Analysis of 2001 Bush Executive Order Allowing Federal Funds for Project Labor Agreements

Kevin Dayton

In early 2001, President George W. Bush issued two executive orders related to a prohibition on federal funding for construction contracts that included a requirement for contractors to sign a Project Labor Agreement with trade unions. The first executive order – Presidential Executive Order 13202, signed on February 17, 2001 – received national news coverage and Congressional attention.

The second executive order – Presidential Executive Order 13208, signed on April 6, 2001 – was obscure and technical. However, it affected public policy for federally-funded projects in California, New York, Massachusetts, Washington, and Alaska.

This second executive order becomes relevant again as President-Elect Trump considers an executive order to return federal contracting policy to “Preservation of Open Competition and Government Neutrality Towards Government Contractors’ Labor Relations on Federal and Federally Funded Construction Projects,” as it was previously established during the Bush Administration. (See Will Mandated Project Labor Agreements Again Trigger Ineligibility for Federal Funds? – UnionWatch.org – January 3, 2017.)

Here is the first publicly-available comprehensive analysis of Presidential Executive Order 13208.

Executive Order 13208 Allowed Federal Funding to a Few Contracts Mandating Project Labor Agreements

In the beginning of 2001, state and local governments were mandating Project Labor Agreements in bid specifications for federally-funded contracts in several states where construction unions had significant political power. A 3-2 vote of the Board of Supervisors in traditionally Republican Orange County, California to impose Project Labor Agreements on almost all county projects received some national attention. Project Labor Agreements had also been imposed during the Clinton Administration on several federal projects, including the U.S. Department of Energy’s Lawrence Livermore National Laboratory National Ignition Facility.

But one example was particularly noticed in Washington, D.C. The states of Maryland and Viriginia were fighting over whether and how a Project Labor Agreement should be imposed on the construction of a new Woodrow Wilson Memorial Bridge for Interstate 95 over the Potomac River between Maryland and Virginia.

What happens on the Beltway is very important to people inside the Beltway. Not surprisingly, President George W. Bush signed Executive Order 13202, which prohibited federal funding for a project if a government or its partners or agents imposed a mandate for construction contractors to sign a Project Labor Agreement with one or more labor organizations.

Seven weeks later, President Bush signed Executive Order 13208, which amended the earlier Executive Order 13202. It added a new procedure that allowed heads of executive agencies to grant exemptions from the ban on federal funding for a “particular project” that included a Project Labor Agreement in contract documents.

To qualify for the exemption, the government or its partners or agents had to execute the Project Labor Agreement for that “particular project” before February 17, 2001 and award at least one contract containing that Project Labor Agreement before February 17, 2001. They would be “grandfathered” and allowed to continue their ongoing contracting practice of government-mandated Project Labor Agreements.

Heads of executive agencies had the ultimate authority to decide whether or not to grant an exemption and to determine how narrow or broad the exemption would be. In practice, requests were submitted by the state or local governments to the relevant agencies. All but one of the exemption requests were submitted to the U.S. Department of Transportation, where the Secretary – Norm Mineta – was a Democrat and previously a union-backed member of Congress from San Jose. This agency ended up producing a memorandum for guidance on how to make decisions on exemption requests.

Why the Bush Administration Implemented Executive Order 13208

It is likely that the Bush Administration wanted to appease union-backed Republican governors and Congressional Republicans who were under pressure to prove their commitment to the construction union agenda. A 2001 study from Parsons sympathetic to Project Labor Agreements alleged that the Bush Administration was “confronted” with a letter signed by 33 Republican members of Congress objecting to the executive order and ended up “realizing” that labor relations on projects such as Boston’s “Big Dig” Central Artery/Tunnel would be disrupted by Executive Order 13202.

The U.S. Department of Transportation had identified ten projects that could be eligible for exemptions under Executive Order 13208, and a few state and local governments immediately sought exemptions. Here’s the final list of exemption requests and the results:

[table “9” not found /]

Table A-5
Arguments for Capital Appreciation Bonds
ArgumentRebuttal
URGENCY
School facilities are desperately needed now: schools are overcrowded, deteriorating, outdated, and unsafe. These claims are rarely quantified. There needs to be an objective way to determine that need overwhelms the risk of massive tax and debt burdens for future generations.
Despite 14 years of Proposition 39, educational districts continue to increase the number of bond measures on the ballot and the total amount authorized to borrow. It seems that spending between $100-$200 billion on construction since 2000 has only increased the need for more.
It’s possible that educational districts are preparing for a population boom that may never occur. Average Daily Attendance for California K-12 school districts has dropped from 5,927,951 in 2003-04 to 5,631,709 in 2008-09 to 5,501,603 in 2013-14. Actual California population growth is lagging behind projections made in the 1990s.
When the bond measure was before voters for consideration, the educational district made promises to residents about what was going to be built and what the tax rate would be. Those promises must be fulfilled. Voters want the projects now.Anecdotally, it appears that voters aren’t necessarily keen on immediately proceeding with construction projects listed in bond measure ballot statements if it requires borrowing money under outlandish terms via sales of Capital Appreciation Bonds or other unconventional methods of debt finance. Taxpayers would rather give their money to their local educational district than to bond investors.
Who actually applies the most pressure on the educational district to proceed with borrowing money? Are educational districts selling Capital Appreciation Bonds or other unconventional methods of debt finance because parents and teachers are demanding it? Or is the political pressure coming from the various interests that contributed to the bond measure campaign and now want to reap the rewards of contracts for this construction program?
Interest rates are low. This is a good time to borrow money, perhaps with a mix of Current Interest Bonds and Capital Appreciation Bonds. Rates may not be so favorable when assessed valuation of property in the district goes up.Interest rates are low and provide an advantage for educational districts issuing Current Interest Bonds, but the outrageous nature of Capital Appreciation Bond negates the benefit of lower rates. The ratio of debt service to principal should not exceed 3 or 4 (at the most) for an individual bond issue.
Educational districts will jeopardize the quality of education for students if they don’t get funding for construction now.Is it true that new and modernized facilities significantly improve academic performance and life preparation for students? Is the impact of bond measures on test scores proportionate to the amount of tax revenue spent on debt service for those bond measures? Or are bond measures simply an easy method to get more money flowing into the district?
Ongoing construction programs would have to stop if funding isn’t obtained now, causing inconvenience, stopping momentum, and risking a higher cost of construction in the future.A realistic projection for assessed valuation of property would allow for better planning of construction-related contracts. Future generations should not have to pay for the risky borrowing practices of this generation’s leaders.
STINGY STATE LAWS COMPEL USE
Educational districts have to sell Capital Appreciation Bonds or other unconventional methods of debt finance because of unreasonably low tax and debt limits established in state law.The California legislature established these limits in state law in 2000 as part of a strategy to boost voter support for Proposition 39, a statewide measure on the November 2000 ballot to modify Proposition 46 enacted in 1986 - an initiative that modified the high-profile Proposition 13 enacted in 1978. Without limits and other additional taxpayer protections, Proposition 39 might have failed, as Proposition 26 failed in March 2000.
Educational districts have to sell Capital Appreciation Bonds or other unconventional methods of debt finance because assessed valuation of property in the districts unexpectedly declined, thus forcing districts to confront tax and debt limits.It’s important to obtain an independent projection of assessed property valuation that does not extend a current exceptional rate of growth for 40 years.
THESE BOND FINANCE DEALS ARE MISUNDERSTOOD
It’s wrong to consider Capital Appreciation Bonds in isolation. They are usually just a piece of a package of bond issues. When considered in conjunction with other bond issues, the debt to principal ratio is usually reasonable.This doesn’t eliminate the reality that bonds are issued that will need to be paid back decades later with compounded interest. Why include them at all?
Focusing on long-term debt service is misleading. Just because there is a high number for aggregate accreted interest in 40 years doesn’t necessary mean that amount will ever be paid. Many Capital Appreciation Bonds are “callable” and can be redeemed (and are being redeemed) with a new issue of refunding bonds that have lower rates and can be issued as traditional Current Interest Bonds. Because of the consistent increasing value of property in California over several generations, an amount that seems high to taxpayers now will not be so daunting decades from now. Routine inflation will reduce the “real” cost of paying back Capital Appreciation Bonds decades from now. This is public money. The decision to borrow money via Capital Appreciation Bonds assumes that assessed valuation of property and the rate of inflation will increase substantially over decades. And some districts (such as Poway Unified School District) have sold Capital Appreciation Bonds that are not callable.
Contrary to claims made after the fact, plenty of information is provided to educational district administrators and elected board members about bond sales. There isn’t an excuse for not understanding the proposal.Information is not presented in a standardized way that is easy to understand. Most school board members do not have a background in accounting, finance, or bonds. In addition, school board members may be hesitant to publicly acknowledge their lack of understanding, especially if everyone else in the room is nodding heads during the bond consultant presentation.
Critics have self-interested motivations to criticize. Traditional and consistent ideological detractors of government schools want to take advantage of yet another opportunity to undermine the system. Cynical politicians want to exploit bad news in order to build a reputation. News media wants to improve reader and viewer ratings through sensational and misleading coverage.Most people would acknowledge that criticism of at least a few bond issues by California educational districts has merit. In addition, there are self-interested motivations for people denying that Capital Appreciation Bonds and other unconventional bond financing are unusual or unwise. Community college and K-12 school district elected officials wanted to stay in office. District administrators wanted to keep their jobs. And of course professionals in the financial industry wanted to continue making a living from the transaction fees generated by bond sales.
Assembly Bill 182 (2013) wasn’t really needed, but it is now law and there are no valid arguments to impose more restrictions on this valuable tool for educational districts.Educational districts are still selling Capital Appreciation Bonds (and also Bond Anticipation Notes) under the assumption that assessed valuation will continue to rise for decades. The bond financing industry will continue to use these schemes to bloat borrowing and collect more transaction fees.
Table A-5
Arguments for Capital Appreciation Bonds
ArgumentRebuttal
URGENCY
School facilities are desperately needed now: schools are overcrowded, deteriorating, outdated, and unsafe. These claims are rarely quantified. There needs to be an objective way to determine that need overwhelms the risk of massive tax and debt burdens for future generations.
Despite 14 years of Proposition 39, educational districts continue to increase the number of bond measures on the ballot and the total amount authorized to borrow. It seems that spending between $100-$200 billion on construction since 2000 has only increased the need for more.
It’s possible that educational districts are preparing for a population boom that may never occur. Average Daily Attendance for California K-12 school districts has dropped from 5,927,951 in 2003-04 to 5,631,709 in 2008-09 to 5,501,603 in 2013-14. Actual California population growth is lagging behind projections made in the 1990s.
When the bond measure was before voters for consideration, the educational district made promises to residents about what was going to be built and what the tax rate would be. Those promises must be fulfilled. Voters want the projects now.Anecdotally, it appears that voters aren’t necessarily keen on immediately proceeding with construction projects listed in bond measure ballot statements if it requires borrowing money under outlandish terms via sales of Capital Appreciation Bonds or other unconventional methods of debt finance. Taxpayers would rather give their money to their local educational district than to bond investors.
Who actually applies the most pressure on the educational district to proceed with borrowing money? Are educational districts selling Capital Appreciation Bonds or other unconventional methods of debt finance because parents and teachers are demanding it? Or is the political pressure coming from the various interests that contributed to the bond measure campaign and now want to reap the rewards of contracts for this construction program?
Interest rates are low. This is a good time to borrow money, perhaps with a mix of Current Interest Bonds and Capital Appreciation Bonds. Rates may not be so favorable when assessed valuation of property in the district goes up.Interest rates are low and provide an advantage for educational districts issuing Current Interest Bonds, but the outrageous nature of Capital Appreciation Bond negates the benefit of lower rates. The ratio of debt service to principal should not exceed 3 or 4 (at the most) for an individual bond issue.
Educational districts will jeopardize the quality of education for students if they don’t get funding for construction now.Is it true that new and modernized facilities significantly improve academic performance and life preparation for students? Is the impact of bond measures on test scores proportionate to the amount of tax revenue spent on debt service for those bond measures? Or are bond measures simply an easy method to get more money flowing into the district?
Ongoing construction programs would have to stop if funding isn’t obtained now, causing inconvenience, stopping momentum, and risking a higher cost of construction in the future.A realistic projection for assessed valuation of property would allow for better planning of construction-related contracts. Future generations should not have to pay for the risky borrowing practices of this generation’s leaders.
STINGY STATE LAWS COMPEL USE
Educational districts have to sell Capital Appreciation Bonds or other unconventional methods of debt finance because of unreasonably low tax and debt limits established in state law.The California legislature established these limits in state law in 2000 as part of a strategy to boost voter support for Proposition 39, a statewide measure on the November 2000 ballot to modify Proposition 46 enacted in 1986 - an initiative that modified the high-profile Proposition 13 enacted in 1978. Without limits and other additional taxpayer protections, Proposition 39 might have failed, as Proposition 26 failed in March 2000.
Educational districts have to sell Capital Appreciation Bonds or other unconventional methods of debt finance because assessed valuation of property in the districts unexpectedly declined, thus forcing districts to confront tax and debt limits.It’s important to obtain an independent projection of assessed property valuation that does not extend a current exceptional rate of growth for 40 years.
THESE BOND FINANCE DEALS ARE MISUNDERSTOOD
It’s wrong to consider Capital Appreciation Bonds in isolation. They are usually just a piece of a package of bond issues. When considered in conjunction with other bond issues, the debt to principal ratio is usually reasonable.This doesn’t eliminate the reality that bonds are issued that will need to be paid back decades later with compounded interest. Why include them at all?
Focusing on long-term debt service is misleading. Just because there is a high number for aggregate accreted interest in 40 years doesn’t necessary mean that amount will ever be paid. Many Capital Appreciation Bonds are “callable” and can be redeemed (and are being redeemed) with a new issue of refunding bonds that have lower rates and can be issued as traditional Current Interest Bonds. Because of the consistent increasing value of property in California over several generations, an amount that seems high to taxpayers now will not be so daunting decades from now. Routine inflation will reduce the “real” cost of paying back Capital Appreciation Bonds decades from now. This is public money. The decision to borrow money via Capital Appreciation Bonds assumes that assessed valuation of property and the rate of inflation will increase substantially over decades. And some districts (such as Poway Unified School District) have sold Capital Appreciation Bonds that are not callable.
Contrary to claims made after the fact, plenty of information is provided to educational district administrators and elected board members about bond sales. There isn’t an excuse for not understanding the proposal.Information is not presented in a standardized way that is easy to understand. Most school board members do not have a background in accounting, finance, or bonds. In addition, school board members may be hesitant to publicly acknowledge their lack of understanding, especially if everyone else in the room is nodding heads during the bond consultant presentation.
Critics have self-interested motivations to criticize. Traditional and consistent ideological detractors of government schools want to take advantage of yet another opportunity to undermine the system. Cynical politicians want to exploit bad news in order to build a reputation. News media wants to improve reader and viewer ratings through sensational and misleading coverage.Most people would acknowledge that criticism of at least a few bond issues by California educational districts has merit. In addition, there are self-interested motivations for people denying that Capital Appreciation Bonds and other unconventional bond financing are unusual or unwise. Community college and K-12 school district elected officials wanted to stay in office. District administrators wanted to keep their jobs. And of course professionals in the financial industry wanted to continue making a living from the transaction fees generated by bond sales.
Assembly Bill 182 (2013) wasn’t really needed, but it is now law and there are no valid arguments to impose more restrictions on this valuable tool for educational districts.Educational districts are still selling Capital Appreciation Bonds (and also Bond Anticipation Notes) under the assumption that assessed valuation will continue to rise for decades. The bond financing industry will continue to use these schemes to bloat borrowing and collect more transaction fees.

Although news reports (for example, Maryland Dispute With U.S. Stalls Bridge Contract) claimed that the State of Maryland had asked the U.S. Department of Transportation for an exemption under Executive Order 13028 for the Woodrow Wilson Bridge replacement project, there is no evidence that a formal written request was ever submitted.

Ensuring Compliance Was a Challenge

It was essentially left to the public to ensure that federal, state, and local governments complied with Executive Order 13202 and 13208. For example, in 2004 the Golden Gate Chapter of Associated Builders and Contractors discovered that the San Mateo County Board of Supervisors was planning to vote to impose a Project Labor Agreement for a federally-funded jail project. The organization immediately contacted the Bush Administration, San Mateo County, and the news media. The item was removed from the agenda and never returned to the Board of Supervisors.

As noted in the chart above, the U.S. Department of Transportation granted an exemption to the  Worcester Regional Transit Agency for its Union Station Intermodal Transportation Center. An organization opposed to Project Labor Agreements had identified federal funding for this 2007 project and discovered that the agency had never requested or received an exemption. The Project Labor Agreement had been executed in 1997, so the agency ultimately granted the exemption. However, the failure to comply with the law highlighted how unions obtained a monopoly on the work, and local news media reported it as an agency embarrassment.

Another loophole to be exploited was the provision of Executive Order 13202 that permitted construction contractors to “voluntarily” sign Project Labor Agreements (a right authorized in the National Labor Relations Act). Although the U.S. Department of Transportation denied an exemption for the Central Puget Sound Transit Light Rail Project, a 2011 report produced by Sound Transit alleged that the “majority of contractors” continued to sign Project Labor Agreements voluntarily, and thus the federal funding continued. The definition of “voluntarily” is open to interpretation, and it would be interesting to know what warnings were made behind the scenes to get contractors to sign the Project Labor Agreement. And what happened to the “minority” that did not sign the Project Labor Agreement?

There also appear to be cases in which some governments “misintepreted” or outright ignored the law. Although it never issued any exemptions, the U.S. Department of Energy apparently continued to fund projects with requirements in bid specifications for contractors to sign Project Labor Agreements. Email correspondence in 2006 regarding one of these projects (Yucca Mountain) indicates that as least one agency official assumed that Executive Order 13028 automatically exempted any projects for which Project Labor Agreements were already executed before Executive Order 13202. (Actually, the head of the executive agency was required to proactively issue an exemption. Beyond projects that might be eligible for an exemption, it also appears that the U.S. Department of Energy provided federal funding for projects even in cases for which Project Labor Agreements were executed after Executive Order 13202 was signed.

Yet, an Acquisition Letter published by the U.S. Department of Energy in December 2002 reported the status of the Project Labor Agreements implemented at agency projects and outlined a procedure to obtain an exemption under Executive Order 13208. Perhaps the U.S. Department of Energy was involved in a deliberate decision to ignore the executive order and see if anyone in the public would have the gumption to sue the agency for non-compliance. No one ever did.

Whenever a law is passed, there are immediately lawyers and other clever people seeking ways to circumvent it. Executive Order 13208 helped unions to keep a few of their Project Labor Agreements and monopolize federally-funded work during the Bush Administration.

Sources

Presidential Executive Order 13202 – Project Labor Agreement Prohibition on Federally-Funded Projects (Formal Title: “Preservation of Open Competition and Government Neutrality Towards Government Contractors’ Labor Relations on Federal and Federally Funded Construction Projects”)

Presidential Executive Order 13208 – Amendment to Presidential Executive Order 13202 – Exemptions to Project Labor Agreement Prohibition on Federally-Funded Projects (Formal Title: “Amendment to Executive Order 13202, Preservation of Open Competition and Government Neutrality Towards Government Contractors’ Labor Relations on Federal and Federally Funded Construction Projects”)

U.S. Department of Transportation Grants Executive Order 13208 Exemption – Massachusetts Turnpike Authority: Boston Central Artery/Tunnel Project (Granted April 20, 2001)

U.S. Department of Transportation Grants Executive Order 13208 Exemption – Port of Seattle: Seattle-Tacoma International Airport Phase 1 Capital Improvement Program (Granted May 10, 2001)

Request to U.S. Department of Transportation to Deny Executive Order 13208 Exemption Requested by Sacramento Regional Transit District

U.S. Department of Transportation Grants Executive Order 13208 Exemption – Sacramento Regional Transit District: South Corridor Expansion (Granted August 16, 2001)

Request to U.S. Department of Transportation to Deny Executive Order 13208 Exemption Requested by Port of Oakland

U.S. Department of Transportation Grants Executive Order 13208 Exemption – Port of Oakland: Airport Development Program (Granted September 22, 2003)

Request to U.S. Department of Transportation to Deny Executive Order 13208 Exemption Requested by Port of Oakland

U.S. Department of Transportation Grants Executive Order 13208 Exemption – Worcester Regional Transit Agency: Union Station Intermodal Transportation Center (Granted September 12, 2007)

U.S. Department of Transportation Denies Executive Order 13208 Exemption – Central Puget Sound Regional Transit Authority (Sound Transit, based in Seattle): Sound Transit Light Rail Project (Denied January 9, 2004)

U.S. Department of Transportation Denies Executive Order 13208 Exemption – Native Village of Venetie Tribal Government (Alaska): Arctic Village Airport Reconstruction (Only evidence obtained is reference in U.S. Department of Transportation Action Memorandum.)

U.S. Environmental Protection Agency Grants Executive Order 13208 Exemption – Onondaga County (State of New York): Onondaga County Lake Improvement Project

Federal Agencies That Did Not Handle Any Requests for Exemptions Under Presidential Executive Order 13208

Documentation That the U.S. Department of Energy Did Not Handle Any Requests for Exemptions Under Presidential Executive Order 13208

U.S. Department of Energy Acquisition Regulation Letter 2002-08 – Executive Orders Prohibiting Project Labor Agreements

September 11, 2003 Action Memorandum to U.S. Secretary of Transportation – Project Labor Agreement Exemptions

March 9, 2001 U.S. House of Representatives Republican Letter to Bush Critical of Presidential Executive Order 13202 – Project Labor Agreement Prohibition

Connecticut Governor John Rowland January 31, 2001 Letter Opposing Potential Bush Executive Order Banning Project Labor Agreements

Analysis of Executive Order 13202 in Parsons McCarran Airport Construction Labor Relations Study (2001)

Impact of Executive Order 13202 on Sound Transit – Project Labor Agreement Study (2011)

FOIA Response – US Department of Transportation Never Received Maryland Request for Executive Order 13208 Exemption for Woodrow Wilson Bridge Replacement

San Mateo County Youth Services Center – Executive Order Derails Project Labor Agreement (2004)

US Department of Energy Claims Unsubstantiated Exemption for Yucca Mountain by Citing Executive Order 13208


Kevin Dayton is the President & CEO of Labor Issues Solutions, LLC, and is the author of frequent postings about generally unreported California state and local policy issues at www.laborissuessolutions.com. Follow him on Twitter at @DaytonPubPolicy.

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