OFFICE OF FISCAL ANALYSIS

Legislative Office Building, Room 5200

Hartford, CT 06106 ↓ (860) 240-0200

http: //www. cga. ct. gov/ofa

sHB-5291

AN ACT CONCERNING THE MINIMUM WAGE.

OFA Fiscal Note

State Impact:

Municipal Impact:

Explanation

The bill results in increased payroll and contract costs to the state and municipalities. The bill raises the state minimum hourly wage from $8. 25 to $8. 75 on January 1, 2013, and from $8. 75 to $9. 25 on January 1, 2014. As of 2015, it requires annual minimum wage adjustments based on increases in the Consumer Price Index (CPI).

Payroll Impact

An increase in the state minimum wage will have a fiscal impact on the payroll of state and municipal employees (primarily general workers, summer workers, DEEP seasonal workers, student and senior workers). There would also be a direct increase¹ in social security fringe benefit costs. These state payroll and fringe costs are not anticipated to be significant, (estimated at $10,000 in FY 13 and $50,000 in FY 14²) but could have an impact on a limited number of programs (such as recreational programs) that largely utilize these types of positions.

The bill also increases costs to municipalities that employ minimum wage workers. For example, the city of New Haven parks and recreation department expects to hire 2,000 student workers at $8. 25 an hour for an 8 week summer program. The total student worker cost for this program is currently $3. 3 million. Under the bill, the student workers pay will increase to $8. 75 an hour in FY 13. Due to timing of the impact, the FY 13 cost would be $66,000 and the FY 14 cost would be $200,000. This increase represents less than 1% of New Haven's total budget.

Another example is the town of Manchester which currently employs 43 part time employees at $8. 25 an hour and 35 part time employees at $8. 50 an hour. It is estimated these employees work 20 hours a week for 26 weeks for a total current cost of $339,170. Under the bill, these workers pay will increase to $8. 75 an hour in FY 13. Due to timing of the impact, the FY 13 cost would be $7,865 and the FY 14 cost would be $17,005. This increase represents less than 1% of Manchester's total budget.

The impact to municipalities will vary depending on the number of minimum wage workers they employ and the extent of the services they provide.

Contract Impact

In addition, the bill will increase certain state contract costs. All state service contracts exceeding $50,000 require the state to pay standard wage (which is higher than the bill's proposed minimum wage increase) and therefore would not be impacted. Service contracts (such as custodial) below the $50,000 threshold are exempt from this requirement, however, and would be impacted. In addition, numerous non-service contracts in which vendors employ staff at minimum wage would also be impacted. Many contracts entered into since 2008 have a provision that allows the contractor to seek a price adjustment if the minimum wage is increased, whereas some contracts do not. As a result, the timing of these impacts is uncertain.

In general, labor costs comprise approximately 80% of the cost of these contracts. Assuming 50% of covered employees earn minimum wage, there would be an overall annualized increase of 3% in FY 13 and an additional increase of 2. 9%, for a total increase of nearly 6% in FY 14. The full impact to state contract costs is difficult to quantify. The Department of Administrative Services has identified approximately 150 contracts worth an estimated $3 million that would be potentially impacted, resulting in increased annual costs estimated at $72,000 in FY 13 and $144,000 in FY 14. The Department of Transportation has similarly identified several contracts which would be impacted, resulting in increased annual costs up to $100,000. In total, it is estimated that state contracts could be impacted by as much as $250,000 in FY 13 and $500,000 in FY 14.

Other

There is no fiscal impact anticipated to the Department of Labor due to any of the provisions of the bill.

The bill also adjusts the minimum wage “tip credit” and increases the amount that may be recovered from violations of minimum wage and overtime wage laws. These provisions are not anticipated to result in a fiscal impact to the state or municipalities.

The Out Years

The annualized ongoing fiscal impact identified above would continue into the future subject to inflation, as measured by the Consumer Price Index.