Background 

On November 4, Bloomington voters will be asked to consider an advisory referendum about the pay rates for employees of the city government and its subcontractors.

Voters in the City of Bloomington will have the opportunity to endorse or reject the concept of a “living wage”, which is a municipal minimum wage that applies only to a defined group of employees. The exact wording on the ballot will be:  “SHALL ALL EMPLOYEES AND SUBCONTRACTED WORKERS OF THE CITY OF BLOOMINGTON BE PAID A LIVING WAGE OF AT LEAST $9.81 PER HOUR, WITH AN ANNUAL COST OF LIVING ADJUSTMENT?” 

The results of the referendum will be watched by the Bloomington city council. If a majority of those voting indicate the desire to have and pay for a living wage here, then the aldermen may, but are not legally required to, adopt an ordinance or resolution that provides for a minimum pay rate for the covered employees. This rate will be above both the state and federal minimum wage rates.

The idea of a “living wage” was formalized in Baltimore, Maryland in 1994, based on the idea that governments should set an example by paying workers a wage that provides employees with a certain minimum standard of living. The exact rate that becomes the minimum wage would both vary by area and include a “cost-of-living” adjustment.  

No cities in Illinois have a living wage ordinance. In Chicago, an ordinance was passed requiring large retailers to pay a living wage, but it was vetoed by Mayor Richard Daley because he feared it would cost the city jobs.

However, over 120 cities – especially university communities – elsewhere in the US have living wage ordinances, and most apply to both city workers and entities that do business with the cities. A number of universities have themselves adopted policies which require the payment of a living wage, and a proposal has been made in Champaign-Urbana.  

The proponents of the adoption of a living wage in Bloomington have said that $9.81 is the lowest acceptable hourly base wage that should currently be paid to employees of the city and its subcontractors. Conceptually, that minimum is calculated to guarantee that the employee can afford not only food and fuel, but also a one-bedroom apartment without the need for a roommate. This assumes that no worker should pay more than 30% of their income for housing.

The proposal includes an adjustment. If living costs go up, the employees will be guaranteed an appropriate wage increase to pay for them.  

The cost of living in Bloomington is below the national average by about 7%. Compared to larger cities, living in Bloomington can be considerably cheaper. For example, it is estimated that housing costs here are about half those in the Chicago area, so the calculated living wage here would presumably be less.

By federal law, the current national minimum wage is $6.55 (base) per hour. By state statute, the minimum wage in Illinois is $7.75 (base) per hour, and it will increase to $8.25 over the next 21 months. However, these minimums apply to all employers, while the living wage is proposed to apply only to employees of the city and of organizations that do business with the city.  

The city employs about 650 employees during most of the year. At its peak in the summer, almost 400 seasonal workers are also employed, mostly at the city’s parks. The number of employees at the city’s subcontractors could run from several hundred to an almost unlimited number, depending on the definition of what constitutes a “subcontractor”.

Employees of contractors and subcontractors to the city 

The referendum’s use of the term “subcontractor” seems to broaden the number of organizations to which the living wage would apply. Normally, a “contractor” would be an organization that does business directly with the city. That would presumably include organizations such as: (1) CIAM, which manages the US Cellular Coliseum for the city, (2) the Downtown Bloomington Association, which manages various programs for the city’s central area, (3) the contractor that cleans various city buildings, and (4) many others that provide various services and products to the city. Charities such as the Occupational Development Center also have been awarded city contracts and could be subject to the living wage.

A “subcontractor” to the city would presumably include organizations that contract with a “contractor” to the city – meaning that the rules would apply to a second level of organizations. If the language in the referendum is taken literally, the number of organizations that would be required to pay the living wage could be quite large. It can be argued that the use of the term “subcontractor” was inadvertent by the drafters of the referendum language, and that the city council could ignore that terminology if the concept proved to be unmanageable.  

If required to pay a minimum wage to be a contractor or subcontractor to the city, many businesses and organizations may decide it is not worth it to do business with the City of Bloomington. For example, consider a contractor that supplies computers and related maintenance to the city. If it is a large company, it would likely have no interest in complying with a minimum wage ordinance in Bloomington, Illinois just to sell a handful of computers. This could eliminate potential suppliers to the city, which would reduce competition and probably increase the city’s costs for goods and services. However, it is very difficult to estimate what this additional cost would be.

However, if the living wage is effective in increasing wages at organizations that do business with the city, it is likely that those organizations will increase their fees to the city. The higher wages will have to come from somewhere, and it is logical that the cost will be passed on to the city and its taxpayers.  

Assuring compliance with the living wage rules would require some mechanism for enforcement. At its simplest, that could just be a form or contractual language that requires that the minimum rate be paid, but relies mostly on voluntary compliance. Enforcement could be based just on complaints, or audits could be performed. If subcontractors are included, compliance would become far more complicated. The level of staffing required to enforce the living wage rules could vary from less than one employee in the purchasing area to a whole staff of regulators and auditors if it was believed necessary to vigorously enforce compliance.

Those employed directly by the city 

The referendum language also specifically includes the payment of a living wage to “all employees” This clearly requires that even seasonal and part-time employees be paid the minimum rate.

Almost all of the regular city employees are represented by labor unions and receive wages that already exceed the proposed $9.81 minimum rate. The only exceptions are seasonal city employees, most of who are employed over the summer vacation.  

At the peak, during the summer, 213 city employees receive wages less than the proposed $9.81 living wage, distributed as follows:

 

EMPLOYEES < $9.81/hour	Employee age 15-20	Employee age 21-25	Employee age >25
Full-time employees	0	0	0
Seasonal employees	96	54	63
Part-time employees	0	0	0

 

Almost all of the seasonal workers are in the parks department. As can be seen, most are aged 15-25, and many are students in summer jobs who live with their parents and do not require their own one-bedroom apartment. Only employees who are in their first year with the city can receive less than $9.81. Under the city’s existing pay scale, all employees returning for their second summer would receive more than $9.81.

It has been debated what students would do with the extra income generated by the living wage if they do not require their own apartment and other typical living costs.  

This number declines markedly in the winter months, and the number of hours worked per week per employee is usually less than twenty.

Two agencies that have separate boards, the election commission and the library, also employ part time and seasonal workers. The wages of most of those are covered by union contract, but as of September 18, eight non-union employees were either part-time or seasonal.   

Paying for the living wage 

Just paying the higher wages to the seasonal employee group is estimated to have an annual cost to the city of about $250,000. That direct increase in wages, the cost of enforcing the rules, and the higher costs paid by the city for goods and services from contractors and subcontractors, will be borne by the city and its taxpayers. This would include the escalating costs of the cost-of-living adjustment.

To pay these additional amounts, the obvious choices would be to either cut expenses in the city budget or raise taxes.  

Since much of the extra expense is for seasonal employees in the parks department, one possibility would be to save money by reducing the number of students hired during the summer. However, that would mean reductions in summer activities, such as reduced hours for swimming.

If cuts in park programs were not acceptable, it might be possible to make cuts in other programs. However, last year the council made $2.5 million in budget cuts and many of the obvious reductions have already been made. Of course, further cuts can be made, but any new cuts are increasing likely to have impact on city services. When the council considered the possibility of cuts to desirable, but non-essential, city expenses such as certain park programs and grants to the historical museum or Challenger Leaning Center, protests were swiftly heard from interested citizens.  

Even if all existing programs can be left intact because additional revenues can be found, the city would be unable to institute new programs that might be deemed more valuable by some citizens. In short, paying a minimum living wage is making a choice, and since tax revenues are not unlimited, some other programs would not be pursued.

The city council has recently stressed priority for basic city services such as public safety, infrastructure and water. Additional expenditures are being made in those areas. For example, putting an additional police officer on the street for just a single shift costs about $100,000 annually. For all three shifts, the annual cost rises to something in excess of $250,000. Based on work done over the summer of 2008, about 1.1 miles of a 30-foot wide street can be resurfaced for that same $250,000.  

If increased wages were deemed to be necessary and no other cuts were made to pay for them, the city could increase taxes. The first choice would likely be to use any increased sales tax revenues, but the current economy makes such revenues less likely. Secondly, the city could increase fees; since much of the added cost would be linked to parks programs, the city council might find it best to increase fees for such programs to cover the higher wage cost.

Another possibility would be to increase property taxes. The city council has attempted to keep city property tax rates level at about $1.00 per $100 of assessed value. That means that the city’s share of the property tax on a home with a market value of $100,000 ($33,000 assessed value) has been $330 annually.  

The added costs of the living wage proposal would not have a great impact on the property taxes payable by a homeowner or rent payable by a renter. For each $250,000 in added cost, the table below shows the increased property tax on homeowners with homes of varying market values: 

EXTRA  PROPERTY TAX DUE	$250.000 program cost	$500,000 program cost	$750,000 program cost	$1,000,000 program cost
$100,000 home	$4.45	$8.90	$13.35	$17.80
$200,000 home	$8.90	$17.80	$26.70	$35.60
$300,000 home	$13.35	$26.70	$40.05	$53.40
$500,000 home	$22.25	$44.50	$66.75	$89.00

However, given the city council’s preference to encourage homeownership by avoiding increasing property tax rates, and given recent property tax rate increases by other governmental bodies, an increase in the property tax rate should not be taken lightly.

In any event, voters should consider that there will be a financial impact of any vote to approve a living wage.

Arguments for and against a living wage program 

Arguments have been advanced both for and against a law or program that would mandate a minimum wage for all employees of the city and its subcontractors.

Some of the major arguments in favor of the proposal are:  

1. “It is the right thing to do and our government should set an example for all businesses.” Every employee is a person and is entitled to a wage that will buy them certain basic living conditions in exchange for their efforts.
2. Especially if the living wage is eventually adopted by all businesses, the entire community will benefit because employees will have the financial resources to be more self-sufficient, and there will be less call for social services.
3. Employees will have fewer personal concerns if they are paid sufficient wages. Fewer personal problems and distractions mean that the employee will thus do a better job and be more efficient. This will be a source of savings for the city.
4. Paying a higher wage rate will attract better candidates for employment, and the performance of both the city and businesses that adopt the living wage will improve.
5. A higher wage would decrease turnover and training of new employees.
6. Employees play an important role in an organization’s success and should share in the rewards. Paying a wage which allows them a minimum lifestyle, with dignity, is the least we should do.
7. The city government is an extension of all taxpayers and the city council should listen to the will of the people as expressed in a referendum. It is a matter of justice.
8. If a living wage is successful, additional requirements may be pursued, such as better health insurance, more vacation, and union organizing rights.
9. Spread among all the taxpayers, the additional cost is minimal and represents a good value for our community.

The ACORN living wage web site is at http://www.livingwagecampaign.org/. Locally, the proposal is being advanced by the Central Illinois Organizing Project (CIOP).  

Some of the major arguments against the proposal are:

 

1. America’s economy has prospered under a free market system and rates of pay should be set by the market forces of supply and demand, but not by a formula that sets wages considering only an employee’s personal needs.
2. The automatic cost of living adjustment is unaffordable. Companies, such as State Farm, that once had automatic COLA program, abandoned it because it was driving up prices and making the company’s products less competitive.
3. The annual cost of living adjustment is inflationary. The more it is adopted both by governments and private businesses, the more that it will drive up costs and then prices. Rising prices will just increase the COLA adjustment of the living wage, which will set off an endless cycle of inflation that will be especially damaging to people’s savings.
4. The living wage would impact many costs beyond just the city employees that it would directly affect. Other city employees will take note of the increased minimum wage rates and may bargain for higher wages for themselves to maintain an appropriate margin. Assuming that the living wage does apply to contractors and subcontractors, the cost of many services and goods used by the city would rise, and taxpayers will eventually shoulder that burden.
5. The structure of the formula is arbitrary and assumes that all employees need enough wages to support a defined lifestyle, including a one-bedroom apartment. It ignores individual differences, including whether an employee is living with a roommate, spouse or parent, and what employees’ motivations might be. For example, some city employees are retired and are working not so much for wages, but for the social activity.
6. The living wage is just the beginning of a long-term campaign to set a local minimum wage that is higher than both the state and federal minimums. The next step will be to persuade adoption by other governments in the area. After that, there will be pressure to make it apply to all employers and add further benefits. This will just make our community a more expensive place to do business and will actually result in the loss of jobs to other areas.

The city council can enact a living wage for Bloomington if that is the clear will of the people and they are willing to pay the extra cost. However, certain ambiguities of the referendum language may need to be clarified or modified. In deciding on how to vote on the referendum on Tuesday, November 4, citizens should be educated about the both the cost and the arguments for and against the proposal, and should vote accordingly.