BILL ANALYSIS Ó
Senate Committee on Labor and Industrial Relations
Ted W. Lieu, Chair
Date of Hearing: March 13, 2013 2013-2014 Regular
Session
Consultant: Alma Perez Fiscal:yes
Urgency: no
Bill No: SB 7
Author: Steinberg and Cannella
As Introduced/Amended: February 19, 2013
SUBJECT
Public works: charter cities
KEY ISSUE
Should the Legislature prohibit a charter city from
receiving/using state funds for a construction project if the
city has a provision or ordinance authorizing a contractor to
not comply with prevailing wage requirements on any public works
contract?
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.
Existing law also defines "public works" as street, sewer, or
other improvement work done under the direction and supervision
or by the authority of any officer or public body of the state,
or of any political subdivision or district thereof, whether the
political subdivision or district operates under a freeholder's
charter or not. [Labor Code §1720(a)(3)]
Under existing law , "paid for in whole or in part out of public
funds" means, among other things, the following:
1. The 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. The performance of construction work by the state or
political subdivision in execution of the project.
3. Fees, costs, rents, insurance or bond premiums, loans,
interest rates, or other obligations that would normally be
required in the execution of the contract, that are paid,
reduced, charged at less than fair market value, waived, or
forgiven by the state or political subdivision.
4. Money loaned by the state or 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 and the general prevailing
rate for holiday and overtime work for the specific location
where the public work is to be performed (Labor Code §1771) This
requirement is applicable to work performed under contract and
it does not apply to work carried out by a public agency with
its own forces. Existing law provides certain exemptions to the
payment of prevailing wage that includes, among others, private
residential projects. 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. (Labor Code §1773)
The California Constitution grants cities the ability to become
charter cities. A county or city may adopt a charter by majority
vote of its electors voting on the question. Under existing
law, a charter city may make and enforce all ordinances and
regulations in respect to "municipal affairs," subject only to
restrictions and limitations provided in their charters and in
respect to other matters they are subject to general laws. [CA
Const. art. XI §3 & 5]
This Bill would prohibit a charter city from receiving or using
state funding or financial assistance for a construction project
- if the city has a charter provision or ordinance that
authorizes a contractor to not comply with prevailing wage
requirements on any public works contract.
Specifically, this bill would:
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§ 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 article.
§ Specify that it does not apply to contracts awarded
prior to January 1, 2014.
§ Prohibit receipt or use of state funds for a
construction project if the city has awarded, within the
current or prior two years, a contract without requiring
compliance of all prevailing wage requirements.
§ Specify that this prohibition does not apply [and state
funds may be used] if a charter city:
o Has a provision or local ordinance that
requires the payment of prevailing wage.
o Has adopted a local prevailing wage ordinance
that includes requirements that are equal to or
greater than the state's existing prevailing wage
provisions and that do not authorize a contractor to
not comply with such.
§ Exclude contracts for projects costing $25,000 or less
when the project is for construction work, or projects of
$15,000 or less when the project is for alteration,
demolition, repair, or maintenance work.
§ Define what is included under "state funding and
financial assistance", and would exempt from its
definition, tax revenues that charter cities are entitled
to receive without conditions under the Constitution.
§ Require the Director of the Department of Industrial
Relations to maintain a list of charter cities that may
receive and use state funding for their construction
projects.
§ Lastly, this bill includes several related legislative
findings and declarations.
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COMMENTS
1. A Brief History of State and Federal Prevailing Wage Law:
State prevailing wage laws vary from state to state, but do
share a common history that predates federal prevailing wage
law. Many of these state laws were enacted as part of
Progressive Era reform efforts to improve working conditions
at the end of the 19th and the beginning of the 20th
centuries. Between 1891 and 1923, seven states adopted
prevailing wage laws that required payment of 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. Brief Background on Charter Cities:
The California Constitution gives cities the power to become
charter cities. For a charter city, the charter adopted
constitutes state law and has the force of legislative
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enactment. Changes to a charter can originate in three ways:
a charter commission; the governing body of the city; or by
petition of the voters. A charter is adopted only with a
majority vote of the city's voters. The California
Constitution authorizes a charter city to exercise plenary
authority over "municipal affairs," while a general law city
is subject to the general laws passed by the Legislature.
Whether a given activity is a municipal affair over which a
city has sovereignty, or a statewide concern, over which the
legislature has authority, is a determination that has been
the legal question of many cases before the court. The
California Constitution does not define "municipal affair" and
thus, the determination of whether an activity is a municipal
affair or statewide concern is done on a case-by-case basis.
The Constitution does, however, set out a list of four core
categories that are presumed to be municipal affairs. Article
XI, Section 5(b) of the California Constitution states:
(b) It shall be competent in all city charters to provide,
in addition to those provisions allowable by this
Constitution, and by the laws of the State for: (1) the
constitution, regulation, and government of the city police
force (2) subgovernment in all or part of a city (3)
conduct of city elections and (4) plenary authority is
hereby granted, subject only to the restrictions of this
article, to provide therein or by amendment thereto, the
manner in which, the method by which, the times at which,
and the terms for which the several municipal officers and
employees whose compensation is paid by the city shall be
elected or appointed, and for their removal, and for their
compensation, and for the number of deputies, clerks and
other employees that each shall have, and for the
compensation, method of appointment, qualifications, tenure
of office and removal of such deputies, clerks and other
employees. [CA Const. art. XI §5(b)]
3. Court Decisions on Charter Cities and Prevailing Wage:
Determining whether the payment of prevailing wages is a
municipal affair subject to charter sovereignty versus an
issue of statewide concern, has been the subject of court
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cases for many decades. Historically, charter cities have been
found to not be bound by state prevailing wage requirements as
long as the project is a "municipal affair," and not funded by
state or federal grants requiring the payment of prevailing
wage. Such was the case in Vial v. City of San Diego [122
Cal. App. 3d 346, 348 (1981)], in which Donald Vial (Director
of the Department of Industrial Relations) and Labor
Commissioner James L. Quillin petitioned for a writ of mandate
to compel the City of San Diego to comply with the state
prevailing wage laws. The superior court denied the petition
and the department appeals.
In a more recent case, State Building & Construction Trades
Council of California v. City of Vista, 173 Cal. App. 4th 567,
93 Cal. Rptr. 3d 95, 2009 Cal. App. LEXIS 627 (Cal. App. 4th
Dist., 2009), the issue was again at question. The case
involved two contracts to design and build fire stations with
local public funds. The State Building & Construction Trades
Council contends that the subject matter of the state's
prevailing wage law is a "statewide concern" over which the
state has primary legislative authority requiring the payment
of prevailing wages. The City responded that the matter was a
municipal affair and therefore governed by its local
ordinances. The court agreed with the city.
In a 5-2 decision, the California Supreme Court affirmed the
right of charter cities to opt-out of the state's prevailing
wage law pursuant to California's Constitution and stated,
"Here, we reaffirm our view - first expressed 80 years ago
[see City of Pasadena v. Charleville (1932) 215 Cal. 384, 389
(Charleville)] - that the wage levels of contract workers
constructing locally funded public works are a municipal
affair (that is, exempt from state regulation), and that these
wage levels are not a statewide concern (that is, subject to
state legislative control)." However, the court went further
in questioning the existence of an "actual conflict" between
state law and charter city law and stated the following:
"This court's 1991 decision in California Fed. Savings,
supra, 54 Cal.3d at pages 16-17, emphasized the importance
of determining, as a matter of statutory construction, that
state law actually conflicts with local law before
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proceeding to the difficult state constitutional question
of which law governs a particular matter."
According to the court, in this case, no party was contending
that California' prevailing wage law exempts charter cities
from its scope. They state that indeed, the prevailing wage
law makes express reference to charter cities, defining
"public works" to include "street, sewer, or other improvement
work . . . of any political subdivision or district [of the
state], whether the political subdivision or district operates
under a freeholder's charter or not." ([Labor Code,
§1720(a)(3)]; and §1720(a)(1) [applying the law to any
construction work "done under contract and paid for . . . out
of public funds"].) According to the court, because the
state's prevailing wage law does not exempt charter cities,
and because Vista's ordinance prohibits compliance with that
law, they concluded that an actual conflict exists between
state law and Vista's ordinance.
4. Need for this bill?
As of July 1, 2011, there were 482 incorporated cities in
California. Of California's 482 cities, 121 of them are
charter cities.
Although California's prevailing wage law has been in the
books since 1931, the question of whether something is a
municipal affair versus one of statewide concern continues to
spark much heated discussion. The many cases that have been
before the courts on this issue are a clear indication of the
need for clarity on what are matters of statewide concern -
warranting the payment of prevailing wage.
This bill, however, does not focus on the issue of clarity for
what is or isn't a "municipal affair," since that is a matter
that would require amending the California Constitution, but
it does focus on providing clarity on how state funds can be
used by charter cities. This bill 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
requirements on any public works contract.
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Current law has similar limitation on the use of state funds
under Public Contract Code §2502 and 2503. Under these
existing conditions, if a charter provision, initiative, or
ordinance prohibits, limits, or constrains the governing
board's authority or discretion to adopt a project labor
agreement, as specified, or prohibits the governing board from
considering whether to allocate funds to a city-funded project
covered by such an agreement, then the state funding or
financial assistance shall not be used to support any
construction projects awarded by the city.
5. Proponent Arguments :
According to proponents of the measure, the prevailing wage
law is critical to the delivery of a quality construction
product because it encourages contractors to perform the work
with an efficient, skilled and streamlined workforce,
ultimately creating long-term cost-savings to the taxpayers.
Proponents argue that this legislation is designed to provide
incentives to charter cities to follow the prevailing wage law
on municipal projects and thereby deter the underground
economy and low-road construction models driven by
unscrupulous contractors.
Proponents argue that a long list of academic studies and
public policy research has confirmed that the prevailing wage
continues to be a useful and effective driver for local
economic growth. They argue that in charter cities with
prevailing wage exemptions, new developments have failed to
generate quality jobs and, in fact, these cities have not seen
the cost savings promised by prevailing wage exemptions and
instead have had their construction costs go up due to
substandard construction performed by under-qualified
contractors. Further, proponents argue that removing
prevailing wage protections pushes workers into requiring more
subsidies in healthcare, housing and other social services.
According to proponents, this bill does not change the outcome
of State Building and Construction Trades Council v. City of
Vista; instead it helps protect other local governments,
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including all general law cities and the majority of charter
cities, from the practices of a minority group of charter
cities that wish to reward their allies with prevailing wage
exemptions that consequently pass on the costs of healthcare
and apprenticeship training to the surrounding cities. They
argue that cities that follow the prevailing wage law are
furthering a policy that benefits the State, not just their
own residents, so they are more deserving of state funds for
their construction projects.
Proponents argue that this bill would not require charter
cities to follow the prevailing wage law and, therefore does
not prevent charter cities from having their own policies. As
such, there is no conflict between this bill and the
constitutional authority of charter cities. Instead, they
argue, this bill will reward the majority of cities that
currently follow the state prevailing wage law.
6. Opponent Arguments :
According to opponents of the measure, their opposition rests
on the fundamental principle of local control and the
constitutional limits on state authority over charter cities,
as recently upheld by the California Supreme Court in the
Vista decision. They argue that in Vista, the Court firmly
protected the right of charter cities to determine whether
they should pay prevailing wages when contracting for public
works projects paid for with local funds.
Opponents argue that this measure conflicts with Vista by
attempting, via the Legislature, to leverage a different
outcome than the Court's ruling by withholding vital state
construction funds - derived from all of the state's taxpayers
- from charter cities that fail to adopt prevailing wage
requirements for projects built with local funds. According
to opponents, while prevailing wage is the issue raised in
this bill, the threat posed by the measure to local charter
authority is much broader. They argue that if this framework
is authorized, there will be no end to efforts to leverage
compliance with other state edicts, while ignoring the
constitutional legitimacy of the doctrine of municipal
affairs.
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Some cities writing in opposition argue that they already
require the payment of prevailing wages for city funded
projects, but fear that this legislative tactic could be used
in the future to erode other local flexibility that is
important to their communities. Additionally, opponents argue
that by saddling local taxpayers with higher costs, the state
will guarantee less construction will take place on locally
funded projects. Overall, opponents argue that whether a
charter city pays prevailing wage with local funds is up to
each city and not the Legislature.
7. Prior Legislation :
SB 829 (Rubio) of 2012: Chaptered
SB 829 would provide that if a charter provision, initiative,
or ordinance of a charter city prohibits, limits, or
constrains in any way the governing board's authority or
discretion to adopt, require, or utilize a project labor
agreement (PLA) that includes specified taxpayer protection
provisions for some or all of the construction projects to be
awarded by the city, state funding or financial assistance may
not be used to support any construction projects awarded by
the city, as specified.
SB 922 (Steinberg) of 2011: Chaptered
SB 922 would authorize a public entity to use, enter into, or
require contractors to enter into, a PLA for a construction
project, if the agreement includes specified taxpayer
protection provisions. This bill would also provide that if a
charter provision, initiative, or ordinance prohibits the
governing board's consideration of a PLA for a project to be
awarded by the city, or prohibits consideration whether to
allocate funds to a city-funded project covered by such an
agreement, then state funding or financial assistance may not
be used to support that project, as specified.
SUPPORT
State Building and Construction Trades Council of California,
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AFL-CIO (Sponsor)
Bricklayers and Allied Craftworkers, AFL-CIO
California Chapters of the National Contractors Association
California Labor Federation
California Legislative Conference of the Plumbing, Heating and
Piping Industry
California Sheet Metal and Air Conditioning Contractors National
Association
California State Council of Laborers
Carpet Linoleum & Soft Tile Workers Local Union No. 12
Cement Masons Local Union No. 500
Contra Costa Building and Construction Trades Council
District Council 16 Local Union 294
Fresno, Madera, Kings and Tulare Counties Building &
Construction Trades Council, AFL-CIO
Glaziers, Architectural Metal and Glass Workers Union, Local
718, of San Francisco
Imperial County Building Trades and 16 Affiliate Unions
International Brotherhood Electrical Workers
International Brotherhood of Electrical Workers Local Union 234
International Brotherhood of Electrical Workers Local Union No.
340
International Union of Painters and Allied Trades Local Union
376
Kern, Inyo and Mono Counties Building and Constructions Trades
Council
Los Angeles/Orange Counties Building and Construction Trades
Council
Northern California Carpenters Regional Council
Painters & Allied Trades District Council 36
Painters & Allied Trades Local # 3
Painters & Drywall Finishers Local 741 District Council 16
Painters & Drywall Finishers Local Union 913
Painters and Drywall Finishers Local 83
Plaster Tenders of Southern California Local Union 1414
Plumbers & Steamfitters Local Union # 230
Plumbers, Steamfitters and Refrigeration Fitters Local Union #
467
San Diego County Building & Construction Trades Council, AFL-CIO
San Mateo County Building & Construction Trades Council
Santa Clara & San Benito Counties Building & Construction Trades
Council
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Sheet Metal, Air, Rail, Transportation Workers Local Union 105
United Association of Journeymen and Apprentices of the Plumbing
and Pipe Fitting Industry Underground Utility/Landscape Local
355
United Association of Journeymen and Apprentices of the Plumbing
and Pipe Fitting Industry of the United States Local Union 114
Ventura County Plumbers and Pipefitters local # 484
OPPOSITION
Air Conditioning Trade Association
Associated Builders and Contractors of California
League of California Cities
Plumbing-Heating-Cooling Contractors Association of California
The City of Arcadia
The City of Cerritos
The City of Folsom
The City of Glendora
The City of Grass Valley
The City of Indian Wells
The City of Norco
The City of Petaluma
The City of Pico Rivera
The City of Roseville
The City of Selma
The City of Shafter
The City of Solvang
The City of Torrance
The City of Wasco
Western Electrical Contractors Association
Western Electrical Contractors Association
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