It’s In The Numbers: $18 Minimum Wage Initiative Will Reduce Revenues for City Services

Last Tuesday, city Finance Director Debbie Moreno gave a budget workshop for the Anaheim City Council. It was an overview of city finances and administration. While the $18 minimum wage initiative sponsored by Anaheim Resort unions wasn’t formally on the agenda, it was clear from the numbers that Anaheim city revenues and services will be negatively impacted if it passes.

Moreno reviewed the sources of general fund revenue and where the money goes.  The big three tax revenue sources are Transient Occupancy Tax (TOT), sales and use tax and property tax.  TOT makes up 39% of general fund revenues, compared to 21% for sales tax and 18% for property tax.

TOT is also the only revenue sources that is both growing robustly and is expected to to continue  doing so.  TOT revenue grew from $82.6 million in Fiscal Year 2010/11 to $150.3 million in FY 2016/17 – nearly doubling in six years. TOT revenue is projected to hit $195.9 million in FY 2022/23.

By contrast, city revenues from sales and use tax and property tax are relatively flat. Sales tax revenue was $85 million in FY 2010/11 and is projected to be $99.2 million in FY 2022/23.  Property tax revenue growth is similarly lethargic.

The online retail revolution will continue to eat away at city sales tax revenue. Cities that bet big on retail-oriented development are going to find themselves in painful financial straits.  TOT revenue is largely immune from that trend: you have to physically leave your home and check into a hotel.

Moreno made some other critical points during her presentation. First, she said city “revenues continue to grow but are barely able to keep pace with PERS increases.” She said those increases range from $1.1 million in FY 2018/19 to nearly $12 million in FF 2022/23.

Secondly, factored into those projected revenues are the approved and currently planned 4-Diamond hotels.

79% of general fund revenues go to city services.

Moreno noted that “if any of our assumptions on hotel development don’t materialize, we may need to make adjustments in future years.” Translation, revenues will take a hit of the planned 4-Diamond hotels are cancelled.

Keep in mind the developers of those projects have made it clear they will not proceed with their 4-Diamond hotel projects if the $18 minimum wage initiative passes. If that happens, Anaheim would end up losing millions in future TOT revenues, according the to city’s forecast.

When Anaheim Councilwoman Kris Murray asked which of the proposed luxury hotel projects would have the largest impact if it were cancelled, Moreno stated the loss of the Disney four diamond hotel deal would most significantly impact the projected five-year budget.

Tonight, the city council is supposed to hammer out the final scope of the economic impact study it will commission if the $18 minimum wage initiative qualifies for the ballot (which appears likely).  It’s apparent even from the city’s own projections that the dramatic wage hike would have a depressive effect on TOT revenues – the only revenue source that Anaheim can count on growing robustly into the future.

Talk about killing the goose that lays the golden eggs. The progressives who constantly assail the Resort and demand more city services might want to use this moment to give themselves a reality check; economic nostrums like the $18 minimum wage will have the unintended consequence of not only retarding job creation and available hours, but will reduce the amount of revenues to fund city services.

Artificially inflating labor costs in the Resort certainly have a similarly depressive effect on employment.

The economic impact report will likely bear these out, and it’s also vital that it suss out the true impact given the vague initiative language that will likely loop in businesses that do not receive any direct economic assistance from Anaheim.

4 comments

  1. It’s the worst possible short-sighted decision imaginable for hourly employees. Employees pay union dues and later suddenly get caught in a layoff. Since jobs are difficult to find in the area, you’ll face worse conditions than the current hourly wage. When’s the last time you heard union-representatives being laid off?

    I have run a profitable P&L for over forty years. Businessmen recognize $18 minimum wage as a forced reevaluation of expansion plans, job creation and raise for employees. If approved it not only will put an abrupt halt to capital investment in Anaheim Resort area but prompt various Anaheim businesses outside the resort area to evaluate how resort area increase in minimum wage could harm their businesses.

    If you think the proposed wage hike only affects the resort area, think again. Hourly wages are one fixed expense, increasing payroll costs are another expense that the company pays; which may have to be cut back as well. Might even force businesses to leave our city.

  2. Sergio Gonzalez

    The city, in my opinion, should never have placed itself in a position where it is getting involved in a labor dispute between a private corporation and an employees labor union. Hopefully educated and rational minds will prevail and this disastrous business killing initiative will never see the light of day.

  3. It would reduce staff and service will suffer plus most people working these jobs don’t live in the zip code and some not even in the county, no good why are people so dumb?

  4. Calpers should be required to fully fund the pension system like the private sector. This needs to change before the economy blows up again.

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