BILL ANALYSIS Ó
AB 1333
Page 1
Date of Hearing: May 8, 2013
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
K.H. "Katcho" Achadjian, Chair
AB 1333 (Roger Hernández) - As Amended: April 30, 2013
SUBJECT : Local government: contracts.
SUMMARY : Requires the legislative body of a city, county, or
district to review any contract with a private party with a
total annual value of $250,000 or more that contains an
automatic renewal clause on or before the annual date by which
the contract may be rescinded, and requires that these contracts
be rescinded unless they pay prevailing wage. Specifically,
this bill :
1)Requires the legislative body of a city, county, or district
to review any contract with a private party with a total
annual value of $250,000 or more that contains an automatic
renewal clause, sometimes referred to as an "evergreen
provision," on or before the annual date by which the contract
may be rescinded.
2)Requires the legislative body of a city, county, or district
to make findings on the record, prior to the renewal of the
contract, including, but not limited to, whether the contract
contains updated information and whether the contract fits the
needs of the legislative body.
3)Requires any contract with an evergreen provision described in
1), above, to be rescinded unless the review of the contract
contains both of the following findings:
a) The contractor pays to its employees at least the
general prevailing rate of per diem wages for work of a
similar character in the locality, or a living wage given
the locality, whichever is greater; and,
b) The contractor retains the employees of the prior
contractor or subcontractor for at least 90 days.
4)Requires, for the purpose of this bill, the prevailing rate of
per diem wages to be determined pursuant to current law
governing the prevailing rate of per diem wages for public
works projects.
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5)Requires, for the purpose of this bill, "per diem wages" to
include the employer payments described in current law
governing per diem wages and employer payments for public
works projects.
EXISTING LAW :
1)Authorizes the legislative body of a city, county, or district
to include or cause to be included in contracts for public
projects a provision establishing the time within which the
whole or any specified portion of the work contemplated is to
be completed.
2)Authorizes the legislative body of any public or municipal
corporation or district to contract with and employ any
persons for the furnishing to the corporation or district
special services and advice in financial, economic,
accounting, engineering, legal, or administrative matters
if the persons are specially trained and experienced and
competent to perform the special services required.
3)Authorizes a public entity subject to the Local Agency Public
Construction Act to require each prospective bidder for a
contract to complete and submit to the entity a standardized
questionnaire and financial statement in a form specified by
the entity, including a complete statement of the prospective
bidder's experience in performing public works.
4)Requires that not less than the general prevailing wage rate
be paid to all workers employed on a "public works" project
costing over $1,000 dollars and imposes misdemeanor penalties
for a violation of this requirement.
5)Defines "public work" to include, among other things,
construction, alteration, demolition, installation or repair
work done under contract and paid for in whole or in part out
of public funds.
1)Requires the Director of the Department of Industrial
Relations to use a specified methodology to determine the
general prevailing rate of per diem wages in the locality in
which a public work is to be performed, as specified.
2)Requires per diem wages, when the term is used in statutes
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applicable to public works, to be deemed to include employer
payments for specified items, such as health and welfare,
pension, vacation, travel, subsistence, and other components.
FISCAL EFFECT : None
COMMENTS :
1)This bill requires cities, counties and districts to review
contracts with a total annual value
of $250,000 or more that have automatic renewal clauses before
the date on which the contract can be rescinded. Before the
contract is renewed, this bill requires the local agency to
make findings regarding whether the contract contains updated
information and whether it meets the needs of the local
agency. This bill also requires evergreen contracts to be
rescinded unless the review finds that the contractor pays
prevailing wages and retains employees of a prior contractor
for at least 90 days. This bill is sponsored by the American
Federation of State, County and Municipal Employees.
2)According to the author, "AB 1333 seeks to provide an adequate
level of local government oversight and review of high cost
contracts that contain automatic renewal clauses. These
contracts are often referred to as evergreen contracts. The
bill does not prohibit local governments from entering into
evergreen contracts; it simply provides elected officials,
charged with a duty to oversee the fiscal well-being of a city
or county, with an opportunity to annually review the terms of
an evergreen contract, as well as the level of service
provided and employer-employee relations of the contractor.
"It has been brought to light that certain evergreen contracts
do not serve the best interests
of the people. For example, in 2008 the City Council of
Montebello awarded exclusive trash collecting rights to Athens
services beginning in 2015, effectively ousting 12 independent
haulers from the bargaining table, (which) sparked a recall of
elected officials. With no competition, a lone entity may
offer fewer services at a greater cost. AB 1333 will promote
competition for government contracts, and will ensure
ratepayers are receiving the best services at the best rates.
In addition, the bill ensures that employees of government
contractors are compensated fairly and treated with dignity."
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3)An evergreen contract is an agreement between two parties that
is automatically renewed after each maturity period until one
of the contracting parties gives notice at a specified
interval in the manner required to terminate the otherwise
perpetual agreement. The specified interval could be annually
or as long as several years. Evergreen contracts are commonly
used for long-term agreements, such as memberships and
maintenance agreements. This type of contract differs from
fixed-term agreements, where both parties are required to
affirmatively agree to extend the term of the contract beyond
the initial term. Local governments commonly use evergreen
contracts for service contracts, including waste hauling, park
maintenance, road maintenance, and public safety.
4)Long-term contracts with evergreen clauses allow recycling and
waste disposal facilities to be financed by the private sector
because these contracts are what financial institutions
require to extend financing over a 10- to 20-year term. In
addition, smaller service providers are able to amortize the
costs of expensive facilities and equipment over an extended
period of time, allowing them to compete against larger
companies. In exchange, local governments receive a
stabilized rate of service from the recycling and waste
disposal provider. The Committee may wish to consider whether
it is prudent to make it more difficult for local governments
to use this long-term financing tool.
5)This bill requires a legislative body of a city, county, or
district to make findings on the record as to whether the
evergreen contract contains updated information and fits the
needs of the legislative body. This language is vague and
could be interpreted in different ways by local agencies. It
could be interpreted to require a local agency to issue a
request for proposals as part of their review for their
official findings. Conversely, a legislative body could
consider itself to be in compliance with this requirement if
it does nothing more except issue a perfunctory finding that
the contract meets these requirements. The Committee may wish
to consider whether this bill needs more specific language to
provide local governments with clearer guidance on how to
comply with its provisions.
6)This bill does not define local agency and there is no
controlling definition of local agency in this division or
title of the Government Code, which covers cities, counties,
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and other agencies. This bill's prohibition on evergreen
contracts with a total value of $250,000 or more would apply
not only to special districts but also school districts and
potentially other types of districts.
7)This bill requires a local agency contract with an evergreen
provision to be rescinded unless the contractor pays
prevailing wages (or more). Current law limits the
requirement to pay prevailing wages to public works projects
costing more than $1,000 that are paid for in whole or in part
with public funds. This bill extends the requirement to pay
prevailing wages to include service contracts. The Committee
may wish to consider whether this is an appropriate expansion
of prevailing wage requirements, and the resulting potential
impact on local agencies and the contracts they already have
in place.
8)The American Federation of State, County and Municipal
Employees, in support, argues that automatic renewal clauses
"do not always serve the best interests of the people of a
city, county, or district, especially when the private party
does not pay their employees adequately."
The Maintenance Cooperation Trust Fund, in support, writes,
"We have conducted investigations of city and county
janitorial contractors and have found that some are not in
compliance with living wage ordinances. Many times living
wage ordinances may not have the mechanisms in the ordinance
to rescind a contract when a contractor has been found to be
non-compliant with the local living wage. AB 1333 would give
a city, county, or district the clear authority to rescind a
contract when the contractor is found to be in non-compliance
with a living wage or prevailing wage.
"In addition, AB 1333 would give protections to workers who
may lose their jobs because a contractor has had their
contract rescinded or terminated by requiring a new contractor
to hire workers for at least 90 days. Many times employers
will threaten workers that if they lose their contract then
they will lose their job. This chills workers from
cooperating with investigations of non-compliant employers.
(This bill's provision) neutralizes employer threats and
facilitates investigations of non-compliant contractors."
9)The League of California Cities, in opposition, states that
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"waste recycling is a very capital-intensive industry" and
that "long-term contracts with waste contractors have been a
particularly important tool for cities as lending agencies
provide low interest on extended term financing that builds
the necessary infrastructure to provide the service. Without
these arrangements, low-cost financing cannot be
guaranteed?Several of our cities use some form of rolling term
or evergreen contract?for the benefit of lower rates?The
conditions this bill imposes ?suggest that local governments
are incapable of properly managing their own affairs and
that?State oversight is required into what has traditionally
and purely been a local affair?Evergreen contracts are entered
into voluntarily and all of these contracts can be converted
to a fixed term contract if the local government believes that
is necessary or can be terminated for cause at any time."
The City of Lakewood, in opposition, notes that California has
had "some of the most ambitious diversion mandates in the
United States, including a $10,000 a day penalty on local
jurisdictions for failing to meet the 50% waste diversion
threshold." The city notes that the state's new diversion
goal of 75% by 2020 is a figure that will require additional
capital intensive infrastructure in the near future.
American Medical Response, in opposition, notes that this
bill's prevailing wage requirements "would give private
ambulance operators no choice but to make drastic changes to
local EMS systems in order to keep them financially viable"
and could result in non-renewal of contracts, "leaving local
governments scrambling for emergency ambulance services and
leaving patients without reliable coverage."
10)This bill is similar to AB 834 (Hernández, 2011), although AB
834 did not include the prevailing wage and employee retention
provisions that are required by this bill. This Committee
approved AB 834 on a 6-0 vote on April 27, 2011. AB 834
subsequently failed passage on the Assembly floor on a 28-26
vote on May 16, 2011.
11)Support arguments : Supporters argue that this bill improves
oversight and review of evergreen contracts and helps protect
workers employed under these contracts.
Opposition arguments : Opponents argue that this bill
encroaches unnecessarily into local government's necessary
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authority.
REGISTERED SUPPORT / OPPOSITION :
Support
American Federation of State, County and Municipal Employees,
AFL-CIO [SPONSOR]
California School Employees Association
California Teamsters Public Affairs Council
Glendale City Employees Association
Maintenance Cooperation Trust Fund
Organization of SMUD Employees
San Bernardino Public Employees Association
San Luis Obispo County Employees Association
Santa Rosa City Employees Association
Service Employees International Union, California State Council
United Food and Commercial Workers Western States Council
Opposition
Advance Disposal Company
Advance Disposal Company and Recycling Center
Amador Valley Industries
American Medical Response
Autocar
Burrtec Waste Industries, Inc.
Cal Disposal
California Refuse Recycling Council
California Waste Recovery Systems
City of Imperial Beach
City of Lakewood
Clean Energy
Clover Flat Resource Recovery Park
Concord Disposal Service
Contra Costa Waste Service
CR&R Incorporated
Desert Valley Disposal
East Bay Sanitary Co., Inc.
EDCO Waste and Recycling Services
EPIC
Escondido Disposal, Inc.
Fallbrook Waste and Recycling Services
Freeman and Williams, LLP
Garden City Sanitation
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Gilton Solid Waste Management, Inc.
Opposition (continued)
Green Hasson Janks
League of California Cities
MarBorg Industries
Marin Sanitary Service
Midstate Solid Waste and Recycling
Mill Valley Refuse Service
Mt. Diablo Recycling
Napa Recycling and Waste Services, LLC
Northern Recycling Operations and Waste Services, LLC
Olympic Wire and Equipment, Inc.
Palm Springs Disposal Services
Peninsula Sanitary Service, Inc.
Pleasanton Garbage Service, Inc.
R.J. Proto Consulting Group
Rainbow Environmental Services
Ramona Disposal Service
Reliable Pump Stops
RJ McConnell Insurance Services
San Diego County Disposal Association
Solid Waste Insurance Managers
South Lake Refuse and Recycling
South San Francisco Scavenger Company, Inc.
SSI Schaefer
Standard Iron and Metals
Stanford Recycling Center
The Rule Group
Tracy Material Recovery and Solid Waste Transfer, Inc.
TRG Insurance Services
Turlock Recycling
Turlock Scavenger
Turlock Transfer
Upper Valley Disposal and Recycling
Varner Bros., Inc.
Westhoff, Cone and Holmstedt
One individual
Analysis Prepared by : Angela Mapp / L. GOV. / (916) 319-3958
AB 1333
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