The stakes are enormous for the development of affordable housing.
OREGON — In a state that boasts the nation’s second-highest rate of unsheltered homelessness, the largest single source of state funding for affordable housing is at the center of a bitter dispute.
That Oregon program, called Local Innovation and Fast Track, or LIFT, helps fund the construction of rental housing for people making 60% or less of median income. It has provided about $1 billion since 2015, and has subsidized housing developments from Medford to Tillamook to Ontario.
And now LIFT funding is the subject of a lawsuit filed in Multnomah County Circuit Court on May 21, claiming state bureaucrats are adding substantially to the costs of those projects — or, sometimes, killing them outright — in violation of state law.
The lawsuit concerns issues specific to a troubled 72-unit affordable housing project in North Portland. But the broader question at the heart of the case carries implications for subsidized housing all over the state.
That’s because, like the North Portland property, developments in dozens of instances received some of their funding through LIFT.
To fund LIFT, the state sells bonds, then lends the proceeds to developers at zero percent interest. Developers either repay the loan after 30 years, or, if they extend affordability another 30 years, the state forgives the loan.
LIFT bonds have generated about $1 billion for 85 projects containing 6,653 units, according to Oregon Housing and Community Services, which administers LIFT. Rep. Vikki Breese Iverson (R-Prineville), vice chair of the House Committee on Housing and Homelessness, calls the LIFT program “monumental legislation to spur housing production.”
But the new lawsuit, filed on behalf of Lorentz Bruun Construction against the Oregon Bureau of Labor & Industries, seeks to clarify a festering disagreement between developers and BOLI, the state agency responsible for determining whether projects are subject to prevailing wage rates. Some experts say the requirement to pay prevailing wages adds 10% to 20% to the cost of housing. The effect of that, since the source of money is limited, is that the state is getting 10% to 20% fewer housing units than it otherwise might.
In its lawsuit, Lorentz Bruun says state law is clear: Funding generated from bond sales and loaned to affordable housing developers is exempt from prevailing wage law. State law, specifically ORS 279C.810(1)(H), exempts “Moneys derived from the sale of bonds that are loaned by a state agency to a private entity, unless the moneys will be used for a public improvement.”
In other words, without explicitly mentioning the LIFT program, the statute regarding prevailing wage appears to exempt it.
But in recent years, as LIFT bond funding increased, BOLI has regularly ruled the exact opposite: that LIFT dollars are “funds of a public agency,” which triggers prevailing wage. Breese Iverson says many housing providers may find it less expensive to forgo state dollars: “The damage done by BOLI’s determination on prevailing wage is enormous.”
BOLI has declined to explain its reasoning to the developers. The agency says it enforces the laws the Legislature writes.
“BOLI reviews all available facts to determine in a given situation involving LIFT funds whether this exception applies,” says bureau spokeswoman Rachel Mann. “In any case where BOLI has found that LIFT funds constitute ‘funds of a public agency,’ it has been based on the particular facts of that case.”
Gov. Tina Kotek, who originally championed the LIFT program in 2015, as House speaker, has made adding 36,000 new units annually her top priority, but the state has failed to build even half that many in her first two years in office.
In 2023, Kotek tasked housing experts to help the state reach that goal—and while that group did not focus on the impact of prevailing wages, Kotek now says it soon will.
“The governor is focused on implementing the recommendations of her Housing Production Advisory Council,” says Kotek spokeswoman Roxy Mayer. “This includes having a thoughtful conversation in the future about the application of prevailing wage.”
The Lorentz Bruun lawsuit represents the collision of two principles of vital importance to Oregonians: the idea that workers should be paid fairly for their labor; and the perhaps more recent premise that housing is a human right.
Oregon passed its prevailing wage law in 1959. The idea then and now: Construction work is highly competitive and, at times, that competition motivates contractors to underpay workers to generate the lowest — that is, winning — bid.
The premise of the law is that publicly funded projects should pay the highest wages — typically union wages—that “prevail” in a given geographic area of the state. BOLI is responsible for surveying pay levels for various trades. If a project involves public funding, the developer comes to BOLI for a determination whether the project must pay prevailing wages.
Certain exemptions apply. For instance, projects that “predominately provide affordable housing” are not supposed to have to pay prevailing wage.
As the Oregon Journalism Project has previously reported (“A Little Off the Top,” April 2), BOLI has taken the position that any commercial use — such as a day care center or a health clinic—in an affordable housing development triggers prevailing wage for the whole project. Speaking on background because they fear angering BOLI, many developers say they believe the bureau’s determinations are overly subjective and too often add significant costs.
Like Kotek, BOLI Commissioner Christina Stephenson won election in 2022 with strong financial support from trade unions, whose role is to maximize compensation for members. Stephenson, however, says campaign contributions play no role in her agency’s determinations about prevailing wages.
The fundamental premise of Oregon’s prevailing wage law is that “public works” projects must pay prevailing wages. State law defines a public works project as anything that uses more than $750,000 in “funds of a public agency.” (That threshold, set in 2007, has not increased with inflation.)
There are certain exemptions, including the one central to the Lorentz Bruun lawsuit: “moneys derived from the sale of bonds that are loaned by a state agency to a private entity.” (Most affordable housing developments are structured with private owners cobbling together financing from a variety of sources, such as tax credits, loans and, increasingly, LIFT dollars.)
BOLI posts its prevailing wage determinations online. For recent proposed developments in Bend, Salem and Seaside, the agency determined that LIFT bonds constituted “funds of a public agency,” despite the exemption.
A $63 million project proposed for Wilsonville last year represents an example of BOLI’s thinking. The project was to include 143 units for people making less than 60% MFI, including 10 live-work units and a U.S. Postal Service center with 900 mailboxes.
Proposed by Related Northwest, one of the region’s leading affordable housing developers, the project relied on a whopping $50 million LIFT allotment. All other funding came from private sources. But BOLI ruled that LIFT money constituted “funds of a public agency” and the live-work spaces and mailboxes were commercial uses, so the entire project was subject to prevailing wages.
After BOLI’s April 2, 2024, determination, Related Northwest scrapped the entire project.
Before filing its new lawsuit, Lorentz Bruun’s attorney wrote to the Oregon Department of Justice, which represents state agencies, asking for the legal theory behind BOLI’s determination that the North Portland project should pay prevailing wage. The letter laid out the dispute in simple terms.
“BOLI’s position regarding the application of prevailing wage laws to the project is wrong,” attorney Alex Naito wrote in a May 15 letter attached to the lawsuit. “BOLI’s misapplication of the law will cause this project to fail, leaving North Portland residents without 72 units of affordable housing, and instead an abandoned, partially completed structure.”
Naito added in his letter that BOLI’s explanation — that it was merely enforcing state law — also didn’t pass muster.
“BOLI’s response has been to simply say, ‘It is up to the Legislature to specify if the public funds used through LIFT funding are exempt,’” Naito noted. “This is ironic considering that the Legislature did exactly that, but BOLI has simply chosen to ignore that instruction.”
DOJ did not respond to Naito’s letter and declined to comment on the Lorentz Bruun lawsuit.
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This story was produced by the Oregon Journalism Project (oregonjournalismproject.org), a nonprofit investigative newsroom for the state of Oregon.
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