PHOENIX — Arizona lawmakers are moving to financially penalize cities with a minimum wage higher than the rest of the state.
And they are doing it in a way designed to get around restrictions that voters put on legislators in 2016 when they said cities can have their own base wages.
Senate Bill 1108, awaiting Senate floor action, would allow employers in any city with a wage above the state minimum to claim a 10% credit for the difference of what they have to pay versus what they could pay at the lower state figure.
They wouldn’t have to prove they actually were paying anyone that minimum. Instead, under the measure written by Sen. Wendy Rogers, R-Flagstaff, the credit would occur through the entire payroll, including managers and executives.
That’s only half of the proposal. SB1108 would also deduct what the local employers claim in credits from the state revenue sharing the city receives.
There are no figures on how much the affected cities would forfeit. The measure is written in a way that, depending on how many companies took the credit, it could deplete a city’s entire state funding.
SB1108 is currently aimed at two cities where voters decided workers should earn more than the minimum wage approved statewide in 2016. That figure, adjusted annually to compensate for inflation, now stands at $13.85.
That $13.85 happens to be the current minimum wage in Tucson. But the city’s minimum is set to rise to $14.25 after the end of the year.
In Flagstaff, the current minimum is $16.80. The voter-approved ordinance there requires that the minimum in future years be at least $2 higher than the state’s figure.
If it becomes law, SB1108 also would become a financial deterrent to voters in other communities wanting to approve their own minimum wages.
Business hardship cited as a concern
Leading the charge at a hearing this week was Joe Galli, lobbyist for the Greater Flagstaff Chamber of Commerce. He said the local law has created a hardship for businesses operating in the city.
“If you have a restaurant or gas station that’s in the county, and across the street there’s a restaurant or gas station within the city limits, that county individual is paying $2.95 less in an hourly wage than in the city,” Galli told the Republican-controlled Senate Finance Committee, which approved the measure on a 4-3 party-line vote. SB1108 would enable those city employers to recoup some of their additional cost, Galli said.
That drew questions from Sen. Mitzi Epstein, D-Tempe.
She said the measure doesn’t just cover the cost of a pay raise for those who otherwise would be paid $13.85 an hour, or whatever the state minimum wage will be at a given time. Instead, Epstein pointed out, a company could claim the hourly difference for each of its workers, regardless of how much they were being paid before, calling that a “windfall.”
But Sen. J.D. Mesnard, R-Chandler, said that appears to be justified.
“I suspect the thinking is the moment you have a floor that’s the minimum wage, and then you need to give someone a promotion or pay them more than the floor because of whatever their job is, everything else shifts upward from the floor,” Mesnard said. Put another way, if the bottom wage goes up, then others who take on more responsibility will have to be paid that figure plus a differential.
Targeting voter-approved laws
Epstein said she’s also concerned that SB1108 flies in the face of the 2016 ballot measure. It specifically says cities are free to enact their own minimum wage as long as the figure is higher than the state base.
The Arizona Constitution prohibits lawmakers from altering what voters have approved unless they enact it with a three-fourths vote — a margin that Republicans do not have at the Legislature — and only if it “advances the purpose” behind the original measure, which would be difficult to prove.
Mesnard, however, said nothing in the proposal runs afoul of the 2016 voter-approved law. He said cities would remain legally free to set the minimum at whatever they want — subject to losing some of their state revenue sharing when businesses started claiming the state tax credit for the higher costs.
Sen. Eva Burch, R-Mesa, said she’s not buying the argument that SB1108, and its financial penalty, don’t effectively impair the 2016 law that voters approved. “It alters the outcome of that decision,” she said.
“I do think the people of Arizona did vote to empower their communities to enact a minimum wage that’s right for them,” Burch continued. She said there was no way voters who approved those higher local wages would have been able to anticipate that lawmakers would come back, years later, and impose a financial penalty on them for doing so.
“It undermines the will of the voters,” Burch said.
‘Pretty good economy’
As for the question of the effect of higher minimum wages on companies, Epstein disputed Galli’s arguments that the higher costs will mean less business.
“How terrific that with that minimum wage, as workers have more money in their pocket, they can go to that bowling alley that maybe they never would have had the money to go to,” she said. “They could only afford groceries and food and shelter and that was it. And now they can go to the local bowling alley.”
She said the state has had “a pretty good economy” after the voter-approved state minimum wage, which was pretty much universally opposed by businesses. “We did not lose a lot of jobs,” Epstein said.
Sen. David Gowan, R-Sierra Vista, had a different take.
“That bowling alley we’re talking about, it won’t be there anymore to go bowling,” he said.
Doing what Gowan acknowledged was some math in his head, he figured 10 employees working 10-hour days making an extra $30 a day comes out to $9,000 a month. Extrapolate that over a year, Gowan said, means having to come up with another $100,000 to cover costs — $100,000 more than an operation outside the city limits that doesn’t have to pay the higher wage.
“I don’t know how some businesses are capable of staying open on that,” he said.
