BILL ANALYSIS                                                                                                                                                                                                    ”

                                                                       AB 852

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          852 (Burke)

          As Amended  April 6, 2015

          Majority vote

          |Committee      |Votes|Ayes                  |Noes                  |
          |               |     |                      |                      |
          |Labor          |5-2  |Roger HernŠndez, Chu, |Harper, Patterson     |
          |               |     |Low, McCarty,         |                      |
          |               |     |Thurmond              |                      |
          |               |     |                      |                      |
          |               |     |                      |                      |
          |Appropriations |12-5 |Gomez, Bloom, Bonta,  |Bigelow, Chang,       |
          |               |     |Calderon, Daly,       |Gallagher, Jones,     |
          |               |     |Eggman, Eduardo       |Wagner                |
          |               |     |Garcia, Holden,       |                      |
          |               |     |Quirk, Rendon, Weber, |                      |
          |               |     |Wood                  |                      |
          |               |     |                      |                      |
          |               |     |                      |                      |
          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  
          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 section, "general acute  


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          hospital" has the same meaning as in Health and Safety Code  
          Section 1250 (a). 

          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 Internal  
            Revenue Code Section 501(c)(3), 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. 

          FISCAL EFFECT:  According to the Assembly Appropriations  
          Committee, this bill will result in approximately $120,000 to  
          $125,000 (special funds) for the Department of Industrial  
          Relations Compliance Monitoring Unit.

          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."  (Your Responsibilities as a Conduit Issuer  
          of Tax-Exempt Bonds, Publication 5005 (4-2012) Catalog #59471F,  
          Department of the Treasury, Internal Revenue Service)  According  
          to the Internal Revenue Service, 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  


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          tax-exempt status of the bonds.    

          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) are  
          being used to subsidize the project.  

          According to the author, conduit revenue bond financing is a  
          method by which the public subsidizes a private development  
          project.  A public entity acts as the "issuer" of the bonds so the  
          interest payments on the bonds will be tax-exempt to the  
          bondholders under the income tax code.  Because the bondholders  
          will not be taxed on the interest, they are willing to accept a  
          lower return on their investment, and the cost of borrowing is  
          lower.  The bond proceeds are transferred to a private developer,  
          which is responsible for making the payments to the bondholders.   
          The public entity issuing the bonds acts purely as a "conduit" -  
          it does not receive the bond proceeds or pay back the bondholders.  
           But the tax code looks to the form of the transaction, not its  
          substance, so the interest on the bonds is still tax-exempt to the  
          bondholders.  The public thereby subsidizes the private  
          development project by foregoing the tax revenues that would  
          otherwise be paid by the bondholders.

          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  


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          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.    

          It is also worth noting that this bill narrows the focus of its  
          predecessor, SB 615 (Galgiani) of 2013, by shifting the focus of  
          the public works from "a hospital or health care facility project"  
          to a general acute care hospital.

          Analysis Prepared by:                                               
          Ben Ebbink / L. & E. / (916) 319-2091  FN: 0000180