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HomeMy WebLinkAbout04/20/1993, 5 - PREVAILING WAGE LAW �7I I�N��IIIII���j�III tJ' MffTISATE: C� Q San Luis oB�sj�o Aprill 20, 1993 IftGo COUNCIL AGENDA REPORT ' '"NUMB6i� FROM: Mike McCluskey, Director of Public Works Prepared by: Wayne A. Peterson, City Engineer SUBJECT: Prevailing Wage Law RECOMMENDATION: By motion, pass to print ordinance establishing when prevailing wages should be paid on public works contracts DISCUSSION: As a part of the CAO's eight point budget plan, staff investigated various ways to lower the cost of constructing capital projects. One of these ways, elimination of the "prevailing wage rate requirement", was presented at the special Council meeting on March 13, 1993. Following the favorable reception by the Council, staff is now proposing to implement this cost saving measure. Current Situation All public works construction contracts are governed by Municipal Code, Section 3.36.010, as follows: "in every contract for the performance of labor on public works, eight hours shall constitute a day's work, and the contractor and all subcontractors under him shall pay their employees on the work a salary or wage at least equal to the prevailing salary or wage for the same quality of service rendered to private persons, under similar employment in the city". Staff's application of this regulation has been to require each contractor to comply with the State Labor Law and to pay each employee in accordance with wage rates established by the State Department of Industrial Relations and to comply with related reporting requirements. These wage rates are probably higher than the rates required in the Municipal Code. State "prevailing wage rates" are used because it is difficult for a small agency to establish what is the local wage paid for each and every type of trade that might be used on each job. The "prevailing wage" is typically the same as the "union wage". For non-union contractors, this may mean paying employees at a higher rate during the time they work on our projects, as compared to the wage they earn when they work for others in the community. Prevailing wage payment is currently required on all City projects funded by Federal, State, or local funds. By Federal and State law, the prevailing wage must be paid whenever either of those sources fund a particular project. However, most of the City's building, water, and sewer projects are paid for with local money, and fall under the jurisdiction of our local code and thus do not need the prevailing wage requirement. d' ���n��1IIIVIIIIIIUI�i�l����� city of san tins oBispo WoMs COUNCIL AGENDA REPORT Prevailing Wage Page Two Proposal ti Staff proposes to modify the Municipal Code to require prevailing wage payment only on those projects required to do so (Federal and State) and eliminate the requirement from locally funded projects. The City of San Luis Obispo is a Charter City and, as such, it has the authority to establish whether or not the "Prevailing Wage" is a requirement of public works projects which are clearly within the realm of "municipal affairs". By eliminating the need for local wage verification, staff will spend less time reviewing, and the contractor less time preparing paperwork, in addition to the overall cost of the project being lower. Has this been done before? Yes, in 1980 the City of San Diego, also a Charter City, adopted a resolution which rescinded its previous prevailing wage resolution and declared that .prevailing wages would be required to be paid only when required by Federal and State grants and on other projects considered to be of State concern. The resolution was challenged and upheld by the. courts. The effect of San Diego's resolution was that contractors bidding projects which did not require the payment of prevailing wages could bid the projects,knowing they did not have to pay their employees any more on the public project than they did on private ones. It also relieved them of reporting wage costs to the City. (San Diego has no requirement to report wages paid). In the eight years following the change, San Diego staff reports that there have been few problems. Of significance the quality of the work has not decreased, and San Diego's staff feel the overall cost of the projects has decreased. PROBLEMS: A change to the requirement to pay prevailing wages would make it more difficult for union contractors to compete. A review of the list of bidders of recent City projects reveals that 12 of 47 contractors are union contractors. The experience in San Diego was that the number of union contractors decreased. FISCAL EMPACT: Staff has discussed the issue with local contractors. From the feedback received, staff feels the City could potentially save 20-25 percent of the cost of the related projects. Recent discussion with the directors of public works of other charter cities that have dropped the requirement to pay prevailing wage, indicates the savings may be less, more in the range of 10-15%. All savings realized accrue to the funds of the City, i.e. general, water, and sewer funds, which become available for additional projects or priorities as acted upon by the Council. wepelaw.mmt �-a i ORDINANCE NO. (1993 SERIFS) AN ORDINANCE OF THE COUNCIL OF THE CITY OF SAN LUIS OBISPO AMENDING SECTION 3.36.010 OF THE MUNICIPAL CODE ESTABLISHING LABOR WAGES TO BE PAID ON MUNICIPAL PROJECTS WHEREAS, the City Council adopted Ordinance No. 899 (1981 Series) establishing Section 3.36.010 of the Municipal Code which requires contractors performing Public Works contracts to pay a certain wage to employees; and WHEREAS, the City of San Luis Obispo is a Charter City; and WHEREAS, a chartered city's ordinances which deal with purely municipal affairs are valid, even if they conflict with general laws; and WHEREAS, the city finds that it is in its best interest to amend Section 3.36.010 of the Municipal Code due to the vicissitudes of the labor market; BE IT ORDAINED by the Council of the City of San Luis Obispo as follows: SECTION 1. Section 3.36.010 of the Municipal Code, Labor-Prevailing Wage, is hereby repealed as follows: leyees en the wefk a saiar-y of wage at leas!equal to the prevailing saluy or wage SECTION 2. A revised Section 3.36.010 of the Municipal Code is hereby adopted as follows: 3.36.010 Labor Wages to be pfd The payment of"prevailing wage" is not required on public works projects which are municipal affairs, unless the payment of not less than the general prevailing rate of per diem wages is required by a state or federal grant or the public work is otherwise a matter of statewide concern. SECTION 3. Resolution No. 3098 (1976 Series) A resolution of the Council of the City of San Luis Obispo Determining the Prevailing Rate of Wages for City Public Works Projects and all subsequent resolutions establishing prevailing wages is hereby rescinded. J" ai Ordinance No. (1993 Series) Page 2 SECTION 4. This ordinance, together with the names of councilmembers voting for and against, shall be published once in full, at least three (3) days prior to its final passage, in the Telegram Tribune, a newspaper published and circulated in this city. This ordinance shall go into effect at the expiration of thirty (30) days after its final passage. INTRODUCED AND PASSED TO PRINT by the Council of the City of San Luis Obispo at its meeting held on the day of , 1993, on motion of , seconded by , and on the following roll call vote: AYES: NOES: ABSENT: Mayor Peg Pinard ATTEST: City Clerk Diane Gladwell APPROVED: City Attorney J / AGENDA DATE -Z�-aTEM # COPMTO: ❑• acs Action ❑ FYI ❑ CDD DUL ( ko ❑ FIN DIR. o C1, HIEF ATTOR2QEY p�� AlF1N D1R. ❑ CLERK/opia ❑ POUCECH ❑ MCMT.MF M ❑ RM- DR MDR California's Prevailing Wage: AN INVESTMENT IN QUALITY State Building & Construction Trades Council of California, AFL-CIO 921 11th Street, Suite 400 Sacramento, California 95814 (916) 443-3302 March, 1993 RECEIVED APR 2 C 1993 CITY COUNCIL SAN LUIS OBISPO,9A Jerry P.Cremins Richard Zampa President Secretary-Treasurer Table of Contents . . . . . 1. An Overview . . . . . . . . . . . . . . . . . . . . . . . 1 3 2. History of the Prevailing Wage . . . • • • • • • • • • • . . . . . . . 3. The Economics of the Prevailing Wage . . . • • • • • • • • • ' ' ' ' ' ' . . . 5 .10 4. How the Prevailing Wage is Determined . . . . . . . . . . . . . . . . . .. .. . . . . . 13 5. A Sound Community Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 6. The Impact of Repeal . . • • . . . . 18 7. Is the Prevailing Wage Racist? . . . • • • • • • • • • . ' . ' ' . ' ' ' . . . . . . . . . . 20 8. .Making It Work . . . . . . . . . . . . . . . . . . . . . . . . . . 22 9. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10. Appendix 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 11. Appendix 2 . . . . . . . . . . . . . . . . . . . . . . . . . . J 1. An Overview In 1.931, with Herbert Hoover still in office, lawmakers in Washington, DC. and here in California took action to ensure reasonable competition in bidding for federal and state construction projects. The federal law was known as the Davis-Bacon Act. The California law is among the so-called "Little Davis-Bacon" Acts passed in 40 states over the years. The basic purpose of the prevailing wage is to restrain government's use of its tremendous economic power to distort the working of the free market in the construction industry. Clearly the standards set by the government's participation in the construction industry—federally-financed or assisted construction currently accounts for about 30% of the industry's activity—have a profound effect. Few communities would be invulnerable to considerable economic and social instability if either the federal or state prevailing wage laws were to be repealed. State and federal prevailing wage laws are comparableto other legislation—anti trust, for example--which counteract distortions resulting from the concentration of economic power. Under these laws, government agrees to forego the economic scattershot of market power and to rely on wage rates set in the private sector. A separate but related function of prevailing wage legislation has to do with the nature of public works construction. The competition for federal and state contracts is ordinarily intense. But because specifications in these contracts are frequently quite precise, competition seldom rests on product design. Under such circumstances, where the opportunities to trim costs are limited, irresponsible contractors are naturally inclined to underbid their opponents and increase their profit by cutting wages. The prevailing wage, in other words, guarantees stability. The prevailing wage guarantees that the local contractor, already committed to paying locally prevailing wages, has a fair chance to compete for government jobs. And they help promote efficient, high-quality construction work ongovernment projects by prohibiting wage l cutting practices likely to lead only to the employment of less qualified and less skilled workers. Over the last 15 years, state and federal prevailing wage laws have come under regular attack, primarily from non-union contractors such as the Associated Builders and Contractors, and from allied organizations such as the Business Roundtable and the Chamber of Commerce. Unable to win repeal or significant modification of federal law, they have focused primarily on state legislation--in 1979 for example, state chapters of the ABC and the AGC launched repeal actions in 24 states, often with the assistance of the Chamber. In California, efforts to repeal or weaken the prevailing wage law occur regularly. One strategy is to argue for the Department of Industrial Relations' regulatory authority to change the way in which the prevailing wage is calculated, and to take other steps to weaken its enforcement. The basic argument of those who would undermine California's prevailing wage laws is that they artificially increase construction labor costs, and thereby cost state and federal taxpayers monies which could be better used for other purposes. These charges are based on discredited methodology, and incorrect economic assumptions. They ignore the economic and social benefits resulting from hiring fully qualified and fairly- ignore nonetheless extremely tempting at this particular compensated workers. But they historical moment for states like California, in desperate need of economic growth and a short-term budget fix. It is therefore increasingly important to document the logic of prevailing wage, to demonstrate its social and economic usefulness, and to expose the inaccuracy of these allegations. This packet of information on the California prevailing wage laws will demonstrate: 0 prevailing wage.laws are a sound economic investment that benefit both the state as a whole as well as local communities. • prevailing wage laws bring stability to the industry and are supported by responsible contractors. • prevailing wage laws are not inflationary, and that attempts to prove otherwise are based on faulty and/or dishonest research. • prevailing wage laws should be protected from frivolous tampering and strengthened. should, in fact, be 2 2. A Brief History of the Prevailing Wage "The essence of the thing as l see it is: Is the Government willing for the sake of the lowest bidder to break down all labor standards and have its work done by the cheapest labor that can be secured and shipped from state to state?" Ethelbert Stewart, Commissioner of Labor Statistics under President Herbert Hoover Prevailing wage laws governing state public works construction were first adopted in the late nineteenth century. By the time the Davis-Bacon Act--governing federal construction—was signed by Herbert Hoover in 1931, such laws had been adopted in urban industrial states like New York, New Jersey and Massachusetts and in more rural states like Kansas, Oklahoma, Idaho and Arizona. While a number of states, California among them, adopted prevailing wage laws during the 1930s, others adopted them much later--Pennsylvania.in 1961, Delaware in 1962, Michigan in 1965, Wyoming in 1967, Louisiana in 1968, Arkansas in 1969 and Minnesota in 1973. These laws vary widely as well in their provisions — with respect to the types and sizes of projects requiring payment of the prevailing wages, the formula for determining the prevailing wage and the extent of applicability. Prevailing wage laws, in other words, were not adopted in response to particular historical circumstances, like the Great Depression. They were a solution to basic, underlying and permanent issues of instability and cut-throat competition in the construction industry. Representative Robert L. Bacon (R-NY) first introduced a federal prevailing wage bill in 1927 because of his concern over itinerant contractors who were bidding successfully on federal public works programs,and;producing work of questionable quality. The bill was enacted four years later, but,only after the normally chaotic conditions in the construction industry had been made intolerable by the Great Depression. 3 The 1931 bill was a very limited measure. It covered only federal building projects--exempting roads and dams--and left determination of the prevailing wage in the hands of the contractor. The original law also made no real provisions for enforcement. Amendments passed in 1935 extended coverage to all public works projects, empowered the Labor Department to "predetermine" local prevailing.wages for specific jobs, and set up stronger enforcement mechanisms. While the Act applies directly only to federal projects, it has been incorporated over the years into scores of statutes involving federal grants, loans and/or guarantees for construction activities carried on by state and local governments and their agencies. California's "Little Davis-Bacon" law was also adopted in 1931. Found in the California Labor Code under various sections, it requires the State to set wage rates for workers in all crafts and classifications on government-funded public construction projects. It applies to all public works jobs on all levels of government. Prevailing wage rates include contributions to pension funds, health benefits and injury compensation, as well as contributions to the maintenance of apprenticeship programs which provide ongoing pools of skilled craft workers for the industry. The law further requires that rules and regulations be adopted by the Department of Industrial Relations to administer and carry out the statute. 4 3. The Economics of the Prevailing Wage "...A construction job using unskilled labor will result in cost and time overruns. Why? Well, there's the matter of unskilled workers taking longer to do the work. Then there's the problem of the job not being done right in the first place; thus, other contractors,, the ones who should have done the work in the first place, will have to come clean up after the "cheaper" contractor. " Philip M. Vermeulen, Executive Director California Association of Sheet Metal and Air Contractors National Association The argument against prevailing wage laws is that they raise the costs of public construction to benefit the construction worker. This criticism, however, is based on "research studies" which are characterized at best by poor methodology and interpretation and at worst by outright dishonesty. For example: In 1992, Assemblyman William Filante introduced legislation to exempt school construction from the California prevailing wage, arguing that such action "could lower total project costs by between 10 and 15W. This "savings", Filante said, "translates into 2,160 new classrooms serving a total of 75,600 new students without raising taxes, incurring additional bond debt or shifting general fund revenues at the expense of other vital programs". It's a seductive argument, until we begin to look under the surface. Filante's figures are based on Prevailing Wage Laws and School Construction Costs, a study by Dr. Armand Thieblot, commissioned by the Associated Builders and Contractors' "Merit Shop Foundation" and published in 1978. Thieblot estimates that repeal of all state prevailing wage laws would save a total of $239 million per year on school construction. While this figure certainly sounds impressive, the methodology on which it was based is so simplistic as to be ludicrous. 5 Thieblot's study is based on a gross comparison of construction cost per classroom -- during the period 1968-74 between states where prevailing wage laws are fully applicable to school construction and those where prevailing wage laws are only partially applicable, inapplicable or do not exist. Average costs in the "prevailing wage states" turn out to be 13% higher than in the "non-prevailing wage states". On this basis alone, he concludes that school construction would cost 13% less if all state prevailing wage laws were repealed. The approach is obviously severely flawed. It is based on the idea that any difference in construction costs between states must be exclusively due to the presence or absence of prevailing wage laws. Yet many other factors must be considered. A more careful analysis of Thieblot's own data suggests that school construction costs in states with prevailing wage laws and states without such laws are actually indistinguishable one from the other. For example: material prices vary considerably around the U.S. which will certainly be.reflected in school construction costs. Climate differences also play an important role--the need for air conditioning, heating and insulation will certainly differ among the various regions of the country, as will the costs of these amenities. Urbanization will be another important factor--schools are more expensive to build in cities than out in the countryside. Yet another factor which Thieblot ignores are the considerable regional differences in the quality of school buildings, reflecting differing local customs, needs and financial resources. It is also necessary to separate the data for elementary and secondary schools, rather than lumping them together as Tliieblot has done. Since secondary schools cost more to build than elementary schools, a state which happened to build a large number of secondary schools and a few elementary schools will appear to have higher costs than a state which happened to build more elementary schools. Additionally it is necessary to adjust for the effects of inflation, which drove school construction costs up by 60% in the seven year period Thieblot studied. Schools in one state might appear to be more expensive than schools in another simply because of the fact that the first state did more of its work toward the end of the period, rather than at the beginning. If, with these adjustments, states are ranked according to the cost per room of school construction, no meaningful correlation between prevailing wage.laws and construction costs emerges. In fact the correlation between school construction costs and prevailing wage laws is nearly random. • Nine of the twenty states with the higher per classroom costs have prevailing wage laws which are only partially applicable or not applicable to school construction. 6 r i • Of the twenty states with the lowest.per room average costs, half have prevailing wage laws which are fully applicable. If we want to identify a variable which better explains the state-by-state cost difference, geographic Iocation and climate seem much more influential. Take New England, one of the coldest regions in the country. Even though all six New England states fall within the top eleven in terms of costs, only three of the six have fully applicable prevailing wage laws. The other three are as costly without any wage standards. In 1980, Steven G. Allen and David Reich studied school room construction costs in the same period of time, on a state-by-state basis. They found that among those which paid most for construction of new secondary schools were 12 without prevailing wage laws. Significantly enough, the cost per classroom for the State of California placed it seventeenth from the bottom. The same pattern of fundamentally dishonest research and distorted conclusions reflected in the Thieblot and other studies is repeated in one state after another. In 1988, for example, the Associated Builders and Contractors promised Massachusetts voters a $212 million savings if they were to repeal that state's Little Davis-Bacon law. The figure was based on a study by the far-right Massachusetts Foundation for Economic Research. The Massachusetts Building Trades in turn commissioned the non-political and highly respected Data Resources, Inc. McGraw Hill to analyze ABC's claims of inflation and prepare an assessment of the impact of repeal. DRI found that ABC's estimate of a $212 million savings was inflated by as much as 400%, and was gathered from anecdotal evidence,based on a "confidential" estimate provided by one unidentified contractor of his possible cost savings on the construction of one unspecified small building somewhere in the Boston metropolitan area. More recently, the University of Indiana's Institute for the Study of Labor In Society told the Indiana House-Senate Interim committee in 1987 that "a review of the literature concerning the impact of prevailing wage laws on costs indicated that the Associated Builders and Contractors assumption of a 20% figure for saving in Indiana is wholly unreliable". The flaw in the anti-prevailing wage argument is that it assumes that paying anything more than the lowest possible wage rate will automatically lead to excess cost. In fact, there is strong evidence to suggest that more highly skilled workers attracted by prevailing wages have a significant advantage in productivity which more than makes up for the difference in wage levels. 7 If one individual earns 20% more than another, but can complete 25% more work in the same amount of time, with fewer errors, then employing the more highly-paid person will be more cost effective--it will actually save money. Several statistical studies have confirmed that these circumstances are, in fact, the norm in the public works construction market. This relationship between wages and productivity was captured in a recent study conducted by the International Union of Operating Engineers, verified by an independent Washington-based statistical analysis firm, Ruttenberg, Kilgallon and Associates, Inc. The union's study was based on Federal Highway Administration data on the 10 states with the highest dollar volume of federal aid for 1987-1991. The states represent nearly half of all highway and bridge work in the U.S. The study included four states where the workforce was less than 5% union and six states where the workforce was over 80% union. The "non-union" states were Texas, Georgia, Florida and Virginia. The "union" states were Illinois, Pennsylvania, New York, Michigan, California and Missouri. The study concluded that: • the average wage cost in the high-wage states to build a mile of highway is . - 11% lower. • the high-wage states completed the work with 56% less hours. • Florida, Georgia, Texas and Virginia (low-wage states) required 136 million man hours to build 5,109 miles of highway. • California, Illinois, Michigan, Missouri, New York and Pennsylvania (high-wage states) required 77 million manhours to build 5,216 miles of high way. • the high-wage states built 74 more miles of roadbed and 32.8 more miles of bridges for $457 million less with a wage package more than double that of the low-wage states. • the total cost per mile averages $1.35 million for the low-wage states and $1.21 million for the states with higher wages. The difference was time, with higher- paid workers doing their work in 56% of the manhours it took lesser paid workers. Those who would repeal prevailing wage laws,;in other words, have never made a compelling case that such repeal would in any way ease the budget crises which are so pervasive in virtually every state in the country. On the contrary, a convincing case can be made that higher wages and better conditions produce more cost-effective 8 I CJ construction. "Repeal', according to Representative William Clay (D-MO) would "undoubtedly have the effect of increasing the profits of a few employers, but it does so at the expense of both workers and taxpayers". C 9 4. How Prevailing Wages are Determined "The definition of the prevailing rate will not be changed from the modal rate. The existing process has been used to determine the prevailing wage rate for many years and appears to be the most equitable and adequate measure of existing rates". Ron Rinaldi, Director of Industrial Relations under Governor George Deukemejian, 1988 Authority for determination of the prevailing wage in California is vested in the Director of the Department of Industrial Relations, who is appointed by the Governor. The actual calculation is performed by the Prevailing Wage Unit, alive-person office within the DIR's Division of Labor Statistics and Research. The Prevailing Wage Unit sets wages according to the "modal" system, established during the administration of Republican Governor Goodwin Knight The modal rate, as defined in the law, is: "The basic hourly rate being paid to a majority of workers engaged in the particular craft classification or type of work within the locality and in the nearest labor market area, if a majority of such workers is paid at a single rate; if there is no single rate being paid to the majority, then the single rate (modal rate) being paid to the greater number of workers is prevailin;". In other words, under the modal system the prevailing wage for any craft in any particular locality is the wage being paid to the largest single group of worker"s doing comparable work within that area. The basic principle behind the use of the modal rate is that the prevailing wage should be the rate received by the greatest number of workers. This principle is completely in accord with the normal meaning of the term "prevailing", which means "most frequent". 10 The alternative is use of an average. The use of a strict average to reach wage determinations is inconsistent with the language and intent of prevailing wage statutes, and its use would create serious practical problems. For example, in a situation where wage rates within an occupation are widely dispersed an average would be purely artificial. Where a substantial number of workers receive a wage which.is near the high or the low end of the local wage, ao tworke s. In such aaa se,a determination e rate is based on the y to be above r below the rate received by average would not reflect the wage actually prevailing in the area. It is clear that where the union rate prevails, the use of the modal.rate preserves the union rate. It is also clear that where a non-union rate prevails, the modal rate preserves that as well. That, ultimately is the purpose of the regulation--to sustain and continue the prevailing wage Which is set in the private sector. Indeed, in 1988, after an exhaustive review by awarding agencies, business and Tabor, the Department of Industrial Relations under Republican Governor George Deukemejian came to the conclusion, as explained by DIR Director Ron Rinaldi, "The definition of the prevailing rate will not be changed from the modal rate. The existing process has been used to determine the prevailing wage rate for many yeas and appears to be the most equitable and adequate measure of existing rates." Opponents argue that the use of the modal rate is tantamount to adopting union wage rates. But in California, from March 1987 to the present, the use of the modal rate has resulted in adoption of the union wage rate in less than 60% of DIR wage survey cases. Does the modal rate of determination in California increase wages categories of workers throughout the state disproportionately? A DIR survey of 15 demonstrates that state prevailing wage rates, set by the modal system, are in fact tes slightly exceed federal rates, extremely close to federal rates. Where state ra according to DIR researchers, "In most cases the difference...is a result of the use of superseded rates--scheduled increases in the collective bargaining agreement used as the basis for determination, which were not reflected in the federal rates". State rates set by the modal system are, in fact, sometimes lower than federal rates. For example, the rates for plumbers and carpenters in Northern California, as well as for painters statewide, are substantially below the national norm. State prevailing wage laws also offer a.simplified appeal process. California .Labor Code Section 1773.4 allows interested parties:to challenge wage determinations _ issued by the Department of Industrial Relations and'is used quite frequently. The attack on the modal method of determination is essentially an attack on the. very concept of prevailing wage legislation. It is fueled by the same myths discussed 11 - earlier, particularly that paying anything in excess of the lowest possible rate drives up costs unnecessarily. Departure from the modal method of determination would depress wages in our state, driving both employers and employees out of the market with dire results for the California economy and threatening increased costs over the long term. The prevailing wage must be paid to workers on projects valued at over $1,000. However, legislation passed in 1989 with the cooperation of the California building and . construction unions, gave important flexibility to smaller contractors. First, a $25,000 threshold was created for those public agencies which established a labor compliance program (Labor Code Sec. 1771.5). In addition, a change in force account laws now allows for a threshold of $75,000 in cases where public agencies are in compliance with certain bookkeeping procedures. 12 5. A Sound Community Investment "it wouldn't take very long for (repeal) to be felt by the merchants in those communities--that is by the people who own .the shops, the stores and the markets where construction workers spend their income. " Ray Marshall, US Secretary of Labor, 1977-1981 In 1927, when he first.proposed the law which later bore his name, Representative John Bacon, a conservative Long Island banker, recalled the construction of a veterans hospital in New York which "...was let to a firm from Alabama who brought some thousand non-union laborers from Alabama...into my congressional district. They were herded onto this job, they were housed in shacks, and were paid a very low wage. "Of course that meant that the labor conditions in that part of New York State where this hospital was to be built were entirely upset." Ancient history? In 1982, opponents of prevailing wages persuaded the Kentucky legislature to exempt schools and local construction projects from the coverage of prevailing wage laws. These opponents made grand promises of lower construction costs and major tax savings. But here's what.really happened: 9 unemployment in the construction trades rose to a full 60% as fly-by-night contractors brought in untrained help from outside the state. • 1,783 new contractors, many of them from out of state--set up shop, further destabilizing an already unstable industry. • corruption became rampant in the construction business, grand juries convened throughout Kentucky to consider charges of bid rigging and conflicts of interest. i A mountain of anti-corruption legislation was introduced to undo the damage. • not only were none of the promised savings:ever identified, but Kentucky had to implement a $1.3 billion tax increase in 1990. In 1992, facing a $400 million 13 candidate for Governor made a return to prevailing wage shortfall, the victorious a key platform of his campaign. rs i mmediately While prevailing wage laws are of obviousour communi lies. Fairly epaid constructioninvolved, the ripple effect filters through all prevailig wage law workers buy the homes, pay the taxes, support the merchaniating or ts and enhance the quality of our state, As noaCaliforniakening e omm nn life in communities across the state. will wipe out high-wage jobs in ty can afford. As former Labor Secretary Ray Marshall has pointed out, "It wouldn't take very long for (repeal) to be felt by thed the maanthe where construction workers spendrchts in those comunities—that is by the their who own the shops, the stores an income'. It goes well beyond the wages which are paid. The California prevaion funds, health benefits, vacation and holiday iling wage include contribnjurycompensation and other fringe benefits as well as contributions to compensation, ens injury the maintenance of apprenticeship programs which provide new pools of skilled labor. hing as "permanent This is particularly important because thereconstruction worker, union r non-union, employment in the construction industry. pends his or her working life on.a series of temporary jobs, from one to three days, to or she faces extended periods of unemployment. as much as six months. He Because of the sporadic naturepossible to bridge the period of unemployment ent, fringe benefit plans traditionally have eligibility provisions which make t and prevents the worker from becoming a public charge during those periods. The construction worker who does not receive health and welfare, pension, vacation, holiday or training benefits workerewho enjoysuser thesepublic benefits becomes a net of unemployment. The constructs contributor. a study by Lionel For example: In 1984, according rBernardino awarded contractsdtot ling $8.8 Richman and Julius Reich, the City of San B generating 158,000 work hours in construction. These hours produced. • $325,000 paid to community hospitals, doctors, dentists, pharmacists and other providers of health benefits It tedresents a repayment back into the community of $.83 on each dollar con • $553,570 of pension benefits pa id directly t pensioners in the community, a repayment of $.94 on each dol 14 �ity • $234,300 in vacation benefits paid directly into the communiq arepayment o $.96 on the dollar. These payments of $1,113,290 carry a powerful economic multiplier effect. "A comparison of specific studies done for specific regions within the state of California, applied to the city of San Bernardino, indicates a multiplier of expenditures of approximately 2.4 in 1981 and 1982... Applying this rationale would produce a direct economic'benefit to the City of San Bernardino of $2.7 million from state prevailing wage laws", according to the Richman and Reich study. Prevailing wage protection is also beneficial to the industry and the community in general because it helps ensure that wages and benefits will be sufficiently high and sufficiently stable and predictable to allow the recruitment, training and retention of a pool of skilled workers able to meet the needs of any contractor who undertakes a project within the area. The transient contractor may not have such a stake. But the local industry does. For this reason there ate incentives t keep lthese s a sub killedawo kers from drifting away. that there are auni interest in en 9 dequ 15 6. The Impact of Repeal "The only clear result forg the Massachusetts residents.vail!ng wage law would be lower wage Data Resources, Inc./McGraw Hill Study of the Economic Impact of Repeal of the Massachusetts prevailing Wage. Law, 1988 Over he last 15 years, state and federal ars nd their associates and ling wage laws have a oder sharp attack, primarily from non-union contractors Unable to win repeal or significant modification of federal law, they have focussed chaters of the ABC and he primarily on state legislation—in 1979 for tele often with the assistance of et state the Chamber. p abama and Utah AGC launched repeal actions in 24 states, They have actually prevailed olorado, Idaho and New lHampshire orida )(1985). (1981), Arizona (1984), Voters have the right to ask whatsubstantial weakening the impact of repeal or of the prevailing wage law might be. aded In 1982, opponentslature to the prevailing wage percovera eheAs noted in hKentucky ep previous exempt schools and local construction projects from esults were disastrous--unemployment increased and none of section of this report, the r the promised savings ever materialized. s challenged on the And in 19889 when the Massachusettsomicprevailing simulation which projected a total wage ballot, DRI7McGraw Hill prepared an econ loss of $196 million, tax and fee savings of $913 million, or 0.6% of total expecte tax revenue of $15.4 billion. The net employment loss was 600. "While it does appear", the research firm concluded, "that some nominal tax savings can be obtained, the 0.6% reduction in taxes indicated in he "most likely"abor scenario would take place at the cost,of increL of stateacontractors and workeility in the �s; and a market; fiercer competition for work from ou iving for Massachusetts workers and their families. lower standard of l 16 �5 i than sed contractor profits and decreased labor "These costs would be incurred even inthehe event that the tax savings are escated by te indicated by the quantitative analysis, as productivity would keep total cost reductions amount stae unemployment isP s in unit labor costs, P apparent apparent saving compensation and other social service expenditures would further offset a app initial savings. The only clear result of repealing the Mansachusetts prevailing wage law would be lower wages for certain Massachusetts reside would have repealed the Massachusetts On November 49 1988, Measure 29 which prevailing wage law, was defeated 2-1. 17 7. Is the Prevailing Wage Racist? justify repeal of (federal prevailing "The Heritage Foundation seeks i e wages of minority and female wage laws) by asserting that reducing workers is somehow in their Interest--rather Foundation, t he economic interest of the corporate sponsors of the. Heritage --Representative Ron Dellums Q-CA) rt Cline, be "Enactment of the federal Davis-Ba racismct'to keep ]owe paid, according to o ker the "was rooted in prejudice and motivated Y from entering the industry. It was to keep black crews from coming up from soup and taking previously white jobs!'. The only documentation for this conclusion b s a con;congressman from the during a discussion in the House of Representatives m Y lab the 17 who stated that an Alabama contractor white labor th oughoud hired "cheap tthe country"- in to transports (and puts) in competition ages of the Congressional Record c anotherr emave 0 rk of that sort. Bacon P ate on the Davis p there is n its passage in the House, ular to any region or Exploitation of low-wage mobileoWilliamoGpeen1artiCPresident of the American to an Twas particular racial group. Testifying in 1931 of the complaints he had received laced in the record a summary resented Federation of Labor, p Taint involved a from 16 different areas. His testimony Vaders of he North". One complainrs t p problems were not merely Sou contractor from Raleigh, NC in connection with a federal project at For aso on a project in the same city; a New York m E. contractiP Blaine, Washington;n a post office facility in the same city. Another involved a Louisville Others involved one contractor from ay have been Ci contractor on a Utica? N.Y. project; a Bellingham contractor in City and a Pennsylvania contractor on a New the fat is by the etime Congress was 5 ver m eady Representative Bacon's original motiec ve , was b no mean itinerant Southern contractors and "imported" labor, black or to deal in earnest with the prevailing wage proposal, the problem considered exclusive to i white. 18 historical debates, however, we are much more But rather than dwell on empty ge laws today in closing the gap between ethnic concerned with the effect of prevailing wa groups. According to Representative Ron in incellums reasing numbers over the past minority and female workers have entered construction they are often the newest members of the industry, these workers are decade. Because vulnerablethey are the wage-cutting practices which the Davis-Bacon Act of 1931 particularly is designed to prohibit . For example, members of minority groups make up nearly half(46%) of the population of apprenticeship and training programs in California, which are financially supported by contributions mandated under the Nativeprevailing Ameriwage can and othat'mmority q in Dellums words, African-American, Hisp this law. For this reason workers, as well as women and young workers especially e Navajo Tribal Council and the need the NAACP, the National Women's Political Caucus, h Mexican American Unity Council have all endorsed the Davis-Bacon Act". 19 8. Making It Work law is voluntary compliance due to n penalties or going to jail. If you could steal money The most effective enforcement tool or any government could the fear of getting caught and payingetting caught g P you are caught stealing money and from your employer without fear h all the thieves.oIf y u r jail, the g not hire enough policemen to ca to do was pay it back, with no further penalties, chances are there would e all you bad many more thieves around than there are now. Unfortunately, under many prevailing wage laws, a contractor can steal money o 'n 1991 sent letters to all 50 states rega list of a from his or her workers with little fear. To demonstrate the lack of deterrent, e only two provided National Alliance for Fair Contractor, i list of debarred contractors. Of the 16 states responding, Y debarred contractors. ' to bottom line is that state budget appropriations are insufficient� across they The organizations are springing opoacr are, in e enforce prevailing wage laws. As a result, orb reservation , tions Of country to insure compliance. Fair contracting and work p the work of the government by'investigbatr labor and ncr and rtmanagement There effect doing ese roups are funded by prevailing wage laws. Th g are currently some 30 of these groups in the U.S. covering eleven One such group, the Center for Contract Compliance (CCC), g counties in Southern California: • handled 3,408 worker prevailing wage complaints in 1990. • rotested 61 bids of which 11 were successful in 1990, protested 93 in 1991, P with 27 successes. • investigated 999 job sites in 1990 and 1,124 in 1991' and one in 1991, with two had three contractors debarred in California in 1990 of those serving prison terms for cheating workers. • ' of $116 million in 1990 and $161 million in ed successful bid protests fil 20 covering 56 counties in d management since 1985. filar example is the Foundation forFair by labor meg, A sim which has been jointly fu job sites and actively California, monitored 1590 eT�nent agencies 329 Northern u ust 1992, the Foundati ion and local g forcing the From March to August g ro er payment of wages, ated 145. It visited various the mzP p investig complaints reg des. It filed 69 p35 in fines. assessment of $141, inadequate state prevailing wage laws suffers from Clearly, enforcement of p overnmeIItal agencies discus the °vwith funding. The recordto whi h unst scrupulous contractors can still evade th indicates the degree impunity. 21 1 9. Conclusion The prevailing rate was formally established sixty years ago under the republican P administration of Herbert Hoover toward economic stabilization of the construction industry. was in need of 'The concept.was that construction, which is transient by its nature, fly-by-night contract* ors a balanced base in order to avoid the corrosive oerosions P oductf quality and worker income• developers intent on high profit at the expense American construction Through the years, under.he rubric of prevailing wages, ands peed of has developed a skilled work force recognized world-wide for its safety construction record. P program, This is in part due to the ancillary presence of an apprenti e, hi that p g has become a mutually funded, coordinated and run by employer and work force,organizations h as the proficiency by symbol of excellence everywhere. Efforts at cloning absence of training p J Associated Building Contractors have failed in the a developed through years of practice. Opponents of prevailing wage.argue that.the rystem is inflated. Yet, their and again, mostly in press statements, but in no argument in all instances is devoid again scientific studies to make their case. The figures 15% and 20% and higher appear ag lied. instance is research information of consequence Supp ugh survey In California, where prevailing rate is established regionally ay°thou h the by the Department of Industrial Relations, these fi,ures pp prevailing wages vary widely- again in California where The argument also he that va lingnrate approximates he un on rate in only 60 the modal rate pertain , P percentof the cases. In conclusion, research for abandon which ist of lalways usable prevailinge Howe makes ro economy legitimate case except for that of economy, at the singular expense of the construction work force is neither equitable, g economics nor good policy 22 i APPENDIX 1. 23 Highway Statistics, 1991 HIGI;WAY CONSTRUCTION \ ARY PROJECTS DISTRIBUTION OF COSTS E D LU�DINGA,L SECONDARY TED CONTRACTS OVER $1,j0001000CALENDAR BAR 1991 AS REPORTED DURING - _ Other 12.2 Steel Equipment 6.5 34.8 ,: ,... ..•,:;,°:. _.. _ . <: Bitumens MatenaIs 0.4 44 5 Cement 5.2 Aggregates 14.4- wages 4.4wages 20.7 in the following classifications of contractors' employeestermediate and Unskilled labor. 1) Gross earnings Swed, In ortland Administrative and Supervisory, for use in bases, p consist of sand, gravel, slag, crushed stone, etc., 2) emAggregates and bituminous surfaces and portland cement concrete structures cement concrete 3) For both roadway and structures. 4) For various types of bituminous surfaces and bases. Includes structural, reinforcing, culvert and miscellaneous steel. echanics' 5) but excludes operators' and m office d includes contractors' on-site expenses such as mobyation, 6) Eq�pment includes fuel and lubricants 2.3 °� wages. t�es,hlicaenses, insurance, etc. rental, Federal Aid Division SOURCE: F ineering, FHwA Office of Eng (Z02) 366-4661 - 24 \� 1 APPENDIX 2 25 TEN-STATE TOTALS FSR WAGE LOW WAGE NON-UNION (IL, PA, NY, NII, CA, MO) CTX, GA, FL, VA) - 77 Million 136 Million $1.544 Billion Labor Hours $1.270 Billion $6.3 Billion Gross Earnings $6.9 Billion 23.3 4 Year Total 25.5 148.8 % U.S. Total 116.03 2.55% Roadbed Miles 2.27% Bridge Miles 5,216.01 TOTAL MILES 5,108.88 TE PROJECT PER MILE AVERAGES TEN-STA FAIR WAGE. .. LOW WAGE MM.ON (NON-UNION $19.99 Wage $9.33 142810 Average267651 $296,077 Man-Hours Per Mile $248,618 Labor Cost per Mile $1,213,569 TOTAL COST PER NIILE: $19348,098 NOTE: er mile is 10% lower than the Low Wage • The Fair Wage state total cost p state total. Fair Waae workers completed the work with 56% of the man-hours. • The Fa a -hours also means fewer equipment hours and is reflected in • Fewer man ae states. the lower total cost per mile of the Fair'Wage 26 j � 0 O co O O O CD (D fff jI^^ • i W CD w I � won on • ® aha , •• °TI _ C0 o j A (n G elan s r � C �• O \ , 1 = I O ' ®• mm� C CA O D 64 N (/Q�\ `, cr co cn O r* :\ CD \ co O \ \ W`' Co cn 0 0 C m N l SUMMARY The top 10 states represent $13.2 billion or 48.8% of all highway and bridge work in the United States. proportion of low-wage non-union to fair wage These states also reflect a near equal union dollar volume. Four states - Texas, Georgia, Florida and Virginia - represent the low-wage non- union group (less than 5% union). Six states - Illinois, Pennsylvania, New York, Michigan, California and Missouri - represent the fair wage union group (more than 80% union). ewhat equal. A careful analysis At first glance, most of these statistics appear som reveals some startling facts: and 32-8 more miles of • The union states built 74.4m � alaeswage Paroadbed kage more than double the non- bridges for $557 million les union states. on wages are cost effective is simply not true. In • The argument that low non-uni fact, the opposite is true. aditional union • While we seem to holding our highway tshare in dollar volumetis beingof our shifted with the states, a much larger federalg Y chart population migration to the were dentin just foon southern ur states- of project of all federal highway dollars P the would receive 25.5% thatpercentage to the new Surface Transportation Bill, y h the rcen$119 billion authorization, or $30.35 billion of authorized highway work over the next six years. 28 U4/IU/UJ 14:Z4 p Soo yti5 Z3ZZ SB-SLU BLi)G THAU --- SLU CITY HALL. 10001 .TING AGENDA 415 EI cIOwPALA STREET TEI _ DATE i�- O'`3ITEM # T' EPMONE(805)986n 97 C BUILDING AND CONSTRUCTION TRADES -COUNCIL SANTA BARBARA-SAN LUIS OBISVO COUNTY-AFL-CIO +itDERATV0/j 01 SANTA BARBARA.CAUFORNIA 93101 . s4� `dq.ua o, 4 'o R Bs P ANDREW J. MOYNAGH, EXECUTIVE SECRETARY ��NOOSTAI►LOQ� . April 19, 1993 Mayor Peg Pinard & City Council Members Bill Roalman, Penny Rappa, Dave Romero, and Allen Settle P 0 Box 8100 San Luis Obispo, Ca. , 93403 FAX # (805) 781-7109 Dear Mayor Pinard and City Council Members: I am writing on behalf of the Santa Barbara/San Luis Obispo Building and Construction Trades Council AFL/CIO to make you aware of our great disappointment in your decision to undertake discussions or action regarding prevailing wages (Davis Bacon) without the presence of representatives of the effected employees. Unfortunately I am in Washington, D.C. , at the present attending a Legislative Conference, or I would certainly be in attendance for your meeting. We are requesting that you postpone these discussions, or decisions, until such time representatives may be present. We appreciate your cooperation in this matter. Sincerely, II CpYii:57o: SANTA BARBARA/SAN LUIS OBISPO ❑•DmotesAction ❑ r'YI BUILDING AND CONSTRUCTION TRADES COUNCIL AFL/CIO ; �ICowna p. CDDDIR J� CAO C FLU.Mit. AG10 ❑ FIREC�iEF I FIX DFA 1/I CLE k ?UC. 1 POLiiE al t Andrew J. Moynagh ❑ MGMT.Ta-%M F 1 ;'rC-DiR. Executive Secretary O C F.EtDFHL H L G11Ta!2. /coyne OPEIU #537 AFL/CIO RFCt:i1VL_-U APR 19 1993 CITY COUNCIL SAN LUIS OBISPO. CA 1VIr-L 1111 Auriluft ATE Z20-13 ffEM# � om the desk of Pluffibers rl Sid from C. Stolper 0 Business Manager s 1y and Steamf itters -. *, Local Union #403 3710 BROAD ST., SAN LUIS OBISPO, CALIFORNIA 93401 (805) 543-2416 • FAX: (805) 541-0251 April 19, 1993 COPIES TO: [❑ .otos Action Peg PinardCDD DIR. 990 Palm Street FLN�DIR. Box 8100 �EC,,RREGJMF W1 biL San Luis Obispo, CA 93403-8100 01 I I yc POUCECH C EJ RX DIP_UTILDW, Dear Mayor Pinard: We have just been notified that the Council has on its agenda for Tuesday, April 20, 1993, a resolution to V M L) abolish prevailing wages on city funded public projects. APR 19 W I can't begin to tell you what devastation this kind of CITY COUNCIL action will cause the more than four hundred working men SAN LUIS OSISF!0,CA and women of San Luis Obispo which we represent who are the Plumbers & Steamfitters of Local #403. Frankly, we are very troubled that this proposal was never brought to our attention by city staff, to allow us an opportunity to provide the Council with a balanced presentation from which to make an informed decision on this important issue. Please regard this correspondence as a. plea from our members to postpone any decision on this matter at least thirty days so that our input might be heard by the Council. Sincerely, Sid C. Stolper Business Manager U. A. Local #403 There is no substitute for SCS/jc U.A.skilled craftsmen The source for certified piping mechanics.