The Recovery Act Fraud You Don’t Know About

We were very proud with the Recovery Act, we insisted on the Davis Bacon prevailing wage. We won that fight early on. [1]

Nancy Pelosi

Voters are subjected to a lot of disingenuous talk about wasteful government spending. We are promised that lost dollars will be reclaimed through better federal scrutiny, to be used later to pay for “already paid for” spending bills Congress has resorted to in the face of dwindling tax receipts.

Politicians do not consider it a waste to spend vast sums to keep their favorite special interest groups happy, and they certainly do not consider it to be fraud. Many of us would disagree, and would quickly apply the labels “waste“ and “fraud” to laws mandating that special interests be enriched at taxpayer expense.

The Davis-Bacon Act is an archaic, depression-era labor law that does exactly that. Introduced by two Republican Congressmen and signed into law March 31, 1931, the bill prevented importing low-cost, arguably black labor to undercut local wages. Despite frequent calls for repeal or reform, the law is alive, well, and costing us money.

Davis-Bacon applies to construction projects either funded or assisted by the Federal Government. Recovery Act legislation was drafted to ensure that the law applied to stimulus projects:

The prevailing wage provision in section 1606 of the Recovery Act broadly applies Davis-Bacon requirements to all construction projects funded directly or assisted by the federal government under Division A of the act. It reinforces Davis-Bacon Act coverage of construction projects where the federal government is a party to the contract, extends it to projects assisted in whole or in part by Division A of the act, and overrides any limitation to Davis-Bacon coverage in related laws under which federal agencies provide financial assistance, such as grants and loan guarantees, to recipients to use for construction projects. It also extends the prevailing wage requirement to some federally assisted projects that would not otherwise be subject to that requirement. [2]

Congress mandated that 40 programs under the Recovery Act totaling $102 billion pay Davis-Bacon wage rates. 33 programs in force before the Recovery Act and not previously subject to the law were newly covered, including presidential infrastructure spending favorites such as broadband technology expansion and clean power programs. [3] The resulting cost hikes for some programs are very high, including a mandatory 20% increase in wages for some workers paid by the Wind and Hydropower Technologies Program. [4]

The Department of Energy suggested that Davis-Bacon will have minimal impact because the agency was already paying top dollar for project labor:

Department of Energy officials responsible for the Geothermal Technologies program noted that the prevailing wage rates were in line with what they expected, and Electricity Delivery and Energy Reliability program officials said existing wage rates paid by utility companies were generally high already so any increase in wage expenses due to prevailing wage rates would probably be minimal. [5]

Health and Human Services used the same argument, admitting that they were already paying Davis-Bacon rates because those receiving funds had already added the cost increases to their grant requests. [6]

Estimates of Davis-Bacon cost increases include a 9% per home increase for weatherization work, and a 10-13% per home for the Lead Hazard Reduction Program in Iowa. [7] The Weatherization Assistance Program pays commercial construction rates for any structure higher than four stories, reducing the number of dwellings that can be weatherized. [8] Davis-Bacon requires elaborate wage tracking and reporting, which is burdensome for small business, and further increases costs.

We have spent billions trying to get the economy back on track, spending in vain while hoping to get people back to work. At the same time, those who authorized Recovery Act spending created an environment where federally-mandated labor costs negatively impact job creation:

However, federal officials from four programs—the Weatherization Assistance Program, State Energy Program, Energy Efficiency and Conservation Block Grants, and Correctional Facilities on Tribal Lands Program—noted that the Davis-Bacon requirements could have a large impact on their ability to support the Recovery Act goal of preserving or creating new jobs. [9]

The president suggests we not only ramp up infrastructure spending to create jobs, but create a $50 billion bank to fund the projects. He also wants to massively increase financial support to community colleges, in part to retrain displaced workers. If you swallow the PR that infrastructure spending will create jobs right here and now, then we should be using infrastructure projects as training grounds, instead of excuses to enrich unions by funding high-cost labor at wage rates that we cannot afford, and that endangers the shaky success of taxpayer-supported programs.

How can Congress justify passing laws that force us to pay more for less while millions are out of work and our recovery stagnates? President Obama can tell you:

These are simple ideas.  These are American ideas. These are union ideas.  That’s what we’re fighting for. [10]

1...Congresswoman Nancy Pelosi. Pelosi Remarks This Afternoon at United Steelworkers International Women’s Conference. October 18, 2010. http://pelosi.house.gov/news/press-releases/2010/10/pelosi-remarks-this-afternoon-at-united-steelworkers-international-womens-conference.shtml, retrieved October 21, 2010.

2...Government Accountability Office. Recovery Act. Officials’ Views Vary on Impacts of Davis-Bacon Act Prevailing Wage Provision. February 2010. p. 6.

3...Ibid. p. 7.

4...Ibid. p. 13.

5...Ibid. p. 12.

6...Ibid. p. 15.

7...Ibid. p. 14.

8...Ibid. p. 17, and summary page.

9...Ibid.

10..The White House. Office of the Press  Secretary. Remarks by the President at Laborfest in Milwaukee, Wisconsin. September 6, 2010. http://www.whitehouse.gov/the-press-office/2010/09/06/remarks-president-laborfest-milwaukee-wisconsin, retrieved October 20, 2010.