BILL ANALYSIS
SENATE COMMITTEE ON VETERANS AFFAIRS
JEFF DENHAM, CHAIRMAN
Bill No: AB 2249
Author: Ruskin
Version: As amended May 11, 2010
Hearing Date: June 22, 2010
Fiscal: Yes
SUBJECT OF BILL
Small Business and Disabled Veteran Business Enterprise
(DVBE) certification.
PROPOSED LAW
1. Add section 14840 to the Government Code, which
does the following:
requires a small business or DVBE to declare,
under penalty of perjury, that material submitted to
receive a government contract is truthful;
allows the Department of General Services (DGS)
to request IRS form 4506-T (Transcript of Tax
Return) with "just cause";
defines just cause;
requires a 3% participation goal; and
recodifies Military and Veterans' Code (MVC)
section 999.2 into 14840 of the Government Code.
1. Amends MVC section 999.2 to allow DGS to request an
IRS form 4506-T if the department receives a complaint
that the DVBE is a fraudulent business or if DGS finds
reason to request one due to findings while reviewing
the business.
EXISTING LAW AND BACKGROUND
1. Since 1989, California has encouraged a three
percent set aside on state contracts.
2. In the early 2000s, rampant fraud was exposed in
the program and the state legislature has attempted to
close fraud loopholes ever since.
3. Among other forms of fraud were "pass through"
companies that did not manufacture or compete in the
market place but only added their mark up to the
state's price for commodities.
AB 669 of 2003 (Cohn) codified the requirement for a
DVBE to perform a "commercially useful function"
(CUF).
4. Another form of fraud that had been detected was
the use of Limited Liability Corporations (LLC) that
were used to hide the fact that disabled veterans were
no longer owners of companies in spite of the fact
that the state was awarding contracts to those
companies as part of the DVBE program.
SB 1008 of 2003 (Machado) eliminated LLC for DVBEs
unless the company was 100% owned by disabled
veterans.
5. One of the main tools in determining fraud is the
tax return, which would reveal from the revenue
reported if a DVBE is or is not receiving money from
an LLC and/or performing a CUF.
6. Fraud also came in the disguise of "equipment
brokering." SB 1008 of 2003 (Machado) also eliminated
counting brokered equipment costs towards satisfying
the DVBE goal.
COMMENT
1. Tax returns are vital in determining whether or not
a DVBE is functioning as a legitimate business rather
than being used as a front by a bigger company in
order to obtain state contracts.
This bill allows DGS to view tax returns at any time
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to verify the legitimacy of a DVBE.
2. The reason for codifying MVC 999.2 into the
Government Code is to make those penalties uniformly
apply to small businesses, micro businesses, and DVBE.
PRIOR ACTIONS
Assembly Jobs 9-0
Assembly Appropriations 16-0
Assembly Floor 63-0 (Consent)
SB 1008 of 2003 (Machado)
Senator Denham Aye 9/10/2003
Senator Cedillo Aye 9/10/2003
Assemblymen Correa Aye 9/8/2003
Assemblywoman Negrete-McLeod Aye 9/8/2003
Assemblyman Wyland Aye 9/8/2003
AB 669 of 2003 (Cohn)
Senator Denham Aye 9/2/2003
Senator Cedillo Aye 9/2/2003
Assemblyman Correa Aye 5/15/2003
Assemblywoman Negrete-McLeod Aye 5/15/2003
Assemblyman Wyland Aye 5/15/2003
SUPPORT
None received
OPPOSE
None received
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