BILL ANALYSIS �
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Date of Hearing: March 28, 2012
ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT
Sandre Swanson, Chair
AB 1958 (Grove) - As Introduced: February 23, 2012
SUBJECT : Public works: prevailing wages.
SUMMARY : Increases the monetary threshold for public works
projects subject to the prevailing wage law and indexes this
threshold for inflation, as specified. Specifically, this bill :
1)Requires the prevailing wage rate to be paid to all workers on
"public works" projects over $2,000 (as opposed to $1,000
currently).
2)Specifies that on October 1 of each year, the Department of
Industrial Relations (DIR) shall adjust this level (to be
effective January 1 of the following year) by an amount equal
to the percentage change in the California Consumer Price
Index for Urban Wage Earners and Clerical Workers.
EXISTING STATE LAW :
1) Requires the prevailing wage rate to be paid to all workers
on "public works" projects over $1,000.
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.
FISCAL EFFECT : Unknown
COMMENTS : This bill seeks to increase the monetary threshold
for public works projects subject to the prevailing wage law and
indexes the threshold for inflation, as specified.
A Brief History of State and Federal Prevailing Wage Law
State prevailing wage laws vary from state to state, but do
share a common history that actually predates federal prevailing
wage law. Many of these state laws were enacted as part of
general reform efforts to improve working conditions at the end
of the 19th and the beginning of the 20th centuries. Between
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1891 and 1923, seven states adopted prevailing wage laws that
required payment of specified hourly wages on government
construction projects. The State of Kansas enacted the first
prevailing wage law in 1891.
Eighteen additional states and the federal government adopted
prevailing wage laws during the Great Depression of the 1930s
amidst concern that acceptance of the low bid, a common
requirement of government contracting for public projects when
government had become the major purchaser of construction, would
operate to reduce the wages paid to workers on those projects to
a level that would disrupt the local economy.
California's prevailing was law was enacted in 1931.
In general, the proponents of prevailing wage legislation wanted
to prevent the government from using its purchasing power to
undermine the wages of its citizens. It was believed that the
government should set an example, by paying the wages prevailing
in a locality for each occupation hired by government
contractors to build public projects. Thus, prevailing wage
laws are generally meant to ensure that wages commonly paid to
construction workers in a particular region will determine the
minimum wage paid to the same type of workers employed on
publicly funded construction projects.
Most public construction projects contracted for or by the
federal government or the District of Columbia are covered by
the federal prevailing wage law, the Davis-Bacon Act (Act),
while 33 states have prevailing wage laws, often referred to as
"little Davis-Bacon Acts," that encompass projects financed by
states and their political subdivisions.
The federal Davis-Bacon Act was enacted by Congress in 1931.
The Act requires workers employed under public construction
contracts of the federal government in excess of $2,000 to be
paid a minimum wage that the United States Department of Labor
determines to be prevailing for corresponding classes of
workers. In addition, sixty separate federal laws currently
specify the payment of Davis- Bacon wages for work prescribed.
The federal government also has two additional prevailing wage
laws - the Walsh-Healy Public Contracts Act of 1935 (which
covers federal contractors in manufacturing and supply
industries), and the O'Hara-McNamara Services Act of 1965 (which
covers service contracts).
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The United States Supreme Court has stated the public policy
underlying the Davis-
Bacon Act as one of:
"protecting local wage standards by preventing contractors
from basing their bids on wages lower than those prevailing
in the area . . . �and] giving local labor and the local
contractor a fair opportunity to participate in this
building program." Universities Research Ass'n. v. Coutu
(1981) 450 U.S. 754, 773-774).
General Background on "Public Works" Under California Law
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." This action culminated in the
enactment of SB 975 (Alarc�n), 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. At the
time, supporters of SB 975 stated that it established a
definition that conformed to several precedential coverage
decisions made by DIR. These coverage decisions defined payment
by land, reimbursement plans, installation, grants, waiver of
fees, and other types of public subsidy as public funds for
purposes of prevailing wage law. According to the sponsors, SB
975 was intended to remove ambiguity regarding the definition of
public subsidy of development projects.
SB 975 also exempted certain affordable housing, residential and
private development projects that met certain criteria.
Follow-up legislation, SB 972 (Costa), Chapter # 1048, Statutes
of 2002, was intended to clarify the application of SB 975 and
was the result of extensive discussions between the State
Building and Construction Trades Council (sponsor of SB 975),
affordable housing advocates, and the Davis Administration.
Supporters of SB 972 contended that the original legislation had
unintended consequences for self-help housing and housing
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rehabilitation projects. As a result of that compromise, SB 972
exempted from public works requirements the construction or
rehabilitation of privately-owned residential projects that met
certain criteria.
Why It Matters: "Prevailing Wage"
The determination of whether a project is deemed to constitute a
"public work" is important because the Labor Code requires
(except for projects of $1,000 or less) that the "prevailing
wage" to be paid to all workers employed on public works
projects.
Specific Change Proposed by this Bill: The "Public Works"
Threshold
Under current state law, prevailing wages are required to be
paid to all workers employed on public works projects. Existing
law excludes projects of less than $1,000 from this requirement.
According to DIR, there was no project threshold when
California's prevailing wage statute was enacted in 1931. The
statute applied to all public works except maintenance work. In
1974, the law was amended to remove the maintenance work
exception. The statute was amended again in 1976 to add an
exemption for contracts under $500. This threshold was
increased to $1,000 on 1981.
This bill proposes to increase this threshold to $2,000. As
discussed above, the federal Davis-Bacon Act (which covers
federally-funded projects) currently has a $2,000 threshold for
the triggering of prevailing wage requirements. In addition,
this bill would index this level with an annual adjustment based
on inflation to the Consumer Price Index.
According to information provided by the author's office, of the
states with their own prevailing wage laws, 21 have thresholds
that meet or exceed the $2,000 level of federal law. Rhode
Island utilizes a $1,000 threshold (the same as California).
Nine additional states have no prevailing wage threshold
(meaning those state prevailing wage laws apply to contracts of
any size).
ARGUMENTS IN SUPPORT :
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The author states the following in support of this bill:
"�This bill] proposes state conformity to the federal
prevailing wage threshold of $2,000. California's prevailing
wage threshold was set nearly 50 years ago. This change will
bring California law in line other states that meet or
significantly exceed the federal threshold limit. This change
will permit small construction firms to also be in the running
for taxpayer funded projects, including small women, ethnic or
veteran owned and operated businesses.
It is also important to note that due to changes in law
enacted in 2001 (SB 975) expanded what is considered a public
works. California public projects are now much more than city
roads, firehouses, libraries, and projects most people would
recognize as government projects. Public works are now any
privately-funded and privately-built projects that receive
grants from the city, or transfers of assets from the city for
less than market value, or loans from the city to be repaid
on a contingent basis, or 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 city."
Writing in support of this bill, the Associated Builders and
Contractors of California (ABC California) argues that this bill
merely provides for state conformity with federal prevailing
wage threshold requirements.
ABC California goes on to state:
"It is no secret that everything costs more today than in
the past. The same is true of construction. Construction
is more expensive today than it was 30 years ago. Updating
California's prevailing requirements to match the federal
threshold for prevailing wage would allow small emerging
minority and women-owned construction companies, which tend
to be non-union, to have greater opportunities to win small
government jobs without trying to match the wages of large,
long-established unionized construction firms.
Finding small opportunities for small firms to compete for
small jobs is something that everyone should agree is an
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appropriate policy decision when using taxpayer dollars.
ABC California believes �this bill] is a reasonable way for
the state of California to help make those small business
opportunities happen."
ARGUMENTS IN OPPOSITION :
Opponents state that this bill "uses the backdrop of a fledgling
economy to further squeeze construction workers, even though
wages are typically a very small percentage of a project's
overall costs. In fact, the reasons for the slow economic
recovery in the construction industry have nothing to do with
labor costs (which have gone down since the recession began),
but instead involve factors like access to capital and unease
about the state of the world economy."
REGISTERED SUPPORT / OPPOSITION :
Support
Associated Builders and Contractors of California
Opposition
California Labor Federation, AFL-CIO
California State Association of Electrical Workers
California State Pipe Trades Council
Coalition of California Utility Employees
Elevator Constructors Union
State Building and Construction Trades Council of California
Western States Council of Sheet Metal Workers
Analysis Prepared by : Ben Ebbink / L. & E. / (916) 319-2091