Michigan's Prevailing Wage Law Forces Schools to Waste Money

Construction costs for schools throughout the country are skyrocketing, thanks in part to the so-called "prevailing wage" laws enacted in 32 states including Michigan.

In 1996, the northern Michigan school district of Mesick, after five failures, finally passed a new property tax millage to fund a needed expansion of its high school.  Shortly thereafter, the project began on budget and on time.  But something happened about halfway through the process: Construction bids suddenly ran over budget by $285,000, forcing the district to eliminate new computers and lab facilities for the students and axe one of the proposed new classrooms.

What caused this sudden financial disruption?  The untimely return of Michigan's Prevailing Wage Act, a piece of special-interest legislation that unnecessarily jacks up school construction costs and deprives districts of millions of dollars earmarked for education each year.

Michigan is one of 32 states that has a so-called prevailing wage law.  Passed in 1965, it requires that any contract on a project that is supported, even minimally, by state funds must pay contractors wages that are "prevailing" in the area in which the project is located.  This sounds innocuous enough.  If that were all the law said, one would wonder why the law was even necessary.  No school or city that wanted to build a building could pay construction workers less than the going wage, or it wouldn't be able to hire anyone.

But the actual effect of the prevailing wage law is to allow unionized construction workers and contractors to determine what must be paid for construction of school buildings and other government projects.  The law states that the Department of Consumer and Industry Services (CIS) "shall establish prevailing wages and fringe benefits at the same rate that prevails on projects of a similar character in the locality under collective agreements or understandings between bona fide organizations of construction mechanics and their employers" (emphasis added).

So whatever unions and union contractors agree to is the wage that must be paid by any school district when it wants to undertake any construction, no matter how much higher than the real market wage it might be. 

From December 1994 to June 1997, Michigan schools enjoyed 30 months when the Prevailing Wage Act was not in effect, thanks to a federal district court judge who ruled that the act was invalid because it was preempted by federal law.  Before a higher court unfortunately reinstated the act, Michigan school districts achieved substantial savings. 

For example, the Hastings School District in Barry County was able to take advantage of a nonunion bid for a $4.3-million construction project and immediately save 13 percent.  Savings like that can make a big difference for the taxpayer or for the classroom, or both.  It could have saved those lost lab, computer, and classroom facilities in Mesick.

School construction in Michigan is on the order of $1.5 billion annually, or close to $900 per pupil.  Because of the Prevailing Wage Act, these costs are substantially greater than they need be.  In a study for the Mackinac Center for Public Policy, Professor Richard Vedder of Ohio University found that the law increased construction costs by at least 10 percent.  The Ohio Legislature, incidentally, had the good sense in 1997 to exempt schools from that state's prevailing wage law—saving schools an average of 10.5 percent in construction costs, according to the nonpartisan Ohio Legislative Budget Office. 

If Michigan were to follow Ohio's lead, our schools would save at least $150 million annually—a figure that amounts to $90 for every student in the state.  Nonetheless, former Michigan Attorney General Frank Kelly fought in the courts to keep the Prevailing Wage Act on the books, and any effort to save schools money by repealing it will face a challenge from current Attorney General Jennifer Granholm, as well as from organized labor.

This puts certain Michigan legislators, Granholm, and some school officials in an awkward and indefensible position.   Unless they are willing to be hypocrites, they cannot continue calling for more money for schools and at the same time support wasting it through costly favors to unions.

Repealing Michigan's Prevailing Wage Act—or at least exempting schools from its rules—would make school construction more affordable, save money for use in the classroom, and allow for other improvements to public education.  Michigan should follow Ohio's lead and put children ahead of well-heeled special interests.   

(Gary Wolfram, PhD, is George Munson Professor of Political Economy at Hillsdale College in Hillsdale, Mich., and a senior policy analyst with the Mackinac Center for Public Policy.  Permission to reprint in whole or in part is hereby granted, provided the author and his affiliations are cited.)