Fix the PLA Problem Before Bailing Out NYCHA
The newly appointed New York City Housing Authority (NYCHA) CEO has requested a $500M bailout. Common sense change must be made before even a penny of this enormous bailout is forced on taxpayers. NYCHA must stop using expensive Project Labor Agreements (PLAs) on their construction projects as they unnecessarily drive up the construction cost and directly contribute to needing this bailout.
PLAs force contractors to hire most of their workers from the union halls. Imagine owning a company and being awarded a bid for a large state project. Then having to go and tell your employees that you've trained and worked with on countless projects that some must be replaced with unknown workers from the union hall. It shouldn't matter if they're in a union or not. You shouldn't be forced to replace your employees if you are a qualified contractor, and most contractors in New York refuse to and won't bid on work with PLAs attached.
That's a problem when most New York construction workers are not part of a union. Recent data from the Bureau of Labor Statistics show that 70% of construction workers in New York chose not to be part of a union. Intentionally excluding the vast majority of workers means there are going to be fewer bids submitted. When there are fewer bids on these projects, the construction price goes up.
Take a Look at the Data:
- A study by Dr. Paul G. Carr, P.E., from Cornell University, shows what happens when the number of bidders on a project is reduced. The study looked at hundreds of public works projects in New York State, finding that the construction costs increased when the number of bidders on the project decreased. Reducing two bidders added more than 4% to the bid cost. Upcoming projects across the state with PLAs attached to them will cost NY residents 6.7 billion dollars, and it's not hard to figure out why NYCHA is having budget issues.
- Another study by the RAND Corporation shows the effects of PLAs on producing affordable housing in California. The RAND Corporation is a non-profit, non-partisan research organization that develops solutions to public policy challenges to help make communities worldwide safer, healthier, and more prosperous.
- Their study looked at Proposition HHH, passed by the Los Angeles City Council in 2016, as an initiative to build more affordable housing units in the city. Through HHH, they invested $1.2 billion to create 10,000 new affordable housing units. With all funding committed in 2021, only approximately 7,300 housing units were in the pipeline. Experts attributed the failure to meet the original target of 10,000 new units to higher-than-expected construction costs. RAND took a deep dive to understand what caused these higher-than-expected costs and found they can be directly attributed to Project Labor Agreement (PLA) and prevailing wage requirements.
Here are two of the major takeaways from the report:
- The report concluded that PLAs added $43,000 to the cost of each housing unit, a 14.5 percent increase in construction costs that resulted in nearly 1,000 units going unbuilt.
- An important additional contribution of this study is the inclusion of other research that estimated the association between prevailing wage laws and construction costs on California's affordable housing production. This recent Terner Center reports (Raetz et al., 2020; Reid, 2020) finds that Prevailing wage laws increase construction costs by between 11 and 16 percent.
Bailing out NYCHA before they remove PLAs from their projects ensures that nothing will change. Late and over-budget projects will continue, and taxpayers will have another bailout bill in the future. Removing PLAs will increase competition, drive down costs and improve efficiency, helping to ensure that essential housing needs are met. NYCHA needs to make this simple change and take a step in the right direction before they're bailed out, rather than rewarding overspending and underdelivering at the taxpayer's expense.