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421-a’s Construction Subsidies: The Political Maze

February 3, 2016
By Steven Wishnia

By Request of our Readers We are Reposting a Special Report Part on Construction Subsidies 421-a

New York, NY – In the year before it expired Jan. 15, the 421-a program of tax subsidies for new construction was buffeted by multiple political forces with overlapping and conflicting agendas.

The real-estate industry wanted it renewed, but without prevailing-wage or affordable-housing requirements that would damage its profitability. The building-trades unions wanted it renewed, with requirements that developers receiving the subsidy pay some form of prevailing wage.

Affordable-housing advocates criticized the program for subsidizing mostly luxury housing. However, they would to some degree have been willing to trade renewing it for strengthening the rent-stabilization laws, such as by repealing vacancy decontrol, the state law that deregulates rent-stabilized apartments if the tenant moves out when the rent is high enough. Last year’s renewal of the rent-stabilization law merely raised the decontrol threshold from $2,500 a month to $2,700.

Mayor de Blasio wanted 421-a renewed with the affordable-housing requirements increased. His “mandatory inclusionary housing” program, which requires private developers to include below-market housing when they build in rezoned areas, uses the subsidies to help make that profitable for them. That program, which the mayor says will create 80,000 new affordable apartments, does not require that they be built with union labor, and his administration’s proposal for renewing 421-a did not include a prevailing-wage requirement.

Governor Cuomo had said he supported a prevailing-wage requirement, but the New York Times reported Jan. 13 that he had nixed a deal REBNY and the unions had agreed on in late December. It would have set an unspecified minimum wage for workers on 421-a projects, opened all jobs to bidding by union contractors, and extended the program’s affordability and wage requirements to condominiums as well as rental apartments. The governor objected that the condominium requirements would have to be approved by the Legislature.

All this took place in the context of construction unions trying to stop nonunion contractors’ inroads into the industry. Union officials are very close-mouthed about speaking publicly on the issue, but some say privately that abuses by nonunion contractors—low wages, workers paid off the books, and poor safety conditions—are the affordable-housing sector’s “dirty little secret.” The result was a tentative alliance with the affordable-housing movement, marked by Gary LaBarbera’s speech at a Real Affordability for All coalition rally in Harlem in August 2014.

Meanwhile, two ad campaigns were mudslinging the city’s building-trades unions as overpaid racists: one, by the rabidly anti-union Center for Union Facts, an anonymously funded outfit based in Washington, and the second by a group called BuildingNYC, which claimed to represent “those doing the majority of the building in NYC today, especially affordable housing.” It slammed unions as “special interests… wedded to an outmoded, and quite often discriminatory, method of doing business.” The BuildingNYCWeb site does not mention which contractors or developers are members: The only contact it lists is Long Island lawyer Brad Gerstman, a lobbyist for nonunion contractors—who cohosted a fundraiser for Gov. Cuomo in January.

The city’s labor unions have been divided over Mayor de Blasio’s affordable-housing plan. The building-trades unions have criticized it for not requiring union labor. “You cannot have an affordable housing plan where the housing is built on the back of exploited workers,” Gary LaBarbera, president of the Building and Construction Trades Council of Greater New York, declared at a Real Affordability for All rally at City Hall Jan. 27. “You cannot build your way out of income inequality. You have to create middle-income jobs.”

Public Advocate Letitia James and city Comptroller Scott Stringer, who also spoke, both urged the mayor to use union labor and said that the plan as is will not produce enough housing that working-class and poor people can realistically afford.

In December, Laborers Local 79 brought a few dozen members to a City Planning Commission hearing on the plan, carrying “No Giveaways to Real Estate Without Real Affordability and Union Jobs” signs. Plumbers Local 1 organizer Carl Johnson told the panel that “the mayor’s plan doesn’t include standards for job quality.”

But with the plan beleaguered by critics, the administration in mid-December announced endorsements from five of the city’s largest unions: Local 32BJ of the Service Employees International Union, the United Federation of Teachers, the city employees’ District Council 37, the Hotel Trades Council, and the health-care workers’ 1199SEIU.

“We will be reaching out to the 200,000 1199SEIU members who live in New York City to make sure they understand the Mayor’s Affordable Housing Plan and how it addresses our housing crisis,” union president George Gresham said in a December statement. Helen Schaub, the union’s director of policy and legislation and a de Blasio appointee to the city Rent Guidelines Board, called the plan’s inclusionary-zoning mandate “a very important advance in housing policy” and “certainly better than anything under previous mayors.” Schaub, one of the few union officials willing to speak on the record, added that while 1199 supports the construction unions, the issues of union labor and prevailing wage are “a separate conversation.”

The city Independent Budget Office estimated in January that paying union wages would add 13 percent to the cost of constructing affordable-housing projects. At about $45,000 per apartment, it projected, that would require “roughly $2.8 billion in additional financing” to meet the mayor’s goal of 80,000 new units.

The city has accumulated a $5 billion surplus over the last two years, Brooklyn Assemblymember Walter Mosley told LaborPress Radio Jan. 27, and could use part of that to finance both housing construction and union-scale wages. “We need to step back and find out what is affordable,” he said. “No matter what you call it, if the vast majority of men and women cannot afford to live in these buildings, particularly men and women who are working full-time jobs, then what is the purpose of this incentive? On top of that, if we don’t provide prevailing wages, who are we building this city for?”

 “Whether it’s on affordable housing projects or any other type, prevailing wage is a critical component to maintaining and growing New York City’s middle class and also reducing income inequality,” Gary LaBarbera said in a statement Jan. 26. “The Building and Construction Trades will certainly continue to strongly advocate for good wages and benefits as part of any potential 421-a program in the future.”

Part 2 of a two-part series. Part 1 appeared on Friday, Jan. 29.

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