How Inflationary Policy Decisions Result In Fewer Schools, Roads, And Fighter Jets

Despite the highest inflation rate in nearly four decades, lawmakers and other government officials continue to support and propose policies that would further inflate the cost of taxpayer-funded projects. Controversial proposals that would exacerbate rising costs have been floated and are being pursued at both the federal and state levels.

At the state level, for example, recently reelected Michigan Governor Gretchen Whitmer (D) has announced that repealing the state’s Right-to-Work law and reinstating prevailing wage mandates, which were repealed by the legislature in 2018, will be a priority in 2023, the first time she’ll have a legislature run by Democrats. While Whitmer, fellow Democrats, and union leaders tout the higher pay that prevailing wage mandates provide for some workers, critics point out that such wage requirements cause state government to get less bang for the taxpayer buck.

A 2015 study by the East Lansing-based Anderson Economic Group, for example, discovered Michigan’s prevailing wage law drove up construction costs for Michigan school districts by $126.7 million annually prior to its repeal. Prevailing wage mandates mean some workers get paid higher wages, but the trade-off is that fewer schools and roads are able to be built than would be the case without such wage floors. Another recent example of the inflationary effect of prevailing wage mandates was seen in the move by New York Governor Kathy Hochul (D) to include such wage requirements in the deal for the new Buffalo Bills stadium, which has driven up the taxpayer cost of that project by more than $200 million.

Governor Whitmer announced in October 2021 that her administration would reinstate prevailing wage requirements despite the passage of legislation repealing them three years prior. “By reinstating prevailing wage, we are ensuring that working people get treated with dignity and respect, which starts with a fair wage,” Governor Whitmer said in announcing the new policy.

That move by Whitmer has been challenged in court by Associated Builders & Contractors (ABC) of Michigan, along with the Mackinac Center for Policy, who contend that Whitmer’s action is an unconstitutional imposition of the very wage mandates that have been repealed by the legislature. The lawsuit also contends Whitmer’s new policy did not go through the formal rule making process.

“We know union members are migrating to Republicans because of policy not politics,” Senate Majority Leader Mike Shirkey (R) said in response to Governor Whitmer’s 2021 announcement that she would reinstate prevailing wage mandates through executive action. “After losing the confidence of hardworking people in the building trades over her wasteful legal effort to shut down Line 5, she is trying to buy them back.”

An October 11, 2022 ruling by Judge Douglas Shapiro of the Michigan Court of Claims found that Governor Whitmer’s administration did not violate separation of powers by reimposing prevailing wage mandates through executive action. Judge Shapiro also ruled that the reimposition of wage mandates was exempt from the formal rule making process established by the Administrative Procedures Act of 1969.

“This dismissal was totally unsurprising, especially since we’ve seen the lower courts give Gov. Whitmer a pass on abusing executive authority before, as was evidenced by the lockdowns that ultimately were declared illegal by Michigan Supreme Court,” ABC president Jimmy Greene said in response to the October ruling. “Reinstating prevailing wage is yet another example of the governor using unilateral authority, this time to directly ignore the will of the people and the Legislature. We will bring this fight to the Court of Appeals on behalf of contractors and taxpayers. We hope they will dig much deeper on this issue and render a decision supporting our challenge.”

“Michigan workers deserve to be paid a competitive wage,” Attorney General Dana Nessel (D) said in response to the October ruling. “This ruling from the Court affirms the authority of the State to set best business practices and require fair wages be paid by those who do business with Michigan.”

While the ultimate outcome of that case is pending appeal, the new Democratic majority in the Michigan House and Senate could seek to settle the matter by passing legislation to reinstate the prevailing wage mandates that were repealed in 2018. In an interview published one week after the 2022 midterm election, incoming Senate Majority Leader Winnie Brinks (D) said that she and the new Democratic majority “will do what we can to do things like reinstate prevailing wage on state-funded projects and have solutions that pay workers fairly, ensure benefits and safe working conditions.”

Some Michigan Democrats want to go further than reinstatement of the prevailing wage mandates repealed in 2018, which only applied to government-funded projects. A member of the Democratic House majority taking power in January, Representative Rachel Hood (D), introduced legislation in May that would apply prevailing wage requirements to privately-funded renewable energy projects. Three months after Representative Hood introduced her bill in Lansing, federal legislation was enacted by congressional Democrats and President Joe Biden that applies prevailing wage mandates to renewable energy projects.

The Inflation Reduction Act signed into law by President Biden in August makes the provision of tax credits contingent upon renewable energy companies meeting federal prevailing wage mandates. “Renewable energy sectors already have a spotty track record on wages, and the trend could have continued if they had been further fueled with taxpayer subsidies,” explained a September 14 Center for American Progress report outlining the justification for imposing prevailing wage mandates on private sector renewable energy producers.

While Wage Mandates Inhibit Construction Of Schools & Roads By Making Infrastructure More Costly, A Pending Pentagon Decision Could Reduce Fighter Jet Production

Critics of prevailing wage mandates point out how they diminish the capacity for school and road construction, but the Pentagon is currently weighing a decision so costly that it could reduce the future number of F-35 fighter jets in service. The question now before the Department of Defense is whether to upgrade the existing engine used in F-35 fighter jets, or whether to create an entirely new engine from scratch with a brand new propulsion system developed through an Air Force initiative referred to as the Adaptive Engine Transition Program (AETP).

Aside from the price of development and production, pursuing the AETP engine would necessitate an additional network of supply chains needed to service the new engine and lead to the imposition of new costs associated with ongoing maintenance. The increased costs associated with the new engine, however, would mean that fewer F-35s can be built and put into service. U.S. Air Force Secretary Frank Kendall spoke to this reality at a September Defense News Conference in Arlington, Virginia. During that conference, Secretary Kendall remarked that the “price tag to develop and produce AETP could top $6 billion” and “that could lead to a hard trade-off.”

“If you have several hundred F-35s in your inventory, how many more F-35s are you willing to forgo to get the new engine? It’s an expensive engine,” Secretary Kendall explained. “It takes a lot just to do the development – several billion dollars. [That] is, in rough terms, 70 F-35s. So are you prepared to have 70 less F-35s in order to have that engine in the ones that you do have?”

As Secretary Kendall noted, choosing to develop the new AETP engine instead of upgrading the existing F-35 engine would mean fewer F-35s in service and thus diminished defense capabilities. Some believe Secretary Kendall’s estimate is conservative and that development of the AETP engine could reduce the future number of F-35s in service by as many as 100 planes.

Critics of the proposal to develop the AETP engine would prefer to pursue modernization of and upgrades to the current F-35 engine before investing billions on a new system started from scratch. There is a belief among many foreign policy-focused lawmakers and national security experts that the best option for strengthening national defense and preserving U.S. military superiority is to upgrade the existing F-35 engine. In July, Congressman John Larson (D-Conn.) sent a letter co-signed by 35 of his colleagues to Under Secretary of Defense for Acquisition and Sustainment William LaPlante that expressed concerns about the proposed AETP engine.

“In 2011, when a broad, bipartisan majority in Congress voted to cancel a second engine for the F-35, it saved the taxpayers upwards of $3 billion,” noted the letter, which was signed by both Democrats and Republicans. “This time, the Air Force has acknowledged that this is a costly and challenging endeavor that will cost at least $6 billion just to get the engine through development and into production. Furthermore, we understand that the Navy, Marine Corps, and the international partners have not agreed to share costs to develop a replacement engine, nor has the Department established any requirements agreed to by the U.S. Services and our partners.”

The decision on whether to develop the AETP engine or upgrade the existing engine, along with the effect that will have on the military’s choice in where to locate, produce, and house the next generation of F-35s, will have many state officials and members of Congress weighing in on the matter given the significant economic ramifications for various communities. Those factors and the ultimate priority of defending national security will weigh on the decision the Pentagon ultimately makes.

Is paying some union workers above market wages worth the trade-off of not being able to build as many new schools or as many miles of road? Is the creation of a new engine system worth forgoing an additional 70, or perhaps as many as 100 new fighter jets? These are the tough decisions that lawmakers and government officials are grappling with and will decide upon in the coming months. This decision over the F-35 engine, along with the debates over prevailing wage mandates being had at the state level, demonstrate the reality that on any given issue, none of the options are all good or bad. The debate is over trade-offs and whether the downsides of a given decision are outweighed by the benefits.