BILL ANALYSIS �
Senate Committee on Labor and Industrial Relations
Senator Ben Hueso, Chair
Date of Hearing: June 25, 2014 2013-2014 Regular
Session
Consultant: Alma Perez-Schwab Fiscal:Yes
Urgency: No
Bill No: AB 2272
Author: Gray
As Introduced/Amended: February 21, 2014
SUBJECT
Public works: prevailing wage
KEY ISSUE
Should projects funded with grants from the California Advanced
Services Fund (CASF), administered by the California Public
Utilities Commission, be considered "public works" projects
subject to the payment of the prevailing wage?
ANALYSIS
Existing law defines the term "public works" 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. Exempt from the definition of "public
works" is work done directly by any public utility company
pursuant to order of the Public Utilities Commission or other
public authority. [Labor Code �1720(a)(1)]
Under existing law , "paid for in whole or in part out of public
funds" means, among other things, the following:
1. 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. Performance of construction work in execution of a
project.
3. Fees, costs, rents, insurance or bond premiums, loans,
interest rates, or other obligations normally required in
the execution of the contract, that are paid, reduced,
charged at less than fair market value, waived, or forgiven
by the state/political subdivision.
4. Money loaned by the state/political subdivision that is
to be repaid on a contingent basis.
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 (the hourly wage rate being
paid to a majority of the workers in a particular craft within a
given locality) and the general prevailing rate for holiday and
overtime work for the specific location where the public work is
to be performed. (L.C. �1771) The Director of the Department of
Industrial Relations (DIR) is tasked with the responsibility of
determining the general prevailing rate of per diem wages in
accordance with specified standards. (L.C. �1773)
Existing law establishes the California Advanced Services Fund
(CASF), administered by the California Public Utilities
Commission (CPUC), to help fund deployment of broadband
infrastructure and bring high-speed Internet access to all areas
of the state and authorizes collection of a customer surcharge
on intrastate communications services of up to $315 million for
the CASF through 2015 with collections capped at no more than
$25 million per year. (Public Utilities Code �281)
This Bill would revise the definition of "public works" to also
include projects funded by the California Advanced Services Fund
(CASF), and therefore, subject to the payment of the prevailing
wage.
COMMENTS
1. A Brief History on State and Federal Prevailing Wage Law:
State prevailing wage laws vary from state to state, many of
which were enacted as part of Progressive Era reform efforts
to improve working conditions at the end of the 19th and
beginning of the 20th centuries. Between 1891 and 1923, seven
states adopted prevailing wage laws that required payment of
Hearing Date: June 25, 2014 AB 2272
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Senate Committee on Labor and Industrial Relations
specified hourly wages on government construction projects,
the State of Kansas being the first in 1891. 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. Background on the California Advanced Services Fund:
On December 20, 2007, the California Advanced Services Fund
(CASF) was created by the California Public Utilities
Commission (CPUC) to encourage the deployment of high-quality
advanced communications services to all Californians and
promote economic growth, job creation, and the substantial
social benefits of advanced information and communications
technologies. On September 27, 2008, Governor Schwarzenegger
signed SB 1193 (Padilla), which codified the CASF program
reaffirming the CPUC's creation of the fund. (Public Utilities
Code �281) Under existing law, the goal of the program is to,
no later than December 31, 2015; approve funding for
infrastructure projects that will provide broadband access to
no less than 98 percent of California households. Through a
grant process, the CASF provides funding to telephone
corporations (as defined under the Public Utilities Code) to
help bridge the "digital divide" in unserved and underserved
areas in the state.
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The CASF grants are funded through a ratepayer surcharge
collected by carriers from end-users for intrastate
telecommunications services. Eligible grant applicants include
telephone corporations regulated by the CPUC, as specified,
entities that received funds from the American Reinvestment
and Recovery Act of 2009 (ARRA) for broadband deployment, and
regional consortia, local governments or nonprofit or
for-profit entities meeting specified criteria. Funding is
allocated to four CASF accounts: 1) Broadband Infrastructure
Grant Account; 2) Rural and Regional Urban Consortia Account;
3) Broadband Infrastructure Loan Account; 4) Broadband Public
Housing Account.
Through the end of 2013, the CPUC had collected an estimated
total of $157.79 million from the CASF surcharges on revenues
collected by carriers. As of December 31, 2013, the cumulative
total CASF award funding is as follows:
Broadband Infrastructure Grant Account: CPUC
authorized $80.37 million for 41 projects that will
benefit up to 278,119 households when completed. Of these
households, 15,741 were previously unserved and 262,378
were underserved.
Regional Broadband Consortia Grant Account: CPUC
authorized $2.85 million for 14 consortia grantees.
Broadband Infrastructure Revolving Loan Account:
CPUC authorized $40,977 for 1 loan awardee and continues
to review a remaining $1.5 million in loan applications.
3. Recent DIR Determination: Central Valley Next Generation
Broadband Infrastructure Project
The Central Valley Next Generation Broadband Infrastructure
Project (CVNGBIP) is a 1,371 mile fiber-optic infrastructure
project through 18 counties that will reportedly serve a
population of 4 million people when completed. The project is
being built by the Central Valley Infrastructure Network
(CVIN) and its non-profit partner the Corporation for
Education Network Initiatives in California (CENIC). The goal
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of the project is to provide direct fiber connectivity to 63
anchor institutions, access by another 40 anchor sites, and
access to hundreds of thousands of other businesses and
residences. The $66.6 million project is funded through
federal, state and local funds, with about 10 percent
($6,659,967 million) of its total funding coming from the CASF
discussed above.
On November 22, 2013, DIR Director Christine Baker issued a
determination letter which found that the project, because it
is partially funded with state funds, is a public work subject
to California's prevailing wage requirements. In her
determination, the DIR director stated the following:
"In this case the funds in question are ordered collected
by the CPUC, a state public entity, and forwarded to the
State Treasurer. The State Treasurer in turn holds the
funds until directed to make payments to private entities
developing and constructing the new telecommunications
service ? If construction of a project is paid for in part
out of public funds and no exemption under section 1720(c)
applies, all the work in the project is a public work.
Here, the funds are public funds and no exemption applies
so the project is a public work in its entirety."
(Public Works Case No. 2013-015)
Interested parties may appeal to the Director of DIR within 30
days of issuance of the coverage determination. The notice of
appeal must state full factual and legal grounds for appealing
the determination, and whether a hearing is desired. The
decision to hold a hearing is within the director's sole
discretion. However, final determination on any appeal is
subject to judicial review pursuant to Code of Civil
Procedure.
4. Need for this bill?
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." The determination of whether a project is deemed to
constitute a "public work" is important because the Labor Code
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Senate Committee on Labor and Industrial Relations
requires (except for projects of $1,000 or less) that the
"prevailing wage" be paid to all workers employed on public
works projects. At question in the Central Valley Next
Generation Broadband Infrastructure Project was whether or not
the project is considered a "public work" and therefore
subject to the payment of the prevailing wage. Even though
only 10% of the project is funded from the California Advanced
Services Fund, it is enough to qualify under the Labor Code's
definition of "paid for in whole or in part out of public
funds." The author believes this bill is necessary to codify
the decision of the DIR director and clarify that any projects
funded "in whole or in part" by the California Advanced
Services Fund are considered "public works" and subject to the
prevailing wage.
5. Double Referral and Amendments :
This bill has been double referred and was previously heard by
the Senate Energy, Utilities and Communications Committee
which passed the bill with some technical amendments.
However, due to the timing of the two Committee hearings, the
bill passed with the amendments to be taken in our Committee.
The amendments before this Committee are clarifying in nature
and specify that the definition for "public works" would
include infrastructure project grants from the California
Advanced Services Fund. This amendment is necessary to clarify
that it applies to projects funded with grants from the
California Advanced Services Fund as opposed to "CASF
projects" because there is no project administered directly by
the CASF - it is simply the fund source for the project.
6. Proponent Arguments :
According to the author, the Central Valley Next Generation
Broadband Infrastructure Project (CVNGBIP) petitioned the
Department of Industrial Relations with the belief that
prevailing wage requirements do not apply to the project,
because state funds constitute only 10% of the project's total
budget. In November 2013, Director Christine Baker determined
that, because the CVNGBIP is partially funded by state monies,
the project is subject to California's prevailing wage
requirements. According to the author, this bill simply
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codifies Director Baker's determination in statute to avoid
confusion and legal questions in the future. The author and
proponents believe this will give clarity to contractors who
are bidding CASF funded-projects, and to Labor Standards
officers who are responsible for enforcing labor laws on the
project.
7. Opponent Arguments :
According to opponents, the CASF program is a key funding
source in bridging the technological gap in some of
California's most rural areas; unfortunately, they argue, the
increased costs for CASF projects that would be generated by
designating them as public works could render current projects
impracticable and threaten the viability of many future
projects. They argue that some providers would likely be
forced to forego CASF projects altogether, to the detriment of
rural consumers and communities.
Opponents argue that the DIR determination has been appealed
by the interested parties and codifying that decision would be
premature. Additionally, they argue that DIR's determinations
are made on a case by case basis and are not precedential; in
this particular case, they believe that DIR jumped to a
legally and factually incorrect conclusion. They argue that
Labor Code �1720(a)(1) specifically exempts "work done
directly by any public utility company pursuant to order of
the PUC" from the definition of "public works." They believe
that CVIN meets the definition of "Telephone Corporation"
under the Public Utilities Act and as such, they argue, the
CVIN/CENIC project clearly falls outside the definition of
"public works."
Additionally, they argue that CASF projects are not state
construction contracts awarded by the CPUC, but rather grant
recipients, and therefore, clearly fall outside the definition
of "public works." Overall, opponents argue that the
Legislature should not codify the DIR's erroneous
determination both in light of the pending legal arguments and
because this bill would undermine a critical state public
policy goal in promoting broadband deployment.
Hearing Date: June 25, 2014 AB 2272
Consultant: Alma Perez-Schwab Page 7
Senate Committee on Labor and Industrial Relations
SUPPORT
California Labor Federation, ALF-CIO
California State Council of Laborers
OPPOSITION
California Communications Association
California Independent Telecommunications Companies
Hearing Date: June 25, 2014 AB 2272
Consultant: Alma Perez-Schwab Page 8
Senate Committee on Labor and Industrial Relations