BILL ANALYSIS �
AB 674
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ASSEMBLY THIRD READING
AB 674 (Quirk-Silva)
As Amended January 14, 2014
Majority
ECONOMIC DEVELOPMENT 8-0
--------------------------------
|Ayes:|Medina, Mansoor, Campos, |
| |Daly, Fong, Fox, Linder, |
| |Melendez |
| | |
--------------------------------
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)Updates the list describing the kinds of capital a
microenterprise may require during the normal course of
business.
4)Removes the specific list of examples of microenterprises.
5)Makes other technical and conforming changes.
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 : Business owners, with no employees make up the single
largest component of California firms, 2.8 million out of an
estimated 3.5 million 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
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and smallest size firms create jobs, generate taxes, and
revitalize communities. Common types of microenterprises
consist of business 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.
Microenterprise and Income Disparity : Income disparity between
the most wealthy households in the U.S. and those with the least
income has widened. A 2011 Congressional Budget Office (CBO)
report on after-tax incomes of American households confirms this
statement and makes several key findings.
According to the CBO report, 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
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in more detail.
--------------------------------------------------------------
| 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% | 1st 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 and 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 and 4) received a majority of their income from
labor income and capital income, which decreased in value.
During the recession, these financial dynamics would have likely
continued, driven by high unemployment (core component of labor
income), and lower rental rates (core component of capital
income).
The findings in the CBO report suggest that policies that
inhibit access to self-employment and microenterprise
development limit wealth creation among low and middle-income
households 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. This bill updates a key
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definition in this import policy discussion.
Analysis Prepared by : Toni Symonds / J., E.D. & E. / (916)
319-2090
FN: 0002952