Commonwealth Court Overturns Prevailing Wage Appeals Board in Ursinus College Case

In 2016, The Montgomery County Higher Education and Health Authority (the “Authority”) issued bonds for the benefit of Ursinus College (the “College”) to finance construction at the College. The Authority’s bonds are payable solely from debt service payments made by the College to the bond trustee. This is the customary form of a “conduit bond.”

Initially, The Pennsylvania Department of Labor and Industry (“L&I”) Bureau of Labor Law Compliance followed its long-held position that prevailing wage did not apply to projects financed by conduit bonds. The International Brotherhood of Electrical Workers, Local 98 (the “IBEW”) challenged that L&I determination through an appeal to the Prevailing Wage Appeals Board (the “Board”).  The IBEW argued that the project was a “public work” because it was “paid for in whole or in part out of the funds of a public body” (in this case, the Authority).

The five judges on the Commonwealth Court unanimously held that the economic reality of the financing was that the bonds were “not paid for ‘out of the funds’ of the Authority.”  The proceeds from the sale of the bonds were paid by the underwriter to the bond trustee, the funds used by Ursinus to pay the contractor were disbursed by the bond trustee, the debt service was paid by Ursinus to the bond trustee, and the trustee made payments to the bond holders. The Commonwealth Court found that the Authority took no risk in the transaction. Karl S. Myers, Co-Chair of Stevens & Lee’s Appellate Litigation Practice Group, prepared an amicus curiae brief on behalf of certain professional associations and economic development authorities urging the Commonwealth Court to overturn the Board’s decision.

This is a welcome development as the holding of the Board caused some nonprofit colleges and universities to seek financing from out of state conduit issuers which resulted in their losing the benefit of the exemption for Pennsylvania state income tax purposes of the interest paid on the bonds (resulting in a higher interest rate). Other colleges and universities simply used conventional financing, foregoing the tax exemption on the interest paid (resulting in a higher interest rate).

While the Commonwealth Court’s decision follows a long line of cases that support the Court’s holding, the Board (or the IBEW, as the true party in interest) may cause this case to be appealed to the Supreme Court of Pennsylvania.

We will continue to monitor the development of this case. The Commonwealth Court’s opinion is available here.

For more information, please contact Ramiro M. Carbonell at ramiro.carbonell@stevenslee.com, Peter T. Edelman at peter.edelman@stevenslee.com, Brian P. Koscelansky at brian.koscelansky@stevenslee.com, or reach out to the Stevens & Lee attorney with whom you regularly work.

This News Alert has been prepared for informational purposes only and should not be construed as, and does not constitute, legal advice on any specific matter. For more information, please see the disclaimer.

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