Low Income Housing Developer Not Exempt from Prevailing Wage Law

The prevailing wage law requires that workers employed on public works projects be paid prevailing wages.  There are, however, exceptions to that rule.  Two exceptions are for affordable housing projects that receive money from a redevelopment agency’s low and moderate income housing fund, and for residential projects receiving below-market interest rate loans if the project dedicates a percentage of its units to low-income occupants.

In Housing Partners I, Inc. v. Duncan, Case No. E052582 (June 15, 2012), the California Court of Appeals for the Fourth District addressed whether a project being funded from multiple funding sources, including sources qualifying for an exception to the prevailing wage law, must pay prevailing wages.  In Housing Partners I, Housing Partners I, Inc. (“HPI”), a non-profit public benefit corporation, was the owner and developer of a 71 unit senior housing project known as Vista Del Sol Senior Complex in Redlands, California.  The project was financed by three different loans from the County of San Bernadino (“County”), the City of Redlands Redevelopment Agency (“Redevelopment Agency”), and the Housing Authority for the County of San Bernadino (“Housing Authority”).  The loan from the County was a below-market interest rate loan to construct 11 units intended for very-low income seniors.  The loan from the Redevelopment Agency was a below-market interest rate loan.  And, the loan from the Housing Authority was funded with money from a low- and moderate-income housing fund.

The Director of the California Department of Industrial Relations issued an administrative determination finding that the County loan and Redevelopment Agency loan qualified for the prevailing wage exception for below-market interest rate loans for projects dedicating a percentage of its units to low-income occupants under Labor Code section 1720(c)(6)(E).  The Director also found that Housing Authority loan qualified for the prevailing wage exception for money received from a redevelopment agency’s low and moderate income housing fund under Labor Code section 1720(c)(4).  Nevertheless, the Director found that the project was subject to the prevailing wage law because the exception found under Section 1720(c)(4) could not be combined with other funding sources on the same project.  HPI appealed.

On appeal, HPI argued that because each funding source qualified for the prevailing wage exception either under Labor Code section 1720(c)(6)(E) and 1720(c)(4), that it would be “nonsensical that a project receiving both types of funding should not be except from the prevailing wage law.”  However, the Court, while noting that the project might otherwise qualify for an exemption under Section 1720(c)(6)(E), strictly construed Section 1720(c)(6)(E), holding that the section “states nothing about a project being partly financed by public loans at below-market interest rates in combination with other financing.”  The Court also strictly construed Section 1720(c)(4), holding that the section only applies “to a project receiving money solely from a qualified housing fund or from a combination of housing funds and private funds”:

The subject property failed to qualify for the section 1720, subdivision (c)(4) exemption from the prevailing wage law because its public funding did not consist solely of redevelopment housing funds, as required by the unambiguous words of the statute.  The project failed to qualify for the section 1720, subdivision (c)(6)(E) exemption because it relied on public funding other than low-interest public loans, which is not allowed under the unambiguous words of the statue.  It is unnecessary to resort to legislative history to interpret the statute’s plain meaning.  Considerations of public policy and due process are not persuasive.  As a result, the project is a public work and subject to the prevailing wage requirements of the Labor Code.

For owners and developers whose projects are subject to the prevailing wage laws, the case illustrates that if you are seeking an exemption from the prevailing wage laws any exception should be carefully reviewed, because the courts will strictly construe exceptions even if public policy might suggest that an exemption should be allowed.

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