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Expanding prevailing wage: a help to region's fortunes, or hindrance?

Developer Nick Sinatra looks around and sees new opportunities emerging in places like the East Side.

But he wonders what will become of those opportunities if the state expands its prevailing wage mandate to include private projects that receive any public subsidies, including tax breaks.

"We could see another wave of development here in this town," Sinatra said. "Everything that we're underwriting right now is assuming costs are what they are right now. If you add 20 percent on top of that, then it's a 'there goes the neighborhood' type of thing."

Developers and business interests are squaring off against unions and their allies over the prevailing wage issue.Opponents of the legislation claim the change would drive up costs and short-circuit new development, by requiring companies to pay union-level wages and benefits.

Proponents of the change disagree. They contend that development would not only stay on track, but would benefit the local economy by putting more money into workers' pockets and promoting use of local labor.

But the difference between market wages and prevailing wages can be significant. For instance, the median hourly rate for a carpenter in Western New York was $27.01, compared to the prevailing wage of $32.15, according to the state Department of Labor. The median hourly rate for a building laborer in the region was $20.80, compared to a prevailing wage of $26.83.

It's unknown if the legislation will pass. The expanded policy was part of the budget debate earlier this year, but was not included in the spending plan that was approved, due to some lingering questions. Unions have advocated for this change before, without success. But the political landscape is different this year, with Democrats now in the majority in the state Senate.

"Every single development deal we've ever done has some form of state aid," said developer Nick Sinatra, who opposes any state expansion of the prevailing wage mandate to include private projects that receive public subsidies. (News file photo)

Prevailing wage in New York state must be paid to workers on projects that are publicly funded, like highway construction, but the mandate doesn't apply to privately funded projects. The question of whether to extend the mandate to private projects receiving public support – including tax breaks, loans, and historic tax credits – hits home in the Buffalo Niagara region, because so many projects use those incentives.

That's especially true of "adaptive reuse" projects that revitalized old buildings, such as the Hotel Lafayette and the 500 Seneca Building in Larkinville. Redevelopment of the former Women and Children's Hospital would likely use those types of incentives, too.

Developers assert that without these incentives, the overhauls would be far too expensive to undertake."Every single development deal we've ever done has some form of state aid," Sinatra said. "Without that aid, the deals wouldn't pencil."

And they say if they have to pay prevailing wage on these projects, the financial benefit of the incentives would be wiped out.

The Buffalo Niagara Partnership is pushing hard against expanding the prevailing wage mandate.

500 Seneca was redeveloped with the support of incentives. (News file photo)

"We think it has wide-ranging implications here and will effectively halt development in our community," said Dottie Gallagher, the Partnership's president and CEO.

But labor leaders take a much different view. They contend the prevailing wage ensures the use of local workers and would boost the economy, by increasing workers' spending power.

During the debate over the issue in March, New York State AFL-CIO president Mario Cilento and New York State Building and Construction Trades Council president James Cahill issued a joint statement supporting expanding the mandate. The two leaders said doing so would ensure "we are creating middle-class jobs when public funds are used.

The two leaders said they supported "discussions" about overcoming potential obstacles to a deal, such as whether to include affordable housing projects under the expanded mandate, setting "reasonable thresholds" for projects financed by IDAs, or, as an alternative, allowing the state Department of Labor to have input on setting the standards.

Richard Lipsitz Jr., president of the Western New York Area Labor Federation, said the prevailing wage in general provides a boost by generating more economic activity in a region.

"Higher wages lead to a more prosperous economy wherever you are, and that's especially true in Western New York," Lipsitz said. "Higher wages have led to a better economy for ordinary working people."

"Higher wages lead to a more prosperous economy wherever you are, and that's especially true in Western New York," says Richard Lipsitz Jr., president of the Western New York Area Labor Federation. (News file photo)

There are reports with competing conclusions about the impact of the state's prevailing wage.

A report by the Cornell University's School of Industrial and Labor Relations said that blending public support with private development projects "has blurred the definition or boundaries of 'public work.'"

The report also said that every $1 spent on prevailing wage jobs generates $1.50 for local economies.

"Prevailing wages translate to buying more cars, homes, appliances, and clothing, larger turnout at restaurants and theaters, and making it easier for families to pay for education, health care, or to save for retirement," the report said.

The Cornell report cited several studies conducted over the past two decades in other states that found "the payment of prevailing wages does not appreciably raise construction costs or change the level of bid competition," with the idea that contractors offset the higher wages with other cost efficiencies.

The Cornell report contends that when private developers accept public support or quasi-public support from agencies like an industrial development agency, they "derive a benefit and have a duty to honor public policy objectives. Developers can always choose to build projects without public support and without the accompanying responsibility to pay the prevailing wage."

But an Empire Center for Public Policy study estimated that the state's prevailing wage mandate would drive up the cost of publicly funded projects by at least 20 percent in the Buffalo area, compared to median private-sector construction wages. The study estimated the mandate led to increases of anywhere from 13 percent to 25 percent in the state, depending on the region.

The Empire Center study also contends that the state's prevailing wage mandate imposes "added contract administrative costs and union work rules that can erode productivity."

Gallagher said it seemed likely that some change to the state's prevailing wage mandate would go through. "The question is, can it be done in a way that it doesn't have the unintended consequence of slowing down development in upstate New York?"

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