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Many in the development community have had to struggle with the potentially significant costs and uncertainty associated with California’s Prevailing Wage laws. This is especially true for those of us who have worked on redevelopment and infill development projects. In fact, as many of you may recall, it once seemed like every request for a prevailing wage determination from the Department of Industrial Relations (“DIR”) came to the same conclusion – the entire project was subject to prevailing wages.

A series of rulings released in 2008 illustrate that the rules of the game have changed, at least for now. As the following examples demonstrate, additional guidance now exists regarding the circumstances under which public assistance may be provided without subjecting an entire project to prevailing wages:

• With respect to a project in the City of Azuza, the DIR interpreted the “Required Condition” exception found in Labor Code section 1720(b)(2). That exception, which has been subject to differing interpretations, can apply when a public agency contributes no more funding to a project than is required to construct a public improvement imposed on that project as a condition of regulatory approvals and certain other elements are satisfied. The DIR rejected the project opponent’s arguments based on prior DIR determinations in finding that prevailing wages did not apply to the otherwise private, 157-acre, mixed use project even though Community Facility District bonds, tax allocation bond proceeds and tax increment funds paid for approximately $110 million in required hazardous material remediation work and public infrastructure improvements.
• Another decision involved a private, four story retail, office and residential project in the City of Sand City. The ruling concerned the Labor Code’s de minimis contribution exception, an exemption that applies if the amount of public funding is proportionally small enough relative to the overall cost of a project. The DIR determined that prevailing wages did not apply to the approximately $22,000,000 private project despite the Sand City Redevelopment Agency’s contribution of almost $320,000 toward that project’s affordable housing, utility undergrounding and public art related to the project.

The recent rulings do not mean that project proponents no longer have to concern themselves with California’s Prevailing Wage laws. Far from it. In fact, it is always possible that a court interpreting the Labor Code provisions would reach a different conclusion. Further, with the passage of AB 32’s global warming goals and the encouragement of infill and redevelopment projects that will likely result from Senate Bill 375’s revamping of regional and transportation planning, projects that could benefit from public funding will become more common and California’s Prevailing Wage laws will continue to play a critical role. However, the recent rulings demonstrate that public funding might not trigger prevailing wages for otherwise private projects that carefully structure project design, project conditions, government agency agreements and construction contracts.