ANALYSIS: Assembly Unveils So-Called Prevailing Wage “Reform” Plan

Proposal would exempt many smaller local projects from inflated wage costs, but big-ticket public projects would still require prevailing wage

June 29, 2015

[Madison, Wisc…] Assembly Speaker Robin Vos (R-Rochester) announced a reform package for Wisconsin’s prevailing wage law on Monday that would exempt technical colleges, raise project thresholds to $450,000 and adjust some details on the way prevailing wages are calculated by the Department of Workforce Development (DWD). However, these changes would not go into effect until 2017.

Vos, who claims he supports full repeal of prevailing wage, told reporters that his changes will exempt nearly 60 percent of all public construction projects from prevailing wage, which would protect many taxpayers from artificial cost increases.

“The new reforms, which will be brought forward in a budget motion, will exempt nearly 60 percent of all projects from the prevailing wage requirement and reduce the artificial cost of projects built with taxpayer dollars,” Vos said.

The Speaker was joined by seven other Assembly members at the press conference, including Joint Committee on Finance co-chair Rep. John Nygren (R-Marinette) and Assistant Majority Leader Rep. Dan Knodl (R-Germantown).

Bill Smith, Wisconsin State Director for the National Federation of Independent Business (NFIB), doesn’t think the plan goes far enough to help small contractors.

“We certainly understand that compromise is key in terms of policy making, but what the Assembly is currently proposing barely scratches the surface of the reforms that small business needs to see in order to increase competitiveness and turn the economy in Wisconsin around,” Smith said.

Under the Assembly plan, projects at any of Wisconsin’s 16 technical colleges would be exempted from prevailing wage. Projects that use volunteers, receive private donations, and residential or agricultural construction would also be free of the law. Agricultural and residential projects that would be impacted by this new plan totaled just 17 in 2014, though. For context, there were thousands of public projects that received prevailing wage determinations in Wisconsin in 2014.

Exemptions are included for other circumstances such as “warranty repair or service work on a vehicle or other equipment performed on the site of a project of public works by an outside vendor,” and truck drivers moving material to or from a project site but not employed on the project site.
Instead of applying different project cost thresholds for different jurisdictions to qualify as a prevailing wage project, as current law does, Vos’ plan would require a single threshold of $450,000 or more.

That threshold would also be adjusted every four years to reflect changes in construction costs from the Construction Cost Index, a project of the national publication Engineering News−Record. That means that the threshold would likely be adjusted upward because of increasing construction costs.

Under current law, qualifying for prevailing wage depends on the project size and the jurisdiction that commissions the project. Multi-trade projects that cost $234,000 or more in towns or in cities and villages with less than 2,500 people are subject to prevailing wage.

Multi-trade projects that cost $100,000 or more in all other government entities must use prevailing wages. Projects where one trade makes up 85% of the cost have a prevailing wage threshold of $48,000 or more. State highway and bridge projects have no threshold at all, meaning prevailing wage always applies to these projects. Vos’ proposal would now exempt any project, including state highway and bridge projects, up to $450,000.

The plan’s changes to the way DWD calculates prevailing wages is where it gets complicated, so lets give some background first.

Currently, contractors and construction firms return surveys to DWD that report wages and benefits paid during a certain time period. The department is then required to find the rate for each occupation in each county that is most often paid, so long as they have at least 500 hours of wage and benefit rates to look at in each county.

That rate can rarely ever be found, however, because rates vary by contractor just like any business’ wage rates would vary from their competitors. DWD then goes to plan B, which takes the average rate from the top 51 percent of wages and benefits reported for an occupation in a county to come up with the prevailing wage.

Sometimes, there are not enough hours of work (less than 500) in a county to make a prevailing wage determination. In that case, DWD applies rates from contiguous counties. If those contiguous counties don’t have enough data, then it goes to a statewide average.

Now that you’re nice and confused, here’s how Vos’ plan switches things up.

When DWD has to go to plan B because a truly prevailing wage rate is not found, the proposal would require them to find the average of the top 75 percent of wage rates instead of the top 51 percent.

Additionally, the plan drops the floor for what is considered to be a sufficient amount of hours reported from 500 to 250.

Instead of going to a statewide average when a contiguous county average isn’t available, DWD would be required to apply the federal Davis-Bacon law rates to counties with insufficient hours. The Davis-Bacon Act is the federal version of prevailing wage for projects receiving federal dollars.

Yet another change extends the period for which a government entity can challenge a prevailing wage determination for a specific project from 30 days to 90 days. However, current law allows a challenging entity to provide three examples of similar projects in the area with different wages. Vos’ proposal allows only one such example to be brought forward as evidence.

The last interesting change would address a concern, first discovered by Media Trackers, that union-backed, third-party groups were harassing municipalities over prevailing wage compliance. Under Vos’ proposal, only DWD, local governments and an actual employee working on a prevailing wage project could request payroll information from a contractor to review prevailing compliance.

Vos’ claim that nearly 60 percent of projects that currently qualify for prevailing wage would be exempted under a $450,000 threshold seems far less impressive when the monetary aspect is considered.

Vos Prevailing Wage Reform Plan Text Box.pngAccording to a Wisconsin Taxpayer’s Alliance study, taxpayers could have saved up to $300 million on $2.2 billion worth of building and heavy construction projects in 2014. Of that $2.2 billion, nearly $1.9 billion of it was for projects with price tags of $1 million or more – far greater than the $450,000 threshold created by the Assembly package.

That means about 90 percent of public construction spending identified by the Taxpayer’s Alliance would still be subject to prevailing wage under the Speaker’s plan – accounting for up to $258 million of potential statewide savings that would not be realized.

Vos’ plan would also commission a report to be produced by December 1, 2015 investigating ways to improve the calculation of prevailing wages. Government officials, contractors, unions, legislators and other appointees would all be gathered to produce the report.

Another initiative would have the state put out a request for a research organization to study actual taxpayer savings in a four-year period resulting from more projects being exempt from prevailing wage going forward.

Ohio commissioned a similar study in 1997, the year it exempted school districts from its prevailing wage law. In the five years following Ohio’s repeal of prevailing wage for school districts, the overall cost of school construction dropped by $487.9 million – or an average of 10.7 percent.

Between 1994 and 1997, Michigan temporarily stopped enforcing their prevailing wage laws and a study that looked at public construction costs in 1995 found that Michigan saved $275 million because of that lapse in enforcement.

The Senate has not yet released a plan of their own for prevailing wage, but sources have told the MacIver Institute that a plan will be unveiled in the coming days that goes much further than the Assembly proposal.

Local governments may be exempt from prevailing wage in that plan according to some reports.

“We believe that the proposal being considered in the state Senate to exempt all local units of government from prevailing wage is a better vehicle to deliver the greatest relief to the largest group of Wisconsin taxpayers, and will make the big city and out-of-state firms compete with small, local businesses for more projects,” explained a coalition of NFIB, the Wisconsin chapter of the Association of Builders and Contractors, the Municipal Electrical Utilities of Wisconsin, Wisconsin Association of School Boards and the Wisconsin Rural Water Association in a joint statement.

As of this week, 35 Representatives and seven Senators are co-sponsors of a separate proposal to do away with prevailing wage entirely. Four of the Assembly members who joined Vos at the press conference are still listed as supporters of full repeal: Knodl, Rep. Bob Kulp (R-Stratford), Rep. Tom Larson (R-Colfax) and Rep. Paul Tittl (R-Manitowoc).