Significant New Developer Fee Cases

October 2019
Number 44

As part of an uptick of cases in recent years regarding school impact fees, two recent cases argued by Lozano Smith on behalf of school districts have been decided by the California Sixth District Court of Appeal, with mixed results. The court ruled in relation to an “adults only” agricultural worker housing project that, when imposing prospective developer fees on development projects, school districts need not establish a reasonable relationship between the fee and the specific project in question. Instead, districts are merely required to establish a nexus between the fee and the general type of project that is at issue (e.g. residential, commercial, industrial). This favorable outcome came after the same appellate court, straying from prior precedent that supported deference to local agencies, issued a published decision invalidating a school district’s developer fee justification study. The court held that the study in question was invalid because it did not provide sufficient analysis to demonstrate that the school district would have to house new students generated from development in new facilities. Both cases are part of a trend toward greater judicial scrutiny of school districts’ imposition of developer fees.

School districts in California are authorized by law to impose fees on development projects, referred to as “developer fees” or “school impact fees.” There are three separate levels of fees that can be charged, each of which are subject to different legal requirements. The first case below addresses whether a school district must analyze the potential residential population of a particular development, as projected by the developer, before imposing fees on that particular development. The second case addresses the legal requirements for preparing a Level I fee justification study.

The Tanimura Case

Tanimura & Antle Fresh Foods v. Salinas Union High School District, 34 Cal.App.5th 775, addressed a dispute regarding Level 2 developer fees. The Salinas Union High School District (Salinas) had imposed a developer fee on a 100-unit agricultural employee housing complex commissioned by Tanimura & Antle Fresh Foods, Inc. (Tanimura) within Salinas. The complex, per the terms of its development permit issued by the Monterey County Board of Supervisors, was designed to house only agricultural workers, without dependents.

In recent years, many school districts have contended with developers who argue that fees should not be imposed on their projects because the developers expect that few or no potential school age students will live in the finished project. These arguments have been made, for instance, regarding housing intended for agricultural workers, college students, or young professionals. This case affirms that a school district need not consider the developer’s intended residents for a particular project, and can instead analyze the impact of residential housing projects across the district when imposing developer fees on residential projects.

In relation to its agricultural worker housing project, Tanimura sued for a refund of its fees, alleging that the developer fees imposed by Salinas were not reasonably related to a need for school facilities, as required by statute. Tanimura cited the project’s prohibition on dependents, arguing that, as no children would reside in the complex, its construction would not generate an increased burden on the district’s facilities. The Government Code requires a public agency, before imposing prospective developer fees, to establish the purpose of the fee, the agency’s use for the funds, a reasonable relationship between the fee’s use and the type of development project on which it will be imposed, and a reasonable relationship between the need for public facilities and the type of development project on which the fee is imposed. The trial court held in favor of Tanimura, reasoning that “case law-and common sense-preclude the application of an overbroad label in a fee study that does not account for a project’s actual impact.” The court opined that Salinas was required to account for the fact that no children would be permitted to live at the complex, and in failing to do so had not met the nexus requirement of the Government Code.

In a victory for school districts, and following argument by Lozano Smith (acting as co-counsel in this matter), the Court of Appeal reversed. The court held that, when establishing a nexus between developer fees and a development project, a public agency need not consider the specific project in question; its calculus is limited to the general type of project at issue (e.g., residential, commercial, or industrial). As applied here, Salinas was not required to consider the complex’s prohibition on dependents in its fee analysis. The district’s treatment of the complex as a generic, residential development was lawful.

The court asserted that its interpretation was the only “commonsense” reading of the statute that avoided practical absurdities. To adopt Tanimura’s position, the court held, “would have the practical effect of requiring a school district to expand its needs analysis to address the projected impact on school facilities of undefined, variant subtypes of residential construction not contemplated in the statute.” The court found such an effect to be contrary with the purpose of the statutes. Further, the law contains exceptions from developer fees for certain types of developments, including government-financed agricultural migrant worker housing. However, the Legislature has created no such exception for privately-financed farmworker housing. This indicates that the Legislature did not intend for projects such as the complex to be exempted from developer fees.

The Summerhill Case

In Summerhill Winchester, LLC, v. Campbell Union School District 30 Cal.App.5th 545, the Appellate Court invalidated the Level 1 developer fees adopted by Campbell Union School District (Campbell). In doing so, the court applied the rule laid out in a prior case, Shapell Industries, Inc. v. Governing Board of the Milpitas Unified School District (1991) 1 Cal.App.4th 218, that a Level 1 fee study must include an analysis of the following three factors: (1) the projection of the total amount of housing to be constructed within the school district; (2) estimation of the number of new students that are expected to result from the new development; and (3) estimation of what it will cost to provide the necessary school facilities for that approximate number of new students.

Regarding the first Shapell element, Campbell’s fee study stated that there were “in excess of 133” residential units that could be constructed over the next five years. The court took issue with the fact that these projections were not based on data from all of the planning departments within Campbell’s boundaries. The court also held that the study’s projection was too vague to support the imposition of fees. According to the court, a projection based on consultation with only some of the local jurisdictions within Campbell’s boundaries and using a phrase such as “in excess of” is “little better than saying that ‘some’ development is anticipated.” This was found to be inadequate because the study did not provide sufficient guidance for Campbell’s Board to determine whether or not new school facilities would be needed due to anticipated development. The court found it irrelevant that the district was already over capacity at all of its schools, and essentially rejected Campbell’s argument that new facilities would be needed to house students generated from development, regardless of the number of such students.

The court also found that the fee study was invalid because it did not provide sufficient evidence for the district’s Board to determine what type of school facilities would be needed to accommodate students generated by development, if any. The court based its decision on a narrow reading of the applicable statutes.

Developers may argue that the court’s decision means that a fee study must now establish what “type” of facilities a school district will construct to house students generated by development. However, prior case law, includingGarrick Development Co. v. Hayward Unified School District (1992) 3 Cal.App.4th 320, held that specific improvement plans or building proposals were not necessary. The court acknowledged that, underGarrick, “the Board did not have to identify specific facilities that would be built or make concrete construction plans.” At the same time, however, the court concluded that “the key missing element in the fee study was what new facilities would be necessary for the new students generated by new development.” These two statements are difficult to reconcile, and create a challenge when school districts decide how specifically their fee studies must describe student housing needs. However, it remains clear that specific school construction projects need not be identified.

The court’s opinion is likely to cause confusion and possibly to disrupt established law. As a result, school districts may wish to review the adequacy of their fee justification studies.

Lozano Smith represented the school district in the litigation and appeal, and requested, on behalf of the district, that the California Supreme Court depublish the case. The request for depublication was supported by CASBO, CASH, and CSBA, and not opposed, but the request was nevertheless denied by the Supreme Court.

Takeaways

Tanimura clarifies that public agencies, when imposing prospective developer fees, need not consider the specific development project, but only the type of development project at issue. The case should also help school districts resist the claims of developers who assert that they should be relieved of fees because few or no students will allegedly be generated by a specific project.

While some may argue for a broader application, the Summerhill decision can be viewed as the court’s application of the three-factorShapell test to a particular fee study. In this regard, the case simply calls for a fact-specific analysis based on already-established precedent. The following are some best practices following the Summerhill case:

  • Avoid use of imprecise language like “at least” when describing projected development.
  • If at all possible, consult with all planning departments within the school district’s jurisdiction.
  • If at all possible, identify the general types of school facility projects that may be constructed to accommodate students (e.g., new school construction, portable additions, a mix of both, etc.). We note that such identification in the fee study is not necessarily binding on the school district when it later implements its facilities plans.

If you have any questions about the Tanimura orSummerhill cases or about developer fees in general, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. Copies of Lozano Smith’s Developer Fee Handbook are available for purchase from Lozano Smith’s Client Services Department; you can submit your request to clientservices@lozanosmith.com. You can also subscribe to our podcast, follow us on Facebook, Twitter, and LinkedIn or download our mobile app.

Written by:

Harold M. Freiman

Partner

Devon B. Lincoln

Partner

Kelly M. Rem

Partner

Benjamin Brown

Associate

©2019 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Know Your Role, Know Your Risk

June 2019
Number 28

A Civic Center Act provision that allocates liability between a school district and the users of school facilities means what it says, according to a recent decision by the California Court of Appeal. In Grossman v. Santa Monica-Malibu Unified School District, the court found the district was not liable for injuries suffered by a parent-attendee at a carnival held by a booster group at one of the district’s schools. The court also highlighted the statute’s intent that school districts and users of school facilities bear their own costs in insuring against risk and liability resulting from use of those facilities.

Facilities Use and Liability Under the Civic Center Act

Education Code section 38130 et seq., also known as the Civic Center Act, requires school districts to allow community groups to use district-owned facilities under certain conditions and allocates liability between the school district and the user of those facilities. Under Education Code section 38134(i)(1), “an entity using school facilities or grounds . . . is liable for an injury resulting from the negligence of that entity during the use of the school facilities or grounds,” while a school district “is liable for an injury resulting from the negligence of the school district in the ownership and maintenance of the school facilities or grounds.” The same section also requires school districts and users to “each bear the cost of insuring against its respective risks,” as well as the cost of defense for “claims arising from those risks.”

A school district’s liability for “ownership and maintenance” of its facilities and grounds only arises when the district would be liable under Government Code section 835 for “a dangerous condition of public property.” That form of liability arises from (1) negligent acts of a school district employee, or (2) notice of the dangerous condition with time to mitigate the danger.

The Grossman Case

In Grossman, the school district approved a booster group’s plans for a carnival on school grounds, but did not otherwise involve itself in the planning, set up, or oversight of the carnival. At the event, the plaintiff, a carnival attendee, was injured when an inflatable slide collapsed and he fell over 20 feet onto the concrete below. Similar slides were used at prior carnivals without incident.

The plaintiff sued the district, the booster group, and party rental and event companies for negligence. The plaintiff alleged that the slide was improperly set up, and was not secured to the ground with stakes. The plaintiff further alleged that the district did not inspect the slide or make sure that the operators properly assembled the slide.

The court ruled that the negligent set-up and operation of the inflatable slide, rather than any dangerous condition of the district’s property, was the cause of the plaintiff’s injuries. The slide was not a condition of the school grounds because it was a temporary feature that was removed after the event. Moreover, the district did not have notice of any purported dangerous condition because similar slides had been used at the booster group’s carnival in prior years without incident, and no complaints were made about the slide being improperly set up before the incident. Because the plaintiff’s claim was based on negligent set-up and operation of the slide, and not on a dangerous condition of the property, the court held that the district could not be liable for negligence under the Civic Center Act.

In its ruling, the court discussed the legislative history of the Civic Center Act’s liability apportionment statute. In particular, the court noted objections by booster groups and similar organizations to substantial insurance coverage and indemnification obligations required by school districts for use of facilities under the Civic Center Act. The legislation provided that such costs were considered costs of maintenance and management that should be borne by the property owner, rather than the user, however, the legislative history underscored the Legislature’s intent that the Civic Center Act not broaden a school district’s liability beyond that narrow scope. The court emphasizes that the liability apportionment statute requires each party bear its own costs associated with protecting against liability.

Takeaways

The Grossman case serves as a good reminder that liability is apportioned based on a school district or user’s respective role, as are the costs to protect against that liability, and while a school district cannot shift its statutory liability to facility users, it also cannot be held liable for injuries resulting from the user’s negligence, even if the incident occurred on school grounds.

For additional information regarding the Civic Center Act or facilities use and liability, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also subscribe to our podcast, follow us on Facebook, Twitter and LinkedIn or download our mobile app.

Written by:

Claudia P. Weaver

Partner

Wesley L. Carlson

Associate

©2019 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

“Limited Due Process” Appropriate For Subcontractor Substitution Hearings

June 2019
Number 26

The California Court of Appeal recently outlined an appropriate level of due process required for a subcontractor substitution hearing. In JMS Air Conditioning and Appliance Service, Inc. v. Santa Monica Community College District (2018) 30 Cal.App.5th 945, the court found that the hearing process used by the Santa Monica Community College District (College) provided the “limited due process” required for a substitution hearing. The JMS AirConditioning decision provides guidance for school districts, community colleges and cities as to how to conduct these hearings.

Subcontractor Substitution Procedure

The Subletting and Subcontracting Fair Practices Act (Pub. Contract Code, § 4100 et seq.) (Subcontracting Act) identifies the reasons why a contractor may substitute one subcontractor for another, and prescribes the process for the substitution, including a detailed notice procedure that states if the subcontractor files written objections, the awarding authority must hold a hearing and give the subcontractor at least five days’ notice of the hearing. However, the Subcontracting Act does not provide any specific procedures or standards for conducting the hearing.JMS Air Conditioning focused on what was required for conducting the substitution hearing and provides useful guidance for a valid hearing.

Limited Due Process

JMS Air Conditioning held that only “limited due process” is required for a substitution hearing. The court reasoned that, because the Subcontracting Act created only limited rights for the subcontractor, a lesser degree of due process protections are needed compared to other proceedings. The formalities of a trial are not required and the substitution hearing is “informal [in] nature, narrow [in] scope.” This can be contrasted with, for example, a public employee dismissal hearing where a higher degree of due process is required to protect the public employee’s fundamental right to employment. In this regard, the court stated that the College “is an educational institution, and the primary purpose of its governing board is thus to educate-not to referee construction disputes.”

The College’s Hearing Process

The characteristics of the College’s substitution hearing included the following:

Neutral Hearing Officer. The hearing was conducted by the College’s facilities manager, who was “generally knowledgeable about the project.” The subcontractor argued that instead the hearing should have been conducted by the college’s governing board. The court found that the Subcontracting Act did not require the governing board to conduct the hearing itself, noting that it would be an inefficient allocation of public resources and that the governing board “does not necessarily have any background in construction.” The subcontractor had the opportunity to present its case to a neutral decision maker, which the court found to be sufficient.

Advanced Notice of Grounds for Substitution. The subcontractor received a detailed description of the reasons for the substitution request prior to the substitution hearing. Written position statements (discussed below) were also submitted before the hearing. This permitted the subcontractor to prepare and respond to the general contractor’s allegations and legal arguments at the hearing.

Presenting Written Evidence and Argument. Both the general contractor and subcontractor were permitted to submit written statements detailing their positions. No page limits were set on these statements and no limits were placed on the number of exhibits or written witness statements the parties could submit. The subcontractor had an unlimited opportunity to present documents, written witness statements and argument. Witness statements were not sworn, but were accepted by the hearing officer.

Examining Witnesses. The subcontractor had the opportunity to present in-person witnesses and oral argument at the hearing. The witnesses were not examined under oath. Cross-examination of witnesses was not permitted, but the court found this did not deprive the subcontractor of due process.

Length of Hearing. The hearing officer limited the length of the hearing to two hours. The parties were advised of this in advance. The court held that “[n]othing in [the Subcontracting Act] requires a hearing of a particular length or the opportunity to cross-examine witnesses.”

Conclusion

The court found these characteristics of the College’s hearing process satisfied the due process requirements of the Subcontracting Act. Fundamentally, due process requires affording the subcontractor an opportunity to “meaningfully defend itself.” The court held that the College’s hearing afforded the subcontractor that opportunity.

Takeaways

The Subcontracting Act requires only “limited due process” for substitution hearings. The College’s hearing in JMS Air Conditioning satisfied that requirement and can be used as an example for other public entity’s substitution hearings. Though not an issue considered by this court, best practices generally also include presenting a hearing officer’s decision to the governing board for approval of the substitution decision. This case was followed by another subcontractor substitution case that also strengthened a public entity’s rights regarding substitution. (See 2019 Client News Brief No. 25.)

If you would like more information about this case or have any questions related to public works projects generally, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also subscribe to our podcast, follow us on Facebook, Twitter and LinkedIn or download our mobile app.

Written by:

Ruth E. Mendyk

Partner

Wesley L. Carlson

Associate

©2019 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Appellate Court Concludes That Public Entities May Initiate Substitution Of A Subcontractor

June 2019
Number 25

In Synergy Project Management, Inc. v. City and County of San Francisco, certified for publication on March 14, 2019, the California Court of Appeal concluded that awarding agencies, like prime contractors, have the power to request substitution of a subcontractor under Public Contract Code section 4107 (hereafter referred to as Section 4107).

Background

The City and County of San Francisco (City) had awarded a contract to Ghilotti Bros., Inc. (Ghilotti) for a major renovation of Haight Street. Ghilotti had listed Synergy Project Management, Inc. (Synergy) as the subcontractor for excavation and utilities work. Unfortunately, during the project, Synergy broke five gas lines and engaged in numerous other unsafe practices. As a result, the City, pursuant to Section 4107 and a specific provision in the construction contract, directed Ghilotti to remove Synergy from the project and substitute a new subcontractor to perform the remaining excavation and utilities work.

Under protest, Ghilotti removed Synergy from the project and proposed two potential replacement contractors. Synergy objected to its replacement and a hearing was held pursuant to Section 4107. At the conclusion of the hearing, the hearing officer determined that Synergy’s unsafe practices rendered its work “substantially unsatisfactory and not in substantial accordance with the plans and specifications,” which established a ground for substitution. Synergy and Ghilotti challenged this determination at the trial court, arguing that the hearing officer’s determination was invalid because Section 4107 does not authorize an owner to remove a subcontractor, except upon a request initiated by the prime contractor. The trial court agreed based on the plain language of Section 4107, and the City filed an appeal.

The Court’s Decision

The Court of Appeal disagreed with the trial court and concluded that while Section 4107 “contemplates that the prime contractor will normally be the party to seek substitution, the procedure followed [in this case] ‘complied in substance with every reasonable objective of the statute. [citation omitted.]'” The court reasoned that the intent of the larger statutory framework encompassing Section 4107, the Subletting and Subcontracting Fair Practices Act (the Act), was intended to prevent “bid shopping” and “bid peddling” after the award of a public contract. The court acknowledged that the Act afforded subcontractors certain rights, such as Section 4107, which ensures the listed subcontractor is permitted to perform the subcontract, unless statutory grounds exist for valid substitution.

However, the court also noted that the Act gives owners the power to investigate and approve any subcontractor whether proposed in the original bid or as a substitute. Here, the court concluded there was no risk of bid shopping or bid peddling because the substitution was related to Synergy’s substandard performance of the work, which serves as a valid ground for substitution. Therefore, the City was within its investigatory power to seek substitution and had not violated the rights of Synergy under the Act.

Takeaways

In light of this decision, public agencies can now consider initiating the substitution process for a subcontractor on a public works project, as long as a valid ground for substitution exists under Section 4107. This is the second subcontractor substitution case in the last few months that strengthens a public entity’s rights regarding substitution. (See 2019 Client News Brief No. 26.)

If you would like more information about this case or have any questions related to public works projects generally, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also subscribe to our podcast, follow us on Facebook, Twitter and LinkedIn or download our mobile app.

Written by:

Arne B. Sandberg

Partner

©2019 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Lay Opinions May Trigger The Need For An Environmental Impact Report

February 2019
Number 12

A California appellate court has ruled that lay public opinions on nontechnical issues concerning a project’s size and general appearance can provide substantial evidence of environmental impact, triggering the need to prepare an environmental impact report (EIR) under the California Environmental Quality Act (CEQA).

The California Environmental Quality Act

CEQA generally requires public agencies to identify potentially significant impacts of projects they carry out or approve, and mitigate those impacts where feasible. Unless a project is exempt from CEQA, the public agency must prepare one of three types of documents. A negative declaration (ND) can be prepared where there is no substantial evidence that the project may have a significant effect on the environment, and a mitigated negative declaration (MND) can be prepared where the project has potentially significant environmental effects, but these effects will be reduced to insignificance by mitigation measures. An EIR, however, is required whenever substantial evidence in the record supports a “fair argument” that the project may produce significant impacts or effects. An EIR generally involves more time and often more cost than an ND or MND.

Georgetown Preservation Society v. County of El Dorado

The Third District Court of Appeal filed its decision inGeorgetown Preservation Society v. County of El Dorado (2018) 30 Cal.App5th 358, on December 17, 2018, affirming the trial court’s writ setting aside El Dorado County’s (County) approval of a project based on an MND. The County had prepared an initial study to analyze the environmental impacts of a proposed Dollar General chain discount store (Project) and found that there was no basis to require an EIR. Local residents acting through plaintiff Georgetown Preservation Society (Society) objected, claiming that the Project would impair the aesthetic character of their town. The Project was located in a historic center and several lay opinions were submitted by the local community, which commented that the Project was
too big and too boxy and would damage the look and feel of the town, and would therefore have significant and negative effects related to aesthetics. The County slightly modified the project and ultimately adopted the MND. In part, it found that the project complied with local zoning because the area was zoned for commercial retail, that the Project’s design, architectural treatments, and associated improvements substantially conform to the County’s Historic Design Guide and, that the Project would not substantially detract from the town’s historic commercial district.

The Society filed a lawsuit seeking to require the County to prepare an EIR. The trial court applied prior case law and found that the Society’s evidence supported a fair argument that the Project may have a significant aesthetic effect on the environment. Accordingly, the trial court issued a writ of mandate compelling the County to prepare an EIR.

On appeal, the County relied on the fact that it had applied its Historical Design Guide principles when it found the project met aesthetic standards. In the County’s view, the ensuing finding of compliance with its Historical Design Guide principles could not be disputed by lay opinion evidence. A key issue addressed by the Court of Appeal was whether non-expert factual evidence or lay opinion evidence proffered by area residents can support a “fair argument” that the Project may have a significant aesthetic impact on the environment. In reaching its decision, the Court of Appeal followed the rationale in Pocket Protectors v. City of Sacramento (2004) 124 Cal.App.4th 903, and held that (1) consistency with local design guidelines could not be used to insulate a project from CEQA review; (2) lay opinions can provide substantial evidence to support a “fair argument” that a project may have a significant aesthetic impact on the environment, triggering the need to prepare an EIR; and (3) since the County made no credibility determinations, it could not categorically disregard the
public’s comments.

Takeaways

Georgetown Preservation Society serves as a reminder of the impact public opinion may have on projects approved or carried out by public agencies, and that lead agencies should not disregard public opinion in non-technical areas like aesthetics. Previous court decisions have also considered lay opinions in other impact areas such as noise, traffic safety, and parking. Therefore, lead agencies should not solely rely on its industry experts when evaluating the environmental impacts of a project. If the community members’ opinions on these issues are not properly taken into consideration, project delays and increases costs can result.

If you have any questions about the appellate court’s decision in Georgetown Preservation Society and its impact on CEQA compliance, or about the CEQA in general, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Kelly M. Rem

Partner

Jose Montoya

Associate

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Changes To Skilled And Trained Workforce Requirements For Public Works Projects

January 2019
Number 2

Recent legislation modifies the skilled and trained workforce requirement for certain public works projects, shifting much of the burden for compliance to subcontractors. The new law also authorizes the California Labor Commissioner to investigate suspected violations of the statute and impose civil penalties in specified circumstances.

Background

In recent years, contractors have been required to utilize a “skilled and trained workforce” for “design-build” and “lease-leaseback” public works projects (see 2015 Client News Brief No. 8;2015 Client News Brief No. 71; and 2016 Client News Brief No. 63.) These requirements do not apply to publicly bid projects. Also, the skilled and trained workforce requirements may not apply if the public entity has entered into a project labor agreement covering the project.

These skilled and trained workforce requirements include two elements. First, all of the workers performing work in designated apprenticeable occupations must have “at least as many hours of on-the-job experience as would be required to graduate from an apprenticeship program…;.” Second, a minimum percentage of that workforce must be graduates of an apprenticeable program for the applicable occupation. This minimum threshold was originally set at 30% but is set to increase to 60% by 2020 for some trades. Other trades, including bricklayers, carpenters, drywall installers, plasterers, roofers, and stone masons, will remain at 30%.

Under current law, a contractor is required to provide monthly reports to the project owner that demonstrate compliance with these skilled and trained workforce requirements. In the event the contractor fails to provide the report or the report does not demonstrate compliance with the percentage requirements, the project owner must withhold all further payments until the contractor provides a plan to achieve substantial compliance. As a result, noncompliance by one subcontractor, for even a small portion of work, has had the potential to hold up payment to the contractor for all of the work on the project.

Assembly Bill 3018

Effective January 1, 2019, Assembly Bill (AB) 3018 amends Public Contract Code sections 2601 and 2602, and adds new section 2603, shifting some of the responsibility for skilled and trained workforce compliance to subcontractors. If the general contractor fails to comply with the monthly report requirements as a result of one noncompliant subcontractor, the project owner is required withhold 150% of the value of the monthly billing for that subcontractor only, until that subcontractor demonstrates a plan to achieve substantial compliance, or until the subcontractor is substituted out in accordance with applicable law. The contractor is permitted (but not required) to withhold payment from the subcontractor. However, now the project owner will be permitted to pay the contractor for the other work on the project performed by the contractor or by other subcontractors.

AB 3018 also gives the Labor Commissioner authority to investigate suspected violations of the skilled and trained workforce requirements and impose a separate civil penalty up to $5,000 per month on non-compliant contractors. In situations where the Labor Commissioner finds that violations of the skilled and trained workforce requirements are willful, the contractor or subcontractor may be temporarily disqualified from bidding on public works projects.

Takeaways

These changes to the skilled and trained workforce requirements shift the consequence of noncompliance to the responsible party. As a result, AB 3018 may make design-build and lease-leaseback projects more attractive for prospective general contractors. However, the increased burden on subcontractors to demonstrate compliance and the Labor Commissioner’s oversight may deter subcontractors from participating in such projects. Public entities in regions of the state where there are a limited number of graduates from apprenticeship programs should carefully consider these changes before proceeding with a delivery method subject to skilled and trained workforce requirements.

If you have any questions about the skilled and trained workforce requirements, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Claudia P. Weaver

Partner

Shawn A. VanWagenen

Senior Counsel

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Lawmakers Extend Deadline for Proposition 39 Energy Efficiency Funding and Create New Program

July 2017
Number 42

State lawmakers have extended the deadlines to apply for and encumber money dedicated to energy efficiency projects at schools and community colleges – the program known as Proposition 39 – and have created a new program to fund such projects indefinitely.

Proposition 39 was scheduled to sunset June 30, 2018. Now, Senate Bill (SB) 110 has extended the deadline for encumbering Proposition 39 funds by one year, to June 30, 2019. At the same time, the bill creates the Clean Energy
Job Creation Program, which will administer funds for energy efficiency projects at school districts, charter schools, county offices of education and community colleges. The program opens for business at the start of the
2018-19 fiscal year.

After the bill’s passage, the California Energy Commission sent out a notice extending the deadline for submitting an energy expenditure plan to January 12, 2018. The original deadline had been August 1, 2017. Amendments to an existing energy expenditure plan that request additional funds must also be submitted by January 12, 2018.

Under SB 110, in order to take advantage of Proposition 39, agencies now have until June 30, 2019 to encumber those funds. The California Energy Commission defines “encumbrances” as “obligations in the form of purchase orders, contracts, salaries, and other commitments chargeable to an appropriation for which a part of the appropriation is reserved.”

After March 1, 2018, SB 110 reappropriates the remaining money in the existing Proposition 39 fund based on the number of school districts, charter schools and county offices of education that have not yet submitted energy expenditure plans. The bill devotes $75 million to loans or grants for school bus replacements or retrofits, prioritizing funding to agencies with the oldest school buses or those operating in disadvantaged communities. It also authorizes $100 million for low- and no-interest revolving loans for projects and technical assistance aimed at expanding clean energy generation and improving energy efficiency, prioritizing funding based on diversity in geographic and agency size, energy savings and the percentage of low-income students served.

Any remaining money from Proposition 39 will be used to provide competitive grants to school districts, charter schools and county offices of education for energy efficiency and generation projects, with 10 percent going to education agencies with 1,000 or fewer students, 10 percent going to agencies with between 1,001 and 2,000 students and the rest going to larger education agencies.

Under the new Clean Energy Job Creation Program beginning in 2018-19, 11 percent of available funds will be allocated to the Chancellor of the California Community Colleges for distribution to community college districts for energy efficiency projects, and the California Energy Commission will distribute the rest to school districts, charter schools and county offices of education.

Projects will be selected based on in-state job creation and energy benefits. Priority for grants made through the new program will be given based on the number of students eligible for free and reduced-price meals, geographic diversity, school type and local area workforce needs. Funding will be available as appropriated in the annual budget act. Both the reallocated funds and money provided to local education agencies under the new program must be encumbered within nine months of allocation to those agencies.

Lozano Smith will provide additional details about the new program as they emerge. If you have any questions about SB 110, Proposition 39 or energy efficiency projects in general, please contact the author of this Client News Brief or an attorney at one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

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©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.