Not according to Nancy Leppink, the Acting Administrator of the U.S. Labor Department’s Wage and Hour Division, who has taken to the official blog of the U.S. Department of Labor to respond to criticism of a ruling she issued this summer. The ruling issued by Ms. Leppink has faced disapproval from both the public and private sector because it disturbed decades of previous interpretations of the Davis-Bacon Act and a resolution may be years away. Since its passage 80 years ago, and as its plain language puts forward, the Davis-Bacon Act has been understood to require contractors on public works construction projects funded by the federal government or the District of Columbia to pay their workers a “prevailing wage.”
At the heart of this matter is a privately funded construction project in Washington, D.C. called CityCenterDC. The project is being built with private money raised by the developers. Neither the federal government nor the District is paying a dime. During contract negotiations between the city government and developers, neither side believed the Davis-Bacon Act applied and no provisions related to the Act were included in the final agreement. However, a regional union petitioned the Wage and Hour Division to apply the Act. In 2010, an official from the Wage and Hour Division denied the union’s request. Subsequently, the union appealed and Nancy Leppink, the Acting Administrator of the Wage and Hour Division, ruled in favor of the union this summer.
Despite the fact that no government funds are being used on the CityCenter project, the traditional measuring stick for Davis-Bacon applicability, the Administrator determined the Act applied. This determination was based on the city’s retained ownership of the land with a lease to the developers, that the project will be carried out “directly by the authority” of the District and “will serve the interest of the general public.” This ruling raises the question of what other projects the prevailing wage requirements of Davis-Bacon may apply to in the future.
In September, Nancy Leppink used the Department of Labor blog to defend her ruling and highlight the public benefits of the project which she believes makes it a “public work.” These include jobs for the District and the requirement that 20% of the residential units in the project be committed to affordable housing. Ms. Leppink cites the Washington Nationals baseball stadium and the D.C. convention center as similar “public works.” Both of these projects utilized public financing which is in stark contrast to the privately funded CityCenter project.
The immediate reaction to the ruling is that it will likely increase the number of projects that will fall under the Davis-Bacon wage requirements. If this happens, the ruling could push up labor costs on a substantial number of economic development projects in DC and across the country. But what now is the standard? Clearly, no longer are government dollars required to turn an otherwise privately funded endeavor into a public project. At the very least, it creates even more uncertainty about costs during a time where both the public and private sector are trying to contain spending.
Then there is the question of who pays for the increased costs. The administrative ruling stated the D.C. government would be responsible for the increased labor costs. Understandably, city officials are likely to try and have the tab picked up by the developers. The D.C. government and the developers are appealing the ruling before an administrative review panel. That board’s decision could then be appealed in federal courts. All of this could take years to reach a conclusion. Both the D.C. government and the private sector are now left to guess about how to proceed and who will be responsible for the potential added cost.
In economic times like these, a compelling argument can be made to suspend the Davis-Bacon wage requirement on all applicable projects. In one study, economists found that Davis-Bacon rules cost federal taxpayers about $8.6 billion annually. However, after this ruling and the Department of Labor’s response to the criticism, that does not seem likely.
Now the question of whether Davis-Bacon will apply is no longer whether the project is receiving financial assistance from the federal or D.C. government, but an uncertain application of “public benefits” and a vague measure of retained authority by the government. We are left asking: What minimum threshold of government involvement will require a prevailing wage to be paid and who will be left holding the bag?