Prevailing Wages are Retarding Growth and Job Creation in my Hometown Toledo, OH:
a Case Study
I’m following the Toledo Blade’s coverage of Mayor Mike Bell and the Dashing Pacific Group’s attempted acquisition of the Marina District Property. (here
) and (here
). The city owns a significant stretch of undeveloped prime riverfront real estate. Up until this week it had a willing buyer/developer who sketched out a $200M residential light commercial development plan that would attract a diverse, moneyed, and international clientele. I can just imagine the amount of tile that will go into this development. Now what happened is a good deal hatched between mayor Mike Bell and DPG is falling through because city council wants to put a deed restriction in place which would require prevailing wages. For over ten years, the property has been a development target by various developers, most recently by Dillin Corp. – a local developer who flew high on leverage with the lovely Levis Commons development (a union only project), but is now in the dumps
in this our post real estate credit bubble collapse. No doubt he is in the dumps because the cash flows from current rents do not justify his prices paid for union labor. The main point here is DPG is stepping away from the deal. Good for DPG bad for Toledoans.
What we have here is binary, on or off. With prevailing wage restrictions, no deal – no jobs. Without restrictions, the deal lives and the jobs prospect follows.
Score: Aggregate Demand Argument 1 Free Market Argument 0.
In the article, Mayor Bell rightly raised questions about Toledoans’ understanding of the Global Marketplace. I agree. We have a great value in Toledo, inexpensive real estate, access to world markets, great universities, four seasons, skilled workers, and more. Of these, I think real estate leads the pack. Ours is an undervalued asset. One only needs to look at the fact that investors from the coasts and overseas are buying up our housing to hold for investment or to improve and rent back to us. Our properties cash flow
among the best cities in the US, and in deflationary economies (your home values your wages) cash is king. Investors don’t get cash flows from rents on the coasts – they gain on appreciation (speculation as of late). That speculation appreciation bubble broke…hard. Meanwhile our real estate has room to appreciate in relation to other markets, because it is undervalued, our location is remarkable, and it matters not in a global marketplace where you lay your hat to call home, so long as it is nice and live-able. I believe that as the middle class gets squeezed by food and fuel coupled with stagnant wages, families outside Toledo especially mobile wage earners will come to consider locales such as ours as a good place to call home simply because of the quality of life and their housing dollar goes farther here. This is what I believe Dashing Pacific sees in Toledo and the Marina property in particular. And here the Marina development is essential toward the nice-ness dimension and attracting new moneyed residents. I think this is the globalization point wasted on most Toledoans.
To get there, we need to break away from the protectionist views espoused by councilpersons Phil Copeland (Laborers Local 500 Sec-Treasurer) and Adam Martinez (union backed politico
). Mr. Copeland says he is, “Pro-Citizens of Toledo” that he makes decisions based on “what affects the citizens of Toledo.” Mr. Martinez feels council has a duty to protect, “our tax base and citizens”. So long as I am held out from working on cherry projects such as the Marina, Messrs. Copeland and Martinez do not speak for me, a job creator
. I guarantee most union contractor Owners and managers do not even live in Toledo. And how does Mr. Martinez justify his protection of the tax base when he chases $200M in foreign direct investment out of the city? For what? Another 10 years in development Purgatory.
Note to Messrs Copeland and Martinez: Refer to the latest census report. People are fleeing the Midwest, principally Michigan and Ohio. This is clearly because we no longer have a lock on opportunities. In fact ours pale in comparison to other regions/nations. Manufacturing alone will not deliver us. Our president even says the jobs lost in the last recession will not be coming back. And, then there are structural problems with the governance and policies of our region. Adherence to prevailing wage requirements is but one of the problems. One only needs to look at nearby Detroit, a city which lost 25% of its population from 2000 to 2010, to see what is to come for Toledo so long as we cling to these old policies which are manufacturing centric and dependent upon a unionized political base. In the words of Upton Sinclair, “It is difficult for a man to understand something when his salary [power base] depends on his not understanding it!” On the flip side I also understand why Messrs Copeland and Martinez must fight zealously for prevailing wages on the Marina property and on any other project of import in Toledo. An undisclosed source tells me that Toledo is one major project going non-union away from becoming a right-to-work town. That as soon as one major property owner goes non-union so goes the hospitals and others.
Now look back at the Marina property and consider how similar it is to large swathes of Detroit. So long as the Marina remains fallow, the adjacent Front Street/Waite/East Toledo area will continue its decay. Here is where prevailing wages are hindering our recovery. And, I am reminded how Socialism destroys incentive. In Toledo we are still promoting it through Unionism, taking wealth from our collective tax revenues and redistributing it through prevailing wages (or lack thereof) in a way which makes us all more equally poor and miserable.
Now that I have said this my piece, Score: Aggregate Demand 1, Free Markets 10.