Revealed: Atlantic Yards modular construction means 22% drop in costs/wages, 10% cut in jobs, 24% loss in tax revenues

When Atlantic Yards developer Forest City Ratner unveiled plans to build the 16 towers in the Atlantic Yards project via innovative, cost-saving modular construction, CEO Bruce Ratner told the Times in November 2011 that modular would “probably” require the same number of workers.

Spokesman Joe DePlasco told WNYC that a previously announced figure of 17,000 construction jobs announced was still expected.

A year later, in a public presentation in Brooklyn, Forest City executive Melissa Burch surprised some audience members by echoing a PowerPoint presentation that stated “Modular construction will require approximately the same number of man-hours as conventional construction.”

If so, Forest City would be saving not because fewer workers would be hired, but only because cross-trained union workers inside the modular factory, located in the Brooklyn Navy Yard, would be paid less than workers on site.

New numbers

But those predictions were unreliable and, perhaps, mendacious.

According to a new analysis conducted for a court-ordered environmental review, the investment for the eleven towers in the project's Phase 2 would represent a 22% cut in costs from conventional construction, a 22% cut in wages, and a 10.2% cut in job-years. 

It also would mean a 24% reduction in revenues for New York City, MTA, and New York State (in 2013 dollars), from personal income taxes, corporate and business taxes, sales tax on indirect activities, and related taxes on direct and generated economic activity.

And the numbers are conservative, since they don't apply to the whole project.

Because the Supplementary Environmental Impact Statement (SEIS) was required only to analyze the impacts of a potential delayed buildout in the project's second phase, the chapter on Modular Construction in the Draft SEIS assesses only the Phase 2 towers, not the additional five towers in Phase 1, which also are likely to be built via modular construction. 

That means that the switch to modular for the full project (outside the arena), which Forest City Ratner announced well after Atlantic Yards went through its second round of approvals, was never fully assessed, nor will it be.

B2, the 363-unit first tower, is being built hugging the arena at the intersection of Flatbush Avenue and Dean Street, and is expected to open by the end of the year.

Extrapolating from the findings in the Draft SEIS, the use of modular construction for the entire 16-tower project presumably would further lower overall costs, wages, job-years, and tax revenues.

Ultimately, the new information serves to confirm that Forest City's public statements about Atlantic Yards jobs, as with those regarding compensation for the part-time arena workers and claims of "2000 jobs" at the arena, require vetting by outside parties.

In this case, the vetting comes from AKRF, the consultant hired by Empire State Development, the state agency overseeing/shepherding Atlantic Yards. (Forest City pays ESD for the environmental review.)

Presumably, had Forest City paid for the Independent Compliance Monitor required by the Community Benefits Agreement, we would have had more accurate statistics on modular even earlier.

The benefits of modular

To union leaders, modular may be a reasonable trade-off. Gary LaBarbera, president of the Building and Construction Trades Council of Greater New York, has said that, while workers in the factory would earn some 25% less than the average union construction worker, it would mean steady hours--and the opportunity to work in controlled conditions all-year round.

And, should Forest City Ratner prove the concept, it will designate the factory, which is a joint venture with Skanska, to produce modules for other development projects around the city, thus potentially involving more jobs.

(Trade organizations representing plumbing contractors and mechanical contractors unsuccessfully sued to block the Department of Buildings' approval of modular, saying it improperly cut out skilled trades.)

"Modular has the potential to introduce one of the first, major manufacturing expansions in New York City since manufacturing began its decline over a generation ago," Forest City said last December.

According to the Draft SEIS, conducted for Empire State Development by consultant AKRF, modular construction offers advantages beyond cost, including fewer overall and on-site truck deliveries, less on-site equipment and construction activities, less construction waste, and more efficient and faster construction.

Compared with conventional construction, there should be about one-third to three-quarter fewer daily on-site workers and about half as many daily truck trips.

The Draft SEIS, however, fudged the impact of overnight truck deliveries, suggesting they "would be comparable in magnitude and duration to that which would result from operation of any heavy truck on the roadway adjacent to the receptor," as if that's typical.

Faster construction?

Given the year-round manufacturing process that can overlap with on-site foundation and other work, modular construction could take one-third less time compared to conventional construction methods, though the document acknowledges that may not hold true for the first tower. 

Indeed, B2, if it opens as scheduled in December, will have required 24 months, though previous estimates were 18 months.

Modular may speed up the delivery of housing, including the affordable housing that made Atlantic Yards so politically attractive, especially if Forest City forms a joint venture with the Chinese government-owned Greenland Group, for the remaining project. 

Greenland would gain a 70% share in Atlantic Yards beyond the arena and B2, and has said it aims to speed construction far faster than the 2035 project deadline, which Forest City successfully requested after promising a ten-year buildout. (The illegal extension of the deadline led to the court-ordered SEIS.) The joint venture awaits governmental approvals.

From the Modular Construction chapter of Draft SEIS

(All emphases added)

VALUE OF CONSTRUCTION
Construction benefits are generally a function of expenditures by the developer during the construction period. In order to provide an estimate of the possible effects on benefits which might result from modular construction methods, the construction costs associated with the development were projected by the project sponsors. Based on the preliminary estimates, the investment for construction of Phase II of the Project using modular construction methods is estimated to equal about $1.90 billion ($1,895.66 million) in 2013 dollars. This would represent about a 22 percent reduction from costs using conventional construction methods. The amount includes the construction of the same development as was analyzed for conventional construction methods. The above figure includes site preparation and hard costs (actual construction), and design, legal, and related costs. The total estimated amount of $1.90 billion reflects the cost of physical improvements to the site, and therefore excludes other values (such as financing, insurance, the value of the development rights and the land, marketing, etc.) not
directly a part of the expenditures for construction. The total cost—including financing, the value of the land, real estate payments, management, initial marketing expenditures, and similar expenditures—would be substantially more. The construction costs enumerated above serve as the primary input to the RIMS II model, i.e., economic impacts such as number of construction jobs are derived from the total construction cost using the RIMS II model.

Employment
The $1.90 billion represents the direct expenditures during the construction period using modular construction methods. As a result of the direct expenditures, the direct employment for constructing the entire Phase II development program using modular construction methods is estimated at about 8,214 person-years of employment, a reduction of about 934 person-years from construction using conventional construction methods.
In addition to direct employment, total employment resulting from construction expenditures would include jobs in business establishments providing goods and services to the contractors and resulting in indirect employment. Based on the model’s economic multipliers for New York City industrial sectors, the construction of the entire development program using modular construction methods would generate an additional 4,275 person-years of employment within New York City, bringing the total direct and generated jobs from the construction of the program to 12,489 person-years (see Table 3M-1), a reduction of about 1,420 person-years from construction using conventional construction methods. In the larger New York State economy, the model estimates that the projected development using modular construction methods would generate 6,840 person-years of indirect employment, bringing the total direct and generated jobs from construction of the projected development to 15,054 person-years of employment, a reduction of about 1,711 person-years from construction using conventional construction methods.
The direct wages and salaries during the Phase II construction period using modular construction methods are estimated at $574.26 million, in 2013 dollars (see Table 3M-1). This would represent about a 22 percent reduction from construction using conventional construction methods. Total direct and generated wages and salaries resulting in New York City from construction of the entire Phase II development program using modular construction methods are estimated at $820 million. In the broader New York State economy, total direct and generated wages and salaries from construction of the entire Phase II development program are estimated at about $975 million. These estimates would again represent about a 22 percent reduction from construction using conventional construction methods.
Fiscal Impacts
The construction activity would also generate tax revenues for New York City, the Metropolitan Transportation Authority (MTA), and New York State. As indicated above, the total cost for constructing the entire Phase II development program using modular construction methods (excluding financing and similar costs) is estimated at approximately $1.90 billion. Based on the U.S. Bureau of Economic Analysis’ RIMS II model for New York City and State, the total economic activity, including indirect expenditures (those generated by the direct expenditures), that would result from construction of the entire projected development program for Phase II is estimated at $3.65 billion ($3,654 million) in New York State, of which $2.80 billion ($2,797 million) would occur in New York City (see Table 3M-1). These figures would represent about a $1.02 billion and $783 million reduction, respectively, from those that would be estimated for Phase II using conventional construction methods.
In total, the construction of the entire projected Phase II development is estimated to generate approximately $131.68 million in tax revenues for New York City, MTA, and New York State, in 2013 dollars (see Table 3M-1). This is approximately 76 percent of those estimated using conventional construction techniques. Of these tax revenues, the largest portion would come from personal income taxes, corporate and business taxes, sales tax on indirect activities, and related taxes on direct and generated economic activity. New York State would receive about $83.80 million, the MTA would receive about $5.51 million, and New York City would receive about $42.37 million of these tax revenues from construction of the Phase II development using modular construction methods.
In addition, as was the case with conventional construction methods, New York City would receive revenue from the mortgage recording fees and real property transfer tax from the condominium units, which would be additional. 

Calculations re Phase 2

Total employment NYC direct
8214+934=9148
so a 934 loss = 10.2%

Total employment NYC direct and indirect
12489+1420=13,909
a 1420 loss = 10.2%

Total employment NYC/NYS direct and indirect
15054 + 1711=16,675
a 1711 loss = 10.3%

Total economic activity NYS
$3.65M + $1.02B (conventional add) = $4.67B
a $1.02B drop = 21.8%

Total economic activity NYS
$2,797,000 + $783,000 (conventional add) = $3,580,000

a $783,000 drop = 21.9%