BILL ANALYSIS Ó
AB 852
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB
852 (Burke)
As Amended June 15, 2015
Majority vote
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|ASSEMBLY: |55-24 |(April 27, |SENATE: |27-13 |(September 2, |
| | |2015) | | |2015) |
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Original Committee Reference: L. & E.
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.
The Senate amendments provide that this bill does not apply to a
project for a rural general acute care hospital with a maximum
of 76 beds.
FISCAL EFFECT: According to the Senate Appropriations
Committee, this bill would increase workload for the Department
of Industrial Relations at a cost of $125,000 in the first year,
and $120,000 ongoing (special funds), which could lead to
potential General Fund cost pressure. Additionally, this bill
AB 852
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could impact revenues to the California Health Facilities
Financing Authority (CHFFA).
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 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.
AB 852
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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 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:
0001635