Agenda - Council Work Session - 07/28/2026

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Fortunately, some sources of public financing for affordable housing employ robust labor standards that reduce the risk of wage theft and exploitation on construction projects. Prevailing wage standards, for example, play a key role in preventing exploitation and minimizing the risk of irresponsible conduct on publicly financed projects. A prevailing wage requirement reduces the risk of wage theft and exploitation in two keyways. First, it discourages a race -to - the -bottom between contractors in highly competitive bidding processes by setting a wage floor based on the going rate for workers performing similar work within a geographic labor market. Second, prevailing wage requirements increase transparency and reduce the risk of misclassification on a project. Collection of certified payroll reports, which is a key feature of prevailing wage policies, helps to minimize the reliance on informal employment relationships and off -the -books payments on a construction site by requiring contractors to provide accurate data and monitor job sites. Prevailing wage policies are effective tools to reduce the risk of worker exploitation and other misconduct on housing projects, but they require strong enforcement and additional tools may be needed to protect workers and taxpayers. In general, the public funding sources with prevailing wage requirements are built with responsible contractors adhering to high employment standards. On the other hand, we have found numerous issues on projects built without prevailing wage protections. The most consistent issues occur on low- income housing tax credit (LIHTC) and tax increment financing (TIF) projects. These are two of the most common sources of public financing for affordable housing projects. They are also two programs that rarely include robust labor standards such as prevailing wage requirements. 2.2 PUBLIC FUNDING WITHOUT SAFEGUARDS The Low -Income Housing Tax Credit (LIHTC) program was established in 1986 to provide tax credits for affordable housing development. Congress authorizes each state to allocate a certain number of LIHTCs and issues up to a specified amount of tax-exempt bond financing annually. States receive their allocation annually. There are certain federal requirements for the funding including requirements for how long a property must remain affordable. On top of the baseline federal requirements, state allocating agencies can establish additional criteria through the Qualified Allocation Plan process. In Minnesota, the Minnesota Housing Finance Agency is primarily responsible for determining which housing projects should receive credits and the dollar amount allocated. There are also a number of suballocators of LIHTCs, including Duluth, Minneapolis, Rochester, St. Paul and Washington and Dakota Counties, that apply their own conditions to projects. TIF is a tool used by cities, counties and other units of government to finance real estate development. TIF is a tool to capture additional property taxes paid as a result of development in the district to pay for development costs. The TIF is calculated based on increased property tax values resulting from the construction of a new building. In 2021, 385 development authorities submitted reports for 1,668 TIF districts including 576 housing TIF districts.38 METHODOLOGY This report brings together evidence of the extent to which contractors that have a record of cheating workers or face serious allegations of exploitation have benefited 38 Julie Blaha, "Tax Increment Financing Legislative Report," Office of the State Auditor, 2021, www.osa.state.mn.us/media/ fr ihihdy/tiflegi slative_ 2i_report.pdf. North Star Policy Action 9