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Sunday, 15 March 2015 22:00

Repealing Michigan's prevailing wage law: Good, bad or unlikely?

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This may finally be the year Republicans in the Legislature move forward with their agenda to repeal Michigan’s prevailing wage law.

The 50-year-old policy, which pays union-standard wages on public construction projects, has for years been a target for critics who say it costs taxpayers through artificially inflated wage rates.

Similar to arguments against raising the minimum wage, opponents say that the policy makes it more costly to hire workers, and therefore, less work can be done for the same amount of money. They also say that the wages are set by an arbitrary system and argue the process requires onerous administrative work to ensure compliance with the law.

“It’s a paperwork nightmare, it substantially increases the cost of construction and it’s wasteful of tax dollars,” said Norm Brady, president of the Associated Builders and Contractors (ABC) Western Michigan chapter.

In Michigan, there is no minimum threshold on the cost of a project for which prevailing wage is applied. For each county, the state determines prevailing wage rates for workers on state and public school projects — as well as local projects that include state funding — based on the rates in local collective bargaining contracts.

Opponents of Michigan’s law often point out that this is unfair because less than a quarter of construction workers in the state are unionized, according to the ABC.

“Having a prevailing wage law only on a union scale when the union makes up 18 percent of the construction workforce drives up the cost of construction,” Brady said. “It’s a job killer.”

But proponents of the policy — signed into law 50 years ago but which recessed for nearly three years in the 1990s amid a court challenge — argue that it prevents a race to the bottom in construction wages. They say it encourages efficient and high-quality work and that paying workers more provides greater societal benefits.

While both sides point to studies that back up their own claims, some economists and labor researchers say the reasoning related to taxpayer savings by way of lower wages is too “simplistic” and fails to account for what has been seen in other states.

Moreover, any policy that makes it to Republican Gov. Rick Snyder’s desk may face a veto, as the governor has stated publicly that he does not support repealing prevailing wage.

Who is right?

Michigan’s prevailing wage law was signed in 1965 by Republican Gov. George Romney, 34 years after the federal Davis-Bacon Act was enacted, which applied to contractors and subcontractors on federal construction projects.

But the law’s been a target for Republicans lawmakers for years. Ottawa County Republican Arlan Meekhof — who’s leading the effort to repeal the law — has spent his entire career in the Legislature trying to repeal Michigan’s prevailing wage law.

“It does not make sense that our taxpayers should have to pay more for improvements to our school and municipal buildings,” Meekhof, R-West Olive, said in a statement regarding a bill package introduced in January to repeal prevailing wage. “The extra cost of prevailing wage laws siphons money away from other community priorities.”

Meekhof targeted the policy when he first ran for the state House in 2007. At the time, Allendale Public Schools bonded for a $59 million construction project to be paid for over 30 years. Ten percent of the project costs were directly attributed to prevailing wage, Meekhof says, leaving taxpayers on the hook for an extra $12 million over the life of the bond.

One of the country’s leading researchers on the topic, though, has heard the arguments against prevailing wage evolve since the 1980s. In a recent interview with MiBiz, Peter Philips, a labor economist at the University of Utah, said the “arithmetic” Meekhof uses to show that prevailing wage rates lead to a direct increase in costs does not account for other measures such as productivity and a decline in the skilled labor force.

“It’s my position that the law is a good idea,” Philips said. “I don’t think you’re going to find a lot of savings by repealing. There remains a significant difference in skill content between the unionized and non-unionized sector. Everyone agrees that if you repeal these laws, wage rates fall — that’s not controversial — and also that apprenticeship training falls. Falling wages don’t lead to a fall in costs because there is a loss in productivity to go along with it.”

Philips said his work runs counter to the “arithmetic” argument used by prevailing wage opponents, which posits that if wages fall, then project costs will fall as well.

“You assume labor productivity is the same across all sectors of construction. If that assumption is wrong, then your math is wrong,” he said. “In an empirical argument, look at the costs before you get rid of the law, the costs after you get rid of the law and costs when you apply the law. When you do that, you don’t find a measurable difference between states with and without prevailing wage laws.

“The problem with wages falling is that training falls, there is higher turnover and you have trouble building and keeping skills in the industry.”

Peter Berg, a professor at Michigan State University’s School of Human Resources and Labor Relations, agrees that the potential impacts of repeal are more complicated than just cutting project costs.

“There are other effects requiring those wages would have, such as greater consumption and more money in the pocket (of workers), which gets spilled back in the form of higher tax revenue to the state,” Berg said, adding that prevailing wage has been shown to boost skills within the trades. “I find the arguments against to be rather simplistic in terms of its treatment of the issue.”

Michigan is one 32 states to have a prevailing wage law. In 1891, Kansas was the first state to adopt such a policy. Louisiana was the last state to repeal its law, in 1988, while a court invalidated Oklahoma’s prevailing wage law in 1995, according to the National Conference of State Legislatures. In the Midwest, lawmakers in Wisconsin and Indiana have also introduced legislation to repeal prevailing wage laws so far this year.

This is the year — or is it?

When Meekhof was elected Senate Majority Leader for this legislative session, political observers thought this may finally be the year prevailing wage is repealed in Michigan, an effort that has gone on for decades.

“Finally, the right people are in office and there’s enough support in the House and Senate to move the issue through,” said ABC’s Brady, referring to the 2014 election of new Republicans and the selection of Meekhof as Senate Majority Leader. “It had all the stars [align].”

Frank Mamat, an attorney for Foster, Swift, Collins & Smith PC specializing in labor issues, said repealing prevailing wage “has been a target for some people for 20 years.” In 2012, the issue was “teed up” during the Legislature’s lame-duck session, a month after state voters rejected a ballot initiative to enshrine collective bargaining into the state constitution.

“It was knocked off first base by Right to Work, though,” Mamat said, noting the push for Right to Work came as a response to the union-backed ballot measure. “Historically, that was probably a much more important event.”

However, the effort to repeal prevailing wage faces a key challenge in Gov. Snyder, particularly for the effect that it could have on training skilled workers.

“Gov. Snyder has said he didn’t support repealing the prevailing wage law during his first four years, and he has no plans to support repealing it in the next four, either,” said spokesperson David Murray, the governor’s deputy press secretary.

Snyder’s stance makes Mamat hesitant that anything passed in the Legislature could withstand a veto.

“If you would have asked me Jan. 2 if it would have passed, I would have said yes,” Mamat said. “When the governor came back and said I’m not going to sign it, it threw everyone in the Legislature through a loop.”

For T.J. Bucholz, president of Vanguard Public Affairs Inc. in Lansing, there is nothing unique about this year’s attempt to repeal prevailing wage compared to efforts in years past.

“It’s another GOP red-meat issue they absolutely feel they have to have done,” he said. “At its core, the problem with it, intrinsically, is that the people pushing this say it’s the right thing to do and it will create jobs, but they don’t have the data to back that up. They can’t point to another place where repealing it has done good to the economy or bad.”

He agreed that the issue will likely get more play this year with Meekhof as Senate Majority Leader, and said that the odds of the bills making it out of that chamber are better. But he also said that Snyder is moving to a more moderate stance on issues in his second term, and his statements on prevailing wage are evidence of that.

“It’s an interesting play: As the Legislature has gotten more conservative, Governor Snyder now is playing the role of the more moderate governor than before,” he said.

How significant would repeal be?

Experts, contractors and advocates interviewed for this story all said repealing prevailing wage would be significant for Michigan, but for different reasons.

Brady of the ABC Western Michigan Chapter cited a recent survey sent to the organization’s members that showed 83 percent of them said repealing the law should be one of the group’s “top priorities.”

Paul Lemley, senior vice president of national accounts for Grand Rapids-based Triangle Associates Inc., said his company has felt “handcuffed” by the law when bidding out local projects. Triangle is the construction manager for Hudsonville Public Schools’ new $54 million high school freshman campus. It has been the lead on several public school projects throughout West Michigan in recent years.

“My biggest concern with the policy is that it drives added cost into public projects because it’s using this prevailing wage standard, which is really an arbitrary standard of what wage levels are,” Lemley said. “They don’t represent wage levels in the state. In some cases, they’re much higher, in some cases (the rates) are actually lower than what we pay our people.”

Lemley also chairs ABC West Michigan’s board of directors.

Not only does the law come from “arbitrary standards,” but also a lack of uniform reporting requirements and the resulting administrative work have created inefficiencies for staff at Triangle, he said.

In the case of working on the Hudsonville project, which is subject to prevailing wage standards: “We’re charged by the school district to go to the competitive market, bid this work out, create interest in their project and give them the best possible price for the quality,” Lemley said. “It really handcuffs us to do that job because now we’re not able to really go to the street and compete on an open market. … From our standpoint, we’re handcuffed in our ability to deliver the best possible value under this scenario.”

As for the argument made by prevailing wage supporters that the quality of work would decline if the law were repealed, Lemley said Triangle has a system to prequalify contractors “based on a number of criteria, not just whether they’re prevailing wage.”

“I think there are other tools that we have in making sure we’re not awarding to the lowest possible bid and an unqualified contractor,” he said.

But on the other side, some say repealing prevailing wage would also contribute to the decline in union membership in Michigan, which union supporters cite as a reason that the latest efforts amount to little more than union-busting.

“Michigan unions have already started the decline,” Bucholz said. “The question is how far will the decline go.”

Foster Swift’s Mamat said union officers he’s talked to around the state are “very concerned” about the issue. The Michigan Building and Construction Trades Council website greets visitors with a “Prevailing Wage Alert!” announcement about the latest efforts in the Legislature to repeal the law, encouraging visitors to contact their legislators.

MSU’s Berg said keeping prevailing wage “is important in a sense that it sends a signal that the state recognizes the social benefits of paying higher wages and ensuring productive, high-quality work in its projects.

“If the state repeals it, it’s saying that this is just about wage costs on a project. Yet wages don’t make up a large part of those costs — often, it is a small percentage. It really makes you wonder what the state is trying to achieve.”

But for at least one local contractor, Grand Rapids-based CD Barnes Associates Inc., the law has had little effect on the way it goes about its business. John Drozer, president of the company, said he is “neutral” on the issue.

“It hasn’t really had too much of an effect on us one way or the other. It’s a law. When we do work with prevailing wage, it’s fine,” he said. “When we don’t use it, we don’t have any implications one way or the other. There is a lot more paperwork with it, but we just follow what we need to do. It’s just part of doing business with the client.”

Prevailing wage and skilled trades

University of Utah’s Philips said the connection between training in the skilled trades and prevailing wage is surfacing not just in Michigan, but around the country.

The construction industry is relatively volatile when it comes to labor employment compared to other industries, he said, yet the work needs to be quality and stand the test of time. At the same time, it’s particularly difficult to build and retain skilled workers in the industry.

“They’re the last person in line before the hammer hits the nail,” he said.

Collective bargaining contracts make it easier for employers to invest in their workers and for those investments to pay off, Philips said.

“In the non-union sector, they have a hell of a time training,” he said. “The argument against that is: Why have an industry financed through collectively bargaining training programs when we can do it through vocational colleges? We can have a tax on construction and use it to finance vocational college training.”

Recently, Gov. Snyder has placed an emphasis on training workers in the skilled trades, including for building and construction. Last month, he announced a $50 million grant program to help community colleges boost their skilled worker training to help more residents secure good-paying jobs. The Michigan Strategic Fund issued bonds to fund the program, with matches made by community colleges.

“The Governor is working to help Michigan build a workforce with in-demand skills,” said Murray, a spokesperson for Snyder.

But too much of a dependence on vocational-school training could also have a downside, Philips said.

“You save taxpayers money because you get rid of the law, but then you cost taxpayers if you get rid of the law,” he said.

Philips also questions the impact on worker attraction if prevailing wage is repealed and construction wages fall.

“What is going to get those community college-trained workers to stay in the industry if wages stay low?” he said.

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Editor’s Note: The graphic with this story has changed from its original form. The figures listed reflect wages and fringe benefits. 

Read 6497 times Last modified on Thursday, 19 March 2015 14:35

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