BILL ANALYSIS �
SB 615
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Date of Hearing: August 14, 2013
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
SB 615 (Galgiani) - As Amended: August 7, 2013
Policy Committee: Labor and
Employment Vote: 6-1
Urgency: No State Mandated Local Program:
Yes Reimbursable: No
SUMMARY
This bill revises the definition of "public works" for the
purpose of prevailing wage statute to 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 issued on or after January 1,
2014 by a public agency. Specifically, this bill:
1)Expands the definition of eligible health facility for the
purpose of the California Health Facilities Financing
Authority (CHFFA) to award grants. Defines eligible health
facility as a nonpublic office providing health care services
that is operated by either of the following:
a) A medical group, independent practice association,
physician office, or clinic with more than 10 physicians
that has a Medi-Cal or medically indigent encounter rate of
at least 50% of total patients' services in a calendar
year, as specified.
b) A medical practice of 10 or fewer physicians in which at
least 30% of patients served in a calendar year are
enrolled in Medi-Cal.
FISCAL EFFECT
1)GF administrative costs, likely less than $100,000, to the
Department of Industrial Relations to enforce the prevailing
wage requirements of this measure.
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2)GF administrative costs to the State Treasurer, likely between
$100,000 and $150,000, for increased workload due to the
expansion of eligible applicants to the CHFFA, which provides
financial assistance to public and non-profit health care
providers in the state through loans funded by the issuance of
tax-exempt bonds. There will be potential cost pressure for
the state to provide an additional GF appropriation to CHFFA
due to the expansion of medical practices/physicians that will
be eligible for financial assistance.
This measure may also result in less private and non-profit
organizations seeking financing through the CHFFA, which may
result in less revenue for the authority.
COMMENTS
1)Background . Existing law requires the prevailing wage rate to
be paid to workers on public works projects over $1,000.
Statute defines public works as construction, alteration,
demolition, installation, or repair work done under contract
and paid for in whole or in part out of public funds, except
work done directly by any public utility company, as
specified. "Paid for in whole or in part out of public funds"
means all of the following:
a) 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.
b) Performance of construction work by the state or
political subdivision in execution of the project.
c) Transfer by the state or political subdivision of an
asset of value for less than fair market price.
d) 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, as
specified.
e) Money loaned by the state or political subdivision that
is to be repaid on a contingent basis.
f) Credits that are applied by the state or political
subdivision against repayment obligations to the state or
political subdivision.
Statute also specifies if the state or a political subdivision
reimburses a private developer for costs that would normally
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be borne by the public, or provides a public subsidy to a
private development project that is "de minimis" in the
context of the project, the private development project is not
subject to public works requirements, including paying a
prevailing wage.
Under current law, a conduit revenue bond is defined as any
municipal security the proceeds of which are loaned to any
nongovernmental borrower, including, but not limited to,
persons, for-profit corporations, non-profit corporations,
partnerships, and other legal entities for purposes that are
permitted for qualified activity bonds applicable under
federal law.
2)Purpose . Existing law related to the definition of a public
works project and whether or not a conduit revenue bond meets
the definition of paid for in whole or in part out of public
funds has been the basis for DIR determining projects funded
via this financing mechanism are not public works projects and
therefore, are not subject to prevailing wage statutes. For
example, in 2005 DIR determined an affordable housing project
in Rancho Santa Fe financed under a conduit revenue bond is
not subject to prevailing wage laws because it is not a public
works project. Specifically, DIR states: "?money collected
for, or in the coffers of, a public entity is 'public funds'
within the meaning of [state law referenced above.] Here
neither the conduit bond revenues nor the loan repayments ever
enter the coffers of a public entity, nor are they collected
for the public entity. Since none of the money flows into or
out of the public coffers, the conduit bond financing is not
'the payment of money in the equivalent of money by the state
or political subdivision within the meaning of [state law
referenced above]."
According to the author, "One method by which the public
subsidizes a private development project is through the use of
conduit bond financing. 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. Since
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
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proceeds or pay back the bondholders. The tax code applies to
the form of the transaction, not its substance, so the
interest on the bonds is tax-exempt to the bondholders. The
public thereby subsidizes the private development projects by
foregoing the tax revenues that would otherwise be paid to the
bondholders."
This bill revises the definition of "public works" for the
purpose of prevailing wage statute to 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 issued on or
after January 1, 2014 by a public agency.
3)Opposition . A number of organizations that construct or
utilize health facilities oppose this bill due to the effects
it would have on the CHFFA. Specifically, the California
Hospital Association States:
"CHFFA programs were designed to help eligible and
creditworthy non-profit and public health facilities reduce
their cost of capital, and promote important California health
access, healthcare improvement and cost containment objectives
by providing cost-effective tax-exempt bond, low-cost loan,
and direct grant programs. Imposing prevailing wage
obligations on public and private hospital construction
projects, including children's and rural hospitals would have
two undesirable consequences. While essential construction
projects would continue, the imposition of prevailing wage
obligations would substantially increase the cost thereby
diverting resources from patient care activities to the
construction project. Similarly, non-essential construction
projects would be delayed or abandoned due to the increase in
cost. Under either scenario, health care access for the
state's most vulnerable populations is adversely affected."
The California Primary Care Association states: " The August 7
amendments would make private, for-profit medical providers
eligible for CHFFA funding to acquire, expand, or remodel
their facilities. SB 615 would subsidize for-profit medical
entities that will reduce the pool of Medi-Cal patients for
legitimate safety net providers and expand the ratio of
uninsured patients. The greater the ratio of uninsured
patients to Medi-Cal enrollees, the less the ability to
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provide services at all. Community clinics and health centers
will be forced to reduce access and services to all their
patients, Medi-Cal enrollees and uninsured alike."
4)The California Health Facilities Financing Authority (CHFFA) ,
established in 1979, provides financial assistance to public
and non-profit health care providers in the state through
loans funded by the issuance of tax-exempt bonds. The
authority provides financing assistance to a number of
entities, including rural community-based organizations and
large multi-hospital systems. CHFFA collects reimbursements
for assisting entities in issuance of bonds.
According to the State Treasurer (SA), "In order to meet the
requirements for CHFFA financing, an institution must be a
public hospital, a private non-profit corporation, or an
association authorized by the laws of California to provide or
operate a health facility and undertake the financing or
refinancing of a project. Generally, non-profit, licensed
health facilities in the State of California including adult
day health centers, community clinics, developmentally
disabled centers, drug and alcohol rehabilitation centers are
eligible for financing?"
5)Related legislation .
a) AB 1140 (Daly), pending in the Senate Appropriations
Committee, provides that changes made to prevailing wage
rates apply on their effective date to any contract that is
awarded or for which notice to bidders is published on or
after January 1, 2014.
b) AB 302 (Chau), pending in the Senate Appropriations
Committee, provides a statutory definition for a "de
minimis" public subsidy that does not trigger the
requirements of prevailing wage law.
Analysis Prepared by : Kimberly Rodriguez / APPR. / (916)
319-2081
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