Unions Push Project Labor Agreements for New Jersey Rebuilding

Hurricane Sandy did about $30 billion of property damage to New Jersey communities late last October. And construction unions and their political supporters aren’t about to let a good crisis go to waste. In mid-January the New Jersey Senate approved, by a 23-13 vote, fast-track legislation (S.2425/A.3679) to expand the range of projects eligible for inclusion under Project Labor Agreements (PLAs). Such agreements are pre-hire contracts that commit building contractors to hire union labor on large-scale projects. Increasingly common over the past two decades, the main achievement of PLAs has been to raise labor costs. Republican Governor Chris Christie (in photo) has yet to say whether he’ll sign the bill. But given the devastation from the storm, he’s under enormous pressure from union-allied legislators in Trenton and Washington to get on board.

By any reasonable assessment, Hurricane Sandy was the most destructive storm of its kind in the U.S. since Hurricane Katrina and one of the most destructive in the nation’s history. Forming in the Caribbean on October 22 in an area south of Jamaica as a tropical storm, it arrived along the northeastern U.S. coastline a week later as a hurricane, with winds gusting up to 120 miles per hour. It’s a tossup as to whether New Jersey or New York suffered the greatest damage, but that’s one contest New Jersey residents aren’t eager to win. Out of the nearly 160 direct and indirect U.S. fatalities, at least 37 occurred in New Jersey (dozens more occurred in the Caribbean). An aerial imagery analysis by the Federal Emergency Management Agency (FEMA) concluded about 72,000 homes, businesses, motor vehicles and other property in New Jersey were damaged or destroyed by the storm itself or post-storm flooding, with beach communities in Ocean and Monmouth Counties especially hard hit. The storm also knocked out electric power for more than two million residential and commercial customers. In many communities, rising floodwaters caused people to be stranded – about 20,000 in Hoboken alone. The death toll almost certainly would have been higher were it not for rescue efforts by the New Jersey National Guard. On November 23, Gov. Christie’s office issued a statement estimating statewide property damage at $29.4 billion and possibly more.

The rebuilding process, in other words, will be enormous. And so will the price tag, with the federal government paying the bulk of the expenses. In January, Congress authorized $50.7 billion in federal relief aid for victims of Hurricane Sandy; the House and Senate votes, respectively, were 241-180 and 62-36. This package was on top of $9.7 billion approved by Congress earlier in the month to pay off flood insurance claims. In each case, President Obama signed the legislation into law. While these measures don’t cover the full $82 billion in damages the governors of New York, New Jersey and Connecticut had identified in aid requests to federal lawmakers, it’s still a formidable sum. It includes: $16 billion for Community Development Block Grants; $11.5 billion for the FEMA disaster relief fund; $10.9 billion for public transportation projects; and $5.4 billion for U.S. Army Corps of Engineers projects. A lot of communities understandably want a chunk of that money. But any number of factors could drive up project costs, and hence, reduce the possibilities for rebuilding. Labor costs, in the form of Project Labor Agreements, are among them.

A Project Labor Agreement, or PLA, is a pre-hire collective bargaining agreement typically tied to a large-scale public works construction project such as a highway, a school, a power plant or a sports stadium. The PLA forces a state or local agency to contract only with those firms able and willing to pay union-scale wages and benefits for specified tasks. If contractors don’t play by the rules, they don’t get the work. These agreements have the same implicit purpose as the federal Davis-Bacon Act and related state prevailing-wage laws: to discourage open shop (or “merit shop”) contractors from hiring their own workers. Not only do PLAs force the hiring of union employees, they often specify which employees to hire. Project Labor Agreements almost inevitably come about as a result of cozy relationships between labor unions and elected officials.

Back in April 2005, the Springfield, Va.-based National Institute for Labor Relations Research published a lengthy monograph I had written on the subject. Titled “Project Labor Agreements: Union Monopoly in Public Works Construction,” it explained that Project Labor Agreements are a response by labor unions – especially those affiliated with the AFL-CIO Building and Construction Trades Department – to their declining share of employment in the construction industry. By forcing merit-shop contractors into hiring union members before work on a given project commences, unions could ensure themselves a piece of the action on a wide range of large-scale public works. In the immediate post-World War II era, well over 80 percent of the U.S. private construction work force was unionized. That figure is now down to 13.2 percent, a figure representing 820,000 members.

As the monograph noted in detail, though voluntary Project Labor Agreements were authorized by the National Labor Relations Act of 1935, the application of the statutes to mandatory PLAs didn’t get a green light until two decades ago in a U.S. Supreme Court decision. The Commonwealth of Massachusetts had established a master PLA for the construction of wastewater treatment facilities and a connecting tunnel, so as to place the state in compliance with a federal court order to clean up Boston Harbor. The agreement called for all nonunion workers to join the appropriate craft union within seven days of being hired; in return, unions would be bound to a 10-year, no-strike pledge. Neither side was fully satisfied. The case landed in federal court. In March 1993, the Supreme Court, in overturning an appeals court, unanimously upheld the agreement. Justice Harry Blackmun opined: “In the absence of any express or implied indication by Congress that a state may not manage its own property when it pursues its purely proprietary interests, and where analogous private conduct would be permitted, this Court will not infer such a restriction.”

The federal government, during Democratic administrations, has fueled the use of Project Labor Agreements. In February 1993, only weeks after taking office, President Bill Clinton issued Executive Order 12836, which “encouraged” the use of PLAs on federally-funded projects. The order effectively rescinded an earlier one issued by his predecessor, George H.W. Bush which barred such agreements. Clinton in June 1997 also issued a memorandum that urged federal agencies to use PLAs on “large and significant” projects and to require a review of each project to determine PLA feasibility. The pendulum swing back in 2001; Republican President George W. Bush, only weeks in office, issued Executive Order 13202, which barred the use of mandatory PLAs for federal and federally-funded projects. Predictably, on February 6, 2009, union-friendly Democratic President Barack Obama issued Executive Order 13502, “encouraging” the use of agreements on projects of at least $25 million on a case-by-case basis. The White House Federal Acquisition Regulatory Council in April 2010 issued a final rule, effective one month later, encouraging federal agencies to mandate PLAs for projects of at least $25 million. The battle is hardly over. This past January Rep. Andy Harris, R-Md., and Sen. David Vitter, R-La., introduced the Government Neutrality in Contracting Act (H.R. 436, S.109) to ensure fair and open competition for federal and federally-assisted construction contracts. The measure has attracted dozens of co-sponsors in both the House and Senate.

An intense version of this story has been roiling non-Right to Work New Jersey, where 24.5 percent of construction workers, or almost twice the national average, is unionized. In January 2002, virtually upon taking office, then-Democratic Gov. Jim McGreevey issued Executive Order No. 1, imposing PLAs upon certain state-funded construction projects. The key section of the document read:

On a project-by-project basis, a state department, authority or instrumentality shall include a project labor agreement in a public works project where it has been determined that such agreement advances the state’s interests of cost, efficiency, quality, safety, timeliness, skilled labor force, labor stability and the state’s policy to advance minority- and women-owned businesses as set forth in Executive Order No. 84 (i.e., under former Democratic Governor James Florio).

Where it has been determined that a project labor agreement is appropriate for a particular public works project, a state department, authority or instrumentality responsible for implementing the project shall either (a) in good faith negotiate a project labor agreement, through the office of the Commissioner of Labor, with labor organizations engaged in the construction industry, or (b) condition the award of a project manager or general contractor upon a requirement that such manager or contractor negotiate in good faith a project labor agreement with labor organizations engaged in the construction industry and, if necessary, utilize the office of the Commissioner of Labor to reach such agreement.

The executive order would provide a template for lawmakers in Trenton. In July 2002, the New Jersey legislature passed and Gov. McGreevey signed a Project Labor Agreement bill, A.1926, allowing public agencies, including boards of education, to enter into PLAs with unions on structural projects whose total cost, exclusive of land acquisition costs, is at least $5 million. While not formally requiring PLAs, the law, by “encouraging” their use, gives union-only contractors a clear advantage in competitive bidding.

Yet the unions are less than fully satisfied with the law because it only covers structures. That exempts highways and bridges from coverage. And even among structures, the legislation explicitly exempts pumping stations, and water and sewer treatment plants – the sorts of facilities damaged or destroyed by Hurricane Sandy. Fortunately for organized labor, their allies in the Democratic Party hold a majority in the New Jersey Assembly and Senate. Even better, one of their own is the leader of the latter body. That would be Senator Stephen Sweeney (D-Gloucester County), who serves as president of both the New Jersey Senate and the Iron Workers District Council of Philadelphia and Vicinity. It was Sweeney, no apparent relation to former AFL-CIO President John Sweeney, along with Senator Donald Norcross (D-Camden County), who co-sponsored the hurricane cleanup and reconstruction bill passed by the Senate in January by 23-13 and then by the Assembly in February by 47-26-3.

The measure, S.2425 (which supersedes the Assembly companion bill, A.3679), would expand coverage of the 2002 PLA law to include highways, bridges, pumping stations and water/sewer treatment plants. Sweeney and Norcross each justify the measure in terms of putting New Jersey workers first. Sen. Sweeney, the bill’s principal author, explains:

More and more towns are beginning the construction phase of the Sandy recovery process, which means we need to act as quickly as possible so that these jobs can go to people in New Jersey. New Jersey’s unemployment rate remains well above the national average and largely unchanged in three years. That means our middle class continues to struggle in a state with a high cost of living. That is why I want to ensure that it is New Jerseyans who are going to be put to work rebuilding the state.

In the same vein, Sen. Norcross remarked: “As we begin the process of recovering from the unprecedented devastation caused by Hurricane Sandy, we have to make sure that it is New Jersey workers who are doing the rebuilding…We cannot sit back and allow out-of-state workers to take jobs that are desperately needed for our residents.”

The ball is now in Governor Christie’s court. And labor officials and their political allies are doing everything in their power to make sure he signs the bill. The problem, however, is that he is an avowed opponent of Project Labor Agreements. During his victorious 2009 campaign for governor against incumbent Jon Corzine, Christie vowed on his website: “I will eliminate special interest labor union giveaways that increase spending and taxes by ending the use of project labor agreements, which drive up the cost of public construction projects and fail to deliver a public benefit at a time when the economy is shedding jobs and taxpayers are struggling to make ends meet.” If the governor now has second thoughts about this position, he should reacquaint himself with a report released in October 2010 by the New Jersey Department of Labor and Workforce Development titled, “Use of Project Labor Agreements in Public Works Building Projects in Fiscal Year 2008.” The report noted that school construction projects that used a PLA exhibited higher building costs, whether measured by per square footage or per student, than did projects not using a PLA. The indexed cost per square foot for all PLA projects was $260, which was 30.5 percent higher than for all non-PLA projects. Moreover, the study found that PLA projects on the whole took longer to build than non-PLA projects – 100 weeks as opposed to 78 weeks.

Other empirical studies have yielded similar results. That includes a couple reports prepared by the Beacon Hill Institute (BHI), an affiliate of Suffolk University in Boston. In September 2003, BHI researchers Paul Bachman, Darlene Chisholm, Jonathan Haughton and David Tuerck came out with an expanded version of a report released earlier that year on the effect of PLAs on construction costs in the Greater Boston area for 126 schools. The authors concluded that Project Labor Agreements added on average $18.83 per square foot to the bid cost of construction, adjusting for inflation and controlling for project size and type (new construction versus renovation). In terms of actual cost, PLAs added $16.51 per square foot. Respectively, these figures were 14 percent and 12 percent higher than for non-PLA projects. In December 2006, BHI released a report authored by  Tuerck and Bachman focusing on three school construction projects in Fall River, Mass. The study concluded that the pressure to work out agreements acceptable to both the city and unions significantly delayed the bidding process and raised its costs. Indeed, frustrated Fall River officials decided to pursue the projects without a PLA, as a result saving a combined $5.8 million on bids. More recently, in 2011, researchers at a San Diego-area think tank, the National University System Institute for Policy Research, concluded that construction costs for public school construction projects in California during 1995-2009 averaged 13 percent to 15 percent higher with a Project Labor Agreement than without one.

These studies matter because tens of billions of public dollars are at stake in the wake of Hurricane Sandy. If Gov. Christie’s reconstruction estimate of $29.4 billion is accurate and if PLAs have a wide application to projects costing $5 million or more, Project Labor Agreements in New Jersey could cost taxpayers, nationally as well as statewide, billions of additional dollars. And that’s not including other states. Organized labor would reap a windfall. Governments, no more than any other human institution, can prevent natural disasters. But they can minimize the possibilities of favored political constituencies taking advantage of the aftermath at the expense of needy communities. Christie has stuck his neck out before in the face of union pressure, signing a bill in June 2011 that required public-sector employees to contribute more toward their pension and health plans. The current situation requires similar political courage.

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