The Mercury News: San Jose expands prevailing wage requirements on private construction projects

by Emily Deruy
June 25, 2019

Labor groups supported the idea but voiced concerns about exemptions for downtown high-rise developments

Workers on some private construction projects in San Jose could soon see a boost in their pay — a raise labor groups are heralding even as they call for more protections in an industry where contractors who pay low wages have flourished.

On Tuesday in its last meeting before a month-long recess, the San Jose City Council voted to require contractors to pay workers on projects that get a subsidy from the city a prevailing wage.

The move came the same day a judge sentenced contractor Job Torres Hernandez to more than eight and a half years in prison for forcing immigrants to work without pay on the subsidized Silvery Towers project in downtown San Jose and forcing them to live in a squalid warehouse.

But the new ordinance also carves out a series of exceptions. Prevailing wages won’t have to be paid on some affordable housing projects and instances where the city reduces or eliminates a fee for all projects within a certain land-use category, like residential, and where construction of the project wouldn’t likely happen without a subsidy. But it could apply to a number of commercial and market-rate residential developments across the city.

The ordinance also doesn’t include some of what labor unions and others have pushed for, such as local hiring requirements, which are slated to come back before the council in August after a July recess.

Labor unions, which have pushed for strong prevailing wage requirements, expressed concerns about what they see as major flaws with the way the city has approached the issue.

“We want the city to incentivize downtown development that benefits the entire community and creates good quality, career-path construction jobs for local community members,” wrote South Bay Labor Council head Ben Field and Santa Clara and San Benito Counties Building and Construction Trades Council executive director David Bini in a letter to the council. “Subsidies to bad actors create an un-level playing field and signal responsible developers to not invest in San Jose.”

One of the main sticking points has to do with downtown high rises. There are currently some incentives for builders of downtown high rises — meant to spark development in San Jose’s core — and the city is currently reviewing the possibility of extending those incentives in August.

But Field and Bini wrote that they are concerned about the high-rise exemption being approved before the council can put an ordinance in place that not only includes a prevailing wage but also local hiring guidelines, along with guidelines for apprentice programs and hiring disadvantaged workers.

“We are writing to let you know of our continued concerns about the city’s actions to provide tax and fee subsidies and an exemption for affordable housing obligations to downtown high-rise developments with no workforce standards,” the pair wrote. “The city’s proposed actions in this regard appear to be moving towards violating the agreement between the mayor and the labor movement which was adopted by the City Council on April 3, 2018.”

The unions and several council members also raised concerns about how a required study to determine whether an extension of the high-rise incentives would count as a subsidy was to be conducted. In April, the city and labor leaders agreed they would work off of an approved list of consultants to handle the study, but the city had an existing contract with Keyser Marston and planned to use that firm.

“Now with sudden urgency that an economic downturn is around the corner, it feels that we are simply defaulting to an existing consultant for no other reason than convenience,” Council members Raul Peralez and Magdalena Carrasco wrote in a memo, echoing concerns from labor leaders.

But in a memo, director of economic development Kim Walesh and director of the public works department Matt Cano said that reworking the consulting process could delay matters for months and put thousands of units of housing in jeopardy, with high-rise developers relying on fee waivers.

“The opportunity to capture high-rise development in the downtown is rapidly closing as the current market cycle cools and the economic outlook for the future becomes more uncertain,” Walesh and Cano wrote.

One of the projects waiting to hear what happens to the high-rise program is Starcity, a co-living project slated to rise downtown.

“It is critical to lower the fee structure and establish certainty in short order on what affordable housing and park fees will be in order to secure financing on the project’s construction and allow 800 moderate income units to be built,” wrote Eli Sokol, the company’s development manager, in a letter to the council. “There simply couldn’t be any more urgency than this moment as Starcity is in a prime window to attract investors and lock-in construction pricing in order to break ground by year’s end on what we believe will be a transformative project for downtown San Jose.”

In an unusual move, business groups such as the Silicon Valley Organization backed Tuesday’s prevailing wage vote as a necessary precursor to securing fee waivers for downtown development.

Councilman Johnny Khamis, one of the most conservative council members, said he opposed the idea of more regulations but wanted to move the study forward.

“The system is working,” Khamis said. “Why create more regulation.”

In the end, the council approved a compromise suggested by Mayor Sam Liccardo to choose a consultant who can study the financial feasibility of housing developments quickly from a list submitted by Field in the short-term, and after four months, for other projects put out a more robust request for proposals that also fits the April agreement.

“Everybody here is pro-housing,” said Councilwoman Maya Esparza. But, she added, “we also need to have a vibrant workforce.”

Also on Tuesday, the council approved an agreement with PG&E to convert thousands of streetlights to LED lights and adopted a resolution that will let the city buy discounted emergency telecommunications equipment and services through Calnet 3, a partnership between the state of California and AT&T. Council members also heard an update on the city’s efforts to increase housing for moderate-income families — from increasing the building of accessory dwelling units, or granny flats, through a forgivable loan program to helping first-time homebuyers with down payments.