“Collusion” and “shady dealings,” are just a few of the words used in a letter to describe the City of Sacramento’s “utter failure to conduct any economic analysis” in the proposed taxpayer-subsidized sports arena.

Attorneys representing members of taxpayer groups opposed to the subsidized arena deal sent the letter to Sacramento City Attorney James Sanchez, with serious concerns over Mayor Kevin Johnson’s Think Big pro-arena group, and the Kings ownership investment group pushing the deal, with no real economic analysis, while they stand to reap all of the benefits.Mayor Kevin Johnson, city officials and the Kings ownership group have pulled out the stops to get this deal done — at any cost.

Attorneys Patrick Soluri and Jeffrey Anderson, who recently deposed Sacramento Economic Development Director Jim  Rinehart about the proposed taxpayer-subsidized sports arena deal, spoke at the Sacramento City Council meeting Tuesday.

The attorneys sent the letter Thursday to City Attorney James Sanchez, to address what they called “a serious misrepresentation” made at the conclusion of the “public comment” portion of the January 21, 2014 Sacramento City Council meeting.

The attorneys said they appeared at the council meeting to address their growing concerns with the City of Sacramento’s  lack of formal or even legitimate economic analysis of  the proposed sports arena, which has been heavily touted by the Mayor’s Office and other high ranking City officials, “several of whom are named individually as defendants in pending litigation,” according to the attorneys.

In the letter to Sanchez, Soluri and Anderson said the City’s only economic “analysis” contained in a staff report was to “cut and paste” bullet points obtained from the Sacramento Kings ownership investment group “in concert with the Mayor’s arena hype machine.”

Soluri and Anderson also wrote a letter  to Sacramento City Councilman Steve Hansen, January 20,  regarding Development Director Jim Rinehart’s sworn deposition testimony, which revealed shocking facts about the City’s failure to perform necessary due diligence with regard to the economic ramifications to the City resulting from the non-binding Term Sheet for the arena deal, adopted by the City Council on March 26.

From Soluri and Anderson’s letter:

“In our public comments Tuesday night, we again asked how the City could have structured a deal including a major public subsidy (consisting of a public subsidy of hundreds of millions of dollars to fabulously wealthy Kings owners and investors) without either engaging its economic development professionals or having the benefit of its own economic impact study,” Soluri and Anderson said. “In particular, the City has engaged in apparent unblinking acceptance of the proponents’ and project developers’ hype regarding the purported catalytic impact of the 1.5 million square feet of ‘ancillary development’ discussed in the Term Sheet that is, by all accounts, a predicate for the City obtaining any tangible economic benefit from the proposed ESC project; but for which there is no solid commitment or even tentative agreed upon timetable to bring to fruition.”

“Specifically, you stated that ‘the staff report and the presentation to the Council at that March consideration provided a significant overview of the economic benefits,’ which you assert the City will enjoy as a result of the ESC project, including job creation and enhanced property values, ‘among others,'” Soluri and Anderson wrote. “Lastly, you stated that the City’s ‘analysis’ set forth in the staff report ‘continues to be on the record and available for the public in the event that there is an interest in reviewing it.’”City denies concerns with planThe attorneys said City Attorney Sanchez attempted to refute the concerns they expressed at the city council meeting, along with  their concerns expressed in the January 20th letter to Councilmember Hansen.”

According to Soluri and Anderson, Sanchez provided false assurances to the public about the purported economic benefits of the arena, which was “a blatant and egregious misrepresentation.”

“Further, your cavalier duplicity is apparent by reference to just a few documents,” the attorneys said.

Soluri and Anderson concluded: “Rather than prepare an independent ‘significant overview of economic benefits’ as you falsely claim, relevant evidence squarely establishes that the City wholly and uncritically relied on claims of ‘economic benefits’ spoon-fed from both Think Big and the Kings investment group – the entity purportedly sitting across the table from the City at arm’s length negotiation.”

Sacramento’s publicly funded arena deal has been billed as “the largest redevelopment project in city history” in Sacramento, which should make every tax payer shudder.

A publicly funded arena will mean Sacramento taxpayers can expect a giant toilet flushing publicly funding. Other people’s money is so easy to recklessly spend.

City-created the blight

The blighted Downtown Plaza in downtown Sacramento is entirely the fault of the city, through eminent domain, and its lousy property management. As the largest slumlord on the street, the city is responsible for driving the downtown K Street Mall area from a once-bustling pedestrian mall filled with independently owned shops and department stores, into a crime laden, blighted area replete with abandoned buildings and homeless people — after spending hundreds of millions of dollars in redevelopment money on the space.

Sacramento Police Department has had to cut cops. There are no road repairs. Park maintenance is dwindling. City services overall have been cut already. The publicly funded arena will just usher in massive debt. And when the team can no longer pay its bills, the city, already sinking under huge debt and unfunded pension liability, will file for bankruptcy.

Publicly funded arena deals are public sinkholes, and a bad deal for taxpayers.

New York arena bust

The Wall Street Journal just reported the New York City Barclays Center arena is not producing nearly the revenue projected. The Barclays Center is not only losing money, it made only one-third the first year projected revenue, and can’t pay the annual debt service.

Sacramento’s bad deal

Officials claim the Sacramento arena deal would require the city to commit “$258 million in value, or 58 percent of the arena cost,” according to reports in the Sacramento Bee. “Of that, $212 million would come from selling bonds backed by future revenues from city downtown parking garages. The city’s contribution is the same as it was in last year’s aborted project to build an arena at the downtown railyard.”

But that’s just part of the public’s contribution. Public policy watchdog Eye on Sacramento, says the public’s contribution is actually $375 million, when all of the publicly owned assets being thrown into the deal are accounted for.

What else is being thrown into the pot? The city also agreed to give the arena private development group the city’s empty 100-acre plot next to Sleep Train Arena in North Natomas, as well as six other city properties, five of them adjacent to or near the downtown arena site.

And Sacramento officials are giving away the city’s parking lot and metered parking revenue, after claiming the parking lots have no value.

Is it any wonder economists think arenas make bad investments for taxpayers?

Arenas and sports stadiums a bust

“The basic idea is that sports stadiums typically aren’t a good tool for economic development,” said Victor Matheson, an economist at Holy Cross who has studied the economic impact of stadium construction for decades, reported the Atlantic. “When cities cite studies (often produced by parties with an interest in building the stadium) touting the impact of such projects, there is a simple rule for determining the actual return on investment, Matheson said: ‘Take whatever number the sports promoter says, take it and move the decimal one place to the left. Divide it by ten, and that’s a pretty good estimate of the actual economic impact.’”

“The main problem, I think, with the public financing of sports stadiums isn’t that they happen, but that they happen so often because of how they are sold to taxpayers.”

Ohio arena bust

“Nearly 20 years after county officials promised that public financing for a pair of professional sports stadiums would help usher in a new era of economic vitality, the reality is somewhat different,” the Huffington Post reported in March about Drake Center. “The county’s agreement to build new stadium facilities for the Cincinnati Bengals and the Cincinnati Reds has been described as ‘one of the worst professional sports deals ever struck by a local government’ by the Wall Street Journal.”

Arizona arena bust

In June 2012, the city council of Glendale, Arizona, decided to spend $324 million on the Phoenix Coyotes, an ice hockey team that plays in Glendale’s Jobing.com Arena.

“As the city voted to give a future Coyotes owner hundreds of millions of taxpayer dollars, it laid off 49 public workers, and even considered putting its city hall and police station up as collateral to obtain a loan, according to the Arizona Republic,” the Atlantic reported. “The latter plan was ultimately scrapped.”

Glendale is on the hook for $15 million per year over 20 years to a potential Coyotes owner, but also committed to $12 million annual debt payment for construction of its arena. In return, the city receives only $2.2 million in annual rent payments, ticket surcharges, sales taxes and other fees.” The city will still lose $9 million annually.

The art of the deal

The pubic cost of Sacramento’s current arena subsidy plan will require payments of $25 million per year for 27 years after the initial 8 years of “interest only” payments.  The state recently prohibited school districts from using similar long-term “capital appreciation” bonds.

Arena projects rarely make economic sense because of the flawed way they are structured. Stadiums and arenas are financed with long-term bonds, sticking cities with the debt for unusually long periods of time. Sacramento’s arena bond debt will be around for at least 30 years.

On the steps of Sacramento City Hall Tuesday afternoon, I witnessed members of “Our City — Our Vote” announce the formation of “Voters for a Fair Arena Deal,” to help an arena initiative qualify for the June 2014 ballot. The group said it plans to vigorously advocate for a fairer arena deal for the City of Sacramento and city taxpayers.

And they stressed they want an arena built — just not on the backs of the taxpayers.

“Voters for a Fair Arena Deal,” was formed amidst unanswered concerns about the pubic cost of the current arena subsidy plan, which will require payments of $25 million per year for 27 years after the initial 8 years of “interest only” payments.  The state recently prohibited school districts from using similar long-term “capital appreciation” bonds. Ahem.

The new group has filed registration papers with the Secretary of State and the Fair Political Practices Commission. They expect to get some financial help from nonunion building contractors who have been cut out of the arena deal by the Sacramento Kings owners when the unholy deal ensured the use of only union labor on the half a billion arena project.

The Sacramento arena deal, led by Mayor Kevin Johnson, has suffered from a lack of public debate, dubious financial numbers from the city, along with a growing public subsidy, and last-minute legislation by Sen. President Pro Tem Darrell Steinberg, D-Sacramento, to let the stadium avoid a real environmental impact review.

“The City’s attempt to suddenly speed up the schedule makes it appear they are trying to circumvent the public’s right to be heard,” said Susan Patterson, Sacramento city resident and former SMUD Board member, “that’s not how you build public confidence.  We need to move past the angry twitter wars and campaign stunts — that’s why we’re adopting Our City, Our Vote’s campaign ethics code at the same time.”

Too many politicians seem to have one thing in common — they all are always willing and eager to put taxpayers in more debt on ego deals the cities do not need, and cannot afford.

Non-union contractors offer help

Voters for a Fair Arena Deal said non-union contractors will likely donate between $15,000 and $25,000 to help mount the campaign, along with other donations.

Interestingly, the largest area electrical contractor qualified to do the work on a new arena is non-union. Rex Moore Electrical Contractors and Engineers would probably rather see a project allow free and open competition for all construction contracts, instead of going out of the city for contractors — especially if this arena project is all about creating jobs for Sacramento, as proponents claim.

The “deal,” known as a project labor agreement between private developers, the city of Sacramento, and one big labor union, happens when the government awards contracts for public construction projects exclusively to unionized firms.

According to Eric Christen, executive director of the Coalition for Fair Employment in Construction, the Sacramento construction market is 85 percent union-free. In a September op-ed in the Sacramento Bee, Christian asked, “why would the owners agree to a PLA that will only make this project more expensive?

The Coalition for Fair Employment in Construction is a California-based organization dedicated to opposing project labor agreements. The CFEC called the arena PLA “a waste of taxpayer money and a payoff to unions to avoid baseless complaints and lawsuits under the California Environmental Quality Act.”

10 Principles of a Fair Arena Deal

The bill was a classic special interest sponsored bill, sponsored by the State Building and Construction Trades Council, AFL-CIO.

What does SB 7 do?

SB 7 compels charter cities to require prevailing wages on local projects they construct with local funds by withholding all state contracting funds from non-compliant cities. The result could mean that local governments simply forgo important infrastructure projects because they cannot afford to fund them.

SB 7, however, is arguably unconstitutional. In 2012, the California Supreme court confirmed, in State Building and Construction Trades Council of California AFL-CIO vs. City of Vista, that California charter cities would be able to maintain the autonomy to decide whether to pay prevailing wages for local construction projects. It was a step in the direction of the free market for local governments.

What is going on in California if the Legislature and governor ignore the constitution?

According to Russell Johnson, Associated Building and Contractors, Inc., the California Supreme Court decision meant that charter cities can operate as they see fit. “The Court said, 'Autonomy with regard to the expenditure of public funds lies at the heart of what it means to be an independent governmental entity.’ We can think of nothing that is of greater municipal concern than how a city’s tax dollars will be spent; nor anything which could be of less interest to taxpayers of other jurisdictions,” Johnson told me in June.

“Whether a charter city pays prevailing wage with local funds is up to each city and not the Legislature,”  Johnson said.

Charter Cities

Of the 482 cities in California, 121 are charter cities; the rest are “general law cities” over which the Legislature exercises more control. But not all charter cities avail themselves of the prevailing wage exemption. There are 70 cities with no exemption, 10 cities with a partial exemption, and 41 charter cities with full exemption, according to the California Construction Compliance Group.

“In recent years, city councils have proposed charters and voters have approved charters in order to circumvent costly and unnecessary state mandates imposed by the California State Legislature on local governments,” Kevin Dayton wrote yesterday in the Flash Report. “Many of these mandates are pushed into state law by union lobbyists.”

“To stifle this little local rebellion, State Senate President pro Tem Darrell Steinberg and Republican Senator Anthony Cannella introduced a bill in 2013 sponsored by the State Building and Construction Trades Council of California,” Dayton said. “Senate Bill 7 cuts off state construction funding for charter cities that set contracting policies that deviate from state-mandated prevailing wage laws.”

“Supporters of Senate Bill 7 say it 'encourages' charter cities to abide by state prevailing wage law” Dayton said. “Others suggest that the term 'encourages' is somewhat Orwellian, as the term 'punishes' would be more accurate.”

Gov. Jerry Brown just signed SB 743, “easing environmental regulations for developments in California cities, including a new basketball arena in downtown Sacramento,” the Los Angeles Times said.

In March I predicted Senate President Pro Tem Darrell Steinberg, D-Sacramento would jam legislation through exempting the Sacramento Kings new arena plan from the restrictions of the  California Environmental Quality Act, in order to meet a dubious deadline imposed by the NBA.

March 30, after Steinberg’s office told me he did not plan on authoring legislation to streamline or bypass the required environmental process for the proposed Sacramento NBA arena, I predicted they weren’t being straight with me.

Steinberg’s office denied any plan to do this. But the reason I wrote the story and asked about this was I knew this was the next step in scamming the public with the publicly subsidized arena.

The need to bypass California’s absurdly strict environmental guidelines and restrictions prevent most large scale projects from ever taking place without legislative intervention. And Sacramento officials shoved the latest iteration of an arena deal through at breakneck speed for a reason.

But even Steinberg couldn’t get his original bill, SB 731 through the committee process. His colleagues weren’t comfortable with Steinberg’s intended claims of reforming the entire CEQA process, when really his bill was just a conduit for the Sacramento arena deal.

SB 731 was shelved and the new conduit became a gut-and-amend bill. SB 743 rose from the ashes like a Phoenix. (Poor choice of words for the Sacramento Kings…)

Steinberg’s latest bill was introduced at the very end the legislative session, without notice, public debate or any real scrutiny by media. Nearly all of the Sacramento local media — radio, television, newspapers and magazines — are backing the arena project, and providing the cheerleading.

Yet Steinberg’s bill is even worse than previous stadium legislation. It also would allow the City of Sacramento greater eminent domain powers to seize the downtown property currently in the way of building the project.

More shameful, is what media claims the bill will do, rather than highlight what abuses of power it will allow, and gifts of public property to the arena developers.

According to the LA Times provisions of SB 743 will (in bold):

–Remove parking and aesthetics standards as grounds for legal challenges against developments in urban infill areas near transit stops.

Among the assets being “gifted” to the arena deal are the city’s parking garages and meters, which currently generate about $9 million a year for the general fund. The city has proposed diverting all of the city parking revenues to pay the arena bond payments. This will blow a $9 million annual hole in the general fund.

City staff assigned zero value to the 3,700 parking garage spaces the city is giving to the developers, nearly 50 percent of all city-owned garage spaces. The garage spots actually have a fair market value of $58 million, based on the city’s own 2012 parking valuation study.

–Modernize the statewide measurements against which traffic impacts are assessed and resolved, allowing developers to offset the impacts by building near mass transit stations.

Not true. Steinberg’s CEQA exemption bill would allow arena construction to go ahead even with existing traffic backups in this part of downtown, and anticipated significant traffic impacts due to the arena. Then taxpayers will be on the hook when Caltrans decides to send a bill of $100 million-plus for freeway improvements — after arena construction is already underway.

–Expand an exemption from CEQA litigation for mixed residential/commercial projects located within transit priority areas where a full environmental impact review has already been completed.

For the Sacramento arena project, the bill prevents certain lawsuits stopping the project unless a judge finds a danger to public health and safety, and allows the government to force the sale of properties through eminent domain concurrently with the environmental review process.

Even if there are violations to the CEQA laws, mitigation doesn’t have to be addressed until the end of the first basketball season with an official NBA team actually playing in the arena.

“This bill sets a terrible precedent by eliminating any realistic chance of halting construction if the arena is approved illegally,” Kevin Bundy, Senior Attorney with the Center for Biological Diversity, said in a press statement, in a story I recently wrote. “This is a wink and a nod to public officials that they can ignore California’s most important environmental law with impunity.”

The truth is the City of Sacramento is giving assets to the arena developers, which city officials say have a value of $46 million. However, Eye on Sacramento, a public policy watchdog group, estimated the real value of these assets is at least $139 million, making the total taxpayer subsidy $350 million — not the $257 million as represented by the city.

Another area of substantial discrepancy is between the subsidy numbers provided by the city and EOS’s subsidy calculations.

City staff also assigned zero value to the six digital billboard sites the city is giving away as part of the arena deal. But EOS found the sites are worth $18 million based on values established in a deal the city cut with Clear Channel Outboard just last year.

The remaining discrepancies are due to the city staff’s gross under-valuation of the six land parcels the city is also giving away to the developers. EOS found two of the six parcels to be worth four to six times the values assigned by staff.

Opposition

Because of the lack of public debate about the arena deal, as well as the highly dubious numbers put out by the city over the growing public subsidy, groups are joining efforts to oppose the arena in Sacramento for the Kings pro basketball team unless it is first put before voters for a vote.

A recent poll by the opposition group Sacramento Taxpayers Opposed to Pork found 78 percent of the respondents favor a public vote on taxpayer subsidies for the arena. Yet Steinberg and Sacramento Mayor Kevin Johnson, a former NBA player, have forged ahead as if it’s already a done deal.

And despite the Steinberg fast-tracked legislation now signed by Gov. Jerry Brown, I suspect the effort to put an initiative on the ballot will heat up.

Rather than outsource the convention business, as most large cities are doing, Sacramento officials believe “If you build it, they will come.” But that only works in the movies, and usually through the hard work of folks in the private sector using their own money and sweat.

The Sacramento Bee has now joined the cheerleading squad for building a larger, staggeringly expensive convention center, despite the facts. The Bee has also blatantly joined the city supporting the use of additional public subsidies for a new NBA arena in downtown Sacramento.

Just the facts, m'am

The facts come from Eye on Sacramento, a public policy watchdog looking out for public interest in local government. EOS recently released a well-researched, scathing report of the finances of the Sacramento Convention Center. Eye on Sacramento found the annual $16 million convention center deficit is being funded by the city’s 12 percent hotel tax. “Fully four-fifths of the $20 million annually brought in by the hotel tax is consumed by losses at the convention center, while most California cities use their hotel tax revenue to fund an array of services, particularly support for the arts,” EOS reported.

“The 'backbone' of any financing plan for the entire project would be the city’s 12 percent hotel tax, which is still paying for the center’s last expansion – an $80 million project in 1995,” the Sacramento Bee editorial said. “Once that $8 million a year in debt service comes off the books in 2021, boosters want to use it again. They’re also looking into federal tax credits, plus possible private money.”

“There’s some time to sort all this out since the project would be constructed in phases, over seven to 10 years,” Bee editors opined. “The theater renovation probably wouldn’t start until spring 2015.”

The Sacramento Bee editorial board has had the Eye on Sacramento report for nearly three weeks, but refuses to do a news story about it. Instead, they barely mentioned the report in their editorial.

A recent poll by the opposition group Sacramento Taxpayers Opposed to Pork found 78 percent of the respondents favor a public vote on taxpayer subsidies for the arena. Yet Steinberg and Sacramento Mayor Kevin Johnson, a former NBA player, are forging ahead as if it’s already a done deal.

But the deal is not done even though Steinberg is fast-tracking legislation to give the arena an exemption from the California Environmental Quality Act. The exemption is needed to meet an NBA-imposed deadline for quick construction.

Steinberg’s bill, a gut-and-amend job on another bill, will be introduced Friday. It will be similar to recent bills granting CEQA exemptions for a proposed stadium in downtown Los Angeles for a pro football team; and for a new stadium for the San Francisco 49ers in Santa Clara.

No debate

Steinberg’s latest bill is also being introduced at the very end the legislative session, without notice, public debate or any real scrutiny by media. Nearly all of the Sacramento local media — radio, television, newspapers and magazines — are backing the arena project.

Yet Steinberg’s bill is even worse than previous stadium legislation. It also would allow the City of Sacramento greater eminent domain powers to seize the downtown property currently in the way of building the project.

“When it comes to infill projects, when it comes to high wage, big job-opportunity projects, we ought to do all that is reasonable to expedite the process,” Steinberg said in a press conference Aug. 30.

The “reasonable, high wage, big job-opportunities” he is referring to will fall under a Community Workforce and Training Agreement in Sacramento, which requires most of the constructions workers hired for the arena project to be unionized.

Flexing union muscle

“Labor unions and the firm signed to lead construction of a new Kings arena in Sacramento have come to an agreement over the use of unionized labor in the construction of the project, a move that assures peace with the unions but will likely trigger a new source of opposition to the proposed public subsidy for the arena,” the Sacramento Bee reported Wednesday.

But that only enraged and energized the Coalition for Fair Employment in Construction, a 15-year-old California-based organization dedicated to opposing Project Labor Agreements, which guarantee contracts to unionized firms. The CFEC called the arena PLA “a waste of taxpayer money and a payoff to unions to avoid baseless complaints and lawsuits under the California Environmental Quality Act.”

“Steinberg needs union lobbyists and Democrats to push through his special [California Environmental Quality Act] exemption bill,” said Eric Christen, CEFC Executive Director. “Requiring construction companies to sign a Project Labor Agreement with unions locks up majority support in the legislature for this special interest bill.”

Opposition to the arena deal process

“This is not a hospital, emergency response center, or even a school,” Abigail Okrent told me in an interview discussing Steinberg's gut-and-amend legislation; she's the legislative director for the Planning and Conservation League. “If this is such an urgent issue, why not for other issues? It’s a basketball stadium, not a hospital.”

The rushed bill will allow only a limited public comment period during the CEQA process, according to Okrent. Even more egregiously, she said that, even if there are violations to the CEQA laws, “mitigation doesn’t have to be addressed until the end of the first basketball season with an official NBA team actually playing in the arena. This is a contentious issue which requires more discussion.”

The Planning and Conservation League has taken no position on the arena, but is objecting to the rushed,  gut-and-amend bill, and to the lack of proper public vetting.

“This bill sets a terrible precedent by eliminating any realistic chance of halting construction if the arena is approved illegally,” Kevin Bundy, Senior Attorney with the Center for Biological Diversity, said in a press statement. “This is a wink and a nod to public officials that they can ignore California’s most important environmental law with impunity.”

Gifts of assets

The City of Sacramento is giving assets to the arena developers, which city officials say have a value of $46 million. However, Eye on Sacramento, a public policy watchdog group, estimated the real value of these assets is at least $139 million, making the total taxpayer subsidy $350 million — not the $257 million as represented by the city.

Among the assets being gifted to the arena deal are the city’s parking garages and meters, which currently generate about $9 million a year for the general fund. The city has proposed diverting all of the city parking revenues to pay the arena bond payments. But according to EOS, this will blow a $9 million annual hole in the general fund.

Sacramento is already running a $9 million deficit; another $9 million would double that to $18 million.

Another area of substantial discrepancy is between the subsidy numbers provided by the city and EOS's subsidy calculations.

According to EOS, a large portion of the discrepancy can be attributed to city staff assigning zero value to the 3,700 parking garage spaces the city is giving to the developers, nearly 50 percent of all city-owned garage spaces. EOS calculates the garage spots actually have a fair market value of $58 million, based on the city's own 2012 parking valuation study.

City staff also assigned zero value to the six digital billboard sites the city is giving away as part of the arena deal. But EOS found the sites are worth $18 million based on values established in a deal the city cut with Clear Channel Outboard just last year.

The remaining discrepancies are due to the city staff's gross under-valuation of the six land parcels the city is also giving away to the developers. EOS found two of the six parcels to be worth four to six times the values assigned by staff.

And EOS warns Steinberg's CEQA exemption bill would allow arena construction to go ahead even with anticipated traffic impacts. Then taxpayers will be on the hook when Caltrans decides to send a bill of $100 million-plus for freeway improvements — after arena construction is already underway.

By Katy Grimes

While reports of an improving California economy abound, many in the state aren’t buying it — particularly given how many anti-business bills are working through the Legislature.

Of particular interest is Senate Bill 7, by Senate President pro Tem Darrell Steinberg, D-Sacramento, and Sen. Anthony Cannella, R-Ceres. SB 7 would deprive charter cities of state funding and financial assistance for projects simply because some city charters do not require paying the prevailing wage.

The bill is sponsored by the State Building and Construction Trades Council, AFL-CIO.

“Continuing California’s economic growth depends on creating more middle class jobs, especially in the construction industry that was hit so hard during the Great Recession,” said Steinberg on his website. “Low wage contractors cut costs by cutting corners, but the data shows that they’re not saving public money. We can’t afford to shortchange workers and taxpayers by ignoring the economic net benefit of California’s prevailing wage law.”

What does SB 7 do?

SB 7 seeks to compel charter cities to require prevailing wages on local projects they construct with local funds by withholding all state contracting funds from non-compliant cities. The result could mean that local governments simply forgo important infrastructure projects because they cannot afford to fund them.

SB 7, however, is arguably unconstitutional. In 2012, the California Supreme court confirmed, in State Building and Construction Trades Council of California, AFL-CIO vs. City of Vista, that California charter cities would be able to maintain the autonomy to decide whether to pay prevailing wages for local construction projects. It was a step in the direction of the free market for local governments, as I wrote last September in “Push for charter cities enrages unions.”

“Whether a charter city pays prevailing wage with local funds is up to each city and not the Legislature,” said Russell Johnson, Associated Building and Contractors, Inc., California Government Affairs Director. “In this decision the court said, ‘Autonomy with regard to the expenditure of public funds lies at the heart of what it means to be an independent governmental entity.’ We can think of nothing that is of greater municipal concern than how a city’s tax dollars will be spent; nor anything which could be of less interest to taxpayers of other jurisdictions.”

According to Johnson, the ruling means charter cities now have a clear path to continue to operate as they see fit.

What is a California charter city?

In California, charter cities are under a unique protection in the State Constitution, and are allowed autonomy from the state when it comes to “municipal affairs.” This means when local dollars are used, charter cities get to make local decisions.

“In the Vista case, the California Supreme Court unambiguously upheld the right of charter cities to establish their own contracting policies for public works projects paid for with local funds,” Russell explained. “Local projects built with local funds are not subject to prevailing wage.”

The bill

Passage of SB 7 would establish a disturbing road map for future state intrusion on charter city laws and policies by withholding state funds as leverage to attempt to force changes to voter-approved city charters and ordinances.

“Cities recognize that exercising the power of a charter can free their municipal affairs from the grip of the state legislature and the special interest groups entrenched at the capitol,” Kevin Dayton, CEO of Dayton Public Policy Institute, said in a recent op ed on UnionWatch.org.

Dayton wrote:

“A staff report about city charters to the Murrieta City Council for its October 2, 2012 meeting was blunt about the need for cities to enact charters:

“‘…a knowledgeable, involved electorate should both propel and constrain the direction of its own city. Local control has always been a paramount matter of residents, businesses and the Murrieta City Council. Yet state legislators and previous gubernatorial administrations continue to impose far greater mandates, while at the same time hindering the ability of local governments to operate successfully. With little ability to protest, local governments have watched as the state government continues to balance its budget deficits on the backs of fiscally responsible local jurisdictions…The voice of cities in Sacramento has become mute due to a combination of special interest groups, influential political campaign contributions and tone-deaf lawmakers passing unfunded mandates. This process has left cities with little ability to petition the state government…’”

Of the 482 cities in California, 121 are charter cities; the rest are “general law cities” over which the Legislature exercises more control. But not all charter cities avail themselves of the prevailing wage exemption. There are currently 70 cities with no exemption, 10 cities with a partial exemption, and 41 charter cities with full exemption, according to the California Construction Compliance Group.

“But there are aggressive opponents who regard cities’ exercise of their charter authority to be an attack on their hegemony,” Dayton said. “In 2011 and 2012, unions spent jaw-dropping amounts per voter on campaigns to convince voters to reject reasonable proposed charters.”

Charter cities and Project Labor Agreements

This isn’t the first time unions have been at the dance to crush charter city authority. The unions backed SB 922 in 2011 and SB 829 in 2012, both by former state Sen. Michael Rubio. These two laws cut off state money to charter cities that adopt policies prohibiting those cities from requiring construction contractors to sign a Project Labor Agreement with unions as a condition of work. Both bills were signed into law by Gov. Jerry Brown.

“SB 7 just adopts the same concept of overpowering charter city authority,” Dayton said.

Dayton anticipates the Democratic legislative supermajority and Brown, also a Democrat, will advance even more union-backed efforts to chip away at Article XI, Section 3 of the California Constitution, which allows cities to govern their own municipal affairs under a charter.

Dayton said, “It would be an effective way to eliminate another one of the diminishing number of checks and balances that interfere with utopian schemes planned under the benevolent and enlightened one-party state.”

By Katy Grimes

SACRAMENTO — At Assembly Transportation Committee hearings in the Capitol on Monday, Assemblywoman Bonnie Lowenthal, D-Long Beach, cut the microphone of two speakers during the three minutes left for public comment at the end.

The two members of the public raised some real concerns about discriminatory language contained within the hiring agreements of the California High Speed Rail Authority Project Labor Agreements.  But Lowenthal, the committee chair, wouldn’t hear it, nor would she allow anyone else to hear it.

By the end of the hearing, when Lowenthal wrapped up legislators’ questions, it was 2:27 p.m. and time for public comment. Lowenthal announced that they had the committee room until 2:30. She told those wishing to make public comment to make it quick.

Eric Christen, a representative for fair employment in construction, said there was discriminatory language in the construction Project Labor Agreement the CHSRA is responsible for.  Christen said the PLA was a “give-away to the unions.”

Christen explained the CHSRA required in recent bid specifications that the winning design-build entity and its subcontractors sign a Project Labor Agreement with unions in the State Building and Construction Trades Council of California.

Lowenthal cut off Christen’s microphone.

A draft Project Labor Agreement for the first segment of the California High-Speed Rail was included as Addendum 8 in the Request for Proposal to the five pre-qualified design-build consortiums for the initial construction segment from Madera through Fresno, according to Christen. It contains the standard boilerplate language used in most Project Labor Agreements that contractors must sign with unions to work on government projects in California. Christen provides the information at California High-Speed Rail Scam.

Open competition

Nicole Goehring, with Associated Builder and Contractors, said they had been advocating for a fair and open competition policy all along, but Lowenthal cut her off as well.

Goehring later told me that, without critical changes, the discriminatory language will remain in the PLAs and prevent qualified California workers from competing for work on the project. Goehring said the PLA not only shuts out Merit Shop Contractors, but seriously limits California workers, including the nearly 1,800 students that are currently enrolled in ABC’s craft and apprenticeship programs, from working on this project.

Goehring said the PLA was created to benefit only the construction unions and not the 83 percent of California workers who choose not to be in a union. She said, “This section puts the unions in control of all craft labor for the project despite the fact that they represent only 17 percent of California’s construction workforce.”

That was just at the tail end of the hearing. The first 57 minutes displayed the Legislature’s continued refusal to grill CHSRA executives about what’s really going on.

Rail Authority CEO

“Early on, the High-Speed Rail Authority stumbled in its projections, its estimates and its outreach, and the Legislature responded with countless hearings, inquiries, and reporting requirements,” Lowenthal said during her opening statement.

Lowenthal said the purpose of Monday’s hearing was to “move forward,” leaving past worries and concerns behind.

But she did not say it was only when the CHSRA lied about ridership projections and job creation, and got caught, that the full Legislature was forced to respond. Up to that point, legitimate concerns over the high-speed rail debacle came primarily from the Republican minority.

High Speed Rail Authority CEO Jeff Morales proved once again that he can kill time during the mandatory hearings, and barely say anything of substance. At Monday’s hearing, Morales was allowed by Lowenthal to drone on, while most of the committee members tossed him softball questions. I have attended nearly every committee hearing on High-Speed Rail, whose officials rarely are asked to answer anything in detail.

Who is Jeff Morales?

Morales came to the CHSRA from California’s largest agency, Caltrans, where he worked for 3-1/2 years under Gov. Gray Davis. Morales resigned when Davis was voted out of office in the historic 2003 recall election. Many question the conflict of interest in Morales’s role as CEO at the rail authority. Morales is a former senior vice president at Parsons Brinckerhoff, an international transportation consulting firm, and also the primary contractor on the rail project.

The choice of Morales reinforced “a long tradition of inside dealing within the authority,” California Rail Foundation president Richard Tolmach said at the time. “An outside observer could be excused for thinking the CEO’s job is to grease payments for Parsons Brinckerhoff.”

Morales is supposed to receive a $25,000 bonus on top of his $365,000 salary if he meets a few goals: establishing a management plan to oversee CHSRA contractors; filling the vacant positions among the senior staff; appointing a risk-management officer; successfully awarding contracts for the first construction projects at or below engineering cost estimates; meeting goals for including small businesses and businesses owned by minorities, women and disabled veterans in construction contracts; and making major improvements to the agency’s outreach to the public, communities, property owners and other stakeholders along the route.

And Morales discussed the outreach the rail authority has done with land owners in the Central Valley.

Legislators’ questions

Assemblyman Jim Patterson, R-Fresno, asked Morales to explain the CHSRA calculation used to claim 20,000 jobs will be created by high-speed rail. “In the business plan, it appears there is a multiplier used; one job equals one year,” Patterson said. “This inflates the number. How many real long term jobs are there?” Patterson asked.

Morales said, “20,000 are job years. It’s an industry standard used.”

“Without the multiplier, how many jobs will there be?” Patterson asked again.

“The multiplier is used over many years, created by the level of investment,” Morales said, dodging the answer.

According to the Assembly Republican Caucus, “HSRA uses a highly misleading methodology to inflate job estimates. Estimates of jobs created are represented in ‘job-years.’ One year of full employment equals a job-year. One person employed for 20 years equals 20 ‘jobs’ under this system.”

After Patterson asked another question about the lack of private investment involved, Lowenthal interrupted him to take questions from other committee members.

Fortunately, Vice Chairman Eric Linder, R-Corona, was next. “Who will be responsible for inspecting the building?” Linder asked.

“Many layers of state employees,” answered Morales. “It’s consistent with how design-build work is done around the state. State people need to make state decisions, and public people need to make public decision. They need to be accountable.”

Morales said the rail authority is “holding meetings on-the-record” to involve private sector people and companies. And they are holding “informal discussions with investors to help shape the best path forward.”

By Katy Grimes

In what strange world do janitors get paid $45 per hour? In California, the land of the prevailing wage.

The dirty secret is that janitors often are not really getting paid $45 per hour, but the taxpayers are being charged this amount on public works projects.

Designed to help the worker, the prevailing wage was created to set a minimum hourly rate paid on all public works projects, primarily for construction workers. But the classification has been expanded and greatly abused.

One contractor’s saga

I recently met with a Southern California contractor who has owned a final construction cleanup business for more than 25 years. Final cleanup on government construction projects is always the last task in the project, and usually takes place within days of the occupants moving in, depending on the size and scope of the cleanup. The contractor said that the work he and his crews do includes cleaning the construction dust off of walls, washing and polishing floors, cleaning windows and mirrors, power-washing all surfaces, wiping down fixtures and hosing down the roof and parking lots.

He is hired as a subcontractor by large general contractors on all kinds of public works construction projects: school construction sites, police department construction, state, city and county office buildings and the like.

However, this contractor is in a pickle. There is no Department of Industrial Relations prevailing wage classification for this specific type of janitorial work. He said the going rate in the private sector for a basic janitorial job is between $10 and $15 per hour. But the Department of Industrial Relations states that the prevailing wage rate is $45 per hour for construction-project janitors.

Kevin Dayton, an expert on Project Labor Agreements and prevailing wage issues, told me that because vacuuming up the sawdust at a construction site is considered part of a construction trade, the DIR considers such work within the work assignments listed in the applicable collective bargaining agreements of the union, the Southern California District Council of Laborers.

Although there are slight differences between prevailing wage laws in Northern and Southern California, they generally are the same. Dayton explained, “For Northern California, the state-mandated total straight time hourly ‘prevailing wage’ rate for a journeyman in the Laborers Group 4 trade classification applies to the following: ‘Final cleanup on building construction projects prior to occupancy only. Cleaning and washing windows (new construction only), service landscape laborers (such as gardening, horticulture, mowing, trimming, replanting, watering during plant establishment period) on new construction.’

“Under Section 1773 of the California Labor Code and Title 8, Subchapter 3 of the California Code of Regulations, the State of California determines ‘prevailing wage’ rates in most cases by obtaining the union collective bargaining agreements for each trade in each geographical region of the state, adding up all of the payments indicated in these agreements, and declaring the total to be the ‘prevailing wage.’”

He added, “In negotiating their collective bargaining agreements, construction trade unions actually enjoy a kind of quasi-regulatory authority, because their final agreements are the basis for the state-mandated construction wage rates. They are loath to compromise this power.”

The contractor I met with said he’s in trouble because the general contractors which hire him calculate the prevailing wage rate of $45 per hour in their bids to the government, but refuse to pay him that rate. He said the general contractors have been charging the state, and ultimately the taxpayers, $45 per hour for janitors on public works projects, but only pay their subcontractors $10 to $15 per hour for their final clean up janitors.

The contractor told me the labor compliance program of the DIR is cracking down on him for not paying the prevailing wage of $45 to his employees. Then he is punished and forced to abandon final cleanup jobs, and charged back the cost of the replacement final cleanup crew, at prevailing wage rates. He said that he is not only out of a job, but he then has to pay the additional cost of the final cleanup to the general contractor.

This contractor said he follows the letter of the law in running his business, and makes sure all of his employees are paid properly and legally through his payroll service. But when a general contractor refuses to pay him the legal prevailing wage rate for his crew, he cannot pay his employees the prevailing wage rate either.

Legislation to fix this mess

Assemblyman Curt Hagman, R-Chino Hills, announced last week he has introduced legislation to address this problem, but only after trying to work directly with the Department of Industrial Relations himself to no avail. He said that the DIR will not discuss the prevailing wage classification problem, and continually referred him to the DIR website.

Hagman told me that if the prevailing wage actually worked in California, employees would be getting paid the prevailing wage. “But the system is broken and is being abused,” Hagman said. He said that the $45 per hour prevailing wage for janitorial cleanup is just one example of why public construction projects in California cost so much.

Hagman said some contractors pay the janitorial employees between $10 and $15 per hour to perform the final cleanup, then pocket the difference. “On the books it looks as if everyone is making a ton of money, but the worker is not getting the pay or benefits they are legally entitled to,” he said.

Hagman’s bill would require the Department of Industrial Relations to establish a new specific group classification for final cleanup laborers, and set appropriate prevailing wages.

Prevailing wage limits competition

A 2010 Cato Institute study concluded the purpose of prevailing wage laws was to limit competition, as well as provide significant benefits to labor unions. These policies come at the expense of taxpayers, who are forced to pay far more for projects that require prevailing wage mandates.

“Those laws mandate that on government construction projects, the labor component will not be subject to competitive bidding; rather, the wages paid to the various classes of construction labor are set by government officials at rates determined to prevail in the job site’s locality—typically, prevailing union wages,” wrote Cato author George Leef. “Labor wages and benefits are thus removed from competition by operation of law.”

Déjà vu all over again

Almost one year ago exactly, in the first committee hearing of the New Year, the Assembly Labor and Employment Committee killed two prevailing wage reform bills by Assemblywoman Shannon Grove, R-Bakersfield. AB 987 and 988 would have reformed and updated state prevailing wage laws by changing the calculations for prevailing wages, and would have allowed local governments to determine their own prevailing wage policies.

“The reforms in these bills are bold and significant steps to reviving our dire economy and putting Californians back to work,” Grove said at the hearing on the bills.  “Forcing citizens to pay amounts for projects beyond what the local free market would otherwise dictate is a misuse of taxpayer dollars.  Unfortunately, the powerful union interests benefit at this taxpayer expense.”

At wit’s end

The contractor I met with is at his wit’s end, and rapidly losing business because he can no longer play the prevailing wage game. He took matters into his own hands, and together with two other subcontractors met with several general contractors’ project managers, recording the meetings. In a video I saw posted on YouTube, the project manager admitted that, as the general contractor, he cheats on the prevailing wages for public works projects.

One of the project managers said that it doesn’t matter what the rate per hour is as long as the subcontractors provide invoices that match. “I can give you a contract, and you will have to price everything out, or you give it to me right now on a Purchase Order. You are set up as my water guy,” the general contractor told the final cleanup subcontractors.

When asked what the prevailing wage for the final cleanup workers was, the project manager just shrugged, and never answered. This happened several times with different project managers during the videos.

In another segment of the video, the general contractor’s project manager explained that the subcontractor can change his invoices as long as the general contractor is able to claim that “the bulk of the work falls into the other category.”

Changed invoices

The final clean up contractor I met with said that, for many years, he has been told to change his invoices to take out the work detail, and just include one total price.

But he said that not only is the re-invoicing illegal because it ignores the prevailing wage rate, his crews are often scheduled to work on weekends when overtime is supposed to be paid. Overtime for a final cleanup worker makes the $45 per hour rate go to $63 per hour for time-and-one-half, and $78 per hour on a Sunday.

“We are often told to come in after hours and on weekends,” he told me. “I don’t want to be followed around by the unions; I just want the industry to be cleaned up. The prevailing wage is messing up the industry.”