The Tempe City Council will vote this week on a new ordinance that would compel construction contractors to follow prevailing wage rules for City projects.
Supporters say the rules, which set labor compensation based on regional pay levels for different worker groups, ensure workers on municipal projects are paid fairly, since prevailing wage rates are almost always more than minimum wage.
Opponents say the practice increases costs and undermines the ability of some contractors, particularly smaller operations, to compete for work. The rules can influence the bid amounts contractors submit for project consideration and can add significant administrative burdens, they say.
Approving and implementing the ordinance could have significant financial impacts on the City. An independent consultant has estimated it would increase Tempe’s annual construction costs anywhere from 2.3% to 7%, which would add up to $7.3M to construction project costs this year, at a time when costs have already been increasing and City budgets have been shrinking.
The Arizona Legislature had previously eliminated the state’s rental tax, which cost Tempe $21M in yearly revenue. The Legislature is also considering eliminating the food tax, a move that could cost the City another estimated $8M a year.
Along with rising construction costs, Tempe may have to hire additional staff to administer the prevailing wage program and would almost certainly face litigation over the ordinance.
Tempe officials have said they do not believe additional staff would be necessary immediately but that they may have to hire more people in the future. Phoenix had to hire an additional 12 staff members after it enacted prevailing wage.
Many contractors oppose prevailing wage rules and say the regulations add to their costs and administrative burdens and reduce the ability of smaller firms to compete. They also say this can lead to a decrease in the quality of delivered projects, since more qualified firms may decline to bid for City work.
Conservative and business groups also oppose the rules as violations of free market principles and as a possible violation of Arizona state law.
A 1984 law prohibits cities from enacting prevailing wages. However, Arizona Attorney General Kris Mayes has said a 2006 voter-approved law that lets cities approve their own minimum wage ordinances also applies to prevailing wages and supersedes the 1984 law.
The cities of Phoenix and Tucson have approved their own prevailing wage ordinances and have been sued by the Goldwater Institute, which argues Mayes’ interpretation is incorrect and the ordinances violate state law. Those lawsuits are ongoing.
If Tempe passes the ordinance, it will also likely face litigation and was warned of that likelihood in a letter from the Goldwater Institute last month.
The new rule would take effect June 8 if approved by City Council. (Source)