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Arizona Supreme Court declines to block Prop 206

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More than 700,000 Arizonans will get a wage hike beginning Sunday.

Without comment the state Supreme Court on Thursday rejected a last-ditch bid by the business community, with support from Gov. Doug Ducey and legislative leaders, to delay the effect of Proposition 206. That measure, approved earlier this year by voters on a 58-42 margin, raises the current minimum wage of $8.05 an hour to $10 at the beginning of 2017.

The same initiative eventually increases that to $12 an hour by 2020. And beginning July 1 it requires employers to provide workers with at least three days of paid sick leave each year.

Thursday’s ruling does not end the matter.

The justices have agreed to consider claims by initiative foes that the measure violates a constitutional provision that requires all ballot proposals that result in new state spending to have a dedicated revenue source. But that won’t occur until February, meaning the $10 requirement will remain in place at least until then — if not beyond.

Glenn Hamer

Glenn Hamer

But Glenn Hamer, president of the Arizona Chamber of Commerce and Industry, conceded Thursday that getting an injunction even then could prove difficult.

Arizona court rules provide a multi-part test for judges to consider when deciding whether to enjoin a new law from taking effect. One factor is whether the challengers are likely to prevail after a full-blown court hearing.

Maricopa County Superior Court Judge Daniel Kiley, who last week turned down the request for an injunction, said in a 13-page ruling that the chamber and its allies had not met that burden. The Supreme Court, with Thursday’s order, essentially ratified his conclusion.

And there’s something else working against the opponents.

In arguing for the immediate injunction, chamber attorney Brett Johnson told the justices they should maintain the status quo until the legal arguments could be heard in February. That meant keeping the current wage law.

By February, however, the status quo will have changed: An estimated 770,000 Arizonans now earning less than $10 an hour will be getting that much in their paychecks.

“This is a tough one,” Hamer said.

“It doesn’t change our legal arguments,” he continued. “But it does change the dynamics on the ground  against us in terms of the wage increase taking effect.”

Those legal arguments Hamer is counting on to kill the voter-approved wage hike are based on claims the initiative will increase state expenses.

There is no direct effect on the state payroll as state employees are not covered by the measure. But opponents contend the that the measure will force the Arizona Health Care Cost Containment System, state’s Medicaid program, to increase what it pays private firms that provide nursing home and in-home care.

That’s based on claims by some providers, whose contracts were negotiated under the assumption they could pay workers as little as $8.05 an hour, will go out of business if forced to pay more. And that, they said, would put the state in violation of its agreements with the federal government to maintain an adequate provider network.

Instead, the justices apparently accepted the arguments by initiative supporters that there is no reason to block hundreds of thousands of Arizonans now making less than $10 an hour from getting the pay hike voters said they should get. And AHCCCS itself insisted in its own legal brief that it is under no legal obligation to pay the providers more.

Despite that, Beth Kohler, the agency’s deputy director, said plans are underway to increase provider reimbursements.

“While we said the rate increase was not automatic, I think we were clear in our brief that we do believe we need to increase rates to meet federal requirements to ensure ongoing access to these needed services for tens of thousands of our most vulnerable members,” she said. “In the absence of any court action delaying the implementation of Proposition 206 … our intent to increase rates stands.”

In a public notice, AHCCCS estimates the cost for the next six months — the balance of the state fiscal year — at close to $25 million; the state’s share of that is about a third.

Thursday’s high court ruling came despite a last-minute bid by Gov. Doug Ducey, through his Office of Strategic Planning and Budgeting, to delay the wage hike amid fiscal concerns.

Gubernatorial press aide Daniel Scarpinato said his boss believes AHCCCS can find the extra cash to increase provider rates for this rest of this budget year. But he said the Department of Economic Security will need an immediate infusion of extra cash to deal with its own contracts.

While the chamber’s legal arguments were based on the cost of Proposition 206 to state government, its larger concern always has been the effect on of a $10 minimum on businesses that will feel an immediate impact on their payroll costs.

“This one stinks,” Hamer said.

But he said business organizations may have no one but themselves to blame. The state chamber invested close to $1.5 million into the successful effort to block legalization of recreational marijuana in Arizona — and only about $50,000 trying to convince voters that a hike in the minimum wage is bad for the economy.

“We have to do a better job of making the case to the public,” Hamer said. “I’ll certainly submit that’s a valid criticism.”

One thing he said voters do not know is that the $10 minimum will make Arizona’s minimum wage higher than most of New York state. A new law that takes effect there Sunday sets the floor at $11 in New York City, $10 in suburban areas and $9.70 in the rest of the state.

“We’re not the high-cost place that New York is,” he said.

A couple of things will be different by the time the Supreme Court hears the case in February.

John R. Lopez IV (Photo courtesy attorney general's office)

John R. Lopez IV (Photo courtesy attorney general’s office)

One is that Andrew Gould and John Lopez IV, the two newest justices selected by Ducey, will be on the court. While they were sworn in last week, neither has actually participated in any court activities yet.

Lopez, however, may opt to sit this one out. That is because until now he has worked for Attorney General Mark Brnovich whose office is defending the legality of Proposition 206 and specifically urged the high court not to block its implementation.

There is also the fact that Thursday’s order says the chamber’s request to block the wage hike was considered by all five of the current justices. And there was no indication any of them sided with initiative foes on the request.

But Hamer said something else will be different by February that could help the chamber make its case that the initiative is an illegal mandate to increase spending.

“The facts will be clearer by that point in terms of its effects on the state budget,” he said.

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