Metropolitan News-Enterprise


Thursday, April 24, 2008


Page 3


Complex Financed by Tax Credits Not ‘Public Work’—C.A.


By STEVEN M. ELLIS, Staff Writer


The employees of a developer building low-income housing financed by tax credits are not entitled to be paid the prevailing wage because such a development is not a “public work,” the First District Court of Appeal ruled yesterday.

Reversing the decision of San Francisco Superior Court Judge Peter J. Busch, Div. Two ruled that the Southern California Housing Development Corporation is not subject to state law requiring employers engaged in public works projects to pay the prevailing wage to their employees where the project is paid for out of public funds because low income housing tax credits are intangible inducements offered by the government, and not government expenditures.

The State Building and Construction Trades Council of California, an umbrella group of building trades-unions, had brought suit over the corporation’s rehabilitation of an apartment complex in Rancho Cucamonga, arguing that Labor Code Sec. 1720 required the developer to pay its employees a prevailing wage because the tax credits provided by the state to facilitate the project constituted payment of public funds.

California law requires employers engaged in “public works projects” of more than $1,000 to pay employees the “general prevailing rate of per diem wages for work of a similar character in the locality in which the public work is performed, with a minimum threshold of $25,000 for “construction work” and $15,000 for “alteration, demolition, repair, or maintenance work.”

Sec. 1720 broadly defines “public works” to include “[c]onstruction, alteration, demolition, installation, or repair work done under contract and paid for in whole or in part out of public funds,…[including] work performed during the design and preconstruction phases of construction.” It defines “public funds” as “[f]ees, costs, rents, insurance or bond premiums, loans, interest rates, or other obligations that would normally be required in the execution of the contract, that are paid, reduced, charged at less than fair market value, waived, or forgiven by the state or political subdivision.”

The director of the Department of Industrial Relations is given responsibility for determining the general prevailing wage according to statutory criteria per category of worker needed for a project, which are then used by public entities soliciting bids. The director also has the authority to give opinions as to whether “a specific project or type of work” requires compliance with the Prevailing Wage Law.

After the director, upon the corporation’s request, determined that the project was not a “public works project” and not required to comply with the prevailing wage law because the tax credits the state had furnished did not constitute a payment of “public funds,” the council sought a writ of mandate directing him to set aside his decision.

The council argued that the tax credits were a payment of “public funds” because they were a “payment of money or the equivalent of money by the state or political subdivision directly to or on behalf of the public works…developer” under Sec. 1720(b)(1), and, alternatively, because they were a “[t]ransfer by the state or political subdivision of an asset of value for less than fair market price,” under Sec. 1720(b)(3).

Busch agreed and granted the writ, concluding that the economic reality of the tax credits showed they were an “asset of value” falling within both subsections.

“The legislature clearly intended to finance the development of low income housing by issuing these tax credits, and succeeded in doing so, in so far as the tax credits were clearly treated as a source of construction funding by the developer to whom they were issued,” he wrote.

However, on the council’s appeal, Justice James A. Richman wrote for the Court of Appeal to conclude that the tax credits did not fall into either subsection. Reversing Busch, Richman ordered the trial court to recall the writ and set aside the order granting the council’s petition.

Citing the court’s previous opinion in McIntosh v. Aubry (1993) 14 Cal.App.4th 1576, where it concluded that a county’s granting of a 20-year forbearance on rent to a developer of residential shelter for emotionally-disturbed or abused minors did not qualify as a payment of public funds because “[t]he county’s right to charge rent is not an available pecuniary resource like cash or some readily cash-convertible asset,” Richman wrote that the tax credits were not payment of public funds because they “entail no actual diminution of the state’s economic resources.”

He continued:

“[Low income housing tax credits] are not property. Allocated [tax credits] represent only the possibility of future benefit that may be realized after construction or rehabilitation of the proposed project.

“We therefore hold that they do not amount to either the ‘payment of money or the equivalent of money’ within the scope of subdivision (b)(1) or the transfer of ‘an asset of value for less than fair market value’ within the scope of subdivision (b)(3).”

Justices Paul R. Haerle and James R. Lambden joined Richman in his opinion.

Dennis Cook of Cook Brown LLP in Sacramento, who represented the developer, said that his client was “very delighted” with the ruling, and that it would make it easier to build more affordable housing on a cost-effective basis.

However, the council’s attorney, Scott A. Kronland of Altshuler Berzon LLP in San Francisco, said that he believed the decision represented “bad policy for workers,” and that it was “not the way to solve the affordable housing problem.”

Kronland said that his clients had not yet determined whether to appeal.

The case is State Building and Construction Trades Council of California v. Duncan (Southern California Housing Development Corporation), A115491.


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