A big issue in the last presidential election, current congressional races, and in state and local battles is taxpayer-funded public infrastructure. This is especially true for roads, bridges and transit.
While in many areas more spending is needed, the cost side of the equation needs to be looked at as well. Transportation projects cost more in the United States than virtually anywhere else in the world — even adjusting for health care costs, unionization rates, number of workers and more. (See a recent New York Times piece on the subway system for an especially striking example of costs getting out of control.)
{mosads}Congress and federal agencies are investigating why our transportation systems cost so much, which is a good start. But one key reason is that Congress and many states mandate that taxpayer-funded work comes at a premium.
They do this through “prevailing wage” laws, which require government entities to pay artificially inflated wages to people who work on publicly funded construction projects. For federal projects, this comes by way of the Davis-Bacon Act, and states have similar laws for their own projects.
But just last week, Michigan repealed its prevailing wage law. For the first time since 1965, the state will require fair bidding on projects — and stop requiring inflated costs. This is good news for Michigan taxpayers, and other states should take notice. Consider these facts:
- Michigan’s prevailing wage law added about 10-15 percent to the cost of a typical project, or about $400 million annually to the cost of government construction.
- It prevented fair bidding on projects. In the private sector, when firms contract out for work, they typically get multiple bids, compare those bids and choose a contractor based in large part on tradeoffs involving price and quality. Public entities in Michigan — school boards, city councils, universities and more — couldn’t do that, by law. Now they can.
- Michigan’s law was arguably the most complicated in the nation. There were over 500,000 job classifications for which the state mandated a certain pay rate. But there are only 160,000 total construction workers in Michigan. Determining the legal pay rate for these workers was expensive and inefficient.
- The costs to taxpayers can be significant. In the city of Detroit, for example, if someone wants to better himself by learning how to seed grass and offers his services to the city for $25 per hour, he would be breaking the law, which mandates $29 per hour. The higher rate encourages the local government to choose a larger, more established and more expensive firm.
- In rural areas of the state, like the Upper Peninsula, the law encouraged large firms not from the area. Consider the story of Steve Zurcher, a taxpaying glass-maker in Michigan’s Upper Peninsula who regularly loses out on projects to firms from Green Bay, Wisconsin. Zurcher’s small operation can compete on price with the larger, out-of-state firms, but the prevailing wage law’s mandated higher wages made this competitive advantage irrelevant.
Michigan has been increasing its spending on roads and construction for years. The repeal of the law mandating union wages will help the state get more done with the same amount of money. If other states and the federal government really care about clearing out a backlog of work and a better bang for the taxpayer buck, they should repeal Davis-Bacon and similar state mandates.
Jarrett Skorup is the director of marketing and communications at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Michigan.