Facing complaints from the hotel industry, cash-strapped San Diego backed away Wednesday from plans to generate $2.2 million a year from wage enforcement fees to be paid by local businesses.
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City officials say the fees are justified because they would cover the salaries of city workers who make sure businesses comply with San Diego’s minimum wage, new hospitality wage and other special wage rules.
But local hoteliers say the proposal is riddled with problems, would unfairly impact hotels more than other businesses and might violate state law by applying flat fees to hotels instead of per-worker charges.
In a sharply worded letter sent to the city Tuesday, the county Lodging Association also complained that city officials didn’t take the usual step of meeting with affected businesses before proposing the new fees.
“The proposed fee is inequitable, unsupported by enforcement data and inconsistent with the statutory requirement for a fair and reasonable allocation of costs,” the letter says. “We urge the City Council to adopt a more balanced, proportional approach that maintains enforcement funding without imposing disproportionate burdens on targeted hotels.”
The proposed fees had been scheduled for preliminary approval Wednesday by the City Council’s budget committee, but the proposal was withdrawn before a public hearing and committee vote could take place.
City officials didn’t respond Wednesday to any of the complaints and concerns raised by the hoteliers. Councilmember Henry Foster, chair of the budget committee, simply announced that the proposal needed more study.
“Item 6, the user fees to support the Office of Labor Standards and Enforcement, will be returned to staff for further analysis,” Foster said just after the meeting began.
In a staff report describing the proposal, city officials said the user fees would simply allow the city to recover its costs for enforcing wage laws and helping businesses understand those laws and how to comply with them.
“The proposed fees are intended to align the city’s applicable regulatory costs with the businesses, permittees, contractors and covered payor groups that create the need for city administration, monitoring, investigation, outreach, enforcement, system administration and reporting,” the staff report says.
The proposal would create three new wage enforcement fees and would hike by 68% a minimum wage enforcement fee the city created last summer.
The new fees would cover enforcement of the city’s new hospitality wage, which took effect July 1, along with the city’s traffic control worker wage, which took effect in 2023, and a compliance system usage fee for city contracts.
The hike in the minimum wage enforcement fee is expected to boost annual city revenue from that fee from about $730,000 to about $1.3 million. The fee would rise from $1.47 per worker to $2.47 per worker.
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The staff report does not explain why the costs of city enforcement have risen 68% in just one year.
The traffic control worker minimum wage, which only affects workers handling traffic at major happenings like concerts and sporting events, is more than $70 an hour. The enforcement fee would be $39 per event, raising an estimated $360,000 per year for the city.
The compliance system usage fee would cover enforcement of city contract provisions on contractors, including prevailing wage and living wage rules. It would also enforce rules in project labor agreements and equal employment opportunity requirements.
It would generate an estimated $318,000 per year.
The city’s hospitality wage, which will raise hourly wages at hotels and some entertainment venues to $25 an hour by 2030, was approved last year and took effect July 1.
Instead of being calculated on a per-worker basis like the minimum wage fee, the hospitality wage fee would charge each eligible hotel and entertainment venue a flat annual fee of $2,131.
The hospitality wage and the enforcement fee only apply to hotels and motels with 150 or more rooms — roughly 110 properties. Another 170 or so hotels in the city are smaller than that and will continue to pay the minimum wage enforcement fee.
The fee is expected to generate an estimated $234,000 a year for the city.
The Lodging Association letter, which was written by executive director Fred Tayco, says charging hotels a flat fee could violate Proposition 26’s requirements that fees not exceed the reasonable cost of providing a service.
“The proposed methodology strays from Proposition 26, resulting in a fee that is disproportionate, arbitrary and inconsistent with the statutory requirement that user fees reflect a ‘fair and reasonable’ allocation of enforcement costs,” Tayco says in the letter.
He also argues that the proposed $2,131 fee would only make sense if the affected hotels had far more workers than they actually do.
Tayco also stressed that San Diego’s proposed fees would be unusual, noting that San Francisco and Los Angeles don’t charge any wage enforcement fees.
“The lodging association stands ready to work collaboratively with city leadership to develop a fair and effective alternative,” Tayco said in the letter.
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