Debate rages on whether ‘prevailing wage” repeal would save state money

Skilled-trades workers in Michigan, like those repairing the capitol dome in Lansing, will likely see a drop in wages if a prevailing wage repeal becomes law. (photo by Lindsay VanHulle)

LANSING — Inside the Capitol, lawmakers this spring debated whether to repeal Michigan’s prevailing wage law.

Outside, high atop the dome, construction workers were erecting scaffolding, preparing to repair damaged and corroded decorative features on the façade of the 136-year-old building. The $6.4 million project is the first such restoration since 1992.

As is required on all building projects funded with state dollars, its contractor — Lansing-based Christman Co. — pays its workers a prevailing wage, defined as union-scale wages and benefits. In Ingham County, a laborer earns $32.92 per hour under the county’s prevailing wage, according to the Michigan Department of Licensing and Regulatory Affairs. A painter earns $31.74 per hour. An operating engineer’s hourly wage ranges from $37.60 to $51.50, depending on the type of machinery they use.

Those hourly rates are at the center of a statewide and national debate over pay scales on public projects. Legislative Republicans, perhaps emboldened by new leadership and an expanded majority, have made repealing the 50-year-old law a high priority, either legislatively or by ballot initiative.

The push to repeal comes despite opposition from Gov. Rick Snyder, who sees it as detrimental to his efforts to attract skilled labor, and without hard data on whether it would save the state money as proponents claim.

Those factors — and that repeal in general is supported by non-union contractors and not supported by unionized ones — leads some to view the campaign as an attack on labor, akin to right to work.

“There’s no public outcry” about the prevailing wages currently being paid, said Patrick “Shorty” Gleason, legislative director of the Michigan Building and Construction Trades Council, which represents skilled trades unions including ironworkers, plumbers and laborers.

“People aren’t just beating down the Capitol doors saying, ‘You got to take this off the books.’ ”

Repeal introduced

Prevailing wage has been on the to-do list of some GOP lawmakers, contractors associations and conservative interest groups for years without success. But it caught fire in January when the Senate introduced a repeal in the first bills of this legislative session, Senate Bills 1, 2 and 3.

The bills, co-sponsored by new Senate Majority Leader Arlan Meekhof, passed the Senate and are pending in the House. But his counterpart, House Speaker Kevin Cotter, of Mt. Pleasant, doesn’t plan to fast-track a vote on the bills when the governor has implied he might not sign them.

“I would prefer that the governor sign (the legislation), obviously,” said Meekhof, of West Olive, “but if he’s reticent, I’ll find any way to get it done.”

Perhaps anticipating a veto, lawmakers are considering a backup plan — nearly identical legislation led by a petition drive that could not be vetoed by the governor.

A group billing itself as Protecting Michigan Taxpayers has launched a petition drive to collect nearly 253,000 signatures by late November to force the Legislature either to vote to enact repeal or put it on the ballot in November 2016. Snyder can’t veto petition-drive initiatives.

Protecting Michigan Taxpayers is a registered Michigan ballot committee. The petition effort is being funded by the Michigan Freedom Fund and the Associated Builders and Contractors of Michigan, a Lansing-based trade group that includes mostly non-union contractors. Both support repeal.

The Freedom Fund has ties to the DeVos family — its chairman, Greg McNeilly, is an executive at a company owned by Dick DeVos and managed his campaign for governor in 2006.

In a touch of irony, the fund’s new president is Terri Reid, who until last month was Snyder’s external affairs director.

Snyder declined to comment directly on Reid’s departure. Reid did not respond to a message seeking comment, but Tony Daunt, the organization’s operations director, told Crain’s she has a history of promoting grassroots and conservative causes and “she’s excited to be here.”

The repeal effort has lawmakers’ attention.

Cotter said at the Detroit Regional Chamber’s Mackinac Policy Conference that he hasn’t counted votes to know if enough support exists in the House to pass the petition legislation, but “there is broad support for repealing prevailing wage.”

Chris Fisher, ABC’s president and CEO as well as vice president of Protecting Michigan Taxpayers’ board, said the group would not have launched the ballot drive if it wasn’t confident it had lawmakers’ backing.

ABC also sued the city of Lansing in 2012 to throw out its local prevailing wage ordinance. The Michigan Supreme Court has agreed to hear the case on appeal from ABC after the Michigan Court of Appeals sided with the city. A date for oral arguments has not been scheduled.

Inflated rates?

Whether repealing prevailing wage saves money depends on who you ask.

Proponents often cite a 2013 report from East Lansing-based Anderson Economic Group, commissioned by ABC, that found Michigan taxpayers could have saved $224 million per year — and $2.2 billion in total — on K-12 and higher education building construction from 2002 to 2011 if prevailing wage didn’t exist. That was partly due to an assumption that prevailing wage inflated pay rates by 25 percent, the report says.

But that study’s findings were challenged in a 2013 report by University of Utah economics professor Peter Philips, commissioned by supporters of prevailing wage.

Philips wrote that Anderson’s study, authored by Alex Rosaen, based his report on “outdated and miscalculated” assumptions, one of which considered capital outlays on school projects solely as payments to contractors when they also include land purchases and other costs.

Rosaen, Anderson’s public policy and economic analysis director, told Crain’s that Philips’ critique of his use of capital outlay spending was fair and he’ll change the approach in future studies. A narrower accounting would have resulted in lower savings estimates, he said, but not enough to alter his findings.

He based his assumptions in part on findings from previous studies on prevailing wage, including one by Philips.

“This is an area of study where the data aren’t perfect and there are no perfect experiments to have us really know we have the answer right down to the penny, but the answer is very clear,” Rosaen said. “One person’s unnecessary costs are another person’s wages, so policymakers need to weigh one side against the other and think about what they think is most important for our state to have the best quality of life.”

In his study, Philips reviewed data from Kentucky, Ohio and Michigan and found no statistical difference in cost per square foot on school projects. All three states had periods in the 1990s without active prevailing wage laws.

Michigan’s law was suspended from 1994-97 when a federal district court ruled the state’s prevailing wage law was invalidated by the federal Employee Retirement Income Security Act; the U.S. 6th Circuit Court of Appeals later reversed that decision.

The nonpartisan Senate Fiscal Agency, in its analysis of the Senate bills, said it couldn’t determine whether any savings would result from repealing prevailing wage, since the “lack of available data makes it difficult to estimate with any certainty how much would be saved if the bills were enacted.”

Any savings would depend on the new wages paid to workers, as well as how much competition exists at the time contractors bid on projects, the agency said.

Savings like those presented in Anderson’s report “just do not occur in the reality of construction markets,” said Bart Carrigan, president of Associated General Contractors of Michigan, which represents roughly 200 construction firms across the state and is the counterpoint to ABC.

AGC negotiates contracts with trade unions on public projects, including equipment operators, carpenters, masons and ironworkers. Wages are bargained regionally and tend to be highest in Detroit, Carrigan said. Wages generally are set at 75 percent of Detroit-area wages in Lansing, Saginaw and the Upper Peninsula; 68 percent in Grand Rapids; and 65 percent in Traverse City, he said.

Two-thirds of its member contractors use union labor on their projects.

Quality concerns

When Michigan’s law was suspended in the 1990s, any cost savings were short-lived because fewer contractors bid on public projects, which ultimately drove up prices, Mike Stobak, vice president of Southfield-based builder Barton Malow Co.’s public and education group, testified in May before a Senate committee.

In addition, Stobak testified, workers often left contractors in search of higher hourly wages at another company, which prompted concerns about project quality.

“I applaud the effort of exploring more cost-effective means to deliver publicly funded projects, and we should examine all alternatives currently utilized in other areas of the country,” he testified. “But, please, let’s avoid the temptation to take the easy route and return to what we know is a failed approach.”

Mike Houseman, president of Grand Rapids-based Wolverine Building Group’s North America division, said quality and safety on building projects are regulated by the state and have no bearing on prevailing wage.

Houseman said contractors aren’t looking to pay workers less than they already pay, but rather let the market settle on a wage that is truly prevailing in their communities. He considers the prevailing wage now paid in West Michigan inflated because the region doesn’t have as many union-affiliated contractors as metro Detroit does. Wolverine is not a union shop.

Data from LARA show some trades, including boilermakers and asbestos abatement laborers, do earn the same wages in Kent County as in Wayne County.

But for most workers, that’s not the case. A carpenter in Grand Rapids, for instance, earns $27.26 to $35 per hour, while a similar worker makes $46.04 to $51.19 per hour in Detroit. A roofer is paid $25.70 per hour in Kent County and $48.46 per hour in Wayne County.

“We believe that repeal of prevailing wage would be a huge benefit to Michigan and its economy,” Houseman said. “It’ll create jobs. It’ll create more infrastructure projects, as well as ultimately save taxpayers a significant amount of money in the construction of state-funded projects.”

Worker shortage

If prevailing wage is repealed, union leaders say they will have to cut training budgets for skilled trades under pressure from contractors to lower bids.

That’s the alternative to cutting wages and benefits, including health insurance and retirement plans, said Gleason, of the building trades council.

And that’s problematic, union leaders say, considering Michigan has a shortage of incoming workers in the skilled trades.

The work is physically demanding, with unpredictable schedules and outdoor work in a variety of weather conditions. Patrick Devlin, the trades council’s secretary-treasurer, added that repealing prevailing wage could deter people who might otherwise consider the skilled trades out of concern they would be paid less for challenging work.

“The timing couldn’t be worse on this,” Devlin said.

Snyder has made boosting enrollment in skilled trades programs a focus of his administration. On Mackinac Island, TV host Mike Rowe, of Discovery Channel’s “Dirty Jobs,” urged business leaders to fight the stigma that vocational education is somehow less desirable than a four-year college degree.

That’s the irony of the prevailing wage debate happening now, said AGC’s Carrigan. Michigan lost skilled workers to other states and industries when construction shed jobs during the recession, he said, and lawmakers want to curb wages just as the state is trying to lure them back.

But Fisher, of ABC, said it’s prevailing wage — not the lack thereof — that hinders recruiting.

“When you have less construction activity that can be financed, that can be afforded and that can be put into place,” he said, “there is a need for less construction workers, fewer construction companies and overall less construction activity.”