BILL ANALYSIS Ó SENATE COMMITTEE ON APPROPRIATIONS Senator Ricardo Lara, Chair 2015 - 2016 Regular Session AB 219 (Daly) - Public works: concrete delivery ----------------------------------------------------------------- | | | | | | ----------------------------------------------------------------- |--------------------------------+--------------------------------| | | | |Version: June 1, 2015 |Policy Vote: L. & I.R. 4 - 1 | | | | |--------------------------------+--------------------------------| | | | |Urgency: No |Mandate: Yes | | | | |--------------------------------+--------------------------------| | | | |Hearing Date: July 6, 2015 |Consultant: Robert Ingenito | | | | ----------------------------------------------------------------- This bill meets the criteria for referral to the Suspense File. Bill Summary: AB 219 would expand the definition of public works to include the hauling and delivery of ready-mixed concrete to carry out a public works contract. Fiscal Impact: The California Department of Transportation (CalTrans) estimates that this bill would result in increased costs of $32 million to $54 million (special funds), which includes impacts to materials costs, compliance and administration (see Staff Comments). AB 219 (Daly) Page 1 of ? The Department of Industrial Relations (DIR) would incur first-year costs of $127,000 and $119,000 in the out-years (special funds) monitor and enforce the bill's prevailing wage requirements for non-CalTrans projects. To the extent that DIR issues additional fines, special funds revenues would increase. The magnitude is unknown. While the bill would impact CalTrans disproportionately at the state level, it could also potentially result in increased administrative, materials and compliance costs to other departments that use ready-mix concrete, including the High Speed Rail Authority, the Department of Water Resources, the Department of Corrections and Rehabilitation, the Department of General Services, and the three segments of higher education (the University of California, California State University, and the California Community Colleges). The magnitudes are unknown. Background: Current law requires that prevailing wage rates, as determined by DIR, be 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. Current law requires that the "prevailing wage" to be paid to all workers employed on public works projects. Projects valued at $1,000 are exempted from the requirement. 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." Under current law and DIR precedent, the employees of subcontractors who haul material to public work sites must be paid prevailing wage. Conversely, employees of bona fide material suppliers are excluded from prevailing wage requirements. A 1999 DIR decision, Alameda Corridor Project: A&A Ready Mix Concrete and Robertson's Ready Mix Concrete (Public Works Case No. 99-037), addressed the issue of whether the state's prevailing wage laws applied to the delivery of ready-mix concrete to public works job sites. AB 219 (Daly) Page 2 of ? DIR relied on a California Court of Appeals decision to set forth the general test for determining whether the work was subject to the payment of prevailing wages, comprised of three criteria: (1) a material supplier must be in the business of selling supplies to the general public, (2) the plant from which the material is obtained must not be established specially for the particular contract, and (3) plant may not be located at the site of the work. Applying these three criteria, DIR determined in Public Works Case No. 99-037 that the concrete entities involved were material suppliers and not subcontractors. The opinion also stated that the Legislature failed to pass legislation designating concrete mix on-hauling a public work; however, it also noted "that such action does not reflect a legislative intent to preclude the payment of prevailing wages to concrete mix delivery drivers." In 2008, DIR determined that the off-hauling of demolition debris and materials, whether performed by the on-site demolition contractor's employees or by an independent trucking company, is subject to prevailing wage requirements. In addition, DIR determined that the on-hauling of material for backfill performed by the on-site demolition contractor's employees is also subject to prevailing wage requirements. Proposed Law: This bill would expand the definition of "public works" to include the hauling and delivery of ready-mixed concrete, as specified. Specifically, this bill would do all of the following: Expand the definition of "public works" to include the hauling and delivery of ready-mixed concrete to carry out a public works contract, with respect to contracts involving any state agency or any political subdivision of the state. AB 219 (Daly) Page 3 of ? Provide that "ready-mixed concrete" means concrete that is manufactured in a factory or batching plant, according to a set recipe, and then delivered in a liquefied state by mixer truck for immediate incorporation into a project. Provide that the "hauling and delivery of ready-mixed concrete to carry out a public works contract" means the job duties for a ready mix driver that are used by DIR under existing law, and includes receiving the concrete at the factory or batching plant and the return trip to the factory or batching plant. Provide that the applicable prevailing wage rate shall be the current prevailing wage rate as determined for the geographic area in which the factory or batching plant is located. Provide that the entity hauling or delivering ready-mixed concrete to carry out a public works contract shall enter into a written subcontract agreement with the party that engaged the entity to supply the ready-mixed concrete. The written agreement shall require compliance with specified requirements of existing law. Require the entity hauling or delivering ready-mixed concrete to carry out a public works contract to submit a certified copy of the payroll records to the party that engaged the entity and to the general contractor within three working days after the employee has been paid, accompanied by a written time record certified by each driver. Provide that this bill does not apply to contracts advertised for bid or awarded prior to the effective date of this bill. Related Legislation: AB 852 (Burke, 2015) would define "public work" for purposes of prevailing wage law to also mean any AB 219 (Daly) Page 4 of ? construction, alteration, demolition, installation, or repair work done under private contract on a general acute care hospital when the project is paid for in whole or in part with the proceeds of conduit revenue bonds issued by a public agency. A project for a rural general acute care hospital with a maximum of 76 beds would be exempt from this requirement. This bill is scheduled to be heard in this Committee on July 6th. Staff Comments: Caltrans indicates that it currently has 652 ongoing construction contracts valued at $10.6 billion, and uses 4.6 million cubic yards of concrete annually. CalTrans' fiscal estimates of this bill employs a myriad of interacting assumptions. First, it estimates the average hourly rate for ready-mixed drivers is currently $16 per hour. Based on its research, the department estimates that this bill would cause the wage rate to rise to a range of $42.06 per hour to $53.37 per hour. The department then combines this assumption with others, specifically (1) the average amount of concrete carried per truck (8 to 10 yards), and (2) that each delivery job will take, on average, two hours. Putting all of these assumptions together, CalTrans estimates that the bill would result in an increase in materials (concrete) costs in the range of $27.6 million to $49.4 million annually. Caltrans' Division of Construction has an approved labor compliance program that performs the responsibilities for enforcement of prevailing wages in lieu of DIR. Caltrans indicates that this bill would increase support costs both for (1) inspection of the hauling activities, and (2) enforcement of prevailing wage requirements under the department's labor compliance program's operations. Caltrans' estimates an average of one additional hour per week per contract. Assuming an average of 250 contracts for 52 weeks per year, this would require an additional 7.4 PYs and about $1.1 million ongoing. Finally, CalTrans would need additional staff to administer projects and accept concrete delivery on site. Assuming an average of 1,000 cubic yards of concrete are placed per 8-hour AB 219 (Daly) Page 5 of ? day, it would take 4,600 days to lay the 4.6 million cubic yards Caltrans averages in a year. This would require an additional 21 PYs at approximately $3.15 million ongoing. State construction costs are often paid for using General Obligation (GO) Bonds. Because this measure would increase the costs for projects that use ready-mix concrete, the GO bond issuances would likely need to be upsized, leading to higher debt-service payments. The magnitude is unknown. -- END --