Wages of Pain For Non-Profits

When L.A. Mayor Eric Garcetti announced a plan to increase the minimum wage by nearly 50 percent, business leaders warned it would pressure companies to lay off workers or raise prices, hurting the economy. But what about non-profits that can’t raise their prices? Jan Sobel, chief executive of the Boys & Girls Club of the West Valley, estimates the higher wage would raise her labor costs by $500,000 a year. For an organization with a total annual budget of $1.7 million, that’s a big nut to swallow. “We either cut programs or raise money,” Sobel said. “Believe me, if I could raise half a million dollars I would be doing it now.” The Canoga Park club helps about 3,000 children, with 80 percent coming from families below the poverty line. It charges $35 a year to take care of one child after school until the parents get off work. Garcetti’s proposal would increase the minimum wage to $13.25 an hour by 2017, up from its current level of $9 an hour. The effect of that higher wage could reduce the number of working parents the club can accommodate. Sobel said her workers are mostly college students who make $10, but when the minimum wage goes up, market forces push up the wages for those making slightly above it. Of the total payroll of 60 employees, 20 earn near the minimum wage level. “We want our parents to have more disposable dollars for food and rent,” she said. “But we have to look at how it will impact our ability to help these same families. That’s the push-pull for us.” Sobel is not the only non-profit leader complaining. Cynthia Sewall is chief executive at New Horizons, a North Hills organization that helps developmentally disabled people find jobs. It operates a sheltered workshop that fulfills contract orders and also has about 200 clients placed directly at local companies, including NBCUniversal in Universal City, Valley Motor Center Autobody in Van Nuys and Vallarta Supermarkets Inc. in Sylmar. The organization has a payroll of 360, with 120 employees receiving the minimum wage. They are the trainers and teachers who work directly with the disabled. Sewall said for-profit companies can lower profit margins or increase efficiency to compensate for higher wages, but neither solution works for non-profts. “There is no fat left for us to trim. This city proposal, a 50 percent wage increase, will put some non-profits off the map,” she said. Competitive pressure Ken Tiratira, chief operations officer at HR consultancy Employers Group in El Segundo, agreed that cutbacks in non-profit services such as daycare centers could have a big impact on low-income workers in the private sector. “That employee will have to find alternate resources, or decide they can’t afford to work and stay home to watch their child,” he said. Christopher Thornberg, a partner at Century City consultancy Beacon Economics, believes that in a county with scores of cities, some businesses will simply move to those that have not adopted the higher wage. He said a minimum wage raise should be adopted at least statewide and preferably nationally. “Doing it at the local level is a disaster waiting to happen,” he said. He also is critical of the study produced by a research organization at the University of California at Berkeley that Garcetti relied upon to support his proposal. Thornberg said it ignored certain sectors of the economy, including non-profits. Sobel, who gets most of her funding at Boys & Girls Club from private donations, thinks the City Council should at least lengthen the time for phasing in the higher wage beyond the current target of 2017. “Rolling it out over a longer period of time would allow us to catch up,” she said. One solution that Sobel knows won’t work because of competition in the market is an exception for non-profits. If a college student had to choose between tutoring math at a daycare center for $10 an hour or flipping burgers at a fast-food restaurant for $14, it would be an obvious decision, she said. Councilman Bob Blumenfield, who supports the minimum wage increase and whose District 3 includes the West Valley, has initiated an effort to assist non-profits by increasing state reimbursements. Blumenfield presented a resolution to the Council on Oct. 10 asking that the city dispatch lobbyists to Sacramento to advocate an increase in the monies given to non-profits “so that they reflect cost variables such as local minimum wage.” Blumenfield also was among the councilmembers last week who asked for a new study of the mayor’s wage proposal to gauge its effects on non-profits and small businesses. “It is crucial that leaders in the State take into account cost of living and local minimum wage when setting reimbursement rates,” he said, in a blog post. The mayor’s office did not respond to an email request for comment. Buying time Thomas Backer is executive director at Valley Nonprofit Resources, an organization on the campus of Cal State Northridge that supports the estimated 4,500 non-profits in the Valley. He believes corporate and individual foundations should increase their donations to human service non-profits, at least as an interim solution. “If a non-profit has to suddenly increase its payroll, figuring out how to make it work takes time. If you can buy some time, you have a better chance of navigating the storm,” he said. Not many in the non-profit community expect a spike in donations given how difficult it is for them to raise funds as it is. In the meantime, they are shaking their heads over the irony of the whole situation and its unintended consequences. “I don’t believe the mayor or the City Council thought for a second how this would impact non-profit organizations,” Sobel said. “All they thought was, ‘Let’s get more money to the lowest earning families and get them off assistance.’ But we are here to help those families, and if we have to cut services, who will be hurt the most? The same people the minimum wage is designed to help.”