A Combination of Otherwise Exempt Funding Sources Causes a Seniors Project to be Subject to Prevailing Wage Requirements

By William W. Abbott

At this moment in time, there is some irony in writing an article about the demise of state affordable housing programs in circumstances in which residential values have taken a major haircut and interest rates are at record lows, the two factors together resulting in new levels of affordability. Nevertheless, over the long run, state programs have served a vital role in affordable housing and from a long term policy perspective, should remain funded and operational. The most recent decision in this area pertains to prevailing wage requirements and the specified exemptions to the obligation to pay prevailing wage on public projects, depending upon the funding source.

California’s prevailing wage requirements are found in the Labor Code at sections 1720-1861. Two commonly utilized exemptions from the obligation to pay prevailing wages involve projects financed through a qualified housing fund or a combination of qualifying housing funds and private funds (Labor Code section 1720(c)(4), and below-market interest rate funds for projects meeting qualified income and affordability criteria (Labor Code section 1720(c)(6)(E)).

In this case, Housing Partners I, Inc. developed a seniors project in Redlands, and to finance the project, the developer utilized 1720(c)(4) funds and 1720(c)(6)(E) monies. As permitted by state law, a prevailing wage monitoring group requested a prevailing wage coverage determination from the Director of the Department of Industrial Relations. The Director first concluded that the project met the definition of a public works project, and then turned to the nuanced question of whether or not a developer who receives funds from two sources, each of which meet the test for the exemption, loses the exemptions if the funding sources are combined. As difficult as it is to imagine that the legislative purpose behind the exemption would be lost if the two sources were combined, that is what the Director concluded. That decision was confirmed following an administrative appeal, and by the trial and appellate courts. As the appellate court observed, the legislative goals behind the exemption have to yield to the unambiguous terms of the statutes. In the situation of section 1720(c)(4) funds, the statute qualifies the exemption to circumstances in which those funds are the sole source of funds. When it came to interpreting what the legislature enacted, the director and the court got it right. If there is legislative wisdom to such a restriction, I fail to see it. Housing Partners I, Inc. v. John C. Duncan (June 15, 2012, E052582) __Cal.App.4th __.

This case reminds me of Humpty Dumpty in Alice In Wonderland: "When I use a word," Humpty Dumpty said, in a rather scornful tone, "it means just what I choose it to mean - neither more nor less." I guess that the moral of this case is to be careful of what you wish for and how you draft legislation.

William W. Abbott is a partner at Abbott & Kindermann, LLP. When he is not taking pot shots at the Legislature, he practices land use, environmental and real estate law. For questions relating to this article or any other California land use, real estate, environmental and/or planning issues contact Abbott & Kindermann, LLP at (916) 456-9595.

The information presented in this article should not be construed to be formal legal advice by Abbott & Kindermann, LLP, or the formation of a lawyer/client relationship. Because of the changing nature of this area of the law and the importance of individual facts, readers are encouraged to seek independent counsel for advice regarding their individual legal issues.

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