The filing questions the accuracy of the $1,110,992 in estimated costs. But regardless of the assessment's validity, the city is claiming that the budget provision does not abide by the Arizona Constitution.

Since Flagstaff voters approved the city’s minimum wage ordinance in 2016, the minimum wage has risen to $15 an hour, placing it higher than the $12.15 imposed by the state. That disparity is the source of the current legal dispute.

Arizona lawmakers contend that Flagstaff’s minimum wage is costly to the state, and in 2019, the state legislature passed a bill allowing the Arizona Department of Administration to seek financial reimbursement from cities with higher minimum wage laws each fiscal year.

But some say the provision in the state budget is meant to discourage other Arizona communities from passing similar laws raising minimum wage.

The language in this year’s budget could leave Flagstaff on the hook for the $1.1 million, and if not paid by the end of the calendar year, the law dictates that the state treasurer is required to deduct the funds from shared revenues. Budget staffers arrived at that figure by assessing the additional costs the state incurs as a result of the higher minimum wage.

Attorneys representing the City of Flagstaff argue that the provision violates the voter-approved “Arizona Minimum Wage Initiative” passed in 2006, also known as Proposition 202. The initiative allows for counties, cities and towns to set their own minimum wage laws and benefits, as long as the minimum wage is not lower than the state’s.

Because Proposition 202 was passed at the ballot box, the city argues that the power to enact a minimum wage is protected by the state constitution, and that the legislature’s action to charge cities for higher wages violates the state’s Voter Protection Act, a constitutional amendment passed in 1998.

The Voter Protection Act restricts how elected bodies can amend measures passed directly by voters.The complaint points out that under the Voter Protection Act, the legislature can only amend or supersede voter-approved measures when the amendment “furthers the purposes” of the initiative.

HB 2756, the law stipulating Flagstaff’s minimum wage reimbursement to the state, amended Proposition 202 when it was passed by the legislature in 2019, according to the court filing. But until the current legislative session, the state budget had never actually billed Flagstaff for its minimum wage.

The law came out of an issue regarding local providers serving developmentally disabled Flagstaff residents. Service providers across Arizona receive a fixed amount of funding from the state, and local providers pointed out that the higher wage made those services more expensive in Flagstaff than other areas. Because the employees are not exempt from the city’s minimum wage, it in turn costs the state more to provide those services.

But according to the court filing, the state’s assessment ventures beyond just costs incurred from paying service providers.

Another possible cost is the state having to pay its employees higher wages because of the city’s decision. The Flagstaff ordinance, however, specifically exempts state employees from the city’s minimum wage.

Attorney Roopali Desai, who is representing the City of Flagstaff, points that out in the complaint filed behalf of the city. The complaint argues that those direct costs were included in the state’s assessment.

“Various state agencies are included in their budget estimates of the costs of paying the City’s minimum wage to employees of the State of Arizona,” the complaint contends.

Beyond disputing the state employment costs, the city also argues that other increased expenditures in the estimate, such as the cost of paying university employees, is inconsequential to the state.

“[Coconino Community College], for example, has its own tax base and other sources of revenue beyond the revenue it receives from the State. If CCC incurs costs from paying certain employees the City’s minimum wage, there is no way to trace those costs to the State,” the complaint reads.

The dispute will head to the Maricopa County Superior Court later this month for an emergency hearing. When contacted by the Arizona Daily Sun, Catherine Mejia, spokesperson for the Attorney General's Office, said that “Attorney [General Mark] Brnovich will vigorously defend the law and protect taxpayers from having to absorb the costs associated with a city or town's decision to raise the minimum wage.”

Should the judge decide that the law violates the Voter Protection Act, it will not be the first time an amendment to Proposition 202 has been invalidated by the Superior Court under similar reasoning.

In 2013, the Arizona Legislature passed a law that barred communities from setting a minimum wage under Proposition 202, but it was ultimately tossed out by the Superior Court after a lawsuit was filed by the Flagstaff Living Wage Coalition. The lawsuit resulted in an agreement between the advocacy group and the attorney general’s office to nullify the law.

Another law passed by the legislature in 2016 attempted to preempt communities from using Proposition 202 to regulate non-wage compensation, such as paid vacation time, child care plans or meal breaks. The bill was later ruled by a Superior Court judge to have violated the Voter Protection Act.

City officials argue that the $1.1 million could have real financial implications on Flagstaff. According to the complaint, the assessment amounts to approximately 13% of the city’s general fund, which is used for services such as the parks and recreation department and the police and fire departments.

Budget impacts noted by the city included lacking funds to replace aging cybersecurity systems, to replace police-worn body cameras, pay public safety officials overtime and to conduct maintenance on city facilities.