California Appellate Court Reverses Trial Court In Woodhaven Ruling; California State Tax Credits Do Not Trigger Prevailing Wage

Author(s): Ofer Elitzur, Stephen C. Ryan, Lisa D. Weil

Source: CCN Client Alert

4/24/2008

On April 23, 2008, the California Court of Appeal (First Appellate District, Division Two) released its long-awaited decision in the so-called Woodhaven matter (named after the original California Department of Industrial Relations (DIR) decision No. 2005-34). In a meticulous and thorough opinion reversing the trial court’s August, 2006 ruling, the Appellate Court found that California low income housing tax credits are not "public funds" within the meaning of California Labor Code Section 1720. Justice Richman succinctly summarized his opinion as follows:

The 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 . . . 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.

Accordingly, affordable housing projects utilizing California low income housing tax credits are not required to pay for labor at the prevailing wage rates. The clear and unambiguous nature of the Appellate Court’s opinion, which is uncommonly thoughtful and reasoned, will certainly do much to clarify the muddy state of affairs in California regarding the application of prevailing wage to affordable housing projects. The financial efficiency of California tax credits which generally carries reduced pricing was clearly impacted by the uncertainties regarding prevailing wages. This decision may also result in the state, particularly the Tax Credit Allocation Committee, considering whether the current allocation system for state tax credits needs adjustment and whether that adjustment would be retroactive. 

By way of background, see link below for our earlier CCN Affordable Housing Practice Alert regarding the trial court decision in Woodhaven. We have also included a link to a copy of  the Appellate Court’s decision below. It is unclear at present what Big Labor’s response will be to this decision. The thoroughness of the appellate decision would seemingly suggest to Labor that perhaps it is time to move beyond this dispute. In light of how the credit crisis has impacted affordable housing development, this decision is certainly welcome news to California’s affordable housing community.

Please do not hesitate to contact Steve Ryan, Ofer Elitzur or Lisa Weil of our Affordable Housing Practice Group if you have any questions concerning this matter.