Wednesday, November 16, 2016

How would a $15 an Hour Minimum Wage Affect NJ Public Schools?

In the battle over New Jersey increasing its minimum wage from the current $8.38 an hour to $15 an hour, much has been said about the impact on businesses and whether or not a $15 an hour minimum would put New Jersey jobs at risk.

Yet, something I've yet to read anything about is how a $15 an hour minimum would affect government agencies in New Jersey, particularly public schools.

Schools have numerous employees making under $15 an hour, including cafeteria workers, crossing guards, bus aides, security personnel, substitute teachers, people in stipended positions, and even paraprofessionals.

Districts also make purchases from businesses that employ many people making less than $15 an hour, such as gasoline, school supplies, and food.   The health insurance that school districts pay for will become somewhat more expensive as well.

Districts have many additional workers who are making just over $15 an hour, but whose wages would have to be boosted if the wage floor were lifted to $15 through "wage compression."

I bemoan the absence of New Jersey-specific journalism on this, but the issue has been well-covered in New York State when New York considered a statewide $15 an hour law (the minimum wage was already $9.75 an hour).  New York State research shows that there are significant costs to school districts, with the consensus projection being that taxes would increase by 2.6%.

Since Gov. Cuomo first proposed raising the state's minimum wage to $15 per hour, a number of unintended consequences have been identified. 
Most of the discussion about the proposed minimum wage increase has focused on likely job loss. A 2015 study by the former head of the independent Congressional Budget Office found that a $15 minimum wage could cost the state at least 200,000 jobs -- with a disproportionate number of job losses Upstate. New York's farmers would be hit with $500 million in additional costs, meaning they will not be able to compete with products grown outside of the state. Struggling small businesses that drive the Upstate economy will have to contend with yet another state-imposed mandate. 
But there is one unintended consequence that has not received its due attention in this important discussion -- the resulting state and local tax increases necessary to pay for this massive wage mandate.
This article "Schools: Wage Hike Would Affect Thousands," from March 2016, about the difficulties districts in Upstate New York would face is relevant to New Jersey, since average spending in Upstate New York is $19,000-$25,000 per student, a range that is equal to or higher than what New Jersey districts spend.

School taxes would go up significantly and force many districts to present budgets exceeding the so-called property tax cap if state lawmakers approve a minimum wage increase to $15 an hour, according to leaders of various Monroe County school districts. 
Such a measure — pushed heavily by Gov. Andrew Cuomo as part of the state budget negotiations — would increase the minimum wage through several incremental steps upstate by July 2021, and much more quickly downstate. 
"What (Cuomo) doesn't understand is the domino effect of this type of decision," said Kimberle Ward, superintendent at Gates Chili Central School District. "Quite frankly, we can't go there. We would not be able to afford that and it would be a terrible burden on our taxpayers." 
The measure has been widely criticized because of fears of job cuts and price increases in the private sector. It has drawn opposition from farmers, business groups, nonprofits and Republicans in the state Senate vowing to block the increase in the state Legislature. 
School districts are concerned about how increased labor costs might force them to cut programs, jobs or both. School leaders started studying the issue after the $15 an hour wage was approved last year for fast food workers of large chain restaurants. 
Nearly 20 Monroe County school districts, in addition to Monroe No. 1 and Monroe No. 2 BOCES, said going to $15 an hour would affect roughly 6,050 workers at a cost of nearly $24.8 million. Clerical, custodial/maintenance personnel, food service workers, teacher aides/paraprofessionals, bus drivers and attendants and per diem substitutes would all be affected by the minimum wage increase. 
The Rochester School District's finance team conducted an analysis last fall, based on the staff counts and earnings during the 2014-15 school year, district spokesman Chip Partner said in an email. According to the study, the district had 1,114 employees, including part-time, substitute and student workers, that earned less than $15 per hour. 
The incremental cost of bringing those workers to $15 per hour in wages only would be $3.46 million. The cost jumps to $4.27 million when social security and retirement benefits are included. The total does not include employees whose current salary is at or near $15 per hour.
A survey of New York State School Business Administrators echoed the deep concerns over a $15 an hour minimum wage, saying it would increase taxes by 2.6%:

According to a recent report by the New York State Association of School Business Officials, the impact of a unilateral increase for workers within the state would have a large financial impact on school districts.

The association surveyed 307 school districts and 22 BOCES, finding the impact of a minimum wage increase to $15 per hour for the districts would be approximately $276 million. In turn, 33,422 employees would be affected. The average expense for school districts would be $283,463 and would cause an average tax levy increase of 2.6 percent. 
Many area school district leaders said a $15 minimum hourly wage across the board would be detrimental to the schools' budgets. Tim Mains, Jamestown Public Schools District superintendent, said the proposal could place the district in a difficult situation, depending on how it is implemented.

New York Didn't Go to $15

Andrew Cuomo gave up on a $15 an hour
statewide minimum wage after he realized what 

the costs would be.
The protests of upstate businesses, farm groups, and school districts carried weight. NYS's minimum wage law has built-in "off ramps" that allow the cancellation of minimum wage increases if employment drops and even if employment doesn't drop, New York State did NOT adopt a statewide $15 an hour minimum wage anyway.

By 2021, the only places in New York that are slated to have a $15 an hour minimum wage will be Long Island, New York City, and Westchester.  The rest of New York State is projected to be at $12.50 an hour.

Despite the fact that New York State did not adopt a statewide $15 an hour minimum wage, the NJ Democrats show no hesitation about a statewide $15 minimum and plan to ask voters to constitutionalize $15 an hour on the 2017 ballot, without any "off ramps" like New York State has.

Phil Murphy, shows no hesitation about $15 an hour.

Phil Murphy supports raising the minimum wage to $15 per hour. Raising the minimum wage would benefit nearly one million workers, equal to one-quarter of all workers in our state. New Jersey’s current minimum wage is grossly inadequate. The current minimum wage of $8.38 per hour is roughly 50 percent below a “living wage” — the amount an individual in NJ needs to meet basic needs.
The Murphy campaign confidently concludes:
The argument that raising the minimum wage kills jobs is a myth that is simply not supported by evidence.
Murphy's claim that is contradicted by the highly-respected Congressional Budget Office, which estimated that even a $10.10 (national) minimum wage would reduce employment by 0.3%.

Politifact found many economists who would support $10.10 an hour, but very few who would support $15, calling it, at best, "terra incognita."

Timothy M. Smeeding, director of the Institute for Research on Poverty at the University of Wisconsin, said he’s willing to take the job-loss trade-off that might follow an increase to $10.10. "But $15 is too high," he said. "Job losses would be much higher and employment would fall for the lowest-skill workers." 
Harvard University economist David Cutler concurred, saying he "would be uneasy about $15 everywhere. I am much more comfortable with $12 everywhere." 
Brookings Institution economist Barry Bosworth said since he’s "unsure of the effect" of a $15 minimum wage, he’s "reluctant to sign on to a number so far out of line with the historical experience."
The CBO and economists quoted above were considering a national increase in the minimum wage and how even that would reduce employment, but the reduction in employment in New Jersey would be greater because our neighbor Pennsylvania will be keeping its minimum wage at $7.25 due to Republican control of the legislature there.  If New Jersey's minimum wage is more than double Pennsylvania's, New Jersey businesses that compete directly with Pennsylvania businesses will be challenged.

Whatever the effect of a $15 an hour on private sector employment is, the assumption that it won't reduce employment is predicated on businesses cutting profits and/or passing on the additional costs to consumers (the assumption is that demand is inelastic.).

School districts cannot cut hours or cut profits, but, in theory, they can raise taxes or get more state aid.

I cannot say what tax and state aid increases would be necessary to sustain services in New Jersey, but given that New York State school districts spend more than New Jersey school districts and New York State's minimum wage was already higher than New Jersey's, the tax increase for NJ districts of $15 an hour would be greater than the 2.6% increase projected for New York State.

The legislative Democrats and Phil Murphy would have a multiyear rollout period for $15 an hour, but still, even if this 78% increase is paced out over five years, it is still adding another 0.5% annually to the tax levy increase, a significant difficulty for many districts.

If Phil Murphy and the Democrats want to increase the minimum wage they will have to change the tax cap law and increase state aid.  Phil Murphy is against a tax cap, but I don't know if the rest of the Democratic Party is with him.  Phil Murphy says he is for "implementing that formula" (SFRA), but he has given no budgetary pathway for doing so and even if he is able to fund SFRA, a third of NJ districts would not gain any aid because they are already overaided.

Increasing the minimum wage would also add costs for the State of New Jersey too, since many state employees and employees of state-funded agencies get less than $15 an hour now.  One important group of state-funded workers earning less than $15 is home healthcare aides.  California's own state and local increases for $15 per hour for home health aides were estimated at $3 billion, which, if New Jersey's state costs increased proportionally, would be about $700 million.

It's also worth noting that increasing wages also increases employer-side payroll taxes.  This would add about 10% to the total wage increase.

A $15 an hour minimum wage is a beautiful impulse morally.  People who keep their jobs and start to make $15 an hour would benefit.

HOWEVER, there are tradeoffs that must be acknowledged and the state, school districts, and other public agencies must prepare for the tax increases that $15 will require to pay for their own employees and higher purchase prices for some products they buy.  NJ has to have a realistic plan to increase state aid and increase the tax cap if $15 an hour is to be workable without layoffs.


See Also:
Phil Murphy Overpromises

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