Once again, legislative Democrats are proposing a band-aid for the consequences of their own legislation.  And once again, it will do nothing to cure the underlying problem they’re claiming to remedy.  This time, it has to do with the minimum wage, the unintended consequences of forcing it up to keep pace with inflation, and piling on by progressive city councils.  It turns out all these extra labor costs aren’t good for labor-intensive restaurants.

The problem has been particularly acute in Denver and Boulder, which have established their own minimum wages in excess of the state’s.

Colorado, like most states, has a “tip offset” for the minimum wage for business with employees who rely on tips for a substantial portion of their wages.  In Colorado, that tip credit is $3.02, and has not kept pace with the increase in the state minimum wage since 2006.  The net result has been disproportionate labor costs, even as tips also rise along with menu charges.

Minimum wage wound

House Bill 25-1208 would adjust the minimum wage that restaurants would have to pay tipped employees, but only in cities whose minimum wages exceed the state minimum.  So if a jurisdiction had a minimum wage that was $4.00 above the state, the tip credit would be $7.02.  Those localities could then adjust the tip credit up or down by as much as 50 cents a year.

While the desire to ease the burden of excessive operating costs for restaurants is laudable, this bill ends up doing so on the backs of wait staff, addresses effects rather than causes, picks favorites, and ignores any number of other factors contributing to those increasing costs.

In 2006, voters approved Amendment 42 to the state Constitution, raising the state’s minimum wage from $5.15 an hour to $6.85 an hour, with annual adjustments for inflation thereafter.  In 2016, Amendment 70 boosted the minimum wage again, from $8.31 an hour to $9.30, and then in 90-cent increments until 2020, when it would reach $12.00.  After that, the annual inflation adjustments resumed.

The state’s minimum wage currently stands at $14.81, the 11th highest in the country according to Paycor.  The $3.02 tip credit is among the lowest in the country, and as a result, the state’s tipped minimum wage is 6th highest, trailing California, Hawaii, Nevada, Oregon, and Washington, none of which even has a tip credit.   Among states with a tip credit, Colorado has the highest tipped minimum wage, once the credit is factored in.

There’s no question that the costs associated with running a restaurant in Colorado are skyrocketing.  According to USA Today, Colorado had the highest restaurant inflation rate in the country in 2024, at 24%, catapulting it from the 29th highest average bill to the 12th highest in the entire country.  And the Colorado Restaurant Association reports that Colorado’s menu price inflation was also the highest in the country in 2023.

The general trend is corroborated by other sources.  An April 2024 report by Datassential Global Food & Beverage Intelligence’s price monitor shows Colorado as having the 6th highest inflation at limited service restaurants since September of 2023, at 6.2% over that 7 month period alone.  (Limited service restaurants do not feature table service, and have few, if any, tipped employees.)

There is no question that increased labor costs have both contributed to the problem and held down industry employment.  The National Restaurant Association makes available county data from the Bureau of Labor Statistics on a quarterly basis.

In both Boulder and Denver counties, food & beverage employment is still below pre-Covid highs, even as Boulder has 3% more establishments and Denver has 7% more.  Total wages paid, however, are 29.6% and 21.6% higher, respectively, and Denver’s per-employee wage was 38.5% higher in the 3rd quarter of  2024 than in 2019; cumulative national inflation is 19% over that same period.  By comparison, the industry in Arapahoe (2%), El Paso (10%), Mesa (6.7%), and Pueblo (3.6%) counties employs more people than pre-Covid.

A band-aid at best

The bill only affects the tip credit for specific localities, but it was motivated by the fact that the state minimum wage had increased so substantially while the tip credit had remained the same.  The bill does nothing to address that, probably because the $3.02 tip credit is explicitly in the text of the state Constitution.  Changing either the tip credit or even future increases in the minimum wage would require a constitutional amendment, and the bill sponsors are not willing to go in that direction.

The bill also is unfair to other businesses whose employees are largely paid through tips.  Hair stylists, food delivery, taxi drivers, bellhops, and casino dealers, for example, easily meet the federal definition of tipped workers, and are affected by the state tip credit.  But the bill is restricted to food and beverage businesses, a new distinction not found in the Constitution’s provisions.

Finally, the bill ignores all the other regulations and policies that contribute to the problem.  Food prices have been skyrocketing.  The same forces of artificial density that contribute to rising residential rent has also spiked commercial rents.  And between efforts to limit natural gas production and pass on the costs of “green” electricity to the consumers, commercial natural gas is up 65% since 2020, and the price of electricity to commercial customers is up 20%.

According to the Colorado Department of Revenue, from June 2021 to November 2024, the 12-month average of the number of retailers in the food & beverage business rose 14%.  Retail sales in that industry rose 18%, but state net taxable sales rose only 12%, indicating accelerating costs of doing business.

House Bill 1208 is a band-aid at best, and only a partial one at this, applying to only one industry in a couple of counties.  While myriad state policies increase operating costs, this bill focuses on the effects rather than the underlying cause.  It is, perhaps the worst kind of legislation, recognizing a real problem caused by prior legislation, but holding out only a false promise of solving it on the backs of the people it purports to help.

Joshua Sharf is a Denver resident and regular contributor to Complete Colorado.