Category: Blog

Seattle’s Minimum Wage Starts in Two Days (4/1/2015)

Seattle’s Minimum Wage Kicks in April 1st 2015

With Seattle’s new minimum wage kicking in just two days, and tons of speculation about the impacts, I’d like to break down what it means for workers, businesses and our economy in some hard numbers.

What does Seattle’s minimum wage mean for workers?

Everyone in Seattle should be earning at least $11 per hour starting on April 1st. Depending on the type of business you work for, the compensation package may look different. If you work for a large employer (500+ employees) like Target, McDonalds or Amazon, your paycheck should reflect an hourly wage of $11 per hour. If you earn minimum wage ($9.47) today, then in two days you should earn $1.53 per hour more before taxes. If you work 32 hours a week and are paid every two weeks, your paycheck should show an increase of $91 before taxes. By December 31st 2015 you should have earned $1,836 more before taxes. That is enough money to buy a quality bed, put down a deposit on an apartment, or spend $10 on lunch three times a week for an entire year.

If you work for a smaller business (500 or less employees) your paycheck should reflect at least $10 in direct wages per hour, and $1 dollar in either tips or health care benefits. If you don’t get tips or healthcare benefits, you should be earning $11 per hour as your wage. So for example, if you are a tipped worker, your wages should reflect a $.53 cent increase AND your employer should show that you have earned least $1 in reported tips or they have contributed at least $1 per hour you worked towards a health care package. If you work 32 hours a week and are paid every two weeks, your paycheck should show an increase of at least $31 in pre-tax wages and at least $60 in compensation in the form of tips or healthcare benefits. By December 31st 2015 you should have earned $636 more before taxes.

What does Seattle’s minimum wage mean for the economy?

The University of Washington[i] estimates that nearly 37,900 people are currently earning minimum wage in the City of Seattle. As we’ve already estimated, each person will earn between $636 and $1,600 more this year if they work 32 hours per week until December 31st.[ii] If we look at the aggregate increase for all 37,900 workers earning minimum wage – minimum wage earners in Seattle could earn between $24 million and $69 million more in 2015 than they would have without a higher minimum wage. That represents a significant increase in buying power for Seattle’s lowest wages workers. That’s enough money to buy between 2.4 million and 6.9 million $10 lunches.

What does Seattle’s minimum wage mean for businesses?

Every business has a different model and labor costs can represent a different percentage of your total labor costs. The implications for restaurants have been dominant in the media, so we’ll explore what the implications are for a Seattle restaurant. Using the Washington Restaurant Association’s break estimates of a typical budget breakdown featured in the Seattle Magazine, we can get a sense of the total operating costs.   According to Anthony Anton, CEO of the Washington Restaurant Association: 36% of funds are devoted to labor costs, 30% to food costs and 30% to everything else. These restaurants then operate on a 4% margin.[iii]

If we look at a $1 million dollar business, labor accounts for 360,000 of their total operating costs. Assuming all workers earn minimum wage (which means this estimate is looking at the largest possible increase to labor costs as the typical wage for cooks in our region is $11.27 per hour and the typical wage for dishwashers is $10.45 per hour)[iv] their labor costs should increase between 380,160 (if all workers are tipped) and 417,600 (if no workers are tipped).  It’s safe to say that the total labor costs will be somewhere between those two numbers.  Assuming 50% of work hours are tipped and 50% are non-tipped).  The largest possible increase to labor costs for this business would be 398,880 – representing a 10.8% increase in labor costs. However, what is that increase compared to total operating costs? With a 10.8% increase in labor costs, total operating is no longer 1 million, but 1,038,880 – a 3.8% increase in total operating costs.  A restaurateur could conceivably raise prices by 3.8% to make up the difference.  For a $10 meal, that is a 38 cent increase.  In short – in two days 38,000 people should see increases to their paychecks and some prices may marginally increase. By the end of the year – millions more dollars will have gone to the people who drive our economy – workers.

[i] https://www.documentcloud.org/documents/1096119-uw-evans-report-on-15-minimum-wage.html
[ii] By comparing the number of FTE’s in Seattle (Employment Security Department Data) to the total number of jobs in Seattle (Puget Sound Regional Council Data) we were able to come up with a rough estimate of the typical hours worked for an employee in Seattle – 1600 hours per year or 32 hours per week.
[iii] http://www.seattlemag.com/article/why-are-so-many-seattle-restaurants-closing-lately
[iv] According to 2014 occupational wage data at the Employment Security Department the median wage for cooks in the Seattle Metropolitan region is $11.27 per hour and the median wage for dishwashers is $10.45 an hour.

A Vision for Community-Supported Equitable Development in Southeast Seattle

It is not a coincidence that Southeast Seattle has the greatest incidence of people with low incomes and possesses the highest poverty rate in the city.  In Southeast Seattle, affordable housing and quality jobs are increasingly hard to find for low-income people and families, who are disproportionately people of color, immigrants, and refugees as a result of the history of segregation.  However, the face of Southeast Seattle, and the country, is changing.  As of 2012, a majority of the nation’s infants were people of color, which now puts the white population of the country in the minority.

score
South Communities Organized for Racial and Regional Equity and Puget Sound Sage organizing for equitable development in SE Seattle

Currently, Seattle is the fastest growing city in the country – average rents have increased even more dramatically in the past year and the trend does not show signs of slowing.  Demographic changes in Southeast Seattle and South King County indicate that people of color have been displaced from their communities as the cost of living in Seattle has become unsustainable for them.  As a result, low-income communities and communities of color are relocating to resource-poor suburbs while a largely white and wealthier population remains in Seattle. This segregative effect in major metropolitan areas are deepening racial disparities in this city – disparities we have long sought to change.

However, smart planning, policy and investments in the community can mitigate or even reverse this trend. The opposite of gentrification-fueled displacement is “prospering in place” – where low-income people and families can afford to stay where they are, access the region’s economic opportunities and deepen cultural roots in their existing communities.

Low-income communities and communities of color in Seattle have known this far too long and all too well.  This past fall, approximately fifty people participated in a convening and survey through the city-sponsored, community-led equitable-development-focused Community Cornerstones program.  Six multi-cultural coalitions, two foundations, four business associations and eight city staff from five departments were convened to share equitable development plans and accomplishments, deepen collaborative relationships and explore opportunities to coordinate ongoing efforts.

Through synthesis of the surveys and convening notes from community coalition participants, several overarching themes emerged that Sage was able to connect to project and policy next steps, in a report informed by community.

Themes:

  • Growth must be place-based and culturally relevant.
  • Cultural anchors and community-supported economic development must be prioritized.
  • Government entities need to understand community vision in order to facilitate positive growth and increase capacity to align programs and funding that make those visions happen.
  • Community leaders need to be part of decision-making processes.
  • Multi-racial, multi-cultural equitable development coalitions have emerged and are currently working directly with the city as a resource. These community organizations must be adequately resourced to take ownership of their vision and actively participate in shaping development.
  • Community organizations expressed a desire for regional cohesion, and that organizations be adequately networked, working across cultures and sectors to become more effective, powerful and farsighted. Only then will meaningful change stem displacement and grow significant economic opportunity in the Rainier Valley.

Click here for the full report.

What does the Carbon Pollution Accountability Act do?

By: Dimitri Groce, Community Research Fellow

As a result of climate change, our region can expect increased wildfires, extreme weather and heat waves, which will have a disproportionate impact on people of color and people with lower incomes.

Since our last post, we have advocated with leaders committed to economic and racial justice to ensure tangible benefits for people of color and people with lower incomes from the Governor’s Carbon Pollution Accountability Act (CPAA).   Below, we break down exactly what the CPAA does and what it means for people with low-incomes and people of color.

First – the bill sets a limit on carbon pollution and targets big polluters in Washington State.  In order to meet this limit, industries that pollute more than twenty-five thousand metric tons of carbon dioxide or more per year will bid on emission “allowances”.  The amount of allowances a facility may have per auction will be capped, and the prices of the allowances will gradually increase every year until 2026. The bill prohibits free allowances ensuring that every big polluter participates in an effort to reduce our regions carbon pollution.

What’s the specific benefit for communities of color and people with lower incomes? In addition to reducing carbon pollution, the state will generate $1 billion in revenue from these auctions, which will be used to create clean energy jobs, invest in education, fund more affordable housing, and fund working families tax rebate.

Most importantly for local communities most impacted by climate change, the bill includes a provision for “hotspot” mapping that will show how the disproportional impacts of environmental degradation intersects with communities of color and communities with lower incomes.  Additionally, the CPAA creates an Economic Justice and Environmental Equity advisory committee, which allows leaders who are the most impacted by pollution to monitor the CPAA and advise the Department of Ecology on how to spend revenue, creating a pathway for the solutions to climate change to be informed by and benefit the communities most impacted.

Linkage Fee “Scare” Tactics Debunked: The Halloween Edition

By Lauren Craig and Howard Greenwich

A City Council Committee just recommended a promising new policy approach to Seattle’s housing crisis, authored by Councilmember Mike O’Brien.  Called a “linkage fee,” the policy establishes a reasonable city-wide fee on construction of new buildings that links job growth associated with development to increased demand for affordable housing.  Many cities in the U.S. have adopted linkage fees for affordable housing and multiple studies show such a fee can work in Seattle.  Listening to critics, you would think that a linkage fee is the scariest thing since Nightmare on Elm Street, and will frighten away the timid investors who have been paying above top dollar for property in Seattle.

Lead Coalition Organizer Ubax Gardheere testifying in support of the linkage fee to City Council October14th
Lead Coalition Organizer Ubax Gardheere testifying in support of the linkage fee to City Council October14th

The policy was voted out of the Planning, Land Use and Sustainability Committee yesterday and is headed to Council next week.  However, it’s only a resolution that directs staff to write the final ordinance for adoption next Spring, which is two seasons away.  So, we though it ‘twas the season for a little debunking of scare tactics being employed by critics of anything asking developers to pay their fair share.

MYTH #1: Developers are being unfairly demonized. They pay taxes just like everyone else.

The best part about the linkage fee is that that the City must demonstrate – for both legal and policy reasons – a causal connection between new job growth associated with a project and the need for affordable housing that it creates.  In other words, the fee is used to mitigate an impact that can be “linked” back to the developer, hence the term linkage fee.  The policy calls on developers to pay their fair share towards the public bill of creating adequate affordable housing for our growing low- and moderate-wage workforce.   Yes, developers pay taxes like everyone else, but their impact on affordable housing is basically an “externality” – a cost they don’t have to bear in making a profit.  This is also why it is a mitigation fee, and not an illegal tax.

MYTH #2: A linkage fee will result in less affordable housing being built, not more.

This myth is premised on a simplistic explanation of housing markets and why they contract or expand.  Even amidst one of the biggest real estate expansions in Seattle history, for-profit developers are simply not building housing affordable to low-wage workers (60% median income and below).  Why build at the lower end when so much profit is available at the higher end?  How can linkage fees result in less affordable housing when private, unsubsidized production is already near zero?

Furthermore, fees and regulations have a marginal effect on housing markets – market swings drive real change in supply and demand.  David Paul Rosen and Associates conducted a study over a twenty year period in California to determine the impact of inclusionary housing programs (which, like linkage fees, require developers to contribute to affordable supply) on housing production.  In larger cities, housing production increased, sometimes dramatically, after the passage of similar ordinances.

The report also found that in no case did the adoption of an inclusionary housing program slow housing production.  Based on the City’s own economic analysis, Councilmember Mike O’Brien has designed the proposed linkage fee so that developers will still make significant returns on equity.  For example, a tiered fee model is built into the resolution so that slower-growth areas will be subject to a lower fee.  Also, the fee level will be reassessed regularly and adjusted for market conditions.

MYTH #3: Over-regulation is strangling housing supply. If we got rid of regulations, the private market could build our way out of the crisis.

This “invisible hand” argument assumes that developers and investors would be willing to build in the lower-end of the housing market if only costs were cheaper. However, housing prices in strong markets are mostly determined by high-end demand.  Most new market rate buildings target well-off urban professionals, such as Amazon, Google and bio-tech workers, because those consumers are willing and able to pay top dollar for housing.   As a result, Seattle’s overall market is skyrocketing, with average rent increases of 33% just since 2010.  As long as Seattle continues to attract and sustain high-paid professionals, developers and investors will continue rational, profit-maximizing decisions to cater to their housing needs.

Moreover, developers will never be able to build enough new supply to a point where prices will meaningfully drop.  Even if they could build a fictional, unlimited supply of housing, other counter-forces can slow investment just as lower-end housing becomes interesting to investors.  For example, interest rates often rise to cool hot markets, making it more expensive for developers to finance new construction. Production of housing is just as likely to slow for reasons unrelated to local regulations and prices will remain high.

As we have most recently seen with the massive housing market crash, a lack of regulation is often the problem, not more regulation. Regulation can act as a buffer to unpredictable and imbalanced markets.  In fact, regulatory requirements to protect the environment, workers and consumers have often led to an increase in economic activity.

With a reasonable amount of funds to build affordable housing, the City can provide assistance to those negatively impacted by the swings of financial markets and the gross inequality they create.  Even in San Francisco.

MYTH #4: If you increase costs for developers, they will just pass that onto renters.

Suppose there are two developers building identical buildings with the same market-rate rents.  All costs are equal, but one developer took a higher interest loan than the other.  Will the higher interest loan developer pass the cost onto renters?  If she did, her rents would be higher and tenants would go to the second developer.  The term “market rent” is precise – it represents the most a landlord/developer can charge for a given product.  If a landlord could charge more in a given market, they already would – a City linkage fee will not change market rents or housing prices.

Further, over time, the cost of the regulation is largely absorbed into the price of land, not the cost of development on top of the land.  When cities impose new requirements on buildings – such as safety, health or environmental regulation – it puts a damper on the increases in commercial land value.  The property owner does end up absorbing the cost; however, landowners in Seattle have been enjoying exponential growth in value and benefit from business expansion, population growth and massive public investment in infrastructure.

MYTH #5: Linkage fees are a tax on density. Developers now have less incentive to build up, resulting in lower-density growth.

Currently, developers can gain bonus density to build higher and bigger through the City’s multiple incentive zoning programs.  The linkage fee does not take away any of these incentives – developers would be allowed to continue to access the bonus density.  Also, existing incentive zoning ordinances will be amended with a provision allowing for the payment of the linkage fee as satisfaction of the incentive zoning program.

Additionally, the relative cost of a linkage fee reduces as developers build to a greater density.  Here’s why:  shorter buildings (under 85ft) are built primarily with wood.  Above that, much more expensive materials are used – concrete and steel.  For example, say that a developer is choosing between a seven story, wood-frame residential project and a 24 story concrete and steel structure in South Lake Union.  The linkage fee per square foot would be the same for both buildings.  As the developer builds higher, the fee decreases as a proportion of total construction costs per square foot.  In other words, the linkage fee becomes relatively cheaper the higher you build.

While I am on the subject of the environment, the linkage fee will actually help reduce our carbon footprint by preventing displacement of low-income households from the city to the suburbs.

MYTH #6: Developers did not have time to weigh in. We should slow down.

Developers have not been left out of the discussion or debate.  Consultants have been studying how to improve on the City’s Incentive Zoning policy for an entire year with many occasions for public review and discussion.  The economic and financial feasibility assumptions forming the basis for the linkage fee have been informed by developers in multiple venues.

More importantly, growth is happening now and we need more affordable housing now.  There is no time to wait. City Council should adopt the strongest linkage fee feasible and the fastest timeline possible.

Martin Luther King once said something that is scarier than these scare tactics: “we must learn to live together as brothers or perish together as fools.”

A Green and Brown City: Why We Need Equitable Growth and Climate Justice

On Monday, I made the case that climate change is one of the biggest threats to social, economic and racial equity. But, how, specifically could climate change impact Seattle? And what does this mean for low-income people and people of color?

As a coastal city, Seattle will be directly affected by climate change. We can expect more extreme heat in the summer, more rain in the winter and the possibility of severe storms. But even more startling, by 2100, just 85 years from now, scientists predict sea levels will rise in Elliott Bay by 6 to 50 inches. If nothing is done to mitigate climate change, land area with substantial value will be lost. This includes parts of downtown Seattle, parts of West Seattle, South Park, Georgetown and the Port of Seattle. Georgetown and South Park are two neighborhoods where the population is disproportionately people of color and lower-income families.  In addition, local, good-paying maritime jobs and our food sources are at risk as port facilities, seafood beds and fishing fleets are threatened.

Despite these impacts, scientists say our region will fare much better than many other regions across the country. In fact, climatologists predict that our region will be one of the ideal places to move to avoid the extreme weather and unbearable heat we can expect across the country. Clifford Mass predicts that the Pacific Northwest will become a “potential climate refuge”. If this is true, our region must not only prepare for the impacts of climate change, but also for population growth over the next 80 to 100 years.

But even before we see an influx of new residents as a result of climate change – Seattle is already grappling with a dramatic growth of higher-income earning households moving to the city, resulting in a shortage of apartments and skyrocketing rents. On the supply side, developers are largely building new housing for the upper end of the rental market, leaving a massive gap at the middle and bottom. As a result, Seattle is already seeing displacement of communities of color – especially immigrant and African American communities – to the suburbs.

This displacement is occurring just as Seattle has emerged as one of the nation’s most sustainable cities. Seattle is a leader on curbing carbon emissions and preparing for the worst of climate change affects. We’ve launched large-scale energy efficiency building retrofits, implemented sustainable building practices, invested in light rail and streetcars, expanded bikeways, planned for transit oriented development, piloted urban farming and food forests and crafted an ambitious Climate Action Plan.

Which leads us to wonder, are we investing public resources into a climate-resilient city just in time for communities of color to be forced out? This future is possible, but not inevitable. If policy makers, environmentalists and equity advocates plan together to adapt our city for both growth and climate change, we can build a green and brown city, where all families can live and prosper.

What is a Linkage Fee and Why Do We Need it Now?

Last week, Councilmember Mike O’Brien introduced a proposal to strengthen Seattle’s incentive zoning (IZ) program: a “linkage fee” rather than recommend tweaks to the existing IZ policy.  If Seattle is serious about not becoming a city only for the elite and serious about carbon reduction, the linkage fee proposal is a no-brainer.

We have been long critical of the City’s IZ program.  Under the current IZ policy, developers built affordable units or paid a reasonable fee to the City in exchange for permission to build to a greater density.  Because developers volunteer to participate, the affordable housing requirements only kick in for a portion of a new building and applies to only a few neighborhoods that have undergone upzoning, Seattle’s program is considerably weaker than those in other cities.  To date, the IZ program has only produced an estimated 714 units since 2001.

Unlike IZ, a linkage fee policy requires all new residential office or commercial development above a certain size to contribute to an affordable housing fund.  The policy, as adopted in several major cities in the U.S., is premised on a link between new development and a subsequent increase in demand for low-income housing.

AN AFFORDABLE HOUSING DEVELOPMENT IN WEST SEATTLE. Photo: Kaizer Rangwala (Courtesy of Marty Kooistra's Op-Ed in Crosscut, September 16th, 2014)
AN AFFORDABLE HOUSING DEVELOPMENT IN WEST SEATTLE. Photo: Kaizer Rangwala (Courtesy of Marty Kooistra’s Op-Ed in Crosscut, September 16th, 2014)

Why is a linkage fee vastly superior to any revision of the City’s IZ policy?  Below are some top reasons:

  1. More Affordable Housing: a linkage fee allows the City to ensure production of far more units on a faster timeline than IZ.
  2. Fair to Developers: linkage fee is fair to developers because it distributes the responsibility of contributing towards affordable housing evenly and removes uncertainty about costs of projects.
  3. Fair to Individual Taxpayers: linkage fee is fair to taxpayers who already generously tax themselves for the housing levy and are investing billions in new infrastructure that benefits developers. Seattle taxpayers have paid their fair share since 1981. Through the Housing Levy, they have paid for 58% of all affordable housing stock to date. Private developers, through the incentive zoning program, have contributed 11%. Also, renters will not absorb the cost of these new fees because Econ 101 dictates that developers would charge more now if they could.
  4. Encourages Urban Sustainability: linkage fee increases overall urban sustainability by making the most of public transit investment and is not contingent on density.

So, why do we need to pass this fee now?  There are many reasons developers should pay their fair share of affordable housing, the most important of which is absolute necessity.  Growth is happening now.  People are being displaced now, and 40% of Seattle will not be able to live here if we do not create and preserve affordability now.  We need more money to build and preserve more housing now, and into the future.

We have written about the housing crisis in Seattle. Affordable housing is not available for low income people and families.  It is well-documented that low-income people and families mainly consist of communities of color, immigrants, refugees and single mothers.  Demographic changes in Seattle and South King County indicate that people of color have been displaced from Seattle as rents have risen over the past ten years.  Rents have increased even more dramatically in the past year, and Seattle is currently the fastest growing city in the country.  In order for Seattle to walk a path of justice, we need more affordable housing now.

A linkage fee is necessary to prevent displacement, is good for the environment, and good for Seattle. It is only fair that developers, who profit from our infrastructure investments, pay their share for affordable housing.  Stand with Puget Sound Sage and the Growing Together Coalition and urge City Council to pass a linkage fee in October!

Click here to take action now.