BILL ANALYSIS                                                                                                                                                                                                    Ó



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          (Without Reference to File)





          SENATE THIRD READING


          SB  
          3 (Leno, et al.)


          As Amended  March 28, 2016


          Majority vote


          SENATE VOTE:  (Vote not relevant)


           ------------------------------------------------------------------ 
          |Committee       |Votes|Ayes                  |Noes                |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |----------------+-----+----------------------+--------------------|
          |Labor           |     |                      |                    |
          |                |     |                      |                    |
          |(Vote not       |     |                      |                    |
          |relevant)       |     |                      |                    |
          |                |     |                      |                    |
          |----------------+-----+----------------------+--------------------|
          |Appropriations  |12-7 |Gonzalez, Bloom,      |Bigelow, Chang,     |
          |                |     |Bonilla, Bonta,       |Daly, Gallagher,    |
          |                |     |Calderon,             |Jones, Obernolte,   |
          |                |     |                      |Wagner              |
          |                |     |                      |                    |








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          |                |     |Eduardo Garcia,       |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |                |     |Roger Hernández,      |                    |
          |                |     |Holden, Quirk,        |                    |
          |                |     |Santiago, Weber, Wood |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
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          SUMMARY:  Increases the state minimum wage, ultimately to $15  
          per hour, indexes the minimum wage thereafter, and provides for  
          paid sick days to providers of in-home supportive services  
          (IHSS), as specified.  Specifically, this bill:
          1)Increases the minimum wage as follows:
             a)   To $10.50 per hour on January 1, 2017 (and for employers  
               with 25 employees or less on January 1, 2018).
             b)   To $11 per hour on January 2, 2018 (and for employers  
               with 25 employees or less on January 1, 2019).


             c)   To $12 per hour on January 1, 2019 (and for employers  
               with 25 employees or less on January 1, 2020).


             d)   To $13 per hour on January 1, 2020 (and for employers  
               with 25 employees or less on January 1, 2021).


             e)   To $14 per hour on January 1, 2021 (and for employers  
               with 25 employees or less on January 1, 2022).


             f)   To $15 per hour on January 1, 2022 (and for employers  
               with 25 employees or less on January 1, 2023).


          2)Defines "employer" to mean any person who directly or  








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            indirectly, or through an agent or any other person, employs  
            or exercises control over the wages, hours or working  
            conditions of any person (consistent with the definition  
            contained in the Industrial Welfare Commission Wage Orders).   
            "Employer" includes the state, political subdivisions of the  
            state, and municipalities.
          3)Provides that employees who are treated as employed by a  
            "single qualified taxpayer" under a specified provision of the  
            Revenue and Taxation Code shall be considered employees of  
            that taxpayer for purposes of this bill.


          4)Provides for two potential "off-ramps" whereby the Governor  
            can temporarily suspend a scheduled increase to the minimum  
            wage set forth above as follows:


            Economic Conditions "Off-Ramp"


             a)   On or before July 28, 2017, and on or before every July  
               28 until the minimum wage is $15 per hour, to ensure that  
               economic conditions can support a minimum wage increase,  
               the Director of Finance shall annually make a determination  
               and certify to the Governor and Legislature whether each of  
               the following conditions is met:
               i)     Total nonfarm employment for California decreased  
                 over the three-month period from April to June, prior to  
                 the July 28 determination, as specified.
               ii)    Total nonfarm employment for California decreased  
                 over the six-month period from January to June, prior to  
                 the July 28 determination, as specified.


               iii)   Retail sales and use tax cash receipts, as  
                 specified, for a specified period ending one months prior  
                 to the July 28 determination date is less than the retail  
                 sales and use tax cash receipts, as specified, for a  
                 specified period ending 13 months prior to the July 28  








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                 determination.


             b)   If, for any year, either of the nonfarm employment  
               criteria above are met and the retail sales and use tax  
               criteria is met, the Governor may, by August 1, notify the  
               Legislature of an initial determination to temporarily  
               suspend the scheduled minimum wage increase for the  
               following year.  The Governor shall make a final  
               determination by proclamation whether to temporarily  
               suspend the scheduled minimum wage increase on September 1.
            Budget Deficit "Off-Ramp"


             a)   On or before July 28, 2017, and on or before every July  
               28 until the minimum wage is $15 per hour, to ensure that  
               the state General Fund fiscal condition can support the  
               next scheduled minimum wage increase, the Director of  
               Finance shall annually make a determination and certify to  
               the Governor and Legislature whether the state General Fund  
               would be in a deficit in the current fiscal year, or in  
               either of the following two fiscal years, as specified.   
               "Deficit" is defined as a negative balance that exceeds 1  
               percent of the total state General Fund revenues and  
               transfers, as specified.
             b)   If the Director of Finance makes the above  
               determination, the Governor may, by August 1, notify the  
               Legislature of an initial determination to temporarily  
               suspend the scheduled minimum wage increase for the  
               following year.  The Governor shall make a final  
               determination by proclamation whether to temporarily  
               suspend the scheduled minimum wage increase on September 1.  
                The Governor may temporarily suspend a scheduled minimum  
               wage increase related to a General Fund deficit no more  
               than two times.


          1)Provides that if the Governor makes a final determination to  
            temporarily suspend the scheduled minimum wage increase  








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            pursuant to the "off-ramps" described above, all dates  
            specified above for scheduled minimum wage increases that are  
            subsequent to that final determination shall be postponed by  
            one additional year.
          2)Provides that, following implementation of the $15 per hour  
            minimum wage for all employers, on or before August 1 of that  
            year (and each year thereafter), the Director of Finance shall  
            calculate an adjusted minimum wage (indexing).


          3)Provides that that calculation shall increase the minimum wage  
            by the lesser of:  a) 3.5 %, or b) the rate of change in the  
            United States Consumer Price Index for Urban Wage Earners and  
            Clerical Workers (US CPI-W), as specified.  The result shall  
            be rounded to the nearest $0.10.


          4)Provides that each adjusted minimum wage calculated shall take  
            effect on the following January 1.


          5)Provides that if the rate of change in the US CPI-W, as  
            specified, is negative, there shall be no increase or decrease  
            in the minimum wage.


          6)Provides that if the rate of change in the US CPI-W, as  
            specified, exceeds seven percent in the first year of  
            implementation of the $15 per hour minimum wage for employers  
            with 26 or more employees, the indexing provisions described  
            above shall be implemented immediately, such that indexing  
            will be effective the following January 1.


          7)Further provides that if that occurs, for employers with 25 or  
            fewer employees, the minimum wage shall be set equal to the  
            minimum wage for employers with 26 or more employees,  
            effective on the following January 1.  For those employers,  
            the $15 per hour minimum wage shall be considered to have been  








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            implemented.


          8) Provides that on an after July 1, 2018, a provider of IHSS  
            services who works in California for 30 or more days within a  
            year is entitled to paid sick days as follows:


             a)   Eight hours or one day beginning July 1, 2018.
             b)   Sixteen hours or two days beginning when the minimum  
               wage (accounting for any temporary suspension described  
               above) for employers with 26 or more employees has reached  
               $13 per hour.


             c)   Twenty-four hours or three days beginning when the  
               minimum wage (accounting for any temporary suspension  
               described above) for employers with 26 or more employees  
               has reached $15 per hour.


          9)Requires the State Department of Social Services (DSS), in  
            consultation with stakeholders, to convene a working group to  
            implement paid sick leave for IHSS providers.  The workgroup  
            shall finish its implementation work by November 1, 2017, and  
            DSS shall issue guidance such as an all-county letter or  
            similar instruction by December 1, 2017.
          10)Makes related and conforming changes.


          EXISTING LAW:

          1)Establishes the minimum wage under federal law as $7.25 per  
            hour. (Fair Labor Standards Act of 1938, 29 United States Code  
            Chapter 8).

          2)Effective January 1, 2016, establishes the minimum wage in  
            California for all industries as not less than $10 per hour.   
            (Labor Code Section 1182.12).








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          3)Provides for the provision of paid sick days for employees, as  
            specified, but excludes from the definition of "employee" a  
            provider of IHSS services.

          FISCAL EFFECT:  According to the Assembly Appropriations  
          Committee:



          1)Current year costs of approximately $19 million General Fund  
            (GF), and Budget Year costs of approximately $40 million GF,  
            to increase state minimum wages for IHSS, Department of  
            Developmental Services and civil service employees from $10 an  
            hour to $10.50 an hour starting January 1, 2017.  These costs  
            include offsetting savings to Medi-Cal and CalWORKS programs,  
            assuming increases in the minimum wage will result in  
            individuals and families no longer qualifying for all or a  
            portion of these services.  The Administration estimates costs  
            of $3.6 billion GF assuming a minimum wage of $15 an hour is  
            provided by 2022-23. 


          2)General Fund costs of approximately $90 million GF in 2018-19  
            to provide one day of sick leave to the approximately 468,000  
            IHSS providers in California.  These costs are estimated to  
            increase to approximately $227 million GF in 2022-23, when the  
            state provides three paid sick days per year.  Medi-Cal does  
            not provide federal funding for services not rendered by IHSS  
            providers, therefore, the state is responsible for the costs  
            of a provider's wage while on paid sick leave.  These cost  
            estimates also include back up provider costs, Case  
            Management, Information and Payroll System (CMIPS) automation  
            changes and Department of Social Services administrative  
            costs.  

          COMMENTS:  In recent years, much debate at the national, state,  
          and local level has centered around efforts to increase the  
          minimum wage as an effort to address income inequality and raise  








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          individuals out of poverty.

          Although under federal law the minimum wage is currently $7.25  
          per hour, many state governments and some local governments have  
          established higher minimum wage rates.

          California first established a statewide minimum wage in 1916,  
          and has increased the minimum wage several times over the years.  
           California's current minimum wage is $10 per hour (which was  
          enacted pursuant to AB 10 (Alejo) of 2013).  According to the  
          National Conference of State Legislatures, as of January 1,  
          2016, California and Massachusetts had minimum wages of $10 per  
          hour.  The District of Columbia has a minimum wage of $10.50 per  
          hour.  An additional nine states have minimum wages above $9 per  
          hour.

          Although the state's minimum wage has never declined, it has  
          often grown more slowly than inflation.  Unlike California,  
          current laws in 15 states and the District of Columbia establish  
          minimum wages that automatically increase (or index)  
          proportionally to some measure of inflation.

          Some cities in California have established minimum wages that  
          are higher than the current statewide minimum wage.  For  
          example, the cities of San Francisco, Oakland, and Emeryville  
          all have minimum wages higher than $12 per hour.  The Los  
          Angeles City Council recently voted to raise that city's minimum  
          wage to $15 per hour by 2020.

          In summary, this bill would increase California's statewide  
          minimum wage from the current $10 per hour to $15 per hour, over  
          the course of the next six years.  There would be a one-year lag  
          in the increase for small businesses with 25 or fewer employees.  
           For these businesses, the first increase (to $10.50) will begin  
          in 2018, and the $15 would be achieved in 2023.  The bill  
          permits a temporary "pause" in the scheduled statewide increase  
          to $15 per hour should the State's economic or budgetary  
          conditions deteriorate.  In addition, this bill would provide  
          for annual "indexing" of the statewide minimum wage (to account  








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          for rising costs of living) in the future, starting after the  
          $15 wage level is reached.  


          In addition to the minimum wage proposals, this bill would also  
          provide for three days of paid sick leave to IHSS workers,  
          bringing these workers the same benefits provided to other  
          workers in California pursuant to AB 1522 (Gonzalez), Chapter  
          317, Statutes of 2014, the Health Workplaces, Healthy Families  
          Act of 2014, which went into effect on July 1, 2015.  According  
          to the Assembly Appropriations Committee, "Providers of IHSS  
          were originally included in AB 1522 but were excluded towards  
          the end of the Legislative process due to cost concerns.  These  
          cost concerns have been addressed by phasing in the provision of  
          paid sick days, consistent with increases in the minimum wage."   



          Arguments in Support


          Supporters of this bill, including the California Labor  
          Federation, AFL-CIO, argue that it represents a reasonable and  
          responsible proposal.  This proposal is phased in over a long  
          period of time.  Small businesses are given an additional year  
          to catch up.  Indexing only applies after initial wage increases  
          are implemented.  The Governor will be able to temporarily pause  
          the increase if we are in a recession or the budget is in  
          significant deficit.


          Supporters also argue that this proposal guarantees that, while  
          our economy is growing, workers are sharing in the economic  
          gains.  Both the wage increases and the indexing guarantee that  
          workers will not have inflation swallowing their raises.  No one  
          who works full-time should live in poverty.  This proposal takes  
          a responsible approach to lifting millions of working  
          Californians out of poverty.









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          They note that, thanks to worker organizing, we have higher  
          minimum wages in some cities and counties of California.  This  
          patchwork creates situations where a worker on one side of the  
          street makes less than a worker doing the same job on the other  
          side of the street.  Workers also live in different cities from  
          where they work.  This bill raises the floor for all workers and  
          addresses growing inequities between local minimum wages.


          Supporters also contend that this bill will create  
          predictability and stability for employers and workers.  No  
          longer will our state's minimum wage be subject to politics.   
          Indexing allows for businesses to plan for incremental increases  
          and workers to plan for family budgets.  Rather than large  
          legislative jumps going forward, incremental increases can be  
          planned for.


          Supporters conclude by stating that, under this bill, nearly 6  
          million California workers will receive a raise, which  
          represents over one third of our total workforce.  They note  
          that, already, more than 750,000 workers will reach $15 under  
          local minimum wage laws.  Taken together, 6.5 million  
          Californians will get a raise.  Supporters state that workers  
          will, on average, get a $3700 annual raise under this proposal.   
          Of those workers, 96% are over 20 years old, 36% have kids, 74%  
          are workers of color, 55% are Latino, 44% are immigrants, and  
          more than two-thirds (67%) work full-time.








          Arguments in Opposition









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          Opponents, including the California Chamber of Commerce, argue  
          that this unprecedented increase in the minimum wage will simply  
          overwhelm many businesses that are already struggling with the  
          current minimum wage increase and will limit job growth in this  
          state.


          Opponents argue that not all regions of California can absorb  
          the increase to the minimum wage proposed by this bill.  They  
          state that, while California's overall unemployment rate is at  
          5.7%, there are still many regions of the state (more than one  
          dozen counties) where the unemployment rate is 10% or higher.   
          Imposing such a significant increase in the minimum wage on  
          employers in these areas that are still trying to recover from  
          the "Great Recession" will further inhibit job growth.  They  
          argue that, as evidenced by the 16 local jurisdictions in  
          California which have adopted their own local minimum wage  
          ordinances, regions that believe they can afford a higher  
          minimum wage without impacting job growth or the local economy  
          have done so.  


          Opponents also argue that the "off-ramps" to suspend the  
          scheduled minimum wage increases are discretionary and limited.   
          The suspension is not mandatory and, for a budget deficit, can  
          only be utilized twice.  Moreover, once the minimum wage reaches  
          $15 an hour and is adjusted to national inflation, there is no  
          "off-ramp" available.  They argue that, in order to protect  
          California's economy, this bill should have mandatory off-ramps  
          when the job market or state revenue has declined, is stagnant,  
          or is not increasing at the same rate as the proposed minimum  
          wage increase.


          In addition, opponents contend that raising the minimum wage  
          creates job loss for untrained workers and those who are new to  
          the job market.  This bill will negatively impact economic  
          recovery by either limiting available jobs, hours of work or,  








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          worse, creating further job loss, especially for vulnerable  
          workers who are untrained and new to the job market.  An  
          increase in the minimum wage also significantly impacts teenage  
          employees who are new to the job and untrained.  Opponents also  
          cite to evidence that they argue suggests that increasing the  
          minimum wage does not target those in actual need.  They state  
          that increasing the minimum wage does not assist those actually  
          living in poverty and could potentially harm them further if  
          low-wage jobs are reduced due to the increased cost on  
          businesses.


          The California Restaurant Association, writing in opposition to  
          this bill, argues that "a minimum wage is a starting wage - not  
          a forever wage."  They contend that minimum wage increases often  
          have a perverse effect on the restaurant community.  Wage  
          increases typically benefit those who are the best paid  
          individuals; minimum wage earners are often tipped well above  
          the minimum wage.  The added cost pressure from the mandatory  
          annual wage increase for the employees already earning the most  
          takes finite dollars an operator may have and reduces, if not  
          eliminates, their ability to provide non-tipped employees with a  
          wage increase.




          Analysis Prepared by:                                             
                          Ben Ebbink / L. & E. / (916) 319-2091  FN:  
          0002667

















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