HomeMy WebLinkAboutAgenda Report - March 6, 1996 (48)r OF
CITY OF LODI
COUNCIL COMMUNICATION
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AGENDA TITLE: Public Hearing to Consider the Establishment of a City
Charter
MEETING DATE: March 6, 1996
PREPARED BY: City Attorney
RECOMMENDATION: Council to conduct a public hearing to consider whether or
not the City of Lodi should adopt a charter.
BACKGROUND: On May 7, 1995 the Council designated itself as a charter
committee to oversee the drafting of a City Charter. The
previously developed schedule indicated that meetings
would be held for public input during the months of July through December 1995. Clearly that did
not occur. If the City is to put the matter before the electorate in November of 1996, it is necessary
to move on a rather expedited schedule of public hearings to accomplish the acquisition of input for
the formation of the charter. The March 6, 1996 public hearing is the first of such meetings.
Since the placement of the question of whether or not to have a charter is characterized as a ballot
measure, it is necessary that the decision to place the matter on the ballot be done by July 19, 1996.
This date is based upon the time periods that need to be accommodated for the filing of arguments
for or against the particular ballot measure.
FUNDING: None Required.
Respectfully submitted,
4;0-04� 4f 00�
Randall A. Hays
City Attorney
APPROVED:
H. DIXON FLYNN
City Manager
cc -1
3 t ;-p
•, CITY OF LODI NOTICE OF PUBLIC HEARING
Carnegie Forum Date: March 6, 1996
305 West Pine Street, Lodi Time: 7:00 p.m. 00
For information regarding this notice please contact:
Jennifer M. Perrin
City Clerk
Telephone: (209) 333-6702
NOTICE OF PUBLIC HEARING
NOTICE IS HEREBY GIVEN that on Wednesday, March 6, 1996 at the hour of 7:00
p.m., or as soon thereafter as the matter may be heard, the City Council will conduct a
Public Hearing at the Carnegie Forum, 305 West Pine Street, Lodi, to consider the
following matter:
a) Possible establishment of City Charter
Ali interested persons are invited to present their views and comments on this matter.
Written statements may be filed with the City Clerk at any time prior to the hearing
scheduled herein, and oral statements may be made at said hearing.
If you challenge the subject matter in court, you may be limited to raising only those
issues you or someone else raised at the Public Hearing described in this notice or in
written correspondence delivered to the City Clerk, P.O. Box 3006, at or prior to the Public
Hearing.
By Order of the Lodi City Council:
�iferPin
City Clerk
Dated: February 21, 1996
Approved as to form:
a. v
John Luebberke
Deputy City Attorney
J:1CrTYCLRK%F0RMS%N0TGEN.DOC 2120198
MEMORANDUM FROM THE
O F F I C E O F T H E C I T Y
A T T O R N E Y
DATE: March 6, 1996
TO: Honorable Mayor & City Council Members
FROM: Randy Hays, City Attorney
RE: Prevailing Wage A Perspective
In reviewing the file which I have regarding the prior activities of the City Council relative to the
question of a city charter, one of the items that seems to be of importance is the question of
prevailing wage. Therefore the purpose of this memo is to flesh out that topic relative to some
real numbers. The real numbers are based upon information provided to me by the Public Works
Department regarding public works projects that include general fund funded projects and
enterprise fund funded projects.
The key here is that only those public works projects which contain only City of Lodi dollars are
counted. That is because if you have a public works project which has state dollars or federal
dollars in it, it is required under the terms of the receipt of those dollars that either California
Prevailing Wage Rates are paid or that federal Davis -Bacon Act wage rates are paid. There is no
way around those requirements. With regard to the numbers provided a couple of assumptions
were made. On an average it is assumed that fifty percent of the dollars in a public works project
are attributable to labor. That doesn't hold true for all projects. Some of the projects were
significantly less labor intensive. Those were assumed to have labor costs of twenty percent.
The following numbers represent the labor dollars that were susceptible to some savings possibly
for the years listed:
1991
$ 52,632
1992
$ 32,495
1993
$ 21,347
1994
$ 446,928
1995
$1,011,834
d:1CA1CITY%CORRE5IM-PRV WGLDOC
These numbers represent dollars from the general fund. It should also be pointed out that 1994
and 1995 really represent inflated numbers since in those years the City had extraordinary
expenses associated with the refurbishing undertaking of old City Hall.
For enterprise fund expenditures the figures are as follows:
1991
$136,650
1992
$205,547
1993
$ 57,499
1994
$226,796
1995
$446,574
Whether or not any money would be saved by not being compelled to pay prevailing wage on the
labor numbers just referenced is the real subject of the debate. However, there is certainly an
argument to be made that some savings would occur. The level of savings that can occur is
really not a known quantity. However, you frequently hear numbers in the range of 15 to 20%
being available to be saved. If for the sake of argument you use 15 or 20% the amount of dollars
that potentially can be saved on labor costs would simply be that percentage times the numbers
that are contained in this memo for the various years.
This memo does not attempt to say that there in fact would be savings since it is not possible to
know how a particular job would be bid. The idea of this memo however is to put some flesh
onto a skeleton in order to guide any discussion on this issue.
Respectfully submitted,
Ranys, Cih Attorney
cc: City Manager
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5525 HILDRETH LSE _ .
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STOCKTON, CA 95212
LODI CITY COUNCIL
P.O. BOX 3006
LODI, CA 95241-1910
March 6, 1996
RE: CITY CHARTER
I wish to voice my opposition to elimination of the prevailing wages proposed by this new
charter.
I am an estimator for a major employer in the Stockton area and the prevailing wage allows us to
provide work for our local employees. Prevailing wage allows to provide a living wage, health
and welfare benefits, and pension benefits. It also provides health and welfare for pensioned
workers as well as providing for apprenticeship training.
I have been estimating and doing field work as an Operating Engineer since 1964 and have had
the opportunity to bid for both union and non-union contractors and it is a total fallacy that by
doing away with prevailing will save you money.
Having to bid jobs for the non-union employer I've had to increase the prices because of
questionable productivity and sub standard equipment. This has led to prices being somewhat
higher than union contractors. Also figured into various bids is the reality that the non-union
contractor usually tries to negate the plans and specifications.
I am proud to have lived in the Lodi/Stockton area and have given many, many hours and days,
weekends and holidays over the past twenty years to officiating swim meets for the LODI CITY
SWIM CLUB, TOKAY HIGH SCHOOL SWIM PROGRAM, and the LODI HIGH SCHOOL
SWIM PROGRAM. If I were not getting a decent prevailing wage; I would not have been able
to donate this time to the development of the children in this area.
I have even had the pleasure of watching some Council members both past and present children
develop into class A swimmers and water polo players.
I feel by donating my time in this more than pays back my appreciation for the community:
Please if this Charter proposal is introduced again keep this letter in your files for reference.
Sincerely yours
Prevailing Wage Laws in Construction:
The Costs of Repeal to Wisconsin
Dale Belman, .
Associate Professor of Economics and Industrial.Relations,
University of Wisconsin - Milwaukee
Paula B. Voos,
Professor of Economics,
University of Wisconsin - Madison
January, 1996 (revised)
THE INST fUTE FOR
WISCONSIN`S FUTURE
opSia-3-afl-eio (3)
Prevailing Wage Laws in Construction:
The Costs of Repeal in Wisconsin
TABLE OF CONTENTS
Background Page 1
Executive Summary Page 2
Prevailing Wage Statutes: Impact on the State Economy
Maintaining Local Wage Levels Page 5
Impact of Repeal on Workers Page 5
Impact on State of Wisconsin Revenue Page 6
Maintaining Quality Standards on Public Construction Page 7
Supporting Comprehensive Employee Training Page 8
Opposition to Prevailing Wage Statutes
Do Prevailing Wage Laws Increase the Cost
of Public Construction and Hurt Public Budgets? Page 9
Do Prevailing Wage Laws Disadvantage Minorities? Page 10
Conclusion Page 12
Bibliography Page 13
Notes Page 15
BACKGROUND
Definition of Prevailing Wage Laws
The federal Davis -Bacon Act and the state prevailing wage standards require construction
contractors working on government funded projects to pay their employees wages no less than the
average wage paid in their occupation by private contractors in the locality. 71c. first prevailing
wage statute was passed by the state of Kansas in 1891. Laws applying to federally funded contracts
were passed in 1931. Prevailing wage laws were enacted to maintain community wage standards,
support local economic stability and to protect taxpayers from sub -standard labor on state and
federal projects.
Along with 3I other states and the District of Columbia, Wisconsin has its own prevailing
wage law, known as "little Davis -Bacon." The provisions of Wisconsin law are similar to those of
the federal statute, except that Wisconsin law does not apply to projects as small as those covered
by federal statute, and the prevailing wage is defined as the modal (roost common) wage. The
Wisconsin law is also broader in scope, applying to truck drivers and truck rental rates. Prevailing
wage standards in Wisconsin are determined by the market rate of a given community, measured
with data from union and non-union firms by the Department of Industry. Labor and Human
Relations.
Basis for Establishment of Prevailing Wage
Prevailing wage laws were passed at the national and state level in the 1939s to protect state
jobs threatened by out-of-state contractors who hired itinerant laborers at low wages and won
federal contracts by bidding lower than local companies could afford. These laws set clear
parameters to ensure that contractors bid oh public projects on the basis of skill and efficiency, not
on how poorly they pay their workers.
The construction industry differs from most industries in the brevity of most projects, the
short-lived attachment between employers and employees, and the methods used by government
to contract for work. These factors combine to create fierce downward pressures on wages and
benefits in public construction projects which go to the lowest bidder. As materials' costs are fairly
standard for all contractors, wages are one of the few areas in which contractors can gain a
competitive advantage. Unlike employees in most industries, employees in construction are seldom
employed for long by a single firm. Instead they work for one firm on one project and when that is
completed, seek work on another project, often with another firm. Weather and industry cycles may
cause long delays between jobs. Except in periods when construction is booming, employees are
not in a position to refuse a job because pay and benefits are substandard. Prevailing wage laws
were developed to protect wage levels under this competitive bid system.
EXECUTIVE SUMMARY
The Davis -Bacon Act, established to protect local wage levels on publicly -funded
construction projects, is being challenged in Congress. Attempts to repeal Davis -Bacon and weaken
state prevailing wage laws are based on the claim that repeal will bolster state and federal budgets.
However, in the nine states in which prevailing wage laws were repealed in the 1980's, state budgets
and taxpayers did not benefit. In fact, repeal of these regulations actually resulted in a loss to state
budgets and had a negative impact on state economies. The problematic consequences of repeal
included:
• Lower wages for all construction workers
• Reduced tax revenues available to state governments
• Lower quality construction and increased cost overruns
• A severely weakened system of construction apprenticeship training
• Increased occupational injuries and increased costs for workers' compensation
• Lowered minority participation in construction job training and increased minority
unemployment in the skilled trades.
Findings:
1. The decrease in wages to construction workers due to repeal of wage standards results in
a major loss of tax revenue to state governments. In Wisconsin, repeal of the federal wage
statute, the Davis -Bacon Act, would lead to a $4.3 million annual loss in tax revenues. Repeal
of the state statutes in addition to the federal law would lead to an overall loss of $17.2 million.
In states which repealed prevailing wage laws, average earnings dropped for all construction
workers -- union, non-union, those working on public projects, and those working on private
projects. Repeal itself caused an average decline of $1,483 in earnings (4.990 of construction
income).
Repeal of Davis -Bacon would cost Wisconsin's 100,000 construction workers approximately
$45.7 million a year in lost income. This estimate includes projected employment changes
subsequent to repeal, but does not include possible "ripple effects" occurring when other state
residents experience income declines due to reduced spending by construction workers. With
simultaneous repeal of federal and Wisconsin wage laws, construction workers in Wisconsin could
lose almost $182.7 million in income.
2. Repeal of the prevailing wage laws would hurt, not help, the Wisconsin state budget. This
study shows that the decline in state income and sales tax revenues would exceed the minimal
savings in construction costs to the state derived from decreasing worker wages.
If the Davis -Bacon Act is repealed, the tax revenue loss of $4.3 million exceeds the. $1.5
million savings in construction costs creating a net loss to the state of $2.8 million per year. If both
the state and federal statutes are eliminated, this loss would more than triple to $11.2 million. At the
national level, researchers predict that the repeal of the Davis -Bacon Act would lead to an increase
in the federal deficit of $1 billion. Wisconsin taxpayers would ultimately bear a portion of the
P
negative impact of this increase in federal debt.
Effect of Repeal of Prevailing Wage Laws
(in millions of dollars)
State Law Davis Bacon Both
Cost Savings - State Projects 4.5 1.5 6.0
Revenue Loss to State
-12.9
-4.3
-17.2
Net Effect on State Budget
-8.4
-2.8
-11.2
3. In states that have repealed prevailing wage laws, occupational injuries have increased This
results in higher workers' compensation costs.
Serious construction injuries increased in the states where prevailing wage laws were
repealed. Plumbers and pipefitters experienced an average of 15% more serious injuries per year
following repeal. This increase in -injuries is due to a combination of factors -- the use of
inexperienced workers, a decline in training and cut-throat competition. When contractors are forced
to reduce labor costs, workers are often pressured to speed up and take more chances. These and
other factors increase accidents in an already hazardous industry. Of the $62 billion spent on
workers' compensation nationwide, about 30% covers construction -related injuries and illnesses.
Repeal of Davis -Bacon and/or state statutes would cause a substantial increase in workers'
compensation costs in Wisconsin.
4. Elimination of prevailing wage statutes leads to increased costs associated with the use of
low-wage workers.
Lower construction wages in repeal states have led to reduced levels of worker skill and
efficiency, higher maintenance costs and a dramatic increase in project cost overruns. According
to a HUD Audit Report, poor workmanship resulting from the use of inexperienced or unskilled
workers and short cut construction leads to excessive maintenance costs and increased risk of
defaults and foreclosures. Use of high -wage, high skill labor may lead to lower total final costs,
particularly in complex projects where productivity and skill is important. In addition, quality
construction lowers maintenance costs. Repeal of laws in Utah resulted in additional direct
construction costs as cost overruns on state road construction tripled. In addition, with repeal, fewer
construction workers are likely to receive paid health insurance. This could cause publicly -financed
health care costs to rise, increasing the burden on state budgets.
S. Current proposals to eliminate prevailing wage statutes threaten the stability of the
apprenticeship training system. This system ensures a skilled labor force and provides
minorities with increased access to construction jobs.
Prevailing wage statutes have proven to be a crucial foundation for the apprenticeship
training system in construction. In Utah, repeal led to the virtual collapse of the apprenticeship
system. Union capacity to sustain apprenticeship training dwindled. State vocational training did
not fill the gap and non-union training systems lacked stability. As competition increased,
apprentice employees were not released from work for training classes and the graduation rate
among enrolled apprentices dropped from 95% prior to repeal to 15% after repeal of the statutes.
Utah now faces a significant shortage of skilled workers. Arizona has had a similar experience.
Proponents of repeal often claim that prevailing wage laws are detrimental to minority
groups attempting to enter the construction trades. In fact, minority access to construction training
in repeal states dropped 22%. In addition, the ratio of African-American unemployment to white
unemployment did not decrease as supporters of repeal had predicted. In fact, after repeal, the
percentage of African-Americans facing unemployment grew at a faster rate than whites in
construction.
Conclusion
The evidence reviewed in this study indicates that the Davis -Bacon Act and Wisconsin's
prevailing wage laws are beneficial to the State of Wisconsin and its citizens. '
1) The elimination of prevailing wage laws would cost the state more in tax revenue than it would
save in construction costs. Prevailing wage laws benefit the public budget.
2) Prevailing wage statutes make economic sense. Wage standards result in lower maintenance costs
by ensuring construction quality and contractor stability, a decrease in cost overruns, a lower
incidence of construction -related injuries and reduced workers' compensation costs. The prevailing
wage structure supports a strong system of apprenticeship training in the construction trades which
provides access to high -skill work for young people and minorities and ensures the availability of
skilled labor to the state.
3) Prevailing wage laws ensure that the competitive bidding process is not used to undermine
community wage levels and living standards.
4
PREVAILING WAGE STATUTES: IMPACT ON THE STATE ECONOMY
Maintaining Local Wage Levels
Prevailing wage laws were enacted to maintain community wage standards, promote
economic stability and protect taxpayers from substandard labor on state and federal projects. The
Congressional Budget Office (CBO) estimates that the Davis -Bacon Act regulates minimum wages
for 19 to 24% of all construction in the United States (Thieblot 1986). Allowing for state statutes,
as much as 30% of all construction is subject to prevailing wage statutes. Prevailing wage laws
ensure that construction employees are paid the same wages on government and private projects.
This is done by requiring that contractors on publicly -funded projects pay the locally prevailing
wage, the typical wage paid for a building trades occupation in an area. This does not ensure high
wages, since wages vary greatly by trade and location. Laws do not require that contractors pay
union wages. Wisconsin sets prevailing wages at the modal (or most common) wage in a given area
in private projects. Work by Goldfarb and Morrall, Bourdin and Levitt, and Allen indicate that the
prevailing wages set by the U.S. Department of Labor are, at most, slightly above the average
construction wage. Likewise, these authors find that the Department of Labor does not use union
rates in areas where such rates are inappropriate. Nationwide, real or inflation-adjusted, earnings
in the construction industry have been declining in recent years. Allen (1994) estimates that real
earnings in the industry declined 17% between 1980 and 1992. Repeal of prevailing wage laws
exacerbates this trend.
Impact of Repeal on Employees
What happens when prevailing wage laws are repealed? In the nine states that repealed their
prevailing wage laws during the 1980s (Alabama, Arizona, Colorado, Florida, Idaho, Kansas,
Louisiana, New Hampshire, and Utah) actual construction wages fell 7.5% after repeal. r
One recent study evaluated the extent to which this decline in wages was the result of the
repeal of prevailing wage laws, as opposed to other factors in the 1989s. Controlling for the general
downward trend in real construction earnings, variations in state unemployment rates and regional
differences in wages, repeal cost construction workers a 4.9% reduction in wages, or $1.483 per
person per year. (Philips et at. 1995).2 The effects of state repeals of prevailing wage laws are not
isolated to union workers or publicly -financed construction. All construction workers were hurt —
union and non-union, workers on private projects, as well as workers on government projects.
In Utah, which repealed its statute in 1981, wages declined and skilled workers left the state
or sought employment in other industries. Various researchers have found that construction wages
fell markedly throughout the state following repeal (Atari -Rad et al. 1994; Philips et al. 1995). Low
wages have caused experienced workers to leave the industry and younger workers to leave when
they form families. The subsequent decline in the availability of skilled workers has forced
employers to carry larger permanent crews, increasing their labor costs (Azari-Rad 1994). Arizona,
which also repealed a state prevailing wage law in the 1980s, has similar problems in its
construction labor market. The Wall Street Journal reports that, even in boom periods, wages and
benefits for private residential construction are so low that contractors are unable to retain skilled
workers (Tomsho 1994).
What would happen in Wisconsin if the state prevailing wage law were repealed? Proponents
of repeal agree that wages would fall sharply (Wisconsin State Journal 1113/95) but they have
produced inflated estimates of the likely decrease.' The best estimate -- from the study of what
happened in the nine repeal states -- is that annual earnings would fall between $1,483 and $2016
on average for the approximately 100,000 construction workers in Wisconsin. (Construction
employment varies seasonally from 85,000 to 115,000 workers). This would generate a first -order
loss of employee income of between $148.3 and $201.6 million dollars. (By first -order, we mean
the loss estimates ignore further economic effects - that of reduced income to other state residents
generated from the drop in spending on the part of construction workers, and also increased income
from an expected slight increase in construction employment). Higher figures represent the actual
experience in the states that repealed prevailing wage laws; lower estimates are from the Philips
regression analysis. Considering likely employment effects, Wtsconsin would lose $137 million
dollars in construction income from the repeal of the state's prevailing wage law. ` Wisconsin
construction workers and their families, whether or not they work on public projects, would lose
from the repeal of state prevailing wage laws.
The impact of repealing the federal prevailing wage law, the Davis -Bacon Act, is less
certain. Since federal construction volume is about 1/3 of state construction volume, repeal of the
federal statue would have an impact on construction earnings at least one-third ars large as the state
statute' Wisconsin construction workers could potentially lose an additional $494 - $672 per year
from repeal of the federal prevailing wage law, for an additional loss of about $45.7 million in
construction income If both statutes are repealed at the same time, Wisconsin residents would have
$182.7 million less in income to spend.
Income is not the only thing that would be lost; job safety would also suffer. In Utah, serious
occupational injuries in plumbing and pipefitting increased by 15% following repeal (Philips et al.
1995). Prior to repeal, these trades suffered 13.54 injuries per 1,000 workers; after repeal, with an
Mux of untrained and inexperienced low-wage employees injuries jumped to 15.42 per thousand.
Construction is a dangerous industry and repeal of prevailing wage statutes compounds the problem.
Since construction accounts for approximately 3090 of all workers' compensation costs, a 15%
increase in workers' compensation costs in construction could be predicted to increase all such
compensation costs by 4.5%. Reduced job safety is not only a tragedy for the workers killed or
injured, but also has a negative fiscal impact on the community at large.
Impact on State of Wisconsin Revenues
States which have repealed prevailing wage laws have experienced substantially reduced tax
revenues. Given the decrease in wages, construction workers buy fewer goods and services,
reducing sales taxes collected by the states. In addition, reduced wages result in lower taxable
income, thus decreasing income tax revenues.
The State of Wisconsin will simply collect less in taxes if total income to construction
workers falls. We can use prior experience to calculate the relationship between consumer income
in the state and sales/excise tax revenue; it turns out that revenue is about 2.5% of consumer
income.° A loss of consumer income in the state of $137 million.will cause state sales/excise tax
revenues to fall by $3.4 million dollars.. State sales tax revenues would fall by approximately one
6
third this amount if the federal prevailing wage law were to be repealed, and by about $4.6 million
if both laws were to be simultaneously repealed. Slate income tax revenues would fall even more
sharply. Repeal of state law would generate losses of state income tax revenue of about $9.5 million,
or $12.7 million if both laws were to be simultaneously eliminated. 7
In short, the impact of repeal on the state budget is potentially substantial on the revenue
side. If the state prevailing wage statute is repealed, the state stands to lose about $12.9 million
in sales and income tax revenues. These losses could easily exceed $17.2 million if both laws are
simultaneously repealed
Because revenues fall when prevailing wage laws are repealed, arguments that the
elimination of prevailing wage regulations will save taxpayers money are typically overstated
(Shenan 1985). Philips estimates that repeal of the federal prevailing wage statute would actually
cause the federal deficit to soar by nearly $1 billion, since the savings on construction expenditures
would be dwarfed by reductions in federal tax revenues. This is what happened in several states
which experimented with repeal in the 1980s. Philips and his colleagues report that when revenue
as well as expenditure effects are considered, in Utah decreased tax revenues exceeded savings on
construction costs in five out of the seven years since repeal.
Moreover, repeal of prevailing wage laws raises costs to taxpayers in other ways beyond the
simple loss of state tax revenue. Use of low-wage labor on construction projects also imposes costs
for medical care and other services needed by employees without benefits. States without prevailing
wage laws experience escalated demands on public services, as low-wage workers lacking health
care coverage and other benefits increasingly depend on publicly provided services. Research by
Dr. Marshall Barry and Joy Greyer (1990) finds that, while 15.5% of the nation's work force is not
covered by health insurance, 27.7% of the construction labor force lacks this benefit. Such
employees seek health care in public clinics, imposing a cost on all other citizens and businesses.
A study by the Institute of Industrial Relations at the University of California Berkeley
demonstrates the potential costs to the public of using low-wage labor without health insurance in
construction. In one private -sector construction project, only 53% of the labor involved had health
insurance. 'Tile costs to the State of California of providing health insurance to the 408 employees
without coverage, and their dependents, was estimated to be about $1 million (Davidson 1989).
Maintaining Quality Standards on Public Construction
Prevailing wage statutes help maintain standards in the construction industry. With
prevailing wage standards, contractors have every incentive to use fully skilled journeymen and well
supervised apprentices. These workers know how to do their jobs correctly and efficiently. Such
workers are more effective than supervisors or government inspectors in ensuring that work is done
properly.
Evidence of the gains in using appropriately trained employees paid prevailing wages can
be found in the HUD Audit Report on Monitoring and Enforcing Labor Standards. The Inspector
General of HUD has written:
"Competitive bidding frequently results in use of less skilled workers paid below prevailing wage
rates and shortcut construction methods leading to poor quality work... Direct correlation between
labor violations and poor quality construction on 17 projects are shown in Appendix 3. On these 17
7
projects, we found violations and construction deficiencies in the same construction trades.
Poor workmanship quality, in our opinion, results from the use of inexperienced or unskilled
workers and shortcut construction methods. Roofing shortcuts result in leaks and costly roof and
ceiling repairs. While shortcuts in painting may not be as serious, it does require future maintenance
expense by requiring repainting sooner than anticipated. Electrical shortcut deficiencies are not as
readily detected but may lead to serious problems such as foes and shocks... Poor quality work led
to excessive maintenance costs and increased risk of defaults and foreclosures... this systematic
cheating costs the public treasury hundreds of millions of dollars, reducing workers' earnings, and
driving the honest contractor out of business or underground? (Report p. 13).
Repealing prevailing wage laws also threatens to increase the long -run costs of maintaining
public construction. Low -ball bidding, high rates of business failure in the construction industry,
lower wages, higher worker turnover, inexperienced workers and/or lower -quality workmanship do
not produce the high-quality construction which is less costly to maintain in the long -run.
Supporting Comprehensive Employee Training
Prevailing wage statutes provide incentives to maintain as effective apprenticeship training
system in construction; these apprenticeship programs guarantee that construction employees have
the needed skills and technical capacity to earn family supporting wages.
What happens to apprenticeship programs when prevailing wage statutes are repealed?
Azari-Rad and his colleagues found that with repeal of the Utah statute, state apprenticeship
programs collapsed. After repeal the incentive to support apprenticeship programs was greatly
weakened. In repeal states, training rates dropped 4896 (Philips et al. 1995). In Utah, although
employees registered in programs, employers did not allow these employees time to attend classes.
Graduation rates plunged from 95 to 15%. and, partially bec4use of this. Utah now faces a shortage
of adequately trained employees in the w struction trades (Azari-Rad et al. 1994).'
The shortage of skilled labor is also apparent in Arizona, another state without prevailing
wage laws or strong apprenticeship systems. According to the Wall Street Journal (1/27/94), the
labor shortage during the recent construction boom has disrupted construction as contractors have
tried to meet their needs by stealing workers from one another. The current lack of skilled workers
is so severe that even the president of the and -prevailing wage Association of Building Contractors,
Dan Bennett, admits that the supply of skilled employees is no longer adequate to meet the needs
of the industry.
"We can always find enough people to slam together some forms and do the grunt work. It's the
skills where we are going to have a problem and already do."
-Dan Bennett, WSJ,. 1127/94
The Wisconsin prevailing wage law is written to encourage apprenticeship programs by
exempting participants in registered apprenticeship programs from prevailing wage standards. This
exception recognizes that trainees are less productive than journeymen, that the training process is
expensive and that, as employees move between employers over the course of their careers,
employers may not be able to recapture their training costs. Contractors who participate in
apprenticeship systems gain the benefit of te4uced wages and benefits. The employee and
community gain the benefits of new workers whose increased productivity commands a living wage.
Prevailing wage laws also encourage training by eliminating low bids based on low wages.
Contractors who wish to remain competitive, who wish to be the low bidder, can only do so by
increasing productivity and efficiency. Successful contractors must continually improve their
merhods, engage in ongoing training of employees, and invest in new technologies. This does more
over the long-term to improve efficiency, reduce public costs, and maintain living standards than
cost reduction efforts based on cutting wages.
OPPOSITION TO PREVAILING WAGE STATUTES
Do Prevailing Wage Laws Increase the Costs of Government Construction?
Opponents of prevailing wage laws argue that these laws increase the cost of public projects.
Their arguments typically cite estimates which indicate that Davis -Bacon wage standards increase
the cost of federal construction. The Associated Builders and Contractors (ABC) of Wisconsin, the
force behind efforts to repeal the Wisconsin statutes, has produced figures which claim that raising
the threshold for coverage to $100,000 and altering the method of determining the prevailing wage
would reduce the public's cost of construction by $23.3 million (ABC, 1993).
Such figures overestimate the savings realized by repeal. In fact, labor costs are only about
one-quarter of total costs on public construction projects (Philips et al. 1995). If labor costs fall
4.9% following repeal then total costs fall only by 1.2% (assuming similarly productive labor, which
is unlikely, and no increase in maintenance or other costs, which is equally unlikely). At most, direct
public construction costs would only fall slightly.' Moreover, this assumes that wage savings are
automatically passed on in cost savings -- an assumption that is probably not warranted. This
assumption has been criticized widely (Dunlop, Bourdin and Leavitt) and researchers have produced
evidence that the use of low-wage labor in construction does not generate corresponding savings
because low-wage workers ate typically less skilled and require more supervision (Mandelstamm
1965; Belman 1992; Allen 1994; IUOE 1991).10 At the federal level, the Congressional Budget
Office has recognized this fact:
"Higher wages do not necessarily increase costs, however. If these differences in wages were offset
by hiring more skilled and productive workers, no additional construction costs would result."
(Reischauer 1993).
The U. S. Department of Housing and Urban Development found:
"In order to assess how great an effect high wages have on project costs, [HUD] examined the
Davis -Bacon wage rates applicable to each project and compared wage rates with dwelling
construction costs... A comparison of average wage rates with average construction costs shows no
correlation between high wages and high construction costs."
-Evaluation of the High Cost of Indiana Housing, HUD (1979), pp, 23-7.
Moreover, use of poor quality labor likely increases maintenance costs. Such costs, which
the inspector general of HUD estimates in the hundreds of millions of dollars, would more than
offset any initial construction savings from the use of low-wage labor.
In Utah, the size of cost overruns on state road construction has tripled in the ten-year period
following repeal of the statutes (compared to the period from 1971 to 1981). The shift to low -skilled
labor and lowered productivity led to expensive change orders and added cost overruns that
increased substantially the cost of construction.
Finally, most studies of the cost of Davis -Bacon assume that all wage savings are passed on
to the public body contracting for the work. This assumption is inaccurate, as much of the savings
remain with the contractor. In a comparison of high and low bids on specific public construction
projects in Arizona, Deerman and Martin found that although the low bid saved between $271,000
and $350,000 on wages and benefits, only $100,000 was passed on to the contracting agency. The
balance, $171,000 to $250,000, went to increased profit for contractors and was absorbed by
reduced worker efficiency. The public realized only 2590 to 35% of any cost savings associated with
paying less than the prevailing wage. In summary, the minimal savings obtained through repeal of
prevailing wage projects are further decreased by hidden costs, including increased maintenance and
change orders.
What then is a reasonable estimate of the degree to which elimination of prevailing wage
statutes might reduce construction costs? A 4.9% reduction in wages constitutes the sole source of
savings. Since wages constitute only 25% of total construction costs, the first level of construction
savings is actually 1.2%. It is estimated that 50% of this amount is offset by lower productivity,
higher profits to the contractor, and higher maintenance and supervision costs. Thus the repeal of
prevailing wage laws reduces construction costs by 0.6% or less than two-thirds of one percent.
The State of Wisconsin spends somewhat less than $750 million on construction each year.
The figures indicate that state construction costs would be lowered by at most $4.5 million by the
repeal of the state's prevailing wage statute and by $6.0 million by the repeal of both. These savings
to state taxpayers are overshadowed by the loss of revenues resulting from the repeal of the laws
($12.9 million for one law or $17.2 million for both laws). Clearly, repeal of prevailing wage
statutes would not benefit the Wisconsin state budget
Do Prevailing Wage Laws Disadvantage Minorities?
The most recent line of attack on Davis -Bacon and other prevailing wage legislation has
been that the laws were passed to exclude African-Americans from construction employment. It is
also argued that by requiring payment of prevailing wages, the laws prevent minority employees
from being hired into the construction trades.
These arguments originated with ABC (an association of nonunion contractors and
construction users) to argue for repeal of prevailing wage laws and for the creation of a low-wage
'helper' category (BNA 1975). They have since been repeated by the CATO Institute (a conservative
think tank) and received considerable play from editorial writers and opinion columnists. It is clear,
however, that repetition, no matter how frequent, does not make an argument true. - .
10
The first allegation, that the Davis -Bacon Act was passed specifically to exclude African-
Americans from the construction trade, is based on remarks of two congressmen, which are quoted
out of context, and from creative interpretation of the remarks of other members of Congress. The
CATO Institute publication makes reference to the remarks by Rep. Upshaw of Georgia in a 1927
debate over a prevailing wage bill which was not passed. CATO fails to note that the bill's sponsor
(Rep. Bacon) immediately took issue with the racist remarks of Upshaw:
"I merely mention that fact because that was the fact in this particular case, but the same thing would
be true if you should bring in a lot of Mexican laborers or if you brought in any nonunion laborers
from any other State... In the case that I cite the contractor has also brought in skilled nonunion
labor from the South to do this work, some of them Negroes and some of them white, but all of them
are being paid very much less than the wage scale prevailing in New York."
-Hours of Labor and Wages on Public Works: Hearings on H.R. 17069 before the Committee
on Labor, 69th Congress, 2d Session, 2 (February 18, 1927).
The second leg of the argument that Davis -Bacon is discriminatory is that by requiring
payment of prevailing wages to all but apprentices, the law precludes the hiring of 'helpers' at wages
suited to their skills. Since a higher percentage of minority workers fall in the low wage category,
the lack of a lower wage 'helped' classification supposedly reduces their employment prospects in
the industry.
Do these arguments have any basis in fact? Did minorities gain when states repealed
prevailing wage laws? Contrary to these claims, repeal of prevailing wage laws has typically hurt
minorities. The repeal of prevailing wage laws has caused a reduction in resources for construction
training which has had a disproportionately negative impact on minorities. In the nine states which
repealed their laws in the 1980's, minority participation in apprenticeship programs fell from 19.4%
of all apprentices to 12.5% of all apprentices after repeal. In states that retained prevailing wage
laws, minority participation in apprenticeship programs rose slightly in the same period. By 1993.
minorities were somewhat over -represented in construction apprenticeship programs in the states
with prevailing wage laws (at 103% of their population in the same states). In repeal states, minority
participation dropped to reflect only 85% of the minority population, almost reaching the low level
of states that never had the prevailing wages laws. Moreover, repeal did not increase minority
employment in construction. The ratio of African-American to white unemployment in these states
did not improve with repeal. In fact, African -American -white unemployment ratios increased after
repeal.
In contrast, prevailing wage laws help minorities in several ways. Fust, the wage reporting
requirements and anti -kickback regulations serve to protect members of minority groups from
victimization by unscrupulous contractors. Equally important, the apprenticeship system in the
building trades provides minority group members a means to achieve employment at the living
wage. Nationally, minority participation in apprenticeship programs has risen to 22.5% on average
(GAO 1992). In Wisconsin, minority enrollment in several construction apprenticeship programs
exceeds their representation is the state's population - including the trades of plasterer.
painter/decorator, iron worker, cement mason, and sprinkler fitter. Although progress is still needed
in other trades, minority representation has been growing. Repeal of prevailing wage statutes, and
11
the subsequent decline in apprenticeships, will reduce rather than increase minority access to good
jobs. ,
To conclude, there is no evidence that the position of minorities in the building trades will
be improved either by repeal of the Davis Bacon Act or by repeal of the Wisconsin prevailing wage
law. Neither the weakening of the prevailing wage laws through the exemption of more projects
from regulatory standards nor the creation of a low -skill, low-wage helper category will increase
minority participation in the trades. Rather, prevailing wage laws aid disadvantaged groups by
providing well -pa id employment and a system of training which provides access to those jobs.
CONCLUSION
The evidence reviewed in this study indicates that:
The elimination of prevailing wage laws would cost the State of Wisconsin more in lost tax
revenues than it would save in reduced construction costs.
- Prevailing wage laws are beneficial to the State of Wisconsin and its citizens. These laws ensure
that government purchasing power is not used to undermine community wages and living standards.
Prevailing wage standards are economically productive. Wage standards have minimal impact on
public construction costs, while repeal of these laws in nine states has generated higher maintenance
costs, consistent cost overruns, increased numbers of work related injuries and a subsequent rise in
both workers' compensation costs and publicly financed health services.
- Prevailing wage statutes support the system of apprenticeship training and provide family
supporting jobs to minority groups which have suffered from discrimination.
In summary, the state prevailing wage laws and federal Davis -Bacon Act together create a
system of employment equity that is in the interest of not only construction workers, but the citizens
and the state government of Wisconsin.
12
BIBLIOGRAPHY
Allen, Steven G.. "Much Ado About Davis -Bacon: A Critical Review and New Evidence," Jonmal
of Law and Economics. Vol 26. (October 1983) pp 707-736.
Allen, Steven G., "Developments in Collective Bargaining in Construction in the 1980s and 1990s,"
in Paula B. Voos. ed. Contemporary Collective Bargaining in the Private Scaor. Madison, WI:
Industrial Relations Research Association, 1994.
Associated Builders and Contractors of Wisconsin (ABC), Legislative Alert, "Proposal to Change
Prevailing Wage Law to be Considered by State Legislature." June 1, 1993.
Azari-Rad, H.: A. Yeagle, and P. Phillips, "The Effects of the Repeal of Utah's Prevailing Wage
Law on the Labor Market in Construction, in Restoring the Promise of American LaborLaw."
Friedman. Hurd, Oswald, and Seeber, eds. Ithaca: ILR Press, 1994.
Barry. D. M. and J. E. Greyer, "The Responsible Employer. Relieving the Burden on Dade County's
Consumers and Tax Payers: A Report for the Florida Consumer Federation," Public Policy Research
Center, 1990..
Belman Dale, "Unions, The Quality of Labor Relations, and Firm Performance," in Unions and
Economic Competitiveness. L. Mishel and P. Voos, eds, ME. Sharpe, 1992.
Bourdin, C.C. and R.E. Levitt, Union and Open Shop Cgnstruction, Lexington Books, 1980.
Bureau of National Affairs (BNA), Construction Labor Report (Washington, D.C.: Bureau of
National Affairs, Inc.), No 1016, April 9, 1975, p 17-19.
Congressional Budget Office, Modifying the Davis-Bacop Act: Implications for the Labor Market
and Federal Budgie[ U.S. Congress, 1983.
Davidson, Carlos, "Impact of Out -of -Area Workers on Non -Residential Construction on Contra
Costa County: A Case Study of the USS -POSCO Modernization," Center for Labor Research and
Education, Institute of Industrial Relations, University of California, Berkeley. July, 1989.
Deennan D. and D. Martin, "A Study of Cost Efficient Spending of Public Funds." Arizona District
Council of Carpenters, 1990.
Dunlop, John T. Affidavit of John Dunlop Building and Construction Trades Department v. Martin,
961 F. 2d 269 (D.C. Circuit 1992) (No. 90-5345), pp 11.
General Accounting Office (GAO), GAO/IW-92-43, Apprenticeship Training; (1992).
13
Goldfarb, R.S. and J.F. Morrell, "Cost Implication of Changing Davis -Bacon Administration,"
Policy AnalySiL 4, 439, (1978). ,
HUD Office of Inspector General, 11 iD Audit Repgrt on Monitoring and Enforcing Labor
Standards.
International Union of Operating Engineers,High Wage versus Real Cost A_nalysts_Wage R=
versus Productivih^. Report Update, (1991).
Mandelstarmn, A.B., "The Effect of Unions on Efficiency in the Residential Construction Industry:
A Case Study," Industrial and Labor Relations Review. 18 (1965).
Philips, Peter, Garth Mangum. Norm Waitzman, and Anne Yeagle. "Losing Ground: Lessons from
the Repeal of Nine'Little Davis -Bacon' Acts." Working Paper, Economics Department, University
of Utah. February, 1995.
Reischauer, Robert D. Congressional Budget Office Testimony, before the Subcommittee on Labor
Standards, Occupational Health and Safety, Committee on Education and Labor, U.S. House of
Representatives, May 4, 1993.
Sheenan, Michael, The Economic Impacts of an Iowa Prevailing WaaeeLLa_w_ University of Iowa,
1985.
Thieblot, Armand J. Jr., Prevailing Wage Legislation- The Davis -Bacon Act. State "Little
Davis -Baron" Acts- the Walsh -Healey Act_ and the Service Contracts Act. Industrial Research Unit,
The Wharton School, University of Pennsylvania, 1986.
Tomsho, Robert, "With Housing Strong, .guilders Often Find Skilled Help Lacking," W& SSrrsi
Join, 1/27/94.
14
NOTES
1. Georgia. Iowa, Mississippi, North Carolina, North Dakota, South Carolina, South Dakota,
Vermont, and Virginia have never had prevailing wage laws.
2. Using 1991 data, Phillips reports a wage reduction of $1,350. Adjusting this estimate for
inflation produces our estimate, in 1994 dollars, of $1,483.
3. In an editorial, 1/13/95, the Wisconsin State Journal reports that laborers hired under the
prevailing wage statute in Wisconsin are paid $15.12 per hour in wages and $3.90 per hour in
benefits. It is also reported that PAS, a compensation research firm, found laborers, of unspecified
skills, could be hired for $8.68 per hour. Based on these figures, the annual earnings of a
construction laborer protected by prevailing wage laws would be $26,460 in wages and an
additional $6,825 in benefits and without the laws, they would earn $15,190 and would have no
benefits. (This assumes they work an average of 1750 hours per year). In repeal states, the actual
drop in earnings was 7.5%, a fraction of this "estimate."
4. Employment would rise slightly with lower wages, since lower wages make profitable the
employment of less productive workers. Using conventional estimates of the elasticity of labor
demand (e = .1), a 4.9% wage reduction would generate 490 additional construction jobs.
Assuming these new, lower productivity employees earn $23.000 a year on average, an additional
S 11.3 million in construction would be generate in the state. This would slightly cushion the
predicted $148.3 million income loss.
5. Table A3 in the Spring 1995 Construction Review breaks down the value of new public
construction in the U.S. by federal vs. state and local. From 1990 to 1994, there was a total of
$67.776 billion in new federal construction and $523.477 billion in new state and local construction.
As state expenditures make up 38.8 percent of state and local construction expenditures (see Table
D6 above for fiscal 1991 and 1992 expenditures for 1991 and 1992). Using this figure, state
construction totaled approximately $203.28 billion between 1990 and 1994 and federal construction
was 33.34% of this amount over the period. These figures reflect expenditures, rather than
employment, and there may be some overlap between federal and state funded projects.
6. This estimate is based on sales/excise tax receipts and personal income figures for all persons in
the state. contained in the State of Wisconsin's '93-'94 BlucBook for 1991 and fiscal 1991-92.
7. A state marginal tax rate of 6.93% was used in these calculations; this marginal tax rate applies
to married joint returns with taxable income over $20,000 per year, or individuals with more than
$15.000 per year (Legislative Fiscal Bureau, February 24, 1992).
8. The inadequacy of non-union apprenticeship programs has compelled non-union contractors to
depend on the graduates of union apprenticeship programs to provide the skills needed on their
projects. While this has reduced these contractors costs, the decline of union programs has left the
15
industry with too few adequately trained employees.
9. This figure is comparable to estimates by the Congressional Budget Office that repeal would save
1.5% in construction costs, plus a savings in paperwork of 0.2% (Reischauer 1993).
10. In a series of sophisticated studies Professor Steve Allen of North Carolina State University, has
found that, although unionized construction employees earn 40% more than their non-union
counterparts, construction done with union workers is only slightly more expensive. The better
trained union employees are between 29% and 51% more productive than non-union workers; the
increased productivity counterbalances their higher wages. The productivity advantage is
particularly important on complex projects, where high wages are associated with reduced final
costs. A study of highway construction also finds that high wages are associated with reduced
construction costs. Although union rates were, on average, 20% higher than non-union rates,
projects using union employees used 44% fewer employee -hours, and had 10% lower costs, per mile
of highway construction (lUOE 1991), pp.23-27.
16
RESOLUTION NO. �C
AL)OPTED BY THE SACRAMENTO CITY COUNCIL
ON DATE OF SEP 051Q9.a..•.___._�.,�
A RESOLUTION OF TIM CXTY COUNCLL OF THE CITY OF
SACRAMENTO, CALIFORNIA, MLATrNG TO ATA.Z TALsTiG
DAVIS-BACON PREVAIL.YNG WAGE STANDARD E4 CALIFORN'IA
WHEREAS, the construction industry plays a vital and important part in the economic
well-being of the City of Sacramento by providing jobs and a steady stream of rev. -nue into the
community; and
WHEREAS, a dynamic and growing construction industry is dependent on a workforce of
highly Rained and skilled construction workers; and
WHEREAS, the wages determined to prevail in local communities are requirPtl to be paid
to construction workers on state and local agency public works projects and which are respon.ible
for maintaining a stable and skilled wort; force, providing a living wage to workers and their
families providing health and retirement benefits to workers and their families, t nd helping to
support apprenticeship training programs; and
WHEREAS, the University of Utah recently completed an in-depth study of the economic
impacts resulting from the repeal . of prevailing wage legislation In nim: swes and which
conclusively shows that the wages of all construction workers, union and non-union alike, were
FOR CITY CLERK USE ONLY �+
�5•-'wit`
RESOLLMON NO.:
. significantly reduced, that the states lost substantial income and sales tax revenues which far
exceeded any savings realized on the cost of public works projects, that construction workplace
injuries skyrocketed because of the use of unskilled workers, that apprenticeship training was
:educed by almnst half, and that construction project experienced an increasnr numbcr n, cost
overruns and change orders; and
WHEREAS, all available evidence conclusively proves that California's prevailing vnve
requirements do not inflate the cost of public works, but to the contrary, help maintain a hi;hly
trained and stable work force who reside in the communities where they are employed;
NOW,111:11-REF ORE BE IT RESOLVED BY THE CITY COUNCILOF THE CITY OF
SACRAMENTO, CALIFORNIA, to recognize the irnportance of prevailing wage laws, reaffirm
its unwavering commitment to uphold prevailing Wave requirements on City public works projects;
and declare its desire that these laws be continucd without change; and
BE IT FURTHER RESOLVED, that the City Clork transmit a copy of this resolution to
the Governor, the Director of the Department of industrial Relations, and appropriate members
of the State Legislature.
Mayor
ATTEST.-
VALERIE
TTEST:
JOE SERNA, JR.
VALERIE BURROWES
(SEAL,)
City Clerk
FOR CITY CLERK USE ONLY r
RESOLUTION
DAT; ADOPTED: ER a 5 log;
yiEw --
Davis-Bacon law
ensures quality
in construction
We rebuilt the world's busiest freeway in just 66
days. Part of our success came from contracting with
private firms - to speed rebuilding and to keep down
the cost.
- Gov. Wilson, 1995 State of the State Address
Gouenarient workers - hand-in-hand with private
business rebuilt Southern California's fractured
freewa.vs b, record time and wider budget.
- President Clinton, 1.995 State ofthe Union
Address
C.C. Myers is president of C.C. Afyers Inc., a con-
struction company in Rancho Cordova.
By C.C. Myers
IT MADE me proud when the governor of California
and the president of the United States publicly rec-
ugnized the tremendous success we had in rebuild-
ing the Santa Monica Freeway after the Northridge.
earthquake. We just repeated that performance rebuild-
ing in 21 days the twin bridges wiped out on 1-5 after
the recent (hods.
Like air and water, the highways, dams, bridges,
schoolb, sewage systems and other infrastructure ele-
ments that make society run are easy to take for grant-
ed - until they're missing. When commerce stops, pay-
checks :top, families go hungry.
Those of us in the construction industry know what it
take`z to !,uild a first-class infrastructure: government
commitment, quality cuntracturs and a skilled, hard-
working labor force. F=+ch member of my crew, from top
management to the newest apprentice, has a job to do in
a tough, dirty and dangerous occupation. These are
skilled, rugged individuals who take great pride in their
work. Many of them have devoted more than 5,000
hours to learning their trade. 'they put in a full day's
work and they get a decent day's pay.
At the end of the day they go hume tired, but. pruud.
They've earned enough to take care of their families, in-
cluding good medical and dental benefits. Using their
hands and their heads, they've built some of the most
sophisticated and durable strictures in the �aorld Ev-
ery construction worker I've e%,,r kr own pc.,!ts -,aith a
special pride as he or she tells the kids, "1 built that."
)I 1D, safe infrastructure has served business
u,d the public well. Government construction,
,:rou-id 25 percent of all construction, has also
served the construction industry well. High quality con-
struction standards are enforced. Extensive training of
apprentices, including growing numbers of minorities
and females, is required. Area wage standards, known
as "prevailing wages; are mandatory. In this way, bids
are won through efficiency and competence, not wage -
cutting. Federal law, the Davis -Bacon Act, and state
laws, called "Little Davis -Bacon" laws, have kept careful
control of a dog-eat-dog industry. -
That's why I'm distressed to see The Bee expressing
support for those politicians who want to change all this
(`Prevailing wage reform," April 17). They want to re-
peal. these laws or tinker with the wage protections. I
say to them, lower wages don't mean lower costs. Lower
wages mean shoddy work, more accidents, more Wu -
ries, more repairs.
What can and should be reformed are the burden-
some regulations and the enormous paper work re-
quired on government projects. Rather than cutting
wages, we should be looking for ways to put more people
to work. One "endangered species," such as the fairy~ .
shrimp, can stop an entire development project and the -
thousands of jobs that go with it. It's time to take a hard.
look at laws such as the Endangered Species Act. It's'
time for government to stand up for hard-working, pro-
ductive Americans. .. _.; .
IHAVEN'T built my company and my reputation us-'
ing low-wage, unskilled workers. We come iii ahead' 1
of schedule and under -budget because we use the.
best skilled wurkeus and run the job with a talented -
management team. That kind of operation doesn't come '
cheap, but investing in skills is what brings the overall=
cost of ronstruction down.
I witness close up every day the core values thave
made America great: hard work and the dignity shat
comes with it; individual responsibility combined, with
teamwork; and must of all, a fierce love of fami1 `snd ,
country. These are the people who work for me:. They
work hard, they're treated right, and they get. the job-. .
done. Why would anyone want to screw that by?'k
CAL SMACNA
March 6, 1996
California
The State Department of Industrial Relations (DIR), through the regulatory process, is
Association
Sheet Metal
Honorable Mayor and Councilmembers
And ;
Lodi City Council
Air Conditioning
Contractors212
West Pine Street
National
P.O. Box 3006
Association !
Lodi, CA 95241-1910
Subject: Charter City and Prevailing Wage.
cyndi Marshall Dear Mayor Warner and Councilmembers:
General Manager
1995-96 Officers While the decision to become a "charter" rather a "general law" city should be based on
Kurt smith many factors, the argument that to do so because Lodi could then remove themselves
President from state prevailing wage statutes and hence save tax dollars should not be the basis for
Daren Weckerly this change. There is no demonstrated net economic benefit to the public as a result of
President -Elect
Bob Bramlett repealing prevailing wage.
Ir"sure'
Ken Hammill, Jr.
Secretary
The first prevailing wage law was enacted more than 100 years ago by the State of
John touts Kansas. This philosophy was that the large economic force of government should not be
Immediate Past President used to force down construction wages in the local community. This principle was being
debated during a time in our republic when society and governments were changing
oppressive child labor laws, requiring mandatory schooling for children and reducing
normal work days to eight hours. Today we take all these for granted. These concepts
are part and parcel of enlightened societies and are as valid now as they were last century.
The State Department of Industrial Relations (DIR), through the regulatory process, is
proposing to modify the manner in which the wage scale is determined. In their notice of
proposed rule making DIR concedes that there is no consensus on the effect of prevailing
wage laws. California Legislative Analyst Elizabeth G. Hill is quoted; "Unfortunately,
reliable data for measuring the effects of these two factors (Labor Productivity and
Nonlabor Construction Costs) are simply not available. It is for this reason that
economists have been unable to develop meaningful quantitative estimates of the effects of
prevailing wage laws." (Page 2 of the DIR Notice of Proposed Rule Making, December
26, 1995, on amending the "modal rate")
The California State Senate Rules Committee has taken the unusual step of requesting that
DIR delay the regulatory process in order for the Senate Office of Research conduct an
office
independent study of the impact of the proposed changes. The Senate's reasoning is that
(916) 442-3807
Facsimile
there is no current study available on prevailing wage changes. See enclosure.
(916) 442-6541
1020 12th Street
Suite 101
California SMACNA is an association of SMACNA Chapters, contractors and associate members.
Sacramento
Our mission is to provide legislative and regulatory advocacy and program services.
California
Our goal is to help unify the voice of our industry for the combined benefit of our companies,
95814
our employees, our communities and our industry.
C Ale— 1-'
CAL SMACNA
The University of Utah has conducted the most exhaustive study on the impact of repeal
of prevailing wage, entitled Losing Ground: Lessons for the Reveal of Nine "Little Davis -
Bacon Acts, February 1995. The repeal of prevailing wage in Utah caused a 5% decrease
in construction wages. This alleged savings to the taxpayers of Utah was offset by an
California equivalent loss in property tax, income tax and sales tax revenues. The construction
Association workers were unable to purchase goods and services at the same level as before. This
Sheet Metal P
And does not bode well for retailers, automobile dealers or home builders. Utah also
Air Conditioning ' experienced a 15% increase in job related injuries. Since 80% of nonunion contractors do
Contractors P J J
Natlonal not provide health care coverage, this burden will then fall to public supported programs.
Association Job overruns increased 300% after repeal. The resulting uncertainty of actual costs of
construction will cause great discomfort to those responsible for city budgets. See
enclosed study.
Cyndi Marshall The Utah study found that within the nine states that repealed prevailing wage the average
General Manager annual earnings fell by nearly $1500 per construction worker. The average wage for a
1995-96 Officers California construction worker is approximately $ 28,000. Some have argued that the
Kurt smith wage decrease will create more employment, but that is clearly is not true. Within these
President nine states, while wages fell by 5% employment rose by only 1.7%.
Daren Weckerly
President-flect
Bob Bramlelt The threat of out of area or out of state contractors moving in temporarily to Lodi and
Treasurer taking business from local union contractors is real. This incursion will reduce the tax
Ken Hammell, ry
Secretary base and removes wages from the area. Local businesses of all types would be
John Gouts jeopardized. While the revenues will decline there will be an increase in demand for public
Immediate Past President services from these transient workers and their families.
Clint Meyers, founder of C. C. Meyers Construction in Rancho Cordova, stated that his
company could not have completed the repairs on the Santa Monica Freeway as well as
the bridges on Interstate 5, ahead of schedule and under budget, without being able to hire
trained, experienced union workers. The men and women he employed are products of a
system which rewards skilled workers who have been trained by employer funded
apprenticeship programs. Once again, the Utah study discovered that repeal of prevailing
wage caused the demise of the apprenticeship programs in their state.
Governor Pete Wilson, in his 1995 State of the State Address, is quoted; "We rebuilt the
world's busiest freeway in just 66 days. Part of our success came from contracting with
private firms - to speed rebuilding and to keep down the cost." According to a study by
the Federal Highway Administration, from 1980 - 1993, there is no relationship between
higher wages and higher costs. Higher wage states consistently build highways cheaper
per mile than lower wage states because they require 40% fewer labor hours. These high
wage states produced roadbed and bridges for 10.71/6 less cost even though they paid an
average wage package 81% greater. There is a relationship between higher wage and
Office higher productivity.
(916) 442-3807
Facsimile
(916) 442-6541
1020 12th Street
Suite 101 California SMACNA is an association of SMACNA Chapters, contractors and associate members.
Sacramento Our mission is to provide legislative and regulatory advocacy and program services.
California Our goal is to help unify the voice of our industry for the combined benefit of our companies,
95814 our employees, our communities and our industry.
California
Association
Sheet Metal
And
Air Conditioning
Contractors
National
Association
Cyndi Marshall
General Manager
1995-96 Officers
CAL SMAC NA
CAL SMACNA represents more than 600 members and signatory contractors statewide.
We employ more than 25,000 men and women in California. The Sacramento and
Northern San Joaquin Chapters of CAL SMACNA represent more than 50 members and
signatory contractors employing more than 2,000 people. These employers sign union
agreements by choice. They provide a livable wage and health and pension benefits to our
employees so they and their families can be productive members of the community. Our
employees are taxpayers and contributors to society rather than having to depend on
government for assistance.
incerely
chael Monagan
Legislative Advocate
Kurt Smith
President enclosures
Daren Weckerly
President -Elect
Bob Bramlett
>-reasurer
Ken Hammill, Jr.
Secretary
John Couts
Immediate Past President
Office
(916) 442-3807
Facsimile
(916) 442-6541
102012th Street
Suite 101
Sacramento
California
95814
Califomia SMACNA is an association of SMACNA Chapters, contractors and associate members.
Our mission is to provide legislative and regulatory advocacy and program services.
Our goal is to help unify the voice of our industry for the combined benefit of our companies,
our employees, our communities and our industry.
February 26, 1996
California Legislature
Senate Rules Committee
Lloyd Aubrey, Director
Department of Industrial Rel:.tions
1121 L Street, Room 307
Sacramento, CA 95814
Dcar Mr. Director:
BILL LOCKYER
Chairman
MEMBERS
WILLIAM A. CRAVEN
VICE CHAIRMAN
RU3EN S. AYALA
ROBERT G.BEV_RLY
NICHOLAS C. P ETR!S
CLIFF BERG
EXECUTIVE OFFICER
In accordance vith the provisions of Section 37.7 of the Joint Rules of the Legislature, the
Senate Rules Committee has approved a request to study the potential economic impact of
the Department's proposed regulations on prevailing wages. The purpose for this study is
two -fold: First, that there has been no empirical analysis widertaken by the Department to
determine the effect of the proposed regulations on Califomia's economy and construction
Iabor ma-rket conditions; and secondly, the need to determine whether these proposed
regulations will detrimentally impact the State Budget by reducing tax revenues and
shining health care costs for constntction workers and their families from private
insurance coverage to Medi -Cal and county health programs.
1<or these critically important reason_, I am requesting that you extend the comment period
for receiving information into the rule snaking record for the proposed regulations and
refrain from adopting any final regulations until our study is completed. I envision the
completion date for study to be no longer than two months.
If you have any questions or concerns, please feel free to contact Greg Schmidt, Executive
Officer of the Senate, or myself.
Sincerely,
3 VU
$ILL LO KYERQ
Chair
cc: Director, SanFrancisco Offica
FE59-22• 95 WED 18 : ] 9 SMACNA
P _ 0 1
Losing Ground: Lessons from the
Repeal of Nine "Little Davis -Bacon" Acts
February 1995
Mann»m PAtar Phiiinc_
Norm Waltzman, and Anne Yeagle
University of Utah
FEB -22'-95 WED 1S="9 SMACNA
P _ 03
wages. The dilemma is that if the state pays the average wage, it will automatically undercut the
most commonly found wage. Alternatively, if government pays the highest wage found, it will
always be pulling the average wage up. When is the highest wage sufficiently common that it
should be called the prevailing wage rate, even though it will never be the average wage?
In the federal law, this dilemma was resolved by a threshold rule. This rule stated that if the
most commonly found wage rate, to the penny, accounted for more than 30 percent of all wages
for an occupation in a local labor market, that was the prevailing wage even though it was not
the average wage. On the other hand., if the most commonly found wage rate accounted for less
than 30 percent of all wages for an occupation in a local area, the average wage rate prevailed
In 1985, the Reagan administration revised the rule and raised the threshold to 50 percent:
Today, Davis -Bacon wage rates are the average rate for an occupation in a Iocal labor market
except, in roughly one-third of tho cases, where 50 percent of the wages in that area are precisely
the same. If more than half of all workers in an occupation in an area make the same wage, flat
wage rate --- even if it is above the average -- is said to prevail. But two-thirds of the time the
average wage prevails.
Modem opposition to prevailing wage laws is usually founded on one of two objections.
Some people oppose the idea of the government agreeing in advance to pay the average wage
rate for workers in specific occupations in a local area.. This criticism is completely at odds with
the original purposo of prevailing wage legislation, which was to prevent the government from
hiring labor at below -standard rates. Other critics object to paying a prevailing wage that is
greater than the average wage in the locality. Tho premise of this second objection has lost a
great deal of its force in recent decades. As a result of the adoption of the 50 percent threshold,
and the additional fact that unionization in the construction labor market has fallen from 70
percent to about 25 percent in the last three decades, there are far fewer cases in which the wages
rates determined as prevailing are greater than the average rate.
The Financial Costs of State Repeals
Gower wages for all construction worker. Supporters of Utah's 1981 repeal of its prevailing
wage law recognized that repeal would lower construction wages. They maintained, however, that
the money saved on public works construction justified the government's indirectly lowering the
wages and earnings of some of its cidzens. And, indeed, construction earnings did fall. In Utah.
construction workers, who through the 1950s, 1960s, and 1970s earned 120 to 130 percent of the
average non-agricultural wage in the state, saw their wages fall steadily after repeal. By 1993,
Utah coastruction workers were earning only 103 percent of the average annual earnings in Utah.
even though Utah was then experiencing a massive construction boom, in which construction
wages normally go up. This earnings decline affected all Utah construction workers -- whether
union or non -anion, whether employed on publicly or privately financed projects.
Taking the nine repeal states as a whole, the average annual earnings of construction workers:
is these states fell from 524,317 (in 1991 dollars) per year before the repeals to S22,148 after the
repeals. This is simplo but compelling evidence that repeals of state prevailing wage laws have
lowered construction wages.
A more complex analysis confirms this general observation. Using multiple linear regression
analysis, we isolated tho earnings effects of the state repeals while controlling for the business
66 Davis-Bsoon Repcdl Effacts.
FES -22-9S WED la -?2 t1A. NA P_ 05
$4
...... .... _.................
$2-/
r.
C
O Qn
M
($4) Lost Taxes Saved Costs Budget Loss
Figure SI Average annual income-tax revenue less and construction cost savings and net effect
of repeal for Utah, 1987 to 1993, in 1994 dollars
Source: Table 2.6.
On average, the repeal of Utah's prevailing wage law has cost the state budget
$400,000 per year from 1987 to 1993. This figure has been rising and reached $1
million in 1993. Should the federal prevailing wage law be repealed, the gap
between lost federal tax dollars and construction cost savings will be greater. This.
is partly because a Davis -Bacon repeal would affect more construction and more
workers, but also because the federal government income tax rate is higher than
Utah's. The higher the income tax rateare taxed, the greater the taxes if incomes
fall.
FEl§-22=95 LIED 13 :23 SMACNA
P_ 07
almost 20 percent of all construction apprentices. After repeal, minority participation fell to 125
percent of all construction apprentices. Thus, after these repeals, minorities becarne significantly
under -represented in construction apprenticeships.
One reason for this decline is that union apprenticeship programs usually enrolled dozens
of apprentices. Non-union apprenticeship programs tied to single employers tended to be smaller,
often involving no more than one, two, or three apprentices. Affirmative action regulations do
not cover apprenticeship programs of fewer than five apprentices. So the union programs had to
fill out affirmative action plans and follow affirmative action guidelines. while the smaller
programs did not
When the repeals drove the union programs into decline, minority workers lost the most For
instance, the percentage of minority apprentices in construction, which reflected the minority
proportion in each state's state population before repeal, declined in the repeal states (fig. 5.2).
Minority construction workers may still enter tate industry but they are less likely to receive full
formal training in the absence of prevailing wage legislation. Although it has been suggested that
repeal of Davis -Bacon would lower black unemployment relative to white unemployment by
opening up jobs for I= -skilled black labor,T2 the data do not support such a claim (see chapter
31 figs. 3.3 and 3.4).
Thus, repeal means that minority workers will begin construction work in unskilled jobs and
get their training, if at all, on a catch -as -catch -can basis. Furthermore, minorities will enter an
industry that is less able to provide a secure blue-collar, middle-class income. Repealing
prevailing wage laws has therefore cut off an important road for minorities into the middle class.
Without skills training, workers are I=' productive; without safety trnin g, they are at greater
risk of injury in an already dangerous profession.
Increased work-related injury rata. All construction workers in the nine repeal states have
been put at increased physical risk by the repeal of the several state prevailing wage laws. Injury
rates in construction in the nine repeal states have risen by 15 percent after repeal, even
controlling for other factors such as unemployment, trends in construction safety, and differences
in work safety experiences by region. This finding is consistent with other research.. The
Department of Labor found that the rate of injuries "decreases substantially as length of service
increases.i12
If the experience in these states can be wended to the nation. a repeal of Davis -Bacon
would result in 76,000 additional construction workplace injuries annually. About 30,000 of these
injuries would be serious, requiring time off to recover. More than 675,000 work days would be
lost. These new injuries would occur because workam would be less well-trained and because
they would have fewer on-the-job protections against contractors who are in a hurry.
Workers, of course, suffer directly from these occupational injuries --- in their physical well-
being and in their wallets. Increased injury rates also lead to increased costs for contractors~ who
must pay higher worker's compensation premiums. And, as consumers of construction semces,
local, -state, and federal governments pay a .share of th= higher worker's compensation
premiums.
70 Davit -Smoot PxpeaLE eols
FE8-22-95 WED I e : ^5 Sri:.4F 14A
BinionS of Dollars
$0.5
$0.a
LU
{$0.5} ---
_E
Lost Taxes Saved Costs Net Loss
P-09
Figure 53 Estimated effect of a repeat of the Davis -Bacon Act on income-tax reveaues,
construction costs and total budget
Source: Table 2_7.
r
The Congressional B udget Office estimates that the federal government would save
a total of I.7 percent in construction costs from a repeal of Davis -Bacon. This
chart uses the more conservative cost savings estimate of 3 percent. At a 3 percent
constriction cost savings, with a marginal income tax rate of 20 percent and
federal construction expenditures at their 1991 level (in 1994 dollars), a repeal of
Davis -Bacon would cost the federal government Sts billion in income tax_.
revenues..The.federal government would save $346 million in construction costs
and the federal budget would lose, on net, 5838 million. "'�
I
FEB -22-9t5 WED P- 1 1
Figure 3.10 Ratio of the pement2ge of minorities in construction as it ratio of the percentage of
minorities in the state population, by st2te groups
Source: U.S. Departtocut of Labor, BAT and BLS.
Ir
A ratio of 100% would show that the proportion of minority apprenticeships in each
group of states reflects the minority as. part of the state population. Minority
participation in COnStrUCtiDn apprenticeships mirrored the state population in repeal
states prior to repeal and in states that retained their prevailing wage laws throughout
1990. After the repeals, however, minority participation in apprenticeships in repeal stst.es
fell to levels that seriously uader-reprt:sent.ed minorities and resembled the under-
represeatatioh characteristic of states that never bad prevailing wage laws. Non-union
apprenticeship programs tend to be small and do not fall within the oversigbt of -
affirmative action guidelines — which may be why the repeals have led to an under-
representation of minorities in apprcaticcships.
1•
Ti
i .l S
-• �
E ,L7 • �
.1i
Figure 3.10 Ratio of the pement2ge of minorities in construction as it ratio of the percentage of
minorities in the state population, by st2te groups
Source: U.S. Departtocut of Labor, BAT and BLS.
Ir
A ratio of 100% would show that the proportion of minority apprenticeships in each
group of states reflects the minority as. part of the state population. Minority
participation in COnStrUCtiDn apprenticeships mirrored the state population in repeal
states prior to repeal and in states that retained their prevailing wage laws throughout
1990. After the repeals, however, minority participation in apprenticeships in repeal stst.es
fell to levels that seriously uader-reprt:sent.ed minorities and resembled the under-
represeatatioh characteristic of states that never bad prevailing wage laws. Non-union
apprenticeship programs tend to be small and do not fall within the oversigbt of -
affirmative action guidelines — which may be why the repeals have led to an under-
representation of minorities in apprcaticcships.
FE$ -22-95 WED 18:?53 SMACNA
P_ 125
Unions lower training turnover by providing a way for employers and journeymen to
rationally invest in the human capital of apprentices. Collectively bargained agreements create
wage incentives for apprentices to stay with training programs. and also cause their employers
to promote the. workers' passage to journeyman status. Unions also encourage the career
attachment of trained journeymen by providing relatively high wages and health and retirement
insu=re, which is increasingly attractive to workers as they age. By creating career jobs in a
casual labor market, unions create the institutions needed to make human capital investment a
rational market activity.
With the lowering of construction wages, young construction workers will limit the amount
of human capital they invest in themselves. With a lower stake in construction skills and the
disappearance of wages in the form of health and old -age insurance, it becomes more rcnsonable
for many journeyman. construction workers to abandon construction work entirely when they start -
families, This is an additional loss of built-up human capital.
The loss of a career. Contractors have attempted to minimize the effect of this increased
skill volatility in the industry by encouraging attachment of workers to their firms. Still, despite
initiatives such as profit-sharing, 401K plans, and health insurance to bind key workers to the
firm, construction firm turnover remains high, It appears that the decline of unions has been
associated with the decline of the career worker in construction, a diminution in incentives to
invest in construction skills, and an increasing loss of accumulated human capital as apprentices -
and journeymen leave the trades.
Tire loss of human capital and career jobs in this industry does not appear as a private cost
on the ledgers of any single contractor. Nonetheless, the industry and society at large pay a price
for the loss of middle-class occupations in construction. Not only is quality in the industry at risk
when human capital stocks are allowed to dwindle, but the quality of our society is imperiled
when we dismantle the institutions that generate stable employment out of unstable working
conditions.
It * A
Ile construction industry is turbulent. Caught in a perennial boom -bust cycle, characterized
by fleeting relationships between small contractors and subcontractors, and driven by short-term,
strategies of free -riding on the training of others, the construction industry is a market failure
waiting to happen. The turmoil in the construction labor market has traditionally been tempered
by prevailing wage legislation and labor unions. Absent these institutions, it is unclear how—
or
ow—•or whether ---- the market will regularly and carefully train workers, or aware safety and health
on the job site, or .provide training opportunities for minority workers, or offer the incomes
needed to make construction an attractive career. Government purchases account for 20 percent -
of all construction in the United States. For the Iast six decades and more, the govemment-liiLs-
contributed to the stability in construction Iabor markets by requiring contractors to pay the wage
rates that already prevail in a local areas. Today, voices are urging the government to usa-its--
purchasing powers to reduce construction costs at the expense of worker incomes. Such a strateU
has a very real cost for workers, the industry, and the government. When nine states chose dirs'
path, the results were significantly lower construction wages, slightly higher eonstructidri
employment, a tripling of cost overruns on public works, art across-the-board 15 -percent incrcasa�
74 Davis -Bacon Repeal Effects
.
P.O. BOX 1867
1717 S. STOCKTON ST.
LODI, CA 95240
March 4, 1996
Lodi City Council
Carnegie Forum
305 W Pine Street
Lodi CA: 95240
A General Engineering Contractor
CO,CONSTRUCTM NQ
P}I •�
3330196
S71CTCEN 463-2492
FAX (M 3330993
RE: Meeting March 6, 1996 re Charter City designation and the
payment of state prevailing wage rates.
Gentlemen:
We are requesting that the attached copy of our letter to
Governor Pete Wilson be read into the records at the above
meeting.
We hope that all of the Lodi City Councilmembers will take the
time to confer with the Councilmembers of the City of Galt, who
have recently decided to decline a Charter City designation, and
their reasons for doing so.
We are a Lodi Company, doing business with Lodi customers. We
can continue to provide the quality service required by our
customers due to the expertise of our skilled union personnel.
Again, should you decide to Charter the city's status, we suggest
that you include in the Charter a requirement to pay prevailing
wages in your proposal.
Sincerely,
1�1�2�L
Andrew Stephens
President
AMS/cld
Enclosure
AQGeneral Engineering Contractor
P.O. BOX 1867 LODI �J LODI (209) 3.33-0136
1717 S. STOCKTON ST.
LODI, CA 95240 CONSTRUCMON CO,- STOCKTON FAX (209209) 3330M
February 12, 1996
Governor Pete Wilson
State Capitol
Governor's Office
Sacramento CA 95814
Dear Governor Wilson:
My company is a small construction business that specializes in
grading and paving in the Sacramento Valley. We have been in
business for 16 years and have managed to survive the California
recession by offering quality service to our customers and a safe
and equitable work enviornment to our employees.
Originally, our company was non-union. After a few years doing
work requiring the payment of Prevailing Wages, we felt it would
benefit both the company and our employees to become a Union
Shop.
We have found a substantial customer base with several school
districts and small cities (such as Lodi and Galt) where we are
able to compete with other small businesses and provide quality
service to our customers, competing with established companies
utilizing skilled, well-paid construction workers.
We are adding our voice to those of other small businesses who
request your support by allowing the continuation of California's
prevailing wage laws.
You got my vote in the last election. As a small businessman, at
this critical time in the recovery of California, I hope I can
now count on you to support the State's current prevailing wage
policy.
Sincerely,
Andrew Stephens
President
AMS/cld
CC; Patrick Johnson, Senator 3th District
CC: Michael Machado, Representative, 17th District
CC: Department of industrial Relations,
Division of Labor Statistics and Research
�
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��TME�LpR�U�S
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MPOST OFFICE BOX 235 %2DS.@ACRAN�ENTOSTREET
' LQD(.CALIFORNIA g5241 NN bO0.CALIFORNIA 95240
�
-Since 19w« -
TELEPHONE (2D8)004'5700
�
(209) 943-7190
FAX (209)334'VgOO
� Mayor Warner March 6, 1996
C\O City Hall J
221 W. Pine St.
� Lodi, CA 95240
Dear Mayor Warner,
As a concerned employer, I am voicing my opinion
in regards to changing Lodi to a charter city. If one of
the reasons behind this is to save money on prevailing
wape jobs. I feel the city should keep their economic think -
to city uusin(-ss and not to the private sector business.
We have enough government involvement and regulation
in private business now and we can not aifford any more.
I" my opinion, city council and staff should work
sn city economics. Perhaps using time more
efficiently by all city employees, cost effectiveness
in some in house services, and maybe hiring temps
instead of paying expensive overtime during your
busiest seasons.
By keeping a liveable wage for contractor employees,
Ji -l'- insures us of a better quality of living, housing,
education, and a more prosperous community. Better paid
people tend to spend well and invest wisely and I feel
that this is important for Lodi.
Sincerely,
Mate puitbing nub Tioustntdian Zrabro T.a utril
ROBERT L. BALGENORTH of Uif ornttt RICHARD TAMPA
��. a�asrar-nriuur�
297 N. Marengo Ave.
Suite 200
Pasadena, CA 91 101
(81 B) 796-2022
FAX (81 Bl 796-8736
March 6, 1996
Dear Council Member:
Chartered by
BUILDING AND CONSTRUCTION TRADES
DEPARTMENT
AFL - CIO
921-11 th Street
Suite 400
Sacramento, CA 95814
(916) 443-3302
FAX (9161443-8204
The State Building and Construction Trades Council of California represents over 250,000
construction workers in the state of California. Our members comprise a construction workforce
which is the most efficient and well trained in the world. The union construction worker in
California goes through years of intense classroom and low paying apprenticeship preparation.
Our members make this sacrifice because when they graduate as journeymen they are able to get a
good paying job with which they can support their families.
Both the State of California and the Federal Government have had "prevailing wage laws" since
1931. The laws were enacted to insure that skilled employees who work on public works projects
in California will be paid at least the wages and benefits that "prevail" in their local communities,
and that unscrupulous contractors will not have an incentive to import unskilled workers from
other parts of the country who are willing to work for less than local workers.
Some local public officials erroneously believe that repealing prevailing wages will appreciably cut
the costs of public projects. It is not uncommon for local officials to maintain that savings of 20-
30% can be achieved on the total cost of a project if there are no prevailing wages. This is totally
false. Total labor costs on public works projects in California only average 21%. Workers would
have to work for free to achieve 20-30% savings. Any savings would be in the range of 1-2%,
and these savings would be more than offset by the loss of income and sales tax revenue from
workers and the loss of revenues to local business.
First, construction workers in your area contribute more money to your community than you may
be aware. Every union construction worker and their families are covered with private health
insurance. There is currently no mechanism in place to pay for their health care if you take away
their benefits. Union health insurance plans pay out over 1.28 billion dollars a year to California
health car providers. This includes $35 million to San Joaquin County alone. Without the
protection of prevailing wage requirements, this insurance coverage will disappear.
Second, apprenticeship programs in your area will be severely limited. Union apprentice
programs are the only programs turning out skilled graduates every year. Other apprentice
programs exist on paper, but if you press the people responsible for these programs they cannot
point to more than a handful of actual graduates. If prevailing wages are repealed unions will be
hard pressed to maintain the quality and quantity of qualified apprentices. The State as well as
Lodi will suffer as a result.
Finally, we believe you will be sending you are sending the wrong menage to workers and citizens
of this community. Public construction jobs constitute almost one-fourth of the construction
activity in California. They provide an opportunity for state and local government to set a
standard for working local working conditions while paying a fair wage in the process. By
repealing prevailing wage, Lodi will be sending the message that it is okay for local workers and
contractors to be replaced by fly-by-night contractors utilizing low skilled, out of state and
undocumented workers to build city projects.
There are myriad other reasons to keep prevailing wages. Please consider more than the hollow
promise of short term cost savings by repealing prevailing wages. Your decision will affect
thousands of people in your community.
Sincerely,
Bob Balgenorth
President
RESOLUTION NO.
ADOPTED BY THE SACRAMENTO CITY COUNCIL
ON DATE OF SEP Q 5 1291-
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
SACRAMENTO, CALIFORNIA, RELATING TO MAINTAINING
DAVIS-BACON PREVAILING WAGE STANDARD IN CALIFORNIA
WHEREAS, the construction industry plays a vital and important part in the economic
well-being of the City of Sacramento by providing jobs and a steady stream of revenue into the
community; and
WHEREAS, a dynamic and growing construction industry is dependent on a workforce of
highly trained and skilled construction workers; and
W`EEREAS, the wages determined to prevail in local communities are required to be paid
to construction workers on state and local agency public works projects and which are responsible
for maintaining a stable and skilled work force, providing a living wage to workers and their
families providing health and retirement benefits to workers and their families, and helping to
support apprenticeship training programs; and
WHEREAS, the University of Utah recently completed an in-depth study of the economic
impacts resulting from the repeal of prevailing wage legislation in nine states and which
conclusively shows that the wages of all construction workers, union and non-union alike, were
FOR CITY CLERK USE ONLY
RESOLUTION NO.:
DATE ADOPTED: SEF 0 51995T.
significantly reduced, that the states lost substantial income and sales tax revenues which far
exceeded any savings realized on the cost of public works projects, that construction workplace
injuries skyrocketed because of the use of unskilled workers, that apprenticeship training was
reduced by almost half, and that construction project experienced an increased number of cost
overruns and change orders; and
WHEREAS, all available evidence conclusively proves that California's prevailing wage
requirements do not inflate the cost of public works, but to the contrary, help maintain a highly
trained and stable work force who reside in the communities where they are employed;
NOW, THEREFORE BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF
SACR,kMENTO, CALIFORNIA, to recognize the importance of prevailing wage laws, reaffirm
its unwavering commitment to uphold prevailing wage requirements on City public works projects;
and declare its desire that these laws be continued without change; and
BE IT FURTHER RESOLVED, that the City CIerk transmit a copy of this resolution to
the Governor, the Director of the Department of Industrial Relations, and appropriate members
of the State Legislature.
ATTEST:
VALERIE BURROWES
City Clerk
Mayor
JOE SERNA, JR.
(SEAL)
FOR CITY CLERK USE ONLY
Its
RESOLUTION NO.:
DATE ADOPTED:
V I C MYE RS IHC SHEET METAL PRODUCTS
POST OFFICE BOX 235 320 S. SACRAMENTO STREET
LODI, CALIFORNIA 95241 LODI, CALIFORNIA 95240
—Since 1944—
TELEPHONE (209) 334-5700
(209) 943-7190
FAX (209) 334-0930
Mayor Warner- March 6. 1996
(:\O City Hall
221 W. Pine St..
Lodi, CA 9524o
Dear Mayor Warner.
As a concerned employer, I am voicing my opinion
in regards to changing Lodi to a charter city. If one of
the reasons behind this is to save money on prevailing
waae Jobs, I feel the city should keep their economic think-
ing to city business and not to the private sector business.
We have enough government involvement and regulation
in private bUsiness now and we can not afford any more.
In my opinion, city council and staff should work
on internal city economics. Perhaps using time more
efficiently by all city employees, cost effectiveness
in some in house services, and maybe hiring temps
instead of paying expensive overtime during your
busiest sAt�sons.
By keeping a liveable wage for contractor employees,
it insure, LAS of a better quality of living, housing,
education, and a more prosperous community. Better paid
people tend to spend well and invest wisely and I feel
that this is important for Lodi.
Sincerely,
• i in Munro
-.r esident
PH 3
MEMORANDUM FROM THE
O F F I C E O F T H E C I T Y
A T T O R N E Y
DATE: March 6, 1996
TO: Honorable Mayor & City Council Members
FROM: Randy Hays, City Attorney
RE: Prevailing Wage A Perspective
In reviewing the file which I have regarding the prior activities of the City Council relative to the
question of a city charter, one of the items that seems to be of importance is the question of
prevailing wage. Therefore the purpose of this memo is to flesh out that topic relative to some
real numbers. The real numbers are based upon information provided to me by the Public Works
Department regarding public works projects that include general fund funded projects and
enterprise fund funded projects.
The key here is that only those public works projects which contain only City of Lodi dollars are
counted. That is because if you have a public works project which has state dollars or federal
dollars in it, it is required under the terms of the receipt of those dollars that either California
Prevailing Wage Rates are paid or that federal Davis -Bacon Act wage rates are paid. There is no
way around those requirements. With regard to the numbers provided a couple of assumptions
were made. On an average it is assumed that fifty percent of the dollars in a public works project
are attributable to labor. That doesn't hold true for all projects. Some of the projects were
significantly less labor intensive. Those were assumed to have labor costs of twenty percent.
The following numbers represent the labor dollars that were susceptible to some savings possibly
for the years listed:
1991
$ 52,632
1992
$ 32,495
1993
$ 21,347
1994
$ 446,928
1995
$1,011,834
J:%CAIC I TY\CORRESXM-PRV WG 1. DOC
These numbers represent dollars from the general fund. It should also be pointed out that 1994
and 1995 really represent inflated numbers since in those years the City had extraordinary
expenses associated with the refurbishing undertaking of old City Hall.
For enterprise fund expenditures the figures are as follows:
1991
$136,650
1992
$205,547
1993
$ 57,499
1994
$226,796
1995
$446,574
Whether or not any money would be saved by not being compelled to pay prevailing wage on the
labor numbers just referenced is the real subject of the debate. However, there is certainly an
argument to be made that some savings would occur. The level of savings that can occur is
really not a known quantity. However, you frequently hear numbers in the range of 15 to 20%
being available to be saved. If for the sake of argument you use 15 or 20% the amount of dollars
that potentially can be saved on labor costs would simply be that percentage times the numbers
that are contained in this memo for the various years.
This memo does not attempt to say that there in fact would be savings since it is not possible to
know how a particular job would be bid. The idea of this memo however is to put some flesh
onto a skeleton in order to guide any discussion on this issue.
Respectfully submitted,
Ran ys, Ci Attorney
cc: City Manager