allow the debate to take place that is needed on an action that will impact thousands of businesses. Instead of taking action in January, if this motion is passed, we should see a decision in the spring. Of course, this is all dependent on approval of the motion by the full City Council.

The Hollywood Chamber of Commerce is on record in support of an increase if it is done in a way that minimizes its impact on small businesses. Increases need to be smaller and spread over a lengthier period of time. The City needs to lobby the State to allow tipped wage earners to be excluded from the increase. And the City needs to seriously reform or replace the gross receipts tax in a way that will allow Los Angeles to compete with other L.A. County cities for business.

The Berkeley study commissioned by the Mayor is seriously flawed and underestimates the negative impact of the proposed increase on jobs and businesses. There has never been an increase in the minimum wage of this magnitude over this short period of time. It does not allow businesses the time to adjust to the increase.

We have just completed a study of our own members that reveals that 53 percent believe their businesses would be adversely impacted. If it is enacted as proposed, 27 percent say that they would have to lay off employees and another 39 percent say that they would have to reduce some employees hours.

Studying the unintended consequences of the increase makes sense. Are the benefits of the proposed increase greater than the negatives for those who will lose jobs or have their work hours reduced? What about the $1.8-billion sucked out of the pockets of businesses? Are the negatives of their reduced spending being taken into consideration?

A big thanks to our own Councilman Mitch O’Farrell for making the motion to put the brakes on this increase along with Councilman Bob Blumenfield and seconders Paul Krekorian, Nury Martinez, and Felipe Fuentes. Hopefully, other Council members will take the responsible position and also support the motion. There is no need for a headlong rush to approve an increase. Let the Council take the time to listen to the businesses that will be impacted and to craft an increase that not only helps those on the lowest economic level, but which does the least harm to business.

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Leron Gubler has been serving as the President and CEO of the Hollywood Chamber of Commerce for the past 22 years. His tenure since 1992 continues to oversee the great comeback story of Hollywood.

What the Experts Say About Hotel Minimum Wage Job Loss

Last week, the Los Angeles City Council gave final approval to an ordinance that will raise the minimum wage of hotel workers to $15.37 an hour, the second highest in the nation. In July of 2015, the hike will apply to employees in hotels with more than 300 rooms, and the following year to workers in hotels with greater than 150 rooms.

In 2008, when the City singled out hotels near the airport for a higher minimum wage, the City Council agreed to do an economic analysis before raising the rate beyond the airport area. Three studies were ordered – one backed by Labor, one from Business, and a third from a firm that all parties agreed upon. Unfortunately, the City Council gave little credence to these studies. I thought it might be useful to share with you some of the conclusions of those reports.

Christopher Thornberg of Beacon Economics found that such a steep increase in the minimum wage could result in a sharp decline in the number of jobs in the hotel industry. His study found that since 2007, the number of people employed at hotels in the county has risen by 12 percent, but during the same timeframe, hotel employment has declined 10 percent near the airport (where the hotel wage base had been raised).

He concluded that as many workers might be hurt by the proposed increase as would be helped by higher wages.

Another study by PKF found that if the ordinance were approved as proposed, there would be a “direct impact on new job creation … because developers will not want to risk an investment in new hotels due to the long-term real estate risks.” The study noted that the average annual growth rate for new hotel supply in the City of L.A. is significantly below the national average, resulting in an under-supply of hotel rooms in the market.

The study reported that no new hotels have been built in the LAX Corridor, and only one in Long Beach (which was already under development), since their respective wage hike ordinances went into effect.

Even the Los Angeles Times was critical of the Council, saying that “they’ve ignored unfavorable economic studies, tuned out valid industry concerns and overridden their own existing laws in an effort to enact what is in fact bad public policy.”

I have referenced before that a UCLA study from earlier this year revealed that the City of Los Angeles has one of the worst records for job creation of major cities in the nation – worse than even Detroit and Cleveland. Since 1990, the study indicated the city had lost 3.1-percent of its employment base. There are fewer jobs in the City now than there were 24 years ago.

What people need are jobs and the opportunity to move up. It is hard for me to understand how the action that the City Council took will help create jobs.

The Hollywood Chamber had urged the City Council to not single out the hotel industry but to roll the decision into the broader discussion of the citywide wage hike now being considered. That would have been the far wiser course.

Let’s hope that the City Council has a true debate on the merits and impacts of potential wage hikes before voting on the proposed citywide ordinance later this fall.

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Leron Gubler has been serving as the President and CEO of the Hollywood Chamber of Commerce for the past 22 years. His tenure since 1992 continues to oversee the great comeback story of Hollywood.

Potential Loss of Jobs Is NOT a Myth!

At a debate held last week by the candidates for L.A. County Supervisor, it was reported in the L.A. Times that they both agreed that it is a “myth” that a minimum wage hike would lead to job losses. Well … I think it is time to dispel that “myth”.

The Mayor’s proposal would raise the minimum wage in 2015 from the recent State-imposed rate of $9 to $10.25. In 2016, it would be raised to $11.75 and in 2017 it would go to $13.25. Thereafter it would be tied to cost of living and be adjusted annually.

The proposed hike when fully implemented amounts to a 65 percent increase in the minimum wage. However, when you add in payroll tax increases, workers comp increases and unemployment tax increases, one business told me that they had computed that the effective increase is 88 percent. On top of that, it puts wage pressure on all of the other positions at a business, who will be dissatisfied that their salaries are not also being raised.

The one thing that so many public officials do not seem to realize is that a business must operate at a profit. Many businesses are just barely making it. With tight operating margins, they are fearful of what hikes in the minimum wage will do to their bottom line.

George Abou-Daoud, one of our most energetic entrepreneurs who owns several restaurants in the Hollywood area, told us that when the minimum wage increased from $8 to $9 on July 1st, he had no choice but to close two of his Hollywood restaurants – Mercantile and Township. These restaurants were operating on a tight margin and the hike pushed them over the precipice. Now, 40 former employees are out of a job.

George tells me that he is willing to meet with any politician and show them his books on these closed restaurants so that they can get a better understanding of what it takes to operate a business. He encourages our public officials to speak with businesses like his to get the facts rather than the economists at Berkeley. He supports measures for wage increases, but only if other taxes and fees that would rise are fixed.

The Hollywood Chamber understands the reasoning behind the Mayor’s proposal. We agree that no one working full time should be living in poverty. However, any increase in the minimum wage must be tailored to minimize the impacts on small businesses. Here are the points that our board of directors approved last week as mandatory to earn the Chamber’s support of a hike in the minimum wage:

First, it is essential that the minimum wage increase be phased in over a longer period of time at smaller increments. Perhaps there could be two schedules – one for businesses with more than 500 employees and another for those with less than that.

Second, the business community wants to see immediate and comprehensive reform of the L.A. Business Tax. The City of L.A. currently has the highest business tax in the County – a whopping 9.5-times the average for the other 87 cities. We are never going to be able to address the job growth issue in this City until the Council addresses this onerous tax.

Third, the City needs to abandon its efforts to impose a minimum wage of $15.37 on hotels. It makes no sense to single out an industry like this. There is NO reasonable justification for doing this to our hotels. It places an unreasonable burden on existing hotels and will prove to be very damaging to the effort to attract new hotels to this City.

Fourth, the City needs to actively work (and not just give lip service) to get the State to change its requirement that tipped wage earners also receive the same minimum wage as other employees. California is only one of seven states that have this ridiculous condition. In addition, current State law requires that employers pay taxes on all the tips their employees receive, although it is not income to the establishment. Tipped wage earners already earn significantly more than the minimum wage. By removing this requirement, it makes it easier for businesses to help those truly in need.

Fifth, there needs to be a carve-out for non-profit organizations, who will not be able to perform their work in the community if the minimum wage hike goes into effect.

These steps will not completely offset the pain to businesses from the proposed hikes, but they will certainly help.

As discussions go forward on the proposals, we hope to address what is the real myth being circulated – that you can take $1.8-billion out of the pockets of small businesses and have no adverse impact on jobs!

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Leron Gubler has been serving as the President and CEO of the Hollywood Chamber of Commerce for the past 22 years. His tenure since 1992 continues to oversee the great comeback story of Hollywood.