BILL ANALYSIS
AB 1853
Page 1
Date of Hearing: March 23, 2010
ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS
Mary Hayashi, Chair
AB 1853 (Huffman) - As Introduced: February 12, 2010
SUBJECT : Public contracts: bid preferences: employee health
care expenditures.
SUMMARY : Requires public entities bidding out public works
contracts to provide a 2% bid preference to qualifying bidders
who spend at least 6.5% of aggregated Social Security wages on
employee health care. Specifically, this bill :
1)Requires a state agency to provide a 2% bid preference to the
lowest responsible bidder that spent and who's subcontractors
spent at least 6.5% of aggregated Social Security wages paid
to California employees on employee health care in the year
prior to the bid submission, or for an employee's entire
duration of employment that is at least three months long, but
less than a year.
2)Allows a bidder to claim an employee health care expenditure
bid preference by submitting separate statements from the
bidder and subcontractors certifying qualification, and
requires the Department of General Services to work with the
Department of Industrial Relations to develop a form for this
purpose.
3)Requires a winning bidder to continue to spend at least 6.5%
of aggregated Social Security wages paid to California
employees on employee health care for at least one year
following a bid acceptance.
4)Establishes penalties of a minimum amount of $2,500 and a
maximum amount of $25,000 against contractors who falsify
information on their bids, and a fine equal to twice the cost
that the bidder, or subcontractor, would have incurred for
health care if they fail to provide employee health care for
at least one year following a bid acceptance.
5)Defines "aggregate California employee health care
expenditures" as all amounts paid by the bidder, or
subcontractor, to the bidder's, or subcontractor's, employees
in California or to a third party on behalf of the bidder's,
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or subcontractor's, employees in California, for the purpose
of providing health care services to employees or reimbursing
the cost of those services for the employees.
6)Defines " aggregate California social security wages" as the
aggregate amount of wages paid to all of the bidder's, or
subcontractor's, employees in California, not including any
wages that are above the federal Social Security contribution
and benefit base, sometimes referred to as the social security
wage base, for the year in which they are paid.
7)Defines "health care services" as medical care, services, or
goods that may qualify as tax deductible medical care expenses
under Section 213 of the Internal Revenue Code, or medical
care, services, or goods having substantially the same purpose
or effect as those deductible expenses.
8)Defines "state agency" as a department, division, board,
bureau, commission, or agency of the executive branch of
government.
9)Becomes operative on January 1, 2012.
10) Makes legislative findings and declarations.
EXISTING LAW :
1)Defines public works contracts as any construction,
alteration, demolition, installation or repair work done under
contract and paid for in whole or in part from public funds.
2)Requires, with certain exceptions, public contracts to be
awarded to the lowest or lowest responsible bidder.
3)Requires all employees who work on public works projects with
a budget of $1,000 or more to be paid the general prevailing
wage as determined by the Department of Industrial Relations
(DOIR).
4)Allows local agencies to provide up to a 5% bid preference to
bidders who are small businesses, or create a bid preference
to contractors that achieve subcontractor participation goal.
FISCAL EFFECT : Unknown
AB 1853
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COMMENTS :
Purpose of this bill . According to the author's office, "In
recent years, the Legislature has explored a variety of policy
proposals to extend or increase health coverage to workers in
the state that are either underinsured or uninsured. The main
driver behind the legislative measures was the decline of
employer-provided health insurance, as well as the increase in
state-based health care costs due to the increase of individuals
requiring subsidized health care."
Background. The federal government enacted the Davis-Bacon Act
in 1931 and established prevailing wage to halt the importation
of cheap unskilled labor that undermined the local wage base for
skilled construction workers. Soon afterwards, states followed
suit and enacted their own prevailing wage laws. Today, all
public works construction projects in California paid for with
public tax dollars are required to pay the state's prevailing
wage set by the DOIR. Generally, the prevailing wage is based
on the regional modal rate for each construction job
classification (such as electrician, plumber, sheet metal
worker, iron worker, etc.) The prevailing wages of construction
workers include cash payments for holidays, vacations, and sick
leaves because of the propensity for high unemployment and short
periods of work. As a result, employers have little incentive
to train or provide employees with health benefits or pensions.
The Senate Office of Research issued a report in 1996 entitled,
"Potential Economic Impact: Proposals Department of Industrial
Relations to Alter Methodology Relating to Prevailing Wages."
The report discusses the inherently dangerous, cyclical, and
intermittent nature of construction work reduces incentives to
work in the industry. The intermittent nature also makes
full-time employment prohibitive and can result in construction
workers falling under state poverty guidelines, placing
additional burdens on public health care programs and increasing
costs to taxpayers. The effect is that the state government
ends up paying more for these employees, who may be uninsured,
or who lack adequate coverage. Offering health benefits would
stabilize the fluctuating market by offering incentives to
workers to remain in the industry despite the intermittent
nature of the employment. A study by the California Healthcare
Foundation cites that employers generally cite high premiums and
few employees as reasons for not providing employee health care.
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The Center on Policy Initiatives (CPI) issued a report in March
2009 entitled, "Construction: Working without a Healthcare Net."
The survey estimated that there are 1.3 million construction
workers in California and that 356,000 construction workers (or
27%) did not have any health insurance for the entire year.
While the construction industry represents 7.3% of the state
workforce, it accounts for 15% of the chronically uninsured.
CPI's survey also found that 35% of construction industry
workers received employer-funded health insurance, compared to
50% of workers across all industries. CPI concluded that
construction workers often forego doctor visits, which leads to
undiagnosed health problems and costlier emergency room bills.
Support . According to the sponsor, the State Building and
Construction Trades Council of California, "The construction
sector is at 30% unemployment and climbing higher, having lost
hundreds of thousands of jobs in the past two years. California
has the highest proportion of uninsured workers and the lowest
rate of employer sponsored health care coverage in the nation?
The state and its local governments incur substantial direct and
indirect expenses due to the high number of uninsured
[residents]. It is estimated that by 2010, the public costs of
health care for the uninsured will be nearly $8.2 billion.
Offering a 2% bid preference to construction employers that
spend at least 6.5% of their payroll toward employee health care
will significantly benefit the state General Fund, provide
relief to overcrowded emergency rooms and maximize taxpayer
investment in public works projects."
According to the California chapters of the National Electrical
Contractors Association and California Legislative Conference of
the Plumbing, Heating and Piping Industry, "To protect against
fraud, the measure allows the state agency to require that the
bidder and the bidder's listed subcontractors supply to the
state agency, records showing that they are entitled to the
[bid] preference?. Employers providing health care coverage to
employees is a policy that should be encouraged by the state,
especially when those employers are contracting with the state
for construction services."
Oppose . According to the California Chamber of Commerce, the
bill "would create an administrative burden intended to provide
an advantage to employers that fund health coverage for
employees at a specified, arbitrary level by creating a public
AB 1853
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works contractor bid preference for those employers?. On large
public works contracts, the prime contractor generally contracts
with not only subcontractors, but those subcontractors contract
with subcontractors, and so on. The administration of tracking
and verifying the health care expenditures of subcontractors all
the way down the line would be overly burdensome.
"Furthermore, all contractors on public works projects are
required to pay prevailing wages. The prevailing wage rate
includes a portion of the wage rate as health and welfare - this
is the portion for health care. With all employers on a public
works project paying prevailing wages, all employers are making
a significant contribution to employee health care?. The health
and welfare portion of the prevailing wage example is 13.68% of
the total wage. This is more than double the health care
expenditure required by this bill, yet the contractor paying the
prevailing wage rather than the health care expenditure would
not qualify for the bid preference."
Prior Legislation:
AB 26 (Hernandez) of 2009 is a similar bill that requires public
entities bidding out public works contracts to provide a 2% bid
preference to qualifying bidders who spend at least 6.5% of
aggregated Social Security wages on employee health care. This
bill was held in the Senate Appropriations Committee.
AB 396 (Hernandez) of 2008 requires public entities bidding out
public works contracts to the lowest responsible bidder to
provide a 2.5% employee health care expenditure bid preference
to qualifying contractors who spend at least 6.5% of aggregated
Social Security wages on employee health care. This bill was
held in the Senate Appropriations Committee.
AB 8 (Nunez) of 2007 required that employers expend an amount at
least equal to 7.5% of the total Social Security wages of all
employees on employee health care, or pay a fee into the Managed
Risk Medical Insurance Board. This bill was vetoed.
REGISTERED SUPPORT / OPPOSITION :
Support
State Building and Construction Trades Council of California
(sponsor)
AB 1853
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California Conference Board of the Amalgamated Transit Union
California Conference of Machinists
California Labor Federation
California Legislative Conference of the Plumbing, Heating and
Piping Industry (CLC), California Chapter
California Teamsters Public Affairs Council
Engineers & Scientists of California, IFPTE Local 20
International Longshore and Warehouse Union
Jockeys' Guild
National Electrical Contractors Association (NECA), California
Chapter
National Union of Healthcare Workers
Professional & Technical Engineers, IFPTE Local 21
United Food & Commercial Workers Western States Council
UNITE-HERE
Opposition
Associated Builders and Contractors (ABC)
Associated General Contractors (AGC)
California Chamber of Commerce (CalChamber)
Analysis Prepared by : Joanna Gin / B. & P. / (916) 319-3301