BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
967 (Correa)
Hearing Date: 4/26/2010 Amended: A I
Consultant: Bob Franzoia Policy Vote: GO 7-0
_________________________________________________________________
____
BILL SUMMARY: SB 967 would require a state agency that accepts
bids or proposals
for contracts for goods or services, or for the distribution of
funds pursuant to the federal American Recovery and Reinvestment
Act of 2009, to provide a credit of five percent of the bid
price or quotation to a business that directly provides the
goods or services, when 90 percent of the employees of the
business performing work on the contract reside in the state.
This bill would require the Department of General Services
(DGS), by January 1, 2011, using existing resources, to
establish a process to verify that a business meets the criteria
for the five percent credit.
_________________________________________________________________
____
Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12 2012-13 Fund
Bid preference Unknown, but significant annual state
costs, General/
potentially in the millions to tens of
millions Special/
of dollars, to the extent state contracts
are Federal*
awarded to other than the lowest bidder
due
to the preference. Also, to the extent
the
residency requirement dissuades
contractors
from bidding on state contracts, costs
may
increase due to reduced competition.
Contract administrationUnknown, but significant costs to
determine General/
compliance with the residency
requirement. Special/
Federal
* American Recovery and Reinvestment Act funds
_________________________________________________________________
____
STAFF COMMENTS: This bill meets the criteria for referral to the
Suspense File.
Staff notes the Legislature adopts the Budget Act every year
based on workload assumptions and legislative priorities for
spending. The Appropriations Committee cannot assume that
additional workload can be undertaken within existing resources
without displacing other activities the Legislature has
explicitly or implicitly recognized in adopting the annual
Budget Act. In addition, as most departments have experienced
budget reductions and staff furloughs in recent years, it has
become more difficult for state agencies to undertake additional
responsibilities within existing resources. Thus, while this
bill directs DGS to establish a process to verify that a
business meets the criteria for the five percent credit, these
costs are not absorbable. Any additional activities required by
legislation will likely result in the delay or elimination of
other duties within DGS.
Page 2
SB 967 (Correa)
Preferences can currently be given for small business in
general, disabled veteran owned business enterprises, for small
businesses in economically targeted areas, and for businesses,
regardless of size, located in economically distressed areas.
The maximum amount provided for each qualifying bidding
preference is $50,000 with a total bid maximum of $100,000.
Thus, a contractor with a bid of up to $100,000 higher than the
lowest bid can be awarded the contract if he or she qualifies
for two bidding preferences.
The following 11 entities are exempt from the provisions of this
bill:
Bureau of State Audits
California Earthquake Authority
California Public Employees' Retirement System
California State Lottery Commission
California State Teachers' Retirement System
California State University
Community Colleges
Judicial Council
Legislative Data Center
Prison Industry Authority
University of California
This bill proposes to amend Chapter 2 of Part 2 of Division 2 of
the Public Contracts Code, which does not apply, for example, to
the UC or the CSU which are governed by Chapter 2.1 and 2.5,
respectively.
DGS estimates costs of up to $1.3 million annually to administer
the provisions of this bill as DGS will be required to determine
if a bidder is eligible for this preference, enforce compliance
with the preference once awarded, and provide technical
assistance. It is estimated that this would require up to ten
staff analysis positions and two supervisors equally distributed
between technical assistance and compliance. While the bill
specifies that the DGS must use existing resources, the DGS
would have to charge other state agencies to recoup this
expense. Staff recommends this bill be amended to strike the
requirement that DGS establish a verification process within
existing resources.
California residents currently conduct a substantial amount of
the labor required for completing services contracts, and a
majority of the labor for completing goods contracts. Over the
past three years, the average amount of state contracting for
goods was $1.4 billion, and services were $5.7 billion.
Depending how the provisions of this bill are implemented, the
state could incur costs of up to $250 million in excess charges
from the residency preference. Conversely, this figure could be
substantially lower if the maximum limits imposed by Government
Code Section 4535.2 apply, that is, the combined cost of
preferences and incentives granted pursuant by any provision of
law may not exceed $100,000.