“Public Work” under the Pennsylvania Prevailing Wage Act; Municipal Bonds

Ursinus College v. Prevailing Wage Appeal Bd., 280 A.3d 1113 (Pa. Cmwlth. 2022), allocatur granted Feb. 22, 2023, appeal docket 18 MAP 2023

In this case, the Pennsylvania Supreme Court will consider whether a construction project undertaken by Ursinus College (Ursinus) was “public work” under Section 2(5) of the Pennsylvania Prevailing Wage Act (Act) because the project was financed through bonds issued by the Montgomery County Higher Education and Health Authority (Authority).

Section 2(5) of the Act, in relevant part, defines “public work” as

construction … work, other than maintenance work, done under contract and paid for in whole or in part out of the funds of a public body where the estimated cost of the total project is in excess of twenty-five thousand dollars ($25,000), but shall not include work performed under a rehabilitation or manpower training program.

Slip op. at n. 1, quoting 43 P.S. § 162-2(5) (emphasis added by Commonwealth Court).

This dispute was brought before the Prevailing Wage Appeal Board (Board) when the International Brotherhood of Electrical Workers, Local No. 98 (IBEW) filed a grievance under the Act, alleging that the Project was public work subject to the Act. Commonwealth Court summarized the factual background as follows:

The IBEW is a labor organization that represents workmen under the Act. Reproduced Record (R.R.) at 183a. Ursinus is a private, non-profit college. The Authority was created under the Municipality Authorities Act of 1945 (MAA), and is authorized to issue bonds for projects conducted by eligible educational institutions, including Ursinus. R.R. at 183a. In 2016, Ursinus’ board authorized Ursinus to pursue certain construction projects, including the Project, and to borrow up to $23 million to pay for a portion of the Project. Id. The Authority approved a resolution to issue the bonds for the Ursinus Project. Id. The Board included as exhibits the various bond documents including the Loan Agreement between Ursinus and the Authority (Loan Agreement), the Trust Indenture between The Bank of New York Mellon Trust Company, N.A. (Trustee) and the Authority (Trust Indenture), and the Bond Purchase Agreement between the RBC Capital Markets, LLC (Underwriter) and Ursinus (Bond Purchase Agreement). Id. at 184a.

The Authority sold the bonds to the Underwriter. R.R. at 184a. The Underwriter paid the purchase price of the bonds to the “order of” the Authority, as reflected in the closing statements. Id. The bond transaction documents reflect the following steps in the transaction: the Authority sold the bonds to the Underwriter; Ursinus paid costs, fees, and expenses for the transaction; the Trustee deposited the bond Board, 570 Pa. 96, 808 A.2d 881 (2002) (Penn National II), to stand for the proposition that, if the funds used by Ursinus for the Project proceeds into a project fund from which the Trustee disbursed project costs to Ursinus; Ursinus paid debt service on the loan to the Trustee; the Trustee deposited Ursinus’ payments into a bond fund held by the Trustee; and the Trustee paid the bondholders directly from the bond fund. Id. at 184a-85a. The construction work on the Project exceeds $25,000, and the work to be performed on the Project is all under contract with Ursinus. Id. at 185a.

The Board made additional findings based on recitals from the resolutions and bond documents in the record as follows. The Loan Agreement recites “[s]imultaneously with the execution, and delivery of this Loan Agreement, the Authority has duly executed and delivered the [Trust] Indenture and issued and sold the bonds.” R.R. at 39a, 187a. “The Authority agrees, upon the terms and conditions contained in this [Loan] Agreement, to lend to [Ursinus] the proceeds as provided in the [Trust] Indenture.” Id. at 41a, 187a. The proceeds from the sale of the bonds shall be loaned to Ursinus pursuant to Section 3.01 [of the Loan Agreement] and such proceeds shall be paid over to the Trustee for application in accordance with the terms of the Trust Indenture. Id. By resolution dated November 1, 2016, the Authority assigned all rights, title, and interest in the Loan Agreement to the Trustee. Id. at 70a-71a. In consideration of and in repayment of the loan, Ursinus shall make payments to the bondholders. Id. at 43a, 187a-88a.

From the Trust Indenture, the Board recited the following. The Authority is a public instrumentality of the Commonwealth established under the MAA, with the purpose of financing land and buildings for eligible public and private educational institutions. R.R. at 77a, 188a. The Authority authorized and approved the Project for the benefit of Ursinus, and authorized the issuance of $23 million in revenue bonds for the Project. Id. “The Authority has caused the [r]evenues to be paid directly to the Trustee pursuant to the assignment to the Trustee of the Loan Agreement.” Id. at 95a.

From the Bond Purchase Agreement, the Board recited the following. Subject to the terms therein, the Underwriter agrees to purchase from the Authority, and the Authority agrees to sell, all of the Authority’s bonds for the Project. R.R. at 137a, 189a. Pursuant to the Loan Agreement dated November 1, 2016, the proceeds of the bonds will be loaned to Ursinus for the Project. The Authority has full authority under the MAA to sell, issue, and deliver the bonds to the Underwriter. Id. at 140a, 189a. The Closing Statement, directed to the Trustee on November 22, 2016, dated after the bonds were issued and the funds transferred to the Trustee, directs the Trustee to make disbursements from the Project fund. Id. at 164a-65a, 189a-90a.

Slip op. at 3-5.

Applying Lycoming County Nursing Home Association, Inc. v. PWAB, 627 A.2d 238 (Pa. Cmwlth. 1993) and Borough of Ebensburg v. Prevailing Wage Appeals Board, 893 A.2d 181 (Pa. Cmwlth. 2006), the Board found that the Project satisfied three of the four required elements in Pennsylvania National Mutual Casualty Insurance Company v. Department of Labor and Industry, Prevailing Wage Appeals Board, 715 A.2d 1068 (Pa. 1998) (Penn National I), and the only area of dispute was whether the Project was paid for in whole or in part with funds of a public body:

[the Board] was persuaded that because the Project was paid for with loans from the Authority, as per the Loan Agreement, the Project was paid for with funds of a public body. Id. at 196a. The Board interpreted Pennsylvania State Building and Construction Trades Council, AFL-CIO v. Prevailing Wage Appeals Board, 570 Pa. 96, 808 A.2d 881 (2002) (Penn National II), to stand for the proposition that, if the funds used by Ursinus for the Project were “at any point in time ‘funds of a public body[,]’ ” the Act applies. R.R. at 196a. The Board rejected the Bureau’s analysis that because Ursinus must pay back the loan, public funds from the Authority are not “ultimately” being used to pay for the Project. Id. at 198a-99a. The Board reasoned:

Although the Authority may not have directly paid for the [P]roject[ ], Ursinus would not have had this funding stream available but for the existence of the Authority and its coordination of the funding through its statutory powers as a public body. The fact that the funds wound their way through financing processes and contractual relationships with the Trustee and [the] Underwriter does not change the reality that the funds were only available because of the Authority’s statutory ability to issue the [b]onds. The proceeds from the [b]ond sale did not lose their character as the “funds of a public body” just because the money journeyed through other nonpublic financial transactions.

Id. at 199a. Thus, the Board concluded that the Project was public work under the Act, and ordered all workers on the Project to be paid the applicable prevailing wage rate as determined by the Bureau. Id. at 200a.

Slip op. at 6. Ursinus appealed the Board’s decision to Commonwealth Court, arguing that the Board committed an error of law when it concluded that the Project was public work, when no Authority funds were used to pay for the Project, the Authority never held, disbursed, or guaranteed any Project funds, and the Authority was not reimbursed in any way from public funds, but merely served as a conduit for Ursinus’ funding of a private Project.

Commonwealth Court reversed the Board’s order and held that the project was not “public work” under Pennsylvania Prevailing Wage Act. Commonwealth Court distinguished Penn National II on the facts of the transaction – in particular, that no public funds from the Authority, or from any taxing body, either directly or through TIF increments, were used to perform any Project work. The court further found Lycoming County inapplicable because:

… unlike the County in that case, the Authority here did not contract for or direct any work on the Project. Unlike the County in Lycoming County, the Authority here did not acquire or lease land for the Project, nor did the Authority remain liable for bond repayment. Ursinus, a private entity, used its private funds to purchase the bonds, and Ursinus, not the Authority, was obligated to repay the bonds. See Lycoming County, 627 A.2d at 240-41. Further, unlike the relationship between the County and the non-profit entity it created in Lycoming County, the Authority did not serve as Ursinus’ alter ego for the Project, but rather as the vehicle for Ursinus to fund the Project, through the issuance of bonds as authorized by the MAA. Therefore, we conclude that Lycoming County does not require the Project to be defined as public work under the Act.

Slip op. at 19-20. Commonwealth Court likewise found Borough of Ebensburg inapplicable to this case, explaining that:

In Borough of Ebensburg, the Court considered whether the Borough’s project was public work paid for in whole or in part out of public funds, when the Borough paid for the project and then assessed the cost of sidewalk repairs to the affected property owners, who then were required to reimburse the Borough for their share of the sidewalk repairs. Borough of Ebensburg, 893 A.2d at 185. The Court concluded that the fact that the Borough, the public body, was “later reimbursed from private citizens does not, however, except this contract from being ‘paid for in whole or in part out of the funds of a public body’ because the fact that its funds were replenished is immaterial.” Id. Here, Ursinus’ private funds were used to fund the Project, and not the funds of the Authority. Ursinus did not reimburse the Authority, nor did the Authority take any risk in this transaction, because Ursinus, not the Authority, was obligated to repay the bonds. There is no evidence that this transaction was structured to evade designation as public work, when the Authority’s role was limited to providing bond funds, as authorized under the MAA, for Ursinus’ Project.

Slip op. at 20. Commonwealth Court likened the transaction at issue to the transaction reviewed in Willman v. Children’s Hospital of Pittsburgh, 479 A.2d 452 (Pa. 1984), concluding that:

The transaction here is similar to the transaction reviewed in Willman, where the Supreme Court held that the Children’s Hospital’s construction project was not subject to competitive bidding under the MAA, as “construction work made by any authority,” when the project was privately funded on private property and managed by private parties. Willman, 479 A.2d at 456. Like the Authority’s role here, the authority’s role in Willman was limited to providing a financing vehicle by issuing bonds to assist in the construction of a private project, in which the authority did not disburse or hold project funds, assigned all funds to the trustee, and bore no risks or obligations for the bonds. Id.

Slip op. at 20-21.

The Pennsylvania Supreme Court granted allocatur as to the following issue:

Whether the Commonwealth Court’s [o]rder concluding that a construction project that was funded by the issuance and sale of tax-exempt municipal bonds by a public authority did not constitute “public works” severely undermines the purposes of the Pennsylvania Prevailing Wage Act, and will allow employers to circumvent the requirements of the Act, thus undermining Pennsylvania public policy?

For more information, contact Kevin McKeon or Dennis Whitaker.