BILL ANALYSIS Ó ----------------------------------------------------------------------- |Hearing Date:June 16, 2014 |Bill No:AB | | |2022 | ----------------------------------------------------------------------- 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; AB 2022 Page 2 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 AB 2022 Page 3 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 AB 2022 Page 4 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 AB 2022 Page 5 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. AB 2022 Page 6 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.) AB 2022 Page 7 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.) AB 2022 Page 8 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 AB 2022 Page 9 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 AB 2022 Page 10