Developers in Los Angeles and across the state are pushing to quash legislation that would extend the state’s prevailing-wage law to some residential projects, saying the resulting higher construction costs would force them to abandon projects.
The legislation, AB 199 by Assemblyman Kansen Chu, D-San Jose, would extend the state’s prevailing-wage law that now applies only to public works projects to private-sector residential projects that receive public funding or benefits. It’s backed by building trades unions, which argue it would restore prevailing-wage provisions for residential construction that vanished when community redevelopment agencies were dissolved five years ago.
But a broad coalition of developers, construction contractors, and business groups say the bill would go much further, increasing costs between 20 percent and 40 percent for residential projects that receive direct public subsidies, funds from community facilities bonds, or other public benefits. Such cost increases would force developers to abandon many projects because they would no longer pencil out, according to opponents of the measure.
“It would render many projects uneconomical,” said Randy Johnson, executive vice president at Brookfield Residential Properties’ Playa Vista office. “If this passes, there will be projects at Brookfield that will not go forward, including at least two in Los Angeles County.”
Opponents add that at a time when there’s an acute shortage of affordable housing, a measure increasing construction costs would go in the wrong direction.
But Ron Miller, executive secretary of the Los Angeles/Orange Counties Building and Construction Trades Council, disputed the notion that a prevailing-wage requirement would force developers to abandon projects and noted that it’s nothing new.
“This bill was strictly made to replace what was lost when the community redevelopment agencies were dissolved,” Miller said. “That’s why the language says it only applies to projects that receive public funds.”
Chu’s bill cleared the Assembly labor and employment committee earlier this month on a largely party line vote and awaits a hearing next month in front of the Assembly appropriations committee, the last step before a full Assembly vote.
With Republican opposition largely meaningless because Democrats hold two-thirds supermajorities in both houses, the bill’s fate will likely be determined by a block of moderate Democrats from the Central Valley that has stopped some bills to increase wages or worker rights in previous sessions, but let other bills through.
Prevailing wage
The state’s prevailing-wage law applies only to public works projects, funded and supervised by public agencies, such as road/highway construction and school construction. The law requires wages be based on surveys of median pay levels for specific types of construction workers – such as framing or pavement contractors – within a specific geographic area.
In most cases, especially in the county, the prevailing wage is close to or equal to union pay scales, which can run up to 40 percent higher than nonunion wages. For example, the prevailing wage for a drywall installer in Southern California was $40.40 an hour as of Feb. 22, according to wage determinations issued by the state Industrial Labor Relations Board.
Prevailing-wage law therefore benefits building trade unions, which effectively set the wage floor for all workers in these specialty construction occupations. So it’s no surprise they have long sought to expand prevailing-wage requirements to private-sector projects and are the bill’s chief sponsors.
But in this case, the unions are also trying to reverse a blow they suffered when Gov. Jerry Brown got legislative support to dissolve community redevelopment agencies five years ago. Most redevelopment agencies had longstanding policies requiring project developers to pay prevailing wages to construction workers, citing the flow of tax increment dollars into those projects.
Miller said the main goal of Chu’s bill is to boost living standards for the 140,000 workers in his member unions.
“Our goal is to have construction workers that can actually afford to live in the projects they build,” he said.
He dismissed claims that requiring a prevailing wage would force developers to cancel projects.
“The CRAs did just fine with prevailing wages; people got paid the prevailing wage, and the projects got built on time and within budget,” he said. “So there’s no reason this shouldn’t work here.”
Developers see it differently. Several said that with the price of land so high, any increase in costs for building their projects would make them economically unfeasible.
“They wouldn’t be able to afford to make these projects work anymore, so they just wouldn’t be able to do projects,” said Tim Piasky, chief executive of the Los Angeles County-Ventura County chapter of the Building Industry Association of Southern California.
Piasky said developers could raise home sale prices or rents, but that would run counter to the need to build more affordable units.
“We’re already in an affordability crisis,” he said, “so why would we ever want to do something that increases home prices and rents?”
That said, many residential developers in Los Angeles, especially those focusing on affordable housing, already pay prevailing wages to construction workers on their projects and would not be severely impacted by the bill.
One such developer is Bob Buente, chief executive of 1010 Development Corp., an affordable housing developer in downtown.
“Affordable housing developers always deal with prevailing wage,” Buente said in an email. “It just runs with the territory. The direct impact of this bill really has little to no effect on affordable housing developers.”
Similarly, Robin Hughes, chief executive of Abode Communities, an affordable housing developer also in Los Angeles, said her nonprofit already pays prevailing wage on about three-fourths of the projects because it’s already required as a condition for receiving public financing from various government agencies.
But the bill would likely require Abode to pay prevailing wage on the one-fourth of projects in the portfolio that do not now require it be done, Hughes said.
In those cases, she said, “we would have to go back to the funding agencies and ask for more money to cover the higher cost.”
Also, under the city of L.A.’s Measure JJJ approved by voters in November, any residential development project seeking a zone change must also pay prevailing wage. That measure was sponsored by the Los Angeles County Federation of Labor.
Outside of affordable housing projects heavily reliant on public financing, most residential projects in Los Angeles do not receive public financing and, on the surface at least, would appear to be exempt from the prevailing-wage requirement in the bill.
But, some developers said, the language in the bill also includes reference to receiving “public benefits” as a trigger requiring payment of prevailing wages. That language is sufficiently vague, subject to future interpretation by the state Department of Industrial Relations.
Brookfield’s Johnson said there’s a fear that the scope of public benefits could be broadened to include Mello-Roos community facilities district bonds, or even permit fees that don’t fully recover government costs because the fee gap could be considered a “public benefit.”
“This could take in many more projects than one would think,” Johnson said.
