California Governor Jerry Brown claimed in his State of the State address that California now has “a solid and enduring budget.” His Finance Department even predicts state budget surpluses.

Despite the jubilation at the state capitol inspired by tax increases and one-party rule, California cities seem skeptical, as shown by their continued efforts to exercise their state constitutional rights to govern their own municipal affairs, free of costly and burdensome state mandates. And unions remain determined to undermine them.

The elected council of the Central Coast city of Arroyo Grande has appointed a committee to determine if it should ask voters to approve a home-rule charter, and union officials are interfering through ”stiff opposition.” The elected council of the Central Coast city of Buellton is going to hold a workshop on a proposed charter, as union officials fight the proposal there too.

Meanwhile, on January 22, 2013, the Newport Beach City Council voted 7-0 to exercise its home-rule power as a charter city to establish its own policy concerning government-mandated construction wage rates (so-called “prevailing wages”). See the text of the resolution below.

RESOLUTION NO. 2013-6

A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH EXEMPTING LOCALLY FUNDED PUBLIC WORKS PROJECTS FROM PREVAILING WAGE

WHEREAS, the California prevailing wage law requires contractors on public works projects to be paid the general prevailing rate of per diem wages for work of a similar character in the locality in which the work is performed;

WHEREAS, under the California Constitution, Article XI, Section 5, the laws of charter cities supersede state law with respect to municipal affairs of the city;

WHEREAS, the California Supreme Court has held that the wage levels of workers constructing locally funded public works are a municipal affair, and therefore a charter city’s prohibition on the payment of prevailing wage supersede state law; and

WHEREAS, the City of Newport Beach (“City”) is incorporated as a charter city, and thus the City may exempt locally funded public works projects from prevailing wage to conserve the City’s limited resources.

NOW, THEREFORE, the City Council of the City of Newport Beach resolves as follows:

SECTION 1: The City of Newport Beach exempts locally funded public works projects from prevailing wage, unless: (1) prevailing wage is compelled by the terms of a federal or state grant or is otherwise funded from a source that requires prevailing wage; (2) the public work is a matter of statewide concern; or (3) the payment of prevailing wage is separately authorized by the City Council, because the project is of a complexity and nature that the public interest would be served by requiring prevailing wage.

SECTION 2: This resolution shall take effect immediately upon its adoption by the City Council, and the City Clerk shall certify the vote adopting this resolution.

ADOPTED this 22nd day of January, 2013.

The January 22, 2013 staff report to the Newport Beach City Council recommended that it establish its own government-mandated construction wage rate policy:

…the City of Newport Beach, as a charter city, is not required to pay prevailing wage for locally funded public works projects. The City may adopt either an ordinance or a resolution to affirm its municipal autonomy and conserve valuable financial resources by exempting itself from the prevailing wage requirement for locally funded public works contracts. In the absence of an ordinance or resolution, the City may exempt itself from the payment of prevailing wage through the insertion of language into individual contracts (i.e., creation of an “actual conflict” through explicit contract terms). However, to ensure consistency staff recommends the adoption of the attached resolution. The attached resolution provides an exemption for public works projects, unless: (a) prevailing wage is compelled by the terms of a federal or state grant, or other funding source; (b) the public work is a matter of state-wide concern; or (c) the payment of prevailing wage is separately authorized by the City Council due to a project’s complexity or nature that the public interest would be served by requiring prevailing wage” to the third type of project for which the City might wish to pay prevailing wage.

Before the vote, the city attorney pointed out that the state’s definition of “public works” is ridiculously broad and recommended that the city council ensure flexibility and adopt a policy to “opt-in” to state-mandated construction wage rates. Councilman Michael Henn had the courage to state publicly that “prevailing wage” is a unique “anachronism of the construction industry” and noted that most business in America is done without government-mandated prevailing wage rates.

Study Session: Applicability of Prevailing Wage to City Projects

As a prelude to the agenda item, the Newport Beach City Council convened earlier in the day for what the city attorney described as a “fairly long study session” (Discussion Regarding the Applicability of Prevailing Wage to City Projects) to discuss exercising its right as a charter city to establish its own policy concerning government-mandated construction wage rates (so-called “prevailing wages”) on purely municipal construction projects.

A leader of the Los Angeles/Orange County Building and Construction Trades Council [no web site] led off the public comment by showing a professionally-produced video called “Right the First Time” that promotes state prevailing wage laws through anecdotes and interviews with union-backed politicians. It neglects to mention the state’s absurd methods of calculating prevailing wage and defining public works. In addition, the video claims that prevailing wages are set by the free market, even though California Labor Code Section 1773 directs the state to set prevailing wage rates based on the applicable union collective bargaining agreements.

Other speakers represented union-affiliated groups such as Smart Cities Prevail and unionized construction trade organizations such as the Fire Sprinkler Advisory Board of Southern California, the Western Wall & Ceiling Contractors Association, the National Electrical Contractors Association (NECA) – Orange County Chapter, and the Western Steel Council. A few unionized contractors (locked into multi-year collective bargaining agreements) also spoke in defense of state-mandated construction wage rates.

Evening Meeting: Unanimous Approval of the Resolution

At the evening meeting, a collection of union representatives, unionized construction trade associations, and unionized contractors once again asked the city council to keep state-mandated construction wage rates. They again cited the usual union arguments about cheap, unskilled, out-of-town labor by uninsured and unlicensed contractors.

Notice how this letter from the National Electrical Contractors Association (NECA) says that quality construction requires “living wages and benefits,” as if the alternative to state-mandated construction wage rates is the California minimum wage of $8.00 per hour. Actually, state-mandated prevailing wages are typically four to six times higher than “living wage” rates set by local governments. For example, the “living wage” for the City of Irvine (in Orange County, near Newport Beach) is currently $13.13 per hour including benefits. The median wage (not including benefits) for an electrician in Orange County is $27.15, according to the California Economic Development Department. But the state-mandated total straight time “prevailing wage” for an inside wireman electrician in Newport Beach is $54.83 per hour, including fringe benefit payments and payments to “other” trust funds that do not directly benefit the employee.

A staff representative of Smart Cities Prevail (a union-affiliated labor-management cooperation committee) argued against the resolution, claiming the policy could result in economic “uncertainty and insecurity.” A representative of the unionized Fire Sprinkler Advisory Board of Southern California noted that prevailing wage contractors offer quality. A leader of the Los Angeles/Orange County Building and Construction Trades Council encouraged the city council to continue requiring its contractors to abide by the state-mandated wage rates and warned of cheap labor from out of the area. A representative of the National Electrical Contractors Association (NECA) claimed that construction workers are “part-time workers” that work eight months a year and don’t get vacations or sick days. A union contractor said “we can afford it in Newport Beach” and noted many sections of the California Labor Code would be nullified. Also speaking against the policy was a union-oriented consultant formerly involved with labor relations for the Bay Area Chapter of the Sheet Metal & Air Conditioning Contractors National Association (SMACNA).

All that needs to be said in response: In 2012, the City of Newport Beach entered into a $5,880.00 maintenance contract for “abatement of algae around the Grand Canal beaches of Balboa Island” that included the requirement for the contractor to pay state-mandated construction wage rates (prevailing wage). Is it really the business of the state legislature to impose such a requirement on the City of Newport Beach for $6000 in algae clean-up?

News Coverage of Newport Beach City Council Vote:

Newport Triggers Dock-Fee Increases, Cost-Saving Labor Contracts - Orange County Register – January 23, 2013

City Eschews Prevailing Wages: The City Council voted to exempt Newport Beach from a state requirement that compels cities to pay workers prevailing wages - Newport Beach/Corona Del Mar Patch – January 24, 2013.)

Council Closes Book on Dock Fee Increases (In other business…) – Newport Beach/Costa Mesa Daily Pilot – January 23, 2013

For More Information:

Are Charter Cities Taking Advantage of State-Mandated Construction Wage Rate (“Prevailing Wage”) Exemptions? - 3rd Edition

List of California’s 121 Charter Cities

California Supreme Court Affirms State Prevailing Wage Requirements Do Not Apply to Charter Cities - League of California Cities – July 2, 2012

Kevin Dayton is the President and CEO of Labor Issues Solutions, LLC and is the author of frequent postings about generally unreported California state and local policy issues at www.laborissuessolutions.com.

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