2006_0821_Packet - Laserfiche WebLink

Home

I»ivingWages & Communities: Smarter Economic Development,�,awerThan Expected Costs administrators believe that this newly competitive contracting environment led contractors to be more wilfing to absorb some of the increased costs associated with the living wage law in order to remain competitive and secure the highly valued contracts. A policymaker in Ypsilanti Township, MI remarked that the Township's major contracts had "�ore bidders than ever before, at even better rates." She attributed the lower bids to the living wage law, which subjected contracts to a competi- tive bidding process with fiYed wage and benefit requirements. In order to remain competitive, bidders had to "be tighter and provide less of a profit aiir�i.i.'''� In fact, an administrator from Alexandria found that "�t]here have been some competitive advantages to rebidding. We have seen some incumbents who lost on the second go-round, and it may be due to the bidding ^ r:�r�s{ '=' Contractors plainly saw the contracts as desirable despite costs associated with the living wage laws. Similarly, Gost5 appear to have �een kept down in circumstances where cities nego- tiated directly with their contractors to share the cost increase. For example, in the first year that it implemented its liv- ing wage law, the Pasadena Purchasing Department projected the additional labor costs that the living wage mandate would generate on five service contracts, and negotiared for a cost split between the ciry and the contractors, with the contractors absorbing nearly half of the total labor cost increase." � A study of living wage costs at the San Francisco InternationalAirport found fE�a� higher labor ea�t� w+er� partially offset f�}� savings t� the companies in the form of reduced employee turnover and increased productivity. � In addition, some contractors appear to have absorbed some of the living wage-related labor cost increases, even in the absence of a competitive bidding process. For example, an analysis by the San Jose Contract Compliance office found that in San Jose's contract with the ciry's convention center, the living wage requirement increased labor costs by 4%, yet the cost of the contract increased by only 1.5% 31 The ciry's analysis concluded that 61% of the increased costs were simply absorbed by the convention center. • In Hayward„ CA, after examining the payroll records of all service contracts covered by the city's living wage law, Hayward's auditor concluded that service contractors changed their pay scales to comply with the living wage requirements without demanding an increase in the contract prices from the city. The auditor attributed the contractors' willingness to absorb the increased labor costs to the modest size of the cosi increases created by the living wage on most ciry contracts." • The director of purchasing of San Francisco remarked that the living wage law was a"non-event" among for-profit service contractors, and that contractors typically paid the living wage require- ment without complaint or a request ta modify in the �tir_� [i a,� [." These reported experiences of cities and counties generalty suggest that where service contracts reflect generous or above-market profit margins (as may be the case for contracts that have not been com- petitively bid for some time) and a living wage law increases labor costs modestly, contractors are like- ly to absorb a significant share of the increased labor costs. O n the other hand, where contracts have small, defined profit margins and involve large concentrations of low-wage workers (as is often the case for non-profit human services contracts), the cost increases resulting from a living wage law will be larger and it may be necessary for the local government to bear a greater proportion of them. Ilh