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Prevailing Wage

Prevailing wage laws establish minimum compensation levels for workers on government construction projects. The federal government first instituted such requirements in 1931 through the passage of the Davis-Bacon Act that mandates that laborers employed on the construction or rehabilitation of any public building or work be paid at least the median wage for their job class and locality. The minimums were meant to both encourage the use of local labor on government development projects (because city-specific wages meant that contractors would no longer benefit from bringing in cheaper workers from other regions) and to preclude contractors from pushing down wages to achieve a winning (i.e. the lowest) bid. In 1964, Congress amended the law to require a prevailing level of fringe benefits (such as health care and vacation pay) as well.

Like a majority of the states, New York has its own “little Davis-Bacon” statute, Labor Law § 220, which extends prevailing wage requirements to state and municipal public works. Unlike the federal system, which calculates the median wage based on survey data collected from all contractors in a region, New York’s prevailing wages are directly keyed to collective bargaining agreements (as long as union members account for 30% or more of workers in the relevant position and county). In other words, New York’s prevailing wage is union wage. The state Department of Labor issues wage schedules for all counties other than the five boroughs of New York City, whose rates are set by the City Comptroller’s Bureau of Labor.

Section 220 applies to the construction and rehabilitation of all “public works.” While the statute itself offers no guidance on what constitutes a public work, in In Re Vulcan Affordable Housing Corp. v. Hartnett, a state appellate court held that the term does not cover privately owned housing developments built with state or municipal subsidies, whether that subsidy comes indirectly, such as through a tax exemption or bond issue, or via direct grants. 151 A.D.2d 83 (3rd Dep’t 1989), 545 N.Y.S.2d 952. As a result, new affordable housing in New York is generally not built by union labor unless the project relies on certain types of federal support like HOME or Community Development Block Grant funding. (The most frequently utilized federal subsidies, Low Income Housing Tax Credits, do not activate prevailing wage requirements).

Labor advocates have long lobbied to amend § 220 to cover all subsidized housing construction. They argue that, in addition to the obvious benefit of higher wages for local workers, such a requirement would lead to improved construction safety and quality, as well as efficiency gains that would mitigate the increased labor costs. A January 2009 report by the Citizens Housing & Planning Council, however, estimated that a prevailing wage requirement would raise average development costs by 25 percent, even after taking increased productivity into account. To compensate for this rise, CHPC claims that developers would either have to raise the rent of an average affordable unit by $400, construct half the number of total units, or receive double the amount of government subsidy. In contrast to an earlier report by the Fiscal Policy Institute, the CHPC study also found no concrete evidence that prevailing wage requirements would improve construction quality or construction site safety.

New York is not the only state to grapple with the appropriate scope of prevailing wage requirements. In 2001, California amended its little Davis-Bacon statute to include privately owned projects “paid for in whole or in part out of public funds.” An econometric study at UC-Berkeley estimated an average increase in development costs of 11%, while another study conducted by the California Institute for County Government calculated spikes ranging from 9 to 37 percent. In the end, the expansive reach of California’s law was short-lived; subsequent agency interpretations and judicial decisions have found that tax credits and exemptions do not qualify as “public funds,” because in granting them the government is forgoing future revenue rather than transferring already existing monies.

In New York, the debate continues, and bills that would impose prevailing wage requirements on affordable housing construction remain on hold in both the City Council and the State Senate.

In November 2009, Gov. David Paterson announced he was preparing a bill that would require prevailing wages on construction projects that receive state money through industrial development authorities – government entities that provide below-market-rate financing and other incentives to lure businesses. Furthermore, employers that occupy an Industrial Development Agency financed building would have to pay a prevailing wage. The requirement would apply to private businesses that use space funded with public money and employ 100 or more workers; the mandate only would apply to certain classes of workers, however, including janitors and cleaning workers. It would also apply to nonprofit IDA-funded projects, such as hospital expansions, when the organization employs 500 or more workers and the project cost exceeds $10 million. In New York City, the prevailing wage in 2009 was $19.20 an hour. The move was applauded by labor groups, but got a chilly reception among business and economic development officials, who believe such requirements would hinder job growth.

Last Updated: December 9, 2009