Michigan Lawmakers Propose Repeal of State Prevailing-Wage Laws

Published March 1, 2017

Michigan lawmakers are proposing to remove restrictions on how state government agencies may partner with private businesses on capital infrastructure projects.

A local school district’s assistant superintendent dismissed the pro-taxpayer reforms as a “populist priority.”

Prevailing-wage laws require government agencies to regulate the compensation given to workers on government capital projects, such as school construction and road repair, instead of allowing businesses to set their own pay rates according to true market value.

Michigan lawmakers introduced three bills to repeal prevailing-wage requirements for state government infrastructure, economic-development, and school construction projects in January.

In February, Ronald Koehler, assistant superintendent of the Kent Intermediate School District (ISD) in Grand Rapids, called a bill proposed by Michigan lawmakers to repeal the state’s prevailing-wage laws “populist” and “change for change’s sake” in a blog post on School News Network, a website maintained by Kent ISD.

‘A Real-Life Example’

State Sen. Arlan Meekhof (R-Olive Township), a sponsor of two of the bills—Senate Bills 2 and 3—says prevailing-wage laws inflate the cost of government projects, placing an unnecessary additional burden on taxpayers.

 “That’s really what it’s about: taxpayers paying more for construction than they have to,” Meekhof said.

The extra costs can be considerable, Meekhof says.

“A real-life example would be, in my community a number of years ago, Allendale schools went out to borrow $60 million to build two new schools,” Meekhof said. “The business manager came to me and said the citizens of Allendale, with this added cost of prevailing wage, added about 10 percent to the project. It added $6 million. When they went out to the bond market to borrow money for building these two schools, it included that extra $6 million.

“If you did that at 6 percent over 30 years, like a mortgage, the citizens of Allendale are going to pay approximately $11 million to $12 million more for that project than they had to,” Meekhof said. “That isn’t money that comes from Lansing or Washington, DC; that’s local taxpayer money that comes right out of their pockets.”

Meekhof says the purpose of the reforms is to allow taxpayers to get more bang for their tax bucks.

“As a representative of Michigan, I want to give people value for their money, and [prevailing wage] is something that doesn’t give them additional value for the additional expense,” Meekhof said. “The value of whatever building it is that needs to be constructed, be it a school or harbor, is set by the market.”

Higher Costs Documented

Jarrett Skorup, a policy analyst at the Mackinac Center for Public Policy, says a Michigan court case provided evidence of the excessive costs imposed by prevailing-wage laws.

“In the 1990s, there was a federal court that threw out Michigan’s prevailing-wage law for a couple of years,” Skorup said. “Then it was reinstated, when that court case got overturned. One of the interesting things about that was we have three years of data that we were able to gather and use that looked at the cost of construction projects.

“We know pretty definitively that it raises construction costs when you mandate higher wages for no particular reason, that isn’t based on anything other than union contracts,” Skorup said. “It’s hundreds of millions of dollars in extra costs.”