BILL ANALYSIS Ó
SB 7
Page 1
SENATE THIRD READING
SB 7 (Steinberg and Cannella)
As Amended August 7, 2013
Majority vote
SENATE VOTE : 28-10
LOCAL GOVERNMENT 6-3 LABOR & EMPLOYMENT 6-1
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|Ayes:|Levine, Alejo, Bradford, |Ayes:|Roger Hernández, Alejo, |
| |Gordon, Mullin, Rendon | |Chau, Gomez, Gorell, |
| | | |Holden |
|-----+--------------------------+-----+--------------------------|
|Nays:|Achadjian, Melendez, |Nays:|Morrell |
| |Waldron | | |
| | | | |
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APPROPRIATIONS 12-5
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|Ayes:|Gatto, Bocanegra, | | |
| |Bradford, | | |
| |Ian Calderon, Campos, | | |
| |Eggman, Gomez, Hall, | | |
| |Holden, Pan, Quirk, Weber | | |
| | | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Harkey, Bigelow, | | |
| |Donnelly, Linder, Wagner | | |
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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
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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 prior two 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
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 a local prevailing wage ordinance for all its
public works contracts 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 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;
c) A "construction project" means a project that involves
the award of a public works contract; and,
d) State funding or financial assistance includes direct
state funding, state loans and loan guarantees, state tax
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credits, and any other type of state financial support for
a construction project. State funding or financial
assistance does not include 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
or financial assistance for their construction projects.
6)Specifies that the provisions of the bill do not restrict a
charter city from receiving or using state funding or
financial assistance that was awarded to the city prior to
January 1, 2015, or from receiving or using state funding or
financial assistance to complete a contract that was awarded
prior to January 1, 2015.
7)Specifies that a charter city is not disqualified from
receiving or using state funding or financial assistance for
its construction projects based on the city's failure to
require a contractor to comply with these requirements in
performing a contract the city advertised for bid or awarded
prior to January 1, 2015.
8)Makes related legislative findings and declarations.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, there are unknown total costs, likely above $150,000
(General Fund (GF) and special fund) to state agencies to comply
with the provisions of the bill.
COMMENTS : 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.
The California Constitution gives cities the power to become
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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 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."
California's prevailing wage law (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
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California v. City of Vista (2009) 173 Cal. App. 4th 567.
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 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 (Union) 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
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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 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
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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 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
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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.
Instead of directly addressing the legal disagreement presented
above, which would require a constitutional amendment, this bill
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" for a construction project 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 prior two years, a public works contract
without requiring the contractor to comply with the PWL.
"Construction project" is defined as "a project that involves
the award of a public works contract."
This 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. It also does not
restrict a charter city from receiving or using state funding or
financial assistance that was awarded before January 1, 2015, or
from receiving or using state funding or financial assistance to
complete a contract that was awarded before January 1, 2015.
The bill also specifies that a charter city is not disqualified
from receiving or using state funding or financial assistance
for its construction projects based on the city's failure to
require a contractor to comply with the PWL in performing a
contract the city advertised for bid or awarded before January
1, 2015. Of the state's 121 charter 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 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
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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 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."
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
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to impose punitive measures for decisions made by local voters
that are valid under the Constitution, the Legislature would
infringe upon the exercise of what our U.S. Supreme Court has
rightly called the 'fundamental right to vote."
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.
Analysis Prepared by : Angela Mapp / L. GOV. / (916) 319-3958
FN: 0002100