Bush Suspends Davis-Bacon Wage Protection in Katrina Zone
By Donald A. Stukes MBA, CPA

Among the flurry of spending legislations and federal recovery initiatives in the wake of the tragic destruction in the Gulf Coast, President Bush quietly signed an Executive Order that largely went unnoticed. On September 11^th President Bush signed an Executive Order allowing contractors to pay below the prevailing wage in the affected areas of Katrina, effectively side stepping the Davis Bacon Act of 1931.

In 1931, laws were enacted to guarantee fair competition on federal and state construction jobs. Over the years, the Davis-Bacon Act and the state Prevailing Wage law, have become recognized by workers both inside and outside the construction industry, as important milestones in the history of organized labor. Then as now, construction is a time and materials industry, Low bid requirements on public projects allowed contractors from outside an area to bid and win work based on substandard wages and helped create the situation where contractors literally “imported” low-wage workers from around the country rather than use the local labor force.

Let us fast-forward to present day. The current federal minimum wage is now at $5.15 per hour. One should note that the buying power of the federal minimum wage has declined by nearly 25% over the last 20 years. This has resulted in spirited discussions on Capital Hill on both sides of the aisle about legislation to increase the federal minimum wage to over $7.00 per hour.

All Americans watched in awe and discomfort as sound bites and TV clips were shown of those citizens trapped in New Orleans largely because they did not have the economic means to avail themselves of transportation or refuge. I can remember one reporter asking a New Orleans resident, why did he not evacuate and his response was, “I make $340.00 per month on a construction job. Where am I to go? I have no money.”  Many of the New Orleans residents in certain sections of the city live below the federal poverty standard.

President Bush, in one of his many public speeches to fellow Americans, stated he was focused on the reconstruction of the devastated areas; he insinuated that this reconstructive effort would stimulate jobs for many people, especially the very citizens most devastated by the destruction. I assumed Bush referred to the poor and disadvantaged who were left behind to feel the full brunt of the storm and its aftermath. The question one must ask is:  exactly how will this group of citizens benefit when they were already on public assistance or earning the minimum wage? Now that the protection of the minimum wage has been lifted, how will these families who do desire to earn a respectable wage for work be able to survive?  Representative George Miller of California has said “the administration is using the devastation of Hurricane Katrina to cut the wages of people desperately trying to rebuild their lives and their communities”.

I can never forget what my grandmother use to tell me when I was young, “you need to protect the most vulnerable."  If one believes in this doctrine, should the government find ways to ensure the opportunity for work at a fair wage for those wanting to work in the construction industries. President Bush’s rational for the lifting of the minimum wage was because he felt this would provide greater assistance to the devastated communities and would permit the employment of thousands of additional individuals. Maybe there is some credence to this posture but at what price will these individuals be paid for such work. Furthermore, will there be an influx of out-of-state workers and illegal immigrants who will line-up and compete for these jobs? How is this helping the local worker trying to get back on his feet?  The government through FEMA has appropriated billions for reconstruction with billions more to come. These reconstruction contracts, so far, have been secured by major international conglomerates like Halliburton and Flour. These are the same companies that are benefiting from the Iraq war. The Executive Order signed on 9/11 only serves to help these companies increase their profit margins on such contracts and could lead to shabby substandard work.

In the end, it appears to me that the federal government does not understand what “you need to protect the most vulnerable” means. The Executive Order signed is just another mechanism to exploit the poor and such actions will not serve as a catalyst to assist those workers most affected by the storm to rebuild their lives.

Donald A. Stukes is a principal in White Plains, New York-based Asset Solutions International, Inc., an investment banking boutique that focuses on corporate restructuring and mergers & acquisitions.


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