BILL ANALYSIS �
Senate Committee on Labor and Industrial Relations
William W. Monning, Chair
Date of Hearing: June 26, 2013 2013-2014 Regular
Session
Consultant: Deanna D. Ping Fiscal:Yes
Urgency: No
Bill No: AB 302
Author: Chau
As Introduced: June 17, 2013
SUBJECT
Public works: public subsidies
KEY ISSUE
Should the Legislature approve a statutory definition for a "de
minimis" public subsidy under prevailing wage law?
ANALYSIS
Existing law defines "public works" to include, among other
jobs, construction, alteration, demolition, installation, or
repair work done under contract and paid for in whole or in part
out of public funds. (Labor Code �1720)
Under existing law , "paid for in whole or in part out of public
funds" means, among other things, the following:
1. The payment of money or the equivalent of money by the
state or political subdivision directly to or on behalf of
the public works contractor, subcontractor, or developer.
2. The performance of construction work by the state or
political subdivision in execution of the project.
3. 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 state or political subdivision.
4. Money loaned by the state or political subdivision that
is to be repaid on a contingent basis.
(Labor Code �1720)
Existing law defines "awarding body" or "body awarding the
contract" as the department, board, authority, officer or agent
awarding a contract for public work. (Labor Code �1722)
Existing law requires all employees who work on public works
projects costing $1,000 or more to be paid the general
prevailing rate of per diem wages and the general prevailing
rate for holiday and overtime work for the specific location
where the public work is to be performed. (Labor Code �1771)
Existing law states 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 be subject to prevailing wage requirements.
(Labor Code �1720)
This bill 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 than 1 percent of the total project cost and will not
apply to a project that was advertised for bid, or a contract
that was awarded, before January 1, 2014.
COMMENTS
1. 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 predates federal prevailing wage
law. Many of these state laws were enacted as part of
Progressive Era 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
being the first in 1891.
Hearing Date: June 26, 2013 AB 302
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Senate Committee on Labor and Industrial Relations
Eighteen additional states (including California in 1931) 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, would reduce local wages and disrupt the
local economies. This was particularly in the depths of the
Great Depression, where, for some local economies, the
government had become the primary purchaser of construction
products and a significant employer.
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. Even today,
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.
2. 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). According to the sponsors, SB 975
was intended to remove ambiguity regarding the definition of
public subsidy of development projects.
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Senate Committee on Labor and Industrial Relations
3. Need for the bill
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."
According to the author, 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 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 ranging from 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) to 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).
According to the author, this bill would restore the original
intent of SB 975 that the 'de minimis' exception be limited to
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Senate Committee on Labor and Industrial Relations
situations in which the public subsidy is trivial such that it
should not have legal significance. AB 302 would provide that
a subsidy is de minimis if it is both less than $10,000 and
less than 1 percent of the total project cost.
4. Proponent Arguments :
According to proponents, Labor Code �1720(c)(3) provides that
a project does not become subject to the prevailing wage law
if it receives a public subsidy "that is de minimis in the
context of the project." Proponents cite the legal definition
of "de minimis" as: "trifling, minimal?so insignificant that a
court may overlook it." Proponents contend that DIR has
strayed from this legal definition of de minimis, and lacking
a definition in statute, has loosely interpreted the
definition to apply to subsidies ranging from thousands to
millions of dollars. Proponents argue that a public subsidy of
$10,000 is a large amount of taxpayer investment in a project
and arguably is not minimis, making it reasonable to require
payment if the developer wants a public subsidy over that
amount.
5. Opponent Arguments :
Opponents argue that current law on what constitutes "de
minimis," a subject extensively debated as part of the
discussion surrounding SB 975, should be maintained to ensure
there is a true and substantial public investment in the
project before other state mandates come into play.
Specifically, opponents note that when Labor Code �1720 was
amended in 2001 (SB 975) the de minimis exception was
discussed, and although never codified, was generally agreed
by the parties to be 2% of the project. Opponents contend that
subsequent DIR determinations have upheld this agreement by
requiring a substantial public subsidy to trigger California's
Public Works Law.
6. Prior Legislation :
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Senate Committee on Labor and Industrial Relations
SB 972 (Costa), Chapter 1048, Statutes of 2002, was intended
to clarify the application of SB 975 and provided exemptions
from prevailing wage requirements for the construction or
rehabilitation of privately-owned residential projects, as
specified.
SB 975 (Alarc�n), Chapter 938, Statutes of 2001, 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.
SUPPORT
State Building and Construction Trades Council of California
(sponsor)
California Legislative Conference of the Plumbing, Heating and
Piping Industry (CLC)
California State Pipes Trades Council
California State Association of Electrical Workers
National Electrical Contractors Association (NECA) - California
Chapter
Southern California Contractors Association
State Building and Construction Trades Council of California
Western States Council of Sheet Metal Workers
OPPOSITION
Air Conditioning Trade Association
Associated Builders and Contractors of California
Plumbing-heating-Cooling Contractors Association of California
Western Electrical Contractors Association
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Senate Committee on Labor and Industrial Relations