A judge has blocked Arizona from collecting $1.1 million from the city of Flagstaff to compensate for its minimum wage that is higher than the state’s rate, ruling that the state missed a deadline for the assessment and was stretching a law targeting higher voter-approved city wages to collect its indirect costs.
But the ruling from Maricopa County Superior Court Judge James Smith released on Monday sidestepped the question of whether the assessments are unconstitutional.
The state minimum wage reached $12 an hour in 2020 with inflation adjustments after that and now stands at $12.15 an hour. Flagstaff voters in 2016 phased in higher city minimum wages, which hit $15 per hour this year with annual increases thereafter.
Smith’s ruling said a law enacted by the Republican-controlled Legislature in 2019 targeting higher city minimum wages set a July 31 deadline for setting the yearly assessment. The state missed that deadline.
The judge also said the state can’t charge for the indirect costs of Flagstaff’s higher minimum wage, which is what it did in coming up with the $1.1 million figure. The state is specifically exempt from paying the higher minimum wage the city’s voters approved in 2016, and the law authorizing assessments does not specifically say the state can calculate the indirect costs of paying contractors.
“When the Legislature wants to capture direct and indirect costs/expenditures, it uses those words,” Smith wrote. “It would be unusual to interpret the words’ absence from (the 2019 law) as also capturing direct and indirect costs/expenditures.”
Attorneys for the city Flagstaff had argued that the Voter Protection Act barred the state from penalizing cities for their higher minimum wages because they are specifically authorized by a 2006 voter initiative.
But they also said the judge could rule in the city’s favor if he found the state missed the deadline or wasn’t authorized to collect for higher indirect costs.
When Smith ruled for the city on the deadline and indirect costs issues, he was able to avoid deciding whether the assessment was unconstitutional. He wrote that judges generally prefer to sidestep such constitutional questions if they can.
But he warned that if he accepted the state’s argument that its undefined indirect costs for higher pay for contractors and other expenses, it could trigger the Voter Protection Act. That constitutional provision bars the Legislature from changing voter approved laws.
“That is difficult to reconcile with Proposition 202, which allowed municipalities to set higher minimum wages,” he wrote. “The State’s interpretation would let municipalities do so only if they agreed to pay assessments that they cannot contest and that may have only the foggiest connection to the minimum wage.
“That could be repugnancy that the VPA prohibits,” the ruling said.
Republican Gov, Doug Ducey signed the assessment law and the 2021 budget bill that levied the $1.1 million fee. His spokesman, C.J. Karamargin, said his office had no immediate comment on the ruling. A spokeswoman for Attorney General Mark Brnovich, who defended the case, did not immediately respond to a request for comment.
The state could appeal the preliminary injunction prohibiting the assessment collection. Or the Legislature could come back next year and pass a new law changing the deadlines and specifically allowing the collection of indirect costs.
But the ruling puts it in a conundrum, said Roopali Desai, Flagstaff’s attorney, especially because calculating indirect costs is a complex process and because of Smith’s concern over it violating the constitution.
“Our hope is that they realize that no matter which way they go about doing this, it’s going to be a problem and violates the law,” Desaid said.
The state assessment was based on a review of higher costs by state agencies. They looked at prices contractors charge for services like home health aides who help the developmentally disabled are paid through the state social services agency, the Department of Economic Security.
Arizona voters first passed a state minimum wage law in 2006 and raised rates again in 2016. In the 2006 initiative voters allowed cities to set higher rates.
Tucson voters are scheduled to consider their own higher minimum wage in November. Monday’s ruling removes, at least for now, the argument that the city may face higher costs if it passes its own higher wage law.