An unnumbered Notice issued on December 23 by both the Office of Public and Indian Housing and the Office of Housing clarifies enforcement of Davis-Bacon prevailing wage requirements for certain projects participating in Component II of the Rental Assistance Demonstration (RAD).
Under RAD Component II, Congress allows private properties assisted through the Moderate Rehabilitation (Mod Rehab) program, Rent Supplement (Rent Supp) program, and Rental Assistance Program (RAP) to convert an unlimited number of Tenant Protection Vouchers to Project-Based Vouchers (PBVs), and, as of FY15, Project-Based Rental Assistance (PBRA).
The U.S. Housing Act of 1937 states that prevailing wage rates determined under the Davis-Bacon Act apply to the development of Section 8 projects that have nine or more assisted units when the public housing agency (PHA) or HUD and the builder or sponsor enter into an agreement for Section 8 use before construction or rehabilitation begins.
On June 25, 2014, HUD issued a final rule implementing changes to the PBV program, mostly as a result of amendments made by the Housing and Economic Recovery Act of 2008 (see Memo, 6/27/15). One of the changes made by the final rule sought to clarify that Davis-Bacon may apply to “existing” housing (as defined in PBV regulations) not subject to an Agreement to Enter into Housing Assistance Payment (HAP) Contract if the work to be carried out before or after execution of a HAP Contract constitutes “development.”
Notice PIH 2012-32 REV-1, issued on July 2, 2013, refined the operating rules for RAD. It did not directly address the applicability of Davis-Bacon to RAD Component II, but HUD writes in the December 23, 2014 Notice that language elsewhere in PIH 2012-32 REV-1 may have led to uncertainty regarding the applicability of Davis-Bacon for Component II projects that met the PBV definition of “existing” housing.
The Notice explains that many Component II project budgets were established on the assumption that Davis-Bacon wages would not be required. In addition, a number of Component II projects’ eligibility for Low Income Housing Tax Credits (LIHTCs) were to expire on December 31, 2014. Therefore, HUD concluded that it would not be practical to compel private parties to enter into new contracts or to amend contracts or proposals based on a new cost structure to meet Davis-Bacon wage requirements.
Consequently, HUD will not enforce Davis-Bacon for a Component II project that qualifies as “existing” housing under the PBV rule if the application for RAD conversion was submitted to and approved by HUD before June 25, 2014, or the application involved receipt of LIHTC due to expire before December 31, 2014, and was submitted to and approved by HUD before December 31, 2014.