BILL ANALYSIS Ó
SENATE COMMITTEE ON LABOR AND INDUSTRIAL RELATIONS
Senator Tony Mendoza, Chair
2015 - 2016 Regular
Bill No: AB 251 Hearing Date: June 10,
2015
-----------------------------------------------------------------
|Author: |Levine |
|-----------+-----------------------------------------------------|
|Version: |May 28, 2015 |
-----------------------------------------------------------------
-----------------------------------------------------------------
|Urgency: |No |Fiscal: |Yes |
-----------------------------------------------------------------
-----------------------------------------------------------------
|Consultant:|Deanna Ping |
| | |
-----------------------------------------------------------------
Subject: Public works: public subsidies.
KEY ISSUE
Should the Legislature approve a statutory definition for a "de
minimus" public subsidy under prevailing wage law?
ANALYSIS
Existing law defines "public works" to include, among other
jobs, construction, alteration, demolition, installation, or
repair work done under contract and paid for in whole or in part
out of public funds. (Labor Code §1720)
Under existing law , "paid for in whole or in part out of public
funds" means, among other things, the following:
1. 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.
2. The performance of construction work by the state or
political subdivision in execution of the project.
3. Fees, costs, rents, insurance or bond premiums, loans,
interest rates, or other obligations that would normally be
AB 251 (Levine) Page 2
of ?
required in the execution of the contract, that are paid,
reduced, charged at less than fair market value, waived, or
forgiven by the state or political subdivision.
4. Money loaned by the state or political subdivision that
is to be repaid on a contingent basis.
(Labor Code §1720)
Existing law defines "awarding body" or "body awarding the
contract" as the department, board, authority, officer or agent
awarding a contract for public work. (Labor Code §1722)
Existing law requires all employees who work on public works
projects costing $1,000 or more to be paid the general
prevailing rate of per diem wages and the general prevailing
rate for holiday and overtime work for the specific location
where the public work is to be performed. (Labor Code §1771)
Existing law states that if the state or a political subdivision
reimburses a private developer for costs that would normally be
borne by the public, or provides directly or indirectly a public
subsidy to a private development project that is de minimus in
the context of the project, an otherwise private development
project shall not be subject to prevailing wage requirements.
(Labor Code §1720)
This bill provides a statutory definition for a "de minimus"
public subsidy that does not trigger the requirements of
prevailing wage law. Specifically, this bill defines "de
minimus" to mean a public subsidy that is both less than $75,000
and less than 1 percent of the total project cost and will not
apply to a project that was advertised for bid, or a contract
that was awarded, before January 1, 2016.
COMMENTS
1. A Brief History of State and Federal Prevailing Wage Law
State prevailing wage laws vary from state to state, but do
share a common history that predates federal prevailing wage
law. Many of these state laws were enacted as part of
Progressive Era reform efforts to improve working conditions
AB 251 (Levine) Page 3
of ?
at the end of the 19th and the beginning of the 20th
centuries. Between 1891 and 1923, seven states adopted
prevailing wage laws that required payment of specified hourly
wages on government construction projects, the state of Kansas
being the first in 1891.
Eighteen additional states (including California in 1931) and
the federal government adopted prevailing wage laws during the
Great Depression of the 1930s amidst concern that acceptance
of the low bid, a common requirement of government contracting
for public projects, would reduce local wages and disrupt the
local economies. This was particularly in the depths of the
Great Depression, where, for some local economies, the
government had become the primary purchaser of construction
products and a significant employer.
In general, the proponents of prevailing wage legislation
wanted to prevent the government from using its purchasing
power to undermine the wages of its citizens. It was believed
that the government should set an example, by paying the wages
prevailing in a locality for each occupation hired by
government contractors to build public projects. Even today,
prevailing wage laws are generally meant to ensure that wages
commonly paid to construction workers in a particular region
will determine the minimum wage paid to the same type of
workers employed on publicly funded construction projects.
2. General Background on "Public Works" Under California Law
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."
Over a decade ago, there was much administrative and
legislative action over what constituted the term "paid for in
whole or in part out of public funds." This action culminated
in the enactment of SB 975 (Alarcón), Chapter 938, Statutes of
2001, which codified a definition of "paid for in whole or in
part out of public funds" that included certain payments,
transfers, credits, reductions, waivers and performances of
work. At the time, supporters of SB 975 stated that it
established a definition that conformed to several
precedential coverage decisions made by the Department of
Industrial Relations (DIR). According to the sponsors, SB 975
AB 251 (Levine) Page 4
of ?
was intended to remove ambiguity regarding the definition of
public subsidy of development projects.
3. Need for the bill
If a project is determined as a "public work" Labor Code
requires (except for projects of $1,000 or less) that the
"prevailing wage" to be paid to all workers employed on public
works projects. SB 975 provided that if the state or a
political subdivision reimburses a private developer for costs
that would normally be borne by the public, or provides
directly or indirectly a public subsidy to a private
development project that is "de minimus" in the context of the
project, the project would not be subject to the requirement
to pay prevailing wages. Currently there is no specific
definition for "de minimus" for the purpose of determining
when prevailing wage is applied to project.
According to the author, DIR has made various coverage
determinations attempting to define the term "de minimus" and
has interpreted "de minimus" with vastly different dollar
amounts and percentages of project costs which has led to
confusion and litigation as to what the term means. The author
notes that DIR's determinations of "de minimus" have ranged
from $65,710 to $4.5 million or from .5 percent to 2 percent
of a project's total cost.
According to the author, this bill would restore the original
intent of SB 975 that the "de minimus" exception be limited to
situations in which the public subsidy is trivial such that it
should not have legal significance. AB 251 would provide that
a subsidy is de minimus if it is both less than $75,000 and
less than 1 percent of the total project cost.
4. Proponent Arguments :
According to proponents, Labor Code §1720(c)(3) provides that
a project does not become subject to the prevailing wage law
if it receives a public subsidy "that is de minimus in the
context of the project." Proponents cite the legal definition
of "de minimus" as: "trifling, minimal?so insignificant that a
court may overlook it." Proponents contend that DIR has
strayed from this legal definition of de minimus, and lacking
a definition in statute, has loosely interpreted the
definition to apply to subsidies ranging from thousands to
AB 251 (Levine) Page 5
of ?
millions of dollars. Proponents note that with this
uncertainty DIR has made determinations of de minimus on
projects that have had public subsidies given to developers
have that ranged from $65,710 to $1,664,804 or from .5 percent
to 1.75 percent of a project's total cost. Proponents argue
that a public subsidy of $75,000 is a large amount of taxpayer
investment in a project and arguably is not de minimus, making
it reasonable to require payment if the developer wants a
public subsidy over that amount.
5. Opponent Arguments :
Opponents argue that current law on what constitutes "de
minimus," a subject extensively debated as part of the
discussion surrounding SB 975, should be maintained to ensure
there is a true and substantial public investment in the
project before other state mandates come into play.
Specifically, opponents note that when Labor Code §1720 was
amended in 2001 (SB 975) the de minimus exception was
discussed, and although never codified, was generally agreed
by the parties to be 2% of the project. Opponents contend that
subsequent DIR determinations have upheld this agreement by
requiring a substantial public subsidy to trigger California's
Public Works Law. Opponents argue that this was a level
stakeholders generally agreed was reasonable to ensure there
is a true and substantial public investment in the project
before other state mandates come into play.
6. Prior Legislation :
AB 302 (Chau) would have defined "de minimus" to mean a public
subsidy that is both less than $10,000 and less than 1 percent
of the total project cost and will not apply to a project that
was advertised for bid, or a contract that was awarded, before
January 1, 2014. The bill was vetoed by the Governor.
SB 972 (Costa), Chapter 1048, Statutes of 2002, was intended
to clarify the application of SB 975 and provided exemptions
from prevailing wage requirements for the construction or
rehabilitation of privately-owned residential projects, as
specified.
SB 975 (Alarcón), Chapter 938, Statutes of 2001, codified a
AB 251 (Levine) Page 6
of ?
definition of "paid for in whole or in part out of public
funds" that included certain payments, transfers, credits,
reductions, waivers and performances of work.
SUPPORT
State Building and Construction Trades Council (Sponsor)
California Labor Federation, AFL-CIO
California Legislative Conference of the Plumbing, Heating and
Piping Industry
California State Association of Electrical Workers
California State Pipe Trades Council
National Electrical Contractors Association
Western States Council of Sheet Metal Workers
OPPOSITION
Air Conditioning Trade Association
Associated Builders and Contractors of California
Associated Builders and Contractors-San Diego Chapter
California Building Industry Association
California Concrete Contractors Association
Plumbing-Heating-Cooling Contractors Association of California
Western Electrical Contractors Association
-- END --