REST Easy with Mahoney December 2024

The recent legislation can be seen as an expansion of existing prevailing wage laws, that govern state funded construction and public works projects, to the housing sector. The Minnesota Department of Labor and Industry (DLI) governs employers subject to prevailing wage laws. The current prevailing wage rates for commercial construction projects in Minnesota – soon to include affordable housing developments – can be found on the DLI website here and is searchable by county.

State prevailing wage requirements apply to the multifamily development projects receiving “financial assistance”, which is any of the following:

• All allocations of 9% and 4% Low-income housing tax credits (LIHTCs), from Minnesota Housing Finance Agency (MHFA) or any of the state’s sub-allocating agencies, with more than ten units.
• New construction developments, including adaptive reuse projects, receiving loans of $500,000 or more from a state agency, including MHFA or any of the state’s sub-allocating agencies.
• New construction developments, including adaptive reuse projects, receiving grants of $200,000 or more from a state agency, including MHFA or any of the state’s sub-allocating agencies.
• Any projects receiving a reduction, credit, or abatement of a tax assessed under chapter 297A where the tax reduction, credit, or abatement applies to a geographic area smaller than the entire state and was granted for economic development related purposes.

The key reporting requirements include the submission of the DLI’s Prevailing Wage Certification Form prior to closing of state financing, and the ongoing submission of Certified Payroll Reports within 14 days after each pay period throughout construction. The Certified Payroll reports must be submitted electronically throughout the construction period. Although reporting requirements may differ among the state’s credit allocating agencies, MHFA has published a list of Frequently Asked Questions on its webpage that further delve into applicability by project and administration and submission of certified payroll information.

Key takeaways

LIHTC projects:

• The prevailing wage requirement applies to all projects with more than 10 units that are selected/awarded LIHTCs on or after January 1, 2025, including submission of certified payroll reporting.
• Selection is defined for 4% projects as the issuance of the preliminary determination letter. Selection is defined for 9% projects as the allocating agency’s board action to select a project for future reservation and allocation of tax credits through Round 1 or Round 2.

Non-LIHTC projects with loans and grants:

• Rehabilitation projects are generally excluded from prevailing wage requirements, with the exception of publicly owned projects. Public ownership entities include housing and redevelopment authorities, public housing authorities, and economic development authorities.
• Applicability – new construction and adaptive reuse projects selected for loans/grants before July 1, 2023: projects meeting the grant and loan funding thresholds noted above are subject to the prevailing wage and must execute the Prevailing Wage Certification Form before closing or executing any loan or grant documents.
• Applicability – new construction and adaptive reuse projects selected for loans/grants on or after July 1, 2023: projects meeting the grant and loan funding thresholds noted above, or publicly owned rehabilitation projects, are subject to the prevailing wage and must execute the Prevailing Wage Certification Form (see below) before closing or executing any loan or grant documents. These projects are also required to submit regular Certified Payroll Reports to the allocating agency (in addition to any other standard reporting to DLI).
• Any publicly owned new construction projects falling below the loan/grant funding threshold are subject to prevailing wage law but will not require certified payroll reporting to the allocating agency.
• Example loan/grant sources that may trigger prevailing wage requirements include, but not limited to, LMIR first mortgages, bridge loans, flexible financing for capital costs, state bond proceeds, state housing tax credit, and also federally appropriated funds such as HOME and NHTF funds.
• The loan/grant funding thresholds above includes all applicable sources calculated in the aggregate. For example, two or more loans from the state agencies that individually are less than threshold, but in total meet the threshold, would trigger prevailing wage requirements for that project.

Compliance

Enforcement of compliance with the new affordable housing prevailing wage laws will generally follow existing state funded projects subject to prevailing wage. Key requirements and enforcement actions relative to affordable housing developments include:

• Sponsors must verify every contractor and subcontractor as responsible contractors in accordance with prevailing wage laws.
• Project applicants must maintain a list of all contractors and subcontractors expected to work on a proposed project.
• If any contractor or subcontractor fails to pay required wages, project sponsors must have a wage theft prevention plan in order to be eligible for further funding from a state agency which is subject to review by DLI and then required to be included in all future applications for funding.
• Project sponsors are disqualified from receiving funding for three years if any of the project sponsor’s contractors or subcontractors are found, within three years of entering into a wage theft prevention plan, to have failed to pay required wages for a total underpayment of $50,000 or more.
• Refusal to enter into required agreements will result in denial of funding to project sponsors.
• The above requirements over wage theft prevention and use of responsible contractors is effective for applications for funding submitted after August 1, 2024.
• Prevailing wage laws apply to certain subsequent repairs or modifications required to maintain state-assisted projects. Consult the state agency administering the program to ensure continued compliance.

We recommend all sponsor organizations and developers consult with your legal counsel, state agency, and DLI to ensure all requirements are met and appropriate controls and administrative processes are established to maintain compliance.