SIP: Feds clear up a rule that could break the program p3
4/27/2015 | Real Estate Blog
We are finishing up our discussion of Philadelphia’s Storefront Improvement Program. The program reimburses property owners in select commercial corridors up to $15,000 for repairs and general improvements to the front of their buildings. Federal law — in particular the Davis-Beacon Act and related legislation — requires that construction projects that cost more than $2,000 pay workers the “prevailing wage” set by the Department of Labor. SIP is funded by federal grants.
The related laws extend the Davis-Beacon regulations to transportation construction, housing projects, air and water pollution reduction projects and health-related projects that, like SIP, are funded by federal grants, loans, loan guarantees or insurance. The risk of taking any federal money is that Davis-Beacon will apply — 99.9 percent of a project could be funded by local governments or private grants, but the 0.1 percent that comes from the federal government throws the entire project into Davis-Beacon wage rates.
In Philly, this all translates into small businesses in struggling neighborhoods having to pay $30 to $40 an hour to workers, doubling or tripling overall project costs. Critics of the program at the federal level say that the law’s predominantly affects minority-owned businesses and lower income neighborhoods.
Until late last year, the city ignored the wage requirement, mistakenly believing that SIP reimbursements applied to materials and equipment rather than labor. Not so, according to the city’s commerce department.
Since the new wage guidelines went into place, applications for SIP money have declined significantly. Program staff have also heard from corridor managers (see our April 21 post) that property owners are even having trouble getting bids on projects — the increased labor costs have scaled back the scope of projects, and construction companies can find more lucrative work. There are also documentation requirements for contractors participating in a project, enough paperwork to discourage neighborhood contractors from taking on local projects.
For many involved, the only way to get SIP back on track is to eliminate federal funding altogether. That sounds easy, but can the city or the state budgets absorb the costs instead?
Philadelphia Generosity, “How Federal Guidelines are Stunting Storefront Improvement Program (SIP),” Alex Vuocolo, April 13, 2015
Institute for Justice, “Litigation Backgrounder – Removing Barriers to Opportunity: A Constitutional Challenge to The Davis-Bacon Act,” Scott Bullock and John Frantz, accessed April 17, 2015