BILL ANALYSIS �
Senate Committee on Labor and Industrial Relations
Ted W. Lieu, Chair
Date of Hearing: September 1, 2011 20011-2012 Regular
Session
Consultant: Alma Perez Fiscal:Yes
Urgency: No
Bill No: SB 136
Author: Yee
Version: As amended August 22, 2011
SUBJECT
Public contracts: prevailing wages
KEY ISSUE
Should the definition of public works be expanded to include
projects done under private contract in connection with
renewable energy or energy efficiency improvements on state
property or a political subdivision of the state?
Should workers on renewable energy generation projects performed
on property of the state or political subdivisions of the state
be paid prevailing wages?
PURPOSE
To apply prevailing wage requirements and related procedures to
renewable energy generation capacity or energy efficiency
improvement projects, as specified.
ANALYSIS
Existing law :
1) Requires that not less than the general prevailing wage rate
be paid to all workers employed on a "public works" project
costing over $1,000 dollars and imposes misdemeanor penalties
for a violation of this requirement.
2) Defines "public works," for purposes of regulating public
works contracts, as, 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" as
used in public works as the following:
a) Payment of money or the equivalent of money by a state
or political subdivision directly to or on behalf of the
public works contractor, subcontractor, or developer;
b) Construction work performed by a state or political
subdivision in execution of a project;
c) Transfer of an asset of value for less than fair market
value;
d) 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;
e) Money loaned that is to be repaid on a contingent basis;
and
f) Credits applied against repayment obligations.
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.
This Bill would provide that specified work related to renewable
energy generation or energy efficiency improvements is
considered "public works" for purposes of prevailing wage law.
Hearing Date: September 1, 2011
SB 136
Consultant: Alma Perez Page 2
Senate Committee on Labor and Industrial Relations
Specifically, this bill would:
Expand the definition of "public works" to include
construction, alteration, demolition, installation or
repair work done under private contract when the following
conditions exist:
o The work is performed in connection with the
construction or maintenance of renewable energy
generation capacity or energy efficiency improvements;
o The work is performed on the property of the
state or a political subdivision of the state;
o Either of the following conditions exist:
� More than 50 percent of the energy
generated is purchased or will be purchased by
the state or a political subdivision of the
state.
� The energy efficiency improvements
are primarily intended to reduce energy costs
that would otherwise be incurred by the state or
a political subdivision of the state.
COMMENTS
1. Need for this bill?
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. According to
Hearing Date: September 1, 2011
SB 136
Consultant: Alma Perez Page 3
Senate Committee on Labor and Industrial Relations
DIR, California's prevailing wage laws ensure that the ability
to get a public works contract is not based on paying lower
wage rates than a competitor. All bidders are required to use
the same wage rates when bidding on a public works project.
Energy prices are expected to increase over the long term,
stimulating the demand for renewable energy supplies. This
bill would require that prevailing wages be paid on renewable
energy generating capacity or energy efficiency improvements
when the work is performed on the property of the state or a
political subdivision of the state, as specified. By
requiring for the payment of prevailing wage on renewable
energy projects, this bill would provide adequate wages and
benefits to workers on these projects.
2. Proponent Arguments :
According to the author, this bill will put to rest a
convoluted interpretation of the application of prevailing
wages regarding energy service contracts. Proponents contend
that some local agencies have found a creative loophole to
avoid paying prevailing wages for energy service contracts.
Despite the fact that the work is being completed on public
infrastructure and will be paid back from energy savings that
otherwise would have been utilized by the public agency, some
have argued that such work is exempt from the prevailing wage
requirement.
Proponents argue that these types of contracts could
potentially be a huge bonus to a number of unemployed workers
suffering through difficult times. Unfortunately, proponents
argue, given this convoluted reading of current law, the
definition of public works needs updating to provide these
workers with a fair wage. Supporters contend that without
these provisions, contractors bidding for state money could
undercut prevailing wages in any given area by 20 to 30
percent and ultimately hurt vulnerable workers and their
families.
3. Opponent Arguments :
Hearing Date: September 1, 2011
SB 136
Consultant: Alma Perez Page 4
Senate Committee on Labor and Industrial Relations
Opponents argue that this bill is an unreasonable new
prevailing wage mandate on private works of improvement and is
unwarranted. They argue that, often times, the cost of
converting to solar is very high and the payoff period for
school districts is 15-20 years and savings to the school
district, and payment to the vendor, comes monthly through
savings in electricity costs. Opponents argue that forcing
these projects to pay prevailing wages will increase the cost
of the projects and erase the bottom line savings. They argue
that this bill could lead to fewer projects being pursued.
According to opponents, this bill addresses private contracts
with an energy threshold provision that would most likely
result in additional costs to third party agreements with
private companies who sell power to schools through power
purchase agreements. According to the School Energy Coalition
(SEC), although they have previously supported the application
of prevailing wage to capitol projects on school property,
they do not believe that power purchase agreements fall into
this category - and argue that these agreements are for the
purchase of generated power only. Opponents argue that
schools enter into these power agreements because they have no
up-front cost and schools simply get a lower and/or set price
for power that saves money at a time when budgets have been
severely cut, teachers have been let go and class sizes have
been increased.
Additionally, opponents are also concerned that energy audits
and analyses, often the starting place for schools that
eventually enter these agreements, would also be included
under this legislation as part of the "work performed in
connection with the construction or maintenance" of the
project. According to opponents, the author has indicated
that this is not an area where the bill was intended to go,
and therefore, SEC is opposed unless clarifying amendments are
taken.
4. Prior Legislation :
AB 436 (Solorio) of 2011: Recently amended to a different
subject
Hearing Date: September 1, 2011
SB 136
Consultant: Alma Perez Page 5
Senate Committee on Labor and Industrial Relations
This bill �SB 136] is almost identical to AB 436 (Solorio)
heard by this Committee earlier this year. This bill further
defines the conditions under which a project would be
classified "public work" for prevailing wage purposes. AB 436
passed the Senate Labor and Industrial Relations Committee
with a vote of 5-0 on June 22, 2011.
AB 677 (Solorio) of the 2009-10 Session: Vetoed by the
Governor
AB 436 (previously discussed) was almost identical to AB 677,
with the exception of an amendment which deleted the
requirement that the work be performed in connection with a
"long-term arrangement," as specified.
SUPPORT
State Building and Construction Trades Council (Sponsor)
California State Pipe Trades Council
International Brotherhood of Electrical Workers
Western States Council of Sheet Metal Workers
OPPOSITION
Associated Builders and Contractors of California
California Association of School Business Officials
League of California Cities
School Energy Coalition
Western Electrical Contractors Association
Hearing Date: September 1, 2011
SB 136
Consultant: Alma Perez Page 6
Senate Committee on Labor and Industrial Relations