BILL ANALYSIS Ó AB 852 Page 1 Date of Hearing: April 22, 2015 ASSEMBLY COMMITTEE ON APPROPRIATIONS Jimmy Gomez, Chair AB 852 (Burke) - As Amended April 6, 2015 ----------------------------------------------------------------- |Policy |Labor and Employment |Vote:|5 - 2 | |Committee: | | | | | | | | | | | | | | |-------------+-------------------------------+-----+-------------| | | | | | | | | | | | | | | | |-------------+-------------------------------+-----+-------------| | | | | | | | | | | | | | | | ----------------------------------------------------------------- Urgency: No State Mandated Local Program: YesReimbursable: No SUMMARY: This bill defines "public work." for purposes of prevailing wage law to also mean any 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. For purposes of this AB 852 Page 2 section, "general acute hospital" has the same meaning as defined in the Health and Safety Code. FISCAL EFFECT: 1)Approximately $120,000 to $125,000 (special funds) for the Department of Industrial Relations (DIR) Compliance Monitoring Unit (CMU) to monitor and enforce the prevailing wage requirements of this measure. To the extent this measure results in additional public works projects, the Department of Industrial Relations (DIR) would 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) would be in the range of $120,000 to $125,000. The CMU is the component within DIR that monitors and enforces prevailing wage requirements on public works projects. This unit is funded through contractor registration fees submitted to the newly created State Public Works Enforcement Fund, authorized through the 2014 Budget Act. 2)Expanding the definition of public works would likely result in increased costs for general acute care hospital projects that currently utilize conduit bond financing. COMMENTS: 1)Background. 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 AB 852 Page 3 projects. Existing law requires prevailing wage to be paid to all workers on public works projects (except for projects of $1,000 or less). 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." 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. The public entity issuing the bond acts solely as a "conduit" and does not receive any bond proceeds. The bond proceeds are transferred to a private developer, who is responsible for making the payments to the bondholders. Because the interest is tax-exempt to the bondholders, they are willing to accept a lower return on their investment, and, therefore, the cost of borrowing for the developer is lower. Many types of governmental agencies can issue conduit revenue bonds, including state financing authorities, chartered cities, counties, and joint powers of authorities. The California Health Facilities Financing Authority (CHFFA), established in 1979, serves as the conduit issuer for public and non-profit health care providers in the state. 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 the issuance of bonds. AB 852 Page 4 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]." The State Building and Construction Trades Council are sponsoring this bill to 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. 3)Prior Legislation. SB 615 (Galgiani) of 2013 proposed to expand the definition of "public works," for the 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. This bill AB 852 Page 5 was vetoed by Governor Brown, the veto message reads as follows: "While I am staunchly supportive of prevailing wages, and the quality work and good paying jobs that are associated with these wages, I am unable to sign this measure. Applying prevailing wage requirements to healthcare facility projects that receive conduit revenue bond financing would result in unbudgeted state enforcement and investigative costs. Further, the measure fails to define the term 'health care facilities' which could result in many more projects being subject to this measure than intended." This bill differs from SB 615 in that applies to a "general acute care hospital" rather a hospital or health care facility project generally. Analysis Prepared by:Misty Feusahrens / APPR. / (916) 319-2081 AB 852 Page 6