HomeMy WebLinkAboutStaff Report 472-09TO:
FROM:
DATE:
POLICY AND SERVICES COMMITTEE
CITY MANAGER
DECEMBER 17, 2009
DEPARTMENTS: PUBLIC WORKS
UTILITIES
CMR:472:09
REPORT TYPE: RECOMMENDATION
SUBJECT: Policy and Services Committee Recommendation That City Council
Direct Staff to Perform a Study Evaluating the Impact of Prevailing
Wage on City Capital Construction Projects
RECOMMENDATION
Staff recommends that the Council Policy and Services Committee recommend that City Council
direct staff:
1. To perform a pilot study of potential prevailing wage impacts on selected Capital
Improvement Projects (CIPs) to determine whether the prevailing wage requirement
impacts the number of bids, project costs, change orders and other factors.
2. To develop a survey to be submitted to all bidders on Palo Alto construction projects that
will be used to evaluate differences in benefits and work conditions between contracting
companies paying or not paying prevailing wages.
EXECUTIVE SUMMARY
This report responds to the June 29, 2009 discussion by the Council Policy and Services
Committee (P&S Committee) regarding prevailing wage requirements for City capital projects.
At the June 29 meeting, the Policy and Services Committee indicated an interest in requiring
prevailing wages on City capital construction contracts and moved that the P&S Committee
defer recommending any prevailing wage Ordinance and direct staff to study the issue using
pending projects to achieve constructive data. This motion passed on a 3-0 vote with Committee
member Yeh absent (see P&S Committee minutes Attachment A).
In October, staff met with representatives of the Santa Clara & San Benito Counties Building and
Construction Trades Council (Trades Council) and the Associated Builders and Contractors
(ABC) to discuss possible prevailing wage study criteria. At the meeting, the group agreed that
the City should pick a few projects that could be bid with and without prevailing wage to
determine differences in actual bid prices. The group also discussed a possible survey that could
be sent to contractors bidding Palo Alto construction projects to evaluate differences in benefits
and work conditions present at companies paying or not paying prevailing wage on their
projects. This report presents the details of the recommended prevailing wage study.
CMR:472:09 Page 1
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BACKGROUND
As a charter city, Palo Alto is not required to pay prevailing wages on "public works" projects,
so long as the projects are within the realm of "municipal affairs," funded entirely by local funds,
and no other statutory exceptions apply. This "home rule" principle allows decisions on
expenditure of local funds to be made by locally elected officials. In 1981, Palo Alto passed a
resolution to pay prevailing wage "only when required by federal or state grants and on other
jobs considered to be of statewide concern." (see Attachment B, Resolution).
Recently, charter cities' power to opt out of state prevailing wage law was upheld by California's
Fourth District Court of Appeal in State Building and Construction Trades Council of
California v. City of Vista, (2009) D052181. In 2007, the City of Vista, a charter city like Palo
Alto, adopted an ordinance under which city contracts generally would not require payment of
the prevailing wage. The Court held that state prevailing wage laws were intended "to keep state
contracting from undermining what local markets have established." However, because an
ordinance like Vista's would not materially interfere with the stability of the area's labor market,
the effect of ordinances like Vista's were not a matter of statewide concern. Therefore, the court
held that charter cities, like Vista and Palo Alto, retain the power to opt out of the state's
prevailing wage law.
The State Building and Construction Trades Council of California intends to petition the
California Supreme Court to review this case. In the meantime, the Vista decision is still good
law, and it affirms the City of Palo Alto's right to opt out of paying prevailing wage.
Also relevant is SB 9EX, which the Governor signed on February 20, 2008, noting the (then)
ongoing litigation in Vista. SB 9EX narrowed potential prevailing wage obligations for charter
cities involving work on water, sewer, or storm drain systems that have previously been extended
to disadvantaged communities.
Amid the recent debate over charter cities' prevailing wage requirements, on December 9,2008,
staff presented to the Council and the Policy and Services Committee a recommendation that
Council not change current prevailing wage policy, allowing City capital construction ("public
works") projects to be bid without prevailing wage requirements unless prevailing wage is
required for the project pursuant to state or federal law, due to potential cost impacts to the City's
General and Enterprise Fund Capital Improvement Programs (CIPs) (CMR 443:08,
Attachment C). The Committee carefully reviewed this recommendation and decided it was in
the best interest of the City to recommend to the full Council that a resolution be adopted
requiring prevailing wage on all City capital construction contracts. The Committee also
instructed staff to recommend types of construction contracts that could be considered for
exemption from a prevailing wage requirement. Minutes of the December 9th meeting are
attached (Attachment D).
On March 10, 2009, staff presented to the Council Ad Hoc Committee on Prevailing Wage
proposed exemptions from the possible prevailing wage policy discussed at the December 9,
2008 Policy and Services Committee meeting. The possible exemptions reviewed with the Ad
Hoc Committee were:
1. Maintenance projects under $250,000 as defined by Section 22002 of the California
Public Contract Code;
CMR:472:09 Page 2
2. Projects using public-private partnership fimding;
3. Projects that construct/rehabilitate affordable housing for people with low or moderate
incomes; and
4. Projects where the work is performed either entirely or partially by volunteers.
A detailed discussion of the above staff recommended exemptions can be found in (CMR:150:09
Attachment E). At the March 10 meeting, the Ad Hoc Committee on Prevailing Wage
recommended that Council approve the staff recommended exemptions for projects where the
work is performed entirely by volunteers, and low and moderate income housing projects.
Minutes of the March 10th meeting (see Attachment F). The Ad Hoc Committee asked staff to
come back to the full Council with additional information on possible exemptions for
maintenance projects and projects involving public-private partnerships, as well as clarification
that the proposed exemption for affordable housing would apply unless otherwise required by
law. Specifically, the Committee asked staff to present justification for the proposed $250,000
threshold for maintenance projects that is reflective of the dollar value of most maintenance
contracts and not tied solely to the $250,000 threshold cited in Section 2.30.210 of the City's
Municipal Code for Public Works projects requiring City Council approval. The Committee also
asked staff to develop criteria for exempting public-private partnership projects that reflects the
amount of City funding in these projects and addresses project administrative responsibilities.
This information is discussed below for consideration by the Council Policy and Services
Committee.
At the June 29, 2009 P&S Committee meeting, staff recommended that the Committee
recommend that the City Council retain its current prevailing wage policy, allowing City "public
works" construction projects to be bid without prevailing wage requirements unless prevailing
wage is required for the project pursuant to state law, in light of the City's current economic
difficulties and to avoid additional cost impacts to the City's General and Enterprise Fund
Capital Improvement Programs (CIPs). At that time, staff also recommended a pilot study of
potential prevailing wage impacts be conducted on selected CIPs where prevailing wage would
be required, to determine to the extent feasible, whether the prevailing wage requirement impacts
the number of bids, project costs, change orders and other factors. At this meeting, staff also
presented additional information on a possible exemption for maintenance projects less than
$250,000 and another possible exemption for Public-Private Partnership projects where the
private party is the lead entity funding 50% or more of the project cost and manages the project
design and construction. The attached staff report (CMR:236:09 Attachment G) contains a full
discussion of the prevailing wage topics presented at the June 29 meeting. At this meeting, the
P&S Committee voted unanimously (with Committee member Yeh absent) to defer the
prevailing wage Ordinance for one year and direct staff to study the issue using pending projects
to achieve constructive data. The P&S Committee Chair also confirmed that staff would come
back to the Committee with the study criteria within a couple months and then within a year with
fmal results.
DISCUSSION
In October 2009, staff met with representatives of the Trades Council and the ABC to discuss
possible prevailing wage study criteria and to seek their input in the process. At the meeting,
two possible methods of comparing prevailing wage impacts were reviewed. One method would
be to select a few upcoming CIPs where the work could be divided into two separate contracts,
one with and the other without prevailing wage requirements. These contracts would all be over
CMR:472:09 Page 3
the City's Municipal Code bid solicitation threshold ($65k) and would be fonnally bid. The
other method of evaluating potential prevailing wage impacts would be to survey contractors
bidding Palo Alto CIP projects to measure differences in worker benefits and working conditions
provided by contractors paying or not paying prevailing wage on their projects.
Selected CIP Projects
Next fiscal year's CIP will include some projects that could be separated into two contracts, one
with prevailing wage and one without. These projects will need to be of similar size and scope
to ensure comparable bid price data. The projects would be bid in late spring in anticipation of
funding with the adoption of the 2011 Capital budget. Some of the projects staff will consider
using this approach include:
• Annual street maintenance projects
• Annual sidewalk replacement projects
• Utility main replacement projects (water, gas and wastewater)
Bids received on these projects are typically good for 60 days after bid opening so the contract
awards on these projects could easily occur shortly after budget adoption in late June when both
General and Enterprise funding becomes available. Staff will evaluate which of these projects
would be ready to bid by late spring so that bid results will be available for evaluation and
reporting back to the P&S Committee by summer 2010.
Survey of Contractors
A survey would be conducted of contractors bidding Palo Alto construction contracts. The
survey would be distributed to the bidders' list on all contracts bid over the next several months.
The survey would be used to measure those things that have a real impact on worker benefits and
working conditions to evaluate to the extent possible, the impact prevailing wage has on
construction workers. Survey questions may include:
• Do you have a defined retirement benefit plan and what is the employee contribution to
this plan?
• What is the employee vesting requirement for your retirement plan?
• If your company participates in a multi-employer retirement pension plan, what is the
amount ofunderfunding in your plan?
• Is your retirement pension plan regarded as "endangered" or "critical" by the U.S.
Department of Labor?
• Do you provide a health care plan and what is the employee contribution to this plan?
• What is the employee contribution to the health care plan and who does it cover?
• What is the average years of experience for your workforce?
• Do you participate in an apprenticeship program and if so which one?
• Have you bid "public works" projects in Palo Alto before?
• Did your company receive subsidies for your bid, such as "market recovery" or "job
targeting" funds?
These survey questions were developed in conjunction with representatives of the ABC and the
Trades CounciL If the P&S Committee recommends that Council direct staff to proceed with the
staff recommendations included in this report and Council approves the study, staff will meet
Page 4
with the Trades Council and ABC early next year to finalize the survey questionnaire and will
select the specific projects that would be separated into two contracts to be bid with and without
prevailing wage. Staff anticipates completing the study and returning to Council with the results
and a prevailing wage recommendation next summer.
RESOURCE IMPACT
The Adopted FY 2010 Capital Budget includes an estimated $56.1 million in General Fund
construction and $32.1 million in Enterprise Fund construction that would require prevailing
wage in their construction contracts if Council were to change the City's prevailing wage policy.
These amounts can be seen in Attachments H and I and do not include total project costs such as
design services contracts which may not be subject to prevailing wage in most cases. The
construction costs of maintenance projects under $250,000 and Public-Private partnerships
where the private entity funds at least 50 percent of project cost and manages the project, are not
included in the above totals (see footnotes 1,2,3 and 5 of Attachment H). The FY 2010 General
Fund projects include $50.5 million for Mitchell Park and Downtown Measure N Library bond
projects and the FY 2010 Enterprise Fund projects include $22.5 million for the Utility
Department emergency water supply project. The remaining four years (FY 2011 through FY
2014) of General and Enterprise Fund projects included in the Adopted Capital Budget are also
included in the attached tables. Both total project and construction costs for these projects are
shown in the attachments.
Attachments H and I also show the potential increased cost impacts on the City's CIP project if
the City's prevailing wage policy is changed. As discussed in prior CMRs attached, staffs
research indicates that prevailing wage may increase construction cost by up to 10 percent.
While other studies have been conducted which indicate no such impact on project costs, based
on the study conducted by staff, one can see that the FY 2010 General Fund construction costs
may increase by $2.8 million if prevailing wage caused a 5 percent increase and by as much as
$5.6 million if prevailing wage caused a 10 percent increase in construction cost. Similarly, the
FY 2010 Enterprise Fund construction costs may increase by $1.6 million at 5 percent and $3.2
million at 10 percent. Attachments H and I also show the possible construction cost increases in
the FY 2011 through FY 2014 General and Enterprise Fund CIP's at both the 5 percent and 10
percent levels. Again, this data would be re-evaluated upon completion of the proposed
prevailing wage pilot study.
POLICY IMPLICATIONS
To require prevailing wage be paid on City capital construction projects, Council would need to
adopt a resolution rescinding Resolution 5981 and codifying the new prevailing wage policy and
any exemptions Council chooses to include. A sample resolution is attached as Exhibit J.
ENVIRONMENTAL REVIEW
The Council Policy and Services Committee review of the prevailing wage policy issues
presented in this report does not represent a project under the California Environmental Quality
Act (CEQA), pursuant to Section 21065 of the Public Resources Code; thus, no environmental
review is required.
ATTACHMENTS
Attachment A: Minutes of June 29, 2009 Policy and Services Committee meeting
Attachment B: Resolution 5981
PageS
Attachment C:
Attachment D:
Attachment E:
Attachment F:
Attachment G:
Attachment H:
Attachment I:
Attachment J:
CMR: 443:08 (December 9, 2008)
Minutes of December 9, 2008 Policy and Services Committee meeting
CMR:150:09 (March 10,2009)
Minutes of March 10,2009 Ad Hoc Committee on Prevailing Wage meeting
CMR:236:09 (June 29, 2009)
City of Palo Alto 2010-2014 CIP Plan General Fund
City of Palo Alto 2010-2014 CIP Plan Enterprise Fund
Draft Resolution -Requiring the Payment of Prevailing Wage on City Capital
Construction Contracts with Certain Exemptions
PREPARED BY:
DEPARTMENT HEADS:
CITY MANAGER APPROVAL:
/iUIJSDRA-
GLENNROBERTS
Director of Public Works
Director of Utilities
CC: Neil Struthers, Santa Clara and San Benito Building and Construction Trades Council
Nicole Goehring, Associated Builders and Contractors, Golden Gate Chapter
Aletha Leong Coleman, Friends of the Palo Alto Junior Museum and Zoo
Barbara Gross, Friends of Lytton Plaza
Leland D. Levy, Friends of Lytton Plaza
CMR:472:09 Page 6 of6
Attachment A
POLICY AND SERVICES COMMITTEE
Regular Meeting
June 29, 2009
Chairperson Espinosa called the meeting to order at 7:07 p.m. in the Council
Conference Room, 250 Hamilton Avenue, Palo Alto, California.
Present: Espinosa (Chair), Barton, Kishimoto
Absent: Yeh
1. Oral Communications
Lynn Krug, SEIU, spoke regarding the City contract with SEIU.
2. Policy and Services Committee Review and Request for Recommendation
on Prevailing Wage Issues Related to City Capital Construction Projects.
Chair Espinosa thanked IVis. Krug and all the work done in the City by the SEIU
workers. He stated that the Committee will be discussing and listening to the
recommendations from Staff on prevailing wage issues in relation to Capital
Improvement Projects.
City Manager James Keene said that Staff has brought this issue back at the
Committee's request, due in part to the worsening economy. Staff was further
direc;:ted to provide more specific quantitative data regarding bene'fits and
impacts that the City could face by moving to a specific policy of paying
prevailing wages on capital projects. Neil Struthers with the Building and
Trades Council has shared data with Staff showing about 84 percent of the
contracts the City awarded were to firms that already paid prevailing wage. In
the process of taking a look at the City's proposed and adopted Capital
Improvement Program over the next five years, while trying to compute the
impact if using prevailing wage, Staff developed concerns about rising costs to
the City. The recently adopted budget has a gap between the infrastructure
needs of the City and the funds required to meet those needs. The
infrastructure reserve fund is down to between $1 and $1.6 million for this
budget cycle. Mr. Keene stated that he had been supportive of the earlier
P&S: 090629 PS FINAL 1
recommendations to move to prevailing wage. However, he is now less
confident that there is enough data to assure Council wllether prevailing wage
would or would not cost the City money. Staff met with Neil Strutllers to
review trlis issue. After those meetings, and given the current economic
climate, prevailing wage should be put on hold for this year. Staff should
design some test cases that will show comparisons using prospective bidding of
City projects. Staff recommends the Committee put this on hold. Staff will
report back to the Committee on a pilot test design by this winter so that by
next spring Staff can report back with more data.
Assistant Public Works Director, Mike Sartor, stated the Staff report included an
attachment that lists all projects that are considered maintenance, per the
Committee's request, to support a potential exemption for maintenance
projects. Attachments I and J show all General Fund and Enterprise Fund
capital projects. This shows a 5-10 percent potential impact based on the
application of prevailing wage requirements. A pilot study would help
determine if that is a realistic number. Lastly, Staff held meetings with
representatives of the Friends groups that have an interest in this issue. They
presented letters that are included in the packet detailing their concerns. The
resulting recommendation would be to exempt public private partnerships
where the private partner would do more than 50 percent of the work and
manage the job.
Mr. Keene added that his goal is to make a clear recommendation for or against
a prevailing wage proposal. Staff has suggested that not having a mandatory
prevailing wage provision incites competition among firms that provide
prevailing wage. On the other side, Mr. Struthers suggested that not paying
prevailing wage may result in drawing from a smaller pool of firms, causing less
competitive prices. Hidden costs in performance could exist. There aren't many
projects in the near future, but there will be some important ones that will
assist in gathering data. He stated that Staff recommends deferment of action
on this and for the Policy and Services Committee to direct Staff to undertake
the recommended study.
Nicole Goehring, 4577 Las Positas Road, Livermore, requested that the
Committee go forward with a pilot study and not change the existing policy
regarding prevailing wage.
Council Member Kishimoto asked Ms. Goehring what her experience is
regarding the impact on wages paid and bidding on projects.
Ms. Goehring said that the City is at an advantage as they would have 30 to 40
bidders on a project. It would have a 5-10 percent impact on the bidding.
P&s: 090629 PS FINAL 2
Council Member Kishimoto asked if she had any sense of how many workers are
affected.
Ms. Goehring said it would depend on how the contractor puts the bid together.
Molly McAIJliffe, 1554 Cowper Street, thanked Staff and the Committee for
hearing this issue and supported Staff/s exemption for public/private entities.
She also announced that the Friends of the Palo Alto Junior Museum and Zoo
have raised $350,000 to fund the next project.
Ben Lerner, 3482 Janice Way, spoke regarding prevailing wage as a resident
not affiliated with any group. He hopes the Committee votes in favor of
prevailing wage and hopes such an ordinance has no exemptions. It/s in the
best interest of all involved parties because it creates an improved quality of
work, defers negative costs to society, and it/s a good example for Palo Alto to
set.
Neil Struthers, 2102 Almaden Road, San Jose, Head of the Building and Trades
Council, thanked Staff for meeting with him last week and feels that progress is
being made. The pilot study is a reasonable plan as Staff and Council need to
be comfortable that they are doing the right thing. There are a lot of tangible
benefits to having this policy in a city like Palo Alto; not having one sends a bad
message. He understands that Staff looks at things conservatively, whereas he
is less conservative, looking at the global impact. He is confident that, given
the right criteria, this issue will be re-visited within a year and Staff will be
confident in their support at that time. Mr. Struthers said he is experiencing
20-30 bidders on public works projects. Contractors must decide to do public
works projects or go out of business as it is the only thing being financed. More
competition is good typically but some contractors are submitting bids way over
their head.
Council Member Kishimoto asked about a gap emerging on large projects I
stating that there isn't usually much of a difference in prevailing wage versus
non-prevailing wage. She asked if there is a difference in submitted bids, if
they were dropping and if so, how rapidly.
Mr. Struthers wasn't sure if prevailing wage is lowering wages, but the
contractors let go of less skilled workers when times are tough. So now
contractors have more skilled workers and they are being paid prevailing wage
based on their skills. We are seeing their bids come in lower than non union
private and public. This will continue to be measured. Productivity isn't
factored into most studies.
P&S: 090629 PS FINAL 3
Council Member Barton stated that he will reluctantly support Staff's
recommendation. This issue has been an important one that he has worked on
for two years. He also expressed frustration over the concern for costs. The
City should pay more for services just as we are asking our citizens to pay more
for many projects. In addition, if there are so many conflicting studies
regarding the impact of prevailing wage, it's probably a wash. His personal
experience has taught him that preliminary pricing for private projects,
including three bidders where one is union and two are not union, had bids that
were close. He pOinted out that even if there were a five percent surcharge for
projects, prevailing wage is the right thing to do. The City is going to upgrade
emergency water, and charge more for it, but it's the right thing to do. The
Business License tax costs businesses more, but it's the right thing to do. The
City can't have it both ways; we'll need to pay more too. He reiterated that he
will reluctantly support Staff's recommendation in recognition of all the work
that has been done and he hopes that, if he isn't on the Council when this issue
is revisited, that someone else will take his stance.
MOTION: Council Member Barton moved, seconded by Council Member
Kishimoto, that the Policy and Services Committee defer the prevailing wage
Ordinance for one year and direct Staff to study the issue using pending
projects to achieve constructive data.
Council Member Kishimoto asked for an update on the City of Vista Prevailing
Wage Court Case
Senior Deputy City Attorney, Melissa Tronquet, stated that the city is waiting
for resolution. Palo Alto has an Ordinance stating that, as a Charter City it is
not required to pay prevailing wage. A group challenged the Charter City
exemption in the City of Vista, as it should be a matter of state wide concern.
They won at both the trial and appellate levels; both were appealed. Charter
Cities may still opt in or out, and there will likely be another appeal.
Council Member Kishimoto asked for clarification on the type of data Staff will
gather.
Mr. Sartor said Staff has not put together a plan on how to do the study yet.
The thoughts are that Staff would want to evaluate engineer's estimates with
bids that come in and compare to prevailing wage or not prevailing wage. Staff
also thought of using Add Alternates to look at a way of gauging the cost
difference. Staff will confer with experts such as Mr. Struthers and put together
a plan that makes sense. Staff has gone as far as thinking of some specific
projects to see if they can bid those with prevailing wage requirements to see
how they might look.
P&S: 090629 PS FINAL 4
Mr. Keene added that the City doesn't have an unlimited amount of time or
projects. Anything will not be perfect, but it will be structured enough to give
better results, and provide more confidence in decision making. An Add
Alternate approach mayor may not be the best way. Staff may decide to study
two separate projects that are alike and see how they bid. It may be hard with
out a short term project to do the quality assessment. Staff can look at
prevailing wage union or not union with a prequalification, to control a bit for
the capacity. Staff is not ready at this time to be definitive in the design. The
intent is that this will be a collaborative design approach.
Council Member Kishimoto wanted to look at the impact on the workers on that
project, what wages they are getting paid and what their skill level is. She
referred to an item on Monday's Council Agenda about DBEs, the
Disadvantaged Business Enterprise program for minority and women owned
buSinesses, which are only 6 percent in Santa Clara Valley. She asked if there
is anything we are doing to encourage more women and minorities to enter
these fields and to own these companies.
Mr. Keene said that Staff would treat that as another issue to focus on. As we
deal with different types of data, we could look at it to see any patterns.
Chair Espinosa asked about the mention made to the most recent financial
report and requested clarification.
Mr. Keene said that Staff was looking at what the infrastructure reserve would
be at the end of this biannual budget, and it's down to $1.6 million based on
the budget that Council adopted. With reserves, pooled cash and investments,
it may end up being closer to $1 million.
Chair Espinosa asked if Staff has a sense of how many projects in next 12
months would qualify.
Mr. Sartor said the projects he spoke of earlier were General Fund projects that
are coming up such as Greer Park and the Downtown Library, and then later in
the year, Mitchell Park Library. There are a number of projects in the Utility &
Enterprise Fund, such as storm drain rehabilitation.
ASSistant Director of Utilities Engineering, Tomm Marshall, confirmed that they
have a number of projects that would fit into the prevailing wage ordinance. He
believes most of their projects already pay prevailing wage. There should be 5
or 6 projects annually that would be appropriate for a study.
Chair Espinosa asked for specifics regarding the timeline and how long it will be
before Staff gets back to the Committee.
P&S: 090629 PS FINAL 5
IVir. Keene said that taking into consideration the concerns expressed by the
Committee, Staff would revisit this sooner rather than later. The goal would be
to get back to the Policy and Services Committee some time in the next couple
of months, and Council by the end of this fiscal year. He also said that to be
fair, it could be a year from now.
Chair Espinosa confirmed that Staff would come back to the Committee with
the study criteria within a couple of months and then within a year with final
results. He hopes that when it does come back it will clearly address the
concerns raised regarding price and quality of service, as well as the pay and
for any sort of package that takes care of workers and how that's weighed.
MOTION PASSED 3-0 Yeh Absent
3. Review of Open City Hall Pilot Program and Recommendation to the City
Council Regarding Continuation of the Program
Assistant to the City Manager, Kelly Morariu, said that Council approved a six
month pilot of Open City Hall in 2008. The City launched the forum in 2009 with
the first topic being composting. One to three topics for each agenda are
posted each week and there have two on-going topics: High Speed Rail and
Long Range Forecast. Each Thursday prior to a Council Meeting, staff posts a
question and people are allowed to post comments until Monday at noon when
the topic is closed. Comments are printed and left at places for Council on
Monday. It/s a small window of time for comments, but that is the way the
agenda process is structured. The cost is fairly minimal. The City paid a $5000
set up fee, and pays $200 a month for ongoing maintenance, for unlimited
topics. There is a 24 hour holding period where Peak Democracy staff review
the comments, and no statements have been held so far. Regarding average
usage, the site has had 137 visitors and an average of 24 statements per topic.
If compared to the 3 minutes of public commentary time at Council meetings,
that equates to about 1.2 hours public commentary that has been transferred
to the Open City Hall Program, and is equal to .4 statements per thousand
residents. Each time a new user signed up, they were asked to complete a user
survey. Eighty seven users like the forum and left a number of comments
about why they liked it. A few complaints were about technical issues, most of
which were resolved fairly quickly.
Robert Vogel, Peak Democracy, said that Open City Hall is an online forum that
is both civil and free speech compliant. Palo Alto is getting an average of 24
statements per topic, which is equivalent to 1.2 hours of Public Comment orally
presented but being in writing it's easier to review. He spoke regarding the
usage of Open City Hall in context with the five other Cities that have used it in
P&S: 090629 PS FINAL 6
the last six months. Palo Alto is the only City using it exclusively for Council
Agenda items. Decatur GA, State College PA, and Lake Oswego OR, are using
it for Council agenda items, as well as some more general items. Montgomery
OH is using it exclusively for more general items. He stressed that he wanted
to share these examples to give a sense of what they are doing to bring people
to the forum and to publicize it. If the City wants to increase the number of
users there are opportunities to do so. To identify them, he did a comparison of
the type of usage from all five cities. Palo Alto has .4 statements per topic per
1000 residents; other cities are seeing a broad range of participation from .3 to
2.1. That range of participation rates is easily understood when you look at
how other cities are publicizing their forum. Decatur and Lake Oswego are
announcing each new topiC via email using City email lists. Montgomery
announces their topics in a monthly newsletter that goes to every household.
Palo Alto and State College have no similar program and are only seeing a
partiCipation rate about 20 -30 percent of the others. Another opportunity to
increase partiCipation is related to a development recently put into the
software. Open City Hall can now run clones on other websites. The City can
add it to the City of Palo Alto website. Sacramento is using the Open Town Hall
program where the Mayor chooses issues and updates them in a form that he
controls, and the form is embedded in the Sacramento Bee as well as in Capital
Public Radio Website. Media outlets carry the forum to be consistent to their
mission and to bring readers to their website. The City can invite the local
newspapers to embed a copy of the forum on their websites, as well as embed
it on the City's website, at no extra charge.
Ms. Morariu said that Staff recommends continuing the Open City Hall program
at the same $200 a month service fee. Staff's time to manage the forum is 1-3
hours a week when there are topiCS. Staff has been exploring ways to increase
participation. The City can work with the local media outlets to get it on their
websites, as well as putting it on the City's website. The pilot was on the Open
City Hall website to insure the public recognizes the program's independence
from the City, but at this point adding it to the City website would give it some
legitimacy. Staff also wants to reach out to the neighborhood associationsl in
lieu of a comprehensive email list like Decatur and Lake Oswego has. Staff also
wants to look at how to incorporate the Open City Hall logo on the printed
agendas to identify the topics that are on the forum. Lastly, staff is looking at
increasing the number of issues on the forum, as a response from various
Boards and Commissions as well as other Council Committees.
City Manager James Keene concurred with Ms. Morariu and added that he
doesn't think that the pilot really hit it out of the park, but it did get
participation and civil commentary with a high level of discourse taking place.
P&S: 090629 PS FINAL 7
Staff is working on the area of social networking, such as establishing the City's
own Facebook page and Twitter Account. Tweet notices can be sent in the
absence of email list.
Chair Espinosa shared three pOints that Council Member Yeh shared with him
earlier: 1) Peak Democracy should continue, 2) Distributing it At Places doesn't
work because there isn't enough time to influence decision making, which ties
into the bigger issue of Council not getting the staff reports early enough, and
3) the need for more publicity is paramount to the success of the program.
Council Member Kishimoto recognized that Peak Democracy first contacted her
two years ago, so it is nice to see it going. She agreed with Council Member
Yeh's comment regarding the timeliness of the reports, agreeing that At Places
isn't useful. She asked Staff if the Council can get the comments real time.
Ms. Morariu said that it would be possible for Council Members to view
comments on the forum as often as they would like or Staff could distribute
comments via email on Monday at noon instead of waiting until the end of day.
Council Member Kishimoto said that those options would be better than the
current process of putting the comments At Places. She agreed that the value
of this program is uneven. She was disappointed that there is no longer a one
page view containing one line from all the comments. It is less dynamic now.
She would like the City to take advantage of the knowledge and analysis our
residents have and do, getting them to add their hard earned information to
Peak Democracy is her goal.
Mr. Vogel explained that the previous look of the website that Council Member
Kishimoto was referring to was a prototype that was much more labor
intensive. The one line comments were hand selected and edited. It would
require work to do it.
Council Member Kishimoto suggested showing just the first one or two lines
from the most recent comments. Only seeing the numbers of yes and no's is
not as compelling for the public to read further and add their own comments.
She asked if there is a way for people to sign up for email notifications.
Mr. Vogel said that the original press release attracted 200 or so people to sign
up and receive additional announcements as topics are added. This is less than
the several tl10usand subscribers other cities have, but they started with a
mass email distribution, Palo Alto did not.
Ms. Morariu added that if it were embedded in the City website, staff would be
able to use the Gov Delivery service so that people can subscribe through that.
P&S: 090629 PS FINAL 8
Council Member Kishimoto asked if High Speed Rail is a perpetual topic.
Mr. Keene said it might be best to put the comments on the City's website so
we can keep a rolling history of commentary and perhaps even a database.
High Speed Rail has a set of deepening! evolving opinions! data and grass roots
strategies. Then it would start to become part of a body of work and it might
be more compelling to participants.
Mr. Vogel agreed with Mr. Keene about having some editorial process to have
the most relevant topics at the top.
Council Member Barton agreed that the trial wasn't perfect but believes it
should be continued. It's not expensive enough for the financing to be
prohibitive. The timing of when Council gets the comments doesn't work.
What does work is the way Staff sends out the answers to Council Member's
questions that come out around 2:00 -3:00. If Open City Hall came out at that
time he stated that he would have time to read it. He is concerned about the
idea of editing the comments; the City shouldn't be making the decision about
what's best. The point is to have something to engage people. He would like
to see it embedded with randomly selected comments that come up and change
frequently. The current structure is to put the most recent comments on top,
unedited.
Mr. Vogel said that it is important to make sure the users can't edit their
comments in order to have them move back to the top. Open City Hall is set
up so that it is sorted by creation date! not updated date. It is also critical that
if the City does edit or filter comments, that there is no political agenda behind
it.
Council Member Barton said that because Palo Alto's daytime population is so
much bigger than the night time population, there is value to a passive
communication system. An email communication would miss a lot of the
daytime residents, even though they do have a stake in the decisions made by
the Council, such as with business license taxes. He also said that he likes the
agenda pages the way they are currently posted on the website. Users are able
to click on a link that leads them to a PDF of the agenda item. It would be
helpful if we could put an Open City Hall logo next to that link, so that users can
click on it and get to the Open City Hall page. He then asked if there is a way to
find out where the users came from.
Mr. Vogel said that they do know where the users are coming from and they do
have the ability to share that information with the City.
P&S: 090629 PS FINAL 9
Council Member Barton said the Media Center partnering would be interesting
because they could reflect the item back to their video post back to the
discussion and there might be some value. He asked if it can be embedded in
Facebook. '
Mr. Vogel said Open City Hall can be embedded in sites like Facebook, and
asked if the City has a presence on Facebook.
Mr. Keene said that the Staff is currently working on it.
Council Member Barton reiterated that Facebook is another opportunity to get
Open City Hall some passive exposure. He also stated that embedding it in the
City website makes sense. Overall, he found the program valuable. He tries to
reflect on the public comments, but it is difficult to do right before the Council
meetings. There has been occasion where he has seen that the tally on Open
City Hall is different than what he hears from other sources. It gives him a
fresh perspective. It is consistently on topic. Palo Alto Online is an intriguing
idea but it is too scattered and unpleasant to be useful to him as a policy
maker.
Mr. Vogel said if we embed it in a local newspaper the format will be exactly the
same as it is now on Open City Hall. There should be no change in the quality
of comments, and this was indeed the outcome of the experience in
Sacramento.
Council Member Barton asked how Open City Hall fits in to the FPPC fairness
rules. If a newspaper hosts a Mayor's page during elections, it would be an
endorsement. He then asked if they would be able to host similar pages for
other candidates.
Mr. Vogel said that the forum is open to all elected officials now, and when an
election comes up, it would open to all candidates.
Chair Espinosa asked Staff to speak to the cost impacts of the program and
whether adding additional items from Committee Members or Boards and
Commissions, increasing outreach, email communications or increasing the
number of items discussed increase tl1e cost of the program.
Ms. Morariu said that, originally, there was a per-item cost, but was changed
during the pilot. The City pays a $200 per month flat fee for an unlimited
amount of topiCS. Having the Boards and Commissions add items would not
increase the cost. She stated that there might be an increased Staff cost, due
to a possible increased need for coordination. Increasing the public's
P&S: 090629 PS FINAL 10
participation, managing email lists and embedding in the website would be a
Staff resource issue more than a cost issue.
Chair Espinosa asked if Staff worked with the Website Committee on this.
Ms. Morariu said that at this early stage they did not.
Mr. Keene added that there has been some general discussion, but not on a
detailed level.
Chair Espinosa asked if Staff would state the value added beyond the email
packets they get.
Mr. Vogel said that if people come to Council meetings and spoke alone with
Council, and then when they are done the next person comes in there is no
transparency, like there is if everyone comes in at the same time. That's the
difference between a forum and a sequence of emails. If the emails are
published unedited, you have to be careful of content as some may be
inappropriate. Open City Hall deals with that for the City. It allows for civil
statements while still being a process that does not violate freedom of speech.
Chair Espinosa stated his appreciation for any business that is involved with
transparency and civil discourse. He did vote against it the first time. He still
believes that this is a waste of money. The information is received too late.
The number of comments per topic is absurd at 24 to 60,000. He believes the
feature could be added to the City Website in a much more immediate and
transparent form. The cost may be minimal but we are not adding any value to
the decision making process at all. He reiterated that he respects the efforts
and agrees with the spirit of the project, and he applauds the companies that
do this type of work. He will continue to discourage the use of Open City Hall.
MOTION: Council Member Kishimoto moved, seconded by Council Member
Barton, that the Policy and Services Committee recommend to the City Council
to continue utilizing the Open City Hall online discussion forum at the cost of
$200 a month, and direct Staff to ensure a more timely delivery of comments,
expand outreach, include occasional long term projects, embed Open City Hall
onto the City's website, expand use to Boards and Commissions, and include
Social Networking sites.
Ms. Morariu asked if Council Member Kishimoto only intends to open it up to the
Planning and Transportation Commission.
Council Member Kishimoto said she would be open to including all Boards and
Commissions. She also expressed her appreciation at Chair Espinosa's honest
P&S: 090629 PS FINAL 11
comments about the program. She feels that expanding the outreach will
address a lot of his concerns. She also hopes to attract more in-depth
comments. Palo Alto residents do a lot of research on the topics that affect the
City; it's great to have a forum for them to share all of that. However, three
days isn't enough time for them to do all that work, and then to respond with
in-depth answers, so longer term topics would be useful. It is also valuable to
see real time data.
Council Member Barton agreed in part with Chair Espinosa's comments, but
believes the start up money has been spent and should now be leveraged. He
added that if this conversation is still happening in a year or two, then it might
be time to stop the project.
Chair Espinosa said that if the City must continue to use the program, it should
include other Boards and Commissions as they deal with some hot topics that
should be included.
Council Member Kishimoto agreed to include Planning and Transportation
Commission and other Boards and Commissions as Staff sees fit.
MOTION PASSED 2-1 Espinosa no, Yeh absent
3. Discussion for Future Meeting Schedules and Agendas
Assistant to the City Manager Kelly Morariu said that the next regular scheduled
meeting is July 14th. The currently scheduled agenda is the Legislative Program.
The Committee had asked Staff to bring an expert in to discuss this. Dan
Carrigg from the League of CA Cities is willing to come speak, but won't be able
to come until September. While no expert will be there, Staff and the
Committee can still have a more general discussion.
City Manager James Keene added that he wanted to have a general
conversation with the Committee regarding their scope of work, and how Staff
identifies the stream of issues that is coming to the Policy and Services
Committee.
Chair Espinosa said that he had raised that issue as well. He felt this is a good
time to discuss the Committee's role and make sure the agenda is broad and
comprehensive. He then asked what would be involved with a general
conversation regarding the legislative program.
Ms. Morariu said that a general conversation might include the City Manager
speaking about effectiveness of tile lobbying efforts and ways to incorporate the
P&S: 090629 PS FINAL 12
Council into the lobbying process as well as discussion about Sacramento
lobbyists and Federal lobbyists.
Chair Espinosa said that he is concerned about the lobby effort and
opportunities that may be missed if we push out the agenda.
Ms. Morariu said that Council has already adopted the legislative program for
this year. This was about more of a general structure for moving forward.
Mr. Keene said that he would like to have a discussion on the routine process
for working with our local officials, and how the process is working for Council.
Chair Espinosa agreed that we must discuss the process. There are also more
specific issues such as High Speed Rail, and figuring out how to track this on a
more useful basis is critical. He again expressed concern that this is being
pushed out to the fall. He stated that High Speed Rail is coming fast and the
Committee needs to get back to Council with specific requests.
Council Member Kishimoto said that most of the bills are turning into two year
bills, so the urgency is not as strong as it was. She also suggested that the
July meeting move to July 7th or 21 st•
Chair Espinosa reiterated that the Committee and Staff can discuss this without
the lobbyists.
Mr. Keene said it would be a good chance for Staff to gauge what the
Committee wants to see, rather than waiting until the fall.
Chair Espinosa agreed that such a conversation would be helpful. He said he
can not attend a meeting on July 7th.
Ms. Morariu reminded the Committee that the Finance Committee has meetings
on both June 7th and June 21 st•
Council Member Kishimoto asked if that would create a conflict with Staff.
Mr. Keene said he may have conflict on June 21st•
Council Member Kishimoto asked if June 15th might work better for everyone.
Chair Espinosa tentatively agreed to June 15th •
Ms. Morariu said that the Attorney's Office wanted to add the Ad Hoc
Committee Policy as the third item.
P&S: 090629 PS FINAL 13
ADJOURNMENT: Meeting adjourned at 8: 52 p.m.
P&s: 090629 PS FINAL 14
Attachment B
RESOLUTION NO. 5981
RESOLUTION or THE COUNCIL or THE CITY or
ESTABLISH;ING POLler REGARDING PREVAILING
PUBLIC PROJECTS
PALO ALTO
WAGES FOR
WHEREAS. in the recent. case of Vial v. City of San Die'i0 (115 Cal.Rtpl:~ '4'1, July, 1981), the California Court of Appeal determined
that the subject of Aprevailin9 wage.-is a municipal affair and tnat
Charter cities are not subject to the pr~vailin9 waqe requireme"nts for
public works p~oject$ set fo~th in the California Labor Code: and
I ,
WBBREAS, it is in the City's best interest to obtain the 10ti'est
tQsponaible bid for public p~ojectsl
NOW, THEREFORE. the Council of the City of Palo Alto does RESOLVE
as fol10\llS8
SECTION 1. It is approp~iate to use the Davis-Bacon Act or State
Department of'Industt:ial Relations Wage Determinations only when re-
quina by federal or stat.e qrant.8 ana on other jobs considered to be of
statewiae concern.
SECTION 2. The Council finds that tbis is not a project under the
California Environmental Quality Act and. therefore. no environmental
impact assessment is necessary.
INTRODUCED AND PASSED~ December 14, 1981
AxES: Bechtel, Eyerly, Fletcher, Henderson. Rlein. Levy, Renzel.
Witherspoon
NOES: None
ABSTENTIONS: None
ABSENT: Faz:;;ino
c
TO FOMs
~2h·Ku Col ty Attorney
APP ROV EO 2
\h~:Yor~
TO:
AT'rN:
FROM:
DATE:
Attachment C
CITY COUNCIL
City of Palo Alto
City Manager's Report
POLICY AND SERVICES COMMITTEE
CITY MANAGER
DECEMBER 9, 2008
DEPARTMENTS: PUBLIC WORKS
UTILITIES
CMR: 443:08
REPORT TYPE: RECOMMENDATION
SUBJECT: Review and Request for Recommendation on Prevailing Wage Issues
Related to City Capital Construction Projects
RECOMMENDATION
Staff recommends the Council Policy and Services Committee recommend that Council not
change current prevailing wage policy, allowing City "public works" projects be bid without
prevailing wage requirements unless prevailing wage is required for the project pursuant to state
law, due to potential cost impacts to the City's General and Enterprise Fund Capital
Improvement Programs (CIPs).
EXECUTIVE SUMMARY
At City Council's request, staff reviewed many, of the issues surrounding prevailing wage rates
and summarized the findings below. Staff recommends, due to potential cost impacts to the
General and Enterprise Fund Capital Improvement Programs (CIPs), Council not change the
City's current prevailing wage policy. This recommendation is made primarily due to the costs
needed to address the current General and Enterprise FUnd infrastructure program backlog and
the additional cost of funding a new Public Safety Building and a new Library and Community
, Center at Mitchell Park and Library improvements at Main and Downtown Libraries as a result
of recent passage of Measure N. Any further increase in costs -will impact the City's ability
rehabilitate existing infrastructure, much of which is already well past its life expectancy and in a
deterioratedeondition. hi addition, a prevailing wage requirement could also apply to the many
private/public partnerships the City is involved in such as Lytton Plaza, Art Center and possibly
, the Junior Museum and Zoo. The California Court of Appeal is currently hearing an appeal in
the City of Vista case, where the City of Vista, a charter city like Palo Alto, is defending its'
choice not to pay prevailing wage on its locally funded "public works" projects.
BACKGROUND
On September 17, 2007, City CoUncil approved a contract with. Anderson Pacific for a Water
Quality Control Plant (WQCP) pump station upgrade related to the reclaimed water pipeline
project running from the WQCP to Mountain View (CMR:364:07). Council approved the
contract contingent on" the contractor assuring the City they would pay their employees
prevailing wage on the project. In a related motion Council directed staff to bring the prevailing
CMR:443:08 Page I of8
wage discussion to the Council Policy. and Services Committee (see Attachment B, minutes of
September 17, 2007 Council meeting). .
What are Prevailing Wage Rates?
The intended purpose of prevailing wage law is to ensure that public construction projects do not
lower local wages by allowing contractors to pay' wages below the local standard. In 1931,
Congress passed the Davis-Bacon Act, which mandated the payment of prevailing wages on all
construction projects that receive more than $2,000 of Federal funds -an amount that has
remained unchanged today. In subsequent years, especially during the Great Depression, many
states and localities passed similar prevailing wage laws. Most states, including California, now
have such laws.,
Prevailing wages are determined in many different ways across the' country. The Federal and
California Prevailing Wage calculations are similar because if more than 50% of the workers
make the same wage this becomes the prevailing wage for the trade. They differ in the
calculation when less than 50% of the workers have the same wage. The Federal Law
determines the prevailing wage by averaging all the wages, whereas in California the most
common wage occurring becomes the prevailing wage. California's calculation method usually
results in a slightly higher wage than the Federal calculation method.
California passed its prevailing wage law in 1931, the same year the federal Davis-Bacon Act
. was passed. California Labor Code § 1771 requires that any "public works" project that receives
more than $1,000 in state funding pay prevailing wages. The Labor Code defmes "public
works;' to include construction, alteration, most demolition, installation Or repair work done
under contract and paid for in whole or part out of public funds. All capital improvement
. projects done by the City, including those managed by the Community Services, Utilities or the
Public Works Departments are considered "public works" under this law. Although California's
prevailing wage law applies to all of California's "general law" cities, charter cities are permitted
to elect whether to pay prevailing wage on locally funded public works projects that qualify as
municipal affairs.
DISCUSSION
. Prevailing Wages in Charter Cities
The California Labor Code requires that public agencies pay prevailing wages, as determined by
the California Department of Industrial Relations, on most public works projects. As a charter
city, Palo Alto is not required to pay prevailing wage rates on "public works" projects, so long as
the projects are within the realm of "municipal affairs," are funded entirely by local funds, and
no other statutory exceptions apply. This "home rule" principle, grounded in the California'
Constitution, allows decisions on expenditure of local funds' to be made by locally elected
officials. Utilities Enterprise Fund projects are often deemed to be "public works" projects in
this context.
Since no precise definition of what constitutes a "municipal affair" has been judicially settled,
courts consider the issue on a case by case basis. The expenditure of city funds on local projects
and th~ rates of pay of the workers the City hires to carry out such projects has been held to be a
municipal affair. In 1981, Palo Also passed a resolution to pay prevailing wage "only when
required by federal or states grants and on other jobs considered to be of statewide concern."
(See Attachment A: Resolution 5981).
CMR:443:0S Page 2 ofs
" .
Recently, courts have blurred the issue of whether a charter city may elect not to pay prevailing
wage. For example, in 2004; the California Supreme Court in City of Long Beach v. DIR,
declined to decide whether pJ;evailing wage law is such a matter of statewide concern that it
should override the ability of charter cities to conduct their municipal affairs. Since then, labor
unions have mounted a statewide campaign to overturn existing law and declare prevailing wage
a matter of state, concern. The charter city of Vista is currently defending its choice not to pay
prevailing wages in a lawsuit brought by the State Building and conStruction Trades Council.
Although the trial court reluctantly ruled in favor of Vista in December 2007, the case is pending
on'appeal. A detailed summary of the case is included in this report's discussion below.
These recent judicial developments led the City Attorney to recommend that Palo Alto pay
prevailing wages on regional projects that transcend the city's geographic boundaries, even if
these projects could be considered municipal affairs. Capital improvement projects related to the
City'S Water Quality Control Plant (WQCP) fall into this category. Some Charter Cities have
created special categories' where they do not pay prevailing wages on low-income housing and
maintenance type projects, but do pay prevailing wage on construction projects. To date, Palo
Alto has not made this distinction.
Summary of Staff Research
Staff found that there is considerable disagreement on the impacts of prevailing wage rates on
project quality found in studies cited by the union groups and builder trade groups. Studies by
government agencies, however, concluded that paying prevailing wage rates do not significantly
change the quality of construction on most projects.
In a survey of contractors, it was reported that requiring the payment of prevailing wage rates
could reduce the quantity of bidders on projects by about 20% percent. Most contractors that are
not paying prevailing wages, which make up about 50% of the' contractors responding t() the
survey, will bid prevailing wage contracts. In the majority of cases, the makeup of their
workforce does not change to accommodate prevailing wage requirements.
In its surveys of both contractors and other cities, staff found that implementing prevailing wage
rates in construction contracts may increase construction costs' on City capital improvement
contracts by up to 10%. This increase would also affect projects involving private/public
partnerships.
The following sections present a summary of the studies related to prevailing wage reviewed by
staff and the results of surveys of other cities and contractors. The pending City of Vista case
related to the charter city exemption from prevailing wage is also discussed below.
Studies on the Effects of Prevailing Wage
A number of academic and government studies have examined the costs and benefits of
prevailing wage. Generally, these studies fall into three different camps:
Pro-prevailing wages studies, issued by University-level academics, and conStruction
trade organizations.
-Anti-prevailing wage studies, issued by University-level academics, and various policy
institutes.
Government studies, issued by the States of Ohio and Kentucky legislative commissions.
CMR:443:08 Page 3 of8
Staff reviewed seventeen such studies, both pro-prevailing wage and anti-prevailing wage, and
studies prepared by government organizations. Summaries of these studies are included in the
attached memorandum dated F:ebruary 15,2008 (Attachment C).
Studies by government organizations provide some of the most interesting insight into the issue
of prevailing wage. These studies should, in theorY, have no ag~nda beyond uncovering what is
hi the best interest of taxpayers. All of the studies examined indicated that prevailing wage laws
do not save money .. Some studies did, however, equivocate about whether the benefits of
prevailing wage -once other unquantifiable factors were taken into account -.may be higher
than the costs.
The two most-referenced government studies are both studies conducted by state legislative
research offices, in Kentucky and Ohio. In Ohio, its Legislative Service Commission issued a
study aualyzing the effect of a 1997 bill that exempted· school districts from being forced to
require prevailing wage. The study, which asked contractors for bids under and not under
prevailing wage conditions, found that repeal did save money -especially on smaller projects.
It asserts that the exemption yielded 1.2 percent in total cost savings in new construction, 10.7
percent savings on building alteration projects and 19.9 percent savings on building additions.
This conclusion seems to strongly support the notion that the smaller projects have greafer
savings when prevailing wages are not required.
Furtheimore~ the study surveyed school districts to discover if they had noticed any deerease in
the quality of construction. Six percent of respondents said that they had noticed higher quality
construction since the exemption, 91 percent noted no change and 3 percent said quality had
decreased.
In one very unique case, the survey discovered that one school district had put a project out to
bid under prevailing wage conditions and then rebid the project without such requirements. The
winning bidder in the second case, without prevailing wage, was 5.8 percent lower; yielding a
cost savings of more than $500,000.
In Kentucky, the legislature also ordered its research arm to study the issue of prevailing wage.
The study made a notable number of findings, including learning that 60 percent of workers
surveyed were paid more on prevailing wage jobs than on market-rate jobs; the average increase
for prevailing wages was 24 percent over the workers' market rates. Among the 141-page
report's other findings were:
• 90.7 percent of non-union and 24.4 of union contractors said prevailing wage laws raise
construction costs.
• 55.4 percent of small firms (10 or fewer employees) said prevailing wage laws have a
negative effect on their business, compared to 73 percent of large firms.
• 95.7 percent of cities and 83.3 percent of municipal utilities that responded believe
prevailing wage laws increase .construction costs, while, respectively, 7 and zero percent
believe laws increase qUality.
• More cities believed prevailing wage legislation decreases -not increases -quality of
construction.
It is worth noting that the report did not call for the abolishment of prevailing wages in
Kentucky. The report did not take an opinion on the issue. Its main overall conclusion on the
effectiveness of the legislation, however, is as follows:
CMR:443:08 . Page 4 ofs
To the extent that quality is increased, prevailing wages are an inefficient method
to increase quality. The wage requirement results in contractors paying higher
wages with no guara,ntee that these additional wages will result in' quality
improvements.
Aside from the Kentucky and Ohio reports, there are a number of smaller government reports on
the topic. The Federal Congressional Budget Office (CBO) and General Accounting Office
(GAO) have both issued reports on prevailing wage, with the GAO 'asserting that repealing the
Davis;..Bacon Act would save $1.2 billion annually. The CBO study, written during the early
1980's, was likely the impetus that caused the Reagan Administration to change the definition of
prevSiling wage to the wage earned by 50 -as opposed to 30 -. percent of local wage.earners. ' It
found that rePeal of Davis-Bacon would save $13 billion (2007 dollars) over five years and that
some 20 percent of open shop. contractors have no interest in bidding on prevailing wage
contracts. It also recommended raising the threshold at which the prevailing law is triggered, as
the $2,000 trigger 'was set in 1931 and has never been increased.
The final government study of note is another state legislative study -Marylimd in this case -
conducted in 1997. Maryland's Department of Fiscal Services, which issued the study, asserted
that repeal of the prevailing wage law then on Maryland's books would save the statebetweeIi 5
and 15 percent on public works construction. '
survey of California Cities
To further examine the policies of other California municipalities regarding prevailing wage law,
staff surveyed dozens of other cities on the topic. The survey was sent out to all members of the
Association of Bay Area Governments, as well as to all Charter Cities that had email addresses
available. Forty-eight municipalities responded to the survey. Usually, the reSpondents were
public works officials, though a, few city managers replied as _ well. A short summary of the'
fmdings follows and the more detailed results are included in' Attachment C.
• 42 of 48 cities surveyed pay prevailing wage rates.
• 26 out of 32 Charter Cities pay prevailing wage rates.
• Based on the survey _ results, staff estimates that paying prevailing wages may increase
construction costs in the range of 5% to 10%.
• A large majority' of the respondents believe that paying prevailing wages does not
increase quaiity of the work.
• .Most believed that requiring prevailing wages decreases the number of bidders on
projects.
• Some cities have exceptions to paying prevailing wages for certain-types of contracts.
The responding cities were also asked to provide comments on the positive and negative effects
of paying prevailing wages. These are summarized below:
Positive Effects
• Supportive of labor
•• Evens the playing field
• . Assures that workers are being treated and paid fairly
• 'Higher wages allow people to live closer to work
•. More professional bidding pool
CMR:443,08 Page 5 of8
• Higher-quality work
Negative Effects
• Higher costs
• Fewer projects can be built
• Ne~ for extra staffmg and paperwork for· compliance monitoring
.•. Smaller pool of bidders
Survey of Contractors
The Staff's research on prevailing wage did provide a number of insights into the views of
construction contractors on the topic of prevailing wage legislation. In addition, staff conducted
a survey of contractors bidding work in Palo Alto to best judge the impact a change in Palo
Alto's prevailing wage policy would have on construction projects in Palo Alto.
A summary of the survey results follows:
• Approximately 50 % of the contractors responding pay prevailing wages on all contracts.
• Most contractors that do not typically pay prevailing wage rates will bid prevailing wage
contracts ..
• 70% of the contractors not paying prevailing wage rates use the same labor force when
bidding prevailing wage contracts. .
• The average of the estimated increase to construction costs associated with paying
prevailing wage rates was approximately 8% according to the contractors responding to
the survey. .
City of Vista Court Case
As discussed previously, the Charter City of Vista is currently defending its decision not.
to pay prevailing wages in a lawsuit brought by the State. Building -and Construction Trades
Council. The outcome of this case-will be very important, as it could determine whether charter
cities can continue to exercise their ability to locally determine whether to pay prevailing wages
on local projects. Some background on the case is illustrative. .
In J1,Ule 2007, Vista became a Charter City. Before the election,the City prepared a fact
sheet discussing common questions regarding the Charter City proposition, including questions
and answers regarding the_ potential tax savings on local public works projects should the. City
chose to forego prevailing wages on municipal projects. 67% of Vista voters approved the
decision to become a Charter City. Vista plans on completing about $100 million in public
improvements in the near future; projects which would traditionally be considered within the·
realm of''municipal affairs" and paid from local revenues.
The State Building and _ Construction Trades Council of California, a labor union,
challenged Vista's assertion that it was exempt from prevailing wage law, arguing that the
prevailing wage statute is of statewide concern. Although the trial court reluctantly found in
favor of Vista, in issuing his ruling, the Superior Court judge stated that were he not bound by a
preceding case, Vial v. City of San Diego, he would have been inclined to grant the union's
petition. The Vial decision stated that prevailing wage law does not apply to public works
projects of a chartered city, "as long as the projects in question are within the realm of
'municipal affairs. '"
CMR:443:08 Page 6 ofS
The judge in Vista, however, contended that instead of focusing on the project,: a more
appropriate analysis would involve whether the prevailing wage statute is a matter of statewide
concern. Had the court not b~en obligated to foliow Vial,the Court acknowledged that it would
have found that the prevailing wage law is a matter of statewide concern and that Vista was
therefore bound to follow the law in relation to its pending public works projects.
The petitioner's appeal is currently pending before the California Court of Appeal and
oral argument was heard on Friday, November 14, 2008. A decision is expected in the next two
months. Should the court frame the question as suggested by the superior court, and ask whether
the prevailing wage statute is a "statewide concern," it is possible that the Court will answer that
question affirmatively, thereby . overruling or limiting the Vial decision. The California
Legislature has previously declared that the prevailing wage statute addresses two important
statewide concerns: (1) it prevents public projects from driving down area labor standards and
(2) it ensures training opportunities for apprentice construction workers. Even if Vista wins on
appeal, observers expect this case will eventually be appealed to the California Supreme Court.
A California Supr~me Court decision would not be expected on this case for at least another
year. The City Attorney's Office will keep Council informed on the'statUs of this case.
RESOURCE IMPACT
The Adopted 2009 Capital Budget includes about $11.5 million in General Fund projects and
about $28 million in Enterprise Fund projects that are not now or will not require prevailing
wage in their. construction contracts. The Enterprise Fund projects include those under the
electric, water, gas, wastewater collection, storm drainage and refuse fund programs. Projects
constructed by the Wastewater Treatment Fund already require prevailing wage as discussed
above and would not be impacted by a change in Council policy. If staff research proves correct,
the costs of the 2009 General Fund projects could incre~se by as much as $1 million and the
·2009 Enterprise Fund projects could increase by as much as $2.8 million if Council were to
adopt a policy requiring prevailing wage rates be paid on all capital construction projects
contracted by the City. It also should be noted that any private/public partnership agreements
entered into by the City for capital construction would also require payment of prevailing wage
rates on these construction projects (e.g. Art Center, Lytton Plaza, Junior Museum and Zoo).
POLICY IMPLICATIONS
The recommendation does not change existing policy. If Council were to change policy and.
require prevailing wage be paid on all City capital construction projects, Council would need to
adopt an ordinance codifying such a requirement.
ENVIRONMENTAL REVIEW
Policy and Services Committee review of the prevailing wage policy issues presented in this
report does not represent a project under the California Environmental Quality Act (CEQA),
pursuant to Section 21065 of the Public Resources Code.
CMR:443:08 Page 7 of8
ATTACHMENTS
Attachment A: City of Palo Alto Resolution 5981
. Attachment B: Minutes ofS~ptember·17, 2007 City Council meeting
Attachment C: Prevailing Wage Rate Issues MemorandUm of February 15,2008
PREPARED BY:
DEPARTMENT HEADS:
CITY MANAGER APPROVAL:
CMR:443:08
GLENN ROBERTS
Director of Public Works
..£.-+0-_..-"
Page80fB
Attachment A ORIGINAL
RESOLUTION NO. 5981
ReSOLUTION or THE COUNCIL OF THE CX'Y OF PALO ALTO
BSTABLISHING POLICY·REGARDING PRBVAILING WAGES FOR
. PUBLIC PROJECTS
WHEREAS, in the recent case of VillI v. City of San Dieio (175
Cal.Rtpr. 647, July, 1981), the California ~ourt of Appeal determined
that the subject of ·prevailing wages· is a municipal affair and that Charter cities are not subject to the prevailing wage requirements for: public works projects set forth in the California Labor Code~ and
WHEREAS, it is in the City·. best int.erest to obtain the lowest
responsible bid for public projects,
NOW, THEREFORE, the Council of the City of Palo Alto does RESOLVE
as follows I
SBCTION 1. It Is approp~iate to use the Davis-Bacon Act or State
Department of Industrial Relations Wage Determinations only when re-quired by federal or state grants and on other jobs considered to be of
statewide concern.
SECTION 2. The Counell finds that this Is not a project under the
CalifornIa Environmental Quality Act and, therefore, no environmental
impact assessment is necessary.
INTRODUCED AND PASSBD: December 14, 1981
AtES: Beahtel~ Byerly, Fletcher; Henderson, Klein, Levy, Renzel, Witherspoon
NOBS: None
ABSTENTIONS: None
ABSENT: Fauino
APPROVED:
Vi~or~
Attachment B
CITY COUNCIL MEETINGS ARE CABLECAST LIVE ON GOVERNMENT ACCESS CHANNEL 26 ======================== AND BROADCAST ON KZSU. 90.1 FM =======================
Special Meeting
September 17, 2007
STUDY SESSION .................................................................................... 186
1. Draft Program Environmental Impact Report on San Francisco Public
Utilities Commission's Water System (Hetch-Hetchy) Improvement
Program ....................................................... , ................................ 186
ORAL COM MUI\lICATIOI\lS .............................................. : ......................... ·187
APPROVAL OF MINUTES ........................................................................... 188
CONSENT CALENDAR ............................................................................. ·188
2. Approval of Record of Land Use Action for a Variance to Allow a Fence
Exceeding the Maximum Fence Height within a front Yard Setback at
1456 Edgewood Drive ........................... : ........................................ 188
. 3. Request ·fur Approval to Cancel October 8, November 5 and November
12 Regular Council ~~·eetings and to Schedule a Special Council ~4eeting
on November 13 ... , ...... II II •• II ., •• II '" II •••••••••••••••••••••••••••••••••••••••••••••••• 188
4. Acceptance of a Report of Williamson Act Contracts within the City of
Palo ............................................................................................. 188
4A. (Old Item 3) Request for Approval to Cancel October 8, Nover:nber 5
and November 12 Reg'ular Council Meetings and to Schedule a Special
Council Meeting on November 13 ......................... ; ............................ 188
UNFINISHED BUSINESS .......................................................................... 189
5. Approval of a Wastewater Treatment Enterprise Fund Contract with
Anderson Pacific in the Total Amount of $859,000 for the Recycled·
Water Pump Station Upgrade Project at the. Reg·ional Water Quality
Control Plant -Capital Improvement Program Project WQ-80021. ....... 189
REPORTS·OF COMMITTEES AND COMMISSIONS ........................................ 191
09/17/2007 102-184
6. Recommendation from the Policy and Services Committee for the City
Council to Approve a Tiered Approach for the Continuing Review,
Approval, and Implementation of the Zero Waste Operational. Plan ...... 191
ADJOURNMENT: The meeting adjourned at 9.45 p.m ................................ 205
09/17/2007 102-185
The City Council of the City of Palo Alto met on this date In the Council
Chambers at 6:0:3 p.m.
Present: Barton, Beecham, Drekmeier (arrived at 7:00 p.m.), Cordell,
. KI~himoto, Klein, Kleinberg, Morton, Mossar
STUDY SESSION
City Attorney Baum announced that Council Member Drekmeler would not
participate in Item 1 si nce he has a conflict of interest as he is an employee
of Tuolumne River Trust.
1. Draft Program Environmental Impact Report on San Francisco Public
Utilities Commission's Water System (Hetch-Hetchy) Improvement
Program.
Assistant Director of. 'Utilities for Resource Management Jane Ratchye
provided an overview of the Draft Program Environmental Impact Rep~rt
(PEIR) on the San Francisco Public Utilities Commission's (SFPUC's) Water
System Improvement Program (WSIP). The regional water system that
serves Palo Alto gets the majority of its water supplies from the Tuolumne
River with the ·balance coming from locally .collected water in the East Bay
and the Peninsula. San Francisco has junior water rights on the Tuolumne
River while the Modesto and 'Turlock Irrigation Districts (MID and TID) hold
the senior water rights on the Tuolumne River. The regional water system is
vulnerable to damage from large earthquakes and is in need of seismic
upgrades, pipeline replacements and repairs. Without those improvements,
the regional system is subject to water outages from 20 to 60 days.
SFPUC's proposed WSIP aims to improve seismic reliability by being able to
deliver water to 700/0 of the connection points within 24 hours after an
earthquake., Other objectives for the WSIP include meeting the water supply
needs of users of the system as projected to 2030 and subjecting the service
area to a maximum of 200/0 cutbacks in droughts. The Draft PEIR identified
the nature and magnitude of impacts associated with the projects as well as
program-level mitigation . measures. As appropriate, project-level EIRs will
be completed for the individual projects included in the WSIP. The growth
inducement potential of the WSIP will only be analyzed in the Program EIR
and:will not'be addressed in the project.., level EIRs.
The most controversial issue in the Draft PEIR is the projected regional
demand growth of 35 million gallons per day (MGD). The WSIP proposes to
meet this additional water supply need with 10 MGD of. additional
conservation and recycled water projects in San Francisco and 25 MGD more
water diverted from the Tuolumne River. The PEIR evaluated many
alternatives, including the "Modified WSIP", which was deSignated as the
environmentally superior alternative. The Modified WSIP proposes to
09/17/2007 102-186
eliminate the additional diversions from the Tuolumne River by implementing
an additional 5..;10 MGD of conservation, water recycling, and groundwater
use in the wholesale customer service areas and by arranging with MID and
TID to transfer 23 MGp of conserved Tuolumne' River water. This transfer
would be accomplished by SFPUC or its wholesale customers installing water
conserving systems in the MID and TID service' areas and transferring the
conserved water to SFPUC to minimize or. avoid additional diversions from
the Tuolumne River. The Modified WSIP alternative also has other
environmental improvements in the East Bay and the Peninsula.
The ad-hoc Council subcommittee (Council'Members Beecham, Mossar and
Klein) met three times to discuss and develop comments on the Draft PEIR.
Overall, the subcommittee members believe that the PEIR is adequate and
satisfies CEQA. The subcommittee strongly' supports completing the WSIP
projects to improve seismic reliability. The subcommittee supports the
Modified WSIP, the environmentally superior alternative, especially the
concept of a transfer of conserved water from MID and TID. The
s'ubcommittee also supports a maximum rationing goal of 100/0, rather than
the' 20 percent in the proposed WSIP. In addition, the subcommittee
requests thatSFPUC coordinate construction of the WSIP project that is
'Iocated in Palo Alto with the Gunn High School schedule and that the PEIR
reconsider the merits of extending· the Santa Clara Valley Water' District
(SCVWD) West Pipeline to an interconnection point with SFPUC pipelines to
improve reliability of both SFPUC's and SCVWD's regional water systems.
No action required.
ORAL COMMUNICATIONS
Phil Plymale spoke regarding the dismissal of a Utitity Departmentemployee.
Brandon Porter spoke regarding his dismissal from the Utility Department.
Susan Richardson spoke on behalf of Brandon Porter.
Fred Balin, 2385 Columbia Street, spoke regarding open and transparent
government.
B'ob Wenzlal.!, 1409 Dana Avenue, spoke about bike and pedestrian safety at
the Embarcadero underpass.
Lynn Chiapella, 631 Colorado, spoke regarding a strip of land on Alma Street
at the Oregon Expressway.
09/17/2007 102-187
APPROVAL OF MINUTES
MOTION: Council Member Mossar moved, seconded by Morton, to approve
the minutes of July 30 and August 6, 2007, with corrections as noted. '
MOTION PASSED 8-0, Cordell not participating.
CONSENT CALENDAR
MOTION: Council Member Mossar moved, seconded by Klein, to pull Item 3
from the Consent Calendar to become Item 4A.
MOTION:, Council Member Morton moved, seconded by Barton, to approve
Consent Calendar Item Nos. 2 and 4.
2. Approval of Record of Land Use Action for a Variance to Allow a Fence
Exceeding the M'aximum Fence Height within a Front Yard Setback ,at
,1456 Edgewood Drive '
3. Request for Appro'/al to Cancel October 8, 'No'/ember 5 and November
12 Regular Council Meetings and to Schedule a Special Council Meeting
on No\'ember 13
4., Acceptance of a Report of Williamson Act Contracts within the City of
Palo
Alto
MOTIO'N PASSED 9-0.
4A. (Old, Item 3) Request for Approval to Cancel October 8, November 5 and
November 1-2 Regular Council Meetings and .to Schedule a Special
Council Meeting on November 13.
M()TION: ,Council Member Mossar moved, seconded by Klein, to cancel the
October 8 and November 12 Regular Council Meetings but not the November
5 meeting, and to Schedule a Special Council Meeting on November 13. . .
Council Member Kleinberg inquired about the meeting on November 13. She
noted there Is a Policy and Services (paS) meeting scheduled for that night,
so there is a conflict.
Assistant City Manager Harrison said tentatively the pas meeting would be
held on Wednesday rather than Tuesday.
Council Member Kleinberg said she probably would not be able to participate.
on November 13 because Golden Guardian is scheduled on that date.
09/17/2007 102-188
MOTION PASSED 8-1, Drekmeier no.
UNFINISHED BUSINESS.
5. Approval of a Wastewater Treatment Enterprise Fund Contract with
Anderson Pacific in the Total Amount of $&59',000 for the 'Recycled
Water Pump Station Upgrade Project at the Regional Water Quali.ty
Control Plant -Capital Improvement Program Project WQ-80021.
City Manager Frank Benest reported the" contractor confirmed he pays
prevailing wage, which has been documented. The contractor also indicated
that should there be any ruling by the Department of Industrial Relations that
he did not in some instance' pay prevailing wage, he would' be responsible
and not the City of Palo Alto. Therefore, staff recommends the Council
approve this contract to assure the work would be done this year.
Council Member Bart6n said he would like to make a two-part Motion to
accept the staff recommendation including acceptance of the contracter's
offer to provide a certified .payroll. As the .second part, he would like to refer
the' prevailing wage policy question to the Policy and Services Committee.
City Attorney Gary Baum asked if there was any public comment.
Council Member Beecham said this item was continued 'from last week with
public comment taken at that time. He asked whether it was necessary to
reopen the public comment.
Mr. Baum replied that legally it is. This has not been done In the past for a
true public hearing because the public' hearing has been opened and closed.
In this instance, the Brown Act requires that there be public comment on
each item before the Council. There is an exception if the meeting was
continued because it was midnight and the meeting would be convened the
. next day on the same item because then it is considered to be the same
meeting. In this instance, the matter was continued and it is considered to
be a new meeting.
Council Member Beecham asked If it is appropriate to limit the commehts to
those who had not spoken before.
Mr. Baum said no. Speakers could be requested not to raise new issues but
we cannot limit the individuals who are speaking.
Mayor Kishimoto opened the public comment.
09/17/2007 102-189
Juan Garza, 1493 Park Avenue, San Jose said the contractor's e-mail does
not say they are going to pay prevailing wage. It says "if" and there is a big
difference. Secondly,. he forwarded the decision from the Supreme Court of
the State from the City' of Santa Clara. In the present case; the revenue
bonds are to be issued to finance the petitioner's share of the regional water
pollution control. facility involving efforts of. several cities acting in common.
The total costs will be. approximately $30 million and the facilities cannot be
constructed without the petitioner's participation in the payment of these
costs. Furthermore, the sewage treatment facilities will protect not only the
health and safety of the petitioner's inhabitc;mts but the health of all
inhabitants in the San Francisco Bay Area. The Supreme Court determined in
certain situations a municipal affair is a statewide concern. There is a larger
project of which this smaller project is part and parcel and, therefore, that
.greater project. cannot go forward without this happening. Decisions like
these need to be made and hard choices have to be taken. The City ,Manager
failed to point out the other contractor submitted a letter in writing saying he
can get this job done by December 31; 2008.
Josue Garcia, 2102 Almaden Road #101~ San Jose, urged Council to reject
the bid and rebid the contract. He thanked Council for looking into the whole
prevailing wage issue. Workers are having a hard time making a living and
this will provide health insurance and a pension and training for workers.
Jeff Salvotti, 2350 Lundy Place, San Jose, spoke on behalf of th,e Sheet Metal
Workers, Local 104. He also urged Council to reject the bid and rebid with
the reqUirement for prevailing wage.
Mayor Kishimoto closed the Public Comment Period at 7:30 p.m.
MOTION: Council Member Barton moved, seconded by Drekmeier, to accept
staff's recommendation to approve the contract including acceptance of the
contractor's offer to provide a certified payroll.
MOTION PASSED 9-0.
MOTION: Council Member Barton moved, seconded by Drekmeier, to refer
the prevailing wage policy discussion to the Policy and Services Committee
(P&S). .
Council Member Drekmeier said the population Is growing and water is going
to be in shorter supply. It is therefore important that this recycled water
project move forward. He felt that Council needs to thoroughly vet the issue,
learn from other districts that use prevailing wage, to see if there is a better
product and also examine the fairness issue. .
09/17/2007 102-190
Council Member Mossar said she would not vote to refer this to the P&S
Committee. Prevailing wage is an interesting concept but it does not begin to
heal the social problems that have been outlined.
. .
Council Member Morton said those who have been on the FlnanceCommitte.e
know the struggles a city hc;ls to fund projects. If the whole financing
equation of the bid process is going to be changed, substantial amounts of
money would be aqded to future projects without actually knowing. the cost.
He is not opposed to the prevailing wage but is opposed to mandating it.
Council Member Cordell said she had a poSition directly opposed to Council
Members Mossar and Morton. There is nothing wrong with discussion since it
is quite clear this is a very important issue. It is about people, about
workers, about their ability to survive and it is absolutely essential as a
progressive city we have the discussion. This will allow for a reasoned and
humane decision about whether or not to pursue this policy. She supports
referring this issue to the P&S Committee.
Vice Mayor Klein stated he would support the Motion since it does not require
much staff time. If prevailing wage indicates an increase in the cost of
projects, there is an obligation to the citizens to turn it down. The burden Is
on those who are proponents of this to support the statements that Council
Member Cordell. has made about fairness and social justice. It is a question of
how does the economy really work. Palo Alto has not had prevailing wage for
the 110 years of existence' and satisfactory projects have been built. He
noted,these were his preliminary thoughts but he would support moving it to
the P&S Committee.
Council Member Kleinberg said it would be an interesting conversation and
she certainly can commit to being open minded. She felt the community
warits Couri"tll Members to be fair to those who work under government
contracts in the City. She was looking forward to the conversatiOn but
. doubts it will come back to this Council as It is currently constituted.
Mayor Kishimoto stated she would support the referral to P&S, but there are
many other things she needed to know before voting on the issue.
MOTION PASSED 6-3 Beecham, Morton, Mossar no ..
REPORTS OF COMMITTEES AND COMMISSIONS
6. Recommendation from the Policy and Services Committee for the City
Council to Approve a Tiered Approach for the Continuing Review,
Approval, and Implementation of the Zero Waste Operational Plan
09/17/2007 102-191
MOTION~ Council Member Mossar moved, seconded by Morton, to approve
the Policy and Services Committee and staff recommendation to a tiered
approach for the continuing review, approval, and implementation of the
Zero Waste Operational Plan (ZWOP). Specifically:
Programs -Direct staff to immediately begin implementing any
recommended programs that will have minor budgetary impact. As for the
other programs, direct staff to begin identifying costs and funding
mechanisms, including inclusion of specified programs in the Request for
Proposals for new collection services' .to be bid in spri.ng 2008.
Implementation of such programs will be reviewed and' evaluated based
upon their cost and diversion effectiveness.
Policies -Approve plan and continue the discussion of new policies and
regulatory requirements such as mandatory recycling and product bans to
giv~ staff direction on whether to pursue such actions in conjunction with the
start of the new collection contract in 2009.
Facilities -Approve the regional facilities approach in the Request for
Proposals for new collection services and continue the discussion of local
facilities such as the relocation of the recycling center in a separate process
which is already under way. These activities will be included in the RFP as
alternatives, to be reviewed and evaluated at that time based upon their
cost effectiveness.
Public Works Director Glenn Roberts introduced Russ Reiserer, Solid Waste
Program Manager, and Ruth Abe, Vice President of Brown Vince Associates,
who was the consultant in the preparation of this Plan. This item represents
a culmination of three years work, starting with the Blue Ribbon Task Force
developing the Zero Waste Operational Plan (ZWOP) and policies,
. statements. and goals adopted by Council a. year ago and the Operational
PI~m. Nothing that Council does tonight binds the Council, the City, o.r the
staff to actually finally Implement any of these measures. Staff is requesting
an indication of Council's policy direction in this matter. The tiered approach
is meant to indicate a phased implementation tied to many other events.
The Waste Composition Study' and the. Zero Waste Operational Plan
embodies recommendations and next steps. In November 2004, the Council
directed staff to develop a Zero Waste Plan. In October 2005, Council
adopted that Zero Waste Plan goals an~ directed staff to try and attain 73
percent diversion by 2011 and strive for zero waste or close by 2020-21.
That Strategic Plan was approved and Council directed staff to develop the
Operational Plan. This Plan has been sent to the Policy and Services
Committee twice. In March 2007, it was reviewed and direction was given
. to make modifications and enhancements to clarify certain issues. In July
2007, the P&S Committee recommended approval of this Plan. The big
issue here is the development and implementation of the next hauling
09/17/2007 102-192
contract for garbage collection and processing services in Palo Alto. We
have essentially been under the same hauler under two different names for
the past 56 years; PASCO and then PASCO being' acquired by Waste
Management. The cu~rent, contract with Waste Management/PASCO will
expire on June 30, 2009. Staff will come back to in a Study Session on
,October 1. The elements of the Zero Waste Plan are key to helping scope
the services in the new collection contract so there is a key relationship here
between these two activities. We need policy direction on zero waste goals
sQwe can shape that proposal for new collection services.' The 'first related
activity Is when our landfill closes, which is estimated to be 2011 based on
current rates of fill. Some key events occur in 2021 when our contract with
the SMART Station, Sunnyvale and Mountain View partner.s, expires and
when ,the contract for refuse disposal and landfill at Kirby Canyon expires .
. In 2005, a Waste Composition Study was prepared to start this effort. Zero
waste is a systematic approach to dealing with the problem. It recognizes
that discarded materials have value. Our current diversion rate is about 63
percent in the year 2007. There are· certain things we can do in the short
term. We are trying to do those things without having to negotiate with our
current hauler for any additional services. We are not recommending
undertaking any major service changes with the 'current contract. In the
mid-term, to about 2011, we can focLis on the new hauling contract; then
from 2011 to 2021 ,some significant improvements and increases can be
made. There will be some cost implications and every additional ton
diverted costs more money. Subsequently, in the new hauling contract
those issues will be included In the proposal as alternatives that can be
costed out. We will bring it' to the Council in 2008 with an analysis and
recommendation of how much it will actually co,st, what win be the impact on
rate, what will be the benefit of tonnages diverted. At that time, we will
. make a recommendation as to what new services to implement. Staff is
requesting that we continue the efforts of waste prevention through
legislation, policies, ordinances, outreach and assistance. Also, we are
working' to incorporate environmentally preferable purchasing standards,
continue to promote green building activities and sustainable landscaping
gardening. On regional priorities, we would continue to work with partners
on legislative actions and research, development and advocacy. In terms of
our recommended programs, we are looking for direction of what to
implement in the new hauling contract focusing heavily on the question of
organics. We believe the commercial sector food waste is a real target of
opportunity in the new contract. We are recommending the new RFP include
a provision for that service to see what it costs. We are also looking to
expand the type of materials collected at curbside. This policy document
recommends two categories of types of facility use; primarily utilizing
existing regional facilities wherever possible for the processing of the
curbside recyclables, for~he construction and demolition debris, and for new
organic processing.' It does not recommend any major new local facilities.
Regulatory support is one of the most significant issues in this document In
09/17/2007' 102-193
terms of policy issues and public involvement. If we want to get to zero
waste, or as close to it as possible, it will not likely be entirely on a voluntary
basis. This plan contains a recommendation for a potential mandatory
participation ordinance in recycling that would involve a three-year phased
implementation program where the first year would be an educational
process. The second year would be a warning process and the third year
would be enforcement. This wouid not begin until 2009 consistent with the
new collection contract. We are also looking' at potential product bans. The'
plan has looked at issues like Styrofoam and plastic bags. Policy direction Is
needed to pursue that and bring it back to you. Plastic bags are the biggest
single trash item in the creeks. Staff recommends this Plan be approved
tonight in concept and approve the tiered approach and give direction to
come back with those details on October 1 during the Study Session on the
new Refuse Collection Contract.
Mayor Kishlmoto thanked Mr. Roberts for his presentation, thanked staff for
three years of hard work and the members of the Zero Waste Task For.ce
and the P&S Committee.
Council Member Barton said this is a far-reaching document in multiple
ways .. Policy direction is requested on some' very broad issues and sets a
sco'pe of work for staff for a period of time to come. We . cannot
underestimate the amount time as well as the value of at least considering
the costs and benefits. It is important to understand this document Is
connected to a schedule and feasibility to the new waste hauling contract.
He inquired whether the $3.95 expected increase in cost of one can was per
month or per can.
Mr. Roberts replied a single can per month is $19.25 now and, therefore, it
would be about a 15 percent increase.
Council Member Barton asked if the $3.95 is an internal cost.
Mr. Roberts said that is correct. Landfi1l capacity has not been an issue
because Kirby Canyon exists anq has a lot of capacity left. That will become
an issue in the future and more costly over time. It is cost effective to pay
more now to minimize those future costs.
Council. Member Morton said a cost scenario is required that tells you the .
pick-up cost as well as the non-pick-up cost. Those are very hard to
measure such as auto pollution. He said he agrees the attempt is to prevent
long-term degradation costs. He said he does not understand why we talk
about phasing in or making it voluntary. He would prefer Council selects a
date and say "no more plastiC bags." It may take awhile to accomplish and
we would not enforce it. The same applies to composting. He fully supports
the efforts and the possibility of moving more quickly.
09/17/2007 102-194
Vice Mayor Klein said he would like to understand what we are voting for
and what we are not voting for and Inquired whether the new policies are
included as part of the plan and, if they are not, what is being approved.
Mr. Roberts stated staff was trying to be cautious about how ·far this
approval is taken because some of these will require further review,
ordinance development and perhaps environmental review. Vice Mayor
Klein's pOint is well' taken. Council is being asked to give staff policy
direction tonight. We will require further direction in the implementation
vehicles. . .
Vice Mayor Klein said if the plan is approved there are 25 or 30 separate
items. While he had no problem with the mandatory program in concept, he
is not quite clear what we are talking about.
Mr. Roberts said that will need to come back to Council with the details· of a
specific implementation program, an ordinance, an enforcement mechanism
and a time frame. .
Vice Mayor Klein stated the· item talks about facilities, which says "approve
the regional facilities approach and continue the discussion of local facilities."
Perhaps it could be said that we are approving the regional facilities with
certain exceptions that may come along. If we approve the regional, then
we are say!ng we are not going local; but if we are considering the local then
we are not going totally regional.
Mr. Roberts replied the idea is to have Council direct staff to pursue the use
of regional facilities for all of the heavy duty processing activities. Not
having a processing center in Palo Alto is consistent with the direction that
came out of the discussion on the proposed environmental services center
about four years ago. Those kinds of things will be sought in the new
collection and proces?ing' contract from providers who have them existing
and located elsewhere. No new such facility would be proposed or built.
The question of whether there should be a local recycling drop-off center and
a permanent home for the household hazardous waste facility, both of which
are local facilities, will be spun off to a separate discussion. .
Vice Mayor Klein referred to the part under programs that says "direct staff
to immediately begin implementing the recommended programs that will
have minor budgetary impact." He is troubled by that because he does not
know what minor budgetary impact means. He would like to see some
metrics.
Mr. Roberts said the intent was that it would not require any new budgetary
authority from the City Council. .
09/17/2007 102-195
Vice Mayor Klein asked whether Public Works has that authority to some
degree with what was passed in the budget this year. He does not like
voting for something that is approving policies if they have minor budgetary
impact. .
Mr. Roberts said this Plan was working on expanding existing. programs.
Some examples would be. increased recycling in the downtown area; adding
more recycling containers in the downtown for special events, festivals and
things of that nature, and more education and technical outreach and
support to schools and private industry.
Vice Mayor Klein said he felt there should be a list of the programs and, if
they are so small and within existing progr~ms, staff ought to just
implement them.
Mayor Kishimoto opened the Public Hearing.
Dora Goldstein, 620 Sand Hill Road, said as a part of the Zero Waste
Operational Plan, the op.portunlty should be taken to enact a ban on
polystyrene food containers. Several cities have already done so sUGh as
Berkeley, Portland, San Francisco and Oakland. New York City is currently
considering such a ban. IlIIost Palo Alto restaurants already use recyclable
containers. Polystyrene containers are used here not only In restaurants but
in othe·r dining venues. The Zero Waste Operational Plan suggests adding
polystyrene to the list of components that can be recycled on the curbside
single stream pickups. ·
Bob Wenzlau, 1409 Dana, said the Plan' will be challenging to implement.
Even as one of the Task group members, he found it challenging from the
standpoint of participation because you really do not. get the chance to
consider specific programs and specific recommendations. As the document
went forward, a number of the comments he made. ended up being lost,
which was disappointing. He appreciated Council Member Morton's remarks
when he said that October 1 could be the day Palo Alto makes a statement
on mandating recycling and product bans. These types of programs should
have a schedule and he urged Council to consider doing that. Finally, he felt
the organic waste Issue should be handled locally. He disagrees that it is
regional. He recommends revisiting local management of organic waste ..
Mayor Kishimoto asked for clarity regarding a ban on plastics. She felt a
tlmeline would be helpful. There is a lot of anxiety on the part of the Council
to move forward. She inqLllred if this conceptual plan Is approved tonight,
the next steps would be on bans which are outside the hauling contract. The
hauling contract is a huge milestone. She would have some questions later
regarding conceptually approving the local drop-off recycling. She also has
09/17/2007 102-196
questions on why 2.2 acres is needed, as opposed to half an acre, and also
on household hazardous waste.
Mr. Roberts said he mU$t have created a misimpression and he wants to be
very clear. Council is not being asked to approve any local facilities tonight.
Those discussions are continuing.
Mayor Kishlmoto asked' Mr. Roberts to confirm the site design for a
temporary 2.2 acre site is going to Planning and Transportation Commission
(PBlTC). .
Mr. Roberts said that is correct and it is a different Issue. It is the temporary
relocation of that facility in order to be able to complete the build-out of the
landfill and the build-out of the Byxbee Park grading plan. It must be moved
. from where it is presently located or the landfill and the grading plan cannot
be completed. That is not an element of the Zero Waste Plan .. The Zero
Waste Plan looks beyond that timeline. The issue will be going to the P&TC
on September 26. .
Mayor Kishimoto said it is part of the whole waste strategy. For example,
we approved the CIP for the temporary location but it was with· the
understanding it was a placeholder and we would actually have more
discussion on it.
Mr. Roberts said after it goes to PBlTC in September, assuming they take
action, it will come to Council later this fall. Regarding the product bans and
. mandatory recycling, staff is an enthusiastic p,roponent of those issues but
we clearly need to hear from the City Council whether to pursue those
policies. There will be a tremendous amount of legal work needed as well as
technical work. We will need to' research those model ordinances and case
law, develop an implementation strategy and get back to you with a
time line. Right now, what we have proposed and what this Plan says is to
develop those product bans 'in that mandatory recycling effort concurrent .
with the new collection 'contract beginning in 2009, Which is 18 months
away ..
Council Member. Kleinberg. said she wanted to follow-up on Mayor
Kishimoto's and Vice Mayor Klein's questions. In the recommendation,
under PoliCies, Approved Plan, are we approving this Plan.
Mr. Roberts replied yes.
Council Member 'Kleinberg said some of the things the Mayor just asked are
in conflict with some of the ideas we might want staff to pursue if the
Council agreed should there be something to look into. She stated she is
concerned· with the amount of recycling done by commercial businesses,
09/17/2007 . 102-197
ma.inlyoffices. There is not enough aggressive activity in this Plan to reward
. commercial recycling. Under Maximizing Recycling, the Plan says
approximately 50 percent of commercial businesses participate in the City's
recycling program. Then it says there's gOing to be a recycling approach
rolled out with the commencement of new services in July 2009.
Gouncil Member Kleinberg asked why is it necessary to wait for a new
contract to get businesses to recycle now if only 50 percent are doing it.
Mr. Roberts said staff is recommending the most prudent and effective
course of action is to follow that time frame for two reasons: 1) because of
the time it will take· to develop and implement these mandatory programs,
ordinances, and enforcement measures; and 2) to make it concurrent with
the new contract. We don't recommend trying to negotiate for increased
services with the current hauler given some contractual disputes. We
recommend it would be far better to have this go into effect with the
proposals and contract for the new hauler. Lastly, this will require some
additional resources for staffing and we don't want to add· Full Til)1e
Equivalents (FTE) to City staff if we can avoid it. We wanf to make these
programs the responsibility of the new hauler and have it be their staff that
does those things so we don't add to our FTEs and retiree medical liability to
do this.
Council Member Kleinberg asked Mr. Roberts if it was correct to state that
we are not gOing to be more aggressive in encouraging the other 50 percent
of the businesses to recycle· because we should ·wait for· our contract
business to take that responsibility in July 2009:
Mr. Roberts said yes in part. Mr. Reiserer reminded him of another piece as
well that there is a logistical problem in getting everybody involved in
getting them all carts and finding them all places. to store those carts and
bins in an area that the trucks access. There are implementation timeline
needs, ordinance development, legal requirements, logistical issues and cost
.issues.
Council Member Kleinberg asked if during the interim we could partner with
other organizations in the City such as Chamber of Commerce, CAADA and
. other business organizations and aSSOCiations, while we are busy promoting
Destination Palo Alto. She said there are creative ways that don't require a
lot of staff time that could be partnerships. Regarding the issue of plastiC
bags and polystyrene, the SMART Station cannot process the plastiC bags at
the moment, and people cannot tell the difference between a biodegradable
.. plastiC . bag and a non-biodegradable bag. Could staff research
methodologies and systems that are used by other government
organization.s to deal with non-degradable materials such as polystyrene and
Styrofoam and non-biodegradable plastiC bags and put that into the
09/17/2007 102 -198
Operational Plan. On page 47 of the Zero Waste Advocacy Plan, it suggests
not getting rid of plastic bags but having a levy on packaging materials that
included plastic bags.,
Mr. Roberts said there are a couple of different types of sources that need to
be understood. Even if those materials are banned here in Palo Alto, they
will still occur in our waste stream and in residents' refuse. Polystyrene
packaging comes through UPS in things that are purchased. That's why we
continue to suggest they be collected at the curb and "recycled. The
alternative will be to have it go into the waste stream. That's why a second
level ofa leVy is also considered. "
Council Member Kleinberg asked what the levy would be on.
Mr~ Roberts said it is a fine or penalty for the use if that business continues
to use' the product.
Councll'Member Kleinberg said in other words, we would ban plastic and
then there would be some kind of a fine if a buSiness continued to use them.
,Mr. Roberts said that is his recommendation. This was proposed originally
. as an alternative. Council might want to consider implementing the ban.
Council Member Kleinberg noted if she votes for this Plan tonight, is she
voting for the "Guiding Principle" that, sooner rather than later, we may
,have staff help us consider a ban on non-biodegradable products made of
plastics, Styrofoam, polystyrene etc.
Mr. Roberts stated the Plan is less specific in what Council is saying. It
appears to be the majority opinion of what you would like us" to do. If you
were to vote for this Plan, in general, staff would come back and propose an
alternative. If you want to be more specific and tell us to go develop a
product ban, we will take that direction from among these alternatives.
Council Member Kleinberg stated it has to do with the use of parkland. She
said she does not want to be voting for the use of parkland for recycling
centers or anything" else. That is a much larger conversation the CounCil
ought to have with constituent input. Dedicated parkland is a non-
renewable resource. She requested assurance that dedicated parkland would
not be a possible site location for a relocate~ recycling center.
Mr. Roberts said he needed to answer this question very clearly and very
specifically. There is nothing in this Plan that refers to any use of parkland.
In fact, he believes there is a significant reference in the report to the
. opposite that" was added at the discussion of the Task Force and at the
initiative of former Council Member Renzel, who wanted to make sure it was
09/17/2007 102-199
clear in the Plan. At Council's direction you have given us another
assignment to pursue the question of composting and left open that
question. So, while your action tonight on this Plan clearly does not commit
to any parkland, there is another process under way that has many
alternatives regarding that potential issue.
Council Member Kleinberg asked whether under 4.3 of the Plan when there
is language like "not on City parklands unless consistent with the Baylands
Master Plan," doesn't necessarily say "not on City parklands." In other
words, there is a loophole.
Mr. Roberts said that is because the Byxbee Park Master Plan and the
Baylands Master Plan show a small site on Byxbee parkland for a potential
future recycling center. That potential is consistent with the City's adopted
Comprehensive Plan and park's Master Plans.
Council Member Massar said the P&S Committee talked about this and it has
come to us with their unanimous recommendation. This isa huge 50,OPO
foot view of what the roadmap looks like and there are so many policies and
financial issues buried herein that we couldn't, possibly approve any of them
tonight and, even if we thought we were, we ,couldn't possibly tie the hands
of next year's Council and the Council the year after that and so forth. This
is a general roadmap and a great body of work. Best wishes to next year's
Council and the Councils to follow In implementing the Plan. There is a lot of
controversy and a lot of work to be done. What is important is that there is
the will and the interest to pursue these issues and it is going to take a lot of
work on the part of the Council and the staff and the community to get to
this ultimate goal.
Council Member Morton said the community believes that environmental
degradation Is no longer tolerable and, if something is not recyclable, should
we take steps to ban it. Staff has attempted not to tie anything down and
will come back periodically with requests for direction. A Zero Waste
Commission was established, which has done their best to provide as much
, information as possible. The decision to'night is not how to go forward.
Council Member Barton said he thought these policy topics are being
referred back to staff for further evaluation. Some of them will come back
as they look here and some will be modified. Some of them require policy
changes and policy implementation.
Council Member Cordell stated if the Motion is approved, a follow up motion
will be needed. Any action taken by a Council at the beginning of terms or
the end often binds future councils. The motion basically approves a tiered
approach that the P&S Committee would review. It is not clear whether staff
is being directed to pursue and bring back to Council at some" point a poliCies
09/17/2007 102-200
and regulatory requirement such as mandatory recycling. It is necessary to
be somewhat specific in directions to staff.
Council Member Mossar said she would agree to include that particular
direction in the Motion because it is the first tier, as well as to direct staff to
come back with a list of programs with minor budgetary impactS.
INCORPORATED INTO. MOTION WITH THE CONSENT OF THE MAKER
AND· SECONDER. to direct staff to return to the Council with a list of
programs with minor budgetary impacts. recommended for immediate
implementation. .
Council Member Cordell also recommended mandatory recycling and product
bans. Staff sbould . be directed to start working on that even though it
probably will not come back before several Council Members leave.
Council Member Mossar said it would be easy to say yes but it is a big
question and she is not comfortable putting that in the Motion.
Council Membet Cordell said that is her only concern so that staff does not
waste its time studying some issue that is not approved by the Council.
Council Member Mossar said the recommendation includes policies such as
mandatory recycling and product bans to give staff direction on whether to
. pursue such actions in conjunction with the start of a new collection contract
in 2009. She noted her Motion includes the section "Recommendations
down to Committee Review and Recommendations."
Vice Mayor Klein said he thinks that the Zero Waste Operational Plan is a
fascinating document; a terrific job by citizens but It deserves to be
reviewed by Council recommendation by recommenc;:lation. He stated he is
in favor in concept of the plan and to direct staff to begin identifying costs
and funding mechanisms for specified programs. There needs to be. a
mechanism where Council goes through the Zero Waste Operational Plan in
the same way we go through a budget. It is essential to be careful as to
what is being approved. He recommended that staff come back with an
analysis to lead Council through everything in the Operational Plan.
suaSTITUTE MOTION: Vice Mayor Klein moved, seconded by Kishimoto,
to approve the general direction of the Zero Waste Operational Plan and to
direct staff to: provide Council with a list of the recommended programs that
would have minor budgetary impact; begin identifying costs and funding
mechanisms of the various recommendations of the Plan and identify costs
and critique specified programs to include in the Request for Proposals (RFP)
for the waste hauling contract. Council would provide guidance to the staff
that they are: in favor of mandatory product bans; the regional facilities
09/17/2007 102-201
approach in the RFP for new collection services with the possible exception
of the relocation of the Recycling Center as well as the Hazardous Facility
and to remove any site r:eference of the program.
Mayor Kishimoto said a timeline is not being set tonight by asking staff to
come back with recommendations of what is feasible. Regarding the regional
facilities for the recycling and household hazardous waste, justification for
the 2.2 acres needs to be made.' .
. Mr. Roberts replied removing a reference to' a specific size of any particular
nature is fine. Staff will return to Council with specifics to justify what is
needed.
Mayor Kishimoto said the current drop-off site is less than half an acre.
Mr. Roberts said the issue of the temporary location of the recycling center is
not part of this Plan. This Plan is a process. for. studying where the
permanent location should be after that time limit that you 'suggest for· a
temporary location would expire. .
Mayor Kishimoto said she understood there would be a temporary and a
permanent location. She asked whether it would be made clear to the P&TC
that it was only a vague conceptual approval at the Council level during the
budget process.
Mr. Roberts said he believed the Chair of the P&:rC understood that.
Vice Mayor Klein said he did not feel this discussion was appropriate for
Council to be doing since it is not on the agenda. He did not like the idea of
advising the P&TC what they should recommend.
Mayor Kishimoto said it· was an interpretation of what the CouncU has
approved.
Council Member Drekmeier stated the Plan is an amazing document and
when covering, this much material can be very challenging. However, this is
one of the most exciting things that we are doing in Palo Alto. This is an
opportunity to be leaders beyond what we have been In the past. He noted
he .also had' a similar question to Council Member Morton's and asked Vice
Mayor Klein to explain the difference between the Substitute Motion and the
Original Motion. .
Vice Mayor Klein said ·he thinks his motion differs in a variety of ways from
the staff recommendation. He stated he believes the Council needs to go
through the plan Item by item. Either the Plan is approved or not. If you
09/17/2007 102-202
approve it then you don't have the further discussion. The Substitute Motion
takes a more discreet approach rather than a broad sweeping approach.
Council Member Mossar ·said the argument is about semantics even though
everything being discussed is important. She noted she is uncomfortable
with the Substitute Motion because altho.ugh she may personally approve of
product bans and mandatory recycling she has been on the Council when
mandatory actions were taken and it was disastrous. Staff will pursue
mandatory recycling and product bans but it will be put it through a public
process to get public buy-in. This City has b.een an environmental leader on
a nurnbe·r of issues and we have led the region in water quality. This has
been done bycooperative programs with the various polluters. The City of
Palo Alto did that and we did not do it by mandatory programs. The public
must be involved in· the conversation. There are the top 10 waste
preve.ntion priorities for the City. Development of this Plan was not private
but the individual poliCies have not been vetted in a public session. .
. Council Member Beecham said he agrees with a lot of Council Member
Mossar's comments but believes there needs to be a strategic plan on how
we spend the people's money in order to get the biggest bang for the buck.·
This is not it. It is a good Plan and may be a good way to start but without
that overall plan limited resources will be misspent. '
Mayor Kishimoto said there is one more speaker and then the public hearing
wou Id be closed.
St~phanie Munoz, 101 Alm~, said she would 'like to suggest that Council
direct staff to write to the municipalities and the county directors in the
three Westbay counties saying Palo Alto has received significant testimony
urging us to ban Styrofoam food containers. I would like to see you put the
ban for the Styrofoam food containers on the agenda. as soon as legally
possible. Susan Arpan should tell all the businesses on University Avenue
and California Avenue to join the curbside program and put the papers out in
a box, bag or a plastic container out on the curbside.
Council Member Kleinberg said she was feeling that if she votes in favor of
this she is voting for it in principle because there is so much detail and this is
a wonderful document. It is a remarkable leap forward for the kinds of
things that we really care about and is something a previous group did direct
staff to work towards. We are not voting for ordinances tonight. Section 7.0,
Recommendations and Action Plan, the very first policy recommended Is to
make waste prevention the number one priority. She is voting for the
principle, the ideas, the guidance it is giving staff and the understanding that
staff will return with some hard nosed ideas presented to study and adopt.
She stated she would support the original Motion to adopt in prinCiple the
Zero Waste Operation Plan and the rest of the recommendations.
09/17/2007 102-203
Council Member Morton said he would vote for the original Motion as well.
, Vice' Mayor Klein said he has tried to be specific in the Substitute Motion by
saying the general approach is being approved in principle. As for the
comment that Council Member Mossar' made about mandatory programs, we
are not adopting any specific programs.
Council Member Cordell said she would support the Substitute Motion
because she, believes it is imperative direction be given to staff and the
. original motion does not do that. For the benefit of staff, if nothing else, the
substitute motion is important. .
SUBSTITUTE MOTION PASSED: 5-4, Barton, Beecham, Morton, Mossar
no.
Assistant City Manager Emily Harrison clarified the assignments do not have
to be completed before discussions begin about the new waste hauling
contract because staff will return and will have detail of the elements to the
Zero Waste in the refuse hauling contract.
COUNCIL COMMENTS, ANNOUNCEMENTS, AND REPORTS FROM
CONFERENCES
Council Member Morton noted as liaison to the 2009 Senior Games, he
attended the first meeting of the major sponsor~of the Games and their visit
to the Stanford facilities.
Mayor Kishimoto noted she attended· the. Sundance Mayor's Summit 011
climate Protection. The conference was sponsored by the International
Consortium of Landscape and Ecological Engineering (ICLEE).
Mayor Kishimoto reminded her colleagues there would be a Brown Bag
meeting on September 26, 2007 at 4 p.m. in the Council Chambers
regarding Financing Options for Green Initiatives for Individual Homeowners,
Businesses and Government. She noted on Saturday, September 15, 2007,
a Golden Spike Ceremony was held regarding the creation of a trail tying
Foothill Park with Los Trancos from the Bay to the Ridge and thanked
Council Members Mossar and Kleinberg for their work on the negotiations on
the Bressler Property. Mayor Kishimoto requested an update from the City
Manager on the Valley Transit Authority (VTA) shuttle.
Assistant City Manager Harrison stated a kick-off meeting was scheduled for
September 25, 2007; the VTA and the City Community Bus Study, which
included Stanford, the Marguerite, the Palo Alto Unified School District
(PAU5D) PTA, and the Neighborhood Associations. Two community meeting
09/17/2007 102-204
workshops would be scheduled; the first meeting for community input had
not been scheduled; the second meeting with the draft service proposal was
scheduled for November 14, 2007 and would be With the Planning and
Transportation Commission. The final plan would go to the VTA Planning
Operations Committee in December 2007 with the VTA Board of Directors
receiving the plan in January 2008.
Mayor Kishimoto noted she and Supervisor Liz Kniss were working on the
Palo Alto Walks and Rolls campaign to be held the first week of October
2007. A community bike ride was scheduled on October 6, 2007.
ADJOURNMENT: The meeting adjourned at 9.45 p.m.
. ATTEST: APPROVEb:
City Clerk Mayor
NOTE: Sense minutes (synopsis) are prepared in accordance with Palo Alto
Municipal Code Sections 2.04.180(a) and (b). The City Council and Standing
Committee meeting tapes are made solely for the purpose of facilitating the
preparation of the minutes of the meetings. City Council and Standing
Co·mmittee meeting tapes are recycled 90 days from the date of the
meeting. The tapes are available for members of the public to listen to
during regular office hours.·
09/17/2007 102-205
Attachment C
Memorandum
TO: Mike Sartor
Assistant Director Public Works
FROM:
. DATE:
Evan Goldin
Management Specialist
February 15,2008
SUBJECT: Review of Potential Impacts of Requiring Prevailing Wage Rates on all
City Construction Projects
DISCUSSION
What is Prevailing Wage and What Are Its Origins? .
Prevailing wage laws require public works contractors to pay their employees standard local
wages. They are seen as a means to prevent contractors from reducing wages to better compete
for construction work. Proponents argue that prevailing wage laws "remove wages from the
equation," and ensure higher-quality construction.
The laws first originated as state enactments in the late 1800s. The biggest milestone for the
laws, however, was the passage of the Davis-Bacon Act of 1931, which mandated the payment
of prevailing.wages on all construction projects that receive inore than $2,000 -an amount that
has remained unchanged today. The Act was a response to a, construction contract for a hospital
in New York City, which was won by a fmn that sought to bring in cheap labor from the South.
Construction finns in New York and national labor leaders lobbied Congress, arguing that the
government should n()t use its massive economic might to drive down wages. Instead, it should
help support and cultivate a highly skilled, highly paid construction workforce.
In subsequent years, especially during the height of the Great Depression, many states and
localities passed similar prevailing wage laws. Most states, including California, now have such
laws, meaning that public works projects in those states that meet various thresholds of state
funding must pay prevailing wages.
How is Prevailing Wage determined?
The defmition of a "prevailing wage" has long been· a point of contention. The original Davis-
Bacon Act stated that workers will earn "wages that will be determined by the U.S. secretary of
labor to be prevailing for the correspondiitg classes of laborers and mechanics employed, on
projects of a character similar to the contract work in the city, town, village, or other civil
subdivision of the state in which the work is to be performed." The Act did not explicitly call for
, the application' of union wages on affected projects, but the Department of Labor's practices
have often resulted in such use of union rates.
Page 10f19
The Davis-Bacon Act has resulted in the use of the ''modal'' method to determine prevailing
wages. Originally, the Act was carried out such that if more than 30 percent of workers in a
specific employee classification were paid the same wage, that wage was deemed to be
"prevailing" and thereby was made the prevailing wage for that job type. President Reagan,
however, raised that minimum to 50 percent, so that if the majority of workers in a classification
are earning the same wage, that wage is deemed prevailing. If the majority of a classification, of
workers, however, is not earning the same wage, the wages of those employees are averaged to
calculate the prevailing wage. '
Prevailing Wage in California and Local Municipalities
California passed its prevailing wage law in 1931, the same year the federal Davis-Bacon Act
was passed. California's law, Sections 1770-1781, is one of the more stringent of state-level
prevailing wage legislation, stating:
Except for public works projects of one thousand dollars ($1,000) or less, not less
than the general prevailing rate of per diem wages for work of a similar character in the
locality in which the public work is perfonned, and not less than the general prevailing
rate of per diem wages for holiday and overtime work fixed as provided in this chapter,
,shall be paid to all workers employed on public work~.
This . law has come to mean that any if any public works project receives more than $1,000 in
state funding, prevailing wage law is triggered. Even if the vast majority of funding comes from
municipal or private sources, the law still applies if the project receives more than $1,000 in
funding.
The state',s prevailing wage law applies to all of California's "General Law" cities -
municipalities that choose to govern under the framework of the California Government Code.
However, California gives municipal governments the "home rule" option, meaning that they
have the choice of operating as General Law cities or choose to operate under their own cluirter,
giving them much wider latitude in running their own affairs. These municipalities -known as
"Charter Cities" -can make their own decision regarding prevailing wage in cases where
funding is wholly local. Most Charter Cities have chosen to require the payment of prevailing
wages on local projects. In the case of Palo Alto, however, the City has elected not to pay
prevailing on local public works projects to date. .
Survey of Municipalities
To further examine the policies of other California municipalities regarding prevailing wage law,
the City of Palo Alto surveyed dozens of other cities on the topic. The survey was sent out to all
members of the Associati()n of Bay Area Governments, as well as to all Charter Cities that had
email addresses available. Forty-eight municipalities responded to the survey. Usually, the
respondents were public works officials, though a few city managers replied as well. The
fmdings are summarized below:
Question 1:. Does your city require contractors to pay prevailing wages on any municipal
contracts?
Page 2 ofl9
No: Yes:
As we can see from the results of this question, requiring the payment of prevailing wages is the
norm among California municipalities, even Charter Cities. Out of the 48 cities surveyed, only
six do not require municipal contractors to pay their employees prevailing wages. Of our sample,
32 were Charter Cities -. the only ones allowed to not require prevailing wages.
As a point of reference, cities that answered "No" to this question were instantly sent to the end
of the survey, as there was little other data of use that could be gathered from them. Accordingly,
the pool of respondents is smaller for the rest of the survey. .
Question 2: q possible, estimate by what percentage paying prevailing wages affect your overall
project costs (not just wages). Be sure to note whether it is an increase or decrease:
Twenty-eight cities' answered this question. Of those, 13 cities responded with a numerical
answer. Many such answers were a range between two digits, such as "Increases cost by 30%-
40%"; in these cases the average of the two digits was taken. Most of the others either simply
stated, "don't know," or claithed to have no basis for comparison. The answers from those that
provided percentage changes ranged from a low of 5 percent to a high of 35 percent. All replies
claimed positive project cost increases. Of the respondents, the average stated overall projec~
cost increase was 20.6 percent.
Three of the respondents seemed supportive of prevailing wages. One suggested that higher
productivity might lead to lower overall project costs. Another noted that the three biggest city
contractors are union, so they pay prevailing wages regardless. The third argued there are hidden
Costs to not requiring prevailing wages:
Certainly there are "hidden" costs of not requiring that prevailing wages be paid.
Those are costs that are borne by taxpayers for health care of the uninsured and other
Page 3 of 19
government assistance that may be needed when workers receive no retirement or
training programs.
Question 3: What impact does prevailing wage have on the quality of construction in your city?
Noticeably higher quality 5 25%
Minimally higher quality 1 5%
No impact on quality 13 75%
Lower quality 1 5%
The vast majority of cities that responded to this question with a definitive answer believe that
prevailing wage does not have a. noticeable impact on the quality of construction. Six claimed to
not to know or to not be able tojudge well enough to respond. Eighty percent of those believe
that requiring prevailing wages does not incieas~ quality at all, and one·respondent even claimed
it lowered quality (thOUgh Ws likely they were including other factors in their judgment).
Of those that believed it did not impact quality, many were of the view that ''prevailing wage
does not seem to be the issue, competence or skill level is more of the issue." Another noted that
prevailing wage is not a determinant of quality; project specifications are the determinant:
Regardless of paying or not paying prevailing wages, the contractor need· to
construct the improvement in accordance with the plans and specifications, and the Cityts
construction standards.
The cities that noticed an increase in quality due to requiring prevailing wage believe that paying
prevailing wages ensures a project a high-quality workforce. One noted simply, "Paying
prevailing wage ensures that quality tradesman work on City projects." Another believed that
requiring prevailing wages "may make it more difficult for less experiencedconttactors to bid."
Question 4: How do~s prevailing wage affect the number of bidders on public construction
projects in your city? .
Aft~r evaluating the results of this question, one matter seems certain: requiring prevailing wage
does not inctease the field of bidders. All respondents either replied that they .believe prevaiiing
wag~ decreases the field of bidders, has no impact whatsoever or they were unable to provide an
answer.
Page 4 of19
12
9
6
3
o
. Decreases No Impact
The respondents were alinost evenly split over the issue. Twelve noted that prevailing wage .
reduces the number of bidders, and 11 believe that it has no impact. Many made statements such
as "less bidders are willing to participate." One went on to explain:
Prevailing wage has less effect on the larger projects. On smaller projects ... you
have small contractors potentially wanting to bid but won't, due to the fact that they are
not tooled up to produce the paper work for Certified Payroll. These contractors may
even pay prevailing rates or above, they just don't want to hassle with extra paperwork
and the costs to produce it.
However, many cities also argued that prevailing wage did not seem to have an impact. One city
noted that "Our contracting community has a high number of government (state, county and city)
contracts to bid on, so they are used to it." Another said:
A majority of our projects are large-scale projects that only the big construction
companies can bid on due to bonding requirements. These bigger construction companies
at least pay union scale which in most cases equal to prevailing wages. .
Overall, while the field was split on the issue, since the majority of the cities found a measurabl~
impact, it's reasonable to assume that requiring wage does limit the pool of bidders, at least on
occasion.
Question 5: Are any construction projects excluded from prevailing wage reqUirements, such as
maintenance? Please explain:
One of the goals of the City's study was to find out how uniformly prevailing wages
requirements are ·applied. Obviously, in General Law cities, all municipal contractors must pay
prevailing wage for projects over $1,000. However, in Charter Cities, there are widespread
Page S of19
differences in the application of prevailing wage regulations. Many Charter Cities have decided
to mandate the payment of prevailing wages in some cases, such as all projects over a certain
monetary threshold, but not require it in other cases, such as on maintenance projects. The results
"Are any construction projects "excluding from prevailing wage requirements" are as follows:
No 11 44%
Some maintenance 9 36%
Yes 2 8%
Projects wi affordable housing 1 4%
Public works less than $25k, 1 4% maintenance less than $15k
Some 1 4%
The application of prevailing wage regulations varies greatly among California cities. More than
50 percent of respondents -if you include those who responded "yes," "some," "maintenance
less than $15k" and "some maintenance" exclude at least some types of maintenance from
preyailing wage requirements .. If the City of Palo Alto were to adopt this policy, it would
certainly not be alone. A few cities were more specific, excluding only maintenance that was
deemed "routine" or that "extends the life of a public asset." Policies vary greatly on the matter.
Question 6: List any positive efficts that come as a result of paying prevailing wage:
Survey respondents noted a wide range of positive effects. The comments generally fit into the
following categories:
-Supportive oflabor
-Evens the playing field.
-Assures that workers are being treated and paid fairly
-Higher wages allow people to live closer to work
-More professional bidding pool
-Higher-quality work"
Most respondents did not leave lengthy comments. Many simply noted that "Paying of prevailing
wage evens the playing field for all contractors bidding on the projects." The most common
comment regarded" how paying prevailing wages increased the quality of life of construction
workers, such as:
It gives some assurance to the City Council that contract employees are treated
fairly and are receiving an equitable wage with benefits consistent with that of City
employees.
Question 7: List any negative efficts that come as a result of paying prevailing wage:
Page6of19
The comments generally fit into the following categories:
-Higher costs
-Fewer projects can be built
-Need for extra staffing and paperwork for compliance monitoring
-Smaller pool of bidders
The negative effects respondents pointed to was much more narrowly focused than the list of
positive effects. Higher costs were the main drawback cited' by those who filled .out the survey.
One respondent noted, '.
The higher costs that the Cityl Agency needs to pay does not fmancially justify
the relative limited benefits to few residents and majority of non-locals. Makes region
less competitive. Substantial administrative/monitoring burden.
Many agencies made note of the added burden that compliance monitoring can place on a
municipal government. One respondent said, "Union organizations frequently request copies of
certified payrolls from non-union contractors. This sometimes approaches level of harassment."
Another said simply, ''paying prevailing wages ... · does not assure that you are getting "quality or
dollar-for-dollar value."
Question 8: List any additional comments on the topic:
Excerpts of note are as follows:
For larger projects, where the majority of t~ work is done by union labor .
anyway, prevailing wage is not an issue.
If most of the contractors in your area are union, it may make very Uttle
difference, in which case maybe it isn't worth fighting about .
. Keeping up with Certified Payroll from the City's side is becoming more and
more time consuming -collecting, verifying the payroll. Through the Public
Information Act, we are receiving more and more requests for copies of the submitted
payroll. (Note: it appears that these .requests for copies are only directed to contractors
that are non-union). Paying a prevailing wage and securing benefits to employees is Ii.
good thing when all is fair. I think [the issue is] not so much what is being paid as much
as the competence of the contractor and their employees being able to perform.
Major Academic and Government Research
A number of academic and government studies examining the costs and benefits of prevailing
wage have been issued. Generally, these studies fall into three different camps:
Pro-prevailing wages studies, mainly issued by university-level academics
-Anti-prevailing wage studies,generally conducted by think tanks and academics
Page 7 of 19
Government studies, mainly issued by commissions and budget offices at the state and
national levels
The most effective way to summarize these reports is to review each category. A listing of the
reports reviewed is included at the end of this memorandum.
Pro-prevailing wage
The largest numbers of studies weigh in favor of prevailing wage. Many of these studies seem to
be fairly insular, regularly referencing the .other studies (a fairly common practice in little-
studied fields of academia). Arguably, the most pre~eminent academic in the pro-prevailing wage
arena is Peter Philips, a Ph.D. at the University of Utah's economics department.
Philips studies have focused on a. couple different issues. In a study that compared school
construction costs in three Midwestern states, Philips found that, after adjusting for inflation, the
difference in costs per square foot of new school construction between prevailing wage and non-
pr~vailing wage projects was statistically insignificant. Moreover, he found a number of notable,
negative outcomes to the repeal of prevailing wage laws .. Firstly, Philips argues that' average
construction earnings fell almost $2,000 in states that repealed their laws. After Utah's repeal of
its prevailing wage law, construction injury rates increased 14 percent and the percent of road
constructiQn projects in Utah that experienced cost overruns went from 2 percentto 7.3 percent.
Most important, Philips claims that Utah did not benefit fmancially from the repeal; because of
the rippling effect of decreased incomes, the state's overall tax revenues decreased. Philip's final
point, however, doesn't seem to account for the alternative uses -or rippling effects -of the
saved money.
The other studies argued that prevailing wage offered a number of additional benefits. Most
concentrated on the idea that prevailing wage laws nurture and sustain a well-trained, highly
skilled construction workforce. Many argue that this is especially important considering that
there were 1,186 construction deaths in 2005, more th~ any other industry. Furthermore, while
Ph.D~ Mark Prus found that consil'uction wages are 9 to 15 percent higher in states with
prevailing wage laws, he asserts that -all other factors aside -prevailing wage requirements
only result in a 3.8 percent increase in overall construction costs, a statistically insignificant
amount.
One of the most interesting pro-prevailing ~age studies was oonducted by Bob Gasperow, of the
Construction Labor Research Council, in 2001. Gasperow's study examined differences between
highway constructi()n in "low-cost labor" and "high-cost labor" states among 26 -states that spent
the most in highway construction. Despite higher labor costs per mile, the total cost of highway -
construction in the high-cost labor states was $1,017,992 per mile, compared with $1,141,049 for
low-cost states.
Anti-prevailing wage
_ The number of papers that argue against the rationale of prevailing wage is smaller than the
number of papers that support it. This is likely because -if we assume even a relatively minor
increase in costs under prevailing wage -labor groups and construction firms are the direct
beneficiaries. However, people who stand to lose are taxpayers, a much more general group that
Page 8 ofl9
is less able to coordinate and fund studies of the issue. Nonetheless, a number of anti-prevailing
wage studies have been published, mainly from conservative think tanks and universities.
The MacKinac Center for Public Policy issued the most comprehensive think-tank study. The
study asserts that prevailing wage forces contractors to pay 40 to 60 percent higher wages,
leading to an eventual 10 to 15 percent increase in overall costs. The main beneficiaries, they
claim; are union . construction workers, who don't have to compete with non-union workers on
wages. They also found that ~ere is no evidence that quality is higher under prevailing wage.
Many of the other anti-prevailing wage studies also focus on the increased cost of requiring
prevailing wages. The three other studies that examined the issue found that prevailing wage
raised overall construction costs 26.1 percent, 15.5 percent and 11 percent, respectively. Two of
those studies were specific to California cities. Furthermore, while some may see higher
construction ~ages a boon, one study points out that higher wages -caused by prevailing wage
laws ~ may lead to increased wages across the entire construction industry, raising costs for all
types of projects and decreasing the number of projects built. Economic theory would suggest
that this would lead to a decrease in the number of construction workers. Lastly, one study found
that prevailing wages were 33, to 50 percent higher than the actual market rates construction
workers earn.
<Iovernr.nentStudies
Studies by government organizations provide some of the most interesting insight into the issue
of prevailing wage. These studies should, in theory, have no agenda beyond uncovering what is
in the best interest of taxpayers. It is of interest that all of the government studies examined
indicated that prevailing wage laws do not save money. However, some studies did equivocate
about whether the benefits of prevailing wage -once other unquantifiable factors were taken
into account -. may be higher than the costs.
The two most-referenced government studies are both studies conducted by state legislative
research offices, in Kentucky and Ohio. In Ohio, its Legislative Service Commission issued a
study analyzing the effect of a 1997 bill that exempted school districts from requiring prevailing
wage. The study, which asked contractors for bids under and not under prevailing wage
conditions, found that repeal did save money -especially on smaller projects. It asserts that the
exemption yielded 1.2 percent in total cost savings in new construction, 10.7 percent savings in
alterations and 19.9 percent savings in additions. This seems to strongly support the' notion that
the'repeal of prevailing wage has cost savings somewhat correlated to the decreasing size of the
project.
Furthermore, the study surveyed school districts to discover if they had noticed any decrease in
the quality of construction. Six percent of respondents said that they had noticed higher quality
c.0I1struction since the exemption, 91 percent noted no change and 3 percent said quality had
decre·ased .. In one very unique caSe, the sUrvey' discovered that' one school district had put a
project ,out to bid under prevailing wage conditions and then rebid the project without such
requirements. The winning bidder in the· second case, without prevailing wage, was 5.8 lower,
yielding a cost savings of more than $500,000.
Page90f19
In Kentucky, the legislature also ordered its research ann to conduct a study on the issue of
prevailing wage. The study made a notabl~ nUlllber of findings, including learning that 60
percent of workers surveyed were paid more on prevailing wage jobs than on market-rate jobs;
the average increase for prevailing wages was 24 percent over the workers' market rates. Among
the 141-page reports other findings were:
• Ten percent of non-union contractors said that prevailing wage affects their quality of
CQnstruction; One-third of union contractors said the same.
• 5.7 percent of non-union and 27.9 percent of union contractors said prevailing wage
affects workplace safety.
• 90.7, percent of non-union and 24.4 of union contractors said prevailing wage laws raise
construction costs.
• '55.4 percent of small finns (10 or fewer employees) said prevailing wage laws have a
negative effect on their business, compared to 73 percent of large fmns.
• 95.7 percent of cities and 83.3 percent of municipal utilities that responded believe
prevailing wage laws increase construction costs, while, respectively, 7 and zero percent
beljeve laws, increase quality.
• ,'More cities believed prevailing wage legislation decreases -' not increases -quality of
construction
It is worth noting ~t the report did not call for the abolishment of prevailing wages in
Kentucky. The report did not take an opinion on the issue. However, its main overall conclusion
on the effectiveness of the legislation is as follows:
To the extent that quality is increased, prevailing wages are an inefficient method
to increase quality. The wage requirement results in contractors paying higher wages, with
no guarantee that these additional wages will result in quality improvements
Aside from the. Kentucky and Ohio are reports, there are number of smaller government reports
on the topic ,that are worth noting., The federal Congressional Budget Office and General
AccolJIlting Office have both issued reports on prevailing wage, with the GAO asserting that
repealing the Davis-Bacon Act would save $1.2 billion annually. The CBO study, written during
the Reagan era, waS likely the impetUs that caused Reagan to change the definition of prevailing
wage to the 'wage ell1'l1ed by 50 -as opposed to 30 -percent. of local wage earners. It found that
repeal of Davis-Bacon would save $13 billion (2007 dollars) over five years and that some 20
percent of open shop contraCtors have no interest in bidding on prevailing wage contracts. It also
recommended raising the threshold at' which the prevailing law is triggered, as the $2,000 trigger
was set in 1931 and has never been increased.
The final government study of note is another state legislative study -Maryland in this caSe -
cOnducted in 1997. Maryland's Department of Fiscal Services, which issued the study, asserted
that repeal of the prevailing wage law then on Maryland's books would save the state between 5
and 15 percent on public works construction. Lastly, the study found that, "In 1996, Maryland
dished out $622,000 in fines to contractors who were illegally paying their employees less than
prevailing wages." '
Page 100f19
Overall Studies Summary
There is littleagreernent in the academic community on prevailing wage. Academics seem
iSolated into two camps -' either believing prevailing wage legislation is definitively beneficial
for society or defInitively detrimental. These studies seem to have found different conclusions on
the same topic, so it is left up to the reader to decide.
The government studies should be the most unbiased of the group, as they have in theory, no
interest but that of the people. The major goveriunent studies, however, all appeared to find that
prevailing wage" didrai8e the cost of construction projects. M~t did note, however, that
prevailing wage does have a multitude of benefits" even if the benefits are not directly
outweighed by the costs.
Contractor Survey
The array of research on prevailing wage did provide a number of insights into the, views of
construction contractors on the topic of prevailing wage legisl~tion. To best judge the affect a
change in Palo Alto's prevailing wage policy would have on local contrac~rs, staff decided to
conduct its own study. '
An eight· question survey was prepared by staff and posted on a web-based polling service. Staff
then assembled a list of 279 contractors who have received contracts from the City and would
possibly be affected by a future change in the city's prevailing wage policy. Of these contractors,
49 responded to the survey. The findings are summarized below:
Question 1: How many employees are on your firm'S payroll?
To get a sense of the size of firms being examined, staff asked the firms to share their size. The
DUmber of employees ranged from just one to 1,700. The average number was 134, and the
median was 38, with only 15 firms having more than 100 employees.
Question 2: lfyou have worked on projects subject to prevailing wage, are the prevailing wages
set by the state of California about the same as those usually paid to your construction workers
for privately fUnded projects?
One of the most common and most important questions raised by prevailing wage is what impact
it,has on construction wages. One of the main roles of prevailing wage legislation has always
been to "take wages out of the equation" for firms bidding on public works. Proponents argued
that firms should, be utilizing efficiency and high-quality training to achieve reductions in bid
costs, not slashing wages to be the low bidder. By paying prevailing wages, proponents tn'gued
the government would be using its massive economic weight to drive down wages. Instead,
public works construction employees would be receiving wages deemed to be "prevailing" in the
area. However, since the early days of the legislation, detractors have argued that the wages
deemed "prevailing" are usually far from market rates -and almost always higher., So as' part of
the survey, staff sought to determine whether wages paid by contractors on prevailing wage
projects were approximately equal to those paid on private projects.
Page 11 of19
As one can see, many finns are in fact paying wages essentially equal to prevailing wages. For
union contractors, this is usually the case, as the union rate for an employee is often equal to the
prevailing wage -largely because California uses the modal method to detennine prevailing
wage. Yet, 22 finns noted that they do not pay their employees the same wages for prevailing
and non-prevailing wage jobs. It is worth mentioning that a couple finns did comment that they
generally pay above prevailing wage. More conclusions can be made with this data once they are
overlaid with the following question.
Question 3: When hiredfor a prevailing wage project, do you use the same workforce that you
would use for non-prevailing wage projects or do you hire different employees? Explain if
necessary.
One question to which staff was seeking the answer was whether, when a finn is hired for a
prevailing wage job, they simply use the same employees. If this turned out to be the case, this
would s~m to counter the idea that paying prevailing wage increases the quality of construction.
If finns used the saine workforce regardless of prevailing wage conditions, it's unlikely paying
prevailing wage would increase or decrease qUality. To gauge this, we asked finns if they use the
same workforce on both types of jobs: .
Page 12 of19
As these· data show, few employ~rs are using separate workforces for prev~iling ·and non-
prevailing wage jobs. Seven employers said they do in fact use different employees for
prevailing and non-prevailing wage jobs, but 42, the overwhelming majority, simply use the
same employees. The results of this question are even more interesting when you only examine
them from the pool of those firms that pay their employees different wages, depending on the job
type.
. Different workers Same workers
Series1 5 17
As the graph shows, nearly all of the firms that vary their wages depending on prevailing wage
use the same workers under both conditions. This would seem to run counter to· the argument
that paying prevailing wages increases qUality. If firms are paying different wages yet using the
Page 13 of19
same employees, it seems far-fetched to believe there is a measurable increase in qUality.
Overall, few companies are maintaining separate workforces, as one respondent explained,
noting they used the "same eD.1ployees but they are paid a different rate [higher than private]". A
handful noted the impracticality of paying workers prevailing wages in some cases, but not in
others:
It is almost impossible to find qualified workers who receive prevailing wages
for work in eVery other location that are willing to work for a lower wage in Palo Alto.
Low wage,s equal low work quality.
Question 4: Would prevailing wage requirements deter you from bidding on a project? If so,
why? '
One of the most common arguments raised by detractors 'of prevailing wage is that the
regulations deter firms from bidding and limit the potential pool of bidders. This is especially
true, they argue, with smaller firms who do not bid many prevailing wage jobs. The compliance
costs -paperwork, reporting -places a strain on some bidders and many do not want to have
different pay scales for different jobs. To gauge the truth of this argument, we asked if prevailing
wage requirements would deter firms from bidding on a project.
For vast majority of contractors, the compliance costs of prevailing wage' and other factors are
not enough to ,deter firms from bidding on prevailing wage projects. However, 11 out of the 51
firms that responded to this question -21.6 percent -did indicate that prevailing requirements
did, at least sometimes, deter them from bidding on a project. The firms noted a number of
Page 14 of19
reasons for not pursuing prevailing wage projects, such as reporting requirements being
"burdensome. We operate on short margins and additional administrative requirements are a
deterrent." Other respondents went further:
In addition to the raw cost of wages, there is the cost associated with compliance
paperwork, which is very burdensome. For instance, we add a prevailing wage factor of
$5,000 minimum to every bid for paperwork. On a $20,000 bid that costs the client an
additional 25 percent, has translated into very minor increase in paychecks for some
employees. Of course this money has been taken from somewhere else such as Christmas
bonuses, performance bonuses, new equipment and raises.
We obviously bid prevailing wage projects at a much higher rate. Unfortunately,
there are many companies that will bid prevaHingjobs lower, and knowingly not pay the
required wages.
As these companies show, there are a number of firms who are deterred by prevailing wage
regulations. Even if they are a minority, this finding shows that prevailing wage requirements
will decrease the pool of bidders. Following basic economic principles -' that a decrease in
supply will lead to higher prices -this conclusion suggests that prevailing wage raises the price
of the submitted bids, due to decreased competition. One respondent noted that his or her firni is
not deterred by prevailing wage, but "we just charge about 50 percent more for the same work."
However, not all contractors were of that mindset. When asked whether they were deterred, one
respondent said:
Not at all. On the contrary, it would make Palo Alto more attractive. All contractors
would be competing on a level playing field.
Another, contractor noted that the requirements truly allow them to take wages out of the
equation: ' ,
Prevailing rates keep the bidding competition on the same scale. Labor costs the
same for our competitors. On private jobs there are non-union contractors taking our
work at a lower than union rate.
Lastly, i~'s worth noting that prevailing wage wasn't a deterrent to small companies alone. The
average size of the 11 firms-that noted being deterred by the ~gulations was 233, and five of the
firms luid more than 50 employees. Therefore, while many studies have argued that prevailing
wage requirements disproportionately h8rm Small companies, the firms that claimed to be
discouraged by prevailing wage were both large and small-and evenly spread at that.
Question 5: Approximately what percent of your total project cost, on average, is made up by
labor?
Opponents of prevailing wage argue that the laws raise the cost of construction by increasing the
wages paid to construction employees. However, the impact of higher wages varies directly With
'the proportion of the total construction cost that is made up by labor. As a result, staff soughtto
find the average proportion of total construction costs that are made up by labor among city
Page 15 of19
contractors. The survey asked respondents, "Approximat~ly what percent of your total project
cost, on.average, is made up by labor?" Answers ranged from 15 percent to 80 percent. Of the 39
firms that responded to the q1.).estion numerically, the average was 45.7 percent. Almost half of
the respondents reported that labor costs made up at least 50 percent -the median answer -of
total project costs. Answer~ to this question will provide additional insight when compared to the
following question.
Question 6: By wJiat percent does paying prevailing wages increase or decrease your overall
project costs?
Likely the most important and controversial debates surrounding the issue of prevailing wage is
by how much the law actually increases the overall cost of public works construction. Many
studies have tried to analyze this, with wildly different findings. Staff asked study participants
the percentage change in overall costs caused by prevailing wage.
Thirty-eight firms responded to the question, and their answers ranged from an increased cost of
30 'percent to rio change in costs whatsoever. The average cost increase cited was 8.24 percent.
It's. worth noting that half of the respondents did note no change in costs. However, if a
municipality is trying to judge the affect of imposing' prevailing wage law, it would 'be
reasonable -based on answers to this question -to assume a 8.24 percent increase.
Question 7: List any positive effects that come as a result of paying prevailing wage.
Employees Quality None
To help,clarify the answers to this question, staff grouped the responses by category. Four of the
responses' claimed that contracting frrms are the main beneficiaries of prevailing wage
legislation. Six respondents claimed that the main beneficiaries are employees themselves, while
Page 16 of 19
another six noted that main benefit is leveling the playing field for contractors. Nine respondents
pointe4 to increased quality of employees and work as the main benefit; and ~ 7 reported no
benefits whatsoever. A sample .ofthe responses is as follows:
Prevents my competitors from using illegal labor to undercut my pricing.
Enables us' to build a quality team. Enables our workers to stay in, the area;
, Quality of work goes up
We tend to pay ,a competitive wage to our employees that will believe will meet
and ,exceed the pr~ailing wage provision. We see it as a positive that the City recognizes
the need to have contractors fairly pay their employees for the value ,the bring to the
project and the City. We see this a supporting 01,U' intent to provide services at the highest
value and quality.
, , Creates equality among all bidders. Provides a livable wage for workers living in
the Bay Area. Prevents contracts being awarded to out of area contractors who bring in
labor forCe at a lower wage. '
None, other than employees ,make more money.
Question 8: List any negative effects th(,lt come as a result of paying prevailing wage:
, Confusing Higher costs Admin costs No Ne,gatives
Serles1' 3 9 15 16
After asking respondents to share any positive effects they felt ,prevailing wage offered, staff also
asked ~spondents to state the negative effects of prevailing wage. Responses essentially covered
Page 17of19
four categories. Firms either felt the requirements were confusing, they. led to higher overall
project costs, the administrative costs were very burdensome or they felt there were no notable
downsides to prevailing wage .. The firms that believed prevailing wage does not have significant
negative effects did not add much else to the answer, but most of the other respondents had
additional thoughts on the subject. 'One of the respondents that believed prevailing wage was
confusing noted, "Inconsistent pay scales disrupt employer-employee relationships and create
questions in employee mind as to wages and fringe benefits." Firms that noted the higher costs
had more to say:
There is no advantage professionally. It is all about money. Costs everybody
more money. The tracking and documentation is difficult along with the fact that even
hu-ge· firms that are some of the best iii the valley will not bid on prevailing wage project.
This'is limiting. As· an example,· we . bid the Animal Shelter in your city and used a
framing contractor that provided us with a very good price. We were apparent low bidder.
For lack of funding the project went back out to bid and halfway through the bid project
the ~ity requir~ prevailing wage. That same framing contractor would not bid now.
Consequently we had to go to another framing contractor and subsequently lost the bid.
Granted, there were other factors, but this one stood out profusely.
Requiring prevailing wages increases the cost to the project oWner with little if
any benefit. Requiring a bond on the job will eliminate smaller, less qualified
contractors, but prevailing wage doesn't increase the quality of the bidders or the
professionalism of the project. It only increases the payroll for the project and raises the
cost of the project for the owner.
Sometimes an employee will be paid the same as another employee and yet not
be as qualified or skilled. There is no real merit pay. Also it can drive up the cost a little.
People may also equate prevailing wage with union workers, which is not correct. There
are may of us open shop contractors that perform prev,ailing wage work and are not
signatory to any unions.
Lastly, the firms that noted the higher administrative costs added, for example, "Hugely
increased paperwork, hesitation to bid some projects; greater cost to the city," and "A lot of
expensive paperwork is generated for a minor increase in: paycheck for a few employees."
Question 9: Please add any additional comments on the topiC.
In the final question on the survey, which asked for addition comment, answers varied widely.
Staff has selected a sample of comments below: . .
Although we are an open shop company (non union)· we believe that paying
prevailing wages is good. It insures an even playing field and better quality employees.
The employees enjoy a higher standard of living. Without prevailing wages the focus is
on bringing in the lowest possible wage earners and quality of cons~uction suffers.
I believe that prevailing wages are necessary and fair. They create a level field of
competition and prevent workers from being taken advantage of on public projects.
Page 18 009
I wish aU jobs were prevailing wage. Why? Because the people are more skilled at their
trade, better jobs, and would maybe stop contractors from hiring illegals. Most job sites
other than prevailing wage work have no one who can speak English.
A number of firms also decided to expand on the negative aspects of prevailing wage:
We like City of Palo Alto work because it is typically not prevailing wage, which
gives us more flexibility on proje<;ts. As a resident of Palo Alto I would be disappointed
if the City gave this up. It will only increase' costs of construction. Especially labor
intensive projects.
. While our senior technicians receive very little if any adjustment to the wages,
the extra administrative burden requires us to charge approximately 50% more for Public
Works jobs. In addition, we can rio longer offer 2 man crew rates with a senior and
junior technician, so the service calls are billed at a substantially higher rate.
Please do not require prevailing wage as this will drive. away companies like ours
in bidding your jobs.
I always see prevailing wage jobs as apolitic,a1 thing; I don't really see whom it
helps. My men are paid well for what they do and have full benefits; I don't need anyone
telling me what Ishould pay them. Once it is policy that prevailing wage must be figured
and reported on every job with the city I guarantee the cost of your jobs is going to go up.
Living Wage
The concept of a "living wage" is an alternative to paying prevailing wages, and is moderately
similar to the concept of a minimum wage. Unlike the minimum wage, which is an arbitrary
wage minimum usually not tied to inflation, a living wage is an amount that would allow
employeeS to realistically live, iffrugally, in a locality. ·
The concept is old -the first living wage was passed in New Zealand in 1896 -and living
wage laws have recently been implemented around the Bay Area. San Francisco implemented a
. living wage of $lo..per hour in 20.0.0., when :the federal minimum wage was $6.75. Most cities
that require a living wage, including' San Jose -where the living wage is now $12.86 -and
San Francisco, only apply living wage requirements to city contracts, not on all businesses within
city limits. Many cities have utilized this 'approach instead of requiring the payment of prevailing
wages.
Page 19 of19
References
Bernstein, D. (Jan., 1993). "The Davis-Bacon Act: Let's Bring Jim Crow to an End", Cato
Institute
Congressional Budget Office, (July, 1983). "Modifying the Davis-Bacon Act: Implications for
the Labor Market and the Federal Budget", Congress of the United States
Dunn, S., et aI. (Oct.; 2005). "The Effects of Prevailing Wage Requirements on the Cost of Low-
Income Housing", Program on Housing and Urban Policy, Goldman School of Public Policy,
University of California, Berkeley
Fraundorf, M.~ et aI. (Feb., 1984): "The Effect of the Davis-Bacon Act on Construction Costs in
Rural Areas", The Review o/Economics and Statistics, Vol. 66, No'. 1, pp-142.:.146
Gasperow, R. (May, 2001). "Do Higher Wages Raise Labor Costs?", Construction Labor
Research Council
Jordan, L., et aI. (Oct., 2006). "An Evaluation of Prevailing Wage in Minnesota: Implementation,
Comparability and Outcomes", Brevard College
Kersey, P~ (2007). "The Effects of Michigan's Prevailing Wage Law", MacKinac Center for
Public Policy, Midland, Michigan.
Maryland General Assembly: Department of Fiscal Services, (Feb., 1997). "Fiscal Note:
Prevailing Wage Law-Repeal", House Bill 720
Newman, M., et a1. (June, 2004). "Impact of Prevailing Wage Rate Requirements on the Costs of
Affordable HOUSing in California", The California Institute for County Government
Page 20 of21
Attachment D
POLICY AND SERVICES COMMITTEE
Regular Meeting
December 9, 2008
Chairperson Kishimoto called the meeting to order at 7:01 p.m. in the Council
Conference Room, 250 Hamilton Avenue, Palo Alto, California.
Present: Barton, Drekmeier, Kishimoto (chair), Espinosa
Absent: None
1. Oral Communications
None.
2. Review and Request for Recommendation on Prevailing Wage Issues
Related to City Capital Construction Projects
Assistant Public Works Director, Mike Sartor presented a staff research report
related to the prevailing wage issue and City Capital projects. He stated
prevailing wages pertain to Public Works contracts which include Utilities,
Capital Improvement Projects and Public Works General Fund and Enterprise
Fund Projects. He explained that as Palo Alto was a Charter City I it was not
required to pay prevailing wage unless the project involved Federal or State
Grant funding, Gas Tax Funds or other non-local funding sources.
Council Member Barton asked whether the potential for cost increase was at the
bid process or the total at the end of a project. He stated there were bid
numbers and the true cost of a project. He stated he would not be supporting
the recommendation.
Mr. Sartor stated the study was based on the review of completed projects.
12/09/2008 P&Sl
Vice Mayor Drekmeier asked whether the income levels of prevailing wage were
that of a medium income versus average income.
Mr. Sartor stated the State determined the prevailing wage based on individual
labor categories. For example carpenters in Santa Clara County, the State takes
a look at wages for carpenters throughout the entire County then take fifty
percent of the highest wages being paid and establish that as the prevailing
wage.
Vice Mayor Drekmeier clarified the breakdown of wages was by county.
IVlr. Sartor stated yes, by the Department of Industrial Relations.
Vice Mayor Drekmeier asked whether Palo Alto currently had policy on union
wages.
IVlr. Sartor stated no.
Vice Mayor Drekmeier asked whether there was a forum to view municipality
rating systems for contractors.
Mr. Sartor stated the purpose of the survey was to verify any quality impact.
Vice Mayor Drekmeier asked how to determine whether a contractor had poor
quality of work.
Mr. Sartor stated reference checks and checking with other municipalities. The
bid process require statements of qualifications and experience of similar types
of projects.
Vice Mayor Drekmeier asked the impact of the economy on the timeline for
moving forward with the prevailing wage.
Mr. Sartor stated direct impact of quality in work were protected by
performance specifications and plans prepared. He stated when a contractors'
performance was not adequate the contract could be terminated or the
contractor could be given the opportunity to correct any performance issues.
Vice Mayor Drekmeier asked how frequently the prevailing wage was
recalculated.
Mr. Sartor stated he had no actual data however, 11e anticipated an annual
review would be probable.
12/0912008 P&S2
Vice Mayor Drekmeier asked whether there was data on prevailing wage
contractor's not bidding in Palo Alto because of the possibility of low-balling by
non-prevailing wage entities.
Mr. Sartor stated in his research the non-prevailing wage contracts attracted
more bidders than prevailing wage contracts.
Council Member Espinosa asked how employees being treated or paid fairly was
factored in to the calculations,of whether to recommend prevailing wage or not
to.
Mr. Sartor stated staff's primary consideration was fiscal. He stated an expected
increase in cost of up to ten percent would occur during smaller and or
maintenance type projects. Research revealed on major projects the contractor
usually paid prevailing wage already.
Mr. Keene stated if the adoption of prevailing wages did increase costs the
question to Council would be what the consequence would be in absorbing the
costs.
Council Member Espinosa stated his agreement. The City as a whole needed to
weigh the two challenges between increase in cost to a project versus ensuring
fairness and fair payment for employees working on projects.
Mr. Keene stated the basis of the deCision being requested was not quality
against cost but an overall combination of reaching a higher level of them
together.
Council Member Barton asked for a comparison of both prevailing wage and
non-prevailing wage bidders against projects in Palo Alto for 2007 and 2008.
Chair Kishimoto asked whether the increase in cost of going with prevailing
wage was transferred to the worker or administrative fees.
Mr. Sartor stated the study being viewed was a study compiled by the State of
Kentucky of contractors in their region.
Chair Kishimoto stated it appeared the higher cost of the project went to more
administrative fees which was against the object of going forward with
prevailing wage. She stated her process was for the higher cost to translate to
better wages for the worker.
12/09/2008 P&S3
IVir. Sartor stated the administrative costs were incurred by the owner.
Chair Kishimoto asked whether the employees' benefits and healthcare were
included in the cost.
Mr. Sartor stated no. He stated the benefits and healthcare costs were included
in the rates. For example a thirty dollar per hour job would cost forty-five
dollars.
Chair Kishimoto asked whether the rates changed by skill level or category.
Mr. Sartor stated the rates tended to be geared towards the level of skill for the
person in a particular category.
Chair Kishimoto asked how flexible the categories were as in filling-in. If person
A from category one was out could person A from category two fill-in or was it
job specific.
Mr. Sartor stated his understanding was there was no cross trading without
experience.
Council Member Espinosa asked how quality and safety played a role together.
Mr. Sartor stated there were standard quality controls and safety measures in
place and monitored by the contractor in charge of the project. The inspector's
checks ensure appropriate operators for the specific duties on each project.
Nicole Goehering, 4577 Las Rositas Rd, Unit C, Livermore, spoke of flexibility
under prevailing wage work. She stated within Palo Alto the flexibility of metal
roofing could be covered by sheet metal workers or roofers and undergroLind
utility work could be covered by utilities or laborers.
Kevin Dayton, 4577 Las Rositas Rd, Unit C, Livermore, spoke of the increase in
cost not necessarily coming from the prevailing wage but the specifics of how
prevailing wage was determined by the state.
Neil Struthers, 2102 Almaden Road, San Jose, spoke of how qualification
implied quality. He stated the more experienced worker would turn out a better
and quicker product than one of less skill. The hourly wage does not determine
the quality. He noted statistical data on percentages of prevailing wage versus
non-prevailing wage bids in Palo Alto.
12/09/2008 P&S4
Peter Philips, Economics Department, University of Utah, Salt Lake City, stated
the staff report data was built on impressions from first principles rather than
natural experiments or empirical observations. He stated there was no
statistically significant difference in the number of bidders on Palo Alto jobs
compared to the four surrounding cities. In the sample examined, there were
140 projects, 19 of which were in Palo Alto with 450 bidders. He continued to
speak of the study he provided.
Council Member Barton stated one of the supporting factors for the prevailing
wage rule was the majority of the workers had come up though some sort of
union training program. The people would be well trained in their trade, have
quality standards and efficient. He stated Council had an obligation to be
morally efficient in the expenditure of public dollars.
MOTION: Council Member Barton moved, seconded by Council Member
Espinosa, that the Committee make a recommendation to the Council to impose
a prevailing wage requirement for all City Capital Projects.
Mr. Keen asked for clarification as to the relativity to City Capital Construction
Projects.
Council Member Barton stated yes.
Chair Kishimoto asked whether the Motion covered all capital projects.
Council Member Barton stated in the beginning to incorporate them all and at a
later date discussions could be brought forward as to the necessity of each
project.
Council Member Espinosa stated the treatment of workers in any function or
capacity as workers for the City needed to be treated with fairness and
payment equality.
Vice Mayor Drekmeier stated the Water Treatment Plant project brought about
concern whether the City needed to provide prevailing wage or not. The lowest
bidder chosen was paying prevailing wage. He noted the importance of fairness
in treatment of employees' payment and benefits.
AMENDMENT: Chair Kishimoto moved, seconded by Council Member XXX to
incorporate parameters of exclusion for maintenance and smaller projects, and
to add a financial threshold where prevailing wage would not apply to a project
below $XXX.
12/0912008 P&S5
Amendment failed for lack of second.
Mr. Sartor stated staff was prepared to return with exclusionary criteria for
maintenance projects from the prevailing wage requirements.
Chair Kishimoto asked whether the matter should be moved forward without
adequate information or revisited at a later date.
Mr. Keene stated the language could incorporate the exclusion of routine
maintenance contracts. He noted a more specific concern would be
public/private partnerships.
Chair Kishimoto asked whether the exclusion of public/private partnerships
would cause any legal matters.·
Deputy City AttorneYI Amy Bartell stated the current statute reads if a project
was receiving public funds in whole or part it was subject to prevailing wage law
in General Law Cities. She noted currentlYI Palo Alto remained in the Charter
City categorYI pending the outcome of the City of Vista's court case.
Chair Kishimoto clarified General Law Cities were required to pay prevailing
wage when entering into a public/private partnership.
Ms. Bartell stated yes. She clarified the requirement for a Charter City to pay
prevailing wage included the receipt of public funds in any amount.
Mr. Keene stated not.to overlook the possibility of a group or non-profit
organization offering to accomplish a capital project that the city may nor have
planned to move forward with and they request a contribution or matching
funds. The question would be how prevailing wage would affect that situation.
Vice Mayor Drekmeier asked whether there was a recommendation ready for
Councilor if the matter would go before Council with further information from
staff.
Chair Kishimoto stated staff would return to Policy and Services for further
review prior to going to Council.
Council Member Espinosa stated he would prefer staff return to Policy and
Services with information detailed to the concerns coming from this meeting.
He noted a set timeline should be outlined to avoid prolonging unresolved
matters.
12/09/2008 P&S6
Council Member Barton noted the current committee panel would not meet
again.
Mr. Keene stated with there being a general consensus on the concept of
prevailing wage in regards to capital projects, he suggested the Committee
recommend the full Council review what had been accomplished with the
understanding of staff's return in early February with suggestions for further
resolutions to minor, maintenance, and public/private partnership projects.
Chair Kishimoto asked to have a definition of resource impacts between small
and large projects.
Mr. Sartor stated other Charter Cities have excluded smaller projects such as
roofing and painting contracts. He noted the report currently includes all
projects as part of the $11.5 million from the Capital General Fund projects.
Chair Kishimoto asked how the $28 million dollars was divided for projects.
Mr. Sartor stated he was unfamiliar with the number of routine maintenance
contracts Utilities had, however the majority of contracts consisted of Capital
Improvement Projects which had prevailing wage impacts.
Chair Kishimoto clarified that most of the City contract work was on a larger
scale and therefore the contractor's paid prevailing wage.
Mr. Sartor stated yes. For example, Anderson Pacific was a large non-union
underground construction contractor who pay prevailing wage. The
recommended exemptions from prevailing wage requirement would be
maintenance projects and public/private partnership such as Lytton Plaza and
the Art Center.
Chair Kishimoto stated her concern regarding the flexibility and calculation in
the process of prevailing wage.
Council Member Barton suggested forwarding the recommendation as it was
with a parallel recommendation that the Committee was unsure about the
thresholds and that staff would return to Council with recommendations.
Mr. Sartor mentioned living wage and prevailing wage were completely separate
topics. He stated he understood the Committees' concern for the wellbeing of
workers, however a living wage was a local jurisdiction and a prevailing wage
requirement was a state mandate.
12/09/2008 P&S7
Chair Kishimoto suggested requesting the new Mayor extend the current
Committee panel for a one month term therefore allowing staff time to gather
the detailed information needed to complete a recommendation for Council.
Mr. Keene stated he concurred and stated staff would be prepared to return
with adequate information.
INCORPORATED INTO THE MOTION WITH THE CONSENT OF THE MAKER
AND SECONDER, to request the Mayor allow the current Committee panel to
meet an additional time in January to finalize a recommendation to the City
Council. .
Council Member Barton withdrew the Motion.
The Committee recommended that the Mayor direct staff to return to the
current Committee panel in late January of 2009 with threshold discussions so
the current Committee could return a recommendation to Council on prevailing
wage requirement.
3. Discussion for Future Meeting Schedules and Agendas-Last meeting-
another in January
ADJOURNMEI\IT: IVleeting adjourned at 8:38 p.m.
12/09/2008 P&S8
TO:
ATTN:
FROM:
DATE:
Attachment E
CITY COUNCIL
AD-HOC COMMITTEE ON PREVAILING WAGE
CITY MANAGER
MARCH 10,2009
DEPARTMENTS: PUBLIC WORKS
UTILITIES
CMR:150:09
REPORT TYPE: RECOMMENDATION
SUBJECT: Review and Recommendation on Proposed Prevailing Wage Policy for
City Capital Construction Projects
RECOMMENDATION
Staffrecommends that the Council Ad-Hoc Committee on Prevailing Wage recommend that the
City Council adopt a Resolution Requiring the Payment of Prevailing Wage on City Capital
Improvement Project Construction Contracts with exemptions for maintenance projects under
$250,000 as defined under Section 220002 of the California Public Contract Code, projects
involving public-private partnerships, projects where the work is perfonned either entirely or
partially by volunteers, and low and moderate income housing projects.
EXECUTIVE SUMMARY
This report responds to the December 9, 2008 discussion by the Council Policy and Services
Committee on prevailing wage issues related to City capital construction contracts. Attaclunent
B contains minutes of that meeting. At the December 9 meeting, the then Policy and Services
Committee indicated a strong interest in requiring prevailing wage on City capital construction
contracts and directed staff to come back with additional infonnation on possible exemptions to
the proposed Council policy. Discussed in this report are staff recommended exemptions for
maintenance, public/private partnership, volunteer and low and moderate income housing
projects.
BACKGROUND
As a charter city, Palo Alto is not required to pay prevailing wages on ''public works" projects,
so long as the projeQts are within the realm of "municipal affairs", 1)mded entirely by local funds,
and no other statutQry exceptions apply. This "home rule" principle allows decisions on
expenditure of local funds to be made by locally elected officials. In 1981, Palo Alto passed a
resolution to pay prevailing wage "only when required by federal or state grants and on other
jobs considered to be of statewide concern." (See Attaclunent A Resolution 5981).
Recently, charter cities' authority to opt out of prevailing wage law has been subject to
challenge. The charter city of Vista, California is .currently defending its decision not to pay
CMR:150:09 Page 1 of6
prevailing wages in a lawsuit brought by the State Building and Construction Trades Council.
Further, on February 20, 2008, the Governor signed SB 9EX, noting the ongoing litigation in
Vista and narrowing potential prevailing wage obligations for charter cities involving work on
water, sewer, or storm drain systems that have previously been extended to disadvantaged
communities.
Amid the recent debate over charter cities' prevailing wage requirements, on December 9, 2008
staff presented to the Council Policy and Services Committee a recommendation that Council not
change current prevailing wage policy, allowing City capital construction ("public works")
projects to be bid without prevailing wage requirements unless prevailing wage is required for
the project pursuant to state or federal law, due to potential cost impacts to the City's General
and Enterprise Fund Capital Improvement Programs (CIPs) (CMR 443:08, Attachment B). The
Committee carefully reviewed this recommendation and decided it was in the best interest of the
City to recommend to the full Council that a resolution be adopted requiring prevailing wage on
all City capital construction contracts. They also instructed staff to recommend types of
construction contracts that could be considered for exemption from a prevailing wage
requirement.
DISCUSSION
Following the December 9, 2009 meeting, staff reviewed four areas that the Council Ad-Hoc
Committee on Prevailing Wage could consider for exemptions to the prevailing wage
requirement it may recommend to the full Council. The possible exemptions reviewed were:
1. Maintenance projects under $250,000 as defined by Section 22002 of the California
Public Contract Code
2. Projects using public-private partnership funding
3. Projects that construct/rehabilitate affordable housing for people with low or moderate
incomes
4. Projects where the work is performed either entirely or partially by volunteers
In stafrs research on the prevailing wage i~sue, 48 general law and charter cities responded to a
survey examining the policies of other California municipalities regarding prevailing wage, law.
Of the 48 survey respondents, 25 were charter cities that have a prevailing wage policy in place.
As noted, charter cities have a policy choice of paying prevailing wage or not on "public works"
construction contracts, so long as the projects are municipal affairs and no federal or state funds
are involved. Half of the 25 charter cities responding, that already pay prevailing wage, have
prevailing wage exemptions for maintenance projects. This exemption is applied to smaller
projects where prevailing wage requirements may discourage many contractors from bidding due
to restrictions on the ability of contractors to move workers from one trade to another or simply
due to the additional administrative costs of producing Certified Payrolls as required by
prevailing wage law.
Exemption for Maintenance Projects
Although as a charter city, Palo Alto is free to craft its own definition of "maintenance" in a
proposed prevailing wage exemption policy, referring to a definition already present in
CMR: 150:09 Page 2 of 6
California law is a helpful starting point. Section 22002 of the California Public Contract Code
defines maintenance as shown:
• Routine, recurring work for the preservation or protection of any publicly owned or
publicly operated facility
• Minor repainting
• Resurfacing of streets at less than 1 inch
• Landscape maintenance including mowing, watering, trimming, pruning, planting,
replacement of plants, and servicing of irrigation and sprinkler systems
• Work performed to keep, operate, and maintain publicly owned water, power, or waste
disposal systems
Since the City's Street Maintenance program receives funding from State Gas Tax and other
State and Federal grant funding, prevailing wage is already required on these projects, and the
proposed maintenance exemption category of resurfacing streets at less than 1 inch would not
apply. For the other maintenance categories defined above, staff recommends that any projects
in these categories that fall under the City's Purchasing Ordinance threshold of $250,000 (the
City Manager has the authority to award "Public Works" construction contracts under $250,000
Without Council approval, pursuant to Section 2.30.210(a) of the Palo Alto Municipal Code) be
exempt from any Council adopted prevailing wage policy. This will ensure the City of having the
broadest pool of bidders on these routine maintenance projects, keeping bids competitive and
likely reducing costs for these critical building, parks, and utility system maintenance activities.
Staff has received· suggestions that a lower threshold should be considered. The Committee may
wish to discuss that.
Exemption for Public-Private Partnerships
Staff also recommends that Council consider an exemption for City projects that are funded
through public-private partnerships. The purpose of offering this exemption is to maximize the
use of private funding in joint projects with the City. Because many public-private partne~hip
projects are administered by the private entity in the partnership, exempting prevailing wage
requirements from these contracts could make participating in such projects more attractive to
private funders by reducing restrictions on potential contractors and reducing administrative
work for the private entity.
Some background on pUblic-private partnerships is helpful, as there are several types. A public-
private partnership is an agreement between the City and a nonprofit or private organization to
provide services or to assist in funding of public facilities and programs. Public-private
partnerships typically fall into one of three categories: co-sponsorship, alliances or joint ventures.
Co-Sponsorships: In this common type of public-private partnership, an organization
furthers the mission of the City by supporting a City activity or program in conjunction
with pursuit of that organization's own mission or program. Some examples include the
CMR:150:09 Page 3 of6
Palo Alto Tennis Club use of City courts to provide a youth tennis program and
American Youth Soccer Organization's use of space in a City facility to train referees.
Co-sponsorships are entered into by staff and normally have no or minimal financial
impact.
• Alliances: This type of public/private partnership involves organizations that have been
created for the sole purpose of supporting a City program(s). The organization does not
expect to receive any direct fmancial benefit or to alter City policy and/or operations, but
undertakes to work cooperatively with staff to implement City goals. Alliance
organizations include the Recreation Foundation, the Art Center Foundation (Project
L09k or Cultural Kaleidoscope), the Library Foundation and the Friends of the Palo Alto
Library (financial assistance with the renovation and expansion of the Children's
Library). Alliances are approved by the Council if there are any staffing or budgetary
implications to the partnership.
• Joint Ventures: This type of public-private partnership involves organizations which have
programs or missions independent of the City and involve the City entering into a
contractual relationship with the public or nonprofit organization with both parties
contributing to the partnership for their mutual benefit. Eachjoint venture is uniquely
negotiated by the staff and approved by the City· Council. Examples of Joint Ventures
include TheatreWorks, Palo Alto Players and West Bay Opera's use of the Community
Theatre and use of the former police station by older adult service provider, Avenidas.
The applicability of an exclusion to the requirement to pay prevailing wages on contracts which
arise out of a public-private partnership will depend on the details and goals each project, the
financial requirements, assets, and capabilities each the party brings to the partnership and how
each contract is structured.
Because the characteristics of each partnership will be unique, the proposed decision to exempt
public-private partnerships from prevailing wage requirements may not be suitable for every
project. For example, if Palo Alto, as a charter city, is involved in a public works project which
would not normally require the payment of prevailing wages, and the City becomes involved in a
pUblic-private partnership, the partnership could trigger prevailing wage requirements if the
funding sources are unclear or the partnership causes the project to become more regional in
nature.
Without fully knowing the details of a future relationship between partners, it will be difficult to
draft exclusionary prevailing wage language broad enough to cover all potential partnership
scenarios, and narrow enough to meet the key statutory elements of whether the contract is "paid
for in whole or in part out of public funds", and whether the project is a "municipal affair." The
application of these legal requirements to the unique facts in each case will be needed to
determine if the City's Prevailing Wage Policy exclusions will apply.
Thus, it would be wise to avoid trying to establish a single all encompassing exclusion on this
point. Instead, staff recommends that the City's proposed prevailing wage policy simply state
that the City's intention is that prevailing wage law will not apply to public-private partnerships.
However, the applicability of the prevailing wage requirement to any public-private partnership
CMR:150:09 Page 4 of6
project will be individually evaluated in light of the facts and the applicable legal requirements in
place at the time the partnership is established.
Of course, construction contracts administered by a private entity in any City approved public-
private partnership agreement would still need to comply with City public contract codes
including required bidding procedures, contractor bonding and insur.ance requirements.
Exemption for Work Performed by Volunteers
Although the California Labor Code Section 1720.4 a1readyexempts the payment of prevailing
wages for work performed by volunteers, staff recommends that the City formally codify this
exemption in its own prevailing wage policy. Recent changes to Labor Code Section 1720.4
(AB 2537 signed by the Governor in September 2008 and effective January 1, 2009) extended
the prevailing wage exemption for volunteers, volunteer coordinators, and conservation corps
members who work on public works contracts from January 1, 2009 to January 1, 2012. In
short, the City need not pay prevailing wages for work performed by a volunteer, defined as "an
individual who performs work for civic, charitable, or humanitarian reasons for a public agency
or corporation qualified under Section 501(3Xc} of the Internal Revenue Code as a tax-exempt
organization, without promise, expectation, or receipt of any compensation for work performed."
This exemption applies only to volunteers as defmed in the statute. It does not apply to wages
paid to any paid worker who may also be working along with volunteers on a public works
contract which requires the payment of prevailing wages by a charter city. In cases where the
work under a public works contract is performed by both volunteers and paid workers, the
prevailing wage exemption applies only to the volunteers and to any paid· volunteer
coordinator(s}. The exemption does not apply to the paid workers on that same contract.
Exemption for Construction and Rehabilitation of Affordable Housing
Lastly, although the California Labor code already exempts some affordable housing
construction from prevailing . wage requirements, staff recommends that Council consider
formally including an exemption for such construction in the proposed prevailing wage policy.
The State Labor Law on prevailing wage already exempts construction and rehabilitation of
affordable housing for low and moderate income residents provided that the projects:
• are paid for solely with money from a "Low and Moderate Income Housing Fund"
established pursuant to the Health and Safety Code, or
• are paid for by a combination of private funds and funds available from taxation of
redevelopment projects.
In addition, low-income housing projects that are allocated Federal or State low-income housing
tax credits pursuant to the IR.S Code are not subject to prevailing wage law.
RESOURCE IMPACT
The Adopted 2009 Capital Budget includes about $11.5 million in General Fund projects and
about $28 million in Enterprise Fund projects that are not now or will not require prevailing
wage in their construction contracts. The Enterprise Fund projects include those under the
electric, water, gas, wastewater collection, storm drainage and refuse fund programs. Since the
City already pays prevailing wage on projects constructed by the Wastewater Treatment Fund
these would not be impacted by a change in Council policy.
CMR: 1 50:09 Page 5 of 6
Staff estimates that the costs of the 2009 General Fund projects could increase by as much as $1
million and the 2009 Enterprise Fund projects could increase by as much as $2.8 million. These
additional expenditures would be funded by reserves or by reducing the scope of the projects
under consideration and will be presented to Council in the capital budget approval process. The
upcoming Library Bond'and Emergency Water Supply projects may see some cost impacts due
to prevailing wage requirements but staff does not believe they would be significant since
contractors bidding large complex projects such as these typically pay prevailing wage anyway.
POLICY IMPLICATIONS
To require prevailing wage to be paid on City capital construction projects Council would need
to adopt a resolution rescinding resolution 5981 and codifying the new prevailing wage policy
and any exemptions Council chooses to include.
ENVIRONMENTAL REVIEW
The Council Ad-Hoc Committee on Prevailing Wage review of the prevailing wage policy issues
presented in this report does not represent a project under the California Environmental Quality
Act (CEQA), pursuant to Section 21065 of the Public Resources Code, thus, no environmental
review is required.
ATTACHMENTS
Attachment A: Resolution 5981 Establishing Policy Regarding Prevailing Wage for Public
Projects
Attachment B: Minutes of December 9, 2009 Policy and Services Committee meeting
AttachmentC: CMR:443:08 ~ C-I
PREPARED BY: _,_ ~...., '---
MIK AATOR
Assistant Public Works Director
DEPARTMENT HEADS:
CITY MANAGER APPROVAL:
CMR:150:09
AR L
Assistant Utilities Director
Page6of6
Attachment A OIRJG~NAl
RESOLUTION NO. 5981
RESOLUTION ,OF THE COUNCIL OF THE cfTy OF PALO ALTO
ESTABLISH,ING POLICY REGARDING PREVAILING WAGES FOR
PUBLIC PROO EC1'S
WHEREAS, in the recent case of Vial v. City of San 01e2,0 (115
Cal.Rtpr. 647, July~ 1981), the California Court of Appeal determined
that the subject of ~prevailing wages· is a municipal affair and that
Charter clti.s are not subject to the prevailing wage requirements for
public works projects set forth in the California Labor Coder and
WHEREAS, it is in the City's best interest to obtain the lowest
responsible bid for public projects,
NOW, THEREFORE q the Council of the City of Palo Alto does RESOLVE
as follows:
SECTION 1. It is approp~iate to use the Davis-8acon Act or State
Department oJ! Industrial Relat ions Wage Determinations only when re-
quired by federal or state grants and on other jobs considered to be of
statewide concern.
SECTION 2. The Council finds that this is not a project under the California Environmental Quality Act and~ thereforeq no environmental
impact assessment is necessary.
INTRODUCED AND PASSED: December 14, 1981
AtES: Bechtel. Eyerly, Fletcher, Henderson, Klein, Levy, Renzel.
Witherspoon
NOES: None
ABSTENTIONS: None
ABSBNTt Fazzino
APPROVED:
\!,i~or~
Attachment B
POLICY AND SERVICES COMMITTEE
Regular Meeting
December 9, 2008
Chairperson Kishimoto called, the meeting to order at 7:01 p.m. in the Council
Conference Room, 250 Hamilton Avenue, Palo Alto, California.
Present: Barton, Drekmeier, Kishlmoto (chair), Espinosa
Absent: None
1. Oral Communications
None.
2. Review and Request for Recommendation on Prevailing Wage Issues
Related to City Capital Construction Project~
Assistant Public Works Director, Mike Sartor presented a staff research report
related to the prevailing wage issue and City Capital projects. He stated
prevailing wages pertain to Public Works contracts which include Utilities,
Capital Improvement Projects and Public Works General Fund and Enterprise
Fund Projects. He explained that as Palo Alto was a Charter Cjty, it was not
required to pay prevailing wage unless the project involved Federal or State
Grant funding, Gas Tax Funds or other non-local funding sources.
Council Member Barton asked whether the potential for cost increase was at the
bid process or the total at the end of a project. He stated there were bid
numbers and the true cost of a project. He stated he would not be supporting
the recom mendation.
Mr. Sartor stated the study was based on the review of completed projects.
12/09/2008 P&Sl
Vice Mayor Drekmeier asked whether the income levels of prevailing wage were
that of a medium income versus average income.
Mr. Sartor stated the State determined the prevailing wage based on individual
labor categories. For example carpenters in Santa Clara County, the State takes
a took at wages for carpenters throughout the entire County then take fifty
percent of the highest wages being paid and establish that as the prevailing
wage.
Vice Mayor Drekmeier clarified the breakdown of wages was by county.
Mr. Sartor stated yes, by the Department of Industrial Relations.
Vice Mayor Drekmeier asked whether Palo Alto currently had policy on union
wages.
Mr. Sartor stated no.
Vice Mayor Drekmeier asked whether there was a forum to view municipality
rating systems for contractors.
Mr. Sartor stated the purpose of the survey was to verify any quality impact.
Vice Mayor Drekmeier asked how to determine whether a contractor had poor
quality of work.
Mr. Sartor stated reference checks and checking with other municipalities. The
bid process require statements of qualifications and experience of similar types
of projects.
Vice Mayor Drekmeier asked the impact of the economy on the timeline for
moving forward with the prevailing wage. '
Mr. Sartor stated direct impact of quality in work were protected by
performance specifications and plans prepared. He stated when a contractors'
performance was not adequate the contract could be terminated or the
contractor could be given the opportunity to correct any performance issues.
Vice Mayor Drekmeier asked how frequently the prevailing wage was
recalculated. '
Mr. Sartor stated he had no actual data however/ he anticipated an annual
review would be probable.
12/09/2008 P&S2
Vice Mayor Drekmeier asked whether there was data on prevailing wage
contractor's not bidding In Palo Alto because of the possibility of low"balling by
non-prevailing wage entities.
Mr. Sartor stated in his research the non-prevailing wage contracts attracted
more bidders than prevailing wage contracts.
Council Member Espinosa asked how employees being treated or paid fairly was
factored in to the calculations of whether to recommend prevailing wage or not
to.
Mr. Sartor stated staff's primary consideration was fiscal. He stated an expected
increase in cost of up to ten percent would occur during smaller and or
maintenance type projects. Research revealed on major projects the contractor
usually paid pr.evailing wage already.
Mr. Keene stated if the adoption of prevailing wages did increase costs the
question to Council would be what the consequence would be in absorbing the
costs.
Council Member Espinosa stated his agreement. The City as a whole needed to
weigh the two challenges between increase in cost toa project versus ensuring
fairness and fair payment for employees working on projects.
Mr. Keene stated the basis of the decision being requested was not quality
against cost but an overall combination of reaching a higher level of them
together.
Council Member Barton asked for a comparison of both prevailing wage and
non-prevailing wage bidders against projects in Palo Alto for 2007 and 2008.
Chair Kishimoto asked whether the increase in cost of going with prevailing
wage was transferred to the worker or administrative fees.
Mr. Sartor stated the study being viewed was a study compiled by the State of
Kentucky of contractors In their region.
Chair Kishimoto stated It appeared the higher cost of the project went to more
administrative fees which was against the object of going forward with
prevailing wage. She stated her process was for the higher cost to translate to
better wages for the worker.
12/09/2008 P&S3
Mr. Sartor stated the administrative costs were incurred by the owner.
Chair Kishimoto asked whether the employees' benefits and healthcare were
included in the cost.
Mr. Sartor stated no. He stated the benefits and healthcare costs were included
in the rates. For example a thirty dollar per hour job would cost forty-five
dollars.
Chair Kishimoto asked whether the rates changed by skill level or category.
Mr. Sartor stated the rates tended to be geared towards the level of skill for the
person in a particular category .
. Chair Kishlmoto asked how flexible the categories were as in filling-in. If person
A from category one was out-could person A from category two fill-In or was it
job specific.
Mr. Sartor stated his understanding was there was no cross trading without
experience.
Council Member Espinosa asked how quality and safety played a role to·gether.
Mr. Sartor stated there were standard quality controls and safety measures in
place and monitored by the contractor in charge of the project. The inspector's
checks ensure appropriate operators for the speCific duties on each project.
Nicole Goehering, 4577· Las Rositas Rd, Unit C, Livermore, spoke of flexibility
under prevailing wage work. She stated within Palo Alto the flexibility of metal
roofing could be covered by sheet metal workers or roofers and underground
utility work could be covered by utilities or laborers.
Kevin Dayton, 4577 Las Rosltas Rd, Unit C, Livermore, spoke of the increase in
cost not necessarily coming from the prevailing wage but the specifics of how
prevailing wage was determined by the state.
Neil Struthers, 2102 Almaden Road, San Jose, spoke of how qualification
implied quality. He stated the more experienced worker would turn out a better
and quicker product than one of less skill. -rhe hourly wage does not determine
the quality. He noted statistical data on percentages of prevailing wage versus
non-prevailing wage bids in Palo Alto.
12/09/2008 ·P&S4
Peter Philips, Economics Department, University of Utah, Salt Lake City, stated
the staff report data was built on impressions from first principles rather than
natural experiments or empirical observations. He stated there was> no
statistically significant difference in the number of bidders on Palo Alto jobs'
compared to the four surrounding cities. In the sample examined, there were
140 projects, 19 of which were in Palo Alto with 450 bidders. He continued to
speak of the study he provided.
Council Member Barton stated one of the supporting factors for the prevailing
wage rule was the majority of the workers had come up though some sort of
union training program. The people would be well trained in their trade, have
quality standards and efficient. He stated Council had an obligation to be
morally efficient in the expenditure of public dollars.
MOTION: Council Member Barton moved, seconded by Council Member
Espinosa, that the Committee make a recommendation to the Council to Impose
a prevailing wage requirement for all City Capital Projects.
Mr. Keen asked for clarification as to the relativity to City Capital Construction
Projects.
Council Member Barton stated yes.
Chair KishimQto asked whether the Motion covered all capital projects . .
Council Member Barton stated in the beginning to incorporate them all and at a
later date discussions could be brought forward as to the necessity of each
project.
Council Member Espinosa stated the treatment of workers in any function or
capacity as workers for the City needed to be treated with fairness and
payment equality.
Vice Mayor Drekmeier stated the Water Treatment Plant project brought about
concern whether the City needed to provide prevailing wage or not. The lowest
bidder chosen was paying prevailing wage. He noted the importance of fairness
in treatment of employees' payment and benefits.
AMENDMENT: Chair Kishimoto moved, seconded by Council Member XXX to
incorporate parameters of exclusion for maintenance and smaller projects, and
to add a financial threshold where prevailing wage would not apply to a project
below $XXX.
12/09/2008 P&S5
Amendment failed for lack of second.
Mr. Sartor stated staff was prepared to return with exclusionary criteria for
maintenance projects from the prevailing wage requirements.
Chair Kishimoto asked whether the matter should be moved forward without
adequate information or revisited at a later date.
Mr. Keene stated the language could incorporate the exclusion of routine
maintenance contracts. He noted a more specific concern would be
public/private partnerships.
Chair Kishimoto asked whether the exclusion of public/private partnerships
would cause any legal matters.
Deputy City Attorney, Amy Bartell stated the current statute reads if a project
was receiving public funds in whole or part it was subject to prevailing wage law
in General Law Cities. She noted currently, Palo Alto remained in the Charter
City category, pending the outcome of the City of Vista's court case.
Chair Kishimoto clarified General Law Cities were required to pay prevailing
wage when entering into a public/private partnership.
Ms. Bartell stated yes. She clarified the requirement for a Charter City to pay
prevailing wage included the receipt of public funds in any amount.
Mr. Keene stated not to overlook the possibility of a group or non-profit
organization offering to accomplish a capital project that the city may nor have
planned to move forward with and they request a contribution or matching
funds. The question would be how prevailing wage would affect that situation.
Vice Mayor Drekmeier asked whether there was a recommendation ready for
Councilor if the matter would go before Council with further information from
staff.
Chair Kishimoto stated staff would return to Policy and Services for further
review prior to going to Council.
Council Member Espinosa stated he would prefer staff return to Policy and
Services with Information detailed to the concerns coming from this meeting.
He noted a set timeline should be outlined to avoid prolonging unresolved
matters.
12/09/2008 P&S6
Council Member Barton noted the current committee panel would not meet
again. .
Mr. Keene stated with there being a general consensus on the concept of
prevailing wage in regards to capital projects, he suggested the Committee
recommend the full Council review what had been accomplished with the
understanding of staff's return in early February with suggestions for further
resolutions to minor, maintenance, and public/private partnership projects.
Chair Kishimoto asked to have a definition of resource impacts between small
and large projects.
Mr. Sartor stated other Charter Cities have excluded smaller projects such as
roofing and painting contracts. He' noted the report currently includes all
projects as part of the $11.5 million from the Capital General Fund projects.
Chair Kishimoto asked how the $28 million dollars was divided for prOjects.
Mr. Sartor stated he was unfamiliar with the number of routine maintenance
contracts Utilities had, however the majority of contracts consisted of Capital
Improvement Projects which had prevailing wage impacts.
Chair Kishimoto clarified that most of the City contract work was on a larger
scale and therefore the contractor's paid prevailing wage.
Mr. Sartor stated yes. For example, Anderson Pacific was a large non-union
underground construction contractor who pay prevailing wage. The
recommended exemptions from prevailing wage requirement would be
maintenance projects and public/private partnership such as Lytton Plaza and
the Art Center.
Chair Kishimoto stated her concern regarding the flexibility and calculation in .
the process of prevailing wage. '
Council Member Barton suggested forwarding the recommendation as it was
with a parallel recommendation that the Committee was unsure about the
thresholds and that staff would return to Council with recommendations.
Mr. Sartor mentioned living wage and prevailing wage were completely separate
, topics. He stated he understood the Committees' concern for the wellbeing of
workers, however a living wage was a local jurisdiction and a prevailing wage
requirement was a state mandate.
12/09/2008 P&S7
Chair Kishimoto suggested requesting the new Mayor extend the current
Committee panel for a one month term therefore allowing staff time to gather
the detailed information needed to complete a recommendation for Council.
Mr. Keene stated he concurred "and stated staff would be prepared to return
with adequate information.
INCORPORATED INTO THE MOTION WITH THE CONSENT OF THE MAKER
AND SECONDER, to request the Mayor allow the current Committee panel to
meet an additional time in January to finalize a recommendation to the City
Council.
Council Member Barton withdrew the Motion.
The Committee recommended that the Mayor direct staff to return to the
current Committee panel in late January of 2009 with threshold discussions so
the current Committee could return a recommendation to Council on prevailing
wage requirement.
3. Discussion for Future Meeting Schedules and Agendas-Last meeting-
another in January
ADJOURNMENT: Meeting adjourned at 8:38 p.m.
12/0912008 P&S8
TO:
ATTN:
FROM:
DATE:
CITY COUNCIL
ATTACHMENTC
City of Palo Alto
City Manager's Report
POLICY AND SERVICES COMMITTEE
CITY MANAGER
DECEMBER 9, 2008
DEPARTMENTS: PUBLIC'WORKS
UTILITIES
CMR: 443:08
REPORT TYPE: RECOMMENDATION
SUBJECT: Review and Request for Recommendation on Prevailing Wage Issues
Related to City Capital Construction Projects
RECOMMENDATION
Staff recommends the Council Policy and Services Committee recommend that Council not
change current prevailing wage policy, allowing City "public works" projects be bid without
prevailing wage requirements unless prevailing wage is required for the project pursuant to state'
law, due to potential cost impacts to the City's General and Enterprise Fund Capital
Improvement Programs (CIPs).
EXECUTIVE SUMMARY
At City Council's request, staff reviewed many of the issues surrounding prevailing wage rates
and summarized the findings below.' Staff recommends, due to potential cost impacts to the
General and Enterprise Fund Capital Improvement Programs (CIPs), Council not change the
City's current prevailing wage policy. This recommendation is made primarily due to the costs
needed to address the current' General and Enterprise Fund infrastructure program backlog and
the additional cost of ftmding 'a new Public Safety Building and a new Library and COll1.1l\pnity
Center at Mitchell Park and Library improvements at Main and Downtown Libraries as a result
of recent passage of Measure N. Any further increase in costs will impact the City's ability
rehabilitate existing infrastructure, much of which is. already well past its life expectancy and in a
deteriorated condition. In addition, a prevailing wage requiremerit could also apply to the 'many
private/public partnerships the City is involved in such as Lytton Plaza, Art Center and possibly
the Junior Museum ~d Zoo. The California Court of Appeal is currently hearing an appeal in
the City of Vista case, where the City of Vista, a charter city like Palo Alto, is defending its'
choice not to pay prevailing wage on its locally funded "public works" projects.
BACKGROUND
On September 17, 2007, City Council approved a contract with Anderson Pacific for a Water
Quality Control Plant (WQCP) pump station upgrade related to the reclaimed water pipeline
'project running from the WQCP to Mountain View (eMR:364;07). Council approved the
contract contingent on the contractor assuring the City they would pay their employees
prevailing wage on the project. In a related motion Council directed staff to bring the prevailing
CMR:443:08 Page lof8
wage discussion to the Council Policy and Services Committee (see Attachment B, minutes of
September ·17, 2007 Council meeting).
What are Prevailing Wage Rates?
The intended purpose of prevailing wage law is to ensure that public construction projects do not .
lower local wages by allowing contractors to pay wages below the local standard. In 1931,
Congress passed the Davis-Bacon Act, which mandated the payment of prevailing wages on all
construction projects that receive more than $2,000 of Federal funds an amount that has
remained unchanged today. In subsequent years, especially during the Great Depression, many
states and localities passed similar prevailing wage laws~ Most states, including California, now
have such laws.
Prevailing wages are determined in many different ways across the country. The Federal and
California Prevailing Wage calculations are similar because if more than 50% of the workers
make the same wage this becomes the prevailing wage for the trade. They differ in the
calculation when less than 50% of the workers have the same wage. . The Federal Law
determines the prevailing wage by averaging all the wages, whereas in CalIfornia the most
common wage occurring becomes the prevailing wage. California's calculation method usually
results in a slightly higher wage than the Federal calculation method. .
California passed its prevailing wage law in 1931, the same year the federal Davis-Bacon Act
was passed. California Labor Code § 1771 requires that any "public works" project that receives
more than $1,000 in state funding pay prevailing wages. The Labor Code defines "public
works" to include construction, alteration, most demolition, installation or repair work done
under contract and paid for in whole or part out of public funds. All capital improvement
projects done by the City, including those managed by the Community Services, Utilities or the
Public Works Departments are considered "public works" under this law. Although California's
prevailing wage law applies to all of California's "general law" cities, charter cities are permitted
to elect whether to pay prevailing wage on locally funded public works projects that qualify as
municipal affairs.
DISCUSSION
Prevailing Wages in Charter Cities
The California Labor Code requires that public agencies pay prevailing wages, as determined by
the California Department of Industrial Relations, on most public works projects. As a charter
city, Palo Alto is not required to pay prevailing wage rates on "public works" projects, so long as
the projects are within the realm of "municipal affairs," are funded entirely by local funds, and
no other statutory exceptions apply. This "home rule" principle, grounded in the California
Constitution, allows decisions on expenditure of local funds to be made by locally elected
officials. Utilities Enterprise Fund projects are often deemed to be "public works" projects in
this context. .
Since no precise defmition of what constitutes a "municipal affair" has been judicially settled,
courts consider the issue on a case by case basis. The expenditure of city funds on local projects
and the rates of pay of the workers the City hires to carry out such projects has been held to be a
municipal affair. In 1981, Palo Also passed a resolution to pay prevailing wage "only when
required by federal or states grants and on other jobs considered to be of statewide concern."
(See Attachment A: Resolution 5981).
CMR:443:08 Page 2 of8
Recently, courts have blurred the issue of whether a charter city may elect not to pay prevailing
wage. For example, in 2004; the California Supreme Court in City of Long Beach v. DIR,
declined to decide whether prevailing wage law is such a matter of statewide concern that it
should override the ability of charter cities to conduct their municipal affairs. Since then, labor
unions have mounted a statewide campaign to overturn existing law and declare prevailing wage
a matter of state concern. The charter city of Vista is currently defending its choice not to pay
prevailing wages in a lawsuit brought by the State Building and Construction Trades Council.
Although the trial court reluctantly ruled in favor of Vista in December 2007, the case is pending
on appeal. A detailed summary of the case is included in this report's discussion below.
These recent judicial developments led the City Attorney to recommend that Palo Alto pay
prevailing wages on regional projects that transcend the city's geographic boundaries, even if
these projects could be considered municipal affairs. Capital improvement projects related to the
City's Water Quality Control Plant (WQCP) fall into this category. Some Charter Cities have
created special categories where they do not pay prevailing wages on low-income housing and
maintenance type projects, but do pay prevailing wage on construction projects. To date, Palo
Alto has not made this distinction.
Summary of Staff Research
Staff found that there is considerable disagreement on the impacts of prevailing wage rates on
project quality found in studies cited by the union groups and builder trade groups. Studies by
government agencies, however, concluded that paying prevailing wage rates do not significantly
change the quality of .construction on most projects.
In a survey of contractors, it was reported that requiring the payment of prevailing wage rates
could reduce the quantity of bidders on projects by about 20% percent. Most contractors that are
not paying prevailing wages, which make up about 50% of the contractors responding to the
survey, will bid prevailing wage contracts. In the majority of cases, the makeup of their
workforce does not change to accommodate prevailing wage requirements.
In its surveys of both contractors and other cities, staff found that implementing prevailing wage
rates in construction contracts may increase construction costs on City capital improvement
contracts by up to 10%. This increase would' also affect projects involving private/public
partnerships.
The following sections present a summary of the studies related to prevailing wage reviewed by
staff and the results of surveys of other cities and contractors. The pending City of Vista case
related to the charter dty exemption from prevailing wage is also discussed below.
Studies on the Effects of Prevailing Wage
A number of academic and government studies have examined the. costs and benefits of
prevailing wage. Generally, these studies fall into three different camps:
Pro-prevailing wages studies, issued by University-level academics, and construction
trade organizations.
Anti-prevailing wage studies, issued by University-level academics, and various policy
institutes. '
Government studies, issued by the States of Ohio and Kentucky legislative commissions.
CMR:443:08 Page 3 of8
Staff reviewed seventeen such studies, both pro-prevailing wage and anti~prevailing wage, and
studies prepared by govenunent organizations. Summaries of these studies are included in the
attached memorandum dated ~ebruary 15,2008 (Attachment C).
Studies by government organizations provide some of the most interesting insight into the issue
of prevailing wage. These studies should, in theory, have no agenda beyond uncovering what is
in the best interest of taxpayers. All of the studies examined indicated that prevailing wage laws
do not save money. Some studies did, however, equivocate about whether the benefits of
prevailing wage -once other unquantifiable factors were taken into account -may be higher
than the costs.
The two most~referenced government studies are both studies conducted by state legislative
research offices, in Kentucky and Ohio. In Ohio, its Legislative Service Commission issued a
study analyzing the effect of a 1997 bill that exempted school districts from being forced to
require prevailing wage. The study, which asked contractors for bids under and not under
prevailing wage conditions, found that repeal did save money -especially on smaller projects.
It asserts that the exemption yielded 1.2 percent in total cost savings in new construction, 10.7
percent savings on building alteration projects and 19.9 percent savings on building additions.
This conclusion seems to strongly support the notion that the smaller projects have greater
savings when prevailing wages are not required.
Furthermore, the study surveyed school districts to discover if they had noticed any decrease in
the quality of construction. Six percent of respondents said that they had noticed higher quality
construction since the exemption, 91 percent noted no change and 3 percent said quality had
decreased.
In one very unique case, the survey discovered that one school district had put a project out to
bid under prevailing wage conditions and then rebid the project without such requirements. The
. winning bidder in the second case, without prevailing wage, was 5.8 percent lower, yielding a
cost savings of more than $500,000.
In Kentucky, the legislature also ordered its research arm to study the issue of prevailing wage.
The study made a notable number of findings, including learning that 60 percent of workers
surveyed were paid more on prevailing wage jobs than on market-rate jobs~ the average increase
for prevailing wages was 24· percent over the workers' market rates. Among the 141-page
report's other findings were:
• 90.7 percent of non-union and 24.4 of union contractors said prevailing wage laws raise
construction costs.
• 55.4 percent of small firms (10 or fewer employees) said prevailing wage laws have a
negative effect on their business, compared to 73 percent of large firms.
• 95.7 percent of citi:es. and 83.3 percent of ~unicipal utilities that responded believe
prevailing wage laws increase construction costs, while, respectively, 7 and zero percent
believe taws increase quality.
• More cities believed prevailing wage legislation decreases -not iIlcreases -quality of
construction.
It is worth noting that the report did not call for the abolishment of prevailing wages in
Kentucky. The report did not take an opinion on the issue. Its main overall conclusion on the
effectiveness of the legislation, however, is as follows:
CMR:443 :08 Page 4 of 8
To the extent that quality is increased, prevailing wages are an inefficient method
to increase quality. The wage requirement results in contractors paying higher
wag~s with no guar~tee that these additional wages will result in quality
improvements.
Aside from the Kentucky and Ohio reports, there are a number of smaller government reports on
the topic. The Federal Congressional Budget Office (CBO) and General Accounting Office
(GAO) have both issued reports on prevailing wage, with the GAO asserting that repealing the
Davis-Bacon Act would save $1.2 billion annually. The CBO study, written during the early
1980's, was likely the impetus that caused the Reagan Administration to change the definition of
prevailing wage to the wage earned by 50 -as opposed to 30 -percent of local wage earners. It
found that repeal of Davis-Bacon would save $13 billion (2007 dollars) over five years and that
some 20 percent of open shop contractors have no interest in bidding on prevailing wage
contracts. It also recommended raising the threshold at which the prevailing law is triggered, as
the $2,000 trigger 'was set in 1931 and has never been increased.
The final government study of note is another state legislative study -Maryland in this case -
conducted in 1997. Maryland's Department of Fiscal Services, which issued the study, asserted
that repeal of the prevailing wage law then on Maryland's books would save the state between 5
and 15 percent on public works construction.
Survey of California Cities
To further examine the policies of other California municipalities regarding prevailing wage law,
staff surveyed dozens of other cities on the topic. The survey was sent out to all members of the
Association of Bay Area Governments, as well as to all Charter Cities that had email addresses
available. Forty-eight municipalities responded to the survey. Usually, the respondents were
public works officials, though a few city managers replied as well. A short summary of the
findings follows and the more detailed results are included in'Attachment C.
• 42 of 48 cities surveyed pay prevailing wage rates.
• 26 out of 32 Charter Cities pay prevailing wage rates.
• Based on the survey results, staff estimates that paying prevailing wages may increase
construction costs in the range of 5% to 10%.
• A large majority of the respondents believe that paying prevailing wages does not
increase quality of the work.
• Most believed that requiring prevailing wages decreases the number of bidders on
projects.
• 'Some cities have exceptions to paying prevailing wages for certain types of contracts.
The responding cities were also asked tQ provide comments on the positive and negative effects
of payi'ng prevailing 'wageS. These are summarized below:
Positive Effects
.' Supportive oflabor
• Evens the playing field
• Assures that workers are being treated and paid fairly
• Higher wages allow people to live closer to work
• More professional bidding pool
CMR:443:08 PageS ofS
o Higher-quality work
Negative Effects
• Higher costs
• Fewer projects can be built
/I Need for extra staffing and paperwork for compliance monitoring
/I Smaller pool of bidders
Survey of Contractors
The Staff s research on prevailing wage did provide a number of insights into the views of
construction contractors on the topic of prevailing wage legislation. In addition, staff conducted
a survey of contractors bidding work in Palo Alto to best judge the impact a change in Palo
Alto's prevailing wage policy would have on construction projects in Palo Alto.
A summary of the survey results follows:
• Approximately 50 % of the contractors responding pay prevailing wages on all contracts.
• Most contractors that do not typically pay prevailing wage rates will bid prevailing wage
contracts.
II 70% of the contractors not paying prevailing wage rates use the same labor force when
bidding prevailing wage contracts.
• The average of the estimated increase to construction costs associated with paying
prevailing wage rates was approximately 8% according to the contractors responding to
the survey.
City of Vista Court Case
As discussed previously, the Charter City of Vista is currently defending its decision not
to pay prevailing wages in a lawsuit brought by the State f Building and Construction Trades
Council. The outcome of this case will be very important, as it could determine whether charter
cities can continue to exercise their ability to locally determine whether to pay prevailing wages
on local projects. Some background on the case is illustrative.
In June 2007, Vista became a Charter City. Before the election, the City prepared a fact
sheet discussil)g common questions regarding the Charter City proposition, including questions
and answers regarding the potential tax savings on local public works projects should the. City
chose to forego prevailing wages on municipal projects. 67% of Vista voters approved the
decision to become a Charter City. Vista plans on completing about $100 million in public
improvements in the near future; projects which would traditionally be considered within the.
realm of "municipal affairs" and paid from local revenues.
The State Building and Construction Trades Council of California, a labor union,
challenged Vista's assertion that it was exempt from prevailing wage law, arguing that the
prevailing wage statute is of statewide concern. Although the trial court reluctantly found in
favor of Vista, in issuing his ruling, the Superior Court judge stated that were he not bound by a
preceding case, Vial v. City of San Diego, he would have been inclined to grant the union's
petition. The Vial decision stated that prevailing wage law does not apply to public works
projects of a chartered city, "as long as the projects in question are within the realm of
'municipal affairs. '"
CMR:443:08 Page 6 of8
The judge in Vista, however, contended that instead of focusing on the project, a more
appropriate analysis would involve whether the prevailing wage statute is a matter of statewide
concern. Had the court not been obligated to follow Vial, the court acknowledged that it would
have found that the prevailing wage law is a matter of statewide concern and that Vista was
therefore bound to follow the law in relation to its pending public works projects.
The petitionees appeal is currently pending before the California Court of Appeal and
oral argument was heard on Friday, November 14,2008. A decision is expected in the next two
months. Should the court frame the question as suggested by the superior court, and ask whether
the prevailing wage statute is a "statewide concern," it is possible that the Court will answer that
question affirmatively, thereby overruling or limiting the Vial decision. The California
Legislature has previously declared that the prevailing wage statute addresses two important
statewide concerns: (1) it prevents public projects from driving down area labor standards and
(2) it ensures training opportunities for apprentice construction workers. Even if Vista wins on
appeal, observers expect this case will eventually be appealed to the California Supreme Court.
A California Supreme Court decision would not be expected on this case for at least another
year. The City Attorney's Office will keep Council informed on the' status of this case.
RESOURCE IMPACT
The Adopted 2009 Capital Budget includes about $11.5 million in General Fund projects and
about $28 million in Enterprise Fund projects that are not now or will not require prevailing
wage in their construction contracts. The Enterprise Fund projects include those under the
electric, water, gas, wastewater collection, storm drainage and refuse fund programs. Projects
constructed by the Wastewater Treatment Fund already require prevailing wage as discussed
. above and would not be impacted by a change in Council policy. If staff research proves correct,
the costs of the 2009 General Fund projects could increase by as much as $1 million and the
2009 Enterprise Fund projects could increase by as much as $2.8 million if Council were to
adopt a policy requiring prevailing wage rates be paid on all capital construction projects
contracted by the City. It also should be noted that any private/public partnership agreements
entered into by the City for capital construction would also require payment of prevailing wage
rates on these construction projects (e.g. Art Center, Lytton Plaza, Junior Museum and Zoo).
POLICY IMPLICATIONS
The recommendation does not change existing policy. If Council were to change policy and
require prevailing wage be paid on all City capital construction projects, Council would need to
adopt an ordinance codifying such a requirement.
ENVIRONMENTAL REVIEW
Policy and Services Committee review of the prevailing wage policy issues presented in this
report does not represent a project under the California Environmental Quality Act (CEQA),
pursuant to Section 21065 of the Public Resources Code.
CMR:443:08 Page 7 oU
ATTACHMENTS
Attachment A: City of Palo Alto Resolution 5981
Attachment B: Minutes ofS~ptember'17, 2007 City Council meeting
Attachment C: Prevailing Wage Rate Issues Memorandum of February 15,2008
PREPARED BY:
DEPARTMENT HEADS:
CITY MANAGER APPROV AL:
CMR:443:08
Assistant Utilities Director
hL1.~
GLENN ROBERTS
Director of Public Works
. ,../
Page 8 of8
Attachment F
CITY OF PALO ALTO
City Council Ad Hoc Committee on Prevailing Wages
Special Meeting
Tuesday, March 10,2009
The meeting of the City Council Ad Hoc Committee on Prevailing Wages was called to
order at 6:01 p.m.
Present: Barton, Drekmeier, Espinosa
Absent: Kishimoto
1. Oral Communications
None
2. Review and Recommendation on Proposed Prevailing Wage Policy for
City Capital Construction Projects.
City Attorney, Gary Baum reviewed the City's Prevailing Wage policy.
Assistant Public Works Director Mike Sartor reviewed the PowerPoint presentation in
follow-up of the December 9, 2008 meeting. His presentation included a summary of
that meeting, the Prevailing Wage exemptions and Staff's recommendations.
Neil Struthers, 2102 Almaden Road, San Jose, thanked Staff for incorporating
information from meetings held prior. He questioned why $250,000 was listed as a
threshold for the prevailing wage. He stressed more thought should be given to the
public-private partnership aspects of the policy. He spoke regarding affordable housing
and requested further research be completed on Staffs recommendation and how the
policy affected the General Fund.
Lindsay Byers, 4577 Las Positas Blvd., Livermore, Associated Builders and Contractors
Union, in representation of non-union members, stated they would continue to work in
the City of Palo Alto whether or not prevailing wage was opposed. She gave an
overview of prevailing wage calculations and the wide variety of areas that the wages
cover beyond employee compensation. She suggested raising maintenance project wage
thresholds to allow smaller community businesses to remain competitive with regional
and statewide contractors.
Aletha Coleman, 296 Bay Road, Atherton, from the Palo Alto Friends of the Junior
Museum and Zoo spoke in support of Staffs recommendations from a public-private
partnership viewpoint.
Molly McAuliffe, 1554 Cowper Street, from the Palo Alto Friends of the Junior Museum
and Zoo spoke in support of Staff s recommendations.
Council Member Barton stated it was his understanding that the $250,000 threshold was
consistent with what the City Manager brought forth to Council for authorization and
approval.
Mr. Sartor stated that was correct.
Council Member Barton asked how many projects fit within this $250,000 threshold per
year.
Mike Sartor stated the amount pertained to Capital Improvement Projects (CIP) and
maintenance type projects, with several projects projected for the year within that
threshold. He gave the example of parks and maintenance type projects.
Council Member Barton stated maintenance was defined under California Code and State
Law exemptions.
Mr. Sartor stated many maintenance projects exceed the threshold. He gave the example
of the Utility Department's gas main replacement project, which was considered a
maintenance project and routine work and repair of an existing system. He stated Staff is
mindful that larger projects should be included, but they did not want to restrict the
smaller maintenance-type projects.
Council Member Espinosa stated Staff s current report was concise and covered all the
options available. He asked for further clarification on the different dollar points
($50,000, $100,000 to $250,000 and above). He asked for further information on the
scale and scope of projects within each threshold.
Mr. Sartor stated there were $10-12 million contracts each year in the CIP. Smaller
projects made up less than one million, or 10 percent, of the total for projects. Most of
the CIPs greater than $250,000 are major projects. The types of small range projects
included annual roofing, interior finishing and landscaping contracts for buildings and
parks. The total value of maintenance-type projects was likely less than one-tenth of the
overall CIP.
Assistant Director of Utilities, Tom Marshall stated there were not a lot of contracts in the
under $250,000 range. Projects that fell into this range included annual Roto-Rooter
service contracts for sewer maintenance, as one example.
City Manager, James Keene reviewed various projects from the 2008-09 Adopted Budget
for CIP. He listed projects that fit underneath the $250,000 threshold which included the
Bayland Athletic Center's fencing, dugout and trailhead park projects as one example.
He listed several other projects of the same caliber.
Council Member Espinosa asked how each specific project was cast as a recipient of
these budgeted amounts within the CIP budgeting. He stressed they were making the
effort to create a policy around what these projects were exactly.
Mr. Sartor gave an overview of what projects are considered as maintenance projects.
Maintenance projects specifically include such items as annual roofing projects or
interior projects such as carpeting and painting. Park trail projects were also included
within this realm. He stated many of these projects were already defined in the Public
Contract Code as Maintenance projects and separate from the Public Work projects. He
stated these types of contracts typically attract the smaller contractors.
Mr. Keene stated one of the goals is to spread the work around, from these smaller
projects, to smaller contractors that might not otherwise be considered. He stated this
brought with it social equity value. He asked what the results were in areas where there
were no prevailing wage policies.
Mr. Sartor stated when compared to what other cities are doing, a broader range of bids
come through with smaller contractors when prevailing wage policies did not exist.
Council Member Espinosa stated this was an area where he felt he did not have sufficient
data with which to form a decision.
Council Member Barton asked whether Staff might consider modification of the public-
private partnership funding exemptions to the point at which the private-partner became
the managing partner. He understood that there could be bookkeeping issues and
volunteers may not be able to do this. He stated that public funds should be spent in
ways that cover external costs associated with living in this area.
Mr. Keene stated the goal was to move projects forward and keeping costs to a minimum.
In some cases, when volunteers took the lead on a project, they were not considered
under the prevailing wage guidelines. '
Council Member Barton stated the assumption was that prevailing wages drove up the
costs for a project. He was not of this mind. When you build in externalities it is better
all around. He doesn't want to go down the road of implied incentives.
Mr. Keene stressed taking a look at future emerging pUblic-private partnerships where
there may be a situation wherein the City may want the lead on the project. He noted
civil liability issues came into play in this case.
Council Member Espinosa hoped for clarity around defining the public-private
partnership aspects of this proposed policy. He agreed with the policy in concept but was
worried about these public-private partnerships working against the policy. He stated he
felt that clarity was needed on this policy as it pertains to pUblic-private partnerships.
Mr. Baum stated there were different standards in the public-private partnership where
the private party is the majority contributor but is not the managing partner.
Council Member Espinosa stressed there were instances where further clarity was
necessary when private parties were donating money for these projects within the
confines of the proposed policy.
Mr. Keene pointed the Committee towards Page 4 of the Staff report on regarding
exemptions and exclusions. He gave examples and applications of what was proposed on
Page 4 of the proposed policy.
Council Member Espinosa stated this was a good start. He hoped for more clarity on the
criteria and an outline of this prior to taking it to Council.
Mr. Baum stated under the Committee's general direction this was adequate for them to
forward on to Council. The presumption of paying prevailing wage in public-private
partnerships and if not then under what circumstances.
Council Member Espinosa stressed the needs for more specifics.
Mr. Baum stated ironing out the specifics may require another meeting.
Council Member Barton suggested deleting the complicated language on Federal Tax
Credits on Page 5 of the proposed policy.
Council Member Espinosa asked for clarification on what he specifically wanted
excluded.
Council Member Barton wished to delete bullet point 3, on Page 2, which refers to
affordable housing projects.
Council Member Espinosa stated it was included at this point more for clarity than policy
based on information Mr. Sartor and Mr. Baum gave in address to this point.
Council Member Barton stated ifthe inclusion was for clarity's sake, it should be worded
to include affordable housing projects that would otherwise be exempt.
Mr. Sartor stated the extent of the exemption was an attempt to clarify and specifically
note the other two bulleted items.
Council Member Barton stated this did not matter in either direction and was merely
semantics.
Mayor Drekmeier asked for further clarification on the prevailing wage. He asked what
causes fluctuations in the prevailing wage.
Mr. Sartor stated fluctuations were tied to union bargaining agreements and labor rates.
He was not familiar with any recent bargaining agreements which cut these wages and
rates.
Mayor Drekmeier asked if they went with prevailing wage, would the prevailing wage go
up a notch with the addition of their City coming on board.
Mr. Sartor stated it would not go up. The wages are set by the County and State.
Council Member Espinosa asked if there was a way to move forward but also get clarity
on how decisions were made and what the different dollar amounts meant with regard to
the number of projects.
Mr. Sartor stated in projects less than $250,000, prior Council was comfortable In
providing the City Manager with the authority to award those types of contracts.
Council Member Espinosa stated the issue was not about the dollar amount of the
contracts but the kind of contracts we are setting up in terms of whether we would have
more bids, different kinds of companies, workers doing different levels of work. The
decision making would be based on the types of contracts, companies, skill levels of
employees and that would drive prevailing wage
Mr. Sartor stated the difference remained in what was considered a maintenance versus
construction project in that maintenance projects were of a recurring nature on existing
structures. He stressed these projects were typically significantly smaller in scope. He
stated they were not suggesting that a new building project under $250,000 would be
exempt. A new building project would still require prevailing wage parameters.
Mr. Keene stated moving forward meant getting something on the Consent Calendar and
then they could return with more definitive data.
Council Member Espinosa stated it was important to understand who these companies
are, and understand why the dollar amount is what it is for these smaller projects.
Mr. Keene stated the dollar amount was not at issue. They were not vetted to any
particular dollar amount at this point.
Council Member Espinosa agreed it was more important how they arrived at their final
conclusions rather than the actual final numbers.
Mayor Drekmeier stated recent Request for Proposals brought in lower bids. He asked if
wages were the same, how or where costs were rising within this bidding process.
Mr. Sartor stated product costs were the primary reason for any extra or higher costs
above and beyond what may have been seen in the past. Also material costs have gone
down.
Council Member Barton stated it was not labor rate, per se, of a project, but the number
of people working on that project that also played a role.
MOTION: Council Member Barton moved, seconded by Mayor Drekmeier to
recommend to the City Council to adopt: 1) Paying Prevailing wage for City Capital
Improvement Projects with exemptions for; a) maintenance projects between $100k-
$250k to be determined by the Council after further investigation by Staff, b) projects
worked entirely by volunteers, c) public-private partnerships unless otherwise exempted
by Council.
Mayor Drekmeier asked how many projects would be heard by Council.
Council Member Barton stated it would not be each and every project. It would be
prevailing wage, unless the private funding is greater than City funding.
Mayor Drekmeier stated it was suggested that the City is in a better position to manage
prevailing wages than a private group. He asked if they were suggesting that the City
would manage all or most of the projects.
Council Member Barton asked how many public-private partnership projects have been
done where the City has not been the hiring agent.
Mr. Sartor stated it was his experience that the private partners have managed more than
the City has managed in the past.
Council Member Barton asked by what percentage has the private partner provided more
than 50 percent ofthe funds for a project.
Mr. Sartor stated the Heritage Park project received more private partner funds.
Mayor Drekmeier stated he did not want his vote to be a recommendation at this point.
He remained neutral until more information was available. He agreed that if more than
50% of the funds came from private partner that it could fall into one category, but in
fairness it would make it easier to be the same across the board.
Chair Espinosa clarified Staff s return at a later date with delineation of the decision-
making criteria for public-private partnerships.
Council Member Barton was comfortable with Staff making the decision to modify the
Motion.
Chair Espinosa asked for clarification of what exact information they would return with
for further discussion.
Mr. Baum stated what he heard was they should bring back more information on the
presumption and concerns over paying prevailing wage for public-private partnerships
unless specific exemptions are met.
INCORPORATED INTO THE MOTION WITH CONSENT OF THE MAKER
AND SECONDER to change the language to read "public-private partnerships needed to
meet specific exemptions in order to receive payment of prevailing wage."
Council Member Barton asked the number of yes votes required to take action.
Mr. Baum stated the in the absence of a member there would not be a unanimous vote
and the Chair had the discretion to provide their own Motion.
Chair Espinosa asked why there needed to be a specified dollar amount in order to
qualify for prevailing wage.
Council Member Barton stated the dollar amount was not necessary.
Chair Espinosa had a concern about the affordable housing aspect and he did not have a
concern how Staff had written it. He wanted the inclusion of the wording on page 2 and
page 5 of the Staff report.
Mr. Baum stated the language "unless otherwise required by law" would be added.
INCORPORATED INTO THE MOTION WITH CONSENT OF THE MAKER
AND SECONDER to add "unless otherwise required by law."
Mayor Drekmeier asked how the situation would be handled if both the affordable
housing and public-private partnership entities were vying for the same project.
Mr. Keene stated there would be qualifying factors of exemption and one entity would be
less qualified than the other.
Mr. Baum stated the public-private partnership was not designed to apply to affordable
housing projects.
MOTION PASSED: 3-0, Kishimoto absent
Meeting Adjourned at 7:14 p.m.
TO:
FROM:
DATE:
Attachment G
POLICY AND SERVICES COMMITTEE
CITY MANAGER
JUNE 29, 2009
DEPARTMENTS: PUBLIC WORKS
UTILITIES
CMR:236:09
REPORT TYPE: RECOMMENDATION
SUBJECT: Policy and Services Committee Review and Request for
Recommendation on Prevailing Wage Issues Related to City Capital
Construction Projects
RECOMMENDATION
Staff recommends that the Council Policy and Services Committee recommend that City Council
retain its current prevailing wage policy, allowing City "public works" projects to be bid without
prevailing wage requirements unless prevailing wage is required for the project pursuant to state
law, in light of the City'S economic difficulties and to avoid additional cost impacts to the City'S
General and Enterprise Fund Capital Improvement Programs (CIPs). Staff also recommends a
pilot study of potential prevailing wage impacts be conducted on selected CIPs where prevailing
wage would be required, to determine whether the prevailing wage requirement impacts the
number of bids, project costs, change orders and other factors.
EXECUTIVE SUMMARY
This report responds to the December 9, 2008 and March 10, 2009 discussions by the Council
Policy and Services Committee and Ad Hoc Committee on Prevailing Wage regarding prevailing
wage issues related to City capital construction contracts. At the December 9 meeting, the
Policy and Services Committee (comprised at that time of Chairperson Kishimoto and Council
members Barton, Drekmeier and Espinosa) indicated a strong interest in requiring prevailing
wage on City capital construction contracts and directed staff to come back with additional
information on possible exemptions to the proposed Council policy. At the March 10th meeting
the Ad Hoc Policy and Services Committee (Chairperson Kishimoto and Council members
Barton, Drekmeier and Espinosa) reviewed staff's proposed exemptions to the prevailing wage
policy and recommended Council approve exemptions for projects involving volunteers and low
income housing projects. The Ad Hoc Committee also directed staff to come back to the full
Coun~il with the proposed prevailing wage policy. and with further information on possible
exemptions for maintenance projects and projects involving public-private partnerships.
On June 15th, the City Council adopted the 2010 budget which included several dramatic and
unavoidable cuts to the City's operating and capital budgets. The adopted budget reduced
spending in the Infrastructure Reserve by $2 million. In addition, the 2010 budget assumes
additional reductions in staffing costs which have not yet been identified. Due to on-going
budget challenges, staff recommends that Council retain the current prevailing wage policy, for
CMR:236:09 Page I of?
now and direct staff to perform a pilot study where prevailing wage would be required on
selected CIPsthat are not subject to prevailing wage under the current policy. This will allow
staff to collect "real-time" data on Palo Alto construction to better assess potential costs and
quality impacts on projects where prevailing wage is a requirement.
Although staff is not recommending a change in the City's prevailing wage policy at this time,
this report' provides additional information as requested by the Ad Hoc Committee on Prevailing
Wage regarding possible exemptions from a possible prevailing wage requirement for
maintenance projects and projects involving public~private partnerships.
BACKGROUND
As a charter city, Palo Alto is not required to pay prevailing wages on "public works" projects,
so long as the projects are within the realm of "municipal affairs", funded entirely by local funds,
and no other statutory exceptions apply. This "home rule" principle allows decisions on
expenditure of local funds to be made by locally elected officials. In 1981, Palo Alto passed a
resolution to pay prevailing wage "only when required by federal or state grants and on other
jobs considered to be of statewide concern." (see Attachment A, Resolution).
Recently, charter cities' power to opt out of state prevailing wage law was upheld by California's
Fourth District Court of Appeal in State Building and Construction Trades Council of California
v. City of Vista, (2009) 0052181. In 2007, the City of Vista, a charter city like Palo Alto,
adopted an ordinance under which City contracts generally would not require payment of the
prevailing wage. The Court held that state prevailing wage laws were intended ''to keep state
contracting from undermining what local markets have established." However, because an
ordinance like Vista's would not materially interfere with the stability of the area's labor market,
the effect of ordinances like Vista's were not a matter of statewide concern. Therefore, the court
held that charter cities, like Vista and Palo Alto, retain the power to opt out of the state's
prevailing wage law.
The State Building and Construction Trades -Council of California intends to petition the
California Supreme Court to review this case. In the meantime, the Vista decision is still good
law, and it affirms the City of Palo Alto's right to opt out of paying prevailing wage.
Also relevant is SB 9EX, which the Governor signed on February 20, 2008, noting the (then)
ongoing litigation in Vista. SB 9EX narrowed potential prevailing wage obligations for charter
cities involving work on water, sewer, or storm drain systems that have previously been extended
to disadvantaged communities.
Amid the recent debate over charter cities' prevailing wage requirements, on December 9, 2008,
staff presented to the Council and the Policy and Services Committee a recommendation that
Council not change current prevailing wage policy, allowing City capital construction ("public
works'1 projects -to be bid without prevailing wage requirements unless prevailing Wage is
required for the project pursuant to state or federal law, due to potential cost impacts to the City's
General and Enterprise Fund Capital Improvement Programs (CIPs) (CMR 443:08, Attachment
B). The Committee carefully reviewed this recommendation and decided it was in the best
interest of the City to recommend to the full Council that a resolution be adopted requiring
prevailing wage on all City capital construction contracts. The Committee also instructed staff to
recommend types of construction contracts that could be considered for exemption from a
CMR:236:09 Page 2 of7
prevailing wage requirement. Minutes of the December 9th meeting are attached (Attachment
C).
On March 10, 2009, staff presented to the Council Ad Hoc Committee on Prevailing Wage
proposed exemptions from the possible prevailing wage policy discussed at the December 9,
2008 Policy and Services Committee meeting. The possible exemptions reviewed with the Ad
Hoc Committee were:
1. Maintenance projects under $250,000 as defined by Section 22002 of the California
Public Contract Code;
2. Projects using public-private partnership funding;
3. Projects that construct/rehabilitate affordable housing for people with low or moderate
incomes; and
4. Projects where the work is performed either entirely or partially by volunteers.
A detailed discussion of the above staff recommended exemptions can be found in the attached
CMR:150:09 (Attachment D). At the March 10th meeting the Ad Hoc Committee on Prevailing
Wage recommended that Council approve the staff recommended exemptions for projects where
the work is performed entirely by volunteers, and low and moderate income housing projects.
Minutes of the March 10th meeting are attached (Attachment E). The Ad Hoc Committee asked
staff to come back to the full Council with additional information on possible exemptions for
maintenance projects and projects involving public-private partnerships, as well, as clarification
that the proposed exemption for affordable housing would apply unless otherwise required by
law. Specifically, the Committee asked staff to present justification for the proposed $250,000
threshold for maintenance projects that is reflective of the dollar value of most maintenance
contracts and not tied solely to the $250,000 threshold cited in Section 2.30.210 of the City's
Municipal Code for Public Works projects requiring City Council approval. The Committee also
asked staff to develop criteria for exempting public-private partnership projects that reflects the
amount of City funding in these projects and addresses project administrative responsibilities.
This information is discussed below for consideration by the Council Policy and Services
Committee.
DISCUSSION
In its December 9, 2008 report (CMR 443:08, Attachment B) staff presented its research into the
possible impacts requiring prevailing wage on City General and Enterprise Fund construction
projects. This research indicated that prevailing wage could increase the cost of construction by
up to lOOA.. StaWs research was based on surveys of other California cities, contractors working
in the Palo Alto area, and review of the many studies conducted on this subject. This research
also showed that there are additional administrative costs associated with prevailing wage
contracts. Any further increase in contracting costs will limit the City's ability to address the
groVl(ing $400 million plus infrastructure backlog and increase the cost to, rehabilitate existing
infrastructure, much of which is already well past its life expectancy and in a deteriorated
condition.
The 2010 budget adopted by the City Council includes several cuts in both the City's operating
and capital budgets. Included in these cuts was a funding reduction of $2 million to the city's
Infrastructure Reserve. Cost increases in Utility (Enterprise fund) projects could also result in
the need for tiser rate increases. Because of potential for cost impacts, the City's continued
CMR:236:09 Page 3 of7
overall budget challenges, and economic challenges in the region as a whole, staff believes that
this is an inopportune time to change the City's current prevailing wage policy.
To better assess the potential impact prevailing wage may have on construction cost and quality
staff proposes to conduct a pilot study. The pilot study will select a few Capital projects where
one of the bid requirements will be the payment of prevailing wage on the project. The bids
received on these projects will be analyzed to detennine:
• If the imposition of a prevailing wage requirement had an impact on the number
of bids received
• If the prevailing wage requirement increased the project cost
• If the number of change orders were increased or decreased by the prevailing
wage requirement
• If quality of construction was impacted by the prevailing wage requirement
Staff proposes to return to the Council Policy and Services Committee next year with the results
of the pilot study and further recommendations on the prevailing wage issue.
Discussed below is the additional information on possible prevailing wage exemptions requested
by the Ad Hoc Committee on Prevailing Wage at their March 10th meeting.
Maintenance Project Exemption
Attachment F is a table listing all of the maintenance CIPs included in the 2009 Adopted five
Year Capital Budget with their associated budgets and project category. The listed projects are
budgeted at a level of $222,000 or less and all meet the definition of a maintenance project under
Section 22002 of the California Public Contract Code (see page 3 of6, CMR:150:09, Attachment
D). Many of the maintenance CIPs listed in Attachment F are annual projects where the budget
is often carried from year to year. The construction contracts associated with annual CIPs are
. typically $250,000 or less. Staff recommends that if the Council were to require prevailing wage
on "public works" construction contracts they should also approve an exemption for City
maintenance CIP contracts valued at $250,000 or less to ensure the City of having the broadest
pool of bidders on these routine projects. This would keep bids competitive and will likely
reduce costs for ~ese critical building, parks, and utility system maintenance activities.
Public-Private Partnership Exemption
Staff met with representatives of the Friends ·of the Palo Alto Junior Museum and Zoo on
March 30th and with representatives of the Friends of Lytton Plaza and the Palo Alto Art Center
Foundation on April 1, 2009. Each of these groups has an ongoing public-private partnership
with the City supporting their projects. At these meetings the proposed prevailing wage policy
was presented and the potential impacts of prevailing wage on their projects was discussed. The
upcoming planned projects at both the Junior Museum and Zoo (proposed 2009-10 CIP AC-
10000 New Bobcat Habitat) and Lytton Plaza Renovation (CIP PE-08004) will be managed by
the respective private entity while the Art Center Improvement project (CIP PF -07000) will be
managed by the City once design work is completed. The Friends of the Palo Alto Museum and
Zoo are funding all of their project with donations (totaling over $505,000) while the City will be
contributing $70,000 for resurfacing of zoo pathways. The Council approved letter of intent with
the Friends of Lytton Plaza provides for a maximum City contribution of $350,000 for Lytton
CMR:236:09 Page 4 of7
Plaza improvements with the Friends of Lytton Plaza responsible for 50 percent or more of the
additional funding that will be needed for this project. The City will be funding more than 50
percent of the Art Center project.
The private groups that will be funding the majority of their projects and also managing project
design and construction (Junior Museum and Zoo and Lytton Plaza) are very concerned about
the potential of prevailing wage requirements increasing the cost of their projects. They are also
concerned that the administrative requirements associated with ensuring contractor compliance
with prevailing wage requirements would likely impose a burden on private entity project
managers that they are not prepared to undertake. On the other hand, the Palo Alto Art Center
Foundation indicated that they would be in a better position to comply with the proposed
prevailing wage policy since the City will be contributing over 50 percent of project funding and
managing project construction. Attached is a letter from the Friends of the Palo Alto Junior
Museum and Zoo and two emails from the Friends of Lytton Plaza asking that their projects be
exempt from the proposed prevailing wage policy (Attachments G and H respectively).
Staff recommends that if the Council were to require prevailing wage on "public works"
construction contracts they should also approve a Public-Private Partnership exemption that
would exempt Public-Private Partnership projects where the private party is the lead entity
managing the project design and construction and the private entity funds at least 50 percent of
the project cost.
RESOURCE IMPACT
The Adopted FY 20 I 0 Capital Budget includes an estimated $56.1 million in General Fund
construction and $32.1 million in Enterprise Fund construction that would require prevailing
wage in their construction contracts if Council were to change the City's prevailing wage policy.
These amounts can be seen in Attachments J and K and do not include total project costs such as
design services contracts which would not be subject to prevailing wage in most cases. The
construction costs of maintenance projects under $250,000 and Public-Private partnerships
where the private entity funds at least 50 percent of project cost and manages the project, are not
included in the above totals (see footnotes 1,2,3 and 5 of Attachment 1). The FY 2010 General
Fund projects include $50.5 million for Mitchell Park and Downtown Measure N Library bond
projects and the FY 2010 Enterprise Fund projects include $22.5 million for the Utility
Department Emergency water supply project. The remaining four years (FY 2011 through FY
2014) of General and Enterprise Fund projects included in the Adopted Capital Budget are also
included in the attached tables. Both total project and construction costs for these projects are
shown iri the attachments.
Attachments J and K also show the potential increased cost impacts on the City's CIP project if
the City's prevailing wage policy is changed. As discussed above, staff's research indicates that
pre,vailing wage may incre.ase construction costs QY up to 10 percent. While other studies have .
been conducted which indicate no such impact on project costs, based on the study conducted by
staff, one can see that the FY 2010 General Fund construction costs may increase by $2.8 million
if prevailing wage caused a 5 percent increase and by as much as $5.6 million ifprevailing wage
caused a 10 percent increase in construction costs. Similarly, the FY 2010 Enterprise Fund
construction costs may increase by $1.6 million at 5 percent and $3.2 million at 10 percent.
Attachments J and K also show the possible construction costs increases in the FY 2011 through
CMR:236:09 Page 5 of7
FY 2014 General and Enterprise Fund CIP's at both the 5 percent and 10 percent levels. Again
these data would be re-evaluated upon completion of the proposed prevailing wage pilot study.
POLICY IMPLICATIONS
To require prevailing wage to be paid on City capital construction projects Council would need
to adopt a resolution rescinding resolution 5981 and codifying the new prevailing wage policy
and any exemptions Council chooses to include. A sample resolution is attached as Exhibit I.
ENVmONMENTAL REVIEW
The Council Ad Hoc Committee on Prevailing Wage review of the prevailing wage policy issues
presented in this report does not represent a project under the California Environmental Quality
Act (CEQA), pursuant to Section 21065 of the Public Resources Code, thus, no environmental
review is required. .
ATTACHMENTS
Attachment A: Resolution 5981
Attachment B: CMR: 443:08
Attachment C: Minu~s of December 9, 2009 Policy and Services Committee meeting
Attachment D: CMR: 150:09
Attachment E: Minutes of March 10, 2009 Ad Hoc Committee on Prevailing Wage meeting
Attachment F: Table of Maintenance Capital Improvement Projects
Attachment G: Letter for Friends of Palo Alto Junior Museum and Zoo
Attachment H emails from the Friends of Lytton Plaza
Attachment I: Draft Resolution -Requiring the Payment of Prevailing Wage on City Capital
Construction Contracts with Certain Exemptions
Attachment J: City of Palo Alto 2010"2014 CIP Plan General Fund
Attachment K: City of Palo Alto 2010-2014 CIP Plan Enterprise Fund
PRErARED BY:
M SARTOR
Assistant Public Works Director
~~~~
TOMM MARSHALL
DEPARTMENT HEADS:
CMR:236:09
Assistant Utilities Director
£Jgj)~
GLENN ROBERTS .
Director of Public Works
Page 6 of7
CITY MANAGER APPROVAL:
CC: Neil Struthers, Santa Clara and San Benito Building and Construction Trades Council
Nicole Goehring, Associated Builders and Contractors, Golden Gate Chapter
Aletha Leong Coleman, Friends of the Palo Alto Junior Museum and Zoo
Barbara Gross, Friends of Lytton Plaza
Leland D. Levy, Friends of Lytton Plaza
CMR:236:09 Page 7 of7
... ORIGINAL A
RESOLUTION NO. 5981
RESOLUTION OP THE COUNCIL OF THB CITY OF PALO ALTO BSTABLISHING POtlCY REGARDING PRBVAILING WAGES FOR PUBLIC PROJECTS
WHBRBAS, in the recent case of Vial v. CitX of San Diego (115
Cal.Rtpr. 641, July, 1981), the California Court of Appeal determined
that the subject of Igrevailing wac)es" is a munio1pal affair and that Charter cities are not subject to the prevailing wage requirements for public works projects set forth in the California Labor Code, and
WHBRBAS, it is in the City's best int.ereat to obtain the lowest
responsible bid for public projectsJ
NOW, THEREFORE t the Council of the City of Palo Alto does RBSOLVE
as follows,
SECTION 1. It 18 appropt'iate to use .the Davis-Bacon Act or State
Department of Industrial Relations Wage Determinations only when re-
quired by federal or state grants and on other jobs considered to be of
statewide concern.
SECTION 2. The Council finds that this is not a project under the CalifornIa Environmental Quality Act and, therefore, no environmental
impact assessment is necessary.
INTRODUCED AND PASSBDI December 14, 1981
A tESs Bechtel, Eyerly, Pletcher, Henderson, Kle1n, Levy, Renzel, Witherspoon
NOBS. None
ABSTENTIONS. None
ABSBNT: Fazzino
APPROVED:
ij1~or~
CHMENTA
TO:
ATTN:
]FROM:
DATE:
CITY COUNCIL
ATTACHME.NT B
City «»if Pano AJhhID
City Manager's Report
POLICY AND SERVICES COMMITIEE
CITY MANAGER
DECEMBER 9, 2008
DEP ARTMlENTS: PUBLIC WORKS
UTJILITIES
CMR: 443:08
REPORT TYPE: RECOMMENDATION
SlUBJEC1': Review and Request for Recommendation on Prevailing Wage bsues
Related to City Capital Construction Projects
RECOMMENlJ)A 1'ION
Staff recommends the Council Policy and Services Committee recommend that Council nbt
change current prevailing wage policy, allowing City "public works" projects be bid without
prevailing wage requirements unless prevailing wage is required for the project pursuant to state .
law, due to potential cost impacts to the City's General and Enterprise Fund Capital
Improvement Programs (CIPs).
EXECUTIVE SUMMARY
At City Council's request, staff reviewed many of the issues surrounding prevailing wage rates
and summarized the findings below. Staff recommends, due to potential cost impacts to the
General and Enterprise Fund Capital Improvement Programs (CIPs), Council not change the
City's current prevailing wage policy. This recommendation is made primarily due to the costs
needed to address the current General and Enterprise Fund infrastructure program backlog and
the additional cost of funding 'a new Public Safety Building and a new Library and Community
. Center at Mitchell Park and Library improvements at Main and Downtown Libraries as a: result
of recent passage of Measure N. Any further increase in costs will impact the City's ability
rehabilitate existing infrastructure, much of which is already well past i:ts life expectancy atl:d in a
deteriorated condition. hi addition, a prevailing wage requirement could also apply to the many
, private/public partnerships the City is involved in such as Lytton Plaza, Art Center and possibly
the Junior Museum ~d Zoo: The California Court of Appeal is currently hearing an appeal in
the City of Vista case, where the City of Vista, a charter city like Palo Alto, is defending its·
choice not to pay prevailing wage on its locally funded "public worksu projects.
BA~KGROUND
On September 17, ~,007; City Council approved a contract. with Anderson Pacific for a Water
Quality Control Plant (WQCP) pump station upgrade related to the reclaimed water pipeline
'project running from the WQCP to Mountain View (€MR:364:01). Council approved the
contract contingent on the contractor assuring the City they would pay their employees
prevailing wage on the project. In a related motion Council directed staff to bring the prevailing
CMR.:443:08 Page 1 of8
wage discussion to the Council Policy and Services Committee (see Attachment B, minutes of
September.} 7, 2007 Council meeting).
What are Prevailing Wage Rates?
The intended purpose of prevailing wage law is to ensure that public construction projects do not
lower local wages by allowing contractors to pay wages below the local standard. In 1931,
Congress passed the Davis-Bacon Act, which mandated the payment of prevailing wages on all
construction projects that receive more than $2,000 of Federal funds -an amount that has
remained unchanged today. In subsequent years, especially during the Great Depression, many
states and localities passed similar prevailing wage laws~ Most states, including California, now
have such laws.
Prevailing wages are determined in many different ways across the country. The Federal and
California Prevailing Wage calculations are similar because if more than 50% of the workers
make the same wage this becomes the prevailing wage for the trade. They differ in the
calculation when less than 50% of the workers have the same wage. . The Federal Law
detennines the prevailing wage by averaging all the wages, whereas in California the most
common wage occurring becomes the prevailing wage. California's calculation method usually
results in a slightly higher wage than the Federal calculation method. .
California passed its prevailing wage law in 1931, the same year the federal Davis-Bacon Act
was passed. California Labor Code § 1771 requires that any "public works" project that receives
more than $1,000 in state funding pay prevailing wages. The Labor Code dermes "public
works" to include construction, alteration, most demolition, installation or repair work done
under contract and paid for in whole or part out of public funds. All capital improvement
projects done by the City, including those managed by the Community Services, Utilities or the
Public Works Departments are considered "public works" under this law. Although California's
prevailing wage law applies to all of California's "general law" cities, charter cities are permitted
to elect whether to pay prevailing wage on locally funded public works projects that qualify as
. municipal affairs.
DISCUSSION
Prevailing Wages in Charter Cities
The California Labor Code requires that public agencies pay prevailing wages, as determined by
the California Department of Industrial Relations, on most public works projects. As a charter
city, Palo Alto is not required to pay prevailing wage rates on "public works" projects, so long as
the projects are within the realm of "municipal affairs," are funded entirely by local funds, and
no other statutory exceptions apply. This "home rule" principle, grounded in the California"
Constitution, allows decisions on expenditure of local funds to be made by locally elected
officials. Utilities Enterprise Fund projects are often deemed to be "public works" projects in
this context.
Since no precise defmition of what constitutes a ''municipal affair" has been judicially settled,
courts consider the issue on a case by case basis. The expenditure of city funds on local projects
and the rates of pay of the workers the City hires to carry out such projects has been held to be a
municipal affair. In 1981, Palo Also passed a resolution to pay prevailing wage "only when
required by federal or states grants and on other jobs considered to be of statewide concern."
(See Attachment A: Resolution 5981).
CMR:443:08 Page 2 of8
Recently, courts have blurred the issue of whether a charter city may elect not to pay prevailing
wage. For example, in 2004; the California Supreme Court in City of Long Beach v. DIR,
declined to decide whether prevailing wage law is such a matter of statewide concern that it
should override the ability of charter cities to conduct their municipal affairs. Since then, labor
unions have mounted a statewide' campaign to overturn existing law and declare prevailing wage
a matter of state concern. The charter city of Vista is currently defending its choice not to pay
prevailing wages in a lawsuit brought by the State Building and Construction Trades Council.
Although the trial court reluctantly ruled in favor of Vista in December 2007, the case is pending
on appeal. A detailed summary of the case is included in this report's discussion below.
These recent judicial developments led the City Attorney to recommend that Palo Alto pay
prevailing wages on regional projects that transcend the city's geographic boundaries, even if
these projects could be considered municipal affairs. Capital improvement projects related to the
City's Water Quality Control Plant (WQCP) fall into this category. Some Charter Cities have
created special categories where they do not pay prevailing wages on low-income housing and
maintenance type projects, but do pay prevailing wage on construction projects. To date, Palo
Alto has not made this distinction.
Summary of Staff Research
Staff found that there is considerable disagreement on the impacts of prevailing wage rates on
project quality found in studies cited by the union groups and builder trade groups. Studies by
government agencies, however, concluded that paying'prevailing wage rates do not significantly
change the quality of construction on most projects.
In a survey of contractors, it was reported that requiring the payment of prevailing wage rates
could reduce the quantity of bidders on projects by about 20% percent. Most contractors that are
not paying prevailing wages, which make up about 50% of the contractors responding to the
survey, will bid. prevailing wage contracts. In the majority of cases, the makeup of their
workforce does not change to accommodate prevailing wage requirements.
In its surveys of both contractors and other cities, staff found that implementing prevailing wage
rates in construction contracts may increase construction costs on City capital improvement
contracts by up to 10%. This increase would also affect projects involving private/public
partnerships.
The following sections present a summary of the studies related to prevailing wage reviewed by
staff and the results of surveys of other cities and contractors. The pending City of Vista case
related to the charter city exemption from prevailing wage is also discussed below.
Studies on the Effects of Prevailing Wage
A number of ~demic and government studies have examined the. costs and benefits of
prevailing wage. Generally, these studies fall into three different camps:
Pro-prevailing wages studies, issued by University-level academics, and construction
trade organizations.
Anti-prevailing wage studies, issued by University-level academics, and various policy
institutes.
Government studies, issued by the States of Ohio and Kentucky legislative commissions.
CMR:443:08 Page 3 aU
Staff reviewed seventeen such studies, both pro-prevailing wage and anti-prevailing wage, and
studies prepared by government organizations. Summaries of these studies are included in the
attached memorandum dated ~ebruary 15,2008 (Attachment C).
Studies by goverrunent organizations provide some of the most interesting insight into the issue
of prevailing wage. These studies should, in theory, have no agenda beyond uncovering what is
in the best interest of taxpayers. All of the studies examined indicated that ,prevailing wage laws
do not save money. Some studies did, however, equivocate about whether the benefits of
prevailing wage -once other unquantifiable factors were taken into account .-may be higher
than the costs. '
The two most"referenced government studies are both studies conducted by state legislative
research offices, in Kentucky and Ohio. In Ohio, its Legislative Service Commission .issued a
study analyzing the effect of a 1997 bill that exempted school districts from being forced to
require prevailing wage. The study, which asked contractors for bids under and not under
prevailing wage conditions, found that repeal did save money -especially on smaller projects.
It asserts that the exemption yielded 1.2 percent in total cost savings in new construction, 10.7
percent savings on building alteration projects and 19.9 percent savings on building additions.
This conclusion seems to strongly support the notion that the smaller projects have greater
savings when prevailing wages are not required.
Furthennore, the study surveyed school districts to discover if they had noticed any decrease in
the quality of construction. Six percent of respondents said that they had noticed higher quality
construction since the exemption, 91 percent noted no change and 3 percent said quality had
decreased.
In one very unique case, the survey discovered that one school district had put a project out to
bid under prevailing wage conditions and then rebid the proj~ct without such requirements. The
winning bidder in the second case,without prevailing wage, was 5.8 percent lower, yielding a
cost savings of more than $500,000.
In Kentucky, the legislature also ordered its research arm to study the issue of prevailing wage.
The study made a notable number of findings, including learning that 60 percent of workers
surveyed were paid more on prevailing wage jobs than on market-rate jobs;, the average increase
for prevailing wages was 24 percent over the workers' market rates. Among the 141-page
'report's other findings were:
• 90.7 percent of non-union and 24.4 of union contractors said prevailing wage laws raise
construction costs.
• 55.4 percent of small firms (10 or fewer employees) said prevailing wage laws have a
negative effect on their business, compared to 73 pef(~~nt of large firms.
• 95.7 percent of citi,e~ and 83.3 percent ,of municipal utilities that responded believe
prevailing wage laws increase construction costs, while, respectively, 7 and zero percent
believe laws increase quality.
• More cities believed prevailing wage legislation decreases -not mcreases -quality of
construction.
It is worth noting that the report did not call for the abolishment of prevailing wages in
Kentucky. The report did not take an opinion on the issue. Its main overall conclusion on the
effectiveness of the legislation, however, is as follows:
CMR:443:08 . Page 4 of8
To the extent that quality is increased, prevailing wages are an inefficient method
to increase quality. The wage requirement results in contractors paying higher
wages with no guarantee that these additional wages will result in quality
improvements.
Aside from the Kentucky and Ohio reports, there are a number of smaller government reports on
the topic. The Federal Congressional Budget Office (CBO) and General Accounting Office
(GAO) have both issued reports on prevailing wage, with the GAO asserting that repealing the
DavisNBacon Act would save $1.2 billion annually. The CBO study, written during the early
1980' s, was likely the impetus that caused the Reagan Administration to change the definition of
prevailing wage to the wage earned by 50 -as opposed to 30 -percent of local wage earners. It
found that repeal of Davis-Bacon would save $13 billion (2007 dollars) over five years and that
some 20 percent of open shop contractors have no interest in bidding on prevailing wage
contracts. It also recommended raising the threshold at which the prevailing law is triggered, as
the $2,000 trigger'was set in 1931 and has never been increased.
The final government study of note is another state legislative study -Maryland in this case -
conducted in 1997. Maryland's Department of Fiscal Services, which issued the study, asserted
that repeal of the prevailing wage law then on Maryland's books would save the state between 5
and 15 percent on public works construction.
Survey of California Cities
To further examine the policies of other California municipalities regarding prevailing wage law,
staff surveyed dozens of other cities on the topic. The survey was sent out to all members of the
Association of Bay Area Governments, as well as to all Charter Cities that had email addresses
available. Forty-eight municipalities responded to the survey. Usually, the respondents were
public works officials, though a few city managers replied as well. A short summary of the
findings follows and the more detailed results are included in' Attachment C.
• 42 of 48 cities surveyed pay prevailing wage rates.
• 26 out of 32 Charter Cities pay prevailing wage rates.
• Based on the survey results, staff estimates that paying prevailing wages may increase
construction costs in the range of 5% to 10%.
• A large majority of the respondents believe that paying prevailing wages does not
increase quality of the work.
• Most believed that requiring prevailing wages decreases the number of bidders on
projects.
• Some cities have exceptions to paying prevailing wages for certain types of contracts.
The responding cities were also asked tq provide comments on the positive and negative effects
of payfng prevailing '~ages. TheSe are sU1lll11arized below:
Positive Effects
•. Supportive of labor
• Evens the playing field
• Assures that workers are being treated and paid fairly
• Higher wages allow people to live closer to work
• More professional bidding pool
CMR:443:08 Page 5 of8
o Higher-quality work
Negative Effects
• Higher costs
• Fewer projects can be built
• Need for extra staffing and paperwork for compliance monitoring
., Smaller pool of bidders
Survey of Contractors
The Staff's research on prevailing wage did provide a number of insights into the views of
construction contractors on the topic of prevailing wage legislation. In addition, staff conducted
a survey of contractors bidding work in Palo Alto to best judge the impact a change in Palo
Alto's prevailing wage policy would have on construction projects in Palo Alto.
A summary of the survey results follows:
• Approximately 50 % of the ~ontractors responding pay prevailing wages on all contracts.
• Most contractors that do not typically pay prevailing wage rates will bid prevailing wage
contracts. . .
• 70% of the contractors not paying prevailing wage rates use the same labor force when
bidding prevailing wage contracts.
• The average of the estimated increase to construction costs associated with paying
prevailing wage rates was approximately 8% according to the contractors responding to
the survey.
City of Vista Court Case
As discussed previously, the Charter City of Vista is currently defending its decision not
to pay prevailing wages in a lawsuit brought by the State. Building and Construction Trades
Council. The outcome of this case will be very important, as it could determine whether charter
cities can continue to exercise their ability to locally determine whether to pay prevailing wages
on local projects. Some background on the case is illustrative.
In June 2007, Vista became a Charter City. Before the election, the City prepared a fact
sheet discussing coJ:Jlmon questions regarding the Charter City proposition, including questions
and answers regarding the potential tax savings on local public works projects should the. City
chose to forego prevailing wages on municipal projects. 67% of Vista voters approved the
decision to become a Charter City. Vista plans on completing about $100 million in public
improvements in the near future; projects which would traditionally be considered within the.
realm of "municipal affairs" and paid from local revenues.
The State Building and Construction Trades Council of California, a labor union,
challenged Vista's assertion that it was exempt from prevailing wage law, arguing that the
prevailing wage statute is of statewide concern. Although the trial court reluctantly found in
favor of.Vista, in issuing his ruling, the Superior Court judge stated that were he not bound by a
preceding case, Vial v. City of San Diego, he would have been inclined to grant the union's
petition. The' Vial decision stated that prevailing wage law does not apply to public works
projects of a chartered city, "as long as the projects in question are within the realm of
'municipal affairs. '"
CMR:443:08 Page 6of8
The judge in Vista, however, contended that instead of focusing on the Im>ject, a more
appropriate analysis would involve whether the prevailing wage statute is a matter of statewide
concern. Had the court not been obligated to follow Vial, the court acknowledged that it would
have found that the prevailing wage law is a matter of statewide concern and that Vista was
therefore bound to follow the law in relation to its pending public works projects.
The petitioner's appeal is currently pending before the California COUli of Appeal and
oral argument was heard on Friday, November 14,2008. A decision is expected in the next two
months. Should the court frame the question as suggested by the superior court, and ask whether
the prevailing wage statute is a "statewide concern," it is possible that the Court will answer that
question affirmatively, thereby overruling or limiting the Vial decision. The California
Legislature has previously declared that the prevailing wage statute addresses two important
statewide concerns: (1) it prevents public projects from driving down area labor standards and
(2) it ensures training opportunities for apprentice construction workers. Even if Vista wins on
appeal, observers expect this case will eventually be appealed to the California Supreme Court.
A California Supreme Court decision would not be expected on this case for at least another
year. The City Attorney's Office will keep Council informed on the'status of this case.
RESOURCE IMPACT
The Adopted 2009 Capital Budget includes about $11.5 million in General Fund projects and
about $28 million in Enterprise Fund projects that are not now or will not require prevailing
wage in their construction contracts. The Enterprise Fund projects include those under the
electric, water, gas, wastewater collection, storm drainage and refuse fund programs. Projects
constructed by the Wastewater Treatment Fund already require prevailing wage as discussed
above and would not be impacted by a change in Council policy. If staff research proves correct,
the costs of the 2009 General Fund projects could increase by as much as $1 million and the
2009 Enterprise Fund projects could increase by as much as $2.8 million if Council were to
adopt a policy requiring prevailing wage rates be paid on all capital construction projects
contracted by the City. It also should be noted that any private/public partnership agreements
entered into by the City for capital construction would also require payment of prevailing wage
rates on these construction projects (e.g. Art Center, Lytton Plaza, Junior Museum and Zoo).
POLICY IMPLICATIONS
The recommendation does not change existing policy. If Council were to change policy and
require prevailing wage be paid on all City capital construction projects, Council would need to
adopt an ordinance codifying such a requirement.
ENVIRONMENTAL REVIEW
Policy and Services Committee review of the prevailing wage policy issues presented in this
report does not represent a project under the California Envirorunental Quality Act (CEQA),
pursuant to Section 21065 of the Public Resources Code.
CMR:443:08 Page 7 of8
ATTACHMENTS
Attachment A: City of Palo Alto Resolution 5981
Attachment B: Minutes 6fS~ptember'17, 2007 City Council meeting
Attachment C: Prevailing Wage Rate Issues Memorandum of February 15,2008
PREPARED BY:
DEPARTMENT HEADS:
CITY MANAGER APPROVAL:
CMR:443:08
.lt811t Public Works Director
Assistant Utilities Director hL:l. '
GLENN ROBERTS
Director of Public Works
PageS ofS
ATTACHMENT C
POLICY AND SERVICES COMMIT"rEE
Regular Meeting
December 9, 2008
Chairperson Kishimoto called. the meeting to order at 7:01 p.m. in the Council
Conference Room, 250 Hamilton Avenue, Palo Alto, California.
Present: Barton, Drekmeler, Kishimoto (chair), Espinosa
Absent: None
1. Oral Communications
None.
2. Review and Request for Recommendation on Prevailing Wage Issues
Related to City Capital Construction Project~
Assistant Public Works Director, Mike Sartor presented a staff research report
related to the prevailing wage issue and· City Capital projects. He stated
prevailing wages pertain to Public Works contracts which include Utilities,
Capital Improvement Projects and Public Works General Fund and Enterprise
Fund Projects. He explained that as Palo Alto was a Charter Cjty, it was not
required to pay prevailing wage unless the project involved Federal or State
Grant funding, Gas Tax Funds or other non-local funding sources.
Council Member Barton asked whether the potentiaI' for cost increase was at the
bid process or the total at the end of a project. He stated there were bid
numbers and the true cost of a project. He stated he would not be supporting
the recommendation.
Mr. Sartor stated the study was based on the review of completed projects.
12/0912008 P&S 1
Vice Mayor Drekmeier asked whether the income levels of prevailing wage were
that of a medium income versus average Income .
. Mr. Sartor stated the State determined the prevailing wage based on individual
labor categories. For example carpenters in Santa Clara County, the State takes
a look at wages for carpenters throughout the entire County then take 'fifty
percent of the highest wages being paid and establish that as the prevailing
wage.
Vice Mayor Drekmeier clarified the breakdown of wages was by county.
Mr. Sartor stated yes, by the Department of Industrial Relations.
Vice Mayor Drekmeier asked whether Palo Alto currently had policy on union
wages.
Mr. Sartor stated no.
Vice Mayor Drekmeier asked whether there was a forum to view municipality
rating systems for contractorS.
Mr. Sartor stated the purpose of the survey was to verify any quality Impact.
Vice Mayor Drekmeier asked how to determine whether a contractor had poor
quality of work.
Mr. Sartor stated reference checks and checking with other municipalities. The
bid process require statements of qualifications and experience of similar types
of projects.
Vice Mayor Drekmeier asked the impact of the economy on the tlmeline for
moving forward with the prevailing wage. .
Mr. Sartor stated direct impact of quality in work were protected by
performance specifications and plans prepared. He stated when a contractors'
performance was not adequate the contract could be terminated or the
contractor could be given the opportunity to correct any performance issues.
Vice Mayor Drekmeier asked how frequently the prevailing wage was
recalculated.
Mr. Sartor stated he had no actual data however, he anticipated an annual
review would be probable.
12/09/2008 P&S2
Vice Mayor Drekmeler asked whether there was data on prevailing wage
contractor's not bidding in Palo Alto because of the possibility of low-balling by
non-prevailing wage entities.
Mr. Sartor stated in his research the non-prevailing wage contracts attracted
more bidders than prevailing wage contracts.
Council Member Espinosa asked how employees being treated or paid fairly was
factored in to the calculations of whether to recommend prevailing wage or not
to.
Mr. Sartor stated staff's primary consideration was fiscal. He stated an expected
increase in cost of up to ten percent would occur during smaller and or
maintenance type projects. Research revealed on major projects the contractor
usually paid prevailing wage already.
Mr. Keene stated if the adoption of prevailing wages did increase costs the
question to Council would be what the consequence would be In absorbing the
costs.
Council Member Espinosa stated his agreement. The City as a whole needed to
weigh the two challenges between increase in cost to· a project versus ensuring
fairness and fair payment for employees working on projects.
Mr. Keene stated the basis of the decision being requested was not quality
against cost but an overall combination of reaching a higher level of them
together.
Council Member Barton asked for a comparison of both prevailing wage and
non-prevailing wage bidders against projects in Palo Alto for 2007 and 2008.
Chair Kishimoto asked whether the increase in cost of going with prevailing
wage was transferred to the worker or administrative fees.
Mr. Sartor stated the study being viewed was a study compiled by the State of
Kentucky of contractors in their region.
Chair Kishimoto stated it appeared the higher cost of the project went to more
administrative fees which was against the object of gOing forward with
prevailing wage. She stated her process was for the higher cost to translate to
better wages' for the worker.
12/09/2008 P&S3
Mr. Sartor stated the administrative costs were incurred by the owner.
Chair Kishimoto asked whether the employees' benefits and healthcare were
Included in the cost.
Mr. Sartor stated no. He stated the benefits and healthcare costs 'were included
in the rates. For example a thirty dollar per hour job would cost forty-five
dollars.
Chair Kishimoto asked whether the rates changed by skill level or category.
Mr. Sartor stated the rates tended to be geared towards the level of skill for the
person in a particular category.
Chair Kishimoto asked how flexible the categories were as in filling-in. If person
A from category one was out-could person A from category two fill-in or was it
job specific.
Mr. Sartor stated his understanding was there was no cross trading without
experience.
Council Member Espinosa asked how quality and safety played a role together.
Mr. Sartor stated there were standard quality controls and safety measures in
place and monitored by the contractor in charge of the project. The inspector's
checks ensure appropriate operators for the specific duties on each project.
Nicole Goehering, 4577, Las Rositas Rd, Unit C, Livermore, spoke of flexibility
under prevailing wage work. She stated within Palo Alto the flexibility of metal
roofing could be covered by sheet metal workers or roofers and underground
utility work could be covered by utilities or laborers.
Kevin Dayton, 4577 Las Rositas Rd; Unit C, Livermore, spoke of the increase in
cost not necessarily coming from the prevailing wage but the specifics of how
prevailing wage was determined by the state.
Neil Struthers, 2102 Almaden Road, San Jose, spoke of how quali'fication
implied quality. He stated the more experienced worker would turn out a better
and quicker product than one of less skill. The hourly wage does not determine
the quality. He noted statistical data on percentages of prevailing wage versus
non-prevailing wage bids in Palo Alto.
12/09/2008 P&S4
Peter Philips, Economics Department, University of Utah, Salt Lake City, stated
the staff report data was built on impressions from first principles rather than
natural experiments or empirical observations. He stated there was' no
statistically significant difference in the number of bidders on Palo Alto jobs'
compared to the four surrounding cities. In the sample examined, there were
140 projects, 19 of which were in Palo Alto with 450 bidders. He continued to
spea k of the study he provided.
Council Member Barton stated one of the supporting factors for the prevailing
wage rule was the majority of the workers had come up though some sort of
union training program. The people would be well trained In their trade, have
quality, standards and efficient. He stated Council had an obligation to be
morally efficient In the expenditure of public dollars.
MOTION: Coundl Member Barton moved, seconded by Council Member
Espinosa, that the Committee make a recommendation to the Council to impose
a prevailing wage requirement for all City Capital Projects.
Mr. Keen asked for clarification as to the relativity to City Capital Construction
Projects.
Council Member Barton stated yes.
Chair KishimQto asked whether the Motion covered all capital projects.
Council Member Barton stated in the beginning to incorporate them all and at a
lat~r date discussions could be brought forward as to the necessity of each
project.
Council Member Espinosa stated the treatment of WOrkers in any function or
capacity as workers for the City needed to be treated with fairness and
payment equality.
Vice Mayor Drekmeier stated the Water Treatment Plant project brought about
concern whether the City needed to provide prevailing wage or not. The lowest
bidder chosen was paying prevailing wage. He noted the importance of fairness
In treatment of employees' payment and benefits.
AMENDMENT: Chair Klshimoto moved, seconded by Council Member XXX to
incorporate parameters of exclusion for maintenance and smaller projects, and
to add a financial threshold where prevailing wage would not apply to a project
below $XXX.
12/09/2008 P&S5
An1endment failed for lack of second.
Mr. Sartor stated staff was prepared to return with exclusionary criteria for
maintenance projects from the prevailing wage requirements.
Chair Kishimoto asked whether the matter should be moved forward without
adequate information or revisited at a later date.
Mr. Keene stated the language could incorporate the exclusion of routine
maintenance contracts.· He noted a more specific concern would be
public/private partnerships.
Chair Kishimoto asked whether the exclusion of· public/private partnerships
would cause any legal matters.
Deputy City Attorney, Amy Bartell stated the current statute reads if a project
was receiving public funds in whole or part it was subject to prevailing wage law
in General law Cities. She noted currently, Palo Alto remained in the Charter
City category, pending the outcome of the City of Vista's court case.
Chair Kishimoto clarified General law Cities were required to pay prevailing
wage when entering into a public/private partnership.
Ms. Bartell stated yes. She clarified the requirement for a Charter City to pay
prevailing wage included the receipt of public funds in any amount.
Mr. Keene stated not to overlook the possibility of a group or non-profit
organization offering to accomplish a capital project that the city may nor have
planned to move forward with and they request a contribution or matching
funds. The question would be how prevailing wage would affect that situation.
Vice Mayor Drekmeier asked whether there was a recommendation ready for
Councilor If the matter would go before Council with further Information from
staff.
Chair Kishimoto stated staff would return to Policy and Services for further
review prior to going to Council.
Council Member Espinosa stated he would prefer staff return to Policy and
Services with information detailed to the concerns coming from this meeting.
He noted a set timeline should be outlined to avoid prolonging unresolved
matters.
12/09/2008 P&S6
Council Member Barton noted the current committee panel would not meet
again.
'VIr. Keene stated with there being a general consensus on the concept of
prevailing wage in regards to capital projects, he suggested the Committee
recommend the full Council review what had been accomplished with the
understanding of staff's return in early February with suggestions for further
resolutions to minor, maintenance, and public/private partnership projects.
Chair Kishimoto asked to have a definition of resource impacts between small
and large projects.
Mr. Sartor stated other Charter Cities have excluded smaller projects such as
roofing and painting contracts. He noted the report currently Includes all
projects as part of the $11.5 million from the Capital General Fund projects.
Chair Kishimoto asked how the $28 million dollars was divided for projects.
Mr. Sartor stated he was unfamiliar with the number of routine maintenance
contracts Utilities had, however the majority of contracts consisted of Capital
Improvement Projects which had prevailing wage, impacts.
Chair Kishimoto clarified that most of the City contract work was on a larger
scale and therefore the contractor's paid prevailing wage.
Mr. Sartor stated yes. For example, Anderson Pacific was a large non-union
underground construction contractor who pay prevailing wage. The
recommended exemptions from prevailing wage requirement would be
maintenance projects and public/private partnership such as Lytton Plaza and
the Art Center.
Chair Kishimoto stated her concern regarding the flexibility and calculation in
the process, of prevailing wage. . '
Council Member Barton suggested forwarding the recommendation as it was
with a parallel recommendation that the C'ommittee was unsure about the
thresholds and that staff would return to Council with recommendations.
Mr. Sartor mentioned living wage and prevailing wage were completely separate
topiCS. He stated he understood the Committees' concern for the wellbeing of
workers, however a living wage was a local jurisdiction and a prevailing wag~
requirement was a state mandate.
12/09/2008 P&S7
Chair Kishimoto suggested requesting the new Mayor extend the current
Committee panel for a one month term therefore allowing staff time to gather
the detailed information needed to complete a recommendation for CouncJl.
Mr. Keene stated he concurred "and stated staff would be prepared to return
with adequate information.
INCORPORATED INTO THE MOTION WITH THE CONSENT OF THE MAKER
AND SECONDER, to request the Mayor allow the current Committee panel to
meet an additional time In January to finalize a recommendation to the City
Council.
COLincii Member Barton withdrew the Motion.
The Committee recommended that the Mayor direct staff to return to the
current Committee panel in late January of 2009 with threshold discussions so
the current Committee could return a recommendation to Council on prevailing
wage requirement.
3. Discussion for Future Meeting Schedules and Agendas-Last meeting-
another in January
ADJOURNMENT: Meeting adjourned at 8:38 p.m.
12/09/2008 P&S8
TO: CITY COUNCIL
ATTACHMENT D
City of Palo Alto
City Manager's Report
ATTN: AD-HOC COMMITTEE ON PREVAILING WAGE
FROM: CITY MANAGER
DATE: MARCH 10,2009
REPORT TYPE: RECOMMENDATlON
DEPARTMENTS: PUBLIC WORKS
UTILITIES
CMR:lSO:09
SUBJECT: Review and Recommendation on Proposed Prevailing Wage Policy for
City Capital Construction Projects
RECOMMENDATION
Staff recommends that the Council Ad-Hoc Committee on Prevailing Wage recommend that the
City Council adopt a Resolution Requiring the Payment of Prevailing Wage on City Capital
Improvement Project Construction Contracts with exemptions for maintenance projects under
$250,000 as defined under Section 220002 of the California Public Contract Code, projects
involving public-private partnerships, projects where the work is perfonned either entirely or
partially by volunteers, and low and moderate income housing projects.
EXECUTIVE SUMMARY
This report responds to the December 9, 2008 discussion by the Council Policy and Services
Committee on prevailing wage issues related to City capital construction contracts. Attachment
B contains minutes of that meeting. At the December 9 meeting, the then Policy and Services
Committee indicated a strong interest in requiring prevailing wage on City capital construction
contracts and directed staff to come back with additional infonnation on possible exemptions to
the proposed Council policy. Discussed in this report are staff recommended exemptions for
maintenartce, public/private partnership, volunteer and low and moderate income housing
projects.
BACKGROUND
As a charter city, Palo Alto is not required to pay prevailing wages on "public works" projects,
so long as the projects are within the realm of "municipal affairs", funded entirely by local funds, .. . . . and no other statutory exceptions apply. This "home rule" principle allows decisions on
expenditure of local funds to be made by locally elected officials. In 1981, Palo Alto passed a
resolution to pay prevailing wage "only when required by federal or state grants and on other
jobs considered to be of statewide concern." (See Attachment A Resolution 5981).
Recently, charter cities' authority to opt out of prevailing wage law has been subject to
challenge. The charter city of Vista, California is .currently defending its decision not to pay
CMR:lS0:09 Page 1 of6
prevailing wages in a lawsuit brought by the State Building and Construction Trades Council.
Further, on February 20, 2008, the Governor signed SB 9EX, noting the ongoing litigation in
Vista and narrowing potential prevailing wage obligations for charter cities involving work on
water, sewer, or stonn drain systems that have previously been extended to disadvantaged
communities.
Amid the recent debate over charter cities' prevailing wage requirements, on December 9, 2008
staff presented to the Council Policy and Services Committee a recommendation that Council not
change current prevailing wage policy, allowing City capital construction ("public works")
projects to be bid without prevailing wage requirements unless prevailing wage is required for
the project pursuant to state or federal law, due to potential cost impacts to the City's General
and Enterprise Fund Capital Improvement Programs (CIPs) (CMR 443:08, Attachment B). The
Committee carefully reviewed this recommendation and decided it was in the best interest of the
City to recommend to the full Council that a resolution be adopted requiring prevailing wage on
all City capital construction contracts. They also instructed staff to recommend types of
construction contracts that could be considered for exemption from a prevailing wage
requirement.
DISCUSSION
Following the December 9, 2009 meeting, staff reviewed four areas that the Council Ad-Hoc
Committee on Prevailing Wage could consider for exemptions to the prevailing wage
requirement it may recommend to the full Council. The possible exemptions reviewed were:
1. Maintenance projects under $250,000 as defined by Section 22002 of the California
Public Contract Code
2. Projects using public-private partnership funding
3. Projects that construct/rehabilitate affordable housing for people with low or moderate
incomes
4. Projects where the work is perfonned either entirely or partially by volunteers
In staff's research on the prevailing wage issue, 48 general law and charter cities responded to a
survey examining the policies of other California municipalities regarding prevailing wage law.
Of the 48 survey respondents, 25 were charter cities that have a prevailing wage policy in place.
As noted, charter cities have a policy choice of paying prevailing wage or not on "public works"
construction contracts, so long as the projects are municipal affairs and no federal or state funds
~ involved. Half of the 25 charter cities responding, that already pay prevailing wage, have
prevailing wage exemptions for maintenance projects. This exemption is applied to smaller
projects where prevailing wage requirements may discourage many contractors from bidding due.
to restrictions on the ability of contractors to move workers from one trade to another or simply
due to the additional administrative costs of producing Certified Payrolls as required by
prevailing wage law.
Exemption for Maintenance Projects
Although as a charter city, Palo Alto is free to craft its own definition of "maintenance" in a
proposed prevailing wage exemption policy, referring to a definition already present in
CMR:lSO:09 Page 2 of6
California law is a helpful starting point. Section 22002 of the California Public Contract Code
defines maintenance as shown:
• Routine, recurring work for the preservation or protection of any publicly owned or
publicly operated facility
• Minor repainting
• Resurfacing of streets at less than 1 inch
• Landscape maintenance including mowing, watering, trimming, pruning, planting,
replacement of plants, and servicing of irrigation and sprinkler systems
• Work performed to keep, operate, and maintain publicly owned water, power, or waste
disposal systems
Since the City's Street Maintenance program receives funding from State Gas Tax and other
State and Federal grant funding, prevailing wage is already required on these projects, and the
proposed maintenance exemption category of resurfacing streets at less than 1 inch would not
apply. For the other maintenance categories defined above, staff recommends that any projects
in these categories that fall under the City's Purchasing Ordinance threshold of $250,000 (the
City Manager has the authority to award "Public Works" construction contracts under $250,000
without Council approval, pursuant to Section 2.30.210(a) of the Palo Alto Municipal Code) be
exempt from any Council adopted prevailing wage policy. This will ensure the City of having the
broadest pool of bidders on these routine maintenance projects, keeping bids competitive and
likely reducing costs for these critical building, parks, and utility system maintenance activities.
Staff has received suggestions that a lower threshold should be considered. The Committee may
wiSh to discuss that.
Exemption for Public-Private Partnerships
Staff also recommends that Council consider an exemption for City projects that are funded
through public-private partnerships. The purpose of offering this exemption is to maximize the
use of private funding in joint projects with the City. , Because many pUblic-private partne~hip
projects are administered by the private entity in the partnership, exempting prevailing wage
requirements from these contracts could make participating in such projects more attractive to
private funders by reducing restrictions on potential contractors and reducing administrative
work for the private entity.
So~e background on public-private partnerships is helpful, as there are several types. A public-
private partnership is an agreement between the City and a nonprofit or private organization to
provide services or to assist in funding' of public facilities and programs. Public-private
partnerships typically fall 'into one of three categories: co-sponsorship, alliances or joint ventures.
Co-Sponsorships: In this common type of public-private partnership, an organization
furthers the mission of the City by supporting a City activity or program in conjunction
with pursuit of that organization's own mission or program. Some examples include the
CMR:lSO:09 Page 3 of6
Palo Alto Tennis Club use of City courts to provide a youth tennis program and
American Youth Soccer Organization's use of space in a City facility to train referees.
Co-sponsorships are entered into by staff and normally have no or minimal financial
impact.
• Alliances: This type of public/private partnership involves organizations that have been
created for the sole putpose of supporting a City program(s). The organization does not
expect to receive any direct financial benefit or to alter City policy and/or operations, but
undertakes to· work cooperatively with staff to implement City goals. Alliance
organizations include the Recreation Foundation, the Art Center Foundation (project
Look or Cultural Kaleidoscope), the Library Foundation and the Friends of the Palo Alto
Library (financial assistance with the renovation and expansion of the Children's
Library). Alliances are approved· by the Council if there are any staffing or budgetary
implications to the partnership.
• Joint Ventures: This type of pUblic-private partnership involves organizations which have
programs or missions independent of the City and involve the City entering into a
contractual relationship with the public or nonprofit organization with both parties
contributing to the partnership for their mutual benefit. Each j oint venture is uniquely
negotiated by the staff and approved by the City Council. Examples of Joint Ventures
include TheatreWorks, Palo Alto Players and West Bay Opera's use of the Community
Theatre and use of the former police station by older adult service provider, Avenidas.
The applicability of an exclusion to the requirement to pay prevailing wages on contracts which
arise out of a public·private partnership will depend on the details and goals each project, the
financial requirements, assets, and capabilities each the party brings to the partnership and how
each contract is structured.
Because the characteristics of each partnership will be unique, the proposed decision to exempt
pUblic-private partnerships from prevailing wage requirements may not be suitable for every
project. For example, if Palo Alto, as a charter city, is involved in a public works project which
would not normally require the payment of prevailing wages, and the City becomes involved in a
public-private partnership, the partnership could trigger prevailing wage requirements if the
funding sources are unclear or the partnership causes the project to become more regional in
nature.
Without fully knowing the details of a future relationship between partners, it will be difficult to
draft exclusionary prevailing wage language broad enough to cover all.potential partnership-
scenarios, and narrow enough to meet the key statutory elements of whether the contract is "paid
for in whole or in part out of public funds", and whether the-project is a "municipal affair." The
application of these legal requirements to the unique facts in each case will be needed to
determine if the City's Prevailing Wage Policy exclusions will apply.
Thus, it would be wise to avoid trying to estabHsh a single all encompassing exclusion on this
point. Instead, staff recommends that the City's proposed prevailing wage policy simply state
that the City's intention is that prevailing wage law will not apply to public·private partnerships.
However, the applicability of the prevailing wage requirement to any public-private partnership
CMR:lSO:09 Page 4 of6
project will be individually evaluated in light of the facts and the applicable legal requirements in
place at the time the partnership is established.
Of course, construction contracts administered by a private entity in any City approved public-
private partnership agreement would still need to comply with City public contract codes
including required bidding procedures, contractor bonding and insur~ce requirements.
Exemption for Work Performed by Volunteers
Although the California Labor Code Section 1720.4 already exempts the payment of prevailing
wages for work performed by volunteers, staft: recommends that the City formally codify this
exemption in its own prevailing wage policy. Recent changes to Labor Code Section 1720.4
(AB' 2537 -signed by the Governor in September 2008 and effective January 1, 2009) extended
the prevailing wage exemption for volunteers, volunteer coordinators, and conservation corps
members who work on public works contracts from January 1, 2009 to January 1, 2012. In
short, the City need not pay prevailing wages for work performed by a volunteer, defined as "an
individual who performs work for civic, charitable, or humanitarian reasons for a public agency
or corporation qualified under Section 501(3Xc) of the Internal Revenue Code as a tax-exempt
organization, without promise, expectation, or receipt of any compensation for work performed."
This exemption applies only to volunteers as defmed in the statute. It does not apply to wages
paid to any paid worker who may also be working along with volunteers on a public works
contract which requires the payment of prevailing wages by a charter city. In cases where the
work under a public works contract is performed by both volunteers and paid workers, the
prevailing wage exemption applies only to the volunteers and to any paid· volunteer
coordinator(s). The exemption does not apply to the paid workers on that same contract.
Exemption for Construction and Rehabilitation of Affordable Housing
Lastly, although the California Labor code already exempts some affordable housing
construction from prevailing wage requirements, staff recommends that Council consider
formally including an exemption for such construction in the proposed prevailing wage policy.
The State· Labor Law on prevailing wage already exempts construction and rehabilitation of
affordable housing for low and moderate income residents provided that the projects:
• are paid for solely with money from a "Low and Moderate Income Housing Fund"
established pursuant to the Health and Safety Code, or
• are paid for by a comb,ination of private funds and funds available from taxation of
redevelopment projects.
In addition, low-income housing projects that are allocated Federal or State low-income housing
tax credits pursuant to the I.R.S Code are not subject to prevailing wage law.
RESOURCE IMPACT
The Adopted 2009 Capital Budget includes about $11.5 million in General Fund projects and
about $28 million in Enterprise Fund projects that are not now or win not require prevaiHng
wage in their construction contracts. The Enterprise Fund projects include those under the
electric, water, gas, wastewater collection, storm drainage and refuse fund programs. Since the
City already pays prevailing wage on projects constructed by the Wastewater Treatment Fund
these would not be impacted by a change in Council policy.
CMR; 1 50;09 Page 5 of 6
Staff estimates that the costs of the 2009 General Fund projects could increase by as much as $1
million and the 2009 Enterprise Fund projects could increase by as much as $2.8 million. These
additional expenditures would be funded by reserves or by reducing the scope of the projects
under consideration and will be presented to Council in the capital budget approval process. The
upcoming Library Bond and Emergency Water Supply projects may see some cost impacts due
to prevailing wage requirements but staff does not believe they would be significant since
contractors bidding large complex projects such as these typically pay prevailing wage anyway.
POLICY IMPLICATIONS .
To require prevailing wage to be paid on City capital construction projects Council would need
to adopt a resolution rescinding resolution 5981 and codifying the new prevailing wage policy
and any exemptions Council chooses to include.
ENVIRONMENTAL REVIEW
The Council Ad-Hoc Committee on Prevailing Wage review of the prevailing wage policy issues
presented in this report does not represent a project under the California Environmental Quality
Act (CEQA), pursuant to Section 21065 of the Public Resources Code, thus, no environmental
review is required.
ATTACHMENTS
Attaclnnent A: Resolution 5981 -Establishing Policy Regarding Prevailing Wage for Public
Projects
Attaclnnent B: Minutes of December 9,2009 Policy and Services Committee meeting
Attaclnnent C: CMR: 443:08 ~ c-'
PREPARED BY: ~ )£,-...... '--
MIK AATOR
Assistant Public Warks Director
Assistant Utilities Director
DEPARTMENT HEADS:
CITY MANAGER APPROVAL:
CMR:lSO:09 Page 6 of6
i !
Attachment A ORJG~NAl
RESOLUTION NO. 5981
RESOLUTION or THE COUNCIL OF THE CITY OF PALO ALTO
£STI\BLISH.ING POLICY REGARDING PREVAILING WAGES FOR
PUBLIC PROJECTS
WHEREAS, in th. r.cent case of Vial v. city of S .. n Die~o (175
Cal.Rtpro 647, July, 1981), the California Court of Appeal determined
that the subject of ·prevailinq vaqes· is a municip .. l affair and that
Charter cities are not subject to the prevailinq wage requirements for
public works Rroject& set forth in the Californi .. Labor Code, and
I
WHEREAS, it is in the City's best interest to obtain the lowest
re.ponsible bid for public projectsf
NOW, T~EREFORB, the Council of the City of Palo Alto does RESOLVE
as follows:
SECTION 1. It is approp~iate to use the Davis-Bacon Act or State
Department ol Industrial Relations Wage Determinations only when re-
quired by federal or state qrants and on other jobS considered to be of
statewide conCern.
SECTION 2. The Council finds that this is not a project under the
california Environmental Quality Act and. therefo-ce, no environmental impact assessment is necessary. .
INTRODUCED AND PASSED: December 14, 1981
A~ES: Bechtel, Eyerly, Pletcher, Henderson, Klein. Levy, Renze1. Witherspoon
NOES: None
ABSTENTIONS: None
ABSENT: Fazzino
ATTn ~
Cl44t!tt ,(;6
APPROVED AV'l'O FOMI
~b·~ C.lty Attorney
APPROVED:
v1~orAt~
Attachment B
POLICY AND SERVICES COMMITTEE
Regular Meeting
December 9, 2008
Chairperson Kishimoto called. the meeting to order at 7:01 p.m. In the Council
Conference Room, 250 Hamilton Avenue, Pal,? Alto, California.
Present: Barton, Drekmeier, Kishimoto (chair), Espinosa,
Absent: None
1. Oral Communications
None.
2. Review and Request for Recommendation on Prevailing Wage Issues
Related to City Capital Construction Proje~
Assistant Public Works Director, Mike Sartor presented a staff research report
related to the prevailing wage issue and City Capital projects. He stated
prevailing wages pertain to Public Works contracts which include Utilities,
Capital Improvement Projects and Public Works General Fund and Enterprise
Fund Projects. He explained that as Palo Alto was a Charter City, it was not
required to pay prevailing wage unless the project involved Federal or State
Grant funding, Gas Tax Funds or other non-local funding sources.
Council Member Barton asked whether the potential for cost increase was at the
bid process or the total at the end of a project. He stated there were bid
numbers and the true cost of a project. He stated he would not be supporting
the recommendation.
Mr. Sartor stated the study was based on the review of completed projects.
12/09/2008 P&Sl
..• <}'Il' 4<
/,q,-..
Vice Mayor Drekmeier asked whether the income levels of prevailing wage were
that of a medium income versus average income.
Mr. Sartor stated the State determined the prevailing wage based on individual
labor categories. For example carpenters In Santa Clara County, the State takes
a look at wages for carpenters throughout the entire County then take fifty
percent of the highest wages being paid and establish that as the prevailing
wage.
Vice Mayor Drekmeier clarified the breakdown of wages was by county.
Mr. Sartor stated yes, by the Department of Industrial Relations.
Vice Mayor Drekmeier asked whether Palo Alto currently had policy on union
wages.
M·r. Sartor stated no.
Vice Mayor Drekmeier asked whether there was a forum to view municipality
rating systems for contractors.
Mr. Sartor stated the purpose of the survey was to verify any quality impact.
Vice Mayor Drekmeier asked how to determine whether a contractor had poor
quality of work.
Mr. Sartor stated reference checks and checking with other municipalities. The
bid process require statements of qualifications and experience of similar types
of projects.
Vice Mayor Drekmeier asked the impact of the economy on the timeline for
moving forward with the prevailing wage.
Mr. Sartor stated direct impact of quality in work were protected by
performance specifications and plans prepared. He stated when a contractors'
performance 'was not adequate the contract could be terminated or the
contractor could be given the opportunity to correct any performance issues.
Vice Mayor Drekmeier asked how frequently the prevailing wage was
recalculated. .
Mr. Sartor stated he had no actual data however, he anticipated an annual
review would be probable.
12/09/2008 P&S2
Vice Mayor Drekmeier asked whether there was data on prevailing wage
contractor's not bidding in Palo Alto because of the possibility of low-balling by
non-prevailing wage entities.
Mr. Sartor stated in his research the non-prevailing wage contracts attracted
more bidders than prevailing wage contracts.
Council Member Espinosa asked how employees being treated or paid fairly was
factored in to the calculations of whether to recommend prevailing wage or not
to. .
Mr. Sartor stated staff's primary consideration was fiscal. He stated an expected
Increase In cost of up to ten percent would occur during smaller and or
malntenance.type projects. Research revealed on major projects the contractor
usually paid prevailing wage already.
Mr. Keene stated if the adoption of prevailing wages did increase costs the
question to Council would be what the consequence would be in absorbing the
costs.
Council Member Espinosa stated his agreement. The City as a whole needed to
weigh the two challenges between increase in cost to a project versus ensuring
fairness and fair payment for employees working on projects.
Mr. Keene stated the basis of the decision being requested was not quality
against cost but an overall combination of reaching a higher level of them
together.
Council' Member Barton asked for a comparison of both prevailing wage and
non-prevailing wage bidders against projects in Palo Alto for 2007 and 2008.
Chair Kishimoto asked whether the increase in cost' of going with prevailing
wage was transferred to the worker or administrative fees.
Mr. Sartor stated the study being viewed was a study compiled by the State of
.Kentucky of contractors in their region.
Chair Kishimoto stated it appeared the higher cost of the project went to more
administrc;ttive fees which was against the object .of going forward with
prevailing wage. She stated her process was for the higher cost to translate to
better wages for the worker.
12109/2008 P&S3
Mr. Sartor stated the administrative costs were incurred by the owner.
Chair Klshimoto asked whether the employees' benefits and healthcare were
included in the cost.
Mr. Sartor stated no. He stated the benefits and healthcare costs were included
in the rates. For example a thirty dollar per hour job would cost forty-five
dollars.
Chair Kishimoto asked whether the ra~es changed by skill level or category.
Mr. Sartor stated the rates tended to be geared towards the level of skill for the
perSon In a particular category.
Chair Kishimoto asked how flexible the categories were as in filling-in. If person
A from category one was out could person A from category two fill-in or was it
job specific.
Mr. Sartor stated his understanding was there was no cross trading without
experience.
Council Member Espinosa asked how quality and safety played a role to·gether.
Mr. Sartor stated there were standard quality controls and safety measures in
place and monitored by the contractor In charge of the project. The inspector's
checks ensure appropriate operators for the specific duties on each project.
Nicole Goehering, 4577 Las Rositas Rd, Unit C, Livermore, spoke of flexibility
under prevailing wage work. She stated within Palo Alto the flexibility of metal
roofing could be covered by sheet metal workers or roofers and underground
utility work could be covered by utilities or laborers.
Kevin Dayton, 4577 Las Rosftas Rd, Unite, Livermore, spoke of the increase in
cost not necessarily coming from the prevailing wage but the specifics of how
prevailing wage was determined by the state.
Nell Struthers, 2102 Almaden Road, San Jose, spoke of how qualification
implied quality. He stated the more experienced worker would turn out a better
and quicker product than one of less skill. The hourly wage does not determine
the quality. He noted statistical data on percentages of prevailing wage versus
non-prevailing wage bids in Palo Alto.
12/09/2008 P&S4
Peter Philips, Economi'cs Department, University of Utah, Salt Lake City, stated
the staff report data was built on impressions .from first principles rather than
natural experiments or empirical observations. He stated there was' no
statistically significant difference in the number of bidders on Palo Alto jobs'
compared to the four surrounding cities. In the sample examined, there were
140 projects, 19 of which were in Palo Alto with 450 bidders. He continued to
, speak of the study he provided.
Council Member Barton stated one of the supporting factors for the prevailing
wage rule was the majority of the workers had come up though some sort of
union training program. The people would be well trained in their trade, have
quality standards and efficient. He stated Council had an obligation to be
morally efficient in the expenditure of public dollars.
MOTION: Council Member Barton moved, seconded by Council Member
Espinosa, that the Committee make a recommendation to the Council to impose
a pr~vailing wage requirement for all City Capital Projects.
Mr. Keen asked for clarification as to the relativity to City Capital Construction
Projects.
Council Member Barton stated yes.
Chair KishimQto asked whether the Motion covered all capital projects.
Council Member Barton stated in the beginning to incorporate them all and at a
lat~r date discussions could be brought forward as to the necessity of each
project.
Council Member Espinosa stated the treatment of workers in any function or
capacity as workers for t~e City needed to be treated with fairness and
payment equality.
Vice Mayor Drekmeier stated the Water Treatment Plant project brought about
conc~rn whether the City needed to provide prevailing wage or not. The lowest
bidder chosen was paying prevailing wage. He noted the importance of fairness
in treatment 'of employees' payment and benefits.
AMENDMENT: Chair Kishimoto moved, seconded by Council Member XXX to
incorporate parameters of exclusion for maintenance and smaller projects, and
to add a financial threshold where prevailing wage would not apply to a project
below $XXX.
12109/2008 P&S5
Amendment failed for lack of second.
Mr. Sartor stated staff was prepared to return with exclusionary criteria for
maintenance projects from the prevailing wage requirements.
Chair Kishimoto asked whether the matter should be moved forward without
adequate information or revisited at a later date.
M'r. Keene stated the language could incorporate the exclusion of routine
maintenance contracts. He noted a more specific concern would be
pu bUc/private pa rtnerships.
Chai'r Kishlmoto asked whether the exclusion of public/private partnerships
would cause any legal matters.
Deputy City Attorney, Amy Bartell stated the current statute reads if a project
was receiving public funds in whole or part It was subject to prevailing wage law
in General Law Cities. She noted currently, Palo Alto remained In the Charter
City category, pending the outcome of the City of Vista's court case.
Chair Kfshimoto clarified General Law Cities were required to pay prevailing
wage when entering into a public/private partnership.
Ms. Bartell stated yes. She clarified the requirement for a Charter City to pay
prevailing wage included the receipt of public funds in any amount.
Mr. Keene stated not to overlo,ok the possibility of a group or non-profit
organization offering to accomplish a capital project that the city may nor have
planned to move forward with and they request a contribution or matching
funds. The question would be how prevailing wage would affect that situation.
Vice Mayor Drekmeler asked whether there was a recommendation ready for
Council or if the matter would go before Council with further Information from
staff.
Chair Kishimoto stated staff would return to Policy and Services for further
review prior to ~olng to Council.
Council' Member Espinosa stated he would prefer staff return to Policy and
Services with information detailed to the concerns coming from this meeting.
He noted a set timeline should be outlined to avoid prolonging unresolved
matters.
12/09/2008 P&S'6
Council Member Barton noted the current committee panel would not meet
again. .
Mr. Keene stated with there being a general consensus on the concept of
prevailing wage in regards to capital projects, he suggested the Committee
recommend the fu II Cou ncll review what had been accomplished with the
understanding of staff's return in early February with suggestions for further
resolutions to minor, maintenance, and public/private partnership projects.
Chair Kishimoto asked to have a definition of resource impacts between small
and large projects.
Mr. Sartor stated other Charter Cities have excluded smaller projects such as
roofing and painting contracts. He· noted the report currently includes all
projects as part of the $11.5 million from the Capital General Fund projects.
Chair Kishimoto asked how the $28 million dollars was divided for projects.
Mr. Sartor stated he was unfamiliar with the number of routine maintenance
contracts Utilities had, however the majority of contracts consisted of Capital
Improvement Projects which had prevailing wage impacts.
Chair Kishimoto clarified that most of the City contract work was on a larger
scale and therefore the contractor's paid prevailing wage.
Mr. Sartor stated yes. For example, Anderson Pacific was a large non-union
underground construction contractor who pay prevailing wage. The
recommended exemptions from prevailing wage requirement would be
maintenance projects and public/private partnership such as Lytton Plaza and
the Art Center.
Chair Kishimoto stated her concern regarding the flexibility and calculation in
the process of prevailing wage.
Council Member Barton suggested forwarding the recommendation as it was
with a parallel recommendation that the C·ommittee was unsure about the
thresholds and that staff would return to Council with recommendations.
Mr. Sartor mentioned living wage and prevailing wage were completely separate
topics. He stated he understood the Committees' concern for the wellbeing of
workers, however a living wage was a local jurisdiction and a prevailing wage
requirement was a state mandate. . .
12/09/2008 P&S7
;'"1': C" il:N'~
Chair Kishimoto suggested requesting the new Mayor extend the current
Committee panel for a one month term therefore allowing staff time to gather
the detailed information needed to complete a recommendation for Council.
Mr. Keene stated he concurred 'and stated staff would be prepared to return
with adequate information.
INCORPORATED INTO THE MOTION WITH THE CONSENT OFTHE MAKER
AND SECONDER, to requ,est the Mayor allow the current Committee panel to
meet an additional time in January to finalize a recommendation to the City
COLincii.
Council Member Barton withdrew the Motion.
The Committee recommended that the Mayor direct staff to return to the
current Committee panel in late January of 2009 with threshold discussions so
the current Committee could return a recommendation to Council on prevailing
wage requirement.
3. Discussion for Future Meeting Schedules and Agendas-Last meeting-
another in January
ADJQURNMENT: Meeting adjourned at 8:38 p.m.
12/09/2008 P&S8
TO:
ATTN:
FROM:
DATE:
CITY COUNCIL
A TIc. 'OJJ ............ "" ..
City of Palo Alto
City Manager's Report
POLICY AND SERVICES COMMITTEE
CITY MANAGER
DECEMBER 9, 2008
DEPARTMENTS: PUBLIC'WORKS
UTILITIES
CMR: 443:08
REPORT TYPE: RECOMMENDATION
SUBJECT: Review and Request for Recommendation on Prevailing Wage Issues
ReJated to City Capital Construction Projects
RECOMMENDATION
Staff recommends the Council Policy and Services Committee recommend that Council nbt
change current prevailing wage policy, allowing City "public works» projects be bid without
prevailing wage requirements unless prevailing wage is required for the project pursuant to state
law, due to potential cost impacts to the City's General and Enterprise Fund Capital
Improvement Programs (CIPs).
EXECUTIVE SUMMARY
At City Council's request, staff reviewed many of the issues surrounding prevailing wage rates
and summarized the findings below. Staff recommends, due to potential cost impacts to the
General and Enterprise Fund Capital Improvement Progrruhs (CIPs), Council not change the
City's current prevailing wage policy. This recommendation is made primarily due to the costs
needed to address the current General and Enterprise Fund infrastructure program backlog and
the additional cost of funding 'a new Public Safety Building' and a new Library and Comrm,mity
Center at Mitchell Park and Library improvements at Main and Downtown Libraries as a result
of recent passage of Measure N. Any further increase in costs will impact the City's ability
rehabilitate existing infrastructure, much of which is already well past its life expectancy and in a
deteriorated condition. hi addition, a prevailing wage requirement coUId also apply to the many
private/public partnerships the City is involved in such as Lytton Plaza, Art Center and possibly
the Junior Museum ~d Zoo. The California Court of Appeal is currently hearing an appeal in
the City of Vista case, where the City of Vista, a charter city like Palo Alto, is defending its'
choice not to pay prevailing wage on its locally funded "public works" projects.
BACKGROUND
On September 17, 2007, City Council approved a contract with Anderson Pacific for a Water
Quality Control Plant (WQCP) pump station upgrade related to the reclaimed wat~r pipeline
project running from the WQCP to Mountain View (€MR:364:07). Council approved the
contract contingent on the contractor assuring the City they would pay their employees
prevaifing wage on the project. In a related motion Council directed staff to bring the prevailing
CMR:443:08 Page 1 of8
: ,,~ ," , .,"
wage discussion to the Council Policy and Services Committee (see Attachment B, minutes of
September.} 7, 2007 Council meeting).
What are Prevailing Wage Rates?
The intended purpose of prevailing wage law is to ensure that public construction projects do not .
lower local wages by allowing contractors to pay wages below the local standard. In 1931,
Congress passed the Davis-Bacon Act, which mandated the payment of prevailing wages on all
construction projects that receive more than $2,000 of Federal 'funds -an amount that has
remained unchanged today. In subsequent years, especially during the Great Depression, many
states and localities passed similar prevailing wage laws~ Most states, including California, now
have such laws.
Prevailing wages are determined in many different ways across the country. The Federal and
California Prevailing Wage calculations are similar because if more than 50% of the workers
make the same wage this becomes the prevailing wage for the trade. They differ in the
calculation when less than ,50% of the workers have the same wage. . The Federal Law
determines the prevailing wage by averaging all the wages, whereas in California the most
common wage occurring becomes the prevailing wage. California's calculation method usually
results in a sJightly higher wage than the Federal calc~lation method. .
Californi!l passed its prevailing wage law in 1931, the same year the federal Davis-Bacon Act
was passed. California Labor Code § 1771 requires that any "public works" project that receives
more than $1,000 in state funding pay prevailing wages. The Labor Code defines "public
works" to include construction, alteration, most demolition, installation or repair work done
under contract and paid for in whole or part out of public funds. All capital improvement
projects done by the City, including those managed by the Community Services, Utilities or the
Public Works Departments are considered "public works" under this law. Although California's
prevailing wage law applies to all of California's "general law" cities, charter cities are permitted
to elect whether to pay prevailhig wage on locally funded public works projects that qualify as
municipal affairs.
DISCUSSION
Prevailing Wages in Charter Cities
The California Labor Code requires that public agencies pay prevailing wages, as determined by
the California Department of Industrial Relations, on most public works projects. As a charter
city, Palo Alto is not required to pay prevailing wage rates on "public works" projects, so long as
the projects are within the reahn of "municipal affairs," are funded entirely by. local funds, and
no other statutory exceptions apply. This "home rule" principle, grounded in the California
Constitution, allows decisions on expenditure of local funds. to be made by locally elected
officials. Utilities Enterprise Fund projects are often deemed to be "public works" projects in
this context.
Since no precise definition of what constitutes a "municipal affair" has been judicially settled,
courts consider the issue on a case by case basis. The expenditure of city funds on local projects
and the rates of pay of the workers the City hires to carry out such projects has been held to be a
municipal affair. In 1981, Palo Also passed a resolution to pay prevailing wage "only when
required by federal or states grants and on other jobs considered to be of statewide concern."
(See Attachment A: Resolution 5981).
CMR:443:08 Page 2 of8
Recently, courts have blurred the issue of whether a charter city may elect not to pay prevailing
wage. For example, in 2004, the California Supreme Court in City 0/ Long Beach v. DIR,
declined to decide whether prevailing wage law is such a matter of statewide concern that it
should override the ability of charter cities to conduct their municipal affairs. Since then, labor
unions have mounted a statewide' campaign to overtwn existing law and declare prevailing wage
a matter of state concern. The charter city of Vista is currently defending its choice not to pay
prevailing wages in a lawsuit brought by the State Building 'and Construction Trades Council.
Although the trial court reluctantly ruled in favor of Vista in December 2007, the case is pending
on appeal. A detailed summary of the case is included in this report's discussion below.
These recent judicial, developments led the City Attorney to recommend that Palo Alto pay
prevailing wages on regional projects that transcend the city's geographic boundaries, even if
these projects could be considered municipal affairs. Capital improvement projects related to the
City's Water Quality Control Plant (WQCP) fall into this category. Some Charter Cities have
created special categories where they do not pay prevailing wages on low~income housing and
maintenance type projects, but do pay prevailing wage on construction projects. To date, Palo
Alto has not made this distinction.
Summary of Staff Research
Staff found that there is considerable disagreement on the impacts of prevailing wage rates on
project quality found in studies cited by the union groups and builder trade groups. Studies by
government agencies, however, concluded that paying prevailing wage rates do not significantly
change the quality of construction on most projects.
In a survey of contractors, it was reported that requiring the payment of prevailing wage rates
could reduce the quantity of bidders on projects by about 20% percent. Most contractors that are
not paying prevailing wages, which make up about 50% of the contractors responding to the
survey, will bid prevailing wage contracts. In the majority of cases, the makeup of their
workforce does not change to accommodate prevailing wage requirements.
In its surveys of both contractors and other cities, staff found that 'implementing prevailing wage
rates in construction contracts may increase construction costs on City capital improvement
contracts by up to 10%. This increase would also affect projects involving private/public
partnerships.
The following sections present a summary of the studies related to prevailing wage reviewed by
staff and the results of surveys of other cities and contractors. The pending City of Vista case
related to the charter city exemption from prevailing wage is also discussed below.
Studies on the Effects of Prevailing Wage
A number of academic and government studies have examined the, costs and heilefits of
prevailing wage. Generally, these studies fall into three different camps:
. )
Pro-prevailing wages studies, issued by University~level academics, and construction
trade organizations.
Anti~prevailing wage studies, issued by University~level academics, and various policy
institutes.
Government studies, issued by the States of Ohio and Kentucky legislative commissions.
CMR:443:08 Page 3 of8
Staff reviewed seventeen such studies, both pro-prevailing wage and anti-prevailing wage, and
studies prepared by goverrunent organizations. Summaries of these studies are included in the
attached memorandum dated ~ebruary 15,2008 (Attachment C).
Studies by government organizations provide some of the most interesting insight into the issue
. of prevailing wage. These studies should, in theory, have no agenda beyond uncovering what is
in the best interest of taxpayers. All of the studies examined indicated that prevailing wage laws
do not save money. Some studies did, however, equivocate about whether the benefits of
prevailing wage -once other unquantifiable factors were taken into account -may be higher
than the costs.
The two most-referenced government studies are both studies conducted by state legislative
research offices, in Kentucky and Ohio. In Ohio, its Legislative ServiCe Conunission .issued a
study analyzing the effect of a 1997 bill that exempted school districts from being forced to
require prevailing wage. The study, which asked contractors for bids under and ·not under
prevailing wage conditions, found that repeal did save money -especially on smaller projects.
It asserts that the exemption yielded 1.2 percent in total cost savings in new construction, 10.7
percent savings on building alteration projects and 19.9 percent savings on building additions.
This conclusion seems to strongly support the notion that the smaller projects have greater
savings when prevailing wages are not required.
Furthermore, the study suryeyed school districts to discover if they had noticed any decrease in
the quality of construction. Six percent of respondents said that they had noticed higher quality
construction since the exemption, 91 percent noted no change and 3 percent said quality had
decreased.
In one very unique case, the survey discovered that one school district had put a project out to
bid under prevailing wage conditions and then rebid the projtct without such requirements. The
winning bidder in the second case, without prevailing wage, was 5.8 percent lower, yielding a
. cost savings of more than $500,000.
In Kentucky, the legislature also ordered its research arm .to study the issue of prevailing wage.
The study made a notable number of findings, including learning that 60 percent .of workers
surveyed were paid more on prevailing wage jobs than on market-rate jobs;. the average increase
for prevailing wages was 24 percent over the workers' market rates. Among the 141-page
report's other findings were:
• .90.7 percent of non-union and 24.4 of union contractors said prevailing wage laws raise
construction costs.
• 55.4 percent of small firms (10 or fewer employees) said prevailing wage laws have a
negative effect on their business, compared to 73 p~rcent of large firms.
• 95.7 percent of citi.es and 83.3 percent .of municipal utilities that responded believe
prevailing wage laws increase construction costs, while, respectively, 7 and zero percent
believe laws increase quality.
• More cities believed prevailing wage legislation decreases -not nlcreases -quality of
construction.
It is worth noting that the report did not call for the abolishment of prevailing ·wages in
Kentucky. The report did not take an opinion on the issue. Its main overall conclusion on the
effectiveness of the legislation, however, is as follows:
CMR:443:08 Page 4 ofS
To the extent that quality is increased, prevailing wages are an inefficient method
to increase quality. The wage requirement results in contractors paying higher
wages with no guara.,ntee that these additional wages will result in quality
improvements.
Aside from the Kentucky and Ohio reports, there are a number of smaller government reports on
the topic. The Federal Congressional Budget Office (CBO) and General Accounting Office
(GAO) have both issued reports on prevailing wage, with the GAO asserting that repealing the'
Davis-Bacon Act would save $1.2 billion annually. The CBO study, written during the early
1980's, was likely the impetus that caused the Reagan Administration to change the definition of
prevailing wage to the wage earned by 50 -as opposed to 30 -percent of local wage earners. It
found that repeal of Davis-Bacon would save $13 billion (2007 dollars),over five years and that
some 20 percent of open shop contractors have no interest in bidding on prevailing wage
contracts. It also recommended raising the threshold at which the prev~iling law is triggered, as
the $2,000 trigger'was set in 1931 and has never been increased.
The fmal government study of note is another state legislative study -Maryland in this case -
conducted in 1997. Maryland's Department of Fiscal Services, which issued the study, asserted
that repeal of the prevailing wage law then on Maryland's books would save the state between 5
and 15 percent on public works construction.
Survey of California Cities
To further examine the policies of other California municipalities regarding prevailing wage law,
staff surveyed dozens of other cities on the topic. The survey was sent out to all members of the
Association of Bay Area Governments, as well as to all Charter Cities that had email addresses
available. Forty-eight municipalities responded to the survey. Usually, the respondents were
public works officials, though a few' city managers replied as well. A short summary of the
findings follows and the more detailed results are included in' Attachment C.
4D 42 of 48 cities surveyed pay prevailing wage rates.
4D 26 out of 32 Charter Cities pay prevailing wage rates.
• Based on the survey results, staff estimates that paying prevailing wages may increase
construction costs i_n the range of 5% to 10%.
• A large majority of the respondep.ts believe that paying prevailing wages does not
increase quality of the work.
• Most believed that requiring prevailing wages decreases the number of bidders on
projects.
• Some cities have exceptions to paying prevailing wages for certain types of contracts.
The responding cities were also asked tQ provide comments on the positive and negative effects
of paying prevailing wages. These are sum.ritarized below:
Positive Effects
•. Supportive of labor
• Evens the playing field
• Assures that workers are being treated and paid fairly
• Higher wages allow people to live closer to work
• More professional bidding pool
CMR:443:08 Page 5 of8
e Higher·quality work
Negative Effects
• Higher costs
• Fewer projects can be built
• Need for extra staffing and paperwork for compliance monitoring
• Smaller pool of bidders
Survey of Contractors
The Stafr s research on prevailing wage did provide a number of insights into the views of
construction contractors on the topic of prevailing wage legislation. In addition, staff conducted
a survey of contractors bidding work in Palo Alto to best judge the impact a change in Palo
Alto's prevailing wage policy would have on construction projects in Palo Alto.
A summary of the survey results follows:
• Approximately 50 % of the ~ontractors responding pay prevailing wages on all contracts.
• Most contractors that do not typically pay prevailing wage rates will bid prevailing wage
contracts.
• 70% of the contractors not paying prevailing wage rates use the same labor force when
bidding prevailing wage contracts.
• The average of the estimated increase to construction costs associated with paying
prevailing wage rates was approximately 8% according to the contractors responding to
the survey. .
City of Vista Court Case
As discussed previously, the Charter City of Vista is currently defending its decision not
to pay prevailing wages in a lawsuit brought by the State. Building· and Construction Trades
Council. The outcome of this case will be very important, as it could detennine whether charter
citie~ can continue to exercise their ability to locally determine whether to pay prevailing wages
on local projects. Some background on the case is illustrative.
In June 2007, Vista became a Charter City. Before the election, the City prepared a fact
sheet discussing common questions regarding the Charter City proposition, including questions
and answers regarding the potential tax savings on local public works projects should the. City
chose to forego prevailing wages on municipal projects. 67% of Vista voters approved the
decision to become a Charter City. Vista plans on completing about $100 million in public
improvements in the near future; projects which would traditionally be considered within the.
realm of "municipal affairs" and paid from local revenues.
The State Building and Construction Trades Council of California, a labor union,
challenged Vista's assertion that it was exempt from prevailing wage law, arguing that the
prevailing wage statute is of statewide concern. Although the trial court reluctantly found in
favor of. Vista, in issuing his ruling, the Superior Court judge stated that were he not bound by a
preceding case, Vial v. City of San Diego, he would have been inclined to grant the union's
petition. The Vial decision stated that prevailing wage law does not apply to public works
projects of a chartered city, "as long as the projects in question are within the· realm of
'municipal affairs. '"
CMR.:443:08 Page6of8
The judge in Vista, however, contended that instead of focusing on the :Qroject, a more
appropriate analysis would involve whether the prevailing wage statute is a matter of statewide
concern. Had the court not been obligated to follow Vial, the court acknowledged that it would
have found that the prevailing wage law is a matter of statewide concern and that Vista was
therefore bound to follow the law in relation to its pending public works projects.
The petitioner's appeal is currently pending before the California Court of Appeal and
oral argument was heard on Friday, November 14,2008. A decision is expected in the next two
months. Should the court frame the question as suggested by the superior court, and ask whether
the prevailing wage statute is a "statewide concern," it is possible that the Court will answer that
question affirmatively, thereby overruling or limiting the Vial decision. The California
Legislature has previously declared that the prevailing wage statute addresses two important
statewide concerns: (1) it prevents public projects from driving down area labor standards and
(2) it ensures training opportunities for apprentice construction workers. Even if Vista wins on
appeal, observers expect this case will eventually be appealed to the California Supreme Court.
A California Supreme Court decision would not be expected on this case for at least another
year. The City Attorney's Office will keep Council informed on the status of this case.
RESOURCE IMPACT
The Adopted 2009 Capital Budget includes about $11.5 million in General Fund projects and
about $28 million in Enterprise Fund projects that are not now or will not require prevailing
wage in their construction contracts. The Enterprise Fund projects include those under the
electric, water, gas, wastewater collection, storm drainage and refuse fund programs. Projects
constructed by the Wastewater Treatment Fund already require prevailing wage as discussed
. above and would not be impacted by a change in Council policy. If staff research proves correct,
the costs of the 2009 General Fund projects could increase by as much as $1 million and the
2009 Enterprise Fund projects could increase by as much as $2.8 million if Council were to
adopt a policy requiring prevailing wage rates be paid on all capital construction projects
contracted by the City. It also should be noted that any private/public partnership agreements
entered into by the City for capital construction would also require payment of prevailing wage
rates on these construction projects (e.g. Art Center, Lytton Plaza, Junior Mu~eum and Zoo).
POLICY IMPLICATIONS
The recommendation does not change existing policy. If Council were to change policy and
require prevailing wage be paid on all City capital construction projects, Council would need to
adopt an ordinance codifying such a requirement.
ENVIRONMENTAL REVIEW
Policy and Services Committee review of the prevailing wage policy issues presented in this
report does not represent a project under the California Environmental Quality Act (CEQA),
pursuant to Section 21065 of the Public Resources Code.
CMR:443:08 Page 7 of8
ATTACHMENTS
Attachment A: City of Palo Alto Resolution 5981
Attachment B: Minutes 6fS~ptember17, 2007 City Council meeting
Attachment C: Prevailing Wage Rate Issues Memorandum of February 15,2008
PREPARED BY:
DEPARTMENT HEADS:
CITY MANAGER APPROVAL:
CMR.:443:08
Assistant Utilities Director
~~.
GLENN ROBERTS
Director of Public Works
JAM ENE
Ci~ ager
~--....... /
Page 8 of8
ATTACHMENTE
CITY OF PALO ALTO
City Council Ad Hoc Committee on Prevailing Wages
Special Meeting
Tuesday, March 10,2009
The meeting of the City Council Ad Hoc Committee on Prevailing Wages was called to
order at 6:01 p.m.
Present: Barton, Drekmeier, Espinosa
Absent: Kishimoto
1. Oral Communications
None
2. Review and Recommendation on Proposed Prevailing Wage Policy for
City Capital Construction Projects.
City Attorney, Gary Baum reviewed the City's Prevailing Wage policy.
Assistant Public Works Director Mike Sartor reviewed the PowerPoint presentation in
follow-up of the December 9, 2008 meeting. His presentation included a summary of
that meeting,the Prevailing Wage exemptions and Staff's recommendations.
Neil Struthers, 2102 Almaden Road, San Jose, thanked Staff for incorporating
information from meetings held prior. He questioned why $250,000 was listed as a
threshold for the prevailing wage. He stressed more thought should be given to the
pUblic-private partnership aspects of the policy. He spoke regarding affordable housing
and requested further research be completed on Staff's recommendation and how the
policy affected the General Fund.
Lindsay Byers, 4577 Las Positas Blvd., Livermore, Associated Builders and Contractors
Union, in representation of non-union members, stated they would continue to work in
the City of Palo Alto whether or not prevailing wage was opposed. She gave an
overview of prevailing wage calculations and the wide variety of areas that the wages
cover beyond employee compensation.· She suggested raising maintenance project. wage
thresholds to allow smaller community businesses to remain competitive with regional
and statewide contractors.
Aletha Coleman, 296 Bay Road, Atherton, from the Palo Alto Friends of the Junior
Museum and Zoo spoke in support of Staff's recommendations from a public-private
partnership viewpoint
Molly McAuliffe, 1554 Cowper Street, from the Palo Alto Friends of the Junior Museum
and Zoo spoke in support of Staffs recommendations.
Council Member Barton stated it was his understanding that the $250,000 threshold was
consistent with what the City Manager brought forth to Council for authorization and
approval.
Mr~ Sartor stated that was correct.
Council Member Barton asked how many projects fit within this $250,000 threshold per
year.
Mike Sartor stated the amount pertained to Capital Improvement Projects (CIP) and
maintenance type projects, with several projects projected for .the year within that
threshold. He gave the example of parks and maintenance type projects.
Council Member Barton stated maintenance was defined under California Code and State
Law exemptions .
. Mr. Sartor stated many maintenance projects exceed the threshold. He gave the example
of the Utility Department's gas main replacement project, which was considered a
maintenance project and routine work and repair of an existing system. He stated Staff is
mindful that larger projects should be included, but they did not want to restrict the
smaller maintenance-type projects.
Council Member Espinosa stated Staff's current report was concise and covered all the
options available. He asked for further clarification on the different dollar points
($50,000, $100,000 to $250,000 and above). He asked for further information on the
scale and scope of projects within each threshold.
Mr. Sartor stated there were $10-12 million contracts each year in the CIP. Smaller
projects made up less than one million, or 10 percent, of the total for projects. Most of
the CIPs greater than $250,000 are major projects. The types of small range projects
included annual roofmg, interior finishing and landscaping contracts for buildings and
pl;U'ks. The total value of maintenance-type projects was likely less than one-tenth of the
overall CIP.
Assistant Director of Utilities, Tom Marshall stated there were t:Iot a lot of contracts in the
under $250,000 range. Projects that fell into this range included annual Roto-Rooter
service contracts for sewer mainteqance, as one example.
City Manager, James Keene reviewed various projects from the 2008-09 Adopted Budget
for CIP. He listed projects that fit underneath the $250,000 threshold which included the
Bayland Athletic Center's fencing, dugout and trailhead park projects as one example.
He listed several other projects of the same caliber.
Council Member Espinosa asked how each specific project was cast as a recipient of
these budgeted amounts within the CIP budgeting. He stressed they were making the
effort to create a policy around what these projects were exactly.
Mr. Sartor gave an overview of what projects are considered as maintenance projects.
Maintenance projects specifically include such items as annual roofing projects or
interior projects such as carpeting. and painting. Park trail projects were also included
within this realm. He stated many of these projects were already defmed in the Public
Contract Code as Maintenance projects and separate from the Public Work projects. He
stated these types of contracts typically attract the smaller contractors.
Mr. Keene stated one of the goals is to spread the work around, from these smaller
projects, to smaller contractors that might not otherwise be considered. He stated this
brought with it social equity value. He asked what the results were in areas where there
were no prevailing wage policies.
Mr. Sartor stated when compared to what other cities are doing, a broader range of bids
come through with smaller contractors when prevailing wage policies did not exist.
Council Member Espinosa stated this was an area where he felt he did not have sufficient
data with which to form a decision.
Council Member Barton asked whether Staff might consider modifica~ion of the public~
private partnership funding exemptions to the point at which the private-partner became
the managing partner. He understood that there could be bookkeeping issues and
volunteers may not be able to do this. He stated ·that public funds should be spent in
ways that cover external costs associated with living in this area.
Mr. Keene stated the goal was to move projects forward and keeping costs to a minimum.
In some cases, when volunteers took the lead on a project, they were not considered
under the prevailing wage guidelines.
Council Member Barton stated the assumption was that prevailing wages drove up the
costs for a project. He was not of this mind. When you build in externalities it is better
all around. He doesn't want to go down the road ofimplied incentives.
Mr. Keene stressed taking a look at future emerging public~private partnerships where
there may be a situation wherein the City may want the lead on the project. He noted
civil liability issues came into play in this case.
Council Member Espinosa hoped for clarity around defming the public-private
partnership aspects of this proposed policy. He agreed with the policy in concept but was
wotTied about these public-private partnerships working against the policy. He stated he
felt that clarity was needed on this policy as it pertains to public-private partnerships.
Mr. Baum stated there were different standards in the public-private partnership where
the private party is the majority contributor but is not the managing partner.
Council Member Espinosa stressed there were instances where further clarity was
necessary when private parties were donating money for these projects within the
confines of the proposed policy.
Mr. Keene pointed the Committee towards Page 4 of the Staff report on regarding
exemptions and exclusions. He gave examples and applications of what was proposed on
Page 4 of the proposed poJicy.
Council Member Espinosa stated this was a good start. He hoped for more clarity on the
criteria and an outline of this prior to taking it to Council.
Mr. Baum stated under the Committee's general direction this was adequate for them to
forward on to Council. The presumption of paying prevailing wage in public-private
partnerships and if not then under what circumstances.
Council Member Espinosa stressed the needs for more specifics.
Mr. Baum stated ironing out:the specifics may require another meeting.
Council Member Barton suggested deleting the complicated language on Federal Tax
Credits on Page 5 of the proposed policy.
Council Member Espinosa asked for clarification on what he specifically wanted
excluded.
Council Member Barton wished to delete bullet point 3, on Page 2, which refers to
affordable hous4ig projects.
Council Member Espinosa stated it was included at this point more for clarity than policy
based on infonnation Mr. Sartor and Mr. Baum gave in address to this point.
Council Member Barton stated' if the inclusion was for clarity's sake, it should be worded
to include affordable housing projects that would otherwise be exempt.
Mr. Sartor stated the extent of the exemption was an attempt to clarify and specifically
note the other two bulleted items.
Council Member Barton stated this did not matter in either direction and was merely
semantics.
Mayor Drekmeier asked for further clarification on the prevailing wage. He asked what
causes fluctuations in the prevailing wage .
. Mr. Sartor stated fluctuations were tied to union bargaining agreements and labor rates.
He was not familiar with any recent bargaining agreements which cut these wages and
rates.
Mayor Drekmeier asked if they went with prevailing wage, would the prevailing wage go
up a notch with the addition of their City coming on board.
Mr. Sartor stated it would not go up. The wages are set by the County and State.
Council Member Espinosa asked if there was a way to move forward but also get clarity
on how decisions were made and what the different dollar amounts meant with regard to
the number of projects.
Mr. Sartor stated in projects less than $250,000, prior Council was comfortable in
providing the City Manager with the authority to award those types of contracts.
Council Member Espinosa stated the issue was not ,about the dollar amount of the
contracts but the kind of contracts we are setting up in tenns of whether we would have
more bids, different kinds of companies, workers doing different levels of work. The
decision making would be based on the types of contracts, companies, skill levels of
employees and that would drive prevailing wage
Mr. Sartor stated the difference remained in what was considered a maintenance versus
construction project in that maintenance projects were of a recurring nature on existing
structures. He stressed these projects were typically significantly smaller in scope. He
stated they were not suggesting that a new building project under $250,000 would be
exempt. A new building project would still require prevailing wage parameters.
Mr. Keene stated moving forward meant getting something on the Consent Calendar and .
then they could return with more definitive data. '
Council Member Espinosa stated it was important to understand who these companies
are, and understand why the dollar amount is what it is for these smaller projects.
Mr. Keene stated ,the dollar amount was not at issue. They were not vetted to .any
particular dollar amount at this point.
Council Member Espinosa agreed it was more important how they arrived at their final
conclusions rather than the actual fmal numbers.
Mayor Drekmeier stated recent Request for Proposals brought in lower bids. He asked if
wages were the same, ·how or where costs were rising within this bidding process.
Mr. Sartor stated product costs were the primary reason for any extra or higher costs
above and beyond what may have been seen in the past. Also material costs have gone
down.
Cowcil Member Barton stated it was not labor rate, per se, of a project, but the number
of people working on that project that also played a role.
MOTION: Council Member Barton moved, seconded by Mayor Drekmeier to
recommend to the City Cowcil to adopt: 1) Paying Prevailing wage for City Capital
Improvement Projects with exemptions for; a) maintenance projects between $ lOOk-
$250k to be determined by the Cowcil after further investigation by Staff, b) projects
worked entirely by volwteers, c) pUblic-private partnerships unless otherwise exempted
by Council.
Mayor Drekmeier asked how many projects would be heard by Council.
Council Member Barton stated it would not be each and every project. It would be
prevailing wage, unless the private funding is greater than City funding.
Mayor Drekmeier stated it was suggested that the City is in a better position to manage
prevailing wages than a private group. He asked if they were suggesting that the City
would manage all or most of the projects.
Council Member Barton asked how many pUblic-private partnership projects have been
done where the City has not been the hiring agent.
Mr. Sartor stated it was his experience that the private partners have managed more than
the City has managed in the past.
Council Member Barton asked by what percentage has the private partner provided more
than 50 percent of the funds for a project.
Mr. Sartor stated the Heritage Park project received more private partner funds.
Mayor Drekmeier stated he did not want his vote to be a recommendation at this point.
He remained neutral until more information was available. He agreed that if more than
50% of the funds came from private partner that it could fall into one category, but in
fairness it would make it easier to be the same across the board ..
Chair Espinosa clarified Staff's return at a later date with delineation of the decision-
making criteria for public-private partnerships.
Council Member Barton was comfortable with Staff making the decision to modify the
Motion.
Chair Espinosa asked for clarification of what exact information they would return with
for further discussion.
Mr: Baum stated what he heard was they should bring back more information on the
presumption and concerns over paying prevailing wage for public-private partnerships
unless specific exemptions are met.
INCORPORATED INTO' THE MOTION WITH CONSENT OF THE MAKER
AND SECONDER to change the language to read "public-private partnerships needed to
meet specific exemptions in order to receive payment of prevailing wage."
Council Member Barton asked the number of yes votes required to take action.
Mr. Baum stated the in the absence of a member there would not be a unanimous vote
and the Chair had the discretion to provide their own Motion.
Chair Espinosa asked why there needed to be a specified dollar amount in order to
qualify for prevailing wage.
Council Member Barton stated the dollar amount was not necessary.
Chair Espinosa had a concern about the affordable housing aspect and he did not have a
concern how Staff had written it. He wanted the inclusion of the wording on page 2 and
page 5 of the Staffreport.
Mr. Baum stated the language "unless otherwise required by law" would be added.
INCORPORATED INTO THE MOTION WITH CONSENT OF THE MAKER
AND SECONDER to add "unless otherwise required by law~"
Mayor Drekmeier asked how the situation would be handled if both the affordable
housing and public-private partnership entities were vying for the same project.
Mr. Keene stated there would be qualifying factors of exemption and one entity would be
less qualified than the other.
Mr. Baum stated the pUblic-private partnership was not designed to apply to affordable
housing projects. .
MOTION PASSED : 3-0, Kishimoto absent
Meeting Adjourned at 7: 14 p.m.
CIPNo.
PF-01oo3
PF-02022
PF-05OO3
PF-09OO2
PF-10oo1
PF-00006
PF-06006
OS-09OO2
PG-06003
PE-07004
PE-07oo1
0S-09001
0S-00002
08-00001
PG-09002
PG-09003
PG-98001
PE-06011
PG-06oo1
CC-09001
AC-09002
AC-09001
GS-090oo
GS-10000
GS-03009
WS-8Q014
Maintenance Capital Improvement Projects
Adopted 2008-09 Capital Budget
Description Budget
Building System Improvements $100,000
Facility Interior Finishes $80,000
Foothills Park Interpretive Center $210,000
Lucie Stem Community Center and Theatre Exterior Paint $80,000
Rinconada Pool Plaster $200,000
Roofing Replacement $150,000-$250,000
Alma Street Landscape Improvements $156,000
Ba~ds'EmergelJQY Access Levee Repair $175,000
Parks Benches, Sinage, Fencing, Walkways, and Perimeter Landscaping $50,000-$150,000
ICogswell Plaza Improvements $130,000
Hopkins Park Improvements $67,000
Off-Road ............ :J'" Resurfacing and Repair $100,000
Open Space Lakes and Ponds Maintenance $50,000
Open Space Trails and Amenities $80,000-$150,000
Park and Open Space Emergency Repairs $75,000
Park Maintenance Shop Remodel $150,000
School Playing Field Irrigation $85,000-$125,000
Street Median Improvements -Landscape $156,000
Tennis and Basketball Court Resurfacing $55,000-$130,000
Dimmer Replacement and Ughting System Replacement -Cubberley $145,000
New Sound System for Lucy Stem Community Theatre $200,000
ment of Children's Theatre Audio and VISual Monitoring System $200,000
Gas Station #1 Rebuild $201,000
Gas Station #3 Rebuild $207,000
Gas SyStem Extensions (replacements) $192,000-$215,000
Water Service Hydrant Replacement $206,000-$222.000
ATTACHMENT F
Category
Annual
Annual
One-time
One-time
One-time
Annual
One-time
One-time
Annual
One-time
One-time
Annual
Bi-annual
Annual
Annual
One-time
Annual
Annual
Annual
One-time
One-time
One-time
One-time
One-time
Annual
Annual
J. Michael Sartor
Assistant Director of Public Works
Engineering Division, 6th Floor
City of Palo Alto
250 Hamilton Avenue
Palo Alto, CA 94301
Dear Mike:
ATTACHMENT G
Friends of the Polo Alto Junior Museum & Zoo
1451 Middlefield Road Polo Alto CA 94301 (650) 326-6338
www.friendsjmz.org
April 16, 2009
On behalf of the Board of Directors of the Friends of the Palo Alto Junior Museum & Zoo
(FPAJMZ), I am writing to support City Staffs recommendation that private funding raised from
public-private partnerships be exempt from proposed prevailing wage policy for City capital
construction projects.
As you know, the FPAJMZ was founded in 1962 as a non-profrt volunteer organization
dedicated to supporting and enhancing the Palo Alto Junior Museum & Zoo. Through
memberships, annual giving, special events, foundation and corporate grants, we are able to fund
new exhibits, provide free science classes to elementary students in East Palo Alto, and
implement capital improvements for the zoo and museum facilities. Our donors trust the
FP AJMZ with their precious donation dollars because we have proved to be a lean, efficient, and
highly effective charity.
As a non-profit 50 I (c)(3) organization, the FPAJMZ is governed by a volunteer Board of
Directors .. These community members donate significant time to serve and gOvern the
FPAJMZ. The Board has established policies and internal cOntrols regarding our investments,
contracts, and cash disbursements. Currently, we hire only one employee who is responsible for
the day-to-dayoperations of the FPAJMZ and is supervised by the Board. Additionally, our last
fiscal year was reviewed by a CPA who commended our record-keeping and procedures for
handling donations and expenses.
As a public-private partnership approved by the City Council, the FP AJMZ complies with other
City policies regarding insurance requirements, indemnity, and liability. However, we are
concerned that the proposed prevailing wage statue will adversely affect our organization and.
our ,ability to assist the Junio,r M~um and Zoo for s~veral, reasons.
First, we are conce.rned about the administrative burdens and cost implications of implementing a
prevailing wage policy. Since we only employ one staff member who is already over-worked
with fundraising, donor relations, and bookkeeping tasks, we are hesitant to add certified payroll
and City reporting requirements to her workload·. We find these extra respons\bilities inefficient
Pg2/3
and not necessary to achieve our mission at best and at worst it will impede our ability to invest
in the new exhibits that are so critical to the mission of the Museum and Zoo. After all, small
projects are more at risk because they experience the largest percent increase in cost.
Second, we are concerned about donor reaction to this new policy and its effect on our ability to
fundraise and leverage private donations. The FP AJMZ is an unique position to solicit private
community funding to better serve the Palo Alto cOJlll1lunity. Our donors are willing to invest in
Palo Alto and trust us to leverage their dollars for the maximum benefit. One of the reasons the
FP AJMZ is so successful is our ability to recruit skilled labor for its capital projects at
discounted and/or volunteer rates because of our non-profit status. The contractors we hire
support our mission and have the flexibility to allocate a small labor pool for multiple tasks in
order to get the job done at a discounted rate. .
We are also concerned that the certified payroll requirement will interfere with our ability to
work with skilled specialty fabricators and artists that design and build the exhibits; the exhibits
that form the core ofthe public experience in the Museum and Zoo .. The fabricators and artists
often work in several media or trades ~ and consequently the trade unions are confounded as to
which union or unions the artist or fabricator should represent and frequently conflicts can arise
that affect the quality, timeliness and cost of the work. These challenges have caused some
cities that require prevailing wage to pull exhibits from publicly bid contracts and fund them
privately. If this ordinance requires privately funded projects to certify payrolls, the option to
privately fund exhibit work specialty fabricators and artists will be constrained in Palo Alto.
We realize that the City has a right to set policy regarding its funding, but we ask that the City
not impose policies on private funds raised by non-profit organizations. We feel that if this new
policy is implemented there will be a chilling effect on our current donors and our ability to grow
and fund capital projects for the museum and zoo.
We are happy to discuss our concerns with you or any other City staff. We look forward to
working together to grow and better Palo Alto and implement necessary capital improvements to
the Palo Alto Junior Museum & Zoo .
..A!.t/u" ei."I e.1..m.
Aletha Leong Coleman
President, Board of Directors
ee: FPJ:\JMZ Board of Direct~rs
Annette Biaison, Secretary
Courtenay Corrigan, Vice President
Wendy Dransfield
Leonard Ely III
Lisa Buese Gani
Hilary Grant-Valdez
Ed Miller, Treasurer
Cynthia Neuwalder
RoxyRapp
David Wright, Vice President
cc: Palo Alto City Council
John Barton
Patrick Burt
Peter Drekmeier, Mayor
Sid Espinsoa
Yoriko l<.ishimoto
Larry Klein
Jack Morton
Greg Schmid
YiawayYeh
cc: Palo Alto City Staff
James Keene
John Aikin
Greg Betts
Linda Craighead
Pg3/3
Sartor, Milke
From:
Sent:
To:
Levy, Leland [Ieland.levy@wachoviasec,com]
Thursday, April 02.20097:16 PM
Sartor, Mike
ATTACHMENT H
Cc: BIJAN, Sherry (Sherry.BidManagement@Gmail.com); Chop KEENAN (chopkeenan@yahoo.com); Gary LAYMON
(glaymon@TGP-INC.com); GROSS. Barbara (Barbara@GardenCourt.com): RAPP. Roxy (Roxy@RoxyRapp.coin);
Sunny Dykwel (sdykwel@apr,com)
Subject: Proposed Prevailing Wage Policy -City of Palo Alto
lAike,
As you know, the Friends of Lytton Plaza will shortly request Council authorization to proceed with the Plaza renovation.
nitial bids indicate that costs will run between $800,000 and $900.000, with the city share amounting to approximately 40%.
At this time we'd like to state our concern that overseeing a prevailing wage policy will impose difficulties on project
nanagers who are volunteers. and will discourage their Involvement. Considerable effort will be required to learn and keep up
Nith the processes and records which an ordinance requires. The result will be to put a damper on the private' sector's ability to
:mllst community volunteerS,. ,
We would be grateful. therefore, if an exemption can be available for Public-Private Partnerships where the private entity
nan ages the project and provides over fifty percent of the funding,
Sincerely.
Leland D. Levy
Friend of Lytton
Leland D. Levy
Senior Vice President -Investment Officer
CA Insurance License #OA45735
1950 University Avenue. Suite #300: East Palo Alto. CA 94303-2280
ph: (650) 330-3820 I fax: (650) 322-7381 I t-f: (800) 423~1736
leland,leyy@wachoviasec.com
A'.CTENTION': Please be aware that the confidentiality of Internet e-mail
cannot be guaranteed. Instructions having financial consequences such
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policies please go to:
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4/6/2009
, ' ....... ". -. . ~., .
Sartell', Mike
From: Barbara Gross [Barbara@gardencourt.com)
Sent: Wednesday, April 15, 2009 5:17 PM
To: Sartor, Mike
Subject: Prevailing Wage Waiver
Dear Mike,
The 'Friends of Lytton Plaza' are urging the city to exclude our public private partnership from the prevailing
wage requirement.
The signed letter of intent from the city predates this requirement and should exempt us from this burden.
The 'Friends of Lytton Plaza' will be running this project. We do not have the expertise nor the additional
funding to manage this process.
We are quite concerned about hoyv this may negatively affect future 'Friends' projects ...
Please confirm our exemption.
Thank you,
Barbara Gross
Friends of Lytton Plaza
4/16/2009
ATTACHMENT I
NOT YET APPROVED
Resolution No.
Resolution of the Council of the City of Palo Alto Repealing
Resolution 5981 and Requiring the Payment of Prevailing
Wage on City Capital Construction Contracts with Certain
Exemptions
WHEREAS, on December 14, 1981, the City Council resolved, in Resolution 5981,
to use the Davis~Bacon Act or State Department of Industrial' -Relations Prevailing Wage
Detenninations only when required by federal or state grants and on other jobs considered to be
of statewide concern; and
WHEREAS, on D~ember 9, 2008, the City of Palo Alto Policy and Services
Committee recommended that a resolution be adopted requiring prevailing wag~ on all City
capital construction contracts; and
WHEREAS, on December 9, 2008, the City of Palo Alto Policy and Services
Committee also recommended that staff present types of construction contracts that could be
considered for exemption from a prevailing wage requirement; and
WHEREAS, on March 10, 2009, staff presented a proposed prevailing wage policy
to the Ad Hoc Committee on Prevailing Wage which proposed that the City pay prevailing wage
on City construction contracts, except in the following four situations: 1) Maintenance projects
under $250,000 as defmed by Section 22002 of the California Public Contract Code, 2) Projects
using public-private partnership funding, 3) Projects that construct/rehabilitate affordable
housing for people with low or moderate incomes, unless otherwise required by law, and
4) Projects where the work is perfonned either entirely by volunteers, and
WHEREAS, at their March 10,2009, meeting, the Ad Hoc Committee on Prevailing
Wage recommended that Council approve the staff recommended policy in general, but proposed
minor modifications to three of the proposed exemptions.
WHEREAS, after the March 10, 2009 Ad Hoc Committee meeting, Mayor
Drekrneier referred this item back to the Council's current Policy and Services Committee for
further consideration.
The Council of the City of Palo Alto does RESOL VB as follows:
, ,
SECTION 1. Resolution 5981 is hereby repealed.
SECTION 2. The City will pay prevailing wage as detennined by the
Department of Industrial Relations Wage Determinations when required by law, and on City
capital construction contracts with the following exemptions:
1
090624 syn 01 mS2
NOT YET APPROVED
1. Maintenance projects under $250,000 as defined by Section 22002 of the
California Public Contract Code
2. Projects using public-private partnership funding, where the private party:
a. is the lead entity managing the project's design and construction, and
b. funds at least 50 percent of the projectcost.
3. Projects that construct/rehabilitate affordable housing for people with moderate
incomes, unless otherwise required by law.
4. Projects where the work is performed entirely by volunteers.
SECTION 3. The Council fmds that the adoption of this resolution does not
represent a project under the California Environmental Quality Act (CEQA), pursuant to· Section
21065 of the Public Resources Code, thus, no environmental review is required.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST: APPROVED:
City Clerk Mayor
APPROVED AS TO FORM:
City Manager
Deputy City Attorney
Director of Public works
Director of Utilities
2
090624 syn 0111152
City of Palo Alto
2010-2014 CIP PLAN.
ATTACHMENT J
Proiect Costs --"";on Costs
Proj No. Proj Name 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014
~~001 ChlIdren's Theatre R (Note 1) 100,000 ---------
~02 Community Theatre So (Note 1) -200.000 --------
AC-10000 JMZNewBobcatHabit(Note~ 575,000 ---------
AC-8S017 Art in Public Places 50.000 50,000 50,000 50,000 50,000 50,000 I 50,000 50,000 50,000 50,000
IAcquisition of Los A (Note 4) 2,216 439 --------•
AS-10Q00 Salaries and Benefit (Note 4) 3,478545 3,480,758 3,538,665 3,644,825 3,754,170 -----
AS-10001 SustainabDitY Conti (Note 4) 400,000 ---------
CC-09001 Dimmer Rel)lacement a (Note 1) 145,000 ---------
CC-10000 IReplaoementofCubbe 56,S50 ----56,350 ----
FD-Q9001 Fire s Equip (Note 4) 69,000 ---------
0S-00001 ODen SDac:eTraiis & Amenitles (Note 2) 116,000 116,000 136,000 150,000 164,000 -----
0S-00002 I Open Space LakesJPon (Note 2) 50 000 -50,000 -SO,OOO -----
05-07000 Foothills Park Road -125,000 150,000 ---I 125,000 150,000 --
0S-09001 Off-Road Pathway Res (Note 2) -100,000 100,000 100,000 100,000 -----
os-09OO2 BaYlands A (Note 2) 175,000 ---------
PD-07000 Mobile Command Vehic (Note 4) SOO,ooo ---------
PE-00104 San Antonio Rd. Midi 40,000 630,000 ----630,000 ---
PE-06006 Alma Street --316,000 ----316,000
PE-OSOO7 Park Restroom Instal -220,000 220,000 220,000 220,000 -200,000 200,000 200,000 200,000
PE-oS010 City Parks and Open (Note 2) --330,000 440,000 200,000 -----.
PE..Q6011 Street Median Improv (Note 2) --156,000 I 156,000 156,000 -----
PE-07001 iHopkins Park Improve (Note 1) -95,000 -I -------
PE-07004 iCogsweU Plaza Impro (Note 1)" -150,000 --------
PE-08001 Rinconada Park Impro -ns,OOO ----72S,Ooo ---
PE-09003 CitY Facility Parkin (Note 2 -100,000 100,000 100,000 100,000 -----
PE-09005 Downtown Library Imp 3,500,000 ---! -3,500,000 ----
PE-09006 Mitchell Prk Ubrary 47.000 000 ---; -47,000,000 ----
PE-09010 . Ubrary & Com Center 75,000 ----75,000 ----
PE-1ooo2 Ventura Community Ce 200,000 135,000 --------
PE-100068ridge Rail, Abutmen (Note 3) 300,000 ---------
PE-11ooo Main Library New Con -1,400,000 16,900,000 ----14,600,000 --
PE-110Q3 MonroeParklml)lOvem -250000 ----250,000 ---
PE-11004 Scott Park 1m -100,000, ----100,000 ---
PE.aa070 Street Maintenance (Note 6) 1,939,148 1 803,635 . 1,803,635 1,803,635 1,803.635 -----
PF-00006 Roofing entCNote2) 150,000 165,000 150,000 150,000 150,000 -----I
PF-01002 Civic Centerlnfrast 4,176,000 1,546000 1,460000 --4,176,000 1,546,000 1,460,000 --
PF-010Q3 Building 1m (Note 2) 100 000 100,000 100,000 100,000 100.000 -----
PF-02022 Interior Finishes Co (Note 2) -80,000 80,000 80,000 80,000 -----
PF-05002 MuniciDal Service Ce -641,000 ----641,000 ---
PF-05003 Foothills Park Inter (Note 1) -210,000 --------
PF-06001 Ted Thompson Garage (Note 1) 67,000 ----67,000 -. ---
PF-06OO2 Ventura Buildings 1m -90,000 600,000 ----600,000
PF-06004 Cubberley Restroom R -300,000 ----SOO,ooo ---
PF-07ooo Art Center Electrica -2,600,000 ----2,600,000 ---
PF-07002 BavIands IntelDl'8tiv -I 267,000 I ----267,000 ---I
Page 1 of2
City of Palo Alto
2010·2014 CIP PLAN
ProjNo. ProjName
PF-09000 Children's Theater I
PF-10000 Civic Center ChHler (Note 1)
PF·10001 Rinconada Pool Plast (Note 2)
PF-10002 Lot J Cowper Webster (Note 1)
PF-93009 Americans with Oisab
PG-06001 Tennis and Basketbal (Note 2)
PG-OS003 Benches,sianage,fenc (Note 2)
PG'()9002 Park and Open Space (Note 2)
PG-98001 School Site Irrigati (Note 2)
Pl-00026 Safe Routes to Schoo
PL-Q4()10 Bicycle Blvds. Imple
Pl-05003 Conege Terrace Traf
PL-05030 Traffic Signal Upgra
PL-11000 Highway 1 01 Peclestri
PO..Q5054· Street Ughts Improv (Note 2)
P0-10002 Downtown Tree Grates
PO-89OQ3 Sidewalk Repairs
Total
Notes:
1. Maintenance project, cme time
2. Maintenance project, recurring annually .
2010
-
125,000
200,000
75,000
75,000
55,000
100,000
75,000
100,000 -
50,000
50,000 -
100,000
120,000
300,000
717,642
67,421,124
ATTACHMENT J
Project Costs
2011 2012 2013 2014 .. -_ ... _-.-
100,000 500,000 . ---- ------ ---
150,000 150,000 100,000 100,000
55,000 55,000 55,000 55,000
100,000 150,000 150,000 150,000
75,000 75,000 75,000 75,000
85,000 100,000 100,000 125,000
100,000 100,000 100,000 100000
50,000 50,000 50,000 50,000 --- -
155,000 160,000 165,000 170,000 -- - -
125,000 130,000 135,000 140,000 - - --
716,781 695,278 674,419 654,187
17,441,174 28,405,578 8,598,879 8,556,992
Estimated Prevailing Wage at 5%
Estimated Prevailing Wage at 10%
Funding Sources:(at 5".10)
Development Impact Fees
Measure N Bonds
General Fund I
Gas Tax J
Infraslruc:tuJe Reserve
Total I
Funding Sources:(at 10%)
Development Impact Fees
Measure N Bonds
General Fund I
Gas Tax I
InfrasInIcture ReseMI
Total I
3. Maintenance project, one time and multiple contrads below $250K
4. Not a construction proj~
5. Public-private partnership
6. Project already includes prevailing wage
Page2of2
Construction Costs
2010 2011 2012 2013 2014
--500,000 . ------------- -- - -
75,000 150,000 150,000 100,000 100,000 -- - --- - ----------- ---100,000 100,000 100,000 100,000
50,000 50,000 50,000 50,000 50,000
50,000 - - - --155,000 160000 165,000 170,000 ------ ----
300,000 ----
717,642 716,781 695,278 674,419 654,187
56,116,992 8,605,781 19,031,278 1,339,419 1,324,187
2,805,850 430,289 951,564 66,971 66,209
5,611,699 860,578. 1,903,128 133,942 132,419
-10,000 10,000 10,000 10,000
2,525,000 -730,000 - -
5,000 2,500 2,500 2,500 2,600
-5,000 5,000 5,000 5,000
275,850 412,789 204,064 49,471 48,709
2,806,850 430,289 951,564 66,971 66,209
-20,000 20,000 20,000 20,000
5,050,000 -1,460,000 --
10,000 5,000 5,000 5,000 5,000 -10,000 10,000 10,000 10,000
551,699 825,578 408,128 98,942 97,419
5,611,699 860,578 1,903,128 133,942 132,419
City of Palo Alto
2010-2014 CIP PLAN
Enterprise Funds
ProJ.No. ProjName
EL-02010 SCADA SYstem Upgrade (Note 1)
EL-02011 Electric Utility GIS (Note 1)
EL-06002 UG District 45
EL-08oo0 E. Char1eston 4112kV (Note 1)
EL-08001 UG District 42 Embar
EL-08002 E. Meadow/AlmaILoma
EL-09000 Middlefield Undergro (Note 1)
EL-09002 Middlefield I Colora
EL-09003 Rebuild UG Dist 17 (Note 1)
EL-10006 Rebuild UG Dist 24 (Note 1)
EL-100oa AMRiAMI -Feasibilit (Note 1}
EL-1OOO9 Street Light System
EL-11000 SealeJWaver1ey 4112k
EL-11001 Torreya Court Rebuil (Note 1)
EL-11002 St Francis Oregon 4
EL-11003 Rebuild UG Dist 15 (Note 1
EL-11004 Hewlett Subdivision (Note 1)
EL-11005 Rebuild UG Dist 22 (Note 1
EL-11006 Rebuild UG Dist 1S (Note 1)
EL-11007 Rebuild Greenhouse C (Note 1)
EL-1100S Rebuild UG Dist 19 (Note 1)
EL-11009 . UG District 43 Almai
EL-12000 Rebuild UG Dist 12 (Note 1)
EL-12001 UG District 46 -Cha
EL-13000 EdgewoodJWildwood 41
EL-13OO2 Relocate QRlHO 60kV
EL-14000 ColeridgeJCowperlTen
EL-89028 EJectricCustomerCo (Note 1)
EL-89031 Communications ~ (Note 1)
EL-89038 Substation Protectio (Note 1)
EL-89044 Substation Facility (Note 1)
EL-98003 Electric System Imp (Note 1)
Total
F0-10000 Fiber Optic Customer (Note 1)
F0-10001 Fiber Optic Network (Note 1)
Total
GS-02013 Directional Boring M (Note 1)
GS-03007 Directional Boring E (Note 1)
GS-03008 Polyethylene Fusion (Note 1)
GS-03009 Sys Ext Ops -Unreim (Note 2)
GS-09002 GMR -Project 19
GS-1ooo0 Gas Station 3 Rebuil (Note 2)
GS-1OOO1 GMR -Project 20
2010
25,000
400,000
1,000,000
100,000 a
sao,ooo
75,000
20,000
500,000
500,000
210,000
100,000
0 a
0
0
0
300,000
0
0
500,000
0
0
0
0
0
0
1,800,000
110,000
240,000
155,000
2,000,000
8,535,000
200,000
200,000
400,000
40,000
0
0
158,000 a
207,000
644,000
ATTACHMENT K
Project Costs
2011 2012 2013
30,000 250,000 40,000
0 0 0
150,000 0 0
450,000 0 0 a 0 150,000
500,000 0 0
550,000 0 0
1SO,000 250,000 0
0 0 0
7SO,OOO 0 0 a 0 0
SOO,OOO SOO,OOO 800,000
35,000 350,000 0
100,000 0 0
450,000 0 0
350,000 400,000 0
400,000 0 0 a 0 0
350,000 0 a
150,000 350,000 0
0 0 0
150,000 2,000,000 500,000
0 SO,OOO 1,000,000
0 1SO,OOO 2,000,000
0 0 SO,OOO
0 0 100,000
0 0 0
1,900,000 2,000,000 2,100,000
115,000 120,000 125,000
250,000 2SO.OOO 260,000
160,000 165,000 170.000
2,100,000 2,200.000 2,300.000
9,890,000 9,365,000 9,595,000
200,000 200,000 200,000
200,000 200,000 200,000
400,000 400,000 400,000
185,000 0 45,000
60,000 0 64,000
32,000 0 34,000
162,000 167,000 172,000
5,800,000 a oT
0 0 a
0 5,970,000 01
Page 1 of3
Construction Costs
2014 2010 2011 2012 2013 2014
45,000 0 0 0 0 0
0 0 0 0 0 0 a 1,000,000 150,000 0 0 a
0 0 0 a 0
2,000,000 a 0 a 0 2,000,000
0 500,000 sao,ooo 0 0 0
0 0 0 0 a
0 0 150,000 2SO,000 0 0
0 0 0 0 0 0
0 0 0 0 0 0
0 a a a a 0
800,000 100,000 800,000 800,000 800,000 800,000
0 0 0 350,000 a 0
0 0 0 0 0 a
0 0 450,000 0 0 0
0 0 0 0 0 0
0 0 0 0 0 a
0 0 0 0 a 0 a 0 0 0 0 0
0 0 0 0 0
0 0 0 0 0 0
0 0 0 2,000,000 500,000 0
200,000 0 0 0 0 0
1SO,OOO 0 0 0 2,000,000 1SO,OOO
300,000 0 0 0 0 300,000
7SO,ooo 0 0 0 0 750,000
40,000 0 0 0 0 40,000
2,205,000 0 0 0 0 0
130,000 a a 0 a 0
270,000 0 0 0 0 0
175,000 0 0 0 0 0
2,400,000 0 0 0 0 0
9,465,000 1,600,000 2,050,000 3,400,000 . 3,300,000 4,040,000
200.000 0 a a a a
200,000 0 a 0 0 0
400,000 0 0 0 0 °
250,000 0 a 0 0 0 a a 0 0 0 a a a 0 0 0 0
17S,OOO a a a 0 01 a 0 5,800,000 0 0 0'
0 0 a 0 0 O!
0 0 0 5,970,000 0 01
City of Palo Alto
2010·2014 CIP PLAN
Enterprise Funds
Pro] No. ProjName
(3$..10002 General Shop Equipme (Note 1)
GS-10003 cathodic CUrrent Int
GS-11000 GMR· Project 21
GS-11001 Gas Station 4 Rebuil (Note 1)
GS-12001 GMR -Project 22
GS-13001 GMR -Project 23
GS-140oo GMR -Project 24
GS-a0017 Gas System Extension (Note 1)
GS-80019 Gas Meters and Regul (Note 1)
Total
RF-10002 FLARE RELOCATION PRO
RF-10003 DRYING BEDS, MATl ST
RF-11001 Landfill Closure
Total
S0-06101 Stonn Drain SyStem R
S0-11101 Channing Ave/lincoln
S0-13OO2 Matadero Crk Strm wt
Total
WC-09001 WC Reh/Aug. Prj 22
WC-09002 Root, Sediment, Dew (Note 1)
WC-1oo02 WC RehlAUQ. prj 23
WC-11ooo WC RehlAug. Prj 24
WC-12oo1 WC RehiAug. Prj 25
WC-13001 WC RehiAug. Prj 26
WC-14001 WC Reh/Aug. Prj 27
WC-80020 Sewer System Extensi (Note 1)
WC-99013 Sewer Manhole Rehab! (Note 1)
Total
WQ-04011 Facility Condition A (Note 3)
WQ-1OOO1 Plant Master Plan (Note 3)
WQ..80021 Plant Equipment Repl (Note 3)
WQ..80022 System Flow Meter (Note 3)
Total
WS-02014 W-G-W Utility GIS Da (Note 1)
WS-07001 Water Recycling Fad
WS-08002 Emergency Water Supp
WS-09000 Seismic Water Tank V
WS-09001 WMR -Project 23
WS-10001 WMR-Project 24 (WS-1
WS-11000 WMR-Project 25 (WS·1
2010
64,000
300,000
0
0
0
0
0
690,000
286,000
2,389.000
0
0
0
0
550,000
820,000
0
1,370,000
2,675,000
30,000
280,000
01
0'
0
0
321,000
640,000
3,946.000
0
500,000
1,100,000
100,000
1,700.000
100,000
265,000
22,500,000
550,000
2,845,000
292,000
0
ATIACHMENTK
Project Costs
2011 2012 2013
0 0 0
0 0 0
457,000 0, 6,150,000
215,000 0' 0
0 468,000 0
0 0 482,000
0 0 0
700,000 710,000 720,000
297,000 306,000 315,000
7,908.000 7,621,000 7,982,000
200,000 0 0
750,000 0 0
6,700,000 0 0
7,650,000 0 0
567,000 584,000 601,000
895,000 1,590,000 1,680,000
0 0 0
1,462,000 2,174,000 2,281,000
0 0 0
30,000 30,000 33,000
2,750,000 0 0
290,000 2,829,500 0
0 300,000 2,912,000
0 0 310,000i
0 0 0
330,000 340,000 350,000
560,000 565,000 570,000
3.960,000 4,064,500 4,175,000
1,000,000 1,000,000 1,050,000
0 0 0
1,450,000 1,550,000 1,550,000
100,000 100,000 100,000
2,550,000 2,650,000 2,700,000
100.000 100,000 0
500,000 750,000 2,000,000
3,500,000 0 0
0 0 0
0 0 0
2.950,000 a a
292,000 3,060.000 0
Construction Costs
2014 2010 2011 2012 2013 2014
0 0 0 0 0 0
0 300,000 0 0 0 0
0 0 0 0 6,150,000 0
0 0 0 0 0 0
3,200,000 0 0 0 0 ~200,ooo
0 0 0 0 0 0
492,000 0 0 0 0 0
730,000 0 0 Q 0 0
325,000 0 0 0 0 0
5,175,000 300,000 6,8OD,OOO 5,970,000 6.150,000 3,200,000
0 0 200,000 0 0 0
0 0 750,000 0 0 0
0 0 6,700,000 0 0 0
0 0 7,650,000 0 0 0
619,000 550,000 567,000 584,000 601,000 619,000
1,430,000 820,000 895,000 1,590,000 1,680,000 1,430,000
315,000 0 0 0 0 0
2,364,000 1,370,000 1,462,000 2,174,000 2,281,000 2,049.000
0 2,675,000 0 0 0 0
33,000 0 0 0 0 0
0 0 2,750,000 0 0 0
0 0 0 2,829,500 0 0
0 0 0 0 2,912',000 0
3,000,000 0 0 0 0 3,000,000
320,000 0 0 0 0 0
361,000 0 0 0 0 0
617,000 0 0 01 0 0
4,331,000 2,675,000 2,750.000 2,829,500 2,912,000 3,000,000
1,100,000
0 0 0 0 0 0
1,550,000
100,000
2,750,000 --. --
i
0 0 0 0 0 0
1,150,000 265,000 500,000 750,000 2,000,000 1,150,000
0 22,500,000 3,500,000 0 0 0
0 550,000 0 0 a 0
0 2,845,000 0 0 0 0
0 0 2,950.000 0 0 0
0 0 0 3,060,000 0 0
City of Palo Alto
2010·2014 CIP PLAN
Enterprise Funds
Proj No. ProlName
WS-12OO1 WMR-Proiect 26
WS-13OO1 WMR-Proied 27
WS-14oo1 WMR-Proiect 28 -add
VVS-SOO13 WaterSvstem Extensi (Note 1)
WS-SOO14 Water Service ttydran (Note 1)
WS-80015 Water Meters (Note 1)
Total
Notes:
1. Project exempt from prevailing wage since
projects will be done by in-hoUse staff (City staff)
2. Maintenance project
A TIACHMENT K
Project Costs
2010 2011 2012 2013
0 0 305,000 3,150,000
0 0 0 314,000
0 0 0 0
400,000 410,000 420,000 430,000
259,000 212,000 217,000 222,000
203,000 209,000 215,000 222,000
'Z1.414.000 8.173.000 5,067,000 6,338,000
Total
Estimated Prevailing Wage at 5% i
Estimated Prevailing Wage at 10% 1
Funding Sources: (at 5%) I
EIectrie Fund Distrtbution Rate Stabilization Reserve
Gas Fund Distribution Rate Stabilization Reserve
Refuse Fund Rate S1abiliza1icn Reserve
$tOnn. Drain FundRate stablll!alion Reserve
WNC Fund Rate Stabilization Reserve
Water Fund Rate Stabilization Reserve
Total I
I
Funding Sources: (at 10%)
BecIric Fund Distribution Rate Stab~ization Reserve
Gas Fund Distribution Rate Stabilization Reserve
Refuse Fund Rate Stabilization Reserve
Storm Drain Fund Rate Stabilization Reserve
WWC Fund Rate Stabilization Reserve
Water Fund Rate Stabilization Resen.oe
Total I I
3. Regional facility and implements prevailing wage
Page30f3
2014
0
3,245,000
324,000
440,000
229,000
229,000
5,617,000
Construction Costs
2010 2011 2012 2013 2014
0 0 0 3,150,000 0
0 0 0 0 3,245,0001
0 0 0 0 0'
0 0 0 0 0
0 0 0 0 0
0 0, 0 0 0
26,160,000 6,9SO,000 3.810,000 5,150,000 . 4.395,000
32,105,000 26,662,000 18,183,500 19,793,000 16,684,000
1,605,250 1,333,100 909,175 989,650 834,200
3,210,500 2,668,200 1.818,350 1,979,300 1,668,400
80,000 102,500 170,000 16s.ooo 202,000
15,000 290,000 298,500 307,500 1eo,ooo
0 363,7501 0 0 0
68,500 73,100 106,700 114,050 102,450
133,750 156,250 141,475 145,800 150,000
1,308,000 347,500 1S0,500 257,500 219.750
1,605,250 1,333,100 9D9,175 989,650 834,200
160,000 205,000 340,000 SSO,OOO 404,000
30,000 580,000 597,000 615,000 320.000
0 727,500 a 0 0
137,000 146.200 217,400' 228,100 204,900
267,500 312,500 282,950 291,200 SOO,OOO
2,616,000 695,000 381,000 515,000 439,500
3,210,soo 2,6SS,200 1.818,350 1,979,300 1,868,400
City of Palo Alto
2010·2014 CIP PLAN
Proj No. ProjName
AC-09OO1 Children's Theatre R (Note 1)
AC-09002 Community Theatre So (Note 1)
AC-10000 ! JMZ New Bobcat Habit (Note 5)
AC-86017 iArt in Public Places
AS-OSOOO Acquisition of Los A (Note 4)
AS-10000 Salaries and Benefit (Note 4)
AS-10001 Sustainability Conti (Note 4)
CC-09OO1 Dimmer Replacement a (Note 1)
CC-10000 Replacement of Cubbe
FD-09001 Fire Apparatus Equip (Note 4)
05-00001 Open Space Trails & Amenities (Note 2)
05-00002 Open Space LakesIPon (Note 2)
05-07000 Foothills Park Road
05-09001 Off-Road Pathway Res (Note 2)
05-09002 Baylands Emergency A (Note 2)
P0-07000 Mobile Command Vehic (Note 4)
PE-00104 San Antonio Rd. Medi
PE-06006 Alma Street Landscap
PE-06007 Park Restroom Instal
PE-06010 City Parks and Open (Note 2)
PE-06011 Street Median Improv (Note 2)
PE-07001 Hopkins Park Improve (Note 1)
PE-07004 Cogswell Plaza Impro (Note 1)
PE-08001 Rinconada Park Impro
PE-09003 City Facility Parkin (Note 2
PE-09005 Downtown Library Imp
PE-09006 Mitchell Prk Library
PE-09010 Library & Com Center
PE-10002 Ventura Community Ce
PE-10006 Bridge Rail, Abutmen (Note 3)
PE-11 000 Main Library New Con
PE-11003 Monroe Park Improvem
PE-11004 Scott Park Improveme
PE-86070 Street Maintenance (Note 6)
PF-00006 Roofing Replacement (Note 2)
PF-01002 Civic Center Infrast
PF-01003 Building Systems 1m (Note 2)
PF-02022 Interior Finishes Co (Note 2)
PF-05002 MunICi-paiService Ce
PF-05003 Foothills Park Inter (Note 1)
PF-06001 Ted Thompson Garage (Note 1)
PF-06002 V~ntlJra.suildings_lm
PF-06004 Cubberley Restroom R
PF-07000 Art Center Electrica
PF-07002 BJ!Ylands Inter2retiv
2010
100,000 -
575,000
50,000
2,216,439
3,478,545
400,000
145,000
56,350
69,000
116,000
50,000 --
175,000
300,000
40,000 i --------
3,500,000
47,000,000
75,O()Q
200,000
300,000 ---
1,939,148
150,000
4,176,000
100,000 ---
67,000 ----
Attachment H
Project Costs Construction Costs
2011 2012 2013 2014 2010 2011 2012 2013 2014 --i ---; -- --
200,000 -I ------------ ----
50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 --- ------
3,480,758 3,538,665 3,644,825 3,754,170 -------- ---J ---------- - ---- -56,350 -------------
116,000 136,000 150,000 164,000 -----
-50,000 -60,000 ---- -
125,000 150,000 ---125,000 150,000 --
100,000 100,000 100,000 100,000 ----------------- ------
630,000 ----630,000 ----316,000 -- - -316,000
220,000 i 220,000 220,000 220,000 -200,000 200,000 200,000 200,000 -330,000 440,000 200,000 --- ---156,000 156,000 156,000 -----
~5,OOO --------
150,000 ------ --
775,000 ----725,000. ---
100,000 100,000 100,000 100,000 --1 -i ----------3,500,000 -1 -i --
----47,000,000 ------- -75,000 ----
135,000 -----------------
1,400,000 16,900,000 ----14,600,000 --
250,000 ----250,000 ---
100,000 ----100,000 ---
1,803,635 1,803,635 1,803,635 1,803,635 -----
165,000 150,000 150,000 150,000 -----
1,546,000 1,460,000 --4,176,000 1,546,000 1,460,000 --
100,000 i 100,000 100,000 100,000 ----i -
80,000 I 80,000 80,000 80,000 -----
641,000 --- -
641,000 ---
210,000 , ----I ----
----67,000 ' ------90,000 600,000 ----600,000
300,000 ----300,000 ---
2,600,000 ----2,600,000 ---
267,000 ----267,000 ---
Page 1 of2
City of Palo Alto
2010-2014 CIP PLAN
Proj No. Proj Name
PF-09000 Children's Theater I
PF-10000 Civic Center Chiller (Note 1)
PF-10001 Rinconada Pool Plast (Note 2)
PF-10002 Lot J Cowper Webster (Note 1)
PF-93009 Americans with Disab
PG-06001 Tennis and Basketbal (Note 2)
PG-06003 Benches,signage,fenc (Note 2)
PG-09002 Park and Open Space (Note 2)
PG-98001 School Site Irrigati (Note 2)
PL-00026 Safe Routes to· Schoo
PL-04010 Bicycle Blvds. Imple
PL-05003 College Terrace Traf
PL-05030 Traffic Signal Upgra
PL-11000 Highway 101 Pedestri
PO-05054 Street Lights Improv (Note 2)
PO-10002 Downtown Tree Grates
PO-89003 Sidewalk Repairs
Total
Notes:
1. Maintenance project, one time
2. Maintenance project, recurring annually
2010
-
125,000
200,000
75,000
75,000
55,000
100,000
75,000
100,000
-
50,000
50,000 -
100,000
120,000
300,000
717,642
67,421,124
Project Costs
2011 2012 2013
~-.--_. 100,000 500,000 -
-- -
- --
- - -
150,000 150,000 100,000
55,000 55,000 55,000
100,000 150,000 150,000
75,000 75,000 75,000
85,000 100,000 100,000
100,000 100,000 100,000
50,000 50,000 50,000
- --
155,000 160,000 165,000
- --
125,000 130,000 135,000
- --
716,781 695,278 674,419
17,441,174 28,405,578 8,598,879
Estimated Prevailing Wage at 5%
Estimated Prevailing Wage at 10%
Funding Sources:(at 5%)
Development Impact Fees
Measure N Bonds
General Fund I
Gas Tax I
Infrastructure Reserve
Total I
Funding Sources:(at 10%)
Development Impact Fees
Measure N Bonds
General Fund I
Gas Tax I
Infrastructure Reserve
Total I
3. Maintenance project, one time and multiple contracts below $250K
4. Not a construction project
5. Public-private partnership
6. Project already includes prevailing wage
Page 2 of2
Construction Costs
2014 2010 2011 2012 2013 2014
-- -500,000 - -
- - - -- -
- - - - - -
- - --- -
100,000 75,000 150,000 150,000 100,000 100,000
55,000 --- - -
150,000 - -- - -
75,000 - -- - -
125,000 - - -- -
100,000 -100,000 100,000 100,000 100,000
50,000 50,000 50,000 50,000 50,000 50,000
-50,000 --- -
170,000 -155,000 160,000 165,000 170,000
- - -- - -
140,000 - -- - -
-300,000 -.. - --
654,187 717,642 716,781 695,278 674,419 654,187
8,556,992 56,116,992 8,605,781 19,031,278 1,339,419 1,324,187
2,805,850 430,289 951,564 66,971 66,209
5,611,699 860,578 1,903,128 133,942 132,419
-10,000 10,000 10,000 10,000
2,525,000 -730,000 --
5,000 2,500 2,500 2,500 2,500
-5,000 5,000 5,000 5,000
275,850 412,789 204,064 49,471 48,709
2,805,850 430,289 951,564 66,971 66,209
-20,000 20,000 20,000 20,000
5,050,000 -1,460,000 --
10,000 5,000 5,000 5,000 5,000
-10,000 10,000 10,000 10,000
551,699 825,578 408,128 98,942 97,419
5,611,699 860,578 1,903,128 133,942 132,419
City of Palo Alto
2010-2014 CIP PLAN
Enterprise Funds
Proj No. Proj Name
EL-02010 SCADA System Upgrade (Note 1)
EL-02011 Electric Utility GIS(Note 1}
EL-06002 UG District 45
EL-08000 E. Charleston 4I12kV (Note 1)
E==08001 UG District 42 Embar
EL-08002 E. Meadow/Alma!Loma
M9000 Middlefield Undergro (Note 1)
EL-09002 Middlefield / Colora
EL-09003 Rebuild UG Dist 17 {Note 1}
EL-10006 iRebuild UG Dist 24 (Note 1)
EL-10008 AMRlAMI~Feasjbllli(Note 1)
EL-10009 Street Light System
EL-11000 Seale1Waverley 4/12k
EL-11001 T orreya Court Rebuil (Note 1)
EL-11002 St Francis Oregon 4
EL-11003 I Rebuild UG Dist 15 (Note 1)
EL-11004 Hewlett Subdivision (Note 1)
EL-11005 Rebuild UG Dist 22 (Note 1)
EL-11006 1 Rebuild UG Dist 18 (Note 1)
EL-11007 Rebuild Greenhouse C (Note 1)
EL-11008 Rebuild UG Dist 19 (Note 1)
EL-11009 UG District 43 Alma!
EL-12000 Rebuild UG Dist 12 (Note 1)
EL-12001 UG District 46 -Cha
EL-13000 I EdgewoodlWildwood 4/
EL-13002 Relocate QRlHO 60kV
EL-14000 ColeridgelCowperlTen
EL-89028 EI~ctric.Q.ustom~r Co (Note 1)
EL-89031 Communications Syste (Note 1)
EL-89038 Substation Protectio (Note 1)
EL-89044 Substation Facility (Note 1) a~98003 Electric System Imp (Note 1)
Total
F0-10000 Fiber Optic Customer (Note 1)
F0-10001 Fiber Optic Network (Note 1)
Total
GS-02013 Directional Boring M (Note 1)
GS-03007 . Directional Boring E (Note 1)
GS-03008 Poly~!bylenefusion (Note 1)
GS-03009 Sys Ext Ops -Unreim (Note 2)
GS-09002 GM R -Project 19
GS-10000 Gas Station 3 Rebuil (Note 2)
GS-10001 GMR -Project 20 .--
Project Costs
2010 2011 2012
25,000 30,000 25(),OOO
400,000 0 ° 1)()00,OOO 150,000 0
100,()()0 450,000 0
° 0 0
500,000 500,000 0
75,000 550,000 0
20,000 150,000, 250,000
500,000 0 0,
500,000 750,000 0
210,000 0 0
100,000, 800,000 800,000
0 35,000 350,000
O~O,OOO 0 ° 450,000: 0
0 350,000 400,000
0, 400,000 0
300,000 01 0
0 350,000 0
0 150,000 350,000
500,000 0 0
0 150,000 2,000,000
0, 0 80,000
0 0 150,000
0 0 0
0 0 0
0 0 0 ~---------1,800,000 1,900,000 2,000,000
110,000, 115,000 120,()()0
240,000 250,000 250,000
155,000 160,000, ..!65,000
2,000,000 2,100,000' 2,200,000
8,535,000 9,890,000 9,365,000
200,000 200,000, 200,000
200,000 200,000 200,0001 -----400,000 400,000 400,000
40,000 185,000 0
0 60,000 0
0 32,000 0
158,000 162,000' 167,000
01 5,800,000 0
207,000 0 0
644,000 0 5,970,000
Construction Costs
2013 2014 2010 2011 2012 2013 2014
40,000, 45,000 0 0 0 0 0 ----------
0' 0 0 0 0 ° 0
0 0 1,000,000 150,000 0, 0 0
0 ° 0 0' 0 0
150,000 2,000,000 0 0 0 0 2,000,000
0 0 500,000 500,000 ° 0 0
° 0 0 0 0 0
Oi 0 0 150,000 250,000 0 ° 0 0 ° 0 0 0, ----0
0 0 0 0 01 0 0
0 0 0 0 0 0 0
800,000 800,00() 100,000 800,000 800,000 800!()00 800,000
0 0 0 0 350,000 0 0
0 0 0 0 0 0 0
0 0 0 450,000 01 0, 0
0 0 0, 0 0 0 0
0 0 0 0 0 0 0 ----------
0 0 0 0 0 0 0
0 0 0 Oi 0 0 0
0 0 0 0 0 0
0 0 0 0 0, 0 0
500,000 0 0 0 2,000,000' 500,000 0
1,000,000 200,000 0' 0 0 0 0
2,000,000 150,000 0 0 0 2,000,000 150,000
50,000 300,000 0 O. 0 0 300,000
100,000 750,000 0 0' 0 0 750,000
0 40,0()() 0 0 0 0 40,000
2,100,000 2,205,000 0 0 0 0 0
125,000 130,000 0 01 0 0 0
260,000 270,000 0 01 0 0 0
170,000 175,000 0 0 0 0 0 -------
2,300,000 2,400,000 0 0 0 0 0
9,595,000 9,465,000 1,600,000 2,050,000 j 3,400,000 3,300,000 4,040,000
200,000 200,000 0 -6 -0 0 -0
200,000 200,000 0 0 0 0 0
400,000 , 400,000 0 0 0 0 0 ----
45,000 250,000 0 0 0 0 0
64,000 0 0 0 0 0 0
34,000 0 0 0 0 0 0
172,000 178,000 0 01 0 0 0
0, a 0 5,800,000 a 0 0
0 0 0 0 0 0 0
0 0 0 ---0 5,970,000 0 0 ----------
Page 1 of 3
City of Palo Alto
2010-2014 CIP PLAN
Enterprise Funds
Proj No. Proj Name
GS-10002 General Shop Equipme (Note 1)
GS-10003 Cathodic Current Int
GS-11000· GMR -Project 21
GS-11001 Gas Station 4 Rebuil (Note 1)
GS-12001 GMR -Project 22
GS-13001 GMR -Project 23
GS-14000 GMR -Project 24
GS-80017 Gas System Extension (Note 1)
GS-80019 Gas Meters and Regul (Note 1)
Total
~-10002 FLARE RELOCATION PRO
RF-10003 DRYING BEDS, MATL ST
RF-11001 Landfill Closure
Total
SD-06101 Storm Drain System R
SD-11101 Channing Ave/Lincoln
SD-13002 Matadero Crk Strm Wt
Total
WC-09001 WC Reh/Aug. Prj 22
WC-09002 I Root, Sediment, Dew (Note 1)
~..... . .........
WC-10002 WC Reh/Aug. Prj 23
WC-11000 WC Reh/Aug. Prj 24
WC-12001 WC RehlAug. Prj 25
WC-13001 we Reh/Aug. Prj 26
WC-14001 WC RehlAug. Prj 27
WC-80020 Sewer System Extensi (Note 1)
WC-99013 Sewer Manhole Rehab/ (Note 1)
Total
WQ-04011 Facility Condition A (Note 3)
WQ-10001 Plant Master Plan (Note 3)
WQ-80021 Plant Equipment Repl (Note 3)
WQ-80022 §ystem Flow Meter (Note 3)
iTotal
WS-02014 W-G-W Utility GIS Da (Note 1 )
WS-07001 Water Recycling Faci
WS-08002 Emergency Water Supp
WS-09000 Seismic Water Tank V
WS-09001 WMR -Project 23
WS-10001 WMR-Project 24 (WS-1
WS-11000 WMR-Project 25 (WS-1
Project Costs
2010 2011 2012
64,000 0 0
300,000 0 0
0 457,000 0
0 215,000 0
0 0 468,000
0 0 0
0 0 0
690,000 700,000 710,000
286,000 297,000 306,000!
2,389,000 7,908,000 7,621,000
,
0 200,000 0
0 750,000 0
0 6,700,000 0
0 7,650,000 0
550,000 567,000 584,000
820,000 895,000 1,590,000
0 0 0
1,370,000 1,462,000 c-.......... . ..... 2,174,000
2,675,000 0 0
30,000 30,000 30,000
280,000 2,750,000 0
0 290,000 2,829,500
0 0 300,000
0 0 0
0 0 0
321,000 330,000 340,000
640,000 560,000 565,000
3,946,000 3,960,000 4,064,500
0: 1,000,000 1,0.0.0.,000 ~~~~~~~~~~
500,000i O! 0
1,100,000 1,450,000 1,550,000
100,000 100,000 100,000
1,700,000 2,550,000 2,650,000
100,000 100,000 100,000
265,000 500,000 750,000
~?:,500,000 3,500,000 0
550,000 0 0
2,845,000 0 0
292,000 2,950,000 0 ...
Oi 292,000, 3,060,000
Construction Costs
2013 2014 2010 2011 2012 2013 2014
0 0 0 0 0 0 0
0 0 300,000 0 0 0 0
6,150,000 0 01 0 0 6,150,000 -0
0 0 o . 0 0 0 0
0 3,200,000 0 0 0 0 3,200,000
482,000 0 0 0 0 0 0
0 492,000 0 0 0 0 0
720,000, 730,000 0 0 01 0 0
315,000i 325,000 0 ° 0 0 0
7,982,000 5,175,000 300,000 5,800,000 5,970,000 6,150,000 3,200,000
0 0 0 200,000 ° 0 0
0 0 0 750,000 0 0 0
0 0 0 6,700,000 0 0 0
0 0 0 7,650,000 0 0 0
601,000 619,000 550,000 567,000 584,000 601,0001 619,000
1,680,000 1,430,000 820,000 895,000, 1,590,000 1 ,680,000 i 1,430,000
0 315,000 0 0 0 0 0
2,281,000 2,364,000 1,370,000 1,462,000 ~,174,000 2,281,000 2,049,000
i
0 0 2,675,000 0 0 0 0
33,000 33,000 0 0 0 0 0
0 0 0 2,750,000 0 0 0
0 0 0 0 2,829,500 0 0
2,912,000 0 0 0 0 2,912,000 0
310,000 3,000,000 0 0 0 0 3,000,000
0 320,000 0 0 0 0 0
350,000 361,000 0 0 0 0 0
570,000 617,000 0 0 0 0 0
4,175,000 4,331,000 2,675,000 2,750,000 2,829,500 I 2,912,000 3,000,000
1,050,000 i············ 1,100,000
0 0 0 0 0 0 0
1,550,000, 1,550,000 !
100,0001 100,000
2,700,000 ' 2,750,000 ---------------
0 ° 0 0 0 0 0
2,000,000 1,150,000 265,000 500,000 750,000 2,000,000 1,150,000
0 0 22,500,000 3,500,000 0 0 0
0 0 550,000 0 0 0 0
0 0 2,845,000 0 0 0 0
0 0 0 2,950,000 01 , 0 0
0 0 0 0 ~,060,00()J .. _ ... 0 0
Page 2 of3
City of Palo Alto
2010-2014 CIP PLAN
Enterprise Funds
Proj No. Proj Name
WS-12001 WMR-Project 26
WS-13001 WMR-Project 27
WS-14001 WMR-Project 28 -add
WS-80013 Water System Extensi (Note 1)
WS-80014 Water Service Hydran (Note 1)
WS-a0015 Water Meters (Note 1)
Total
Notes:
1. Project exempt from prevailing wage since
projects will be done by in-house staff (City staff)
2. Maintenance project
Attachment I
Project Costs
2010 2011 2012 2013 2014
0 0 305,000 3,150,000 0
0 0 0 314,000 3,245,000
0 0, 0 0 324,000
400,000 410,000 420,000 430,000 440,000
259,000 212,000 217,00Q 222,000 229,000
203,0001 209,000 215,000 222,0001 229,000
27,414,000 18,173,000 5,067,000, 6,338,000 5,617,000
Total
Estimated Prevailing Wage at 5%
Estimated Prevailing Wage at 10%
Funding Sources: (at 5%)
Electric Fund Distribution Rate Stabilization Reserve
Gas Fund Distribution Rate Stabilization Reserve
Refuse Fund Rate Stabilization Reserve
Stonn Drain FundRate Stabilization Reserve
VVVVC Fund Rate Stabilization Reserve
Water Fund Rate Stabilization Reserve i !
Total I
I
Funding Sources: (at 10%)
-~~~~~
Electric Fund Distribution Rate Stabilization Reserve
Gas Fund Distribution Rate Stabilization Reserve
Refuse Fund Rate Stabilization Reserve
Stonn Drain FundRate Stabilization Reserve
VVVVC Fund Rate Stabilization Reserve
Water Fund Rate Stabilization Reserve
Total I
3. Regional facility and implements prevailing wage
Page 3 of3
Construction Costs 1
I
2010 2011 2012 2013 2014
0 0 0 3,150,0001 0
0 0 ° 0 3,245,OQO
0 ° 0 0 0
0 0 ° 0 0
0 0 ° 0 0
0 0 0 0 ° 26,160,000 i 6,950,000 3,810,000 5,150,000 4,395,000
32,105,000 26,662,000 i 18,183,500 19,793,000 16,684,000
1,605,2501 1,333,100 909,175 989,650 834,200
3,210,500 2,666,200 1,818,3501 1,979,300 1,668,400
80,000 102,500 170,000 165,000 202,000
15,000 290,000 298,500 307,500 160,000
0 363,750 0 0 0
68,500 73,100 108,700 114,050 102,450
133,750 156,250 141,475 145,600 150,000
1,308,000 347,500 190,500 257,500 219,750
1,605,250 1,333,100 909,175 989,650 834,200
160,000 205,000 340,000 330,000 404,000
30,000 580,000 597,000 615,000 320,000
0 727,500 0 0 0
137,000 146,2001 217,400 228,100 204,900
267,500 312,500' 282,950 291,200 300,000
2,616,000 695,000 381,000 515,000 439,500
3,210,500 2,666,200 1,818,350 1,979,3001 1,668,400
Attachment J
NOT YET APPROVED
Resolution No.
Resolution of the Council of the City of Palo Alto Repealing
Resolution 5981 and Requiring the Payment of Prevailing
Wage on City Capital Construction Contracts with Certain
Exemptions
WHEREAS, on December 14, 1981, the City Council resolved, in Resolution 5981,
to use the DavisuBacon Act or State Department of IndustriaI'Relations Prevailing Wage
Determinations only when required by federal or state grants and on other jobs considered to be
of statewide concern; and
WHEREAS, on D~ember 9, 2008, the City of Palo Alto Policy and Services
Committee recommended that a resolution be adopted requiring prevailing wage on all City
capital construction contracts; and
WHEREAS, on December 9, 2008, the City of Palo Alto Policy and Services
Committee also recommended that staff present types of construction contracts that could be
considered for exemption from a prevailing wage requirement; and
WHEREAS, on March 10, 2009, staff presented a proposed prevailing wage policy
to the Ad Hoc Committee on Prevailing Wage which proposed that the City pay prevailing wage
on City construction contracts, except in the following four situations: 1) Maintenance projects
under $250,000 as defmed by Section 22002 of the California Public Contract Code, 2) Projects
using public-private partnership funding, 3) Projects that construct/rehabilitate affordable
housing for people with low or moderate incomes, unless otherwise required by law, and
4) Projects where the work is performed either entirely by volunteers, and
WHEREAS, at their March 10, 2009, meeting, the Ad Hoc Committee on Prevailing
Wage recommended that Council approve the staff recommended policy in general, but proposed
minor modifications to three of the proposed exemptions.
WHEREAS, after the March 10, 2009 Ad Hoc Committee meeting, Mayor
Drekmeier referred this item back to the Council's current Policy and Services Committee for
further consideration.
The Council of the City of Palo Alto does RESOLVE as follows: . .
SECTION 1. Resolution 5981 is hereby repealed.
SECTION 2. The City will pay prevailing wage as determined by the
Department of Industrial Relations Wage Determinations when required by law, and on City
capital construction contracts with the following exemptions:
1
090624 syn 0111152
NOT YET APPROVED
1. Maintenance projects under $250,000 as defined by Section 22002 of the
California Public Contract Code
2. Projects using public-private partnership funding, where the private party:
a. is the lead entity managing the project's design and construction, and
b. funds at least 50 percent of the project.cost.
3. Projects that construct/rehabilitate affordable housing for people with moderate
incomes, unless otherwise required by law.
4. Projects where the work is performed entirely by volunteers.
SECTION 3. The Council finds that the adoption of this resolution does not
represent a project under the California Environmental Quality Act (CEQA), pursuant to'Section
21065 of the Public Resources Code, thus, no environmental review is required.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST: APPROVED:
City Clerk. Mayor
APPROVED AS TO FORM:
City Manager
Deputy City Attorney
Director of Public works
Director of Utilities
2
090624 s~n 0111152