BILL ANALYSIS �
AB 302
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Date of Hearing: March 20, 2013
ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT
Roger Hern�ndez, Chair
AB 302 (Chau) - As Introduced: February 12, 2013
SUBJECT : Public works: public subsidies.
SUMMARY : Provides a statutory definition for a "de minimis"
public subsidy that does not trigger the requirements of
prevailing wage law. Specifically, this bill defines "de
minimis" to mean a public subsidy that is both less than $10,000
and less that 1 percent of the total project cost.
EXISTING 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.
3) Establishes a definition for "paid for in whole or in part
out of public funds," as specified.
4) Provides that if the state or a political subdivision
reimburses a private developer for costs that would normally
be borne by the public, or provides directly or indirectly a
public subsidy to a private development project that is "de
minimis" in the context of the project, an otherwise private
development project shall not thereby become subject to the
requirement to pay prevailing wages.
FISCAL EFFECT : Unknown
COMMENTS : According to the author, this bill will clearly
define when a public subsidy is "de minimis" for the purpose of
determining when prevailing wage law applies to certain
projects.
A Brief History of State and Federal Prevailing Wage Law
State prevailing wage laws vary from state to state, but do
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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
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.
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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).
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 the Department of Industrial Relations (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
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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
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.
"De Minimis" Public Subsidies
SB 975 also provided that if the state or a political
subdivision reimburses a private developer for costs that would
normally be borne by the public, or provides directly or
indirectly a public subsidy to a private development project
that is "de minimis" in the context of the project, an otherwise
private development project shall not thereby become subject to
the requirement to pay prevailing wages. However, SB 975 did
not provide a definition for the term "de minimis."
Therefore, since the enactment of SB 975, DIR has issued several
coverage determinations attempting to define the term "de
minimis."
In 2005, DIR first articulated a standard for "de minimis" in
Public Works Case No. 2004-024 (New Mitsubishi Auto
Dealership)(March 18, 2005). In that case, DIR noted that
nothing in the prevailing wage law or the applicable legislative
history of SB 975 provided guidance as to the appropriate
measure of what should be considered "de minimis." Therefore,
DIR looked to other statutory or regulatory schemes for other
state agencies (including Franchise Tax Board and the California
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Coastal Commission) and articulated a standard for "de minimis"
to mean "the public funding was proportionally small enough, in
relation to the overall cost of the Project, that the
availability of those funds did not significantly affect the
economic viability of the Project" (emphasis provided). In that
specific case, DIR found that public reimbursement of $65,710 to
a project with a total cost of $4,010,010 represented only 1.64
percent of the total project cost, and therefore could
reasonably be considered "de minimis."
Since that time, DIR has applied this test to find a "de
minimis" public subsidy in the following situations: a
$317,330.80 public subsidy on a $22 million project (or 1.4
percent of the total project cost), PW Case No. 2007-012 (May
15, 2008); a $123,300.67 public subsidy on a $29 million project
(or 0.4 percent of the total project cost), PW Case No. 2008-010
(August 4, 2008); a public subsidy of $202,337 on a $18 million
project (or 1.1 percent of the total project cost), PW Case No.
2008-037 (January 2, 2009); a $23,475 public subsidy on a $2.4
million project (or 0.99 percent of the total project costs), PW
Case No. 2008-038 (April 21, 2010); a $96,553.20 public subsidy
on a $8 million project (or 1.2 percent of the total project
cost), PW Case No. 2009-005 (April 21, 2010), a $500,000 public
subsidy on a $25.5 million project (or 1.23 percent of the total
project cost), PW Case No. 2008-025 (August 16, 2009); and a
$1,664,804 public subsidy on a $95 million project (or 1.75
percent of the total project cost), PW Case No. 2011-033 (May 9,
2012).
ARGUMENTS IN SUPPORT
This bill is sponsored by the State Building and Construction
Trades Council of California.
The sponsor contends that the normal definition of "de minimis"
in the legal field is "trifling, minimal . . . so insignificant
that a court may overlook it." Black's Law Dictionary (9th Ed.
2009). "De minimis" is shorthand for the Latin phrase "de
minimis non curat lex" - the law does not concern itself with
trifles. Therefore, the sponsor contends that the de minimis
exception should involve only public subsidies that are
"trifling."
Since the initial articulation of the standard in 2005, the
sponsor argues that DIR has treated any public subsidy - no
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matter how large - as de minimis if the subsidy is less than
1.64 percent of total project costs.
Therefore, this bill would restore the original intent of SB 975
that the "de minimis" exception be limited to situations in
which the public subsidy is "trifling" such that it should not
have legal significance. This bill would provide that "a
subsidy is de minimis if it is both less than ten thousand
dollars ($10,000) and less than one percent of the total project
cost." According to the sponsor, the prevailing wage law itself
is triggered for public projects of $1,000 or more, so treating
subsidies of up to $10,000 as de minimis is generous to
developers. They argue that a public subsidy of more than
$10,000 is not just a "trifle" so it is reasonable to require
payment of prevailing wages if the developer wants the public
subsidy. Nothing prevents a private developer from declining to
accept public subsidies if it does not wish to pay prevailing
wages.
ARGUMENTS IN OPPOSITION
Writing in opposition to this bill, the Western Electrical
Contractors Association (WECA) states, "When Labor Code�1720 was
amended in 2001 the de minimis exception was widely debated and
although never codified, was generally agreed to be 2% of the
project. While some question that wisdom, this 'agreement' and
subsequent DIR determinations have held that it requires a
substantial public subsidy to trigger California's Public Works
Law."
REGISTERED SUPPORT / OPPOSITION :
Support
Southern California Contractors Association
State Building and Construction Trades Council of California
(sponsor)
Opposition
Western Electrical Contractors Association
Analysis Prepared by : Ben Ebbink / L. & E. / (916) 319-2091
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