Remedy Politics 101: CA Gov. Jerry Brown requires charter cities to pay prevailing wage

California Governor Jerry Brown has recently highlighted a classic case of what I call ‘Remedy Politics’: special interest groups elect representatives using their democratic power to pass legislation to ‘remedy a wrong’ affecting their group in an expensive win-lose game with the rest of the citizens and taxpayers.  On October 14, 2013, Governor Brown signed a bill into law (Prevailing Wage Law) that requires all 121 California charter cities (out of 482 cities in the state) to comply with the state’s prevailing wage law to hire union contractors for public works projects (even if 100% private and/or city-financed) or lose any state funding for future projects.  Consequently, charter city managers can no longer freely bid out business to qualified non-union construction companies IF the city wishes to receive state funding in the future for other projects.  The law guarantees taxpayers will spend more money on public construction that could be re-invested in new education solutions, welfare to work Pay for Performance job training programs, and Community Revitalization initiatives to help the most disenfranchised in society.

Where is the Constitutional principle of representative government by, of, and for all people as opposed to a conflicted government serving its own special interest groups at the cost to everyone else?  Special interest politics is a result of Darwinian natural selection among competitive social groups (eg capital and labor, taxpayers and tax takers) who act in political self-interest to remedy wrongs and/or secure competitive advantage for their cause.  Elected representatives, once in power, may also act in their own interest by establishing separate health insurance and pension programs from other government workers (eg Congressional benefits), above market salaries and rich defined benefit programs for government workers versus private sector, and state contracting rules that protect their constituents.  This Forbes Magazine analysis of state fiscal viability based on ratio of takers vs. makers provides simple math explaining a state, like any entity, can not have more people taking resources than people contributing to the government.

Prevailing wage laws across the country benefit one specific interest group, union contractors doing government business, at the high expense of the most disenfranchised people in society who most need the the right access and/or incentives to secure a good education, raise their family in a safe community with affordable housing, find a good job with the right skills, reap the fruits of one’s labor with expanded ownership, and invest to generate wealth and freedom from government.

What are solutions that benefit BOTH skilled construction workers and society at large including the most disenfranchised among us?  How can government ‘invest’ in a skilled work force and ensure competitive compensation for valuable front-line workers?

1. Strike state prevailing wage laws and allow state and city managers freely bid out business to in-state contractors.

2. Provide state tax credits for public works contractors domiciled in the state paying state taxes which a) have 401(k) programs and match employee contributions up to federal 401(k) matching limit and/or b) establish employee stock ownership programs in which employees own 20%+.  The tax credit would apply to ESOP debt amortization, which amount can be ABOVE the federal 401(k) limits up to an agreeable annual cap/full-time employee.  The state should reward its employers to provide a competitively priced product and service that also allows workers to own their labor and eventually get rich so they don’t depend on any government programs or resources.

3.  No state capital gains taxes for ANY employer stock sale to an employee stock ownership program or any investor stock sales in any business owned greater than 20% by non-founder, non-officer employees.  See Proposed Solution: Work.

4. For motivated people with household income at certain percent of the poverty level or recently released from jail, provide Pay for Performance job training programs like Minneapolis RISE in which the state pays a performance bonus to the vocational training school upon successful job placement for a qualified person ($7,000 upon placement with employer certification) and then a first ($6,000) and second year ($5,000) bonus payment if the individual is still gainfully employed full-time.  Employers and individuals can fund the vocational program, but the state should reward the centers for converting tax consumers to contributors over time.

To be clear, every worker, whether in a public works contractor role or not, should have the chance to own the fruits of their labor through aggressively expanded retirement savings options and employee stock ownership programs so they can become rich and free of government.  Special interest group dependence on government largesse actually weakens our social fabric by rewarding one group over the most disenfranchised, weakens government’s ability to serve all citizens, and results in more expensive and longer time to market projects.  By building an Ownership Society based on enlightened self-interest among cooperative social groups, we will harmonize society, generate the most taxable income, and get public works projects executed quickly by workers who are getting rich through savings and investment from their own labor.  That is the Ownership Society.