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Tyler Roppe used to be excited about an affordable housing development in his North Portland neighborhood.
Not anymore.
"You have a huge parcel of land right at the gateway of the neighborhood," says Roppe, chairman of the Kenton Neighborhood Association. "To see it not live up to the anticipation is heartbreaking. It's extremely sad."
Roppe had hoped to see Kenton's bustling business district expand. An apartment building would replace a long-vacant lot on North Argyle Street, anchored by more than 8,500 square feet of space for shops and restaurants.
In November, Roppe learned the developer, Reach Community Development, had canceled plans for the retail space to save money.
The Trump tax cuts have blown a hole in affordable housing budgets across the country, even as construction costs in Portland continue to rise. That's because tax breaks lower the value of tax credits, which are used to finance affordable housing.
In Kenton, the crunch brings into sharp relief two competing goods: affordable housing and well-paying jobs.
Reach CDC proposes to make up for the tax credit shortfall by eliminating retail space in the building. Cutting retail would allow Reach to wiggle out of the state requirement to pay construction workers the prevailing union wage.
Developers argue that by reducing labor costs—specifically the requirement to pay the highest rate for workers—they can keep their commitment to building affordable housing.
Related: Portland Needs to Build Thousands of Affordable Apartments. Here's Why It Keeps Coming Up Short.
Reach says making that decision on the $52.8 million building in Kenton preserved roughly 190 apartments, all affordable to individuals making a maximum of $31,380 a year.
"If you have public financing plus even one square foot of commercial, the entire project triggers [prevailing] wage," says Reach's Jessica Woodruff. "That's $3 million in additional wages. Working with the public funders, the decision was made to remove the commercial space."
The state requires developers pay $53 an hour in wages and benefits for a carpenter in Portland when a project gets government subsidies.
But the law also allows an exemption for affordable housing projects that are four stories or fewer and don't include any retail space. Nonunion carpenters in Portland are paid around $30 an hour in wages and benefits, though some developments must pay slightly more.
Reach's decision hasn't just alarmed neighbors: It has irritated organized labor and its allies, who say prevailing-wage jobs are key to helping working-class families keep pace with Portland's rising cost of living.
"Lowering some wages in order to build affordable housing—it's a step backward," says former state Rep. Val Hoyle (D-Eugene).
Affordable housing developers are pushing to expand the loophole used in Kenton—so they can pay lower wages and still build retail space.
"Construction that has a small amount of commercial space should not trigger the commercial prevailing wage rate," says Martha McLennan, executive director of one of the state's largest nonprofit affordable housing developers, Northwest Housing Alternatives. "We've created an increased cost to affordable housing, and that's a problem."
McLennan says the prevailing wage requirement can add $25,000 per unit in costs. But developers face an uphill battle in trying to get a wider exemption. Hoyle is the leading candidate to become commissioner of Oregon's Bureau of Labor and Industries, the agency that makes prevailing-wage determinations. She is opposed.
And Tim Frew, executive secretary of the Oregon Building Trades Council, isn't interested in a broader exemption. "I support prevailing wage," he says.
Mayor Ted Wheeler pledged to cut the cost of affordable housing, though he never specifically addressed prevailing wages. His spokesman Michael Cox says Wheeler favors other approaches.
"The mayor prefers filling gaps in funding through private-sector philanthropic donations rather than achieving affordability off the backs of workers," Cox says.