BILL ANALYSIS �
SB 615
Page 1
SENATE THIRD READING
SB 615 (Galgiani)
As Amended September 6, 2013
Majority vote
SENATE VOTE :30-9
LABOR & EMPLOYMENT 6-1 APPROPRIATIONS 12-5
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|Ayes:|Roger Hern�ndez, Alejo, |Ayes:|Gatto, Bocanegra, |
| |Chau, Gomez, Gorell, | |Bradford, |
| |Holden | |Ian Calderon, Campos, |
| | | |Eggman, Gomez, Hall, |
| | | |Holden, Pan, Quirk, Weber |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Morrell |Nays:|Harkey, Bigelow, |
| | | |Donnelly, Linder, Wagner |
| | | | |
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SUMMARY : Specifies that "public work" for purposes of
prevailing wage law also means 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, 2015, by a
public agency.
EXISTING LAW :
1)Defines "conduit revenue bond" to mean 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 Section
501(c)(3) of the Internal Revenue Code, partnerships, and
other legal entities for purposes that are permitted for
qualified private activity bonds under applicable federal law.
2)Defines "conduit financing provider" to mean 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.
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FISCAL EFFECT : According to the Assembly Appropriations
Committee, this bill will result in General Fund administrative
costs, likely less than $100,000, to the Department of
Industrial Relations (DIR) to enforce the prevailing wage
requirements of this measure. This measure may also result in
less private and non-profit organizations seeking financing
authority through the California Health Facilities Financing
Authority, which may result in less revenue for that entity.
COMMENTS : 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." According to the IRS, 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.
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. 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.
Because these types of public subsidies are arguably not
included under the definition of "paid for in whole or in part
out of public funds," they don't currently trigger the coverage
of the prevailing wage law. Several determinations by DIR have
addressed this issue finding that conduit bond funded projects
are not public works, and therefore not subject to the
prevailing wage.
The author of the measure states that the proposed changes with
this bill, would add conduit bond financing to the types of
subsidies that trigger prevailing wage coverage, thereby
recognizing that public funds (through foregone tax revenues)
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are being used to subsidize the project. According to the
author, 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 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 supporters, 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.
The California Hospital Association opposes this measure,
arguing that it expands the definition of public works to
include projects paid with the proceeds of conduit revenue
bonds, including those issued by the California Health
Facilities Financing Authority.
Other opponents, including a number of providers and advocates
for senior living and care facilities, also oppose this bill and
argue that it will increase the costs of construction and
effectively preclude current avenues of affordable financing.
Among other things, they argue that access to tax-exempt bonds
issued through conduit authorities are the primary method of
financing for such projects and allow providers to keep costs
low for the seniors they serve. They contend that access to
low-cost financing is particularly important in rural and
underserved areas where programs like Cal-Mortgage operate.
Analysis Prepared by : Ben Ebbink / L. & E. / (916) 319-2091
FN: 0002557