State could bill City of Flagstaff $840,000 for minimum wage reimbursement

By Adrian Skabelund Feb 4, 2020

Flagstaff may have to pay the state of Arizona more than $840,000 over the next two fiscal years to cover the cost of the higher local minimum wage.

The numbers give city officials their first taste of how a state law passed last year might affect Flagstaff.

City Management Analyst Jack Fitchett said the news was delivered to staff over the weekend, but cautioned the Flagstaff City Council that the numbers were only estimates from the state agencies that have responded so far.

“It’s ever-evolving and that’s why we need to preface this with the fact that these are estimates because in a week from now we could see totally different things,” Fitchett said during a city budget retreat on Monday.

Last year, the state legislature passed a measure targeting Flagstaff as a way to dissuade other municipalities from passing local minimum wage laws. The law outlines that cities with a higher minimum wage than the state must reimburse the state for costs associated with that higher wage.

If the city doesn’t pay the requested amount, the law outlines how the state will redirect the requested amount of money from state-shared revenues to pay for it.

Fitchett said it is likely the estimates will change as not all the state-funded agencies operating in Flagstaff have responded to this point.

At the moment, those estimates would have Flagstaff pay $202,700 for this fiscal year and $640,889 next fiscal year.

Fitchett added that although agencies are providing cost estimates, the final decision on how much the city will have to pay will be up to the legislature. That means legislators could decide to charge the city more than the agencies estimate, or less, depending on what legislators believe to be correct.

“By the time we actually get to the assessment period, it’s just going to be the decision of the legislature what they would like to bill us. At the end of the day, they could take what is estimated at $202,000, they could say it’s less or they could say it’s more. That’s where we’re sitting right now,” Fitchett said.

The state is set to deliver the city a bill for the finalized amount by July of this year.

During the budget retreat, Flagstaff Mayor Coral Evans wondered if the council should simply budget for the estimates they have been given or allocate a larger amount of money in the expectation that the initial estimates change.

Evans also pointed out one of the line items listed as an additional expense appeared to be increasing the salaries of employees who made more than the minimum wage.

And that was concerning for Evans, who worried the city may have to pay for wage increases within agencies trying to avoid wage compression.

Deputy Manager Shane Dille said the bill doesn’t touch on issues of wage compression explicitly, but if agencies raise all wages because their lowest-paid employees are making more, that could be seen as a result of the local minimum wage law.

And City Attorney Sterling Solomon seemed to agree.

“If there are more impacts that come from that such as compaction, there’s nothing that’s within the bill that would stop them from throwing that in,” Solomon said.

Vice-Mayor Adam Shimoni said if that is the case, the legislator may have created a “really slippery slope” as agencies operating locally could charge the city for all wage increases, blaming them on the higher minimum wage.

Councilmember Jim McCarthy’s take on the situation was similarly dire.

“Well, I could see that this might require an audit and court case,” McCarthy told his colleagues.

The council also set forth plans to discuss the bill with legal counsel during a future executive session.