Developer not bound by wage law
The Oregon labor commissioner says state-set prevailing wages don't apply to downtown Meier & Frank project
Saturday, June 25, 2005
GAIL KINSEY HILL
A recent cloud hanging over the long-awaited redevelopment of the downtown Meier & Frank department store lifted Friday when the state labor commissioner concluded that Oregon's prevailing-wage law did not apply to the $137.3 million project.
Earlier this week, a key developer had threatened to pull out of the project if the wage law were deemed applicable, claiming that higher compensation requirements would push construction costs too high.
"We're very pleased to have this matter resolved," said Don Mazziotti, executive director of the Portland Development Commission, the city agency that has helped coordinate the project.
In a news release on the issue, Labor Commissioner Dan Gardner sharply criticized the PDC, both for not seeking clarification on the matter earlier and for sounding public alarms about the issue's threat to the project.
The redevelopment of Meier & Frank has taken years of sensitive negotiations, and the project's completion is considered crucial to the vital downtown core. It involves the renovation of the department store's lower floors and the development of a hotel in the top 11 floors of the 16-floor building.
May Department Stores Co., which is based in St. Louis and owns Meier & Frank, is responsible for sprucing up the retail portion of the building. Sage Hospitality Resources of Denver is the hotel developer.
The wage dispute arose just a few weeks ago when some labor advocates called for the state Bureau of Labor and Industries to require the hotel developer and the department store to pay a state-set prevailing wage. Project developers, in the final stages of signing development agreements and loan documents, also requested clarification on whether the wage law would apply.
"There was a big question mark," Mazziotti said.
The state's prevailing-wage law requires that construction workers on public projects be paid state-set standard wages and benefits. Gardner, who oversees the labor bureau, had to decide whether a loan from the Portland Development Commission to Sage Hospitality constituted a substantial enough link between the agency and the hotel's construction to classify the redevelopment as a public project.
Gardner concluded that the relationship was insufficient to trigger the prevailing-wage law.
Nevertheless, Gardner said he supported the law as a "reflection of the standard wages set by the local market."
"It is important to remember," Gardner stated in a news release, "the prevailing wage rate law represents good public policy regarding the construction of high-quality public projects with taxpayers' dollars."
Gardner's news release leveled unusually pointed criticism at the PDC, saying the agency waited until the eleventh hour to bring the wage issue to the commission's attention, then fanned worries of the project's possible demise.
"It is unfortunate that PDC chose to bring us a development agreement at the very last minute and then unnecessarily created concern that the entire project could be jeopardized," Gardner wrote. "The project was never in jeopardy. There was never a crisis.
"PDC's failure to work with the bureau months ago created unnecessary confusion and consternation that did not serve the public interest."
Mazziotti said the wage issue arose only during final negotiations of the development agreement and loan documents. Both May Department Stores and Sage Development, he said, "basically said they wouldn't proceed without clarity" on whether the law applied.
Then, Mazziotti said, "We immediately went to BOLI for a determination."
PDC chief objects to claims
Mazziotti also objected to Gardner's claims that the PDC unduly stirred up worries about the project's status.
"The project was in jeopardy," he said. "We weren't going through this for our health."
Earlier this week, Mazziotti estimated that a prevailing-wage rate could have increased project costs from 8 percent to 14 percent, or from $11 million to $19 million. At that time, Sage Hospitality said the extra expense would make the hotel portion of the project financially unfeasible.
Neither Sage Hospitality nor May Department Stores could be reached for comment Friday.
Reliable estimates on the effects of the wage law are hard to come by. The labor bureau said studies show the difference may be less than 5 percent.
"At the same time, studies also show higher quality work, so the actual cost may be less," said Marc Zolton, a labor bureau spokesman.
A recent informal survey showed that a worker involved in building demolition was paid a prevailing wage, including benefits, of $28.48 an hour, while a similarly employed nonunion worker was paid $28.13, a difference of 35 cents, or 1.2 percent, Zolton said.
"There are competing studies and estimates," Mazziotti said.
Mazziotti said he hopes to meet with developers on Sunday and within the next couple of weeks to review and approve the final documents. The tiff with the labor bureau, all told, he said, may have added another month to the project's timeline.
He said it's essential that construction begin by August -- for one thing, so that the department store can be ready for the peak winter holiday shopping season.
Gail Kinsey Hill: 503-221-8590;
gailhill@news.oregonian.com