Legislature(2011 - 2012)BARNES 124
02/25/2011 03:15 PM House LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| HB125 | |
| HB147 | |
| HB155 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 118 | TELECONFERENCED | |
| *+ | HB 147 | TELECONFERENCED | |
| *+ | HB 155 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 125 | TELECONFERENCED | |
HB 155-PUBLIC CONSTRUCTION CONTRACTS
4:07:24 PM
CHAIR OLSON announced that the final order of business would be
HOUSE BILL NO. 155, "An Act relating to public construction
contracts."
4:07:40 PM
JENNIFER SENETTE, Staff, Representative Kurt Olson, on behalf of
the prime sponsor, the House Labor & Commerce Committee, chaired
by Representative Kurt Olson explained that this bill
accomplishes two things. It raises the trigger point for when
public construction projects must adhere to the Little Davis-
Bacon Act (LDBA) for prevailing wages. Currently, the threshold
for Alaska's Little Davis-Bacon Act is set at $2,000. This bill
would raise the threshold to 75,000 before the LDBA would be
triggered. This bill would establish a boundary between
maintenance, which would not subject to the LDBA and public
construction, which is subject to the Little Davis-Bacon wages.
4:08:30 PM
MS. SENETTE referred to Section 1 of HB 155, which specifies
that the chapter only applies to public construction projects
over $75,000. She explained that during the great depression,
the Congress enacted a federal statute, the Davis-Bacon Act,
which required prevailing wages as the minimum wage to be paid
on public works projects. Subsequently, states enacted similar
laws, which are known as the Little Davis-Bacon Acts (LDBA).
She referred to the LDBA in Alaska, which is located in Title
36. That law currently applies to public construction contracts
over $2,000. This limit is modeled after the limit included in
the federal Davis-Bacon Act. She emphasized that the federal
Davis-Bacon Act was enacted during the Great Depression in 1935.
The reason for the threshold was to acknowledge that some
projects are simply too small to justify the administrative
burden associated with the Davis-Bacon compliance. Currently,
if a project falls under the threshold the municipality or
community does not have to go through the "administrative hoops"
necessary to comply with the LDBA, including certified payroll,
additional reporting requirements, and filing with the Alaska
Department of Labor and Workforce Development (DLWD). She
characterized the requirements as a substantial administrative
burden. She highlighted that in Alaska and particularly in
rural Alaska it is hard to find a public construction project
that does not exceed $2,000. The federal limit was based on a
mobile workforce during a time when communities were easily
accessible. In Alaska, many communities are accessible only by
ferry or barge so by the time the materials are transported and
the logistical factors are considered, the cost will probably
greatly exceed $2,000, she surmised.
4:11:04 PM
MS. SENETTE stated that in practice imposing such a low
threshold has the effect of not having a threshold. She
highlighted that the low threshold also has the effect of
discouraging economic development since the rigidity of the LDBA
compliance requirements discourages smaller firms from
submitting bids on projects. In rural areas it can also mean
that workers must be imported to perform work that otherwise
could have been done by local workers had local firms bid on the
jobs. Raising the threshold would create opportunities for
smaller contractors, who may not have had the experience or
desire to content with the LDBA requirements. These smaller
contractors would be eligible for more projects not subject to
the LDBA. A number of other states have raised their
thresholds, with the average threshold amount of $108,000. She
reported that 19 other states current have higher thresholds
than suggested by HB 155. She related that the DLWD list is in
members' packets. She reiterated the current federal threshold
was set in 1935 by the Davis-Bacon Act and Alaska's LDBA is
modeled after that federal law. She stated that the inflation
alone justifies an increased trigger point, but the specific
impacts on Alaska she just mentioned support increasing the
threshold amount proposed in HB 155.
4:12:58 PM
MS. SENETTE referred to Section 8 of HB 155, which would clarify
maintenance and construction requirements. This bill attempts
to exclude maintenance contracts from the definition of public
construction. Thus, maintenance contracts would not be subject
to the LDBA under the bill. The current statute broadly defines
construction, yet it is unclear which projects are considered
construction projects and which ones are considered maintenance
projects. There is a huge difference between maintenance and
construction. Filling 15 potholes or replacing guardrails along
the roadway should be considered maintenance work and should not
be subject to the LDBA prevailing wages. The fiscal note
reflects a $396,000 decrement, which is due to the decrease in
filing fees. She pointed out letters of support from
organizations and municipalities in members' packets. This bill
has generated considerable public comment, she said.
4:14:46 PM
REPRESENTATIVE MILLER asked for the rationale to increase the
threshold from $2,000 to $75,000 before the job is subject to
the LDBA.
MS. SENETTE answered that the original conversation with
municipalities suggested an increase the threshold for the LDBA
to $250,000, but that figure seemed too significant of an
increase. The prime bill sponsor wanted to start lower, she
offered.
REPRESENTATIVE MILLER asked if $75,000 was selected for any
particular reason.
CHAIR OLSON said, "That number was pulled out of the air." He
related the $75,000 is not as high as the average increase
adopted by other states that have increased the threshold for
the LDBA. He offered his belief that HB 155 must be a
collaborative effort between the unions, the public entities,
and the legislature. He suggested the amount will likely be
lower. He anticipated some amendments will be necessary to
clean up language and address the threshold limit. He further
suggested the amount might be as low as $50,000 or slightly
less. He reiterated the threshold amount must be palatable to a
number of people.
4:16:38 PM
REPRESENTATIVE SADDLER referred to page 3, line 29, of HB 155
and asked for the different between rehabilitation work covered
under the bill and maintenance, which would not be covered.
MS. SENETTE deferred to the Department of Labor & Workforce
Development (DLWD) to address the definitions.
REPRESENTATIVE HOLMES also asked for clarification on how repair
work would differ from maintenance work.
4:17:29 PM
GREY MITCHELL, Director, Division of Labor Standards & Safety,
Department of Labor & Workforce Development (DLWD), stated that
the department relies on a 1982 attorney general's opinion that
draws a distinction between repair work subject to the LDBA, and
maintenance work, which is not subject to the LDBA. It hinges
on whether new material is needed for the project. If a roadway
is resurfaced, graded, and potholes are cleaned out and
repaired, it is considered maintenance and the project is not
subject to the LDBA. However, if new materials such as
truckloads of dirt are necessary or new guardrail must be used,
the project would be considered repair work rather than
maintenance work.
4:18:56 PM
REPRESENTATIVE HOLMES said she would like to review the 1982
attorney general's opinion. She referred to page 4 of HB 155
and stated the definition of maintenance does not bear any
resemblance to what he just described. She was unsure of what
rehabilitation or repair work would be subject to the LDBA and
maintenance work. The definition of maintenance in HB 155 does
not speak to new or used materials.
MR. MITCHELL agreed. He said the language in HB 155 does not
match the DLWD's interpretation of maintenance and repair work.
CHAIR OLSON agreed that this is one issue he is working to
resolve.
REPRESENTATIVE HOLMES asked the committee to also consider
definitions for rehabilitation and repair since the terms seem
to be overlapping concepts.
4:20:37 PM
REPRESENTATIVE HOLMES asked whether school districts and
regional education attendance areas (REAAs) would be exempt from
the bill.
CHAIR OLSON offered his belief that the REAAs will need further
clarification.
REPRESENTATIVE MILLER related he had the same question.
4:21:24 PM
REPRESENTATIVE HOLMES asked for the DLWD's position on HB 155.
MR. MITCHELL answered that the DLWD is neutral on the bill.
4:22:18 PM
GARY KNOPP, President, Assembly, referred to line 3 of the
second paragraph in the sponsor statement, which refers to the
bill updating an antiquated statute/ This is what HB 155 does,
he said. He related that the current statute erodes the
purchasing dollars for local communities and taxpayers. He
highlighted that the dollar threshold for the LDBA exists due to
the wide recognition that some projects are simply too small to
justify the overhead associated with compliance with the law.
He stated that these requirements drive a lot of contractors
away from participation on LDBA projects. He acknowledged that
the sponsor statement is accurate. He reiterated that the bill
would only affect local and state projects, since the federal
projects would be subject to LDBA. A lot of the KPB's revenue
is derived from service areas with small revenue streams. It is
detrimental to the KPB since it must pay prevailing wage rates
for small maintenance projects such as filling potholes or
redistributing gravel. He offered his belief that the
definition of maintenance and repair is almost one and the same.
Since the term is so broadly defined in statute, it has been the
KPB's experience that the DLWD interprets any public project
over $2,000 as a construction project. The difference between
maintenance and repair should not be based on whether new
material is used but rather on the overall value of the project.
He wondered if a project less than $75,000 should warrant using
the LDBA with the additional requirements necessary to comply
with the law. He hoped the committee would consider these
issues. In response to Chair Olson, he offered to address any
amendments at the next hearing.
4:26:36 PM
MR. KNOPP referred to the fiscal note and analysis. He said
that the filing fee is not necessary for all projects up to
$25,000. He pointed out that the filing fee of one percent does
not "kick in" until the $25,000 threshold is reached. Thus, the
fiscal impact should be based on projects from $25,000 to the
proposed $75,000 threshold, he said. He referred to the fiscal
note analysis that lists 1,413 public construction projects with
contract values of less than $75,000, which he thought
represents about 70 percent of all projects. He surmised it
would also considerably reduce the DLWD workload, which would
translate to substantial savings to the state. He referred to
page 12 of the FY 05 Legislative Audit report, 05-4605, which
suggests a deluge of certified payrolls up to $4,000 per week
negates any systematic screening by the DLWD. This bill would
drastically reduce the department's workload since the public
construction projects total 2,200 and the DLWD is currently
bombarded with certified payrolls. He referred to the FY 2000
Legislative Audit Report, which recommended a shift to a $25,000
threshold. The audit also suggested defining the terms
maintenance and construction, he reported.
4:29:01 PM
MR. KNOPP stated that he is also a contractor and performs some
"dirt work." He said that he could pay an equipment operator
$25 per hour, but that it would cost and additional 32 to 35
percent for the Workers' Compensation and unemployment insurance
for the employee. However, the cost for an employee on a
prevailing wage job to perform the same work would cost $86 to
$87 dollars per hour. The wages alone would increase from $25
to $47 per hour, he remarked. Additionally, since insurance
premiums are based on the payroll costs, his Workers'
Compensation and general liability would also increase. He
predicted it costs nearly 100 percent more for LDBA employee
costs.
4:30:04 PM
MR. KNOPP referred to the fiscal note. He related that the
committee should consider that the $152,000 in filing fees
actually "belongs" to contractors and local contractors, which
is significant to the taxpayers.
4:30:40 PM
MARK FOWLER, Purchasing and Contracting Officer, Kenai Peninsula
Borough (KPB), stated that the KPB mayor provided a letter of
support for HB 155, which he hoped the committee has received.
The KPB believes this bill will benefit the KPB by providing
additional buying power and encouraging smaller contractors to
bid on small contracts. The KPB is approximately 25,000 square
miles, with many communities and villages spread throughout.
The KPB encounters a small pool of contractors in the remote
communities who are capable of meeting the KPB's needs.
However, the KPB has found many small contractors are less
willing to participate on contracts subject to the LDBA. The
LDBA requirements drive up the cost of doing business and fail
to generate local work for contractors.
4:32:25 PM
MR. FOWLER related a scenario in which the KPB identified a need
for fencing. A local contractor bid $7,500 for the job, which
exceeded the $2,000 threshold and was subject to the LDBA. Once
the contractor found out the job was subject to the LDBA, he was
no longer interested due to the administrative burden posed by
the law. The KPB paid in excess of $18,000 for a non-local
contractor to perform the same scope of work. Often communities
are logistically challenged, he said. Numerous smaller less
complex projects have been negatively impacted due to the low
threshold. He reiterated that smaller less complex projects
that are subject to the LDBA are burdensome to the contractor
and the DLWD. The KPB believes that HB 155 would benefit the
KPB's residents and contractors. He referred to the fiscal note
and stated that the DLWD does not receive a filing fee for
projects less than $25,000, but the department must process all
projects over $2,500. The DLWD does not receive any filing fee
for jobs between $2,500 and $75,000. These projects require
considerable administrative effort without any compensation to
the DLWD. He predicted if the threshold is increased as
proposed by HB 155, that the DLWD will receive a filing fee on
all projects it processes.
4:35:01 PM
REPRESENTATIVE HOLMES related her understanding that HB 155
would accomplish three things: it would increase the current
$2,000 threshold for the LDBA projects, would change the
definitions to exclude maintenance work, and would exempt school
districts and REAAs. She asked whether the KPB's main interest
is with the monetary aspects of the bill.
MR. FOWLER answered the KPB supports HB 155 in its entirety. He
suggested that his scenarios related to his work experience at
the KPB.
4:36:27 PM
SCOTT BLOOM, Assistant Attorney, Kenai Peninsula Borough (KPB),
stated that he provides legal guidance for capital projects,
road service, and maintenance departments, as well as other
legal guidance for the KPB. The LDBA is unduly burdensome on
the municipal public construction and maintenance activities.
Currently, the statutes lack sufficient clarity for the KPB to
accurately determine which projects are subject to the LDBA and
which are not. He asked to focus on Section 8 of HB 155 to the
definitions for public construction and maintenance. The
proposed language is a departure from the current framework. It
is based on a 1982 attorney general's opinion and little if any
case law provides guidance to better define maintenance from
construction. The KPB's road service area contracts out
maintenance service for its roads. These activities include
plowing and grading roads, maintaining ditches, brushing,
replacing culverts, applying calcium chloride, and fixing
potholes and sink holes. Additionally, contractors will also
replace lost gravel and travel surfaces. The road service area
has a Capital Improvement Program (CIP) to upgrade roads. The
KPB clearly understand these CIP projects are subject to the
LDBA. However, it is more difficult to determine whether other
activities must adhere to the LDBA, including activities such as
brushing or when brushing exceeds the "prior line," pulling
gravel from the ditches when the ditch is made wider or deeper.
He listed some work that may or may not apply to the LDBA,
including adding new materials to the ditches, applying calcium
chloride, or filling a sink hole or pothole. He asked whether
these activities are considered as rehabilitation or repair
projects. He asked whether applying $1,500 of gravel on a
roadway and a week later apply $600 to an adjacent road would
constitute one project over $2,000 or two separate projects. He
stated that the KPB's maintenance projects are generally
relatively small in value and do not exceed $20,000. He offered
his belief that approving a higher ceiling on the LDBA projects
and adding the proposed language in Section 8 of HB 155 which
better distinguishes maintenance from construction will
alleviate most of the KPB's struggle in determining whether a
projects fall under the LDBA. It is critically important for
the KPB to know whether a project falls under the LDBA for
compliance reasons, he said. The LDBA projects take longer to
process and complete, limit the pool of available contractors,
and cost more. This limits the number of projects the KPB can
complete and means fewer services will be provided to taxpayers.
He referred to the fiscal note. He recommended that proposed
Section 8, subsection (4) be changed to reflect the language in
AS 36.95.010 (6), with the addition of the exclusionary language
for the school districts.
REPRESENTATIVE HOLMES referred to proposed Section 8 to the
definition for public construction. She was unsure that this
language provides clarity since rehabilitation and repair is
included, but maintenance is excluded. She asked whether this
language needs some additional work.
MR. BLOOM agreed the definition is problematic. He said he was
unsure a solution exists. The definition proposed in Section 8
does not define rehabilitation and repair, but tells what it is
not. It is not maintenance, he said. He suggested that the
current framework hinging on whether material is transported is
problematic. He stressed that the DLWD is following an attorney
general's opinion, but the opinion does not have legal
consequences or any bearing in communities. He offered his
belief that it may be necessary to for a court to decide the
implications, which he did not think was the best route to
proceed.
4:42:52 PM
ROBERT RUTHNER, Executive Director, Kenai Watershed Forum (KWF),
stated that he works for a small or medium sized nonprofit
organization that performs habitat work in streams throughout
the Kenai Peninsula. This represents a fairly large area to
cover. He has learned the LDBA by trial and error since he
performs road work. He related a lot of his work is clearly
public construction and falls within the LDBA. However, some of
the work falls outside the LDBA. He related the KWF would like
clarity on the definitions just discussed. He outlined that
specifically nonprofit organizations generally work for the
public good and often have relationships with the local
government and sponsors. One limitation that occurs is when
someone wants to make a donation or volunteer his/her time to
help on a public construction project. The LDBA limits the
KWF's ability to complete projects that are in the best interest
of the local government since it does not accommodate people who
want to volunteer their time or donate funds to help complete a
project. Thus, mixing local government funding with private
sector monies, can be difficult. He offered the KWF's support
for the increase to the threshold for the LDBA. Additionally,
he suggested the committee determine whether an opportunity
exists to exempt "do-gooder" projects. He thought using
volunteers would be beneficial to local government. It could
result in a better outcome for projects that have been deemed
public construction, such as trails, parks, fences, buildings
shared between local government and nonprofit organizations. He
reiterated examining the nonprofit and public aspect would
assist nonprofits. Additionally, the KWF supports raising the
threshold amount for the LDBA.
CHAIR OLSON commented that everyone wants the language as clear
as possible in order to avoid litigation.
4:46:42 PM
RON KOVALIK stated that he has served as a volunteer road
commissioner for over 30 years. Two years ago this issue was
"dropped on us like a bomb" and has nearly paralyzed us, he
said. He spoke in support of raising the threshold to $75,000.
He would also like to see the threshold indexed to inflation.
He cautioned against defining maintenance, rehabilitation, and
repair, as "we're going to go around in circles" and the result
will not fix any roads. He said, "What the road needs, we do.
If it takes gravel, we use gravel. If we need machinery, we use
machinery." The LDBA has made it difficult to use volunteers to
brush or remove snow. He said those types of restrictions
practically paralyze the road service areas and prevents any
work from being done.
CHAIR OLSON asked how many road service areas are located in the
Fairbanks area.
MR. KOVALIK answered that Fairbanks has over 100 road service
areas.
CHAIR OLSON suggested the bill would affect small projects.
MR. KOVALIK agreed that it drives off volunteers.
4:48:24 PM
TIM BECK stated that he is a past road service area commissioner
and has previously serves on the Fairbanks North Star Borough
Assembly and Road Service Area Committee. He pointed out that
today is speaking as a member of the Alaska Municipal League
(AML) board. The FNSB does not have road powers. Road service
is provided by road service areas, represented by a commission
of local residents from within the road service area. The
$2,000 threshold for the LDBA is easily surpassed in the larger
service areas. Often, regular maintenance must be addressed as
a capital projects due to the $2,000 limit. The LDBA increases
project costs and the completion time. This threshold increase
to the LDBA is long overdue and would save local residents
thousands of dollars by awarding the administration and design
costs associated with capital projects. He listed two things
that are advantageous in HB 155: the increase to the $2,000
threshold to a more practical number and to clearly define
capital improvements and maintenance. He related his
understanding that maintenance means bringing a road back to its
existing condition, prior to an event such as erosion, snowfall
or flooding even if it requires additional material to do so.
He informed members that Fairbanks currently has 107 road
service areas.
4:50:06 PM
MITCHELL ROCKIER stated that passing HB 155 would place a bigger
risk on owners to complete jobs and on employee salaries. He
predicted administrator would creatively split up a $150,000
project ends up being split up into two smaller projects to
avoid the LDBA. This could lead to more contract management.
He offered his belief that the bill would open it up to workers
receiving different wage scales. Currently, the LDBA wages
keeps everyone on equal parity. He related a scenario in which
three contractors bid on a job at $30, $25, and $15 per hour.
He surmised the bigger contractor will lose out. He stressed
that the Davis-Bacon Act wages were established to provide a
decent salary and benefits for the middle class. He reiterated
his concern that changing the wage scale would open it up to
"low bidders."
4:52:44 PM
CHAIR OLSON stated he was leaving public testimony open on HB
155.
[HB 155 was held over.]