ABC’s Testimony on the New York State Housing Budget Hearing

First, we want to thank the legislature for the opportunity to speak to regarding the housing issue in New York State. I represent the Associated Builders & Contractors, Empire State Chapter (ABC). We are a construction trade association representing hundreds of merit shop contractors, employing tens of thousands of workers across New York State. Our organization promotes fair and open competition and free enterprise and provides education and world-class safety services for our members.

When Governor Hochul outlined her budget proposal for the fiscal year 2024, we couldn’t agree more with her call to build more affordable housing in New York. However, the biggest hurdle to reaching the goal of 800,000 new units is the extremely high cost of construction in New York. There are things in her control that can be done to reduce the cost of construction. Such as not attaching Project Labor Agreements (PLAs) and prevailing wage mandates to these projects. These mandates exacerbate the cost issue and will ensure that the lofty goals the Governor and the Legislature set are not met.

PLAs increase the cost of construction because they eliminate opportunities for non-union workers which significantly reduces competition during the bidding process. A typical PLA forces contractors to hire most of their workers from a union hall. The problem is that the vast majority of contractors and construction workers are not part of a union and are considered open shop. As a result of these contractors being forced to replace their workers with unknown individuals from the union halls and out of loyalty to their employees, these firms will not bid on this work. This reduced competition due to lacking bidders will increase the project’s final cost.

Dr. Paul G. Carr, P.E., from Cornell University, conducted a quantitative analysis of the impact of reduced competition on project bid prices. The study looked at public works projects in New York State and ultimately concluded that the construction costs increased when the number of bidders on the project decreased. For example, reducing two bidders added more than 4% to the bid cost. That means PLAs will add approximately one billion dollars to the $25 billion the State has earmarked for constructing additional units. This is only a reduction of two bidders! Most construction workers in NYS are not part of a union, meaning that there is potential for costs to increase even more depending on how many potential bidders are excluded because of PLAs. Dr. Carr found that projects will receive the best bid prices when there are more than five bidders on the project. That will not happen if PLAs are mandated.

Furthermore, In New York, to implement a PLA a “study” must be conducted. That “study” must identify that some form of savings can be achieved by using a PLA. However, unsurprisingly, the “study” is nothing more than smoke and mirrors as it starts from a flawed premise, or question. The question asked in these studies is would a PLA, by adjusting the work rules in current Collective Bargaining Agreements (CBA), save labor costs thus lowering the project cost. There are two glaring problems with the question at hand. The first, and what should be the most concerning to you, is that the savings can only come from a reduction in labor costs. Therefore, every construction worker on these PLA projects will receive less pay and benefits. The savings will come off of their back while their leaders make no sacrifices and continue to get their full pay and benefits. I hope you find that as appalling as we do. The second thing that should concern you is there was a study done by the Beacon Hill Institute in 2021 that analyzed these PLA cost-saving studies. The Beacon Hill Institute engages in rigorous economic research and conducts educational programs for the purpose of producing and disseminating readable analyses of current public policy issues to voters, taxpayers, opinion leaders and policymakers.

The Beacon Hill Institute’s (BHI) study (attached) examined recent significant public work projects with a PLA mandate and the PLA studies that accompanied those projects. BHI went line by line through the studies' "projected savings" and discovered that they were miscalculated or could be realized without a PLA. For example, these PLA studies will say that the project can save money because non-union firms can utilize union apprentices and pay a lower wage rate. However, those savings never happen when non-union firms do not bid on the work.

The most important study to understand this issue is the study by the Rand Corporation. The RAND Corporation is a nonprofit, nonpartisan research group that is committed to the public interest. In 2021, they released a study that identified the negative impact attaching PLAs will have on building affordable housing units. Their study focused on the creation of affordable units in California by Proposition HHH, passed by their legislature. In 2021, California invested $1.2 billion through its HHH program to create 10,000 new affordable housing units. RAND found that these projects funded by HHH have nearly identical land costs and generally comparable soft costs as non-HHH-funded projects. However, the construction costs of HHH-funded projects are, on average, $81,000 (31 percent) higher per unit than the non–HHH-funded projects. This substantial cost difference can explain a significant portion of the discrepancy between the projected per-unit costs used during the HHH campaign and the realized cost estimates of developments funded by the initiative. Fundamentally, the only true difference between the HHH-funded projects vs the non-HHH-funded projects is the PLA. The report ultimately concluded that PLAs caused a 14.5 percent increase in construction costs which caused nearly 1,000 additional units to go unbuilt.

If California lost about 1,000 units on a $1.2 billion investment, then New York will lose approximately 20,800 units on the $25 billion New York has allocated to affordable housing. More than 20,000 affordable housing units going unbuilt because of politics in Albany is unacceptable, PLAs and prevailing wages on these projects will guarantee that Governors’ goals are not achieved.

An important additional contribution of this study is examining the association between prevailing wage (PW) laws and construction costs during affordable housing production in California. The report found that prevailing wage laws apply to most affordable housing projects using public funding in California. It’s important to note that you don’t typically see these mandates in market-rate developments. The reports (Raetz et al., 2020; Reid, 2020) concluded that PW laws increase construction costs by 11 and 16 percent. The Empire Center also performed a study analyzing the impact of prevailing wage in New York titled "Prevailing Waste,". Their report concluded that prevailing wages cause construction costs to increase by 13 to 25 percent, depending on the region and trade.

With just attaching a PLA to these projects, over 20,000 units stand to go unbuilt. Piling on a PW mandate would amplify these problems, and you could see an additional loss of 20 percent (the difference between market rate pay and the PW), more or 160,000 units going unbuilt. We can safely draw the conclusion that with both a PLA and PW, we’re looking at a loss of almost 200,000 units of affordable housing. This is unacceptable under any circumstances, but when building affordable housing for those who desperately need it, it’s actually dangerous.

ABC and its members agree that NY needs more affordable housing, so we’re fighting these policies that will be hugely detrimental. They needlessly increase the construction cost which reduces the number of affordable units that can be built in New York. People across the state are in desperate need of this affordable housing. Our leaders in Albany have a choice to make, achieve their goal of 800,000 new affordable housing units or bow to their union donors. All of New York is watching.