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Congress's deconstruction theory; how Congress is beating the low cost of construction.

Congress's Deconstruction Theory

What if there were a way to build more low-income housing, invigorate the national economy, and help the small business owner, all in one shot? What if the stroke of a congressional pen would help rebuild the nation's crumbling bridges and highways even as it reduces the budget deficit? While we're dreaming, why shouldn't this same initiative help minority and female workers gain a foothold in one of America's highest paying industries?

Such an opportunity exists. But standing in the way are two powerful groups that are so busy defending an old-fashioned idea that they are blind to its shortcomings. The culprits: Big Labor and its mostly Democratic support team in Congress. Even though each could score important gains in membership and power with the right move, they're not making it.

What's needed is the repeal or substantial reform of the Davis-Bacon Act, a law passed in 1931 to protect construction workers from being exploited. It was a reasonable idea back then, before minimum-wage and other labor laws were in effect. It set a "prevailing wage" on federally supported building projects, effectively guaranteeing a decent paycheck for the brickmasons and carpenters who built that era's post offices and highways. Today, though, the law has a different effect. It is a business-stifling paperwork monster that costs taxpayers $12 million annually just to administer and as much as $1 billion a year in added construction costs.

So says just about everyone, from Ronald Reagan to the Association of Minority Contractors of America to left-leaning nonprofit housing groups like Chicago's Bethel New Life, Inc., whose efforts to build low-income housing are hindered by high labor costs and dwindling federal support. A study by Oregon State University in 1982 found that the act drove up construction costs in rural areas by 26 to 37 percent. In 1979, after the GAO conducted studies of Davis-Bacon that led to negative conclusions, it did a full-scale investigation that found a program so difficult to administer fairly - and so expensive to the nation - that it wrote a scathing report with this breath-takingly concise title: "The Davis-Bacon Act Should Be Repealed."

Sacred pig

That was 10 years ago, but the act lives on, as does the cult-like respect for it on Capitol Hill. A good measure of that idolatry came last November when the Senate Labor and Human Resources Committee rejected the Bush nominee for head of the Labor Department's wage and hour division, Debra Bowland. No Democrats on the committee questioned Bowland's ability, but in voting against her, they pronounced her guilty of something apparently much worse than incompetence. Bowland's defect? She opposed Davis-Bacon.

From lock-step thinking like that, you'd never guess this legislation costs taxpayers $2.8 million a day, or, if you'd rather, $10 billion a decade. And that's only the drain on the federal budget; it doesn't take into account what that $10 billion could buy in the way of new roads to help U.S. factories institute just-in-time shipping or new housing to inject some life into the Bronx or Watts. Nor does it reflect the stifling effect the law has in the inner city, where unemployed workers are looking for entry-level jobs - not a $26-an-hour wage that no one will pay them.

"You want to know how to solve the low-income housing crisis? Get rid of Davis-Bacon." That's what Elzie Higginbottom says, and Higginbottom builds low-income housing in Chicago's grim South Side ghetto and manages his 2,500 units with a magic touch. Down the street from Chicago's biggest highrise projects, where graffiti mars the hallway outside the police station and where stores hide behind steelplate security doors, Higginbottom's manicured and tightly managed properties somehow repel broken glass and gangs. He has built high-rise housing downtown as well, luxury housing, establishing a reputation among developers and government regulators as someone who knows how to work federal guidelines for all they're worth. But he can't beat Davis-Bacon.

The Higginbottom line

The law requires Higginbottom to pay the prevailing wage to all workers on federally assisted projects of more than 11 units. In Chicago, that means paying carpenters $23 an hour, including benefits, and paying laborers $18.82 an hour for hauling in the drywall. The "prevailing" wage, as set by the Department of Labor, is a rough and frequently inaccurate average of wages contained in a survey by the department. The GAO found it is often higher than it should be. In fact, the wage sometimes looks startlingly like the local wage paid under union contracts.

So let's say Higginbottom wants to hire some of the unskilled black men from the neighborhood where he is building houses. He is black himself and fiercely committed to building a social and economic base in Chicago's poor neighborhoods. But to give a local guy a chance, Higginbottom has to pay him a wage set by Department of Labor bureaucrats. "I've got to start out a guy at $16 an hour to find out if he knows how to dig a hole. I can't do that."

Instead, Higginbottom and other contractors on federal construction jobs must grit their teeth and work to the Davis-Bacon requirements. Sometimes that means filling out eight forms just to get started. It always means paying workers weekly and sending weekly reports to the Department of Labor, at an industry-wide cost of roughly $190 million per year. It means using workers only in strict job classifications, or changing a carpenter's pay scale to the electrician's rate in the middle of the day because he threaded a piece of electrical conduit through a stud wall, or to a truck driver's rate because he drove a flatbed truck across the lot.

It doesn't matter if the construction firm is a nonunion "open shop" where innovation and get-the-job-done attitudes are encouraged; the rules, almost a carbon copy of union contracts, apply to everyone. And since the unions helped write the regulations, that means you can't use "helpers" on the job except in very limited circumstances. "If a helper picks up a hammer, he's a carpenter; if he touches steel, he's a steelworker, at steelworker's wages," says Ralph C. Thomas III, executive director of the 3,500-member National Association of Minority Contractors. (For more on how that kind of union thinking continues to stifle American productivity, see sidebar.)

One of the most striking effects of the law is the way it makes life difficult for the little guy: the immigrant, the black or woman contractor operating out of a rusty Ford van, the painter who hires students or unskilled labor as helpers. The Baltimore-based Enterprise Foundation, a developer of low-income housing nationwide, has found that even in areas like Dallas, where Davis-Bacon wages aren't out of line, the law drives up prices because small contractors are scared away by the paperwork and other requirements. "When the small firms shy away from the job, that kicks us up to the next level of contractor," says Gene Ruckle, a development specialist for the foundation. "When we go out to the bigger firms, they say `Aha!' and give us a nice fat bid."

The law's tentacles have reached beyond federal projects, because many states have passed local prevailing-wage laws. So when a one-school elementary district in California created a special tax to paint the school and approved a low bid of $33,600 from a three-person contracting company, it ran into trouble. A pro-union advocacy group complained to the state's Department of Industrial Relations, and sure enough, the contractor was paying his painter only $20 an hour and a young helper only $8.50 an hour. The law required both to earn $26 an hour, the "prevailing" wage. (Nineteen states have recently repealed these so-called "Little Davis-Bacons." After Florida exempted school districts from such provisions, it calculated an immediate 15 percent savings.)

If that doesn't scare away small contractors, the paperwork and bureaucracy might. In Chicago, immigrant Korean shop owners and a polyglot mix of small-property owners have brought inner-city commercial strips back to life using an innovative and low-cost city program. The city used federal Community Development Block Grants to help merchants spruce up their facades, and over the past 10 years in one commercial district alone, 192 of 750 storefronts have put up new awnings, installed lighted signs, and built or rebuilt their brick and terra-cotta facades, each time getting a rebate of 30 percent of the project cost. The jobs are typically small, about $40,000 on the average, and most of the contractors are tiny construction companies. Some of them even specialize in facade work.

It was a good program. While it lasted. This year a municipal legal eagle realized that the program falls under the Davis-Bacon Act's provisions. So now the contractors must pay their electricians $26.03 an hour, while the guy who trowels mortar between the bricks gets $23.34. It doesn't matter if the company was paying $15 or $18 an hour, or if the company is a family operation that pays what it can. The wage must be the Davis-Bacon rate. And the forms must be filled out. "Most of the contractors are Hispanic or Korean," says Mike Reardon, who administers the program for the Lawrence Avenue Development Corp. "English is the second language for most of the merchants, and now they've got to fill out eight forms just to get started. We are essentially making it impossible for the small guy to do this; we're closing the little guy out."

But let's say a contractor decides he wants or needs the federal job, as is often the case for a struggling young firm. He fills out the paperwork, makes a bid, and wins the job. The tuckpointer and electrician get a raise because of Davis-Bacon. But then on the next job, a private one with no federal connection, the boss must decide whether to set the wage back to the old level (bad for morale) or bid at the higher wage and possibly lose the project (bad for business). "The workers can't understand [when the wage is cut]," says Thomas of the minority contractors association. "It causes personnel problems, and you get job-jumping, especially among the premium personnel. The point is, Davis-Bacon isn't very popular with blacks in construction."

Still crazy after all these years

But the act remains quite popular with Democratic members of Congress. The current battle on the Hill is over a pair of amendments to the act, one introduced by Democratic Rep. Charles Stenholm, which calls for substantial reduction of paperwork, more use of helpers, and the exemption from Davis-Bacon provisions for projects of $250,000 or less (the current threshold is an almost meaningless $2,000). Most opponents of Davis-Bacon consider the Stenholm amendment a solid first step, since repeal at this point seems unlikely.

The other amendment, backed by Rep. Austin Murphy and Rep. Augustus Hawkins, both Democrats, is billed as reform but actually strengthens the law, widens its impact, and adds to the bureaucracy. It raises the threshold for new work to $50,000, but adds more paperwork through a new category - rehab work - with a $15,000 threshold. It also incorporates new language to prohibit off-site use of lower-priced labor, adds a complex framework to allow workers to sue for damages if they don't receive Davis-Bacon wages, and requires the Department of Labor (DOL) to do a wage survey every two years in all 3,000 U.S. counties, a job that many critics consider undoable without a large increase in the size of the DOL bureaucracy.

The AFL-CIO and its Building Trades Council are actively promoting the Murphy-Hawkins amendment while labeling the Stenholm approach "draconian" and bad for American workers. "If we lost Davis-Bacon, you would quickly see the return of the practices that made Davis-Bacon necessary in the first place," says Jay Power, legislative representative of the AFL-CIO. "People would be coming in from out of state and stealing jobs from your local contractors. These people would eat their own young to get a contract."

Power tells Republican members of Congress that, should the Stenholm amendment pass, these baby-eaters will grab contracts on the local post office and highways, "and we'll have a new Davis-Bacon in a month." This argument might have held water back in 1931, when two Republicans, Rep. Robert L. Bacon and Senator James Davis, sponsored the law to stop roving contractors who used gangs of low-paid workers to snare federal building jobs. But the GAO and Oregon State studies showed that the opposite is true today: Because of Davis-Bacon, local firms are less likely to work on federal jobs, while larger, non-local firms are more likely to work on them. As for the "fly-by-night" contractors slashing wages to steal jobs, the GAO report points out that when wage protections were eliminated from the Walsh-Healey Public Contracts Act, there was "apparently no adverse effect on wage rates."

Besides, today's construction workers are in high demand. There is a labor shortage predicted by the end of the century, so their wages aren't likely to drop. In most big cities, carpenters, bricklayers, electricians, and plumbers earn at least $20 per hour with benefits. The national average is $12.69 an hour, which is the highest hourly wage of the 10 occupational sectors surveyed in 1987 by the Bureau of Labor Statistics. As Oregon contractor Paul Emerick pointed out to a congressional subcommittee in April, "This hardly seems like a situation in need of federal protection."

What the Building Trades Council and its backers in Congress seem unwilling to admit is that the United States is reaching the end of the era when its economy was big and strong enough to protect a coddled work force. If there is just one lesson that's been learned in the steel and auto industries in the past decade, it is that rigid labor practices, high wages, and a stubborn union attitude seldom lead to lasting victory. The steel industry's punch in the gut was brutal: the companies lost $12 billion in five years, and the United Steelworkers of America saw the permanent loss of 500,000 steel jobs nationwide. The blow to the auto industry came more slowly but just as forcefully; after years of small defeats as imports gained market share, unionized plants began closing and work forces were cut as sub-assembly work was contracted out to more competitive, nonunion shops. Then the Japanese automakers marched in and told the United Auto Workers where to go: the union is still smarting from its recent defeat in Smyrna, Tennessee, where Nissan workers voted 2 to 1 against unionization.

The building trades are doing no better. As the unions hold out on Davis-Bacon, their position in the industry is slipping badly. The rigid work rules that scare businesses away from old-line union towns like Chicago and Detroit are apparently putting union contractors out of business as well. In 1970, only 30 percent of the country's contracting firms were open shops; by 1987 they had taken over 70 percent of the marketplace, according to the Associated Builders and Contractors. ABC is the nation's fastest-growing construction association, with 20,000 member companies representing 1 million workers, most of them nonunion. Even the big contractors are switching over, with 45 percent of the top 400 construction companies now open-shop, up from just 8 percent in 1973.

Power of the AFL-CIO says the unions are fighting back with pilot programs that reduce wages and eliminate some costly work rules. One new program in the San Francisco Bay Area, for instance, allows contractors to bid jobs under $2 million with a 20 percent wage reduction for journeymen workers. Another in Washington, D.C., sweeps away some of the restrictive work rules that have made union work so expensive. But Power puts the small changes in perspective by backhandedly describing the type of practices still going on: In Washington, D.C., he says, "they're getting rid of the two guys in the elevator [to operate it]." Why were there two guys in the first place? "In case one has to pee."

The road back for the steel industry, which once again makes some of the best and least expensive steel in the world, has been paved with many such work rule changes. Union workers at IN/Tek, Inland Steel Industries' new joint venture with Nippon Steel Co. of Japan, have thrown out job classifications almost completely (there were once seven classifications just for crane operators). They run the super-efficient mill in Indiana under just two job titles: operators, who run the 2,000-foot-long cold-rolling machine, and equipment controllers, who maintain it. Change and worker initiatives are evident throughout the industry: Weirton Steel's unionized workers took over the whole company, and the 3,900-member union at LTV Steel's Bar Division voted this fall to buy the division and run it themselves. Progress is slower in the auto industry, but the buzz words are becoming familiar: teamwork, worker participation, flexibility.

Kemp cant

While steel and auto workers marched to the brink with the help of torpid upper management, the trade unions are doing it with a different but equally well-meaning ally: Congress. Democrats have become so tightly linked with unions and so dependent on the union vote that Rep. Stenholm's reform amendment has picked up only about 50 Democratic supporters. "Davis-Bacon is a blood oath for the Building Trades Council, and the council has a lot of support in Congress," says Damen Tobias, counsel for Stenholm. Tobias says many congressmen are so used to voting the union line that they aren't paying attention to the substance of either of the current amendments, both of which are billed as "reform" measures.

Equally difficult to understand is the lack of awareness of what Stenholm-type reform of the law could do for the nation's health. It could help the nation address five overlapping crises: the growing federal debt that eats up $173 billion a year in interest; the looming infrastructure crisis, which at some point soon will force hundreds of billions of dollars worth of needed construction; the growing gap between the demand for skilled labor and the large pool of people too unskilled to do it; the shameful need to build or rebuild housing for the poor; and the decline of the nation's unions, which once represented 34 percent of the work force but now claim just 18 percent.

There are three groups that could benefit by making that phrase mean something: the Democrats, the Republicans, and the unions. The Democrats have the best shot at it.

The unions, if they let Davis-Bacon reform come sooner rather than later, could begin attracting the minorities and women that will be tomorrow's workers and dues-payers. They could chalk up some badly needed organizing victories by jumping in when small contractors try to cut wages, and they could once again earn a reputation as an ally of the little guy. But if past experience is any guide, we shouldn't wait for unions to lead that charge.

The Republicans don't show much promise either. When HUD Secretary Jack Kemp spoke to the National League of Cities convention in Atlanta this past November, he preached his free-market gospel and said, "The entrepreneurial democratic system is the greatest anti-poverty weapon the world has ever seen." But when asked if he would unleash that weapon by working to repeal or reform Davis-Bacon, Kemp hemmed and hawed, praised the progress unions have made, and finally said, "We can work with the unions." That's a far cry from what he told the The Washington Post in 1986 when he was fighting for Davis-Bacon exemptions for maintenance workers at the Kenilworth-Parkside Resident Management Corp. in Washington, D.C., one of the earliest and most successful tenant-managed public housing developments. He was passionate back then: "Someday somebody is going to ask organized labor what they're for in the inner city, welfare and food stamps, or jobs and housing for the poor."

Since Kemp's lost that fervor, maybe the Democrats will gain some, although at this point most of them still seem to think that defending Davis-Bacon is a way to help the little guy. Whether they have the insight and courage to reverse that thinking could indicate their chances of regaining power in the 1990s.
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Title Annotation:includes related article
Author:Barry, Patrick
Publication:Washington Monthly
Date:Jan 1, 1990
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