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RESOLUTION NO. 2014-230 OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA APPROVING THE PAYMENT OF PREVAILING WAGES ON CITY PUBLIC WORKS CONTRACTS AND OTHER MEASURES REQUIRED TO REMAIN ELIGIBLE FOR STATE FUNDING AND FINANCIAL ASSISTANCE FOR CITY CONSTRUCTION PROJECTS UNDER CALIFORNIA LABOR CODE SECTION 1782 (ALSO KNOWN AS SB 7) UNLESS AND UNTIL SB 7 IS ENJOINED OR INVALIDATED
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RECOMMENDED ACTION
Recommended Action
Council adopt the resolution.
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SUMMARY
Starting January 1, 2015, recently enacted state law requires Charter cities to pay prevailing wages on all (but very minor) local public works projects, regardless of whether or not state funding is involved, as a condition to receiving state funding for any such project. The legal validity of this law (SB 7) has been challenged, appropriately, as a violation of charter city "home rule" authority. Unfortunately, in August 2014 a local trial court upheld the state law. This holding has been appealed, but a final ruling (more than likely to come from the California Supreme Court), is not expected for some time.
Until now, the City's longstanding policy has been to bid and award public works contracts with prevailing wages required only where federal or state funding sources imposed such a requirement. Pending a final ruling on the legal validity of SB 7, in order to avoid the loss of state funding for local public works, staff is now recommending that the City Council change this policy, at least temporarily, in order to comply with SB 7.
Staff will monitor and keep the Council apprised of the progress of the SB 7 litigation, the additional costs incurred as result of this change in policy, and other factors relating to the amount and availability of state funding for City projects. If another change in prevailing wage policy becomes appropriate, staff will come back to Council and present such change for Council consideration.
ENVIRONMENTAL REVIEW
The City Attorney's office has reviewed the proposed activity for compliance with the California Environmental Quality Act (CEQA) and has determined that the activity is not a "Project" as defined under Section 15378 of the State CEQA Guidelines because the activity consists of a governmental administrative/fiscal activity which does not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment. Therefore, pursuant to Section 15060(c)(3) of the State CEQA Guidelines the activity is not subject to CEQA. Thus, no environmental review is required.
BOARD/COMMISSION RECOMMENDATION
Not Applicable
DISCUSSION
In 2012, in the case of State Building and Construction Trades Council of California v. City of Vista, (2012) 54 Cal 4th 547 (the "Vista case"), the California Supreme Court ruled that the state could not directly impose prevailing wage requirements on charter cities. The ruling confirmed a long-held belief among charter cities that the manner and terms upon which they entered into local contracts was a core "municipal affair" within each charter city's constitutional "home rule" prerogative, thereby placing such matters beyond the lawful reach of the state legislature.
In response to the 2012 Supreme Court ruling, state legislators enacted an amendment to the California Labor Code commonly known as SB7. SB7 purports to circumvent the Supreme Court ruling in favor of charter city authority through an alternative approach to imposing state prevailing wage requirements on charter cities. Starting January 1, 2015, SB7 requires Charter cities to pay prevailing wages on all (but very minor) local public works projects, regardless of whether or not state funding is involved, as a condition to receiving state funding for any such project. Any entity that fails to pay prevailing wages in this manner is immediately disqualified from receiving state funding or assistance for any of its local public works for a period of two years.
Believing that SB7 amounted to an unlawful intrusion on charter city home rule authority, albeit in a new and novel way, a number of charter cities banded together and decided to challenge the legal validity of SB7. Other charter cities, including Chula Vista, provided funding for the case. The issue was not whether or not the payment of paying prevailing wages was good or bad idea; rather, the issue was that for local projects, each charter should have the right to decide whether or not to pay prevailing wages for itself. Because the principles of "home rule" were at stake, the League of California Cities also got substantially involved, providing half the funding for the litigation, substantial in-kind support and an amicus brief. On the other side of the issue the state's position was represented primarily by the California Attorney General's office. The State Building and Construction Trades Council of California also got involved by formally intervening in the case and by filing an amicus brief in support of SB7.
The case was extensively briefed on both sides, and oral arguments were presented. Unfortunately, while we continue to believe that the cities' position regarding "home rule" is legally superior, the trial court ruled in favor of the state. The court held that the expressed intent of SB 7 (to create and maintain a skilled construction work force) was a matter of "statewide concern." The court also noted that imposing state policy objectives through "financial incentives" is only unconstitutional when the "incentive" is equivalent to a "gun to the head" compulsion. The court determined that SB 7 did not amount to this level of pressure, and that attaching conditions on a relatively "small amount" of state funding was not coercive as a matter of law. The court concluded, "if Petitioners desire to benefit from the receipt of state funds, their local concerns must yield to Respondent's policy objectives."
The charter city plaintiffs in this case have since voted unanimously to appeal the trial court ruling. They did so because of their continuing belief in the righteousness of their position and the likely material adverse financial impacts posed by SB7 if it were to remain in place, leaving cities to choose between losing state funding or paying higher costs on many of their public works projects. The appeal has been filed and is pending, but is unlikely to be resolved before January 1st, 2015.
Pending a final determination on the validity of this law, or an injunction suspending its enforcement, City staff is recommending that the City adopt a Resolution changing current City policy regarding the payment of prevailing wages on public works in order to comply with SB7. Council's adoption of the Resolution would cause the following to occur:
1. Beginning January 1, 2015, City "public works" (as defined by SB7), would be bid out and paid as "prevailing wage" jobs.
2. Public works projects exempted from SB7's requirements would continue to be bid as "non-prevailing wage." Exempted projects include "construction project" contracts of less than $25,000, and "alteration, demolition, repair, or maintenance work" contracts of less than $15,000.
3. Where SB7's rules and applications are ambiguous, City staff would develop and implement administrative policies designed to achieve SB7 compliance. Staff would consult with state representatives to resolve ambiguities as necessary and appropriate.
4. Staff will track any additional purchasing process costs or direct project costs resulting from SB7 prevailing wage compliance and periodically report this information to Council.
5. The kinds and amounts of state funding and financial assistance available will also be carefully tracked and reported.
6. Staff will also track and report to Council on the progress of the SB7 litigation. To the extent SB7 is invalidated or enjoined, unless otherwise directed, staff will return to the City's pre-SB7 prevailing wage policies.
7. If the City's experience with paying prevailing wages, or any other factors, suggest the value of any other change in City public works policies, staff will come back to Council and present such change for Council consideration.
If the City Council proceeds to approve this Resolution, a final, clerk certified copy thereof will be delivered to the State Department of Industrial Relations. This is the state entity assigned to oversee SB7 implementation and compliance. Under SB7 this Resolution should have the effect of maintaining the City's eligibility for state funding and financial assistance for local public works.
DECISION-MAKER CONFLICT
Staff has reviewed the decision contemplated by this action and has determined that it is not site specific; consequently, the 500-foot rule found in California Code of Regulations section 18704.2(a)(1), is not applicable to this decision. Staff is not independently aware, and has not been informed by any City Council member, of any other fact that may constitute a basis for a decision maker conflict of interest in this matter.
LINK TO STRATEGIC GOALS
The City's Strategic Plan has five major goals: Operational Excellence, Economic Vitality, Healthy Community, Strong and Secure Neighborhoods and a Connected Community. This item helps achieve Operational Excellence and Economic Vitality by complying with state law and maintaining eligibility for state funding of City construction projects.
CURRENT YEAR FISCAL IMPACT
Council approval of this item is expected to increase the cost of public works projects scheduled for this fiscal year; however, the amount of such increase is hard to estimate. Starting January 1, 2015, and for the remainder of the fiscal year, this item will increase the number of City public works contracts that require the payment of prevailing wages. The addition of a prevailing wage requirement to a contract usually increases its cost, with the amount of the increase, if any, determined by the type of project involved and the related labor market. Projects that require a lot of labor (versus materials) tend to see the greatest cost increase, especially where "market rates" for the labor trades involved are well below the equivalent "prevailing wage." An example of a contract of this type would be a major concrete or landscape installation. Projects that require less labor, and/or where the labor trades involved already command a "market rate" equal to or greater than the "prevailing wage" will be less affected. An example of a contract of this type would be an asphalt paving contract. Looking at these factors, depending upon the type of contract involved, under current market conditions, the addition of a prevailing wage requirement where not otherwise required could increase a public works contract cost anywhere from 5% to 25%.
ONGOING FISCAL IMPACT
If the proposed policy change is continued into the next fiscal year, the types of cost increases described in the previous paragraph would continue. Likely cost increases would be better understood by the time the next year's budget is prepared. Staff will account for and present these projected increases to the City Council at that time.
ATTACHMENTS
None
Staff Contact:
Glen Googins, City Attorney
Rick Hopkins, Director of Public Works