HomeMy WebLinkAboutCity Council Meeting - Prevailing Wage CITY OF HUNTINGTON 5 .
City Council Interoffice Communica 0 1`4 PH 6- 04
To: Honorable Mayor and City Council Members HUNTI G74F� BEACH
From: Dave Sullivan, Mayor Pro Tem
Date: November 14, 2005
Subject: H-ITEM FOR NOVEMBER 21, 2005, CITY COUNCIL MEETING—
PREVAILING WAGE
STATEMENT OF ISSUE:
At a City Council/Finance Board Study Session on October 17, 2005, the Finance Board
recommended that the City Council:
1. Adopt a policy to accept non-prevailing wage bids whenever possible.
2. Provide staff the option of sourcing funds in the budget that would maximize
opportunities to obtain non-prevailing wage contracts.
The Finance Board indicated that the City could save over $1 million per year by
eliminating its prevailing wage policy. Various union officials presented a different
viewpoint.
RECOMMENDED ACTION:
1. Direct the Finance Board to:
• Seek input from interested parties regarding the many studies on prevailing
wage. Determine how the Federal Government calculates prevailing wage.
• Determine what cities of over 100,000 population do not use prevailing wage.
• Determine how the California Director of Industrial Relations calculates prevailing
wage.
• Evaluate the arguments for and against prevailing wage.
• Estimate what savings, if any, can be realized in all areas in addition to
maintenance contracts; e.g., Public Works_ projects, Professional Service
contracts, etc.
• Make a report and recommendation to the City Council on the prevailing wage
issue.
2. Direct staff to provide the necessary support to the Finance Board in order to
complete its task.
DS:cf
xc: Penny Culbreth-Graft, City Administrator
Joan Flynn, City Clerk
Paul Emery, Deputy City Administrator
Chuck Thomas, Acting Deputy City Administrator
Dan Villella, Fin artc-e-Officer
i
November 21, 2005 City of Huntington Beach
City Council Office
Dear Mayor Hardy,Mayor Pro Tern Sullivan,and distinguished Council Members,
First and most importantly I want to thank each of you for your service to our little piece of
paradise here in Huntington Beach.Undoubtedly it is noteasy to devote so much time and effort
into such a thankless job, especially with families and perhaps full time careers to love and
preserve. It is apparent that you maintain the best interests of our entire community and my hat is
off to you with gratitude and respect.
Myname is Damon Nowlin, Circumstances-do not allow me,to attend tonights(-11/21/05 }
council meeting to speak in person. My wife Lucinda and I have lived in the home we own at
9181 Ellsworth Dr.in Huntington Beach for over twenty years. I am a construction electrician and,
Cindy is a secretary. As you are probably aware,living in paradise often requires two incomes
these-days and such is our situation.
It is our understanding that the City Council,is considering eliminating prevailing wages on
City funded construction projects. We sincerely hope that you continue,the prevailing wage
requirement.In order to sustain a comfortable lifestyle where we have loved to live, shop,
recreate,pay our taxes,, and vote for so many years it is important that middle class income does
not lose ground. The cost of living is difficult to keep up with even with a good income. Your
decision on prevailing wage may eventually be a determining factor as to whether Huntington
Beach will continue-to have a successful middle class within its borders.
Thank you again for your service to our community and especially for your consideration on
this matter.
Si' cerely,
D monD.Nowlin
(714-962-6962)
it
t#Nov 21 05 11 : 50a GREG QUINN 323 258 2e`1y3 p. i
-" RECEIVED FROM C�,cl'
AS PUBLIC RECORD R NCII MEETINf3
OF Os
The
Real
Facts
'bAN L FLYNN,CITY CLERK
About Prevailing Wag' e laws
t
Neiv study.finds no evidence that repeal of wage laws saves taxpayers' money
;!rtr` ;trtr7l dc'bt;fe is br cvin� efficiency rather than by cutting .,ages.
;irri'ottttding the Davis-Bacon Act • Allow good contractors to pay fair vvages
' Aa'nd.prcz)ail1-nL- wage taws. Many
and hire well-qualified workers.
oppo!1e'ttts �f`ihe la�.vs feel that significant • Promote the use of the local labor force, over '
rc,ouctio!ts zoocrld be reahzed if the govern-
cheaper labor that can be fotand elsewhere.
n!_'r!t ret�c'a1cJa these laws on both state and • Keep labor costs low by employing
breadth o{research skilled labor to avoid cost overruias and
1t: t io!utl levels. But a
safety problems.
i� 11p,oearfrig that proves this iheor,,j false. -re-cent stl!c{y bit University o,F Utah
Improve working conditions for all Yorkers.
'! r
l'rc�li'>5or Peter Philips', the country's • Promote a strong local economy by.allowing
pi-c-emir!eW labor econon-n-st, reveals that local contractors with local workers to
compete with out-of-region firnis.
rer;ltattn comg sitar laws..ivill ndt.produce labor P g
cost savings, but will reduce worker
Q. lrric'c, bP!1c>fits, and training amd increase What Does This Realty Mean?
1,J1,1!ilier of worker i;11"uries.
Use of prevailing wage rates
The History actually saves taxpayers gamey
by reducing public health costs
In 19 31 the U.S. government enacted the and strengthening the local
D<t�'is-13 tan Act to establish local labor rates
construction projects contracted by . economy and tax base.
h�. ederll government. This ac_ regiiires
public-works contractors to pay.frades peo-
ple no!ess than the wages.that prevail on: Prevailing wage laws provide si7nifIC11)'
sinl.11ci- projects within the same region. benefits to 'workers, local economies and
Incit,,cled.in these specifications are worker, government efficiency. And now a 15-state
benefits, sack as health insurance and pen- study by Dr:•Peter Philips of the University'
lion -ontributions. Sirriilar:prevailing wage of Utah has found no significant differences
lc il;htlon was ultl!llatel}' adopted by - 311 labor CC)stS betW'E'ell states W!th l)Y 1NI:I10:I1
a101t Tta{eti for bl�idln T on state and local V v legislation.g prevailing wake lef;i_:iation. His Stuciv, cc)n-
,��)� _ anlent projects. ducted on behalf of tl-le state of Kansas!
shows thatprevailing wage laves promote
"r(�vailing vvpge laws are rooted 'r;-a philoso- construction industry productivity and
p'1.,- or t'CO!1OMIC t;l"otwth and t-acre enacted to: reduce,worker injuries. Use of F revail:ng
wage rates actually saves taxpayers money
• t`rlcourage contractors to compere for by reducing public health costs and str ength-
-overnment t,-ork based on skirl, safety, and 0 ening the local ecoliomy_and tax base.
' I
Nov 21 05 11 : 51a GREG QUINN J23 ebb eery
_.. .__... -...._ ---__-- .. .. -
r=�r
A,Kansas Case Study The study analyzes the building.costs ion Z--11
three levels of schools - elementary, middle,
Dr. Peter Philips' 1998 study of rates in 15 and high schools. An analysis was done of 365
Great Plains states was conducted-to examine: elementary schools, 238 middle schools, and
187 high schools built in prevailing wage,1,
T.t hog. the repeal of Kansas'prevailing wage states. And 81 elementary schools, 30 middle
In%-,! in 1987. impacted labor and construction schools, and 35 high schools constructed in
casts, and states with no prevailing wage Paws were
-,I howpublic construction costs compare examined.
in states with and without prevailing
Highlights of the Study.
!t prompted by claims that the state of (See a full breakdown of school cost
Kansas vVoitld save anywhere between 6 and comparisons in'table below.)
20 percent by repealing the prevailing wage
ia�t. The ��ieticulously documented study The average square foot construction cost on
comperes Kansas' construction costs to that new elementary schools built in states with
of 14 surrounding Great Plains states, nine prevailing wage laws is$76:86 compared to
states with prevailing wage laws and five $76.23 in states with no prevailing wage la%vs,
States without. a difference of just $:66 a square foot.
• The average square foot construction cost on
middle schools built in prevailing wage law
The siutly focuses on school construction
states is$70.02- compared to$72.35 in states
costs because:
with no such lay.; a difference of $'33
I 11 they area major part of state and square foot.
local public.construction expenditures, • The average square foot cost of high schools
2 j elementary, middle.and high school building built in prevailing wage law states is S72.87 -
types can be:eastly compared, and compared to$70.72 in states with no law, a"
3j more schools are built than any other single difference of$2.15 a square foot"
type of government building, and therefore ' According to Philips, the difference of 5.66,
offer enough data to make statistical $2.33, and $2.15 per square root are "not
comparisons. statistically significant.
Average Square • • ConstructionCosts of Schools
in 15 States with • without
School Legal Number of Mean Standard
Status Schools Error Mean
ELEMENTARY SCHOOLS
Square Foot Cost in 1997 No PW
-Dollars Using.CPI-Housing Deflator Law States 81 S76.2309 $2.3725
PW Law States 365 S76.8644 $2.8550
MIDDLE SCHOOLS
Square Foot Cost in 1997 No PW
Dollars Using CPt-Housing Deflator Law States 30 $72.3547 $3.6116
PW Law States 238 $70.0225 S 1.5373
HIGH SCHOOLS
Square Foot Cost in'1997 No PW
Dollars.Using CPI-Housing.Deflator Law States 35 $70.7255 S3.5076
PW Law States 187 $72.8742 S2.7636
Reprinted by special permission of Peter A.Cockshaw,publisher of Cockshaw's Construction Labor News+Opinion:
Q
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Nov 21 '05 11 : 51a GREG QUINN 323. 258 22:/5. P. a
Hidden Costs to Local Labor Costs
Taxpayers
he savings did not pan out because
bile Dr. Philips' study indicates: they were based upon hypothetical cal-
no cost savings from abolishing Tculatio'ns. These figures were based on
the assumption of very high estimated !abor`
Wprevailing iv�ge.rate legislation; it e
P $
does point out hidden costs borne by local costs (50 percent of total construction costs) to
taxpayers and communities. States without the total project costs. Lawmakers assumed
prevailing wage rates experience reductions less labor costs without prevailing,wage laws,'
i, local sales and•income tax revenues, forc but did ncietake into account an}- reduction
incy increases in taxesor loss of essential in productivity. Increases in injuries and
services. Von-prevailing wage states.also decreases in training, led to Cost increases
t�:picali\' suffer increases in public health due to poor worknnanship.
costs due to a drastic reduction-in health
ilitivaiice coverage by contractor employers" - Further, labor costs. are not 50 percent of
coupled with in inIcre se in on.-the-job total`costs, Iabor costs are typically only 25
injuries: These public health costs also to 30 percent of total building construction
become the burden of local taxpayers. costs and even less on street and highway
:Additional hidden cost implications are construction. In fact, in the case of the states
:zi,Yhl 7h,ted below: compared in the Kansas study the mean
labor cost is 18.96 percent of total construe-
V !nile cost savings to taxpayers in Kansas tion costs for prevailing`wage states- less
did not pan out, the loss in income by craft than the 19.44 percent mean labor cost for
:,\,,orkers did. Kansas craft workers' wage states without a prevailing %•%.-age law_
i:1,Connes fell 11.percent from 1987 (the year of
the repeal) to 1991, This.amounts to a What Happens, to Training
decline in average wages from$25,573 to
S22,807. �One interesting finding; is the feduc-
• In the nine Great Plains states surrounding_ tion of tr .ining_prc�grams. In orba-
Kansas that retained their prevailing wage n;zed construction all union conmic-
laws, wage income fell by only 2 percent-' tors must fund training, bait`in•'a Cut-throat
bidding environment;•there is an incentive.
• Apprenticeship training in Kansas.fell 38 to avoid long-term costs to get a contract.
percent. Minority apprenticeship training Therefore, a worker who wants traininn
fell 54 percent: - _ must pay out-of-pocket, whereas in the
•.TotaLemplover contributions to pension and`
health funds declined 17 percent-from an Results of Abolishing Prevbiling Wagesi;
average of$20 milIion per year to$16.6 million
r - Health Apprcnticesh,p
• bile almost.all.construction wDrkers worker Insurance Apprenetceship Training
covered by collective bargaining in Kansas-. Incomes - and Pensions Training Minorities
receive health insurance and employer
• te
Pension contributions, only 10 percent of e
Down,,:r
workers in the open sector-receive pension zo^o - Down 17%
coverage and only 4 percent receive health
30% F-
insurance from their employer.
40%, Devon 38 6-
• Worker injuries rose 19:percent after the -
repeal, and cases of serious injuries rose 21.5 sc%
percent after Kansas repealed its prevailing so, Down 54ro
wage law.
0
Nov 2.1 05 11 : 51a GREG' QUINN 323 25U 2elu p. -t
• .
uAi�n sector, iti orkers do not pay for train- The findings indicate prevailing «age laws
ing_ Thus in the open shop sector there are confer an 8 percent cost advantage to states
two incentives not to train. One being on on average.
fthe part of the employer who could end up
absorbing the cost of training an apprentice Another University of Utah study that
that later goes to work for a competitor; and examined nine states that repealed prevail-
second, workers are less likely to seek train- ing wage laws concluded:'
ing if the; have to pay for it themselves.
•' Construction worker earnings declined
�� by at-least $1;477 per year on average.
61 /U of nonunion apprentices
State income`and sales tax revenues
dropped out of training . declined.
• Construction training fell by 40 percent
and even more among minority workers.
For example, a study of apprenticeship train-
ing in Northeastern Ohio''reveals that 574 *-Occupational injuries rose by 15 percent.
peop'e registered for union construction •.Cost overruns escalated.
apprenticeship programs while only 32
t registered,for nonunion construction
apprenticeships in..1995.' Additionally,of For more information about
those who entered-the classes of 1989, 1990
and 1991, 48 percent of the union apprentices prevailing wages, contact
grad"uited by 1995 with another 23 percent the Mechanical • Electrical
still actively enrolled in classes,and 29 • .Sheet Metal Alliance at
percent canceling, while among nonunion (301 )' 657-3 i 10.
apprentices, only 29 percent had completed,
Classes, 5 perceritwere still actively.enrolled, _-:
and 61 percent had-cancelled.: --Peter Philips, Ph.D:, "Kansas and the Preuni!ing
Wage Legislation;" prepare:i For the Kn:)sn Sennte
Other Similar Findings Labor and Industries Corninittee. 20,
he findings of the Kansas study are .'Cihan Bilginsoy, Ph.D and Peter Philips, Ph.D.,
consistent with other similar surveys- "Apprenticeship Training.in Ohio," Econoinics
According to another study conducted Department, University of Utah (1997).
IV Professor Philips comparing fig e "pre- `'Peter Philips, Ph.D., "SgLiare Foot.Constrttction
. ailing, wage states (New Mexico,Texas, Costs for Ne:oly Corrstroctce, State and Loca!
Oklahoma, Wyoming, and Nevada) to four Schools, Offices and fAharelrorrses in Nine
no law" states (Arizona, Utah, Idaho,and Southwestern and Intermountain States 1992-
Cblor.ado), costs'are significantly less in 1994,"prepared for the Legislative Education Stild
p:'erai:ung.wage states.' Committee of the Nezu Mexico State Legi4lature
(Septeniber 6, 1996).
• Elementary schools cost$6 less per square 'Peter Philips, Garth Mangj!ai, Norm 1'vaitZl7[a}1,
foot (psf) in the five-state group with ' and Anne Yeagle, "Losing Ground: Lessons iron:
prevailing wage laws. the Repeal of Nine Little Davis-Bacon Acts,"
• Middle schools and high schools cost Working Paper Eca,renrr`cs Dc pnrtnre;rt, Lin;
7;Crsity
S11 psf less in "have-law" states. of Utah (February 1995l.
• V%farehouses cost$35 psf less in "have-law"
estates while office buildings cost$2.1:nore `<
in the same states.
Los An el�s / Orange Counties
1626 Beverlv Boulevard
Building and Construction Los.a,teles,ca9oo2h-;�sr
Phoiie(213)483-4222
Trades Council (714)827-6791
RICHARD A'.SL 1WSOA: Fax(213)483-4419
-lff
Executiveiliuted with the Building& Construction Trades Dept.,AFL-CIO
Secretary
November 18, 2005
Jill Hardy
Mayor,
Dave Sullivan, Keith Bohr Date ,of
Post-it"' Fax Note 7671 //_ „0$;pages► 3
To
Gil Coerper, Debbie Cook, ppyy�� /�
t'tA �-d-��. MQq (From
Cathy Green, Don Hansen
Co.iDe t. � Co.
Council members
Phone¢ Phon
City of Huntington Beach o213 $3•y P a i
2000 Main Street Fax" '`�> S3G- 5�33 Fax
Huntington Beach, CA 92648
RE: Prevailina Wage Study
Dear Mayor Hardy:
Since your City Council agenda contains a proposal for a Study to be conducted on the City's
maintenance of the requirement for Contractors performing City funded public works to pay
Prevailing Wages, I would like to inform you of the concerns that this raises with Craft workers,
their families and friends throughout the City and County. Our main concern is that because of
political agendas workers are being made the scapegoats by a panel of seven appointed members
of the finance subcommittee.
There are many studies that have been completed on the effects of Prevailing Wages, and at least
7 of those we have provided to you and your fellow Council members have substantiated the
benefits, both social and financial, that Prevailing Wages bring. The other research that has been
performed by companies hired by groups opposing fair wages, have been consistently debunked as
biased. As I'm sure that you have noticed that the studies coming to the conclusion that
Prevailing Wages add cost to public works projects, have dealt with the difference between wage
rates rather than the total finished costs of a project. This skews the actual price of'any bid. This
is because without including the productivity that well trained, skilled and experienced Craft
Workers bring to a project, and the use of lower paid Apprentice Craft Workers, along with a
group of more experienced contractors, a true cost cannot be ascertained.
There are those that also will argue that government should not apply any regulation of wages
that their contractors pay. However, we will argue that Prevailing Wages provide many benefits
to public agencies and the general public, including employment for local workers, hiring of Local
contractors, and economic savings. The Studies that we have provided define the efficiency that
the Prevailing Wage requirements bring to publicly funded project and that same efficiency is
maintained whether a project is constructed in Augusta, Maine: Augusta, Georgia or Huntington
Beach, California. Further, there are a tremendous number of occasions that Government,
whether it be Federal, State of Local, intervenes in the market place for the common Szood and
"general welfare."
There are Subsidies, Tariffs, Patents, Copyrights, and direct infusions of public funds that are
given to businesses, each day, week, month and year to maintain a balance in their particular
industries. Amounts from $250 million dollars to Northwest Airlines; hundreds of millions to
farmers to maintain incomes and profits, billions in tariffs applied to foreign manufactures'
products imported to the United States; copyright protection to writers, artists, film makers,
songwriters, playwrights and computer programers, among others. No-bid contracts are given to
contractors by public agencies, especially for the federal government, to companies like
Halliburton and Becthel Construction who have been in the news most recently. The State of
California maintains offices, not only in California, but as well as Washington, D.C. and in world
capitals to support business interests. California, through the Governor's office was recently cited-
in their attempt to keep Nissan Corporation in California by providing special tax breaks and local
incentives as well.
Even on a local level we constantly see Counties and Cities providing business incentives to
support profits for private company. Witness, as only one example, the City of Huntington Beach
subsidizing the CIM Group, a Hollywood, California based development company, for over
$1,000,000.00 in actual costs and committing to cover unknown costs that may exceed the
expected project costs of$45,000,000.00,
We don't argue against government intervention in business affairs-in maintaining the public good,
but we do believe that it equates well with the purposes in maintaining area prevailing wages and
benefits. The City of Huntington Beach has maintained its commitment to require the payment of
Prevailing Wages over the years because it is good for the City to have projects completed within
budget, having projects completed on schedule and in having a well built project at its completion.
Prevailing Wages bring these benefits to projects by attracting fair contractors who can compete
on a level playing field using their experience and expertise in the bid process, and by providing .
stability to construction families, allowing the Craftsmen and women in our industry to utilize
their training and experience on Huntington Beach public works.
Because of the reasons that have been cited we believe that Prevailing Wages are fair and
equitable for any City to require. That is why we have been surprised and disappointed that this
apparent attempt to undermine workers wages and benefits has been forwarded for City Council
action. Even more we are disappointed because we have been only recently informed that there is
a secret staff report, that we understand contains numerous inaccuracies and false statements, that
has been used to push this proposal. One of the most glaring errors in this secret report is that
Costa Mesa does not require the payment of Prevailing Wages on its public works projects, when
the truth is that Costa Mesa is a "general law" city and therefore follows State law, requiring the
payment of Prevailing Wages on every project. Other cities were also incorrectly cited, the City
of Santa Ana was one, as not requiring Prevailing Wages.
As well, the Outline that was available to the public, has cited wage differentials as proof that the
City could save money by eliminating the requirement to pay Prevailing Wages when this does not
present a true picture of the effect. Eliminating Prevailing Wages requirements does not mean
that lower bids will be provided by contractors. It generally means that contractors will pocket
the difference between what they had been paying and the cut-rate wages that they might pay
without Prevailing Wages being required. The Studies that we.have provided to you, especially
the study titled "Losing Ground, Lessons from Repeal of Nine `Little Davis-Bacon' Acts", prove
beyond a doubt that Prevailing Wages Requirements are beneficial for public agencies, taxpayers,
and the construction industry as a whole. That study said it best in the closing paragraph: "The
construction industry is turbulent. Caught in a perennial boom-bust cycle, characterized by
fleeting relationships between small contractors and subcontractors, and driven by short-term.
strategies of free-riding on the training of others, the construction industry is a market failure
waiting to happen. The turmoil in the construction labor market has traditionally been tempered
by prevailing wage legislation and labor unions. Absent these institutions, it is unclear how - or
whether - the market will regularly and carefully train workers, or assure safety and health on the
job site, or provide training opportunities for minority workers, or offer the incomes needed to
make construction an attractive career. Government purchases account for 20 percent of all
construction in the United States. For the last six decades and more, the government has
contributed to the stability in construction labor markets by requiring contractors to pay the wage
rates that already prevail in a local area. Today, voices are urging the government to use its
purchasing powers to reduce construction costs at the expense of worker incomes. Such a
strategy has a very real cost for workers, the industry, and the government. When nine states
chose this path, the results were significantly lower construction wages, slightly higher
construction employment, a tripling of cost overruns on public works, an across-the-board 15
percent increase in construction injuries, a 40 percent decrease in apprenticeship training, and an
even further decline in minority apprenticeship training. All this was sacrificed to save an
estimated 1.7 percent in state construction costs. Even that savings was squandered by the loss in
state tax revenues from an impoverished construction labor force - a poor bargain indeed."
We believe that the City Council would be creating a"poor bargain indeed" if they would
consider eliminating the current requirement for the payment of Prevailing Wages_ Especially to
base any such decision"on"secret" reports and inaccurate and flawed research. The City's Finance
Committee proposal is threatening to hard-working, well-trained and experienced Craft workers
in the area and particularly those living in Huntington Beach.
For all of the reasons that we have outlined we ask that the Huntington Beach City Council
scratch this unwise proposal and continue the current City Prevailing Wage policy.
If you have any questions please contact me at the Building & Construction Trades Council
office.
Sincerely,
Richard Slawson
Executive Secretary