BILL ANALYSIS Ó
AB 834
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ASSEMBLY THIRD READING
AB 834 (Roger Hernández)
As Amended April 14, 2011
Majority vote
LOCAL GOVERNMENT 6-0
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|Ayes:|Smyth, Alejo, Bradford, | | |
| |Gordon, Hueso, Norby | | |
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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rescinded.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before the annual date by which the contract may be rescinded.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
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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
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 : 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.
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 this bill.
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.
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In exchange, local governments receive a stabilized rate of
service from the recycling and waste disposal provider. The
Legislature may wish to consider whether it is prudent to make
it more difficult for local governments to use this long-term,
financing tool.
This bill 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 this
bill 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 Legislature may wish to consider whether this bill needs
more specific language so local governments have more guidance
on how to comply with its provisions.
Also, this bill 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, this bill'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.
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.
Analysis Prepared by : Jennifer Klein Baldwin / L. GOV. /
(916) 319-3958
FN: 0000379
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