Sometime this summer, Gov. Andrew M. Cuomo will perform the financial equivalent of pulling a rabbit out of his hat -- explaining how a cash-poor, heavily indebted state government (and its Thruway Authority, whose credit rating outlook was just downgraded to "negative") will come up with $5 billion to $6 billion to build a new bridge across the widest stretch of the lower Hudson River.
Yet even as he struggles to find ways to pay for a replacement Tappan Zee Bridge, Cuomo is rigging construction rules in ways that will make it needlessly more expensive.
Just this week, the governor announced that the Thruway Authority and 14 construction trade union groups had reached a project-labor agreement, required by the Tappan Zee bid documents. The deal, Cuomo said, "will save taxpayers hundreds of millions of dollars, while putting in place important protections for our workers."
Translation: The unions will waive some of their usual work rules and promise not to strike, and the state will protect these workers (and their employers) from nonunion competition.
The modified work schedules under the agreement should, indeed, save money -- compared solely to standard union contracts, that is. But this doesn't necessarily mean the Thruway Authority will get the best value for its construction dollars, wherever they ultimately come from.
For example, it’s now common for builders to cut costs through off-site pre-fabrication of the steel needed to reinforce concrete. But one of the parties to the project-labor agreement, Local 46 of the Metallic Lathers and Reinforcing Ironworkers Union, knew its members would lose out if this practice were allowed on the Tappan Zee job. Although Local 46 reportedly agreed to a wage and benefit rollback, the governor’s announcement did not disclose whether the Thruway Authority made any concessions of its own to seal the deal, which had been rejected in two previous votes by the unions involved.
The main argument for project-labor agreements, which allow unions to control hiring and work rules, is that they minimize costly delays by preventing strikes, especially on big projects. But these deals are anti-competitive, effectively shutting out nonunion contractors -- who might otherwise do the same-quality work for less, and whose employees make up a majority of the statewide construction workforce.
Studies by the Beacon Hill Institute, a market-oriented think tank based at Suffolk University in Boston, have shown that project-labor agreements significantly drive up school construction costs, in particular -- by up to 20 percent, in New York's case. Yet President Barack Obama is pushing them for all federal work costing more than $25 million -- not that New York needed the push.
Like all such agreements, the deal for the Tappan Zee project was negotiated behind closed doors, and it's unclear whether the Thruway Authority conducted the legally required due diligence study to demonstrate that a labor agreement should be required as the most cost-effective approach to building the bridge.
The use of union-only labor agreements is not the only regulatory policy driving up public construction costs in New York. An even costlier and more pervasive requirement is the state's prevailing wage law.
This mandate adds 25 to 30 percent to the cost of development, according to a study issued last week by Columbia University's Center for Urban Real Estate. While 32 states have similar laws, the study says, New York is one of only five to stipulate union contracts as the basis for wage and benefit rates on public work.
The center's research indicates the Empire State is unique in treating the union pay scale as "prevailing" if a union contract covers as few as 30 percent of the workers in a given region. The state continues to treat union wages as a baseline, even though unions now represent barely a quarter of New York's construction workers, the study says.
This research suggests the state could reduce annual capital costs by $2 billion to $3 billion if it based prevailing wages on the regional averages computed for construction job titles by the federal Bureau of Labor Statistics, rather than on union contracts. The study was commissioned by a trade group of affordable housing developers, who have beaten back legislative attempts to extend the prevailing wage mandate to their industry.
Given the enormous sums at stake and the post-2007 scarcity of construction work, it should surprise no one that New York's construction trade unions reportedly were among the biggest donors to the Committee to Save New York, the business-dominated group that has campaigned for Cuomo's budget priorities. Since the unions would find it harder to survive in a more competitive environment, they need to build political bridges wherever they can.
Unfortunately, the taxpayers are left to pay the toll.
E.J. McMahon is senior fellow at the Manhattan Institute's Empire Center for New York State Policy.