BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON APPROPRIATIONS
                             Senator Ricardo Lara, Chair
                            2015 - 2016  Regular  Session

          AB 2844 (Bloom) - Public contracts:  discrimination
          
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          |Version: June 20, 2016          |Policy Vote: JUD. 5 - 2         |
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          |Urgency: No                     |Mandate: Yes                    |
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          |Hearing Date: August 1, 2016    |Consultant: Jolie Onodera       |
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          This bill meets the criteria for referral to the Suspense File.


          Bill  
          Summary:  AB 2844 would require a person that submits a bid or  
          proposal to enter into or renew a contract of $100,000 or more  
          with a state agency to certify under penalty of perjury that any  
          policy that they have against any sovereign nation or peoples  
          recognized by the government of the United States, including,  
          but not limited to, the nation and people of Israel, is not used  
          as a pretext for discrimination in violation of the Unruh Civil  
          Rights Act or the California Fair Employment and Housing Act, as  
          specified.  
          This bill would authorize the Attorney General to receive and  
          investigate complaints regarding violations of, and may bring  
          suit to enforce the provisions of, this bill.




          Fiscal  
          Impact:  
            Attorney General (AG)  :  Potentially significant increase in  







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            staffing costs of $370,000 in FY 2016-17, and $625,000   
            annually thereafter (50 percent General Fund/ 50 percent  
            Special Fund*) to the Civil Rights Enforcement Section and  
            False Claims Unit of the Department of Justice (DOJ) to  
            receive and respond to complaints, conduct investigations, and  
            implement related enforcement activities. The actual workload  
            impact of this measure is largely unknown and would be  
            dependent on the volume and nature of complaints received and  
            subsequently investigated. Although the bill effectively  
            authorizes but does not mandate the AG to investigate and  
            bring suit to enforce the provisions of this measure, the  
            potential workload impact could be substantial. 

            Department of General Services (DGS)  :  Unquantifiable but  
            potentially major future increase in ongoing operating costs  
            due to higher contract costs (General Fund) resulting from the  
            exclusion of otherwise qualified bidders that may no longer  
            submit bids under the required certification. The DGS  
            administers over 9,000 contracts with a value of $100,000 or  
            more with a combined value of $27.9 billion. In the absence of  
            any exceptions for situations involving a sole source or for  
            cases in which all otherwise qualified bidders are excluded,  
            the costs to obtain alternative goods and/or services may  
            increase costs to the state. Additionally, to the extent  
            exercising an option to extend a contract, which oftentimes  
            provides for advantageous rates or prices, is deemed a renewal  
            under the provisions of this bill could likewise result in  
            additional administrative workload and higher costs to the  
            state for goods and services. While the magnitude of the  
            impact cannot be quantified, for context, even a one-half of  
            one percent (0.5%) increase to overall contract costs would  
            result in increased costs to the state of about $140 million.   


            Perjury violations  :  Unknown; potential increase in local  
            enforcement and incarceration costs (Local Funds) to the  
            extent felony arrests and convictions for the offense of  
            perjury are pursued under the provisions of this measure.  

            Other state agencies  :  In addition to the DGS, numerous other  
            state agencies that enter into contracts of over $100,000  
            would be impacted by an unquantifiable but potentially  
            significant amount due to the contract certification  
            requirement established in this bill. 








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          *False Claims Act Fund


          Background:  Existing law prohibits any person in this state from being  
          unlawfully denied, on the basis of race, national origin, ethnic  
          group identification, religion, age, sex, sexual orientation,  
          color, genetic information, or disability, full and equal access  
          to the benefits of, or the unlawful discrimination under, any  
          program or activity that is conducted, operated, or administered  
          by the state or by any state agency, is funded directly by the  
          state, or receives any financial assistance from the state.  
          (Government Code § 11135(a).)  
          It has been reported that numerous states across the country  
          have taken or are considering taking action to withdraw state  
          support for companies participating in a boycott of the State of  
          Israel, known as the Boycott, Divestment and Sanctions (BDS)  
          movement. According to the BDS Movement website, BDS is "a  
          Palestinian-led movement for freedom, justice and equality. BDS  
          upholds the simple principle that Palestinians are entitled to  
          the same rights as the rest of humanity. [?] Inspired by the  
          South African anti-apartheid movement, the BDS call urges  
          non-violent pressure on Israel to comply with international law.  
          BDS is now a vibrant global movement made up of unions, academic  
          associations, churches, and grassroots movements across the  
          world. [?] The call urges various forms of boycott against  
          Israel until it meets its obligations under international law  
          by: (1) Ending its occupation and colonization of all Arab lands  
          and dismantling the Wall; (2) Recognizing the fundamental rights  
          of the Arab-Palestinian citizens of Israel to full equality;  
          and, (3) Respecting, protecting and promoting the rights of  
          Palestinian refugees to return to their homes and properties as  
          stipulated in UN Resolution 194." (BDS Movement, What is BDS?,  
           [as of July 29, 2016].)


          According to various reports, legislatures across the country  
          have considered or are pending consideration of bills in a  
          display of disapproval of the BDS movement. This bill seeks to  
          balance the rights of individuals and businesses to exercise  
          their constitutionally-protected freedoms with the right of the  
          State to select its business partners as a market participant,  
          and its obligation to protect tax payer funds to support  
          individuals who discriminate in violation of this State's  








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          fundamental anti-discrimination laws. 




          Proposed Law:  
           This bill would require a person that submits a bid or proposal  
          to, or otherwise proposes to enter into or renew a contract  
          with, a state agency with respect to any contract in the amount  
          of $100,000 or more to certify, under penalty of perjury, at the  
          time the bid or proposal is submitted or the contract is  
          renewed, all of the following:
           That they have complied with the Unruh Civil Rights Act  
            (Section 51 of the Civil Code).


           That they have complied with the California Fair Employment  
            and Housing Act (FEHA) (Chapter 7 (commencing with Section  
            12960) of Part 2.8 of Division 3 of Title 2 of the Government  
            Code).


           That any policy that they have against any sovereign nation or  
            peoples recognized by the government of the United States,  
            including, but not limited to, the nation and people of  
            Israel, is not used as a pretext for discrimination in  
            violation of the Unruh Civil Rights Act or FEHA, as specified.


          This bill would authorize the Attorney General to receive and  
          investigate complaints regarding violations of, and may bring  
          suit to enforce the provisions of, the bill.

          This bill sets forth numerous uncodified legislative findings  
          and declarations regarding the state's anti-discrimination  
          policies and the First Amendment rights of individuals,  
          including but not limited to the following: 

           It is the policy of the State of California to promote  
            fairness and equality and to combat discrimination and if  
            California hopes to remain a national leader on behalf of  
            these communities, action must be taken to recognize that  
            discriminatory laws and policies are unacceptable for  
            California's partners in business.








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           California has significant influence in the marketplace. The  
            state at times operates not as a market regulator, but as a  
            market participant, and in this latter role it may determine  
            that companies engaging in discriminatory actions in the  
            conduct and operation of their business adversely affects the  
            state's procurement activities and places the state in a  
            position of supporting activities that could be seen as a  
            violation of the nondiscrimination policies of the State of  
            California.

           It is the intent of the Legislature to ensure that taxpayer  
            funds are not used to do business with or otherwise support  
            any state or private entity that engages in discriminatory  
            actions against individuals under the pretext of exercising  
            First Amendment rights. This includes, but is not limited to,  
            discriminatory actions taken against individuals of the Jewish  
            faith under the pretext of a constitutionally protected  
            boycott or protest of the State of Israel.


          Related  
          Legislation:  AB 1551 (Allen) 2016 would prohibit state trust  
          funds from making or holding any investment in any business firm  
          or financial institution, as well as prohibit state moneys from  
          being deposited in any financial institution, that engages in  
          discriminatory business practices in furtherance of or in  
          compliance with the boycott of Israel. This bill remains pending  
          referral from the Assembly Committee on Rules. 

          AB 1552 (Allen) 2016 would, with certain exceptions, prohibit a  
          public entity from entering into a contract to acquire or  
          dispose of goods, services, information technology, or  
          construction unless the contract includes a representation that  
          the contractor is not currently engaged in, and an agreement  
          that the contractor will not during the duration of the contract  
          engage in, the boycott, as defined, of a person or an entity  
          based in or doing business with a jurisdiction with which the  
          state can enjoy open trade, defined as a state that is a member  
          of the World Trade Organization. This bill remains pending  
          referral from the Assembly Committee on Rules.


          Prior Legislation:  AB 1151 (Feuer) Chapter 441/2011 required  








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          additional public reporting requirements, as specified, by  
          CalPERS and CalSTRS, regarding retirement investments in  
          companies with business operations in Iran. AB 1151 additionally  
          clarified the fiduciary duties of CalPERS and CalSTRS regarding  
          investments subject to the CPDIA. 


          AB 1650 (Feuer) Chapter 573/2010, the Iran Contracting Act of  
          2010, 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 as having  
          substantial business in Iran's energy sector.


          AB 221 (Anderson) Chapter 671/2007 enacted the California Public  
          Divest from Iran Act (CPDIA), which prohibits CalPERS and  
          CalSTRS from investing public employee retirement funds in a  
          company with business operations in Iran, as specified.


          AB 2251 (Friedman) Chapter 1351/1992 prohibited state trust fund  
          and state money investments in business firms or financial  
          institutions that engage in discriminatory business practices,  
          as defined, in furtherance of or in compliance with the Arab  
          League's economic boycott of Israel.




          Staff  
          Comments:  
           AG Impact
           By authorizing the AG to receive and investigate complaints  
          regarding violations of, and to bring suit to enforce the  
          provisions of, the bill, the AG could experience a significant  
          increase in ongoing workload to its Civil Rights Enforcement  
          Section and False Claims Unit. Additional workload would include  
          but not be limited to receiving and responding to complaints,  
          conducting investigations, and implementing related enforcement  
          activities, potentially culminating in bringing suit to enforce  
          the bill's provisions. The DOJ has indicated the need for  
          additional staffing at a cost of $370,000 in FY 2016-17, and  
          $625,000 annually thereafter to address the potential workload  
          increase. 








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          Staff notes the actual workload impact of this measure is  
          largely unknown at this time and would be dependent on the  
          volume and nature of complaints received and subsequently  
          investigated. Although the bill effectively authorizes but does  
          not mandate the AG to investigate and bring suit to enforce the  
          provisions of this measure, the potential workload impact could  
          be substantial. 

           DGS/State agency Impact
           By requiring a person that submits a bid or proposal to a state  
          agency for any contract in the amount of $100,000 or more to  
          certify, under penalty of perjury, at the time a bid or proposal  
          is submitted or a contract is renewed, to comply with numerous  
          requirements, this bill could have the practical effect of  
          severely restricting the ability of businesses and organizations  
          from contracting with the state due to their inability to submit  
          the required certification.  

          DGS could incur an unquantifiable but potentially major future  
          increase in ongoing costs due to higher contract costs resulting  
          from the exclusion of otherwise qualified bidders that may no  
          longer submit bids under the required certification. The DGS  
          administers over 9,000 contracts with a value of $100,000 or  
          more with a combined value of $27.9 billion. In the absence of  
          any exceptions for situations involving a sole source or for  
          cases in which all otherwise qualified bidders are excluded, the  
          costs to obtain alternative goods and/or services may increase  
          costs to the state. Additionally, to the extent exercising an  
          option to extend a contract, which oftentimes provides for  
          advantageous rates or prices, is deemed a renewal under the  
          provisions of this bill could likewise result in additional  
          administrative workload and higher costs to the state for goods  
          and services. While the magnitude of the impact cannot be known  
          with certainty, for context, even a one-half of one percent  
          (0.5%) increase to contract costs would result in increased  
          costs to the state of about $140 million. In addition to the  
          DGS, any other state agency engaged in contracts in the amount  
          of $100,000 or more would additionally be subject to the  
          requirements of the bill. Although the impacts may be of smaller  
          scale that those imposed on the DGS, other state agencies could  
          additionally incur greater administrative workload and increased  
          costs for goods and services due to the specified contracting  
          requirements.








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          This bill may restrict or in some cases inadvertently prohibit  
          the ability of qualified businesses and organizations to  
          contract with the state due to the following certification  
          requirements:

          Mandates past compliance with the Unruh Act and FEHA.  This bill  
          requires businesses and organizations to certify that they have  
          complied with specified laws, which seems to imply that if, at  
          any time in the past, the business or organization has failed to  
          comply, that entity could be violation of the certification.  
          Because the Unruh Act and FEHA are broad-ranging civil rights  
          laws that regulate many aspects of business and employment  
          practices, respectively, it is not improbable for an entity to  
          have been subject to a prior violation of either of the laws,  
          for example, a construction-related accessibility violation  
          filed under the Unruh Act, or a past FEHA violation by a former  
          employee for a workplace-related incident that is charged  
          against the business. Businesses that have violated these laws  
          at any point in the past could potentially be unable to certify  
          compliance, and therefore, unable to contract with the state for  
          contracts in excess of $100,000.

          Scope of Unruh Act/FEHA.  This bill provides that businesses  
          must have complied with the Unruh Act and FEHA or that any  
          policy of the business is not used as a pretext for  
          discrimination in violation of the Unruh Act or FEHA, the scope  
          of which applies within the State of California. To the extent  
          the certification requirement has the effect of primarily  
          disqualifying businesses in California or with physical  
          facilities within the state, could have additional indirect cost  
          implications more broadly. 

          Contract renewals.  The term "renewal" is not clearly defined in  
          the bill. It may be interpreted to refer to an amendment  
          extending the term of an existing contract beyond its originally  
          scheduled expiration date. However, it is unclear whether a  
          renewal would also include options to extend that were included  
          in the original competitively bid contract. If exercising an  
          option to extend is deemed a "renewal" for purposes of this  
          requirement, and the current contractor were unable to make the  
          required certification, the state would be unable to exercise an  
          extension option even if the rates or prices were advantageous,  
          resulting in additional costs to the state, both in staff time  








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          to conduct the contracting process and in higher costs for the  
          goods and services.
           
           Exclusion of otherwise qualified bidders.  Excluding some  
          otherwise qualified bidders on contracts of $100,000 or more may  
          result in higher contract costs. Imposing contracting  
          restrictions may result in the exclusion of otherwise qualified  
          bidders that may have been the lowest bidder, resulting in the  
          state paying higher prices for goods, services, or construction.  
          Under less competitive pressure to bid aggressively once aware  
          that key competitors are unable to bid, the remaining bidders  
          may increase the cost of their proposals. 

          No exceptions.  This bill does not contain any exceptions for  
          situations in which the only vendor(s) capable of performing the  
          contract is/are unable to make the required certification. In  
          addition to sole source situations, circumstances in which more  
          than one source is available, but all potential bidders are  
          unable to meet the certification requirements, may arise,  
          effectively precluding the state from acquiring certain goods or  
          services needed for state operations. The inability to acquire  
          needed goods and services may result in additional costs to the  
          state to secure alternative products or services, disrupt state  
          operations, or both.  

          Administrative costs.  This bill applies both to contract awards  
          and contract renewals. DGS has indicated that boilerplate  
          certifications are currently used in bids and contracts, and the  
          certification required by this bill could be integrated without  
          undue administrative difficulty. The cost of developing and  
          implementing such certifications is estimated to be minor and  
          absorbable. However, contract extensions are granted without  
          competitive bidding, and currently there is not a comparable  
          certification requirement. Implementing this recertification  
          process for extensions/renewals could result in slightly greater  
          ongoing administrative costs.


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