Minimum Wage Guideline Update

REPORT NO. 167, VOLUME 45-- WEDNESDAY, AUGUST 30 2006

E.I.T.C., YOUTH WAGE IN FINAL OVERTIME DEAL, MERIT STILL ON TABLE

A multi-part compromise to the minimum wage overtime issue - that includes an earned income tax credit and a youth minimum wage - is on its way to becoming law.

Separate action is also underway on potentially major changes to the state's Merit Scholarship program, although that provision is not part of the overtime agreement (see related story).

The agreement effectively meets the Legislature's self-imposed deadline to resolve the issue by September 1 to allow companies to adjust their payroll schedules and systems in time for the October 1 effective date of Michigan's new minimum wage.   The wage on that date will go from the current $5.15 an hour to $6.95 an hour.

And the agreement will enact one proposal - the earned income tax credit - that has been proposed and debated, and generally dismissed, in the Legislature for literally decades.   The proposal will add a state credit to the federal earned income tax credit.

The agreement drew praise from both business officials, for resolving the overtime question, and representatives of social action agencies, for enacting the earned income tax credit.

Because several elements of the agreement include Senate bills that were just passed by that chamber on Wednesday, it could not be completed on the same day (owing to the constitution's five-day requirement on legislation) by the House.

Three elements of the agreement are tie-barred together: HB 6213, which clarifies that those workers are not now eligible for overtime pay (such as salespeople working on commission and long-haul truckers); SB 453, which would create an earned income tax credit for low income individuals in the state; and SB 1364, that would create a "youth minimum wage" equally to 85 percent of the state's minimum wage.

Senate Majority Leader Ken Sikkema (R-Wyoming) said the package will help the state's economy by correcting the overtime concerns that could have affected as many as 350,000 workers, and by assuring that lower income workers get to keep more money through the earned income tax credit.

House Speaker Craig DeRoche (R-Novi) called the deal "a reasonable compromise," adding that it made sense to put a minimum wage and earned income tax credit in the same package because they both give relief to people who earn lower incomes.

"The people earning these wages put the money right back into Michigan's economy," he said.

And in a press release Governor Jennifer Granholm said working families in Michigan were winners under the agreement.

HB 6231 was the critical bill to resolve the overtime issue and the subject of several weeks of negotiations.   Those negotiations continued into Wednesday, with Mr. Sikkema, Senate Minority Leader Bob Emerson (D-Flint), Mr. DeRoche and officials from Governor Jennifer Granholm's administration at one point congregated in the Senate's center aisle in discussions.

While it was understood sometime ago that whatever agreement was reached would not include legislation to reverse a 2004 Supreme Court ruling that specified when people were eligible for automotive insurance disability payments, there was no effort made on Wednesday to even bring the issue up.

Changes were made to HB 6231 to ensure that all persons now eligible for both the minimum wage and overtime will remain eligible when the new minimum wage law takes effect.

The bill was also amended to allow some home health care workers and day care workers, who are not eligible for overtime pay under federal law, to be eligible for overtime and minimum wage under Michigan law.

With those changes the bill passed 38-0, compared to the narrow party-line approval of the bill earlier in the summer, and it then breezed to the immediate effect approval it could not win earlier.   In the House the bill was passed 103-0.

Without immediate effect the bill would not have taken effect until 90 days after the Legislature adjourns sine die, which means the bill would not have likely taken effect until April.

Charlie Owens of the Michigan branch of the National Federation of Independent Businesses praised both parties for coming together on the overtime proposals and saving state jobs.

He also praised them for their action to pass the youth wage since he said many small companies could not afford to hire teenage workers at the higher minimum wage.

The youth wage would still pay workers under 18 a higher wage than the current minimum wage, at approximately $5.91 an hour beginning in October.   Under the bill, workers under 18 could be paid at $4.25 an hour for 90 days as a training wage, and then paid at 85 percent of the minimum wage rate.

But probably the key element in the agreement to win Democratic support of the overtime changes was the earned income tax credit.

Mr. Emerson had been introducing legislation to create an earned income since the early 1980s.   Even though former President Ronald Reagan called the credit the greatest anti-poverty measure government had ever passed, in the 1990s the Republican chair of the Senate Finance Committee opposed enacting a state earned income tax credit, saying the federal program enacted in 1970s was rife with corruption.  

The specific bill approved Wednesday, SB 453, was introduced by Sen. Nancy Cassis (R-Novi), chair of the Senate Finance Committee, but no action had been taken on it before Mr. Sikkema put it up as a negotiating point on the overtime proposal.

The bill could affect more than 628,000 taxpayers in the state.   The measure will be phased in over two years starting in 2008 and will eventually allow an eligible person to claim 20 percent of the credit they now receive under the federal credit.

In the first year the new credit could cost the state $95 million and in the second year $250 million.   Mr. Sikkema told reporters he wanted the provision to begin in 2008 so it would not affect the 2006-07 budget.

Asked why it had taken so long for the measure to finally come to pass, Mr. Sikkema said: "It's all about timing, young man."

The issue is one that appeals to core values of both Republicans and Democrats, Mr. Sikkema said, since it involves a tax cut for Republicans and helps the working poor for Democrats.

Mr. Emerson said given recent U.S. Census statistics that show overall incomes going down in Michigan and with Flint having one of the highest concentrations of poverty the legislation could prove immensely helpful to the poor.

When asked why the state credit did not match the 100 percent credit an individual receives under the federal guidelines, House Minority Leader Dianne Byrum (D-Onondaga) said because of the history of trying to get a state credit approved, "this is a good start."

Ms. Byrum also said the win was for working families, but added that the votes and discussions on a minimum wage increase and earned income tax credit wouldn't have occurred if it weren't for the proposed ballot initiative that was dropped after Republicans took up the minimum wage increase earlier this year.