BILL ANALYSIS Ó AB 2582 Page 1 Date of Hearing: May 18, 2016 ASSEMBLY COMMITTEE ON APPROPRIATIONS Lorena Gonzalez, Chair AB 2582 (Maienschein) - As Amended May 12, 2016 ----------------------------------------------------------------- |Policy |Revenue and Taxation |Vote:|9 - 0 | |Committee: | | | | | | | | | | | | | | |-------------+-------------------------------+-----+-------------| | | | | | | | | | | | | | | | |-------------+-------------------------------+-----+-------------| | | | | | | | | | | | | | | | ----------------------------------------------------------------- Urgency: No State Mandated Local Program: NoReimbursable: No SUMMARY: This bill provides a tax credit to employers who pay an individual with a disability, who is otherwise eligible for a special minimum wage, an hourly rate that is the statewide minimum wage or higher. The credit, which is available for AB 2582 Page 2 taxable years starting on January 1, 2017, and ending before January 1, 2022, is equal to the difference between the statewide minimum wage and the special minimum wage provided to that employee, multiplied by the hours worked. FISCAL EFFECT: Annual GF revenue losses of $2.7 million, $11.0 million, and $21 million in FY 2016-17, FY 2017-18, and FY 2018-19, respectively. These estimates are conservative because costs are likely to increase further as a result of the statewide minimum wage increasing to $13 by 2021, the last full year this credit will be in effect (See comment #4). COMMENTS: 1)Purpose. According to the author, the objective of AB 2582 is to create an incentive for employers to hire Californians with developmental disabilities and to pay them at the minimum wage or higher. This bill will incentivize employers to offer minimum wage jobs to persons who would receive less than the minimum wage. 2)Background. Under federal law, persons with disabilities may be eligible to earn less than the minimum wage if they are unable to compete for a specific job with workers without disabilities. This exemption is meant to provide employment opportunities for workers who would otherwise be excluded from the workplace. Employers who hire such employees must receive a certificate from the US Department of Labor authorizing them pay a special minimum wage. The special wage is determined on a case by case basis. AB 2582 Page 3 According to the US Department of Labor (DOL), there are currently around 26,000 California workers who are paid special minimum wages. On average, special wages are set at half the rate of the statewide minimum wage. 3)Executive Order 13658. The issue of the special minimum wage and whether it helps or harms disabled worker has been an ongoing debate between advocates, policymakers, and disabled workers. Opponents to special minimum wages argue that the policy is unfair and outdated, while supporters argue that there is still tremendous value doing everything possible to connect these individuals to jobs, which can be beneficial in more ways than just salary. In February 2014, the issue was brought to the forefront when President Obama signed Executive Order 13658, which required all employers who contract with the federal government to pay at least the federal minimum wage. This included disabled workers who otherwise would be eligible for a special minimum wage. 4)Interaction with minimum wage. California's minimum wage is set to increase incrementally to $15 an hour by 2023 as a result of SB 3 (Leno), Chapter 4, 2016. As a result, this credit will become increasingly expensive as the statewide minimum wage increases faster than the special minimum wage authorized by DOL. For example, the average special minimum wage is set at half of California's statewide minimum wage ($10). If that ratio maintains as California's minimum wage increases to $13 by 2021, the last taxable year that AB 2582 is in effect, then the dollar difference between the two wages will increase from $5 to $6.50. This will mean the credit available to employers would increase by $1.50 per hour worked by the employee. The revenue estimates cited in this analysis were completed prior to SB 3 being signed into law. Therefore, these estimates should be viewed as conservative estimates of the AB 2582 Page 4 revenue impact of AB 2582. Analysis Prepared by:Luke Reidenbach / APPR. / (916) 319-2081