BILL ANALYSIS
AB 1771
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Date of Hearing: April 20, 2010
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
V. Manuel Perez, Chair
AB 1771 (Mendoza) - As Amended: April 12, 2010
SUBJECT : Public Contracts: Prison Industry Authority
SUMMARY : Provides that the requirement to purchase Prison
Industry Authority (PIA) products shall not restrict state
agencies from entering into purchase orders of $25,000 or less
with California certified small businesses (CSBs),
microbusinesses, or disabled veteran business enterprises
(DVBEs) and that this subdivision shall only apply to contracts
for products provided at a lower price than the price available
from the PIA. Also, specifies that this subdivision shall only
apply to contracts for products provided at a lower price than
the price available from the PIA.
EXISTING LAW
1)Establishes the PIA within the California Department of
Corrections (CDC) for the purpose of employing and training
prison inmates with good work habits, job skills for when they
parole.
2)Authorizes the PIA to operate industrial, agricultural, and
service enterprises which provide products and services needed
by the state, or any political subdivision thereof, or by the
federal government, or for any other public use.
3)Authorizes products purchased by state agencies to be offered
for sale to inmates of the CDC and to any other person under
the care of the state who resides in state-operated
institutional facilities.
4)Requires that all items authorized to be produced shall be
purchased at the prices fixed by the PIA. State agencies shall
make maximum utilization of these products, and shall consult
with the staff of the authority to develop new products and
adapt existing products to meet their needs.
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FISCAL EFFECT : Unknown
COMMENTS :
1)Author's purpose : The PIA is a prison inmate work program
created in 1983 to develop profitable enterprises while
helping inmates gain marketable job skills. The PIA currently
employs approximately 5,900 inmates at 22 prisons. Penal Code
Section 2807 requires state agencies to purchase products made
by PIA, regardless of the price. According to the author, the
PIA mandate drives up state costs and unnecessarily reduces
business opportunities for CSBs, microbusinesses and DVBEs.
This bill simply cushions the impact of the PIA mandate by
allowing state agencies to enter into contracts of $25,000 or
less with CSBs, DVBEs and microbusinesses, but only if the
products are provided at a lower price than those available
from the PIA. AB 1771 will promote the interests of small
businesses while preserving the substantial economic
advantages the PIA has by selling products to state agencies
that are required to buy from them. This bill introduces a
small measure of competition and allows state agencies greater
flexibility in determining which vendors meet their needs at
the best price.
2)Prison Industry Authority: The PIA was established in 1983 to
reduce the operating costs of the CDC and to offer inmates the
opportunity to develop effective work habits and occupational
skills, with the goal of ultimately being self-supporting. It
currently operates under the guidance of an 11 member board
consisting of representatives from industry, labor, state
agencies and the general public.
The most recent available data is for fiscal year 2008-09. As
of July 2009 the PIA operated 23 manufacturing, service and
agricultural enterprises within 60 factories and farms located
at the 23 of the State's 32 correctional institutions.
Revenues in FY 2008-09 were reported at $234 million.
The authority for purchasing goods and services for state
government generally resides with DGS. However DGS can
delegate its purchasing authority to state agencies. When
delegating its authority, DGS instructs state agencies to
first consider if their needs can be met by PIA. Currently,
state law not only requires that state agencies make maximum
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use of PIA products, but also directs the state agencies to
work with PIA to develop additional products to meet their
needs.
3)Reports and Audits on the PIA : Since 1998, seven reports and
audits have been conducted on the PIA, including three audits
by the California State Auditor. The reports and audits
generally conclude that the PIA can improve its pricing
practices, such as having a more reasonable and consistent
product cost, maintaining better documentation to justify
product pricing and implementing a policy for special discount
prices. Audits and reports also recommend that the PIA
establish outcome oriented goals that can measure the
program's effectiveness in employing and training inmates.
4)California Small Business : California's dominance in many
economic areas is based, in part, on the significant role
small businesses play in the state's $1.8 trillion economy.
Businesses with fewer than 100 employees comprise nearly 98%
of all businesses, and are responsible for employing more than
37% of all workers in the state.
As an example, small- and medium-sized businesses are crucial
to the state's international competitiveness and are an
important means for dispersing the positive economic impacts
of trade within the California economy. Of the over 52,000
companies that exported goods from California in 2006, 95%
were small- and medium-sized enterprises (SME) with fewer than
500 employees. These SMEs generated nearly half (44%) of
California's exports in 2006. Nationally, SMEs generated only
29% of total exports.
Historically, small businesses have functioned as economic
engines, especially in challenging economic times. During the
nation's economic downturn from 1999 to 2003, microenterprises
(businesses with less than five employees) created 318,183 new
jobs representing 77% of all employment growth, while larger
businesses with more than 50 employees lost over 444,000 jobs.
From 2000 to 2001, microenterprises created 62,731 jobs in
the state, accounting for nearly 64% of all new employment
growth. Unfortunately, during the current recession, small
businesses have been especially hard hit, with small business
bankruptcies up 81% for the 12 months ending September 2009,
as compared to the same period in the previous year.
Nationally, bankruptcy filings were up 44%, according to
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Equifax Inc.
Because of their importance in the state economy, small
business issues have been a particular focus of the Assembly
Committee on Jobs, Economic Development and the Economy (JEDE)
for the past several years. In March 2009, JEDE produced a
state economic recovery strategy that included several key
recommendations on the needs of small business, including
helping small businesses meet their short term capital needs.
In May 2009, JEDE held a special hearing to learn more about
how the recession was impacting small businesses and in
October, JEDE's review of the California Enterprise Zone
Program included a panel on how the program responds to needs
of small business.
5)The Small Business Act : The Small Business Act, administered
through DGS, was implemented more than 30 years ago to
establish a small business preference within the state's
procurement process for the purpose of increasing the number
of contracts between the state and small businesses.
In 1989, a DVBE component was established within the Small
Business Act to address the special needs of disabled veterans
seeking rehabilitation and training through entrepreneurship
and to recognize the sacrifices of Californians disabled
during military service. Under the requirements of the DVBE
program, each state agency is required, in awarding contracts
throughout the year, to honor California's disabled veterans
by taking all practical actions necessary to meet or exceed an
annual 3% DVBE participation goal.
Since 2001, there have been four Executive Orders (EOs) and a
number of statutory advancements made to strengthen the Small
Business Act, including SB 115 (Florez), Chapter 451, Statutes
of 2005, which required DGS to establish a DVBE incentive
program for state contracts; and AB 761 (Coto), Chapter 611,
Statutes of 2007, which specifically codified the 25% small
business participation goal for contracts related to revenues
expended from the 2006 infrastructure bonds.
Despite the longstanding existence of the Small Business Act,
statutory upgrades, and EOs, the state's success in obtaining
small business and DVBE participation goals in state
procurement contracts has been inconsistent.
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Only twice since the small business participation target was
established in 2001 through EO has DGS reported that the state
achieved its 25% goal. In fiscal year 2007-08 the state did
not achieve its small business target, as it only awarded
23.84%, or $2.62 billion, of the value of all contracts to
small businesses. Although procurement contract awards were
down in 2007-08, there was an increase in the amount of
contract dollars awarded. The state also did not achieve its
3% DVBE participation goal in 2006-07; the most recent numbers
show a decrease from 2.8% to only 2.39% DVBE contracts awarded
in 2007-08 and the state, again, saw an increase in awarded
contract DVBE dollars to more than $194 million.
6)Related Legislation : The following is a list of related
bills.
a) SB 1130 (Aanestad) Corrections: PIA - This bill will
make a nonsubstantive change to that provision. Status:
Pending in Senate Appropriations Committee.
b) SB 467 (Dutton) PIA Public Contracts - This bill
authorizes agencies and departments to award contracts for
less than $25,000 for goods or services by California
certified small businesses, microbusinesses, or Disabled
Veteran Business Enterprises without seeking an exemption
from the PIA mandate. Status: Held on suspense by Senate
Appropriations Committee.
c) SB 1397 (Negrete McLeod) PIA Procurement - This bill
would have required the PIA in procuring the purchase of
raw materials, component parts, and goods and services to
comply with certain provisions of law that give priority to
small businesses and disabled veteran business enterprises
in awarding contracts. Status: Held in Senate Public
Safety Committee at request of author.
d) SB 2567 (Correa) Omnibus Committee Bill - This bill made
technical and conforming changes related to state contracts
and repealed the yearly reporting requirement by 12
specified state agencies to DGS on their use of goods
provided by the PIA. Status: Signed by the governor,
Chapter 951 Status of 2002.
7)Double Referral : Should AB 1771 be recommended "do pass" from
the Assembly Committee on Jobs, Economic Development, and the
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Economy, this measure will be referred to the Assembly
Committee on Public Safety for additional consideration.
REGISTERED SUPPORT / OPPOSITION :
Support
California Chamber of Commerce
California Correctional Supervisors Organization
California Peace Officers Association
California Police Chiefs Association
Coalition of Small Disabled Veteran Businesses
CB Enterprises
Small Business California
Opposition
None Received
Analysis Prepared by : Mercedes Flores / J., E.D. & E. / (916)
319-2090