State public works enforcement more than pays for itself

OPINION – A challenging state budget cycle and difficult choices about spending priorities have a way of focusing the mind on questions of return on investment for the taxpayers who ultimately foot the bills.

For everything that is on the proverbial chopping block in the wake of the Governor’s May budget revise, there are cases to be made, and hard conversations to be had. In other cases, where spending is pre-determined due to longer term federal or state policies, the question is really one of how best to maximize returns and position our state for longer term economic and fiscal health.

Both the nation and state of California have committed to generational investments in transportation, energy, broadband and other types of public infrastructure. Beginning in 2022, the total estimated funds from federal infrastructure investments will total $41.9 billion over the next five years, and Governor Newsom has allocated $19.6 billion in Transportation funding alone as part of the 2024-2025 budget.

Collectively, these infrastructure expenditures will involve awarding tens of billions of dollars to private construction businesses tasked with managing subcontractors, meeting each project’s skilled workforce needs, abiding minimum safety, labor and other regulatory standards, and getting the job done right.

Reams of academic evidence tells us that when this happens, it is a boon both to the economy and to public budgets. A study by the World Bank concluded that infrastructure returns $1.50 to the economy for every dollar we invest. But when it is done wrong, workers, taxpayers and businesses can all lose.

In California, one study estimated that taxpayers lose $775 million in payroll tax revenue every year by virtue of construction businesses misclassifying workers as independent contractors, paying them in cash, or stealing their wages altogether. Others have pegged the annual cost to the nation well into the billions, and that still doesn’t include the additional costs and risks associated with contractors skirting safety rules, licensure requirements, and more.

It is for this reason that public agencies are needed to oversee these projects. They exist as taxpayer watchdogs that can ensure we are getting what we paid for, and to make sure that businesses being awarded public funds are delivering the job quality and workmanship they promise when bidding on projects.

In California, the agency tasked with oversight of the coming onslaught of public infrastructure investment is the Public Works Unit of the Department of Labor Standards Enforcement (DLSE).

Publicly available data shows that this agency is proving to be a great value. In the 2020-21 fiscal year, this investigative agency spent just over $12.6 million, and recouped more than $14 million in wages and penalties from non-compliant contractors.  That’s like giving someone $1 and getting $1.11 in return, in addition to the 50% return to the economy that is already associated with infrastructure investments.

Put another way, if your family was facing lean financial times and someone told you that they could boost the returns on investments you’d already made by 11% per year by taking out an insurance policy that paid for itself, you’d probably throw everything you could at it.

Today’s grim state budget realities not withstanding, California stands to benefit greatly from the historic state and federal investments in infrastructure that have already been signed into law.  It seems obvious that one of the primary concerns should be to protect those tax investments and boost our returns.  Funding for DLSE, and its public works unit, functions as an insurance policy to ensure these projects deliver not just the construction value—but also the job quality and economic benefits that have historically made these projects such sound public assets.

Ultimately, as the legislature considers hard choices in the budget process ahead, it is clear that DLSE and its public works unit should be protected, because they more than paying for themselves.  With more public construction investments coming through the pipeline, California needs this vital agency to be properly staffed with ongoing funding at levels higher than today.

It’s one investment that has consistently proven to deliver.

Dina Morsi is the Executive Director of NorCal Construction Industry Compliance, a joint labor management organization that promotes equitable public contracting standards.