Phoenix prevailing wage ordinance threatens to raise construction costs, slow growth

The Phoenix City Council approved an ordinance late last month that requires wage rates for construction workers on city projects to align with the U.S. Department of Labor’s determined wage for the region rather than contractors and their workers agreeing upon wages and benefits, establishing civil penalties for non-compliance by businesses and creating legal and budgetary risks for the city. 

Councilmembers Carlos Garcia (District 8), Laura Pastor (District 4) and Betty Guardado (District 5) wrote a letter to City Manager Jeff Barton last month calling for a special meeting to consider a proposed prevailing wage ordinance, claiming that the increased wages will help attract skilled labor and support middle class workers. The letter gave the other councilmembers just one day’s notice to decide how to vote on the ordinance in a meeting held the very next day, where additional amendments were considered on the spot without collaboration or consultation with the affected construction industry or city staff.

During the vote, outgoing Councilmember Sal DiCiccio (District 6) raised eyebrows when he broke ranks from his conservative colleagues and voted in support of the ordinance, providing the decisive vote to pass the measure. 

Despite Barton’s warning that that ordinance would cost the city tens of millions of dollars in unbudgeted construction costs, DiCiccio said he sided with the progressives on the council because the ordinance “requires developers that receive subsidies from the city to pay their employees the increased wages.” Striking an anti-business, populist tone, DiCiccio said, big business is waging “a war on the working class.”

Phoenix Mayor Kate Gallego voted against the ordinance and lambasted the council members for forcing a vote on such an important issue that raises budgetary concerns for the city, arguing that ramming a vote through the council without review from their own legal counsel  “is a terrible way to do public policy.” 

The new ordinance may cost the city an estimated $93 million that neither the city council nor the city manager has planned or prepared for. Barton estimates that the city will have to pay workers up to 30% more than what the city budgeted for on construction projects that cost over $250,000.

By causing dramatic labor cost increases, the ordinance may force the city to prioritize certain projects and cancel others that all could have been completed within the current budget, inadvertently decreasing the number of construction workers paid by the city and depriving Phoenix residents of projects that will improve their neighborhoods and public spaces.

As reported by Axios, construction companies and their advocates are already gearing up to sue the city, citing state legislation that they argue prohibits cities from implementing prevailing wage ordinances.

A letter from Arizona Chamber of Commerce & Industry President and CEO Danny Seiden to the council members also raised the likelihood of a legal challenge.

“It was clear in the meeting the proposed ordinance had not gone through the standard review by your own legal counsel, nor were any stakeholders consulted in the process.

In light of the Council’s apparent approval of the ordinance, I write again to remind you that the ordinance is an ultra vires action, that subjects the City to litigation and ultimately attorneys’ fees awards to any prevailing parties,” Seiden wrote.

Proponents DiCiccio and Garcia are both leaving the council this month – DiCiccio due to term limits and Garcia for his loss to Kesha Hodge Washington in last month’s election. Kevin Robinson will take the District 6 seat after defeating DiCiccio’s handpicked successor and former chief of staff Sam Stone.

Tempe is now considering following in Phoenix’s footsteps by passing its own prevailing wage ordinance, with Councilmember Randy Keating leading the charge.

Nick Guptil

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