BILL ANALYSIS ------------------------------------------------------------ |SENATE RULES COMMITTEE | AB 1829| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 445-6614 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ THIRD READING Bill No: AB 1829 Author: Liu (D), et al Amended: 8/9/04 in Senate Vote: 21 SENATE GOVERNMENTAL ORG. COMMITTEE : 7-4, 6/22/04 AYES: Vincent, Cedillo, Chesbro, Dunn, Karnette, Murray, Soto NOES: Battin, Brulte, Margett, Morrow NO VOTE RECORDED: Johnson, Machado SENATE APPROPRIATIONS COMMITTEE : 7-5, 8/12/04 AYES: Bowen, Burton, Escutia, Karnette, Machado, Murray, Speier NOES: Battin, Aanestad, Ashburn, Johnson, Poochigian NO VOTE RECORDED: Alpert ASSEMBLY FLOOR : 46-32, 5/27/04 - See last page for vote SUBJECT : Public contracts: services: domestic workers SOURCE : California Labor Federation, AFL-CIO American Federation of State, County and Municipal Employees Communication Workers of America Service Employees International Union DIGEST : This bill prohibits state and local governments from expending state funds for: (1) employee training in foreign countries, (2) contracts for services with a CONTINUED AB 1829 Page 2 contractor or subcontractor that uses workers outside the United States, as specified. The bill authorizes a state agency to waive this prohibition, with the consent of the State Controller, under certain circumstances, such as when the contract is necessary to respond to an emergency, as defined. ANALYSIS : Existing law: 1.Generally requires a state agency to comply with specified procedures in awarding agency contracts. 2.Authorizes a state agency to prohibit a person that is convicted of committing specified crimes from bidding on or being awarded agency contracts, as specified. This bill: 1.Contains findings and declarations that the United States has lost nearly three million jobs over the past three years, with at least 15 percent outsourced to foreign countries, with contractors and subcontractors using taxpayer dollars to create jobs in foreign countries. Also, that these funds should be used to create jobs in California and the United States. 2.Prohibits state agencies and local governments from expending state funds on service contracts unless the contractor or subcontractor certifies under penalty of perjury in their bid that any work done under the contract will be performed solely by workers within the United States. 3.Requires a services contract to be terminated for noncompliance in the event that a contractor or subcontractor shifts work overseas during the life of the contract, and further requires that contractor or subcontractor to forfeit contract payments equal to the amount paid for the percentage of the offshored work. 4.Prohibits the allocation or expenditure of state funds for training employees located in foreign countries. 5.Provides definitions for the terms "local government" and AB 1829 Page 3 "state agency." 6.Provides a described waiver procedure from the requirements of this bill where the contract is necessary to respond to an emergency for all of the following reasons: A. The provision of essential services would be adversely affected. B. The public health, welfare or safety is endangered. C. No other contractor or subcontractor performing work in the United States is immediately available. 7. Provides a described waiver procedure from the requirements of this bill where the contract is necessary to perform a unique service for both of the following reasons: A. The particular service is deemed mandatory for the purposes of the purchasing agency or local government. B. No comparable domestically produced service can adequately duplicate the unique features of the service. 8. This bill also specifies that these provisions do not apply to a contract, if refusing to award that contract violates the specific terms of federal trade treaties, as specified. 9. Provides that this act will not apply to seismic retrofit work for state highway projects, as specified, that is performed pursuant to a contract that is entered into on or before January 1, 2006. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: Yes According to the Senate Appropriations Committee: Fiscal Impact (in thousands) AB 1829 Page 4 Major Provisions 2004-05 2005-06 2006-07 Fund Services Unknown, potentially $5,000+ annuallyGeneral Admin. costs Unknown, probably not significant General State Controller Unknown, potentially $360 annually General depending on number of waivers SUPPORT : (Verified 8/12/04) California Labor Federation, AFL-CIO (co-source) American Federation of State, County and Municipal Employees (co-source) Communication Workers of America (co-source) Service Employees International Union (co-source) Amalgamated Transit Union American Federation of Television and Radio Artists California Conference of Machinists California Independent Public Employees Legislative Council California School Employees Association California State Employees Association California Teamsters Public Affairs Council Consumer Federation of California Consumer Federation of California CWA local 9423 (San Jose, Monterey & Santa Cruz) CWA Local 9575 (Camarillo) Engineers and Scientists of California Graphic Communications Union, Local 583 Hotel Employees and Restaurant Employees International Union Industrial, Technical and Professional Employees Union ITPEU, AFL-CIO Insurance Commissioner, John Garamendi International Association of Bridge, Structural, Ornamental, and Reinforcing Iron Workers Local Union 155 Motion Picture Costumers, Local 705 Professional and Technical Engineers Local 21 Region 8 State Council of the United Food and Commercial Workers San Mateo County Central Labor Council SEIU Local 660 AB 1829 Page 5 Sheet Metal Workers, Local 273 Southern California Pipe Trades District Council 16 Sprinkler Fitters and Apprentices, Local 483 State Superintendent of Public Instruction, Jack O'Connell Sweatshop Watch Teamsters Local 481 United Teachers of Los Angeles OPPOSITION : (Verified 8/12/04) American Council of Life Insurers American Electronics Association Association of California Insurance Companies Association of California Insurance Companies California Association of Health Plans California Association of Physician Groups California Bankers Association California Chamber of Commerce California Financial Services Association California Land Title Association California Manufacturers and Technology Association California Mortgage Bankers Association Department of Finance Information Technology Association of America (ITAA) Investment Company Institute Oracle Corporation Personal Insurance Federation of California Securities Industry Association Silicon Valley Manufacturers Group United States Chamber of Commerce Verizon ARGUMENTS IN SUPPORT : Supporters note that jobs are leaving the United States at an increasing rate: nearly 400,000 jobs have already moved overseas, including an estimated 10 percent of all computer services and software jobs by 2005. Within five years, the top 100 financial services firms expect to outsource nearly two million jobs to other countries. One recent study estimates that over 14 million service sector jobs are at risk of being outsourced. Further, supporters state that the nation has lost between 2.4 million and three million jobs since 2001 - the longest AB 1829 Page 6 sustained period of job loss since the Great Depression. An estimated 15 percent (375,000 to 450,000) of those jobs have reappeared overseas. In general, supporters argue that a ban on offshoring of public service contracts would be beneficial for a number of reasons: the creation of jobs, reduction of social services spending, and expansion of the tax base; retention of jobs that Californians have already invested time and money in training of; assistance to California-based small and medium size companies who compete against larger companies with the ability to offshore; preservation of accountability for performance; and better protection of private and personal information. Supporters also contend that similar local/national preference laws have withstood constitutional scrutiny, and that approximately 30 other states are considering similar legislation. Finally, supporters agree with the following statement by the author: "one thing is abundantly clear: states and local governments should not use tax dollars to support the offshoring of service and technology when so many Americans are out of work. The first, most sensible step is for California to say 'not with our money,' and prohibit companies from filling California State and local contract services with overseas workers." ARGUMENTS IN OPPOSITION : Opponents point out that the vast majority of jobs are not vulnerable to outsourcing, as nearly 90 percent of U.S. jobs require geographic proximity. Opponents also point to conflicting data that indicates that the threat of offshoring is not as severe as supporters contend. One study predicts that 3.3 million white-collar jobs will move overseas by 2015, representing a shift of only 0.2 percent of all U.S. jobs per year. Another opponent argues that job gains are expected to compensate for those lost to outsourcing, with a nationwide net gain of 22 million jobs by 2010. Similarly, a study recently commissioned by the AB 1829 Page 7 Information Technology Association of America (ITAA) predicts that in 2008, outsourcing will create 317,000 jobs, including 34,000 in California. Opponents also cite reported overall economic gains from outsourcing, with the U.S. gaining about $1.13 for every $1.00 spent on outsourcing to India. Opponents also argue that a larger threat to jobs is the cost of doing business in California, which they estimate to be 30 percent higher than in neighboring states. Furthermore, opponents contend that relatively few jobs are actually vulnerable to outsourcing, and that the high costs of doing business in California are a greater threat to jobs than other factors. The California Chamber of Commerce states, "our opposition is predicated on the belief that such protectionist legislation is unconstitutional and could result in retaliation by our foreign trading partners, and the best way to address job loss in California is to create an environment conducive to job growth and retention. By passing legislation that obstructs government agencies from securing the contract with the lowest costs, the financial situation of the state will become even more severe." Finally, opponents argue that a ban on offshoring public contracts would: be unconstitutional; violate international trade agreements; incite retaliatory trade restrictions by other nations; retard the natural evolution of economic development and specialization of production; and increase public contracting costs while reducing the competitiveness and quality of services the public receives. ASSEMBLY FLOOR : AYES: Berg, Bermudez, Calderon, Canciamilla, Chan, Chavez, Chu, Corbett, Correa, Diaz, Dutra, Dymally, Firebaugh, Frommer, Goldberg, Hancock, Jerome Horton, Jackson, Kehoe, Koretz, Laird, Leno, Levine, Lieber, Liu, Longville, Lowenthal, Matthews, Montanez, Mullin, Nakano, Negrete McLeod, Oropeza, Parra, Pavley, Reyes, Ridley-Thomas, Salinas, Simitian, Steinberg, Vargas, Wesson, Wiggins, Wolk, Yee, Nunez AB 1829 Page 8 NOES: Aghazarian, Bates, Benoit, Bogh, Campbell, Cogdill, Cox, Daucher, Dutton, Garcia, Harman, Haynes, Shirley Horton, Houston, Keene, La Malfa, La Suer, Leslie, Maddox, Maldonado, Maze, McCarthy, Mountjoy, Nakanishi, Pacheco, Plescia, Richman, Runner, Samuelian, Spitzer, Strickland, Wyland NO VOTE RECORDED: Cohn, Nation TSM:nl 8/17/04 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END ****