Minimum Wage Court Hearing

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The Arizona Supreme Court will hear a challenge to Arizona’s new minimum wage of $10 an hour on March 9. The new voter-approved minimum wage is being challenged by the Arizona Chamber of Commerce and Industry. A new report by the Grand Canyon Institute shows that the new law will have a negligible impact on the state budget. Dave Wells, research director of the institute, will tell us about the report.

TED SIMONS: SENATOR JOHN MCCAIN IS A CO-SPONSOR OF THE BILL. THE STATE SUPREME COURT HELD HEARINGS ON PROPOSITION 206, WHICH HIKED THE MINIMUM WAGE, IS CONSTITUTIONAL. THE ARIZONA CHAMBER OF COMMERCE, INDUSTRY AND BUSINESS GROUPS ARGUED THE PROPOSITION VIOLATED A STATE LAW SAYING A BALLOT MEASURE MUST IDENTIFY FUNDING SOURCES IF THE MEASURE CALLS FOR MORE SPENDING. ATTORNEYS FOR PROP 206 ARGUE THE HIGHER COSTS ARE NOT MANDATED BECAUSE THEY GO TO CONTRACTORS. IT PASSED WITH SUPPORT FROM 58% OF VOTERS AND INCREASES MINIMUM WAGE TO $10 AN HOUR IN JANUARY AND $12 AN HOUR BY 2020. AMONG THE OTHER CONCERNS REGARDING THE MINIMUM WAGE IS THE CLAIM BY GOP LEADERS THAT THE PROPOSITION WILL NEGATIVELY IMPACT THE BUDGET. THE GRAND CANYON INSTITUTE HAS A NEW STUDY SHOWING IT WILL HAVE A NEGLIGIBLE IMPACT ON THE FISCAL BUDGET. HERE TO TALK ABOUT THE STUDY IS DAVE WELLS, GRAND CANYON INSTITUTE'S RESEARCH DIRECTOR. THANKS FOR JOINING US.

DAVE WELLS: THANK YOU.

TED SIMONS: NEGLIGIBLE IMPACT ON THE STATE BUDGET. CHAMBER OF COMMERCE SAYS IT WILL BLOW A GIANT HOLE IN THE BUDGET. WHAT IS THE DISCONNECT?

DAVE WELLS: DEPENDS ON WHAT YOU THINK. IF YOU HAVE ABOUT $100 IT IS 15 CENTS OF EVERY $100 IS WHAT THE NET COST OF IT IS. I DON'T THINK THAT IS A GIANT HOLE. WE HAVE AN AUSTERITY BUDGET AND EVERY CENT SEEMS TO COUNT BECAUSE WE DON'T HAVE MONEY FOR ANYTHING. BUT IN THE BROADER SCHEME, IT IS A PRETTY SMALL AMOUNT.

TED SIMONS: $6-$14 MILLION A YEAR? WHAT ARE WE TALKING ABOUT?

DAVE WELLS: THE NET COST, THERE ARE VARIABLES DEPENDING ON HOW IT PLAYS OUT, THE ACTUAL COST IS ABOUT $26 MILLION IS WHAT THEY WILL ACTUALLY HAVE AS A COST. THEN THERE WILL BE THINGS THAT HELP REDUCE THAT COST BASED ON OTHER IMPACTS FROM THE MINIMUM WAGE.

TED SIMONS: 6 HUNDRETHS TO 14 HUNDRETHS OF THE GENERAL FUND, THAT IS WHAT YOUR STUDY FOUND?

DAVE WELLS: I AM NOT SURE --

TED SIMONS: I GOT IT FROM YOUR SITE SO I AM ASSUMING. BUT AS THE PANEL WILL SHOW, FOR EVERY $100, NOT A WHOLE HECK OF A LOT.

DAVE WELLS: YEAH, ABOUT 15 CENTS. IT WAS 10 CENTS BUT WE ADJUSTED A COST ESTIMATE, SO IT'S ABOUT 15 CENTS OUT OF A HUNDRED DOLLARS.

TED SIMONS: DOES THAT AMOUNT SURPRISE YOU?

DAVE WELLS: NOT REALLY. THE BUSINESSES IMPACTED ARE ESSENTIALLY- THEY'RE PAYING LOW WAGE WORKERS. THEY WILL GET PAID MORE BUT THAT IS NOT THEIR ONLY COST. THE WORKERS ARE GETTING A GOOD SIZE PAY INCREASE BUT IT IS ONLY HALF OF THE BUSINESS'S TOTAL COST. SO, EVEN THOUGH THE WORKER'S COST MIGHT GO UP 20% THE BUSINESS' COST IS ONLY GOING UP 10%. IT IS NOT A HUGE IMPACT. THESE ARE NOT SOMETHING THAT IS PAID FOR 70% BY THE FEDERAL GOVERNMENT AND ONLY 30% FROM THE STATE. SO THESE THINGS ALL MAKE IT SMALLER.

TED SIMONS: THE HEALTH CARE CONTRACT WITH THE PROVIDERS WAS ARGUED AT THE SUPREME COURT AND THE ATTORNEY GENERAL ARGUING AGAINST THE IDEA IT WAS UNCONSTITUTIONAL SAYING THE CONTRACTS ARE NOT MANDATORY BUT YOUR STUDY IS SAYING AS FAR AS THE COST FOR THE STATE, FOR THOSE WORKERS, WHAT ARE YOU SEEING? FOR THE HEALTH CARE WORKERS THAT PROVIDE SERVICE FOR THE DISABLED AND ELDERLY.

DAVE WELLS: RIGHT NOW THEY ARE GETTING $10-$11 AND THEY WILL SEE THEIR WAGES GO UP BY SOMEWHERE AROUND $1.50 NEXT YEAR. THAT IS GOING TO HAVE A MODEST IMPACT ON THE BUDGET. WE LOOK AT IT ALL TOGETHER AND THESE ARE FOLKS HELPING THE DISABLED AND ELDERLY COMMUNITIES. AND AGAIN, THAT NET EFFECT ON THE BUDGET, WHEN YOU PUT THEM BOTH TOGETHER NEXT FISCAL YEAR IT IS ABOUT $26.5 MILLION.

TED SIMONS: AS FAR AS JOBS LOST AND WHAT THAT COST COULD BE TO THE GENERAL FUND WHAT ARE YOU LOOKING AT?

DAVE WELLS: THAT IS NEGLIBLE BECAUSE THERE IS ANOTHER FACTOR. MY SON HAS A MINIMUM WAGE JOB AND AS SOON AS HE GETS THE MONEY HE SPENDS IT FAST. LOWER WAGE WORKERS TEND TO SPEND ALL THEIR MONEY AND SPEND IT LOCALLY. WE ESTIMATE 13,000 JOBS LOST BY 2020 BUT 800,000 WILL GET EXTRA MONEY AS A CONSEQUENCE OF IT. THE TYPICAL WORKER WILL HAVE $1,400 MORE IN INCOME AND WHEN YOU PUT THAT TOGETHER YOU WILL END UP WITH A $2 MILLION GAIN FOR THE GENERAL FUND THAT WILL EVENTUALLY BECOME $4 MILLION. IT COULD BE BIGGER THAN THAT. THERE IS A COUPLE ECONOMISTS FROM THE CHICAGO FED WHO THINK THE EFFECT COULD BE FIVE TIMES THAT AMOUNT.

TED SIMONS: TWO MILLION ADDED. THAT GOES AGAINST CONVENTIONAL WISDOM.

DAVE WELLS: YOU HAVE MULTIPLE EFFECTS GOING ON. THE MAIN THING THE MINIMUM WAGE DOES- WE'RE PAYING FOR IT BUT IT TRANSFERS INCOME DOWN TO LOWER INCOME PEOPLE AND HIGHER INCOME PEOPLE DON'T SPEND AS MUCH LOCALLY AS LOW INCOME PEOPLE DO.

TED SIMONS: THE LAST MAJOR POINT REGARDING YOUR STUDY THAT I FOUND FASCINATING IS BECAUSE OF THIS INCREASE IN WAGE, YOU MIGHT MOVE FOLKS OUT OF ACCESS, OUT OF MEDICAID. THAT MAKES A DIFFERENCE.

DAVE WELLS: YEAH. AND THAT ONE IS REALLY COMPLICATED IN MANY WAYS. AT LEAST RIGHT NOW. WE WILL SEE WHAT HAPPENS IN A FEW YEARS BUT 30,000 PEOPLE WILL MOVE CATEGORIES OR OUT OF MEDICAID. 10,000 PARENTS WILL GO FROM WHERE THE GOVERNMENT PAYS TWO THIRDS AND NOW THEY WILL PAY 90%. AND 10,000 ADULTS MOVING OUT OF MEDICAID COMPLETELY AND 10,000 KIDS WILL ALSO MOVE OUT OF MEDICAID. THEY WILL MOVE INTO KIDS CARE SO THEY WILL HAVE HEALTH INSURANCE AND THE ADULTS WOULD MOVE INTO EXCHANGES AND WE WILL SEE WHAT HAPPENS WITH THEM.

TED SIMONS: AS WE SAW, $7 MILLION NEXT YEAR COULD BE THE NUMBER THERE. UP TO $17 MILLION BY 2020?

DAVE WELLS: THE 30,000 IS THE IMPACT BY 2020 SAVING THE STATE ABOUT $17 MILLION.

TED SIMONS: THAT IS MOVING GOALPOST CONSIDERING WHAT IS COMING OUT OF WASHINGTON WITH THE AFFORDABLE CARE ACT AND HOW MUCH IS REPLACED AND HOW MUCH IS REPEALED AND HOW MUCH OF THE MEDICAID MONEY WINDS UP BACK TO ARIZONA.

DAVE WELLS: THE STATE IS GOING TO SAVE SOMETHING BUT THE QUESTION IS WHAT THEY WILL SAVE. IT SOUNDS LIKE THE REPUBLICANS WANT TO DO IS REDUCE THE AMOUNT OF FEDERAL MONEY COMING IN MEANING THE STATE HAS TO PAY MORE. THE NET EFFECT OF PEOPLE MOVING OUT OF MEDICAID WILL SAVE THE STATE MONEY IT IS JUST HOPEFULLY THEY WILL BE ABLE TO MOVE INTO SOMETHING ELSE.

TED SIMONS: THE ECONOMIC IMPACT TO SCHOOLS AND NON-PROFITS. HOW DO YOU MEASURE THAT? IS THAT NOT A VARIABLE THAT NEEDS TO BE UNDERSTOOD?

DAVE WELLS: THAT DOESN'T AFFECT THE GENERAL FUND. AND THE EFFECT ON SCHOOLS--

TED SIMONS: BUT THE EFFECT ON THEIR ACTIVITY-- RIPPLE EFFECT WOULD END WITH THE GENERAL FUND IN SOME WAY SHAPE OR FORM WOULD IT NOT?

DAVE WELLS: PART OF THAT $2 MILLION IS WHEN PEOPLE GET MORE INCOME. IT WILL NOT BURDEN SCHOOL BUDGETS TOO MUCH BECAUSE IT IS A PRETTY MODEST FIGURE. I'M ON THE TEMPE UNION HIGH SCHOOL DISTRICT BUDGET ADVISORY COMMITTEE AND I THINK IT IS LIKE $30,000 IS WHAT THE COST OF IS COMPLYING WITH PROP 206 AND THAT IS OUT OF A $75 MILLION BUDGET. THEY ARE PRETTY MODEST AND EASY TO DO THAT. A GOOD THING FOR THESE PEOPLE BECAUSE IT IS GIVING THEM A HIGHER AMOUNT OF MONEY TO LIVE OFF OF.

TED SIMONS: WHEN THE CHAMBER OF COMMERCE SAYS IT CAN BLOW A GIANT HOLE IN THE STATE BUDGET YOU DISAGREE?

DAVE WELLS: THERE IS A CORPORATE TAX CUT OF $100 MILLION AND THAT IS A BIGGER HOLE THAN THIS PROP 206.

TED SIMONS: DAVE WELLS, THANK YOU JOINING US. UP NEXT, A CLOSER LOOK AT A PLAN TO OPEN UP $1 BILLION IN BONDS FOR ARIZONA UNIVERSITIES.
 

Dave Wells: Director of the Grand Canyon Institute

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