The Cost to School Districts due to Wisconsin’s Prevailing Wage Law

Published on: May 20, 2015

The Cost to School Districts due to Wisconsin’s Prevailing Wage Law

Introduction

School districts have decried Governor Walker’s proposed reductions in anticipated state aid. While it now appears that these deferred increases will be reinstated, the controversy is instructive on another pending reform. There exists an antiquated, very costly mandate that forces school districts to pay above market wages for their construction projects.  This is known as the prevailing wage laws.  Reform would make much more money available for education. In this paper, we give examples for how much it might save particular school districts.

Much has been written about how this law – a super minimum wage for a select few – costs taxpayers.  The Wisconsin Taxpayers Alliance issued a report concluding that if market wages were used instead of prevailing wages for state and municipal projects, in 2014, taxpayers could have saved between $200 million and $300 million. Americans for Prosperity used data to estimate the impact of prevailing wage laws on referendum projects in 2015 ($37.8 million) and between 1995 and 2011 ($890 million).[1]

WILL adds to the debate by estimating the potential savings to taxpayers over the last 5 years if all Wisconsin school districts paid market wages, instead of the prevailing wage, for projects approved by voter referendum.  Using our methodology, we conclude that districts would have saved at least $163.2 million and $244.8 million over the last five years (individual school district breakdown given by Table 2 on page 5). 

Data and Methodology

We derive estimates for savings that school districts would have experienced had school bonding projects occurred without the prevailing wage laws.  To do this, we use data from the Wisconsin Department of Public Instruction on school referenda passed since January 1, 2010.   We exclude referenda that do not fall under prevailing wage laws, such as those associated with refinancing debt or land acquisition.  In the last 5 years, there have been 142 referenda passed in 121 school districts resulting in $1.8 billion worth of bonds issued.  Districts that did not pass referenda in any of the last 5 years do not show up in the analysis.

Our estimates are based on savings rates calculated by the Wisconsin Taxpayers Alliance.[2]  They estimated that savings from capital projects under market wages would have ranged from 9% to 13.5%.   We apply this range to the school bond amounts.

Our estimates will likely understate actual savings because our study only uses project costs through school referenda only.  School districts have other projects that fall under prevailing wage laws that are not taken up by referenda.

Total Impact

In using the methodology described above, we conclude that school districts in Wisconsin could have saved between $163.2 million and $244.8 million over the last five years had school bonding projects been conducted under market wages instead of prevailing wage.  Figure 1 shows the findings.

Figure 1: Projected savings for Wisconsin school districts if market wages instead of prevailing wages were used for school projects funded through referenda passed since January 1, 2010

Schools and PW

Impact on Individual School Districts

Table 2 on shows the savings for all 121 school district in Wisconsin that passed referendum since 2010.

The calculations are revealing about the tradeoffs and difficult decisions that schools face because of the current law.

For example, Green Bay Area Public Schools and Menomonie Area each could have saved as much as $5 million in the last 5 years.  Baraboo, Pewaukee and Platteville could have saved up to $2 million.  The total savings in Prescott in the last five years range between $2.9 million and $4.3 million. Beloit would have spent between $6.3 million and $9.5 million less under market wages.  Fox Valley school districts could have saved up to $7.5 million.

Perhaps a lot of the angst expressed over the proposed reductions for many districts could have been avoided had prevailing wage been repealed.  There was widespread concern among school and district leaders when the Governor released his proposal earlier this year.  Cedarburg Superintendent Jonathan Lamberson said that budget reductions “definitely compounds the already massive fiscal challenges that Cedarburg and most other districts are already facing for next year.”[3]  It seems evident, however, that, for many districts prevailing wage laws were contributing factors to any fiscal challenges.  Having to pay more than a market rate for new or renovated facilities will leave less money for everything else. While we cannot say for sure that repealing prevailing wage would have completely avoided these actual or perceived lack of funds, it would certainly have helped.

To offer additional perspective, we convert the total savings for each district to annual savings (second-to-last column in Table 1).  These debt obligations are typically not paid off in one period.  We assume a 20-year amortization schedule at 4% interest to determine how much each district would have saved each year for the next 20 years.  The last column reports how much this annual savings would have offset the proposed state aid reductions which have caused so much concern.  The first year of proposed reductions would have been offset by between 11% and 71% in these districts.  Of course, these districts would continue to save for the next 19 years while the proposed aid reductions were only to be temporary.

Table 1: Estimated savings for school districts if market wages instead of prevailing wages were used for school projects funded through referenda passed since January 1, 2010
District Savings (9%) Savings (13.5%) proposed budget cut Annual payment % offset
(A) (B) (C) under 20-year schedule*
Appleton $2,250,000 $3,375,000 $2,190,225 $248,338 11%
Baraboo $895,500 $1,343,250 $454,275 $98,839 22%
Beloit $6,300,000 $9,450,000 $1,096,275 $695,348 63%
Green Bay $3,303,000 $4,954,500 $3,234,975 $364,561 11%
Hortonville $2,290,950 $3,436,425 $531,000 $252,858 48%
Menasha $2,699,550 $4,049,325 $558,900 $297,956 53%
Menomonie Area $3,240,000 $4,860,000 $501,000 $357,607 71%
Pewaukee $1,480,500 $2,220,750 $384,975 $163,407 42%
Platteville $1,350,000 $2,025,000 $220,725 $149,003 68%
Wausau $2,660,850 $3,991,275 $1,274,850 $293,685 23%
* annual payments under 20-year amortization schedule and 4% interest rate
Table 2: Estimated savings for school districts if market wages instead of prevailing wages were used for school projects funded through referenda passed since January 1, 2010 using different assumptions for the savings rate
District Savings (9%) Savings (11.3%) Savings (13.5%)
Adams-Friendship Area

$414,000

$519,800

$621,000

Alma

$270,000

$339,000

$405,000

Alma Center

$927,000

$1,163,900

$1,390,500

Altoona

$2,070,000

$2,599,000

$3,105,000

Appleton Area

$2,250,000

$2,825,000

$3,375,000

Arcadia

$1,260,000

$1,582,000

$1,890,000

Baldwin-Woodville Area

$1,255,500

$1,576,350

$1,883,250

Bangor

$52,200

$65,540

$78,300

Baraboo

$895,500

$1,124,350

$1,343,250

Barneveld

$105,750

$132,775

$158,625

Beloit

$6,300,000

$7,910,000

$9,450,000

Berlin Area

$1,683,000

$2,113,100

$2,524,500

Black River Falls

$2,025,000

$2,542,500

$3,037,500

Blair-Taylor

$1,528,650

$1,919,305

$2,292,975

Bloomer

$1,575,000

$1,977,500

$2,362,500

Brillion

$670,500

$841,850

$1,005,750

Bristol #1

$477,000

$598,900

$715,500

Brown Deer

$1,980,000

$2,486,000

$2,970,000

Cadott Community

$860,850

$1,080,845

$1,291,275

Cambria-Friesland

$112,500

$141,250

$168,750

Cambridge

$417,150

$523,755

$625,725

Cameron

$2,115,000

$2,655,500

$3,172,500

Cashton

$1,107,900

$1,391,030

$1,661,850

Cedar Grove-Belgium Area

$540,000

$678,000

$810,000

Clear Lake

$577,350

$724,895

$866,025

Cudahy

$531,000

$666,700

$796,500

Darlington Community

$186,750

$234,475

$280,125

Deforest Area

$3,690,000

$4,633,000

$5,535,000

Denmark

$110,700

$138,990

$166,050

Depere

$639,000

$802,300

$958,500

Desoto Area

$678,150

$851,455

$1,017,225

Durand

$1,213,200

$1,523,240

$1,819,800

East Troy Community

$2,223,000

$2,791,100

$3,334,500

Eau Claire Area

$4,666,500

$5,859,050

$6,999,750

Edgar

$684,000

$858,800

$1,026,000

Edgerton

$567,000

$711,900

$850,500

Elkhorn Area

$1,837,800

$2,307,460

$2,756,700

Fall Creek

$459,000

$576,300

$688,500

Fall River

$220,950

$277,415

$331,425

Fennimore Community

$530,100

$665,570

$795,150

Fox Point J2

$625,950

$785,915

$938,925

Franklin Public

$2,970,000

$3,729,000

$4,455,000

Glenwood City

$831,600

$1,044,120

$1,247,400

Green Bay Area

$3,303,000

$4,147,100

$4,954,500

Hartford J1

$333,000

$418,100

$499,500

Hilbert

$1,472,850

$1,849,245

$2,209,275

Horicon

$256,500

$322,050

$384,750

Hortonville

$2,290,950

$2,876,415

$3,436,425

Howards Grove

$306,000

$384,200

$459,000

Howard-Suamico

$1,206,000

$1,514,200

$1,809,000

Ithaca

$357,300

$448,610

$535,950

Jefferson

$3,167,100

$3,976,470

$4,750,650

Johnson Creek

$1,701,000

$2,135,700

$2,551,500

Kaukauna Area

$14,299

$17,954

$21,449

Kenosha

$1,503,000

$1,887,100

$2,254,500

Kettle Moraine

$4,464,000

$5,604,800

$6,696,000

Kewaunee

$1,458,000

$1,830,600

$2,187,000

Kiel Area

$585,000

$734,500

$877,500

Lacrosse

$1,413,000

$1,774,100

$2,119,500

Lake Mills Area

$1,683,000

$2,113,100

$2,524,500

Linn J6

$252,000

$316,400

$378,000

Lomira

$2,160,000

$2,712,000

$3,240,000

Luck

$108,000

$135,600

$162,000

Luxemburg-Casco

$496,800

$623,760

$745,200

Madison Metropolitan

$3,690,000

$4,633,000

$5,535,000

Mauston

$225,000

$282,500

$337,500

Menasha

$2,699,550

$3,389,435

$4,049,325

Menomonie Area

$3,240,000

$4,068,000

$4,860,000

Mequon-Thiensville

$1,638,000

$2,056,600

$2,457,000

Middleton-Cross Plains

$5,387,400

$6,764,180

$8,081,100

Mondovi

$135,000

$169,500

$202,500

Mount Horeb Area

$1,500,300

$1,883,710

$2,250,450

New Glarus

$661,500

$830,550

$992,250

North Lake

$203,400

$255,380

$305,100

Norwalk-Ontario-Wilton

$522,000

$655,400

$783,000

Oak Creek-Franklin

$5,318,550

$6,677,735

$7,977,825

Oconto

$819,000

$1,028,300

$1,228,500

Oconto Falls

$198,000

$248,600

$297,000

Omro

$90,000

$113,000

$135,000

Onalaska

$1,440,000

$1,808,000

$2,160,000

Oregon

$4,914,000

$6,169,800

$7,371,000

Osceola

$270,000

$339,000

$405,000

Oshkosh Area

$1,169,550

$1,468,435

$1,754,325

Osseo-Fairchild

$495,000

$621,500

$742,500

Pardeeville Area

$162,000

$203,400

$243,000

Parkview

$1,530,000

$1,921,000

$2,295,000

Pewaukee

$1,480,500

$1,858,850

$2,220,750

Platteville

$1,350,000

$1,695,000

$2,025,000

Port Washington-Saukville

$4,446,000

$5,582,200

$6,669,000

Poynette

$115,650

$145,205

$173,475

Prescott

$2,868,300

$3,601,310

$4,302,450

Pulaski Community

$393,300

$493,810

$589,950

Randolph

$1,581,300

$1,985,410

$2,371,950

Random Lake

$765,000

$960,500

$1,147,500

Raymond #14

$417,600

$524,320

$626,400

Rhinelander

$1,233,000

$1,548,100

$1,849,500

Rib Lake

$360,000

$452,000

$540,000

Rice Lake Area

$1,828,800

$2,296,160

$2,743,200

Ripon Area

$2,619,000

$3,288,300

$3,928,500

River Falls

$1,714,500

$2,152,650

$2,571,750

Saint Croix Central

$2,159,550

$2,711,435

$3,239,325

Sauk Prairie

$3,117,600

$3,914,320

$4,676,400

Sharon J11

$538,200

$675,740

$807,300

Shullsburg

$123,750

$155,375

$185,625

Somerset

$715,500

$898,350

$1,073,250

Stone Bank School District

$225,000

$282,500

$337,500

Stoughton Area

$652,500

$819,250

$978,750

Suring

$81,000

$101,700

$121,500

Tomorrow River

$765,000

$960,500

$1,147,500

Twin Lakes #4

$539,100

$676,870

$808,650

Union Grove UHS

$199,350

$250,295

$299,025

Watertown

$558,000

$700,600

$837,000

Waunakee Community

$4,792,500

$6,017,250

$7,188,750

Wausau

$2,660,850

$3,340,845

$3,991,275

West Bend

$2,057,850

$2,583,745

$3,086,775

White Lake

$269,550

$338,435

$404,325

Whitehall

$1,125,000

$1,412,500

$1,687,500

Whitewater

$168,300

$211,310

$252,450

Williams Bay

$1,791,000

$2,248,700

$2,686,500

Winneconne Community

$423,000

$531,100

$634,500

Wonewoc-Union Center

$108,000

$135,600

$162,000

TOTAL

$163,217,149

$204,928,199

$244,825,724


[2] To compute savings rates, the economists compared prevailing wage rates to market rates using data from the Wisconsin Department of Workforce Development and Bureau of Labor Statistics. To account for the fact that building projects costs are not entirely labor costs, assumption are made about the labor’s share of the project costs – they assume that labor’s share is 20% to 30% of total costs. These assumptions are based on conservative ranges found in empirical labor economics studies. For further details, please refer to: Wisconsin Taxpayers Alliance (2015). Evaluating Wisconsin’s Approach to Determining Prevailing Wages, March 2015.