Los Angeles Business Journal

Study: Hotel Wage Hike Could Hurt City

By Andrew Edwards Thursday, June 26, 2014

Raising L.A. hospitality workers’ minimum pay above $15 may burden the local hotel industry to the point of causing a loss of tax revenue for the city, according to a study released Thursday.

The California Hotel & Lodging Association issued a summary of the study, which was conducted by PKF Consulting USA, which has offices in Los Angeles and collects data on hotel industry performance.

The study reports that increasing L.A. hotel workers’ minimum wage to $15.37 citywide would lead developers to rethink plans to increase hotel space in Los Angeles, while hotel operators could curtail services or amenities in Los Angeles. This could reduce occupancy and lead to a reduction in the amount of hotel taxes collected by Los Angeles.

“The minimum wage proposal, as it currently stands, will hurt some industry employees, reduce city hotel-related taxes, and slow or prevent critically needed hotel expansion,” Bruce Baltin, PKF consulting senior vice president, said in a statement published by the industry group.

PKF’s study also criticizes the potential inequities among hotels and employees that may result if only unionized hotels are covered by the law.

The study was conducted in response to a proposal under consideration by the Los Angeles City Council that would phase in the wage increase to hotels with more than 300 rooms in July of next year and to hotels with a minimum of 125 rooms in 2016. The council’s Economic Development Committee has instructed the City Attorney’s Office to draft an ordinance on the wage hike.

A spokeswoman for Councilman Curren Price Jr., who has backed the wage hike, said the councilman sees the idea as a benefit for hotel employees who are often members of minority communities earning low wages.

“For him, the decision to be part of this is an easy one,” said Connie Llanos, the councilman’s spokeswoman.

An earlier study of the proposed ordinance prepared for city officials by Blue Sky Consulting group reported that a wage hike for hotel workers may result in those employees spending more of their pay in the city, but could also result in reduced profits for hotel operators.

Blue Sky’s report frames the issue as a matter of tradeoffs. Hotel operators, who may also reduce jobs to meet the costs of higher wages, may also see the effects of a wage hike mitigated by tax incentives.

Check out the Business Journal’s previous coverage.