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

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            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

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            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

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            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

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            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

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            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

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                                       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