Crains New York - January 28, 2013 - (Page 6)

vide [to subcontractors],” said Louis Coletti, president of the Building Trades Employers’ Association. General contractors say there is a counternarrative to accusations that their industry is boxing out women and minority contractors, even as they land lucrative public projects requiring minority hiring. One overlooked fact, they note, is that in the government prosecutions, the minority contractor alleged to be a front group was on a city, state or federal government-approved list of minority or women contractors. Qualifications questioned Because the lists lack certain details,however,it can be difficult to tell whether these contractors are capable of the work they say they can do. If they struggle, a general contractor can be tempted to provide capital, equipment or technical assistance to a subcontractor that is supposed to be able to stand on its own. “The bible is the certification list,” said Mr. Coletti. “We believe that it is government’s responsibility to ensure that those on the list can provide commercially useful functions and [that it] doesn’t contain subcontractors that say they can do a $2 million job, but can only do a $500,000 job.” Some primary contractors also question whether the mandates in government contracts are realistic, LISTEN to a discussion at CrainsNewYork.com/podcasts newscom Continued from Page 3 CRACKDOWN: U.S. Attorney Loretta Lynch is on the lookout for contracting fraud. especially in highly specialized fields that might lack qualified minority contractors. And they suspect that prosecutors zealously pursue the cases because of the potential for millions of dollars in deferred prosecution agreements. Prosecutors’ use of the term “fraud,” when there may not have been malicious intent, also rubs many in the industry the wrong way. “I think what has happened is that there is an expectation on the part of prosecutors that primary contractors enter into these relationships with [subcontractors] with full knowledge of all of their circumstances,” said Denise Richardson, managing director of the General Contractors Association of New York. “I think that in many instances that is very unfair.” In other words, contractors think their minority subcontractors have more expertise or resources than proves to be the case. Amid the controversy, city and state governments have been raising goals for minority firms. Gov. Andrew Cuomo is pushing for 20% of state contracts to go to firms owned by women and minorities, while the City Council passed reforms in December to increase their share of city contracts fivefold, to $2.2 billion from $433 million. Clubby industry The primary contracting industry did win a few concessions in the city law, which requires the Department of Small Business Services to ensure that the minority firms physically exist, and demands subcontractors submit more financial information. But questions remain about whether the agency has the resources to vet all of them properly. Some proponents of the quotas, meanwhile, say the underlying problem is the ingrained clubby nature of the construction industry. Only a change in attitude will solve the problem, they say. “People like to work with individual firms and crews that they’re familiar [with],” said Regina Smith, executive director of the Harlem Business Alliance. “They’ve been setting up these front groups when there are minority contractors available. When there’s a will, there’s a way.But there just hasn’t been a will.” Large contractors reject that assertion, but acknowledge that the bevy of prosecutions are having an effect. Said Mr. Coletti, “The prime contractor community is becoming very careful when it comes to following the law.” Ⅲ by Andrew J. Hawkins TAKE A HIKE: The state’s minimum wage would rise to $8.75 an hour from $7.25. newscom Builders targeted on quotas THE INSIDER Governor has the answers B ecause I needed the money.” The one-liner was Gov. Andrew Cuomo’s response to a question from the Crain’s editorial board about a minimum-wage hike and two other budget proposals that squeeze businesses to close a $1.3 billion deficit. Yes, he did elaborate. With his budget director, Robert Megna, on hand to back up his points with technical details, Mr. Cuomo said the measures that businesses perceive as a burden—a 20% increase in the minimum wage, an extension of utility taxes and what’s arguably a raid on the workers’ comp fund to pay for other projects—should be seen in the larger context of his efforts to reduce the state’s high cost of doing business. “Look, I said if New York is the tax capital of the nation, you will see businesses continue to leave,” the governor said. “We’ve worked very hard over the last few years to reduce [taxes].We have a property-tax cap, we have the lowest middle-class tax rate in 50 years … but we’ve had a terrible national economy. On the rebound, but not at the rate that anyone would want it.We had a $10 billion deficit, now $1.3 [billion]. I have to fill that hole every year.” Mr.Cuomo said he “agreed with the concept and the premise” of the question—that businesses are often on the hook when the state has bills to pay—but said that was the “economic reality” in New York. The governor signaled a willingness to compromise on his call for increasing the minimum wage July 1 to $8.75 an hour from $7.25. “There’s a difference between what you propose and what you wind up with,” Mr. Cuomo said during the hourlong interview. “My guess is the ultimate result is going to be different from what you see here.” Business groups have balked at the higher rate, saying it would force fast-food and other establishments to lay off workers. Republicans in the Legislature have been noncommittal, but Mr. Cuomo’s renewed push and strong public support for an increase bode well for a deal. He improved his leverage by placing the measure in his budget rather than trying to pass it as separate legislation, an approach that failed in 2012. Nonetheless, the governor said his proposal was not set in stone. “We put out a set of proposals, and they become starting points. And then we have discussions,” he said.“You have to start somewhere, right?” A compromise with Senate Republicans could reduce or phase in the wage increase. Assembly Democrats are asking for the minimum wage to rise automatically with inflation. The governor took issue with the term “raid” being used to describe his workers’ compensation reform. “That’s a ba-a-a-ad word,” Mr. Cuomo said, laughing. “Them’s fighting words in the Division of the Budget.” According to Mr. Megna, the money to be taken from the New York State Insurance Fund, or SIF, which is funded by businesses, can be stretched out for four years or longer. It won’t be used for operating expenses but to pay down debt and fund “pay as you go” capital projects. “This isn’t a raid on the fund, in the sense of back in the late ’90s, when people were taking money out of SIF and writing the state an IOU,” Mr. Megna said. Mr. Cuomo said much of his third year in office will focus on recovery work after Superstorm Sandy. But his offer to buy out homeowners in flood-prone areas is complicated by delays in securing the federal aid to do it. “It would have been nice to offer buyouts right up front, before people started to rebuild,” he said. “But we are where we are.” Ⅲ Crain’s Insider, our award-winning politics newsletter, is now a blog. Read it every day at www.crainsnewyork.com/insider 6 | Crain’s New York Business | January 28, 2013 http://www.CrainsNewYork.com/podcasts http://www.crainsnewyork.com/section/events_calendar/submit http://www.crainsnewyork.com/section/events_calendar/submit http://www.crainsnewyork.com/insider

Table of Contents for the Digital Edition of Crains New York - January 28, 2013

Crains New York - January 28, 2013
In the Boroughs
In the Markets
The Insider
Business People
Opinion
Greg David
Alair Townsend
Report: The Business of Sports
The List
Classifieds
Small Business
For the Record
New York, New York
Source Lunch
Out and About
Snaps

Crains New York - January 28, 2013