BILL ANALYSIS                                                                                                                                                                                                    

                             JEFF DENHAM, CHAIRMAN

          Bill No:        AB 2249
          Author:         Ruskin
          Version:        As amended May 11, 2010
          Hearing Date:   June 22, 2010
          Fiscal:         Yes

                                 SUBJECT OF BILL  
          Small Business and Disabled Veteran Business Enterprise  
          (DVBE) certification.  
                                   PROPOSED LAW  
              1.   Add section 14840 to the Government Code, which  
               does the following:

                     requires a small business or DVBE to declare,  
                 under penalty of perjury, that material submitted to  
                 receive a government contract is truthful;
                     allows the Department of General Services (DGS)  
                 to request IRS form 4506-T (Transcript of Tax  
                 Return) with "just cause";
                     defines just cause;
                     requires a 3% participation goal; and 
                     recodifies Military and Veterans' Code (MVC)  
                 section 999.2 into 14840 of the Government Code.

             1.   Amends MVC section 999.2 to allow DGS to request an  
               IRS form 4506-T if the department receives a complaint  
               that the DVBE is a fraudulent business or if DGS finds  
               reason to request one due to findings while reviewing  
               the business.

                          EXISTING LAW AND BACKGROUND  
             1.   Since 1989, California has encouraged a three  
               percent set aside on state contracts.


             2.   In the early 2000s, rampant fraud was exposed in  
               the program and the state legislature has attempted to  
               close fraud loopholes ever since.

             3.   Among other forms of fraud were "pass through"  
               companies that did not manufacture or compete in the  
               market place but only added their mark up to the  
               state's price for commodities.

               AB 669 of 2003 (Cohn) codified the requirement for a  
               DVBE to perform a "commercially useful function"  

             4.   Another form of fraud that had been detected was  
               the use of Limited Liability Corporations (LLC) that  
               were used to hide the fact that disabled veterans were  
               no longer owners of companies in spite of the fact  
               that the state was awarding contracts to those  
               companies as part of the DVBE program.

               SB 1008 of 2003 (Machado) eliminated LLC for DVBEs  
               unless the company was 100% owned by disabled  

             5.   One of the main tools in determining fraud is the  
               tax return, which would reveal from the revenue  
               reported if a DVBE is or is not receiving money from  
               an LLC and/or performing a CUF.

             6.   Fraud also came in the disguise of "equipment  
               brokering."  SB 1008 of 2003 (Machado) also eliminated  
               counting brokered equipment costs towards satisfying  
               the DVBE goal.

             1.   Tax returns are vital in determining whether or not  
               a DVBE is functioning as a legitimate business rather  
               than being used as a front by a bigger company in  
               order to obtain state contracts.

               This bill allows DGS to view tax returns at any time  

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               to verify the legitimacy of a DVBE.  

             2.   The reason for codifying MVC 999.2 into the  
               Government Code is to make those penalties uniformly  
               apply to small businesses, micro businesses, and DVBE.

                                  PRIOR ACTIONS  

          Assembly Jobs                 9-0
          Assembly Appropriations       16-0
          Assembly Floor                63-0 (Consent)

          SB 1008 of 2003 (Machado)     
          Senator Denham                Aye   9/10/2003
          Senator Cedillo               Aye   9/10/2003 
          Assemblymen Correa            Aye   9/8/2003
          Assemblywoman Negrete-McLeod            Aye   9/8/2003
          Assemblyman Wyland       Aye   9/8/2003

          AB 669 of 2003 (Cohn)
          Senator Denham                Aye   9/2/2003
          Senator Cedillo               Aye   9/2/2003
          Assemblyman Correa            Aye   5/15/2003
          Assemblywoman Negrete-McLeod Aye   5/15/2003
          Assemblyman Wyland       Aye   5/15/2003

          None received

          None received

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