Costly Compromises: MD’s New Minimum Wage Law Creates ‘Training Wage’ Loophole, Leaves Tipped Workers Behind

Some of the very people who could use a raise the most – workers who rely on tips and young workers just getting a start in life – will be left shortchanged when Maryland’s minimum wage begins to rise next year.

While the General Assembly’s recent passage of legislation to raise the minimum wage to $10.10 an hour by 2018 is an important victory for working Marylanders, lawmakers made some unwise and unnecessary compromises that will significantly weaken its ability to help some workers and the state’s economy. We have previously discussed  why lawmakers should have kept a provision to allow the wage to automatically rise with inflation. Today we look at the new law’s other costly compromises, including a base-pay freeze for tipped workers and a ‘‘training wage” that will allow employers to pay workers under 20 years of age only 85 percent of the minimum wage for their first six months on the job.

Freezing the minimum base wage for tipped occupations at $3.63 an hour significantly reduces the economic benefit of the minimum wage increase for these workers. At least 63,000 workers in Maryland work for tips, according to the Bureau of Labor Statistics, in occupations  including massage therapy, bartending, waiting tables, gaming services, and hairdressing).

By excluding tipped workers, lawmakers are relegating them to the unpredictable nature of tipped work. And while employers are required to make up the difference if an employee’s tips and base hourly wage combined do not meet the minimum wage, this is difficult to enforce.

Total wages for tipped workers are 40 percent less than that of other hourly workers, and they are twice as likely to experience poverty. Restaurant servers, in particular, are three times as likely to experience poverty, according to the White House Council of Economic advisors. Furthermore,  the freeze  will disproportionately impact women, who make up 72 percent of the workforce in predominantly tipped occupations.

Currently, 18 states have a higher tipped minimum wage than Maryland. Some, such as Washington, Oregon, and Nevada, have significantly higher minimum wages for tipped workers, and a 2013 analysis found that higher hourly wages for tipped workers have not hurt job growth in these states.

Meanwhile, the training wage compromise is one of many exemptions in the minimum wage legislation that allows certain businesses to avoid having to pay the full minimum wage, including seasonal amusement parks, cafes and restaurants that have gross revenues of less than $400,000 a year, and Maryland’s only drive-in movie theater. It is an unnecessary loophole that encourages business models based on high employee turnover, making it less likely that younger workers will be able to find steady employment. The exemption is simply another handout to business. It will do little to improve the job prospects of Maryland’s younger workers,  since economic studies show that that the minimum wage has a negligible impact on teen employment. 

Further, the industries that stand to benefit the most from this loophole are the fast food and chain retail industries, which already have a high rate of staff turnover. The National Restaurant Association estimates that three quarters of fast food workers are new from year to year. The retail industry reports a median annual turnover of 67 percent, a figure that has risen significantly in recent years.

Studies show that increasing the minimum wage benefits businesses by reducing turnover and increasing productivity among their employees, which is why  prominent retailers such as the Gap and Trader Joe’s have decided to increase their minimum wage. Maryland’s training wage will likely have the opposite effect, since employers will have an incentive to replace their young employees rather than investing in them.

These kinds of exemptions undermine the minimum wage’s ability to help Maryland workers  make ends meet in the face of rising costs of living. Workers’ advocates should continue the fight to raise the minimum wage for tipped workers and to close loopholes such as the training wage so that all workers can share in the important victory achieved during the 2014 legislative session.

If State Lawmakers Favor Gradually Phasing in the Minimum Wage, They Should Love Indexing it to Inflation

The legislature’s decision to extend until 2018 the phase-in period for raising the minimum wage to $10.10 will needlessly delay a boost in earnings for Maryland’s workers and demonstrates why automatic increases based on inflation are the right way to ensure that the minimum wage keeps pace with the cost of living in the future.

As we have argued before, the minimum wage is too important to too many workers to leave at the mercy of the periodic whims of lawmakers. Even slight inflation steadily erodes the value of the minimum wage relative to the cost of food, housing, and other necessities, so workers continue to fall behind until lawmakers agree to increase the minimum wage, often at a lower level relative to the cost of living. 

Sources: Minimum wage data: Maryland Department of Labor, Licensing, and Regulation, "History of Minimum Wage in Maryland," February 22, 2010,https://www.dllr.state.md.us/labor/wages/minwagehistory.shtml; Inflation data: Bureau of Labor Statistics CPI inflation calculator, http://data.bls.gov/cgi-bin/cpicalc.pl?cost1=7.25&year1=2009&year2=2014

A predictable, gradual, and - most importantly – continuous increase in the minimum wage would fix that. Tying  the minimum wage to inflation, known as indexing, would also benefit businesses, since they would know in advance when the minimum wage is going  up and by how much, improving their ability to plan.

Maryland would not be treading new ground by instituting indexing. Eleven states already tie their minimum wage to inflation.  President Obama has pointed out that indexing the federal minimum wage is something that he and Governor Romney  agreed on during the 2012 election, and opinion polls consistently show that doing so is popular. In addition, indexing is already used in a variety of other policies, including determining Social Security benefits and the amount of assets that are subject to the estate tax. If lawmakers are willing to tie exemptions from the estate tax for millionaires to increases in inflation, they should be willing to allow the same for workers’ wages.

Advocates of raising the minimum wage have secured an important – though needlessly drawn out – victory in Maryland and t is important to continue to build on this momentum. They should continue to push lawmakers to index the wage to inflation, rather than waiting for it to inevitably lose its purchasing power over time, requiring yet another campaign to raise it in the future. The best way to capitalize on the current victory is to push for a more lasting one.

As MD’s Health Insurance Exchange Moves on to Next Phase, Enrollment Continues

Many Maryland residents can continue to sign up for health insurance under the Affordable Care Act even though the first open enrollment period for the state’s health insurance exchange – Maryland Health Connection --ended this week. In the meantime,  the state is  turning toward doing a better job of managing things for the next  open enrollment period, which begins on November 15.

While there are various deadline for getting health insurance under the Affordable Care Act, there are also several exceptions. Medicaid enrollment is available year-round. As a result of Maryland’s decision to expand Medicaid under the new law, thousands of residents are newly eligible. Though many have already enrolled, those who  have not—or did not previously qualify—don’t  need to  wait for the next open enrollment period to do so. They can enroll at any time.

Second, many others are still eligible to enroll in private coverage through Maryland’s exchange. This includes those who were not able to sign up during the open enrollment period due to technical problems, provided that they called the hotline the state set up to report their problem. This likely includes thousands of residents.

In addition, the law makes available ‘‘Special Enrollment Periods’’ that allow anyone who  has experienced a change in circumstances during the year to sign up outside the normal enrollment period. This can include getting married, having a child, losing a job or employer-sponsored insurance, divorce, or the death of a spouse. Further, if your income  income changes and you become  eligible for subsidies to help you pay for  private insurance, you can  enroll or re-enroll in subsidized coverage at any time. More information on Special Enrollment Periods is available at the Maryland Health Connection.

Of course, the state now faces  the task of overhauling its exchange before open enrollment begins anew in November. This involves both correcting the problems that plagued the Maryland Health Connection since its launch last year, as well as efforts to build on the successes of the exchange’s first year.

On Tuesday, Maryland’s Health Exchange Board voted to replace its flawed information systems  with the technology used to run Connecticut’s largely successful state exchange, implemented and maintained by the consulting company Deloitte. Secretary of Health and Mental Hygiene Joshua Sharfstein and Isabela FitzGerald, Maryland’s Secretary of Information Technology, explained that doing so was the least expensive option and also met Maryland’s timeframe and needs. Connecticut’s exchange is described as “a simpler, streamlined system.” Rebuilding the exchange would take too long and would be too expensive ($66 million). Moving to the federal exchange would pose similar problems and  raise additional issues about the exchange’s ability to communicate with the state Medicaid program. While the software code for Connecticut’s exchange is in the public domain and thus freely available, Secretary FitzGerald expects that it will still cost the state $40-50 million to implement. It is still  unclear how much of this cost will be covered by the federal government, as much of the $125 million for the original exchange was.

However, just as Maryland is working to correct the missteps from this first year of running its health insurance exchange, lawmakers should also recognize and build upon its successes. First, we already know that Maryland surpassed its initial enrollment projections. Almost 300,000 men, women and children  are known to have enrolled - 232,000 in Medicaid and 63,000 in private plans – and this does not reflect the surge of sign-ups during the final days of open enrollment, nor those who have more time to enroll due to technical difficulties.

Many of these people are newly ensured, and all will enjoy more financial security as a result of being covered. This is important progress. This large increase in the number of Marylanders with health coverage followed “a decade or more of people losing health coverage and a steady erosion in the financial protection of insurance, [which] put middle-income families at risk” nationwide, according to a recent report by the Commonwealth Fund.

In the coming weeks and months, we will delve deeper into the issues surrounding Maryland’s implementation of the Affordable Care Act, considering both what worked and what did not, discuss policy options for improvement and reform, and provide data and analysis on how health reform is impacting Maryland. Keep checking back here for more.

Lawmakers Should Restore Vital Funds for Affordable Housing, Aging Schools, and Community Health Facilities

Maryland lawmakers negotiating a final state budget for building projects should restore more than $5 million they have proposed to cut from affordable housing, community health facilities and renovations for non-public schools. The funding could come from cuts elsewhere in the budget and reserves.

As the General Assembly makes final decisions on the state’s operating budget, which pays for education and most other state services, legislative negotiators are also working out  differences in the Senate and House versions of the capital budget, which funds things like building projects.  Using the example of a family budget, monthly bills for food, gas, utilities and health care would correspond to the state’s operating budget.  The capital budget would be equivalent to a family taking out a loan to buy or build a new house or to put an addition on its home. Most of the capital budget -- about 78 percent of funding in the upcoming 2015 fiscal year -- is financed with debt. And just as a bank will usually require a family to make a cash down payment for a mortgage, the state is obliged to use upfront cash for about 22 percent of the FY 2015 capital budget, a concept known as pay-as-you-go, or PAYGO. 

Unfortunately, both the House and the Senate versions of the capital budget currently cut $4.5 million from affordable housing programs that help working families afford down payments on a new home or to pay for money-saving energy efficiency and weatherization upgrades. Both plans would also cut $300,000 from community health facilities, which provide Women, Infants, and Children (WIC) nutrition services and crucial access to preventive, dental, and other health care in neighborhoods throughout the state. The most recent legislative version of the capital budget, the House plan, also cuts $500,000 from a program that helps parochial and other non-public schools, which often serve low-income neighborhoods, pay for building renovation and upgrades. Fortunately, lawmakers have the opportunity to restore funding for these vital supports for working families and still balance the capital budget.  

Source: Department of Legislative Services; Note: See Exhibit 4, pages 11-20

Source: Senate Budget & Tax Committee and House Appropriations Committee 

The legislature could pay for these restored funds by adopting the Senate version of cuts to environment projects and local projects. In addition, the legislature could transfer $200,000 of the closing general fund balance in the operating budget to the capital budget and use that as PAYGO funding to fully restore capital funds needed for education, health and affordable housing projects.      

Source: Senate Budget & Tax Committee and House Appropriations Committee 

Below is a more detailed description of what is funded by the capital budget currently being considered by the General Assembly. Check back here for more information on upcoming legislative action on the operating and capital budgets and the impact on valuable and proven services and programs. 

Capital Budget Details

·         Funding for environmental projects and programs to improve environmental quality totals $485 million, including:

o   $130 million for water quality projects

o   $102 million for nutrient removal programs

o   $84 million for land preservation programs

·         Higher education facilities and projects receive $374 million, including:

o   $289.1 million for state colleges and universities

o   $65.4 million for community colleges

·         $308 million goes to schools and other K-12  facilities, including $298.2 million for the Public School Construction Program

·         Housing and community development project funding total $131 million in the Governor’s capital budget including:

o   $30 million for rental housing programs

o   $14 million for homeownership programs

o   $1.5 million for emergency shelter grants. 

·         $89 million in funds in the Governor’s capital plan pays for health or social projects, including $30 million for the Price George’s Hospital System. 

·         Public safety projects are funded at $43.5 million, including:

o   $15.3 million for a new minimum security facility at Dorsey Run

o   $12.5 million to the State Police to replace helicopters and for a new flight training center

o   $9.5 million for the much-debated and much-delayed new detention center for youth tried as adults in Baltimore City. 

·         Funding for local projects in the Governor’s plan total $55.1 million and included:

o   $1 million for the YWCA domestic violence shelter in Anne Arundel County

o    $750,000 for the Baltimore Food Hub

o   $500,000 for the Eastern Shore Food Hub. 

·         Both the House and Senate allocate an additional $7.5 million for local projects allocated at the discretion of the legislature, including:

o   A $500,000 statewide grant for the Maryland Food Bank

o   $300,000 for the YMCA in Wicomico County

o   $250,000 for the Gaudenzia at Park Heights substance abuse treatment facility in Baltimore City

o   $250,000 for the Community Action Council Food Bank in Howard County

o   $250,000 for Habitat for Humanity of the Chesapeake in Baltimore City

o   $200,000 for retrofitting of Head Start centers in Howard County

o   $200,000 for MdBio STEM education equipment in Montgomery County.  

·         Other legislative-funded local projects include:

o   $175,000 for the Educare Resource Center in Prince George’s County

o   $175,000 for Arc of Carroll County building renovation

o   $175,000 for a community development and business incubator facility in Dundalk in Baltimore County

o   $100,000 for Lifestyles services center for homeless individuals in Charles County

o   $75,000 for Calvary Food Bank in Anne Arundel County

o   $53,000 for Epiphany House and Micah House supportive housing programs for disabled or formerly homeless individuals in Baltimore City

o   $50,000 for Greenmount construction job training center in Baltimore City

o   $50,000 for the Easton Head Start Center in Talbot County

o   $25,000 for the End Hunger warehouse in Calvert County.

Governor Releases $172 Million Supplemental Budget as Legislative Action Heats Up; Additional $32 Million for Cold Weather Effects

After a freezing winter, warmer weather has finally arrived and budget action heats up this week in Annapolis. On Tuesday, the Governor released a $172.2 million Supplemental Budget, with $162.7 million in net new spending, including $55 million for debt service, $32.4 million to deal with the effects of the extreme winter, and $32 million for the Maryland Children’s Health Program (MCHP). More than three-quarters of the Supplemental Budget is funded by state sources, with special funds, such as added money to the Annuity Bond Fund for debt service and $32.5 million in transferred money from the Strategic Energy Investment Fund, making up the majority of new funds. The Governor’s Supplemental Budget incorporates last month’s lowered state revenue projections from the Board of Revenue Estimates (BRE), adds new fund transfers, and relies on additional revenue sources, with $19.8 million in new General Fund revenue, including $10 million from Medicaid False Claims Collections, and $39 million in new federal funds, including $21.2 million in Medicaid funds and $13.8 million in planning grants for the state’s health exchange system.

Source: Department of Budget and Management;  Note: See “Summary: Supplemental Appropriations,” page 22.

Like a family saving for a new home or college, the Supplemental Budget does not spend all of this new money and sets a portion aside to increase the state’s cash balance. In addition, $9.7 million of new General Fund revenue goes to K-12 education aid to offset a shortfall in casino proceeds allocated to the Education Trust Fund. According to legislative analysts, net new spending items, accounting for cost savings and other changes, total $162.7 million. 

The $55 million in new money in the Annuity Bond Fund to pay for interest on the state’s debt, or debt service, is essentially a fund swap.  The legislature cut $55 million in related General Funds and now they are being replaced with these additional special funds, due to the anticipated increased premiums of bond sales.  Additional current-year funding to deal with the winter’s extreme cold includes $20.1 million for low-income energy assistance, $10 million to repair potholes, and $2.3 million for utilities at Jessup Correctional Institution (JCI).  MCHP receives $32 million for the current fiscal 2014 budget for higher enrollment and to provide a 5.8 percent provider rate increase in calendar 2014.

Source: Department of Legislative Services Note: MDCEP staff sorted the new spending items and changes on page 1 into above categories.

Additional supplemental spending includes $15.8 million for information technology improvements for the Maryland Health Benefit Exchange (MHBE); and $12.4 million for energy efficiency and renewable energy, with $11.1 million for various clean and renewable energy projects and an additional $1.3 million to install electric vehicle charging stations. In addition to the added money for utilities at JCI, $5 million in new current-year spending goes to overtime at Baltimore City Detention Center.  Morgan State University gets an additional $4 million; and Alternatives to Para-transit Services receives $2.7 million.

Other notable new spending items include $1.5 million for cybersecurity vulnerability assessments; $1.2 million in capital funds for homeownership programs (specifically energy efficiency and weatherization projects); $1 million for the Eastern Family Resource Center, which  provides comprehensive care to homeless residents of Baltimore County; $630,000 for improvements at racetrack facilities; $550,000 for community college scholarships; $200,000 for a homeless youth census demonstration project; $200,000 for the Parents and Children Together program, which promotes the development of young children with special needs and their families; $125,000 for Best Buddies, a program that promotes opportunities for Marylanders with intellectual or developmental disabilities; and $146,000 for job training at the Regional Skills Training Center for Excellence.

Source: Department of Legislative Services 

The House and Senate have both passed their own versions of the budget, based on the Governor’s original proposal. A Conference Committee is now hammering out the details of the final package, no doubt incorporating many elements of the supplemental budget, but we do not yet know what the final budget package will look like. Check back here for more information on any additional supplemental budgets, upcoming legislative budget actions, and the impact on valuable and proven services and programs.