Budget would force Flagstaff to pay state for minimum wage costs

Flagstaff voters who twice approved a $15 minimum wage may soon find their city on the hook to pay for some of the extra costs that state is incurring because of it.

One of the budget bills that legislative leadership introduced on Tuesday includes a provision allowing the state to charge cities, towns and counties for compensation if it racks up additional costs due to local minimum wages that are higher than the $12 minimum wage in place for the state as a whole. If a local government entity doesn’t pay, the state can withhold a local government’s share of shared revenue from sales taxes.

Only one city has a minimum wage that’s higher than the rest of the state. Flagstaff voters approved a $15 minimum wage in 2016, and in November rejected a proposal by the city council to slow down the gradual increase in the wage hike. Flagstaff’s minimum wage is currently $12, and will jump to $13 in 2020, eventually reaching $15.50 in 2022. 

The higher minimum, both in Flagstaff and across the state as a whole, has become problematic for the Department of Economic Security, which has struggled to pay higher wages for people who contract with the state to provide care for adults with developmental disabilities. Advocates say the state has failed to adequately pay those providers since the budget cuts of the Great Recession in 2009-10, and that the problem has become worse since the minimum wage started going up.

The budget agreement reached by legislative leadership and Gov. Doug Ducey includes $13 million to cover minimum wage-related costs for developmental disability providers. The Arizona Association of Providers for People with Disabilities, an advocacy group, wants $42.2 million, which includes $14 million to cover unrestored cuts from 2009-10.

Todd Madeksza, a lobbyist who represents the City of Flagstaff, said it’s unknown how much the proposal would cost the city.

At least some relief may be on the way. Sen. Sylvia Allen, a Snowflake Republican whose Legislative District 6 includes Flagstaff, said a wide-ranging budget amendment will include a provision splitting the costs between the city and state.

Allen said the amendment will call for the state to provide an additional $300,000 and Flagstaff to provide $150,000 toward minimum wage costs. That money will allow AHCCCS, Arizona’s Medicaid agency, which also saw contractor costs increase due to the minimum wage hikes, to draw down about $1 million in federal funding. AHCCCS would then provide federal funds to DES for developmental disability providers.

“We need to have cities understand, if you want to be pushing a different minimum wage than the state, you’re going to have to help us then with the costs of the consequences of that,” she said.

Madeksza described the budget plan as retaliation against Flagstaff for raising its minimum wage above the state level.

“I think it’s a two-pronged approach. Number one, is it’s retaliation against Flagstaff. But two, they want … to send a very clear message to other municipalities who may be looking at trying to increase their minimum wage, as well,” he said.

Madeksza said Flagstaff supports Allen’s amendment. He said Flagstaff has $150,000 earmarked in its as-yet-unapproved budget for the next fiscal year to help keep service providers in the city. Madeksza told the House Appropriations Committee on Wednesday that Flagstaff remains willing to spend money to address the “very acute shortage” of service providers, but that it believes threatening state-shared revenues is inappropriate.

Allen’s proposal is reminiscent of a plan pushed earlier in the legislative session by her seatmate, Rep. Bob Thorpe. After Allen sponsored legislation to provide $500,000 for disability service providers in Flagstaff, Thorpe amended it to cut the appropriation by two-thirds, and made every dollar spent by the state contingent on Flagstaff spending two dollars.

Nonetheless, Thorpe, a Flagstaff Republican, said he was concerned about the budget provision requiring the city to shoulder the entire cost of the higher minimum wage for providers, and was surprised to see it in the budget. But he said he’d like to see Flagstaff pay some of the costs.

“It’s unfortunate that the state is left to try to fix the problem. And so far, we certainly haven’t seen anything like a partnership from the City of Flagstaff where the city is coming to us and recognizes that these (developmental disability) providers are important,” he said. “We haven’t seen an offer of partnership from the city to try to work with the state to try to find a solution.”

Fellow District 6 Rep. Walter Blackman, R-Snowflake, said the minimum wage increase in Flagstaff was the product of good intentions, but “ended with the taxpayers holding the bag” and should have been done more responsibly.

This isn’t the first time that Arizona’s Republican policymakers have taken aim at the state’s increased minimum wage.

After voters overwhelmingly approved a statewide minimum wage of $12 an hour in 2016, the Arizona Chamber of Commerce and other business groups unsuccessfully sued to have it overturned, claiming that it violated a provision of the Arizona Constitution requiring ballot measures that mandate state spending to include a revenue source. Several of Ducey’s state agencies that were named as defendants in the suit declined to defend themselves, and the governor’s budget office asked the Arizona Supreme Court to bar the newly approved wage from going into effect until the litigation ended.

This year, Rep. Travis Grantham, R-Chandler, sponsored legislation that would have allowed employers to pay college students and other young, part-time workers the federal minimum wage of $7.25 an hour. The bill died amid concerns that it violated the Voter Protection Act, which severely restricts the legislature’s ability to amend voter-approved laws.