When I started working in the nonprofit sector after college, I worked as an assistant preschool teacher in daycare center. I was paid above minimum wage, but not a lot above minimum wage. I got semiannual raises, but they weren’t big raises. The majority of the parents who enrolled their kids had low wage jobs and were single, so even with the sliding scale tuition that the center used, they had difficulty paying the tuition. The parents who could pay more did, but they were lower in number than those who paid a deeply discounted price. Government grants helped, but the aid could only be stretched so far.
Many nonprofits operate this way when it comes to paying their employees. Most pay above minimum wage, but not a whole lot above minimum wage. Their annual budgets are generally tight, so unless they have a balanced development program that collects income from a variety of sources, not just fees for services, then those they employ must expect lower wages so they can serve a greater number of clients.
This year, voters in five states and several municipalities chose to raise the minimum wages in their locations, some as high as $15 an hour.
These choices by voters have caused a real problem for nonprofit agencies. Many of their employees, even while being paid above their current minimum wages, do not currently make that much an hour. This will create some difficult choices for nonprofits. Will they raise the pay of some employees and let others go? What programs will they need to cut and which ones will they keep? If they continue to keep all the programs, where will they get the money?
Nonprofit leaders have spoken out before the votes were cast. Sylvia Fuerstenberg, director of The Arc of King County, wrote a thoughtful piece describing some of the very real issues that her organization faces after Seattle chose to raise its minimum wage to $15 over the next couple of years. She provides some real food for thought that can be tough to digest.
One of the biggest issues to consider is that many of the organizations affected by these new wage laws get the greatest amount of their budgets from state governments that may not be able to cover the shortfalls created. In California, there are laws prohibiting increased spending by the legislature when a municipality like Oakland or San Francisco raise the local minimum wage, according to an article in the San Jose Mercury News. “However, a 2008 state law precludes nonprofits that provide around-the-clock-care to disabled adults from seeking increased funding to cover a local minimum wage increase, according to department spokeswoman Nancy Lundgren.”
In Illinois, my home state, voters passed a nonbinding vote to raise the minimum wage. An article in the Chicago Tribune points out that the problem here is similar because many nonprofits get the lion’s share of their budgets from contracts to provide services for the state, but because the state has not handled its financial responsibilities responsibly for a number of years, and it is already billions of dollars behind in its payments to those nonprofit contractors(see my previous post, Charities or Government Agencies), and a temporary tax hike will soon expire. The Governor elect ran his campaign on repealing that tax increase, so it is very unlikely that there will be any money to supplement that given to the nonprofit contractors. Another issue is that a state judge has overturned a legislated fix for a hundred billion shortfall for the state employee retirement fund, so any extra money will likely be directed to that issue, unless the state Supreme Court overturns the lower court’s ruling. Something will have to give.
Now that voters have spoken, what will nonprofits do? Nonprofit leaders will have some very difficult decisions to make. I don’t envy them.