Residency quotas on public works projects: “Rolling the dice with public health and safety.”

Don Mader, executive director of the American Council of Engineering Companies of Ohio, retires in June after 34 years with his respected Ohio trade association. Before stepping down, Don gave an exceptionally eloquent explanation of the harm caused by local Ohio governments imposing residency quotas on public works projects. 

Don Mader

Don made his presentation Wednesday to the Ohio House State Government Committee. He urged approval of S.B. 152, which would prohibit local governments from requiring contractors hire a certain percentage of workers from a specific political subdivision. We appreciate Don’s approving a reprint of his testimony. 

I represent 120 companies that design all kinds of constructed facilities; everything from highways and bridges, to water and wastewater plants, to buildings and industrial and manufacturing facilities.

Our member companies range in size from very small specialty engineering firms of only one or two people to some that employ hundreds. Our average size company employs 50 persons.

We work very closely with contractors, inasmuch as they end up building what we design, so we sympathize totally with their concerns regarding municipalities that require contractors to hire a quota of municipal residents in order to bid on city projects.

These residency requirements cause major problems for engineering firms, as well, although our problems are somewhat different from our contractor friends. Unlike contractors, engineering firms compete for work on the basis of their professional qualifications, not by low bid. In order to be selected by either public or private owners to design their projects, it behooves an engineering firm to retain the very best engineering talent that is available. And that talent is very hard to find.

Residency requirements cause major problems.

The Inner Belt Bridge in Cleveland. Should projects like this be built and designed by our most talented professionals?

In order to be licensed as a professional engineer, you must obtain a four-year degree from an accredited engineering program, accumulate four years of engineering work experience and then pass a rigorous license exam.

An engineering degree and a professional engineer’s license are highly valued credentials and, as you can imagine, individuals who have obtained these credentials are highly compensated. When an engineering firm succeeds in obtaining the services of a skilled professional engineer, they normally will do everything to retain the services of such an individual.

What this means is that it is much more difficult for an engineering firm, just as it would be for a law firm or accounting firm, to add and subtract from its staff just to meet arbitrary municipal residency requirements and compete for a single project.

As I mentioned earlier, engineering firms tend to be small operations. Our average size firm has only 50 employees, and they may be spread out over three or four offices in various cities throughout the state. Unlike construction, engineering is not site-dependent. Thanks to advancements in electronic communication and engineering design software, an engineer in Ohio can work on a project in Cincinnati today, one in St. Louis tomorrow and one in Paris the third day.

This kind of efficiency should be encouraged because it enables local governments to obtain high quality engineering service at a reasonable cost.

Akron residency requirements

As you can see from the attached letter, the city of Akron’s recently announced Professional Workforce Goals require that 31 percent of an engineering firm’s employees must be Akron residents in order for an engineering firm to obtain a contract with the city. That percentage requirement increases to 35 percent by 2018.

Akron City Hall

Akron’s requirements are actually much more onerous than even these mandated residency quotas would suggest, in that the city also requires that “66 percent of all hours worked (including sub-consultant work) on a particular project [are] to be performed by employees paying city of Akron income tax.”

So as an engineering firm manager, I not only have to make sure 30 percent of my office staff lives in the city, I’ve somehow got to make sure that two-thirds of the hours worked on any given project are performed by city income taxpayers.

I have been associated with this industry for nearly 35 years, and I’d like for someone to explain to me how – on any engineering project – one might reasonably manage this.

Most skilled shut out

Let’s say your firm has a strong track record of designing major water plants. A city in the next county intends to expand its water plant, and normally your firm would be a strong contended for the project. But this municipality requires that 31 percent of your employees be residents of that city and they insist that 66 percent of all design hours be performed by employees who also pay city income tax.

How do you meet this 66 percent requirement? Do you put your best environmental engineers to work on the project until it’s a third designed, then replace them with other, less accomplished engineers who happens to live within the city?

I would hope reasonable people would agree that this is not good public policy, but that’s exactly what these municipal residency requirements would force us to do – discriminate for or against employees based merely on their place of residence.

Further complicating matters, the city says that to ensure a firm meets the 66 percent requirement it will have a third-party organization monitor how many employees are working on a project and where those employees live. This means the firm will be required to divulge confidential employee information, such as employee addresses, to a third party, which can expose the firm to legal liability for failing to protect employee privacy rights.

As you might imagine, the design of any major construction project is extremely complicated and technical, and involves a team of engineers, technicians and other professionals. What these residency requirements mandate is that, instead of assigning the firm’s most highly qualified technical experts to the design of a particular project, the engineering firm’s first consideration must be to make sure that two-thirds of the work is performed by city taxpayers.

No reputable engineering firm that will make these kinds of arbitrary and unfair hiring and firing decisions – which is what these residency requirements force an employer to do – just to win a single contract. Rather, they will not pursue such work, which ultimately drives down competition and drives up prices the public pays for engineering services.

The contradictions implicit in these residency requirements are ironic on several levels. The Ohio Supreme Court has already ruled that a municipality can’t dictate where its employees live, yet some municipalities apparently believe they are justified in dictating where the employees of third parties must live.

The most unfair aspect of this is that these restrictions cannot be enforced on out-of-state companies.

Out-of-state companies don’t comply

The most unfair aspect of this is that these restrictions cannot be enforced on out-of-state companies, as courts have repeatedly ruled that doing so violates the U.S. Constitution’s Privileges and Immunities Clause. We believe these arbitrary residency requirements have the potential to do real, long-term economic damage to Ohio’s construction and design industries.

If I owned a construction company or engineering firm and I were barred from competing for a municipal contract just because too few of my employees resided in that jurisdiction, my response is going to be to go back to my home town city officials and ask them to enact similar restrictions.

If I owned a construction company or engineering firm near the state border, I’d have to seriously consider moving to an adjoining state to skirt these residency requirements that thwart me from competing in the marketplace.

Taken to its logical extreme, if these residency requirements are allowed to stand, we will end up with a situation in which contractors and designers will be frozen out of being able to compete in many jurisdictions. That will lead to less competition and higher prices for public works design and construction contracts. It’s simple supply and demand.

Most worrisome, however, is the threat these residency requirements pose to the public health and safety. These municipal residency requirements conflict directly with a key section of the Ohio Revised Code that specifies how local governments are to select engineers and architects for the design of public works projects.

Section 153.65-.73 requires that when a local government seeks to contract with an engineering firm to design a public works project, that contract award must be made to the “most highly qualified firm,” based on a defined set of criteria – and where the employees of competing engineering firms live is not listed as a qualification factor that may be considered in the evaluation process.

Few of us ever think about the vital importance of our water systems until problems occur, such as we have seen in Toledo, and Flint, Michigan and Sebring.

We believe that to allow the designers of these critical systems to be selected on the basis of anything other than professional competence is simply rolling the dice with the public health and safety.

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White House chief economist supports reduced licensing

By Alan J. Beam

Jason Furman

The Chairman of the President’s Council of Economic Advisors testified February 2 on occupational licensing before a United States Senate Subcommittee.  The White House’s chief economist Jason Furman noted, “The share of the U.S. workforce covered by State licensing laws grew from less than 5 percent in the early 1950s to 25 percent by 2008.” Furman warned that the growth of licensing restricts opportunities. The chairman’s timely testimony is especially relevant for the state of Ohio, given that its state senate will vote February 9on this issue.

The Buckeye Institute reported on the excessive regulations and requirements that were attached to gaining cosmetology licensure in Ohio. Tom Lampman found that the state mandates a hefty 1,500 hours of training, which has an estimated cost of anywhere from $6,500 to $10,000. That is to say, if one were interested in getting paid to braid hair or paint nails in the Buckeye State, but didn’t have the upfront costs lying around, they might as well sell their car to make up the difference.

Tom Lampman

Furman focused on the distinction between practices that threaten the livelihood of consumers and those that don’t. The chairman juxtaposed the idea of consumers preferring their physician to be certified, but not caring if their cosmetologist was, as there is no threat to their health in the case of the latter. This too was a point made by Lampman when he brought the cosmetology requirements of two other prominent states to the forefront. “New York and Massachusetts license cosmetologists with 500 fewer hours of training than Ohio, and neither state seems to be suffering from many hair-dye-related injuries,” wrote Lampman. Both Furman and Lampman identified this as bad policy.

Why does all of this matter, though? It comes down to this: Ohio’s current policy is creating an inefficient market that is bad for Buckeye business and worse for employees.  Furman summed it up as follows, “Licensing requirements can create benefits for licensed practitioners at the expense of excluded workers and consumers—increasing inefficiency and inequality…they can also reduce employment opportunities and depress wages for excluded workers.” These upfront licensing costs are chasing off the entrepreneurs of Ohio that would like to braid hair or paint nails without having to pay thousands of dollars in upfront, unnecessary expenses. Those who cannot afford these costs simply don’t open up for business or cannot get a job promotion. This results in higher costs for consumers, as it stifles competition in the market.  Getting rid of Ohio’s cosmetology manager’s license is an opportunity for Ohio to take one small step to reducing the growth of licensing laws that worry Chairman Furman.

Alan J. Beam is a policy and communications intern at The Buckeye Institute.

 

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The Ohio Supreme Court case hears a case today that’s crucial for school choice in Ohio

Public schools are misusing public records law to prevent students from learning about K-12 scholarships that help kids leave failing schools

The Ohio Supreme Court will hear oral arguments today in a case involving the Springfield City School District’s sordid use of Ohio’s public records law to thwart school choice. The high court’s hearing is a well-timed coincidence: This is National School Choice Week, so a public display of how public schools fight against educational options makes for students makes for a “teachable moment.”

An ad for National School Choice Week, now underway.

Since 1995, Ohio has been a leader in educational choice. That year, our state started the nation’s first tuition voucher program, upheld in a landmark U.S. Supreme Court case, Zelman v. Simmons-Harris. We’ve since expanded educational choice for parents and students by adding scholarships and other programs.

However, public schools, especially bad ones, don’t like to tell students’ parents that they can seek better education elsewhere and scholarships are available to offset some, perhaps all, of the cost. In Ohio, the state provides up to 60,000 scholarships annually, each worth as much as $5,000, to help pay the cost of private school tuition for students in low-performing schools. Yet only one-third of these scholarships get used. Most eligible parents don’t know—literally do not know—that the state provides financial help if they want to send a child to, for example, a Catholic school that charges tuition.
Since 2005, School Choice Ohio, a non-profit group, has been trying to tell parents by mail, phone, social media and community events that their children may qualify for these scholarships. The group has depended on school directories to get lists of families who might be eligible. These directories are public records under Ohio law and federal law. Under federal law, the release of “directory information” is specifically permitted and not considered a violation of privacy.

In 2013, two Ohio public school districts decided to challenge the practice of giving School Choice Ohio a list of student and parent names. The Cincinnati and Springfield school districts changed their policies to argue that, using their discretion to interpret federal public records law, the release of directories could now be deemed a violation of privacy. After years of providing the information to School Choice Ohio, the school districts claimed they had the power to stop based on their “discretion” to interpret public records law.

In 2014, the Cincinnati school district abandoned the case and settled with School Choice Ohio. That leaves just the Springfield City School District fighting the release of student directories. In reality, Springfield is fighting this as a test case for the entire Ohio public school establishment.

The Ohio School Boards Association, the Buckeye Association of School Administrators and the Ohio Association of School Business Officials filed a legal brief supporting the Springfield school district. These groups want the Ohio Supreme Court to make the denial of student directories to education choice advocates a statewide policy. “School districts must retain the necessary discretion to decide how to best educate their students and protect their privacy interests because they are in the best position to make such an evaluation,” the association’s brief said.

School Choice Ohio’s lawyers have noted that the Springfield City School District still releases student directories to third parties that it likes—universities, charities, youth ministries, potential employers, the armed forces and so on.

The real issue is that Springfield decided, in its own words, to “fight back” and be “aggressive” in preventing students from using scholarships to leave district schools, especially the seven “low performing” schools in the 16-school district. The district’s anti-choice campaign included sending direct mail to the same addresses as School Choice Ohio. Denying School Choice Ohio access to the names of eligible students is part of the effort to keep students and the state funding attached to them.

The Buckeye Institute, as an advocate of school choice and open government, will state the obvious here: Open records laws aren’t weapons for school bureaucracies to use against poor families, children with Autism and other students in need. The Ohio Supreme Court needs to make clear in this case that open records laws serve the public, not bureaucracies that are failing its students.

A photo from School Choice Ohio’s annual report

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Why a new cleveland.com property tax analysis is important for Ohio

Rich Exner, data expert at cleveland.com

Rich Exner, data analysis editor at cleveland.com, has an outstanding analysis today of how property tax rates differ around Ohio. His story has a searchable database for all municipalities and school districts in seven northern Ohio counties, plus a map of the average tax rate in every Ohio county.

The five Ohio counties with the highest average property tax rates are, in order, Cuyahoga, Montgomery, Franklin, Lucas and Hamilton. The highest property rate in all of Ohio belongs to part of Harrison Township, located near Dayton.

Did you know we didn’t know this before today?

Exner’s analysis overcomes a serious barrier to understanding property taxes in The Buckeye State. Ohio has thousands of governmental jurisdictions that levy property taxes. The jurisdictions overlap — a school district may cover many municipalities or vice versa, for example — making it nearly impossible to compare one place to another in a meaningful way.

Complexity is not a taxpayer’s friend. You can’t manage what you can’t measure. Ohio’s Department of Taxation does a good job of providing tax data in raw form, but making the data meaningful requires heavy lifting by smart people.

Ohio Treasurer Josh Mandel has done a great job putting spending data online (at ohiocheckbook.com). The state web site documents every check written by most state agencies (but not universities) and nearly 500 local governments (more on the way). The web site is searchable, but the real value is so far untapped: the massive raw data itself. “Big Data” drives the modern economy. It’s how Google Maps tells you the best route from Place X to Place Y. Big Data lets smart, technically savvy people harvest patterns previously invisible.

The Buckeye Institute was the first to put government salary data online. Big Data. Since 2010, more than 13 million searches have been done on this data, a testament to the utility of the information.

cleveland.com, a sister company to The Plain Dealer, deserves thanks for organizing property tax data in a way that helps us understand how our governments function. The dataset isn’t massive — like ohiocheckbook.com – but it’s darn complicated. Exner’s report doesn’t tell us whether tax rates are too high or too low. It just tells what tax rates are. It’s an example of transparency at its best.

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A solid year for jobs in Ohio in 2015, except for energy industry struggles

Rea Hederman

By Rea S. Hederman, Jr., and Joe Nichols

Ohio’s unemployment rate ticked up to 4.7% in December from 4.5% in November, but that’s not necessarily a bad thing because labor force participation rate also increased during the month.

How do those two data points fit together?

Well, the labor force participation rate shows the number of working-age people who are employed or looking for a job. A high number is a good thing because we want people work or at least looking for work, so they can be productive and support their families. When people enter the workforce, it can take a while for them to actually find a job. In the meantime, they are counted as unemployed.

The unemployment rate counts people who are “in the labor force”— the employed plus those who want a job but don’t have one. Working-age Ohioans have increasingly stopped looking for work altogether, causing them to not be counted as unemployed because they aren’t in the labor force. This pushes down the unemployment rate – but for an economically unhealthy reason.

Joe Nichols

Many people who dropped out of the labor force in the wake of the Great Recession have been slow to re-enter the job market. It is good to these people returning to the labor force in December, even if causes the unemployment rate to increases.

Overall, nearly every industry employed more people during 2015. The major exception was the mining and logging industry, which shrank by 11.5%. This decrease happened for two reasons. First, oil and gas production fell because prices for those products are so low that companies can’t continue investing money and keeping people employed. Second, federal environmental regulations are hitting coal mining hard, forcing coal companies to layoff workers. Unfortunately, these trends are likely to continue in 2016.

One bright spot in 2015 was nondurable goods manufacturing, which added 11,700 jobs to grow by 5.4%. Manufacturing still has a strong foothold in Ohio, partly because low energy prices (aided by oil and gas development in the Utica shale) have made our manufacturing sector more competitive.

In sum, 2015 was an encouraging year for employment in Ohio. For 2016, keep an eye on the labor force participation rate. As long as it’s going up, don’t fret about small increases in the unemployment rate.

Rea S. Hederman, Jr., is executive vice president of The Buckeye Institute and director of its Economic Research Center. Joe Nichols is the William & Helen Diehl Energy and Transparency Fellow at The Buckeye Institute.

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Why Ohio and other states should win legal fight against Clean Power Plan, despite recent setback

By Joe Nichols

The fight against federal carbon dioxide regulations (the “Clean Power Plan”) was dealt a blow on Thursday (January 22) when the D.C. Circuit Court of Appeals declined to halt implementation while the Court determines the legality of the regulations. The Obama Administration may be pleased temporarily, but opponents should not despair. This minor setback matters little in the long game that is the legal challenge.

Ohio Attorney General Mike DeWine

Law and evidence still points to a victory for affordable and reliable electricity, and a loss for the President’s misguided ambition to have the federal government usurp powers that clearly belong to the states. Ohio Attorney General Mike DeWine recently won a federal appeals court victory that brought a halt to a similarly overreaching power grab on environmental regulation of water. The water case matters enormously because the same legal issues are involved. What doomed that Clean Water Rule case should eventually do the same to the administration’s Clean Power Plan.

Obama’s dream is that these two monumental environmental policies will define his second term. But a coalition of 27 states, many companies and other interested parties (including The Buckeye Institute) have sued in court to preserve state sovereignty and affordable electricity. At stake is nothing less than the fundamental balance of power between the states and the federal government.

In this article, I explain how the water and air regulations are connected in a legal sense and why they are both likely to be rejected when the outcome is settled, probably in 2017 at the U.S. Supreme Court.

Ohio led a 17-state legal fight to deep freeze Obama’s Clean Water Rule before it was implemented. Our state won a stay stopping implementation of the water rule on October 9, 2015. The three key arguments that stopped the Clean Water Rule apply equally as well to the Clean Power Plan.

First, the Clean Water Rule tried to expand the Environmental Protection Agency’s (EPA) jurisdiction beyond the limits of legislation, the Clean Water Act. This jurisdictional overreach upsets a well-established balance of power between the states and the federal government.

The same is overwhelmingly true of the Clean Power Plan. The EPA’s attempt to expand federal power hinges on a single word – “system” – in an obscure section of the Clean Air Act. Put simply, the EPA claims that the entire national electric grid is one “system” over which it has authority.

Not only is this interpretation far more expansive than the Agency has ever claimed in the 50-plus year history of the Clean Air Act, but it clearly violates the Federal Power Act, which granted states’ authority over retail energy markets in 1935.

Second, the EPA wrote the Clean Water Rule in a way that explicitly contradicts a prior Supreme Court opinion. The Supreme Court restricted the Agency’s jurisdiction to waters that have a “substantial nexus” to navigable waters. The new rule tried to give EPA authority over such things as seasonal drainage ditches (i.e., puddles) whose nexus with navigable waters is hardly “substantial.”

Likewise for the Clean Power Plan. The regulation flies in the face of Justice Antonin Scalia’s 2014 ruling on greenhouse gas regulation:  “When an agency claims to discover in a long-extant statute an unheralded power to regulate ‘a significant portion of the American economy,’ we typically greet its announcement with a measure of skepticism.”

Nothing is long-extant if not section 111(d) of the Clean Air Act, a 298-word section of the law that the Agency has only used to write regulations five times since 1970. The EPA wants to use this snippet of law to control the entire national electricity grid, a decidedly “significant portion of the American economy.”

Finally, the appeals court agreed that the Administration engaged in an improper rulemaking process for the Clean Water Rule. The public comment period for the proposed rule didn’t include the specific distance limitations defining what constitutes a “substantial nexus” to navigable waters, for example. Further, the final distance limits were not specifically supported by scientific evidence.

This finding mirrors flaws in the Clean Power Plan. The EPA set emission reduction goals for each state and solicited comments from the public. Then, the EPA drastically changed the numbers in the final rule. Ohio’s carbon dioxide emissions reduction target increased from 28% to 37%. Ohio never knew the EPA was considering hiking our target that high, so we never got a chance to comment or challenge the regulation dropped on us.

The Buckeye Institute and the State of Ohio are now part of a large coalition that is litigating against this federal overreach. Oral arguments will take place June 2, and although the D.C. Circuit denied the stay, it agreed to expedite the case.

No one has a crystal ball, but the recent Clean Water Rule victory is evidence that a decisive win in the Clean Power Plan lawsuit is likely. The Supreme Court may decide on the case before state compliance plans are due, so the prudent course of action is for states – Ohio included – to not commit to costly compliance until the case is resolved in the nation’s highest court.

Ever optimistic: Joe Nichols, the William & Helen Diehl Energy and Transparency Fellow at The Buckeye Institute

 

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A not-so exclusive club: State employees earning $100,000+ a year

The number of state government employees earning $100,000 or more increased by 7.5% to 2,226 in 2014, according to an analysis of data on OhioCheckbook.com, the state treasurer’s web site. (Ohio State University does not yet supply salary data, so this is an Urban Meyer-free salary zone covering more typical government employees.)

Who were our state government’s top earners in 2014, the most recent year available?

DOCTOR. The highest paid state employee for six years in a row has been Dr. Zinovi Goubar. The 63-year-old doctor was born in Kazakstan, educated in the Ukraine and works as a psychiatrist at a state behavioral hospital near Cleveland. In 2014, Goubar earned a regular salary of $176,272 ($86 per hour), plus $218,433 in overtime. A collective bargaining agreement requires that a psychiatrist be on duty at all times, creating plentiful overtime.

LAWYER. The state’s highest paid non-physician was attorney Chris E. Barley, who is collecting back pay after the Ohio Supreme Court ruled in 2012 that he was improperly fired by the Ohio Department of Job and Family Services in 2006. Barley was paid $310,929 in 2013 and $253,875 in 2014. His regular pay is about $100,000 annually.

Gov. John Kasich: He’s no Arthur C. Bryant.

GUARD. Arthur C. Bryant, a $21-an-hour juvenile corrections officer, earned $120,425 in 2014, including $72,609 in overtime. Because of  seniority, the longtime corrections officer has first claim on overtime. He pretty much takes everything offered, working 80 hours a week and turning a blue collar job into a $100,000+ salary, year after year.  The long hours were boost his state pension. Two other $21-an-hour corrections officers join Bryant in the $100,000+ club: Myron “Bud” Rife. Jr., and Chinwuba O. Ibezue.

POLICE. Two Highway Patrol Troopers — Darrell L. McClain and Michael Weber — used overtime hours to boost their $30 per hour jobs to over $100,000 in 2014.

ELECTED. Ohio Supreme Court Chief Justice Maureen O’Connor was the state’s highest paid elected official, earning $158,000 in 2014. Gov. John Kasich made $148,316 (no overtime pay). The Attorney General, Secretary of State, Treasurer and Auditor all made $109,565.

 

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