SINCE 1931, the Davis-Bacon Act has required contractors to pay construction workers “prevailing wages” for the “construction, alteration, or repair . . . of public buildings or public works” funded by the U.S. government or the District. It’s complicated, but over the years “prevailing wage” has come to mean “union wage”; Davis-Bacon therefore functions as a de facto super-minimum wage law for government-backed projects.
Opponents say Davis-Bacon kills jobs and soaks taxpayers; unions and other supporters say it prevents bidders on government projects from racing to the bottom of the pay scale. Whatever the law’s merits, it has been pretty well settled that Davis-Bacon applies only to structures funded, owned or occupied by the U.S. or District governments, as its plain language suggests.
Now, with the stroke of a bureaucrat’s pen, that understanding has been upset. A Labor Department regulator has ruled that Davis-Bacon covers the
CityCenter DC project, a $700 million private-sector complex under construction downtown at the site of the former convention center. The decision is astonishing, both because it is such a stretch legally and because of its implications — which range from a financial hit for the District to higher costs for development across the country.
CityCenter’s developers, not the District or the federal government, are paying to build the 2.5 million square feet of office, residential and retail space — none of which will be occupied by government. Such considerations led lawyers for both the city and the developers to conclude during their negotiations that Davis-Bacon would not apply. Investors were assured of the same thing. And that common-sense understanding was confirmed a year ago, when a career Labor Department official denied the Mid-Atlantic Regional Council of Carpenters’ 2009 petition to apply the Davis-Bacon Act.
But the carpenters’ union appealed, and on June 17, Nancy J. Leppink, the acting administrator of the U.S. Labor Department’s Wage and Hour Division, overruled the civil servant. Her reasoning: The District owns the land, which it is leasing to developers for 99 years; it retains “direct authority” in the form of a limited veto over aspects of construction; and it has touted the public benefits of the project, such as more jobs and tax revenue for the city. Ergo, CityCenter’s hotels and restaurants are “public works,” just like the 14th Street Bridge.
Never mind that the District’s actual control over construction amounts to little more than the usual regulatory oversight, or that long-term leasing of municipal land is a common economic development tool not previously thought to convert office-retail complexes into public works. Never mind that Ms. Leppink’s expansive reasoning could apply to all future commercial redevelopment of land belonging to the District or to the federal government anywhere.
The ruling could raise labor costs on CityCenter by $20 million or more, depending on circumstances. That’s no problem, according to Ms. Leppink, because federal regulations require the District to reimburse the developers. Where the city is supposed to get the money is not explained.
Both the District and CityCenter’s developers are appealing to the Labor Department’s Administrative Review Board, all five members of which are, like her, recent political appointees. That could take months; the next step would be federal court. Substantial as the litigation costs may be — in time, money and business uncertainty — they are modest compared to the damage Ms. Leppink’s ruling might do if left unchallenged.