BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 2508
                                                                  Page  1

          Date of Hearing:   May 16, 2012

                        ASSEMBLY COMMITTEE ON APPROPRIATIONS
                                Felipe Fuentes, Chair

                    AB 2508 (Bonilla) - As Amended:  May 2, 2012 

          Policy Committee:                              Business and 
          Professions  Vote:                            6-1
                        Jobs                                  4-1

          Urgency:     No                   State Mandated Local Program: 
          Yes    Reimbursable:              No

           SUMMARY  

          This bill prohibits work on certain state contracts from being 
          performed outside of California. Specifically, this bill:

             1)   Requires contractors for call center services for 
               CalWORKS, CalFresh, Medi-Cal, Healthy Families, and the 
               California Healthcare Eligibility, Enrollment and Retention 
               System to certify, under penalty of perjury, that the 
               contract and any subcontract will be performed solely with 
               workers employed in California.

             2)   Stipulates that, for a violation of the above, the 
               contract shall be terminated and the contractor or 
               subcontractor shall pay a penalty to the state in the 
               amount paid by the state for the percentage of work 
               performed by workers outside of California.

             3)   Allows a state agency to waive the requirements in (1) 
               for up to six months by submitting a finding to the State 
               Controller that an emergency, as defined, exists, and the 
               Controller does not reject the finding within 30 days.

             4)   Allows a state agency to waive the requirements in (1) 
               for up to one year for a contract already in force by 
               submitting a finding to the Controller that an emergency 
               exists, and the Controller does not reject the finding 
               within 30 days.

             5)   Requires the agency's findings, per (3) and (4), to 
               include the estimated number of jobs effected, the duration 








                                                                  AB 2508
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               of employment, and salaries of noncompliant workers.

             6)   States this contracting prohibition does not apply if 
               refusal to award a contract on the above basis would 
               violate the Agreement on Government Procurement of the 
               World Trade Organization or any other free trade agreement 
               to which California has consented.

             7)   Stipulates the prohibition does not apply to a contract 
               currently in place if it would violate the contract terms.

           FISCAL EFFECT  

          1)Limiting call center contracts to California, in lieu of 
            providing these services in lower cost states or countries, 
            will likely increase state costs for these services. These 
            additional costs are unknown, but could be in the low millions 
            of dollars annually.

            The Department of Social Services currently has a contract 
            outside of California for the EBT project, which automates the 
            issuance, delivery, redemption, settlement and reconciliation 
            of CalFresh and CalWORKS program benefits. The annual cost of 
            this contract for 2011-12 is almost $24 million, but in 
            addition to a call center, this contract includes vendor 
            maintenance and operations costs for the EBT system.

            The Department of Health Care Services contracts for two call 
            centers, both in California; the Medi-Cal Dental Services 
            Division contract will cost $17.4 million for 2012-13 and the 
            Medi-Cal Managed Care Division contract will cost $4.4 million 
            next year.

          2)Additional costs per (1) will be offset to some extent by tax 
            revenues associated with the additional employment and related 
            economic activity and potential reduction in the cost of 
            public benefit programs.

           COMMENTS  

           1)Purpose  . According to the author's office, "Both the 
            Schwarzenegger and the Davis Administrations approved two 
            separate vendor contracts, for the food stamp programs 
            (CalFRESH), that subcontracted with out-of country call 
            centers. Currently, one of the call centers is located in 








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            Juarez, Mexico, where workers there provide assistance to 
            Californians who receive CalWORKs or CalFRESH benefits?Public 
            assistance and health benefit programs area funded to help 
            people who are unable to find work. State and federal funds to 
            administer programs designed to create jobs should be spent on 
            creating jobs in California, not in other countries." 

            This bill is co-sponsored by the California Labor Federation 
            and the Western Center on Law and Poverty.

           2)Opposition  . Health Net indicates that its call centers, which 
            support both its commercial and Medi-Cal and Healthy Families 
            programs, are located in California, but Health Net is 
            concerned with the limitations on the location of 
            subcontractors. Health Net indicates that some of the services 
            supporting the call center, such as information technology, 
            training, and web design are provided by its employees or 
            subcontractors that in some cases are located out of state. 

            The sponsor indicates, however, it is not their intent for the 
            bill to cover contracts such as the state's contract with 
            Health Net, and seems amenable to clarifying language on this 
            point.



           Analysis Prepared by  :    Chuck Nicol / APPR. / (916) 319-2081