No one seems to remember the city of San Diego ever requiring a project-labor agreement on a city construction job. But last year, voters passed a ballot measure, Proposition A, prohibiting the city from doing just that. The new law couldn't have come soon enough for supporters who suggested that the labor agreements, which often favor unions, could have taken a significant toll on city coffers.
However, city officials say it's the law that could end up costing taxpayers. At stake is state funding for city infrastructure, including more than $100 million during the next three years in grants and low-interest loans for water and sewer projects.
Because of the ban, millions of dollars in state funding are currently on hold, said Jeanne Cole, program manager with the city's Public Utilities Department. "It's significant money. We owe it to our ratepayers to finance a capital program in the most efficient and effective manner."
A project-labor agreement (PLA) is often used on large construction projects to determine union involvement, as well as the experience and wage requirements for workers.
Building-industry groups have campaigned all over the country in recent years against the use of PLAs, claiming the agreements unfairly favor union contractors. As of July, as many as 18 states have banned the agreements, according to the trade organization Associated Builders & Contractors.
After watching the cities of Oceanside and Chula Vista, as well as the county of San Diego, ban PLAs, the California Legislature took action. In April 2012, lawmakers signed into law SB 829, which cuts off state funding for cities that restrict the use of PLAs. Despite Sacramento's aggressive move, San Diego voters in June approved Prop. A, which prohibits the city from requiring a contractor to enter into a PLA as a condition of bidding on a municipal construction project.
On Jan. 1, the state law went into effect, freezing at least $26 million in approved state funding for San Diego infrastructure and putting hundreds of millions of dollars in future funding in question.
After the election, the city worried that it would lose more than $70 million in public-utilities funding. However, it was able to secure roughly $46 million before the state law went into effect.
"The city was warned by Sacramento what was going to happen if this ballot measure passed," said former City Councilmember Donna Frye, who campaigned against Prop. A. "This is going to hurt people in San Diego. But the opposition didn't seem to care."
Eric Christen, executive director of Coalition for Fair Employment in Construction, the group that spearheaded Prop. A, blamed the Legislature for the blocked funding.
"I would hope that the Democrats, having failed to use this hammer to keep the voters from voting a certain way, that they would go and fix this because it's hurting our constituents," he said.
In the run-up to the city's June election, Christen dismissed potential funding cuts as an idle threat, telling KPBS in May that the state law was a "gimmick" that would have "no impact." At the same time, state Controller John Chiang released a statement saying that if the measure passed, "San Diego will no longer be eligible to receive state grants for local construction projects."
Now the prediction has come true—at least for the first eight months of this year— and it's not clear if or how it can be fixed.
At a press conference in December, Mayor Bob Filner said he was "in discussions with Sacramento" in an attempt to "pragmatically" fix the situation. At the same time, he fired the city's state and federal lobbyists and has yet to replace them. The city has signaled no progress on the issue since.
"There are no discussions on this matter between the city and the administration," said Jim Evans, a spokesperson for Gov. Jerry Brown.
The city could have done a better job at informing the public of the potential consequences of Prop. A, Frye said. "The city has the obligation to let the public know. Unfortunately, the city didn't quantify the potential impacts."
While the city has yet to disclose projected losses under the new law, the city's Independent Budget Analyst's office found that in fiscal years 2010 and 2011, San Diego received almost $200 million in state funding that would not have been available today.
Going forward, additional bonds may have to be floated within the next four years to pay for miles of sewer-pipeline rehabilitation and other infrastructure needs, Cole said.
This could mean fee hikes for ratepayers, as interest rates on bonds are significantly higher than on the state loans the city was receiving, Cole said. "It's cheaper for us to issue state loans than go to the bond market."
Losing state funds as a result of Prop. A could also affect the city's bond rating, according to a report last year from Fitch Ratings. The rating company has taken no action. The company is waiting to see what happens if San Diego challenges the constitutionality of the state law in court, said Alan Gibson, director of Fitch's San Francisco office. "It's too soon for us to know if this will have an impact on the city's financial status," he said.
Critics of Prop. A suggested that industry groups designed the measure to set up a legal battle, hoping to use city resources to challenge the state's PLA law in court. City Attorney Jan Goldsmith has expressed willingness to sue the state over the issue but has yet to get permission from the City Council to do so. He argues that there's an exception in the city's law, written to protect access to state funding. It reads:
"Except as required by state or federal law as a contracting or procurement obligation, or as a condition of the receipt of state or federal funds, the City shall not require a Contractor on a Construction Project to execute or otherwise become a party to a Project Labor Agreement as a condition of bidding, negotiating, awarding or performing of a contract."
While critics of Prop. A initially read the exception as nullifying the ban when state funds are attached to a project, Goldsmith rejected that interpretation. The city attorney argued that the state can't legally "require" the city to use a PLA, so the exception could not override the ban. Instead, Goldsmith's legal argument for why the city should continue to receive state funding— which his office declined to explain—reads as follows:
"Thus, under a broader interpretation of the exception clause, the City may meet this condition of the receipt of state funding, imposed by SB 829, by maintaining its discretion to adopt, require or utilize PLAs in City construction contracts, notwithstanding the operative language of Proposition A, which prohibits the City from requiring contractors to enter into PLAs."
Despite the state-funding block, the city has pledged to stay on top of its aging water and sewer infrastructure. Unclogging the fallout from Prop. A might not be as easy.