BILL ANALYSIS
AB 26
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Date of Hearing: April 1, 2009
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Kevin De Leon, Chair
AB 26 (Hernandez) - As Introduced: December 1, 2008
Policy Committee: Business and
Professions Vote: 6-4
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill requires a bid preference on state public works
contracts for bidders meeting a threshold for employer-provided
health care benefit expenditures. Specifically, this bill:
1)Requires state agencies, effective January 1, 2011, on public
works contracts requiring award to the lowest responsible
bidder, to provide a 2% bid preference if the bidder qualifies
for this preference by meeting the requirement in (2).
2)Entitles a bidder to the preference if the bidder and all of
the bidder's listed subcontractors' aggregate California
employee health care expenditures, as defined, equal at least
6.5% of their aggregate Social Security wages for the
following time periods:
a) The 12-month period immediately preceding submission of
the bid, and
b) One year following acceptance of the bid.
3)Requires a contractor or subcontractor failing to comply with
(2) (b) to pay the state twice the cost for health care that
it would have incurred for complying with the requirement.
4)Requires a bidder seeking the preference to provide
certification of compliance by the bidder and all of its
listed subcontractors, and provides for a civil penalty of
between $2,500 and $25,000 for false certification.
FISCAL EFFECT
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1)The bill would increase state contract costs in two ways:
first, to the extent state contracts are awarded to other than
the lowest bidder due to the 2% preference; second, to the
extent the bill dissuades some non-complying subcontractors
from submitting bids to prime contractors that are seeking the
bid preference, bids submitted to the state could be higher
due to reduced competition among subcontractors. The cost
impacts are unknown, but given the state's large annual volume
of public works contracts ($2.2 billion in 2007-08 according
to the Department of General Services), costs would probably
be at least in the millions of dollars.
2)The bill will also increase contract administrative costs for
state agencies to verify compliance with the preference
requirements for health care expenditures. These costs would
be partially offset by penalty payments for noncompliance.
3)To the extent the bill results in more contractors and
subcontractors providing or maintaining health insurance for
their employees who might otherwise qualify for assistance
under state and/or local publicly-funded health care programs,
there will be cost savings in these programs.
COMMENTS
1)Background and Purpose . The Legislature has recently explored
a variety of policy proposals to extend or increase health
coverage to workers who are either under-covered or uninsured.
A primary reason for these initiatives is the decline of
employer-provided health insurance, as well as the increase in
state-based healthcare costs due to the increase of
individuals requiring state subsidized healthcare. Although
many employees working on public works jobs covered by
prevailing wage determinations will be well compensated, their
ability to purchase health plans for their families can be
outstripped by the increase in the costs of health insurance
premiums, particularly when purchasing these plans as
individuals.
A study by the UC Berkeley Center of Labor Research and
Education found that, between 2000 and 2004, there were
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average annual increases of 11% in insurance premiums. This
study found that for every premium increase of 10%, 910,000
adults and 442,000 children would lose employer-based coverage
- increasing the number of uninsured individuals by 817,000
and the number of people on publicly subsidized health plans
by 380,000.
This bill, sponsored by the State Buildings and Construction
Trades Council, is intended to provide an incentive for
bidders on state contracts who provide health care benefits
for their employees. The sponsor notes that "working families
with incomes of more than $50,000 a year now make up more than
a third of the uninsured population" in California. Given the
increased burden placed on public health care programs, by
maintaining employer-based health care, the bill is intended
to reduce the numbers of families who become dependent on
these programs.
2)Opposition . The Associated General Contractors (AGC) believes
the bill would complicate the bidding and contract award
process by requiring prime contractors seeking the bid
preference to obtain certification from their subcontractors
prior to submitting their bid. The problem is that prime
contractors normally receive bids from subcontractors just
before a bid is submitted, thus attempting to timely verify
compliance with the health care expenditure threshold would be
extremely difficult.
3)Prior Legislation .
Last year, a similar bill, AB 396 (Hernandez), was held on the
Senate Appropriations Suspense file. AB 26 differs from AB 396
in the following ways:
a) Applies only to state contracts, rather than all state
and local public works contracts.
b) Provides a 2% preference, rather than a 2.5% preference.
c) Requires contractors and subcontractors receiving the
preference to maintain their health-care spending for one
year following contract award.
AB 8 (Nunez) of 2007-a comprehensive health care reform
proposal which was vetoed, in part required employers to spend
an amount at least equal to 7.5% of the total Social Security
wages of all employees on employee health care, or pay a fee
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into the Managed Risk Medical Insurance Board (MRMIB).
Analysis Prepared by : Chuck Nicol / APPR. / (916) 319-2081