BILL ANALYSIS                                                                                                                                                                                                    



                                                                       



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          |SENATE RULES COMMITTEE            |                  AB 2249|
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                                 THIRD READING


          Bill No:  AB 2249
          Author:   Ruskin (D)
          Amended:  7/15/10 in Senate
          Vote:     21

           
           SENATE VETERANS AFFAIRS COMMITTEE  :  4-0, 6/22/10
          AYES:  Denham, Correa, Negrete McLeod, Cedillo
          NO VOTE RECORDED:  Wyland

           ASSEMBLY FLOOR  :  63-0, 5/28/10 - See last page for vote


           SUBJECT  :    State government: small business or disabled  
          veteran
                        Business enterprise certification

           SOURCE  :     Author


           DIGEST  :    This bill requires an applicant or certified  
          firm, during the process of certifying and determining the  
          eligibility of a small business or a disabled veteran  
          business enterprise, to submit to a written declaration,  
          under penalty of perjury, that all information submitted,  
          including the additional information for disabled veteran  
          business enterprises, is true and correct, and authorizes  
          the Department of General Services to require, in certain  
          cases, the owner of the enterprise or small business, the  
          applicant, or the certified firm to complete and submit to  
          a specified federal tax form requesting a transcript of a  
          tax return.

                                                           CONTINUED





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           ANALYSIS  :    Existing law:

          1.The Small Business Procurement and Contract Act,  
            encourages the participation of a small business  
            enterprise, including, but not limited to, a  
            microbusiness, or a disabled veteran business enterprise  
            that is certified by the Department of General Services,  
            in state contracts.  Existing law requires those business  
            enterprises to submit certain information under penalty  
            of perjury.  

          2.Existing law defines "disabled veteran business  
            enterprise" (DVBE) for purposes of the California  
            Disabled Veterans Business Enterprise Program to mean a  
            business certified by the administering agency as meeting  
            specified requirements, including, among other things, in  
            the case of a publicly owned business, that at least 51  
            percent of its stock be owned by one or more disabled  
            veterans, or in the case of a subsidiary that is wholly  
            owned by a parent corporation, that at least 51 percent  
            of the voting stock of the parent corporation be owned by  
            one or more disabled veterans.

          This bill:

          1.Requires the Department of General Services (DGS) in the  
            process of certifying and determining the eligibility of  
            a DVBE or a small business enterprise, including a  
            microbusiness, require the applicant or certified firm to  
            submit a written declaration, under penalty of perjury,  
            that the information submitted to DGS is true and  
            correct.

          2.Allows DGS, if it determines that just cause exists, to  
            require the owner of the disabled veteran business  
            enterprise, microbusiness, or small business, the  
            applicant, or the certified firm to complete and submit  
            to the department a federal Form 4506-T from the Internal  
            Revenue Service, United States Department of the  
            Treasury, requesting a transcript of a tax return.

          3.Defines "just cause" as meaning either DGS receives a  
            complaint regarding the certified firm, or determines,  
            based on its findings during the course of any  







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            certification eligibility review of the applicant or  
            certified firm, that the action is necessary.

          4.Requires that at least 51 percent of the stock or voting  
            stock of a disabled veteran business enterprise be  
            unconditionally owned by disabled veterans.

           Background
           
           DVBE Certification  .  Under the provisions of the DBVE  
          program, each state agency is required, when awarding  
          contracts throughout the year, to include DVBEs by taking  
          all practical actions necessary to meet or exceed the  
          annual three percent DVBE participation goal.  In order to  
          become a certified DVBE, the business must adhere to  
          several requirements.  For example, businesses must be  
          owned, at a minimum of 51 percent by a disabled veteran,  
          must be a California resident and the DVBEs home office  
          must be located in the U.S., just to name a few. 

          As part of the DVBE certification process, DVBE businesses  
          must re-apply for certification on a yearly basis.  At the  
          time of re-certification, the business must submit an  
          application along with copies of the DVBE's income tax  
          returns for the previous three years.  The author contends  
          that if complaints have been filed against the DVBE in the  
          prior year, then a more stringent review should be required  
          and the tax returns filed with the IRS should be part of  
          that review. 

           Limited success in meeting state DVBE participation goals  .   
          The DVBE Program was established in 1989 to address the  
          special needs of disabled veterans seeking rehabilitation  
          and training through entrepreneurship, and to recognize the  
          sacrifices of Californians disabled during military  
          service.  Under the provisions of the program, each state  
          agency is encouraged to honor California's disabled  
          veterans by taking all practical actions necessary to meet  
          or exceed the three percent DVBE state procurement  
          participation goal.  

          However, success in meeting the three percent goal has been  
          elusive.  Even in 2007, when the state exceeded its 25  
          percent small business participation goal, the state only  







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          awarded 2.8 percent of its total contract dollars, $186  
          million, to contracts involving DVBE contractors and  
          subcontractors.  Unfortunately, in 2008 DGS reported that  
          the DVBE contract participation rate decreased to 2.39  
          percent.  

          California's progress in meeting this three percent goal  
          has been further limited by a significant number of claims  
          that DVBEs have been fraudulently added to contracts  
          without any real intention that they would perform a  
          commercially useful function and that too many bidders were  
          fraudulently claiming to have made a good faith effort to  
          hire a DVBE without taking meaningful action to offer the  
          subcontract.  While some progress has been made in  
          tightening the rules related to ensuring that DVBEs perform  
          a commercially useful function, little progress had been  
          made in strengthening the good faith effort provisions  
          prior to their elimination on July 28, 2009 (AB 21, 4th  
          Extraordinary Session, Chapter 19, Statutes of 2009).  

           California Small Business  .  California's dominance in many  
          economic areas is based, in part, on the significant role  
          small businesses play in the state's $1.8 trillion economy.  
           Businesses with fewer than 100 employees comprise nearly  
          98 percent of all businesses, and are responsible for  
          employing more than 37 percent of all workers in the state.  
           

          As an example, small- and medium-sized businesses are  
          crucial to the state's international competitiveness and  
          are an important means for dispersing the positive economic  
          impacts of trade within the California economy.  Of the  
          over 52,000 companies that exported goods from California  
          in 2006, 95 percent were small- and medium-sized  
          enterprises (SME) with fewer than 500 employees.  These  
          SMEs generated nearly half (44 percent) of California's  
          exports in 2006.  Nationally, SMEs generated only 29  
          percent of total exports.  

          Historically, small businesses have functioned as economic  
          engines, especially in challenging economic times.  During  
          the nation's economic downturn from 1999 to 2003,  
          microenterprises (businesses with less than five employees)  
          created 318,183 new jobs or 77 percent of all employment  







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          growth, while larger businesses with more than 50 employees  
          lost over 444,000 jobs.  From 2000 to 2001,  
          microenterprises created 62,731 jobs in the state,  
          accounting for nearly 64 percent of all new employment  
          growth.  Unfortunately during the current recession, small  
          business have been especially hard hit, with small business  
          bankruptcies up 81 percent for the 12 months ending  
          September 2009, as compared to the same period in the  
          previous year.  Nationally, bankruptcy filings were up 44  
          percent, according to Equifax Inc.  

          Because of their importance in the state economy, small  
          business issues have been a particular focus of the  
          Assembly Committee on Jobs, Economic Development and the  
          Economy (JEDE) for the past several years.  In March 2009,  
          JEDE produced a state economic recovery strategy that  
          included several key recommendations on the needs of small  
          business, including helping small businesses meet their  
          short term capital needs.  In May 2009, JEDE held a special  
          hearing to learn more about how the recession was impacting  
          small businesses and in October, JEDE's review of the  
          California Enterprise Zone Program included a panel on how  
          the program responds to needs of small business.

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes    
          Local:  Yes

           ASSEMBLY FLOOR  :  
          AYES: Adams, Ammiano, Anderson, Arambula, Beall, Block,  
            Blumenfield, Bradford, Brownley, Buchanan, Caballero,  
            Charles Calderon, Conway, Cook, Coto, Davis, DeVore, Eng,  
            Evans, Feuer, Fletcher, Fong, Fuentes, Fuller, Gaines,  
            Galgiani, Garrick, Gilmore, Hagman, Harkey, Hayashi,  
            Hernandez, Hill, Huber, Huffman, Jones, Knight, Lieu,  
            Logue, Bonnie Lowenthal, Ma, Mendoza, Miller, Monning,  
            Nava, Nestande, Niello, Nielsen, Norby, V. Manuel Perez,  
            Portantino, Ruskin, Saldana, Skinner, Solorio, Swanson,  
            Torlakson, Torres, Torrico, Tran, Villines, Yamada, John  
            A. Perez
          NO VOTE RECORDED: Bass, Bill Berryhill, Tom Berryhill,  
            Blakeslee, Carter, Chesbro, De La Torre, De Leon,  
            Emmerson, Furutani, Hall, Jeffries, Salas, Silva, Smyth,  
            Audra Strickland, Vacancy








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          JA:nl  8/4/10   Senate Floor Analyses 

                       SUPPORT/OPPOSITION:  NONE RECEIVED

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