The chatter of preschoolers filled pastel-colored rooms outside Juanima Marquez’s office as the director of Kingdom Kids Preschool and Play Center scanned through a legal pad of handwritten notes. Of her 30 staff members, she counted 20 who will be getting raises starting Jan. 1 when Arizona’s new minimum wage of $10 an hour goes into effect.
That change alone will add about $4,500 a month to the business’ payroll, a hike of about 20 percent. Even so, the increase is one Kingdom Kids will be able to handle, Marquez said. It’s July 1 that really has her and owner Jannette Bressler worried.
That’s when $12 becomes Flagstaff’s new minimum wage under the newly approved Proposition 414, which Bressler expects will boost her payroll costs by another $5,000.
“We were so surprised that it was so drastic so quickly,” Bressler said. “To increase your payroll by 40 percent in six months is scary.”
The passage of overlapping minimum wage measures in Flagstaff and statewide has put a heavy burden on local small businesses and nonprofits as they scramble to comply with the new laws while keeping their operations afloat.
Many said the January implementation of the state’s new $10-per-hour minimum wage will be manageable, and something they supported. What really has them worried is the jump to $12 in July, mandated by a provision in the 414 that requires Flagstaff’s minimum wage to be $2 higher than the state amount.
“I’ve been losing sleep over this,” said Glenn Menein, director of operations at Lumberyard Brewing Co. “It’s mindboggling. Where does that money come from? We’re scratching our heads to figure out how we do that.”
Price increases are the most likely option for most. If businesses' estimates play out, parents with young children will see a hike in monthly daycare prices, going out to eat could be up to a third more expensive and those holding gym memberships will pay a few bucks more per month.
Other business owners said they would work more hours themselves and cut other employees’ hours to reduce what they’re paying out.
And for some organizations, the increase will almost certainly be too much to bear and force them to close their doors.
The consensus among many was that these wage increases, while well-intentioned, are simply too much too fast.
Prices going up
At Kingdom Kids, families will be seeing a $35-per-child-per-month increase starting in the new year, Marquez said. Because daycare centers have fixed staff-to-children ratios set by the state, they are limited in how much they can cut hours and staff to reduce expenses, Bressler said. That means most of the increased labor costs will have to be passed along to the childrens’ families — about 80 of them in the case of Kingdom Kids.
Related costs like sick pay, now a requirement of the state law, unemployment insurance and workers compensation will ratchet upward, too, said Jimmy Custer, owner of Rockhouse Playschool.
Like many other business owners, Custer said he plans to bump up his other employees’ wages as well to ensure those with more experience and responsibility remain at a higher pay grade.
A reduction in entry-level part-time positions and an increase in monthly membership dues is in the future for Flagstaff Athletic Club, said owner Jim Garretson, who said he is looking at a 30 percent increase in his payroll.
Others said their hiring practices will change as they will now pass over less experienced employees. Cecily Maniaci, the owner of the Toasted Owl, told members of the Flagstaff Independent Business Alliance at a meeting last week that she had a teenager apply for a position at her restaurant in the Southside and turned him away, knowing she would have to pay him $15 an hour in little more than years.
The payroll increase is especially steep for restaurants, as the city’s tipped minimum wage will climb from $5.05 an hour now to $9 by July 1 under the new ordinance. Several restaurant owners said menu prices will likely go up in the 10 percent to 30 percent range. There’s also the question of what a higher food bill means for the longstanding practice of tipping for service. Several establishments have started talking about implementing similar tipping policies so customers don’t face different standards wherever they go, said Terry Madeksza, executive director of the Flagstaff Downtown Business Alliance.
Dara and Joe Rodger opened their restaurant, Shift, less than a year ago and said the minimum wage measure certainly will test their business. Along with a menu price increase, employee benefits like a staff meal and employee trips will have to be reevaluated, the couple said. They said they wish the wage increase would have been tiered for businesses of different sizes instead of an across-the board measure, because “we’re not all equal,” Dara Rodgers said.
Ryan Field, a partner at Plated Projects, which owns Taverna Mediterranean Kitchen, The Mayor, Oakmont and Field House Chicken and Waffles, said the company likely won’t be able to continue participating in local charitable projects and has halted any thoughts of future expansion.
That’s the case with Robin Prema as well. The entrepreneur owns a number of businesses in the Flagstaff area.
“It’s sad, as this town was finally booming and new jobs and businesses just started moving in. We just shut the doors and eliminated ourselves to do business in this city,” Prema wrote in an email.
One business owner who does support a $15 minimum wage is Justin Poehneltm, who owns Flagstaff Soap Company with his wife Alisha. Poehneltm said the couple supports the measure because they have friends working hard and earning only minimum wage. Their four part-time employees are all paid, with commission, above $12 an hour right now, he said.
Stuck between a rock and a hard place
Other places however, can’t raise prices directly, or raise them at all.
Flagstaff Unified School District has “very, very few” employees making less than $10 per hour, but many more who will be affected by the increase from $10 to $12, spokeswoman Karin Eberhard said. Those include classroom aides, special education paraprofessionals, receptionists and aides in the Fit Kids program, she said.
Eberhard said the district has not yet decided on a plan about where to come up with the extra money to pay for those raises.
Complying with the $12 minimum wage won't be a huge cost implication for the county because just five employees’ make less than that now, Human Resources Director Erika Philpot said. As for the City of Flagstaff, it is still working on how the local minimum wage law will be implemented and enforced, spokesperson Meg Roederer said.
For some nonprofits, the minimum wage increase will be more dire. Monica Attridge is the CEO of Hozhoni Foundation, one of several local providers of services for individuals with developmental disabilities that rely largely on a set level of state funding. All have reported they will cease operations in Flagstaff without any additional financial support. That means 835 direct employees will lose their jobs, 150 clients will lose their homes and 462 families will lose in-home support for disabled loved ones, according to Attridge.
With the expected payroll increases, her organization alone would need an additional $1 million a year just to break even, Attridge said.
At Goodwill of Northern Arizona, the nonprofit is committed to maintaining its approximately 200 positions, President and CEO David Hirsch said. That will cut net profits in half to about $100,000, though, which puts the organization on less stable ground to ride “bumps in the economy and shopper buying habits,” Hirsch said.
Hirsch was one of many who said the measure represents good intentions by voters, but didn't reflect economic realities.
"Trying to correct 30 or 50 years of wage inequality in this this town in six months is really going to affect our ability to operate as small businesses,” said Chris Scully, one of the owners and operators of the Orpheum Theater.