BILL ANALYSIS Ó
AB 2270
Page 1
ASSEMBLY THIRD READING
AB
2270 (Bonta)
As Amended May 27, 2016
2/3 vote
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|Committee |Votes|Ayes |Noes |
| | | | |
| | | | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Jobs |9-0 |Eduardo Garcia, Kim, | |
| | |Achadjian, Brough, | |
| | |Brown, Chau, Chu, | |
| | |Gipson, Irwin | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Appropriations |20-0 |Gonzalez, Bigelow, | |
| | |Bloom, Bonilla, | |
| | |Bonta, Calderon, | |
| | |Chang, Daly, Eggman, | |
| | |Gallagher, Eduardo | |
| | |Garcia, Roger | |
| | |Hernández, Holden, | |
| | |Jones, Obernolte, | |
| | |Quirk, Santiago, | |
| | |Wagner, Weber, Wood | |
| | | | |
| | | | |
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AB 2270
Page 2
SUMMARY: Modifies an existing statewide surety bond guarantee
program for small contractors at the Small Business Finance
Center, located within the California Infrastructure and
Economic Development Bank (IBank). Specifically, this bill:
1)Expands and adds specificity to an existing small business
contractor program, which offers surety bond guarantees to
help businesses in obtaining surety bonds through the private
market.
2)Specifically identifies disadvantaged business enterprises as
an eligible applicant. Current law authorizes any small
business contractor, including, but not limited to, women,
minority, and disabled veteran businesses.
3)Authorizes the IBank to establish one or more pilot projects
before adopting guidelines for a statewide program.
4)Authorizes the IBank to assign all or part of the program to
another state entity, however, the IBank retains
responsibility for reporting on the use and outcomes of the
program.
5)Authorizes the IBank to establish new contractor relationships
for the purpose of implementing this program, as specified.
6)Requires the existing surety bond guarantee program include
technical assistance, as follows:
a) Assessment and identification of the particular barriers
facing the participating contractor and development of
AB 2270
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solutions to those barriers, as specified.
b) Identification of, and assistance in obtaining, other
financial support and resources, as specified.
EXISTING LAW:
1)Establishes the IBank within the Governor's Office of Business
and Economic Development (GO-Biz) and authorizes it to
undertake a variety of financial activities including, but not
limited to, the administration of a revolving loan fund,
oversight of the Small Business Finance Center, and the
issuance of tax-exempt and taxable revenue bonds. The Small
Business Finance Center is authorized to provide a range of
financial products, including:
a) Loan guarantees and other credit enhancements;
b) Direct loans and other debt instruments;
c) Disaster loan guarantees; and
d) Surety bond guarantees.
2)Defines a small business, for the purpose of being eligible
for state small business procurement contract bid preferences,
as independently owned, not dominant in its field of
operation, domiciled in California, employing 100 or fewer
employees, and earning $10 million or less in average annual
gross revenues for the three previous years.
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3)Defines a DVBE, for the purpose of being eligible for state
procurement, as an entity meeting all of the following
requirements:
a) The legal structure of the business is a:
i) Sole proprietorship with at least 51% owned by one
or more disabled veterans;
ii) Publicly owned business with at least 51% of its
stock unconditionally owned by one or more disabled
veterans;
iii) 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
iv) Joint venture in which at least 51% of the joint
venture's management, control, and earnings are held by
one or more disabled veterans.
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) 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.
d) It has a home office located in the United States, which
is not a branch or subsidiary of a foreign corporation,
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foreign firm, or other foreign-based business.
FISCAL EFFECT: According to the Assembly Appropriations
Committee, implementation of the bill will result in: 1)
Ongoing General Fund costs of approximately $1.1 million. These
costs represent $150,000 for one staff loan officer at the IBank
and $861,000 for the IBank to contract with the Financial
Development Corporations to administer the program and provide
statewide technical assistance. 2) The analysis also states
that there will be a need for a one-time General Fund
appropriation of at least $10 million in order to guarantee the
surety bonds.
COMMENTS: Small businesses play an essential role within the
California economy, contributing the most net new jobs, offering
an alternative to un- and underemployment, and helping to
disburse the financial advantages of the state's globally
connected economy. State procurement opportunities represent an
important economic tool to support small business development.
In the last 15 report periods, the state has met the 25% small
business procurement participation goal only five times
including the 2013-14 fiscal year.
This measure proposes the establishment of a contractor
development program to assist businesses in accessing surety
bonds. With enhanced technical assistance, and the option of
utilizing a surety bond guarantee, small businesses, DVBEs, and
disadvantaged businesses should be able to more successfully
compete for state infrastructure-related contracts. The
Assembly version of the 2016-17 Budget includes funding for the
capitalization of this program.
Removing Contracting Impediments: Small and emerging
contractors face a variety of challenges in participating in
state procurement opportunities. This bill addresses one of
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small businesses' key challenges, that of being able to obtain a
surety bond; a basic requirement for construction-related
contracts with public entities.
The Miller Act, under federal law, and the Little Miller Act,
under state law, requires contractors on most public works
construction projects to post bonds guaranteeing both the
performance of their contractual duties and the payment of their
subcontractors, workers, and material suppliers. These types of
bonds serve as a safeguard to the public entity by ensuring
compensation and/or the completion of a project. In some cases,
the surety company is obligated to find another contractor to
complete the contract or compensate the project owner for the
financial loss incurred.
Structurally, the surety bond is a three party agreement between
the contractor, who is mandated to provide the bond; the project
owner, the party protected by the bond; and the surety-insurance
company, who writes the bond. There are a variety of surety
bonds, but each type shares a common purpose of guaranteeing a
contractual obligation to the project owner. For example, a
performance bond will guarantee an obligation is met in
accordance with the plans and specifications, while a supply
bond guarantees that ordered materials will be delivered as
agreed upon. Overall, surety bonds can be instrumental in
limiting the risk of selecting a bidder; namely the risk of the
project not being completed or that a contractor's unpaid
creditors might place a lien on the project. Reducing these
risks ultimately aids the owner in reducing the cost of
borrowing money to finance the project.
Implementation of this bill would assist emerging contractors by
providing an early assessment of the firm's strengths and
weaknesses. Based on the assessment, a technical assistance
provider would work with the contractor to address deficiencies
and then assist the contractor in negotiating the terms of the
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surety bonds. In some cases, a surety guarantee could be used
to enhance the position of the business before the surety bond
issuer. By providing technical assistance and collateral
support for small construction businesses, the proposed program
would positively benefit the contractor, as well as the project
owner, the prime contractor, and prospective workers.
Over the next five years, the author contends that the state
will initiate over $50 billion in construction projects related
to transportation and community services including health care,
education, courts, and recreation. These construction projects
represent excellent business opportunities for small businesses,
Disabled Veteran Business Enterprises, and disadvantaged
businesses. However, without assistance in obtaining surety
bonds, many of these opportunities could go unexplored.
Analysis Prepared by:
Toni Symonds / J., E.D., & E. / (916) 319-2090
FN:
0003192