Capitol Alert

Offramps in California minimum wage bill prompt disagreement

Gov. Jerry Brown made it clear earlier this year he had significant misgivings about proposed ballot measures to raise California’s minimum wage to $15 an hour. A “noble goal,” he said, but one that needed to be achieved “very carefully.”

“It has to take into account recessions,” Brown told reporters in January.

The nationally watched minimum wage measure Brown will sign in Los Angeles on Monday rests on the inclusion of offramps demanded by the Democratic governor. Starting in July 2017, Brown or his successor will have the power to pause any of the scheduled annual increases to $15 in the event of certain recessionary fiscal and economic conditions.

Administration officials say the pauses could have been triggered for 2008 and 2009, as the state slid into recession. Yet the criteria are complex and could be open to interpretation. Business critics, meanwhile, have predicted that public pressure would make governors hesitant to trigger any pauses and say the provisions, even if used, offer little help to employers.

In a letter to Brown last week, the California Business Roundtable warned that any pause in minimum wage increases would lift just as the state began its recovery.

“The potential unintended effect of these provisions therefore could be to delay recovery and lengthen the next economic recession you have correctly warned as being ‘an event not too far off,’ ” the group’s president, Rob Lapsley, wrote.

Added Shawn Lewis of the National Federation of Independent Business, “All of these mechanisms, regardless of how they play out, they are all just temporary. They definitely do not remedy the concerns of ours.”

The bill’s supporters counter that neither of the $15 minimum wage ballot measures included any way to suspend annual increases. The measure negotiated by Brown and legislative leaders takes “a pragmatic approach” that business leaders should appreciate, Senate President Pro Tem Kevin de León told reporters.

“They didn’t give us any flexibility,” Department of Finance spokesman H.D. Palmer added of the ballot measures.

Senate Bill 3 contains two sets of triggers to pause the following January’s minimum wage increase. A review would begin within weeks of lawmakers’ June 15 deadline to pass a budget for the coming fiscal year, with a final determination on trigger-pulling by Sept. 1, giving the Legislature time to hold hearings on possible alternatives.

One trigger centers on the state’s economic performance. If sales tax revenue for the past 12 months is down from the year before or job growth is negative for either the previous three months or six months, then the trigger could be pulled.

“If they are going in a negative direction, so too is your economy,” Palmer said.

The second pause focuses on the state’s own balance sheet, given that a $15 minimum wage would cost the state an estimated $4 billion in higher wages.

That offramp could be triggered up to two times when the state has a projected deficit of more than 1 percent of general fund revenue in the current fiscal year or either of the next two.

Under the minimum wage bill, the measure of the deficit would be the state’s special fund for economic uncertainties. It’s one of two state reserve funds that, among other things, is the source of extra money to fight fires during the summer and fall.

Brown’s office began reporting the special fund’s projected multiyear balances only recently. The lack of comparable data in the past makes it difficult to predict how the minimum wage trigger would have worked then, Jason Sisney of the Legislative Analyst’s Office said.

Based on the most recent projections, the special fund will have positive balances until the 2019-20 fiscal year, when it will have a negative balance of almost $1.9 billion. That would be more than 1 percent of the projected $133 billion in general fund revenue that year – giving the governor’s office the power to declare a pause as early as next summer.

But those projections very likely will change, possibly significantly. Administration officials also noted there would be ways to boost the fund’s balance out of trigger territory, such as more vetoes of individual spending items in the annual budget.

“I think given the fact the governor has proposed a significant-sized budget reserve should provide some indication of where this governor’s fiscal views are rooted,” Palmer said.

Triggers to pause annual wage increases during an economic downturn also are part of New York’s $15 minimum wage deal, with the details yet to emerge. Recent minimum wage legislation in Oregon, though, lacked such triggers.

California governors and lawmakers have included triggers in various types of past legislation. One of the most noticed trigger pulls came in mid-2003 when the administration of then-Gov. Gray Davis, dealing with a cash crunch caused by the dot-com crash, triggered a tripling of the vehicle license fee to previous levels.

Public reaction was swift, with criticism of the triggered increase becoming a major theme in that summer’s campaign to recall Davis. Gov. Arnold Schwarzenegger reversed the action within hours of taking office in November 2003.

Minimum wage pause trigger

Projected ending balances of Special Fund for Economic Uncertainties:

  • 2015-16: $4.2 billion
  • 2016-17: $2.2 billion
  • 2017-18: $2.8 billion
  • 2018-19: $948 million
  • 2019-20: -$1.9 billion

Source: California Department of Finance