State officials promised late Friday that tens of millions of dollars will start flowing first thing next week to financially strapped contractors on the SolarCity construction project, saving the jobs of 200 workers laid off earlier in the day because the state had fallen months behind in payments.
The opening of the spigot marked a dramatic breakthrough, hours after money woes threatened to stall one of the signature pieces of Gov. Andrew M. Cuomo’s Buffalo Billion initiative. The state is spending $750 million to build the largest solar-panel manufacturing facility in North America, creating as many as 3,000 new jobs after it opens in the third quarter of 2017.
“Payments are being processed and all stakeholders agree this project will remain on schedule,” said Empire State Development Corp. spokesman Jason Conwall.
The announcement by Empire State Development Corp. and the State University of New York Polytechnic Institute followed a tense day at the RiverBend site in South Buffalo, as workers were issued pink slips because their employers could no longer afford to pay them. With the news, executives at LPCiminelli, the project developer, said they now plan to spend the weekend getting the word out to their various contractors.
“As the developer for the landmark RiverBend Solar City project, we’ve been assured that the funding will be disbursed the first thing next week,” said company spokesman Kevin Schuler. “We will begin getting in touch with contractors this weekend with the expectation that workers will be back on the job and the project’s construction schedule will remain on course.”
Officials hope to get the first part of the money as early as possible on Monday, and then pass it through to the other firms, some of whom are desperate to pay their own bills and payroll, Schuler said. The rest of the money should follow during the week.
“Conversations with the state today were meaningful, and we believe work will resume as normal next week,” said Paul Brown, president of the Buffalo Building and Construction Trades Council.
Meanwhile, state officials still seemed at a loss to explain how the government had failed in the first place to pay more than $82.5 million in contractor invoices on a Buffalo Billion project. The shortfall since October left the state at least three months behind in its debts, even though a Western New Yorker – developer Howard Zemsky – heads the economic development agency that is responsible for the governor’s initiative.
Cuomo and his staff had remained largely silent and invisible Friday, even as the major billing problem led to plumbers, steamfitters, carpenters and other unionized workers being laid off, at least temporarily. That threatened to embarrass the governor and hurt a major constituency that helped propel him into office and supported his efforts.
Sources said earlier in the day that contractors had issued pink slips to workers represented by at least two local labor unions, as the firms could no longer afford to cover their payrolls and suppliers, after struggling with salaries since October. More than 104 members of the United Association of Plumbers & Steamfitters Local 22 and more than 70 members of the Northeast Regional Council of Carpenters Local 276 faced layoffs, though more were at risk earlier.
“Our contractors have been floating payrolls of over $200,000 per week and cannot afford to continue,” said Daryl Bodewes, business manager for the Carpenters. “This is a very serious situation, as there are now 70 carpenters who are unemployed, who will not be spending extra money in the local economy, not putting money in their healthcare and pension funds, and will be buckling down to feed their families.”
On Friday, there was a lot of finger-pointing among government agencies as to how the crisis occurred, with two key entities essentially blaming each other and even questioning who had the money. And state lawmakers were already expressing determination to find out what happened and make sure it doesn’t happen again.
“I do think this is something we need to look into, so this does not happen again, because this is a very important project for our community,” said state Assemblyman Michael P. Kearns, D-Buffalo. “Many of the families, many of the companies, can’t afford any delay in payment. So I definitely want to know why the delay happened. How did we get to this point that we’re 120 days late?”
“This has actual impact on working men and women. Whoever doesn’t go to work on Monday is going to lose their income,” said Assemblyman Sean Ryan, D-Buffalo. “That’s why we can’t let this problem happen again.”
According to a construction industry source close to the project, Ciminelli and the contractors are now spending about $40 million a month, as the pace of work has picked up considerably. But the state hasn’t made payments for November or December, and a third $40 million payment for January is due in a couple of weeks.
“October was pushing the envelope, but this is beyond that,” the industry source said. “Is this unusual? This is as bad as it gets. Ninety days is unheard of.”
So far, Ciminelli – one of the region’s largest construction firms – has been able to cover its obligations from its cash reserves and credit lines, as have some of the other larger companies. But some of the smaller firms are hitting their limit, and their suppliers are now cutting them off, denying them needed materials and forcing them to resort to layoffs.
“Every subcontractor is owed money and stretched to the limit, but everyone has a different tolerance,” the source said. “You’re looking at a project that’s moving fast, and when it’s moving fast, you’re spending fast.”
Payment delays are not unusual on large construction projects, especially when the government is involved, but SolarCity is much larger and more visible. Friday’s problem demonstrates a potential ongoing hiccup, not only with the Buffalo Billion, but also with the state bureaucracy and the complexity of the RiverBend project.
Under the governor’s concept, the State University of New York Polytechnic Institute, run by Alain Kalayeros, will actually own the facility and equipment that SolarCity will lease, and is overseeing the project for the state through its Fort Schuyler Management Corp. Empire State Development funnels the Buffalo Billion money to SUNY Poly and then to Fort Schuyler, which in turn forward it to LPCiminelli and then to the contractors. That leaves plenty of room for confusion and missteps.
“There was a series of bureaucratic problems that, when added together, yielded this outcome,” Ryan said. “Besides the traditional layers, you have this somewhat outside player, SUNY Poly, and they’re a little bit outside the usual chain of command.”
It’s also not the first such delay associated with Buffalo Billion payments. The second round of payments to the 43North winners were delayed last April, as officials worked to get the $5 million program set up and working smoothly, and at least one contractor said he hasn’t been paid yet for work on the new corporate headquarters of Athenex, on the sixth floor of the Conventus building.
According to a source who did not want to be identified and who is familiar with the state’s payment arrangements, ESDC’s board can authorize the spending or borrowing up to the $750 million limit, without having to seek additional approval from the state Legislature. But ESDC’s board has authorized only the first $250 million for RiverBend so far, and all of that has been spent, the person said.
SUNY officials and contractors have been warning for months that the project was running out of funds, but the ESDC board failed to act at its Feb. 18 meeting on the needed authorization for another $100 million, the source said.
“This is not rocket science,” he said. “ESDC is in a position to authorize the rest of the money and they haven’t. It’s not because the money’s not there.”
ESDC’s Zemsky acknowledged Friday that “there’s some catch-up from all sides” because the scale of the project changed so dramatically from the original plan. But he said the ESDC board didn’t vote Feb. 18 because no source of money was listed for the extra $100 million.
“All of the Buffalo Billion money that was budgeted has been approved for this and authorized by ESD months ago,” he said. “We can potentially authorize more money to them, but only when a source of funds is identified.”
If approved, the $100 million in funding would bring the total authorized for the project up to $350 million. It’s not clear when the state will provide the remaining $400 million of its $750 million commitment.
The RiverBend project is a core component of Cuomo’s Buffalo Billion initiative, designed to help jump start the Western New York economy by bringing new jobs and investment to the region. All told, an estimated 900 to 1,000 workers are on the 88.25-acre site along South Park Avenue, constructing a 1-million-square-foot solar-panel manufacturing facility for California-based SolarCity.
The $900 million project, including the $750 million state commitment and $150 million from the private company, is expected to result in more than 1,500 direct jobs at SolarCity. Another 1,500 jobs are targeted for vendors and suppliers for what will be the largest such facility in North America.
The facility is being constructed by LPCiminelli, with about a dozen major contractors and a host of subcontractors, vendors and suppliers beneath them – all of whom are relying on the state to promptly reimburse them for their expenses, including payroll. The layoffs Friday affected workers from mechanical contractors Quackenbush Co. and Mollenberg-Benz, plus Mader Construction, and at least two other firms.
News Business Reporter Stephen T. Watson contributed to this report. email: firstname.lastname@example.org