BILL ANALYSIS Ó
SB 7
Page 1
Date of Hearing: June 26, 2013
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
K.H. "Katcho" Achadjian, Chair
SB 7 (Steinberg and Cannella) - As Amended: February 19, 2013
SENATE VOTE : 28-10
SUBJECT : Public works: charter cities.
SUMMARY : Prohibits the reception or use of state funding or
financial assistance for construction projects by charter cities
that allow contractors to not comply with the state's prevailing
wage law on any public works contract. Specifically, 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 the provisions of current law
governing prevailing wage requirements for public works on any
public works contract.
2)Prohibits a charter city from receiving or using state funding
or financial assistance for a construction project if the city
has awarded, within the current or prior two calendar years, a
public works contract without requiring the contractor to
comply with all of the provisions of current law governing
prevailing wage requirements for public works. This provision
does not apply to contracts awarded prior to January 1, 2014,
nor does it apply if the charter city's failure to include the
prevailing wage or apprenticeship requirement in a particular
contract was inadvertent and contrary to a city charter
provision or ordinance that otherwise requires compliance with
current law governing prevailing wage requirements for public
works.
3)Provides that a charter city may receive or use state funding
or financial assistance for its construction projects if the
charter city has adopted a local prevailing wage ordinance
that includes requirements that in all respects are equal to
or greater than the requirements imposed by the provisions of
current law governing prevailing wage requirements for public
works and that do not authorize a contractor to not comply
with current law governing prevailing wage requirements for
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public works.
4)Provides, for the purposes of this bill, that the following
shall apply:
a) A public works contract does not include contracts for
projects of $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;
b) A charter city includes any agency of a charter city and
any entity controlled by a charter city whose contracts
would be subject to current law governing prevailing wage
requirements for public works; and,
c) State funding and financial assistance includes 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 tax revenues that charter
cities are entitled to receive without conditions under the
California Constitution.
5)Requires the Director of Industrial Relations to maintain a
list of charter cities that may receive and use state funding
and financial assistance for their construction projects.
6)Makes a number of findings and declarations regarding the
importance of the construction industry to the state's
economy, the value of the state's prevailing wage law (PWL),
and the PWL as it applies to charter cities.
7)States that it is the intent of this bill to provide a
financial incentive for charter cities to require contractors
on their municipal construction projects to comply with the
state's PWL by making these charter cities eligible to receive
and use state funding and financial assistance for their
construction projects.
EXISTING LAW :
1)Provides, pursuant to the California Constitution
(Constitution), for the formation of charter cities.
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2)Provides, pursuant to the Constitution, that it shall be
competent in any city charter to provide that the city
governed thereunder may make and enforce all ordinances and
regulations in respect to municipal affairs, subject only to
restrictions and limitations provided in their several
charters and in respect to other matters they shall be subject
to general laws. City charters adopted pursuant to the
Constitution shall supersede any existing charter, and with
respect to municipal affairs shall supersede all laws
inconsistent therewith.
3)Provides, pursuant to the Constitution, that it shall be
competent in all city charters to provide, in addition to
those provisions allowable by the 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 Article 11 of the Constitution, 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.
4)Requires that not less than the general prevailing wage rate
be paid to all workers employed on a "public works" project
costing over $1,000 and imposes misdemeanor penalties for a
violation of this requirement.
5)Defines "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. For purposes of this provision,
"construction" includes work performed during the design and
preconstruction phases of construction, including, but not
limited to, inspection and land surveying work.
6)Includes, within the definition of "public works" street,
sewer, or other improvement work done under the direction and
supervision or by the authority of any officer or public body
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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.
7)Requires contractors on public works projects to hire
apprentices from state-approved apprenticeship programs and to
pay them prevailing wage.
8)Requires the Director of the Department of Industrial
Relations to use a specified methodology to determine the
general prevailing rate of per diem wages in the locality in
which a public work is to be performed, as specified.
FISCAL EFFECT : This bill is keyed fiscal.
COMMENTS :
1)According to the author, "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. 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." This bill is sponsored
by the State Building and Construction Trades Council of
California.
2)The California Constitution gives cities the power to become
charter cities. Of California's 482 cities, 121 are charter
cities. The state's 361 general law cities are subject to the
general laws passed by the Legislature. Under the
Constitution, the ordinances of charter cities supersede state
law with respect to "municipal affairs," while state law
prevails with respect to matters of "statewide concern." This
is often referred to as the home rule doctrine. The courts
decide whether a matter falls within the home rule authority
of charter cities.
While the Constitution does not explicitly define "municipal
affair," it does outline four categories that are presumed to
be municipal affairs, stating that "it shall be competent in
all city charters to provide, in addition to those provisions
allowable by the Constitution, and by the laws of the State
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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."
3)California's PWL generally requires contractors on public
works projects to pay the general prevailing wage rates for
work of a similar character in the locality in which the work
is performed. The premise behind the PWL is that government
contractors should not be allowed to circumvent locally
prevailing market conditions by importing cheap labor from
other areas. The PWL also requires contractors on public
works projects to hire apprentices from state-approved
apprenticeship programs and to pay them prevailing wage. The
policy goal behind this provision is to foster the continual
development of highly skilled and trained construction workers
for the state's public and private infrastructure projects.
General law cities must abide by the state's PWL. The
question of whether charter cities must abide by the PWL has
been the subject of much debate and litigation for many
decades, most recently in State Building & Construction Trades
Council of California v. City of Vista (2009) 173 Cal. App.
4th 567.
4)In 2006, voters in the City of Vista approved a .5% sales tax
to finance construction and renovation of several public
buildings. In June 2007, the Vista City Council ordered a
special election for residents to vote on a ballot measure
changing the city from a general law city to a charter city.
The measure was recommended by the city attorney, who argued
that the conversion would allow the city to save money by
avoiding payment of prevailing wages on its public works
projects. After the measure was approved by 67% of the votes
cast, Vista amended a city ordinance to prohibit any city
contract from requiring payment of prevailing wage unless
prevailing wage is required by a state or federal grant, the
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contract does not involve a municipal affair, or prevailing
wage is separately authorized by the city council.
In October 2007, the Vista City Council approved contracts to
design and build two fire stations with funds generated by the
2006 sales tax increase. These contracts, which totaled
several million dollars, did not require compliance with the
state's PWL. The State Building and Construction Trades
Council of California filed suit seeking a writ of mandate
ordering Vista to comply with the state's PWL. Vista argued
that prevailing wage issues are not a statewide concern, and
that the Constitution and laws governing charter cities give
charters the right to determine whether to pay prevailing
wages for public works that involve locally funded municipal
affairs.
The trial court denied the Union's petition, citing Vial v.
City of San Diego (1981) 122 Cal. App. 3d. 346, which found
that the expenditure of city funds on public works projects
and the rates of pay of workers hired for such projects are
municipal affairs of a charter city over which the state has
no legislative authority. By a 2-1 decision, the court of
appeals affirmed the trial court's decision. The California
Supreme Court, by a 5-2 vote, also ruled in favor of Vista,
deciding that charter cities are not required to pay
prevailing wage for local public projects that are paid for by
local funds.
The crux of the argument before the Supreme Court was whether
the wage levels of contract workers constructing locally
funded public works are a municipal affair or a matter of
statewide concern. The Union argued that the wage levels
mandated by the state's PWL reflect regional rather than local
interests and are, therefore, a matter of statewide concern.
The Union also contended that wage levels in a local area are
likely to have an effect regionally and statewide, and that
the refusal of charter cities to pay prevailing wages
depresses regional labor standards. Finally, the Union
asserted that the PWL's requirement that public works
contractors hire apprentices is essential to the state's
long-term economic health and that the training of the next
generation of skilled construction workers is a statewide
concern. In response, the majority opinion stated:
These arguments by the Union underscore the importance of
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identifying correctly the question at issue. Certainly
regional labor standards and the proper training of
construction workers are statewide concerns when considered
in the abstract. But the question presented here is not
whether the state government has an abstract interest in
labor conditions and vocational training. Rather, the
question presented is whether the state can require a
charter city to exercise its purchasing power in the
construction market in a way that supports regional wages
and subsidizes vocational training, while increasing the
charter city's costs. No one would doubt that the state
could use its own resources to support wages and vocational
training in the state's construction industry, but can the
state achieve these ends by interfering in the fiscal
policies of charter cities? Autonomy with regard to the
expenditure of public funds lies at the heart of what it
means to be an independent governmental entity. " '[W]e can
think of nothing that is of greater municipal concern than
how a city's tax dollars will be spent; nor anything which
could be of less interest to taxpayers of other
jurisdictions.' " (Johnson v. Bradley, supra, 4 Cal.4th at
p. 407.) Therefore, the Union here cannot justify state
regulation of the spending practices of charter cities
merely by identifying some indirect effect on the regional
and state economies. (See County of Riverside, supra, 30
Cal.4th at p. 296 ["No doubt almost anything a county does
. . . can have consequences beyond its borders. But this
circumstance does not mean this court may eviscerate clear
constitutional provisions, or the Legislature may do what
the Constitution expressly prohibits it from doing."].)
The majority decision concluded that "no statewide concern has
been presented justifying the state's regulation of the wages
that charter cities require their contractors to pay to workers
hired to construct locally funded public works."
On the other hand, the dissenting opinion by Werdegar, concurred
in by Liu, notes:
Against the considerable weight of the evidence that the
prevailing wage law addresses an issue of statewide
concern, the majority's answer is not to engage the issue,
but to reframe the question. The majority thus asserts
that the question is not whether regional labor standards
and apprenticeship programs address an issue of statewide
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concern, but whether "the state can require a charter city
to exercise its purchasing power in the construction market
in a way that supports regional wages and subsidizes
vocational training, while increasing the charter city's
costs." (Maj. opn., ante, at p. 15.) What this reframing
ignores is that the entire premise of the dispute before
us, and the one that has continued to vex courts over the
years, is that the state can sometimes override a city's
local choices - even financial ones - so long as it has
sufficient reason (i.e., with a state law addressed to
strong statewide concerns).
Moreover, in focusing narrowly on Vista's costs, the
majority fails to adhere to the California Fed. Savings
test that requires us to use a wide-angle lens, cautioning
that "courts should avoid the error of
'compartmentalization,' that is, of cordoning off an entire
area of governmental activity as either a 'municipal
affair' or one of statewide concern." (California Fed.
Savings, supra, 54 Cal.3d at p. 17.) Thus, while the effect
of the prevailing wage law, as the majority laments, may be
that Vista and other charter cities pay more for their
public works projects, the purpose of the prevailing wage
law, which the majority ignores, is not to make them pay
more but to stabilize and support the construction trades.
The latter is unquestionably a matter of substantial
statewide concern.
5)Instead of directly addressing the legal disagreement
presented above, which would require a constitutional
amendment, SB 7 sidesteps the issue in favor of providing a
"financial incentive" to encourage charter cities to require
the payment of prevailing wages on all of their public works
projects, including those paid for entirely with local funds.
The bill prohibits the reception or use of "state funding or
financial assistance" by charter cities that have ordinances
or charter provisions allowing contractors to not comply with
the PWL on any public works contract. The same restriction on
state funds applies if a charter city has awarded, within the
current or prior two calendar years, a public works contract
without requiring the contractor to comply with the PWL, for
contracts awarded on or after January 1, 2014. The bill
exempts contracts of $25,000 or less for construction work,
and contracts of $15,000 or less for alteration, demolition,
repair, or maintenance work. Of the state's 121 charter
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cities, the League of California Cities has identified 51
charter cities that would be at risk of losing state funding
under the provisions of this bill.
The bill defines "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." The bill does
not define what a "construction project" entails. The
definition of "public works" in current law specifies that
"construction" includes work performed during the design and
preconstruction phases of construction, including, but not
limited to, inspection and land surveying work. It is not
clear if this definition of "construction" would be
controlling for this bill.
Because of these broadly defined (or undefined) terms, the
extent of this bill's application is unknown and could
encompass an undetermined range of projects, funding sources,
and funding time frames. The League of California Cities has
identified funding from more than 45 state programs for
housing, mental health, water quality, economic development,
and environmental restoration and conservation that could be
interpreted as any other type of state financial support for a
construction project. The Committee may wish to consider the
potential impact of this bill on the ability of charter cities
to utilize such programs or to complete projects that might be
in progress under these programs if this bill becomes law.
In addition, the Committee may wish to enquire whether this
bill's broad definition of "state funding and financial
assistance" would encompass bond funds, disaster assistance,
or other types of funding for charter cities subject to this
bill.
6)The State Building and Construction Trades Council of
California, in support, writes, "SB 7 would reward the
majority of cities that currently follow the state prevailing
wage law. These cities have rejected the false arguments of
anti-prevailing wage groups and low-road construction
associations. These shadowy groups seek exemptions from the
prevailing wage through vaguely drafted city charters
developed entirely by a few politicians instead of a charter
commission of elected representatives of the voting public.
These associations purposely seek to place these charters on
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the ballot in low voter turnout elections in order to deceive
the majority of local voters. This process has led to
mismanagement and abuse of public funds in many cities
throughout California. Case in point, the City of Bell's
former city manager, Robert Rizzo, during his manipulation of
public funds removed the prevailing wage during a special
election that recorded a vote of less than 1% of the city's
population.
"SB 7?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 political allies with prevailing wage
exemptions that consequently pass on the costs of healthcare
and apprenticeship training to the surrounding cities. The
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."
7)The League of California Cities, in opposition, states that SB
7 "would impose devastating consequences on 51 California
cities, with combined populations of over 5 million residents,
by making them ineligible for all state grants, loans, tax
credits and other financial assistance for construction
projects for exercising fundamental rights granted by our
constitution to voters. The affected cities, many of which
are still suffering from high rates of unemployment and deep
revenue losses, have done nothing to warrant such an
aggressive and punitive action. Their only 'offense' was
their voters conducted themselves in lawful compliance with
the State Constitution, which has for over 100 years empowered
local voters to govern city 'municipal affairs' via a local
charter. Moreover, the California Supreme Court confirmed
that decisions on how to spend local funds were a municipal
affair, and that the Legislature could not impose conditions
on such spending.
"The right to vote is the cornerstone of our democracy. The
California Constitution empowers voters to create city
charters to govern their municipal affairs. The Courts are
tasked with interpreting the boundaries of 'municipal
affairs.' By seeking to impose punitive measures for
decisions made by local voters that are valid under the
Constitution, the Legislature would infringe upon the exercise
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of what our U.S. Supreme Court has rightly called the
'fundamental right to vote.'"
8)Support arguments : Supporters contend that this bill
appropriately directs state funds to charter cities that
require prevailing wages on their public works projects in
furtherance of a public policy that carries statewide
benefits.
Opposition arguments : Opponents argue that this bill runs
counter to the state Constitution and state Supreme Court
decisions, and that its impact will have a crippling effect on
charter cites that choose not to require prevailing wages in
their public works contracts.
9)This bill is double-referred to the Labor and Employment
Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
State Building and Construction Trades Council of California,
AFL-CIO [SPONSOR]
Bricklayers and Allied Craftworkers Local #3
California Chapters of the National Electrical Contractors
Association
California Labor Federation
California Legislative Conference of the Plumbing, Heating and
Piping Industry
California State Association of Electrical Workers
California State Pipe Trades Council
California Teamsters Public Affairs Council
Coalition of California Utility Employees
Councilmember Esther Sanchez, City of Oceanside
International Association of Heat and Frost Insulators Local 5
Southern California Contractors Association
United Association of Plumbers & Steamfitters Local Union #230
Western States Council of Sheet Metal Workers
Opposition
Air Conditioning Trade Association
Alameda County Mayors Conference
Associated Builders and Contractors of California
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Bakersfield Chamber of Commerce
California Contract Cities Association
Cities of Adelanto, Alhambra, Apple Valley, Arroyo Grande,
Bakersfield, Benicia, Big Bear Lake, Buena Park, Burbank,
Carlsbad, Ceres, Cerritos, Chula Vista, Coalinga, Culver City,
Cypress, Danville, Del Mar, Diamond Bar, Dinuba, Downey, El
Cajon, El Centro, Eureka, Folsom, Fortuna, Gilroy, Glendora,
Grass Valley, Grover Beach, Hayward, Highland, Huron, Indian
Wells, Jackson, King City, Lakewood, La Quinta, Lemoore,
Lindsay, Mendota, Merced, Modesto, Moreno Valley, Murrieta,
Napa, Norwalk, Pacific Grove, Palm Desert, Palo Alto, Paramount,
Pasadena, Petaluma, Pico Rivera, Plymouth, Rancho Cucamonga,
Rancho Mirage, Ridgecrest, Roseville, Salinas, San Joaquin, San
Luis Obispo, San Marcos, Santa Maria, Santee, Selma, Shafter,
Signal Hill, Solvang, Tehachapi, Torrance, Tracy, Tulare,
Victorville, Visalia, Vista, Wasco, West Covina, and Whittier
Coachella Valley Economic Partnership
Contra Costa Taxpayers Association
Corona Taxpayers Association
Desert Valley Builders Association
Greater Merced Chamber of Commerce
Howard Jarvis Taxpayers Association
Independent Cities Association
Inland Empire Taxpayers Association
Kern County Taxpayers Association
LA Co. Business Federation
LA County Division, League of California Cities
League of California Cities
Lewis Operating Corporation
Los Angeles County Business Federation
Marin County Mayors Council
Mayor Ashley Swearengin, City of Fresno
North of the River Chamber of Commerce
Plumbing-Heating-Cooling Contractors Association of California
Redwood Empire Division, League of California Cities
San Diego County Division, League of California Cities
San Diego Taxpayers Association
San Gabriel Valley Economic Partnership
San Joaquin Taxpayers Association
South Bay Association of Chambers of Commerce
Southwest California Legislative Council
Stockton Chamber of Commerce
Town of Apple Valley
Western Electrical Contractors Association
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Analysis Prepared by : Angela Mapp / L. GOV. / (916) 319-3958