BILL ANALYSIS �
AB 988
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Date of Hearing: January 4, 2012
ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT
Sandre Swanson, Chair
AB 988 (Grove) - As Introduced: February 18, 2011
SUBJECT : Prevailing wages.
SUMMARY : Abolishes the "modal rate" for determining prevailing
wage rates and establishes an alternative "weighted average"
methodology. Specifically, this bill :
1)Eliminates the "modal rate" methodology for determining the
prevailing wage rate, which defines the prevailing wage as the
hourly wage rate being paid to a majority of workers in a
particular craft within a given locality. If no single rate
is being paid to a majority of the workers, then the single
rate being paid to the greatest number of workers is the
prevailing rate.
2)Replaces the "modal rate" methodology with an "weighted
average" methodology which requires the Director of the
Department of Industrial Relations (DIR) to do the following:
a) Conduct a survey of the wages paid for work performed in
each locality in which the public work is to be performed
for each craft, classification or type of worker needed.
b) Use an average of the wage rates surveyed, weighted by
the total employed for each craft, classification, or type
of work.
3)Deletes the requirement that the Director of DIR consider wage
rates established by collective bargaining agreements and
federal prevailing wage rates in determining the prevailing
wage.
4)Deletes provisions of existing law that specify what types of
employer payments are included in determining the prevailing
wage rate.
5)Provides that addresses of individual employees shall be
deleted from copies of certified payroll records provided to
joint labor-management committees under existing law.
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6)Makes other conforming changes by deleting related provisions
of existing law.
FISCAL EFFECT : Unknown
COMMENTS : This bill seeks to eliminate the "modal rate" for
determining prevailing wage rates, replacing it with and
alternative "weighted average" methodology.
A Brief History of State and Federal Prevailing Wage Law
State prevailing wage laws vary from state to state, but do
share a common history that actually predates federal prevailing
wage law. Many of these state laws were enacted as part of
general reform efforts to improve working conditions at the end
of the 19th and the beginning of the 20th centuries. Between
1891 and 1923, seven states adopted prevailing wage laws that
required payment of specified hourly wages on government
construction projects. (The State of Kansas enacted the first
prevailing wage law in 1891).
Eighteen additional states and the federal government adopted
prevailing wage laws during the Great Depression of the 1930s
amidst concern that acceptance of the low bid, a common
requirement of government contracting for public projects, when
government had become the major purchaser of construction, would
operate to reduce the wages paid to workers on those projects to
a level that would disrupt the local economy.
California's prevailing was law was enacted in 1931.
In general, the proponents of prevailing wage legislation wanted
to prevent the government from using its purchasing power to
undermine the wages of its citizens. It was believed that the
government should set an example, by paying the wages prevailing
in a locality for each occupation hired by government
contractors to build public projects. Thus, prevailing wage
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laws are generally meant to ensure that wages commonly paid to
construction workers in a particular region will determine the
minimum wage paid to the same type of workers employed on
publicly funded construction projects.
Most public construction projects contracted for or by the
federal government or the District of Columbia are covered by
the federal prevailing wage law, the Davis-Bacon Act, while 33
states have prevailing wage laws, often referred to as "little
Davis-Bacon Acts," that encompass projects financed by states
and their political subdivisions.
The federal Davis-Bacon Act was enacted by Congress in 1931. The
Act requires workers employed under public construction
contracts of the federal government in excess of $2,000 to be
paid a minimum wage that the United States Department of Labor
determines to be prevailing for corresponding classes of
workers. In addition, sixty separate federal laws currently
specify the payment of Davis- Bacon wages for work prescribed.
The federal government also has two additional prevailing wage
laws - the Walsh-Healy Public Contracts Act of 1935 (which
covers federal contractors in manufacturing and supply
industries), and the O'Hara-McNamara Services Act of 1965 (which
covers service contracts).
The United States Supreme Court has stated the public policy
underlying the Davis-
Bacon Act as one of:
"protecting local wage standards by preventing contractors
from basing their bids on wages lower than those prevailing
in the area . . . �and] giving local labor and the local
contractor a fair opportunity to participate in this
building program." Universities Research Ass'n. v. Coutu
(1981) 450 U.S. 754, 773-774).
General Background on "Public Works" Under California Law
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In general, "public works" is defined to include construction,
alteration, demolition, installation or repair work done under
contract and "paid for in whole or in part out of public funds."
Over a decade ago, there was much administrative and legislative
action over what constituted the term "paid for in whole or in
part out of public funds." This action culminated in the
enactment of SB 975 (Alarc�n), Chapter # 938, Statutes of 2001,
which codified a definition of "paid for in whole or in part out
of public funds" that included certain payments, transfers,
credits, reductions, waivers and performances of work. At the
time, supporters of SB 975 stated that it established a
definition that conformed to several precedential coverage
decisions made by the Department of Industrial Relations (DIR).
These coverage decisions defined payment by land, reimbursement
plans, installation, grants, waiver of fees, and other types of
public subsidy as public funds for purposes of prevailing wage
law. According to the sponsors, SB 975 was intended to remove
ambiguity regarding the definition of public subsidy of
development projects.
SB 975 also exempted certain affordable housing, residential and
private development projects that met certain criteria.
Follow-up legislation, SB 972 (Costa), Chapter # 1048, Statutes
of 2002, was intended to clarify the application of SB 975 and
was the result of extensive discussions between the State
Building and Construction Trades Council (sponsor of SB 975),
affordable housing advocates, and the Davis Administration.
Supporters of SB 972 contended that the original legislation had
unintended consequences for self-help housing and housing
rehabilitation projects. As a result of that compromise, SB 972
exempted from public works requirements the construction or
rehabilitation of privately-owned residential projects that met
certain criteria.
Why It Matters: "Prevailing Wage"
The determination of whether a project is deemed to constitute a
"public work" is important because the Labor Code requires
(except for projects of $1,000 or less) that the "prevailing
wage" to be paid to all workers employed on public works
projects.
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What is "Prevailing?": How The Prevailing Wage is Determined
California uses the "modal rate" in determining prevailing wage
rate for use on public works projects.
The California Labor Code requires the Director of the
Department of Industrial Relations (DIR) to consider the
applicable wage rates established by collective bargaining
agreements and the rates that may have been determined for
federal public works projects. Where the rates do not
constitute the rates actually prevailing in a local area, the
Director is required to consider further data from the labor
organizations and employers or employer associations concerned.
Existing law requires the Director to use the methodology set
forth in Labor Code Section 1773.9 in determining the prevailing
wage rate. That methodology defines the prevailing wage as the
hourly wage rate being paid to a majority of workers in a
particular craft within a given locality. If no single rate is
being paid to a majority of the workers, then the single rate
being paid to the greatest number of workers is the prevailing
rate. This is known as the "modal rate."
The prevailing wage is deemed to include employer payments for
health and welfare, pension, vacation, travel, subsistence pay,
apprenticeship or other training programs, worker protection and
assistance programs or committees, as directed, and
administrative fees, as required for industry advancement and
collective bargaining agreements, and similar purposes.
The Epic Battle Over the "Modal Rate"
The "modal rate" has a long history in California, which
culminated in an epic administrative, legal and legislative
battle in the late 1990s.
The California regulation first implementing the modal rate was
adopted in 1956. However, on five separate occasions between
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1983 and 1990, DIR considered changing the methodology for the
determining the prevailing wage rate to use an "average wage
rate" when no single rate is the majority rate paid to workers.
Each time DIR decided not to move forward with changing the
methodology.
Then, beginning in 1995, DIR attempted to implement regulatory
changes to the process, proposing to eliminate, among other
things, the modal rate and replace it with a weighted average.
In 1996-97, Governor Wilson's proposed budget for DIR requested
an augmentation of $1.26 million and 20 staff positions to
implement a revised methodology. This proposal was rejected by
the Budget Conference Committee.
In 1997, the Legislature passed Assembly Concurrent Resolution
17 (Lockyer). Among other things, ACR 17 declared that the
modal rate was the methodology that had been recognized for the
previous forty years, was the only methodology recognized by
law, and condemned DIR for attempting to implement a regulation
which contradicted the law it was supposed to enforce.
The proposed regulatory changes, and the funding of DIR
activities related to implementation of the revised methodology,
were also subject to litigation. On May 9, 1997, the First
District Court of Appeal held that DIR had exceeded its
authority by spending funds that had been specifically denied by
the Legislature. That same day, a Sacramento Superior Court
judge issued a restraining order in a separate lawsuit seeking
to prevent DIR from implementing its new regulations on the
prevailing wage methodology. Three weeks later, the same court
ruled that the modal rate method of determining prevailing wages
could not be changed without legislative approval.
All of this action culminated with the enactment of SB 16
(Burton) of 1999 which codified the modal rate methodology in
the Labor Code.
ARGUMENTS IN SUPPORT :
This bill is sponsored by the Associated Builders and
Contractors of California.
In support of this bill, the author states the following:
"�This bill] gives the California Division of Labor
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Statistics and Research a means to calculate and determine
more accurate state-mandated construction wage rates
('prevailing wages') within various regions of the state.
It also restores the personal privacy of construction
workers by ending the ability of union-affiliated private
organizations to obtain addresses of individual employees
from payroll records possessed by the government?
?�This bill] would repeal laws signed by Governor Gray
Davis that added costs to prevailing wage that had nothing
to do with employee compensation, created a burdensome
procedure for determining the proper credit taken for
fringe benefit payments, and enshrined the costly and
absurd 'double asterisk' rule into statute that changes
rates in the middle of a project. The bill establishes a
common-sense policy for more accurately calculating
prevailing wage rates by conducting surveys in local labor
markets and determining a weighted average (rather than the
currently used modal rate). The state will no longer need
to obtain union collective bargaining agreements and peruse
each one looking for eligible employer payments to
incorporate into prevailing wage rates. No longer will
prevailing wage rates in urban coastal areas apply to rural
inland areas. Finally, the bill protects the privacy of
workers by restoring a requirement (removed in 2001) that
governments redact employee addresses from certified
payroll records before providing them to union-affiliated
labor-management cooperation committees."
ARGUMENTS IN OPPOSITION :
Writing in opposition to this bill, the State Building and
Construction Trades Council of California states the following:
"Prevailing wage has helped establish and preserve our
nation's middle class by ensuring skilled construction
workers on public works projects earn a fair wage to
provide for themselves and their families, as well as
dignity and respect for their work?
?California's building and constructions trades unions have
fought many legislative, regulatory, and electoral battles
to strengthen and protect our state's prevailing wage law?
?The payment of prevailing wage ensures fair competition by
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leveling the playing field for signatory contractors -
offering the employer and the general public a construction
product at a reduced cost by minimizing workplace injuries
due to a highly skilled and trained workforce, on-time
project delivery, and higher quality construction that
results in decreased maintenance costs after project
completion?
?�S]tates and cities that have abolished or weakened their
prevailing wage laws have experienced a tripling of cost
overruns on public works projects, significant increases in
construction injuries, steep declines in apprenticeship
training, and a depression of local and statewide wages."
Similarly, the California Labor Federation, AFL-CIO states the
following:
"�This bill], among other things, eliminates our prevailing
wage determination methodology. The bill would substitute
an ill-defined, and likely unworkable, averaging
calculation that would require the Director of Industrial
Relations to ignore all information gathered from employers
and labor organizations. In addition, the bill would
strike many protections in current statute that guarantee
prevailing wage levels reflect, for example, bargained
holiday pay and employer contributions to worker safety
programs.
Taken as a whole, the language clearly seeks to lower
prevailing wage levels as much as possible. At a time when
our economy is struggling and businesses are barely
scraping by, it makes no sense to take money out of local
economies."
REGISTERED SUPPORT / OPPOSITION :
Support
Associated Builders and Contractors of California
Opposition
California Labor Federation, AFL-CIO
California Sheet Metal and Air Conditional Contractors' National
Association
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California State Pipe Trades Council
California Teamsters Public Affairs Council
California-Nevada Conference of Operating Engineers
Coalition of California Utility Employees
International Brotherhood of Electrical Workers
International Union of Elevator Constructors
State Building and Construction Trades Council of California
Western States Council of Sheet Metal Workers
Analysis Prepared by : Ben Ebbink / L. & E. / (916) 319-2091