State Officials Continue to Make Subsidized Housing More Expensive

This story was produced by the Oregon Journalism Project, a nonprofit newsroom covering the state.

As the rainy season begins, two statewide elected officials made conflicting statements last week about the shortage of roofs over Oregonians’ heads.

On Oct. 14, Gov. Tina Kotek issued a statement listing the number of shelter beds her administration has created in response to what the governor called a “humanitarian crisis.”

“There’s more work to do, and we can’t let up until everyone in Oregon has a safe place to sleep at night,” Kotek said.

That same day, Oregon’s labor commissioner sent a signal to the people sleeping outside in a county with one of the state’s highest levels of unsheltered homelessness: Housing them doesn’t matter.

At least, it doesn’t matter as much as pleasing the trade unions that contributed heavily to Labor Commissioner Christina Stephenson’s election in 2022.

One of Stephenson’s jobs as commissioner of the Oregon Bureau of Labor & Industries is to determine whether state-subsidized housing developments must pay prevailing wages to the construction workers who build the projects.

Paying workers higher wages is desirable, and trade union representatives make a compelling case for it, but paying union wages is also more expensive—10% to 20%, studies show. That means less housing gets built and the humanitarian crisis continues.

Last week, Stephenson’s agency rejected an appeal for reconsideration from developers of the proposed Copeland Commons project in Astoria.

In a nine-page letter seeking reconsideration of BOLI’s initial Jan. 13 decision that the Astoria project must pay prevailing wages, the developers explained why their project met state requirements for exemptions from prevailing wage laws.

“The proposed Copeland Project is an apartment building of four stories, with no commercial space, that will be privately owned and predominantly serves occupants whose incomes are no more than 60% of area median income,” Innovative Housing Inc. wrote to BOLI on May 21. The developer explained that the bureau’s earlier determination that the building was five stories tall was incorrect, as was the agency’s determination that the conversion of a vacant property originally built as a hotel didn’t qualify as “residential construction.”

Innovative Housing noted it had done six similar conversions of historic buildings in Oregon—and BOLI had exempted each of those projects from prevailing wages.

But on Oct. 14, the bureau rejected the request for reconsideration and ordered that the project pay prevailing wage—which Innovative Housing says will add at least $2 million to the cost of the $20 million project.

Bill Van Nostran, a retired pastor at the First Presbyterian Church in Astoria who first conceived of converting the empty building into housing, reacted with a mixture of sadness and frustration.

“I’m heartbroken that BOLI is taking such a hard line,” Van Nostran says. “I still believe that our project qualifies for an affordable housing exemption from prevailing wages under the law.”

Starting in 2018, a group of volunteers led by Van Nostran has tried to help alleviate the housing shortage in Clatsop County, which, according to Portland State University research, has a rate of unsheltered homelessness five times that of Multnomah County.

Data shows the reason Oregon has one of the nation’s highest rates of homelessness. Put simply, Oregon’s population has grown faster than its housing supply for two decades.

Some officials believe maximizing the creation of new housing should take precedence over union wages. State Sen. Dick Anderson (R-Lincoln City), vice chairman of the Senate Committee on Housing and Development, is one of them. Anderson has pushed his colleagues—without success so far—to use the discretion he says the law allows to exempt more affordable housing projects from prevailing wages.

“Affordable housing is the No. 1 concern for Oregonians and a true crisis for many people,” Anderson tells OJP. “It is really sad our own government agencies are one of the biggest road blocks to solving it. BOLI has time and time again proven they care more about appeasing labor unions than making good decisions.”

Bureau spokeswoman Rachel Mann pushed back on that criticism.

“We don’t believe that paying North Coast families a community standard wage and requiring that we have apprentices on the publicly funded job sites to get the training they need to better themselves and their families is a bad thing,” Mann says. “If lawmakers disagree, they have the power to change the law. BOLI does not.”

Although Gov. Kotek and every other elected official in the state have made increasing Oregon’s housing supply a top priority, developers have often struggled to qualify for the exemptions to prevailing wage law that Innovative Housing and others say they used to get more frequently.

In April, the Oregon Journalism Project first reported on the Copeland Commons (“A Little Off the Top,” April 2). After that story, Innovative Housing noted in an email to Sen. Anderson that there were strong public policy reasons for BOLI to change its original determination.

“There are old buildings all over the state that need to be repurposed—and could change from outdated commercial uses to affordable housing,” Innovative Housing’s Julie Garver wrote. “The public benefit from repurposing these old buildings is myriad.” Those benefits include proximity to services and infrastructure; revitalization of downtowns; and keeping the buildings from being scrapped and tossed in landfills.

The premise for affordable housing projects in Oregon is that buildings of four or fewer stories that are predominantly used for affordable housing are exempt from paying prevailing wage. That’s a big deal: Studies in California and elsewhere have found that prevailing wage requirements can add 10% to 20% to the cost of construction. Oregon developers say the premium can often be more in places such as Astoria where there are few union contractors.

In the case of Copeland Commons, BOLI determined that because the building in question includes a jury-rigged mezzanine in the first floor from its most recent use, the structure exceeds the four-story maximum height for exemption.

Innovative Housing later explained the mezzanine was a temporary structure not in the building’s original plans and could be easily removed.

BOLI was unconvinced. “The existing building is a five-story building,” the agency wrote in an Oct. 14 determination letter signed by Commissioner Stephenson.

The agency also disqualified Copeland Commons’ application from exemption for another reason, one that is highly contentious with affordable housing developers and affects more than $1 billion in state subsidies for affordable housing.

That’s the total amount of funding the state agency Oregon Housing and Community Services has provided for subsidized housing through the Local Innovation and Fast Track, or LIFT, program.

On Copeland Commons, the biggest single source of funding is $8.7 million in LIFT bonds. The state would sell such bonds, give Copeland Commons the cash, and repay the bonds later from the general fund.

Oregon law says that any project that uses more than $750,000 in “funds of a public agency” constitutes a public works project and must pay prevailing wage. But whether such funds include LIFT bonds is a matter of intense disagreement.

Affordable housing developers and their attorneys say BOLI is mischaracterizing LIFT dollars, which has the effect of forcing developers to pay prevailing wage when they believe their projects are exempt. They have made that argument to the bureau, lawmakers and Kotek—so far, all in vain.

A lawsuit (“Billion-Dollar Question,” OJP, June 11) that could settle that dispute is stalled in Multnomah County Circuit Court—in part because the Oregon Department of Justice, which represents BOLI in court, has not filed an answer explaining the state’s reasoning over the past five months.

DOJ spokeswoman Jenny Hansson says the state’s position on the definition of “funds of a public agency” will be part of the court record. In the meantime, developers around the state seeking to use LIFT bonds to finance their projects have no clarity—or window into what is normally a public process.

As for Kotek, spokeswoman Roxy Mayer says the governor will include prevailing wage issues in a larger discussion. “The governor will continue to work on implementing the recommendations of her Housing Production Advisory Council, including having a thoughtful conversation in the future about the application of prevailing wage,” Mayer says.

No matter what, Van Nostran and his allies plan to keep pushing toward their goal.

“For seven long years we have been trying to help our community with housing,” Van Nostran says. “At every turn there is a road block. It just defies logic. In a state where housing is reportedly the No. 1 priority, why can’t we build more of it?”