Ruling fuels furor over CRA wage policy.

Ruling fuels furor over CRA wage policy

Los Angeles' mighty development community was at odds with unions again last week - this time differing over the impact of a recent court decision on their continuing fight over a controversial redevelopment policy that would aid organized labor at the expense of builders and hotel operators.

The so-called service worker policy, proposed by the Los Angeles Community Redevelopment Agency last September, would require developer/operators to provide janitors and hotel workers with "prevailing wages," health and dental benefits, English-language and job-skill training, high-level job security and more. Prevailing wages are |roughly comparable to union-scale wages.

Since the policy was proposed, local developers and hotel operating companies have been insisting the CRA's service worker policy is illegal. And on June 21, a U.S. District Court judge in Northern California agreed in rendering a decision in a similar but unrelated case.

"The prevailing wage standard is an impermissible interference in the collective bargaining process," wrote Judge Charles A. Legge in the court's decision. "(Prevailing wages) are an example of an interest-group deal in public-interest clothing."

Judge Legge's ruling, the first ever issued on prevailing wages in a nationally reported case, declared that local governments cannot impose prevailing wages or prevailing benefits as a condition for project approval because prevailing wages violate the National Labor Relations Act, and prevailing benefits violate the Employee Retirement Income Security Act.

"Local communities are under intense pressure to pass something for nothing, manna from heaven, because unions want it," said attorney Mark Thierman, who won the court case for the Golden State chapter of the Associated Builders and Contractors. "This ruling says communities don't have to succumb to the want of a faction, even if that faction is politically powerful."

Thierman said imposing prevailing wage requirements generally increases developers' costs by 20 percent.

The ruling was also hailed by members of the local development community as a major victory in their war against the CRA's proposed service worker policy.

"This decision is not binding on the CRA, but it sets an important precedent that other courts are expected to respect and follow," explained O'Malley Miller, a development attorney at the firm of Allen, Matkins, Leck, Gamble & Mallory. "We've been arguing all along that this policy violates NLRA and ERISA."

But some local government and labor sources insisted there are significant differences between the Northern California case and the CRA's policy.

"It is our general determination that the situation is not directly analogous here because we are talking about agreements where the CRA provides assistance to projects, and secondly, because we are talking about a different group of workers than the ones covered in San Francisco," said Lee Strieb, research analyst for the Hotel Employees and Restaurant Employees Union, Local 11, which represents 12,000 Los Angeles workers. "Clearly, though, the (San Francisco) case could have implications and we are studying them."

Added Ronald Kennedy, executive director of the 125,000-member Los Angeles County Building and Construction Trades Council, "when the state puts in 1 percent on a project, it's a state job. The prevailing wage keeps (unions) on a level playing field with cheating contractors that bid at the prevailing wage but don't actually pay them."

Development interests countered, however, that few major CRA projects receive public subsidies. Most developers, in fact, end up paying huge "public benefits" fees in exchange for permission to build in L.A.

The Northern California case also differs from the CRA's policy in that it only involved the issuance of building permits, local labor officials argued, while the CRA policy involves actual development contracts.

"Using the contractual difference as a basis for saying this decision is not applicable (to the CRA policy) is ridiculous," railed development attorney Miller. "That's an insignificant distinction."

The CRA's legal counsel, Assistant City Attorney Dov Lesel, said he had not yet evaluated the district court's prevailing wage ruling but intended to do so in the next few weeks. He added, "it's not like the first time we are hearing about this."

The CRA's service worker policy, which has never been officially adopted but is currently being enforced on a case-by-case basis, has already delayed and nearly killed the $500 million Disney First Street project on Bunker Hill.

That project was originally designed to contain a 400-room luxury hotel. But the hotel's developer, Gemtel Corp., and operator, Ritz-Carlton Hotel Co., backed away from the deal after the CRA suddenly instituted its service workers policy.

"The CRA should take the bull by the horns and get rid of this crap (service workers policy), which they know is illegal," blasted Sheldon Sloan, Gemtel's attorney. "This thing (the Disney First Street project) was negotiated for two

years with the understanding there would be no service workers policy. But then Jim Wood snapped the negotiations by forcing this policy."

Jim Wood, CRA board chairman and No. 2 labor official with the Los Angeles County AFL-CIO, has been under increasing fire in recent months for what many contend is a conflict of interest.

Should the U.S. District Court ruling weaken or void CRA labor policies, it would be a major blow to both organized labor in Los Angeles and Wood.

Just last summer, union leaders scored a high profile victory after a confrontation between a labor group called Justice for Janitors and Los Angeles police produced an office building maintenance contract.

The City Attorney's Office confirmed last week that, at the request of City Councilman Zev Yaroslavsky, it will render a decision on whether Wood committed a conflict of interest by pushing the service worker policy.

The future holds the potential for more developer-union clashes. With 10 new hotels being planned for two of the CRA's biggest redevelopment areas during the next decade, the service workers policy takes on even great import. Metropolitan Structures, Pacific Atlas Development, Maclowe Hotel and Mitsui Fudosan all have structures in some phase of the development pipeline in Bunker Hill and Central Business District.