Shifting tides in the market demand for commercial and retail projects have plagued Burbank’s hopes for development of its former police headquarters site, little more than a vacant lot for more than three years. Now, the city has a new challenge: wages. The Burbank-based Cusumano Group’s $1 million bid to develop the land has been shelved because the city says the price is simply too low. But Cusumano says construction costs driven by a three-year-old local policy requiring wages higher than market to workers on projects involving community redevelopment agency funding make a higher offer impossible. Burbank is now faced with the possibility of yet another delay on construction of the site and losing a well-known local developer. But also, because its wage policy is not shared by surrounding cities, such as Glendale, developers could be lured away by what they consider more reasonable costs of doing business. The city, which has already spent more than $8 million to acquire property surrounding the old police building, is preparing once more to invite offers from developers who might want to build on the 3.2 acres bounded by Olive and Angeleno avenues, Third Street and San Fernando Boulevard. The full council will address the issue March 27. Cusumano originally submitted two bids for the project last fall, one for $4 million, if it were not forced to pay so-called prevailing wages, and the other for $1 million with the prevailing wage requirement intact. The city was compelled by its own policy to consider only the lower bid. Cusumano proposed 100,000 square feet of office space, 100 residential units, a restaurant and some retail. Previous plans for the site have included some of that plus a movie theatre and a hotel first by Regent Properties and then later by Legacy Partners Commercial Inc. Both of those projects, however, were shelved due to softening in the hotel and theatre markets. Company Vice President Michael Cusumano said the cost of prevailing wages simply made the price tag for the final project too high. “The prevailing wage requirement increases the cost of hard-labor construction, which negatively impacts the fair market value of the land,” said Cusumano. “We’ve worked on this project for almost five years and we feel we’ve submitted the best possible project and it appears as though (the city) is not satisfied, so I’m not sure what we will do at this point.” Mandated wage levels Federally-mandated prevailing wages are meant to set standards for construction union wages across the state. Each state is expected to administer the wage laws and, in California, they typically apply only to public works projects, not residential or retail. Three years ago, the Burbank City Council went even further than state law and included redevelopment projects in the group that require the higher wages. That, perhaps unwittingly, changed the bidding process for projects already on the table. According to information provided by Cusumano, an electrician on a multifamily residential project would earn an hourly market rate of $22. The same electrician would earn $39.05 under the prevailing wage policy. With overtime and holiday pay, payroll taxes and workers compensation insurance costs factored in, the base market wage for that same electrician becomes $27.94 compared to $49.56 under the prevailing wage. Although Burbank’s policy is made clear in requests for proposals, City Manager Robert “Bud” Ovrom said this is the first time a developer has ever presented a lowered bid on an agency-connected project. He said the city was pleased with the design of the Cusumano project, but couldn’t reconcile the lower offer with its $8 million investment. “When the Cusumano land value came in so low, we thought we owed it to ourselves to go out and test the open market because we could get a better price,” Ovrom said. “We know there’s a hot market for residential projects, so if we went back out and said we’re willing to have this be residential, maybe a whole new cadre of residential developers would come forward and be willing to pay more for the property.” Because of the need for housing in Burbank, the city council could opt to exempt the housing and parking components of the project from the prevailing wage policy. That might allow Cusumano to reconsider its original $4 million bid and avoid further delays on a project whose cash flow and residential foot traffic would help pump new life into the fledgling downtown Village area. However, since no California city has granted those kinds of exemptions to their wage policy, it is not clear that they would be acceptable to state authorities. According to David Sickler, Southern California regional director for California State Building Trades, prevailing wage guidelines may be one protection both workers and those seeking development share. “The one determining factor employers and contractors can control is wages and, unless you have a floor, they just keep outbidding each other until you get down to the bottom,” said Sickler. “So the prevailing wage is endorsed by construction unions because it does set a standard, so that all contractors have to do is prove who can do the best job on budget and on time. A bid should never be based on who can pay the lowest wages.” Sickler said his agency sued former Gov. Pete Wilson during his last year in office when he threatened to cut the prevailing wage. “That would have cut the workers annual pay by about 20 percent,” he said. Wilson left office before going ahead with any action on the issue and the lawsuit was eventually dropped. Vying for development Burbank’s prevailing wage policy has created concerns about competition from surrounding cities, said Ovrom. Although Glendale does abide by the state law, it does not have a more stringent prevailing wage policy linked directly to redevelopment projects. Consequently, it can easily attract developers willing to pay higher land fees. “It does pose a challenge for us,” said Ovrum. “If we require a prevailing wage and Glendale doesn’t, that puts us at a competitive disadvantage. So, that has to be ferreted out. But right now we are requiring it.” Glendale Redevelopment Agency Director Jeanne Armstrong said she was not aware of any conflicts with the agency and developers over prevailing wages, including the city’s still undefined Town Center project planned for about 11 acres next to the Glendale Galleria. “This is something we certainly need to explore,” Armstrong said. “It sounds like Burbank took an extra step. And they will have to abide by policy or repeal their own ordinances. But if everyone is subject to it, it’s going to affect the price of the land. Our developers may have been following it all along, but we don’t know.” Glendale has not yet selected a developer for the Town Center project. Anderson said that, because the property is not city-owned even though some funding may come from the redevelopment agency’s coffers it is so far a non-issue.