Prevailing wage a top topic in Wisconsin

Governor Doyle’s introduction of the 2009-2011 Executive Budget (Assembly Bill 75) includes a few changes that are causing Wisconsin municipalities, businesses owners and contractors to take a little more notice than normal.

The cause? The proposed changes to Wisconsin’s prevailing wage law.

“In actuality, prevailing wage is really an arcane issue,” says Dan Thompson, executive director of the League of Wisconsin Municipalities. “It is interesting because it’s an issue that has no effect on the state budget at all, but can end up costing billions of dollars.”

The concept of prevailing wage is fairly simple: Contractors abiding by a prevailing wage are paying their workers a wage compatible to those of construction workers performing similar work in the geographic area. Generally speaking, prevailing wages are in line with those paid by labor unions to their members.

Wisconsin has a prevailing wage law in place for public construction projects, though the thresholds are much higher than those proposed by Governor Doyle in the new budget. Currently, multiple-trade projects in the state have a $234,000 threshold; single-trade projects have a $48,000 threshold.

“These are numbers that are indexed to inflation,” explains Thompson. “Historically, they have been adjusted every few years or so.”

The new proposal for Wisconsin calls for reducing the prevailing wage threshold to $2,000 for any project, the same level currently in place for federal projects through the Davis-Bacon Act.

“The big difference is that there are a number of exemptions at the federal level,” says Thompson. “The exemptions were not included in the state’s budget language.”

But it is actually other elements of the prevailing wage changes that worry opponents in the state. While Thompson says it is difficult to calculate the fiscal impact of the changes, it could clearly have an impact on economic development as well as the direct cost to build or expand a business in Wisconsin.

“This is an issue that affects both contractors and businesses,” says John Mielke of Associated Contractors and Builders of Wisconsin. “The language being used can be very broadly applied … and the irony of it is that many of the tools that local governments use to attract development – BIDs, TIFs and so forth – also trigger prevailing wage requirements.”

Mielke says that a good example of this is business park land owned by a community and sold for less than fair market value to a tenant.

“That is a government subsidy, and under the new proposal, the business would be required to apply prevailing wage to the construction of the new facility,” adds Thompson. “Beyond the potential for additional cost, it’s also another layer of red tape.”

Both could be enough to persuade that potential tenant to look elsewhere for developable land.

Thompson notes that approximately 80 to 85 percent of economic development comes from the expansion of existing businesses.

“And when these projects are planned, it’s prudent to estimate the project cost on the high side,” he says. “If a business is planning to expand in a private industrial park, prevailing wage won’t be a factor. In a publicly owned park, it very well could be. At that point, it’s not about arguing for an additional two, three or four percent increase in cost. It could be about losing the whole deal.”

Instead of leveling the playing field for Wisconsin in comparison to states, the change would do just the opposite.

“In essence, to keep things attractive, communities will need to increase the amount of subsidy involved to fuel further economic development if there are increased costs,” he says. “And in the end, who will end up paying for that? The taxpayers.”

Thompson adds that this is an issue that Wisconsin communities will need to grapple with as they forecast out their own development plans.

“Communities tend to work on a ‘five-year plan’, meaning that they always try to have a five-year inventory of land in place,” he explains. “And on top of that, it easily can take that long to develop a new industrial park.”

The issue is compounded by the fact that it’s difficult to calculate the true impact this change could have on the state.

However, ABC’s Mielke does note that there are some hard numbers out there from other states.

“There have actually been multiple studies on the effect of prevailing wage – some are academic, some are not so academic,” he notes.

A 2007 study by the Michigan-based Mackinac Center for Public Policy on that state’s prevailing wage law showed that, on average, Michigan’s contractors to pay wages that average 40 percent to 60 percent higher than those found in the marketplace, and this requirement increases the costs of construction by 10 percent to 15 percent. The total annual cost to Michigan’s taxpayers is estimated at $250 million.

A few years earlier, a study by the Minnesota Taxpayers Alliance examined 34 school district construction projects, 57 state building projects and 247 state transportation projects, with total project costs of more than $1.7 billion. The study concluded that the state of Minnesota could have saved an estimated $126 million to $171 million of total project costs in 2002 “if the state had substituted ... median wage rates for current state prevailing wage rates.”

And in some cases, states have actually repealed prevailing wage laws. Ohio rescinded the prevailing wage requirements for school construction projects. Ohio’s Legislative Bureau estimates that the state saved $487.9 million in aggregate school construction during the post-examination period, an overall savings of 10.7 percent.

As for Wisconsin, prevailing wage is still a hot topic up for debate.

“I think there are two reasons: Psychological and financial,” says Thompson. “It hit a raw nerve in the state.”
Part of that is due to the fact that the argument for prevailing wage does resonate with a lot of citizens. It is something that the average person can understand and empathize with, particularly in a time when many families are having difficulty making ends meet.

“But in the end, prevailing wage is something that’s going to cost taxpayers more,” concludes Thompson. “There’s a certain hypocrisy of doing something like this during tough economic times.”

MOVERS

>> Heartland Business Systems has announced that Paul Horwich has joined the Milwaukee division of the company as a senior sales consultant. Horwich was formerly with Maron Structure Technologies.

>> Richard Levin, an associate, lead specifier and LEED Accredited Professional with the Madison office of design firm Kahler Slater, has been elevated to Fellow of the Construction Specifications Institute. In the organization’s 60-year history, only 385 members have been named fellows.

>> Virgin America, the California-based domestic airline, has named Holly Diehl Nelson, a Manawa native, as its new chief financial officer.

>> Milwaukee Downtown, BID #21 has recently announced the hiring of its first retail recruiter, Deanna Inniss.

BUSINESS BRIEFS

MILWAUKEE: The Civil Trial Counsel of Wisconsin (CTCW), a statewide association of defense attorneys, has changed its name to Wisconsin Defense Counsel (WDC). It will use the tagline “Defending Individuals and Businesses in Civil Litigation.” “We think our new name, Wisconsin Defense Counsel, better communicates our mission and role as an organization — to defend the interests of businesses and individuals involved in litigation,” says CTCW President Robert J. Lauer.

LAKE DELTON: The Jacob Leinenkugel Brewing Company is lending its support to return Lake Delton as popular fishing location. Leinenkugel’s is partnering with its local distributor, C&H Distributors, to unveil a summer-long fundraising program that will bring added support to the re-stocking initiative. Throughout the summer, locations that sell Leinenkugel’s brews will also be selling paper canoes for $5, with all proceeds going towards the company’s goal of raising $40,000 for the Lake Delton Fish Restoration Fund.