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CARROLL: Mischief with wages

Published February 4, 2009 at 12:05 a.m.

This is a tough time for some restaurants, as Americans cut back on dining out. But Colorado restaurants bear a special economic burden thanks to a ballot measure that voters approved two years ago.

Voters didn't mean to punish restaurants when they passed Amendment 42 in 2006. They simply wanted to hike the minimum wage (an understandable impulse) and mandate that it increase annually based on inflation (a bad idea). Meanwhile, unfortunately, voters ignored the fine print dictating that restaurant labor costs grow faster than inflation for decades to come.

The reasons are laid out in a lawsuit in Denver District Court brought by a number of rural restaurants. These businesses are especially hard hit because Amendment 42 mandates that the minimum wage be adjusted every year for inflation "as measured by the Consumer Price Index used for Colorado." Trouble is, there isn't any such index for the entire state; the existing indexes reflect prices in urban areas, where they are higher.

But that's hardly the major flaw of the minimum-wage amendment as it affects restaurants. And the bigger problem affects all eateries, urban and rural alike.

For obvious reasons, the authors of Amendment 42 mimicked federal law in permitting a lower wage for tipped employees such as waiters and waitresses. So now the state constitution says that "no more than $3.02 per hour in tip income may be used to offset the minimum wage of employees who regularly receive tips." That figure is known as the "tip credit."

After deducting the tip credit in 2007, restaurants had to pay at least 55.9 percent of the new minimum wage of $6.85. But watch what happens over time. On Jan. 1 of last year, restaurants discovered they would have to pay employees at least 57 percent of the latest minimum wage of $7.02 because the amendment failed to adjust the tip credit, too. And this year they are paying nearly 59 percent of the $7.28 minimum wage.

Indeed, by 2020, assuming annual inflation of 3 percent, restaurants will pay fully 70 percent of the minimum wage to employees who receive tips - a huge leap from the 41 percent that was in place as recently as three years ago. Every single year in which there is any inflation, tipped employees will receive a larger-percentage pay raise than nontipped workers.

These boosts will either be taken out of restaurants' bottom line, of course, or be shifted to higher menu prices.

Did voters intend to give one category of workers bigger hikes in the minimum wage than everyone else? Almost certainly not. But the difference is now embedded in the constitution, unless a judge strikes it down. And the chances of that happening are probably poor, despite the lawsuit's claims that the fixed tip credit is "arbitrary and capricious and violates equal protection guarantees."

Were the authors of Amendment 42 careless or devious? Did they deliberately raise restaurants' costs more than other businesses or was it an accident? If they were careless, they were also carelessly arrogant in deciding to put the measure in the constitution rather than present voters with a statute that the legislature could fix.

Which is yet another reason, if you needed one, to be skeptical of almost any ballot amendment these days.

Vincent Carroll is editor of the editorial pages. Reach him at carrollv@RockyMountainNews.com.

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