BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 438 HEARING: 7/6/11
AUTHOR: Williams FISCAL: No
VERSION: 6/27/11 TAX LEVY: No
CONSULTANT: Weinberger
COUNTY LIBRARIES
Imposes requirements on a city or library district that
intends to withdraw from a county free library system and
operate libraries with a private contractor.
Background and Existing Law
Exactly one century ago, the Legislature authorized
counties to establish county free library systems (SB 289,
Hans, 1911). Before Proposition 13 (1978), a county could
levy a separate property tax rate to support its library
system. Nearly 30 county free libraries had separate
rates. A county could extend the property tax rate to
parcels in a city that wanted to join the library system
and would cease to levy the rate within a city that
withdrew from the system.
After Proposition 13, the Legislature divided the remaining
property tax revenues among local governments. Although
they were not separate institutions, state law treated
county free libraries as if they were special districts
because they had their own property tax rates before
Proposition 13. The county free libraries received shares
of the property tax revenues and they could receive money
from the Special District Augmentation Fund (AB 8, L.
Greene, 1979). In general, to withdraw from a county
library system, a city must negotiate the amount of
property tax revenues, if any, that it will receive from
the county library system. Different procedures apply to
city withdrawals from county free library systems in Los
Angeles and Riverside counties (AB 1998, Mountjoy, 1996 and
AB 927, Thompson, 1997).
Instead of participating in a county free library system, a
city can provide library services to its residents in
several other ways: by operating its own libraries,
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through a library district, or by contracting with another
public agency or private firm. For charter cities,
contracting arrangements with private firms can be governed
by their charters. General law cities must follow the
standards and procedures in the state statutes. While
general law cities' specific statutory authority to
contract for services is limited, court opinions have
recognized general law cities' authority to enter into
contracts to carry out necessary functions, including those
expressly granted and those implied by necessity.
State law requires state departments that contract for
personal services to follow specific criteria: a clear
demonstration of cost savings, a clear definition of costs,
ensuring that work will not be contracted out solely on the
basis of lower pay or benefits, and justification of
savings based on the contract's size and duration. State
law requires school and community college districts to
comply with the same standards that apply to state
departments (AB 1419, Alarc�n, 2002).
Riverside County and the Cities of Camarillo (Ventura
County), Moorpark (Ventura County), Redding (Shasta
County), and Santa Clarita (Los Angeles County) contract
with a private corporation, Library Systems and Services,
Inc. (LSSI), for library services. In response to some
cities' recent efforts to contract with LSSI, some library
advocates and labor unions want the conditions that apply
to state, school district, and community college district
service contracts to apply to any city that intends to
withdraw from a county free library system and contract
with a private firm for library services.
Proposed Law
If the legislative body of a city or the board of trustees
of a library district intends to withdraw from the county
free library system and operate the city or district's
library with a private contractor that will employ library
staff to achieve cost savings, Assembly Bill 438 imposes
requirements relating to:
Public notice
Demonstrated cost savings
Wages and benefits
Employee displacement
AB 438 -- 6/27/11 -- Page 3
Cost fluctuations
Contract scope and duration
Competitive bidding
Staff qualifications and hiring
Economic risk
Eligible contractors
Contract termination
Public interest
Contractor disclosure and performance measurement
AB 438 specifies that its requirements do not apply if the
city or district library or libraries are funded only by
the proceeds of a special tax imposed by the city or
district, pursuant to state law.
I. Public notice . AB 438 requires the legislative body of
the city or the board of trustees of the library district
to publish a notice of the contemplated action, giving the
date and place of the meeting at which the contemplated
action is proposed to be taken. The notice must be
published at least once a week for four consecutive weeks
before the city or library district acts.
II. Demonstrated cost savings . AB 438 requires the
legislative body of a city or the board of trustees of a
library district to clearly demonstrate that the contract
will result in actual overall cost savings to the city or
library district, provided that, in comparing costs, all of
the following occur:
The city or library district's additional cost of
providing the same services as proposed by the
contract must be included. These additional costs
include the salaries and benefits of additional staff
that would be needed and the cost of additional space,
equipment, and materials needed to perform the
necessary functions of the library.
The city or library district's indirect overhead
costs must not be included unless those costs can be
attributed solely to the function in question and
would not exist if that function was not performed by
the city or library district. "Indirect overhead
costs" means the pro rata share of existing
administrative salaries and benefits, rent, equipment
costs, utilities, and materials.
The cost of a contractor providing a service for
any continuing city or library district costs that
would be directly associated with the contracted
AB 438 -- 6/27/11 -- Page 4
function must be included. Continuing city or library
district costs include costs for inspection,
supervision, and monitoring.
III. Wages and benefits . AB 438 prohibits city or library
district officials from approving a contract solely on the
basis that savings will result from lower contractor pay
rates or benefits. Contracts are eligible for approval if
the contractor's wages are at the industry's level and do
not undercut city or library district pay rates.
IV. Employee displacement . AB 438 prohibits a contract
from causing the displacement of city or library district
employees. Displacement includes layoff, demotion,
involuntary transfer to a new classification, involuntary
transfer to a new location requiring a change of residence,
and time base reductions. Displacement does not include
changes in shifts or days off, nor does it include
reassignment to other positions within the same
classification and general location or employment with the
contractor, so long as wages and benefits are comparable to
those paid by the city or library district.
V. Cost fluctuations . AB 438 requires that a contract's
overall cost savings must be large enough to ensure that
the savings will not be eliminated by cost fluctuations
that could normally be expected during the contracting
period.
VI. Contract scope and duration . AB 438 requires that the
overall cost savings of a contract must clearly justify the
scope and duration of the contract.
VII. Competitive bidding . AB 438 requires that a contract
must be awarded through a publicized, competitive bidding
process.
VIII. Staff qualifications and hiring . AB 438 requires a
contract to include specific provisions pertaining to the
qualifications of the staff that will perform the work
under the contract, as well as assurances that the
contractor's hiring practices meet applicable
nondiscrimination standards.
IX. Economic risk . AB 438 requires that the potential for
future economic risk to the city or library district from
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potential contractor rate increases must be minimal.
X. Eligible contractors . AB 438 requires a contract to be
with a "firm," which means a corporation, limited liability
company, partnership, nonprofit organization, or sole
proprietorship.
XI. Contract termination . AB 438 requires a contract to
provide that it may be terminated at any time by the city
or library district without penalty if the contractor fails
to perform and notice is provided within 30 days of
termination.
XII. Public interest . AB 438 prohibits the potential
economic advantage of the contract from being outweighed by
the public's interest in having a particular function
performed directly by the city or library district.
XIII. Contractor disclosure and performance measurement .
If the contract is for library services in excess of
$100,000 annually, AB 438 requires:
A city or library district must require a
contractor to disclose the following information as
part of its bid, application, or answer to a request
for proposal:
o A description of all charges, claims, or
complaints filed against the contractor with any
federal, state, or local administrative agency
during the prior 10 years.
o A description of all civil complaints filed
against the contractor in any state or federal court
during the prior 10 years.
o A description of all state or federal criminal
complaints or indictments filed against the
contractor, or any of its officers, directors, or
managers, at any time.
o A description of any debarments of the
contractor by any public agency or licensing body at
any time.
The city or library district must include in the
contract specific, measurable performance standards
and provisions for a performance audit by the city or
library district, or an independent auditor approved
by the city or library district, to determine whether
the performance standards are being met and whether
the contractor is in compliance with applicable laws
AB 438 -- 6/27/11 -- Page 6
and regulations. The bill prohibits a city or library
district from renewing or extending the contract
before receiving and considering the audit report.
The contract must include provisions for an audit
by the city or library district, or an independent
auditor approved by the city or library district, to
determine whether and to what extent the anticipated
cost savings have been realized. The bill prohibits a
city or library district from renewing or extending
the contract prior to receiving and considering the
audit report.
Assembly Bill 438 declares that it does not preclude a
city, library district, or local government from adopting
more restrictive rules regarding the contracting of public
services.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . Public libraries are vital to
California's communities. Libraries provide access to
books and information, offer Internet access, literacy
programs, educational opportunities, job search assistance,
and other services. A city can withdraw from a county free
library and contract out library services to a private firm
with minimal public notice, little opportunity for public
input, and few safeguards to ensure that a contract makes
fiscal sense. In light of public libraries' essential
role, public officials should privatize library services
only if their decision is subject to thorough public
scrutiny and can be clearly justified as being in the
public's best interest. Assembly Bill 438 ensures that
cities engage in appropriate research, planning, and
analysis of contracts before contracting out library
services. It protects the public, taxpayers, and library
employees from the contracting out of library services
without proper evaluation and public review.
2. Home rule . Deciding how to provide municipal services
to city residents is what city council members are elected
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to do. AB 438 erodes local officials' ability to manage
local affairs, making it hard for them to preserve
essential public services during tough financial times.
Local elected officials are well-positioned to judge the
merits of a library service contract and can either
negotiate better terms or reject a contract altogether.
The Committee may wish to consider whether AB 438 sets a
precedent that will make it easier for legislators to
impose similar conditions on city contracts for other
services, further eroding local control.
3. Balancing act . AB 438 doesn't balance the public's
interest in carefully scrutinizing private library services
contracts with local officials' authority to make
contracting decisions that respond to their community's
needs. Rather than dictating the terms that city officials
must include in library service contracts, the Committee
may wish to consider amending AB 438 to make the
contracting process for library services more deliberate,
more transparent, less subjective, and more accountable to
the public. Specifically, the amendments could:
Public notice . Require a library service contract
to be approved, or renewed, only at an open and public
regular meeting of a city council. Prohibit a city
council from acting on a library services contract
unless a hearing notice has been posted at each
library within the city at least four weeks in advance
of the hearing and mailed to all library-card holders
in the city.
Competitive bidding . To ensure that a contract is
efficient and is not awarded based on unsound,
subjective factors, require a city council to award a
library services contract through a competitive
bidding process.
Limited contract lengths . To ensure that local
elected officials remain ac-countable for deciding to
contract out library services, limit the term of a
library services contract to no more than two years.
To renew a contract, require a city council to comply
with the same notice and open meeting requirements
that applied to an initial hearing on awarding the
contract.
4. One of these things is not like the others . Unlike
school and community college districts, public libraries
receive minimal state funding. While the state's
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significant role in funding education may justify imposing
conditions on schools and community college districts'
contracts for services, the state has no similar fiscal
interest in city libraries' service contracts. Unlike
school and community college districts, a city library is
not required to continue operating. With only limited
ability to contract out library services, city officials
presented with a choice between remaining as part of a
county library system and closing a city's library
altogether might choose to close the library. In light of
these differences, the Committee may wish to consider
whether state law should impose nearly identical
requirements on schools' and city libraries' service
contracts.
5. Just say no . Nearly a decade after the 2001 Alarc�n
bill imposed conditions on school and community college
districts' service contracts, apparently no district has
contracted with a private firm using the same requirements
that AB 438 applies to cities' library service contracts.
Although the Alarc�n bill exempted renewals of existing
contracts, school and community college districts'
experience suggests that AB 438 probably is a de facto
prohibition against any city's contract with a private
firm. If there's no practical distinction between the
Alarc�n bill's contracting requirements and an outright
ban, the Committee may wish to consider amending AB 438 to
delete the bill's contracting requirements and simply
prohibit a city that participates in a county free library
from contracting with a private firm for library services.
6. Which cities does the bill affect ? The California
Constitution lets charter cities control their municipal
affairs. The 120 charter cities must follow statewide laws
only for issues of statewide concern when the Legislature
has fully occupied the field. The courts -- not the
Legislature -- interpret the Constitution and decide what's
a municipal affair and what's an issue of statewide
concern. Because AB 438 does not challenge court opinions
that have found cities' mode and method of contracting for
services to be a municipal affair, the bill does not apply
to charter cities. AB 438 also doesn't apply to general
law cities that run their own library systems, participate
in a county library system under a joint powers agreement,
or receive library services through a contract with a
county or public library district. The Committee may wish
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to consider whether the bill's provisions should apply more
broadly, rather than focusing narrowly on general law
cities that are members of a county free library that
receives a share of property tax revenues. To apply AB 438
to charter cities, the Committee may wish to con-sider
amending the bill to include persuasive legislative
findings to support the claim that that the manner in which
cities provide public library services is a matter of
statewide concern.
7. Not every contract ? One rule of legal interpretation
is that if a law mentions some things, by implication the
statute excludes other things (expressio unius est exclusio
alterius). AB 438 imposes requirements on cities that
intend to withdraw from a county free library to contract
with a private firm that "will employ library staff to
achieve cost savings." By specifically referencing cost
savings, does AB 438 allow a city to contract with a
private firm for library services for reasons other than
cost savings? Would a contract that provides a different
set of library services for the same amount of money be
exempt from the bill's provisions? To close this potential
loophole, the Committee may wish to amend AB 438 to clarify
that a city must comply with the bill's requirements
regardless of its reasons for entering into a library
services contract with a private firm.
8. Timing is everything . AB 438 doesn't apply to a city
that chooses to withdraw from a county free library system
to run its own library system or contract with another
public entity for library services. A city could avoid the
bill's requirements by withdrawing from a county system to
run its own library for a short time before contracting
with a private firm for library services. To close this
potential loophole, the Committee may wish to consider
amending AB 438 to require a city to comply with the bill's
provisions if it seeks to contract with a private firm at
any time within three years from the date on which it
withdraws from a county free library.
9. Profiteering prohibited ? Opponents of private
contracts for library services argue that such contracts
often lead to fee increases. Making library services more
costly restricts the public's access to library resources,
undermining the purpose of a public library system. Last
year, California voters approved Proposition 26, which
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amended the California Constitution to define any levy,
charge, or exaction imposed by a local government as a tax
unless it fits into one of seven exceptions. One exception
lets local governments impose:
A charge imposed for a specific government service or
product provided
directly to the payor that is not provided to those
not charged, and which does
not exceed the reasonable costs to the local
government of providing the
service or product.
The Committee may wish to consider whether Proposition 26's
constitutional requirements eliminate concerns about
private firms inflating library fees to generate profits.
10. Related legislation . SB 163 (Alarc�n, 2003), which
died in the Senate Appropriations Committee, and SB 906
(Alarc�n, 2003), which failed on the Assembly floor, would
have required all general law county and city contracts for
services to meet the same requirements that apply to school
district and community college district contracts for
services. AB 3084 (Jerome Horton, 2004), which died in the
Senate Local Government Committee, would have applied the
same contracting requirements to a metropolitan water
district's contracts for services.
Assembly Actions
Assembly Local Government Committee: 6-2
Assembly Appropriations Committee: 11-5
Assembly Floor Amendments: 49-26
Assembly Local Government Committee: 6-3
Assembly Floor: 43-28
Support and Opposition (6/30/11)
Support : Central Coast Alliance United for a Sustainable
Economy (CAUSE) (co-sponsor); Ventura Reader's Book Group
(co-sponsor); AFSCME; American Library Association Student
Chapter at UCLA; Assistant Director, Public Services for
the County of Los Angeles Public Library; California Labor
Federation; California Teachers Association; Community
Coalition; Concerned Citizens Coalition of Stockton;
Democratic Alliance for Action, Santa Clarita; Democratic
AB 438 -- 6/27/11 -- Page 11
Party of the San Fernando Valley; Friends of Bell
Foundation; Friends of the Huntington Park Library; Friends
of the Hollydale Library; Friends of the Nevada County
Libraries; Los Angeles Alliance for a New Economy (LAANE);
Los Angeles County Democratic Party; Los Angeles Youth
Council Chapter The Multi-Taskers; Michele Diaz, City of
Artesia Councilmember; Montebello Friends of the Library;
Laborers' Int'l Union of North America Local 777 & 792;
Santa Clara Valley Democratic Club; Santa Clarita
Organization for Planning and the Environment (SCOPE);
Santa Clarita Valley Fair Election Committee; Service
Employees International Union; Shane Brinton, City of
Arcata Councilmember; Steven Choi, City of Irvine
Councilmember; several individuals.
Opposition : Association of California Cities, Orange
County; California Contract Cities Association; California
Chamber of Commerce; Cities of Arcata; Artesia; Bellflower;
Beverly Hills; Brea; Burlingame; Camarillo; Carlsbad;
Cerritos; Chino Hills; Cloverdale; Costa Mesa; Culver City;
Danville; Diamond Bar; Fountain Valley; Galt; Glendora;
Goleta; Fillmore; Healdsburg; Highland; Holtville; Huron;
Imperial Beach; Inglewood; Irvine; La Verne; Lake Elsinore;
Lakewood; Lathrop; Lemoore; Livermore; Livingston; Lodi;
Lynwood; Manteca; Merced; Montclair; Moreno Valley;
Moorpark; Mt. Shasta; Murrieta; Norwalk; Palmdale;
Paradise; Placentia; Rancho Cordova; Redding; Riverside;
Rosemead; San Clemente; San Leandro; San Mateo; San Pablo;
San Ramon; Santa Clarita; Santa Maria; Santa Rosa; Selma;
Signal Hill; Simi Valley; South El Monte; Sunnyvale;
Torrance; Tracy; Tulare; Union City; Visalia; Vista; Wasco;
West Hollywood; Windsor; Ashley Swearengin, Mayor of
Fresno; David Armenta, Mayor of Pico Rivera; Friends of
Redding Library; Friends of the Camarillo Library; Howard
Jarvis Taxpayers Association; Jeff Ira, Mayor of Redwood
City; League of California Cities; Library Systems &
Services, LLC; Mark Wheetley, City of Arcata Councilmember;
Shasta Public Library Foundation; Town of Windsor; several
individuals.