The Standoff: Will anyone win the 421-a negotiation?

The Standoff: Will anyone win the 421-a negotiation?

The Standoff: Will anyone win the 421-a negotiation?
August 31, 2015

Despite a steadily approaching deadline to cut a pivotal deal on construction incentives and wages for construction workers, New York City’s real estate industry and building trades unions are keeping mum on the upcoming negotiations.

The two groups will need to hammer out wage agreements before the end of the year to satisfy requirements set by the state Legislature for extending the 421-a tax abatement program, which offers breaks to developers who build enough affordable housing in new buildings. The incentives could be extended another five years, but without an agreement the program will end abruptly at the end of December.

The negotiations are a high-stakes game for the unions and for the Real Estate Board of New York, which represents real estate developers. The unions want higher wages while developers want to keep construction costs in check, but both groups stand to lose a great deal if the 421-a program disappears completely.

“The stakes for both the development community and the unions are pretty high, to the extent that some have described this as mutually assured destruction doctrine similar to when the U.S. and Russia had a standoff where each party could inflict damage on the other but both of them would wind up getting hurt,” said Kenneth Fisher, a land use and real estate lawyer with Cozen O’Connor.

New York City Mayor Bill de Blasio’s administration, which has set ambitious affordable housing goals that could hinge on the outcome of the negotiations, is optimistic that the circumstances will prod the two sides to reach a compromise.

“We are hopeful they will reach a workable agreement,” said Wiley Norvell, a spokesman for the mayor. “Everyone clearly has an interest in seeing this new, stronger program take effect. The administration has a strong track record of using every opportunity to secure good-paying jobs as we undertake our ambitious affordable housing plan.”

Sources on each side of the negotiations confirmed that talks will formally start after Labor Day, but not much else is known about the proceedings. Neither side revealed who exactly will be at the table, nor would they reveal any of their goals or strategies for the talks.

John Banks, who took over as REBNY president earlier this year, did say he has already had initial conversations with Gary LaBarbera, the president of the Building and Construction Trades Council of Greater New York, an umbrella labor group.

“We look forward to the beginning of negotiations in earnest next month,” Banks said. “These negotiations mark a great opportunity to engage in frank and honest discussions about how we can build much more affordable housing, ensure construction workers are treated fairly and create job opportunities for residents of the city.”

Carpenters Labor Management and Greater New York Laborers-Employers Cooperation and Education Trust, two labor groups that have spearheaded the push for higher construction worker wages, also offered an optimistic take ahead of the talks.

“Thanks to the leadership of Governor Cuomo, Majority Leader Flanagan, Speaker Heastie and members of the Senate and Assembly, it is now the law that there will be strong wage standards for the working men and women who build projects receiving 421a tax abatements,” the construction unions said in a statement. “Carpenters Labor Management and GNY LECET look forward to the completion of the memorandum of understanding referenced in the law so that 421a can move forward in 2016 with the creation of good construction jobs and more affordable housing.”

But the upbeat comments belie a fundamental disagreement. Labor unions began fighting for mandated wage increases in May, forming the Up4NYC coalition to lobby lawmakers to insist that any extension of the city’s rent regulations and the 421-a program include provisions to increase wages for construction workers.

De Blasio came out closer to the side of the developers, who argued that wage increases would make building affordable housing far more difficult. The mayor has fought long and hard to increase the amount of affordable housing built in New York City, and REBNY has been largely on his side, favoring the tax breaks developers can receive in exchange for increasing how many units are designated for low- and middle-income tenants.

Gov. Andrew Cuomo, meanwhile, took the side of workers, arguing in favor of higher wages and insisting on legislation that would make it happen. In what has become a trend, the mayor found himself sharply at odds with the governor, with Cuomo taking repeated shots at de Blasio in the media as the session neared its end.

At the end of the overtime session, the final legislative package mandated that REBNY and the unions would have six months to find a middle ground on wages, or else the 421-a abatement would permanently expire.

“(Cuomo) kind of scrambled the status quo by insisting that wage issues be brought into the 421-a negotiations, but it happened at the last minute when it was too late for the parties to try to work it out,” Fisher said. “What you have now is a very strange situation where both sides run the risk of the entire 421-a program falling by the wayside, which would mean, at least in the short term, a dramatic drop in construction activity all over the city. It could take years for that to shake itself out.”

The Cuomo administration offered no comment. His office has previously indicated that, at least for the time being, he’ll steer clear of the negotiations and let the two parties duke it out without interference.

But that Cuomo interfered at all, according to one expert, was inappropriate and unnecessary.

“I don’t think (Cuomo) should have intervened in that fashion,” said John Goering, a professor of public affairs and real estate at the City University of New York’s Baruch College. “The city has a direct interest in this. I don’t believe it’s appropriate for (Cuomo) to interfere in a political process that is central to the city.”

Goering said he fears that the pressure injected into the negotiations by state officials endangers the ability of both REBNY and the unions to focus solely on reaching an agreement that will promote the construction of affordable housing.

“I think these ad hoc political solutions … don’t make a great deal of sense, certainly not in producing affordable housing in New York City,” Goering said.

There have also been rumblings of a potential legal challenge to the unusual decision to allow private sector players to determine state policy, although some observers say a lawsuit would take too long to be a threat to the future of the 421-a program.

The bigger threat, Fisher said, is the impact of the negotiations on the continued construction of affordable housing. He said a deal constitutes a “gamble” for de Blasio.

“The mayor is already gambling that developers will continue to build mixed developments with a substantial affordable housing component in them, and I think the concern is that if labor costs go up, then at least some buildings will be deferred until the market is in a position to be able to absorb the additional costs,” Fisher said. “Potentially you could wind up with another wave of zombie development sites.”

For the unions, Cuomo’s intervention signaled a significant vote of confidence, despite de Blasio’s and REBNY’s objections. The governor’s insistence on a wage discussion was the only reason the 421-a program saw any modifications, Fisher said, instead of remaining a simple five-year extension of the existing law.

“That was both a policy and political judgement he made,” Fisher said, “and without his positive and affirmative intervention, the Legislature would not have included the city’s requests. If you’re the unions you have to feel pretty good about that, but it’s kind of like catching a tiger by the tail. What do you do with it now?”

Will Brunelle