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.

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’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.

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.