D.C. to fight Labor Department ruling requiring ‘prevailing wage’ rates for downtown project

Claiming a drastic effect on current and future economic development projects, D.C. Mayor Vincent C. Gray (D) is appealing a Labor Department ruling that stands to raise wages for workers on a major project underway downtown.

The June decision by Acting Wage and Hour Administrator Nancy J. Leppink applies a federal law requiring “prevailing wage” rates to the $700 million CityCenter DC project, under construction since April on the city-owned site of the old Washington Convention Center.

The trade union that filed the complaint says the project is clearly within the scope of the 1931 Davis-Bacon Act, which requires wages similar to union scale on “public works” projects. But Gray administration officials are vigorously opposing the claim, saying it stands to raise the cost of building CityCenter by as much as $20 million. Moreover, they fear that the ruling’s effect could be much broader, complicating other big-ticket redevelopment projects on city-owned land.

Victor L. Hoskins, deputy mayor for planning and economic development, said the ruling could have “unprecedented, significant [and] adverse citywide cost impact upon every economic development project in the District’s portfolio.”

Area real estate developers and construction executives who have partnered with the District say the ruling, if upheld, is likely to inflate costs on a wide range of projects by as much as 15 percent, making financing more difficult in the roiled credit markets.

Leppink’s ruling came in response to a 2009 petition from the Mid-Atlantic Regional Council of Carpenters, which argued that the CityCenter project triggers Davis-Bacon requirements by serving the “interest of the general public” by increasing the city tax base, employing D.C. residents, and building parks and affordable housing. An August 2010 ruling by a predecessor of Leppink’s rejected the claim, but the union was granted a reconsideration later in the year.

Before the June ruling, according to Gray administration officials, the District required prevailing wages only on economic development projects that proceeded with financial assistance from the city, through bond or tax-increment financing or tax abatements. The CityCenter project is being developed by a joint venture of Hines Interests and Archstone without direct taxpayer assistance, and officials say Leppink’s ruling would apply prevailing wage standards to virtually any project on city land.

Terry R. Yellig, lead attorney for the carpenters’ union, said it should be immaterial whether the city is financing the project. “Without the participation of the District of Columbia, would this project have gone forward? I think the answer is no,” he said.

William B. Alsup III, a senior vice president at Hines, declined to address the ruling’s immediate effect on the CityCenter project, but he said that increased costs associated with the ruling could stall or spoil an array of developments the District had been planning.

Among the major projects that could be affected are planned redevelopments that city officials have been plotting for years, including of the Southwest Waterfront, the east campus of St. Elizabeths Hospital in Congress Heights and the Walter Reed Army Medical Center on Georgia Avenue NW.

Brett McMahon, president of Miller & Long D.C., called Leppink’s ruling “fairly shocking.” Miller & Long is one of the largest concrete builders in the country and one of the largest employers of construction workers in the Mid-Atlantic region.

He said that, in general, Davis-Bacon wages in the District run 10 percent to 15 percent higher than market-rate pay. After reviewing the ruling, McMahon estimated that 99 percent of construction projects within the city’s boundaries could be affected.

“What they’re doing is basically trying to redefine what is a public project for the purposes of Davis-Bacon application, which usually has meant government dollars involved,” he said.

But Yellig said there’s little reason to think the CityCenter ruling would necessarily apply to other projects that have different types of public benefits. “To say, ‘Oh, my God, this means any economic development project that the District authorized is automatically covered’ is an overstatement,” he said.

The District and Hines/Archstone are appealing Leppink’s decision before an administrative review panel. That board’s decision can be appealed in federal courts.

Attorney General Irvin B. Nathan has engaged Howard M. Radzely, a former deputy secretary of labor in the George W. Bush administration, to handle the District’s appeal on a pro bono basis. Hines is represented by Maurice Baskin, who is also general counsel of a national trade group of building contractors that has opposed broader application of prevailing-wage agreements.

Yellig said it could be two years or more before the appeals board makes a ruling. Should the appeals fail, he said, the union would most likely ask that back wages be paid to CityCenter workers.

There is some dispute whether taxpayers or developers would be on the hook for the differential between market-rate and prevailing wages. Leppink, in her letter, says the District would be responsible; city officials say the cost would be borne by Hines and Archstone and their investors, Qatari Diar Real Estate Investment.

Leppink did not respond to calls for comment. Should her decision stand, it would not require developers to hire union workers on CityCenter or similar projects, though it would make union contractors more competitive.

Gray’s opposition to the labor-backed position comes at a time when many unions that supported his election last year are finding their relations with the administration unexpectedly strained. Hoskins said that although Gray personally approved the administration’s position, he “has been and remains a supporter of the Carpenters Union.”

 
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