My Three Cents on Prevailing Wage Law

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By Jim Hartman

Prevailing wage law in Nevada was recently highlighted in the acrimonious debate and clear partisan divide over SB 119, a bill that excludes construction projects for school districts, charter schools, and the Nevada System of Higher Education from Nevada’s prevailing wage requirements. Sponsored by Republican Senators Becky Harris and Ben Kieckhefer, the measure passed the state Senate with an 11-9 vote on February 16. The Assembly passed the bill 23-19 on March 5 in a near party line vote, and Gov. Sandoval signed it into law the next day.

Republican proponents hailed the measure’s passage as a step toward bringing back “free market” economics to Nevada. Many were happy to overturn part of what they see as an outdated law that artificially inflates construction labor costs on public works projects. Other supporters said the savings would allow school districts to build and upgrade more schools at a time public budgets are strained.

Democrats who opposed SB 119, along with allies including the AFL-CIO and various building and construction trade representatives, argued that if the bill passed, skilled construction workers who are usually paid between $35 and $70 per hour would be replaced by unskilled laborers working for $10 to $15 per hour.  This would jeopardize job site safety and construction quality, they said. Some even went so far as to contend that the bill was nothing more than a thinly veiled attempt to “kill the middle class” as part of a Republican “war on workers.”

THE HISTORY

In the war of words over prevailing wage law, an account of the past may be of some help. The idea traces its origins back to the years just after 1868 when – in response to widespread worker complaints about too-long work days for too little pay – Congress passed and President Grant signed into law a measure mandating an eight hour work day “for all laborers, workmen, and mechanics employed by or on behalf of the Government of the United States.” In 1891 and for similar reasons – worker dissatisfaction with pay – Kansas became the first state to pass into law a prevailing wage requirement that “not less than the current rate of per diem wages in the locality where the work is performed shall be paid to laborers”. Over the next 30 years seven other states followed suit (New York in 1894, Oklahoma in 1909, Idaho in 1911, Arizona in 1912, New Jersey in 1913, Massachusetts in 1914, and Nebraska in 1923).

However, it was adoption of the Davis-Bacon Act by Congress in 1931 that gave impetus to all subsequent prevailing wage legislation. The measure required contractors who were awarded bids for federal public works projects with total costs more than $2,000 to pay their laborers a minimum or prevailing wage as determined by the Secretary of Labor. The Act was named after its two sponsors, Sen. James J. Davis, a Republican from Pennsylvania who was also a former Secretary of Labor, and Rep. Robert L. Bacon, a Republican from New York.

The bill was supported and signed into law by President Herbert Hoover in response to labor complaints related to the award of a federal construction project on Long Island, N.Y. A veterans’ hospital was being built, and itinerant contractors were importing low-wage and principally black workers from the South in order to cut costs and increase profits. During public debate, Bacon denounced the “cheap” and “bootleg” labor tactics, and American Federation of Labor president William Green told the U.S. Senate, “Colored labor is being brought in to demoralize wage rates.” Emil Preiss, business manager of the New York branch of the International Brotherhood of Electrical Workers (a powerful AFL affiliate that banned black workers from its ranks) went so far as to tell the House of Representatives that Alabama general contractor Algernon Blair’s crew of black workers were “an undesirable element of people.” The bill’s co-sponsor, Republican Sen. James Davis of Pennsylvania, was also an outspoken racist who had argued in 1925 that Congress must restrict immigration in order “to dry up the sources of hereditary poisoning.”

The result of Davis-Bacon was that African-American workers, who were at that time largely unskilled due to having been only recently emancipated – and who therefore counted on being able to compete in the market by working for lower wages – essentially were banned from the upcoming New Deal construction spree. The law nullified their competitive advantage just when they needed it most.

Passage of the Act prompted lawmakers across the country to enact similar provisions at the state level. In the 1930s alone, 17 states, including Nevada, passed “little” Davis-Bacon Acts. Nevada’s first prevailing wage law was enacted on March 24, 1937 and the provisions therein can be found in Nevada Revised Statutes (NRS) 338.020 through 338.090. By the high-water mark in 1978, 42 states had enacted prevailing wage statutes.

Since that zenith, nine states have repealed their prevailing wage laws (Alabama, Arizona, Colorado, Florida, Idaho, Kansas, Louisiana, New Hampshire, and Utah), while one state supreme court (Oklahoma) has declared the provision unconstitutional. Eight states have never adopted prevailing wage law (Georgia, Iowa, Mississippi, North Carolina, North Dakota, South Carolina, South Dakota, and Virginia).  Today, only 32 states still have prevailing wage statutes on the books.

STATE LEVEL DEBATES

The eight Mountain West states of New Mexico, Arizona, Colorado, Utah, Nevada, Idaho, Montana, and Wyoming are split when it comes to prevailing wage law. Four have repealed their prevailing wage laws entirely (Arizona in 1980, Utah in 1981, and both Colorado and Idaho in 1985), while the remaining four states, including Nevada, have not.

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A recent report sponsored by the Building and Construction Trades Council of Northern Nevada and released by the Department of Economics at UNR compared the fiscal experience of Mountain State repeal states to non-repeal states. The study concluded that construction wages in repeal states decreased by only 1.7 percent over a period of up to ten years, a result found to be “not statistically significant”.

RELATED: Prevailing Wage: State of the States

During the debate, proponents of SB 119 pointed to that recent study, as well as pointing to Ohio, where a prevailing wage exemption for school district construction was adopted by the state legislature in 1997 (along with an increase in financing for school projects). The 1997 Ohio law required the Legislative Budget Office to monitor and study the effects of the prevailing wage exemption and to report their findings five years after the exemption took effect. The Ohio Legislative Service Commission issued the required report in May 2002, estimating that aggregate savings on school construction from 1997 through 2001 at $487.9 million, or 10.7 percent. The report also concluded that the exemption did not appear to have decreased construction quality and had no “discernible negative effect” on construction industry employment levels or wages.

HOW PREVAILING WAGE IS DECIDED

While passage of SB 119 excludes school construction projects from prevailing wage requirements, all other Nevada public works projects that exceed a $100,000 cost threshold remain subject to the law. The Office of the Nevada Labor Commissioner establishes prevailing wages for each county based on an annual survey of contractors who performed work in the county, pursuant to NRS 338.030.

Critics of this method point out that the survey suffers from several methodological problems, including a significant “sampling error” resulting from relatively high survey response rates from union firms and extremely low response rates from non-union firms. In 2009, less than five percent of non-union contractors responded. As a result, the Labor Commissioner’s 38 job classifications and wags reflect union wage averages, despite the fact that union labor makes up only 13 percent of Nevada’s construction work force.

The table shows the current prevailing hourly wage rates for ten job classifications for Carson, Clark, Elko and Washoe counties.

Prevailing wage by Nevada County

Prevailing wage by Nevada County

In light of the issues with methodology, prevailing wage based on average wage rates by job classification found in the Occupational Employment Survey conducted by the Nevada Department of Employment Training and Rehabilitation (DETR) would reflect broader based data and would therefore more accurately reflect actual regional wage rates.

ADDRESSING ARGUMENTS IN FAVOR

Proponents of prevailing wage laws often express concern that full repeal would result in greatly reduced construction wages for middle-class workers, requiring them to work a second job or seek public assistance. In addition, they say, construction workers need to earn more per hour because they often do not work year round due to the industry cycle of hurry-up-and-get-it-done jobs followed by sit-around-and-wait-for-the-next-job. The first argument is weak because, as found by economists at UNR, the effects on average wages of prevailing wage repeal in four Mountain West states were less than two percent and thus not “statistically significant.” The second argument is legitimate to a point, but even a half-time schedule (1,040 hours over the course of a year) at $35 per hour is $36,400, which is not only pretty good money for a part-time job but also qualifies as the “living wage” often demanded by liberals. A construction laborer working 70 percent of the year (1,456 hours) at that same hourly rate of $35 would earn $50,960.

Supporters of prevailing wage also say repeal will result in less safe work sites. A 1995 working paper published by the Department of Economics at the University of Utah and funded by organized labor is often cited as a source for that proposition. However, data from the Occupational Safety and Health Administration (OSHA) shows that accident rates are in fact higher in prevailing wage states than in states that never had such a law. Additionally and in any case, OSHA’s role in Nevada construction safety order enforcement would not change in the event that prevailing wage laws were repealed. It is also the case that contractors who must carry workers’ compensation insurance benefit from rate incentives for keeping safety violations to a minimum, which they of course aim to do.

Finally, advocates of prevailing wage also contend that higher wages result in a higher quality of work. The Ohio study surveyed school district officials and found that there was no difference in the quality of the work done, however. This is not surprising because municipal, county and state building codes and code enforcement activities continue irrespective of the status of prevailing wage laws.

DOES THE SAVINGS OF REPEAL REALLY GENERATE ECONOMIC BENEFIT?

During the debate over SB 119, the bill’s co-sponsor Sen. Ben Kieckhefer acknowledged that studies of savings on public projects due to a repeal of prevailing wage widely vary, from 30 percent to as low as five percent. An analysis done by advocates of full repeal of Nevada’s prevailing wage statute studied total state spending on Nevada public works projects in 2009 and 2010, using an assumption that labor costs account for 50 percent of total construction costs. The study showed that prevailing wage requirements were responsible for $625 million and $346 million in excess labor costs in 2009 and 2010 respectively – nearly $1 billion in additional taxpayer costs over the two years. Those who challenge an assumed labor cost ratio of 50 percent – because labor and other costs do vary from job to job – should consider that even if the labor costs were only 10 percent of total public works construction costs in 2009 and 2010, the additional cost to Nevada taxpayers due to prevailing wage requirements was $194 million.

As noted previously, the Ohio legislative study showed a 10.7 percent savings due to prevailing wage exemptions on school construction from 1997 to 2001. In Florida, the State School Board Association reported about a 15 percent construction cost reduction after the state repealed its prevailing wage law in 1978. In Michigan, prevailing wage law was suspended for a 30-month period from 1994 to 1997 as a result of a court case, which allowed for a direct comparison between prevailing and non-prevailing rates. The conclusion was that without prevailing wage, project costs were up to 16 percent lower. A recent legislative study in Kentucky concluded that a 7.6 percent savings in construction costs for elementary and secondary education could be anticipated if school construction were excluded from the state’s prevailing wage law. And a fairly comprehensive national study found that there would be an expected savings of 13 percent if all school construction across the U.S. were exempt from prevailing wage requirements.

Even some supporters of retaining Nevada’s prevailing wage law acknowledge that repeal would save money. John Madole, executive director of the Nevada Chapter of Associated General Contractors, has estimated that an exemption from prevailing wage would result in a savings of four to eight percent. In response to that acknowledgement, Kieckhefer pointed out in committee that because the Washoe County School District needs $500 million in construction, even a 5 percent savings would mean $25 million more for Nevada schools.

PENDING NEVADA BILLS

As of the writing of this column, two other bills concerning prevailing wage are still pending in the Legislature. SB 108, authored by Republican Senator James Settelmeyer, proposes to change the $100,000 threshold for the application of prevailing wage requirements to public works projects. That $100,000 threshold has not been changed in 30 years, having been adopted in 1985. As introduced, SB 108 originally proposed to raise the $100,000 trigger to $1,000,000 and thereby exempt a majority of smaller public works projects from the prevailing wage law. After referral, the bill was considered in the Senate Government Affairs Committee and amended to set the trigger at $500,000. It passed out of committee on April 3 with a “do pass as amended” recommendation.

The second bill still pending is AB 172, co-sponsored by Assemblymen “P.K.” O’Neill and James Oscarson and Senator Pete Goicoechea. The measure requires a contractor on a public works project to use the E-Verify system to confirm the employment eligibility of all project workers.  As originally proposed, the bill would also have raised the $100,000 existing requirement for prevailing wage application to $5,000,000. On April 9, the bill was amended in the Assembly Government Affairs Committee to set $350,000 as the trigger. The bill further provides that the Nevada Labor Commissioner, beginning on January 1, 2020, and every five years thereafter, adjust the $350,000 amount to reflect inflation increases measured by the Department of Labor’s Consumer Price Index for All Urban Consumers for the preceding five years. On April 20, the bill passed the Assembly with amendments, 25-17. The bill was read in the Senate for the first time on April 21 and was referred to Government Affairs committee.

CONCLUSION

In closing, Nevadans deserve to receive the best possible value for the tax dollars they provide for public infrastructure. The prevailing wage schedule in Nevada consists, in its present form, of inflated wages that have become disconnected from the original intent of the law:  to establish a fair and market-driven average or median wage. The evidence shows that Nevada’s prevailing wage law either should be repealed or reformed to include (1) an increase in the contract exemption threshold from the current $100,000 level, (2) an expansion of the public works classifications that exempt from prevailing wage, as has been done for schools, and (3) a more reliable and broader-based wage survey that will reflect wages actually paid in local Nevada labor markets.  If repeal is not possible, improving the Nevada Labor Commissioner’s survey-collecting methods or using different or additional wage data will help keep Nevadans working at fair market wages while also allowing more projects to be built and constructed at a reduced cost to taxpayers.

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