Issue #147, Fall 2006


The Prevailing Question

Should the people who build low-income housing get the prevailing wage? CDCs say they can't afford to pay it, but can they really fight poverty if they don't?


When Paul Zimmerman, the executive director of Southern California Association of Non-Profit Housing (SCANPH), urges his members to pay the state’s prevailing wage to workers building homes for low-income families, it doesn’t always go over very well. His members were especially frustrated in 2001 after the California state legislature enacted a law that made affordable housing projects subject to the higher wage rate. “I tell people that I understand it makes it more difficult to do your project, but we can’t ethically say that we are a social change organization, and not pay a decent wage,” he says.

The first prevailing wage law, the federal Davis-Bacon Act, passed in 1931. It is commonly thought to be a New Deal effort to protect union construction workers, but its original intent was to prevent African-American workers from getting construction jobs. During the Great Depression, President Franklin Roosevelt added regulations to stop contractors from reducing wages to compete for the “lowest bid” requirements of federal public works projects. President Ronald Reagan weakened these regulations in 1983, but the law itself has remained despite conservative efforts to either repeal or gut it. Thirty-two states and many large cities have similar rules, which have greatly benefited unionized construction.

But as they struggle to create affordable housing for families with low incomes, nonprofit developers don’t all agree that they should pay prevailing wages for its construction. Still, most developers on each side of the debate believe their stance reflects a commitment to social justice.

Is a Living Wage Enough?
How much paying prevailing wages raises the costs of housing construction depends on who is asked. People who favor paying the higher rates say the increase is small, while opponents say it is between 20 and 30 percent. The trouble is that most research on the issue cites only the overall percentage increase and does not address actual wages or changes in the residential construction workforce.

In many states, developers say construction workers earn a pretty decent salary even without prevailing wages. “Workers [on affordable housing projects in New York City] get paid a living wage, not necessarily the prevailing wage,” says Brad Lander, director of the Brooklyn, NY-based Pratt Center for Community Development. Lander sees paying the living wage, which in New York City starts at $9.50 an hour, as a fair compromise. He says it ensures that construction workers are not exploited while easing the financial burden for developers. By comparison, the prevailing wage range in New York City is from $14 to $44 an hour.

In New Jersey, the law puts the prevailing wage even higher. The state does not differentiate between residential and commercial development when setting rates, so wages tend to be higher for less skilled workers. According to the New Jersey Department of Labor and Workforce Development, construction workers earn between $25 and $45 an hour.

While nonprofit developers in New Jersey are not legally required to pay the prevailing wage, they still have to find a balance between their development goals and the intent of the law. This is true for CDCs all over the United States, which often have internal debates about how to balance their commitment to workers’ rights with their need to keep costs down.

Andrew Geer is executive director of the nonprofit developer Heartland Housing in Chicago, which is part of a larger anti-poverty organization. He says paying a living wage is not enough. “The intention of the prevailing wage is to address the concept of a living wage,” he says. “In all of our projects we pay prevailing wage, and they are 100 percent union.” He suggests that paying the prevailing wage is not the main reason for increased building costs. “Costs are going through the roof, but they are mostly materials costs, not labor,” he says.

Changes in the Workforce
According to Mark Erlich, executive secretary-treasurer of the New England Regional Council of Carpenters, the construction industry has gone through huge demographic changes that should change the nature of the prevailing wage debate. “Residential construction has been moving into the underground economy for the past 10-15 years,” he says. “Most residential work is done with immigrant labor, much of it undocumented.”

The housing boom of the 1990s brought immigrants into the workforce. “In New England, they were even brought up by coyotes [smugglers of undocumented immigrants] during the summer and then taken back to the border in the winter. Over time, however, they stayed and became part of the community. They belong here, but the industry is exploiting them.”

Labor market and construction industry analysts agree that the labor pool has changed. Last April, the Pew Hispanic Center published a report that found half of all undocumented male Latino workers are employed in construction. Peter Phillips, an economist at the University of Utah, tracks the construction industry labor force. “Right now, the percentage of foreign-born in the industry is almost as high as it was in the 1800s,” he says. Economists argue over the correlation between the proportion of foreign-born in any sector and its wages, but real (inflation adjusted) wages in non-union residential construction are the same as they were 30 years ago, he adds. “Because the vast majority of residential construction is non-union, it is the sub-sector where the lowest wages are paid.”

Although he would prefer that nonprofit developers support prevailing wages, Erlich sees the business logic involved. “The opposition to prevailing wage is understandable from a business perspective. When costs go up, all businesses either raise prices or cut wages. Affordable housing developers can’t raise prices, so they want to keep wages low,” he says.

Labor and Housers At Odds
Jan Breidenbach, a former SCANPH director who has also worked for labor groups, sees the failure of nonprofit developers to support prevailing wage laws as hypocritical, and harmful in the long run. “Many nonprofit developers earn six-figure incomes, some as high as $200,000 a year, with full benefits,” she says. “Their construction workers are earning as little as $15,000 a year without even workers’ comp. It’s hypocritical to advocate for subsidy intervention in the housing market and oppose that same subsidy as an intervention in the labor market – all in the name of poor people. It becomes a class issue with racial overtones.”

“I think it is politically stupid to oppose paying the prevailing wage,” she adds. “When it comes to political power, the labor movement is a lot more powerful than nonprofit developers. I want unions to be allies for our agenda.”

But making this happen would require both labor and the affordable housing community to overcome some longstanding barriers. Anti-poverty organizers, and the poor themselves, have a long history of viewing unions – particularly those in the construction trades – as racist and classist, in large part because of their mostly white leadership and the access its members have to well-paying jobs. Organizers who work with poor people have often found themselves without union support. Meanwhile, unions have been upset by 10 years of welfare-to-work programs, which moved the poor into many low-wage, nonunionized jobs.

In many cases, unions and the affordable housing movement have simply had little or no contact and few activists in common. Often, when new construction of affordable housing comes to a community, the first interaction between labor and housing activists is a clash over prevailing wage laws. Some labor activists say housers tend to have an outdated view of their movement. “We’re not all your father’s building trades,” says Robert Denver Smith, political director for the International Union of Painters & Allied Trades in Southern California. “We support both workers’ wages and affordable housing, and we want the nonprofits to do the same.”

Housing advocates have looked for ways to connect the people they serve to the labor movement, such as through apprenticeships with construction unions. Ken Reardon, who teaches urban planning at Cornell University, was a professor at the University of Illinois in 1998 when he helped build ties between residents of East St. Louis, Illinois, and the local carpenters’ union. He recalls that the resident-led CDC and the union worked together on a plan to pay prevailing wages to workers on a housing project. The union agreed to enroll residents in its job training programs, and many of them are now union members. Reardon says choosing to pay the prevailing wage requires extra work on the part of housing groups. “You have to be creative about getting financing, and you’ve got to start [seeking it out] earlier. You have to have relationships with unions and contractors.”

In recent years labor organizations have begun to embrace a philosophy of “social movement unionism” that includes anti-poverty objectives such as living wages, the elimination of exploitative welfare-to-work programs and more low-cost housing. SCANPH’s Zimmerman says the prevailing wage debate presents an opportunity for unions and nonprofit developers to advocate for each other. “We want to work with both the labor unions and contractors to make the law work and build support for more affordable housing. If unions can help nonprofits get more money to build affordable housing, then the unions would be in line to get their contractors to be the ones to build it. Meanwhile, the unions can organize the contractors that hire the nonunion construction workers in the first place.”

Geer, of Heartland Housing, says the higher labor costs that come with paying the prevailing wage are offset by the benefits of using union firms. In Chicago, the city and state require developers to hire local residents on construction projects. Because union firms get the bulk of affordable housing work, they have the most experience with handling those requirements, he says. “I would be concerned with going with a firm that has less experience,” he says. “The firms that are doing our projects can handle the additional reporting requirements.”

Getting Past the Red Tape
While housing groups and unions try to work through their deep-seated differences, nonprofits have looked for ways around prevailing wage laws. Some have fought for loopholes that redefine the funding sources for construction projects so they are not subject to prevailing wages. Others have joined for-profit developers seeking to exempt their housing from the laws. And where these projects were already exempt, some housers have fought to keep them that way.

In California, one reason some housing developers don’t want to pay prevailing wages is the red tape it would involve, says Jeff Loustau, executive director of the California Housing Consortium. The state agency that sets standard prevailing wage rates for all commercial projects doesn’t handle residential projects the same way; instead it sets rates on a project-by-project basis. Rather than wait for the state to decide on rates, a process that can take months, developers often resort to higher commercial rates to move their projects forward. “Projects have been more expensive, and fewer have been built” because of this bureaucracy, he says.

Phillips points out that where residential developers have worked with unionized firms, they have usually negotiated a residential rate directly with the unions or through a Project Labor Agreement (PLA) where the developer agrees to use a unionized contractor in exchange for political support. This occurred in Southern California when SCANPH formed a working group with the local building trades. After months of discussion, 14 trades agreed to report residential rates. Fearful of potential cost increases, however, only a few nonprofit developers have been willing to negotiate for more unionized participation from their general contractors.

Even if developers agree to pay prevailing wages, the number of construction firms willing to build affordable housing at those rates may be limited. “Right now, union contractors are often too big for our projects,” says Zimmerman. “The smaller contractors may have to learn to run unionized job sites or nonprofits may have to [change] who our contractors are.”

The Bottom Line
Kevin Jackson, executive director of the Chicago Rehab Network, says it is difficult to separate the issues of housing and jobs in areas like his, with high housing costs and large populations of low-income residents. “Housing costs in the 1990s were outpacing wages,” he says. He adds that the current prevailing wage debate is a result of nonprofits getting away from initiatives and movements that once encompassed both adequate housing and living-wage employment as anti-poverty goals.

Developers on both sides of the issue suggest that the real problem is the limited funding for affordable housing. Many say the future of affordable housing, and whether prevailing wages come with it, will be determined by legislative policy. As it stands, the nonprofits have to worry about stretching every decreasing federal and state dollar.

Meanwhile, there is a great push for more organizing and political activity in the union movement, including the construction trades. The result will be more prevailing wage requirements, and more organized workers. Given the shifts in the construction workforce, supporting prevailing wage has the potential of lifting the income of tens of thousands of poor people, as well as garnering allies for affordable housing from both the labor and immigrants’ rights movements. However, implementation will also make projects more expensive and therefore fewer in number, and in some places could reduce the number of contractors, at least for a time.

Both positions have short and long-term implications. The questions may be easy, but the answers never are.

Leah Samuel is a freelance writer in Pittsburgh.


Overturned

In 2001 California imposed a strict prevailing wage requirement on affordable housing developers. But that was before two studies showed the effect of prevailing wages on the pace of housing development.

A 2003 study by the researchers at the University of California at Berkeley, funded in part by HUD, predicted that the new law would mean 2,600 fewer units would be produced annually in the state through the federal Low Income Housing Tax Credit program. A second study in 2004, by the now-defunct California Institute for County Government, found that the average per unit costs of prevailing wage housing projects were over 35 percent more than comparable costs of projects that paid a market wage. Overall costs of prevailing wage projects were more than 25 percent greater than for market wage projects. The group's data was derived from looking at 365 multi-family rental developments built in California between 1997 and 2002, using the federal Low Income Housing Tax Credit. Of the 365 projects, 85 paid prevailing wages to construction workers.

In 2005, the state decided to exempt projects that receive tax credits or tax-exempt bonds from its prevailing wage requirements. Its reasoning was that these projects are not public works projects, since they are not technically paid for out of public funds. The state AFL-CIO vowed to take the case to court if it couldn't change the state's mind. Meanwhile, while tax credit projects are exempt, many nonprofit developers still rely on other sources of state and federal funding that do require them to pay the prevailing wage.

- David Holtzman


Resources

The Hidden Public Costs of Low-Wage Jobs in California. Center for Labor Research and Education, University of California, Berkeley and the National Economic Development and Law Center, 2004.
http://laborcenter.berkeley.edu

Pew Hispanic Center reports:
The Labor Force Status of Short-Term Unauthorized Workers, 2006.
http://pewhispanic.org/factsheets/factsheet.php?FactsheetID=16
Latino Labor Report, 2004
http://pewhispanic.org/reports/report.php?ReportID=45

The Effects of Prevailing Wage Requirements on the Cost of Low-Income Housing. University of California, Berkeley, Institute of Business and Economic Research, 2003.
http://repositories.cdlib.org/iber/bphup/working_papers/W03-003

“Standing at a Crossroads: The Building Trades in the Twenty-First Century,” by Mark Erlich and Jeff Grabelsky. Labor History, Vol. 46, No. 4, November 2005.

“Renewing Bonds: Why the Housing Movement and Organized Labor Need Each Other,” by Peter Dreier.
www.nhi.org/online/issues/sf111.html

“Breaking Ground: Expanding Job Opportunities Through Construction Projects,” by Ken Zimmerman, et al. www.nhi.org/online/issues/137/breakingground.html

“Union Wage Requirements: A Debate.” Shelterforce #68, Mar/Apr 1993.
www.nhi.org/policy/orderpub.html