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Lawmakers Mull ‘Unintended Consequences’ Of Minimum Wage Hike

Raising the wage floor to $15 an hour could make some workers and families ineligible for state and federal assistance programs

worker minimum wage
Credit: NPR.org

New Jersey Democrats’ push to raise the state’s minimum wage to $15 by 2024 could wind up hurting some of the people they are trying to help if boosting salaries makes workers too well off to receive free or subsidized services such as child care and preschool.

Lawmakers say they are working to prevent such unintended consequences, including the effect on some of the 15,000 children who are living in poverty and receive services under the federal Head Start program. They say they are also aware that there could be other programs where a higher minimum wage might disqualify a family.

“We are going to pay attention to it to make sure we are not going to hurt the same people we are trying to help,” said Sen. President Steve Sweeney (D-Gloucester) and the sponsor of S-1, the minimum-wage increase bill. “As the increases take effect, we must be sensitive to the impact it will have on working people who are below the ‘safety net’ and could be at risk of losing benefits as their wages increase. We don’t want to see them harmed by lost benefits as they gain in wages.”

In that regard, the legislation would create a “Task Force on Wages and State Benefits” to evaluate how changes in minimum-wage levels affect eligibility for state services and benefits. The task force would produce annual reports that include recommendations for adjustments in eligibility standards, changes in subsidy rates and other potential reforms to ensure that the wage hikes raise the standard of living of working families.

Gov. Phil Murphy or the Legislature would be able to change the income eligibility requirements for state-subsidized programs, including child care for low- and moderate-income residents, provided the funds are available in the state budget.

Questions about Head Start eligibility

Headstart
Credit: USDOE

But that might not help those who get free services for infants and toddlers through federal Early Head Start or preschool for 3- and 4-year-olds under Head Start. Bob Grant, president of the board of directors of the Head Start Community Program of Morris County, said the state has 26 Head Start and 29 Early Head Start programs serving about 15,000 children statewide. The state’s Head Start programs received about $166 million in the 2018 fiscal year.

Grant told the Senate Budget and Appropriations Committee on Monday that his organization supports the minimum-wage increase, but “the complication for us comes in with the eligibility standards, which are set at the federal level,” and the concern that when a family’s income exceeds that standard they would not qualify for services.

For the most part, that means a family comprising a single parent and two children can have a total annual household income of no more than $21,330. That works out to about $10.25 per hour at a full-time 40-hour per week job. At the current minimum wage of $8.85, that family qualifies and would continue to qualify even after the minimum wage rises to $10 on July 1 under the bill. But the subsequent $1 annual increases in the wage through 2024 — to $15 per hour — could wind up disqualifying such a family for services if the federal poverty limit does not increase proportionally.

It’s unclear how many people could lose access to services. Some of the parents whose children currently are in Head Start may be unemployed or work part time and so may not be affected. “We applaud the governor’s efforts to try to provide a living wage; we think that’s so important,” said Bonnie Eggenburg, president of the New Jersey Head Start Association. “But we also have concerns that many of our families may not be able to access Head Start.”

Eggenburg said the wage increase would not automatically kick a child already enrolled out of the program, but his family could be barred from enrolling another child.

Seeking relief at the federal level

The federal poverty guideline, which is the same for every state except Alaska and Hawaii, does not make allowances for high-cost states like New Jersey, New York and others in the Northeast.

“Being poor is more expensive in the Garden State,” said Grant.

He said his organization is asking the state’s congressional delegation to work toward changing the guidelines to better reflect state or regional cost differences. He also asked lawmakers to approve a resolution asking the federal government to allow for enrollment in Head Start based on a higher percentage of the federal level. If families could still qualify while earning up to 150 percent of the poverty guidelines, “that would solve the problem for the foreseeable future,” he said.

Sen. Teresa Ruiz (D-Essex) said she and other lawmakers are looking into the concerns.

“We want to make sure we don’t have an unintended consequence to a family that has access to wraparound services that might get thrown into a different bracket so that then it will cost them more for child care,” she said. “We have staff looking precisely into what you are talking about.”

Sen. Declan O’Scanlon (R-Monmouth) said that people who might lose access to Head Start and other preschool services could wind up with “a net loss” in income when they have to pay for higher child care costs.

“Some of these things we can’t at the state level make changes to even if we wanted to in an emergent way because it’s federal standards so that should maybe give us enough reason to pause,” he said.

The committee released the minimum-wage bill by a 7-4 vote. Both the Senate and Assembly are slated to consider the legislation on Thursday.

Plea for help by local governments falls on deaf ears

Representatives of the state’s counties, municipalities and school districts complained of other unintended consequences. They said the new wage mandate could force increases in fees or cuts in services for local residents as governments try to stay within the state-mandated 2 percent cap on property-tax increases. Officials asked for an exemption from paying the wage for local governments.

But Senate Democrats are not convinced that increasing salaries will have a major impact on counties, towns and schools, at least in the short term.

When Sen. Joseph Cryan (D-Union) asked how many regular, full-time public employees are making less than $11 an hour — the amount to which the wage would rise next January 1 — they conceded the number was very few.

“I just find it really hard to believe the impact from now to 2021 is significant in local government,” he said. “In fact, I find it nearly impossible.”

John Donnadio
Credit: NJTV News
John Donnadio

“We’re concerned about the long-term impact,” said John Donnadio, executive director of the New Jersey Association of Counties. “There certainly is a cost attached to it.”

Donnadio presented lawmakers with a survey of the impacts of the implementation of the full $15 wage on a sample of 16 local governments. Several officials — including those in Cinnaminson Township and Cumberland, Gloucester and Warren counties — reported there would be no or minimal impact. Others tallied a significant cost: Burlington County stated it would cost almost $313,000 a year, mostly to pay entry-level board of elections, human services, library and animal shelter employees; Somerset County estimated a cost of $278,000; Toms River tallied a cost of more than $575,000 a year, which would force the township to increase registration fees for beach tags and youth and recreation programs.

In addition to the phase-in of the increases and carveouts created for such employees as farm laborers, tipped workers and those employed by small businesses, the legislation does attempt to address an unintended consequence that might impact disabled workers.

The legislation would create a program of corporate-business or gross-income tax credits for employers who hire people with disabilities, to offset the added costs. The Department of Labor and Workforce Development would then issue a report in 2024 evaluating the tax credits and recommend whether to continue that program.

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