Legislative proposal would cushion blow for employers in cities with high hourly wage mandates

Legislation introduced in the Arizona State Senate would cushion the blow for employers struggling in cities with hourly wage mandates far above the state’s mandated minimum wage.

SB 1108, sponsored by state Sen. Wendy Rogers, R-Flagstaff, would enable employers to claim a state income tax credit if they do business in a locality with a minimum wage that is higher than the state’s minimum wage floor. The credit would be 10% of the difference between the higher local mandated wage and the lower state mandated wage.

The credit would be funded by a corresponding reduction in the city’s portion of state shared revenues. Proponents say the injection of the tax credit proceeds back into a local municipality with a higher wage mandate will undoubtedly create more economic activity and drive local business growth and will contribute to increased tax revenue for the municipality.  

The bill has the backing of the Greater Flagstaff Chamber of Commerce, which represents employers in the northern Arizona city that has an eye-popping $16.80 hourly minimum wage, $2.95 above the state minimum wage of $13.85.

“It doesn’t impact the cities’ ability to set a minimum wage,” said Joe Galli, the chamber’s senior adviser for public policy. Many businesses in northern Arizona operate on very thin margins, Galli said, and the wage mandate has led to business closures and has “forced young people out of the labor market, because as employers look and are forced to pay higher wages, they look to hire people who are older and more experienced.”

In his testimony in the Senate Finance Committee on the bill, Galli spoke of the struggle of Flagstaff-area employers to keep pace with the spike in labor costs. He said employers in the community are faced with either raising prices, slowing hiring or, in some cases, closing their doors.

Arizona cities were given the green light to adopt their own local minimum wage laws following the passage of Proposition 206 in 2016. While a city can adopt a mandated wage higher than the state’s, it cannot go lower than the state minimum wage.

Galli explained that employers located in Coconino County but not in Flagstaff city limits are still experiencing the effects of the municipal mandates, as the city law has put upward pressure on all wages, raising labor costs for employers regardless of whether they’re in the city. 

“Having no relief will continue to further a real problem with labor in our town, and I believe this will be the case in the city of Tucson, as that local wage mandate rises above the state’s wage and other cities that choose to adopt local wage mandates that are higher than the state wage mandate will also continue to suffer for competitive reasons,” Galli said. 

Tucson’s minimum wage will jump to $14.25 next January. The Tucson Metro Chamber of Commerce supports the bill. 

The bill passed the Senate on a party-line 16-14 vote and now heads to the House of Representatives.