The Commerce Department’s Storefront Improvement Program (SIP) reimburses business owners in select commercial corridors up to $15,000 for small improvements to their storefronts, such as installing new awnings or signs or putting on a fresh coat of paint. The celebrated program has sparked investment in corridors across the city, from delis in West Philadelphia to car repair shops in the Northeast.
But new guidelines put in place at the end of 2014 could mean a drop in who can afford to access the program. Businesses that want to be reimbursed must now pay the “prevailing wage” to any contractors that work on the project. For construction jobs in Philadelphia, that means mom and pop shops must pay upwards of $30 to $40 dollars an hour to workers.
The prevailing wage requirement, mandated by the Davis-Bacon Act, applies to any construction project that receives federal money in excess of $2000. SIP is currently funded by federal grants from the Department of Housing and Urban Development (HUD) — $532,000 for the current fiscal year — and thus exposed to the requirement.
The amount of the prevailing wage is determined by the U.S. Department of Labor based on what the majority of construction workers in a given area are paid. The law was intended to provide better wages to workers during the Great Depression, when New Deal programs pumped large amounts of federal dollars into the economy.
But the Davis-Bacon Act was passed decades ago, and SIP has been available since 2009. Why are these guidelines kicking in now?
The Commerce Department did not initially think the prevailing wage requirement applied to SIP, according to Yvonne Boye, senior director of the Commerce Department’s Office of Neighborhood Economic Development, which administers the program. It thought this because the reimbursements were designated for materials and equipment, not labor.
This interpretation of the Davis-Bacon Act held sway until the Commerce Department’s legal arm brought it to the attention of Boye that it might not be in compliance. After an internal review of the law, the department reached out to HUD and learned that the prevailing wage did in fact apply to SIP-funded projects.
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“We can’t separate it like that — it’s one project, so regardless it should apply,” Boye said.
The review process took place over the summer, leading to the suspension of the program in October. SIP resumed last December with the new guidelines in place.
Boye said more projects were funded in the first four months of 2014 than in the first four months of this year. However, she said it’s still too soon to blame the drop on the new guidelines.
“I think we’ll have to wait a little more time to determine that, but obviously we’ve heard from corridor managers that there has been a push back,” she said.
For Alex Balloon, executive director of the Tacony CDC and corridor manager on Torresdale Avenue, the impact has been more clear.
“We have 11 hammer-ready storefronts ready to go. We bid them out to lots of contractors all around town. We were only able to get two bids back, and for the bids that came back the storefront costs were double and in some cases triple what they were under the old program,” Balloon said. “It’s just not feasible.”
The cost of the projects went from between $16,000 to $24,000 to now $35,000 to $50,000. None of the projects will move forward at this time, he added.
In addition to the increased costs, increased paperwork, specifically the filing of Certified Payroll Reports required under the Davis-Bacon Act, is deterring neighborhood contractors from bidding on SIP projects in the first place.
“Neighborhood-level contractors aren’t interested in doing Certified Payroll,” Balloon said. “It’s just overwhelming to them. Most of these people write their invoices on pads of paper.”
Boye said the Commerce Department has tried to reduce the negative impact of the new guidelines by raising the total amount of the reimbursement and by covering a larger percentage of the costs. It has also held meetings with commercial corridors to help explain the new rules.
“This is the hand we’ve been dealt, and we will make the best of it,” she said.
Meanwhile, the Philadelphia Association of Community Development Corporations is advocating for local funding for SIP, which would allow the program to bypass the Davis-Bacon Act entirely. Councilman Bobby Henon is currently circulating a petition to build support for local funding.
“We have to change the source of the funding,” Balloon said. “In order to have an effective incentive program, it needs to be simple and straightforward. Our business owners are experts at making sausage or dry cleaning, they’re not payroll administrators. Really we need to make this easy for them to use, and unfortunately the new regulations have made something basic really complex.”
Photo via Alex Balloon-30-
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