April 4, 2003

THE SURE THING AND BUILDING IN NEW YORK CITY

By James Eugene*

Having discussed rent regulation, I am inclined to discuss some other housing issues for this column and the next.

Today, I will touch upon building affordable housing and liability insurance in New York City. You know that you can't build affordable housing in New York City without substantial subsidies. You didn't know that? Go to your room. Even middle class housing is subsidized in New York City, either with direct government assistance or through tax breaks.

Now one would think that with the expense of building housing in New York City, some minimal efforts would be made to make it affordable. However, you would be wrong. Take the following scenario.

A construction worker comes back from lunch, and he seems to be a little tipsy, so the site foreman calls him over. The worker says something nasty and continues on his merry way. The site foreman calls for the worker to put on his hardhat. The worker ignores him and heads to a ladder and begins to climb. A few steps up the worker falls and suffers a serious head injury. The worker then sues just about everyone, including the building owner (who due to indemnity agreements with his contractor sues the contractor who is paying the worker workman's compensation payments under his insurance and should not even need to pay the worker). Does the worker win?

Under New York State Labor Law Section 240, the worker automatically wins. The only question is how much money he gets. Sounds crazy no? Well, this is New York, and I bet you already have figured out that New York is the ONLY state in the union that has this law.

Now what does this have to do with affordable housing? Plenty. As a result of the risks presented by Section 240, insurers have decided to write their policies elsewhere. Fewer insurers means less competition. Less competition means higher prices. And what happens when the competition dwindles down to one? The cost of insurance skyrockets. Builders are feeling the dizzying and sickening impact as the number of New York State admitted carriers of liability insurance for builders is now a measly one.

And of course, what happens when premiums skyrocket. Somebody has to pay. And the payer is the purchaser of affordable housing, the person least able to pay.

Builders have told me that the cost of building home has gone up from between $5,000 to $7,000 due to their own increased premiums. This does not include the cost of the increased bids from their subcontractors who are also faced with higher costs and pass them along in the form of higher bid estimates. All told, industry sources tell me that higher insurance costs are adding from $8,000 to $12,000 to the cost of a new home. And tell me if John Q. Moderate Income can easily absorb this? I don't think so (although we know Mayor Billionaire can).

Moreover, Section 240 is costing New Yorkers jobs. Instead of money going into new projects producing new jobs, the increased premiums hurt builder cash flow and the builder avoids new projects or makes those projects smaller. Moreover, the smaller builder, some of whom are minorities, faces the possibility of going out of business because he or she cannot afford the higher premium (and once a builder loses liability insurance all construction at job sites stops).

So now we know that New York has a ridiculous Labor Law section that obviously needs changing. For three years, the building industry has been pleading with the State Legislature for change. The industry is not even asking for Section 240's elimination, just that the industry be treated like the rest of the world through the use of a simple negligence standard IF safety training is provided to the construction site worker.

Now the State Senate has for two years taken the lead and moved on this legislation (kudos to Senate Majority Leader Joe Bruno, a man with whom I usually disagree). And Governor Patacuomo in the past has given the proper signals, although this year he seems to be wavering as the pressure begins to build.

The reform movement has been halted, however, by the Assembly Speaker, Sheldon Slickster, a man who has spent too much time sleeping with trial lawyers. Speaker Slickster has generally decided that all tort reform should die. But how can anyone defend Section 240? After all, it is flagrantly unfair and it is driving up the cost of housing. For Slickster to then pine about how New York City needs affordable housing is patently hypocritical, especially when he keeps in place one of the obstacles to it.

Of course, as he keeps Section 240 in place, I am sure Slickster receives nice political contributions from the trial lawyers. I guess that is the Republican philosophy… the rich get richer and the poor pay more. Oh, I forgot, Slickster is a Democrat.

AND WHILE WE'RE AT IT...

I told you that New York State is the only state that has anything like Labor Law Section 240. But did you know that there is another important piece of legislation in which New York is the only industrialized state in the union that does not have legislation? All that vacant land you see in the City that seems like it may be usable for housing. Well, some of those sites are brownfields (land with potentially toxic elements in the soil) and builders don't want to touch them without some sort of brownfields reform.

While every other industrialized state has passed brownfields legislation, New York continues to keep dirty brownfields alive by not passing anything. This isn't the first time I told you about this… in my New Year's wish-list, I asked for brownfields legislation for Mayor Billionaire so that his housing program could be jumpstarted. Without brownfields legislation, less housing will be built. The Mayor's Affordable Housing Plan even strains to get around the State's failure to have legislation. But this failure is costing the State money, as Federal funds are available ONLY IF a state has brownfields legislation. Well, kiss that money good-bye until we join the rest of the industrialized United States.

And who is the obstacle stopping this legislation that could aid the affordable housing market? None other than Speaker Slickster. My goodness, Speaker Slickster must really hate affordable housing.

* James Eugene is the pseudonym of a veteran of NYC government affairs. Inside The Big Apple will appear exclusively on the Empire Page. If you want to send tips or column ideas to James Eugene, email them to jameseugene@empirepage.com.