The California Department of Industrial Relations recently published an opinion which solidifies the “de minimis” exception to prevailing wage laws for private developers which receive small amounts of public financial support for their projects. In Public Works Case No. 2008-37, the DIR responded to a request for a prevailing wage coverage determination initiated by the developer of a senior care facility in Elk Grove. As an incentive to build the facility, the city offered financial incentives in the form of reduced sewer impact fees (sewer credits) which totaled over $200,000. The DIR concluded that pursuant to Labor Code section 1720(c)(3), this amount was “de minimis” in relation to the overall project cost.

Ordinarily, construction projects in California which are paid for "in whole or in part out of public funds" are subject to prevailing wages. (See Labor Code section 1720(a)(1).) However, Labor Code section 1720(c)(3) creates an exception for “de minimis” public contributions as follows:

If the state or a political subdivision reimburses a private developer for costs that would normally be borne by the public, or provides directly or indirectly a public subsidy to a private development project that is de minimis in the context of the project, an otherwise private development project shall not thereby become subject to the requirements of this chapter.

In this opinion, the DIR concluded that the “total project costs” came to $18,207,335, meaning that the sewer credits represented only 1.1% of this total. Consistent with three prior opinions, the DIR concluded that a contribution of public funds in the amount of 1.1% fell within the de minimis exception. In fact, an earlier opinion concluded that the exception applied where the public contribution was 1.64% of the total project cost.

This opinion is welcome news for developers which might receive financial incentives from a public agency for a construction project. While public contributions of 1.64% or less are small in terms of the total project cost, they are nonetheless useful, particularly in this economic climate.