By Michelle Dalton Tyree

LOS ANGELES — California apparel manufacturers and retailers said Gov. Arnold Schwarzenegger’s veto of a bill to raise the state’s hourly minimum wage to $7.75 from $6.75 by 2006 gives them a respite from higher costs that have forced some companies to shrink, move or close.

Citing projections from the state employment development department, Schwarzenegger said in his veto message last week: “This will increase the costs to California employers by at least $3 billion and as much as $4.4 billion. Now is not the time to create barriers to our economic recovery or reverse the momentum we have generated. I want to create more jobs and make every California job more secure.”

California’s apparel industry has lost an estimated 56,000 manufacturing and retailing jobs in seven years, partly because of production moving overseas, where labor costs are lower. The industry continues to struggle with rising worker compensation rates, mandated health insurance and joint liability issues, as well as facing stiffer competition from abroad.

“It’s definitely a bullet dodged,” said Bill Dombroski, president of the California Retailers Association. “I think he recognized the argument of this business community that to increase the minimum wage while waiting for cost savings from reforms [to the workers’ compensation system] would be a job killer.”

The state’s neighbors to the north, Oregon and Washington, have higher minimum wage requirements, with Oregon at $7.05 and Washington at $7.16. The federal minimum wage is $5.15 an hour.

“It probably has a bigger effect on the small retailer than the large, because the small one has less of an ability to pass [costs] on to the customer,” Dombroski said. “Don’t get me wrong — it still hurts, but [the larger retailers] have a national base.”

Greg Weaver, chief executive officer of teen specialty retailer Pacific Sunwear Inc., said, “I think that it’s a prudent move for the moment. I don’t expect that it’s a decision that will stick for years to come, though.’’

Organized labor, which supported the bill, cited free trade as the major cause of apparel-industry layoffs. Democratic assemblywoman Sally Lieber of Mountain View, Calif., author of the legislation, said she would consider reintroducing it or would try to put the issue on the ballot. She did not provide specifics.

This story first appeared in the September 22, 2004 issue of WWD. Subscribe Today.

“I think the veto is an unfortunate mistake, and what we need to be doing is working together to put together a stimulus package for the economy,” she said. “Every time the minimum wage has been increased, we’ve seen jobs grow and I think that points to economic stimulus.”

Schwarzenegger also vetoed a bill that would have required local governments to prepare reports on the impact of retail superstores before approving construction.

Wal-Mart, which wants to build as many as 40 supersized stores in California, has encountered opposition in some communities, including Inglewood, where voters rejected a Wal-Mart project. Opponents say the world’s biggest retailer hurts small businesses, depresses wages and creates environmental problems. The Los Angeles City Council last month passed a law, which remains in effect, requiring economic impact reports for so-called big-box retailers. But Schwarzenegger said in his veto that such state requirements would place “unnecessary, burdensome restrictions on businesses attempting to expand in California.’’ The bill “would create a system of costly hurdles that these retailers would need to overcome before opening a new facility in a city or county.”

The two vetoes come as Schwarzenegger, the movie star and former bodybuilder who captured the statehouse for the Republicans in a recall vote that booted Democrat Gray Davis, tries to deliver on his pledge to revive the state’s economy by retaining jobs and businesses.

The possibility of financial pain from the minimum wage boost prompted some manufacturers to get civic-minded. Jan Rutkin, president of knitwear and swimwear contractor Todd Rutkin Inc., wrote to the governor and urged him to veto the bill. Rutkin said if the measure became law, she wasn’t sure about the survival of her 38-year-old company, which employs 85 people and counts Patagonia and swimwear producer Lunada Bay as customers.

“It was a bigger question than a few layoffs,” she said. “It was whether we could stay in business for the next three to five years.”

Lonnie Kane, president of women’s sportswear label Karen Kane, which is carried at Nordstrom, Gottschalks and Bloomingdale’s, said boosting the hourly minimum wage was “not just about the right thing to do. It’s about what’s the right thing to do at the right time. If we’re saying we’re trying to be a business-friendly state and [are] raising the minimum wage, then we’re sending mixed signals.”

Kane estimated that, if the minimum wage went up 15 percent by 2006 as proposed in the bill, consumers could have seen a 30 to 50 percent markup in product.

The governor’s veto was at odds with the Garment Worker Center, a workers’ rights organization, which supported the minimum wage increase.

Lead organizer Joann Lo said the decision was a “disappointment” and “layoffs are happening as a direct result of free-trade agreements, not because of wage increases.”

— With contributions from Nola Sarkisian-Miller