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Home My WebLink About01/20/2004, COUNCIL LIAISON REPORT #2 - LEAGUE OF CALIFORNIA CITIES, POLICY COMMITTEE MEETING ON FEBRUARY 15 AND 16, 2004 �iiiiu�lllllllllllll�j11°°�9111I1 RECEIVED aEMLiaison RepoRt JAN 2 o 2004 city oL is tuts oulspo —SLO-CITY-CLERK— January 20, 2004 To: Council Colleagues From: Allen Settle, Councilperson Subject: League of California Cities, Policy Committee Meeting on February 15 and 16, 2004 Attached is information from the League's Policy Committee Meetings, which I attended last Thursday and Friday in Los Angeles. Attachments Zi COUNCIL a'CDD DIR 1,'..,/ fCAC 7FIN DIR 1, ACAO AFIRE CHIEF RED FILE 'ATTORNEY 2-PW DIR MEETING AGENDA eCLERKiORIG ,Z-POUCE CHF tJD P:7 �REC DIR DA 1 ITEM # COLIfL J (tatf�ry �� /JRDILDIR Lim'ion Report PAC Commission J u State Budget -Finance Crisis Revenue Issues-Debt Financing Prevailing Wage Law Workers Compensation From Council member Settle Revenue and Taxation Committee :ij Significant Observations a it the state is forced to use revenue anticipation warrants cities and counties will not receive any VLF funds even a the governor ano legislature nave previousry approves the backfin ■Prospect of this is most likely if Prop 57 or$15 Billion bond measure fails in Manch /UU4 ■I_eaoue's November ballot measure can be comoromised by Hertzbero's comoetina measure and rejects city VLF funds plus cuts into local sales tax revenues. 3 Z] Additional Concerns 9I Proposition 57 is not approved, Proposition 58 revenue limits wiii aiso raii and an can not ne authorized without also approving 57. ■Govemor's budget suspends Prop 42 transportation funds far 20045 FY(no street and road rehabilitation money)and cuts on traffic congestion relief revenues. ■Booking fee reimbursement is eliminated 4D League Ballot Initiative III If the League's Local Taxpayers-and Public Safety Protection Act is approved in November.it will nullify the proposed ERAF shift.The$1.3 billion shift is on top of the $6 billion already shifted to ERAF accounts. e League's campaign budget is$9 million ■Must collect a million signatures by Aoril.15 ■Have received the endorsement of police.fire and municipal employees 5 u Other Issues for Cities ■Prevailing wage law changed to apply to all pre-contract and development agreements and cities are fully Gable for wage cost differences,attorney fees and penalties if contractors fail to comply and subcontractors who do not comply. •Over a dozen cities have pulled out of CALPERS health care as cost will double by 2007. Remaining cities will have increased costs to make up the shortage. Leaving will mean retired workers will lose benefits! 6 U Workers Compensation Reform An Uphill Battle i Govemors proposal is for an$11.3 billion reduction in costs from next year's projects costs o X14.9 pillion. ■Disability claims 3 times countrywide rate,thus curbs on use of permanent disability benefits and redefine permanent and stationary and require medical physicians to determine permanent disability. d Establish independent medical review process requiring qualified medical examiner for 1 1' permanent disability determinations J Wild Year for Ballot Initiatives-4 or 5 for March, 2nd Ballot o March 2-Proposition 55-12.3 billion school construction bond(voters ok 13.5 billion in 2002) ■Proposition 56 an initiative that allows the legislature to ok the budget and tax increases with 55%vote. limh.future soendina. and forfeit legislative oav for not adopting budget by July 1. s Proposition 57-$15 billion bond measure •Proposition 58-limit state spending and require reserve of 3%of general fund. ■Possible SB 2 repeal.A measure that required employers provide health care for workers. 8 �.J Budget Busting Ballot Debt ®If Propositions 55 and 57 are approved California would have$27 billion more debt and would nearly double current general obligation bond debt of $29 billion (total GO debt$56 billion). ■Annual debt payments would increase sz olluon more a year IT Dom oo ana 57 are approved by the voters 9 u State Has 3 Types of Budget. Balancing Borrowing Options ■(1) It can use Fiscal Recovery Bonds or FRB's to finance$10.7 billion deficit from 2003. Now legally challenged. ■(2) Economic Recovery Bonds (ERB's)for$15 billion on March 3, 2004 ballot require voter approval. ■(3) Use Revenue Anticipation Warrants(RAW's) if ERB fails to refund the debt coming in June 2004 10 a Why The State Has So Much Shnrt Term nAht? ■State has$14 billion of short-term debt maturing in June 2004 including paying the$4 billion VLF backfill to local governments. ■Short term debt exists because of Revenue Anticipation Notes(RAN's)-$3 billion and Revenue Anticipation Warrants(RAW's) $11 Billion ($14 total) 11 J Fiscal Recovery Bonds ■The$10.7 billion FRB's to be used in 2003 were structured so no voter approval was required. Thus the need for the"triple flip" but FRB's are being legally challenged in court. ■FRB`s are not an oongauon oT Tne general Tuna ano aeon is para oacK Dy yearly legislative appropriation. 12 , Why the Triple Flip? 2 ■Triple flip makes the bonds not an obligation of the general fund. State enacts a new half cent sales tax with proceeds put in the FRB ($10,7 billion) ■So taxpayers see no difference in their sales tax rate,the local Bradley- Bums sales tax is reduced by a half cent.(expected to create$2.5 billion) sGeneral fund makes schools whole for the property tax they lose. 3 J Litigation Aqainst FRB Use. ■ I hus with the triple flip, the FRB's are sales tax bonds rather than bonds backed by the general fund.(GO bonds)and have a higher credit rating than the State's GO Bonds s Lawsuit has been filed against the FRB's as reoavment is derived from the State's General Fund and Constitution requires debt be issued"for some single object or work to be distinctly specified.0 It's argued the FRB's include the accumulated deficit representing the costs of daily govemment operations. 14 a Use of Economic Recovery Bonds or Proposition 57 ■Litigation on FRB may not be significant because it can take many months for appeals to be resoivea. ■The State put Proposition 57 or the$15 billion bond measure on the March 2nd ballot. If approved it would end litigation on FRB and ok the use of Economic Recovery Bonds trrassf as the Gonstinmon wowa oe changed to allow the state to issue debt to pay past operating expenses. But if denied? 15 iJ Economic Recovery Bond Risk e Both FRB and ERB are secured by use of the sales tax and if insufficient they are a general obligation of the State. i he triple flip is part of the ERB. ■Prop 58 or Balance Budget Amendment is also on the ballot and is not valid unless Prop 57 is approved!Requires in 2006 to set aside up to 5%of general fund or$8 billion(2010) 16 O What if Prop. 57 and 58 are Rejected by the Voters? ■If neither FRB's or ERB's are issued,the State will try to use RAN's and RAWs (revenue anticipation notes) paying higher interest rates in June when the State will face$30 billion accumulated deficit. ■If the State is unable to issue RAWs then the use of Forward Warrant Purchase Agreements(FWPA's)from banks would be used like RAWs but this comes with a maior problem. 17D Danger of Using FWPA's EAs the state uses registered warrants with higher interest as part of revenue anticipation warrants(RAWs)the law requires that it use the money in a specified order when not enough money is available. ■Priority is payment is first to schools,then debt service of GO bonds and revenue bonds, repayment of borrowed money and last is employee pay. 8 u What is not in FWPA's? ■State priority payments do not include health and welfare programs, all payments to local governments including VLF bacKnll that are not mandated by federal law. 3 ■Thus the fiscal crisis is both budgetary and cash flow shortage 19 iJ Local Government Dilemma ■Ballot measure to require state to get voter ok.before taking city revenue(3 pages) may be compromised as a dozen other ballot measure are on Nov.2004 plus many cities not happy to support Prop 57 if governor isnot supportive of city Proposition in November. ■Also Hertzberg has proposed a similar(50 page) measure where local governments lose VLF but cet more orooerty tax but less sales tax.This will dilute focus of League measure and likely to confuse voters. 20 J 20045 Budget Issues ■Governor returns 4 billion VLF backfill but takes 1.3 billion from local governments. Polls show the 31 b billion bond measure is not receiving voter approval(only 3b% support) e Local aovernments loosina Proo.42 transportation and road funds&bookina fees. ■ Local government credit ratings are likely to be reduced with a Prop 57 failure. If$15 billion measure fails the State would be forced to increase taxes or borrow more by using FWPA's or run out of money in June. 21 u Continued Revenue Issues ■Budget proposition also would suspend local mandates and state would be 000gatea to pay inose existing in 1 tsu Gays It mandates remain or otnermse cities could refuse to perform mandated actions. ■ERAF shift to schools- ■Redevelopment shift of$135 million for these agencies but if short differences would come out of city general fund 22 a Revenue Limits ■No revenues from Indian tribes and casinos and they are governments and the state can not force them to pay$2 billion fair share to state budget government crisis.Gov Davis gave the tribes a 20 year contracts. ■Poll shows voters as of January a majority reject$15 billion dollar bond measure but support spending limits yet both Prop 57 and 58 are linked-both must pass or no action 23 a Further Issues for the Governor. ®If ProD.57 sDendind limits must Dass along with 58 for new monev to be used to finance debt in the future. ■Business leaders want to end SB 2 or the employer health care mandate that covers 7 million uninsured employees. ®Limit prevailing wage laws that apply to all development projects using any public money and its application to Charter cities. 24 O New Laws on Prevailing Wages MSB 966 eliminates broad immunity that public agencies used to have for 4 J prevailing wage violations on public works projects. Cities now can be liable for damages even if it does not have a direct contract with contractors who fail to properly pay subcontractors ECity therefore can be liable for wage differences, attorney fees plus penalties. 25 O Other Provisions of SB 966 ESB 966 includes pre-construction contracts such as surveying, maintenance,and inspections. KAII development agreements are applicable involving all aspects of any development. z6 ,11 Prevailing Wages ■Prevailing wages can increase costs of development 20%to 30% NSB 1999 (pre-construction) and AB 302 Waste hauling are now subject to prevailing wages INDepartment of Industrial Relations has moved to impose this rule on all aspects of construction 27 U Over a Dozen Measures Expected for November Ballot ■Examples include, $9 billion bond for a high-speed rail system, $750 million Dona Tor cnuaren's nospttat construction, League of t:at. tames to otocK me state from reducing local tax revenue, Hertzberg measure to stabilize local revenue, a measure to increase taxes by 1% on those with adjusted gross income of$1 million or more to pay for mental health care. 5 It71�i RICHARDS WATSON GERSHON ATTORNEYS AT LAW—A PROFESSIONAL CORPORATION 355 South Grand Avenue,4oth Floor,Los Angeles,California 90071.3101 Telephone 213.626.8484 Facsimile 213.626.0078 RICHARD January 15, 2004 GLENN R.WATSON (RETIRED) HARRY L GERSHON (RETIRED) Revenue &Taxation Policy Committee ERWIN E.ADLER League of California Cities DAROLD D.PIEPER STEVEN L DORSEY WILLIAM L STRAUSZ MITCHELL E.ABBOTT Re: New Prevailing Wage Legislation Effective January 1, 2004 W. GREGORYW.LL E.ABBOTT ROCHELLE BROWNE WILLIAM S.RUDELL Q BARROW CAROLL B LYNCH Dear Policy Committee Members: CAR GREGORY M.KUNERT THOMAS M.IIMBO ROBERT C.CECCON STEVEN H.KAUFMANN Two bills were enacted in 2003 related to the payment of prevailing wages. One bill GARY E.DANS JOHN HARRIS KEVINIG.ENNIS could have a major impact on local agencies, while the other has more limited ROBIN D.HARRIS MICHAEL ESTRADA significance. IAURENCE S'WIENER STEVEN R.ORR B.TILDEN KIM SASKIA T.ASAMURA Senate Bill 966 (Alarcon) is the most significant prevailing wage legislation passed KAYSER 0.SLIME PETER N L TAMES L MARKMIAARKMAN in 2003. It eliminates the broad immunity public agencies used to have for prevailing ELE T.PPIETER PIERCE wage violations occurring on public works projects. Instead, it defines situations in TERENCE R.BOGA LISA BOND which a public agency may be directly liable for damages caused by prevailing wage JANET E.COLESON RJIM G.GE DIAZ M.M RA SON violations even in cases where the public agency does not have a direct contract with JIM G. AMR.IIAKMHA4MAN ON DEBORAH R. the contractor that has failed to properly pay prevailing wages. This legislation WILLIAM P. RIII D.CRAIG FOX amends one Labor Code section and enacts another. CHANDRA GEHRI SPENCER ROBERT H.PITTMAN ROY A.CLARKE ERIC M.ALDERETE First, SB 966 amends Labor Code § 1726 to provide that a Contractor may sue an MICHAEL F.YOSHIBA REGINA R DANNER PAULA awarding body for the difference. between the wages actually paid and the wages TERESARQ RESA BAQA XO-URANO OWEN P.GROSS required to be paid to workers, plus penalties and attorneys' fees, if either of the JIM R.KARPIAK EVAN I.MCGINLEY following is true: ALEXANDER ABBE CARRIE N.ANN ELZABETH A.SULLIVAN P.COYNE DIANAIRNA K.CHUAN E (1) The awarding body affirmatively represented to the contractor, >in writing that K ROBERT WATSON the job was not a public work•, or PATRICK R.BOBKO DANIEL R.GARGA MEZRA 1.S.RAMIREZ QRA I.REINSTEIN JULIET E.COX (2) The awarding body received "actual written notice" from Department of SONAU SARKAR IAN DIAL DAVID M.SNOW Industrial Relations ("DIR") that the work was a public work and the agency G.WIDER KHALSA BRUCE G.MCCARTHY failed to disclose that to the contractor before bid opening or contract award. MATTHEW B.FINNIGAN GINETTA L GIOVINCO TRISNA ORTIZ CANDICE K.LEE This amendment may be of limited effect since public agencies rarely make the type OFCOONN6 MARK L LAMKEN of affirmative written representation described above, nor is it common for an agency SAYRE WEAVER WILLIAM IL KRAMER BRUCE W.GALLLLOWAYOWAY to receive specific written notices from the DIR. It could have application in service ,VELE FIIIANCLBCO oma contracts, however, where the public agency thought that a contract was not a TELEPHONE 4$1121.8484 prevailing wage project and represented that to the contractor. Examples could oRANGc DouEm oml:c TELEPHONE 714.990.0901 include street sweeping contracts, or contracts for surveying, inspection, and other work considered to be "pre-construction" work. These types of services have been RICHARDS WATSON GERSHON ATTORNEYS AT LAW-.A PROFESSIONAL CORPORATION Revenue&Taxation Policy Committee January 15, 2004 Page 2 determined to be subject to prevailing wages, and amended Section 1726 could have an impact on existing contracts where prevailing wages are not being paid based on representations made by the public agency. Second, SB 966 adds Labor Code § 1781, to permit a contractor to sue a public agency to recover"any increased costs" if: (1) The awarding body, the DIR, or a court determines work was a public work after the bid was accepted or contract is awarded; and (2) The awarding body did not identify the work as a public work requiring the payment of prevailing wages. This new Section sweeps much more broadly than the amendment to Section 1726. It requires no affirmative representation that the job in question is not a public work, nor is actual written notice required from the DIR to the public agency. Although SB 966 was drafted in response to certain issues arising from developer's agreements as explained below, its impact is far broader than that. Under previous law, it was questionable that a public agency had any liability to a contractor for failure to identify contracted work as public work subject to prevailing wages, at least in the absence of deliberate misrepresentation. This Section instead creates clear liability in any case where the work was not identified as public work, and it is subsequently held to be such by the DIR or a court. The statute does not indicate whether or not it is applicable to contracts entered into prior to January 1, 2004, nor does the available legislative history address that issue. While this new Section may not present many challenges in the case of traditional public works projects, it does create new areas of exposure that have been overlooked in the past. Again, examples include street sweeping contracts, other types of maintenance contracts, and contracts for surveying, inspection and other work considered to be "pre-construction" work. The DIR has never defined the scope of "pre-construction" work beyond rulings related to survey and inspection, so there may be other categories of service-type contracts that will expose public agencies to liability under this Section. Under Section 1781 the contractor need not necessarily have a contract with the public agency or "awarding body." Liability can arise in cases where the contractor has a contract with a developer that has a contract with a public agency. RICHARDS (WATSON I GERSHON ATTORNEYS AT LAW-A PROFESSIONAL CORPORATION Revenue &Taxation Policy Committee January 15, 2004 Page 3 Section 1781 was drafted to address situations were a public agency gives financial aid or subsidies to a developer, thereby giving rise to an obligation on the part of the developer to pay prevailing wages under Labor Code § 1720. Some.developers in this situation have not advised their contractors that prevailing wages are required to be paid. The DIR has then investigated the contract and required the developer's contractor to pay prevailing wages and penalties. This allegedly resulted in instances where the contractor was unable to collect its increased costs from the developer due to insolvency, and the public agency was immune from any liability for the contractor's increased costs. This situation was described in the Senate Floor Analysis dated September 11, 2003, in the following manner; "Some wage determinations by DIR have resulted in general contractors having no reasonable ability to know for sure whether a project they are bidding is or is not a prevailing wage job under the law. They cannot be presumed to know the law in these situations, because the determination depends upon whether public funds have been contributed to the project that are not subject to one of the exceptions in the law that prevent the contribution of such funds from triggering a prevailing wage requirement. These determinations are highly fact-specific. The facts that control the outcome of the analysis are details buried within complex, negotiated development transactions. Contractors have no way of accessing such details and no expertise in assessing whether such facts should trigger prevailing wage requirements or not." Section 1781 changes this result and creates potential liability for the public agency. The sweep of this liability may be best understood by looking at the steps a public agency must take to avoid liability under Section 1781. Under this section the awarding body is not liable for increased costs only if all of the following are true: (1) The contractor did not submit its bid to, or contract directly with, the awarding body; (2) The awarding body identified the work as public work in its contract that caused the work to be performed and required that it be performed as such; and RICHARDS I WATSON I GERSHON ' ATTORNEYS AT LAW-A PROFESSIONAL CORPORATION Revenue&Taxation Policy Committee January 15, 2004 Page 4 (3) The awarding body required the posting of a payment (labor and materials) bond. Accordingly, unless the public agency requires, in its contract with a developer, that prevailing wages be paid and a payment bond be posted, it is potentially liable to the contractor if prevailing wages are not paid on the project, even though it was the developer that failed to notify the contractor of the prevailing wage requirement. A public agency's liability under this Section does not even depend on it having knowledge, in advance, that the contract in question was subject to prevailing wages.. It is liable to the contractor for increased costs even where the decision that prevailing wages apply is made by the DIR or a court long after the actual award of the contract. If construction has not commenced when the final decision of the DIR or a court is made, the awarding body that solicited the bid or awarded the contract is required to rebid the public work, and all pre-existing bids and contracts are void. Presumably, the public agency could also elect to abandon the project, although that is not stated in the statute. The statute also does not make clear how this section applies, if at all, in the case of a third-party contractor working for a developer, where the contract in question may have not been bid in the first place. The awarding body is not absolutely liable to contractor under this Section. It is only liable for that portion that the contractor cannot recover from a third party such as the developer or a bonding company. Of course, many developers are shell corporations that often have no assets that the contractor will be able to reach. Similarly, if the public agency did not require the posting of a payment bond, there will likely be no bond proceeds available to the contractor. Whether or not a developer's general liability insurance would be responsible for such damages will depend on the terms of its coverage, although it seems doubtful that would commonly be the case. In any event, it can be anticipated that such damages will be excluded by the insurance companies as such policies are rewritten if there is any current prospect of coverage. This new statute will increase the cost of some development projects where prevailing wages are not currently being paid but which may come within the expansive definition of a public works project adopted by the DIR. If a public agency requires the payment of prevailing wages in its contract with a developer, it immediately subjects the developer, and possibly the public agency, to increased costs. If it does not require such payments, however, both the developer and the public agency are exposed not only to increased costs for higher wages, but also to potential penalties, attorney's fees, and other costs, if prevailing wages were, in fact, required to be paid. RICHARDS I WATSON I GERSHON ATTORNEYS AT LAW-A PROFESSIONAL CORPORATION Revenue &Taxation Policy Committee January 15, 2004 Page 5 Public agencies should carefully consider these new prevailing wages issues when planning both their own projects as well as development projects. Failure to do so could result in substantial increased, unbudgeted costs to the public agency since the payment of prevailing wages is said to add 20°/0-30% to the cost of a project. A public agency could be liable to a contractor for that entire amount plus penalties, interest, and any other "increased costs" the contractor may have incurred as a result of the agency's failure to comply with the safe harbor requirements of Section 1781. Public agencies should consider obtaining a coverage determination letter from the DIR as a way of resolving uncertainties about whether or not prevailing wages apply to a specific project. The could be particularly useful in cases where the developer resists a contractual requirement that prevailing wages be paid, or where there is uncertainty whether prevailing wages cover only one phase or element of a project or the entire project under the "single project" rule. It will be important to allow sufficient time in project schedules to obtain such opinions, however. AB 1418 (Laird) revises the rules on the maximum daily penalties payable for prevailing wage violations. As before, the maximum penalty is $50 per day, but there are now minimum penalties as well. Under this new legislation there is a minimum $10 per day penalty except for a good faith mistakes that are promptly rectified by the contractor. There is also a minimum $20 per day penalty if contractor has previous violations, and a minimum of$30 per day if there has been a willful violation. AB 1418 also requires the Contractors State License Board to disclose contractors' Labor Code violations on its web site. This should be a benefit to public agencies seeking to hire responsible contractors. It is not currently known when this information will become available, however. Public agencies could revise their bid documents to reflect these new minimum penalties, but it should not be necessary to do so if the current bid documents state that the $50 per day penalty is a maximum and do not suggest either that it is also a minimum or that there is no minimum. RICHARDS I WATSON I GERSHON ATTORNEYS AT LAW-A PROFESSIONAL CORPORATION Revenue&Taxation Policy Committee January 15, 2004 Page 6 Attached to this letter are copies of Labor Code Sections 1726 and 1781 as amended and enacted by SB 966. Please do not hesitate to contact me if you have any questions about the impact of these new statutes on your present or prospective projects. Very truly yours, Darold Pieper DDP/s Attachment 99904-0020\760124vl.doc Excerpts from SB 996 Page 1 Labor Code § 1726 as amended by SB 966 (a) The body awarding the contract for public work shall take cognizance of violations of the-p this chapter committed in the course of the execution of the contract, and shall promptly report any suspected violations to the Labor Commissioner. (b) If the awarding body determines as a result of its own investigation that there has been a violation of this chapter and withholds contract payments, the procedures in Section 1771.6 shall be followed. (c) A contractor may bring an action in a court of competent jurisdiction to recover from an awarding body the difference between the wages actually paid to an employee and the wages that were required to be paid to an employee under this chapter, any penalties required to be paid under this chapter, and costs and attorney's fees related to this action, if either of the following is true: (1) The awarding body previously affirmatively represented to the contractor in writing, in the call for bids, or otherwise, that the work to be covered by the bid or contract was not a "public work," as defined in this chapter. (2) The awarding body received actual written notice from the Department of Industrial Relations that the work to be covered by the bid or contract is a "public work," as defined in this chapter; and failed to disclose that information to the contractor before the bid opening or awarding of the contract. Excerpts from SB 996 Page 2 Labor Code §1781 as added by SB 966 (a) (1) Notwithstanding any other provision of law, a contractor may, subject to paragraphs (2) and (3), bring an action in a court of competent,jurisdiction to recover from the body awarding a contract for a public work or otherwise undertaking any public work any increased costs incurred by the contractor as a result of any decision by the body, the Department of Industrial Relations, or a court that classifies, after the time at which the body accepts the contractor's bid or awards the contractor a contract in circumstances where no bid is solicited, the work covered by the bid or contract as a "public work," as defined in this chapter, to which Section 1771 applies, if that body, before the bid opening or awarding of the contract,failed to identify as a"public work," as defined in this chapter, in the bid specification or in the contract documents that portion of the work that the decision classifies as a "public work." (2) The body awarding a contract for a public work or otherwise undertaking any public work is not liable for increased costs in an action described in paragraph(1) if all of the following conditions are met, (A) The contractor did not directly submit a bid to, or directly contract with, that body. (B) The body stated in the contract, agreement, ordinance, or other written arrangement by which it undertook the public work that the work described in paragraph (1) was a "public work," as defined in this chapter, to which Section 1771 applies, and obligated the party with whom the body makes its written arrangement to cause the work described in paragraph (1) to be performed as a "public work." (C) The body fulfilled all of its duties, if any, under the Civil Code or any other provision of law pertaining to the body providing and maintaining bonds to secure the payment of contractors, including the payment of wages to workers performing the work described in paragraph (1). (3) If a contractor did not directly submit a bid to, or directly contract with a body awarding a contract for, or otherwise undertaking a public work, the liability of that body in an action commenced by the contractor under subdivision (a) is limited to that portion of a judgment, obtained by that contractor against the body that solicited the contractor's bid or awarded the contract to the contractor, that the contractor is unable to satisfy. For purposes of this paragraph, a contractor may not be deemed to be unable to satisfy any portion of a judgment unless, in addition to other collection measures, the contractor has made a good faith attempt to collect that portion of the judgment against a surety bond, guarantee, or some other form of assurance. Excerpts from SB 996 Page 3 (b) When construction has not commenced at the time a final decision by the Department of Industrial Relations or a court classifies all or part of the work covered by the bid or contract as a "public work," as defined in this chapter, the body that solicited the bid or awarded the contract shall rebid the"public work" covered by the contract as a"public work," any bid that was submitted and any contract that was executed for this work are null and void, and the contractor may not be compensated for any non-construction work already performed unless the body soliciting the bid or awarding the contract has agreed to compensate the contractor for this work. (c) For purposes of this section: (1) "Awarding body" does not include the Department of General Services, the Department of Transportation, or the Department of Water Resources. (2) "Increased costs" includes, but is not limited to: (A) Labor cost increases required to be paid to workers who perform or performed work on the "public work" as a result of the events described in subdivision (a). (B) Penalties for a violation of this article for which the contractor is liable, and which violation is the result of the events described in subdivision (a). League of California Cities 1400 K Street Sacramento,CA 95814 916.658.8200 FAX 916.658.8240 Better Cities—A Better Life www.cacLties.org December 23, 2003 TO: Members: Employee Relations Policy Committee , FROM: Harry Price, Chair, Vice Mayor, Fairfield Tony Cardenas, League Staff (626) 305-1317 RE`. POLICY COMMITTEE MEETING DATE: Friday, January 16,2004 TIME: 10:00 a.m. - 3 p.m. PLACE: Radisson Hotel, at LAX Airport 6225 West Century Blvd. Los Angeles, CA 90045 (310) 670-9000 NOTE: 9:00 a.m. Orientation Session for New Policy Committee Members Attached are the agenda and background materials for the upcoming policy committee meeting. If you plan to attend, please fax back the enclosed form. Lunch guarantee numbers are determined by attendance figures. DIRECTIONS: The Radisson LAX Hotel is on the corner of Century Blvd. & Sepulveda. It is the closest hotel to the airport. From the South: 405 Freeway Northbound, Exit on West Century Blvd/LAX Airport exit. Make a left tum. It is the last hotel on the strip, once you pass the Sheraton Hotel, it is located on the next block. Self-parking: Tum right on Vicksburg Street then left into self-parking lot. Valet Parking: Go straight on Century Blvd, then right into front of the hotel. From the North: 405 Freeway Southbound to the 105 Westbound. 105 Westbound exiting at Sepulveda North/LAX Airport exit. Sepulveda north through tunnel pass "Airport/Century East" off ramp. Just pass this offramp, stay on the right until the stop light (hotel will be in front of you, slightly to your left). Self-parking: straight ahead on Vicksburg Street into self-parking lot. Valet parking: Left U tum on Century to front of hotel.. From the East: 105 Westbound exiting at Sepulveda North/LAX Airport exit. Sepulveda North through tunnel past"Airport/Century East" off ramp. Just past this off ramp, stay on the right until the stop light(hotel will be in front slightly to your left). Self-parking:Straight ahead on Vicksburg Street, left into self parking lot. Valet parking: U tum then right into valet parking in front of the hotel. TRANSPORTATION: Discount travel arrangements may be made through the Enhanced Local Government Airfare Program. Please check the League Web page, www.cacities.org/travel, i" for details. This program is ticketless and refundable, and includes United, United Express and Southwest Airlines. Since the program requires some planning ahead, it is advisable that you register as soon as possible. Complimentary shuttles to the Radisson Hotel are available ,. at the airport. OVERNIGHT ACCOMMODATIONS: The League has a small block of rooms reserved at The Radisson Hotel, LAX. The address is 6225 West Century Boulevard, Los Angeles, 90045, (310) r! 670-9000.The League rate is $89 per night plus tax. Contact hotel directly for reservations. The deadline for this guaranteed rate is Thursday. January 8. 2004. Hotel parking is $10.00 for guests, $11.00 for non-guests. i LEAGUE OF CALIFORNIA CITIES ATTENDANCE FORM Meeting: Policy Committee Meetings Date(s): Thursday, January 15, or Friday, January 16, 2004 Time: 10 a.m. - 3 p.m. NOTE: 9 a.m. Orientation Session for New Policy Committee Members Place: Radisson Hotel at LAX Airport 6225 West Century Blvd. Los Angeles, CA 90045 (310) 670-9000 Q Please check committee: Thursday, January 15, 2004 Friday, January 16, 2004 Administrative Services Community Services Environmental Quality Employee Relations Revenue and Taxation Housing, Community & Econ. Dev. Transp., Communication & Public Works Public Safety I WILL attend I WILL NOT attend Name: Title: City: Lunch guarantees are based on returned forms. Please complete and return this attendance form no later than Friday, January 9, 2004 to: League of California Cities Attn: Linda Welch Hicks 1400 K Street- Fourth Floor Sacramento, CA 95814 E-Mail: Ihiclks@cacities.org FAX: (916) 658-8240 r , EMPLOYEE RELATIONS POLICY COMMITTEE Friday,January 16, 2004 10:00 a.m. -3:00 p.m. Radisson Hotel, LAX AGENDA NOTE: New Policy Committee Member Orientation will be held at 9:00 a.m. in the same room. ' I. Welcome and Introductions H. Public Comment III. VLF- State.Budget Update IV. SB 440 Update: Legal Implications V. PERS Issues -Health Insurance Work Plan (PERSAttachment) -PERS Investment Practices VI. Workers'Compensation Update (Attachments A-E) VII. Contracting Agencies Health Panel VIII. 2003 Work Plan Status Report (Attachment F) IX. 2004 Draft Work Plan (Attachments G&H) -League Strategic Goals X. Next Meeting - Friday, March 19, 2004, Doubletree Hotel, San Jose Airport Brown Act Reminder: The League of California Cities'board ofdirectors has a policy of complying with the spirit of open meeting laws. Generally,off-agenda items may be taken up only if I) Two-thirds ofthe policy committee members find a need for immediate action exists and the need to take action came to the attention of the policy committee after the agenda was prepared(Note: IJjewer than two-thirds of policy committee members are present,taking up an off-agenda item requires a unanimous vote);or 2) A majority of the policy committee finds an emergency(for example:work stoppage or disaster)exists. A majority of a city council may not,consistent with the Brown Act,discuss specific substantive issues among themselves at League. meetings. Any such discussion is subject to the Brown Ad and must occur in a meeting that complies with its requirements. NOTE:Polity committee members should be aware that lunch is usually served at these meetings. The state's Fair Political Practices Commission takes the position that the value of rhe lunch should be reported on city officials'statement of economic interests form. Because of the service you provide at these meetings,the League takes the position that the value of the lunch should be reported as income(in return for your service to the committee)as opposed to a gift(note that this is not income for state or federal income tax purposes just Political Reform Act reporting purposes). The League has been persistent,but unsuccessful,in attempting to change the FPPC's mind about this interpretation. As such, we feel we need to let you know about the issue so you can determine your course of action. If you would prefer not to have to report the value of the lunches as income, we will let you know the amount so you can reimburse the League. The lunches tend to run in the$10 to$30 range. To review a copy of the FPPC's most recent letter on this issue,please go to www cacities.oEQ6E PCIetter on the League's website: r'ERS attachment League of CA Cities Health Insurance Work Plan Proposal Background: Health care benefit costs are on course to double by 2007 nationwide'. The cost of providing health care will increase an average of 15.4% next year, and expenses for plan sponsors will double in five years if current trends continue. Higher utilization of hospital services and new technology, prescription drug prices, and a sluggish economy are among the factors cited in the report that are driving health care expenditures upwards. . Employers nationwide will likely see the average cost per person for HMO coverage increase to $5,982 next year, while Preferred Plan Options (PPOs) costs will average $6,367 per person. No matter what the size, industry or location, no organization is safe from major health care increases. Responding to the trend, however, is animportant component to dealing with this market pitfall. Plan sponsors all over the nation are investing in disease management programs, investigating consumer-driven benefit designs, and increasing co-pays and deductibles. Aside from a few•exceptions, CalPERS has not considered implementing these new programs or alternatives. The CalPERS health program, like other programs across the nation, has faced deteriorating conditions in its system, which has put public agencies that contract with the program in financial hardships. Since 1998, the health plan rates doubled, and have been increasing on an average of 20% every year since then. At the same time, the choice of medical plans and medical plan providers of health care has been reduced or eliminated. Based on recent forecasts, it appears that 2004 offers little hope for improvement in cost, stability and choice. The CalPERS Board of Administration has done little to amend the chaotic state in which we are.currently engaged. At the conclusion of its strategic planning process, the Board voted to delay any discussions which centered on regional pricing, alternative plans or pools, consumer driven plans, and tiered hospital systems. The only change the Board made to the current system was to integrate a disease management program, which will not generate significant cost savings in the short term. Without corrective and decisive actions, public agency employee/employer satisfaction and confidence in their medical plan coverage will continue to erode, and premium expenses will continue to spiral upward. Public agencies are now seeking quotes from brokers outside of the Ca1PERS health system in an attempt to provide quality health care to employees while stabilizing the rate increases. CalPERS seeks to maintain its grip on the majority of public agencies by prohibiting an agency from getting back into the system for five years should it decide to leave the system. This prohibition has not stopped some public agencies; many have already decided to start backing out of the system. Additionally, public agencies that are not in the CalPERS health system are also interested in exploring alternative plans and insurance systems to reduce expenditures. -more- ' Benefitnews.Connect newsletter: Costs threaten bottom lines.October 15,2002 —1— The First Step—Identifying What is Out There: At its June, 2003 meeting, the Employee Relations Policy Committee meeting, members voted to instruct League staff to identify possible alternatives to the Ca1PERS health program, which could include identifying possible alternative insurance systems outside of Ca1PERS health, create or facilitate the creation of independent pool options, or develop a League-sponsored plan. Our first assignment was to network with organizations that have established pool options for their clients, such as the California State Association of Counties (CSAC), in order to collect the following information: ■ Anecdotal information on those agencies that have already left the Ca1PERS Health program (Riverside County, City of Glendale, etc.) ■ List of those agencies, JPA's brokers,businesses that are seeking to provide health care insurance coverage to cities ■ List of cities that are interested in forming a pool ■ History/timeline of pool option development • Specific objectives or benchmarks that should be established for a successful implementation ■ Political ramifications (bargaining unit collaboration, advocacy for those still in the Ca1PERS health system, etc.) ■ Detailed outline of several optional pool plans. Dissatisfaction Among Contracting Agencies: Premiums The primary dissatisfaction amongst cities is the rising cost of premiums. Health plan rates have been increasing on an average of 20%per year since 1998. In addition to increasing costs, there is great dissatisfied with the imbalanced two-tier structure; increased costs in the North are generating increasing costs in the South. Cities are increasingly disappointed by Ca1PERS' unwillingness to establish separate regional rates for Southern and Northern California during a budgetary crisis. Board Representation Another dissatisfaction is the lack of representation from the Ca1PERS Board. The lack of initiative or intention of the Ca1PERS Board to work with cities has been so severe, cities believe they are purposely being alienated._ The decision to increase the opt out time from 2 years to 5 years was interpreted by cities as punishment to even consider pulling out of CalPERS Health. This decision reinforced the belief that the Ca1PERS Board does not want to provide to cities an open working relationship. The Ca1PERS Health Benefits staff has worked with city representatives, employee bargaining units and retiree groups to develop reformation policies aimed at finding long-term solutions. Cities have sent representatives to Board meetings on numerous occasions in order to provide recommendations on health care reform. All of these efforts have been unsuccessful with no real reform ever being implemented. -more- -2- Plan Flexibility A third dissatisfaction is the lack of flexibility. During a time of budgetary constraints, cities have no control over their plans. Because of the diversity in demographics and size, it is necessary to have more flexibility in order to address specific city trends. These constraints include full retiree and dependent coverage, cafeteria plan increases from $16 to $97, industrial disability formulas, HMO coverage, etc. Customer Services Another dissatisfaction is with the lack of customer service that Ca1PERS provides to its contracting agencies. Our cities have experienced long wait times on telephones,outdated information on premiums or actuarial data, and a lack of explanation on forms and other material. Task Force During the September meetings, a Task Force was created by the Employee Relations Policy Committee to examine this work plan. It includes the following individuals: ■ Barbara Dillon, City of Fairfield ■ Tony Bruscia, City of Hollister o Michelle Schafer, City of California City ■ Vicki Kasad, City of Lake Elsinore ■ Steve Larson, City of Garden Grove, President of PERSPac • Shenna Moqeet, City of Calimesa ■ Audrey Daniels, City of Foster City Under the direction of the Task Force, League staff created the Health Care Work Plan. The goal is to have the work plan serve as a guide for cities that show interest in pulling out of CalPERS Health. The first phase of the work plan is to network with organizations that have established pool options for their clients in order to identify viable alternatives to interested cities. Who is Pulling Out.- Several ut:Several cities have shown interest in pulling out of CaIPERS Health. In order to pull out of CaIPERS health, the city council is required to pass to pass a resolution 60 days after the rates are announced. The new rate increases take effect on January 1 of the next year. Some cities have already pulled out, or are in the process of doing so. The League has identified those cities that are pulling out of CaIPERS Health. League staff encourages cities to network with other cities that have similar size, demographics and requirements. The following is a list of California cities that are planning to pull out of CaIPERS Health beginning January 1, 2004: ■ City of Colton ■ City of Danville ■ City of Eureka ■ City of Inglewood -more- -3— ■ City of Marysville ■ City of Monrovia ■ City of Monterey Park ■ City of Oceanside ■ City of Pasadena • City of Rancho Palos Verdes • City of San Bernardino ■ City of Santa Barbara ■ City of Santa Monica ■ City of Torrance ■ Yuba City Although several are in the process, cities are not the only agencies that are pulling out of CaIPERS Health. Several fire protection districts, health authorities, housing authorities, library districts, redevelopment agencies, school districts, and student body associations are also pulling out of Ca1PERS Health. Clearly, dissatisfaction with Ca1PERS in the public sector extends beyond cities. Getting Started: If your city is experiencing some of the same frustration that is illustrated herein, and are deciding to look at your options outside of the health system, the first step is to develop a plan that gives you enough time and resources to make the right decision. Do not act hastily! The contracting agencies that became a member of PEMHCA did so for a reason. The program was at one time efficient, attractive and financially stable. It is good practice to remember why your city entered into the PEMHCA program to.begin with. It is your responsibility to do thorough research on what other health insurance models are out there. Identify, contact, and assess potential providers that are giving quotes to other contracting agencies and compare not only premiums but also levels of service. Several cities hired the services of an insurance broker, through the RFP process, to assist in identifying potential providers that met their requirements. When interviewing and assessing providers, cities need to address several questions during the selection process. The following is a list of questions cities should ask when contacting potential providers: • What is the length of premiums? Can they be changed mid-year? • Has your agency recently been hit with big dollar claims that will immediately impact premium costs? • How many years has your agency been working with cities? Which cities? ■ Does your agency need to receive notification from Ca1PERS before it can provide quotes? • What is the size and quality of your physician network? • What are your customer service issues? What has been your biggest complaint from your clients? ■ How many people are staffed in your agency? —4- -more- e What is your prescription formulary look like? Which prescription drugs are covered,which ones will result in higher co-pays? ■ If our city is not content with your service, what is the process for changing providers? What is the timeline of the process? Any restrictions? Cities have selected the plan options that best fit their demands and demographics. The following is a list of the type of options selected by cities: ■ 90/60 PPO (mirrors Ca1PERS) • 80/60 PPO (mirrors Ca1PERS) ■ EPO (doctor does not receive payment from employer if they are outside the network) ■ Consumer Driven plan ■ Multiple Choice: includes three HMOs, a PPO and a new type of plan that combines a PPO with an employee-directed personal care account. Your employees can select.from all five different plans offered. The Multiple Choice PPO and HMO plans provide comprehensive benefits similar to the ones offered through CaIPERS. The same services are covered, including certain wellness and ancillary benefits. ■ Dental insurance ■ Eye services Cost-Savings Analysis: Providers Although cost-benefit analyses will vary from city to city, there are certain factors cities must analyze when selecting a health insurance provider: 1. The financial rating of a provider needs to be identified. This will allow your city to determine the financial strength or weakness of a provider. Cities also need to determine the relationship between the premiums and the plan design,which includes co-pays and the prescription formulary. Compare the relationships of the premiums and benefits,for each provider and determine which alternative works best for your cities needs. 2. Determine the prescription formulary. A short list of approved prescription drugs will result in higher co-pays if the employee requires prescriptions not included in the formulary while a long list will provide you city with increased cost savings. 3. Analyze the claim history of the provider and determine if they have been hit with recent big dollar claims. If the provider has been hit with big dollar claims, anticipate for premium rates to rise. -more- -5- Insurance Brokers Most of the cities that are planning on exiting PEMHCA contracted with an insurance broker to conduct a thorough cost-benefit analysis of health care providers. Cities should take into consideration the following criteria when evaluating and selecting an insurance broker: 1. Identify how much work experience the insurance broker has with other cities. 2. Determine if the insurance broker has long-term public sector clients (five years minimum),preferably a large organization such as a school district. If an insurance broker has several long-tern clients,it is a good indication that there is a high level of satisfaction with the services it provides. 3. Conduct a thorough reference check on the insurance broker's customer service. Certain areas to look at are the insurance broker's: ability to resolve issues with the carriers; ability to consult city staff on insurance issues; ability to consult city staff on federal compliance issues (Health Insurance Portability and Accountability Act); ability to communicate directly with city employees (newsletters). 4. Determine the insurance broker's marketability. 5. Verify the broker's knowledge of the main insurance providers. Although the listed criteria will assist cities, there are external factors that will impact the insurance broker selection process. Those factors include a lack of competition due to a city's geographical location and city demographics (older workforce,retirees). Meeting with Your Bargaining Units: The method in which city staff met with their bargaining units varied from city to city. The majority of the cities were required to negotiate with their bargaining units via a Meet and Confer. Of these cities, half established health benefits/labor committees which were made up of representatives of each bargaining unit. None of the benefits committees established by cities encompassed retiree representation. Even though city staff met and conferred with their bargaining units, the benefits committees served as primary liaisons for communication and education. Even if potential cost savings to the employee were involved, not all of the bargaining units agreed to pull out of Ca1PERS Health. Police and fire were the most common bargaining units that were opposed to pulling out of Ca1PERS Health. However, once the cities received approval from the majority of their bargaining units, they commenced to pull out of Ca1PERS Health in conjunction with an extensive education program targeted towards all employees and retirees. . A few cities that were contacted have Memorandums of Understanding(MOUS)with their bargaining unit stipulating that the city: a) reserves the right to select, change, administer, or fund any fringe benefits programs involving insurance and; b) shall have the right to select any insurance carrier or other method providing coverage to fund the benefits. League staff recommends that cities consult with their City Attorney on requirements for meeting and conferring with their bargaining units. Meet and confer requirements may vary depending upon language in MOUS and Resolutions. It always has and will be a best _g_ -more- practice amongst cities. Ideally, cities will invite representatives of the bargaining units to be part of the transition process. Education programs highlighting the benefits of changing providers should target both active employees.and retiree groups. Implementation: The final step for implementation is to contact CalPERS and submit formal notification stating that your city will be pulling out of their health plan. Your city must also submit a copy of your city resolution approving the departure from CalPERS Health. To reiterate, once a city pulls out of CalPERS Health, they cannot rejoin the pool until after 5 years have elapsed. The following is a list of testimonials from cities that are currently going though the pulling out process: • "Our transition has been a smooth process due to our extensive education programs, especially with our retirees. " ■ "Our city didn 't want to even think about moving until we had at least five good alternatives. That was our primary goal and we used a broker to do just that. " ■ "Our city had problems because there was some ambiguity in the employee contract. Be sure your contracts, agreements and memorandums of understanding are clear and precise regarding changing providers. " ■ "Some employees will be resistant to change, even if potential savings are involved. You will never satisfy everyone. " • "Send a letter with all you questions to your potential providers and request for a written response. Keep in mind those that respond in a timely fashion and keep in mind those that didn't respond at all. This will give you a small indication of what type of service to expect from them. " ■ "Cities may want to wait to receive approval from their bargaining units before they begin to educate the retiree group. " Next Steps: The next steps are to submit the Step I of the League's Health Plan to the Board of Directors, Executive Director Chris McKenzie and Legislative Director Dwight Stenbakken, and schedule subsequent meetings if necessary. League staff will wait for approval and direction as to what role the League should play with the collect information. One option is to explore the possibility of providing health insurance to public agencies statewide as a viable alternative to CalPERS health under a League sponsored plan.. This will include identifying staff requirements and understand political backlash from State union representatives. -7- Attachment A 1400 K Street, Suite 400 a Sacramento, California 95814 LEAGUE CALIFORNIA Phone: 916.658.8200 Fax: 916.658.8240 OF i T i E c www.cacities.org DATE: November 25, 2003 TO: Senate President Pro Tempore John Burton FROM: Steve Keil, CSAC Amy Brown, League of California Cities Mark Rakich, CAJPA Steve Zehner, Los Angeles County RE: SB 4X 1 (Burton): Workers' Compensation— OPPOSE—Set 11-25- 03, Senate Labor and Industrial Relations Committee The California State Association of Counties (CSAC), League of California Cities, California Association of Joint Powers Agencies (CAJPA), and Los Angeles County oppose SB 4X 1 (Burton): Workers' Compensation. SB 4X 1 would repeal significant provisions of the Workers' Compensation reform of 2003. Those provisions were the result of a conference committee report that resulted in significant reforms to the workers' compensation system and significant employer savings. We believe the reforms that would be repealed by SB 4X 1 are an important first step in a process we would like to see continued regarding reform of the workers' compensation system. Rather than repealing the excellent work begun by the Legislature and starting over again with new workers' compensation reform, we would urge that we augment existing reforms with additional reform proposals. We look forward to working with the Legislature in proposing such additional reforms. For the above reasons, we must oppose SB 4X I (Burton). We would be pleased to discuss this matter further with you. Steve Keil may be reached at telephone number 327-7500 extension 521, Amy Brown at 658-8279, Mark Rakich at 441-5050, and Steve Zehner at 441-7888. cc Chair, Members of the Senate Labor and Industrial Relations Committee Consultant, Senate Labor and Industrial Relations Committee Consultant, Senate Republican Caucus —8— Attachment B LEAGUE 1400 K Street, Suite 400 • Sacramento, California 95814 OF CALIFORNIA Phone: 916.658.8200 Fax: 916.658.8240 CITIES www.cacities.org DATE: November 18, 2003 TO: Senator Charles Poochigian FROM: Steve Keil, CSAC Amy Brown, League of California Cities Mark Rakich,California CAJPA RE: SB X4 3 (Poochigian): Governor's Workers' Compensation Reform Package The California State Association of Counties (CSAC), the League of California Cities, and the California Association of Joint Powers Agencies (CAJPA) strongly support SB X4 3 (Poochigian): Governor's Workers' Compensation Reform Package. Collectively, our organizations represent county, city, school and special district employers with approximately 1,300,000 employees and are subject to the same significant workers' compensation costs affecting all California employers. The increase in costs for workers' compensation in recent years serves to directly decrease our ability to provide services to the public. It is estimated that the Governor's reform package will decrease workers' compensation costs by 45% and at the same time increase benefits for the most severely injured employees when costs for the workers' compensation system is brought to the national average. Cost saving provisions of the Governor's reform package includes the following: Indemnity costs: Mandate use of objective medical findings; outline the use of nationally recognized guidelines, like the American Medical Association guidelines, for impairment to improve consistency of awards; curb the use of permanent disability(PD)benefits by limiting awards for those who return to their previously held jobs or who are offered, but refuse to return to their job, or an equivalent paying job; bring rationality to the apportionment determination, so that a person cannot continue to receive new PD awards for the same injury; ensure that cumulative injuries are truly work related by applying the standard of"predominant cause"to those kinds of injuries and for all other specific injuries, apply a 10% standard; clearly define"permanent and stationary" so that claims cannot continue unresolved; require that medical physicians be the ones to determine permanent disability. Medical costs: Allow for an employee to change doctors after 30 days or to pre- designate a doctor only if it is mutually agreed to by the employer; make clear that the -more- -9— mandate to "cure and relieve" is based on sound, proven principles of medical necessity; establish an independent medical review process; ensure that the "qualified medical examiner" (QME)process is used solely for PD determinations; improve the utilization controls created in SB 228 (Alarcon, Chapter 639 statutes of 2003) that the abuse of over-utilization of the system is truly curtailed. Administrative costs: Amend Labor Code 5814 so that the penalty is assessed on the actual late payment rather than the entire claim-past, present and future; allow an insurer or employer the ability to self-impose a penalty upon themselves so that an unintentional violation can be quickly remedied. Other issues: Restore the exclusive remedy and reduce the possibility for lawsuits for employers who follow the law; eliminate prisoners from being eligible for compensation; eliminate the requirement included in SB 228 for all insurers to inspect the safety program of every single business; modify the alternative dispute resolution (ADR)program provisions of SB 228 so that all industries can avail themselves of the successful model of ADR currently authorized for the construction trades. For the above cost-saving and benefit enhancement reasons, we strongly support the Governor's workers' compensation reform proposal. If you have any questions or comments, please contact Steve Keil at telephone number 327-7500 extension 521, Amy Brown at 658-8279, and Mark Rakich at 441-5050. cc Members/Consultant, Senate Labor and Industrial Relations Committee -10- Attachment C 1400 K Street, Suite 400 • Sacramento, California 95814 LEAGUE Phone: 916.658.8200 Fax: 916.658.8240 OF CALIFORNIA www.cacities.org CITIES DATE: November 18, 2003 TO: Assembly Member Abel Maldonado . FROM: Steve Keil, CSAC Amy Brown, League of California Cities Mark Rakich, CAJPA RE: AB X4 1 (Maldonado): Governor's Workers' Compensation Reform Package The California State Association of Counties (CSAC) the League of California Cities, and the California Association of Joint Powers Agencies strongly support AB X4 1 (Maldonado): Governor's Workers' Compensation Reform Package. Collectively, our organizations represent county, city, school and special district employers with approximately 1,300,000 employees, and subject to the same significant workers' compensation costs affecting all California employers. The increase in costs for workers' compensation in recent years serves to directly decrease our ability to provide services to the public. It is estimated that the Governor's reform package will decrease workers' compensation costs by 45% and at the same time increase benefits for the most severely injured employees when costs for the workers' compensation system is brought to the national average. Cost saving provisions of the Governor's reform package includes the following: Indemnity costs: Mandate use of objective medical findings; outline the use of nationally recognized guidelines, like the American Medical Association guidelines, for impairment to improve consistency of awards; curb the use of permanent disability(PD)benefits by limiting awards for those who return to their previously held jobs or who are offered, but refuse to return to their job, or an equivalent paying job; bring rationality to the apportionment determination, so that a person cannot continue to receive new PD awards for the same injury;ensure that cumulative injuries are truly work related by applying the standard of"predominant cause" to those kinds of injuries and for all other specific injuries, apply a 10% standard; clearly define"permanent and stationary"so that claims cannot continue unresolved; require that medical physicians be the ones to determine permanent disability. Medical costs: Allow for an employee to change doctors after 30 days or to pre- designate a doctor only if it is mutually agreed to by the employer; make clear that the -more- -11— mandate to "cure and relieve" is based on sound, proven principles of medical necessity; establish an independent medical review process; ensure that the "qualified medical examiner"(QME)process is used solely for PD determinations; improve the utilization controls created in SB 228 (Alarcon, Chapter 639 statutes of 2003) that the abuse of over-utilization of the system is truly curtailed. Administrative costs: Amend Labor Code 5814 so that the penalty is assessed on the actual late payment rather than the entire claim-past, present and future; allow an insurer or employer the ability to self-impose a penalty upon themselves so that an unintentional violation can be quickly remedied. Other issues: Restore the exclusive remedy and reduce the possibility for lawsuits for employers who follow the law; eliminate prisoners from being eligible for compensation.; eliminate the requirement included in SB 228 for all insurers to inspect the safety program of every single business; modify the alternative dispute resolution (ADR) program provisions of SB 228 so that all industries can avail themselves of the successful model of ADR currently authorized for the construction trades. For the above cost-saving and benefit enhancement reasons, we strongly support the Governor's workers' compensation reform proposal. If you have any questions or comments, please contact Steve Keil at telephone number 327-7500 extension 521, Amy Brown at 658-8279, and Mark Rakich at 441-5050. cc Members/Consultant, Assembly Insurance Committee -12- Attachment D WORKERS' COMPENSATION REFORM OVERHAUL OF A BROKEN SYSTEM Governor Schwarzenegger Proposal-November 2003 THIS PROPOSAL: • Enhances benefits for the most severely injured, once California's workers' compensation system is brought to the national average in costs. • Reduces the cost to business by attacking the cost drivers from a multi-pronged approach — through managing medical costs and restructuring indemnity payments. • Builds on and fine-tunes SB 228 and AB 227, the workers' compensation bills passed earlier this year. THE PROBLEM California's workers' compensation rates are the highest in the nation and are significantly higher than our competitor states. Workers' Compensation Costs Per$100 Payroll $7.00 $5.85 $6.00 $5.00-/' $4.50 $4.00 $329 $3.02 $3.00 $2,46 $2.os $2.00 1.65 $1.63 fi $1.00 $0.00 o� � ti0,�9 d 0> C F -more- -13- SOLVING THE PROBLEM ENHANCING BENEFITS FOR THE MOST SEVERELY INJURED The benefit increases put forth in last year's AB 749 will go into effect incrementally over the next three years. This proposal fully funds those increases. Additionally, this proposal goes one stepTurther. If the California workers' compensation system is brought to the national average, then an additional benefit increase will go into effect for the most severely injured. GOAL #1: AFFORDABILITY We must bring affordability to California's workers' compensation system so that costs are at or below the average rate for the entire country by reducing the average cost per $100 of payroll from $5.85 to $2.46. This equates to an $11.3 billion reduction in overall costs, from next year's projected costs of$24.9 billion. Breakdown of Costs in the System Medical Treatment 51% V Indemnity Payments 49% Costs of the workers' compensation system are equally divided between cost to medically treat the worker and indemnity payments to the worker to compensate for loss of wages and permanent disability. -more- -14— Indemnity Costs California's number of disability claims is almost 3 times the countrywide rate — in 2002 California had 1,221 claims per 100,000 workers, while the countrywide average was only 434. The cost of permanent disability per injured worker in California is also three times the average of that in.other states. Solutions: • Mandate use of objective medical findings. • Outline the use of nationally recognized guidelines, like the American Medical Association guidelines, for impairment to improve consistency of awards. • Curb the use of permanent disability (PD) benefits by limiting awards for those who return to their previously held job or who are offered, but refuse to return to their job, or an equivalent paying job. • Bring rationality to the apportionment determination, so that a person cannot continue to receive new PD awards for the same injury. • There are two kinds of injuries — cumulative injuries and specific injuries. Ensure that cumulative injuries are truly "work-related" by applying the standard of"predominant cause" to those kinds of injuries. For all other specific injuries, apply a 10% standard. • Clearly define "permanent and stationary" so that claims cannot continue unresolved. • Require that medical physicians be the ones to determine permanent disability. -more- -15- Medical Costs 36. Year-to-Year Growth Avg Medical per Calif. WC Indemnity Claim vs. Nat'l Medical Services CPI (indexed to 1992) 30.0% 25.4% 21.0% 20.0% 17.5% 18.5% p` 16.6% 14.4% V 11.3%us 12.7% v 10.0% FE 5% 3 6% 2.7% 3.2% 4.0°/12*69%/. 4.6% 6.0° 0.0% 9496 9696 9697 9798 9899 99-00 00-01 01-02 ❑WC Medical Per indem.Claim- ■Medical Services CPI 7003 Mesal Conference of WCIRB Corrrnft s (703) California has developed two duplicative health care systems, each with their own administrative costs and each with their own set of rules. Employers who opt to provide health care to their workers are burdened with the expense of this duplication and employees find the dual systems confusing. Medical costs have been one of the fastest growing factors in the workers' compensation system in recent years. Some injuries treated in the workers' compensation system are up to five times more expensive than the same injury treated in the group health system. Solutions: Part A: Systemic Changes Throughout the System • Allow for an employee to change doctor after 30 days or to pre-designate a doctor only if it is mutually agreed to by the employer. • Make clear that the mandate to "cure and relieve" is based on sound, proven principles of medical necessity. • Establish an independent medical review process; ensure that the "qualified medical examiner" (QME) process is used solely for PD determinations. -more- -16- 1 • Improve on the utilization controls created in SB 228 so that the abuse of over-utilization of the system is truly curtailed. Part B: Optional "Door-to-Door" Coverage For employers offering health insurance to their employees, Optional "Door-to-Door" Coverage would provide, in addition to the savings outlined in Part A, the advantage of a combined insurance policy that maximizes the benefits of the group health model while still ensuring adequate coverage to employees. For employers, who are not quite able to provide health insurance, allow the same combined medical coverage options as well as all of the savings from the Part A benefits. Administrative Costs Solutions: • Amend Labor Code 5814 so that the penalty is assessed on the actual late payment rather than the entire claim — past, present, and future. • Allows an insurer or employer the ability to self-impose a penalty upon themselves so that an unintentional violation can be quickly remedied. -more- . -17- Other Issues • Exclusive Remedy Issue — Restore the exclusive remedy and reduce the possibility for lawsuits for employers who follow the law. • Eliminate prisoners from being eligible for compensation. • Eliminate the requirement included in SB 228 for all-insurers to inspect the safety program of every single business. • Modify the Alternative Dispute Resolution (ADR) Program provisions of SB 228 so that all industries can avail themselves of the successful model of ADR currently authorized for the construction trades. GOAL #2: AVAILABILITY The State Compensation Insurance Fund — the government-run insurance carrier— has increased its market share from 25% to over 60% in just a few years. The dysfunctional market has forced competition out of the market and reduced consumer choice. Solutions: • Perform an independent audit of the State Fund. • Small Group Self-Insurance Changes — Expand small group insurance laws to create additional options for group insurance pools. The bill requires that these provisions be consistent with the model act of the California Association of Insurance Commissioners. -is- Attachment E Governor-Elect Transition Team Meets with League of CA Cities to Discuss Workers' Compensation Reform Governor-Elect Schwarzenegger's transition team met with the League of CA Cities to discuss additional workers' compensation reform beyond AB227/SB 228, which will take effect on January 1, 2004. The Governor's staff stressed their commitment to making sure that the workers' compensation system does not break the bank with public and private employers while maintaining benefits to injured workers. The League provided a list of additional reforms that were not included in AB 227/SB 228. The transition team is committed to reviewing the suggested amendments and a follow-up meeting will occur once a package begins to develop. Our suggestions are as follows: PERMANENT DISABILITY REFORM • Eliminate the subjectivity and inconsistency in the current system for rating permanent disability by adopting objective rating standards. • Require physician training so that employers and reviewers receive consistently "ratable" reports. • Provide statutory language that eliminates an employer's liability for permanent disability that is related to pre-existing conditions or to non work-related conditions. • Bar an individual employee from accumulating more than a 100% rating. • Bar, in most circumstances, an employee from obtaining a disability rating when they never miss any work, or experience insignificant loss of time, and return to the same position without restrictions. MEDICAL • Establish a physician certification and training program for all physicians who treat or evaluate work comp patients. • Increase the period of time the employer is in control of treatment. • Expand utilization review and managed care programs. LABOR CODE SECTION 5814 PENALTIES • Eliminate penalties that bear no relationship to the violation at issue. • Eliminate escalators that impose penalties on future benefit payments based on past violations. -more- -19— • Establish a one-year statute of limitations from date of delay or denial for claiming penalties. BURDEN OF PROOF/STANDARDS OF COMPENSABILITY • Require that the burden of proof and the criteria used to determine compensability for cumulative trauma injuries be the same standards and criteria used currently for psychiatric injuries. ALIGNMENT OF PUBLIC AND PRIVATE SECTORS • Add public sector employers into the existing return-to-work incentive program. • Prohibit new or expanded presumptions in the public sector. • Prohibit expansion or increase in eligibility for tax-free, full salary benefits under Labor Code Section 4850. AB 749 CORRECTIONS • Correct the minimum temporary disability rate problem that results in some persons receiving more money while temporarily disabled than when working. • Repeal Labor Code Section 4702 (a) (6) that requires the death benefit to be paid to the deceased employee's estate if there are no dependants. • Elimination of the uncapped COLA on life benefits in favor of a COLA with a reasonable annual cap, such as used by pension systems. For additional information, please contact Amy Brown, League staff at 916-658-8279. -20- Attachment F EMPLOYEE RELATIONS POLICY COMMITTEE 2003 WORK PROGRAM STATUS REPORT 1. Monitor Health Care Insurance Practices (Status) Examine ways to influence changes to CalPERS strategic plan, stabilize premium rates, offer affordable services to our rural municipalities,•and look at alternatives to the CalPERS health insurance program (PEMHCA). Developed work plan for those agencies that want to exit CaIPERS Health, participated in the Ca1PERS Health Benefits Panel, participated in the strategic planning process. 2. Development of Guiding Principles of Workers' Compensation Reform (Status) Use the Californians for Compensation Reform documents as a platform. Met with Schwarzenegger's transition team on needed reforms, participated in Controller Westly's task force, assisted in developing special session bills on additional reform. 3. Monitor Legislation Under the Scope of Employee Relations (Status) Monitor the Public Employee Relations Board. Conducted legislative analysis on 2003 bills, nothing new to report on the PERB. Will work with CSAC to advocate recommendation for vacant PERB position. 4. Monitor Retirement Issues (Status) Including but not limited to; a) Putting pressure on PERS Board for factual information. Supported AB 1321, which requires PERS to submit actuarial data more frequently, attended Board meetings, met with staff. b) Monitor legislation that enhances PERS benefits for full-time or retired employees. Monitored bills, opposed new mandates (with the exception of SB 100) c) Monitor legislation and court rulings that address extending PERS coverage of temporary employees hired through employee placement agencies for work assignment in public agencies. Monitored the Cargill v MWD case, gave presentations to employee relations professionals on how to avoid lawsuits. -21- i I DRAFT Attachment G EMPLOYEE RELATIONS POLICY COMMITTEE 2004 WORK PROGRAM 1. Support the League.Ballot Measure Examine and implement strategies to inform and educate members of the League's number one priority to secure passage of the Local Taxpayers and Public Safety Protection Act in the November 2004 election. 2. Ethics Continue to promote and advocate codes of ethics to committee members in order to restore public confidence in city government. Make recommendations on the League's ethics education and training opportunities during Departmental meetings such as the Employee Relations Seminar (ERS). 3. Monitor Health Care Insurance Practices Examine ways to influence changes to CalPERS strategic plan, stabilize premium rates, offer affordable services to our rural municipalities, and look at alternatives to the CaIPERS health insurance program (PEMHCA). Seek approval and direction from the League's Board of Directors, Executive Director Chris McKenzie and Legislative Director Dwight Stenbakken on the Health Insurance Work Plan which serves as a guide for cities that show interest in pulling out of PEMHCA. 4. Workers' Compensation Reform. Strive to implement the following reformation proposals to the California Workers' Compensation system which has the highest rates in the nation: ■ Enhance benefits for the most severely injured, once California's workers' compensation system is brought to the national average in costs. Reduce the cost to business by attacking the cost drivers from a multi-pronged approach —through managing medical costs and restructuring indemnity payments. Build on the workers' compensation reform bills that were passed in 2003; SB 228 (Alarcon) and AB 227 (Vargas). 5. Monitor Legislation Under the Scope of Employee Relations Monitor the Public Employee Relations Board. 6. Monitor Retirement Issues Including but not limited to: a) Putting pressure on PERS Board for factual information. b) Monitor legislation that enhances PERS benefits for full-time or retired employees. c) Monitor legislation and court rulings that address extending PERS coverage of temporary employees hired through employee placement agencies for work assignment in public agencies. -22- Attachment H League Strategic Goals for 2004 The League board of directors set the course of the organization for 20Q4 when it met in November 2003 with the leaders of the League's divisions, departments, caucuses and policy committees. After breaking board members and other League leaders into eleven separate discussion groups, the directors considered a list of proposed strategic goals in ten categories of concern that had been formulated by the. discussion groups. When the board reconvened Saturday morning, November 1.5, board members cast votes for their top priority goals and three emerged with the highest votes: • Secure passage to the Local Taxpayers and Public Safety Protection Act in the November 2004 election. ■ Expand the Supply of Housing in California In Balance With Transportation and the Location of Jobs. • Restore Public Confidence in Government, Particularly City Government. Each of these strategic goals will form the basis for the action plan of the League and each of its subunits over the next year. Thus, policy committees should consider how to incorporate the League's 2004 strategic goals into their 2004 Work Programs. —23— ' Led' que of California Cities 1400 K Street Sacramento,CA 95814 916.658.8200 FAX 916.658.8240 Better Cities—A Better Life www.cacities.org TO: League Policy Committee Members FROM: Terry Dugan, Director of Education and Conferences DATED: December 8, 2003 RE: Selection Juries for 2004 Helen Putnam Award for Excellence ADVANCE NOTICE To help select the 2004 Helen Putnam Award winning cities we will be asking for the assistance of the Policy Committees, by providing members to serve on the selection juries. These juries will meet in conjunction with your normal policy committee meetings June 17-18 in Sacramento. This way we hope to minimize the time and expenses incurred by those willing to serve on these selection panels. This memo is an advance notice of this opportunity to serve on a jury. We will request volunteers for specific juries at your March Policy Committee meeting. At that time you can indicate on which jury you would be willing to serve. Soon thereafter, we will confirm whether you have been assigned a jury (jurists will not be assigned to judge their own city's application). The following is a tentative schedule of jury meetings by award category: Thursday,June 17, 2004—3:00—5:00 p.m. Friday,June 18, 2004—8:00— 10:00 a.m. ➢Community Services and Economic Development >Intergovernmental Relations and ➢Effective Advocacy Regional Cooperation ➢Enhancing Public Trust, Ethics ➢Internal Administration and Community Involvement >Planning and Environmental Quality >Housing Programs and Innovations ➢Public Works, Infrastructure, and Transportation ➢Public Safety ACTIONS NEEDED—If you are interested in serving on a Putnam Jury please note this schedule and hold the time—then sign up at your March Policy Committee meeting. Thank you for your assistance with this project. It is so very important to recognize, celebrate and learn from the successes of other cities. The California Cities Helen Putnam Awards process is a valuable and respected way of doing this, and the winner selection process is vital to the success of this program that brings positive attention to all cities. c: Policy Committee Staff i; notice.dor —24— G:�LEGISL'MPOLICYUlelenPutnamjuryadvanceJanuary