________________________________________________________________________

MEMORANDUM

DATE: June 26, 2008

TO: Members of the California State Assembly

FROM: Juan Arambula, Chair

Assembly Committee on Jobs, Economic Development, and the Economy

RE: Small Business Issues

During the 2007-08 Legislative Session, Members will be meeting with small business associations, advocacy groups, and local small business leaders. The Assembly Committee on Jobs, Economic Development, and the Economy (JEDE) has prepared this briefing memorandum to assist Members in their discussions.

This briefing memorandum is divided into five main sections. The first section provides background on California small businesses. The second section includes bills enacted last year and those currently under review. The third section includes information on related oversight hearings held during the 2005-2006 and the 2007-2008 Sessions. The fourth section provides an update on proposed reforms to the California Enterprise Zone Program related to small businesses. The fifth section includes information on emerging domestic markets and the challenges that small and emerging business face in accessing business capital.

Table of Contents

I. Fast Facts on Small Business in California – pages 1 to 3

II. Small Business Legislative Actions – pages 3 to 6

III. Informational and Oversight Hearings – pages 6 to 11

IV.California Enterprise Zone Program and Small Business Participation – page 11

V. Emerging Domestic Market Advisory Group – pages 11 to 12

VI. Conclusion – page 12

I. Fast Facts on Small Business in California

This section provides basic information on small businesses and microenterprises. To the extent possible, the most recently available data is used.

Small Business

Small businesses are an integral part of the California economy, comprising more than 99 percent of all businesses in the state. More than 50 percent of all employees in California work for small businesses. Below are additional facts on small businesses.

· There were an estimated 3.6 million small businesses[1] in California in 2006. Self-employment accounted for 2.3 million firms, an increase from 2.2 million firms in 2005.

· Nearly 2.5 million people were employed by the 630,000 businesses in California with less than 20 employees in 2005.

· Approximately 115,000 new small businesses were formed and 149,000 small businesses closed their doors in 2006. Business bankruptcies in California totaled 2,098 in 2006, down from 4,236 in the previous year. Approximately 50 percent of all small businesses fail within seven years of opening.

· Small and medium-sized businesses represented 95 percent of all exporters in California in 2005, exporting 43 percent of all goods. Nationally, small and medium-size businesses represented only 29 percent of total exports.

Women-Owned Businesses

While the number of women on corporate boards and in upper management of Fortune 500 companies significantly lags behind women's overall representation in the workforce, women-owned businesses are an increasingly important segment of the business community. Below are some additional facts on women-owned businesses (50 percent or more owned by women) from the Center for Women's Business Research (Center).

· As of 2004, there are an estimated 1,249,343 privately held, women-owned firms in California, accounting for 48.6 percent of all privately held firms in the state.

· The 1,249,343 privately held, women-owned firms in California generated more than $406 billion in sales and employed 2,818,949 people in 2004.

· Between 1997 and 2004, the Center estimates that the number of privately held, women-owned firms in California increased by 7.1 percent, employment grew by 31.8 percent, and sales increased by 47.2 percent.

· Among the 50 states and Washington, D.C., California ranked first in the number of privately held, women-owned firms in 2004, first in employment, and first in sales.

· California ranked 47th in the growth in the number of privately held, women-owned firms between 1997 and 2004, 19th in employment growth, and 24th in sales growth among the states and Washington, D.C.

· Woman-owned firms, particularly among ethnic women, increased at a rate five times greater than all firms. The rate of African-American, women-owned firms increased by 12 percent annually, as compared to 2 percent for all firms and just under 4 percent for all woman-owned firms.

· Although women own approximately 40 percent of all businesses in the U.S., they receive less than five percent of all venture capital.

Minority-Owned Businesses

In 2000, the Milken Institute's Center on Emerging Domestic Markets, issued a report, in collaboration with the United States Department of Commerce, which found minority-owned firms are surpassing the growth of all U.S. businesses, growing at a rate of 17 percent per year, six times the growth rate of all other firms. Minority firms’ sales are growing 34 percent per year—more than twice the rate of all other firms. California has also seen an increase in minority-owned firms, including:

· In 2002, Latino-owned firms totaled 427,805—an increase of 27 percent from 1997.

· In 2002, Black-owned firms totaled 113,003—an increase of 43 percent from 1997.

· In 2002, Asian-owned firms totaled 372,221—an increase of 19 percent from 1997.

· In 2002, American Indian and Alaska Native-owned firms totaled 40,541—an increase of 52 percent from 1997.

However, even with this growth, minority-owned firms receive less than 2 percent of venture capital.

Microenterprise

A small subset of "small business," are microenterprises. A business is generally considered a microenterprise if it has five or fewer employees and was started with $35,000 or less.

· Estimates place the number of microenterprises in the U.S. at over 20 million businesses.
· In 2003, microenterprises comprised over 88 percent of the number of businesses in California, equaling 2,829,108 businesses.
· The 2.8 million microenterprises employed 18.8 percent of all workers in California in 2003.

II. Small Business Legislative Actions

This section identifies legislative actions related to small businesses that were signed into law during the 2005-06 and the 2007-08 Legislative Sessions. The section also includes a list of pending legislation in 2008.

Please note that small businesses may also be heavily impacted by changes in laws in many areas, including: bankruptcy, environmental standards, and land use. This document will be periodically updated to reflect the progress of this legislation.

Bills Signed into Law

· AB 348 (Arambula and Bass) – Self Certification of Small Business Eligibility: This bill authorizes a business to self certify, under penalty of perjury, that the business is an eligible small business to sell goods and provide services to state and local governments. Currently, a business must be certified by each government agency with which it wishes to do business even though the requirements for such certification are often duplicative. The multiple applications and lengthy review processes often act as a deterrent for small businesses from engaging in sales to state and local governments. Status: Signed by the Governor, Chapter 185, Statutes of 2005

· AB 424 (Calderon) – Business Identity Theft: This bill creates the crime of identity theft perpetrated against a business and gives businesses that are victims of identity theft the same rights as individuals. It allows businesses that are victims of identity theft to file a police report and to obtain fraudulent account information from a credit grantor who has provided credit to an identity thief. Status: Signed by the Governor, Chapter 10, Statutes of 2006

· AB 610 (Price) – Leverage of the Small Business Expansion Fund: This bill enhances the Small Business Loan Guarantee Program's ability to leverage existing program dollars, resulting in the ability to serve more small businesses' financial needs per year. Status: Signed by the Governor, Chapter 601, Statutes of 2007

· AB 761 (Coto) – Small Business Preferences: This bill requires each state agency awarding contracts that are financed with proceeds from the infrastructure bonds approved by voters in November, 2006, to establish a 25-percent small business participation goal for state infrastructure construction contracts and to provide specified assistance to small businesses bidding on state infrastructure bond-related contracts. Status: Signed by the Governor, Chapter 611, Statutes of 2007

· AB 1104 (Aghazarian) – Disaster Assistance and the Small Business Expansion Fund: This bill makes modifications to the Small Business Loan Guarantee Program relating to small business disaster guarantees and eligible investments of SBLGP funds. Status: Signed by the Governor, Chapter 624, Statutes of 2007

· AB 1550 (Arambula) – Economic Incentive Areas: This bill provides meaningful improvements to the management, oversight, and transparency of the California Enterprise Zone Program and other Geographically-Targeted Economic Development Area programs. Status: Signed by the Governor, Chapter 718, Statutes of 2006

· AB 2098 (Liu) – State-Government: Electronic Payment System: This bill requires the Department of Technology Services to design and implement a comprehensive electronic payment system that will allow all state agencies to receive and make payments through electronic funds transfers, credit cards, debit cards, and automated clearinghouse debits and credits. Status: Signed by the Governor, Chapter 818, Statutes of 2006

· AB 2330 (Arambula) – Small Business Costs Study: This bill requires the Office of the Small Business Advocate to commission a study of the costs of state regulations on small businesses that is parallel to the study on the impact of regulatory costs on small firms conducted by the federal Small Business Administration. The Office is required to make recommendations on how to reduce the cost of existing and future regulations on businesses while achieving the same policy and regulatory objectives. This bill also convenes a small business advisory committee to provide advice based on the study and recommendations. Status: Signed by the Governor, Chapter 232, Statutes of 2006

· AB 3058 (JEDE) – Small Business Disaster Preparedness: This bill reduces economic losses attributable to disasters, by providing technical assistance to small businesses on disaster preparedness. Specifically, the bill: (1) enhances the duties of the Office of the Small Business Advocate to include advocacy on disaster preparedness and recovery, including the provision of technical assistance; (2) requires the SBA, in cooperation with the Office of Emergency Services, to develop a handbook for small businesses on emergency preparedness, responding in an emergency, and recovery strategies; and, (3) requires the SBA, with the assistance of OES, to hold at least three meetings, in different locations in California, to share best practices on disaster preparedness for small businesses. Status: Signed by the Governor, Chapter 233, Statutes of 2006

· SB 115 (Florez) – California Disabled Veteran Business Enterprise Program: This bill sets up uniform processes for all state contracting that would provide Disabled Veteran Business Enterprise participation incentives to bidders. Status: Signed by the Governor, Chapter 451, Statutes of 2005

· SB 1436 (Figueroa) – Small Business Regulatory Standards: This bill requires the Department of Technology Services to create a link to state agency web sites at the State of California Internet Portal so small businesses can access information regarding startup requirements and regulatory compliance. It requires each state agency that significantly regulates or impacts small business, to designate at least one individual to serve as a small business liaison for the agency. It also requires each agency to ensure that the state's procurement and contracting processes are administered in order to meet or exceed the 25-percent small business participation goal. Status: Signed by the Governor, Chapter 234, Statutes of 2006

Pending Bills in 2007-08 Legislative Session

· AB 1189 (Assembly Committee on Veterans Affairs) – California Disabled Veteran Business Enterprise Program: This bill requires that awarding departments obtain copies of a contractor's Disabled Veteran Business Enterprise certification letter and reference number, issued by the Department of General Services, and check the contractor's standing as a certified DVBE on the Department of General Services Web site, prior to awarding a contract based on the contractor's DVBE status. Status: Pending on the Senate Floor

· AB 1942 (Ruskin) – Penalty Increases for Small Business Procurement Act: This bill increases and conforms penalties for persons who falsely engage in activities relating to the Small Business Procurement and Contract Act, including small businesses, microbusinesses, and disabled veteran-owned business enterprises. Status: Pending in the Senate Appropriations Committee

· AB 2376 (Price) – Emerging Contractors Technical Assistance Program: This bill establishes the Small and Emerging Contractors Technical Assistance Program, administered by the California Department of Transportation, to provide small contractors with technical assistance and training to improve their knowledge and skills necessary to obtain surety bond guarantees offered by the federal Small Business Administration. The program is repealed on January 1, 2013. Status: Pending in the Senate Appropriations Committee

· AB 2773 (Price) – Streamlined Procurement Process: This bill increases the maximum contract threshold amount for awards to a small business and DVBE, under a specific streamlined procurement process, from $100,000 to $250,000. Status: Pending in the Senate Appropriations Committee

· AB 2778 (Mendoza) – Definition of Small Manufacture: Updates the definition of "manufacturer" under the Small Business Procurement and Contract Act by replacing the manufacturing code references in the Standard Industrial Classification Manual with the North American Industry Classification System codes. Status: Pending in the Senate Appropriations Committee

· AB 2854 (Mendoza) – Small Business One-Stop Shop: This bill requires the establishment of a one-stop web site for small business-related announcements and funding opportunities offered by state agencies. This requirement is repealed on January 1, 2014. Status: Pending in the Senate Appropriations Committee

· AB 2998 (Carter) – Microenterprise Development and the Workforce Investments Act: This bill requires the California Workforce Investment Board to develop guidelines for entrepreneurial training and makes technical modifications to the definition of microenterprise. Status: Pending in the Senate Appropriations Committee

· SB 983 (Correa) – Prompt Payment of Authority for DVBEs: Requires state departments to pay prompt payment penalties when missing specified timelines on state procurement contracts. Status: Pending in the Assembly Appropriations Committee

· SB 1200 (Duchney) – Native American Direct Loan and Guarantee Program: Expands the Small Business Loan Guarantee Program to include direct loan and loan guarantees to qualified nongaming tribes. Moneys for these loans and guarantees will be separately capitalized. Status: Pending in the Assembly Appropriations Committee.

· SB 1687 (Negrete McCloud) – Persons with Developmental Disabilities Business Enterprises: Establishes a new category of procurement outreach for persons with development disabilities business enterprises, which includes businesses owned or managed by a person or majority of people with developmental disabilities or by a community-based nonprofit serving persons with developmental disabilities. Status: Pending in the Assembly Appropriations Committee.

*As other bills are identified as relevant to small business, the Committee will update the aforementioned listing.

III. Informational and Oversight Hearings

During the 2005/06 and the 2007/08 legislative sessions, JEDE held several informational hearings on issues of concern to small business. Several of these hearings are described below. The final sections of the memorandum include an expanded description of JEDE's review of the California Enterprise Zone Program and an update on the activities of the Emerging Domestic Market Advisory Group.

The Business Climate for Growth and Development of the California Economy (2005)

On Wednesday, February 9, 2005, JEDE convened an informational hearing to examine California’s current business climate and the competitiveness of business activities and investment in California.

The Chairman commenced the hearing by stating that the JEDE Committee meetings and activities should be used to foster better collaboration between business and government, including both Houses of the Legislature, both political parties, and the Executive branch. Collectively, this collaboration can help accelerate California’s economic recovery. It was mentioned that through the hearing, it is hoped that further legislative reform will occur to help sustain the current economic recovery underway.

The purpose of the hearing was to assess California’s competitive and regulatory issues as seen from a business perspective. The hearing participants, representing various business interests, examined California’s competitiveness in retaining and attracting jobs, challenges to developing a skilled workforce, and future directions and choices California can make to expand its economy.

A number of suggestions were made on how California could improve the overall business climate. Among the suggestions that influenced future legislation were supporting the existing network of economic developers by encouraging the contribution of more local resources, helping business retention efforts by promoting customer service training, and identifying state regulations that could be more efficient and less cumbersome to small businesses while achieving the same policy objectives.

The Chair concluded the hearing by stating, “Collectively, we should be able to bring together the resources necessary to fast-track our economic recovery throughout the state by expanding business, developing new technologies and creating jobs – making California a safe and healthy place for everyone to live and work.”

Overview of Small Business and Microenterprise Development (2005)

On Tuesday, April 5, 2005, JEDE convened a special order of business to examine small businesses and microenterprises.

Testimony during the special order demonstrated the importance of microenterprises and small businesses to the overall California economy. The hearing participants, representing both microenterprises and small businesses, discussed training programs that help provide a skilled California workforce, regulations imposed on smaller businesses, and projected needs of smaller businesses in order to remain competitive.

Information presented during the special order also shed light on the important link between larger companies and smaller businesses, which large companies contract with for specialized work.

Participants noted that microenterprise businesses alone directly account for 19.2 percent of California’s employment; are 78-percent women owned; and, coupled with small businesses, provide an invaluable catalyst for the California economy.

At the conclusion of the hearing members of JEDE were committed to continue to find ways to address the needs of small business through the legislation they reviewed.

Microenterprise: The Engine of Regional Economies (2006)

On Tuesday, July 26, 2006, JEDE convened an informational hearing on the role of microenterprise in regional economies. At the conclusion of the hearing it was clear that there is a need for a more comprehensive, microentrepreneur-centered, community reinvestment model to better address the needs of businesses, underserved communities, and public and private investors.

Existing policies and programs are fragmented and appear to focus either on broad community development objectives, or individual worker development objectives. These fragmented policies and programs have resulted in local community developers, such as microenterprise development organizations, having to package increasingly complex deals that blend multiple funding sources. Each additional source of funding adds new layers of regulation, reporting, and monitoring without necessarily adding value. A more comprehensive approach to community development would also reduce unnecessary administrative burdens while increasing program dollars for project delivery.

A few of the recommendations from the hearing include:

· Designating microenterprise development as a core element to the California Economic Development Plan and including a comprehensive review of private investment tools for community revitalization.

· Investing in capacity building of organizations and systems supporting entrepreneurship development. [Addressed in AB 816 (Carter), 2007/08 Session]

· Reviewing key state economic development programs to identify impediments to Microenterprise Development Organization participation.

· Calling for the inclusion of entrepreneurship training in California K-12 schools and community colleges systems.

· Encouraging more private investment in microenterprise, including an increase in the percentage of Community Development Financial Institutional microenterprise activities in California. [Addressed in an Arambula sponsored investor working convened in conjunction with the Latino Caucus and the California Hispanic Chambers of Commerce]

· Advocating on the 2007 federal Farm Bill for rural development programs that assist rural microenterprise.

· Reviewing the Goods Movement Plan and recommend changes to support the efficient transport of microenterprise-produced products. [Addressed in AB 1107 (Arambula), 2007/06 Session]

· Developing a resource coordination function within state government to assist local jurisdictions, nonprofits, foundations, and financial institutions to identify resources and partner with the state for entrepreneur development. [Addressed in AB 1606 (Arambula), 2007/06 Session]

· Convening a microenterprise and community development roundtable to discuss possible new legislation for the 2007/08 Legislative Session.

California's Economic Development Programs: Meeting the Challenges of Today's Economy (2007)

On Tuesday, March 28, 2007, JEDE and the Budget Subcommittee 4 on State Administration held a joint hearing to examine the state's workforce investment and economic development programs. This hearing followed up on the findings and recommendations from the international trade and microenterprise hearings JEDE has held in the previous session, further focusing on the need for a more comprehensive and streamlined approach to economic and workforce development.

Recommendations from the hearing include, but are not limited to, the following actions:

· Develop a state policy and strategy for attracting private investment in California's EDMs which is integrated into the State ED Plan and the pending state international trade policy and strategy. [Addressed in AB 1606 (Arambula), 2007/08 Session]

· Coordinate state efforts to increase small business participation in state construction and procurement contracts with state workforce training and economic development programs. [Addressed in AB 761 (Coto) and AB 1491 (Arambula), 2007/08 Session]

· Streamline state regulatory, licensing, and permitting requirements for small business and microenterprise start-ups through on-line, one-stop application and assistance programs.

· Begin a dialogue with the private sector on how to encourage the development of products to meet the state's greenhouse gas emission reduction targets. [Addressed in an Arambula sponsored investor working group this Fall in conjunction with the Latino Caucus and the California Hispanic Chambers of Commerce]

· Develop an integrated strategy on the delivery of state and local workforce and economic development programs to provide skilled workers for emerging industries such as cleantech, and to meet the workforce demands of emerging economic trends such as the manufacturing value chain. [Addressed in AB 1606 (Arambula), 2007/08 Session]

California's Economic Development Programs: Meeting the Challenges of 2008 (2008)

On Tuesday, March 4, 2008, JEDE held a hearing to review the progress being made in implementing legislation enacted in the current and previous sessions. During the course of the hearing, Members also had an opportunity to hear from senior-level Canadian officials on how Canada undertakes its foreign trade and investment programs.

This review of previously enacted legislation formed the foundation of the Committee's examination of the state's economic and workforce development policies, programs, and services, and their ability to meet three challenges facing California’s economy today and into the next decade, including:

· How to retain California's global competitiveness in technology related industries, including cleantech;

· How to increase private investment in emerging domestic markets; and,

· How changes in the global manufacturing supply chain may affect California's economy.

While the specific purpose of the hearing is to oversee the implementation of previously enacted legislation, Members also examined larger and more over-arching economic development issues including, but not limited to:

· Whether or not the state has the optimal mix of policies, programs, and services to meet the current and near-future economic challenges facing California. [Addressed in AB 2711 (Portantino, Arambula, Salas, and Price, 2007/08 Session]
· Whether or not the state has the optimal mix of policies, programs, and services to attract the private sector investment needed to achieve state economic development objectives. [Addressed in an Arambula sponsored investor working convened in conjunction with the Latino Caucus and the California Hispanic Chambers of Commerce]

· Whether or not the current administrative structure for providing programs and services is conducive to the growth and sustainability of California’s economy. [Addressed in AB 3046 (JEDE), 2007/08 Session]

· Whether or not the current administrative, fiscal, and programmatic structure proactively supports emerging technologies and innovative processes. [Addressed in AB 2711 (Portantino, Arambula, Salas, and Price, 2007/08 Session]
· Whether or not the current policies, programs, and services strengthen historically weak regional or local economies, and thereby reduce future public costs for public assistance, law enforcement, and public health. [Addressed in AB 1606 (Arambula), 2007/08 Session]

California's Proposed International Trade and Investment Strategy: Legislative Review by the Assembly Policy and Fiscal Committees (2008)

On Tuesday, May 6, 2008, JEDE held its statutory required hearing on the preliminary California International Trade and Investment Strategy (Strategy), pursuant to Section 13996.55 of the Government Code.

During this review, Members had an opportunity to hear from the Business, Transportation, and Housing Agency on how the strategy was developed and their purpose in choosing certain actions to implement the goals and objectives. Members also heard from key stakeholder groups on how the priorities and recommended actions address how the state can best assist California businesses to be more competitive in the global economy. A special focus of the strategy is required to be of assistance to small and medium size businesses.

More specifically, the Members examined how the preliminary strategy addresses:

· The future competitiveness of California and California businesses within the global economy.

· The need for educating and attracting a quality workforce.

· California's current and future need to upgrade and modernize the state's transportation and goods movement system.

· The state's economic development needs and opportunities, particularly as they relate to innovation, research and development, and other technology commercialization areas.

· Import and export opportunities and challenges for California's businesses, in general, and small and medium- sized businesses, in particular.

· California business interests within the context of federal and international trade agreements.

· Attraction of private investment capital to California, in general, and to emerging domestic markets, in particular.

The complexity of the California economy and the changing global business environment makes the development of any strategy such as this very challenging. These challenges also underline why having an effective and implementable Strategy is so important. JEDE introduced AB 3046 and sponsored AB 2711 (Portantino, Arambula, Salas, and Price) to address many of the issues raised at this hearing.

IV. California Enterprise Zone Program and Small Business Participation

During the 2005/06 session, JEDE and the Assembly Committee on Revenue and Taxation held a series of hearings reviewing California’s Enterprise Zone Program. The hearings were meant to shed light on a program that had not been comprehensively reviewed since its inception. From the hearings, JEDE produced a list of recommended reforms for the Enterprise Zone program, including a number of recommendations that would increase the efficacy of the program for small businesses. Those recommendations include:

· Authorizing small businesses to transfer the value of the hiring credit against certain other state taxes owed, i.e. sales tax. Many small businesses have little use for an income tax credit, but could use credits against other state tax liabilities.

· Requiring enterprise zone managers to develop a directory of businesses located in each enterprise zone. Each zone marketing plan should include how existing local, state, and federal resources will be used to retain and grow these businesses, as well as attract new businesses. Too often, zone activities are almost exclusively focused on a few large companies relocating into the zone rather than serving the full range of businesses within the zone. [Addressed in AB 1550 (Arambula and Karnette), 2005/06 Session]

· Establishing a three-year pilot project authorizing employers to self-certify hiring credits. The Franchise Tax Board will prepare a report on the effectiveness of the enterprise zone program. This will eliminate some of the bureaucracy surrounding the use of the hiring credits and make them more accessible to small businesses.

· Requiring enterprise zones to have "pre-certification" programs for eligible employees. This does not preclude employers from hiring non-"pre-certified" employees and still receive credits; however, identifying prospective employees who are eligible for hiring credit vouchers would make it be easier for small businesses to utilize vouchers.

V. Emerging Domestic Market Advisory Group

Beginning in October 2007, Assemblyman Juan Arambula, in conjunction with the Latino Legislative Caucus and the California Hispanic Chambers Association, convened the first round of discussions of the Emerging Domestic Market (EDM) Advisory Group. Comprised of national investment leaders, the advisory group focused on concrete actions that could be taken to remove impediments and increase private sector investment in California's EDMs.

Over the next 40 years, it is estimated that more than 85 percent of U.S. population growth will come from ethnic groups. This shift is already so significant that the combination of African American and Hispanic consumer markets is larger than the gross domestic product (GDP) of all but nine countries in the world.

With this growing diversity comes a change in the make-up of business ownership in the country. While minority owned businesses represent the fastest growing segment of the business community, many of these businesses remain severely restrained by a lack of access to capital. The Milken Institute reports that Latinos and African-Americans are turned down for business loans at three times the rate of whites with equivalent credit characteristics.

Research shows that many communities and businesses can become private investment ready through more effective partnerships between the nonprofit, private, and pubic sectors. From the state's perspective, assisting small businesses to become investment ready is a very cost effective strategy, as even relatively "small" investments by large institutional investors represent significant new economic and community development sources of funding.

Already, both the California Public Employees Retirement System (CalPERS) and the California State Teachers Retirement System (CalSTRS) adopted an EDM investment goal of 2 percent of their entire portfolio. CalSTRS exposure in California's underserved and emerging markets was $2.3 billion, as of December 31, 2007, representing a $364 million increase in direct investments in California communities from the previous year. The public sector working alone could never outpace the volume or impact of large institutional investors' actions.

From the investor's standpoint, EDM investments is a growing niche market that can provide appropriate risk-adjusted returns. CalPERS, as an example, estimates the pro-forma internal rate of return from its $2.6 billion California Urban Real Estate portfolio is 20.2 percent.

The EDM Working Group made its first report back to the Latino Legislative Caucus in February 2008, which includes recommendations for strengthening California's small businesses and better aligning public resources to leverage private investment capital.

VI. Conclusion

For more information on small business issues, please contact the Assembly Committee on Jobs, Economic Development, and the Economy. The Committee Office is located in the Legislative Office Building at 1020 N Street, Room 369.

Other reports, fact sheets, and information may be found at the Committee's Web site, which is located under the name, Assembly Committee on Jobs, Economic Development, and the Economy, at: http://www.assembly.ca.gov/acs/acsframeset8text.asp .

[1] Based on the federal definition of businesses with less than 500 employees