Hochul can still save the state from a new law certain to drive developers away

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The new year rings in the arrival of a costly state mandate that will prompt some private developers to reconsider breaking ground on any planned construction projects in New York.

Construction costs began climbing when the pandemic arrived in early 2020. They’ve stayed high due to inflated material costs, supply-chain constraints and a worker shortage. That labor scarcity will get worse in the coming months as laborers, foremen, carpenters, electricians and other tradesmen are drawn in to support new public-construction projects across New York City and the state that secure a share of the tens of billions of dollars coming to the region courtesy of November’s $1.2 trillion federal infrastructure law.

To this mix, add an expensive new legislative mandate on private construction former Gov. Andrew Cuomo signed into law in April 2020. Effective Jan. 1, it extends to many private projects New York’s misnamed “prevailing wage” regime — a costly drain on the public purse historically applicable only to contractors working on public projects.

Under the state’s long-standing prevailing-wage law, market-determined compensation is forbidden; employers must pay union-level wages and benefits. This siphons billions in tax dollars from their intended purpose; the Empire Center previously found prevailing-wage law drives up the cost of public construction projects in the state by at least 13 to 25 %, relative to the cost of paying the average construction compensation rates in a given region. The cost spikes most in New York City, where construction-union wages and benefits are more generous than even those in Boston, Chicago and Los Angeles.

Under the current prevailing-wage schedule for the Big Apple, laborers — the city’s most common construction occupation — are actually paid more in hourly benefits ($48.63) than in wages ($43.50). That’s not because workers don’t prefer cash. It’s because the standard union compensation package includes inflated retirement contributions that use workers’ paychecks to bail out underfunded pension plans.

The new law extends the existing prevailing-wage regime to private developers of construction projects of $5 million or more if 30 % of the financing comes from “public funds.” The latter is broadly defined to include, for instance, a tax-credit incentive to build.

New York governments might not be so tempted to resort to special enticements if the state were generally more open to job creators. But it’s not. Due largely to nosebleed taxes, the Tax Foundation’s recently released 2022 State Business Tax Climate Index ranked New York second-most hostile to business of the 50 states — behind California and ahead of only New Jersey.

The sad reality is that until public policy in the Empire State becomes less forbidding to job creators, many developers will only break ground here if they get some type of subsidy — at least that’s the rationale for existing tax incentives. But even a 30 % discount on financing won’t help if the government mandates labor costs 30 % higher than the market commands.

Prevailing wage doesn’t kill public projects; it just robs taxpayers by redirecting subsidies to private parties instead of public works. But prevailing wage can kill private projects and the jobs they bring since developers can cancel their plans — or pursue them outside the state’s borders.

The good news is the new law has a “Get out of jail” clause. The Legislature — ever adept at keeping arms-length from accountability for its own Frankenstein creations — provided in it a tool for others, primarily the governor, to save lawmakers from their folly. The specific application of the law is charged to a 13-member “board on public subsidies” appointed by the gov and chaired by her labor commissioner.

Gov. Kathy Hochul has yet to appoint the board; she should do so promptly. That’s because its vast powers include the ability to postpone the new prevailing-wage requirements “if there is or likely would be a significant negative impact” based on its assessment of economic factors and consultation with economic experts, including those at the Federal Reserve Bank of New York — which recently highlighted federal employment data showing that New York City and many other New York locales continue to lag virtually the entire nation in recovering jobs lost during the pandemic.

It’s clear what needs to be done. Hochul should “ring out the old” by appointing a subsidy board that will shelve the prevailing-wage expansion — placing it among other relics of the Cuomo era no one wants to carry over into 2022.

Peter Warren is research director of the Empire Center for Public Policy.

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