BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Kevin de Le�n, Chair
SB 935 (Leno) - Minimum Wage: Annual Adjustment
Amended: March 18, 2014 Policy Vote: L&IR 3-1
Urgency: No Mandate: No
Hearing Date: April 7, 2014
Consultant: Robert Ingenito
SUSPENSE FILE. AS AMENDED.
Bill Summary: Under current law, the State's minimum wage will
be increased to $9.00 per hour on July 1, 2014, and $10.00 per
hour on January 1, 2016. SB 935 would instead set the minimum
wage as follows:
$11.00 per hour on January 1, 2015.
$12.00 per hour on January 1, 2016.
$13.00 per hour on January 1, 2017.
Beginning in 2018, increases to minimum wage would be
indexed to the annual change in the California Consumer
Price Index (CCPI), as specified.
Fiscal Impact (as approved on May 23, 2014):
The Department of Industrial Relations (DIR) would incur
costs of about $450,000 (General Fund) to issue new Minimum
Wage Orders to approximately 800,000 employers in the state
each time the minimum wage is adjusted pursuant to this
bill.
According to the State Controller's Office (SCO), state
government employs approximately 4,500 minimum wage
workers, mostly student assistants and seasonal employees.
As a direct employer, this bill would lead to an estimate
increase of $9.4 million in 2014-15, $18.7 million in
2015-16, and $23.4 million in 2016-17 (General Fund and
various special funds). In 2017-18, the first fiscal year
that the CPI adjustment is used, the estimated increase
would be $30 million, assuming a 3 percent inflation rate.
Costs would continue to rise relative to current law in the
out-years and would be reflective of future inflation
rates.
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Additionally, the State pays the minimum wage to private
individuals who provide certain services at the local level
(heath care, social services, etc.). The related impact of
this bill's raising the minimum wage is unknown, but likely
to be in the high tens of millions of dollars annually.
The bill would result in cost pressures to increase
wages for state employees who at present earn slightly more
than the current minimum wage to avoid salary compaction.
See the Staff Comments section for a general discussion
of the impact of this measure to the economy and revenues.
Background: The California minimum wage was established at $0.16
per hour in 1916. The California minimum wage was $0.33 per hour
when the federal minimum wage of $0.25 per hour was created in
1938. The California minimum wage has been increased 26 times
since its inception, and has been $8.00 per hour since 2008. As
noted above, under current law, the minimum wage will increase
to increase to $9.00 per hour on July 1, 2014, and $10.00 per
hour on January 1, 2016. Because of increases in the overall
cost of living, when the minimum wage is unchanged for several
years, its purchasing power declines.
Proposed Law: This bill would replace the scheduled increase to
$10.00 per hour effective 2016, and instead would (1) increase
the state's minimum wage to $13.00 per hour over a three-year
period and (2) provide for the automatic adjustment of the
minimum wage each year by the percentage change in the CCPI,
beginning January 1, 2018. Specifically, this bill would:
Increase the minimum wage to $11.00 beginning January 1,
2015, to $12.00 per hour beginning January 1, 2016, and to
$13.00 per hour beginning January 1, 2017.
Require the minimum wage adjustment to be made based on
the change in the CCPI, as specified. This measure also
would require the Industrial Welfare Commission (IWC) to
publicize the adjusted wage.
Prohibit the IWC from adjusting the minimum wage, if the
change in the CCPI is negative.
Define percentage of inflation as the percentage of
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inflation specified in the CPI for All Urban Consumers
(CPI-U), as published the Department of Industrial
Relations (DIR), or its successor index.
Define "previous year" as the 12-month period that ends
on August 31 of the calendar year prior to the adjustment.
Related Legislation: AB 10 (Alejo), Chapter 351, Statutes of
2013, increased the minimum wage from $8.00 per hour to $9.00
per hour on July 1, 2014, and $10.00 on January 1, 2016.
Staff Comments: Relative to its current level of $8.00 per hour,
this measure would raise California's minimum wage by 63 percent
by 2017. Assuming an annual inflation rate of 3 percent, the
indexing provisions of the bill would raise the minimum wage by
about 40 cents per year beginning in 2018.
Much of the fiscal impact of this measure would be related to
its various effects on the economy, including changes in
employment, prices, and profits. For example:
Most employees earning less than the proposed minimum
wage would earn more. They would also spend more on goods
and services, thereby generating certain increases in
economic activity.
At the same time, however, employers would face higher
wage costs, which they would either absorb in the form of
lower profits or attempt to offset through a variety of
means. For instance, they may attempt to shift or "pass
along" the costs of the higher wages to consumers by
raising prices of the goods and services they sell.
Alternatively, some employers may offset the costs of the
increase in wages by automating, hiring fewer workers (or
reducing workers' hours), or limiting fringe benefits. Some
businesses that are not able to shift the effects of the
higher minimum wage may reduce economic activity in
California. This would most likely occur in industries that
have a large share of expenses for low-wage workers or that
are subject to competition from other states and other
countries.
The measure would have varying impacts on state and local
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revenues. For instance, a reduction in business activity,
employment, and income in California would result in lower
income tax revenues. These declines could be offset, however, by
increased spending on goods subject to the sales tax. Higher
sales taxes would occur if businesses raised prices of taxed
goods in response to the increase in the minimum wage, and this
increase is not offset by reduced quantities of goods sold.
Sales taxes could also increase if those receiving the higher
minimum wage spent a relatively high portion of their new
earnings on goods subject to the sales tax. The net impact on
state and local revenues is unknown.
State and local governments provide various public services --
primarily in the health and welfare area -- that use low-wage,
private sector employees. The increase in the minimum wage would
directly raise these costs by an unknown amount.
Families with limited income currently qualify for public
assistance in California, with benefit levels generally being
phased out as a recipient's income rises. By raising the
earnings of some public assistance recipients, this measure
would result in reduced state costs. These savings, primarily in
the Medi-Cal and CalWORKs programs, are unknown. On the other
hand, the measure's impact on business activity would increase
public assistance payments to some people who lose their jobs.
These costs would partially offset the public assistance savings
noted above.
The higher minimum wage could increase state and local
government costs in other ways. For instance, to the extent that
the measure results in a slight increase in inflation, the
public sector could incur added costs for expenses indexed for
inflation, such as building leases and welfare payments.
Committee Amendments (1) update the statutory reference
regarding the entity within DIR that calculates the California
Consumer Price Index, and (2) add a co-author to the bill.