A new law aimed at getting Hawaii construction tradesmen back to work should generate more local jobs on some upcoming projects.

But public works projects that receive federal dollars will be exempt, including two of the largest — rail and highways. The federal government has earmarked $200 million for state highway and bridge improvements and the city’s $5.3 billion rail proposal hinges on a $1.55 billion federal contribution.

Supporters of the bill acknowledge that federal law supersedes the new state regulations. However, they note the state Legislature budgeted $4.5 billion for more than 2,300 public works projects in 2008 and 2009 and not all are bound by federal procurement law.

Whether the bill will achieve its intended effect on locally-funded jobs is up for debate. State Comptroller Russ Saito suspects the quota might discourage competitive bidding and open contracts up to legal challenges. A number of industry groups shared Saito’s concerns.

“The cost of jobs will go up and they’ll be delayed,” Saito said. “It’s not likely to increase jobs.”

Dubbed the “Local Jobs for Local People” law, Act 68 requires that Hawaii residents must comprise 80 percent of the workforce for government contracts. Since 2007, construction jobs have fallen by 20 percent, according to a report commissioned by the Painters Local Union 1791, a primary supporter of the initiative. Forecasts by the University of Hawaii Economic Research Organization predict that construction spending this year will be down 17 percent from 2009, but will start rising again next year, in part because of government projects.

Until the economy recovers, the local jobs law is intended to ensure that the majority of local construction jobs go to people who live and spend their wages in the state, said state Sen. Robert Bunda, who introduced the bill. (The law doesn’t have a sunset.)

“It’s to keep the money here in Hawaii. You have 80 percent of the residents on projects from in state,” he said after the state Legislature overrode a veto of the Senate Bill 2840 by Gov. Linda Lingle.

Testimony from labor unions during the past legislative session reflected their frustration that Hawaii tradesmen have faced rising unemployment numbers while government contractors have hired workers from out of state.

“If there are jobs outside the scope of duties for existing government employees, such as for these large public construction projects, the tax dollars that are used to pay for the work should be thoughtfully directed to heal our economy,” wrote Nora Nomura, deputy executive director of the Hawaii Government Employees Association.

But industry groups expressed concern that the legislation could lead to litigation and payment delays. The General Contractors Association of Hawaii, representing 570 firms, concluded in written testimony that “these provisions will lead to increased project costs, bid protests and delays in executing contracts. All of these will not be in the best interest of the public or the residents who would like to work on these projects that will be delayed by bid protests or cancelled due to lack or lapse of funds.”

While there’s little debate over whether it’s important to get tradesmen back to work, some of the biggest projects in the pipeline are exempted from the state quota because federal law prohibits discrimination or preferential hiring on any grounds, including geography. Since the proposed Honolulu rail plan will use federal funding, the hiring restrictions won’t apply to the thousands of jobs the project would create — as many as 10,000 by city estimates. Others estimate a lower total, but still acknowledge that it will create jobs.

In November 2009, Mayor Mufi Hannemann and 12 private sector labor unions signed the Rapid Transit Stabilization Agreement that ensures contractors will offer comparable pay and standardized work conditions to all its employees, whether they are union or not. The intent is to stave off potential labor disputes and take away incentive for contractors to bring in out-of-state workers who might work for lower wages.

No such agreement is required for many other government jobs that rely entirely on local funding. Supporters of the law expect it will keep millions of dollars in wages and taxes in Hawaii. “In an economy like this, every job counts and a mandate like this does more than tries (to create jobs). It guarantees a certain level of local people will be put to work on these projects,” said Nathaniel Kinney, a labor attorney and organizer for the International Painters Union and Allied Trades, District Council 50.

Kinney provided a report by two mainland university economists who analyzed the economic impact of hiring local construction workers over bringing them from out of state. In one section, they looked at an alternative rail route that had been considered in 2008. According to the report, that route — longer than the one ultimately chosen — would have created 12,000 construction jobs. If 67 percent of workers were imported, the state would lose out on $299 million in economic activity and $22 million in tax revenue. By contrast, if 80 percent of workers were Hawaii residents, it would add $210 million to the local economy and only $7 million in local taxes would go out of state, the economists estimated. In addition, 1,670 local jobs would be saved, they said.

Nevertheless, the city can only encourage rail contractors to hire locally without running afoul of federal law. The same applies to the state transportation highway, harbor and airport projects that received $199 million under the American Recovery and Reinvestment Act (stimulus funds).

“Whenever we use federal funds, we cannot have prohibitions on contractors,” said state Department of Transportation Director Brennon Morioka.

But Morioka pointed out that being exempt from the law doesn’t mean that local workers won’t be hired. In fact, he said it’s generally more cost-effective to work with local contractors who have equipment and laborers here than to bring equipment and people over from the mainland, he said. “Almost all of our contracts are with local contractors,” he said.

Craig Nishimura, director of the city’s Department of Design and Construction, has concerns projects could be delayed due to potential legal challenges, but said “for normal types of projects, it’s not all that much of a concern.”

Like Morioka, Nishimura said even without the law, local workers should be hired. “We do have mainland contractors, but they’ve been here a while, so they hire locals who supplement the mainland hires,” Nishimura said. He expects that there are enough Honolulu workers for the city to meet the quotas in the new law.

Nishimura raised concerns about problems that could arise if necessary skill sets can’t be found in the local worker pool, but the law makes an exception for shortage situations.

Kinney, the labor lawyer, said the push for the local jobs initiative was a result of contractors hiring out-of-state workers for projects such as a $10.5 million renovation project at Aloha Stadium that employed 50 workers — most from out of state, according to legislative testimony.

Even if federal projects are left out of the equation, having a law on the books should stimulate the industry, Kinney said. “In an economy like this, every job counts and a mandate like this more than tries (to create local jobs). It guarantees a certain level of local people will be put back to work,” he said.

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