Soaring labor costs expected to result from hikes in the minimum wage are forcing local business improvement districts to scale back their services and increase annual assessments on business property owners.
Downtown’s Fashion District Business Improvement District, which has some of the largest contracts for sidewalk cleaning and security patrols of any BID, is even considering a double-digit increase in assessments when it is up for a reauthorization vote next year, almost entirely due to increased minimum-wage costs, the organization said.
Assessments for BIDs typically range from a few bucks a month for condominium units to six figures annually for large commercial buildings. Various formulas for the fees are generally based on square footage and street frontage.
“We are looking at an 18 percent increase just to cover the minimum-wage increases with the same staff levels,” said Rena Leddy, executive director of the Fashion District BID.
Those higher wage costs are prompting a different response at the Downtown Long Beach Business Improvement District, which is not up for reauthorization until 2022 and therefore is limited to a 5 percent annual increase in assessments until then. That won’t completely offset the cost of the jumps in the minimum wage, so the BID is weighing sharp cuts in cleaning and security service hours.
“We’re OK at the moment, but as the wage keeps going up, by the 2018-19 fiscal year, we’re going to have to sharply reduce our vendor services,” said Kraig Kojian, chief executive of the nonprofit Downtown Long Beach Alliance, which runs the Downtown Long Beach BID.
Some combination of rising assessments and slashing cleaning and security services might be the norm at the 100 or so business improvement districts across Los Angeles County as state and local minimum-wage hikes continue through the next six years until all employers in the state must pay a $15 an hour by 2023.
Los Angeles, Santa Monica, Malibu, Pasadena and unincorporated Los Angeles County hiked their local minimum wages on July 1 to $12 an hour for employers with at least 26 employees. Most other cities in the county, including Long Beach, follow the statewide minimum wage, which will increase by 50 cents on Jan. 1 to $11 an hour for employers with 26 or more workers.
Business improvement districts are being hit particularly hard because the main services they provide are sidewalk cleaning/beautification and security guards through contractors that pay their workers at or just above minimum wage. In many cases, these two services comprise at least two-thirds of BIDs’ entire budgets. Cleaning and security services are roughly $3 million out of a $4 million annual budget of the Fashion District BID; they account for two-thirds of the $2.5 million budget for the Downtown Long Beach BID.
BIDs are limited in how much and how quickly they can raise revenue through property owner assessments, generally 5 percent a year during the term of the district.
“Anything that raises BID costs at a rate higher than 4 percent to 5 percent annually can have devastating budget impacts and is almost certain to result in service cuts,” said Tara Devine, an L.A.-based consultant who has put together proposals to form several BIDs, including one recently in Venice.
Delicate fee balance
BID boards have generally shied away from invoking the annual assessment increases, but that is changing. Three of the four districts contacted for this story plan to invoke the annual increases. But even that won’t be enough, Devine said.
BIDs will have to wait for the next reauthorization to go any higher on hikes.
Due to the cost of the typical reauthorization process, many BIDs either have sought or are planning to seek reauthorization for 10 years instead of five, further hampering their ability to adjust quickly to sharply rising minimum-wage costs.
Many BID boards are reluctant to put large assessment increases to a vote at the point of reauthorization for fear property owners would reject the entire reauthorization and put the district out of business.
“Increasing assessments definitely comes with political consequences,” said Andrew Thomas, executive director of the Westwood Business Improvement District, which hopes to hold the line on costs and avoid the need for major assessment increases. “If the assessments are increased too much, the BID renewal might be rejected altogether.”
Leddy of the Fashion District BID said she is aware of the risk as her district prepares for reauthorization next year. Assessments on the nearly 2,000 parcels comprising the district range from $42 a year for a small condo owner to $131,000 for the parcel with the largest street frontage; the mean is just over $2,000. The projected 18 percent increase on the mean parcel assessment would amount to an additional $360 a year; on the largest parcel, an additional $23,500.
What’s more, she said, with an increasing number of residents in the district, there is a need for more hours of cleaning and security services into the evening. The district has contracts with third-party providers for about 70 cleaning and security workers.
“We should be adding hours of service to accommodate this,” Leddy said. “But now, with the minimum-wage hikes, that becomes much more difficult.”
Cutting back
The neighboring Downtown Center Business Improvement District has invoked the allowable 5 percent annual cost-of-living increase for assessments for this year and next year, according to Chief Executive Carol Schatz. Beyond that, the district has no plans for additional assessment increases as the BID just completed its renewal for an additional 10 years.
Instead, the district has focused on cutting costs, including an across-the-board 10 percent cut in staff, both in-house and on contract.
One factor Schatz is hoping will offset future hikes in the minimum wage is the addition of property owners. One huge property owner, Korean Air Lines Co. Ltd., has just started paying assessments this year after the completion and opening of its Wilshire Grand tower.
“We’re hoping we have enough new property owners coming on board to ameliorate much of the minimum-wage cost increases,” she said.
Third-party contractors are responsible for paying their workers the higher minimum wage, but those costs get passed on to the BIDs as contracts get renewed every two or three years. That’s one reason that – even though the minimum-wage increases have been happening for 18 months – the impact has not yet been felt at most BIDs.
By 2019, as the state minimum wage tops $12 an hour, all of these service contracts will have turned over for the Downtown Long Beach Alliance.
“As our current contracts expire next year, we are definitely expecting to be hit with the full force of these minimum-wage hikes by January 2019,” Kojian said.
