State Investigates Claims of Low Pay for Hotel Builders

State officials are investigating the developers of the $30-million city-backed Compton Lazben hotel to determine whether they broke the law by allegedly paying some construction workers less than a third of what they were entitled to under prevailing wage statutes.

If the charges are true, the state labor commissioner could force the developers--or the city’s Redevelopment Agency--to pay penalties as well as the back wages, which could amount to several million dollars, according to construction experts.

“If the prevailing wage rate is higher and they haven’t been paying it, they owe the difference” to the workers, said Richard Stephens, a spokesman for the Department of Industrial Relations in San Francisco.

Matter Referred to Attorney

City Manager James Goins was traveling out of the country this week and could not be reached for comment. But Assistant City Manager Howard Caldwell acknowledged that the city has received a letter announcing the state inquiry and the matter has been referred to the city attorney.

“It is the city’s position,” Caldwell said, “that when we embarked on this project that we were in compliance with the state labor code” and that no wage laws have been violated.

Hotel developers Lazben Financial Co. and D & B Development, as well as general contractor Tucon Development, are firms controlled in whole or part by businessman Naftali Deutsch or his two sons. Spokesman Benjamin Deutsch said Wednesday that the development executives have no comment.

In a complaint to state labor officials earlier this year, a local carpenters union claimed that workers on the hotel project, scheduled to open next month along the 91 Freeway, have been paid $7.30 an hour when they should have been receiving substantially more. The legally established wage for carpenters, for example, is about $25 an hour in this part of the state, according to Floyd D. Clay, the former financial secretary and business agent for Carpenters Local 1437 in Compton, which has since become part of Local 630 in Long Beach.

Clay Made Complaint

Clay said this week that he made the complaint after examining the hotel construction payroll on file at City Hall. All the workers, he said, were listed as apprentices and were paid $7.30 an hour. It is unclear how many workers have been employed on the project, but developers initially estimated that the labor force would reach about 250.

Since the hotel construction began in 1986, the developers have borrowed millions of dollars from the Redevelopment Agency to keep work moving on the 10-story, 300-room structure, which also is to house a city convention center and will include a parking garage. The project, originally expected to be completed early this year, has been plagued by delays. Last year a management audit firm criticized the work and predicted that the project could suffer a cost overrun of as much as $5 million.

The amount of back wages owed to workers could run into millions of dollars. Labor costs on such projects generally are roughly 18% to 25% of the total cost, according to Gary Fields, vice president of the Labor Research Group Inc., an Oakland firm that the carpenters union hired to help develop its case on prevailing wages.

The hotel project is expected to cost about $30 million, meaning that total wage costs could be about $6 million. If the workers were receiving only a third of the prevailing wage, Fields reasoned, then back payments might exceed $2 million.

Because the hotel and convention center are public works projects, the Redevelopment Agency, the developers and the contractor must abide by the state prevailing wage codes, said Industrial Relations spokesman Stephens.

Now, Stephens said, the state Bureau of Field Enforcement in Los Angeles will audit the construction payroll to independently determine if back wages are owed, and if so, how much. It is unclear, he said, whether the city, the developers or both would have to pay if back wages are owed. He said the law also provides for penalties against any wage code violator.

The prevailing wage issue rests on the legal definition of a public works project. To pay for what they view as the jewel in the city’s revitalization, Compton officials devised an elaborate financing plan in which the Redevelopment Agency issued Industrial Development Revenue Bonds and then loaned the proceeds to Lazben and D & B.

The developers, in turn, hired Tucon to construct the hotel, adjacent parking structure and the convention center. State labor attorneys, however, have concluded after a review of the financing plan that the project is still a public works project because it is being built “under contract (with the city) and paid for in whole or in part out of public funds,” according to the letter to Compton from Ron Ranaldi, director of industrial relations.

Clay said he became aware of the alleged wage problem when young men began coming to his office saying they wanted jobs as carpenters because work on the hotel had stalled. The young men, said Clay, introduced themselves as carpenter’s apprentices who had been trained in classes that the city set up at Compton Community College for people interested in working on the hotel. Apprentice training and status, Clay said, is strictly controlled by the state. So he went to city officials and told them that he didn’t believe that the city had authority to sponsor such a program.

Clay said he then reviewed the project’s payroll and found that the wages appeared to be below the prevailing rate.