Let Common Sense Prevail on School Construction Projects

In the current debate over school property tax reform in Pennsylvania, all of the plans under consideration in Harrisburg focus solely on the revenue side of the school finance equation – deciding which pocket of the taxpayer to pick. Largely absent from the discussion has been the root cause of escalating property taxes in Pennsylvania – public school spending.

Indeed, any property tax “reform” plan that does not address the spending side of the ledger is doomed to fail. Every state in the nation – except Pennsylvania – gives taxpayers some form of control over their school tax increases, such as a voter referendum. However, the proposals currently under consideration are so loophole-laden that they will only provide a façade of protection for taxpayers.

But there is another way the General Assembly and Governor Ed Rendell can provide taxpayers with immediate relief: Repeal the so-called “prevailing wage” mandate for public school construction projects. School boards across Pennsylvania have been crying for relief from this mandate for years, because it artificially increases the cost to taxpayers to build school facilities.

Since 1961, Pennsylvania law has required public bodies – including school districts – to pay the “prevailing wage” rate for publicly funded construction projects of more than $25,000. This rate is a state-mandated, often union-based wage rate for a local area that is typically higher than the market wage. These inflated costs are paid by taxpayers through higher-than-necessary property taxes.

The evidence from Pennsylvania and other states with prevailing wage requirements has shown that construction costs in those areas were 10 to 30 percent higher than for non-prevailing wage construction. In fact, no less an authority than the Pennsylvania School Boards Association (PSBA) has argued that the prevailing wage mandate raises school construction costs substantially. In 1997, the PSBA conservatively estimated that taxpayers spend an extra $90 million annually on school construction to comply with the prevailing wage requirement, and that the final cost was likely higher due to the multi-year nature of many school construction projects.

In the current legislative session, three different bills have been introduced to provide Pennsylvania school districts with relief from the prevailing wage mandate. Rep. Ron Marsico’s House Bill 272 and Sen. Mike Waugh’s Senate Bill 878 would make the prevailing wage requirement optional for all local governments (including school districts), while Rep. Chris Ross’s House Bill 947 would make the requirement optional for school districts only.

Regrettably for Pennsylvania taxpayers, all of those bills remain bottled up in the Labor committees doomed to die a silent death, despite the fact that repealing the prevailing wage requirement for school construction is not an untested policy prescription. Other states, such as Florida, Michigan, and Ohio, have realized significant savings for taxpayers in the absence of such mandates.

Florida removed its prevailing wage requirement for school construction from 1974 to 1978. Taxpayers realized an average annual savings of 15 percent during that time. The success of the change led the Florida legislature to repeal the state’s prevailing wage law entirely in 1979. In Michigan, from December 1994 to June 1997, a time in which the state’s prevailing wage law was found to be in conflict with federal law and was not applicable, taxpayers saved at least 10 percent on school construction projects.

Finally, in 1997, Ohio revised its prevailing wage law to exempt school construction projects. A 2002 study by the Ohio Legislative Service Commission found that school districts realized a 5-year aggregate school construction savings of $487.9 million, or 10.7 percent. The study also found that the users of Ohio school buildings were “generally satisfied” with their quality, and that the quality had not decreased as a result of the prevailing wage exemption.

Pennsylvania’s prevailing wage requirement for school construction – indeed, for all publicly funded projects – does little but serve as “an entitlement established for the benefit of construction workers,” in the words of PSBA.

Regardless of the outcome of the school property tax reform debate, Pennsylvania lawmakers can give the state’s beleaguered taxpayers some much-needed relief by taking the common-sense step of repealing this costly and unnecessary mandate, first for school construction, and ultimately for all taxpayer-funded projects.

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Matthew J. Brouillette is president & CEO of the Commonwealth Foundation (www.CommonwealthFoundation.org), an independent, non-profit public policy research and educational institute located at the foot of the Capitol in Harrisburg.