Going Beyond City Limits?

Municipalities are exercising their clout on social issues--and business is balking

On June 1, the city of San Francisco began requiring companies with which it does business to offer benefits to domestic partners of employees. At a June 21 meeting of the Conference of Mayors, Mayor Edward J. Boyle of North Olmstead, Ohio, exhorted his fellow leaders to pass a resolution, adopted in February by his Cleveland suburb, that would ban cities from buying goods or services made with child labor or under sweatshop conditions. And starting on July 1, city contractors in New Haven must pay workers $7.43 an hour--$2.68 more than the federal minimum wage.

These days, municipalities are pushing their clout way past potholes and police. Local governments are foisting their social vision on industry by passing bold laws that give them a say in everything from human-rights issues to compensation. Says Dennis Aftergut, chief assistant to the San Francisco city attorney: "Like any private company doing business, we should have the right to decide who we do business with and on what terms."

The growing awareness that city hall can use its pocketbook to wield power over business--politically and economically--is leading to adoption of laws that affect how multinational corporations function. San Francisco's domestic-partners ordinance, for instance, states that any company with ties to city business must offer all its employees, regardless of location, the same benefits that married workers get. Advocates of such initiatives applaud their sweeping application, noting that cities must fill a void left by a less interventionist federal government. "The backdrop to all this is a retrenchment of the public sector playing a social role," says Amy B. Dean, founder of Working Partnerships, a group in San Jose, Calif., that pushes living-wage initiatives.

TEST CASE. Opponents, however, say this trend is worrisome: It lets city hall play national politics--a role they deem inappropriate at best and unconstitutional at worst. "How can the city of San Francisco, with a jurisdiction of 49 [square] miles, pass

a law that has an impact across the U.S.?" asks Brendan Dolan, a lawyer representing the airline industry in a lawsuit challenging San Francisco's domestic-partner initiative. "Why should a company somewhere in Maine be subjected to San Francisco telling them how to treat their employees?"

In what could be an important test of a municipality's power to impose social regulation on business, the Air Transport Assn., representing 22 airlines, challenged San Francisco's domestic-partner law in mid-May. Other companies, including BankAmerica, Pacific Telesis, and Chevron, have complied with the ordinance, but the airlines say federal regulation preempts any local authority over the industry.

The suit, which came after United Airlines Inc. negotiated a two-year lease at San Francisco International Airport, could serve as an important gauge of how far local laws can go when it comes to federally regulated industries and multinational corporations. United maintains that upholding the law would interfere with its ability to serve its customers because it inappropriately links its use of airport gates and counter space to providing domestic benefits.

BACKLASH? Elsewhere, conflicts may not have reached the courts, but companies' resentment is brewing. In New Haven, George B. Clark says his janitorial service, which has contracts with the city, could suffer as a result of the new wage requirement. Under the regulations, it will be harder for Clark to pay his workers $5.50 to $6 an hour when city jobs pay more. In Fort Worth, Michael S. Thomson, a restaurateur who fought a law that gives restaurants until 2000 to either ban smoking from their premises or install air-purification systems, says the city should stick to municipal matters. "We're not public," says Thomson. "This is my private business." He says a new ventilation system would cost $15,000--an amount he believes many businesses will have trouble covering.

Of course, this isn't the first time cities have thrown their weight around. In the 1980s, many localities adopted laws restricting investments by public pension funds in outfits operating in South Africa. And recently, business has successfully fought back several initiatives to legislate social policy. Last fall, for instance, Denver voters defeated a measure that would have raised the city's minimum wage to $6.85 an hour.

But today, activism is more widespread than in the past and is reaching deeper into core corporate policy. For years, advocates of social activism say, companies have raked in tax incentives and subsidies from municipalities where they want to do business. Now, it's payback time. Many lawmakers hope cities will find more ways to use their collective buying power. Since passing his no-sweatshop ordinance, for instance, North Olmstead's Boyle has seen his bill pass in nine other Cleveland suburbs--and in San Francisco. Although the mayors' group tabled the measure for further study, he's working on signing up other cities, such as New York, Philadelphia, and Austin, Tex. To critics who say municipalities are overstepping their authority, Boyle says: "It's not that local government shouldn't be doing this. It's that all governments should be." Until a judge says otherwise, business can expect a lot more of the same.

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