ABC of WI Talks about Prevailing Wage Changes

In an interview with The Wheeler Report, Associated Builders and Contractors of Wisconsin, President John Mielke talks about the history of prevailing wage, the changes that went into the 2015-17 budget, and what could be next.

Prevailing wage laws started in the 1930s when an Alabama firm brought construction workers from Alabama to New York to work on a hospital project. The Alabama firm paid its workers the price they would have received if they were working on a project in Alabama, which was lower than the workers in New York were paid. Congress passed the Davis-Bacon Act in 1931, which required a prevailing wage for federally-funded construction projects.  The law meant that contractors had to pay workers what local workers were being paid in that area. Within four years of the law, 15 states (including Wisconsin) enacted prevailing wage laws. There are currently 32 states with prevailing wage laws (U.S. Dept. of Labor list). Of the 18 remaining states, eight states never had a prevailing wage law and the other ten states either repealed their law or the courts invalidated the laws. Wisconsin’s prevailing wage law was enacted in 1931.  There were changes made to the law in 1996. Then in the 2015-17 budget there were significant changes made. Currently, prevailing wage laws apply to all publicly-funded projects which meet a financial threshold. That includes:

  • Multi-trade projects costing $234,000 or more in towns and in cities or villages with populations less than 2,500;
  • Multi-trade projects costing $100,000 or more in all other municipalities or for other local governments;
  • Single-trade projects, where one trade accounts for more than 85% of the cost of $48,000 or more.

State highway and bridge projects have no threshold; prevailing wage applies to all projects in this category.

What is the status of prevailing wage in Wisconsin?

In the last budget the legislature eliminated prevailing wage for all but state projects, state agencies and highways (which are typically covered by Davis-Bacon laws anyway). Any time a construction project receives $2000 or more in federal funds it is subject to federal Davis-Bacon laws.

Wisconsin’s method of calculating prevailing wage is unique; there is no other state doing it the way we do it.  We commissioned a study from the Wisconsin Taxpayers Alliance. We asked them to look at the methodology and tell us if the methodology was statistically valid and if they produced rates that were market rates.  We didn’t ask them for an opinion on whether prevailing wage was good or bad, we wanted them to look specifically at the methodology. When they looked at it and compared it with other source data, they concluded it was running about 45% higher than market rates.  When they took that estimate and applied it to $1.9 billion for the 2015 construction, they figured the state could have saved $250 million to $300 million in construction costs. They could have expanded that estimate and it would have been higher.  That estimate was applied to vertical construction, it didn’t include any municipal road work. With the prevailing wage repeal in the budget, municipal road work will not be subject to prevailing wage. Our question was then, are there changes to the prevailing wage law that make sense? We commissioned the study before the legislature took action in the budget. The information came out, and legislators started looking at the information. To be clear, we have always supported the repeal of prevailing wage. As that report came out, as estimates for revenue became tight, as the awareness that public infrastructure needed a lot of spending, people were looking for ways to save taxpayer money on infrastructure spending. Some people wanted to eliminate it all together. Duey Stroebel was running in a special election and he made it a campaign issue.  When he was elected, he and others thought now was the time to fix this law permanently. Frank Lasee put changes in the budget (SA2-SSA1-SB-21).

What are the changes?

Beginning January 1, 2017, there will be no prevailing wage for any public works project other than state of Wisconsin projects (including UW and DOT state highway work) and any project that uses federal dollars.  That means all municipal projects, all school district projects, all municipal utility projects will be exempt.  In 2015, that was $2 billion in construction. If those projects had not been subject to prevailing wage, that would have been a $250 million savings. That estimate is for vertical construction; it does not include municipal roads.

State construction and Public construction projects over a certain threshold, $48,000 for a single trade and $100,000 for a multiple trade, will still be covered by prevailing wage.

Are there any state highway projects that would be changed by the repeal?

Not state highway projects.  Those will be subject to prevailing wage, although a modified prevailing wage because they’re going to use the Davis-Bacon rates.

How are the rates determined?

Wages are all over the board, and the feds use a different survey methodology than the state. That’s one of the problems the study found. For example, Adams County had a carpenter wage rate one year that was $36, the next year it was $42, then the next year is was $24. It bounced.  It bared no relationship to market conditions. That was a survey problem. You cannot say Davis-Bacon wages are higher or lower because it depends on the trade and the part of the state you are working in. In some cases, they will be higher, in some cases they will be lower. They generally do it regionally.  They will look at a multi-county area and identify contractors and survey those contractors about what they pay. The regions are not set regions, they change.  A region could be a single county in some instances, or a region could be the entire state depending on how the feds do their wage determinations. If there is a state wage and a fed wage the higher of the two wages has to be paid. That’s another problem with the state’s prevailing wage law.  And that’s by classification. You might have a project where you employ electricians and plumbers, and the electricians wage rate might be higher on the federal wage rate determination and the plumbers might be higher on the state wage rate determination. So you would pay on the state rate on some trades and federal rate on other trades. The budget language eliminates that for a large amount of work, and it says Wisconsin will go with the federal wages and the federal determination.

What about highway maintenance projects?

In the case of David-Bacon it depends on the source of the funds. If they have federal grant money to do road maintenance it may trigger application of federal Davis-Bacon.  Some of that is GPR and some of it is federal block grant. I think if you get a transportation aid from the state to do a county road, I don’t think that is covered by prevailing wage. If you get a federal grant to do local road improvements, it probably is. There was a bill introduced last session (SB-411 by Sen. Stroebel) that would allow locals to take the federal money and exchange it with the state for state funds which would eliminate the requirement for prevailing wage.

How do you go about determining if a new project will or will not be subject to prevailing wage laws?

We asked DWD that question, and they told us if you advertise for bid before January 1, 2017 or sign a contract before January 1, 2017 those projects will be subject to prevailing wage laws. So you could do drawings, engineering estimates, and Requests for Information, just not a Request for Proposal.

Are there projects that are being postponed until January 1?

We have been contacted by public owners asking us if we think it’s worth waiting. We know of at least one project that said they are going to wait. The Taxpayers study said wages are 23% higher and 45% higher with benefits. So the Taxpayers study shows without prevailing wage there could be an overall 7-10% savings on projects. School districts that just passed referendums could be subject to prevailing wage if they already put out bids for their projects, but if the school district waits until after January 1 to send out bids they would not be subject to prevailing wage.

Who is responsible for knowing if a project is subject to prevailing wage?

It is the public owner’s responsibility to request a wage determination.  They are required to notify the contractors and let them know if it is subject to prevailing wage. They request a wage determination from DWD – Equal Rights Division. I think the Taxpayers study shows how prevailing wage determinations can vary widely within any given market or trade.

(From the Taxpayer’s Alliance study)

“Each year, DWD surveys approximately 18,000 construction companies throughout the state, using a database of construction firms that report wages and employment for unemployment insurance purposes. The survey asks for information on hours, wages, and benefits by occupation for each project worked on in the prior year.  Respondents also report the project location, particularly the county, and whether the employee was covered under a collective bargaining agreement. The county is the civil division on which prevailing wages are calculated. Although information is requested for both public and private projects, data from the latter are primarily used to determine prevailing wage in Wisconsin. State law requires employers to complete the survey but provides no penalty for noncompliance. As a result, only about 4,000 of the 18,000 surveys are returned, and approximately half of those returned are invalid. Survey are invalid when they are not fully completed or are filled out incorrectly. Over the past nine years, the number of valid, returned surveys has averages about 10.5% of those mailed. By comparison, the federal Bureau of Labor Statistics uses the same group of firms to conduct its own wage survey twice annually use the same UI database. Nationally, the response rate for that survey is over 70%.”

How is this important to the State right now in terms of the economy and construction?

If you’re spending more money on fewer projects, you’re getting less work done as a state and as a taxpayer. Fewer projects means fewer workers.  It’s really about either saving money, or doing more projects. Lawmakers are looking for ways to be more responsible with those limited public tax dollars.  If you look at the amount of public infrastructure that needs to be repaired or replaced, not just roads and highways, but buildings, you wonder how we are ever going to pay for it.

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People say the money you save is because it is a reduction in workers’ wages.  That’s an over simplification of what the prevailing wage law did, and what repealing it means. It wasn’t just the dollars you were paying construction workers.  It was these crazy compliance and anomalies created by the formula. If you were doing a county road and it went across the county line, you would have different wage rates on either side of the county line, on the same road. Then you had the federal law, so you had to look at the wage determination and see which one is higher and which one is lower. That all added red tape and compliance costs, but it also discouraged people from bidding on prevailing wage jobs.  If you were a local contractor and you wanted to bid on the local high school, but you didn’t have experience with prevailing wage you were probably turned off from bidding. I think the cost savings will come from three places: where wages were higher than market rates they will probably come down to market rates, there will be a reduced cost in terms of regulatory burden for contractors to deal with, and increased competition for work. People who are critical of repeal say this means we are taking money out of the pocket of construction workers, I think it’s a bigger picture than that.  The savings come from more than just bringing wage rates in-line with market rates. There is an equity issue.  There are times when you have Milwaukee County wage rates being paid in Eau Claire, or in some rural counties.  So they were asking residents of rural counties to pay for Milwaukee County wage rates.

We are a construction trade association and our members do prevailing wage construction.  We have 830 members, 400 of them did prevailing wage work.  On one hand, you would say what do we care if the government wants to pay our inflated wages. The other thing is all of contractors are taxpayers and they do work in the private sector and in the public sector and they see the waste of money.  Our members saw these inefficiencies and that has been our motivation to bring this forward.

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