BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                        AB 413


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       Date of Hearing:  April 21, 2015


          ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT, AND THE ECONOMY


                                Eduardo Garcia, Chair


       AB 413  
       (Chávez) - As Amended March 16, 2015


       SUBJECT:  California Disabled Veteran Business Enterprise Program


       SUMMARY:  Authorizes a spouse or child to enter into additional state  
       contracts during the three years currently permitted for the continued  
       operation of a disabled veteran-owned business enterprise (DVBE)  
       following the death or permanent disability of an owner of a certified  
       DVBE.   Existing law limits the business' activities to the completion  
       of existing contracts. 


       EXISTING LAW:   


       1)Establishes the California Disabled Veteran Business Enterprise  
         Program for the purpose of addressing the special needs of disabled  
         veterans seeking rehabilitation and training through  
         entrepreneurship, and to recognize the sacrifices California's  
         disabled veterans made during their military service.   

       2)Designates the Department of General Services (DGS) as the  
         administrator of the state Small Business Procurement and Contract  
         Act (Small Business Procurement Act), including the oversight of the  
         California Disabled Veteran Business Enterprise Program and the  
         certification of the disabled veteran owned business enterprises  
         (DVBEs). 








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       3)Sets an annual 3% DVBE procurement participation goal for each state  
         agency, department, and officer that enters into a contract for  
         materials, supplies, equipment, alteration, repair, or improvement.   
         This requirement can be waived on a specific contract with the  
         approval of the department director or another designated person. 

       4)Extends DVBE status to the spouse of a DVBE who has died or received  
         certification of a permanent medical disability for up to three  
         years for the sole purpose of completing any contracts entered into  
         prior to the death or certification.   

       5)Defines the following terms:

          a)   A DVBE contractor, subcontractor, or supplier is any person or  
            entity that has been certified by the administering agency and  
            that performs a commercially useful function, as defined.

          b)   A disabled veteran is a veteran of the military, naval, or air  
            service of the U.S. who has a service-connected disability of at  
            least 10% and who is domiciled in the state.

          c)   A DVBE is a business certified by the administering agency as  
            meeting all of the following requirements:

            i)     The legal structure of the business is a:

               (1)       Sole proprietorship with at least 51% owned by one  
                 or more disabled veterans;
               (2)       Publicly owned business with at least 51% of its  
                 stock unconditionally owned by one or more disabled  
                 veterans; 
               (3)       Subsidiary that is wholly owned by a parent  
                 corporation, but only if at least 51% of the voting stock of  
                 the parent corporation is unconditionally owned by one or  
                 more disabled veterans; or
               (4)       Joint venture in which at least 51% of the joint  
                 venture's management, control, and earnings are held by one  
                 or more disabled veterans.








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            ii)    The management and control of the daily business  
              operations are by one or more disabled veterans.  The disabled  
              veterans who exercise management and control are not required  
              to be the same disabled veterans as the owners of the business.

            iii)   It has a home office located in the U.S., which is not a  
              branch or subsidiary of a foreign corporation, foreign firm, or  
              other foreign-based business.

       FISCAL EFFECT:  Unknown


       POLICY ISSUE FRAME:


       California is home to 1.8 million veterans, representing 8% of the  
       total U.S. veteran population.  This bill proposes to extend new  
       contracting authority for a previously certified DVBE, which is owned  
       by a spouse or child of a qualifying disabled veteran following their  
       death or permanent disability.   Current law only allows the business  
       to complete existing contracts during the three-year transition  
       period.  AB 413 authorizes the family to bid on and complete  
       additional state contracts during the same three-year period.





       The analysis includes background on the Small Business Procurement  
       Act, the California Disabled Veteran Owned Business Enterprise  
       Program, the federal veteran procurement participation program, and  
       other spousal benefits for deceased veterans.





       COMMENTS:  








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       1)Author's Purpose:  According to the author, "AB 413 would allow  
         survivors to maintain the DVBE certification for three years  
         following the death of a disabled veteran business owner.  Doing so  
         would provide the families time to continue the business after the  
         death of a veteran without an immediate end to the business."


       2)Small Business Procurement Act:  The Small Business Procurement Act,  
         administered through DGS, 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.  A DBVE component was added in 1989.   
         Today, approximately 90% of DVBEs have dual certification as a small  
         business or a microbusiness.

         The Small Business Procurement Act states that it is the policy of  
         the State of California that the state aid the interests of small  
         businesses in order to preserve free competitive enterprise and to  
         ensure that a fair portion of the total purchases and contracts of  
         the state be placed with these enterprises.  The statute further  
         states that DVBE participation is strongly encouraged to address the  
         special needs of disabled veterans seeking rehabilitation and  
         training through entrepreneurship, and to recognize the sacrifices  
         of California's disabled military veterans.  Statute sets an annual  
         3% DVBE participation goal, and a 2006 executive order sets a 25%  
         goal for small businesses and microbusinesses.

         There are 1,537 certified DVBEs in California during the 2013-14  
         fiscal year with 1,129 within the service sector, 530 in  
         construction, 30 in manufacturing and 373 in a non-manufacturing  
         sector.  The majority size of certified DVBEs are very small with  
         1,289 out of 1,537 total DVBEs having a second certification as a  
         microbusiness. 

         In 2013-14, mandated state entities achieved an overall DVBE  
         participation rate of 3.67%, or $299 million of the $8.2 billion  
         expended in state contracts.  This is the third year in a row that  








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         the state has met its DVBE goal.  DGS notes, however, that the  
         overall DVBE percentage could be higher if the top five state  
         contracting entities had all met their individual department goals.   
          The chart below shows current numbers.




          --------------------------------------------------------------- 
         |       2013-14 State Contracting with DVBE Participation       |
          --------------------------------------------------------------- 
         |--+--------------------------------------------------+----------|
         |1 |Department of Corrections and Rehabilitation      |3.60%     |
         |--+--------------------------------------------------+----------|
         |2 |Department of Transportation                      |3.79%     |
         |--+--------------------------------------------------+----------|
         |3 |Department of Health Care Services                |0.45%     |
         |--+--------------------------------------------------+----------|
         |4 |Department of State Hospitals                     |2.12%     |
         |--+--------------------------------------------------+----------|
         |5 |Department of Water Resources                     |2.62%     |
          ---------------------------------------------------------------- 
          --------------------------------------------------------------- 
         |DGS Consolidated Report                                        |
         |11/25/2014                                                     |
          --------------------------------------------------------------- 



       3)Federal Contracting:  The federal government operates the Vets First  
         Contracting Program, overseen by the Veterans Administration (VA),  
         which includes a veteran-owned and a disabled veteran-owned  
         component.  Upon certification, a business is eligible to benefit  
         from special contract set asides and subcontract with VA's large  
         prime contractors.  The business is also eligible to participate in  
         VA's Veteran-Owned Small Business Mentor-Protégé Program.  Given  
         that the VA is one of the largest procurement organizations in the  
         federal government with over $3 billion in contracts annually, there  
         are significant procurement opportunities.  








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         In instances where the owner of federal VA certified disabled  
         business dies, which results in the business having less than 51%  
         veteran ownership, the surviving spouse can retain the certification  
         status until they remarry, relinquish ownership of the business, 10  
         years following the veteran's death, or until the business no longer  
         meets the definition of a federal small business.


         In comparison, AB 413 offers a more limited extension in certified  
         contracting status than allowed under a similar federal program.


       4)California's Veteran Population:  California, Texas, and Florida  
         have the highest number of veterans among the 50 states.   
         Approximately 1.8 million veterans live in California, with an  
         additional 30,000 being discharged into the state each year.


         The veteran population in Los Angeles, Orange, Riverside,  
         Sacramento, San Bernardino, San Diego, and Ventura Counties are  
         among the highest in the U.S.   Based on age, the VA reports that  
         California has a greater percentage of veterans under the age of 25  
         than the rest of the country, as well as the largest overall number  
         of older veterans.  


         The federal Small Business Administration estimates that the most  
         common industry sector in which veterans participate is the  
         professional, science, and technology services sector, with 20.4% of  
         all veteran-owned businesses being within the industry sector.   
         California veterans also tend to be entrepreneurs at higher rates  
         than the national average, 13.2% vs. 10.9%.


       5)Veteran Service-related Survivorship Benefits:  Approximately 4  
         million California veterans receive some level of VA disability  
         compensation, with about 500,000 of those individuals certified as  








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         100% disabled.  Given the aging population of the veterans who  
         served in Viet Nam, and the significant nature of the medical  
         challenges faced by the younger veteran population, the number of  
         DVBEs who will die or whose injuries will become more impactful  
         while still operating their business is likely to increase in the  
         coming decade.  The Disable Veteran Business Alliance, the sponsor  
         AB 413, provided the list below of currently available  
         veteran-related benefits that are transferable or directly provided  
         to veterans and their families:


                An eligible surviving spouse  may continue a Service Disabled  
             Veteran Owned Small Business certification  for up to ten years   
             according to Federal PL 109-461 SDVOSB Survivorship rights are  
             contained in two different sections of federal regulation: 38  
             CFR Part 74, and 13 CFR Part 125.

              Military members and Veterans  can transfer 48 months of GI  
            Bill educational benefits  to their family members  
            (spouse/children).

              Tricare for Life (TFL)  medical benefits available  to family  
            members of a retired service member, Medal of Honor recipient's  
            family member and survivor of a deceased sponsor.  

              Tricare Retiree  Dental Program  (TRDP) available to eligible  
            family members and surviving family members of deceased sponsors  
            and Medal of Honor recipients and their immediate family members  
            and survivors. 
           
              The spouse and children of a deceased service member living in  
            government quarters are entitled to either  remain in government  
            housing for up to a year  or relocate to a private quarters and  
             receive up to a year of Basic Housing Allowance   as appropriate.

               Scholarship assistance  for dependent survivors of deceased  
            members is provided by many schools.

              Surviving spouses and certain mothers of deceased members who  








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            served during war time are  entitled to an additional 10 points to  
            their earned rating  on the civil service examination for  federal  
            employment.  

              The Social Security Administration will pay to a surviving  
            spouse or children $225  lump sum death payment  and  other monthly  
            benefits  to the surviving member.

               Many states provide benefits for survivors  of veterans such as  
            educational assistance, land settlement preference, civil service  
            preference, tax and license fee exemptions, loans, relief and  
            rehabilitation, employment assistance and bonuses.  

              Dependent survivors of a deceased  member have access to the  
            Uniformed Services Identification and Privilege Card  to continue  
            to have access to facilities such as commissaries, exchanges and  
            medical facilities.  

              The Survivor Benefit Plan  allows retirement pay to continue  to  
            flow to spouse or children for the lifetime of the beneficiary.

              The Dependency and Indemnity Compensation is  a monthly benefit  
            paid  to eligible survivors of certain deceased veterans.

               Death Gratuity (one time lump sum of $100K)  and Death Pensions  
            available to next of kin and eligible dependents.

              The family members of veterans are  eligible to collect burial  
            and memorial benefits.  

              Survivor and Dependent Assistance (DEA) program is established  
            by Chapter 35 of Title 38 US Code  providing 45 months education  
            and training opportunities  to eligible dependents of veterans  
            that were disabled due to a service related condition or who died  
            while on active duty.  

               VA Home Loan Guarantee  to surviving spouses of disabled  
            veterans.









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               No fee passports are available  to immediate family members for  
            the purpose of visiting their loved ones grave or  
            memorialization.



       REGISTERED SUPPORT / OPPOSITION:




       Support


       Disabled Veteran Business Alliance (sponsor)


       American Legion-Department of California


       AMVETS-Department of California


       California Association of County Veteran Service Officers


       California State Commanders Veterans Council


       Military Officers Association of America, California Council of  
       Chapters


       VFW-Department of California


       Vietnam Veterans of America-California State Council










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       Opposition


       None received







       Analysis Prepared by:Toni Symonds / J., E.D., & E. / (916) 319-2090