BILL ANALYSIS �
SB 497
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Date of Hearing: July 13, 2011
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
SB 497 (Rubio) - As Amended: June 20, 2011
Policy Committee: Business and
Professions Vote: 6-3
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill provides a 5% preference on certain state contracts to
contractors employing predominantly California workers.
Specifically, this bill:
1)Requires that a 5% bid preference be provided-on state
contracts for goods, not including technology-to
California-based contractors who certify that 90% of their
employees performing work on a contract are residents of the
state.
2)Requires the Department of General Services (DGS) to establish
a process for verifying that a business qualifies for the 5%
preference.
FISCAL EFFECT
1)Unknown but significant annual state costs (General Fund and
special funds), potentially in the millions to tens of
millions of dollars, to the extent state contracts are awarded
to other than the lowest bidder due to the preference. Also,
to the extent the bill dissuades some businesses from bidding
on state contracts, costs could increase due to reduced
competition. (According to DGS, in the last three years, state
contracting for goods-defined in statute as all types of
tangible personal property-has averaged $1.4 billion.)
2)To the extent application of the bid preference results in
more employment of California residents, the increased state
costs would be offset to some extent by increased income and
sales tax revenues.
SB 497
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3)Significant administrative costs for state contracting
agencies to verify compliance with the 90% residency
requirement for successful bidders that receive the bid
preference. DGS would incur ongoing costs exceeding $1
million for this work, including auditing compliance. State
agencies with significant contracting workload would also
incur some administrative costs.
COMMENTS
1)Background . Current law provides circumstances where bidders
on state contracts can have their bids discounted by 5% in
order to make them more competitive in obtaining contract
awards. Preferences up to a maximum of $50,000 can be given
for small businesses, businesses in economically distressed
areas, and disabled veteran business enterprises.
2)Purpose . According to the author's office, with the state
suffering from large and ongoing unemployment, and the
manufacturing sector specifically losing 34% of its overall
jobs, this bill will create an incentive for contractors
wishing to bid on state contracts to hire California workers
and bring much needed job opportunities to the state's
workforce.
3)Opposition . The California Chamber of Commerce argues the bill
will limit bidders, thus reducing competition and driving up
prices on state contracts. The chamber is also concerned about
retaliatory policies from other states that could negatively
impact California companies.
4)Prior Legislation . In 2010, SB 967 (Correa), similar
legislation that applied to contracts for goods and services
exceeding $1 million, was vetoed by Governor Schwarzenegger
for reasons that mirrored the opposition arguments. In 2005,
similar legislation (AB 1654, De La Torre), was held on this
committee's Suspense File.
Analysis Prepared by : Chuck Nicol / APPR. / (916) 319-2081