HomeMy WebLinkAboutStaff Report 151-10TO: CITY COUNCIL
FROM: CITY MANAGER
DATE: MARCH 8, 2010
City of Palo Alt15
City Manager's Report
DEPARTMENTS: PUBLIC WORKS
UTILITIES
CMR:151:10
REPORT TYPE: RECOMMENDATION
SUBJECT: Policy and Seryices Committee Recommendation to Direct Staff to
Perform a Study Evaluating the Impact of Prevailing Wage on City
Capital Construction Projects
RECOMMENDATION
Staff recommends that the City Council direct staff:
-1.
2. To develop a survey to be submitted to all bidders on Palo Alto construction projects that.
will be used to evaluate differences in benefits and work conditions at contracting
companies paying or not paying prevailing wages.
EXECUTIVE SUMMARY
This report responds to the December 17, 2009 discussion by the Council's Policy and Services
Committee (P&S Committee) regarding prevailing wage. At its meeting on December 17, the
P&S Committee indicated an interest in requiring prevailing wage on City capital construction
contracts and moved that the P&S Committee recommend that the City Council direct staff to
perform a pilot study of potential prevailing wage impacts on selected capital improvement
projects to determine whether the prevailing wage requirement impacts number of bids, project
costs, change orders and other factors. The P&S Committee included in its motion a
recommendation that Council also direct staff to develop a survey to be submitted to all bidders
on Palo Alto construction projects that would be used to evaluate differences in benefits and
work conditions at contracting companies paying or not paying prevailing wage. The motion
passed on a 3-0 vote with committee member Yiaway Yeh abstaining (see P&S Committee
minutes Attachment A).
In October 2009, staff met with representatives of the Santa Clara and San Benito Counties
Building and Construction Trades Council (Trades Council) and the Associated Builders and
Contractors (ABC) to discuss possible prevailing wage study criteria. At the meeting it was
agreed tllat the City should select a few projects that could be bid with and without prevailing
wage to determine differences in actual bid prices. The group also discussed a possible survey
CMR:151:10 Page 10f6
that could be sent to bidders bidding Palo Alto construction projects to evaluate differences· in
benefits and work conditions present at contracting companies paying or not paying prevailing
wage on their projects. This report presents the details of the recommended prevailing wage
study.
BACKGROUND
As a charter city, Palo Alto is not required to pay prevailing wages on "public works" projects,
so long as the projects are within the realm of "municipal affairs", funded entirely by local funds,
and no other statutory exceptions apply. This "home rule" principle allows decisions on
expenditure of local funds to be made by locally elected officials. In 1981, Palo Alto passed a
resolution to pay prevailing wage, "only when required by federal or state grants and on other
jobs considered to be of statewide concern." (See Attachment B).
Recently, charter cities' power to opt out of state prevailing wage law was upheld by California's
Follf$ District Court of Appeal in State Building and Construction Trades Council of California
v. City of Vista, (2009) D052181. In 2007, the City of Vista (Vista), a charter city like Palo Alto,
adopted an ordinance under which City contracts generally would not require payment of the
prevailing wage. The Court held that state prevailing wage laws were intended ''to keep state
contracting from undermining what local markets have established." However, because an
ordinance like Vista's would not materially interfere with the stability of the area's labor market,
the effect of ordinances like Vista's were not a matter of statewide concern. Therefore, the court
_:held that charteLcities, like Vista and Palo Alto, retain the pow_er to_opt out of the_state's
prevailing wage law. The State Building and Construction Trades Council of California intends
to petition the California Supreme Court to review this case. In the meantime, the Vista decision
is still good law, and it affi~s the City of Palo Alto's right to opt out of paying prevailing wage.
Also relevant is SB 9EX, which the Governor Arnold Schwarzenegger signed on February 20,
2008, noting the (then) ongoing litigation in Vista. SB 9EX narrowed potential prevailin.g wage
obligations for charter cities involving work on water, sewer, or storm drain systems that have
previously been extended to disadvantaged communities.
Amid the recent debate over charter cities' prevailing wage requirements, on December 9,2008,
staff presented to the Council and the P&S Committee a recommendation that Council not
change current prevailing wage policy, allowing City capital construction ("public works")
projects to be bid without prevailing wage requirements unless prevailing wage is required for
the project pursuant to state or federaLlaw, due to potential cost impacts to the City's General
and Enterprise Fund Capital Improvement Program (CIP) Projects (CMR 443:08, Attachment
C). The Committee carefully reviewed this recommendation and decided it was in the best
interest of the City to recommenct to the full Council that a resolution be adopted requiring
prevailing wage on all City capital construction contracts. The P&S Committee also instructed
staff to recommend types of construction contracts that could be considered for exemption from
a prevailing wage requirement. Minutes of the December 9th P&S Committee meeting is
Attachment D.
On March 10, 2009, staff presented to the Council's Ad Hoc Committee on Prevailing Wage
proposed exemptions from the possible prevailing wage policy discussed at the December 9,
2008 P&S Committee meeting. The possible exemptions reviewed with the Ad Hoc Committee
were:
CMR:151:10 Page 2 of6
1. Maintenance projects under $250,000 as defined by Section 22002 of the California
Public Contract Code;
2. Projects using public-private partnership funding;
3. Projects that construct/rehabilitate affordable housing for people with low or moderate
incomes; and
4. Projects where the work is performed either entirely or partially by volunteers.
A detailed discussion of the above staff recommended exemptions can be found in the
CMR:150:09, Attachment E. At the March 10th meeting the Ad Hoc Committee on Prevailing
Wage recommended that Council. approve the staff recommended exemptions for projects where
the work is performed entirely by volunteers and for low and moderate income housing projects.
Minutes of the March 10th meeting are Attachment F.
The Ad Hoc Committee asked staff to come back to the full Council with additional information
on possible exemptions for maintenance projects and projects involving public-private
partnerships, as well as clarification that the proposed exemption for affordable housing would
apply unless otherwise required by law. Speci:&cally, the Ad Hoc Committee asked staff to
present justification for the proposed $250,000 threshold for maintenance projects that is
reflective of the dollar value of most maintenance contracts and not tied solely to the $250,000
threshold cited in Section 2.30.210 of the City's Municipal Code for Public Works projects
requiring City Council approval. The Ad Hoc Committee also asked staff to develop criteria for
exemptmg pubbc-pnvate partnershIp projects that reflects the amount of CIty fUridmg m these
projects and addresses project administrative responsibilities.
At the June 29, 2009, P&S Committee meeting staff recommended that the Committee
recommend that the City Council retain its current prevailing wage policy, allowing City "public
works" construction projects to be bid without prevailing wage requirements unless prevailing
wage is required for the project pursuant to state law, in light of the City'S current economic
difficulties and to avoid additional cost impacts to the City's General and Enterprise Fund CIP
projects. At that time staff also recommended a pilot study of potential prevailing wage impacts
be conducted on selected CIPs where prevailing wage would be required, to determine whether
the prevailing wage requirement impacts the number of bids, project costs, change orders and
other factors. At this meeting staff also presented additional information on a possible
exemption for maintenance projects less than $250,000 and another possible exemption for
Public-Private Partnership projects where the private party is the lead entity funding 50% or
more of the project cost and manages the project design and construction. CMR:236:09
(Attachment G) contains a full discussion of the prevailing wage topics presented at the meeting
on June 29. At this meeting the P&S Committee voted unanimously (with Committee member
Yiaway Yeh absent) to defer the prevailing wage Ordinance for one year and direct staff to study
the issue using pending projects to achieve constructive data.
The P&S Committee Chair also confirmed that staff would come back to the P&S Committee
with the study criteria within a couple months and then within a year with final results. Minutes
of the June 29 meeting are Attachment H.
At the December 17, 2009 P&S Committee meeting, staff presented proposed prevailing wage
study criteria that the P&S Committee could recommend to the City Council. The staff
recommended study criteria would center on the following two areas:
CMR:151:1O Page 3 of6
• Performance of a pilot study of potential prevailing wage impacts on selected CIPs where
prevailing wage would be required to determine whether the prevailing wage requirement
impacts the number of bids, project costs, change orders and other factors; and
• Development of a survey to be submitted to all bidders on Palo Alto construction projects
that would be used to evaluate differences in benefits and work conditions at contracting
companies paying or not paying prevailing wages.
At the December 17 meeting, the P&S Committee moved to recommend that the City Council
accept the above staff recommendations with the following additional requests:
• Staff should reevaluate the proposed survey questions presented at the December 17
meeting to explore the core issues of wages and the nature of worker benefits;
• Staff should conduct a post study evaluation of completed work for quality, cost and
schedule control on projects using and not using prevailing wage;
• Staff should also survey sub-contractors bidding on Palo Alto construction projects;
• The City Manager should convene with the City Attorney to determine how the survey
can be distributed at bid time; and
• A question on construction company training programs should be included in the survey.
The P&S Committee Chair Sid Espinosa also requested that the prevailing wage staff report to
Council remove any discussion of a potential 5% to 10% cost impact to CIP projects as the
purpose of the study will be to verify if there are any cost impacts on projects the City bids.
CMR:472:09 (Attachment I) contains a full discussion of the prevailing wage topics presented at
the December 17 meeting.
DISCUSSION
Since the December 17 P&S Committee meeting, the City Attorney has opined that a contractor
survey may be sent to all contractors and sub-contractors bidding on Palo Alto construction
projects. The surveys should be sent after bids are opened, in order to preserve the integrity of
the bid process. A survey cannot be required as part of the invitation for bid (IFB) contracting
process on CIP projects.
Study of Selected CIP Projects
Next fiscal year's CIP will include some projects that could be separated into two contracts, one
with prevailing wage and one without. These projects will need to be of similar size and scope
to ensure comparable bid price data. The projects would be bid in late spring in anticipation of
funding with the adoption of the 2011 Capital budget. Some of the projects staff will consider
using this approach includes:
• Annual street maintenance projects;
CMR:151:1O Page 4 of6
• Annual sidewalk replacement projects; and
• Utility main replacement projects (water, gas and wastewater)
Bids received on these projects are typically good for 60 days after bid opening so the contract
awards on these projects could easily occur shortly after budget adoption in late June and both
General and Enterprise funding becomes available. Staff will evaluate which of these projects
would be ready to bid by late spring so that bid results will be available for evaluation and
reporting back to the P&S Committee by summer 2010.
Survey of Contractors
A survey would be conducted of contractors bidding Palo Alto construction contracts. The
survey would be distributed to the bidders list (including listed sub-contractors) after bids are
opened on all contracts bid over the next several months. The survey would be used to measure
those things that have a real impact. on worker benefits and working conditions to evaluate the
impact prevailing wage has on construction workers. SurVey questions may include:
• Do you have a employee retirement benefit plan?
• Do you provide a health care plan to your employees?
• Do you provide a training/apprenticeship program to your employees?
• Have ou bid" ublic works" roO ects in Palo Alto before?
• Did your company receive subsidies for your bid, such as "market recovery" or 'job
targeting" funds?
If the P&S Committee recommends that Council direct staff to proceed with the staff
recommendations included in this report and Council approves the study, staffwill meet with the
Trades Council and ABC to finalize the survey questionnaire and will select the projects that
would be separated into two contracts to be bid with and without prevailing wage. Staff
anticipates completing the study and returning to Council with the results and a prevailing wage
recommendation this summer.
RESOURCE IMPACT
At this time it is uncertain what the impacts might be of requiring prevailing wage on all City
General and Enterprise Fund CIP projects. Once the study is completed staff will come back
with an analysis of potential cost and other quantifiable impacts on comparable projects bid with
and without prevailing wage.
POLICY IMPLICATIONS
To require prevailing wage to be paid on City capital construction projects Council would need
to adopt a resolution rescinding resolution 5981 and codifying the new prevailing wage policy
and any exemptions Council chooses to include. A sample resolution is attached as Attachment
J. .
CMR:151:10 Page 5 of6
ENVIRONMENTAL REVIEW
The Council's P&S Committee on Prevailing Wage's review of the prevailing wage policy
issues presented in this report does not represent a project under the California Environmental
Quality Act (CEQA), pursuant to Section 21065 of the Public Resources Code, thus, no
environmental review is required.
ATTACHMENTS
Attachment A: Minutes of December 17, 2009 Policy and Services Committee meeting
Attachment B: Resolution 5981
Attachment C:CMR: 443:08 (December 9, 2008)
Attachment D: Minutes of December 9,2008 Policy and Services Committee meeting
Attachment E: CMR:150:09 (March 10,2009)
Attachment F: Minutes of March 10,2009 Ad Hoc Committee on Prevailing Wage meeting
Attachment G: CMR:236:09 (June 29, 2009)
Attachment H: Minutes of June 29,2009 Policy and Services Committee meeting
Attachment I: CMR:472:09 (December 17,2009)
Attachment J: Draft Resolution -Requiring the Payment of Prevailing Wage on City Capital
Construction Contracts with Certain Exemptions
PREPARED BY:
Assistant Utilities Director
DEPARTMENT HEADS: &LsKj---
Director of Public Works
~~
Director of Utilities V
CITY MANAGER APPROVAL: ~s~~~ JA ES KE
lty Manage
CC: Neil Struthers, Santa Clara and San Benito Building and Construction Trades Council
Nicole Goehring, Associated Builders and Contractors, Golden Gate Chapter
CMR:151:10 Page 6of6
ATTACHMENT A
POLICY AND SERVICES COMMITTEE
Special Meeting
December 17, 2009
Chairperson Espinosa called the meeting to order at 6:04 p.m. in the
Council Conference Room, 250 Hamilton Avenue, Palo Alto,VCalifornia.
Present:
Absent:
Espinosa (Chair), Barton, Kishimoto
Yeh
Chair Espinosa indicated that the City Auditor had requested Item
Number 3 be discussed first to accommodate another meeting she had
to attend. He said there was general agreement among the
Committee to move the item forward on the agenda.
None
3. Follow Up Information From November 30, 2009 Policy and
Services Committee Meeting and Recommendation for Council
Confirmation of Independent Police Auditor Contract Management
Structure.
John K. Abraham, 736 Ellsworth· Place, discussed his concerns about
the Police demographic data process. He said that an experienced
statistician should be involved.
Herb Borock, PO Box 632, discussed his concerns about the meeting
beginning at 6:00 p.m. and the agenda being moved around as well as
the timing of the reports. He believed the Charter gave the Council
the authority to assign duties including the Police Auditor Contract.
City Manager James Keene said the Staff Report had been reviewed by
the City Attorneys office as it relates to the City Manager duties, the
Charter, and the Penal Code. He said that if the issue was who should
give the information to the Council, the City Clerk would be
appropriate. He would still need a copy of the report in order to follow
up with the Police Chief on issues of concern.
Policy & Services: 091217Working 1
City Auditor Lynda Brouchoud agreed that the City Clerks office could
serve the function. The most recent amendment to the contract did
address the issue. This contract serves as another Council Appointed
Officer (CAO).
Mr. Keene said the existence of one CAO did not eliminate the
responsibilities of other CAO's and did not create immunity. He quoted
Article 3, Section 6 of the Charter to explain the duties of the City
Manager in relation to contracts.
Council Member Kishimoto was happy there was consensus. She
suggested a change to Staff's recommendation to reflect that Council
should approve contract management and that receipt and distribution
of the Police Auditor Report will be done through the City Clerks Office.
Mr. Keene said that the Independent Police Auditor will supply the City
Clerk with their report and the City Clerk will immediately distribute it
to the Council.
MOTION: Council Membel Kishimoto moved, seconded by Council
Member Barton that the Police Auditor will provide their reports to the
City Clerk to immediately distribute to the City Council.
Chair Espinosa said that the Committee requested that Staff debate
the pros and cons of this process. He said Staff provided a very
strongly worded report on the one side of the argument. He didn't feel
they had received information on both sides of the issue.
MOTION PASSED: 3-0, Yeh absent
Council Member Kishimoto asked for clarification regarding the Police
Auditor's role in the racial profiling issue.
Assistant to the City Manager, Kelly Morariu said the contract
amendment stated that the Police Auditor would audit policy, training
and practices, and some demographic data collection. They would not
perform additional demographic data analysis.
Council Member Kishimoto said the Council should consider requesting
the Police Auditor add that to the contract.
Chair Espinosa said that could be discussed in 2010.
Policy & Services: 091217Working 2
Council Member Kishimoto that level of data analysis would require a··
resource with specific skills.
No Motion Required.
2. Policy and Services Committee Recommendation that City
Council Direct Staff to Perform a Study Evaluating the Impact of
Prevailing Wage on City Capital Construction Projects
Assistant Public Works Director Mike Sartor gave a presentation
summarizing Staff's response on the proposal to apply prevailing wage
requirements for City capital projects. Staff recommended a two-part
study. Part one would include selecting a few capital projects in
Utilities, and the General Fund, where projects could be separated into
two contracts, one with prevailing wage and one without, e.g. sidewalk
repair. Part two would be a survey to send out to bidders on all
construction projects to study the work environment and the type of
benefits offered.
Neil Struthers, 2108 Almaden Road, said the prevailing wage survey . .
remain simple.
Nicole Goehring, 4577 las Positas Road, livermore, representing
Associated Builders and Contractors, asked that the prevailing wage
process remain open and fair from the beginning.
Council Member Barton said that the 5% cost didn't feel right. He said
the survey questions need to be revised based on what needs to be
learned. It will be important to learn what benefits contractors offer.
He said that all the sub-contractors should have to answer the
questions. He suggested that Staff break the projects down into more
similar sizes. He said he would lean toward the line of questions
presented by Mr .. Struthers rather than the one Staff offered. He
would add "type of retirement." He asked what market recovery and
job targeting are.
Mr. Sartor said that some contractor's bids are subsidized by building
trade funds, allowing them to be lower than other contractors.
Council Member Barton asked if the questionnaire would go out as part
of the bid process.
Mr. Sartor said the City Attorney advised that sending the
Policy & Services: 091217Working 3
'questionnaire out at that time would jeopardize the process. Staff
would take the list of bidding contractors and send the questions out
to contractors following the contractor selection.
Council Member Barton said that needs to be reviewed again by the
Attorney.
Mr. Sartor said they suggested a sealed package to be opened by
contractors after the bid was awarded, but the City Attorney did not
approve the process.
Council Member Kishimoto said this was cost versus benefits. She
asked how the packets would be evaluated in terms of the numbers of
bidders. She said they should measure quality.
Mr. Sartor said that was more, of a qualitative question. The questions
being proposed would shed light on the quality of construction.
Council Member Kishimoto questioned the accuracy of determining the
quality of the construction work by the questions.
Mr. Sartor said if they have worked Palo Alto before, they would be
aware of Palo Alto's standards.
Council Member Barton added that Staff would want to know if they've
worked in Palo Alto before to gauge an increase in the size of the
bidding pool.
Council Member Kishimoto asked if there was a way to look at total
compensation to the workers.
Mr. Sartor said with the prevailing wage requirement they would be
bidding on the worker pay scale. The question about which benefits
are provided will allow Staff to evaluate additional compensation.
Council Member Kishimoto said the level of expertise should be
defined.
Mr. Sartor said contractors who are familiar with Palo Alto standards
for construction will have that quality already.
Council Member Kishimoto said the contractor can bid whether or not
they've had experience in Palo Alto.
Policy & Services: 091217Working 4
Mr. Sartor agreed and said Staff had to ensure contractors followed
standards.
Council Member Kishimoto asked if Palo Alto standards were different
from other municipalities.
Mr. Sartor said they were typical for the Bay Area, though higher than
municipalities outside the Bay Area.
Chair Espinosa asked what buckets Council Member Kishimoto wanted
to organize the questions in.
Council Member Kishimoto defined them as benefits to workers, cost to
the City, and quality of work.
Chair Espinosa said Council will be concerned about the cost to do the
study.
Council Member Barton said it was similar to Council's vote to study
the externality costs of environmental issues.
Chair Espinosa said the wording was that it could be 5%-100j~-higher;
implying that there were resource costs not yet understood.
Council Member Kishimoto said Council will request that Staff leave out
that 50/0.
Chair Espinosa the goal of the study was to solve these logistical
issues and that there were arguments on both sides. He said the
survey needs to be looked at in terms of process and what needs to be
learned. .
Council Member Kishimoto asked if wording should be added requiring
sub-contractors complete the surveys.
Mr. Sartor said the prime contractor was required to list their subs, so
the survey would go out to both.
Council Member Kishimoto asked if prevailing wage applies to the sub
contractors.
Mr. Keene asked about the total change orders and additional costs at
close out. He asked if they could be added.
Policy & Services: 091217Working 5
Council Member Yeh arrived at 6:48.
Mr. Sartor indicated that Mr. Struthers made that suggestion as a
mechanism for evaluating quality.
Mr. Keene asked if they could be added.
Mr. Sartor said they wouldn't be part of the questionnaire but they
could be included at some pOint.
Mr. Keene asked if patterns regarding pay scale and other social
concerns such as minority representation should be addressed in the
survey.
Chair Espinosa clarified that these measurement suggestions should be
included in a follow-up Staff Report.
MOTION: Council Member Barton moved, seconded by Council
Member Yeh that the Policy and Services Committee recommend that
Council direct Staff to perform a pilot study of potential prevailing
wage impacts on selected Capital Improvement Projects to determine
. whether the prevailing wage requirement impacts the number of bids,
project costs, change orders and other factors.
Council Member Barton moved, seconded by Council Member
Kishimoto that the Policy and Services Committee recommend the
Council accept the staff recommendations with the following additional
requests: 1) Staff should revaluate the survey questions to explore the
core issues of wages and the nature of benefits; 2) a post study
evaluation of completed work for quality cost and schedule control
should be included; 3) sub-contractors should be included in the
survey; 4) the City Manager should reconvene with the City Attorney
to determine how the survey can be distributed at bid time; and 5)
training should also be included.
Chair Espinosa requested that the measures discussed here should be
incorporated into the next Staff Report, the impact should be studied
and the 5% should be removed.
MOTION PASSED: 3-0, Yeh Abstained
4. Recommendation for Council Approval of the City's 2010 Federal
and State Legislative Priorities and Overall Legislative Action Program
Structure
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Assistant to the City Manager Kelly Morariu said the overall Legislative
Program structure had been refined. Staff requested the Committee's
comments on the legislative process. A few minor changes had been
outlined in Attachment D. Staff had taken input from the City's
Federal legislative advocacy firm, the Executive Team and other Staff
Members who have been involved in the process, and put together
some Federal legislative priorities which were included in the Staff
Report. With the Committee's approval, Staff was planning to bring
the program before Council in January in conjunction with the Utilities
Department legislative program.
Council Member Barton commented on the different relationships
between the federal program and state program. He commented on
broadband-cable-telephone-wireless issues as they related to the tax
base. He questioned how competition should be addressed at the
federal level. He also stated that the San Francisquito Creek issue
should be addressed more specifically as part of the appropriations
request.
City Manager James Keene said they 'Nere guiding principles.
Council Member Kishimoto said that Staff should look at liberal
communities and climate change. Smart Grid straddles broadband,
and should be considered. Positioning Palo Alto as a model city should
be mentioned.
Council Member Barton suggested finding a way to build innovation in,
and to leverage the brand.
Mr. Keene agreed with the suggestions. He added that the Federal
lobbyists made the same point in relation to competing for Federal
funds.
Council Member Barton suggested working with private industries to
accomplish the goal.
Ms. Morariu said that was something the Council would like as an
overall principal.
Council Member Kishimoto agreed they should add the public-private
partnerships to the procedure.
Chair Espinosa commented that progress was being made in this
Policy & Services: 091217Working 7
program. He said it's important to clarify the role the Council will play,
and it's being mentioned more, but it should be thought through more
than it has.
Council Member Kishimoto said that guidelines for High Speed Rail
have been developed and the role of the legislature is to respond
quickly.
Chair Espinosa said creating a flow chart would be a good idea.
Community engagement should also be added. There should be
triggers that instigate community involvement. He asked about the
next steps for understanding what the lobbyist's work plans were.
Ms. Morariu asked for suggestions on what that would look like.
Mr. Keene asked for timing suggestions. He said that every year there
should be a work plan with priorities defined.
Chair Espinosa said the most important priority should be identified.
Ms. Morariu said Council will help define that in January.
Chair Espinosa said that community partners could help reach
legislators with certain appropriations requests.
Ms. Morariu said the Federal lobbyist had recommended a trip to
Washington in early February.
Chair Espinosa said it should be up to the new Council, but they will
have to have the conversation quickly. It's incumbent on the lobbyists
to inform Staff soon about issues that are important to give them time
to prepare a response for when Palo Alto visits them.
Council Member Kishimoto asked if Palo Alto had a State Lobbyist.
Mr. Keene said the City does not.
Council Member Kishimoto suggested the City prioritize their goals
with the Cities Association. High Speed Rail could be prioritized to
have more of an impact.
Council Member Barton suggested creating an organization of Cities
that shared Palo Alto's view, such as a coalition of green California
Cities. A small group of Cities with a relatively small amount of money
Policy & Services: 091217Working 8
can accomplish much with the nimble nature of such a group.
Chair Espinosa agreed with Council Member Barton's suggestion, with
the exception that they were competing with some of those cities for
much of the project funds. He also discussed the process for
determining when Palo Alto will connect with other organizations to
join forces to leverage lobbying resources.
Council Member Kishimoto said that under Guiding Principles they
should add "proactive advocating on behalf of the City, taking a
proactive role in working with Federal and State legislatures, League of
Cities,and CPA or other partners."
Council Member Yeh said another area with dollars available was the
Low Carbon Cities Initiative between China and the U.S. The other
Bay Area Cities participating in the program were Oakland and
Berkeley. He talked about the importance of familiarizing Staff with
that process, without taking too much of their time.
MOTION: Council Member Kishimoto moved, seconded by Council
__ MembeLBartQn that the Policy and Services Committee recommend
approval of the 2010 State and Federal legislative Priorities with
changes recommended by Staff, and the additional bullet under
Overall Guiding Principles, and promoting Palo Alto's role as a leader.
Chair Espinosa said the three bullets were; 1) positioning and branding
ourselves as an innovation leader to lead on certain policies, 2) taking
a proactive step to building a coalition of cities to leverage resources,
and 3) thinking about broader community engagement. He said that,
if Staff understood the three bullets, the motion was fine.
Council Member Kishimoto added that Smart Grid needed to be added
under Federal, and asked about High Speed Rail.
Mr. Keene said he wanted to define how proactive the City should be.
Chair Espinosa said it would be good to call that out in a Staff Report.
There will be an evaluation of the committee assignments in the
following year. The State approach needs to be driven through the
League; we would like to see them be decisive.
Ms. Morariu suggested that should be called out under the role of
Council in the program manual.
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Chair Espinosa agreed but added the principals will already have been
assigned at that time. The Mayor will need to recognize the impact
this will have in the overall strategy.
Mr. Keene added that the overall guiding principles don't have this
detail. It may be beneficial to recognize the state was broken and
determine the importance of advocacy for State reform.
MOTION PASSED: 4-0
5. Discussion and Recommendation to Council of a Structure for
Policy and Services Committee to Provide Feedback on Prioritizing
Major Issues
City Manager James Keene said the role the Committee should play
can help structure the Council Agenda. The smaller forum of the Policy
& Services Committee would be ideal to have discussions about
priorities.
Assistant to the City Manager Kelly Morariu said that ultimately the
. .::City'sjob.uwas to CI eate public value. Tllecolltext of that was the Staff
and Council's capacity, another component was the authorizing
environment, and how does the organization and Council find that spot
where all the pieces come together. The authorizing environment
creates added processes and a greater need for additional capacity.
The City needs to find a balance and understand how that environment
impacts Staff's time.
Mr. Keene said the Council Agenda process was the collection of things
Staff and Council were trying to do to create or protect public value.
There is no systematic vehicle for matching the capacity to deliver
those items.
Ms. Morariu used the California Avenue Tree Incident as an example to
show the number of Staff that were needed to work on a situation.
She noted how all of the Staff that had to work on this still had their
original workload to accomplish in addition to this new project. She
said that the impacts can be seen around the organization. She said it
has been difficult for Staff to communicate these impacts to Council
and the community, and Staff would like some suggestions. Staff
would also like to discuss how projects are prioritized as they come up,
and how to evaluate the accomplishments from the previous year.
Mr. Keene. added that it's not very effective to have this conversation
Policy & Services: 091217Working 10
at the Council Meetings. The smaller scale of this committee created a
different type of conversation.
Chair Espinosa said the Policy & Services Retreat will help move this
forward. This conversation was about how to help Staff in their work
and how to help the City operate better. He said the Committee can't
dictate action to Staff without the approval of full Council. He said the
broader objective was to have a sounding board for priorities and how
they compete. He wasn't sure how that could happen with Policy &
Services. He said that was something they needed to figure out, if it
was the goal.
Mr. Keene said there was a process to create new projects or direct
new work. But there was no process to take anything away.
Chair Espinosa said he understood that was what Staff was asking for,
but he voiced concern about whether or not Policy & Services would be
able to help. He felt that the full Council should be the mechanism for
taking priorities away.
_ Mr. Keene !;~id that perhaps the role of Policy & Services needed to be
redefined. Perhaps Policy & Services should deal with delivering the
services that are being financed by the Finance Committee. He said
that often new tasks didn't get prioritized at all or they move up to a
high priority and other items fall to the bottom of the list. The Policy &
Services Committee could be in a position to communicate to Staff
what the priorities are.
Council Member Barton said that Policy & Services was underutilized.
He said Council had learned to trust the Finance Committee to digest
the budget. They could learn to trust Policy & Services with this type
of work as well. It would be helpful for Staff if Policy & Services looked
at overarching work plans each month. They would not change
Council priorities, but they could discuss goals and capacity. The
policy on colleague's memos had not been followed. There was no
analysis behind them for Council to discuss around. He suggested that
Policy & Services could be more involved with that. The Policy &
Services Committee can· also serve in a "policy scheduling executive
committee" role. He encouraged Staff to be more forward with their
vision of what Policy & Services could be and how they could help
Staff.
Council Member Yeh suggested that crisis response pulls immediate
resources which are different than procedures for normal priorities. To
Policy & Services: 091217Working 11
have clarity as it relates to resource impact was very important. The
See It site had many projects in it, and could be utilized more.
Ms. Morariu said there was an internal See It site available that was
more of a work load management tool but Staff hasn't taken
advantage of that feature yet.
Council Member Yeh said it should be used more. The Policy and
Services Committee should deal with some high-stakes issues much
like the Finance Committee does. Delegated authority, such as annual
prioritizing in January, could be beneficial for Staff.
Council Member Kishimoto said the Finance Committee was the holder
of the budget. We. are the holder of public value. Regular
presentations can help highlight the See It site. The SEA report could
be used more. Using these tools that we already have in place would
help prioritize. The climate plan was already on See It. See It could
be used like a dashboard for the Policy and Services Committee.
Mr. Keene said that it's an interesting idea. There weren't policy
--discussions on the olganization. Selvices that Council would want to
be protected should be discussed. The whole communications plan
and capacity for connecting with the community regarding our goals, is
an area that needs work. If the City doesn't have effective
communications vehicles, we won't have the support and trust.
Council Member Kishimoto said the City Clerk maintains a ten-week
agenda that could be used as a tool. Council had been frustrated
because some of the topics aren't seen by the Council. She suggested
a mechanism for the entire Council to vote on priorities, perhaps by
using that ten-week agenda.
Council Member Barton spoke regarding the work plan document
saying it had value to the public. When a new idea comes from Staff
or Council, where it fits in is critical to know.
Mr. Keene said the building of departmental work plans was critical. It
was appropriate to have a vehicle to discuss that with the Council. He
said that transparency wasn't just openness; it was meaningful
openness. They need to explore the City's proposal for High Speed
Rail as well as how Staff can deliver without harming other projects.
Chair Espinosa said it will take a shift in the way Council thinks of this
Committee's role. He suggested that Staff continue to develop their
Policy & Services: 091217Working 12
idea of the role Policy & Services should have.
Council Member Kishimoto reminded everyone that they should refer
to the Charter.
Espinosa said a clear plan should be put together for Council.
Council Member Barton said a retreat would be a great place to start
the process.
6. Review of 2009 Policy & Services Items
Assistant to the City Manager Kelly Morariu discussed the agenda
items that came before the Policy and Services Committee in 2009.
She said the Committee reviewed the Council Procedure Changes. The
work plan had one item that did not get back to Committee, the Social
Networking policy, which was drafted. However, there were some
legal issues which needed to be resolved first before it came back to
the Committee.
7. Discussion of Upcoming Meetings and Topics.
Council Member Barton said that Google Wave should be looked at
during the social networking conversation.
Council Member Kishimoto said Open City Hall should be continued and
used for the social networking.
Mr. Keene suggested it might be a good survey tool for advanced input
on budget issues.
Ms. Morariu said Open City Hall was linked on the City website now.
Council Member Kishimoto asked if there was a process for distribution
of emails on this topic.
Mr. Keene said there was no constituent relationship management
system.
Council Member Yeh said that the list of neighborhood associations
should be plugged into this somehow to help issues from specific
neighborhoods come up in a constructive manner.
Ms. Morariu said that having a more formal process to bring
Policy & Services: 091217Working 13
neighborhoods into the City process was on the work plan.
Chair Espinosa said that issues. like packet distribution, and liaison
relationships with the community will need to be looked at.
Council Member Kishimoto asked for packets one or two days earlier.
She also suggested a formal council liaison for PAN.
Adjourned at 8:29.
Policy & Services: 091217Working 14
ATTACHMENT B
ORIGINAL
RESOLUTION NO. 5981
RBSOL~~IOHor THB COUNCIL or THE CITY OF PALO ALTO
ESTABLISHING POLICy'RBGARDING PREVAILING WAGES FOR
o PUBLIC PROJECTS
WHEREAS, in the recent case of Vial v. City of San Diego (175
Cal. Rtpr. 641, July, 1981), the California Court of Appeal determined
that the subject of ·prevailin9 wages-is a municipal affair and that
Charter cities are not subject to the prevailin9 wage requiremenUfor
public works projects set forth in the California Labor Code, and
WHEREAS, it is in the City·. best interest to obtain the lowest
responsible bid for public projects,
NOW, THEREFORE, the Council of the City of Palo Alto does RBSOLVB
as follows.
SECTION 1. It is appropdate to use the Davis-Bacon Act or state
Department of Industrial Relations Wage Determinations only when re
quired by federal or state 9rants and on other jObS considered to be of
statewide concern.
SECTION 2. The Council finds that this is not a project under ~he
California Environmental Quality Act and, therefore, no environmental
impact assessment is necessary.
INTRODUCED AND PASSED: December 14, 1981
AtES: -Bechtel, Eyerly, Fletcher, Henderson, Klein, Levy, Renzel,
Witherspoon
NOES: None
ABSTENTIONS; None
ABSBNT: Fazzino,
TO:
ATJ'N:
FROM:
DATE:
ATTACHMENT C
CITY COUNCIL
City of Palo Alto
City Manager's Report
POLICY AND SERVICES COMMITTEE
CITY MANAGER
DECEMBER 9, 2008
DEPARTMENTS: PUBLIC WORKS
UTILITIES
CMR: 443:08 .
REPORT TYPE: RECOMMENDATION
SUBJECT: Review and Request for Recommendation on Prevailing Wage Issues
Related to City Capital Construction Projects
RECOMMENDATION
Staff recommends the Council Policy and Services Committee recommend that Council not
change current prevailing wage policy, allowing City "public works" projects be bid without
prevailing wage requirements unless prevailing wage is required for the project pursuant to state
~~~+I81~Wxr-_ ,-.-rldlnue-to_potential cost impactsro-tlle City's GeneraI ana Enterprise Fund Capital-.-~-----
Improvement Programs (CIPs).
EXECUTIVESU~ARY
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 involved in such as Lytton Plaza, Art Center and possibly
. the Junior Museum and Zoo. The California Court of Appeal is currently hearing an appeal in
the City of Vista case, where the City of Vista, a charter city like Palo Alto, is defending its·
chOice not to pay prevailing wage on its locally funded "public works" projects.
BACKGROUND
On September 17, 2007, City Council approved a contract with Anderson Pacific for a Water
Quality Control Plant (WQCP) pump station upgrade related to the reclaimed water pipeline
project running from the WQCP to Mountain View (CMR:364:07). Council approved the
contract contingent on the contractor assuring the City they would pay their employees
prevailing wage on the project. In a related motion Council directed staff to bring the prevailing
CMR:443:08 Page I of8
wage discussion to the Council Policy. and Services Committee (see Attachment B, minutes of
September 17, 2007 Council meeting). '
What are Prevailing Wage Rates?
The intended purpose of prevailing wage law is to ensure that public construction projects do not
lower local wages by allowing contractors to pay' wages below the local standard. In 1931,
Congress passed the Davis-Bacon Act, which mandated the payment of prevailing wages on all
construction projects that receive more than $2,000 of Federal funds -an amount that has
remained unchanged today. In subsequent years, especially during the Great Depression, many
states and localities passed similar prevailing wage laws. Most states, including California, now
have such laws.,
Prevailing wages are determined in many different ways across the' country. The Federal and
California Prevailing Wage calculations are similar because if more than 50% of the workers
make the same wage this becomes the prevailing wage for the trade. They differ in the
calculation when less than 50% of the workers have the same wage. The Federal Law
determines the prevailing wage by averaging all the wages, whereas in California the most
common wage occurring becomes the prevailing wage. California's calculation method usually
results in a slightly higher wage than the Federal calculation method.
California passed its prevailing wage law in 1931, the same ear the federal Davis-Bacon Act._
was passe . 1 orma Labor Code § 1771 requires that any "public works" project that receives
more than $1,000 in state funding pay prevailing wages. The Labor Code dermes "public
works;' to include construction, alteration, most demolition, installation or repair work done
under contract and paid for in whole or part out of public funds. All capital improvement
projects done by the City, including those managed by the Community Services, Utilities or the
Public Works Departments are considered "public works" under this law. Although California's
prevailing wage law applies to all of California's "general law" cities, charter cities are permitted
to elect whether to pay prevailing wage on locally funded public works projects that qualify as
municipal affairs.
DISCUSSION
. Prevailing Wages in Charter Cities ,
The California Labor Code require$ that public agencies pay prevailing wages, as determined by
the California Department of Industrial Relations, on most public works projects. As a charter
city, Palo Alto is not required to pay prevailing wage rates on "public works" projects, so long as
the projects are within the realm of "municipal affairs'" are funded entirely by local funds, and
no other statutory exceptions apply. This "home rule" principle, grounded in the California'
Constitution, allows decisions on expenditure of local funds' to be made by locally elected
officials. Utilities Enterprise Fund projects are often deemed to be "public works" projects in
this context.
Since no precise definition of what constitutes a "municipal affair" has been judicially settled,
courts consider the issue on a case by case basis. The expenditure of city funds on local projects
and th~ rates of pay of the workers the City hires to carry out such projects has been held to be a
municipal affair. In 1981, Palo Also passed a resolution to pay prevailing wage "only when
required by federal or states grants and on other jobs considered to be of statewide concern."
(See Attachment A: Resolution 5981).
CMR:443:08 Page 2 of8
· '
Recently, courts have blurred the issue of whether a charter city may elect not to pay prevailing
wage. For example; in 2004; the California Supreme Court in City of Long Beach v.DIR,
declined to decide whether p~vailing 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 <:urrently 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 iniprovem~nt
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 ~ebruary 15,2008 (Attachment C).
Studies by government organizations provide some of the most interesting insight into the issue
of prevailing wage. These studies should, in theory, have no ag~nda beyond uncovering what is
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 Cortunission 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 greafer
savings when prevailing wages are not required.
---------=-~----~~~----~~~~~~~--~~~~~~--~--Furtheimore~ the study surveyed school districts to discover if they had noticed any decrease in
the quality of construction. Six percent of respondents said that they had noticed higher quality
construction since the exemption, 91 percent noted no change and 3 percent said quality had
decreased.
In one very unique case, the survey discovered that one school district had put a project out to
bid under prevailing wage conditions and then rebid the project without such requirements. The
winning bidder in the second case, without prevailing wage, was 5.8 percent lower; yielding a
cost savings of more than $500,000 .
. In Kentucky, the legislature also ordered its research arm to· study the issue of prevailing wage.
The study made a notable number of findings, including learning that 60 percent of workers
surveyed were paid more on prevailing wage jobs than on market-rate jobs; the average increase
for prevailing wages was 24 percent over the workers' market rates. Among the 141-page
report's other findings were:
• 90.7 percent of non-union and 24.4 of union contractors said prevailing wage laws raise
construction costs.
• 55.4 percent of small firms (10 or fewer employees) said prevailing wage laws have a
negative effect on their business, compared to 73 percent of large firms.
• 95.7 percent of cities and 83.3 percent of municipal utilities that responded believe
prevailhig 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 of8
To the extent that quality is increased, prevailing wages are an inefficient method
to increase qUality. The wage requirement results in contractors paying higher
wages with no guar8:Iltee 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
prev8iJ.ing wage to the wage earned by 50 -as opposed to 30 -percent of local wageeamers .. It
found that repeal of.Davis-Bacon would save $13 billion (2007 dollars) over five years and that
some 20 percent of opt!n 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 beeri increased.
The final government study of note is another state legislative study -Maiyfand "in this case -
conducted in 1997. Maryland's Department of Fiscal Services, which issued the study, asserted
that repeal of the prevailing wage 'aw then. on Maryland's books would save the state· between 5
and is percent on public works construction ..
surVey· ofCaliforilia Cities
To further exa:mine 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 afew citY managers replied as well. A short summary of the
findings follows and ~e more detailed results are included in' Attachment C.
• 42 of 48 .cities surveyed pay prevailing wage rates.
• 26 out of 32 Charter Cities pay prevailing wage rates.
• Based on the survey. results, staff estimates that paying prevailing wages may increase
construction costs in the range of 5% to 10%.
• A large majority' of the respondents believe that paying prevailing wages does not
increase quality of the work.
• Most believed that requiring prevailing wages decreases the number of bidders on
projects. .
• Some cities have exceptions to paying prevailing wages for certain· types of contracts.
The responding cities were also asked to provide comments on the positive and negative effects
of paying prevailing wages. These are summarized below:
Positive Effects
• Supportive of labor
.• Evens the playing field
• . Assures that workers are being treated and paid fairly
• . Higher wages allow people to live closer to work
• More professional bidding pool
CMR:443:08 Page 5 of8
• Higher-quality work
Negative Effects
• Higher costs
• Fewer projects can be built .
• Need for extra staffmg and paperwork for compliance monitoring
.• Smaller pool of bidders
Survey of Contractors
The staff's. research on prevailing wage did provide a number of insights into the views of
construction contractors on the topic of prevailing wage legislation. In addition, staff conducted
a. survey of contractors bidding work in Palo Alto to best judge .the impaCt a change in Palo
Alto's prevailing wage policy would have on construction projects in Palo Alto.
A'summary of the survey results follows:
• Approximately 50 % of the contractors responding pay prevailing wages on all contracts.
• Most contractors that do not typically pay prevailing wage rates will bid prevailing wage
. contracts. . '
• 70% of the contractors not paying prevailing wage mtes use the same labor force when
bidding prevailing wage contracts.
• The a".,rerage of. the estimated increase to consttUctioIl costs associat~ 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 Tmdes
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 Jl,Ule 2007, Vista became a Charter City. Before the election,·the City prepared a fact
sheet discussing common questions regarding the Charter City proposition, including questions
and answers regarding the. potential tax savings on local public works projects should the. City
chose to forego prevailing wages on municipal projects. 67% of Vista voters approved the
decision to become a Charter City. Vista plans on completing about $100 million in public
improvements in the near future; projects which would traditionally be considered within the·
realm of''municipal affairs" and paid from local·revenues.
The State Building and. Construction Trades Council of California, a labor union,
challenged Vista's assertion that it was exempt from prevailing wage law, arguing that the
prevailing wage statute is of statewide concern. Although the trial court reluctantly found in
favor of Vista, in issuing his ruling, the Superior Court judge stated that were he not bound by a
preceding case, Vial v. City of San Diego, he would have been inclitied to grant the union's
petition. The Vial decision stated that prevailing wage law does not apply to public works
projects of a chartered city, "as long as the projects in question are within the realm of
'municipal affairs.'"
CMR:443:08 Page 6 ofS
The judge in Vista, however, contended that instead of focusing on the project, a more
appropriate analysis would involve whether the prevailing wage statute is a matter of statewide
concern. Had the court not b~en obligated·to foliow Vial, the court acknowledged that it would
have found that the prevailing wage law is a matter of statewide concern and that Vista was
therefore bound to follow the law in relation to its pending public works projects.
The petitioner's appeal. is currently pending before the California Court of Appeal and
oral argument was heard on Friday, November 14, 2008. A decision is expected in the next two
months. Should the court frame the question as suggested by the superior court, and ask whether
the prevailing wage statute is a "statewide concern," it is possible that the Court will answer that
question affirmatively, thereby overruling or limiting the Vial decision. The California
Legislature has previously declared that the prevailing wage statute addresses two important
statewide concerns: (1) it prevents public projects from driving down. area labor standards and
(2) it ensures training opportunities for apprentice construction workers. Even if Vista wins on
appeal, observers expect this case will eventually be appealed to the California·Supreme Court.
A California Supr~me Court decision would not be expected on this case for at least another
year. The City Attorney's Office will keep Council informed on the· statUs of this case.
RESOURCE IMPACT
The Adopted 2009 Capital Budget includes about $11.5 million in General Fund projects and
about $28 million in Enterprise Fund projects that are not now or will not require prevailiIlg-------~--
wage in their. consttUction contracts. The Enterprise Fund projects include those under the
. electric, water, gas, wastewater collection, storm drainage and refuse fund programs. Projects
constructed by the Wastewater Treatment Fund already require prevailing wage as discussed
. above and would not be impacted by a change in Council policy. If staff research proves correct,
the costs of the 2009 General Fund projects could increase by as much as $1 million and the
·2009 Enterprise Fund projects could increase by as much as $2.8 million if Council were to
adopt a policy requiring prevailing wage rates be paid on all capital construction projects
contracted by the City. It also should be noted that any private/public partnership agreements
entered into by the City for capital construction would also require payment of prevailing wage
rates on these construction projects (e.g. Art Center, Lytton Plaza, Junior Museum and Zoo).
POLICY IMPLICATIONS
The recommendation does not change existing policy. If Council were to change policy and
require prevailing wage be paid on all City capital construction projects, Council would need to
adopt an ordinance codifying such a requirement.
ENVIRONMENTAL REVIEW
Policy and Services Committee review of the prevailing wage policy issues presented in this
report does not represent a project under the California Environmental Quality Act (CEQA),
pursuant to Section 21065 of the Public Resources Code.
CMR:443:08 Page 7 of8
ATTACHMENTS
Attachment A: City of Palo Alto Resolution 59.81
AttachPlent B:. Minutes ofSeptember·17, 2007 City Council meeting
Attachment C: Prevailing Wage Rate Issues Memoraitdum·ofFebruary 15,2008
PREPARED BY:
DEPARTMENT HEADS:
. GLENN ROBERTS
Director of Public Works
... ~ VALE O. G
Director 0 U i s
.J.oo+-_.-'"
CITY MANAGER APPROVAL: ~'~fe~ J ENE . ..
Ciger. . .
CMR:443:08 Page 8 ofS .
ATTACHMENT D
POLICY AND SERVICES COMMITTEE
Regular Meeting
December 9, 2008
Chairperson Kishimoto called the meeting to order at 7:01 p.m. in the Council
Conference Room, 250 Hamilton Avenue, Palo Alto, California.
Present: Barton, Drekmeier, Kishimoto (chair), Espinosa
Absent: None
1. Oral Comml mlcations
None.
2. Review and Request for Recommendation on Prevailing Wage Issues
Related to City Capital Construction Projects
Assistant Public Works Director, Mike Sartor presented a staff research report
related to the prevailing wage issue and City Capital projects. He stated
prevailing wages pertain to Public Works contracts which include Utilities,
Capital Improvement Projects and Public Works General Fund and Enterprise
Fund Projects. He explained that as Palo Alto was a Charter City, it was not
required to pay prevailing wage unless the project involved Federal or State
Grant funding, Gas Tax Funds or other non-local funding sources.
Council Member Barton asked whether the potential for cost increase was at the
bid process or the total at the end of a project. He stated there were bid
numbers and the true cost of a project. He stated he would not be supporting
the recommendation.
Mr. Sartor stated the study was based on the review of completed projects.
12/09/2008 P&Sl
Vice Mayor Drekmeier asked whether the income levels of prevailing wage were
that of a medium income versus average income.
Mr. Sartor stated the State determined the prevailing wage based on individual
labor categories. For example carpenters in Santa Clara County, the State takes
a look at wages for carpenters throughout the entire County then take fifty
percent of the highest wages being paid and establish that as the prevailing
wage.
Vice Mayor Drekmeier clarified the breakdown of wages was by county.
Mr. Sartor stated yes, by the Department of Industrial Relations.
Vice Mayor Drekmeier asked whether Palo Alto currently had policy on union
wages.
Mr. Sartor stated no.
Vice Mayor Drekmeier asked whether there was a forum to view municipality
rating systems for contractors.
Mr. Sartor stated the purpose of the survey was to verify any quality impact.
Vice Mayor Drekmeier asked how to determine whether a contractor had poor
quality of work.
Mr. Sartor stated reference checks and checking with other municipalities. The
bid process require statements of qualifications and experience of similar types
of projects.
Vice Mayor Drekmeier asked the impact. of the economy on the timeline for
moving forward with the prevailing wage.
Mr. Sartor stated direct impact of quality in work were protected by
performance specifications and plans prepared. He stated when a contractors'
performance was not adequate the contract could be terminated or the
contractor could be given the opportunity to correct any performance issues.
Vice Mayor Drekmeier asked how frequently the prevailing wage was
recalculated .
. Mr. Sartor stated he had no actual data however, he antiCipated an annual
review would be probable.
12/09/2008 P&S2
Vice Mayor Drekmeier asked whether there was data on prevailing wage
contractor's not bidding in Palo Alto because of the possibility of low-balling by
non-prevailing wage entities.
Mr. Sartor stated in his research the non-prevailing wage contracts attracted
more bidders than prevailing wage contracts.
Council Member Espinosa asked how employees being treated or paid fairly was
factored in to the calculations of whether to recommend prevailing wage or not
to.
Mr. Sartor stated staff's primary consideration was fiscal. He stated an expected
increase in cost of up to ten percent would occur during smaller and or
maintenance type projects. Research revealed on major projectsthe contractor
usually paid prevailing wage already.
Mr. Keene stated if the adoption of prevailing wages did increase costs the
question to Council would be what the consequence would be in absorbing the
costs.
_I _____________________ _
Council Member Espinosa stated his agreement. The City as a whole needed to
weigh the two challenges between increase in cost to a project versus ensuring
fairness and fair payment for employees working on projects.
Mr. Keene stated the basis of the decision being requested was not quality
against cost but an overall combination of reaching a higher level of them
together.
Council Member Barton asked for a comparison of both prevailing wage and
non-prevailing wage bidders against projects in Palo Alto for 2007 and 2008.
Chair Kishimoto asked whether the increase in cost of going with prevailing
wage was transferred to the worker or administrative fees.
Mr. Sartor stated the study being viewed was a study compiled by the State of
Kentucky of contractors in their region.
Chair Kishimoto stated it appeared the higher cost of the project went to more
administrative fees which was against the object of going forward with
prevailing wage. She stated her process was for the higher cost to translate to
better wages for the worker.
12/0912008 P&S3
Mr. Sartor stated the administrative costs were incurred by the owner.
Chair Kishimoto asked whether the employees' benefits and healthcare were
included in the cost.
Mr. Sartor stated no. He stated the benefits and healthcare costs were included
in the rates. For example a thirty dollar per hour job would cost forty-five
dollars.
Chair Kishimoto asked whether the rates changed by skill level or category.
Mr. Sartor stated the rates tended to be geared towards the level of skill for the
person in a particular category.
Chair Kishimoto asked how flexible the categories were as in filling-in. If person
A from category one was out could person A from category two fill-in or was it
job specific.
Mr. Sartor stated his understanding was there was no cross trading without
experience.
Council Member Espinosa asked how quality and safety played a role together.
Mr. Sartor stated there were standard quality controls and safety measures in
place and monitored by the contractor in charge of the project. The inspector's
checks ensure appropriate operators for the specific duties on each project.
Nicole Goehering, 4577 Las Rositas Rd, Unit C, Livermore, spoke of flexibility
under prevailing wage work. She stated within Palo Alto the flexibility of metal
roofing could be covered by sheet metal workers or roofers and underground
utility work could be covered by utilities or laborers.
Kevin Dayton, 4577 Las Rositas Rd, Unit C, Livermore, spoke of the increase in
cost not necessarily coming from the prevailing wage but the specifics of how
prevailing wage was determined by the state.
Neil Struthers, 2102 Almaden Road, San Jose, spoke of how qualification
implied quality. He stated the more experienced worker would turn out a better
and quicker product than one of less skill. The hourly wage does not determine
the quality. He noted statistical data on percentages of prevailing wage versus
non-prevailing wage bids in Palo Alto.
12/09/2008 P&S4
Peter Philips, Economics Department, University of Utah, Salt Lake City, stated.
the staff report data was built on impressions from first principles rather than
natural experiments or empirical observations. He stated there was no
statistically significant difference in the number of bidders on Palo Alto jobs
compared to the four surrounding cities. In the sample examined, there were
140 projects, 19 of which were in Palo Alto with 450 bidders. He continued to
speak of the study he provided.
Council Member Barton stated one of the supporting factors for the prevailing
wage rule was the majority of the workers had come up though some sort of
union training program. The people would be well trained in their trade, have
quality standards and efficient. He stated Council had an obligation to be
morally efficient in the expenditure of public dollars.
MOTION: Council Member Barton moved, seconded by Council Member
Espinosa, that the Committee make a recommendation to the Council to impose
a prevailing wage requirement for all City Capital Projects.
Mr. Keen asked for clarification as to the relativity to City Capital Construction
Projects.
Council Member Barton stated yes.
Chair Kishimoto asked whether the Motion covered all capital projects.
Council Member Barton stated in the beginning to incorporate them all and at a
later date discussions could be brought forward as to the necessity of each
project.
Council Member Espinosa stated the treatment of workers in any function or
capacity as workers for the City needed to be treated with fairness and
payment equality.
Vice Mayor Drekmeier stated the Water Treatment Plant project brought about
concern whether the City needed to provide prevailing wage or not. The lowest
bidder chosen was paying prevailing wage. He noted the importance of fairness
in treatment of employees' payment and benefits.
AMENDMENT: Chair Kishimoto moved, seconded by Council Member XXX to
incorporate parameters of exclusion for maintenance and smaller projects, and
to add a financial threshold where prevailing wage would not apply to a project
below $XXX.
12/09/2008 P&S5
Amendment failed for lack of second.
Mr. Sartor stated staff was prepared to return with exclusionary criteria for
maintenance projects from the prevailing wage requirements.
Chair Kishimoto asked whether the matter should be moved forward without
adequate information or revisited at a later date.
Mr. Keene stated the language could incorporate the exclusion of routine
maintenance contracts. He noted a more specific concern would be
public/private partnerships.
Chair Kishimoto asked whether the exclusion of public/private partnerships
would cause any legal matters.·
Deputy City Attorney, Amy Bartell stated the current statute reads if a project
was receiving public funds in whole or part it was subject to prevailing wage law
in General Law Cities. She noted currently, Palo Alto remained in the Charter
City category, pending the outcome of the City of Vista's court case.
~hair Kishimoto clarified General Law Cities were required to pay prevailing
wage when entering into a public/private partnership.
Ms. Bartell stated yes. She clarified the requirement for a Charter City to pay
prevailing wage included the receipt of public funds in any amount.
Mr. Keene stated not to overlook the possibility of a group or non-profit
organization offering to accomplish a capital project that the city may nor have
planned to move forward with and they request a contribution or matching
funds. The question would be how prevailing wage would affect that situation.
Vice Mayor Drekmeier asked whether there was a recommendation ready for
Council or if the matter would go before Council with further information from
staff.
Chair Kishimoto stated staff would return to Policy and Services for further
review prior to going to Council.
Council Member Espinosa stated he would prefer staff return to Policy and
Services with information detailed to the concerns coming from this meeting.
He noted a set timeline should be outlined to avoid prolonging unresolved
matters.
12/09/2008 P&S6
Council Member Barton noted the current committee panel would not meet
again.
Mr. Keene stated with there being a general consensus on the concept of
prevailing wage in regards to capital projects, he suggested the Committee
recommend the full Council review what had been accomplished with the
understanding of staff's return in early February with suggestions for further
resolutions to minor, maintenance, and public/private partnership projects.
Chair Kishimoto asked to have a definition of resource impacts between small
and large projects.
Mr. Sartor stated other Charter Cities have excluded smaller projects such as
roofing and painting contracts. He noted the report currently includes all
projects as part of the $11.5 million from the Capital General Fund projects.
Chair Kishimoto asked how the $28 million dollars was divided for projects.
Mr. Sartor stated he was unfamiliar with the number of routine maintenance
contracts Utilities had, however the majority of contracts consisted of Capital .. .
Chair Kishimoto clarified that most of the City contract work was on a larger
scale and therefore the contractor's paid prevailing wage.
Mr. Sartor stated yes. For example, Anderson Pacific was a large non-union
underground construction contractor who pay prevailing wage. The
recommended exemptions from prevailing wage requirement would be
maintenance projects and public/private partnership such as Lytton Plaza and
the Art Center.
Chair Kishimoto stated her concern regarding the flexibility and calculation in
the process of prevailing wage.
Council Member Barton suggested forwarding the recommendation as it was
with a parallel recommendation that the Committee was unsure about the
thresholds and that staff would return to Council with recommendations.
Mr. Sartor mentioned living wage and prevailing wage were completely separate
topiCS. He stated he understood the Committees' concern for the wellbeing of
workers, however a living wage was a local jurisdiction and a prevailing wage
requirement was a state mandate.
12/09/2008 P&S7
Chair Kishimoto suggested requesting the new Mayor extend the current
Committee panel for a one month term therefore allowing staff time to gather
the detailed information needed to complete a recommendation for Council.
Mr. Keene stated he concurred and stated staff would be prepared to return
with adequate information.
INCORPORATED INTO THE MOTION WITH THE CONSENT OF THE MAKER
AND SECONDER, to request the Mayor allow the current Committee panel to
meet an additional time in January to finalize a recommendation to the City
Council. .
Council Member Barton withdrew the Motion.
The Committee recommended that the Mayor direct staff to return to the
current Committee panel in late January of 2009 with threshold discussions so
the current Committee could return a recommendation to Council on prevailing
wage requirement.
3. Discussion for Future Meeting Schedules and Agendas-Last meeting
another in January
ADJOURNMENT: Meeting adjourned at 8:38 p.m.
12/09/2008 P&S8
TO:
ATTN:
FROM:
DATE:
ATTACHMENT E
CITY COUNCIL
AD·HOC COMMITTEE ON PREVAILING WAGE
CITY MANAGER
MARCH 10,2009
DEPARTMENTS: PUBLIC WORKS
UTILITIES
CMR:150:09
REPORT TYPE: RECOMMENDATION
SUBJECT: Review and Recommendation on Proposed Prevailing Wage Policy for
City Capital Construction Projects
RECOMMENDATION
Staff recommends that the Council Ad-Hoc Committee on Prevailing Wage recommend that the
GltyCouncil adopt a Resolution Requiring the Payment of Prevailing Wage 011 City Capital
Improvement Project Construction Contracts with exemptions for maintenance projects under
$250,000 as defined under Section 220002 of the California Public Contract Code, projects
involving public-private partnerships, projects where the work is performed either· entirely or
partially by volunteers, and low and moderate income housing projects.
EXECUTIVE SUMMARY
This report responds to the December 9, 2008 discussion by the Council Policy and Services
Committee on prevailing wage issues related to City capital construction contracts. Attachment
B contains minutes of that meeting. At the December 9 meeting, the then Policy and Services
Committee indicated a strong interest in requiring prevailing wage on City capital construction
contracts and directed staff to come back with additional information on possible exemptions to
the proposed Council policy. Discussed in this report are staff recommended exemptions for
mainteruuice, public/private partnership, volunteer and low and moderate income housing
projects.
BACKGROUND
As a charter city, Palo Alto is not required to pay prevailing wages on "public works" projects,
so long as the proje~ts are within the realm of ''municipal affairs", ·~ded entirely by local funds,
and no other statutQry exceptions apply. This "home rule"· principle allows decisions on
expenditure of local funds to be made by locally elected officials. In 1981, Palo Alto passed a
resolution to pay prevailing wage "only when required by federal or state grants and on other
jobs considered to be of statewide concern." (See Attachment A Resolution 5981).
Recently, charter cities' authority to opt out of prevailing wage law has been subject to
challenge. The charter city of Vista, California is .currently defending its decision not to pay
CMR: 150:09 Page 1 of 6
prevailing wages in a lawsuit brought by the State Building and Construction Trades Council.
Further, on February 20, 2008, the Governor signed SB 9EX, noting the ongoing litigation in
Vista and narrowing potential prevailing wage obligations for charter cities involving work on
water,sewer, or storm drain systems that have previously been extended to disadvantaged
communities. .
Amid the recent debate over charter cities' prevailing wage requirements, on December 9, 2008
staff presented to the Council Policy and Services Committee a recommendation that Council not
change current prevailing wage policy, allowing City capital construction ("public works")
projects to be bid without prevailing wage requirements unless prevailing wage is required for
the project pursuant to state or federal law, due to potential cost impacts to the City's General
and.Enterprise Fund Capital Improvement Programs (CIPs) (CMR 443:08, Attachment B). The
Committee carefully reviewed this recommendation and decided it was in the best interest of the
City to recommend to the full Council that a resolution be adopted requiring prevailing wage on
all City capital construction contracts. They also instructed staff to recommend types of
construction contracts that could be considered for exemption from a prevailing wage
requirement.
DISCUSSION
Following the December 9, 2009 meeting, staff reviewed four areas that the Council Ad-Hoc
Committee on Prevailing Wage could consider for exemptions to the prevailing wage
requirement it may recommend to the full Council. The possible exemptions reviewed were:
1. Maintenance projects under $250,000 as defined by Section 22002 of the California
Public Contract Code
2. Projects using public-private partnership funding
3. Projects that construct/rehabilitate affordable housing for people with low or moderate
incomes
4. Projects where the work is performed either entirely or partially by volunteers
In starr s research on the prevailing wage issue, 48 general law and charter cities responded to a
survey examining the policies of other California municipalities regarding prevailing wage.law.
Of the 48 survey respondents, 25 were charter cities that have a prevailing wage policy in place.
As noted, charter cities have a policy choice of paying prevailing wage or not on ''public works"
construction contracts, so long as the projects are municipal affairs and no federal or state funds
are involved. Half of the 25 charter cities responding, that already pay prevailing wage, have
prevailing wage exemptions for maintenance projects. This exemption is applied to smaller
projects. where prevailing wage requirements may discourage many contractors from bidding due
to restrictions on the ability of contractors to move workers from one trade to another or simply
due to the additional administrative costs of producing Certified Payrolls as required by
prevailing wage law.
Exemption for Maintenance Projects
Although as a charter city, Palo Alto is free to craft its own definition of ''maintenance'' in a
proposed prevailing wage exemption policy, referring to a definition already present in
CMR:lSO:09 Page 2 of6
California law is a helpful starting point. Section 22002 of the California Public Contract Code
defines maintenance as shown:
. • Routine, recurring work for the preservation or protection of any publicly owned or
publicly operated facility
• Minor repainting
• Resurfacing of streets at less than 1 inch
• Landscape maintenance including mowing, watering, trimming, pruning, planting,
replacement of plants, and servicing of irrigation and sprinkler systems
• Work performed to keep, operate, and maintain publicly owned water, power, or waste
disposal systems
Since the City's Street Maintenance program receives funding from State Gas Tax and other
State and Federal grant funding, prevailing wage is already required on these projects, and the
proposed maintenance exemption category of resurfacing streets at less than 1 inch would not
apply. For the other maintenance categories defined above, staff recommends that any projects
in these categories that fall under the City's Purchasing Ordinance threshold of $250,000 (the
City Manager has the authority to award "Public Works" construction contracts under $250,000 ------~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~---.--------
without Council approval, pursuant to Section 2.30.21O(a) of the Palo Alto Municipal Code) be
exempt from any Council adopted prevailing wage policy. This will ensure the City of having the
broadest pool of bidders on these routine maintenance projects, keeping bids competitive and
likely reducing costs for these critical building, parks, and utility system maintenance activities.
Staff has received suggestions that a lower threshold should be considered. The Committee may
wish to discuss that.
Exemption for Public-Private Partnerships
Staff also recommends that Council consider an exemption for City projects that are funded
through public-private partnerships. The purpose of offering this exemption is to maximize the
use of private funding in joint projects with the City. Because many public-private partnership
projects are administered by the private entity in the partnership, exempting prevailing wage
requirements from these contracts could make participating in such projects more attractive to
private funders by reducing restrictions on potential contractors and reducing administrative
work for the private entity.
Some background on public-private partnerships is helpful, as there are several types. A public
private partnership is an agreement between the City and a nonprofit or private organization to
provide services or to assist in funding of public facilities and programs. Public-private
partnerships typically fall into one ofthree categories: co-sponsorship, alliances or joint ventures.
Co-Sponsorships: In this common type of public-private partnership, an organization
furthers the mission of the City by supporting a City activity or program in conjunction
with pursuit of that organization's own mission or program. Some examples include the
CMR:150:09 Page 3 of6
Palo Alto Tennis Club use of City courts to provide a youth tennis program and
American Youth Soccer Organization's use of space in a City facility to train· referees.
Co-sponsorships are entered into by staff and normally have no or minimal financial
impact.
• Alliances: This type of public/private partnership involves organizations that have been
created for the sole purpose of supporting a City program(s). The organization does not
expect to receive any direct financial benefit or to alter City policy and/or operations, but
undertakes to work cooperatively with staff to implement City goals. Alliance
organizations include the Recreation Foundation, the Art Center Foundation (project
Lo~k or Cultural Kaleidoscope), the Library Foundation and the Friends of the Palo Alto
Library (financial assistance with the renovation and expansion of the Children's
Library). Alliances are approved by the Council if there are any staffing or budgetary
implications to the partnership.
• Joint Ventures: This type of public-private partnership involves organizations which have
programs or missions independent of the City and involve the' City entering into a
contractual relationship with the public or nonprofit organization with both parties
contributing to the partnership for their mutual benefit. Each joint venture is uniquely
negotiated by the staff and approved by the City· Council. Examples of Joint Ventures
include TheatreWorks, Palo Alto Players and West Bay Opera's use of the Community
Theatre and use of the former police station broIder adult service provider, Avenidas.
The applicability of an exclusion to the requirement to pay prevailing wages on contracts which
arise out of a public-private partnership will depend on the details and goals each project, the
financial· requirements, assets, and capabilities each the party brings to the partnership and how
each contract is structured.
Because the characteristics of each partnership will be unique, the proposed decision to exempt
public-private partnerships from prevailing wage requirements may not be suitable for every
project. For example, if Palo Alto, as a charter city, is involved in a public works project which
would not normally require the payment of prevailing wages, and the City becomes involved in a
pUblic-private partnership, the partnership could trigger prevailing wage requirements if the
funding sources are unclear or the partnership causes the project to become more regional in
nature.
Without fully ,knowing the details of a future relationship between partners, it will be difficult to
draft exclusionary prevailing wage language broad enough to cover all potential partnership
scenarios, and narrow enough to meet the key statutory elements of whether the contract is "paid
for in whole or in part out of public funds", and whether the project is a "municipal affair." The
application of these legal requirements to the unique facts in each case will be. needed to
determine if the City's Prevailing Wage Policy exclusions will apply.
Thus, it would be wise to avoid trying to establish a single all encompassing exclusion on this
point. Instead, staff recommends that the City's proposed prevailing wage policy simply state
that the City's intention is that prevailing wage law will not apply to pUblic-private partnerships.
However, the applicability of the prevailing wage requirement to any pUblic-private partnership
CMR:150:09 Page 4 of6
project will be individually evaluated in light of the facts and the applicable legal requirements in
place at the time the partnership is established.
Of course, construction contracts administered by a private entity in any City approved public
private partnership agreement would still need to comply with City publiccontmct codes
including required bidding procedures, contractor bonding and insur.ance requirements.
Exemption for Work Performed by Volunteers
Although the California Labor Code Section 1720.4 alreadyexempts the payment of prevailing
wages for work performed by volunteers, staff recommends that the City formally codify this
exemption in its own prevailing· wage policy. Recent changes to Labor Code Section 1720.4
(AB 2537 -signed by the Governor in September 2008 and effective January 1,2009) extended
the prevailing wage exemption for volunteers, volunteer coordinators~ and conservation corps
members who work on public works contracts from January 1, 2009 to January 1, 2012. In
short, the City need not pay prevailing wages for work performed by a volun~, defined as "an
individual who performs work for civic, charitable, or humanitarian reasons for a public agency
or corporation qualified under Section 501(3)(c) of the Internal Revenue Code as a tax-exempt
erganization, without promise, expectation, or receipt of any compensation for work performed."
This exemption applies only to volunteers as defined in the statute. It does not apply to wages
paid to any paid worker who may also be working along with volunteers on a public works
contract which requires the payment of prevailing wages by a charter city. In cases where the
work under a public works contract is performed by both volunteers and paid workers, the
Exemption for Construction and Rehabilitation of Affordable Housing
Lastly, although the California Labor code already exempts some affordable housing
construction from prevailing wage req~ments, staff recommends that Council consider
formally including an exemption for such construction in the proposed prevailing wage policy.
The State Labor Law on prev~ling wage already exempts construction and rehabilitation of
affordable housing for low and moderate income residents provided that the projects:
• are paid for solely with money from a "Low and Moderate Income Housing Fund"
established pursuant to the Health and Safety Code, or
• are paid for by a combination of private funds and funds available from taxation of
redevelopment projects.
In addition, low-income housing projects that are allocated Federal or State low-income housing
tax credits pursuant to the I.R.S Code are not subject to prevailing wage law.
RESOURCE IMPACT
The Adopted 2009 Capital Budget includes about $11.5 million in General Fund projects and
about $28 million in Enterprise Fund projects that are not now or will not require prevailing
wage in their construction contracts. The Enterprise Fund projects include those under the
electric, water, gas, wastewater collection, storm drainage and refuse fund programs. Since the
City already pays prevailing·wage on projects constructed by the Wastewater Treatment Fund
these would not be impacted by a change in Council policy.
CMR:150:09 Page 5 of6
Staff estimates that the costs of the 2009 General Fund projects could increase by as much as $1
million and the 2009 Enterprise Fund projects could increase by as much as $2.8 million. These
additional exp~nditures would be funded by reserves or by reducing the scope of the projects
under consideration and will be presented to Council in the capital budget approval process. The
upcoming Library Bond' and Emergency Water Supply projects may see some cost impacts due
to prevailing wage requirements but staff does not believe they would be significant since
contractors bidding large complex projects such as these typically pay prevailing wage anyway .
POLICY IMPLICATIONS
To require prevailing wage to be paid on City capital, construction projects Council would need
to adopt a resolution rescinding resolution 5981 and codifying the new prevailing wage policy
and any exemptions Council chooses to include.
ENVIRONMENTAL REVIEW
The Council Ad-Hoc Committee on Prevailing Wage review of the prevailing wage policy issues
presented in this report does not represent a project under the California Environmental Quality
Act (CEQA), pursuant to Section 21065 of the Public Resources Code, thus, no environmental
review is required.
ATTACHMENTS
Attachment A: Resolution 5981 -Establishing Policy Regarding Prevailing Wage for Public
Projects . .
Attachment B:-Minutes-of December 9, 2009 Policy and Services Committee meeting
Attachment C: CMR: 443:08 ~ '7_ '
PREPARED BY: _ ~., '--
MIK ~TOR
Assistant Public Works Director
DEPARTMENT HEADS:
CITY MANAGER APPROVAL:
CMR.: 1 50:09
.~
AI{ L
Assistant Utilities Director
Page 6 of6
ATTACHMENT F
CITY OF PALO ALTO
City Council Ad Hoc Committee on Prevailing Wages
Special Meeting
Tuesday, March 10,2009
The meeting of the City Council Ad Hoc Committee on Prevailing Wages was called to
order at 6:01 p.m.
Present: Barton, Drekmeier, Espinosa
Absent: Kishimoto
1. Oral Communications
None
2. Review and Recommendation on Proposed Prevailing Wage Policy for
City Capital Construction Projects.
City Attorney, Gary Baum reviewed the City's Prevailing Wage policy.
Assistant Public Works Director Mike Sartor reviewed the PowerPoint presentation in
follow-up of the December 9, 2008 meeting. His presentation included a summary of
that meeting, the Prevailing Wage exemptions and Staffs recommendations.
Neil Struthers, 2102' Almaden Road, San Jose, thanked Staff for incorporating
information from meetings held prior. He questioned why $250,000 was listed as a
threshold for the prevailing wage. He stressed more thought should be given to the
public-private partnership aspects of the policy. He spoke regarding affordable housing
and requested further research be completed on Staff's recommendation and how the
policy affected the General Fund.
Lindsay Byers, 4577 Las Positas Blvd., Livermore, Associated Builders and Contractors
Union, in representation of non-union members, stated they would continue to work in
the City of Palo Alto whether or not prevailing wage was opposed. She gave an
overview of prevailing wage calculations and the wide variety of areas that the wages
cover beyond employee compensation. She suggested raising maintenance project wage
thresholds to allow smaller community businesses to remain competitive with regional
and statewide contractors.
Aletha Coleman, 296 Bay Road, Atherton, from the Palo Alto Friends of the Junior
Museum and Zoo spoke in support of Staffs recommendations from a public-private
partnership viewpoint.
Molly McAuliffe, 1554 Cowper Street, from the Palo Alto Friends of the Junior Museum
and Zoo spoke in support of Staff s recommendations.
Council Member Barton stated it was his understanding that the $250,000 threshold was
consistent with what the City Manager brought forth to Council for authorization and
approval.
Mr. Sartor stated that was correct.
Council Member Barton asked how many projects fit within this $250,000 threshold per
year.
Mike Sartor stated the amount pertained to Capital Improvement Projects (CIP) and
maintenance type projects, with several projects projected for the year within that
threshold. He gave the example of parks and maintenance type projects.
Council Member Barton stated maintenance was defined under California Code and State
Law exemptions.
Mr. Sartor stated many maintenance projects exceed the threshold. He gave the example
of the Utility Department's gas main replacement project, which was considered a
maintenance project and routine work and repair of an existing system. He stated Staff is
mindful that larger projects should be included, but they· did not want to restrict the
smaller maintenance-type projects.
Council Member Espinosa stated Staff s current report was concise· and covered all the
options available. He asked for further clarification on the different dollar points
($50,000, $100,000 to $250,000 and above). He asked for further information on the
scale and scope of projects within each threshold.
Mr. Sartor stated there were $10-12 million contracts each year in the CIP. Smaller
projects made up less than one million, or 10 percent, of the total for projects. Most of
the CIPs greater than $250,000 are major projects. The types of small range projects
included annual roofing, interior finishing and landscaping contracts for buildings and
parks. The total value of maintenance-type projects was likely less than one-tenth of the
overall CIP.
Assistant Director of Utilities, Tom Marshall stated there were not a lot of contracts in the
under $250,000 range. Projects that fell into this range included annual Roto-Rooter
service contracts for sewer maintenance, as one example.
City Manager, James Keene reviewed various projects from the 2008-09 Adopted Budget
for CIP. He listed projects that fit underneath the $250,000 threshold which included the
Bayland Athletic Center's fencing, dugout and trailhead park projects as one example.
He listed several other projects of the same caliber.
Council Member Espinosa asked how each specific project was cast as a recipient of
these buligeted amounts within the CIP budgeting. He stressed they were making the
effort to create a policy around what these projects were exactly.
Mr. Sartor gave an overview of what projects are considered as maintenance projects.
Maintenance projects specifically include such items as annual roofing projects or
interior projects such as carpeting and painting. Park trail projects were also included
within this realm. He stated many of these projects were already defined in the Public
Contract Code as Maintenance projects and separate from the Public Work projects. He
stated these types of contracts typically attract the smaller contractors.
Mr. Keene stated one of the goals is to spread the work around, from these smaller
projects, to smaller contractors that might not otherwise be considered. He stated this
brought with it social equity value. He asked what the results were in areas where there
were no prevailing wage policies.
Mr. Sartor stated when-eompared-to what other-Cities are doing, a broader-xwanUJg""eJ--VofL-Ub""id ..... s>---______ _
come through with smaller contractors when prevailing wage policies did not exist.
Council Member Espinosa stated this was an area where he felt he did not have sufficient
data with which to form a decision.
Council Member Barton asked whether Staff might consider modification of the public
private partnership funding exemptions to the point at which the private-partner became
the managing partner. He understood that there could be bookkeeping issues and
volunteers may not be able to do this. He stated that public funds should be spent in
ways that cover external costs associated with living in this area.
Mr. Keene stated the goal was to move projects forward and keeping costs to a minimum.
In some cases, when volunteers took the lead on a project, they were not considered
under the prevailing wage guidelines.
Council Member Barton stated the assumption was that prevailing wages drove up the
costs for a project. He was not of this mind. When you build in externalities it is better
all around. He doesn't want to go down the road of implied incentives.
Mr. Keene stressed taking a look at future emerging public-private partnerships where
there may be a situation wherein the City may want the lead on the project. He noted
civil liability issues came into play in this case.
Council Member Espinosa hoped for clarity around defining the public-private
partnership aspects of this proposed policy. He agreed with the policy in concept but was
worried about these public-private partnerships working against the policy. He stated he
felt that clarity was needed on this policy as it pertains to public-private partnerships.
Mr. Baum stated there were different standards in the pUblic-private partnership where
the private party is the majority contributor but is not the managing partner.
Council Member Espinosa stressed there were instances where further clarity was
necessary when private parties were donating money for these projects within the
confines of the proposed policy.
Mr. Keene pointed the Committee towards Page 4 of the Staff report on regarding
exemptions and exclusions. He gave examples and applications of what was proposed on
Page 4 of the proposed policy.
Council Member Espinosa stated this was a good start. He hoped for more clarity on the
criteria and an outline of this prior to taking it to Council.
Mr. Baum stated under the Committee's general direction this was adequate for them to
forward on to Council. The presumption of paying prevailing wage in public-private
parmershipsua.n<lifl!Ot then under what circumstances.
Council Member Espinosa stressed the needs for more specifics.
Mr. Baum stated ironing out the specifics may require another meeting.
Council Member Barton suggested deleting the complicated language on Federal Tax
Credits on Page 5 of the proposed policy.
Council Member Espinosa asked for clarification on what he specifically wanted
excluded.
Council Member Barton wished to delete bullet point 3, on Page 2, which refers to
affordable housing projects.
Council Member Espinosa stated it was included at this point more for clarity than policy
based on information Mr. Sartor and Mr. Baum gave in address to this point.
Council Member Barton stated if the inclusion was for clarity's sake, it should be worded
to include affordable housing projects that would otherwise be exempt.
Mr. Sartor stated the extent of the exemption was an attempt to clarify and specifically
note the other two bulleted items.
Council Member Barton stated this did not matter in either direction and was merely
semantics.
Mayor Drekmeier asked for further clarification on the prevailing wage. He asked what
causes fluctuations in the prevailing wage.
Mr. Sartor stated fluctuations were tied to union bargaining agreements and labor rates.
He was not famili~ with any recent bargaining agreements which cut these wages and
rates.
Mayor Drekmeier asked if they went with prevailing wage, would the prevailing wage go
up a notch with the addition of their City coming on board.
Mr. Sartor stated it would not go up. The wages are set by the County and State.
Council Member Espinosa asked if there was a way to move forward but also get clarity
on how decisions were made and what the different dollar amounts meant with regard to
the number of projects.
Mr. Sartor stated in projects less than $250,000, prior Council was comfortable In
providing the City Manager with the authority to award those types of contracts.
Council Member Espinosa stated the issue was not about the dollar amount of the
contracts but the kind of contracts we are setting up in terms of whether we would have
more bids, different kinds of companies, workers doing different levels of work. The
decision making would be based on the types of contracts, companies, skill levels of
employees and that would drive prevailing wage
Mr. Sartor stated the difference remained in what was considered a maintenance versus
construction project in that maintenance projects were of a recurring nature on existing
structures. He stressed these projects were typically, significantly smaller in scope. He
stated they were not suggesting that a new building project under $250,000 would be
exempt. A new building project would still require prevailing wage parameters.
Mr. Keene stated moving forward meant getting something on the Consent Calendar and
then they could return with more definitive data.
Council Member Espinosa stated it was important to understand who these companies
are, and understand why the dollar amount is what it is for these smaller projects.
Mr. Keene stated the dollar amount was not at issue. They were not vetted to any
particular dollar amount at this point.
Council Member Espinosa agreed it was more important how they arrived at their final
conclusions rather than the actual final numbers.
Mayor Drekmeier stated recent Request for Proposals brought in lower bids. He asked if
wages were the same, how or where costs were rising within this bidding process.
Mr. Sartor stated product costs were the primary reason for any extra or higher costs
above and beyond what may have been· seen in the past. Also material costs have· gone
down.
Council Member Barton stated it was not labor rate, per se, of a project, but the number
of people working on that project that also played a role.
MOTION: Council. Member Barton moved, seconded by Mayor Drekmeier to
recommend to the City Council to adopt: 1) Paying Prevailing wage for City Capital
Improvement Projects with exemptions for; a) maintenance projects between $ lOOk
$250k to be determined by the Council after further investigation by Staff, b) projects
worked entirely by volunteers, c) public-private partnerships unless otherwise exempted
by Council.
Mayor Drekmeier asked how many projects would be heard by Council.
Council Member Barton stated it would not be each and every project. It would be
prevailing wage, unless the private funding is greater than City funding.
Mayor Drekmeier stated it was suggested that the City is in a better position to manage
prevailing wages than a private group. He asked if they were suggesting that the City
would manage all or most of the projects.
Council Member Barton asked how many public-private partnership projects have been
done where the City has not been the hiring agent.
Mr. Sartor stated it was his experience that the private partners have managed more than
the City has managed in the past.
Council Member Barton asked by what percentage has the private partner provided more
than 50 percent of the funds for a project.
Mr. Sartor stated the Heritage Park project received more private partner funds.
Mayor Drekmeier stated he did not want his vote to be a recommendation at this point.
He remained neutral until more information was available. He agreed that if more than
50% of the funds came from private partner that it could fall into one category, but in
fairness it would make it easier to be the same across the board.
Chair Espinosa clarified Staff s return at a later date with delineation of the decision
making criteria for public-private partnerships.
Council Member Barton was comfortable with Staff making the decision to modify the
Motion.
Chair Espinosa asked for clarification of what exact information they would return with
for further discussion.
Mr. Bawn stated what he heard was they should bring back more information on the
presumption and concerns over paying prevailing wage for public-private· partnerships
. unless specific exemptions are met. '.
INCORPORATED INTO THE MOTION WITH CONSENT OF THE MAKER
AND SECONDER to change the language to read "public-private partnerships needed to
meet specific exemptions in order to receive payment of prevailing wage."
Council Member Barton asked the number of yes votes required to take action.
Mr. Bawn stated the in the absence of a member there would not be a unanimous vote
and the Chair had the discretion to provide their own Motion.
Chair Espinosa asked why there needed to be a specified dollar amount in order to
qualify for prevailing wage.
Council Member Barton stated the dollar amount was not necessary.
Chair Espinosa had a concern about the affordable housing aspect and he did not have a
concern how Staff had written it. He wanted the inclusion of the wording on page 2 and
page 5 of the Staff report.
Mr. Bawn stated the language "unless otherwise required by law" would be added.
INCORPORATED INTO THE MOTION WITH CONSENT OF THE MAKER
AND SECONDER to add "unless otherwise required by law."
Mayor Drekmeier asked how the situation would be handled if both the affordable
housing and public-private partnership entities were vying for the same project.
Mr. Keene stated there would be qualifying factors of exemption and one entity would be
less qualified than the other.
Mr. Bawn stated the public-private partnership was not designed to apply to affordable
housing projects.
MOTION PASSED : 3-0, Kishimoto absent
Meeting Adjourned at 7: 14 p.m.
TO:
FROM:
DATE:
ATTACHMENT G
POLICY AND SERVICES COMMITTEE
CITY MANAGER
JUNE 29, 2009
DEPARTMENTS: PUBLIC WORKS
UTILITIES
CMR:236:09
REPORT TYPE: RECOMMENDATION
SUBJECT: Policy and Services Committee Review and Request for
Recommendation on Prevailing Wage Issues Related to City Capital
Construction Projects
RECOMMENDATION ,
Staff recommends that the Council Policy and Services Committee recommend that City Council
retain its current prevailing wage policy, allowing City "public works" projects to be bid without
prevailing wage requirements unless prevailing wage is required for the project pursuant to state
law,-m hght oflheuGity's economic difficUlties and to aVOid ad<litlonal cost impactS to the City'S
General and Enterprise Fund Capital Improvement Programs (CIPs). Staff also recommends a
pilot study of potential prevailing wage impacts be conducted on selected ClPs where prevailing
wage would . be required, to determine whether the prevailing wage requirement impacts the
number of bids, project costs, change orders and other factors.
EXECUTIVE SUMMARY
This report responds' to the December 9, 2008 and March 10,2009 discussions by the Council
Policy and Services Committee and Ad Hoc Committee on Prevailing Wage regarding prevailing
wage issues related to City capital construction contracts. At the December 9 meeting, the
Policy and Services Committee (comprised at that time of Chairperson Kishimoto and Council
members Barton, Drekmeier and Espinosa) indicated a strong interest in requiring prevailing
wage on City capital construction contracts and directed staff to come back with additional
information on possible exemptions to the proposed Council policy. At the March 10th meeting
the Ad Hoc Policy and Services Committee· (Chairperson Kishimoto and Council members
Barton, Drekmeier and Espinosa) reviewed staff's proposed exemptions to the prevailing wage
policy and recommended Council approve exemptions for projects involving volunteers and low
income housing projects. The Ad Hoc Committee also directed staff to come back to the full
Coun<;il with the proposed prevailing wage policy. and with further infor.mation on possible
exemptions for maintenance projects and projects involving public-private partnerships.
On June 15th, the City Council adopted the 2010 budget which included several dramatic and
unavoidable cuts to the City's operating and capital budgets. The "adopted budget reduced
spending in the Infrastructure Reserve by $2 million. In addition, the 2010 budget assumes
additional reductions in staifmg costs which have not yet been identified. Due to on-going
budget challenges, staff recommends that Council retain the current prevailing wage policy, for
CMR:236:09 Page I of7
now and direct staff to perform a pilot study where prevailing wage would be required on
selected CIPs ,that are not subject to prevailing wage under the current policy. This will allow
staff to collect ''real-time'' data on Palo Alto construction to better assess potential costs and
quality impacts on projects where prevailing wage is a requirement.
Although staff is not recommending a change in the City's prevailing wage policy at this time,
this report' provides additional information as requested by the Ad Hoc Committee on Prevailing
Wage regarding possible exemptions from a possible prevailing wage requirement for
maintenance projects and projects involving public-private partnerships.
BACKGROUND
As a charter city, Palo Alto is not required to pay prevailing wages on "public works" projects,
so long as the projects are within the realm of "municipal affairs", funded entirely by local funds,
and no other statutory exceptions apply. This "home rule" principle allows decisions on
expenditure of local funds to be made by locally elected officials. In 1981, Palo Alto passed a
resolution to pay prevailing wage "only when required by federal or state grants and on other
jobs considered to be of statewide concern." (see Attachment A, Resolution).
Recently, charter cities' power to opt out of state prevailing wage law was upheld by California's
FoUrth District Court of Appeal in State Building and Construction Trades Council of California
v. City of Vista, (2009) 0052181. In 2007, the City of Vista, a charter city like Palo Alto,
adopted an ordinance under which City contracts generally would not require payment of the
prevailing wage; Theeourt held that state prevailing wage laws were intended ''to keep state
contracting from undermining what local markets have established." However, because an
ordinance like Vista's would not materially interfere with the stability of the area's labor market,
the effect of ordinances like Vista's were not a matter of statewide concern. Therefore, the court
held that charter cities, like Vista and Palo Alto, retain the power to opt out of the state's
prevailing wage law.
The State Building and Construction Trades Council of California interids to petition the
California Supreme Court to review this case. In the meantime, the Vista decision is still good
law, and it affirms the City of Palo Alto's right to opt out of paying prevailing wage.
Also relevant is SB 9EX, which the Governor signed on February 20, 2008, noting the (then)
ongoing litigation in Vista. SB 9EX narrowed potential prevailing wage obligations for charter
cities involving work on water, sewer, or storm drain systems that have previously been extended
to disadvantaged communities.
Amid the recent debate over charter cities' prevailing wage requirements, on December 9,2008,
staff presented to the Council and the Policy and Services Committee a recommendation that
Council not change current prevailing wage policy, allowing City capital construction ("public
works'') projects' to be bid without prevailing wage requirements unless ,prevailing Wage is
required for the project pursuant to state or federal law, due to potential cost impacts to the City's
General and Enterprise Fund Capital Improvement Programs (CIPs) (CMR 443:08, Attachment
B). The Committee carefully reviewed this recommendation and decided it was in the best
interest of the City to recommend to the full Council that a resolution be adopted requiring
prevailing wage on all City capital construction contracts. The Committee also instructed staff to
recommend types of construction contracts that could be considered for exemption from a
CMR:236:09 Page 2 of 7
prevailing wage requirement. Minutes of the December 9th meeting are attached (Attachment
C).
On March 10, 2009, staff presented to the Council Ad Hoc Committee on Prevailing Wage
proposed exemptions from the possible prevailing wage policy discussed at the December 9,
2008 Policy and Services Committee meeting. The possible exemptions reviewed with the Ad
Hoc Committee were:
1. Maintenance projects under $250,000 as defined by Section 22002 of the California
Public Contract Coc;le;
2. Projects using pUblic-private partnership funding;
3. Projects that construct/rehabilitate affordable housing for people with low or moderate
incomes; and -.
4. Projects where the work is performed either entirely or partially by volunteers.
A detailed discussion of the above staff recommended exemptions can be found in the attached
CMR:150:09 (Attachment D). At the March 10th meeting the Ad Hoc Committee on Prevailing
Wage recommended that Council approve the staff recommended exemptions for projects where
the work is performed entirely by volunteers, and low and moderate income housing projects.
Minutes of the March 10th meeting are attached (Attachment E). The Ad Hoc Committee asked
staff to come back to the full Council with additional information on possible exemptions for
maintenance projects and projects involving pUblic-private partnerships, as well-as clarification
that e propose exemption or or e OUSlng wo app y ess 0 erwtse reqwre y
law. Specifically, the Committee asked staff to present justification for the proposed $250,000
threshold for maintenance projects that is reflective of the dollar value of most maintenance
contracts and not tied solely to the $250,000 threshold cited in Section 2.30.210 of the City'S
Municipal Code for Public Works projects requiring City Council approval. The Comniittee also
asked staff to develop criteria for exempting public-private partnership projects that reflects the
amount of City funding in these projects and addresses project administrative responsibilities.
This information is discussed below for consideration by the Council Policy and Services
Committee.
DISCUSSION
In its December 9, 2008 report (CMR 443:08, Attachment B) staff presented its research into the
possible impacts requiring prevailing wage on City General and Enterprise Fund construction
projects. This research indicated that prevailing wage could increase the cost of construction by
up to l00A.. Staff's research was based on surveys of other California cities, contractors working
in the Palo Alto area, and review of the many studies conducted on this subject. This research
also showed that there are additional administrative costs associated with prevailing wage
contracts. Any further increase in contracting costs will limit the City's ability to address the
growing $400 million plus infrastructure backlog and increase the cost tQ rehabilitate existing
infrastructure, much of which is already well past its life expectancy and in a deteriorated
condition.
The 2010 budget adopted by the City Council includes several cuts in both the City's operating
and capital budgets. Included in these cuts was a funding reduction of $2 million to the city's
Infrastructure Reserve. Cost increases in Utility (Enterprise fund) projects could also result in
the need for user rate increases. Because of potential for cost impacts, the City's continued
CMR:236:09 Page 3 of7
overall budget challenges, and economic challenges in the region as a whole, staffbelieves·that
this is an inopportune time to change the City's current prevailing wage policy.
To better assess the potential impact prevailing wage may have on construction cost and quality
staff proposes to conduct a pilot study. The pilot study will select a few Capital projects where
one of the bid requirements will be the payment of prevailing wage on the project. The bids
received on these projects will be analyzed to determine:
• If the imposition of a prevailing wage requirement had an impact on the number
of bids received
• If the prevailing wage requirement increased the project cost
• If the number of change orders were increased or decreased by the prevailing
wage requirement
• If quality of construction was impacted by the prevailing wage requirement
Staff proposes to return to the Council Policy and Services Committee next year with the results
of the pilot study and further recommendations on the prevailing wage issue.
Discussed below is the additional information on possible prevailing wage exemptions requested
by the Ad Hoc Committee on Prevailing Wage at their March 10th meeting.
Maintenance PrQject Exemption
Attachment F is a table liSting all of the maintenance CIPs· included in the 2009 Adopted five
Year Capital Budget with their associated budgets and project category. The listed projects are
budgeted at a level of $222,000 or less and all meet the definition of a maintenance project under
Section 22002 of the California Public Contract Code (see page 3 of 6, CMR: 150:09, Attachment
D). Many of the maintenance CIPs listed in Attachment F are annual projects where the budget
is often carried from year to year. The construction contracts associated with annual CIPs are
. typically $250,000 or less. Staff recommends that if the Council were to require prevailing wage
on "public works" co~struction contracts they should also approve an exemption for City
maintenance CIP contracts valued at $250,000 or less to ensure the City of having the broadest
pool of bidders· on these routine projects. This would keep bids competitive and will likely
reduce costs for ~ese critical building, parks, and utility system maintenance activities.
Public-Private Partnership Exemption
Staff met with representatives of the Friends of the. Palo Alto Junior Museum and Zoo on
March 30th and with representatives of the Friends of Lytton Plaza and the Palo Alto Art Center
Foundation on April 1,2009. Each of these groups has an ongoing public-private partnership
with the City supporting their projects. At these meetings the proposed prevailing wage policy
was presented and the potential impacts of prevailing wage on their projects was discussed. The
upcoming planned projects at both the Junior Museum and Zoo (proposed 2009-10 CIP AC
.10000 New Bobcat Habitat) and Lytton Plaza Renovation (CIP PE-08004) will be managed by
the respective private entity while the Art Center Improvement project (CIP PF-07000) will be
managed by the City once design work is completed. The Friends of the Palo Alto Museum and
Zoo are funding all of their project with donations (totaling over $505,000) while the City will be
contributing $70,000 for resurfacing of zoo pathways. The Council approved letter of intent with
the Friends of Lytton Plaza provides for a maximum City contribution of $350,000 for Lytton
CMR:236:09 Page4of7
Plaza improvements wjth the Friends of Lytton Plaza responsible for 50 percent or more of the
additional funding that will· be needed for this project. The City will be funding more than 50
percent of the Art Center project.
The private groups that will be funding the majority of their projects and also managing project
design and construction (Junior Museum and Zoo and Lytton Plaza) are very concerned about
the potential of prevailing wage requirements increasing the cost of their projects. They are also
concerned that the administrative requirements associated with ensuring contractor compliance
with prevailing wage requirements would likely impose a burden on private entity project
managers that they are not prepared to undertake. On the other hand, the Palo Alto Art Center
Foundation indicated that they would be in a better position to comply with the proposed
prevailing wage policy since the City will be contributing over 50 percent of project funding and
managing project construction. Attached is a letter from the Friends of the Palo Alto Junior
Museum and Zoo and two emails from the Friends of Lytton Plaza asking that their projects be
exempt from the proposed prevailing wage policy (Attachments G and H respectively).
Staff recommends that if the Council were to require prevailing wage on "public works"
construction contracts they. should also approve a Public-Private Partnership exemption that
would exempt Public-Private Partnership projects where the private party is the lead entity
managing the project design and construction and the private entity funds at least 50 percent of
the project cost.
RESOURCE IMPAC'I' -------------~----
The Adopted FY 2010 Capital Budget includes an estimated $56.1 million in General Fund
construction and $32.1 million in Enterprise Fund construction that would require prevailing
wage in their construction contracts if Council were to change the City's prevailing wage policy.
These amounts can be seen in Attachments J and K and do not include total project costs such as
design services contracts which would not be subject to prevailing wage in most cases. The
construction costs of maintenance projects under $250,000 and Public-Private partnerships
where the private entity funds at least 50 percent of project cost and manages the project, are not
included in the above totals (see footnotes 1,2,3 and 5 of Attachment J). The FY 2010 General
Fund projects include $50.5 million for Mitchell Park and Downtown Measure N Library bond
projects and the FY 2010 Enterprise Fund projects include $22.5 million for the Utility
Department Emergency water supply project. The remaining four years (FY 2011 through FY
2014) of General and Enterprise Fund projects included in the Adopted Capital Budget are also
included in the attached tables. Both total project and construction costs for these projects are
shown in the attachments.
Attachments J and K also show the potential increased cost impacts on the City's CIP project if
the City's prevailing wage policy is changed. As discussed above, stafrs research indicates that
prevailing wage may incre.ase construction costs by up to 10 percent. While other studies have .
been conducted which indicate no such impact on project costs, based on the study conducted by
staff, one can see that the FY 2010 General Fund construction costs may increase by $2.8 million
if prevailing wage caused a 5 percent increase and by as much as $5.6 million if prevailing wage
caused a 10 percent increase in construction costs. Similarly, the FY 2010 Enterprise Fund
construction costs may increase by $1.6 million at 5 percent and $3.2 million at 10 percent.
Attachments J and K also show the possible construction costs increases in the FY 2011 through
CMR:236:09 Page 50f7
FY 2014 General and Enterprise Fund CIP's at both the 5 percent and 10 percent levels. Again
these data would be re~evaluated upon completion of the proposed prevailing wage pilot study.
POLICY IMPLICATIONS
To require prevailing wage to be paid on City capital construction projects Council would need
to adopt a resolution rescinding resolution 5981 and codifying the new prevailing wage policy
and any exemptions Council chooses to include. A sample resolution is attached as Exhibit I.
ENVIRONMENTAL REVIEW
The Council Ad Hoc Committee on Prevailing Wage review of the prevailing wage policy issues
presented in this report does not represent a project under the 'California Environmental Quality
Act (CEQA), pursuant to Section 21065 of the Public Resources Code, thus, no environmental
review is required. .
ATTACHMENTS
Attachment A:
Attachment B:
Attachment C:
Attachment D:
Attachment E:
Attachment F:
Attachment G:
. AftJt-chment H
Attachment I:
Attachment J:
Attachment K:
Resolution 5981
CMR:443:08
Minutes of December 9, 2009 Policy and Services Committee meeting
CMR:150:09
Minutes of March 10, 2009 Ad Hoc Committee on Prevailing Wage meeting
Table of Maintenance Capital Improvement Projects
Letter for Friends of Palo Alto Junior Museum and Zoo
emailsfrom the Friends of Lytton Plaza
Draft Resolution ~ Requiring the Payment of Prevailing Wage on City Capital
Construction Contracts with Certain Exemptions
City of Palo Alto 2010~2014 CIP Plan General Fund
City of Palo Alto 2010~2014 CIP Plan Enterprise Fund
PREPARED BY:
DEPARTMENT HEADS:
CMR:236:09
MIKSAliTOR •
Assistant Public Works Director
~~~~
TOMM MARSHALL
Assistant Utilities Director
JLJgj)~
GLENN ROBERTS .
Director of Public Works
Director of UtI lties
Page 6 of7
CITY MANAGER APPROVAL:
CC: Neil Struthers, Santa Clara and San Benito Building and Construction Trades COWleil
Nicole Goehring, Associated Builders and Contractors, Golden Gate Chapter
Aletha Leong Coleman, Friends of the Palo Alto Junior Museum and Zoo
Barbara Gross, Friends of Lytton Plaza
Leland D. Levy, Friends of Lytton Plaza
CMR:236:09 Page 7of7
• ORIGINALA:
t. RESOLUTION NO. 5981
RBSOLUTION or 'fBI COUNCIL or THB CITY OF PALO ALTO
BSTABLISHING POLICY REGARDING PRIVAILING WAGES POR
PUBLIC· PROJIC'l"S
WHBREAS, in the reeent ease of Vial v.City of San Dieso (175
Cal. Rtpr. 641, July, 1981), the California Court of Appear determinea
that the subject of ·prevailing wages-is a municipal affair an4 that
Charter cities are not subject to the prevailing wage requiremen.tafor
public works projects set forth in the California Labor Code; and
WHERBAS, it i8 inth. City'S best interest to obtain the lowest
responsible bid for publiaprojectsJ
NOW, THEREFORE, the Council of the City of Palo Alto does RBSOLVI
a8 follow81
SECTION 1. It is appropdate to use .the Davis-Bacon Act or state
Depart"ent of Industrial Relations Wage Determinations only when re
quired by federal or state grants and on other jobs eonsidered 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
impaet assessment is necessary.
INTRODUCED AND PASSED: December 14, 1981
I ~
Witherspoon
NOBSs None
ABSTENTIONS I None
ASSBRT: Fazzino
,
APPROVED:
V'~or~
CHMENT·A··
TO: CITY COUNCIL
ATTACHM~"NT B
City o! Pallo Allt({l)
City Manager's Report
ATTN: POLICYAND SERVICES COMMITTEE
FROM: CITY MANAGER
DATE: DECEMBER 9, 2008
REPORT 'lYlE: RECOMMENDATION
DEPARTMENTS: PUBLIC "WORKS
UTIUT](ES
CMR: 443:08
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 nbt
change current prevailing wage policy, allowing City "public works" projects be bid without
prevailing wage requirements unless prevailing wage is required for the project pursuant to state "
d e to otential cost im acts to the Cit's General and Ent rise Fund Ca ital
Iniprovemeril Programs (C)ps).
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 Progralils (ClPs), Council not change the
City's current prevailing wage policy. This reconunendation 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 ~ts life expectancy ml:d in a
deteriorated condition. IIi addition, a prevailing wage requirement could also apply to the many
" priVate/pUblic partnerships the"City is involved in such as Lytton Plaza, Art Center and possibly
the Junior Museum ~d Zoo. The California Court of Appeal is currently hearing an appeal in
the City of Vista case, where ~e 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, ~p07; City Council approved a contract. with Anderson Pacific for a Water
Quality Control PI~t (WQCP) pump station upgrade related to the reclaimed water pipeline
"project nmning from the WQCP to Mountain View (€MR:364:07). Council approved the
contract contingent on the contractor assuring the City they would pay their employees
prevailing wage on the project. ~n a related motion Co~ci1 directed staff to bring the preVailing
CMR:443:08 " Page 1 ofS
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 p,assed the Davis-Bacon Act, which mandated the payment of prevailing wages on all
construction projects that receive more than $2,000 of Federal funds -an amount that has
remained unchanged today. In subsequent years, especially during the Great Depression, many
states and localities passed similar prevailing wage laws; Most states, including California, now
have such laws.
Prevailing wages are determined in many different ways across the country. The Federal and
California Prevailing Wage calculations are similar because if more than 50% of the workers
make the same wage this becomes the prevailing wage for the trade. They differ in the
calculation when less than 50% of the workers have the same wage. . The Federal Law
determines the prevailing wage by averaging all the wages, whereas in California the most
common wage occurring becomes the prevailing wage. California's calculation method usually
results in a slightly higher wage than the Federal calculation method. •
California passed its prevailing wage law in 1931, the same year the federal Davis-Bacon Act
. was passed. California Labor Code § 1771 requires that any "public ')Jerks" project that receiv~s
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 l~w 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 Page20fS
Recently, courts have blurred the issue of whether a charter city may elect not to pay prevailing
wage. For example, in 2004, the California Supreme Court in City of Long Beach v. DIR,
declined to decide whether prevailing wage law is such a matter of statewide concern that it
should override the ability of charter cities to conduct their municipal affairs. Since then, labor
unions have mounted a statewide' campaign to overturn existing law and declare prevailing wage
a matter of state concern. The charter city. of Vista is currently defending its choice not to pay
prevailing wages in a lawsuit brought by the State Building and Construction Trades Council.
Although the trial court reluctantly ruled in favor of Vista in December 2007, the case is pending
on appeal. A detailed summary of the case is included in this report's discussion below.
These recent judicial developments led the City Attorney to recommend that Palo Alto pay
prevailing wages on regional projects that transcend the city's geographic boundaries, even if
these projects could be considered municipal affairs. Capital improvement projects related to the
Citfs 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 sigllificIDltly
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 of8
Staff reviewed seventeen such studies, both pro-prevailing wage and anti -prevailing wage, and
studies prepared by government organizations. Summaries of these studies are included in the
attached memorandum dated ~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 f.orced to
require prevailing wage. The study, which asked contractors for bids under and n.ot under
prevailing wage conditions, found that repeal did save money -especially .on smaller pr.ojects.
It asserts that the exemption yielded 1.2 percent in t.otal cost savings in new constructi.on, 10.7
percent savings on building alteration projects and 19.9 percent savings on building additi.ons.
This conclusion seems to str.ongly supp.ort the noti.on that the smaller projects have greater
savings when prevailing wages are not required.
Furtbennore, the study surveyed school-distriets to diseov'er if-they had net4ced any dee-rease in
the quality of construction. Six percent .of respondents said that they had noticed higher quality
construction since the exempti.on, 91 percent n.oted no change and 3 percent said quality had
decreased.
In one very unique case, the survey disc.overed that .one scho.ol district had put a project out to
bid under prevailing wage conditions and then rebid the projtct without such requirements. The
winning bidder in the second case, without prevailing wage, was 5.8 percent lower, yielding a
cost savings of more than $500,000.
In Kentucky, the legislature .also ordered its research arm t.o study the issue of prevailing wage.
The study made a notable number of findings, including learning that 60 percent of workers
surveyed were paid m.ore 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-uni.on and 24.4 .of uni.on contractors said prevailing wage laws raise
constructi.on costs.
• 55.4 percent of small firms (10 .or fewer empl.oyees) said prevailing wage laws have a
negative effect on their business, compared to 73 per~nt of large firms.
• 95.7 percent of citie~ 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.
• M.ore cities believed prevailing wage legislati.on decreases -not increases -qualitY of
construction.
It is w.orth n.oting that the report did n.ot call f.or the ab.olishment .of prevailing wages in
Kentucky. The report did n.ot take an opinion .on the issue. Its main .overall conclusion.on the
effectiveness of the legislation, h.owever, is as f.oll.ows:
CMR:443:08 Page 4 of8
To the extent that quality is increased, prevailing wages are an inefficient method
to increase quality. The wage requirement results in contractors paying higher
wages with no guar~tee that these additional wages will result in quality
improvements.
Aside from the Kentucky and Ohio reports, there are a number of smaller government reports on
the topic. The Federal Congressional Budget Office (CBO) and General Accounting Office
(GAO) have both issued reports on prevailing wage, with the GAO asserting that repealing the"
Davis-Bacon Act would save $1.2 billion annually. The CBO study, written during the early
1980's, was likely the impetus that caused the Reagan Administration to change the definition of
prevailing wage to the wage earned by 50 -as opposed to 30 -percent of local wage earners. It
found that repeal of Davis-Bacon would save $13 billion (2007 dollars) over five years and that
some 20 percent of open shop contractors have no interest in bidding on prevailing wage
contracts. It also recommended raising the threshold at which the prevailing law is triggered, as
the $2,000 trigger'was set in 1931 and has never been increased.
The final government study of note is another state legislative study -Maryland in this case -
conducted in 1997. Maryland's Department ofFisca1 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.
Smyyof California Qities
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 aU members of the
Association of Bay Area Governments, as well as to all Charter Cities that had email addresses
available. Forty-eight municipalities responded to the survey. Usually, the respondents were
public works officials, though a few city managers replied as well. A short summary of the
findings follows and the more detailed results are included in' Attachment C.
• 42 of 48 cities surveyed pay prevailing wage rates.
• 26 out of 32 Charter Cities pay prevailing wage rates.
• Based on the survey results, staff estimates that paying prevailing wages may increase
construction costs in the range of 5% to 10%.
• A large majority of the respondents believe that paying prevailing wages does not
increase quality of the work.
• Most believed that requiring prevailing wages decreases the number of bidders on
projects.
• Some cities have exceptions to paying prevailing wages for certain types of contracts.
The responding cities were also asked tQ provide comments ()n the positive and negative effects
of paying prevailing ·wages. TheSe are sumriwized below:
Positive Effects
.' Supportive of labor
• Evens the playing field
• Assures that workers are being treated and paid fairly
• Higher wages allow people to live closer to work
• More professional bidding pool
CMR:443:08 Page 5 on
1& Higher-quality work
Negative Effects
• Higher costs
• Fewer projects can be built
• Need for extra statling and paperwork for compliance monitoring
• Smaller pool of bidders .
Survey of Contractors
The Staff's research on prevailing wage did provide a number of insights into the views of
construction contractors on the topic of prevailing wage legislation. In addition, staff conducted
a survey of contractors bidding work in Palo Alto to best judge the impact a change in Palo
Alto's prevailing wage policy would have on construction projects in Palo Alto.
A summary of the survey results follows:
• Approximately 50 % of the ~ntractors responding pay prevailing wages on all contracts.
• Most contractors that do not typically pay prevailing wage rates will ,bid prevailing wage
contracts.
• 70% of the contractors not paying prevailing wage rates use the same labor force when
bidding prevailing wage contracts.
• The average of the estimated increase to construction costs associated with paying
prevailing wage rates was approximately 8% according to the contractors responding to
the survey.
City of Vista Court Case
. . As discussed previously, the Charter City of Vista is currently defending its decision not
to pay prevailing wages in a lawsuit brought by the State. Building and Construction Trades
Council. The outcome of this case will be very important, as it could detennine whether charter
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 prop'osition, 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 Page60fS
The judge in Vista, however, contended that instead of focusing on the proj ect, a more
appropriate analysis would involve whether the prevailing wag~ 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 14,2.0.08. 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 tbis case will eventually be appealed to the California Supreme Court.
A California Supreme Court decision would not be expected on this case for at least another
year. The City Attorney's Office will keep Council informed on the'status oftbis case.
RESOURCE IMPACT
The Adopted 20.09 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 constmction 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 2.0.09 General Fund projects could increase by as much as $1 million and the
2.009 Enterprise Fund projects could increase by as much as $2.8 million if Council were to
adopt a policy requiring prevailing wage rates be paid on all capital construction projects
contracted by the City. It also should be noted that any private/public partnership agreements
entered into by the City for capital construc~ion 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 21.065 of the Public Resources Code.
CMR.:443:08 Page 7 of8
ATTACHMENTS
Attachment A: City of Palo Alto Resolution 5981
Attachment B: Minutes of S~ptember -17, 2007 City Council meeting
Attachment C: Prevailing Wage Rate Issues Memorandum of February JS, 2008
PREPARED BY:
DEPARTMENT HEADS:
CITY MANAGER APPROVAL:
CMR:443:08
~;tant Public Works Director
HALL
Assistant Utilities Director
,6L,~. ~9 /
GLENN ROBERTS
Director of Public Works
~til!rA-~~ J ENE ' .
Ci~ anager
Page 8 ofS
ATTACHMENT H
POLICY AND SERVICES COMMITTEE
Regular Meeting
June 29, 2009
Chairperson Espinosa called the meeting to order at 7:07 p.m. in the Council
Conference Room, 250 Hamilton Avenue, Palo Alto, California.
Present: Espinosa (Chair), Barton, Kishimoto
Absent: Yeh
1. Oral Communications
Lynn Krug, SEIU, spoke regarding the City contract with SEIU.
2. Policy and Services Committee Review and Request for Recommendation
on Prevailing Wage Issues Related to City Capital Construction Projects.
Chair Espinosa thanked Ms. Krug and all the work done in the City by the SEIU
workers. He stated that the Committee will be discussing and listening to the
recommendations from Staff on prevailing wage issues in relation to Capital
Improvement Projects.
City Manager James Keene said that Staff has brought this issue back at the
Committee's request, due in part to the worsening economy. Staff was further
directed to provide more specific quantitative data regarding benefits and
impacts that the City could face by moving to a specific policy of paying
prevailing wages on capital projects. Neil Struthers with the Building and
Trades Council has shared data with Staff showing about 84 percent of the
contracts the City awarded were to firms that already paid prevailing wage. In
the process of taking a look at the City's proposed and adopted Capital
Improvement Program over the next five years, while trying to compute the
impact if using prevailing wage, Staff developed concerns about rising costs to
the City. The recently adopted budget has a gap between the infrastructure
needs of the City and the funds required to meet those needs. The
infrastructure reserve fund is down to between $1 and $1.6 million for this
budget cycle. Mr. Keene stated that he had been supportive of the earlier
P&S: 090629 PS FINAL 1
recommendations to move to prevailing wage. However, he is now less
confident that there is enough data to assure Council whether prevailing wage
would or would not cost the City money. Staff met with Neil Struthers to
review this issue. After those meetings, and given the current economic
climate, prevailing wage should be put on hold for this year. Staff should
design some test cases that will show comparisons using prospective bidding of
City projects. Staff recommends the Committee put this on hold. Staff will
report back to the Committee on a pilot test design by this winter so that by
next spring Staff can report back with more data.
Assistant Public Works Director, Mike Sartor, stated the Staff report included an
attachment that lists all projects that are considered maintenance, per the
Committee's request, to support a potential exemption for maintenance
projects. Attachments I and J show all General Fund and Enterprise Fund
capital projects. This shows a 5-10 percent potential impact based on the
application of prevailing wage requirements. A pilot study would help
determine if that is a realistic number. Lastly, Staff held meetings with
representatives of the Friends groups that have an interest in this issue. They
presented letters that are included in the packet detailing their concerns. The
resulting recommendation would be to exempt public private partnerships
. where the private partner would do more than 50 percent of the 'Nork and
manage the job.
Mr. Keene added that his goal is to make a clear recommendation for or against
a prevailing wage proposal. Staff has suggested that not having a mandatory
prevailing wage provision incites competition among firms that provide
prevailing wage. On the other side, Mr. Struthers suggested that not paying
prevailing wage may result in drawing from a smaller pool of firms, causing less
competitive prices. Hidden costs in performance could exist. There aren't many
projects in the near future, but there will be some important ones that will
assist in gathering data. He stated that Staff recommendsdeferment of action
on this and for the Policy and Services Committee to direct Staff to undertake
the recommended study.
Nicole Goehring, 4577 Las Positas Road, Livermore, requested that the
Committee go forward with a pilot study and not change the existing policy
regarding prevailing wage.
Council Member Kishimoto asked Ms. Goehring what her experience is
regarding the impact on wages paid and bidding on projects.
Ms. Goehring said that the City is at an advantage as they would have 30 to 40
bidders on a project. It would have a 5-10 percent impact on the bidding.
P&S: 090629 PS FINAL 2
Council Member Kishimoto asked if she had any sense of how many workers are
affected.
Ms. Goehring said it would depend on how the contractor puts the bid together.
Molly McAuliffe, 1554 Cowper Street, thanked Staff and the Committee for
hearing this issue and supported Staff's exemption for public/private entities.
She also announced that the Friends of the Palo Alto Junior Museum and Zoo
have. raised $350,000 to fund the next project.
Ben Lerner, 3482 Janice Way, spoke regarding prevailing wage as a resident
not affiliated with any group. He hopes the Committee votes in favor of
prevailing wage and hopes such an ordinance has no exemptions. It's in the
best interest of all involved parties because it creates an improved quality of
work, defers negative costs to society, and it's a good example for Palo Alto to
set.
Neil Struthers, 2102 Almaden Road, San Jose, Head of the Building and Trades
Council, thanked Staff for meeting with him last week and feels that progress is
being made. The pilot study is a reasonable plan as Staff and Council need to
be comfortable that they are doing the right thing. There are a lot of tangible
-benefits to having this policy in a city like Palo Alto; not having one sends a bad
message. He understands that Staff looks at things conservatively, whereas he
is less conservative, looking at the global impact. He is confident that, given
the right criteria, this issue will be re-visited within a year and Staff will be
confident in their support at that time. Mr. Struthers said he is experiencing
20-30 bidders on public works projects. Contractors must decide to do public
works projects or go out of business as it is the only thing being financed. More
competition is good typically but some contractors are submitting bids way over
their head.
Council Member Kishimoto asked about a gap emerging on large projects,
stating that there isn't usually much of a difference in prevailing wage versus
. non-prevailing wage. She asked if there is a difference in submitted bids, if
they were dropping and if so, how rapidly.
Mr. Struthers wasn't sure if prevailing wage is lowering wages, but the
contractors let go of less skilled workers when times are tough. So now
contractors have more skilled workers and they are being paid prevailing wage
based on their skills. We are seeing their bids come in lower than non union
private and public. This will continue to be measured. Productivity isn't
factored into most studies.
P&S: 090629 PS FINAL 3
Council Member Barton stated that he will reluctantly support Staff's
recommendation. This issue has been an important one that he has worked on
for two years. He also expressed frustration over the concern for costs. The
City should pay more for services just as we are asking our citizens to pay more
for many projects. In addition, if there are so many conflicting studies
regarding the impact of prevailing wage, it's probably a wash. His personal
experience has taught him that preliminary pricing for private projects,
including three bidders where one is union and two are not union, had bids that
were close. He pOinted out that even if there were a five percent surcharge for.
projects, prevailing wage is the right thing to do. The City is going to upgrade
emergency water, and charge more for it, but it's the rightthing to do. The
Business License tax costs businesses more, but it's the right thing to do. The
City can't have it both ways; we'll need to pay more too. He reiterated that he
will reluctantly support Staff's recommendation in recognition of all the work
that has been done and he hopes that, if he isn't on the Council when this issue
is revisited, that someone else will take his stance.
MOTION: Council Member Barton moved, seconded by Council Member
Kishimoto, that the Policy and Services Committee defer the prevailing wage
Ordinance for one year and direct Staff to study the issue using pending
_ .. J2rojects to achieve constructive data.
Council Member Kishimoto asked for an update on the City of Vista Prevailing
Wage Court Case
Senior Deputy City Attorney, Melissa Tronquet, stated that the city is waiting
for resolution. Palo Alto has an Ordinance stating that, as a Charter City it is
not required to pay prevailing wage. A group challenged the Charter City
exemption in the City of Vista, as it should be a matter of state wide concern.
They won at both the trial and appellate levels; both were appealed. Charter
Cities may still opt in or out, and there will likely be another appeal.
Council Member Kishimoto asked for clarification on the type of data Staff will
gather.
Mr. Sartor said Staff has not put together a plan on how to do the study yet.
The thoughts are that Staff would want to evaluate engineer's estimates with
bids that come in and compare to prevailing wage or not prevailing vvage. Staff
also thought of using Add Alternates to look at a way of gauging the cost
difference. Staff will confer with experts such as Mr. Struthers and put together
a plan that makes sense. Staff has gone as far as thinking of some specific
projects to see if they can bid those with prevailing wage requirements to see
how they might look.
P&s: 090629 PS FINAL 4
Mr. Keene added that the City doesn't have an unlimited amount of time or
projects. Anything will not be perfect, but it will be structured enough to give
better results, and provide more confidence in decision making. An Add
Alternate approach mayor may not be the best way. Staff may decide to study
two separate projects that are alike and see how they bid. It may be hard with
out a short term project to do the quality assessment. Staff can look at
prevailing wage union or not union with a prequalification, to control a bit for
the capacity. Staff is not ready at this time to be definitive in the design. The
intent is that this will be a collaborative design approach.
Council Member Kishimoto wanted to look at the impact on the workers on that
project, what wages they are getting paid and what their skill level is. She
referred to an item on Monday's Council Agenda about DBEs, the
Disadvantaged Business Enterprise program for minority and women owned
businesses, which are only 6 percent in Santa Clara Valley. She asked if there
is anything we are doing to encourage more women and minorities to enter
these fields and to own these companies.
Mr. Keene said that Staff would treat that as another issue to focus on. As we
deal with different types of data, we could look at it to see any patterns.
------------------~-~~-----
Chair Espinosa asked about the mention made to the most recent financial
report and requested clarification.
Mr. Keene said that Staff was looking at what the infrastructure reserve would
be at the end of this biannual budget, and it's down to $1.6 million based on
the budget that Council adopted. With reserves, pooled cash and investments,
it may end up being closer to $1 million.
Chair Espinosa asked if Staff has a sense of how many projects in next 12
months would qualify.
Mr. Sartor said the projects he spoke of earlier were General Fund projects that
are coming up such as Greer Park and the Downtown Library, and then later in
the year, Mitchell Park Library. There are a number of projects in the Utility &
Enterprise Fund, such as storm drain rehabilitation.
Assistant Director of Utilities Engineering, Tomm Marshall, confirmed that they
have a number of projects that would fit into the prevailing wage ordinance. He
believes most of their projects already pay prevailing wage. There should be 5
or 6 projects annually that would be appropriate for a study.
Chair Espinosa asked for specifics regarding the timeline and how long it will be
before Staff gets back to the Committee.
P&S: 090629 PS FINAL 5
Mr. Keene said that taking into consideration the concerns expressed by the
Committee, Staff would revisit this sooner rather than later. The goal would be
to get back to the Policy and Services Committee some time in the next couple
of months, and Council by the end of this fiscal year. He also said that to be
fair, it could be a year from now.
Chair Espinosa confirmed that Staff would come back to the Committee with
the study criteria within a couple of months and then within a year with final
results. He hopes that when it does come back it will clearly address the
concerns raised regarding price and quality of service, as well as the pay and
for any sort of package that takes care of workers and how that's weighed.
MOTION PASSED 3-0 Yeh Absent
3. Review of Open City Hall Pilot Program and Recommendation to the City
Council Regarding Continuation of the Program
Assistant to the City Manager, Kelly Morariu, said that Council approved a six
month pilot of Open City Hall in 2008. The City launched the forum in 2009 with
the first topic being composting. One to three topics for each agenda are
posted each week and there have two on-going topics: High Speed Rail and
Long Range Forecast. Each Thursday prior to a Council Meeting, staff posts a
question and people are allowed to post comments until Monday at noon when
the topic is closed. Comments are printed and left at places for Council on
Monday. It's a small window of time for comments, but that is the way the
agenda process is structured. The cost is fairly minimal. The City paid a $5000
set up fee, and pays $200 a month for ongoing maintenance, for unlimited
topics. Th~re is a 24 hour holding period where Peak Democracy staff review
the comments, and no statements have been held so far. Regarding average
usage, the site has had 137 visitors and an average of 24 statements per topic.
If compared to the 3 minutes of public commentary time at Council meetings,
that equates to about 1.2 hours public commentary that has been transferred
to the Open City Hall Program, and is equal to .4 statements per thousand
residents. Each time a new user signed up, they were asked to complete a user
survey. Eighty seven users like the forum and left a number of comments
about why they liked it. A few complaints were about technical issues, most of
which were resolved fairly quickly.
Robert Vogel, Peak Democracy, said that Open City Hall is an online forum that
is both civil and free speech compliant. Palo Alto is getting an average of 24
statements per topic, which is equivalent to 1.2 hours of Public Comment orally
presented but being in writing it's easier to review. He spoke regarding the
usage of Open City Hall in context with the five other Cities that have used it in
P&S: 090629 PS FINAL 6
the last six months. Palo Alto is the only City using it exclusively for Council
Agenda items. Decatur GA, State College PA, and Lake Oswego OR, are using
it for Council agenda items, as well as some more general items. Montgomery
OH is using it exclusively for more general items. He stressed that he wanted
to share these examples to give a sense of what they are doing to bring people
to the forum and to publicize it. If the City wants to increase the number of
users there are opportunities to do so. To identify them, he did a comparison of
the type of usage from all five cities. Palo Alto has .4 statements per topic per
1000 residents; other cities are seeing a broad range of participation from .3 to
2.1. That range of partiCipation rates is easily understood when you look at
how other cities are publicizing their forum. Decatur and Lake Oswego are
announcing each new topic via email using City email lists. Montgomery
announces their topics in a monthly newsletter that goes to every household.
Palo Alto and State College have no similar program and are only seeing a
participation rate about 20 -30 percent of the others. Another opportunity to
increase participation is related to a development recently put into the
software. Open City Hall can now run clones on other websites. The City can
add it to the City of Palo Alto website. Sacramento is using the Open Town Hall
program where the Mayor chooses issues and updates them in a· form that he
controls, and the form is embedded in the Sacramento Bee as well as in Capital
Pllblic Radio Website. Media outlets carry the forum to be consistent to their
mission and to bring readers to their website. The City can invite the local
newspapers to embed a copy of the forum on their websites, as well as embed
it on the City's website, at no extra charge.
Ms. Morariu said that Staff recommends continuing the Open City Hall program
at the same $200 a month service fee. Staff's time to manage the forum is 1-3
hours a week when there are topics. Staff has been exploring ways to increase
participation. The City can work with the local media outlets to get it on their
websites, as well as putting it on the City's website. The pilot was on the Open
City Hall website to insure the public recognizes the program's independence
from the City, but at this point adding it to the City website would give it some
legitimacy. Staff also wants to reach out to the neighborhood associations, in
lieu of a comprehensive email list like Decatur and Lake Oswego has. Staff also
wants to look at how to incorporate the Open City Hall logo on the printed
agendas to identify the topics that are on the forum. Lastly, staff is looking at
increasing the number of issues on the forum, as a response from various
Boards and Commissions as well as other Council Committees.
City Manager James Keene concurred with Ms. Morariu and added that he
doesn't think that the pilot really hit it out of the park, but it did get
participation and civil commentary with a high level of discourse taking place.
P&S: 090629 PS FINAL 7
Staff is working on the area of social networking, such as establishing the City's
own Facebook page and Twitter Account. Tweet notices can be sent in the
absence of email list.
Chair Espinosa shared three pOints that Council Member Yeh shared with him
earlier: 1) Peak Democracy should continue, 2) Distributing it At Places doesn't
work because there isn't enough time to influence decision making, which ties
into the bigger issue of Council not getting the staff reports early enough; and
3) the need for more publicity is paramount to the success of the program.
Council Member Kishimoto recognized that Peak Democracy first contacted her
two years ago, so it is nice to see it going. She agreed with Council Member
Yeh's comment regarding the timeliness of the reports, agreeing that At Places
isn't useful. She asked Staff if the Council can get the comments real time.
Ms. Morariu said that it would be possible for Council Members to view
comments on the forum as often as they would like or Staff could distribute
comments via email on Monday at noon instead of waiting until the end of day.
Council Member Kishimoto said that those options would be better than the
<::ljrrent process of putting the comments At Places. She agreed that the value
of this program is uneven. She was disappointed that there is no longer a one
page view containing one line from all the comments. It is less dynamic now.
She would like the City to take advantage of the knowledge and analysis our
residents have and do, getting them to add their hard earned information to
Peak Democracy is her goal.
.Mr. Vogel explained that the previous look of the website that Council Member
Kishimoto was referring to was a prototype that was much more labor
intensive. The one line comments were hand selected and edited. It would
require work to do it.
Council Member Kishimoto suggested showing just the first one or two lines
from the most recent comments. Only seeing the numbers of yes and no's is
not as compelling for the public to read further and add their own comments.
She asked if there is a way for people to sign up for email notifications.
Mr. Vogel said that the original press release attracted 200 or so people to sign
up and receive additional announcements as topics are added. This is less than
the several thousand subscribers other cities have, but they started with a
mass email distribution, Palo Alto did not.
Ms. Morariu added that if it were embedded in the City website, staff would be
able to use the Gov Delivery service so that people can subscribe through that.
P&S: 090629 PS FINAL 8
Council Member Kishimoto asked if High Speed Rail is a perpetual topic.
Mr. Keene said it might be best to put the comments on the City's website so
we can keep a rolling history of commentary and perhaps even a database.
High Speed Rail has a set of deepening, evolving opinions, data and grass roots
strategies. Then it would start to become part of a body of work and it might
be more compelling to participants.
Mr. Vogel agreed with Mr. Keene about having some editorial process to have
the most relevant topics at the top.
Council Member Barton agreed that the trial wasn't perfect but believes it
should be continued. It's not expensive enough for the financing to be
prohibitive. The timing of when Council gets the comments doesn't work.
What does work is the way Staff sends out the answers to Council Member's
questions that come out around 2:00 -3:00. If Open City Hall came out at that
time he stated that he would have time to read it. He is concerned about the
idea of editing the comments; the City shouldn't be making the decision about
what's best. The point is to have something to engage people. He would like
to see it embedded with randomly selected comments that comaup and change
frequently. The current structure is to put the most recent comments on top,
unedited.
Mr. Vogel said that it is important to make sure the users can't edit their
comments in order to have them move back to the top. Open City Hall is set
up so that it is sorted by creation date, not updated date. It is also critical that
if the City does edit or filter comments, that there is no political agenda behind
it.
Council Member Barton said that because Palo Alto's daytime population is so
much bigger than the night time population, there is value to a passive
communication system. An email communication would miss a lot of the
daytime reSidents, even though they do have a stake in the decisions made by
the Council, such as with business license taxes. He also said that he likes the
agenda pages the way they are currently posted on the website. Users are able
to click on a link that leads them to a PDF of the agenda item. It would be
helpful if we could put an Open City Hall logo next to that link, so that users can
click on it and get to the Open City Hall page. He then asked if there is a way to
find out where the users came from.
Mr. Vogel said that they do know where the users are coming from and they do
have the ability to share that information with the City.
P&S: 090629 PS FINAL 9
Council Member Barton said the Media Center partnering would be interesting
because they could reflect the item back to their video post back to the
discussion and there might be some value. He asked if it can be embedded in
Facebook.
Mr. Vogel said Open City Hall can be embedded in sites like Facebook, and
asked if the City has a presence on Facebook.
Mr. Keene said that the Staff is currently working on it.
Council Member Barton reiterated that Facebook is another opportunity to get
Open City Hall some passive exposure. He also stated that embedding it in the
City website makes sense. Overall, he found the program valuable. He tries to
reflect on the public comments, but it is difficult to do right before the Council
meetings. There has been occasion where he has seen that the tally on Open
City Hall is different than what he hears from other sources. It gives him a
fresh perspective. It is consistently on topic. Palo Alto Online is an intriguing
idea but it is too scattered and unpleasant to be useful to him as a policy
maker.
Mr. Vogel said if we embed it in a local newspaper the format wUI be exactly the
same as it is now on Open City Hall. There should be no change in the quality
of comments, and this was indeed the outcome of the experience in
Sacramento.
Council Member Barton asked how Open City Hall fits in to the FPPC fairness
rules. If a newspaper hosts a Mayor's page during elections, it would be an
endorsement. He then asked if they would be able to host similar pages for
other candidates.
Mr. Vogel said that the forum is open to all elected officials now, and when an
election comes up, it would open to all candidates.
Chair Espinosa asked Staff to speak to the cost impacts of the program and
whether adding additional items from Committee Members or Boards and
Commissions, increasing outreach, email communications or increasing the
number of items discussed increase the cost of the program.
Ms. Morariu said that, originally, there was a per-item cost, but was changed
during the pilot. The City pays a $200 per month flat fee for an unlimited
amount of topics. Having the Boards and Commissions add items would not
increase the cost. She stated that there might be an increased Staff cost, due
to a possible increased need for coordination. Increasing the public's
P&S: 090629 PS FINAL 10
participation, managing email Ii,sts and embedding in the website would be a
Staff resource issue more than a cost issue.
Chair Espinosa asked if Staff worked with the Website Committee on this.
Ms. Morariu said that at this early stage they did not.
Mr. Keene added that there has been some general discussion, but not on a
detailed level.
Chair Espinosa asked if Staff would state the value added beyond the email
packets they get.
Mr. Vogel said that if people come to Council meetings and spoke alone with
Council, and then when they are done the next person comes in there is no
transparency, like there is if everyone comes in at the same time. That's the
difference between a forum and a sequence of emails. If the emails are
published unedited, you have to be careful of content as some may be
inappropriate. Open City Hall deals with that for the City. It allows for civil
statements while still being a process that does not violate freedom of speech.
Chair Espinosa stated his appreciation for any business that is involved with
transparency and civil discourse. He did vote against it the first time. He still
believes that this is a waste of money. The information is received too late.
The number of comments per topic is absurd at 24 to 60,000. He believes the
feature could be added to the City Website in a much more immediate and
transparent form. The cost may be minimal but we are not adding any value to
the decision making process at all. He reiterated that he respects the efforts
and agrees with the spirit of the project, and he applauds the companies that
do this type of work. He will continue to discourage the use of Open City Hall.
MOTION: Council Member Kishimoto moved, seconded by Council Member
Barton, that the Policy and Services Committee recommend to the City Council
to continue utilizing the Open City Hall online discussion forum at the cost of
$200 a month, and direct Staff to ensure a more timely delivery of comments,
expand outreach, include occasional long term projects, embed Open City Hall
onto the City's website, expand use to Boards and Commissions, and include
Social Networking sites.
Ms. Morariu asked if Council Member Kishimoto only intends to open it up to the
Planning and Transportation Commission.
Council Member Kishimoto said she would be open to including all Boards and
Commissions. She also expressed her appreciation at Chair Espinosa's honest
P&S: 090629 PS FINAL 11
comments about the program. She feels that expanding the outreach will
address a lot of his concerns. She also hopes to attract more in-depth
comments. Palo Alto residents do a lot of research on the topics that affect the
City; it's great to have a forum for them to share all of that. However, three
days isn't enough time for them to do all that work, and then to respond with
in-depth answers, so longer term topics would be useful. It is also valuable to
see real time data.
Council Member Barton agreed in part with Chair Espinosa's comments, but
believes the start up money has been spent and should now be leveraged. He
added that if this conversation is still happening in a year or two, then it might
be time to stop the project.
Chair Espinosa said that if the City must continue to use the program, it should
include other Boards and Commissions as they deal with some hot topics that
should be included.
Council Member Kishimoto agreed to include Planning and Transportation
Commission and other Boards and Commissions as Staff sees fit.
_~_QTION PASSED 2-1 Espinosa no, Yeh absent
3. Discussion for Future Meeting Schedules and Agendas
Assistant to the City Manager Kelly Morariu said that the next regular scheduled
meeting is July 14th. The currently scheduled agenda is the Legislative Program.
The Committee had asked Staff to bring an expert in to discuss this. Dan
Carrigg from the League of CA Cities is willing to come speak, but won't be able
to come until September. While no expert will be there, Staff and the
Committee can still have a more general discussion.
City Manager James Keene added that he wanted to have a general
conversation with the Committee regarding their scope of work, and how Staff
identifies the stream of issues that is coming to the Policy and Services
Committee.
Chair Espinosa said that he had raised that issue as well. He felt this is a good
time to discuss the Committee's role and make sure the agenda is broad and
comprehensive. He then asked what would be involved with a general
conversation regarding the legislative program.
Ms. Morariu said that a general conversation might include the City Manager
speaking about effectiveness of the lobbying efforts and ways to incorporate the
P&S: 090629 PS FINAL 12
Council into the lobbying process as well as discussion about Sacramento
lobbyists and Federal lobbyists.
Chair Espinosa said that he is concerned about the lobby effort and
opportunities that may be missed if we push out the agenda.
Ms. Morariu said that Council has already adopted the legislative program for
this year. This was about more of a general structure for moving forward.
Mr. Keene said that he would like to have a discussion on the routine process
for working with our local officials, and how the process is working for Council.
Chair Espinosa agreed that we must discuss the process. There are also more
specific issues such as High Speed Rail, and figuring out how to track this on a
more useful basis is critical. He again expressed concern that this is being
pushed out to the fall. He stated that High Speed Rail is coming fast and the
Committee needs to get back to Council with specific requests.
Council Member Kishimoto said that most of the bills are turning into two year
bills, so the urgency is not as strong as it was. She also suggested that the
lilly meeting move to July 7th or 21 st •
Chair Espinosa reiterated that the Committee and Staff can discuss this without
the lobbyists.
Mr. Keene said it would be a good chance for Staff to gauge what the
Committee wants to see, rather than waiting until the fall.
Chair Espinosa agreed that such a conversation would be helpful. He said he
can not attend a meeting on July 7th •
Ms. Morariu reminded the Committee that the Finance Committee has meetings
on both June 7th and June 21 st •
Council Member Kishimoto asked if that would create a conflict with Staff.
Mr. Keene said he may have conflict on June 21 st •
Council Member Kishimoto asked if June 15th might work better for everyone.
Chair Espinosa tentatively agreed to June 15th •
Ms. Morariu said that the Attorney's Office wanted to add the Ad Hoc
Committee Policy as the third item.
P&S: 090629 PS FINAL 13
ADJOURNMENT: Meeting adjourned at 8:52 p.m.
P&s: 090629 PS FINAL 14
TO:
FROM:
DATE:
ATTACHMENT I
POLICY AND SERVICES COMMITTEE
CITY MANAGER
DECEMBER 17, 2009
DEPARTMENTS: PUBLIC WORKS
UTILITIES
CMR:472:09
REPORT TYPE: RECOMMENDATION
SUBJECT: Policy and Services Committee Recommendation That City Council
Direct Staff to Perform a Study Evaluating the Impact of Prevailing
Wage on City Capital Construction Projects
RECOMMENDATION
Staff recommends that the Council Policy and Services Committee recommend that City Council
direct staff:
1. To perform a pilot study of potential prevailing wage impacts on selected Capital
Improvement ProjectS (CIPsrw determine whether the· prevailing wage requirement
impacts the number of bids, project costs, change orders and other factors.
2. To develop a survey to be submitted to all bidders on Palo Alto construction projects that
will be used to evaluate differences in benefits and work conditions between contracting
companies paying or not paying prevailing wages.
EXECUTIVE SUMMARY
This report responds to the June 29, 2009 discussion by the Council Policy and Services
Committee (P&S Committee) regarding prevailing wage requirements for City capital projects.
At the June 29 meeting, the Policy and Services Committee indicated an interest in requiring
prevailing wages on City capital construction contracts and moved that the P&S Committee
defer recommending any prevailing wage Ordinance and direct staff to study the issue using
pending projects to achieve constructive data. This motion passed on a 3-0 vote with Committee
member Yeh absent (see P&S Committee minutes Attachment A).
In October, staffmet with representatives of the Santa Clara & San Benito Counties Building and
Construction Trades Council (Trades Council) and the Associated Builders and Contractors
(ABC) to discuss possible prevailing wage study criteria. At the meeting, the group agreed that
the City should pick a few projects that could be bid with and without prevailing wage to
determine differences in actual bid prices. The group also discussed a possible survey that could
be sent to contractors bidding Palo Alto construction projects to evaluate differences in benefits
. and work conditions present at companies paying or not paying prevailing wage on their
projects. This report presents the details of the recommended prevailing wage study.
CMR:472:09 Page 10f6
2F
BACKGROUND
As a charter city, Palo Alto is not required to pay prevailing wages on ''public works" projects,
so long as the projects are within the realm of "municipal affairs," funded entirely by local funds,
and no other statutory exceptions apply. This "home rule" principle allows decisions on
expenditure of local funds to be made by locally elected officials. In 1981, Palo Alto passed a
resolution to pay prevailing wage "only when required by federal or state grants and on other
jobs considered to be of statewide concern." (see Attachment B, Resolution).
Recently, charter cities' power to opt out of state prevailing wage law was upheld by California's
Fourth District Court of Appeal in State BUilding and Construction Trades Council of
California v. City of Vista, (2009) D052181. In 2007, the City of Vista, a charter city like Palo
Alto, adopted an ordinance under which city contracts generally would not require payment of
the prevailing wage. The Court held that state prevailing wage laws were intended "to keep state
contracting from undermining what local markets have established." However, because an
ordinance like Vista's would not materially interfere with the stability of the area's labor market,
the effect of ordinances like Vista's were not a matter of statewide concern. Therefore, the court
held that charter cities, like Vista and Palo Alto, retain the power to opt out of the state's
prevailing wage law.
The State Building and Construction Trades Council of California intends to petition the
California Supreme Court to review this case. In the meantime, the Vista decision is still good
law , and it affirms the City of Palo Alto's right to opt out of paying prevailing wage.
Also relevant is SB 9EX, which the Governor signed on February 20, 2008, noting the (then)
ongoing litigation in Vista. SB 9EX narrowed potential prevailing wage obligations for charter
cities involving work on water, sewer, or storm drain systems that have previously been extended
to disadvantaged communities.
Amid the recent debate over charter cities' prevailing wage requirements, on December 9,2008,
staft' presented to the Council and the Policy and Services Committee a recommendation that
Council not change current prevailing wage policy, allowing City capital construction (''public
works") projects to be bid without prevailing wage requirements ~ess prevailing wage is
required for the project pursuant to state or federal law, due to potential cost impacts to the City's
General and Enterprise Fund Capital Improvement Programs (CIPs) (CMR 443:08,
Attachment C). The Committee carefully reviewed this recommendation and decided it was in
the best interest of the City to recommend to the full Council that a resolution be adopted
requiring prevailing wage on all City capital construction contracts. The Committee also
instructed staff to recommend types of construction contracts that could be considered for
exemption from a prevailing wage requirement Minutes of the December 9th meeting are
attached (Attachment D).
On March 10, 2009, staff presented to the Council Ad Hoc Committee on Prevailing Wage
proposed exemptions from the possible prevailing wage policy· discussed at the December 9,
2008 Policy and Services Committee meeting. The possible exemptions reviewed with the Ad
Hoc Committee were:
1. Maintenance projects under $250,000 as defined by Section 22002 of the California
Public Contract Code;
CMR:472:09 Page 2of6
/
2. Projects using public-private partnership funding;
3. Projects that construct/rehabilitate affordable housing for people. with .low or. moderate
incomes; and
4. Projects where the work is perfonned either entirely or partially by volunteers.
A detailed discussion of the above staffrecommended exemptions can be found in (CMR:150:09
Attachment E). At the March 10 meeting, the Ad Hoc Committee on Prevailing Wage
recommended that Council approve the staff recommended exemptions for projects where the
w9rk is' perfonned entirely by volunteers, and low and moderate income housing projects.
Minutes of the March 10th meeting (see Attachment F). The Ad Hoc Committee asked staff to
come back to the full Council with additional infonnation on possible exemptions for
maintenance projects ~d projects involving public-private partnerships, as well as clarification
that the proposed exemption for affordable housing would apply unless otherwise required by ,
law. Specifically, the COmmittee asked staff to present justification for the proposed $250,000
threshold for maintenance projects that is reflective of the dollar value of most maintenance
contracts and not tied solely to 'the $250,000 threshold cited in Section 2.30.210 of the City's
Municipal Code for Public Works projects requiring City Council approval. The Committee also
asked staff to develop criteria for exempting public-private partnership projects that reflects the
amount of City funding in these projects and addresses project administrative responsibilities.
This information is discussed below for consideration by the Council Policy and Services
Committee.
At-· the June 29, 2009 P&'.S committee meetmg, staff recommended that the Comrmttee
recommend that the City Council retain its current prevailing wage policy, allowing City "public
works" construction projects to be bid without prevailing wage requirements unless prevailing
wage is required for the project pursuant to state law, in light of the City's current economic
difficulties and to avoid additional cost impacts to the City's General and Enterprise Fund
Capital Improvement Programs (CIPs). At that time, staff also recommended a pilot study of
. potential prevailing wage impacts be conducted on selected CIPs where prevailing wage would
be required, to detennine to the extent feasible, whether the prevailing wage requirement impacts
the number of bids, project costs, change orders and other factors. At this meeting, staff also
presented additional infonnation on a possible exemption for maintenance projects less than
$250,000 and another possible exemption for Public-Private Partnership projects where the
private party is the lead entity funding 50% or more of the project cost and manages the project
design and construction. The attached staff report (CMR:236:09 Attachment G) contains a full
discussion of the prevailing wage topics presented at the June 29 meeting. At this meeting, the
P&S Committee voted unanimously (with Committee member Yeh absent) to defer the
prevailing wage Ordinance for one year and direct staff to study the issue using pending projects
to achieve constructive data. The P&S Committee Chair also confrrmed that staff would come
back to the Committee with the study criteria within a couple months and then within a year with
fmal results.
DISCUSSION
In October 2009, staff met with representatives of the Trades Council and the ABC to discuss
possible prevailing wage study criteria and to seek their input in the process. At the meeting,
two possible methods of comparing prevailing wage impacts were reviewed. One method would
be to select a few upcoming CIPs where the work could be divided into two separate contracts,
one with and the other without prevailing wage requirements. These contracts would all be over
CMR:472:09 Page 3 of6
the Citts Municipal Code bid solicitation threshold ($65k) and would be fonnally bid. The
other method of evaluating potential prevailing wage impacts would be to survey contractors
bidding Palo Alto CIP project~ to measure differences in worker benefits and working conditions
provided by contractors paying or not paying prevailing wage on their projects.
Selected CIP Projects
Next fiscal year's CIP will include some projects that could be separated into two contracts, one
with prevailing wage and one without. These projects will need to be of similar size and scope
to ensure comparable bid price data. The projects would be bid in late spring in anticipation of
funding with the adoption of the 20 II Capital budget. Some of the projects staff will consider
using this approach include:
• Annual street maintenance projects
• Annual sidewalk replacement projects
• Utility main replacement projects (water, gas and wastewater)
Bids received on these projects are typically good for 60 days after bid opening so the contract
awards on these projects could easily occur shortly after budget adoption in late June when both
General and Enterprise funding becomes available. Staff will evaluate which of these projects
would be ready to bid by late spring so that bid results will be available for evaluation and
reporting back to the P&S Committee by summer 2010.
-nSWVey of Contractors
A survey would be conducted of contractors bidding Palo Alto construction contracts. The
survey would be distributed to the bidders' list on all contracts bid over the next several months.
The survey would be used to measure those things that have a real impact on worker benefits and
working conditions to evaluate to the extent possible, the impact prevailing wage has on
construction workers. Survey questions may include:
• Do you have a defined retirement benefit plan and what is the employee contribution to
this plan?
• What is the employee vesting requirement for your retirement plan?
• If your company participates in a multi-employer retirement pension plan, what is the
amount of underfunding in your plan?
• Is your retirement pension plan regarded as "endangered" or "critical" by the u.S.
Department of Labor?
• Do you provide a health care plan and what is the employee contribution to this plan?
• What is the employee contribution to the health care plan and who does it cover?
• What is the average years of experience for your workforce?
• Do you participate in an apprenticeship program and if so which one?
• Have you bid ''public works" projects in Palo Alto before?
• Did your company receive subsidies for your bid, such as "market recovery" or ''job
targeting"funds?
These survey questions were developed in conjunction with representatives of the ABC and the
Trades Council. If the P&S Committee recommends that Council direct staff to proceed with the
staff recommendations included in this report and Council approves the study, staff will meet
CMR:472:09 Page4of6
with the Trades Council and ABC early next year to finalize the survey questionnaire and will
select the specific projects that would be separated into two contracts to be bid with and without
prevailing wage. Staff anticipates completing the study and returning to Council with the results
and a prevailing wage recommendation next summer. '
RESOURCE IMPACT
The Adopted FY 201 0 Capital Budget includes an estimated $56.1 million in General Fund
construction and $32.1 million in Enterprise Fund construction' that would require prevailing
wage in their construction contracts if Council were to change the City's prevailing wage policy.
These amounts can be seen in Attachments H and I and do not include total project costs such as
design services contracts which may not be subject to prevailing wage in most cases. The
construction costs of maintenance projects under $250,000 and Public-Private partnerships
where the private entity funds at least 50 percent of project cost and manages the project, are not
included in the above totals (see footnotes 1, 2, 3 and 5 of Attachment H). The FY 2010 General
Fund projects include $50.5 million for Mitchell Park and Downtown Measure N Library bond
projects and the FY 2010 Enterprise. Fund projects include $22.5 million for the Utility
Department emergency water supply project. The remaining four years (FY 2011 through FY
2014) of General and Enterprise Fund projects included in the Adopted Capital Budget are also
included in the attached tables. Both total project and construction costs for these projects are
shown in the attachments.
Attachments H and I also show the potential increased cost impacts on the City's CIP project if
. e-_city S preVal mg wage po ICY IS C ange. s ISCUS m pnor a c ,s S
research indicates that prevailing wage may·increase construction cost by up to 10 percent.
While other studies have been conducted which indicate no such impact on project costs, based
on the study conducted by staff, one can see that the FY 2010 General Fund construction costs
may increase by $2.8 million if prevailing wage caused a 5 percent increase and by as much as
$5.6 million if prevailing wage caused a 10 percent increase in construction cost Similarly, the
FY 2010 Enterprise Fund construction costs may increase by $1.6 million at 5 percent and $3.2
million at 10 percent. Attachments H and I also show the possible construction cost increases in
the FY 2011 through FY 2014 General and Enterprise Fund CIP's at both the 5 percent and 10
percent levels. Again, this data would be re-evaluated upon completion of the proposed
prevailing wage pilot study.
POLICY IMPLICATIONS
To require prevailing wage be paid on City capital construction projects, Council would need to
adopt a resolution rescinding Resolution 5981 and codifying the new prevailing wage policy and
any exemptions Council chooses to include. A sample resolution is attached as Exhibit J.
ENVIRONMENTAL REVIEW
The Council Policy and Services Committee review of the prevailing wage policy issues
presented in this report does not represent a project under the California Environmental Quality
Act (CEQA), pursuant to Section 21065 of the Public Resources Code; thus, no environmental
review is ~quired. .
ATTACHMENTS
Attachment A: Minutes of June 29, 2009 Policy and Services Committee meeting
Attachment B: Resolution 5981
CMR:472:09 Page50f6
Attachment C: CMR: 443:08 (December 9,2008)
Attachment D: Minutes of December 9, 2008 Policy and Services Committee meeting
Attachment E: CMR: 150:09 (March 10, 2009).
Attachment F: Minutes of March 10,2009 Ad Hoc Committee on Prevailing Wage meeting
Attachment G: CMR:236:09 (June 29, 2009)
Attachment H: City of Palo Alto 2010-2014 CIP Plan General Fund
Attachment I: City of Palo Alto 2010·2014 CIP Plan Enterprise Fund
Attachment J: Draft Resolution· Requiring the Payment of Prevailing Wage on City Capital·
Construction Contracts with Certain Exemptions
PREPARED BY:
DEPARTMENT HEADS:
CITY MANAGER APPROVAL:
'OLBNriROBERTS .
Director of Public Works
Director of Utilities
CC: Neil Struthers, Santa Clara and San Benito Building and Construction Trades Council
Nicole Goehring, Associated Builders and Contractors, Golden Gate Chapter
Aletha Leong Coleman, Friends of the Palo Alto Junior Museum and Zoo
Barbara Gross, Friends of Lytton Plaza
Leland D. Levy, Friends of Lytton Plaza
CMR:472:09 Page6of6
ATTACHMENT J
NOT YET APPROVED
Resolution No.
Resolution of the Council of the City of Palo Alto Repealing
Resolution 5981 and Requiring the Payment .of Prevailing
Wage on City Capital Construction Contracts with Certain
Exemptions
WHEREAS, on December 14, 1981, the City Council resolved, in Resolution 5981,
to use the Davis-Bacon Act or State Department of Industrial Relations Prevailing Wage
Determinations only when required by federal or state grants and on other jobs considered to be
of statewide concern; and
WHEREAS, on December 9, 2008, the City of Palo Alto Policy and Services
Committee recommended that a resolution be adopted requiring prevailing wage on all City
capital construction contracts; and ,.
WHEREAS, on December 9, 2008, the City of Palo Alto Policy and Services
Committee also recommended that staff present types of construction contracts that could be
~onsidered fur exemptiOll from a prevailing wage requirement; and
WHEREAS, on March 10,2009, staff presented a proposed prevailing wage policy
to the Ad Hoc Committee on Prevailing Wage which proposed that the City pay prevailing wage
. ,? on City construction contracts, except in the following four situations: 1) Maintenance projects
under $250,000 as defined by Section 22002 of the California Public Contract Code, 2) Projects
using public-private partnership funding, 3) Projects that construct/rehabilitate affordable
housing for people with low or moderate incomes, unless otherwise required by law, and
4) Projects where the work is performed either entirely by volunteers, and
WHEREAS, at their March 10,2009, meeting, the Ad Hoc Committee on Prevailing
Wage recommended that Council approve the staff recommended policy in general, but proposed
minor modifications to three of the proposed exemptions.
WHEREAS, after the March 10, 2009 Ad Hoc Committee meeting, Mayor
Drekmeier referred this item back to the Council's current Policy and Services Committee for
further consideration.
The Council of the City of Palo Alto does RESOLVE as follows:
SECTION 1. Resolution 5981 is hereby repealed.
SECTION 2. The City will pay prevailing wage as determined by the
Department of Industrial Relations Wage Determinations when required by law, and on City
capital construction contracts with the following exemptions:
1
100302 syn 0111152
NOT YET APPROVED
1. Maintenance projects under $250,000 as defined by Section 22002 of the
California Public Contract Code
2. Projects using public-private partnership funding, where the private party:
a. is the lead entity managing the project's design and construction, and
b. funds at least 50 percent of the project cost.
3. Projects that construct/rehabilitate affordable housing for people with moderate
incomes, unless otherwise required by law.
4. Projects where the work is performed entirely by volunteers.
SECTION 3. The Council finds that the adoption of this resolution does not
represent a project under the California Environmental Quality Act (CEQA), pursuant to Section
21065 of the Public Resources Code, thus, no environmental review is required .
. 1NTRODUCED.!\ND_PA88ED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST: APPROVED:
City Clerk Mayor
APPROVED AS TO FORM:
City Manager
Deputy City Attorney
Director of Public works
Director of Utilities
2
100302 syn 0111152