New York to Require Prevailing Wage for Private Construction

April 3, 2020, 8:56 PM

Private construction projects in New York state could see a 30% increase in labor costs to comply with new prevailing wage legislation included in the state’s budget.

The $177 billion spending plan for fiscal 2020-21, signed by Gov. Andrew Cuomo (D) Friday, would expand prevailing wage laws, extending them to cover workers on certain private construction projects.

The legislation (S.7508-B/A.9508-B) would apply to projects that are worth more than $5 million and get at least 30% of their financing from public funds, such as certain types of loans, tax credits, and other tax incentives that promote construction. It’s expected to take effect in January 2022.

The policy bill, passed by the state Legislature April 2, also would create a “Public Subsidy Board” to study and make recommendations on the measure.

State Sen. Jessica Ramos (D), who chairs the Senate Labor Committee, lauded the measure’s passage in a statement.

“We are protecting construction workers—who are both literally and figuratively building New York from the ground up—by holding private construction companies whose projects are at least partially publicly funded accountable,” Ramos said.

Some trade groups, however, say the measures will have a devastating impact on the construction industry, increasing labor costs, creating uncertainty, and leading to a loss of jobs as projects move elsewhere.

“If there are no jobs, there are no wages,” said Brian Sampson, president of the Associated Builders & Contractors, Empire State Chapter, which represents more than 400 contractors across the state that collectively employ tens of thousands of workers.

Paying prevailing wage will increase labor costs by about 30% or higher per project, depending on where they’re located in the state, Sampson said.

Construction and the Coronavirus

The measures come as much construction in the state has been delayed or stopped as a result of the new coronavirus outbreak.

Cuomo last week ordered all nonessential construction work to stop for the foreseeable future in an effort to stop the spread of the virus.

President Donald Trump is pushing to include infrastructure spending in the next wave of federal Covid-19 relief legislation. If that happens, it’s likely to renew long-running debates over prevailing wages on federal construction projects.

Sampson said the state’s new legislation will make the task of rebuilding the economy more difficult. “What they’ve done is they’ve kneecapped our recovery before we’ve even hit the peak of our crisis,” he said.

The total number of private construction projects that would be affected by the law wasn’t immediately available.

James Cahill, president of the New York State Building & Construction Trades Council, called the legislation “monumental.” The council represents more than 200,000 unionized construction workers.

“We feel it will help stimulate the economy when it starts going,” he said.

Public Subsidy Board

The definition of “public funds” in the bill includes grants from a public entity, savings achieved by using public loans, and tax savings as a result of credits, abatements, or payment in lieu of tax known as PILOT agreements, as well as industrial development agency exemptions.

The rules won’t apply to some projects, such as small residential or school construction, nonprofit projects, and brownfields rehabilitation under a state program for properties contaminated with hazardous waste. Projects receiving 421-A benefits in New York City also are exempt.

The 13-member public subsidy board created by the bill would consist of state agency heads, construction industry representatives, and organizations representing building owners and developers.

The board would be able to recommend and make changes to rules regarding the minimum threshold percentage of public funds, minimum dollar threshold of project costs, which work is exempt, defining construction, and what constitutes public funds.

Sampson expressed concern over the “immense discretion” the bill gives to the board, the members of which aren’t elected.

The 400 Foundation, a faith-based social welfare organization, hopes the board and state leaders take into consideration the detrimental effect the bill could have on small businesses, particularly those owned by minorities, which may not have the funds to absorb cost increases.

“As we have stated repeatedly, this policy will take good jobs and opportunities away from construction workers and contractors of color, which is especially problematic as our state and our nation continue to confront the economic crisis caused by the coronavirus pandemic,” the Rev. Reginald Bachus, president of the 400 Foundation said in a released statement.

The prevailing wage rules would take effect Jan. 1, 2022, unless the public subsidy board decides to delay implementation. The board can delay implementation if it determines there would be a significant negative economic impact of implementing the provisions referencing construction industry data.

—With assistance from John Herzfeld and Chris Opfer.

To contact the reporter on this story: Keshia Clukey in Albany, N.Y. at kclukey@bloomberglaw.com

To contact the editors responsible for this story: Karl Hardy at khardy@bloomberglaw.com; Martha Mueller Neff at mmuellerneff@bloomberglaw.com

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