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Deconstructing New York’s Building Costs

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Deconstructing New York’s Building Costs

One-of-a-kind regulations illustrate why it’s so hard to build anything in Gotham. Spring 2022
New York
Economy, finance, and budgets
Politics and law

New York is a city unlike any other in many ways—one of the less distinguished being its one-of-a-kind building-construction regulations. Though typically justified on safety grounds, these regulations provide only questionable safety benefits and, in some cases, may be counterproductive, while considerably raising the cost of new construction. There has never been a better time to revisit these rules, as most New Yorkers now recognize the extreme expense of housing—a problem worsened by expensive construction—as one of the city’s greatest challenges.

Two aspects of this regulatory environment are particularly egregious. First, New York State liability law—above all, a law that lets injured workers sue employers for millions of dollars, even for accidents caused by their own recklessness—makes construction far more expensive and harder to insure. Second, an onerous system of crane regulations, without parallel elsewhere in the United States, entrenches the power of a corrupt local union and forces independent building firms to resort to inefficient, dangerous construction methods.

Insurance costs for construction contractors in New York State are inflated by Section 240 of the New York State Labor Law, more commonly known as the Scaffold Law (though the law has little to do with scaffolds). The law’s text obliges builders to put up scaffolds and other safety devices, “which shall be so constructed, placed and operated as to give proper protection” to workers, but gives only a few concrete prescriptions for the meaning of “proper protection.” State court decisions have molded the Scaffold Law into an open-ended obligation on contractors and building owners. Far beyond just enforcing a list of regulations, the Scaffold Law lets injured workers sue employers for almost all gravity-related workplace injuries that some conceivable safety measure, no matter how excessive, might have stopped.

In most states—including, for most classes of workers besides construction workers, New York—workers generally cannot sue employers for workplace injuries. Injured workers are instead compensated under workers’ compensation, a program designed to be predictable and efficient to administer. A “no-fault” system that does not assess workers’ culpability for accidents, workers’ compensation makes awards based on predefined formulas and avoids the adversarial legal system. It is financed through a tightly regulated market of mandatory insurance, with premiums generally dictated by state regulators. The system’s insurance policies have two parts: the main part makes payments through workers’ compensation itself; a second “employer’s liability” part covers restricted conditions in which employers can be sued over workers’ injuries. Formulas for determining insurance premiums include “experience modifiers” that give discounts to employers with better safety records, thereby encouraging worker safety. In New York, an association of insurance carriers, the New York Compensation Insurance Rating Board, calculates experience modifiers.

In limited circumstances, workers or related third parties may file lawsuits against employers. For instance, if a worker injured by defective construction equipment sues the equipment’s manufacturer, the manufacturer can file a “third-party over-action” claim against a developer, claiming that poor maintenance, not the equipment itself, was to blame. New York, incidentally, is one of only two states that require unlimited employer’s liability coverage; most other states stipulate only some amount in the range of hundreds of thousands of dollars. This condition likely contributes to the expense of workers’ compensation insurance in New York: according to data compiled by the Oregon Department of Business and Consumer Services, premiums in New York are the nation’s second highest, behind only New Jersey, and 55 percent above those in the median state.

The Scaffold Law, by contrast, allows workers injured in a fall or by a falling object—two criteria defined loosely enough that tripping from a footstool might qualify—to sue employers for damages under general liability, not employer’s liability. Like workers’ compensation, lawsuits under the Scaffold Law are functionally no-fault: the New York Court of Appeals has stated that “the statute places absolute liability upon owners, contractors, and their agents for any breach of the statutory duty which has proximately caused injury and, accordingly, it is to be construed as liberally as necessary to accomplish the purpose for which it is framed.” A trial lawyers’ website notes the Scaffold Law’s exceptional breadth: “The Scaffold Law frequently produces liability and a right of recovery where none would typically exist for the construction worker. This law imposes absolute liability against a property owner, tenants, and contractors.” A 2014 report by the New York County Lawyers’ Association, a reliable defender of the Scaffold Law, notes that workers can typically be found liable for their own injuries under the Scaffold Law only if they were “recalcitrant”—that is, if they persisted in violating safety rules despite explicit instruction—and if their own actions were the “sole proximate cause” of the accident. That’s a massive departure from the “comparative negligence” standard otherwise nearly universal in tort law, which assigns liability to parties in proportion to how much their actions contributed to accidents.

But awards from lawsuits under the Scaffold Law far exceed workers’ compensation. New York currently caps benefits from workers’ compensation at $1,063.05 per week of lost wages, or about $55,000 per year; awards even for severe permanent disabilities total, at most, ten years of wages. By contrast, awards under the Scaffold Law can often stretch into the millions. One law firm advertises numerous cases in which it won settlements of several million dollars under the Scaffold Law—including one in which even the firm’s curt description makes it hard to see employer negligence as a cause: a $3.5 million award for a stonemason “injured when another worker threw a piece of sheetrock out a window striking him on the ground below.”

Employers can be liable even for injuries of workers who knowingly violate safety rules. In one case, a nonprofit housing developer was found liable for the injuries of a worker who fell after detaching his safety harness in order to enter a construction site through a window, though a safer, intended form of entry was provided. The court found that the developer was nevertheless liable because it had “acquiesced” to workers’ use of unsafe window entries by not prohibiting them clearly enough. The website scaffoldlaw.org, maintained by advocates of Scaffold Law reform, lists cases of workers who won compensation even though the injuries they suffered occurred while they were under the influence of alcohol or illegal drugs.

The Scaffold Law makes the New York State market for insurance far less competitive, especially for so-called admitted carriers. New York, like other states, distinguishes “admitted” and “non-admitted” (or “excess line”) insurance providers. Admitted carriers must file a range of prices with a state regulatory agency and cannot charge outside that range. In return, if an admitted carrier goes bankrupt, the state will take over the contracts of any of its policyholders. New York State also assesses a 3.6 percent tax on non-admitted policies, and some banks require policies with an admitted carrier as a condition of financing.

According to one New York insurance broker, however, most insurance brokers’ admitted rates for general liability insurance are calculated from national averages and come in far below the rate needed to be profitable in New York. Even for a run-of-the-mill project such as a ten-story building, therefore, only “one or two” admitted carriers would be willing to issue policies at their stated rates. Use of riskier non-admitted carriers is therefore common, but even the non-admitted market is hardly competitive.

The lack of competition means still higher insurance prices: several estimates conclude that the Scaffold Law approximately doubles insurance costs. A 2014 report from the New York Building Congress, for instance, claims that “a significant body of loss-cost data from all major insurance carriers . . . shows dramatically higher loss costs in impacted classes of construction in New York compared to all comparable and neighboring states.” It also quotes one partner at a New York insurance firm claiming that insurance costs for construction are roughly 10 percent of construction expenses in New York, versus an average of 5 percent in the rest of the United States—a difference roughly confirmed in a 2019 article from the insurance corporation CRC Group, which reports typical ranges of 7 percent to 10 percent in New York and 3 percent to 5 percent elsewhere.

Does this expense at least pay off in improved construction safety? Defenders of the Scaffold Law make two principal arguments. First, they point to Illinois after the 1995 repeal of the Structural Work Act, a similar state law. “During the three-year period preceding the repeal of the [Structural Work Act], construction deaths constituted on average 17 percent of the total workplace deaths in Illinois,” says a 2007 report from the progressive think tank Center for Justice & Democracy. “The construction industry’s ‘share’ of total fatalities increased over the next ten years to an average of one out of every five fatal injuries (or 21 percent).” (Note, though, that an increase in the share of on-the-job deaths accounted for by the construction industry does not mean an increase in the number of deaths.) Second are claims that New York’s injury rates are relatively low, compared with those of other states, for which the Scaffold Law deserves presumptive credit. The aforementioned 2014 report from the New York County Lawyers’ Association attributes New York’s putative good construction safety record to the Scaffold Law. “This current incentive to provide a safe workplace,” it says, “is one reason why from 2000–2011, New York had the nation’s sixth-lowest construction injury rate.” The New York State Trial Lawyers’ Association, also a major advocate for the Scaffold Act, uses similar defenses.

These arguments rest on a selective look at the data. New York’s construction injury rate is indeed generally low, but the rate of fatal injuries, according to Bureau of Labor Statistics data, is unremarkable or a bit worse than average. In 2019, New York State had 10.2 fatal accidents per 100,000 construction workers and New York City had 11.6, compared with a national average of 9.7. To take a few other large, mostly urbanized states as comparisons, California had 6.5 deaths per 100,000 workers, Pennsylvania 6.3, Texas 9.9, and Florida 10.9.

“Several estimates conclude that the Scaffold Law approximately doubles insurance costs.”

Moreover, the best comprehensive comparison of state-level construction safety data—a 2014 working paper by several authors from Cornell University—finds it difficult to attribute good points of New York’s safety record to the Scaffold Act, or any bad points of Illinois’ record to the repeal of its equivalent. First, it notes, construction has become generally safer throughout the United States since the 1990s. Rates of fatal falls, in particular, the main type of injury that the Scaffold Law and Structural Work Act were meant to hinder, declined nationally by about one-quarter from the early 1990s to the early 2010s. In fact, Illinois saw a larger decline in fatal falls of construction workers than did New York, and fewer falls in absolute numbers by the end of this period. (My own analysis of online Bureau of Labor Statistics data finds no detectable break after 1995 in the overall downward trend in deaths in the construction industry or deaths from workplace falls in Illinois.)

Further, the Cornell researchers find that state-level construction safety is highly predictable from a general national trend toward greater safety over time and differences between states in the predominant type of construction: for instance, “higher commercial construction activity . . . is associated with a lower rate of nonfatal injuries.” After controlling for these factors, New York’s safety record is about average, and accident rates in industries covered by the Scaffold Law are actually somewhat higher than national trends would predict. This finding does not necessarily mean that the Scaffold Law is counterproductive—other features of New York’s regulatory environment could also contribute to New York’s excess danger—but it does suggest that the law is unlikely to have large benefits.

Tom Stebbins, director of the Lawsuit Reform Alliance of New York, suggests possible mechanisms by which the Scaffold Law could actually be counterproductive. Because the law gives out large awards under no-fault processes, both good and bad contractors pay inflated premiums for general liability insurance to cover accidents that can’t reasonably be considered their fault—thereby attenuating the market advantage of lower premiums for more responsible contractors. Stebbins also notes that unscrupulous contractors in neighboring states can undercut New York–based contractors for work in border regions if they’re willing to lie to insurers by not telling them that they have projects in New York.

If the Scaffold Law is a unique presence in New York, a unique absence also plays a major role: in New York City, construction of all but the tallest buildings seldom uses cranes. In other cities (including elsewhere in New York State), cranes are commonly used even on buildings of only a few stories. Builders in New York City who do use cranes, furthermore, tend to avoid “tower cranes” embedded in the ground in favor of mobile cranes mounted on trucks or Caterpillar tracks. Mobile cranes tend to have inferior reach and lifting capacity to tower cranes, and they occupy a larger ground footprint, making them impractical for small sites and often necessitating closing streets. They are also less stable and prone to collapse in high winds, as in a fatal 2016 collapse of a large track-mounted “crawler” crane in Tribeca.

More commonly, builders without cranes resort to hauling heavy construction materials up construction sites by hand, exhausting laborers and wasting time while also reducing safety. The levels of a construction site, like those of a ship, are ordinarily connected by ladders through narrow openings in floors—fine if workers are transporting only themselves, but dangerous if they are carrying heavy construction materials. Safe transport of heavy loads without cranes necessitates expensive construction-site redesigns such as continuous stairways from the ground to the construction deck.

Another common solution in New York: portable “spider cranes”—consisting of a boom several feet long attached to a tetrapod—which can be carried up to a construction deck by hand and then bolted down near the edge, so that the boom projects off the side of the building. Spider cranes, though, have low load limits and are prone to accidents when rushed workers overload them. In 2018, two workers were seriously injured on a construction site in Harlem when a spider crane toppled over: it was rated for 880 pounds, according to a contemporaneous report in the New York Post, but was being used to haul a 1,500-pound load. (Tower cranes, by comparison, typically have load limits of at least several tons.)

Once a load is lifted by a spider crane, it still must be moved across the construction deck to the correct location, another often-dangerous waste of labor. In 2018, a construction worker was killed on the roof of a Brooklyn worksite when a forklift carrying building materials toppled over—an accident that could have been avoided with a larger crane that could set loads down at the correct spot. One contractor who doesn’t use spider cranes on his projects calls them “a solution to a problem 100 percent created by the DOB and the licensing.” He estimates that a quarter of accidents on New York City construction sites could be avoided with more widespread use of cranes and that many projects that use only one crane in the city would use several cranes, at much higher efficiency, anywhere else.

The lack of cranes in New York stems from unique city regulations. First, the Cranes and Derricks unit of the New York City Department of Buildings must review and approve all plans to use cranes in construction; most other cities’ bureaucracies insist that a licensed engineer sign off on crane designs but do not review plans themselves. According to the principals of an engineering firm that works with cranes in New York and in many other cities, employees at Cranes and Derricks often lack specific expertise in cranes and are excessively technologically conservative, refusing to approve new crane models or imposing untenable conditions on their use; their main safety benefit is that the mere act of preparing crane designs to meet Cranes and Derricks’ conditions helps engineers spot potential safety problems. (In one case, according to a 2016 report from Crain’s, NYC DOB’s imposition of prohibitive rules for a new crane model likely stemmed in part from lobbying by politicians supported by the city’s main crane operators’ union.) Department inspectors can unilaterally stop crane work if they see any conditions that they consider possibly unsafe—one contractor complained that he received a stop-work order because an inspector was simply unfamiliar with a crane model. Restarting work with cranes requires potentially time-consuming negotiations.

Two other artificial obstacles discourage the use of large cranes in New York, especially tower cranes: excessive insurance conditions; and New York City’s sui generis licensing for crane operators. The year 2008 saw two fatal collapses of tower cranes—one caused by improper hoisting of a device for securing the crane mast to the building and the other by slapdash maintenance by the crane’s owner, who bought a safety-critical replacement part from an unauthorized manufacturer in China without designating appropriate specifications. In response, the city government raised general-liability insurance requirements for projects that use tower cranes from $10 million to $80 million, making tower cranes unaffordable for smaller projects. Some other cities mandate crane-specific insurance—Chicago, for instance, demands $1 million per occurrence for property damage and bodily injury—but nowhere besides New York, to my knowledge, do tower cranes trigger such an increase in necessary general-liability coverage.

The most counterproductive aspect of New York City’s crane regulations is its uniquely onerous regime for licensing crane operators. The National Commission for the Certification of Crane Operators (NCCCO), which gives widely recognized certification exams, lists only seven U.S. cities, including New York, with city-specific operator licenses. Most of these licenses are rubber stamps that call for, at most, passing an extra exam. Philadelphia, for instance, demands little more than that crane operators hold a valid Pennsylvania state license and certification from a recognized national organization, such as NCCCO. Pennsylvania, in turn, imposes only mild conditions on state licenses—mostly that crane operators hold an NCCCO or similar certification and pass character and fitness tests. Chicago’s regulations, the most demanding besides New York’s, stipulate that operators pass an additional exam and either have gone through a recognized apprenticeship program or have worked at least 2,000 hours (a year of full-time work) in the last four years as a crane operator in another city.

New York City’s rules are incomparably more stringent. New York offers three main classes of license. Class C licenses, the easiest to obtain, allow the operation only of mobile cranes with booms of up to 200 feet (divided further into three types, with a license subclass for each type), while the harder-to-get Class A and B licenses allow work on larger mobile cranes and tower cranes. An applicant for any Class C license must have done two years of supervised work within the last three years on similar crane models and have spent at least one of those years working in the New York metropolitan area or in one of six other U.S. metropolitan areas that NYC DOB considers comparable urban environments.

These requirements for small mobile cranes far outstrip any other city’s rules for any sort of crane. But they pale in comparison with New York City’s own requirements for the Class A and B licenses needed to work on tower cranes. In addition to obtaining a certification from NCCCO, Class A and B license applicants, no matter how experienced, must spend several years in supervised work with a current New York City license holder. For a Class A license, which allows work only on immobile cranes with a boom length of under 200 feet, applicants must have spent at least three years under the supervision of a Class A or B license holder. The higher-level Class B license, which allows operation of cranes with unrestricted size, mandates two more years of supervised work. In the recent past, these licenses were even harder to get because the city did not recognize NCCCO certifications: in addition to training under a New York City license holder, applicants had to pass a city-specific certification test. (The city government had to fight a lawsuit from the largest union of crane operators in order to begin recognizing national certifications; it finally prevailed in 2016.)

By giving crane operators control over the supply of new licensed workers, New York City massively raises the cost of crane operations. A Wall Street Journal report from 2011 states: “A relief crane operator in New York City earns $82.15 an hour in base pay and benefits . . . well above the $66 an hour he would earn in Chicago or the $39 an hour in Washington, D.C.” Including overtime and benefits, the Journal reports, crane operators can earn more than $500,000 per year. Most crane operators with New York licenses, furthermore, belong to the International Union of Operating Engineers Local 14-14B, a union with a long history of allegations of corruption and ties to organized crime, at least until a federal investigation in the late 2000s. A New York Times report from 2009 notes “allegations that union officials helped unqualified organized crime figures get lower-level crane licenses,” as well as accusations that the union’s president Edwin Christian—who made almost $400,000 in total compensation in 2019, according to the website UnionFacts.com—handed out jobs to members out of favoritism.

Much of the additional costs imposed by Local 14 come not from crane operators’ wages but from their refusal to work for contractors who hire nonunion labor in other roles and from featherbedding of support roles. New York has some nonunion crane operators who actually earn as much as or more than union operators, though both still make far more than they would if New York had fewer regulatory barriers to entry. But Local 14’s work rules call for union wage scales for many non-operator support staff with basically unskilled jobs, such as “hoist car” operators who run elevators up and down crane masts. One contractor estimated that nonunion hoist-car operators in New York earn $25 to $30 per hour and that he had lured crane operators away from union work by, as he put it, appealing to their pride and offering them work operating a crane rather than a hoist car. Similarly, a New York Daily News article from 2011 mentions that Local 14’s rules called for high-rise construction at One World Trade Center to hire dozens of union workers, often for total compensation of hundreds of thousands of dollars per year each, for almost no work—including an “oiler” whose only job was to turn the crane on each morning.

The effect of crane regulation on construction costs is likely substantial. Crain’s cites an estimate that the construction cost of new top-end office space in New York City is about $300 per square foot, of which the direct cost of a crane is about $20 per square foot, or slightly under 7 percent of the total bill—a figure that does not include the indirect costs of using fewer cranes than optimal. Information on crane costs in other cities is hard to find, but a 2012 student project from the Technion in Israel, giving a model of construction management for a residential high-rise in central Tel Aviv, estimated $294,000 in crane operation costs—only 1.6 percent of the total construction price of $18.49 million. The total construction cost in this model project, incidentally, came out to only $100 per square foot, far below the New York average.

Without cranes, workers often haul heavy materials by hand. (Richard Levine/Alamy Stock Photo)

Fortunately, most of New York’s bad construction regulations have potential straightforward fixes. A sensible reform to state liability law, preserving employers’ incentives to keep a safe workplace while reducing prohibitive insurance costs, might be to create an affirmative defense of regulatory compliance. Builders and contractors who can prove that they followed an explicit list of safety regulations, such as OSHA guidelines, would be protected against negligence lawsuits. If the state government wants to give injured workers larger payouts than workers’ compensation currently awards, it could simply make workers’ compensation more generous, thereby ensuring that more of the payouts go to workers themselves rather than to trial lawyers.

New York’s crane regulations deserve more discussion. Most of the construction professionals I spoke with—including those who regularly work in other cities—believed that New York’s dense pedestrian traffic and underground infrastructure could justify some unique regulations. Such opinions should be considered, but not uncritically. New York might have more high-rise construction than other cities, but the densest parts of Manhattan closely resemble the central areas of Chicago, Philadelphia, San Francisco, and many other old cities in the United States and abroad. New York’s crane regulations apply not only to high-rise construction in central Manhattan but also to less dense areas such as industrial districts in the Bronx or outer Queens. In any case, improvements in the safety of crane operations themselves must be weighed against the consequence of forcing contractors to resort to more dangerous and labor-intensive workarounds.

As a first step, New York might consider narrowing the authority of NYC DOB Cranes and Derricks: for instance, limiting its discretionary ability to approve new types of cranes and, perhaps, ending DOB review of crane design plans outside dense areas such as Manhattan and downtown Brooklyn. In less dense parts of New York, as in other cities, Department of Buildings staff would just check that a licensed engineer had signed off on plans to use cranes.

A similar reform could be made to New York’s licensing scheme. It may be justifiable to require crane operators in New York to have some experience in other dense urban environments; the case for requiring work in New York specifically is much weaker. Regulations like Chicago’s city-specific written-exam rule could ensure that operators had any requisite New York–specific knowledge. Again, it might make sense to have laxer requirements for operating cranes in lower-rise districts than in dense central areas.

We should be skeptical of arguments that New York is so special that it needs a system of construction regulations unlike anything found anywhere else. New York may be the greatest city in the world, but it is merely one of hundreds of places with many tall buildings. The same laws of physics govern construction here as anywhere else.

Top Photo: Onerous regulations on cranes, favored by unions, make it difficult for independent construction firms to bid on projects. (Mark Lennihan/AP Photo)

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