BILL ANALYSIS                                                                                                                                                                                                    Ó







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        |Hearing Date:June 16, 2014         |Bill No:AB                         |
        |                                   |2022                               |
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                      SENATE COMMITTEE ON BUSINESS, PROFESSIONS 
                               AND ECONOMIC DEVELOPMENT
                              Senator Ted W. Lieu, Chair
                                           

                         Bill No:        AB 2022Author:Medina
                        As Amended:May 23, 2014  Fiscal:  Yes 

        
        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.  

        Existing law:
        
        1)Establishes the TACPA and 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.  (Government Code (GC) §§ 4530 and 4531) 

        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.  (GC § 4531)

        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:  (GC § 4532 (d))

           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;





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           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.

        1)Defines eligible workforce groups to include:  (GC § 4532 (f) (1))

           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.

        1)Specifies that preference only apply to bidders who are California  
          based firms.  
        (GC § 4532 (h)  

        2)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.  (GC § 4534)

        3)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  





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          bid.  (GC § 4535.2)    

        4)Provides that TACPA preferences do not apply to contracts, such as  
          construction, where the worksite is fixed by the contract terms.   
          (GC § 4535)  

        This bill:

        1) Includes the following definitions:

           a)   "California-based company" means either a business or  
             corporation whose principal office is located in California, and  
             the owners, or officers if the entity is a corporation, are  
             domiciled in California  or  a business or corporation that has a  
             major office or manufacturing facility located in California and  
             that has been licensed by the state on a continuous basis to  
             conduct business within the state and has continuously employed  
             California residents for work within the state during the three  
             years prior to submitting a bid or proposal for a state contract.

           b)   "Distressed" means a census tract determined by the Department  
             of Finance to be in the top quartile of census tracts for having  
             the highest unemployment and poverty in the state.

           c)   "Person with a high risk of unemployment" includes, but is not  
             limited to, a person who is currently unemployed and has been  
             unemployed for more than 200 days, veterans who served on active  
             duty since September 11, 2001, a person who has been convicted of  
             a felony under any statute of the United States or of any state,  
             a person who receives benefits of the Supplemental Nutrition  
             Assistance Program.

           d)   "Worksite" a business located within a distressed area or  
             business located in directly adjoining census tract blocks that  
             when attached to the distressed area forms a contiguous boundary.  
              A company that intends to perform the work at a worksite  
             described in this paragraph shall submit a map with the bid or  
             proposal identifying where the worksite is located.

        2)Provides that in evaluating proposals for contracts for services in  
          excess of $100,000, except a contract in which the worksite is fixed  
          by the provisions of the contract, the state shall award a five  
          percent preference on the price submitted by California-based  
          companies who demonstrate and certify under penalty of perjury that  
          not less than 90 percent of the total labor hours required to  
          perform the contract shall be accomplished at an identified worksite  





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          or worksites located in a distressed area.

        FISCAL EFFECT:  This bill is keyed "fiscal" by Legislative Counsel.   
        According to the Assembly Committee on Appropriations analysis dated  
        May 14, 2014, the revised definition of distressed area under the bill  
        would expand the number of eligible areas, and thus the pool of firms,  
        eligible for a worksite bid preference under the TACPA.  Likewise, the  
        revised definition of persons with a high risk of unemployment would  
        increase the likelihood of companies being able to also take advantage  
        of a workforce bidding preference.  According to the analysis, the  
        cost of the TACPA bid preference over the last four years has averaged  
        $110,000, and DGS has reviewed about 40 TACPA applications annually  
        during this time at an administrative cost of around $140,000.  The  
        analysis states that "DGS notes that the new parameters for the hiring  
        credit would require extensive substantiation of applications.  The  
        potential impact of this bill is unknown, but assuming a doubling of  
        the bid preference costs and a 50 percent increase in administrative  
        costs yields increased annual costs of $180,000."

        COMMENTS:
        
        1. Purpose.  This bill is sponsored   by the Author.  According to the  
           Author, this bill updates the Target Contract Preference Act  
           (TACPA) geographic regions to those areas that the state Department  
           of Finance designates as having the highest combined levels of  
           poverty and unemployment in the state.  According to the Author,  
           "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 (DGS)  
           has stopped considering TACP preference in evaluating bids."  The  
           Author believes that this bill will allow TACPA to continue to work  
           by redefining what qualifies as an economically distressed area and  
           identifying those individuals or groups at a high risk of  
           unemployment.  

        2. TACPA.  According to information provided by the Author, 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 the Department of  
           General Service (DGS) with help from the Office of Planning and  
           Research (OPR).  Under TACPA, a five percent 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 one percent to four percent may be included for  
           committing to employ certain individuals in completing the  





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           contract.  

           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  
           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.  

           The California Research Bureau (CRB) produced a document in 2012,  
           at the request of OPR to better understand the statistical  
           properties of past TACPA "distressed area" designations and of the  
           currently-available data from the ACS.  The goal of the report was  
           to identify and evaluate options for meeting the goals of the TACPA  
           program with the U.S. Census information currently available.  The  
           report found that current statute, regulations, rules and  
           guidelines do not clearly identify which data should be used when  
           constructing TACPA indicators, nor do they provide guidance on how  
           to determine eligibility when data for any of the eight criteria  
           are unavailable at the block-group level.  The report also noted  
           that survey data provided by the Census Bureau has inherent  
           sampling errors, missing data and missing measures and recommended  
           that the creation and implementation of future rules, regulations  
           and guidelines could clarify how the TACPA program ought to address  
           these issues.  CRB identified several potential strategies for  
           approaching the data, each of which produces generally similar  
           results.  CRB recommended that DGS adopt rules, regulations and  
           guidelines that identify the appropriate data to construct  
           indicators of each of the eight criteria, recognize and account for  
           sampling error, identify how to determine eligibility in the event  
           that data provided by the Census Bureau becomes unavailable, and  
           specify how to determine eligibility for block groups that are  
           missing data.






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        3.Small Business Procurement and Contract Act.  The Small Business  
          Procurement and Contract Act (Small Business Act) declares state  
          policy that small business and microbusiness receive a fair portion  
          of the total purchases and contracts or subcontracts for state  
          goods, services, information technology, and construction.    
          Administered through DGS, the Small Business Act was implemented  
          more than 30 years ago to establish a small business preference  
          within the state's procurement process that would increase the  
          number of contracts between the state and small businesses.  In  
          1998, a Disabled Veteran Business Enterprise (DVBE) component was  
          added to state procurement practices, establishing preferences for a  
          business entity that is at least 51 percent owned or controlled by  
          one or more disabled veterans, as specified.  
          
          Since 2001, there have been four Executive Orders (EOs) specifying a  
          25 percent goal for small business and a 3 percent DVBE  
          participation in state procurement contracts, including EO D-37-01  
          (2001), EO S-02-06 (2006), EO D-43-01(2001), and EO S-11-06 (2006).   
          These participation goals were codified in  SB 115  (Florez, Chapter  
          451, Statues of 2005) which called for DGS to set a statewide goal  
          for DVBE contracts; and in  AB 761  (Coto, Chapter 611, Statutes of  
          2007) which specifically codified the 25 percent small business  
          target for contracts related to revenues expended from the 2006  
          infrastructure bonds.  Notwithstanding the longstanding existence of  
          the Act and these EOs, the state's success in obtaining small  
          business and DVBE participation goals in state procurement contracts  
          has been inconsistent.

          For only the second time since the small business participation  
          target was established in 2001, DGS has reported that in 2006-07 the  
          state achieved its small business target by awarding 28.31 percent,  
          or $2.65 billion, of the value of all contracts to small businesses.  
           This represents a $1.3 billion increase in contracts from 2005-06.   
          The state did not achieve its 
          3 percent DVBE participation goal, however, as only 2.8 percent of  
          contract dollars, 
          $186 million, was awarded in contracts including DVBE participation.  
            

        4.Related Legislation This Year.   SB 297  (Roth) of 2013-14 would  
          increase the annual statewide participation goal for disabled  
          veteran business enterprises applicable to certain state contracts,  
          from three percent to five percent.  (  Status:   The bill is pending  
          in the Assembly Committee on Jobs, Economic Development, and the  
          Economy.) 
          





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           AB 1586  (Holden) would require 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:   The bill is  
          currently pending in the Senate Committee on Appropriations.)

        5.Prior Related Legislation.   SB 733  (Block) of 2013 deletes  
          provisions of law allowing an awarding department to accept  
          submission of a disabled veteran business enterprise utilization  
          plan to meet the three percent 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:   The bill is currently pending in  
          the Assembly Committee on Jobs, Economic Development, and the  
          Economy.)     
          
           AB 93  (Assembly Committee on Budget, Chapter 69, Statutes of 2013)  
          instituted  three  new tax programs: (1) a Sales and Use Tax exemption  
          for manufacturing and bio-tech equipment and similar purchases; (2)  
          a California Competes tax credit for attracting and retaining major  
          employers; and (3) a hiring credit under the Personal Income Tax and  
          Corporation Tax for employment in specified geographic areas.   
          Additionally, the bill phases out certain tax provisions related to  
          Enterprise Zones and similar tax incentive areas, and ends 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.  

           AB 172  (Weber) of 2013 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:   The bill was held under  
          submission by the Assembly Committee on Appropriations.)
           
          AB 366  (Holden) of 2013 would have modified the definitions for  
          minority owned business, women owned business, and disabled veteran  
          owned business enterprise to encourage contracting with publicly  
          held companies. (  Status:   The bill was held under submission the  
          Assembly Committee on Appropriations.)






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           AB 550  (Brown) of 2013 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:   The bill was held under  
          submission by the Assembly Committee on Appropriations.)

           AB 1783  (Perea, Chapter 114, Statutes of 2012) requires DGS 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.  
         
          AB 2630  (Hueso) of 2012 would have required DGS, 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 provided  
          the number of preferences used in bidding packages for the year.   
          (  Status:   The bill was held under submission in the Senate Committee  
          on Appropriations.)

           SB 67  (Price) of 2011 would have authorized DGS to direct all state  
          entities to establish an annual goal of achieving no less than 25  
          percent small business participation in state procurement contracts,  
          as specified.  (  Status:   The bill was held under submission in the  
          Assembly Committee on Appropriations.)

           AB 150  (Perea) of 2011 would have authorized DGS to direct all state  
          agencies to establish the goal to achieve 25 percent small business  
          participation in state procurements and contracts, and would have  
          required state agencies to report to DGS statistics regarding small  
          business participation in agency contract awards. (  Status:   The bill  
          was held under submission by the Assembly Committee on  
          Appropriations)

           AB 309  (Price) of 2009 would have required institution of a 25  
          percent small business participation goal for all state entities and  
          directed DGS to monitor the progress of state agencies in meeting  
          this goal.  (  Status:   The bill was held under submission by the  
          Assembly Committee on Appropriations)

          SB 1108 (Price) of 2010 would have established a 25 percent small  
          business participation goal for all state entities.  (  Status:   The  
          bill was held under submission by the Assembly Committee on  
          Appropriations)

          AB 761 (Coto, Chapter 611, Statutes of 2007) established a 25  
          percent small business participation goal for contracts related to  





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          revenues expended from the 2006 infrastructure bond measures.

          SB 115 (Florez, Chapter 451, Statutes of 2005) created a DVBE  
          incentive program for state contracts.  
         6.Arguments in Support.  According to  AFSCME  , this bill will ensure  
          that state contractors are better incentivized to hire unemployed  
          individuals and work in distressed areas of the state.  
           
          The  California Asian Pacific Chamber of Commerce  (CAPCC) notes that  
          targeted areas and areas in distressed communities need all the help  
          they can get in promoting jobs and economic growth because of the  
          high unemployment in those areas.  CAPCC believes that by reflecting  
          new census tracts, this bill will allow small businesses in these  
          areas to take advantage of state contracts.  

           The  Coalition of Small and Disabled Veteran Businesses  believes that  
          this bill is extremely critical to help ensure that the TACPA  
          continues to function as it was originally intended and that TACPA  
          has allowed coalition members to not only hire, but retrain members  
          from these highly distressed communities who would not work without  
          this preference in place.  

           According to the  National Federation of Independent Businesses   
          (NFIB), this bill simply uses data currently compiled by the  
          Department of Finance to make workable a law already on the books.   
          NFIB notes that there are few tools available to help targeted and  
          poor areas in our state and this bill addresses that problem.  
         

        SUPPORT AND OPPOSITION:
        
         Support:  

        AFSCME
        California Asian Pacific Chamber of Commerce
        Coalition of Small and Disabled Veteran Businesses
        National Federation of Independent Businesses
        Veterans Caucus of the California Democratic Party

         Opposition: 

        None on file as of June 11, 2014.



        Consultant:Sarah Mason





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