Colorado restaurants are moving forward with two priority bills that sector leaders say are needed to stave off a massive wave of closures — but not without accusations from critics that owners either need to find a new business model or get out of the industry altogether.
The House Business & Labor Committee on Thursday advanced a bill that would allow restaurateurs in areas with minimum wages higher than the state requires to pay tipped workers at a lower level that is set by state law rather than local law. And while House Bill 1208 passed by an 11-2 margin, it came only a 5-1/2-hour hearing in which Denver city leaders lined up against each other on the proposal and in which some workers warned that the measure would lead to an increase in homelessness.
That bill heads next to the House Finance Committee, which also will get the first crack at HB 1282, a proposal that would exempt tips and taxes from the total revenues on which restaurants and retailers pay a percentage of earnings via credit-card swipe fees. Committee leaders have not set a date yet for either hearing.
The two proposals attempt to get at the underlying cost of running eateries — a cost that has risen substantially since the start of the pandemic and that has led to a spate of long-time business owners throwing in the towel and shutting down. Denver alone has seen 473 restaurants shutter in the past three years, leading to a loss of 21,000 jobs, largely because of the skyrocketing cost of doing business, said Democratic Reps. Alex Valdez and Steven Woodrow of the Mile High City, who are sponsoring HB 1208.
Why restaurants say they need a larger tipped credit
They — and some 80 industry representatives spanning from restaurant-group owners to servers — said that one way to reduce burdens quickly is to expand the tipped-credit exemption that allows servers and bartenders to earn $3.02 less than minimum wage. In places like Denver and Boulder that have higher minimum wages than Colorado’s, that’s meant that the highest-paid workers now make as much as $15.79 per hour plus tips that can raise earnings nearly threefold, at a higher cost to business owners.
Peter Waters, owner of T|Aco Restaurant in Boulder, said that every $1 minimum wage increase costs a business like his $50,000 while rents and supply costs are skyrocketing. Dolores Tronco, owner of the 34-employee Denver restaurant The Greenwich, said that with Denver’s minimum wage having jumped 95% since 2019, the rising operational costs will force her not to renew her lease unless the tip-credit policy changes.
Juan Padro, owner of Culinary Creative Group, said he paid above-tipped-credit minimum wage until last year but found that even after cutting hourly pay, two-thirds of his servers made more money because they benefitted from percentage tips on rising menu prices. Tronco said she tried to put all workers on salaries and eliminate tipping in 2023 to bridge the increasing gap in pay between front-of-the-house and back-of-the-house workers but faced a revolt from servers who preferred the money they made from tips over salaries.
“Under current policy, we’re championing the well-being of one group — tipped workers — over all others,” Tronco said. “Denver meant well (in raising its minimum wage and raising its tipped-credit wage $4 above state levels), but the system is out of balance. And the fate of hundreds of independent restaurants and our thousands of employees are all at stake.”
“A wage cut, plain and simple”
The bill faced heated opposition, however, from several groups — food-industry officials who don’t have tipped workers, tipped workers who say they earn less than the $40 hourly pay that Colorado Restaurant Association reported for that group and labor advocates. Critics noted the bill will lead to hourly pay cuts as legislators say they are looking to stem the state’s affordability crisis, and several, including Moonshell Cooperative co-owner Sid Farber, accused Democrats of being hypocrites to workers they say they represent.
One tipped worker asked legislators is they were prepared to set aside funds for the “spike in homelessness and crime” that would result from passage of the bill, while several others asked if legislators would introduce a companion bill that requires cuts in their rent prices. Farber, whose pizza catering businesses pays above minimum wage, said business owners who seek minimum-wage cuts rather than ways to balance their finances should “find another line of work and leave the service industry to more competent owners.”
“Let’s be clear: HB 1208 is a wage cut, plain and simple … as much as $8,000 per year,” said True Apodaca, political director for the SEIU Local 105 union. “Restaurants say they already have about a 3% profit margin … It would seem to me they have a faulty business model and need to fix their business model first.”
Bill splits leaders of Colorado’s largest city
In a sign of how divisive the issue is, Denver officials including the head of the city’s economic-development office and top mayoral aide Dominick Moreno — who sponsored the 2019 bill allowing local governments to raise minimum wages above state level while he was in the Senate — testified that the bill is needed to save restaurants. Meanwhile, three Denver City Council members and the city auditor’s office testified against it, with the auditor’s office criticizing numbers from the city’s excise and licensing department showing the declining number of restaurants in the city.
With just two of the panel’s Democrats opposing the bill and a representative from Gov. Jared Polis’ economic-development office testifying for it, HB 1208 appears to have positive prospects for becoming law. But on the same day that bill cleared its first hurdle, restaurants — along with allies like small retailers — made a statement by getting another bill introduced that could bolster operating margins that many say are closer now to 1%.
HB 1282, sponsored by Republican Rep. Max Brooks of Castle Rock and Democratic Rep. William Lindstedt of Broomfield, would prohibit payment card networks from charging fees on gratuity or taxes or imposing fees in ways that attempt to circumvent that ban. It would allow for injured parties to file lawsuits seeking as much as three times the total of damages sustained by a violation, plus attorney’s fees.
The next battle for restaurants
While business groups often oppose bills with private rights of action, CRA President/CEO Sonia Riggs said in an interview last week that such limitations on swipe fees are another critical way of reducing restaurant costs while eateries’ futures hang in the balance. Michael Smith, state director for the National Federation of Independent Business added that with most processing fees ranging between 1.5% and 3.5%, business owners who are forced to pay fees on two streams of revenue that they can’t keep are going to struggle more to make ends meet.
“Inflation is pushing small business owners and their thin margins to the brink,” Smith said in a news release.
The battle over HB 1282 could be tougher for restaurants, however, as they face opposition from credit-card issuers and from bankers. During past battles over credit-card fees, those groups have argued that their technology and financing allow for businesses to be able to accept credit cards from an increasingly cash-averse public and that government should not step into the middle of contracts that they make with business users.