At first glance, the campaign to raise the city of Santa Cruz's minimum wage looks like a great idea. With our city periodically topping the list of least affordable places to live nationwide, who would object to raising the minimum wage to $9.25 an hour?

Many local business owners, that's who. They worry that the proposed $2.50-an-hour hike would leave them at a severe competitive disadvantage--unless it simultaneously happens statewide.

Clouds owner Lou Caviglia doesn't mince words when talking about the initiative, which needs 3,338 signatures to qualify for the November ballot, and would kick in Jan. 1, 2007. The hike would apply to those who work for more than two hours a week, with two exceptions: UCSC and businesses with 10 or less employees.

"At first I thought it was a joke, because there doesn't seem to be a lot of thought behind it, " says Caviglia, who points out that the 2004 minimum wage hike in San Francisco, which initiative proponents are citing as supporting evidence, happened city- and countywide, whereas this only affects businesses within our city.

"That means that on one side of Seventh Avenue you'd have one pay scale, and on the other side, a different one, so, why would anyone open a business within the city of Santa Cruz?" asks Caviglia, predicting that anyone whose business is not location-dependent will move.

Caviglia also worries where the initiative, which would be indexed and could require a 25 cent-50 cent annual adjustment, will lead.

"It's not impossible that the minimum wage could be $18 an hour in 10 years and that 15-year-olds with no work experience could be making $10-$12 an hour within two years," says Caviglia, noting that restaurant servers can already make $15-$25 an hour when tips are factored in on top of their wages. "If this initiative passes it will be the end of Santa Cruz as we know it. Coffee shops will be charging $15 for omelettes in this podunk town. The entire city will become a ghost town."

Acapulco Restaurant owner Mark Guluarte worries that the initiative will have businesses and shoppers going to Live Oak, Soquel, Capitola or Scotts Valley and that the restaurant industry will be particularly devastated.

"We try to keep prices low and ingredients really good, but if this happens, we'll have to raise prices, limit hours or work for someone else--and put 38 employees on the street," Guluarte says.

Seaside Company representative Kris Reyes believes the initiative will give "chain stores a competitive edge, because they can better absorb the costs." Noting that, at the height of the season, the Seaside Company hires 1,200 employees (1,600, if you include concessionaries like Marini's), Reyes says the initiative would impact "the family-owned Seaside Company's ability to stay open year-round and compete with corporate parks like Great America and Six Flags."

Another source, who asked to speak off the records, dismissed the initiative as "a deeply flawed proposal that's politically irresistible in Santa Cruz," while some local politicos are wondering if it's aimed at destroying Mayor Cynthia Mathews and Councilmember Mike Rotkin's chances of being re-elected this fall.

Demolition Opposition

Such reactions will not easily sway Nora Hochman of WAJE (Working Alliance for a Just Economy). A longtime labor activist, Hochman views the initiative as "an important step" toward economic justice for workers.

"If you were paid $9.25 an hour and worked for eight hours, seven days a week, all year, you'd only make $19,240--before taxes. And restaurant workers with four six-hour shifts every week would make $11,544," says Hochman, who argues that the initiative may impact the profit margins of local businesses, but not their ability to do business.

"A dollar earned on one side of the street is money spent on the other," says Hochman. "If we value the low-wage service sector, we must pay them responsible wages--and responsible consumers will patronize those businesses that pay responsible wages."

Speaking outside City Hall at a Jan. 17 rally to support the launch of the WAJE initiative campaign, Councilmember Tim Fitzmaurice insisted that there are similarities between Santa Cruz and San Francisco, which raised its minimum wage to $8.50 in 2004.

"We're both tourist economies--and heavily reliant on immigrant employment," says Fitzmaurice.

Acknowledging that "business owners are concerned" and that "quality costs something," Fitzmaurice claims that statistics show that when wages go up, productivity and efficiency of employees also go up.

"Even Schwarzenegger says the minimum wage needs to be raised," adds Fitzmaurice, referring to the governor's plan to boost the current $6.75-an-hour state-mandated minimum wage in two phases: 50 cents in September and 50 cents in July 2007. "The question is, how much does it need to go up to be commensurate with the cost of living?"

"Economies are not actually the way people pretend they are," says Fitzmaurice. "It's not as simple as a straight supply and demand. People think that somebody's wage has to go down if another's is going to go up. They assume that there is this fair balance already, but just look at the chancellor's salary and you can see that that's not the case."

Speaking alongside Fitzmaurice, WAJE member David Sweet claims that there is no evidence that increasing the minimum wage is bad for business.

"It might even be good if people have more money in their pockets to spend on local businesses. We wouldn't be doing this if we thought it was going to hurt small businesses."

Joining Fitzmaurice and Sweet, Councilmember Emily Reilly, who owns Emily's Bakery on Mission Street, describes the move to raise minimum wage within the city as a "high point" of her career as a business owner in Santa Cruz.

"You folks support businesses like mine even though you could go down the street and get something cheaper at Safeway," Reilly tells the initiative's supporters. "I welcome this challenge as a business owner, and I will embrace it as enthusiastically as I can."

Reilly has since been criticized by many local business owners for not launching a series of community conversations, as she did midway through last year's Coast Hotel debate, before signing up in support of the initiative. But as she points out, the proposal "is not a City Council action. It hasn't been on our agenda."

The way she understands it, "WAJE organizers have said that for them the community conversation will take place over the next several months via the signature gathering process and ultimately the vote. I intend to provide other opportunities for us all to talk about it as well ... and I look forward to those meetings. ... I don't have the answers, but I know that it is vital that we act from compassion and gratitude, not react out of fear."

"The lowest-paid people are providing a vital service to our local economy; we need to pay them a higher wage. I'm confident that if we work together, we can do it. And we can do it in a way that will be sustainable."

But judging from Hochman's remarks, WAJE believes it knows where the business community will come down on this particular issue.

Hochman recalls that during the last living wage campaign employers told her that they were going to shut down, leave town, lay off workers--and that owners would have to step up to the cash registers and there would be less money for philanthropy.

"And nothing happened," Hochman claims. "No vendors closed, no one lost their jobs, no government hours were cut."

Claiming that the employment rate actually went up in S.F. following the implementation of higher wages, Hochman says, "In the restaurant business, you need the same number of workers to maintain your customer base. So, we think that what will really happen, is we'll get the signatures to qualify this petition for a ballot, and that business will ultimately raise its prices to its customers. And we want to patronize business that pay at or above minimum wage. We understand that business owners are concerned--and we know that quality costs something. Statistics show that when wages go up, productivity and efficiency of employees goes up as well."

Burden of Proof

Joe Marini, spokesman for the Locally Owned Business Alliance, challenges WAJE's belief that downtown businesses can pass hikes without detrimental effect.

"How do they know that?" he asks. "The burden of proof isn't on the businesses to show that this won't hurt. What research does WAJE have to say the city can support it? The organizers of the initiative have an obligation to voters to back up their claims."

But far from simply slamming the initiative, the local business community is taking a proactive approach. They have banded together to commission some independent financial analysis, which they plan to present at the Jan. 24 City Council meeting. Plans are also afoot to launch a counterinitiative--a move they need to make fast, since April is the deadline to qualify initiatives for the November 2006 ballot.

Chocolate owner David Jackman says raising the minimum wage is a great idea, but that the community needs an initiative that everyone can get behind. He and other businesses are suggesting a counterinitiative, which would include an $8.50-an-hour minimum wage, with exemptions for under 18-year-olds, a $7.50-an-hour minimum wage for servers who get tips, plus a 30-day training wage and a tie-in to annual inflation.

"We don't want to see this particular one defeated and have to start from scratch," says Jackman. "We want to see a better initiative on the ballot."

Bookshop Santa Cruz owner Neal Coonerty tells Metro Santa Cruz that, while the Locally Owned Business Alliance (LOBA) is planning to express its concerns at the Jan. 24 City Council meeting, he thinks it's unlikely that there will be time to get a competing initiative onto the 2006 ballot.

Faced with a shortfall of Santa Cruz specific data, LOBA has hired Civic Economics.com to predict the impact of WAJE's initiative on the city. Coonerty says he's familiar with CivicEconomics.com, because they did a study of the differences between locally owned indie stores and chains, and the impacts of big box stores on communities.

According to Coonerty, LOBA's concerns include WAJE's lack of dialogue with the business community; lack of data about the potential effects of the measure on the supply of jobs, job benefits and salary structures; and the fact that the initiative is indexed, something that could lead to minimum wages of $13.05 an hour in 10 years, if inflation is at 3.5 percent.

"Unlike the San Francisco initiative, this proposal has no exemption for labor union contracts, teenagers, work-to-welfare or nonprofits," Coonerty said.

Noting that the other city WAJE cited in its supporting arguments' studies is Santa Fe, where the closest competition is 80 miles away, Coonerty says he fears the benefits that he provides his employees, including health insurance, vacation and a 401(k) plan, will be eroded if the WAJE initiative passes.

"I can't raise book prices," says Coonerty, who finds it "odd that a labor coalition would take everything off the table, except the hourly wage."

Coonerty also worries that Goodwill Industries, which runs job training programs from its Santa Cruz headquartets, will be forced to move its operation to Watsonville, and that Hope Industries, which is responsible for the orange-jacketed crews of street cleaners, will be forced to reduce crew sizes.

"There are more questions than answers," Coonerty says. "Maybe WAJE's initiative is a case of good intentions, bad ideas."

Leyna Krow contributed to this article.

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