PA Search for Transportation Funding: the Prevailing Wage and P3s

Find my previous post on public-private partnerships here or at Patch.com here.

Since President Franklin Delano Roosevelt signed the National Labor Relations Act in 1935, there has been a schism in how Americans view organized labor.

There have been those on the side of business who claim unions hurt the economy and inhibit industry, while others proclaim their virtue and importance to the American worker.

But before the NLRA, there was a bill passed in 1931 called the Davis-Bacon Act, or the prevailing wage law. The act requires all contractors working on a project in which the federal government has provided $2,000 or more dollars to pay a certain pay rate relative to the pay rate in the surrounding region. For instance, an ironworker working on a house in Harrisburg must be paid what the Department of Labor has determined, through research of industry and business in the Harrisburg area, is the prevailing rate for an ironworker. So it goes for every type of worker.

The federal government also considers union rates, which are typically higher than non-union wages, in making prevailing wage rates. The union rates push up the prevailing rate, making federal projects xpensive because government contractors have to pay a higher rate than they would in private contracts.

Pennsylvania has it’s own prevailing wage law, which requires $25,000 in state money in order for the prevailing rate to be applied.

So you thought this was all about trasnportation?

It still  is.

Pennsylvania now faces a transportation funding crisis that has forced us to consider other ways to fund our roadways, railways, toll roads, and parking garages. One money-saving idea  is to enter into public-private partnerships, or what are now being called P3s. Rep. Rick Geist, a Republican from Altoona, has introduced a P3 bill that has faced criticism from lawmakers, due to a provision in the bill that would require all construction under P3 deals to be subject to the prevailing wage law.

Opponents are stating that this will add to costs for those companies entering into these P3 partnerships with the state, while those on the union side state that it protects the state from fly-by-night contractors who do shoddy work with cheap labor.

The law promotes angst as it adds cost. But is the ire of lawmakers garnered?

Perhaps not. There is reason that the law would apply to these projects anyway. And here’s why. Federal transportation dollars are funneled through development corporations or authorities who shop out the money to interested contractors. Contractors looking to get in on new projects look to these developers to accrue funding if needed. The P3 jobs will certainly be large as transportation costs always are. So it is likely that federal or state dollars will fall into the coffers of contractors doing work on the P3 deals. Therefore the prevailing wage would apply, whether or not a provision for the prevaling wage is built-in.

But lets say some big company doesn’t need any funding help because their investments come from private investors. Without the requirement of paying a prevailing rate, one can assume that the costs of the project will be lower than if it were done with the requirement of paying a prevailing rate. But this omits the fact that these large companies will undoubtedly work with the best, skilled contractors, whom are almost always union represented and guaranteed a rate of pay similar to that of the prevailing rate.

Rep. Geist hopes the bill will be debated on the house floor on Tuesday, May 10th. Those waving flags of fiscal restraint will surely be there to exact opposition to the prevailing wage provision. If both sides can realize the inevitability of a prevailing wage, the passage of the bill will see an easy trip to Corbett’s pen. Politically, we should look for those who support the bill as it is to dangle the deletion of the provision as a compromise to the opposition.

Time will tell before the bill gets consideration. Check back here for more insight on this developing issue.

[Full disclosure, Sean Rossman enforces the Davis-Bacon Act as part of his day job]

PA Search for Transportation Funding: The Public-Private Partnership

One of the most overlooked functions of government is transportation. It has an enormous budget and everyone has used it.

But getting to grandma’s house is becoming more expensive and Pennsylvania and other states are feeling the effects of trickling revenues and low state reserves.

Privatization is a casual money-saving technique for most governments and Pennsylvania is the next to consider such a technique for transportation funding. A new proposal in the state house would allow us to run our transportation system similarly to our education system.

What if transportation, like our schools, was open to  investment by private enterprise?

Like schools, we all pay for transportation maintenance with certain taxes. The tax we pay to support public schools is the property or real estate tax. Our transportation corridors are paid for with federal and state gasoline taxes, along with the myriad of fees we impose.

Rep. Rick Geist, a Republican from Altoona, has proposed that the state enter into public-private partnerships, or P3s, with private operators. Legislation is currently being considered in the state house. The bill would lease public transportation assets to private companies and grant them the liberty to place tolls and fees in order to make up for the costs of maintaining them. These leases would be long term (up to 99 years!).

It helps to compare the effect privatizing state roads would have on the state’s transportation funding, to the effect private schools have on state education funding. Private school funding relies primarily on tuition and charitable giving. Private schools are certainly a way for the state to save money on education, as those parents who pay for their kids to attend private school also pay local property or real estate taxes to fund local public schools. This is a net gain for local school districts who receive property tax revenues but do not use school resources on private school children. This increases the per student endowment at public schools, and has long been the ire of those private school parents, who claim they are paying twice for their child’s education.

A similar situation would occur if public-private partnerships were prevalent in Pennsylvania. Assuming there is no compromise to decrease the per gallon state tax on gasoline, the state would still take in the gas tax revenue, while having less infrastructure to maintain. A pretty good deal considering the state faces a deficit of $3.5 billion per year on transportation maintenance.

As an aside, the state faces a $4 billion deficit, although we currently have a revenue surplus of $500 million for the 2010-2011 year.

Even as we face deficits in transportation funding, it would be foolish to ignore the reasons why we fell into such a situation.

The three taxes placed on gasoline result in a tax of around 50 cents per gallon when you buy gas in Pennsylvania. Considering our infrastructure has been surviving since the 50’s on these taxes (The Highway Trust Fund, that federal fund where all your gas tax dollars go, was established in 1956, Pennsylvania’s liquid fuels and fuels tax was adopted in 1956, with the complimentary Oil Company Franchise tax came in 1983), it’s curious why we’re so far in debt and why revenues from these taxes have fallen.

Like many funding problems, the transportation deficit is the result of a lack of foresight.

Pennsylvania’s gasoline consumption has declined at a rate of 1.3 percent yearly since 2004, up until then, that rate rose steadily. The lawmakers at both the state and federal level did not account for the technological advancement of the automobile industry. The case is that vehicles have become more fuel-efficient, and the rise in world oil prices has forced people to drive less, leaving gas tax revenues to shrink. As gas prices continue to climb, proposing any increased tax is inconceivable both to consumers and to those politicians who find it bad politics to vote for such an increase.

Now Pennsylvania and other states are scrambling to discover a financial savior for their current problem. The natural gas production in the Marcellus Shale has prodded Pennsylvania to begin methods of cashing in on the industry. One proposal is to create a transportation corridor that would cater to vehicles that run on natural gas. This is great for energy efficiency, but poor for  gas tax revenues.

Eventually, without action, we’ll need to find other ways to get to grandma’s house.

Please check back for more on transportation funding. Next I will take on the issue of prevailing wage as a part of the P3 legislation.

Also, make sure you check this story out on Patch