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F I S C A L I M P A C T R E P O R T

SPONSOR Beffort

DATE TYPED 2/16/05

HB

SHORT TITLE Prohibit Minimum Wages Exceeding Federal

SB 535

ANALYST Hadwiger

APPROPRIATION

(in $000s)

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

NFI

(Parenthesis ( ) Indicate Expenditure Decreases)

Relates to HB614.

SOURCES OF INFORMATION

LFC Files

Responses Received From

Department of Finance and Administration (DFA)

Tourism Department (TD)

Economic Development Department (EDD)

Department of Human Services (DHS)

Department of Labor (DOL)

SUMMARY

Synopsis of Bill

Senate Bill 535 would prohibit a political subdivision of the state from requiring a minimum

wage in excess of the federal minimum wage.

Significant Issues

SB535 appears to be a response to “Living Wage Ordinance” proposals that have been offered

sporadically around the country and approved by local governments primarily in communities

with high costs of living. The Living Wage Ordinances increase the minimum wage within a

local jurisdiction above the federal minimum level, typically with the intent of assuring that ser-

vice sector employees receive sufficient compensation to maintain a standard of living compara-

Senate Bill 535 -- Page 2

ble to that provided by the federal minimum wage in localities with a lower cost of living. Ac-

cording to the Department of Finance and Administration (DFA), currently the City of Santa Fe

is the only city in New Mexico that has enacted a Living Wage Ordinance setting the minimum

wage to $8.50 in 2004, $9.50 in 2006 and $10.50 in 2008. The current statutory minimum wage

in New Mexico is $5.15 per hour, consistent with the federal minimum wage. A full-time em-

ployee would earn $10,712 per year at this wage. SB535 would overturn the Santa Fe ordinance.

Nationally, living wage ordinances have been enacted in 123 city and county governments in

more than 20 states, including Sacramento, San Francisco, New York City, Des Moines, Cincin-

nati, New Orleans, Arlington (VA), Missoula (MT), Tucson, and others.

The Economic Development Department (EDD) indicated that mandated minimum wages affect

the businesses located in the areas where they are enacted and sometimes make it difficult to stay

in business profitably, but that, from the employees’ viewpoint, higher minimum wages can

mean more income. EDD noted that higher mandatory minimum wages do not usually send a

positive message to the existing business community or potential new businesses. A case-in-

point is the business park just outside the city limits of Santa Fe, which emphasizes in its market-

ing that it is just beyond the boundaries of the minimum wage law.

DFA indicated that allowing political subdivisions to enact a minimum wage ordinance preempts

the economic policing power of the State. DFA noted that the overall economy is a State con-

cern; it is vital that economic uniformity is maintained preventing problematic economic im-

pacts. It is at the State level that the overall economic effect a minimum wage law will have on

cities, counties and surrounding areas can be determined. SB535 will prevent negative economic

ramifications caused by minimum wage differences between political subdivisions. According to

DFA, a single political subdivision that enacts a higher minimum wage may experience an in-

crease in unemployment and decreased economic growth caused by business closings and or re-

locations due to an inability to compete with nearby cities; less consumption of big ticket item

(i.e. automobiles) due to increased prices in comparison to nearby cities. In most cases gross re-

ceipt tax revenues are affected. DFA noted that a study of Santa Fe’s Living Wage Act esti-

mated that the higher local minimum wage would cost employers $33 million in 2005. DFA

identified the following negative consequences from the Santa Fe Living Wage Act:

1.

Businesses like Hastings, Asado, Wingbasket, Churches Chicken, and Santa Fe Seasons

have chosen to close their doors due to the Living Wage Act, causing increased unem-

ployment and decreased municipal and state gross receipt tax revenues. Other profitable

companies have chosen to abandon development in Santa Fe preferring nearby cities, in-

cluding Chile's, which developed in a nearby city. Nonprofit organizations are also mak-

ing operational decisions based on the higher minimum wage, including the Salvation

Army and Santa Fe Boys & Girls Club. Also, because Professional Home Health Care

and Heritage Home Health Care are reimbursed by Medicaid at $7.00/hour, the Living

Wage Act has placed them in a precarious position, it is unsure how long their doors will

stay open.

2.

Some Santa Fe companies will not be able to compete with companies outside the city

boundaries, because they may be required to pay up to 100 percent more for minimum

wage employees by 2008.

3.

In order to stay competitive, companies are forced to decrease their profit margin. In turn,

businesses lose funds that would normally be reinvested in the business and or the com-

munity influencing economic growth.

Senate Bill 535 -- Page 3

4.

The costs of the higher minimum wages are passed on to consumers. For example, the

higher minimum wage increases the cost of residential construction and services, making

it more expensive to purchase, improve, maintain and or repair homes in Santa Fe.

5.

Consumers will tend to purchase large ticket items outside the City of Santa Fe, such as

automobiles and appliances.

The Department of Labor (DOL) was concerned that SB535 might conflict may conflict with the

Public Works Minimum Wage Act (Section 13-4-10 NMSA 1978) which authorizes the Labor &

Industrial Division of DOL with setting prevailing wages for public works projects.

FISCAL IMPLICATIONS

The agencies that commented on SB535 identified no significant direct fiscal impact from this

bill.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

HB614 contains the same provisions as SB535, but adds language that would exempt existing

ordinances such as Santa Fe from its provisions.

OTHER SUBSTANTIVE ISSUES

The Human Services Department indicated that, in lieu of passage of SB535, individuals living

in areas where there is a higher minimum wage than federal minimum wage may not consider

state government employment, making it difficult to recruit and retain qualified individuals

within state government.

DFA recommended that, to fully prevent negative economic ramifications caused by the mini-

mum wage differences between political subdivisions, SB535 should be amended to eliminate

language that grandfathers the existing ordinance allowing a higher minimum wage.

ALTERNATIVES

EDD suggested that providing incentives (such as the High Wage Jobs Tax Credit) to employers

to pay a higher wage is a “softer” approach to achieve the same goal.

POSSIBLE QUESTIONS

1.

How would SB535 affect the ability of the DOL to set prevailing wages for public works

projects pursuant to the Public Works Minimum Wage Act.

DH/yr