PAY – Wage Proposal Threatens CRA Projects


In what may be the first proposal of its kind in California, the L.A. Community Redevelopment Agency is considering a living wage law that would not only apply to contractors and developers doing business with the CRA, but also to employers who lease space in new redevelopment projects.

The proposal, currently in the draft stage, has set off a storm of opposition from business groups and developers who say it could stifle development in the inner-city areas that need it the most.

“This is directly at odds with the CRA’s mission of creating incentives for employers to move into redevelopment areas. If the CRA is trying to keep businesses from moving into L.A., this is a good way to do it,” said O’Malley Miller, a real estate attorney with Munger, Tolles & Olsen.

Miller also sits on the board of the Central City Association, which is leading the opposition effort. He said developers and business groups may take the agency to court if the proposal is approved by the CRA board.

“This sends completely the wrong signal to businesses considering investing in the inner city,” added Carol Schatz, president and chief executive of the Central City Association.

Discouraging dead-end jobs

But proponents chiefly the Living Wage Coalition and L.A. City Councilwoman Jackie Goldberg counter that most redevelopment projects tend to create minimum-wage retail jobs that do not relieve blight in the surrounding areas.

But even proponents concede that to attract new projects, the CRA might have to use taxpayer money to provide increased subsidies for developers, whose tenants would require lower lease rates if forced to pay higher wages.

“If we are going to be in the business of subsidizing these jobs, then we should be subsidizing living wage jobs that lift people out of poverty, not minimum-wage, dead-end jobs that perpetuate poverty,” said Roxana Tynan, Hollywood economic development deputy for Goldberg. “This may mean that the subsidies for individual projects will be higher; if that’s the case, then it will force the CRA to consider more carefully the types of projects they agree to subsidize.”

The potential for higher subsidies concerns new CRA Administrator Jerry Scharlin, who assumed the helm at a time when the agency was facing an $8 million annual structural deficit.

“The question is, will we be creating a larger financial gap on projects that we ultimately will have to fill?” Scharlin said.

That is one of the issues now being studied by Keyser Marston Associates Inc., with which the CRA contracted last month to examine the living wage issue. Keyser Marston is to report back to the CRA later this month.

“They are going through a modeling process to see what the economic impact of this proposal will be, both to the developers and to the agency itself,” Scharlin said.

The CRA has been under orders from the L.A. City Council for about a year to enact a living wage law; the city itself passed such an ordinance in 1997.

The CRA proposal, though, goes beyond the city ordinance. At the heart of the controversy is a provision calling for businesses that sign leases with developers receiving CRA subsidies to commit to paying their employees a living wage. That wage is initially set at $7.51 an hour with benefits and $8.76 an hour without benefits, and would be subject to an annual review.

Complicating tough deals

The proposal allows automatic waivers for businesses with less than $200,000 in annual revenues or fewer than seven full-time employees. And it gives the CRA board authority to grant waivers to other businesses that are unable to pay the higher wages. But the firm seeking the waiver must first submit financial documents proving its inability to pay, and then go through a public hearing.

“This creates accountability,” Tynan said. “It will prevent these huge companies that can certainly afford to pay the living wage from getting away with paying poverty-level wages. They will have to prove that the sales from that site cannot support paying a living wage.”

But opponents say the proposal is simply too burdensome for businesses, which could simply choose to locate elsewhere.

“Tenants aren’t going to want the CRA to look at their books to demonstrate hardship,” Miller said. “To my knowledge, no one else in the state has enacted anything like this.”

And even if firms do open their books, an exemption is not guaranteed.

“If the waiver is based largely on the subjectivity of the CRA board, then I see that as a huge barrier to some of these businesses,” said Ben Reznick, chair of the land use department at the law firm of Jeffer, Mangels, Butler & Marmaro.

Supporters and opponents agree that some businesses may simply choose not to go into redevelopment projects.

“These redevelopment projects are already tough deals that carry huge risk and don’t often have a lot of profit,” Reznick said. “They have to pencil out, and that won’t happen if you have to start lowering lease rates even further. And if the lease rates go too low, they won’t get the support from the lenders unless more public dollars are pumped in.”

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