The unprecedented expansion of the archaic Davis-Bacon Act (an inflationary and anti-small business regulation requiring contractors to pay inaccurate, bloated government-determined wages and benefits on taxpayer-funded infrastructure projects) into privately developed clean energy construction projects receiving federal tax incentives is raising serious concerns among developers, small businesses in the construction industry, climate change activists, and taxpayers.
Buried in the partisan, $740 billion reconciliation bill known as the Inflation Reduction Act of 2022 is language forcing private developers of electric vehicle charging stations and solar, wind, hydrogen, carbon sequestration, and other clean energy projects to pay workers Davis-Bacon wages and hire apprentices from government-registered apprenticeship programs or lose critical tax incentives that help grow America’s clean energy marketplace.
Although not an explicit mandate to use unionized firms and labor, in practice, this new policy is a massive giveaway to construction trade unions because it leverages federal tax policy to boost union membership while penalizing the 87.4% of U.S. construction workers who have chosen to work for a nonunion contractor and not to join a union.
Since Davis-Bacon’s passage in 1931, special interests such as construction trade unions and their allies in the federal government have fiercely defended it (and successfully lobbied to expand its reach to federally assisted construction projects procured by state and local government) via 71 related acts. That’s despite complaints by government watchdogs, taxpayers, and small business advocates that Davis-Bacon regulations and prevailing wage requirements needlessly raise taxpayer-funded construction costs, stifle job creation, undermine productivity, unfairly steer contracts to unionized firms, and discourage competition from small businesses by imposing onerous paperwork burdens and compliance risks on contractors and governments building projects funded by federal dollars.
At the heart of the Davis-Bacon policy debate are two key facts. The first is that the Department of Labor, tasked with determining wage rates and enforcing the Davis-Bacon Act, has failed to provide clarity to the contracting community with respect to the various bureaucratic interpretations of Davis-Bacon regulations and the accompanying red tape. This exposes contractors to added compliance costs, fines, and litigation and ultimately undermines government programs seeking to award more contracts to small, minority, and disadvantaged businesses.
The second is that lawmakers and regulators, collaborating with the construction trade union lobby, have rigged the government’s regulatory and enforcement bureaucracy to ensure that, as much as possible, the DOL requires that contractors pay inflated, nonmarket rates to construction workers consistent with union collective bargaining agreements. Less than 13% of the construction industry is unionized, so it is statistically impossible for union rates to be adopted as “prevailing” as much as they actually are by the DOL.
Likewise, for decades, the Government Accountability Office and the DOL Office of Inspector General have called for reforms to the DOL’s unscientific and fundamentally flawed wage determination process, yet the DOL has done little to improve it.
In short, Davis-Bacon helps unionized contractors win more government contracts and create more jobs for unionized labor by needlessly raising costs for competitors. This is a key reason why President Joe Biden supports it. He has said, after all, “I intend to be the most pro-union president leading the most pro-union administration in American history.”
Furthermore, critics of the Biden administration’s controversial March 18 DOL proposed rule (which purports to “update and modernize” existing Davis-Bacon Act regulations on federal and federally assisted construction projects), including taxpayer watchdogs, state and local governments, and infrastructure stakeholders, call the DOL proposal more pork for special interests at the expense of efforts to reduce the runaway costs of infrastructure construction.
This proposal rescinds modest reforms enacted by the Reagan administration in the early 1980s, overturns decades of legal decisions unfavorable to unions, expands the scope of the DBA to new types of construction-related activity and new industries such as manufacturing, trucking, and surveyors, and fails to fix the DOL’s broken and convoluted wage determination process.
With the Inflation Reduction Act’s recent expansion of Davis-Bacon into privately developed clean energy projects jockeying for full tax credits, the law’s damaging impact is no longer contained to government construction contracts. Climate change activists are concerned these provisions will slow down the construction of American clean energy projects and undermine Biden’s climate goals by increasing costs, exacerbating the construction industry’s skilled workforce shortage and eliminating quality contractors already in the marketplace or eager to enter it by making green energy tax credits less valuable or completely useless. This means less investment in clean energy projects, fewer jobs, and more carbon emissions for America.
Married with the expansion of the Davis-Bacon Act into private green energy projects via the Inflation Reduction Act, signed into law Aug. 16, the Biden administration’s new DOL proposal is a big win for special interests but a loss for cost-effective taxpayer investment in clean energy and infrastructure that is needed to power America’s resilient 21st-century economy.
Ben Brubeck is the vice president of regulatory, labor, and state affairs of Associated Builders and Contractors.