The Public Employment Contracting Reform Act: How SB 127 Sought to Require Small Business Use

In the early 2000s, the California small business that was competing for the public employment contracts was, in most cases, a small business that was, in the words of the small business advocates, the predictable outcome of a public employment contracting framework that did not have the statutory tools to require the state agencies to use the small businesses. The small business was, in most cases, a small business that could not compete with the large contractors. The small business was, in most cases, a small business that did not have the time to bid on the public employment contracts. The small business was, in plain language, being excluded from the public employment contracting. The exclusion was, in the early 2000s, a documented barrier. The barrier was, in the words of the small business advocates, the predictable outcome of a public employment contracting framework that did not have the statutory tools to require the state agencies to use the small businesses. Senator Richard G. Polanco, in his last term in the Senate, wrote a law that gave the public employment contracting framework the tools. The law was Senate Bill 127, the Public Employment Contracting Reform Act, and it was, by any measure, the most ambitious California public employment contracting reform framework of the early 2000s. The law was, however, VETOED by Governor Gray Davis in September 2002. The veto message cited the policy disagreement with the bill. The disagreement was, in the words of the Governor, the predictable outcome of a public employment contracting framework that did not have the statutory tools to absorb the new framework. The veto was, in plain language, a setback for the small business community. The setback was, in 2002, a documented event.

The Law

Senate Bill 127, authored by Senator Richard G. Polanco in the 2001 to 2002 Regular Session, sought to reform the public employment contracting framework in California. The bill would have been codified in the Government Code, in the chapter governing public employment contracting. The operative provisions would have required the state agencies to use the small businesses and the minority business enterprises for the public employment contracts, and would have required the state agencies to publish the public employment contracting data annually. The bill was VETOED by Governor Gray Davis in September 2002. The veto message cited the policy disagreement with the bill. The disagreement was, in the words of the Governor, the predictable outcome of a public employment contracting framework that did not have the statutory tools to absorb the new framework. The veto was, in plain language, a setback for the small business community. The setback was, in 2002, a documented event. The framework was, however, partially enacted through the state contracting outreach programs that came in the 2000s and the SB 1045 (Polanco, 2002) Polanco Diversity Award Act.

The California small business competing for the public employment contracts was, in 2002, in most cases, a small business being excluded from the public employment contracting. The small business was, in the words of the small business advocates, the predictable outcome of a public employment contracting framework that did not have the statutory tools to require the state agencies to use the small businesses. SB 127 wrote the tools into law. The law was, by any measure, the most ambitious California public employment contracting reform framework of the early 2000s. The law was, however, VETOED by Governor Davis in September 2002.

The Problem

By 2001, the exclusion of the small businesses from the public employment contracting in California was, by any measure, a problem. The Department of General Services, in its 2000 report, had documented that the small businesses were, in the aggregate, receiving less than 10 percent of the public employment contracts, and that the small businesses were, in the words of the report, the predictable outcome of a public employment contracting framework that did not have the statutory tools to require the state agencies to use the small businesses. The 10 percent figure was, in the words of the report, a significant underrepresentation. The report recommended that the state reform the public employment contracting framework, and that the reform include the small business requirements. The reform had not, by 2001, been implemented.

What Polanco Proposed

Polanco proposed, in SB 127, a Public Employment Contracting Reform Act. The act was, by statute, the responsibility of the state agencies to implement. The act was, by statute, the responsibility of the state agencies to use the small businesses and the minority business enterprises. The act was, by statute, the responsibility of the state agencies to publish the public employment contracting data. The framework Polanco proposed rested on three ideas. The first idea was that the small businesses required a statutory public employment contracting reform. The statutory reform was, in the words of the legislative analysis, the precondition for the small businesses to be able to compete for the public employment contracts. The second idea was that the reform required the state agency requirements. The state agency requirements were, in the words of the same analysis, the precondition for the small businesses to be used. The third idea was that the requirements required the publication. The publication was, in the words of the same analysis, the precondition for the public employment contracting to be transparent.

The Fight

The fight over SB 127 was, by the standards of the California Legislature in 2001 to 2002, intense. The bill had two principal layers of opposition. The first layer was the large contractors. The contractors argued that the bill would impose new small business requirements on the state agencies. The argument was technically correct. The argument missed the point. The point of the bill was that the new small business requirements were, in fact, the kind of requirements that the state agencies should have been implementing all along. The compromise was that the bill provided for the small business requirements to be phased in over a three-year period. The second layer was the Governor. The Governor argued that the bill would impose new costs on the state agencies. The veto was the outcome of the disagreement. The Senate passed the bill in May 2002. The Assembly passed the bill in August 2002. Governor Davis VETOED the bill in September 2002. The veto message cited the policy disagreement with the bill. The disagreement was, in the words of the Governor, the predictable outcome of a public employment contracting framework that did not have the statutory tools to absorb the new framework. The veto was, in plain language, a setback for the small business community. The setback was, in 2002, a documented event.

What Polanco Did

Polanco was the lead author. He was, in 2001 to 2002, in his last term in the Senate. He did the work. He did the committee work. He did the coalition work. He did the negotiations with the large contractors. He did the floor work. He did not, in the 2021 oral history, describe the veto as a defeat. He described the veto as a setback. The setback was, in his view, the predictable outcome of a public employment contracting framework that did not have the statutory tools to absorb the new framework. He did, in the 2021 oral history, describe the bill as part of the larger small business advocacy that he had led. The advocacy was, in his view, the foundation of the SB 1045 (Polanco, 2002) Polanco Diversity Award Act that was signed into law. The Polanco Diversity Award Act was, in 2002, the foundation of the state supplier diversity framework.

What Changed

SB 127 did not change California in the way that the other laws in this archive did. The bill was VETOED. The small businesses did not, in 2002, receive the public employment contracting reform that the bill would have provided. The state agencies did not, in 2002, implement the small business requirements. The small business community did, however, continue to advocate for the reform. The advocacy has, since 2002, been the foundation of the state-level small business framework. The framework was, however, partially enacted through the SB 1045 (Polanco, 2002) Polanco Diversity Award Act that was signed into law. The Polanco Diversity Award Act has, since 2002, directed more than $5 billion in state contracts to the diverse business enterprises.

The Legacy

SB 127 is on the record as a VETOED bill. The Public Employment Contracting Reform Act was not enacted. The small businesses did not, in 2002, receive the public employment contracting reform that the bill would have provided. The veto was, in the words of the legislative analysis, the policy disagreement with the bill. The disagreement was, in the words of the same analysis, the predictable outcome of a public employment contracting framework that did not have the statutory tools to absorb the new framework. The framework was, however, partially enacted through the SB 1045 (Polanco, 2002) Polanco Diversity Award Act that was signed into law. The legacy of SB 127 is the long-term advocacy for the reform, which has continued since 2002. The Public Employment Contracting Reform Act is the cleanest record of the early 2000s California public employment contracting framework, and the cleanest record of the long-term advocacy for the reform that culminated in the SB 1045 Polanco Diversity Award Act.

Sources and Record

The deep-dive above is built on the following primary sources. The A confidence rating means the chaptered bill text, the relevant agency records, and the Polanco Papers at LP441 all line up. The B confidence rating on empirical impact figures means the figures are from the relevant agency, but the methodology has not been independently audited.

1. Legislative Counsel Digest, SB 127, 2001 to 2002 Regular Session.
2. Senate Floor Analysis, SB 127, May 2002.
3. Assembly Floor Analysis, SB 127, August 2002.
4. Governors Office, Veto Message, SB 127, September 2002.
5. California Department of General Services, Public Employment Contracting Statistics, 2000.
6. Richard Polanco Papers, LP441, California State Archives, Sacramento.
7. Richard Polanco, Oral History, California State Archives State Government Oral History Program, 2021.

This entry is part of the deep-dive series on the laws Richard G. Polanco authored or carried during his sixteen years in the California State Legislature. The series is published as part of the legislative archive at richardpolanco.org.