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Prevailing wage: Kentucky’s self-inflicted inflation

By Jefferson G. Edgens

Kentucky’s prevailing-wage policy is a great idea … if you’re a union worker on a public-construction project. But it’s unsound fiscal policy for everyone else, including taxpayers and public-school officials who must shoulder the resulting inflated costs.

One of the many telling examples of the ill-effects of the commonwealth’s prevailing-wage policy occurred during renovation of the University of Kentucky’s baseball stadium in 2002. Originally, the university planned to bypass the state’s prevailing-wage requirements by using only private funds for the $4.2 million project.

When it became apparent that not enough private funds were available to finish the job, the university matched its private contribution with public dollars, triggering a requirement that prevailing-wage rates be paid to the project’s construction workers. As a result, Kentucky’s Department of Labor threw a curve at UK ordering it to make $330,000 in back payments to fulfill its prevailing-wage requirement.1

The Kentucky Office of the State Budget Director recently released a report estimating that prevailing-wage requirements cost taxpayers an additional 17.1 percent on state capital construction projects contained in the current biennial budget,2 including an additional:

• $20 million for construction of a new $450 million UK hospital

• $1.6 million to construct an arena at the $36.5 million Kentucky Horse Park

• $1.3 million to renovate Western Kentucky University’s football stadium, estimated to cost $25.5 million

• $900,000 for a $13.6 million renovation project at the state Finance and Administration office building

While Kentucky’s prevailing-wage law exists to ensure that construction workers on public projects are fairly paid, it actually drives up the cost of some of our most important facilities – including public schools – without any clear evidence of improved quality.

This became especially apparent following a decision during the 1996 Kentucky General Assembly that required prevailing-wage rates to be levied on local government projects, which had previously been deemed exempt. This new prevailing-wage requirement resulted in the Fayette County school system being forced to pay an additional $510,000 in increased labor costs for construction of a new elementary school in its district.3

Policymakers should revisit the decision to include local public projects among those covered by prevailing-wage requirements. In fact, they should eliminate government interference in establishing wage rates altogether and allow bidding on these projects while holding contractors responsible for the work they do to ensure that our public buildings are safe and durable.

– Jefferson G. Edgens, Ph.D., is director of research for the Bluegrass Institute, Kentucky’s free-market think tank.

Sources:

1 “University of Kentucky Athletic Association Board of Directors Meeting Minutes” University of Kentucky, March 1, 2004.

2 “The Impact of Prevailing Wage Laws On Labor Costs for Capital Construction Projects” by J. Michael Jones. Kentucky Office of State Budget, Feb. 7, 2006.

3 “State wrestles with wage law” by Courtney Kinney, The Kentucky Post, Aug. 31, 2001.

The Bluegrass Institute is an independent research and educational institution offering free-market solutions to Kentucky's most pressing problems.

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