Tag Archive for Redding Needs a Charter to End Nonsense Definition of Private Hotel as a “Public Works” Project

Contractor Has to Shell Out $8 Million After Unions Win Argument That Hilton San Diego Bayfront Hotel Was a “Public Works” Project

Are you one of the 2000+ construction trade workers who built the Hilton San Diego Bayfront Hotel? The California Division of Labor Standards Enforcement (Labor Commissioner’s office) gave me the following information about what to do:

Send your contact information to this California Division of Labor Standards Enforcement district office address (presumably via a letter or postcard) explaining that you were a trades worker on the Hilton San Diego Bayfront Hotel:

California Division of Labor Standards Enforcement
7575 Metropolitan Drive, Room 210
San Diego, CA 92108

According to a representative in the DIR Legal Division, payments to former workers (in the form of checks) are supposed to be available 60-90 days after the June 17, 2013 official announcement. A third-party administrator is handling the processing of the payments.

The phone number for this San Diego district office is (619) 220-5451.


This morning (June 17, 2013) the California Department of Industrial Relations (DIR) issued a press release declaring that the Labor Commissioner Collects Over $8 Million in Wages for Public Works Job at Hilton Hotel in San Diego. Surely unions will portray this settlement as a victory for exploited workers against greedy capitalists. Actually, it is a symptom of absurd, ambiguous, union-backed definitions of public works in state law.

Right off the bat, you notice something odd: the headline of the press release includes the clarification that the hotel was a “public works job.” How did a Hilton hotel become a public works job? You thought “public works jobs” were government projects such as schools, courthouses, libraries, and post offices.

You thought wrong. In 2001, Governor Gray Davis signed the union-backed Senate Bill 975 into law. It expanded the definition of a “public works” project to include just about any assistance of any financial value from a government:

For purposes of this section, “paid for in whole or in part out of public funds” means the payment of money or the equivalent of money by a state or political subdivision directly to or on behalf of the public works contractor, subcontractor, or developer, performance of construction work by the state or political subdivision in execution of the project, transfer of an asset of value for less than fair market price; fees, costs, rents, insurance or bond premiums, loans, interest rates, or other obligations that would normally be required in the execution of the contract, which are paid, reduced, charged at less than fair market value, waived or forgiven; money to be repaid on a contingent basis; or credits applied against repayment obligations.

In 2012, the Assembly Labor and Employment Committee rejected (on a party-line vote – Democrats opposed and Republicans in support) Assembly Bill 987, sponsored by Associated Builders and Contractors of California and introduced by Assemblywoman Shannon Grove (R-Bakersfield). This bill would have simplified a section of California Labor Code 1720 defining “public works” that two court decisions have described as “As statutes go, Section 1720 is hardly a triumph of the drafter’s art.” Unions like the law as written, and their triumph described below shows why they oppose any reasonable amendments to the law.

The United Port of San Diego owns property on the San Diego waterfront next to the San Diego Convention Center. In 2002, the Port issued a Request for Proposals for an entity to lease the land and build a hotel on the site. After choosing Hilton San Diego Convention Center, LLC to lease the land and build the hotel, the Port negotiated a lease that included a rent credit equal to 60 percent of the rent due each month for 11 years, not to exceed a total of $46.5 million. Subsequently the Port provided a “rent credit acceleration” for the hotel developer.

Hilton San Diego Convention Center, LLC chose Hensel Phelps, an investor in the project, as the general contractor. In April 2004, Hensel Phelps asked the Port if the hotel project was a public works job subject to the payment of state-mandated construction wage rates (so-called “prevailing wages”) to trade workers. In a memorandum dated May 12, 2004, the Port considered the available information and concluded that “the Hilton Hotel development is not considered a public works project subject to the payment of prevailing wages.” See that memo here: May 12, 2004 – Port Says Hilton San Diego Not Public Works.

After construction began in 2006, the Carpenters Contractors Cooperation Committee (CCCC) and Southern California Labor/Management Operating Engineers Contract Compliance Committee, two union-affiliated labor-management cooperation committees, referenced the rent credit and asked the California Department of Industrial Relations (DIR) to determine whether or not the Hilton Hotel was a public works project subject to state-mandated prevailing wage laws. The DIR began its own analysis of the project. See September 14, 2006 DIR Request to Port of San Diego for Hilton San Diego Documents.

In a response to the DIR dated October 2, 2007, Port of San Diego staff stated that it “believes that given the specific conditions of the RFP; challenges caused by extensive site remediation; the extent of public improvements; location; and size of the site, the transaction that was negotiated with Hilton represents the market for this particular site,” thus denying that the rent credit exceeded fair market value. The Port also warned that if the state decided to declare the hotel a public works project, it would discourage additional development of the area:

Port staff has received inquiries from other tenants, who are in the process of developing leaseholds, regarding this matter. We are concerned that attempts to treat private leaseholds as public projects will set off a chain reaction and have a chilling effect on redevelopment and reduce rental revenue to the Port, which will in turn negatively impact the Port’s ability to further its own capital projects.

Associated Builders and Contractors (ABC) of California (my former employer) and Associated General Contractors (AGC) of California submitted letters to the DIR arguing that the Hilton hotel was not a public works project. The Southern California Labor/Management Operating Engineers Contract Compliance Committee submitted a rebuttal to the ABC and AGC arguments.

November 30, 2007 San Diego Hilton Not a Public Works – ABC of CA Comment

December 7, 2007 San Diego Hilton Not a Public Works – AGC of CA Comment

December 19, 2007 San Diego Hilton is a Public Works – Operating Engineers Union Response

On April 1, 2008, the Director of the California Department of Industrial Relations determined that “the construction of the Hilton San Diego Convention Center Hotel and related development” is “a public work subject to prevailing wage requirements.” See April 1, 2008 DIR Director’s Decision – San Diego Hilton – Public Works.

Hensel Phelps filed an administrative appeal of the decision, and the DIR sought additional comments. See April 25, 2008 DIR Notice of Appeal – San Diego Hilton. Among the commenters were Associated Builders and Contractors of California: see May 8, 2008 San Diego Hilton Not a Public Works – Comments on Appeal – ABC of California.

On June 23, 2008, the DIR Director denied the appeal and affirmed his original decision that the Hilton San Diego Convention Center Hotel was a public work subject to prevailing wage requirements. Four days later, Hensel Phelps filed a lawsuit (Hensel Phelps Construction Company vs. California Department of Industrial Relations) in San Diego County Superior Court to overturn the DIR Director’s decision.

On February 25, 2010, a San Diego County Superior Court judge ruled that the Hilton San Diego Convention Center Hotel and related construction was not a “public work” subject to prevailing wage requirements. On April 23, 2010, the Director rescinded his earlier decision and ruled that the Hilton San Diego Convention was not a public works project. See April 23, 2010 DIR Rescinds Coverage Determination for San Diego Hilton.

But the Carpenters Contractors Cooperation Committee appealed the judgment to the Court of Appeal, Fourth Appellate District. On July 26, 2011, the court reversed the Superior Court decision and ruled that the rent credit was a payment of public funds, regardless of whether or not the rent reduction had a realizable monetary worth. See July 26, 2011 Hensel Phelps v San Diego Port District Appeals Court Decision – Prevailing Wage on Hilton San Diego Bayfront Hotel.

The State Building and Construction Trades Council of California had filed an amicus brief in the case. In its July 21, 2011 bulletin Court of Appeal Rules Prevailing Wage is Required on San Diego Hilton Project, it expressed outrage that “the Schwarzenegger Administration refused to file an appeal to defend the Department of Industrial Relations’ coverage decision” and that “the Port District and the Developer should be ashamed of themselves.”

The DIR press release explains what happened next:

Hensel Phelps Construction Company and the Labor Commissioner then negotiated the amount of wages due to the workers. All 2,051 workers will receive the full prevailing wages they earned on this project. They performed every aspect of construction, from foundation drilling to concrete pouring to steel erection to landscaping.

Hensel Phelps Construction Company will pay a third party administrator to process payments to the workers. The prime contractor will also pay an additional $400,000.00 to the Labor Commissioner as reimbursement for investigative costs.

Now we know that state-mandated construction wage rates cost an extra $8 million for a specific $350 million hotel project built in downtown San Diego in the mid-2000s. You can imagine the cost of prevailing wage for a project in a rural area during the recent economic downturn.

Is it surprising that the developers of the proposed Turtle Bay Sheraton Hotel in Redding suspended their plans earlier this year to build the hotel when unions managed (on their second try) to get the DIR to determine that hotel would be a “public works” project? See my February 15, 2013 post Unions Rise to Defense of “Prevailing Wage” Rates Jeopardizing Hotel Project in Redding and my January 31, 2013 post Redding Needs a Charter to End Nonsense Definition of Private Hotel as a “Public Works” Project.

Unions Rise to Defense of “Prevailing Wage” Rates Jeopardizing Hotel Project in Redding

Tom Curato, an official with the Plumbers & Pipefitters Union Local No. 228, had a opinion piece in the February 10, 2012 Redding Searchlight newspaper entitled Prevailing Wage Supports Skilled Workers And Their Families. It was a response to my February 4, 2013 letter to the editor Redding Needs a City Charter.

In 2011, construction unions used a Charter City Exploratory Committee to undermine a campaign to ask Redding voters to approve a charter that would have given the city authority to establish its own policies concerning government-mandated construction wage rates. Ultimately, the Redding City Council voted 3-2 to reject the concept of a charter, pleasing top union officials in Sacramento.

At the same time, the Plumbers & Pipefitters Union Local No. 228 and other unions were repeatedly trying to get the California Department of Industrial Relations to issue a determination declaring a private hotel project as a “public works” project subject to state laws that define and calculate construction wage rates. Under an administrative appeal, they finally won their desired outcome from the Department of Industrial Relations in January 2013.

See comprehensive information at Redding Needs a Charter to End Nonsense Definition of Private Hotel as a “Public Works” Project.

The union op-ed defending state-mandated construction wage rates received 58 posted comments, showing the intense debate on this issue in Redding (and elsewhere). My earlier letter to the editor had 39 posted comments – some about prevailing wage, some about the concept of charter city status for Redding.

The exchange of opinions was reported in the union-oriented web site www.wepartypatriots.com: see UA Local 228 Rep. Defends the Prevailing Wage for Redding, CA. Of course, the article never mentions that taxpayers ultimately pay for “public works” projects.

For more information on charter cities and prevailing wages, see Are Charter Cities Taking Advantage of State-Mandated Construction Wage Rate (“Prevailing Wage”) Exemptions?