by Ben Brubeck
Democratic leadership in control of the General Assembly for the first time since 1993 is close to sending legislation to Gov. Ralph Northam’s desk that would raise the cost of construction and maintenance of schools, affordable housing, roads, transportation and other infrastructure projects critical to keeping Virginia economically competitive. Taxpayers should take note of the financial impact of these measures on infrastructure and development in their communities—and its anti-competitive effect on opportunity for Virginia’s construction industry.
Bills sponsored by Senate Majority Leader Richard L. Saslaw (SB 182) and Del. Alfonso Lopez (HB 358) has already been passed by their respective chambers following last week’s General Assembly crossover deadline. These bills would rescind a 2012 statute requiring state agencies to use a fair and open competitive bidding process to procure contracts for the construction of public works projects. The existing statute will be replaced with a controversial policy permitting government-mandated project labor agreements, or PLAs, on state and local construction projects.
Other bills by Sen. Scott Surovell (SB 995) and Del. Lopez (HB 1635) eliminate similar fair and open competition protections on Metrorail construction projects procured by the Washington Metropolitan Area Transit Authority, which would permit future PLA mandates on Metrorail construction projects similar to the controversial, failed attempt by the Metropolitan Washington Airports Authority to mandate a PLA on Phase 2 of the Silver Line.
When mandated by governments, PLAs discourage nonunion contractors and subcontractors—which employ 97.8% of Virginia’s construction industry—from competing to build projects funded by taxpayer dollars.
In short, government-mandated PLAs force contractors to follow union work rules and hire most or all workers on a job site from specified union hiring halls and union apprenticeship programs instead of journeyman and apprentices already employed by their company and enrolled in accredited apprenticeship programs. That limits the pool of bidders, since nonunion contractors don’t want to abandon their existing employees and quality-control practices—key components of a safe and productive workplace—for strangers from union halls governed by unfamiliar rules.
In addition, any nonunion workers permitted on a PLA project are likely to lose an estimated 20% of wages and benefits earned on the job unless they accept union representation, join a specific union, pay membership dues and meet the union benefits plan’s vesting requirements.
Studies on the effect of government-mandated PLAs in California, Connecticut, Massachusetts, New York, New Jersey and Ohio found PLAs increase the cost of school construction by 12% to 20%. Virginia simply cannot afford such waste with so many school construction and other infrastructure needs.
For these reasons, a total of 25 states, including Virginia, outlaw government-mandated PLAs on public works projects, thereby ensuring fair and open competition on taxpayer-funded construction projects so the public can get the best possible construction project at the best possible price.
Legislation introduced by Sen. Saslaw (SB 8) and Del. Jennifer Carroll Foy (HB 833) would result in prevailing wage requirements on construction projects at nonmarket rates set by the U.S. Department of Labor, via the 1931 Davis-Bacon Act. As amended, Sen Saslaw’s SB 8 sets a threshold of $250,000 on all state construction projects. And as amended, Del. Carroll Foy’s HB 833 requires prevailing wages on all state construction projects and allows localities to pass an ordinance requiring prevailing wages on local projects.
Unfortunately, the U.S. Government Accountability Office concluded the U.S. DOL’s wage determination process is unscientific and fundamentally flawed, because it typically sets rates that are anything but local, prevailing, timely or accurate. Instead of allowing contractors to pay their skilled workforce based on merit, experience and productivity via the free market’s nimble laws of supply and demand, construction workers must be paid at least a government-determined rate that is sometimes laughably below or above market rates.
Research suggests prevailing wage regulations increase compliance and regulatory burdens on small businesses and increases construction costs by 10% to 25%. For example, according to a 2017 report released by the Empire Center for Public Policy, New York’s prevailing wage law inflates construction costs by 13% to 25%. Additional studies examining the impact of the Davis-Bacon Act on federal and federally assisted construction projects have reached similar conclusions and estimate Davis-Bacon Act rates inflate labor costs by an average of 22% above mean free market rates, increasing overall construction costs by 9.9%.
Virginia and 22 other states—including neighboring West Virginia, Kentucky and North Carolina—have no prevailing wage laws, and eight states have repealed or significantly reformed their laws since 2015, resulting in savings to taxpayers and no reduction in construction quality. In fact, no state has implemented a new state prevailing wage law since Minnesota in 1973, 47 years ago.
The Bottom Line
The net impact of all six of these bills is that Virginians can expect tax hikes and/or fewer public works construction projects procured by the Commonwealth’s state and local governments.
As Dick Hall-Sizemore pointed out in his post last week, the largest segment of the state’s outstanding debt has been issued for construction of the physical infrastructure. These controversial bills will ensure all future projects in Gov. Northam’s very large capital budget package will be subject to costly prevailing wage requirements and possibly government-mandated PLAs. Localities will also be able to require both prevailing wage and PLAs on local schools and other infrastructure projects funded by local tax dollars.
It is no surprise that construction unions and their members—who make up just 2.2% of Virginia’s private construction workforce—have made passage of these pro-PLA and prevailing wage bills a top priority this legislative session. It will mean more contracts for union-signatory contractors and more jobs for union members—likely from out of state.
If these bills become law, large companies and their unionized workforce from Maryland, Washington, D.C., and other states would have an unfair advantage and disrupt the local market at the expense of the Commonwealth’s small businesses and skilled construction workforce.
It isn’t a coincidence that 46 construction unions gave a total of $1.64 million in direct contributions to Democratic political campaigns during Virginia’s 2018-2019 cycle, according to campaign filings compiled by the Virginia Public Access Project, a nonprofit that monitors campaign contributions by special interest groups. Almost 60% of these political contributions came from out-of-state construction unions with a vested interest in getting the Virginia’s new leadership to stifle competition from local and qualified businesses.
In addition, under these measures, Virginia’s small, women- and minority-owned businesses will have fewer contracting opportunities because they are predominately nonunion and will be discouraged from competing for projects subject to these special-interest schemes. Gov. Northam recently announced a disparity study assessing contracting opportunities for Virginia’s SWaM-owned businesses. Will that study evaluate the negative impact of these new policies?
In short, these bills increase the cost of taxpayer-funded construction projects, eliminate opportunities for Virginia’s construction industry and serve as another hurdle for the Commonwealth’s SWaM contracting community, all while steering contracts to donors—many out of state.
Virginia residents can contact their lawmakers and oppose these six bills through this grassroots campaign website. But do it today, because both HB 358 (PLAs) and HB 833 (prevailing wage) are on second reading on the Senate floor today, meaning they will be up for a full vote tomorrow.
Ben Brubeck is vice president of regulatory, labor and state affairs of Associated Builders and Contractors, a national construction industry trade association representing more than 21,000 members.