BILL ANALYSIS                                                                                                                                                                                                    



                                                                    AB 2844


                                                                    Page  1





          Date of Hearing:  May 11, 2016


                        ASSEMBLY COMMITTEE ON APPROPRIATIONS


                               Lorena Gonzalez, Chair


          AB  
          2844 (Bloom) - As Amended April 26, 2016


           ----------------------------------------------------------------- 
          |Policy       |Accountability and             |Vote:|5 - 1        |
          |Committee:   |Administrative Review          |     |             |
          |             |                               |     |             |
          |             |                               |     |             |
          |-------------+-------------------------------+-----+-------------|
          |             |Judiciary                      |     |10 - 0       |
          |             |                               |     |             |
          |             |                               |     |             |
          |-------------+-------------------------------+-----+-------------|
          |             |                               |     |>            |
          |             |                               |     |             |
          |             |                               |     |             |
           ----------------------------------------------------------------- 


          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,  








                                                                    AB 2844


                                                                    Page  2





          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.  








                                                                    AB 2844


                                                                    Page  3





            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  








                                                                    AB 2844


                                                                    Page  4





          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  








                                                                    AB 2844


                                                                    Page  5





          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  








                                                                    AB 2844


                                                                    Page  6





            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.  









                                                                    AB 2844


                                                                    Page  7






          Analysis Prepared by:Chuck Nicol / APPR. / (916)  
          319-2081