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In General Assembly, Minimum Wages, Paid Leave, Vendor Preferences Lead Surviving 2024 Progressive Agenda Items

By Steve Haner

2/15/2024 — The aggressive progressive agenda working its way through the 2024 General Assembly has lost some steam at the halfway point, but at least four of the major Democratic goals discussed earlier are still advancing.

The two bills that will have the greatest impact on the Virginia economy are the proposed minimum wage increase and a new state-managed employee benefit for workers taking time off under the Family and Medical Leave Act. The two other bills the Democratic majorities in both the Virginia Senate and House of Delegates have now approved are a major expansion of procurement preferences for minority vendors and allowing class actions in civil litigation.

The good news is that several bills stalled when the first legislative deadline for action passed Tuesday, including a bill to create a system of local rent controls, a bill to allow more local and state employees to unionize, and a bill to remove exemptions to the statutory cap on cash awards for medical malpractice.

The failure of those bills, however, does not mean the Assembly could not find some way to revive the issues before the planned adjournment in March, and the bills that are still alive still have time to stall — especially if the two chambers passed slightly different versions.

There is no conflict in the two versions raising the minimum wage to $13.50 per hour beginning next year and to $15 per hour as of 2026. The House has also passed a bill removing the exemptions from the minimum wage that once covered farm workers and certain temporary foreign workers.

Beginning in 2027, the minimum wage will begin an annual adjustment up for inflation. This is like the inflation kicker Democrats imposed on Virginia’s gas taxes when they last had full control of state government.

The fiscal impact statement on the minimum wage bills provides some insight into how much this will cost state and local governments, both for their own employees who do not meet the new wage levels and for the cost of contracted work. It does not delve into the costs in the private sector in the form of higher payrolls and lost jobs and ignores how much additional income tax revenue the state will reap. No effort was made to counteract that revenue grab by indexing Virginia’s tax brackets, as we proposed.

One state agency with a big bill for higher wages would be the Department of Medical Assistance Services, which pays for personal assistance for many Medicaid patients, in or out of nursing homes. By 2027 it would exceed $300 million in higher wages and by 2030 it would approach $700 million. Half of that would come from federal funds paid from federal taxes, of course.

The fiscal impact statement on the proposed Family and Medical Leave Act wage replacement program is also a key document. The bill which passed the Senate Tuesday is a substitute but does not seem to be much different from the introduced bill. The House did not act on a similar bill on its side, but that could mean it was merely waiting for the Senate bill.

The federal FMLA dictates employers must allow employees who have a covered event (illness, birth, sick family member) to take 12 weeks off. But there is no pay unless they have accrued leave of their own or the company provides a short-term disability plan, which many do. This new state program would exempt employers who have such a plan, if (and only if) it provides benefits equal to or greater than mandated by the state.

As the bill is now drafted all employers without a qualified plan of their own, not just those above a certain size, will have to pay into the trust fund for these benefits, which can be claimed once per year, every year, providing workers 80 percent of their pre-leave wage, or 80 percent of the average weekly wage (the average is currently $1,410) in Virginia, whatever is lower. The tax rate used to do the fiscal impact projection was just under 1% of payroll, half paid by the employer and half deducted from the employee’s pay, just like the Social Security and Medicare taxes.

Will the availability of wage replacement encourage more employees to take FMLA leave or stay out longer than they do now? That is not a question the FIS delved into but is a critically important question. Nor did it probe the idea that employers with a private plan might opt to drop and go with the state system instead to socialize the cost. The bill gives the state a year or more to design all this, and that task itself will be a major undertaking, overseen by a board with union representation.

Also ripe with potential unintended consequences is the expansion of the state’s vendor preferences for small, woman-owned, and minority-owned businesses, or SWaM. Again, the substitute which has passed the House is much changed from the original bill, but anybody who does business with the state, its universities, or local governments should read the bill and the fiscal impact statement.

Businesses owned by disabled veterans would be added to the list of preferred vendors. A new Division of Procurement Enhancement would be created, and a new Small SWaM Business Enhancement Program created, with a target of 23% of contracts going to SWaM vendors, 42% to small businesses, and in some cases 50% of construction subcontracts to preferred vendors.

State executive branch agencies and the universities will have additional reporting requirements and will be subject to regular “disparity studies” of their contracting efforts. According to the impact statement, during fiscal year 2023, the state spent $10 billion through its electronic procurement process on 650,000 purchase orders. This bill is not yet getting the notice it deserves despite the major impact it will have on Virginia contractors.

The final issue from the earlier tracking list still alive in both the House and Senate is allowing state courts to entertain civil suits for an entire class of plaintiffs. Virginia is only one of a handful of states not allowing that yet, and our absence from the list also complicates efforts by Virginians to join actions in other states. A worthless fiscal impact statement ducks every single issue of cost, but this is bound to add work for the courts and added liability risks to businesses.

Most of these bills, except for the procurement bill, passed on party line or near party line votes. That may make it easier for Governor Glenn Youngkin (R) to contemplate vetoes or amendments to water them down, but so far, the minimum wage is the only one he has spoken about publicly.

Steve Haner is a Senior Fellow for Environment and Energy Policy. He can be reached at [email protected].

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