BILL ANALYSIS �
AB 1917
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Date of Hearing: May 16, 2012
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 1917 (Dickinson) - As Amended: May 2, 2012
Policy Committee: Education
Vote:7-3
Higher Education 6-3
Urgency: No State Mandated Local Program:
Yes Reimbursable: Yes
SUMMARY
This bill requires the Trustees of the California State
University (CSU) and the governing board of each school
district and community college district (CCD) maintaining a
cafeteria, to develop and adopt policies and procedures for the
acquisition of food services, as specified. This bill also
request the University of California (UC) comply with these
requirements. Specifically, this bill:
1)Requires the policies to:
a) Ensure that a service contractor fully discloses to the
district, CCD, and CSU and/or UC campus/organization, all
discounts, rebates, allowances, and incentives received by
the service contractor from its suppliers. Further
requires the service contractor, if it receives a discount,
to disclose and pay to the entities the full amount of the
discount, rebate or applicable credit.
b) Requires any discount, rebate, allowance, or incentive
to be paid to the district, CCD, and CSU and/or UC
campus/organization during the mutually agreed upon
timeframe, and requires a record of these transactions be
made available for review as part of any required audit, as
specified.
2)Requires any changes required to be made by this measure to be
implemented upon the renewal, extension, or amendment of an
existing agreement or as part of a new service agreement.
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3)Defines rebate as any return of monetary value, including, but
not limited to, a volume discount, allowance, or discount
purchase incentive.
FISCAL EFFECT
1)GF/98 state reimbursable mandated costs to school districts
and CCDs, likely between $750,000 and $900,000, combined, to
develop policy and procedures regarding food service
contracts. There are approximately 1,040 school districts and
72 CC districts in the state.
According to SDE, there were 1,483 Local Education Authorities
(LEAs) (including charter schools) participating in the school
nutrition program; 298 (20.1%) of these LEAs have some sort of
vendor contract. This bill, however, will apply to all LEAs
regardless if they have a vendor contract.
2)GF costs of about $350,000 to CSU to comply with this measure.
These costs are associated with additional staff to conduct
monitor and compliance activities with regard to food service
contracts.
3)GF costs likely between $960,000 and $2 million, to UC to
comply with this measure. These costs are associated with the
loss of financial benefits and the implementation of
additional auditing and monitoring procedures.
COMMENTS
1)Background . Public schools and postsecondary institutions
that provide food services are referred to as School Food
Authorities (SFAs). SFAs typically contract with food service
contractors to meet their food service needs at a lower cost
to the schools and institutions. The contractor is able to
utilize its purchasing power to negotiate rebates and other
cost reductions from food suppliers.
Under federal K-12 school nutrition statute, the rebates or
cost reductions received by the contractor are required to be
credited back to the SFA. Likewise, SFAs are responsible for
ensuring that invoices from the contractors are net of all
applicable discounts, rebates, and credits.
In 2010, as part of the federal reauthorization of the
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subsidized school meals program, the United States
Agricultural Department enacted regulations requiring
contractors to disclose all discounts, rebates, and other
applicable credits received by the contractor and to credit
these discounts back to the school districts. Federal law,
however, does not require school districts to have policies
and procedures in place regarding food service contracts.
Statute authorizes CC governing boards to enter into contracts
for the management of food service for up to a one year term
renewed on an annual basis as long as the contract does not
result in the elimination of classified personnel.
2)Purpose . In March 2012, the Assembly Committee on
Accountability and Administrative Review (AAR Committee) held
a hearing on the "Rebates and Transparency in Public K-12 and
Higher Education Food Service Contracts." The AAR Committee
conducted an investigation. The following is an excerpt of
their findings:
State and federal guidelines require all K-12 food
service contracts to be submitted to SDE for review and
approval before they are signed and executed. Yet, SDE does
not receive all contracts before they are put into place
and does not have sufficient staff to review and monitor
these contracts. As a result, as many as 52 of 170 K-12
food contracts in place in California (out of more than
1,100 districts statewide) may be in violation of rules
that prohibit requiring districts to purchase all food
supplies through a contractor's vendors, SDE officials
confirmed. In addition, SDE officials said they believe
food service contractors continue to collect questionable
rebates under fixed-price contracts.
At UC and CSU campuses, the AAR Committee found
contracts in which food service contractors' off-invoice
rebates apparently are not factored into agreed upon profit
limits, operating expenses, net income calculations or
evaluations of price increase requests, including those for
student meal plans. In some cases, student meal plan rates
increased sharply under new contracts.
A sample of community college contracts reviewed by the
AARA Committee showed many of the same patterns found in
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the UC and CSU contracts. Off-invoice rebates were
sanctioned by boilerplate industry language and at least
one contract was silent on rebates, leaving open the
question of whether rebates should have been remitted to
that college.
According to the author, "This bill was inspired by a $20
million settlement that the New York Attorney General's Office
reached in July 2010 with Sodexo. The settlement resolved
allegations that the giant, France-based company had
overcharged New York public schools and universities by not
remitting rebates collected from national and regional
suppliers."
The author further states: "Federal and state guidelines
prescribe a comprehensive set of rules for K-12 food service
contracts, rules that are for the most part left to SDE to
enforce. But federal auditors found SDE's contract-oversight
arm understaffed and unable to effectively monitor most of the
contracts negotiated by California school districts. With
this bill, state law would require that already cash strapped
educational facilities are fully informed of food service
costs as well as require remittance of any discounts, rebates,
allowances, and incentives received by a service contractor
from its supplier."
1)April 2012 Department of Finance (DOF) Letter requesting
additional funds for SDE nutrition unit to oversee food
service contracts . The DOF letter requests an allocation of
$556,000 from federal nutrition funds to support workload
associated with federally-required oversight contracts between
food service management companies (FSMCs) and SFAs. According
to DOF, "Federal regulations require state agencies to review
and approve all contract documents (including solicitations,
evaluations, contracts, and bid protests) between FSMCs and
SFAs. SDE's nutrition services division has only 0.25 of a
position dedicated to these activities. This request will
ensure the SDE can fund redirected positions to provide the
required level of oversight."
Both the Assembly and Senate Budget subcommittees on Education
approved this request in April 2012.
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Analysis Prepared by : Kimberly Rodriguez / APPR. / (916)
319-2081