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The Union Devil Is in the Details

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Great attention has been focused on the exorbitant cost of the tax-funded pensions and other employee benefits of public-service unions. But the public costs of granting state-backed privileges to other, non-public-service unions are less visible, because they often occur on a local rather than a state or national level.

One source of these costs is called a “Project Labor Agreement” (PLA) or a “Community Workforce Agreement.” This is an agreement by which an employer or organization commits to collective bargaining with a labor union or unions in order to establish the terms of a contract, typically a construction one. This commitment occurs before hiring. If bids for work are solicited, then the PLA’s terms become prerequisites for those who wish to enter the process. When the contract is for a public project, the taxpayer absorbs whatever the difference would be between a nonunion bid and a union one.

The PLA mandate

In some cases, the use of PLAs in public projects is virtually mandated by government. For example, in February 2009, Obama issued an executive order entitled “Use of Project Labor Agreements for Federal Construction Projects.” The order stated, “It is the policy of the Federal Government to encourage executive agencies to consider requiring the use of project labor agreements in connection with large-scale construction projects.” Since the executive agencies are headed by and accountable to the president, the order has assumed the status of a mandate rather than a suggestion.

The February order was preceded by three other prounion executive orders in January. In its “Construction Update — Fall 2009,” the influential law firm Whiteford, Taylor & Preston examined the four executive orders from that year and stated

In an effort to make good on his campaign promises to provide governmental support for labor unions, President Obama has signed a series of Executive Orders that abruptly change certain rules concerning government contractors and their relations with their employees, and also make other significant adjustments in labor-management relations — adjustments designed to enhance organized labor’s ability to organize and flex its bargaining muscle.

A headline in the Washington Post (February 12, 2009) on the February order declared, “Construction Groups Decry Obama’s Executive Order on Rules for Federal Building Projects.” It reported, “two of the biggest construction industry trade groups” denounced the move because union rules raise costs and destroy jobs. Interestingly, the order came on the heels of an “estimated $150 billion that was set aside for construction projects” in a stimulus package passed by the House. According to Stephen Sandherr, then-chief executive of the Associated General Contractors of America, it also came at a time when 1 million construction workers had been laid off. (Nonunion labor then constituted 85 percent of the industry.)

Of course, the trade groups were also (or primarily) complaining about being shut out of the bid process unless they accepted union rules; PLAs mandate that all bidders be willing to comply with union rules, such as pension contributions. Ben Brubeck, of the Association of Builders and Contractors, argues that federal “PLAs basically discourage or cut competition from all of those potential (non-unionized) employees, while a small group of employees are getting a massive payback and really getting a huge advantage.”

Meanwhile, the impact on nonunion workers used on PLA projects would be punitive; they would be required to give a healthy slice of their wages to union pension funds with no real prospect of receiving anything back. In the spring of 2010, Republican Representative John Kline claimed the PLAs were a way to help “scrambling” unions add contributors to their “grotesquely” under-funded pension plans. He argued that unions “are desperate.… [T]he real solution here is for them to seriously look at the benefits and renegotiate the exorbitant benefits that they’re getting — in other words tightening their belt – and they’ve been unwilling to do that, so they’re scrambling for anything else to make these things solvent.”

Government officials have countered with the argument that PLAs have actually lowered costs by providing such factors as a stable workforce. Is that true? Do PLAs lower costs? A recent situation in California gives an answer in microcosm.

The impact of PLAs revealed in microcosm

Oxnard Union High School District oversees public schools in Oxnard, California, in Ventura County, which is north of Los Angeles. In 2004, voters passed Measure H, which provided a $135 million bond to build two new schools and improve existing campuses.

A recent headline (April 8) on Union Watch announced, “‘Staggering’ Cost of New High School in California: Project Labor Agreement Blamed.” (Union Watch is an educational foundation dedicated to providing information on the impact of unions on government budgets and accountability.) The proposed school was the Rancho Campana High School, which had a projected construction cost of $42–45 million.

The district awarded a construction contract to the local company S.C. Anderson on October 23, 2013. The tangle that followed dramatizes the perils of introducing PLAs into planning.

On November 20th, the prospect of a PLA was discussed at a district public board meeting. The Ventura County Star (Nov. 22) reported, “Union members and supporters of a PLA say having such an agreement would ensure local workers are hired and the project is finished on time without increasing construction costs. About 200 union members, representing carpenters, electricians and other construction workers, attended the board meeting wearing hard hats” (PDF).

At a special November 25th meeting, the district approved the creation of a PLA that would be negotiated between the union and the contractor (PDF). As Union Watch commented, “union political pressure made the deal inevitable.” California’s unions are among the most powerful in America; both houses of the state legislature enjoy a pro-union Democratic majority.

Meanwhile, the district’s Citizens Bond Oversight Committee recommended rejecting the PLA, largely because it would increase the cost of construction. Nevertheless, on December 18, the district approved the PLA.

S.C. Anderson began to receive bids from subcontractors for various aspects of the construction. Although it is difficult to judge the motives of actions not taken, at least some local subcontractors stated they did not bid because of the complex requirements of the mandated PLA. This limited the pool of bids and may have driven up prices.

On February 12, 2014, the district voted unanimously to accept a negotiated guaranteed maximum price of construction: $58,285,794. The original cost was estimated at $42–45 million; the negotiated one was approximately 30% higher than the highest prior estimate. According to a report in the Ventura County Star, school officials said that “A union-friendly labor agreement and a tight construction timeline are factors in the increased costs.”

Union Watch commented more pointedly,

The “biggest factor” cited was the government-mandated Project Labor Agreement.… Most damaging was the electrical package.… There were three bids very close to each other, but those three bids were double the original estimate. Is it any surprise that the International Brotherhood of Electrical Workers … aggressively lobbies elected officials at California local governments to mandate Project Labor Agreements?

Union Watch speculated that, since unions were aware that nonunion bidders were dropping out, they may have hiked their own bids accordingly. Thus, PLAs “cut bid competition and raise construction costs, for the benefit of unions at the expense of taxpayers.”

Other commentators were more pointed still. A blogger on California Political News & Views blasted, “What is the cost of a union monopoly and ownership of a school board? What does it cost to honest students, parents and taxpayers? Why do the people of Oxnard and elsewhere allow themselves to be blackmailed into spending $15 million or so to an organization that has power and money, not education as its goal?”

Conclusion

A comprehensive study of the economic impact of PLAs on California construction was issued in 2011, entitled “Measuring the Cost of Project Labor Agreements on School Construction in California” (PDF). The study stated,

We examine the inflation-adjusted square foot construction costs for 551 school projects in California built between 1995 and 2009. Sixty-five of these projects were built using PLAs in eight separate school districts. Our research shows that PLAs are associated with higher construction costs. We found that costs are 13 to 15 percent higher when school districts construct a school under a PLA.

The incredible costs of pensions and other benefits attached to public-service unions deserve a harsh spotlight, but the costs of other unions need equal attention. This is especially true because so much of the expense is hidden in local agendas at meetings controlled by small handfuls of people. Public money should never be spent in the shadows.

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    Wendy McElroy is an author for The Future of Freedom Foundation, a fellow of the Independent Institute, and the author of The Reasonable Woman: A Guide to Intellectual Survival (Prometheus Books, 1998).