The developer of a major Downtown Palm Springs redevelopment project plans to appeal to the California Supreme Court after a state appeals court ruled that workers on the $194 million project should have been paid prevailing wages despite the city’s local ordinance exempting municipal projects.
The Court of Appeal affirmed a decision by the Department of Industrial Relations (DIR) that Palm Springs Promenade LLC was required to pay prevailing wages to construction workers who transformed the site of a formerly vacant downtown mall into a mixed-use development. The court filed its decision June 13.
Michael Braun, current president of Grit Development — which formed Palm Springs Promenade when it was known as Wessman Development — said Wednesday that the company plans to appeal the decision to the California Supreme Court, citing a 2012 precedent that favored charter cities.
“When the (project funding agreement) was signed in 2011, the city of Palm Springs had a municipal code exempting public works from payment of prevailing wages,” Braun said via email. “Years later, in 2018, the DIR issued a ruling that prevailing wages were required. Grit challenged this decision, and the city filed a brief supporting Grit’s arguments, yet the courts upheld the DIR’s coverage determination.
Braun said the company is appealing “just as in City of Vista (2012), where the California Supreme Court held that a Charter City’s municipal code exempting the payment of prevailing wages was squarely within a charter city’s constitutional power.”
Palm Springs Promenade was specifically created by Wessman Development Company for the purpose of entering into the development agreement with the city. In 2001, Wessman Development Company purchased the parcel on which the Desert Fashion Plaza stood until 2013.
The development transformed a 13-acre largely vacant downtown property into what is now a multi-block, pedestrian-friendly “urban village” with residential, restaurant space and a luxury hotel on land formerly occupied by Desert Fashion Plaza. Plans for residential development on one portion of the property have lagged as the court case played out.
Court documents state Palm Springs Promenade contributed $143 million in private funds and obtained an additional $68 million through personally guaranteed construction loans, while the city contributed about $51.36 million toward the project.
The city’s contribution included $32 million to acquire public assets and fund project incentives, $11 million for street construction and parking facility improvements, $5.3 million for an additional property block, and $3.06 million for change orders.
The case centered on whether the project qualified as a “municipal affair” under California’s home rule provision, which allows charter cities to exempt themselves from state prevailing wage requirements on certain local projects. Palm Springs had passed an ordinance in 2002 allowing such exemptions.
Palm Springs Promenade executed construction contracts through separately created limited liability companies and selected its own contractors for the private improvements. The city neither selected contractors nor entered into construction contracts directly.
The appeals court concluded the project was not a municipal affair because Palm Springs Promenade retained substantial control over construction and primarily benefited from the development. The court found this was essentially a private commercial development that received public funding, not a city-operated facility.
“We hold that where the charter city contributes money to a private development project, that undertaking does not necessarily transform the project into a municipal affair,” the court wrote.
The ruling means Grit cannot “step into the shoes” of the city to claim charter city exemptions for its private contracts, the court stated. The developer now faces potential liability for back pay to workers who should have received prevailing wages.
The Center for Contract Compliance, a nonprofit labor management committee, requested the wage determination in 2017 as construction of the project’s first phase continued. The Department of Industrial Relations determined in August 2018 that the project constituted public work subject to prevailing wage requirements, a finding it affirmed in 2020 after an administrative appeal.
Palm Springs Promenade filed a writ of mandate petition in July 2022 challenging the determination. The city filed a position statement supporting the petition, but the trial court denied the writ, leading to the appeal that resulted in the June ruling.
The United Union of Roofers, Waterproofers, and Allied Workers, Local 81 filed an amicus brief supporting the Department of Industrial Relations position. The court ordered the department to recover its costs on appeal.
