by Betty Rivard and Ted Boettner
West Virginia has been targeted by a number of conservative groups to adopt a resolution calling on Congress to convene a constitutional convention of the states, with the goal of adopting a balanced budget amendment (BBA). Opponents from across the full political spectrum are alarmed that a convention of the states can create turmoil in the country, jeopardize the U.S. Constitution, and divert the nation and the states from the critical issues that they need to resolve on an ongoing basis. It was reported last week that Ohio Governor John Kasich will be in West Virginia soon promoting a constitutional convention.
The focus on amendments to impose fiscal restraints on the federal government also puts the country and its economy at risk. Our state’s Senate Concurrent Resolution (SCR) 13, introduced today, seeks a constitutional convention to propose a balanced budget amendment under Article V of the U.S. Constitution. This is a model bill from the American Legislative Exchange Council, not a constituent-driven action. Yesterday, the WV House introduced a companion bill to this resolution, H.B. 2424, that attempts to define the delegate process for the convention.
To adopt SCR 13 will only require a simple majority vote in both the House and the Senate. It does not require a referral to committee or a reading on three consecutive days, so it can move very quickly. Sign-off by the governor is not required for a concurrent resolution to take effect, and the governor’s veto power does not apply.
Both the constitutional convention and the content of this resolution and bill present serious risks to our government and our economy. The legislature should prevent any resolution calling for a constitutional convention, or bill laying out a process to do so, from being adopted during the current legislative session.
Why is a constitutional convention a serious risk? What are some of the implications of these limits to federal power and, specifically, fiscal restraints?
Serious risks posed by a constitutional convention
The most critical risk is that the country and our state could be thrown into extreme turmoil due to the lack of legal agreement about what is involved in a convention of the states. While Article V of the U.S. Constitution provides for the option of amendment via a convention, there is no direction on how this option is to be implemented.
Despite reassurances from conservative groups, there is no consensus among legal scholars that either the states or Congress can control what happens once a convention is convened, even if states specify (like SCR 13 does) that it is only for a balanced budget amendment. Convention delegates could consider any changes to the U.S. Constitution that they want to introduce. The only check and balance is the ratification by at least 38 states, via either their legislature or a convention, before an amendment is adopted. Some legal experts believe that even this ratification process could be open to change by the convention.
As the Center on Budget and Policy Priorities highlights in a recent report:
A number of prominent legal experts have warned that states cannot control a constitutional convention or that calling one could open up the Constitution to significant and unpredictable changes. For instance:
“I certainly would not want a constitutional convention. Whoa! Who knows what would come out of it?”a
Supreme Court Justice Antonin Scalia
“[T]here is no way to effectively limit or muzzle the actions of a Constitutional Convention. The Convention could make its own rules and set its own agenda. Congress might try to limit the Convention to one amendment or one issue, but there is no way to assure that the Convention would obey. After a Convention is convened, it will be too late to stop the Convention if we don’t like its agenda.”b
Former Supreme Court Chief Justice Warren Burger
“There is no enforceable mechanism to prevent a convention from reporting out wholesale changes to our Constitution and Bill of Rights.”c
Former Supreme Court Justice Arthur Goldberg
“First of all, we have developed orderly procedures over the past couple of centuries for resolving [some of the many] ambiguities [in the Constitution], but no comparable procedures for resolving [questions surrounding a convention]. Second, difficult interpretive questions about the Bill of Rights or the scope of the taxing power or the commerce power tend to arise one at a time, while questions surrounding the convention process would more or less need to be resolved all at once. And third, the stakes in this case in this instance are vastly greater, because what you’re doing is putting the whole Constitution up for grabs.”d
Professor Laurence Tribe, Harvard Law School
“[S]tate legislators do not have the right to dictate the terms of constitutional debate. On the contrary, they may be eliminated entirely if Congress decides that state conventions would be more appropriate vehicles for ratification. The states have the last say on amendments, but the Constitution permits them to consider only those proposals that emerge from a national institution free to consider all possible responses to an alleged constitutional deficiency. . . Nobody thinks we are now in the midst of constitutional crisis. Why, then, should we put the work of the first convention in jeopardy?”e
Professor Bruce Ackerman, Yale Law School
Leaders across the political spectrum have expressed their concerns about a “runaway convention.” Many states have rescinded resolutions that were passed as early as the 1980s, although a number have replaced these with new resolutions in recent years. This earlier move for a convention was stopped just before reaching the required number of 34 states when some states realized the risk of signing on. South Dakota and Utah rejected the new call to action in 2014.
While SCR 13 stipulates that only a balanced budget amendment would be considered during a proposed constitutional convention, this is not the case.
Further Resolved, If the convention called by the Congress is not limited to considering a balanced budget amendment, then any delegates, representatives or participants from the State of West Virginia asked to participate in the convention are authorized to debate and vote only on a proposed amendment or amendments to the United States Constitution requiring that, in the absence of a national emergency, the total of all federal appropriations made by the Congress for any fiscal year may not exceed the total of all estimated federal revenues for that fiscal year, together with any related and appropriate fiscal restraints;
As the Center on Budget and Policy Priorities notes, this final clause (bolded above) “opens the door to any constitutional amendments that a convention might decide fit under this broad rubric, including placing a rigid ceiling on federal spending so that all (or virtually all) deficit reduction has to come from cutting federal programs such as Social Security or Medicare, with little or none coming from revenue-raising measures. Such a ceiling would reduce or eliminate any pressure to produce deficit-reduction packages that pair spending reductions with increased revenue from closing unproductive special-interest tax loopholes or from combating tax avoidance by powerful corporations.”
While H.B. 2424 attempts to lay out a detailed process for delegates and their duties and responsibilities for a constitutional convention of the states, Article V is silent about how delegates are chosen and what these responsibilities may be. According to a recent study by the Congressional Research Service:
…Congress has traditionally laid claim to broad responsibilities in connection with a convention, including (1) receiving, judging, and recording state applications; (2) establishing procedures to summon a convention; (3) setting the amount of time allotted to its deliberations; (4) determining the number and selection process for its delegates; (5) setting internal convention procedures, including formulae for allocation of votes among the states; and (6) arranging for the formal transmission of any proposed amendments to the states.
Risks of amending the U.S. Constitution to establish new limits on federal powers
The fiscal restraints are in and of themselves a serious risk to the stability of the country. The core principle of most BBA proposals is that the federal government could only pay out what it takes in during the course of a year. This principle jeopardizes benefits to individuals, such as Social Security and Medicare, which depend on the use of a trust fund that carries over from one year to the next. We also know that in hard times the federal government may need to borrow in order to compensate for the revenue shortfalls for our states and our citizens.
Both states and families use controlled indebtedness in order to cover planned expenditures that they cannot afford with their yearly earnings. For example, our School Building Authority uses bonds in order to help build and repair schools. Many of our families have mortgages or student loans to pay for housing and higher education. The BBA would prevent the federal government from using these kinds of common sense fiscal tools.
A BBA, in particular, seems like a simple solution, and there is a lot of popular support for pursuing it. The best response to concerns about deficit spending is to demonstrate real leadership on fiscal policy at every level of government and to make these decisions in a thoughtful and balanced way instead of focusing on arbitrary ways to cut spending. As Robert C. Byrd said over two decades ago: “I support a balanced budget, and I want to lower the federal deficits…But the answer must not be to perform a lobotomy on our nation’s most sacred principles of checks and balances and separation of powers . . . simply because we are frustrated.”
The leaders of our new legislative majority now have an opportunity to prove their ideas for improving the state’s economy. The fact is that, just like other states, we depend on federal funds in order to function. This is especially true for our aging population that relies heavily on Social Security, Medicare, and Medicaid.
Oppose a Constitutional Convention of the States
Whatever your opinions are about a balanced budget amendment, we all agree that the U.S. Constitution is the backbone of our democracy and that any attempt to risk the foundation that it has provided for our country is misguided at best and disastrous at worst.
It’s All About the Budget Around Here
This week was all about the most important bill that will be passed this legislative session, the state budget.
At Wednesday’s Budget Breakfast, Ted presented an analysis of Governor Tomblin’s proposed Fiscal Year 2016 state budget (which will start on July 1, 2015) to a standing-room-only crowd. Joining him to take questions from the audience were Senate Finance Chair Mike Hall, Senate Minority Leader Jeff Kessler and Secretary of Revenue Bob Kiss.
Senator Mike Hall is joined by Senator Jeff Kessler and Secretary of Revenue Bob Kiss at the 2015 Budget Breakfast, The panel was moderated by WVCBP board director Stephen Smith on January 21, 2015.
In response to concerns from House and Senate leadership, this week the governor continued to tweak his numbers so he would need to take less from the state’s rainy day fund to close the budget gap. What did he do and where is the money coming from now? Read more in Ted’s blog post.
These Charleston Gazette and Beckley Register-Herald articles feature some quotes from Wednesday’s panelists and recaps of this year’s Budget Breakfast. Of note is Secretary Bob Kiss explaining that the tax cuts imposed over the past several years are not necessarily permanent, and the state could be back to experiencing budget surpluses beginning with Fiscal Year 2017 or 2018. Could this mean funding restored to higher education and other important programs?
Here’s next week’s budget hearings (in respective Finance Committee rooms):
2:00 PM – Department of Environmental Protection (House)
3:00 PM – Department of Commerce (House)
3:00 PM – Department of Education (Senate)
4:00 PM – School Building Authority (Senate)
3:00 PM – Department of Health & Human Resources (Senate)
9:00 AM – State Auditor’s Office (House)
10:00 AM – State Treasurer’s Office (House)
2:00 PM – Department of Revenue (House)
2:30 PM – State Lottery (House)
3:00 PM – Department of Military Affairs and Public Safety (Senate)
9:30 AM – Division of Corrections (Senate)
3:00 PM – Department of Revenue (Senate)
4:00 PM – State Lottery (Senate)
9:00 AM – Department of Health and Human Resources (House)
More Jobs for West Virginia Youth Could Cut Crime Rate
Creating more jobs for the state’s youngest workers could tackle several of the state’s pressing problems at once: it could decrease poverty, provide more income for working families, reduce the crime rate and improve West Virginia’s labor force participation rate (the lowest in the country).
Read more in this op-ed by Rick Wilson, former WVCBP board member and closet wonk.
Second Chance to See The First 1,000 Days
Kids and Families Day last week featured the world premiere of “The First 1,000 Days: Investing in WV Children When it Counts.” In case you missed it, the film’s television premiere is Monday, February 2 at 9 PM on your public broadcasting station. The film features our very own Ted Boettner!
As part of the Martin Luther King, Jr. holiday, hundreds of Charleston young people got to see the movie “Selma” for free and talk about the 50th anniversary of the Civil Rights Movement.
To stay informed about future events and meetings, join the Race Matters in WV public group on Facebook.
Future plans include launching a website and holding an Undoing Racism workshop this spring.
Here’s more on Monday’s movie experience.
Earn It. Keep It. Save It!
While we don’t have a state Earned Income Tax Credit (EITC) in West Virginia yet, low-income working families can benefit from the program at the federal level which provides families with a refundable tax credit if their income is below $53,000. On Friday, January 30 volunteers will be on hand to help people file their income tax return and find out if they are eligible for the federal EITC.
On Tuesday, Governor Tomblin announced at a bi-partisan press conference that he is proposing to transfer $44 million from the teacher’s retirement account (TERS) to help close an estimated $195 million gap in the FY 2016 state budget.
The state is able to use the $44 million from TERS, according to the governor, because the investment returns where higher than expected. Originally, the governor’s proposed using $68.6 million from Rainy Day Fund A to balance the budget, but now the plan is to use just $24.6 million. The announcement came on the heels of warnings from Senate President Bill Cole, House Speaker Tim Armstead and Senate Minority Leader Jeff Kessler that they did not want to balance the budget using money from the rainy day fund.
If not taking money from the state’s rainy day fund stems from the idea that credit rating agencies could possibly downgrade the state’s credit score, it is not clear that rating agencies would prefer the state to take money from its pension accounts as opposed to its rainy day fund (they’re assets on a balance sheet). While TERS has had an above-average investment rate of return this year, it may not have the same success next year. If the pension fund goes below its assumed 7.5 percent investment rate of return next year, the state may have to appropriate more to the teacher’s retirement account next year.
Below is a breakdown of how the governor plans to close the estimated $195 million gap in the base budget, which includes general revenue, lottery funds, and special revenue accounts. On top of the $44 million from TERS and the $25 million from the rainy day fund to fund the state’s share of Medicaid, he is proposing $18.3 million from surplus lottery to go toward Medicaid, $24 million in additional revenue from statutory changes (redirecting $19.5 million from Consumer Sales and Use Tax revenue from Road Fund [$11.5 million] and School Building Authority [$8 million], $4.3 from the Corporation Net Income Tax that went to the Public Port Authority, and $0.5 million in severance taxes transferred from Infrastructure Bond Fond), $11.9 million in other base-budget adjustments, and $72.1 million in base-budget cuts.
The major budget cuts include: $12.2 million for higher education, $3.6 million for primary care support, $2.1 million for Health Right Free Clinics, $1.9 million in local economic development assistance, $943,431 for behavioral health, and over $800,000 in budget bill changes to family programs. The governor is also reducing appropriations sent to local school boards via the school aid formula by $63 million, largely because of a drop in school enrollment that allows less state aid to public schools.
As we’ve noted for several years (see here, here, and here), the budget cuts this year and over the last decade are primarily due to a slew of tax cuts that were enacted in 2006 and 2007, including the repeal of the grocery tax, phase-out of the business franchise tax, and the reduction in the corporate net income tax rate. These tax cuts, along with the impact of the Great Recession, have been downward pressure on the state’s revenues and have led the governor and legislature to scramble each year looking for pots of money.
Stay tuned over the next few weeks as the budget continues to develop and be debated. And stay tuned for our annual budget report, which will be released over the next few weeks. In case you missed our 2nd Annual Budget Breakfast yesterday, you can view our preliminary analysis of the FY 2016 budget that includes steps we can take to move our state forward.
Legislative Session Has Begun
OK, we’re wonks and the start of the legislative session means a new budget for everyone at the WVCBP to pore over. As with last year, the biggest concern is if funding will be preserved for important family programs.
During his State of the State, Governor Tomblin talked a lot more about what his office is going to do to attract business to the state, than about helping lift West Virginia working families out of poverty.
Here was WVCBP’s Executive Director Ted Boettner’s response to this year’s State of the State:
West Virginia will not have a strong economy with good-paying jobs until we make the much-needed investments that will give more people an opportunity to thrive. The governor failed to mention the recommendations from his own Early Childhood Planning Task Force like expanding home visiting, and his plan for paying for about $115 million in planned cuts from his FY 2016 budget. We need prosperity instead of austerity. We need affordable college for all, not more debt piled on our best and brightest, and we need a commitment to help lift West Virginia families out of poverty.
And here’s more reaction in this week’s Charleston Gazette.
Shared prosperity doesn’t happen by accident. Here’s our recommendations on what needs to be done to move the state from austerity to prosperity.
To watch the process in action, attend these upcoming Budget hearings (in respective Finance Committee rooms):
1:00 PM – Revenue presentation (House)
2:00 PM – Secretary of State (House)
3:00 PM – Supreme Court (Senate)
3:00 PM – Attorney General (Senate)
4:00 PM – Secretary of State (Senate)
9:00 AM – Department of Transportation (House)
2:00 PM – School Building Authority (House)
3:00 PM – Public Education (House)
3:00 PM – Department of Agriculture (Senate)
3:45 PM – State Conservation Agency (Senate)
9:30 AM – State Treasurer’s office (Senate)
3:00 PM – State Auditor’s office (Senate)
9:00 AM – Bureau of Senior Services (House)
10:00 AM – Department of Education and the Arts (House)
Over 800 Kids and Families Come to Capitol on Day 1
The 2015 Legislative Session got off to a rousing start with over 800 kids and families descending on the state Capitol. They were there to remind legislators to keep West Virginia’s hard working families in mind this session.
West Virginia schoolchildren get first-hand info on the state budget from WV State Treasurer John Perdue
Kids and Families Day 1/14/15
Time is Running Out!
Have you registered? The 2nd Annual Budget Breakfast is just days away, Wednesday, January 21 at the Four Points Sheraton, downtown Charleston. Please register to hold your seat for our annual event which includes a buffet breakfast.
Panelists include Senate Finance Chair Mike Hall, Senate Minority Leader Jeff Kessler and Secretary of Revenue Bob Kiss. The morning will also include a presentation on the new state budget by WVCBP Executive Director Ted Boettner.
Paid Sick Days Benefit Workers, Businesses & the Public
The WVCBP’s top legislative priority this session is Paid Sick Days for West Virginia workers, so they don’t need to choose between missing a day of work and taking care of sick child. Check out the new website to stay informed and sign up for updates! Not convinced Paid Sick Days are a good idea? Here’s more on how they can help stop the spread of disease, like this year’s flu epidemic.
Summit on Chemical Safety in West Virginia
Want to prevent another chemical leak? Participate in chemical safety conversations. Learn about successful models and solutions that address disproportionate impacts of chemical releases on communities of color and low-income communities. Be a part of local solutions to prevent another Elk River chemical spill.
Attend the Summit on Chemical Safety in West Virginia on January 23 and 24. To register for this free event, click here. For more information, contact Maya Nye at email@example.com or call 304-389-6859.
Legislative Session Starts January 14
One of the WVCBP policy priorities for the 2015 Legislative Session is passage of legislation for paid sick days for West Virginia workers. Currently, over 225,000 workers cannot take a paid day off if they are sick. This has far-reaching impacts for West Virginia families and their communities, including spreading of viruses like this year’s flu. Read more in Erin’s blog post.
Contagious disease transmitting a virus infection with an open human mouth spreading dangerous infectious germs and bacteria while coughing during a cold or flu symptoms.
The new Senate leadership is talking about reforming the state’s prevailing wage which ensures secure earnings for construction workers on state projects. Sean explains how the math behind the argument calling for repealing the wage does not add up in this blog post.
It’s important to note that Virginia, used as a model by those wanting to end the prevailing wage, actually has higher construction costs than West Virginia, which Sean explains here.
The WVCBP’s focus will also remain on the most important bill that will be passed during the upcoming session: the state budget. Last week, Governor Tomblin announced that the business franchise tax would be fully eliminated on January 1. As explained in Ted’s blog post, there is little evidence that this cut will bring jobs to the state. In fact, the state’s budget shortfalls were closely reviewed during West Virginia’s bond rating review, along with the fact that legislators had to dip into the Rainy Day fund to balance the budget. Despite these concerns, however, the state was able to hold on to its high rating.
Budget Breakfast Right Around the Corner
Join us for the next Budget Breakfast on Wednesday, January 21 at the Four Points Sheraton, downtown Charleston. Please register to hold your seat for our annual event which includes a buffet breakfast.
Panelists include legislators and a member of Governor Tomblin’s cabinet. The morning will also include a presentation on the new state budget by WVCBP Executive Director Ted Boettner.
Update: One Year Anniversary of the Elk River Chemical Leak Today
When/Where: January 9, 2015, events from 3 p.m. until 9 p.m. in and around the WV Culture Center on the State Capitol Grounds. All events are free of charge and open to the public.
3-5 p.m. Citizen Education Workshops at the WV Culture Center. Two 2-hour free workshops sponsored by the WV Rivers Coalition that will inform everyone about clean water issues and give them the tools and support to get involved.
6:30 -7:15 p.m. Honoring the Waters Interfaith Vigil
One-Year Anniversary Candlelight Vigil at the Kanawha River in front of the WV State Capitol. Be prepared for cold weather, dress in layers!
7:30-8 p.m. Reception with Impacted Residents and Music In the WV Culture Center.
8-9 p.m. Screening of Elk River Blues Documentary
A world premiere of the documentary film by Mike Youngren features West Virginians’ response to systemic failures that continue to threaten our water. Film sponsored by the West Virginia Rivers Coalitionand the Unitarian Universalist Congregation of Charleston in the WV Culture Center Theater.
Kids and Families Day – January 14
Kick off the 2015 Legislative Session with Kids at Families Day at the state Capitol on Wednesday, January 14. Join families from across the state to remind legislators that working families are important. Activities all day from 8AM – 3PM in the lower rotunda!
Charleston Residents Can Participate in City’s Strategic Plan
The City of Charleston is developing a five-year strategic plan, which will describe how to spend the federal housing and community development funds it will receive during the next five years (2015-2019). This funding must benefit low and moderate income persons. The City needs your input about how these funds will be spent.
The City is conducting a Citizen Survey through the use of a Web-based program available to all residents of the City. This survey asks residents to tell how they feel about programs relating to housing, community services, economic development, and homelessness.
The survey may be completed from a home computer or by using a computer at the public library, a church, or a community center. The survey is direct and takes only about five minutes to complete. Charleston residents are urged to complete the survey. For more information, please contact Mr. Brain King, Director, Mayor’s Office of Economic and Community Development at (304) 348-8035 firstname.lastname@example.org.
Just a month into peak flu season, the CDC has already declared a national epidemic due to the flu’s widespread activity and the deadly nature of this year’s virus. West Virginia is no exception. The outbreak is considered widespread across our state, as you can see from the the map below. While preventing the spread of the flu means staying home from work, a large chunk of workers do not have access to a single paid sick day.
As flu activity is increasing, providers are seeing more flu hospitalizations and flu deaths. Part of the reason the flu is so widespread this year is because most of the flu strains circulating are different from those included in the flu vaccine. In order to combat the outbreak the CDC is strongly advising people to stay at home when sick. Health providers in the state have offered to write doctors’ notes for patients who are diagnosed with the flu or flu-like illness so they can begin to use their available sick time. The problem with this recommendation is that over 225,000 West Virginia workers do not have access to a single paid sick day. A doctor’s note does not help low-wage workers who cannot risk losing a paycheck or their job when they are ill.
TK Source: West Virginia Department of Health and Human Resources, “Current Influenza Surveillance Data”, updated January 5, 2015 http://www.dhhr.wv.gov/oeps/disease/flu/Pages/fluSurveillance.aspx, accessed January 6, 2015.
Almost half of workers who do not receive paid sick time have reported going to work when they are ill, according to a study published in the journal Vaccine. Outbreaks spread further and last longer in workplaces that are less likely to have sick days, according a study of the 2009 H1N1 flu pandemic by the Institute for Women’s Policy and Research. With around two-thirds of service workers in West Virginia lacking access to sick time, the risk doesn’t stop at the workplace. These workers perform services, such as preparing food, and the general public’s health is at risk when a worker cannot afford to stay home ill.
The WV Department of Education has joined with WV DHHR to create a pledge for students to fill out when they return to school this week, promising to help prevent the spread of flu by washing their hands and covering their mouths when they cough. I am sure many health officials wish that students could easily pledge to stay home from school to avoid spreading the flu. Unfortunately, when low-income parents do not have access to paid sick days, staying home to care for a sick child is not an option. This is because three-and-a-half days of missed work is the equivalent of an entire monthly grocery budget for a low-income family, according to the Economic Policy Institute. According to the CDC, adults are contagious for 5-7 days after they become sick with the flu and children may be considered contagious for even longer periods.
Establishing a minimum standard for paid sick time will not only help protect workers and help families be healthier and productive, but it could help mitigate the risk of contracting and spreading deadly viruses like the flu at our workplaces and schools.
Earlier, I showed how it’s nearly impossible for the prevailing wage to add 25% to the cost of public construction projects, like opponents to the law claim, even if you assume that the prevailing wage is nearly 50% higher than average wages in the construction sector. But let’s take a closer look at that 50% claim.
Opponents to West Virginia’s prevailing wage law claim that the way the prevailing wage is calculated is flawed, and biased towards higher wages. This claim is supported by a study from the conservative Public Policy Foundation of West Virginia, which found that West Virginia’s calculation for the law results in prevailing wages that are 49% higher than the average market wage. However, the Public Policy Foundation’s method of comparing wages was itself flawed.
The study compared the prevailing wage rates set by the West Virginia Division of Labor with the average wages for construction occupations from the Bureau of Labor Statistics Occupational Employment Statistics (OES). And prevailing wages are an average of 49% higher than the averages for construction occupations from the OES.
But while using the OES data allows for comparisons of occupations, the OES is measuring a different portion of the construction industry than what receives the prevailing wage. The OES data includes workers in the residential construction sector, which typically employs workers with lower skill levels and less experience than those who work on large projects typically funded by the state. Prisons, schools, and bridges are larger, more complex projects than what is found in the residential construction sector, and require more skilled and experienced workers. As a result, the workers are higher paid.
In fact, when you compare wages for residential and nonresidential construction workers, which you can do using data from the Quarterly Census of Employment Wages (QCEW), nonresidential workers do make far more. The gap between the average wages from the OES and the prevailing wage rates set by the Division of Labor reflects the gap between residential and nonresidential construction.
And it’s not just West Virginia’s prevailing wage law that is creating the wage gap between residential and nonresidential construction. Virginia, with no prevailing wage law, has a similar wage gap. And while Virginia’s gap is less pronounced than West Virginia’s, that is due to its residential wages being higher than West Virginia’s, rather than West Virginia’s nonresidential wages being excessively inflated by the prevailing wage.
Using OES data to compare prevailing wage rates overstates the cost of prevailing wage. While the point of the prevailing wage law is to ensure that wages paid to workers on state construction projects don’t result in a race to the bottom, they probably wouldn’t fall by 50% without the prevailing wage. And even if they did, the state wouldn’t save 25% on the cost of public projects like prevailing wage opponents claim.
Does that mean that the wages from the QCEW should be used to set prevailing wage rates? Not really. The wages in the QCEW are the average of all workers at a particular establishment, which can include multiple occupations and jobs. So while the QCEW shows that workers at a roofing establishment earn an average weekly wage of $928 in West Virginia, those workers aren’t all necessarily roofers. That wage figure includes managers, receptionists, and other non-roofing occupations that can exist in a roofing establishment.
In addition, the average weekly wage in the QCEW is calculated by dividing the annual wage by 52 (weeks). The construction industry is very seasonal, with most workers working less than 52 weeks in a year (according to the Current Population Survey, construction workers in West Virginia work an average of 47 weeks per year). This makes their average weekly wages lower in the QCEW, since it includes several weeks of not working. So a construction worker earning $25/hour, but only working 47 weeks/year would show up in the QCEW as earning $904/week or the equivalent of $22.60/hour. And since the prevailing wage is set hourly, you really can’t compare the two.
And if the OES data isn’t an appropriate comparison, and the QCEW isn’t an appropriate comparison, what can you do? You can take a survey, which is exactly how West Virginia’s prevailing wage rates are set.
If West Virginia’s prevailing wage rates really were that far out of line with the market averages, then our construction costs should be higher than in other states, particularly those without a prevailing wage law. But, that is not the case. This study, prepared for a county government in Maryland, looked at the median cost of school construction per square foot for six mid-Atlantic states, both with and without prevailing wage laws. And it found that West Virginia had the 2nd lowest construction costs of the six states. Our per square foot construction costs were only 0.7% higher than North Carolina’s, the state with the lowest costs. Our construction costs were 20% lower than in neighboring Maryland, which has only partial prevailing wage coverage, and 7% lower than neighboring Virginia, which has been cited as a model by opponents of West Virginia’s law.
While the prevailing wage does result in higher wages, those higher wages result in more experienced workers with greater productivity. And that productivity offsets the higher wage. That’s why, as the study found, while the prevailing wage created a wage premium for construction workers, “there is no measurable or statistically significant increase in construction costs associated with prevailing wage regulations.” The report also found that it did appear that prevailing wage laws encouraged the use of local contractors.
So, once again, opponents of West Virginia’s prevailing wage law have overstated their case, and their math doesn’t add up. In reality, the impact of West Virginia’s prevailing wage law is consistent with its original intent: to promote a path of high-wage economic development by keeping our tax dollars in West Virginia.
Yesterday, Governor Tomblin announced that the business franchise tax will be fully eliminated beginning tomorrow (Jan 1). While the governor says the elimination of the business franchise tax and the reduction in the corporate net income tax has helped to “secure additional investments” and that the state has benefited from these changes, there is no evidence that it has improved economic growth or the quality of life in West Virginia. However, there is strong evidence that it has led to significant cuts to important public programs and services like higher education over the years.
In FY 2014, the state collected an estimated $204 million from the business franchise and corporate income tax. This was $18 million less than it collected 24 years ago in 1990. Meanwhile, these two taxes have gone from about 13 percent of the general revenue budget to just under 5 percent. According to the State Budget Office, this pattern will continue over the coming years with business tax revenue declining further to about 4 percent of the state budget.
While it is difficult to say with certainty how much revenue the state has lost over the years from these two tax cuts, one way is to look at these taxes as share of private-sector state GDP (Gross Domestic Product). From 1997 to 2006 (before the tax cuts where put in place), West Virginia collected on average 0.62 percent of private-sector GDP in business franchise and corporate net income taxes. In 2013, this number was just 0.38 percent. If we applied the 0.62 percent between the years 2009 and 2013, the state would have collected an additional $542 million over the five-year period. The State Department of Revenue has estimated that total lost revenue from these two taxes and some smaller ones was $205 million in 2015.
While proponents of cutting these corporate taxes proclaimed that they would pay for themselves and not lead to any budget cuts, this hasn’t been the case. As we documented earlier this year, the state has made drastic cuts to higher education and other important programs over the years because of large budget gaps.
There is also little evidence that they have spurred additional economic growth or created jobs. As Sean pointed out a couple of weeks ago, West Virginia has had slower job growth than its neighboring states and has a higher unemployment rate. The impact of the tax cuts has also been masked by the recent boom in shale gas development that has little or nothing to do with lower business taxes. (For a solid analysis of the academic literature on state corporate tax cuts and jobs see here.)
Instead of inefficient corporate tax cuts that have largely flown out of state to wealth stockholders, West Virginia could have made smart investments in early childhood education, infrastructure, workforce training, higher education, and in other areas that would have improved the well-being and health of our children and provided a much better foundation for stronger economic growth.
As Ted pointed out after the election, changes to West Virginia’s prevailing wage law are likely going to be one of the priorities of the legislature’s new Republican majority. New Senate President Bill Cole was a lead sponsor of a bill to repeal the state’s prevailing wage law, and the West Virginia Chamber of Commerce is pushing for changes as well.
Prevailing wage laws require that public construction projects done by private contractors pay a standard pay rate to their workers. The pay rate is based on a survey of all employers in given geographic area for each trade. Prevailing wage laws keep government-funded construction projects from devolving into a race to the bottom, with contractors bringing in low-wage, low-skilled workers from outside the state to do public works projects, and leaving when they are finished. Prevailing wage laws ensure that experienced and skilled workers aren’t driven from the industry, and that the tax dollars that fund local projects stay in the community.
Opponents to prevailing wage laws claim that the laws inflate the cost of public construction projects, costing taxpayers. According to the West Virginia Chamber of Commerce, West Virginia’s prevailing wage laws, “costs the public a minimum of 25 percent more on public works paid for with public funds.” However, the Chamber’s math doesn’t add up.
According to the Chamber, West Virginia’s prevailing wage rates are too high, and the too-high wages increase the cost of public construction projects by at least 25%. But according to the 2007 Economic Census, labor costs account for only 27.7% of construction costs in WV.
If labor only accounts for 27.7% of total costs, then it is virtually impossible to reduce total costs by 25% by reducing the state’s prevailing wage rates, like the Chamber claims.
Let’s assume that the state has a $1 million construction project. If the prevailing wage adds 25% to the state’s total construction costs, like the Chamber claims, then the state should be spending $800,000, with the prevailing wage adding $200,000 in excess costs. But with labor costs at 27.7% of construction costs, that means the state is paying about $277,000 for labor under the prevailing wage law. Therefore, the state would have to reduce labor costs from $277,000, to just $77,000 in order to eliminate the 25% increase in total costs that the Chamber claims the prevailing wage adds, a decrease in labor costs of 72%. The extra 25% that the Chamber claims that the prevailing wage adds to public construction costs accounts for nearly three-fourths of the state’s construction labor costs.
To make the Chamber’s numbers work, an cement mason working on a public project in Kanawha County would have to have their wages fall from $28.70/hour to just $7.98/hour, which is below the state’s minimum wage.
Now let’s take things one step further, and give opponents of the prevailing wage the benefit of the doubt. According to the conservative Public Policy Foundation of West Virginia, West Virginia’s prevailing wage rates are 49.5% higher on average than the average construction wage rates (I’ll have another blog post coming up on why that’s not an accurate figure either), and that 22.5% of constructions projects are subject to the prevailing wage . If that’s the case, then labor’s share of total construction costs would be 41.2% for prevailing wage projects, higher than the industry average. But even with that higher labor cost, the Chamber’s claims still don’t add up.
On a $1 million project prevailing wage project, with labor cost at 41.2% of total costs, the state would be spending $412,000 on labor. If the prevailing wage adds 25% to the cost of the project, then labor costs would have to go down to just $212,000, almost in half, to eliminate the extra 25%. That would mean that the prevailing wage is nearly 100% higher than the market average, not 49%, like the PPF report claims to have found.
Even taking some rather questionable claims about prevailing wage rates at face value, the Chamber’s claim that the prevailing wage adds 25% to public construction costs just doesn’t add up.
In fact, a review of the academic research on prevailing wages found that when the researchers examine the data, and not hypothetical scenarios, they find that prevailing wage regulations do not increase government contracting costs. Instead, prevailing wage laws, “provide social benefits from higher wages and better workplace safety, increase government revenues, and elevate worker skills in the construction industry.”
With the last Budget Beat of 2014, we wanted to take a moment and wish everyone a wonderful holiday season and a happy, healthy and prosperous 2015.
We leave you with two of the major policy priorities we are ready to tackle in 2015:
First up, paid sick days for West Virginia workers. Over 250,000 of us do not have access to a single paid sick day. We hope to change that this year at the state legislature. Check out this op-ed by health policy analyst Erin Snyder on why workers, employers and the state’s economy would all benefit.
Wages for male workers have not kept pace with inflation, making it even harder for working families to keep up. With talk of repealing the state’s prevailing wage, the situation could grow worse, since this would impact construction workers at public projects. For more on the big-picture impact, here is Ted blog’s post “Is it a Good Time to Reduce Male Wages in West Virginia?” and his interview with WOWK-TV on the problem and possible solutions.
Thanks to the raise in the state’s minimum wage on January 1, 2015 from $7.25 to $8.00/hour, 88,000 West Virginia workers will see their wages increase. This means $50 million more in wages for the state’s lowest-paid workers. The Economic Policy Institute estimates this will also mean a bump up in the state GDP by $31 million in 2015.
Also helping keep working families out of poverty are two important tools: the Earned Income Tax Credit (EITC) and Additional Child Tax Credit (ACTC). According to the Brookings Institute, together they keep millions out of poverty. In West Virginia also, they lift 38,000 people out of poverty, including 18,000 children. A state EITC, successful in many other states, could do even more for West Virginia’s low-income families, were it to be approved by the state legislature in 2015.
Racial Equity Work Continues into 2015
The next Race Matters meeting will be January 8 at 11:30AM at the Fifth Quarter Restaurant in downtown Charleston. Please plan to join the group for continuing conversation on racial equity in West Virginia.
Plan are underway for mini-summits in other parts of the state including Clarksburg and Martinsburg. Details to follow.
Check out this interesting article, “3 Elements of a Successful Diversity Initiative in Appalachia: Community, Perspective and Story,” on why the folks behind making the film “Cracking the Codes“, by film maker Shakti Butler, are giving November’s Summit on Race Matters in Appalachia high marks, in large thanks to Reverend Ron English, lead of the event’s planning committee.
Budget Breakfast: Early Bird Discount Expires 12/31/14!
Join us for the next Budget Breakfast on Wednesday, January 21 at the Four Points Sheraton, downtown Charleston. Please register by 12/31/14 to get the Early Bird discount! Panelists include Senators Jeff Kessler and Mike Hall who will take questions on the state’s fiscal future under new legislative leadership.