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Nonprofits fear minimum wage hike without accompanying rise in state contract pay

Nonprofits who provide social services say they will be forced to cut jobs, services or both if minimum wage goes up.

 

Nonprofits such as Cheer in Sussex County says just a hike to $11 an hour would cost them hundreds of thousands of dollars.
Nonprofits such as Cheer in Sussex County say even a hike to $11 an hour would cost them hundreds of thousands of dollars a year.

 

Delaware nonprofits say raising minimum wage to even $11 — much less $15 an hour —  is a financial disaster for them.

“I’m not even looking at the $15 an hour. I’m looking at the first increment, which is $11 an hour,” said Carolyn Fredericks, CEO of the Modern Maturity Center in Dover. Current minimum wage is $9.25. “That would be an increase to our budget of $200,000 a year.” 

Chief among the nonprofit worries are state contracts that pay them to provide many social services through a flat amount for services or salaries. The rates haven’t changed in years and increases are not included in estimates of how much a minimum wage hike would affect state spending.

“It’s not a blank check,” Fredericks said. “You only get paid for what you provide.”

None of the nonprofits object to people being paid more.

 

“My staff deserves a raise,” Fredericks said. “They work hard and deserve a raise. But like the saying goes, you cannot get blood from a turnip. If we don’t have the money to pay them, what can we do?’

Without increases in state contracts, four nonprofit CEOs say  organizations will be forced to hire fewer people, reduce services or both. That would mean being able to serve fewer people through childcare programs, adult day care and meal delivery service for older people, among other things.

Raising minimum wage is one issue that will face a new General Assembly when it opens in January. A proposed bill is already circulating as sponsors seek more support.

Under that bill, a hike to $11 an hour would be the first of four annual $1-an-hour increases that would make the state’s minimum wage $15 as of Jan. 1, 2026. That’s a 61.6 percent hike that supporters say is needed to give workers a more livable wage.

“When we think about raising wages, we think that’s a good thing, but the question is: How do these things get paid for,” says Sheila Bravo, CEO of the Delaware Alliance for Nonprofit Advancement. “The tricky thing for nonprofits is that our revenue does not come from selling things. Our options of how do you offset the increased costs are a little more complicated than when you have a widget or service that you can sell.”

 

Homeless shelters, she pointed out, don’t charge people who use them, so there’s no revenue stream at all there.

Raising the starting pay would echo through the nonprofits’ payroll because salaries would need to be adjusted up the ladder for many people to compensate them for that rise at the bottom of the ladder, nonprofit leaders say.

“It’s important that whatever happens, if it does happen, that we have enough time to react so we can adjust our operational budgets and business plans around it,” said John Wellons, president and CEO of the Boys & Girls Clubs of Delaware. The hike to $11 an hour would cost him about $100,000, he said.

Raising minimum wage is one of the planks in the Delaware Democratic Party’s platforms, and many of those elected this year campaigned on it. President-elect Joe Biden has said he favors it, but hasn’t said how or when his administration would do it.

Bill sponsor Sen. Jack Walsh, D-Stanton, said last month that one reason he started circulating the bill for additional sponsors was to create conversations.

 

“It’s not going to happen without discussion,” said Walsh, chairman of the Delaware Senate Labor Committee..

Walsh wrote in a text Monday that he would be meeting with nonprofits soon “and will have more information at that time.”

Raising minimum wage has been proposed several times in the General Assembly.

In a sometimes testy 2018 hearing on a bill, James Maravelias, president of the AFL-CIO, lauded the bill. Many others – – nonprofits, farmers and some business leaders — said it was a burden that would seriously affect their ability to hire people and price their wares and services competitively.

Minimum wage did rise to $9.25 and was expected to rise to $9.75, that was postponed because of the pandemic.

 

The draft of Walsh’s bill being circulated didn’t say how much a wage hike would cost the state. Walsh said last month he thought it would be similar to a previous bill that would have raised minimum wage to $15 by 2024. That bill’s financial note said it would cost the state of Delaware $30.9 million.

That estimate was only for state employees and was determined by the controller general, Walsh confirmed Monday. 

“If costs are increased for non-profits, that cost would be appropriated through Joint Finance through increased grant in aid,” Walsh said in a text.

Having the process of negotiating state contracts separated from the mechanism that raises salaries worries nonprofit leaders.

The vast majority of any nonprofit is the cost for labor, said Ken Bock with Cheer in Sussex County. He expects any minimum wage hike to cost his organization several hundred thousands of dollars a year.

 

“That’s just the nature of any service industry,” he said. “The state is always looking to get the lowest hourly rate they can, but we have to at least be able to cover most of our cost. We don’t have to make a profit, but we do need to make payroll every period … We’re in business, too.”

Nonprofit leaders say they are more worried now about a minimum wage hike than they were in 2018 because of an economy battered by the COVID-19 pandemic. 

None of the nonprofit leaders think they can successfully fundraise to bring in the extra cash to cover the minimum wage hike, not now and not in January 2021 when the first hike would take place. Businesses and families are expected to still be reeling from reductions in sales and income as well as higher costs because of COVID, they say.

For Wellons and the Boys & Girls Club of Delaware, one of those contracts is for childcare. 

“It’s a work for development tool so that parents can take that $10- to $12-an-hour job and know they can take their child to a licensed child care center that will take care of them and be a quality safe place for their children,” Wellons said.

More than half of the Boys & Girls Club childcare program is paid for through those state contracts, he said. During COVID, that’s been about 1,400 children a day. Pre-COVID, it was about 3,200, he said.

Complicated factors for the Modern Maturity Center is that many state programs come not only with a defined budget, but also requirements for staff-to-client ratios.

The adult day care program is a medically supervised program for people who have cognitive issues and cannot be left alone. The state mandates how many staff members must be on duty, including nurses, based on the number of participants in the program.

Right now, the center can only take about 18 people per day because of mandated COVID-19 restrictions. However, because of staffing levels, the center loses money on the program every day it’s open, Fredericks said. But if they don’t open, those clients’ families often can’t work themselves.

The state money for that program comes from the Title 3 Older Americans Act, as does some funding for Meals on Wheels. At Modern Maturity, they are now serving about 1,500 people a day in that program.

 

The state negotiates contracts and is always looking to keep costs down, Fredericks said. The Modern Maturity Center has an annual budget of $7 million, and Fredericks believes that because it’s been in business since 1972-3, their contracts have been locked in at lower rates.

“My problem is that over the years, the state contract has not kept base with the cost of living and the increase of costs in providing the service,” Fredericks said.

At the same time, she said, the state Division of Aging has been “very, very good” about helping with extra money for personal protective equipment and making sure the center got some of the federal CARES Act money.

Bock, of Cheer in Sussex County,  was in that 2018 hearing about raising minimum wage. His overall impression was that sponsors of the bill didn’t want to hear opposition. One legislator even told a person testifying that he didn’t believe the impact would be as dire as the man was saying, according to press reports. 

The math is simple, Bock said. His annual budget is $9 million.

 

“If the state increases our cost of service and they don’t increase the method of funding to pay for those services, less people are going to be served,” he said.

Like others, he believes the state should let market forces control salaries. Pre-COVID, Cheer was already paying more than $11 an hour for many jobs in home care and the nutrition program because qualified workers are hard to find and to keep, he said.

“If I could find quality people, I would be hiring people today at above what the current minimum wage is,” Bock said. “I can’t be attracting and retaining people at minimum wage. It’s like anything else, the demand drives the cost of goods and services … my experience is that you have to pay more than minimum wage and continue paying above minimum wage.”

Some businesses may be able to compensate for a higher minimum wage  by using technology — such as a grocery store installing self-checkout counters or a fast-food restaurant using kiosks instead of people behind the counter, Bock said. 

 

Most nonprofits providing social services rely on person-to-person interactions that can’t be automated.

“If we lose $2 for every hour we serve our meals, it won’t be too long before we’re not in business,” Bock said.

“I think it’s a complex issue,” Bravo says, “and I think that there’s opportunity for us as a state to have some conversations so that it’s clear about what these unintended consequences are so we can figure out a solution to address them.”

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