It might be said that sole reliance on union scales is not a fault of

the Act, but a fault in the administration of the Act. This we would agree with, but after 41 years of sad experience with the administration of the Act it is difficult to conceive that administration changing so drastically as to result in true prevailing wage rates being determined. This is not to say that there have not been improvements in recent years. There have been, at least for the housing programs. HUD has undertaken to do a more careful gathering of wage rates for submission to the Department of Labor which must make the determination. In several areas of the country this has resulted in realistic wage determination.

However, in many, many other parts of the country there has been little, if any, change from past patterns. And, even in those areas where changes have occurred, it has frequently come about only after long and strenuous objections have been raised by the builder, who must undergo long delays while awaiting a resurvey and consideration of his appeal. Most builders cannot stand such a delay and must elect to proceed with the job at the unrealistic wage scales.

This practice of placing heavy reliance on union scales, or of taking the wage scale for a major city and applying it to a small town of 30, 40, and sometimes 50 miles away is a significant factor and one of the reasons why housing built under the FHA and public housing programs cost more per square foot than the same housing built with conventional financing. This

extra cost frequently works out to be as high as 15%. Since most of the housing built under HUD programs, and subject to prevailing wage rates, is for low and moderate income families, the brunt of these costs fall on these families and on the Government which must increase its subsidies

accordingly.

I would like to cite a few examples of actual case situations supplied to us by our members. The first is a project built outside Philadelphia, Pennsylvania under Section 207 of the National Housing Act. In that project the additional cost incurred by the builder in constructing the project, as a result of having to adhere to the prevailing wage requirements, was $222, 750. In this particular case this increase approximated 15% of the building, so that the actual cost increase was in fact more than 15%.

This project was part of an overall development in which single family homes and a small shopping center were also being built. Had he been able to construct the apartment project paying the same wages he was paying the workmen in the other components of the development, the above cited $222,750 savings would have been achieved and passed on to the consumer in reduced rents.

He pointed out that many of the subcontractors working on the other parts of the development were reluctant to work on the FHA project, since the wage scales they would have had to pay their workmen would have been higher than normal, and these workers would, as is natural, be reluctant

to work for a lower rate on future non-government jobs. This reluctance points up another disturbing side effect of the Davis-Bacon requirements. Many builders stay away from government programs because they cannot afford to have their workers salaries going up and down based on whether or not they are working on a government-assisted project.

In another case in the Philadelphia area, in connection with two Section 236 projects being built outside of Camden, New Jersey, the difference in the average hourly wage being paid by the builder, when compared with wages being paid on an adjacent conventionally financed project, was 63%. In this particular case the estimated cost of labor per unit was $5, 120 on the 236 project, whereas it would have been $3, 141 if the true prevailing wages in that locality had been paid. This is a $1, 979 difference per unit and, according to the builder, represented 12. 36% of the total of the mortgages on the projects.

Here we can have brought home to us the direct impact of the Federal Government insisting on wage scales far in excess of what is in fact the prevailing wage in the community. This extra cost increases the basic rental that must be charged on each unit in that project, and it also drives up the Government's required subsidy for that project. Presuming that there was a 40-year mortgage at a 7% interest rate on these projects, the additional monthly mortgage cost for each unit is approximately $13 and about $8 of this

additional monthly carrying charge represents increased subsidy cost to

the Federal Government.

In another case, in a community in the Dallas-Fort Worth, Texas area, the difference in wage rates paid on a 236 project as compared to a nearby (less than two miles) conventional project of a similar type is

startling. These differences are as follows:

Although we do not have, in this particular case, a breakdown on the

We do

per-unit cost directly attributable to labor, there is no question from the figures I have just cited that this difference is quite substantial. know that in these two projects the 236 project had a higher square foot. construction cost of 17.2%. No wonder FHA is experiencing troubles in some parts of the country with 236 projects because the basic rent for these projects is as high as what the unsubsidized rent is in a similar conventionally financed project.

In another situation in Arkansas, a builder decided to build a small

50-unit FHA project. On getting his prevailing wage determination, based

on wages in a community many miles away, he undertook an appeal of that determination in order that his costs would more truly reflect the costs

in the community. After a one year delay, he was successful and the average hourly wage rate under the determination was reduced by approximately 44%. Fortunately, this builder was able to delay a year before starting his project. Many builders are not in that position and many of those who are do not find themselves as successful as this Arkansas builder.

This is just a brief sample of the type of problems experienced by builders operating under the Davis-Bacon prevailing wage requirements. These examples could be replaced by others from all over the country. The result of these unrealistic determinations and rules of the Department of Labor is that housing costs are unnecessarily escalated. We see no justification for this escalation and we fail to see what benefit is obtained by those who must pay for this increased housing cost.

It is our firm belief that the only way to correct this situation is

to do completely away with the present requirements. We do not believe that any other recourse is open, if the Congress truly wants to hold housing costs down as much as possible. We, therefore, strongly support the

enactment of S. 3654 and urge the Subcommittee to schedule early action

on it.