Agenda Item 7C
April 14, 2015
Action
MEMORANDUM
April 10,2015
TO:
County Council
FROM:
Robert H. Drummer, Senior Legislative Attorney
~
Health
SUBJECT:
Action: Bill 14-14, Contracts and Procurement - Wage Requirements ­
Insurance - Amendments
Government Operations and Fiscal PolicylHealth and Human Services Committee
recommendation (5-0): enact Bill 14-14 with amendments.
Bill 14-14, Contracts and Procurement - Wage Requirements - Health Insurance ­
Amendments, sponsored by Councilmembers Navarro, Berliner, Riemer, EIrich, Floreen and
Branson, was introduced on February 4. A public hearing was held on February 25. Joint
Government Operations and Fiscal Policy CommitteelHealth and Human Services Committee
worksessions were held on November 24 and January 22.
Bill 14-14, as introduced, would:
• require certain County contractors or subcontractors to provide health insurance
or a cash equivalent for employees who perform work on a County contract;
• limit the employee's share of the health insurance premium for certain employees
working on a County contract; and
• eliminate the credit against the wage requirements for the employer's share of
health insurance for certain employees working on a County contract.
Background
Bill 5-02, Procurement - Service Contracts - Wage Requirements, was enacted by the
Council on June 11,2002 and signed into law by the County Executive on June 20, 2002. This
law, known as the Living Wage Law or the Wage Requirements Law, is codified at §IIB-33A of
the County Code. The Living Wage Law requires certain businesses which provide services (but
not goods) to the County to pay employees working on a County contract a minimum living
wage that was originally set at $10.50 per hour, effective July 1, 2003. The law requires the
Chief Administrative Officer to adjust this rate each July 1 by the annual average increase, if
any, . in the Consumer Price Index for all urban consumers for the Washington-Baltimore
metropolitan area. The current living wage is $14.15 per hour. The Living Wage Law does not
require employers to provide health insurance, but employers are given credit toward the wage
rate for the cost of any health insurance provided.
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Bill 14-14, as introduced, would eliminate the health insurance credit and require County
contractors subject to the Living Wage Law to provide health insurance or a cash equivalent for
employees who work on the County contract. The Bill would also require that the health
insurance be affordable and provide the minimum essential health benefits required by the
Federal Patient Protection and Affordable Care Act.
Public Hearing
Both speakers at the public hearing, Rev. Abhi Janamanchi of the Cedar Lane Unitarian
Universalist Church (©7) and Jacob Avilla (©8-9) supported the Bill as necessary to increase the
availability of health insurance to County residents. Rabbi David Shneyer (©1O), Progressive
Maryland (©II), and various community members (©12-13) submitted written testimony in
support of the Bill. The Montgomery County Chamber of Commerce (©14-15) opposed the Bill
as an unnecessary burden on small businesses in the County.
November 24 GOIHHS Worksession
The Joint Committee discussed the Bill with Council staff and representatives of the
Executive Staff. Bonnie Kirkland, Assistant CAO, Uma Ahluwalia, HHS Director, Pam Jones,
DGS, Grace Denno, DGS, Jack Gibala, DGS, Richard Melnick, Associate County Attorney, and
Beryl Feinberg, DGS represented the Executive Branch.
The Committee discussed proposed amendments to the Bill that arose out of meetings
between the Council staff and the Executive Branch since the public hearing. The amendments,
in concept, would:
I.
require HHS to assist employees of County contractors and subcontractors who
do not have employer-sponsored health insurance to apply for insurance on the
Maryland Health Benefit Exchange;
require contractors and subcontractors to permit employees to meet with HHS
representatives for this purpose on company time;
require contractors to report to DGS on the number of employees who have health
insurance;
require DGS to report to the Council and Executive on the number of County
contractor and subcontractor employees without health insurance; and
sunset the law after 2 years unless the Council decides to extend it.
2.
3.
4.
5.
The Committee provided guidance to Council staff without voting on the Bill. Council staff was
directed to include a revised amended Bill for a second Committee worksession.
January 22, 2015 GOIHHS Worksession
The Joint Committee discussed the Bill with Council staff and representatives of the
Executive Branch. Bonnie Kirkland, Assistant CAO, Uma Ahluwalia, HHS Director, and David
Dise, DGS Director represented the Executive Branch.
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The Committee discussed proposed amendments to the Bill that arose out of meetings
between the Council staff and the Executive Branch since the public hearing. The amendments
would:
1.
require HHS to assist employees of County contractors and subcontractors who
do not have employer-sponsored health insurance to apply for insurance on the
Maryland Health Benefit Exchange;
require contractors and subcontractors to permit employees to meet with HHS
representatives for this purpose on company time;
require contractors to report to DGS on the number of employees who have health
msurance;
require DGS to report to the Council and Executive on the number of County
contractor and subcontractor employees without health insurance; and
sunset the law after 2 years unless the Council decides to extend it.
2.
3.
4.
5.
The Committee amended the Bill by deleting the requirement that bidders certify the
health insurance benefits they provide to their employees along with the bid because the
contractor would be required to report this information after award. The Committee approved
(5-0, Berliner absent) Staff Amendment 2 revising the Bill as described above.
Issues
1.
What is the fiscal and economic impact of the Bill?
OMB and Finance estimated that the Bill, as introduced, would require 2 additional
professional staff positions in DGS to analyze bids for compliance, investigate complaints, and
monitor audits by outside consultants. The County currently has more than 400 contracts subject
to the Living Wage Law. The Bill, as introduced, would require the Executive to renegotiate
existing contracts, at the contractor's request, to increase the contract price for the service to
compensate a contractor who decides to voluntarily comply with this new requirement on an
existing contract. OMB estimated the maximum potential cost to the County at $128 million if
each of the 400 contractors requests the maximum $4000 per employee to add health insurance.
Although Council staff questions this estimate, there is a potential significant new cost to
renegotiate existing contracts. OMB provided an updated fiscal impact statement (©26-29)
estimating a cost of $7.2 million to renegotiate 10% of the contracts with an average of 45
employees per contract. The health insurance requirement in the Bill is also likely to add to the
cost of future contracts. Finally, OMB estimated that the average cost of a compliance audit with
the new health insurance requirement would increase the cost of the average audit from $80,000
to $120,000. Although we do not have a revised fiscal impact for the Bill as amended by the
joint Committee, the fiscal impact of the amended Bill would be significantly lower.
2. How would this Bill coordinate with the Patient Protection and Affordable Care Act?
The Federal Patient Protection and Affordable Care Act (ACA) was enacted by Congress
and signed into law by President Obama in 2010. The ACA took effect on January 1,2014, but
some relevant provisions have been delayed. Under the ACA, employers with more than 50 full­
time employees (defined as working 30 or more hours per week) must offer health insurance to
their employees. Although this provision was to take effect on January 1, 2014, the President
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delayed its effect until 2016 for employers with more
than
50 full-time employees but less than
100 full-time employees. The Federal business mandate for employers with more than 100
employees began on January 1,2015. Once this Federal business mandate takes :full effect, the
Bill would primarily affect small businesses with 50 or less full-time employees with a County
service contract.
Under the ACA, Maryland resident employees who are not offered health insurance
through their employer may obtain health insurance directly from the Maryland Health Benefit
Exchange, which is a public corporation and independent unit of Maryland State government
established in Title 31 of the Maryland Insurance Code. Low income workers who purchase
insurance directly from the Exchange may be eligible for substantial Federal
tax
subsidies to
reduce their cost. The ACA also requires each health insurance policy to provide minimum
essential benefits. Employer provided health insurance must
be
affordable, defined as costing
the employee no more than 9.5% of salary.
An
employee who does not have health insurance
after declining employer-sponsored health insurance is subject to a fme under the ACA.
The Bill, as introduced, would require a County contractor to provide health insurance
that provides the minimum essential benefits and is affordable as defmed under the ACA. The
cash equivalent in the Bill is also designed to coordinate with the ACA. The Bill would permit a
contractor to satisfy the health insurance requirement by providing a cash equivalent "equal to
the hourly average cost to the employee for a Silver plan on the Maryland Health Benefit
Exchange less 9.5% of the employee's hourly salary." See lines 29-36 at ©3. A contractor
could use the cash equivalent to avoid providing health insurance for all of its employees where
only a few of them are working on the County contract. The employee could, but is not required
to, use the cash equivalent to purchase insurance on the Exchange.
3. How would the law be enforced?
The Wage Requirements Law is enforced by the Department of General Services (DGS)l.
DGS currently monitors the wages paid to employees working on a covered County contract and
conducts audits with outside auditors to investigate complaints. See the DGS response to
questions at ©16-19. The Bill would add an additional layer of monitoring for health insurance.
Once the employer mandate of the ACA takes full effect, the monitoring would be centered on
small businesses that are not subject to the employer mandate. The fiscal impact statement
estimates that 2 new professional staff positions would be needed to analyze bids for compliance,
investigate complaints, and monitor audits by outside consultants.
4. Should the Bill eliminate the credit for health insurance?
The Wage Requirements Law provides a credit for the cost of employer-sponsored health
insurance in order to encourage contractors to provide health insurance. The employer can pay
its employees the County living wage less the hourly cost oftbe health insurance. Since the Bill,
as introduced, would require the employer to provide health insurance or a cash equivalent, the
credit would only serve to reduce the mandated living wage. Even under the amended Bill, the
implementation of the ACA will eventually serve to make this credit an unnecessary reduction in
Bill 7-15 reorganized the Executive Branch and established the Office of Procurement as a principal office of the
Executive Branch. Therefore, enforcement would be the responsibility of the new Office of Procurement.
I
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the living wage because health insurance would
be
available to all employees through their
employer or the Exchange. Committee recommendation (5-0): eliminate the health insurance
credit.
5. Should the Bill apply to existing contracts?
Although the Bill would only cover new solicitations issued after the Bill takes effect, the
Bill, as introduced, would also permit an existing contractor to voluntarily add health insurance
for its employees and renegotiate the contract price to cover the additional cost. This provision
would cap this additional cost at $4000 per covered employee. These renegotiations could
significantly raise the price for the County's existing 400 service contracts. OMB estimated a
worst case additional cost of $128 million in the fiscal impact statement. While this may provide
a benefit to some employees working on County service contracts, there would
be
little direct
benefit to the County by retroactively increasing contract prices for the same services. However,
under the amended Bill, the cost to apply the new law to existing contracts would be minimal.
Committee recommendation (5-0): apply the law to existing contracts.
6.
Should the Bill apply to an employee of a contractor who is covered by a collective
bargaining agreement?
The Wage Requirements Law does not apply to an employee subject to a collective
bargaining agreement that provides a wage lower than the County living wage. Bill 14-14, as
introduced, is unclear if the health insurance requirements would apply to an employee subject to
a collective bargaining agreement. The policy that supports the Bill would logically also support
applying this requirement to an employee covered by a collective bargaining agreement.
However, under the amended Bill, this is no longer an issue.
7. Should a contractor be able to satisfy the requirements of this law by making a cash
payment to a health flexible spending arrangement or a health reimbursement
arrangement?
The Internal Revenue Code pennits an employer to use pre-tax dollars to fund an
employee's qualified medical expenses under a health flexible spending arrangement (HFSA) or
a health reimbursement arrangement (HRA). A HFSA may be funded by employer and
employee contributions. There is a limit to the amount that can be contributed and the
contributions do not
carry
over from year to year. A HRA can only be funded by an employer
and there are no limits to the amount of the contribution. Unused contributions can be carried
over from year to year if the employer's plan permits it. Qualified medical expenses for a HFSA
do not include insurance premiums, but a HRA can be used to reimburse an employee for
insurance premiums. IRS Publication 969 describes both of these plans. Both a HFSA and a
HRA are considered an employee welfare plan under the Employees Retirement Income Security
Act (ERISA).
If an employer makes a cash payment to a HFSA or a HRA, the money must be used to
reimburse the employee for qualified medical expenses. A cash payment directly to an employee
may be used by the employee for anything and could thereby defeat the purpose of the Bill.
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However, ERISA has a strong preemption provision that preempts "any and all State laws
insofar as they ... relate to any employee benefit plan" governed by ERISA. 29 U.S.C. § 1144(a).
The United States Court of Appeals for the 4th Circuit held that a Maryland law that would have
required Wal-Mart to spend at least 8% of its payroll on health insurance or pay a penalty to the
State was preempted by ERISA in
Retail Industry Leaders Ass' v. Fielder,
475 F.3d 180 (4
th
Cir.
2007). In
Golden Gate Restaurant Ass 'n v. City and County olSan Francisco,
546 F.3d 639 (9
th
Cir. 2008), the Court held that a San Francisco law requiring medium and large businesses in the
City to make minimum health care expenditures on behalf of employees or pay the City to
provide free health care for its employees was not preempted by ERISA because an employer
had a cash payment option that did not require the modification or establishment of an ERISA
plan.
These Court decisions require that the cash payment without establishing or modifying an
ERISA plan must remain an alternative for a covered employer to avoid ERISA preemption.
Therefore, the Committee may want to permit an employer to satisfy the health requirement by
making the cash payment
to
the employee or to one of these tax-advantaged arrangements
permitted by the Internal Revenue Code. However, under the amended Bill, this is no longer an
issue.
8. Should the Bill require service contractors to provide health insurance or a cash
equivalent?
County procurement often struggles with competing purposes. First, the County
has
an
obligation to County residents to obtain the best goods and services from contractors for the best
possible price. This is normally served by using an open competitive process for the award of a
County contract. The County sometimes attempts to use its contracting dollars to serve a
different public purpose.
For example, the County has a Local Small Business Reserve Program that reserves
certain contracts for local small businesses. Bill 61-14, requested by the Executive, would create
a new local business subcontracting program for high dollar value contracts. The County
Procurement Law also has a Minority Owned Business Program. Bill 48-14 would add a new
requirement for contracts awarded by a request for proposals. The County has a Prevailing
Wage Law that requires a County construction contractor to pay at least the prevailing wage set
by the State. Bill 29-14, requested by the Executive, would require County service contractors to
provide additional reports on wages paid to their employees. The County Wage Requirements
Law already requires most service contractors to pay all employees working on a County service
contract at least a living wage, currently set at $14.15 per hour. This Bill would add a new
requirement to provide employees subject to the living wage with affordable health insurance or
a cash equivalent.
Each of these procurement laws supports a strong public policy, but also runs counter to
the County's overall obligation to obtain the best goods and services for the best price. The
resulting procurement system is complicated and sometimes slow.
It
can be difficultto navigate.
However, each new procurement requirement adds an incremental layer of complexity. Due to
the employer mandate under the ACA, the Bill, as introduced, would eventually create a
disproportionate burden on small businesses that do not have enough employees to spread the
cost of health insurance premiums among a large group.
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A cost/benefit analysis of Bill 14-14 raises some interesting issues. The fiscal impact
statement estimates that the Bill would require the County to create and fill 2 new professional
positions in Procurement and that an average audit would cost an additional $40,000 to cover
health benefits. Finally, OMB points out that the added costs and administrative burden on
contractors is likely to increase bid prices.
2
What does the County receive in return? The
County would ensure that each employee who performs measurable work on the contract either
receives health insurance or an additional cash payment that could be, but may not be, used to
pay for medical expenses.
3
Would this reduce the number of uninsured residents in the County?
Probably. Is it necessary in light of the ACA? Possibly, since the ACA does not require
employers with less than 50 employees to provide health insurance. Uninsured residents drain
public resources and increase the cost of medical care for everyone. Reducing the number of
uninsured residents is a worthy goal. The question is how much will this Bill help and how
much will it cost to get there?
The implementation of the ACA has changed this cost/benefit analysis. With the
employer mandate covering employers with 100 or more employees already in effect and the
mandate for employers with 50-100 employees beginning in 2016, most large employers will be
required to provide health insurance or pay a significant penalty to the Federal government. The
Maryland Health Exchange and other State exchanges are already up and available for
individuals to obtain health insurance at reasonable rates. Federal tax subsidies are available for
low income workers seeking individual policies on the Exchange. After 2016, the major effect
of the Bill would be on employers with less than 50 employees. A large employer who decides
to pay a Federal penalty instead of providing insurance is unlikely to change that business
decision just to bid on a County service contract. A small employer may be forced to make the
cash payment or avoid bidding on a County service contract.
The full effect of the ACA is currently unknown.
It
would be wise to wait until the ACA
experience is better known before adding this requirement to our Wage Requirements Law.
9. Can the Bill be amended to better leverage the ACA?
Council staff met with Executive staff multiple times over the last 13 months to discuss
these issues since Bill 14-14 was introduced. Although increasing the number of County
residents with health insurance is universally accepted as good public policy, the methods that
can be used to promote this goal are subject to differing opinions. As discussed above, the Bill,
as introduced, raises several significant cost and administrative issues. Under the ACA, the
Federal government is trying to increase the number of residents with health insurance. HHS
currently receives Federal grant money to assist County residents who are seeking to apply for
health insurance on the Maryland Health Benefit Exchange. The concept that came out of these
discussions between Council staff and Executive staff, and approved by the GOIHHS Committee
on January 22, is to amend the Bill to:
2
Although the added cost of most contracts would be spread among County taxpayers, some contracts, such as trash
hauling, would be borne exclusively by those County residents using the service.
3
We do not know how many covered employees also live in the County.
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1.
2.
3.
4.
5.
require HHS to assist employees of County contractors and subcontractors who
do not have employer-sponsored health insurance to apply for insurance on the
Maryland Health Benefit Exchange;
require contractors and subcontractors to permit employees to meet with HHS
representatives for this purpose on company time;
require contractors to report to DGS on the number of employees who have health
Insurance;
require DGS to report to the Council and Executive on the number of County
contractor and subcontractor employees without health insurance; and
sunset the law after 2 years unless the Council decides to extend it.
Committee recommendation (5-0): amend the Bill as described above and shown on
the amended Bill at ©1-5.
This packet contains:
Bill 14-14
Legislative Request Report
Testimony
Rev. Abhi Janamanchi
Jacob Avilla
Rabbi David Shneyer
Progressive Maryland
Various community members
Montgomery County Chamber of Commerce
DGS Response to Council Questions
Executive Memo
Fiscal and Economic Impact statement
Updated Fiscal Impact statement
Circle
#
1
6
7
8
10
11
12
14
16
20
21
26
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Bill No.
14-14
Conceming: Contracts and Procurement
- Wage Requirements - Health
Insurance - Amendments
Revised: April 1. 2015 Draft No. ..!,.14.!..--__
Introduced:
February 4, 2014
Expires:
August 4. 2015
Enacted: _ _ _ _ _ _ _ _ __
Executive: _ _ _ _ _ _ _ __
Effective:
_--=::::-:---:::-:--:--:--::-::-:-::::--_
Sunset Date: [[None]] July 1. 2017
Ch.
Laws of Mont. Co. _ __
COUNTY COUNCIL
FOR MONTGOMERY COUNTY, MARYLAND
By: Councilmembers Navarro, Berliner, Riemer, Eirich, Floreen and Branson
AN
ACT to:
(1)
require [[certain]]
County [[contractors or subcontractors]] to [[provide health
insurance or a cash equivalent for]]
certain employees working on a County
contract to apply for health insurance on the Maryland Health Benefit Exchange;
[[limit the employee's share of the health insurance premium for certain employees
working on a County contract;
eliminate the credit against the wage requirements for the employer's share of health
insurance for certain employees working on a County contract; and
generally amend the law governing wage requirements for County contractors and
subcontractors.
(2)
(3)]]
(3)
By amending
Montgomery County Code
Chapter 11 B, Contracts and Procurement
Article VI, Wage Requirements
Section
llB-33A
Boldface
Underlining
[Single boldface brackets]
Double underlining
[[Double boldface bracketsD
* * *
Heading or defined term.
Added to existing law by original bill.
Deletedfrom existing law
by
original bill.
Added by amendment.
Deletedfrom existing law or the bill by amendment.
Existing law unaffected by bill.
The County Council for Montgomery County, Maryland approves the following Act.'
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BILL No. 14-14
1
2
3
4
Sec.
1.
Section IlB-33A is amended as follows:
*
(d)
Health insurance.
[If a]
*
*
ill
Defmitions. As used in this subsection;
Health insurance
means insurance coverage that is part of an
employer benefit package that
Pm
for medical expenses
incurred
5
6
7
12Y
an employee and an employee's family either
12Y
8
9
reimbursing the employee or
12Y
paying the care provider directly
and provides the minimum essential health benefits required
under the Patient Protection and Affordable Care Act, 26 U.S.C.
§5000A, as amended.
Maryland Health Benefit Exchange
means the public corporation
and independent unit of Maryland State government established
in Title
10
11
12
13
14
n
ofthe Maryland Insurance Code.
15
W
[[The employee's share of the premium for individual health
insurance offered by a contractor or subcontractor must be
affordable as defined for an employer-sponsored plan under the
Patient Protection and Affordable Care Act, 26 U.S.C.
§36B(c)(2)(C), as amended.]]
[[ill]]
A
contractor
or
16
17
18
19
20
21
subcontractor [commits in its bid or proposal to] who does not
m:,()yide health insurance [[must provide]] for an employee who
provides services to the County must:
CA)
[[health insurance]] [to any employee who provides
services to the County, the] report to the Director the job
title and salary for each employee providing services to the
County under the contract who does not have health
22
23
24
25
26
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wage
requirements - health insurance\bill14.docx
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Bill
No. 14-14
27
msurance
without
identifying
confidential
medical
28
29
30
information;
[[m:]]
and
lID
[rn
cash payment equal to the hourly average cost to the]]
permit each employee [[for
£!:
Silver plan]] without health
insurance to meet with a County representative designated
by the Director of Health and Human Services during
normal work hours to receive help applying for health
insurance on the Maryland Health Benefit
Exchange~
[[less
9.5% of the employee's hourly salary]] including any
available
F~deral
tax subsidy.
31
32
33
34
35
36
37
38
39
[[ffi]]
[lUlllHThe contractor]] [[or subcontractor]] [may] [[must]]
[:(1)]
[[certify in its bid or
proposal~
(A)
the]] [[per-employee hourly]] [[per pay period cost of the
employer's share of the premium for]] [[that]] [[health
insurance[,] offered to its employees; and
40
41
42
43
44
[(2)]
lID]]
[reduce the wage paid under subsection (e) to any
employee covered by the insurance by all or part of the
per-employee hourly cost of the employer's share of the
premium] [[the employee's share of the premium for that
45
46
health insurance.]]
47
48
[[ill]] [[ill]]
ill
Human
The Director of the Department of Health and
or a designee [[of the Director]] must assist any
Servic~s
49
50
51
52
employee of a contractor or subcontractor without health
insurance who requests help to apply for health insurance on the
Maryland Health Benefit Exchange, including any available
Federal tax subsidy.
0)
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BILL No. 14-14
53
[~]
[[ill]]
ill
Each contractor must submit a quarterly payroll
54
55
56
report to the [[Director]] Chief Administrative Officer for each
employee of the contractor or any subcontractor who performed
services on the contract that includes:
CA)
the wages paid to the employee; and
the employer and the employee share of any health
insurance premium provided to the employee.
57
58
59
!Ill
[[ill]
[~]
60
61
ill
[[The Executive must adopt g Method
2.
regulation
establishing guidelines for calculating the amount of the cash
payment option in subparagraph
62
63
64
65
66
ill]]
The Director must retain
the quarterly payroll reports submitted by the contractor under
paragraph
[~]
[[ill]]
C for at least 3 years after the
4)
completion of the contract.
On
or before each September 1. the
Director must report to the Executive and the Council the number
of employees of a contractor or subcontractor who provided
services to the County during the previous fiscal year who had
health insurance and the number of employees who did not have
health insurance.
67
68
69
70
71
*
(e)
Wage requirement.
*
*
72
73
(l)
[[Except as permitted under subsection (dX2), each]] Each
covered employer must pay each employee who is not exempt
under subsection
(1)
at least $10.50 per hour during the time the
employee actually provides services to the County.
74
75
76
77
78
*
Sec. 2. Effective date.
*
*
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BILL No. 14-14
79
80
81
82
83
84
[[(a)]] The amendments to Section IlB-33A, inserted in Section 1 of this
Act[[,]]~
(a)
apply to any contract [[for which the County government released a
solicitation]] in effect on or after the date this Act takes effect: and
(b)
[[At the request of the contractor the Executive must renegotiate the
tenns of any contract entered into before this Act takes effect to
reimburse the contractor for the increased cost of voluntarily adding a
health insurance benefit that complies with this law for
its
employees
who perfonn work for the County. The increased cost to the County
must not be greater than
$4000
per year for each covered employee]]
are not effective after July
1, 2017.
85
86
87
88
89
90
91
Approved:
92
George Leventhal, President, County Council
93
Approved:
Date
94
Isiah Leggett, County Executive
95
96
Date
This is a correct copy o/Council action.
Linda M. Lauer, Clerk ofthe Council
Date
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LEGISLAriVE REQUEST REPORT
Contracts and Procurement
Bill 14-14
Wage Requirements
-
Health Insurance
-
Amendments
DESCRIPTION:
Bil114-14
would require a contractor to provide health insurance for
each employee who performs work on a County contract or a cash
equivalent. The
Bill
would also eliminate the credit against the wage
requirements for the employer's share of health insurance.
PROBLEM:
GOALS AND
OBJECTIVES:
COORDINATION:
FISCAL IMPACT:
ECONOMIC
IMPACT:
EVALUATION:
EXPERIENCE
ELSEWHERE:
SOURCE OF
INFORMATION:
APPLICATION
WITHIN
MUNICIP ALITIES:
PENALTIES:
Many County contractors do not provide health insurance for their
employees.
The goal is to increase the number of County residents who have
health insurance.
Procurement, County Attorney
To be requested.
To be requested.
To be requested.
To be researched.
Robert H. Drummer,
240-777-7895
Not applicable.
Contractual remedies.
@
f:\law\bills\1414 wage requirements - health insurance\legislative request
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Statement of Support
I am the Rev. Abhi Janamanchi and serve as the senior minister at Cedar Lane Unitarian
Universalist Church in Bethesda, a 750 member congregation committed to promoting
justice, equity. and
compa~sion
in human relations. My family and I reside not far from
here in Rockville.
I am here
to
urge you to enact 814-14:
Affordable Health Care for County Contractors,
which
was introduced by Council members Navarro. Floreen, Riemer, Berliner. and Eirich on
February 4,2014. The legislation is critical to the health and well-being of our county's
contract employees, especially sanitation workers.
Last October, twenty members of my congregation and I joined dozens of brave sanitation
workers on the picket line at Potomac Disposal in Gaithersburg. I was deeply moved by
their commitment and their willingness
to
risk their livelihoods for justice and eqUity.
We were happy that the workers' representatives and the company reached an agreement
on pay raises and sick and vacation benefits but disappointed that they were not able to
agree on affordable health insurance for all workers.
Affordable health care is a basic human right, not just a human need, and we have a duty to
help ensure that basic health care coverage is available to all the resjdents of our county.
Financially. socially, economically, ethically, and morally, we cannot afford to do otherwise.
It is good to remember the Rev. Dr. Martin Luther King Jro's words of support to striking
sanitation workers in Memphis, TN in March
1968:
"You are doing many things here in this struggle. You are demanding that this city will
respect the dignity of labor. . ...whenever you are engaged in work that serves humanity
and is for the building of humanity, it has dignity (and worth). . . . But you are doing
another thing.... You are reminding the nation that it is a crime for people to live in this
rich nation and receive starvation wages ... it is criminal to have people working on a
full­
time basis and a full-time job getting part-time income (in unsafe working conditions)."
By passing this bill into law, you will be demonstrating your respect for the dignity of labor.
You will be creating a health care future that includes everyone and works well for all of us;
a future grounded in the sacred bonds of our common humanity and reflecting faithful
stewardship of our abundant health care resources.
We urge you to do the right thing by enacting this bill into law in Montgomery County.
(j)
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Committee on Government Operations and Fiscal Policy
Hearing on 814-14: Contracts and Procurement -Wage
Requirements Health Insurance Amendments
February 25, 2014
Thank you Chairwoman Navarro for holding this hearlng on B14-14. My name is
Jacob Avilla. I am the shop steward at Potomac Disposal in Montgomery County.
Potomac Disposal employs about 60 workers who pick up residential trash in the
County. Many of my co-workers earn only $19,000 per year, which is hard to survive
on in Montgomery County. The cost of living here is really high, especially if you
have a family to support.
We need affordable health insurance. Trash collection is hard, physical work and
injuries do occur. I am an example of what can happen when workers are not
provided affordable health care. Last year, I broke my collarbone and had to go to
the hospital.
It
was very expensive--I ended up paying $4,000 in hospital bills. I had
to borrow some of that money from family members, and some of it went to a
col1ections agency because I did not have the money to pay when I got my
collarbone fixed.
When workers like me get sick and go to the emergency room, no one benefits. Local
taxpayers end up having to pay the hill.
It
makes a lot more sense for workers like
me to have access to affordable health care. Most importantly, it is the morally right
J
right thing to do.
I also have a little brother who lives with me and is dependent on me for financial
support. I work hard every day, and I would like to be able to have affordable, family
health care coverage. My co-workers and I would benefit a great deal from this
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legislation. I come here today to ask that Montgomery County Council to pass this
legislation. Thank you for your time.
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Affordable Health Care for Contracted Workers
Testimony by Rabbi David Shneyer, Am Kolel
Thank you for this opportunity to address you. My name is David Shneyer. I am a
resident of Montgomery County, having resided here for nearly 44 years. I am also a
rabbi and the spiritual leader of two Jewish congregations in Montgomery County. I am
also a founder and member of Jews United for Justice.
I come from a heritage and a family that has been devoted to creating a more just and
compassionate society. My grandparents were members of the Workmen's Circle. They
worked in the garment industry in New York.
Respect for the dignity of workers has been a central theme in Jewish religious writings
since biblical times. Workers, Israelite and non-Israelite, are given a Day of Rest. From
Genesis, chapter 1, we read that we "are created in the Divine Image." Several times in
the Torah and numerous times in the Talmud, we hear instructions about the rights ofthe
workers.
Deuteronomy teaches "you shall not oppress a hired servant who is poor and needy
whether he be of your brothers or a stranger in the Land within your gates.
In
the same
day you shall give
him
his wage, neither shall the sun go down upon it, for he is poor and
his heart needs it." The sages ofthe Tahnud discuss in great detail and rule in favor of
sick leave and disability pay! That was 2,000 years ago.
A few months ago I stood on the picket line with the sanitation workers in front of
Potomac Disposal. I listened to their stories, how hard they work, and how difficult it is
to support their families. I also spoke with the owners ofthe company. As a Board
member ofMaona Food Center, I have heard the stories of good, hard-working people
many times. Many have two or more jobs in order to have a roof over their heads, pay
for transportation and clothing and put food on the tables. Most of those workers are not
County contractors making a Living Wage. And yet, even County contractors are
struggling. While a wage deal was worked out with Potomac disposal we know that it
wasn't enough to care for their health insurance needs, too. That's why this bill is so
important.
It
is the right thing to do.
I feel grateful to Council woman Nancy Navarro for introducing this Bill and gathering
the support it needs to honor our workers and their human dignity. By being just and
fair
to them we also honor ourselves. And the Creator of All.
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State Headquarters
33
University Boulevard
East
Silver Spring, MD 20901
www.ProgressiveMaryland.org
Baltimore Office
9 W.
Mulberry
St., 4th
Floor
Baltimore, MD 21201
Phone:
301.494.4998
Mailing Address:
P.O.
Box
2181
Silver Spring, MD 20915
Contact@ProgressiveMaryland.org
........•
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Testimony in Support of Montgomery County Council Bill 14-14
TO;
FROM:
DATE:
POSITION:
Montgomery County Council
Kate Planco Waybright, Executive Director
February 25, 2014
Support
Thank you, Mr. President and Members ofthe Montgomery County Council, for the opportunity to submit to you
this testimony in support of Montgomery County Council Bill 14-14. Progressive Maryland is a grassroots, nonprofit
organization of more than 23,000 members and supporters who live in nearly every legislative district in the state,
many of whom reside right here in Montgomery County. In addition, there are 26 religiOUS, community and labor
organizations that are affiliated with our work. Our mission is to improve the lives of working families in Maryland.
Please note our strong support for this bill.
Bill 14-14 would require certain County contractors or subcontractors to provide health insurance or a cash
equivalent for employees who perform work on a County contract; limit the employee's share of the health
insurance premium for certain employees working on a County contract; and eliminate the credit against the wage
requirements for the employer's share of health insurance for certain employees working on a County contract.
In September and October of 2013, over 100 sanitation workers in Montgomery County went on strike. Progressive
Maryland's membership cared deeply about this strike. Many contacted you in support ofthe workers. While
workers at Potomac Disposal now have a union contract, workers at Unity Disposal do not. Both groups of workers
still lack access to affordable health care despite bravely striking for better benefits and working conditions.
Workers earning a living wage of $13.95 earn less than $30,000 a year. The DC suburbs have a higher than-average
cost of living. After paying for rent and food, these workers have very little left to spend on healthcare, so the vast
majority are uninsured. Sanitation is the sixth most-dangerous occupation in the U.S. All workers deserve affordable
health care, but it is particularly important for sanitation workers, who are regularly exposed to waste and germs, to
have access to medical care.
Progressive Maryland's Montgomery County members pay taxes and appreciate the good service these workers
provide. 'rhey believe that workers providing vital services deserve good benefits so that they can remain healthy
and afford to live in the County.
We urge you to pass this sensible piece of legislation. Montgomery County voted overwhelmingly for President
Obama in the 2012 elections, demonstrating a clear mandate in the County for his agenda including hearthcare
reform. This legislation uses the same definitions of "adequate" and "affordable" as the Affordable Care Act, which
is the law of the land.
Thank you so much for your time and consideration of this critical legislation. We urge a favorable vote on Bill 14-14.
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Tuesday, February 25, 2014
Dear Montgomery County Executive Leggett and Members of the Montgomery County
Council:
We urge you to enact BI4-14: Affordable Health Care for County Contractors, which
was introduced by Councilmembers Navarro, Floreen, Riemer, Berliner and EIrich on
February 4,2014. The legislation is critical to the health and well-being of our county's
contract employees.
The current living wage in Montgomery County is $13.95 per hour. Many contract
employees are unable to afford health insurance on this wage rate. Local governments
like Montgomery County must do all that they can to ensure that employees who perform
services for the County have access to affordable health insurance. As a member of the
community, I care about the people who perform vital public services and believe they
deserve good wages and benefits.
Affordable health insurance is morally right and fiscally prudent. Every time a medical
problem is treated in the emergency room instead of prevented with a doctor's visit, the
taxpayer ends up footing the bilL Working families in Montgomery County struggle with
a variety of economic problems on a daily basis. This legislation is important because it
helps alleviate this burden.
This legislation is intended to work with the Affordable Care Act (ACA) by encouraging
employers to provide affordable health insurance wherever possible.
It
is a modest and
necessary step towards expanding the universe ofpeople who have access to affordable
health care coverage. Many residents in Montgomery County would benefit a great deal
from this legislation.
We urge you to ensure that this bill becomes law in Montgomery County.
Sincerely,
Reverend Abhi Janamanchi
Senior Minister
Cedar Lane Unitarian Church
Bethesda, MD
Rabbi David Shneyer
Am
Kolel Jewish Renewal Community
Beallsville, MD
Reverend Jill McCrory
Minister
Twinbrook Baptist Church
Rockville, MD
Rabbi Elizabeth Richman
Program Director & Rabbi in Residence
Jews United for Justice
;
South Silver Spring resident
Kathleen Planco Waybright
Executive Director
Progressive Maryland
Silver Spring, MD
Maryland Progressive Neighbors
Steering Committee Members:
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Brian Doherty
Dana Beyer
Sharon Dooley
Felicia Eberling
Mike Hersh
Alan Hyman
Joan King
Ken Lemberg
Barbara Lenkerd
Wally Malakoff
Stephen Mortellaro
Terrill North
Mark Paster.
Michael Rubin
Deborah Schumann
Jonathan Shurberg
Will Smith
Mike Tabor
Darian Unger
@
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THE
VOICE OF MONTGOMERY
COUNTYBUSINESS
MONTGOMERY COUNTY
BILL 14-14:
CONTRACTS AND PROCUREMENT - WAGE REQUIREMENTS ­
HEALTH INSURANCE-AMENDMENTS
FEBRUARY
25,
2014
OPPOSE
The Montgomery County Chamber of Commerce ("MCCC"), as the voice of Montgomery County
business, opposes Montgomery County Bill 14-14, which amends Bill 5-02 to eliminate the
health insurance credit and require County contractors subject to the Living Wage Law to
provide health insurance or a cash equivalent for employees who work on the County contract.
The MCCC believes that MC Bill 14-14 is being proposed at an inopportune time and has
significant implementation implications that will be detrimental to the goal of creating more jobs
in Montgomery County.
.
As we are all aware, there have been significant challenges at the federal and state level with
regard to the roll out of the Affordable Care Act (ACA) and the introduction of health care
exchanges. Problems still need to be fixed. Part of the interim remedy has been to extend the
ACA implementation deadline for small businesses. Employer mandated health coverage
imposes obstacles to the types of job creation we need in Montgomery County; that is, full time
jobs at small businesses. Bill 14-14 exacerbates this very problem at a time when the systems
are not in place to facilitate adoption of the new mandates.
The majority of businesses in Montgomery County are small businesses. The compliance and
administrative burden of this amendment are particularly difficult for those companies both in
terms of time and resources.
To further illustrate the point, the Wage Requirements bill makes clear that employees who
work on a County contract receive a living wage. Unfortunately, it is not as clear cut when
dealing with employee benefits. It is not possible when providing benefits like health insurance
to differentiate among employees without violating federal law such as Employee Retirement
Income Security Act (ERISA). So while the County may provide compensation in a contract for
an employer to provide health insurance to the employee engaged in the County contract, the
employer would be obligated to absorb costs for other employees not working on the contract
This highlights one of the many challenges in implementing this bill.
Gigi Godwin, President and CEO
Montgomery County Chamber of Commerce
51 Monroe Street, Suite 1800 Rockville, MD 20850
301-738-0015
__________________________________
www
__
ty_ch_am_b_e_L_co_m
________________________
~
.m_o_m_g_om_e_ry_c_o~
~~
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The existing system of providing a credit to an employer who offers health insurance to an
employee working on the County contract is an incentive to employers to provide health
insurance at their business. It is unclear why Bill 14-14 eliminates this credit which is more
straight forward to administer.
We appreciate that there are other pieces of existing and pending legislation that create set
asides and even local preferences'in the procurement process but it is unclear how those various
pieces of legislation are designed to work with Bill 14-14. Ultimately, this legislation makes it
more difficult for smaller businesses to compete for County contracts.
Lastly, it is important to note that at the present time, there are a number of bills being
considered at the state level that may also have an impact on small businesses. The cumulative
impact of these various initiatives and multiple pieces of new legislation, should they all pass,
would suffocate businesses, stifle economic activity, and ultimately harm the people they are
intended to help.
.
As highlighted in MCCC's 2014 Legislative Agenda, a vibrant economy is essential to the health
and well-being of our county and state. Keys to a vibrant economy include: encouraging
innovation, attracting and retaining employers and their employees, expanding global trade
opportunities, maintaining an effective infrastructure, reducing hidden costs of doing business,
retaining and expanding wealth for further investment, and implementing predictable and
streamlined processes. We believe that this is not the time to impose more obstacles to job
creation and that Bill 14-14 has significant negative implementation implications.
For these reasons, we request an
unfavorable report on
Bill
14-14.
Gigi
Godwin, President and CEO
Montgomery County Chamber of Commerce
51 Monroe Street. Suite 1800 Rockville, MD 20850
301-738-0015
www.montgomerycountychamber.com
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Response to Council questions on Living Wage
2-24-2014
]. How many contracts do \ve have that must comply with the Wage Requirements Law?
Typically, there are over 400 contracts under the Wage Requirements Law.
2. How do we detennine which cmployees of the contractor and subcontractors work on the
contract? Do we get regular payroll records? If so, does someone review them on a regular
basis?
The contractor determines and files reports about covered workers performing direct and
measurable work on the contract.
DGS/Office of Business Relations and Compliance (OBRC) reviews quarterly reports
that are submitted. We have been receiving 50 to 200 reports quarterly.
3. What is our process for handling complaints? Do we require the contractor to provide its
employees with a notice of the Wage Requirements law?
The contractor is required to post the wage requirements notices in a conspicuous place
informing employees of the wage requirements. The name, address and phone number of
the County designated employee are on the notices should a worker wish to file a
complaint. When a complaint is received, the County designated employee gathers the
information requested on the complaint form that is located on the County's intranet site,
and submits it to the Living Wage Program Manager.
4. How many complaints did we receive each year over the last 3 years? What was the result of
each complaint?
Twelve complaints have been received since the implementation of the Law in 2003.
We did seven investigations and five audits. Details follow:
LIVING WAGE INVESTIGATIONS
Professional Hispanic Contractors (PHC) - On October 10, 2007 the County requested
payroll records from PHC. A review of these records showed some minor noncompliance
with the County's Living Wage Law. Consequently, additional records were requested.
Again, some minor deficiencies were discovered. On December 14, 2007 PHC
retroactively paid the amount of $221.25 to its employees.
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Potomac Disposal, Inc. - On July 25,2007, the County received information that
Potomac was not paying the Living Wage hourly rate. The County requested payroll
records on August 6, 2007. The County received some records on August 22,2007 but
the records were insufficient to determine if the proper Living Wage rate was being paid
to the employees. On January 15, 2008, the County received adequate records to show
compliance with the Living Wage Law. The County notified Potomac on February 4,
2008 that they were in compliance.
Tito Contractors, Inc. - On October 10 2007 the County requested payroll records from
Tito in order to determine if Tito was
in
compliance with the County's Living Wage Law.
In the course of the investigation the County discovered that a Tito subcontractor kept
virtually no payroll records. In addition Tito's records were lacking in many aspects. On
January 25, 2008, the County issued a "Notice of Termination for Default" letter to Tito.
Subsequently, the County cited for violations ofthe County Code. On November 25,
2008, the District Court of Maryland entered an Order of Abatement. Also, Tito issued
retroactively checks totaling $48,720,55.
Camco, LLC On November 17, 2007, DHCA contacted DOS/OBRC concerning
Cameo after a conversation with the President of Camco. On December 1, 2007, the
County sent a request for payroll records to Camco. The County received some records
on January 10, 2010 but in no way did they demonstrate compliance and Camco refused
to send additional records to show compliance. Consequently, on February 5, the County
issued a "Notice to Cure Prior to Termination for Cause" letter. The contract was
terminated on February 19,2010.
Allied Barton Security Services - In a letter to the Assistant Account Manager, 24
employees inquired when they could expect the increase due from the July 1,2012
Living Wage rate adjustment. The County sent a letter to the District Manager with the
same question. The company corrected the hourly rate and issued retro checks on
December 12,2012.
Ecology - As a result of Potomac Disposal's strike, the County conducted a payroll
investigations on Ecology Services. They were found in compliance with the Living
Wage.
Unity - As a result of Potomac Disposal's strike, the County conducted a payroll
investigations on Unity. The investigation is ongoing.
17
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LIVING W AGE AUDITS
Cruz Cleaning Services, Inc. - A local attorney wrote a letter dated November 16, 2004
to a council member accusing Cruz of violating the Living Wage Law based on his own
investigations. The audit report of May 24, 2005, found Cruz to be
in
violation ofthe
Living Wage Law. The County sent Cruz a "Notice to Cure Prior to Termination for
Cause" letter on April 6, 2005, with a termination date of April 20, 2005, should Cruz not
cure. Cruz failed to cure and the contract was terminated on April 20, 2005. Audit cost
was approximately $40,000.
Crissol Contractors, Inc. - A local attorney wrote a letter dated November 16, 2004 to a
council member accusing Crissol of violating the Living Wage Law based on his own
investigations. The audit report of June, 2006 found Crissol to be in violation of the
Living Wage Law. The County sent Crissol a "Notice to Cure Prior to Termination for
Cause" letter on June 26, 2006, with a termination date of July 16, 2006. The contract
was terminated on July 16,2006. Crissol submitted falsified documents on July 17, 2006
to attempt to cure. The County kept the termination decision. Audit cost was
approximately $30,000.
JRP Management Resources, Inc. The County's Parking Management Division emailed
DGS/OBRC
with concerns about the veracity of an Invoice from JRP. An Entrance
Conference was held with the outside auditors on February 27,2009. The audit revealed
that JRP was
in
violation of the County's Living Wage Law. The audit also showed that
JRP made cash payments to employees and did not report them to the IRS and that
JRP,
in some cases, failed to pay its employees for overtime worked. The County issued a
"Notice to Cure Prior to Termination for Cause" letter on April!, 2010, with a
termination date of May 1, 2010.
It
should be noted that as a result of the audit, JRP
issued retroactive checks to tis employees totaling $22, 053.24. Cost of the audit was
$40,320.
Camco, LLC In mid-July of2012,
DGS/OBRC
received 14 calls from Camco
employees complaining that they were not receiving the proper hourly rate under the
County's Living Wage Law. Outside auditors were engaged on September 4,2012. The
audit showed that Camco was not in compliance with the County's Living Wage Law.
Currently OCA has this case under review. Cost of the audit was $29,760 (for 26
employees)
Potomac Disposal, Inc -
In
Oct, 2013, Potomac Disposal workers went on strike. Among
the complaints, some employees claimed that they are not paid the Living Wage. The
County conducted a payroll investigation and found 22 violations in 390 payroll records
examined. As a result, a formal wage audit is underway. Total audit cost is $50,750 (for
33 employees, which is half of the workforce)
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5. What are the sanctions if we find a violation? How do we ensure that all employees found to
be underpaid are made whole?
The County can assess liquidated damages or terminate the contract. However, this is not
the best method to ensure that the underpaid employees are justly compensated. When an
issue arises, the Living Wage Program Manager attempts to negotiate a settlement with
the vendor to ensure the employees are properly compensated including back pay.
DGS is proposing additional enforcement measures as discussed in item 7 below to
address this issue.
6. How many employees are charged with investigating eomplaints and insuring
compliance? Has this number changed over the last 5 years? If so. how?
1/3
FTE is dedicated to manage the Living Wage program. The same staff also manages
the County's Prevailing Wage Law
(2/3
FTE), which was implemented in 2009, reducing
1 FTE to 1/3 FTE on the Living Wage program.
7. Do you have any suggestions for changes to the law to help enforcement?
Implementing penalties for late payroll submission and other forms of enforcement may
help motivate contractors to comply. The Prevailing Wage Law serves as a good model
to ensure that workers are justly compensated for their efforts. The Living Wage Law
should give the Director the ability to assess penalties for non-compliances, such as late
payroll submissions and under-payments.
A comprehensive Procurement regulation updates through the CE is forth-coming, it will
be submitted to the Council in early Spring.
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OFFlCE OF THE COUNTY EXECUTIVE
ROCKV1LLE. MARYLAND 20850
Isiah Leggett
County Executive
MEMORANDUM
February 20,2014
TO:
FROM:
SUBJECT:
I am writing to congratulate the Council for its concern about worker health as
expressed in Bill 14-14 - Health Insurance Requirements Amendment to the Wage Requirements
Law (Amendment); introduced February 4,2014 by Councilmembers Navarro, Berliner, Riemer
and EIrich. I support the initiative and efforts to require contractors or subcontractors to provide
health insurance or a cash equivalent for employees who perform work on a County contract.
The goal to increase the number of workers who have adequate health insurance, is laudable.
On average, the County has over 400 contracts to which the Wage Requirements
Law and, therefore, this Amendment is applicable. Monitoring and tracking contractor
compliance
will
be challenging, time consuming and have an impact on staffing to ensure it is
done properly. There also exists the potential for significant cost impact to the County under the
legislation as currently drafted should all or any large number of impacted contractors seek
subsidization for health insurance costs.
I applaud Councilmembers' vision and recognition of the need for employees who
perform work on County contracts to have adequate health insurance. I am committed to
working with the Council on this Amendment during the coming weeks to develop progressive
and reasonable legislation that is also achievable and enforceable.
montgomerycountymd.gov/311
240-773-3556 TTY
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Fiscal Impact Statement
Council Bill 14-14
&
Contracts and Procurement ­
Wage Reqruremcnts- Health Insurance
1. Legislative Summary.
The legislation requires certain County contractors or subcontractors to pro'v:ide health
insurance or
cash
equivalent for certain employees, limits the employee's share ofthe
health
insurance
premium for certain employees working
on
a County contract, and
eliminates the credit against the
wage
requirements for the employer's share of health
insurance.
2.
An
estimate ofchangt.'S in County revenues and expenditures regardless of whether
the
revenues or expenditures
are
assumed in the recommended or approved budget Includes
source of information, assumptions, and methodologies used.
No revenues are affected.
There are a number of issues which could influence expenditures. For example, there is
a
potential for Bidders or Offerors to build increased rates into their bids or proposals to the
County resulting from use of subcontractors into their costs. However,
the
exact increased
percentage of cost to the County
is
hard
to
estimate.
Also, the new Health Insurance Requirements will also increase the cost of
audit~,
when an
issue
is
discovered. The current audits only target
PayTOll
records, and each audit is estimated
at
$80,000. (OMB
in
2004
recommended
3 PTE
for managing the program and estimated an
average of $75.000 for each audit). \Vben one includes
the
Health Insurance Requirements in
the audit scope. the audit cost
can
increase
50%,
to up to
$120,000
due to an increase
in
the
amount of infmmation to review and sensitivity of infonnation present
(Tm
s figure
is
based
on recent audit costs, as well as estimate from Office of Internal Audit.).
Lastly. section 2(b) of the
Bill
also allows contractors to request up to
$4,000
per employee
per year from the County
as
reimbursement The county
has 400+
contracts that are covered
by the Living Wage Law
~i.th
each contractor having anyvV'bere between
1
to l000s of
employees.
1be
4
audits OBRC recently conducted
in
2013
showed
an
average of
80
employees on
the
County
contracts. The $4,000
per employee per
year
County
compensation
creates an incentive for vendors
to use
County resources
to subsidize
Health Insurance cost.
In a
worst case scenario,
if
all 400
contractors request the compensation,
it
",rill
cost tbe
County
$128
million per year to cover the reimbursement.
This
cost
is
not budgeted
in
departments'
funds.
3. Revenue and expenditure estimates covering at 1east the next 6
fiscal years.
See the answer
to
item 2.
4.
An
actuarial analysis through the entire amortization period for each bill that would affect
retiree pension or group insurance costs.
The legislation does not affect retiree pension or group insurance costs.
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5. Later actions
that
may affect
future
revenue and expenditures
if
the bill authorizes future
spending.
The legislation does not authorize future spending.
6.
An estimate ofthe &1afftime needed to implement the bill.
One
FTE
with Health
Insurance
and Auditing background is needed to respond
to
complaints, investigate issues, initiates and monitor audits, process memos and reports,
outreach and educate vendors
and
Contract Administrator, etc.
One
FIE
Procurement
Specialist is
needed
to
analyze bid and proposal submissions as it
relates to the area ofhea1th insurance and applicability in the process. It
'Will
require a
review of each solicitation and award action; legal determinations of variances
in
law;
and central management ofprocurement actions and issues to minimize delays.
7.
An
explanation ofhow
the
addition ofnew staff responsibilities would affect other duties.
'Inc
current Living Wage Law
is
managed by
113
of one
FTE,
who also manages the
County's Prevailing Wage Law and
the
Equal Benefits Law.
This
new task require extra
resources (one
FTE)
is needed to manage the
updated
Living
Wage Law.
The current Procurement
staff
complement in operations remains steady; however, this
workload does not take
into
account the ever increasing layers of legislation incorporated
into the Procurement process; thereby) increasing delays and complexity with each
procurement analysis.
8.
An
estimate of costs when an additiorial appropriation is needed.
a. One
FTE
program manager
'with
financial background, including computer, office
space,
office supply, etc.
b. One
PTE
Procurement Specialist, including computer, office
space~
office supply,
etc.
c. Complaints or issues during compliance validation may trigger investigations
and
possible audits.
An
estimate
each
audit
may
cost around
$80,000-$120,000.
9. A
description of any variable
that
could affect revenue and cost estimates.
The
number of workers under each contract can affect cost to the County.
10.
Ranges
of
revenue or expenditures
that
are uncertain or difficult to
project.
See the answer to item 2.
11. If a bill is likely
to
have no fiscal impact,
why
that is the case.
Not applicable.
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12. Other fiscal impacts or comments.
Complaints or issues during compliance validation
may
trigger investigations and
possible audits. Estimate each audit may cost around $80,000-$120,000.
This addition to the Living Wage
Law
may increase the procurement process
by
up
to
30
days.
13. The following contributed to and concurred
with
this
analysis:
Grace Denno, Manager, Office of Business Relations
and
Compliance, DGS
Pam Jones, Chief, Office of Procurement, DGS
Erika Lopez-Hnn, OMB
3/24/
\t\
Date
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Economic Impact Statement
BiU
14~14,
Contracts and Procurement- Wage Requirements
~·HeaIth
Insurance
Amendments
Background:
This legislation would:
• Require certain County contractors or subcontractors to provide health insurance
or a cash equivalent for employees who perform
V'r'Ork
on a County contract;
• Limit
the employee's share ofthe health insurance premium for certain
employees working on a County contract; and
• Eliminate
the credit against the wage requirements for
the
employer's
share
of
health insurance for certain employees working on
a
County contract.
1. The sources of information, assumptions, and methodologies
us~.
Department of General Services (DGS) provided data on the number of service
contractors that are subject to the Living Wage Law The assumption is the contractor
¥lill
pass on the additional costs under
Bill 14-14 (Bill)
to the County through
a
higher contract price. According to information provided by DOS, the
Bill will
require all service contractors, including employers with between one and fifty
employees, currently exempted from the Federal Affordable Care Act
(ACA)~
to
provide health insurance.
2. A
description
of
any variable that could affect the economic impact estimates.
The number of service contractors, and employees covered under this
Bill
and the
cost of health insurance per employee provided by the contractor.
3. The Bill's positive or negative effect,
if
any on employment, spending, saving,
investment, incomes, and property values in the County.
Under this
Bill,
aU contractors
that
provide services to
the
County regardless of
the
principle place of business location ofthe contractor. that are subject to
the
Living
Wage Law
will
no longer
be
allowed to reduce the health care costs for that employee
from
the
living wagc rate. As such" the operating costs of the contractors will
increase because ofthe added business expense
based
on
the
purchase of health
insurance or payment of the cash equivalent.
If
the contractor
can
pass those costs to
the County through
a
higher contract price, there will
be
no loss of business income.
However, the higher contract price would increase costs to the County Government
and thereby would reduce availability of public funds for other County programs.
Some contractors, especially
sman
contractors,
~ill
need to add more administrative
resources such as personnel, tracking and reporting systems to meet the increased
requirements under this
Bill.
This
Bill
may cause a decrease in the number of
contractors who compete for county contracts. Reportedly, some County vendors are
Page
1
of2
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Economic Impact Statement
Bill 14-14, Contracts and Procurement - Wage Requirements - Health Insurance
Amendments
experiencing difficulty
with
the complexity of our solicitation packages and
procurement processes. Certain vendors may perceive the requirements of this
legislation
will
further complicate the process
and
therefore may discourage vendor's
willingness to compete for County
contracts.
Regarding the expansion ofhealth care coverage for employees
in
a company
that has
one
to
fifty employees and
that
previously did
not
offer health
in~'UI'allce.
this Bi 11 has
a direct economic benefit to the employee who would now have health care coverage
paid for by their employer. For employees who previously received health care
coverage fTom their employer, they would continue to be covered
by health
insurance
but now also receive a higher living wage due to
the
elimination ofthe credit, which
increases their disposable income.
If
the contractor can pass the additional
costs
to the County, there is no economic cost
to
the contractor. However, ifthe increase
in
costs
would
be
absorbed by the County,
there
is
an opportunity costs (negative economic benefit) to the County Government
because of a reduction
in
~"Pending
for other program.."l.
4.
If
a BiB
is
likely to have no economic impact, why is
that
the case?
See #3.
5. The following contributed to and concurred with this analysis;
David Platt and Rob
Hagedoo~
Department ofFinance;
Grace De.nno, Department of General Services
Pam Jones, Department of General Services
. h F. Beach, Director
Department of Finance
Page2of2
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ROCKVILLE, MARYLAND
MEMORANDUM
Apri125, 2014
TO:
FROM:
SUBJECT:
Craig Rice, President,
~
Council .
Jennifer A. Hughes, Deror, Office
ofM~agement
and Budget
Updated FIS for Council Bill 14,.14, Contracts and Procurement - Wage
Requirements Health Insurance
Please find attached the updated fiscal impact statement for the above-referenced
legislation.
JAH:fz
cc: Bonnie Kirkland, Assistant Chief Administrative Officer
Lisa Austin, Offices ofthe County Executive
Joy Nurmi, Special Assistant to the County Executive
Patrick Lacefield, Director, Public Information Office
Joseph F. Beach, Director, Department of Finance
David Dise, Director, Department of General Services
Erika Lopez-Finn, Office of Management and Budget
Mary Beck, Office of Management and Budget
Alex Espinosa, Office of Management and Budget
Naeem Mia, Office ofManagement and Budget
Felicia Zhang, Office of Management and Budget
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Fiscal Impact Statement
Council Bill 14-14
&
Contracts and Procurement­
Wage Requirements- Health Insurance
1. Legislative Summary.
The legislation requires certain County contractors or subcontractors
to
provide health
insurance or cash equivalent for certain employees, limits the employee's share of the
health insurance premium for certain employees working on a County contract, and
eliminates the credit against the wage requirements for the employer's share of health
insurance.
2. An estimate of changes in County revenues and expenditures regardless of whether the
revenues or expenditures are assumed in the recommended or approved budget. Includes
source of information, assumptions, and methodologies used.
No revenues are affected.
There are a number of issues which could influence expenditures. For example, there is a
potential for Bidders or Offerors to build increased rates into their bids or proposals
to
the
County resulting from use of subcontractors into their costs. However, the exact increased
percentage of cost to the County is hard to estimate.
Also, the new Health Insurance Requirements will increase the cost of audits, when an issue
is discovered. The current audits only target Payroll records, and each audit is estimated at
$80,000. COMB in 2004 recommended 3 FTE for managing the program and estimated an
average of $75,000 for each'audit). When one includes the Health Insurance Requirements in
the audit scope, the audit cost can increase 50%, to up to $120,000 due to an increase in the
amount of information to review and sensitivity of information present (This figure is based
on recent audit costs, as well as estimate from Office ofInternal Audit.).
Lastly. section 2(b) ofthe Bill also allows contractors to request up to $4,000 per employee
per year from the County as reimbursement. The county has 400+ contracts that are covered
by the Living Wage Law with each contractor having anywhere between one to thousands of
employees. The 4 audits OBRC recently conducted in 2013 showed an average of 80
employees on the County contracts. The $4,000 per employee per year County compensation
creates an incentive for vendors to use County resources to subsidize health insurance costs.
In a worst case scenario, if all 400 contractors request the compensation, it will cost the
County $128 million per year to cover the reimbursement. This cost is not budgeted in
departments' funds.
Another scenario assumes that 10% of contracts (40 contracts instead of 400) for non-skilled
workers would be affected by the Living Wage rate. DGS estimates that the affected
companies would have on average 45 employees. If compensation is requested by only the
10% of the wage-subject contracts the cost impact ofthe compensation provision could
40
annually be $7,200,000 C contracts x $4,000 per employee x 45 employees). However, this
provision of the bill is not limited
to
employees receiving wages on the lower end of the pay
scale. This amount is significantly less than the $128 million which is also present in the FIS,
but this is due to the fact that it assumes only 10% ofthose companies participating request
compensation.
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3. Revenue and expenditure estimates covering at least the next 6 fiscal years.
See the answer to item 2.
4.
An
actUarial analysis through the entire amortization period for each bill that would affect
retiree pension or group insurance costs.
The legislation docs not affect retiree pension or group insurance costs.
5. Later actions that may affect future revenue and expenditures if the bill authorizes future
spending.
The legislation does not authorize future spending.
6.
An
estimate of the staff time needed to implement the bill.
One FTE with Health Insurance and Auditing background is needed to respond to
complaints, investigate issues, initiates and monitor audits, process memos and reports,
outreach and educate vendors and Contract Administrator, etc.
One FTE Procurement Specialist is needed to analyze bid and proposal submissions as it
relates to the area of health insurance and applicability in the process. It will require a
review of each solicitation and award action; legal determinations of variances in law;
and central management ofprocurement actions and issues to minimize delays.
The staff time required in the 100% scenario and the 10% scenario are identical since all
submissions must be analyzed.
7.
An
explanation of how the addition Qf new staff responsibilities would affect other duties.
The current Living Wage Law
is
managed by 113 of one FTE. who also manages the
County's Prevailing Wage Law and the Equal Benefits Law. This new task requires extra
resources (one FTE)
to
manage the updated Living Wage Law.
The current procurement staff complement in operations remains steady; however, this
workload does not take into account the ever increasing layers oflegislation incorporated
into the Procurement process; thereby, increasing delays and complexity with each
procurement analysis.
The new staff responsibilities in the 100% and 10% scenario are identical.
8.
An
estimate of costs when an additional appropriation is needed.
a. One FTE program manager with financial background, including computer, office
space, office supply, etc.
b. One FTE Procurement Specialist,including computer, office space, office supply,
etc.
@
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c. Complaints or issues during compliance validation may trigger investigations and
possible audits.
An
estimate each audit may cost around $80,000-$120,000.
9. A description of any variable that could affect revenue and cost estimates.
The number of workers under each contract can affect cost to the County.
10. Ranges of revenue or expenditures that are uncertain or difficult to project.
See the answer to item
2.
11. If a bill is likely to have no fiscal impact, why that is the case.
Not applicable.
12. Other fiscal impacts or comments.
Complaints or issues during compliance validation may trigger investigations and
possible audits. Estimate each audit may cost around $80,000-$120,000.
This addition to the Living Wage Law may increase the procurement process by up to 30
days.
13. The following contributed to and concurred with this analysis:
Grace Denno, Manager, Office of Business Relations and Compliance, DGS
Pam
Jones, Chief, Office of Procurement, DGS
Erika Lopez-Finn,
OMB
Dat6