The 15th meeting of the Program Review and Investigations Committee was held on Thursday, December 13, 2001, at 10:00 AM, in Room 131 of the Capitol Annex. Senator Katie Stine, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Katie Stine, Chair; Representative Gippy Graham, Co-Chair; Senators Charlie Borders, Brett Guthrie, Ernie Harris, Paul Herron Jr., Vernie McGaha, Dan Seum, and Ed Worley; Representatives Adrian Arnold, Sheldon Baugh, Dwight Butler, Jack Coleman, Charlie Hoffman, and Dottie Sims.
Guests: Larry Roberts, Director of the Division of Employment Standards, Apprenticeship and Training, Kentucky Labor Cabinet and Kembra Taylor, General Counsel, Kentucky Labor Cabinet.
LRC Staff: Ginny Wilson, Ph.D., Committee Staff Administrator, Lowell Atchley, Judy Fritz, Greg Hager, Ph.D., Tom Hewlett, Alice Hobson, Joseph Hood, Margaret Hurst, CPA, Dan Jacovitch, Cindy Upton, CPA, Mike Clark, Ph.D. and Susan Spoonamore, Committee Assistant.
Minutes of the November 8, 2001 meeting were approved by voice vote upon motion made by Rep. Baugh and seconded by Sen. Guthrie.
Mike Clark, Ph.D., LRC Staff Economist, presented an Analysis of Kentucky’s Prevailing Wage Laws and Procedures. Dr. Clark stated that Kentucky’s prevailing wage law requires that construction workers on state government, local government and school construction projects of more than $250,000 be paid at least the prevailing wage for the area in which the project is being built. Dr. Clark stated that evidence indicates the current prevailing wages set by the Kentucky Labor Cabinet and the United States Department of Labor, do not yield prevailing wages which are representative of local wages. He also stated that the Cabinet appears to be administering prevailing wage laws as directed by statute; however, there are some changes to the process that could improve accuracy, although most of the changes needed for substantial improvements would have to come in the form of statutory changes. Dr. Clark also stated that while there was evidence that the prevailing wage laws increase the initial costs of construction, it is unclear whether the requirements result in higher quality construction. In summary, Dr. Clark stated that the recommendations contained in the report suggested changes intended to yield prevailing wages that are more representative of local wages. He also noted that the majority of the recommendations contained in the report would require statutory changes from the General Assembly. (A copy of the report and recommendations can be found in the LRC Library file.)
Greg Hager, Ph.D., of Program Review staff, summarized the results of opinion surveys that were distributed to six groups in Kentucky. He said that contractors with unionized employees and representatives of union locals had positive opinions about prevailing wages, and that representatives from cities, school districts, municipal utilities and non-union contractors expressed negative opinions.
Sen. Stine asked if the larger contractors tended to be unionized while the smaller contractors were not. Dr. Hager stated that the information obtained from the survey showed that union firms were bigger, both in terms of the number of employees and the dollar value of construction.
Sen. Stine asked if non-union contractors were aware that use of the majority wage for establishing a prevailing wage put them at a competitive disadvantage. Dr. Hager stated that most of the comments in the survey indicated that they were not aware of the process.
Sen. Stine asked what the Labor Cabinet could do to tighten up the methodology. Dr. Clark stated that an experienced auditor would be better able to answer that question since staff did not have the technical expertise to make a specific recommendation. The federal report recommends that random sampling should not be used for audits but instead, selection of judgmental samples that would have a major affect on the prevailing wage would be more efficient.
Sen. Stine asked how large a sample would be required in order to make generalizations. Dr. Clark stated that staff had aimed for approximately 100 projects in each of the three categories, which provided a sufficient sample size.
Rep. Coleman asked if 10% of the determinations were made using a weighted average versus using a majority wage. Dr. Clark stated that it was likely that more than 10% used a weighted average. The 10% simply reflected determinations that used wages from both union and non-union workers to calculate a weighted average.
Sen. Borders stated that the report addressed two areas of concern for him. One was the fact that outside people were being brought in to work instead of using local laborers, and there seemed to be a problem with the way wages were being determined.
Sen. Guthrie asked if the wage differences were statewide and if the wage difference would vary across the state. Dr. Clark stated that was correct.
Sen. Seum asked if Kentucky would lose federal dollars if it stopped using the federal prevailing wage calculation. Dr. Clark stated that federal prevailing wages would have to be paid on any federally funded projects. Any state or local project funded by state and local dollars are not locked into the federal prevailing wage.
Sen. Seum asked if there would be better attendance and participation from the contractors if the prevailing wage determinations hearings were held in the light of day. Dr. Clark stated that the hearings were normally conducted during business hours. He said the Cabinet is required by law to post a notice in the newspaper with the largest circulation in the area, and that the Cabinet also maintains a schedule on its website along with a mailing list of interested parties. He stated that there is a group of contractors who are just not aware of the process.
Sen. Seum asked if there were any states using only one method for determining prevailing wages. He also asked if using both the federal and state prevailing wage causes confusion. Dr. Clark stated that most states use their own prevailing wages. He also said that, in his opinion, using both the federal and state prevailing wages did not cause confusion. Since the federal prevailing wage does not cover all parts of Kentucky, some determinations have to be made by the state.
Sen. McGaha asked if the Transportation Cabinet mandated all prevailing wages on all projects, including projects under $250,000. Dr. Clark stated that staff had no knowledge of the procedures that the Cabinet used for projects under $250,000.
Sen. McGaha asked if staff was able to find out why the Cabinet stopped using surveys to collect wage data. Dr. Clark stated that he was not aware of why the surveys were stopped in 1996, but the Cabinet had indicated that they were working on other ways to collect wage data.
Sen. Stine asked if staff was able to find out if the process was discouraging the small business person from competing or if the prevailing wage process was promoting racial discrimination. Dr. Clark stated that several studies had been done on both sides of the issue, and in reading the various studies, he was not convinced that there was enough accurate information as to whether or not minority businesses or small business were specifically adversely affected. Because smaller businesses were paying lower wages, it made them less able to compete for state jobs and to that extent, then they probably were at a disadvantage.
Rep. Hoffman asked if staff was able to determine why there was an absence of non-union private contractors at the prevailing wage hearings, and if staff had any recommendations to remedy the absence of the private and non-union contractors at the hearings. Dr. Clark said that most common answer was that they were not aware of a meeting or that they did not have time to participate in the process. Lack of information was a major problem.
Larry Roberts, the Director of the Division of Employment Standards, Apprenticeship and Training with the Kentucky Labor Cabinet, stated that the Cabinet was concerned about the lack of participation in the process, and would consider the recommendations contained in the report. He also discussed the issue of adopting either the Bacon-Davis wages or the wages determined from a hearing conducted by the Kentucky Labor Cabinet. Mr. Roberts stated that because the U.S. Department of Labor did not update wage information on a regular basis, the sole use of Bacon-Davis wages would create problems in some areas of the state. He stated that 70% of the evidence obtained from 18 wage determination hearings was from non-Kentucky public works construction.
Sen. Stine asked if the Cabinet would do follow-up phone calls to find out why there was a lack of participation in the meetings. Mr. Roberts stated that the Cabinet would follow the recommendation to do follow-up phone calls.
Sen. Stine asked if the Cabinet had considered following up on the information that was provided by the contractors in the form of an affidavit. Mr. Roberts stated the Cabinet would consider verifying the information reported on an affidavit submitted by contractors.
Sen. Guthrie asked if the wage data presented at the hearings became a matter of public record. He stated that there should be a way to bid projects without letting the competitors know what the wages are. Mr. Roberts stated that it was true that a competing contractor could obtain the data, but he did not think it was a real issue regarding non-participation. Sen. Guthrie stated that he disagreed with that assessment.
Sen. McGaha asked if the Cabinet verified the information received from the 39 areas that use Davis-Bacon wages. Mr. Roberts stated that the U.S. Department of Labor validates that information, not the Kentucky Labor Cabinet.
Sen. McGaha asked if the Cabinet, prior to 1996, collected wage data by survey and if so, why were the surveys discontinued. Mr. Roberts stated that the Cabinet had limited staff with which to conduct and process survey information. Furthermore, the Cabinet interpreted the statute providing for wage hearings as sufficient to meet the obligations under the statute.
Sen. McGaha asked if the statute prevented the Cabinet from securing information in another manner. Mr. Roberts stated that it did not.
Sen. McGaha asked staff how many surveys had been mailed out. Mr. Hager stated that about eight thousand questionnaires were sent to contractors, local and state unions, cities of the fourth class, all counties, all municipal utilities and all school districts. He said that staff did one survey across the entire state, but to get a larger representative sample for each labor area, it would require a much larger sample than the one in the study.
Mr. Roberts stated the Cabinet received some responses by mail or participation in hearings.
Sen. McGaha asked if the Cabinet had plans to re-evaluate the use of Davis-Bacon wages in the 39 counties. Mr. Roberts stated that the Cabinet would consider any request to re-analyze a particular locality.
Sen. McGaha asked if the statute required advertisement of the hearings in the newspaper with the largest circulation. Mr. Roberts stated that it was in the statute.
Rep. Baugh asked if the Cabinet was surprised by the fact that the report showed prevailing wages did raise the costs of construction projects. Mr. Roberts stated that the opinion did not surprise the Cabinet.
Rep. Baugh asked Mr. Roberts for a response in regard to the report’s finding that the use of prevailing wages decreased the number of bidders for projects, it increased costs, and it did not increase quality. Mr. Roberts stated that he was not prepared to respond to that statement. The Cabinet would need more information as to how the Program Review staff formed its conclusions.
Sen. Worley stated that the study’s intent was to determine if prevailing wage increased the cost of construction, and the answer was clearly that it does. He stated that the other issue was whether or not the quality of workmanship was better if prevailing wage was used on a project which was, in his opinion, an absurd position. Sen. Worley compared the use of prevailing wage on the construction of a building for a county ambulance service versus the construction of a house for a private individual, using the same workers for both projects. The electrician who did the work for the private individual was paid $12.50 an hour, while the same electrician was paid $27.76 an hour when working at the prevailing wage rate on the new county ambulance service building. In another example, a sheet metal worker was paid $12.00 an hour for a job in Madison County and $32.00 an hour for the same exact job in Fayette County. Sen. Worley noted that there were private contractors who could not attend the hearings in the daytime hours because many businesses were family-run businesses trying to make a living, and they did not have union stewards to attend the meetings on their behalf. He also stated that, from a general contractor’s view, the bonding requirements for a million dollar project prevented the participation of general contractors. Pursuant to the recommendation contained in the report proposing the use of area development districts instead of county to county basis, he said that a system needed to be developed where prevailing wages were more fairly representative of local wages.
Upon motion made by Sen. McGaha, and seconded by Rep. Baugh, the Analysis of Kentucky’s Prevailing Laws and Procedures study was adopted by roll call vote, with two members voting “nay”.
Upon motion made by Sen. Harris, and seconded by Sen. Borders, the Impact Plus – Design of Medicaid-Funded Program for Children with Severe Emotional Disturbance Results in Rapidly Growing Expenditures and Difficult Policy Choices study was adopted by unanimous roll call vote.
Sen. Stine told the Committee that she was not sure if the Committee would meet on the regular meeting date in January. If not, the update being prepared by Larry Lynch regarding the Economic Effects on Kentucky of Ohio River Casinos would be distributed to members.
There being no further business, the meeting was adjourned.