Minnesota's minimum wage is going to $9.50 an hour by 2016

Minnesota's minimum wage is set to jump from one of the lowest in the nation to one of the highest, promising a better standard of living for more than 350,000 workers but raising bottom-line concerns for some business owners.

Democrats who run the Legislature said Monday that by the end of the week the House and Senate will pass a proposal that's been one of their party's top legislative priorities this year. Once it becomes law, the minimum wage for businesses with more than half a million dollars in annual gross sales will rise in three successive steps, starting this August, from the current $6.15 an hour to $9.50 by 2016.

In 2017, the minimum wage would begin to rise automatically with inflation, up to 2.5 percent a year. That could mean a jump of 24 cents in 2018, and similar raises in successive years. "I look forward to signing this legislation into law," Gov. Mark Dayton said in a statement released Monday. Boosting the minimum wage has been a major Democratic goal in St. Paul and Washington, where President Obama has called for a federal minimum of $10 per hour and exhorted employers to raise minimums of their own accord.

The issue has been heavily supported by the party's allies in organized labor and other left-leaning groups, and is popular among Minnesotans.

More than 350,000 Minnesota workers are paid less than $9.50 an hour, many of them in greater Minnesota, according to the Minnesota Department of Employment and Economic Development.

Sandra Miranda, who makes $9 an hour cleaning the Target store in Shakopee, is among those who welcome the increase.

"I have a 3-year old daughter and it's just me who cares for her," said Miranda, who works several jobs to make ends meet. "With the wage I have been making, it's not possible to do that well."

The eventual increase to $9.50 an hour would not be enough to allow her to move from the apartment she now shares with a roommate, but, she said, it might be enough to buy more fresh fruits and vegetables and less macaroni and cheese and other boxed dinners. Boosting the minimum wage is good, she said, "But I hope it continues to go up."

Dave Walia, a project manager for Nath Companies, said the wage hike will have a major impact on the hospitality business. Nath owns restaurants ranging from fine dining to fast food in Minnesota.

Walia said none of their dishwashers or cooks earn less than $10.50 an hour, but paying their tipped employees $9.50 an hour will hurt.

With tips, they can now earn $22 an hour but "those are the people that [are] going to get this raise," he said. Extra labor costs could translate into price hikes, or more work for current employees and fewer hours for some, he said. Combined with rising health care costs and other new regulations, he said, "You are really looking at a very bleak outlook for hospitality."

House Democrats and Dayton were the driving force behind the inflation index. Senate Democrats were more reluctant, calling the automatic hikes potentially harmful to small, locally owned businesses.

The resolution resolves what had threatened to be a sticking point as party leaders try to dispatch with issues that could complicate a smooth end to the election-year legislative session.

Senate Majority Leader Tom Bakk, DFL-Cook, said Monday that the negotiations produced a handful of exemptions to cushion the blow on businesses.

"I think we tried as best we [could] to mitigate the impacts of that," Bakk said.

Those include a three-year phase-in to get to $9.50. The first increase would come this August, when the minimum climbs to $8, then $8.50 by next August and finally $9.50 in August 2016. In addition, the state can halt the increases if there is a substantial downturn in the economy.

There also is a lower minimum wage for smaller businesses, defined as those grossing less than $500,000 annually. Their minimum would be $7.75. That wage would also apply to workers on J1 foreign visas; those aged 16 and 17, and for those aged 18 or 19 during a 90-day training period.

Lobbyists for interest groups representing Minnesota business owners praised those provisions, but said it's not enough save offset a new burden for smaller employers.

"Ultimately that makes Minnesota less attractive as a place to start and run a business," said Mike Hickey, director of the state chapter of the National Federation of Independent Businesses. "That hurts all of us because it weakens our economy. "

Some 22 states have already passed minimum wage increases higher than the federal minimum of $7.25.

Hickey said business owners were particularly concerned about yearly automatic increases.

"It's not something that should be on autopilot," Hickey said. Other prominent business groups, including the Minnesota Chamber of Commerce, were particularly critical of the inflation index.

According to the National Conference of State Legislatures, 11 states have adopted indexed minimum wages since 2001. Of those, only one — Vermont — did so by a legislative vote. In the 10 other states, indexing was approved by voters.

Dan McElroy is president of Hospitality Minnesota, which represents restaurants, resorts and lodging businesses. He said the rising minimum wage would likely mean slower growth at businesses he represents, fewer shifts available to workers and a faster move to automate some aspects of kitchen operations.

Still, he said, "We don't expect a huge loss of jobs."

At $6.15 an hour, Minnesota's current base rate is lower than all but two of the 45 states that set their own minimum wage. Once it reaches $9.50, it would be higher than any other state's current minimum wage, though Washington, which is now at $9.32 an hour, and Oregon at $9.10 both index their wages to inflation. In addition, several states have recently approved minimum wage hikes that will take them above $10 an hour by 2018.

Labor groups and progressive allies who mounted an aggressive public campaign for the increase praised the fruit of their work.

President of SEIU Healthcare Minnesota Jamie Gulley said that a minimum wage hike with inflationary increases "will improve the lives of working families in Minnesota who have been left behind for far too long." The vast majority of SEIU's 30,000 Minnesota members already make $9.50 or more per hour.

House and Senate Democrats moved closer Monday to final approval of a new legislative office building, another issue that has divided the party.

Bakk and Thissen denied an explicit deal to swap approval of minimum wage indexing, which House leaders wanted, in exchange for approval of the office building, a priority for Senate Democrats. But Bakk said it removes two major issues Democrats hoped to accomplish this year.

"This session is really starting to come together," Bakk said.

Staff writer Dee DePass contributed to this report.

Patrick Condon • 651-925-5049

Rachel E. Stassen-Berger • 651-925-5046