BILL ANALYSIS Ó
AB 834
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Date of Hearing: April 27, 2011
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Cameron Smyth, Chair
AB 834 (Hernández) - As Amended: April 14, 2011
SUBJECT : Local government: contracts.
SUMMARY : Requires the legislative body of a city, county, or
district to review any contract with a total value of $250,000
or more with a private party that contains an automatic renewal
clause on or before the annual date by which the contract may be
rescinded. Specifically,
this bill :
1)Requires the legislative body of a city, county, or district
to review any contract with a total of $250,000 or more with a
private party that contains an automatic renewal clause on or
before the annual date by which the contract may be rescinded.
2)Requires the legislative body of a city, county, or district
to make findings on the record, prior to the renewal of the
contract, including, but not limited to, whether the contract
contains updated information and whether the contract fits the
needs of the legislative body.
EXISTING LAW :
1)Authorizes the legislative body of a city, county, or district
to include or cause to be included in contracts for public
projects a provision establishing the time within which the
whole or any specified portion of the work contemplated is to
be completed.
2)Authorizes the legislative body of any public or municipal
corporation or district to contract with and employ any
persons for the furnishing to the corporation or district
special services and advice in financial, economic,
accounting, engineering, legal, or administrative matters
if the persons are specially trained and experienced and
competent to perform the special services required.
3)Authorizes a public entity subject to the Local Agency Public
Construction Act to require each prospective bidder for a
AB 834
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contract complete and submit to the entity a standardized
questionnaire and financial statement in a form specified by
the entity, including a complete statement of the prospective
bidder's experience in performing public works.
FISCAL EFFECT : None
COMMENTS :
1)An evergreen contract is an agreement between two parties that
is automatically renewed after each maturity period until one
of the contracting parties gives notice at a specified
interval in the manner required to terminate the otherwise
perpetual agreement. The specified interval could be annually
or as long as several years. Evergreens are commonly used for
long-term agreements, such as memberships and maintenance
agreements. This
type of contract is in contrast to fixed-term agreements, where
both parties are required to affirmatively agree to extend the
term of the contract beyond the initial term.
Local governments commonly use evergreen contracts for service
contracts, including waste hauling, park maintenance, road
maintenance, and public safety.
2)According to the author, evergreen contracts reduce
transparency for contract renewals. Regular reviews of
evergreen contracts, the author says, provide a way for cities
and counties to examine if those contracts are still fitting
the needs of those entities and the residents that are
directly impacted. The author points to a recent 20-year
contract entered into by the City of Covina and a trash hauler
as an example of an evergreen contract that would be impacted
by AB 834.
3)Long-term contracts with evergreen clauses allow recycling and
waste disposal facilities to be financed by the private sector
because these contracts are what financial institutions
require to extend financing over a 10- to 20-year term.
Furthermore, smaller service providers are able to amortize
the costs of expensive facilities and equipment over an
extended period of time, thus allowing them to compete against
larger companies. In exchange, local governments receive a
stabilized rate of service from the recycling and waste
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disposal provider. The Committee may wish to consider whether
it is prudent to make it more difficult for local governments
to use this long-term, financing tool.
4)AB 834 would require a legislative body of a city, county, or
district to make findings on the record as to whether the
evergreen contract contains updated information and fits the
needs of the legislative body. The language is vague and
could be interpreted by a local government to require the
issuance of a request for proposals as part of their review
for their official findings. Or a legislative body could
interpret AB 834 to mean the legislative body need only issue
a perfunctory statement of "ABC contract fits the needs of the
City of XYZ and contains updated information" with no other
action required. The Committee may wish to consider whether
AB 834 needs more specific language so local governments have
more guidance on how to comply with its provisions.
Also, AB 834 does not define local agency and there is no
controlling definition of local agency in this division or
title of the Government Code, which covers cities, counties,
and other agencies. Due to a lack of clarity, AB 834's
prohibition on evergreen contracts with a total value of
$250,000 or more with a private party would apply not only to
special districts but also school districts.
5)Support arguments: Supporters say personal service contracts
are significantly more expensive for taxpayers than having the
work performed by public workers.
Opposition arguments: Opposition argues evergreen clauses allow
expensive community facilities and equipment to be more easily
financed through private lenders.
REGISTERED SUPPORT / OPPOSITION :
Support
Orange County Employees Association
Professional Engineers in California Government
AB 834
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Opposition
AL Spector
Atlas Disposal Industries
Bay Counties SMaRT Station
BLT Enterprises
CA Refuse Recycling Council
CA Waste Recovery Systems
Consolidated Fabricators Corp.
Contra Costa Waste Service
CR&R Incorporated
Desert Valley Disposal, Inc.
East Bay Sanitary Co., Inc.
Ecology Auto Parts
Fremont Recycling & Transfer Station
Garaventa Enterprises
Garden City Sanitation
Gilton Solid Waste Management, Inc.
Green Hasson & Janks
Inland Empire Disposal Association
Los Angeles County Waste Management Association
Marin Sanitary Service
Napa County Recycling & Waste Services, LLC
Napa Recycling & Waste Services, LLC
Northern Recycling & Waste Services, LLC
Northern Recycling Operations & Waste Services, LLC
Palm Springs Disposal Services
Palo Verde Valley Disposal Service
Peninsula Sanitary Service, Inc.
Sacramento Recycling & Transfer Station
Solid Waste Association of Orange County
Stockton Tri Industries, Inc.
Turlock Scavenger, Turlock Recycling, Turlock Transfer
Varner Bros., Inc.
Zanker Road Resource Management, Ltd.
Analysis Prepared by : Jennifer Klein Baldwin / L. GOV. /
(916) 319-3958