BILL ANALYSIS �
AB 285
Page 1
Date of Hearing: April 9, 2013
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
Jose Medina, Chair
AB 285 (Brown) - As Introduced: February 11, 2013
SUBJECT : Microenterprises: economic development
SUMMARY : Requires the California Workforce Investment Board (CWIB) to
make recommendations and provide technical assistance on
entrepreneurial training opportunities that could be made available
through local workforce investment boards (WIBs). The bill makes other
related changes to the definition of microenterprise, as well as
deleting requirements from the duties of the CWIB. Specifically, this
bill :
1)Updates the definition of microenterprise and microenterprise
development organizations to more accurately reflect industry
practices.
2)Adds legislative intent relative to the importance of entrepreneurs
and home-based businesses.
3)States that it is state policy, to the extent feasible, to provide
unemployed individuals with the opportunity to learn skills needed to
pursue self-employment and that self-employment is one means for
providing a stable income for themselves and their families.
4)Requires, by January 1, 2015, the CWIB to develop guidelines and/or
provide technical assistance to WIBs on how to implement
entrepreneurial and self-employment training programs. The CWIB is
directed to develop the guidelines in consultation with appropriate
state agencies and small business-related organizations.
5)Recasts the requirements related to the CWIB developing guidelines
for targeting resources to high-wage industry sectors.
EXISTING LAW:
1)Establishes the CWIB, comprised of members appointed by the Governor
and the appropriate presiding officer(s) of each house of the
Legislature, and specifies that the executive director of the CWIB
report to the Secretary of the California Labor and Workforce
Development Agency. The CWIB is responsible for assisting the state
in meeting the requirements of the federal Workforce Investment Act
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of 1998 (WIA), as well as assisting the Governor in the development,
oversight, and continuous improvement of California's workforce
investment system.
2)Defines "microenterprise" as a sole proprietorship, partnership, or
corporation with fewer than five employees, including the owner, and
generally lacking access to conventional loans, equity, or other
banking services.
3)Requires each WIB to establish at least one full service one-stop
career center in the local workforce investment area. One-Stop
career centers are required to include a specified group of job
search related entities and provide jobseekers with integrated
employment, education, training, and job search services. Employers
can also be provided with access to career and labor market
information, job placement assistance, and other such services as the
businesses in the community may require.
FISCAL EFFECT : Unknown
COMMENTS :
1)Author's Purpose : According to the author, "currently, there are
many job training programs, but limited entrepreneurial training for
established businesses. AB 285 would require the state Workforce
Investment Board to develop guidelines to ensure that entrepreneurial
training and technical assistance are available through local
workforce investment boards. The bill would amend the definition of a
microenterprise to allow these firms to employ up to five employees
instead of four.
There are over three million microenterprises in California that
employ over four million people. Continuing the growth of
California's smallest businesses is essential to solving the state's
unemployment problem. The bill would require the State Workforce
Investment Board to develop and distribute guidelines and technical
assistance to local workforces investment boards by January 1, 2015."
2)Central Policy Question : This measure directs the CWIB to facilitate
the establishment of self-employment training programs through local
WIBs. By doing so, the bill links a currently underserved group of
prospective entrepreneurs, the unemployed, with access to quality
training and the entrepreneurial opportunities of the post-recession
global economy.
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In defining the issues related to full access to entrepreneurial
training, the analysis discusses the advantages small and
microbusinesses provide to the competitiveness of the California
economy, the ability of local WIBs to construct effective
self-employment programs, and how self-employment can help address
the growing disparity between top 20% and the bottom 80% of
Americans.
3)The role of Self-Employment within the California Economy : Business
owners, with no employees make up the single largest component of the
business in California, 2.8 million out of an estimated 3.5 firms in
2010. As these businesses grow, they continue to serve as an
important component of California's dynamic $1.9 trillion economy.
Microenterprises, meaning businesses with less than five employees
represent approximately 93% of all businesses in the state, or
approximately 3.2 million of all businesses. These non-employer and
small employer firms create jobs, generate taxes, and revitalize
communities. Common types of microenterprises include engineering,
computer system design, housekeeping, construction, landscaping, and
personnel services.
These smaller size businesses function as economic engines,
especially in challenging economic times. During the nation's
economic downturn from 1999 to 2003, microenterprises created 318,183
new jobs or 77% of all employment 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% of all new employment growth. In this most recent
recession the trend continued, with the number of nonemployer firms
increasing from 2.6 million firms reporting $137 billion in revenues
for 2008 to 2.8 million firms reporting $138 billion in revenues for
2010, based on federal tax returns. In the post-recession economy,
these businesses are expected to become increasingly important due to
their ability to be more flexible and better suited to meet niche
market needs.
However, their small size also results in certain market challenges,
including, but not limited to, having difficulty in meeting the
traditional credit and collateral requirements of mainstream
financial institutions. Specialized technical assistance, access to
microloans, and collaborative marketing opportunities can help many
microenterprises overcome or at least minimize these difficulties.
AB 285 proposes that the CWIB assist local workforce investment
boards better understand how to meet the sometimes unique needs of
microenterprises.
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4)Local workforce investment board and microenterprise development :
In 2010, the U.S. Department of Labor released directives encouraging
WIBs to integrate entrepreneurial training within their local
workforce development strategies. This training, according to
microenterprise advocates, has not been incorporated into the
California WIB system in any significant way. AB 285 is designed to
serve as a catalysts for the inclusion of self-employment programs
within the broader WIB mission.
In implementing the intent of AB 285, WIB's already have access to
in-house expertise through their mandated business and industry board
representatives and many areas of the state have access to
entrepreneurship training programs through microenterprise
development organizations (MDO). CWIB guidance would most likely
recommend using these local resources and entering into partnerships
with MDOs, among others, for appropriate training and assisting the
client to become connected to the broader public and private network
of entrepreneur resources.
Based on a sampling of state microenterprise programs by the
California Association for Microenterprise Development these
programs, on average, serve approximately 165 clients a year, 76% of
which are women, 45% of which are of ethnic minorities, and 61% are
from low-income households.
5)Income Disparity : Addressing income disparity can take many forms
including changes in tax and social policies. AB 285 proposes to
facilitate unemployed individuals in becoming self-employed business
owners, which is one strategy for reversing the growing disparity
between the top 20% and the bottom 80%.
In understanding how business ownership can shift the income
disparity dynamic, it may be useful to consider a 2011 Congressional
Budget Office (CBO) report on after-tax incomes of American
households. The CBO found that between 1979 and 2007, income for
households at the higher end of the income scale rose much more
rapidly than income for households in the middle and at the lower end
of the income scale. Most significantly, by the end of the report
period (2005 and 2007), the after-tax income received by the top 20%
exceeded the after-tax income of the remaining 80%. The chart below
illustrates the CBO's findings in more detail.
------------------------------------------------------------
AB 285
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| After-Tax Income Growth 1979 to 2007 |
------------------------------------------------------------
|-----------+-------------+--------------+-------------------|
| Income | Income | Percentile | Percentage Growth |
| Bracket | Earners | | |
|-----------+-------------+--------------+-------------------|
| 1 |Top 1% | 100th | 275%|
|-----------+-------------+--------------+-------------------|
| 2 |Next 20% | 81st to 99th | 65%|
|-----------+-------------+--------------+-------------------|
| 3 |Next 60% | 20th to 80th | 40%|
|-----------+-------------+--------------+-------------------|
| 4 |Bottom 20% | 1 to 19th | 18%|
------------------------------------------------------------
------------------------------------------------------------
| Source: Trends in the Distribution of House Income Between |
|1979 and 2007,3 Congressional Budget Office, 2011 |
------------------------------------------------------------
The two primary reasons for the increase in income disparities were
the uneven distribution in the sources of household income and the
differing economic circumstances of those sources during the 28-year
report period. Households in the higher income brackets (1 & 2)
received a majority of their income through capital gains and
business income, which as a share of total income increased in value,
while individuals in the bottom two brackets (3 & 4) received a
majority of their income from labor income and capital income, which
decreased in value. With the recession, this income disparity has
continued to increase, in part, because of the impact of long term
unemployment on wages, a core component of labor income, and rental
rates, a core component of capital income.
The findings in the report also suggest that policies that inhibit
access to self-employment serve to reinforce the income disparities
trend and that policies which result in greater access, especially to
historically underserved populations, could begin to break the trend.
6)Heightened National Interest in Self-Employment : As part of the
Middle Class Tax Relief and Job Creation Act of 2012 (PL112-96), the
U.S. Department of Labor made $35 million available for the
development and promotion of self-employment assistance programs.
Under the terms of the federal program, states are allowed to pay a
self-employed benefit, instead of a regular unemployment insurance
(UI) benefit. The unemployed individual can then spend their time
establishing their business, rather than looking for work.
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Five states (Delaware, Maine, New Jersey, New York and Oregon) are
already operating self-employment programs using their existing UI
benefits and other states have until June 30, 2013, to apply.
California would be eligible for up to $5.3 million. AB 152 (Yamada)
is pending in Assembly Appropriations to make the statutory changes
necessary for California to access this federal program.
7)California Workforce Investment Board : The federal Workforce
Investment Act of 1998 provides funding for job training and
employment investment activities and programs in which states may
participate, including work incentive and employment training
outreach programs.
Among its primary duties, the CWIB provides guidance to local WIBs
and development of a unified, strategic plan to coordinate various
education, training, and employment programs that result in an
integrated workforce development system that supports economic
development. This plan is required to be updated at least every 5
years in order to address the state's changing economic, demographic,
and workplace needs. The CWIB has a staff of 16 authorized
positions, including an executive director.
There are 49 LWIBs that plan for and oversee the workforce investment
system at the local level. Each LWIB also has one or more One-Stop
Centers, which provide access to career information, counseling, and
funding for education, training and supportive services.
WIA funding is distributed to states based on a set formula which
includes specified economic and demographic data and flows to the
state through three primary programs: Adult, Youth and Dislocated
Worker. California's WIA allocation from the U.S. Department of
Labor has declined over the years from a high of $630 million in
2000-01 to $411 million in 2012-13. Federal law dictates that 85%
of Adult and Youth formula funds, and 60% of Dislocated Worker
formula funds, are distributed to local WIBs. Funding for the
state's activities is derived from the 15% WIA discretionary funds.
In 2012-13 LWIBs received $348 million, while the state received
about $20 million in discretionary moneys.
8)Related legislation from previous sessions : In addition to AB 185
from this session, below is a list of related bills.
a) AB 165 (Carter) Self-Employment Training : This bill would have
required the California Workforce Investment Board to develop
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guidelines for entrepreneurial training by January 1, 2010. The
bill would have also added legislative intent on the importance of
all Californians having access to training related to
self-employment and entrepreneurship. Status: Held in the Senate
Appropriations Committee in 2009.
b) AB 816 (Carter) Technical Assistance for Microenterprises :
This bill would have established a $5 million grant program to
assist microenterprises development organizations offer capacity
building services to microentrepreneurs. Status: Held in the
Senate Appropriations Committee in 2007.
c) AB 1209 (Yee) Technical Assistance for Microenterprises : This
bill would have established a $5 million grant program to assist
microenterprise development organizations offer capacity building
services to microentrepreneurs. Status: Held in the Senate
Appropriations Committee in 2006.
a) AB 2998 (Carter) Self-Employment Training : This bill would
have required the California Workforce Investment Board to develop
guidelines for entrepreneurial training by January 1, 2010. The
bill would have also added legislative intent on the importance of
all Californians having access to training related to
self-employment and entrepreneurship. Status: Held in the Senate
Appropriations Committee in 2008.
a) SB 446 (Yee) Technical Assistance for Microenterprises : This
bill would have established a $500,000 grant program to assist
microenterprise development organization offer capacity building
services to microentrepreneurs. Status: Held in the Senate in
2008.
b) SB 293 (Ducheny) California Workforce Investment Act : This
bill replaces the Family Economic Security Act in the California
Unemployment Insurance Code with provisions that generally
implement the Workforce Investment Act (WIA) of 1998 in
California. Status: Signed by the Governor, Chapter 630,
Statutes of 2006.
REGISTERED SUPPORT / OPPOSITION :
Support
California Association for Micro Enterprise Opportunity (sponsor)
Coalition of California Welfare Rights Organizations, Inc.
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Community Action Partnership of Sonoma County
Renaissance Entrepreneurship Center
Opposition
None received
Analysis Prepared by : Toni Symonds / J., E.D. & E. / (916) 319-2090