BILL ANALYSIS Ó
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 1333 HEARING: 7/3/13
AUTHOR: Hernández FISCAL: No
VERSION: 6/26/13 TAX LEVY: No
CONSULTANT: Weinberger
LOCAL GOVERNMENT CONTRACTS
Requires a local legislative body to adopt a resolution to
either exercise, or decline to exercise, an option to
rescind an "evergreen" contract or memorandum of
understanding.
Background and Existing Law
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 and in the manner required to terminate
the otherwise perpetual agreement. The specified interval
could be annual or as long as several years. 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.
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.
Some public employees' advocates are concerned that
automatic renewal provisions make local governments'
decisions to renew contracts insufficiently transparent.
They want the Legislature to require local governments to
AB 1333 -- 6/26/13 -- Page 2
renew evergreen contracts by adopting resolutions in open
and public meetings.
Proposed Law
Assembly Bill 1333 requires the legislative body of the
city, county, or district, on or before the annual date by
which a contract or memorandum of understanding may be
rescinded, to adopt a resolution that either exercises, or
declines to exercise, the option to rescind the contract or
memorandum of understanding, if the contract or memorandum
of understanding:
Has a total annual value of two hundred fifty
thousand dollars ($250,000) or more,
Is between a private party and the city, county, or
district, and
Contains an automatic renewal clause, sometimes
referred to as an "evergreen" provision.
AB 1333 requires the resolution to be placed on the agenda
of a regular meeting of the legislative body and requires
the legislative body to adopt the resolution after it
provides an opportunity for public comment on the
resolution in an open and public regular meeting.
AB 1333 exempts from its provisions a contract or
memorandum of understanding between a public agency and an
employee organization that establishes terms and conditions
of employment for the agency's employees.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . Assembly Bill 1333 empowers local
government officials to make fully informed decisions about
the automatically renewing contracts they enter into and
the contractors providing services. When a contract's
terms automatically renew, some local officials may view
the decision to renew a contract as perfunctory. Some
local governments' contracts for solid waste disposal have
AB 1333 -- 6/26/13 -- Page 3
been extended over many decades. By requiring a local
legislative body to act in an open and public meeting to
affirm its desire to renew a contract for an additional
year, AB 1333 ensures that evergreen contracts regularly
command the attention of elected officials and members of
the public, not just local agency staff. AB 1333 does not
limit the discretion that local officials have under
current law to decide whether to renew existing evergreen
contracts. The bill simply ensures that a contract renewal
must result from an affirmative decision made in a public
forum. By restoring transparency and accountability to
evergreen contract renewals, AB 1333 will help local
officials and members of the public ensure that taxpayers
are getting the best possible value from evergreen
contracts.
2. Local control . Local voters elect county supervisors,
city council members, and special district board members to
make public policy in response to local needs. Contrary to
AB 1333's presumption that local officials fail to
thoroughly review evergreen contracts, local government
officials strive to provide their communities' residents
with the best services at the most reasonable cost. Local
elected officials have to answer to residents who are
displeased with the quality and cost of their services. As
a result, local governments regularly conduct rate reviews
of their evergreen contracts, which often also involves
reviewing the service provider's performance. Contracts
can be revisited at any time and revoked if problems arise.
AB 1333 erodes decades of longstanding authority entrusted
to local governments to contract for solid waste services
at a time when the State has set an ambitious solid waste
diversion goal of 75% by 2020. The Legislature recently
declared the importance of preserving local control over
aspects of solid waste handling in order to achieve the
state's solid waste diversion goals (AB 341, Chesbro,
2011). AB 1333 may make it more difficult to meet those
goals by unnecessarily diminishing local officials'
autonomy to contract for solid waste services.
3. Unintended consequences . The new requirements AB 1333
imposes on local governments' evergreen contracts may
jeopardize some of these carefully negotiated contracts and
financing that relies on the contracts. Because many solid
waste disposal companies are family-owned local businesses,
they have fewer financing options than do some larger
AB 1333 -- 6/26/13 -- Page 4
companies. The most important issue that financial
institutions review when analyzing a disposal company's
loan package is the term of the company's contract. The
remaining term must be sufficient to guarantee that the
business will have sufficient time to pay off any borrowed
funds. A contract with a fixed-term clause that
automatically renews each year can play a vital role in
allowing some companies to finance new equipment and make
other investments necessary to comply with state laws.
Some waste disposal firms are concerned that financial
lenders may interpret any changes to the manner in which
evergreen contracts are renewed as increasing the risks
associated with those contracts. As a result, lenders may
make fewer loans based on evergreen contracts and may
increase interest rates on the financing they do provide.
AB 1333 may have the unintended effect of encouraging the
use of less flexible and less accountable long-term fixed
contracts in order to ensure that waste disposal companies
can obtain financing.
4. Double standard ? Some local governments' collectively
bargained contracts with employees contain provisions that
allow the contracts to automatically renew after a fixed
term unless one of the contracting parties acts to
terminate the contracts. AB 1333 exempts from its
provisions specified collectively bargained employment
contracts. The bill's proponents suggest that collectively
bargained contracts, in practice, are subject to
substantial public scrutiny and don't require additional
transparency. On principle, however, the bill appears to
establish a double-standard in how state law treats local
government contracts with automatic renewal provisions.
The Committee may wish to consider amending the bill to
eliminate the exemption for collectively bargained
employment contracts.
5. Let's be clear . AB 1333 makes reference to an annual
date by which an evergreen contract may be "rescinded."
Some contracts with automatic renewal provisions use terms
like "termination" or "non-renewal" to describe the action
a contracting party must take to stop a contract from
automatically renewing. To clarify AB 1333's intent, the
Committee may wish to consider amending the bill to replace
references to "rescinding" a contract with broader
references to "terminating, rescinding, or otherwise not
renewing" a contract.
AB 1333 -- 6/26/13 -- Page 5
A narrow reading of AB 1333's reference to an "annual" date
on which a contract may be rescinded could support the
conclusion that the bill's provisions don't apply to a
contract that can be rescinded every two years, or on some
other regular schedule that is not "annual." To clarify AB
1333's intent, the Committee may wish to consider amending
the bill to replace the reference to an "annual" date with
a reference to a "recurring" date.
Assembly Actions
Assembly Local Government Committee: 5-3
Assembly Floor: 43-29
Support and Opposition (6/27/13)
Support : American Federation of State, County and
Municipal Employees; California Labor Federation;
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 and Recycling Center;
Amador Valley Industries; American California Bank;
American Medical Response; Association of California
Cities Orange County; Athens Services; Atlas Disposal
Industries; Autocar; Bay Counties SMaRT; BLT Enterprises;
Burrtec Waste Industries, Inc.; California Ambulance
Association; California Association of Sanitation Agencies;
California Contract Cities Association; Cal Disposal;
California Refuse Recycling Council; California Special
Districts Association; California Waste Recovery Systems;
Calmet Services, Inc.; Cities of Brea, Buena Park,
Encinitas, Imperial Beach, Lakewood, La Mirada, Lemon
Grove, National City, Poway, Rancho Palos Verdes,
Sacramento, Turlock; Clara Mateo Garbage Collector's
Association; Clean Energy; Clean Street; Clover Flat
AB 1333 -- 6/26/13 -- Page 6
Resource Recovery Park; Concord Disposal Service;
Consolidated Fabricators Corp.; Congressman Jared Huffman;
Contra Costa Waste Service; County of Los Angeles; Crown
Disposal Co., Inc.; CR&R Incorporated; Desert Valley
Disposal, Inc.; East Bay Sanitary Co., Inc.; EDCO Waste
and Recycling Services; EPIC; Escondido Disposal, Inc.;
Fallbrook Waste and Recycling Services; Freeman and
Williams, LLP; Garaventa Enterprises; Garden City
Sanitation; Gilton Solid Waste Management, Inc.; Green
Hasson Janks; Harrison Industries; Haulaway; Heffernan
Insurance Brokers; Inland Empire Disposal Association; JR
Miller and Associate, Inc.; League of California Cities;
Los Angeles County Waste Management Association; MarBorg
Industries; Marin County Council of Mayors and
Councilmembers; Marin Sanitary Service; Midstate Solid
Waste and Recycling; Mill Valley Refuse Service; Mission
Trail Waste Systems; Mt. Diablo Recycling; Napa Recycling
and Waste Services, LLC; Nationwide Environmental
Services; Northern Recycling & Waste Services; Olympic
Wire and Equipment, Inc.; Palm Springs Disposal Services;
Park Waste & Recycling Services; Peninsula Sanitary
Service, Inc.; Pleasanton Garbage Service, Inc.; R.J.
Proto Consulting Group; Rainbow Environmental Services;
Ramona Disposal Service; Refuse Power Systems; Rehrig
Pacific Co.; Reliable Pump Stops; RF Dickson Co.; Rio
Vista Sanitation Service; RJ McConnell Insurance Services;
Rural County Representatives of California; San Diego
County Disposal Association; Schaeffer Systems
International; Signal Hill Waste & Recycling Services;
Solid Waste Insurance Managers; Soft-Pak; Solid Waste
Disposal Association of Orange County; South Lake Refuse
and Recycling; South San Francisco Scavenger Company,
Inc.; Specialty Solid Waste & Recycling; Standard Iron and
Metals; Stanford Recycling Center; Suburban; Teamsters
Local Union No. 70; Teamsters Local Union No. 665; 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.; Waste Connections, Inc.;
Westhoff, Cone and Holmstedt; one individual.