In a landmark decision handed down last week, the state Supreme Court has ruled that charter cities in California that use their own money to build new fire stations, libraries, sewer systems or other municipal facilities can ignore the state's prevailing wage law.
The ruling is a blow to organized labor but a boon to taxpayers. If they have the political will to take advantage of it, struggling municipal governments can save a lot of money.
Unlike most states, the prevailing wage law in California is not calculated based on a weighted average of all wages paid but almost always on the collectively bargained union rate instead generally the highest wage paid by far for construction work in any jurisdiction. For example, a laborer typically the worker who waves the flag at a road construction site or digs ditches is paid $43 per hour in Sacramento under the state's prevailing wage law. The market rate for that same worker on a private construction project is $25 an hour.
Statewide, only some 15 percent of the state's construction workers belong to unions, but in most cases the state considers only union wages when setting prevailing wage rates. Prevailing wage requirements inflate labor costs on government construction projects in California well beyond what the private sector pays, by 10 to 30 percent according to some estimates.
Those high wage rates won't change for the state or for California's 361 general-law cities. Those cities are governed by the general laws of the state and are required to comply with California's prevailing wage law.
But 121 California cities including Sacramento, Folsom and Roseville are charter cities. Under the state constitution they enjoy greater autonomy and have the right to set wage rates for public works paid for with local funds, the Supreme Court has now ruled.
Sacramento has an opportunity to take advantage of that decision when it goes out to bid later this year on costly water and sewer system upgrades, including a $150 million project at the city water treatment plant on the Sacramento River. Water rates have already been raised 10 percent and sewer rates by 16 percent this month to pay for those upgrades. More double-digit increases are on the way. If Sacramento can lower costs and protect ratepayers by jettisoning the state's prevailing wage, it should do so.
The case before the state's high court involved the Southern California city of Vista. Voters there approved a city charter in 2010, with the express purpose of reducing the cost of public construction projects. When the newly chartered city contracted to build two fire stations without paying prevailing wages, labor unions sued, arguing that the city's "refusal to pay prevailing wages has a depressive impact on regional labor standards" and therefore was an issue of statewide concern and subject to legislative power to set wage rates.
In a 5-2 decision, the state's high court disagreed. "Charter cities are specifically authorized by our state constitution," Justice Joyce Kennard wrote for the majority, "to govern themselves free of state legislative intrusions as to those matters deemed municipal affairs We can think of nothing that is of greater municipal concern than how a city's tax dollars will be spent."
With this ruling, the California Supreme Court has given charter cities the freedom to save money. It's now up to the cities to take advantage of it.