HHS Item 1
October 9, 2017
Worksession
ADDENDUM
MEMOR ANDUM
October 6, 2017
TO:
FROM:
Health and Human Services Commi~Jr ""
Josh
Hamlin,
Legislative Altom ~
Gene Smith, Legislative Analy~
SUBJECT:
Worksession-Addendum:
Bill 28-17, Human Rights and Civil Liberties - County
Minimum Wage -Amount - Annual Adjustment
Since the worksession packet went to print, staff received the Fiscal and Economic Impact
Statement (FEIS) for Bill 28-17. The FEIS:
1. Estimates a 6-year fiscal impact to the County of $10,305,069. This estimate used a
projection of the minimum wage/seasonal salary schedule to identify affected grades in the
schedule, and assumed that the County's current annual utilization of 579,250 hours in the
affected grades.
2. Notes the potential impact on County non-profits, as the fact that the impact would not
necessitate a change in community grant expenditures for the County.
It
further states that
if the County were to provide additional funding to allow affected non-profits to maintain
the existing level of service at the higher personnel cost structure, there would be a fiscal
impact to the County. The amount of this potential impact is difficult to determine due to
the lack of data regarding wages paid by these non-profits.
3. Does not estimate the impact of addressing any wage compression in the County payroll.
4. Indicates uncertainty as to whether increasing the minimum wage would increase or
decrease employment or earnings among low-wage workers.
This packet contains:
Fiscal and Economic Impact Statement: Bill 28-17
F:\LAW\BILLS\1728 Minimum Wage - Annual Adjustment\HHS Memo ADDENDUM.Docx
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ROCKVILLE, MARYLAND
MEMORAN DUM
October 5, 201 7
TO:
Roger Berliner, President, County Council
n
i+l
b
~~
FROM:
Jennifer A. Hughes, Director, Office of Managemh;i~; l'-3udget
..,.,,...-_ ;;__ Alexandre A. Espinosa, Director, Department of lg~ce
4
.r;J~/1
7 -.:_;:·
,
Ip
n.-1
'
SUBJECT:
FEIS
for
Bill
28-17,
Human Rights and Civil Liberties ~\:aunty Minimum Wage
- Amount - Annual Adjustment
Please find attached the fiscal and economic impact statements for the above-
referenced legislation.
JAH:fz
cc; Bonnie Kirkland, Assistant Chief Administrative Officer
Lisa Austin, Offices of the County Executive
Joy Nunni, Special Assistant to the County Executive
Patrick Lacefield, Director, Public lnfonnation Office
David Platt, Department of Finance
Dennis Hetman, Department of Finance
Corey Orlosky, Office of Management and Budget
Felicia Zhang, Office of Management and Budget
(!)
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Fiscal Impact Statem ent
Bill 28-17 Human Rights and Civil Liberties-County Minim um Wage- Amoun t-Annu al
Adjustment
1. Legisla tive Summary.
Bill 28-17 would increase the County minimu m wage to $15.00 per hour effective July 1,
2020. Under the bill's transition provision, the County minimu m wage would increas e
from $11.50 effective July 1, 2017 to $12.50 per hour July 1, 2018, $13.75 per hour July
1, 2019, and $15.00 per hour July 1, 2020. The bill would provide a delayed
implementation schedule for businesses employ ing 25 or fewer employees, transiti oning
from $11.50 effective July 1, 2017 to $12.00 per hour July 1, 2018, $12.75 per hour July
1, 2019, $13.50 per hour July l, 2020, $14.25 per hour July 1, 2021, and $15.00 per hour
July 1, 2022. Effective July 1, 2023 and each subseq uent year, the bill would increas e the
minimu m wage rate by the average annual increase, if any, in the Consumer Price Index
for Urban Wage Earners and Clerical Workers (CPI-W).
2.
An estimate of changes in County revenues and expenditures regardless of whethe r
the revenues or expenditures are assumed in the recomm ended or approved budget.
Includ es source of information, assumptions, and methodologies used.
This proposed legislation would not change any County revenues or expenditures in
FYI
8.
The changes in this propos ed legislation would have an expenditure impact
beginn ing in FYI 9.
The fiscal impact of this bill has been estimated using the current minimum wage of
$11.50 effective July 1, 2017 as the baseline. To determine the impact, a projection of
the minimu m wage/seasonal salary schedule was used to determ ine that the change s to
minimu m wage would impact grades S 1 through S5 in FYI 9 and beyond. The County
current ly utilizes an estimat ed 579,250 hours of work in grades Sl through S5.
Additionally, once the minimu m wage reaches $15.00, fully implemented, this legislation
would provide an annual adjustment to the minimu m wage by the annual increase in the
CPI-W.
The proposed legislation would add additional minimu m wage increases beyond FY 18,
resulting in an estimated 6-year fiscal impact of $10,30 5,069 to the County. This
estimat e represents the increases propos ed for FY19-FY21, and starting again in FY24
with the increase from CPI-W. The estimates assume the current number of hours
worked by County employ ees in the affected grades on the minimu m wage/seasonal
salary schedule.
FY18
FY19
-- --- -
---
-
FY20
_,
FY21
$15.00
579,250 /
;
-··-··--··---
FY22
·-
FY23
- --
FY24
------
~--------- --
Minimum
wage
,_
s1:.so!
,__
- -- ---
-
··---
$12.50
__
-----~ --
-----,-
--
$13.75~
--~
$15.00
-
$15.00:
)
$15.30
Hours
worked
579,250 ,
579,250 .
579,250
---
---·-·---'
-~---
:
579,250 ,
~
579,250 '
----------
-
-
579,250
-·-----
___,
Cost
$7,279,6 01' $7,807,8 72 $8,573,9 85! $9,353,4 38; $9,353,4 38
_______ ---1.- _ _ _ _ _
----·---
----~--
$9,353,4 38, $9,540,5 07
Impact:
$0
$528,27 1. $1,29-4,383 $2,073,&37. $2,073,8 37, $2,073,8 37
$2,260,9 05
Note: cost estim:ate indudes payroll taxof7 .6S'ii!
Total impact $10,305 ,069
0
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Specifically for the Office ofHwnan Rights, a person may file a complaint against their
employer for non-compliance with the existing law and for a violation of the proposed
requirements in this bill with the Maryland Department of Labor, Licensing and
Regulations Employment Standard Service.
It
is unknown whether an increase in the
minimum wage rate would affect the nwnber of complaints filed each year from
Montgomery County so case processing and closure estimates are difficult to determine
at this time. These variables should not impact revenues or expenditures in the
foreseeable future. The Office of Human Rights estimates a minimum cost will be
required to print new minimum wage posters for the county employment community.
3. Revenue and expenditure estimates covering at least the next 6 fiscal years.
See response #2.
4. An actuarial analysis through the entire amortization period for each regulation
that would affect retiree pension or group insurance costs.
Not applicable.
5. Later actions that may affect future revenue and expenditures
if
the regulation
authorizes future spending.
Any substantive changes to the utilization of employees on the minimum wage/seasonal
salary schedule would have an impact on the estimate for the next 6 fiscal years.
6. An estimate of the staff time needed to implement the regulation.
There would be minimal impact to the Office of Human Rights staff in regards to
processing complaints submitted to and enforced by the Maryland Department of Labor,
Licensing and Regulations Employment Standards Service. The Office of Human Rights
staff would continue to address questions and provide clarification of the requirements of
the law and provide educational outreach to the general community.
7. An explanation of how the addition of new staff responsibilities would affect other
duties.
Not applicable.
8. An estimate of costs when an additional appropriation is needed.
No additional appropriation is needed.
9. A description of any variable that could affect revenue and cost estimates.
Cost estimates could be affected by changes in the utilization of employees on the
minimum wage/seasonal salary schedule.
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There is no impact for the Office of Human Rights as the Maryland DLLR will enforce
the law and process complaints.
10. Ranges
of
revenue or expenditures that are uncertain or difficult
to
project.
Not applicable.
11.
If
a
regulation is likely
to
have no fiscal impact, why that is the case.
Not applicable.
12. Other fiscal impacts or comments.
This bill may impact non-profits that receive County support in the form of community
grants, as well as non-competitive contracts in Health and Human Services. In the event
a non-pro~t employs individuals at the minimum wage, their cost structure would change
via this legislation. While this would not necessitate a change in community grants
expenditures for the County, grant recipients employing individuals at the minimum
wage could be forced to either find additional funding from other sources to cover the
increased personnel costs associated with a higher minimum wage, or decrease the
services provided.
If
the County were to provide increased funding to allow those non-
profits to provide the same level of service at the higher personnel cost structure, this
would have a fiscal impact to the County. This potential impact is difficult to determine
at this time, due to the lack of data regarding wages paid by these non-profits.
The $15.00 per hour wage rate introduced in the bill equates to an annual salary of
$31,200. This amount exceeds the grade minimum for grades 5 through 8 on the General
Salary Schedule (GSS), the Office, Professional & Technical Salary Schedule (OPT), and
the Service, Labor, and Trades Salary Schedule (SLT). This is not projected to have a
fiscal impact, as the County currently uses the living wage requirements to serve as the
floor for compensation for employees on the GSS, OPT, and SLT. The living wage is
estimated to be higher than the minimum wage at all points of the next 6 fiscal years, so
this bill would not impact cost estimates for those employees.
This legislation, as well as this fiscal impact statement, does not address the issue of
wage compression in the County. Any action taken to address this issue would have a
significant fiscal impact, which would be difficult to determine at this time.
13. The following contributed to and concurred with this analysis.
James Stowe, Office of Human Rights
Corey Orlosky, Office of Management and Budget
Lori O'Brien, Office of Human Resources
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Economic Impact Statement
Bill
28-17
-
Human Rights and Civil Liberties
-
County Minimum Wage -Annual Adjustment
Background:
Bill 28-17 would:
• increase the County minimum wage by a certain amount;
• require the Chief Administrative Officer to adjust the County minimum wage rate each
year; and
• require the Office of Legislative Oversight to conduct an annual analysis of the impact of
the County minimum wage.
Under Bill 28-17, the County minimum wage that must be paid to cc1tain employees working in
the County for a private sector employer or the County government would increase to $15.00 per
hour by 2020 for employers with 26 or more employees. Employers who ( 1) employ 25 or fewer
employees (2) have tax exempt status under Section 501 (c)(3) of the Internal Revenue Code or
(3) provide "home health services" or "home or community-based services," as defined under
federal Medicaid regulations and receive at least 75% of gross revenues through state and federal
medical programs would be required to pay at least $15 .00 per hour by 2022.
It
would also
require annual adjustments to the County minimum wage each year beginning in 2023.
1. The sources of information, assumptions, and methodologies used.
The sources of information include various economic studies that analyzed the effects of
increasing the minimum wage on employment. Those studies include the following:
David Card and Alan
B.
Krueger, "Minimum Wages and Employment: A Case Study
of the Fast-Food Industry in New Jersey and Pennsylvania", The American Economic
Review, Volume 84, Number 4, September 1994.
David Neumark and William Wascher, "Minimum Wages and Employment: A
Review of Evidence from the New Minimum Wage Research, NBER Working Paper
Series, National Bureau of Economic Research, November 2006.
Olli Ropponen, "Reconciling the Evidence of Card and Krueger (1994) and Neumark
and Wascher (2000)", Discussion Paper No. 325, Helsinki Center of Economic
Research, April 2011.
Bureau of Labor Statistics (BLS), U.S. Department of Labor, "Characteristics of
Minimum Wage Workers, 2013", BLS Reports, March 2014
Robert Pollin and Jeannette Wicks-Lim, "A $15 U.S. Minimum Wage: How the
Fast-Food Industry Could Adjust Without Shedding Jobs", Working Paper Series,
Political Economy Research Institute, University of Massachusetts Amherst, January
2015
David Neumark, "The Effects of Minimum Wages on Employment," Federal Reserve
Bank of San Francisco, December 21, 2015.
Page
1
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Economic Impact Statement
Hill
28-17
-
Human Rights and Civil Liberties
-
County Minimum Wage
-
Annual Adjustment
Michael Reich, Ken Jacobs, Annette Bernhardt, and Ian Pe1Ty, "The Proposed
Minimum Wage Law for Los Angeles: Economic Impacts and Policy Options,"
Center on Wage and Employment Dynamics, March 2015.
The Seattle Minimrn11 Wage Study Team, "Report on the Impact of Seattle's
Minimum Wage Ordinance on Wages, Workers, Jobs, and Establishments Through
2015," lJniversity of Washington, July 2016.
Michael Reich, Claire Montialoux, Sylvia Allegretto, Ken Jacobs, Annette Bernhardt,
and Sarah Thomason, "The Effects of a $15 Minimum Wage by 2019 in San Jose and
Santa Clara County," Center on Wage and Employment Dynamics and University of
California
at
Berkeley, June
10, 2016
Sylvia Allegretto and Michael Reich. "Are minimum wage increase absorbed by
small price increases?" Institute for Research on Labor and Employment, November
2016.
Fahad Fahimulla, Yi Geng, Bradley Hardy, Daniel Muhammad, and Jeffrey Wilkins,
''$
15 Minimum Wage in the District of Columbia: A General Equilibrium Analysis of
the Economic Impact," District of Columbia Office of Revenue Analysis, February
2017.
Jardim, Long, Plotnick, van lnwegen, Vigdor, and Wething, "Minimum Wage
Increases, Wages, and Low-Wage Employment: Evidence from Seattle," June 2017.
Bureau of Labor Statistics' Quarterly Census of Employment and Wages (QCEW),
which provides historic data on average employment levels and wage rates by
industry by cow1ty by quarter. Data is currently available through Ql
2017.
According to Neumark, "researchers offer conflicting evidence on whether or not
raising
the
minimum wage means fewer jobs for low-skilled workers." These conflicts are based on four
models:
The "neoclassical" model or standard model of competitive labor markets predicts that a
higher minimum wage will lead to job loss. This model assumes a labor market for a
single type of labor. According to this model, a minimum wage that is set above the
competitive equilibrium reduces employment. Employers may substitute low-skilled
labor for other factors of production such as equipment or other types of capital
resources. Second, higher wages and fixed factors of production imply higher prices,
thereby reducing product and labor demand.
However, since the labor market is more complex than the "neoclassical model" suggests,
an alternative model is the "labor-labor substitution" framework that may not result in
Page 2 of 6
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Economic Impact Statement
Bill 28-17
-
Human Rights and Civil Liberties
-
County Minimum Wage
-
Annual Adjustment
total job losses but will result in a shift in hiring from fewer low-skilled workers to more
high-skilled workers.
A
third conceptual model as an alternative to either the "neoclassical" or the "labor-labor
substitution" model is that employers have significantly more
market power
than
consumers. This monopsony could be the result of pricing power by the employer, that
is, he or she is able to pass along the increase in the wage rate through higher prices.
This ability to pass on the wage increase is attributed to the
elastic
demand for the
product by the consumers.
Finally, a paper by Pollin and Wisk-Lim suggest that "there are four primary ways for
businesses to adjust to cost increases other than reducing employment." The four ways
include: 1) an increase in the minimum wage would reduce absenteeism, lower turnover
and training costs, and yield higher productivity, 2) cover a share of the increase in the
minimum wage by raising prices (the monopsony model), 3) allocate a share of the
business revenue generated by economic growth to cover the increase in the minimum
wage, and 4) redistribute overall revenues within the firm from profits to the wages of
their lowest-paid workers.
In
the initial stages of the academic analysis regarding the minimum wage, Card and Krueger
argued that the negative employment effects on the minimum wage laws range from minimal
to non-existent.
In
subsequent research, Neurnark and Wascher analyzed the effect of
increases in the minimum wage for large fast food restaurant chains that were followed by
decreases in employment. Ropponen reconciled the different conclusions between Card-
Krueger and Neumark-Wascher. Both studies, per Ropponen, lead to the conclusion that the
conditional employment effects arc positive for small fast-food restaurants but negative for
big fast-food restaurants. He suggests that the effect of an increase in the minimum wage on
employment is based on the location of restaurants and a demand side effect: An increase in
the minimum wage would have a multiplier effect on the local economy, that is, the increase
in wages would result in an increase in spending by the employees.
Alan Blinder, former Vice Chairman of the Board of Governors of the Federal Reserve
System, suggests three reasons why minimum wages do not affect employment: higher
wages may reduce turnover and therefore training costs, raising the minimum wage may
eliminate the problem of recruiting workers at a higher wage than current workers, and
minimum wage earners represent a small portion of the employer's cost such that an increase
is relatively insignificant to the employer's total cost of production. These results may not
necessarily apply to industries like restaurants and other small businesses where a majority of
the labor cost are attributed to low wage workers.
A growing number of cities and counties including Washington D.C., Los Angeles, San Jose,
and Seattle are increasing their minimum wage above the federal level, up to as much as
$15.00 per hour. ln a February 2017 study, the Washington D.C. Office of Revenue Analysis
found the proposal to increase the minimum wage to $15.00 per hour would increase
employee earnings, but the District would lose a little over 1,800 jobs and experience an
Page 3 of 6
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Economic Impact Statement
Bill 28-17
-
Human Rights and Civil Liberties
-
County Minimum Wage -Annual Adjustment
increase in p1ices of 0.2 percent by 2021. The price increase would lower the relative price
of goods in sun-oundingju risdictions, resulting in a $66 million decrease in the District's
GDP by 2021.
In a March 2015 study for the City Council, the Center on Wage and Employment Dynamics
at the University of California-Berkeley analyzed the proposed minimum wage increase for
Los Angeles. While the structure of the increases analyzed in the study varies from the
increases that were implemented, they generally coincide with the findings of the February
2017 Washington D.C. study. The study found that employment would decline 0.2 percent
in the City by 2019, but overall employment in Los Angeles County would increase by 0.1
percent, largely because more than half the workers that would be impacted live outside the
City and spend money in the County.
In June 2017, the National Bureau of Economic Research (NBER) published an updated
analysis by researchers at the Evans School of Public Policy at the University of Washington
on the effects of the City of Seattle's minimum wage increase in January 2016. The authors
concluded that while the increa<;e to a $13.00 minimum wage increased hourly wages for
low-wage jobs as expected, it also reduced the number of hours worked in these occupations
by approximately 9.4 percent and lowered low-wage workers' earnings by $125 per month
on average. The authors found that the increase in the City minimum wage from $9.47 to
$13.00 resulted in a loss of 6,317 jobs at single location fim1s. Accounting for multi-location
firms employing low-wage workers in the City, this job loss number increased to
approximately I 0,000.
There are considerable difficulties with using other jurisdictions as indicators for
Montgomery County's potential experience. Each city and cow1ty differs in terms of the
socio-economic characteristics of both the residents and workforce and labor force
participation in the local and regional economy leading to differential outcomes when the
minimum wage is raised. Additionally, most minimum wage increases in these jurisdictions
have been recently enacted where the body of research and data from which to draw
conclusions about the impact of these increases is limited.
Studies on impacts in these cities are prospective and outcomes are also impacted by other
factors, such as the general state of the economy and other government interactions that are
not always controlled for in prospective analyses. The conclusions about the past and
scheduled increases in these comparable jmisdictions include:
earnings, especially for low-wage workers, increase because of an increase in the
minimum wage,
businesses seek to cope with increased personnel costs through modest price
increases,
there were some small, but meaningful, declines in employment, largely among low-
wage workers, but these impacts vary,
Page 4 of 6
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Economic Impact Statement
Bill 28-17 -Human Rights and Civil Liberties
-
County Minimum Wage
-
Annual Adjustment
and research also indicates that the job loss impacts of minimum wage changes tends
to increase as the minimum wage rises higher, particularly in relation to prior market
wages.
Montgomery County's minimum wage is, and will continue to be, higher than both the
federal and State minimum wage, as well as that in all stmounding jurisdictions except the
DistTict of Columbia. This could place the County in a competitive disadvantage to
neighboring jurisdictions. Additionally, unlike Seattle or New York City, the Cow1ty is not
considered a "destination city" that draws great numbers of business travelers or tourists that
will be able to afford higher costs for short-term visits. Residents could potentially shoulder
the bulk of the additional costs as a potential unintended negative impact.
Maryland's Department of Labor, Licensing and Regulation calculated a total of 471,580
jobs in Montgomery Cow1ty in the first quarter of 2017 the latest date for which data are
available. Of these jobs, nearly 19 percent were low-wage jobs ( defined as jobs with $1,250
per month or less in earnings, which includes pre-tax wages, salaries, and self-employment
income). This is a decline from 2002, when nearly 27 percent of jobs in Montgomery
County were low-wage jobs. Nearly two-thirds of the low-wage jobs in Montgomery County
are concentrated in retail trade, administrative services, health care and social assistance, and
accommodation and food service industries. Nearly half of all jobs in the arts, entertainment,
and recreation and the accommodation and food services industries are low-wage jobs
whereby the impact of an increased minimum wage will likely be concentrated in these
industries.
2. A description of any variable that could affect the economic impact estimates.
The ability of the employer to pass the increase of the minimum wage to his or her
customers
The share of minimum wage earners to total employment for a business
The elastic/inelastic demand for the business's product or service
The costs of retraining workers
The extent to which higher minimum wages induce greater spending in the local
economy
The relationship between higher minimum wage rates and employee productivity and
morale
3. The Bill's positive or negative effect,
if
any on employment, spending, saving,
investment, incomes, and property values in the County.
The proposed increase in the County minimum wage has the potential to provide some
imp01tant benefits. An increase in earnings for low-wage County workers will have tangible
positive impacts for low-income workers and their families. This should also lead to
reductions in poverty, improvement in mental health and a reduction in hunger and stress
among minimum wage workers. From the perspective of County employers, additional
research shows a relationship between higher wages and employee productivity and morale,
Page 5 of 6
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Economic
Impact Statement
Bill 28-17 -
Human Rights and
Civil
Liberties
-
County Minimum
Wage
-Annual Adjustment
which would reduce turnover and the costs associated with hiring and training new
employees.
At the same time, it is possible that the wage increase could lead to a potential loss oflow-
wage jobs or a reduction in hours worked for employees in certain industries. This loss of
jobs could lead to a loss of income among County residents and the correlated effect of
reduced income tax revenue for the County. Additionally, an increase in the minimum wage
will lead to a cost for the County to bring its own salary schedules in line with the new wage
rate to avoid wage compression.
It
may also require the County to increase its funding for
non-profit organizations to ensure that they can maintain essential services.
There is no consensus among economists on the effects of the minimum wage and
employment. Based on the review of the research, it is not certain whether an increase in the
minimum wage would increase or decrease employment or overall employment earnings.
This uncertainty is based on the following factors presented in Section 2:
The ability of the employer to compensate for the increase in the minimum wage
by
passing such increase onto customers with higher prices
The ability of employers to reduce hours worked for their employees
The proportion of the wage costs among workers earning the minimum wage to the
total costs of production
The multiplier effect of increasing the minimum wage on the local economy
Finally, in the research studies presented above, the conclusions arc based on the datasets
used to detennine the effect of the minimum wage on employment, the statistical methods
used to reach those conclusions, and the model used as the theoretical framework to conduct
the analysis. Continuing themes in the prior economic studies of increased minimum wages
are the potential reduction
in
employee hours for smaller businesses that are constrained in
their ability to pass on higher costs to consumers and the fact that recessions will have
intensifying effects for the employment prospects for low wage earners.
4. If a Bill is
likely
to have no economic impact, why is that the case?
It is uncertain whether increasing the minimum wage would increase or decrease
employment or earnings among low-wage workers. As stated in Section 3, the economic
impact would be based on the assumptions and the characteristics and location of those
businesses that would be required to raise the minimum wage.
5. The following contributed to and concurred with this analysis:
David Platt, Dennis
Hetman, and Robert Hagedoorn, Finance.
.,
I
----"---=-,,-·-- ./
#"'~/.
/-,-,~-,
!.
I O
Ale~andre A. Espinoh, Dii'ector
Department of Finance
/_,;ii
=r
Date
Page 6 of 6
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HHS Item 1
October 9, 2017
Worksession
ADDENDUM
MEMOR ANDUM
October 6, 2017
TO:
FROM:
Health and Human Services Commi~Jr ""
Josh
Hamlin,
Legislative Altom ~
Gene Smith, Legislative Analy~
SUBJECT:
Worksession-Addendum:
Bill 28-17, Human Rights and Civil Liberties - County
Minimum Wage -Amount - Annual Adjustment
Since the worksession packet went to print, staff received the Fiscal and Economic Impact
Statement (FEIS) for Bill 28-17. The FEIS:
1. Estimates a 6-year fiscal impact to the County of $10,305,069. This estimate used a
projection of the minimum wage/seasonal salary schedule to identify affected grades in the
schedule, and assumed that the County's current annual utilization of 579,250 hours in the
affected grades.
2. Notes the potential impact on County non-profits, as the fact that the impact would not
necessitate a change in community grant expenditures for the County.
It
further states that
if the County were to provide additional funding to allow affected non-profits to maintain
the existing level of service at the higher personnel cost structure, there would be a fiscal
impact to the County. The amount of this potential impact is difficult to determine due to
the lack of data regarding wages paid by these non-profits.
3. Does not estimate the impact of addressing any wage compression in the County payroll.
4. Indicates uncertainty as to whether increasing the minimum wage would increase or
decrease employment or earnings among low-wage workers.
This packet contains:
Fiscal and Economic Impact Statement: Bill 28-17
F:\LAW\BILLS\1728 Minimum Wage - Annual Adjustment\HHS Memo ADDENDUM.Docx
Circle#
1
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ROCKVILLE, MARYLAND
MEMORAN DUM
October 5, 201 7
TO:
Roger Berliner, President, County Council
n
i+l
b
~~
FROM:
Jennifer A. Hughes, Director, Office of Managemh;i~; l'-3udget
..,.,,...-_ ;;__ Alexandre A. Espinosa, Director, Department of lg~ce
4
.r;J~/1
7 -.:_;:·
,
Ip
n.-1
'
SUBJECT:
FEIS
for
Bill
28-17,
Human Rights and Civil Liberties ~\:aunty Minimum Wage
- Amount - Annual Adjustment
Please find attached the fiscal and economic impact statements for the above-
referenced legislation.
JAH:fz
cc; Bonnie Kirkland, Assistant Chief Administrative Officer
Lisa Austin, Offices of the County Executive
Joy Nunni, Special Assistant to the County Executive
Patrick Lacefield, Director, Public lnfonnation Office
David Platt, Department of Finance
Dennis Hetman, Department of Finance
Corey Orlosky, Office of Management and Budget
Felicia Zhang, Office of Management and Budget
(!)
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Fiscal Impact Statem ent
Bill 28-17 Human Rights and Civil Liberties-County Minim um Wage- Amoun t-Annu al
Adjustment
1. Legisla tive Summary.
Bill 28-17 would increase the County minimu m wage to $15.00 per hour effective July 1,
2020. Under the bill's transition provision, the County minimu m wage would increas e
from $11.50 effective July 1, 2017 to $12.50 per hour July 1, 2018, $13.75 per hour July
1, 2019, and $15.00 per hour July 1, 2020. The bill would provide a delayed
implementation schedule for businesses employ ing 25 or fewer employees, transiti oning
from $11.50 effective July 1, 2017 to $12.00 per hour July 1, 2018, $12.75 per hour July
1, 2019, $13.50 per hour July l, 2020, $14.25 per hour July 1, 2021, and $15.00 per hour
July 1, 2022. Effective July 1, 2023 and each subseq uent year, the bill would increas e the
minimu m wage rate by the average annual increase, if any, in the Consumer Price Index
for Urban Wage Earners and Clerical Workers (CPI-W).
2.
An estimate of changes in County revenues and expenditures regardless of whethe r
the revenues or expenditures are assumed in the recomm ended or approved budget.
Includ es source of information, assumptions, and methodologies used.
This proposed legislation would not change any County revenues or expenditures in
FYI
8.
The changes in this propos ed legislation would have an expenditure impact
beginn ing in FYI 9.
The fiscal impact of this bill has been estimated using the current minimum wage of
$11.50 effective July 1, 2017 as the baseline. To determine the impact, a projection of
the minimu m wage/seasonal salary schedule was used to determ ine that the change s to
minimu m wage would impact grades S 1 through S5 in FYI 9 and beyond. The County
current ly utilizes an estimat ed 579,250 hours of work in grades Sl through S5.
Additionally, once the minimu m wage reaches $15.00, fully implemented, this legislation
would provide an annual adjustment to the minimu m wage by the annual increase in the
CPI-W.
The proposed legislation would add additional minimu m wage increases beyond FY 18,
resulting in an estimated 6-year fiscal impact of $10,30 5,069 to the County. This
estimat e represents the increases propos ed for FY19-FY21, and starting again in FY24
with the increase from CPI-W. The estimates assume the current number of hours
worked by County employ ees in the affected grades on the minimu m wage/seasonal
salary schedule.
FY18
FY19
-- --- -
---
-
FY20
_,
FY21
$15.00
579,250 /
;
-··-··--··---
FY22
·-
FY23
- --
FY24
------
~--------- --
Minimum
wage
,_
s1:.so!
,__
- -- ---
-
··---
$12.50
__
-----~ --
-----,-
--
$13.75~
--~
$15.00
-
$15.00:
)
$15.30
Hours
worked
579,250 ,
579,250 .
579,250
---
---·-·---'
-~---
:
579,250 ,
~
579,250 '
----------
-
-
579,250
-·-----
___,
Cost
$7,279,6 01' $7,807,8 72 $8,573,9 85! $9,353,4 38; $9,353,4 38
_______ ---1.- _ _ _ _ _
----·---
----~--
$9,353,4 38, $9,540,5 07
Impact:
$0
$528,27 1. $1,29-4,383 $2,073,&37. $2,073,8 37, $2,073,8 37
$2,260,9 05
Note: cost estim:ate indudes payroll taxof7 .6S'ii!
Total impact $10,305 ,069
0
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Specifically for the Office ofHwnan Rights, a person may file a complaint against their
employer for non-compliance with the existing law and for a violation of the proposed
requirements in this bill with the Maryland Department of Labor, Licensing and
Regulations Employment Standard Service.
It
is unknown whether an increase in the
minimum wage rate would affect the nwnber of complaints filed each year from
Montgomery County so case processing and closure estimates are difficult to determine
at this time. These variables should not impact revenues or expenditures in the
foreseeable future. The Office of Human Rights estimates a minimum cost will be
required to print new minimum wage posters for the county employment community.
3. Revenue and expenditure estimates covering at least the next 6 fiscal years.
See response #2.
4. An actuarial analysis through the entire amortization period for each regulation
that would affect retiree pension or group insurance costs.
Not applicable.
5. Later actions that may affect future revenue and expenditures
if
the regulation
authorizes future spending.
Any substantive changes to the utilization of employees on the minimum wage/seasonal
salary schedule would have an impact on the estimate for the next 6 fiscal years.
6. An estimate of the staff time needed to implement the regulation.
There would be minimal impact to the Office of Human Rights staff in regards to
processing complaints submitted to and enforced by the Maryland Department of Labor,
Licensing and Regulations Employment Standards Service. The Office of Human Rights
staff would continue to address questions and provide clarification of the requirements of
the law and provide educational outreach to the general community.
7. An explanation of how the addition of new staff responsibilities would affect other
duties.
Not applicable.
8. An estimate of costs when an additional appropriation is needed.
No additional appropriation is needed.
9. A description of any variable that could affect revenue and cost estimates.
Cost estimates could be affected by changes in the utilization of employees on the
minimum wage/seasonal salary schedule.
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There is no impact for the Office of Human Rights as the Maryland DLLR will enforce
the law and process complaints.
10. Ranges
of
revenue or expenditures that are uncertain or difficult
to
project.
Not applicable.
11.
If
a
regulation is likely
to
have no fiscal impact, why that is the case.
Not applicable.
12. Other fiscal impacts or comments.
This bill may impact non-profits that receive County support in the form of community
grants, as well as non-competitive contracts in Health and Human Services. In the event
a non-pro~t employs individuals at the minimum wage, their cost structure would change
via this legislation. While this would not necessitate a change in community grants
expenditures for the County, grant recipients employing individuals at the minimum
wage could be forced to either find additional funding from other sources to cover the
increased personnel costs associated with a higher minimum wage, or decrease the
services provided.
If
the County were to provide increased funding to allow those non-
profits to provide the same level of service at the higher personnel cost structure, this
would have a fiscal impact to the County. This potential impact is difficult to determine
at this time, due to the lack of data regarding wages paid by these non-profits.
The $15.00 per hour wage rate introduced in the bill equates to an annual salary of
$31,200. This amount exceeds the grade minimum for grades 5 through 8 on the General
Salary Schedule (GSS), the Office, Professional & Technical Salary Schedule (OPT), and
the Service, Labor, and Trades Salary Schedule (SLT). This is not projected to have a
fiscal impact, as the County currently uses the living wage requirements to serve as the
floor for compensation for employees on the GSS, OPT, and SLT. The living wage is
estimated to be higher than the minimum wage at all points of the next 6 fiscal years, so
this bill would not impact cost estimates for those employees.
This legislation, as well as this fiscal impact statement, does not address the issue of
wage compression in the County. Any action taken to address this issue would have a
significant fiscal impact, which would be difficult to determine at this time.
13. The following contributed to and concurred with this analysis.
James Stowe, Office of Human Rights
Corey Orlosky, Office of Management and Budget
Lori O'Brien, Office of Human Resources
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Economic Impact Statement
Bill
28-17
-
Human Rights and Civil Liberties
-
County Minimum Wage -Annual Adjustment
Background:
Bill 28-17 would:
• increase the County minimum wage by a certain amount;
• require the Chief Administrative Officer to adjust the County minimum wage rate each
year; and
• require the Office of Legislative Oversight to conduct an annual analysis of the impact of
the County minimum wage.
Under Bill 28-17, the County minimum wage that must be paid to cc1tain employees working in
the County for a private sector employer or the County government would increase to $15.00 per
hour by 2020 for employers with 26 or more employees. Employers who ( 1) employ 25 or fewer
employees (2) have tax exempt status under Section 501 (c)(3) of the Internal Revenue Code or
(3) provide "home health services" or "home or community-based services," as defined under
federal Medicaid regulations and receive at least 75% of gross revenues through state and federal
medical programs would be required to pay at least $15 .00 per hour by 2022.
It
would also
require annual adjustments to the County minimum wage each year beginning in 2023.
1. The sources of information, assumptions, and methodologies used.
The sources of information include various economic studies that analyzed the effects of
increasing the minimum wage on employment. Those studies include the following:
David Card and Alan
B.
Krueger, "Minimum Wages and Employment: A Case Study
of the Fast-Food Industry in New Jersey and Pennsylvania", The American Economic
Review, Volume 84, Number 4, September 1994.
David Neumark and William Wascher, "Minimum Wages and Employment: A
Review of Evidence from the New Minimum Wage Research, NBER Working Paper
Series, National Bureau of Economic Research, November 2006.
Olli Ropponen, "Reconciling the Evidence of Card and Krueger (1994) and Neumark
and Wascher (2000)", Discussion Paper No. 325, Helsinki Center of Economic
Research, April 2011.
Bureau of Labor Statistics (BLS), U.S. Department of Labor, "Characteristics of
Minimum Wage Workers, 2013", BLS Reports, March 2014
Robert Pollin and Jeannette Wicks-Lim, "A $15 U.S. Minimum Wage: How the
Fast-Food Industry Could Adjust Without Shedding Jobs", Working Paper Series,
Political Economy Research Institute, University of Massachusetts Amherst, January
2015
David Neumark, "The Effects of Minimum Wages on Employment," Federal Reserve
Bank of San Francisco, December 21, 2015.
Page
1
of 6
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Economic Impact Statement
Hill
28-17
-
Human Rights and Civil Liberties
-
County Minimum Wage
-
Annual Adjustment
Michael Reich, Ken Jacobs, Annette Bernhardt, and Ian Pe1Ty, "The Proposed
Minimum Wage Law for Los Angeles: Economic Impacts and Policy Options,"
Center on Wage and Employment Dynamics, March 2015.
The Seattle Minimrn11 Wage Study Team, "Report on the Impact of Seattle's
Minimum Wage Ordinance on Wages, Workers, Jobs, and Establishments Through
2015," lJniversity of Washington, July 2016.
Michael Reich, Claire Montialoux, Sylvia Allegretto, Ken Jacobs, Annette Bernhardt,
and Sarah Thomason, "The Effects of a $15 Minimum Wage by 2019 in San Jose and
Santa Clara County," Center on Wage and Employment Dynamics and University of
California
at
Berkeley, June
10, 2016
Sylvia Allegretto and Michael Reich. "Are minimum wage increase absorbed by
small price increases?" Institute for Research on Labor and Employment, November
2016.
Fahad Fahimulla, Yi Geng, Bradley Hardy, Daniel Muhammad, and Jeffrey Wilkins,
''$
15 Minimum Wage in the District of Columbia: A General Equilibrium Analysis of
the Economic Impact," District of Columbia Office of Revenue Analysis, February
2017.
Jardim, Long, Plotnick, van lnwegen, Vigdor, and Wething, "Minimum Wage
Increases, Wages, and Low-Wage Employment: Evidence from Seattle," June 2017.
Bureau of Labor Statistics' Quarterly Census of Employment and Wages (QCEW),
which provides historic data on average employment levels and wage rates by
industry by cow1ty by quarter. Data is currently available through Ql
2017.
According to Neumark, "researchers offer conflicting evidence on whether or not
raising
the
minimum wage means fewer jobs for low-skilled workers." These conflicts are based on four
models:
The "neoclassical" model or standard model of competitive labor markets predicts that a
higher minimum wage will lead to job loss. This model assumes a labor market for a
single type of labor. According to this model, a minimum wage that is set above the
competitive equilibrium reduces employment. Employers may substitute low-skilled
labor for other factors of production such as equipment or other types of capital
resources. Second, higher wages and fixed factors of production imply higher prices,
thereby reducing product and labor demand.
However, since the labor market is more complex than the "neoclassical model" suggests,
an alternative model is the "labor-labor substitution" framework that may not result in
Page 2 of 6
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Economic Impact Statement
Bill 28-17
-
Human Rights and Civil Liberties
-
County Minimum Wage
-
Annual Adjustment
total job losses but will result in a shift in hiring from fewer low-skilled workers to more
high-skilled workers.
A
third conceptual model as an alternative to either the "neoclassical" or the "labor-labor
substitution" model is that employers have significantly more
market power
than
consumers. This monopsony could be the result of pricing power by the employer, that
is, he or she is able to pass along the increase in the wage rate through higher prices.
This ability to pass on the wage increase is attributed to the
elastic
demand for the
product by the consumers.
Finally, a paper by Pollin and Wisk-Lim suggest that "there are four primary ways for
businesses to adjust to cost increases other than reducing employment." The four ways
include: 1) an increase in the minimum wage would reduce absenteeism, lower turnover
and training costs, and yield higher productivity, 2) cover a share of the increase in the
minimum wage by raising prices (the monopsony model), 3) allocate a share of the
business revenue generated by economic growth to cover the increase in the minimum
wage, and 4) redistribute overall revenues within the firm from profits to the wages of
their lowest-paid workers.
In
the initial stages of the academic analysis regarding the minimum wage, Card and Krueger
argued that the negative employment effects on the minimum wage laws range from minimal
to non-existent.
In
subsequent research, Neurnark and Wascher analyzed the effect of
increases in the minimum wage for large fast food restaurant chains that were followed by
decreases in employment. Ropponen reconciled the different conclusions between Card-
Krueger and Neumark-Wascher. Both studies, per Ropponen, lead to the conclusion that the
conditional employment effects arc positive for small fast-food restaurants but negative for
big fast-food restaurants. He suggests that the effect of an increase in the minimum wage on
employment is based on the location of restaurants and a demand side effect: An increase in
the minimum wage would have a multiplier effect on the local economy, that is, the increase
in wages would result in an increase in spending by the employees.
Alan Blinder, former Vice Chairman of the Board of Governors of the Federal Reserve
System, suggests three reasons why minimum wages do not affect employment: higher
wages may reduce turnover and therefore training costs, raising the minimum wage may
eliminate the problem of recruiting workers at a higher wage than current workers, and
minimum wage earners represent a small portion of the employer's cost such that an increase
is relatively insignificant to the employer's total cost of production. These results may not
necessarily apply to industries like restaurants and other small businesses where a majority of
the labor cost are attributed to low wage workers.
A growing number of cities and counties including Washington D.C., Los Angeles, San Jose,
and Seattle are increasing their minimum wage above the federal level, up to as much as
$15.00 per hour. ln a February 2017 study, the Washington D.C. Office of Revenue Analysis
found the proposal to increase the minimum wage to $15.00 per hour would increase
employee earnings, but the District would lose a little over 1,800 jobs and experience an
Page 3 of 6
(jJ
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Economic Impact Statement
Bill 28-17
-
Human Rights and Civil Liberties
-
County Minimum Wage -Annual Adjustment
increase in p1ices of 0.2 percent by 2021. The price increase would lower the relative price
of goods in sun-oundingju risdictions, resulting in a $66 million decrease in the District's
GDP by 2021.
In a March 2015 study for the City Council, the Center on Wage and Employment Dynamics
at the University of California-Berkeley analyzed the proposed minimum wage increase for
Los Angeles. While the structure of the increases analyzed in the study varies from the
increases that were implemented, they generally coincide with the findings of the February
2017 Washington D.C. study. The study found that employment would decline 0.2 percent
in the City by 2019, but overall employment in Los Angeles County would increase by 0.1
percent, largely because more than half the workers that would be impacted live outside the
City and spend money in the County.
In June 2017, the National Bureau of Economic Research (NBER) published an updated
analysis by researchers at the Evans School of Public Policy at the University of Washington
on the effects of the City of Seattle's minimum wage increase in January 2016. The authors
concluded that while the increa<;e to a $13.00 minimum wage increased hourly wages for
low-wage jobs as expected, it also reduced the number of hours worked in these occupations
by approximately 9.4 percent and lowered low-wage workers' earnings by $125 per month
on average. The authors found that the increase in the City minimum wage from $9.47 to
$13.00 resulted in a loss of 6,317 jobs at single location fim1s. Accounting for multi-location
firms employing low-wage workers in the City, this job loss number increased to
approximately I 0,000.
There are considerable difficulties with using other jurisdictions as indicators for
Montgomery County's potential experience. Each city and cow1ty differs in terms of the
socio-economic characteristics of both the residents and workforce and labor force
participation in the local and regional economy leading to differential outcomes when the
minimum wage is raised. Additionally, most minimum wage increases in these jurisdictions
have been recently enacted where the body of research and data from which to draw
conclusions about the impact of these increases is limited.
Studies on impacts in these cities are prospective and outcomes are also impacted by other
factors, such as the general state of the economy and other government interactions that are
not always controlled for in prospective analyses. The conclusions about the past and
scheduled increases in these comparable jmisdictions include:
earnings, especially for low-wage workers, increase because of an increase in the
minimum wage,
businesses seek to cope with increased personnel costs through modest price
increases,
there were some small, but meaningful, declines in employment, largely among low-
wage workers, but these impacts vary,
Page 4 of 6
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Economic Impact Statement
Bill 28-17 -Human Rights and Civil Liberties
-
County Minimum Wage
-
Annual Adjustment
and research also indicates that the job loss impacts of minimum wage changes tends
to increase as the minimum wage rises higher, particularly in relation to prior market
wages.
Montgomery County's minimum wage is, and will continue to be, higher than both the
federal and State minimum wage, as well as that in all stmounding jurisdictions except the
DistTict of Columbia. This could place the County in a competitive disadvantage to
neighboring jurisdictions. Additionally, unlike Seattle or New York City, the Cow1ty is not
considered a "destination city" that draws great numbers of business travelers or tourists that
will be able to afford higher costs for short-term visits. Residents could potentially shoulder
the bulk of the additional costs as a potential unintended negative impact.
Maryland's Department of Labor, Licensing and Regulation calculated a total of 471,580
jobs in Montgomery Cow1ty in the first quarter of 2017 the latest date for which data are
available. Of these jobs, nearly 19 percent were low-wage jobs ( defined as jobs with $1,250
per month or less in earnings, which includes pre-tax wages, salaries, and self-employment
income). This is a decline from 2002, when nearly 27 percent of jobs in Montgomery
County were low-wage jobs. Nearly two-thirds of the low-wage jobs in Montgomery County
are concentrated in retail trade, administrative services, health care and social assistance, and
accommodation and food service industries. Nearly half of all jobs in the arts, entertainment,
and recreation and the accommodation and food services industries are low-wage jobs
whereby the impact of an increased minimum wage will likely be concentrated in these
industries.
2. A description of any variable that could affect the economic impact estimates.
The ability of the employer to pass the increase of the minimum wage to his or her
customers
The share of minimum wage earners to total employment for a business
The elastic/inelastic demand for the business's product or service
The costs of retraining workers
The extent to which higher minimum wages induce greater spending in the local
economy
The relationship between higher minimum wage rates and employee productivity and
morale
3. The Bill's positive or negative effect,
if
any on employment, spending, saving,
investment, incomes, and property values in the County.
The proposed increase in the County minimum wage has the potential to provide some
imp01tant benefits. An increase in earnings for low-wage County workers will have tangible
positive impacts for low-income workers and their families. This should also lead to
reductions in poverty, improvement in mental health and a reduction in hunger and stress
among minimum wage workers. From the perspective of County employers, additional
research shows a relationship between higher wages and employee productivity and morale,
Page 5 of 6
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Economic
Impact Statement
Bill 28-17 -
Human Rights and
Civil
Liberties
-
County Minimum
Wage
-Annual Adjustment
which would reduce turnover and the costs associated with hiring and training new
employees.
At the same time, it is possible that the wage increase could lead to a potential loss oflow-
wage jobs or a reduction in hours worked for employees in certain industries. This loss of
jobs could lead to a loss of income among County residents and the correlated effect of
reduced income tax revenue for the County. Additionally, an increase in the minimum wage
will lead to a cost for the County to bring its own salary schedules in line with the new wage
rate to avoid wage compression.
It
may also require the County to increase its funding for
non-profit organizations to ensure that they can maintain essential services.
There is no consensus among economists on the effects of the minimum wage and
employment. Based on the review of the research, it is not certain whether an increase in the
minimum wage would increase or decrease employment or overall employment earnings.
This uncertainty is based on the following factors presented in Section 2:
The ability of the employer to compensate for the increase in the minimum wage
by
passing such increase onto customers with higher prices
The ability of employers to reduce hours worked for their employees
The proportion of the wage costs among workers earning the minimum wage to the
total costs of production
The multiplier effect of increasing the minimum wage on the local economy
Finally, in the research studies presented above, the conclusions arc based on the datasets
used to detennine the effect of the minimum wage on employment, the statistical methods
used to reach those conclusions, and the model used as the theoretical framework to conduct
the analysis. Continuing themes in the prior economic studies of increased minimum wages
are the potential reduction
in
employee hours for smaller businesses that are constrained in
their ability to pass on higher costs to consumers and the fact that recessions will have
intensifying effects for the employment prospects for low wage earners.
4. If a Bill is
likely
to have no economic impact, why is that the case?
It is uncertain whether increasing the minimum wage would increase or decrease
employment or earnings among low-wage workers. As stated in Section 3, the economic
impact would be based on the assumptions and the characteristics and location of those
businesses that would be required to raise the minimum wage.
5. The following contributed to and concurred with this analysis:
David Platt, Dennis
Hetman, and Robert Hagedoorn, Finance.
.,
I
----"---=-,,-·-- ./
#"'~/.
/-,-,~-,
!.
I O
Ale~andre A. Espinoh, Dii'ector
Department of Finance
/_,;ii
=r
Date
Page 6 of 6
®