BILL ANALYSIS Ó SB 407 Page 1 Date of Hearing: June 26, 2013 ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT K.H. "Katcho" Achadjian, Chair SB 407 (Hill) - As Amended: April 1, 2013 SENATE VOTE : 35-0 SUBJECT : Local government: officers and employers: contracts SUMMARY : Extends limitations on local agencies' employment contracts to cover additional employees. Specifically, this bill : 1)Expands existing law that prohibits an employment contract for a local agency executive from providing an automatic renewal of a contract to include any person who is a deputy or assistant chief executive officer, and any person whose position is held by an employment contract between that person and the local agency. 2)Provides that if the Commission on State Mandates determines that the bill's provisions contain costs mandated by the state, then reimbursement to local agencies and school districts for those costs shall be made. EXISTING LAW : 1)Prohibits an employment contract for a local agency executive from providing an automatic renewal of a contract that provides for an automatic compensation increase in excess of a cost-of-living adjustment or a maximum cash settlement in excess of certain limits, as specified. 2)Defines "local agency executive" to mean any person employed by a local agency who is not subject to the Meyers-Milias-Brown Act, as specified, and who meets either of the following criteria: a) The person is the chief executive officer of the local agency; or, b) The person is the head of a department of a local agency. SB 407 Page 2 3)Defines "local agency" to mean a county, city, whether general law or chartered city and county, town, school districts, municipal corporation, district, political subdivision, or any board commission, or agency thereof, or other public agency. 4)Defines "compensation" to mean annual salary, stipend, or bonus, paid by a local agency employer to a local agency executive. 5)Defines "cost-of-living" to mean the California Consumer Price Index for Urban Wage Earners and Clerical Workers as calculated by the Department of Industrial Relations. 6)Prohibits, on or after January 1, 2012, any contract executed or renewed between a local agency and a local agency executive, from providing for the following: a) An automatic renewal of a contract that provides for an automatic increase in the level of compensation that exceeds a cost-of-living adjustment; and, b) A maximum cash settlement that exceeds the amounts determined as specified in the Government Code for officers and employees in local agencies. 7)Requires all contracts of employment between an employee and a local agency employer to include a provision which provides that regardless of the term of the contract, if the contract is terminated, the maximum cash settlement that an employee may receive shall be an amount equal to the monthly salary of the employee multiplied by the number of months left on the unexpired term of the contract. However, if the unexpired term of the contract is greater than 18 months, the maximum cash settlement shall be an amount equal to the monthly salary of the employee multiplied by 18. 8)Requires, on or after January 1, 2012, any contract executed or renewed between a local agency and an officer or employee of a local agency that provides paid leave salary offered by the local agency to the officer or employee pending an investigation, that any salary provided for that purpose be fully reimbursed if the officer or employee is convicted of a crime involving an abuse of his or her office or position. 9)Requires, on or after January 1, 2012, any contract executed or renewed between a local agency and an officer or employee SB 407 Page 3 of a local agency that provides funds for the legal criminal defense of an officer or employee, that any funds provided for that purpose be fully reimbursed to the local agency if the officer or employee is convicted of a crime involving an abuse of his or her office or position. 10)Requires, on or after January 1, 2012, any contract of employment between an employee and a local agency employer to include a provision which provides that, regardless of the term of the contract, if the contract is terminated, any cash settlement related to the termination that an employee may receive from the local agency shall be fully reimbursed to the local agency if the employee is convicted of a crime involving an abuse of his or her office or position. 11)Requires, on or after January 1, 2012, if a local agency provides, in the absence of a contractual obligation, for any of the payments described in this article, then the employee or officer receiving any payments provided for those purposes shall fully reimburse the local agency that provided those payments in the event that the employee or officer is convicted of a crime involving the abuse of his or her office or position. 12)Defines "abuse of office or position" to mean either of the following: a) An abuse of public authority, including, but not limited to, waste, fraud, and violation of the law under color of authority; or, b) A crime against public justice, as specified. FISCAL EFFECT : This bill is keyed fiscal. COMMENTS : 1)The Meyers-Milias-Brown Act governs labor-management relations, although its bargaining and representation procedures generally do not apply to executive employees. Existing statutes restrict the compensation that can be offered by local agencies to employees not covered by the Meyers-Milias-Brown Act. SB 407 Page 4 AB 1344 (Feuer and Alejo), Chapter 692, Statutes of 2011, prohibited, starting on or after January 2, 2012, any contract executed or renewed between a local agency and an employee (those employees that are excluded from the Meyers-Milias-Brown Act) from including an automatic renewal of the contract if the contract provides for an automatic increase in compensation that exceeds a cost-of-living adjustment and a maximum cash settlement that exceeds the amounts provided for in statutory provisions governing employment contracts. The bill also provided more public review when a city is considering placing the adoption of a charter before the voters and required local agencies' governing boards to ratify their executive employees' contracts of employment in an open session. Finally, the bill required employment contracts to include provisions limiting, upon termination, the maximum cash settlement to be paid to no more than an amount equal to 18 months' salary. If the executive's contract has less than a year to run, then the amount can't exceed the remaining expected salary. Employment contracts also must include provisions for the local agency to be reimbursed for any paid leave salary and the cost of legal criminal defense funded by the agency, if the officer or employee is convicted of a crime involving an abuse of public office or position. According to the authors of AB 1344, the bill "was introduced in response to the scandal surrounding the City of Bell in 2010 which exposed deficiencies in existing law that must be addressed to ensure greater transparency and so voters have confidence that taxpayer dollars are being used wisely." AB 1344 targeted practices exploited by some local governments that inappropriately (and sometimes extravagantly) rewarded elected officials and top executive officers outside of public view. The bill aimed to require basic good governance measures as they relate to compensation practices and provided, to the maximum extent possible, the public with the opportunity to be informed and comment on local compensation-setting practices. 2)This bill builds upon the provisions of AB 1344 and expands the definition of several terms that were added into law by AB 1344. The bill expands the definition of "local agency executive" to include a deputy chief executive officer, or an SB 407 Page 5 assistant chief executive officer of the local agency and also adds a person whose position within the local agency is held by an employment contract between the local agency and that person. This bill is sponsored by the California City Management Foundation. 3)According to the author, "This bill simply extends the compensation restrictions and abuse of power provisions to all local agency executives who work under an employment contract. This expansion of the definition will include not only department heads, such as city managers or county executives, but will also include city managers, assistant county executives, and any other employee who has an employment contract with a local agency. "SB 407 will prevent extravagant rewards to local agency employees and reduce the liability of local governments to provide paid leave and legal defense costs for employees who are convicted of abuse of power charges." 4)Support arguments : Supporters argue that this bill is a minor expansion of legislation adopted last session to address abuse of power practices and will assist in the prevention of inappropriate and extravagant rewards to local agency executives. Opposition arguments : None on file REGISTERED SUPPORT / OPPOSITION : Support California City Management Foundation [SPONSOR] Opposition None on file Analysis Prepared by : Debbie Michel / L. GOV. / (916) 319-3958 SB 407 Page 6