HomeMy WebLinkAboutStaff Report 443-08TO."
ATTN:
City of Palo Alto
City Manager’s Report
CITY COUNCIL
POLICY AND SERVICES COMMITTEE
FROM:CITY MANAGER DEPARTMENTS: PUBLIC WORKS
UTILITIES
DATE:DECEMBER-9, 2008 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 nvt
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
deteriorated condition. In addition, a prevailing wage requirement could also apply to the many
private/public partnerships the City is invotved in such as Lytton Plaza, Art Center and possibly
the Junior Musemn and Zool 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 1 of 8
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 methodl
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 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 of 8
Recently, courts have blurred the issue of whether a chatter 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 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 of 8
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 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 greager
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 timings, 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 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
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
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 triggerwas 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 betweel~ 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
increase quality of the work.
Most believed that requiring prevailing wages decreases
projects.
Some cities have exceptions to paying prevailing wages for certain types of contracts.
prevailing wages does not
the number of bidders on
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
t 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 of 8
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 P alo 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 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 Page 6 of 8
The judge in Vista, however, contended that instead of focusing on the ~, 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 0n 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 dn 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 of 8
ATTACHMENTS
Attachment A:City of Palo Alto Resolution 5981
Attachment B:Minutes of September 17, 2007 City Council meeting
Attachment C:Prevailing Wage Rate Issues Memorandum of February 15, 2008
PREPARED BY:
M SA TOR
A s~i4tant Public Works Director
DEPARTMENT HEADS:
;HALL
Assistant Utilities Director
GLENN ROBERTS
Director of Public Works
CITY MANAGER APPROVAL:
VALEPa IO:. NG
Director o£ Uti i~ies
City{.M’anager
CMR:443:08 Page 8 of 8
Attachment A ORIGINAL
RESOLUTION NO.5981
RESOLUTION OF THE COUNCIL OF THE CITY OF PALO ALTO
ESTABLISHIN~ POLICY REGARDING PREVAILING WAGES FOR
PUBLIC PROJECTS
WHEREAS, in the recent case of Vial v. City of San Die~ (175Cal. Rtpr. 647, July, 1981), the Calif6r~nia Court o{ 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’s best interest to obtain the lowest
responsible bid for public projects;
NOW, THEREFORE, the Council of the City of Palo Alto does RESOLVE
as follows:
SECTION 1, It is appropriate 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 PASSED: December 14, 1981
AXES: Bechtel, Eyerly, Fletcher, Henderson, Klein, Levy, Renzel,Witherspoon
NOES: None
ABSTENTIONS: None
ABSENT: Fazzino
FORM:
City Attdrney ~ ~-"
APPROVED:
Vice Mayor .v - ,
Attachment B
M NUTES
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
Draft Program Environmental Impact Report on San Francisco Public
Utilities Commission’s Water System (Hetch-Hetchy) Improvement
Program .......................................................................................186
ORAL COMMUNICATIONS ’187
APPROVAL OF MINUTES ...........................................................................188
CONSENT CALENDAR .............................................................................188
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
Acceptance of a Report of Williamson Act Contracts within the City of
Palo .............................................................................................188
4Ao (Old Item 3) Request for Approval to Cancel October 8, November 5
and November 12 Regular Council Meetings and to Schedule a Special
Council Meeting on November 13 ........................ ; ........... ¯ ................ 188
UNFINISHED BUSINESS ..........................................................................189
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. Regional Water Quality
Control Plant - Capital Improvement Program Project WQ-80021 ........ 189
REPORTS.OF COMMITTEES AND COMMISSIONS ........................................191
09/17/2007 102-184
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 ......19:!
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 6:03 p.m.
Present:Barton, Beecham, Drekmeier (arrived at 7:00 p.mo), Cordell,
Kishimoto, Klein, Kleinberg, Morton, Mossar
STUDY SESSION
City Attorney Baum announced that Council Member Drekmeier would not
participate in Item 1 since he has a conflict of interest as he is an employee
of Tuolumne River Trust.
Draft Program Environmental Impact Report on San Francisco Public
Utilities Commission’s Water System (Hetch-Hetchy) Improvement
Prog ra m.
Assistant Director of Utilities for Resource Management Jane Ratchye
provided an overview of the Draft Program Environmental Impact Repprt
(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 [he 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 70% 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 20% 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 EIRso
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 M(3D 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 N]GD of conservation, water recycling, and groundwater
use in the wholesale customer service areas and by arranging with MID and
TID to transfer 23 NIGD 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 WSfP 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
subcommittee also supports a maximum rationing goal of 10%, rather than
the 20 percent in the proposed WSIPo In addition, the subcommittee
requests that SFPUC coordinate construction of the WSIP project that is
located 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,
ORAL COMMUNICATIONS
Phil Plymate spoke regarding the dismissal of a Utility Department employee.
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°
Bob Wenzlau, 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
N~OT3:OIN~ Council Member Mossar moved, seconded by Morton, to approve
the minutes of July 30 and August 6, 2007, with corrections as noted.
NIOT:EOIN IPAS$1Et~ 8-0, Cordell not participating.
CONSENT CALENDAR
~OT3:ON: Council Member Mossar moved, seconded by Klein, to pull Item 3
from the Consent Calendar to become Item 4Ao
I4OTIONI= Council Member Morton moved, seconded by Barton, to approve
Consent Calendar Item Nos. 2 and 4.
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
Palo
Acceptance of a Report of Williamson Act Contracts within the City of
Alto
4A,(Old Item 3) Request for Approval to Cancel October 8, November 5 and
November 12 Regular Council Meetings and to Schedule a Special
Council Meeting on November 13.
MOTION; 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 (P&S) meeting scheduled for that night,
so there is a conflict.
Assistant City Manager Harrison said tentatively the P&S 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
~OT~O~ PASSED 8-1, Drekmeier no.
UNFINISHED BUSINESS
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 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 Barton said he would like to make a two-part Motion to
accept the staff recommendation including acceptance of the contractor’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. ~ .
Mro 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 comments 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 102-18 9
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 Cityof 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 inhabitants 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 rej&ct
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 the 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.
MOT]:ON: 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 Finance Committee
know the struggles a city has to fund projects. If the whole financing
equation of the bid process is going to be changed, substantial amounts of
money would be added 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 Mossarand 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 Cordel[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
wants Council 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.
6-3 Beecham, Morton, Mossar no.
REPORTS OF COMMITTEES AND COMMISSIONS
o 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 10 2-1 91
NIOT:~OIN= 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 spring 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
give 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 ~or
Proposal~ 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
Plan. Nothing that Council does tonight binds the Council, the City, or 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 and 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 current 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
so we 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 partners, 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 recommend4ng
undertaking any major service changes with the current contract. In the
mid-term, to about 2011, we can focus 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 Jrto the Council in 2008 with an analysis and
recommendation of how much it will actually co.st, what will 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 the 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. ]:f 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 i-n 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 would 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 Kishimoto thanked Mr. Roberts for his presentation, thanked staff for
three years of hard work and the members of the Zero Waste Task Force
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
scope 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. Landfill capacity has not been an issue
because Kirby Canyon exists and 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/I 7/2007 l 02-194
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.
Mro 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 saying 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 processing 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 programs, 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 opportunity should be taken to enact a ban on
polystyrene food containers. Several cities have already done so such as
Berkeley, Portland, San Francisco and Oakland. New York City is currently
considering such a ban. Most Palo Alto restaurants already use recyclable
containers. Polystyrene containers are used here not only in restaurants but
in other 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
timelinewould be helpful. There is a lot of anxiety on the part of the Council
to move forward. She inquired 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 102-1 9 6
questions on why 2°2 acres is needed, as opposed to half an acre, and also
on household hazardous waste.
Mr, Roberts said he must 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 Kishimoto asked Mr. Roberts to confirm the site design for a
temporary 2.2 acre site is going to Planning and Transportation Commission
(P&TC).
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 P&TC 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 proponent 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
timeline. 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 102-1 97
mainly offices, 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 2_009,
Council 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 Time
Equivalents (FTE) to City staff if we can avoid ito We want 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 geLLing 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 Lime 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
organizations 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 of a 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.
Council 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. .-
Mro 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 relocated 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 102-1 9 9
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 Mossar said the P&S Committee talked about this and it has
come to us with their unanimous recommendation. This is a huge 50,0.00
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 isa 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 tonight 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.
AND SECOMDER to diFect staff to FetuFn to the Council with a list of
programs with minoF budgetary impacts, recommended foF immediate
implementation.
Council Member Cordell also recommended mandatory recycling and product
bans. Staff should 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 Member 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 recommendation. 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
thesame 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.
SUBSTITUTE 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 i02-201
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 size reference 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 toa 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&,TC 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 Council 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. ]:f 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 Mossarsaid the argument is about semantics even though
everything being discussed is important. She noted she is uncomfortable
with the Substitute Motion because although 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-ino This City has been an environmental leader on
a number of issues and we have led the region in water quality. This has
been done by cooperative 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
prevention 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 h6w
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
would be closed,
Stephanie Munoz, 101 Alma, 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/I 7/2007 102- 2 0 3
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.
SU~$T~TUTI~ MOT:ION 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,
CONFERENCES
ANNOUNCEMENTS,AND REPORTS FROM
Council Member Morton noted as liaison to the 2009 Senior Games, he
attended the first meeting of the major sponsors of the Games and their visit
to the Stanford facilities.
Mayor Kishimoto noted she attended the Sundance Mayor’s Summit on
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
(PAUSD) PTA, and the Neighborhood Associations. Two community meeting
09/17/2007 10 2- 2 0 4
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 :[4, 2007 and would be with th’e Planning and
Transportation Commission. The final plan would go to the VTA Planning
Operations Committee in December 2007 with the V-I-A 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 Roils campaign to be held the first week of October
2007. Acommunity bike ride was scheduled on October 6, 2007.
ADJOURNMENT: The meeting adjourned at 9.45 p.m.
A-I-1-EST:APPROVE’D:
City Clerk Mayor
NOTE: Sense minutes (synopsis) are prepared in accordance with Palo Alto
Municipal Code Sections 2.04o:[80(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
Committee 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
TO:Mike Sartor
Assistant Director Public Works
FROM:Evan Goldin
Management Specialist
DATE:February 15, 2008
SUBJECT:Review of Potential Impacts of Requiring Prevailing Wage Rates on all
City Construction Proj ects
DISCUSSION
What is Prevailing Wage and What Are Its Origins?
Prevailing wage laws require public works contractors to pay their employees standard lo~al
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 more 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 firm that sought to bring in cheap labor from the South.
Construction firms in New York and national labor leaders lobbied Congress, arguing that the
government should not 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 definition 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 corresponding 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 perforined." 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 1 of 19
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 performed, 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 works,
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 --
muaficipalities 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 charter,
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 Ako 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. The
findings are summarized below:
Question 1: Does your city require contractors to pay prevailing wages on any municipal
contracts?
Page 2 of 19
4O
3O
2O
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." If 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 claimed 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 project
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
Minimally higher quality
No impact on quality
Lower quality
5 25%
1 5%
13 75%
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 to judge well enough to respond. Eighty percent of those believe
that requiring prevailing wages does not increase quality at all, and one respondent even claimed
it lowered quality (though it’s 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 City’s
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 experienced contractors to bid."
Question 4: How does prevailing wage affect the number of bidders on public construction
projects in your city?
After evaluating the results of this question, one matter seems certain: requiring prevailing wage
does not increase the field of bidders. All respondents either replied that they .believe prevailing
wage decreases the field of bidders, has no impact whatsoever or they were unable to provide an
answer.
Page 4 of 19
12
3
Decreases No impact
The respondents were almost 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 measurable
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 5 of 19
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
Some maintenance
Yes
Projects w/affordable housing
Public works less than $25k,
maintenance less than $15k
Some
11 44%
9 36%
2 8%
1 4%
4%
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
prevailing 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 effects that come as a result of payingprevailing wage:
Survey respondents noted a wide range of positive effects. The comments generally fit into the
following categories:
-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
-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 effects that come as a result of payingprevailing wage:
Page 6 of 19
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 nal~owly 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 City/Agency needs to pay does not financially 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 gettingquality 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 the 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 little
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 a
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-
prevailing 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
construction projects in Utah that experienced cost overruns went from 2 percent to 7.3 percent.
Most important, Philips claims that Utah did not benefit financially 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 egpecially important considering that
there were 1,186 construction deaths in 2005, more thart any other industry. Furthermore, while
Ph.D. Mark Prus found that construction 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 wage studies was conducted by Bob Gasperow, of the
Construction Labor Research Council, in 2001. Gasperow’s study examined differences between
highway construction 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 mmaber 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 of 19
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 there 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 wages 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.
Government Studies
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
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 lower,
yielding a cost savings of more than $500,000.
Page 9 of 19
In Kentucky, the legislature also ordered its research arm to conduct a study on the issue of
prevailing wage. The study made a notable number of timings, 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
construction. 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 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. However, its main overall conclusion
on the effectiveness of the legislation is as follows:
To the extent that quality is increased, wevailing 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
Accounting 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 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. 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 10 of 19
Overall Studies Summary
There is little agreement in the academi~ 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 government studies, however, all appeared to find that
prevailing wage did raise the cost of construction projects. Most 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 legislation. To best judge the affect a
change in Palo Alto’s prevailing wage policy would have on local contractors, 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
number 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 eniployees.
Question 2." If you 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 argued
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 of 19
N/a:No:~Yes:
3 22 1 24
As one can see, many firms 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 determine prevailing
wage. Yet, 22 firms 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 firms 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 hired for 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 firm is hired for a
prevailing wage job, they simply use the same employees. If this turned out to be the case, this
would seem to counter the idea that paying prevailing wage increases the quality of construction.
If firms used the same workforce regardless of prevailing wage conditions, it’s unlikely paying
prevailing wage would increase or decrease quality. To gauge this, we asked firms if they use the
same workforce on both types of jobs:
Page 12 of 19
Yes:
42
As these data show, few employers are using separate workforces for prevailing 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.
20-
Series1
Different workers
5
Same workers
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 employees 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 wages equal low work quality.
Question 4." Wouldprevailing 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.
Yes Sometimes No
8 3 38
For vast majority of contractors, the compliance costs of prevailing wageand 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
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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 prevailing jobs 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 tim4 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, it’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 regulations was 233, and five of the
firms had more than 50 employees. Therefore, while many studies have argued that prevailing
wage requirements disproportionately harm 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 sought to
find the average proportion of total construction costs that are made up by labor among city
Page 15 of 19
contractors. The survey asked respondents, "Approximately 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 question 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. Answers to this question will provide additional insight when compared to the
following question.
Question 6." By what 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 no 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.
20-
Level playing Quality NoneContractorsEmployeesfield
4 6 6 9 17
To help clarify the answers to this question, staff grouped the responses by category. Four of the
responses claimed that contracting firms are the main beneficiaries of prevailing wage
legislation. Six respondents claimed that the main beneficiaries are employees themselves, while
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another six noted that main benefit is leveling the playing field for contractors. Nine respondents
pointed to increased quality of employees and work as the main benefit, and 17 reported no
benefits whatsoever. A sample .of the 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 prevailing 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 our 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 that come as a result of paying prevailing wage:
6~
Confusing Higher costs Admin costs No Negatives
Series1 3 9 15 16
After asking respondents to share any positive effects they felt prevailing wage offered, staff also
asked respondents to state the negative effects of prevailing wage. Responses essentially covered
Page 17 of 19
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
large firms that are some of the best in 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 half way through the bid project
the city required 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 perfolan prevailing 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 construction 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 of 19
I wish all 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_projects. 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 no 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 a political 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 I should 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, if frugally, 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 $10 per hour in 2000, 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 requiting the payment of prevailing
wages.
Page 19 of 19
References
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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 al. (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 al. (Feb., 1984). "The Effect of the Davis-Bacon Act on Construction Costs
Rural Areas", The Review of Economics and Statistics, Vol. 66, No. 1, pp-142-146
Gasperow, Ro (May, 2001). "Do Higher Wages Raise Labor Costs?", Construction Labor
Research Council
Jordan, L., et al. (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 al. (June, 2004). "Impact of Prevailing Wage Rate Requirements on the Costs of
Affordable Housing in Califomia", The California Institute for County Government
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