“Subsidizing Abuse” Investigates Minnesota’s Affordable Housing Industry’s Record of Worker Exploitation—While Receiving Millions in Public Dollars

A new report claims Minnesota’s affordable housing developers receive millions in public funds while working with subcontractors with problematic records of worker exploitation.

At least $84 Million in Minnesota state and municipal funds earmarked for affordable housing projects have gone towards contractors with records or accusations of worker exploitation, from wage theft to misclassification to labor trafficking to sexual abuse, according to a new report

Subsidizing Abuse: How Public Financing Fuels Exploitation in Affordable Housing Construction was published on November 14 by North Star Policy Action, which calls itself “an independent research and communications institute.” It was authored by Jake Schwitzer from North Star Policy Action and Lucas Franco from Laborers’ International Union of North America (LIUNA).

The report finds that the $84 million sum is made up of $31 million from Low-Income Housing Tax Credit (LIHTC) and $53 million in tax increment financing (TIF), awarded to developers building affordable housing in Minnesota. However, due to little oversight and labor provisions, developers are benefiting from the use of contractors on these projects that cut corners and underpay workers, the report finds.

The report details the story of Arturo Hernandez, a construction worker who was working for Painting America, a contractor based in Hudson, Wis. After being owed three weeks of wages, his foreman put him in contact with Eduardo Venezuela, who insisted on paying Hernandez’s missing wages out in drugs for the worker to sell, according to the report. Hernandez, who testified to the Minnesota State House Legislature in 2019, stated that this happened to other workers on the job site as well. 

Painting America is just one of seven contractors the report names as “problem” contractors with both proven and alleged worker rights violations. The researchers have documented Painting America and the other problem contractors as having worked on numerous publicly financed affordable housing projects in the Twin Cities metro in recent years. 

The report names three Minnesota developers—Dominium, MWF, and Roers—in the multifamily housing industry that receive the most funds through LIHTC and TIF, while continuing to work with subcontractors with egregious records of worker exploitation. 

The problem contractors named by the report go beyond Painting America; they also include: Absolute Drywall in Lakeville, Minn, Environmental StoneWorks (ESW) North Branch, Minn., Wolf Construction Services, Inc, in West Des Moines, Iowa, Merit Drywall in Clearwater, Minn., Stone Pro Masonry in Eau Claire, Wis., and Ed Lunn Construction in Rochester, Minn. 

While the prosecution of these sorts of worker rights violations has been historically rare, and often only results in paying a negligible fine, in recent years, more Minnesotan contractors have been prosecuted in court. In 2019, labor broker Ricardo Batres pled guilty to labor trafficking immigrant construction workers, resulting in the first conviction of labor trafficking in Hennepin County. In addition to Hernandez’s case, Painting America faced charges from the Minnesota Department of Labor and Industry in 2017 for misclassifying employees as independent contractors and was ordered to pay a fine of $5,000. Misclassification is a common form of wage theft, by avoiding paying benefits, overtime, workers’ compensation, and underpaying insurance costs. 

Absolute Drywall was also one of the companies at the center of a massive wage theft case on the Viking Lakes project in Eagan, Minn., and was involved in a sexual assault case of a worker, as reported by the Minnesota Reformer. In June 2023, Workday Magazine interviewed Francisco Lozano, a construction worker who was misclassified and threatened by a supervisor at Absolute Drywall. 

The report claims that many of these worker rights abuses are underreported, and that the evidence documented in the report is just the “tip of the iceberg” in an industry with widespread and pervasive worker exploitation. 

This reported abuse is taking place against the backdrop of a housing crisis, the report notes. Over the past decade, affordable housing has decreased while the cost of home ownership has doubled. In 2022, there was a 33% increase in evictions over pre-pandemic state filings, impacting both renters in the Twin Cities metro and greater Minnesota alike, the report says. 

While state and local governments are investing in new housing development (lawmakers earmarked a record $1 billion for housing affordability in 2023), the report calls for more oversight and labor provisions for developers benefiting from affordable housing tax-credits. 

The report argues that while building new affordable housing is key to alleviating the housing crisis in Minnesota, taxpayer-supported development must include labor provisions that protect, not exploit, construction workers, who often have precarious documentation statuses, making them especially vulnerable to abuse and intimidation. 

The report concludes with several preventative policy recommendations at the state and local level. First is a call for increased transparency of the use of subcontractors by developers. Currently, developers are not expected to report which contractors they hire on their project. Developers seeking public subsidies should be mandated to disclose a list of subcontractors on projects, the report urges.

Other recommendations include evaluating developers on their commitment to providing family-supporting jobs to the list of criteria when granting tax subsidies, municipal criteria that rewards the use of responsible contractors, implementing worker-driven models such as the Building Dignity and Respect Program, and investing in enforcement of existing legislation and increased worker education. 

Several Minnesota lawmakers already pledged support for the legislation advocated for in the Subsidizing Abuse report. Minnesota state Rep. Emma Greenman, representing parts of South Minneapolis, released a statement on X.com (formerly Twitter) stating “We must not tolerate companies that exploit workers, steal wages, and break the law, especially not when the projects are publicly funded. Our communities need affordable housing and expect it to be built [by] workers who are paid a living wage and safe on the job.”

Minnesota state Rep. Mike Howard representing Richfield, Fort Snelling, and a portion of South Minneapolis also showed support for increased oversight and labor provisions advocated by the report, describing the reports of wage theft in the for-profit affordable housing development industry as “jaw-dropping” and calling on the Minnesota State Legislature to “take action to ensure that when we build affordable homes we aren’t doing so on the backs of Minnesota workers.” 

With Minnesota’s legislative season beginning in February 2024, the next few months will be key in deciding whether trade unions, worker advocate groups, and supportive representatives will push one of the aforementioned policy recommendations by the Subsidizing Abuse report into action. Given the historic and labor-friendly advances of the 2023 Legislative season, advocates say the stage could be set for change for developers in the affordable housing industry.

Isabela is the Senior Associate Editor for Workday Magazine.

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