Program Review and Investigations Committee


Minutes of the<MeetNo1> 11th Meeting

of the 2001 Interim


<MeetMDY1> August 30, 2001


The<MeetNo2> 11th meeting of the Program Review and Investigations Committee was held on<Day> Thursday,<MeetMDY2> August 30, 2001 at<MeetTime> 10:00 AM, in<Room> Room 131 of the Capitol Annex. Senator Katie Stine, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Katie Stine, Chair; Representative Gippy Graham, Co-Chair; Senators Charlie Borders, Brett Guthrie, Ernie Harris, Paul Herron Jr, Vernie McGaha, and Dan Seum; Representatives Adrian Arnold, Sheldon Baugh, Dwight Butler, Jack Coleman, Charlie Hoffman, Ruth Ann Palumbo, and Dottie Sims.


Guests:  Larry Roberts, Director of the Division of Employment Standards, Apprenticeship and Training, Labor Cabinet; Kembra Taylor, General Counsel, Labor Cabinet; Charles E. McCoy, State Director, Kentucky State Building and Construction Trades Council, AFL-CIO; Philip Anderson, Executive Director, Associated Builders and Contractors of Kentuckiana, Inc.; Larry Hay, Associated Builders and Contractors of Kentuckiana, Inc.; Dave Larkins, Associated Builders and Contractors of Kentuckiana, Inc.; Paul Hitter Jr. and David E. Miller on behalf of The Northern Kentucky Chamber of Commerce and Associated General Contractors of Kentucky; Joe Ewalt, Kentucky League of Cities, David Sandidge, Assistant General Manger for the Frankfort Plant Board, and Jerry Deaton, Municipal Electric Power Association of Kentucky.


LRC Staff:  Ginny Wilson, Ph.D., Committee Staff Administrator, Lowell Atchley, Judy Fritz, Greg Hager, Ph.D., Joseph Hood, Margaret Hurst, Susan Spoonamore, Committee Assistant, and Michael Clark, Ph.D.,  LRC Staff Economists Office, Jerry Bailey, Deputy Director, LRC Budget Review Office.


Minutes of the July 12, 2001 meeting were approved by voice vote upon a motion made by Rep. Baugh and seconded by Rep. Arnold.


Sen. Stine introduced Larry Roberts, Director of the Division of Employment Standards, Apprenticeship and Training, Kentucky Labor Cabinet and Kembra Taylor, General Counsel, Kentucky Labor Cabinet.


Sen. Stine asked the Cabinet to clarify how various prevailing wages were established, and how diversity was brought into the hearing process. Mr. Roberts provided the following description. After notice had been posted, via advertisements and letters to interested parties, hearings were conducted at 20 localities. Individuals were sworn in regarding their testimony and any evidence they submitted. At the hearing, the only document that can be submitted are the wage documents. Wage evidence can be submitted up to thirty days after the conclusion of the hearing. The wage evidence has to be on a document that is certified, reflecting the specific projects, the specific classification of workers and the number of workers that was engaged on that particular project for consideration. After thirty days of the hearing,  the evidence is considered and weighed from the standpoint as to what evidence can be used, what evidence applies for that particular locality, whether it was on a project that was comparable, whether it was  on a project that cost at least $250,000, and whether it was a project that was constructed within the borders of the Commonwealth. Once that information is analyzed, and if there is a majority at a particular rate for each classification, then that rate would become the prevailing wage for that classification for that particular locality. Mr. Roberts said that, as to diversity, notice is sent to interested parties, but you cannot force individuals to submit evidence for consideration.


Sen. Borders asked how can it be that a little county such as Robertson County, pays higher prevailing wage rates than Fayette County. Mr. Roberts stated that in Fayette County, there is more participation by merit shops who participate and submit evidence. The law states that evidence gathered from surrounding localities must be taken into consideration.


Rep. Baugh asked if the groups and counties were based on senatorial districts, and how are averages figured. He also asked if wages are considered from the contractors within a specific senatorial district or those that work in a specific senatorial district, or if any contractor within the state is permitted to submit evidence at a hearing. Mr. Roberts stated that there are 19 senatorial districts, and that there are 39 separate counties where the Davis-Bacon rates apply. He also stated that, at least two or more observations are needed to make wage determinations, and that the only evidence that can be considered has to have occurred in that locality. If insufficient evidence in the actual locality is not supplied, then evidence from a neighboring locality can be  presented for consideration.


Rep. Baugh asked if evidence could be used from other counties across the state if the evidence could not be obtained from the local locality or neighboring locality. Mr. Roberts stated that evidence could not be used from other counties unless the counties were contiguous.


Sen. Stine asked for the definition of “majority”. Mr. Roberts stated that in order to have a  “majority” it had to be 50% + 1. If not, then it was an average of the rates.


Sen. McGaha stated that it appeared that the evidence was one-sided. He asked if there was a reason why other wage evidence was not submitted. Mr. Roberts stated that he did not have an answer. The Cabinet sends out a letter of invitation and it is up to the invitee to appear. When the Cabinet conducts an investigation, certain wage data that is submitted is confidential by the statute. In a wage determination process the wage data is subject to open records.


Rep. Hoffman asked if there was a penalty for giving false testimony at a wage determination hearing. He also asked if the Cabinet had ever prosecuted anyone for giving false testimony. Ms. Taylor stated that, at the bottom of the Contractor’s Survey form - the form used to send evidence of construction work  done for prevailing wage hearings- it clearly states that  KRS 423.100 makes it illegal to make a material false written statement with the intent to mislead a public official in the performance of his or her duty. Ms. Taylor also stated that she was not aware of any prosecution originated by the Labor Cabinet with respect to false information.


Sen. Stine asked if federal wages had been re-examined in the Davis Bacon areas since 1996, and if not, why. Mr. Roberts stated that he had not received any specific request to do that, except for Sen. Borders’ area. Someone who is in a position of public authority or an interested party can make a request for review.


Sen. Seum asked what the legal ramifications were for job splitting, contract splitting, or project splitting in order to avoid paying the prevailing wage. He also asked if it had happened, and if so, was any one prosecuted. Ms. Taylor stated that the statute is very clear that job splitting cannot be used to avoid paying the prevailing wage. The Cabinet was not aware of any current or past litigation on this particular issue.


Sen. Stine introduced Charles McCoy, State Director, Kentucky State Building and Construction Trades Council, AFL-CIO. Mr. McCoy told the Committee that the Council supports the prevailing wage statutes because the Council feels that, without a prevailing wage law, the wages on public construction projects would be lowered and a severe economic hardship would be placed on all construction workers in the state. He also stated that, without prevailing wage laws, the level and quality of training for young people entering the construction work force would be reduced and the risk of serious injury or death to construction workers who work on public construction projects would increase (a copy of Mr. McCoy’s presentation can be found in its entirety in the LRC Library file).


Rep. Coleman asked Mr. McCoy to define “contractors”. Mr. McCoy said he is referring to anyone that builds construction projects.


Sen. Guthrie asked if there was a more recent report other than the 1982 report, showing recent figures of injuries. Mr. McCoy said he felt that the information would be available through the construction companies but, the injuries sustained on a prevailing wage job and/or private job would have to be separated out.


Sen. Guthrie asked if a contractor could be awarded a contract based on a stable workforce and efficiency as opposed to paying the lower wage. Mr. McCoy stated that is the way it is being done now. A problem exists since the government is the biggest user of construction labor. The government can use its power to undercut the wage rate from what has been established by bringing in a workforce from Mexico or somewhere else.


Sen. Stine asked if the increased technology being included in the construction projects could have had some effect upon the increase in the per square foot figure. Mr. McCoy stated that there are a lot of things that could have an effect on the increased cost per square foot. He said that prevailing wage is not the culprit because labor is becoming a declining portion of construction costs.


Sen. Harris stated that Grant County, which was in the process of building a school in 1996, got caught in the timing of the prevailing wage legislation. The Superintendent of the Grant County School System says that the cost of the school went from about $10.5 million to $13.0 million. Mr. McCoy stated that he remembered meeting with that particular Superintendent who thought the cost was going to increase, but in fact, when the bid came in, it was less than what the engineer actually estimated.


Sen. Seum asked if labor costs had increased or decreased compared to ten years ago. Mr. McCoy stated that the labor costs have decreased due to technology and new equipment that offsets the costs of labor.


Sen. McGaha asked if it was possible to get an average prevailing wage from each individual county, or whether this information can be acquired from Workforce Development Cabinet. He also asked if the cost of labor could rise and still be a smaller percentage of the total cost. Mr. McCoy stated that he was not aware of any state government office having that data. He also stated that construction costs were definitely going up and labor was going down.


Next, Sen. Stine introduced Philip Anderson, Executive Director of the Associated Builders and Contractors (ABC) of Kentuckiana, who said he would speak against the prevailing wage law. Mr. Anderson stated that it was the position of ABC that the prevailing wage law increases the cost burden of public construction. He also stated that the process is antiquated, skewed, not contractor-friendly, and tends to discourage smaller, local contractors from participating (a copy of Mr. Anderson’s presentation can be found in its entirety in the LRC Library file).


Larry Hay, a member of the Associated Builders and Contractors (ABC) of Kentuckiana, stated that his company, Denham-Blythe, had been in business for twenty-five years and, because of the prevailing wage law, his company had not bid on a state-funded project for several years. He also stated that it was his opinion that the wage rates and the work rules were based on union wages, and that the system for wage determination was fraudulent. He stated that, in his opinion, prevailing wages were wrong for the contractors and the taxpayers of Kentucky (a copy of Mr. Hays’ presentation can be found in its entirety in the LRC Library file).


David Larkins, a member of the Associated Builders and Contractors (ABC) Kentuckiana and CEO of Endeavor Electric, stated that he did not understand why the government was involved in the construction business. The construction business should be conducted as a free enterprise, and the true prevailing wage determined by supply and demand (a copy of Mr. Larkins’ presentation can be found in its entirety in the LRC Library file).


Paul Hitter on behalf of the Northern Kentucky Chamber of Commerce, and David E. Miller on behalf of the Associated General Contractors of Kentucky, stated that the prevailing wage statutes are not in the best interest of the taxpayers of Kentucky because taxpayers will pay more for public works, many workers will lose growth opportunities as a result of employers losing flexibility in work assignment and compensation; and because minority and women-owned businesses are thereby discouraged from participation in publicly funded projects.


Sen. Stine asked if there was any research or materials which discussed employee satisfaction or productively level from employees who are multi-tasking. Mr. Miller stated that he did not have any research or materials addressing employee satisfaction or multi-tasking.


Rep. Hoffman asked Mr. Hay what the reasons were behind his statement regarding a “fraudulent wage scale”. Mr. Hay stated that the wage scales, which come out of the wage determination hearings, are not the real prevailing wages.


Mr. Larkins stated that one of the main reasons that contractors will not participate in a survey, is that they have to lay out on the table what each individual is getting paid, which violates the individual’s privacy. Then all that information goes with the unions’ information and becomes public information at that point. He said another reason that contractors do not want to participate is because of union intimidation against contractors.


Rep. Coleman asked if they felt like the system was a “closed system” which was not fair and equal from an independent contractors standpoint. Mr. Hay stated that the very nature of prevailing wage was exclusionary.


Rep. Arnold asked if keeping track of tasks that an individual may perform on the job is a problem. Mr. Hitter stated that contractors are required to keep track of each individual task that each individual performs. All tasks had to be documented and compensated according to the prevailing wage rate.


Joe Ewalt, representing the Kentucky League of Cities, stated that it was the position of the Kentucky League of Cities that the prevailing wage rate had negative impacts, and that the $250,000 threshold was a big concern of the League of Cities members. Mr. Ewalt also stated that discussions with contractors and architects indicated that the impact of prevailing wage fell most heavily on small communities with projects under $4 million or $5 million. Local governments feel that smaller commercial jobs can be handled by hometown contractors. He also stated that a recent survey conducted by the Kentucky League of Cities indicated that prevailing wage mandates increased project costs from 4 to 18 percent. He also stated that earlier studies showed that the prevailing wage mandates significantly increased school construction expenses across the state, in most cases by 15 to 25 percent. The Kentucky League of Cities urged the General Assembly to allow local governments in the Commonwealth to continue their time-honored practice of paying true local labor market rates for public infrastructure projects.


Jerry Deaton, Executive Director, Municipal Electric Power Association of Kentucky, explained that, in 1999, the Frankfort Plant Board had planned a large fiber optics/coaxle cable construction project. The Board’s out-of-state consultants developed and solicited bids for the project and the project was awarded to the lowest bidder. The contract was executed and work had already begun when the Board discovered that the prevailing wage rates had not been considered as part of the bid. In order to insure compliance, the contractor adjusted his unit construction rates to comply with Kentucky’s Prevailing Wages. The adjustment resulted in a $1.33 million, or 43% increase, in the contract amount. David Sandidge, Assistant General Manager for the Frankfort Plant Board, stated that the $1.33 million dollar increase exceeded their budget and they were forced to get out of the contract.


Rep. Baugh asked what the final re-negotiated bid was once the contract was terminated. Mr. Sandidge stated that the Board saved at least $1.3 million or more.


Sen. Seum stated that the Follow-up Memorandum from the Crime Victims Compensation Board did not address his concerns as to why the Board was sitting on $2.5 million dollars and why that money was not spent for victims of crime and why there is now a carry over fund of another $1.1 million.


Sen. Stine stated that as Chair of the Committee, she would send a letter to the Board asking for a more comprehensive response.


With no further business, the meeting adjourned at 12:30 p.m.