The Prevailing Wage Predicament

The new mandate requiring co-ops and condos to pay employees the prevailing wage in order to get the property tax abatement has had a huge impact when it comes to budgeting. Can you explain how?

It certainly has affected our condo clients, whose staff tends to be non-union. For a condo to receive the city’s property tax abatement, the condo has to pay the prevailing wage to its employees. This usually means significantly increasing the budget by raising common charges. The prevailing wage is the base wage, which is relatively close to what the 32BJ union wage is. On top of that is the required supplemental pay, which you can offset with benefits like parking, paying cellphone expenses and so on. If an employee opts for none of that, the supplemental pay must be provided in cash. 

Because unit-owners pay their own property taxes, a property tax abatement would be reflected on their individual bills, not as an offset to the condo corporation.

We understand there’s a particular wrinkle for co-ops, even ones that are paying their staff union-scale wages, if they have parking garages. 

Most of our co-ops are union buildings and are already paying prevailing wages. But the law specifically states that it’s not just the staff that has to be paid union-scale or prevailing wage, but all the building’s employees, including third-party employees like security guards and garage employees. So unfortunately, boards are now having to tell their garage companies that they have to pay their employees more, which is leading to contract renegotiations. Whether they’re leasing or licensing, a garage company’s business model is based on income and expenses, and if their expenses are going up, you can be sure they’re coming back to the co-op and saying, “Well, this is a state law, we have to adhere to it. This wasn’t the original plan, and we need a credit or whatever that difference is.” We’ve seen that happen at several of our co-ops. We’ve been surprised by a couple of garage operators who were already paying a union-scale or prevailing wage.

When condo boards are deciding whether they are going to pay prevailing wages, they have to figure out the number of units owned through LLCs and trusts or are sublet and therefore ineligible for the property tax abatement. How does a board parse out what’s best for the building and for unit-owners? 

Good question, and thank you for bringing it up. Because the board doesn’t parse it out, the managing agent does. What happened during the last budget season — and what will probably continue to happen every budget season — is we have to provide data to boards showing which residents are actually eligible for the abatement. Non-primary residencies are not eligible. In addition, the law specifically blocks out LLCs; trusts are allowed, but there’s some paperwork that’s involved.

So the reality is that you could have a condo that’s 100% occupied, but only 20% of the unit-owners are actually eligible for the property tax abatement. So there’s just the matter of the math: Do you add a 17%, 20%, 25% common charge increase to pay prevailing wages in order for 20% of the unit-owners to get this 17.5% tax reduction? The majority of our condos have said no. The ones that aren’t willing to pay prevailing wages and don’t want to pay union wages have sacrificed the abatement for the benefit of the many.