How's That New Minimum Wage Working Out For You?

A friend of mine, whose name and employer shall remain anonymous, informed me that a major state agency rejected all bids on a contract renewal because all bidders based their pricing on the new living wage law ($11.30/hour) and the agency did not have sufficient funding to allow for the price increase. This contract was for a service the state out-sources regularly (i.e. cleaning, landscaping, security, waste removal etc...) not a one-time purchase. Apparently, the current contractor has or will receive an extension on the existing contract, which the contractor won, predicated on a minimum wage of $6.15/hour.

If the state did not allow for the new living wage in its' purchasing, why didn't they put it into effect on July 1 when the new fiscal year begins? October 1st the official enactment date of the law, has no significance (other than being five weeks before the last election...coincidence, I think not). The law’s fiscal note forecasts net expenditures exceeding revenue by $292,000 over the next four years. For the edification of Andrew Kujan, the fiscal note states:

Small Business Effect: Large firms are more able than small firms to absorb the cost of increased wages without passing on the full cost to the State because small businesses are less able to take advantage of economies of scale to reduce costs. Often, small firms do not have a large enough client base over which to spread the increased costs. Therefore, the living wage could put them at a competitive disadvantage in bidding for State contracts.

Furthermore, it is quite cheeky for a state agency to arbitrarily decide when they will abide by their own mandate.

Imagine a private computer services business who informs the Comptroller's Office that they did not budget for a 20% sales tax increase when negotiating its 2008 contracts. Therefore, it is unable to collect or pay these monies until its fiscal year ends and can re-negotiate its contracts.

On a side note, if you take the value of all the state's service contracts in the Baltimore/Washington corridor where the new living wage law applies and increase them by 84% (the difference of $6.15 vs. $11.30/hour) how much of our purported $1.5 billion 'structural deficit' can be accounted for?