July 25, 2000. Testimony by James A. Parrott before the City Council of the City of New York Labor Committee Hearing.

My name is James Parrott. Thank you for this opportunity to testify on the question of wages and working conditions in companies that receive economic development subsidies from the City. I am the Deputy Director and Chief Economist of the Fiscal Policy Institute (FPI). FPI is a non-partisan, non-profit public policy research organization that deals with New York City and New York State economic and fiscal policy issues. In previous positions, I was Chief Economist for State Comptroller Carl McCall in the Office of the State Deputy Comptroller for New York City, and before that, Chief Economist in the economic development area for the City of New York.

Last fall, FPI released a major study, titled The State of Working New York, that looked at significant changes in the city and state economies in the 1990s. Our report documented the increased polarization of wages and incomes that has taken place over the past decade, a polarization that has continued even during the recent period of relatively strong economic growth in New York City.

Among the causes of this continuing economic polarization, two factors are directly relevant to today’s hearing. The first is the increased incidence of contracting out by large corporations and public agencies, and the second is the declining extent of unionization. Contracting out per se is not adverse to workers and their living standards, but often it is done primarily to benefit company principals and shareholders at the expense of the wages, benefits and working conditions of employees. When there are mechanisms in place that protect the average worker, such as the protection afforded by a collective bargaining agreement, contracting out is not detrimental.

Since most of the workers in New York City’s building service industry belong to unions, they enjoy reasonable wages and benefits. The average building service worker who is a member of Local 32B-J of the Service Employees International Union receives wages and benefits that come to $40,000 annually. The combined sum of the annual wages of the 55,000 building service workers who belong to Local 32B-J is about $2.2 billion.

The wages of these workers have a significant economic impact in the city’s neighborhoods where they live. Citywide, the spending by these union members generates 17,000 jobs in health care, retailing, and a variety of other industries. This local job impact (relative to a dollar of compensation paid in the city) is very high compared to other industries since the vast majority (over 90 percent) of 32B-J members are city residents. The local job impact is even higher when you consider the spending by the 25,000 retired 32B-J members, most of who still reside in the city.

If the building service industry was not heavily unionized, the total compensation building service workers receive, and the total economic impact of that compensation, would probably be only half as great as it is.

What is at stake in our discussions today is whether or not it is in the interest of the city and our economy to stand by while these wage levels are eroded and economic polarization is further intensified. It is unfortunate that the City government, through certain of its policies and practices, has helped fuel this dynamic. City actions have done this through its practice of dispensing economic development subsidies.

Partly in response to threats by large companies to leave New York, the City has provided generous subsidies to large, highly profitable financial, media and real estate development corporations. The total value of such subsidies over the past 6 years is about $2 billion (and this total does not include the nearly $1 billion deal offered the New York Stock Exchange.) Despite this largesse, courtesy of City taxpayers, the City has failed to ensure that those corporations provide their workers with livable wages and essential benefits such as health insurance and pensions. In some cases, these workers have to turn to government for assistance in making ends meet because their employers are cutting corners on wages and benefits for their employees.

This has created the untenable situation where taxpayers are “doubly subsidizing” such corporations. Taxpayers are not only providing subsidies to these companies, but they are then asked to support the employees of such corporations whose wages are inadequate and who rarely are provided health insurance and pensions.

This situation is not unique to the building service industry. It happens in industries such as the financial service and media industries that are at the pinnacle of the city’s economy and that have been the main beneficiaries of City subsidies.

Within the building service industry, Brooklyn Renaissance Plaza (BRP), a major real estate development heavily subsidized by the City, is one such example. Between the developer and the Empire Insurance Group, a major office tenant that is a subsidiary of the company that is the principal equity investor in the building, this development received a total City government subsidy package of approximately $60 million. Moreover, tax dollars are the source of much of the rental income the building receives since the majority of tenants are public agencies. The Brooklyn District Attorney’s Office leases over 300,000 square feet in the Renaissance Plaza building.

Since, at present, City subsidies carry with them no requirements regarding the wages paid by either the subsidy recipients themselves or by their contractors, the cleaning workers at BRP have been paid sub-poverty wages without health insurance or pension coverage. This was the case when the building owners first contracted cleaning services to Golden Mark, an outfit that has fiercely opposed unionization at several work sites around the city.

And the payment of sub-poverty wages is still true today when the cleaning workers are under the direct employ of Muss Development Company/BRP. Muss pays its cleaning workers wages of $6-$7 an hour, wages that amount to $10,000-$13,000 a year on a full-time basis, below the poverty level for a 3-person family. Health insurance is not provided, nor are workers provided a pension plan. With these wages and benefits, Muss workers would qualify for taxpayer-subsidized health coverage, and would be eligible for food stamps and the federal and state earned income tax credit.

In cases like this, taxpayers provide subsidies directly to the developer and its employees because the employer refuses to provide a living wage and benefits.

In most of New York’s building service industry, the high degree of unionization has made the union scale the prevailing wage. The City Council recognized this in 1996 when it enacted a “living wage” ordinance that covered building cleaners along with three other occupational categories.

Given the growing problem of inadequate wages for many low-wage New York City residents, it is clear that the 1996 living wage ordinance did not go far enough. It only covered a limited range of jobs in for-profit companies that directly contract with the City. It did not cover companies that are the beneficiaries of taxpayer-funded economic development subsidies, nor does it apply to the employees of companies with which a City subsidy recipient, contracts for services. In addition to extending the law’s coverage in these ways, the City Council also needs to consider extending a “living wage” ordinance to all workers employed by companies or organizations that voluntarily contract with the City, receive City subsidies, or lease City property.

There is growing awareness that New York’s economic expansion of the past decade has left a lot of people behind. However, to date there has been very little effective action by our society and our leaders to respond to that. The long-run implications of continued polarization should be of great concern. I think both our democratic institutions and our economic prosperity will suffer unless the fruits of our country’s prosperity are more broadly shared.

For its part, New York City is not an innocent bystander when it comes to the march of seemingly national and global economic forces. The City has weighed in powerfully on one side of that equation in recent years as it has agreed to provide an estimated $2 billion in corporate subsidies. The City needs to start thinking about how to be a balancing force in addressing today’s lopsided inequality.

Thank you.