IR # 96-06
Wednesday, February 14, 1996

Louis Bonsignore
(415) 972-8835

Statement by John Duncan, Chief Deputy
Department of Industrial Relations
Prevailing Wage Reform: Truth vs. Fiction

SACRAMENTO -- Governor Wilson's move to reform California's restrictive, unfair and outdated prevailing wage regulations is being met with stubborn resistance by organized labor and certain signatory contractors which have a vested interest in maintaining the status quo. Unfortunately, those who fear that reform will threaten their market share of public works programs and taxpayer dollars by allowing public agencies to pay the true prevailing rates of the marketplace are reduced to employing subterfuge and outright misstatement of facts in presenting their case against reform.

A news release issued today by The State Building and Construction Trades Council is a case in point.

Fiction: "Governor Wilson's Department of Industrial Relations is seeking to gut the regulations and replace them with a system that will reduce worker pay by an average of 20 percent."

Fact: DIR has proposed regulations that will bring the method of calculating prevailing wages in California into conformance with the federal government's Davis Bacon Act, which is the same method used in most other states of the Union that have prevailing wage laws. To state that this change will reduce worker pay by an average of 20 percent is incorrect. The fact is that labor costs average about 20 percent on public works projects and any reduction in per capita income to those currently employed on public works projects would probably not exceed four percent. On the other hand, the change may permit thousands of other workers the opportunity of employment on publicly funded construction projects.

Fiction: '"The fundamental issue here is an honest day's pay for an honest day's work...They (the Wilson administration) want to replace that with the survival of the cheapest."'

Fact: The fundamental issue is indeed an honest day's pay for an honest day's work. However, the element of fairness must also be part of this issue and the current prevailing wage regulations are unfair to the taxpayers in that they essentially ensure the highest costs for labor and exclude many capable workers from public works projects.

Fiction: '"That's bad for middle class construction worker families and everyone who uses California's roads, bridges, freeways and public buildings. It will result in skilled workers being replaced by unskilled workers, especially undocumented workers who take cash and don't even pay income tax."

Fact: In California over the past several years, virtually every state agency has shared in the loss of tax revenue as a result of the past recessionary fiscal environment. Prevailing wage rules have insulated those who work on publicly funded projects from declines in the hourly rates of pay during those years. Although some construction workers may see a very minimal decrease in earned income from taxpayer funded projects, many others who will have the opportunity to work on these projects and will likewise have the opportunity to become part of the middle class.

The argument that skilled workers will be replaced by unskilled workers is without foundation. Public works contracts require that levels of quality in construction be maintained and changes to the prevailing wage rules have nothing to do with the quality of construction. The idea that undocumented workers will be employed on public works projects and paid in cash is equally absurd. Governor Wilson's position on the employment of undocumented workers is well known and the California Labor Commissioner vigorously enforces state laws against payment of wages in cash.

The users of California's freeways, public buildings and other taxpayer funded projects should benefit from the same quality of construction while seeing perhaps a larger number of projects built at somewhat less expense.

Fiction: "...the 3 to 4 percent savings the governor projects would be more than offset by a decrease in income and sales tax revenue and the inevitable shifting of health care costs from private insurers to Medi-Cal and county hospitals."

Fact: There is in reality no factual, reliable data to support this statement. Evidence may actually show that by opening the market to a broader base of workers, those who must rely on public health care from time to time will be forced to do so less often. Many times, in fact, those workers who are members of construction trade unions must themselves rely on public health care because they are unable to put in enough hours on the job to qualify for union-provided medical benefits.

Fiction: "States where prevailing wage laws have been eliminated, such as Utah, have experienced severely negative results..."

Fact: The "University of Utah Study" was funded by the AFL-CIO and other unions, which have a vested interest in the outcome of the working paper. The study is widely criticized both for its methodology and conclusions. Nevertheless, common sense will tell us that the reform of prevailing wage regulations should have no impact on other areas of public works projects bound by contract and subject to enforcement by local, state and federal agencies.

Fiction: "Last year, a coalition of unions and contractors met with the Republican legislative caucus and the Department of Industrial Relations in an effort to reach a reasonable modification of existing prevailing wage rules."

Fact: It is true that a series of meetings did convene, however the term "reasonable" is subject to interpretation. The fact is that the meetings did not produce significant reform and legislative efforts were stalled in the Democrat controlled committees.

The Department of Industrial Relations will move forward with public hearings to reform California's prevailing wage regulations. The hearings will be held February 20 and 22 in San Francisco and on February 26 and 27 in Los Angeles.

Pursuant to the Governor's direction, the Department of Industrial Relations has proposed two regulatory changes to achieve reforms which will be the subject of the hearings. The first change would repeal the current "modal" method for determining the prevailing wage, in which the most frequently occurring wage rate for a job classification in a county is considered the prevailing wage. Other than California, only Minnesota and Wisconsin use the modal method. Our proposal would replace the modal method with the same method used under the Davis-Bacon Act, in which the prevailing wage is the rate earned by 50 percent or more of the workers in a survey group. If 50 percent or more do not earn the same wage rate, then a weighted average of all rates is the prevailing wage. In 92 percent of the determinations, the "modal" method has resulted in collective bargaining-scale wage rates considered prevailing. These wages do not reflect the marketplace in California, where only 25 percent of construction workers are union.

A recent survey by the Department of Industrial Relations illustrates how the modal method does not produce prevailing wages reflecting the marketplace. In Kern County, the Department found 44 surveyors earning hourly rates ranging from $12.50 to $30.63. Seven workers earned $27.16 and one received $30.63. The wage rates paid to the other 36 surveyors ranged from $12.50 to $25.47. Based on the modal method, the prevailing rate was $27.16 since it was the most frequently occurring. The mean average under the Davis-Bacon Act methodology would have been $21.62. Thus, seven out of 44 workers -- or only 16 percent -- set the prevailing wage at essentially the highest rates in the county.

The second regulatory change proposed would repeal the "double asterisk" rule. This provision mandates an automatic increase in prevailing wage rates whenever a collective bargaining agreement used as the basis for the prevailing wage contains a provision for an increase. In many cases, the parties to an agreement have rescinded or reduced an increase, resulting in contractors still having to pay a higher rate which is no longer prevailing and causing confusion to contractors, awarding bodies, and investigators as to which rate actually is prevailing. The federal Davis-Bacon Act does not contain a similar provision.

It is estimated that changing the methodology from the modal method to the Davis-Bacon method will save state and local taxpayers up to $200 million annually. Given that state and locally-funded construction in California totals about $5 billion annually, the methodology change would reduce taxpayers' construction costs about 4 percent. The California Department of Transportation estimated that repeal of the "double asterisk" provision will reduce labor costs by 1.6 percent."