LANSING – Although it never came to a vote, the Michigan Prevailing Wage Act of 1965 was probably close to being overturned during the same lame-duck legislative session in December 2012 that saw passage of the state’s right-to-work law.
The state’s construction workers – both union and nonunion – may not be so fortunate this year.
There are no less than six bills in the Michigan House and Senate that would repeal prevailing wage for school work and/or for all taxpayer-funded construction. Any push to repeal the law will hinge on the votes of just a handful of Republican lawmakers – and the Michigan Building and Construction Trades Council stepped up its lobbying efforts by inviting a contingent of legislators to a box lunch on Feb. 26, with some prevailing wage presentations on the side.
“The whole point in setting this up was to get all the facts out, and see what we can do to retain prevailing wage, and assure a solid enforcement policy and a level playing field,” said Michigan Building and Construction Trades Council Legislative Director Patrick “Shorty” Gleason, who organized the event.
Held in a hall at Central United Methodist Church near the state Capitol Building, the 90-minute lunch was attended by about 50. About half of the attendees were state lawmakers, and about a dozen of them were Republicans. A video introduced the history of prevailing wage – on the federal level it was signed into law in 1931 by GOP President Herbert Hoover after being sponsored by Republican Congressmen James Davis and Robert Bacon – as well as its current benefits today.
Featured presentations were given by Michigan State University Human Resources and Labor Relations Professor Dr. Dale Belman, and National Electrical Contractors Association – Michigan Chapter Executive Director Mike Crawford.
Belman has extensively studied what happens to construction costs in states where prevailing wage has been repealed and then reinstated, as it was in separate cases in the 1990s in Michigan, Ohio and Kentucky. Having authored and co-authored several studies on prevailing wage over the last 15 years, Belman said he and other academics have consistently concluded that the presence of a prevailing wage law does not increase costs to taxpayers.
The only exception, he said is on residential work, where there’s “lots of cash payments and lots of undocumented workers” which allows bidding contractors to undercut each other. “Prevailing wage has worked in Michigan for many years,” Belman said. “There’s no reason to break something just to see what happens.”
Michigan’s prevailing wage law assures that on state taxpayer funded construction projects, workers must be paid a standard wage that “prevails” in their geographic area. The law was originally intended to help prevent local or out-of-area contractors from winning bids by importing low-wage workers and undercutting legitimate local-hiring contractors.
Prevailing wage “helps create a better construction industry,” Belman said, by fostering more qualified and trained workers, a greater tax base, and ultimately, better quality buildings. “Higher wages,” he said, “are very strongly related to higher productivity.” But at the same time, he said, “lower wage rates and the absence of benefits do not necessarily imply lower total costs” for contractors. “You can’t assume worker productivity is the same at a lower wage,” Belman said. “It’s an erroneous assumption.”
But there’s even more to the prevailing wage law, said NECA’s Crawford, describing himself to the audience as “the management guy” to illustrate this isn’t just a labor issue. Crawford warned that removing prevailing wage would make Michigan a safe haven for “benefit bandits,” causing all kinds of downstream, bad consequences for workers, contractors and the tax man.
Crawford used the side-by-side example of two construction contractors with a 10-person crew, one of whom pays his workers prevailing wages and fringes and one who doesn’t and pays his crew under the table in order to avoid federal taxes, Social Security, Medicare and state levies.
For every hour worked at $28 per hour, Crawford estimated that bandit contractors enjoy a $6.92 per hour break in costs for each employee in unpaid taxes – a 24.7 percent advantage over legitimate contractors. In addition, employees who are paid under the table in such a scenario don’t pay $7.67 per hour in taxes – cheating state and federal governments out of a total of $14.59 an hour in tax revenues. That amounts to a loss of tax revenue of $280,128 for a year-long project.
And, “if the benefit bandit bogus contractor is not paying the required taxes on the construction workers he’s using, then he probably isn’t paying workers compensation or health insurance, or JATC (apprenticeship training) contributions, or any sort of pension benefit. What does that mean in the real world?” Crawford asked. Turns out the economic advantages to cheating are enormous.
According to Crawford, those same bad contractors with 10-worker crews who don’t pay contributions to health insurance, pension and apprenticeship contributions and unemployment compensation shifts a total of $1,624 per worker, per month onto the rest of society for increased, uncompensated health care costs, welfare expenses and educational expenses. Combined, the unpaid taxes and lost fringe benefits costs amounts to an annual per-worker shift of $47,496 to the rest of society. “Prevailing wage levels the playing field between the bogus and legitimate contractors,” Crawford said. “Repeal the law and you will see and increase in costs to society as a whole, with huge tax losses and costs shifts onto the rest of Michigan’s citizens.”
Republican response: GOP lets trades know what caucus is thinking
Are there enough Republican lawmakers to overturn Michigan’s Prevailing Wage Act?
No problem there. With a 26-12 majority in the Michigan Senate, and a 59-51 majority in the state House, Republicans have held all the cards when it comes to lawmaking.
But will there be enough Republican votes to overturn the law? At this point, it’s hard to say, the lobbying effort will continue throughout this year.
If nothing else, it was a good sign that there were a dozen Republican lawmakers who took the time to attend the prevailing wage luncheon last month in Lansing, and listened to what MSU’s Dr. Dale Belman and NECA-Michigan’s Mike Crawford had to say about the potentially devastating affects of repealing the law on Michigan’s economy.
The Republican co-host of the program, State Rep. Ed McBroom (R-Vulcan), was helpful after the program and let other attendees know what the GOP caucus was thinking about prevailing wage repeal.
*He indicated that at this point, arguments about enhanced government tax revenues as a result of retaining prevailing wage might be a non-starter with Republicans. “Many of the people interested in repealing prevailing wage,” McBroom said, “are people not necessarily interested if the state sees lower revenues.” That, of course, reflects the Tea Party’s influence on state government. One ultra-conservative leader, Americans for Tax Reform President Grover Norquist, has said of government: “I just want to shrink it down to the size where we can drown it in the bathtub.”
McBroom added later “If there are less taxes, there are members who don’t mind the government dropping services.”
*McBroom wondered if it is “fair to say,” as Belman maintained, that in the absence of prevailing wage laws, bid amounts aren’t reduced, but workers are simply paid less. and contractors pocket the savings. Belman’s research speaks for itself: repealing prevailing wage laws generally don’t save a government anything. “The employer does absorb most of the gain,” Belman respinded.
*Another question by McBroom: “Are there areas in which prevailing wage could be refined or improved?” He wondered if construction workers should be paid as much on a small project as they do to build a 20-story building “Is that fair,” he asked, when the same roofers who might be paid a smaller sum to shingle the roof on the home of a lady living across the street from a school, be paid more to put a new roof on that school because it’s a prevailing job.
That question lines up with what other states have done, and what has been proposed in Michigan: to put a higher “threshold” on when the state’s prevailing law kicks in. For example, the state may adopt a law saying prevailing wage won’t be applied on jobs under $100,000.
*The survey system for prevailing wage should be addressed, McBroom said, citing an example that he heard of where a glazier could earn the same in the Upper Peninsula as he could working in Midland. Many in the building trades have also argued that the surveys, infrequent and not always representative of workplace realities, could be better. “We are not opposed to making common-sense reforms to prevailing wage surveys,” said Patrick Devlin, secretary-treasurer of the Michigan Building and Construction Trades Council.