BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 1333
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          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          the contract may be rescinded, and requires that these contracts  
          be rescinded unless they pay prevailing wage.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            may be rescinded.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            1), above, to be rescinded unless the review of the contract  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 












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