NEW HAMPSHIRE’S economy is booming, thanks in no small part to our lower tax burden compared to the rest of the country and New England. But a proposal in the state legislature could undermine New Hampshire’s competitive advantage by needlessly making public construction more expensive.
SB 271, introduced by Sen. Dan Feltes (D-15) last month, would impose so-called “prevailing wage” regulations on all state construction projects that receive state funding, as well as virtually all state-assisted local work, forcing our schools, towns, cities and state agencies to pay more for construction services without getting anything more in return.
Research has found that prevailing wage requirements increase the cost of construction. In New York, a 2017 report released by the Empire Center for Public Policy found that prevailing wage requirements inflated the cost of publicly funded construction projects in the state by 13 to 25 percent. The state of Ohio saved almost $500 million after the state’s repeal of prevailing wage rules on school construction, according to an Ohio Legislative Service Commission study published by the state.
New Hampshire’s proposed 2020-2021 state budget includes a one-time allotment of $64 million in school building aid, but with a new prevailing wage law, it is feasible up to 25 percent fewer classrooms would be constructed. That equates to millions of dollars in wasted funds that would be better off invested in New Hampshire’s public school systems or other needs.
Unless state lawmakers also plan to increase the amount of money they plan to contribute to our public schools and other infrastructure investments, a prevailing wage law could inevitably lead to even higher property taxes and service cuts or busted budgets.
Prevailing wage supporters argue SB 271 will improve a project’s quality, schedule and cost, and result in better worker safety and training. But there is little credible evidence to back up those claims.
In addition, supporters of SB 271 say it ensures construction jobs for Granite Staters. Yet local employers who will have a difficult time complying with the inefficiencies, red tape and paperwork associated with typical prevailing wage rules would be discouraged from competing for construction contracts on projects in their own communities, while large companies from Boston, New Haven and New York well-versed in complying with their state’s complex prevailing wage laws would have a leg up and disrupt the local market at the expense of New Hampshire’s small businesses and skilled construction workforce.
Not only will SB 271 impose significant compliance burdens on New Hampshire contractors, but it requires prevailing wages to be determined through what the U.S. Government Accountability Office has called an unscientific and fundamentally flawed survey process administered by the U.S. Department of Labor that typically mandates wage and benefit rates that are not determined by the free market and are anything but local, prevailing or accurate.
In fact, the GAO and the DOL’s Office of Inspector General have reported that DOL’s process to determine local prevailing wage and benefits rely on inaccurate survey data and suffer from potential bias and result in untimely wage determinations. In addition, the GAO says the flawed process mandates union wage rates more than 63 percent of the time, even though union members comprise a small percentage of the construction industry’s workforce.
When the government mandates union-scale wages, unionized contractors have a better chance at winning projects because it forces non-union firms to follow archaic and inefficient union work rules set by local union collective bargaining agreements, which are incongruent with non-union contractors’ ability to utilize construction workers for specific construction tasks across multiple craft disciplines.
Because of their anti-competitive and inflationary impact, 24 states have no prevailing wage laws and a total of eight states have repealed or significantly reformed their prevailing wage laws since 2015.
So much of New Hampshire’s economic success comes from having smarter policies than the rest of the country. Yet in this instance, New Hampshire would be moving in the wrong direction with SB 271 — a costly policy that would harm taxpayers, local businesses and construction workers.