On Tuesday, we learned that a new prevailing wage requirement on construction projects performed under private contracts was being discussed and we sent an urgent opposition letter to Governor Cuomo, Speaker Heastie and Senate Leader Stewart-Cousins. Similar bills have surfaced in Albany in previous years and NYHC has been advocating for an affordable housing exemption. There is both good news and bad news for affordable housing in this legislation expected to be signed by the Governor and shorty enacted into law.
The good news is that our advocacy has paid off and there is an exemption for affordable housing.
The new prevailing wage requirement applies to construction projects where at least 35 percent of the total construction costs are paid with public funds and the project costs are over $5 million. However, the bill says 421a benefits do not count as public funds.
In addition, the bill exempts:
- Construction work on one or two-family dwellings where the property is the owner’s primary residence or construction work performed on a property where the owner of the property owns no more than four dwelling units;
- Construction work performed under a contract with a not-for-profit corporation, other than a not-for-profit formed exclusively for the purpose of holding title to property and collecting income thereof or any public entity as defined in this section where the not-for-profit corporation has gross annual revenue and support less than five million dollars;
- Construction work performed on multiple residences that are wholly privately owned in any of the following circumstances (except as provided for by the section of the law that creates the public subsidy board):
- where no less than 25 percent of the residential units are affordable and shall subject to a regulatory agreement with a local, state, or federal governmental entity, or a not-for-profit entity with an anticipated formal agreement with a local, state, or federal governmental entity for purposes of providing affordable housing in a given locality or region provided that the period of affordability for a residential unit deemed affordable shall be for no less than 15 years from the date of construction; or
- where no less than 35 percent of the residential units are supportive housing for vulnerable populations provided that such units are subject to a regulatory agreement with a local, state, or federal governmental entity; or
- any newly created programs for affordable or subsidized housing as determined by the public subsidy board
- Construction projects funded by section 16n of the urban development corporation act or the downtown revitalization initiative
There is some uncertainty about how this new requirement may also affect NYCHA’s PACT program as it only exempts projects that are “wholly privately owned”. NYCHA’s ownership stake in the conversions precludes exemption. While Davis Bacon rules apply to RAD, there may be higher costs associated with prevailing wages. This potential cost difference is currently being analyzed. There are also some PACT conversions that do not trigger Davis Bacon’s rules since they already have Section 8 contracts and are not part of NYCHA’s Section 9 public housing portfolio. Fortunately, it is likely that these conversions will happen before the law goes into effect and will not be impacted. With $40 billion in outstanding capital needs and layers of bureaucracy and monitoring requirements, it is a shame that State lawmakers have added yet another (potentially costly) compliance issue for NYCHA to manage.
The bad news is that the law also creates a public subsidy board that can potentially undermine exemptions for both affordable and supportive housing. The public subsidy board will be established on April 1, 2021, and will have 13 members appointed by the governor (with two recommended by the legislature, two members of labor and two members representing building owners and developers). The board will issue opinions on individual projects and will make recommendations on aspects of the legislation. The law gives the board the power to examine and make recommendations regarding the minimum threshold percentage of public funds and minimum dollar threshold of projects, but no lower than that which is set forth, and construction work excluded as a covered project, including the affordable and supportive housing exemptions, the definition of construction and whether certain benefits, monies or credits should or should not constitute public funds.
We are concerned that the board has the power to review and make recommendations about whether affordable housing should continue to be exempt. However, it is unclear what power their recommendations carry.
This law would take effect on Jan. 1, 2022 but the board has the authority to delay implementation if they find that there is or likely would be a significant negative economic impact of implementing the prevailing wage requirements. The delay could be statewide or only in certain regions of the state as defined by the regional economic development councils.
We are on the cusp of an unprecedented housing crisis due to COVID-19. State policy should focus on ways to support recovery and promote the continued financing of affordable housing while seeking ways to reduce costs and production. This is not the time to add costly new requirements. Fair wages for construction workers, as well as racial/ethnic and gender diversity of the construction industry, should be a priority but this bill potentially undermines the needed affordable housing investment in NY State.
Stay tuned for our full budget analysis.