BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 852|
|Office of Senate Floor Analyses | |
|(916) 651-1520 Fax: (916) | |
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THIRD READING
Bill No: AB 852
Author: Burke (D), et al.
Amended: 6/15/15 in Senate
Vote: 21
SENATE LABOR & IND. REL. COMMITTEE: 4-1, 6/24/15
AYES: Mendoza, Jackson, Leno, Mitchell
NOES: Stone
SENATE APPROPRIATIONS COMMITTEE: 5-2, 8/27/15
AYES: Lara, Beall, Hill, Leyva, Mendoza
NOES: Bates, Nielsen
ASSEMBLY FLOOR: 55-24, 4/27/15 - See last page for vote
SUBJECT: Public works: prevailing wages
SOURCE: State Building and Construction Trades Council of
California
DIGEST: This bill expands the definition of public works to
also include any construction, alteration, demolition,
installation, or repair work done under private contract on a
project for a general acute care hospital, as specified, when
the project is paid for, in whole or in part, with the proceeds
of conduit revenue bonds issued by a public agency on or after
January 1, 2016.
ANALYSIS:
AB 852
Page 2
Existing law:
1)Requires that not less than the general prevailing rate of per
diem wages, as determined by the director of the Department of
Industrial Relations, be paid to all workers employed on a
"public works" project costing over $1,000 dollars and imposes
misdemeanor penalties for violation of this requirement.
2)Defines "public work" to include, among other things,
construction, alteration, demolition, installation or repair
work done under contract and paid for, in whole or in part,
out of public funds.
3)Defines "paid for in whole or in part out of public funds" to
include, among other things, fees, costs, rents, insurance or
bond premiums, loans, interest rates, or other obligations
normally required in the execution of a contract that are
paid, reduced, charged at less than fair market value, waived
or forgiven by the state or political subdivision.
4)Exempts from the definition of "paid for in whole or in part
out of public funds" specified types of affordable housing,
private residential housing, private development projects,
qualified residential projects, low income housing projects,
state manufacturing tax credits, and single family residential
projects.
5)Defines "conduit revenue bond" as 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 the Internal
Revenue Code, partnerships, and other legal entities for
purposes that are permitted for qualified private activity
bonds under applicable federal law.
6)Defines "conduit financing provider" as 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.
This bill:
AB 852
Page 3
1)Expands 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 when the project is paid for, in whole or
in part, with the proceeds of conduit revenue bonds issued by
a public agency on or after January 1, 2016.
2)Exempts from its provisions, a project for a rural general
acute care hospital with a maximum of 76 beds.
Background
A Brief History of Prevailing Wage Law: Existing law requires
that not less than the general prevailing wage rate of per diem
wages, as determined by the director of the Department of
Industrial Relations (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."
Over a decade ago, there was much administrative and
legislative action over what constituted the term "paid for in
whole or in part out of public funds." These debates culminated
in the enactment of SB 975 (Alarcon, Chapter 938, Statutes of
2001), which codified a definition of "paid for in whole or in
part out of public funds" that included certain payments,
transfers, credits, reductions, waivers and performances of
work. SB 975 also exempted certain affordable housing,
residential and private development projects.
Conduit Revenue Bonds: 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,"
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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 IRS, 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 tax-exempt status of the
bonds.
The California Infrastructure and Economic Development Bank
(I-Bank), housed within the CA Business, Transportation and
Housing Agency, is the State's only general purpose financing
authority whose mission is to finance public infrastructure and
private developments that promote a healthy climate for jobs,
contribute to a strong economy and improve the quality of life
in California communities. The I-Bank facilitates access to
funding from private capital markets through its Conduit Revenue
Bond Financing Program, which provides tax-exempt bond funding
for eligible economic development facility projects throughout
California. The bonds are repaid by the private sector borrower,
and are not a debt of the I-Bank or the State of California.
According to the I-Banks annual activity report from fiscal year
2011-2012, I-Bank issued $867,856,500 of conduit revenue bonds
for qualified California manufacturing companies, 501(c)(3)
nonprofit entities and for other governmental entities to
create/retain jobs in the state, to facilitate research and
cultural endeavors and for other public purposes.
A Los Angeles Times article from 2011 reported that conduits had
grown roughly three times faster than the general municipal
market over the last five years, according to data from Thomson
Reuters, a New York data firm; $84 billion of these bonds were
issued in 2010 alone. ('Conduit' muni bond defaults draw
scrutiny, June 14, 2011) According to the article, investors
don't have to pay taxes on their interest from municipal bonds,
enabling companies to borrow money at lower interest rates than
they could get on their own. The article notes that although
conduits account for roughly 20% of all municipal bonds, they
have been responsible for about 70% of all defaults in the
municipal bond market in recent years, according to the Income
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Securities Advisors, a Florida research firm.
Stated need for the bill: Because these types of public
subsidies are not included under the definition of "paid for in
whole or in part out of public funds," they don't currently
trigger the coverage of the prevailing wage law. A couple of
determinations by the Department of Industrial Relations (DIR)
have addressed this issue finding that conduit bond funded
projects are not public work, and therefore not subject to the
prevailing wage.
In a 2005 determination [by then acting director of DIR, John
Rea] regarding a Rancho Santa Fe Village Senior Affordable
Housing Project, the director stated that: "?money collected
for, or in the coffers of, a public entity is "public funds"
within the meaning of Section 1720 (which defines public works).
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 public coffers, the conduit bond financing is not
"the payment of money or the equivalent of money by the state or
political subdivision?" Rancho Santa Fe Village Senior
Affordable Housing Project, PW 2004-16 (Feb. 25, 2005)
The acting director argued that because it assigns all of its
rights to a bond trustee, the issuer never has possession of
either the bond proceeds or the loan repayments that are made by
the borrower directly to the bond trustee. However, the State
Building and Construction Trades Council (source of this bill)
argued that the use of tax-exempt bond financing constitutes a
loan at below-market interest rates and therefore is covered
under Labor Code §1720(b)(4). This code section states that
"paid for in whole or in part out of public funds" includes "(4)
Fees, costs, rents, insurance or bond premiums, loans, interest
rates, or other obligations that would normally be required in
the execution of the contract, that are paid, reduced, charged
at less than fair market value, waived, or forgiven by the state
or political subdivision."
This bill would address this uncertainty regarding conduit
revenue bonds being paid for by public funds by specifying that
"public work" also means any work done under private contract on
a project for a general acute care hospital, except as
specified, when the project is paid for, in whole or in part,
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with the proceeds of conduit revenue bonds issued by a public
agency.
Prior Legislation
SB 615 (Galgiani of 2013) was very similar to this bill and
would have expanded
the definition of "public works" to include specified 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. Unlike this bill, SB 615
did not include an exemption for rural general acute care
hospitals of 76 beds or less. SB 615 was vetoed by the Governor.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: Yes
According to the Senate Appropriations Committee, 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,
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.
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Page 7
SUPPORT: (Verified8/28/15)
State Building and Construction Trades Council of California
(source)
California Chapters of the National Electrical Contractors
Association
California Conference Board of the Amalgamated Transit Union
California Conference of Machinists
California Labor Federation, AFL-CIO
California Legislative Conference of the Plumbing, Heating and
Piping Industry
California Teamsters Public Affairs Council
Construction Employers' Association
Engineers & Scientists of California
International Longshore & Warehouse Union
Professional & Technical Engineers
UNITE-HERE, AFL-CIO
Union Roofing Contractors Association
United Contractors
Utility Workers Union of America
Wall and Ceiling Alliance
OPPOSITION: (Verified8/28/15)
None received
ARGUMENTS IN SUPPORT: The author argues that 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 supporters, this bill will close a loophole in
state 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. They argue that because 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
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Page 8
towards providing a livable wage for the construction workers
building the projects that the bonds fund.
ASSEMBLY FLOOR: 55-24, 4/27/15
AYES: Alejo, Bloom, Bonilla, Bonta, Brown, Burke, Calderon,
Chau, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd,
Eggman, Frazier, Cristina Garcia, Eduardo Garcia, Gatto,
Gipson, Gomez, Gonzalez, Gordon, Gray, Roger Hernández,
Holden, Irwin, Jones-Sawyer, Levine, Linder, Lopez, Low,
McCarty, Medina, Mullin, Nazarian, O'Donnell, Olsen, Perea,
Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago,
Steinorth, Mark Stone, Thurmond, Ting, Weber, Williams, Wood,
Atkins
NOES: Achadjian, Travis Allen, Baker, Bigelow, Brough, Chang,
Chávez, Beth Gaines, Gallagher, Grove, Hadley, Harper, Jones,
Kim, Lackey, Maienschein, Mathis, Mayes, Melendez, Obernolte,
Patterson, Wagner, Waldron, Wilk
NO VOTE RECORDED: Campos
Prepared by:Alma Perez / L. & I.R. / (916) 651-1556
8/31/15 16:35:20
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