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Judge rules that Arizona can't charge Flagstaff for minimum wage -- for now
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Judge rules that Arizona can't charge Flagstaff for minimum wage -- for now

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PHOENIX -- Arizona can't take more than $1.1 million from Flagstaff as a financial penalty for the city having its own minimum wage, at least not now.

In a ruling Monday, Maricopa County Superior Court Judge James Smith sidestepped arguments by the city that the assessment runs afoul of the Voter Protection Act.

That constitutional amendment bars lawmakers from tinkering or repealing what voters have approved. And in this case, the city argued the assessment runs afoul of Proposition 202, the 2006 voter-approved law that, in establishing a state minimum wage, specifically allows cities and counties to set a higher figure.

Instead, Smith chose to focus on the narrow legal issue that the state didn't meet the deadline for imposing the assessment. And given the potential financial hardship to the city, the judge said he can't allow the state to seize the cash.

But Monday's ruling isn't the last word, as attorneys for the state can still make arguments at a yet-to-be-scheduled full-blown trial.

Smith, however, said there are other potential flaws in the state law that could cause him to permanently block not only this assessment but also preclude similar actions against other cities like Tucson, where voters next month will decide if they, too, want a minimum wage higher than the current $12.15 an hour in state law.

And that starts, the judge said, with lawmakers adopting something that implicates -- and appears to contradict -- what voters approved.

"Proposition 202 resulted from a direct democratic process," Smith wrote, approved by a 2-1 margin. And it not only set a state minimum wage but also specifically permitted cities to set an even higher figure.

"It demands liberal construction to further its purpose," he continued. "This reality may mean fewer policy constraints on a court tapping the brakes on the subsequent legislation."

Monday's ruling could provide welcome news to proponents of a similar plan that the Tucson City Council put on the ballot for next month. It seeks to raise the minimum wage in the city in steps until it reaches $15 by 2025.

The decision suggests if voters there follow suit that courts will question -- and possibly overturn -- any effort to take away state aid.

The fight is over a state law which allows assessments against a city to reimburse the state for costs attributable to a higher local minimum wage.

There is no clear direct cost, as the Flagstaff ordinance first approved in 2016, with its current $15 minimum, does not cover state workers. But the state contends there are other expenses.

For example, the Department of Economic Security tried to calculate what its vendors, like those who provide services for the developmentally disabled, will have to pay their employees and then bill the state. That figure, DES said, was $891,300.

Add in other agencies and the bill to Flagstaff topped $1.1 million.

Smith pointed out, though, that the law requires the assessment to be made no later than July 31 of each year. Only thing is, the current version of the law -- the one with the Flagstaff assessment -- did not become effective until Sept. 29.

Put simply, the judge said, it came too late.

Monday's ruling still allows the state to seek to enforce the assessment -- and to defend the law allowing assessments should other cities follow suit -- following a full trial. But Smith, in his 12-page ruling, made it clear he sees other problems with the statute beyond the state missing the July 31 deadline.

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It starts, the judge said, with the fact that the law provides no direction or guidance in how each state agency computes its cost, making it sort of arbitrary.

"Thus, there is not a uniform methodology," he wrote.

"Each budget unit could include or exclude whatever parameters its leadership wanted," Smith continued. "And each could employ whatever methodology its leadership chose."

That, the judge said, is difficult to reconcile with Proposition 202 and its specific permission for cities to choose a higher minimum wage.

"The state's interpretation would let municipalities do so only if they agreed to pay assessment that they cannot contest that may have only the foggiest connection to the minimum wage," Smith continued. "That could be repugnancy that the Voter Protection Act prohibits."

There are other issues.

"Analyzing the effects of minimum wage increases is complex," he wrote.

For example, he said economists also consider things like possible increased tax revenues and decreased need for public assistance, none of which is considered under the law. Conversely, there's the question of job losses from higher wages.

Smith also raised the question of why lawmakers chose to single out a city's decision to have a higher minimum wage for an assessment.

"For example, the state doesn't impose reimbursements on municipalities with increased labor costs due to higher transaction privilege or property taxes, remote location and such," he wrote.

In barring the assessment, Smith said it's not like the state is harmed.

He said the amount equals 4.6% of the city's anticipated balance this fiscal year, money it wants to keep in reserves for economic downturns, natural disasters or other emergencies. By contrast, that $1.1 million the state wants equals 0.008% of the state budget.

"It is not a hardship for the state," Smith wrote. "Fiscal consequences to Flagstaff are more significant than fiscal consequences to the state."

The City of Flagstaff sent out a press release shortly after the ruling applauding the decision.

"The City is pleased with this result and will push forward to obtain a permanent injunction," the statement read. "In the meantime, the City hopes the State will accept that it cannot collect this 'assessment' to penalize the City’s voters for exercising a right expressly granted to them in a statewide initiative nearly two decades ago."

The state could appeal the preliminary injunction prohibiting the assessment collection. Or the Legislature could come back next year and pass a new law changing the deadlines and specifically allowing the collection of indirect costs.

But the ruling puts it in a conundrum, said Roopali Desai, Flagstaff's attorney, especially because calculating indirect costs is a complex process and because of Smith's concern over it violating the constitution.

"Our hope is that they realize that no matter which way they go about doing this, it’s going to be a problem and violates the law," Desaid said.

A spokesman for Gov. Doug Ducey, who signed the assessment, said the ruling was being reviewed. There was no immediate response from the attorney general's office which sought to defend the assessment.

The Associated Press contributed to this report.

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