BILL ANALYSIS                                                                                                                                                                                                    



          SENATE COMMITTEE ON APPROPRIATIONS
                             Senator Ricardo Lara, Chair
                            2015 - 2016  Regular  Session

          AB 852 (Burke) - Public works: prevailing wages.
          
           ----------------------------------------------------------------- 
          |                                                                 |
          |                                                                 |
          |                                                                 |
           ----------------------------------------------------------------- 
          |--------------------------------+--------------------------------|
          |                                |                                |
          |Version: June 15, 2015          |Policy Vote: L. & I.R. 4 - 1    |
          |                                |                                |
          |--------------------------------+--------------------------------|
          |                                |                                |
          |Urgency: No                     |Mandate: Yes                    |
          |                                |                                |
          |--------------------------------+--------------------------------|
          |                                |                                |
          |Hearing Date: July 6, 2015      |Consultant: Robert Ingenito     |
          |                                |                                |
           ----------------------------------------------------------------- 


          This bill may meet the criterial for referral to the Suspense  
          File.


          Bill  
          Summary: AB 852 would define "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. A project for a rural  
          general acute care hospital with a maximum of 76 beds would be  
          exempt from this requirement  


          Fiscal  
          Impact: This measure would increase the number of public works  
          projects. Consequently, the Department of Industrial Relations  
          (DIR) would likely 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,  







          AB 852 (Burke)                                         Page 1 of  
          ?
          
          
          benefits and equipment expenses) would be $125,000 in the first  
          year, and $120,000 ongoing (special funds).

          The Compliance Monitoring Unit (CMU) is the component within DIR  
          that monitors and enforces prevailing wage requirements on  
          public works projects. It is currently funded through a  
          combination of (1) the General Fund, (2) a special fund loan,  
          and (3) a  of one percent surcharge on state issuances of  
          general obligation (GO) bonds. Because this bill concerns  
          conduit revenue bonds, not GO bonds, their issuance will not  
          fund the CMU. Consequently, any increased costs to DIR resulting  
          from the bill could lead to a potential General Fund cost  
          pressure. 

          Additionally, the bill could impact revenues to the California  
          Health Facilities Financing Authority (CHFFA). Specifically,  
          revenues to CHFFA could be either higher or lower, depending on  
          future CHFFA conduit bond issuance (see Staff Comment).


          Background:  Current law requires that not less than the general prevailing  
          wage rate of per diem wages, 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. 
          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."


          The California Health Facilities Financing Authority (CHFFA) was  
          established to help public and non-profit health facilities  
          reduce their cost of capital, and to promote health access,  
          healthcare improvement and cost containment objectives by  
          providing cost-effective tax-exempt bond, low-cost loan, and  
          direct grant programs. CHFFA assists eligible and credit-worthy  
          nonprofit and public health facilities reduce their cost of  
          capital.


          Bonds that are issued for the purpose of making loans to  
          entities other than state or local governments are commonly  








          AB 852 (Burke)                                         Page 2 of  
          ?
          
          
          referred to as conduit bonds. A conduit issuer (such as CHFFA)  
          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 tax-exempt status of the bonds.




          Proposed Law:  
           This bill would expand the definition of "public works," for  
          purposes of prevailing wage payment requirements, to also  
          include any construction, alteration, demolition, installation,  
          or repair work done under private contract on a project for a  
          general acute care hospital, except on a project for a rural  
          general acute care hospital with a maximum of 76 beds, when the  
          project is paid for, in whole or in part, by using conduit  
          revenue bonds issued by a public agency on or after January 1,  
          2016.  


          Related  
          Legislation:  SB 615 (Galgiani) of 2013 was very similar to this  
          bill and would have expanded the definition of "public works" 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. The bill was vetoed by the Governor.


          Staff  
          Comments: To the extent that this measure results in additional  
          public works projects, 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 impact of this bill on CHFFA revenues is unknown. The  
          requirement that hospitals pay prevailing wage on their projects  
          would increase overall construction costs and could lead a  








          AB 852 (Burke)                                         Page 3 of  
          ?
          
          
          borrower to choose other financing options (such as a taxable  
          bond) rather than utilize a conduit issuer so it can avoid the  
          prevailing wage requirement. To the extent that this occurs,  
          CHFFA conduit bond issuance would decline, resulting in a  
          decrease in CHFFA's revenues (which are derived from the initial  
          and annual fees of hospitals and healthcare facilities seeking  
          tax-exempt financing). Roughly half of CHFFA's income derives  
          from initial fees paid by borrowers. 


          Conversely, if a borrower were decide to use conduit bond  
          financing and pay prevailing wage, the conduit bond amount  
          issued could be upsized to pay the higher construction costs  
          that result from the prevailing wage requirement. To the extent  
          that this occurs, revenues to CHFFA would increase.




                                      -- END --