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06-12-12 CC Items Rec'd at Mtg. PREVAILING WAGE MAKES SENSE ARROYO GRANDE Prevailing Wage Stimulates Local Economies When local residents have access to fair-paying jobs,they are more likely to stay in these local communities,buy homes, vehicles,consumables and support other local businesses.Their property and sales taxes buoy these communities, in a cycle of local reinvestment. Prevailing Wage Pulls Its Own Weight Employers paying prevailing rates are more likely to pay into health care,retirement and training funds on behalf of their employees as well, lessening the burden on local social services. Consistency in employment and training leads to confidence in a career path,rather than just another job.Plumbers and electricians provide state-approved training in Arroyo Grande;councilmembers are invited to check out these facilities and curricula. Prevailing Wage Raises The Bar On Quality Naturally,higher wages attract the best workers and the best contracting bidders. Cutting wages leads to cutting corners, dragging quality and safety into a dangerous downward race. This race ultimately ends in a shrinking contractor bidding pool(raising costs), construction defects and defaults to be absorbed by affected cities. Prevailing Wage Makes Sense For Charter Cities Nearly 60 percent of current charter cities in California have simply adopted state prevailing wage laws.Another 10% have made only minor adjustments; it only makes sense not to reinvent that wheel.Despite claims to the contrary,none of the other 30% can conclusively demonstrate savings in eliminating prevailing rates.The City of Vista is currently fighting this issue in court;there is no reason for other cities to take it on now. Prevailing Wage Honors History Responsibly More than 80 years ago, Congressman Robert Bacon—a Republican from New York—illustrated his support for government payment of prevailing wages as follows: The Government is engaged in building in my district a Veteran's Bureau hospital.Bids were asked for. Several New York contractors bid,and in their bids, of course,they had to take into consideration the high labor standards prevailing in the State of New York... The bid,however,was let to a firm from Alabama who had brought some thousand non-union laborers from Alabama into Long Island,New York, into my district.They were herded onto this job,they were housed in shacks,they were paid a very low wage, and the work proceeded... It seemed to me that the federal Government should not engage in construction work in any state and undermine the labor conditions and the labor wages paid in that State... The least the federal Government can do is comply with local standards of wages and labor prevailing in the locality where the building construction is to take place. Republican President Herbert Hoover signed the Davis-Bacon Act into law in 1931,as the United States climbed out of the Great Depression. Parallels to the current market are obvious.As stewards of the public trust, local government should not undercut local rates and conditions. Cutting prevailing wage is the epitome of"penny wise,pound foolish."Differences in reduced wages end up in the pockets of unscrupulous contractors,not the local treasury. There should instead be renewed attention on certified payroll compliance,to assure that proper wages are paid. Prevailing wage makes sense for Arroyo Grande today,too. STUDIES OF THE EFFECTS, OF PREVAILING WAGE LAWS Prevailing Wages and Government Contract Costs: A Review of the Research Nooshin Mahalia, Economic Policy Institute,2008 Findings: A growing body of economic studies finds that prevailing wage regulations do not increase government contracting costs. These studies also show that prevailing wage laws provide social benefits from higher wages and better workplace safety, increase government revenues, and elevate worker skills in the construction industry. Link: http://www.epi.org/publications/entry/bp2 15 Quality Construction—Strong Communities: The Effect of Prevailing Wage on the Construction Industry in Iowa,Peter Philips, Professor of Economics,University of Utah,2006 Findings: Prevailing wage regulations increase training,productivity and wages. Prevailing wages do not raise costs.Prevailing wage regulations encourage quality construction.In the 31 prevailing wage law states,there is a higher rate of apprenticeship training. Without prevailing wage requirements,nonunion contractors cut their bids by jettisoning training costs. After Kansas' repeal, apprenticeship training fell 38 percent. Link: http://www.smacna.org/legislative/quality-construction.pdf Lessons for post-Katrina Reconstruction~Peter Philips, Professor of Economics,University of Utah, 2005 Findings: In the case of the Northridge earthquake,there were two benefits from hiring more skilled workers within Davis-Bacon rules.First,their higher productivity per hour largely offsets any difference in labor cost per hour. Second,they can finish the rebuilding more-quickly. It is penny-wise and pound- foolish to suspend the act for Gulf Coast reconstruction. Link: www.epi.org/publications/entry/bp166/ Wages,Productivity and Highway Construction Costs,Updated Analysis Construction Labor Research Council,2004 Findings: A study of highways built from 1994 through 2002 showed that when workers' skills and productivity justify higher wage rates,highways can be built at a lower cost per mile than when lower skilled workers are employed.High wage states showed a$30,000 per mile savings in construction costs compared to low-wage states. Link: www.buildri.orbg/contentmar/showdetails.php/id/2004 The Adverse Economic Impact from Repeal of the Prevailing Wage Law in Missouri, Michael Kelsay,L.Randall Way,Kelly D.Pinkham, Department of Economics,University of Missouri,Kansas City,2004 Findings:The repeal of the prevailing wage law would cost the residents of Missouri and their families between$294.4 million and$356.0 million annually in lost income.The repeal of the prevailing wage law would cost the State of Missouri between$5.7 million and$6.9 million in lost sales tax collections annually.The repeal of the prevailing wage law would cost the State of Missouri between$17.7 and$21.4 million annually in lost income tax revenue. Link: www.srnacna.or lislative missouri.pdf Four Biases and a Funeral,Michigan's Prevailing Wage Law, Peter Philips,Professor of Economics, University of Utah, 2001 Findings: When you eliminate prevailing wages,you eliminate training;you cut capital investment;you cut wages, and the labor force becomes younger, less experienced, less formally educated and more reliant on non-citizens. In the 1980s, Colorado,Idaho,New Hampshire, Kansas and Louisiana all lost construction jobs after repealing prevailing wage. Link: http://w ww.faircontracting.org/PDFs/prevailing wane/fourbias.pdf Do Higher Wages Raise Labor Costs?Bob Gasperow, Construction Labor Research Council,2001 Findings: A 14-year study of highway construction found that because of the payment of prevailing wages,more skilled workers achieved a cost savings of$123,000 per mile. Skills and productivity,not wage rates, are what finally determine actual costs. There is no basis to the claim that lower wage rates result in lower construction costs. Link: http://www.iiiffc.org/pdf/prev_wa2.e costs.pdf Kentucky's Prevailing Wage Law,Its History,Purpose and Effect,Peter Philips,Ph.D.,Professor of Economics,University of Utah, 1999 Findings: High wage rates, if they induce higher labor productivity, can actually reduce labor costs as a percent of total costs.Low wage rates, if they mean a loss of skills,can result in higher labor costs as a percent of total costs.A study of 6,000 school construction projects in the 1990s found no relationship between prevailing wages and higher costs. Link: www.prevailingwage.org/pdf/kentuckyprewage.pdf The Effect of State Prevailing Wage Laws on Total Construction Costs,Mark Prus, Department of Economics, SUNY,Cortland, 1996 Findings: There is no measurable cost difference between similar structures as a result of prevailing wage requirements. Consequently,reforming or repealing these laws will not lead to the kinds of substantial savings promised by proponents of repeal. Prevailing wage attracts workers with more experience and training, increased productivity offsets the costs of higher wages. Link: http://www.faircontracting.org/PDFs/prevailing wage/effects—davisbacon.pdf • • Prevailing Wage Laws and the California Economy,Michael Reich,Professor,Institute of Industrial Relations,University of California,Berkeley, 1996 Findings: Reducing prevailing wages, as the Wilson Administration proposed,would have greater, harmful effects in California than in other states,would lower tax revenues,reduce productivity,reduce worker training and job safety, and slow California's economic growth. Reducing prevailing wages would cut sales and income tax revenue-to the state by a combined$800 million Link: www.buiIdingc3.com/doc.asp?id=l 70 Losing Ground: Lessons from the Repeal of Nine"Little Davis-Bacon"Acts Peter Philips, Garth Mangum,Norm Waitzman,Anne Yeagle, University of Utah, 1995 Findings: The repeal of prevailing wage laws resulted in lower wages for all construction workers. This caused the government to lose substantial tax revenues. Cost overruns are a hidden cost of repealing prevailing wage laws. Example: Utah's construction workers lost$58 million in income after prevailing wage was repealed,resulting in a tax revenue loss to the state of$8.2 million.If the federal Davis-Bacon Act were repealed, income tax collections would fall by at least$1 billion per year in real terms every year for the foreseeable future. This is because construction wage levels would decline across all states and—based on the experience of the nine repeal states—construction employment levels would not rise enough to offset this revenue loss. Link: http://www.faircontracting.org/PDFs/prevailing wage/Iosingground.pdf «A c1' R.'. .•l' .fi' :,ti}ir S..t% u:,hi'S-""::� ,fh' <51ri �f t.. 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'TU?nY Jty"'rT.•�',�?' ,.:r a ',t'.a"_rcc' ^.r'',irR•4. 2;cxr-�rs'r'�,>,".'+;;.r;s,�=�c�, w'v"T ,.;','% . C'. ?�'? -"-,"- aE. ti t�, ,4 u `?'� t, .��„t„ `s:”'- _. ,� a �'°”"c.r.r ,G,:=.m _ s':n,x: :;4�t'v�t' w� ir:\ Y'fNTRODlJC lON {^ '�' . :,°: ���.,.,�,� 'tyr- r''=�: � ;`; 1..,.,.........,.-,�....a,r...b..,���,5.,.4'�a:�, ,:f`�r,.vi�•'.:,,....��.....�:.:::.L...s,,.1^...,_.� '` In the city of San Jose and the surrounding metropolitan area, the construction industry carries considerable economic importance, • Over 5 years, estimated employing more than 30,000 people each year. The NOVA Workforce Investment Board described construction as a foundational occupation, increase I n count•y W l d e creating the infrastructure necessary for the South Bay region to attract economic activity due to and grow driving industries.' prevailing wage for City of In this highly mobile industry, where paychecks depend on the weather San Jose buildings: • and workers are employed only for the length of a construction contract, $164 million industry and community have developed tools designed to ensure safety and quality of work and toinduce positive economic impacts from major o Estimated increase in construction projects. One such tool is prevailing wage on public works. local jobs: 1,510 Prevailing wage is an important economic development tool in the state o Estimated increase in of California. Both the state and the federal government utilize prevailing local tax revenues: wage policies which apply to taxpayer-funded public works projects receiving state or federal funds.Many local governments in the state have $1.9 million their own prevailing wage policies covering projects funded by local taxpayers. The City of San Jose's prevailing wage policy was adopted in • • Increase i n local hiring on 1988; its statutory purpose is to ensure equitable and sufficient wages, libraries when prevailing protect local job opportunities,and stimulate the local economy. wage applies: 21% This policy brief examines the economic,fiscal, and social impacts of San Jose's prevailing wage policy by analyzing a hypothetical scenario: how • Miles driven daily by out- would construction costs, tax revenues, overall economic activity, and of-town construction • other relevant factors change if San Jose's public works projects were not built under prevailing wage? workers: over 1 million =..'r•., ,,.1.4 rtes:. ,r�>-'t' - *..'Y+`'T;":Yv',i}y �'w,?i;r.RY,'T;",1 y, �rr-!••�;mr-.:y^•"••a-'• tv{{'n.9%-Y"ttiCy., "teav^-r4�-S.•o T,r - _ ..�,w,ct,n -^'.t:•� �e,,,�,r^,,x ,,�,•- x'?;,-r.Y:,.wry,:fi�'��il:.-rtuSC'.: 4�ifh�"<•i�".�',°1 z. -c',, �•.V'- :BS:� y.t��ery,�'y,�+'; e.,2' Y",;.�M �„r`4*Ui^,'; J .ki ,xt4,1.1��:,1,♦ C,�'� t,.�,-4-�iry •:Yr .N='fu cif i""-�.:r.i" ,�:: •t'.4tf�. JR^!,'.t•t S C�`.�J,•:s�"v1i`^r.t 2,L.:i1' p '`xy't Sir,'c,',,;;'_+"}-y ,.yn',_,k`',5t,ly h.^.. ',-,,`,g..4';t., ;r t., 3r .� 4. J'.',5,,_,.�` _ ''a,3ar uk*•.�.:• G;� ti ,i;'��5tt�'K:.,ry^..'��.a .-:,._, ,iPatr-, ....,_ra..',^ u,xa:`s..a.bs:.:-,:.,,...z.,,..-r+�'...z.a,.. .r.�'Ci.::�...:.d�..:'.yi.:.fi.�,..a,..star,�i.'�:1.:1�'`s::�fif..'m:"Sn:.l`x'd.LSt,.:�'.id'i�w�".'W '_x i^..4Y x^�;' '^'S.¢,i.�:.c.:.....�:^lift e—u,...'a,...:�...is.,..r�c1..j,scu,.w-w.w4.Y"m��.w�..k•,: This working paper is produced by Working Partnerships USA with funding from the Construction Employers'Association, the Bay Area Chapter of the Sheet Metal and Air Conditioning Contractors' National Association, the Santa Clara Valley Chapter of the National Electrical Contractors Association,and the Northern California Mechanical Contractors Association, collectively representing over 500 construction contractors in the Santa Clara Valley and Northern California. Dr. Kevin Duncan, Professor and Senior Economist at the Healy Center for Business and Economic Research, Colorado State University-Pueblo,carried out the economic impact analysis'summarized on pages 3 to 7.Dr.Duncan's complete analysis is provided as Appendix A to this brief. P R E V A I L I N G W A G E I N SAN JOSE 2 ' ,s,. :'i':F:;'� "j•;tr..�' +:3;'.- r 3'•;^-n2-`:�: ';�4',;`�M���r��2�jr4 o1�Jxt��t4 ar.'.:'„3r vRg "`:k:•gM°°'•4�^u.:;y3di5++`�h:n'n.+s:`f,'"l�'°�^•',.iE��'a"3��r'1z�P�S�''r'%� t=+ r� :t1' '��••h%, t, i.•` .Y f '�`•^'.Y , 'oAivM :'4 +r .;t-. 1:;'` '^'aiF"' °' • s — ti 4+mv;a,ro -,biifi a•t, 4�.,.• 3 t+ rn',.Flg r,. w;:? � �Y 'Y.�Ets; £,��. ?y� ,�.•�,�'•tti�`' k �r i� Y•„° t dv tY",'S r; ,5 a3 ri ";ch,•, wE,-�" F �ira�,�l..:,�, u�3a.. ,�,���M •s.�'a��.�.�''i��K�i.F�:'�'-�'� '.4.::<:�.`.s..'" ^,�„�i,.'`�:.c •�;.�z`�•"c>-'r' '`' 5�•' �+. r Economic Impacts • Municipal building projects covered by a prevailing wage policy employ a higher proportion of local contractors and local workers. Prevailing wage laws therefore help reduce the leakage of local taxpayer dollars by directing public construction expenditures into the local economy. • If prevailing wage coverage i's removed from a municipal building project,then roughly 6%of the project's value leaks from the Santa Clara County economy. • If prevailing wage had not applied to San Jose's 2007-2012 municipal building projects: o Total economic activity in the County would have fallen by$164 million. o 1,510 fewer local jobs would have been created in the County. o In addition to construction,the economic sectors with the greatest job loss induced by the loss of - prevailing wage include retail and food service(88 jobs)and health(57 jobs). Fiscal Impacts • If prevailing wage had not applied to San Jose's 2007-2012 municipal building projects: o Reduced local contracting would have produced a$1.9 million drop in local property and sales tax revenues for local governments within Santa Clara County. • o The shift of income away from blue-collar construction workers to contractors/owners would result in additional economy-wide impacts.For every cumulative$1 million shift upwards in personal income,the net effect is a decrease in county economic activity of$34,000. • The preponderance of studies over two'decades have found no impact of prevailing wages on total construction costs.Rather,prevailing wages are believed to increase labor productivity on a project. • Prevailing wage is a very low-cost economic development tool relative to other programs intended to create jobs.The 1,510 additional jobs induced by prevailing wage on San Jose municipal projects are equivalent to the total projected impact of the proposed Major League Soccer stadium. Traffic and Environmental Impacts • In 2008,non-local construction workers employed in Santa Clara County cumulatively drove over 1 million miles per day to and from work.If the work done by non-locals was instead performed by locals with shorter commutes,then the estimated savings would be 123,619,000 miles per year. • If a project is not covered by prevailing wage,then the shift towards a non-local construction workforce induces excess commute miles,resulting in traffic congestion,less livable neighborhoods, lower social cohesion and increased greenhouse gas emissions. Social Impacts • Public assistance costs:A typical non-union construction employee on a non-prevailing wage project without health benefits would be eligible for$3,665 in public assistance.At prevailing wage,the same worker would earn enough to support his or her family with no public assistance. • Higher education:Prevailing wage also provides for employment of apprentices on public works.If apprenticeship programs could no longer enroll students,then the result would be a loss of about 2,340 full-time student slots.This would be equivalent in scale to shutting down half of San Jose City College. • Diversity:Relative to the total construction workforce in Santa Clara County,joint apprenticeship programs employ 1.4 times more women and 4.7 times more African-Americans. PREVAILING WAGE I- N SAN JOSE 3 R5•:.-,�,,: ,rrrrtt` r-•--"�:++v���,,r�.max.�n��»ter-+�,..=n�+-�-,*+an-wms^^,3�mr-,,*sz*m-mc+uPwSf�'SaY.�rx,..-a.,r su�w....p-�•.Haan«T.r'�;zne...i�v�:,.;wr���.�.t�.....,.�^..r,.;,.*,�.c„�c^smib"'''k�{�v4"`1#irL� , Atertri5TR TC ELL:iS A =, "�:` "�”" , �`]7 RK`LiB'RARY_(PAI:O 'LTO��AND��G'iLROY�'P,�'Q�1C.L�B' ARY� ,����.; .,.,.u..r_a...a, �r,.dt-s.xG.S4..SSS.r�.c,�ix.:. zal? ....s-, .u.:,,.i..e.a..;: • On the Mitchell Park Library in Palo Alto,built without prevailing wage,11.7%of the total project value went to local contractors. • On the similarly-sized Gilroy Public Library,built with prevailing wage,71.2%of the total project value went to local contractors. • Economic modeling of these individual projects shows a loss of 22 local jobs if the Gilroy library had not been built under,prevailing wage.The following sections will extend this analysis from a single case study to all municipal building projects in San Jose. Two recent library projects in Santa Clara tool was run on the Gilroy and Mitchell Park County provide a paired case study of the libraries. The Gilroy analysis evaluates the impacts of prevailing wage. impact of the counterfactual scenario in which the library was not built under a prevailing wage The Gilroy Public Library and the Mitchell Park policy. The Palo Alto analysis evaluates the Library and Community Center (in Palo Alto) impact of the counterfactual scenario in which are about the same size and were bid just six the library was built under a prevailing wage weeks apart. However, the Gilroy library was policy. built under a prevailing wage policy, while the Palo Alto library was not, If the Gilroy Public Library had been built without prevailing wage, the total economic The Gilroy project, at 53,000 square feet, has a impact would be a$2.4 million decrease in local contract value of about$17 million and a square economic activity and the loss of 22 local jobs, foot cost of $326. The Palo Alto project, at including 17 direct 'construction jobs and 5 56,332 square feet,has a contract value of about indirect jobs in retail,services,and other sectors $24 million and a square foot cost of $430. attributable to lost spending from local Consequently, there is no obvious support for construction workers. Fiscal impact would be a the hypothesis that prevailing wages increase net decline of$27,500 in sales and property tax project costs. revenues for local governments within the county. The case studies do suggest that prevailing wage increased local contracting. In Gilroy, 18 of 33 In the reverse scenario, if the Mitchell Park listed subcontractors and the general contractor Library had been built with prevailing wage,the were based in Santa Clara County, totaling total economic impact would be a $3.3 million 71.2% of the total project value which went to increase in local economic activity and 31 more local contractors. In Palo Alto, only one of the local jobs, with a fiscal impact of $38,800 33 listed subcontractors was based in Santa Clara additional tax revenues. County,totaling 11,7% of the total project value which went to local contractors, The maps on the following page show the dispersion of subcontractor work for the two For the purposes of this case study,an economic projects. impact analysis using the IMPLAN modeling 1 Where Does the Money Go? Geographic Dispersion of Local Funds Spent for Library Construction Dispersion of Funds from Palo Alto Library (W/Out Prevailing Wage) �~ Reno; ups ,/�� n„,..,_ . ,,,,,,,z,,,,,,, Y 3 , ,,..„,„,•,,,,,, ,,,,/ ..,Santa ./ /////i, ! o g- SA Giloert,•AZ . eg°4 ///4 ,ar;, gwr y Percent of iP p e//. ins ° ` rz' '. J rca•----- J !” �f/7de - ' local:'fun, „ •z Raw Valle o Fairfield 6 t Q 0, �1 - - }. C �P�.! a c „,�u '>;', :, • ' ar>!0 e' 1010 -;fir going:to local•1,,,,..,Lrl, ' n ?4al .r-# ff d ,contracto:rs• 'v„,,"�.,nFranc! y ” %1SA 'u"a d, , Columbia,PA - k '� :s , _ 0,, , , to Nis-La. - d f _ :_ 11.'8 .. • �,'�t, •fan Fanci Oakland PM SA s ° "` — ' • 'iis c jT-.ajJ ` DyjC ,m,da'!'4,-,,;,: 7rx:Y - -�''+ ' - , ° I�s pf. ,��1-ni_i F°''•�° oNNY7 . ,. ;'' Od0,4t0'' . , "t"�°t•' Ors,. ,''' .`.-, ." :n,ITc f (/ t" . Hlk•,�r:r,�-gat`,: `Mode.'Sto'}- ; '' ,t: T-.4'.=+h; ;r'` i. a San Jose ______,,,,,,4„,..,,,.,, •Ad ':";:i" ' ' ";� 5 10 Million '-2..o a a n,;',.,,-"=, f -,ri lnsk PAts` "t` Mere_ $ '$ �r <<^',..•.5,:.:.:O'l t�2'' ./�l:. - M.• s;7 $3-$5 Million `s fA'' `'�;.: .+,w" ." , ,-,- i,./1.. At', C $1 $3 Million w' ;.,,,,,k1...:44--0,5, ,,,4.g-2` '` �1:;' r ;"414' Under$1 Million 0 ml 20 40 69 90, Dispersion of Funds from Gilroy Library (With Prevailing Wage) V/Ji / `C 7);"' O I l ibl f'! ck� tv• �,��4 /����' 'Aim%n,. Sacramento ° / 1 �� , / • c:',..✓/ a1 Jf f J bona„ PMSA /J/ /J Percent of %•,`n�,,, -,,t'/ ° °� :�/// . `;'r',':�'' r /' wallela-Falrtleld A l 1 F 0 fdA focal funds - '' J/�y °� P"S"0,.... /z/...,... 7./ /7/ //,/,/,,./,' gong to�locat 'S - Faand /t"� WO,l''t v PMSA 4-r "". -- a ,'San,Bernadino° :, contractors, ��` '-��.=.-• R d,',�,�.' ,°` `°�°"%"" a, ..d SansFrancf ,,try,r?iaSa"i 1 i'/ e t■ ,f��� 'ti`�<� 71.2% Sri'�+: ti,`.;.. ;':-`' .!,ITI,d,_; .� '7 oM, , ,, . .,t--:�-� ..- ; ��r -r -• 'z .:.�,; ode o ' , T_ .•. n‘ -- i~r s1Pacfic ,,r S • } / J i. ,:y :a ; f1 e $5-$10 Million,. ,' ' -' i' \;,- ,3',.', 1 o :-'- c-- ;t-t 34,, te.rC'.'°Y-- 0 $3-$5 Million ro4. , ` r':,, •.1, ,,p.ri C ' ir�:'; %,5 x'i'1,• <a.. �I��• $1 -$3 Million: :•.'; ,\t.'r{. ‘ ,;P;er\''�r�1s`,- ,,.:,;:x,;e,: ones M• n Under$1 Million � no �� 40 O 80� 80 Figure 1.Maps prepared by Scott Littlehale. • • PREVAILING WAGE IN SAN JOSE 5 :;L$�y�-,_..ax.rn�+cr.h;...-..,x�•,:t<srr-,.�e»+a;Ha'xry+4y'„<s,>sys.*n;-.,�.�,,..+;s•-<:nr+-..;,-.7 o.. :,yv,.,Sa.,-,r.�:+*^ ^yr„w.xa>,y;.�,�,+..�,.e.-z�-k';".,fix a,��" C'+^i�r�.nr��,�t,>a'7"c.�•baa�...-bZ;+„6.e'.:� [•NIP� t-fr5F IFICAILING WAGE:,i4.74. E.SAN JOSE-.,AETRO 'EGI.O'N���i }•z ��'�1�;i3't µ: «hsafibx..+Fd:.nu+ti4d e>�.x=3�:.�1s.ir..xr..,wwa°ue�.:...,�.:.,....w:a.•s:.,,.w:.;,,.w�,•a.,+:.— ra.av,�,w a,: rWC.. .s.S ..�wt,3.h ',. t :1.�-'✓3J.5:4oy�.:s.�._::��:x.+^.tt.`'..;..1a�:rs Moving from case studies to a region-wide • Construction Costs perspective, the remainder of this brief focuses • Economic and Fiscal Impact Analysis on the economic, social, and fiscal impacts of • Relative Importance to Economic prevailing wage in the San Jose metropolitan Development region. • The Bigger Picture • Public Assistance Costs • The impact analysis includes the following • Education and Training Opportunities components: • Workforce Diversity • • Traffic and Environmental Impacts .rs,•,r r,;,�,ra c:•ar.,;.�.:.�y'hx.yvs»,�,r:,rrea•aa^.,-c? 3Y=^,,,:'"•*'n'�dir :9tt"3}7�;'LT�iW;'"�9}c�Jt'. 'cA'?f;�'� '1"»?�r"�. - 1`},',•5Fy3'�':'+�^."4"e'�,,,+pyy .yar,.$�,±.:ln'>;Gc',A'� �r- ,. �,� _ yywwg .�,t 4 .,5+,•, r�"J r?T,sr;^„�E'TM”, ">`'-„•,a B •fy �;Y. µ 1�'+�rK tj 1i.,.:1 F.1r1�"> x .;'7'� mod; ,i'P" 1' N. k ,���NSTRUCTION COSTS° �� � ,�' . � :, - '�f � ” . ..>•...rah :�rrM-4.a::,.•.a..mc� -,...:.;..e:ati>_�...,._..:.�`::.:....:. �r,. ` `N;���x ''`,,,..,uy0 ,:.a,`. - '"•'•�''y • The preponderance of research shows no significant impact of prevailing wage on total construction costs. Standard economic theory suggests that as wages • A recent study of five South Bay and Peninsula rise, less labor will be used on a project, either cities3 compared public works projects in cities through an increase in labor productivity (via a with and without prevailing wage laws. The higher-skilled or more motivated workforce) or study failed to find any effect of prevailing wage through greater use of labor-saving equipment. on the total number of bidders,bids by union or Prevailing wage policy,can thus be expected to non-union contractors, or on the likelihood of affect the entire construction cost of a project, non-union contractors submitting the winning not solely the hourly labor cost. bid. • Studies which examine the effect of prevailing Furthermore, it found no impact of prevailing • wage on total construction costs, using the wage law on the difference between the winning statistical method of regression analysis, have (low) bid and either the median bid or the overwhelmingly found no significant cost effect engineer's initial estimate. These findings of prevailing wage. Multiple studies using strongly suggest that cities with prevailing wage different data sets, project types, and-different laws did not experience less competitive bidding statistical tests have nearly all produced the same or inflated bid prices compared to cities without result: prevailing wage laws are not associated • prevailing wage. with higher construction costs? .«real,;rx^ rrc*� :r^••1srt;, ..c^c�.',.•.�-m-:E��u�1? .st�c'c,t•+t_,> ;ti"' ��xl�1,� ar;i :ry;atii S 1t S -Yy,Y•y:- .'� t St'• �Fyy p. � T ,r�.J•�.^.� x;�,,,�_*'s-• ..r^",�1't?"'. 1 ".RYA: - s,.r - Kr --:*..9 'aa" "'t .. , t�i .�'` ;,s t't,. ,-..,;•.�,M - a' - 117 �:'1•.,, �,_,`{';,Yi�`�'sT 'c,,?�_'t:!”'�",i :1':'"l''xi S:�f'��=��.z',rs�s s 1 �CCJNQly1 AN FlSC L�lIv1PACT ANALYSJS�� � � �-�. �,1< ' �� :. ..... ........ r�o.,.1 a;_�.l s� .six,,,, ..>:...wl..�i,• • w e_ t�..ci}:<.. '.,u...s :� `;.w..,.st:ia.ik4sa4a•..�,ru.^'. sd"su:.'3%u.ina<L� .a.c, �:a�sla..a',.Ssu'�`o`...x:..[6'..:i,.cStun4lz'"� • Roughly 6%of the value of a library or similar project leaks from the Santa Clara County economy if projects are not completed under prevailing wage policies. • If the City of San Jose's major municipal buildings from 2007-2012 were not built under prevailing wage,then major economic impacts would include reduction in total economic activity of$164 million,net loss of 1,510 local jobs,and loss in local property and sales tax revenues of$1.9 million. • In addition to construction,the economic sectors with the greatest job loss induced by the loss of prevailing wage include retail and food service (88 jobs) and health (57 jobs). Residential property values would also decline due to reduced economic activity. " • 1 P R E V A I L I N G W A G E I N SAN JOSE 6 Moving from case studies to a region-wide The economic impact represents about 6% of perspective, this study analyzes the economic these projects' combined value. This provides a impacts of prevailing wage by modeling an rule of thumb: about 6% of the value of a library alternative scenario:what would have happened or similar project leaks from the Santa Clara in recent years if no San Jose municipal County economy if projects are not completed prevailing wage had been in place? under prevailing wage policies. The economic impact analysis performed for This initial analysis of libraries examined only a this study uses the IMPLAN software and local small subset of the City of San Jose's public data to estimate the effect of municipal works.To better illustrate the impact of the City prevailing wage laws on the local economy. of San Jose's prevailing wage policy on the Santa IMPLAN provides sophisticated modeling Clara economy, municipal building projects which is widely used in economic impact 'from the city's 2007-2012 Capital Improvement analysis; for example, it is used by the federal Program(CIP)budget are used.4 Bureau of Economic Analysis, several departments of the State of California,.the San Table 1 shows detailed results of the economic Jose Convention and Visitors Bureau, and the analysis on the 2007:2012 CIP projects. Major Santa Clara Valley Transportation Authority. impacts if these projects had not been built For this study specifically,IMPLAN was used to under prevailing wage policy include: estimate the impact of a change in labor income • Reduction in total economic activity of$164 on the level of economic activity, employment, million,or about 0.1%of county GDP. and local taxes within Santa Clara County. • Net loss'of 1,510 jobs in Santa Clara County, or about 0.2% of total county employment. Examining the 16 library projects built between This includes a direct impact of 1,155 fewer 2003 and 2009,with total costs in 2010 dollars of construction jobs and indirect impacts of about $177 million, the IMPLAN model 355 fewer jobs in other sectors. provides a total net economic impact of – • Total loss in local property and sales tax $11,017,000, that is, a reduction in economic revenues of$1.9 million. activity of more than $11 million. The net • Decrease in sales taxes collected by the City employment impact is a loss of 103 local jobs. of San Jose of$181,000. • Table 1: Impact on the Santa Clara County Economy If San Jose's 2007-2012 . Capital Improvement Projects Were Built Without Prevailing Wage. Includes only the impact from municipal building projects,comprising 60% of the total CIP. Sources: IMPLAN,Quarterly Census of Employment and Wages. ,Econo xc Inn r a Gate o �. eonq ac et;x Oa o MST) +t _ ° .'. .. �. . ,,. "",`,;� �or,. Direct Income Decrease in the County: –$106,897,000 — Induced Decrease in Spending in the County: –$56,621,000 Combined Economic Impact: –$163,518,000 Direct Job Loss: –1,155 Construction Jobs Secondary Job Loss: –355 Local Retail and Service Sector Jobs Total Employment Decrease: –1,510 Jobs in the County County Property Tax Revenue Decrease: –$1,483,000 County Sales Tax Revenue Decrease: –$421,000 Total County Tax Revenue Decrease: . –$1,904,000 • Reduction in City of San Jose Sales Tax Revenue: -$181,000 r P R E V A I L I N G W A G E I N SAN JOSE 7 The economic impact of repealing the prevailing approximately$8.9 million and a decrease in wage standard would be spread across the local employment of about 57 workers. economy,-with industries not directly related to • The broad food service and retail sectors construction experiencing substantial induced would experience a decrease in revenue of impacts: approximately $6.7 million and an • The reduction in economic activity would employment decrease of about 88 workers. decrease home values in the county. . 1 • The health care sector in the county would . Additional impacts to specific industries within experience a decrease in revenue of Santa Clara County are shown in Table 2. Table 2: Im p act on Industry-Level Revenue and Employment Source:IMPLAN 3 1 47Santa M County Industry �''° a i � *vet*Loss e o 0 0 .'1'x.te,i,�'N ,t rk;, ',r ,. 1', „,,;,.. {t`, .:,,,';„,«;" i;• C „"v; r�,�E,' 4' ,:F,..- hyp 01` try ,f Asti - ,,=',4. Total —$56,621,017 —355 _ Imputed rental activity for owner-occupied dwellings —$8,877,570 n/a [indicates reduction in home values] Real estate establishments —$4,119,799 —23 j Private hospitals —$3,914,528 —19 Offices of physicians&dentists • —$3,405,486 —23 Food services and drinking places —$2,963,211 —42 Wholesale trade businesses —$2,560,573 —8' Non-depository credit intermediation arid related institutions —$1,584,886 —2 Monetary authorities and depository credit institutions =$1,544,013 —5 • Telecommunications —$1,388,240 —3 Private junior colleges,colleges,universities —$1,366,550 • —11 Legal services —$1,043,742 —4 Retail Stores-Food and beverage —$1,018,925 —13 Electric power generation-transmission —$913,723 —1 Medical and diagnostic labs and outpatient analysis —$888,802 —5 Other state and local government enterprises - —$817,404 —3 • Insurance carriers —$786,213 —2 Retail Nonstores-Direct and electronics —$770,220 —4 Securities,commodity contracts,investments —$764,162 —9 Nursing and residential care facilities —$688,578 —10 Retail Stores-General merchandise —$637,519 —10 Retail Stores-Motor vehicle and parts —$536,467 —6• Retail Stores-Clothing and clothing accessories —$528,399 —8 Services to buildings and dwellings • —$491,450 —7 Religious organizations —$467,923 - —3 Data processing,hosting,ISP,web search providers —$449,606 • . —1 Amusement parks,arcades,and gambling industries —$446,390 —4 Funds,trusts,.and other financial vehicles —$440,862 —1 Automotive repair and maintenance, except car sales —$403,455 • —4 i Other personal services —$374,769 —1 Retail Stores-Health and personal care —$368,636 —5 J P R E V A I L I N G W A G E I N SAN JOSE 8 REC.ATRI,Or:5 TANCE T �-ECONOM f5EVEL� ,P' ENT , F� _1, - rs r, s:.7, . a 7 ..,<:.cvessx ...dr... .+.„m.m„mb...v.....i. .a+c.§s:,._..ya ,...,.w.v+...�ezv.,�....�.a-w.t. ,sa �sysYi:SaxLisvw �,r £s..• ...'i�w..::f:ESSvw`"�i:. ^trk :SSl; • Had prevailing wage not applied to San Jose's 2007-2012 municipal building projects, 1,510 fewer local jobs would have been created in the County,representing a 0.2% reduction in total employment. • • The jobs induced by prevailing wage on these projects are equivalent to 80%of all local jobs at Adobe Systems,or to the total jobs that would be induced by the proposed Major League Soccer Stadium sought by San Jose. • The shift of income away from blue-collar construction workers to contractors/owners would result in additional economy-wide impacts.For every cumulative$1 million shift upwards in personal income,county economic activity decreases by$34,000. As discussed in the previous section,the absence economic multipliers indicate that• inducing of prevailing wage coverage for municipal 1,510 jobs in the state would require increased building projects from the City of San Jose's public sector output of$105,604,000.9 2007-2012 Capital Improvement Program (CIP) budget would result in a net economic impact of In addition to the effects included in the 1,510 fewer jobs. This would produce a decline economic and fiscal impact analysis, the in total Santa Clara County employment of elimination of prevailing wage is also likely to approximately 0.2%. reduce wages for the construction workforce • • employed on the job. While small in the context of the entire regional economy,this loss of 1,510 jobs is equivalent to: • The labor income thus reduced would then shift • Losing 40% of all local jobs at Applied to another production factor, which (since the cost"of materials is typically fixed) would likely Materials.s be income for the contractor/owner. This • Losing 80%of local jobs at Adobe Systems.' reduction in wages and shift in income is difficult to quantify at the local level, and • The total projected economic impact of a therefore was not included in the 'economic proposed Major League Soccer stadium in impact analysis. San Jose.' • Three times the local jobs projected at An illustrative analysis of an upward shift of SunPower Corporation, to which the City of $1,000 in household income - again using the San Jose recently offered a $2.5 million IMPLAN model for Santa Clara County - incentive package.' provides insight into the potential effects. If income decreases by $1,000 for a household For the purpose of evaluating return on earning$75,000 to$100,000,and simultaneously investment of taxpayer dollars, the economic increases by $1,000 for a household earning development effects of local prevailing wage above $150,000, the net effect is a decrease in policy can be compared to the standard county economic activity of$34. "economic multiplier" impacts of public spending.Economic multipliers show the"ripple Generalized, this result indicates that for any effects"in the economy resulting from increased upward shift in income between these two output in a particular industry. For state and brackets, total economic activity will decline by local government enterprises in California, 3.4%of the amount shifted. 1 • P R E V A I L I N G W A G E I N SAN JOSE 9 ''2'-"°!=r'4'»•r.;�:era••-r�rya+er:w,.-tcr^..a;rvn,^�� �,r�yrrrn "--`v;n,�.c% wacr�� a.w�x���;-s r Viz. t' "5 ',",�,� :3, jc-' ; y":^„�•,�v: .,'=S•;•��.a4�._ ro e-e.<.,.a1TR:t'va`' ho,•.aa-�.; :can. 141st.6r GE �4,PICTURE;T:I PA tS`OF,:'ALL RREVA TE WAG; " :`r"' r q x" 5 �'': ' GfF ��POLI-CIES,�:#;,���.;h,:�;,r� ��:, n �,.�.t..��:�'�Y. �rsssa:-�...,w....,,,...u...�w..,n`SE;�..:n.,.�..,.:....m.msv.� 3 :�: , .xinw.�lcY�"-it�.s`..�..��',:`'"`5'�ii4' i.,�pr�"vl`��...k%m:`� • A conservative estimate suggests that all prevailing wage policies in effect within the county from 2008 to 2010 had a cumulative impact of$75 million in additional economic activity. The preceding analysis examined only projects Santa Clara County economic activity was built by the City of San Jose.Yet nearly all public increased by $74,666,000 from 2008-2010 works within Santa Clara County — with the because of federal, • state, county, and city . exception of City of Palo Alto-funded projects— prevailing wage regulations on municipal are built under local, state, or federal prevailing buildings. wage policies. This estimate is highly conservative because it is To estimate the cumulative impacts of all based only on public building projects, omitting prevailing wage policies on the county economy, the impact associated with other public works we obtained total public building construction . construction such as roads, sewers, and other expenditures in Santa Clara County for 2008 to infrastructure-related projects (which are 2010. This includes all federal, state, or local outside the scope of this study). government building projects, but does not include non-building public works such as roads The estimates are also conservative because the and sewers. Palo Alto projects were subtracted 6% rule was derived from the repeal of a city from this total, resulting in $1,244,428,000 in prevailing wage policy, assuming that federal public building projects built from 2008-10 and state policies remain in effect. If prevailing which were covered by prevailing wage. • wage regulations were removed at all levels,then 1 it is likely that the impact would exceed 6%. • Applying the "6% .rule" derived from the With complete repeal of prevailing wage preceding analysis of library projects — that is, standards, the structure of the regional roughly 6% of the value of a library or similar construction labor market would change as project leaks from the Santa Clara County construction worker income falls and workers economy if projects are not completed under move from the Bay Area to locations with lower prevailing wage policies—this data suggests that costs of living. • t• it,,4- �:+.uuen*,-{=.�.,, ..)w_-:W;viy.-Rm-.:, a,�,�f;'S�?p".",f'r"s".' -.•,'V,: ;nY"^:fl;ti.. ��4:'•.��i ^,ti,`sS'-'��.�,'; �;.''+liyM'`�""�i=ilxs. �w�,�pn•Yti?r�rif i'r. :,y. 4 „des. .t '? 1=' ,t .`.3�t,`.}P.iw� `1,: �� i, 'Ctdr1;. 'k`i';;,:: 's } -� ?�}i�''a,fc,'?O;. .Ssl- r , .. w�, i}4`;A mil- -�'n At��"� y=.5�,,,11.1 ��� 'W4=k'�°1-:�1' f .p`�g' C=:A S1AN�E�=�fiUS:�S��.�.U- � R.-�,t��-,� ��r.��z�s,,x;�,,.,�. � .1a�,��•_���, ty�� ,',���-' . r-, r�., �� �.•$ Lly a � t dn2�T � 4tt y,t.. iY4 !e §r-�- '�i�5. �S' ;+'' a y, l. l',s;»t3.i:. rs':tirt;:s't,:...,.:_5,..,lixaC:ct,�a? • A typical non-union construction employee on a non-prevailing wage project without health benefits would be eligible for$916 to$8,032 in public assistance for his or her family.At prevailing wage with health benefits,the same worker would earn enough to support his or her family with no public assistance. • • In high-cost Silicon Valley, workers with low In a hidden subsidy for industries paying wages and no health coverage face particular substandard wages, the region's taxpayers challenges in supporting their families. provide state- or county-sponsored children's Inadequate compensation not only impacts health coverage,low-income tax credits,and free individual workers; it also places an additional or reduced school lunches to low-wage workers burden on the region's safety net services and in order to make ends meet for themselves and thereby on the greater public. their families. PREVAILING WAGE IN SAN JOSE 10 • Secondary Public Subsidy for a Non-Prevailing Wage Construction Job Without Health Benefits Santa Clara County, 2009 $9,000 $8,032 t $6,000 .17 84,904 $3,665 z ? $3,000 $916 $0 Single adult 1 parent,2 kids 2 parents (botb, 2 parents (1 • working),2 kids working),2 kids Figure 2.Source:Government Transfers to low-Wage Workers Calculator Taxpayers subsidize employers through public between $916 and $8,032 annually per worker assistance programs only if those employers are affected,with the midrange subsidy estimated at not paying a livable wage with health benefits. $3,665 annually per worker affected. To approximate compensation on prevailing wage projects versus non-prevailing wage With this secondary subsidy propping up projects, the model uses average weekly wages inadequate pay, the majority of responsible for Santa Clara County construction workers employers who do pay livable wages find covered or not covered by a union contract.We themselves at a competitive disadvantage. also modeled the presence or absence of affordable family -health coverage, using the Furthermore, the burden of the invisible public simplifying assumption • that workers on subsidy for low-wage work threatens the region's prevailing wage projects have comprehensive social safety net. Emergency rooms, community job-based family health insurance, while those clinics, and hospitals such as Valley Medical on non-prevailing wage projects do not. Center are hard-pressed to maintain adequate health .services as the number of uninsured The hypothesized reduction in Wages, combined workers has grown to more than one-fifth of with a loss of health coverage, would incur a Silicon Valley's workforce." secondary subsidy from taxpayers totaling • P R E V A I L I N G W A G E I N SAN JOSE ` 11 t �`"`7. �'"` i .�"k r�',ir^'s' �: $f"'r=�y"s,'�'„r-`� sr••"j waym^at;,.n_3.;t?.t%':`t'-n`'°,rtl"r. ...s+. 1�:.�,�is' x�ar•s,-i•.,,z....z r•-"^„ri„--_•.^„•,�*rx;�m�„rsr:i.�� e>nra-.*^'_u .r., -^^,^n.v-"� 'r *,y4� �sr r,'.-n..Fs,;',:;-r�-. �., •�;y.;,.;,R,-.�-s;�ki.r :1 m� ��r 4 s ns• .5��'Y,+S=;;rn.„ntL� Y' ^m Pii':�,',, y, `n.1�.,.+-�, {:M;# •tai'•-, EDL1CA11 N AND._TRAINING.OPP_,,ORTUNITILS. 11.2V'- .. `r ° _ t t:-_.,�,,.s.............®< �,�,.c.`-�.�.-+...�, w�'.c.k�4.. , - `�.'�4::��'Vji�`�,:.. "�:„-•;` 'v'c, ;X:, s'tS7.:.�'��t :s,'. a"+ $=ax..,.ya{., - c• �. -. en".s."..w..ai.-..�w.w^Ka.+;�saw�.,".,.s;�. S sia?�.:. i32� ;=�. �at.,s.�,u,.,Kf.'�;':=,.-'•.a'^.-<,:�nn,_.c.s.',sn4..,2 -.7s • In the past twenty years,14,104 County residents have been educated through apprenticeship programs.These privately funded industry training centers provide motivated students with no-cost education and paid on-the-job experience. • Because they provide placement opportunities for apprentices,prevailing wage projects are critical to sustaining the apprenticeship system. • If apprenticeship programs could no longer enroll students,it would be equivalent to cutting enrollment at San Jose City College in half. Apprenticeship is a form of post-secondary the present, 14,104 Santa Clara County residents education that combines classroom and hands- participated in apprenticeship programs. on training with paid on-the-job training. • Apprenticeship programs require an intensive, With an average annual enrollment of 2,339 long-term commitment from the student; the - students, apprenticeship programs in Santa training period is three to five years and typically Clara County educate approximately half as requires successful completion of a curriculum many full-time equivalent students annually as of 400 to 800 classroom hours combined with Mission College (4,423 FTE students in 2008) or 3,000, to 8,000 hours of on-the-job training, San Jose City College (4,457 FTE students in where apprentices work side by side with 2008). Privately funded apprenticeships thus fill experienced workers to learn the skills required a significant gap in the educational system. for a trade. • Joint labor-management Ethnicity of Construction apprenticeships (which represent 92%of all apprenticeship graduates Apprentices in Santa Clara County in California) are free to the student and offer full-time paid krq'nLL•'; work experience with a living wage {��`'i- 1gc.,'ra 4.-, and healthcare coverage, making ' :Asian or them a key pathway for students +. a Pacific with limited financial means who American kk Islander, Indian or 5% are seeking a lifelong, family- Alaskan supporting career.il Native,1% Black,5% Joint apprenticeships are paid for The San Jose prevailing wage policy, like state and overseen by a training trust fund,which is prevailing wage, requires contractors to employ funded by a small hourly contribution made by apprentices in specified ratios on covered all journey-level workers in the trade Who are projects. These public works projects provide union members or work for a participating critical paid work experience for apprentices employer.The State of California Department of Apprenticeship Standards has oversight Studies which have examined the relationship authority over all registered apprenticeship between prevailing wage and workforce training programs in the state. show that•states with prevailing wage laws have more apprentice training slots, higher rates of The registered apprenticeship system is the apprentice completion, and better training primary source of highly trained workers for the outcomes for ethnic/racial minorities than do California construction industry. From 1990 to states without prevailing wage laws.12 1 - P R E V A I L I N G W A G E I N SAN JOSE 12 If prevailing wage were eliminated, then , Prevailing wage is therefore critical to sustaining opportunities for apprentices on public works the apprenticeship system. projects would likely .decline substantially. �,s+evarrc•u?v.sr+•- ne�r>,a*n�.:vaiJ-� _ �tnn;�^9,yv m•�\ ,;�-h y�.• ,w,•�;�,n1.v Mc,�.A:rrs„4'.^?°'�p`i��".Hk�`.°,�:�x��,'}• tom•, i'���S�i;�sr'Yfi,:4'�>:�.F -.�if.-%y'•C''.`��"'-, ;�,:P.r„ �^;h% ±b�;r'ry.`2i:.,;';�,'s� � � :�a � �`�;.vY31k�';';;;y«,-�(-.,..,- ,st.�''� pfCFOI et713I9:MTV.. , } ,- ;�;F.w :r:,;�., t. d -vy� s°-,'•-� -V,k'• =or=:,;�;�,,�`� '�;�'�" ^'�� 'k, XCx.Si�i"r�'n v i °,SS'b �•,�:•; `�2=Yar � ''°°� M 7 �,f,oit5�•..u��:t ��-„='?.,i�z..:.�'.v�14�:•�i"n:- u �iFU:.m..assxu:.`s.s.Aux-:..�u......�.....,.:�s:x.}.•i ;�di :S'.�;^`_ YG��:sater'trs.S3'.�'�:.�u��,:V %af k�a:aSlia �. .c'.h:.>�i3::.u.n_.....u:.—..:s” .s�lx; • Relative to the total construction workforce in Santa Clara County,joint apprenticeship programs employ 1.4 times more women and 4.7 times more African-Americans. Women and minorities, particularly African- at large to employ an African-American. Americans, have historically been underrepresented in the United States Examining the data by gender, women construction industry. Joint apprenticeship comprised just 1.7% of construction industry programs in California typically enroll a higher workers, yet made up 2.4% of enrollments in proportion of women and underrepresented joint apprenticeship programs: Joint minorities than are employed in the industry at apprenticeships were therefore 1.4 times more large, making them a valuable pipeline for likely than the industry at large to employ a increasing these populations' access to woman. construction careers. Representation of Women and African- Americans in the Santa Clara County Construction Industry •Joint apprenticeship programs ■Construction industry 4.7% 5? �kt .K04 2A% 04.4. 1.7% 1.0% 4.ar African Americans Women Figure 4.Data represents residents of Santa Clara County. "Construction industry" includes residents employed in non-supervisory construction occupations. - Source:DAS and ACS 2006-2008 An analysis of joint apprenticeship program While these numbers are still low,they indicate enrollments in Santa Clara County compared that the pipeline of workers currently being with construction industry employment from trained through apprenticeship programs,if they 2006-2008 shows that 126 African-Americans remain employed in construction, will diversify residing in Santa Clara County enrolled in joint the industry relative to its current state. apprenticeship programs during this period, making up 4.7% of all enrollments. Among all If prevailing wage projects did not provide residents employed in non-supervisory placement for apprentices, the opportunity to construction occupations, African-Americans access construction careers for women, African made up just 1.0%. Joint apprenticeships were Americans and other underrepresented groups therefore 4.7 times more likely than the industry could be considerably.reduced. P R E V A I L I N G W A G E I N SAN JOSE 13 ,y. w w+.-,�.. ,4 z _ _ .ta., 1"_ f.i'�fi".3,y�w,.aY, , J„ �;u'`"�'}4x'':'yn` � c`� i''a �4��s,";�v ��"1.i'i:�"'°^a14t�C3�`•.,y.••���i�',, zvaExi',1 �' ''� -,.v� �"! � ,rd` ,,S'; ' tol:�+'='si;:;�'� 5f�°A,r }t�',�-'-4 y�E�_��'�� xjl �,t".i`" tF,., a'r �'"%t�:v, T$AFgt,g -E IRON', ENTAg ,:r.,. _ N f` �,., .�,c»,hr;-.w �. ra�..sad.�..,ss.n���ot.-,�.:',a_,::.+>:r vrc,axr1.��.L iwrv.wke...�..,.ua<:.MFACl'cSsj�1vR:".S�`4t.iv ;.-�-.:���i,:,.'���s�Ai:����c:dizf�i;r,zt+.tiar'M:.�.t�,Siizia'�i:Y�:?J'i,Fku�t,£.''k`o�.Yr`�r�ir'.�:::sw':�'���L.t':1v • In 2008,non-local construction workers employed in Santa Clara County cumulatively drove over 1 million miles per day to and from work.If this work were instead performed by locals with shorter commutes,then the estimated savings would be 123,619,000 miles per year. • If a project is not covered by prevailing wage,then the shift towards a non-local • construction workforce induces excess commute miles,resulting in traffic congestion,less • livable neighborhoods,lower social cohesion,and increased greenhouse gas emissions. In addition to economic impacts,importation of average of 43 weeks of work per year for a non-local workforce creates traffic, and BCCWs14, the non-local construction workforce environmental impacts caused by longer in 2008 accounted for a total of 191,218,000 commutes. Analysis of construction workers in Vehicle Miles of Travel(VMT).If the work done non-supervisory occupations (Blue-Collar by non-local commuters was instead performed Construction Workers) employed in Santa Clara by local residents, then the estimated savings in County from 2006-2008 shows that 66% lived annual VMT (after subtracting the average in- within the county. Of the remainder, 10% lived county commute)would be 123,619,000 miles.15 in the Central Valley, 6.4% in Alameda County, 4.9% on the Central Coast, and the remainder Excessive commute distances generate traffic scattered throughout the state.13 congestion, impact neighborhood livabilty, and pollute the air. Nationally, the San Jose area • Estimating commute times based on county of ranks as the 6th most congested commute shed, residence, in 2008, non-local Blue-Collar averaging 53 hours —or more than 2 full days— Construction Workers (BCCWs) employed in of traffic delay per driver in 2007. This the county drove an estimated 1,084,000 congestion cost the South Bay an estimated $1 commute miles daily. billion in lost productivity and wasted fuel 16 The average non-local construction worker had Commute times and traffic congestion have { a round-trip commute of 105 miles, compared significant impacts on livability and community with an average daily commute of 37 miles for . cohesion. Long commutes limit the amount of BCCWs living in Santa Clara County. With an time that workers have available to spend at Table 3: Top 10 Counties of Residence for Non-Local Construction Workers Employed in Santa Clara County t� `ri.'c"�'+s%u'W S��T b �" ,i 4�:,°s � 'Ca�Iu'�S"<"s+h :,,t6P�9 a quxitfes Round-frip U °stancntSr a ea e9u ty(�mi ti s° �..`' .ev, ;"s'�'.. 1*•';,. 'r"ry.,_u„1x57,.,.,°..,,n` '”. 5": a4. 'vf3`aP�;.dl."`2'. t�' 1.Alameda 72 2.Santa Cruz 84 3.Merced 202 4 San Joaquin , 163 5.San Mateo 70 6. Contra Costa 113 7.Stanislaus 191 8.San Francisco 89 { 9.Monterey 125 10.Solano 189 PREVAILING WAGE . I N SAN JOSE 14 home and in their communities, reducing civic - and to 80% below 1990 levels by 2050 — a goal participation and straining families. Local that can only be reached if vehicle-produced residents are affected indirectly as increased emissions are greatly reduced. California voters highway congestion generated by commuters recently affirmed their support of this goal by forces locals to spend more time in traffic. decisively rejecting a Nov. 2010 ballot measure attempting to suspend AB32. Finally,miles travelled by passenger vehicles are a major driver of climate change;in fact,they are The imperative to reduce Vehicle Miles of Travel the single largest CO2 emitter in California. In is further emphasized by SB 375,passed in 2008, addition to accounting for 27% of the state's which requires regions throughout the state to greenhouse gas emissions, vehicle emissions take greenhouse gas emissions into account in produce smog and other pollutants that affect their land use planning. Santa Clara County residents' health." California's historic Global faces considerable challenges to meeting this Warming Solutions Act of 2006 (AB32) goal. Total VMT in Santa Clara County rose by committed the state to reduce its total 41%between 1990 and 2000 and are expected to greenhouse gas emissions to 1990 levels by 2020 double by 2030'$ - _ ,r.. �°,u ,i�' '4..��{�tr�:ti.j^� i„Sµ�.yl£uTMw._N,i't� "Ei"'N%',"i'YG,',.,. ;.a,:;,�s"e,: i si.'^-1^' :*+..-,•a,.r; ar;atc i - '�� Tr o-" -%,+ %h5 `i;. �i:;i+-p`ir ".ti''=:^ i r "'' Y;; s� C1`;r:�:::4.;�;�- `k' S'et,.,,i,-•.k,^t,',.s";:^i�r.;� » :y;.Y. ,REFEENCES,:; '1%-- �' •lu .' 1 �;2 ,x"iv.a�`�;"s i„ "-,4� � > 1 'YX `Y' tttr - 'G�` --�' .x�5 :ra- `s�' - 4,.�-•3" •art'r: C r;-,.�A?.tif•` �,+.,,�.,-'��I y .�.. .,.n. ...�.3 _;:ay.-axG�',.'sS'�',h-,'c•._....- 1kk' +�..,,'�s::r:+�..4�.�.,•^.r.�°i+.:+._•, w...� x:n,e��S ua W":.:�.ri:?u...''_)"-.r''lwu�,?:.w,.”:F`,i�il?,:13,�.9nx'h :,vC�c:�... ..� (.:<rxY'�„i^ -�`v, i�i� .6 'Jenny Reid Austin et al,Silicon Valley Roots(2006).Sunnyvale,CA;NOVA Workforce Board. 2 See Appendix A for a review of existing literature on construction costs and prevailing wage, 3 JaeWhan Kim,Kuo-Liang Chang and Peter Philips,"The Effect of Prevailing Wage Regulations on Contractor Bid Participation and Behavior:A Comparison of Palo Alto,California with Four Nearby Prevailing Wage Municipalities".Article,Refereed Journal,submitted,Nov.30,2010. • 4 Other types of capital improvement projects such as parks,water,sewers,roads,and airport taxiways are not included in this analysis because they may differ significantly in subcontracting patterns from municipal buildings. This analysis provides a conservative estimate of impacts because not all capital improvement projects are included. 'As of June 2009,Applied Materials had 3,988 full-time equivalent employees in greater Silicon Valley.Source: Silicon Valley/San Jose Business Journal Book of Lists,Vol.27,No.36,Dec.25,2009,p.114. e As of June 2009,Adobe Systems had 1,850 full-time equivalent employees in San Jose.Source:Ibid,p.112. 7 SportsEconomics LLC,"Market Assessment and Economic Impact Analysis for Proposed Soccer Stadium in the City of San Jose(A Secondary Study)."Prepared for City of San Jose,February 8,2008. &See http://www sjeconomy.com/publications/pressreleases/sunpower 11 16 10.pdf,Subsidy package is subject to approval of the San Jose City Council. • 9 RIMS II Multipliers for the state of California,July 2002 Release,Bureau of Economic'Analysis. 19 American Community Survey 2009. 11 Corinne Wilson,Construction Apprentice Programs(2009).San Diego:Center on Policy Initiatives. http://onl inecpi,org/downl oads/Construction%20Apprenticeship%20Programs%20report.pdf '2 Peter Philips and Chh Bilginsoy,"Impact of Prevailing Wages on the Economy and Communities of Connecticut.”(2010)University of Utah. 13 Analysis of Blue-Collar Construction Workers(BCCWs)performed by Alex Lantsberg with data drawn from ACS 2006-2008.This data covers the entire construction industry,including residential,commercial,and public sectors. While the data source used does not differentiate between these sectors,it is likely that large commercial or public jobs attract a higher proportion of non-local workers than does the residential sector. 14 ACS 2006-08,accessed via DataFERRETT. 15 Using BCCW dataset described above,commute distances between counties were estimated with Google Maps. Workers residing more than 200 miles from Santa Clara County are excluded on the assumption that they are unlikely to commute daily.Means of transportation to work is estimated using the 2009 American Community Survey Workplace Geography dataset.Commute distance within Santa Clara County estimated using 2005 MTC data adjusted for BCCWs using the ACS travel time to work variable. 16 Shrank,David and Lomax,Tim."2009 Urban Mobility Report."Texas Transportation Institute.July 2009: '7 California Air Resources Board,"California Greenhouse Gas Inventory for 2000-2008",updated May 12,2010. '3 Metropolitan Transportation Commission Projections. 1 Prevailing Wage Opponents Fail to Look at the Research Part One of a Three-part Series on Prevailing Wage Prevailing wage laws have long operated nationally and in states as a check against the tendency of the construction industry to degenerate into destructive wage and price competition. Such competition can drive skilled and experienced workers from the industry,reduce productivity and quality, and lead to poverty-level jobs, all without saving construction customers any money. In an exhaustive review of the research on the impact of prevailing wages on contracting costs, Nooshin Mahalia concluded: At this point in the evolution of the literature on the effect of prevailing wage regulations on government contract costs, the weight of the evidence is strongly on the side that there is no adverse impact. Almost all of the studies that have found otherwise use hypothetical models that fail to empirically address the question at hand.Moreover,the studies that have incorporated the full benefits of higher wages in public construction suggest that there are, in fact, substantial, calculable, positive benefits of prevailing wage laws. Although the weight of evidence suggests prevailing wage laws do not raise costs, advocates for repealing the law in Pennsylvania continue to repeat some version of the following: Prevailing Wage law also harms taxpayers, as it forces them to pay higher labor costs on public construction projects. Construction companies forced to pay union-inflated wages and benefits will pay upward of 30 percent more in labor costs for identical work on private sector projects. This adds a little more than 20 percent to the cost of every taxpayer-funded construction project—resulting in an estimated $1 billion cost for state and local taxpayers each year. - Matthew J.Brouillette President & CEO of the Commonwealth Foundation March 22,2011 s , . What is the source of this 20% saving claim? One source is Nathan Benefield, the research director of the Commonwealth Foundation, in this 2009 blog post. Benefield compared wages as measured in Occupational Employment Statistics (OES) to the Pennsylvania Department of Labor and Industry's prevailing wage and concluded that prevailing wage rates are on average 37% higher (in a future post, I will address this issue directly). To estimate how this difference will affect total cost, Benefield assumed that labor represents 45% of total cost. There are several problems with this analysis. Today I will address the first: it fails the laugh test. According to the 2007 Economic Census of Construction,labor costs represent no more than 24% of total construction costs in Pennsylvania.In road and bridge construction, much of which is funded by the state and thus impacted by prevailing wage regulations, labor costs represent no more than 21% of total cost. If labor were 45% of total costs, and cutting wages and benefits were to have no impact on worker productivity,it would be possible to achieve a 20% reduction in total costs with a 37% reduction in labor costs. But only in Commonwealth Foundation World do labor costs account for 45% of construction costs. Tables lA and 1B below show that if you use actual data on labor's share of total cost, the wage declines necessary to achieve a 20% reduction in total construction cost are impossibly—laughably—large. In all construction, for example,labor costs are 24% of total costs. With labor costs at 24% of project costs,wages must fall by 70% to wring 20% out of total production cost, from $36.30 to $10.89 per hour for a carpenter in Philadelphia— that's below even what Benefield claims Philadelphia carpenters make when not on a prevailing wage projects (see Table 1A). With labor costs equal to 21% of project costs, as on road and bridge construction, wages would have to fall 80% to lower total costs by 20% (see Table 1B). Cement masons in Dauphin County employed on a road project would see their wages fall from $34.76 per hour to $6.95 per hour (the minimum hourly wage is currently$7.25). Table 1. Changes in total cost as a function of the share of labor cost 2 A: Benefield's calculation assuming labor represents 24% of total construction cost in PA With P.W. Without P.W. % Change Labor Cost $240,000 $72,000 -70.00% Non-Labor Cost $760,000 $760,000 Total Cost $1,000,000 $832,000 -20.19% B: Benefield's calculation assuming labor represents 21% of total cost in road & bridge construction With P.W. Without % Change P.W. Labor Cost $210,000 $42,000 -80.00% Non-Labor Cost $790,000 $790,000 Total Cost $1,000,000 $832,000 =20.19% Note. The calculation of percent change is sensitive to the point of reference. The percent change in labor cost is calculated relative to the labor cost with a prevailing wage. The percent change in total cost is calculated in reference to i total cost without a prevailing wage. To switch the point of reference is unconventional but necessary to remain consistent with the manner in which Benefield made his calculations. Calculating the percent change in total cost in the cases above where total cost with a prevailing wage is the point of reference results in a 17% decline in total costs. Recall that Benefield's Iaughable savings projections are the basis for the claim that the state can save $1 billion per year. Don't count on it. Part Two of a Three-part Series on Prevailing Wage. Read Part 1. The overwhelming weight of evidence based on the actual cost of public construction projects shows that prevailing wage laws do not raise costs. Therefore, advocates of repealing the law in Pennsylvania ignore this evidence. Instead of"evidence-based policy," we have "lack-of-evidence-based policy." Go figure. Repeal advocates use a hypothetical calculation that makes assumptions about cost, rather than empirically examining the relationship between higher wages and total construction costs. (As discussed here, even these hypothetical cost estimates don't make sense once you apply real world data to how much labor costs represent of total construction cost.) Another key ingredient in the hypothetical calculations used by proponents of repeal is the claim made most recently by the Pennsylvania State Association of Boroughs (PSAB) that "the prevailing wage is 30 percent to 60 percent higher than the average wage for the same occupation." This claim is based on an update of a flawed calculation by the Commonwealth Foundation. It compares the prevailing wage levels by trade as set by the Pennsylvania Department of Labor & Industry with the average wages for construction occupations reported in Occupational Employment Statistics (OES). The prevailing wages are,30% to 60% higher than the OES averages. The problem is, the Commonwealth Foundation/PSAB calculation is the proverbial apples-to-oranges comparison: it measures different portions of the construction industry. OES data include wages paid to workers employed in the residential construction sector—smaller, less-complex projects than prisons, bridges, schools and other state-financed construction. Residential construction relies on workers less skilled and experienced than those needed for larger state projects. Indicative of this skill gap in Pennsylvania is the fact that construction workers employed in nonresidential construction—most of which is private sector, not public—earn 52% more than construction workers in the residential construction sector. In other words, the gap between the occupational prevailing wages set by the Pennsylvania Department of Labor & Industry and average construction wages reported by OES reflects the wage gap between residential and nonresidential constructional (See Table 1 below.) Using OES data to estimate the potential savings from repealing the prevailing wage law greatly overstates the potential cost savings. Actual wage levels on state construction projects without prevailing wage laws would not fall 30% to 60%. Assuming such savings and assuming that any drop in wages would have no impact on worker skill and productivity lead to false claims of large savings from repealing prevailing wage. Of course, why use hypothetical calculations at all when we have actual data on what construction costs with and without prevailing wage laws? In my next post, I will review the research literature that examines actual cost data over time and between states to estimate whether prevailing wage laws influence total project cost. On Tuesday: Prevailing Wage Opponents Fail to Look at the Research Table 1. Average Weekly Wages in Residential and Nonresidential Construction in Pennsylvania 3 a Average % Difference Weekly Average in Residential Construction Specialty wage: Weekly Wage: & Residential Nonresidential Nonresidential Wages Constructiont $771 $1,170 52% Building construction $796 $1,223 54% Heavy and civil engineering ND $1,262 construction Poured concrete structure $688 $943 37% Steel and precast concrete $1,100 $1,126 2% Framing $644 $985 53% Masonry $636 $957 50% Glass and glazing $888 $1,078 21% Roofing $660 $942 43% Siding $730 $946 30% Other building exterior $818 $822 0% Electrical and wiring $887 $1,232 39% Plumbing and HVAC $816 contractors $1,245 53% Other building equipment $879 $1,233 40% Drywall and insulation $751 $1,093 46% Painting and wall covering $639 $985 54% Flooring $625 $988 58% Tile and Terrrazzo $686 $994 45% Finish carpentry contractors $718 $935 30% Other building finishing $691 $870 26% contractors Site preparation contractors $756 $987 31% All other specialty trade $696 $977 40% contractors Note. ND=No data t Average weekly wages for residential and nonresidential construction are an employment weighted average of the average weekly wages paid in each subsector. Source. Keystone Research Center based on 2010 Quarterly Census of Employment and Wages data. Footnote [1] Beyond the fact that they measure wages in a construction market that bears little resemblance to the public construction market, OES data have other limitations that make them unusable and inappropriate for purposes of comparison with prevailing wage rates.At the county level, OES data do not distinguish between construction occupations within the construction industry (residential plus nonresidential) and those in other industries. Construction occupations in all other industries—e.g., utilities and manufacturing, repair industries and building services—are all lumped together with the construction industry itself in the OES.As a result, at the local level, even more than the state level, OES data measure wages in a pool of jobs quite different from those on state construction work. The OES survey does not collect information on compensation paid in the form of health insurance and pension benefits. To overcome this limitation,PSAB uses a national data source to assume that fringe benefits represent 30.4% of reported wages in Pennsylvania. The Final Part of a Three-part Series on Prevailing Wage. Read Part 1. Read Part 2. In the first two posts of this series,I explained why the numbers being tossed around by advocates of repealing prevailing wage don't add up.I explained that the claims of cost-savings are not based on any actual experience and that they represent the result of laughable hypothetical, or "what if," calculations. This leads to the most important point that the Pennsylvania School Boards Association, the Pennsylvania State Association of Boroughs, the Harrisburg Patriot-News Editorial Board and others keep missing: we can do much better than a hypothetical when assessing the impact of prevailing wage laws. There is a body of research that examines construction costs (and other construction outcomes, like safety, training investment,wages, benefits, etc.) in states with and without prevailing wage laws as well as instates that eliminated prevailing wage laws. We don't have to conjecture what "might" happen: we can look at what did happen. The preponderance of the evidence shows that prevailing wage laws do not raise construction costs. Back in the late 1990s, Pennsylvania actually ran this real-world experiment itself—we lowered our prevailing wage levels, particularly in rural areas. That means we can look at what happened to construction costs. What happened is the same thing that has happened in other places—lower prevailing wages did not translate into lower construction costs. Specifically, the Keystone Research Center's 1999 study of this Iate 1990s Pennsylvania policy experiment examined changes in public school construction bids when Pennsylvania's prevailing wages were lowered substantially in rural areas. Keystone found no association between the number of occupations in which the prevailing wage was lowered and the price per square foot of school construction bids. If anything, construction bids appeared to go up more in areas where prevailing wages were lowered more. _ Advocates of repeal often point to sympathetic construction managers in the public sector who testify, based on their expertise, that prevailing wage laws raise costs. Not only did the Keystone study find no statistical evidence of a cost difference during the period wages were lowered, but the study highlighted two revealing instances of construction managers making wild predictions that just didn't come true: The recent experience of two Pennsylvania school districts show that even increases in legally mandated prevailing wage and benefits rates do not necessarily increase public construction costs. In March 1999, after two months of legal uncertainty about required prevailing wage levels, [the Pennsylvania Department of Labor and Industry] began issuing prevailing wage rates that were higher than the 1999 rates. The Blue Mountain School District, in Schuylkill County, was planning to renovate its high school. In April 1999, the school district's construction manager estimated that construction costs would increase by about$670,000 as a result of the higher prevailing wage and benefit rates. But when bids for the project were opened on May 6, the low bids,which were expected to be about$15.1 million, came in at only about $13.8 million, almost 9 percent below the anticipated level. And in April, bids for a middle school construction project in Tamaqua, which used the same prevailing wage and benefit rates as the Blue Mountain bids, also came in under budget estimates. Of course, anecdotes pro or con pale in comparison to careful statistical examination of large-scale data sets on actual construction costs.A study published in the Journal of Education Finance in spring 2002 explored the dependence of school construction costs across the United States from mid- 1991 to mid-1999 on factors such as the state of the economy (measured by the level of unemployment), the size of the school, the season, and the existence of a prevailing wage law. The analysis found that public school construction costs: .rose 22% when the unemployment rate declined by half; •fell 2.5% for bids accepted in the spring compared to bids accepted in the fall; 'fell by 4.7% with a doubling of the school size, indicative of modest "economies of scale"; and .did not go up or down a statistically significant amount based on the presence of a prevailing wage law. Another article from the Journal of Education Finance explored the impact of the establishment of prevailing wages in British Columbia at about 90% of the collectively bargained wage. This analysis, looking at a wide range of variables that potentially impact school construction costs, found that there was no statistically significant change in construction costs following establishment of a prevailing wage. e r In Michigan in the 1990s, school construction costs did not differ significantly during a period when the prevailing wage law was suspended temporarily compared to the period before and after. The reason researchers don't observe differences in cost associated with prevailing wage laws is that higher wages in construction tend to reflect higher productivity. Family-sustaining wages, health coverage and good pensions attract and retain workers, leading to an accumulation of what economists call "human capital"—know-how that allows a skilled trades worker with years of experience to problem solve and do the job more quickly and right the first time. This know-how also translates into lower costs due to less need for supervisors and the higher retention of experienced workers which lowers recruitment and screening costs. Higher wages also promote the use of labor-saving technology and management practices that keep per- square-foot costs low.[1] While research fmds that state prevailing wage laws do not significantly raise construction costs, these laws do lead to more investment in workforce training, lower injury rates, and higher wages and benefits (click here for a review). Thus,prevailing wage laws tend, over time, to lead to a more skilled and experienced workforce that is less likely to leave the industry, compensating for higher per-hour wage and benefit costs. For a comprehensive review of the research literature on state prevailing wage laws,I highly recommend this work by Nooshin Mahalia. Unlike the Cato Institute journal, which the Patriot News Editorial Board told us it relied on in supporting weakening the state prevailing wage law,Mahalia's piece represents a full and careful review of all the literature. The Cato journal article, by contrast, ignores articles in peer-reviewed academic economic journals and relies on ...wait for it ...hypothetical calculations that support the ideological predisposition of the Cato Institute against regulation. OK, we get it, that's the Cato Institute's excuse. What's the excuse of the Pennsylvania School Boards Association or, for that matter, the Patriot- News Editorial Board, for ignoring the most credible research and evidence? Footnote [1] Steven G.Allen, "Unionized Construction Workers are More Productive," Quarterly Journal of Economics, 99(2) (May 1984):251-274; Kevin Duncan and Mark J. Prus, "Prevailing Wage Laws and Construction Costs: Evidence