REQUEST FOR 75B 1 COUNCIL ACTION RECOMMENDED ACTION

REQUEST

FOR

COUNCIL ACTION

CITYCOUNCIL MEETING DATE

MARCH

₅

2012

TITLE

PUBLIC HEARING LOCAL BUSINESS PREFERENCE ORDINANCE

CITY MANAGER

RECOMMENDED

ACTION

CLERK OFCOUNCIL USE ONLY

APPROVED As Recommended As Amended Ordinanceon1stReading Ordinanceon2dReading Implementing Resolution Set PublicHearing For

CONTINUED TO

FILE NUMBER

Adopt

an ordinance

_amending

the Santa Ana

Municipal

Code to

provide

Santa Ana and

Orange County

businesses a

percentage

preference

for all

requests

for

proposals

contracts

and bids where the

_City

is nototherwise restricted from

_offering

sucha

preference

2

_Adopt

a resolution

providing

Santa Ana Businesses with a seven

percent preference

and

Orange

County

businesses afour

_{percent preference}

for all

requests

for

proposals

contracts

and bids where the

_City

is not otherwise restricted from

offering

such a

_preference

BACKGROUND

In

₂₀₁₀

the

_City

released 57

_requests

for

_proposals

or bids to

provide goods

materials or

professional

services to the

_City

The total value of these contracts totaled more than

6

5

million

dollars

In response to

general

direction from the

_City

Councilan

_{interdepartmental}

committee

including

the

Planning

and

_{Building Agency}

Public Works

_Agency

City

Attorney

s

Office

Finance and

Management

Services

Agency

and the

_{Community Development}

Agency

was formed to research

and

_analyze

local

_preference

as a method to continue the

City

s

support

and

promotion

of local

businesses

A local business

_preference

allows the

_City

to

_promote

local businesses as well as benefit from

enhanced economic

_activity

as dollars recirculate in the local economy

by

way of

multiplier

effects

_Multiplier

effects have been shown to benefit the

community

in three

_unique

ways

1 Direct effects Benefits the local economy

by

directly

investing

money

through

the

awarding

ofa

_City

contract toa local business

2 Indirect effects Indirect effects occurwhen money awarded toa local business results in

inter

industry purchases

of

materials supplies

goods

and services Another

_potential

indirect effect is the increase in

_employment

associated with

_greater

workloadsdemands

Local _{Business Preference Ordinance} March

₅

2012

Page

2

A

_Study

in

_Phoenix

Arizona

_by

the economic

_consulting

_{firm Civic Economics found that} when

_using

a local

vendor

334

_percent

of the total contract revenue remained in the

community

compared

to

_only

116

_percent

when

_using

a national

vendor

Fora

₁₀₀

₀₀₀

contract

this results in an additional

₂₁

₈₀₀

_dollars

_staying

_{in the}

local economy in addition to the initial contract amount A similar

_study

from

_Austin

Texas found that for

every

100

dollars

spent

locally

45

dollars remained in the local economy

compared

to

only 13

dollars

_spent

at a

_big

box

vendor2

Another

_{study by}

the Center for Economic

Research and Education of Central California found in the

_City

of Fresno that while the

proposed

local

_preference

_{program would cost the}

City 243

565

in

_higher

contract

amounts it would result in over

₃

₃

million dollars in

_output

via

_multiplier

effects in the

community3

3 Induced effects _Induced effects are the increases in household income as a result of both the direct and indirect effects Increases in household income have been found to

modify spending

patterns

and increase

_consumption

In these ways the benefits to the

_City

of

_awarding

a contract to a local business extend

_beyond

the value of the initial contract While the exact value of

_multiplier

effects aredifficult to

_predict

various studies

_regarding

local

_sourcing

of

_materials

_supplies

and services have found a

consistent increase _{in the amount of money that remains in the local}

economy when a local vendor is utilized This increase in _money has also been correlated with increases in

employment

as well as taxable transactions for the

_City

The

_City

has for _{many years used} a one

_percent

bid

_preference

for Santa _{Ana businesses} The

rationale for this

_preference

is _{that the}

_City

receives one

_percent

of the sales tax

_captured

on

taxable

_sales

which _offsets the costs Recent

_{analysis by}

the Finance and

_Management

Services

_Agency

_{indicates however}

_{that this}

preference

amount has had little or no effectonthe actual number of Santa Ana businesses

_becoming

the lowest bidder and thus

_being

awarded

_City

contracts

DISCUSSION

Sections 421 and 422 of the

_City

_s

Charter outline

_{purchasing regulations}

and

_requirements

for Public Works and NonPublic Works contracts and thus structure how local

_preference

can be

implemented Exhibit 1

A review of the

_City

_s

_charter

_{language by}

_the

City Attorney

s

Office has concluded that local

_preference

_may not be

_given

for Public Works construction

_involving

_the erection or

_improvement

of

_{public buildings}

_{streets drains}

sewers or

_parks

_Contracts

_involving

maintenance and

_repair

of thesefacilities would be

_eligible

for a

_preference

_{In addition to charter}

restrictions

several

_funding

sources

_including

_{Caltrans HUD}

_{State and Federal}

grants contain

language

that

_precludes

the use of a local

_preference

_{Given these}

_limitations

_the

proposed

local

preference

program will

apply

to all _{contracts and bids not otherwise restricted}

by

the

_funding

source the

City charter

StateorFederal law

1

Dan _{HoustonProcurement Matters TheEconomic}

Impactof Local_Suppliers Civic Economics _{November 2007} 2

Dan _{Houston and Dr Michael}

Oden Big Box Retail and Austin An _{Independent Review Civic Economics October}

2004

Local Business Preference Ordinance

March

₅

2012

Page

3

Additionally

it is recommended that the local

_preference

ordinance

_{only apply}

to

_eligible

contracts up to

100

000

This recommendation _{is based} on a _{review of other cities}

parameters

as well as an

_analysis

of the

_City

_s

most

_typical

contracts For

_example

a

_comparison

of other cities local

preference

ordinance showed indicated a _{range from}

₃₀

₀₀₀

_{up to}

₁

₀₀₀

₀₀₀

_{with a}

majority

in the

₁₀₀

₀₀₀

dollar _range

_{Exhibit 2}

_Further

an

_analysis

of

_City

of Santa Ana bidsRFPsin 2010 showed a mean contract value of

₁₂₆

₁₂₂

and a median contract value of

₅₃

₁₃₀

_{This lower}

median value indicates that a

_majority

of

_City

contracts arebelow the

_proposed

₁₀₀

₀₀₀

threshold

and thus would be

_eligible

for local

_preference

Tiered Preference System

Santa Ana lies in the center of urban

_{Orange County}

_As

_such

_{the Santa Ana}

economy is to a

large degree

tied to the

_regional

_economy similar to how the

_City

is tied to the

_region

in terms of air

_quality

water

_{quality regional}

_{transportation}

_{etc To balance the}

City

s goal

to

_promote

Santa Ana businesses while

_being

mindful of the

_City

_{s place}

within the

_regional

_{economy a} tiered

_preference

level is

_proposed

This tiered

_system

is

_proposed

to

_provide

_Santa Ana

businesses with a seven

_percent

_preference

and other

_{Orange County}

_businesses with a four

percent

preference

The recommended seven

_percent

_preference

_{best balances the costs of}

doing

business

_sales

tax

business license

_tax

_etc

with

_providing

local _businesses with an

_advantage

in

_{winning city}

contracts

_Analysis

of a 20contract

_sample

_{of Santa Ana contracts indicated that}

a seven

percent

preference

would have _resulted in

_{approximately}

25

_percent

of contracts

_being

awarded to local businesses The

_{proposed preference}

_{levels are also consistent with several}

nearby

cities that have

_recently

_adopted

local

_preference

_ordinances

_including

_the

City

of Los

_Angeles

8

and the

_City

of

_Long

Beach

₁₀

Administration Implementation

In an effort to minimize additional _burdens on local businesses staff _{proposes to use} the

California

_Department

of _{General Services} Small _{Business Certification}

program This State

administered _{program will} ensure that businesses in the

_City

and

_County

that are

_competing

for

City

contracts meet the definition of a small local business while not

_{overly burdening}

local

businesses with

_complicated

forms and

_{applications Exhibit 3}

_{Once a local business is} certified

_by

the state it is

_cataloged

in an _{online database that can be used}

by

the

_City

when

determining

whether a business

_qualifies

for the

_City

_s

local

_preference

_program The useof the

State

_Department

_{of General Services for certification is also used}

by

the

_City

of Los

_Angeles

as

part

of their local

_preference

_program

The California

_Department

_{of General Services}

essentially

functions as the business _{manager and} procurement office for the state and is the

_primary

_{administrator of the Small Business Services}

certification _{program This program certifies small businesses in order toassist them in}

Local Business Preference Ordinance

March

₅

2012

Page

4

State Contracts

_Becoming

a certified small business can be done online

_through

the states e

procurement

website free of

_charge

Once a business is certified it will be

_{electronically}

notified of available state bid solicitations aswell as receive afive

_percent

_preference

on _{State contracts}

There are

_currently

128 Santa Ana businesses

_already

certified

_by

the California

_Department

of

General Services as a Small Business

The local

_preference

_{ordinance will}

give

preference

to businesses

_during

the

_procurement

for both bids for

_{materials supplies}

_{labor and}

equipment

and

_requests

for

_proposals

for

_professional

services The

_following

are

_examples

_{of how the local}

_preference

_{ordinance will}

apply

in these two scenarios

Example 1 Bid for materials supplies labor and equipment

Santa

Ana Business

Orange County

Business

Other

Lowest Bid

Bid Amount

₉₅

₀₀₀

₉₃

₀₀₀

90

000

7 local

_preference

4 local

_preference

NA

Amount used for selection

of contract awarded

88

350

89

280

90

000

In the above

_scenario

the Santa Ana _{business would be awarded the contract The contract} amount would be the

_original

bid of

₉₅

₀₀₀

Example 2 _{Requests for proposals for professional services}

In a

_Request

for

_{Proposal RFP}

for

_professional

services

_price

alone _{may not be criterion upon} which a contract is awarded In this

_example

the local

_preference

will increase the total evaluation

_points

a business receives These evaluations are

_typically

done on a 0 to 100

_point

scale

SantaAna

_{Orange County}

_Other

_Highest

Business Business Evaluation

Original

evaluation

_points

received 91 95 97

7 local

_preference

4 local

_preference

NA Total evaluation

_points

after

Local Business Preference _Ordinance March

₅

2012

Page

5

In this scenario the

_{Orange County}

business would be awarded the contract as its total evaluation

_points

would become the

_highest

with the local

_preference

_{As in scenario number}

one

_above

the use of local

_preference

will not affect the final contract amount

Modifications Adjustments

It is recommended that the local

_preference

_program be

_{adopted by}

_ordinance

and the

_percent

of

preference

be

_{adopted by}

_{Resolution with} seven

_percent

for _{local businesses} and four

_percent

for

Orange County

businesses

_Adopting

the

_{specific percentage preference}

_levels

by

resolution will allow the

_City

Council to

_{modify preference}

levels as it deems

_appropriate

Outreach Efforts

Recognizing

that the final measure of effectiveness for the

_proposed

_ordinance will

_depend

on the

extent that it is utilized

_by

the local businesses

_community

staff reached out to local chambers of

commerce as well as the

_{Orange County}

_{Business Council to seek their}

input

on the

_proposed

ordinance A _{summary of the}

_proposed

_ordinance was sent to the Santa Ana Chamber of

Commerce

the

_Hispanic

Chamber of

_Commerce

the Vietnamese American Chamber of

Commerce

the Black Chamber of Commerce and the

_{Orange County}

_{Business Council for their}

review

_Responses

received to the

_proposed

_ordinance were

_supportive

with an official letter of

support

from the

_{Orange County}

_{Business Council}

Exhibit 4

Should the

_proposed

ordinance be

_adopted

additional

_marketing

_{and outreach will beundertaken to}

ensure that local businesses are aware of the

_{opportunities}

_{provided by}

this _ordinance One

example

of this additional outreach would be the creation ofan online _business

_{registry through}

_the

City

s

website where local businesses could

_sign

_{up to receive RFPs or} bid

_requests

for

_particular

categories

of

_goods

or services

_Categories

in the

_registry

could include

_engineering

_services

financial

_services

_{environmental}

_services

_office

supplies

fleet

information

_technology

and

tools

equipment

The

_City

would then send RFPs or bid

_requests

to all businesses that

_expressed

an interest ina

particular category

FISCALIMPACT

Based on the information _available

regarding

bids for

_{materials supplies}

_{labor and}

equipment

and

_requests

for

_proposals

the estimated fiscal

_impact

would be

₂₆

_{000 annually Exhibits}

5

6

It is

_important

to _{note that while this fiscal}

_impact

_{represents the direct costtothe}

City

as a

result of

_{paying higher}

_contracts

_{it does not account for the}

numerous economic benefits that

local

_preference

_{ordinances have been shown to have}

Local Business Preference Ordinance

March

₅

2012

Page

6

Based on 2010 contract

_information

a 25

_percent

increase in local vendors

_being

awarded

_City

contracts would have resulted in

_{approximately 280}

₀₀₀

_{additional dollars}

circulating

in the local

economy as a direct

_effect

with additional _money

entering

the _{local economy}

_through

_indirect and induced effectsas discussed above

APPROVED AS TO FUNDSAND ACCOUNTS

a Trevino Executive Director

Planning

Building Agency

M Frb

rbVeportslocalBusiness Preference Ordinance 030512cc

Francisco Gutierrez Executive Director

Finance

_Management

_Services

Agency

Exhibits 1 Charter

_Excerpt

2 _{Local Preference Contract Value Restrictions}

3

_Department

of_{General Services}

_{Eligibility Requirements}

for Small Business Certification

4 Letter of

_support

from

_{Orange County}

_{Business Council} 5 Fiscal

_Impact

_Calculations

Citv Charter Excerpt

Sec 421 Nonpublic works contracts

a The_Cityshall not bebound _{byany contract} unless thesameshall be made in_{writing by}order of the _City

Council exceptas hereinafterprovided and _{signed by}anofficer on behalf of the _Citywho has been

authorized todoso_bythe _CityCouncil The_approvalof the form of all contracts shall be endorsed _{thereon by} the _{City Attorney orhisorherdesignated representative}

b The _{CityCouncil may byordinance authorize}the_{City Manager}to bind the _Cityoncontractsfor such amounts asmay beestablished from time to time At least

quarterly the_{City Manager} shall_place onthe_CityCouncil

agendaforinformation a_reportof contracts let_bythe _{City Managerpursuant} to _{authority granted hereby} That _report shall include the identitiesof contractors and amounts of each contract

c The_CityCouncil shall establish_byordinance rules and _proceduresfor_{competitive bidding}for_{purchases of}

orcontracts for_{materials supplies equipment orservices including exceptions from formalbidding}

as the

CityCouncil may deem appropriate including providingfor _{emergencies Nevertheless such rules and}

proceduresshall _provide where feasible for review of such alternative sourcesof such_{materials supplies}

equipment orservices including professional servicesas _{may be available} in_competitionwithoneanother andselection therefromonthe basis of_obtainingmaximum_{qualitygoods servicesorperformanceat} minimum_cost and_{may provide} foruse of other_{publicagencybidding} and _{contracting processes where} found to beotherwise consistentwith thisCharter Nothing herein contained shall _{authorize anyperson to}

bindthe_Cityon _any such contract if the same beaportionofa_{largerpurchase}orseries of_{purchases which} in the_aggregate exceed the_authorityset _bythe _CityCouncil hereunder

OrdNo_{NS1405 31378 approved}atelection 7866OrdNo_{NS1642 8282 approvedat} election₁₁₂₈₂Ord No_{NS2715 7306approvedat election}

11 7 06 Sec 422 Public works contracts

a For purposes of this section publicworks construction shall be deemed to mean aproject for the erection or

improvement of_{publicbuildingsstreets drainssewers orparksMaintenance and}

repair of_{publicbuildings}

streets drainssewers or_parksshall not beconsideredas _publicworks construction

b Every contractforpublicworks construction inexcessof thatamount setfrom time to time_by ordinance of the

City Council _pursuantto_{c below}shall be made _bythe_City Councilwith the lowestand best bidder after

publication for at leasttwo_{2 days} ina _newspaperof _generalcirculation in the _Cityof notice_callingfor bids and_fixing aperiodduring which suchbidswill be _received which shall befor notlessthan ten_{10 days}after the first_publication of said _{notice except}wherealternate _{contracting proceduresare} utilized_pursuant to_c below

c The_City Council shall_{adopt by}ordinancerules and _proceduresfor_{competitive bidding}for all _publicworks

contractswhich rules and _proceduresshall _{establish limits}for_publicworks contracts_approved

bythe_City

Manager Such rules and _proceduresshall establishcriteria forthresholdsforformaland informal_bidding and notice _{requirements therefor standardsfor rejection ofbidsand}

dispensing with _bidding criteria and

proceduresfor

prequalifying biddersand _contractors and utilization ofalternate project _deliverysystems such as _designbuild contracts For _purposesof this_{Article designbuild means a}

rangeof methods of procuring design and constructionfrom asinglesource where the selection of the_singlesource occursbeforethe

development of _{complete plans} and_{specifications}

Notwithstanding the_foregoing any rule _permitting

dispensing of_bidding andor_performing work with_Cityforces for anyreasonincluding an_{emergency shall}

requiretheaffirmative votes of at least twothirds_{23of the members of the}

City Council

Ord No_{NS2715 7306 approved}at election

11 7 06

Local

Preference

_{Contract Value Restrictions}

City LocalPreference ContractAmount Restrictions

San Francisco _{515 Under 10Million}

LongBeach 10 ₁₀₀₀₀₀ Los_Angeles 8 _1000000 Costa Mesa 5 ₁₀₀₀₀₀ Concord 5 ₁₀₀₀₀₀ Fresno 5 ₅₀₀₀₀₀ Under _{200000 5000} Hayward 5 200 000 400000 7500 400 000 750000 8750 over_{750000 10000} San Juan _Capistrano 3 Nolimit

San Jose 5 ₁₀₀₀₀₀

Santa Cruz 3 Over ₁₀₀₀₀and within3 of lowest_price

Thousand Oaks 5 ₁₀₀₀₀₀ Lansing ₅₀₀₀₀₀ Phoenix 255 5for_{contacts up to 250000} 2 5for250000 500000 10for _purchasesup to 10000 Detroit _{610 8 up to} 100 000 6 up to 500000 Boise _Contracts over50000 Kethickan AK 10 100 000 EXHIBIT 2

California Department ofGeneral Services

Eligibility

Requirements

In order forasmall businessto be_eligible for_{certification}the small business must meetthe_following

requirements

Be _{independently} owned and_operated Notdominantinfield ofoperation

Principaloffice locatedinCalifornia

Owners _officers ifacorporationdomiciledin_{California and}

Including affiliates beeither

A business with 100 orfewer _employeesan_{average annual gross receipts} of14millionorlessover

the last threetax years

A manufacturer with 100 orfewer _{employees or}

A microbusinessA small business will_{automatically} be_designated as amicrobusiness ifgrossannual

receipts are less than3500000 orthe small business isa manufacturer with25orfewer_employees

For Small Business Certificationpurposesa manufacturer isa business thatisboth of the_following

1 _{Primarily engaged} inthe chemical ormechanical transformation ofrawmaterials orprocessed

substancesinto new_products 2 _{Classified between Codes 31 to}

339999 inclusiveof the NorthAmerican_{Industrial Classification System}

NAICSManual publishedbythe United States Census_Bureau 2007edition

ORANGE COUNTY

BUSINESS COUNCIL

January 26

2012

2 ParkPlaza Suite 100 1 Irvine CA 926145904₁ P9494762242 F 9494760443 _wwwocbcorg

Mr

_Jay

Trevino

City

ofSantaAna

Planning

and

_{Building Agency}

20 Civic Center

_Plaza

M20 Santa

_Ana

CA92702

Mr Trevino

Rtcoje

11

14N3

AD

On behalf of the

_{Orange County}

_{Business Council}

_OCBC

I am

_writing

_{to you}

regarding

the

_City

of Santa Anas Local _{Preference Ordinance scheduled to be heard} for the

_City

Councils consideration on March

₆

2012

I wanttocommend stafffor their outside the box and innovative

_approach

to

_promoting

economic

_development

on a local level

_Through

initiatives suchas OCBCs

_Turning

Red

_Tape

into Red

_Carpet

_Awards

OCBC has

_sought

tohonorand

_recognize

the hard work of local

_governments

_throughout

the

_county

_{who have}cut

_through

red

_tape

to

createa more

_business

_friendly

_environmentin

_{Orange County}

As communicated to

_OCBC

the Santa_{Ana Local Preference Ordinance would}establish

a 4

_preference

for small

_{Orange County}

_Businesses

_{anda 7}

_preference

_{for small}

Santa Ana businesses on all

_qualifying

bidsfor

_{materials supplies labor equipment}

or

services In

_addition

the local

_preference

would

_{only apply}

_{to all}

_proposals

_contracts

between

₅

₀₀₀

and

₁₀₀

₀₀₀

where the

_City

_{is not otherwise restricted from}

offering

a

preference

due to

_funding

_{source the}

_City

_Charter

State orFederal Law

OCBC strives to

_champion

avibrant and

_competitive

economic

_climate

_particularly

when it comesto the useof

_taxpayer

dollars inthe

_procurement

_process

_{by public}

agencies

As

_such

OCBC would be

_supportive

ofan Ordinance which would allow for the useof local

_preference

_{in occasions where}

_competitive

_{bids and}

proposals

are

deemedtobe

_equal

and meet all

_requirements

setforth

_by

the

_City

Mr_Jay Trevino January 26 2012 Page2

We

_applaud

staffs efforts to

_promote

local businesses in

_working

to bolster economic

activity

in the

_{Orange County}

_community

Since

Lucy

Dtnn

Preside t nd

Orange

Cou

jo

usiness Council

LD MP bb

Local Preference Ordinance

The

_City

released 57 bids for

_{materials supplies}

labor and

_equipment

or

requests

for

_proposals

in 2010

Of

_these

31would have been

_eligible

for local

_preference

based onthe criteria

established in the

_proposed

ordinance

Based onthe

analysis

ofa 20contract

_{sample by}

the Finance and

Management

Services

_Agency

a local

_preference

of7would result in

approximately

25ofcontracts

_going

tolocal businesses

Fiscal

_Impact

Calculations

Number of

_eligible

contracts

₃₁

Totalvalue of

_eligible

contracts

₁

₄₄₆

₆₀₉

Average

price

percontract

46

664

81

46

664

81

x 7

_preference

_Average

additional cost_{per contract}

₃

₂₆₆

₅₄

of

_eligible

contracts

₃₁

x Estimated to local businesses

₂₅

8 contracts

Number of local

_Average

additional _{Estimated additional cost}

per year

business contracts X

_City

cost_percontract _{for Local Preference}

Program

8

₃

₂₆₆

₅₄

₂₆

₁₃₂

₃₂

Examplesofcontractsthatwould not beeligible include Contractsover100000 Public Works Construction _contractscancelled _bidsetc

Fiscal

Impacts

Maximum Contract

Amount

Number of

_qualifying

contracts fiscal

Impact

100

000

31

₂₆

₁₃₂

₃₂

150

000

34

₃₄

₂₆₄

₁₇

250

000

39

₅₂

₂₁₇

₉₀

EXHIBIT 6