blank.gif (51 bytes) Power & Privilege
Prevailing Cage

by Elaine McNeill

uring a Senate Commerce and Labor committee meeting several legislative sessions ago, a now-retired senator asked why it costs state government at least 30 percent more to have a building constructed than it costs a private business. Interestingly, no one disputed his claim. Legislators accepted it as fact and began discussing the underlying cause, Nevada’s prevailing wage system.

The term "prevailing wage" has such a fair and wholesome sound to it that it is generally misunderstood. The term was coined in 1931 when Congress passed the Davis-Bacon Act, a Depression-era labor-protection law designed to shuffle jobs to union members and keep blacks from competing for jobs previously held by whites [See box]. In Nevada a similar law was passed the same year to prevent contractors from cutting workers’ wages to win contracts. But the fallacy with this law is clear: it presupposes that government, not the marketplace, should set wages. It also assumes a government has the knowledge and the will to set a wage comparable to the wage paid for private work of the same type.

In Nevada, the state labor commissioner is responsible for determining prevailing wage rates for the construction industry. Chapter 338 of the Nevada Revised Statutes (NRS) and the related administrative codes provide guidance on how this should be done. Prevailing wage rates are determined by the labor commissioner based on a survey he sends to construction companies each year.

No Way to Check Accuracy

he first problem with this was clear from testimony during the 1997 session. The Senate Governmental Affairs Committee was considering Senate Bill 210, which would have exempted certain public works contracts in small-population counties from payment of prevailing wage. Labor Commissioner David J. Dahn estimated that less than 30 percent of the surveys are actually returned. In addition, there is no way to check surveys to verify accuracy. The method used to calculate the rates paid to construction workers is also troubling. Nevada uses the "30 percent rule," meaning that if there is no clear majority, the rate paid to 30 percent of the construction workers in that class will be used. But most jurisdictions use the average of all the rates paid instead of the 30 percent system.

Nevada also uses the rates paid on government-funded jobs to determine the prevailing rate paid by private employers! Of course using the rates already paid on government jobs to determine how much to pay on future government jobs creates the "self-fulfilling prophecy" we’ve experienced.

Other problems abound in the wage determination system:

  • The surveys specifically exclude the wages paid to construction workers building houses,
  • Labor unions are permitted to complete and return survey forms instead of contractors,
  • Personal information such as an employee’s name and wage must be included on reports which later become public information, and there is no method to ensure that local input is included.

In view of the pitfalls in the method of determining the prevailing rates, it is no wonder that the rates seem strange. For example, in Clark County the rate for a roofing foreman is $21.26 while laborers have 10 rates starting with $25.09 and reaching as high as $28.26. The person who paints the stripes on the highway earns $11.75 per hour, while the flagger working along side earns $21.09 an hour. Journeyman refrigeration installers, plumbers, electricians and equipment operators earn from $40.16 to $35.02 per hour while journeymen well-drillers earn $12.69 per hour. Contractors with whom I have discussed the rates tell me that the amount actually paid ranges between $15 to $25 per hour depending on the journeyman’s level of experience. Obviously, there is a vast abyss between what is actually prevailing and what the labor commissioner sees as prevailing.

How does the method of determining prevailing wage for construction workers affect the taxpayer? In January 1997 California’s then-Governor Wilson changed the way prevailing rates were determined in that state. The new rules require rates be determined according to the average rate earned by a majority of the workers in a region. According to Wilson, the change will save California taxpayers $200 million. Wilson was particularly concerned about the impact high rates had on the rural areas in California. A similar concern was also voiced by Nevada State Senator Dean Rhoads and others during the 1997 legislative session.

The method for determining the prevailing wage is not the only problem with this system. Chapter 338 of the NRS requires that the prevailing wage be paid on all public works with a price tag of $100,000 or more. The $100,000 figure has not been changed since 1985. Chapter 338 also establishes the responsibilities of the labor commissioner as determining rates, listening to appeals if a local government or contractor disagrees with the rates, and then ruling on the appeal. This is a system quite akin to letting one person be prosecutor, defender, jury and judge!

What does Nevada need to do to correct this situation? Some would say the solution may be to abolish prevailing rates and let the marketplace determine how much to pay. Arizona did just that in the 1980s, as a result of a voter initiative. Absent such a push, the most we can expect is a true reform of the system. Such a reform would include adjusting the floor from $100,000 to a more reasonable figure. Another reform would include overhauling how rates to be paid are set by abolishing the 30 percent rule in favor of an average rate, revamping survey techniques and giving local representatives more voice in rate setting. An appeal process outside the labor commissioner’s sphere of influence is also needed.

Change will not come easy. In past legislative sessions, reform has been vigorously opposed by AFL-CIO officers and lobbyists. They have convinced elected and appointed officials as well as the voting public that this is a construction issue of little interest to the taxpaying public. They have successfully clouded the issues with arguments about quality and safety—issues addressed effectively in other statutes—in order to maintain the status quo.

Prevailing wage mandates are definitely a taxpayer issue and one that we should not continue to ignore. Otherwise, a scandalous law that is wasting taxpayer dollars will continue to go unchecked. NJ

Elaine McNeill is chairman of the Accounting and Economics Department at Morrison College in Reno. As a former U.S. Army Finance officer she worked with the federal prevailing wage system.


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