Report: Wage snafu adds billions to project costs

A Columbia University white paper charges that a misapplication of the law sets a prevailing wage at developments that don't require it. Critics disagree.

By DANIEL MASSEY

A new report charges that prevailing wages across New York are often set improperly, adding up to $3 billion a year to public infrastructure projects across the state.

A 45-page white paper by the Center for Urban Real Estate at Columbia University argues that prevailing wages in New York are miscalculated and urges reforms that would peg the rates to federally published data on average wages.

Under state law, prevailing wage is set at the rate in a union contract that covers at least 30% of the workers in a trade and locality. Yet the report contends that in many instances, prevailing wages are being set even when 30% of the workers are not covered by union agreements.

"The underlying premise of prevailing wage legislation is not a bad one—that if you're pouring government money into an area, then you need to be sure that money doesn't undermine the labor market," said Julia Vitullo-Martin, the report's author. "But almost surely, 30% is not met in a lot of cases because unionization in construction is on the decline."

Ms. Vitullo-Martin argues that data show construction unions represent considerably less than 30% of the construction workforce throughout the state, as well as in most, if not all, localities, including the city. She cites an analysis of federal stats by UnionStats.com that shows 25.9% of construction workers statewide were covered by union contracts in 2011, while only 23.6% of construction workers in the New York City area were covered by such agreements.

"In the New York City metropolitan area, the 30% threshold for collective bargaining coverage was last met in 2002—a decade ago," the report argues.

The report says that prevailing wages increase the cost of development by up to 30%, leaving the state unable to afford much-needed infrastructure work. It recommends that where the prevailing wage threshold is not met, wages should be set using the U.S. Bureau of Labor Statistics mean wages, plus up to 40% for fringe benefits.

Where the 30% threshold is met, contracts should be made available to the public so taxpayers know exactly how the rates are being determined, the report contends.

The report was funded by the New York State Association for Affordable Housing, the trade association for the state's affordable housing industry. Affordable housing is not covered by prevailing wage law, but the group beat back an attempt last year in the state Legislature to impose prevailing wage mandates on construction of certain affordable housing projects that receive tax abatements.

Last month, a new bill was introduced that would impose prevailing wage on affordable housing projects of greater than 80 units. "There are consistent efforts to impose prevailing wage on affordable housing," said the group's executive director, Alison Badgett. "Prevailing wage is a perennial issue for us."

The report's arguments are similar to ones made in February by the Citizens Budget Commission, which said city and state officials should revamp the way they determine prevailing wages and make the process more transparent.

Supporters of prevailing wages said the report erred by using data for the New York metropolitan area rather than the city, where the unionized construction workforce is stronger.

"My guess is for New York City, [union contract coverage] is closer to 50% than 24% for the construction industry overall," said James Parrott, chief economist at the Fiscal Policy Institute, a liberal think tank. "That data is not detailed enough."

While information on unionization rates by sector is available for the metropolitan area and for the state, it is not available for the city.

Prevailing wage supporters also argued that using federally published mean wages is not a fair way of determining what workers should earn on government-funded projects. The mean wage picks up workers whose skill levels are not comparable to those who work on most of the projects.

"If you had [data on] wages for comparably skilled workers, you're not going to find much difference between the union wage and nonunion wage," Mr. Parrott said.

Unions, whose members often benefit from prevailing wages, blasted the report.

"We totally agree with one part of this report—the last sentence, 'Now is the time to reexamine … prevailing wage,' " said Stephen McInnis, political director of the NYC District Council of Carpenters, who argued that prevailing wages should be expanded, not cut.

Paul Fernandes, chief of staff of the Building and Construction Trades Council of Greater New York, said that, "respected economists who understand the impact that higher wages and productivity have on reducing costs and improving quality have consistently found that prevailing wages result in higher outputs that actually benefit taxpayers."

The report also took aim at efforts by 32BJ SEIU to expand prevailing wage to workers at city subsidized projects and at public utility companies like Consolidated Edison. A spokeswoman for the union said the report takes "potshots" at building-service workers without any analysis of the industry.

"The author unfortunately insinuates that prevailing wages are a cause of our nation's and state's 'stalled economy and crumbling infrastructure,' wrongly suggesting that paying wages barely above poverty level would lead to an economic boom," she said. "In fact, a major reason for our sluggish economy right now is that so many working families are paid too little to contribute to economic growth."