Cost of School Millage Approvals Inflated Because of Prevailing Wage Law
Taxpayers hit with an extra $35 million in costs because of law that favors labor unions
One thing voters did not get to decide in recent school millage elections was whether they wanted to pay higher wages for the construction projects that were approved in districts across the state.
Yet that's what will happen because of the state's prevailing wage law, which mandates that union scale wages be paid on construction work funded by taxpayer dollars, regardless of the winning bidder on a contract.
Unless the law is changed before the projects get under way, $35 million of the nearly $469 million voters approved for construction this month will be spent to cover the costs of the prevailing wage, according to the Associated Builders and Contractors of Michigan, a statewide trade association representing the commercial and industrial construction industries.
"Today, the majority of construction workers in Michigan — 80 percent — choose not to belong to a union, yet the state is still basing wages for publicly funded construction on fiscally irresponsible union agreements," said Chris Fisher, president of ABC of Michigan. "We're not trying to say there was anything wrong with the voters approving the projects. We're pointing out that the projects would be more cost effective if this outdated law was repealed."
Michigan's prevailing wage law, which has been in effect 49 years, primarily affects the construction projects of universities, colleges and public school districts.
Early last year, House Republicans issued an "action plan" that stated: "We will repeal Michigan's Prevailing Wage Law to save the state and local units of government almost $250 million every year."
At approximately the same time, a three-bill package targeting the law was introduced in the House. It included House Bill 4172, sponsored by Rep. Amanda Price, R-Holland, which would repeal the law statewide; House Bill 4173, sponsored by Rep. Peter MacGregor, R-Rockford, which is a technical bill to facilitate the repeal; and House Bill 4174, sponsored by Rep. Brad Jacobsen, R-Oxford, which would exempt schools from the prevailing wage requirement.
However, the legislation has been sitting in the House Commerce Committee for 15 months. No action has been taken because the committee has been busy with other items, said Rep. Frank Foster, R-Pellston, the chair of the committee.
"Prevailing wage is an important issue to address for Michigan's future but it is one of many," Rep. Foster said. "The Commerce Committee has been taking on numerous difficult and complex issues for careful review.
"We are currently diving into the Delphi workers' comp issue, which has been very time consuming. We also have been working on the crowdfunding and state stock exchange proposal, which would allow people to reinvest in their communities. Previously, we spent time on employer drug testing changes in the unemployment statutes, as well as major workers' comp amendments and the parolee hiring package," he said. "Many challenges are facing Michigan, its workers and its job providers. We are moving through all of them as we can. Prevailing wage has not been taken up yet, but it has not been forgotten."
A similar package of bills was introduced in the Senate by Senate Majority Floor Leader Arlan Meekhof, R-West Olive. That legislation, Senate bills 157, 158 and 159, has also been stalled in the Senate Government Operations Committee for more than a year.
On May 1, 2013, Senate Majority Leader Randy Richardville, R-Monroe, who chairs the Government Operations Committee, told the Lansing news service, MIRS, that he didn't want the prevailing wage repeal legislation to move. His actual quote was: "Unless I were to die, I would think that it's not going anyplace."
In November 2013, after the bills had sat in the two committees for nine months, Anderson Economic Group of East Lansing released a report showing that the state's prevailing wage law adds $224 million annually to the cost of construction projects at public universities, community colleges and school districts.
The Michigan Building and Construction Trades Council strongly supports the prevailing wage law.
"We did a lunchbox series back in January and February at which we presented our feeling that the general intent behind the prevailing wage was basically to stabilize wages by regulating the otherwise unfair bidding process that goes on," said Patrick Devlin, MBCTC secretary treasurer. "The prevailing wage law develops high-skilled, high-wage career paths for those in the construction industry."
Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.
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Closing Pensions a Litmus Test for Detroit Reform
'Business as usual' if Legislature caves
A Detroit money-grant and reform legislative package just introduced in the Michigan House contains dozens of new institutional arrangements, but just two critical and concrete changes to the city's finances, one of which is both long term and potentially transformational all by itself: Ending the practice of granting new city employees traditional defined benefit pensions.
Guess which provision is being attacked by defenders of the Detroit status quo, including unions, special interests and the city's political class?
Yet whether the reform package represents something more than just a cover story for delivering more loot to a dysfunctional city comes down almost entirely to that pension piece.
Specifically, will the Legislature demand that no new Detroit employees be enrolled in a retirement system that imposes long-term liabilities on taxpayers? If lawmakers cave, then the current drama is probably just one more chapter in an ongoing history of decline.
This is not to say the many institutional measures are necessarily just "rearranging the deck chairs on the Titanic." But unlike the pension reform, whether they actually do any good is contingent on factors outside the Legislature's control.
One measure in particular — creating a state oversight panel with authority over city budgets, borrowing, union contracts, etc. — could have a genuine impact. Or not. It depends.
If the current or a future governor appoints go-along-to-get-along types who view their job as making whatever compromises are necessary to keep the city's status quo interests politically quiescent, then nothing will change and Detroit will probably remain a failed city. Alternatively, if the oversight appointees see their mission as being fierce watchdogs defending residents and taxpayers against the looters who brought the city down, the panel could do some good.
In other words, whether the new institutional arrangements* have any impact is conditional. They depend on the abilities, energy and marching orders of those who occupy the new deck chairs.
Very different from these "it depends" measures, closing the defined benefit pension system to new employees has an impact that is potentially transformational regardless of any other circumstances, appointments, future election outcomes, etc. It unconditionally puts the city on a glide path to eventually freeing itself from the dead weight of unfunded employee legacy costs.
Moreover, if this pension reform is compromised at the outset — if the defenders of Detroit's dysfunctional status quo win the first critical round — it will likely set a precedent and tone that makes the institutional changes mostly ineffective right from the start.
As mentioned, the package contains one other concrete reform that matters a lot to the city's ability to affordably provide services to residents, and that's capping the value of employee health insurance benefits. This will help even though the proposed limit is hardly rigorous. It still exceeds the average private sector health benefit by around 25 percent.
The Legislature is under a great deal of pressure from Gov. Rick Snyder and various special interests to (once again) hand Detroit a pile of state money. Individual lawmakers who represent districts outside the city are also hearing from constituents who resent being forced to give up state tax dollars and services to once again bailout Detroit.
With the genuine reform of closing defined benefit pensions to new employees, the politicians will at least have a valid response. Without it, just another round of "business as usual" will be a fair conclusion.
(*The other key institutional changes include appointing a chief financial officer for the city approved by the oversight panel and adopting a city budget process that mirrors the one used by the state.)
Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.
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