Estimated costs of “prevailing wage” requirement

The Fiscal Services Division of the Legislative Services Agency has released its analysis of the bill that's to be debated tonight in the Iowa House. 

Here's the agency's basic explanation of the bill: House File 333 requires a contractor to pay workers the same hourly wage plus fringe benefits for a public improvement as the contractor would pay workers for a private construction or improvement project. The Bill allows the hourly wage rate to be based on what is normally paid in the area by contractors for similar projects, and to be adjusted on an annual basis by the Iowa Department of Workforce Development (IWD).

Later in the report, the Fiscal Services Division offers an estimate of the costs associated with the bill:

This Bill could potentially affect the salaries paid to construction workers on most public projects. While the exact dollar amount is not known, it could cost the State, local governments, and school districts 10% – 40% more for labor costs on construction projects. This cost range was developed based on the information provided by the following entities: 
    Iowa State Association of Counties         10% – 20% increase in project costs.
    Board of Regents (2007 estimate)           10% increase in project costs.
    Iowa Association of School Boards         10% increase in labor costs.
    Community Colleges                              20% – 36.3% increase in labor costs.
    Department of Transportation                 Covered byDavis-Bacon Act, no estimate provided
    Dept. of Administrative Services             Did not submit an estimate.
    Iowa League of Cities                            Did not submit an estimate

The Fiscal Services Division added the following details about construction contracts and prevailing wage data from other states:

Typically, labor comprises 25% – 40% of construction contracts. If the total project cost was $100,000 and of that amount, labor costs $25,000, and prevailing wage increased the labor costs 20% ($5,000), this would result in an increased contract cost of 5%.

A review of studies in other states indicate a wide variation in estimated labor cost increases, ranging from no effect (Indiana study 1990) to an increase in costs of 20% (Kentucky study 2006). The Congressional Budget Office has estimated that the repeal of the Bacon Daivs Act would save an estimated 1.7% in construction costs.

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About O.Kay Henderson

O. Kay Henderson is the news director of Radio Iowa.