In a much anticipated decision, the California Supreme Court ruled on July 2, 2012, that charter cities in California may exempt themselves from state prevailing-wage requirements. In doing so, the Court affirmed the principle that "the wage levels of contract workers constructing locally funded public works are a municipal affair."

The issue in State Building and Construction Trades Council v. City of Vista, was whether a City ordinance prohibiting City contracts from requiring payment of prevailing wages for locally funded improvements violates state law requiring the payment of prevailing rates of wages on public improvement projects. Article XI, Section 5(a) of the California Constitution provides that charter cities "may make and enforce all ordinances and regulations in respect to municipal affairs," and that with respect to such municipal affairs, city charters "shall supersede all laws inconsistent therewith." In deciding whether a matter is exempt from state law as a municipal affair, courts must determine, among other things, whether the state law in question addresses an issue of statewide concern. In ruling that the state's prevailing-wage requirements do not apply to charter cities under these circumstances, the Court held that the application of the prevailing-wage statutes to contracts for the construction of locally funded public works is not a matter of statewide concern.

Although significant, the decision may be of limited practical application insofar as it affects only those contracts for public works awarded by charter cities that have chosen to exempt contracts for locally funded projects from prevailing-wage requirements. The ruling does not extend to general law cities which would still be required to comply with state prevailing-wage requirements in connection with contracts that they award for public works. Likewise, charter cities would still be required to comply with state and/or federal prevailing wage requirements in connection with contracts awarded for the construction of public improvements that are funded by state or federal grants. Because the Court based its decision on constitutional grounds, the Legislature may not amend the prevailing-wage statutes to make them applicable to charter cities. It remains to be seen whether eligible cash-strapped municipalities will take advantage of this decision to lower the cost of construction of public improvements by exempting such improvements from prevailing wage requirements.