California Supreme Court justices could decide whether a private developer or the city of Palm Springs controlled public construction funds in a $175 million redevelopment project that transformed Downtown Palm Springs.
The dispute centers on Palm Springs Promenade, LLC’s (PSP) challenge to a state determination that it must pay prevailing wages to construction workers on the mixed-use development. At the heart of the legal battle is a fundamental question about who controlled the public money that flowed into the project.
The development transformed the former Desert Fashion Plaza site from a largely vacant 13-acre downtown property into what court documents describe as a pedestrian-friendly urban village with restaurants, retail space, a luxury hotel, and planned residential units. The project also included public improvements such as parking structures, new roads and open spaces that the city owns and operates.
The corporate structure behind the development involves Grit Development, which purchased the property in 2001 when the company was known as Wessman Development Company. Grit Development later created Palm Springs Promenade LLC specifically to enter into the development agreement with the city. Michael Braun, current president of Grit Development, had said the company would appeal to the Supreme Court.
The financial arrangement that sparked the legal fight involved Palm Springs Promenade contributing $143 million in private funds while the city provided about $51.36 million toward the project. The city’s contribution included $32 million to acquire public assets, $11 million for street construction and parking improvements, $5.3 million for an additional property block, and $3.06 million for change orders.
However, the two sides offer sharply different interpretations of who actually controlled these public funds. The Fourth District Court of Appeal ruled in June that Palm Springs Promenade “retained substantial control over how its construction monies were spent,” noting that an independent fund control agent, not the city, reviewed billing documents and disbursement requests for both private and public improvements.
But Palm Springs Promenade sharply disputes this characterization in court papers filed Aug. 21. The company points to the Department of Industrial Relations’ own administrative findings, which determined that the city retained control through the Project Financing Agreement that granted the city legal authority to require project completion and established separate escrow accounts for public and private construction funds.
“The Court of Appeal concluded that PSP, not the City, retained control over how its construction monies were spent,” attorneys for Palm Springs Promenade wrote in their reply brief. The company argues this statement has been misinterpreted to suggest it controlled the city’s money rather than just its own private funds.
State attorneys pushed back against this interpretation in their Aug. 12 response, defending the appellate court’s analysis.
“The Court of Appeal’s statement was simply an expression of the court’s disagreement with PSP’s characterization that the City controlled all construction monies,” Department of Industrial Relations attorneys wrote, emphasizing that the private developer’s significant funding meant the city could not have controlled all project money.
The high-stakes legal battle has drawn statewide attention from municipal leaders who see broader implications for how cities can partner with private developers. The League of California Cities filed a letter Aug. 19 supporting Palm Springs Promenade’s petition for review, arguing the appellate court’s decision threatens charter cities’ constitutional authority over public spending.
“The Opinion raises constitutional questions of broad application as to the primacy of a charter city’s paramount municipal concern in exercising fiscal autonomy when contributing funds toward any private-public partnership,” the league’s attorneys wrote. The organization represents 473 California cities.
This concern stems from California’s home rule doctrine, which allows charter cities to exempt themselves from certain state laws, including prevailing wage requirements, on projects deemed “municipal affairs.” The doctrine gives charter cities authority to govern local matters without state interference, but determining what qualifies as a municipal affair has proven contentious in cases involving public-private partnerships.
The legal dispute began in 2017 when the Center for Contract Compliance, a nonprofit labor management committee, requested the Department of Industrial Relations to determine whether the project was subject to the city’s prevailing wage exemption ordinance. The department ruled in August 2018 that the project constituted public work subject to prevailing wage requirements, a finding it affirmed in 2020 after Palm Springs Promenade appealed administratively.
Palm Springs Promenade then filed a writ of mandate petition in July 2022 challenging the determination. The city filed a position statement supporting the petition, but Riverside County Superior Court denied the writ, leading to the appeal that culminated in the June ruling against the developer.
The California State Supreme Court’s eventual decision, if it is rendered, will have significant implications beyond this single project. Municipal leaders argue the case could affect how cities across California structure public-private partnerships, particularly in urban redevelopment efforts where cities often need private investment to make projects financially viable.
The developer maintains that precedent supports its position, citing a 2012 California Supreme Court case that upheld a charter city’s right to exempt municipal projects from prevailing wage laws. The Department of Industrial Relations counters that this case involves fundamentally different circumstances because a private company, not the city, controlled most aspects of construction and project management.
The Court has not announced when it will decide whether to hear the case.
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