January 23, 1996
Subject: Prevailing Wage
Written By: Diane Schuler Fleming
Requested By: Angela D. Koshewa, University of Louisville; Terry McBrayer, Morehead State; Richard Plymale, University of Kentucky; and Giles Black, Eastern Kentucky University.
Syllabus: Pursuant to KRS 337.010(3)(e), construction projects by universities are exempt from prevailing wage rates.
OAGs Cited: OAG 82-480 (overruled)
Statutes Construed: KRS 337.010(3)(e); KRS 446.080(1) and (4)
OPINION OF THE ATTORNEY GENERAL
In this opinion, we provide an interpretation of the prevailing wage laws and their applicability to construction projects by state universities. Several universities have requested opinions regarding the applicability of the prevailing wage rates to specific projects on their campuses. They are as follows:
University of Louisville renovation of University Tower, a residence hall. UofL proposes to add a computer-study room to this facility. Currently, three floors of the building house the Southern Police Institute, a national program that draws police officers from all over the world to update their skills, and for which academic credit is given.
The university contends that the proposed renovation should not be subject to the prevailing wage rates. They believe that residence halls are part of the educational mission of the university a place where students learn to live and interact with persons from different cultures. Tutoring and group study sessions take place on a regular basis and the staff provides structured learning programs, including study skills and career planning;
Morehead State University two residence halls need renovation of their heating, ventilation and air conditioning systems; replacement of the chiller at the Camden-Carroll Library; and replacement of the fan coil and unit ventilators for two classroom buildings.
Morehead cites data which indicates their library is the most intensively used academic library in Kentucky. In addition, they note the large number of classes and laboratories scheduled in the classroom buildings and the departments housed therein. Finally, they note that the residence halls have previously been updated to include seminar rooms and computer labs, along with other technological advances that ultimately will allow lectures and instructional programs to be transmitted to each student's room;
University of Kentucky renovation of Cooperstown and Shawneetown married and graduate student housing complexes; and
Eastern Kentucky University installation of a sprinkler system for the Begley Building, which houses five floors of classrooms and academic offices.
Together these universities are each seeking answers to the same question, Are construction projects by universities exempt from the prevailing wage rates?
I. The Prevailing Wage Law
As a general rule, prevailing wage rates must be paid on all public works projects except those granted a statutory exemption. The legislature defined public works in KRS 337.010(3)(e). Not only does this statute enumerate several examples of public works projects, but perhaps more importantly, it grants specific exemptions. It states, in part:
`Public Works' includes all buildings, roads, streets, alleys, sewers, ditches, sewage disposal plants, waterworks, and all other structures or work except for buildings constructed as institutions of learning constructed under contract with any public authority. . . .
Therefore, all buildings constructed as institutions of learning are exempt from paying the prevailing wage. Unfortunately, the legislature did not elaborate on this phrase and so we must attempt to define it ourselves. We begin by reviewing a prior opinion of this office which attempted to supply some guidelines. Then we will turn our attention to the policy of the Labor Cabinet.
A. OAG 82-480 Overruled
In OAG 82-480, we were presented with the question of whether a special purpose facility, which would supplement the existing elementary school, and be utilized to teach home economics, industrial arts, etc., was exempt pursuant to KRS 337.010(3)(e). We analyzed the phrase buildings constructed as institutions of learning and concluded that such buildings could include adjunct facilities when they are all a part of the `learning building' project and are all a part of one contract. P . 4. The opinion cited absolutely no authority for its decision. Instead, it seemed to focus upon preventing attempts to avoid paying the prevailing wage.
There are several problems with OAG 82-480. First, it does not cite any authority or draw upon any legal theories in support of its reasoning. Second, it arbitrarily distinguishes between adjunct facilities which are part of the learning building structure itself and those projects which it fears are an attempt to avoid the prevailing wage. Nowhere in the language of KRS 337.010(3)(e) does such a distinction appear, nor is there any reason to apply a more narrow interpretation than that provided by the legislature. Finally, the opinion is unclear as to its scope and application. We are unsure whether it applies only to adjunct facilities or to all buildings or to all public works projects in general. Nor do we know if it was intended to apply to universities as well. Therefore, because it cites no authority and is ambiguous in its application, we are overruling OAG 82-480.
B. The Labor Cabinet's Position Distinguished
The Labor Cabinet takes a very narrow view of the exemption provided by KRS 337.010(3)(e) and relies solely upon OAG 82-480 as its authority. It is the Labor Cabinet's position that
[r]ehabilitation (i.e. further construction or changes in existing structure) or actual construction of a support facility that is not a part of the contract for construction of a learning building project would not be exempt.
Letter from Labor Cabinet Secretary, Bill Riggs, to University of Louisville Vice President, Larry Owsley, April 17, 1995.
To specifically determine whether or not a building is being constructed as an institution of learning, the Labor Cabinet uses a primary purpose test. The primary purpose of the building must be as a learning facility such as a classroom building or a library. Id. Examples of construction which would not be exempt from prevailing wage rates in the Labor Cabinet's view include dormitories, administration buildings, sports facilities, parking facilities, etc. (See, Letter from Labor Cabinet Secretary, Bill Riggs, to Attorney General, Chris Gorman, June 5, 1995.)
We find that several problems exist with the Labor Cabinet's position. First, the Labor Cabinet cites no authority other than OAG 82-480 to support its interpretation of the prevailing wage statute. Second, we do not believe that the primary purpose test which weighs the academic purpose of each building against the alternative or adjunct purpose is consistent with the legislature's intent to exempt institutions of learning. Furthermore, there is nothing in the language of the statute which would indicate that the primary purpose test is either necessary or appropriate.
Finally, application of the Labor Cabinet's position could lead to absurd and unintended results. For example, the main purpose of the Corrections Cabinet is the incarceration of prisoners. If the Corrections Cabinet constructs a classroom building for the inmates, using the Labor Cabinet's analysis, it would be exempt from paying the prevailing wage. We do not believe that the legislature intended such a result when it enacted KRS 337.010(3)(e). Other possible examples with contrary results would include physical plant facilities, such as a boiler room, which would be exempt if attached to a classroom, but not exempt if located merely one foot away; research facilities, where the learning is undergone by the researchers rather than the students; or administrative or faculty offices which would be exempt if located in a classroom building, but not exempt if located separately. In summary, using the primary purpose test leads to arbitrary results which appear contrary to the intent and purpose of the statutory exemption.
II. The Rules of Statutory Construction
In our attempt to interpret the exception to the prevailing wage laws, we turn first to the rules of statutory construction. KRS 446.080 provides:
(1) All statutes of this state shall be liberally construed with a view to promote their objects and carry out the intent of the legislature. . .
. . .
(4) All words and phrases shall be construed according to the common and approved usage of language, but technical words and phrases, and such others as may have acquired a peculiar and appropriate meaning in the law, shall be construed according to such meaning.
Therefore, in our efforts to determine what the legislature meant when it granted an exemption to buildings constructed as institutions of learning, we should try to follow the General Assembly's will.
A plain reading of the phrase buildings constructed as institutions of learning in the context of KRS 337.010(3)(e) appears to have been intended to be a broad-based exemption. Support for this view can be seen from the June23, 1982 letter from Representative Dolly McNutt. Representative McNutt stated that it was intended to exempt all construction done by institutions of learning, which would include both buildings providing educational facilities and buildings providing support services for educational institutions. While we acknowledge that this letter is not controlling, it is both persuasive and informative. Therefore, it would appear that all construction projects undertaken by a university would be exempt from the prevailing wage laws.
When presented with a question of statutory construction, the courts try to follow the General Assembly's intent by giving the words the meaning which follows from the context. Head v. Commonwealth, 165 Ky. 603, 177 S.W. 731 (1915). See also, Singleton v. Commonwealth, 164 Ky. 243, 175 S.W. 372 (1915). Next, we examine relevant case law to see how the courts have interpreted the language in question.
III. Case Law Review
Extensive research reveals that the phrase buildings constructed as institutions of learning has not been interpreted by the courts. However, the phrase institution of learning is commonly used in the tax codes of various states and therefore has been defined by the courts in several jurisdictions. Their analysis is instructive and helpful in our attempt to construe the exemption in KRS 337.010(3)(e).
Only one court in Kentucky has interpreted the phrase institutions of learning. In Harwood v. Dick, 286 Ky. 423, 150 S.W.2d 704, 707 (1941), the court interpreted the term to mean a school for the education of children. The Harwood court's broad definition reflects the common usage of the phrase and is in accord with the statutory language. Other jurisdictions that have interpreted this phrase have reached comparable results.
In In Re Taylor's Estate, 40 N.E.2d 936 (Ohio 1942), the question before the Court was whether or not a bequest to the American Bible Society was exempt from taxation, i.e., whether the school was an institution of learning. The Court denied the school the exemption because it found that their sole purpose was to publish and distribute the Bible. Quoting that the lower court's opinion, the Court said
The idea which the phrase `institutions of learning,' brings to mind is an institution composed of a group of learned men and women associated together for the purpose of instructing another group of persons, usually young men and women, in the accumulated knowledge, skill and wisdom of mankind. An institution of learning must at least embrace the idea of someone, possessed of knowledge and skill, capable of and in a position to impart such knowledge and skill to others in position to and capable of learning them.
Id. at 938. Thus, according to the Court's definition, an institution of learning is a place where people gather to exchange knowledge and information.
The courts in Illinois apply an even broader interpretation to the term. They define an institution of learning as broad enough to include every description of enterprise undertaken for educational purposes which is of higher grade than the public schools provided for in the statutes. In Re McCullough, 55 N.E. 685 (Ill. 1899), quoting, Montgomery v. Wyman, 22 N.E. 845 (Ill. 1889). Therefore, it is obvious that a university is included in the term institution of learning.
However, simply stating that a university is an institution of learning does not completely answer the question before us. To understand what the General Assembly meant when it granted an exemption to buildings of institutions of learning we need to determine what constitutes an institution. Several cases over the years have defined this term in the context of �170 of the Kentucky Constitution, which provides a property tax exemption to nonprofit institutions of education. Three cases are of note.
First, in Trustees of Kentucky Female Orphan School v. City of Louisville, 100 Ky. 470, 36 S.W. 921 (1896), the Court was presented with the question of whether or not property located in Louisville, but owned by a school in Midway, was exempt from taxation. The Court found that the property was exempt as it was the institution's property. It defined an institution of education as the entire property of this institution, wherever situated, and in whatever form its investments may be found. Id. at 925.
A few years later, in Commonwealth v. Gray's Trustee, 115 Ky. 665, 74 S.W. 702 (1903), the Court expounded upon the definition when presented with the question of whether a bequest to educate children is exempt under �170 of the Kentucky Constitution. The Court followed the reasoning of the Kentucky Female Orphan School case and added that (b)uildings alone, and the grounds upon which they stand, are not adequate to provide education. Id. at 702. Furthermore, they added,
It is not a complete definition to define `institution' as simply a building or a plant or a body corporate. It may be all of these, but, more broadly speaking, it is that which is set up, provided, ordained, established, or set apart for a particular end, especially of a public character or affecting the community. So, when money or other property is set apart, the exclusive use and income of which is to be applied to the cause of education or pedagogy, the property impressed with that character becomes an institution, without regard to the particular form of its investment.
Finally, in 1912, the court was presented with the question of whether or not various properties of Berea College were exempt from taxation. It ruled that all of the property in question, including the hotel, laundry, waterworks system, and co-operative store, were exempt. [S]o long as the property was used for an educational purpose and not for outside commercial profit, the property should be exempt. Commonwealth v. Berea College, 149 Ky. 95, 147 S.W. 929, 931 (1912). Clearly the court considered the educational mission of the university to be accomplished both in the classroom and beyond.
IV. Analysis and Conclusion
Upon review of the aforementioned case law, it is our opinion that the General Assembly intended to create a broad-based exemption to the prevailing wage rates when it enacted KRS 337.010(3)(e). Their use of the phrase buildings constructed as institutions of learning is so similar to the phrase institutions of learning found in the tax code, that parallel interpretations should be employed. Therefore, applying the reasoning used by the Kentucky Supreme Court, buildings constructed as institutions of learning would include all property used for an educational purpose. This is in accord with Kentucky case law and recognizes the fact that education takes place not only in the classroom, but throughout the university's property.
In conclusion, the projects in question, submitted by the University of Louisville, Morehead State University, the University of Kentucky, and Eastern Kentucky University, should all be exempt from paying the prevailing wage rates.
A. B. CHANDLER, III
Diane Schuler Fleming
Assistant Attorney General