>> all right. i am calling the small business commission to order. it is monday, july 28th at 2:00 p.m.. and i'd like to thank sfgov-tv for taping our commission meeting. item number 1 is call to order and roll call. commissioner steve adams is absent. commissioner mineta white. >> here. >> commissioner kathleen dooley? >> here. >> commissioner mark dwight? >> here. >> commissioner william ortiz-cartagena? >> here. >> commissioner yee riley?

and commissioner tour-sarkissian. >> here. >> madam president, we have a quorum. >> perfect. >> item number 2, general public comment, allows members of the public to comment generally on matters within the commission's purview, and suggest new agenda items for the commission's future consideration. >> do we have any members of the public that would like to make a general comment that is not on the agenda today? seeing none, next item. >> item number 3, presentation and discussion of the city economist's economic analysis of a potential san francisco minimum wage increase. today you have a presentation by ted eagan, the office of economic analysis and chief economist. and in your packet is a printed out -- is the printed out version of what is on the controller's website.

>> thank you, ted. welcome. which one would you like? >> thank you very much, and good afternoon, commissioners. ted eagan with the controller's office of economic analysis. on july 17th our office issued an he can no, ma'am ~ impact report on the legislation introduced by supervisor kim in june. and i will walk through that report and happy to take any questions you have at any time. feel free to interrupt me. the minimum wage legislation requires all employers to pay employees a certain amount per hour. currently that minimum wage is 10.74 an hour indexed to inflation. the legislation that we analyzed would raise the minimum wage incrementally to $15 an hour by july 1st, 2018. beginning july 1st, 2019, the minimum wage would then be indexed to inflation and

annually rise in line with cpi. this is showing the increments that i allude to. the first increment -- i should say that the first increment which will happen on january 1st, 2015 is the normal cpi increase that would go up from 10.74 to whatever the cpi would. the first scheduled cpi minimum wage increase happens on may 1st, 2015, which would raise the minimum wage to 12.25. then to $13 an hour on july 1st, 2016, $14 an hour in 2017, and as i said, $15 an hour july 1, 2018. there are a couple other provisions that are -- was noted in the legislation. there is a lower minimum wage that is set for category of worker called government supported employees. this essentially includes youth who are under 18 who are employed in a subsidized employment program or adults over 55 who are also employed

in a subsidized employment program by a non-profit organization that provides social services to adults who are over 55. there are some complicated language that i won't spend time going into relating to how additional growth in this category is covered under the minimum wage, but that provision is in there as well. specifically the government supported employees minimum wage begins to increase only by cpi as of july 16 -- i'm sawyer, july 1, 2016, which is two years earlier than other employees. ~ sorry the minimum wage would apply and not as government supported employees. the minimum wage would apply to those who are employed through the san francisco in-home supportive services authority, which is essentially a public authority that distributes city state and federal funds to home care for seniors and the disabled. the controller's office has done some calculation as to what thev city's share of that

additional cost would be. it would begin at about 12.8 million in fiscal 2015-16, rising to 56.3 million by 2018-19. just a bit of background before i proceed with the economic analysis. the proposed legislation, san francisco is the first city in the country to establish its own minimum wage when the voters approved proposition l in 2003. that established a minimum wage of $8.50 for 2004 with a one-year delay for small businesses and nonprofits. that was the highest minimum wage in the country and it still is, and as i mentioned at the beginning it's also indexed to inflation annually. this is a chart that shows minimum wage levels that have been essentially applied to san francisco. the federal, the state, and then starting in 2004 the city's minimum wage. the -- i'm sawyer. the line that's hard to see on

this, it's even hard for me to see, but it's the dotted green line at the top is where the federal minimum wage in 1968 would have been were it indexed to inflation. the federal minimum wage and the state minimum wage are not indexed it inflation. had the federal minimum wage gone up by inflation since 1968 it would be slightly, very slightly above what san francisco's minimum wage is today. another factor that affects the context around san francisco's minimum wage is that the state has already acted to raise its minimum wage. it went up to $9 effective july 1st of this month and will go up to $10 an hour in 2016. both of those state increases are higher than a typical minimum wage adjustment so that means that absent any local action the gap between the state and the city minimum wage will, will shrink in the next couple of years. this is a chart indicating the

relationship between san francisco's cpi adjusted minimum wage and median rent paid in the city. the cpi adjustor is calculated on a bay area wide basis. that's what the bureau of labor statistics provide and it doesn't reflect necessarily the cost of living within the city of san francisco. the red line indicates the median rent paid from the u.s. census bureau from 2005 to 2012, and it is specific to san francisco. and that number, which is one component of the cost of living for renters in the city, has gone up about twice as fast as the city's minimum wage during the same time period. i should say that this is inclusive of rent control. this is not the market rent. this is the rent that renters actually pay. and obviously the market rent for vacant goes up quite a bit faster than this. we have estimated, and it's been to some extent confirmed by research that's been done at u.c. berkeley, that really no more than about 11% of san

francisco worker or maybe 60,000 people earn the minimum wage as of 2013. they're heavily concentrated in the food service and personal service occupations. we believe the industries where minimum wage workers are heavily concentrated include restaurants, retail trade, manufacturing, personal services, and also non-profit organizations in the social assistant sector. those will be the five industries that the bulk of our analysis is focused on in term of how would this minimum wage increase affect wages in these industries and how the wages in those industries affect employment in those industries and spending across the city as a whole. when we look at the economic impact factor, the minimum wage, we really see it like a lot of economic impact issues. it's essentially a seesaw of counter veiling positive and negative factors. the minimum wage to the extent

it raises people's earnings does put more money in the pockets of people who predominantly live in san francisco and will spend the money in the city. that expansion of consumer spending tends to expand the city's economy. however, to the extent that the minimum wage raises labor costs it creates disincentive for employers to hire people or to main people in employment. that tends to contract the city's economy. so, the net economic effect that we will get to is really the relative weighing of these two factors, the expansion of spending and the contraction of employment. there has been a lot of interest in san francisco's experienced in its 2004 increase of the minimum wage. it was quite a large one year increase of the minimum wage of about 26%. however, if you look at the employment numbers, and i'll go through both the employment and wage numbers right now, some of the low-wage industries in the city which would have been expected to hit hardest by the

minimum wage increase like retail trade and restaurants actually declined more slowly than the city as a whole in 2004, were actually added jobs despite the minimum wage increase. san francisco as a city was still recovering from the recession in 2004 and across the board there were job losses. but as you'll see in a moment, the job losses he were either slower than some of these industries or these industries actually added jobs despite a declining city employment base and despite the minimum wage increase. so, what we've tried to do here is adjust thea sort of raw employment change numbers, accounting for both what's going on in the adjacent counties in those industries and also in the city as a whole to get the kind of a net concept of how did the industry in the city do after the minimum wage was increased relative to what the same industry did in surrounding concounties and relative to what ever industry in the city

did ~. for example, in 2003 and 2004 food services in the city increased employment by .5%edthv that was a good deal slower than the adjacent counties ~ which grew by 2%. but you have to factor in the fact that the city as a whole is declining 2.3% and the adjacent counties were only declining .2%. so, the 2004 recession was much deeper in san francisco than it what in the surrounding counties. so, when you net out both of those effects, it's actually a relatively stronger performance for food services in san francisco. thea are the two right columns under net industry change. food services actually on a net basis doing more strongly in san francisco in that time period than it is in the adjacent counties. the same is true for retail trade which lost jobs, .9% decline when the minimum wage went into effect. that's still quite a bit more than -- quite a bit less loss than the city as a whole. on a net basis, the city retail

trade was stronger than it was in the adjacent counties. the same is true for social assistance, the same is true for personal services. the only real exception is manufacturing which did decline more rapidly than the city as a whole and considerably more rapidly than it did in the surrounding counties. so, that's really the only five industries where you saw a negative employment effect the year the minimum wage went into effect relative to the rest of the city and relative to surrounding counties. it's important, however, to keep these employment effects in context and relationship to the wages because just because the minimum wage went up 26%, that doesn't mean everybody's salary and those industries went up 26%. we also wanted to do the same analysis looking at the impact on wages. for example, in 2003 the year before the minimum wage went into effect, the average city

restaurant worker earned about $350 a week, 353 and worked 36.4 hours for an average hourly wage of 9.70. 9.70 was 43% higher than the minimum wage that was in effect at the time. you'll notice that it's also over a dollar higher than the minimum wage that would go into effect with 2004. now, food services is the lowest paid minimum wage industry in the city. so, if the minimum wage only took wages to something that was more than a dollar below what people were making in the industry already, it raises the question of to what extent did the minimum wage that year actually raise wages. and, so, we did a similar analysis to kind of look at that. if you take again food services, the average wage, the average weekly wage in restaurants went up 5.4% the year after a 26% increase in the minimum wage went into effect. that was higher than the

adjacent counties, restaurants in the adjacent counties, only went up 3.%. but the minimum wage -- the average wage for food services was actually lower than the city-wide average wage increase in the private sector, which was 7.1%. so, what was going on in san francisco that year is you were starting to see a recovery in wages before you were seeing a recovery in hiring. and, so, overall there was very robust wage growth, both in san francisco and in the surrounding counties, but in particular in san francisco. and one of the things you'll notice if you go down the column on the left, industry wage change for these low-wage industries, food service 5.4, retail trade 3.1, social assistance 0. personal services 4.4, manufacturing minus 0.1. every one of those industries has their wageses go up less than the overall city-wide average. notwithstanding a 26% increase in minimum wage. and when you look at the net

effect on the two right columns, you basically see that for the most part they are negative when you account for and more negative than the adjacent counties when you account for the city-wide effect. so, this is a clear case in which there was not a big effect on wages on these five industries from raising the minimum wage in 2004. and, therefore, it shouldn't be surprising that there was no employment effect either. this was a minimum wage increase that while it was large on its own terms, its was not large enough to significantly raise the wages of these low-income industries. so, one of the first things we needed to assess in looking at the proposed legislation is would you expect to see the same thing for wages, no real increase in wages and perhaps no employment effect, or would in fact this wage increase to $15 actually raise wages. i just kind of said those things. so, one of the things we did to get at this question was to

build a statistical model that models from 1990 to 2012 for every county in california. these statistical relationship between what the minimum wage was and what the average weekly wage is. and we did a different model for each of these five industries. it made sense to us that the closer the minimum wage is to the average weekly wage, the bigger the bump. so, in effect, it's a nonlinear relationship in mathematical term. in other words, the same increase in the minimum wage, if it's way below the average wage, is not going to have much of an effect. an increase in the minimum wage that's very near -- when it's near the average wage would have a big effect. so, we modeled that as well. and that gave us a set of projections on this slide about how we project annual increases in the proposed minimum wage what translates into increased average wages by each of these industries. and to answer the question iposed a couple slides ago, we

are predicting rather large increases in wages to occur from the 2015 to 19 period. first thing i'll sale about the table, the years at the top are calendar years. so, they're not the 2016 increase over the 2015 increase. they're rather that's the average minimum wage in effect during that year and how that changes from one year to the next. and i should also say that these wage increases for each industry which range from 13% for manufacturing over the five-year period up to 26% for food services are not solely caused by the minimum wage. these are also caused by inflation and other things that tend to affect wages. but this is what we predict, what a model projects, the increase in labor costs will be annually and then the far right column, the five-year combined effect of these wage increases he.

and as i mentioned, it goes from 13% to 26% for these five industries. given this estimate of what the average wage change is, and we have a general idea how many people work in these industries and what they make now, in food services by 2019, the average wage will be $125 a week higher. in retail about 185 higher. about 75 in social assistance, 135 in personal services, and close to 200 in manufacturing. as i say, these reflect -- these estimates reflect expected inflation as well as the direct and indirect effect of the minimum wage. so, this level of labor costs, as i said a few moments ago, can be expected to have an impact on employment in the city. the way we always use this any time there is legislation that affects labor costs is we use the remi model that we have, a 70 sector model of the san francisco economy. and what we basically did in

this model is to take these projected wage increaseses for each industry in each year, take away from them an expected wage increase associated with inflation and the baseline remi model and we are left with a real impact on wageses from raising the minimum wage for each of these five industries. we simulated what the effect of that would be on the san francisco economy compared it to remi's baseline projection it it results in about 15,270 fewer sector jobs by 2019 which would be by that year about 2% of the private employment in the city. these employment reductions distributed across the city's economy because when you have less spending -- you have less employment, there is a loss of spending on a net basis, and that spending tends to contract every industry of the city's economy. but it's particularly concentrated in food services and retail which are the two biggest low-wage industries

that would experience the labor cost increase under this proposal and they account for about half the total. now, the relevance of this effect or to the extent to which people will feel this or notice this effect partly depends on this employment effect. it also depends upon the level of the city's continuing employment growth over the period and the question of whether the city will grow notwithstanding this employment effect that we're talking about here. we turn to this question now. we look at three generally when we're doing projectionses of the city's economy, we look at three third-party projections. one from the employment development department, one from moody's analytics, and one which is the baseline projection that comes with our remi model. none of these three sources are currently projecting recession in san francisco during this phase-in period 2015 to 19. this is' not unusual because it's not unusual for projectionses to not forecast a recession ~.

particularly when we're talking about four or five years into the future. i wouldn't say that that's three people saying we will not have a recession in that period. they're actually never projecting a recession at any point in the future. they're just giving a most likely level of growth from one year to the next. but what they do agree is there will be a range of job growth they're projecting in the city between 27,000 and 59,000 additional jobs. the employment effect that we talked about on the previous slide, then, depending on which of these three projections you think is most likely represents between 25% and 55% of the city's projected job growth over the next five years if these projections are accurate. there would still be a minimum job increase under the most pessimistic projection of 12,000 job in the city by 2019 even with this employment effect.

the affected industries vary and whether or not they would grow during this period with this employment effect, and the main reason why is because the projections themselves are unclear on the direction of growth in these industries. for food services and social assistance, the projected employment effect of the minimum wage that we find and the projections for each of these industries that all three of these projections find would show continued growth in both of those sectors. so, that means they would all agree that there would be growth in restaurants, not as much growth, of course, but there would continue to be growth in restaurants and continue to be growth in social assistance with this increase and there would be no net impact on manufacturing, but the projections are not an agreement on the direction of that sector's employment in the city. they are also not in agreement with respect to retail trade and personal services, two of the projections are projecting overall declines in those industries, notwithstanding the

minimum wage increase, edd is projecting continued growth. the minimum wage increase effects on these industries don't tip -- they certainly don't tip the ones that are projecting loss into growth, but for the edd projections which are projecting growth for these industries, the growth exceeds what the -- what we find the employment effect for these industries will be under the minimum wage. so, there's a general lack of clarity, of course, about projections in the future. there seems to be the most consensus among the projections that we've looked at showing that the city overall, and in particular the food service and social assistance industries, would continue to see growth during this period notwithstanding the employment effect that we talked about. we made one recommendation to the city as a result of this analysis which is to say that the possibility of a recession that would negate these growth

projections is nontrivial. it wouldn't be a 10 year period of economic growth if we don't have a recession by 2019 and i would say there is some possibility if that's the case. and we recommend the city may wish to consider adding flexibility to the proposal in the event there was a recession during that time period. so, i think that concludes my review of our report and i'd be happy to take any questions that you have, commissioners. >> commissioner dooley. >> i was wondering if we know in the low-income workers they're not increasingly not -- no longer able to afford to live in san francisco. so, how can we kind of balance out where their increased wage is going to go? is it going to go to oakland or outlying areas? seems like there will be more people willing to commute for the higher wage into san francisco. >> it is a commonly believed thing that the number of low-income people in san

francisco is dropping a the average housing price rises. in fact that's not true. the low-income and very low-income population in san francisco has continued to increase. and when we checked this spring on some of these industries, the percentage of workers for example in the restaurant industry is as high as it's ever been exciteding 75%. we would completely grape for those workers who don't live in san francisco and who commute in, their minimum wage increase creates economic expansion primarily from where they live and not for the city of san francisco. ~ agree >> any other commissioner comments? commissioner dwight? >> i'd say a lot of what we currently know is it's too early to tell. lots of people are on leases that are going to come due. we're seeing that in the business sector. i'm quite sure that's true in the residential sector.

so, i don't think we've seen the full impact of the increase in real estate prices for residents or businesses just yet. i know anecdotally as leases are coming up in the business sectors, small business sectors that we're familiar with, the rent increases are double if not triple digits. and that is also the case in nonrent controlled apartments. so, i think the problem that i see with the economic projections is that they don't fully account for the effects we're going to see because we don't know them yet and we haven't seen them yet. everyone likes to think it's all rosy right now, yeah, the dooms sayers aren't right because it's not played out yet. secondly, i think that, you know, by all current projections the job growth is going to be most dominant

downtown amongst office workers and knowledge workers. they have to fill those high-rises. there are some very expensive buildings going up and clearly the projection are those are going to get filled and they're not going to get filled with minimum wage worker. so, the city is, of course, projecting and likely to see dramatic job growth. i think that the trade-off we're going to see is that this low -- below income job loss is going to get lost in the noise. and, you know, there is going to be a ripple effect here. what's going to happen is if the small businesses that rely on low -- low-income wage earners either for entry level or just for low-paying jobs because of by the very nature of their low paying, if they can't afford to employ those people, then those businesses will move and they will take with them all of the other jobs that are above those. and, so, the collateral damage in this is we will lose the businesses and the ancillary jobs, the upper level jobs that go with these minimum wage job. we're going to see a

redistribution of business in san francisco. sure, there's still going to be inexpensive restaurants, but those inexpensive restaurants are not going to be local entrepreneurs, they're going to be the large national chains that can afford to cost average. the mcdonald's, mcdonald's isn't going to go anywhere. mcdonald's has hundreds and thousands of restaurants across the nation and the world that they can income average on. what we're going to lose is the individual entrepreneurs, the opportunities for locals to start, operate and own businesses. and a lot of long-time business owners are going to go out of business. we can just write it off to darwinian economics if we want, but they're never going to come back when we have a recession. once you move, you're not coming back. it's done, moved on. i'm over it. and, so, i think, you know, it's going to change the complexion of san francisco. i think it's inevitable. it may not be lamental. it's going to be lamental for those who get forced out of business.

i think it's just foolish to think that's not going to happen. and, so, we can do all of the prognostication that we want, but i know on the ground that business owners are planning on how this is going to affect them and those plans include closing up or moving out. and, so, i am concerned as a small business commission that, you know, we're going to sit by and watch it happen. and i don't think there is any changing this freight train's direction. it's coming, it's going to pass, we all know it, and it's -- so, you know, it's informative to read the studies and consider the prognostications, but i think that, you know, that the future is going to look different. and i think it's going to look less small business, a lot bigger business. you know, i don't think that -- and i think a lot of these people that are going to

benefit are, in fact, going to move out of the city and be people that come in from the outside. so, it's unfortunate that san francisco ultimately will not benefit from this rise in minimum wage in a way that we would hope. >> thank you. all right. commissioner tour-sarkissian. >> thank you, mr. eagan. i have a question about the remi simulation. i'm referring to your slide number 19, which you report that an estimation of 1500 -- 15,270 private sector jobs will be lost by 2019. first, i would like you to explain to me what the remi simulation is and whether it takes into account -- into account all the increases in cost of operation in the city, benefits, sick leave, that may not have been