The Livability of Minnesota’s New Minimum Wage

by Camille Galles on 20 July 2014

 

Governor Dayton signed a new bill raising minimum wage in the State Capitol on April 14th. (Tom Scheck/MPR News)

Governor Dayton signs a new bill raising minimum wage in the state Capitol. (Tom Scheck/MPR News)

On April 15th 2014, Minnesota Governor Mark Dayton signed a bill that officially increases the state’s minimum wage.  Although the wage increase is a government mandate, workers will not see their paychecks grow overnight.  Rather than automatically spiking, the wage increase will be slowly phased in.  Gradual increases over two years will result in a final $9.50 hourly minimum wage by 2016.  The first increase begins on August 1st, 2014, and raises minimum wage from $6.15 to $8.00 an hour, which will benefit 325,000 Minnesotans. Already this is significant—the previous minimum wage of $6.15/hour was among the lowest in the nation.

Please see the points below (courtesy of Minnpost) for an in-depth breakdown of each phase.  “Large employers” are businesses with gross sales of more than $500,000.  This includes large franchised companies, such as target.  “Small employers” have gross sales that are less than $500,000, and would include smaller, privately owned companies.

Thanks to MinnPost for this in-depth breakdown of the Minimum Wage Bill's phases.

Thanks to MinnPost for this in-depth breakdown of the Minimum Wage Bill’s phases.

An additional and important feature of this bill is the way it accommodates inflation.  Inflation leads to higher prices for food, clothing, rent, and other basic necessities.  Beginning in 2018, the minimum wage will continue to increase each year along with these rising costs, a process called “indexing.”  Through this process, the government attempts to make minimum wage livable, and a means by which people can afford to live decent and comfortable lives.  Supporters of the minimum wage bill believe that these wage increases will lift thousands of Minnesotans out of poverty.  But how does this bill account for the cost of housing, one of the most basic, important, and biggest expenses?  Nearly 600,000 households in Minnesota pay more than 30% of their income for housing.  What does this bill mean for these families?

According to this study from the National Low Income Housing Coalition, Minnesotans need to earn $16.46 an hour to rent a two-bedroom unit.  Even if the minimum wage immediately increased to its final amount of $9.50, a household would still need two minimum-wage workers to afford an apartment.  And to afford a two-bedroom apartment in Minneapolis/St.Paul, a household needs to earn $18.19 an hour.  Faced with these statistics, as well as the recent luxury-housing boom throughout the Twin Cities, the new minimum wage increases can seem pretty unsubstantial.

The definition of “economic security”  policymakers seek to create must expand to include the security of having a stable place to sleep at night—affordable housing.  Increasing the minimum wage is helpful, but is just not always enough.  However, this was not the only bill passed this year.  The Homes for All bill was also approved, which substantially increases funding for affordable housing.  Hopefully, these two bills can work together to help close the gap between wages and housing costs.   And in a nation where not a single full-time minimum wage worker anywhere can afford market rate housing, policymakers should take a page out of Minnesota’s book.

 

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Welcome back to Homeline’s Public Policy blog!  Check back often as we begin to cover important Minnesota housing bills that were passed during the 2014 legislative session.  We’ll start by breaking down the “Homes for All” bonding bill, which sets aside  $100 million for affordable housing projects.

Where does this money come from?  The term “bonding” means that the state borrows this money by issuing bonds, which are financial tools that are  similar to loans.  The money the state borrows now will be paid back to bond holders over time with interest. The risk of borrowing so much money is offset by the current low interest and mortgage rates in the housing market, making this an ideal time for the state to invest in housing.  Ensuring the 2014 passage of this bill remained a top priority for Minnesota housing advocates.   A multi-organizational “Homes for All” coalition was formed, which gained endorsement by over 100 groups.

Indeed, this is a first-time  commitment to low-income housing in Minnesota.  $100 million can build or rehab up to 5,000 units!  Although no specific projects have been designated, the funds from the bonding bill will allow the Minnesota Housing and Finance Agency (MHFA) to boost its capacity by nearly $40 million dollars.  MHFA will use this money to build new affordable housing units, establish supportive housing centers, and perhaps most importantly, preserve existing Section 8 housing.

It’s easy to assume that new money automatically equals new housing, but the construction of new units was not the biggest thrust behind the Homes for All bill.  Preserving Section 8 housing is crucial because once it’s gone, you can’t get it back.  Owners that participate in the Section 8 housing program enter contracts that legally bind them to accept low-income tenants.  However, once an owner completes their contract, they can choose to opt out of the program.  This leaves current low-income tenants high and dry, and permanently removes some of the most affordable low-income housing in the state.  Nearly 30% of Minnesota’s Section 8 housing is at risk of vanishing during the next 5 years.  Using this bonding money to preserve Section 8 housing home security for current tenants, and also assures that more expensive units won’t  have to be built to compensate for expiring contracts.

Permanent low-cost housing, such as units participating in the Section 8 program, remains the most effective way to combat homelessness.  $100 million is an exciting opportunity for the local housing community, but it will not provide homes for the estimated 14,000 homeless Minnesotans in one fell swoop.  Even with this new legislature, the demand for affordable housing far outweighs the supply.  The Homes for All bill is a victory for housing policy, but the battle to truly provide homes for all is far from over.

 

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