Nicole Rice

Minimum Wage and the State Budget

By Nicole Rice, Policy Director, Government Relations

Capitol Update, Jan. 8, 2016

Governor Jerry Brown presented his 2016-2017 State Budget proposal yesterday, Jan. 7th, in which he continued to demonstrate a commitment to fiscal prudence and responsibility. He spoke of the wisdom behind fiscal restraint and the need for California to be able to weather the impending recession.

These themes were echoed in his sentiments regarding an additional increase in the minimum wage, as described in his budgetsummary, and the concern about how such an increase could affect the state’s budgetary bottom line:

...higher minimum wage laws are not free. They raise the operating costs of many businesses, and the state must shoulder higher wages in its programs, particularly In‐Home Supportive Services and developmental services. For example, the increase to $10 an hour has raised General Fund costs by over $250 million annually.

Already, there are proposals to raise the minimum wage further. At $15 an hour, as two ballot measures propose, the General Fund would face major increased costs, estimated at more than $4 billion annually by 2021. Based on current projections, such a change would return the state budget to annual deficits—even assuming a continued economic expansion. Yet under the measures, one or more increases would likely occur at the same time that California is experiencing a recession. Such an increase would require deeper cuts to the budget and exacerbate the recession by raising businesses’ costs, resulting in more lost jobs.

Further raising the minimum wage is a noble goal but it must be done responsibly. Any further increases in the state minimum wage should be implemented on timelines that allow the budget to absorb their costs and have appropriate off‐ramps in case the economy is experiencing a recession.

(Governor's Budget Summary 2016-17, Raising the Minimum Wage, pg. 11)

During the budget press conference, the Governor declined to go into great detail on his thoughts, position and future involvement with the two competing minimum wage initiative efforts seeking qualification on the November 2016 General Election ballot. Instead, he reserved the opportunity to discuss those and other potential ballot measures, such as the extension of Proposition 39, for a later yet undetermined date.

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