The History of Prevailing Wage

HISTORY AND ECONOMIC BACKGROUND OF PREVAILING WAGE ISSUE

STATUTORY BASIS: Sections 1720 - 1780 of the California Labor Code requires that workers on every state, local, and special district government public works project with a contract cost of more than $1,000 be paid the prevailing rate of per diem wages for work of similar character in the locality of the public works project. To determine the prevailing rate, the Director of the State Department of Industrial Relations is required to ascertain rates established by collective bargaining agreements and rates determined for federal public works. If these rates are not those actually prevailing in the locality, DIR must consider further data from unions, employers and employer associations. DIR regulation (California Administrative Code, Sec. 16100) says that the prevailing rate shall be the single rate paid the greatest number of workers in a particular craft in a locality. This is called the modal rate. This regulation was adopted in 1956. The prevailing wage law was first enacted in California in 1931 -- 65 years ago -- and the provision requiring wages to be based on collectively bargained rates was enacted 1953 -- 43 years ago.

Five times between 1983 and 1990, DIR considered changing the methodology for determining the prevailing wage to use an average wage rate when no single rate is the majority rate paid to workers.

In the '80s, the Department backed off every time after considering testimony from Unions, employers and the public. In 1998, Ron Rinaldi, DIR Director under republican Gov. George Deukmejian, issued a memo stating that the modal rate method "appears to be the most equitable and adequate measure of existing rates."

In 1993, several senate and assembly republicans, led by Assemblyman Jan Goldsmith, the former mayor of Poway in San Diego County, introduced bills to either repeal or drastically change prevailing wage requirements. These bills were all killed in the Policy Committees of their respective houses where democrats still held a majority.

Goldsmith wanted a prevailing wage exemption ordinance for the City of Poway similar to the exemption Pete Wilson obtained for the city of San Diego when he was mayor there.

In November 1994, republicans won a majority in the assembly for the first time since 1970. But, Willie Brown managed to retain the Speakership and Committee Chairmanships for several months. Democrats still controlled the Senate.

Between January and April 1995, 10 new bills to gut prevailing wages were introduced by republican legislators. For the first time, the Wilson administration supported changes to prevailing wages with a recommendation in the governor's budget.

The Wilson administration backed up its recommendation by sponsoring AB 138 by Goldsmith to change the modal rate determination method to a weighted average, allow local governments to opt out of requiring prevailing wages on their projects, and repeal requirements for collectively bargained predetermined wage changes during the life of a project (double asterisk).

AB 138 and all the other republican-introduced bills were killed in policy committees early in the session when democrats still maintained their shaky control.

At that point, however, we in the building trades knew we were in for a fight and we knew we had to inform our own membership, legislators and the general public as to why the prevailing wage mattered.

At Bob Balgenorth's suggestion at the SBCTC Executive Board meeting of March 22, 1995, the E-Board voted to assess an additional 1/4 of a cent per hour for each working member for the next four months to pay for the cost of producing a prevailing wage video.

The video would showcase the benefits of prevailing wages. Among those benefits are professionally-built projects by workers receiving decent wages, health insurance and retirement plans.

The video also would focus on Utah, which had repealed its prevailing wage law and encountered problems in the construction market and the general economy as a result.

Bob Balgenorth contacted Dr. Peter Philips, who had just issued his February 1995 working paper entitled Losing Ground: Lessons from the Repeal of None "Little Davis-Bacon" Acts.

We were aware, however, that it would take more than a good video to reinforce our position on the prevailing wage. We also knew that our position on the prevailing wage was in the best interests of not only our membership, but also in the best interest of Government and the economy in general. But we needed to be able to back up our position with facts that were California-specific.

Dr. Philips had found that the consequences of repeal in Utah and eight other states were considerable:

1) Construction workers' wages fell.
2) Consequently, the State lost substantial income and state tax revenues.
3) Construction workers bailed out of the State and there was a shift to a less-skilled construction labor force.
4) Cost overruns on state road construction tripled in the decade following repeal, partially due to the diminished skill of its labor force.
5) Construction training dropped by 40 percent in the nine repeal states.
6) Occupational injuries in construction rose by 15 percent in the repeal states.

At that point, the SBCTC commissioned further studies, most of which became available about a year later in the spring of 1996.

Dr. Jeffrey Peterson, a postdoctoral fellow from the School of Public Health at UC Berkeley produced a paper entitled The Effects for California Construction Workers from Changing the Method of Calculating Prevailing Fringe Benefits.

Dr. Michael Reich of the Institute of Industrial Relations at UC Berkeley did a paper on prevailing wage laws and the California economy.

On a broader scale not specific to California, Dr. Philips issued the results of a multivariate regression analysis of construction workers incomes with a focus on the implementation of prevailing wage policies.

Mark Prus, an economist with the State University of New York in Cortland, issued a paper on the effect of state prevailing wage laws on total construction costs.

Cihan Bilgensoy of the Department of Economics at the University of Utah, reported on apprenticeship training and prevailing wage laws.

Dr. Norman Waitzman, also of the Department of Economics at the University of Utah, produced a working paper entitled Worker Beware: The Relationship Between the Strength of State Prevailing Wage Laws and Injuries in Construction.

In the meantime, as the storm clouds gathered in April and May 1995, the DIR Director, Lloyd "Chip" Aubry, told building trades and contractor associations that he would start regulatory procedures to adopt weighted average regulations unless "prevailing wage reform legislation" was enacted.

On June 1, 1995, the SBCTC Executive Board voted to form a committee to meet with contractor representatives to try to agree on proposed legislation to reform the prevailing wage law. The Executive Board would have to sign off on any agreement prior to obtaining a sponsor for any legislation.

On June 26, 1995, the E-Board approved a motion to attempt to get a consensus from employer associations and the DIR on a plan for prevailing wage reform.

Informal discussions with Aubry on his definition of reform were fruitless. He declared that Assembly republicans were the ones the building trades must negotiate with.

Aubry continued to threaten regulatory change in his speeches to contractor associations throughout the summer of 1995. The associations became frightened that regulatory changes would lead to prevailing wage rates much lower than the collectively bargained rates they are signatory to, thus putting them at a competitive disadvantage with non-union contractors.

The upshot was that the associations began putting pressure on the building trades unions to start negotiations on prevailing wage legislation. Negotiations by a labor/management coalition with Goldsmith and Aubry proceeded throughout the summer of 1995.

Finally, in September of 1995, we thought we had a deal.

1) For prevailing wages there would be a threshold of $100,000 for new construction and $15,000 for remodel and maintenance work.
2) A 30 percent weighted average requirement, meaning that if there is no single rate paid at least 30 percent of the workers, then the rate would be based on an average of wages for workers in a particular craft.
3) No changes to double asterisk.
4) A three-year moratorium on prevailing wage legislation.

Goldsmith took the proposal to his republican caucus and they agreed to everything but the moratorium. The next day, Aubry reneged on the deal, saying he couldn't agree to a provision requiring surveys based on public and private construction work despite the fact that this had long been the practice of the Department and had always been part of the building trades' stated position.

Aubry said DIR would start surveying only private work.

The legislative session ended in September with 18 employer associations and building trades unions jointly writing the Governor requesting that he not initiate any regulatory action until the administration, legislative republicans and the labor/management coalition had an opportunity to negotiate and enact legislation at the beginning of the 1996 session.

On October 12, 1995, the Governor failed to respond to our request and Aubrey published a notice to issue proposed regulations to change the method of determining the prevailing wage on October 27.

The proposed regulations called for a 50 percent weighted average and repeal of double asterisk predetermined project wage rates. Hearings were scheduled for Nov. 30 and Dec. 1 in San Francisco and Dec. 11 and 12 in Los Angeles.

On Nov. 7, 1995, the E-Board voted to hire Nelson-Lucas Communications in an amount not to exceed $30,000 to handle the public relations on prevailing wage hearings through Dec. 12, 1995.

Also on Nov. 7, 1995, the E-board approved a motion to secure the services of Altshuler, Berzon, Nussbaum, Berzon & Rubin to assist in the prevailing wage fight.

On Nov. 28, 1995, the Superior Court in San Francisco issued a temporary restraining order to halt DIR hearings on the basis of a suit filed by the State Building Trades Council, the City of Oakland, Alameda County and others.

The suit alleged that DIR failed to meet requirements of the Administrative Procedures Act that an agency assess the economic impact of a proposed regulation on individuals, businesses and the competitiveness of California businesses.

On Nov. 30, 1995, a rally organized by the San Francisco Building Trades Council was held to protest the Wilson administration's prevailing wage policy.

Dec. 27, 1995 -- Judge William Cahill of the SF Superior Court issued a preliminary injunction marking the first time a court has stopped a state agency at the beginning of a regulatory process for procedural deficiencies. The court found that DIR had failed to make required assessments and studies of the economic impacts that the proposed regulations would have on workers, contractors, California businesses and state and local governments. The department then had to make those economic assessments prior to restarting the regulatory process on the proposed regulations.

The same day that Judge Cahill issued the injunction, the Wilson administration charged ahead by issuing notices of corrective changes in its regulations.

On Jan. 10, 1996, the E-Board approved the organizing of prevailing wage rallies in Sacramento on Valentine's Day, Feb. 14, and in Los Angeles on Feb. 26.

On Valentine's Day 1996, some 15,000 construction workers from all over California marched to the steps of the Capitol in Sacramento in the biggest Capitol rally since the '60s to protest the Wilson administration's prevailing wage action.

The Governor charged ahead, accusing the construction unions of scare tactics when we warned of the pay cuts building trades workers would suffer if the regulations took effect.

On Feb. 20, 1996, DIR held a public hearing in San Francisco on its proposed modal rate regulation, and on Feb. 22, another public hearing was held in San Francisco on the proposed regulation to abolish double asterisk.

On Feb. 26, when DIR held a hearing in Los Angeles on modifications to the proposed regulations, more than 25,000 construction workers, mobilized by the State Construction Trades Council, turned out in downtown Los Angeles and paralyzed traffic.

On Feb. 27, 1996, DIR continued public hearings in Los Angeles on its proposed regulation to abolish double asterisk.

On June 1, 1996, the department re-issued its proposed regulations, in an attempt to clarify how wage and benefit rates would be determined under a new weighted average system that would replace the modal rate method, and gave interested parties until June 17 to comment on them. Very little was heard from the department throughout the summer of 1996, as the construction union/employer association coalition attempted to bring the DIR and the governor to the negotiating table.

On July 8, 1996, the legislature sent a $63 billion state budget to the Governor. At the request of the State Building Trades Council, the legislature had removed the DIR's request for $1.3 million for prevailing wage surveys.

A compromise bill, AB 2281, made its way through the legislature, but without agreement from the Wilson administration, the bill was not moved as the 1996 session ended in September.

On Nov. 15, 1996, the Department of Industrial Relations quietly submitted its modified prevailing wage regulations to the Office of Administrative Law (OAL) for legal review If OAL found no problems by January 2, 1997, the new regulations would go into effect.

Those new regulations say, basically, that if fewer than a 50 percent plus one majority of workers in a particular craft or trade in any given locality in California are paid at the same rate, that instead of basing the prevailing wage rate on the most frequently occurring rate in collectively bargained agreements, a weighted average of all wage rates - union and non-union -- will be used.

Benefits, primarily health insurance and retirement plans, would also be largely wiped out under the new regulations. The new regs said that if there is less than a majority of workers being paid at a collectively bargained rate, collectively bargained holidays don't apply. Instead, the holidays will be the legal holidays established by federal and state law.

On Nov. 26, 1996, the SBCTC sent a letter to Governor Pete Wilson, critical of his position on prevailing wage and the regulations.

On Nov. 27, 1996, at the urging of the State Building Trades, a lawsuit was filed in San Francisco Superior Court on behalf of the Pipe Trades, IBEW, Sheet Metal Workers, Glaziers and Roofers to force the DIR to halt its statewide prevailing wage survey. Altshuler, Berzon, Nussbaum, Berson and Rubin was selected as the lead attorney. The lawsuit alleged that DIR is violating both the law and its own regulations three ways in undertaking the statewide surveys, as follows:

1) The surveys violate the law by spending DIR funds to conduct the surveys after the legislature denied funding for such surveys in the 1996-97 fiscal year budget. Departments of state government are forbidden in the government code from using existing funds for activities which were denied funding by the legislature.

2) DIR failed to notify the unions whose members' wages were being surveyed of the date the surveys began. This makes it impossible for the unions to provide timely data that could affect the outcome of the survey and violates another legal requirement in the labor code, that suit says.

3) The suit also alleges that DIR is violating the Labor Code and its own regulations by producing survey forms that are misleading, inaccurate and that will fail to gather the proper information to calculate prevailing wages.

On Dec. 17, 1996, the E-Board voted:

To share the future costs of the survey lawsuit.

To retain Altshuler, Berzon, Nussbaum, Berzon and Rubin as the lead law firm to challenge the regulations

To assess each affiliate 1� cents for each man hour worked during the month of January 1997 to pay for the prevailing wage lawsuit if and when the Office of Administrative Law (OAL) rules against us and approved the proposed prevailing wage regulations.

To develop a new video to build momentum for the gubernatorial election in 1998.

To form a committee and allocate $50,000 of funding to build footage and do research on the video project.

To declare the prevailing wage issue SBCTC's highest priority and to oppose all gubernatorial appointees.

On Dec. 27, 1996, DIR sent the proposed regulation changes to the Office of Administrative Law. OAL approved the changes to eliminate double asterisk and modal rate, and the new regulations took effect January 27, 1997.

On Jan. 6, 1997, the SBCTC sent letters to Assembly Speaker Cruz Bustamante, to Assembly Member Deinse Ducheny, Chair of the Assembly Budget Committee, and to Senator Mike Thompson, Chair of the Senate Budget Committee, requesting that they file an amicus brief as co-plaintiffs in the wage survey lawsuit.

On Jan. 13, 1997, SBCTC sent letters signed by Bob Balgenorth to members of the Assembly requesting Assembly support on prevailing wage survey issue.

On Jan. 16, 1997, Building Trades' attorneys filed an application for leave to file an amicus curiae brief on behalf of the California legislature.

ON Jan. 24, 1997, the Senate voted to reduce the DIR budget request by $1.266 million by acting to reject its prevailing wage reform proposal.

Also on Jan. 24, 1997, the State Department of Finance rejected the DIR request for $1.266 million.

On Monday, Jan. 27, 1997, the new regulations that scrapped double asterisk and the modal rate method of determining the prevailing wage went into effect. In place of modal rate, a wage averaging system became the rule.

On Feb. 4, 1997, Senate President Pro Tem Bill Lockyer postponed a Senate Rules Committee hearing on the Wilson administration nomination of Roberta Mendonca as State Labor Commissioner, because the administration indicated it was willing to negotiate concerning the prevailing wage issue.

On Feb. 19, 1997, Judge William Cahill of the San Francisco Superior Court issued a decision which allowed DIR to continue its prevailing wage surveys. Attorneys for the Building Trades immediately appealed to the 1ST District Court of Appeal.

On Feb. 21, 1997, at the urging of the State Building Trades, Assembly Speaker Bustamante, Assembly Member Ducheny, Senate President Pro Tem Lockyer and Senator Thompson wrote the Court of Appeal requesting that the court issue a decision by 5/12/97 on whether the DIR Director can lawfully expend funds that the legislature denied during the budget process.

On Feb. 24, 1997, at the request of the State Building Trades, Assembly Speaker Cruz Bustamante, with Senate President Pro Tem Bill Lockyer as the principal co-author, introduced ACR 17. ACR 17 was an Assembly Concurrent Resolution (resolutions don't have to be signed by the Governor) declaring that the modal rate is the rate that has been recognized for the last 40 years, is the only method of determining prevailing wage that is recognized by law, and condemns DIR for trying to place a regulation into effect that contradicts the law it is supposed to carry out.

On March 3, 1997, the SBCTC, nine large contractor associations and the Teamsters filed a lawsuit in Sacramento County Superior Court asking the court to strike down the Wilson administration's new prevailing wage regulations that took effect Jan. 27. The lawsuit was filed against Lloyd W. Aubry, Jr., the DIR Director, and the Department of Industrial Relations. SBCTC President Bob Balgenorth denounced the administration in a news release, saying, "This regulation is a bald-faced assault on the skilled blue-collar workforce of California. It is designed to drive contractors who employ union labor out of business. It will open up public works contracting to fly-by-night contractors who employ unskilled minimum-wage workers who receive no health insurance, sick pay or retirement benefits. The Wilson administration put it into effect illegally, knowing that it contradicts the stated intent of the law."

On March12, 1997, the State Building Trades sent letters to selected lobbyists requesting letters of support for ACR 17 from their organizations.

On March 13, 1997, in response to Senate President Pro Tem Bill Lockyer's request for negotiations on Feb. 4, DIR Director Aubry sent a letter to Lockyer rejecting the SBCTC's latest proposal. Aubry said he objected to proposed language that would require prevailing wage surveys to be "statistically valid."

It was between Feb. 4 and March 13 that an independent prevailing wage proposal was circulating to administration representatives. Among it's provisions was that a $200,000 threshold be set for new construction and maintenance and repair contracts.

More importantly, however, the independent proposal would have given local governments the authority to preempt the prevailing wage on projects financed with local money only. The proposal would have allowed local government to opt out of paying prevailing wage with a majority vote of the governing body (City Council, Board of Supervisors, etc.)

At this point the SBCTC determined that in 1996, local governments in California awarded bids for 5,914 projects with a value of $2,681,154,056. Although some of these projects may have been partially financed with federal funds, it was certain that a significant portion of them contained only local funds. Those would be subject to exemption from prevailing wages with a simple majority vote of the local governing body.

Included in the projects financed with local money only would be the $2 billion East Side Reservoir project (formally Domenigoni Reservoir project) in Riverside County, and the San Francisco Airport project. The East Side Reservoir project currently is the largest public works project west of the Mississippi River.

On March 16, 1997, the E-Board approved a motion that SBCTC send a correspondence to the Governor under the signature of every board member in attendance at that E-Board meeting. The correspondence was to completely repudiate the independent proposal that had been circulating and to state that there would be no further proposals on prevailing wage from the building trades. Instead, the building trades would await a legitimate proposal from the Governor. That letter was sent on March 17.

On March 17, 1997, as the Senate Rules Committee prepared a tough set of questions for Vicky Bradshaw, Wilson's nominee to the Industrial Welfare Commission who favored scrapping the eight-hour day, the Governor's office withdrew her nomination before the hearing was over.

On March 18, 1997, the SBCTC sent letters to the Assembly Labor and Employment Committee requesting support for ACR 17.

Also on Tuesday, March 18, a Senate Budget and Fiscal Review Subcommittee responded to the SBCTC's request and deleted $1.266 million from the Senate version of the proposed 1997-98 State Budget.

On March 31, 1997, after ACR 17 passed the Assembly Labor and Employment Committee on a 7-0 vote (with most of the Republicans abstaining) the SBCTC sent a letter to Assembly Members requesting support for ACR 17 when it comes to the floor on April 3.

On April 1, 1997, SBCTC sends floor alert to Assembly Members for ACR 17.

On April 7, 1997, the Assembly adopted ACR 17 by a 45 to 21 vote, with Republicans Roy Ashburn of Bakersfield, Jim Cuneen of Cupertino, Peter Frusetta of Tres Pinos and Brett Granlund of Yucaipa voting "Yes."

On April 10, the SBCTC sent letters of appreciation to members of the Assembly who voted yes on ACR 17.

On April 18, the SBCTC sent a letter to members of the Senate Industrial Relations Committee requesting support for ACR 17.

On April 28, 1997, the Senate Industrial Relations Committee approved ACR 17 on a 4-3 vote.

On April 29 and 30, the SBCTC sent letters to Senate Members requesting support for ACR 17 on the Senate floor.

On May 5, ACR 17 was adopted on Senate floor by a 22-16 vote with no debate.

ACR 17 was chaptered on May 6: Resolutions: Chapter 34, Statutes of 1997.

The dat ACR 17 was passed, a copy of the resolution was forwarded to Sacramento Superior Court Judge Cecily Bond to support the Building Trades case against the prevailing wage actions of the Wilson administration.

On May 9, 1997, the 1ST District Court of Appeal, in a unanimous decision by a three-justice panel, issued a peremptory writ of mandate saying that the DIR Director had exceeded his authority by spending funds that had been specifically denied by the legislature (the $1.266 million), and that he was forbidden from proceeding with any further wage surveys without a legislative appropriation.

SBCTC President Bob Balgenorth issued the following statement after the Appeal Court ruling: "This is a great victory for construction workers, whether Union or not, because it stops the Governor from slashing their wages. It means the governor can't use the regulatory process to violate the intent of the law. And the law clearly recognizes the most frequently occurring wage as the method that must be used to set the prevailing wage."

Also on May 9, Sacramento Superior Court Judge Cecily Bond issued a restraining order to stop the state from imposing its new prevailing wage regulations on public works projects. Judge Bond observed in her decision that the new regulations could cause "irreparable injury" and "chaos in the bidding process."

That same afternoon, shortly after the Appeal Court and the Superior Court actions, DIR Director Lloyd Aubry resigned. It was Aubry who had championed the new regulations.

On June 2, 1997, Sacramento Superior Court Judge Cecily Bond ruled that the long-established modal rate method of determining the prevailing rate could not be changed without the legislature's approval. Bond also ruled that DIR had no authority to scrap the double asterisk rule, which allows wage increases for construction workers on public works jobs if those increases are part of a collective bargaining agreement for a particular craft.

Bond said she ruled against DIR "because, under the circumstances of this case, the Director has acted as a legislator...and he does not have the power to do so... The constitution," Bond's decision stated, "places the power to determine questions of public policy in the legislature, and the regulation of wages to be paid on public works projects is such an issue of public policy."

On July 10, 1997, the State Supreme Court, with Attorney General Dan Lungren's urging, agreed to hear DIR's appeal of the June decision by the 1st District Court of Appeal that nullified DIR'S prevailing wage surveys.

A few days after the July 10 decision by the Supreme Court to hear DIR's appeal, the chief counsel for DIR asked the court to give him 30 extra days to file his brief, moving the deadline from Aug. 8 to Sept. 8.

In conclusion, the SBCTC believes that it is the prevailing wage that drives the wages in the construction industry for both public works and private projects, union and non union. And in a key industry such as construction, the destruction of a strong wage base and accompanying benefits can have disastrous ripple effects on the economy of entire regions and states.
 

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