Document: Opposition to Prevailing Wage Determination Request - City of Hercules

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					                            ADAMS BROADWELL JOSEPH & CARDOZO
  DANIEL L. CARDOZO                        A PROFESSIONAL CORPORATION                  SO. SAN FRANCISCO OFFICE
  THOMAS A. ENSLOW
  PAMELA N. EPSTEIN                       ATTORNEYS AT LAW                            601 GATEW AY BLVD., SUITE 1000
TANYA A. GULESSERIAN                                                                   SO. SAN FRANCISCO, CA 94080
                                        520 CAPITOL MALL, SUITE 350
   MARC D. JOSEPH                                                                        TEL:   (650) 589-1660
 ELIZABETH KLEBANER                     SACRAMENTO, CA 95814-4721
                                               ___________                               FAX:   (650) 589-5062
   RACHAEL E. KOSS
   JAMIE L. MAULDIN
                                             TEL: (916) 444-6201
  ROBYN C. PURCHIA
                                             FAX: (916) 444-6209
  ELLEN L. TRESCOTT
                                         tenslow@adamsbroadwell.com



                                              June 13, 2013



     VIA OVERNIGHT DELIVERY

     Director Christine Baker
     Department of Industrial Relations
     Office of the Director
     1515 Clay Street, 17th Floor
     Oakland, CA 94612

              Re:      Response to February 26, 2013 Request for Determination of the
                       Applicability of Prevailing Wage to the Town Centrale Project Located
                       in the City of Hercules

     Dear Director Baker:

            We are writing on behalf of the Contra Costa Building and Construction
     Trades Council (“Council”) to respond to the February 26, 2013 request submitted
     by UC-BNB Partners, LLC1 (the “Buyer”) for determination of the applicability of
     California prevailing wage requirements to the Town Centrale project (“Project”)
     located in the City of Hercules (the “City”). Under Department of Industrial
     Relations (“DIR”) regulations, the Council is an interested party to any
     determination of the applicability of prevailing wage to the Project since its
     construction would include work under its members’ jurisdiction.2




     1 The Request for Determination states that it is being submitted by “UC/BNB, LLC,” but the Project
     Real Property Purchase Agreement and all City of Hercules staff reports refer to the buyer as “UC-
     BNB Partners, LLC.” For the purposes of this letter, we are assuming that “UC/BNB, LLC” and
     “UC-BNB Partners, LLC” are the same entity. UC-BNB Partners, LLC is a California limited
     liability company that was established by Presidio Development Partners. (See Steve Duran, City
     Manager, Staff Report to the City Council (March 12, 2013) at p. 2.)
     2 8 Cal. Code Regs., §§ 16000, 16001.
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       The purpose of California's prevailing wage law3 is “to protect and benefit
employees on public works projects.”4 The Legislature has declared that it is the
public 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, 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.”5

      Among the objectives of the prevailing wage law is “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.”6 The
law “was enacted to protect and benefit workers and the public and is to be liberally
construed.”7

       Labor Code section 1771 provides that, with certain exceptions not relevant
here, all workers on “public works projects” must be paid at least the general
prevailing rate of wages. Labor Code section 1770 gives the Director of DIR the
responsibility of determining general prevailing wage rates, and the Director also
has the initial authority to determine whether a specific project is public work
subject to the prevailing wage law.8 The issue presented here is the scope of Labor
Code section 1720, subdivision (a)(1), which provides a definition of “public works.”

      As discussed below, construction of the Project is a public work subject to
prevailing wage requirements for three reasons: (1) the City is selling the Project
property to the Buyer for less than fair market value as determined by the “highest
and best use” of the land; (2) the City has spent over $35 million in public funds on
construction of the Project and the Buyer’s portion of the Project is not a separate,
non-integrated, non-interdependent project from the portion of the Project funded
by the City; and (3) the City is paying for or waiving both City and “third party” fees


3 Labor Code §§ 1720–1861.
4 Lusardi v. Construction Co. v. Aubry (1992) 1 Ca1.4th 976, 985.
5 Id.
6 Id. at p. 987.
7 City of Long Beach v. Department of Industrial Relations (2004) 34 Cal.4th 942, 950.
8 Cal. Code Regs., tit. 8, § 16001, subd. (a).
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for the Project. Accordingly, we respectfully request that DIR affirm that prevailing
wage requirements apply.


        I.     FACTUAL BACKGROUND

       The Project is a mixed-use development project that was partially
constructed by the City of Hercules Redevelopment Agency (“Hercules RDA”) prior
to sale to Buyer. On November 6, 2006, the City of Hercules Planning Commission
approved the design review permit for the Project, which was then called the
Sycamore Downtown Project and was described as “a mixed-use commercial and
residential development.” The Project was to include “30,104 square feet of ground
floor retail commercial and 104 multi-family homes within four buildings.”9 The
Project applicant at that time was Hercules RDA.10

       On August 6, 2007, the Community Development Director issued a notice
that a “minor modification” to the project had been approved, changing the Project’s
name to “Sycamore North” and amending the configuration to 40,000 square feet of
retail space and 96 dwelling units.11 Seventy-five of the dwelling units were to be
designated as affordable units.12

       Construction on the Project commenced in 2009.13 The general contractor for
this construction was Oliver & Company.14 After substantial construction on the
Project, the City was unable to fund completion of the Project and construction




9 City of Hercules, Memo re Continued Public Hearing on Design Review Permit 06-14 for the
Sycamore Downtown Project (Nov. 6, 2006),
http://www.ci.hercules.ca.us/documents/Projects/Sycamore-North/11-06-06/11-06-06.pdf.
10 Id.
11 City of Hercules, Memo re Approval of Minor Modification to Design Review Permit 06-14 (Aug. 6,

2007), http://www.ci.hercules.ca.us/documents/Projects/Sycamore-North/08-06-07.pdf.
12 Id.
13 Joseph J. Blake and Associates, Self-Contained Appraisal Report, Town Centrale (Jan. 10, 2013)

(“Blake Appraisal”) at p. 5 [a copy of the Blake Appraisal is attached at Exhibit 7 to the Request for
Public Works Determination, Town Centrale, Hercules, California (Feb. 26, 2013)].
14 See (Exhibit C) City Resolution No. 11-09 at p.1; (Exhibit D) City of Hercules, Agenda Item

Transmittal, Agenda Item Number XV.2 (Oct. 11, 2011) at p. 2.
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ceased in March 2011 due to economic factors.15 It is undisputed that the
construction of the Project prior to the sale to Buyer was paid for out of public
funds.16

      The City and Hercules RDA have spent well over $35 million dollars in public
funds on the Project.17 The majority of this money came from the RDA’s low and
moderate income housing funds including taxable and tax-exempt housing bond
proceeds and tax exempt non-housing tax allocation bond proceeds.18 The
expenditure of these public funds has resulted in a project that is approximately
50% completed.19 The building foundations, underground parking lot, parking
ramps, building frames and roofs have been completed.20 In addition, a permanent
pad-mounted electrical transformer was installed.21

      In 2011, the City Council determined that neither it, nor the Hercules RDA
would be able to provide the estimated $25 million needed to complete the Project.22
The City Council then directed the City Manager to sell the Project to a developer.23

       In a March 2012 Report, the City Manager stated that the City considered
several alternatives for selling the Project, including (1) “demolishing the [half-
finished] structure;” (2) “lopping off two stories”; or (3) “selling it to an affordable
housing developer for a 100% low income project.”24 The City rejected all three
options, apparently due to a desire to have the parcel developed by a private
developer, resistance to authorizing a 100% low income project on the site, and a
concern that tearing down the project would create a “[p]erception of lost dollars




15 Blake Appraisal at p. 5.
16 See (Exhibit C) City Resolution No. 11-109 at p. 2.
17 See (Exhibit C) City Resolution No. 11-109 at p. 2.
18 See (Exhibit C) City Resolution No. 11-109 at p. 2.
19 CBRE, Summary Appraisal Report, Sycamore North (June 29, 2012) (“CBRE Appraisal”) at p. 37

[a copy of the CBRE Appraisal is attached at Exhibit 6 to the Request for Public Works
Determination, Town Centrale, Hercules, California (Feb. 26, 2013)]; see also Blake Appraisal at p.
34.
20 CBRE Appraisal at p. 38.
21 Blake Appraisal at p. 35.
22 Id.
23 Welner, Request for Public Works Determination, Town Centrale, Hercules, California (Feb. 26,

2013) at p. 3.
24 (Exhibit E) Steve Duran, City Manager, Staff Report to the City Council (March 12, 2013).
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that have been sunk into project.”25 The City then attempted to sell the property to
a private developer for completion of the existing structures.

       Buyer asserts that after nine months of marketing efforts, the City only
received twelve offers to buy the property, four of which were deemed to be from
qualified buyers who offered to pay $0 for the property in “as is” condition.26 No
information has been provided as to why the other offers were not considered to be
from qualified buyers.

       Furthermore, a summary of offers prepared by the listing agent shows that
the offers were not just for $0.27 The Buyer’s offer was to pay for the costs of
weatherization of the building, which was the equivalent of the $425,000 offer that
was finally accepted.28 An offer by Dominion New Life Ministries, Inc. was for
$1,800,000, plus payment for weatherization.29 An offer by Grapevine Development
would have paid for the costs of weatherization of the building, plus a share in the
Project’s profits.30 A proposal from Bridge Housing Inc. would have paid for the cost
of weatherizing the building structures, and would have completed the Project as a
mixed-use/residential/retail project with 100% of the residential units to be very low
income units.31

      Buyer also fails to disclose that the City’s initial solicitation of bids for
purchase of the Project required at least 75 of the dwelling units to remain
designated affordable units.32 The appraisal submitted by Buyer states that the
City amended the solicitation to allow for the construction of the Project without
any affordable units33, but this was not asserted by Buyer in its Request for
Determination. Furthermore, the City did not produce any amended solicitations in

25 (Exhibit F) Sycamore North Town Meeting Power Point (July 21, 2011) at pp. 5-6.
26 Welner, Request for Public Works Determination, Town Centrale, Hercules, California (Feb. 26,
2013) at p. 3.
27 (Exhibit G) CBRE, Sycamore North Offer Summary (undated 20 page document summarizing and

attaching 10 offers).
28 See CBRE Appraisal at p. 2; see also (Exhibit D) City of Hercules, Agenda Item Transmittal,

Agenda Item Number XV.2 (Oct. 11, 2011) at p. 3.
29 (Exhibit G) CBRE, Sycamore North Offer Summary at pp. 12-13.
30 (Exhibit G) CBRE, Sycamore North Offer Summary at pp. 9-10.
31 (Exhibit D) City of Hercules, Agenda Item Transmittal, Agenda Item Number XV.2 (Oct. 11, 2011)

at pp. 1-2.
32 (Exhibit H) CBRE, For Sale Sycamore North, Hercules, CA, 96 Unit Mixed-Used Apartment

Opportunity (undated 14 page marketing handout) at p. 3.
33 CBRE Appraisal at p. 2.
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response to a Public Records Act request. The only marketing materials that the
City provided in response to a Public Records Act request were materials offering
the property for sale as an affordable housing project, with a minimum of 74 of the
96 residential units allocated as affordable.34 Moreover, all of the offers provided by
the City in response to the Public Records Act request were dated between October
1, 2011 and October 7, 2011 and appear to be based upon the solicitation for an
affordable housing project.35

        On January 10, 2012, the City became the Successor Agency to the Hercules
RDA.36

        On March 27, 2012, the City and the Buyer executed a Real Property
Purchase and Sale Agreement (“Purchase Agreement”) for the Project property and
all of its improvements for the purchase price of $425,000. The Purchase
Agreement dropped the City’s initial bid requirement to provide affordable housing
units. In addition, the Buyer committed in the Purchase Agreement to either
convert up to 10% of the residential units to below market rate units or to provide
additional payments to the City if the Project was initially more profitable than
estimated, based on an “earn-out formula.”37 The “earn-out formula” would be
based on whether dividing total Net Operating Income by the actual total project
costs would provide an additional return of over 8.5%.38 Buyer, however, has
indicated that it “does not expect any additional amounts to be due to the seller
based upon this Earn Out Formula.”39




34 (Exhibit H) CBRE, For Sale Sycamore North, Hercules, CA, 96 Unit Mixed-Used Apartment
Opportunity (undated 14 page marketing handout) at p. 3.
35 CBRE, Sycamore North Offer Summary.
36 Welner, Request for Public Works Determination, Town Centrale, Hercules, California (Feb. 26,

2013) at p. 4 (citing www.ci.hercules.ca.us/index.aspx?page=118).
37 Real Property Purchase and Sale Agreement (“Purchase Agreement”) (March 27, 2012) § 1.4(b) [a

copy of the Purchase Agreement is attached at Exhibit 4 to the Request for Public Works
Determination, Town Centrale, Hercules, California (Feb. 26, 2013)].
38 Id. This is on top of the 15% return on investment that appears to be built into the total project

costs. (See CBRE Appraisal at pp. 39-40.) In other words, the City would only be eligible to receive
additional money or to require inclusion of low income housing if the Buyer obtained a profit of over
23.5% (15% + 8.5%).
39 CBRE Appraisal at p. 2.
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       The Purchase Agreement also requires Buyer to enter into a Development
Agreement that will require Buyer to complete construction of the Project according
to the Project Schedule set forth in Exhibit D to the Development Agreement.40

       On November 13, 2012, the City Resolution No. 12-121 granted the following
regulatory approvals for the Project: (1) an Addendum to the Environmental Impact
Report (“EIR”); (2) a General Plan amendment; (3) a Zoning Ordinance amendment;
(4) a Vesting Tentative Map and Final Development Plan; and (5) a Development
Agreement.41 The Final Development Plan provided for 147 units of multi-family
residential, 12,777 square feet of commercial space and a subterranean parking
structure.42 At the time the City granted these approvals, the City was still the
owner of the Project.43

       City Resolution No. 12-121 states that “improvements to the Town Centrale
project site are in a partial state of completion.”44 City Resolution No. 12-121 finds
that the “proposed Project does not constitute substantial changes to the previous
projects affecting the Project site, as addressed in the prior CEQA Documents….”45
The Addendum to the EIR prepared for the Buyer’s revised Project found that “the
Project remained within the scope of the development described and analyzed in the
Program EIR.”46

      The Development Agreement requires Buyer to complete construction on the
Project site according to the Project Schedule set forth by the Agreement, and
requires the submittal of periodic progress reports to the City.47 The Development
Agreement limits the permitted use of the Project site, the density, intensity, rate
and timing of development, maximum height, bulk and size.48




40 (Exhibit I) Ninth Amendment to Purchase Agreement, at p. 4, § B(2)(f) (adding Section 4.5(f) to the
Purchase Agreement).
41 (Exhibit J) City Resolution No. 12-121.
42 Id.
43 See. e.g., Blake Appraisal at p. 8 (showing City of Hercules is still the owner of record).
44 (Exhibit J) City Resolution No. 12-121 at p. 1.
45 (Exhibit J) City Resolution No. 12-121 at p. 4.
46 (Exhibit K) Development Agreement re Town Centrale Project (“Development Agreement”), Recital

I.
47 (Exhibit K) Development Agreement, §§ 3.1, 3.2 & § 5.1.
48 (Exhibit K) Development Agreement, § 4.2.
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       The Development Agreement provides that the Buyer shall be deemed to
have paid the City development impact fees set forth in Exhibit E, and shall not be
responsible for paying any further development impact fees or other charges for or
related to development of the Project.49 It also provides that the Buyer shall receive
fee credits against all Third Party Fees required of the Project in an amount equal
to the Third Party Fees previously paid for the Project when it was owned by the
City, including the SMIP Seismic Fee, the Sub-Regional Transportation Mitigation
Program Fee, and the Fire Protection Impact Fee.50

      Buyer has submitted two appraisals for the Project. The first appraisal is
dated June 29, 2012 and was performed by CBRE Valuation and Advisory Services
for UC-BNB Partners LLC (“CBRE Appraisal”). The second appraisal was dated
January 18, 2013 and was performed by Joseph J. Blake and Associates Inc. for
Wells Fargo Bank RETECHS (“Blake Appraisal”). Each appraisal report included
multiple value opinions, including market value of the land as vacant; hypothetical
market value of the property as if construction were complete and at stabilized
occupancy; and market value of the property in as-is condition.

       The CBRE Appraisal found that the current fair market value of the Project
property “as is”, assuming the project would be completed based on the current
project/approvals, is $460,000.51 The CBRE Appraisal also estimated that the fair
market value of the property, if it was vacant without any improvements, would be
$2,000,000.52

       The Blake Appraisal found that the current fair market value of the Project
property “as is”, assuming the Project would be completed based on the current
project/approvals, is $425,000.53 The Blake Appraisal estimated that the fair market
value of the property, if it was vacant without any improvements, would be
$3,770,000.54




49 (Exhibit K) Development Agreement, § 4.8.
50 (Exhibit K) Development Agreement, § 4.9.
51 CBRE Appraisal at pp. xii, 72.
52 CBRE Appraisal at p. 48.
53 Blake Appraisal at p. 103.
54 Blake Appraisal at pp. 94, 100.
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       On May 17, 2013, R & B Equipment, Inc., a California licensed General
Engineering Contractor and C21 Demolition contractor, provided a bid estimate for
the cost to demolish all existing site improvements on the subject property and to
restore the site to a vacant, level condition for $1,375,000.55

        California certified appraisers Norman C. Hulberg and Neil A. Lefmann
reviewed the CBRE Appraisal, the Blake Appraisal and the R & B Equipment, Inc.
demolition bid. Based upon this review, Hulberg and Lefmann provided a
professional opinion, dated May 30, 2013, that the highest and best use of the
Project property would be to remove all existing site improvements and restore the
site to a vacant, level condition (“Hulberg Appraisal Opinion”). The Hulberg
Appraisal Opinion concluded that if the CBRE Appraisal was accurate, then the as-
is market value of the subject property in the CBRE Appraisal would have been
$700,000 based on the R & B Equipment, Inc. demolition bid.56 The Hulberg
Appraisal Opinion also concluded that if the Blake Appraisal was accurate, then the
as-is market value of the subject property in the Blake Appraisal would have been
$2,470,000 based on the R & B Equipment, Inc. demolition bid.57


II.     PREVAILING WAGES APPLIES TO THE PROJECT PURSUANT TO
        LABOR CODE SECTION 1720

        The Project constitutes public works subject to prevailing wage requirements.
Under Labor Code section 1720, subdivision (a)(1), a project is a “public work” when
it meets the following three elements: the project is (i) “construction, alteration,
demolition, installation or repair work,” (ii) “done under contract,” and (iii) “paid for
in whole or in part out of public funds . . . .” In this case, there is no dispute that
the Project satisfies the first two elements of the public work definition set forth in
section 1720, subdivision (a)(l): (i) the Project entails construction; and
(ii) construction of the Project will be done under contract. The issue before the
Department is whether the third element is met: i.e., was the Project “paid for in
whole or in part out of public funds”?




55 (Exhibit N) Jeffery, R&B Equipment, Inc., Demolition Bid on Hercules Project (May 7, 2013);
(Exhibit O) Contractors State License Board, Contractor’s License Detail – R&B Equipment, Inc.
56 (Exhibit A) Hulberg Appraisal Opinion at p. 4.
57 Id.
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       Under Labor Code section 1720, subdivision (b), “paid for in whole or in part
out of public funds” means any of the following:

        (1) The 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.

        (2) Performance of construction work by the state or political subdivision in
        execution of the project.

        (3) Transfer by the state or political subdivision of an asset of value for less
        than fair market price.
        (4) Fees, costs, rents, insurance or bond premiums, loans, interest rates, or
        other obligations that would normally be required in the execution of the
        contract, that are paid, reduced, charged at less than fair market value,
        waived, or forgiven by the state or political subdivision.

        (5) Money loaned by the state or political subdivision that is to be repaid on a
        contingent basis.

        (6) Credits that are applied by the state or political subdivision against
        repayment obligations to the state or political subdivision.

       Buyer asserts that it is paying fair market value for the Project property and
thus the Labor Code section 1720, subdivision (b)(3) definition of “paid for in whole
or in part out of public funds” has not been met. As discussed below and in the
attached Certified Appraiser Opinion letter, Buyer is incorrect in asserting that it is
paying fair market value for the Project property. Buyer’s assertion to the contrary
is based upon appraisals that are limited to the proposed Project rather than
looking at the fair market value as determined by the “highest and best use” of the
land.

       Moreover, even if Buyer were paying fair market value for the Project
property, the Project would still be “paid for in whole or in part out of public funds”
under other, independent provisions of the Labor Code section 1720, subdivision (b)
definition.



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      Labor Code section 1720, subdivision (b)(1) states that a project is paid for in
whole or in part out of public funds if the state or political subdivision has paid
money directly to the contractor or subcontractors for performance of construction
work on the project. Here, the City has spent over $35 million in public funds on
construction of the Project. Even if Buyer is paying fair market value for the
Project, the Buyer’s portion of the Project is not a separate, non-integrated, non-
interdependent project from the portion of the Project funded by the City.
Accordingly, the Project has been paid for in part out of public funds.

       Finally, Labor Code section 1720, subdivision (b)(4) states that a project is
paid for in whole or in part out of public funds if fees or costs are paid, reduced,
charged at less than fair market value, waived, or forgiven by the state or political
subdivision. In the case at hand, the City is paying for or waiving both City and
“third party” fees for the Project. As a result, the Project will have been paid for in
part out of public funds.

          A.      The Project Is Subject to Prevailing Wages Because the City Is
                  Selling the Project Property to Buyer for Less Than Fair
                  Market Value

       Prevailing wages apply to the Project because Buyer is paying less than fair
market value for the Project property. Certified appraisers Norman Hulberg and
Neil Lefmann testify that the fair market value of the subject property would be
between $700,000 (based on CBRE Appraisal) and $2,470,000 (based on the Blake
Appraisal), based on the highest and best use of the property being removal of the
existing half-built improvements and sale as vacant land. Buyer asserts that it is
purchasing the Project property from the City for just $425,000. Accordingly, the
City is transferring the Project Property “for less than fair market price.”

       Buyer bases their claim of fair market price on the as-is market value
findings of the CBRE and Blake Appraisals. The CBRE Appraisal finds that the as-
is market value of the property is $460,000.58 The Blake Appraisals finds that the
as-is market value of the property is $425,000.59 The as-is market value
determinations in the CBRE and Blake Appraisals, however, are not relevant to the
DIR’s determination of fair market price because these calculations were based on


58   CBRE Appraisal at pp. xii, 72.
59   Blake Appraisal at p. 103.
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the assumption that the proposed Project would be built,60 and they did not
evaluate any alternative “highest and best use” of the land. Furthermore, these
findings were based on incomplete information in that they did not include the cost
for demolition of the existing half-built structure.

       Labor Code section 1720 defines the term “paid for in whole or in part out of
public funds” to expressly include: “Transfer by the state or political subdivision of
an asset of value for less than fair market price.”61 In determining the fair market
value of land, DIR has consistently held that fair market value shall be determined
by the “highest and best use” of the land, not by the market value of the proposed
 project. DIR has held that this is the case even where the proposed project is the
only allowable use of the land per the terms of the sale or a disposition and
development agreement.62

       In Volkswagen of Palm Springs, The Cathedral City Redevelopment Agency
argued that the fair market price of the transfer of land from the City to M&M
Property Company was zero dollars because of the agreed-upon restrictions that
required use of the property for a car dealership specific project. A report prepared
pursuant to Health & Safety Code section 3433 found that the fair market value of
the Land at its highest and best use is $1,077,000 and a subsequent appraisal found
that land’s fair market value “as vacant and available for sale” to be $1,700,000.
DIR found that the fair market value of the land as vacant was the highest and best
use and that this value was the applicable fair market value for determining the
applicability of prevailing wages, not the value for of the land if used for the car
dealership project.

      In the case at hand, the CBRE and Blake Appraisals submitted by Buyer
both calculate the Project’s fair market value based upon the underlying
assumption that the half-built Project on the property would be finished by the
Project purchaser.63 In addition, both the Appraisals determine that the fair

60 See (Exhibit L) Conroe, CBRE Assignment Agreement letter (April 20, 2012) (stating that the
premise of the appraisal included “assuming the project is completed based on the current
project/approvals”).
61 Labor Code § 1720, subd. (b)(3).
62 PW 2012-041, Volkswagen of Palm Springs, City of Cathedral City (May 1, 2013); see also PW

2004-035, Santa Ana Transit Village, City of Santa Ana (June 25, 2007) at p. 6.
63 See (Exhibit L) Conroe, CBRE Assignment Agreement letter (April 20, 2012) (stating that the

premise of the appraisal included “assuming the project is completed based on the current
project/approvals”).
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market value of the land without any improvements would be significantly higher
than $425,000. The CBRE Appraisal found that the “Market Value of Land as
Vacant” was $2,000,000, while the Blake Appraisal found that the “Market Value of
Land as Vacant” was $3,770,000.64

       The CBRE and Blake Appraisals, however, did not include any estimate for
the cost of removing the current half-built structures and returning the land to
“vacant.” As a result, the CBRE and Blake Appraisals could not, and did not,
evaluate whether the highest and best use of this property would be to demolish the
existing property and sell as unimproved land.


       On May 17, 2013, R & B Equipment, Inc. provided a bid estimate for the cost
to demolish all existing site improvements on the subject property and to restore
the site to a vacant, level condition for $1,375,000.65 R & B Equipment, Inc. is a
California licensed General Engineering Contractor and C21 Demolition contractor,
and thus has the requisite experience and expertise to provide such an estimate.66

        We asked property appraisal firm, Hulberg & Associates, Inc., to provide its
independent professional opinion of the fair market value of the Project property
based upon its highest and best use, assuming that the factual findings in the
CBRE and Blake Appraisals regarding costs and market value were accurate and
taking into account the new, additional information provided by the R & B
Equipment, Inc. demolition bid.67 The resultant Hulberg Appraisal Opinion was
prepared by two California Certified Appraisers, Norman C. Hulberg and Neil A.
Lefmann. Both appraisers have over 35 years of experience in appraising
residential, commercial, industrial and vacant properties. 68 Both are longstanding
and active members of the Appraisal Institute.69 In addition, Mr. Hulberg has
testified as a qualified expert appraisal witness in over 300 court trials, jury trials
and arbitrations.70



64  CBRE Appraisal at p. 48; Blake Appraisal at pp. 94, 100.
65 (Exhibit N) Jeffery, R&B Equipment, Inc., Demolition Bid on Hercules Project (May 7, 2013).
66 (Exhibit O) Contractors State License Board, Contractor’s License Detail – R&B Equipment, Inc.
67 (Exhibit A) Hulberg Appraisal Opinion.
68 (Exhibit B) Hullberg and Leffmann Curriculum Vita.
69 Id.
70 Id.
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        Both Mr. Hulberg and Mr. Lefmann provide their professional appraiser
opinion that, based upon the information contained in the CBRE Appraisal, Blake
Appraisal and R & B Equipment, Inc. demolition bid, the highest and best use of the
Project property would be to remove all existing site improvements and restore the
site to a vacant, level condition.

       The Hulberg Appraisal Opinion concluded that if the costs and market value
in the CBRE Appraisal were accurate, then the as-is market value of the
highest and best use of the subject property in the CBRE Appraisal is
$700,000 based on the R & B Equipment, Inc. demolition bid.71 According to the
Hulberg Appraisal Opinion:

        This conclusion is based on the observation that deduction of
        demolition and site restoration costs equivalent to $1,300,000 from the
        indicated market value of the land as vacant at $2,000,000 would leave
        a remainder of $700,000. This number is some $240,000 or 52%
        higher than the $460,000 as-is market value conclusion stated in the
        CBRE appraisal report. For this reason the appropriately indicated
        as-is market value of the subject property in the CBRE appraisal
        would have been $700,000 based on an assumed demolition and site
        restoration cost of $1,300,000. By comparison, the proposed sales
        price of approximately $425,114 is some $274,886 or 65% lower.72

       The Hulberg Appraisal Opinion also concluded that if the costs and market
value in the Blake Appraisal were accurate, then the as-is market value of the
subject property in the Blake Appraisal is $2,470,000 based on the R & B
Equipment, Inc. demolition bid.73 According to the Hulberg Appraisal Opinion:

        This conclusion is based on the observation that deduction of
        demolition and site restoration costs equivalent to $1,300,000 from the
        indicated market value of the land as vacant at $3,770,000 would leave
        a remainder of $2,470,000. This number is some $2,045,000 or 481%
        higher than the $425,000 as-is market value conclusion stated in the
        BLAKE appraisal report. For this reason the appropriately indicated
        as-is market value of the subject property in the BLAKE appraisal

71 (Exhibit A) Hulberg Appraisal Opinion at p. 4.
72 Id.
73 Id.
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        would have been $2,470,000 based on an assumed demolition and site
        restoration cost of $1,300,000. By comparison, the proposed sales price
        of approximately $425,114 is some $2,044,886 or 481% lower.74

       Because the “as-is” market value of the Project property as vacant is greater
than then “as-is” market value of the Project property assuming the Project is to be
built as proposed, the fair market price for purposes of determining the applicability
of prevailing wages is the “as-is” market value of the Project property as vacant.
Based upon the information in the CBRE and Blake Appraisals and the bid
estimate for demolition and site restoration, the “as-is” market value of the Project
property is somewhere between $700,000 and $2,470,000. Accordingly, the City’s
proposed sale of the Project property for $425,000 constitutes a “Transfer by the
state or political subdivision of an asset of value for less than fair market price.”

       We also note that Buyer actually appears to be purchasing the Project
property for zero dollars, not $425,000 dollars. According to the CBRE Appraisal,
the $425,000 purchase offer by Buyer “was effectively a reimbursement for the city
to agree to weather-wrap and roof the project, thereby saving the buyer the cost of
doing this work.”75 The City would not have needed to expend the additional
$425,000 in weatherization and roofing work if it had instead sold the property for
demolition and site restoration. Accordingly, the City is receiving a net of zero
dollars from the sale of the Project to Buyer.

       Finally, we note that the City received and rejected a purchase offer for the
property by Dominion New Life Ministries, Inc. for $1,800,000, plus payment for
weatherization and an offer by Grapevine Development that would have paid for
the costs of weatherization of the building, plus a guaranteed share in the Project’s
profits.76 In addition, numerous other offers were received that would have paid up
front for the costs of weatherization of the building.77 Moreover, all of these offers
appear to have been based upon the City’s initial solicitation of bids for purchase of
the Project that required 75 of the dwelling units to remain designated affordable




74 Id.
75 CBRE Appraisal at p. 2.
76 (Exhibit G) CBRE, Sycamore North Offer Summary.
77 Id.
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units.78 There didn’t appear to be any meaningful solicitation of bids for the Project
for development of the Property without the affordable housing requirement and
there didn’t appear to be any solicitation for bids for sale of the Project without any
use restrictions.

      Because Buyer is purchasing the Project for less than fair market price,
prevailing wages apply to the Project.

        B.     The Project Is Subject to Prevailing Wages Because the City
               Has Spent Over $35 Million on Construction of the Project

       Independent of whether Buyer is purchasing the Project for fair market
value, prevailing wages also applies to the Project because the City has paid for the
construction of over half of the Project out of public funds. A project is paid for in
whole or in part out of public funds if the state or political subdivision has paid
money directly to the contractor or subcontractors for performance of construction
work on the project.79 Here, it is undisputed the City has spent over $35 million in
public funds on construction of the Project, including site preparation work,
grading, construction of a subterranean parking garage, parking ramps and
framing and roofing of the building structures.80 Accordingly, the Project has been
paid for in part out of public funds.

      The fact that the Project was transferred after partial construction to a
private entity for completion using private funds does not transform the privately
funded portion of the project into a non-prevailing wage project. It has been long
held by DIR that where both private and public funds are used to construct a single
integrated project, prevailing wages applies to the entire project, not just the




78 Id.; see also (Exhibit H) CBRE, For Sale Sycamore North, Hercules, CA, 96 Unit Mixed-Used
Apartment Opportunity (undated 14 page marketing handout) at p. 3.
79 Labor Code § 1720, subd. (b)(1).
80 See (Exhibit C) City Resolution No. 11-109 at p. 2; CBRE Appraisal at pp. 37-38; Blake Appraisal

at pp. 34-35.
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portion of the project constructed by public funds.81 DIR has taken this integrated
project approach to public works coverage decisions in order to prevent the
piecemealing of projects in an effort to circumvent state law prevailing wage
requirements.82

               1.     The Publicly and Privately Funded Construction
                      Activities Are Part of a Single, Integrated Project under
                      the Vineyard Creek Analysis

       Under DIR’s integrated project approach to determining the scope of
prevailing wages application, the relevant inquiry is whether the publicly-funded
activities are part of a single, integrated, interdependent project with the privately
funded activities, or are independent, stand-alone projects. In the seminal Vineyard
Creek Hotel and Conference Center decision, DIR set forth the general factors that
should be considered to determine if a privately funded activity is a separate project
from a potentially related public activity. These factors included: (1) organization of
construction; (2) physical layout; (3) oversight, direction and supervision; (4)
financing and administration; and (5) general interrelationship.83 DIR does not
require that all of these factors be met, but rather looks at these as a whole, on a
case-by-case basis, to determine whether the undertakings are sufficiently
integrated that public financing of one part is, in fact, helping to finance the project
as a whole.

       When these factors are applied to the case at hand, the publicly funded
construction activities on the Project site are clearly related, interdependent and
integrated with the Project construction activities required to be completed by
Buyer under its Purchase Agreement and Development Agreement with the City.
The following facts demonstrate that the Project construction to be funded by Buyer
is inherently and fundamentally interdependent with the publicly funded
construction on the Project property and that no physical or functional separation
exists between the construction activities:


81 PW 2004-019, Strand Redevelopment Project - Redevelopment Agency of the City of Huntington
Beach (June 20, 2005); PW 2004-019, Strand Redevelopment Project - Redevelopment Agency of the
City of Huntington Beach (Nov. 18, 2005).
82 See e.g., PW 2006-003, Pier G, Pad 14 – City of Long Beach (July 3, 2008) (affirmed in Oxbow

Carbon & Minerals, LLC v. Dept. of Industrial Relations (2011) 194 Cal.App.4th 538).
83 PW 2000-16, Vineyard Creek Hotel and Conference Center, Redevelopment Agency, City of Santa

Rosa (October 16, 2000).
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                       (a)     Organization of Construction

       The organization of the publicly-funded construction portions of the Project
are interrelated and integrated with the organization of the private portion of the
Project. The public works construction and the private construction generally share
a common design and function, in that both were undertaken and are being used for
constructing the same residential and mixed use buildings. Moreover, Buyers will
be completing a mixed-use development project that was already halfway finished
by the City.84 The City resolution approving Buyer’s minor amendments to the
Project states that “improvements to the Town Centrale project site are in a partial
state of completion.”85 The building foundations, underground parking lot, parking
ramps, building frames and roofs have been completed and a permanent pad-
mounted electrical transformer was installed.86 Furthermore, the proposed building
envelope for the Project will not change from the building plans prepared for the
City.87 In other words, Buyer’s construction activities are not part of a separate and
independent project, but rather will complete the same Project already partially
built by the City.

        Furthermore, the Buyer’s construction activities will rely upon building
permits, contracts, licenses, fees, development rights, warranties and guaranties
that were obtained by the City using public funds. The Purchase Agreement
conveys to Buyer not just the Project property and improvements, but also all
contracts, licenses and permits related to the continued operation and maintenance
of the Property and all of the Project’s entitlements, building allocations, pre-paid
fees, fee credits and reimbursement rights, permits, licenses, and development
rights.88 The existing assignable contracts for the Project conveyed by the City to
the Buyer include contracts with Contra Costa Electric, Inc.; Otis Elevator
Company; SimplexGrinnel LP; Solarix Systems; and Oliver & Company. The
Purchase Agreement also assigns to Buyer the “existing warranties and guaranties
related to the construction of Sycamore North.”89



84 See CBRE Appraisal at p. 37 (stating that “the project appears to be about 50% completed”); see
also Blake Appraisal at p. 34.
85 (Exhibit J) City Resolution No 12-121 at p. 1.
86 CBRE Appraisal at p. 38; Blake Appraisal at p. 35.
87 CBRE Appraisal at p. 38.
88 Purchase Agreement, §§ 1.1, 4.1(a).
89 Purchase Agreement at p. 39 (Exhibit C, Schedule 2) and p. 40 (Exhibit D).
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                       (b)     Physical Layout

       The construction to be funded by Buyer is inherently physically integrated
with the publicly funded construction on the Project property. Both the publically
and privately funded construction activities take place on the same parcel. The
building foundations, underground parking lot, parking ramps, building frame,
roofs, and electrical transformer installed by the City are all part of the exact same
buildings that will be completed by Buyer’s financing. The mixed-use Project to be
funded by Buyer could not be constructed or completed without the foundations,
building frames, roofs, parking and electrical transformer. Accordingly, no physical
separation exists between the publicly-financed construction and the proposed
privately-financed construction.

                       (c)     Oversight, Direction and Supervision

      The City’s oversight of the Project is demonstrated by the terms of the
Purchase Agreement and Development Agreement between the City and Buyer.
The Purchase Agreement requires Buyer to enter into a Development Agreement
that will require Buyer to complete construction of the Project.90

       The Development Agreement requires Buyer to finish construction of the
mixed-use development Project in the mutually agreed upon configuration of 147
residential units, 12,777 square feet of retail space and 166 parking spaces.91 The
Development Agreement also requires construction to be completed according to the
project schedule set forth by the agreement and requires the submittal of periodic
progress reports to the City.92 The Development Agreement limits the permitted
use of the Project site, the density, intensity, rate and timing of development,
maximum height, bulk and size.93 The Development Agreement also requires the
City’s approval before Buyer may assign or transfer the Project property.94

       The Purchase Agreement does not describe Buyer’s Project as a different,
distinct or independent project. Instead, it states that the Buyer’s development will
continue to be a mixed-use residential and retail development, with “certain

90 (Exhibit I) Ninth Amendment to Purchase Agreement, at p. 4, § B(2)(f) (adding Section 4.5(f) to the
Purchase Agreement).
91 (Exhibit K) Development Agreement, § 3.1.
92 (Exhibit K) Development Agreement, § 3.2 & p. 16, § 5.1.
93 (Exhibit K) Development Agreement, § 4.2.
94 (Exhibit K) Development Agreement, §§ 3.2, 4.2, 5.1, 7.1.
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revisions to the scope and design of the currently … approved project.”95 The
Development Agreement and the Addendum to the EIR prepared for the Buyer’s
revised Project both affirm that the Buyer’s revisions to the Project are minor and
are “within the scope of the development described and analyzed in the Program
EIR.”96

       Furthermore, where Buyer’s minor revisions to the Project required amended
regulatory approvals, it was the City that applied for and received these regulatory
approvals. The Purchase Agreement requires the City, not the Buyer, to obtain
approval of all discretionary entitlements for the Property and to complete CEQA
review for the Project. ”97 Pursuant to this requirement, on November 13, 2012,
City Resolution No 12-121 was adopted, granting the following regulatory approvals
for the Project: (1) an Addendum to the Environmental Impact Report; (2) a General
Plan amendment; (3) a Zoning Ordinance amendment; (4) a Vesting Tentative Map
and Final Development Plan; and (5) a Development Agreement. The Final
Development Plan provided for the agreed-upon Project configuration of 147
residential units, 12,777 square feet of commercial space and an underground
parking garage. The City, not Buyer, was the owner of the Project at the time the
City granted these approvals; thus demonstrating the City’s oversight, direction
and supervision of the Project, even under the most recent development plan.

       Finally, Buyer has expressly stated in emails to the City Council that it is
“fully committed to realizing the city’s vision for this project.”98

                      (d)    Financing and Administration

        The City and Hercules RDA have spent well over $35 million dollars on
design, permitting and construction of the Project.99 The expenditure of these
public funds has resulted in a project that is approximately 50% completed,
including construction of the building foundations, framing, roofing and parking
lot.100 In addition, the City is paying for the Project’s City development impact fees



95 Purchase Agreement, § 6.1 (emphasis provided).
96 See (Exhibit K) Development Agreement, Recital I.
97 Purchase Agreement, § 4.4, subds. (d), (e) & (f) and § 6.1.
98 (Exhibit M) Mark Conroe email to Mayor and City Council Members (Feb. 19, 2013).
99 See (Exhibit C) City Resolution No. 11-109 at p. 2.
100 See CBRE Appraisal at p. 37-38; Blake Appraisal at p. 34-35.
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and certain third party fees, including the SMIP Seismic Fee, the Sub-Regional
Transportation Mitigation Program Fee, and the Fire Protection Impact Fee.101

                       (e)     General Interrelationship

       Past DIR decisions have indicated that DIR considers a public agency’s
financial interest in the “private” part of a project as evidence of a continued
interrelationship between the agency’s initial public investment in a project and a
developer’s subsequent private construction.102 In the case at hand, the Purchase
Agreement provides the City a continued interest in the success of the Project by
providing the City a percentage of the Project revenues that exceed a return of 8.5
percent on Project costs.103

       Past DIR decisions have also indicated that a general interrelationship may
be demonstrated if the public construction has no “stand-alone” purpose or function
without the completion of the private construction. For example, in the Victoria By
The Bay decision cited by Buyer, DIR found that a publicly-funded soil remediation
project on contaminated land that was subsequently privately developed for
residential units was “a stand-alone construction project” that was “not dependent
on the construction of any single residential unit to be completed and viable.”104 In
that case, the site preparation work in that project was intended to mitigate
environmental and regional infrastructure problems that extended well beyond the
scope of the residential development.105

      In the case at hand, however, the subterranean parking lot and building
frames constructed by the City with public funds are not completed, viable projects
on their own. They have no independent purpose without completion of the Buyer’s
private portion of the Project. (In addition, in this case public funds have paid for
much more than just site preparation. Public funds paid for construction of more
than half of the physical structure of the buildings themselves.)


101 (Exhibit K) Development Agreement, §§ 4.8, 4.9.
102 PW 2004-019, Strand Redevelopment Project - Redevelopment Agency of the City of Huntington
Beach (June 20, 2005) at p. 3.
103 Purchase Agreement, § 1.4(b).
104 PW 2003-003, Victoria By The Bay, City of Hercules (Jan. 30, 2004) at p. 4.
105 Id.; see also PW 2003-022, Chapman Heights, City of Yucaipa (January 30, 2004) (finding

infrastructure work to be “a stand-alone construction project, not dependent on the construction of
any single residential unit to be completed and viable”).
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               2.     Fair Market Value Transactions Do Not Automatically
                      Cut Off Prevailing Wage Liability

      DIR has expressly held that the single project analysis applies even where a
developer has paid fair market value for the portion of the Project it is privately
financing.106 Accordingly, even if Buyer were paying fair market value for the
Project and finishing the Project entirely with private funds, the Project would still
be paid for “in part out of public funds.”

       Buyer incorrectly asserts in its Request for Determination that prior DIR
decisions have held that a fair market price purchase transforms a single
integrated, interdependent project into a separate, independent project. In support
of this assertion, Buyer cites three past DIR decisions: (1) Victoria Gardens107; (2)
Baldwin Park108; and (3) Chapman Heights109.110

       In Movie Theater Construction at Glendale Town Center, DIR examined each
of the decisions cited by Buyer and expressly rejected the argument now proffered
by Buyer. DIR expressly concluded that these decisions did not hold that a fair
market value transaction for a project that had already received public subsidies
triggering prevailing wages would terminate the continued application of prevailing
wages to the balance of the project. Buyer’s analysis simply ignores and fails to cite
the more recent Movie Theater Construction at Glendale Town Center decision.

        In Movie Theater Construction at Glendale Town Center, DIR held that:

        A particular project is either a public work or not. The exemptions set
        forth in 1720(c) and 1720(d) exempt projects or portions of projects, not
        parties, from application of prevailing wage requirements where the




106 PW 2007-010, Movie Theater Construction at Glendale Town Center, Glendale Redevelopment
Agency (January 12, 2009).
107 PW 2003-014, Phase II Residential Development, Victoria Gardens, City of Rancho Cucamonga

(July 20, 2005).
108 PW 2003-028, Decision on Administrative Appeal, Baldwin Park Marketplace Project (June 28,

2005).
109 PW 2003-022, Chapman Heights, City of Yucaipa (January 30, 2004)
110 Welner, Request for Public Works Determination, Town Centrale, Hercules, California (Feb. 26,

2013) at p. 8.
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        elements of a public work have been met. As stated above, none of the
        statutory exemptions apply. If the Legislature wanted to exempt FMV
        [fair market value] purchasers from prevailing wage requirements, it
        certainly knew how to do so.111

       The decision goes on to explain that the prior Victoria Gardens,
Baldwin Park and Chapman Heights decisions did not rely on fair market
transfer of a project as a determinative factor, but rather only considered the
fair market value transaction as just one of several informative factors in
determining if private and public construction activities are part of a single
integrated project.112 DIR noted that, in each of those cases, the decision
examined the facts of each case to determine whether the construction
carried out by a downstream developer who purchased land at fair market
value was a separate project or part of a single-integrated project.113

       The Movie Theater Construction at Glendale Town Center decision thus holds
that the five-part “Vineyard Creek” analysis applies in determining whether the
private portion of a project is separate from the public portion of a project even
where a fair market value transaction has taken place.114




111 PW 2007-010, Movie Theater Construction at Glendale Town Center, Glendale Redevelopment
Agency (January 12, 2009) at p. 5.
112 Id. at p. 5, fn. 10.
113 Id. at p. 5.
114 Id. at p. 6. DIR applied these five factors in the Movie Theater Construction at Glendale Town

Center decision and determined that a movie theater that was to be developed by a fair market
purchaser with different contractors and financing from the publicly funded commercial, residential
and parking construction on the same parcel, was still part of a single-integrated project and thus
subject to prevailing wages. DIR found that the movie theatre was physically interconnected with
the publicly funded construction because it was on the same parcel. DIR found that the movie
theatre was part of the original overall design plan and development plan when the public funding
was provided and that the agency maintained oversight and direction because construction of the
movie theatre was required under a development agreement with the agency. In addition, public
funds were spent to prepare the entire site, including the movie theatre portion, and the movie
theatre would not have been built without the construction of the publicly funded commercial,
residential and parking components on the parcel.
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               3.      Prior DIR Decisions Have Strongly Rejected Attempts to
                       Divide Construction of a Single Building into Separate
                       Public and Private Projects

       Buyer’s attempt to divide construction of a single structure into separate
public and private projects presents a particularly egregious attempt to circumvent
prevailing wage requirements. In the Pier G, Pad 14 – City of Long Beach decision,
DIR expressly rejected a similar attempt to “divide a project into portions of a
building and then analyze whether each portion is to be built with public funds.”115
DIR held that a construction project consists of “the entire process, including
construction of basements, foundations, utility connections and the like, all of which
may be required in order to erect an above-ground structure.”116 DIR concluded
that prevailing wage law would be undermined if parties could avoid their statutory
obligations by dividing up construction so that some elements -- for example,
electrical, plumbing, or roofing -- were contractually designated as being paid for
solely with private funds and other elements designated as being paid for with
public funds.117

       Likewise, in Volkswagen of Palm Springs, DIR held that the scope of
construction includes the “complete integrated object,” which is composed of
individual parts.118 This interpretation of the scope of prevailing wages application
was upheld by the California Appellate Court in the case Oxbow Carbon &
Minerals, LLC v. Dept. of Industrial Relations. In Oxbow, the Court held that
“[p]arties cannot designate individual parts of a project to be a public work by
breaking up the scope of construction into separate tasks and then contracting
around the prevailing wage law.119 The Oxbow Court affirmed that prevailing
wages applied to the entire scope of construction. The Court held that the scope of



115 PW 2006-003, Pier G, Pad 14 – City of Long Beach (July 3, 2008) at p. 2, affirmed by Oxbow
Carbon & Minerals, LLC v. Dept. of Industrial Relations (2011) 194 Cal.App.4th 538 at pp. 550-554.
116 PW 2006-003, Pier G, Pad 14 – City of Long Beach (July 3, 2008) at p. 4.
117 Id. at p. 4.
118 PW 2012-041, Volkswagen of Palm Springs, City of Cathedral City (May 1, 2013) at p. 3; See also

Oxbow Carbon & Minerals, LLC v. Dept. of Industrial Relations (2011) 194 Cal.App.4th 538, 549.
119 Oxbow Carbon & Minerals, LLC v. Dept. of Industrial Relations (2011) 194 Cal.App.4th 538, 550;

See also Lusardi Construction Co. v. Aubry (1992) 1 Ca1.App.4th 976, 986-988 (holding that the
obligation to pay prevailing wages flows from the statutory duty embodied within the prevailing
wage law and cannot be based solely on contractual provisions).
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construction includes “the entire process, including construction of basements,
foundations, utility connections and the like....”120

       Similarly, DIR in the Strand Redevelopment Project decision held that
prevailing wage applied to the entire construction of a single building even though
public funds only paid for construction of the building’s subterranean parking lot.121

       The Strand Redevelopment Project is strikingly similar to the case at hand in
a number of respects. First, in both cases the building’s excavation, grading and
subterranean parking lot were paid for through public funds.122 Second, in both
cases, the selling agency has a financial interest in the “private” part of the
Project.123 Third, in both cases the scope of the private portion of the Project to be
developed is controlled by a development agreement that: (i) sets forth a schedule of
performance; (ii) requires the developer to provide the City written progress reports;
and (iii) requires the City’s approval before any assignment or transfer.124 Fourth,
in both cases it is not clear if the same general contractor would be used for the
publicly and privately funded portions of the Project.125 Fifth, in both cases, a
publicly funded underground parking facility will be the foundation for what will
become the privately funded development sitting immediately above.126




120 Oxbow Carbon & Minerals, LLC v. Dept. of Industrial Relations (2011) 194 Cal.App.4th 538, 549.
121 PW 2004-019, Strand Redevelopment Project - Redevelopment Agency of the City of Huntington
Beach (June 20, 2005).
122 PW 2004-019, Strand Redevelopment Project - Redevelopment Agency of the City of Huntington

Beach (June 20, 2005) at p. 2.
123 In Strand, the agency was entitled to “a percentage of Project revenues that exceed a 12 percent

return on Project costs allowed Developer for a period of 40 years. (PW 2004-019, Strand
Redevelopment Project - Redevelopment Agency of the City of Huntington Beach (June 20, 2005) at p.
3.) In the case at hand, the City is entitled to a percentage of Project revenues that exceed a return
of 8.5 percent on Project costs based on net operating income. (Real Property Purchase and Sale
Agreement at p. 2, section 1.4(b).)
124 PW 2004-019, Strand Redevelopment Project - Redevelopment Agency of the City of Huntington

Beach (June 20, 2005) at p. 3; (Exhibit K) Development Agreement at §§ 3.2, 4.2, 5.1, 7.1(pp. 8, 9, 16,
19).
125 PW 2004-019, Strand Redevelopment Project - Redevelopment Agency of the City of Huntington

Beach (June 20, 2005) at p. 4.
126 Id. at p. 10.
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       Moreover, the interconnection between the public and private construction in
the case at hand is even greater than that in Strand. In this case, the City not only
funded the subterranean parking facility, it also funded the framing and roofing of
the rest of the mixed-use Project and obtained all necessary permits and approvals
for the balance of the Project.

        C.    Prevailing Wages Apply to the Project Because Project Fees
              Have Been Paid, Reduced or Waived By the City

       In addition to the above reasons, prevailing wages also apply to the Project
because the City is paying for or waiving both City and “third party” fees for the
Project. Under Labor Code section 1720, subdivision (b)(4), a project is paid for in
whole or in part out of public funds if fees are paid, reduced, waived, or forgiven by
the state or political subdivision.127

       Here, the Development Agreement provides that the Buyer shall not have to
pay the City development impact fees for the Project set forth in Exhibit E, and
shall not be responsible for paying any further City development impact fees or
other charges for or related to development of the Project.128 It also provides that
the City shall provide the Buyer fee credits against all Third Party Fees required of
the Project in an amount equal to the Third Party Fees previously paid for the
Project when it was owned by the City, including the SMIP Seismic Fee, the Sub-
Regional Transportation Mitigation Program Fee, and the Fire Protection Impact
Fee. As a result, Project fees will have been paid for in part out of public funds and
prevailing wages apply.




127 See PW 2007-012, Sand City Design Center, Sand City Redevelopment Agency (May 15, 2008) at
p.3 (an agency's waiver of permit fees is a payment of public funds under section 1720(b)(4)).
128 (Exhibit K) Development Agreement, §§ 4.8, 4.9.
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III.    CONCLUSION

       We appreciate the opportunity to provide responsive comments to Buyer’s
claim that prevailing wages do not apply to the Project. For the reasons set forth
above, we respectfully urge you to issue a determination that prevailing wages
apply.

        Thank you for your attention to this matter.

                                        Sincerely,




                                        Thomas A. Enslow


TAE:ljl


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posted:6/27/2013
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