Construction Labor Costs in New York City

A Moment of y t i n u t r o p p O 9 June 2011

Welcome 9 June 2011

Dear Conference Attendees For nearly ninety years, Regional Plan Association has promoted the economic success of the New York metropolitan region by preparing long range plans and policies to guide the growth and development of the tri-state region. In 1929, RPA’s First Regional Plan provided the blueprint for the transportation and open space networks that we take for granted today. RPA’s current work is aimed largely at implementing the ideas put forth in the Third Regional Plan, which called for a seamless mass transit system and urban centers of concentrated employment and residence. Fifteen years after publication of that plan, the region finds itself struggling to finance and build the infrastructure that will keep New York at the forefront of global cities. The publication of Construction Costs in New York City: A Moment of Opportunity —the first-ever, in-depth analysis of the structure and costs of a notably secretive industry—marks a new direction in RPA’s efforts to foster the region’s economic vitality. Our Fourth Regional Plan, which we will begin in fall 2011, will emphasize building the plan as much as conceptualizing it. Even as we advocate for building the projects and infrastructure vital to the region’s future, RPA will highlight the barriers—costly, time-consuming habits and practices,

including government red-tape, financing requirements, and union work work rules— to construction and implementation. RPA undertook this study because costs have risen to uncompetitive levels within the city’s $25 billion commercial and residential construction industry, which is an underpinning of the region’s economy. Open shops, which are a mix of union and nonunion labor, are 20-30 percent less expensive than fully union shops, and are growing rapidly—from just 15 percent of the market in the 1970s to about 40 percent now. The far higher costs of union construction are primarily due to legacy work rules, inefficient practices, and featherbedding— some of which date back over one hundred years— rather than significantly higher wages and benefits. These are problems well within the power of the industry to address. Businesses are willing to pay a premium to be in New York, but the region has reached a tipping point at which developers and contractors are no longer able to bear significantly higher construction costs. RPA’s goal is to reach a sustainable mean that the market will support, maintaining the region’s competitiveness both here and abroad. Sincerely

Robert D. Yaro,

President, Regional Plan Association

Cover Photo: Hope Cohen

2

The Construction Labor Ecosystem

Management

Labor New York Plan

Building Trades Employers Association (BTEA)

General Contractors

Building & Construction Trades Council (BCTC)

Construction Managers

lab

or

Contractors Associations

OwnerBuilders

Developers

(3)

Project-Wide Trade Union Locals

Carpenters Laborers Operating Engineers et al.

labor

Trade Associations

Trade Subcontractors

(24)

Trade Union Locals (Dozens)

Negotiating Relationship

Project Reporting Relationship

Membership Relationship

Source: RPA-CUI

3

Executive Summary From Construction Labor Costs in New York City: A Moment of Opportunity by Julia Vitullo-Martin and Hope Cohen In New York City’s high-end construction industry, union developers and contractors have been steadily losing market share to nonunion firms. Labor union leadership considers this a temporary problem that will ease as the economy recovers from the current downturn. But the truth is that nonunion firms have become a permanent fixture in New York’s new economic reality. Nonunion-built, Manhattanstyle high-rises proliferating in Brooklyn expose the fragile future of unionized construction—eroding even further the once impervious union monopoly— unless serious reforms are undertaken. The expiration this year of 26 crucial labor contracts—22 of them on June 30—offers a unique opportunity for progress, at a time of at least 30 percent unemployment among building trade union members. While many employers favor union labor because of superior skill, speed, and safety, nearly all contractors and developers are now considering nonunion approaches, including open and merit shops. With the nonunion option growing in strength with the completion of every significant nonunion project, fully union construction has diminished from more than 85 percent of the market in the 1970s to less than 60 percent now. This report is not focused on wages and benefits, though they are discussed. It is about work rules and practices that impede productivity—and that are driving union developers and contractors to choose open and merit shops in preference to union contracts. Open shops are 20-30 percent less expensive than union shops. Wages, benefits, and, most importantly, wasteful work rules and practices combine to account for the differential—which could be minimized by enforcing a fully

productive 8-hour workday earning an 8-hour paycheck. Examples of antiquated, cost-inflating labor practices include: • higher paid operating engineers on hoists and elevators, even though lower-paid laborers could readily perform the work • overstaffing of two or more workers to do the work of one, such as the unique contractual mandate that steamfitters work in pairs • temporary (standby) services with multiple high-paid trades on site at all times, including plumbers and electricians, whose services are rarely needed The City of New York’s rules for training and testing crane operators are of special significance. Currently, applicants need access to union members and equipment to obtain a license to operate large cranes, which effectively grants the union control of licensing, while restricting the supply of workers and driving up costs. Building on existing regulations for smaller cranes, the city should implement its own 2009 recommendation to accept national licensing, or reciprocal licensing with other major cities, for large cranes. These reforms would put the city in compliance with OSHA regulations, set to take effect in 2014, requiring retesting for license renewal. Unionized construction is a world long characterized by maximum fractionalization—union locals, subcontractors, general contractors and construction managers, trade associations and negotiating representatives, developers and owner-builders. The system fragments the work, undermining labor productivity and management authority and flexibility. The archaic bargaining structure—lacking a master industry agreement—results in

4

Following an Uneven 2008, Construction Starts Plummeted in 2009

In practice, this means: • removing restrictions on the contractor’s choice of equipment, technology, tools, methods, designs, materials, prefabrication and off-site work • abolishing contractual requirements for temporary services • beginning and ending the work day at the worker’s assigned station

Q1 Q2 Q3 Q4

Q1 Q2 Q3 Q4

Q1 Q2 Q3 Q4

2008

2009

2010

Multifamily

Commercial

• instituting an industry-wide standard of an 8-hour day, 40-hour week, with overtime at time-and-a-half over 40 hours • permitting staggered start times among and within trades

Institutional

• adopting nationally recognized major holidays as the standard holiday schedule

Source: McGraw-Hill Construction Dodge Construction Dodge; New York Building Congress analysis

inconsistency and inefficiency. The entire management-labor ecosystem needs to be reconsidered and rationalized along modern management principles, with clear lines of authority between employer and employee. Indeed, developers and contractors have already taken steps toward such industry restructuring. Leading developers have started taking a more active role in building—having their own in-house construction staff partner with the general contractor or construction manager, selecting trade subcontractors, negotiating with union officials for favorable terms for their projects. They are inspecting work sites, finding safety problems and ordering them fixed, and identifying individual workers for promotion or demotion. If current trends continue, only the largest and most complex projects will be built fully union. The high cost of unproductive work practices will deter future use of union labor. The alternative is for current contractual negotiations to produce progressive, cost-reducing labor agreements to modify these trends.

➜The moment of opportunity is now.

Visit RPA-CUI.org to view the full report

5

Participants

Jay Badame, President and Chief Operating Officer of Tishman Construction Corporation in New York, New Jersey, and Pennsylvania, is responsible for all projects, operations, administration, personnel, and business development in the three states. He has been with Tishman, one of the nation’s leading builders, for 26 of his 30 years in the industry. As a member of Tishman’s executive leadership team, Badame is currently building some of the region’s newest noteworthy structures, including three office towers and the transportation hub at the World Trade Center in downtown Manhattan; the modernization and expansion of the Javits Convention Center in West Midtown; and the Public Safety Answering Center II in the Bronx. In recent years, he was instrumental in building the Bank of America Tower at One Bryant Park, the Goldman Sachs World Headquarters in Battery Park City, and the Pennsylvania Convention Center expansion in Philadelphia. He holds a BS in civil engineering from Pennsylvania State University. In July 2010, Tishman merged with AECOM Technology Corp., a global provider of professional technical and management support services to a broad range of markets, including transportation, facilities, environmental, energy, water and government. A Fortune 500 company, AECOM’s approximately 45,000 employees serve clients in 125 countries.

Capoccia and BFC have focused primarily on the production of affordable housing, investing in a concentrated geographic strategy that has helped spur the resurgence of the East Village, East Harlem, Williamsburg, and Downtown Brooklyn. Capoccia recently completed Toren, a 240-unit, 38-story, Gold-LEED-certified condominium in Brooklyn, which includes 50,000 square feet of retail, office, and parking, along with an onsite co-generation plant that will provide electric, heat, and cooling. Prior to Toren, he developed Schaefer Landing, the first large-scale, highrise residential project on the East River to be built under the city’s Brooklyn Waterfront Zoning Plan. Completed in 2007, Schaefer Landing includes 350 residential units and 70,000 square feet of commercial space and parking on a former brownfield site in Williamsburg. He is currently involved in the development and construction of 275 units of affordable housing in the Stapleton section of Staten Island. A co-founder of the New York State Association for Affordable Housing, Capoccia serves as a director of the Real Estate Board of New York, the Rent Stabilization Board, and the Associated Builders and Owners of Greater New York. He holds a BA from the University of Buffalo and a master’s degree from Hunter College

Hope Cohen is Associate Director of RPA’s Center for Urban Innovation and coauthor of Construction Costs in New York City: A Moment of Opportunity. Before coming to RPA, she was Deputy Director of the Manhattan Institute’s Center for Rethinking Development, where she focused principally on issues of urban environment and infrastructure, publishing two major reports, Rethinking Environmental Review and The Neighborly Substation, in which

Donald A. Capoccia is Managing

Principal and founder of BFC Partners, a real-estate development company that has been involved in the planning, development, and construction of some 4500 units of housing in New York City, with a combined value of $3.5 billion. 6

Jeffrey E. Levine, Chairman of Levine Builders and Douglaston Development, has directed the new construction or rehabilitation of thousands of residential units and millions of square feet of commercial space since 1979. He most recently developed The Edge, a 1.5 million square foot residential development on the Williamsburg waterfront in Brooklyn. His projects have received many awards, including both the National and NY Region Design Award of Excellence from the Society of American Registered Architects for 555 West 23rd Street, and the Excellence in Historic Preservation award from the Preservation League of New York State for 90 West Street, which was also named the Best Adaptive Reuse project from New York Construction’s Best of 2005 Awards. His projects have won the Design Award of Special Recognition 2003 and Design Award of Merit 2000 from the Society of American Registered Architects, the New York Construction News 1997 Residential Project of the Year, and the National Association of Home Builders1996 Best Affordable Multi-Family Housing Project. A recipient of the Phipps Houses Community Builder Award in 2003 and the New York Housing Conference Developer of the Year Award in 2000, Levine in 1997 was named Ernst & Young Entrepreneur of the Year, the National Association of Home Builders Pillars of the Industry Builder of the Year, and the Associated Builders and Owners of Greater New York Developer of the Year. He graduated from the City College School of Architecture.

she analyzed the siting and urban design of electrical substations in London, Edinburgh, Tokyo, Osaka, and Nagoya, as well as Anaheim and New York. She has also written for the New York Times, New York Daily News, New York Post, and Gotham Gazette. She worked for many years in New York City’s public sector, in areas ranging from urban planning to capital budgeting to strategic information technology. She was at MTA New York City Transit for more than a decade, concentrating on bringing the technology used for the city’s subway and bus systems into the twenty-first century. In 2010, Cohen served on the NYC Charter Revision Commission. Since 1995, she has supplemented her professional work with voluntary public service as a member of Manhattan’s Community Board 7 on the Upper West Side, serving as board chair as well as land-use co-chair. She holds a BA from Harvard and an MA from the University of Chicago.

Robert Ledwith, Business Manager and Financial Secretary-Treasurer of the Metallic Lathers and Reinforcing Ironworkers Local 46, is the son of a lather, who has served in his current capacity since 1999. Prior to becoming Business Manager, he had been an elected Business Agent for 18 years. He holds a BA from the City College of New York. Founded on the credo, “The Injury of One is the Concern of All,” the Metallic Lathers Union was established in 1897, and today provides pensions to more than 900 retirees and medical benefits to more than 5000 participants and dependents. Its training facility in Woodside is equipped to meet new technological challenges and prepare a safety-minded workforce.

7

Michael Locker, President of Locker

AECOM’s transportation business in all modes, including highways, transit, freight rail, ports and marine, and aviation. Sander rejoined AECOM in 2009 after serving as Executive Director and Chief Executive Officer of the New York Metropolitan Transportation Authority, the world’s largest public transportation agency. At the MTA, he implemented a highly successful turnaround program focused on improved operational performance, dramatic institutional reform, customer service workforce development, and significant cost reductions. Sander’s two decades of public sector experience managing large transportation programs include serving as Commissioner of the New York City Department of Transportation during the Giuliani administration, as well as Director of Transit for the State of New York and General Manager for the New York City Transit Department of Buses, Manhattan Division. In 2006, he was appointed by the U.S. Congress to the National Surface Transportation Infrastructure Financing Commission Chair of the American Public Transportation Association’s Transit 2050 Vision campaign, Sander co-founded the Empire State Transportation Alliance, which has played a critical role in funding the state’s transportation capital program. In 1996, he founded the Rudin Center for Transportation Policy and Management at New York University. He is a graduate of the School of Foreign Service at Georgetown University.

Elliot G. Sander is Chairman of

Steven Spinola is President of the Real Estate Board of New York, the real estate industry’s leading trade association, with more than 12,000 members, including the city’s top building owners,

Associates, Inc., a New York-based business consulting firm specializing in corporate restructuring, buyouts, feasibility studies and business planning, is a recognized authority on reorganizing troubled companies, mostly representing trade unions. Major clients have included trade unions (United Steelworkers, Machinists, United Auto Workers, Teamsters and Metallic Lathers Local 46), financial institutions (Bank of Boston, Lazard Frères, Congress Financial, Santander Investment), law firms, bankruptcy trustees and government agencies. As an investment advisor, he has directed over 200 company or industry studies on steel, iron ore, airlines, energy, textiles, clothing, tires, trucking, and warehousing. Most of these projects involved in-depth market and financial analysis undertaken in conjunction with management and labor. Locker is a leading steel industry analyst, publishing a newsletter, Steel Industry Update, which is widely circulated to steel executives and financial experts. He has served as Chief Restructuring Officer for a troubled steel company and as an expert witness in court cases. Currently, Locker Associates is performing research and analysis on the New York City construction industry for the Metallic Lathers and Reinforcing Ironworkers Local 46. Locker is a founder, director and former chairman of the New York Industrial Retention Network. He holds a BA from Earlham College and an MA from the University of Michigan, and has taught economics and social science at Brooklyn College.

Regional Plan Association and Group Chief Executive, Global Transportation for AECOM. A key leader in setting AECOM’s course for the future, Sander is responsible for the strategic direction and growth of 8

developers, brokers, and managers, as well as banks, insurance companies, brokerage houses, architects, and attorneys. Spinola is regularly cited as an expert on New York’s real estate market in daily newspapers, magazines, and trade publications. He has appeared on WABCTV, FOX News New York and NY-1 News to discuss real estate topics. For three consecutive years (20082010), Spinola has graced the top 50 of the New York Observer’s Top 100 Most Powerful People in Real Estate. Crain’s New York Business has included him in its list of the 100 Most Influential New Yorkers, describing him as the “authoritative public voice, lobbyist and conscience” of the industry he represents. Before coming to REBNY in 1986, he served as President of the New York City Public Development Corporation, the municipal government’s principal instrument for spurring large-scale commercial and industrial development and rehabilitation programs. During his tenure, the dollar value of PDC’s total inventory of development projects and programs exceeded $10 billion and included the South Street Seaport, the 42nd Street Redevelopment Program, the College Point Corporate Park in Queens, and Fordham Plaza in the Bronx. He holds a BA from the City College of New York.

York Post, New York Daily News, Monocle, Forbes, and Fortune, as well as academic journals. She has authored and edited three books, including Breaking Away: The Future of Cities (Century Foundation Press, 1996). Prior to joining RPA, she was a Senior Fellow and Director of the Center for Rethinking Development at the Manhattan Institute, Senior Fellow and Director of the Citizens Jury Project at the Vera Institute of Justice, Senior Editorial Advisor for the Commonwealth Fund, Managing Editor for the Mayor’s Commission on New York City in the Year 2000, Assistant Commissioner for Planning and Development with the NYC Department of Parks and Recreation, and Executive Director of the Citizens Housing and Planning Council. In addition, she has taught at the Graduate School of Management at New School University, the Graduate Department of Urban Planning at Hunter College, and the Department of Politics and Education at Columbia University. She has edited and written numerous reports for foundations, corporations, and for the city, state, and federal governments. She holds a Ph.D. in political science from the University of Chicago.

Julia Vitullo-Martin, Director of RPA’s Center for Urban Innovation, is coauthor of Construction Costs in New York City: A Moment of Opportunity. Her work focuses on planning and zoning, housing, waterfront development, environmental review, building and fire codes, and historic preservation. She also writes on crime and its consequences for neighborhoods. She has been widely published in a variety of newspapers and magazines, including the Wall Street Journal, New York Times, New 9

Conference Attendees Alexandra Altman, Lankler & Carragher, LLP Philip Avello, New York University Jay Badame, Tishman Construction Bruce Beal, Related Companies Ronald Berger, Subcontractors Trade Association Ana Bertuna, Related Companies Robert Billingsley, Cassidy Turley Les Bluestone, Blue Sea Development Company Charles Brecher, Citizens Budget Commission Donald Capoccia, BFC Partners Anthony Cassino, Milbank, Tweed, Hadley & McCloy Lisa Chow, WNYC Hope Cohen, Regional Plan Association Neal Cohen, Worldwide Holding Lou Coletti, Building Trades Employers’ Association Eugene Corcoran, New York City Department of Buildings Elizabeth Crowley, New York City Council Member Peter Davidson, Empire State Development Corporation Mat Davis, Edison Properties Joseph De Avila, Wall Street Journal Gary DeBode, Edison Properties Cathy DelliCarpini-Kruse, New York Building Congress Lisa Diaz, New York City Housing Authority Allen Dzbanek, Rockrose Development Corp. Justin Elghanayan, Rockrose Erik Engquist, Crain’s New York Tom Epstein, Levine Builders Jeff Ferzoco, Regional Plan Association Barbara Fife, Joelson Foundation Kenneth Fisher, Cozen O’Connor Marilyn Friedman, Carl Gaines, ALM John Gallagher, Tishman Construction Dan Geiger, Real Estate Weekly Nicole Gelinas, Manhattan Institute Steve Gerencser, Partnership for New York City Jacob Gershman, Wall Street Journal Mark Ginsberg, Curtis + Ginsberg Architects LLP James Gleba, The City University of New York John Glynn, Tishman Construction Jeff Grabelsky, Cornell University Greg Gushee, Related Companies Dave Hancock , Locker Associates, Inc. Frederick Harris, Avalon Bay Charlie Herman, WNYC Radio Bill Hohlfeld, Local 46 LaborManagement Cooperative Trust

Ross Holden, New York City School Construction Authority Valerie Huhn, 321 Design Rossana Ivanova, Regional Plan Association Christopher Jones, Regional Plan Association Benjamin Joseph, Related Companies Shane Kavanaugh, Crain’s New York Business Josh Kellerman, Alliance for a Greater New York Thomas Kennedy, Kennedy, Jennik & Murray P.C. Henry Kita, Building Trades Employers’ Association Bethany Klein, Tishman Speyer Jay Kriegel, Related Companies Michael Kruklinski, Siemens Phillip Kuchma, Kuchma Corporation John Kukral, Northwood Investors Robert Ledwith, Local 46, Metallic Lathers Nick Lembo, Monadnock Construction Jeffrey Levine, Douglaston Development David Levitt, Bloomberg News Adam Lisberg, City Hall News Michael Locker, Locker Associates, Inc. Bill Lyons, Concrete Industry Board Sean Mackell, New York City Central Labor Council Andrew Manshel, Greater Jamaica Development Corporation Herbert Margrill, Concrete Alliance, Inc. Marvin Markus, Goldman, Sachs & Co. Daniel Massey, Crain’s New York Joan McDonald, New York State Department of Transportation Cathleen McGuigan, Architectural Record E.J. McMahon, Empire Center for New York State Policy Dan McVeigh, New York City Economic Development Corporation Alec Meiklejohn, Empire State College SUNY Dominic Meiklejohn, British Consulate-General New York Ruth Milkman, The City University of New York Stuart Morris, Levine Builders Mark Nieves, Greater Jamaica Development Corporation Stew O’Brien, Association of Contracting Plumbers Carol O’Cleireacain, The Liati Group Norm Oder, Atlantic Yards Report James Panero, The New Criterion Allan Paull, Tishman Construction Jerilyn Perine, Citizens Housing and Planning Council 10

Robert Piazza, Equity Residential Ed Piccinich, SL Green Realty Corp Michael Powell, New York Times Neysa Pranger, Regional Plan Association Steven Pressler, STV Construction, Inc. Glen Ravn, Muss Development Martin Rodow, Levine Builders Joanna Rose, Related Companies David Rowley, Levine Builders Debra K. Rubin, ENR/McGraw-Hill Gene Russianoff, NYPIRG Straphangers Campaign Elliot Sander, AECOM James Sanders, New York City Council Member Julie Satow, New York Times Katie Schwab, Manatt, Phelps & Phillips Ari Sherizen, Moinian Group Tokumbo Shobowale, New York City Mayor’s Office Delia Shumway, New York City Department of Buildings Louise Silver, WB Engineers Joseph Simenic, Empire State Development Corporation Michael Slattery, Real Estate Board of New York Jeremy Smerd, Crain’s New York Business Jeremy Soffin, MTA Steven Spinola, Real Estate Board of New York Robert Stromsted, Stromsted Associates LLC James Stuckey, New York University Schack Institute of Real Estate Stuart Suna, Silvercup Studios Joe Tazewell, Empire State Development Corporation George Toma, New York City School Construction Authority Frank Vasta, TF Cornerstone Shiva Viswanathan, Northwood Investors Julia Vitullo-Martin, Regional Plan Association David Von Spreckelsen, Toll Brothers Ron Wackrow, Related Companies Claudia Wagner, Manatt, Phelps & Phillips, LLP Sarah Watson, Citizens Housing and Planning Council Richard Wells, Empire State College SUNY Richard Wood , Plaza Construction Thomas Wright, Regional Plan Association Joe Yacovone, Cassidy Turley Robert Yaro, Regional Plan Association Christopher Zegler, Turner Construction Company

Notes

11

Center Urban Innovation

w w w . r p a . o r g