House OKs bill that expands prevailing wage requirements

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A far-ranging bill related to transportation spending, housing and labor has cleared the House floor, despite pushback from critics who say worker protection language in the bill would make it more expensive to build low-income housing, among other unintended impacts.

House File 5242, approved by a 69 to 60 vote on the House floor late Wednesday, allocates nearly $79 million in trunk highway funds to a variety of transportation projects, much of which would go to “high-priority” bridges ($40 million) and facilities improvements ($20.1 million).

But union leaders and contractor representatives are paying particular attention to the bill’s labor provisions, including language that would expand prevailing wage mandates to certain multifamily housing projects receiving Low-Income House Tax Credits (LIHTC) or Tax Increment Financing.

Specifically, the wage requirements would apply to multifamily projects with 10 or more units funded in part with Low Income Housing Tax Credits — a key tool for financing affordable housing — and TIF-supported multifamily developments of 25 or more units.

The House bill also requires prevailing wages for county, city and school district projects receiving sales tax exemptions for materials, supplies and equipment.

Union representatives and other supporters of that language say it’s only right to make sure workers are taken care of on publicly supported projects, but critics say the expanded wage requirement would drive up the cost of multifamily housing and discourage housing developers from building in Minnesota.

“These developers build in Iowa and Nebraska, Colorado and nationwide,” Adam Hanson, president of the Minnesota and North Dakota chapter of the Associated Builders and Contractors, said in an interview. “It’s a matter of, ‘Where do we spend our dollars?’ They might, unfortunately, look elsewhere.”

The legislative debate over prevailing wage expansion has been raging for weeks, with at least one local housing developer echoing ABC’s concerns.

In April, a representative of Roers Cos. told the Senate Labor Committee that prevailing wage requirements on TIF- and LIHTC-assisted projects would increase construction costs by 10% to 15%, which works out to about $20,000 or $30,000 per apartment, or up to $6 million on a 200-unit project.

“What will end up happening, practically, is that developers will ask cities for more money, more TIF, or they will further increase their rental rates to try and cover that gap,” said Shane LaFave, executive vice president with Roers Cos. “And that just puts more financial burden on our cities and our renters.”

Supporters, however, say the requirement simply ensures that workers are paid the going rate in the local market.

“I would argue, and I think the advocates would argue, that this in fact, does not raise the cost. What we’re doing is just ensuring that there aren’t nefarious ways to undercut the going rate for the workers that are doing this great work,” Sen. Grant Hauschild, DFL-Hermantown, said at a Senate Labor Committee hearing in April.

Union representatives agree that the protections are necessary.

Kevin Pranis, marketing manager for the Laborers International Union of North America’s Minnesota and North Dakota chapter, points to a November 2023 report from the North Star Policy Action, a progressive-leaning research organization. The report finds that LIHTC- and TIF-supported affordable housing projects “often lack robust labor standards.”

“We’re awarding, often to for-profit enterprises, public money that’s supposed to advance the public good. But there’s concern to make sure that we’re not inadvertently fueling wage theft, exploitation and misclassifications while we’re doing that,” Pranis said.

Also supporting the prevailing wage expansion is Sen. Jennifer McEwen, a Duluth DFLer and chair of the Senate Labor Committee.

“The idea that this wouldn’t be happening, I think, actually would be a surprise to many of my constituents,” McEwen said at a committee meeting in April. “They would already assume that anytime we are going to be using the people’s money … for private developers to make profit off of and to gain financially from, that we’re going to have some rules and standards in place about how that’s going to happen. And we certainly aren’t going to allow there to be exploitation.”

A Senate companion to the House bill was still awaiting a final vote as of Thursday afternoon.

Hanson said the Senate bill includes the prevailing wage requirement for LIHTC-supported projects, but does not extend those requirements to TIF-supported projects or those receiving sales tax exemptions. Next steps include a conference committee hearing to reconcile differences in the bills.

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