BILL ANALYSIS                                                                                                                                                                                                    Ó




                     SENATE GOVERNANCE & FINANCE COMMITTEE
                            Senator Lois Wolk, Chair
          

          BILL NO:  AB 438                      HEARING:  7/6/11
          AUTHOR:  Williams                     FISCAL:  No
          VERSION:  6/27/11                     TAX LEVY:  No
          CONSULTANT:  Weinberger               

                                COUNTY LIBRARIES
          

          Imposes requirements on a city or library district that 
          intends to withdraw from a county free library system and 
          operate libraries with a private contractor.  


                           Background and Existing Law  

          Exactly one century ago, the Legislature authorized 
          counties to establish county free library systems (SB 289, 
          Hans, 1911).  Before Proposition 13 (1978), a county could 
          levy a separate property tax rate to support its library 
          system.  Nearly 30 county free libraries had separate 
          rates.  A county could extend the property tax rate to 
          parcels in a city that wanted to join the library system 
          and would cease to levy the rate within a city that 
          withdrew from the system.

          After Proposition 13, the Legislature divided the remaining 
          property tax revenues among local governments.  Although 
          they were not separate institutions, state law treated 
          county free libraries as if they were special districts 
          because they had their own property tax rates before 
          Proposition 13.  The county free libraries received shares 
          of the property tax revenues and they could receive money 
          from the Special District Augmentation Fund (AB 8, L. 
          Greene, 1979).  In general, to withdraw from a county 
          library system, a city must negotiate the amount of 
          property tax revenues, if any, that it will receive from 
          the county library system.  Different procedures apply to 
          city withdrawals from county free library systems in Los 
          Angeles and Riverside counties (AB 1998, Mountjoy, 1996 and 
          AB 927, Thompson, 1997).

          Instead of participating in a county free library system, a 
          city can provide library services to its residents in 
          several other ways:  by operating its own libraries, 




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          through a library district, or by contracting with another 
          public agency or private firm.  For charter cities, 
          contracting arrangements with private firms can be governed 
          by their charters.  General law cities must follow the 
          standards and procedures in the state statutes.  While 
          general law cities' specific statutory authority to 
          contract for services is limited, court opinions have 
          recognized general law cities' authority to enter into 
          contracts to carry out necessary functions, including those 
          expressly granted and those implied by necessity.  

          State law requires state departments that contract for 
          personal services to follow specific criteria: a clear 
          demonstration of cost savings, a clear definition of costs, 
          ensuring that work will not be contracted out solely on the 
          basis of lower pay or benefits, and justification of 
          savings based on the contract's size and duration.  State 
          law requires school and community college districts to 
          comply with the same standards that apply to state 
          departments (AB 1419, Alarcón, 2002).

          Riverside County and the Cities of Camarillo (Ventura 
          County), Moorpark (Ventura County), Redding (Shasta 
          County), and Santa Clarita (Los Angeles County) contract 
          with a private corporation, Library Systems and Services, 
          Inc. (LSSI), for library services.  In response to some 
          cities' recent efforts to contract with LSSI, some library 
          advocates and labor unions want the conditions that apply 
          to state, school district, and community college district 
          service contracts to apply to any city that intends to 
          withdraw from a county free library system and contract 
          with a private firm for library services.


                                   Proposed Law  

          If the legislative body of a city or the board of trustees 
          of a library district intends to withdraw from the county 
          free library system and operate the city or district's 
          library with a private contractor that will employ library 
          staff to achieve cost savings, Assembly Bill 438 imposes 
          requirements relating to:
                 Public notice
                 Demonstrated cost savings
                 Wages and benefits
                 Employee displacement





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                 Cost fluctuations
                 Contract scope and duration
                 Competitive bidding
                 Staff qualifications and hiring
                 Economic risk
                 Eligible contractors
                 Contract termination
                 Public interest
                 Contractor disclosure and performance measurement

          AB 438 specifies that its requirements do not apply if the 
          city or district library or libraries are funded only by 
          the proceeds of a special tax imposed by the city or 
          district, pursuant to state law.

          I.   Public notice  .  AB 438 requires the legislative body of 
          the city or the board of trustees of the library district 
          to publish a notice of the contemplated action, giving the 
          date and place of the meeting at which the contemplated 
          action is proposed to be taken.  The notice must be 
          published at least once a week for four consecutive weeks 
          before the city or library district acts.
          II.   Demonstrated cost savings  .  AB 438 requires the 
          legislative body of a city or the board of trustees of a 
          library district to clearly demonstrate that the contract 
          will result in actual overall cost savings to the city or 
          library district, provided that, in comparing costs, all of 
          the following occur:
                 The city or library district's additional cost of 
               providing the same services as proposed by the 
               contract must be included.  These additional costs 
               include the salaries and benefits of additional staff 
               that would be needed and the cost of additional space, 
               equipment, and materials needed to perform the 
               necessary functions of the library.
                 The city or library district's indirect overhead 
               costs must not be included unless those costs can be 
               attributed solely to the function in question and 
               would not exist if that function was not performed by 
               the city or library district.  "Indirect overhead 
               costs" means the pro rata share of existing 
               administrative salaries and benefits, rent, equipment 
               costs, utilities, and materials.
                 The cost of a contractor providing a service for 
               any continuing city or library district costs that 
               would be directly associated with the contracted 





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               function must be included.  Continuing city or library 
               district costs include costs for inspection, 
               supervision, and monitoring.

          III.   Wages and benefits  .  AB 438 prohibits city or library 
          district officials from approving a contract solely on the 
          basis that savings will result from lower contractor pay 
          rates or benefits.  Contracts are eligible for approval if 
          the contractor's wages are at the industry's level and do 
          not undercut city or library district pay rates.

          IV.   Employee displacement  .  AB 438 prohibits a contract 
          from causing the displacement of city or library district 
          employees.  Displacement includes layoff, demotion, 
          involuntary transfer to a new classification, involuntary 
          transfer to a new location requiring a change of residence, 
          and time base reductions.  Displacement does not include 
          changes in shifts or days off, nor does it include 
          reassignment to other positions within the same 
          classification and general location or employment with the 
          contractor, so long as wages and benefits are comparable to 
          those paid by the city or library district.

          V.    Cost fluctuations  .  AB 438 requires that a contract's 
          overall cost savings must be large enough to ensure that 
          the savings will not be eliminated by cost fluctuations 
          that could normally be expected during the contracting 
          period.

          VI.   Contract scope and duration  .  AB 438 requires that the 
          overall cost savings of a contract must clearly justify the 
          scope and duration of the contract.

          VII.   Competitive bidding  .  AB 438 requires that a contract 
          must be awarded through a publicized, competitive bidding 
          process.

          VIII.   Staff qualifications and hiring  .  AB 438 requires a 
          contract to include specific provisions pertaining to the 
          qualifications of the staff that will perform the work 
          under the contract, as well as assurances that the 
          contractor's hiring practices meet applicable 
          nondiscrimination standards.

          IX.   Economic risk  .  AB 438 requires that the potential for 
          future economic risk to the city or library district from 





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          potential contractor rate increases must be minimal.

          X.   Eligible contractors  .  AB 438 requires a contract to be 
          with a "firm," which means a corporation, limited liability 
          company, partnership, nonprofit organization, or sole 
          proprietorship.

          XI.   Contract termination  .  AB 438 requires a contract to 
          provide that it may be terminated at any time by the city 
          or library district without penalty if the contractor fails 
          to perform and notice is provided within 30 days of 
          termination.

          XII.   Public interest  .  AB 438 prohibits the potential 
          economic advantage of the contract from being outweighed by 
          the public's interest in having a particular function 
          performed directly by the city or library district.

          XIII.   Contractor disclosure and performance measurement  .  
          If the contract is for library services in excess of 
          $100,000 annually, AB 438 requires:
                 A city or library district must require a 
               contractor to disclose the following information as 
               part of its bid, application, or answer to a request 
               for proposal:
               o      A description of all charges, claims, or 
                 complaints filed against the contractor with any 
                 federal, state, or local administrative agency 
                 during the prior 10 years.
               o      A description of all civil complaints filed 
                 against the contractor in any state or federal court 
                 during the prior 10 years.
               o      A description of all state or federal criminal 
                 complaints or indictments filed against the 
                 contractor, or any of its officers, directors, or 
                 managers, at any time.
               o      A description of any debarments of the 
                 contractor by any public agency or licensing body at 
                 any time.
                 The city or library district must include in the 
               contract specific, measurable performance standards 
               and provisions for a performance audit by the city or 
               library district, or an independent auditor approved 
               by the city or library district, to determine whether 
               the performance standards are being met and whether 
               the contractor is in compliance with applicable laws 





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               and regulations.  The bill prohibits a city or library 
               district from renewing or extending the contract 
               before receiving and considering the audit report.
                 The contract must include provisions for an audit 
               by the city or library district, or an independent 
               auditor approved by the city or library district, to 
               determine whether and to what extent the anticipated 
               cost savings have been realized.  The bill prohibits a 
               city or library district from renewing or extending 
               the contract prior to receiving and considering the 
               audit report.

          Assembly Bill 438 declares that it does not preclude a 
          city, library district, or local government from adopting 
          more restrictive rules regarding the contracting of public 
          services.


                               State Revenue Impact
           
          No estimate.


                                     Comments  

          1.   Purpose of the bill  .  Public libraries are vital to 
          California's communities.  Libraries provide access to 
          books and information, offer Internet access, literacy 
          programs, educational opportunities, job search assistance, 
          and other services.  A city can withdraw from a county free 
          library and contract out library services to a private firm 
          with minimal public notice, little opportunity for public 
          input, and few safeguards to ensure that a contract makes 
          fiscal sense.  In light of public libraries' essential 
          role, public officials should privatize library services 
          only if their decision is subject to thorough public 
          scrutiny and can be clearly justified as being in the 
          public's best interest.  Assembly Bill 438 ensures that 
          cities engage in appropriate research, planning, and 
          analysis of contracts before contracting out library 
          services.  It protects the public, taxpayers, and library 
          employees from the contracting out of library services 
          without proper evaluation and public review.  

          2.   Home rule  .  Deciding how to provide municipal services 
          to city residents is what city council members are elected 





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          to do.  AB 438 erodes local officials' ability to manage 
          local affairs, making it hard for them to preserve 
          essential public services during tough financial times.  
          Local elected officials are well-positioned to judge the 
          merits of a library service contract and can either 
          negotiate better terms or reject a contract altogether.  
          The Committee may wish to consider whether AB 438 sets a 
          precedent that will make it easier for legislators to 
          impose similar conditions on city contracts for other 
          services, further eroding local control.

          3.   Balancing act  .  AB 438 doesn't balance the public's 
          interest in carefully scrutinizing private library services 
          contracts with local officials' authority to make 
          contracting decisions that respond to their community's 
          needs.  Rather than dictating the terms that city officials 
          must include in library service contracts, the Committee 
          may wish to consider amending AB 438 to make the 
          contracting process for library services more deliberate, 
          more transparent, less subjective, and more accountable to 
          the public.  Specifically, the amendments could:
                  Public notice  .  Require a library service contract 
               to be approved, or renewed, only at an open and public 
               regular meeting of a city council.  Prohibit a city 
               council from acting on a library services contract 
               unless a hearing notice has been posted at each 
               library within the city at least four weeks in advance 
               of the hearing and mailed to all library-card holders 
               in the city.
                  Competitive bidding  .  To ensure that a contract is 
               efficient and is not awarded based on unsound, 
               subjective factors, require a city council to award a 
               library services contract through a competitive 
               bidding process.
                  Limited contract lengths  .  To ensure that local 
               elected officials remain ac-countable for deciding to 
               contract out library services, limit the term of a 
               library services contract to no more than two years. 
               To renew a contract, require a city council to comply 
               with the same notice and open meeting requirements 
               that applied to an initial hearing on awarding the 
               contract.

          4.   One of these things is not like the others  .  Unlike 
          school and community college districts, public libraries 
          receive minimal state funding.  While the state's 





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          significant role in funding education may justify imposing 
          conditions on schools and community college districts' 
          contracts for services, the state has no similar fiscal 
          interest in city libraries' service contracts.  Unlike 
          school and community college districts, a city library is 
          not required to continue operating.  With only limited 
          ability to contract out library services, city officials 
          presented with a choice between remaining as part of a 
          county library system and closing a city's library 
          altogether might choose to close the library.  In light of 
          these differences, the Committee may wish to consider 
          whether state law should impose nearly identical 
          requirements on schools' and city libraries' service 
          contracts.

          5.   Just say no  .  Nearly a decade after the 2001 Alarcón 
          bill imposed conditions on school and community college 
          districts' service contracts, apparently no district has 
          contracted with a private firm using the same requirements 
          that AB 438 applies to cities' library service contracts.  
          Although the Alarcón bill exempted renewals of existing 
          contracts, school and community college districts' 
          experience suggests that AB 438 probably is a de facto 
          prohibition against any city's contract with a private 
          firm.  If there's no practical distinction between the 
          Alarcón bill's contracting requirements and an outright 
          ban, the Committee may wish to consider amending AB 438 to 
          delete the bill's contracting requirements and simply 
          prohibit a city that participates in a county free library 
          from contracting with a private firm for library services.

          6.   Which cities does the bill affect  ?  The California 
          Constitution lets charter cities control their municipal 
          affairs.  The 120 charter cities must follow statewide laws 
          only for issues of statewide concern when the Legislature 
          has fully occupied the field.  The courts -- not the 
          Legislature -- interpret the Constitution and decide what's 
          a municipal affair and what's an issue of statewide 
          concern.  Because AB 438 does not challenge court opinions 
          that have found cities' mode and method of contracting for 
          services to be a municipal affair, the bill does not apply 
          to charter cities.  AB 438 also doesn't apply to general 
          law cities that run their own library systems, participate 
          in a county library system under a joint powers agreement, 
          or receive library services through a contract with a 
          county or public library district.  The Committee may wish 





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          to consider whether the bill's provisions should apply more 
          broadly, rather than focusing narrowly on general law 
          cities that are members of a county free library that 
          receives a share of property tax revenues.  To apply AB 438 
          to charter cities, the Committee may wish to con-sider 
          amending the bill to include persuasive legislative 
          findings to support the claim that that the manner in which 
          cities provide public library services is a matter of 
          statewide concern.

          7.   Not every contract  ?  One rule of legal interpretation 
          is that if a law mentions some things, by implication the 
          statute excludes other things (expressio unius est exclusio 
          alterius).  AB 438 imposes requirements on cities that 
          intend to withdraw from a county free library to contract 
          with a private firm that "will employ library staff to 
          achieve cost savings."  By specifically referencing cost 
          savings, does AB 438 allow a city to contract with a 
          private firm for library services for reasons other than 
          cost savings?  Would a contract that provides a different 
          set of library services for the same amount of money be 
          exempt from the bill's provisions?  To close this potential 
          loophole, the Committee may wish to amend AB 438 to clarify 
          that a city must comply with the bill's requirements 
          regardless of its reasons for entering into a library 
          services contract with a private firm.

          8.   Timing is everything  .  AB 438 doesn't apply to a city 
          that chooses to withdraw from a county free library system 
          to run its own library system or contract with another 
          public entity for library services.  A city could avoid the 
          bill's requirements by withdrawing from a county system to 
          run its own library for a short time before contracting 
          with a private firm for library services.  To close this 
          potential loophole, the Committee may wish to consider 
          amending AB 438 to require a city to comply with the bill's 
          provisions if it seeks to contract with a private firm at 
          any time within three years from the date on which it 
          withdraws from a county free library.

          9.   Profiteering prohibited  ?  Opponents of private 
          contracts for library services argue that such contracts 
          often lead to fee increases.  Making library services more 
          costly restricts the public's access to library resources, 
          undermining the purpose of a public library system.  Last 
          year, California voters approved Proposition 26, which 





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          amended the California Constitution to define any levy, 
          charge, or exaction imposed by a local government as a tax 
          unless it fits into one of seven exceptions.  One exception 
          lets local governments impose:
               A charge imposed for a specific government service or 
               product provided
               directly to the payor that is not provided to those 
               not charged, and which does
               not exceed the reasonable costs to the local 
               government of providing the
               service or product.
          The Committee may wish to consider whether Proposition 26's 
          constitutional requirements eliminate concerns about 
          private firms inflating library fees to generate profits.

          10.   Related legislation  .  SB 163 (Alarcón, 2003), which 
          died in the Senate Appropriations Committee, and SB 906 
          (Alarcón, 2003), which failed on the Assembly floor, would 
          have required all general law county and city contracts for 
          services to meet the same requirements that apply to school 
          district and community college district contracts for 
          services.  AB 3084 (Jerome Horton, 2004), which died in the 
          Senate Local Government Committee, would have applied the 
          same contracting requirements to a metropolitan water 
          district's contracts for services.


                                 Assembly Actions  

          Assembly Local Government Committee: 6-2
          Assembly Appropriations Committee:  11-5
          Assembly Floor Amendments:         49-26
          Assembly Local Government Committee: 6-3
          Assembly Floor:                    43-28


                         Support and Opposition  (6/30/11)

           Support  :  Central Coast Alliance United for a Sustainable 
          Economy (CAUSE) (co-sponsor); Ventura Reader's Book Group 
          (co-sponsor); AFSCME; American Library Association Student 
          Chapter at UCLA; Assistant Director, Public Services for 
          the County of Los Angeles Public Library; California Labor 
          Federation; California Teachers Association; Community 
          Coalition; Concerned Citizens Coalition of Stockton; 
          Democratic Alliance for Action, Santa Clarita; Democratic 
                                                                            




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          Party of the San Fernando Valley; Friends of Bell 
          Foundation; Friends of the Huntington Park Library; Friends 
          of the Hollydale Library; Friends of the Nevada County 
          Libraries; Los Angeles Alliance for a New Economy (LAANE); 
          Los Angeles County Democratic Party; Los Angeles Youth 
          Council Chapter The Multi-Taskers; Michele Diaz, City of 
          Artesia Councilmember; Montebello Friends of the Library; 
          Laborers' Int'l Union of North America Local 777 & 792; 
          Santa Clara Valley Democratic Club; Santa Clarita 
          Organization for Planning and the Environment (SCOPE); 
          Santa Clarita Valley Fair Election Committee; Service 
          Employees International Union; Shane Brinton, City of 
          Arcata Councilmember; Steven Choi, City of Irvine 
          Councilmember; several individuals.

           Opposition  :  Association of California Cities, Orange 
          County; California Contract Cities Association; California 
          Chamber of Commerce; Cities of Arcata; Artesia; Bellflower; 
           Beverly Hills; Brea; Burlingame; Camarillo; Carlsbad; 
          Cerritos; Chino Hills; Cloverdale; Costa Mesa; Culver City; 
          Danville; Diamond Bar; Fountain Valley; Galt;  Glendora; 
          Goleta; Fillmore; Healdsburg; Highland; Holtville; Huron; 
          Imperial Beach; Inglewood; Irvine; La Verne; Lake Elsinore; 
          Lakewood; Lathrop; Lemoore; Livermore; Livingston; Lodi; 
          Lynwood; Manteca; Merced; Montclair; Moreno Valley; 
          Moorpark; Mt. Shasta; Murrieta; Norwalk; Palmdale; 
          Paradise; Placentia; Rancho Cordova; Redding; Riverside; 
          Rosemead; San Clemente; San Leandro; San Mateo; San Pablo; 
          San Ramon; Santa Clarita; Santa Maria; Santa Rosa; Selma; 
          Signal Hill; Simi Valley; South El Monte; Sunnyvale; 
          Torrance; Tracy; Tulare; Union City; Visalia; Vista; Wasco; 
          West Hollywood; Windsor; Ashley Swearengin, Mayor of 
          Fresno; David Armenta, Mayor of Pico Rivera; Friends of 
          Redding Library; Friends of the Camarillo Library; Howard 
          Jarvis Taxpayers Association; Jeff Ira, Mayor of Redwood 
          City; League of California Cities; Library Systems & 
          Services, LLC; Mark Wheetley, City of Arcata Councilmember; 
          Shasta Public Library Foundation; Town of Windsor; several 
          individuals.