After years of doing business as usual and putting tough spending cut decisions to the side, the General Assembly is now facing the harsh reality that yes, we do need to make spending cuts. The roughly $70 million gap in Gov. Jack A. Markell’s proposed budget versus tax revenue collection simply cannot be made up just by increasing taxes.
There is one area of the budget which could be modified, which would save the taxpayers money but which would not require any services to be cut or agencies to shut down: Change, or eliminate, Delaware’s Prevailing Wage law.
The Prevailing Wage law specifies wages for certain jobs done on public infrastructure projects, such as school maintenance or renovating a section of Route 1. The state Department of Labor sends out a survey every year, asking construction firms what they pay their employees. From the surveys sent back, the state calculates an average, county by county, that says what construction firms who want a government contract have to pay their employees.
The problem is, Delaware’s Department of Labor oversamples small pro-union construction firms, which skews results. In last year’s prevailing wage survey, the state received responses from 163 construction firms representing about 5,000 employees, while the U.S. DOL surveys over 300 firms with 27,500 employees.
This results in exorbitant wages for jobs, such as paying a painter in New Castle County $77.09 per hour, or $69.32 for a pile driver. A painter in Kent gets $60.12 an hour, and in Sussex, $55.78. That same pile driver would only earn $37.64 per hour in Kent and $29.30 in Sussex, but all these wages are above the state average of approximately $25 an hour for a full-time private sector worker (benefits excluded).
This law is held sacred among union supporters, who have managed to convince themselves that somehow changing the prevailing wage would force union workers to work for peanuts and make their families go hungry in the streets. But analysis by the Caesar Rodney Institute of both Prevailing Wage surveys concluded that just by switching to the federal survey, Delaware would save roughly $63 million from this year’s capital budget on construction projects. This includes almost $18 million for school construction projects.
For the record, that’s a savings of 40 percent from what we have now. And no workers would go hungry.
Another claim by pro-prevailing wage proponents is that changing the law will let greedy contractors pay their workers less and pad their profit margins.
CRI’s Economic Policy Director Omar Borla spoke to construction company managers, who say they apply a percentage of total costs as profits. So if the profit margin was say 10 percent, that’s 10 percent whether the job is $1 million or $10 million. Reducing labor costs doesn’t change their profit margin, but it does save taxpayers money.
The reality is, we can absolutely modify, if not repeal, this law, without harming workers. Our legislators should consider this fact when deciding how to balance the budget.
Editor’s note: Sam Friedman is the communications director of the Caesar Rodney Institute.