BILL ANALYSIS Ó SB 734 Page 1 Date of Hearing: August 17, 2011 ASSEMBLY COMMITTEE ON APPROPRIATIONS Felipe Fuentes, Chair SB 734 (Price) - As Amended: August 15, 2011 Policy Committee: TransportationVote:10-3 Jobs 4-2 Urgency: No State Mandated Local Program: No Reimbursable: SUMMARY This bill requires High-Speed Rail Authority (HSRA) contracting to meet state small business participation goals and provides a bid preference to microbusinesses on high-speed rail contracts. Specifically, this bill: 1)Adds the 2008 high-speed rail bond measure to the list of bond measures for which the implementing department, in this case the HSRA, must establish a 25% small business participation goal on bond-funded contracts and perform associated activities, including annually reporting on actual small business participation. 2)Requires the HSRA, with the assistance of the Department of General Services (DGS), to prepare a small business, microbusiness, and disabled veteran business outreach plan and to adopt the plan by July 31, 2012. 3)Requires the HSRA, at all bidders' conferences convened by the authority, to present the plan and the state's small business participation goals, and to request that a DGS representative attend the bidders' conferences. 4)Requires the HSRA to grant a 2.5% bid preference to qualified state-certified microbusinesses, i.e. businesses located in California with 25 or fewer employees and annual gross receipts of $3.5 million or less. 5)Requires the HSRA, in the business plan to be submitted in 2012, to include a strategy for ensuring contract SB 734 Page 2 participation by California-certified small businesses. FISCAL EFFECT 1)Project costs will increase to the extent contracts are awarded to other than the lowest bidder, due to the 2.5% bid preference provided to microbusinesses. These additional costs are unknown, but given the massive scale of the high-speed project, costs could be in the hundreds of thousands to a millions of dollars annually. ÝVoters have authorized $9 billion in state general obligation bonds and the federal government has allocated an additional $3 billion to the state for the high-speed rail project. The initial phase of the project-from Fresno to Bakersfield-was estimated to cost $5.5 billion through 2017. The entire system was estimated to cost around $43 billion, with funding anticipated from the federal and local governments, as well as the private sector. Recently, however, the estimated cost for the first phase increased by several billion dollars.] 2)Annual administrative costs of around $100,000 for the HSRA to prepare and then implement the outreach plan and to report annually on meeting the contracting goals. Costs to DGS will be minor and absorbable. COMMENTS 1)Purpose . According to the author, "SB 734 ensures that small businesses get a slice of the multi-billion dollar High Speed Rail Economic pie?SB 734 Ýalso] addresses the importance and challenges of California microbusinesses and grants them an additional contract preference of 2.5 percent. Although these smaller businesses comprise over 80 percent of California's certified small businesses, they are disadvantaged when competing against their larger small-business counterparts. "Given the depressed economy, high unemployment rates and the positive impact the High Speed Rail project will have throughout the state, it is important that we ensure that the Authority operates with a clearly defined program that will provide opportunities for California small businesses, including its microbusinesses. SB 734 accomplishes these objectives." SB 734 Page 3 2)Background . The Small Business Procurement and Contract Act, administered by DGS, provides for certification of small businesses, microbusinesses, and disabled veteran business enterprises. The Act also establishes a small business preference designed to increase small business participation in state contracts. One incentive is a 5% bid preference for small businesses or for contractors that commit 25% of the bid price to eligible small business subcontractors. Executive Order (EO) S-02-06 establishes a goal of 25% small business participation goal for all state contracts. 3)Related Legislation . a) AB 365 (Galgiani), which enacted penalties and sanctions relative to the HSRA certification of businesses as a small emerging business enterprise, microbusiness, or disabled veteran business enterprise (DVBE), was held on this committee's Suspense file. b) AB 1206 (Galgiani), which directed the HSRA to adopt and administer a small business enterprise program, was held on this committee's Suspense file. c) SB 733 (Price), which in part required the HSRA to work with the Employment Development Department to develop a strategy to ensure that at least 25% of the workforce on any high-speed rail work site is from the local workforce, was held on Suspense in Senate Appropriations. 4)Prior Legislation . In 2010, SB 1108 (Price), which required all state agencies and departments to establish and achieve a 25% small business participation rate for state contracts, was held on Suspense in Senate Appropriations. Analysis Prepared by : Chuck Nicol / APPR. / (916) 319-2081