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F I S C A L I M P A C T R E P O R T

SPONSOR Taylor

ORIGINAL DATE

LAST UPDATED

2/25/07

3/9/07 HB

SHORT TITLE Prevailing Wage and Fringe Benefit Rates

SB 958

ANALYST Lucero

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

* Minimal to

Substantial

* Minimal to

Substantial

Recurring

Capital

Outlay/General

Fund/

(Parenthesis ( ) Indicate Revenue Decreases)

* The effect to individual agency capital outlay projects will vary by the size of the project,

amount of labor needed, and whether the work would have occurred by union or non-union

laborers. There may be a minimal impact to smaller agencies but potentially a substantial impact

to larger agencies such as NMDOT and public school facility construction.

ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT (dollars in thousands)

FY07

FY08

FY09 3 Year

Total Cost

Recurring

or Non-Rec

Fund

Affected

Total

* (Minimal) *(Minimal) *(Minimal) Recurring

(Parenthesis ( ) Indicate Expenditure Decreases)

* As noted below, there may be a cost savings to NMDOL.

SOURCES OF INFORMATION

LFC Files

Responses Received From

New Mexico Department of Transportation (NMDOT)

Public Education Department (PED)

New Mexico Corrections Department (NMCD)

New Mexico Department of Labor (NMDOL)

Regulation and Licensing Department (RLD)

General Services Department (GSD)

Senate Bill 958 – Page

2

SUMMARY

Synopsis of Bill

Senate Bill 958 amends the Public Works Minimum Wage Act by inserting new language in lieu

of section (B) that currently requires the Labor and Industrial Division (LID) to conduct an

annual wage survey by using the voluntary submission of data from contractors. The new

language will allow the LID director to set the prevailing wage rates on public works projects by

using collective bargaining agreements. The bill also clarifies, by statute, that fringe benefits are

included in the prevailing wage.

The bill also repeals Section 13-4-12 NMSA 1978 which defines the term “wages" and provides

a listing of what fringe benefits are. The bill replaces Section 13-4-12 NMSA 1978 with new

definitions and material on pages 9 and 10 of the bill.

FISCAL IMPLICATIONS

NMDOT states that the fiscal implication is indeterminate at this time, but possibly substantial.

Bids for NMDOT projects could be significantly higher because all bidders would be required to

pay wage and fringe benefit rates determined solely by collective bargaining agreements, which

are typically higher than the prevailing wage rates determined by the Labor Department.

NMDOL provided a preliminary analysis of the effect to street, highway, utility and light

engineering prevailing wage rates should the bill be passed. (Please see Attachment 1)

Analysis indicates that the GRIP program will be impacted significantly in that it is estimated

that 40 percent of the project costs are related to labor costs. There is approximately $700 million

in work that has yet to be contracted. A conservative seventeen percent increase to labor costs,

based on rates in Attachment 1 would increase GRIP costs by a minimum of $47.6 million. An

increase of this magnitude will significantly impact NMDOT’s ability to meet all scheduled

projects. NMDOT’s remaining construction programs will also be impacted as a result of this

Bill.

The Public Education Department (PED) believes that there is a possibility that there could be a

reduction in the number of qualified bidder applicants which may cause delays in the awarding

of public works projects. This may raise construction costs and result in funding and project

delays. It is important to note that every 1 percent increase in labor costs would increase school

construction costs by approximately $2.2 million. At the 3 percent estimate provided by DOL

for Type 3 building costs, this translates to an annual cost of $6.6 million. At present this would

pay two-thirds of the cost of a small elementary school.

According to NMDOL’s Labor and Industrial Division:

The bill will allow the LID to redirect the fiscal resources from an annual wage survey to the

duty of conducting more audits of companies working on public works projects. This in turn

may enable the division to collect more monies for the Public Works Apprenticeship &

Training fund.

The impact to contractors and other governmental entities: For most occupations, the

Senate Bill 958 – Page

3

collective bargaining wage is higher than the prevailing wage from the Labor and Industrial

Division survey. The voluntary survey completed in June 2006, uses data reported from

2005 payrolls. The collective bargaining rates are current rates. Type A (street, highway and

utility) shows the largest differences in the wage rate comparisons with some trade

classifications increasing more than 50 percent. Type B (general building) prevailing wages

are similar to those in the collective bargaining contracts; with wages being about 3 percent

higher on average under collective bargaining. Types C (residential) and D (heavy

engineering) are categories which are used less and is more difficult analyze. The Labor and

Industrial Division reports that wage rate requests, that are required for all public projects

over $60,000, are evenly divided between Type A and Type B.

Although collective bargaining wages are higher for most occupations, companies bidding on

public projects may already be unionized and paying the higher rates already. This would

mean that the bids for projects might not necessarily increase if the collective bargaining

rates are already being paid. However some companies might have to increase their bids if

they are not currently paying those rates.

Type B, general building, wages are only an average of about 3 percent higher using

collective bargaining, but Type A, street, highway, utility, wages are significantly higher but

the Division does not have all the data needed to do the comparison.

SN 958 may increase the cost of public works or construction contracts over $60,000.

Property Control Division (PCD) of the General Services Department (GSD) does not collect

labor cost data, and therefore cannot estimate the fiscal impact of this bill.

SIGNIFICANT ISSUES

NMDOT states that Currently, on public projects exceeding $60,000, contractors are required to

pay the prevailing wage rate, which includes fringe benefits, determined by the compiling of

wage rate information by the Director of the Labor and Industrial Division of the Labor

Department and the voluntary submission of wage rate information by contractors, contractors

associations, labor organizations, interested persons and public officers to the Director. This bill

would eliminate input from any source other than the unions because the prevailing wage rate

would be determined only by collective bargaining agreements between “labor organizations and

their signatory employers."

New Mexico Corrections Department (NMCD) states it is unlikely that this bill will adversely

affect the number or quality of contractors bidding on the Department’s public works projects;

however, it is possible that if the wages and benefits are set too high, fewer contractors will bid

on the Department’s public works projects/contracts and on public works projects of state

agencies in general.

NMDOL states that last year over $1.8 billion dollars was funded in public works projects by all

the political subdivisions in the state (city, county, and state projects). This translates into 1,550

public works projects. Because of the time consumed in conducting an annual wage survey,

many of these projects could not be audited.

Senate Bill 958 – Page

4

PERFORMANCE IMPLICATIONS

Requires that the prevailing wage rate and fringe benefit rates be compiled by the Director of

Labor and Industrial and be updated in accordance with new collective bargaining agreements.

Does not specify how often the updates should occur for non-Union employers.

ADMINISTRATIVE IMPLICATIONS

By using collective bargaining agreements to conduct an annual wage survey, the time element

involved in collecting data to completion of the survey will reduced from a five (5) month

project to a two-week project.

As stated above, there could be an administrative savings to NMDOL’s Labor and Industrial

Division because wage surveys would no longer be necessary. NMDOT, NMCD, PED, and

GSD all state that there could be an increased cost to public works projects by allowing

prevailing wage determinations to be based solely on collective bargaining agreements.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

Duplicates HB 882; Relates to HB 1237

TECHNICAL ISSUES

The bill does not address whether the minimum $60,000 may include the cost of the fringe

benefits.

OTHER SUBSTANTIVE ISSUES

It is unclear why there is a need to repeal Section 13-4-12 NMSA 1978 and to re-define ‘fringe

benefits" on page 9 of this bill. It is also unclear whether the new definition completely matches

the old definition or if there is an expansion of what is being considered fringe benefits. The bill

defines fringe benefits on page 9, Section 5 item B as payments made by a contractor,

subcontractor, employer or person acting as a contractor for:

“holidays; time off for sickness or injury; time off for personal reasons or vacation;

bonuses; authorized expenses incurred during the course of employment; health, life,

accident or disability insurance; profit-sharing plans; contributions made on behalf of an

employee to a retirement or other pension plan; and any other compensation paid to an

employee other than wages."

Currently, the State statute designates fringes as:

“an enforceable commitment to carry out a financially responsible plan or program that

was communicated in writing to the laborers and mechanics affected for: 1) medical or

hospital care; 2) pensions on retirement or death; 3) compensation for injuries or illness

resulting from occupational activity; or 4) insurance to provide for any of the foregoing;

and for: 5) unemployment benefits; 6) life insurance; 7) disability and sickness

insurance; 8) accident insurance; 9) vacation and holiday pay; 10) costs of apprenticeship

or other similar programs; or for 11) other bona fide fringe benefits; but only where the

contractor, subcontractor, employer or a person acting as a contractor is not required by

other federal, state or local law to provide any of the foregoing or similar benefits."

Senate Bill 958 – Page

5

SB 958 puts the New Mexico “Public Works Minimum Wage Act" (13-4-11 through 13-4-17

NMSA 1978), also commonly referred to as the “Little Davis-Bacon Act" in alignment with the

Federal wage act known as the Davis-Bacon Act by including fringe benefits in the wage

determination. Currently, NMDOL by way of rule making authority calculates fringe rates when

determining prevailing wages. This bill would create in statute what is currently done by rule.

This bill seeks to amend New Mexico’s statutes concerning pubic works projects by including

fringe benefits in the calculation of prevailing wages. The idea of paying prevailing wages

comes from a federal law enacted by the Davis-Bacon Act of 1931 which established the

requirement for paying prevailing wages on federal public works projects. All federal

government construction contracts and most contracts for federally assisted construction over

$2,000 must include provisions for paying workers on-site no less than the locally prevailing

wages and benefits paid on similar projects. Critics of Davis-Bacon argue that the law protects

unions because non-union employers who bid on federal contracts must pay wages at union

negotiated wage rates and include union negotiated benefits (or cash equivalent). According to

the Congressional Budget Office (CBO) estimates in 1994, the Davis-Bacon Act inflates the cost

of federal construction by an average of 5 percent to 15 percent. Also, an Oregon State

University study estimated the cost in rural areas to be 26 to 38 percent due to the Davis-Bacon

Act.

In 1999, Rep. Ron Paul (R-Texas) introduced federal legislation titled The Davis-Bacon Repeal

Act and argued that: “Most small construction firms cannot afford to operate under Davis-

Bacon's rigid job classifications or hire the staff of lawyers and accountants needed to fill out the

extensive paperwork required to bid on a federal contract. Therefore, Davis-Bacon prevents

small firms from bidding on federal construction projects, which, unfortunately, constitute 20

percent of all construction projects in the United States. Because most minority-owned

construction firms are small companies, Davis-Bacon keeps minority-owned firms from

competing for federal construction contracts".

The Davis-Bacon Act mandates that a "prevailing wage," be paid on all federally-funded

construction projects. The United States Department of Labor (USDOL) determines "prevailing

wages" but often relies on large contracts of public record and use large geographic areas to

define local areas which many times leads to published rates in excess of actual prevailing wages

in an area. Many small contractors cannot afford to pay these government-imposed higher wage

rates, and are thus shut out of federally-funded construction projects.

This bill will require smaller business owners to either provide similar fringe benefit packages as

larger employers (or those provided by unions) or pay a wage which is equivalent to “wages plus

fringes" when bidding on local and state government contracts.

ALTERNATIVES

Limit the use of collective bargaining contracts to areas of the state where unionized workers

compose 50 percent or more of the local workforce.

Publish two prevailing wage rates; one for rural areas (fewer unionized workers), another for

urban areas.

DL/nt

Attachment 1

Public Works - Wage Rates

Type "A" - Street, Highway, Utility & Light Engineering - Effective June 22, 2006

Trade Classification Base Rate Fringe Rate Prevailing

Wage

Collective

Bargaining

Base Rate

Collective

Bargaining

Fringe Rate

Collective

Bargaining

Prevailing

Wage

Increase

(decrease)

Percent

change

(where data

was avail)

Bricklayer/Blocklayer/S

t

onemason

$9.71

$0.26 $9.97 No Collectiv

e

Bargaining no information No info av #VALUE!

Carpenter/Lathe

r

$12.23

$0.44 $12.67 No Info av No info av no information No info av #VALUE!

Cement Mason

$11.80

$0.26 $12.06 No Info av No info av no information No info av #VALUE!

Ironworke

r

$17.91

$6.03 $23.94

$21.15

$9.03 $30.18

$6.24 26.07%

Painter

(Brush/Roller/Spray)

$13.56

$0.44 $14.00 No Info av No info av no information No info av #VALUE!

Electricians

$0.00 No Info av No info av no information No info av #VALUE!

Groundman (Outside

)

$21.79

$8.56 $30.35

$17.70

$8.64 $26.34

($4.01) -13.21%

Equipment Operator

(O/S)

$24.61

$8.56 $33.17

$23.69

$9.72 $33.41

$0.24

0.72%

Lineman/Wireman or

Tech (Outside)

$25.20

$8.56 $33.76

$27.87 $10.89 $38.76

$5.00 14.81%

Cable Splice

r

$26.38

$8.56 $34.94

$28.93

$8.67 $37.60

$2.66

7.61%

Plumber/Pipefitte

r

$21.38

$4.33 $25.71 No Highway Work

no information No info av #VALUE!

Laborers

$0.00

$0.00

$0.00 #DIV/0!

Group I

$9.95

$0.35 $10.30

$10.16

$4.40 $14.56

$4.26 41.36%

Group II

$10.25

$0.35 $10.60

$10.46

$4.40 $14.86

$4.26 40.19%

Group III

$10.65

$0.35 $11.00

$10.86

$4.40 $15.26

$4.26 38.73%

GROUP IV (NEW) -

-

$11.11

$4.40 $15.51

#DIV/0!

Operators

$0.00

$0.00

$0.00 #DIV/0!

Group I

$12.97

$0.26 $13.23

$15.14

$4.75 $19.89

$6.66 50.34%

Group II

$13.17

$0.26 $13.43

$15.89

$4.75 $20.64

$7.21 53.69%

Group III

$13.75

$0.26 $14.01

$16.00

$4.75 $20.75

$6.74 48.11%

Group I

V

$13.77

$0.26 $14.03

$16.08

$4.75 $20.83

$6.80 48.47%

Group

V

$13.77

$0.26 $14.03

$16.15

$4.75 $20.90

$6.87 48.97%

Group VI

$13.92

$0.26 $14.18

$16.34

$4.75 $21.09

$6.91 48.73%

Group VII

$13.97

$0.26 $14.23

$16.72

$4.75 $21.47

$7.24 50.88%

Group VIII

$14.12

$0.26 $14.38

$16.95

$4.75 $21.70

$7.32 50.90%

Group I

X

$14.62

$0.26 $14.88 omit

omit

no information No info av #VALUE!

Group

X

$15.42

$0.26 $15.68 omit

omit

no information No info av #VALUE!

Truck Drivers

$0.00

$0.00

$0.00 #DIV/0!

Group I

$11.64

$0.26 $11.90 no info No info av no information No info av #VALUE!

Group II

$11.84

$0.26 $12.10 no info No info av no information No info av #VALUE!

Group III

$12.04

$0.26 $12.30 no info No info av no information No info av #VALUE!

Group I

V

$12.24

$0.26 $12.50 no info No info av no information No info av #VALUE!

NMDOL Type A Wage Analysis