BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Kevin de Le�n, Chair
SB 615 (Galgiani) - Public Works: Prevailing Wages
Amended: April 1, 2013 Policy Vote: L&IR 3-1
Urgency: No Mandate: Yes
Hearing Date: May 23, 2013 Consultant: Robert Ingenito
SUSPENSE FILE.
Bill Summary: SB 615 would require the payment of prevailing
wage for any work done under contract on a private hospital or
health care facility that is financed with conduit revenue
bonds.
Fiscal Impact: This measure would increase the number of public
works projects. Consequently, the Department of Industrial
Relations (DIR) would likely experience additional workload
related to the administration and enforcement of California
prevailing wage law. The number of future health facility
construction projects subject to this bill is unknown; however,
if the additional workload to DIR required a new position, total
costs (salary, benefits and equipment expenses) could be as high
as $100,000.
The Compliance Monitoring Unit (CMU) is the component within DIR
that monitors and enforces prevailing wage requirements on
public works projects. It is currently funded through a
combination of (1) the General Fund, (2) a special fund loan,
and (3) a of one percent surcharge on state issuances of
general obligation (GO) bonds. Because this bill concerns
conduit revenue bonds, not GO bonds, their issuance will not
fund the CMU. Consequently, any increased costs to DIR resulting
from the bill could lead to a potential General Fund cost
pressure.
Additionally, the bill could impact revenues to the California
Health Facilities Financing Authority (CHFFA). Specifically,
revenues to CHFFA could be either higher or lower, depending on
future CHFFA conduit bond issuance (see Staff Comment below).
Background: Current law requires that not less than the general
prevailing wage rate of per diem wages, as determined by DIR, be
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paid to all workers employed on a "public works" projects. The
prevailing wage rate is the basic hourly rate paid on public
works projects to a majority of workers engaged in a particular
craft, classification or type of work within the locality and in
the nearest labor market area.
In general, "public works" is defined to include construction,
alteration, demolition, installation or repair work done under
contract and "paid for in whole or in part out of public funds."
The California Health Facilities Financing Authority (CHFFA) was
established to help public and non-profit health facilities
reduce their cost of capital, and to promote health access,
healthcare improvement and cost containment objectives by
providing cost-effective tax-exempt bond, low-cost loan, and
direct grant programs. CHFFA assists eligible and credit-worthy
nonprofit and public health facilities reduce their cost of
capital.
Bonds that are issued for the purpose of making loans to
entities other than state or local governments are commonly
referred to as conduit bonds. A conduit issuer (such as CHFFA)
in a conduit bond financing typically issues the bonds and loans
the bond proceeds to a conduit borrower. A conduit borrower is
generally responsible for the payment of debt service on the
conduit bond issue and is usually contractually obligated to
maintain the tax-exempt status of the bonds.
Proposed Law: Existing law defines "public works" as, 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. This bill would expand
the definition of "public works" to also include any
construction, alteration, demolition, installation, or repair
work done under private contract on a hospital or health care
facility project when the project is paid for in whole or in
part with the proceeds of conduit revenue bonds, as defined.
Staff Comments: The impact of this bill on CHFFA revenues is
unknown. The requirement that hospitals pay prevailing wage on
their projects would increase overall construction costs and
could lead a borrower to choose other financing options (such as
a taxable bond) rather than utilize a conduit issuer so it can
avoid the prevailing wage requirement. To the extent that this
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occurs, CHFFA conduit bond issuance would decline, resulting in
a decrease in CHFFA's revenues (which are derived from the
initial and annual fees of hospitals and healthcare facilities
seeking tax-exempt financing). The State Treasurer's Office
reports that about half of CHFFA's income derives from initial
fees paid by borrowers. CHFFA conduit bond debt issuance
averaged $905 million from 2009 to 2011.
Conversely, if a borrower were decide to use conduit bond
financing and pay prevailing wage, the conduit bond amount
issued could be upsized to pay the higher construction costs
that result from the prevailing wage requirement. To the extent
that this occurs, revenues to CHFFA would increase.