Budget Options
December 8, 2016

Discretionary Spending Option 27

Multiple Budget Functions

Repeal the Davis-Bacon Act

CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.

Billions of Dollars 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2017-2021 2017-2026
Change in Discretionary Spending                        
  Spending authority 0 -1.6 -1.6 -1.7 -1.7 -1.7 -1.8 -1.8 -1.9 -1.9 -6.6 -15.7
  Budget authority 0 -0.8 -0.8 -0.8 -0.9 -0.9 -0.9 -0.9 -0.9 -1.0 -3.3 -8.0
  Outlays 0 -0.4 -1.0 -1.3 -1.4 -1.6 -1.6 -1.7 -1.7 -1.8 -4.1 -12.5
Change in Mandatory Outlays 0 * * -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.2 -0.5

This option would take effect in October 2017.

Spending authority includes budget authority as well as obligation limitations (such as those for certain transportation programs).

* = between –$50 million and zero.

Since 1935, the Davis-Bacon Act has required that workers on all federally funded or federally assisted construction projects whose contracts total more than $2,000 be paid no less than the “prevailing wages” in the area in which the project is located. (A federally assisted construction project is paid for in whole or in part with funds provided by the federal government or borrowed on the credit of the federal government.) The Department of Labor determines the prevailing wages on the basis of the wages and benefits earned by at least 50 percent of the workers in a particular type of job or on the basis of the average wages and benefits paid to workers for that type of job.

This option would repeal the Davis-Bacon Act and reduce appropriations, as well as the government’s authority to enter into obligations for certain transportation programs, accordingly. If this policy change was implemented, the federal government would spend less on construction, saving $13 billion in discretionary outlays from 2018 through 2026, the Congressional Budget Office estimates. The option would also result in reductions in mandatory spending of less than $1 billion from 2018 to 2026. Savings would accrue to federal agencies that engage in construction projects. In 2016, about half of all federal or federally financed construction was funded through the Department of Transportation, although a significant portion of federal construction projects were funded through the Department of Defense, the Department of Housing and Urban Development, and the Department of Veterans Affairs, among others.

A rationale for repealing the Davis-Bacon Act is that, since the 1930s, other policies (including a federal minimum wage) have been put in place that ensure minimum wages for workers employed in federal or federally financed construction. Moreover, when prevailing wages (including fringe benefits) are higher than the wages and benefits that would be paid in the absence of the Davis-Bacon Act, the act distorts the market for construction workers. In that situation, federally funded or federally assisted construction projects are likely to use more capital and less labor than they otherwise would, thus reducing the employment of construction workers. Additional arguments for repealing the Davis-Bacon Act are that the paperwork associated with the act effectively discriminates against small firms and that the act is difficult for the federal government to administer effectively.

One argument against repealing the Davis-Bacon Act is that doing so would lower the earnings of some construction workers. Another argument against such a change is that it might jeopardize the quality of construction at federally funded or federally assisted projects. When possible, managers of some construction projects would reduce costs by paying a lower wage than is permitted under the Davis-Bacon Act. As a result, they might attract workers who are less skilled and do lower-quality work. Also, if one of the objectives of federal projects is to increase earnings for the local population, repealing the Davis-Bacon Act might undermine that aim. The act prevents out-of-town firms from coming into a locality, using lower-paid workers from other areas of the country to compete with local contractors for federal work, and then leaving the area upon completion of the work.