BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 159| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- CONSENT Bill No: SB 159 Author: Nielsen (R) Amended: 3/23/15 Vote: 21 SENATE GOVERNMENTAL ORG. COMMITTEE: 7-0, 4/28/15 AYES: Hall, Block, Hernandez, Hill, Hueso, Lara, McGuire NO VOTE RECORDED: Berryhill, Gaines, Galgiani, Vidak SENATE VETERANS AFFAIRS COMMITTEE: 5-0, 5/12/15 AYES: Nielsen, Hueso, Allen, Nguyen, Roth SUBJECT: California Disabled Veteran Business Enterprise Program: goal achievement SOURCE: Author DIGEST: This bill clarifies that an awarding departments Disabled Veteran Business Enterprise (DVBE) program participation goal achievement is to be measured by the overall dollar amount expended each year by the awarding department. ANALYSIS: Existing law: 1)Grants the Department of General Services (DGS) the authority to govern state procurement activities, including acquisition of materials, supplies, and services. 2)Stipulates that contracts awarded by state entities for professional bond services, construction, and acquisition of materials, supplies, and services are required to have annual statewide participation goals of not less than 3% for DVBEs. SB 159 Page 2 (Public Contract Code Section 10115) 3)Provides that the participation goal referenced in item #2 above applies to the overall dollar amount expended each year by the awarding department, as defined. (Public Contract Code Section 10115(c)) 4)Defines a DVBE as a business entity that is at least 51% owned or controlled by one or more disabled veterans, as specified. 5)Requires DGS to make available a report on contracting activity containing specified information, including a statistical summary detailing each awarding department's goal achievement under the DVBE program and a statewide total of those goals. This bill: 1)Clarifies that a department's DVBE program participation goal achievement is to be reported by dollars actually expended as specified in existing sections of the Military and Veterans Code and the Public Contract Code. 2)Contains a legislative finding and declaration that this bill is clarifying and declaratory of existing law. Background The problem. In February 2014, the State Auditor released a report on the DVBE program entitled, "Disabled Veteran Business Enterprise Program: Meaningful Performance Standards and Better Guidance by the California Departments of General Services and Veterans Affairs Would Strengthen the Program." The Auditor found that the state's current method of measuring the success of the DVBE program may distort an assessment of whether the program is meeting the legislative intent. For instance, the program goals are required to be measured in "dollars expended," but DGS guidelines allow awarding departments to report using either "dollars awarded" or "dollars expended." The Auditor concluded that, until the program is standardized at one metric and that metric being "dollars expended," then there is no way to know how the program is actually working. SB 159 Page 3 Purpose of SB 159. According to the author's office, in devising program guidelines for reporting DVBE participation, DGS determined that statutory guidance is ambiguous as to whether awarding departments should report their DVBE participation based on "dollars awarded" or "dollars expended." Thus, DGS decided to grant awarding departments the discretion to choose which reporting metric to use. The result is that a large proportion of state departments report to DGS based on dollars awarded, while another major proportion reports based on dollars expended. Because the state measures the success of the DVBE program on the value of the contracts that departments award - not necessarily the amounts actually paid - this may distort how well the program is financially benefitting DVBE firms because awarding departments may pay less than the value stated on a particular contract. The author's office states that this bill is intended to add clarity to existing law and remedy this matter. Additionally, the author's office emphasizes that this bill is declaratory of existing law and will not impose any new responsibilities onto DGS or awarding departments. The author's office believes SB 159 will, however, eliminate DGS' concern over ambiguity and allow consistent DVBE reporting that meets existing statutory requirements. Comments Both the Public Contract Code and the Military and Veterans Code contain provisions regarding DVBE program contracting goals that are identical. Specifically, both establish statewide participation contracting goals of not less than 3% for DVBE firms based on the overall dollar amount expended each year by each awarding department. Under Public Contract Code Section 10115, contracts awarded by state entities for professional bond services, construction, and acquisition of materials, supplies, and services are required to have annual statewide participation goals of not less than 15% for minority-owned firms, not less than 5% for women-owned firms, and not less than 3% for DVBEs. Public Contract Code Section 10115(c) stipulates that these goals apply to the SB 159 Page 4 overall dollar amount "expended" each year by the awarding department, as defined. [These statutes have essentially been rendered inoperative as a result of the U.S. 9th Circuit Court of Appeals decision - Monterey Mechanical v. State of California. Unaffected by that court order are contracting preferences for DVBEs.] Under Military and Veterans Code Section 999.2(a), contracts awarded by any state agency, department, officer, or other state governmental entity, including school districts when they are expending state funds for construction, professional services, materials, supplies, equipment, alteration, repair, or improvement are required to have statewide participation goals of not less than 3% for DVBEs. These goals apply to the overall dollar amount "expended" each year by the awarding department. Prior/Related Legislation SB 839 (Correa, 2014), among other things, would have established new requirements for the methodology state departments use to track DVBE participation in their contracts and to report the data to DGS. Also, with respect to contracts with DVBE prime contractors, would have required that the contracting activity report concerning participation by DVBEs in state contracts include actual dollar amounts expended annually on contracts pursuant to the DVBE program. (Held in the Senate Appropriations Committee) SB 719 (Correa, 2013) would have required awarding departments that used the Financial Information System for California to report statewide participation goals for the DVBE program in the amount expended to DVBEs. (Held in the Assembly Appropriations Committee) FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No SUPPORT: (Verified 5/12/15) AMVETS, Department of California SB 159 Page 5 American Legion, Department of California California Association of County Veterans Service Officers California State Commanders Veterans Council Disabled Veteran Business Alliance Military Officers Association of America, California-Council Service Disabled Veteran-Owned Small Business Network Veterans of Foreign Wars, Department of California Vietnam Veterans of America, California State Council Numerous small DVBE firms OPPOSITION: (Verified 5/12/15) None received ARGUMENTS IN SUPPORT: Proponents claim that "over the years far too many state agencies have been reporting their compliance with the DVBE contract participation goal in the form of total dollars awarded, instead of total dollars expended, as required by the Military & Veterans Code. Such practice is unacceptable and has allowed the Department of General Services to inflate the actual DVBE goal attainment." Proponents believe that "SB 159 will clarify existing law so that only dollars that are actually spent with DVBE firms are reported for DVBE contracting goal compliance purposes." Prepared by:Arthur Terzakis / G.O. / (916) 651-1530 5/15/15 15:24:26 **** END ****