New York state, its local governments and public authorities are committed to spending tens of billions of dollars on public works in the next five to 10 years. But under current law, they’re also committed to wasting billions of taxpayer dollars on public works — to subsidize the above-market compensation of the state’s shrinking but politically influential construction unions.

The culprit is New York’s longstanding requirement that contractors pay the local “prevailing wage” on publicly funded construction projects. Rooted in late 19th-century worries that government contracts would be won by firms importing cheap labor, the law is now little more than a protection scheme for unions.

In reality, the mandated pay levels are neither truly prevailing nor limited to wages, in the normal sense of either word.

“Prevailing” is defined by law as the amounts set forth in union contracts covering as little as 30 percent of the building trades where the project is located. The mandated “wage” includes union fringe benefits, priced at levels far beyond the private-sector norm. Even the definition of “locality” is distorted, conforming to a multitude of arcane union jurisdictions rather than metropolitan or regional boundaries.

The process for determining and implementing the pay mandate is extraordinarily opaque. The state Labor Department, which administers the law outside New York City, apparently doesn’t even verify that the 30 percent union-coverage threshold is actually being met in all cases.

As shown in a new Empire Center report I co-authored with Kent Gardner of the Center for Governmental Research, the higher union pay boosts total building costs by 15 percent in the Hudson Valley, 20 percent on Long Island and in the Buffalo area and 25 percent in New York City.

So, for example, the prevailing wage law will inflate New York City school construction costs alone by $1.4 billion over the next five years.

It will account for $340 million of the $1.7 billion the state plans to spend on Moynihan Station and the Javits Convention Center renovation.

These findings are consistent with other estimates, including a city Independent Budget Office study last year, which found that a prevailing-wage requirement would boost the cost of affordable housing by 23 percent. That didn’t stop Gov. Cuomo from unsuccessfully attempting to force the union-pay mandate on affordable-housing projects built by developers receiving the city’s 421-a property-tax breaks.

Higher prevailing-wage rates don’t flow entirely to current workers. The law also provides an ongoing backdoor taxpayer-funded bailout of union pension and welfare plans, most of which are struggling to stay afloat.

Based on their latest filings, New York’s top 25 construction-union pension plans have $12 billion in unfunded liabilities — a challenge compounded by their rapidly aging membership profiles, with fewer workers supporting a growing number of retirees.

Just over one-third of employer contributions to construction union pension plans were needed to cover the actuarially determined “normal” cost of benefits earned by active workers. The rest — nearly two-thirds — was billed to cover the plans’ unfunded liabilities.

Beyond total pay rates approaching or exceeding $100 an hour for some trades, the prevailing-wage law also effectively saddles contractors — union and non-union alike — with productivity-sapping union work rules. So, for example, on a high-rise New York construction site, highly paid operating engineers must stand by to push the buttons on fully installed automated elevators.

New York’s constitutional requirement for public-projects workers to be paid “the rate of wages prevailing in the same trade or occupation in the locality” could be more affordably implemented by reforming the law so it links pay rates to union contracts only when unions represent at least half the workers in a locality. Otherwise, contractor pay on public-works jobs should be based on regional private-sector averages. And “wage” should be redefined to mean just that — pay, not benefits.

While championing the interests of building-trades unions, Cuomo also has been working hard to cultivate the image of a master builder in the tradition of Nelson Rockefeller and Robert Moses. But when the governor proclaims “any government funding for construction has to go to union jobs,” he’s also promising to give away the store.

About the Author

E.J. McMahon

Edmund J. McMahon is Empire Center's founder and a senior fellow.

Read more by E.J. McMahon

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