02/14/2001 03:20 PM House L&C

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* first hearing in first committee of referral
+ teleconferenced
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ALASKA STATE LEGISLATURE HOUSE LABOR AND COMMERCE STANDING COMMITTEE February 14, 2001 3:20 p.m. MEMBERS PRESENT Representative Lisa Murkowski, Chair Representative Andrew Halcro, Vice Chair Representative Kevin Meyer Representative Pete Kott Representative Norman Rokeberg Representative Harry Crawford Representative Joe Hayes MEMBERS ABSENT All members present COMMITTEE CALENDAR HOUSE BILL NO. 56 "An Act relating to minimum wages." - HEARD AND HELD HOUSE BILL NO. 81 "An Act extending the termination date of the Board of Dental Examiners." - BILL HEARING POSTPONED PREVIOUS ACTION BILL: HB 56 SHORT TITLE:MINIMUM WAGE SPONSOR(S): REPRESENTATIVE(S)KOTT Jrn-Date Jrn-Page Action 01/12/01 0071 (H) READ THE FIRST TIME - REFERRALS

01/12/01 0071 (H) L&C, FIN

01/12/01 0071 (H) REFERRED TO LABOR & COMMERCE

01/16/01 0104 (H) COSPONSOR(S): HARRIS

01/19/01 0134 (H) COSPONSOR(S): MULDER

01/29/01 (H) L&C AT 3:15 PM CAPITOL 17

01/29/01 (H) Heard & Held

01/29/01 (H) WITNESS REGISTER JIM NORDLUND, Director Division of Public Assistance Department of Health and Social Services (DHSS) P.O. Box 110640 Juneau, Alaska 99801 POSITION STATEMENT: Testified on behalf of the division, in support of HB 56. CHRIS MILLER, Chief of Research Department of Labor and Workforce Development (DLWD) P.O. Box 21149 Juneau, Alaska 99801 POSITION STATEMENT: Brought information to share with the committee regarding minimum wage. MANO FREY, Executive President American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) Anchorage, Alaska 99501 POSITION STATEMENT: Testified that the AFL-CIO is in support of HB LARRY BAKER, President Burger King of Alaska Restaurants Northwest, Inc. Anchorage, Alaska 99515-1212 POSITION STATEMENT: Testified on HB 56. JAY SUTHERLAND, Owner Wendy's Restaurant Anchorage, Alaska 99503 POSITION STATEMENT: Testified against HB [Contains discussion of HB greater degree and would bring close to a million dollars in savings to the state. MR. NORDLUND commented that the division feels this bill is an excellent start. Passing HB future. If there is an increase in the minimum wage, there is an immediate prop-up of those who qualify to get an increase. Without some kind of indexing that will do it gradually, it hurts both the employer and the employees because both have to go without an indexing process. They can go years without additional increases to where the buying power just continually decreases; although the legislature will "bounce" it back up, it immediately starts the downward slide. If the CPI were included, the increases would be incremental and insignificant when compared to facing a dollar-an-hour increase in one lump sum. MR. FREY stated that if it were done incrementally, it would be a big workload off the legislature's shoulders and would take care of itself, if it were pegged to the CPI. MR. FREY relayed that the AFL-CIO and the Alaska Federation of Natives attempted to get this type of legislation on the ballot for the last election cycle. He said "we" signature books until August and collected 25,000 signatures, but were still several hundred signatures short of putting it on the ballot. He commented that "we" appreciate that the legislature is going to try to deal with it this year. MR. FREY said the delegates at the conference are deciding whether to go through the signature-gathering process again. He said "we" would prefer that the legislature pass a fair bill, because it would be much sooner than waiting for the 2002 election. Number 2289 MR. FREY said he spoke to Representative Rokeberg, who had indicated that he had "something creative" for the tax credit issue, that he wasn't just looking at the federal standard, which in some states is a minimum wage of $2.37 an hour. Mr. Frey said "we" are always willing to explore the issues that are in front of the legislature to see if there is some way "we" can reach a consensus. He said the AFL-CIO doesn't support tip credits as an offset to increasing the minimum wage. Number 2337 MR. FREY said while he is in Juneau, he intends to get together with Representative Rokeberg to see what he has in mind. If it is something fair for workers that receive tips, "we'll" ready to support something like this. He reiterated that in general, the AFL-CIO is not supportive of that kind of effort because it is felt that people at or near minimum wage who receive tips are not normally the people working in the upper- end restaurants. Generally, tips are minimal at best and help to supplement a very low wage. Number 2382 REPRESENTATIVE HALCRO asked about the big picture. He said he'd heard that there's a large difficulty in government to keep good people in specific positions, as Commissioner Ed Flanagan, DLWD, previously testified. He said Commissioner Jim Duncan, Department of Administration, stated that within five years, the state would lose 25 percent of its workforce to retirement alone. The committee has had every industry talking about job openings that they will have, and companies are actually paying employees to go to school and get advanced education, with the hope that they will be able to keep them. He said it seems that there is tremendous opportunity out there, and he believes that minimum-wage occupations are entry-level positions. Some of his constituents who are small-business owners say they employ high school students because the students need the money and they can afford them. In considering the opportunities that are out there, and the efforts made to attract and keep employees, shouldn't "we" just let the free market take care the minimum wage, he asked. Number 2465 MR. FREY said he didn't believe so, and said the state has an obligation. He said three big projects are coming up, with George W. Bush as President and with Alaska's [positively positioned] congressional delegation. They are the [proposed drilling in the] Arctic National Wildlife Refuge (ANWR), gas lines, and a missile-defense system. He said each of these would create tremendous opportunities for the "cream of the crop" of this state. TAPE 01-17, SIDE B Number 2461 MR. FREY said Alaska will have "the legacy jobs" hereafter, and he reminded the committee of the opportunity that was missed when the oil line was built. Alaskans have to collectively work together to not miss that opportunity with this cycle. He emphasized that employers don't need to recruit outside of Alaska; the resources and wherewithal are here. Collectively, there are several groups aiming toward those projects [to provide] recruitment and training. MR. FREY described a situation that transpired at the Anchorage airport. He said the skycaps worked the airport for years. The State of Alaska used to put out a concession contract, requiring the employer to pay the state a concession price to have skycaps working there on behalf of the airlines. The airlines weren't paying anything, and the concessionaire actually paid the state. The skycaps worked for the public and were tipped employees. MR. FREY asked how a concessionaire could pay the state and make money. He explained that the concessionaire charged the skycaps a $2-an-hour cart-rental fee. Workers were not paid a wage; they just received tips. Some were retired members of the local AFL-CIO so "we" began to talk to them about this. He explained that on a 12-hour shift, skycaps would pay $24, with no guarantee that they would earn anything that day. Skycaps were paying $2 an hour to rent a $70 cart. It didn't seem right that a state agency was actually charging [a fee], and was not required to pay minimum wage. MR. FREY pointed out that sometimes a business isn't going to stay in business if it has to pay a certain amount of wage, which is what happened in this case. The AFL-CIO sued the State of Alaska on behalf of the employees. When [former] Governor Walter Hickel was in office, the AFL-CIO worked with the Department of Transportation and Public Facilities and got a fair settlement: all of those people received two years of back wages, at minimum wage, from the state, and were reimbursed for all of the cart fees they paid. MR. FREY said the concessionaire wasn't sure what to do because there was no way that he could remain in business doing what he had been doing. The contract turned completely around, the airline consortium got together, and now under the auspices of the state, they actually pay the concessionaire to be there. He said, "It's unfortunate that some people may have a great idea, but if it is not a moneymaker, maybe they need to think of another idea. I do believe that there is an obligation there." Mr. Frey commented that one needs to know that those kinds of things do happen. Number 2283 REPRESENTATIVE MEYER asked Mr. Frey to clarify which bill he supports: the governor's, Representative Kott's, both, or a combination. MR. FREY said "absolutely." He said notwithstanding his comments about the CPI index, the second year of Representative Kott's bill provides for minimally less than the governor's, not that "we" couldn't live with $6.90 versus $7.15. would like to see $7.15, but $6.90 is a "prop-up," especially if it has the CPI indexing. A combination of the two bills [would be favorable]; by adding the CPI qualifier the issue doesn't have to be revisited every five years because it would be automatic. He pointed out that at $6.90, a 3 percent cost-of- living increase in the prior year would be 20 cents. Number 2229 REPRESENTATIVE MEYER recalled that both bills are based on the federal minimum wage, and asked what was happening at the federal level with the minimum wage. Number 2221 MR. FREY replied that things were moving along rather "smartly" two years ago. Heading into the election year, everyone had the intent of passing legislation on a federal level. Now, the impetus is gone and there doesn't appear to be much going on. He said he doesn't know if they will get going on it in the near future. Number 2201 REPRESENTATIVE MEYER asked about the tip credit. He said the committee received information that indicated that most states which have a minimum wage also have a tip credit. He said he understood that the AFL-CIO doesn't support it, but asked how it works. Number 2186 MR. FREY said in states he is familiar with, employers can pay $2.37, if the employee receives tips. There are others [situations] where if there were increases in the minimum wage, tipped employees wouldn't receive those increases, but would have their wage frozen where it was. He said there are different approaches, and some states have the offset. He said personally, he doesn't think Alaska needs to be a "leader of heading down." Number 2146 REPRESENTATIVE MEYER said to Mr. Frey that he doesn't really have many [AFL-CIO] members that make minimum wage. MR. FREY said the AFL-CIO doesn't represent many, but this issue it is not unlike some that they get involved with; many feel it is a social obligation to try to help those who need it the most. People without representation don't have a collective voice, and the AFL-CIO can try to provide that for them. Number 2114 MR. FREY, responding to a question about whether any of the AFL- CIO's members make minimum wage, said yes, and mentioned the skycaps at the Ted Stevens Anchorage International Airport who receive minimum wage and tips. REPRESENTATIVE ROKEBERG stated that people say that one of the reasons the AFL-CIO supports the increase in the minimum wage is so there is a higher base wage in the state, which allows the union to bargain higher-paid contracts. Number 2056 MR. FREY replied that this is absolutely not true. He reiterated AFL-CIO's reason for getting involved in the minimum- wage issue. MR. FREY used the example of a contract negotiation that he is currently involved in with an employer of highly skilled people. The AFL-CIO is probably going to be negotiating a contract that will put the employee's base wage at over $40 per hour. He commented that what the legislature does with the minimum wage will not affect those negotiations. He said the influencing factor is competition in Alaska. There are no contracts on which increasing the minimum wage would impact negotiations. Number 1975 REPRESENTATIVE ROKEBERG said the AFL-CIO and union groups have been very involved in developing an understanding across the state for workforce [investment], employment, and retraining. He complimented Mr. Frey on this. He mentioned the exemptions in the Wage and Hour Act, and other provisions there to help beginning workers learn how to work. He stated that the programs don't work because businesses don't use them because of their bureaucratic barriers. He asked if organized labor would support training-wage reform, not extending what exists but making the programs workable. MR. FREY said the AFL-CIO would be more than happy to be involved in the revisions. Number 1890 REPRESENTATIVE ROKEBERG said he thinks "we" are missing an opportunity with the young people, since the best way to learn how to work is by working. It is really important, if pursuing the whole concept of minimum wage, that there be some type of offsetting situation so employers can still stay afloat. He said no one really wants to change the law in such a way that it is more onerous or anything like that. There are suggestions to reflect the federal rules, to make things much easier. Number 1849 REPRESENTATIVE ROKEBERG specified that his intention is not to lower the existing minimum wage to the federal standard, but to consider something that gives relief to the large employers whose employees make a substantial amount in tips and set a trigger mechanism that guarantees that all tipped employees make a "super minimum wage". REPRESENTATIVE KOTT, [turning the attention to another subject], asked Mr. Frey to explain the AFL-CIO initiative that had been drafted. MR. FREY responded that it contained two raises, and a [tie to the] CPI, not dissimilar to Representative Kott's initiative 56]. Number 1651 LARRY BAKER, President, Burger King of Alaska, via teleconference, noted that he had provided the committee a copy of his testimony in writing. He referred to paragraphs 2 and 3 in his letter and said there have been some resident experts who have testified at the national level on minimum wage, and the committee could read that information at their leisure. He added that there is adequate information in the public record that can be read in relation to testimony from the department. Number 1561 MR. BAKER referred to a question that Representative Meyer had asked of Mr. Frey on the status of the federal minimum wage. He said last week in Washington [D.C.], the Senate and House introduced a minimum-wage bill that would raise the minimum wage $1.50 an hour over a period of two years. He stated that a similar piece of legislation died in the last Congress, but assured the committee that there is active reinitiating on the federal level. MR. BAKER responded to Representative Rokeberg's comments about student learners. He said it is a problem and he has not used the program. He said he would be happy to work with others on this issue. MR. BAKER directed the committee to AS 23.10.050 through AS consideration because it mandates that a person who spends more than 20 percent of his or her time in a supervisory capacity be tied directly to the minimum wage. By the second year of enactment of this legislation, these employees would receive a for example. He said it is more than just minimum wage. This piece impacts everyone within the industry. Number 1395 REPRESENTATIVE CRAWFORD asked Mr. Baker about the average hours his management employees work. Number 1357 MR. BAKER replied that it is divided into two pieces. Anyone less than senior management is paid for 40 hours, plus the number of hours worked on an overtime basis. The top management person would fall under the 20-percent rule, in the neighborhood of 45 to 50 hours per week. REPRESENTATIVE MEYER said based on the 20-percent rule, Mr. Baker would be doubly hit, affected not only by the entry-level people, but also by the managers. He said he assumed it would affect other fast-food restaurants the same way. MR. BAKER said all industries would be affected because this part of the code is tied directly to the minimum wage. An employer must pay two and a half times the minimum, no matter what the industry is, if an employee spends in excess of 20 percent of his or her time in an executive or administrative category. REPRESENTATIVE MEYER referred to a DLWD handout, which looked at the percentage of total minimum-wage employment, and the total minimum-wage employment by industry. He said 32 percent of people earning minimum wage are in the eating and drinking establishments, and the next [highest number earning minimum wage] as in amusement and recreation services, at 8 percent. He said the majority are in Mr. Baker's industry. REPRESENTATIVE MEYER mentioned previous testimony from others in the restaurant industry, and what their reaction would be to an increase in the minimum wage. He said one restaurant mentioned that they would either reduce the amount of paid vacation or reduce benefits. He asked if Mr. Baker might raise the price of his hamburgers. Number 1077 MR. BAKER said the costs have to be passed along, either by raising prices or by cutting back on benefits. He referred to his written testimony and his proposed alternatives. He said if the committee moves forward with this [legislation], something needs to be done with the student learner program because it isn't working; design some legislation to provide teenagers with work experience, as it was intended in the code. MR. BAKER, responding to a question posed about hiring handicapped people and minimum wage, said the code allows employers to pay challenged persons less than minimum wage. He said "we" treat those employees the same as others utilize that specific part of the administrative code. He said his company has several challenged individuals and would continue to employee [these] people because they are good members of the workforce and contribute to the business. Number 1012 REPRESENTATIVE ROKEBERG asked Mr. Baker if there has ever been enforcement against him regarding the 20-percent rule with his management and administrative people. MR. BAKER said no, because the 20-percent rule is just automatic. "We" don't put anyone in that otherwise qualify. He said the top person in the restaurant falls in the 20-percent category because more than 20 percent of his or her work is in an administrative capacity. MR. BAKER, responding to a question about the Wage and Hour Act exemption for a learners wage, said "we" have looked at the opportunity provided in the current statute but haven't used it because it is unworkable; it is too difficult administratively to utilize, so "we" have just stayed away from it. He said it was intended to give young people an opportunity to learn while working, and to become productive members of the workforce. He agrees that it really needs to be reworked if there is to be a minimum-wage increase. Number 0815 REPRESENTATIVE CRAWFORD asked Mr. Baker if it would be easier to deal with an increase in the minimum wage if the committee had an amendment that gave credits [to companies] for the health care they provide to employees. MR. BAKER responded that "we" would review anything that is proposed, to see if it truly made a difference to the total package. On another subject, he referred back to the tip credits and said that doesn't impact his industry because none of his employees receive tips. REPRESENTATIVE HALCRO asked about competition and the ability to hire employees at minimum wage. Number 0612 MR. BAKER said it is a competitive situation, and the free market takes care of itself, based on available jobs and wage rates. Responding to a question about what percentage of those working at minimum wage are moms or heads of households, Mr. Baker said he doesn't have the actual statistics but can pull them. He speculated that at the student level, 50 percent are in the lower quartile. The average wage statewide is $6.35 an hour, so 100 percent of employees work for 40 cents an hour less than the statistics reported by the DLWD. He added that very few of his employees [working at minimum wage] are single working parents and heads of households. Number 0310 STEPHANIE MADSEN, Vice President, Pacific Seafood Processors Association, a trade association established around 1914, said she represents almost all of the onshore processors around the state. She said the seafood industry is very diverse, so it is hard to capture and characterize the industry in simple terms. [She gave the committee a brief orientation of the industry.] Twelve-hour shifts are standard, she said, and when a person is hired, he or she is notified of that. It is an eight-hour regular shift, and four hours of overtime on a regular basis. The job is seven days a week when the season is in full swing. Approximately 75 percent of the total workforce is made up of the processors, those working on the floor or "slime line." "We" are considered, even by the DLWD, as one of the last entry- level industries where someone with little or no experience or education can come to work easily. Number 0205 MS. MADSEN said 20 to 55 percent of the workers are at entry level. There are some companies that have a rehire rate that is hirer than others, but there is a broad range. Generally, the entry-level base wage that provides room and board ranges from $5.65 to $7.00. She added that in the seafood processing industry there are built-in incentives for an employee to remain on the job or to complete the contract, because employees often work on a 1,300- to 1,500-hour contract. An incentive usually includes an incremental increase based on a completion of so many hours. If a person remains with that employer without a large absence, he or she might continue to go up in that per- hour rate. Usually the new employees come in to entry-level positions and receive minimum wage. MS. MADSEN said if room and board is not provided, there is a pay differential. TAPE 01-18, SIDE A Number 0059 MS. MADSEN asked the committee to consider a credit for seafood processors that provide room and board. Not all would be eligible, and the credit would only apply for the proposed increase in minimum wage. "We" are very concerned about the economic impact that the proposed increases would have on a good portion of the workforce, she said. Besides losing quota, this is probably one of the most difficult things that "we" will be facing. MS. MADSEN said the credit could be looked at two ways. Those processors that don't provide room and board generally charge $3 per meal. Seafood processors have four meals, since the workers work a 12-hour shift, so it is easy to figure a $1-per-hour credit for meals alone. The other [way] is to have a pay differential for a resident worker, since the nonresident worker gets room and board; this is easily demonstrated by the current practices. Number 0160 REPRESENTATIVE HALCRO asked if a cost could be put to the benefit of meals and housing. MS. MADSEN responded that it is difficult [to calculate]. She has looked at processors that charge their employees for meals. Oftentimes, processors provide room, board, and airfare, but it is difficult to quantify as many of those are in remote sites. One could either look at the charges that some seafood processors charge employees for meals or the industry could provide the committee with what it estimates the cost to be. Number 0283 REPRESENTATIVE CRAWFORD referred to a personal experience with canneries and seafood processing plants and said the wages used to be $8.00 to $9.00 an hour. The wages began to drop, and they are now, for the most part, at minimum wage. If "we" provide a floor under the wages, how are we going to keep these people at a living wage? If [Alaska] doesn't bring it up to $6.90 over the next couple of years, "we" won't be federal poverty level floor. MS. MADSEN replied that very few processors are actually paying minimum wage, although she doesn't think that the majority are at the $6.90-per-hour rate. The reason the majority of processors are not paying $5.65 is because competitively the labor market has driven the costs up, and to get employees, one has to pay more. MS. MADSEN commented on some wage-and-hour samples she provided the committee. She said "we" have gotten suffer from a high nonresident hire [rate]. A lot of these entry-level people are from out of state, and they go back to where the cost of living is not the same as Alaska's. MS. MADSEN noted that "we" improved by 5 percent over the last several years, as was shown by the DLWD's latest information. She said this was because of an aggressive campaign targeted at rural Alaska. When one talks about who is getting the entry- level positions, it is not the Alaskans; the Alaskans have a much higher rate and hold the management positions. Referring back to employees and whether they are heads of households, she said "we" have not been able to determine this, although she said the DLWD provided an average age of 32. She said actually being in the processing plants, she finds this a little high because of the type of work; most workers are high school and college kids for the summer season, and are in their early twenties for the longer groundfish season. MS. MADSEN pointed out that in Kodiak right now, the workers are receiving between $6.50 to $6.75 an hour without room and board. They are above the current minimum wage because of competition for those employees. Number 0675 REPRESENTATIVE HALCRO referred to the data points in the handout provided by Ms. Madsen. He asked if an employee could work as long as he or she likes in a day or if a 12-hour shift is the cutoff. MS. MADSEN replied that she believed 12 hours to be the cutoff. Number 0735 PAM LaBOLLE, President, Alaska State Chamber of Commerce (ASCC), said the chamber didn't have a position on the [minimum wage]- issue when it met a few months ago. She had surveyed the membership, following the survey done by National Federation of Independent Business (NFIB), so the questions would be the same, only "we" added two more. One was to try and find out what type of business the person had; the other was to determine the number of employees employed. MS. LaBOLLE commented that about 65 percent of the [ASCC's] membership reside in Anchorage. She mentioned that the members in Anchorage had the survey for less time than members in the rest of the state. MS. LaBOLLE said there was a 13.5 percent response, but she expects the percentage to grow in the coming days. Looking at the survey data, she pointed out that business is divided on whether the state legislature should raise the minimum wage to $6.40 next year, and $6.90 in 2003, as outlined in Representative Kott's bill. The responses were equally for, against, and unsure [about the bill]. MS. LaBOLLE stated that people were a little more decisive on the governor's bill [56 people he hires at minimum wage; 75 percent of them are teens living at home. Within the first 30 to 90 days, workers have gained some job skills and are at or above $6.25. "We" start them at minimum wage, and government is just mandating another cost increase. He doesn't see how [the minimum-wage increase] will all be passed on to the customers. He said employers will be hurting and will have to decrease benefits. REPRESENTATIVE CRAWFORD asked Mr. Sutherland how many people he had to lay off during the last minimum-wage increase, and what effect the minimum wage had on his business. Number 1383 MR. SUTHERLAND said it wasn't a layoff process; he invested in technology. He said through attrition "we" [workers]. He said 100 hours every two weeks [were cut] out of each one of his enterprises by investing in technology; he said the benefit is that once the technology is paid for, it doesn't cost "us" any more. Everytime government decides to increase the minimum wage, "we" will look at investing in more technology. MR. SUTHERLAND explained that he invests in different types of timepieces and automation. For example, "we" just invested in a power-wash sink, which cut 12 hours of human labor. He said his company is making pre-investments. He explained more about the computerized processes. MR. SUTHERLAND said he was able to pass on less than 30 percent of the last minimum-wage increase to the customer. Number 1512 MAURICE MacDONALD, Owner, O'Brady's Berries, and Brew Restaurant, Anchorage, via teleconference, said apparently Mr. Nordlund and Mr. Miller from the State of Alaska didn't have any statistics to support a minimum-wage increase, and the DLWD isn't able to identify the employees. He said the average wage for tipped employees at his restaurant is close to $17 an hour; entry-level employees start at a little less. He commented that the minimum-wage increase would impact his highest paid employees, not his lowest paid. MR. MacDONALD explained that he has incentives to try to retain his employees. He pays for a medical-drug card; dental coverage with a $250 deductible; up to five weeks of vacation a year, if an employee has five years with the company; and tuition for college. He tries to attract upwardly mobile employees that will stay around longer. If the minimum wage is increased, he won't be able to provide all of the benefits and isn't sure what the state would prefer him to do. Number 1609 REPRESENTATIVE HALCRO asked Mr. MacDonald how the benefits he offers compare with those of other employers in the industry. MR. MacDONALD said he guesses that his margins are probably less at the end of the year. He said the insurance payment for his employees is the second-highest check he writes each month, $4,400 to pay for the health insurance. He said he charges more for his burgers because his employees have these benefits. Increasing the minimum wage puts the burden on him to increase the minimum wage when workers are making much better than that because of their average table turnover. He said his employees would rather serve two more tables [an hour] than receive an increase in their wage because it far outweighs what they will earn. Number 1685 REPRESENTATIVE HALCRO said two weeks ago during public testimony on the bill, another owner of a similar-type restaurant said his concern was one of economic theory. He said raising the minimum wage creates a displacement, where more is required of the senior employees, and it actually reduces the number of entry- level employees. MR. MacDONALD said his current burden would be the cooks, who see that a server is getting an increase and will be wanting it too; it pushes up all his costs across the board. He doesn't believe that he will be able to pass on this increase [to the customer]. Number 1752 JACK LEWIS, Sourdough Mining Restaurant, and Peanut Farm Restaurant, Anchorage, via teleconference, commented on Mr. Frey's statements earlier in testimony. He said he has 200 employees, with 100 hours a day of tipped employees who earn far from the minimum wage. When he tries to get his employees to move into management, they are not sure if they can take the pay cut. He mentioned that most of his management people are paid $40,000 to $50,000 a year. The food and beverage industry needs serious consideration because it may have absorbed the last increase, but he isn't sure what will happen during the next go- around. Last time his companies were able to look at price increases; this time, he will be looking at across-the-board cuts. He would also have to give up his "green membership," which is a $5,000 contribution to the university. MR. LEWIS pointed out that "we" offer a lot to employees in the industry, especially the tipped employees, because they have very flexible hours. He commented that today's labor force is incredibly untrained, and he hasn't faced anything like this during his 30 years in the business. He said he is hiring people "from scratch" and teaching them the basics of food training and handling, which is a time-consuming and expensive task. He stated that many of his minimum-wage people are mothers who are second-income earners. He said they are making upward of $30,000 a year for four and five hours a night, and are able to have a flexible schedule. MR. LEWIS said he has a set business formula, and an increase would make him search somewhere to offset the costs. He asked the committee to consider what the food and beverage industry brings to the communities, prior to passing another increase. Number 1955 REPRESENTATIVE HAYES asked Mr. Lewis why he didn't invite some of his employees to testify, those making the wages he mentioned in his testimony. MR. LEWIS said he would be happy to arrange to have people tell the committee what they make. He said he doesn't employ anyone who makes only minimum wage. He mentioned that he has some challenged employees and pays them above minimum wage; he is not taking advantage of some of the government programs. MR. LEWIS said he probably has 100 tipped employees and guesses his costs associated with reportable tips to be $8,500 per month for one of his businesses. REPRESENTATIVE HALCRO asked Mr. Lewis if it would be safe to say that if he has employees who are getting a tremendous amount of tips, that would translate into better customer service, and, therefore, the customers would be repeat customers. Number 2101 MR. LEWIS replied that if employees are not getting those types of gratuities, then chances are they are not professional servers and won't be around long. The servers look at themselves as professionals and are not even called "wait staff" anymore. He said it is a very lucrative business. REPRESENTATIVE KOTT ask Mr. Lewis what the industry would think if the state passed legislation similar to that in Europe, where a 15 percent gratuity is attached to a customer's check. MR. LEWIS responded that for Americans, this in not "our cup of tea" and we don't like to be told what has to be left on the table. Number 2238 ROBERT SITER, Owner, Gwin's Lodge, via teleconference, said Mr. Frey from the AFL-CIO had implied that the tip-credit allowance is not a national norm; he said this is incorrect. According to the nation's restaurant news magazine - which compiled a list of the top 50 cities, restaurants, and countries, including 29 states and Washington, D.C. - all but five states have a tip- credit allowance. He pointed out that it is not something that would cause Alaska to get ahead of the rest of the country because Alaska is actually lagging. He said the tip credit is an important element to help business owners strike a balance between the tipped and non-tipped people. MR. SITER said he thinks the tip credit is an essential element. He could give the non-tipped people a bigger raise if he had more flexibility in how he deals with the mandated raises for people who don't need it and aren't looking for it. Number 2324 REPRESENTATIVE KOTT echoed Mr. Siter's comments and said it sounded as if Mr. Siter would be supportive of a minimum-wage increase if it could be offset with a tip credit. MR. SITER said he already pays above what the bill calls for, and he believes that it will increase prices indirectly. He said for him, the "tipped-out employees" would be where he would feel the impact. Responding to a question about tips being an indicator of customer service, Mr. Siter said [tips] reflect the entire operation. When customers tip, they are tipping the whole business, realizing that wait staff are the frontline of customer service. He pointed out that good tips bring back employees, and said he hasn't lost a waitress in six years. MR. SITER, responding to a question about his lodge's tip pool, said 15 percent goes to the people in the kitchen, and the wait staff see it as a good situation. TAPE 01-18, SIDE B REPRESENTATIVE CRAWFORD said even though it says that 43 out of the 50 states actually have a tip-credit law, they don't all recognize a credit for tips. California has a tip-credit law but doesn't allow tip credits, and it varies throughout the states. For example, Hawaii allows a 20-cent tip credit if one can prove that he or she has gotten 70 cents an hour in tips. He said Alaska would be the only state on the West Coast that would have a tip credit, if it were enacted. Number 2438 MR. SITER said ironically, that anomaly aligns well with the fact that the West Coast states also have the highest minimum- wage rate; obviously, there is philosophical thing that aligns the two factors together. REPRESENTATIVE HALCRO said he is having a hard time understanding why the legislature would punish or take away tips from someone who receives tips by doing a good job. He said he is not sure how the tip credit helps employers. Number 2396 MR. SITER responded that he is no expert on it, but his understanding is that as long as these employees are getting tips and can be guaranteed that they are making at least minimum wage with tips, then there is a wage credit for that amount of tips based on what the state establishes. He said [the different programs between states] range from as low as $.40 in Hawaii to $3.26 in Rhode Island, but most are between $2.00 and $3.00 an hour. The idea is by having the credit, employers can spread around the wage rates to where they are having the most difficulty in retaining employees. He said he thinks the industry brings more to the table for tipped employees than for others. CHAIR MURKOWSKI said there has been a good discussion of the possible options, and mentioned that at some point a subcommittee will "hash it all out." She said members also need to understand how the tip credits work. REPRESENTATIVE HAYES mentioned that the Cabaret Hotel and Restaurant Retail Association (CHARR) industry was going to be providing the committee with information and asked if staff could contact them to get the information that the DLWD didn't have. CHAIR MURKOWSKI commented that there were letters distributed to committee members from individuals who were not necessarily associated with CHARR. She pointed out that Mr. Sutherland from Wendy's Restaurant, who testified via teleconference, is the chairman of the Anchorage Restaurant and Beverage Association (ARBA), and Mr. Jack Amon, who testified at the first hearing, was also on the board of ARBA; she said they would follow through with that and get the information to the committee. She thanked the DLWD for the information they provided. [Committee staff noted that Kace McDowell, Executive Director, CHARR, had called to listen-only online, but was not listed to testify.] REPRESENTATIVE KOTT commented that there had been few people who testified online in opposition to the bill, when considering the number of businesses and restaurant owners in this state. He said the committee heard from about six. REPRESENTATIVE KOTT said the tip credit is a redistribution of wealth and "we" are punishing someone from providing a good service. He said if "we" were going to move in the direction of a credit, he would rather give employers a tax credit, since they are paying 11 percent on costs that they can't control. [HB ADJOURNMENT There being no further business before the committee, the House Labor and Commerce Standing Committee meeting was adjourned at 5:55 p.m.

Document Name Date/Time Subjects

02/14/2001 03:20 PM House L&C

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