The Pennsylvania Commonwealth Court recently issued a long-awaited opinion in a prevailing wage appeal brought by Ursinus College, captioned at Ursinus College v. Prevailing Wage Appeals Board, No. 828 C.D. 2021 (Pa. Commw. Ct. 2022). The College was appealing a decision by the Pennsylvania Prevailing Wage Appeals Board (the “Board”) finding that the Pennsylvania Prevailing Wage Act (the “Act”) applied to a construction project financed by the College (the “Project”), using municipal bonds issued by the Montgomery County Higher Education and Health Authority (the “Authority”). Read our prior commentary about the case here.
In an opinion and order issued August 4, 2022, the Commonwealth Court reversed the Board’s decision that the Act applied to the Project. In ruling for the College in its appeal, the court noted that the Project was financed through Bonds issued by the Authority for the benefit of the College. While the Authority issued the Bonds to finance the Project, it did not have any liability for repayment of the debt; the repayment obligation rested solely with the College. As explained in more detail in the amicus briefing, a typical bond transaction for a 501(c)(3) tax-exempt private educational organization, such as a college or university, consists of, among others, the following actors: a borrower, an underwriter, a trustee, and a conduit issuer. The structure used by the College to finance the Project followed this typical structure.
In its Opinion, the court held that the funding structure underpinning the Project did not give rise to a finding of “public work,” and as a result, the relevant provision of the Act did not apply to the Project. The court concluded that the structure of the underlying financing—which included a trust indenture, loan agreement, bond purchase agreement, and closing statement—was such that “the Project was not paid for ‘out of the funds’ of the Authority as a public body, which is what the plain language of Section 2(5) of the Act requires.” Notably, the court reasoned that because “Ursinus, and not the Authority, bore the risk for repaying the bonds, the economic reality of this transaction reveals that the Project is not public work subject to the Act.”
This decision represents a positive development for institutions of higher education, as well as other parties that finance construction projects through public bond offerings. The decision of the Board raised serious concerns that the Act potentially applied to a wide variety of projects that are structured similarly to the transaction described above.
A petition for allowance of appeal to the Supreme Court of Pennsylvania—Pennsylvania’s highest court—was filed on September 6, 2022, by the International Brotherhood of Electrical Workers, Local Union No. 98. The Supreme Court has discretion in determining whether to accept the appeal. The court has several months in which to consider the Union’s request to hear the appeal. A decision on that request to hear the appeal is unlikely before the end of the year. In the event the court accepts case for appeal, the appeal process before the Supreme Court typically takes 9 to 12 months. If the Supreme Court declines to hear the appeal, the decision of the Commonwealth Court stands.
McNees was proud to submit an amicus brief on behalf of a number of its higher education clients in support of the College’s appeal, and is available to assist you with any questions relating to the Prevailing Wage Act and bond financing matters generally. Contact us today if you have questions.