BILL ANALYSIS �
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THIRD READING
Bill No: SB 615
Author: Galgiani (D)
Amended: 4/1/13
Vote: 21
SENATE LABOR & INDUSTRIAL RELATIONS COMMITTEE : 3-1, 4/24/13
AYES: Lieu, Leno, Yee
NOES: Wyland
NO VOTE RECORDED: Padilla
SENATE APPROPRIATIONS COMMITTEE : 5-2, 5/23/13
AYES: De Le�n, Hill, Lara, Padilla, Steinberg
NOES: Walters, Gaines
SUBJECT : Public works: prevailing wages
SOURCE : State Building and Construction Trades Council
DIGEST : This bill expands the definition of public works, for
purposes of prevailing wage payment requirements, 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.
ANALYSIS : Existing law requires that workers employed on
public works projects in California be paid the applicable
prevailing wage, as determined by the director of the Department
of Industrial Relations (DIR), and that the body awarding a
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contract for a public works project assure compliance with this
requirement.
Among other things, existing law regarding "public works"
projects:
1.Requires that not less than the general prevailing rate of per
diem wages be paid to all workers employed on a "public works"
project costing over $1,000 dollars and imposes misdemeanor
penalties for violation of this requirement.
2.Defines "public work" 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.
3.Defines "paid for in whole or in part out of public funds" to
include, among other things, fees, costs, rents, insurance or
bond premiums, loans, interest rates, or other obligations
normally required in the execution of a contract that are
paid, reduced, charged at less than fair market value, waived
or forgiven by the state or political subdivision.
4.Exempts from the definition of "paid for in whole or in part
out of public funds" specified types of affordable housing,
private residential housing, private development projects,
qualified residential projects, low income housing projects,
state manufacturing tax credits, and single family residential
projects.
Existing law, Government Code Section 5870, provides the
following definitions:
1."Conduit financing provider" means any county, city, city and
county, public district, public authority, public corporation,
nonprofit corporation, joint powers authority, or other
statutorily constituted public entity that issues one or more
conduit revenue bonds.
2."Conduit revenue bond" means any municipal security the
proceeds of which are loaned to any nongovernmental borrower,
including, but not limited to, persons, for-profit
corporations, nonprofit corporations pursuant to Internal
Revenue Code Section 501(c)(3), partnerships, and other legal
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entities for purposes that are permitted for qualified private
activity bonds under applicable federal law.
This bill expands the definition of "public works," for purposes
of prevailing wage payment requirements, 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.
Comments
Conduit revenue bonds . 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" or "conduit issues,"
and state or local governments which issue these bonds are
commonly referred to as "conduit issuers." ("Your
Responsibilities as a Conduit Issuer of Tax-Exempt Bonds,"
Publication 5005 (4-2012) Catalog #59471F, Department of the
Treasury, Internal Revenue Service) According to the Internal
Revenue Service, a conduit issuer 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.
The California Infrastructure and Economic Development Bank
(I-Bank), housed within the California Business, Transportation
and Housing Agency, is the state's only general purpose
financing authority whose mission is to finance public
infrastructure and private development that promote a healthy
climate for jobs, contribute to a strong economy and improve the
quality of life in California communities. The I-Bank
facilitates access to funding from private capital markets
through its Conduit Revenue Bond Financing Program, which
provides tax-exempt bond funding for eligible economic
development facility projects located throughout the state. The
bonds are repaid by the private sector borrower, and are not a
debt of the I-Bank or the State of California.
According to the I-Banks annual activity report from fiscal year
2011-12, I-Bank issued $867,856,500 of conduit revenue bonds for
qualified California manufacturing companies, 501(c)(3)
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nonprofit entities and for other governmental entities to
create/retain jobs in the state, to facilitate research and
cultural endeavors and for other public purposes.
A Los Angeles Times article from 2011 reported that conduits had
grown roughly three times faster than the general municipal
market over the last five years, according to data from Thomson
Reuters, a New York data firm; $84 billion of these bonds were
issued in 2010 alone. ('Conduit' muni bond defaults draws
scrutiny, June 14, 2011) According to the article, investors do
not have to pay taxes on their interest from municipal bonds,
enabling companies to borrow money at lower interest rates than
they could get on their own. The article notes that although
conduits account for roughly 20% of all municipal bonds, they
have been responsible for about 70% of all defaults in the
municipal bond market in recent years, according to the Income
Securities Advisors, a Florida research firm.
Prior Legislation
SB 975 (Alarcon, Chapter 938, Statutes of 2001) declared
legislative intent that projects financed through Industrial
Development Bonds issued by the I-Bank must comply with existing
laws pertaining to prevailing wages. Additionally, the bill
established a definition for "public funds" and included
"installation" in the existing definition of "public works."
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
According to the Senate Appropriations Committee, this bill
increases the number of public works projects. Consequently,
the 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 quarter of 1% surcharge on state issuances of general
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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.
SUPPORT : (Verified 5/24/13)
State Building and Construction Trades Council (source)
California Labor Federation, AFL-CIO
ARGUMENTS IN SUPPORT : The author's office states that the
proposed changes with this bill, add conduit bond financing to
the types of subsidies that trigger prevailing wage coverage,
thereby recognizing that public funds (through foregone tax
revenues) are being used to subsidize the project.
According to the author's office, conduit revenue bond financing
is a method by which the public subsidizes a private development
project. A public entity acts as the "issuer" of the bonds so
the interest payments on the bonds will be tax-exempt to the
bondholders under the income tax code. Because the bondholders
will not be taxed on the interest, they are willing to accept a
lower return on their investment, and the cost of borrowing is
lower. The bond proceeds are transferred to a private
developer, which is responsible for making the payments to the
bondholders. The public entity issuing the bonds acts purely as
a "conduit" - it does not receive the bond proceeds or pay back
the bondholders. But the tax code looks to the form of the
transaction, not its substance, so the interest on the bonds is
still tax-exempt to the bondholders. The public thereby
subsidizes the private development project by foregoing the tax
revenues that would otherwise be paid by the bondholders.
According to the author's office, due to the fact that private
entities utilize these bonds to save money in interest payments,
it makes sense to ensure that any work being paid for by
proceeds from conduit bonds should, at the very least, go
towards providing a livable wage for the construction workers
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building the projects that the bonds fund. Additionally, they
argue, the prevailing wage ensures that the most skilled and
qualified workers build these complex medical facilities.
According to the proponents, this bill will close a loophole in
state law by requiring healthcare companies electing to receive
tax-exempt conduit bond financing from a public agency to pay
construction workers the prevailing wage and therefore attract
the most competent and skilled local workforce to build these
complex medical facilities.
PQ:nk 5/24/13 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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