Funding for energy saving retrofits in Northwest states are getting entangled in the complexities of the Davis-Bacon Act (DBA), well-intentioned legislation passed by Congress in 1931, and amended over subsequent years, to ensure decent wages for workers on publicly-funded projects. But the DBA’s good intentions are creating some problems that might smother job growth in the energy efficiency field.
Higher hourly wage requirements and additional reporting are inflating costs, tipping some projects, supported by the Weatherization Assistance Program (WAP), away from feasibility. That means contractors and workers may not get the promised benefits from new stimulus dollars for retrofits. The solution to this problem isn’t just boosting wages. Leaders in the region should create certifications for weatherization workers and a labor-supported apprenticeship program so workers can meet the requirements. But let’s start with a look at the problems with DBA.
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Figuring out whether an energy efficiency project makes financial sense is determined using a “Savings to Investment Ratio” or SIR. An SIR is calculated by taking the lifetime savings of an energy efficiency retrofit, multiplying it by how long that efficiency will deliver the savings, and then dividing that the cost of the improvement.
An energy efficiency project with an SIR of 1.0 or higher, is considered a feasible project, saving enough energy to make financial sense; the higher the SIR, the more savings. Like performance contracting, weatherization work is dependent on calculating and capturing future savings. In the chart below you can see how a project’s SIR can vary based on costs and subsidies. These numbers are hypothetical and high level. Determining an SIR for a project is complicated enough that agencies use special proprietary software created for the Department of Energy by Oak Ridge National Laboratories.
Now, this isn’t just playing with numbers. When compared to each other, projects with increased costs from DBA wage mandates and reporting end up with an SIR below 1.0. Some projects will require multiple subcontractors to do different pieces of the work—like windows, water heaters and insulation—and, in Washington, under DBA requirements, each worker could need a wage determination from the Department of Labor and Industries. Each determination costs $80 and requires paper work for each position. For big jobs—like retrofits of apartment buildings—many workers are required, meaning multiple wage determinations costing time and money.
There are two solutions to the problem of increased costs. First, and most obvious, projects can create more efficiency. As the last line of the chart shows, increased annual savings increases the SIR on a project. But, generally speaking, contractors already push to squeeze as much efficiency as they can, so there may not be enough additional savings.
The second solution is longer term. Certification and apprenticeship can help increase wages and efficiency. Obviously, the point is not to keep workers’ wages low, but to create jobs in the energy sector that are career track, living wage jobs—not dead end, temporary jobs that can’t support a worker’s family. But with additional costs created by DBA requirements, displaced workers won’t get paid prevailing wages or any wages at all, if projects don’t get completed.
The larger energy economy continues to be plagued with worker shortages caused, in part, by uneven training, credentialing, and lack of basic skills. A national, or at least regional, credentialing program would raise the standards of weatherization and energy retrofitting work, creating a highly-skilled workforce like the one being turned out by Shoreline Community Colleges automotive repair program. These workers would be armed, by colleges and through union supported-training, with basic skills, know-how on the latest equipment, and certified to work on a wide range of energy efficiency projects. And they could demand higher wages for their work.
Furthermore, it is really too early to tell how this all will play out, but DBA will not completely shut down weatherization in the region, just reduce the number of energy efficiency opportunities that we seize. And as the field of weatherization evolves and the number of trained workers goes up, savings will likely increase which could substantially off set increases in costs.