BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 1219|
|Office of Senate Floor Analyses | |
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THIRD READING
Bill No: SB 1219
Author: Hancock (D), et al.
Amended: 5/31/16
Vote: 21
SENATE GOVERNMENTAL ORG. COMMITTEE: 11-0, 4/12/16
AYES: Hall, Berryhill, Block, Gaines, Galgiani, Glazer,
Hernandez, Hueso, Lara, McGuire, Vidak
NO VOTE RECORDED: Hill, Runner
SENATE APPROPRIATIONS COMMITTEE: 7-0, 5/27/16
AYES: Lara, Bates, Beall, Hill, McGuire, Mendoza, Nielsen
SUBJECT: Small Business Procurement and Contract Act:
employment social enterprises
SOURCE: Roberts Enterprise Development Fund
DIGEST: This bill includes employment social enterprises,
which are businesses that provide jobs for individuals who face
barriers to employment, within the Small Business Procurement
and Contract Act, for the purpose of allowing them to
participate in state contracting bid preferences.
ANALYSIS:
Existing law:
1)Grants, through the Small Business Procurement and Contract
Act, preference for small businesses (SBs) and microbusinesses
(MBs) in the award of a contract for goods, services, or
information technology to the state and in the construction of
state facilities.
SB 1219
Page 2
2)Permits a state agency and the California State University to
award specified types of contracts with a value of between
$5,000 and $250,000 to a certified SB, including a MB and a
disabled veteran business enterprise (DVBE), without complying
with certain competitive bidding requirements, provided the
agency obtains price quotations from at least two SBs,
including MBs, or two DVBEs.
3)Establishes the Office of Small Business and Disabled Veteran
Business Enterprise Services and prescribes duties for the
Office, which include maintaining a bidders list of SBs and
disabled veteran businesses and noting which SBs also qualify
as MBs.
4)Prescribes penalties for SBs or MBs that provide incorrect
information or withhold information that leads to its
incorrect classification as such an entity and is awarded a
contract because of the classification. Penalties include the
repayment of the amount of the bid preference, in addition to
a penalty up to 10 percent of the contract amount,
reimbursement of the costs of investigating the fraud,
prohibiting the business to participate in state contracts for
between 3-10 years, and, if the fraud is found to be willful
and knowing, the business is subject to a civil penalty of
between $10,000-$30,000 for the first offense, and
$30,000-$50,000 for subsequent offenses.
5)Defines a "small business" (SB) to mean an independently owned
and operated business that is not dominant in its field of
operation, the principal office of which is located in
California, the officers of which are domiciled in California,
and which, together with affiliates, has 100 or fewer
employees, and average annual gross receipts of $10 million or
less over the previous three years, or is a manufacturer, as
defined, and has 100 or fewer employees.
6)Defines a "microbusiness" as a small business which, together
with affiliates, has average annual gross receipts of $2.5
million or less over the previous three years, or is a
manufacturer, as defined, with 25 or fewer employees.
7)Defines a "disabled veteran business enterprise " to mean an
SB 1219
Page 3
enterprise that is at least 51% owned by one or more disabled
veterans and the daily business operations are managed and
controlled by one or more disabled veterans. For
certification purposes a "disabled veteran" is a veteran of
the U.S. military, naval, or air service who resides in
California and has a service-connected disability of at least
10% or more.
This bill:
1)Includes employment social enterprises, which are businesses
that provide jobs for individuals who have experienced
significant barriers to employment, within the Small Business
Procurement and Contract Act for the purposes of allowing them
to participate in state contracting bid preferences.
2)Defines an "employment social enterprise" as a for-profit
business or nonprofit business that earns a majority of its
enterprise revenue from the production of goods and services
and that demonstrates evidence in its articles of
incorporation, bylaws, or both, of its mission to provide
employment with on-the-job and life skills training to a
direct labor force that is comprised of a majority of
individuals who face significant barriers to employment.
3)Defines "individuals who face barriers to employment" as one
or more of the following:
a) Individuals who have recently been released from a
federal, state, or local correctional facility, or a person
who, while not recently incarcerated, has a criminal record
or history.
b) Individuals who are, or have been, homeless, as defined
by the United Sates Department of Health and Human Services
as of January 1, 2016.
c) Youth and young adults between 16 and 24 years of age,
inclusive, who lack a high school diploma, are not enrolled
in school, and are unemployed.
4)Specifies that the bill should not become operative until July
1, 2017.
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Background
Purpose of the bill. According to the author, "research has
shown that for every dollar invested in employment social
enterprises, there is a $1.31 savings to taxpayers and every
dollar social enterprises spend has a return on investment of
$2.23 in benefits to society."
The author further argues that, "employment social enterprises
cannot meet small business requirements due to their nonprofit
status or annual number of employees. This bill would create a
business designation for employment social enterprises to secure
state business development services and procurement
preferences."
Employment Social Enterprises. Employment Social Enterprises
are mission-driven businesses focused on hiring and assisting
people who face barriers to work. Some of these barriers can
include youth and inexperience, previous incarceration,
homelessness, or mental health disorders. Most social
enterprises, in addition to employment opportunities also
provide on the job skills development, counseling and other
support such as clothing, food, and housing.
A recent report by the Mathematica Policy Research found that
for every dollar spent by a social enterprise, there was a $2.23
return on investment to society. This includes benefits to
taxpayers from reductions in government aid. The study
suggested that, "investing in the growth of social enterprises,
as well as their additional support services for workers, can
have a positive impact on people's lives, while lessening the
burden on government resources."
Small Business Procurement and Contract Act. The Small Business
Procurement and Contract Act was implemented in 1973 to
establish a SB preference within the state's procurement
process. The goal is to increase the number of contracts
between the state and SBs. The Act states that it is the policy
of the State of California to aid the interests of SBs in order
to preserve free competitive enterprise and to ensure that a
fair portion of the total purchases and contracts of the state
be placed with these enterprises.
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Upon meeting eligibility requirements, certified SBs and MBs are
entitled to a five percent bid preference on applicable state
solicitations. Certified SBs and MBs are eligible for the
State's Small Business Participation Program. The program sets
a goal for the use of SBs in at least 25% of the State's overall
annual contract dollars.
In addition, under the Prompt Payment Act, the State must pay a
certified SB or MB higher interest penalties for late payment of
an undisputed invoice. The Act also permits state agencies to
use a streamline process, known as the SB/DVBE Option, by
contracting directly with California certified SBs/MBs for
goods, services, information technology and Public Works
Projects. The solicitation must be valued at more than $5000
and the State agency must obtain price quotes from at least two
California certified SBs/MBs.
Prior/Related Legislation
SB 1176 (Galgiani, 2016) revises the definition of a SB and MB
by increasing the dollar amount threshold for a SB to $30
million and for a MB to $5 million and requires those dollar
amounts to be adjusted to reflect changes in the California
Consumer Price Index biennially. (Pending on the Senate Floor)
AB 1218 (Weber, 2015) would make significant adjustments to
contracting performance goals and program participation
reporting associated with the DVBE Program. (Held on the Senate
Suspense File)
AB 1568 (Grove, 2014) would have required state agencies that
opt to acquire goods, services, or information technology
through a specified SB/DVBE contracting option to solicit at
least three quotes, and obtain at least two quotes before
awarding the contracts. (Held on the Senate Suspense File)
SB 297 (Roth, 2014) would have increased the annual statewide
participation goal for DVBE state contracts from three percent
to five percent. (Held in the Assembly Jobs, Economic
Development and the Economy Committee)
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AB 218 (Dickinson, Chapter 699, Statutes of 2013) prohibited a
state or local agency from asking employment applicants to
disclose information regarding their conviction history until
the agency has determined an applicant meets the position's
minimum employment qualifications.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: No
According to the Senate Appropriations Committee, the Department
of General Services (DGS) would incur a one-time information
technology expense, likely in the low millions of dollars, to
implement the provisions of this bill. Additionally, DGS would
incur rulemaking expenses likely to range in the hundreds of
thousands of dollars. Finally, DGS would incur unknown ongoing,
but potentially significant costs to review and approve
applications for certification as an employment social
enterprise.
In addition, all state agencies would experience ongoing costs
associated with both the operation of the bid preference and
from administration. Because, DGS does not know many eligible
firms exists and would seek certification, these costs are
unknown.
SUPPORT: (Verified5/31/16)
Roberts Enterprise Development Fund (source)
California Association of Local Conservation Corps
California Black Chamber of Commerce
Center for Employment Opportunities
Chrysalis
Civicorps
Coalition for Responsible Community Development
Community Housing Partnership
Conservation Corps North Bay
Conservation Corps North Bay
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Fresno Economic Opportunities Commission
Fresno Local Conservation Corps
Goodwill Industries of San Francisco, San Mateo, and Marin
Counties
Goodwill of Southern California
Homeboy Industries
Jewish Vocational Services
Juma Ventures
Kingdom Causes Bellflower
L.A. Kitchen
LA Conservation Corp
Legal Services for Prisoners with Children
LittleFootprint Lighting, Inc.
Los Angeles County
Neighborhood Industries
New Door Ventures
Rubicon Programs
San Jose Conservation Corps & Charter School
The Bread Project
The Giving Keys
Third Sector Capital Partners
Urban Corps of San Diego County
Weingart Center Association
OPPOSITION: (Verified5/31/16)
None received
ARGUMENTS IN SUPPORT: The California Association of Local
Conservation Corps argues that, "currently, it is difficult for
our members to contract directly with the State because they do
not meet State small business requirements as a result of their
nonprofit status and annual number of employees. Even when the
State recognizes the benefits of contracting directly with Corps
due to their expertise and social mission, the current rules
make it virtually impossible. This bill would enable the Corps
to secure state business development services and procurement
preferences which will expand the opportunities for individuals
facing barriers to employment."
SB 1219
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Goodwill Industries argues that, "a significant contributor to
poverty is a set of barriers that keep millions of youth and
adults off career pathways. Educational failure, criminal
backgrounds, and substance abuse take millions of Americans out
of the workforce, while transportation barriers, language and
literacy, physical and mental disability, lack of affordable
child care, and homelessness prevent millions more from
achieving economic success."
Prepared by:Felipe Lopez / G.O. / (916) 651-1530
5/31/16 21:42:45
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