Monday, June 4, 2012

Wage Snafu Adds Billions to Project Costs

A scathing report from Columbia University charges that misapplication of the prevailing wage law has been improperly setting wages at construction projects that do not require it - adding up to $3 billion a year to public construction projects across the city. 

The 45-page report from 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 are pouring government money into an area, then you need to be sure that money does not undermine the labor market. Nevertheless, almost surely, 30% is not met in many cases because unionization in construction is on the decline.

The paper argues that data shows 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. An analysis of federal stats by 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, 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.

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.

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.