by Chris Braunlich
Last week the Virginia Municipal League (VML), representing the Commonwealth’s city, town and county governments, urged Governor Ralph Northam to delay legislation imposing new costs and unfunded mandates on them. They argued that the economic recession and uncertainty created by the COVID-19 pandemic have made both prohibitive.
The VML is right. During the eight years I served on the Fairfax County School Board, my colleagues and I often stared slack-jawed at the willingness of both Republican and Democratic state leaders to impose new mandates and staffing requirements on localities while providing little or no funding. Our amazement and discontent was bipartisan.
But what needs to be done doesn’t stop at the VML’s recommendations alone, which were limited to items having an impact on local government functions. League Executive Director Michelle Gowdy correctly notes that local “revenue from commercial properties are at risk as small local businesses close down. Whether these companies can hang on until the Coronavirus runs its course is unknown.”
Those local businesses feed local governments with taxes and salaried employees who also pay taxes. If their cost to operate rises so high that they cannot continue, they die and take their local tax revenue with them.
Nor is the VML alone. This week, a coalition of small business-dominated trade associations, the Coalition for a Strong Virginia Economy, issued a similar letter to the Governor. They not only endorsed the VML position of delaying the minimum wage increase and collective, but outlined other new burdens that should be delayed so Virginia’s economy can get up and running.
A review of just three demonstrates what the impact will be just as Virginia and the nation are coming out of a recession worse than the one after 9/11.
- Minimum Wage Increase: One of the issues raised by both groups, the bill on the Governor’s desk raises the minimum wage by 31% in just the first year, starting nine months from now. Raising the minimum also has the effect of pushing up other wages. The problem is that when you raise the cost of creating something, you get less of it. That includes creating and restoring jobs at precisely the time we need them most. Small and mid-sized businesses will have to decide between hiring back fewer people, reducing benefits, or just going out of business.
- Collective Bargaining: VML and the Coalition were likely persuaded by econometric studies demonstrating the increased costs from collective bargaining would have amounted to $3.5 billion to $7.4 billion in 2014 alone. With 2.7 million Virginia taxpayers, the simple math shows an added cost to families of thousands of dollars.
- Rising Construction Cost: Two additional bills would raise the cost of public construction projects. Project Labor Agreements (PLAs) discourage nonunion contractors and subcontractors (98 percent of Virginia’s construction industry) from competing to build taxpayer-funded projects. A study comparing school construction projects demonstrates that PLAs raise school construction costs rise 18 percent. They particularly impact non-union minority contractors, which is why the National Black Chamber of Commerce opposes them.
Raising wages on public projects to non-market rates has been shown to raise costs in Michigan by $127 million per year, and by $158 million per year in Illinois. Part of getting out of the recession will include spending funds on necessary public projects, but when costs rise, fewer people are employed, and taxpayers spend more to get less for their money.
Other bills facing the Governor have similar impacts. For example, VML seeks a delay in expanding eligibility affecting their workers’ compensation costs. Other bills they did not mention would similarly expand workers’ compensation costs for private sector employers. And according to the State Corporation Commission, the Green Economy Act, for which the Coalition seeks a delay, will raise the average residential electric bill by $333 or more a year – an added cost on businesses and the consumers who buy from them.
All of these bills — and more — were passed by a General Assembly flush from electoral victory and the fiery glow of a roaring economy. The numbers used to examine their impact were built on a house of cards that has now collapsed.
Both groups urge the Governor to amend the bills and delay their enactment by a year. A more effective strategy might be to amend the bills to include a re-enactment clause, forcing reconsideration in 2021.
This would require them to be re-passed by the General Assembly with a full debate, informed this time by the knowledge that even a great economic power can be brought to its knees by a microscopic virus.
Chris Braunlich is president of the Thomas Jefferson Institute for Public Policy.
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