BILL ANALYSIS Ó
AB 2508
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Date of Hearing: April 25, 2012
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
V. Manuel Pérez, Chair
AB 2508 (Bonilla) - As Amended: April 19, 2012
SUBJECT : Public benefit programs and state contracts for call
centers
SUMMARY : Prohibits state contracts that include call center
services related to specified public benefit programs if the bid
fails to provide certification that the call center work will be
performed solely by workers employed in California.
Specifically, this bill :
1)Provides that, notwithstanding any other law, a state agency
authorized to enter into a public benefit program contract, as
defined, is prohibited from contracting for call center
services unless the contractor certifies in the bid, under
penalty of perjury, that every portion of the call center
services will be performed solely with workers employed in
California. This prohibition applies to subcontracts as well.
2)Defines "call center" to mean a building, facility, or
operation where customers or client services or assistance is
provided by telephone, fax, email, text, or web-based
interaction.
3)Requires state contracts that include call centers to include
a termination for noncompliance provision, which becomes
operative should the contractor use non-California workers.
The contractor is also required to pay a penalty in an amount
equal to the amount paid by the state for the percentage of
noncompliant work performed.
4)Defines "public benefit program" to mean the California Work
Opportunity and Responsibility to Kids (CalWorks), CalFresh,
Healthy Families, and the California Healthcare Eligibility,
Enrollment, and Retention System.
5)Authorizes a state agency to waive in-state work requirements
for a particular contract up to one year, upon submitting a
written finding to the Controller that is not rejected within
30 days, declaring that either of the following are true:
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a) The contract is an emergency necessity because the
ability to provide essential services would otherwise be
adversely affected, public health and safety would be
endangered, and the sole use of in-state workers is not
immediately available; or
b) The contract is necessary to provide a unique and
mandatory service and in-state workers cannot adequately
perform the unique services.
6)Requires a state agency seeking a waiver to provide copies of
the written finding to specified legislative committees when
submitting them to the Controller.
7)Requires a contractor to pay a penalty to the state in an
amount equal to the cost of work performed by out-of state
workers if the Controller rejects the state agency's written
finding submitted during the performance of the work or after
the work is performed.
8)Specifies that the California-only worker requirement does not
apply to a contract if in doing so, the requirement would
violate the terms of the Agreement on Government Procurement
of the World Trade Organization or any other bilateral or
regional free trade agreement to which California has
consented.
9)Does not apply to existing contracts or subcontracts, if it
would result in the violation of the terms of the contract.
Upon the expiration of those contacts, however, the provisions
of this bill would be applied before any new contract is
executed or renewed.
10)Makes legislative findings and declarations that tax revenues
should be used to create jobs in the U.S. and California.
EXISTING STATE LAW requires a state agency to comply with
specified procedures in awarding agency contracts, but has no
provisions addressing the use of offshore contracting.
EXISTING FEDERAL LAW establishes the General Agreement on
Tariffs and Trade (GATT), a multilateral trade agreement, to
reduce tariff duties for trade between participating countries
and to promote free trade.
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FISCAL EFFECT : Unknown
COMMENTS :
1)Author's Purpose : According to the author, "Public assistance
and health benefit programs are funded for the purpose of
helping people who are unable to find jobs. State and federal
funds to administer these programs should be spent on creating
jobs in California, not in other countries. AB 2508 ensures
that state funds for public benefit assistance programs are
used to create jobs in the state. The current economic crisis
has put millions of Californians out of work, through no fault
of their own. Every job that is sent offshore adds another
Californian to the unemployment rolls and further impacts our
already struggling economy. Public dollars should especially
not offshore jobs when those dollars fund programs meant to
create jobs and address problems associated with joblessness.
AB 2508 guarantees that the money the state spends on public
assistance and health benefit programs will help grow our
economy and create urgently-needed jobs for the millions of
unemployed Californians, not displace jobs."
2)Government Procurement and the Economy : State contracts for
goods and serves are significant revenues for a wide range of
private sector businesses, including, but not limited to,
office suppliers, health care providers, food producers, and
property managers. Businesses that contract with the state
use those moneys to pay workers; buy materials; finance their
growth and expansion; and pay local, state and federal taxes.
According the DGS website, the state annually purchases nearly
$10 billion in goods and services annually.
When the state expends these tax payer dollars, including
those that flow through the federal government, those dollars
begin to circulate throughout the economy. Depending on the
type and source of the expenditure, tax payer dollars can have
large or small re-circulation impact. Economists measure
these circulating effects using a model called multiplier
effect.
Some industries have very high multipliers, such as 16 to one
for computer manufacturing, while others are more limited.
This means that state contracting laws that do not account for
the multiplier effect of where work and corporate headquarters
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are located may be artificially low, therefore creating a
false sense of the state getting "the biggest bang for its
buck" when choosing the lowest bidder. From a state economic
standpoint, offshoring of state contracts negatively impacts
California by directly removing tax payer dollars from the
state economy.
3)Reports and Audits : In 2005, the California Bureau of State
Audits (Bureau) released a report outlining the extent of
offshoring for service-related contracts and subcontracts for
state services. The Bureau surveyed 35 state agencies and
five University of California Campuses with medical centers
regarding their use of contractors that performed work outside
of the United States. The Bureau identified 185 contracts
totaling $638.9 million in which a portion of the work had
been performed outside of the country. Approximately 55% of
these contracts were for computer-related services including
information technology consulting, software development, and
maintenance.
When asked to identify the value of services offshored under
each contract, state administrators were unable to provide
data for 76 contracts. For the remaining 109 contracts,
administrators estimated $9.7 million worth of services, or
2.8% of the total value of the contracts, had had been
performed outside of the United States.
Overall, the Bureau concluded that state entities were
inconsistent in their use of provisions relating to the
subcontracting, delegation, or assignment of contract duties.
In some cases, agencies did not require notification when
contractors subcontract, assigned, or delegated services,
making it difficult for state officials to accurately
ascertain where contract work was performed.
In 2006, the United States General Accountability Office (GAO)
went a step further and released a report outlining the extent
of state offshoring of government contracts nationwide.
Specifically, GAO analyzed the offshoring activities of states
across four federally-funded, state-administered programs
-Child Support Enforcement, Food Stamp, Temporary Assistance
for Needy Families (TANF), and Unemployment Insurance-and two
federally-administered programs that provide financial
assistance to students -Pell Grant and Federal Family
Education Loans (FFEL).
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The GAO found that 43 of 50 states and the District of
Columbia used contractors that offshored some or all of the
services associated with at least one of the four
state-administered, federally-funded programs. The services
most frequently offshored were the customer service functions
(call centers) of the Food Stamp and TANF programs, and the
software development work associated with the Unemployment
Insurance and Child Support Enforcement programs.
Geographically, work was most frequently offshored to India
and Mexico.
Moreover, 15 state program directors reported performing cost
comparisons for vendor contracts and, on average, concluded
that offshoring services saved their states between 0.3% and
24% as compared to using contractors that only performed work
domestically.
Overall, the GAO concluded that contracts worth $335 million
had at least some portion of their work offshored,
representing 18% of the total value of state contracts for the
four state-administered, federally-funded programs.
With respect to the two federally-administered student aid
programs, Pell Grant and FFEL, the GAO found no evidence of
offshoring. The GAO concluded that the Department of
Education's (DOE) criteria for vendors managing "high risk
contracts" significantly limited offshoring. For example,
prior to initiating a contract, DOE requires contractors to
certify the work will be performed by U.S. citizens or lawful
permanent residents who have resided in the U.S. for at least
three years. While this requirement is intended to facilitate
the required background investigations and ensure that
contractor employees are legally permitted to work in the
U.S., it limits the extent to which DOE can enter into
contracts with companies that perform services offshore.
4)The Role of Federal Law in Driving State Offshoring: In 1996,
Congress passed the Personal Responsibility and Work
Opportunity Reconciliation Act (PRWORA). The statute required
states to establish centralized units for receipt and
disbursement of child support payments from non-custodial
parents and employers. In response, 27 states executed
contracts with private vendors to handle all or some of these
requirements. PRWORA also required states to implement
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electronic benefits transfer (EBT) systems for the
reimbursement of food stamp benefits. EBT allows food stamp
recipients to use a plastic card, much like a debit card, to
pay for their food from authorized retailers. In response, 48
states and the District of Columbia executed contracts with
private vendors to handle all or some EBT services. Many of
these vendors in turn performed all or some of their contract
responsibilities outside of the United States.
5)State Offshoring-Legislative and Executive Actions: In
December 2003, offshoring legislation had appeared before only
four state legislatures. By early 2004, nearly 100 offshoring
bills had been introduced by state legislatures across the
nation. By the end of 2004, the number of offshoring bills
introduced had ballooned to over 200 in over 40 states. Five
of these bills became law, including a Tennessee statute
authorizing preferences for service contracts performed in the
United States. During the 2005-2006 legislative cycle, state
lawmakers introduced another 190 bills on the subject of
offshoring, 10 of which became law. Among the new statutes
were laws adopted in Colorado, Illinois, and North Dakota that
gave preference to domestic products; a North Carolina
contract location disclosure law; and New Jersey's Senate Bill
494, a highly restrictive offshore contract ban introduced in
response to reports that the private contractor administering
New Jersey's welfare benefits had moved the state customer
service call center to India.
In addition to legislative actions, a handful of governors
have issued executive orders limiting public sector
offshoring. In 2007, the Governor of Idaho barred state
contractors from offshoring American jobs. In 2004, the
Governor of Alaska ordered the State Executive Branch to
ensure that service contracts were performed in the United
States. Accordingly, the State's Division of General Services
now requires state service contracts above $25,000 to be
performed domestically. Other states with executive orders
enforce on the subject of offshoring include Indiana,
Michigan, Missouri, North Carolina, and Pennsylvania.
Administrators in West Virginia have restricted offshoring of
state contracts despite no legislative or executive mandates.
Currently, California has no limitation on offshoring of state
contracts.
6)World Trade Organization and the Agreement on Government
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Procurement : Government procurement of goods and services is
estimated to account for 10-15% of GDP for developed
countries, and up to as much as 20% of GDP for developing
countries. Due to its significance, 42 WTO members signed the
plurilateral (only binding to WTO members who choose to sign)
Agreement on Government Procurement (GPA) at the Uruguay Round
in 1994. A majority of the signatories come from economies
with developed industrial based economies, including Canada,
the E.U. (27 countries), the U.K. and the U.S. China is not a
signatory, but is in the process of negotiating accession to
the agreement. Mexico is not a signatory and is not an
observer to the GPA.
The intention of the GPA is to ensure that government
purchases of goods and services do not depend upon where the
good is produced or the service rendered, nor upon the
supplier's foreign affiliations. Countries place restrictions
on government procurement of goods and services for a variety
of reasons, most significantly, to protect and/or encourage
domestic industry.
According to research by Harvard University, several developed
countries would like to see the GPA become a multilateral
agreement, which the proponents believe would increase market
opportunities for their own firms, allowing them to bid for
foreign government purchases on a "level playing field." The
most vocal proponents of a multilateral GPA are the U.S. and
E.U. Some of the opposition to a multilateral agreement
come from developing countries and relief organizations, such
as Oxfam, who argue that opening government procurement will
not result in a "level playing field," but rather as a
situation in which developing countries will lose ground to
expanding industrial countries. Other countries opposed to a
multilateral agreement are concerned that open government
procurement laws restrain their ability to address non-trade
issues, such as the environment, eco-labeling, and human
rights issues.
In March 2012, the WTO Committee on Government Procurement
adopted a revised GPA, which now goes to the legislative
bodies of the signatories for ratification, including the U.S.
Congress. The WTO estimates that the new agreement will
expand market access coverage valued at between $80 to $100
billion dollars a year, partly by bringing in new signatories
including subnational governments, such as states. AB 2508
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has a severability clause, which provides that any contract
covered under the GPA would be excluded from the provisions of
the bill.
7)Exemptions from the Bill : AB 2508 allows a state agency to
waive the in-state worker requirement for certain specified
reasons including that the work is necessary to respond to an
emergency, California workers are not reasonably available and
that California workers cannot adequately perform the required
service. While the state is annually subjected to a number of
natural disasters and other types of emergencies, it is
unclear what conditions would arise that a call center service
was needed and there were no qualified California workers to
fill the jobs. The Committee may wish to consider limiting
the exemptions to emergencies.
The measure proposes to track and oversee the waivers by
requiring submittal of written findings by the state agency to
the State Controller and key legislative committees. The
Controller is authorized to reject the findings within 30 days
or the waiver is deemed to be in-force. These are both sound
initial approaches for monitoring waiver usage. The Committee
may wish to also consider tracking whether the Controller
rejects a submitted finding. This would allow for a more
comprehensive understanding of the waivers proposed and those
that were ultimately implemented.
Finally, the author may want to provide more clarity as to
when the waiver may be applied to a contract. Is it
envisioned that a state agency could determine that a waiver
is necessary prior to submitting the contract to bid,
something the agency can determine when no bidders qualify to
perform the contract, and/or should the waiver requests be
available to contractors who had previously committed to the
adhere to in-state worker requirement and then find themselves
out of compliance?
REGISTERED SUPPORT / OPPOSITION :
Support
California Labor Federation (co-sponsor)
Western Center on Law and Poverty (co-sponsor)
Opposition
AB 2508
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None Received
Analysis Prepared by : Toni Symonds and Oracio Gonzalez / J.,
E.D. & E. / (916) 319-2090