PHX Reporter

In a renewed legal battle, the Goldwater Institute has filed a lawsuit against the City of Phoenix for enacting a new "prevailing wage" ordinance, just months after successfully challenging the city's prior attempt.

The ordinance places stringent requirements on businesses competing for public-works projects, including complex federal formulas, record-keeping obligations and weekly paperwork submissions, with heavy fines for even minor violations.

The Goldwater Institute represents the Associated Minority Contractors of Arizona, the Arizona Chapter of the Associated General Contractors of America and the Arizona Builders Alliance in the case.

John Thorpe, Staff Attorney at the Goldwater Institute's Scharf-Norton Center for Constitutional Litigation, highlighted the ordinance's problems.

According to Thorpe, the new measure closely mirrors a similar ordinance repealed after massive public outcry and concerns about its cost and legality.

“Last time it repealed that mandate amid massive outcry from stakeholders and even advice from its own staff that, the measure would be costly and probably illegal under state law,” Thorpe told PHX Reporter.

“It's done the same thing again. The measure clearly violates state law. There's a state prohibition on cities enacting prevailing wage regulations. Which is precisely what Phoenix has done.“

Thorpe argues prevailing wage regulations impose unnecessary costs on taxpayers, citing the city manager's estimate that a previous ordinance would cost Phoenix around $93 million.

“Prevailing wage laws have been around. At the federal level and also in various states for nearly 100 years,” Thorpe said.

“There's a large body of research on how these laws affect businesses and employees and taxpayers. Overwhelmingly, the research shows that the effect is negative, but it drives up costs for businesses to drive out, particularly small businesses, minority and veteran owned businesses and entry level workers. It also costs taxpayers more, and that means that they have to pay more and wait longer for public works projects to get done.”

The lawsuit, filed on Jan. 23, 2024, in Maricopa County Superior Court, seeks injunctive and declaratory relief to invalidate the ordinance.

The Goldwater Institute seeks to have the prevailing wage ordinance declared entirely invalid and unenforceable on the grounds that it violates both state law and the Arizona Constitution's due process guarantees.

“Prevailing wage regulations like this are bad news for everybody,” Thorpe said.

“For the taxpayer, it means higher costs and waiting longer to get public works projects done….for small business owners, for employees, employers and employees out there, it means more red tape means it's harder to get job opportunities and business opportunities.”

The ordinance regulates how contractors and subcontractors pay workers on public works projects, requiring a "prevailing wage" determined by the City Engineer based on federal government tables and imposing burdensome record-keeping requirements.

Violations, even minor or inadvertent, could lead to severe punishment, including restitution, triple damages, withholding contractual payments, and disqualification from future public works contracts.

The Goldwater Institute has a landing page with a full explanation of the case.

The newly passed ordinance applies only to construction projects costing $4 million or more, with key differences from the repealed ordinance, including an exclusion of projects part of the city's 2023 General Obligation bond, according to USA Today.

The council voted 6-3 in favor, with estimates suggesting an annual cost of $17 million to the city's infrastructure budget and the creation of 12 new positions costing $1.4 million annually.

Despite concerns over legality, Mayor Kate Gallego voted yes, citing Attorney General Kris Mayes' opinion supporting the legality of prevailing wages.

The Arizona Chapter of the Associated General Contractors of America also plans to sue over the ordinance.

The ordinance allegedly violates both state law and the Arizona Constitution.

“The purposes of Plaintiffs’ membership organizations are to represent and advocate for the interests of contractors and subcontractors, including interests that are impacted by state and municipal law that affect contracting and subcontracting businesses and the contracting and construction trade,” the complaint reads.

“The Prevailing Wage Ordinance directly regulates how Plaintiffs’ members engage in their trade and conduct their businesses, including how Plaintiffs’ members compensate workers, engage in record keeping, and respond to requests for proposals and invitations for bids issued by the City.”