BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 852 (Burke) - Public works: prevailing wages.
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|Version: June 15, 2015 |Policy Vote: L. & I.R. 4 - 1 |
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|Urgency: No |Mandate: Yes |
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|Hearing Date: July 6, 2015 |Consultant: Robert Ingenito |
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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,
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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
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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
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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.
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