Did you know that raising the minimum wage harms the low-skilled workers the policy is meant to help?
Or that prevailing wage laws artificially increase the cost of public works projects at the expense of lower taxes or expanded government services?
Associate Professor of Economics Matthew Rousu joins us for a wide-ranging discussion on Pennsylvania's labor policy in our latest Google+ Hangout and podcast.
Matt teaches at Susquehanna University in Selinsgrove, Pa., and has written on economics for Forbes and US News and World Report as well as for Pennsylvania newspapers The Patriot-News and The Philadelphia Inquirer.
Matt helps us rethink the impact of economic policies that seem beneficial on the surface but have unintended negative consequences.
Click here for an audio-only podcast version.
Want to hear more from Professor Rousu? Visit his blog on economic policy at paeconomist.blogspot.com.
Pennsylvania legislative leaders continue discussions over increasing transportation funding. In return for higher spending, some negotiators are seeking modest, common sense reforms to the prevailing wage law. These reforms would save taxpayers an estimated $40 million each year.
However, many union leaders are refusing to compromise or even come to the table, calling the archaic prevailing wage law their "Holy Grail."
Our 50 year old prevailing wage law adds no value to construction projects, but costs taxpayers a bundle—upwards of $900 per year for the typical family of four. The law requires the state to set the "prevailing wage" (a union-inflated amount, usually higher than the same workers make for the same work on private projects) paid by state and local governments on any public construction projects above $25,000.
The threshold has not been adjusted since the early 1960s, when $25,000 was twice the cost of the average home. Just adjusting for inflation, the threshold should be around $200,000. HB 796 raises the threshold to only $100,000.
According to the bill’s fiscal note, this single reform would save about $14.9 million annually. That savings could be used to complete additional projects, like fixing bridges.
Another common sense reform on the table is excluding road maintenance from the mandate. HB 665 would save the commonwealth an estimated $8 million, counties $1.4 million and municipalities $17.4 million each year.
Regardless of what happens with the transportation bill, it's past time we make these common sense reforms to ensure taxpayers are getting the most bang for their buck. Laws like prevailing wage ensure we'll continue to waste scarce resources to protect special interests.
An archaic Pennsylvania law may be stretching your school district’s budget or preventing a construction project in your area from getting off the ground. The law in question is the Pennsylvania Prevailing Wage Act. It was enacted in 1961 to protect construction workers from out-of-state competition, and mandates contractors pay inflated wages on all government-funded construction projects in excess of $25,000.
This law unnecessarily increases costs to taxpayers by requiring state and local governments, including school districts, to pay more in wages and benefits than they otherwise would, and more than construction contractors pay for the same work on private projects. The mandate also means less funding to complete other construction projects.
Fortunately, we have an opportunity to fix prevailing wage. Pennsylvania lawmakers are currently debating increased funding for transportation, including a discussion of prevailing wage reform. Ending prevailing wage ensures taxpayers are getting the most bang for their buck.
To read more on prevailing wage reform, check out our policy points on Pennsylvania's prevailing wage law.
Before taxpayers are asked to give more for Pennsylvania's transportation needs, are current transportation tax dollars being spent wisely? That's the question several lawmakers are asking, as time winds down on the Governor's budget priorities, of which transportation is one.
Earlier this month the state Senate approved a bill that would fund a $2.5 billion increase in Pennsylvania's transportation funding, but the bill could be in trouble after conservative House lawmakers stated they would not support the plan without prevailing wage reform.
The half-century-old prevailing wage law adds zero value to the taxpayers but costs us a bundle—upwards of $900 per year for the typical family of four. The law requires that a community's "prevailing wage" (a union-inflated amount) be paid on public construction projects above $25,000. The $25,000 threshold has not been adjusted since its early 1960s level, when the average home cost half that amount. Previaling wage doesn't just hit taxpayers, it stretches the budgets of townships, counties, boroughs, cities and school districts.
Tuesday, Reps. Marsico, Millard, and Bloom discussed the prevailing wage reforms they are seeking via a Google Hangout broadcast. Their reforms include excluding road maintenance from prevailing wage, raising the $25,000 project threshold to $100,000, and allowing local governments the ability to opt-out of prevailing wage laws.
Before any transportation taxes are increased, we should demonstrate that the billions we already spend on transportation are maximized. Prevailing wage reform is one way to ensure taxpayers are getting the most bang for their buck.
For more on the budget prevailing wage discussion, watch the entire Google Hangout here. For more background on Pennsylvania's prevailing wage law and its impact on school districts, local governments, and taxpayers, click here.
We've reported before about how Pennsylvania's outdated prevailing wage law imposes needless extra construction costs on local governments and school districts across the commonwealth, hurting taxpayers. The law requires that a community's "prevailing wage" be paid on public construction projects above $25,000—which is in practice the union-inflated wage. The $25,000 threshold figure has not been adjusted since its early 1960s level, when the average home cost half that amount.
One outrageous example of the impact of prevailing wage comes from South Western School District in York County: The cost for a roof repair project skyrocketed 50 percent when officials factored in prevailing wage, going from $84,504 to $126,825—for no added benefit or better construction quality.
Turns out prohibitive prevailing wage costs are preventing more than one school district from undertaking roof repairs. Central York School District needs to repair a 30,000 square-foot section of its middle school roof. Without prevailing wage, the project cost would be $115,000 for materials, and $75,000 for labor at the market wage, for a total project cost of $195,000.
Additional labor costs under prevailing wage, however, add an extra $85,000 to the bill, for a total project cost of $275,000. That's a 45 percent increase for the exact same job. School district officials have decided to defer the project in the hopes that Pennsylvania's legislature will finally pass a common-sense reform raising the minimum prevailing wage threshold from $25,000 to $185,000. In that case, officials hope to re-bid the project so the roof repair falls under the threshold, and save a good $100,000.
One school board member told the York Dispatch: "While I understand that we are required to pay these additional costs, it still really chaps me up." Complying with the prevailing wage mandate forces officials to delay even basic repairs in a time of strained budgets. Lawmakers should pass prevailing wage reform now, and let schools put a decent roof over their students' heads.
We've mentioned many times that the real party controlling the Pennsylvania legislature is not the Republican Party, but rather the Union Party.
Today, in a story by the Pittsburgh Post-Gazette's Tom Barnes, the Union Party "Republicans" lay their cards on the table for all to see.
Republican Rep. Gene DiGirolamo, a Bucks County Union Party member, has formed his own political action committee (PAC) called Good Jobs PA—primarily funded by union PACs—to funnel money to Republicans who will vote against high priority items like prevailing wage reform or liquor store privatization. As Barnes notes:
He has created a political action committee, called GoodJobsPa, which gets donations, mostly from labor unions, and gives the money to liberal-leaning House Republicans, such as Mr. Marshall ($5,000) and Reps. Tom Murt of Montgomery ($2,500), Rep. Bob Godshall of Montgomery ($500) and Rep. Joe Hackett of Delaware County ($2,500).
DiGirolamo reads straight from the union's talking points when trying to explain why he is working to thwart reforms that will save taxpayer dollars. On prevailing wage—a mandate that local governments pay state-established wages on construction projects, regardless of the going market wage—he claims that identified savings won't benefit taxpayers, but will only increase "profits" for contractors. This, of course, is untrue as the lower costs of public projects on the front end would reduce taxpayer outlays to these very same contractors at the back end.
Furthermore, DiGirolamo conveniently overlooks the fact that contractors make a profit off of government projects now, and he intentionally ignores real-world examples of savings identified by local governments. Indeed, a broad coalition, including local government officials from townships to boroughs to counties to school boards across Pennsylvania, has called for prevailing wage reform.
DiGirolamo also criticizes plans to let the private sector run liquor stores, claiming that privatization will lead to more alcohol abuse, and repeats myths about liquor store "profits". Of course, these talking points have long been debunked, but union money trumps facts and evidence.
Republican Rep. Jim Marshall, one of the key recipients of Good Jobs PA PAC money, backs up DiGirolamo, taking the union side against taxpayers. Marshall claims that paying construction workers market wages—freeing up money for additional projects, or for tax reductions—represents an "attack" on jobs. Marshall adds that he doesn't see a "glaring problem" with government-run liquor stores—a claim that has 70 percent of voters scratching their heads.
The Pennsylvania House of Representatives may soon vote on legislation that will update the half-century-old Prevailing Wage Law that adds zero value to the taxpayers but costs us a bundle -- upwards of $900 per year for the typical family of four.
Today, we joined with a broad goup of organizations representing business, taxpayers, and local government officials working for a minimal improvement of the law -- indexing the threshold to inflation.
Will the Union Party prevail once again on Prevailing Wage? For the sake of the taxpayers and local governments trying not to raise taxes, we hope not!
April 3, 2012
To the Honorable Members of the Pennsylvania State House:
The undersigned organizations representing local governments, the business community, taxpayers and others write to urge your support for H.B. 1329 as written, which would raise the threshold for a public project to be subject to the PA Prevailing Wage Act. This bill will help ease financial burdens for counties, municipalities and school districts, mitigate property tax increases and create jobs.
Our organizations support repealing the PA Prevailing Wage Act, which mandates that workers on public projects be paid anywhere from 30 to 75 percent above the market rate. The Commonwealth, counties, municipalities and school districts are operating with increasingly limited funding and this mandate is one more obstacle impeding efforts to balance local budgets while still providing essential services and important public works projects.
This premium provides no benefit to the public while adding billions of dollars in extra costs for those most unable to afford it: Pennsylvania taxpayers. Based on estimates of the amount spent on labor costs for public projects and the disparity between average wages and "prevailing" wages, in 2010 this mandate costs a typical Pennsylvania family of four up to $900. This extra cost for taxpayers does not buy a bigger building, better materials or a safer structure and it is simply wrong to ask Pennsylvania residents to incur this expense when they get nothing in return.
H.B. 1329 would raise the threshold from $25,000 to $185,000 to account for inflation over the 50 years since the original threshold was set. Even prevailing wage supporters cannot deny that the original legislators who facilitated passage and implementation of this Act must have had some concept of the type and scale of project to which prevailing wage should apply, or why include a threshold at all? Clearly, $25,000 does not buy in 2012 what it did in the early 1960s.
That is why hundreds of local governing bodies from all over the Commonwealth have expressed support for this bill, and prevailing wage reform in general, through resolutions, outreach to the media and contact with their local state legislators. Their message is clear: this legislation will create jobs by allowing local governments to use taxpayer dollars more efficiently, allow them to carry out long-overdue maintenance such as road repairs, and initiate more public projects.
We urge you to support H.B. 1329.
This week, the Pennsylvania House is set (yet again) to consider basic reforms to Pennsylvania's outdated prevailing wage law, which mandates that union-scale wages be paid on taxpayer-funded construction projects above $25,000.
We've noted before how the prevailing wage is on average 51 percent higher than the market wage—and for construction that is no better in quality. In 2010, Pennsylvania spent $12.7 billion on government construction projects subject to prevailing wage, such as roads, bridges and school buildings. Without prevailing wage, taxpayers could have saved between $1.3 billion and $2.5 billion. That's an extra $400 to $900 in needless taxes for the average family of four.
Trade and construction unions often argue that prevailing wage barely raises construction costs, and doesn't hit taxpayers hard. But across the commonwealth, township and borough supervisors and county and municipal officials beg to differ. From Butler to Bucks, officials with strained local budgets are pleading with lawmakers to reform the prevailing wage mandate. From experience, they offer proof of how prevailing wage raise taxpayers' building costs:
- Carroll Valley Borough in Adams County reported that they had road/storm water damage in April 2011. Their engineer's estimate to repair the damage was $45,000, with prevailing wage. Instead of using outside contractors, the borough decided to use in-house workers, thus avoiding prevailing wage requirements. The cost then? $6,958. (From the Pennsylvania State Association of Township Supervisors, PSATS).
- Franklin Township in Adams County reports that their 2008-09 Cashtown/McKnightstown sewer project was $8 million...the township contributed $1.2 million towards the project. This project serves 261 households, 26 businesses, and an elementary school. According to the township, if it did not have to comply with prevailing wage, the total cost would have been $2 million less (from PSATS).
- A proposal for a roof repair project in South Western School District in York County initially came in at $84,504, without factoring in prevailing wage rates. The contractor resubmitted his proposal for the exact same scope of work and included the payment of prevailing wages and the total cost of the project increased from $84,504 to $126,825—an increase of $42,321 or 50 percent, which was footed by local taxpayers (from the Pennsylvania School Boards Association).
When it comes to road repairs, the prevailing wage law could well be Pennsylvania's "Pothole Mandate." Many local governments can no longer afford to pave their roads because prevailing wage hikes costs too high. More examples from PSATS:
- Morgan Township in Greene County has not bid out a paving job since the Youngwood decision (a 2008 PA Supreme Court ruling that subjected more maintenance work to the prevailing wage law). Instead, the township has resorted to using tar and chip, sealcoating, and other pavement maintenance methods from 30 to 40 years ago to extend the life of their roads because the preferred maintenance method, paving, is no longer affordable.
- Frenchcreek Township in Venango County may return its roads to a gravel surface as they deteriorate, because the township simply cannot afford to maintain hard-surfaced roads.
- In 2009, Rose Township in Jefferson County oiled and chipped a road that is a high-traffic major route to a neighboring township and another road used as a short cut between two state highways. The township was able to oil and chip these two roads for $36,000. The township would have liked to have paved them both, but the total estimated cost, including prevailing wage, was more than the township could afford.
Our local governments are fighting to provide essential services, and giving them prevailing wage relief would allow them to do more with less. House members will vote on a bill this week that simply adjusts the prevailing wage thresholdfor inflation, from its early 1960s level of $25,000 to $185,000.
Click here to contact your lawmaker about passing the reform.
No sooner did we release research documenting the iron grip of Pennsylvania's labor unions on the commonwealth's taxpayers than they obliged us with a case-in-point on union bullying tactics. Some 40 "concerned taxpayers"—disgruntled construction workers—turned up outside House Majority Whip Stan Saylor's office in York protesting very basic reforms to state law that would allow local governments to use taxpayer funds more efficiently.
One of the reforms? Raising the threshold for "prevailing wage" projects from $25,000 (the unchanged 1960s level) to $185,000 (adjusted for inflation). Pennsylvania's 1961 prevailing wage law mandates that a community's "prevailing wage" be paid on publicly funded projects of $25,000 and higher. In practice, the "prevailing wage" is the union-inflated rate found in collective bargaining agreements. On average, it is 51 percent higher than what we pay in the private sector for identical construction of equal quality.
You wouldn't know it to hear the picketers outside Rep. Saylor's office. "Cutting the wages of hard working taxpayers is not fair" their flyer proclaimed, singling out Rep. Saylor's $80,000 salary as further evidence of unfairness. But Rep. Saylor is right: It isn't fair for taxpayers to pay extra in prevailing wage for no added benefit. While one carpenter claimed his salary was still only "two-thirds of the big-city pay," carpenters on prevailing wage projects in York County still get paid 19 percent more than those working on private projects. And York's prevailing wage for other workers—plumbers, electricians, roofers, and others—ends up 50 percent higher than the regular occupational wage.
Prevailing wage reform—and the other efforts Rep. Saylor supports—will ensure taxpayer dollars are not wasted. We're already facing a four-alarm fire with our budget. Unions won't tolerate even the slightest spending reforms: Evidence, yet again, that Pennsylvania's taxpayers are in their grip.
Yesterday, we noted how Pennsylvania's prevailing wage law is a "rent" for labor unions. Here's an example of how it plays out in real life—when our schools are hit with higher construction costs because of the mandate. So, pop quiz: Would you pay $84 or $126 for the exact same product?
When it comes to Pennsylvania's "prevailing wage" law, we force the taxpayers to pay $126. That's precisely what happened to taxpayers in the South Western School District in York County. But instead of it being $126 and $84, it was $126,825 instead of $84,504.
You see, when the South Western School District needed some roof repairs, the initial proposal from the contractor came in at $84,504. However, prior to obtaining Board approval, business officials inquired as to whether the proposal had used prevailing wage rates since the total cost of the project exceeded $25,000. The contractor indicated that the initial proposal did not include the artificially increased wage rates. He had used the wages being paid on a similar project in the private sector, like the roof of a large office building.
The contractor resubmitted the proposal for the exact same scope of work and included the payment of prevailing wages. Guess what: The total cost of the project increased from $84,504 to $126,825! That's an increase of $42,321, or 50 percent, for exactly the same product with the same skilled workers. The only difference is that the taxpayers in South Western School District got a 50 percent higher tax bill for the same work.
Thank goodness we taxpayers don't have to pay so-called "prevailing wages" on all the labor that government purchases from contractors. For example, when the state contracts with technology companies, law firms, food service companies or office supply vendors, we don’t mandate certain wage levels for computer techs, lawyers, food servers or Staples employees. So why do we do it only for public construction jobs?
The short answer is this is what happens when the Union Party controls Pennsylvania state government rather than the Taxpayer Party. Of course, we should end such unnecessary mandates such as prevailing wage entirely, but until the Taxpayers have a majority in the Pennsylvania General Assembly, we should at least increase the prevailing wage threshold from $25,000 to $185,000.
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