In Azusa Land Partners v. Department of Industrial Relations, (— Cal.Rptr.3d —-, Cal.App. 2 Dist., December 21, 2010), a court of appeal considered whether a planned community project is a “public work” subject to prevailing wage laws applicable to public infrastructure and improvement work carried out by private contractors as a condition of regulatory approval for the community projects. The appellate court held that the planned community project was subject to the prevailing wage laws.
Azusa Land Partners (“ALP”) is the owner and developer of a master planned community project (“Project”) involving the development of over 1,200 homes, approximately 50,000 square feet of commercial construction, and public infrastructure and improvement work. In order to obtain approval for this project, the City of Azusa (“City”) imposed certain conditions to perform particular public improvement work, including but not limited to the construction of a public school, park, sanitation facilities, freight under-crossing, bridge, storm drain, and sewer for the cities of Glendora and Azusa.
ALP and City entered into an acquisition agreement to provide for “partial funding of required public facilities through Mello-Roos bonds.” In this agreement, the City agreed to establish a Community Facilities District (“CFD”) to sell Mello-Roos tax bonds to pay for the engineering, planning, designing, construction, and installation of particular facilities eligible for public financing. Thus the eligible facilities would be built with proceeds from the Mello-Roos bonds. Pursuant to this agreement, ALP was required to perform the public improvement work required by the City as a condition of approval even if the total cost of that construction was more than the amount of the bond funds authorized to pay for it.
An administrative inquiry was filed requesting the Department of Industrial Relations (“Department”) to determine whether the project constituted a “public work” under Labor Code section 1720 subjecting it to the prevailing wage laws. ALP asserted the project was not a public work but rather a private development project to which the City required construction of particular public improvements as a condition of approval. ALP also contended that it intended on paying prevailing wages for those public improvements financed with the proceeds of the Mello-Roos bonds, but not for the construction of any improvements not covered by the Mello-Roos financing.
The Department disagreed finding in part that the entire community project constituted a “public work” within the meaning of section 1720(a)(1) because the project was funded in part with public funds. ALP filed an administrative appeal. The Department affirmed its initial determination. ALP filed a petition seeking writ of mandate. The trial court ultimately denied the petition, agreed with the Department’s findings, and entered judgment in favor of the Department.
The court of appeal addressed the general issue of whether the project is a “public work” following the enactment of SB 975 in 2001, which amended section 1720, and “how broadly the prevailing wage obligations apply to the Project.” The court of appeal first determined the trial court did not err by conducting its analysis under 1720(a)(1) rather than (a)(2).
“Public works” are defined in section 1720(a) that provides in part as follows: “(1) Construction, alteration, demolition, installation, or repair work done under contract and paid for in whole or in part out of public funds . . . ,” and “(2) Work done for irrigation, utility, reclamation, and improvement districts, and other districts of this type. . . .” The trial court had held the entire Project was a “public work,” pursuant to (a)(1), i.e., construction performed and “paid for in whole or in part out of public funds,” because some part of the Project was publicly funded by Mello-Roos bond proceeds. ALP argued (a)(2) should apply because it defines “public works” as work done for improvement districts and the CFD is such a district. The court of appeal disagreed with ALP’s argument finding that because (a)(2) had no requirement that the work must have also been “paid for” with public funds, it was not at liberty to insert into the statute a term the Legislature chose to omit. Also, the statutory terms “work done for” found in (a)(2) includes all the infrastructure improvement performed for the CFD and required as a condition of the City’s approval of the Project, not just the work for which ALP received funding through the CFD. Finally, the court of appeal found that not all of (a)(2) is subsumed within (a)(1). The fact that some infrastructure is encompassed by more than one “subdivision does not negate the viability of either one or the possibility that, in another case, other improvements would be considered public work under one provision, but not both.”
The appellate court next found that Mello-Roos bonds are public funds under the plain language of section 1720(b). Pursuant to 1720(b)(1), “paid for in whole or in part out of public funds” means: “[t]he payment of money or the equivalent of money by the state or political subdivision directly to or on behalf of the public works contractor, subcontractor, or developer.” Payment by the CFD to ALP is a “payment of money or its equivalent from or on behalf of a ‘governmental entity’ to a developer within the plain meaning of subdivision (b)(1).” The Mello-Roos Act also supports the finding that payment of proceeds from the bonds by the CFD represents payment of money by a state political subdivision to a developer. Further, ALP’s claim that the CFD is “merely a conduit for Mello-Roos bond proceeds springs from its mischaracterization of the mechanics of the financing controlled by the Mello-Roos Act.” Neither the CFD nor the City act merely as a conduit for the Mello-Roos bond financing. The court of appeal also rejected ALP’s argument that Mello-Roos bond financing is not a “payment of money or the equivalent” by the City as required by (b)(1) but instead similar to a loan the developer must repay.
ALP next contends that only the infrastructure improvements constructed by the proceeds from Mello-Roos bonds should be subject to prevailing wage laws, not any public improvements paid for with private funds. The court of appeal disagreed finding that the obligation to pay prevailing wages applies to “all required public improvements, including those paid for with private funds.” When a determination has been made that the Project is a “public work” pursuant to (a)(1), the entire Project is subject to the prevailing wage laws. Section 1720(c) identifies those situations that may be included or excluded from the definition of “paid for in whole or in part out of public funds.” The relevant exception in this case is found under 1720(c)(2): “If the state or a political subdivision requires a private developer to perform construction, alteration, demotion, installation, or repair work on a public work of improvement as a condition of regulatory approval of an otherwise private development project, and the state or political subdivision contributes no more money, or the equivalent of money, to the overall project than is required to perform this public improvement work, and the state or political subdivision maintains no proprietary interest in the overall project, then only the public improvement work shall thereby become subject to this chapter.”
The appellate court found that ALP attempted to narrow the scope of prevailing wage liability pursuant to (c)(2) “by arguing that any portion of required public improvement work that does not receive a direct allocation of public funds must be excluded from consideration.” However, the express language of (c)(2) does not contain such requirement. The appellate court further found the Project met all the requirements of (c)(2) and that it was exactly the kind of project contemplated by the Legislature when it enacted this provision. After reviewing the statute as a whole, the court of appeal affirmed the trial court’s judgment finding it properly found that the Project is a “public work” under section 1720 but “that the requirement to pay prevailing wages is restricted to the construction of the public facilities and infrastructure improvements, whether publicly or privately funded.”
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