BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 861| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ UNFINISHED BUSINESS Bill No: SB 861 Author: Corbett (D), et al. Amended: 8/31/11 Vote: 21 SENATE GOVERNMENTAL ORG. COMMITTEE : 9-1, 4/12/11 AYES: Wright, Anderson, Corbett, De León, Evans, Hernandez, Strickland, Wyland, Yee NOES: Berryhill NO VOTE RECORDED: Calderon, Cannella, Padilla SENATE APPROPRIATIONS COMMITTEE : 6-3, 5/26/11 AYES: Kehoe, Alquist, Lieu, Pavley, Price, Steinberg NOES: Walters, Emmerson, Runner SENATE FLOOR : 33-2, 6/1/11 AYES: Alquist, Anderson, Blakeslee, Calderon, Cannella, Corbett, Correa, De León, DeSaulnier, Emmerson, Evans, Gaines, Hancock, Harman, Hernandez, Huff, Kehoe, La Malfa, Leno, Lieu, Liu, Lowenthal, Negrete McLeod, Pavley, Price, Simitian, Steinberg, Strickland, Vargas, Wolk, Wright, Wyland, Yee NOES: Berryhill, Walters NO VOTE RECORDED: Dutton, Fuller, Padilla, Rubio, Runner ASSEMBLY FLOOR : 67-11, 0/0/11 - See last page for vote SUBJECT : Public contracts SOURCE : Enough! CONTINUED SB 861 Page 2 DIGEST : This bill prohibits a scrutinized company, as defined, using conflict minerals from the Democratic Republic of Congo from bidding on a state goods or services contract. Assembly Amendments adds language that this bill does not become operative until the later of January 1, 2012, or the date the United States Securities and Exchange Commission issues the final rules and regulations on the implementation of Section 1502 of Public Law 11-203, and become inoperative upon a specified date; and (2) add co-authors. ANALYSIS : Existing Federal Law : 1. Establishes the 2006 Democratic Republic of Congo Relief, Security, and Democracy Promotion Act (DRCRSDP Act). The DRCRSDP Act stated that it is the policy of the United States (U.S.) to work for peace and security throughout the Democratic Republic of Congo (DRC) by supporting efforts to protect civilians, disarm illegal armed groups, and hold accountable individuals and entities working to destabilize the country. 2. Establishes the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), pertaining to the trade of minerals associated with the DRC conflict. The Dodd-Frank Act was signed into law adding, amongst other things, Section 13(p) to the Act, and directing the Securities Exchange Commission (SEC) to publish new disclosure rules by April 17, 2011, for publically traded companies reporting to the SEC for whom "conflict minerals" are necessary to the functionality or production of a product manufactured by such persons. Existing Law : 1. Authorizes contracting between state agencies and private contractors and sets forth the requirements for the procurement of goods and services and for the solicitation and evaluation of bids and the awarding of CONTINUED SB 861 Page 3 contracts by public entities. 2. Prohibits persons engaging in investment activities in Iran's energy sector, as specified, from bidding or entering into contracts with a public entity for goods or services. 3. Prohibits companies involved in specified business activities in Sudan from entering into a state goods and services contract. This bill: 1. Prohibits a scrutinized company from bidding on a state goods or services contract if it must comply with the disclosures relating to conflict minerals originating in the DRC, as specified in the Securities Exchange Act of 1934. 2. Defines "scrutinized company" to mean a person found to be in violation of Section 13(p) of the Act by final judgment or settlement entered in a civil or administrative action brought by SEC and the person has not remedied or cured the violation in a manner accepted by the SEC on or before final judgment or settlement. 3. Deems that a person is no longer regarded as a scrutinized company when the person no longer in violation of the Act, an amended or correct filing is made with the SEC, or three years from the date of final judgment or settlement, whichever is earlier. 4. Requires the Department of General Services (DGS) to establish policies and procedures for state entities to implement the provisions of this bill in the State Administrative Manual or the State Contracting Manual. 5. Defines "goods or services" to include types of tangible personal property, including materials, supplies, and equipment, and information technology and telecommunication goods and services, as specified. 6. Prohibits this bill from becoming operative until the CONTINUED SB 861 Page 4 later date of January 1, 2012, or the date the SEC promulgates final regulations on the reporting of conflict minerals and whether they originated in the DRC. 7. Makings legislative findings and declarations. Comments The Legislature has recently heard legislation prohibiting specified "scrutinized companies" from bidding on public contracts on humanitarian grounds and in conjunction with federal efforts. The DRC is Africa's third largest nation, and it is the eastern portion, Kivu, that has been the site of conflict. Illegally armed militia groups have been responsible for human rights abuses, sexual exploitation, acts of violence, and other atrocities in order to mine the mineral-rich Kivu. The Act defines "conflict materials" as columbite-tantalite (coltan), cassiterite, gold, wolframite, or their derivatives. These materials, in turn, are used to produce tungsten, tin, steel, or some other component that results in the manufacture of light bulb filaments, electrical components, computer chips and processors, cell phones, and other technology products. In addition, other conflict materials mentioned in the Dodd-Frank Act, such as gold, are manufactured into jewelry and sold in the U.S. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: No According to the Assembly Appropriations Committee, (1) to the extent this bill reduces the number of prospective bidders on some state contracts, due to a company or companies being found in violation of the DRC-related provisions of the Dodd-Frank Act, there will be less competition for those contracts, which tends to increase state costs. The overall impact of this bill is unknown, and would depend on the number of companies unable to submit bids, but given the multi-billion volume of state contracting, costs could exceed $150,000 in any fiscal year. Because the bill is narrowly drawn, however, CONTINUED SB 861 Page 5 particularly when compared to recent similar legislation, the annual cost would likely not be significant; (2) DGS will incur minor one-time costs to establish the relevant policies and procedures and minor ongoing costs to monitor SEC rulings regarding violations of Dodd-Frank and to inform state agencies about companies ineligible to submit bids and when these companies regain eligibility to submit bids. SUPPORT : (Verified 9/9/11) Enough! (source) Amnesty International Boston Common Asset Management California Province of the Society of Jesus Calvert Asset Management Catholic Health East Christian Brothers Investment Services Congregation of Sisters of St. Agnes, Fond du Lac, WI Dominican Sisters of San Rafael EarthRights International Global Witness Human Rights First Individual, Starr King School for Ministry Interfaith Center on Corporate Social Responsibility Investor Environmental Health Network Marianist Province of U.S. Midwest Coalition for Responsible Investment PaxWorld Management LLC Responsible Sourcing Network Sister of the Holy Family Sisters of St. Francis of Philadelphia Sisters of St. Joseph of Springfield, MA Social Responsibility Coordinator JOLT Spring Water Asset Management The International Corporate Accountability Roundtable The Social Equity Group The Sustainable Group at Loring, Wolcott & Coolidge Trillium Asset Management Tri-State Coalition for Responsible Investment US Social Investment Forum Zevin Asset Management, LLC ARGUMENTS IN SUPPORT : The author's office notes that CONTINUED SB 861 Page 6 embedded in the financial reform measure that President Obama signed was a truly historic regulatory provision pertaining to the DRC. In an effort to choke off funding for the armed thugs and rebel militias who have killed more than five million people and turned the Congo into the rape capital of the world, federal law now requires publicly traded companies to disclose whether their products contain minerals from rebel-controlled mines in the Congo. Greed for the Congo's mineral wealth has been a prime cause of the atrocities and conflict, and multiple armed groups use mass rape as a strategy to intimidate and control communities as they profit from the illicit trade of conflict minerals. Many of these same conflict minerals end up in our electronic devices such as cell phones, laptops, and digital cameras. ASSEMBLY FLOOR : 67-11, 9/8/11 AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Beall, Bill Berryhill, Block, Blumenfield, Bonilla, Bradford, Brownley, Buchanan, Butler, Charles Calderon, Campos, Carter, Cedillo, Chesbro, Conway, Cook, Davis, Dickinson, Eng, Feuer, Fletcher, Fong, Fuentes, Furutani, Beth Gaines, Galgiani, Gatto, Gordon, Halderman, Hall, Hayashi, Roger Hernández, Hill, Huber, Hueso, Huffman, Jeffries, Knight, Lara, Logue, Bonnie Lowenthal, Ma, Mendoza, Miller, Mitchell, Monning, Nestande, Pan, Perea, V. Manuel Pérez, Portantino, Skinner, Smyth, Solorio, Swanson, Torres, Valadao, Wagner, Wieckowski, Williams, Yamada, John A. Pérez NOES: Donnelly, Garrick, Grove, Harkey, Jones, Mansoor, Morrell, Nielsen, Norby, Olsen, Silva NO VOTE RECORDED: Gorell, Hagman PQ:do 9/9/11 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED SB 861 Page 7 CONTINUED