Before Cutting Services or Delaying Tax Cuts, State Should Save $110 Million by Repealing Prevailing Wage Law, Analyst Says

For Immediate Release

MIDLAND-Before Michigan lawmakers delay tax cuts or cut services in order to make up a $382 million budget shortfall next year, they should repeal a law that unnecessarily costs the state an estimated $110 million every year: Michigan's prevailing wage law. The state could thereby wipe out nearly a third of its problem without cutting programs or increasing taxes, according to Robert P. Hunter, director of labor policy for the Mackinac Center for Public Policy in Midland.

"Postponing already programmed business and income tax cuts would send exactly the wrong message to job providers just when it looks like the general economy may start to pick up," said Hunter. "Instead, we should allow state-funded construction projects to be awarded the same way other contracts are-on the basis of who can deliver the best quality for the best price."

Instead, Michigan's prevailing wage law prohibits awarding contracts to the lowest bidder unless the contractor pays "prevailing wages," which are based on union pay scales. These wage rates are usually well above the market rate, and wind up increasing the cost of government contracting and reducing the number of new jobs created in the construction industry.

Mackinac Center policy analysts examined state budgets and House Fiscal Agency reports, and estimated that approximately $1.1 billion-worth of state construction would be affected by a repeal of Michigan's prevailing wage law. This is a conservative estimate, since it does not include local government or school construction.

A 1999 Mackinac Center study estimated that if the state prevailing wage mandate were lifted, the savings on non-federal construction projects would be approximately 10 percent. Applying this calculation to the $1.1 billion in costs affected by the prevailing wage law, Center analysts concluded Michigan could save somewhere in the neighborhood of $110 million each year.

"Every taxpayer in the state pays excessive taxes for this law," Hunter said. "While we are certainly not opposed to high but competitive wages in the construction industry, the state has an obligation to its taxpayers to get the best deal it can on any goods or services it buys, and that includes construction."

Hunter says that nonunion construction firms are roughly equal to unionized firms in safety, speed and quality, and they have an advantage in labor costs. By arbitrarily setting wages at the union rate, the state takes away this advantage, and at the same time denies itself the ability to get the best deal whenever it solicits bids for construction work. Naturally, these costs get passed along to the taxpayers. By increasing the cost of construction labor, Michigan's prevailing wage law diminishes the number and quality of new schools and other buildings that can be built, the number of jobs in the construction industry, and hinders nonunion employers competing for government contracts.

"Especially in the midst of a budget crisis, there is every good reason to discontinue a policy which hurts nonunion workers and taxpayers," Hunter said.