They did that to nail the sheathing/siding to.
I suppose it could be parge coated or some other thinner material than the siding would be my thoughts…but that was very poor planning. 
Welcome to our forum after 2 years, Allen. Hope to see you around more. Enjoy! 
Keep sticking termite dinner into the ground… … …
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Better question is how does something like that pass foundation phase inspection from the building department. I mean come on, this is not China or India!
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Not saying that is ok,but treated lumber should last longer yes ???
What I found out this am. The pierce county inspector has never seen this and said it would have to be engineered with a thicker foundation used to attach siding over the foundation. So I will be calling the city of Edgewood to get a better answer. Thanks for chiming in.
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Good work, Allen!