BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 2249|
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THIRD READING
Bill No: AB 2249
Author: Ruskin (D)
Amended: 7/15/10 in Senate
Vote: 21
SENATE VETERANS AFFAIRS COMMITTEE : 4-0, 6/22/10
AYES: Denham, Correa, Negrete McLeod, Cedillo
NO VOTE RECORDED: Wyland
ASSEMBLY FLOOR : 63-0, 5/28/10 - See last page for vote
SUBJECT : State government: small business or disabled
veteran
Business enterprise certification
SOURCE : Author
DIGEST : This bill requires an applicant or certified
firm, during the process of certifying and determining the
eligibility of a small business or a disabled veteran
business enterprise, to submit to a written declaration,
under penalty of perjury, that all information submitted,
including the additional information for disabled veteran
business enterprises, is true and correct, and authorizes
the Department of General Services to require, in certain
cases, the owner of the enterprise or small business, the
applicant, or the certified firm to complete and submit to
a specified federal tax form requesting a transcript of a
tax return.
CONTINUED
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ANALYSIS : Existing law:
1.The Small Business Procurement and Contract Act,
encourages the participation of a small business
enterprise, including, but not limited to, a
microbusiness, or a disabled veteran business enterprise
that is certified by the Department of General Services,
in state contracts. Existing law requires those business
enterprises to submit certain information under penalty
of perjury.
2.Existing law defines "disabled veteran business
enterprise" (DVBE) for purposes of the California
Disabled Veterans Business Enterprise Program to mean a
business certified by the administering agency as meeting
specified requirements, including, among other things, in
the case of a publicly owned business, that at least 51
percent of its stock be owned by one or more disabled
veterans, or in the case of a subsidiary that is wholly
owned by a parent corporation, that at least 51 percent
of the voting stock of the parent corporation be owned by
one or more disabled veterans.
This bill:
1.Requires the Department of General Services (DGS) in the
process of certifying and determining the eligibility of
a DVBE or a small business enterprise, including a
microbusiness, require the applicant or certified firm to
submit a written declaration, under penalty of perjury,
that the information submitted to DGS is true and
correct.
2.Allows DGS, if it determines that just cause exists, to
require the owner of the disabled veteran business
enterprise, microbusiness, or small business, the
applicant, or the certified firm to complete and submit
to the department a federal Form 4506-T from the Internal
Revenue Service, United States Department of the
Treasury, requesting a transcript of a tax return.
3.Defines "just cause" as meaning either DGS receives a
complaint regarding the certified firm, or determines,
based on its findings during the course of any
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certification eligibility review of the applicant or
certified firm, that the action is necessary.
4.Requires that at least 51 percent of the stock or voting
stock of a disabled veteran business enterprise be
unconditionally owned by disabled veterans.
Background
DVBE Certification . Under the provisions of the DBVE
program, each state agency is required, when awarding
contracts throughout the year, to include DVBEs by taking
all practical actions necessary to meet or exceed the
annual three percent DVBE participation goal. In order to
become a certified DVBE, the business must adhere to
several requirements. For example, businesses must be
owned, at a minimum of 51 percent by a disabled veteran,
must be a California resident and the DVBEs home office
must be located in the U.S., just to name a few.
As part of the DVBE certification process, DVBE businesses
must re-apply for certification on a yearly basis. At the
time of re-certification, the business must submit an
application along with copies of the DVBE's income tax
returns for the previous three years. The author contends
that if complaints have been filed against the DVBE in the
prior year, then a more stringent review should be required
and the tax returns filed with the IRS should be part of
that review.
Limited success in meeting state DVBE participation goals .
The DVBE Program was established in 1989 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 provisions of the program, each state
agency is encouraged to honor California's disabled
veterans by taking all practical actions necessary to meet
or exceed the three percent DVBE state procurement
participation goal.
However, success in meeting the three percent goal has been
elusive. Even in 2007, when the state exceeded its 25
percent small business participation goal, the state only
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awarded 2.8 percent of its total contract dollars, $186
million, to contracts involving DVBE contractors and
subcontractors. Unfortunately, in 2008 DGS reported that
the DVBE contract participation rate decreased to 2.39
percent.
California's progress in meeting this three percent goal
has been further limited by a significant number of claims
that DVBEs have been fraudulently added to contracts
without any real intention that they would perform a
commercially useful function and that too many bidders were
fraudulently claiming to have made a good faith effort to
hire a DVBE without taking meaningful action to offer the
subcontract. While some progress has been made in
tightening the rules related to ensuring that DVBEs perform
a commercially useful function, little progress had been
made in strengthening the good faith effort provisions
prior to their elimination on July 28, 2009 (AB 21, 4th
Extraordinary Session, Chapter 19, Statutes of 2009).
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 percent of all businesses, and are responsible for
employing more than 37 percent 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 percent were small- and medium-sized
enterprises (SME) with fewer than 500 employees. These
SMEs generated nearly half (44 percent) of California's
exports in 2006. Nationally, SMEs generated only 29
percent 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 or 77 percent of all employment
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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 percent of all new employment
growth. Unfortunately during the current recession, small
business have been especially hard hit, with small business
bankruptcies up 81 percent for the 12 months ending
September 2009, as compared to the same period in the
previous year. Nationally, bankruptcy filings were up 44
percent, according to 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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
ASSEMBLY FLOOR :
AYES: Adams, Ammiano, Anderson, Arambula, Beall, Block,
Blumenfield, Bradford, Brownley, Buchanan, Caballero,
Charles Calderon, Conway, Cook, Coto, Davis, DeVore, Eng,
Evans, Feuer, Fletcher, Fong, Fuentes, Fuller, Gaines,
Galgiani, Garrick, Gilmore, Hagman, Harkey, Hayashi,
Hernandez, Hill, Huber, Huffman, Jones, Knight, Lieu,
Logue, Bonnie Lowenthal, Ma, Mendoza, Miller, Monning,
Nava, Nestande, Niello, Nielsen, Norby, V. Manuel Perez,
Portantino, Ruskin, Saldana, Skinner, Solorio, Swanson,
Torlakson, Torres, Torrico, Tran, Villines, Yamada, John
A. Perez
NO VOTE RECORDED: Bass, Bill Berryhill, Tom Berryhill,
Blakeslee, Carter, Chesbro, De La Torre, De Leon,
Emmerson, Furutani, Hall, Jeffries, Salas, Silva, Smyth,
Audra Strickland, Vacancy
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JA:nl 8/4/10 Senate Floor Analyses
SUPPORT/OPPOSITION: NONE RECEIVED
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