Is A More Liberal Minneapolis Bad For Business?
Editor's Note: This story, which runs in our January 2017 issue, delves into Minneapolis' business climate and the impacts of the city council's attempts to raise wages and alter workplace policy. In a subsequent article, TCB talked with one business owner who fears he might have to relocate if the city's minimum wage rises. That story can be read here.
Three years ago, the voters of Minneapolis elected a mayor and city council who have presided over a tenure with an aggressively liberal policy agenda, whose reforms fall hardest on the backs of business.
Mayor Betsy Hodges unveiled the effort in 2015 under the label Working Families Agenda (WFA). It represented the legislative priorities of a coalition of organized labor and grass-roots reformers, exemplified by first-term councilmembers Alondra Cano and Lisa Bender and three-term Green Party councilmember Cam Gordon.
“There have been some big, really liberal cities pushing the envelope on this,” says Mike Hickey, state director for the National Federation of Independent Business, referring to efforts to boost wages and benefits through new laws. He says that a $15-an-hour minimum wage would have a “real negative impact” on local business owners.
“In Minneapolis we have one of the most liberal activist agendas in the U.S.,” explains Larry Jacobs, professor at the University of Minnesota’s Humphrey School of Public Affairs. “They are seeking to accomplish at the municipal level what isn’t being done at federal level.”
The 2013 city elections ushered in an exclusively DFL/Green mayor and city council dominated by social justice and policy activists; only a few have any background in business.
The Other Minimums
l Federal minimum wage: $7.25 an hour
l Minnesota minimum wage, large ($500K revenue) employers: $9.50/hour
l Minnesota minimum wage, small employers: $7.75/hour Starting in 2018, the state minimum wage will be automatically increased at the rate of inflation and other criteria.
l Living wage: $12.85/hour Minneapolis requires businesses that receive at least $100,000 in city assistance pay a “living wage.” (Based on 110% of the federal poverty rate for a family of four.)
And the door is wide open to progressive idealists. “There is greater openness to the activist community than [to] business right now,” says First Ward Councilmember Kevin Reich. But the issue isn’t mere receptiveness. “Some of our council sees business as a negative force, an exploitative thing,” says Fifth Ward Councilmember Blong Yang.
The city’s economy is thriving; the question is whether its leaders recognize business’ role in that prosperity. “I grant you that business creates vitality but is often disregarded,” says Third Ward Councilmember and mayoral candidate Jacob Frey. “A lot of business climate is mentality. Entrepreneurs want to be wanted.”
It’s hard to gauge the impact of measures planned by the City Council because none are yet in effect. The City Council voted in August against using a charter amendment referendum as a vehicle for raising the minimum wage to $15 an hour. Wage activists sued the city and won the first round when a Hennepin County judge ruled that the issue could be put to a vote on the ballot. But that was nixed by the Minnesota Supreme Court, which sided with the city. The council will take up the issue again this year.
Another proposal that rankled business leaders was an effort to require employers to schedule shifts up to 28 days in advance, referred to as “predictive scheduling.” Mayor Hodges withdrew those plans in October 2015 in response to objections raised by businesses with volatile labor patterns, such as restaurants.
The city’s “sick and safe time” compensation ordinance, passed unanimously, will eventually apply to companies with six or more employees, but is not slated to take effect until July 1. The Minnesota Chamber of Commerce sued the city in October in Hennepin County District Court to invalidate the measure and is seeking court injunctions to block it.
Nonetheless, times are good. An analysis of statistics from the city’s Minneapolis Trends report shows the city adding jobs in recent years. From fourth-quarter 2013 to fourth-quarter 2015, Minneapolis added more than 13,000 jobs, increasing 4.3 percent to a total of 318,909.
Over the period, retail jobs in the city were up 4.7 percent, and accommodation and food services category jobs were up 9.2 percent. While the city does not track restaurant openings, liquor licenses are up 10 percent.
The apartment building boom has been one factor driving the city’s growth. Based on 2013 population estimates, Minneapolis topped 400,000 residents for the first time since the 1970s. The value of construction permits in the city has topped $1 billion for five consecutive years. Before 2012 the value of such permits in Minneapolis was below $1 billion for 11 straight years.
A Shift Left
In the midst of prosperity there was a shift in 2013 city elections from a more pragmatic city leadership, exemplified by the previous mayor, R.T. Rybak, to a more ideologically driven government. “I’m a pretty liberal person,” says Johnson, a lifelong Democrat, “but I get painted as a right-winger in this environment.”
The current politics has its roots in the New York City fast-food workers’ strike of 2012. “That fight helped create a narrative under which various states and municipalities have sought to increase minimum wages and raise other worker standards,” says Service Employees International (SEIU) Local 26 spokesman Josh Keller. Local 26 is “part of a faith, community, and labor coalition” pressing on these issues, he says.
For the union it’s good policy and good business. “The SEIU is looking to expand aggressively,” explains the U’s Jacobs, “and is working on public policy it sees as connected. They found no success in D.C.”
In Minneapolis they have found low-income communities of color “on fire” over social justice, says Veronica Mendez-Moore, co-director of the Center of Workers United in Struggle.
“By involving neighborhood organizations in their coalition, [the SEIU] has made it difficult for people like Mayor Hodges to be on the sidelines,” says Jacobs. “Thus the Working Families Agenda.”
“There is definitely more targeted pressure on us on workplace issues,” says Reich. “It’s focused, strident.”
And as far as the WFA was concerned, inflexible. “I get why business thinks Minneapolis is not friendly,” says Yang. “The Working Families Agenda was presented to us as non-negotiable.”
Which makes for a one-sided debate. “The resource that business has an unequal share of is money,” says Jacobs. “Organizers have networks of people. On a municipal level, that is more effective, and business is not set up to work from that tool kit. Business is at a structural disadvantage in the city.”
“My ward is mom-and-pop businesses,” says Johnson, who represents the city’s far north side. “They’re busy running their business. They can’t spend days hanging around City Hall.”
Some of business’s reticence to speak goes deeper than time constraints. “In the current environment, individual business people are scared of being labeled racist and boycotted, so they shut up,” says Yang. “It’s a bad cocktail for good policymaking.”
The current political climate is so ideologically polarized that even mainline liberals on the council find themselves under harsh critique. “It’s all or nothing and it permeates a lot of things,” says Johnson. “People are not listening to each other.”
Court Battle Looms
This year is shaping up as a challenging one for business and the few councilmembers trying to maintain an inclusive posture toward it. The Minnesota Chamber is hoping for favorable outcomes on its lawsuit and help at the Minnesota Legislature on legislation to preempt future municipal wage and benefit laws.
The City of Minneapolis is the largest economic engine in the state. The chamber’s lawsuit marks the first time that the group has ever sued the city. Litigation was a “last resort,” says Cam Winton, director of energy and labor-management policy for the Minnesota Chamber (Winton ran for mayor in 2013). He says that the chamber’s efforts to raise concerns through the city’s Workplace Regulations Partnership Group and other venues went nowhere.
“Our input fell on deaf ears . . . . It became clear to us that the workgroup was a kangaroo court,” says Winton. “The Minnesota Chamber saw no choice but to use the legal process.”
Winton does not have metrics to illustrate the impact of similar policies on businesses in other cities. “I don’t have hard data,” he acknowledges, but adds, “I think fewer businesses will start in Minneapolis and St. Paul.”
The chamber is joined in the lawsuit by five co-plaintiffs: the Minnesota Recruiting and Staffing Association, the National Federation of Independent Business, the TwinWest Chamber of Commerce, Graco Inc. and Otogawa-Anschel General Contractors and Consultants LLC.
The chamber’s core argument is that the Minneapolis sick leave ordinance conflicts with state law. The suit also makes the case that the state has extensive employment laws on the books and that efforts like the Minneapolis policy would create a confusing and complicated patchwork of local rules throughout the state. (The chamber did not offer a reason why it is not suing the City of St. Paul, which has adopted a similar policy.)
In its response, city attorneys frame the “sick and safe time” ordinance as a public health issue. But ultimately the city argues that state law does not ban or conflict with the city’s power to pass such a law. Handicapping the lawsuit’s prospects is not clear-cut, according to attorneys who specialize in workplace issues.
“Certainly state law is not absolutely clear,” says Kristin Berger Parker, a partner with Stinson Leonard Street.
The chamber is joined in the lawsuit by a large company that has an 90-year history in the city of Minneapolis: pump and spray equipment maker Graco Inc., which generates $1.3 billion in annual revenue.
“We feel that this is a slippery slope . . . if this stands, we have no idea what the next mandate will be,” says Charlotte Boyd, a Graco spokeswoman.
Would Graco move jobs out of Minneapolis in response? The company isn’t saying, but is also not emphatically dismissing the possibility. “The legal action is intended to secure our future and the future of other businesses in Minneapolis,” says Boyd. “Like any business, pending the outcome [of the lawsuit], we’re always evaluating all of our business options.”
The 3,580-employee company has 790 employees at its headquarters along the Mississippi River in northeast Minneapolis. The company also has 190 employees in Anoka and another 650 workers at two facilities in Rogers.
Business leaders point out that the new ordinance is problematic for companies with multiple locations or a mobile workforce because in some cases it reaches beyond the city limits. The new law would apply to any employee who works at least 80 hours a year in Minneapolis, even if the employee is based in another city. Boyd says that would create an administrative headache. ”We need the flexibility to be able to move our employees between locations,” says Boyd. “If one division is slow, instead of cutting back on hours . . . we can move them to a different city. It helps our employees with job security.”
Graco does not offer employees sick pay. Boyd says the company replaced its paid sick leave in 1997 with a 2.3 percent increase in worker’s pay, which is meant to cover the cost of sick time. “Our employees understand that they’re getting paid for that.”
If the city’s policy survives the legal challenge, Boyd says it’s not yet clear how the company would modify its policies and procedures to be in compliance. “We would really have to overhaul how our employees are paid for sick time,” says Boyd. “We haven’t made a decision on what exactly we’re going to do.”
Plymouth-based Select Comfort Corp. plans to move its headquarters and more than 900 employees to downtown Minneapolis this fall. The Sleep Number bed manufacturer and retailer posted sales of more than $1.2 billion in 2015.
“Our decision to move downtown was not significantly influenced by any recent action by the City Council,” says Select Comfort spokeswoman Susan Eich. “That said, like many Minnesota employers, we have concerns about one-size-fits-all mandates that reduce flexibility for employers to manage their businesses.”
Many white-collar employers already offer sufficiently generous wages and benefits to render city mandates moot. Manufacturing jobs, for example, account for only 4 percent of all jobs within the city of Minneapolis. While state labor statistics don’t track or define “white collar” jobs, four sectors—information, finance and insurance, professional and technical services, and management of companies and enterprises—total 29 percent of jobs in the city.
A Legislative End-run?
The Minnesota Chamber and other business groups will back efforts in 2017 to pass so-called preemption legislation at the state Legislature. It would explicitly prevent cities from passing laws such as the Minneapolis sick time ordinance. Efforts to do so in recent sessions have failed.
“We do not have a law in Minnesota that explicitly prohibits cities from passing this type of law,” says Dan Prokott, a partner with Faegre Baker Daniels. “And the fact that the legislature has tried to pass bills that would explicitly preempt these types of laws indicates at the very least there is a lack of clarity in the current law.”
Opponents see preemption as a likely prospect. “There is a good chance the Legislature will pass a preemption bill this session. It is a high priority of the business lobbies. It had traction even in the special session negotiations this fall. But I can’t see the governor signing it,” says Chris Conry, economy program manager for the St. Paul-based TakeAction Minnesota, an advocacy organization which supports wage and sick time measures. One of his top priorities at the 2017 session, he says, is stopping preemption.
The Fight for $15
The activist community’s primary push this year will be on the $15 minimum wage.
“Minimum wage will come up,” says Frey. “It would be best without electoral politics. We need real engagement from all sides, but I fear a scenario where all-or-nothing approaches dominate.”
Minneapolis is not an island. The battle for higher minimum wages is being fought in cities across the U.S. Several have already adopted laws to ultimately boost the minimum wage to $15 an hour.
- New York City: Minimum wages are set to increase to $15 an hour for companies with 11 or more employees by 2018; for smaller companies, it’s 2019.
- Seattle: The wage will be increased to $15 an hour in stages.
- San Francisco: Voters approved a ballot initiative. The minimum wage is slated to hit $15 an hour in 2018.
- Los Angeles: The City Council voted to increase the minimum wage to $15 an hour by 2020.
- Washington, D.C.: The City Council voted to increase the city’s minimum wage to $15 an hour by 2020.
In November, voters in Arizona, Colorado, Maine and Washington approved ballot measures to boost their minimum wage. Most will boost in stages to $12 an hour in 2020; Washington will raise its minimum wage to $13.50 under the same timetable.
The political dilemma for the mayor and council is that most expect electoral challenges from the left in November. “The challenges are about $15 and other aspects of the working family,” says Jacobs. “[The activist community] didn’t get [what they wanted quickly enough] and they are exacting their pound of flesh.”
The mayor was one of the first to face opposition, when former NAACP President Nekima-Levy Pounds announced her candidacy in November. Observers expect the council challenges in North Minneapolis to be focused on a racial equity agenda, while in the south of the city aspects of the WFA or even issues of density and bike lanes will be prominent. “These are young, idealistic people without a lot of life experience,” says Johnson; they are more than happy to take on other like-minded, but more reflective, policymakers.
The fear among business interests is that business-sensitive councilmembers will tilt left in the face of absolutist challenges. “There is no nuance to their perspective,” says 13th Ward Councilmember Linea Palmisano, who represents the city’s moderate southwest corner and expects a challenge from the left. “You’re simply not progressive enough.”
But many turn to the city for these measures as a last resort. “When there’s no hope the state or national government will act,” says Palmisano, “it is going to come up in the city.”
Mendez-Moore says she expects fair scheduling legislation, thought dead after the 2015 attempt, to come back on the council’s agenda as well. But the main priority appears to be minimum wage.
Currently Minnesota has the ninth highest minimum wage, according to bankrate.com. The stat is a moving target, with changes in many states in process. Still, if Minneapolis were to adopt a $15 minimum wage, it would join parts of Seattle and San Francisco with the distinction of the nation’s highest. (See chart.)
Most of the council is theoretically supportive, but with many caveats. “I am going to wait and see on $15,” says Johnson. “I support people making more money, but there will have to be necessary exceptions and we have to understand the full impact. Many of these businesses operate on a shoestring.”
That point aside, the question most of the City Council members who spoke to TCB grapple with is the impact of the city being an island of $15 in a region where the minimum is $9.50. (Mayor Hodges did not accommodate requests for an interview.)
“Minneapolis has a very different economy than the rest of the state, that is true,” says Frey, “but the region is an economic organism.”
The council commissioned a study on the $15 minimum wage led by the Roy Wilkins Center for Human Relations and Social Justice at the University of Minnesota, with research support from the AFL-CIO, the union-supported Economic Policy Institute, and Rutgers and St. Cloud State universities. The report said the change portended few negative impacts, but its analysis was criticized for a lack of rigor and bias.
“The data in the study didn’t prove anything,” says Blong Yang. “It was not compelling. It didn’t account for mobility. It did not seem comprehensive.” Yang calls $15 “a gift to every first-ring suburb and St. Paul,” and is inclined to vote against it.
He and other members ask how the city will balance the disparate impacts of the wage for the many city residents who work outside its borders.
Winners and Losers
“We are going to raise the cost of living,” says Palmisano. “How many of our people have jobs at MOA and will be affected by it but not benefit by a wage increase? The study did not address those things. It can’t be the final word.”
Small-business groups are concerned as well. “It’s going to be impossible for teenagers to get jobs. Some businesses are going to move,” says Hickey of the National Federation of Independent Business, which has joined the state chamber in its lawsuit against the city’s sick leave policy.
He points to operators of small restaurants and says, “I think it would be crushing to them.”
Yang questions whether his ward, arguably the city’s most economically disadvantaged, will end up a victim of a localized minimum wage: “Ward 5 is always the first to suffer and the last to benefit.” Yang’s fear is that an inconsistent wage base will create a host of unintended consequences. “In North Minneapolis our businesses will have the freedom to move to Robbinsdale, Golden Valley, Brooklyn Center,” he contends. “Cub and McDonald’s will figure it out. They will hire from the suburbs, and find better-trained and -educated workers seeking the higher city wages, and my folks will be displaced. They will be forced to take lower-wage jobs [in the suburbs] with extra transportation costs.”
Whose Main Street?
The local chapter of the small business-driven Main Street Alliance has made the rounds at City Hall supporting the WFA. Its local members have frequently been quoted as examples of businesses not only eager to spend more on their employees, but to profit less. They have been one of the few prominent Minneapolis business voices in the WFA debate.
“Does the Main Street Business Alliance represent most businesses?” asks Yang. “I doubt it, but where are the other businesses? I’m not seeing a diversity of business talking to us.”
Hickey wishes there was a diversity of ideologies to leverage more of a voice for business on the council. “There’s no checks and balances here. There’s just different shades of liberalism,” says Hickey. “That’s part of the problem: It’s a one-party city. A lot’s riding on this court case. If we win, it’ll shut all this down.”
But if they lose, Yang and many of the council members TCB spoke to will point to a dearth of feedback from business, and a need for local, real-world input in shaping city ordinances that affect them. “Small business has to find someone,” Yang says, “to speak for them.”
Beyond the lawsuit, the question is whether the mayor and broader council are receptive to a more nuanced and holistic understanding of the role of business climate in building broad prosperity. “Business is merely a means of creating economic exchange,” says Kevin Reich. “You can’t point too many fingers at business, because fundamentally, business is us.”