A Wage Increase Bill is Delayed, But The CFO's Need to Budget For It is Not

CFOs know they need to be ten steps ahead, so even though there's a delay in CA's mandated wage increase, now is not the time to ease up on strategy.

Eyes were wide when California Governor Gavin Newsom signed a law that would gradually raise healthcare workers' hourly minimum wage to $25, a bill that had an estimated price tag of $4 billion for the 2024-25 fiscal year. 

So, should we be surprised Newsom announced he wants to delay the bill due to costs? Probably not.

Because of California’s $38 billion projected budget deficit, Newsom said he is seeking changes to the law. According to reports, the first pay increases were expected to take effect in June, and it’s still unclear how long the proposed changes could push back that schedule.

In Newsom’s announcement he says he wants the wage increases to take place when the state’s fiscal outlook is healthy.

What does this mean for CA CFOs?

CFOs know they need to be ten steps ahead, so while there is a delay in the bill, the need to budget and strategize for these added costs shouldn’t be suspended.

In fact, that estimated $4 billion price tag is just at the state level and doesn't necessarily include the costs for private organizations or those in the non-profit healthcare world.

Luckily, even before this delay, health systems that have focused on sustaining high credit ratings may have found themselves with a slightly longer lead time to adapt to these higher, unfunded costs—and they need to continue to do so.

“For the last 20 or 30 years, healthcare systems have been building up these balance sheets, and the beauty of that is that it gives those organizations a little bit more time to find that point of stability,” Brett Tande, CFO of California-based Scripps Health, previously told HealthLeaders. “But not every organization is similarly situated, and all will have to weather these higher costs at some point.”

While California hospital and health systems were gifted more time to budget, they will still need to respond and maintain, especially as these costs will still be coming down the pike at some point.

“For an organization of Scripps’ size, the cost of the minimum wage bill is measured in the tens of millions of dollars per year. This will definitely have an impact on labor expenses, no matter how much you strategize,” Tande said.

What about CFOs in other states?

Healthcare workforce unrest across the US has been building since the pandemic and it doesn't appear to be calming down anytime soon. And a major point of contention? Wages.

This goes to say that no CFO is off the hook, regardless of a state mandated increase. Budgeting for higher labor expenses should be a continued top priority for CFOs in all states.