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of $250,000 or more that contains an automatic renewal clause on or before the annual date by which the contract may be rescinded, and requires that these contracts be rescinded unless they pay prevailing wage.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clause, sometimes referred to as an "evergreen provision," on or before the annual date by which the contract may be rescinded. 2)Requires the legislative body of a city, county, or district to make findings on the record, prior to the renewal of the contract, including, but not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the needs of the legislative body. 3)Requires any contract with an evergreen provision described in 1), above, to be rescinded unless the review of the contract contains both of the following findings: a) The contractor pays to its employees at least the general prevailing rate of per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. AB 1333 Page 2 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 AB 1333 Page 3 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." AB 1333 Page 4 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, AB 1333 Page 5 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 AB 1333 Page 6 "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 AB 1333 Page 7 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 AB 1333 Page 8 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 Page 9