PHOENIX — Arizona cannot take more than $1.1 million from Flagstaff as a financial penalty for the city having its own minimum wage, at least not now.
In a decision Monday, Maricopa County Superior Court Judge James Smith did not directly rule on arguments by the city that the penalty would run afoul of the Voter Protection Act.
That constitutional amendment bars lawmakers from tinkering or repealing what voters have approved. In this case, the city argued the assessment would violate Proposition 202, the 2006 voter-approved law which, in establishing a state minimum wage, specifically allows cities and counties to set a higher figure.
Instead, Smith chose to focus on the narrow legal issue that the state did not meet the deadline for imposing the assessment. And given the potential financial hardship to the city, the judge said he can’t allow the state to seize the cash.
But Monday’s ruling isn’t the last word, as attorneys for the state can still make arguments at a yet-to-be-scheduled full-blown trial.
Smith, however, said there are other potential flaws in the state law that could cause him to permanently block not only this assessment, but also preclude similar actions against other cities, like Tucson, where voters will decide next month if they, too, want a minimum wage higher than the state’s current $12.15 an hour.
The judge said state lawmakers adopted something that appears to contradict what voters approved.
“Proposition 202 resulted from a direct democratic process,’’ Smith wrote, and it was approved by a 2-1 margin. It not only set a state minimum wage but also specifically permitted cities to set a higher figure.
Monday’s ruling could provide welcome news to proponents of a similar plan that the Tucson City Council put on the November ballot. It seeks to raise the minimum wage in Tucson in steps until it reaches $15 by 2025.
The decision suggests if Tucson voters there approve the wage plan, that courts will question and possibly overturn any resulting effort to take away state aid.
The dispute is over a state law that allows assessments against a city to reimburse the state for costs attributable to a higher local minimum wage.
There is no clear direct cost, as the Flagstaff ordinance first approved in 2016, with its current $15 minimum, does not cover state government workers. But the state contends there are other expenses.
For example, the Department of Economic Security tried to calculate what its vendors, like those who provide services for the developmentally disabled, will have to pay their employees and then bill the state. That figure was $891,300, DES said. Add in other agencies and the bill to Flagstaff topped $1.1 million.
Smith pointed out, though, that the law requires the assessment to be made no later than July 31 of each year. But the current version of the law — the one with the Flagstaff assessment — did not become effective until Sept. 29.
Put simply, the judge said, it came too late.
Monday’s ruling still allows the state to seek to enforce the assessment — and to defend the law allowing assessments should other cities follow suit — following a full trial. But Smith, in his 12-page ruling, made it clear he sees other problems with the statute beyond the state missing the July 31 deadline.
The law provides no direction or guidance for how each state agency computes its cost, making it sort of arbitrary, the judge said.
“Thus, there is not a uniform methodology,’’ he wrote. “Each budget unit could include or exclude whatever parameters its leadership wanted. And each could employ whatever methodology its leadership chose.’’
That is difficult to reconcile, Smith said, with Proposition 202 and its specific permission for cities to choose a higher minimum wage.
“The state’s interpretation would let municipalities do so only if they agreed to pay assessment that they cannot contest that may have only the foggiest connection to the minimum wage,’’ Smith continued. “That could be repugnancy that the Voter Protection Act prohibits.’’
There are other issues.
“Analyzing the effects of minimum wage increases is complex,’’ he wrote.
For example, he said economists also consider things like possible increased tax revenues and decreased need for public assistance, none of which is considered under the law. Conversely, there’s the question of job losses from higher wages.
Smith also raised the question of why lawmakers chose to single out a city’s decision to have a higher minimum wage for an assessment.
“For example, the state doesn’t impose reimbursements on municipalities with increased labor costs due to higher transaction privilege or property taxes, remote location and such,’’ he wrote.
In barring the assessment, Smith said it’s not like the state is harmed.
He said the amount equals 4.6% of the city’s anticipated balance this fiscal year, money it wants to keep in reserves for economic downturns, natural disasters or other emergencies. By contrast, that $1.1 million the state wants equals 0.008% of the state budget.
“It is not a hardship for the state,’’ Smith wrote. “Fiscal consequences to Flagstaff are more significant than fiscal consequences to the state.’’
A spokesman for Gov. Doug Ducey, who signed the assessment, said the ruling was being reviewed. There was no immediate response from the attorney general’s office, which sought to defend the assessment.
