BILL ANALYSIS Ó
Senate Appropriations Committee Fiscal Summary
Senator Kevin de León, Chair
SB 7 (Steinberg, Cannella) - Public Works: Charter Cities
Amended: February 19, 2013 Policy Vote: L&IR 3-1
Urgency: No Mandate: No
Hearing Date: April 8, 2013
Consultant: Ingenito, Robert
This bill meets the criteria for referral to the Suspense File.
Bill Summary: SB 7 would prohibit a charter city from receiving
or using state funding for a construction project if the city
has a charter provision or ordinance that authorizes a
contractor not to comply with prevailing wage provisions on any
public works contract.
Fiscal Impact: Unknown total costs, likely above $150,000 to the
Department of Industrial Relations (DIR) and other agencies to
comply with the provisions of the bill (see Staff Comments
below).
Background: The formation of cities is provided for in the
California Constitution, and they fall into three categories:
general law cities, charter cities, and one consolidated city
and county (San Francisco).
General law cities derive their powers from and organize their
governments according to acts of the Legislature. The
fundamental law of these cities is found in the Government Code,
which spells out their powers and specifies their structure.
Conversely, charter cities are formed when citizens specifically
frame and adopt a charter or document to establish the
organization and basic law of the city. The Constitution
guarantees to these charter cities a large measure of "home
rule," granting to them, independent of the Legislature, direct
control over local affairs. The basic difference between general
law and charter cities is found in the degree of control which
the state government may exercise over them. Charter cities have
more ability to innovate and to pass ordinances according to
local need.
As of mid-2011, there were 482 incorporated cities in
California. Of these, 361 (or roughly 75 percent) are general
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law cities, while 121 are charter cities. However, all of the
State's 15-largest cities (cities with populations exceeding
220,000, consisting, in descending order, of Los Angeles, San
Diego, San Jose, San Francisco, Fresno, Sacramento, Long Beach,
Oakland, Bakersfield, Anaheim, Santa Ana and Riverside,
Stockton, Chula Vista and Irvine) are charter cities.
Proposed Law: SB 7 would prohibit a charter city from receiving
or using state funds for a construction project if the city has
a charter provision or ordinance that authorizes a contractor to
not comply with state prevailing wage law on any public works
contract. Additionally, the bill would do all of the following:
Not apply to contracts awarded prior to January 1, 2014.
Provide that a charter city includes any agency of a charter
city and any entity controlled by a charter city whose
contracts would be subject to this bill.
Prohibit a charter city (except as specified) from receiving
or using state funds for a construction project for two
calendar years if the city, after January 1, 2014, awards a
public works contract without requiring the contractor to
comply with state prevailing wage law.
Exclude contracts for construction projects costing $25,000 or
less, or projects of $15,000 or less when the project is for
non-construction purposes such as demolition, repair, or
maintenance.
Define state funding and financial assistance to include
direct state funding, state loans and loan guarantees, state
tax credits and any other type of state financial support for
a construction project. State funding and financial assistance
does not include revenues that charter cities are entitled to
receive without conditions under the California Constitution.
Staff Comments:
As noted above, total costs of SB 7 are unknown, but likely
exceed $150,000. This amount reflects smaller one-time costs and
larger on-going costs. These costs include the following
requirements of the Department of Industrial Relations:
Initially determining which charter cities are in
compliance with the measure by not utilizing
provisions/ordinances that authorize contractors to pay
below prevailing wage.
Maintaining and updating at some time interval (the bill
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doesn't specify the frequency) the aforementioned list of
charter cities. Given the on-going nature of public works
projects and the number of state agencies that can provide
financing (including tax credits), this task could be
complex.
Distributing the list to other state departments and
answering/researching any follow-up questions. Even though
the bill doesn't explicitly require DIR to establish
guidelines for state departments, given the breadth and
definition of "state funding and financial assistance"
under the bill, state departments could seek direction from
DIR regarding what funding is covered by SB 7 and which
charter cities do not qualify.
Monitoring compliance with the measure, in particular
potential disputes over whether projects in excess of
$25,000 have been divided into smaller projects to gain the
exemption.
To the extent that charter cities are dissuaded by SB 7
from seeking to exempt contractors from paying prevailing
wage, it could potentially increase the number of public
works projects within the scope of DIR's enforcement duties
with respect to the payment of prevailing wage rates.
This measure could have broader fiscal impacts whose effects are
additionally unclear. For instance, state budget documents
indicate that 2011-12 local assistance bond fund spending
totaled $4.1 billion. The portion of these funds going to
charter cities generally (and specifically those charter cities
with provisions authorizing contractors to pay below prevailing
wage) is unknown. Under one scenario, this bill could lead to a
reduction of total state bond fund spending for local assistance
purposes; money that would have gone to such charter cities
could instead revert to the State. Alternatively, the State
could allocate funds that would have gone to those charter
cities to other localities instead, resulting in a change in the
geographic composition of local assistance bond fund spending
but no change to the overall total (in other words, no net
savings).
Finally, there could be a reduction in the number of local
projects funded by the State, if charter cities' construction
projects that were not paying prevailing wage previously begin
to do so in the future, thus increasing construction costs over
what would have occurred on the natural.
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