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Commonwealth Court Holds Prevailing Wage Does Not Apply to Conduit Financings

by | Aug 10, 2022 | Industry News, Ried, Benjamin A

On August 4, 2022, the Commonwealth Court of Pennsylvania overturned a June 2021 Pennsylvania Prevailing Wage Appeals Board decision that effectively applied prevailing wages to conduit-financed 501(c)(3) construction projects throughout the Commonwealth. In 2016, Ursinus College funded a campus construction project with bonds issued by the Montgomery County Higher Education and Health Authority for the benefit of the College. In this typical (albeit nuanced) plan of finance, federal tax regulations permit 501(c)(3) organizations to finance or refinance capital projects with tax-exempt loan dollars so long as the debt obligations are in fact issued by authorized governmental issuers. The reality, however, is that the loan proceeds are immediately deposited in an account that only the nonprofit borrower can spend, and the borrower is 100% responsible for repaying the loan, not the conduit issuer.

In the Ursinus College case, the Prevailing Wage Appeals Board held nonetheless that the bond proceeds did not lose their character as the “funds of a public body” despite the authority’s limited-scope involvement, thus triggering application of prevailing wages to the College’s project. This decision sent shock waves throughout the PA public finance community, effectively ballooning project costs for those 501(c)(3) borrowers that had bid or budgeted wages below Pennsylvania prevailing wages. Most conduit-financed projects were quickly shelved, and not just for higher education 501(c)(3) organizations, but also for hospitals, senior living facilities, and other Pennsylvania 501(c)(3) nonprofits that finance construction projects on a conduit, tax-exempt basis.

With the Commonwealth Court holding that the Appeals Board erred by applying prevailing wage to the Ursinus College project, 501(c)(3) borrowers throughout the Commonwealth are a significant step closer to business as usual for planning and undertaking capital projects.

For more information or updates on a possible appeal of the decision to the Supreme Court of Pennsylvania, please contact Ben Ried at