Hostage-taking on the Silver Line

Steven Pearlstein
Columnist May 5, 2012

If you want a perfect example of why government has become dysfunctional, look no further than the Board of Supervisors of Loudoun County, Va.

A majority of the newly elected, all-Republican board has threatened to derail the extension of Metrorail out to Dulles Airport and beyond because of a requirement that the general contractor for the project negotiate a “project labor agreement” with local construction unions.

Steven Pearlstein is a business and economics columnist who writes about local, national and international topics. View Archive

Never mind that county supervisors generally don’t involve themselves in the contracting details of a $5 billion project managed by a regional agency representing three states and dozens of other local jurisdictions.

Never mind that previous Boards of Supervisors had long ago committed the county to the project, which was subsequently designed and financed based on those assurances.

Never mind that only 4.8 percent of the so-called Silver Line extension — and only 50 percent of the Loudoun stations and track work — are being financed by Loudoun taxpayers.

Never mind that the general contractor for the first phase of the Silver Line project voluntarily entered into such an agreement to get access to a sufficient number of skilled workers, a no-strike pledge from unions and considerable flexibility on work rules.

No, what’s truly astonishing is that Republican politicians would even consider killing a project of such overriding importance to their county, their state and the Washington region just to stick it to labor unions and their Democratic allies.

What we’re dealing with here is yet another example of government by hijacking. If we don’t get everything we want, we’ll kill the project, we’ll close the government, we’ll put the U.S. Treasury into default. As the infamous general said in Vietnam: We had to “destroy the village in order to save it.”

In this poisonous political atmosphere, every little disagreement becomes a test of wills that must be fought until a total victory is won. It’s not about what’s good for the country, or the state, or the county — it’s all about politics and winning.

It’s just a hunch, but let me go out on a limb and say that, until this year, there weren’t many county supervisors — let alone many voters — spending waking hours worrying about project labor agreements. Someone must have wanted to call attention to the issue, and in this case it was the Associated Builders and Contractors, representing mostly nonunion firms. In this effort, they have made common cause with the ideological zealots of the Republican Party who are constantly on the lookout for any opportunity to destroy the labor movement.

After these folks first raised the issue earlier in the year, officials of the Metropolitan Washington Airports Authority, which manages the Silver Line construction, went to Richmond and hammered out a compromise. A project labor agreement would not be required, but bidders who had one would get extra points in the evaluation scheme. The airport authority was led to believe this compromise was acceptable to Gov. Robert McDonnell, who took a personal interest in the issue, and Virginia Secretary of Transportation Sean Connaughton. The attorney general’s office also said it complied with a new state law rushed through the legislature by the contractors lobby.

When the contractors balked, however, the governor and the secretary renounced the deal and demanded that all reference to the labor agreement be removed, setting that as a condition for Virginia’s continued participation in the project, with a majority of the Loudoun supervisors joining in. To drive home the point, they rammed through the special session of the legislature yet another law explicitly outlawing any consideration whatsoever of a labor agreement in the awarding of contracts.

False assumptions

Dip into this debate and you’ll quickly confront assertions that project labor agreements will add 10 to 15 percent to the cost of Silver Line construction. It’s pure malarkey. All firms doing work on a project with federal money have to pay at least the same minimum wages. In Phase 1, the union firms have wound up paying 3 percent above that minimum. Non-union subcontractors also paid 3 percent above the minimum. In other words, no difference.

What’s so silly about this controversy is that there are only a dozen firms that are big and experienced enough to manage a transit project of this size and complexity, and all of them are giant national and international firms that are either union shops or have long since learned to operate in both union and nonunion environments. The opportunity for local contractors is to bid on subcontracts that are explicitly not required to sign on to project labor agreements. And yet in Phase 1, 80 percent of the nonunion subs have done so voluntarily.

So what are we arguing about here? Politics. Ideology. Certainly nothing that is worth risking the most important economic development project in the region.

At $600 million for the two stations within Loudoun’s borders, it’s also the most important economic development project for county. Robert Charles Lesser & Co., a consulting firm, recently updated an earlier study for the county estimating the fiscal impact of the Metro extension on the county’s finances. It concluded that the project would add about $425,000 a year in net revenue, largely because of increased development and property values within walking distance of the two Loudoun stations.

That number seemed awfully low, so I dug into the fine print and found that it was based on an assumption that the arrival of Metro would have no impact on property values or housing construction beyond a half-mile radius of the two stations. The authors cite a number of mostly academic studies that have been done on the subject. But does that make sense?

Do you think that, given the commuting nightmare that is the Dulles Toll Road or I-66, people living a mile or two from one of the Loudoun Metro stations might want to arrange a ride to and from the station each day, or drive a car and park it in one of the adjacent garages? Tens of thousands of people, in fact, do it every day at the Franconia, Vienna, Shady Grove and New Carrollton stations — so many, in fact, that some of these garages fill up by 7:45 a.m. And — what do you know? – about half of those parkers live within a three-mile radius of the station. Indeed, that perhaps explains why there are plans to build parking garages at both Loudoun stations, with combined parking for 5,000 cars.

Okay, now that we have established such people exist, ask yourself whether the availability of Metro might have some impact on their desire to live, or continue living, in Loudoun — and, if so, on their willingness to pay a bit more for property in Loudoun even after paying the parking fee and the subway fare. If your answer is yes, then it follows logically that the arrival of Metro will likely increase the value of homes in Loudoun County that are farther than a half-mile from the station.

The ‘Metro premium’

Certainly that has been the experience of local officials and real estate agents. Ryan Davis, for example, the city assessor in Falls Church, estimates the “Metro premium” to be somewhere between 5 percent and 7 percent for properties within one to three miles of a station. Closer than that, the premium jumps to nearly 15 percent.

Davis’s father, a real estate broker, thinks that estimate may be low. Rick Davis says he is aware of investors who bought homes a mile or two from the proposed station in Reston, expecting to capture a significant Metro premium once the station is open.

So let’s do some back-of-the-envelope calculations for Loudoun: The total assessed value of residential property on the east side of Loudoun County, in neighborhoods that are within a reasonable driving distance of the proposed Metro stations, is about $32 billion. A 5 percent increase in the value of those existing properties would translate into a $1.6 billion Metro premium.

In addition, let’s assume that the arrival of Metro makes Loudoun sufficiently more attractive and that it induces construction of 4,500 new homes — a 5 percent bump from the current base. At today’s average prices, that translates into another $1.6 billion in residential property value.

What would that mean for the residents of Loudoun County? For current homeowners in those neighborhoods, it works out to a one-time $18,000 increase in the value of the average home, now assessed at $355,000. And for a county with a residential tax rate of $1.25 for each $100 of valuation, that works out to an extra $40 million a year in property tax revenue — enough to cover the $30 million that Loudoun would be required to shell out each year for its share of Silver Line operating and construction costs.

Are these estimates too optimistic? Maybe. But at least they raise the kind of questions that Loudoun officials and voters ought to be focused on when thinking about the Silver Line, rather than allowing themselves to get caught up in ideological tong wars over project labor agreements.

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