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At least one project canceled after council vote

Local businessman David Chmielewski has decided not to build Phase 3 of the 14th Street Apartments near Fond du Lac Tribal and Community College this summer due to the Cloquet City Council's vote to require project labor agreements. Jana Peterson/Pine Journal

It often can take months or even years for elected officials to see the results of the votes they cast.

In the case of the May 2 Cloquet City Council vote on project labor agreements, the immediate consequences have been both swift and expensive. A project labor agreement, or PLA, is a pre-hire collective bargaining agreement with one or more labor unions that establishes the terms and conditions of employment for a specific construction project. Cloquet City Councilors voted unanimously to require a PLA for any city project or private project (but only those involving city funds) with a total cost greater than $175,000.

As a result of that vote, local businessman David Chmielewski decided he would not build Phase 3 of the 14th Street Apartments near Fond du Lac Tribal and Community College this summer.

"We were going to do $6 million worth of projects in town this year and that's been cut in half," Chmielewski explained. "That money is going somewhere else now. All the lumber, and all the people that would have worked on that [36-unit 14th Street apartment] project — union or non-union — are not going to be working on it now."

Under the terms of a PLA, construction unions have bargaining rights to determine the wage rates and benefits of all employees working on that project. The terms of the agreement apply to all contractors and subcontractors working on the project, although they do not have to be union companies themselves.

According to the staff report from May 2, PLAs also typically require that employees hired for the project are referred through union hiring halls, that non-union workers pay union dues for the length of the project, and that the contractor follow union rules on pensions, work conditions and dispute resolution. The Cloquet PLA requires contractors to pay contributions to "established employee benefit funds," overseen by the union.

Both Carlton County and the city of Duluth require PLAs on public projects over a certain amount. Cloquet took it a step further by requiring a PLA on private projects too — if the project uses any city money, either from gap finance loans for example, or tax increment financing (TIF), which returns the difference in taxable value to the contractor for a certain number of years.

According to Interim City Administrator James Barclay, Mayor Dave Hallback requested the PLA resolution and vote be added to the May 2 agenda. The mayor and councilors had heard from Craig Olson of the Duluth Building and Construction Trades Council at a previous work session and Olson answered questions again during the May 2 work session.

City Councilors and the Mayor did not consult the city's Economic Development Authority (EDA) or invite any businesses that might oppose a PLA to the work sessions. Shelley Peterson of Boldt Construction (and an EDA member) had been a part of the first informational work session regarding PLAs, telling officials Boldt has found no problem working with PLAs.

Benefits of a PLA touted by Olson include the guarantee that workers will not strike or engage in any kind of disruption of interference with the project, and contractors will not engage in any lockout. Consistent, high standards are another benefit, he said. Greater employment of local tradesmen is another.

When asked by the Pine Journal if they'd sought out opposing opinions or advice on May 2, Ward 2 Councilor Dave Bjerkness said he looked online and At-Large Councilor Adam Bailey said he "talked to a couple people." The staff report handed out at that meeting noted that the use of PLAs is opposed by a number of groups, which argue the agreements "discriminate against non-union contractors and do not improve efficiency or reduce costs of construction projects." The staff report also noted that studies of PLAs have mixed results.

Chmielewski's project isn't the only one affected by the PLA vote.

Cloquet Community Development Director Holly Hansen confirmed earlier this week that Trails Edge [housing] developer Jim Kuklis is now undecided about building the next phase of his project because of the PLA requirement. Another project, the renovation of the former Viking Lumber Building, is going to cost $175,000 instead of the originally planned $250,000, because the owners decided to keep it under the threshold where a PLA would be required.

Although largely privately funded, Chmielewski's new apartment building would have used TIF funding from the city, which meant he would have to agree to a PLA for the next phase. The businessman said he had planned to turn in the TIF application for Phase 3 later the week of May 2. Instead he called all his usual contractors to tell them the project wasn't going to happen.

The other half of his $6 million (some $2.9 million) will stay in Cloquet, however, as his company's Country Club Patio Homes project was approved at the same meeting, prior to the implementation of the city's new resolution enforcing projected labor agreements.

That means Chmielewski can build the townhomes as originally planned, using his usual mix of employees and subcontractors and modular construction, which he prefers to stick-framed buildings. The modulars are built in a union shop, he noted.

Chmielewski says he isn't anti-union or against prevailing wage, but asserts a PLA "imposes a system" on his Blackhoof Development company that they're not equipped to handle.

It's not so much the union-level wages that hurt, it's the fact that the union could limit his employee pool.

"I will not ask my non-union subcontractors to engage in a PLA and hire unfamiliar employees that are union," he said. "My subs are part of my system and they're very good at what they do, which makes them cost effective. It's not that they're paying their people less, it's just that they're efficient.

"People think PLAs are strictly about wages, but it's also about business practices and a system of business. It's an imposition that makes deals untenable. I want to be able to choose who I hire, whether they're union or non-union."

Olson talked about Chmielewski's company at the May 2 meeting.

"We don't want to chase Blackhoof Development out of the community, we want him to use our people. There are carpenters in this room that will tell you they don't have the opportunity to work on his projects," Olson said, gesturing around the room packed with more than 50 construction union members.

Even as he voices frustration with the new law, Chmielewski hastens to say that he would never have stood up and told the council not to approve the PLA resolution because it's their choice.

He respects the council's decision, he said. But it doesn't work with his system, therefore he will be looking elsewhere for his projects, unless something changes.

"We will look at communities that have growth friendly policies and very good staff," he said. "Cloquet has great staff — the city staff are all awesome, every single one of them. But for now I want to avoid any potential issues with PLAs."

Chmielewski said and Hansen confirmed that the EDA recently discussed the city's new PLA ordinance and will make recommendations to the City Council at a future work session. Hansen declined to share the specific recommendations until the meeting.