Stopgap 421a held up by construction wage dispute

A stalemate between developers and construction unions over worker wages is holding up negotiations to bring back a mini version of property tax break 421a — just as it did the last time the tax break expired.

After failing to get the legislature on board with extending the construction deadline for the tax break, Gov. Kathy Hochul was considering an alternative route for certain projects to receive benefits. But the Real Estate Board of New York and the Building and Construction Trades Council do not see eye-to-eye on construction wage requirements for such projects.

Because of the issue’s politics, the alternative is unlikely to be adopted without the two groups agreeing on terms.

As The Real Deal previously reported, officials were contemplating a measure involving payments in lieu of taxes, or PILOTs. Under such arrangements, the state would take over properties and then rent them back to developers through long-term ground leases. The rent would be less than what the developers would pay in property taxes, essentially substituting for the benefit that 421a once provided.

While it would not require passage by the state legislature, the plan would have to go through the Public Authorities Control Board, where the Assembly and Senate leaders have a say. Neither likes to buck the construction unions.

To qualify for 421a, developers needed to have foundation footings in place by June 15, 2022 and finish their projects by June 15, 2026, a deadline that developers argue will not be met by many projects, resulting in tens of thousands of housing units going unbuilt.

A source familiar with discussions told TRD that the governor had asked the construction trades about a potential alternative path for these projects. Organized labor wanted to apply changes to 421a’s wage requirements, specifically by doing away with geographic restrictions and how the wages are calculated.

A fight over wages held up a 421a replacement for 15 months when it expired in 2016. Eventually, the two sides agreed on higher wages for projects with more than 300 units south of 96th Street in Manhattan or on the Brooklyn and Queens waterfront. But REBNY and BCTC could not agree on changes to save projects likely to miss the construction deadline.

“It seems as if real estate is not very interested in making minor compromises in getting this idea off the ground,” the source said.

Another source indicated that the unions wanted to institute an “aggregate wage,” which would apply citywide and would set an average or uniform wage for a given trade. That, according to the source, would raise project labor costs by 20 percent.

The BCTC — an umbrella group for construction unions — and the governor’s office did not return requests for comment.

Asked about the proposal and the state of talks with the unions, REBNY President Jim Whelan said in a statement that the group is “committed to continuing to work with the building trade unions to help address New York’s worsening housing supply crisis and increase union construction market share in an economically rational manner.”

New York Focus first reported that talks about extending the tax break had stalled over construction wages.

Before 421a was renewed in 2017, the BCTC sought prevailing wages on all 421a projects.  Then-Gov. Andrew Cuomo insisted that the eventual deal be acceptable to the trades council. Eventually the labor group and REBNY agreed on wage floors for larger projects in specific areas.

Project filings have plummeted since that version of the property tax break expired last year. 

The fight to change these wage rules predates the PILOT-based proposal. When the governor proposed extending the 421a completion deadline by four years, the New York City District Council of Carpenters demanded prevailing wage requirements be added.

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But the impasse hurts the unions too, because a project that isn’t built doesn’t pay any wages at all.

“It is disappointing that these two groups, labor and the real estate industry, have not been able to come to some kind of resolution,” said  Brett Gottlieb, a partner in Herrick’s real estate department.