BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 841| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ THIRD READING Bill No: SB 841 Author: Wolk (D) Amended: 5/12/11 Vote: 21 SENATE ENVIRONMENTAL QUALITY COMMITTEE : 7-0, 5/9/11 AYES: Simitian, Strickland, Blakeslee, Hancock, Kehoe, Lowenthal, Pavley SUBJECT : Solid waste: enterprises: contracts SOURCE : Republic Services Waste Management DIGEST : This bill prohibits the enforcement of an indemnity obligation that requires a solid waste enterprise to defend and hold harmless the local agency in connection with the local agency's imposition of fees, charges, levies, exactions, or assessments that are found by final judgment of a court to have been imposed in violation of Article XIII C or XIII D of the California Constitution or that require a solid waste enterprise to refund certain fees. This bill only applies to a provision, term, condition, or requirement contained in an ordinance, contract, franchise, license, permit, or other entitlement or right adopted, entered into, issued, or granted on or after July 1, 2012. This bill becomes operative on July 1, 2012. ANALYSIS : CONTINUED SB 841 Page 2 Existing law: 1. Under the California Integrated Waste Management Act of 1989 (Public Resources Code Section 40000 et seq.): A. Authorizes a local agency to determine (1) aspects of solid waste handling, including but not limited to, frequency of collection, means of collection and transportation, level of services, charges and fees, and nature, location, and extent of providing solid waste handling services; and (2) whether the services are to be provided by means of nonexclusive franchise, contract, license, permit, or otherwise, either with or without competitive bidding, and under terms and conditions prescribed by the governing body of the local agency by resolution or ordinance. (Section 40059) B. Contains various requirements relating to integrated waste management, and requires each city or county source reduction and recycling element to include an implementation schedule that shows a city or county must divert 25 percent of solid waste from landfill disposal or transformation by January 1, 1995, through source reduction, recycling, and composting activities, and must divert 50 percent of solid waste on and after January 1, 2000. (Section 41780). Administrative civil penalties may be imposed upon a local agency of up to $10,000 per day until the local agency implements its source reduction and recycling element or its household hazardous waste element. (Section 41850) C. Contains requirements relating to an indemnity obligation due to a local agency's failure to establish and maintain a source reduction and recycling element, and to meet the above solid waste diversion requirements (Section 40059.1). 2. Sets numerous requirements relating to indemnity (Civil Code Section 2772 et seq.). Indemnity is "a contract by which one engages to save another from a legal consequence of the conduct of one of the parties, or of some other person." CONTINUED SB 841 Page 3 3. Under Articles XIII C and XIII D of the California Constitution, sets various requirements relating to assessments, fees, and taxes enacted by voter approved Proposition 218 (November 5, 1996, election) and Proposition 26 (November 2, 2010, election). This bill, under the California Integrated Waste Management Act of 1989: 1. Defines "indemnity obligation" to mean an indemnity obligation directly or indirectly related to a local agency's failure to obtain voter or property owner approval that may be required by Articles XIII C or XIII D of the California Constitution if that indemnity obligation is expressly assumed by or imposed upon the solid waste enterprise, including by "ordinance, contract, franchise, license, permit, or other entitlement or right, for the benefit of a local agency." 2. Requires an indemnity obligation to be null and void, and not enforceable, if it does either of the following: A. Requires a solid waste enterprise to defend and hold harmless the local agency in connection with the local agency's imposition of fees, charges, levies, exactions, or assessments that are found by final judgment of a court to have been imposed in violation of Articles XIII C or XIII D of the California Constitution. B. Requires a solid waste enterprise to refund fees to its customers if the fees are collected on behalf of the local agency by the solid waste enterprise and have been remitted by the solid waste enterprise to the local agency and if the fees are found by a final judgment of a court to have been imposed in violation of Article XIII C or Article XIII D of the California Constitution. 3. Requires an indemnity obligation to be subject to the above null and void provision if it meets either of the following conditions: CONTINUED SB 841 Page 4 A. The indemnity obligation is authorized or required by a provision, term, condition, or requirement contained in an ordinance, contract, franchise, license, permit, or other entitlement or right adopted, entered into, issued, or granted by a local agency for solid waste handling services, including the recycling, processing, or composting of solid waste. B. The indemnity obligation is authorized or required in a request for bids or proposals in connection with a contract or franchise specified above. 4. Provides that provisions of this bill are not subject to waiver, and any attempted waiver must be null and void as against public policy. 5. Provides that this bill cannot be intended to do any of the following: (a) add to or expand local agency authority to determine aspects of solid waste collection and handling; (b) alter the authority of business entities to collect or process materials that are not solid waste; or c) determine whether or not a fee, levy, assessment, or exaction requires voter or property owner approval by Articles XIII C or XIII D of the California Constitution. 6. Requires this bill to only apply to a provision, term, condition, or requirement contained in an ordinance, contract, franchise, license, permit, or other entitlement or right adopted, entered into, issued, or granted on or after July 1, 2012. 7. Contains related legislative intent. 8. Becomes operative on July 1, 2012. Comments Previous attempts by solid waste interests to seek indemnification restrictions . SB 1179 (Polanco), 1997-98 Session, set restrictions on the enforceability of an indemnity obligation for solid waste collection. Governor CONTINUED SB 841 Page 5 Wilson vetoed the bill, noting that "To assert that solid waste management enterprises cannot indemnify losses based upon their own breach without the state's intervention to negotiate the terms of the agreement is ludicrous on its face." According to this veto message, "When government ventures into the arena of contractual negotiations it is generally to protect an obviously disadvantaged party. In this instance it appears that the state is being asked to protect the industry from itself. Indeed there is significant evidence that the industry is responsible for the proliferation of waste diversion indemnification agreements. Various solid waste management providers have offered to indemnify prospective clients to gain an advantage in a competitive marketplace." SB 1340 (Polanco), Chapter 987, Statutes of 1998, set requirements relating to an indemnity obligation due to a local agency's failure to establish and maintain a source reduction and recycling element, and meet solid waste diversion requirements. The bill prohibited an indemnity obligation from being enforceable against a solid waste enterprise until the local agency has affirmative sought in good faith, all administrative relief or demonstrates good cause for not pursuing that administrative relief. However, any penalty must be apportioned in accordance with the percentage of fault of the local agency and the solid waste enterprise. The bill addressed court interpreter compensation issues when approved by the Senate, and these provisions were stricken in the Assembly where the indemnification issues were added. FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local: No SUPPORT : (Verified 5/11/11) Republic Services (co-source) Waste Management (co-source) Inland Empire Disposal Association Los Angeles County Waste Management Association Solid Waste Association of Orange County ARGUMENTS IN SUPPORT : The author is concerned that since passage of Proposition 218 and Proposition 26 local CONTINUED SB 841 Page 6 agencies may require that "solid waste handling firms indemnify these local agencies if their franchises and other fees are successfully challenged in court. As a matter of public policy indemnity should not be provided for unlawful conduct." The author is responding to this concern by requiring an indemnity obligation to be null and void, and not enforceable, if it either (1) requires a solid waste enterprise to defend and hold harmless the local agency in connection with the local agency's imposition of fees, charges, levies, exactions, or assessments that are found by a court to have been imposed in violation of Articles XIII C or XIII D of the California Constitution; or (2) requires a solid waste enterprise to refund fees to its customers if the fees are collected on behalf of the local agency by the solid waste enterprise and have been remitted by the solid waste enterprise to the local agency. "SB 841 is consistent with existing policy underlying Public Resources Code section 40059.1, which establishes reasonable limits on the form of indemnity obligations local agencies can require from their solid waste franchisees. Furthermore, SB 841 does not affect a local agencies right to impose fees on waste haulers." DLW:mw 5/12/11 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED