• Mello-Roos Bond Proceeds Used For Subdivision Improvements Trigger Prevailing Wage
  • January 14, 2011 | Author: Ethan Walsh
  • Law Firm: Best Best & Krieger LLP - Sacramento Office
  • In the case of Azusa Land Partners v. Department of Industrial Relations, the Second District Court of Appeal affirmed a Superior Court ruling that the use of proceeds from a Mello-Roos (CFD) bond to finance a portion of the public infrastructure for a master planned community are “public funds” and therefore caused the entire project to become a “public work,” as defined by Labor Code 1720. As a result, all public improvement work required as a condition of regulatory approval were subject to prevailing wage requirements, not merely those discrete public improvements actually paid for with bond proceeds.  If not appealed and overturned, this case could cause development cost increases for projects across the state.  Developers and local agencies need to review existing agreements to determine the risk of increased project costs.

    Pursuant to a development agreement for the approval of a master-planned community, the City of Azusa required Azusa Land Partners (the Developer) to construct certain public improvements as a condition of approval of the project.  In addition, the Developer and the City entered into an agreement to establish a community facilities district and issue Mello-Roos bonds to fund specific portions of the required infrastructure work.  The remaining infrastructure work was privately financed by the Developer.

    The Second District Court of Appeal affirmed the trial court ruling that (1) the proceeds of the Mello-Roos bonds are public funds for purposes of the prevailing wage law; (2) because the public infrastructure work for the overall development is partially funded using proceeds of Mello-Roos bonds, the entire development is a public work; and (3) all public infrastructure improvements constructed by the Developer as a condition of regulatory approval are subject to the requirement of payment of prevailing wages, whether or not constructed using public funds.

    With this ruling, the Court of Appeal suggests that if a developer obtains Mello-Roos financing for a discrete public improvement or set of publc improvements, that financing could trigger prevailing wage requirements for all public improvements constructed in connection with the larger development.