Highlights: Prevailing wage has been a hot topic over the last year. Numerous cases have dealt with the issue of when prevailing wage must be paid on a construction project. In this article, Ben Hyden analyzes the most recent opinion that deals with a condominium development project.
Ohio courts continue to address what has become one of the state’s hot button issues – prevailing wage. The most recent decision from the 1st District Court of Appeals for Hamilton County provides guidance for determining what constitutes a “public improvement” under Ohio’s prevailing wage law.
The case of Cincinnati ex rel. Zimmer v. Cincinnati (September 29, 2010), Appeal No. C-090850, arose from the Parker Flats Development Project located in downtown Cincinnati. This development consisted of a three-story parking garage (funded through a $600,000.00 grant from the city of Cincinnati) and a 49-unit condominium development constructed on top of the parking garage (paid for entirely from private funds).
Parker Flats was constructed on property that was conveyed to the developer by Cincinnati for one dollar, although it had a fair market value of $230,000.00. Cincinnati retained no ownership rights in the property, and while a portion of the parking garage was to be made available to the public at the same rates charged for metered parking on the city streets, Cincinnati was not to receive the revenue from these spaces.
Cincinnati and the Parker Flats developer entered into a funding agreement which provided that the funding provided by Cincinnati would be expended only on certain aspects of the parking garage. Because use of the public funds was limited only to the construction of the parking garage, Cincinnati and the developer agreed that the construction of the parking garage was subject to Ohio’s prevailing wage law. However, they decided to treat the housing development being constructed on top of the garage separately and proceeded as if it was exempt from the prevailing wage law.
Two Ohio taxpayers objected to this arrangement. The taxpayers sent letters to Cincinnati’s solicitor and the Ohio Attorney General asking them to compel Cincinnati and the developer to comply with Ohio’s prevailing wage law for the housing development. When the solicitor and the attorney general failed to act, the taxpayers filed a taxpayer suit, under R.C. 733.59, in Hamilton County’s common pleas court.
In the lawsuit, the taxpayers claimed that the construction of the parking garage and the housing development was a single project. Because a preliminary injunction had been issued by the trial court stopping the project in mid construction unless prevailing wages were paid on the condominium portion, the developer and the taxpayers eventually entered into a consent judgment in which the developer agreed to pay prevailing wages for the construction of the housing development so that construction could continue without further interruption. Cincinnati continued to deny that prevailing wages were owed. Ultimately, Cincinnati was granted summary judgment by the trial court who determined that the housing development was not subject to Ohio’s prevailing wage law. The taxpayers appealed.
On appeal, the core issue was what constituted the “project” for purposes of Ohio’s prevailing wage law. This issue was critical because Ohio’s prevailing wage statutes, R.C. 4115.03 through R.C. 4115.16, require contractors and subcontractors on public improvement projects to pay laborers and mechanics the so-called “prevailing wage” on construction projects that are public improvements as defined under R.C. 4115.03(C). If the public improvement project was only the parking garage, then the prevailing wage law did not apply to the construction of the housing development. However, if the construction of the parking garage and the housing development together made up the public improvement project, then prevailing wage requirements applied to the construction of both.
The Court found that, for the purposes of Ohio’s prevailing wage law, only the parking garage was a public improvement project and affirmed the trial court’s decision to grant summary judgment in favor of Cincinnati. In coming to this conclusion, the Court looked first to the contract between Cincinnati and the developer. The contract contained an explanation for what was intended to be the public improvement portion of the project and delineated how the $600,000.00 of public funds from Cincinnati was to be spent. The contract addressed only the parking garage, which, according to the Court, indicated that the funds received from Cincinnati were to be exclusively used for the parking garage.
The taxpayers argued that the parking garage and the housing development could not be divided because the developer was selling parking spaces in the garage to the purchasers of the housing units. The taxpayers argued that the two projects were intertwined because of the agreements selling the garage spaces even though Cincinnati was not involved in these agreements in any way. The Court rejected this argument stating that a governmental entity cannot be bound to prevailing wage requirements through an independent contract to which it was not a party.
Next, the taxpayers argued that treating the projects separately violated R.C. 4511.033, which states that “[n]o public authority shall subdivide a public improvement project into component parts or projects * * * unless the projects are conceptually separate and unrelated to each other, or encompass independent and unrelated needs of the public authority.” The Court also rejected this argument, reasoning that Cincinnati contributed funds for the construction of the parking garage so that a portion of it could be used by the general public while shopping or dining in its downtown district. The Court found this independent and unrelated to the development of more housing in Cincinnati’s district.
Finally, the Court looked to whether the benefit received by Cincinnati from having a housing development constructed in its downtown district was sufficient to turn the construction of the development into a benefit to the public authority. In its analysis, the Court, relying upon Episcopal Retirement Homes, Inc. v. Ohio Dept. of Indus. Relations (1991), 61 Ohio St.3d 366, contrasted the difference between how a project may benefit the public as a whole and how a project may benefit a public authority. The Court concluded that the mere fact that Cincinnati may receive some benefit from the private construction of the housing development, i.e., more housing in its downtown district, is not, standing alone, enough to make such construction a benefit to the public authority.
There has always been a tension in public/private development projects between the amount of public funding made available to the private developer and the potential additional costs of requiring prevailing wage. It is likely that an appeal to the Supreme Court of Ohio will be sought in this case. If the Court accepts the appeal it should provide additional clarity on this issue.