Agenda Memo

City of Boulder City Council Agenda Item Meeting Date: July 30, 2026 Agenda Title Second reading and consideration of a motion to amend and pass Ordinance 8754 amending Chapter 12-6, “Minimum Wage,” B.R.C. 1981, setting a local city of Boulder tip offset amount for food and beverage industry workers; and setting forth related details

Staff Contact • •

Meghan Wilson Outcalt, Water Quality Senior Manager, Utilities Department Mark Woulf, Assistant City Manager

Draft Motion Language Staff requests council consideration of this matter and action in the form of the following motion: Motion to amend and pass Ordinance 8754 amending Chapter 12-6, “Minimum Wage,” B.R.C. 1981, setting a local city of Boulder tip offset amount for food and beverage industry workers; and setting forth related details.

Executive Summary This item serves as the second reading of Proposed Ordinance 8754 (Attachment A) to establish a local tip offset in the city of Boulder. Exploring the city’s authority to modify the tip offset was identified as a one-year council priority at the 2026 council retreat. Following direction on April 2, 2026, staff narrowed the options for modifying the tip offset and conducted additional research and community engagement. This

Memorandum provides updated data and information on the restaurant industry and tipped workers, as well as a summary of community feedback. Because council has multiple options to consider, Proposed Ordinance 8754 is introduced with a “blank” for the tip offset amount in 2027 and, thereafter, is proposed to increase with the rate of inflation, consistent with the city’s minimum wage. At council’s direction, staff have also provided an analysis of an alternative option that would temporarily freeze the base wage for tipped employees at $13.80 by increasing the tip offset to $4.37 in 2027 and adjusting it in 2028 as needed to maintain the $13.80 base wage. In this alternative, the freeze would sunset at the end of 2028, unless council adopted another ordinance to modify the tip offset amount. Staff have prepared draft language for this “freeze and sunset” version, if council chooses to amend the proposed ordinance as such. At the public hearing on July 30, 2026, council will review the tip offset options and be asked to provide a decision related to the tip offset. If council chooses to pass Proposed Ordinance 8754 on second reading, with or without the freeze and sunset alternative, council will amend the ordinance and fill in the “blank” value for the 2027 tip offset amount. Proposed Ordinance 8754 would then be brought forward for formal adoption on consent at third reading.

Council Action Options Option

Outcome

Approve motion language as drafted

Council would adopt the ordinance on third reading, likely on August 20, 2026, for formal adoption.

Define and adopt a modified motion

Council would need to define any modifications or amendments to the draft motion language. This will require staff to bring back an amended version.

Deny the motion or take no action

If this motion is denied or no action is taken, the ordinance would not be adopted, and the tip offset would remain at $3.02.

Refer back to staff

If council refers this item back to staff, the ordinance would not be adopted at this time, and a revised schedule for consideration of a local tip offset would have to be determined.

Alignment with City Plans and City Council History Sustainability, Equity and Resilience (SER) Framework and Citywide Strategic Plan Alignment SER Framework Goal Area Economically Vital Citywide Strategic Plan Strategy 14. Enhance collaborative efforts to support an inclusive, healthy, sustainable, and resilient local economy that builds on core economic strengths, promotes economic mobility, and aligns with community values and priorities. Staff Notes This project is not directly reflected in the Citywide Strategic Plan but was identified as a 2026 council priority.

Alignment with Additional City Plans This project aligns with the recently updated draft Economic Vitality Strategic Plan, which calls for broader support for small businesses, especially related to operating costs and workforce development. This project implicates the broader goals in the city’s Racial Equity Plan. Specific results from staff’s racial equity analysis are described in the Equity Analysis section below.

City Council History Information on the city’s minimum wage increase and City Council’s support for HB251208 can be found in the April 2, 2026, Matters from the City Manager memo. On April 2, 2026, staff presented background information and four conceptual tip offset options for council feedback. At the meeting, council conducted a straw poll and decided to continue evaluating options 1, 2a and 2b; take option 3 off the table; and add a new option (called option 4 in this Memorandum). These four options are described in the Analysis section below and Attachment B. Council also requested updated data and to move the hearing to a later date to accommodate a longer community engagement window.

Analysis This section provides background on the tip offset; data and information on restaurant employees and the restaurant industry; and a review of options for modifying the tip offset. Data presented are taken from local, state and federal data sources and have been updated since the April 2 memorandum. Although some of the numbers may be different, general trends are similar to those presented in the April 2 memorandum.

Background In 2025, Colorado passed a new law (HB25-1208) that allows jurisdictions with a higher minimum wage than the state’s minimum wage to increase their allowed tip offset, as long as the resulting base wage for tipped employees does not fall below the state’s base wage. The tip offset, currently set at $3.02, allows food and beverage service employers (referred to as “restaurants”) to pay tipped employees up to $3.02 per hour less than the city’s minimum wage. If an employee does not earn enough tips to bring their hourly pay up to the local minimum wage, the employer must make up the difference. Boulder’s minimum wage increased by 8% in 2025 and 2026 and will increase by 8% again in 2027 and, thereafter, by the rate of inflation. Additional background on tip offset rules can be found in April 2, 2026, Matters from the City Manager memorandum. Regional Context In addition to the City of Boulder, three jurisdictions in Colorado have a higher minimum wage than the state’s minimum wage and therefore are eligible to increase the tip offset: • •

•

Boulder County is not currently considering an increase to the tip offset. The City and County of Denver does not currently have formal plans to increase the tip offset. Denver City Council Member Darrell Watson has been meeting with community members informally on a potential increase to the tip offset. The City of Edgewater enacted an ordinance in December 2025 that froze the base wage for tipped employees and increased the tip offset for one year. The ordinance sunsets at the end of 2026, unless Edgewater’s city council enacts another ordinance. Edgewater’s city council met in early June to discuss options and plans to hold another workshop in mid-summer, with a potential decision in late summer or early fall of whether to modify the tip offset beyond 2026.

Restaurant Employees As described in the April 2, 2026, memorandum, restaurant workers are generally some of the lowest paid workers in the state. Wages in the restaurant industry vary widely, both among and within different jobs. Bartenders and waitstaff, who often receive tips, have the widest range of wages of restaurant workers in Boulder County, with some workers earning close to minimum wage and others earning $40 or more per hour. Updated wage data from 2025 show that mean wages for bartenders and waitstaff in the county were about $25 and $27 per hour, while median wages were about $20 and $24 per hour, respectively, compared to the 2025 minimum wage of $15.57 in the city of

Boulder (Figure 1). These data show that many restaurant workers do not earn a living wage, estimated to be about $22.44 per hour in Boulder County.1 Figure 1: Restaurant Employee Wages in Boulder County, 2025

Source: Colorado Department of Labor and Employment, Occupational Employment and Wage Statistics (OEWS), accessed May 28, 2026. These data are not available at the city level.

Like many community members, restaurant workers in Boulder County have a high cost of living. Prices for necessities like food, transportation, housing, utilities and services were about 5% higher than the national average in 2024, largely due to the high cost of housing, estimated to be about 57% higher than the national average.2 Additional information on restaurant workers, including demographic data and wage theft information, can be found in the April 2, 2026, memorandum. Restaurant Industry Trends Restaurant industry data indicate a flattening or declining trend in recent years after a post-COVID rebound. Similar trends can be seen in the restaurant industry statewide, likely a result of rising costs and changing consumer behavior.

1 The city uses the Self-Sufficiency Standard for Colorado published by the Center for Women’s Welfare,

University of Washington, last updated in 2022. $22.44 is the average of the rate for a single adult ($19.44) and an adult in a two-income household with two children ($25.44). 2 Source: U.S. Bureau of Economic Analysis, “MARPP Regional price parities by MSA,” accessed June 10, 2026. The latest data are from 2024.

Restaurants are the third-highest generator of retail sales tax in Boulder (omitting the all-other category). The following graph (Figure 2) shows overall city sales tax from 2019 to 2025, as well as for the top three grossing industries: general retail, food stores and restaurants (omitting all-other). Sales tax from restaurants declined steeply during COVID, rebounded from 2021 to 2023, and was flat in 2024 and 2025. General retail sales tax increased sharply in 2021, declined in 2023 and 2024, and increased in 2025. By contrast, food stores’ revenue has been relatively stable over the past few years. Figure 2: Industry Trends – City of Boulder Retail Sales Tax, 2019 - 20255

11%

$45 $40 $35 $30 $25 $20

$5 $0

2019 Restaurants

1%

1%

-8%

32%

3%

1%

$120

-9% -15%

-2% -6% 37%

7% 16%

$160 $140

19%

$15 $10

2%

7%

$100 $80

1%

4%

-1%

8%

0%

1%

-35%

$60 $40 $20

2020 2021 General Retail

Overall City Sales Tax Revenue

$50

Millions

Millions

Restaurants, General Retail and Food Stores Sales Tax Revenue

Industry Trends - City of Boulder Retail Sales Tax Revenue

$0 2022 2023 2024 2025 Food Stores Overall City Sales Tax

% change from previous year Source: City of Boulder Finance Department, accessed May 29, 2026.

More information on sales tax can be found in the city’s December 2025 revenue report. Jobs data show similar trends. Overall, jobs in Boulder decreased by 4% from 2019 to 2020 during the COVID lockdown, while restaurant jobs decreased by 32% during that time period. After rebounding from 2021 to 2023, all jobs and restaurant jobs have decreased over the past two years, with restaurant jobs decreasing at a slightly faster rate, as shown in Figure 3.

5 City finance data from 2025 have been finalized since the April 2, 2026, city council meeting. To be

consistent with other city revenue reports, staff included all restaurant revenue in this memo, compared to the April 2 memo, which only included in-city restaurants (which excludes, for example, revenue from restaurants outside of the city that deliver to customers within the city and have to pay city sales tax). Restaurants are referred to as “Eating Places” in city revenue reports.

Figure 3: All Jobs and Restaurant Jobs in the City of Boulder, 2019 - 2025 -2%

6% 20%

90,000

10,000 9,500 9,000

-4%

95,000 All Jobs

-1%

4%

100,000

8,500 -4%

8,000 -3%

7,500 7,000

85,000

6,500

10%

80,000 75,000

1%

4%

6,000

-32% 2019

2020

Restaurant Jobs

105,000

5,500 2021

2022

All Jobs

2023

2024

2025

5,000

Restaurant Jobs

% change from previous year Source: Lightcast, accessed June 4, 2026. This platform uses data from the Bureau of Labor Statistics and other sources to estimate the number of jobs at the city level. Official government sources are not as granular. These data are not typically used as a time series but are considered reliable to illustrate trends.

As shown in Figure 4, trends for jobs in Colorado show a similar pattern to Boulder. However, compared to Boulder, restaurant jobs in the state reached pre-pandemic levels by 2023 and have decreased at a slower rate over the past two years. Figure 4: All Jobs and Restaurants in Colorado, 2019 - 2025 2%

4% 2,800,000

4% 9%

All Jobs

-5% 2,600,000

3%

1%

0%

250,000 -1%

-1%

13%

2,400,000

230,000 210,000 190,000

-18%

2,200,000 2,000,000

270,000

170,000

2019

2020

2021 All Jobs

2022

2023

2024

Restaurant Jobs

% change from previous year Source: Lightcast, accessed June 4, 2026.

2025

150,000

Restaurant Jobs

3,000,000

Data indicate that visitation to Boulder restaurants is also declining. The following graph (Figure 5) shows visits to about 160 Boulder restaurants using Placer.ai, a location intelligence platform that uses geospatial datasets to approximate the number of visitors to certain addresses. While these data are not precise and do not reflect all restaurant visits, the trend is similar to the sales tax and jobs numbers described above. Figure 5: Visits to Subset of Boulder Restaurants, 2019 - 2025 12,000,000 10,000,000

Visitors

8,000,000 6,000,000 4,000,000 2,000,000 0 2019

2020

2021

2022

2023

2024

2025

Source: Placer.ai, accessed June 3, 2026.

Taken together, these data suggest that growth in the restaurant industry is slowing or even declining, a finding that is also echoed in the 2026 Colorado Business Economic Outlook, published by the University of Colorado Leeds School of Business. In recent years, businesses have faced cost pressures in several categories. Labor and food costs—two categories that are of particular concern to restaurants—have both increased in recent years. In Boulder, minimum wage increased by 40% from 2019 to 2025, while the base wage for tipped employees increased by 55% during that time. In the Denver-Aurora-Lakewood area, inflation for food has outpaced all items, increasing by about 33% from 2019 to 2025 compared to overall inflation (“all items”) at about 26%. These cost pressures are reflected in high inflation for food away from home (that is, at restaurants), which exceeded overall inflation and food inflation (Figure 6).

Figure 6: Consumer Price Index (CPI) for All Items, Food and Food Away From Home in the Denver-Aurora-Lakewood Area, 2019 – 2025, Indexed to 2019 150

Index (2019 = 100)

145 140 135 130 125 120 115 110 105 100

2019

2020

2021

All Items

Food

2022

2023

2024

2025

Food Away from Home

Source: U.S. Bureau of Labor Statistics, accessed February 17, 2026.

Tip Offset Options Staff presented four conceptual options for modifying the tip offset at the April 2, 2026, council meeting. At that meeting, council decided to continue consideration of options 1, 2a and 2b; eliminate option 3 from consideration; and add another option, as follows: • •

•

•

•

Option 1: Keep the tip offset at $3.02 (no change). Option 2a: Raise the tip offset at the same rate as minimum wage (8% in 2027 and thereafter based on the inflation rate), which would result in a $0.25 increase in 2027 at $3.27. Option 2b: Set the tip offset at 20% of minimum wage, which would result in a $0.61 increase in 2027 at $3.63; thereafter, the tip offset would increase by the same rate as minimum wage (i.e., based on the inflation rate). Option 3 (no longer under consideration): Increase the tip offset to the maximum amount allowable by Colorado law, thereby decreasing the base wage for tipped employees by $1.21 in 2027. Option 4 (as proposed by Council Member Benjamin): Freeze the base wage for tipped employees at the 2026 rate ($13.80) for up to two years. This freeze would increase the tip offset to $4.37 in 2027. In 2028, the tip offset would be influenced by the rate of inflation; at 3% inflation, the tip offset would be about $4.927. In this option, the ordinance will sunset at the end of 2028. As of January

7 Boulder’s minimum wage in 2028 at 3% inflation would be about $18.72. The tip offset equals minimum

wage minus the base wage for tipped employees: $18.72 – $13.80 = $4.92.

1, 2029, the tip offset would revert to the state’s tip offset of $3.02, and the base wage would increase to about $16.26 at 3% inflation, unless council passed a new ordinance before January 1, 2029, with another adjustment to the tip offset. In addition to the options presented, council may select any tip offset amount up to $4.37 for 2027, per council’s direction on April 2 not to consider options that would decrease the base wage for tipped employees. Legally, council could approve a tip offset amount up to the maximum amount allowed by the state, estimated to be about $5.39 in 2027. However, an amount above $4.37 would decrease the base wage. The following figure illustrates these options in 2027: Figure 7: Options for Increasing the Tip Offset in 2027

*The minimum local base wage allowed by state law is the state’s base wage. The projected state base wage in 2027 is $12.78, which equals current Colorado minimum wage ($15.16) multiplied by the end-of-April Consumer Price Index (4.2% for Denver-Aurora-Lakewood), minus the $3.02 state tip offset. The state uses CPI from July 1 through June 30 to calculate minimum wage increases for the following year. The $5.39 maximum tip offset = 2027 Boulder minimum wage ($18.17) minus $12.78 base wage.

Recognizing that council has multiple options, staff have left a blank for the 2027 tip offset amount in Proposed Ordinance 8754 that may be adapted based on the decision council makes at the public hearing planned for July 30. As drafted, in 2028 and beyond, the tip offset would increase by the rate of inflation of the previous year, consistent with the city’s minimum wage beginning in 2028. Staff have also prepared draft language for Option 4, if council chooses to amend the proposed ordinance. All options present trade-offs between raising the base wage for tipped employees and lowering labor costs for restaurants that take the tip offset. More information on the options and impacts to restaurant owners and workers is provided in Attachment B. Community feedback indicates perceived positives and negatives of these trade-offs, as described in the Community Engagement section below.

Equity Analysis Staff conducted a preliminary equity analysis before the April 2 council meeting to examine who may benefit and who may be negatively impacted by increasing the tip offset. As described in the April 2 memorandum, each of the options will have varying impacts on people of color and women—who are overrepresented in the restaurant industry compared to the general population—including both workers and business owners. Some of the feedback from the community questionnaire revealed that the nuances of applying the tip offset may not be fully understood by everyone in the industry. There is inherent unpredictability associated with tipped wages, and complex wage administration rules related to tip sharing and weekly calculations of employees’ base wage plus tips may result in confusion for both tipped workers and employers regarding how the tip offset should be applied. Regardless of which policy choice council makes, further education regarding the offset could result in more equitable outcomes for tipped workers by reducing mistakes in tip offset application, which can result in intentional or unintentional wage theft on behalf of the employer. Staff plan to enhance educational materials, including the city’s minimum wage poster that employers may post alongside state-mandated wage posters. These enhancements are intended to better inform restaurant workers and employers of who is eligible to receive tips, when the tip offset may be applied, and the need to ensure that all employees earn at least minimum wage.

Fiscal Note Modifying the tip offset is not anticipated to directly or significantly impact the city’s budget. Any changes impacting city budget would be indirectly recognized in the future sales and use tax revenues.

Climate, Resilience, and Sustainability Considerations No direct climate impacts are anticipated from either keeping the status quo or changing the tip offset.

Community Engagement Prior to conducting community engagement, staff reviewed results from the city’s 2024 minimum wage study and testimony from hearings related to HB25-1208. A summary of findings from this review can be found in the April 2, 2026, memorandum. Staff conducted community engagement from April 21 through June 2, primarily through an online questionnaire on BeHeardBoulder.org that could be taken anonymously in English and Spanish. Staff used the consult level of engagement on Boulder’s Engagement Spectrum, seeking feedback on perceived positives and negatives of

increasing the tip offset. Results have been posted on the city’s tip offset project web page. Staff used a variety of outreach channels, including a press release, news coverage, social media and connecting with community partners, to reach restaurant employees and operators, as well as other interested community members. Staff also visited more than 100 restaurants across the city (about 20% of all restaurants), representing a wide variety of types of restaurants and price points, to distribute flyers and encourage staff and operators to provide feedback through the online questionnaire. Staff received 282 responses to the questionnaire, which was open from April 21 through June 2: 55 responses (20%) from restaurant owners, 59 (20%) from restaurant employees and 168 (60%) from community members who do not work in the restaurant industry.9 The questionnaire included the city’s standard demographic questions, the desired degree of change to the tip offset, specific questions for owners and workers, and the perceived positive and negative impacts of changing the tip offset. All of the results can be found in Attachment C. In one question, staff presented five options for modifying the tip offset, ranging from no change to major change, for participants to choose from. Staff also provided an interactive online calculator to illustrate the impacts of each option for both tipped employees and restaurant operators. Responses are shown in Figure 8 and summarized as follows: • • • • •

83% of restaurant worker respondents selected “no change” or “slight change” to the tip offset. 8% supported “major change” or “substantial change.” 82% of restaurant owner respondents selected “major change” or “substantial change” to the tip offset. 13% supported “no change” or “slight change.” 77% of community members selected “no change” or “slight change.” 17% supported “substantial change” or “major change.” Few respondents—7% across all categories—selected “moderate change.” Overall, 56% of respondents selected “no change,” 19% selected “major change,” and the remaining 25% were split evenly between a slight to more substantial change.

“No change” aligns with option 1 (status quo); “slight change” most closely aligns with option 2a ($0.25 tip offset increase in 2027), and “moderate change” most closely aligns with option 2b ($0.61 increase in 2027). “Major change” aligns mostly closely with option 4 (without identifying the option to sunset the ordinance).

9 By comparison, the 2024 minimum wage questionnaire garnered feedback from 253 community

members (which included workers) and 137 employers who live or work in the city of Boulder.

Number of Responses

Figure 8: Responses to “How Much Change to the Tip Offset Do You Support”?11 120 110 100 90 80 70 60 50 40 30 20 10 0

Major change

Community member

Substantial change

Moderate change

Restaurant employee

Slight change

No change

Restaurant owner or operator

A high number of respondents (90%) provided written responses to the open-ended questions asking about positive and negative impacts of increasing the tip offset. While respondents often disagreed strongly about possible policy options for modifying the tip offset, many indicated shared concern for both business owners and workers. Restaurant owners, restaurant employees, and other community member respondents all expressed that both restaurants and their workers are struggling to make ends meet given inflationary pressures related to rent, the cost of goods and the general cost of living and operating in Boulder. Generally, respondents stressed the importance of both a thriving hospitality sector and fair compensation for workers. Values converged around the essential role that the restaurant industry plays in the local economy and the criticality of a well-paid workforce within the industry. Disagreements arose primarily out of differing assessments of how to best provide economic relief, in what ways, to what extent, and to whom.

11 While analyzing these responses, staff noticed some discrepancies between the degree of change a

responded selected and their written responses. For example, some respondents selected “Major Change” but only wrote negative impacts of increasing the tip offset, and vice versa. Where a discrepancy was very clear, staff modified the answer to the degree of change accordingly. Because of the high number of written responses and the low number of these discrepancies, staff determined these data are valid to indicate the overall preferences of respondents. The original data and corrected data are presented in Attachment C.

When respondents were asked about the positive impacts that increasing the tip offset may have on themselves, their families and their communities, themes included: 1. Supporting the Restaurant Sector—The most commonly cited positive impact of increasing the tip offset was to help restaurants remain open and provide relief for business owners dealing with escalating costs. Many respondents desire to support small, locally owned restaurants by allowing those restaurant owners to reduce labor costs through a higher tip offset. Community members care deeply about the character of Boulder and do not want to see small, locally owned restaurants close due to rising costs. 2. Combatting Inflation—The next most common theme among positive impacts was the potential to reduce menu prices as a result of lowering labor costs. Many respondents expressed concern about the escalating costs of dining out and viewed increasing the tip offset as one strategy to avoid further cost increases. 3. Maintain Staffing Levels—Many restaurant owners in particular stated that increasing the tip offset would help them maintain current staffing levels or increase staffing numbers and hours. Conversely, they also expressed that maintaining the tip offset at $3.02 would require staffing cuts or a reduction in hours for current staff members. They stressed that cutting staff and hours was often a last resort strategy to balance their profit margins and stated a desire to avoid negatively impacting their employees in these ways. 4. Prioritize Pay for Back-of-House Staff—Many restaurant owners expressed that tipped workers in their restaurants already make more than the minimum wage and that they are, in many cases, earning hourly wages that are disproportionately higher than the wages earned by non-tipped staff. They stated that increasing the tip offset would provide financial flexibility to provide better pay for workers who do not receive tips, including back-of-house staff and, in some cases, managers. When respondents were asked about the negative impacts that increasing the tip offset may have on themselves, their families, and their communities, themes included: 1. Affordability and Cost-of-Living Concerns—By far the most cited theme related to negative impacts of increasing the tip credit was affordability and cost of living. Respondents stressed that living in Boulder is already challenging for the community’s lowest wage earners and slowed wage growth is likely to exacerbate this issue. Relatedly, many respondents expressed concerns that an increased tip offset could result in greater pressure on the local social safety net or could even prompt people to move away and commute in, resulting in additional traffic and climate impacts due to transportation shifts.

2. Equity and Dignity—A high number of respondents expressed that an increased tip offset does not align with the community’s equity values. They articulated that tipped workers deserve an equitable, dignified, and livable wage that reflects their hard work and contributions to the community and that increasing the tip offset ran counter to these aspirations. 3. Less Wage Predictability and Greater Stress—Many respondents shared that a lower base wage, even with a legal requirement for employers to ensure tipped earners still make the local minimum wage, results in less wage predictability for people who earn tips given stronger reliance on tip-based income. Respondents also noted that wage volatility can create or worsen stressors related to financial planning, mental and physical wellbeing, and more. 4. Concerns Regarding How Restaurant Owners Use Payroll Savings—A common theme was general concern over how restaurant owners may utilize payroll savings resulting from an increased tip offset. Many respondents stated that they did not believe payroll savings from an increased tip offset would be used to increase pay for non-tipped employees, provide greater employee benefits, or lower menu prices. 5. Slowed Economic Growth—Some community respondents indicated that they feared worsening economic conditions on account of tipped earners having less disposable income due to slowed wage growth. They shared that tipped wage earners reinvest in the local economy by visiting restaurants and shopping in town, which will be more difficult to do if their wage growth slows or pauses. 6. Shifting Responsibility to the Consumer—Some respondents expressed frustration with feeling responsible for ensuring fair compensation for tipped employees if the tip offset is increased. These community members believe it is the responsibility of the business owner to ensure fair compensation and that consumers, who themselves are grappling with the cost of living, would feel compelled to tip more generously to compensate for an increased tip offset. 7. Employee Performance—Some respondents indicated that they would expect the quality of service they receive in the hospitality sector to diminish as tipped workers see slower wage growth. In addition to the themes related to anticipated positive and negative impacts, staff identified two additional sentiments that were more evenly distributed among respondent type, indicating potentially greater cohesion in these areas among restaurant owners, restaurant employees, and community members. These included: 1. Desire to Abandon Tip System Altogether—While not presented as an option on the questionnaire, abandoning the tipped wage system altogether was a common theme, with respondents citing concerns about inequities and the legacy of racism in tipping, expressing a desire for service employees to make a

livable wage and noting practices in other countries where hospitality workers are not dependent on tipping as a main source of wages. 2. Desire to Explore Additional Policy Solutions—Respondents commonly noted that labor costs are only one of several pressures facing restaurant owners. They cited commercial rent hikes, the increasing cost of goods, and other operating challenges as worthwhile areas to explore as ways of assisting businesses without impacting employee wages. The full engagement report, including all responses to the questionnaire and communication methods, can be found in Attachment C.

Workplan Considerations This item is not currently on staff’s future workplan. A change to the tip offset, if adopted, will not significantly impact staff’s workplan, as the year-over-year change would be calculated and communicated at the same time as minimum wage increases. If council adopts Option 4, council will need to prioritize additional work on this project during the 2027 City Council retreat.

Next Steps for City Council If council chooses to pass Proposed Ordinance 8754 on second reading, council will fill in the “blank” value for the 2027 amount. If council chooses to amend the ordinance with the “freeze and sunset” provision (Option 4), staff have language prepared. In either scenario, this would formally be an “amend and pass” motion on second reading. Council would then formally adopt Proposed Ordinance 8754 on third reading, likely at the August 20, 2026, council meeting on consent.

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Attachments A – Proposed Ordinance 8754 B – Tip Offset Options C – Tip Offset Community Engagement Results