BILL ANALYSIS                                                                                                                                                                                                    �




                   Senate Appropriations Committee Fiscal Summary
                           Senator Christine Kehoe, Chair


          AB 2508 (Bonilla) - Public contracts: public health agencies.
          
          Amended: July 2, 2012           Policy Vote: GO 8-4
          Urgency: No                     Mandate: No
          Hearing Date: August 6, 2012                           
          Consultant: Brendan McCarthy    
          
          This bill meets the criteria for referral to the Suspense File.
          
          
          Bill Summary: AB 2508 would prohibit state agencies that manage 
          specified public benefit programs from contracting for call 
          center services outside the state.

          Fiscal Impact: 
              By requiring state agencies to only contract for call 
              center services that will be performed in the state, the 
              bill will potentially increase costs to state agencies. 
              Because wages and other costs tend to be higher in 
              California than in surrounding states or countries, the cost 
              of call center services provided in California is likely to 
              be higher than services provided in lower cost states or 
              countries. The size of this impact is unknown and would 
              depend on future contract proposals. 

              To the extent the bill requires jobs to be located in 
              California, the bill will increase state tax revenues. 
              According to the Board of Equalization and the Franchise Tax 
              Board, the average private sector job is responsible for 
              about $3,600 per year in General Fund tax revenue.

          The net fiscal impact of the bill is uncertain. Whether the net 
          fiscal impact to the state is positive or negative would depend 
          on the relative cost difference between providing services in 
          California versus other states or countries.

          For example, the state's Medi-Cal program is generally funded 
          with 50 percent General Fund and 50 percent federal funds. If 
          the cost gap for call center operations between California and a 
          neighboring state is more than $7,200 per job per year, the 
          state would save more money contracting for out of state 
          services ($3,600) than it would gain from General Fund tax 








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          revenues. If the cost gap is less, the state would receive more 
          in taxes than the cost savings. For programs with greater state 
          funding (or which are funded by block grants) the cost gap at 
          which the state would break even would be narrower.

          Background: State agencies manage several public benefit 
          programs which provide health and welfare benefits to California 
          residents. The state agencies that manage these programs 
          contract with outside providers to provide call center services. 
          These call centers assist program participants with enrollment 
          and benefit issues.

          Most of the existing contracts issued by these state departments 
          require call centers to be located within the state. However, 
          the Department of Social Services contracts for a call center in 
          Mexico and a backup site in Texas.

          Total spending by these state agencies for call center contracts 
          is in the tens of millions per year.

          Proposed Law: AB 2508 would prohibit state agencies that manage 
          specified public benefit programs from contracting for call 
          center services outside the state. 

              The bill would apply to CalWORKS, CalFresh, Medi-Cal, 
              Healthy Families, and the California Healthcare Eligibility, 
              Enrollment, and Retention System.
              The bill applies to contracts with state agencies and any 
              subcontracts.
              The bill would impose penalties on a contractor for 
              noncompliance.
              The bill would allow the Governor to waive its requirements 
              during an emergency.
              The bill's provisions would not apply if implementation 
              would violate the Agreement on Government Procurement of the 
              World Trade Organization, agreements currently in place, or 
              contracts between a state agency and a health plan or 
              insurer.

          Staff Comments: While the sponsors of the bill have indicated 
          that the intent of the bill is to only require call centers to 
          be located in the state, the requirement that all subcontracts 
          be performed in the state could expand the application of the 
          bill by requiring specialized subcontractors (for example tax 








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          preparers or information technology providers) to also be 
          located in the state. Such an interpretation could complicate 
          implementation and increase costs.

          It is not clear whether the bill is enforceable under federal 
          case law under the Commerce Clause of the United States 
          Constitution or the Agreement on Government Procurement of the 
          World Trade Organization.