CRA’s Wage Policy for Service Employees: A Point-Counterpoint

What are the two best arguments for adopting or not adopting the proposed policy?

Durazo: Redevelopment has brought new commercial, residential, and cultural activity to downtown Los Angeles and other neighborhoods. But many of the jobs it has generated for thousands of poor, mostly Latino workers have been unstable, low wage service sector positions — most of which do not provide basic health benefits, wages sufficient to purchase adequate housing and food, or basic job security or health and safety protection.

Downtown’s proud new skyline reminds us of cities such as New York or San Francisco. A few blocks west of the Harbor Freeway, the men and women who clean those buildings live six or more to a room, in conditions of appalling poverty. There, one is reminded of cities such as San Salvador.

This policy should be adopted because it will help address these serious problems for thousands of new service workers, and will help to prevent the erosion of decent conditions for many existing service workers — without the disruption of labor disputes such as the June 1990 Justice for Janitors’ strike in Century City.

We urge the business community to look long and hard at this issue. The pursuit of cheap labor is no way to build a foundation for economic growth. The CRA’s proposal is a moderate and reasonable response to a serious social and business problem.

Assuming that the final draft adopted by the CRA is strong, the policy will help to reduce the severe burden which low wage, no benefits employment places upon all taxpayers through the county health care system, and upon social service and affordable housing providers.

Moreover, it will guarantee that projects which are assisted by the CRA are consistent with the real mission of redevelopment under state law: the removal of physical and social blight, the provision of decent housing and genuine employment opportunities.

Custrini: The proposed Service Worker Policy severely distorts the mission of the Community Redevelopment Agency. The City established the CRA to restore blighted areas of the City of Los Angeles to economic health.

The CRA has accomplished this task in some parts of downtown Los Angeles. However, it has not succeeded in capturing the right mix of development to make a success of the Historic Core or South Park areas of the Central Business District. Nor has it yet succeeded in restoring the vitality of other redevelopment areas, such as Adams-Normandie, Hollywood, or Pico-Union.

By establishing this policy, the CRA will make its own redevelopment areas less attractive by giving them a comparative disadvantage. Other cities and other areas of Los Angeles will benefit from the extra burden of ongoing regulation within the CRA areas. Just at the time the CRA should be encouraging developers to come into its districts to undertake difficult urban revitalization projects, it seems to be chasing them out to the suburbs as well as such nearby non-CRA areas as the mid­Wilshire Corridor and Center City West.

Second, the policy presents severe implementation difficulties, especially for an agency whose prime mission is economic development rather than ongoing regulatory activity. For example, the policy requires that the CRA set prevailing wage and benefit rates, not a customary redevelopment function. The CRA will have to adjudicate complaints, resolve disputes, and police a considerable record-keeping operation to ensure that owners and developers and their operators are complying with the terms of the policy.

The City must consider whether the CRA should divert its limited resources away from the economic development of its project areas toward the regulation of this policy.

What impacts will the proposed policy have on different scales of development in redevelopment areas?

Custrini: The Service Worker policy will have the heaviest impact on hotels because of the intensity of service employees in these establishments. The policy will less severely impact office buildings, retail space, and market rate housing since they all use fewer service employees that do hotels.

Durazo: The policy’s impact will fall almost exclusively upon large-scale commercial development projects — primarily hotels and office buildings. These projects employ a significant percentage of the service employees in redevelopment areas. The CRA’s current draft of the policy exempts small and mid-sized projects, which in any event would seldom fall under the policy because they are rarely the recipients of CRA assistance.

How do you expect this policy to affect housing development and the city’s shortfall of low-and moderate-income housing?

Custrini: To the extent the Service Worker policy causes additional operating costs on market-rate housing projects, it will dampen the willingness of developers to construct moderate-income housing projects. The rates of return on these projects are already narrow or non-existent given land costs in Los Angeles, particularly in Downtown. The policy will not have a significant impact on the development of low-income and very-low income housing. Their feasibility is primarily affected by entitlements and the availability of subsidized financing.

Durazo: In a manner fully consistent with the goals of redevelopment, the policy will help to reduce the shortage of affordable housing by providing higher take-home pay to new service workers than they would receive without the policy, as well as low out-of-pocket medical expenses.

With the policy, these workers will be able to devote the additional money and savings to other basic necessities, in particular rent. The policy will not affect the development of affordable housing projects, because such projects are specifically exempted from the policy. As for market-rate residential buildings, cleaning costs as a percentage of overall costs at those projects — and thus the cost of the policy — would be negligible.

What types of precedents, if any, do you expect this policy to set?

Durazo: This policy would lay down a new, but long overdue criterion which the CRA and other government bodies can use to measure whether a new project, especially one which receives public assistance, is truly of benefit to the community.

A project will no longer be deemed beneficial simply because it creates any jobs (even if they are minimum wage jobs with no benefits). To secure assistance, developers will have to agree to build projects which provide good jobs with a decent standard of wage/benefit compensation and basic job protections.

Custrini: This policy could create three possible precedents, all of which we regard as dangerous. First, the policy could be extended by the City Council to the city as a whole. Such an extension would continue to encourage developers to take their projects outside the city.

Second, the policy extends the CRA’s existing prevailing wage policy beyond the development phase of a building to the operations phase. The policy could represent a precedent for the CRA to insert itself improperly into other areas of the long-term operation of real estate, essentially moving from a public development agency to a real estate manager, albeit one that lacks the expertise and commitment to produce a profit for the investing owners.

The third precedent the policy may create is to establish a clear preference for collective bargaining agreements with local unions. If this policy is adopted, about the only certainty a developer and financing source can have that their ownership of the property will be secure is to accept a union collective bargaining agreement. 

Until now, labor-management relations have been the responsibility of labor and management. To have the local government insert itself into collective bargaining by creating this “safe harbor” policy is a dangerous precedent that assumes that labor unions are the best protection low wage employees have. As many decertification elections have shown over time, not all workers agree.

What are the political factors that will affect the ultimate outcome of this policy?

Custrini: Clearly, local labor unions have a large role to play in defining the political consideration of this policy. There is much at stake for unions, particularly control of the dues to be paid by unionized service workers, and increases to the pension and welfare funds of the affected unions. They use the plight of service workers who have suffered hardships and poverty to refocus the debate on their plight and away from the immediate issue of the appropriateness of this policy for the CRA and the City.

In most cases, owners and developers acknowledge the difficulties that these workers face. It is difficult for any person, as well as any politician, not to respond to the human needs of people who provide essential services for buildings in redevelopment areas. These emotional pulls are difficult to counter with reason. We hope the CRA Board of Commissioners and the City Council will consider the wide-ranging legal and economic effects this policy will have on the City. However, that does not seem certain at this point.

The business community is supportive of the goal stated by Ms. Durazo: “good jobs with a decent standard of wage/benefit compensation and basic job protections.” However, we believe the proposed policy needs to be administratively feasible and should allow projects to continue to be financed by setting clear standards for performance.

Durazo: The growing economic and racial polarization in Los Angeles is causing politicians to look at the root causes of these divisions, and at possible solutions to the widening divide between different segments of the population. Moreover, the Los Angeles Latino community, which has largely been left behind by redevelopment, is gaining political strength and demanding a voice on development issues.

Increasingly, a broad-based political consensus is becoming necessary to make continued redevelopment possible. If redevelopment is seen as only benefitting a privileged few, it will not flourish. Only if the fruits or redevelopment are shared fairly can such growth continue.