Elected officials are at it again, grossly miscalculating the impact.



Two weeks ago, I had lunch with one of New York City’s high-ranking elected officials and the topic of the Kingsbridge Armory arose (a favorite topic of mine, as my frequent readers know). The official described what happened in the Bronx as a “gross miscalculation on our part of the impact of the living-wage compensation requirement on the project.” No kidding! A living-wage requirement was imposed on the developer of the project to ensure that not only the contractors doing the construction, but all tenants leasing space in the project would pay employees a living wage. The developer, unable to get tenants to commit to pay this scale, pulled out, $310 million of private investment evaporated, and the building sits there today, a white-elephant reminder of a gross miscalculation.

Remarkably, several elected officials claimed that they would “rather have no jobs than jobs that pay an inadequate amount.” They may be happy, but the people who could have received 1,000 construction jobs and 1,200 full-time retail positions, which would have been created at the site, are probably not so happy.

A living wage is a defined by the U.S. Department of Labor as “a wage sufficiently high to permit a worker to keep a given standard of living.” As of 2011, federal and state minimum wage is $7.25 per hour while the living-wage totals were $11.50 per hour, comprising an hourly rate of $10.00 per hour and the health benefit supplement of $1.50 per hour. This living wage is also indexed to inflation. The living wage is, therefore, 59 percent higher than the minimum wage.
Many, including myself, would argue that higher-wage-paying jobs would be a good thing for the city. However, you could also argue that these jobs should be created by a thriving private-sector economy as opposed to mandated higher wages. Many reports have shown that living-wage mandates historically do not create or sustain jobs.

Notwithstanding this fact and the reality of the Kingsbridge debacle, bills have been drafted to institutionalize this living-wage mandate on projects receiving non-as-of-right public benefits. The first draft, 251-A, was shot down and a more “business-friendly” version, 251-B, was proposed. This legislation would require living wages to be paid by any “financial assistance recipient” receiving more than $1 million of benefits in the form of cash payments, grants, bond financing, tax abatements and exemptions, energy cost reductions, environmental remediation costs, or any additional itemized items that may be negotiated. One million dollars may sound like a lot but over a 25-year period, this amounts to just $40,000 per annum. The legislation also applies to all tenants, subtenants, leaseholders, fee holders and other condominium owners in a project and some contractors and subcontractors.

251-B has attempted to soften the impact of the initial iteration that was heavily criticized for containing too many job-killing components. However, even with the incorporated modifications, the living-wage bill retains job-killing ingredients that will hurt the very workers it seeks to help. If some elected officials still believe “no jobs are better than jobs that pay an inadequate wage,” they may just get the “no jobs” they are willing to accept. Below are some job-killing aspects of the proposed legislation.

It would perpetuate the “Kingsbridge Armory” debacle throughout the five boroughs. This is particularly true in the outer boroughs, which have been historically underretailed, had rates of unemployment higher than Manhattan’s and could benefit most from the additional economic activity and employment created by publicly supported projects.
The legislation would make it more difficult to create a range of affordable housing options—one of this city’s chief priorities—at a time when the city’s massive efforts to build or incentivize new housing are challenged by a difficult economy and a historically tough lending market. Generally, the feasibility of affordable housing developments is dependent upon a viable retail component. Given the administrative, compliance and additional cost burdens associated with this legislation, creating a viable retail component becomes even more challenging. Why would a retailer move into a project receiving benefits when they could simply open across the street and save significantly on their overhead?
The legislation imposes additional burdens, financial, administrative and otherwise, on many of the city’s cultural and social service institutions, impacting alternative revenue streams they have developed to remain afloat in an environment of diminishing public resources. While nonprofits are directly exempt from the living-wage requirements, any subtenants of theirs or long-term contractors must comply and the nonprofit is responsible for oversight of the employment practices of these parties.

This legislation virtually guarantees that franchise businesses like Subway, McDonald’s, Burger King, Dunkin’ Donuts and dozens of others would never open in a development that has received benefits. Many of these franchises are opened by immigrant residents who are looking to pour blood, sweat and tears into a business operation. Because the revenue of all “parent company” operations is included, overhead costs would make these operations unable to compete with a similar operation across the street.

251-B puts in place a disincentive for small businesses to grow since even modest growth in their revenues may subject them to exponential jumps in cost and bureaucracy if they secured certain types of government funding or occupied space in a publicly supported project. In fact, at the margin, a smaller business may find it financially beneficial to ensure that revenue comes in below $5 million to avoid the variety of burdens imposed by this legislation.