Did Oregon's prevailing wage law apply to a low-income housing project just because Oregon Housing & Community Services made the construction loan?

Plain-English summary

Oregon Housing & Community Services (OHCS) makes loans to private sponsors that build low-income, multi-unit housing. The loans are governed by ORS 456.550 to 456.725 and OAR chapter 813, division 10, and the projects can also receive tax credits under OAR chapter 813, division 90. Some loans are "Risk Share" loans where HUD assumes 50% of the default risk.

OHCS asked whether two things made these projects subject to Oregon's prevailing wage law: (1) the OHCS loan financing, and (2) the conditions OHCS placed on the construction.

The AG answered no on both fronts.

The two-part test. Oregon's PWR law requires both that a project be a "public works" (ORS 279C.800(5)) AND that "public funds" be used directly or indirectly (ORS 279C.810(1)(b)'s exception, framed as a negative). Both elements are necessary. So the threshold question was whether OHCS-funded low-income housing projects qualified as public works.

"Public works" = "carried on" or "contracted for" by a public agency. The opinion focused on those two phrases. "Carry on" means to conduct or manage. The Oregon Court of Appeals had held that "carried on" turns on who exercised the most control over the project. Columbia-Pacific Bldg. & Constr. Trades Council v. Oregon Com. on Public Broadcasting, 102 Or App 212 (1990). "Contracted for" means establishing or undertaking the construction by contract. The legislative history of HB 2609 (1989), which added "contracted for" to the predecessor statute, made clear that public-agency contracting reaches not only direct construction contracts but also commitments to purchase or lease an improvement built to the agency's specifications. Senator Shoemaker's floor statement: "When a public agency contracts for the construction of a building, the spending power of the government is at work regardless of the form of the agreement. Ownership is not the crucial issue. The issue is whether a project owes its existence to the financial commitment of a public agency."

Applied to OHCS division-10 loans:

• Carries on? No. OHCS had no direct relationship with the builder. Its inspection rights were the conventional rights of a lender to verify that money was being spent on the contemplated project, not the rights of a project manager directing the work. The Sponsor (the borrower) was responsible for hiring contractors and managing construction; OHCS could require correction of unsatisfactory construction, but couldn't direct the work itself.
• Contracted for? No. OHCS's standard documents (Loan Commitment, Loan Agreement, Promissory Note, Regulatory Agreement) were lender-borrower contracts, not construction contracts. They restricted use of loan proceeds to the building of low-income housing matching certain design requirements, but they did not provide for the Sponsor to construct the housing. The design conditions (site, layout, building specs) were of a piece with what private lenders impose to protect their security interest, not specifications in a construction contract.

So OHCS-funded low-income housing was generally not a "public works" within ORS 279C.800(5), and the prevailing wage law did not apply.

The AG closed with two cautions. First, the answer was fact-specific: a different OHCS structure (more agency control over construction) could change the result. Second, the answer was tied to the statutes, rules, and form documents reviewed; if any of them were materially amended, the answer might shift.

The "public funds" half of the two-part test also could come up in the analysis (OHCS loans are public funds in the conventional sense), but the AG didn't have to reach it because the public-works element was not met.

Currency note

This opinion was issued in 2005. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

In particular, the prevailing-wage statutes have been amended several times since 2005, including changes to the public-funds threshold and to the treatment of housing projects. Anyone applying this opinion to a current housing project should check the current ORS 279C.810 and BOLI's current rules and guidance on prevailing-wage application to housing finance.

Background and statutory framework

The PWR sits in ORS 279C.800 to 279C.870. ORS 279C.840(1) requires payment of the prevailing wage to workers on "public works." "Public works" includes "roads, highways, buildings, structures and improvements of all types, the construction, reconstruction, major renovation or painting of which is carried on or contracted for by any public agency to serve the public interest." ORS 279C.800(5). The statute carves out the reconstruction or renovation of privately owned property leased by a public agency.

ORS 279C.810(1) (since renumbered) excepts from the PWR "projects for which no funds of a public agency are directly or indirectly used." That exception, framed as a negative, has the operational effect that public funds (directly or indirectly) must be used for the PWR to apply. So both conditions are necessary: public-works status AND public-funds use.

ORS 279C.830(1) requires the contract for a public works to require payment of the prevailing wage to all workers, contractors, subcontractors, and others performing the work. ORS 279C.835 requires the public agency to notify BOLI of the contract award. ORS 279C.845(1) and ORS 279C.855(3) impose certified-statement and contract-language obligations on the contracting agency. The AG noted that all three of those statutes assume the public agency is itself the developer or party to the construction contract; that context bore on the meaning of "contracted for."

The legislative history of HB 2609 (Or Laws 1989, ch 752) was important. HB 2609 was prompted by the OPB Building case (Columbia-Pacific). OPB had requested proposals from developers for a privately financed building meeting OPB's specifications, then leased it under a 20-year lease with an option to purchase. OPB hadn't paid construction costs directly, so the issue was whether OPB had "contracted for" the construction. The 1989 amendment added "contracted for" to make clear that PWR could reach those structures. Senator Shoemaker's floor statement framed the test as whether "a project owes its existence to the financial commitment of a public agency."

That framing was the bridge OHCS faced. Did a low-income housing project owe its existence to OHCS's commitment? In one sense yes (without the loan, the project might not happen); but in the sense the legislature meant, no — OHCS's loan was a financing instrument, not a commitment to acquire or lease the resulting building. The Sponsor owned the project, ran it, and bore the risk. OHCS's role was lender, not developer.

The opinion compared OHCS's involvement to a conventional private-sector construction loan. Private lenders impose design specifications, require borrower compliance with codes, conduct inspections, and demand correction of construction defects. Those are lender protections, not developer controls. The OHCS Loan Commitment did require approval of the project's "final Working Drawings, Material Specifications, Project Manual, finalized construction schedule, and construction budget" by an OHCS architectural consultant before construction started. But that approval was equivalent to a typical construction lender's approval; it didn't transform OHCS into the developer.

The opinion identified OHCS rules that fleshed out the lender role: OAR 813-010-0016 (underwriting criteria), OAR 813-010-0021(3) (Sponsor compliance), OAR 813-010-0023(4) and (9) (Department evaluation and inspection), OAR 813-010-0036(2) (project evaluation), OAR 813-010-0042 (tenant eligibility). The Bond Financing Loan Application required detailed information about site, vicinity, design, and unit layout. All of that was inspection and evaluation, not direction of construction.

ORS 456.620 explicitly framed OHCS's role: it adopts standards and approval criteria, audits and inspects to verify compliance, and enters into agreements with qualified Sponsors "to regulate the planning, development and management of housing projects." Regulating projects through standards and inspection is not the same as carrying on the construction.

Common questions

Q: At the time of this opinion, did OHCS-funded low-income housing trigger Oregon's prevailing wage law?
A: Generally no. The opinion concluded that the OHCS division-10 loan program, as it then existed, did not make these projects "public works." Without that, the PWR did not apply, even though OHCS's funding was public.

Q: Did the public-funds question matter at all?
A: Not for the conclusion. The PWR requires both a "public works" and "public funds." Because OHCS-funded projects failed the public-works test, the AG did not need to decide the public-funds question.

Q: What was the difference between "carried on" and "contracted for"?
A: "Carried on" turned on operational control over the construction. "Contracted for" reached commitments to purchase or lease the resulting improvement, even if the public agency wasn't a party to the construction contract itself. The 1989 amendment that added "contracted for" was specifically aimed at the OPB Building situation, where OPB had induced the construction by promising to lease it.

Q: Could OHCS conditions on a project ever push it into PWR territory?
A: The AG flagged that material changes to the program could change the analysis. If OHCS started directing construction work itself, or if its loan documents started imposing construction-specification controls beyond what conventional lenders impose, the answer might shift.

Q: Was the AG's reasoning particular to Risk Share / HUD-backed loans?
A: No. The opinion treated the Risk Share loans as part of the same division-10 program. The HUD risk-sharing arrangement didn't change the OHCS-Sponsor lender-borrower relationship.

Q: How was this different from the OPB Building case?
A: In Columbia-Pacific, OPB had committed to lease the resulting building under conditions that were essentially a commitment to acquire it, which the legislature in 1989 decided counted as "contracting for" the construction. OHCS made loans, not lease commitments. The Sponsor would own the housing; OHCS just had a security interest in it.

Q: What about tax credits under division 90?
A: The opinion noted that division 90 was the tax-credit program, but it concluded that nothing in division 90 changed the analysis. Tax credits were a separate financial benefit; they did not turn the OHCS-Sponsor relationship into a public-works contracting relationship.

Citations and references

Statutes and session laws:

• ORS 174.010, 174.020 (statutory construction)
• ORS 279C.800(5) ("public works" definition)
• ORS 279C.810(1) (PWR exceptions, including no-public-funds)
• ORS 279C.830(1), 835, 845(1), 855(3) (contract-side requirements assuming public agency as contracting party)
• ORS 279C.840(1) (prevailing wage rule)
• ORS 456.550 to 456.725 (OHCS loan program statutes)
• ORS 456.620 (OHCS standard-setting and agreement authority)
• ORS 456.625(7) (residential loan authority)
• Or Laws 1989, ch 752, § 1 (HB 2609, added "contracted for" to PWR)
• OAR 813-010-0016 through 813-010-0042 (OHCS division-10 program rules)
• OAR ch 813, div 12 (Rental Housing Program — similar conditions)
• OAR ch 813, div 90 (tax credits)

Cases:

• PGE v. BOLI, 317 Or 606 (1993), Oregon statutory construction methodology
• SAIF Corporation v. Walker, 330 Or 102 (2000); Krieger v. Just, 319 Or 328 (1994); Ecumenical Ministries v. Oregon State Lottery Comm., 318 Or 551 (1994); Young v. State, 161 Or App 32 (1999), context for statutory interpretation
• Columbia-Pacific Bldg. & Constr. Trades Council v. Oregon Com. on Public Broadcasting, 102 Or App 212 (1990), "carried on" turns on operational control, and the case that prompted HB 2609

Legislative history:

• HB 2609, Senate Floor Debate, June 15, 1989 (Senator Shoemaker)

Source

• Landing page: https://www.doj.state.or.us/oregon-department-of-justice/office-of-the-attorney-general/attorney-general-opinions/
• Original PDF: https://www.doj.state.or.us/wp-content/uploads/2005/05/op2005-1.pdf

Original opinion text

HARDY MYERS

PETER D. SHEPHERD

Attorney General

Deputy Attorney General

DEPARTMENT OF JUSTICE
GENERAL COUNSEL DIVISION

May 13, 2005

Jack Kenny, Deputy Director
Oregon Housing & Community Services
P.O. Box 14508
Salem, OR 97309-0409
Re:

Opinion Request OP-2005-1

Dear Mr. Kenny:

You have requested our advice about the applicability of Oregon's prevailing wage law, ORS 279C.800 to 279C.870, to the construction of low income, multi-unit housing that is financed with Oregon Housing and Community Services ("OHCS") loans pursuant to ORS 456.550 to 456.725 and OAR chapter 813, division 10, and that receives tax credits pursuant to OAR chapter 813, division 90. We understand that "Risk Share" loans, where the U.S. Department of Housing & Urban Development assumes 50 percent of the risk of default, are included in the division 10 loan program. Your questions and our answers are as follows:

1. Is it necessary that a construction project both constitute a "public work" and use "public funds" in order for the prevailing wage law to apply? Yes.

2. Do the conditions imposed by OHCS on the construction of low income housing financed pursuant to ORS 456.550 to 456.725 and OAR chapter 813, divisions 10 and 90, render them "public works"? No.

Discussion

1. Requirements of the Prevailing Wage Law

The prevailing wage rate must be paid to workers on "public works." ORS 279C.840(1). "[P]ublic works" include, but are not limited to:

roads, highways, buildings, structures and improvements of all types, the construction, reconstruction, major renovation or painting of which is carried on or contracted for by any public agency to serve the public interest but does not include the reconstruction or renovation of privately owned property which is leased by a public agency. (Emphasis added.)

ORS 279C.800(5). A contract for a public work must require that the workers employed by "the contractor or subcontractor or other person doing [the work] or contracting" to do the work under the contract be paid at least the prevailing wage rate. ORS 279C.830(1).

ORS 279C.810(1) creates three exceptions to the prevailing wage law, one of which is "projects for which no funds of a public agency are directly or indirectly used." (Emphasis added.) The effect of that provision, though framed as an exception, is that some public funds must be used for the project, directly or indirectly, in order for the prevailing wage law to apply. Therefore, and in answer to your first question, the prevailing wage law applies to a construction project only if it is a "public work" and it uses "public funds."

2. Public Works: "Carried On or Contracted For"

To be a public work, an improvement's construction must be "carried on or contracted for by [a] public agency" as well as serve the public interest. The term "carried on or contracted for" is not defined in ORS 279C.800 to 279C.870. Our goal in interpreting a statute is to determine the intent of the legislature. PGE v. Bureau of Labor and Industries (PGE), 317 Or 606, 610, 859 P2d 1143 (1993); ORS 174.020. We start by examining a statute's text and context, with text being the better evidence of legislative intent. In interpreting text, we consider statutory and judicially developed rules of construction that "bear directly on how to read the text," such as "not to insert what has been omitted, or to omit what has been inserted," and to give words of common usage their "plain, natural and ordinary meaning." PGE, at 611; ORS 174.010. The context of a statute includes other provisions of the same statute, prior versions of the statute and other related statutes, as well as case law interpreting those statutes. PGE, at 610; SAIF Corporation v. Walker, 330 Or 102, 108, 996 P2d 979 (2000); Krieger v. Just, 319 Or 328, 336, 876 P2d 753 (1994); Ecumenical Ministries v. Oregon State Lottery Comm., 318 Or 551, 560 n 8, 871 P2d 106 (1994). If a statute's text and context unambiguously disclose the legislature's intent, the inquiry ends there. PGE, at 610-11. Only if the legislative intent is not clear from the text and context are we to take account of legislative history to attempt to discern that intent. Id. at 611-12; see also Young v. State, 161 Or App 32, 983 P2d 1044, rev den 329 Or 447 (1999).

Regarding plain, natural and ordinary meaning, "carry on" is defined as "CONDUCT, MANAGE ." WEBSTER'S THIRD NEW INTERNATIONAL DICTIONARY (WEBSTER'S) (unabridged 1993) at 344. The Oregon Court of Appeals considers "a number of factors, the most important of which is who exercised the most control over the project" to determine whether construction is "carried on" by a public agency. Columbia-Pacific Bldg. & Constr. Trades Council v. Oregon Com. on Public Broadcasting, 102 Or App 212, 219, 794 P2d 438 (1990).

Used as a verb, as in the statute, "contract" means "to enter into with mutual obligations : establish or undertake by contract." WEBSTER'S at 494. Used as a noun, as in the verb's definition, "contract" means "an agreement between two or more persons or parties to do or not do something : BARGAIN, COMPACT, COVENANT; esp: an agreement that is legally enforceable * * *." Id. Regarding context, all public works contractors and subcontractors, or their sureties, are required to file certified statements attesting to their compliance with the prevailing wage law with the "public contracting agency." ORS 279C.845(1). The agency must "include a provision that the contractor and any subcontractor shall comply with ORS 279C.840 in the advertisement for bids, the request for bids, the contract specifications, the accepted bid or elsewhere in the contract documents," ORS 279C.855(3), which also appears to contemplate a contractual relationship between the agency and the builder. And the same appears to be true of ORS 279C.835, which provides that:

Public agencies shall notify the Commissioner of the Bureau of Labor and Industries in writing, on a form prescribed by the commissioner, whenever a contract subject to the provisions of ORS 279C.800 to 279C.870 has been awarded. The notification shall be made within 30 days of the date that the contract is awarded. The notification shall include a copy of the disclosure of first-tier subcontractors that was submitted under ORS 279C.370.

The context of "contracted for" suggests a narrower meaning than the text standing alone, as these other statutes suggest that the agency itself is to be the developer, i.e., the entity that contracts directly with the construction contractor. We therefore consider legislative history.

The phrase "contracted for" was added to the predecessor of ORS 279C.800(5) in 1989 by HB 2609. Or Laws 1989, ch 752 § 1. The bill's legislative history makes clear that it was prompted by the failure to pay prevailing wages in the construction of the Oregon Public Broadcasting (OPB) Building that was the subject of Columbia-Pacific Bldg. & Constr. Trades Council v. Oregon Com. on Public Broadcasting, cited above. In that instance, OPB had solicited proposals from developers for the construction of a building meeting six performance specifications, including 20 percent television studio space. OPB then entered into a 20-year lease with an option to buy the building constructed in accordance with its specifications. Senator Shoemaker, who carried the bill in the Senate, stated that:

HB 2609 was submitted in response to the circumvention of payment of the prevailing wage rate in the construction of the Oregon Public Broadcasting Building. * * . When a public agency contracts for the construction of a building, the spending power of the government is at work regardless of the form of the agreement. Ownership is not the crucial issue. The issue is whether a project owes its existence to the financial commitment of a public agency. That commitment may be in the form of a promise to purchase or a promise to lease, either way construction undertaken on the basis of such a commitment is precisely the circumstance on which the prevailing wage rate law is meant to apply. This bill excludes from coverage the reconstruction or renovation of privately owned property that is being leased by a public agency. * * .

(Emphasis added.) Senator Shoemaker, Senate Floor Debate on HB 2609, June 15, 1989, Tape 181, Side B at 46 to 91. That history makes clear that the public agency need not be the developer and need not have a contract with the construction contractor.

Therefore, in order for the prevailing wage law to apply to construction undertaken pursuant to ORS 456.550 to 456.725, OHCS must either (1) conduct or manage, i.e., have substantial control over, the construction or (2) have entered into a binding agreement for the construction, even if the agreement was not with the contractor directly.

To determine whether OHCS has that role or relationship with the construction, we examine the statutes, administrative rules and loan documents that govern division 10 loans. ORS 456.620 requires, in relevant part, that OHCS:

(1) With the approval of the State Housing Council, adopt standards for the planning, development and management of housing projects for which qualified housing sponsors receive all or a portion of any required financing under ORS 456.550 to 456.725, for audits and inspections to determine compliance with such standards and adopt criteria for the approval of qualified housing sponsors under ORS 456.550 to 456.725.

(2) Adopt criteria for the approval of qualified housing sponsors in ORS 456.550 to 456.725.

(3) Enter into agreements with qualified housing sponsors [prospective borrowers] to regulate the planning, development and management of housing projects constructed with the assistance of the department under ORS 456.550 to 456.725.

(4) With the approval of the council, establish maximum household income limits for all or a portion of the units in housing projects, housing developments or other residential housing financed in whole or in part by the department. * * *.

(Emphasis added.) ORS 456.625(7) authorizes OHCS to:

Make or participate in the making of residential loans to qualified individuals or housing sponsors to provide for the acquisition, construction, improvement, rehabilitation or permanent financing of residential housing or housing development; undertake commitments to make residential loans; * * *.

OHCS also is responsible for evaluating and maintaining current data on the state's need for affordable, low income housing. ORS 456.559(1); 456.572; 456.625(1).

OAR 813-010-0016 prescribes the "Standard Underwriting Criteria" for approving or disapproving a loan application, which generally bear on a proposal's suitability and expected utility, but also include consideration of the "experience of the developer, contractors, architects, consultants and management agent in developing, constructing and operating housing [p]rojects." OAR 813-010-0021(3) requires that "[t]he Sponsor shall comply with the provisions of the Program rules and the Act. If the Department determines that the Sponsor has not complied, appropriate action shall be taken in accordance with the Commitment or trust deed." (Emphasis added.) OAR 813-010-0023(4) requires that in order for a loan to be approved, a project must:

(a) Be approved by the Department with respect to site; location; market demand; financial feasibility; qualifications of general contractor, management agent and developer; appraisal; financial strength and credit worthiness of the Sponsor; management plan; final architectural package; organizational documents; title report; and any other information the Director shall require;

(b) Meet all applicable state and local land use and zoning requirements, housing codes, and similar requirements;

(c) Be in compliance with federal regulations, state statutes and Program rules;

(d) Be located in the State of Oregon; and

(e) If the Loan is for an amount over $ 100,000, be approved by the State Housing Council * * *.

During a project's construction, OHCS is to conduct "random inspections * * * for compliance with the plans and specifications previously approved by [OHCS]." OAR 813-010-0023(9). OHCS is to conduct similar inspections upon completion and within 10 months after the completion. Id. "The Sponsor" shall be responsible for correcting construction defects within a time period set by the Department. Id. The Sponsor's supervising architect also must submit regular inspection reports to OHCS. Id.

OAR 813-010-0036(2) sets out the Department's project evaluation responsibilities and replicates the requirements of OAR 813-010-0023(4)(a), (b) and (d) and fleshes out the federal requirements. OAR 813-010-0042 prescribes the conditions for tenant eligibility (low income). Division 12 (Rental Housing Program) imposes conditions on Sponsors and loans that are generally similar to those imposed by division 10.

You have provided our office with copies of six form documents that you advise currently are used to consummate loans for the construction of low income housing pursuant to OAR chapter 813, divisions 10 and 12, as well as a copy of the October 2004 Bond Financing Loan Application. Four of the documents, the Loan Commitment, Loan Agreement, Promissory Note and Regulatory Agreement, are contracts between OHCS and the borrower only. The Management Agreement, which concerns the project's management as a going concern post-construction, and the Trust Deed include as additional parties a management Agent and a Trustee, respectively. Among other things, the Regulatory Agreement specifies that a project meets and will continue to meet Internal Revenue Code requirements, essentially that it will be low income, residential housing, and the Loan Commitment requires that a project's "final Working Drawings, Material Specifications, Project Manual, finalized construction schedule, and construction budget" be approved by OHCS's architectural consultant prior to the start of construction.

The Bond Financing Loan Application is a lengthy document, requiring detailed information about the proposed project's site and vicinity (e.g., the proximity of grocery stores, parks and schools) and imposing requirements on site design (e.g., orient units to receive sunlight daily); building design (e.g., privacy for individual yards and patios); and unit design (e.g., number of bathrooms). Loan applications may be submitted on a prospective sponsor's own initiative or in response to OHCS's request for proposals, statewide or local, pursuant to ORS 456.623.

There is little or nothing in the statutes, rules or the contract documents we reviewed to suggest that OHCS carries on the construction of low income housing projects. OHCS has no direct relationship with the builder and its right of inspection is a conventional lender prerogative that would entitle OHCS to require that unsatisfactory construction be corrected but would not entitle OHCS to direct the work itself.

Regarding whether OHCS has contracted for the construction, OHCS is not a party to a contract that provides for construction, either directly with a construction contractor or through a developer. The loan documents that we have reviewed, like ORS 456.550 to 456.725 and OHCS's administrative rules, allow the loan proceeds to be used for the construction of low income housing and prohibit their use for anything else. But they do not actually provide for the sponsor/borrower to construct the housing. And while OHCS requires that construction conform to myriad design specifications, similar conditions are imposed in conventional private-sector lender-borrower relationships to assure the lender that the finished product will be economically viable and the lender's security interest thereby protected. We think they are more aptly viewed as restrictions on the use of the loan proceeds than as specifications in a construction contract. Certainly, OHCS and its rules and documents contemplate that a sponsor/borrower will contract for construction (reconstruction or renovation), but OHCS has not itself entered into a contract for construction. For those reasons, we believe that the OHCS's loans for division 10, low income, multi-use housing are not "public works" within the meaning of ORS 279C.800(5).

Our answer applies to transactions that are governed by the statutes, administrative rules and loan documents discussed above – as they are currently written. It is important to recognize that the answer to whether a particular construction project is a public work is fact-specific. For that reason, materially amending the statutes, rules, loan documents or OHCS/borrower relationship (such as by granting OHCS greater control over construction) could change the analysis and answer.

Sincerely,

Donald C. Arnold
Chief Counsel
General Counsel Division
DCA:DNH:naw:clr/GEN224299

1/ We see nothing in division 90 that informs the analysis of this question.

2/ You inform us that the sites proposed for projects are sometimes governed by local zoning laws requiring that a building's ground floor be used for commercial space. We see no reason why that requirement would change the analysis.

3/ Because we conclude that OHCS neither carries on nor contracts for construction, it is unnecessary to consider whether the other element of the definition of public works – "to serve the public interest" – is met.