BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 7|
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THIRD READING
Bill No: SB 7
Author: Steinberg (D) and Cannella (R)
Amended: 2/19/13
Vote: 21
SENATE LABOR & INDUSTRIAL RELATIONS COMMITTEE : 3-1, 3/13/13
AYES: Lieu, Leno, Lara
NOES: Wyland
NO VOTE RECORDED: Padilla
SENATE APPROPRIATIONS COMMITTEE : 5-2, 5/23/13
AYES: De León, Hill, Lara, Padilla, Steinberg
NOES: Walters, Gaines
SUBJECT : Public works: charter cities
SOURCE : California Labor Federation, AFL-CIO
State Building and Construction Trades Council of
California,
DIGEST : This bill prohibits 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, as specified.
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.
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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.
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. 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.
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
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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.
This bill:
1. Prohibits 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.
2. Provides that a charter city includes any agency of a charter
city and any entity controlled by a charter city whose
contracts is subject to this article.
3. Specifies that it does not apply to contracts awarded prior
to January 1, 2014.
4. Prohibits 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.
5. Specifies that this prohibition does not apply [and state
funds may be used] if a charter city:
A. Has a provision or local ordinance that requires the
payment of prevailing wage.
B. 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.
6. Excludes 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.
7. Defines 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
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conditions under the California Constitution.
8. Requires the Director of DIR to maintain a list of charter
cities that may receive and use state funding for their
construction projects.
9. Includes several related legislative findings and
declarations.
Background
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.
Court Decisions on Charter Cities and Prevailing Wage :
Determining whether the payment of prevailing wages is a
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municipal affair subject to charter sovereignty versus an issue
of statewide concern, has been the subject of court 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 DIR) 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 DIR appealed.
In a more recent case, State Building and 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 and 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
proceeding to the difficult state constitutional question of
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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 Section 1720 (a)(3)
Section 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.
Prior Legislation
SB 829 (Rubio, Chapter 11, Statutes of 2012) provides 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, Chapter 431, Statutes of 2011) authorizes a
public entity to use, enter into, or require contractors to
enter into, a project labor agreement (PLA) for a construction
project, if the agreement includes specified taxpayer protection
provisions. This bill also provides 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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
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According to the Senate Appropriations Committee, unknown total
costs, likely above $150,000 to DIR and other agencies to comply
with the provisions of this bill.
SUPPORT : (Verified 5/24/13)
California Labor Federation, AFL-CIO (co-source)
State Building and Construction Trades Council of California
(co-source)
Bricklayers and Allied Craftworkers, AFL-CIO
Building & Construction Trades Council (Counties of Contra
Costa, Fresno, Imperial, Inyo, Kern, Kings, Los Angeles,
Madera, Mono, Orange, San Benito, San Diego, San Mateo, Santa
Clara, and Tulare)
California Chapters of the National Contractors Association
California Legislative Conference of the Plumbing, Heating and
Piping Industry
California Sheet Metal and Air Conditioning Contractors National
Association
California State Association of Electrical Workers
California State Council of Laborers
California State Pipe Trades Council
California Teamsters Public Affairs Council
Carpet Linoleum & Soft Tile Workers Local Union No. 12
Cement Masons Local Union No. 500
City of Vacaville
Coalition of California Utility Employees
Construction Employers' Association
Drywall Lathers Local 9083
Glaziers, Architectural Metal and Glass Workers Union, Local
718, of
San Francisco
Imperial County and 16 Affiliate Unions
International Brotherhood of Electrical Workers Local Union 234
& 340
International Union of Painters and Allied Trades Local Union
376
Masonry Industry Labor Management Cooperation Trust
Mayors of the Cities of Cotati, Seaside, Long Beach, Los
Angeles, and Sacramento
National Electrical Contractors Association
Northern California Carpenters Regional Council
Northern California Mechanical Contractors Association
Northern California Millwrights
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Painters & Allied Trades District Council 36
Painters & Allied Trades Local 3
Painters & Drywall Finishers Local 741 District Council 16
Painters & Drywall Finishers Local 83 & 913
Plaster Tenders of Southern California Local Union 1414
Plumbers, Steamfitters and Refrigeration Fitters Local Union 230
& 467
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 114,
355 & 484
United Brotherhood of Carpenters and Joiners of America
United Contractors
Western States Council of Sheet Metal Workers
OPPOSITION : (Verified 4/24/13)
Air Conditioning Trade Association
Associated Builders and Contractors of California
Cities of Arcadia, Cerritos, Folsom, Glendora, Grass Valley,
Indian Wells, Norco,
Petaluma, Pico Rivera, Roseville, Selma, Shafter, Solvang,
Torrance, and Wasco
League of California Cities
Plumbing-Heating-Cooling Contractors Association of California
Western Electrical Contractors Association
ARGUMENTS IN SUPPORT : According to proponents of this bill,
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 bill 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
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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,
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 does 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.
ARGUMENTS IN OPPOSITION : 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 bill 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
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projects built with local funds. According to opponents, while
prevailing wage is the issue raised in this bill, the threat
posed by this bill 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.
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.
PQ:d 5/25/13 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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