When Gov. Gavin Newsom signed a law setting a first-in-the-nation minimum wage for health care workers, three words in a bill analysis foreshadowed potential concerns about its cost: “Fiscal impact unknown.”
Now, three weeks after Newsom signed SB 525 into law — giving medical workers at least $25 an hour, including support staff like janitors and janitors — his administration has an estimated price tag: $4 billion for fiscal year 2024 alone— 25.
Half of that would come directly from the state’s general fund, while the other half would be paid for by federal funds earmarked for providers of Medi-Cal, California’s Medicaid program, according to Newsom’s Finance Department.
SB 525 is one of the most expensive laws California has seen in years and comes as the state faces a $14 billion budget shortfall that could grow if revenue is projected they continue to fall short. It was one of several labor-backed measures passed by the Democratic-controlled Legislature this year, amounting to an unusually successful run for organized labor. What lawmakers didn’t fully calculate, as they tried in the final days of the session to broker a deal between unions and hospitals to support the bill, was how much it would cost the state — or what would have to be cut to pay for it.
The costly legislation — pushed by unions as a way to ease health care worker shortages and in turn improve patient care — was signed into law even as Newsom warned of the state’s shaky economic future. vetoing dozens of bills last month in the name of cost savings. He wrote several veto messages saying lawmakers sent him bills that would cost a total of $19 billion that were not included in the budget.
“With our state facing continued financial risk and revenue uncertainty, it is important that we remain disciplined when considering bills with significant fiscal implications, such as this measure,” Newsom said repeatedly in those messages, rejecting some bills that had much lower projections costs from SB. 525.
Among the many proposals Newsom vetoed citing financial concerns was a bill that would have required colleges to pay for diagnostic evaluations for students with disabilitiesthat would cost the state $5 million a year, and a bill that would cost expanded cash assistance for elderly, blind and disabled immigrants; which would cost the state at least $100 million.
Unknowns remain about the implementation of the new expanded minimum wage law, including the exact long-term costs, in part because of major amendments made to the bill in the final days of the legislative session — the result of a rare truce between unions and unions. health sector leaders deemed it necessary for its passage.
Newsom officials declined to give The Times a cost estimate reflecting those amendments when the governor signed the bill last month. However, the amendments were expected to significantly soften the immediate financial impact on the state and hospitals, as they introduced phased salary schedules rather than a one-time increase for everyone.
Despite the unknowns, Democrats in the state legislature — including some initially leery of the potential cost — rushed to pass the legislation after a deal between powerful lobbyists.
The bill originally aimed to raise the minimum wage to $25 an hour for all health care workers starting Jan. 1. The opposition estimated it would cost as much as $8 billion a year.
While appropriations committee leaders killed cost-based bills in September, rejecting measures that cost millions less than SB 525, the minimum wage health care bill passed that key budget hurdle, even as the Treasury Department objected citing “significant economic implications.”
It’s unclear whether other state programs will be cut to make room for the wage increases, but we expect state lawmakers to rush to draft bills when the Legislature returns in January to try to address some financial concerns.
Unlike a law passed in 2016 that set a statewide minimum wage of $15 an hour, the health care workers’ bill currently includes no mechanism that allows the state to delay wage increases by during the economic recession.
“This is an important piece of legislation that ensures California has a strong health care workforce. We are working with legislative leadership and stakeholders on companion legislation to address state budget conditions and revenue,” Newsom spokesman Alex Stack said Friday when asked about cost concerns about The bill.
The $4 billion estimate could change when the Legislative Analyst’s Office releases its annual budget outlook expected later this month. Costs are only expected to rise in the future as more groups of workers become eligible for raises.
The most recent estimated cost to the state reflects salary increases expected to go to half a million health care workers who provide services to Medi-Cal patients, plus 26,000 employees at state facilities.
But costs to the state could be reduced if hospitals paid a larger share of labor costs, said Tia Orr, executive director of SEIU California, which helped shape the policy. He pointed to the billions already earmarked for Medi-Cal providers through revenue from a tax on managed care organizations as a way to “help manage the impact of increased labor costs.”
“SEIU California is committed to working with the administration and the Legislature to ensure safeguards are in place to ensure this critical measure is taken in a way that preserves California’s fiscal health, just as we did when we negotiated the last minimum wage increase across the state.” Or said. “That’s how you make progress — through flexibility and compromise to achieve common goals.”
In a statement, David Simon, a spokesman for the California Hospital Assn., which ultimately supported the bill, called the plan Newsom’s signature a “better, more measured” approach to raising wages than previous efforts, which the organization worried it would hurt rural hospitals. they already struggle financially and potentially pass the cost on to patients.
Like Orr, Simon signaled more work.
“With respect to any future work related to this matter, we are committed to working with the Legislature and the governor to advance the shared goals of SB 525: investing in our state’s health care workforce and maintaining access to health care care,” Simon said.
Under the law, workers at large health care facilities will earn $23 an hour starting in June, $24 an hour in 2025 and $25 an hour in 2026. This applies to all staff, including laundry and gift shop workers hospitals.
Workers at independent rural hospitals and facilities that serve high percentages of Medicare and Medi-Cal patients will receive $18 an hour next year and won’t reach $25 an hour until 2033. Other smaller workplaces are required to pay employees 21 $ an hour next year. reaching $25 an hour in 2028.
Newsom’s supporters see the legislation as bold national leadership amid labor unrest and worker strikes across industries, and as a more organized way to address local demands for $25 an hour already underway in cities across California. His critics question whether he approved it too soon without a concrete plan in order to gain political favor.
Labor unions have long wielded enormous power in the California legislature, but their victories this year have been remarkable. Their influence on state politics is undeniable: the Service Employees International Union doled out nearly $4 million in eight independent expenditures just to elect choice Democrats to the Legislature this year.
Michael Genest, founder of Capitol Matrix Consulting, who served as budget director for former Gov. Arnold Schwarzenegger, pointed to union power — and pressure — as one of the reasons Newsom may have moved too soon.
“This is not the time to start adding really big costs to the state budget when we’re very likely to go deeply in the wrong direction,” he said, noting the state’s financial uncertainty. “There’s always a reason to spend money, but some people care more about the reason than what’s in the bank account.”
HD Palmer, a spokesman for Newsom’s Finance Department, has also acknowledged the state’s financial unknowns, but was confident about the governor’s budget.
“The governor is required by the state Constitution to present a balanced budget by January 10 of next year, which he will do,” he said. “There are a number of actions that can be taken to balance a budget. Obviously the main thing right now is: Where are the revenues going to go?”