A study in Springfield, Mo. shows that hiring local workers on the city’s public works projects would increase sales at local businesses by $71 million, save or create 400 jobs and increase local tax revenues by $11 million over 5 years compared to to hiring nonlocal companies and labor. 

The study by the University of Illinois at Urbana-Champaign focused on a local business-preference program under consideration by the city council. It proposed offering an 8% bid credit to local businesses bidding on city-funded public works projects. Under the proposal, businesses could bid up to 8% more than out-of-town companies and still win the bid.

“Hiring non-local and out-of-state contractors can sometimes initially appear penny wise, but ultimately it proves to be pound foolish,” says Frank Manzo, executive director of Midwest Economic Policy Institute (MEPI), which is a pro-organized labor research institute,   conducted the study, along with the Project for Middle Class Renewal (PMCR). “That’s because instead of saving taxpayer dollars, like it initially appears when you're putting this out to bid and you're picking that low bidder, it ends up costing jobs for local residents and costing sales for local businesses.” 

This might sound like out-of-towners don’t eat lunch, but Robert Bruno, a University of Illinois professor of labor and employment relations who also directs PMCR, says it’s not that simple. 

“Yes, nonlocal workers spend money as well but the data shows that it is only a fraction of what local residents spend in their own communities,” Bruno explains. “For example, a nonlocal worker typically buys a car in his own state or town. He or she has health coverage through companies based in their states (creating insurance jobs in their states), not Missouri. And of course, they don't buy or rent homes in Missouri. If they have families back in another state (or country), they often send or remit money to their bank account there, where money is spent on food and clothing and the like at home.” 

These aren’t seat-of-the pants calculations. They were made using IMPLAN, an industry-standard economic impact software that was initially created by the United States Forest Service and the Federal Emergency Management Agency to help the federal government make economic predictions. The software was transferred to the University of Minnesota, and the university turned the business into a private company. IMPLAN is considered very reliable software for making these kinds of economic predictions. 

Local Preference Laws Increasing

Springfield has not yet passed the law studied by the University of Illinois. The proposal is stuck in committee, but the council is “expected to come back to it at some point in the future,” according to Cora Scott, director of public Information and civic engagement for the city.

Not everyone is enamored of local preference laws. The Institute for Public Procurement (NIGP), a nonprofit trade organization, has published a position paper on the practice saying that “preference policies, including local preferences, conflict with the fundamental public procurement principles of impartiality and full and open competition. Therefore, NIGP does not support the use of preference policies. 

NIGP CEO Rick Grimm says there might be times when accommodating minority or disabled workers might justify preferences, but overall, the association still believes most of the time local preference policies don’t serve communities, companies or workers. “One of the tenets of public procurement is to maximize competition. We really feel strongly about the importance of competition. Anytime you close the procurement window, you’re limiting competition and that doesn’t support community priorities,” Grimm says. 

But other cities and counties have had similar laws for years and apparently see them as successful.

Philadelphia has had a local business preference law for about 10 years, giving local bidders a 10% local business preference on contracts that are $1 million or less and a 5% preference on contracts greater than $1 million. 

 Last June, Los Angeles tightened its local business preference law after it determined that only 7% of local contracts awarded through an existing local preference law went to businesses within the city of Los Angeles, while businesses based in surrounding suburbs got the rest. Businesses based outside the city already escape paying higher city rents, utilities, insurance, as well as sales and business taxes, Los Angeles City Council pointed out in voting to restrict the law to only businesses based in the city.

Montgomery County, Maryland’s local preference legislation took effect in August 2021. The law gives a 10% preference, but there is a $200,000 ceiling. The source of funding must be county money. For instance, the law doesn’t apply if there is money from the state or federal governments. In the law’s first year, there were 57 applicable local projects, but only 17 of them were given local preference, according to Ash Shetty, chief procurement officer and director for the county. There were no local bidders on a number of projects, because no companies with the necessary skill sets were based in the county, he said.

The proposed Springfield law as well as similar laws around the country include a requirement that a small percentage of the amount a contractor earns be contributed to fund apprenticeships and other training programs. Robert Bruno, a University of Illinois professor of labor and employment relations who also directs PMCR, believes funding training opportunities will be especially important as contractors take on the workload promised by the Infrastructure Investment and Jobs Act. “It's challenging contractors and in the case of unionized sectors, to expand their apprenticeship programs and then go out and recruit. With wages going up all over, getting people with the right skillset will be tough.”

He thinks it is especially important for communities to support training programs to ensure that there are enough local workers for renewable energy programs, which are getting considerable federal support.  Windmill and solar jobs pay well, Bruno says, so they attract traveling tradespeople who go from one location to the other and take jobs that could have gone to local people. “These (windmill and solar) tend to attract a lot of traveling trades people. If they come from a right-to-work state where wages are much lower and they travel to a state like Illinois, which is a workers’ rights state and the wages are higher, then it can become a battle and displace local workers,” Bruno says. 

Construction companies throughout the country are struggling with a labor shortage. Ninety-three percent of construction firms currently have job openings, and nearly as many, 91%, are having difficulty filling those open positions—especially jobs requiring skilled craft workers—according to a survey conducted in 2022 by the Associated General Contractors of America and technology vendor Autodesk. Additionally, 70% of survey respondents also reported having difficulty finding salaried employees.

Manzo also was a contributor to another recent study analyzing the value of hiring in Pennsylvania for local construction projects. The study by the progressive Keystone Research Center concluded that over 5 years, hiring 10% more in-state contractors on public projects in Pennsylvania created 7,000 jobs, raised local business sales by $1 billion, increased state and local tax revenues by $70 million and added $9 million to local apprenticeship training programs. 

The study also looked at just one, relatively small project, the rehabbing of the 7th Street Bridge in Pittsburgh. It found that hiring out-of-state workers created 59 fewer jobs for local painters and 10 fewer jobs in other areas; cost local businesses $1.4 million in lost revenue, generated $88,000 less in state and local tax revenues and reduced money for local apprenticeship programs by $31,000 in contributions.”