BILL ANALYSIS Ó
AB 2844
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Date of Hearing: May 11, 2016
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Lorena Gonzalez, Chair
AB
2844 (Bloom) - As Amended April 26, 2016
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Urgency: No State Mandated Local Program: YesReimbursable:
Yes
SUMMARY:
This bill prohibits state and local contracting with companies
engaged in discriminatory business practices in furtherance of a
boycott of any sovereign nation, as specified. Specifically,
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this bill:
1)Prohibits any state or local public entity from entering into
a contract exceeding $10,000 with a company engaged in
discriminatory business practices in furtherance of a boycott
of any sovereign nation or peoples recognized by the United
States, including the nation of Israel.
2)Requires a public entity, if a company as described in (1)
bids on a contract, to notify the company that the public
entity is prohibited from contracting with that company, and
to allow the company to respond to the notification. The
public entity must also request that the company take action
to cease its discriminatory business practices within 90 days,
and if the company does so, as determined by the public
entity, then the company would not be barred from bidding.
3)Prohibits a company as described in (1) from bidding on a
state or local public contract.
4)Requires the Attorney General (AG) to develop and maintain on
its website a list of companies described in (1).
5)Requires the AG to provide a company 90 days' written notice
of its intent to include the company on the above list,
including specifying that, if the company ceases its
discriminatory business practices per (1), it shall be removed
from the AG's list and become eligible to bid on public
contracts.
6)Requires the AG to allow the company to respond that it is not
engaged in discriminatory business practices, and if the AG
concurs, the company shall not be included on the AG's list.
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If the AG does not concur with the company's response, and
refuses to remove the company from the list, the company may
seek relief in superior court.
FISCAL EFFECT:
Attorney General. Given the vast number of companies with which
the state and local governments contract and the broad and
complex nature of this bill, in terms of its worldwide sweep and
the many aspects of potential discriminatory practices that may
apply, the AG's Office anticipates significant costs to
implement this bill in a thorough and fair manner. The AG
estimates a need for up to six positions in its Civil Rights
Enforcement Section to research, develop, and maintain the
website list of companies, notify companies that they will be
prohibited from contracting with the state, review company
responses, and defend any determinations that would be
challenged in court. The annual General Fund cost would be about
$1.2 million. To the extent the AG's research determines that
relatively few companies are engaged in activities that would
place them on the list, the ongoing cost should be less, though
there will be a need to continue making determinations as to
whether additional companies should be added to the list. In
addition, in the event a company would misrepresent its
practices in order to get a public contract, the AG's False
Claim Unit would have to investigate such circumstances, which
could require additional resources.
Department of General Services (DGS). DGS notes that the bill,
as currently constructed, has a two-part contracting ban. The
first part, as described in (1) in the above Summary, prohibits
public entities from contracting with companies engaged in
discriminatory business practices in furtherance of a boycott.
The second part, as described in (3) of the Summary, make a
company identified on the AG's list ineligible to bid on a
public contract. DGS notes that neither of these parts of the
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bill references the other. Therefore, pursuant to (1) DGS
believes that public agencies may be required to make their own
determinations as to whether certain companies are ineligible to
contract. As such, DGS believes a rulemaking is necessary to
implement the requirements of (1) and (2) above, particularly
because the proposed statute lies outside the bounds of DGS'
exemption from the Administrative Procedures Act. DGS
anticipates one-time costs of several hundred thousand dollars,
considering the complexity of the issues involved, including
constitutional issues, and the likelihood of extensive public
comments from affected businesses and supporters and opponents
of this measure. DGS also identifies unknown ongoing costs to
investigate whether companies are engaged in discriminatory
business practices, to notify those companies of their
ineligibility to bid on state contracts and to request that the
companies take "substantial action" to cease their
discriminatory practices within 90 days, and to determine
whether companies have done so. DGS also notes that agencies
outside DGS' authority may need to conduct their own
rulemakings.
The costs identified above by DGS could probably be avoided by
amending the bill to make clear that the only criterion for
agencies to apply in determining whether a company is ineligible
to bid is that company's placement on the AG's list.
DGS also notes that in general, exclusion of bidders from
contracts can result in higher contract prices, and thus higher
costs to the state and local government. Finally, DGS sites the
potential for significant costs related to litigation over the
provisions of this bill.
CalSTRS. The California Teachers' Retirement System estimates
initial costs exceeding $1 million and annual costs exceeding
$200,000 for "benchmark/index modification costs, transaction
costs for terminating contracts, external research services and
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staff resources."
COMMENTS:
1)Background/Purpose. This bill is a response to the Boycott,
Divestment and Sanctions (BDS) movement, an organized campaign
calling upon businesses, unions, churches, universities, and
academic associations, among others, to divest all funds from
Israel, or from any company that does business in or with
Israel. It calls for boycotts of Israeli goods and products
and seeks to prohibit academic and cultural exchanges between
Israel and the United States. The most commonly asserted goal
of BDS is to pressure Israel to change its policies toward,
and treatment of, Palestinians in the occupied territories.
The author and supporters of this bill see the BDS movement as
a continuation of the Arab League boycott, an effort to
isolate and "demonize" Israel.
The prior version of this bill would have prohibited a public
entity from entering into a contract if the company seeking
the contract is participating in a boycott against Israel. As
discussed in detail in the Assembly Judiciary Committee's
analysis, these provisions raised serious and perhaps
insurmountable First Amendment concerns. Most notably
regarding the "unconstitutional conditions" doctrine, which
holds that a government may not condition a government benefit
on the recipient's willingness to forgo a constitutional
right, and its corollary, that government cannot deny a
benefit to penalize a person for exercising a constitutional
right, and while "conduct," as opposed to "speech," is not
protected by the First Amendment, the U.S. Supreme Court has
held that a boycott is a form of protected speech.
As amended by the Judiciary Committee, this bill is now
modeled after California law enacted in 1992, which prohibits
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the State of California from investing funds in financial
institutions engaged in the Arab League boycott of Israel. It
does not apply to companies that engage in a boycott, but
rather to companies "engaging in discriminatory business
practices" in furtherance of a boycott of Israel. The statute
then defines "discriminatory business practices" to mean any
activity prohibited by Business & Professions Code Section
16721 and 16721.5, which, in turn, prohibit business
discrimination "on the basis of any characteristic listed" in
the state's Unruh Civil Rights Act. This law therefore does
not condition the benefit on forgoing the exercise of free
speech but instead denies the benefit based upon the company's
engagement in discriminatory "practices" that are already
prohibited by law.
In addition, the bill does not single out Israel, but rather
applies to discriminatory business practices against any
sovereign nation or peoples, including, but not limited to,
Israel. According to the committee's analysis, broadening the
statute in this way was intended to address some of the
problematic, one-sided 'viewpoint discrimination" in the prior
version of the bill.
2)Opposition. A coalition of several dozen organizations argues
that, despite the most recent amendments, the bill "remains a
misguided, costly attempt to unconstitutionally punish First
Amendment-protected speech."
3)Prior Legislation. AB 1650 (Feuer), Chapter 573, Statutes of
2010, the Iran Contracting Act, prohibits all public entities
in the state from renewing or entering into contracts of $1
million or more with companies identified by the Department of
General Services (DGS) as having substantial business in
Iran's energy sector.
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Analysis Prepared by:Chuck Nicol / APPR. / (916)
319-2081