Trades Council v. Duncan

• Decision Date: 23 April 2008
• Docket Number: No. A115491.,No. A115663.,A115491.,A115663.
• Citation: 76 Cal.Rptr.3d 507,162 Cal.App.4th 289
• Court: California Court of Appeals
• Parties: STATE BUILDING AND CONSTRUCTION TRADES COUNCIL OF CALIFORNIA, Plaintiff and Respondent, v. John C. DUNCAN as Director, etc., et al., Defendants and Appellants; Southern California Housing Development Corporation, Real Party In Interest and Appellant. State Building and Construction Trades Council of California, Plaintiff and Respondent, v. John C. Duncan as Director, etc., et al., Defendants and Appellants; Southern California Housing Development Corporation, Real Party In Interest and Respondent.

76 Cal.Rptr.3d 507

162 Cal.App.4th 289

STATE BUILDING AND CONSTRUCTION TRADES COUNCIL OF CALIFORNIA, Plaintiff and Respondent, v.John C. DUNCAN as Director, etc., et al., Defendants and Appellants;

Southern California Housing Development Corporation, Real Party In Interest and Appellant.

State Building and Construction Trades Council of California, Plaintiff and Respondent, v.John C. Duncan as Director, etc., et al., Defendants and Appellants;

Southern California Housing Development Corporation, Real Party In Interest and Respondent.

No. A115491.

No. A115663.

Court of Appeal, First District, Division 2.

April 23, 2008.

As Modified on Denial of Rehearing May 16, 2008.

Department of Industrial Relations, Office of Director—Legal Unit, Vanessa L. Holton, Chief Counsel, Douglas P. Elliot, Staff Counsel, Anthony Mischel, Industrial Relations Counsel, for Defendants and Appellants.

Altshuler Berzon LLP, Stephen P. Berzon, Scott A. Kronland, Rebekah Evenson, San Francisco; Altshuler, Berzon, Nussbaum, Rubin & Demain, for Plaintiff and Respondent.

Cox, Castle & Nicholson LLP, John S. Miller, Jr., Dwayne P. McKenzie, Los Angeles, for the California Building Industry on behalf of Plaintiff and Respondent.

Edmund G. Brown, Jr.Attorney General, Stacy Boulware Eurie, Senior Assistant Attorney General, Christopher E. Krueger, Senior Assistant Attorney General, Erin V. Peth, Deputy Attorney General for State TreasurerBill Lockyear on behalf of Plaintiff and Respondent.

Sonnenschein Nath & Rosenthal LLP and John L. Williams, Walnut Creek; Cook Brown, LLP, Dennis B. Cook, Lisa V. Ryan, Sacramento, for Real Party in Interest.

Goldfarb & Lipman, Lee C. Rosenthal, Lynn Hutchins, Oakland, on behalf of Real Party in Interest.

RICHMAN, J.

Labor Code section 1720 embodies the long-standing public policy of California to require employers engaged on public works projects to pay the prevailing wage to their workers if the project is "paid for in whole or in part out of public funds."¹The novel question presented here is whether tax credits provided by the state to facilitate construction of low-income housing comes within this definition.The trial court concluded that it does.Upon de novo review of the issue, we conclude otherwise—that however worthy the policy goals of encouraging the construction of low-cost housing and ensuring compliance with the prevailing wage requirements, the statutory language in its present form cannot be construed to command that result.Tax credits are, at best, intangible inducements offered from government, but they are not actual or de facto expenditures by government.As such, they do not qualify as either the "payment of ... the equivalent of money by the state"(subd. (b)(1)), or as a "transfer by the state ... of an asset for less than fair market price"(subd. (b)(3)), the portions of the definition of "paid for in whole or in part out of public funds" considered here.We thus reverse.

BACKGROUND

California's Prevailing Wage Law

California's Prevailing Wage Law(§§ 1720-1861) traces back to 1931, the same year Congress enacted the federal counterpart, commonly known as the Davis-Bacon Act.(Stats.1931, ch. 397, p. 910;46 Stat. 1494, as amended40 U.S.C. §§ 3141-3148.)Prevailing wage laws were enacted in response to economic conditions of the Depression, when the oversupply of labor was exploited by unscrupulous contractors to win government contracts when private construction virtually stopped.(SeeUniversities Research Assn. v. Coutu(1981)450 U.S. 754, 774, 101 S.Ct. 1451, 67 L.Ed.2d 662.)

The Legislature has declared that it is the policy of California "to vigorously enforce minimum labor standards in order to ensure employees are not required or permitted to work under substandard unlawful conditions or for employers that have not secured the payment of compensation, and to protect employers who comply with the law from those who attempt to gain competitive advantage at the expense of their workers by failing to comply with minimum labor standards."(§ 90.5, subd. (a).)"This general objective subsumes within it a number of specific goals: to protect employees from substandard wages that might be paid if contractors could recruit labor from distant cheap-labor areas; to permit union contractors to compete with nonunion contractors; to benefit the public through the superior efficiency of well-paid employees; and to compensate nonpublic employees with higher wages for the absence of job security and employment benefits enjoyed by public employees."(Lusardi Construction Co. v. Aubry(1992)1 Cal.4th 976, 987, 4 Cal.Rptr.2d 837, 824 P.2d 643.)

The Prevailing Wage Law is fairly straightforward in operation.Its general thrust is that "Except for public works projects of one thousand dollars ($1,000) or less, not less than the general prevailing rate of per diem wages for work of a similar character in the locality in which the public work is performed, and not less than the general prevailing rate of per diem wages for holiday and overtime work ... shall be paid to all workers employed on public works."(§ 1771.)The minimum threshold is increased to $25,000 for "construction work," and $15,000 for "alteration, demolition, repair, or maintenance work."(§ 1771.5.)

"Public works" is given a broad definition, to include "Construction, alteration, demolition, installation, or repair work done under contract and paid for in whole or in part out of public funds, ... [and] includes work performed during the design and preconstruction phases of construction. ..."(§ 1720, subd. (a).)The project may involve property that will remain in private hands but will be leased to the state or a political subdivision.(§ 1720.2.)However, the prevailing wage requirement does not apply to work carried out by a public agency with its own employees.(§ 1771.)

The Director of the Department of Industrial Relations(Director) is given the responsibility for determining the general prevailing wage according to statutory criteria.(§ 1770.)The Director fixes the prevailing wage rates for every category of worker needed for a public works project, which are then used by public entities soliciting bids for the project.(§ 1773, 1773.2.)The Director also has the authority to give opinions as to whether "a specific project or type of work" requires compliance with the Prevailing Wage Law.(Cal.Code Regs., tit. 8, § 16001(a)(1);Lusardi Construction Co. v. Aubry, supra,1 Cal.4th 976, 988-989, 4Gal.Rptr.2d 837, 824 P.2d 643.)

A contractor or subcontractor who pays less than the established prevailing rate may be assessed civil penalties (§§ 1741,1775,1777.7), may be suspended from bidding or working on public works projects for up to three years (§§ 1777.1,1777.7), and is also subject to criminal prosecution for failing to maintain payroll records demonstrating compliance.(§§ 1776,1777.)

Before the particulars that led to this appeal can be fully understood, a knowledge of the Prevailing Wage Law must be augmented with a description of the Low Income Housing Tax Credit (LIHTC) programs.

The Federal and California LIHTC Programs

According to the State Board of Equalization, "The federal low-income housing tax credit program, instituted by the 1986 Tax Reform Act and subsequently codified as section 42 of the Internal Revenue Code[26 U.S.C. § 42]" allows "eligible taxpayers [to] take a credit against federal income taxes due for qualified expenditures involving low-income housing projects.To be eligible for the tax credit, the taxpayer must hold an ownership interest in a low-income housing project for which tax credits have been awarded.In exchange for the tax credits, the project owners agree to operate the project in accordance with the restrictions contained in Section 42 and IRS regulations.Furthermore, as a condition of receiving tax credits, the project owners are required to enter into a recorded regulatory agreement restricting the use of the property to its terms.[¶] ... [¶] Each year, the federal government allocates a fixed amount of low-income housing tax credits to each state....[¶] Under ... section 42, each state must annually adopt a qualified allocation plan describing how its annual share of federal tax credits will be allocated among eligible, competing projects...."

"The California agency responsible for tax credit allocation, and for developing the state's annual qualified allocation plan, is the California Tax Credit Allocation Committee(CTCAC), a unit of the State Treasurer's Office.CTCAC reviews applications from project developers and allocates the state's federal tax credits on a competitive basis, using the prescribed criteria in ... section 42 and the additional tax criteria contained in CTCAC's own regulations.[SeeHealth & Saf.Code, §§ 50199.8,50199.10;Cal.Code Regs., tit. 4, §§ 10315,10325,10326.]CTCAC currently receives applications for about four times the annual amount of federal tax credits available.²

"The California Legislature has also authorized a state low-income housing tax credit program to augment the federal program that is also administered by CTCAC."³(State Bd. of Equalization"Guidelines for the Assessment of Properties Financed Using Low-Income Housing Tax Credits"(July 2005)pp. 1-3(SBE Guidelines);seeHealth & Saf.Code, §§ 50199.4-50199.22;Cal.Code Regs., tit. 4, § 10300 et seq.)After the credits have been allocated, they are still subject to "reservations," conditioning their use upon "timely project completion" and its subsequent operation.(SeeCal.Code Regs., tit. 4, § 10328, subd. (a).)The project when completed must serve low-income tenants "for a period equal to the greater of 55 years or the life of the building."(Rev. & Tax.Code, §§ 12206, subd. (c)(3)(C),17058, subd. (c)(3)(C),23610.5, subd. (c)(3)(C);seeHealth & Saf.Code, § 50199.14, subd. (f).)There is a rigorous "ongoing compliance monitoring"...