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Union Greed Drives California to Bankruptcy

Few non-local people pay much attention to the goings-on in Stockton, a hard-pressed Gold-Rush-era industrial city of 300,000 that sits in the agriculturally rich San Joaquin Valley at the eastern edge of the California Delta. But bondholders, taxpayers and government officials throughout the country will be listening to U.S. Bankruptcy Judge Christopher Klein’s expected ruling on Monday as he decides whether the city may remain in bankruptcy and pursue a plan that stiffs its bondholders.

If Klein sides with the city, then municipalities will face a disturbingly low bar for pursuing bankruptcy. They will be emboldened to choose Stockton’s course — i.e., using bankruptcy as a strategic policy tool to offload debts without having to confront the main reasons that they went bankrupt in the first place, such as lush pay and pensions. Bankruptcy will no longer be a policy of last resort. This should have an impact on bond markets.

If the city wins the case, argued March 25-27 in the Sacramento federal courthouse, then the public-sector unions and the scandal-plagued California Public Employees Retirement System are right. No matter what problems befall a city, public services and taxpayers suffer first while union members and public retirement systems are protected.

Granted, no one should feel too sorry for the lenders (and their insurers) who provided the pension-obligation bonds to the city. They knew the risks when one lends money to a city — especially one controlled by the unions. But their argument is strongest. A city shouldn’t use bankruptcy as a means to get rid of uncomfortable debts. It should use this tool only when it has slashed its costs but still can’t get out from under the load.

On Tuesday, a Stockton management consultant called at the trial stated that the city would have a $100 million budget deficit in a decade if it does not take the bankruptcy route, in an attempt to show that it had no choice but to declare Chapter 9. But how hard has the city tried to deal with its debts?

As the attorney for the bond insurer noted in his closing comments on Wednesday, the city intended, from the outset of this process, to shortchange the bond holders. It has refused to address its biggest debt—the payments that it owes to CalPERS to pay for its pension obligations. It only modestly pulled back compensation from rates far above the market to somewhere near the average for public-sector workers in California.

Essentially, the city plan has put pension debt off the table, arguing that pension payments and benefits cannot legally be touched. A bankruptcy would be the place to challenge that assumption, but Stockton officials have no interest in doing so, figuring it’s easier to go after Wall Street than the unions. If Stockton gets its way, then cities can spend anything on pensions and there is no way to ever get out from under that debt.

Some of the most telling testimony came Wednesday morning, when bond-insurer Assured Guaranty’s attorney Guy Neal questioned city councilmember Kathy Miller about a July 2012 video that explained the fiscal situation to city residents. Here are some of her statements from the video:

In the 1990s, Stockton granted its employees some of the most generous and unsustainable labor contracts in the State of California.… Safety employees could now retire at the age of 50.… Many safety retirees today earn 90 to 100 percent of what they made when they were still on the job.

That’s common. But Miller noted that:

Stockton went even further than most other cities and granted things like unlimited vacation and sick time that could be cashed out when an employee retired, and added pay categories for almost everything imaginable.… Our public safety employees were costing us on average more than $150,000 a year each. That’s three times more than most of us in Stockton make in a year.

She described the “Lamborghini” health plan the city’s employees received:

This was free medical care for a retiree and a dependent for the rest of their lives. No co-pays, no generic requirements, no HMOs, and no premiums. See any doctor, stay in any hospital, purchase any drug, and just send the bill to the city of Stockton.

Absurd pay and benefits are common, and not just in Stockton. San Francisco Chronicle columnists Matier and Ross revealed recently that an Alameda County executive receives a $423,000 a year pay package for life. Compensation for California firefighters is in the $175,000 a year range. Some Newport Beach lifeguards receive $200,000 a year pay packages. As a friend of mine joked, revolutions have been fought over lesser instances of public pilfering.

Stockton pulled back on some abuses, but has left the main problem in place. Why is it OK that Stockton residents have to put up with closed parks, reduced policing and other cutbacks to protect outrageous pension and pay levels?

Currently, Stockton leaders are floating a tax increase plan to fund police officers. But money is fungible so this should be viewed as a tax designed to pay for past boondoggles. Whatever the court decides, it’s time for the public to stand up to these misshapen priorities.

About the Author:  Steven Greenhut is vice president of journalism for the Franklin Center for Government and Public Integrity. Previously, Greenhut was the founding editor-in-chief of Cal Watchdog, an independent, Sacramento-based journalism venture providing original investigative reports and news stories covering California state government. Greenhut was deputy editor and columnist for The Orange County Register for 11 years. He is author of the book, “Plunder! How Public Employee Unions are Raiding Treasuries, Controlling Our Lives and Bankrupting the Nation.”

Watch Union Official’s Rude Antics at California High-Speed Rail Conference

On January 11, 2013, a video camera recorded a stunning public tirade by Fresno’s top construction union official at a conference about supposed local contracting opportunities for the first segment of California’s High Speed Rail. Below is video footage of the beginning of a panel discussion about Project Labor Agreements, and below that is the ignominious ending of the panel discussion a few minutes later.

The incident exposes the coercive power of special interest groups behind the California High-Speed Rail Authority’s quest to slice the first segments of this rail corridor through the San Joaquin Valley, located in the middle of the planned route between San Francisco and Los Angeles. It also compromises the California High-Speed Rail Authority’s relentless public relations program to portray the high-speed rail to coastal urbanites as a progressive, visionary plan to save the planet.

An effective public relations campaign depends on major news media focusing on idealistic concepts, rather than the coarse ground game related to which people from which places get the jobs to perform the actual construction. But while idealistic concepts for environmental sustainability are promoted by professional activists who work for non-profit environmental and public transit advocacy organizations, building the high-speed rail requires construction trade workers. This injects union officials from the San Joaquin Valley into the coalition to build the rail line. And one of those union officials tarnished the progressive image on January 11.

Background: Why Will Unions Get a Monopoly on Building California’s High-Speed Rail?

Construction trade unions have long planned to use the government as its agent to monopolize the building of high-speed rail, now estimated by the California High-Speed Rail Authority to cost $68.4 billion. It seemed probable (but not guaranteed) that union workers that specialize in heavy industrial infrastructure construction would end up building the rail line itself. However, the stations and other building infrastructure would be prime bidding targets for Northern California’s productive and efficient non-union contractors. And unions do not want another failure similar to their failed plot ten years earlier to win a Project Labor Agreement to build the new University of California campus in Merced.

That plan – backed by Governor Gray Davis – was undermined in 2001 and 2002 by San Joaquin Valley business, political, and community leaders, who worked with some aggressive construction business associations to expose and criticize the scheme. In the end, bidding was done under fair and open competition, and non-union contractors and their non-union employees were prominent in building the new campus.

This time, things are different. Unions provided campaign support to pass Proposition 1A (the “Safe, Reliable High-Speed Passenger Train Bond Act for the 21st Century”) in November 2008. The head of the State Building and Construction Trades Council of California was appointed to the High-Speed Rail Authority Board of Directors, along with an official for the Operating Engineers Local Union No. 3, which represents operators of cranes, excavators, and other construction equipment.

So it shouldn’t be a surprise that Section 7.11.3 of the Request for Proposal for Design-Build Services for the first segment of the California High-Speed Rail project states that “Proposers are advised that, subject to FRA [Federal Railroad Administration] approval, the Authority intends to develop a Community Benefits Agreement consistent with the Community Benefits Policy adopted by the CHSRA [California High-Speed Rail Authority] Board at its December 6, 2012 meeting with which the Contractor will be required to comply.” (Note: “Community Benefits Agreement” is a euphemism for “Project Labor Agreement” meant to give the public a nice warm feeling about a union sweetheart deal.)

And Section 10.1 of the Request for Proposal states that  “The Authority [that is, the California High-Speed Rail Authority CEO Jeff Morales] will not make a recommendation for award of the Contract [to the California High-Speed Rail Authority Board of Directors] unless the successful selected Proposer has submitted the following: Escrowed Proposal Documents and corrected any deficiencies identified by the examination of the EPDs, and A letter of assent executed by the Proposer agreeing to be bound by the Community Benefits Agreement.” This indicates a government-mandated Project Labor Agreement.

California High Speed Rail Project Labor Agreement Mandate - Section 10.1

California High Speed Rail Project Labor Agreement Mandate – Section 10.1

In addition, the California High-Speed Rail Authority arranged the bidding process on the first segment of the High-Speed Rail (from Madera through Fresno) so that the five prequalified design-build construction consortiums are obligated to sign a Project Labor Agreement with the State Building and Construction Trades Council of California in order to be competitive. This subtlety is possible because the High-Speed Rail Authority is authorized to select the winning bidder using a somewhat subjective scoring system based on “best value” procurement criteria.

On December 6, 2012, the California High-Speed Rail Authority voted for a policy resolution that established generalized “community benefits” that contractors would have to demonstrate as a result of building the high-speed rail through the Central Valley. Not surprisingly, these same benefits are cited in the union Project Labor Agreement that is now included as a “Community Benefits Agreement” in Addendum 8 of the bid documents for the first segment of the high-speed rail. In order to maximize the score for community benefits, the contractor simply agrees to the Project Labor Agreement, and then everyone will feel good that ‘Needy’ Workers Will Get Jobs on High-Speed Rail.

For technical details about the provisions of this Project Labor Agreement, see my comprehensive, 4000-word Analysis of the Phony Community Benefits and Other Provisions in the Union Project Labor Agreement for the First Segment of California’s High-Speed Rail.

Unexpectedly Defiant Resistance to the Project Labor Agreement Provokes Union Anger

A panel discussion about the draft Project Labor Agreement for the construction of the first segment of the California High-Speed Rail was scheduled for 1:30 p.m. on Friday, January 11, 2012 during the 6th Annual San Joaquin Valley Region Public Contracting / Central Valley High Speed Rail Conference / Expo (Jobs & Contracts) at the Downtown Fresno Radisson Hotel & Convention Center. The panel moderator was Kathleen Ellis Faulkner, a Bakersfield attorney.

Three invited panelists showed up: John Hutson, Secretary-Treasurer of the Fresno, Madera, Kings and Tulare Counties Building and Construction Trades Council (this organization lacks a web site), Eric Christen of the Coalition for Fair Employment in Construction (a Project Labor Agreement opponent), and Nicole Goehring of the Northern California Chapter of Associated Builders and Contractors (another Project Labor Agreement opponent). As you hear in Video #1, organizers of the panel discussion had asked other union officials to participate (some apparently chose instead to sit in the audience).

As shown in Video #1, Hutson was flummoxed to find out he would be defending the unions’ Project Labor Agreement instead of explaining to the construction companies of the Central Valley how they would soon enjoy the benefits of unionization under the Project Labor Agreement if they hoped to work on the High-Speed Rail. He expresses his astonishment that “some little kid” was handing out information from Associated Builders and Contractors about Project Labor Agreements. He then proceeds to tell a colorful story from “when he was a small boy” about farm life.

None of this has anything to do with the terms and conditions of Project Labor Agreements in bid specifications for construction contracts, and Video #2 shows what happened when an effort was made by the moderator to get the panel discussion on track.

Hutson complains that Eric Christen is “edging it on” and “smiling it up.” (Did he mean “egging it on?”) He then says to Christen, in defiance of social norms of respect for other people as promoted by the White House and the U.S. Department of Labor, “I think I recognize you from before your sex change operation.”

The moderator tries to take the microphone away and restore order, but Hutson resists: “get your hands off.” Then he walks away from the table, only to return to spit out some profanity (specific words heard by witnesses but not quite audible on Video #2). He then storms out of the room (and the hotel) with his fellow union officials, leaving the contractors sitting in the room stunned at the personal attacks and derogatory statements launched during the five-minute panel discussion.

A press release jointly issued on January 11, 2013 by the Coalition for Fair Employment in Construction and Associated Builders and Contractors quoted a Fresno-based construction company owner who attended the panel discussion:

I took time away from my workday to be here to discuss this important issue on behalf of my employees that prefer to work in a merit shop environment. The antics displayed today represent the reason why I left the Union many years ago. The taxpayers and voters of California should be deeply concerned about the union favoritism displayed in this agreement.

In November 2008, 52.7% of California voters supported Proposition 1A, called the “Safe, Reliable High-Speed Passenger Train Bond Act for the 21st Century.” How many of them assumed that the 21st Century would involve these kinds of union antics?

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.

Unions Creep Closer to Monopolizing California High-Speed Rail Construction

UPDATE (December 7, 2012): A article today in the Fresno Bee (‘Needy’ Workers Will Get Jobs on High-Speed Rail) about the “Community Benefits” policy approved on December 6, 2012 by the California High-Speed Rail Authority contains a stunning revelation:

Five teams of contractors have been invited to bid on the first major contract for a stretch of the rail route between Madera and Fresno. How the new policy will translate into the contract has yet to be determined, said Jeffrey Morales, the authority’s CEO. Potentially complicating the issue is that each of the five would-be prime contracting teams has already signed project labor agreements with labor unions. Morales said the existence of project labor agreements between the contractors and labor unions is independent of any action the agency takes.

So all five prequalified bidders have negotiated and signed Project Labor Agreements with construction unions. How did that happen? Why? Was there some kind of deal involving the High-Speed Rail Authority? Are the five agreements all the same? What do these union agreements contain? Will the public ever get the chance to see these agreements, which give unions a monopoly on the work?

California High Speed Rail Project Labor Agreement Mandate - Section 10.1

California High Speed Rail Project Labor Agreement Mandate – Section 10.1


At its December 6, 2012 meeting, the board of directors of the California High-Speed Rail Authority unanimously approved a resolution to establish a “Community Benefits” policy for construction of California’s high-speed rail system. The High-Speed Rail Authority promptly issued a press release with quotes from local elected officials in the San Joaquin Valley who like the concept of community benefits but apparently aren’t aware of the big-city union scheme behind the plan.

While a typical reader of www.UnionWatch.org is instantly alerted by the phrase “community benefits” to the likelihood that government is executing a special deal at the expense of taxpayers, the policy sounds innocuous and benevolent to the ordinary person. Staff of the High-Speed Rail Authority claimed before the board vote that this policy will enhance employment opportunities for economically disadvantaged and low-income workers, veterans, youth, unemployed, homeless, single parents, and people with criminal records. It will “ensure that California benefits as much as possible.”

There are numerous signs that the High-Speed Rail Authority established this policy to provide a strong incentive for construction contractors to sign a Project Labor Agreement with unions for construction of the $68 billion-$100 billion rail system, including related structures such as stations. Staff for the High-Speed Rail Authority reported that “different stakeholders” will participate in the implementation of the policy, and no stakeholder has been more involved in perpetuating this massive, costly project than the State Building and Construction Trades Council of California.

As I reported in a January 11, 2011 article in www.TheTruthaboutPLAs.com entitled California’s Top Construction Union Officials Love the State’s $100 Billion High-Speed Rail Project, construction unions have long sought a Project Labor Agreement in order to monopolize the construction workforce on this project. With the Community Benefits policy now in place, here’s what some of the most politically-astute California construction industry officials expect to happen:

  1. The High-Speed Rail Authority will award construction contracts using a “design-build” bidding procedure. Instead of awarding contracts to design a project and then awarding contracts to the lowest responsible bidder to build it, the High-Speed Rail Authority is authorized under state law to award contracts to qualified corporate entities that combine project design and construction work. It will select the design-build entities using a somewhat subjective list of “best value” criteria that could result in design-build entities winning contracts even if they do not submit bids with the lowest price. The California Department of Finance will approve the criteria to award the design-build contracts, and the State Public Works Board will oversee the contract awards.
  2. The High-Speed Rail Authority will indicate in its construction contract specifications that bidders will be evaluated in part based on their plan to conform with the Community Benefits policy. Potential bidders will either be explicitly informed or figure out that the chances of winning a design-build contract will be greatly improved if they commit in their bids to negotiate and sign a Project Labor Agreement with construction trade unions in order to comply with the Community Benefits policy.
  3. By using this strategy to implement a Project Labor Agreement, the board of directors of the High-Speed Rail Authority and their union cronies will avoid controversial and high-profile public votes to negotiate it and approve it. California taxpayers and the U.S. Congress will remain generally unaware that unions cleverly obtained a monopoly on the construction of the rail project, because reporters will have difficulty researching and explaining this complicated procedure and because the Project Labor Agreement will not be a matter of public record. And the High-Speed Rail Authority will avoid accountability for the Project Labor Agreement; it can portray the agreement as the contractor’s own internal private and voluntary business decision.

There are recent precedents for imposing Project Labor Agreements on large government projects in California while evading public deliberations and votes. Clark Construction negotiated and signed a Project Labor Agreement for the San Diego Convention Center Expansion Phase III and negotiated and signed a Project Labor Agreement for the new Governor George Deukmejian Courthouse in Long Beach. Both the City of San Diego and the California Administrative Office of the Courts claim that these Project Labor Agreements are not a matter of public record, and Clark Construction declines to provide the union agreements to the public.

There is one weakness in the High-Speed Rail Authority’s plot to give construction unions a monopoly on the rail project with Project Labor Agreements: representatives of the beleaguered California construction organizations opposed to government-mandated Project Labor Agreements and other costly union schemes are tough, experienced, and smart. They are exposing the scheme.

Representatives of the Coalition for Fair Employment in Construction, Associated Builders and Contractors (ABC) of California, the Western Electrical Contractors Association (WECA), the Plumbing-Heating-Cooling Contractors Association of California (PHCC), and the Air Conditioning Trade Association (ACTA) spoke at the meeting against Project Labor Agreements for the High-Speed Rail construction. In addition, a representative of the Bakersfield-based Kern Minority Contractors Association spoke during public comment and asked that both union and non-union contractors have the opportunity to work on the high-speed rail project. (The High-Speed Rail Authority is moving forward with building the first segment of the high-speed rail line in the San Joaquin Valley, basically from Fresno to Bakersfield.)

High-Speed Rail Authority chairman Dan Richard, a former member of the board of directors of the Bay Area Rapid Transit District (BART), concluded board discussion of the proposed Community Benefits policy by responding to public criticism of Project Labor Agreements. Chairman Richard declared that while no decision has been made about how the new “Community Benefits” policy will be implemented, he thinks Project Labor Agreements are effective in improving the efficiency of project delivery, reducing the number of conflicts, and providing a way for minority contractors to get work.

Chairman Richard also reported that he attended a December 5, 2012 meeting at which the minority community expressed very strongly that a Project Labor Agreement was the way to achieve the policy objectives. It appears that Chairman Richard was the keynote speaker at a “California High-Speed Rail Small Business Opportunity Conference” sponsored by the American Asian Architects and Engineers in San Francisco on December 5, 2012 and featuring Congresswoman Barbara Lee (D-Oakland/Berkeley). Of course, it’s contractors that will employ trade workers in the San Joaquin Valley, not San Francisco architects and engineers.

Chairman Richard also took a moment during the meeting to recognize two important people watching in the audience: Bob Balgenorth, outgoing head of the State Building and Construction Trades Council of California and former High-Speed Rail Authority board member, and Robbie Hunter – the head of the Los Angeles-Orange County Building and Construction Trades Council – who is the incoming head of the State Building and Construction Trades Council of California. Were these union leaders attending the meeting to express support for employment opportunities for the homeless, or were they in the audience to see another piece fall into place for a union Project Labor Agreement on what will be far-and-away the most expensive public works “mega-project” in American history?

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.