BILL ANALYSIS Ó
AB 582
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Date of Hearing: April 21, 2015
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT, AND THE ECONOMY
Eduardo Garcia, Chair
AB 582
Calderon - As Amended March 26, 2015
SUBJECT: Professionals in Public Service
SUMMARY: Establishes the Professionals in Public Service (PPS)
Program, under the administrative oversight of the Board of
Equalization (BOE), for the purpose of utilizing the expertise of
private sector professionals to help make BOE practices more
accessible to small businesses. Specifically, this bill:
1)Expresses legislative intent that California is home to some of the
most innovative and resourceful entrepreneurs in the world, making
it the leader in technology and related industries and that the
state should harness this innovation in order to provide the best
possible customer service to all of its citizens in the most
cost-effective, efficient, and creative manner.
2)Establishes the PPS Program within the BOE, which includes the
annual appointment by the Secretary of the BOE of one to five
private sector professionals who will assist the BOE in making state
government activities and practices more streamlined and accessible
to small businesses.
3)Sets the following goals for the program:
a) Making board-administered programs simpler, easier to access,
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more efficient, and more responsive to the needs and concerns of
small businesses and entrepreneurs.
b) Providing for better outreach by the board to the private
sector.
c) Strengthening coordination and interaction between the board
and the private sector on issues relevant to entrepreneurs and
small business concerns.
4)Requires an individual selected for the program to meet one of the
following criteria:
a) The individual shall have demonstrated success in working with
small business concerns and entrepreneurs; or
b) The individual shall have successfully developed, invented, or
created a product and brought the product to the marketplace.
5)Prohibits an individual who is participating in the program from
having any conflicts of interest, including, but not limited to,
having business before the BOE.
6)Requires the Secretary of the BOE to establish procedures for the
appointment and placement of individuals to the PPS Program by March
1, 2016. These procedures are exempt from the Administrative
Procedures Act, as specified. Among other requirements, the
procedures are to include:
a) A process for screening prospective appointees including
background checks and references.
b) A standard memorandum of understanding that stipulates the
responsibilities of each party including, but not limited to,
duties, goals, expected outcomes, administrative support, and
office participation.
c) A reporting process that provides sufficient information for
the Secretary of the BOE to prepare an annual report to the
Legislature, as specified.
7)Requires the BOE to approve the PPS Program procedures prior to the
appointment of any individual.
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8)Requires every individual to have entered into an MOU with the BOE
prior to starting their appointment to the PPS Program. The
contents of the MOU are to be specific to individual placement
including the individuals duties, goals, expected outcomes,
administrative support, and office participation. The MOU shall
also include benchmarks and metrics for evaluating the success of
the placement.
9)Specifies that an individual participating in the PPS Program
reports directly to the Secretary of the BOE
10)Authorizes an individual to serve in the PPS Program for the life
of the program.
11)Sets the following duties for an individual appointed to the PPS
Program:
a) Provide recommendations on how to streamline, eliminate, or
modify potentially inefficient or duplicative activities,
processes, and programs;
b) Provide recommendations on methods to improve program
efficiency or establish new programs that address the needs of
small businesses and entrepreneurs.
c) Assist the BOE in improving outreach and service to small
business concerns and entrepreneurs including, but not limited
to;
i) Facilitating meetings and forums to educate small
businesses and entrepreneurs on programs or initiatives of the
BOE.
ii) Facilitating in-service sessions with employees of the BOE
on issues of concern to entrepreneurs and small businesses.
iii) Providing technical assistance or mentorship to small
businesses and entrepreneurs in accessing BOE programs.
12)Provides that the scope of the duties (listed above) are subject to
specified the confidentiality requirements applicable to the BOE.
13)Requires appointees of the PPS Program to serve on a project-based,
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voluntary basis with a specific timeline for completion. At the
discretion of the Secretary of the BOE, an individual participating
in the PPS Program may have access to an office, computer, and other
related support services and equipment, as specified.
14)Authorizes the Secretary of the BOE to establish an informal
working group of PPS appointees to discuss best practices,
experiences, obstacles, opportunities, and recommendations.
15)Requires the Secretary of the BOE to annually prepare and submit a
report, as specified, on the progress of the activities of each of
the appointees and a general summary of how the overall program is
meeting the program goals. The final annual report on the program
is to be filed by January 1, 2019.
16)Specifies that program impacts will not be fully measurable until
recommended changes are fully implemented. The bill directs the
Secretary of the BOE to continue measuring and reporting the impact
of the activities of the program following each placement.
17)Sunsets the provisions of the bill on January 1, 2021.
18)Includes a crimes and infractions disclaimer.
EXISTING LAW:
1)Finds and declares that it is in the public interest to aid,
counsel, assist, and protect the interests of small business
concerns in order to maintain a healthy state economy.
2)Establishes the five-member BOE as a publicly elected tax board with
oversight on a number of taxation issues including sales and use
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tax. The BOE also acts as the appellate body for franchise and
personal income tax appeals, and serves a significant role in the
assessment and administration of property taxes.
FISCAL EFFECT: Unknown
POLICY ISSUE FRAME:
Although the state has a vigorous public process that is designed to
allow the rulemaking agency to fully consider the comments,
suggestions, and economic impacts of proposed regulations on all
business - especially small businesses - state agencies are often
unable to assess the cost and complexity of the proposed
implementation model on varying size businesses. An intrinsic
challenge to California's rule making process is that those businesses
that may be most affected have the least ability to monitor the broad
range of state rulemaking entities, recommend appropriate alternative
implementation models or engage meaningfully in the often complex and
highly technical rule making proceedings.
Without practical experience with the limited administrative capacity
in which many small businesses operate or a realistic method for small
businesses to participate in the regulatory process, it is difficult
for state agencies to adopt rules that are considerate of needs of
these smaller size businesses while still meeting the intended policy
requirements.
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Given that nearly 3 million firms in California have no employees and
90% of firms with employees have less than 20, having implementation
methods that are appropriate for small businesses in terms of time,
money, and expertise are a relevant state economic development issue.
This bill establishes a process for imbedding small business
professionals with the BOE in order to help facilitate change from
within the government organization. It is a process that has been
used by the private sector to create leaner administrative processes
and is more recently being adopted by local, state, and federal
governments. These types of programs are more commonly referred to as
entrepreneur-in-residence (EIR) programs.
The analysis provides background on California's small business
economy, previous legislative actions on regulatory reform, other
examples of EIR programs, and related legislation. Amendments are
discussed in Comment 7.
COMMENTS:
1)Author's Purpose: According to the author's statement, "California
is home to the largest, richest and most diverse economy in the
United States. In fact, according to Bloomberg, California is
overtaking Brazil as the 7th largest economy to the world. A
significant reason being the ingenuity of the citizens in our
extraordinary state.
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Small businesses make up 99.2% of all businesses in the state and
create two-thirds of all net new jobs. Subsequently, the
entrepreneurs and local business owners responsible for California's
economic prosperity are some of the best and brightest in the world.
Still, entrepreneurs face many obstacles in today's economy, such as
access to capital and access to different markets, however, the
biggest obstacle to success is often times government itself.
Our representative government is designed to give a voice to
citizens with different views to debate in a public platform in
hopes that consensus can be achieved. Sometimes, legislators pursue
policies that can be out-of-touch with the public's interest, or
behind the times due to the rapid growth of technological advances.
More to the point, governmental processes are highly bureaucratic
which leads to slow decision making that can have a direct impact on
the private sector.
Incorporating a private citizen who has a diverse technical
background in business, financial and governmental processes into a
governmental entity (e.g. BOE) can provide government employees
direct access to an expert who is knowledgeable of the various
challenges facing businesses in California today. The result can
potentially give California's business leaders an edge on the world
competition to ensure the continued growth of our economy."
2)California's Small Business Economy: Small businesses form the core
of California's $2.2 trillion economy. Research shows that net new
job creation is strongest among businesses with less than 20
employees, that small businesses have historically led the state's
local and regional economies out of recessions, and that these
businesses are essential to the state's global competitiveness by
meeting niche industry needs.
Businesses with no employees make up the single largest component of
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businesses in California, 2.9 million out of an estimated 3.6
million firms in 2012, representing over $149 billion in revenues
with the highest number of businesses in the professional,
scientific, and technical services industry sector. As these
non-employer businesses grow, they continue to serve as an important
component of California's dynamic economy.
Even if you exclude non-employer firms, businesses with less than 20
employees comprise nearly 90% of all businesses and employ
approximately 18% of all workers. Businesses with less than 100
employees represent 97% of all businesses and employ 36% of the
workforce. These non-employer and small employer firms create jobs,
generate taxes, and revitalize communities.
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| 2011 Business Profile By Size (excludes non-employer firms) |
---------------------------------------------------------------
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
| Area | Employment | Number of | Percent of | Employees | Percent of | Annual |
| Description | Size | Firms | Firms | | Jobs | Payroll |
| | | | | | | ($1,000) |
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
|United States | Total | 5,684,424| | 113,425,965| |$5,164,897,905|
| | | | | | | |
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
|California | Total | 689,568| 12% of | 12,698,427| 11% of all |$663,570,657 |
| | | | U.S. Firms | | U.S. Jobs | |
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| |
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|United States | 0-4 | 3,532,058| 62% of | 5,857,662| 5% of U.S. | $230,422,086|
| | | | U.S. Firms | | Jobs | |
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
|California | 0-4 | 429,139| 62% of | 702,508| 5.5% of | $35,472,447|
| | | | CA Firms | | CA Jobs | |
--------------------------------------------------------------------------------------------------------
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| |
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|United States | <20 | 5,104,014|89.7% of U.S. | 20,250,874| 17.8% of | $732,759,369|
| | | | Firms | | U.S. Jobs | |
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
|California | <20 | 614,538| 89.1% of CA | 2,386,296| 18.7% of | $99,417,066|
| | | | Firms | | CA Jobs | |
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| |
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|United States | 0-99 | 5,585,510|98.2% of U.S. | 39,130,875| 34% of | 1,478,844,420|
| | | | Firms | | U.S. Jobs | |
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
|California | 0-99 | 672,360| 97% of | 4,587,628| 36.1% of | 194,611,832|
| | | | CA Firms | | CA Jobs | |
--------------------------------------------------------------------------------------------------------
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| |
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|United States | <500 | 5,666,753| 99.6% of U.S | 54,998,312| 48.4% of |$2,169,353,973|
| | | | Firms | | U.S. Jobs | |
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
|California | <500 | 683,999| 99.1% of CA | 6,331,871| 49.8% of | $280,857,823|
| | | | Firms | | CA Jobs | |
--------------------------------------------------------------------------------------------------------
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| |
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---------------------------------------------------------------
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|United States | 500+ | 17,671| 0.3% of | 58,427,653| 51.5% of |$2,995,543,932|
| | | | U.S. Firms | | U.S. Jobs | |
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
|California | 500+ | 5,569| 0.8% of | 6,366,556| 50.1% of | $382,712,834|
| | | | CA Firms | | CA Jobs | |
--------------------------------------------------------------------------------------------------------
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| Source: U.S. Census |
|http://www.census.gov/econ/susb/index.html |
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Reflective of their important role, the JEDE Committee Members
regularly hear about the challenges small businesses face meeting
the implementation requirements of state, local, and federal
regulations. While opponents of regulatory reform accuse small
businesses of trying to avert their responsibilities, businesses
that have testified before the Committee have repeatedly stated that
their goal is to achieve a regulatory environment that encourages
small businesses development, while still maintaining public health
and safety standards. AB 582 does not authorize the lowering of
any regulatory standard. The bill proposes to reduce the regulatory
burden on small businesses by providing the BOE with expert advice
on the operation and administrative structures of small businesses.
3)Cost of Regulations on Business: There are two major sources of
data on the cost of regulatory compliance on businesses, the federal
SBA and the Office of the Small Business Advocate (OSBA). For the
last 10 years, the federal SBA has conducted a peer reviewed study
that analyzes the cost of federal government regulations on
different size businesses. This research shows that small
businesses continue to bear a disproportionate share of the federal
regulatory burden. On a per employee basis, it costs about $2,400,
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or 45% more, for small firms to comply with federal regulations than
their larger counterparts.
The first study on the impact of California regulations on small
businesses was released by the OSBA in 2009. This first
in-the-nation study found that the total cost of regulations to
small businesses averaged about $134,000 per business in 2007. Of
course, no one would advocate that there should be no regulations in
the state. The report, however, importantly identifies that the
cost of regulations can provide a significant cost to the everyday
operations of California businesses and should therefore be a
consideration among the state's economic development policies.
Regulatory costs are driven by a number of factors including
multiple definitions of small business in state and federal law, the
lack of e-commerce solutions to address outdated paperwork
requirements, procurement requirements that favor larger size
bidders, and the lack of technical assistance to alleviate such
obstacles that inhibit small business success.
4)Different Approaches to Regulatory Reform: In general, the
Legislature's engagement on regulatory reforms has taken two basic
approaches. One set of policies have addressed specific regulatory
challenges on a case-by-case basis. The other approach makes
systemic change to the way in which rules are adopted, often adding
a supplemental more targeted review pre- or post-adoption.
Recommendations for systemic change have included:
a) Dynamic Fiscal Analysis in Appropriations Committee: These
bills required an analysis of bills before the Legislature on
their impact on business and the economy. Currently, the
Legislature's fiscal committee reviews focus on the bill's direct
impact on state funds, and most specifically on the General Fund.
The fiscal committee's analysis is not intended to include
legislations' potential economic impact on the state.
b) Substantive Administrative Review: These bills shifted the
review of the Office of Administrative Law from a procedural
review of the regulation package to a substantive review of its
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impact on business and the economy, including the sufficiency of
the assessment of alternatives. Alternatively, legislation has
suggested that another state entity, such as the State Auditor or
Legislative Analyst's Office, could be designated to undertake an
expanded review of proposed regulations.
c) Enhanced Analysis of Alternatives: These bills required a
more meaningful consideration of alternative implementation
models, which could lower costs or reduce the implementation
burden on small businesses.
d) Post Implementation Analysis: These bills required a review
of a regulation's impact five-years after its implementation.
Alternatively, legislation has been suggested that all
regulations have a sunset date, which would allow for full review
once the actual impacts could be identified.
Until now, the first approach has been the most successful, although
by its nature it has had very limited overall impact on California's
regulatory business climate. Due to their potential implementation
costs, a majority of the bills advancing the systemic approach to
regulatory reform have failed to move from the fiscal committees -
as illustrated in the comment on related legislation.
The most significant systemic change in recent years was approved in
SB 617 (Calderon), Chapter 496, Statutes of 2011, which required an
enhanced economic impact analysis for regulations anticipated to
have an impact of $50 million or more. The SB 617 process follows
the federal regulatory model (described below), however, it should
be noted that the state process is silent as to the assessment of
costs based on size of business.
The Legislature heard several bills to refine the SB 617 process in
2013-14 session including AB 2723 (Medina), which would have
required rulemaking entities to consider the specific impact of
major regulations on sole proprietorships, and AB 1711 (Cooley)
which moved up the economic impact assessment to the initial
statement of reasons for all regulations. Ultimately, the Governor
signed AB 1711 (Cooley), Chapter 779, Statutes of 2014 and vetoed AB
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2723 (veto message below).
5)Similar Programs: The PPS Program is not necessarily a new idea.
The EIR model has been used in the investment and business world for
decades. According to Dell, a supporter of this and prior EIR
legislation, the high tech sector began using EIR model in the
1980's in order to bring experienced professionals into the startup
process.
The use of EIR Programs to help government agencies is more recently
gaining traction. As an example, in 2012, the Federal Drug
Administration (FDA) established an EIR Program to attract seasoned
entrepreneurs in the medical industry that had successfully
navigated the FDA's regulatory process. The six to seven month
program is designed to help the FDA and small businesses work
together to introduce new products in the marketplace both quickly
and safely. The FDA not only improved processes, FDA staff also
gained a better understanding of the challenges small businesses
face and how to better network with entrepreneurs in the future.
The goal of one of first EIR placements deliver "transformational
change by combining the best internal and external talent, applying
the principles of lean engineering in rapidly testing, validating,
and scaling new approaches." EIR Programs are a key component of
President Obama's Strategy for American Innovation.
In another example, U.S. Citizenship and Immigration Services
(USCIS) established an EIR initiative with the goal of recruiting a
small "tactical team" of business experts to work with USCIS staff
to help streamline operations and enhance pathways within existing
immigration law to help immigrant entrepreneurs start and grow
businesses in the U.S. This was a 90-day project, which also
included the other entities within the Department of Homeland
Security and was a component of the White House Startup America
initiative.
In March 2014, Virginia enacted an EIR Program (HB 32, Chapter 63,
Statutes of 2014) and several other states are reported to also be
considering EIR Programs. AB 1675 (Calderon), which failed to move
from the Assembly Appropriations Committee in 2014, was patterned
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after the Texas and Virginia legislation. AB 582 is a single
department focus on last year's bill.
6)EIR Case Study: In March 2014, San Francisco (SF) Mayor Edwin M.
Lee announced that the City had selected six startup companies to
participate in its new EIR Program. The start-up businesses were
selected from nearly 200 applications to participate in the 16-week
collaboration. Under the program, the selected businesses will meet
with SF government offices for the purpose of exploring innovative
solutions to civic challenges that can lower costs, increase
revenue, and enhance productivity.
Applicants came from 25 cities and countries including businesses in
such areas as education, healthcare, transportation, public
utilities, public safety, infrastructure, and the environment. The
diverse group of applicants ranged from seed-stage startups to later
stage startups and across software, hardware, and services -
including serial entrepreneurs, NASA engineers, employees of leading
technology companies, and several patent holders including some that
have been granted more than 100 patents.
SF departments and agencies selected the finalists through a
competitive process based on their needs and priorities. All
businesses will be participating on a voluntary basis. SF believes
that the six selected companies, "are at the forefront of developing
innovative solutions to improve government efficiencies, enhance
productivity, and provide better experiences to the public." Two
examples of the six selected participants are:
a) Synthicity (synthicity.com) will work with the San Francisco
Planning Department on new simulation, planning, and urban
development tools and technologies. Synthicity is a software
startup that builds simulation tools and solutions for urban
development and planning.
b) BuildingEye (buildingeye.com) will work with the San Francisco
Municipal Transportation Agency to engage residents and
communities. BuildingEye is a software startup that makes permit
and noticing information easier to discover through a mapping
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interface.
7)Proposed Amendments: Below is a list of amendments staff
understands the author will be present for Committee approval at the
hearing.
a) Add legislative intent relative to the BOE serving as a model
for other state agencies and that the EIR model is not a new
model, rather it has been successfully used by a variety of
public and private entities.
b) Provide that applications can be made in paper form and
through an online application process.
c) Clarify that the nomination process is open to everyone.
d) Set August 1, 2017 as the date of the last appointment and
December 31, 2017 as the final day an appointee may be of
service.
e) Modify the final reporting requirements to reflect the date of
final service.
8)Related Legislation: Below is a list of bills from the current and
prior sessions.
a) AB 19 (Chang) Review of Regulations by Advocate: This bill
requires the Governor's Office of Business and Economic
Development, under the direction of the Small Business Advocate,
to review all regulations affecting small businesses adopted on
or after January 1, 2016, in order to determine whether the
regulations need to be amended in order to become more effective,
less burdensome, or to decrease the cost impact to affected
sectors. Status: scheduled to be heard on April 21, 2015, in
the Assembly Committee on Jobs, Economic Development, and the
Economy.
b) AB 419 (Kim) Compilation of Regulations: This bill requires
the Governor's Office of Business and Economic Development to
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annually compile all regulations adopted by the state that affect
small businesses and report this information to the Legislature,
as specified. Status: scheduled to be heard on April 21, 2015,
in the Assembly Committee on Jobs, Economic Development, and the
Economy.
c) AB 866 (E. Garcia) Small Business Impact Data: This bill
expands the duties of the Small Business Advocate to include
assisting state rulemaking agencies in identifying the aggregate
number and size of business which may be affected by a proposed
new or amended regulation. Status: scheduled to be heard on
April 21, 2015, in the Assembly Committee on Jobs, Economic
Development, and the Economy.
d) AB 1286 (Mayes) California Regulatory Reform Council: This
bill establishes the California Regulatory Reform Council for the
purpose of analyzing the holistic impact of all levels of state
and local regulations on specific industries operating within the
state. The Council's recommendations may be made to the Governor
and the Legislature, as appropriate. Status: scheduled to be
heard on April 21, 2015, in the Assembly Committee on Jobs,
Economic Development, and the Economy.
e) AB 1675 (Calderon) Entrepreneurship-in-Residence: This bill
would have established the entrepreneur-in-residence program
within the Governor's Office of Business and Economic Development
for the purpose of improving outreach and strengthening
coordination with the entrepreneur and small business community.
Status: Died on the Suspense File in the Senate Committee on
Appropriations, 2014.
f) AB 2723 (Medina) Small Businesses and Major Regulations: This
bill would have added statutory protections to ensure that the
costs of major regulations on the state's smallest size
businesses are considered when state agencies undertake their
economic impact assessment for major regulations. Status:
Vetoed by the Governor, 2014. The veto message reads: " This
bill would require the economic analysis for major regulations to
include a separate assessment of the impact on sole
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proprietorships and small businesses. I signed legislation in
2011 to require a comprehensive economic analysis of proposed
major regulations. The analysis must assess whether, and to what
extent, the proposed regulations will affect all California jobs
and businesses. Agencies must also identify alternatives that
would lessen any adverse impact on small businesses. I am not
convinced that an additional layer of specificity based solely on
the legal structure of a business would add value to the
comprehensive economic analysis already required."
g) SB 617 (Calderon) State Government and Financial and
Administrative Accountability: This bill revises the state
Administrative Procedure Act to require each state agency
adopting a major regulation to prepare an economic impact
analysis and requires state agencies to implement ongoing
monitoring of internal auditing and financial controls and other
best practices in financial accounting. Status: Signed by the
Governor, Chapter 496, Statutes of 2011.
9)Double Referral: The Assembly Rules Committee has referred this
measure to the Assembly Committee on Jobs, Economic Development, and
the Economy and to the Assembly Committee on Revenue and Taxation
(R&T). Should this measure pass the Committee, it will be referred
to R&T for further policy consideration.
REGISTERED SUPPORT / OPPOSITION:
Support
Dell
TechNet
Opposition
None received
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Analysis Prepared by:Toni Symonds / J., E.D., & E. / (916) 319-2090