BILL ANALYSIS �
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|Hearing Date:June 16, 2014 |Bill No:AB |
| |2022 |
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SENATE COMMITTEE ON BUSINESS, PROFESSIONS
AND ECONOMIC DEVELOPMENT
Senator Ted W. Lieu, Chair
Bill No: AB 2022Author:Medina
As Amended:May 23, 2014 Fiscal: Yes
SUBJECT: Public contracts: Target Area Contract Preference Act.
SUMMARY: Makes changes to the Target Area Contract Preference Act
(TACPA), redefining what qualifies as an economically distressed area
and identifying those individuals or groups at a high risk of
unemployment.
Existing law:
1)Establishes the TACPA and expresses Legislative intent that it is a
benefit to the state to encourage and facilitate job maintenance and
development in distressed and declining areas of cities and towns in
California. (Government Code (GC) �� 4530 and 4531)
2)Authorizes the Department of General Services (DGS) to apply TACPA
to bids from businesses that agree to perform the contract work in
designated "distressed areas" by offering 5% worksite and 1% to 4%
workforce bidding preferences in specified state service and
commodity contracts valued in excess of $100,000. (GC � 4531)
3)Defines a distressed area to be determined by the Governor's Office
of Planning and Research (OPR) as an urban area with at least 3,000
people living in a cluster of census block groups with each meeting
at least five of eight criteria including that the census block
groups: (GC � 4532 (d))
a) Are in the upper quartile for having the least amount of
people over the age of 25 with a high school education
b) Are in the upper quartile for highest unemployment rate;
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c) Are in the lowest quartile for per capita income
d) Are in the upper quartile for having the highest percentage of
female head of households with children that live in poverty;
e) Are in the upper quartile for having the greatest percentage
of people over the age of 65 living in poverty;
f) Are in the upper quartile for having the greatest percentage
of people under the age of 18 living in poverty; and
g) Are in the upper quartile for having the highest population of
nonwhites and Hispanics.
1)Defines eligible workforce groups to include: (GC � 4532 (f) (1))
a) Economically disadvantaged youth;
b) Economically disadvantaged Vietnam-era veterans;
c) Economically disadvantaged ex-convicts;
d) Vocational rehabilitation referrals;
e) Youth participating in a qualified cooperative education
program;
f) Recipients of supplemental security income benefits; and,
g) General assistance recipients.
1)Specifies that preference only apply to bidders who are California
based firms.
(GC � 4532 (h)
2)Requires bidders to certify, under penalty of perjury, to perform
either 50% (for commodity contracts) or 90% (for labor service
contracts) of the labor hours in the eligible TACPA area
worksite(s). TACPA work sites may be in, directly adjacent to, or
within a directly adjoining census tract blocks that form a
contiguous boundary with the distressed area. (GC � 4534)
3)Limits TACPA preferences to 9% or a maximum of $50,000 per bid. In
combination with any other preferences, the maximum limit is 15% of
the lowest responsible bid; and, in no case more than $100,000 per
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bid. (GC � 4535.2)
4)Provides that TACPA preferences do not apply to contracts, such as
construction, where the worksite is fixed by the contract terms.
(GC � 4535)
This bill:
1) Includes the following definitions:
a) "California-based company" means either a business or
corporation whose principal office is located in California, and
the owners, or officers if the entity is a corporation, are
domiciled in California or a business or corporation that has a
major office or manufacturing facility located in California and
that has been licensed by the state on a continuous basis to
conduct business within the state and has continuously employed
California residents for work within the state during the three
years prior to submitting a bid or proposal for a state contract.
b) "Distressed" means a census tract determined by the Department
of Finance to be in the top quartile of census tracts for having
the highest unemployment and poverty in the state.
c) "Person with a high risk of unemployment" includes, but is not
limited to, a person who is currently unemployed and has been
unemployed for more than 200 days, veterans who served on active
duty since September 11, 2001, a person who has been convicted of
a felony under any statute of the United States or of any state,
a person who receives benefits of the Supplemental Nutrition
Assistance Program.
d) "Worksite" a business located within a distressed area or
business located in directly adjoining census tract blocks that
when attached to the distressed area forms a contiguous boundary.
A company that intends to perform the work at a worksite
described in this paragraph shall submit a map with the bid or
proposal identifying where the worksite is located.
2)Provides that in evaluating proposals for contracts for services in
excess of $100,000, except a contract in which the worksite is fixed
by the provisions of the contract, the state shall award a five
percent preference on the price submitted by California-based
companies who demonstrate and certify under penalty of perjury that
not less than 90 percent of the total labor hours required to
perform the contract shall be accomplished at an identified worksite
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or worksites located in a distressed area.
FISCAL EFFECT: This bill is keyed "fiscal" by Legislative Counsel.
According to the Assembly Committee on Appropriations analysis dated
May 14, 2014, the revised definition of distressed area under the bill
would expand the number of eligible areas, and thus the pool of firms,
eligible for a worksite bid preference under the TACPA. Likewise, the
revised definition of persons with a high risk of unemployment would
increase the likelihood of companies being able to also take advantage
of a workforce bidding preference. According to the analysis, the
cost of the TACPA bid preference over the last four years has averaged
$110,000, and DGS has reviewed about 40 TACPA applications annually
during this time at an administrative cost of around $140,000. The
analysis states that "DGS notes that the new parameters for the hiring
credit would require extensive substantiation of applications. The
potential impact of this bill is unknown, but assuming a doubling of
the bid preference costs and a 50 percent increase in administrative
costs yields increased annual costs of $180,000."
COMMENTS:
1. Purpose. This bill is sponsored by the Author. According to the
Author, this bill updates the Target Contract Preference Act
(TACPA) geographic regions to those areas that the state Department
of Finance designates as having the highest combined levels of
poverty and unemployment in the state. According to the Author,
"changes in the type of information collected in the last Census
have not only made data collection more time consuming and
expensive to obtain, it has also rendered the existing TACPA
unworkable, therefore, the Department of General Services (DGS)
has stopped considering TACP preference in evaluating bids." The
Author believes that this bill will allow TACPA to continue to work
by redefining what qualifies as an economically distressed area and
identifying those individuals or groups at a high risk of
unemployment.
2. TACPA. According to information provided by the Author, TACPA was
enacted in 1983, as an effort by the Legislature and the Governor
to stimulate business development in economically disadvantaged
areas. TACPA is primarily administered by the Department of
General Service (DGS) with help from the Office of Planning and
Research (OPR). Under TACPA, a five percent extra credit is
awarded in the contract bid evaluation phase to California firms
that agree to undertake the work in distressed areas and an
additional one percent to four percent may be included for
committing to employ certain individuals in completing the
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contract.
The geographic boundaries of the distressed areas are determined by
OPR based on eight statutorily defined criteria, as reported at the
census block level. Recently, the availability of this data has
changed. In 2003, the U.S. Census Bureau switched from gathering
socioeconomic data in the "long form" survey component of the
decennial census to an annual survey effort called the American
Community Survey (ACS).
In addition to the change in how the data was collected, the U.S.
Census Bureau no longer releases socioeconomic data for two of the
eight TACPA criteria at the block group level, although it is
released at the larger-scale census-tract level. In evaluating
whether to simply change statute from census block group to census
tract level, OPR and others questioned whether the current criteria
was best suited for an employment incentive. As an example, the
existing locations include the poverty level of people over 65 and
children under the age
of 18.
The California Research Bureau (CRB) produced a document in 2012,
at the request of OPR to better understand the statistical
properties of past TACPA "distressed area" designations and of the
currently-available data from the ACS. The goal of the report was
to identify and evaluate options for meeting the goals of the TACPA
program with the U.S. Census information currently available. The
report found that current statute, regulations, rules and
guidelines do not clearly identify which data should be used when
constructing TACPA indicators, nor do they provide guidance on how
to determine eligibility when data for any of the eight criteria
are unavailable at the block-group level. The report also noted
that survey data provided by the Census Bureau has inherent
sampling errors, missing data and missing measures and recommended
that the creation and implementation of future rules, regulations
and guidelines could clarify how the TACPA program ought to address
these issues. CRB identified several potential strategies for
approaching the data, each of which produces generally similar
results. CRB recommended that DGS adopt rules, regulations and
guidelines that identify the appropriate data to construct
indicators of each of the eight criteria, recognize and account for
sampling error, identify how to determine eligibility in the event
that data provided by the Census Bureau becomes unavailable, and
specify how to determine eligibility for block groups that are
missing data.
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3.Small Business Procurement and Contract Act. The Small Business
Procurement and Contract Act (Small Business Act) declares state
policy that small business and microbusiness receive a fair portion
of the total purchases and contracts or subcontracts for state
goods, services, information technology, and construction.
Administered through DGS, the Small Business Act was implemented
more than 30 years ago to establish a small business preference
within the state's procurement process that would increase the
number of contracts between the state and small businesses. In
1998, a Disabled Veteran Business Enterprise (DVBE) component was
added to state procurement practices, establishing preferences for a
business entity that is at least 51 percent owned or controlled by
one or more disabled veterans, as specified.
Since 2001, there have been four Executive Orders (EOs) specifying a
25 percent goal for small business and a 3 percent DVBE
participation 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).
These participation goals were codified in SB 115 (Florez, Chapter
451, Statues of 2005) which called for DGS to set a statewide goal
for DVBE contracts; and in AB 761 (Coto, Chapter 611, Statutes of
2007) which specifically codified the 25 percent small business
target for contracts related to revenues expended from the 2006
infrastructure bonds. Notwithstanding the longstanding existence of
the Act and these EOs, the state's success in obtaining small
business and DVBE participation goals in state procurement contracts
has been inconsistent.
For only the second time since the small business participation
target was established in 2001, DGS has reported that in 2006-07 the
state achieved its small business target by awarding 28.31 percent,
or $2.65 billion, of the value of all contracts to small businesses.
This represents a $1.3 billion increase in contracts from 2005-06.
The state did not achieve its
3 percent DVBE participation goal, however, as only 2.8 percent of
contract dollars,
$186 million, was awarded in contracts including DVBE participation.
4.Related Legislation This Year. SB 297 (Roth) of 2013-14 would
increase the annual statewide participation goal for disabled
veteran business enterprises applicable to certain state contracts,
from three percent to five percent. ( Status: The bill is pending
in the Assembly Committee on Jobs, Economic Development, and the
Economy.)
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AB 1586 (Holden) would require service contracts for over $200,000
include a provision requiring the contractor give priority
consideration in filling vacancies with individuals that have
exhausted their unemployment, are a veteran, on parole or were
formally incarcerated, or a resident of a targeted employment area,
as defined under enterprise zone law. ( Status: The bill is
currently pending in the Senate Committee on Appropriations.)
5.Prior Related Legislation. SB 733 (Block) of 2013 deletes
provisions of law allowing an awarding department to accept
submission of a disabled veteran business enterprise utilization
plan to meet the three percent statewide participation goal for
awarded contracts. The bill authorizes, instead, a new review
process for demonstrating a business's long-term commitment to using
veteran-owned businesses. ( Status: The bill is currently pending in
the Assembly Committee on Jobs, Economic Development, and the
Economy.)
AB 93 (Assembly Committee on Budget, Chapter 69, Statutes of 2013)
instituted three new tax programs: (1) a Sales and Use Tax exemption
for manufacturing and bio-tech equipment and similar purchases; (2)
a California Competes tax credit for attracting and retaining major
employers; and (3) a hiring credit under the Personal Income Tax and
Corporation Tax for employment in specified geographic areas.
Additionally, the bill phases out certain tax provisions related to
Enterprise Zones and similar tax incentive areas, and ends the
current Small Business New Jobs Credit tax incentive program. The
bill also provides for allocating the California Competes tax credit
through the Governor's Office of Business and Economic Development
to assist in retaining existing and attracting new business activity
in the state.
AB 172 (Weber) of 2013 bill would have increased the microbusiness
procurement preference from 5% to 7% for state contracts to purchase
goods, services, information technology, and construction of state
facilities, and allowed the preference to be awarded to either a
microbusiness bidder or a non-microbusiness bidder that uses a
microbusiness subcontractor. ( Status: The bill was held under
submission by the Assembly Committee on Appropriations.)
AB 366 (Holden) of 2013 would have modified the definitions for
minority owned business, women owned business, and disabled veteran
owned business enterprise to encourage contracting with publicly
held companies. ( Status: The bill was held under submission the
Assembly Committee on Appropriations.)
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AB 550 (Brown) of 2013 would have made key changes to state
procurement procedures for the purpose of increasing small business,
including microbusiness, and disabled veteran-owned business
enterprise participation rates. ( Status: The bill was held under
submission by the Assembly Committee on Appropriations.)
AB 1783 (Perea, Chapter 114, Statutes of 2012) requires DGS to
publish on the department's website, and make available to local
agencies, a list of small businesses and microbusinesses that have
been certified as such by the department.
AB 2630 (Hueso) of 2012 would have required DGS, 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 provided
the number of preferences used in bidding packages for the year.
( Status: The bill was held under submission in the Senate Committee
on Appropriations.)
SB 67 (Price) of 2011 would have authorized DGS to direct all state
entities to establish an annual goal of achieving no less than 25
percent small business participation in state procurement contracts,
as specified. ( Status: The bill was held under submission in the
Assembly Committee on Appropriations.)
AB 150 (Perea) of 2011 would have authorized DGS to direct all state
agencies to establish the goal to achieve 25 percent small business
participation in state procurements and contracts, and would have
required state agencies to report to DGS statistics regarding small
business participation in agency contract awards. ( Status: The bill
was held under submission by the Assembly Committee on
Appropriations)
AB 309 (Price) of 2009 would have required institution of a 25
percent small business participation goal for all state entities and
directed DGS to monitor the progress of state agencies in meeting
this goal. ( Status: The bill was held under submission by the
Assembly Committee on Appropriations)
SB 1108 (Price) of 2010 would have established a 25 percent small
business participation goal for all state entities. ( Status: The
bill was held under submission by the Assembly Committee on
Appropriations)
AB 761 (Coto, Chapter 611, Statutes of 2007) established a 25
percent small business participation goal for contracts related to
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revenues expended from the 2006 infrastructure bond measures.
SB 115 (Florez, Chapter 451, Statutes of 2005) created a DVBE
incentive program for state contracts.
6.Arguments in Support. According to AFSCME , this bill will ensure
that state contractors are better incentivized to hire unemployed
individuals and work in distressed areas of the state.
The California Asian Pacific Chamber of Commerce (CAPCC) notes that
targeted areas and areas in distressed communities need all the help
they can get in promoting jobs and economic growth because of the
high unemployment in those areas. CAPCC believes that by reflecting
new census tracts, this bill will allow small businesses in these
areas to take advantage of state contracts.
The Coalition of Small and Disabled Veteran Businesses believes that
this bill is extremely critical to help ensure that the TACPA
continues to function as it was originally intended and that TACPA
has allowed coalition members to not only hire, but retrain members
from these highly distressed communities who would not work without
this preference in place.
According to the National Federation of Independent Businesses
(NFIB), this bill simply uses data currently compiled by the
Department of Finance to make workable a law already on the books.
NFIB notes that there are few tools available to help targeted and
poor areas in our state and this bill addresses that problem.
SUPPORT AND OPPOSITION:
Support:
AFSCME
California Asian Pacific Chamber of Commerce
Coalition of Small and Disabled Veteran Businesses
National Federation of Independent Businesses
Veterans Caucus of the California Democratic Party
Opposition:
None on file as of June 11, 2014.
Consultant:Sarah Mason
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