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January 7, 2005

Michigan Construction Outlook 2005

Labor needs to look 'long and hard at what we are doing'

Sweeney acknowledges AFL-CIO changes, Teamsters suggest how

Innovative M-6 opens, complete with a 'spooey'

Beware of the costs, consequences of 'fixing' Social Security

News Briefs


Michigan Construction Outlook 2005

Some spots slog, others get traction through sluggish building economy

By Marty Mulcahy

As we flip the odometer on 2005, Michigan's unionized construction industry is still having trouble finding a solid foothold to climb out of the hole it is in.

A select few areas of Michigan have decent-to-very good prospects for construction employment. But much of the state is mired in a building slump that has gone for four or five years.

This is revealed in our annual informal and completely unscientific poll of construction activity in various regions of the Great Lake State. Full employment in any given region is very rare, and typical are unemployment rates in the union trades of 25-35 percent. A common theme throughout the state is the devastating impact of the loss of work opportunities stemming from the loss of Michigan's manufacturing plants.

Nationally, the U.S. construction industry surprised observers by jumping nearly 10 percent in 2004 - but Michigan wasn't in on that party. Michigan's unionized construction industry overall was a lackluster state of affairs in 2004, and with a few notable exceptions, 2005 overall doesn't hold much to recommend itself, either.

Here's the regional breakdown:

Ann Arbor - One of those notable exceptions mentioned above can be found here, where the amazing streak of good work opportunities in Washtenaw County continues.

"We're truly blessed to have the amount of work that we do," said Greg Stephens, business manager of IBEW Local 252 and secretary-treasurer of the Washtenaw County Building Trades. "And it looks as if work is going to carry into 2005, which looks like it's going to be better than 2004."

Remodeling at Pfizer's headquarters, a new University of Michigan Cardiovascular Center, expansion of St. Joseph's Hospital in Ypsilanti and the near completion of renovation work at GM's Willow Run Powertrain plant are only a few projects on a long to-do list.

The boom of work in the Ann Arbor area is now about 15 years old. At various times in the past few years, the area has hosted travelers, but they're currently down to a trickle.

"Every agent who makes a report at the Washtenaw County Building Trades says there's work here for all the trades," Stephens said. "I know what's going on with the employment picture in other areas of the state, and I truly feel sorry for them."

Battle Creek - Just before Christmas, IBEW Local 445 Business Manager Steve Franklin said the last job call the local received was on Nov. 4. He reports that 40 percent of Local 445 is unemployed.

"In the two-and-a-half years since I've been business manager, the best we've done is 25 percent unemployment," Franklin said. "As for 2005 - I always tell my members, 'where are we going to find work around here for 68 unemployed electricians?' They don't see it either."

There have been a few bright spots for the area. Dirt is currently being moved for a new $20 million Battle Creek Health System. Work at the Southwest Rehabilitation Hospital is about half-complete. Construction activity will be coming up at Harper Creek and Penfield High Schools.

Work has been very slow at three of the areas biggest employers: Kellogg, Post and Ralston.

"It would be nice if we could just reach a stabilization point in employment and then go from there and hope for the best," Franklin said.

Bay City/Saginaw - "Work for union contractors in the industrial and commercial side is slow, to say the least, in the Saginaw Valley," said Bob Barcia, project manager for Monarch Welding and Engineering and past president of the Bay Area Mechanical Contractors Association. "Over the past few years, work has gone down about 10 percent per year, and for 2005, about the best that we can hope is that we don't lose another 10 percent. And that's being optimistic."

The work simply isn't available in the area in the forseeable future, Barcia said. Not long ago, Dow Chemical and Dow-Corning consistently employed 150-200 Hardhats. That number has been significantly reduced, and work from the Total refinery in Alma has completely dried up - the facility went out of business.

Barcia said bidding activity for projects that become available "is very competitive." And among ongoing projects, "I can't think of any in the area that are long term, more than six or seven weeks," he said.

Detroit/Southeast Michigan - Every December, the area's construction outlook is detailed at the Detroit Economic Club in a speech by the chairman of the Associated General Contractors, Greater Detroit Chapter. This year's speech was given by James J. Cole, executive vice president, Skanska USA Building, Inc. Here are some excerpts:

"About a year ago," Cole said, "the news coming from Wall Street was that the economy was improving, and returning to some level of economic prosperity. And while there were indications during 2004 in other parts of the country we were experiencing an economic upturn, the construction industry in our region experienced one of its most difficult years in recent memory."

He said several projects that were planned never got started, including the three permanent casinos, and the refurbishing of Detroit's long-abandoned Book-Cadillac hotel and Michigan Central Depot.

"The casino projects alone would have generated more than $1 billion of new construction along with thousands of construction jobs," Cole said, "as well as permanent employment that follow. We are hopeful and optimistic that the obstacles faced will be overcome," and those projects will take place.

With the exception of the public school, housing, and highway construction, Cole said the construction industry in Southeast Michigan "saw little gain these past 12 months."

Projects that are ongoing include the new $200 million Federal Reserve Bank Building in Detroit's Eastern Market, and some $300 million in improvements to the Marathon petroleum refinery on the city's southwest side.

As for 2005, Cole said the national economy will continue to experience a rebound and the national outlook for the construction industry will mirror that rebound. But: "construction here in Southeast Michigan and across our state will lag behind the national picture, and may see slow, steady improvement."

Cole said nationally, economists appear confident that 2005 will set a new record for overall construction volume - even though prognostications can be flat wrong. A year ago, it was predicted that construction growth nationally would be flat, but in the last two months McGraw-Hill Construction has predicted that U.S. construction activity would rise by 9 percent for 2004.

For 2005, the increase in national construction ranges from 2% by McGraw-Hill to 6% by the U.S. Department of Commerce."

"I only wish, however, that the news for our state and region were as optimistic," Cole said. "Our local industry is still heavily influenced by the automotive sector. Their success is our success, and their struggles are often our struggles. The region and state must be committed to keeping the automotive industry here instead of another state because of a better economic package."

Cole also commented on specific sectors of the economy for 2005:

Manufacturing: "Other than general maintenance of existing facilities, we do not expect any major construction to take place. Some analysts are predicting 2005 to be a year of continued decline in manufacturing as both productivity and offshore investments impact domestic employment."

Public sector: "The construction of schools, roads and sewers, has and will continue to be a main source of work for many contractors and workers. Public building construction will be flat: Michigan continues to face budget deficits, which effect state building projects and dollars going to local governments for buildings and infrastructure.

"However, a $1.5 billion expansion project at Detroit Metro Airport, including a 97-gate terminal, and rebuilding of the old terminal is in the planning and early construction stages.

"Public school construction will continue at a solid pace."

Public works: "Spending for badly needed water and sewerage projects is expected to be $350 million next year. Work will continue on major upgrades to Detroit Water & Sewer treatment facilities and the expansion of storm water control systems."

Highway: "The Michigan Road Builders Association predicts the level of funding in 2005 to be $1.6 billion for state and local roads, which is about equal to 2004. Keep in mind that the $1.6 billion in construction means 76,000 jobs and nearly $10 billion in positive economic spin-off activity."

Higher education: "Ongoing construction of facilities at Wayne State and U of M, including student housing and teaching facilities, are worth noting. New housing and the Next Energy project are underway at Wayne State, and construction of a new law school, heart center, engineering building and public health facility are underway at U of M and will continue well into 2005 and 2006."

Residential housing: "2005 is anticipated to be another strong year for single- family housing, but multi-family housing seeing a decline."

Office market: "Did not see any significant new construction this year, and we won't likely see any in the near future."

Health care: The ability of St. John Health and Henry Ford Health to expand into new areas will open up opportunity for new construction. St. John and Henry Ford are expected to spend more than $250 million each at their planned facilities in West Bloomfield and Novi, respectively.

"Also, The University of Michigan alone is planning to spend upwards of $1 billion over the next five years in upgrading and building new medical facilities at its Ann Arbor campus."

Cole said: "In closing, the outlook for construction in our region is about the same we experienced (in 2004) - steady with some growth. We must be optimistic, and if several of the major projects we've been hoping for finally break ground, such as the Wayne County Airport, the permanent casino, and health care projects being planned we will see a very noticeable improvement."

Kalamazoo - "We're basically doing what we have to do in the Kalamazoo area to address the changes in the marketplace," said IBEW Local 131 Business Manager Pat Klocke. "We're now in a situation where our future work opportunities are going to be in residential and commercial as opposed to industrial."

Klocke said 2004 "went poorly" and about 45 percent of Local 445 is jobless. "A lot of this is being driven by cheap, nonunion labor out of the Grand Rapids area," he said, "who are putting cost pressures on the larger nonunion contractors, who are then being forced to bid in other areas, including ours."

The building of the 1,170-megawatt Covert Generating Plant was a boon to local construction workers - but that job ended in early 2004 and there is nothing on the horizon in the industrial segment of the economy that will be nearly as large an employer.

Speaking optimistically, Klocke said "we're going to try to make 2005 a good year" by actively pursuing commercial work.

Flint area - "We have a lot of work coming up," said Plumbers and Pipe Fitters Local 370 Business Manager Mark Johnson. "We were busy only a couple of months in the summer doing school work in 2004, but next year, and maybe even the next two years, look like they will be good for us."

The reason for the optimism: General Motors wants to spend nearly $1 billion on two plants in Flint. The steel is up on a new $400 million engine plant at the site of GM's old V-8 plant, and the automaker recently announced its intention to build a new $500 million paint plant at its Truck and Bus facility.

In addition, the building trades are performing some $90 million in upgrades for the Grand Blanc School District, and are doing major projects at Linden High School and Flushing High School.

"All in all, we're looking pretty good," Johnson said.

Grand Rapids/Muskegon - West Michigan Plumbers, Fitters and Service Trades Local 174 Business Manager Kirk Stevenson said that local consistently experienced a 30 percent unemployment rate in 2004

"There were a few spikes up in employment here and there, but unfortunately, 2004 was about the same as 2003," Stevenson said. "I hope we're going to turn a corner in 2005, but it's hard to see that there's going to be that much of an improvement."

Both he and Cindy Morse, executive director of the Western Michigan Mechanical Contractors Association, point the finger at the loss of manufacturing work - a familiar refrain throughout the state.

"Business has been down resulting in strong competition for the available work," said Morse. "The loss of manufacturing jobs in the area has had a definite effect on our contractors' workload." Added Stevenson: "The manufacturing base is leaving, every months it seems like another business is going to China, or wherever."

And when those manufacturing employers exit, they take away hundreds and thousands of man-hours from the building trades who would remodel their facilities.

One of the few bright spots for 2005 will be the installation of new pollution controls at the Consumers Energy J.H. Campbell Plant, which will run through the end of the summer.

Also in 2005, Hardhats will be working at Grand Rapids Public Schools, the West Michigan University Chemical Energy Building, Metropolitan Hospital and St. Mary's Hospital in Grand Rapids, Grand Rapids Art Museum, Sparta High School and Muskegon Community College

Some significant projects in the region in 2004 included the DeVos Heart Center, Muskegon Community College, Orchard View High School, East Kentwood High School, Spectrum Health Center, the Veterinary Research Facility, Ludington High School, the Grand Rapids YMCA, Caledonia High School, Whitehall High School and the Hope College Field Science Center.

Morse said a revised residential/light commercial contract has enabled more contractors to begin to work in those areas.

"The face of the mechanical business is changing," Morse said. "Contractors are continuing to face fierce competition. They are re-inventing their selves, in order to capitalize on other markets Contractors are restructuring to meaner and leaner organizations. They are working to network with existing and new perspective business partners. Western Michigan is experiencing a considerable amount of renovation of older structures which could generate work in our field. As manufacturing decreases, high-tech, medical, office, institutional and retail opportunities are becoming available."

Lansing - The ongoing construction of the massive GM Delta Township Plant is a mainstay in a relatively weak construction market in and around the Michigan's Capitol City.

"For us in 2004 we did about as well as the year before, and right now, things aren't too bad," said Laborers Local 998 Business Manager Dale Brzezenski. "I think 2005 looks like a pretty good year for us, but without the Delta Township plant, we'd be in pretty bad shape."

Just under 10 percent of Local 998's members are currently unemployed - and nearly a fifth of the local is helping to build the Delta Township plant. The plant is divided into a paint shop, body shop and final assembly. Construction work is expected to continue at the facility through 2006, and the erection of other "outsourcing" production facilities that will feed the plant are planned nearby.

Heat and Frost Insulators Local 47 Business Manager Craig Grigonis said the Lansing area "is one of the few bright spots in the state," even though there is tremendous room for improvement in construction activity.

Work is wrapping up at the Boji office complex next to the State Capitol Building in downtown Lansing and at the new Lansing Community College Technical Center. Construction is also proceeding with the new luxury suites at MSU's Spartan Stadium.

Covering pipe over much of the Lower Peninsula outside of Southeast Michigan, members of Local 47 overall experienced "a terrible year" in 2004, Grigonis said.

Traverse City - "We had a fair amount of people out, but a fair amount of our guys worked pretty steady in 2004," said Bernie Mailloux, business manager of IBEW Local 498. "It wasn't all that awful."

Commercial and residential work makes up the bulk of work opportunities for Local 498 members and the 25 contractors with whom they work. The trades recently completed a Lowe's in Traverse City, and construction on Wal Mart stores - with some union trades on board - have begun or will start in Cadillac, Gaylord and Houghton Lake.

There's always talk of more casino work - and there are some ongoing renovations at a casino is Manistee - but there is little actual work going on.

Mailloux said a number of jobs are small one- or two-person projects, with large, intricately wired homes a growing portion of their work.

"From what I'm seeing there's just not a lot going on out there for 2005," Mailloux said. "And the competition is fierce for the work that is available."

Upper Peninsula - It says a lot when the 2004 construction market is described as being "not a terrible year for us."

That's how Tony Retaskie, executive director of the Upper Peninsula Construction Labor-Management Council, described building activity in the U.P. last year.

Retaskie said while man-hours for union labor were down slightly from 2003 to 2004, the Upper Peninsula still had some decent employment opportunities - and the work picture should improve somewhat in 2005.

Significant health care construction projects are ongoing at the UP Medical Center and Marquette General Hospital, as well as at Dickinson Memorial Hospital in Iron Mountain.

The trend of upgrading dorm rooms at universities is employing the trades with projects at Michigan Tech and Northern Michigan University. Large projects are also expected in 2005, with major emissions-reduction work slated for the Presque Isle Powerhouse and a 21-day summertime shutdown at Mead Paper in Escanaba.

"Some trades are doing better than others," Retaskie said, "but we're not doing too badly here, compared to some other areas in the state. And it looks like 2005 is going to be a little better than 2004."

WORKING IN Michigan's busiest area for construction, Pat Duffey and Dennis Zielinski of Plumbers and Pipe Fitters Local 190 mark up sections of gas pipe in the yard of Infrasource Underground Services in Ypsilanti.


Labor needs to look 'long and hard at what we are doing'

AFL-CIO Building Trades Dept. President Edward Sullivan recently sent a letter to AFL-CIO President John Sweeney, outlining the building trades' position on reforming the labor federation and any proposed union mergers. It follows:

Dear President Sweeney,

I applaud the process of self-examination you have outlined for the AFL-CIO in the coming months. The American labor movement truly needs to look long and hard at what we are doing and where we are going to organize and represent vastly increased numbers of working families.

I also support your insistence that the process be inclusive and open. To accomplish our goals we will need to tap the time and talent of trade unionists at every level of our movement.

As you know, the construction industry is a very complex and interdependent sector of our economy. In numerous media reports and in private conversations I have learned that some labor leaders outside the building trades are advocating consolidations and other wholesale changes in the unions of the construction industry.

Building trades unions and their members not only derive employment from our industry, we have a responsibility to it. Every day on the construction job site, craftspeople and contractors at several tiers must work and inter-relate in ways that seldom occur in other industries. The livelihoods of our members and the viability of thousands of unionized construction employers rely upon this level of cooperation.

It is reckless and irresponsible to persons outside the construction industry to superimpose a "one-size-fits-all" vision of the labor movement upon the building trades. If change is needed in our sector of the movement, then the unions of the building trades are best qualified and prepared to devise, deliberate and undertake those changes. We neither need nor want advice from self-appointed labor "gurus" who couldn't tell a spud wrench from a paint brush.

The AFL-CIO Constitution specifically recognized the uniqueness of the construction industry when the Building and Construction Trades Department was chartered in 1908. The Building Trades remain deeply committed to the House of Labor, but we are not willing to undermine the best interests of our industry because a small group of labor leaders want to inflict counterproductive and potentially detrimental restructuring models on an industry about which they have little understanding.

As president of the AFL-CIO you have worked tirelessly to reinvigorate our movement despite very adverse circumstances. I look forward to working closely with you and with other leaders of goodwill toward a better future for working families.
Sincerely and fraternally,

Edward Sullivan
AFL-CIO Building Trades Dept.


Sweeney acknowledges AFL-CIO changes, Teamsters suggest how

WASHINGTON (PAI) - Many in organized labor are seeking to change the mission and the structure of the AFL-CIO and its affiliate unions.

AFL-CIO President John J. Sweeney - whose job is up for re-election later this year - has acknowledged the calls for change and is seeking input from affiliates.

"We need to be humble enough to recognize we do not yet have the answers, but we need the determination to seek those answers and make extremely hard decisions," about labor's future, he said in an open letter last month, outlining topics for the federation's 50th-anniversary convention, to be in Chicago in late July 2005.

Sweeney said the federation's Executive Council would offer its own revamp plans prior to the convention. It expects to discuss those plans at its meeting in Las Vegas, March 1-3.

One group offering answers is the Teamsters. Press Associates said the Teamsters can be added "to the list of unions that want to shake up the AFL-CIO - and add them to the list of those who want union mergers."

On Dec. 8, the Teamsters Executive Board weighed in with a re-organization plan in a resolution that said, "the AFL-CIO is spread too thin in its mission and functions and therefore is not as effective as it could be in utilizing its resources."

In the latest move in the debate over the federation's future, touched off by Service Employees President Andrew Stern last summer, the Executive Board of the 1.4-million-member IBT weighed in with its own AFL-CIO reorganization plan on Dec. 8.

Like a plan from the Service Employees International Union, the Teamsters are calling for union mergers to maximize strength in targeted sectors or regions. Unlike SEIU, the Teamsters would not force mergers. It wants to shrink the federation's executive committee from 25 members down to 15, and urge leaders of the largest unions to urge mergers.

But the Teamsters also hold out a financial carrot to encourage mergers. They would rebate half of any union's AFL-CIO dues if the union commits at least 10 percent of its income, or $2 million, whichever is larger, to direct organizing in "core industries" and if it creates a strategic plan to do so.

Smaller unions, the Teamsters said, would thus have an incentive to join larger ones that created such organizing plans.

"While it does not make sense for all small affiliates, simply by virtue of size, to merge, it does make sense for many that share jurisdictions with larger affiliates and which, on their own, are simply unable to effectively advance their members' interests in the face of powerful economic and political forces, to do so," the Teamsters said.


Innovative M-6 opens, complete with a 'spooey'

One year ahead of schedule, one of Michigan's largest transportation projects is complete.

The new $650 million M-6 (Paul B. Henry Freeway) in southern Kent and Ottawa counties was opened to traffic by the Michigan Department of Transportation (MDOT) on Nov. 17. The new east-west limited access freeway links Interstates 96 and 196 just south of Grand Rapids.

"This project marks a milestone in Michigan's transportation system," Lt. Governor John Cherry said. "The new freeway we are opening today will be a great economic boon to this region, making the movement of workers and products safer, quicker and more efficient."

The new 20-mile freeway was constructed with two 12-foot lanes in each direction and an 80-foot wide grassy median. The median width allows for the addition of a third lane in each direction as future capacity needs dictate, saving the time and money that would be needed to construct a center median wall. The M-6/US-131 interchange alone cost about $160 million - the single largest contract in MDOT history.

"Opening M-6 ahead of schedule is due to outstanding work by MDOT employees and our many partners in the Grand Region," said State Transportation Director Gloria Jeff. "Building a freeway of this magnitude is a major initiative which would not have been possible to complete without a dedicated workforce, diligent contractors and consultants. We are grateful for the local and legislative support we received throughout the process. Michigan finished a mega-project ahead of schedule and within budget."

One of the innovations on the project is the use of a SPUI (engineers call it a "spooey") - one of only three in use in Michigan. A Single-Point Urban Interchange is a relatively new method for moving traffic in areas of limited space.

Instead of traditional cloverleaf ramps, which take up a tremendous amount of space, left-turn movements are brought to a single point at the center of the interchange. Opposing left-turn movements are then completed simultaneously under the protection of a traffic signal.

A SPUI can be constructed with minimal right-of-way, provides for a shorter turn radius for left turns, can reduce motorist delays and are "ideal for urban areas," according to MDOT.

"An incredible amount of talent and energy went into this project," said Roger Safford, Grand Region engineer.

The M-6/Kalamazoo interchange uses a unique Single-Point Urban Interchange (a "Spooey"), rather than a cloverleaf setup. This view is looking north on Kalamazoo Street. Motorists enter the east-west freeway by cutting across north-south traffic that is stopped by traffic signals under the bridge. MDOT photo

A SEA OF RE-BAR is installed before pouring concrete during construction of the M-6 freeway. Photo by Bill Phillips /MDOT


Beware of the costs, consequences of 'fixing' Social Security

With privatization of Social Security at or near the top of President Bush's agenda, the House Ways and Means Committee Democratic staff prepared a report on the federal insurance program.

Social Security is the single largest source of retirement income in the U.S. For six in 10 seniors, Social Security provides half or more of their total income. Among elderly widows, Social Security provides nearly three-quarters of their income, on average. And four in 10 widows rely on Social Security to provide 90 percent or more of their income.

Social Security benefits are modest. For a worker with average earnings, Social Security benefits will replace about 42% of pre-retirement earnings. But Social Security is more than just retirement income. About 30 percent of Social Security beneficiaries receive disability or survivor benefits. For a 27-year-old worker with a spouse and two children, Social Security provides the equivalent of a $403,000 life insurance policy or a $353,000 disability insurance policy. The vast majority of workers would be unable to obtain similar coverage through private markets.

Social Security is also family insurance - it provides benefits for elderly widows, and young parents who have lost a spouse. It provides dependable monthly income to children who have lost a parent to death or disability. It even pays benefits to those who became severely disabled as children, and remain dependent as adults on a parent who receives Social Security.

Finally, Social Security benefits are calculated under a progressive benefit formula. It provides a higher benefit, relative to earnings, for a low-wage worker than a higher-wage worker. Social Security recognizes that higher-income workers have more opportunity to save or earn a pension than lower earners, and lower earners will need to depend more heavily on Social Security.

Social Security is the single most effective anti-poverty program there is. Its benefits lift nearly 12 million seniors out of poverty. Thanks to Social Security, the poverty rate of elderly persons is only 8 percent. Without it, nearly half of retirees would live in poverty.

When Social Security began, it covered only a fraction of the workforce, and provided benefits only to retired workers. Today, it insures 96 percent of all workers - and their spouses and children - against the loss of income due to retirement, death or disability. Today, 47 million people receive monthly benefits from Social Security, or one out of every four households. Over 90 percent of seniors receive Social Security benefits.

Over the course of its 69-year history, Congress has prudently managed the Social Security program. Each year, the Social Security Board of Trustees issues a report showing short-range and long-range (75-year) projections of the income and costs of the system. Congress uses these projections to balance the promise to pay future benefits against workers' desire and ability to pay for them. And it has adjusted the program periodically in light of changing economic and demographic conditions.

Social Security is administered very efficiently. Only one penny of every dollar Social Security spends is for administration. The rest goes directly to beneficiaries in their monthly checks.

Social Security is the only universal, portable, defined-benefit pension system for American workers.

Social Security is nearly universal. Over 95 percent of all workers are covered by it. In contrast, less than 50 percent of workers have employer pension coverage on their job.

Social Security is totally portable - it goes with a worker from job to job. Traditional private-sector pension plans lose value when a worker changes jobs.

Social Security is a "defined benefit" pension system. That is, its benefit are determined according to the level of a worker's earnings and years of work. This type of pension system provides income continuity in retirement by replacing a fixed percentage of a worker's pre-retirement earnings. Benefits are paid as long as the worker (and his or her spouse) lives, and the monthly benefit amount is predictable and steady.

In contrast, a "defined contribution" system (such as a 401-k or an individual savings account) can pay out only what is in the account. If a worker did not contribute in certain years, or has poor investment results or just the misfortune of retiring in a down market, he must get along on less. If the account is exhausted before a worker reaches the end of her life, she will have nothing left to live on. Defined contribution plans are an excellent supplement to defined benefits for retirement, but they cannot replace them.

Finally, Social Security is based on the concept of insurance: it pays benefits whenever an insured-against event happens. It protects against the risk of having low income in old age. It protects against the economic risk of career-ending disability or premature death. It insures family members against the loss of a breadwinner's earnings. And it spreads risk broadly throughout society, to lower the cost of these protections and to make them affordable for all.

Challenges facing Social Security. Social Security today runs an annual surplus. The revenues received by the Trust Funds from taxes and interest on its reserves is larger than the annual benefit costs. Social Security is projected to run surpluses for about the next two decades, until 2028.

In the long term, however, there is an imbalance between projected revenues and projected benefit costs. Starting in about 2028, Social Security will begin redeeming the Treasury bonds held in its reserves. It will continue doing so until about 2042. At that point, current revenues coming into the Trust Funds will cover about 73 percent of current benefits.

Social Security is projected to cost more in the future largely because the number of Americans over 65 will grow faster than the number of workers. This occurs for three reasons: the baby boomers will begin to reach 65 in 2011, people are living longer after 65, and birthrates are assumed to remain historically low. While costs are projected to rise, the tax rate is constant under current law.

How big is the problem? The long-range actuarial deficit is 1.89 percent of wages that are subject to Social Security taxes. That is, raising Social Security's revenues, or cutting its benefits, by an amount equal to 1.89 percent of wages would close the gap.

There are several ways to put this cost into perspective.

The size of the gap in Social Security's long-term finances is about a third of the long-term costs of the Administration's tax policies. The cost of filling Social Security's gap is 0.7 percent of GDP, while the cost of the Administration's tax cut is 2.3 - 2.7 percent of GDP. (Center on Budget and Policy Priorities)

When the baby boomers are retired, the total number of people supported by each worker will not be as large as when the baby boomers were children. In 1960, each worker supported 2.62 people (including the worker him- or herself, children, retirees and non-workers.) In 2030, each worker is projected to support 2.21 people.

Is privatization a solution to Social Security's challenges? Setting up private accounts is sometimes suggested as a way to avoid the difficult choices involved in restoring long-term balance to Social Security. However, the President's own Social Security commission has demonstrated that this is not the case. The commission's privatization plan makes deep cuts in Social Security benefits and worsens the financing shortfall in Social Security.

This is because Social Security is financed essentially on a "pay-as-you-go" basis. Its tax rate is set just high enough to pay for current benefits. Most of the money coming into the Trust Funds is used immediately to pay for benefits. (Any surpluses are invested in interest-earning Treasury bonds, which will be redeemed in the future to supplement payroll tax revenues when the baby boomers retire.)

Diverting some of the Trust Funds' revenues to fund individual accounts - even an amount as little as 2 percent of wages - will create a shortfall in the Social Security Trust Funds. This is why privatization plans inevitably include substantial cuts in Social Security benefits. They also require tax increases or subsidies from the rest of the federal budget - or explode the national debt. For example, the main plan developed by the President's privatization commission:

  • Drains $1.8 trillion out of the Social Security Trust Funds in just the next 10 years.
  • Cuts Social Security benefits by up to 46 percent for future retirees.
  • Explodes the national debt, making the debt higher for nearly 60 years. It would create new debt (on top of that projected under current law) equal to 24 percent of GDP.


News Briefs
More road 'donors' on Senate panel

The battle to straighten out funding for construction and maintenance of the nation's roads and bridges probably won't be solved in Congress for months - but at least a majority of Senate lawmakers on a key committee will be sympathetic to states like Michigan.

Michigan is one of a number of "donor" states that sends more to the federal treasury than it receives in money to pay for construction work. In fact, our state only gets 88 percent on each dollar sent to the feds, ranking us No. 47 in terms of equity received.

While Congress and President Bush are at a stalemate over how much to spend on the nation's roads, the Michigan Road Builders Association said that in a "key development" for donor states, the new makeup of the Senate Environmental and Public Works Committee has a composition that includes 10 of the 18 overall committee members from donor states. The previous makeup of the committee included 8 donor state and 11 recipient state members.

The goal of the Michigan Transportation Team - which includes building trades unions and the road builders association - is to win 95 percent equity in transportation spending for Michigan.\

Heat's On/Water's Off volunteers sought
No longer a one-day effort, the Heat's On-Water's Off project has been changed to a multi-day event. Volunteers are needed. Plumbing and heating service will be done at four Detroit non-profit locations, including two homeless shelters, on the following Saturdays: Jan. 22, Jan. 29 and Feb. 5. Approximately 60 volunteers are needed.

Volunteers are asked to call Molly Forward at (313) 341-7661, ext. 204 to sign up. If you get an answering machine, leave your call back number, name and union number. You will receive a return call. In addition, volunteers will be asked to help build 30 Habitat for Humanity homes in June of 2005. Ask for details when you call.

Cole provides a few construction asides
A few side comments that went beyond construction prognosticating were made last month by James Cole, chairman, Associated General Contractors, Greater Detroit Chapter, who is also executive vice president, Skanska USA Building, Inc. Here are a few facts and figures:

  • Construction contributes $16 billion, or 5 percent of the gross state product of Michigan (2001 figures).
  • In 2002, there were 30,525 construction companies in our state, with a monthly average employment of nearly 200,000 men and women working on job sites. In addition, there were more than 70,000 self-employed construction contractors.
  • Of those 30,525 construction companies, nearly half were in Southeast Michigan. The volume of construction in Southeast Michigan represents a little more than 50 percent of the volume for the entire state.
  • Despite the overall lousy construction market, new workers will still be needed to fill the jobs left open by retirements and attrition. Cole said over the next decade, a growth of 15% in the construction workforce is expected. He added that "construction is the only sector in the economy that is predicted to have any labor growth between now and 2015."


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