BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 413| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: AB 413 Author: Chávez (R), et al. Amended: 6/30/15 in Senate Vote: 21 SENATE VETERANS AFFAIRS COMMITTEE: 5-0, 6/23/15 AYES: Nielsen, Hueso, Allen, Nguyen, Roth SENATE APPROPRIATIONS COMMITTEE: 7-0, 8/27/15 AYES: Lara, Bates, Beall, Hill, Leyva, Mendoza, Nielsen ASSEMBLY FLOOR: 78-0, 5/14/15 (Consent) - See last page for vote SUBJECT: California Disabled Veteran Business Enterprise Program California Disabled Veteran Business Enterprise Program. SOURCE: Disabled Veteran Business Alliance DIGEST: This bill amends the Disabled Veteran Business Enterprise (DVBE) program by authorizing that following the death or permanent disability of the disabled veteran majority owner of a certified DVBE, a surviving spouse or child may enter into additional state contracts during the three-year period following the death or disability, provided that the contracts can be completed within the three-year period. ANALYSIS: Existing law: AB 413 Page 2 1)Establishes the DVBE program for the purposes of addressing the special needs of disabled veterans seeking rehabilitation and training through entrepreneurship, and recognizing the sacrifices California's disabled veterans made during their military service. 2)Establishes 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. 3)Designates the Department of General Services (DGS) as the administering agency for the DVBE program, including managing the certification of individual DVBE firms. 4)Establishes criteria for certification eligibility, including ownership and operation by one or more disabled veterans, as defined. 5)Extends "certified DVBE" status to the spouse or child of a disabled veteran majority owner, upon the owner's death or upon receipt of certification of the owner's permanent medical disability, for up to three years for the sole purpose of completing any contracts entered into prior to the owner's death or certification. This bill: 1)Authorizes - following the death or permanent disability of the disabled veteran majority owner of a certified DVBE - a surviving spouse or child to enter into additional state contracts during the three year period following the death or disability, provided that the contracts can be completed within the three-year period. 2)Offers intent language and makes findings and declarations: a) It is the intent of the Legislature that the certification created by this act not conflict with the intended purpose of the DVBE program, which is, as stated in subdivision (a) of Section 999 of the Military and Veterans Code (MVC), "to address the special needs of disabled veterans seeking rehabilitation and training through entrepreneurship and to recognize the sacrifices of AB 413 Page 3 Californians disabled during military service." b) Allowing any person who is not a "disabled veteran," as defined in paragraph (6) of subdivision (b) of Section 999 of the MVC, to perform the role of a "disabled veteran" within the DVBE program, would conflict with the intended purpose of the program by placing that person in competition with a "disabled veteran" for program benefits intended to meet the special needs of disabled veterans. c) The spouse or child of disabled veterans may participate in the program without conflicting with the program's intended purpose, if their participation is limited to either fulfilling existing contracts or providing for the orderly and equitable disposition of a certified disabled veteran business enterprise following the death or permanent medical disability of the business' majority owner. d) Three years is sufficient time for the orderly and equitable disposition of a certified disabled veteran business enterprise following the death or permanent medical disability of the majority owner. e) It is the intent of the Legislature that the certification created by this act shall not establish any business advantage other than to permit certain family members of the majority owner of a disabled veteran business enterprise to temporarily control and fully operate that business upon the death or permanent medical disability of the majority owner. Background California is home to nearly two million of the nation's 22 million veterans. Many are disabled and would qualify to participate as DVBE entrepreneurs. The demographics of the state's veteran population is changing rapidly due to the passing away of older generations and new growth generated by the ongoing downsizing our nation's active duty armed forces. Many of the newer, younger veterans have disabilities from serving in the conflicts in Iraq and Afghanistan or other service-connected causes. AB 413 Page 4 The program's purpose and philosophical orientation are established in MVC Section 999(a): The DVBE program is established to address the special needs of disabled veterans seeking rehabilitation and training through entrepreneurship and to recognize the sacrifices of Californians disabled during military service. It is the intent of the Legislature that every state procurement authority honor California's disabled veterans by taking all practical actions necessary to meet or exceed the disabled veteran business enterprise participation goal of a minimum of 3 percent of total contract value. Ownership and operation. Under existing law, a DVBE must meet certain standards in order to be certified by DGS, including the following requirements for ownership and operation: 1)Ownership: a) Sole proprietorship: At least 51% owned by one or more disabled veterans; b) Publicly owned business: At least 51% of its stock unconditionally owned by one or more disabled veterans; c) Subsidiary that is wholly owned by a parent corporation: Only if at least 51% of the voting stock of the parent corporation is unconditionally owned by one or more disabled veterans; or d) Joint venture: At least 51% of the joint venture's management, control, and earnings are held by one or more disabled veterans. 2)Control and Operation: a) 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. b) It has a home office located in the U.S., which is not a branch or subsidiary of a foreign corporation, foreign AB 413 Page 5 firm, or other foreign-based business. Survivorship. Existing law provides that, if the disabled veteran majority owner dies or incurs a permanent medical disability, an inheriting spouse and/or child may retain the firm's certification and continue to operate as a DVBE for three years, for the sole purpose of fulfilling the terms of any contract entered into prior to the disabled veteran's death or permanent disability. However, the spouse/child certification may not be used to enter into any new contracts during the three-year period. The above provision was added via AB 409 (Dickerson, Chapter 767, Statutes of 1999) due to concerns about the fate of the veteran's spouse, who, in most cases, relies totally or primarily on the income generated the DVBE operation. Related/Prior Legislation AB 409 (Dickerson, Chapter 767, Statutes of 1999) requires (1) that certification of a DVBE be continued for up to three years after the death or certification of permanent medical disability of the disabled veteran owning the enterprise; and (2) that the California Department of Veterans Affairs appoint an advocate, who would be responsible for overseeing implementation of the bill and general DVBE participation goals in state contracting. FISCAL EFFECT: Appropriation: No Fiscal Com.:YesLocal: No According to the Senate Appropriations Committee: The aggregate impact of this bill on state contracts is unknown, and would reflect various factors. Some of these factors would potentially increase state costs, while others would likely lead to a reduction in state costs. DGS would incur minor and absorbable costs related to rulemaking. AB 413 Page 6 SUPPORT: (Verified 8/31/15) Disabled Veteran Business Alliance (source) American Legion - Department of California AMVETS - Department of California California Asian Pacific Chamber of Commerce California Association of County Veterans Service Officers California State Commanders Veteran Council Military Officers Association of America - California Council of Chapters Veterans of Foreign Wars - Department of California Vietnam Veterans of American - California State Council Numerous individual DVBEs OPPOSITION: (Verified8/27/15) DVBE Investigations Service Disabled Veteran Owned Small Businesses Network Numerous individual DVBEs ARGUMENTS IN SUPPORT: According to the author, this bill does not expand the program, but merely provides the surviving, eligible spouse/child with time and ability to generate enough cash flow for the spouse/child to transform the business model, sell the business, close the business down, or otherwise dispose of it. ARGUMENTS IN OPPOSITION:Opponents say that this bill, by allowing the inheriting spouse/child to enter into new contracts during the three-year period, places them into direct competition with other DVBEs owned by fully eligible disabled veterans, which is inconsistent with the program purpose. ASSEMBLY FLOOR: 78-0, 5/14/15 AYES: Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden, AB 413 Page 7 Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Perea, Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood, Atkins NO VOTE RECORDED: Linder, Medina Prepared by:Wade Cooper Teasdale / V.A. / (916) 651-1503 8/31/15 13:07:19 **** END ****