BILL ANALYSIS Ó SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION Senator Isadore Hall, III Chair 2015 - 2016 Regular Bill No: AB 1033 Hearing Date: 6/14/2016 ----------------------------------------------------------------- |Author: |Eduardo Garcia | |-----------+-----------------------------------------------------| |Version: |5/2/2016 Amended | ----------------------------------------------------------------- ------------------------------------------------------------------ |Urgency: |No |Fiscal: |No | ------------------------------------------------------------------ ----------------------------------------------------------------- |Consultant:|Arthur Terzakis | | | | ----------------------------------------------------------------- SUBJECT: Economic impact assessment: small business definition DIGEST: This bill authorizes, with certain exceptions, a state agency to use a consolidated definition of small business when preparing the economic impact assessment for administrative regulations proposed for adoption, amendment, or repeal. ANALYSIS: Existing law: 1)Requires a state agency proposing to adopt, amend, or repeal specific administrative regulations to assess the potential for adverse economic impact on California business enterprises and individuals and to prepare an economic impact assessment, as specified, that addresses, among other things, the creation or elimination of jobs within the state. 2)Defines "small business" to mean a business activity in agriculture, general construction, special trade construction, retail trade, wholesale trade, services, transportation and warehousing, manufacturing, generation and transmission of electric power, or a health care facility, unless excluded and that is both of the following: (a) independently owned and operated; (b) not dominant in its field of operation; and, (c) undertaking a business activity in agriculture, general construction, special trade construction, retail trade, wholesale trade, services, transportation and warehousing, AB 1033 (Eduardo Garcia) Page 2 of ? manufacturing, generation and transmission of electric power, or a health care facility, unless specifically excluded. 3)Excludes from the definition of small business eighteen professions and business activities, as specified. 4)Defines "major regulation" as any proposed adoption, amendment or repeal of a regulation subject to review by the Office of Administrative Law that will have an economic impact on California business enterprises and individuals that exceeds $50 million. This bill: 1)Provides that for purposes of conducting an economic impact assessment on a regulation having a business impact of less than $50 million, a state agency may use a consolidated definition of small business, as defined, in order to determine the number of small businesses within the economy, a specific industry sector, or geographic region. 2)Requires the state agency to clearly identify the use of the consolidated small business definition in its rulemaking package. 3)Provides that, for the exclusive purpose of undertaking the economic impact assessment, a "small business" means a business that is all of the following: a) Independently owned and operated; b) Not dominant in its field of operation; and, c) Consists of fewer than 100 employees. 4) Excludes any regulation adopted by the Department of Insurance that applies to an insurance company from the provisions of this bill. Background Existing law requires state agencies adopting and amending administrative rules to undertake an assessment of the impact on businesses, including small businesses. According to the author's office, the statutory definition of small business, AB 1033 (Eduardo Garcia) Page 3 of ? however, has not been updated in decades and includes 18 special exclusions and/or modifications, making the overall assessment framework overly complex and a de facto barrier to soliciting public comments from potentially affected small businesses. Given that the state's rulemaking process places the burden for suggesting alternative implementation methods on the affected businesses rather than the rulemaking state agency, it is important that the economic impact assessment be clearly understandable to a majority of California businesses. The author's office states that this bill proposes the use of a more standardized definition of small business, which may be utilized by a rulemaking entity when developing the economic impact assessment. The author's office references studies indicating that small businesses play an essential role in California's regional economies and industry sectors, having generated an annual payroll of over $204 billion in 2012. California has a higher percentage of small businesses than the national average and nearly 90% of all businesses have fewer than 20 employees. The author's office emphasizes that the 20 employee threshold is especially significant to job creation - such businesses create jobs, generate taxes, and revitalize communities. In fact, research undertaken by the U.S. Census Bureau and the Kauffman Foundation has shown that net new job creation is reported to be highest among businesses with fewer than 20 employees. Prior/Related Legislation SB 1176 (Galgiani, 2016) revises the definition of "small business" and "microbusiness" for purposes of the Small Business Procurement and Contract Act by increasing the dollar amount threshold for a small business to $15 million and for a microbusiness to $5 million and requires those dollar amounts to be adjusted to reflect changes in the California Consumer Price Index biennially. In addition, this bill revises the definition of small business by specifying that, for purposes of public works contracts, a small business means a business with 200 or fewer employees and average annual gross receipts of $25 million or less over the previous three years. (Pending in Assembly policy committee) SB 1140 (Moorlach, 2016) requires automatic repeal of a statute that expressly or implicitly authorizes an agency to promulgate regulations two years after the statute goes into effect, unless AB 1033 (Eduardo Garcia) Page 4 of ? the Legislature amends the statute to state its intent that the statute not be repealed, or unless the statute was passed in response to an emergency, as defined. (Failed passage in this committee) ACA 1 (Donnelly, 2014) would have amended the California Constitution to require state agencies to submit all regulations that have been approved by the Office of Administrative Law to the Legislature for final approval. (Held in Assembly policy committee) SB 981 (Huff, 2014) among other things would have required the review of existing regulations adopted prior to January 1, 2014 in order to reduce duplicative, obsolete, and ineffective regulations. (Held in this committee) AB 12 (Cooley, 2015) would have, until January 1, 2019, required each state agency to, on or before January 1, 2018, review that agency's regulations, identify any regulations that are duplicative, overlapping, inconsistent, or out of date, to revise those identified regulations, as provided, and report to the Legislature and Governor, as specified. (Held on Senate Appropriations suspense file) FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No SUPPORT: None received OPPOSITION: None received