SPRINGFIELD – As Gov. J.B. Pritzker eyes the passage of a minimum wage hike prior to his Feb. 20 budget address, unofficial details have emerged about the proposed timeline of the increase and its direct costs to the state.
While no specific bill language had been filed to Sen. Kimberly Lightford’s (D-Maywood) Senate Bill 1 as of late Tuesday, Democratic senators were expected to caucus Wednesday to hear the details of and see if they had the votes to approve a plan that has thus far been described only in a memo leaked from Pritzker’s office.
The memo, which was made public by the Capitol Fax blog Tuesday, laid out a six-year phase-in of the increase beginning in January 2020. The rate would be raised from $8.25 to $9.25 in Jan. 2020, then to $10 in July of the same year. A third increase in a 12-month period would occur in January 2021, raising the rate to $11. After that, the rate would increase by $1 every January until it hit $15 beginning in 2025.
A similar bill passed the Democratic House and Senate last year before being vetoed by Gov. Bruce Rauner – an action that was anticipated throughout the process.
Now, with Pritzker in office and Democratic supermajorities in the House and Senate, repercussions for the bill’s passage will be real – not just political – according Rob Karr of the Illinois Retail Merchants Association, an opponent of the bill.
Karr was critical Tuesday of the lack of details released about the proposal, the unwillingness of the other side to compromise, and the quick pace with which negotiations were progressing.
He noted that all of the IRMA’s positions – including a request for a regional rollout of the increase with downstate at a lower rate than Chicago, greater income tax credits for employers, and lower training wages for teens who work fewer than than 650 hours for an employer in a one-year period — have been denied in negotiations.
“That’s what’s been perhaps most disappointing to date,” Karr said. “There’s been a lot of talk since the election about compromise and returning a spirit of compromise to Springfield, yet on the first major issue it appears that we’re back to the bad habits of the last four years.”
He also warned of a ripple effect of increased prices.
“It’s not just the direct cost of having to pay more, it is the fact that businesses also have a lot of service providers that they will have to pay more for those costs to be passed on to them,” he said.
Costs to the State
While Karr said the bill’s repercussions on retail couldn’t be specifically calculated because of the differences between businesses, Pritzker’s office outlined direct costs for the state in the memo.
The increase is expected to cost the state an additional $82 million in fiscal year 2020 from raises to government employees, human service programs and direct service providers, the memo said. In fiscal year 2021, the cost would increase by about $270 million, then by about $165 million each year from FY 2022 to 2025. In fiscal year 2026, an estimated $82 million would be added to the cost, making the total annual cost of the wage increase about $1.1 billion annually by that time.
“Following four years of disinvestment and uncertainty resulting from the historic budget crisis, it is untenable to require human service agencies to pay employees more without ensuring they receive corresponding stable increases in state appropriations to re-stabilize them and cover the added operating costs,” the memo said.
Employer Tax Credit
The memo also outlines a small business tax credit available to employers with 50 employees or less. It gives credit at a declining percentage of the difference from an employee’s salary during the last quarter of the previous fiscal year and the state’s current minimum wage.
This would start as a 25 percent credit in 2020, decreasing incrementally to 5 percent by 2025 and holding that rate until 2027. After 2028, the 5 percent credit would extend for two years only for employers with five or fewer employees.
Karr called the tax credit “meaningless,” noting that only about 7 percent of businesses – not the 48 percent cited by the bill’s advocates – that have five or fewer employees when contractors are counted as employees.
The cost of the tax credit would range from $14 million in the first year to as high as $25 million in later years, although the memo said increased economic activity due to the wage increase would offset those costs. The total one-year marginal impact is predicted to be anywhere from $20 million to $96 million in the positive depending on the year.
From 2027 to 2030, the tax credits are expected to cost the state between $5 million and $13 million each year.
Tip Wage Credit
The memo also said a provision that allows employers to provide 60 percent of the minimum wage for tipped employees will remain on the books as well, with the other 40 percent being made up by tips. The employer would be obligated to make up an amount if tips do not cover the other 40 percent.
Businesses groups such as the Illinois Restaurant Association have favored keeping the tip wage credit in the legislation.