BILL ANALYSIS                                                                                                                                                                                                    



                                                                     AB 852


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          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.








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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