BILL ANALYSIS Ó 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 --