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 Page 2 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 AB 2508 Page 3 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