California Supreme Court Supports Rights of Charter Cities Over State Legislature

California Supreme Court Declares that the State’s 121 Charter Cities Have a Constitutional Right to Circumvent the Union-Controlled State Legislature and Establish Their Own Policies Concerning Government-Mandated Construction Wage Rates for Taxpayer-Funded Construction

Yesterday morning (July 2, 2012), the California Supreme Court ruled 5-2 in State Building and Construction Trades Council v. City of Vista that the state’s charter cities have the constitutional right to establish their own policies concerning what their contractors are required to pay their trade employees working on construction projects paid for in whole or in part by the charter city. See the decision here.

There has been a recent flurry of cities trying to enact charters to gain some freedom from costly state mandates, especially freedom from the state’s inaccurate and inflated prevailing wage rates that apply to construction contracts of $1000 or more. In the City of El Cajon (in San Diego County), 58% of voters approved that city’s proposed charter on June 5, 2012. That charter includes an exemption from state prevailing wage.

Meanwhile, voters in the City of Auburn defeated a proposed charter with a similar prevailing wage exemption on June 5, 2012 after three union entities spent almost $80,000 to defeat a small local grassroots movement for a charter. Unions spent $56.40 per vote against the proposed charter to keep state control over the city’s contracting rules.

Article XI, Section 3 of the California Constitution describes how a general law city can organize under a charter. The California Supreme Court ruled on July 2, 2012 that the constitutional rights for a charter city extend to governing authority over contracting rules for purely municipal construction projects. In the case of the City of Vista, it established its own policy on prevailing wage in 2007 with the intention of saving millions of dollars on the seismic retrofit of an existing fire station and the construction of two new fire stations, a new civic center, a new sports park, and a new stagehouse for the city’s Moonlight Amphitheatre.

Charter cities are trying to circumvent the state’s prevailing wage laws because pay rates determined under these laws are often obviously much higher than actual regional market rates. In addition, the definitions of public works under these laws apply to projects that no reasonable Californian would consider to be government work.

Instead of surveying contractors or workers or looking at statistics from the California Economic Development Department, the California Department of Industrial Relations uses a system of calculating rates in which all of the employer payments indicated in the applicable union collective bargaining agreement for a construction trade in the union’s geographic region are added up to produce the wage rate for that region.

The state rates even incorporate employer payments to union-affiliated trusts that are not related to employee compensation; in fact, these trusts are sometimes used for union political purposes. Classified by the California Department of Industrial Relations in the mysterious “Other” column of prevailing wage determinations, this component was added to law through a bill signed by Governor Gray Davis just before he was recalled in 2003.

See the state-mandated construction wage rates for taxpayer-funded projects here.

In addition, the state defines a public works project to mean a construction project that gets any sort of public financial benefit. That means the state identifies many privately-owned and privately-built projects as public works projects. Hotels and retail developments become public works projects equivalent to courthouses and city halls.

Few Californians understand the complicated, convoluted, and often ambiguous structure of the state’s laws and regulations concerning government-mandated construction wage rates. For a simple explanation of the state’s prevailing wage laws and the prevailing wage laws of the state’s charter cities, see this guidebook: Are Charter Cities Taking Advantage of Prevailing Wage Exemptions?

To see how state prevailing wage laws could be reformed to produce more accurate rates and more reasonable definitions of public works, see these two comprehensive reform bills introduced by Assemblywoman Shannon Grove (R-Bakersfield) but defeated in January 2012 on party-line votes in the Assembly Labor and Employment Committee: Assembly Bill 987 (reform definition of public works) and Assembly Bill 988 (reform calculation of prevailing wages).

OUTLOOK: In the November 2012 election, voters in the cities of Costa Mesa, Escondido, and Grover Beach will consider enacting charters that allow these cities to establish their own policies concerning government-mandated construction wage rates for purely municipal construction. I predict that dozens of cities will seek this authority from their citizens in 2014.

Here is a compilation of the substantial press coverage about this important court decision:

News Coverage So Far: City of Vista Wins California Supreme Court Ruling – Charter Cities Can Set Their Own Policies Concerning Prevailing Wage

APPENDIX: Union Perspectives on Charter Cities Establishing Their Own Policies Concerning Government-Mandated Construction Wage Rates

1.      Official Statement After Unions Lose in California Supreme Court

“The fight against prevailing wage is part of a larger effort by the super-rich ruling class to fatten their own wallets by forcing everyone else to sacrifice…We will continue to fight at every turn.” – July 2, 2012 statement of the State Building and Construction Trades Council of California in response to the California Supreme Court decision

Source: an article in the Newport Beach /Costa Mesa Daily Pilot, an article in the North County Times, and in an article in the San Francisco Chronicle.

2.      Dialogue at the California Appeals Court oral arguments on November 14, 2008 (one year after devastating fires in San Diego County):

Judge (to the Union Lawyer): “How do you balance (your) argument against a municipality that might say ‘prevailing wages, that concept is going to, in effect, prevent us from building the fire station that we need?’”

Union Lawyer: “The same argument could be made about a lot of laws that cost money.  The way I balance it is to say that when the people as a whole deal through the legislature with a problem that does have real extra-municipal dimension, the interests of an individual locality have to yield.”

Another Judge (to the Union Lawyer): “The response that troubles me a little bit: ‘Well, if they can’t afford to build the fire station, and they have fire problems, that’s their tough luck,’ even though they’re using municipal funds. They’re not using state funds; the state isn’t granting its largess to solve the problem. So the charter makes no difference; the city simply is stuck.”

Union Lawyer: “When you say stuck, they have to follow the exact same rules that every other government entity follows in California to construct things…It’s true the city could say ‘we might be able to get lower bids on our project if we don’t include prevailing wage specifications, and we’d like to do that,’ but where the legislature has dealt with an issue that has extra-municipal concerns, the judgment of the entire legislature has to trump, because there are substantial externalities involved.”

Source: Wildfires: Construction Unions Put Self-Interest above Public Interest in Court Case Against City of Vista’s Right as a Charter City to Set Its Own Prevailing Wage Policies

3.      From a Commentary by Bob Balgenorth (President of the State Building and Construction Trades Council of California) published on July 26, 2007:

The State Building Trades intends to establish with its lawsuit that ignoring the State’s prevailing wage law is not just bad policy – it is also illegal.

Source: “Charter Cities Must Comply with Prevailing-Wage Law,” Capitol Weekly, July 26, 2007. (It took five years for this lawsuit to reach the final and decisive outcome of failure.)

Kevin Dayton is the President and 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.