BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                               AB 2022
                                                               Page  1

       Date of Hearing:   April 22, 2014 

          ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
                                 Jose Medina, Chair
                    AB 2022 (Medina) - As Amended:  April 9, 2014
        
       SUBJECT  :   Public contracts: Target Area Contract Preference Act 

        SUMMARY  :  Makes changes to the Target Area Contract Preference Act  
       (TACPA), redefining what qualifies as an economically distressed area  
       and identifying those individuals or groups at a high risk of  
       unemployment.  Specifically,  this bill  :
                              
       1)Redefines a distressed area to be in the top quartile of census  
         tracts for having the highest unemployment and poverty in the state  
         as defined by the Department of Finance (DOF).  

       2)Redefines a person with a high risk of unemployment to include, but  
         not be limited to:
          a)   A person who is currently unemployed and has been unemployed  
            for more than 200 days;
          b)   A person who has been unemployed for greater than 200 days  
            within the last 365 days;
          c)   Veterans who served on active duty since September 11, 2001;
          d)   A person who has been incarcerated; and
          e)   A person who receives benefits of the Supplemental Nutrition  
            Assistance Program.

        EXISTING LAW:

        1)Expresses Legislative intent that it is a benefit to the state to  
         encourage and facilitate job maintenance and development in  
         distressed and declining areas of cities and towns in California. 

       2)Authorizes the Department of General Services (DGS) to apply TACPA  
         to bids from businesses that agree to perform the contract work in  
         designated "distressed areas" by offering 5% worksite and 1% to 4%  
         workforce bidding preferences in specified state service and  
         commodity contracts valued in excess of $100,000.  
        
       3)Defines a distressed area to be determined by the Governor's Office  
         of Planning and Research (OPR) as an urban area with at least 3,000  
         people living in a cluster of census block groups with each meeting  
         at least five of eight criteria including that the census block  
         groups:








                                                               AB 2022
                                                               Page  2


          a)   Are in the upper quartile for having the least amount of  
            people over the age of 25 with a high school education;
          b)   Are in the upper quartile for highest unemployment rate;
          c)   Are in the lowest quartile for per capita income;
          d)   Are in the upper quartile for having the highest percentage of  
            female head of households with children that live in poverty;
          e)   Are in the upper quartile for having the greatest percentage  
            of people over the age of 65 living in poverty;
          f)   Are in the upper quartile for having the greatest percentage  
            of people under the age of 18 living in poverty; and 
          g)   Are in the upper quartile for having the highest population of  
            nonwhites and Hispanics.
             
       4)Defines eligible workforce groups to include:

          a)   Economically disadvantaged youth;
          b)   Economically disadvantaged Vietnam-era veterans;
          c)   Economically disadvantaged ex-convicts;
          d)   Vocational rehabilitation referrals;
          e)   Youth participating in a qualified cooperative education  
            program;
          f)   Recipients of supplemental security income benefits; and
          g)   General assistance recipients.

       5)Specifies that preference only apply to bidders who are California  
         based firms.  

       6)Requires bidders to certify, under penalty of perjury, to perform  
         either 50% (for commodity contracts) or 90% (for labor service  
         contracts) of the labor hours in the eligible TACPA area  
         worksite(s).  TACPA work sites may be in, directly adjacent to, or  
         within a directly adjoining census tract blocks that form a  
         contiguous boundary with the distressed area.

       7)Limits TACPA preferences to 9% or a maximum of $50,000 per bid.  In  
         combination with any other preferences, the maximum limit is 15% of  
         the lowest responsible bid; and, in no case more than $100,000 per  
         bid.  

       8)Provides that TACPA preferences do not apply to contracts, such as  
         construction, where the worksite is fixed by the contract terms.  

        FISCAL EFFECT  :   Unknown









                                                               AB 2022
                                                               Page  3

        COMMENTS  :    

        1)Author's Purpose  :  According to the author, "The Target Contract  
         Preference Act promotes employment and economic development at  
         designated distressed areas by offering workforce bidding  
         preferences in specified state contracts. When applying for TACPA  
         eligibility, bidders must identify specific criteria including  
         "census tract" and "block groups" to be eligible for the preference.  
         Changes in the type of information collected in the last Census have  
         not only made data collection more time consuming and expensive to  
         obtain, it has also rendered the existing TACPA unworkable,  
         therefore,  the Department of General Services has stopped  
         considering TACP preference in evaluating bids."

        2)Framing the Policy Issue :  This bill updates the TACPA geographic  
         regions to those areas that the DOF designates as having the highest  
         combined levels of poverty and unemployment in the state.  This is  
         similar to those areas designated last year for the New Hire Credit  
         [AB 93 (Assembly Budget), Chapter 69, Statutes of 2013].  The bill  
         also updates the categories of targeted workers to reflect among  
         other groups, veterans who have served on active duty since  
         September 11, 2001.

         In considering the merits of the measure, Members may wish to  
         consider that, as currently defined in statute, the TACPA geographic  
         regions cannot be updated from the 2000 Census and that with the  
         elimination of enterprise zones in 2013, TACPA is the only remaining  
         procurement preference that incentivizes contracts in lower income  
         neighborhoods.  Comment 5 includes information on an  amendment the  
         author will be offering in committee.

        3)Background on the Target Area Procurement Preference  :  TACPA was  
         enacted in 1983 as an effort by the Legislature and the Governor to  
         stimulate business development in economically disadvantaged areas.   
         TACPA is primarily administered by DGS with help from OPR.  Under  
         TACPA, a 5% extra credit is awarded in the contract bid evaluation  
         phase to California firms that agree to undertake the work in  
         distressed areas and an additional 1% to 4% may be included for  
         committing to employ certain individuals in completing the contract.  
          [TACPA, Ch. 323, Statutes of 1983].   

         The geographic boundaries of the distressed areas are determined by  
         OPR based on eight statutorily defined criteria, as reported at the  
         census block level.  Recently, the availability of this data has  
         changed.  In 2003, the U.S. Census Bureau switched from gathering  








                                                               AB 2022
                                                               Page  4

         socioeconomic data in the "long form" survey component of the  
         decennial census to an annual survey effort called the American  
         Community Survey (ACS).   

         In addition to the change in how the data was collected, the U.S.  
         Census Bureau no longer releases socioeconomic data for two of the  
         eight TACPA criteria at the block group level, although it is  
         released at the larger-scale census-tract level.   In evaluating  
         whether to simply change statute from census block group to census  
         tract level, OPR and others, questioned whether the current criteria  
         was best suited for an employment incentive.  As an example, the  
         existing locations include the poverty level of people over 65 and  
         children under the age of 18.  

         AB 2022 proposes to determine distressed areas based on a  
         comprehensive poverty and unemployment rate.  The formula is simpler  
         and already being prepared by DOF for use in the New Hire Credit.

        4)How State Procurement Preferences Work  :  In order to assist agencies  
         in reaching state participation goals, bidders for state contracts  
         may include procurement preferences.  The value of any single  
         preference is limited to $50,000 and the combined value of one or  
         more preference cannot exceed $100,000.

         The state currently recognizes three preferences based on the type  
         of business and one preference based on the location of the  
         business.  Business type preferences include small business,  
         microbusiness and DVBE, which each have a maximum preference value  
         of 5%.  The bidder can either be one of these targeted business  
         types or commit to subcontracting with one.  The  
         geographically-based TACPA provides a 5% preference for completing  
         the contract in the location and up to an additional 4% for hiring  
         local workers.  

         It is not uncommon for a single contract bid to include more than  
         one preference, i.e. a small business owned by a DVBE would be  
         entitled to submit a bid using two 5% preferences.  The value of the  
         preference is applied to either the bidders score or the contact  
         amount of the submitted bid.  

         As an example, there are two qualified bidders, each being a  
         large-size business and each having bid a job for $250,000.  If one  
         of the companies committed to using a subcontractor that was both a  
         small business and a DVBE, their bid would be scored as if it was  
         $225,000 after the 10% bid preference was applied.  The state would  








                                                               AB 2022
                                                               Page  5

         still pay the $250,000 amount, but it would be scored at the lower  
         amount for competitive reasons.  Since contracts are awarded to  
         lowest responsible bidder, the business subcontracting with the DVBE  
         small business would be awarded the contract.

         If that same business was also located in a TACPA area, it could  
         receive up to another 5% in preferences, regardless of who the  
         business employed because the current state percentage cap is 15% in  
         total.  This would allow the business's bid to be evaluated at  
         $217,500. 

        5)Amendments  :  Staff understands the author will offer an amendment to  
         remove the language that stated that the TACPA could not be used in  
         conjunction with the Small Business and Disabled Veteran Owned  
         Business (DVBE) option.  

        6)Related Legislation  :  Legislation related to this measure includes  
         the following:

          a)   AB 93 (Assembly Committee on Budget) California Competes Tax  
            Credit and State Sales and Use Tax Exemption:  This bill  
            instituted three new tax programs, a Sales and Use Tax exemption  
            for manufacturing and bio-tech equipment and similar purchases; a  
            California Competes tax credit for attracting and retaining major  
            employers; and a hiring credit under the Personal Income Tax and  
            Corporation Tax for employment in specified geographic areas.   
            Additionally, the bill results in the phasing-out and ending of  
            certain tax provisions related to Enterprise Zones and similar  
            tax incentive areas, and ending the current Small Business New  
            Jobs Credit tax incentive program.  The bill also provides for  
            allocating the California Competes tax credit through the  
            Governor's Office of Business and Economic Development to assist  
            in retaining existing and attracting new business activity in the  
            state.  Status:  Signed by the Governor, Chapter 69, Statutes of  
            2013.   

          b)   AB 172 (Weber) State Contracting Microbusiness:  This bill  
            would have increased the microbusiness procurement preference  
            from 5% to 7% for state contracts to purchase goods, services,  
            information technology, and construction of state facilities, and  
            allowed the preference to be awarded to either a microbusiness  
            bidder or a non-microbusiness bidder that uses a microbusiness  
            subcontractor.  Status:  Held on the Suspense File of the  
            Assembly Committee on Appropriations, 2013.  









                                                               AB 2022
                                                               Page  6

          c)   AB 366 (Holden) Women, Minority, and Disabled Veteran Business  
            Enterprises:  This bill modifies the definitions for minority  
            owned business, women owned business, and disabled veteran owned  
            business enterprise to encourage contracting with publicly held  
            companies.  Status:  Pending in the Assembly Committee on  
            Appropriations.

          d)   AB 550 (Brown) State Procurement Procedures for Small  
            Businesses:  This bill would have made key changes to state  
            procurement procedures for the purpose of increasing small  
            business, including microbusiness, and disabled veteran-owned  
            business enterprise participation rates.  Status:  Held on the  
            Suspense File of the Assembly Committee on Appropriations, 2013.

          e)   AB 1586 (Holden)  Service Contract Hiring Priority:  This bill  
            requires service contracts for over $200,000 include a provision  
            requiring the contractor give priority consideration in filling  
            vacancies with individuals that have exhausted their  
            unemployment, are a veteran, on parole or were formally  
            incarcerated, or a resident of a targeted employment area, as  
            defined under enterprise zone law.  Status:  Pending in the  
            Assembly Committee on Accountability and Administrative Review.

          f)   AB 1783 (Perea) Streamlining Small Business Certification:   
            This bill required the Department of General Services to publish  
            on the department's website, and make available to local  
            agencies, a list of small businesses and microbusinesses that  
            have been certified as such by the department.  Status:  Signed  
            by the Governor, Chapter 114, Statutes of 2012. 

          g)   AB 2630 (Hueso) Procurement Reporting of Targeted Populations:  
             This bill would have required the Department of General  
            Services, in preparing its report on state contracting activity,  
            to include a list of activities each state agency used to inform  
            small businesses of each of the existing preferences available  
            under state law, and provide the number of preferences used in  
            bidding packages for the year.  Status:  Held in Senate  
            Appropriations Committee, 2012.

          h)   SB 67 (Price) Small Business Participation in Public  
            Contracts:  This bill would have authorized the Department of  
            General Services to direct all state entities to establish an  
            annual goal of achieving no less than 25% small business  
            participation in state procurement contracts, as specified.   
            Status:  Held on the Suspense File of the Assembly Committee on  








                                                               AB 2022
                                                               Page  7

            Appropriations, 2011.

          i)   SB 297 (Roth) Public Contracts and Disabled Veterans:  This  
            bill increases the annual statewide participation goal for  
            disabled veteran business enterprises applicable to certain state  
            contracts, from 3% to 5%.  Status:  Pending in the Assembly  
            Committee on Jobs, Economic Development, and the Economy.  

          j)   SB 733 (Block) Disabled Veteran Business Enterprise  
            Participation Goals: This bill deletes provisions of law allowing  
            an awarding department to accept submission of a disabled veteran  
            business enterprise utilization plan to meet the 3% statewide  
            participation goal for awarded contracts.  The bill authorizes,  
            instead, a new review process for demonstrating a business's  
            long-term commitment to using veteran-owned businesses. Status:   
            Pending in the Assembly Committee on Jobs, Economic Development,  
            and the Economy.  

        7)Double Referral  :  The Assembly Committee on Rules referred this  
         measure to two policy committees for review.  AB 2022 was previously  
         heard in the Assembly Committee on Accountability and Administrative  
         Review and received an 8-1 vote.  

        REGISTERED SUPPORT / OPPOSITION  :   

        Support 
        
       Small Business California 
       The American Federation of State, County, and Municipal Employees 
       The California Asian Pacific Chamber of Commerce 
       The Veterans Caucus of the Democratic Party

        Opposition 
        
       None received 
        
       Analysis Prepared by  :    Toni Symonds / J., E.D. & E. / (916) 319-2090