Prevailing wage as a requirement for State funding has come up at a few meetings lately. I must admit the details elude me, so I’m delighted to share a guest posting from Steve Howard. Steve is the Information Technology and Development Manager at Paul Bunyan Communications’ (PBC). PBC has been a leader in Rural Broadband for years and recently launched their GigaZone service that is deploying Gigabit Ethernet to 5,000 square miles in Rural Minnesota. As you’ll see he is in the thick of looking at the impact of prevailing wage. His comments are similar to what I have heard other providers say. It seems like prevailing wage is a good idea but requires a second look.

I’ve spent the past several weeks working on an application for the State of Minnesota’s Border-to-Border Broadband Grant Program. The design process involves a variety of things including cost analysis, GIS mapping, existing utility mapping, natural resources protection, population & network growth estimation, etc. But, at the most basic level, it starts with large maps and a highlighter. We highlight the areas that look good and then follow that up with financial analysis.

As we stare at the maps, I’m disheartened by the number of people that will be excluded from getting broadband due to outdated nuances in state regulations. In our case, this program could serve around 45% more locations with some simple no-cost regulatory “tweaks”.

The biggest hindrances to the program are in the nuances of the Minnesota’s Prevailing Wage requirements. Paying the true prevailing wage is not an issue for any provider that I know. In the current economy, if you don’t pay the true prevailing wage or more, you will struggle to find and keep skilled employees.

The problem is not the prevailing wage requirement, it is methodology used to calculate it. For example, the State of Minnesota calculates the prevailing wage including benefits for a common laborer in the Iron Range at $92,934.40/year! (1) Does that amount truly represent the prevailing wage? Is that realistic for an unskilled position?

Here are a few salary averages for Minnesota from a variety of sources:

• Architect: $88,955
• Physician’s Assistant: $82,000
• Registered Nurse:    $69,810
• Respiratory Therapist:        $64,947
• Dental Assistant:      $51,000
• Minnesota Legislator: $31,140

All of the positions above (except a legislator!) require significant training and licensure, yet none earns as much as the supposed prevailing wage for an unskilled laborer. I struggled to find benefit costs, so this may not be a true “apples to apples” comparison. But, it still gives a rough idea of how drastically broken the system is.

I don’t think that it was the intention of our legislators to create a broken system, Minnesota Statute 177.41 states: “It is therefore the policy of this state that wages of laborers, workers, and mechanics on projects financed in whole or part by state funds should be comparable to wages paid for similar work in the community as a whole.” This sounds quite reasonable to me.

Unfortunately, Minnesota Rule 5200.1060 states “Each wage rate determination shall be based upon the actual wage rates paid to the largest number of workers within each labor classification”. If I remember High School math correctly, MN Statute 177.41 sounds like a “mean” calculation, while Rule 5200.1060 describes a ”mode” calculation. This can cause a single organization to dominate the outcome. The wage/organization with the largest number of employees in a job classification always wins, whether it is comparable to wages paid for similar work in the community or not. The leaves way too much power in the marketplace to a single organization/industry. What would happen if a big-box retail employer classified all of its employees as a “common laborer”? The rate would likely plummet to near minimum wage. That isn’t good either and I suspect that some employers would take advantage of employees if that happened.

The prevailing wage calculation should be changed to something that truly reflects the intention of the statute. I’m no math expert, but below are a few possible ideas:

1. Weighted average: Drop the top & bottom 15% of wages and calculate the mean of what remains;
2. Median: This seems like the answer that would truly reflect the intention of the statutes;
3. X Percentile: For example, 60^th percentile. Perhaps 60 isn’t the right choice, but there should be a value that makes sense;
4. The mean is also an option, but it can also be affected too much by extremes at either end of the pay scale.

I’ve heard from other telecommunications providers that another problem is that overtime pay is required for employees that work more than eight hours in a day. Oftentimes employees prefer to work four 10 hour days instead of five eight hour days. This helps save daycare expenses and reduces travel time, providing more quality family time, less travel expenses, and less carbon emissions. If employees work on these projects they will likely be forced back to five eight hour days. “Four tens” has been around for a long time. It is time to bring Minnesota statutes up to the modern era and get this fixed also!

Another problem that faces one of our contractors is that the true benefits costs aren’t considered by the State. In their case, they have many seasonal employees that are laid off in the winter. However, they are a great employer and choose to continue their employee health benefits even while the employees are laid off every year. The state’s calculation doesn’t take this into account and, sadly, this employer faces a competitive disadvantage on these type of projects for treating their employees well.

My team and I see firsthand how the State regulatory issues are limiting the effectiveness of the Border to Border grant program. We could do so much more if these were fixed!