High-stakes game

A few months ago, Senator Theater owner Eric Hart’s plan to resurrect the 70-year-old building’s art deco tower hit a major snag.

The city had granted Hart a $340,000 loan to replace Chico’s most famous downtown landmark. Unfortunately, a new stipulation due to a state law (SB 975) that had gone into effect in January now said that any private projects that used public funding or assistance had to meet the prevailing-wages requirement.

That was enough to put the kibosh on the tower restoration, at least for now. And it also brought the hot-button issue of prevailing wages front and center.

The law states that prevailing wages must be paid on all government or government-financed projects. But what are the prevailing wages? That’s the big question—and the heart of a controversy with enormous repercussions on the construction industry.

Described simply, the prevailing wage is a calculation of the most frequently occurring pay rate, or “modal” rate, in a given trade in a given area, or “locality” region.

The problem is that prevailing wages, which are set by the Department of Industrial Relations (DIR), are determined in different ways for different trades, and often the designated “locality” regions can seem arbitrarily composed. For instance, ironworkers have one rate for all of California, while carpenters’ wages are decided according to 34 regional counties’ rates.

This has local economic planners, who want to bring more business and work to the area, arguing that Butte County developers cannot afford pay rates decided in part by the rates paid in higher-cost urban areas, where new construction sells for much more money.

Locally, the issue has moved to the front burner due to a recent survey begun by the Butte Economic Partnership, an alliance between the Chico and Oroville economic-planning corporations, CEPCO and OEPCO. The survey asks all local contractors to report union employee wages in order eventually to present the DIR with new statistics that could qualify Butte County as an independent geographic area for determining prevailing wages.

The sides are lining up. The unions are crying foul not only because they feel left out of the process, but also because they’re worried about what they suspect is the survey’s ultimate goal—to lower wages in many essential construction trades. Builders, meanwhile, are strongly supportive of the survey.

The $46,000 BEP survey is based upon a certified payroll form used by the DIR, a form that anyone working on a public-works project has to fill out to make sure wages are aligned with state law.

“There’s no roadmap about how you do this,” said Don Smail, project manager for the survey at BEP. “No one’s gone through the trouble before, and I think the unions are surprised at how much trouble we’re going through to gather this information. … But in no way is this anti-union. That’s a misrepresentation.”

Smail said the purpose of the survey was simple.

“We think that because the state has an arbitrary and capricious method for how they survey different areas, this is a detriment to Butte County,” he said. “The law says that prevailing wages are to be surveyed by locality—which is the key word here. In our view that ought to mean Butte and maybe Glenn and Tehama counties.”

The survey basically asks local contractors for a summary report of wage levels on construction jobs. Smail said the BEP has notified all unions by sending letters about the survey to 900-1,000 contractors listed with the nonprofit industry group Valley Contractors Exchange.

Every effort is being made to make sure the survey is objective and fair, Smail insisted, adding that completed surveys are not seen or touched, just sent to Chico State University’s Center for Economic Development, which is serving as a survey tabulator.

The new law, SB 975, has thrown a monkey wrench into the works, Smail says. “We didn’t ask for the state law to be changed to extend prevailing wage to cover private projects,” he said, “but now we’re looking at projects that may not happen or may go elsewhere in the state.”

The result may be many millions of dollars’ worth of lost projects—and their jobs.

Smail said the ultimate goal of his organization is to create permanent jobs. Most construction jobs are temporary positions, he explains: When the project is finished, the job ends. He believes the county would benefit from being able to offer long-term jobs brought in by more-attractive rates for developers.

So far the BEP study has received $2,500 from Gridley, and Oroville approved a $5,000 grant contingent upon whether other city councils participate. The rest of the survey money comes from private funding (local businesses, CEPCO and the university). BEP is also seeking aid from Paradise and Chico, but neither town’s council has yet to commit funds for the study. The Paradise council decided to table the vote after its last meeting became an occasion for opponents to vent their frustrations. It will come back to the issue on April 9.

Opposition comes from people like union representative David Palmerlee, a field rep for Carpenters Union Local 1240, who is adamant about the issue.

“This is a veiled disguise clearly initiated by individuals who want to lower wages,” Palmerlee said. “They don’t want to pay as much, therefore they take certain competition out of the market. Prevailing wage was designed to level the playing field within construction.”

Palmerlee said he continues to be outspoken at local city council meetings in order to use carpenters as an example of where BEP is wrong in its assumptions.

“Our modal rate is based on counties that are very similar to Butte. Sure, Sacramento is thrown in, but that’s one county out of 34.”

Palmerlee argues that one of the effects of lowering prevailing wages for a trade like his own might even be an increase in costs, because skilled workers would leave the area.

He also says this is really not a union/non-union issue, as his job requires him to represent both groups. “When unrepresented carpenters get a prevailing-wage job, that’s a bonus for them that allows them to survive. … And if you lower regular workers’ wages, they will obviously have less to spend in the local economy.”

Palmerlee characterizes carpentry as a seasonal field where up to 70 percent of workers have to travel outside the area to receive decent wages.

“To ask people to take a cut will really put a hurt on them. Essentially, they [BEP] want to cut … 40 percent of the wages working carpenters would earn on public construction projects, which they claim will save 20 percent of the price of a project.”

But Palmerlee argues that all the contractors he’s talked to say labor is only 14-20 percent of construction costs.

“It’s almost incredible that they would do this,” he said. “These are people who make six-figure incomes wanting middle-income folks to take a cut in wages. … Will the BEP reduce their $85-an-hour fee by 20 percent? I don’t think so. …

“The rates they’re talking about going back to haven’t been around since 1979. Would they roll their prices back to that level?”

Uniprise is a new health insurance company that, with city help, built two large buildings at 2080 E. 20th St. last September. It now employs 500 people, making it one of Chico’s largest employers.

The city helped coax Uniprise to Chico by offering financial assistance largely in the form of tax credits; in addition, sidewalks and a traffic light were needed—public works that it would make sense for the city to step in and support.

“I think it’s safe to assume we wouldn’t have come here without assistance from both the city and the state,” said Keith Reynolds, director at Uniprise.

Because of the new law, however, the city doesn’t expect to be able to aid a company like Uniprise in the future. “It will be interesting to find out prevailing wages in the Butte County area and see how it affects projects,” said Chico City Manager Tom Lando. “There’s no argument that these people working on these projects need to be paid livable wages with benefits. It’s really a question of whether they get a Butte County union wage or a Sacramento wage.”

Lando said that the new law would likely affect 20 to 50 such major projects a year in the area—quite a bit of money, when you consider the millions of dollars each costs.

He added that he believed the new survey would receive a fair response from the business community. “But what we’re really talking about is what the DIR will do with the survey. … I’m not sure we’ll see that much of a change, maybe marginally.”

Gary O’Mara, house counsel for the Department of Statistics and Labor Research, said he didn’t think complete participation from all contractors would be necessary to convince DIR to conduct its own survey—that decision would be left up to its chief economists.

The issue of funding for the survey is expected to come before the Chico City Council soon. Until it does, says Councilmember Dan Nguyen-Tan, the two sides on the issue should try to get together.

"[Right now] I believe it’s critical for local economic developers to sit down at the same table with the people who will be most affected by attempts to study prevailing wage to determine if there can be a common purpose," he said. "This means going beyond just surveying local building and construction trade workers and actually sitting down to identify mutual benefits."