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Western Alaska Building & Construction Trades Council v. Inn-Vestment Associates of Alaska (1/12/96), 909 P 2d 330
<![CDATA[
NOTICE: This is subject to correction before
publication in the Pacific Reporter. Readers are
requested to bring errors to the attention of the Clerk
of the Appellate Courts, 303 K Street, Anchorage,
Alaska 99501, (907) 264-0607.
THE SUPREME COURT OF THE STATE OF ALASKA
WESTERN ALASKA BUILDING & )
CONSTRUCTION TRADES COUNCIL, ) Supreme Court Nos. S-5887/5968
JERRY SMART, LARRY LIBBEY, )
RICHARD GUITTIEREZ, WILLIE )
SALLISON, and LINDA MACHIA, )
)
and )
)
STATE OF ALASKA, DEPARTMENT )
OF LABOR, )
)
Appellants, )
) Superior Court No.
v. ) 3AN 92-4485 CI
)
INN-VESTMENT ASSOCIATES OF ) O P I N I O N
ALASKA and A & A CONSTRUCTION )
AND DEVELOPMENT, INC., )
)
Appellees. ) [No. 4309 - January 12, 1996]
______________________________)
Appeal from the Superior Court of the State
of Alaska, Third Judicial District,
Anchorage,
J. Justin Ripley, Judge.
Appearances: James A. Gasper and William K.
Jermain, Jermain, Dunnagan & Owens,
Anchorage, for Appellants Western Alaska
Building & Construction Trades Council, Jerry
Smart, Larry Libbey, Richard Guittierez,
Willie Sallison and Linda Machia. Robert A.
Royce, Assistant Attorney General, Anchorage,
and Bruce M. Botelho, Attorney General,
Juneau, for Appellant State of Alaska,
Department of Labor. Robert K. Stewart, Jr.,
Davis Wright Tremaine, Anchorage, for
Appellees Inn-Vestment Associates of Alaska
and A & A Construction and Development, Inc.
Before: Moore, Chief Justice, Rabinowitz,
Matthews, Compton and Eastaugh, Justices.
COMPTON, Justice.
MATTHEWS, Justice, with whom MOORE, Chief
Justice, joins, dissenting.
I. INTRODUCTION
The Alaska Railroad Corporation (ARRC) entered into a
general partnership with private investors, Inn-Vestment
Associates of Alaska (IAA). The purpose of IAA was to finance,
construct, and maintain the Comfort Inn (Inn) on ARRC land in the
Ship Creek area of Anchorage. IAA contracted with A & A
Construction and Development, Inc. (A & A) for construction of
the Inn.
The primary question presented in this case is whether
ARRC's involvement in IAA implicated the provisions of Alaska's
Little Davis-Bacon Act, AS 36.05, which requires that workers on
public construction projects receive at least the current
prevailing wage. AS 36.05.010. Both the Alaska Department of
Labor (DOL) and the State Attorney General indicated that the
project was subject to Alaska's Little Davis-Bacon Act, and thus
workers should be compensated in accordance with the statutorily
mandated prevailing wage. In response, IAA and A & A sought
declaratory relief in the superior court, asking that the project
be deemed outside the purview of the statute. IAA, A & A, and
the State each moved for summary judgment. After permitting the
Western Alaska Building and Trades Council (Trades Council) to
intervene, the superior court entered summary judgment in favor
of IAA and A & A.1 DOL and Trades Council appeal. We reverse.
II. FACTS AND PROCEEDINGS
In August 1991 ARRC received a 40% equity share in IAA,
in exchange for contributing the land upon which to build the
Inn. This partnership was formed for the purpose of financing,
constructing, and maintaining the Inn. The remaining 60% of the
partnership was owned by four groups of husband/wife investors
who had previously participated together in other hotel
development projects. ARRC is the largest individual
shareholder.2
Initially ARRC had desired merely to lease its land to
the investors and achieve a return based upon the market lease-
value of the land. However, the investors urged ARRC to join
them, become an equity partner, and execute all IAA loan
obligations as a co-obligor. The investors' stated rationale for
this arrangement, which they had utilized numerous times before,
was to encourage cooperation between the landowner and the other
investors. ARRC agreed to the arrangement, believing that it
could realize a greater return on its land if it participated in
development of the land. By virtue of owning a forty percent
partnership interest, ARRC is the only partner whose approval
must be obtained for significant partnership decisions; such
matters require a sixty-one percent majority approval vote.3
However, day-to-day operational authority is vested in IAA's
managing partner and a management company4 that has been hired to
operate the Inn. ARRC undertook substantial obligations
as a result of its partnership interest in IAA. ARRC leased the
land, valued at $845,000, to IAA for $1.00 annually for a term of
35 years. A renewal term of an additional 35 years is available
at IAA's option. If ARRC divests itself of its partnership
interest at any time, the lease reverts to market lease rates.
In addition to contributing use of the land, ARRC and the other
investors executed as co-borrowers and separate obligors a $3.9
million construction loan agreement. This is an obligation on
which ARRC and the other investors are individually 100% liable.
ARRC does not "use, occupy, or directly control any
part of the . . . Inn project." Instead, in announcing its
participation in the project, ARRC enumerated three purposes for
its involvement: (1) augmenting its passenger business, (2)
creating a source of real estate income and (3) supporting its
redevelopment of the Ship Creek area. Additionally, ARRC noted
that it had a history of investing in hotels, and planned similar
future investments since such enterprises benefit and support
ARRC's passenger business.
IAA contracted with A & A5 for construction of the Inn.
The total costs of improvements to the land eventually amounted
to approximately $3.8 million, including architectural,
engineering, and general contractor fees.
In April 1992 the Attorney General issued an opinion,
and DOL stated, that the project constituted "public
construction" that was subject to the provisions of Alaska's
Little Davis-Bacon Act. IAA and A & A responded by seeking
declaratory relief in the superior court and a ruling that the
Act did not apply to the project.6 Motions for summary judgment
were filed. Before the court ruled on the motions, the Trades
Council and several of its individual members were permitted to
intervene. The superior court granted IAA and A & A's motion,
holding that the Act did not apply. The court, however, provided
no corresponding analysis, findings of fact, or conclusions of
law. Additionally, the court awarded attorney's fees to IAA and
A & A in the amount of fifty percent of their actual fees,
stating that the actual fees were reasonable and, that while
efforts were "not 'labor intensive' in the sense of extensive
discovery, motion practice or trial," the lawyers had conducted
extensive analysis of novel and complex issues. DOL and the
Trades Council appeal both the superior court's holding and its
award of attorney's fees.
III. DISCUSSION
A. Standard of Review
The issue in this case is whether the work performed in
constructing the Inn constituted "public construction" subject to
Alaska's Little Davis-Bacon Act's wage protection provisions. AS
36.05.010, 36.95.010. We are reviewing the superior court's
summary judgment holding that the Act does not apply. In City
and Borough of Sitka v. Construction and General Laborers Local
942, 644 P.2d 227 (Alaska 1982), we addressed the identical issue
on appeal from a summary judgment holding. Id. at 230. We apply
the same standard of review that was appropriate in Sitka: "We
employ de novo review to the question of law raised by the
summary judgment motion." Id. at 230 n.7 (citing Armco Steel
Corp. v. Isaacson Structural Steel Co., 611 P.2d 507, 516 n.22
(Alaska 1980)).
B. Statutory Provisions
The dispute centers on the language of AS 36.05.010 and
AS 36.95.010. Alaska Statute 36.05.010 provides:
A contractor or subcontractor who performs
work on public construction in the state, as
defined by AS 36.95.010, shall pay not less
than the current prevailing rate of wages for
work of a similar nature in the region in
which the work is done. The current
prevailing rate of wages for each pay period
is that contained in the latest determination
of prevailing rate of wages issued by the
Department of Labor before the end of the pay
period.
AS 36.05.010 (emphasis added). It is the phrase "public
construction," and whether it encompasses the Inn project, that
is the basis for the dispute between the parties. Alaska Statute
36.95.010(3), which provides definitions applicable to AS
36.05.010, supplies some assistance in interpreting the phrase:
"[P]ublic construction" or "public works"
means the on-site field surveying, erection,
rehabilitation, alteration, extension or
repair, including painting or redecorating of
buildings, highways, or other improvements to
real property under contract for the state, a
political subdivision of the state,[7] or a
regional school board.
AS 36.95.010 (emphasis added). Because this legislation "is a
remedial act for the benefit of construction workers, [it] is
therefore liberally construed to effectuate its beneficent
purpose." Drivers, Salesmen, Warehousemen, Milk Processors,
Cannery, Dairy Employees and Helpers, Local Union No. 695 v.
NLRB, 361 F.2d 547, 553 n.23 (D.C. Cir. 1966).8
C. Case Law
This court has interpreted the applicable statutory
language in two prior cases: City and Borough of Sitka v.
Construction and General Laborers Local 942, 644 P.2d 227 (Alaska
1982), and Alaska State Federation of Labor v. State, Department
of Labor, 713 P.2d 1208 (Alaska 1986).
1. City and Borough of Sitka v.
Construction and General Laborers Local 942
In Sitka, we concluded that a timber harvesting
contract, which was a necessary precursor to a dam construction
project, fell within the ambit of Alaska's Little Davis-Bacon
Act. We held that the legislation applied even though the timber
agreement was separate from the dam construction contract.
Clearing the land was an integral, preliminary part of dam
construction. Sitka, 644 P.2d at 232. If the severance of the
two contracts were permitted to defeat the application of the
Act, this would have "impermissibly enable[d] a public agency to
profit at the expense of workers engaged in activities
instrumental to a public construction project." Id. at 233.
2. Alaska State Federation of Labor v.
State, Department of Labor
Our decision in Federation provides more specific
guidance. The State Department of Community and Regional Affairs
granted $1 million to the Central Council of Tlingit and Haida
Indian Tribes of Alaska for the construction of a community hall.
The question presented was whether the transfer of funds via the
grant invoked the provisions of AS 36.05.010. Federation, 713
P.2d at 1210. As in the instant case, interpretation of AS
36.95.010(3)'s language, "under contract for the state," was the
central issue in the dispute. See id. at 1210. In analyzing the
situation in Federation, we considered all circumstances
surrounding the transaction, rather than focusing on one factor
as determinative. In utilizing this approach, we stated: "The
Act clearly envisions contracts between the state or a political
subdivision, and a contractor for the construction of a specified
public project." Id. The contract involved a grant, i.e. the
provision of funds and not construction itself. Id. While the
structure would be used for a public purpose, the fact that the
State would not retain control over or continue to fund the hall
after construction belied the existence of a construction
contract for the State. Id. Furthermore, the State supplied
funds that constituted only twenty-five percent of the
construction costs. Id. at 1211. In holding that this project
fell outside the provisions of the Act, we explained:
[T]he state never owned or controlled, nor
intended to control or own the [structure].
The project was not public construction. The
Act defines public construction as
construction 'under contract for the state.'
This requires significant state involvement.
The evidence, however, shows that the project
was intended primarily for private purposes
and private control. State involvement was
indirect--funding through a grant--and
relatively small--only about twenty-five
percent of the total cost.
Id. at 1211 (emphasis added). Thus, Federation yields a list of
factors for us to consider in determining whether the Inn project
constitutes "public construction": (1) the nature of the
contract (whether the contract was for the provision of funds or
for the construction itself); (2) whether the structure will be
used for a public purpose; (3) whether the State will control the
structure after construction; (4) whether the State will continue
to fund the project after construction; and (5) the relative
portion of project financing that the State supplied.9 Implicit
in Federation is the notion that these facets of State
involvement are not intended to be considered individually.
Rather, they are to be weighed in total to determine whether
there is "significant state involvement" in the project.10 See
id.
3. Analysis of factors implicating
"significant state involvement" in the
construction project
a. Nature of the contract
This factor is less germane to the instant case than it
was in Federation. In that case, the State was providing funds
in the form of a grant. 713 P.2d at 1209. Here, there is a
construction contract in which ARRC is a participant through its
involvement with IAA.
Nevertheless, IAA argues that the existence of a
contract between a State entity and a contractor is the "single
most important factor" in determining if a project is "public
construction." IAA attempts to disguise State involvement in the
building contract. IAA argues that it was the partnership that
made the agreement, and that ARRC was not a party to the
contract.
IAA's characterization is accurate, but ARRC has the
ability to significantly influence the actions of IAA. ARRC
could have vetoed the construction contract, via the provision of
the partnership agreement that requires a sixty-one percent
majority approval of major decisions such as construction and
financing of the project. Its participation in securing the
funds, and the security it provided to the lenders, may be viewed
as a significant factor in obtaining the loan. Additionally,
ARRC's involvement in the project resulted in substantial
liability for ARRC. Each of these considerations indicates
"significant state involvement." Permitting IAA to avoid
application of the Act based upon the State's role being masked
behind the partnership veil would defeat the "fundamental
purpose" of the Little Davis-Bacon legislation: "to assure that
employees engaged in public construction receive at least the
prevailing wage." City and Borough of Sitka v. Construction and
Gen. Laborers Local 942, 644 P.2d 227, 232 (Alaska 1982).
Furthermore, such a result would encourage similar arrangements
in the future, arrangements that could be designed to circumvent
the Act's application. This would permit the situation this
court warned against in Sitka and "impermissibly enable[] a
public agency to profit at the expense of workers engaged in
activities instrumental to a public construction project." Id.
at 233.
b. Public purpose of the project
The day after deciding to participate as a partner in
IAA and its development of the Inn project, ARRC's President and
CEO issued the following statement to the Railroad's employees:
I have some interesting news for you today:
the Alaska Railroad Corporation plans on
getting back into the hotel business. . . .
The long-term benefits of this project are
what make it most attractive: we augment our
passenger business, create a source of real
estate income and support our redevelopment
of the Ship Creek area. We have a long
history of owning hotels such as those that
operated at Curry and at Healy. We foresee
other hotels being built upon ARRC property,
especially near Denali Park or at Fairbanks.
I believe hotels are natural enterprises in
which the Railroad should invest because they
can benefit and support our passenger
business. We're convinced we'll be able to
provide better customer service and attract
more customers by having convenient,
affordable accommodations to market with rail
trips.
As DOL asserts, this statement indicates that a public
corporation was pursuing the Inn opportunity not only because it
was a beneficial financial investment, but also because it would
enhance the passenger portion of this public corporation's
business. Additionally, ARRC's participation in the "hotel
business" was an activity that was ongoing.
IAA's position is that this view "confuse[s] the
concept of public benefit with those of public purpose and use,"
as the Inn is a private facility that is not open to public use.
In support of this assertion, IAA, while recognizing the benefits
of increased employment and downtown development, cites four
cases for the proposition that "incidental" public benefits can
be distinguished from public purposes. See Daniels v. City of
Fort Smith, 594 S.W.2d 238, 240-41 (Ark. 1980); Zickhur v.
Bowling, 423 N.E.2d 257, 261 (Ill. App. 1981); Gregory v. City of
Lewisport, 369 S.W.2d 133, 135 (Ky. 1963); Erie County Indus.
Dev. v. Roberts, 26 Wage & Hour Cases (BNA) 627, 632 (N.Y. App.
Div. 1983), aff'd, 472 N.E.2d 43 (N.Y. 1984). The cases that IAA
cites for the "incidental" public benefits rationale all involved
government-sponsored bond financing. Therefore, these courts,
just as this court in Federation, were reviewing situations where
the government was merely involved in the financing of a project.
Three of these courts specifically mentioned that the
governmental entity would retain little control of the project in
the long term. Daniels, 594 S.W.2d at 240; Zickhur, 423 N.E.2d
at 261; Erie County, 26 Wage & Hour Cases (BNA) at 631.11 These
situations are distinguishable from the instant case, since ARRC
will continue to share in the financial future and management of
the Inn.12 Therefore, these cases are not persuasive.
Furthermore, IAA does not fully address DOL's argument
that the motivation for ARRC's involvement is the enhancement of
its passenger business, and not merely an investment opportunity.
Trades Council cites Harris v. City of Cincinnati, 607 N.E.2d 15
(Ohio App. 1992), for, among other things, that court's
recognition that where government involvement in a project is
significantly motivated by enhancement of the downtown community
(e.g., reconstructing/rehabilitating the slum, improving the
area's appearance, attracting businesses and consumers to the
downtown), this is a factor in favor of finding that the
construction is subject to prevailing-wage laws. Id. at 20.
Similarly, ARRC was attracted to the Inn project because of its
effect on the Ship Creek area re-development project. While
IAA's brief does address Harris, it does not respond persuasively
to Trades Council's reliance on the case. Rather, IAA
distinguishes Harris, based on the presence of some differing
facts and a varying statutory scheme. While these distinguishing
factors do exist, they do not nullify Harris' implications
regarding ARRC's motivation for participating in the project,
which in large measure is derived from ARRC's desire to
participate in the hotel industry, as compared to other projects,
as a complement to its passenger business. This factor weighs in
favor of finding that ARRC's participation was in furtherance of
a public purpose.
c. State control of the structure
after completion
As discussed, by virtue of its forty percent share of
IAA, ARRC enjoys the ability to veto any major partnership
decisions. In minimizing the importance of this factor, IAA
cites National Railroad Passenger Corp. v. Hartnett, 30 Wage &
Hour Cases 977 (BNA) (N.Y. 1991), for the proposition that the
ability to veto certain project decisions is insufficient to
constitute the requisite public control. Again, however, this
was only one factor in that court's analysis, and it is important
to recognize that the veto authority there had a much more
limited scope than in the instant case. See id. at 979.
Furthermore, the court also noted that it was the private
corporation that bore the risk of project loss in the future.
Id. In the case of IAA, it is ARRC that will absorb its
proportionate share of any Inn deficit.
Additionally, ARRC can terminate the lease on one
year's notice at any time during the renewal term (i.e., after
the first thirty-five years of the lease). Even though this
would mean compensating IAA for the fair market value of
improvements, this ability still represents a further degree of
control for ARRC in the continuing operations of the Inn. If a
private individual enjoyed this position in such a venture, his
or her involvement would be considered "significant." ARRC
should receive a similar evaluation. This is the case even
though authority for day-to-day operations is vested in a
management company and the general partner. Considering ARRC's
posture in the partnership and the power ARRC wields, other IAA
partners simply cannot ignore its desires.
d. State funding after
construction
The State would be obligated to provide funds on a
continuing basis only if the Inn ran a deficit, or the debts and
obligations of the partnership required further contributions
from partners.13 Therefore, analysis of this factor militates
against finding "significant state involvement," as it does not
appear that ARRC would have continuing obligations. However, the
existence of some ARRC responsibility for partnership losses and
obligations makes this factor less persuasive.
e. Relative portion of financing
supplied by the State
This factor weighs in favor of IAA's position. IAA
argues that even assuming that ARRC essentially provided the fair
market value of the land in exchange for its partnership share,
this contribution constitutes no more than 18.3%14 of the total
project costs, an assertion that DOL and Trades Council do not
refute. This is significantly less than the twenty-five percent
of project costs--and, expressed in other terms, also less than
the $1 million--that this court deemed "relatively small" in
Federation. 713 P.2d at 1211. In this case, most of the funds
needed for construction are being obtained from a commercial
lender. However, ARRC's participation in the lending process as
a co-obligor with 100% liability for the loan amount, a fact that
IAA concedes, cannot be overlooked. This pledge was undoubtedly
a benefit to IAA in obtaining the loan. Furthermore, it is again
important to remember the context of Federation: a grant
contract, with indirect State funding, and no State obligation to
retain control or fund the project upon completion. The
percentage of State funding factor alone is not determinative.
It is the total mixture of circumstances which must be reviewed
in determining if there is "significant state involvement."
IV. CONCLUSION
The totality of circumstances indicates that the
State's role provides the significant involvement that this court
has deemed necessary in order to conclude that a project is
"public construction" subject to Alaska's Little Davis-Bacon Act.
See id. at 1211. ARRC was a party to a construction contract via
its significant participation in IAA. ARRC undertook a
significant liability that was of benefit to IAA in obtaining a
construction loan for millions of dollars. ARRC's involvement in
the project was due not only to an investment incentive, but also
due to ARRC's desire to augment its passenger business and
further the development of the Ship Creek area. Additionally,
ARRC has pursued investment in hotels in a continuing course of
action. Consistent with this role, ARRC will continue to
participate in the financial future of the Inn. In view of its
ability to veto significant, non-routine partnership
transactions, ARRC wields substantial power in the functioning of
IAA. Even though ARRC's portion of the total project financing
was small, the other enumerated considerations indicate that
State involvement in the Inn project was "significant."
Therefore, the provisions of Alaska's Little Davis-Bacon Act that
mandate payment of prevailing wages apply. This fulfills the
legislation's fundamental purpose: "to assure that employees
engaged in public construction receive at least the prevailing
wage." City and Borough of Sitka v. Construction and Gen.
Laborers Local 942, 644 P.2d 227, 232 (Alaska 1982).
The judgment of the superior court is REVERSED and the
case REMANDED to the superior court with directions to enter
summary judgment in favor of the appellants.15
MATTHEWS, Justice, with whom MOORE, Chief Justice, joins,
dissenting.
I.
While I do not mean to minimize the difficulty of
devising a test to determine whether the Little Davis-Bacon Act
applies to a construction project, I am concerned that the five-
factor approach adopted in today's opinion gives very little
guidance as to how future cases should be decided. Persons
involved in a project in which the state will or may participate
will encounter serious difficulties in attempting to predict
whether the Act will apply to their project. The approach may
deter building projects in which the state participates alongside
private business by making these projects too expensive. The
five-factor approach may also engender unnecessary litigation.
In my view, focusing on two factors, the nature of
ownership of the building or work and the nature of use of the
building or work, is all that is needed for a proper decision in
most cases. Only when these two factors point in opposite
directions do other factors have to be considered. Further, I
think that requiring consideration of five unweighted factors in
all cases tends to make it difficult to distinguish hard cases
from easy cases. Finally, I am concerned that the opinion sets
up deciding whether there is "significant state involvement" as
the goal of the five-factor approach, whereas the statutory goal
of any analysis should be to determine whether a project
constitutes "public construction," or a "public work[]." See AS
36.05, AS 36.95.010(3).
II.
The result of today's opinion is not compelled by our
prior case law. The multiple factor approach used in the opinion
is purportedly derived from our decision in Alaska State
Federation of Labor v. State, Department of Labor, 713 P.2d 1208
(Alaska 1986). However, Federation does not prescribe a multi-
factor test. It does discuss factors similar to the factors used
in today's opinion. But it does not say which of those factors
are important and which are not, and it does not state that a
totality of the circumstances test should determine whether the
Act applies. Rather, it merely rejects a series of arguments
that were made in favor of applying the Act in that case which
correspond to the factors used in today's opinion. Id. at 1210-
11.
III.
In my view, focusing on the reason that the Act does
not apply to all construction projects helps in making an
informed choice as to the types of projects to which the Act
should apply.
Alaska's Little Davis-Bacon Act is based on the federal
Davis-Bacon Act, which was passed in 1931. In Universities
Research Ass'n v. Coutu, 450 U.S. 754, 773-74 (1981), the United
States Supreme Court explained that the purpose of the Davis-
Bacon Act was to prevent contractors from lowering wage rates in
local labor markets by importing cheap labor. The Court stated,
The Act was "designed to protect local wage
standards by preventing contractors from
basing their bids on wages lower than those
prevailing in the area." Passage of the Act
was spurred by the economic conditions of the
early 1930's, which gave rise to an
oversupply of labor and increased the
importance of federal building programs,
since private construction was limited. In
the words of Representative Bacon, the Act
was intended to combat the practice of
"certain itinerant, irresponsible con
tractors, with itinerant, cheap, bootleg
labor, [who] have been going around
throughout the country 'picking' off a
contract here and a contract there."
Id. at 775 (citations omitted). The Court did not explain who
the "cheap, bootleg labor" were, where they came from, or why
Congress felt that it was fair to benefit local labor at the
expense of the "cheap, bootleg labor." The history of the Act
indicates that the cheap laborers were mainly Southern Black
workers who were used by contractors in the North to work on
federal projects.16 For this reason and others, the Davis-Bacon
Act has been criticized as harming minorities and being motivated
by racism. See John P. Gould & George Bittlingmayer, The
Economics of the Davis-Bacon Act: An Analysis of Prevailing Wage
Laws 8-9, 62-63 (1980); Kenneth M. Roberts, Labor Law -- The
Davis Bacon Act, Another Setback for Labor: Building &
Construction Trades' Department v. Donovon, 10 J. Corp. L. 277,
279 (1984).
Merely because the federal Davis-Bacon Act may have
roots in protectionism and prejudice does not mean that its
Alaska counterpart was enacted for similarly questionable
motives. Knowledge of this history does, however, counsel
against an easy assumption that this is legislation whose
beneficent public purpose is so apparent that it is necessarily
entitled to a broad construction.
Our case law states that "[t]he fundamental purpose of
Little Davis-Bacon is to assure that employees engaged in public
construction receive at least the prevailing wage." City &
Borough of Sitka v. Construction & Gen. Laborers Local 942, 644
P.2d 227, 232 (Alaska 1982). This statement of purpose does not
without further analysis help to determine whether a particular
project should be treated as public construction under the Act.
Figuring out whether the Act should apply in this case requires
discovering what special characteristics public construction has
that justify a prevailing wage law covering workers in public
construction but not workers in private construction.
As the facts of this case illustrate, the prevailing
wage required by Little Davis-Bacon is higher than that which
will be paid by at least some cost-conscious owners and
contractors. The purpose of the Act is thus to establish a wage
floor which increases the income of workers in public
construction. It is a "minimum wage law designed for the benefit
of construction workers." United States v. Binghamton Constr.
Co., 347 U.S. 171, 178 (1954), quoted in Fowler v. City of
Anchorage, 583 P.2d 817, 822 n.9 (Alaska 1978). With regard to
this purpose, the natural question is why the Act does not apply
to all construction, public and private. The likely answer is
that attempting to apply the Act to private construction would
discourage some private construction, which, in turn, would hurt
the construction workers whom the Act is intended to benefit.
Presumably, this is not a problem with public construction,
because the level of public construction is determined by the
needs of the public and by political considerations, and is not
dependent on the profit motive.
This suggests that projects built with a for-profit
motive, especially those that are in competition with projects
which are purely private in every sense, should not be included
within the statutory term "public construction."
IV.
A review of the published opinions of the Alaska
Attorney General reveals some of the enormously diverse
circumstances in which questions concerning the application of
the Act arise. I give only a few examples here and indicate the
conclusion of the Attorney General:
March 14, 1991
Does the Act apply to a contract awarded by the
state for the clean-up of contaminated dirt on private
land?
No. The clean-up was not associated with an
identifiable public construction project and the
property was not intended for public use.
1991 Informal Op. Att'y Gen. 201.
April 18, 1986
Does the Act apply to weatherization contracts
paid for by the state for improving "low-income homes"?
No. The property improved is privately owned and
not publicly used. (This opinion reversed an opinion
of December 30, 1985, which concluded that the Act
probably did apply to weatherization contracts because
the state and political subdivisions were the
contracting parties. 1985 Informal Op. Att'y Gen.
539.)
1986 Informal Op. Att'y Gen. 321.
July 3, 1984
Does the Act apply to a contract between a borough
and an oil company under which the oil company agreed
to construct a natural gas pipeline paid for by the
borough to an industrial center? The oil company will
own the pipeline subject to a two-year option in the
borough to acquire ownership of the pipeline if it can
obtain the necessary permits during that period.
Yes. Even though ownership may remain in private
hands, the contract is directly with a public entity.
The provision of gas to the industrial center will
serve the interest of the general public and the
borough hopes ultimately to own the pipeline.
1984 Informal Op. Att'y Gen. 33.
December 21, 1983
Does the Act apply to a construction contract
between a rural electrification association (not a
state agency or instrumentality) and a contractor for
the construction of a substation and transmission line
using state funds? The line and substation are
necessary for the utilization of a state hydro-electric
project but are not currently owned by the state.
Yes. The project "involves the undertaking or
provision of traditional government facilities,
services, or activities" and thus is covered by the Act
because the transmission line and substation are needed
to utilize the state-owned hydro-electric project.
Further, the author of the Attorney General's opinion
"understand[s]" that the line and substation eventually
will be owned by the state.
1983 Informal Op. Att'y Gen. 450.
June 9, 1983
Does the Act cover the Alaska State Housing
Authority in general and specifically with respect to
construction of a senior citizen housing project in
Fairbanks?
Alaska State Housing Authority is covered as a
state agency. Concerning the senior citizen housing
project the Act does not apply because of an exemption
(AS 18.55.110) which applies where federal funding
would be jeopardized as it would for the Fairbanks
project because HUD regards the state's prevailing wage
rates under the Act to be "excessive."
1983 Informal Op. Att'y Gen. 421.
May 23, 1983
Does the Act cover a state grant to the Alaska
Native Brotherhood for the construction of a meeting
hall?
No. The uses to which the building will be put
are not the type that are traditionally provided by
government. (This conclusion was subsequently affirmed
in Federation, 713 P.2d 1208).
1983 Informal Op. Att'y Gen. 395.
March 11, 1983
Does the Act apply to designated grants to private
nonprofit corporations to construct buildings such as a
daycare center, a "human services complex," and a
public works facility?
The answer depends on the nature of the particular
project. If the project involves "the undertaking or
provision of traditional government facilities,
services, or activities it is covered by the Act . . .
[h]owever, if the work contracted out is not like that
traditionally carried out or provided by government, it
is not covered . . . ."
1983 Informal Op. Att'y Gen. 235.
I think that a review of these examples illustrates the
imprudence of substituting the rubric "significant state
involvement" for "public construction." The clean-up contract
(1991 Informal Op. Att'y Gen. 201), the weatherization contracts
(1986 Informal Op. Att'y Gen. 321), and the designated grants
(1983 Informal Op. Att'y Gen. 235), all seem to be completely
publicly funded -- it would be impossible to say that they are
lacking in significant state involvement. Yet, because of the
private nature of the use and ownership of the property involved
in each case, it seems difficult to argue with the conclusion
that the projects do not involve public construction.
The wide variety of fact situations illustrated by
these examples counsels against an attempt to devise an all-
purpose test to determine when a project is public construction.
Still, I think that focusing on what seem to be the two most
important factors rather than the five referred to in today's
majority opinion should be dispositive in most cases. The
factors to which I refer are (1) the nature of the intended use
of the public work or building and (2) the nature of the
ownership of the public work or building.
I select these two factors for the following reasons.
Asking whether the nature of the intended use is public or
private in character focuses on the "public" aspect of the
statutory terms "public construction" and "public works." See AS
36.05, AS 36.95.010(3). Further, intended public use seems to be
a sine qua non for the application of the Act in the two cases we
have decided, Sitka, 644 P.2d 227, and Federation, 713 P.2d 1208,
in the fact situations on which the Attorney General's opinions
are based,17 and in the opinions of other state courts referred to
in today's opinion.
Focusing on public ownership of a work or building
directs the analysis to the central, though not exclusive,
meaning of the statutory term "under contract for the state."
See AS 36.95.010(3). In Sitka and Federation the presence or
absence of public ownership is consistent with the results
reached. Thus, in Sitka, the project was publicly owned and the
Act applied, and in Federation the project was privately owned
and the Act did not apply. This pattern, however, does not hold
in all of the state cases referred to in today's opinion. In
industrial development agency cases projects are publicly owned
subject to long-term leases to private businesses. This form of
ownership exists to facilitate financing with tax exempt bonds
and is held not to require application of prevailing wage
statutes. See Daniels v. City of Fort Smith, 594 S.W.2d 238, 239-
41 (Ark. 1980); Zickuhr v. Bowling, 423 N.E.2d 257 (Ill. App.
1981); Gregory v. City of Lewisport, 369 S.W.2d 133, 135-36 (Ky.
1963); Erie County Indus. Dev. Agency v. Roberts, 465 N.Y.S.2d
301 (N.Y. App. 1983), aff'd, 482 N.Y.S.2d 267 (N.Y. 1984);
Penfield Mechanical Contractors, Inc. v. Roberts, 462 N.Y.S.2d
393 (N.Y. Sup.), aff'd, 470 N.Y.S.2d 992 (N.Y. App. 1983), aff'd,
481 N.Y.S.2d 72 (N.Y. 1984). In these cases, private use of the
project was of overriding importance. Referring to the fact
situations presented in the Attorney General's opinions, whether
ownership is or is expected to be public is consistent with the
results reached in all of the cases except for the designated
grants case (1983 Informal Op. Att'y Gen. 235) where despite
private ownership, public use was held to control.
Where a project is one in which the two factors, nature
of use and nature of ownership, coincide, whether or not to apply
the Act can be easily resolved. If a building is intended for a
use which is traditionally associated with government and it is
government-owned, the contract to build the building should
clearly come within the terms of the Act. A state-owned building
used for state offices, a municipality-owned building used for a
school, and state- or municipality-owned airports or roads are
just a few of the numerous examples that fit in this category.
Similarly, where the use of a building is one which is not
traditionally associated with government and the building is
privately owned, I suggest that the Act clearly should not apply
even if there is significant state funding. Examples would
include construction with state funds of a privately owned
building to be used as a meeting place for a private
organization,18 or a contract between the state and a contractor
to improve the energy efficiency of a privately owned building
used as a private home.19
The difficult cases are those where there is private
ownership, but a traditionally public use, or public ownership,
but a traditionally private use. An example of the former might
include a privately owned building which is subject to a long-
term lease to the state for a public use which was entered into
prior to construction.20 Examples of the latter would include a
state-owned building which the state has acquired merely for
investment purposes but the use of which is private in nature,21
or where the state acquires by or in lieu of foreclosure a
structure dedicated to private uses which must be rehabilitated.
These are cases where the factors of ownership and use point in
opposite directions. In order to decide whether the projects in
such cases are "public construction" additional analysis will be
needed.22
V.
I view the project in this case as one in which the use
and ownership factors coincide. Both indicate that the
construction of the Comfort Inn is not within the coverage of the
Act.
The Comfort Inn is used as a hotel. It is available
for use to hotel patrons in a manner which is not at all
different from any private hotel and it is in competition with
other hotels. Its use is, inarguably, private.23
The ownership factor also weighs against application of
the Act. The Alaska Railroad Corporation holds a minority
ownership position, forty percent, in Inn-Vestment Associates of
Alaska, the partnership which owns the Comfort Inn. I consider
that minority ownership on the part of the state does not satisfy
the public ownership factor for two reasons. First, AS
36.95.010(3) defines "public construction" as construction "under
contract for the state," and the partnership is not an alter ego
of the state. Second, minority shares in enterprises are
typically acquired for investment -- profit-making -- reasons.24
For the above reasons, I conclude that the construction
of the Anchorage Comfort Inn was not "public construction" or a
"public work" to which the Act applies. Both the use and the
ownership of the project indicate that the Act should not apply.
_______________________________
1 IAA and A & A filed a single appellees' brief in this
court. Therefore, references to the appellees' arguments will be
addressed as those of IAA, but represent A & A's also.
2 The four husband/wife investment teams owned 23%, 12%,
18% and 7%, respectively, of IAA.
3 IAA maintains that all partners enjoy the ability to
veto fundamental partnership decisions. However, IAA's citation
to the record does not confirm this assertion.
4 The husband/wife investor groups that comprise the 60%
of IAA not owned by ARRC also own the management company.
5 A & A is owned by a husband and wife team who are also
partners in IAA.
6 In their briefs, the parties did not specify, or
provide a citation to the record for, the incremental wage costs
that IAA would have incurred if it had complied with the Act.
During oral argument, the Trades Council's attorney maintained
that in an affidavit that ARRC had submitted to the superior
court, the incremental cost of compliance was estimated at
$500,000 to $600,000.
7 Alaska Statute 36.95.010(6) additionally provides that
"'state or political subdivision of the state' means any state
department, state agency, state university, borough, city,
village, school district or other state subdivision."
8 "The fundamental purpose of [Alaska's] Little Davis-
Bacon is to assure that employees engaged in public construction
receive at least the prevailing wage," the same purpose as under
the federal legislation. City and Borough of Sitka v.
Construction and Gen. Laborers Local 942, 644 P.2d 227, 232 &
n.11 (Alaska 1982). This court has held that because the Federal
Davis-Bacon Act is the model for Alaska's legislation, federal
precedent is persuasive in the absence of decisions from Alaska's
courts. Id. at 231.
9 This list of factors is not comprehensive. Situations
may demand consideration of additional factors. Furthermore,
these illustrative factors need not necessarily be given equal
weight. We recognize that the two factors relied on by the
dissent (nature of ownership of building or work, and nature of
use of the building or work) will often be particularly important
or even dispositive in many, but not all, cases.
10 Cases from other jurisdictions are of only limited
assistance in resolving this dispute. Varying combinations of
aspects of state involvement and differing statutory schemes mean
that no one case is likely to be persuasive. See Penfield
Mechanical Contractors v. Roberts, 462 N.Y.S.2d 393, 395 n.1
(N.Y. Sup. Ct. 1983) ("Authority from other jurisdictions is of
limited value due to differing statutory schemes.") aff'd, 470
N.Y.S.2d 1021 (N.Y. Div. 1983) aff'd, 481 N.Y.S.2d 72 (N.Y.
1984).
11 The dissent relies on National Railroad Passenger Corp.
v. Hartnett, 30 Wage & Hour Cases 977 (BNA) (N.Y. 1991). Like
the cases cited by IAA, the National Railroad court also found it
important that future financial loss risk, physical destruction,
and operational profits all resided with private interests and
not the State. Id. at 979. "These are the factors that have
repeatedly been held sufficient to preclude any determination
that a given project constitutes a public works . . . ." Id. In
the instant case, these factors are not present, as ARRC shares
in these aspects of the operation via its partnership interest.
12 This factor is especially persuasive. Where a State
entity shares in operational profits and losses as a result of
its participation in a project, this weighs heavily in deeming a
project "public construction"; the benefits or costs of such
participation will accrue to the State.
13 In fact, ARRC already provided $485,000, pursuant to a
capital call, to fund interim construction costs before the
approval of the construction loan. These funds were to be
returned once the construction loan closed.
14 $845,000 fair market value of land ) ($3,764,732
construction costs + $845,000) = 18.3%.
15 Because of our disposition of this case, the award of
attorney's fees is vacated and this matter remanded for an
appropriate award of attorney's fee to the appellants.
16 During Congressional debate of the bill that became the
Davis-Bacon Act, one Congressman stated:
Reference has been made to a contractor from
Alabama who went to New York with bootleg
labor. That is a fact. That contractor has
cheap colored labor that he transports, and
he puts them in cabins, and it is labor of
that sort that is in competition with white
labor throughout the country.
John P. Gould & George Bittlingmayer, The Economics of the Davis-
Bacon Act: An Analysis of Prevailing Wage Laws 8 (1980).
17 The only exception is the opinion relating to the
exemption in AS 18.55.110. See 1983 Informal Op. Att'y Gen. 421.
18 See Federation, 713 P.2d 1208.
19 See 1991 Informal Op. Att'y Gen. 201, the Attorney
General's opinion concerning weatherization.
20 See Gregory, 369 S.W.2d at 135-36.
21 See AS 37.13.120(g)(16), which permits the Alaska
Permanent Fund to own all of a commercial real estate project if
the total value of all real estate investments of the fund do not
exceed $150 million (if total real estate investments exceed $150
million, equity participation is limited to no more than a sixty-
seven percent beneficial ownership interest in any particular
project).
22 However, case law from other states suggests that the
nature of the use of the project is generally the most important
factor. See Daniels, 594 S.W.2d at 238-40 (industrial facility
backed by public financing not subject to prevailing wage law
because it was not for public use); Zickuhr, 423 N.E.2d at 259-62
(private warehouse paid for with municipal bonds not for public
use and consequently not covered by prevailing wage law);
Gregory, 369 S.W.2d at 135 (industrial plant financed by public
bonds not subject to prevailing wage statute, since statute
"aimed primarily at construction of buildings for public use");
National R.R. Passenger Corp. v. Hartnett, 572 N.Y.S.2d 386, 388-
90 (N.Y. App. 1991) (construction of railroad line for private
rail company not subject to prevailing wage law even though state
provided 40% of financing, had right to veto contractors and
significant changes in project, and retained contingent
reversionary rights); Erie, 465 N.Y.S.2d at 305-06 (printing
plant given public financing not "public works" and not covered
by prevailing wage law, as "public works" are those projects
constructed for public use); Penfield, 462 N.Y.S.2d at 395
(private office and storage facility not public works within
meaning of prevailing wage statute because it was not for public
use).
23 Today's opinion refers to a use factor but discusses
public purpose rather than public use in its application of that
factor. The existence of a public purpose is of course a
requisite for any state spending. Article IX, section 6 of the
Alaska Constitution prohibits any appropriation of public money
"except for a public purpose." Consistent with the public
purpose clause of our constitution, public money can be spent on
private buildings. See Walker v. Alaska State Mortgage Ass'n,
416 P.2d 245, 251-53 (Alaska 1966); DeArmond v. Alaska State Dev.
Corp., 376 P.2d 717, 721-22 (Alaska 1962). This does not mean,
however, that the uses of the private buildings thus benefitted
are in any sense public. The distinction between a public
purpose which justifies the expenditure of funds and the public
use of a project which justifies application of a prevailing wage
law has received judicial recognition. See Daniels, 594 S.W.2d
at 240 ("[W]e find no language . . . which indicates that the
terms 'public purpose' and 'public use' are synonymous . . . .");
Zickuhr, 423 N.E.2d at 261 ("While it seems clear that the city .
. . will publicly benefit from the employment opportunities
afforded by the presence of the new warehouse, and while it is
also clear that the provisions of the Bond Act are for a public
purpose and benefit, it is just as clear that the actual use of
the project is private in nature."); Erie, 465 N.Y.S.2d at 306
("The public purpose of the financing scheme must not be confused
with the purely private purpose of the venture itself, its
structure and its operation.").
24 This rationale seems appropriate, given that the
legislature chose not to extend the Act to private projects,
probably because the Act would tend to discourage some private
projects. See supra ' III.
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