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Did Nathan Fletcher lose his mind on prevailing wage?

Nathan Fletcher declared in a tweet Thursday that he’s been on vacation. Some vacation!

Apparently he has enjoyed his leisure time taking “a closer look at the hard data on prevailing wage in the construction industry” and writing a detailed opinion piece for the July 26 Daily Transcript (“Prevailing wage: Good for local economy, local workers”).

Fletcher was recently a member of the state Legislature, where he consistently voted against union-backed bills expanding state-mandated construction wage rates. He voted in 2011 against extending this state mandate to refuse hauling (AB 514) and private solar generation facilities that provide electricity to schools (SB 136). He also voted against a bill that increased penalties for companies that do not pay the correct prevailing-wage rates (AB 551).

Perhaps he assumed at the time that state-mandated construction wage rates increase the costs of public works construction and are absurdly complicated and full of traps for contractors.

Maybe he noticed the conflicts among trade unions concerning jurisdiction over certain job classifications, or tried to figure out ambiguous travel pay for some trades, or heard concerns from non-union contractors about governments giving unions certified payroll records that expose the home addresses of employees. Maybe he saw that some construction trades claim that a “locality” for workers includes all of Southern California or even all of California.

Now Fletcher has approached this issue “in a thoughtful, open-minded way” and decided that the city of San Diego should stop exercising its constitutional right as a charter city to set its own rules concerning government-mandated construction wage rates.

He wants the San Diego City Council to vote on July 30 to fulfill the May 8 request of Mayor Bob Filner to require construction companies to pay state prevailing-wage rates on city projects.

I can’t ruminate about prevailing-wage policies with the credibility of a professor at UC San Diego. Nevertheless, as a layman I’ve written three editions of an influential and accurate (but much-detested) 92-page report comprehensive report entitled “Are Charter Cities Taking Advantage of State-Mandated Construction Wage Rate (“Prevailing Wage”) Exemptions?”

I note Professor Fletcher’s suggestion that people who oppose the imposition of California’s prevailing-wage law at local governments haven’t approached the issue in a “thoughtful, open-minded way.” So I opened my mind and examined his claims in the Daily Transcript.

He overlooks how the state does not actually calculate prevailing-wage rates based on surveys of contractors and workers or even on wage data collected by the California Economic Development Department. In practice, the state obtains collective bargaining agreements for construction unions in every trade in every union local jurisdiction, adds up the employer payments indicated in those agreements, and declares the total to be the “prevailing wage.”

One consequence of the state using union collective bargaining agreements as the basis for determining so-called prevailing-wage rates is that rates include payments to union slush funds, even though these funds are not a direct benefit for workers.

Why are taxpayers obligated to shell out their money to funds described in state prevailing-wage determinations as “other,” so that the San Diego Electrical Industry Labor Management Cooperation Committee can turn around and give $10,000 to the Proposition Z campaign for the San Diego Unified School District?

It shouldn’t be a surprise when the city of San Diego Office of the Independent Budget Analyst anticipates a 5 to 10 percent cost increase if state prevailing wage is imposed on city contracts. When the state determined that the private Hilton San Diego Bayfront hotel was actually a public works job, equivalent to a courthouse or post office, workers were suddenly owed more than $8 million. California prevailing-wage rates are not market wage rates.

To support his arguments, Fletcher cites from a study he claimed was done at Colorado State University. Actually, it was produced by the union-oriented Working Partnerships USA program in San Jose and funded by companies bound to employer payments in collective bargaining agreements.

Despite its pretenses to scholarly research, the report has not been peer-reviewed, makes broad assertions about a tiny sample size, and does not provide source data to support its assertions. (Its data appear to be wrong.) It neglects the concept of opportunity costs. It fails to control for other variables besides government-mandated wage rates. Its definition of “local” is almost as absurd as the “locality” in state prevailing-wage laws.

Any attempt to read this report would quickly reveal that it isn’t a credible guide for how elected officials should spend taxpayer money on government contracts. Fletcher should have approached the Working Partnerships USA report with a critical eye, rather than an open mind.

Finally, Fletcher harkens back to the halcyon era of the 1930s, when a few Republicans supported an early version of what is now known as the Davis-Bacon Act. He neglects to mention why some Southern Democrats voted for it to become law. He does seem to understand the law restricts entry of some people into the construction workforce, however.

Fletcher thinks it’s a “no-brainer” for the San Diego City Council to impose state prevailing-wage mandates on city construction contracts. But anyone with a brain — and a concern for fiscal responsibility — would have strong reservations about voluntarily adopting another costly state mandate at the demand of Mayor Bob Filner and the union operatives now filling the power vacuum in the mayor’s office.

Kevin Dayton is president and CEO of Labor Issues Solutions LLC in Roseville, California.

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7 UserComments
Scott Littlehale 10:00am August 2, 2013

Credibility check! Mr. Dayton claims authorship of a series of lobbying briefs that urge cities to choose a race-to-the-bottom over middle class, family-sustaining wage standards. One of the only bits of evidence for his position is a story from Corning, CA. In 2011 Smart Cities Prevail fact-checked the Corning story and found Dayton’s claims to be entirely misleading. The real-world facts, ironically, make the point that projects can be done with prevailing wage at a LOWER price than those proposed by low-wage contractors! Check out http://bit.ly/18Nk24B for our summary. City docs show the project was completed 20% under-budget, with change orders totalling less than 3% of the original contract (google search: “rodgers azevedo 9116 site:corning.org”). But why let facts get in the way of a good story? The misleading version of the Corning story was kept in the next edition of Dayton’s lobbying brief.

Jim Towers 12:39pm August 1, 2013

The Professor never answered the question. Did your analysis use the addresses of the workers or just assume they live where the business is headquartered? When I was in a trade union we went where the work was and sometimes had no idea where the business was located. Your whole point hangs on knowing where the workers live and it sounds like you just guessed.

Fred Norris 11:42am August 1, 2013

Sounds like Dayton is telling the truth and you two are trying to lie with statistics. Just an outside observer's perspective...

Kevin Dayton 8:43am July 31, 2013

I look forward to the public distribution of Appendix A and its distribution to elected officials along with the Working Partnerships USA policy brief. Maybe you can post a link to it here. Note that the Working Partnerships USA report doesn't claim to analyze out-of-area corporate headquarters of construction companies identified by the CSLB - it's supposedly about out-of-area residences of workers! Also, it's interesting that a study about "prevailing wage" does not use the definition of locality as recognized in prevailing wage determinations of the Department of Industrial Relations.

Louise Auerhahn 4:26pm July 30, 2013

I am Associate Policy Director at Working Partnerships USA and primary author of the policy brief referenced. Professor Duncan authored the research report analyzing economic impacts of the application of prevailing wage. With Duncan’s assistance, WPUSA released a policy brief which summarized the findings of Duncan’s research, together with additional analysis of the social and environmental impacts of the application of prevailing wage. Duncan’s research report is included as an appendix to the policy brief. Source data on contractor addresses is publicly available online at the Contractors State License Board. All assumptions used in the model are detailed in Duncan’s research report. Regarding the definition of local workers, for the purpose of analyzing impacts on local taxes and government expenditures, a city or county is the most appropriate unit of analysis because those are the primary entities collecting local taxes and providing local services.

Kevin Dayton 12:58pm July 30, 2013

As stated in the report, Professor Duncan "carried out the economic impact analysis" using the IMPLAN modeling tool. I'm sure he entered data into the IMPLAN model and came up with the conclusions cited in the report. But in order to get valid conclusions, the data and the assumptions in the model need to be accurate. What was his source for the home addresses of trades workers who worked on the Gilroy library and the (not yet completed) Palo Alto library? Why is "local" defined as Santa Clara County when Palo Alto borders San Mateo County and Alameda County is just across the Dumbarton Bridge? After obtaining data directly from the cities of Palo Alto and Gilroy, I identified 18 categories of errors in reasoning in the report, which was produced by Working Partnerships USA, not Professor Duncan. A rebuttal to the report will be published soon.

Kevin Duncan 11:53am July 30, 2013

I am Kevin Duncan, Professor of Economics at Colorado State University-Pueblo and author of the report that is included in the WPUSA publication that Kevin Dayton references. This economic impact study is based on the observation that when prevailing wages apply to municipal projects in Santa Clara County, more of the work is completed by county resident construction workers. As local construction workers spend a portion of their income in the county, local retail and service businesses (that are unrelated to the construction industry) benefit. The report also summarizes the scholarly research, including my own, that examines the effect of prevailing wages on construction costs. The preponderance of this research indicates that prevailing wages do not affect costs. One reason is that productivity is higher when the wage policy applies. In sum, prevailing wages complement other local economic development policies and do so without increasing construction costs.