The streets have been flooded this summer with California-bred, Big Union ballot initiatives.  Although we celebrated a big win when the disastrous “Clean Elections” initiative failed to gather enough signatures, two others were filed at the deadline: the Minimum Wage Initiative, and a measure that seeks to cap the pay of hospital executives. Both submitted over 250,000 union bought signatures.

What is the impetus behind the Hospital Executive Compensation Act? The main driver/funder is the Service Employees International Union – United Healthcare Workers West (SEIU-UWW) out of California.  They have led an effort of ballot initiatives and legislation over the past five years in several states to cap executive pay at hospitals.  After losing a court case in El Camino County, California in 2013, where their ballot measure was ruled unconstitutional, the big union group has brought their bad ideas to Arizona.

Proponents argue hospitals receive enormous public subsidies, some in the way of property, income, and sales taxes exemptions, as well as by compensation through Medicaid and Medicare patients.  Therefore, they ought to be able to prove they are providing more uncompensated care to the community than they are paying in salaries to top executives.

While there are a lot of problems associated with government subsidized medicine (the Club opposed Medicaid expansion in 2013), the fact is CEO compensation represents a fraction of the billions of dollars of these large hospital organizations’ total budget.  Their salaries are determined by the market of supply and demand and for non-profits generally by the 50th percentile of CEO compensation of all hospitals.  Many of these administrators are not only managing complex facilities with hundreds of beds and professional staff, but multiple hospitals as well.

Additionally, the metric of percentage of uncompensated care is misleading and unrelated to executive compensation.  In order for hospitals to provide charity care, they must first have margins; revenues must exceed expenses.  In order to accomplish this, many hospitals including non-profits, must establish services and technologies to attract private patients.  Indigent care is driven by how many qualified patients come to a hospital.

It is in fact the government that has caused this problem.  Over time, with the introduction of Medicaid, Medicare, Obamacare, and a tax and regulatory structure that impairs consumer choice and price signals, the government has inflated the cost of healthcare.  By providing generous healthcare subsidies in the billions of dollars, they have displaced those costs onto everyone else.  As they have turned the ratchet on socialized medicine over the past 50 years, costs have soared, and they have had to scramble to institute more “cost containment” measures – executive pay caps are just the latest.   It is not generous pay scales that hinder charity care – it is a whole system wrought in bureaucracy where administrators are forced into economic decisions based upon government reimbursements and regulations.

Unmentioned by the initiative proponents is the IRS already requires non-profit hospitals to disclose executive salaries and benefits.  The Treasury Department does a review and audit every three years to ensure that pay is reasonable and to ensure compliance with their status requirements.  If they are found to be out of compliance, their exempt status can be revoked, forcing them to apply as a private hospital and to remit the applicable taxes.   Hospitals are already highly regulated entities.

This initiative isn’t only antithetical to free markets principles; it will be a power grab for the state.  The Attorney General will have the authority to audit a hospitals’ books – if found guilty of “excessive pay”, they could lose their state licenses as well as be charged under state consumer fraud laws.  Furthermore, the AG will be allowed to place a representative on the hospital in question, board of directors.  This is a gross infringement by the state into private organizations.

If passed, we can expect many of these executives to seek employment elsewhere, most likely out of state – taking their wealth with them.  Just as countries such as Canada have experienced severe “Brain Drain” when they limited the compensation of its doctors and surgeons – Arizona will see the same.  Experienced and talented hospital executives will be replaced with less qualified administrators.  This will have a direct effect on the quality of care patients receive.

Executive compensation is in the end a red herring.  This is just a means to in increase unionization in the health care industry and to distract people from the real culprit of high healthcare costs. Arizona voters should reject this very bad idea.

Over the weekend, Free Enterprise Club President Scot Mussi and Heritage Foundation Senior Fellow Steve Moore published an op-ed responding to the misleading “Job Creation Progress Meter” being touted by the Arizona Commerce Authority. Judging by the cherry picked data used in the meter, it is obvious they are attempting to downplay the current and future prospects of job growth in Arizona while pushing their agenda of more targeted incentives and crony capitalism.The fact is Arizona’s future is very bright. Here is the op-ed in its entirety:

Arizona is a High Growth State

By: Stephen Moore and Scot Mussi

Arizonans might be surprised by a new report which suggests that Arizona is limping behind other states in economic development and attractiveness as a destination.

A new report called “Job Creation Progress Meter” by the Arizona Commerce Authority and Center for the Future of Arizona (re: How Arizona Can do Better on Jobs) uses highly misleading data to suggest Arizona is falling behind on jobs and growth.

Sure there is a lot of room for improvement in the schools, the tax code, regulations, and the state’s treatment of job creators. The two of us have been dedicated to educating Arizona’s political leaders on how to improve business conditions and create more good paying jobs for years.But this new report gets the story wrong.  For example, one of the measurements used in their report is the state’s per capita income. While this can be a useful measurement, most economists recognize that you should take into account cost of living, since living in Arizona is much more affordable than living in states such as New York.

The “job creation” report fails to make this adjustment, thus making Arizonans’ living standard lower than it really is. New York, New Jersey and Connecticut are portrayed by this measure as prosperous. But these three states that were once prosperous are now bleeding jobs, businesses and workers. Many of them have come to…Arizona. These newcomers apparently see more opportunity in Arizona than the academic researchers. Maybe they need to get out of the ivory towers.

Additionally, the “job creation” report seems to ignore every economic indicator that would portray Arizona in a favorable light. Nowhere does it include vital economic data such as population growth (Arizona ranks the 4th most attractive destination of any state in terms of domestic migration). The state’s tax burden is low (but should get lower). New business startups and relocations ‎into the state are high.

The report instead focuses on fairly obscure ratings that are interesting but not central indicators of growth. These include international exports and venture capital investment per capita, two very narrow data points that tell us little about the overall health of Arizona’s economy. Arizona is a major tourist state. So relatively, the state has fewer jobs in areas like manufacturing. That doesn’t make us poor.  Look at Florida for goodness sakes.

Incidentally, California does well in both exports and venture capital investment. Does anyone believe that we should emulate their policy model where the rich are very rich and the poor are very poor and the cost of living for the middle class is through the roof? We hope not.  The middle class is fleeing the Golden State in droves with many coming here.

The truth is that Arizona is headed in the right direction.  Arizona continues to have a pro-growth climate and ranks in the top five of states in terms of economic outlook according to ALEC, a membership organization of state legislators.  Recently, Forbes magazine ranked Arizona the best state for future job growth in the nation.

For Arizona to do even better in the years to come means building on our current successes and staying ahead of our competitors by continually improving the tax, regulatory and fiscal policy of the state.  It also means remaining focused on broad based reforms – like cutting tax rates – that benefit all taxpayers and employers, not targeted solutions that cater to a select few politically connected industries.

Stephen Moore is a Senior Fellow at the Heritage Foundation. Scot Mussi is President of the Arizona Free Enterprise Club.

Employer-employee freedom is under constant attack by the Federal Government.  Sweeping policy demands such as mandatory paid sick leave, the “fight for $15” minimum wage hike, and byzantine new health care requirements are a few examples of the threats facing hardworking job creators.

The latest effort being pushed by the Obama administration is the Department of Labor’s new Overtime rule, which increases the ceiling for eligible non-exempt overtime from $23,660 year to $47,476 a year.  This is set to become effective December 1, 2016, affecting thousands of small businesses in Arizona.

The individuals who fall under this rule are likely lower to mid-management employees, poised in the pipeline to eventually fill roles of greater responsibility and professional opportunity.  Most employees within this range are not “punch-card” workers, and have responsibilities that extend beyond the traditional 40-hour work week.

It is painfully obvious that the Department of Labor did not take into consideration the rapidly changing work environment which allows for greater-than-ever flexibility in the workplace. This mandate instead forces all employment relationships into a one-size-fits-all box that will inevitably harm both the employer and employee.

Additionally, all of these employment decisions will require tremendous costs to implement and manage.  Some are considering “demoting” employees to punching a time card to ensure they do not work more than 40 hours.  Others are hiring part time employees or contracting out additional work.  Another option is to pay overtime but reduce base pay, bonuses, or other incentives.  Make no mistake, employees will lose under every scenario.

After the rule was announced, the Obama administration crowed that the new overtime standards will inject $1.2 billion in additional wages into Americans’ paychecks.  Not mentioned in the press release was that recent estimates show that compliance costs will be $18.9 billion the first year and $3.4 billion in subsequent years.  Judging by these numbers it is clear Obama and the Washington establishment has little experience or understanding on how to run a business.



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The Arizona Free Enterprise Club is a free market policy and advocacy group dedicated to promoting a strong and vibrant Arizona economy.