The Effect of “Federal -Aid Swap” Programs and Davis-Bacon Prevailing Wages on Highway Construction Costs and Contractor Composition: Evidence From Iowa

Abstract

“Federal-aid swap” programs allow states and local governments to bypass federal Davis-Bacon prevailing wages and Disadvantaged Business Enterprise (DBE) goals by exchanging federal funds that have been allocated to highway projects with state funds. The Iowa Department of Transportation approved a federal-aid swap program in February 2018. Using data on more than 1,200 highway construction projects in Iowa from 2016 to 2020, I find that the cost of projects in the federal-aid swap program are not statistically different from those that were not swapped, after accounting for project size and complexity, project type, and project location. Regression results indicate that Davis-Bacon prevailing wages and DBE goals have no effect on total construction costs. However, the federal-aid swap program is statistically associated with a decrease in the likelihoods that a project is covered by the Davis-Bacon Act by 10 percentage points and DBE goals by 4 percentage points. Because the payment of Davis-Bacon prevailing wages is statistically associated with an 8 percentage-point decrease in the chances that a highway project is awarded to an out-of-state contractor, the federal-aid swap program may have increased the market share of out-of-state contractors at the expense of Iowa-based contractors.

Prevailing Wage Repeal, Highway Construction Costs, and Bid Competition in Kentucky: A Difference-in-Differences and Fixed Effects Analysis

“…Regardless, results reported by Duncan (2015aDuncan ( , 2015b indicate that contractor bids on federal projects do not differ from bids on state-funded work, nor do bids change when contractors switch from state to federal projects. Manzo (2021) examines the effect of Iowa's federal-aid swap program on the cost of highway construction projects. Fifteen states have swapping programs that allow local governments to exchange their allocation of federal transportation funds for state monies.…”

“…Manzo (2021) examines the effect of Iowa’s federal-aid swap program on the cost of highway construction projects. Fifteen states have swapping programs that allow local governments to exchange their allocation of federal transportation funds for state monies.…”