Affordable housing developers cannot combine two independent state prevailing wage law exemptions to avoid paying such wages on low-income housing projects, the California Court of Appeal, Fourth District, ruled in Housing Partners I, Inc. v. Duncan on June 15, 2012.
Seeking to gain an exemption relying on one provided for projects funded by redevelopment agency housing funds, together with a second given to projects financed by below-market interest rate public agency loans, Housing Partners I, Inc. (HPI), argued that a combined exemption would promote the public policy to develop more affordable housing projects.
HPI, a nonprofit, tax-exempt corporation affiliated with the Housing Authority of the County of San Bernardino (San Bernardino Housing Authority), developed Vista del Sol, an affordable senior housing project in Redlands, California and completed construction in 2010. Of the project’s 71 units, 53 were set aside for low-income and very low-income seniors. The senior housing project was financed from several sources, including City of Redlands Redevelopment Agency loan funded by its “low- and moderate-income housing funds;” a San Bernardino Housing Authority construction loan to HPI at an interest rate of 3 percent; and San Bernardino County federal HOME funds.
The state Director of the Department of Industrial Relations (DIR) exercised his statutory authority and issued an opinion that Vista del Sol was a “public work” and, thus, was covered by the prevailing wage law. Generally, workers employed on a public works construction project must be paid the general prevailing wage for work of a similar character in the locality where it is being performed. Under Labor Code Section 1720, a project is considered a “public work” if it is paid for “in whole or in part out of public funds,” including loans.
The DIR Director also analyzed if Vista del Sol qualified for two exceptions to this law. The first was under Section 1720(c)(4) which exempts affordable housing projects financed alone from a redevelopment agency’s low and moderate income housing fund or with private financing. The other was Section 1720(c)(6)(E) which renders the prevailing wage law inapplicable to projects which receive low-interest loans from public agencies for projects where at least 40% of the housing units are allocated by regulatory agreement or similar document for 20 years or more to individuals or families earning no more than 80% of the area median income.
The DIR Director concluded that the senior housing project’s three funding sources independently qualified for one of the two applicable exemptions; however, they did not collectively. HPI appealed this determination and the Court of Appeal upheld the Director.
The court agreed that the (c)(4) and (c)(6)(e) exemptions work independently. The former only applies to projects funded solely with redevelopment agency housing funds or a mix of those funds and private financing. The court rejected HPI’s argument that like tax-exempt bonds and federal low-income housing tax credits, such financing should also include low-interest public loans. The court also found that the project failed to qualify for exemption under (c)(6)(E) because it was not only financed by these low-interest loans, but other sources outside the scope of the exemption. The court concluded that the Legislature could have readily drafted a statute allowing the two exemptions to be consolidated. Since the plain language of both exemptions did not provide for consolidation, the court declined to accept HPI’s interpretation of this statute.
Practically speaking, the court’s ruling in HPI may have little or no impact because of the recent legislative termination of redevelopment agencies. Instead, the more significant issue for affordable housing developers is establishing a permanent funding source to replace the redevelopment agency housing funds. SB 1220 would have imposed a $75 fee on recorded documents with a goal of generating an average of $700 million annually for statewide affordable housing.
Local agencies / entities are exploring numerous options to generate new funding sources. San Francisco developed a committee to create a proposal for a permanent local funding source and Mayor Lee introduced a charter amendment to the Board of Supervisors to create a housing trust fund. If adopted by the Board and approved by voters in November, it will provide a permanent source of revenue to fund affordable housing in San Francisco for the next 30 years.
Under Mayor Lee’s proposal, the Housing Trust Fund would start with $20 million in general fund revenue and eventually grow to $50 million annually. Competing real estate transfer tax proposals are on the November ballot to serve as funding sources. However, Mayor Lee has stated he would remove his proposed real estate transfer tax if a consensus could be reached on a new gross receipts tax on business revenue.
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