BILL ANALYSIS                                                                                                                                                                                                    

                                                                     AB 852

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          Date of Hearing:  April 22, 2015


                                 Jimmy Gomez, Chair

          852 (Burke) - As Amended April 6, 2015

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          Urgency:  No  State Mandated Local Program:  YesReimbursable:   

          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  


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          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  

            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.


          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  


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            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.  


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          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  


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            was vetoed by Governor Brown, the veto message reads as  

          "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)  


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