Your cost of living just went up

A couple of weeks ago, while most people were paying attention to tax and budget discussions at the Legislature, Hawaii became a little more expensive.

That’s because on Feb. 16, the governor’s office issued a new “administrative directive”that requires all state construction projects worth more than $1.5 million to be performed under so-called project labor agreements, or PLAs, which generally favor unionized contractors.

PLAs haven’t been much of a concern until now, because the project threshold had been set at $25 million since 2012.

As one local independent contractor explained to me in 2019 on my regular ThinkTech Hawaii program “Hawaii Together,” smaller companies are unlikely to bid on expensive projects like those anyway.

But the new threshold is well within the scope of work that could be completed by non-union contractors, who now will be less likely to be bidding on those government projects.

PLAs do not technically bar non-union labor, but they require all the bidding contractors to pay so-called prevailing wages, which basically are the wages set by unions. They also require that the contractors maintain good relationships with unions, agree to abide by union terms, and use union halls for hiring referrals.

PLA proponents claim the agreements help ensure jobs for locals, but that’s not even half true because more than 60% of Hawaii’s construction workers do not belong to unions. So PLAs are really designed to protect some local jobs, while leaving many local workers out in the cold.

The other excuse for PLAs is that they help prevent “labor disruptions” such as strikes. But such disruptions are rare these days — and when they do occur, some of them have been on PLA projects.

Overall, the effect of this new directive will be to shut out non-union contractors, increase the cost of government projects, leave it to taxpayers to make up the difference, and push up Hawaii’s cost of living — which already is the highest in the nation.

A 2019 study from the Beacon Hill Institute looked at 107 New Jersey schools constructed under PLA mandates and found that PLAs raised construction costs by 16.25%, costing taxpayers an extra $565.1 million.

A 2021 study from the RAND Corporation looked at the cost of PLAs in the construction of affordable housing in California and found they increased costs by 14.5% — and contributed to the contractors building 800 fewer homes than originally planned.

On average, according to a wide variety of studies, PLAs increase construction costs between 12% and 20%.

There’s also evidence that PLAs result in more delays. A report from the New Jersey Department of Labor and workforce development found that PLA projects had an average duration of 100 weeks compared to 78 weeks for non-PLA projects

So are PLAs really worth the cost?

In response to the data, many states have decided they aren’t, and have been limiting PLAs or getting rid of them entirely. Twenty-five states have enacted legislation or executive orders prohibiting PLA mandates on state construction projects.

Hawaii, on the other hand, has moved in the opposite direction — as so often is the case — with the recent decision to increase the number of projects that fall under PLA requirements.

Given our current budget woes, we should be looking for ways to increase competition and reduce government spending — not add to building costs and further burden Hawaii taxpayers.

I suggest we start by bumping Hawaii’s PLA threshold back up to $25 million to increase competition, lower costs and help small local businesses

But in the long run, we should follow in the footsteps of other states that are getting rid of PLAs completely — because there really is no good reason to keep them.

This commentary was Keli‘i Akina’s weekly “President’s Corner” column for March 2, 2024. If you would like to have his columns emailed to you on a regular basis, please call 808-864-1776 or email info@grassrootinstitute.org.

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