BILL ANALYSIS
Bill No: SB
1130
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Roderick D. Wright, Chair
2009-2010 Regular Session
Staff Analysis
SB 1130 Author: Aanestad
As Amended: April 5, 2010
Hearing Date: April 13, 2010
Consultant: Art Terzakis
SUBJECT
Prison Industry Authority: procurement
DESCRIPTION
SB 1130 prohibits a state agency from purchasing any
product from the Prison Industry Authority (PIA) unless the
total cost to the state agency for the transaction is equal
to or less than the total cost of making that same
transaction with a private entity or another public agency.
EXISTING LAW
Existing law establishes the Prison Industry Authority
(PIA) and states that the purposes of the PIA are: (1) to
develop and operate industrial, agricultural, and service
enterprises employing prisoners in institutions under the
jurisdiction of the Department of Corrections, which
enterprises may be located either within those institutions
or elsewhere, all as may be determined by the PIA; (2) to
create and maintain working conditions within the
enterprises as much like those which prevail in private
industry as possible, to assure prisoners employed therein
the opportunity to work productively, to earn funds, and to
acquire or improve effective work habits and occupational
skills; and (3) to operate a work program for prisoners
which will ultimately be self-supporting by generating
sufficient funds from the sale of products and services to
pay all the expenses of the program, and one which will
provide goods and services which are or will be used by the
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Department of Corrections, thereby reducing the cost of
its operation. (Penal Code Section 2801)
Existing law authorizes the PIA to operate industrial,
agricultural, and service enterprises which will provide
products and services needed by the state, or any political
subdivision thereof, or by the federal government, or any
department, agency, or corporation thereof, or for any
other public use. Products may be purchased by state
agencies to be offered for sale to inmates of the
department and to any other person under the care of the
state who resides in state-operated institutional
facilities. Fresh meat may be purchased by food service
operations in state-owned facilities and sold for onsite
consumption. (Penal Code Section 2807(a))
Existing law further states that all things authorized to
be produced by the PIA shall be purchased by the state, or
any agency thereof, and may be purchased by any county,
city, district, or political subdivision, or any agency
thereof, or by any state agency to offer for sale to
persons residing in state-operated institutions, at the
prices fixed by the PIA. State agencies shall make maximum
utilization of these products, and shall consult with the
staff of the PIA to develop new products and adapt existing
products to meet their needs. (Penal Code Section 2807(b))
Existing law provides that notwithstanding Section 2807 of
the Penal Code, the director of the Department of General
Services (DGS) or his or her designee may procure goods
from the private sector even though the goods may be
available from the PIA, when in his or her discretion, it
is cost beneficial to do so and if the director or his or
her designee continues to include the PIA in soliciting
quotations for goods. (Government Code Section 14612)
Existing law, the Small Business Procurement and Contract
Act requires the Director of DGS and the heads of other
state agencies that enter into contracts for the provision
of goods, services, and information technology and for the
construction of state facilities to establish goals for the
participation of small businesses in these contracts, to
provide for small business preference in the award of these
contracts, to give special consideration and special
assistance to small businesses, and, whenever possible, to
make awards to small businesses, as specified.
SB 1130 (Aanestad) continued
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BACKGROUND
Purpose of SB 1130: The author's office contends that
because current law mandates that state agencies and
departments purchase PIA products and "make maximum
utilization of these products," PIA receives precedence
over other vendors during the contract bid evaluation
process, regardless of the price and quality of the
product.
The author's office points to a specific example in his
district. Recently, PIA ended its long-term contract with
a local dairy in Crescent City (Del Norte County) that had
been supplying dairy products to Pelican Bay State Prison
and instead, will now have inmates at a Central Valley
facility produce and process the dairy products and truck
them to Pelican Bay. PIA claims that it can produce and
ship the dairy products cheaper than the local dairy in Del
Norte County.
The author's office has requested an economic impact
analysis from PIA proving that it is cheaper to truck in
milk than to use local dairies as a supplier. According to
the author's office, PIA has failed to respond to the
request.
The author's office emphasizes that the economy of Del
Norte County has been ravaged by declines in the fishing
and timber industries - much of which has been brought
about by government - and that this PIA issue is one more
blow to the local economy. The author believes that PIA
should have to prove it is economically competitive with
local industry rather than rely on the PIA "mandate."
According to the author's office, the PIA mandate drives up
state costs and unnecessarily reduces business
opportunities for private companies. By reducing the impact
of the PIA mandate setting the bidding preference for
micro-businesses at the same level as the PIA, the state
would expand the number of businesses that can compete for
small state projects, with potential savings for most bids.
Additionally, by spending state money to support the PIA
instead of on small businesses that pay taxes, the state is
losing money that would have been collected through
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business and sales taxes.
SB 1130 would provide that a state agency is not required
to purchase any product from the PIA unless the total cost
to the state agency for the transaction is equal to or less
than the total cost of making that same transaction with a
private entity or other public agency.
Arguments in Opposition: PIA staff indicates its programs
reduce taxpayer expense by approximately $44 million per
year, through reduced recidivism and the avoided cost of
vocational education in classrooms. PIA staff states that
the recidivism rate among inmates who participate in PIA
rehabilitation training is approximately 25% lower than
California Department of Correction's general population
(32% vs 43%).
Due to the fact that this measure was amended on April 5,
2010, the PIA Board has not had an opportunity to take an
official position on this measure however, PIA staff claims
that SB 1130 would unnecessarily limit the current mandate
that state agencies purchase PIA manufactured products
resulting in a reduction of revenues to the Prison
Industries Revolving Fund by millions of dollars. The
reduction in revenues would also lead to a loss of jobs
across numerous business lines and increase General Fund
costs to the Department of Corrections and Rehabilitation.
What is the Prison Industry Authority (PIA)? According to
a 2006 Audit by the Inspector General:
The Prison Industry Authority is a semi-autonomous,
fiscally self-supporting entity within the California
Department of Corrections and Rehabilitation, whose mission
is to use inmate labor to operate California's prison
industries in a manner similar to that of
private industry. The Prison Industry Authority was
established to develop and operate manufacturing,
agricultural, and service enterprises that provide work
opportunities for inmates under the jurisdiction of the
California Department of Corrections and Rehabilitation.
Prison Industry Authority work assignments support prison
safety, help reduce violence, reimburse victims, provide
career training, and offer productive activity for inmates.
The Prison Industry Authority operates over 60 programs at
22 correctional facilities statewide and employs
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approximately 6,800 inmates in various industries such as
license plate production, eyewear production, office
furniture manufacturing, and food and printing services.
(2006 Accountability Audit PIA Optical Program at the
Richard J. Donovan Correctional Facility, Office of the
Inspector General, pp. 349-350.)
The Inspector General's 2006 Audit describes one of the
many programs operated by PIA:
Through an interagency agreement, the Department of Health
Services has contracted with the Prison Industry Authority
since 1988 to furnish and fabricate optical eyewear for the
California Medical Assistance Program (Medi-Cal). The term
of the current interagency agreement is July 1, 2003,
through June 30, 2006, with expenditures not to exceed
$61,200,000.
Statewide, the Prison Industry Authority optical program
has invested over $10 million in buildings and
state-of-the-art optical equipment in its four optical
laboratory facilities at the Richard J. Donovan
Correctional Facility, Pelican Bay State Prison, Valley
State Prison for Women, and the California State Prison,
Solano. In total, the Prison Industry
Authority optical program employs 391 inmates, including
110 inmates at the Richard J. Donovan Correctional
Facility. The laboratories fill approximately 860,000
prescriptions annually and ship them to about 2,400
providers. Finally, the Prison Industry Authority services
about 754,602 Medi-Cal beneficiaries in all of California's
58 counties through such providers as optometrists and
opticians.
Related Issue: On January 25, 2008, Legislative Counsel
issued an opinion addressing whether PIA has the authority
to establish procurement procedures for the purchase of
goods and services that do not provide preferences for
small businesses as required by the Government
Code or disabled veterans' business enterprises as required
by the Public Contract Code.
Counsel found:
PIA is part of the Department of Corrections and
Rehabilitation, which is a governmental entity within the
executive branch of state government. However, when it
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established PIA, the Legislature declared that "[t]he
constraints of state government severely impede
the ability of the [prior] prison industries program to
operate on a self-supporting or profit-making basis," and
intended that "[t]he operation of the [new] prison
industries program be self-sustaining, financed from its
own operating resources." The Legislature
intended that PIA be effectively self-sustaining and
primarily operated by inmates in order to reduce violence
in prisons and help reintegrate prisoners into society once
they are released. (Legislative Counsel's Opinion #
0801322, dated January 25, 2008, pg. 2, citations omitted.)
Accordingly, Counsel concluded:
In summary, it is our opinion that, for purposes of the
small business or disabled veteran business enterprise
preferences in state contracts, the Legislature did not
intend to treat PIA as a "state agency" or as a "state
governmental entity." Rather, it intended PIA to be
treated as a quasi-private enterprise free from
statutory contracting regulations imposed on state agencies
generally, except as limited by law.
PRIOR/RELATED LEGISLATION
SB 467 (Dutton) 2009-10 Session. Would have authorized
agencies and departments to award contracts of less than
$25,000 for goods or services by California certified small
businesses, microbusinesses, or Disabled Veteran Business
Enterprises (DVBEs) without seeking an exemption of the
Prison Industries Authority (PIA) mandate if the contract
price is less than the contract price available from the
PIA for the same products. (Died on the Senate
Appropriations Suspense File)
AB 1771 (Mendoza) 2009-10 Session. Would provide that the
requirements imposed on state agencies to purchase PIA
products, make maximum utilization of these products, and
consult with the staff of the PIA to develop new products
and adapt existing
products to meet their needs shall not restrict state
agencies from entering into contracts of twenty-five
thousand dollars ($25,000) or less with California
certified small businesses, microbusinesses, or disabled
veteran business enterprises. (Pending in Assembly policy
SB 1130 (Aanestad) continued
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committee)
SB 1397 (Negrete McLeod) 2007-08 Session. Would have
required the PIA Board, in procuring the purchase of raw
materials, component parts, and goods and services, to
comply with certain provisions of law that give priority to
small businesses and DVBEs in awarding contracts. (Held in
Senate policy committee at author's request)
SUPPORT: None on file as of April 9, 2010.
OPPOSE: None on file as of April 9, 2010.
FISCAL COMMITTEE: Senate Appropriations Committee
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