Memo- Prevailing Wage Ordinance
. Memorandum
To: Hopkins City Council
From: Jim Genellie
Date: January 6,2004
Subject: Prevailing Wage Ordinance
The City of Hopkins is currently covered by prevailing wage laws. The Federal Davis-Bacon Act
imposes prevailing wage requirements on any project that is funded by federal dollars. The state
prevailing wage law covers building or highway projects that are financed in whole or part by state
funds.
The current facility projects are not covered by either the federal or state prevailing wage law.
Obviously the City will not have other building projects on this scale anytime soon. The projects
that would be most affected by a local prevailing wage ordinance would be street reconstruction
projects that do not rely on any state aid money.
The question before the City Council is what would be the benefit to the City of adopting a local
prevailing wage ordinance.
. There are a number of arguments for and against prevailing wage laws. There have also been a good
number of studies designed to detennine the effect of such laws. At the risk of simplification, the
main argument against prevailing wage laws are that they raise the cost of construction projects.
The counter argument is that any increase in cost is marginal and is made up for by an increase in
the quality of construction. The City, however, is not being asked to take a position for or against
the prevailing wage law in Minnesota. It is being asked to consider the adoption of a local
prevailing wage ordinance.
So the question remains would the City of Hopkins benefit by applying a prevailing wage ordinance
to street reconstruction projects? About the only way the City could benefit would be ifthere were
an increase in the quality of the street projects and/or a decrease in cost ovelruns. This increase in
quality would also have to offset any possible increase in costs.
When the City bids out the street reconstruction projects, it is required to take the lowest responsible
bid. (It should be pointed out here that the state law on contracts does allow cities to impose a
prevailing wage requirement on all bidders.) Fortunately City staff is familiar with the companies
that are bidding on the Citis street projects. The companies that are awarded the bids on these
projects have a proven track record of constructing similar projects in the metropolitan area I. Issues
such as the quality of the work, and cost ovel11.ms are reviewed before bids are awarded. In other
words there is in place currently a better method to ensure quality then by passing a prevailing wage
ordinance. Staff would not recommend adopting a prevailing wage ordinance in Hopkins.
. 1 A review of the successful bidders on street reconstruction contracts revealed that the contractors, almost without
exception, used union labor.
1
.. ..---. - - -.---
Additional Information
. The following are some of the general arguments for and against prevailing wage laws. (These
arguments are from an Ohio legislative report, S.B. 102)
Arguments For Prevailing Wages
. Prevailing wage laws protect both the wages and jobs of local workers by preventing "wage
dumping" by outside contractors.
. Prevailing wage laws reduce total construction costs by encouraging the use of more qualified
and productive workers.
. Prevailing wage laws assure quality construction and reduce delays and overruns.
. Prevailing wage laws help maintain local tax bases.
. Prevailing wage laws provide stability in the construction industry.
Arguments Against Prevailing Wages
. Prevailing wage laws increase project costs.
. Prevailing wage laws impose Ulli1ecessary regulatory burdens and heavy paperwork
requ irements.
. Prevailing wage laws reduce competition.
. Prevailing wage laws discriminate against minOlity and small contractors.
. Prevailing wage laws hurt rural contractors and workers.
. Prevailing wage laws do not guarantee quality.
. . Prevailing wage laws do not increase local tax bases.
Studies about the effects of prevailing wage laws
The Economics of the Davis-Bacon Act: An Analysis of Prevailing Wage Laws, AmeIican
Enterprise Institute for Public Policy Research, Washington D.C., ] 980.
Prevailing Wage Legislation, University of Pennsylvania Press, Philadelphia, 1986.
"Unionized Construction Workers Are More Productive," Qualierly JoumaJ of Economics, 1984.
"Prevailing Wage Laws," Position Paper, The Mechanical Electrical Sheet Metal Alliance,
March 1995.
"Losing Ground: Lessons from the Repeal of Nine 'Little Davis-Bacon' Acts," University of Utah,
February 1995.
"The Economic Impact of Prevailing Wage Requirements in Milmesota". 1992
Dr. BemaI'd E. Anderson, Depal1ment of Labor, Employment Standards Administration, Testimony
before the Labor and Human Resources Committee, U.S. Senate, February 15, 1995
"The Effects of the Davis-Bacon Act on Construction Costs in Rural Areas," The Review of
Economics and Statistics, 66 (Feb. 1983)
"Do Davis-Bacon Minimum Wages Raise Product Quality?" Journal of Labor Research, 1988
"The Davis-Bacon Act Should Be Repealed," HRD79-18, April 27, 1979.
"An Analysis of Kentucky's Prevailing Wage Laws and Procedures," (Dec. 2001)
. Several cities in Minnesota have a prevailing wage ordinance induding Minneapolis, St. Paul,
Duluth, and White Bear Lake.
2
. Who is covered by Minnesota prevailing wage laws?
Any contractor or subcontractor petiorming work by contract in which state funds in whole
or in part are involved must adhere to Minnesota prevailing wage laws. Highway projects
are enforced by the Minnesota Department of Transportation (MNDOT) and commercial
projects are enforced by letting agencies. The certification in effect at the time the project
is advertised (bids are asked for) applies for the duration of the project.
Why is it required?
A little history: the first prevailing wage law governing minimum payments to laborers and
mechanics on construction projects was passed in Kansas in 1891. Debate on the federal
level began in 1898 and continued in 1927,1928 and 1930. Rep. Robert Bacon R-N.Y.,
introduced a prevail ing wage bill in 1927, but it did not pass until 1931. The U.S. Senate
author was newly elected Sen. James Davis, R-PA., who had previously served as
Secretary of Labor for nearly a decade.
The Davis-Bacon Act prevented local wage standards from being undercut on federal
construction projects by low bidders that imported cheap labor as a cost-cutting technique.
Amended in 1935, it required the payment of not less than the wages found by the
Secretary of Labor to be "prevailing for the corresponding classes of laborers and
mechanics employed on projects of a character similar to the contract work in the city,
. town, village or other civil subdivision of the state in which the work is to be petiormed."
Similar state laws are often referred to as "little" Davis-Bacon Acts. Minnesota's law,
patterned after tederal and Wisconsin law, was enacted in 1973, after an incident where
out-at-state workers, who earned much less than local workers, were hired for a University
of Minnesota farm project.
How does prevailing wage work?
The original Minnesota prevailing wage law required all state agencies to establish
prevailing wage rates for their building projects. The Department of Labor and Industry
(DLI) was given the power to investigate complaints, collect survey data, define classes of
labor tor highway construction and determine state prevailing wage rates. An amendment
was passed in 1975, authorizing DLI to set the rates for all building and road construction
and increased the penalties tor noncompliance.
Wage rates paid tor comparable work are certified by the Department of Labor and
Industry as the prevailing wage rates after the department conducts a survey of
contractors, labor organizations and interested parties statewide. This information is
furnished to entities covered by prevailing wage laws that are letting contracts for inclusion
in their bid specifications. A notice is also published in the State Register annually,
indicating where copies of the certified rates may be obtained.
. Wage rates are established for two types ot construction:
3
. 1. Highway/heavy -- construction and maintenance of highways, streets, airport
runways, bridges, power plants, dams, wastewater treatment plants, water towers,
high-voltage power lines and utilities.
2. Commercial construction -- building projects exclusive of residential construction.
(Residential construction is defined as single- or two-family homes. Separate wage
certifications are issued for each area.)
How are rates set?
State law requires each wage rate be based on the actual wage rates paid to the largest
number of workers within each labor classification reported in the statewide survey.
An administrative law judge agreed that the calculation to be used is the mode or most
frequently occurring wage rate. For example, if the survey data shows that two bricklayers
in a county earned $19.40 an hour, another earned $17.25 and one earned $22.67, the
prevailing hourly wage rate would be $19.40.
If there is an equal number of workers with differing hourly wage rates, the rules state the
highest rate paid becomes the prevailing wage rate. For example, if one worker receives
$14.90 an hour, another is paid $16.75 and another gets $15.35, the prevailing wage is
$16.75 an hour.
. To obtain the necessary database, the Department of Labor and Industry mails surveys to
all segments of the construction industry. The department recognizes 131 job classes
common to the construction industry. These classifications are divided into four categories:
laborers, truck drivers, heavy-equipment operators and skilled crafts.
In 2001, more than 5,800 requests for wage rates were mailed to public and private
employers throughout the state.
The schedule of prevailing wages, as certified by the Department of Labor and Industry, is
required by law to be posted in at least one conspicuous place on each state construction
site.
How is prevailing wage enforced?
Authority to investigate complaints of prevailing wage violations has been assigned to two
state agencies. The Department of Transportation is the primary enforcing agency for all
projects let out to bid for highway-related construction. All other investigatIons are
conducted by the Minnesota Department of Labor and Industry or individual contract
officers representing project owners.
The Department of Labor and Industry (DLI) is authorized to review payroll documents to
determine compliance with prevailing wage rate provisions for all state construction
. projects, including highway construction.
4
, .
. The Department of Labor and Industry administers prevailing wage laws through the
investigation of noncompliance complaints filed in one of four ways:
1. Someone calls DLI using the Labor Standards unit's phone number, which is printed
on prevailing wage notifications required to be posted at job sites.
2. An architect or project engineer refers a worker to the department.
3. A union representative advises a worker to contact the department.
4. A union representative or other outside source files a complaint on behalf of a
worker.
Minnesota Statutes 9177.44 also states that anyone who forces an employee, by any kind
of threat, to accept lower wages may be fined up to $1,000 and be imprisoned for up to
one year. It further provides that any employee who knowingly allows the contractor or
subcontractor to pay less than the prevailing wage or who gives up any pay due may be
fined up to $40, jailed not more than 30 days or both. Each day a violation continues is a
separate offense.
The Department of Transportation is authorized to request and examine copies of payroll
forms from contractors and subcontractors. The penalty for nonpayment by contractors
and subcontractors is a misdemeanor punishable by a fine of not more than $300,
imprisonment of not more than 90 days or both. Each day a violation continues is a
separate offense.
. Contract officers who administer contracts without prevailing wage compliance and
contractors, subcontractors or agents who knowingly pay workers below prevailing wage,
are subject to misdemeanor penalties. Repetitive violations are considered a separate
offense, punishable by a maximum fine of $700, imprisonment for no more than 90 days or
both.
Both state agencies have developed processes within their statutory authority to maximize
compliance by all involved parties. While most contractors comply with agency orders to
pay back-wages, project funds may be withheld by the letting agency until compliance is
achieved.
.
5