ASSEMBLY APPROPRIATIONS COMMITTEE

STATEMENT TO

ASSEMBLY COMMITTEE SUBSTITUTE FOR

ASSEMBLY, No. 15

with committee amendments

STATE OF NEW JERSEY

DATED:  JANUARY 28, 2019

      The Assembly Appropriations Committee reports favorably Assembly Bill No. 15 (ACS), with committee amendments.

      As amended, this substitute bill amends and supplements the “New Jersey State Wage and Hour Law”, P.L.1966, c.113 (C.34:11-56a et seq.), to incorporate into that law the provisions of Article I, paragraph 23 of the State Constitution, and provides further increases in the minimum wage beyond what is required by the Constitution.

      The bill incorporates into the minimum wage law the constitutional provision which has resulted in the increase of the minimum wage rate to $8.85 per hour on January 1, 2019, and which increases the rate on January 1 of each subsequent year by any increase which occurs in the consumer price index for all urban wage earners and clerical workers (CPI-W) during the 12 months prior to the September 30 before that January 1.  The bill also incorporates into the law the provision of the Constitution that whenever the federal minimum wage exceeds the State minimum wage, the federal minimum wage will be adopted as the State minimum wage and the increases based on increases in the CPI-W will be applied to the federal minimum wage rate.

      In addition, the bill provides for certain increases in the State minimum wage greater than the increases resulting from the provisions of the Constitution.  The bill provides that, except for certain workers specified by the bill, the general minimum wage rate will be increased to $10.00 per hour on July 1, 2019, to $11.00 per hour on January 1, 2020, followed by $1.00 increases each year until the rate reaches a level of $15.00 per hour in 2024.

      The exceptions indicated by the bill are:

      1.   For employees of any employer with less than six employees, and for seasonal employees other than tipped employees, the minimum wage rate will be increased to $10.30 per hour on January 1, 2020, and then increased each year from 2021 to 2025 by eighty cents, and then increased in 2026 by seventy cents so that it reaches a level of $15.00 per hour in 2026, followed by further increases from 2027 to 2028 as needed to have these employees provided the same minimum wage rate as the general minimum wage rate in 2028.

      2.   For farm laborers, the rate will be increased to $10.30 on January 1, 2020, $10.90 on January 1, 2022, and increased by eighty cents in 2023, and eighty cents in 2024 so that the rate will be $12.50 on January 1, 2024. Further increases may be contingent on the following: the Commissioner of Labor and Workforce Development and the Secretary of Agriculture are directed, not later than March 31, 2024, to evaluate the impact of those minimum wage increases on farm workers, farm employers, and the viability of New Jersey agriculture, and make a recommendation whether or not to provide the minimum wage increases indicated by the bill for after 2024, or recommend an alternative modification of the minimum wage, with a public member appointed by the Governor with the advice and consent of the Senate providing a third vote if the commissioner and secretary are unable to agree on a recommendation.  Their recommendation would go into effect if the Legislature approves the recommendation and enacts any needed legislation not later than June 30, 2024.  

      3.   Employers who employ tipped workers will be entitled to a credit for tips received by the worker against the hourly minimum wage rate the employer pays, as follows: from January 1, 2019 to June 30, 2019, $6.72; after June 30, 2019 and before January 1, 2020, $7.37; during 2020, 2021 and 2022, $7.87; during 2023, $8.87; and during 2024 and subsequent years, $9.87.

      4.   Commencing January 1, 2020, a training wage of not less than 90 percent of the minimum wage may be paid to an employee enrolled in a qualified training program.  The training wage may be paid during the first 120 hours after hiring the employee for employment in an occupation in which the employee has no previous similar or related experience.  The employer may not utilize employees paid the training wage in a way that contributes to any displacement of current employees or existing apprenticeship programs.  The employer is required to make a good faith effort to continue to employ the employee after the training wage expires and may not hire an employee at the training wage without a reasonable expectation of subsequent regular employment.

      Minimum wage increases provided by the Constitution based on CPI-W increases will continue to be applied in all cases in any year in which the increase set by the bill are less than the CPI-W increase, including all years after 2024.

      The bill defines “small employer” as an employer of less than six employees, and “seasonal employment” as employment by an employer that is a seasonal employer, or employment by a non-profit or government entity of an individual who is not employed by that employer outside of the period of that year commencing on May 1 and ending September 30, or employment by a governmental entity in a recreational program or service during the period commencing on May 1 and ending September 30, except that “seasonal employment” does not include employment of farm laborers.  “Seasonal employer” is defined as an employer who exclusively provides its services in a continuous period of not more than ten weeks during the months of June, July, August, and September, or an employer for which, during the immediately previous calendar year, not less than two thirds of the employer’s gross receipts were received in a continuous period of not more than sixteen weeks or for which not less than 75 percent of the wages paid by the employer during the immediately preceding year were paid for work performed during a single calendar quarter.

      The bill creates a “Task Force on Wages and State Benefits” to evaluate how changes in minimum wage levels may affect the eligibility for a variety of State services and benefits, and how the combination of changes in minimum wage and eligibility standards may impact living standards.  The task force is directed to produce annual reports, including any recommendations for adjustments in eligibility standards for the benefits, changes in benefit subsidy rates, and other relevant reforms, to ensure that the combination of minimum wage increases and State services and benefits are coordinated so as to further advance the goal of raising the living standards of working families.

      The bill also directs the Commissioner of Labor and Workforce Development to issue reports in 2024 evaluating the bill’s changes in the credits provided to employers for tips and the bill’s tax credits for employers who employ individuals with impairments, including recommendations regarding the continuation of the credits.

      Finally, the bill establishes a program administered by the commissioner to provide tax credits to employers who employ employees with impairments to offset the cost to the employer of any increases in the wages and payroll taxes of those employees caused by the enactment of the bill.  Under the program, an employer is eligible for a refundable tax credit against the corporation business tax or the gross income tax for the cost to the employer of those increases.

      As amended and reported, the Assembly Committee Substitute for Assembly Bill No. 15 is identical to Senate Bill No. 15.

COMMITTEE AMENDMENTS:

      The committee amended the bill:

      1) to clarify that seasonal employment includes employment with a  governmental entity in a recreational program or service;

      2) to expand the definition of seasonal employer to include an employer who exclusively provides its services in a continuous period of ten weeks or less during the summer months, and to include an employer for which 75% or more of wages paid during the preceding year was for work performed in a single calendar quarter;

      3) modify the definition of “tax year” to include “fiscal year” in addition to “calendar year”; and

      4) require the commissioner to develop a method a for an employer to submit a certificate of credit to the Division of Taxation pursuant to sections 8 and 9 of the bill.

FISCAL IMPACT:

      The Office of Legislative Services (OLS) is unable to determine the direction and magnitude of the bill’s net fiscal impact due to uncertainty regarding the precise increase in a given year’s inflation adjusted State minimum wage and the high degree of uncertainty surrounding the reactions of economic actors to the higher State minimum wage.

      However, the OLS has identified certain effects the bill is likely to have on State and local government revenue collections and expenditures.  These often countervailing effects include:

•     State Revenues:  The OLS anticipates a State revenue gain from employees whose wages benefit from the wage increase.  These employees will have larger taxable income under the Gross Income Tax and will pay more in payroll taxes; will qualify for a lower Earned Income Tax Credit or cease being eligible altogether; and will increase other State revenues through added consumer spending.  Counteracting such gains, State revenue collections will decrease if the higher minimum wage causes employers to: (1) reduce their consumption of labor by eliminating positions or cutting hours, thereby lowering affected employees’ incomes, gross income, and payroll tax liabilities, and purchases of taxable goods and services, and potentially increasing their Earned Income Tax Credit claims; (2) absorb a decrease in employers’ net income, thereby lowering their gross income tax and corporation business tax liabilities and their potential to invest in businesses; and (3) increase the prices of goods and services, thereby increasing sales and use tax collections on higher-priced taxable goods and services but also reducing demand for taxable goods and services and, in turn, sales and use tax collections. The magnitude of each individual impact and the extent to which the different impacts may offset one another, however, remain highly uncertain considering the lack of precedent for a minimum wage increase of the size provided by the bill.  Under the bill, the establishment of tax credits to employers of employees with impairments until December 31, 2027, will partially reduce the increase of State revenues from higher tax liabilities.

•     State Expenditures:  The OLS anticipates that the bill may affect annually recurring State expenditures in four areas: (1) means-tested government assistance programs; (2) purchases of contracted goods and services; (3) higher administrative costs of implementing the provisions of the bill, including the establishment of a task force; and (4) employee compensation, including the cost of employee benefits.  The magnitude of each individual impact and the extent to which the different impacts may offset one another, however, remain highly uncertain considering the lack of precedent for a minimum wage increase of the size provided by the bill.  It also is conceivable that these effects may delay implementation of operational changes in reaction to the annual State minimum wage increases.

•     Local Expenditures:  The OLS notes that the bill may potentially increase annual local government expenditures in two areas:  (1) purchases of contracted goods and services; and (2) employee compensation, including the cost of employee benefits.  The magnitude of each potential increase, however, remains highly uncertain considering the lack of precedent for a minimum wage increase of the size provided by the bill.  It also is conceivable that these effects may differ from the short-term to the long-term, as employers may delay the implementation of operational changes in reaction to the annual minimum wage increases.

•     Local Revenues:  The OLS also notes that the bill may potentially alter local government revenues if it changes a community’s income and wealth.  The OLS has no indication as to the direction or magnitude of any change in property tax collections or other local government revenues attributable to the higher minimum wage.  Residents whose incomes rise as a result of the enhanced minimum wage will drive any increase in local government revenues.  Residents whose incomes decline because of the higher minimum wage and residents whose purchasing power might decrease as a result of any increase in the prices of goods and services attributed to the higher minimum wage will account for any decrease in local government revenue.

MINORITY STATEMENT

By Assemblyman DiMaio, Rooney, Wirths,

and Assemblywoman DeCroce

      Republicans and Democrats hope to achieve the same ends – to make New Jersey more affordable, but we respectfully disagree with the means that have been put forth by the release of Assembly Bill No. 15 (ACS) as amended by the Assembly Appropriations Committee.

      New Jersey is unaffordable, creating an economy where people who earn a good living struggle to make ends meet.  Unfortunately, that is not a matter of low wages but a result of high costs.  Policies that artificially increase the costs of doing business only exacerbate the struggles of the working poor by increasing the costs of living.  Raising the minimum wage to $15 per hour will not make New Jersey affordable, but it will make the cost of doing business more unaffordable.

      Small-business owners – the greatest job creators – struggle in New Jersey with profit margins that do not make them wealthy, but help them put food on the table.  This bill defines a small business as having five or fewer employees, despite the Small Business Administration defining small businesses as having 100 or fewer employees.  Any business owner with more than five employees will have to consider laying off an employee.  In this instance, if a business has six employees, one worker could lose their job so, hopefully, the other five workers can still be employed.  That is not fair, and businesses will not be stronger.

      This bill also ignores the economic reality that a recession is a cyclical event.  If there is an economic downturn, the minimum wage will continue to increase despite decreasing employment.  The first expense an employer cuts in a recession is labor costs; employees will be laid off.  We learned this only 10 years ago, and it is a lesson well learned.  That will only become far worse if this bill is enacted

      New Jersey’s economic recovery lagged behind the rest of the country because our costs of living and costs of running a business made the ground even shakier for people who fell on hard times and tried to get back on their feet.  The path we need to take should make the ground firmer by making our State more affordable.  It is the government’s policies that are constantly increasing costs, and a reversal of those policies will inevitably lower costs.  A minimum wage is a higher cost, mitigating the benefits of higher pay.

      Moreover, the amendments to this legislation do not go far enough to help the seasonal businesses in our state, and will continue to subject taxpayers to more expensive government.

      Although we share the concerns of our colleagues across the aisle, we believe that this bill is a means that will only make the ends more difficult to achieve.   For that reason, and the reasons above, we oppose Assembly Bill No. 15 (ACS) as amended and released from the Assembly Appropriations Committee.