BILL ANALYSIS �
AB 674
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Date of Hearing: January 7, 2014
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
Jose Medina, Chair
AB 674 (Quirk-Silva) - As Amended: January 6, 2014
SUBJECT : Definition of a Microenterprise and a Microenterprise
Development Organization
SUMMARY : Updates the definition of microenterprise and
microenterprise development organization to more accurately reflect
industry practices. Specifically, this bill :
1)Specifies that the owner of a microenterprise may be employed by
another firm including full or part-time.
2)Adds a limited liability company to the list of legal structures
under which a microenterprise may be organized.
3)Modifies the requirement that a microenterprise generally lacks
access to capital by stating that the microenterprise lacks
"sufficient" access to capital.
4)Removes the specific list of examples of microenterprises.
5)Makes technical and conforming changes to the definition of a
microenterprise development organization.
EXISTING LAW defines "microenterprise" as a sole proprietorship,
partnership, or corporation with fewer than five employees, including
the owner, and generally lacking access to conventional loans, equity,
or other banking services.
FISCAL EFFECT : None
COMMENTS :
1)The Role of Microenterprise within the California Economy : Business
owners, with no employees make up the single largest component of
California firms, 2.8 million out of an estimated 3.5 firms in 2010.
Microenterprises, meaning businesses with less than five employees
represent approximately 93% of all businesses in the state, or
approximately 3.2 million of all businesses. These non-employer and
smallest size firms create jobs, generate taxes, and revitalize
communities. Common types of microenterprises consist of business
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enterprises that provide both goods and services including
engineering, computer system design, housekeeping, construction,
landscaping, clothing production, and personnel services.
In challenging economic times, these smallest size businesses have
functioned as economic engines. As an example, during the nation's
economic downturn from 1999 to 2003, microenterprises 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 this
most recent recession the trend continued, with the number of
non-employer firms increasing from 2.6 million firms reporting $137
billion in revenues for 2008 to 2.8 million firms reporting $138
billion in revenues for 2010. In the post-recession economy, these
businesses are expected to become increasingly important due to
their ability to be more flexible and better suited to meet niche
market needs.
However, their small size also results in certain market challenges,
including, but not limited to, having difficulty in meeting the
traditional credit and collateral requirements of mainstream
financial institutions. Specialized technical assistance, access to
microloans, regulatory flexibility, and collaborative marketing
opportunities can help many microenterprises overcome or at least
minimize these difficulties.
2)Microenterprise and Income Disparity: In the past several decades,
the disparity between the most wealthy households in the U.S. and
those with the least income have widened. A 2011 Congressional
Budget Office (CBO) report on after-tax incomes of American
households illustrates several key outcomes from shifts in public
policy and changes in domestic and global markets.
First, the CBO report confirmed the disparity in income growth
between certain households. Between 1979 and 2007, income for
households at the higher end of the income scale rose much more
rapidly than income for households in the middle and at the lower
end of the income scale. Most significantly, by the end of the
report period (2005 and 2007), the after-tax income received by the
top 20% exceeded the after-tax income of the remaining 80%. The
chart below illustrates the CBO's findings in more detail.
------------------------------------------------------------
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| After-Tax Income Growth 1979 to 2007 |
------------------------------------------------------------
|-----------+-------------+--------------+-------------------|
| Income | Income | Percentile | Percentage Growth |
| Bracket | Earners | | |
|-----------+-------------+--------------+-------------------|
| 1 |Top 1% | 100th | 275%|
|-----------+-------------+--------------+-------------------|
| 2 |Next 20% | 81st to 99th | 65%|
|-----------+-------------+--------------+-------------------|
| 3 |Next 60% | 20th to 80th | 40%|
|-----------+-------------+--------------+-------------------|
| 4 |Bottom 20% | 1 to 19th | 18%|
------------------------------------------------------------
------------------------------------------------------------
| Source: Trends in the Distribution of House Income Between |
|1979 and 2007,3 Congressional Budget Office, 2011 |
------------------------------------------------------------
The two primary reasons for the increase in income disparities were
the uneven distribution in the sources of household income and the
differing economic circumstances of those sources during the 28-year
report period. Households in the higher income brackets (1 & 2)
received a majority of their income through capital gains and
business income, which as a share of total income increased in
value, while individuals in the bottom two brackets (3 & 4) received
a majority of their income from labor income and capital income,
which decreased in value. In the recession, this income disparity
continued to increase, in part, because of the impact of long term
unemployment on wages, a core component of labor income, and rental
rates, a core component of capital income.
The findings in the report suggest that policies that inhibit access
to self-employment and microenterprise development reinforce the
trend in income disparities and, conversely, policies which break
down barriers and support greater access to capital and small
business formation, especially to historically underserved
populations, could begin to break the trend. AB 674 updates a key
definition in this import policy discussion.
3)Related legislation from previous sessions : Below is a list of
related bills.
a) AB 165 (Carter) Self-Employment Training : This bill would
have required the California Workforce Investment Board to
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develop guidelines for entrepreneurial training by January 1,
2011. The bill would have also added legislative intent on the
importance of all Californians having access to training related
to self-employment and entrepreneurship. Status: Held in the
Senate Appropriations Committee, 2009.
b) AB 285 (Brown) Technical Assistance for Microenterprises :
This bill would have required the California Workforce Investment
Board to develop guidelines for entrepreneurial training by
January 1, 2015. The bill would have also added legislative
intent on the importance of all Californians having access to
training related to self-employment and entrepreneurship.
Status: Vetoed by the Governor, 2013.
c) AB 816 (Carter) Technical Assistance for Microenterprises :
This bill would have established a $5 million grant program to
assist microenterprise development organizations offer capacity
building services to microentrepreneurs. Status: Held in the
Senate Appropriations Committee, 2007.
d) AB 1209 (Yee) Technical Assistance for Microenterprises : This
bill would have established a $5 million grant program to assist
microenterprise development organizations offer capacity building
services to microentrepreneurs. Status: Held in the Senate
Appropriations Committee, 2006.
a) AB 2998 (Carter) Self-Employment Training : This bill would
have required the California Workforce Investment Board to
develop guidelines for entrepreneurial training by January 1,
2010. The bill would have also added legislative intent on the
importance of all Californians having access to training related
to self-employment and entrepreneurship. Status: Held in the
Senate Appropriations Committee, 2008.
a) SB 446 (Yee) Technical Assistance for Microenterprises : This
bill would have established a $500,000 grant program to assist
microenterprise development organization offer capacity building
services to microentrepreneurs. Status: Held in the Senate,
2008.
REGISTERED SUPPORT / OPPOSITION :
Support
None received
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Opposition
None received
Analysis Prepared by : Toni Symonds / J., E.D. & E. / (916) 319-2090