The Pleasant Hill Redevelopment Agency’s subsidies for a housing project did not make the project a “public work” that required the payment of prevailing wages to workers, the First District Court of Appeal has ruled.
The court based its decision on the definition of “public works” in effect in 1999, when the city and a developer signed a contract. Since then, the Legislature has expanded the definition of public works.
The First District’s decision relied largely on the state Supreme Court’s ruling in City of Long Beach v. Department of Industrial Relations, (2004) 34 Cal.4th 942 (seeCP&DR Legal Digest, February 2005). In City of Long Beach, the Supreme Court ruled that the city’s contribution of $1.5 million to the development of a SPCA animal shelter did not make the shelter project a public work because the money was expressly limited to preconstruction expenses, such as architecture, project management, surveying and legal counsel. Both the Long Beach animal shelter project and the Pleasant Hill housing project were governed by the longstanding definition of public works in former Labor Code § 1720, subdivision (a). Lawmakers changed the statute in 2000 and again in 2001.
The Pleasant Hill project involved development of 134 townhouses on the 7.5-acre “Cleaveland Triangle” in the Schoolyard redevelopment project area. In November 1999, the city’s redevelopment agency executed a disposition and development agreement (DDA) with the DeSilva Group, which owned 20 of 29 parcels in the Cleaveland Triangle. DeSilva then assigned its portion of the DDA to Greystone Homes.
Under the DDA, the redevelopment agency agreed to provide a parcel it owned worth $161,000, pay a traffic impact mitigation fee of about $209,000, and reimburse the developer up to $2.5 million for land acquisition. The agency would make reimbursement payments out of annual tax increment revenue.
In June 2002, trade unions requested a determination from the Department of Industrial Relations (DIR) as to whether the project was a public work. Seven months later, the DIR director determined the project was a public work. He found that the agency’s contribution of the parcel, the payment of mitigation fees and the reimbursements were for “activities integrally connected to the construction of the project,” making it a public work. Greystone appealed, but the director in July 2003 affirmed the determination.
Greystone sued, and Contra Costa County Superior Court Judge David Flinn upheld the DIR. Flinn based his decision solely on the DDA’s provision that the redevelopment agency would provide $240,000 of tax increment housing set-aside revenue as incentive for the developer to sell 12 units at less than market rate.
Greystone appealed, and a unanimous three-judge panel of the First District, Division Two, overturned the lower court and the DIR. The First District noted that City of Long Beach — issued after the DIR and Judge Flinn made their decisions — distinguished preconstruction costs from construction costs under former § 1720, subdivision (a). The DIR determination incorrectly lumped everything together.
“The director [of DIR] made the legal determination that payment for construction under former § 1720(a) meant a payment for any activity essential to the completion of a construction project,” Justice Paul Haerle wrote. “This interpretation and application of the governing statute is erroneous under City of Long Beach. The City of Long Beachcourt was persuaded that the term ‘construction’ in former § 1720(a) ‘meant only the actual physical act of building the structure,’ and it expressly rejected the DIR’s contrary claim that this term encompassed ‘pre-building’ phases of a project.”
Thus, the question in the Pleasant Hill case was whether public funds would pay for actual construction. The court said no.
“The real property involved in the parcel conveyance became part of the land upon which the project was built; it was not used to pay the costs of construction. Nor was the traffic mitigation fee a cost of actual construction,” Haerle wrote. “We also find that the agency reimbursement was not used to pay for actual construction of the project in this case. The agency’s express obligation was to reimburse the developer for the costs of acquiring the land.”
As to Judge Flinn’s ruling, the court found that payment of money as an incentive was irrelevant.
“[T]he motivation behind a payment of public funds is simply not determinative of whether the funds paid for actual construction. Here, the DDA provided that the agency would reimburse the developer for land acquisition costs, not for construction costs,” the court ruled.
The Case:
Greystone Homes, Inc. v. Cake, Nos. A107763 and A107769, 05 C.D.O.S. 10773, 2005 DJDAR 14729. Filed November 22, 2005. Ordered published December 21, 2005.
The Lawyers:
For Greystone: Andrew Sabey, Morrison & Foerster, (925) 295-3300.
For Department of Industrial Relations: Christopher Frick, DIR, (415) 703-4240.
For Pleasant Hill Redevelopment Agency: Juliet Cox, Richards, Watson & Gershon, (415) 421-8484.
For IBEW Local Union No. 302: Scott Kronland, Altshuler, Burzon, Nussbaum, Rubin & Demain, (415) 421-7151.
