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Council Compromises on Hotel Wages

To build a hotel at 710 Wilshire Blvd. the developer will have to pay workers a minimum wage of $11.29 an hour with benefits, the City Council says. Many in the community demanded $15.

Council Compromises on Hotel Wages

A proposal to build a new, won the approval of the City Council Tuesday—which also voted 4-3 to mandate an hourly wage for hospitality workers there of between $11.29 and $12.54.

It's the first time the Santa Monica City Council will impose the requirement in a contract with a developer who asks to build a project of a size that exceeds what zoning codes allow. The cautioned that it could set a dangerous precedent of discouraging this and future hotels from being built.

City leaders arrived at the rate after three attempts to approve higher wages failed.

Before a 4 ½-hour discussion about how much employees at the 710 Wilshire Blvd. hotel should earn got underway, the developer and property owner, Alexander Gorby, had reconciled his own philosophical opposition to so-called "living wages." He and city planning staffers had negotiated a rate that he said he was comfortable with: $10.29 per hour with medical benefits and $11.54 without health insurance.

But dozens of residents and hotel workers crowded the meeting to demand a rate of $15—the equivalent of about $30,000 a year—saying it was.

Most sitting at the dais viewed the rates of $11.29 and $12.54 as a fair compromise.

“What we need to do is create good, paying jobs… and [to] eliminate that terrible term ‘working poor’ from our vernacular,” said Councilwoman Gleam Davis, who agreed with the other council members who said it was imperative that workers could afford to live in the city.

Mayor Richard Bloom called $15 a “death note” in response to warnings from Gorby's counsel, Ken Kutcher, who said it would put the project in jeopardy.

“Labor rates are approximately 46 percent of operating costs of hotels,” he said. “This project won’t happen” if the conditions “are too onerous.”

Whether Gorby will agree to the wages approved by the City Council was unclear.

The provision for a so-called "living wage" is part of a contract that spells out other community benefits Gorby has agreed to offer in exchange for building a hotel and adjoining shops and eateries that total 165,000 square feet. (A project designed pursuant to existing zoning standards would have a maximum floor area of 102,985 square feet).

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If Gorby does agree to the rates set by the council, the provision will last for 15 years, starting when the hotel receives its certificate of occupancy. He’ll be able to renegotiate the wages once the hotel’s underground parking structure is constructed. The contract gives him six years to apply for building permits.

If he doesn’t agree, he could renegotiate the provision, or sign off on it anyway, and sell the property and the contract, city officials said.

“This is a first for us,” said Councilman Robert Holbrook. “I understand there’s some risk involved.”

Many in favor of a higher, $15 wage, including Board of Education member Oscar de la Torre, said it would be reasonable in light of the profits Gorby stands to make.

Others, including representatives of other hotel developers in the area, said they were philosophically opposed to governments telling private business how much to pay their employees.

Two separate studies conservatively forecast a profit margin of 10 percent, or $11.3 million, in the first year of the hotel’s operation and up to $19 million annually afterward.

Kutcher was adamant that being forced to spend too much on payroll would put the project at risk of being profitable at all.

Councilman Bobby Shriver said called that argument “a little whimsical,” and Councilman Terry O’Day said it wasn’t persuasive.

“All of the [night’s] speakers acknowledged that hotel demand in this city is very strong, it’s very obvious,” O’Day said. “The union hotels here are clearly doing OK—in fact that indicates to me that major redevelopment can occur and can be done at union wage rates.”

The developers’ consultants surveyed union employees working at Santa Monica hotels and found that on average they earn between $9 and $14 per hour, however, representatives of Unite Here, Local 11, said union wages are actually a bit higher.

There's already a living-wage ordinance in Santa Monica, but like those of most cities in California and across the country, the ordinance is limited to subsidized private companies and projects.

Also stated in the draft agreement, among other community benefits, the developer will:

  • When hiring for construction and permanent employment, commit to giving first priority to Santa Monica residents and and students
  • Spend $11 million to rehabiliate the Santa Monica Professional Building as part of the project. It has been landmarked as an historic site.
  • Pay a $244,000 fee to improve transportation infrastructure in the area.
  • Build to LEED Silver certification or equivalent.
  • Secure long-term storage for employees and hotel guests of 64 bikes and provide 10 bikes for shared use by hotel guests.

"This is a tremendous site," said Councilman Bobby Shriver. "The stuff that this developer did is great. I hope that he thinks that is a financeable.”

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