Flagstaff will still have to reimburse the state for the increased costs it will incur because of its high minimum wage, but the recently passed state budget softened the blow through a cost-sharing agreement that will draw down on federal funds.
Voters in Flagstaff approved a $15 minimum wage in 2016 and reaffirmed that decision last year. The city’s wage is currently $12, and will rise to $15.50 in 2022. The minimum wage in the rest of the state is $11, and it will rise to $12 next year due to a law passed by voters in 2016. That is costing the state in the form of wages to employees whose organizations contract with the state to provide services for adults with developmental disabilities.
The budget for fiscal year 2020, which received final approval from lawmakers on Monday, requires Flagstaff to cover the cost of the extra wages the state will have to pay due to the city’s higher minimum wage. But the city won’t have to shoulder the burden alone, thanks to an amendment pushed by Sen. Sylvia Allen, a Snowflake Republican whose district includes Flagstaff.
Flagstaff can make a voluntary payment to the state of $150,000, which the Department of Economic Security would use to draw down $350,000 in federal Medicare funding. DES would use the full $500,000 to pay wages for developmental disabilities services providers in Flagstaff.
It’s unclear whether that half-million will cover the full amount of the state’s increased costs from Flagstaff’s minimum wage. The budget calls for all state agencies to determine what additional costs they’ll incur due to minimum wages imposed by cities or counties that are higher than the state’s wage.
Flagstaff is the only government entity in Arizona with such a minimum wage. State agencies must submit those reports to the Arizona Department of Administration by Sept. 1.
What would be better than raising the minimum wage by $X/week? A punitive “vacancy tax” on vacant land and unoccupied buildings, which property owners are so keen to avoid that it *reduces rents* by $X/week. Why would this be better? Because:
(1) When you allow for income tax (and withdrawal of welfare, if applicable), a dollar *saved* is worth much more than a dollar *earned*.
(2) By themselves, higher wages would be competed away in higher rents. Landlords might even try to raise rents by the *gross* increase in wages, not allowing for the Effective Marginal Tax Rate.
(3) Nobody says lower rents would price workers out of a job! Indeed, the scramble to avoid the vacancy tax would *create* jobs. And the lower rents would create more jobs, because jobs can’t exist unless (a) the employers can afford business accommodation, and (b) the employees can afford housing within reach of their jobs, on wages that the employers can pay. (Implication: The tax should apply to both commercial & residential property.)
(4) Why should employers pay for a problem caused by deadbeat landowners?
(5) The economic activity driven by a vacancy tax would broaden the bases of other taxes, allowing their rates to be reduced, so that the rest of us would pay LESS tax!