CEOs and Business Leaders for Prevailing Wage? The Truth About SB 7

I am a bottom line, hard-nosed, results oriented, fiscally conservative CEO. And I represent hundreds of business leaders with the same profile. And what do we all have in common? We all support prevailing wages as a way of building California infrastructure. Prevailing wage laws provide a stable platform for attracting and retaining professional construction talent, a method of assuring quality for taxpayers in project construction and delivery; and a cost to value ratio that appeals to my "What am I really getting for my money?" CEO sensibility.

SB 7, introduced by Senate Pro Tem Steinberg and Sen. Canella, would make charter cities eligible to receive or use state funds for a public works project only if the city has a policy of requiring contractors on all of its municipal projects to comply with the state’s prevailing wage law. SB 7 creates a framework of understanding that construction is not a business of default to the lowest denominator. Not in quality, schedule or talent. It is not a business where low compensation and absence of benefits translates to better business and public sector outcomes.

The State of California instituted prevailing wage laws to ensure a stable platform for compensation, competition, quality and the development of skilled workforces. While the majority of California’s charter cities promote and preserve prevailing wage standards, several California charter cities have attempted the elimination of prevailing wage requirements from city projects as a purported cost-cutting measure. This is a short-sighted effort where the costs far outweigh any perceived benefit. The elimination of the prevailing wage would allow contractors to lower their bid proposals by severely cutting employee compensation and eliminating benefits. Competition in the industry should be based on the way the work is executed, not how little you can pay people and get by.

Opponents of prevailing wage are fond of citing a prospective 30 percent savings by elimination of prevailing wage. Those who make this argument are either misled or deliberately misleading. Elimination of prevailing wage is simply not a significant area for prospective savings; in fact, just the opposite. According to the 2007 Census of Construction, the average total labor cost on public works projects in California is about 22 percent. That means we would need to eliminate every single worker on every project to achieve those projected savings. Maybe it’s just me, but clueless does not seem credible. And having zero workers on a job does not move it along very well.

Also, research shows that charter cities that eliminate prevailing wage standards on local projects are likely to shift costs onto state taxpayers by shifting the burden of health care from the employer to the state.

In addition, research also shows that lowering local standards for construction wages attracts a lower skilled, out-of-area workforce resulting in large productivity losses that consume any anticipated wage savings on the construction project. Furthermore, cities who do not implement prevailing wage open themselves up to higher costs in other areas. For example:

• Prevailing wage standards discourage unscrupulous contractors who are known to cheat on payroll taxes, employ low-skilled workers and shirk health and safety requirements on the job site.