BILL ANALYSIS �
AB 2672
Page 1
Date of Hearing: April 17, 2012
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
V. Manuel P�rez, Chair
AB 2672 (Jobs, Economic Development, and the Economy Committee)
- As Amended: March 5, 2012
SUBJECT : State contract reporting: enterprise zones
SUMMARY : Increases communication between the Department of
General Services (DGS) and the Housing and Community Development
Department (HCD) for purposes of implementing the state's
enterprise zone program. Specifically, this bill :
1)Requires awarding state agencies to prepare a yearly report to
the DGS on the level of participation by enterprise zones
businesses in contracts.
2)Requires the DGS to report to HCD aggregate figures for the
level of participation by enterprise zone businesses in
contracts.
EXISTING LAW:
1)Requires DGS to submit a report to the Legislature every five
years that evaluates the effect of the Enterprise Zone program
on employment, investment, and incomes, and on state and local
tax revenues in designated enterprise zones.
2)Establishes a 5% state preference for goods contracts in
excess of $100,000 for companies that certify that at least
50% of the hours required to accomplish the contract are
completed in worksites located in an enterprise zone.
3)Establishes a 5% state preference for service contracts in
excess of $100,000 for companies that certify that at least
90% of the labor hours required to perform the contract are
completed in worksites located in an enterprise zone.
4)Awards, where a company complies with the above preferences,
an additional preference for companies that employ persons
residing in a targeted employment area as follows:
a) A 1% preference for companies that hire between 5-9% of
their workforce from the targeted employment area.
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b) A 2% preference for companies that hire between 10-14%
of their workforce from the targeted employment area.
c) A 3% preference for companies that hire between 15-19%
of their workforce from the targeted employment area.
d) A 4% preference for companies that hire above 20% of
their workforce from a targeted employment area.
1)Provides that companies can obtain a maximum 15% preference
from combined preference programs.
2)Requires HCD to administer the state enterprise zone program.
FISCAL EFFECT : Unknown
COMMENTS :
1)Author's purpose : According to the author, "As written, the
bill requires the Department of General services to report to
the Housing and Community Development Department the
participation of small businesses located in enterprise zones.
Absent this change, the public has no way of knowing how many
small business preferences are being allocated to businesses
in enterprise zones."
2)Overview of enterprise zones and other geographically-targeted
economic development areas : The California Enterprise Zone
Program and the other geographically-targeted economic
development areas (G-TEDAs) represent the state's primary
economic development programs in California. Eligibility for
G-TEDA designation is limited to areas within communities that
can demonstrate blighted conditions such as high poverty or
high unemployment rates.
HCD administers four G-TEDA programs including: Enterprise
Zones (EZs), Manufacturing Enhancement Areas (MEAs), Local
Agency Military Base Realignment Areas (LAMBRAs), and the
Targeted Tax Area (TTA).
G-TEDA programs are based on the principle that targeting
significant economic incentives to low-income communities
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allows these communities to more effectively compete for new
businesses and retain existing businesses, resulting in
increased tax revenues, less reliance on social services, and
lower public safety costs. Residents and businesses directly
benefit from these more sustainable economic conditions
through improved neighborhoods, business expansion, and job
creation.
The 42 EZs, eight LAMBRAs, two MEAs and one TTA are located in
portions of 54 Assembly Districts and 34 Senate Districts.
Each zone designation is for a period of 15 years, although
the initial zones were given an additional five years due to
the slow start-up of the program. No other extensions have
been authorized.
G-TEDAs range in size from one square mile to over 70 square
miles and in geographic locations ranging from Eureka and
Shasta Valley near the Oregon border to San Diego and Calexico
along the Mexican border. With the approval of the 2006
reforms, each designated area is governed by a comprehensive
economic strategy that details local government commitments,
benchmarks, and baselines.
3)Overview of the national and California economy :
Post-recession analysis traditionally divides the economic
cycle into two stages: recovery and expansion. Recovery
describes the period of GDP growth occurring after the economy
hits bottom, or the "trough," and gives way to expansion when
GDP growth surpasses its previous peak. Given this
definition, the national economy entered the expansion phase
of the economic cycle during the third quarter of 2011, when
annualized GDP reached $13.38 trillion, surpassing the
previous GDP peak of $13.36 trillion in the fourth quarter of
2007. At a more practical level, the US economy added an
average 152,000 net new jobs a month in 2011. In December
2011 and January 2012, however, the economy added 203,000 and
243,000 net new jobs respectively, pushing national
unemployment down to 8.3%.
At the state level, the California economy has also been
improving at a steady pace. Between 2010 and 2011,
unemployment fell from a high of 12.4% to 11.8% in 2011. In
January 2012 the unemployment rate fell even further to 10.9%,
its lowest rate in three years. In terms of nonfarm jobs
gains from 2010 to 2011, the state outperformed the national
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labor market with 1.4% growth compared to 1.2% nationally. In
fact, the state registered job growth across most industries
with the largest percentage gains coming from Information,
Education, and Administrative Support Services. Only Real
Estate and Leasing, Government, Management of Enterprises and
Other Services saw continued job losses in 2011 but on a
smaller scale than previous years.
In terms of international trade, the state continued to see
sustained growth with the value of two-way trade increasing
11.9% from 2010 (based on year-to-date data from January
through November 2011). The rate was slower than the increase
registered in 2010 when the value of two-way trade surged
21.6% over 2009. In 2011, however, the value of imports grew
by 11% while the value of exports through the state's custom
districts rose by 13.8%. It should be noted that while
exports only accounted for a third of the value of two-way
trade, they suffered a smaller decline through the recession
and have come back more strongly than imports as demand from
Asian trading partners continues to be strong.
According to the March 2012 UCLA Anderson Forecast, state
unemployment should improve to an average of 9.8% in 2013.
Overall, the Forecast calls for a steady decrease in the
California unemployment rate over the next two years,
following a slow trajectory towards single-digit unemployment
by the end of 2013 and reaching 7.7% by the end of 2014. In
addition, according to Chapman University's A. Gary Anderson
Center for Economic Research, the California Composite Index,
a measure of overall manufacturing activity, increased to 60.3
in the second quarter of 2012, up from 56.6 during the first
quarter. Historically, readings above 50 indicate expansion
in the manufacturing sector. This is significant because,
according to an analysis by the Milken Institute, for every
job created in manufacturing, 2.5 jobs are created in other
sectors. At the upper bound, electronic computer
manufacturing has a multiplier effect of 16 jobs.
4)Small business : California's dominance in many economic areas
is based, in part, on the significant role small businesses
play in the state's $1.9 trillion economy. Businesses with
1-99 employees comprise nearly 98% of all businesses, and they
are responsible for employing more than 37% of all workers in
the state.
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Small 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. California small businesses comprise 96% of the
state's 60,000 exporters in 2009, which accounted for over 44%
of total exports in the state. Nationally, small businesses
represented only 31.9% of total exports. These numbers
include the export of only goods and not services.
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 fewer than five employees) created 318,183
new jobs or 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.
In fact, according to the Small Business Administration's
Small Business Economy 2011, small businesses nationally
outperformed large firms in net job creation nearly three out
of four times from 1992 through 2010 when private-sector
employment rose.
During this current economic downturn, however, small business
owners have been especially hard hit. Equifax has reported
that bankruptcies in California rose by 81% in 2009, as
compared to 44% nationally. This trend continued in 2010
where the Equifax report stated that while in general
bankruptcies were down across the nation including some
regions in the west, small business bankruptcies in California
accounted for almost 20% of all small business bankruptcies in
the nation.
Moreover, according to an analysis by the Small Business and
Entrepreneurship Council, of the 34,166 businesses that failed
in California between 2007 and 2009, over 94%, or 32,160
businesses, were small businesses with less than 100
employees.
5)State procurement and small businesses : The Small Business
Act (SBA), administered through DGS, was implemented more than
30 years ago to establish a small business preference within
the state's procurement process that would increase the number
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of contracts between the state and small businesses. In 1989,
a disabled veteran owned business enterprise (DVBE) component
was added to state procurement practices.
Since 2001, there have been four Executive Orders (EOs)
specifying a 25% goal for small business and a 3% DVBE
participation goal in state procurement contracts, including
EO D-37-01 (2001), EO S-02-06 (2006), EO D-43-01(2001), and EO
S-11-06 (2006). Statutory advancements were also made to
strengthen the SBA 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 SBA, statutory
upgrades, and EOs, the state's success in achieving small
business and DVBE participation goals in state procurement
contracts has been inconsistent.
For only the third time since the small business participation
target was established in 2001, DGS has reported the state
achieved its small business target by awarding 26.88% ($2.40
billion), of the value of all contracts to small businesses in
2008-09. This represents a $2.0 billion increase in contracts
from 2007-08. The state did not achieve its 3% DVBE
participation goal in 2008-09. DVBE contract awards, however,
did increase to 2.96% (190 million) in 2008-09, up from 2.39%
in 2007-08. California awarded $182 million in small business
and DVBE contracts in 2008-09.
In order to assist state entities in reaching the small
business participation goals, contracting entities are
provided a number of specific tools, including a streamlined
procurement method, bid preferences, and lead small business
procurement contacts at every agency.
Under the streamlined procurement process, the awarding state
entity is authorized to bypass the advertising, bidding, and
protest provisions in the State Contract Act. This allows a
contract to be awarded directly to a certified small business
at a contract price established by checking the proposed rate
with two other small businesses. Contracts offered under the
streamlined procurement process are currently limited to
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contracts between $5,000 and $100,000. Of the $2.5 billion of
state contracts that were awarded to small businesses in
2008-09, $225.4 million (17,310 contracts) were awarded
through the streamlined procurement process. The actual
number may be higher as only 78 of 124 departments reported
their small business procurement activities to DGS.
Certified small business bidders and other bidders that commit
to using certified small businesses are also eligible for a 5%
bid preference where the solicitations are made either on the
basis of lowest responsible dollar bid, or on the basis of
highest score, considering factors in addition to price. A
single bid preference is limited to $50,000 and the combined
costs of preferences shall not exceed $100,000.
Another important component of the state's effort to increase
small business participation in state contracts is the work of
the Small Business Advocate and the network of small business
liaisons. Under existing law, every state agency is also
required to have a single point of contact for small business
state procurement opportunities.
6)Related legislation : Below is a list of bills related to this
measure from the current and prior legislative sessions.
a) SB 67 (Price) Small Business Participation in Public
Contracts : This bill would have authorized the Department
of General Services to direct all state entities to
establish an annual goal of achieving not less than 25%
small business participation in state procurement
contracts, as specified. Status: The bill was held on the
Suspense File of the Assembly Committee on Appropriations
2011.
b) SB 733 (Price) High-Speed Rail: Small Business Bidding
Preference : This bill requires the High-Speed Rail
Authority to include within its business plan a strategy
ensuring the participation of California small businesses
in contracts awarded during all phases of the project, as
specified. Status: The bill was held in the Senate
Committee on Appropriations 2011.
c) AB 309 (Price) Public Contracts: Small Business
Participation : This bill requires the establishment of a
25% small business participation goal for all state
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entities and directs the Department of General Services
(DGS) to monitor each agency's progress in meeting this
goal. It also required that the Office of the Small
Business Advocate receive the same progress report
information as state entities and direct DGS and the Office
of the Small Business Advocate to work collaboratively to
assist state entities in meeting their participation goal.
This goal is currently provided for in Executive Order (EO)
D-37-01 and EO S-02-06. Status: The bill was held under
submission in the Assembly Committee on Appropriations, May
2010.
d) AB 2287 (Bass) California Business Investment Service :
This bill would have established the Governor's Office of
Economic Development and set a statutory 25% annual
procurement goal for state contracts with small businesses.
Status: The bill was held in the Assembly Committee on
Appropriations, May 2010.
e) AB 655 (Swanson) Contract Limitations on Small Business
Preference : This bill would have required state
departments that award contracts pursuant to the Bond Acts
of 2006 to consider and grant bid preferences to
contractors on the basis of their status as small
businesses, the type of community they are located in, and
the number of employees they hire from their community.
Status: The bill died pursuant to Art. IV, Sec. 10(c) of
the Constitution.
f) AB 761 (Coto) Codification of the Small Business
Procurement Goal : This bill requires each state agency
awarding contracts that are financed with proceeds from the
infrastructure bonds approved by voters in November 2006 to
establish a 25% small business participation goal for state
infrastructure construction contracts, and to provide
specified assistance to small businesses bidding on state
infrastructure bond-related contracts. Status: The bill
was signed by the Governor, Chapter 611, Statutes of 2007.
g) AB 1189 (JEDE) State Contracts: Small Businesses and
Disabled Veterans : This bill would have exempted state
contracts under $100,000 that are awarded to a certified
small business, pursuant to the procurement streamlining
process, from the California State Contracts Register
advertising requirement for contracting opportunities
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funded with specified infrastructure bond proceeds.
Status: JEDE-related content removed. Bill failed passage
on the Senate Floor.
h) AB 1400 (Richardson) State Contracting and the Small
Business Preference : This bill would have required the
Regents of the University of California and the Trustees of
the California State University to each submit a report to
the Department of General Services on the number of
consulting, disabled veteran-owned business enterprise, and
small business contracts each organization awarded for each
fiscal year, on a campus-by-campus basis, and according to
a specified format. Status: JEDE-related content removed.
The bill failed passage on the Senate Floor.
i) AB 2630 (Hueso) Small Business Outreach : This bill will
requires the Department of General Services, in preparing
its report on state contracting activity, to include a list
of activities each state agency used to inform small
businesses of each of the existing preferences available
under state law, and an aggregate number of the number of
preferences used in bidding packages for the year. Status:
This bill is set for hearing on April 17th in the Committee
on Jobs, Economic Development, and the Economy.
REGISTERED SUPPORT / OPPOSITION :
Support
Assembly Committee on Jobs, Economic Development and the Economy
(Sponsor)
Opposition
None Received
Analysis Prepared by : Oracio Gonzalez / J., E.D. & E. / (916)
319-2090