Tax credit headline missed the forest through the trees

A recent article headline published in the Arizona Capitol Times unfairly mischaracterized SB1108 – Senator Wendy Rogers’ income tax credit bill for businesses located in municipalities like Flagstaff and Tucson with higher wage mandates than the state wage mandate. The headline purports those cities to whom the bill would apply stand to lose. We disagree.

The bill, if passed by the Arizona legislature and signed by Gov. Katie Hobbs, would provide a 10% tax credit to businesses on the difference in total wages paid over the state wage in one year. Currently, businesses located in Arizona communities with higher wage mandates operate in an artificially skewed labor market. The bill seeks to level the playing field by giving impacted businesses a small amount of relief via the tax credit.

The city of Flagstaff local wage mandate rose $1.30 per hour to $16.80 per hour on Jan. 1. The Flagstaff wage mandate by local ordinance continues to increase every year in perpetuity. Impacts on businesses, the local labor market and consumers are real. In the face of higher wage mandates, employers continue to eliminate positions with automation, not make new hires, reduce current employee hours, raise consumer prices, struggle with wage compression, and seek to hire older, more experienced employees, squeezing young people out of job opportunities.

Providing a 10% tax credit to businesses operating in an unfairly skewed labor market does not change the local wage mandate, and businesses will still carry 90% of the artificially higher labor cost. And yes, the tax credit would be paid for via the municipalities’ state-shared revenue. That small tax credit, however, would greatly assist businesses, particularly tourism-related employers who operate on small margins, by allowing them to grow their business and their employee base, which in turn generates more economic activity. What follows from business growth and increased economic activity is increased revenues to the municipality.

The bill makes good sense, and good cents for those Arizona communities who have adopted higher local wage mandates. A healthy business climate and a thriving community are inseparable.

Julie Pastrick is President & CEO of the Greater Flagstaff Chamber of Commerce.