BILL ANALYSIS AB 1650 Page 1 Date of Hearing: May 5, 2010 ASSEMBLY COMMITTEE ON APPROPRIATIONS Felipe Fuentes, Chair AB 1650 (Feuer) - As Amended: April 27, 2010 Policy Committee: JudiciaryVote: 9-0 Business and Professions 11-0 Urgency: No State Mandated Local Program: No Reimbursable: SUMMARY This bill prohibits persons or firms with certain business activities with Iran from bidding on public contracts. Specifically, this bill: 1)Prohibits a person or firm engaged in investment activities in Iran's energy sector, as specified, to bid on, submit a proposal for, or enter into a contract with the state or with local public entities. 2)Requires the state and local public entities to require a person or business seeking a public contract who has had business activities or other operations outside the U.S. within the previous three years to certify that they are not engaged in such investment activities. 3)Makes a false certification subject to all of the following penalties: a) A civil penalty of the greater of $250,000 or twice the amount of the contract for which the false certification was made. b) Termination of the contract at the awarding public entity's discretion. c) Ineligibility to bid on a contract for three years. 4)Requires the awarding body to report a false certification to the Attorney General (AG) and requires the AG to determine AB 1650 Page 2 whether to bring a civil action. Also authorizes a local public entity to report a false certification to a local prosecutor, who may determine whether to bring a civil action. 5)Requires a public entity-if it determines that a person or firm either under contract or who has submitted a bid or proposal is engaged in investment activities in Iran's energy sector-to provide 90 days written notice of its intent not to enter into or renew a contract. The notice is to specify that, if the person or firm ceases involvement in Iran's energy sector, it may become eligible for a future contract. 6)Stipulates that all of the above are operative only upon enactment of authorizing federal legislation or January 1, 2011, whichever is later, and are inoperative when federal law ceases such authorization. FISCAL EFFECT 1)The state would experience cost increases in several ways: a) To the extent the new certification requirement leads to fewer bidders on state contracts, the reduced competition would likely result in increased costs on some contracts. (The Department of General Services (DGS) indicates that it has seen a drop in vendor participation since the implementation of AB 498 in 2008, which prohibits companies with business operations in Sudan from bidding on state contracts for goods and services.) Given the multi-billion dollar volume of annual state contracts, this impact would likely be at least in the millions of dollars. b) One-time costs of around $100,000 for DGS to develop the certification form. The estimate is based on DGS's experience in developing a certification form implementing AB 498. In addition, DGS indicates that 15 other state contracting entities developed their own certification forms for AB 498, thus these agencies may incur similar costs for this bill. c) The new certification requirement would create a new basis for bid protests, which will increase contract administration cost related to protest hearings, delays in awarding contracts, and re-bidding of contracts. AB 1650 Page 3 2)Local agencies will experience costs similar to those described above. These costs are not state reimbursable. COMMENTS 1)Background and Purpose . Pending federal legislation on Iran sanctions was introduced in response to concern over Iran's engagement in nuclear proliferation. There are four measures pending, two in the House and two in the Senate, that seek to strengthen existing federal sanctions and enable state and local governments to divest from companies engaging in business in Iran's energy sector. Most relevant to this bill are H.R. 2194 (Berman) and S. 2199 (Dodd), which would enact the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2009. Each measure expressly states it is U.S. policy to support the decision of state and local governments to prohibit the investment (which includes contracting for goods or services) of assets that they control in any person or company with substantial investments in Iran's energy sector. Specifically, the federal legislation authorizes a state or local government to divest assets from, or prohibit the investment in, any person or entity that (1) invests $20 million or more in Iran's energy sector, including in a firm that provides oil or liquified natural gas tankers, or products used to construct or maintain pipelines used to transport oil or liquified natural gas, for the energy sector in Iran, or (2) is a financial institutions which extends $20 million or more in credit to another person, for 45 days or more, if that person will use the credit to invest in Iran's energy sector. Finally, the proposed federal legislation specifies that the Act will cease 30 days after the president certifies to congress that the government of Iran has ceased (1) providing support for acts of international terrorism; and (2) the pursuit, acquisition, and development of nuclear, biological, and chemical weapons and ballistic missile technology. 2)Opposition includes the California Chamber of Commerce and several associations representing specific industries. Opponents argue that a scrutinized person should be subject to sanctions only for knowingly submitting a false certification, that the bill's provisions should only apply prospectively, AB 1650 Page 4 and that the bill is premature given that the federal legislation is still pending. 3)Prior Legislation . AB 961 (Krekorian) of 2009, which prohibited companies that were engaged in business with perpetrators of specified genocides and that still held looted or deposited assets of genocide victims or their heirs from entering into state contracts, was held on this committee's Suspense File. AB 498 (Hernandez)/Chapter 272 of 2008, prohibited companies with business operations in Sudan from bidding on state contracts for goods and services. AB 221 (Anderson)/Chapter 671 of 2007, prohibited CalPERS and CalSTRS from investing public employee retirement funds in a company with active business operations in Iran's defense or nuclear sectors, petroleum or natural gas resource development, or with companies that engage in business with an Iranian organization labeled as a terrorist group by the U.S. government. Analysis Prepared by : Chuck Nicol / APPR. / (916) 319-2081