Hayes & Cunningham, LLP

DENNIS J. HAYES JAMES J. CUNNINGHAM LAUREN M. ARENS DONNA M. BUTLER RICARDO OCHOA MICHELLE C. HRIBAR RAQUEL A. ORTEGA CHRISTINE L. CUNNINGHAM CHRISTOPHER H. CONTI LOGAN C. MARCUS ATTORNEYS AT LAW 3258 FOURTH AVENUE SAN DIEGO, CALIFORNIA 92103 ---------------------------------------RIVERSIDE OFFICE: 6215 RIVER CREST DRIVE, SUITE A RIVERSIDE, CALIFORNIA 92507 TELEPHONE: (619) 297-6900 TOLL FREE: (888) 695-6902 FACSIMILE: (619) 297-6901 WEBSITE: http://www.sdlaborlaw.com ADMINISTRATOR: VIRGINIA WOOD

May 16, 2012

Mayor Jerry Sanders City of San Diego 202 C Street, 11th Floor San Diego, California, 92101 Councilmember Sherri Lightner City of San Diego 202 C Street, MS #10A San Diego, California, 92101 Councilmember Todd Gloria City of San Diego 202 C Street, MS #10A San Diego, California, 92101 Councilmember Lorie Zapf City of San Diego 202 C Street, MS #10A San Diego, California, 92101 Councilmember David Alvarez City of San Diego 202 C Street, MS #10A San Diego, California, 92101

Council President Tony Young City of San Diego 202 C Street, MS #10A San Diego, California, 92101 Councilmember Kevin Faulconer City of San Diego 202 C Street, MS #10A San Diego, California, 92101 Councilmember Carl DeMaio City of San Diego 202 C Street, MS #10A San Diego, California, 92101 Councilmember Marti Emerald City of San Diego 202 C Street, MS #10A San Diego, California, 92101

Re:

Additional Risk of Proposition A on City of San Diego Bonds

Dear Mayor and City Councilmembers: I have been asked by the San Diego Building and Construction Trades Council to analyze the risk associated with Proposition A on the City of San Diegos proposed bonds. If the City of San Diego adopts a limitation on considering PLAs for construction projects, the city will lose state funds. Proposition A thus poses additional risk for debt service on city bonds that rely on at-risk state funds.

Additional Risk of Proposition A on City of San Diego Bonds May 16, 2012 Page 2 of 3 ANALYSIS The June 5, 2012 election ballot for the City of San Diego will include a ballot measure (Proposition A) that, if adopted, would prevent the City (and boards and agencies within its control) from using Project Labor Agreements (PLAs) as a construction management tool. The prohibition would apply even if the City Council, board, or agency concluded that a PLA would further the Citys interest in the efficient and cost-effective completion of a particular project. By way of background, SB 922 was signed into law on November 2, 2011 and took effect on January 1, 2012. It provides in pertinent part that: If a charter provision, initiative, or ordinance of a charter city prohibits the governing boards consideration of a project labor agreement that includes all the taxpayer protection provisions of Section 2500 [of the Public Contract Code] for a project to be awarded to be awarded by the city, or prohibits the governing board from considering whether to allocate funds to a cityfunded project covered by such an agreement, then state funding or financial assistance shall not be used to support that project. This section shall not be applicable until January 1, 2015, for charter cities in which a charter provision, initiative, or ordinance in effect prior to November 1, 2011, would disqualify a project from receiving state funding or financial assistance [Public Contracts Code 2502 (emphasis supplied)].1 There is thus a serious risk of losing all state funding and financial assistance for City projects if the ballot measure is adopted. Depending on how broadly state funding and financial assistance is interpreted, the City could stand to lose a very significant amount of money over the next several years. A narrow exception in Proposition A on the PLA ban applies only when a PLA is required as a condition of receipt of state funds. However as a practical matter, the state never mandates PLAs, nor does it require a PLA as a condition of receipt of state funds. If there was any doubt about the impact of SB 922, the recent passage of SB 829 makes it clear that no state funds shall be used to fund any construction project in a charter city that in any way limits the use of project labor agreements. The law added Section 2503 to the Public Contracts Code to read, in part: If a charter provision, initiative, or ordinance of a charter city prohibits, limits, or constrains in any way the governing board's authority or discretion to adopt, require, or utilize a project labor agreement that includes all the taxpayer protection provisions of Section 2500 for some or all of the construction projects to be awarded by the city, then state funding or financial assistance shall not be used to support any construction projects awarded by the city (emphasis supplied).2
1 2

For your convenience, a copy of SB 922 as adopted by the Legislature is attached to this letter. For your convenience, a copy of SB 829 as adopted by the Legislature is attached to this letter.

Additional Risk of Proposition A on City of San Diego Bonds May 16, 2012 Page 3 of 3 According to the Independent Budget Analyst, the state funds at risk include Proposition 42, Proposition 50 grants, State Revolving Loan funds, and CIP state grants. These funds amount to $36 million in FY2010 and $158 million in FY2011. State funds would be at-risk on July 5, 2012 under SB 922, and January 1, 2013 under SB 829. Recent preliminary official statements (POS) for bonds prepared by the City of San Diego that contain the following disclosure: (see page 26) A ballot initiative, Proposition A, on the June 5, 2012 primary ballot, would ban the use of so-called Project Labor Agreements (PLAs) on most City construction projects. Subsequent to Proposition As qualification for the ballot, the State Legislature passed, and the Governor signed, a law that would prohibit the use of State funds on local construction projects where the local agency, including a charter city, prohibits the use of PLAs. If approved, Proposition A could cause the City to lose State funding for City construction projects; however, the City cannot quantify the potential impact from Proposition A on the cost of City construction projects. This disclosure language in the POS makes reference to the local initiative on the June 5 primary ballot (Proposition A) that, if approved by the voters, would limit the use of PLAs. It then goes on to say that recent legislation passed at the State level prohibits the use state funds on local construction projects that enact local laws such as Proposition A. Additionally, the language states that, although the potential loss of state revenues for local construction projects is not currently quantifiable, Proposition A could indeed cause such loss. It should be noted that this disclosure was drafted after the passage of SB 922, but prior to the passage of SB 829, which broadens both the nature of PLA limitations, as well as the nature of state funds lost for charter cities. The net effect of this disclosure language is that investors are going to sense an additional level of risk related to city bonds than they would otherwise see, absent Proposition A. CONCLUSION Given the negative impact which Proposition A is likely to have on the Citys debt servicing of construction bonds, we urge you, as the fiscal stewards for our City, to make sure that the citizens of San Diego are fully informed about this potential impact to the City if Proposition A is adopted. Very truly yours,

Ricardo Ochoa Attorney at Law Enclosures: As indicated RO:smh