Low-Income Housing Construction Project Funded From Combination of Low Interest Loans and Redevelopment Assistance Was Not Exempt From Prevailing Wage Requirement

A low-income housing development that was funded through a combination of below-market interest rate loans from a county and its housing authority, and assistance from redevelopment agency low and moderate income housing funds, did not qualify for either of two exceptions to the requirement that prevailing wages must be paid on a public works project.  (Housing Partners I, Inc. v. Duncan, (--- Cal.Rptr.3d ----, Cal.App. 4 Dist., June 15, 2012). 

One of these exceptions is applicable when the only public assistance to an affordable housing project comes from redevelopment low- and moderate-income housing funds, and that exception was not available in this case due to the project’s receipt of the county and housing authority loans.  The other exception is available when the only public assistance to the project comes from below-market interest rate loans, and was not applicable here because the redevelopment agency assistance was not a below-market interest rate loan.  The court declined to combine the two exceptions when both types of public financing are received, as the developer had urged the court to do.

Facts

Housing Partners I, Inc. (“HPI”), is the owner and developer of the Vista Del Sol Senior Complex (“Project”), an affordable senior housing development in Redlands, California.  The Project includes 71 units, 53 of which are rented to low-income and very low-income seniors, and 17 of which are rented at market rate to seniors. 

As typically occurs in affordable housing projects, funding for construction of the Project came from a combination of sources: two 3% interest loans from the County of San Bernardino and the County’s Housing Authority, and a zero interest loan from the City of Redlands Redevelopment Agency from its low- and moderate-income housing funds.   

A request was filed for the California Department of Industrial Relations (“DIR”) to determine whether the Project was subject to the prevailing wage law.  DIR determined that the Project was a public work subject to the prevailing wage law because it constituted construction done under contract and paid for in whole or part out of public funds, within the meaning of Labor Code Section 1720.  The DIR concluded that because a combination of funding sources was used for the Project, none of the statutory prevailing wage exceptions for affordable housing projects was applicable.  HPI filed a petition seeking reversal of the DIR’s determination, but the trial court denied the petition.

Decision

The appellate court found that the Project does not meet the requirements of either statutory exception to the prevailing wage law advanced by HPI.  As a result, the Project is required to pay prevailing wages to its construction workers.

The prevailing wage law provides that workers who are employed on public works projects must be paid prevailing wages.  Under Labor Code section 1720, a project is a public work if it is work done under contract which is paid for, in whole or in part, out of public funds, among other requirements.  HPI asserted that two prevailing wage exceptions found in Labor Code section 1720 applied to the Project.  The first, section 1720(c)(4), applies to affordable housing projects that receive money from a redevelopment agency’s low and moderate income housing fund.  The second, section 1720(c)(6)(E), applies to residential projects that receive below-market interest rate loans if the project dedicates at least 40% of its units to low-income occupants.   

HPI asserted that the prevailing wage exceptions should be interpreted to apply “if the funding for a project is composed of qualified housing funds combined with below-market interest rate funding, rather than one or other.”  The court disagreed.  The Section 1720(c)(4) exception applies where a project receives money solely from redevelopment low and moderate income housing funds or from a combination of private funds and housing funds.  The Section 1720(c)(6)(E) exception applies where a project receives a below-market interest-rate public loan.  The court found that these “exceptions operate independently, neither expressly including nor excluding one another.”  If the Legislature had wanted these “two exceptions to operate together, it would have been simple to draft the statute that way.”  However, as the statute is written “the two exceptions are distinct and operate separately.” 

The court found that section 1720(c)(4) contemplates projects that are “financed by housing funds alone or housing funds and private funds” but “does not include a project supported by a combination of housing funds and public funds in the form of low-interest loans, which are the circumstances presented here.”  The court found that loans from public agencies do not qualify as “private funds” for purposes of this exception. 

HPI argued that if an affordable housing project receives any funding from low-interest loans, it qualifies for an exception even if the project receives funding from other sources.  Section 1720(c)(6)(E), applies where a project receives public loans at below-market interest rates for projects that provide affordable housing.  Here, although the Project is partly financed by public loans at below-market interest rates, the Project is also partly financed by the redevelopment agency zero interest loan.  The court did not say why it concluded that the redevelopment agency loan did not also qualify as a below-market interest rate loan for purposes of  Section 1720(c)(6)(E), but it may have been following the DIR’s conclusion that it was really a grant rather than a loan, because repayment was forgiven upon the completion of construction.   

HPI asserted that “part financing is sufficient, especially because the Agency Loan is from a qualified redevelopment housing fund.”  The court rejected this argument because the statute says “nothing about a project being partly financed by public loans at below-market interest rates in combination with other financing.”  The court reasoned that if the Legislature had intended this result, it could have drafted the statute to reach this result.

A review of the legislative history of the statute containing these exceptions did not lead the court to a different result.  The court rejected HPI’s argument that public policy in favor of affordable housing compels a different result.  The court also rejected HPI’s argument that the DIR violated its due process rights because the statutory exceptions are ambiguous. 

This case illustrates that development projects which obtain public financing need to strictly comply with the statutory rules for prevailing wages and the exceptions from those rules.  While there are several exceptions which apply to affordable housing projects, if the project does not clearly fall within one of those exceptions, courts will not stretch the law to find an exception applicable.

Questions

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