On Massachusetts Prevailing Wage: Setting the Record Straight

Over the past year and a half I have been hitting the Deval Patrick administration hard over the difference in the state and national prevailing wages.  In doing so I have relied on data supplied by the Beacon Hill Institute via this Boston Globe Op-Ed.  

You may remember that back in July of last year I got the information and my analysis that based on BHI’s data we would waste $174M on overpayment of prevailing wages into the hands of Congressman Darrell Issa who confronted Deval Patrick in a routine oversight meeting. As a result of that meeting the Beacon Hill Institute was forced to reevaluate their data when challenged in a follow up by the Patrick Administration.  

In a letter, a copy of which was received by Red Mass Group this week, BHI Executive Director David Tuerck informed Congressman Issa that the data provided was from a limited data set and that when the data set was enlarged the differences in the Federal and State Prevailing wages were much smaller than originally thought.

Tuerck did point out however that there is an executive order from Deval Patrick instructing public construction projects to use the highest wage on federal construction projects, be that state or federal wages.  

The data I have been using has been revised by the Beacon Hill Institute so I will not use the erroneous data any longer.  The fact remains however that the prevailing wages both at the state and federal level are much higher than market rate wages and that in Massachusetts they are effectively set without negotiation by unions.

After the jump you can read Tuerk’s letter to the congressman.

The Beacon Hill Institute for  

Public Policy Research

8 Ashburton Place

Boston, Massachusetts 02108-2770

phone: 617.573.8750

fax: 617.994.4279

email: bhi@beaconhill.org

web site: www.beaconhill.org

October 29, 2009

The Honorable Darrell Issa

U.S. House of Representatives

2347 Rayburn House

Washington, DC 20515

Dear Congressman Issa:

The Beacon Hill Institute has conducted an expanded and in-depth reexamination of the comparative effect on Massachusetts construction costs of the Massachusetts Prevailing Wage and the Federal Prevailing Wage. This effort was prompted by a criticism of our work made in a communication from Caroline Powers, Director of Massachusetts Office of the Governor, to your office. In this critique, Ms. Powers said that the Massachusetts Department of Occupational Safety

found that the MA [prevailing wage] rate was higher in only 14 out of 38 rates compared in Boston, and in only 8 of 38 rates compared in Worcester and Springfield. In Boston, the average Federal DBA rate was $54.63 and the average Massachusetts prevailing wage rate was $54.98, or only 35 cents higher.(1)

Ms. Powers is wrong. In fact, under procedures imposed by Governor Deval Patrick, Massachusetts construction labor costs are $2.44 per hour greater than what they would be under the Davis Bacon Act alone.

Our Analysis

Our new analysis uses an expanded set of data points, and computes weighted averages, rather than simple averages, in order to accurately present state-wide wage comparisons. It also takes into account a recent notice released by the Governor on the matter of the prevailing wage as it pertains to federal stimulus funds.(2)

Our purpose was to determine whether, as we previously argued, the Massachusetts Prevailing Wage causes labor costs to be significantly higher than they would be if only the federal prevailing wage were applicable. It is reasonable to expect this proposition to be true, considering how both the state and the federal prevailing wages are calculated. Union wages are generally and significantly higher than nonunion wages. Because the state prevailing wage is, in effect, set equal to the union wage, while the federal prevailing wage is based on a sample of wages, which sometimes (though not always) includes non-union as well as union wages, the federal wage should, in many instances, be less than the state wage.

In our previous analysis, we examined nine construction trades in Suffolk County only. For our purposes here, we expanded the sample to ten construction trades, which, according to the Bureau of Labor Statistics, represent 70 percent of the non-management construction jobs in Massachusetts. We then calculated the Davis Bacon Act (DBA) federal prevailing wage rate for each of the 14 counties in Massachusetts for the ten occupations. We included DBA fringe benefits in our calculation of the DBA prevailing wage.

Using these 140 data points (ten occupations over 14 counties), we calculated a weighted DBA wage for each county using the size of each occupation as a weight. Then, using county population as weights, we calculated the DBA prevailing wage for Massachusetts, which, in our expanded sample, resulted in a wage of $52.28.

We next calculated the Commonwealth’s prevailing wage rate, using the wage sheets provided by the Massachusetts Department of Labor and Workforce Development. Using the same weighting methodology, we obtained a Massachusetts Prevailing Wage of $54.22, which is $1.94 more than the DBA prevailing wage.

This does not tell the whole story. Governor Patrick has issued a memorandum according to which, the state must use the higher of the DBA and MA prevailing wage for projects financed with federal funds provided under the American Recovery and Reinvestment Act (ARRA).(3)

Taking the higher of the two wages for the 140 data points, we calculated an average labor cost of $54.72 or $2.44 per hour more than if the Davis Bacon wage were applied consistently. The Governor’s ruling increases the cost of labor on public projects by 4.67 percent over and above what the cost would be under the DBA standard alone.

This is an average and in some instances the difference will be greater. How one defines fringe benefits has implications for the costs associated with public projects. The DBA uses a comprehensive definition, including “medical or hospital care, pension on retirement or death, compensation for injuries or illness resulting from occupational activity, or insurance to provide any of the forgoing, for unemployment benefits, life insurance, disability and sickness

Tuerck to Issa October 29, 2009 Page 2

insurance, or accident insurance, for vacation and holiday pay, for defraying the costs of apprenticeship or other similar programs, or for other bona fide fringe benefits.”(4)

However, the Massachusetts law provides only for “health and welfare plan, a pension plan and a supplementary unemployment benefit plan.”5 Under the Massachusetts law, the contractor has to add the cost of any other fringe benefits, including training costs, vacation time and holiday pay in order to calculate their full labor cost. For example, according to a Union Agreement for Sheet Metal Workers, employers must pay $0.86 per hour into an “Apprentice and Training Fund.”6 Under the DBA, this would be considered a fringe benefit and included in the prevailing wage. According to the Massachusetts law, this could not be included and would be an added cost, on top of the prevailing wage.

Effects on Construction Costs

The Commonwealth is in line to receive $5.335 billion through the ARRA. A large part of this will be spent on education, housing and safety net programs. But a sizeable portion will be dedicated to public infrastructure improvements including, the weatherization of 75 percent of federal buildings. Assuming that just 50 percent of the ARRA funds are spent on infrastructure, the state could save $60.8 million by paying DBA wages rather than whichever wage, DBA or Massachusetts Prevailing Wage, is higher, as mandated by the Governor.

While it is impossible to predict how much will be spent on construction labor covered by prevailing wage laws, reasonable estimates can be made. Approximately $482 million is dedicated to transportation projects in the Commonwealth. Were the DBA standard uniformly applied, the state could save $11 million dollars. For example, the Weatherization Assistance Program is set to receive $122 million, but under a DBA-only approach, the same project could be completed for $2.8 million less. Some of these savings could be dedicated to fuel assistance or other programs.

In addition to the ARRA, the Commonwealth this year is spending $721 million of its own tax revenue on bridges and roads. The same projects could be completed under the federal prevailing wage for $707.9 million, realizing $13.1 million in cost savings. This money could be used to further improve roads and bridge projects or to cover other cash-strapped projects.

The Massachusetts unemployment rate stands at 9.3% (September 2009) the highest since March 1992. It seems perverse, at best, to raise the wage paid for construction labor artificially high when, at a lower wage, more workers could be employed and additional projects completed. By decreeing that the state will always pay the higher wage, whether it is the DBA wage or the

Tuerck to Issa October 29, 2009 Page 3

state prevailing wage, the Governor’s top priority is to placate union workers rather than to reduce the state’s unemployment rate or to stretch his infrastructure dollars as far as possible.

Our updated analysis shows that we were correct in asserting that the Commonwealth systematically pays more for labor on public construction projects than would be necessary under the DBA standard.

Sincerely,

David G. Tuerck

Executive Director

(1) Email from Caroline Powers, Director, MA Office of the Governor, July 13, 2009.

(2) Executive Office of Labor and Workforce Development, Department of Labor, Division of Occupational Safety, “Notice to Awarding Authorities for Project Funded through the American Recovery and Reinvestment Act,”  (March 2009) http://www.mass.gov/Elwd/docs/dos/prevaling_wage/pw_notice_arra.pdf. (accessed October 19, 2009).

(3) Ibid.

(4) Title 29, Part 5 of the Code of Federal Regulations.  Part 5.29.

(5) Chapter 149, section 27, of the Massachusetts General Law.

(6) Standard Form of Union Agreement Sheet Metal, Roofing, Ventilating and Air Conditioning Contracting Divisions of the Construction Industry, Boston Area.  Sheet Metal Workers Local Union No.17. August 1, 2005 to July 31,

2010.

About Rob "EaBo Clipper" Eno