BILL ANALYSIS Ó Senate Committee on Labor and Industrial Relations Senator Ben Hueso, Chair Date of Hearing: June 25, 2014 2013-2014 Regular Session Consultant: Alma Perez-Schwab Fiscal:Yes Urgency: No Bill No: AB 2272 Author: Gray As Introduced/Amended: February 21, 2014 SUBJECT Public works: prevailing wage KEY ISSUE Should projects funded with grants from the California Advanced Services Fund (CASF), administered by the California Public Utilities Commission, be considered "public works" projects subject to the payment of the prevailing wage? ANALYSIS Existing law defines the term "public works" to include, among other things, construction, alteration, demolition, installation or repair work done under contract and paid for in whole or in part out of public funds. Exempt from the definition of "public works" is work done directly by any public utility company pursuant to order of the Public Utilities Commission or other public authority. [Labor Code §1720(a)(1)] Under existing law , "paid for in whole or in part out of public funds" means, among other things, the following: 1. Payment of money or the equivalent of money by the state or political subdivision directly to or on behalf of the public works contractor, subcontractor, or developer. 2. Performance of construction work in execution of a project. 3. Fees, costs, rents, insurance or bond premiums, loans, interest rates, or other obligations normally required in the execution of the contract, that are paid, reduced, charged at less than fair market value, waived, or forgiven by the state/political subdivision. 4. Money loaned by the state/political subdivision that is to be repaid on a contingent basis. Existing law requires all employees who work on public works projects costing $1,000 or more to be paid the general prevailing rate of per diem wages (the hourly wage rate being paid to a majority of the workers in a particular craft within a given locality) and the general prevailing rate for holiday and overtime work for the specific location where the public work is to be performed. (L.C. §1771) The Director of the Department of Industrial Relations (DIR) is tasked with the responsibility of determining the general prevailing rate of per diem wages in accordance with specified standards. (L.C. §1773) Existing law establishes the California Advanced Services Fund (CASF), administered by the California Public Utilities Commission (CPUC), to help fund deployment of broadband infrastructure and bring high-speed Internet access to all areas of the state and authorizes collection of a customer surcharge on intrastate communications services of up to $315 million for the CASF through 2015 with collections capped at no more than $25 million per year. (Public Utilities Code §281) This Bill would revise the definition of "public works" to also include projects funded by the California Advanced Services Fund (CASF), and therefore, subject to the payment of the prevailing wage. COMMENTS 1. A Brief History on State and Federal Prevailing Wage Law: State prevailing wage laws vary from state to state, many of which were enacted as part of Progressive Era reform efforts to improve working conditions at the end of the 19th and beginning of the 20th centuries. Between 1891 and 1923, seven states adopted prevailing wage laws that required payment of Hearing Date: June 25, 2014 AB 2272 Consultant: Alma Perez-Schwab Page 2 Senate Committee on Labor and Industrial Relations specified hourly wages on government construction projects, the State of Kansas being the first in 1891. Eighteen additional states (including California in 1931) and the federal government adopted prevailing wage laws during the Great Depression of the 1930s amidst concern that acceptance of the low bid, a common requirement of government contracting for public projects, would reduce local wages and disrupt the local economies. This was particularly in the depths of the Great Depression, where, for some local economies, the government had become the primary purchaser of construction products and a significant employer. In general, the proponents of prevailing wage legislation wanted to prevent the government from using its purchasing power to undermine the wages of its citizens. It was believed that the government should set an example, by paying the wages prevailing in a locality for each occupation hired by government contractors to build public projects. Even today, prevailing wage laws are generally meant to ensure that wages commonly paid to construction workers in a particular region will determine the minimum wage paid to the same type of workers employed on publicly funded construction projects. 2. Background on the California Advanced Services Fund: On December 20, 2007, the California Advanced Services Fund (CASF) was created by the California Public Utilities Commission (CPUC) to encourage the deployment of high-quality advanced communications services to all Californians and promote economic growth, job creation, and the substantial social benefits of advanced information and communications technologies. On September 27, 2008, Governor Schwarzenegger signed SB 1193 (Padilla), which codified the CASF program reaffirming the CPUC's creation of the fund. (Public Utilities Code §281) Under existing law, the goal of the program is to, no later than December 31, 2015; approve funding for infrastructure projects that will provide broadband access to no less than 98 percent of California households. Through a grant process, the CASF provides funding to telephone corporations (as defined under the Public Utilities Code) to help bridge the "digital divide" in unserved and underserved areas in the state. Hearing Date: June 25, 2014 AB 2272 Consultant: Alma Perez-Schwab Page 3 Senate Committee on Labor and Industrial Relations The CASF grants are funded through a ratepayer surcharge collected by carriers from end-users for intrastate telecommunications services. Eligible grant applicants include telephone corporations regulated by the CPUC, as specified, entities that received funds from the American Reinvestment and Recovery Act of 2009 (ARRA) for broadband deployment, and regional consortia, local governments or nonprofit or for-profit entities meeting specified criteria. Funding is allocated to four CASF accounts: 1) Broadband Infrastructure Grant Account; 2) Rural and Regional Urban Consortia Account; 3) Broadband Infrastructure Loan Account; 4) Broadband Public Housing Account. Through the end of 2013, the CPUC had collected an estimated total of $157.79 million from the CASF surcharges on revenues collected by carriers. As of December 31, 2013, the cumulative total CASF award funding is as follows: Broadband Infrastructure Grant Account: CPUC authorized $80.37 million for 41 projects that will benefit up to 278,119 households when completed. Of these households, 15,741 were previously unserved and 262,378 were underserved. Regional Broadband Consortia Grant Account: CPUC authorized $2.85 million for 14 consortia grantees. Broadband Infrastructure Revolving Loan Account: CPUC authorized $40,977 for 1 loan awardee and continues to review a remaining $1.5 million in loan applications. 3. Recent DIR Determination: Central Valley Next Generation Broadband Infrastructure Project The Central Valley Next Generation Broadband Infrastructure Project (CVNGBIP) is a 1,371 mile fiber-optic infrastructure project through 18 counties that will reportedly serve a population of 4 million people when completed. The project is being built by the Central Valley Infrastructure Network (CVIN) and its non-profit partner the Corporation for Education Network Initiatives in California (CENIC). The goal Hearing Date: June 25, 2014 AB 2272 Consultant: Alma Perez-Schwab Page 4 Senate Committee on Labor and Industrial Relations of the project is to provide direct fiber connectivity to 63 anchor institutions, access by another 40 anchor sites, and access to hundreds of thousands of other businesses and residences. The $66.6 million project is funded through federal, state and local funds, with about 10 percent ($6,659,967 million) of its total funding coming from the CASF discussed above. On November 22, 2013, DIR Director Christine Baker issued a determination letter which found that the project, because it is partially funded with state funds, is a public work subject to California's prevailing wage requirements. In her determination, the DIR director stated the following: "In this case the funds in question are ordered collected by the CPUC, a state public entity, and forwarded to the State Treasurer. The State Treasurer in turn holds the funds until directed to make payments to private entities developing and constructing the new telecommunications service ? If construction of a project is paid for in part out of public funds and no exemption under section 1720(c) applies, all the work in the project is a public work. Here, the funds are public funds and no exemption applies so the project is a public work in its entirety." (Public Works Case No. 2013-015) Interested parties may appeal to the Director of DIR within 30 days of issuance of the coverage determination. The notice of appeal must state full factual and legal grounds for appealing the determination, and whether a hearing is desired. The decision to hold a hearing is within the director's sole discretion. However, final determination on any appeal is subject to judicial review pursuant to Code of Civil Procedure. 4. Need for this bill? In general, "public works" is defined to include construction, alteration, demolition, installation or repair work done under contract and "paid for in whole or in part out of public funds." The determination of whether a project is deemed to constitute a "public work" is important because the Labor Code Hearing Date: June 25, 2014 AB 2272 Consultant: Alma Perez-Schwab Page 5 Senate Committee on Labor and Industrial Relations requires (except for projects of $1,000 or less) that the "prevailing wage" be paid to all workers employed on public works projects. At question in the Central Valley Next Generation Broadband Infrastructure Project was whether or not the project is considered a "public work" and therefore subject to the payment of the prevailing wage. Even though only 10% of the project is funded from the California Advanced Services Fund, it is enough to qualify under the Labor Code's definition of "paid for in whole or in part out of public funds." The author believes this bill is necessary to codify the decision of the DIR director and clarify that any projects funded "in whole or in part" by the California Advanced Services Fund are considered "public works" and subject to the prevailing wage. 5. Double Referral and Amendments : This bill has been double referred and was previously heard by the Senate Energy, Utilities and Communications Committee which passed the bill with some technical amendments. However, due to the timing of the two Committee hearings, the bill passed with the amendments to be taken in our Committee. The amendments before this Committee are clarifying in nature and specify that the definition for "public works" would include infrastructure project grants from the California Advanced Services Fund. This amendment is necessary to clarify that it applies to projects funded with grants from the California Advanced Services Fund as opposed to "CASF projects" because there is no project administered directly by the CASF - it is simply the fund source for the project. 6. Proponent Arguments : According to the author, the Central Valley Next Generation Broadband Infrastructure Project (CVNGBIP) petitioned the Department of Industrial Relations with the belief that prevailing wage requirements do not apply to the project, because state funds constitute only 10% of the project's total budget. In November 2013, Director Christine Baker determined that, because the CVNGBIP is partially funded by state monies, the project is subject to California's prevailing wage requirements. According to the author, this bill simply Hearing Date: June 25, 2014 AB 2272 Consultant: Alma Perez-Schwab Page 6 Senate Committee on Labor and Industrial Relations codifies Director Baker's determination in statute to avoid confusion and legal questions in the future. The author and proponents believe this will give clarity to contractors who are bidding CASF funded-projects, and to Labor Standards officers who are responsible for enforcing labor laws on the project. 7. Opponent Arguments : According to opponents, the CASF program is a key funding source in bridging the technological gap in some of California's most rural areas; unfortunately, they argue, the increased costs for CASF projects that would be generated by designating them as public works could render current projects impracticable and threaten the viability of many future projects. They argue that some providers would likely be forced to forego CASF projects altogether, to the detriment of rural consumers and communities. Opponents argue that the DIR determination has been appealed by the interested parties and codifying that decision would be premature. Additionally, they argue that DIR's determinations are made on a case by case basis and are not precedential; in this particular case, they believe that DIR jumped to a legally and factually incorrect conclusion. They argue that Labor Code §1720(a)(1) specifically exempts "work done directly by any public utility company pursuant to order of the PUC" from the definition of "public works." They believe that CVIN meets the definition of "Telephone Corporation" under the Public Utilities Act and as such, they argue, the CVIN/CENIC project clearly falls outside the definition of "public works." Additionally, they argue that CASF projects are not state construction contracts awarded by the CPUC, but rather grant recipients, and therefore, clearly fall outside the definition of "public works." Overall, opponents argue that the Legislature should not codify the DIR's erroneous determination both in light of the pending legal arguments and because this bill would undermine a critical state public policy goal in promoting broadband deployment. Hearing Date: June 25, 2014 AB 2272 Consultant: Alma Perez-Schwab Page 7 Senate Committee on Labor and Industrial Relations SUPPORT California Labor Federation, ALF-CIO California State Council of Laborers OPPOSITION California Communications Association California Independent Telecommunications Companies Hearing Date: June 25, 2014 AB 2272 Consultant: Alma Perez-Schwab Page 8 Senate Committee on Labor and Industrial Relations