A bill to raise Vermont’s minimum wage to $15 an hour hit a setback Tuesday when a legislative economist informed members of a House committee that an amendment to the measure could cost the state about $28 million over the next five years.
The bulk of those costs are part of an effort to prevent “wage compression,” which happens when the lowest-paid employees at an organization receive a raise but employees making slightly more do not.
Analysts say wage compression can put businesses in a pinch as middle-level staff who aren’t subject to the minimum wage increase demand raises of their own or seek other jobs.
The legislation, S.23, doesn’t require private-sector employers to take measures to avoid wage compression, but a proposed amendment would require home health agencies and other Medicaid-funded employers to do so.
Under the amendment, those employers would have to bring all workers up to the minimum wage by 2024 and they would be required to increase other workers’ wages by the same percentage each year. The minimum wage would rise by 4.5 percent, to $11.50, in 2020; to $12.25 in 2021; $13.10 in 2022; and $14.05 in 2023.
“It proposes to keep the wage spread between these folks,” said Rep. Tom Stevens (D-Waterbury), “which is an expensive proposition.”
The Senate passed a $15 minimum wage bill in February without the wage compression mandate.
Stevens, the chair of the House General, Housing and Military Affairs Committee, said he didn’t realize exactly how expensive the amendment would be until he saw an analysis from Joyce Manchester, an economist with the legislature’s Joint Fiscal Office.
Manchester presented her findings to Stevens’ committee Tuesday.
“The bottom line is that, according to our rough estimates, the amendment creates a general fund shortfall of $1.6 million and creates pressure on the Medicaid budget gap,” Manchester said of the first-year numbers.
Over the next five years, Manchester said, the proposal would cost the state and federal government a total of $86 million. The analysis found that the change would benefit the state to the tune of $12 million but would still leave it with a $28 million shortfall during that five-year period.
Stevens said he doesn’t know how the legislature would fill that gap, but he’s not counting on the federal government to increase its contribution to accommodate the new minimum wage.
“It is an age-old problem that the Medicaid and Medicare money has not kept up with the rate of needs,” Steven said Tuesday.
Stevens said a lack of federal funding has left home health agencies, which get the bulk of their revenue from Medicaid, working on shoestring budgets.
“According to the advocates, this would be devastating because if you take all the money and put it into wages for people who deserve to be paid … there’s no money left over out of that fee to pay for the rest of it,” Stevens said, referring to non-medical business costs like equipment and mileage.
With the legislature proposing to force those wage increases, and no mechanism to force the federal government to increase rates for Medicaid, Stevens said he’s concerned about what the legislation would do to organizations providing home health care and other key services.
“They’re coming back and saying in a very real way, ‘There’s no money if it doesn’t come from either the [state] taxpayer or the federal government,’” Stevens said.
Manchester’s analysis gave lawmakers a clear picture of the problem. Now it’s up to them to figure out what to do about it. Stevens had previously expressed support for a $15 minimum wage but did not say Tuesday whether he’d support the amendment.
“This was definitely a serious piece of testimony that we have to consider,” Stevens said. “It’s an impact that we were vaguely aware of, but certainly not the size of it.”
Sen. Michael Sirotkin (D-Chittenden), the lead sponsor of the bill, said Tuesday afternoon that he had not yet reviewed the analysis and did not want to comment until he had a chance to do so.
See Manchester’s analysis below:
Correction, April 26, 2019: A previous version of this story contained a percentage error concerning the minimum wage increase.
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Another example of how our legislature is hell bent on bankrupting everyone. No money? Who cares, just vote for it. When will the poor misled voters in the state wake up and be smart with voting. Or did the smart people leave the state?
Theres a fix for adults in Vermont who are earning minimum wage. Its called education. Get an education, either college or trade school to put yourself in a position to earn more than minimum wage. If you have an education but live someplace with no jobs, do what many adults have done and move to where there are jobs. Sitting in place with no education or job opportunities and expecting government to solve the problem for you is just lazy and selfish. And no, Im not a conservative and believe in having a strong safety net for those down on their luck but there comes a point when people have to make their own luck.
Are you referring to Medicaid costs at the current enrollment level? What you left out, Taylor, was the silly fact that with a min wage increase to $15 per hour fewer people could be eligible for Medicaid benefits. Nowhere in the document presented as evidence of such a Medicaid shortfall is the mention of Medicaid. Did you just make this up? Let’s do some math. 35 hours a week at 15 per hour, x 52 weeks, divided by 12 = 2275. The 2019 monthly income limit for Medicaid for Adults, HH of 1, is 1437.05 p/month. So, if someone works ~24 hours a week for ~4 weeks a month, they may no longer be eligible for Medicaid. Did the “Economist” factor this is? If not, then your headline is misleading. Perhaps a correction might be in order?
Furthermore, if achievement is the goal here, then raising the min wage provides more of an incentive to enter the workforce, not less… I suppose then the stated goal of “economic development” really means that only business owners ought to be the sole beneficiaries of said development. The rest can eat cake right?
There are often unintended consequences to the best of intentions and this medicaid shortfall is likely just one example of how things would go wrong. Vermont currently has one of the highest and most progressive ( minimum wage now tied to cost of living) in the nation. There are also many $15 dollar per hour wage jobs going begging in Vermont. At this point might well be best to let things be.
This entire conversation is such a supply-side, ruling-class prism of obscene inhumanity that it hardly warrants civilized response. Milton Friedman called and he is so tumescent he can’t even go outside. $15 was needed back in 2010… by 2024 it will be closer to $20.
Do we delude ourselves into thinking that we are in a world where large sums of capital are not flying away from the working and middle classes and into the plutocracy? They are… and if we can’t get together for long enough to put the brakes on this then we’re bigger suckers than have ever lived on planet earth.
Nobody is pretending that this wage increase will be easy on local business. Everybody has a boss; for the embattled boss of the desperate employees that boss is called the bank.
The banks have been left out of this conversation. They are the ones who can afford to fill in the shortfall, and this plan cannot responsibly work without the accountability of the financier class whose primacy of speculation, refusal to lend at reasonable rates, and betrayal of material production have triggered the slow-motion collapse of the United States economy.
Why impose ourselves on the banks and the ruling class, nice folks as they are? Because that’s where the money is!
How does raising wages, which automatically raises Medicare contributions, cause a shortfall in Medicare income?!?
Sounds like that economist can’t add very well.
I would encourage readers and legislators to review this report on the direct care workforce, which shows these services impact 1/3 of seniors and 14% of the total population of Vermont, plus their families, neighbors, and their community. I would wager that 1/3 to 1/2 of Vermonter’s directly or indirectly rely on low wage caregivers in their daily life. Raising an additional $28M in general fund revenue to attract and lift full-time direct care staff out of poverty is exactly the kind of economic development needed in one of the oldest-age states in America. What is not discussed is the cost of nursing home care, which often has double or triple the cost of in-home support. Seniors and people with disabilities who live in their own homes and communities save the state government tens of millions of dollars each year. The legislature can address the crisis in direct support staff wages now, or pay a much higher price ten to twenty years down the road.
https://healthcareinnovation.vermont.gov/sites/vhcip/files/documents/October%202014%20-%20Direct%20Care%20Workforce%20Report.pdf
If you read the proposed bill, it is not just raising the minimum wage to 15 dollars, but the wage compression portion that would automatically raise all wages by the same amount, and in healthcare require more money to pay for these wages. Taxes for Medicare and Medicaid would be needed. Alex Lavin, how about promoting businesses to provide better jobs so you have the entry level jobs and the people are motivated to improve themselves. This is also a good example of how government run healthcare can bankrupt a country, it is not just the insurance companies causing the deficits, it is also bad legislation where legislators are too quick to pass for votes instead of looking g at the repurcussions
To Concerned VT’er (why does nobody say who they are around here?): thanks for your thoughtful response. This state is sadly not business-friendly. It’s not only because of inordinately high taxes and fees but also because of the framework of regulations that make it difficult to conduct business. This is in dire need of reform. I agree 100%.
But we haven’t got good evidence that flinging the doors open for unbridled business operations via deregulation, de-unionization, and utopian free market urges actually raises wages. On the contrary, the Reagan-and-after wild west economy has lowered real wages when adjusted for surging costs of living and inflation.
As stated before and now big in the news, income inequality has subsequently spiked to dizzying levels even as plants close, hours and benefits are cut, and America careens into the abyss. Nevermind the unemployment rate… the under-employment rate should trouble us.
In historical terms… when the minimum wage was first instituted, collective bargaining rights legislated, and child labor outlawed, we saw the greatest uptick in the human development index that the country has ever seen.
The “climb the ladder, loser” conceit taunted by wage skeptics: this assumes those with a will to succeed are destined for higher-paying jobs, and also a resilience to strive is natural, not socially constructed. It often comes down to what the person’s world is. “It’s who ya know”… an enduring tenet of the professional world.
The social darwinism of this thinking maintains some deserve to survive and others will be thrown off the lifeboat and drown in low-wage misery. 45% of American minimum wage earners have children, so we are talking about the future of the republic itself. This is the essence of the inhumanity and incivility of the mainstream’s alignment against the working class.
https://vgnp.org/25-maximum-wage/
Montpelier needs to get legislative priorities in order
Legalize cannabis This will bring in the tax dollars and make us better able to comprehend our states agenda. And there will be a 200% tax for non residents. Let the rich people from NY and CT pay.
Single payer My Obama care is too expensive and medical marijuana will be covered 100%.
Minimum wage and guaranteed income. Let the undocumented citizens do the jobs that Vermonters do not want anyway.
100% renewable energy. In our new utopia we don’t want to all be dead in 12 years.