BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
467 (Dutton)
Hearing Date: 05/28/2009 Amended: As introduced
Consultant: Jacqueline Wong-HernandezPolicy Vote: G.O. 12-0
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BILL SUMMARY: SB 467 authorizes state agencies and departments
to award contracts of $25,000 or less for goods or services by
California certified small businesses, microbusinesses, or
Disabled Veteran Business Enterprises (DVBEs) without seeking an
exemption of the Prison Industry Authority (PIA) mandate.
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Fiscal Impact (in thousands)
Major Provisions 2009-10 2010-11 2011-12 Fund
Potential net loss of $534
$534 $534 General
revenue due to loss
of contracts
**In 2008, there were approximately $99,000,000 total in PIA
contracts with state agencies and departments under $25,000. The
California Performance Report found that a competitive bid
process would result in a 24% reduction in PIA sales.
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STAFF COMMENTS: SUSPENSE FILE. AS PROPOSED TO BE AMENDED
The cost of this bill depends primarily on the number of
contracts under $25,000 that state agencies and departments
enter into with the specified private businesses, instead of the
PIA. Therefore, it is difficult to determine the precise loss of
revenue, and it will likely vary annually. 48% of the PIA's
revenue is from contracts under $25,000. In 2008, these
contracts totaled $101 million. 98% of those sales contracts
were with state agencies and departments. By jeopardizing all
contracts under $25,000, the loss of revenue could total up to
$99 million annually.
The PIA is a self-sufficient program that provides vocational
training to CDCR inmates, and raises its own revenue to fund its
operations. Under current law, state agencies and departments
must contract with the PIA for goods and services it can
provide, regardless of price, unless the PIA gives the agency an
exemption. According to various Bureau of State Audits reports,
this often results in state agencies paying more for goods and
services than would be charged in a competitive bid, even while
patronizing California establishments and small businesses. The
California Performance Report estimates that a competitive bid
process would result in a 24% reduction to PIA sales. Based on
this estimate, it is likely that PIA revenues would be reduced
by up to $23.8 million.
There are likely mitigating savings, but not enough to fully
off-set the revenues lost. By allowing state agencies to give
contracts to specified private businesses, there will likely be
some General Fund and Special Funds savings by those agencies,
because their
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SB 467 (Dutton)
purchases will cost less. There is, however, a direct General
Fund cost to CDCR for every savings. Because PIA generates its
own budget through sales, a decrease of sales will result in
decreased programming for inmates. Even a 24% decline in sales
would result in a 720 person decrease in inmate participation.
It would cost CDCR $3,500,000 GF to provide alternate vocational
training to those inmates. If CDCR did not provide alternate
vocational training, those inmates would lose their "good time"
credits, which directly reduce their sentences for participation
in vocational and educational training. The increased sentences
also result in GF costs to CDCR. Housing 720 inmates for one
year longer than otherwise would occur with current levels of
PIA participation, will cost more than $20,000,000 GF.
AS PROPOSED TO BE AMENDED: This bill would only allow state
agencies and departments to award contracts under $25,000 to
specified private businesses when they are less expensive than a
contract with PIA. The likely result will be that: 1) PIA will
find ways to cut its costs and lower its prices somewhat; 2)
somewhat fewer contracts will be awarded to specified private
businesses; 3) state agencies and departments will save money by
entering into less expensive contracts; 4) CDCR will have to
fund alternative vocational programs for inmates in order to
allow them to earn time off of their sentences; and 5) there
will be some amount of lost Restitution Fuind revenue currently
generated by PIA workers.
The costs to the state projected above reflect the following
assumptions of behavior change as a result of this bill, as well
as resulting from the amendments:
1. PIA will become more 5% more efficient at producing its
products, incentivized by competition.
2. PIA is 20% more expensive, on average, than California
certified small businesses, microbusinesses, and DVBEs. A
2004 BSA report indicated that on average (though there was
a large range) it cost the state 38% more to have PIA
produce a product than a "private vendor." This report,
however, looked at all possible private vendors, and did
not limit to those specified in this bill.
3. The percentage of General Fund and special funds in the
budget, are the proportions of each fund likely spent on
PIA products.
4. CDCR will have to provide alternative vocational
programs for inmates, in order to allow them to earn time
off of their sentences (otherwise, they will face lengthier
incarceration, at further expense to CDCR). Alternative
programming will cost CDCR an additional $3,325,000 GF.