Memo to All Fiscally Responsible City Council Members in California: Background on Charter Cities Establishing Their Own Policies for Government-Mandated Wage Rates for Municipal Construction Contractors

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Memorandum to All California City Councilmembers Who Believe in Local Control, Fiscal Responsibility, and Providing Local Services in an Efficient, Cost-Effective Way:

As you can see from my blog posts (at Dayton Public Policy Institute, a project of Labor Issues Solutions, LLC), I am an informed and genuine believer in fiscal responsibility, limited government, and economic and personal freedom. While local government organizations and construction trade associations need to be cautious about offending politically powerful unions, I can tell the unvarnished truth about state mandates on local governments like yours.

Your citizens now have a RARE opportunity to meaningfully free their cities from some of the costly, excessive, and unnecessary mandates endlessly coming from the majority in the foolish California State Legislature.

I encourage you to draft and propose a robust, assertive charter to your voters that allows your city to establish its own policies concerning government-mandated construction wage rates (so-called “prevailing” wages) for purely municipal construction. Until the legislature approves reasonable prevailing wage reform bills – for example, Assembly Bill 987 and Assembly Bill 988, introduced by Assemblywoman Shannon Grove and rejected on January 4, 2012 – your city will be victimized by bizarre methods of calculating prevailing wage and absurd definitions of public works.

I also urge you to include a provision in your charter guaranteeing fair and open competition in construction contracts, to ensure the best quality work at the best price for taxpayers.

Also, I urge you to include a provision in your charter to provide “paycheck protection” for your city employees, so they are fully informed and in control of their choice about whether or not their union should withdraw dues money from their paychecks to use for politics. Was it necessary for thousands of public employees of all political affiliations to endure a seven-year court case to win their right not to involuntarily give their dues money to union political campaigns against ballot propositions? (See My Outline of the June 21, 2012 U.S. Supreme Court Decision on a California Union’s Mandatory Fee Assessment on Non-Members to Fight Governor Schwarzenegger’s 2005 Ballot Measures.) Your city’s voters can stop this racket.

Here is a link to a guidebook on the prevailing wage policies of California’s charter cities. (Note two revisions that need to be made: the Irvine City Council bound itself under state prevailing wage laws on a 3-2 vote in April 2011, and voters in the City of El Cajon enacted a charter on June 5, 2012 that includes power for the city to set its own government-mandated construction wage rate policies for contractors.) As reported by the League of California Cities, there are now 121 charter cities, with a big explosion of new ones about to occur.

The guide is here:

Also, here is detailed information on the movement to give California charter cities the ability to assert local control and free themselves from the fiscal irresponsibility of the state legislature:

You’ll be hearing from union officials soon. Be strong and keep your thoughts on the taxpayer citizens you represent when charter opponents pack your council chamber and threaten to end your political careers. Obviously a charter is highly meaningful! Don’t worry about the unions; they have a good deal with their union monopolies through Project Labor Agreements (PLAs) at dozens of local governments – you know, all the fiscally responsible and efficiently-managed ones such as the Los Angeles Community College District and the City of Vallejo…

Below are arguments for these charter provisions that will make sense to 90% of the citizens and taxpayers in your city.

Feel free to contact me with any questions.

Kevin Dayton
President and CEO
Labor Issues Solutions, LLC
(916) 439-2159

Talking Points on California’s Government-Mandated Construction Wage Rates (“Prevailing Wage” is a Misnomer)

1. First, the accurate terminology is “government-mandated construction wage rates” (not the Orwellian “prevailing wage” used by people who also describe taxes as “revenues” and government spending as “investment”). State-mandated construction wage rates are not “prevailing” under any reasonable definition.

2. The state does not survey contractors or workers to determine the rates. It does not consult with the California Economic Development Department’s Quarterly Census of Employment and Wages or Labor Market Information to obtain statistical data.

3. Here’s how state-mandated construction wage rates are determined: construction trade unions submit their collective bargaining agreements to the California Division of Labor Statistics and Research. There, state bureaucrats go through these massive documents and identify every payment. They total up the payments and voilà: the “prevailing wage.” Find all wage rates for all trades for all geographical regions (union jurisdictions) here.

4. State-mandated construction wage rates are not “local.” The rates apply to the geographical jurisdiction of the applicable collective bargaining agreement. For example, the Iron Worker collective bargaining agreement covers the entire State of California, so the prevailing wage for an Iron Worker is the same for the ENTIRE state. Alturas = San Francisco = Beverly Hills = El Centro. All bound as one by the laws of the California State Legislature.

5. State-mandated construction wage rates apply to any projects over $1000. Absurd!

6. State-mandated construction wage rates have nothing to do with minimum wage. California’s minimum wage is $8.00 per hour. (I know from my service on the California Wage Board.) In Southern California, the “prevailing wage” for someone holding a stop/slow sign at a road job site in Barstow is a straight-time total hourly wage of $44.68 per hour: $27.29 + $17.00 fringe benefits + 0.39 for “Other.”  In Northern California, someone holding a stop/slow sign at a road job site in Sonora makes a straight time total rate of $42.93 per hour$25.89 + $16.91 fringe benefits + $0.13 for “Other.”

Maybe those wage rates are fair and reasonable, but shouldn’t the cities of Barstow and Sonora be deciding that, instead of state legislators from Los Angeles and San Francisco?

7. Volunteers have a limited temporary exemption in the state-mandated construction wage rate that expires on January 1, 2017. See California Labor Code Section 1720.4 for the extensive union-backed state law meant to discourage volunteerism. In 2004, some unions tried to use the state government to stop volunteer work on construction within their trade jurisdictions.

8. Some of the payments included in the state’s prevailing wage determinations have nothing to do with employee compensation. As a result of Senate Bill 868, signed by Governor Davis just before he was recalled, payments to union slush funds (with no regulatory or reporting requirements) are defined under California Labor Code Section 1773.1(a)(7-9) and have nothing to do with direct employee compensation or benefits. They are indicated in the state’s prevailing wage determinations as “Other.” Why do taxpayers have to pay for this?

9. There are numerous ongoing court cases regarding disputes among construction trade unions over who controls the work. Electricians versus Laborers. Sheet Metal Workers versus Roofers. Cement Masons versus Laborers. Almost a dozen unions are fighting over who gets to control photovoltaic (solar) installation. The State of California routinely gets tied up in controversies over which state-mandated construction wage rate applies to a specific type of work.

How Does the State of California Determine Prevailing Wage Rates?

The term “prevailing wage” is a misnomer.  Section 1773.9 of the California Labor Code requires the California Department of Industrial Relations to calculate prevailing wages using the “modal” rate—the most commonly paid rate—rather than an average or median rate.  (Minnesota is the only other state in the country to use the modal rate to determine prevailing wages.) While non-union workers receive a variety of wages based on experience, location, market conditions, and difficulty of work, unions always pay their journeymen workers the same wage. Thus, the modal rate is always the union rate.

Prevailing Wages Include More Than Wages and Benefits

Former Governor Gray Davis signed Senate Bill 868 in 2003 that expanded the definition of prevailing wages beyond wages and employee fringe benefits. Under California Labor Code Section 1773.1(a)(7-9), prevailing wages now include payments in collective bargaining agreements that funds such programs as “worker protection and assistance programs or committees established under the federal Labor Management Cooperation Act of 1978,” “industry advancement” programs, and “collective bargaining agreements administrative fees.” In response to a petition filed in 2005 by Associated Builders and Contractors of California, the Department of Industrial Relations confirmed that funding for at least one union political program was included in the prevailing wage determination for Laborers in Northern California.

Private Enforcement of Prevailing Wage Laws Used as Union Organizing Tool

The California Division of Labor Standards and Enforcement is responsible for enforcement of prevailing wage laws. However, Section 1771.2 of the California Labor Code permits private investigative organizations run by unions to request payroll records of contractors on public works projects. These union operations can bring court action against contractors who are supposedly violating prevailing wage laws, and this tactic is often part of the economic pressure against individual contractors during union organizing campaigns.

Prevailing Wage Laws Create a Local Government Mandate

Under Section 1771.5 of the California Labor Code, government entities are required to review, and, if appropriate, audit the payroll records of their contractors to verify compliance with the state’s convoluted prevailing wage law. The awarding body shall withhold contract payments when payroll records are delinquent or inadequate and withhold contract payments equal to the amount of underpayment and applicable penalties when, after investigation, it is established that underpayment has occurred.

Recent Non-Partisan California Studies on Prevailing Wage Costs  

Link: California Study Reveals Wide Disparities Between Market Wages and Prevailing Wage Rates (also, see the Updated 2004 version of the above study)

An August 2003 study from the California Institute for County Government at California State University, Sacramento shows that federal commercial prevailing wage rates and state prevailing wage rates in California are on average 36 percent to 55 percent higher than market wages.

The study, An Analysis of Market and Prevailing Wage Rates for the Construction Trades in California, compares market wages to commercial and residential Davis-Bacon federal prevailing wage rates and state prevailing wage rates on a county-by-county basis for five trades: electricians, carpenters, drywall installers, HVAC/sheet metal workers, and plumbers. Maps included with the study show that as a general rule the disparity between government-imposed rates and market wages increases as the distance increases between a county and the California Department of Industrial Relations headquarters in San Francisco. The California Institute for County Government is a nonpartisan public policy institute that is a joint program of the California State Association of Counties, the California State University system, and California State University at Sacramento.

Link: The Effects of Prevailing Wage Requirements on the Cost of Low-Income Housing (2003)

A working paper released in September 2003 by the Program on Housing and Urban Policy at the University of California, Berkeley presents new evidence on the increased costs of prevailing wage laws on construction. The Effects of Prevailing Wage Requirements on the Cost of Low-Income Housing estimates that new prevailing wage requirements signed into law by now-recalled Governor Gray Davis in 2001 increased costs on state-subsidized low-income housing in California between 9 and 32 percent under the most credible statistical models. According to the paper, under reasonable conditions, the authors’ mid-range estimate of the prospective decrease in dwellings in California subsidized by tax credits alone exceeds $2,600 per year.

The U.C. Berkeley study conclusions are consistent with the June 2004 study from the California Institute for County Government at California State University, Sacramento showing that the expansion of prevailing wage coverage in California to affordable housing increased the cost of that housing by an average of 11 percent. See Impact of Prevailing Wage Rate Requirements on The Costs of Affordable Housing In California.

A list of studies from across the country on the costs of state prevailing wage laws and the federal Davis-Bacon Act is available at the Associated Builders and Contractors web site:

Studies on the Costs of Laws Imposing Government-Mandated Construction Wage Rates

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