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Labor unions play nice as jobs dry up

New York has long been known as the most expensive city for construction in the country, largely because of the high labor costs here. But recently the construction industry — fearful that jobs are going to dry up if building comes to a halt — has started playing nice.

To combat the slowdown, two recent initiatives have been launched in an attempt to keep the industry afloat. The first is a proposal to create a $300 million fund to finance construction projects; the second is a joint effort by unions and developers to cut labor costs by 25 percent.

On the labor side, New York unions have made headlines for contemplating the creation of a $100 million kitty that would use pension money to finance construction projects, according to the New York State Building and Construction Trades Council, which represents local unions across the state. The unions, as has been reported, are seeking matching funds from the city and state to bring the fund up to $300 million.

While this is the first time in recent memory that the construction industry has stepped up in this fashion, it's not the first time a union has opted to use some of its money to boost development, said Richard Anderson, president of the New York Building Congress, a trade group of construction and real estate companies.

"This may be a new fund, but the idea of the unions using some of their pension or other money for investment purposes has been around for a while," Anderson said. "The [American Federation of Labor] nationally has a housing trust and commercial trust, and they invest in properties."

Anderson said at the 72-acre waterfront development known as Queens West, the first building that went up — the Citylights Building, which was finished in 1997 and has more than 500 apartments — used AFL-CIO housing trust funding. Meanwhile, his organization released a report late last year predicting that the city's construction workforce would lose 28,000 jobs by 2010.

Anderson said that though he didn't know the details of the unions' plan, the Building Congress would support the initiative in principle. "We would support them if they needed support and encourage them, because funding for projects right now is in short supply," he said.

Developers said they thought the plan was a good one, though some were skeptical of how it would work.

"I don't believe for one second that it's going to happen," said Michael Altman, chief operating officer of Hy Point Project and Development, which uses non-union labor to develop real estate in the city. "It's a great idea, but who decides which developers the money goes to?"

Louis Coletti, president and chief executive of the Building Trades Employers Association, an advocacy group for union contractors in the city, said he believed much of the fund, if created, would be used for construction of affordable housing. He said he supported the fund's creation, but added that more needed to be done.

"This is a way to provide much-needed housing and to stimulate the economy, but I still think we have more serious issues to discuss in terms of stimulating construction work," Coletti said. "This will be helpful, but these projects alone are not going to fund what we fear could be a 50 percent unemployment rate in the construction trades."

Coletti estimated that there are roughly $4 to $5 billion worth of projects in New York that have either stalled or that haven't started because of difficulties in obtaining financing.

In response, the construction industry is working with developers to lower labor costs in the hopes that cheaper development budgets might induce banks to finance more projects, which would in turn mean more jobs.

According to Coletti, labor constitutes a stunning 50 to 60 percent of a construction job's cost in the city. The Building Congress figures show that is as much as 60 percent higher than in some other American cities.

Total project costs of high-rise office buildings in New York can exceed $400 per square foot, while the same construction costs $150 per square foot in Atlanta; $180 in Chicago; and between $200 and $300 in other American cities, according to the organization.

One factor that drives up costs for developers is the union domination of the construction industry in New York.

Typically, a project costs 30 to 35 percent more with union labor, Altman said. He noted, however, that there is a cost associated with the delays that often come with using non-union labor, which can extend a job by four to six months.

Construction unions are generally credited with being more experienced and being able to handle far more complex jobs, which are the norm when building Manhattan high-rises. But unions are also more expensive.

The New York Observer recently reported that Stephen Ross, the chairman of the Related Companies, said at an event hosted by the Real Estate Board of New York that if costs were not cut he would have to build a planned 58-story tower on 42nd Street with non-union labor. The paper attributed the statement to "numerous people familiar with his remarks."

The unions have been in discussions with contractors since November to hammer out a deal, Coletti said.

The 25 percent is "a number that has been given to us by developers," he said. "Developers are saying the banks are saying to them that's what they need to do in many cases to keep projects that are currently funded alive and to move forward on projects that are seeking funding."

Yet negotiations between the construction unions and developers have been contentious in New York. Indeed, unions have been known to protest outside non-union jobs, with their trademark giant, inflatable rat.

Still, Altman said that lowering construction costs by 25 percent might be enough to induce property developers who have traditionally used non-union labor to consider using union labor.

"If unions lower costs, and I can afford it, I'd rather go with a union contractor, who's bonded, experienced and financeable," he said.

Coletti said that contractors and unions are negotiating "rule changes" in their collective bargaining agreements. Some examples of possible changes might be standardizing work schedules, overtime provisions and holidays for all the trades.

"For example, things like all workers have to work eight-hour days, as opposed to six or seven," he said. "Those things can result in reducing construction costs."

He added that, from the contractors' standpoint, the discussions had to achieve a reduction of 25 percent or more drastic means of cutting labor costs would be necessary. "The priority is 25 percent, and if we don't get there through rule changes, then we'll have to get there through wage freezes or wage reductions," Coletti noted.

Union workers earn an average of $60 to $70 an hour. Anderson said that contractors can also do their part to lower construction costs, for instance, by being more efficient in their delivery of materials to job sites and finding other ways to economize.

"This is not something where you point the finger at construction workers, and say, 'You're the problem, and you have to accept lower wages,'" he said. "It's not as simplistic as that."