Study: Repeal of prevailing wage for construction projects has cut school costs

MORGANTOWN — A state contractors association is celebrating a University of Kentucky business school study that shows repeal of prevailing wage for public construction projects has cut school construction costs during its first two years in effect.

“We knew the savings were there,” said Bryan Hoylman, president and CEO of the Associated Builders and Contractors of West Virginia (ABC), during a phone interview. In a press release he added, “These findings equate to roughly $1 million taxpayers have saved and will continue to save on each new elementary school built in West Virginia. That’s substantial.”

ABC commissioned the study, which was performed by UK’s Gatton College of Business and Economics Center for Business and Economic Research under the guidance of center Associate Director Mike Clark and researcher Kenneth Tester.

The researchers caution that they worked with limited data during these initial two years of the repeal.

And Steve White, director of Affiliated Construction Trades (ACT) – a division of the West Virginia State Building & Construction Trades Council, AFL-CIO – said the study is premature and the union has data that shows the repeal has been harmful.

ABC supported the repeal when the Legislature debated it during the 2016 session while the AFL-CIO opposed it.

The study says it compared school construction costs before and after repeal and during a three-month period when the wage was suspended in 2015 before repeal. It looked solely at costs per square foot and compared those costs for six schools built after repeal to projects completed before repeal. It excluded Edgewood Elementary in Charleston, which had exceptional issues that drove up costs.

“Differences between one or two schools can significantly affect the comparison,” the study says. “As West Virginia builds more schools, the state will get a better indication as to how its prevailing wage law affected construction costs.”

The study looks at construction costs from several angles and spans of years but anchors its findings on costs from 2013 to 2018 to get the fairest inflation-adjusted comparison.

During that span, the average per-square-foot cost for prevailing wage projects was $304.45 while the cost for non-prevailing wage projects was $282.18 – a 7.3 percent decrease.

The study looked at costs for surrounding states to make certain that other factors didn’t influence the decrease.

“The data suggests that West Virginia’s surrounding states did not experience similar decreases in their costs to build schools,” the study says. “This suggests that the general state of the economy from 2015 through 2018 did not cause West Virginia’s construction costs to decrease. This comparison does not rule out the possibility that another factor specific to West Virginia could have affected costs in the state.”

Hoylman acknowledged that the study comes in the repeal’s early stages and more data will come, but they wanted a couple years’ worth of projects for a first look. “We’ll definitely continue to keep an eye on it.” ABC may eventually commission another study down the road.

The study looks at safety and quality concerns about non-prevailing wage projects raised during the debate and nationally.

Regarding quality, it says, “By requiring contractors to pay higher wages, they may employ better workers who produce higher quality construction. Improved construction can reduce the long-term maintenance and repair costs. While there are reasons to expect prevailing wages could improve quality, the effects are uncertain and prevailing wages may be an inefficient method for improving quality.”

Regarding reduced safety, it says the data is insufficient. “There is some empirical research suggesting injury and fatality rates in the construction industry are lower in prevailing wage states. Injury and fatalities rates for West Virginia’s construction industry are not sufficient to support conclusions.”

Hoylman acknowledged that critics may fault the commissioned study as biased, but they chose Clark at UK because he’s impartial and had previously studied the issue for a bipartisan report when he worked for the Kentucky legislature.

That report is available at www.lrc.ky.gov/lrcpubs/rr304.pdf.

“We’re positive that these are very accurate” findings, he said.

He said in the release, “While opponents claimed the consequences would be dire to the workforce, safety and quality of public construction, proponents claimed their intent was to remove the bureaucracy associated with determining public construction costs and hand that responsibility over to the free market by bidding projects similarly to that of the private sector.”

Repeal opponents said in 2016 that the move would cause skilled, higher paid West Virginia workers to look for jobs elsewhere and draw in less qualified workers less concerned about lower pay.

White said ACT’s data shows no cost savings to the public based on repeal, but increased costs and construction delays, lower quality and wage cuts.

But it’s too soon to really know, he said. “I don’t think there’s enough data to conclude really anything.”

Anecdotally, they know people are leaving and low-wage workers are being brought in, with accompanying quality problems and delays. An example is Chapmanville Intermediate School in Logan County, which was supposed to be finished June 30 but won’t be open in time for the start of school.

That may be a prevailing wage problem, White said, but it’s too soon to know.

They do know, he said, that local, experienced companies are being pushed out by less experienced contractors that can make lower bids.

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