Report of the Public Body Procurement Workgroup on the Small SWaM Business Procurement Enhancement Program and Reporting Requirements (Chapter 834, 2024)

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REPORT OF THE VIRGINIA DEPARTMENT OF
GENERAL SERVICES

Report of the Public Body Procurement
Workgroup on the Small SWaM
Business Procurement Enhancement
Program and Reporting Requirements
(Chapter 834, 2024)

TO THE GOVERNOR AND
THE GENERAL ASSEMBLY OF VIRGINIA

HOUSE DOCUMENT NO. 14

COMMONWEALTH OF VIRGINIA
RICHMOND
2024
h. JLARC Operations and Performance of the Department of Small Business and
Supplier Diversity Report 2020
1. Portsmouth Public Schools Fact Sheet on HB 1404
3. Approved Meeting Minutes

Appendix C. September 4, 2024, Meeting Materials... .......2 00 bee cece eevee 20
1. Agenda
2. Meeting Materials
3. Approved Meeting Minutes

Appendix D. September 17, 2024, Meeting Materials.....2.00.00.0 20 eee 21
1. Agenda
2. Meeting Materials
3. Approved Meeting Minutes

1. Agenda
2. Meeting Materials
a. Department of Small Business and Supplier Diversity Presentation on HB
1404
b. Joint Legislative Audit and Review Commission Presentation on HB 1404
c. Virginia Commonwealth University Virginia SWAM & DBE Certification
Programs: Impacts & Policy Report
3. Approved Meeting Minutes

Appendix F. October 22, 2024, Meeting Materials........0 0.00 0..0 occ cece 23
1. Agenda
2. Meeting Materials
a. Department of Small Business and Supplier Diversity Presentation on HB
1404
3. Approved Meeting Minutes

Appendix G. November 6, 2024, Meeting Materials......................2... bocce eves 24
1. Agenda
2. Meeting Materials
a. HB 1404 Final Recommendations

Approved Meeting Minutes
1. Introduction

The third enactment clause of HB 1404, patroned by the Honorable Delegate Jeion A. Ward
during the 2024 General Assembly Session, directs the Department of General Services (DGS),
in coordination with other interested agencies, to convene a workgroup to review the issues
presented by the first enactment clause of that legislation. Delegate Ward also wrote to the
Honorable Governor Glenn Youngkin concerning HB 1404, which establishes the Small SWaM
Business Procurement Enhancement Program, including a statewide goal of 42 percent of
certified SWaM business utilization in all discretionary spending by executive branch agencies
and covered institutions in procurement orders, prime contracts and subcontracts. In her letter to
the governor, Delegate Ward identified stakeholders, whom the Workgroup staff reached out to
about meetings.

Six Workgroup meetings were held at which HB 1404 was discussed. This report
summarizes the information presented to the Workgroup by stakeholders and subject matter
experts and the Workgroup’s findings and recommendations.

I. Background
Overview of Public Body Procurement Workgroup Authority and Duties

Item 73 of the 2024 Appropriations Act directs DGS to lead, provide administrative support,
and convene an annual public body procurement workgroup to review and study proposed
changes to the Code of Virginia in the areas of non-technology goods and services, technology
goods and services, construction, transportation, and professional services procurements. The
Appropriations Act language specifies that that Workgroup's membership shall be composed of
the following individuals or their designees:

Director of the Department of Small Business and Supplier Diversity

Director of the Department of General Services

Chief Information Officer of the Virginia Information Technologies Agency
Commissioner of the Virginia Department of Transportation

Director of the Department of Planning and Budget

President of the Virginia Association of State Colleges and University Purchasing
Professionals

e President of the Virginia Association of Governmental Procurement

Additionally, the Appropriations Act language requires that a representative from each of the
following provide technical assistance to the Workgroup:

Office of the Attorney General’s Government Operations and Transactions Division
Staff of the House Appropriations Committee

Staff of the Senate Committee on Finance and Appropriations

Divisions of Legislative Services
The Appropriations Act language outlines a few avenues by which bills may be referred to
the Workgroup for study. First, the Chairs of the House Committees on Rules, General Laws,
and Appropriations, as well as the Senate Committees on Rules, General Laws and Technology,
and Finance and Appropriations, can refer legislation by letter to the Workgroup for study.
Second, the chairs of the House Committees on Rules and Appropriations, as well as the Senate
Committees on Rules and Finance and Appropriations, can request that the Workgroup review
procurement-related proposals in advance of an upcoming legislative session to assist in
obtaining a better understanding of the legislation’s potential impacts. Additionally, bills may
also be referred to the Workgroup for study by the General Assembly, which can pass a bill that
includes an enactment clause directing the Workgroup to study a particular topic. In this case, the
Public Body Procurement Workgroup includes all of the agencies directed to participate in the
study required by the third enactment clause of HB 1404.

Overview of HB 1404

As introduced, HB 1404 establishes the Small SWaM Business Procurement Enhancement
Program, including a statewide goal of 42 percent of certified SWaM business utilization in all
discretionary spending by executive branch agencies and covered institutions in procurement
orders, prime contracts and subcontracts. Executive branch agencies and covered institutions are
required to increase SWaM business utilization by three percent each year until they meet the 42
percent goal.

The bill also includes a target goal of 50 percent subcontracting to SWaM businesses in
instances where the prime contractor is not a SWaM business for all new capital outlay
construction solicitations issued. The bill also includes a set-aside of $100,000 for the purchase
of goods, services and construction to certified SWaM businesses.

HB 1404 creates the Division of Procurement Enhancement with the Department of Small
Business and Supplier Diversity (DSBSD) to help Virginia meet the goals established under the
enhancement program and to enhance the development of SWaM and service-disabled, veteran-
owned businesses.

Finally, the bill requires DSBSD to conduct a disparity study every five years, with the next
one due January 1, 2026.

HB 1404, which was patroned by Delegate Ward, was referred to multiple subcommittees
before passing the Virginia House of Delegates and moving to the Senate of Virginia. It passed
the Senate of Virginia too and was sent to Governor Youngkin’s desk for signature. Governor
Youngkin made a recommendation, which both the Virginia House of Delegates and the Senate
of Virginia adopted. The bill also contained a reenactment clause so that the first enactment of
the bill would not take effect unless such first enactment was enacted by the 2025 General
Assembly Session.

Study Participants. Stakeholders
The Workgroup’s Appropriations Act language directs it to hear from stakeholders identified
by the patron of referred legislation and other interested individuals. As such, the Workgroup’s
staff contacted the stakeholders listed in Delegate Ward’s letter. The Workgroup’s staff compiled
the names of the stakeholders identified into a stakeholder email distribution list, which was used
to communicate information about the Workgroup’s study of HB 1404 and opportunities for
public comment to the identified stakeholders. The Workgroup’s staff also added any interested
individual to the stakeholder email distribution list upon request by such individual.

The stakeholder email distribution list was composed of the following individuals:

The Honorable Delegate Jeion A. Ward—Virginia House of Delegates
Patrick Cushing, Fall Line Strategies, Principal

William Bullock, Bullock Painting Contractors, Inc., Owner
Christopher Chambers, Esquire, Virginia Minority Chambers, Inc.
Gwendolyn Davis, M/WBE Advisory Committee, Administrator
Michelle Deneke, M2B Enterprises, Owner

Lorena Justin, Lorena’s Boutique, Owner

Gaylene Kanoyton, Virginia NAACP, Political Action Chair

Kara N. Alley—Spotts Fain Consulting, Government Affairs Specialist
reedas@verizon.net

Bernice Travers

James Allen, the James Allen Group, Principal Owner

Phil Abraham, The Vectre Corporation, Owner

Brandon Robinson, AGCVA, CEO and Staff Lobbyist

Julia Ciarlo Hammond, Cozen O’Connor Public Strategies, Senior Principal
Melissa Ball, Ball Office Products

Ill. Workgroup Meetings on HB 1404

The Workgroup held six meetings during which it discussed HB 1404. At the August 21,
2024, meeting Gwendolyn Davis, M/WBE Administrator with the Portsmouth Public Schools
presented HB 1404 to the Workgroup and asked for support of the bill in its current form, stating
that she requested the bill. After Davis presented, three stakeholders spoke in support of HB
1404: Tonya Poindexter with the Northern Virginia Black Chamber of Commerce, Samuel
Wiggins with the Virginia Minority Business Chambers, and Loranna Justine.

There were two stakeholders who spoke in opposition to HB 1404: Chris Stone, past
chairman for the Hampton Roads Chamber of Commerce, and Melissa Ball, a member of the
Small Business Commission. The Workgroup did not discuss the bill at this meeting.

At the next meeting, held on September 4, 2024, there were no presentations or public
comment on HB 1404. The Workgroup asked for additional information from the Department of
Small Business and Supplier Diversity on SWaM spend, certification numbers, and the small
business definition, as well as information on the 2020 JLARC report recommendations.
During the September 17, 2024, meeting Verniece Love, Deputy Director of the Department
of Small Business and Supplier Diversity (DSBSD), presented on HB 1404, discussing the
department’s mission, small business data, challenges, and recommendations. There was no
public comment in support or opposition of the bill, but Chris Stone did speak in general terms
about HB 1404, bringing a study done in 2018 by VCU and DSBSD and the JLEARC
recommendations from the latest disparity study.

At the October 8 meeting, there were two presentations on HB 1404 by DSBSD and by
JLARC, followed by public comments. Two people spoke in support of the bill—Gwendolyn
Davis and William Bullock. Brandon Robinson spoke in neutrality to the bill and Julianne
Hammond and Chris Stone spoke in opposition to the bill.

During the October 22 meeting, DSBSD presented again on HB 1404, this time on how the
small business goal in Virginia compared to other states. Then the Workgroup began discussions
on possible recommendations for the bill.

At the last meeting on November 6, 2024, there was a public comment period where Melissa
Ball spoke the Workgroup and asked them to consider using federal small business standard in
the Virginia bill. Then the Workgroup finalized and voted on recommendations for HB 1404.
Afterward, Gwendolyn Davis spoke in opposition to the Workgroup’s recommendations.

See Appendices B, C, D, E, F and G for the meeting materials, including meeting minutes for
each of the five meetings.

IV. Summary of Information Presented to the Workgroup

The Public Body Procurement Workgroup (Workgroup) was tasked in a letter from the
Honorable Delegate Jeion A. Ward to the Honorable Governor Glenn Youngkin with studying
HB 1404, patroned by Delegate Ward during the 2024 General Assembly session. Over the
course of six public meetings, the Workgroup members heard presentations and numerous
stakeholder comments surrounding HB 1404.

August 21, 2024, presentation by Gwendolyn Davis on HB 1404

At the August 21, 2024, Workgroup meeting Gwendolyn Davis, M/WBE Administrator
with Portsmouth Public Schools, presented HB 1404 to the Workgroup, requesting support for
the bill in its current form. She explained that she had initiated the bill and that it codifies
executive orders first issued in 2014 by Governor McAuliffe. These orders significantly
increased spending on women and minority businesses (MWBEs) from $75 million to $3.1
billion.

Davis highlighted key provisions of the bill:
e Small Business Procurement Enhancement Program: Establishes this program under
the Department of Small Business and Supplier Diversity (DSBSD).
e Addressing Disparity in Spending: She noted MWBEs received only 1.26% of
spending in 2004, while the 2020 disparity study indicated it should be 32%.

e Prompt Action Required: Citing studies, Davis emphasized the need for immediate
action, particularly as the pandemic severely impacted businesses in the 757 area.

e Concrete Spending Goals: She described the bill as essential for progress, with realistic
goals (42% spend) and a requirement for prompt payment to business owners, addressing
current delays of 90—100 days.

e Set-Asides for MWBEs: Allows for purchases up to $100,000 for goods, services, and
construction, excluding transportation due to lack of study.

e Subcontracting Plans: Ensures proper verification and inclusion of subcontractors in
procurement processes.

e Local Government Flexibility: Permits local governments to establish non-competitive
purchasing procedures for single-term contracts.

e Regular Disparity Studies: Mandates that DSBSD conduct a disparity study every five
years to evaluate progress.

Davis emphasized that the bill has been vetted by multiple administrations and the Attorney
General's office. She highlighted its importance to Virginia businesses, asserting it is well-
crafted and achievable legislation that addresses long-standing disparities and systemic issues in
MWBE procurement.

August 21, 202-4, testimony in support of and opposition to HB 1404

Tonya Poindexter, representing the Northern Virginia Black Chamber of Commerce,
expressed strong support for HB 1404. She shared her concerns about the difficulties her
members face when navigating the state procurement process. She explained that many members
struggle to get through the process and achieve their goals of securing state contracts. Poindexter
expressed believing that the bill will provide her members with the resources they need to
overcome these challenges and succeed in obtaining state contracts.

Samuel Wiggins, the CEO of Virginia Minority Chambers, also voiced his support for the
bill. He pointed out that minority businesses often feel discouraged when their SWaM
certification is treated as merely a bonus rather than a substantive factor in the state contract
evaluation process. Wiggins highlighted another issue where prior state experience is frequently
required for procurement, which limits opportunities for new entrants and drives businesses to
seek contracts in the private sector or federal government, where programs are perceived to be
more accessible and supportive.

Loranna Justine added her voice to the discussion by expressing her general support for
the bill, agreeing with its intent to address disparities and improve the procurement process for
minority and women-owned businesses.

Two stakeholders spoke in opposition to HB 1404, raising concerns while supporting its
broader goals.Chris Stone, past chairman of the Hampton Roads Chamber of Commerce, noted
that while the Chamber does not oppose the bill, it has two primary concerns. First, he cautioned
against codifying the 42 percent spending goal, explaining that executive orders allow flexibility,
whereas codification would require legislative action for adjustments. Second, he criticized the
outdated definition of a small business, unchanged since 1960. He pointed out that the current
definition allows businesses with up to 250 employees and unlimited revenue to qualify as small
businesses, which is inconsistent with modern standards. Stone referenced studies by DSBSD
(2018) and JUARC (2020) that recommended updating the definition to better align with today’s
business environment and urged the General Assembly to address this issue.

Melissa Ball, a Small Business Commission member and local small business owner,
expressed support for initiatives to level the playing field for minority, women, and small
businesses in procurement, emphasizing their importance to Virginia's economy. However, she
criticized the codified micro business definition, arguing it unintentionally excluded many small
businesses by relying solely on headcount. Ball shared that her business was negatively affected,
placing it in the same category as large companies like Staples. She also highlighted
inefficiencies in procurement caused by micro businesses acting as intermediaries, inflating costs
for the Commonwealth on items like safety equipment, tools, and maintenance supplies. Ball
recommended adopting the federal SBA approach to defining small businesses, which considers
both size and revenue metrics, to address these issues.

September 17, 2024, Department of Small Business and Supplier Diversity
presentation

Verniece Love, Deputy Director of the Department of Small Business and Supplier Diversity
(DSBSD), presented on HB 1404, discussing the department’s mission, small business data,
challenges, and recommendations.

Love began with an overview of DSBSD’s work to support small businesses in Virginia. She
shared that as of June 2024, over 14,000 businesses were certified as SWAM (Small, Women-
owned, and Minority-owned) businesses. She explained that businesses can be certified in
multiple categories, which may lead to overlapping numbers. Among the certifications, over
13,000 are small businesses, more than 8,000 are micro-businesses, over 6,200 are minority-
owned businesses, approximately 5,600 are women-owned businesses, 3,300 are disadvantaged
business enterprises, and 810 are service-disabled, veteran-owned businesses.

She highlighted the department’s electronic certification portal, launched in 2017, which
processes certifications within 60 business days. Certification is valid for five years, with a
streamlined recertification process using previously submitted documentation.

Love reviewed the three disparity studies conducted in 2002, 2009, and 2020, which showed
significant growth in MWBE participation. In 2002, only 1.27% of businesses were MWBEs,
increasing to 2.82% in 2009 and 13.3% in 2020. She also shared that in FY2023, Virginia spent
$2.9 billion with SWAM businesses, including 6.06% spent with women-owned businesses and
6.77% with minority-owned businesses. Spending with SWAM businesses has increased over
the past three years.
She addressed the Commonwealth’s SWAM spending goal of 42%, which was established
by Governor McAuliffe in 2014 and increased from 40%. Love noted that the highest percentage
achieved was 36.9% in 2016, with other years hovering around the low 30% range. She
mentioned DSBSD’s recommendation to adjust SWAM goals by agency based on their specific
contracting needs and spending patterns, rather than setting a uniform goal for the entire
Commonwealth.

The definition of a small business in Virginia, as outlined in the Code of Virginia, was
another topic Love discussed. The current definition allows businesses with up to 250 employees
or $10 million in revenue to qualify. Love described this as an “either-or” approach, which
allows some large businesses to qualify as small. She shared past recommendations to amend the
definition by changing “or” to “and” or aligning it with federal definitions used by the Small
Business Administration. However, these changes have not been implemented. Love cautioned
that federal definitions may not suit Virginia’s needs due to differences in industries and codes.

Love explained that DSBSD has implemented 15 of the 16 recommendations from the 2020
JLARC study. The one exception is the creation of a "Business One Stop” website, intended to
streamline business registrations, licensing, and procurement processes. This initiative was
deemed too expensive, with estimated costs of $1.2 million initially and $4.7 million for
maintenance over four years. Instead, the current website directs businesses to relevant
resources.

She noted that the next disparity study will begin in January 2025 and be completed by
January 2026. Unlike previous studies, this one will evaluate spending by specific goods and
services categories. Love also addressed concerns about reciprocity with other states, explaining
that Virginia excludes businesses from states that do not allow Virginia businesses to participate
in their programs. For example, D.C. businesses cannot participate in Virginia’s SWAM program
because Virginia businesses are excluded from theirs.

During the discussion, Love answered questions about the SWAM goal, clarifying that it
applies to aggregate spending across all executive branch agencies. She acknowledged confusion
over whether the goal applies to the Commonwealth of Virginia as a whole or to individual
agencies. She agreed to research how neighboring states define and certify small businesses,
including industry-specific limitations, and present this information at a future meeting.

In closing, Love emphasized the importance of refining SWAM goals, updating the small
business definition, and tailoring programs to meet modern needs, reiterating the relevance of
HB 1404 in achieving these objectives.

Sepiember 17, 2024, public comment on HB 140-4
Chris Stone, the past chair of the Hampton Roads Chamber of Commerce, spoke to the

Workgroup about HB 1404. He brought attention to a 2018 study conducted by the Department
of Small Business and Supplier Diversity (DSBSD) and Virginia Commonwealth University
(VCU), along with a synopsis of recommendations from the Joint Legislative Audit and Review
Commission (JLARC).

Stone pointed out specific sections in the study that address the definition of a small business,
mentioning that the study also examines how other states define small businesses. He
emphasized that Virginia's current definition is significantly out of alignment with neighboring
states, especially regarding the size of a business. According to Stone, the existing definition
allows companies with up to 250 employees and unlimited revenue to be classified as small
businesses, which he believes is outdated.

He concluded by advocating for an updated definition that reflects the current business
climate. Stone posed the question, “Why would a company of 250 people and unlimited revenue
need special consideration for public procurement?” suggesting that the definition should be
revised to better support genuinely small businesses in public contracting.

October 8, 2024, Department of Small Business and Supplier Diversity
presentation

Verniece Love, Deputy Director of the Department of Small Business and Supplier Diversity
(DSBSD), presented additional information to the Workgroup on HB 1404, focusing on how
neighboring states define small businesses. She specifically analyzed states along the East Coast
from Maryland to Florida, as requested during the previous meeting.

Love began by reiterating Virginia’s small business definition, which is a business with 250
or fewer employees or an average of $10 million or less in gross receipts over three years. She
then compared this to definitions and practices in other states:

e Washington, D.C.: Small businesses must meet one of four criteria tied to residency,
assets, or gross receipts in the District. They have a Certified Business Enterprise (CBE)
program with subcategories and size standards based on a five-year average, tailored by
industry.

e Maryland: The state’s Small Business Reserve Program requires businesses to be
independently owned and meet size standards tied to either employee count or gross
receipts, differentiated by industry.

e Tennessee: Businesses must have operated for at least two years and meet limits of $10
million in gross receipts (three-year average) or 99 full-time employees.

e North Carolina: Small businesses must be headquartered in the state, with no more than
100 employees and annual income not exceeding $1.5 million. North Carolina deducts
the cost of goods sold when calculating gross revenue.

e South Carolina: Only women- or minority-owned businesses qualify for small business
certification. South Carolina uses the federal SBA definition and requires owners to meet
federal criteria for social and economic disadvantage.

e Georgia: Businesses self-certify as small, with a definition broader than Virginia’s,
allowing up to 300 employees and $30 million in gross receipts.

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e Florida: Like South Carolina, Florida certifies only women-, minority-, or veteran-
owned businesses. Certified businesses must be based in Florida, with 200 or fewer full-
time employees.

Love concluded her presentation by noting differences in definitions and approaches across
states. She highlighted how some states adopt federal standards, while others have unique criteria
tailored to local contexts. There were no questions following the presentation.

October 8, 2024, Joint Legislative Audit and Review Commission presentation

The Joint Legislative Audit and Review Commission (JLARC) presented findings from its
2020 study on the Department of Small Business and Supplier Diversity (DSBSD) and provided
policy options relevant to HB 1404.

The study highlighted that DSBSD's processes have become timelier, and appeal rights were
limited. The Virginia Small Business Financing Authority (VSBFA) was not fully achieving its
mission of helping small businesses access financing and lacked adequate lending policies.
While state procurement spending with SWaM-certified businesses was substantial, the 42%
goal was not met. Additionally, most state procurements went to businesses much smaller than
Virginia's definition of a small business.

DSBSD has implemented or is in the process of implementing six of JUARC’s seven
recommendations. JLARC also proposed ten policy options in the report, including changes to
the small business definition, expanding SWaM spending goals, and introducing a VSBFA pilot
program for startup microloans.

Lauren Axselle provided additional analysis, noting that 94% of certified small businesses
were significantly smaller than Virginia’s definition, according to 2019 data. Policy options to
narrow the small business definition included requiring businesses to meet both employment and
revenue thresholds, which would cut 6% of certified businesses. Other options included lowering
thresholds to the 95th or 75th percentile, reducing certified businesses by 3% or 13%,
respectively, or adopting industry-specific thresholds similar to federal and other state
approaches. The latter would require significant administrative work and fiscal investment.

Axselle also discussed SWaM program effectiveness. As of 2019, agencies procured over $2
billion through SWaM.-certified businesses, with median sales increasing by 20% after
certification. Businesses also cited non-monetary benefits such as improved reputation.
However, only 40% of agencies met the 42% goal, and SWaM spending varied widely from 4%
to 87% due to differing procurement needs and the availability of SWaM vendors for specific
goods and services.

JLARC suggested that agencies set customized SWaM goals based on their procurement
patterns and the availability of SWaM businesses, rather than adhering to a uniform 42% target.

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During discussions, it was noted that the origin of the 42% goal is unclear, though it appears
in various executive orders. Workgroup members debated whether the 42% target applies
statewide or to individual agencies, emphasizing the need for clarity when reviewing HB 1404.
Questions arose about how discretionary spend is measured and which categories are exempt,
and DSBSD committed to providing a breakdown of exempt categories. Data on other states’
goals was also requested, with Love confirming that most states focus on women- and minority-
owned spending goals, which she will provide for comparison.

The presentation concluded with the Workgroup agreeing to consider these findings and
options as they review HB 1404.

October &, 2024, testimony in support of and opposition to HB 1404

Several stakeholders shared their views on HB 1404 during the discussion. Gwendolyn Davis
of the Minority Women Business Advisory Committee expressed strong support for the bill. She
read comments from the committee chair, Laquisha Atkinson, who emphasized the importance
of promoting minority- and women-owned businesses. Atkinson thanked the bill’s sponsor, the
General Assembly, and past governors for their commitment to supporting small businesses.

Brandon Robinson, representing the Associated General Contractors of Virginia, maintained
a neutral stance on the bill but raised key concerns. He questioned the feasibility of achieving the
42% goal, highlighting the availability of small, women, and minority-owned businesses as a
critical factor. Robinson also noted the difficulties some businesses face in obtaining SWaM
certification and said the bill does not address this process adequately. He further cautioned
against disbarring contractors for failing to meet aspirational goals, suggesting that goals should
be ambitious yet achievable, with support provided for small businesses.

William Bullock, a contractor from Richmond, voiced his support for the bill. He stressed the
need for the state to increase spending with minority and African American contractors,
particularly considering widespread poverty and economic struggles in Virginia. Bullock
highlighted the challenges small businesses face in competing with larger companies on price for
contracts.

Julianne Hammond, representing the National Federation of Independent Businesses (NFIB),
opposed codifying the executive order, arguing that it removes flexibility. She expressed concern
that some proposed solutions, like stricter limits, could hinder participation by small businesses.
Hammond suggested streamlining the certification process by accepting federal certifications at
the state level and focusing on discretionary fields to better assess availability within specific
industries.

Chris Stone, past chair of the Hampton Roads Chamber of Commerce, opposed the bill and
shared his personal experience with the 42% goal. Stone argued that the goal is not a one-size-
fits-all approach. He pointed out systemic barriers, such as the lack of accredited four-year
degree programs at Virginia’s HBCUs in fields like architecture and engineering, which limits
the pipeline for minorities to start businesses in these industries. Stone emphasized the need to
create broader opportunities for minorities to establish small businesses.

Overall, the stakeholders presented a mix of support, concerns, and recommendations for
improving the bill’s implementation and effectiveness.

October 22, 2024, Departmen of Small Business and Supplier Diversity
presentation

Verniece Love, Deputy Director of the Department of Small Business and Supplier Diversity
(DSBSD), presented additional information on HB 1404, focusing on Virginia's small business
spending goals, discretionary spending, and how other states manage similar programs. She
provided handouts detailing discretionary spending and exemptions, as well as DOA reportable
object codes, as requested in a previous meeting.

Love began by restating Virginia’s goals for SWaM (Small, Women-owned, and Minority-
owned) spending at 42% and an additional 3% goal for certified veteran-disabled businesses. She
explained that Virginia’s set-asides are gender-neutral and include micro-business set-asides for
purchases under $10,000 and small business set-asides for purchases between $10,000 and
$100,000. Micro and small businesses also receive a price preference, allowing their bids to
exceed the lowest bid by up to 5% while still being competitive.

Love provided an overview of similar programs in other states:

e Washington D.C. has a Certified Business Enterprise (CBE) program with a 50%
procurement goal for Small Business Enterprises (SBEs). Businesses earn points based
on various categories within the program.

e Maryland operates a Small Business Reserve (SBR) program that allocates over 20% of
open solicitations to certified small businesses, with spending categories segmented by
procurement value. Maryland also has a Minority Business Enterprise program with a
29% aspirational goal and a 3% goal for veteran-owned businesses.

e Tennessee assigns agency-specific procurement goals for different categories, such as
MBE, WBE, DSBE, SDVBE, and SBE. These goals are set and monitored by the
Governor’s Office of Diversity Business Enterprise.

e Texas runs the Historically Underutilized Business (HUB) program, which sets annual
goals for women- and minority-owned businesses across various industries, based on
state agency and university expenditures.

e New Jersey has two set-aside programs: one for 25% of contracts to cerafied Small
Business Enterprises and another 3% for Disabled Veteran-Owned Business Enterprises.
The state’s goal is to award 25% of contracts to small businesses.

e New York leads in M™WBE utilization with a rate of 32.3% and a state goal of 30%. The
Office of Contractor and Supplier Diversity oversees and monitors MWBE and SDVOB
project goals.

Love clarified questions from the Workgroup during the discussion. She explained that the
cardinal categories and codes for discretionary spending come from the Department of Accounts

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website and are maintained on DSBSD's website. In response to a question about Texas's HUB
program, she confirmed it is aimed at women- and minority-owned businesses. However, she did
not have specific information on whether subcontracting goals were for prime awards or all-
inclusive subcontracting.

Her presentation provided a detailed comparison of Virginia's approach to those of other
states, offering insights into various procurement and goal-setting practices.

November 6, 2024, public comment on HB 140-4

Local businesswoman Melissa Ball thanked the Workgroup for their efforts on HB 1404. She
urged the Workgroup to consider using the federal small business standard in Virginia. She
explained that the federal size standards are based on number of employees or revenue based on
the category. She said in Virginia, her business is not able to participate under the Virginia
categories. She thinks the federal standards will provide more economic development and
inclusivity of the minority and women-owned businesses that have been excluded.

After the Workgroup voted on recommendations for HB 1404, Gwendolyn Davis spoke in
opposition to the recommendations. She said these recommendations are asking women and
minority-owned businesses to wait again. She explained that the state has already commissioned
multiple disparity studies, and they all say the same thing. Davis said they don’t think the
recommendations are fair. She said that the 42% number was based on what agencies
recommended and the disparity studies. She furthered that the definition of small business has
nothing to do with the bill. She continued that women and minority-businesses should have the
same opportunities as other businesses and these recommendations do not help them. She
finished with saying she hoped the recommendations will be reconsidered.

V. Workgroup Findings and Recommendations

At the Workgroup’s seventh meeting on October 22, 2024, the Workgroup began a
discussion based on the input they had received regarding HB 1404. The Workgroup discussed
potential recommendations for HB 1404, focusing on its goals, technical amendments, and
implementation challenges. Chair Gill opened the discussion by summarizing key issues raised
in presentations and testimony. She highlighted concerns about the definition of small business,
questions about codifying the 42% SWaM goal, and whether it applies to the entire
Commonwealth of Virginia or individual agencies. Gill noted the current disparity study is
examining small and micro-businesses relative to the commodities the state procures, which is
different from previous studies. She questioned whether codifying the bill in its current form
might hinder implementation of future remedial plans for women and minorities based on
disparity study findings.

Verniece Love agreed and presented two options: rely on data from the 2020 disparity study
to implement programs or wait for the 2026 disparity study to inform recommendations. Rebecca

14
Schultz from DLS noted that the bill covers multiple initiatives, including a new enhancement
program and division within DSBSD, and suggested clarifying the bill’s primary goal. She raised
questions about whether the division should focus specifically on women and minority-owned
businesses or have a broader scope.

Love explained that the division would assist state agencies in setting goals and sourcing
small, women-, and minority-owned businesses for procurement contracts. Gill added that her
interpretation of the bill was that it would codify Executive Order 35 (EO35) and create a small
business enhancement plan rather than focus exclusively on women- or minority-owned
businesses. Schultz pointed out that the bill’s definition of small business aligns with the current
SWaM definition and suggested technical amendments to resolve potential conflicts in
procurement codes.

Gill suggested a recommendation for the General Assembly to address these technical
amendments if the bill is reintroduced, ensuring consistency between the Virginia Public
Procurement Act (VPPA) and DSBSD terms. Heslinga emphasized the need for future
legislation to consider differences in state agencies’ procurement needs and recommended
tailoring SWaM goals to the commodities each agency buys. Schultz agreed, suggesting that this
could be incorporated into the new division’s responsibilities outlined in the bill.

Patti Innocenti proposed altering the timing of recommendations required in enactment
clause 3 to align with the completion of the disparity study, ensuring its findings influence the
recommendations. Gill agreed, suggesting a similar approach to HB 1524. Kim Dulaney raised
concerns about the bill's fiscal impact on higher education institutions, recommending that the
Department of Planning and Budget (DPB) gather fiscal data from these institutions. Gill asked
Dulaney to provide fiscal impact details to include in the recommendations.

The Workgroup’s discussion concluded with a consensus on clarifying the bill’s goals,
addressing technical amendments, considering the fiscal impact on higher education, and
tailoring SWaM goals to agency-specific procurement needs. These recommendations aim to
refine the bill and ensure effective implementation.

At the eighth and last meeting on November 6, 2024, Chair Gill opened the discussion on
finalizing the recommendations for HB 1404, noting that the Workgroup had been refining draft
recommendations over the past two weeks via email. She invited further discussion and input.
Dulaney relayed to the Workgroup that she did not have a readily available fiscal impact
statement.

Josh Heslinga identified an unnecessary comma in the first recommendation, which staff
resolved by removing it.

Lisa Pride asked whether the Workgroup should clarify the benefits outlined in
Recommendation 2 for the General Assembly. Gill responded that additional information from
Verniece Love, specifically regarding the Maryland study, would be incorporated to address this
concern.

15
The discussion focused on ensuring the recommendations were precise and supported by
relevant data for the General Assembly’s consideration.

Staff member Killeen Wells then read each of the four recommendations aloud and the
Workgroup members voted in support of each recommendation. Below are the four
recommendations for HB 1404.

Recommendation 1: “The Workgroup recommends that the General Assembly consider not
reenacting Chapter 834 enacting Clause 1 in the upcoming session and consider a section 1
bill to require the Virginia Department of Small Business and Supplier Diversity to report on
December 1, 2026, on the outcome of the disparity study currently being performed as
required by 2024 Acts of Assembly Chapter 834 enacting Clause 4. This disparity study
differs from previous studies in that it expanded to study the availability and utilization of
small and micro-owned businesses in addition to previously studied women-owned and
minority-owned businesses. It also specifically looks at the utilization and differences
between categories of state procurement, such as by the types of goods and services needed
or procured by state agencies.” The Workgroup voted in support of the recommendation, 6-0
with DPB absent.

Recommendation 2: “The Workgroup recommends that the General Assembly consider
directing a study of the small business definition before codifying any enhancement plan.
The Workgroup further suggests that the General Assembly direct the study to be based
explicitly on Virginia business with the intent of benefiting Virginia businesses, similar to the
policy the state of Maryland implemented. Additionally, the General Assembly, as part of the
study, could consider directing Virginia Department of Small Business and Supplier
Diversity, in collaboration with the Department of General Services, Virginia Information
Technologies Agency and Virginia Department of Transportation, to review the DSBSD
certification processes, including outreach practices. Finally, the Workgroup recommends
that the General Assembly consider incorporating this recommendation into the disparity
study report.” The Workgroup voted in support of the recommendation, 6-0 with DPB
absent.

Recommendation 3: “The Workgroup recommends that the General Assembly consider not
codifying a goal for the utilization rate of small SWaM businesses. An accurate goal for
utilization cannot be set until the current disparity study is complete. The study being
performed should provide data by commodity, detailing availability, participation and
utilization. This will enable the Commonwealth of Virginia to establish a more appropriate
goal. Additionally, if the General Assembly studies and changes the definition of a small
business, the goal will need to be reevaluated once it is implemented.” The Workgroup voted
in support of the recommendation, 6-0 with DPB absent.

Recommendation 4: “The Workgroup recommends that if the General Assembly intends to
reenact Clause 1, then the General Assembly may consider technical amendments to address
the concerns mentioned in the Workgroup meetings. Items discussed included confusion
over terminology and conflicts with existing definitions found in the Virginia Public

16
Procurement Act.” The Workgroup voted in support of the recommendation, 6-0 with DPB
absent.

The Workgroup would like to thank the stakeholders and interested parties for their

participation, as well as the subject matter experts from various state agencies who provided
presentations and technical expertise to assist the Workgroup in its deliberations.

17
Appendix A: Letter to Governor and Text of HB 1404

This appendix contains the letter from the Honorable Jeion A. Ward to Governor Glenn
Youngkin regarding the Workgroup studying HB 1404 as well as the bill summary and language.

18
2024 SESSION
HB 1404 Small SWaM Business Procurement Enhancement Program; established, definitions,

report.
Introduced by: Jeion A. Ward | all patrons... notes | add to my profiles

Department of Small Business and Supplier Diversity; Small SWaM Business Procurement Enhancement Program
established; disparity study report. Establishes the Small SWaM Business Procurement Enhancement Program with a
statewide goal of 42 percent of certified small SWaM business utilization in all discretionary spending by executive branch
agencies and covered institutions in procurement orders, prime contracts, and subcontracts, as well as a target goal of 50
percent subcontracting to small SWaM businesses in instances where the prime contractor is not a small SWaM business for all
new capital outlay construction solicitations that are issued. The bill provides that executive branch agencies and covered
institutions are required to increase their small SWaM business utilization rate by three percent per year until reaching the 42-
percent target level or, if unable to do so, to implement achievable goals to increase their utilization rate. In addition, the bill
provides for a small SWaM business set-aside for executive branch agency and covered institution purchases of goods,
services, and construction, requiring that purchases up to $100,000 be set aside for award to certified small SWaM businesses.

The bill creates the Division of Procurement Enhancement within the Department of Small Business and Supplier Diversity for
purposes of collaborating with the Department of General Services, the Virginia Information Technologies Agency, the
Department of Transportation, and covered institutions to further the Commonwealth's efforts to meet the goals established
under the Small SWaM Business Procurement Enhancement Program, as well as implementing initiatives to enhance the
development of small businesses, microbusinesses, women-owned businesses, minority-owned businesses, and service disabled
veteran-owned businesses in the Commonwealth.

Finally, the bill requires the Department of Small Business and Supplier Diversity to conduct a disparity study every five years,
with the next disparity study due no later than January 1, 2026. The bill specifies that the study shall evaluate the need for
enhancement and remedial measures to address the disparity between the availability and the utilization of women-owned and
minority-owned businesses. This bill incorporates HB 716.

FULL TEXT
01/17/24 House: Presented and ordered printed 24105093D par

01/26/24 House: Committee substitute printed 24106396D-H1 paf| impact statement
02/07/24 House: Committee substitute printed 24107050D-H2 pat | impact statement
03/25/24 House: Bill text as passed House and Senate (HB1404ER) paf| impact statement
04/17/24 House: Reenrolled bill text (HB1404ER2) par

04/17/24 Governor: Acts of Assembly Chapter text (CHAP0834) par
AMENDMENTS

House subcommittee amendments and substitutes offered
House subcommittee amendments and substitutes adopted

Governor's recommendation
HISTORY

01/17/24 House: Presented and ordered printed 24105093D
01/17/24 House: Referred to Committee on Rules

01/26/24 House: Reported from Rules with substitute (14-Y 3-N)
01/26/24 House: Committee substitute printed 24106396D-H1
01/26/24 House: Incorporates HB716 (Torian)
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House: Referred to Committee on Appropriations

House: Assigned App. sub: Commerce Agriculture & Natural Resources
House: Subcommittee recommends reporting with substitute (6-Y 2-N)
House: Reported from Appropriations with substitute (15-Y 7-N)
House: Committee substitute printed 24107050D-H2

House: Read first time

House: Read second time

House: Committee on Rules substitute rejected 24106396D-H1

House: Committee on Appropriations substitute agreed to 24107050D-H2
House: Engrossed by House - committee substitute HB1404H2

House: Read third time and passed House (73-Y 26-N)

House: VOTE: Passage (73-Y 26-N)

Senate: Constitutional reading dispensed

Senate: Referred to Committee on Rules

Senate: Reported from Rules (9-Y 4-N)

Senate: Constitutional reading dispensed (40-Y 0-N)

Senate: Read third time

Senate: Passed Senate (20-Y 19-N)

House: Enrolled

House: Bill text as passed House and Senate (HB1404ER)

Senate: Signed by President

House: Signed by Speaker

House: Enrolled Bill communicated to Governor on March 27, 2024
Governor: Governor's Action Deadline 11:59 p.m., April 8, 2024

House: Governor's recommendation received by House

House: Passed by temporarily

House: House concurred in Governor's recommendation (64-Y 34-N 1-A)
House: VOTE: Adoption (64-Y 34-N 1-A)

Senate: Senate concurred in Governor's recommendation (40-Y 0-N)
Governor: Governor's recommendation adopted

House: Reenrolled

House: Reenrolled bill text (HB1404ER2)

House: Signed by Speaker as reenrolled

Senate: Signed by President as reenrolled

House: Enacted, Chapter 834 (effective - see bill)

Governor: Acts of Assembly Chapter text (CHAP0834)
VIRGINIA ACTS OF ASSEMBLY -- 2024 RECONVENED SESSION

CHAPTER 834

An Act to amend and reenact §$ 2.2-1604, 2.2-1605, 2.2-1610, 2.2-4310, 2.2-4310.3, and 23.1-1017 of
the Code of Virginia and to amend the Code of Virginia by adding in Chapter 16.1 of Title 2.2 an
article numbered 4, consisting of sections numbered 2.2-1618 through 2.2-1622, relating to the
Department of Small Business and Supplier Diversity; Small SWaM Business Procurement
Enhancement Program established; disparity study report.

[H 1404]
Approved April 17, 2024

Be it enacted by the General Assembly of Virginia:

1. That §§ 2.2-1604, 2.2-1605, 2.2-1610, 2.2-4310, 2.2-4310.3, and 23.1-1017 of the Code of Virginia
are amended and reenacted and that the Code of Virginia is amended by adding in Chapter 16.1
of Title 2.2 an article numbered 4, consisting of sections numbered 2.2-1618 through 2.2-1622, as
follows:

§ 2.2-1604. Definitions.

As used in this chapter, unless the context requires a different meaning:

"Certification" means the process by which (i) a business is determined to be a small, women-owned,
or minority-owned business or (ii) an employment services organization, for the purpose of reporting
small, women-owned, and minority-owned business and employment services organization participation
in state contracts and purchases pursuant to §§ 2.2-1608 and 2.2-1610.

"Covered institution" means a public institution of higher education operating (i) subject to a
management agreement set forth in Article 4 (§ 23.1-1004 et seq.) of Chapter 10 of Title 23.1, (ii) under
a memorandum of understanding pursuant to § 23.1-1003, or (iii) under the pilot program authorized in
the appropriation act.

"Department" means the Department of Small Business and Supplier Diversity or any division of the
Department to which the Director has delegated or assigned duties and responsibilities.

"Employment services organization" means an organization that provides community-based
employment services to individuals with disabilities that is an approved Commission on Accreditation of
Rehabilitation Facilities (CARF) accredited vendor of the Department for Aging and Rehabilitative
Services.

"Executive branch agency" means the same as that term is defined in $ 2.2-2006.

"Historically black eelleges and college or university" includes any college or university that was
established prior to 1964; whose principal mission was, and is, the education of black Americans; and
that is accredited by a nationally recognized accrediting agency or association determined by the
Secretary of Education.

"Microbusiness" means a business that has been certified by the Department as a small business and
has (i) 25 or fewer employees and (ii) average annual gross receipts of $3 million or less over the
previous three years.

"Minority individual" means an individual who is a citizen of the United States or a legal resident
alien and who satisfies one or more of the following definitions:

1. "African American" means a person having origins in any of the original peoples of Africa and
who is regarded as such by the community of which this person claims to be a part.

2. "Asian American" means a person having origins in any of the original peoples of the Far East,
Southeast Asia, the Indian subcontinent, or the Pacific Islands, including but not limited to Japan, China,
Vietnam, Samoa, Laos, Cambodia, Taiwan, Northern Mariana Islands, the Philippines, a U.S. territory of
the Pacific, India, Pakistan, Bangladesh, or Sri Lanka, and who is regarded as such by the community of
which this person claims to be a part.

3. "Hispanic American" means a person having origins in any of the Spanish-speaking peoples of
Mexico, South or Central America, or the Caribbean Islands or other Spanish or Portuguese cultures and
who is regarded as such by the community of which this person claims to be a part.

4. "Native American" means a person having origins in any of the original peoples of North America
and who is regarded as such by the community of which this person claims to be a part or who is
recognized by a tribal organization.

"Minority-owned business" means a business that is at least 51 percent owned by one or more
minority individuals who are U.S. citizens or legal resident aliens, or in the case of a corporation,
partnership, or limited liability company or other entity, at least 51 percent of the equity ownership
interest in the corporation, partnership, or limited liability company or other entity is owned by one or
more minority individuals who are U.S. citizens or legal resident aliens, and both the management and
daily business operations are controlled by one or more minority individuals, or any historically black
2 of 8

college or university, regardless of the percentage ownership by minority individuals or, in the case of a
corporation, partnership, or limited liability company or other entity, the equity ownership interest in the
corporation, partnership, or limited liability company or other entity.

"Prime contractor" means the contractor that has full legal responsibility for completion of a
contract with a public body. A "prime contractor" may employ or manage one or more subcontractors
to carry out specific parts of the contract.

"Service disabled veteran" means a veteran who (i) served on active duty in the United States
military ground, naval, or air service; (ii) was discharged or released under conditions other than
dishonorable; and (iii) has a service-connected disability rating fixed by the U.S. Department of
Veterans Affairs.

"Service disabled veteran-owned business" means a business that is at least 51 percent owned by one
or more service disabled veterans or, in the case of a corporation, partnership, or limited liability
company or other entity, a business in which at least 51 percent of the equity ownership interest in the
corporation, partnership, or limited liability company or other entity is owned by one or more
individuals who are service disabled veterans and both the management and daily business operations
are controlled by one or more individuals who are service disabled veterans.

"Small business" means a business that is at least 51 percent independently owned and controlled by
one or more individuals, or in the case of a cooperative association organized pursuant to Chapter 3
(§ 13.1-301 et seq.) of Title 13.1 as a nonstock corporation, is at least 51 percent independently
controlled by one or more members, who are U.S. citizens or legal resident aliens and, together with
affiliates, has 250 or fewer employees or average annual gross receipts of $10 million or less averaged
over the previous three years. One or more of the individual owners or members shall control both the
management and daily business operations of the small business.

"Small SWaM business" means a small business certified by the Department as being small, any
subcategory of small, small women-owned, small minority-owned, or small service disabled
veteran-owned.

"Small SWaM business set-aside" means the reserving of a procurement for businesses that are small
SWaM businesses.

"State agency" means any authority, board, department, instrumentality, institution, agency, or other
unit of state government. "State agency" does not include any county, city, or town.

"SWaM" means small, women-owned, or minority-owned or related to a small, women-owned, or
minority-owned business.

"SWaM plan" means a written program, plan, or progress report submitted by a state agency to the
Department pursuant to § 2.2-4310.

"Women-owned business" means a business that is at least 51 percent owned by one or more women
who are U.S. citizens or legal resident aliens, or in the case of a corporation, partnership, or limited
liability company or other entity, at least 51 percent of the equity ownership interest is owned by one or
more women who are U.S. citizens or legal resident aliens, and both the management and daily business
operations are controlled by one or more women.

§ 2.2-1605. Powers and duties of Department.

A. The Department shall have the following powers and duties:

1. Coordinate as consistent with prevailing law the plans, programs, and operations of the state
govemment that affect or may contribute to the establishment, preservation, and strengthening of small,
women-owned, and minority-owned businesses;

2. Promote the mobilization of activities and resources of state and local governments, businesses and
trade associations, baccalaureate institutions of higher education, foundations, professional organizations,
and volunteer and other groups towards the growth of small businesses and businesses owned by women
and minorities, and facilitate the coordination of the efforts of these groups with those of state
departments and agencies;

3. Establish a center for the development, collection, summarization, and dissemination of
information that will be helpful to persons and organizations throughout the nation in undertaking or
promoting procurement from small, women-owned, and minority-owned businesses;

4. Consistent with prevailing law and availability of funds, and according to the Director's discretion,
provide technical and management assistance to small, women-owned, and minority-owned businesses
and defray all or part of the costs of pilot or demonstration projects that are designed to overcome the
special problems of small, women-owned, and minority-owned businesses;

5. Advise the Small Business Financing Authority on the management and administration of the
Small, Women-owned, and Minority-owned Business Loan Fund created pursuant to § 2.2-2311.1;

6. Implement the Small SWaM Business Procurement Enhancement Program established by Article 4
(§ 2.2-1618 et seq.);

7. Implement any remediation or enhancement measure for small, women-owned, or minority-owned
businesses as may be authorized by the Governor pursuant to subsection C of § 2.2-4310 and develop
regulations, consistent with prevailing law, for program implementation. Such regulations shall be
developed in consultation with the state agencies with procurement responsibility and promulgated by
3 of 8

those agencies in accordance with applicable law;

% 8 Receive and coordinate, with the appropriate state agency, the investigation of complaints that a
business certified pursuant to this chapter has failed to comply with its subcontracting plan under
subsection D of § 2.2-4310. If the Department determines that a business certified pursuant to this
chapter has failed to comply with the subcontracting plan, the business shall provide a written
explanation; and

8 9. Facilitate relationships between established businesses and start-up women-owned and
minority-owned businesses by creating and administering a mentorship program under the provisions of
§ 2.2-1605.1; and

10. Conduct regular disparity studies as provided in § 2.2-1610.

B. In addition, the Department shall serve as the liaison between the Commonwealth's existing
businesses and state government in order to promote the development of Virginia's economy. To that
end, the Department shall:

1. Encourage the training or retraining of individuals for specific employment opportunities at new or
expanding business facilities in the Commonwealth;

2. Develop and implement programs to assist small businesses in the Commonwealth in order to
promote their growth and the creation and retention of jobs for Virginians;

3. Establish an industry program that is the principal point of communication between basic
employers in the Commonwealth and the state government that will address issues of significance to
business;

4. Make available to existing businesses, in conjunction and cooperation with localities, chambers of
commerce, and other public and private groups, basic information and pertinent factors of interest and
concern to such businesses;

5. Develop statistical reports on job creation and the general economic conditions in the
Commonwealth; and

6. Annually review and provide feedback on SWaM plans. The review shall focus on strategies state
agencies can use to improve SWaM spending, increase procurement of goods and services from SWaM
businesses, and meet procurement goals outlined in SWaM plans. The Department shall encourage state
agencies to integrate such strategies with all current and future procurements. The Department shall
suggest strategies that may be more effective or changes to strategies that have not been effective. Upon
request of a state agency, the Department shall meet with the state agency one-on-one to discuss its
SWaM goals and strategies and advise it on effective strategies. The Department shall research and
compile information that state agencies can use to increase SWaM spending and shall develop and
publish guidance on how state agencies can implement these strategies.

C. All agencies of the Commonwealth shall assist the Department upon request and fumish such
information and assistance as the Department may require in the discharge of its duties.

§ 2.2-1610. Reports and recommendations; collection of data.

The Director shall, from time to time, submit directly or through an assistant to the Governor his
recommendations for legislation or other action as he deems desirable to promote the purposes of this
chapter.

The Director shall report, on or before November 1 of each year, to the Governor and the General
Assembly the identity of the state departments and agencies failing to submit annual progress reports on
small, women-owned, and minority-owned business procurement required by § 2.2-4310 and the nature
and extent of such lack of compliance. The annual report shall include recommendations on the ways to
improve compliance with the provisions of § 2.2-4310 and such other related matters as the Director
deems appropriate. The Department shall include in its annual report information on the progress of the
mentorship program established under § 2.2-1605.1.

The Director, with the assistance of the Comptroller, shall develop and implement a systematic data
collection process that will provide information for a report to the Governor and General Assembly on
state expenditures to small, women-owned, and minority-owned businesses during the previous fiscal
year.

An institution exercising authority granted under this section shall promptly make available to the
Department, upon request, copies of its procurement records, receipts, and transactions in regard to
procurement from small, women-owned, and minority-owned businesses in order for the Department to
ensure institution compliance with its approved reporting and certification criteria.

The Director shall conduct, or contract with an independent entity to conduct, a disparity study every
five years. The study shall evaluate the need for enhancement and remedial measures to address the
disparity between the availability and the utilization of women-owned and minority-owned businesses.
The study shall recommend measures that consist of narrowly tailored procurement policies to address
documented statistical disparities between the availability and utilization of women-owned and
minority-owned businesses. The measures shall be consistent with rulings of the U.S. Supreme Court
regarding the available remedies that may be employed to address past discrimination and the need for
evidence to quantify past discrimination. The study shall incorporate the findings of past disparity
studies conducted by Virginia and evaluate Virginia's progress toward the recommendations of those
4of 8

studies. The Director shall include the findings of each study in his annual report to the Governor and
General Assembly required by this section, beginning with the annual report required to be submitted by
this section in the first year after the year in which a disparity study is conducted pursuant to this
paragraph.

The Department shall, in accordance with the provisions of the previous paragraph, utilize the
results of the disparity study and the recommendations therein to update a statewide goal for SWaM
business procurement and similar individual goals for women-owned and minority-owned businesses for
the purpose of closing any disparity demonstrated by such study.

Article 4.
Procurement Enhancement Programs.

§ 2.2-1618. Division of Procurement Enhancement created.

The Division of Procurement Enhancement (the Division) is hereby created within the Department.
The purpose of the Division shall be to collaborate with the Department of General Services, the
Virginia Information Technologies Agency, the Department of Transportation, and covered institutions to
further the Commonwealth's efforts to meet the goals established in this article, as well as to implement
initiatives to enhance the development of small businesses, microbusinesses, women-owned businesses,
minority-owned businesses, and service disabled veteran-owned businesses in the Commonwealth.

§ 2.2-1619. Small SWaM Business Procurement Enhancement Program established; report.

A. The Small SWaM Business Procurement Enhancement Program (the Program) is hereby
established to facilitate the participation of small SWaM businesses in state procurement. The goal of
the Program shall be the achievement of a 42 percent small SWaM business utilization rate, including a
five percent utilization rate directed to microbusiness utilization. For purposes of this section,
"utilization rate" means the percentage of discretionary spending directed to a particular subset of
business in relation to all discretionary spending by executive branch agencies and covered institutions
in procurement orders, prime contracts, and subcontracts. The 42-percent target shall be determined
based on the aggregate level of such discretionary spending by executive branch agencies and covered
institutions and shall not require each individual executive branch agency or covered institution to meet
the 42-percent target. The Department shall be responsible for implementing the Program. Executive
branch state agencies and covered institutions shall increase their utilization rates of small SWaM
businesses by three percent each year until achievement of the 42-percent target. If an executive branch
agency or covered institution is unable to increase its small SWaM business utilization rate by three
percent per year, such agency or institution shall establish and implement achievable goals to increase
its small SWaM business utilization rate and include such goals in its SWaM business procurement plan
required by § 2.2-1621. In addition, for all new capital outlay construction solicitations that are issued,
there shall be a target goal of 50 percent subcontracting to small SWaM businesses in instances where
the prime contractor is not a small SWaM business.

B. The Program shall include a small SWaM business set-aside for the purchase of goods, services,
and construction by executive branch agencies and covered institutions. Purchases up to $100,000 shall
be set aside for award to small SWaM businesses. Such set-aside may allow for small SWaM businesses
to have a price preference over noncertified businesses competing for the same contract award on
designated procurements, provided that the bid of the small SWaM business does not exceed the low bid
by more than five percent. An executive branch agency or covered institution may open a solicitation to
all bidders or offerors (i) where it is determined that fewer than two certified small SWaM businesses
are available for competition using data from the Department of General Services’ central electronic
procurement website known as eVA or procurement systems utilized by covered institutions that are
integrated with eVA or (ti) where bids or offers do not result in a fair and reasonable price. The
Department shall develop guidance for determining whether a price is fair and reasonable.

§ 2.2-1620. SWaM business subcontracting plan required for certain proposals or bids.

A. For purchases over $100,000, executive branch agencies and covered institutions shall require
each bidder or offeror to include in each bid or proposal a SWaM business subcontracting plan
detailing intended subcontractor participation of such businesses whenever the prime contractor will rely
on subcontractors to meet the applicable goals established in § 2.2-1619. Nothing in this section shall
prohibit a bidder or offeror from submitting a SWaM business subcontracting plan when SWaM
business participation deviates from the applicable goals established in § 2.2-1619. The Department
shall develop guidelines for considering any such SWaM business subcontracting plan. Each bidder or
offeror awarded a contract shall comply with the SWaM business subcontracting plan that is included in
its bid or proposal.

B. Whenever the actual subcontractor participation does not meet the level included in the SWaM
business subcontracting plan, the prime contractor shall provide a written explanation of the prime
contractor's good faith efforts to comply with the SWaM business subcontracting plan, which shall be
made a part of the contract file. The Department, with assistance from the Department of General
Services, the Department of Transportation, the Virginia Information Technologies Agency, and covered
institutions, shall (i) establish a uniform methodology for evaluating and monitoring SWaM business
subcontracting plans, (ii) establish and conduct panels to review the failure of prime contractors to
5 of 8

comply with their SWaM business subcontracting plans, and (iii) implement processes for producing
reliable data on (a) the utilization of SWaM business subcontractors by prime contractors and (b) the
amounts paid by prime contractors to SWaM business subcontractors. Each executive branch agency
and covered institution shall report such data on the Department of General Services' central electronic
procurement website known as eVA unless otherwise directed by the Director of the Department and the
Director of the Department of General Services. The record of a prime contractor's compliance with
SWaM business subcontracting plan requirements, including reviews of the failure of such prime
contractor to comply with its SWaM business subcontracting plan, shall be considered in the prospective
award of a contract or renewal of an existing contract and may, if the prime contractor has been found
to have not complied with its SWaM business subcontracting plan in good faith, result in the prime
contractor being barred from being awarded a contract or renewal of an existing contract for a period
of up to one year.

C. Notwithstanding the foregoing, the provisions of this section shall not apply to Department of
Transportation projects for the design or construction of highways.

D. Notwithstanding the foregoing, any covered institution shall provide the data or plans required by
this section using the Department of General Services’ central electronic procurement website known as
eVA or by integration or interface with the eVA system.

§ 2.2-1621. Submission of SWaM business procurement plan; designation of SWaM business
procurement enhancement liaison.

A. Each executive branch agency and covered institution shall submit to the Department on or before
September 30, 2024, its SWaM business procurement plan, consistent with the provisions of this article,
to include promotion and utilization of certified small, any subcategory of small, small women-owned,
small minority-owned, and small service disabled veteran-owned businesses, and employment services
organizations. Each executive branch agency and covered institution shall certify to the Department by
September 30 of each subsequent year that it has reviewed, and updated as necessary to meet the
requirements of this article and any guidance develeped by the Department, its SWaM business
procurement plan. If the SWaM business procurement plan is updated, it shall be submitted to the
Department along with the annual certification.

B. The Department shall review and provide meaningful feedback to executive branch agencies and
covered institutions regarding the plan required by subsection A in order to improve and accelerate
compliance with the goals provided by this article. Executive branch agencies and covered institutions
may revise and resubmit such plan to incorporate such feedback.

C. Any executive branch agency or covered institution that is unable to increase its small SWaM
business utilization rate by three percent per year, as required by § 2.2-1619, shall include in the plan
required by subsection A (i) an explanation as to why it is unable to comply with such goals and
requirements and (ii) achievable goals to increase its small SWaM business utilization rate.

D. Each executive branch agency and covered institution shall designate an existing employee as a
SWaM business procurement enhancement liaison whose responsibilities shall be to promote
participation in the Small SWaM Business Procurement Enhancement Program by small SWaM
businesses and to serve as an advocate for small SWaM businesses that hold active contracts with such
executive branch agency or covered institution.

§ 2.2-1622. Report.

On or before November 30 of each year, the Department shall report to the Governor and the
General Assembly on the implementation and effectiveness of the Small SWaM Business Procurement
Enhancement Program.

§ 2.2-4310. Discrimination prohibited; participation of small, women-owned, minority-owned,
and service disabled veteran-owned businesses and employment services organizations.

A. In the solicitation or awarding of contracts, no public body shall discriminate against a bidder or
offeror because of race, religion, color, sex, sexual orientation, gender identity, national origin, age,
disability, status as a service disabled veteran, or any other basis prohibited by state law relating to
discrimination in employment. Whenever solicitations are made, each public body shall include
businesses selected from a list made available by the Department of Small Business and Supplier
Diversity, which list shall include all companies and organizations certified by the Department.

B. All public bodies shall establish programs consistent with this chapter to facilitate the participation
of small businesses, businesses owned by women, minorities, and service disabled veterans, and
employment services organizations in procurement transactions. The programs established shall be in
writing and shall comply with the provisions of any enhancement or remedial measures authorized by
the Govemor pursuant to subsection C or, where applicable, by the chief executive of a local governing
body pursuant to § 15.2-965.1, and shall include specific plans to achieve any goals established therein.
Public bodies may rely on the recommendations of disparity studies conducted pursuant to § 2.2-1610 in
establishing programs under this subsection. State agencies shall submit annual progress reports on (i)
small, women-owned, and minority-owned business procurement, (ii) service disabled veteran-owned
business procurement, and (iii) employment services organization procurement to the Department of
Small Business and Supplier Diversity in a form specified by the Department of Small Business and
6 of 8

Supplier Diversity. All state agencies shall cooperate with the Department of Small Business and
Supplier Diversity's annual review of their programs pursuant to § 2.2-1605 and shall update such
programs to incorporate any feedback and suggestions for improvement. Contracts and subcontracts
awarded to employment services organizations and service disabled veteran-owned businesses shall be
credited toward the small business, women-owned business, and minority-owned business contracting
and subcontracting goals of state agencies and contractors. The Department of Small Business and
Supplier Diversity shall make information on service disabled veteran-owned procurement available to
the Department of Veterans Services upon request.

C. Whenever there exists (i) a rational basis for small business or employment services organization
enhancement or (ii) a persuasive analysis that documents a statistically significant disparity between the
availability and utilization of women-owned and minority-owned businesses, the Governor is authorized
and encouraged to require state agencies to implement appropriate enhancement or remedial measures
consistent with prevailing law. The Governor may rely on the recommendations of disparity studies
conducted pursuant to § 2.2-1610 in implementing requirements pursuant to this subsection. Any
enhancement or remedial measure authorized by the Governor pursuant to this subsection for state public
bodies may allow for small businesses certified by the Department of Small Business and Supplier
Diversity or a subcategory of small businesses established as a part of the enhancement program to have
a price preference over noncertified businesses competing for the same contract award on designated
procurements, provided that the bid of the certified small business or the business in such subcategory
of small businesses established as a part of an enhancement program does not exceed the low bid by
more than five percent.

D. In awarding a contract for services to a small, women-owned, or minority-owned business that is
certified in accordance with § 2.2-1606, or to a business identified by a public body as a service
disabled veteran-owned business where the award is being made pursuant to an enhancement or remedial
program as provided in subsection C, or when awarding a contract under the Small SWaM Business
Procurement Enhancement Program established in § 2.2-1619, the public body shall include in every
such contract of more than $10,000 the following:

"If the contractor intends to subcontract work as part of its performance under this contract, the
contractor shall include in the proposal a plan to subcontract to small, women-owned, minority-owned,
and service disabled veteran-owned businesses."

E. In the solicitation or awarding of contracts, no state agency, department, or institution shall
discriminate against a bidder or offeror because the bidder or offeror employs ex-offenders unless the
state agency, department, or institution has made a written determination that employing ex-offenders on
the specific contract is not in its best interest.

F. As used in this section:

"Employment services organization" means an organization that provides community-based
employment services to individuals with disabilities that is an approved Commission on Accreditation of
Rehabilitation Facilities (CARF) accredited vendor of the Department for Aging and Rehabilitative
Services.

“Minority individual" means an individual who is a citizen of the United States or a legal resident
alien and who satisfies one or more of the following definitions:

1. "African American" means a person having origins in any of the original peoples of Africa and
who is regarded as such by the community of which this person claims to be a part.

2. "Asian American" means a person having origins in any of the original peoples of the Far East,
Southeast Asia, the Indian subcontinent, or the Pacific Islands, including but not limited to Japan, China,
Vietnam, Samoa, Laos, Cambodia, Taiwan, Northem Mariana Islands, the Philippines, a U-S. territory of
the Pacific, India, Pakistan, Bangladesh, or Sri Lanka and who is regarded as such by the community of
which this person claims to be a part.

3. "Hispanic American" means a person having origins in any of the Spanish-speaking peoples of
Mexico, South or Central America, or the Caribbean Islands or other Spanish or Portuguese cultures and
who is regarded as such by the community of which this person claims to be a part.

4. "Native American" means a person having origins in any of the original peoples of North America
and who is regarded as such by the community of which this person claims to be a part or who is
recognized by a tribal organization.

"Minority-owned business" means a business that is at least 51 percent owned by one or more
minority individuals who are U.S. citizens or legal resident aliens, or in the case of a corporation,
partnership, or limited liability company or other entity, at least 51 percent of the equity ownership
interest in the corporation, partnership, or limited liability company or other entity is owned by one or
more minority individuals who are U.S. citizens or legal resident aliens, and both the management and
daily business operations are controlled by one or more minority individuals, or any historically black
college or university as defined in § 2.2-1604, regardless of the percentage ownership by minority
individuals or, in the case of a corporation, partnership, or limited liability company or other entity, the
equity ownership interest in the corporation, partnership, or limited liability company or other entity.

"Service disabled veteran" means a veteran who (i) served on active duty in the United States
military ground, naval, or air service, (ii) was discharged or released under conditions other than
dishonorable, and (iii) has a service-connected disability rating fixed by the United States Department of
Veterans Affairs.

"Service disabled veteran veteran-owned business" means a business that is at least 51 percent owned
by one or more service disabled veterans or, in the case of a corporation, partnership, or limited liability
company or other entity, at least 51 percent of the equity ownership interest in the corporation,
partnership, or limited liability company or other entity is owned by one or more individuals who are
service disabled veterans and both the management and daily business operations are controlled by one
or more individuals who are service disabled veterans.

"Small business" means a business, independently owned and controlled by one or more individuals,
or in the case of a cooperative association organized pursuant to Chapter 3 (§ 13.1-301 et seq.) of Title
13.1 as a nonstock corporation, controlled by one or more members, who are U.S. citizens or legal
resident aliens, and together with affiliates, has 250 or fewer employees, or annual gross receipts of $10
million or less averaged over the previous three years. One or more of the individual owners or
members shall control both the management and daily business operations of the small business.

"State agency" means any authority, board, department, instrumentality, institution, agency, or other
unit of state govemment. "State agency" shalt does not include any county, city, or town.

"Women-owned business" means a business that is at least 51 percent owned by one or more women
who are U.S. citizens or legal resident aliens, or in the case of a corporation, partnership, or limited
liability company or other entity, at least 51 percent of the equity ownership interest is owned by one or
more women who are U.S. citizens or legal resident aliens, and both the management and daily business
operations are controlled by one or more women.

§ 2.2-4310.3. Fiscal data pertaining to certain enhancement or remedial measures.

The Department of General Services shall make available a dashboard of purchase order reports from
the Commonwealth's statewide electronic procurement system known as eVA. The dashboard shall
include aggregated data showing (i) current fiscal year purchase orders, (ii) purchase orders from the
Small SWaM Business Procurement Enhancement Program established in § 2.2-1619 in the previous
fiscal year, and (iii) other relevant data derived from any enhancement or remedial measure implemented
by the Governor pursuant to subsection C of § 2.2-4310.

§ 23.1-1017. Covered institutions; operational authority; procurement.

A. Subject to the express provisions of the management agreement, each covered institution may be
exempt from the provisions of the Virginia Public Procurement Act (§ 2.2-4300 et seq.), except for
§§ 2.2-4340, 2.2-4340.1, 2.2-4340.2, 2.2-4342, and 2.2-4376.2, which shall not be construed to require
compliance with the prequalification application procedures of subsection B of § 2.2-4317, provided,
however, that (i) any deviations from the Virginia Public Procurement Act in the management agreement
shall be uniform across all covered institutions and (ii) the governing board of the covered institution
shall adopt, and the covered institution shall comply with, policies for the procurement of goods and
services, including professional services, that shall (a) be based upon competitive principles; (b) in each
instance seek competition to the maximum practical degree; (c) implement a system of competitive
negotiation for professional services pursuant to §§ 2.2-4303.1 and 2.2-4302.2; (d) prohibit
discrimination in the solicitation and award of contracts on the basis of the bidder's or offeror's race,
religion, color, sex, sexual orientation, gender identity, national origin, age, or disability or on any other
basis prohibited by state or federal law; (e) incorporate the prompt payment principles of §§ 2.2-4350
and 2.2-4354; (f) consider the impact on correctional enterprises under § 53.1-47; and (g) provide that
whenever solicitations are made seeking competitive procurement of goods or services, it shall be a
priority of the institution to provide for fair and reasonable consideration of small, women-owned, and
minority-owned businesses and to promote and encourage a diversity of suppliers.

B. Such policies may (i) provide for consideration of the dollar amount of the intended procurement,
the term of the anticipated contract, and the likely extent of competition; (ii) implement a
prequalification procedure for contractors or products; and (iii) include provisions for cooperative
arrangements with other covered institutions, other public or private educational institutions, or other
public or private organizations or entities, including public-private partnerships, public bodies, charitable
organizations, health care provider alliances or purchasing organizations or entities, state agencies or
institutions of the Commonwealth or the other states, the District of Columbia, the territories, or the
United States, and any combination of such organizations and entities.

C. Nothing in this section shall preclude a covered institution from requesting and utilizing the
assistance of the Virginia Information Technologies Agency for information technology procurements
and covered institutions are encouraged to utilize such assistance.

D. Each covered institution shall post on the Department of General Services' central electronic
procurement website all Invitations to Bid, Requests for Proposal, sole source award notices, and
emergency award notices to ensure visibility and access to the Commonwealth's procurement
opportunities on one website.

E. As part of any procurement provisions of the management agreement, the governing board of a
covered institution shall identify the public, educational, and operational interests served by any
8 of 8

procurement rule that deviates from procurement rules in the Virginia Public Procurement Act
(§ 2.2-4300 et seq.).

F. Notwithstanding any provision of law to the contrary, each covered institution shall be subject to
the provisions of the Small SWaM Business Procurement Enhancement Program established in
§ 2.2-1619.

2. That the provisions of the first enactment of this act shall not become effective unless reenacted
by the 2025 Session of the General Assembly.

3. That the Department of General Services (DGS) shall, in coordination with other interested
agencies, including the Department of Small Business and Supplier Diversity, the Virginia
Information Technologies Agency, the Department of Transportation, and covered institutions,
convene a work group to review the issues presented by the first enactment of this act. In its
review, DGS shall (i) invite and obtain input from public and private stakeholders, including
members of the business community interested in state procurement and the small SWaM business
program in particular; (ii) assess the provisions of this act and what steps are needed to best
position Virginia for success with an enhanced small SWaM business program; and (iii) report to
the Governor and the General Assembly its findings and any recommendations by December 1,
2024.

4. That the Department of Small Business and Supplier Diversity (DSBSD) shall contract with a
qualified independent entity to conduct a disparity study. The procurement for a new disparity
study shall be completed by January 1, 2025. The disparity study shall evaluate (i) the availability
and utilization of small, micro, women-owned, and minority-owned businesses and differences
between categories of state procurement, such as by the types of goods and services needed or
procured by state agencies; (ii) the disparities that exist between such availability and utilization;
and (iii) the need for and available remedies that may be employed consistent with current federal
law to address such disparities and past discrimination. The study shall also take into account past
disparity studies conducted by Virginia and related legislative reporting, such as the September
2020 JLARC Report 537, Operations and Performance of the Department of Small Business &
Supplier Diversity, and evaluate Virginia's progress toward the recommendations of those studies.
State agencies and covered institutions shall cooperate with and assist in DSBSD's efforts and the
new disparity study as needed.
COMMONWEALTH OF VIRGINIA
HOUSE OF DELEGATES

RICHMOND
COMMITTEE ASSIGNMENTS:
JEION A. WARD LABOR AND COMMERCE (CHAIR)
POST OFFICE BOX 7310 TRANSPORTATION
HAMPTON, VIRGINIA 23666 OMMUNICATIONS. TECHNOLOGY
May 14, 2024 cS on
? AND INNOVATI
EIGHTY-SEVENTH DISTRICT RULES

The Honorable Glenn Youngkin
Govemor’s Office - Third Floor
Patrick Henry Building

1111 East Broad Street
Richmond, VA 23219

RE: Work Group to Review Issues Pertaining to First Enactment of HB 1404

Dear Governor Youngkin,

We want to thank you for working to ensure that HB 1404 - The Small, SWaM Procurement Enhancement
Program is enacted into law in the Commonwealth of Virginia. This legislation ensures transparency and
continues the progress made to date to eradicate the egregious disparity in the State’s procurement
contracting system.

We also want to suggest the following names of Stakeholders for your consideration to add to your Work
Group, identified in your amendments to HB 1404 and HB 30 — Amendment 24, to facilitate an equitable
discussion on issues that could impact any changes made to the existing legislation, before its second

enactment in the 2025 General Assembly Session.

-William Bullock, Business Owner, Bullock Painting Contractors, Inc. —
contracting@bullockpainting.com — (804) 232-4788

-Christopher Chambers, Esquire ~ Student Housing of America, Inc. and Virginia Minority Chambers,
Inc. — info@nothermvirginia.org - (855) 843-8262

-Gwendolyn Davis, M/WBE Administrator, M/WBE Advisory Committee, Portsmouth Public Schools —
gwendolyn.davis@portsk12.com — (757) 393-8261

-Michelle Deneke, Business Owner - M2B Enterprises — mdeneke@yahoo.com -(301) 529-0773
-Lorena Justin, Business Owner, Lorena’s Boutique — lorenasboutique@hotmail.com - (757) 696-0141-

-Gaylene Kanoyton — Business Owner and Political Action Chair, Virginia NAACP —
gaylenellc@gmail.com - (757) 287-0277

DISTRICT: (787) 827-5921 * RICHMOND: (804) 698-1087 * E-MAIL: DELIWARD@HOUSE. VIRGINIA.GOV
-Tonya Poindexter — Business Owner, The Write Touch, LLC and Member, Northern Virginia Black
Chamber of Commerce — info@northemvirginiabcc.org — (703) 442-4472

-Anthony Reed — Equipping Businesses For Success Institute (EBFSI) — reedas@verizon.net -
(757) 582-6421

-Bernice E. Travers, Business Owner — Travers Corporation — bernicetravers@yahoo.com -
(804) 814-4434

-Dr. James Allen, Business Owner, The James Allen Group — thejamesallengroup.com — (757) 228-5635

Thank you in advance for your favorable consideration of our request.

Sincerely,
mC Nard

egate Jeion A. Ward
Patron — HB 1404

cc: The Honorable Don Scott, Speaker of the House

The Honorable L. Louise Lucas, President Pro Tempore

The Honorable Lamont Bagby & Members of VLBC

Director Willis A. Morris, Department of Small Business & Supplier Diversity
Portsmouth School Board

Portsmouth Public Schools M/WBE Advisory Committce

Hampton Roads Clergy
Appendix B: August 21, 2024, Meeting Materials

This appendix contains the meeting materials from the August 21, 2024, Workgroup meeting.

1. Agenda
2. Meeting Materials
Department of Planning and Budget 2024 Session Fiscal Impact Statement
Executive Order 29 (2002)
Executive Order 103 (2005)
Executive Order 33 (2006)
Executive Order 20 (2014)
Executive Order 35 (2019)
Virginia Minority Business Commission 2021 Annual Report
JLARC Operations and Performance of the Department of Small Business and
Supplier Diversity Report 2020
i. Portsmouth Public Schools Fact Sheet on HB 1404
3. Approved Meeting Minutes

19
Public Body Procurement Workgroup

https://dgs.virginia.gov/dgs/directors-office/pwg/

Meeting #3
Tuesday, August 21, 2024, 1:00 p.m.
House South Subcommittee Room, 2" floor
General Assembly Building
201 North 9" Street, Richmond, Virginia 23219

IL.

I.

IV.

VI.
VIL.
VIM.
IX.

XI.

Department of General Services

AGENDA
Call to Order; Remarks by Chair
Approval of Meeting Minutes from the August 6, 2024 Workgroup Meeting
Presentation on HB 1404

Gwendolyn S. Davis, M/WBE Administrator Procurement Office
Portsmouth Public Schools

Public Comment on HB 1404
Presentations on HB 1355

Nathan Moberley

Office of the Attorney General

Public Comment on HB 1355
Discussion on HB 1355, Preliminary Findings and Recommendations
Public Comment on SB 492
Discussion on SB 492
Discussion

Adjournment

Members

Virginia Information Technologies Agency Virginia Department of Transportation

Department of Planning and Budget

Virginia Association of State Colleges and
University Purchasing Professionals

Representatives

Department of Small Business and Supplier Diversity

Virginia Association of Government Purchasing
Office of the Attorney General House Appropriations Committee
Senate Finance Committee Division of Legislative Services

Staff
Jessica Hendrickson, Director of Policy and Legislative Affairs, DGS
Kimberly Freiberger, Legislative Analyst, DGS
Department of Planning and Budget
2024 Session Fiscal Impact Statement

1. Bill Number: HB1404
House of Origin [_] Introduced [] Substitute [] Engrossed
Second House [] InCommittee [[] Substitute x] Enrolled

2. Patron: Ward
3. Committee: Passed both Houses.

4. Title: Department of Small Business and Supplier Diversity; Small Business
Procurement Enhancement.

5. Summary: Requires the Department of Small Business and Supplier Diversity (DSBSD) to
conduct a disparity study every five years to evaluate the need for enhancement and remedial
measures to address the disparity between availability and Commonwealth utilization of
women-owned and minority-owned (SWaM) businesses. DSBSD is required to use the
results of the study to update a statewide goal for SWaM business procurement for the
purpose of closing any identified disparity.

Establishes the Small SWaM Business Procurement Enhancement Program (the Program)
with a statewide goal of 42 percent of small SWaM business utilization rate in discretionary
spending by executive branch agencies and covered institutions in aggregate, with a five
percent utilization rate for microbusiness utilization. Requires a 50 percent small SWaM goal
for all new capital outlay in subcontracting in instances where the prime contractor is not a
small SWaM business. The program includes small SWaM business set aside for certain
purchases of goods, services, and construction by executive branch agencies and covered
institutions. The bill also requires SWaM business subcontracting plans for certain proposals
and bids. DSBSD, with assistance from the Department of General Services (DGS), the
Department of Transportation (VDOT), the Virginia Information Technologies Agency
(VITA), and covered institutions, is required to establish a methodology for evaluating plans,
carrying out remedial reviews, and producing reliable program measures.

The bill requires that executive branch agencies and covered institution submit to DSBSD a
SWaM business procurement plan by September 30, 2024, and annually thereafter. DSBSD
is required to review such plans and provide feedback. Executive agencies and covered
institutions are also required to designate an existing employee as a SWaM business
procurement enhancement liaison.

DSBSD is further required to report to the Governor and the General Assembly on the
implementation and effectiveness of the Program annually by November 30. The bill has a
general delayed effective date of January 1, 2025, a delayed effective date for covered
institutions, and does not apply to certain university hospitals and medical centers.

6. Budget Amendment Necessary: Yes. Items 70, 81, 111, 334 HB30/SB30 as introduced
7. Fiscal Impact Estimates: Final. See item 8.

Expenditure Impact: Department of General Services (Item 70)

Fiscal Year Dollars Positions Fund
2024 N/A N/A N/A
2025 $250,000 0 GF

_ Expenditure Impact: Virginia Information Technologies Agency (Item 81)

Fiscal Year Dollars Positions Fund
2024 N/A N/A N/A
2025 N/A N/A N/A
2026 $100,000 I NGF
2027 $100,000 1 NGF
2028 $100,000 1 NGF
2029 $100,000 1 NGF
2030 $100,000 1 NGF

Expenditure Impact: Department of Small Business and Supplier Diversity (Item 111)

Fiscal Year Dollars Positions Fund
2024 N/A N/A N/A
2025 $799,202 5 GF
2026 $598,403 5 GF
2027 $598,403 5 GF
2028 $598,403 5 GF
2029 $598,403 5 GF
2030 $1,098,403 5 GF

Expenditure Impact: Department of Social Services (Item 334)

Fiscal Year Dollars Positions Fund
2024 N/A N/A N/A
2025 $75,712 0.5 GF

$75,712 0.5 NGF
2026 $73,131 0.5 GF
$73,131 0.5 NGF
2027 $73,131 0.5 GF
$73,131 0.5 NGF
2028 $73,131 0.5 GF
$73,131 0.5 NGF
2029 $73,131 0.5 GF
$73,131 0.5 NGF
2030 $73,131 0.5 GF
$73,131 0.5 NGF

8. Fiscal Implications: The bill establishes a new Procurement Enhancement division within
the Department of Small Business and Supplier Diversity (DSBSD). The new division is to
administer the Small Business Procurement Enhancement Program, and the Women-owned
and Minority-owned Business Procurement Enhancement Program. Under each program, the
bill requires that DSBSD monitor and guide state agencies and covered institutions in
achieving certain statewide procurement participation goals. DSBSD is to develop the
framework for these new programs in consultation with the Department of General Services
(DGS), the Virginia Information Technologies Agency (VITA), as well as other state
agencies and covered institutions. Impacted agencies and institutions are required to submit
their procurement plans to DSBSD. DSBSD is required to produce a progress report annually
by November 30.

DSBSD anticipates incurring an expenditure impact as a result of this bill, as it requires the
creation of a new division within the agency, in addition to the completion of a disparity
study every five years. The new division is to work with state agencies and covered
institutions to achieve a statewide goal of 23.1 percent discretionary spending with SWaM
businesses and at least 42 percent discretionary spending with certified small businesses. To
establish the new division and implement the requirements of the bill, DSBSD estimates that
five SWaM Contract Compliance Officer positions will be needed, at roughly $119,680 each,
for a total of $598,403 annually.

Compliance officers will be responsible for assisting state agencies in meeting the established
thresholds. These positions will review subcontract plans from prime contractors to ensure
compliance with stated goals, and support SWaM subcontractors that have a grievance with a
prime contractor and serve on a panel that would determine if a prime contractor should be
enjoined from future contract participation for failure to perform against their subcontractor
plans. Officers are also to use data collected by DGS’s statewide electronic procurement
system, known as eVA, to track and monitor performance. In FY2023, there were 646,763
purchase order transactions in eVA and over $10 billion in expenditures. The agency
anticipates that significant coordination with DGS will be required to ensure accurate
reporting and statewide goal achievement.

The bill also requires that DSBSD conduct a disparity study every five years. Based on
known costs from a previous disparity study conducted in 2020, DSBSD anticipates
incurring an expense of $500,000 every five years. General fund appropriation for the full
amount of the first iteration of the disparity study is required in FY 2025

According to the Department of Accounts, changes to the definition of small business are
expected to require minor reconfigurations in the Cardinal Financial System. However, such
changes are expected to be able to be absorbed within existing funding and appropriation
levels and do not require an amendment.

VITA anticipates that this bill could have a significant impact to contract management.
According to VITA, the level of detail required (obtaining and maintaining written
explanations, establishing a panel to review failures, additional reporting in eVA, etc.) will
require additional funding, estimated at $100,000 annually, in Supply Chain Management to
administer for the roughly 200 statewide contracts. Appropriation is required from VITA’s
Acquisition Services Special fund to cover this cost.

DGS anticipates that implementing the requirements of the bill may have an estimated one-
time general fund impact of $250,000 for required updates to eVA. DSBSD would have to
send DGS additional procurement data through the platform once the bill's provisions are
implemented. The system will require an update to the data share algorithm by which eVA
receives data from DSBSD, estimated at $125,000. New reporting functionality will have to
be created for the eVA system, also estimated at $125,000. This reporting functionality
would need to be added to the public eVA system and implemented internally within the
platform.

The Department of Social Services’ Procurement Unit currently has processes in place for
these tasks; however, the increased focus on attaining the goal of 42 percent small business
usage will require additional processes, documentation, training, and reporting functions. The
processes would include a greater use of small businesses which may increase costs of goods
and services for the agency. Additional tasks outlined in the legislation, such as tracking and
accounting for sub-contract spend, more stringent requirements for vendors to sub-contract to
small vendors, and additional validation and monitoring processes would require a senior
procurement officer with a salary of $98,731 to meet these requirements. The annual cost of
this position including salary and benefits is $151,424 ($75,712 each general
fund/nongeneral funds) the first year and $146,262 ($73,131 each general fund/nongeneral
funds) each year thereafter. First year costs include one-time on-boarding costs of $5,163.

Any fiscal impact to public institutions of higher education is indeterminate. The institutions
have management agreements and memoranda of understanding that provide the institutions
with procurement authority that is removed by this bill. It is anticipated that additional staff
will be needed to carry out the requirements in this bill. Estimates range from one to four
additional full-time staff.

Conference amendments include $250,000 the first year from the general fund for DGS tu
update the state's electronic procurement system; as well as $1.9 million from the general
fund over the biennium, and five positions for DSBSD to carry out the tasks in this bill.

9. Specific Agency or Political Subdivisions Affected: Departments of Small Business and
Supplier Diversity, General Services, Accounts, and Social Services; Virginia Information
Technologies Agency; all state agencies and covered institutions.

10. Technical Amendment Necessary: No.

11. Other Comments: None.
COMMONWEALTH OF VIRGINIA

Executive Order 29 (2002)

EQUAL OPPORTUNITY IN STATE PROCUREMENT

Meeting the challenges of the 21 century and the New Economy demands that the
Commonwealth of Virginia maximize the participation of its citizens and enterprises in
the commercial life of the Commonwealth. Thus, it is the policy of the Commonwealth
to make sure that small businesses and businesses owned by women and minorities
receive every opportunity to compete for the Commonwealth’s expenditures for goods
and services. Ensuring the inclusion of these businesses in state procurement processes
constitutes not only good public policy but also good business and enlightened self-
interest.

Just as equal employment opportunity must be an integral part of norma! personnel
policy, procedures, and practices, so the use of small businesses and businesses owned by
women and minorities must be an important feature of the Commonwealth’s normal
purchasing policy, procedures, and practices. No potential supplier should be precluded
from consideration on the basis of race, color, religion, gender, age, or national origin.
Every attempt must be made to fully utilize all of the Commonwealth’s resources, human
as well as material, in an effort to obtain high quality goods and services at reasonable
costs.

Every employee who is delegated the responsibility either directly or indirectly to
commit the expenditure of funds for the purchase of goods and services on behalf of the
Commonwealth is charged with making the objective of supplier diversity a reality.
Success depends upon the full, unqualified participation and commitment of all such
employees. Employees must conduct all procurement procedures and practices in a fair
and impartial manner, avoiding any impropriety or appearance thereof.
Executive Oder Number 29 (2002)
Page 2

The Virginia Public Procurement Act (VPPA), in Section 2.2-4310(A) of the Code
of Virginia, prohibits all public bodies from discriminating against anyone seeking a
contract from the state on the basis of that person’s race, religion, color, sex, or national
origin. Additionally, whenever a public body engages in a solicitation, it is required to
“include enterprises selected from a list made available by the Department of Minority
Business Enterprise.” The Department of General Services’ Procurement and Surplus
Property Manual defines solicitation to include Invitations for Bids (IFB), Requests for
Proposals (RFP), telephone calls, or any other document issued by the state to obtain bids
or proposals for the purpose of entering into a contract.

Under Section 2.2-4310(B) of the VPPA, each public body is required to develop
a written program “to facilitate the participation of small enterprises and enterprises
owned by women and minorities in procurement” that includes cooperation with the
Department of Minority Business Enterprise, the United States Small Business
Administration, and other public or private agencies. These programs must include
provisions to ensure that the public body does not discriminate in the soliciting or
awarding of contracts and that, when all solicitations are made, there are enterprises
included in the solicitation selected from a list made available by the Department of
Minority Business Enterprise.

By virtue of the authority vested in me under Article V, Section 1 of the
Constitution of Virginia and Sections 2.2-103, 2.2-104, 2.2-106, and 2.2-1400 of the
Code of Virginia, | hereby direct the Cabinet and all heads of all state agencies and public
bodies to take the following action to implement the equal opportunity and
nondiscrimination requirements set forth in the VPPA:

Each Cabinet Officer must submit to the Chief of Staff no later than August 15 of
each fiscal year a written program from each agency or public body within his or her
secretariat that aims to facilitate the participation of small businesses and businesses
owned by women and minorities in procurement transactions with the agency or public
body that fiscal year. The first such report is due by August 15, 2002.

Such programs must include provisions to ensure that the agency or public body
does not discriminate in the soliciting or awarding of contracts in violation of Section
2.2-4310 of the Code of Virginia and that, when solicitations are made, businesses are
included in the solicitation that are selected from a list made available by the Department
of Minority Business Enterprise. Each written program must address minority prime
contracting and subcontracting and include swategies for continuous improvement in both
areas.

Each agency’s or public body’s written program must be reviewed and approved
by the applicable Secretary with the advice and assistance of the Secretary of
Executive Oder Number 29 (2002)
Page 3

Administration, the Director of the Department of Minority Business Enterprise, and the
Director of the Department of General Services.

To assist agencies in the development of required written programs, the Chief of
Staff is authorized to develop a model written program, in consultation with the Secretary
of Administration, the Department of Minority Business Enterprise, the Department of
General Services, and the Office of the Attorney General.

This Executive Order shall be effective upon its signing and shall remain in full
force and effect until June 30, 2006, unless amended or rescinded by further executive
order.

Given under my hand and under the Seal of the Commonwealth of Virginia, this
2" day of July 2002.

Mark R. Warner, Governor

Attest:

Secretary of the Commonwealth
COMMONWEALTH OF VIRGINIA

Executive Order 103 (2005)

PROMOTING DIVERSITY AND EQUAL OPPORTUNITY FOR
SMALL, WOMAN-, AND MINORITY-OWNED BUSINESS
ENTERPRISES IN STATE PROCUREMENT

Background

Securing the economic health and vitality of all of the Commonwealth’s businesses
is critical to the future of Virginia and to the quality of life of all Virginians. Promoting
and helping to grow the Commonwealth’s enterprises is an integral part of Virginia’s
overall economic development mission, supporting its efforts toward job creation,
community empowerment and economic revitalization.

An important element of expanding economic opportunities to all Virginians lies in
providing opportunities for small businesses, including businesses owned by women and
minorities, to participate in the purchasing programs of the state.

The Commonwealth acknowledges that historically, businesses owned by women
and minorities have not sufficiently benefited from such commercial opportunities.
Despite this history, Virginia is fully committed to the principals of equal opportunity.

The Commonwealth’s commitment has been evidenced, in part, by Executive Order
29 (EO 29) and the accompanying guidelines to all state agencies and public bodies. EO
29 enhances the equal] opportunity and nondiscrimination requirements set forth in the
Virginia Public Procurement Act (VPPA). The Commonwealth’s commitment has also
been evidenced by our Small, Woman, and Minority Business (SWAM) Procurement
initiative, designed to improve the participation of these businesses in the purchasing
programs of the state. This effort has yielded improved results over the last year: both
Executive Order 103 (2005)
Page 2

minority and woman-owned business participation levels have grown from the combined
1.27 percent level documented by the Commonwealth’s Procurement Disparity Study to
an approximate level of 2 percent for minorities and 2.4 percent for women. Prior to EO
29, erroneously reported totals for minority business participation typically averaged 5-7
percent. Though improved, both levels remain substantially below our targets for
minority-owned businesses and for businesses owned by women.

In addition, small business participation in state contracting, formerly held to be
approximately 20 percent, has been, in fact, a mere 8-10 percent. Combined SWAM
business participation, despite our progress, hovers below 15 percent, significantly less
than the established statewide goal of 40 percent.

SWAM purchasing reports have shown that small businesses, including businesses
owned by women and minorities, continue to lag behind in their participation in the
state’s purchasing initiatives. These businesses, representing nearly 99 percent of all
Virginia businesses, are the backbone of the state’s economy and they represent the
Commonwealth’s best hope for a prosperous future. Consequently, the policy of
promoting small businesses, including businesses owned by women and minorities, will
benefit all members of the Virginia family.

Diversifying the state’s contracting is a challenging effort that takes more than
four years. This objective transcends gubernatorial administrations, and thereby requires
a long-term institutional commitment.

Initial Efforts

During my Administration, we have undertaken a number of efforts that have begun
to change course. These actions include:

1. Summer 2002: We issued Executive Order Number 29 (2002) directing all Cabinet
members and heads of all state agencies and public bodies to implement the equal
opportunity and nondiscrimination requirements set forth in the Virginia Public
Procurement Act (“VPPA”), § 2.2-4310(A), Code of Virginia (2005), which prohibits
all public bodies from discriminating in government contracts on the basis of race,
religion, color, sex, or national origin, and requires them to include in solicitations
companies included in a list assembled by the Department of Minority Business
Enterprise (DMBE).

2. Fall 2002: We discovered and rectified significant errors in the database causing the
historical over-reporting of expenditures with small, woman and minority firms.

3. Winter/Spring 2003: We championed the need for a study of disparities in the state’s
procurement programs and won unanimous legislative passage of S.J. 359.
Executive Order 103 (2005)
Page 3

4. January 2004: We released the Procurement Disparity Study of the Commonwealth
of Virginia (the “Study”) after an accelerated and detailed investigation. The Study
found that total Commonwealth spending with woman- and minority-owned business
enterprises in fiscal years 1998-2002 (study period) was very low at a combined level
of 1.27 percent of total spending.

5. Winter/Spring 2004: We collaborated with the General Assembly to unanimously
pass HB 1145 amending the VPPA to authorize and encourage the Governor and
localities to implement remedial programs when a rational basis for small business
enhancement exists or analysis documents statistically significant disparity between
the availability and utilization of woman- and minority-owned businesses. The
legislation took effect July 2004.

6. July 2004: We developed and implemented the Commonwealth’s Remediation Plan
for all executive branch agencies and institutions. The Plan established the overall
aspirational objective of 40 percent for small business participation, directed all state
agencies and institutions to develop purchasing programs by September |, 2004, and
established within DMBE a certification program for all Small Business Enterprises,
Minority Business Enterprises, and Woman Business Enterprises participating in the
remediation program.

7. Fall 2004: We allowed agencies and institutions to set aside up to 30 percent of their
discretionary funds for contracts with small businesses in accordance with their
respective SWAM Plans.

8. Spring 2005: We unveiled an On-Line Certification Service at DMBE to provide an
easy and convenient method for SWAM and DBE certifications.

9. Summer 2005: We began weekly reporting by secretariat, with the Director of the
Department of Minority Business Enterprise attending and presenting at every cabinet
meeting.

10. Fall 2005: Quarterly results were the best measured to date.
On the strength of these efforts, the participation levels of SWAM businesses in
state contracting awards have improved significantly. However, the actual awards are still

disappointing compared to the representation of these businesses in Virginia’s economy.

Continuing Efforts

It is clear that the Commonwealth must continue on its course toward affording
small businesses the opportunity to compete equitably for the Commonwealth’s business.
The following directives currently in place are therefore hereby continued:
Executive Order 103 (2005)
Page 4

10.

The statewide aspirational goal of 40 percent of the Commonwealth’s discretionary
spending in combined prime and sub contracts for small businesses including
businesses owned by women and minorities.

The annual written action plan required of agencies and institutions to facilitate the
participation of small businesses, including businesses owned by women and
minorities. The plans shall be developed and submitted to DMBE and the appropriate
Cabinet Secretary on September 1 of each Fiscal Year.

The requirement that each agency and institution designate, yearly, a Procurement
Champion to ensure nondiscrimination in the solicitation and awarding of contracts.

The requirement for DMBE certification of small businesses and of woman-owned
and minority-owned businesses to ensure reliable and consistent reporting of their
participation in the Commonwealth’s purchasing programs.

The definitions established and incorporated in the certification procedures of DMBE
for small business enterprise (SBE), women’s business enterprise (WBE), and
minority business enterprise (MBE). Also continued is the definition established for
a disadvantaged business enterprise (DBE).

The requirement that the Department of General Services (DGS) and the Virginia
Information Technology Agency promulgate guidance on SWAM purchasing in all
relevant purchasing manuals and make available to all purchasing officials.

The implementation of small business enhancement tools, including, but not limited
to, the small business set-aside, unbundling of selected State contracts, small
procurements under $5,000, and early posting of potential contract awards.

The requirement that each prime contractor whose procurement bid included a
SWAM participation component submit evidence and certification of compliance
with the SWAM Procurement Plan on or before the request for final payment. Final
payment, under the contract, may be withheld until such certification is delivered and,
if necessary, confirmed by the agency or institution, or other appropriate penalties
may be assessed in lieu of withholding such payments.

The requirement that each contracting or certifying agency or institution, in
cooperation with DMBE and DGS, contractually provide for appropriate auditing of
vendors and contracts in order to assure compliance with certification requirements,
SWAM subcontracting plans, and other required provisions. Such audits shall
include the right to make on-site audits and review documents at any time during the
term of the applicable contract or certification.

The inclusion of progress toward achievement of SWAM objectives as an evaluation
criteria for the chief executive officer for each agency and institution. Also continued
Executive Order 103 (2005)
Page 5

Li.

12.

is the use of said criteria in the evaluation of senior management and procurement
personnel by the agency head or chief executive officer.

The requirement that state agencies and institutions work together with DMBE and
the Department of Business Assistance to seek to increase the number of qualified
minority and woman-owned businesses who are available to do business with the
Commonwealth.

The updating by DMBE of statistics of SWAM participation, by gender and ethnicity,
in relevant purchasing categories according to the findings identified in periodic
statistical analyses of the availability and utilization of SWAM businesses in the
purchasing programs of the Commonwealth, and submission of recommendations to
the Governor. DMBE shall be responsible for making information on trends in
SWAM participation available to the Cabinet and to the agencies, in order that current
information on the state’s progress toward remediating the disparity identified with
woman-owned and minority-owned businesses is made available to decision-makers.

New Directives

I hereby direct the following:

. Include all certified woman-owned and minority-owned firms in the definition of

certified small business when said definition is utilized for procurement actions;
Require a Small Business Subcontracting Plan in all contracts over $100,000;

Direct purchasing officers to modify evaluation criteria that prevent qualified
companies from being excluded from state business based on narrow definitions of
prior experience;

Require all applicable purchasing manuals to fully incorporate the new SWAM
procedures, including all agencies, institutions, colleges and universities and political
subdivisions subject to the VPPA;

. Require all agencies, institutions, colleges, and universities to post future

procurement opportunities on a new section of the eVA web site for the public to see
at anytime and encourage all public bodies to post on this web site;

Require certified small business participation in every RFP for professional and non-
professional services (with allowance for good faith efforts which shall be prescribed
by DMBE in cooperation with the Department of General Services and the Virginia
Information Technology Agency and incorporated in the relevant purchasing
manuals);
Executive Order 103 (2005)
Page 6

7. Allow small business participation plan(s) to be used as weighted criteria to evaluate
proposals;

8. Allow award to a qualified, reasonably priced, certified small business even if it is
other than the lowest bidder or most successful offeror for all procurements, including
construction; and

9. Include SWAM payment data and eVA commitments in VITA’s new statewide
management system.

These SWAM directives are designed to increase the overall pool of qualified
vendors and thereby expand competitive access. They allow agencies and institutions to
continue to seek quality products and services at competitive prices while at the same
time advancing the Commonwealth’s objectives of promoting small businesses and
providing equal opportunity in state purchasing.

By virtue of the authority vested in me as Governor under Article V of the
Constitution of Virginia and the laws of the Commonwealth, including but not limited to
Title 2.2 of the Code of Virginia, and subject to my continuing and ultimate authority and
responsibility to act in such matters, Executive Order Number 29 (2002) is hereby
rescinded. I direct the Cabinet and the heads of all executive branch agencies and public
bodies to implement and advance this Executive Order to promote diversity and equal
opportunity in state procurement activities for Virginia’s small businesses, including
businesses owned by women and minorities.

This Executive Order shall be effective upon its signing and shall remain in full
force and effect until June 30, 2006, unless amended or rescinded by further executive
order. Given under my hand and under the Seal of the Commonwealth of Virginia this
13th day of December 2005.

Mark R. Warner

Attest:

Secretary of the Commonwealth
COMMONWEALTH OF VIRGINIA

OFFICE OF THE GOVERNOR
Executive Order 33 (2006)

ENHANCING OPPORTUNITIES FOR SMALL, WOMEN AND
MINORITY OWNED BUSINESSES

Importance of the Issue

It is imperative that the Commonwealth of Virginia maximize the participation of
its citizens in the vast array of commercial opportunities in state procurement. The
Commonwealth's historical record in buying goods and services from small, women-
owned and minority-owned (SWaM) businesses must be improved. This record as
documented in “A Procurement Disparity Study of the Commonwealth of Virginia”
January 12, 2004 final report, requires that Virginia develop new approaches in creating a
system of fair contracting. The firm MGT of America, Inc., which conducted the
disparity study, found that the Commonwealth’s spending with minority business
enterprises as a percentage of total spending was the lowest recorded in over 100 of their
studies. For Virginia to remain competitive, we must assure that all businesses and
owners have an equal opportunity to share in state procurement.

Initiatives

By virtue of the authority vested in me as Governor under Article V of the
Constitution of Virginia and the Code of Virginia, I hereby direct my cabinet secretaries
and all executive branch entities to implement and advance the following:

1. It shall be the goal of the Commonwealth that 40% of its purchases be made
from small businesses. This includes discretionary spending in prime contracts
and subcontracts. The Department of Minority Business Enterprise (“DMBE”),
in consultation with executive branch entities and institutions with
procurement policy responsibilities, shall develop a race- and gender-neutral
Goal Setting Program. The Program shall require small business goals in
every agency’s procurement plan.
Executive Order 33 (2006)

Page 2

For the purpose of this goal a “small business” is one of 250 or fewer
employees, or gross receipts of $10 million or less averaged over the previous
three years. This shall include, but not be limited to, certified minority-owned
and women-owned businesses that meet the small business definition.

. DMBE, in consultation with executive branch entities and institutions with

procurement authority shall develop a uniform, state-wide method for
evaluating and monitoring SWaM participation plans in all state procurements.
Each prime contractor shall include in its proposal(s)/bid(s) a SWaM
participation component. Before final payment is made, the contractor must
certify evidence satisfactory to the Commonwealth of compliance with the
contract’s SWaM Procurement Plan.

. Executive branch’ entities and _ institutions with procurement

responsibilities shall implement processes for producing SWaM subcontracting
data as established by DMBE in consultation with the Department of General
Services and the Virginia Information Technologies Agency. This
subcontracting data must also include information on non-SWaM
subcontractors performing on contracts over $200,000.

. DMBE, in consultation with executive branch entities and institutions with

procurement policy responsibilities, shall formulate policies and procedures for
the Commonwealth's small business set aside program and implement small
business enhancement tools, including but not limited to, the unbundling of
selected State contracts, increasing SWaM participation on small procurements
under $5,000, and the early posting of potential contract opportunities.

. Agency heads, senior managers with procurement responsibility, procurement

personnel, and end users with procurement P-Cards shall be evaluated on the
attainment of SWaM goals as part of their annual and interim employee
evaluations.

. Executive branch entities and institutions with procurement responsibilities

shall review practices, procedures and proposal evaluation criteria to identify
and remove barriers or limitations to SWaM participation. A section on
“barriers or limitations” shall be included in annual SWaM plans. SWaM
plans shall be developed and submitted to DMBE and the appropriate cabinet
secretary on September 1 of each fiscal year and shall include:

o The designation of a SWaM champion to ensure nondiscrimination in
the solicitation and awarding of contracts;

o Agency SWaM goals, and

o A statewide public information campaign to promote procurement
opportunities and SWaM participation.

. The Department of General Services, the Virginia Information Technologies

Agency and executive branch entities and institutions shall actively recruit
Executive Order 33 (2006)
Page 3

SWaM businesses to bid on statewide cooperative procurement agreements
and/or contracts that are open for competition. DGS and VITA shall develop
guidelines that promote greater representation of SWaM businesses on such
contracts.

8. The Virginia Information Technologies Agency, Virginia Department of
General Services, Virginia Department of Transportation and universities
operating under management agreements shall develop pilot programs in
conjunction with DMBE to increase opportunities for SWaM vendors to
perform as prime contractors on Commonwealth projects.

9. The Department of Business Assistance, in conjunction with the Department of
Minority Business Enterprise, Department of Planning and Budget, Virginia
Department of Transportation and other executive branch entities as necessary,
shall establish a Small Business Development Program and initiatives to
enhance the development and to increase the number of small businesses in
Virginia. Such efforts shall include, but not be limited to:

o Access to capital, including contract financing and bonding support;
o Management and technical assistance programs; and
o Statewide mentor/protégé and/or joint venture programs.

10.VDOT and DGS shall develop guidelines for vertical and horizontal
construction to be used by executive branch entities and institutions in making
construction mobilization payments to businesses when reasonable and
necessary to facilitate contract initiation.

11.The Interagency Advisory Council on Administrative Dispute Resolution in
conjunction with DMBE, and the Virginia Department of General Services
shall establish a SWaM contract mediation program. The mediation program
shall offer dispute resolution alternatives for conflicts between executive
branch entites or institutions and a small business in a contract situation.

12.The purchasing manuals, regulations and guidelines of all executive branch
entities and institutions subject to the Virginia Public Procurement Act shall
include SWaM purchasing regulations and/or guidelines.

These directives are not intended in any way to limit the application of additional
creativity at the agency level. They are designed to promote economic justice and
eliminate impediments to a more equitable procurement process. Each cabinet secretary
shall evaluate the performance of their agencies in implementing these directives.
Accordingly, DMBE, in cooperation with each cabinet secretary, shall provide quarterly
reports to me regarding the Commonwealth’s progress in enhancing opportunities for
Small, Women and Minority-owned businesses. The reports shall delineate the
Commonwealth’s spending in detail by ethnicity, SWaM category, and agency.
Executive Order 33 (2006)
Page 4

Effective Date of the Order

This Executive Order rescinds the relevant provisions of Executive Order 28
(2006) issued by Governor Timothy M. Kaine, which continued Executive Order 103
(2005), issued by Governor Mark R. Warmer. This Executive Order shall be effective
upon its signing and shall remain in full force unless amended or rescinded by further
executive order.

Given under my hand and under the Seal of the Commonwealth of Virginia this
10" day of August 2006.

Timothy M. Kaine, Governor

Attest:

Secretary of the Commonwealth
Commonwealth af Virginia
Office of the Governor

Executive Order

NUMBER TWENTY (2014)

ADVANCING EQUITY FOR SMALL, WOMEN, AND
MINORITY OWNED BUSINESSES

Importance of the Issue

It is imperative for the Commonwealth of Virginia to maximize the participation of small
businesses in state contractual work. For Virginia to remain competitive and continue to advance its
smal] business goals, significant work sall must be done for a more transparent, equitable, and
inclusive process. Therefore, I am establishing a micro business designation within the small
business certification and vital new state procurement initiatives.

For purposes of this Executive Order: 1) “executive branch agency” shall include all enuties
in the executive branch, including agencies, authorities, commissions, departments, and al]
institutions of higher education; 2) “small businesses” shall include, but not be limited to, small,
women-owned or minority-owned businesses; and, 3) “micro businesses” shall be defined as those
certified small businesses that have no more than twenty-five 25) employees and no more than $3
million in average annua] revenue over the three-year period prior to their certification.

lam directing the following executive branch agencies that have statutory authonty for
procurement, in conjunction with the Deparunent of Small Business and Supplier Diversity
(DSBSD) as provided in Code of Wiryinia § 2.2-1605(A)(6), to implement the requirements herein
within their respective areas of procurement authority: Department of General Services (DGS),
Virginia Information Technologies Agency (VITA), Virginia Department of Transportanon
(VDOT), those insduuons of lugher education that have autonomy in procurement granted under
the Restructured Higher Educaton [*inancial and Admunistraove @perauons Act (Code of | “iryinia §
23-38.88, ef seq.), and other executive branch agencies that have statutory authonty for procurement.

Inittatives

With a continuing rational basis for smal] business enhancement, and pursuant to the
authority vested in me as Governor under Article V of the Constitution of Virginia, the Code of
Virginia, including Code of Virginia § 2.2-4310(C), and applicable Memoranda of Understanding and
Management Agreements entered into pursuant to Code of Virginia § 23-38.88, ef seq., I hereby direct
my Cabinet Secretaries and all executive branch agencies to continue and advance the following on a
race-neutral and gender-neutral basis:

1. Exceed a target goal of 42%, which is the highest percentage of expenditures spent since FY
2004 for executive branch agencies with small businesses certified by DSBSD. This
percentage applies to discretionary spending in categories from which the Commonwealth
derives ptocutement orders, prime contracts, and subcontracts. USBSD, in consultation with
executive branch entities and institutions with procurement responsibilities, shall advance
race-neutral and gender-neutral goals via annual agency Small, Women-owned, and Minontty-
owned (SWaM) procurement plans. Each executive branch agency shall review and update its
benchmarks, policies, and procedures to conform with this Executive Order and the
implementing regulations adopted pursuant to Code of Virginia § 2.2-1605(A)(6) and thereby
ensure that a greater percentage of purchases is made from certified small businesses, in
goods and services categories from which the Commonwealth makes its purchases.

2. Create the micro business designation, which shall include those certified small businesses
that have no more than twenty-five (25) employees and no more than $3 million in average
annual revenue over the three-year period prior to their certification. DSBSD shall develop a
best practices method for identifying those small businesses that are eligible for the micro
business designation. DSBSD shall also evaluate and offer recommendations for the
implementation of the micro business designation by October 1, 2014.

3. Expand the set-aside for competition among all certified small businesses to include
purchases up to $100,000 for goods and nonprofessional services and up to $50,000 for
professional services when the price quoted is fair and reasonable. In the procurement
selection process for these set-asides, at least one of the proposals/bids shall be obtained
from a micro business unless upon due diligence no micro business in a particular category
exists or was willing to submit a proposal/bid. Purchases under $10,000, however, shall be set
aside for micro businesses when the price quoted is fair and reasonable. Executive branch
agencies that have statutory authority for procurement shall include these set-asides in their
purchasing regulations, policies, and processes by no later than September 1, 2014. Current
contracts will continue in accordance with their terms. The DSBSD will prepare a progress
report descnbing executive branch agencies’ compliance with this requirement and deliver its
report to the Governor’s Chief of Staff no later than October 1, 2014.

4. Provide support to DSBSD in developing a uniform, statewide method for evaluating and
monitoring small business (SWaM) procurement plans. Executive branch agencies shall
require each prime contractor to include in its proposal(s)/bid(s) a SWaM procurement plan.
Before final payment is made, the purchasing agency shall confirm that the contractor has
certified compliance with the contract’s SWaM procurement plan. If there are any variances
between the contractor’s required SWaM procurement plan and the actual participation, the
contractor shall provide a written explanation. The written explanation shall be kept with the
contract file and made available upon request.

Contracts and renewals may include a provision allowing final payment to be withheld until
the contractor is in compliance with its SWaM procurement plan. Prior to entering into a new

2
contract or renewing a contract with a contractor, an agency shall review a contractor’s record
of compliance with SWaM procurement plan requirements. A contractor’s failure to
satisfactorily meet designated SWaM procurement plan requirements shall be considered in
the prospective award or renewal of any future contracts with the contractor.

5. Implement processes for producing SWaM subcontracting data as established by DSBSD in
consultation with DGS and VITA. This subcontracting data must also include information on
non-SWaM subcontractors perfonming on contracts over $200,000.

These initiatives will spur creativity, promote economic justice and development, and
encourage procurement participation by small businesses. In support of the initiatives set out above,
I further direct the following actions to be taken by Cabinet Secretaries and executive branch
agencies:

1. DSBSD, in conjunction with DGS, VITA, VDOT, and higher education institutions with
procurement autonomy, shall implement initiatives to enhance the development of small
businesses in Virginia. Such initiatives shall include, but not be limited to:

¢ Information on access to capital, including contract financing and bonding support
and other opportunities for economic development;

e Management and technical assistance programs;

e Partnerships and outreach with local business groups, chambers of commerce, and
other organizations to develop a diverse vendor base; and,

» Statewide mentor/ protégé and/or joint venture programs.

2. DSBSD, with assistance from DGS, shall conduct a vendor outreach training program for
each congressional district in the Commonwealth. Training shall include instructions on how
to obtain certification, register with and reseatch through the Commonwealth’s e-
procurement system (eVA), respond to business opportunities with the Commonwealth,
encourage SWaM participation, and overcome identified barmiers.

3. Executive branch agencies shall review the efficacy of implementing other small business
enhancement tools and processes, such as:

e Unbundling contracts;

e Relaxing the requirement for mandatory attendance at pre-bid meetings;

e Expanding tme to respond to small purchase solicitations;

- Alerting businesses to current and future procurement as well as subcontracting
opportunities; and,

e Streamlining the paperwork required of small businesses.

4. The purchasing manuals, regulations and guidelines of all executive branch entities and
institutions shall include updated SWaM purchasing regulations and/or guidelines to reflect
the changes made in this Executive Order.

5. Executive branch agencies shall actively recruit small businesses to seek certification from
DSBSD, to register on eVA, and to compete for state procurement contracts. DGS and
10.

VITA shall develop guidelines that promote greater representation of SWaM businesses on
such contracts.

VDOT, for road and bridge construction, and DGS, for construction, shall develop
guidelines to be used by executive branch agencies in making construction mobilization
payments to businesses when reasonable and necessary to facilitate contract initiation.

The Virginia Economic Development Partnership (VEDP) shall send DSBSD its regular
repott to the Sectetary of Commerce and Trade on new economic development
announcements of business activity in the Commonwealth, inclusive of those announcements
in which a VEDP administered economic incentive is provided. Such report will enable
DSBSD to ascertain in a timely manner what opportunities the activity may bring for
Virginia’s small businesses.

Every executive branch agency shall utilize the Commonwealth’s central electronic
procurement system (“‘eVA”) as its purchasing and/or posting system beginning at the point
of requisitioning for all procurement actions, including but not limited to technology,
transportation, and construction, for the purpose of identifying available small businesses,
and for tracking purchase requisition details ftom those businesses. DGS, in consultation
with VDOT, shall develop guidelines pertaining to the content of requisitions, in order for
data to be captured in a timely, accurate, and consistent manner.

Each executive branch agency shall designate a SWaM equity champion to ensure equity in
the solicitation of procurement proposals/bids and awarding of contracts.

Agency heads, senior managers with procurement responsibility, procurement personnel, and
end users with purchasing charge cards shall be evaluated on small business purchasing goals
as part of their employee evaluations.

11. DSBSD shall coordinate with the Virginia Association of Counties, the Virginia Municipal

League, and the Virginia Association of Governmental Purchasing to identify opportunities
for state and local government entities to collaborate in order to maximize procurement
equity for small businesses.

Reporting Requirements

1,

The Secretary of Commerce and Trade shall study the potential advantages of providing start-
up incentives, including federally-funded grants, to certified small businesses. This shall
include a review of the economic impact of providing the incentives and whether such
incentives would promote the profitability and sustainability of such businesses. The Secretary
of Commerce and ‘Trade shall provide a report to the Governor’s Chief of Staff by no later
than December 1, 2014.

Cabinet Secretaries shall monitor their agencies’ spending with all certified small businesses,
and report on the results quarterly. DSBSD shall develop a standard reporting format for
such purposes. The report shall include information on purchases made from all certified
small businesses. In addition, the Secretary of Commerce and Trade will assess overall state
performance, and report quarterly to the Governor.

4
Each Cabinet Secretary shall evaluate the performance of their agencies in implementing
these directives. DSBSD, in cooperation with each Cabinet Secretary, shall provide quarterly
reports to the Secretary of Commerce and Trade regarding the Commonwealth’s progress in
enhancing opportunities for SWaM businesses. The reports shall delineate the
Commonwealth’s spending in detail by SWaM category and agency.

3. The Secretary of Commerce and Trade shall conduct a study on a new small business
designation, with prospective sct-aside opportunities, that would be between twenty-five (25)
and one hundred (100) employees and between $3 and $10 million. The study shall be
delivered to the Governor’s Chief of Staff no later than December 1, 2014.

4. Executive branch entities and institutions with procurement responsibilities shall review
pracuces, procedures, and proposal evaluations criteria to identify and remove bartiers or
lunitations to SWaM parucipation. A section on “barriers or limitations” shall be included in
annual agency SWaM plans. SWaM plans shall be developed and submitted to the Secretary
of Commerce and Trade on September 1 of each fiscal year.

5. The Secretary of Commerce and Trade will prepare and deliver a report to the Governor no
later than October 1, 2015, detailing compliance with this Executive Order and providing

spend performance metrics from the prior fiscal year.

Effective Date of this Order

This Executive Order replaces Executive Order 33 (2006), issued by Governor Timothy M.
Kaine, and shall be effective upon its signing and shall remain in full force and effect unless
amended or rescinded by further executive order.

Given under my hand and under the Seal of the Commonwealth of Virginia, this 22™ day of
July, 2014.

Attest:

Stoney, Secretary of the Coiseawcilt zd
5
Commonwealth of Virginia

Office of the Governor

Executive Order

NUMBER THIRTY-FIVE (2019)

ADVANCING EQUITY FOR SMALL-, WOMEN-, MINORITY-, AND SERVICE
DISABLED VETERAN-OWNED BUSINESSES IN STATE CONTRACTING

Importance of the Issue

State contracting provides the catalyst for economic opportunity and expands access for
many businesses. As part of this process, it is imperative for Virginia to maximize the
participation of small businesses, including those owned by women, minorities, and service
disabled veterans, in state contractual work. For Virginia to remain competitive and continue to
advance its small business goals, significant work must be done for a more transparent,
equitable, and inclusive process.

Furthermore, Virginia must work to maximize participation of a diverse group of
vendors in state contractual work. Virginia has a long history of racial inequality and
disenfranchisement of minority communities. We have made some progress in the last six
decades since the civil rights movement began, but not enough. Additionally, in June we
celebrate the centennial anniversary of Congress passing the women’s right to vote. One
hundred years later, however, women are more likely to live in poverty, economic gender
inequality continues, and women are underrepresented in elected office, business, and the
workforce.

The Commonwealth conducted procurement disparity studies in 2002 and 2009. The
2002 study resulted in a 2004 report, which found that from 1998 to 2002, only 1.27 percent of
total state contracts were awarded to women-owned and minority-owned businesses. The 2009
study which was published in a 2011 report found that for 2007, 2.82 percent of total state
contracts were awarded to women-owned and minority-owned businesses. While this showed
movement, the update found continued disparity between the availability and utilization of
women-owned and minority-owned businesses in all business categories of prime contractors
including (i) construction, (ii) architecture and engineering, (iii) professional services, (iv)
nonprofessional services, and (v) goods and supplies. As part of the effort under this Executive
Order, a new disparity study must be conducted.
Directive

To provide for a more equitable and inclusive process, I am directing the following
executive branch agencies and institutions of higher education that have statutory authority
over procurement, in conjunction with the Department of Small Business and Supplier
Diversity (DSBSD), as provided in § 2.2-1605(A)(6) of the Code of Virginia, to implement the
requirements herein within their respective areas of procurement authority: Department of
General Services (DGS), Virginia Information Technologies Agency (VITA), Virginia
Department of 'l'ransportation (VDOT), those institutions of higher education that have
autonomy in procurement granted under the Restructured Higher Education Financial and
Administrative Operations Act (Code of Virginia § 23.1-1000, ez seq.), and all other executive
branch agencies that have statutory authority for procurement.

For purposes of this Executive Order: 1) “Executive Branch Agency” shall mean all
entities in the executive branch, including agencies, authorities, commissions, departments, and
all institutions of higher education; 2) “small businesses” shall] include, but not be limited to,
small, any subcategory of small, small women-owned, small minority-owned, or small service
disabled veteran-owned businesses (SWaM).

Initiatives

With a continuing rational basis for small business enhancement, and pursuant to the
authority vested in me as Governor under Article V of the Constitution of Virginia, § 2.2-
4310(C) of the Code of Virginia, and applicable Memoranda of Understanding and
Management Agreements entered into pursuant to Code of Virginia § 23.1-1000, et seq., I
hereby direct my Cabinet Secretaries and all Executive Branch Agencies as follows:

1. That the Commonwealth exceed a target goal of 42 percent of discretionary spending for
Executive Branch Agencies with small businesses certifted by DSBSD, which would be
the highest percentage of expenditures since FY 2004. This percentage applies to
discretionary spending in categories from which the Commonwealth derives
procurement orders, prime contracts, and subcontracts. DSBSD, in consultation with
Executive Branch Agencies with procurement responsibilities, shall advance this
procurement goal. Further, for all new capital outlay construction solicitations issued,
Executive Branch Agencies shall include a requirement for a target goal of 50 percent
subcontracting to small businesses.

Each Executive Branch Agency shall submit annual agency SWaM plans to DSBSD on
September 1, to include promotion and utilization of: small, any subcategory of small,
small women-owned, small minority-owned, small service disabled veteran-owned, and
employment service organizations. Executive Branch Agencies shall review and update
their goals, policies, and procedures to conform with this Executive Order and the
implementing regulations adopted pursuant to § 2.2-1605(A)(6) of the Code of Virginia
and thereby ensure that a greater percentage of purchases is made from certified small
businesses in goods, services, and construction categories from which the
Commonwealth makes its purchases.
Continue the subcategory of small businesses eligible for micro business designation,
which includes those certified small businesses that have no more than 25 employees and
no more than $3 million in average annual revenue over the three-year period prior to
certification.

Conduct an updated disparity study on women- and minority-owned business
participation in the Commonwealth’s procurement transactions. The 2004 and 201]
disparity study reports provided an analysis that documented a statistically significant
disparity between the availability and utilization of women-owned and minority-owned
businesses, indicating a need for a narrowly-tailored race and gender conscious program.
However, these studies need to be updated to ensure that any policy derived there from
will withstand legal scrutiny. As required in § 2.2-4310 of the Code of Virginia, I hereby
direct the DSBSD to contract with a qualified, independent third party to conduct a
disparity assessment on the status of women-owned and minority-owned business
participation in the Commonwealth’s procurement transactions. This study shall: (1)
determine if disparity exists and (ii) if so, determine why the disparity exists and what
solutions or remedies could be implemented, specifically evaluating narrowly-tailored
race and gender conscious programs. I further direct all Executive Branch Agencies to
support and provide requested data to DSBSD to facilitate this comprehensive study.

Executive Branch Agencies shall formulate policies and procedures for a set-aside
program, which shall, at a minimum, require that purchases up to $100,000 for goods,
nonprofessional services, and construction, and up to $80,000 for professional services,
be set aside for award to DSBSD-certified small businesses when the price quoted is fair
and reasonable and does not exceed 5 percent of the lowest responsive and responsible
noncertified bidder. Purchases up to $10,000 shall be set aside for award to micro
businesses when the price quoted is fair and reasonable and does not exceed 5 percent of
the lowest responsive and responsible noncertified bidder.

Executive branch agencies shall formulate policies and procedures to require a small
business subcontracting plan in all procurements over $100,000. Each bidder/offeror
shall be required to submit their bid/proposal and their small business sub-contracting
plan using DGS’s central electronic procurement system, except for VDOT contracts for
highway construction and design projects. Such plans shall identify all planned
utilization of (i) small businesses, (ii) subcategory of small businesses, (iii) small
women-owned businesses, (iv) small minority-owned businesses, and (v) small service
disabled veteran-owned businesses.

. Each prime contractor shall be required to report compliance with its small sub-
contracting plans using DGS’s central electronic procurement system, except for VDOT
contracts for highway construction and design projects. Before final payment is made,
the purchasing agency shall confirm that the prime contractor certified compliance with
the contract’s small business subcontracting plan. If there are any variances between the
prime contractor’s required smaJ] business subcontracting plan and the actual
participation, the prime contractor shall provide a written explanation to the purchasing
agency. The written explanation shall be kept with the contract file and made available
upon request.

Contracts and renewals shall include a provision allowing final payment to be withheld
until the prime contractor complies with its small business subcontracting plan. Prior to
entering into a new contract or renewing a contract with a prime contractor, a purchasing
agency shall review a contractor’s record of compliance with small business
subcontracting plan requirements. A prime contractor’s failure to meet satisfactorily
designated small business subcontracting procurement plan requirements shall be
considered in the prospective award or renewal of any future contracts with the prime
contractor.

To ensure that all SWaM businesses have one central site to provide transparency to all
Virginia opportunities and contracts, Executive Branch Agencies shall utilize DGS’s
central electronic procurement system to post current and future procurement and
subcontracting opportunities. Executive Branch Agencies shall use DGS’s central
electronic procurement system beginning at the point of requisitioning for all
procurement actions, including but not limited to technology, transportation, professional
services, and construction. This data will also be instrumental in the facilitation of the
disparity study.

Notwithstanding paragraphs 5, 6, and 7, institutions of higher education with statutory
authority for procurement shall provide such data or plans as required using DGS’s
central electronic procurement system or by integration or interface with the DGS
system.

Institutions of higher education shall work with the Secretary of Administration,
Secretary of Commerce and Trade, and the Secretary of Education to define best
practices and assist the Commonwealth in its work to advance equity for small-, women-,
minority-, and service disabled veteran-owned businesses in state contracting.

Collaborative Agencv Efforts

The above initiatives will spur creativity, promote economic development, and encourage

procurement participation by small businesses, including those owned by women, minorities,
and service disabled veterans. In support of the initiatives set out above, I further direct the
following actions to be taken by Cabinet Secretaries and Executive Branch Agencies:

DSBSD, in conjunction with DGS, VITA, VDOT, and institutions of higher education
with procurement autonomy, shall implement initiatives to enhance the development of
small businesses in Virginia. Such initiatives shall include, but not be limited to:

¢ Information on access to capital, including contract financing, bonding support,
and other opportunities for economic development as well as management and
technical assistance programs;
« Partnerships and outreach with local business groups, chambers of commerce,
and other organizations to develop a diverse vendor base; and

* Statewide mentor protégé programs.

DSBSD, in collaboration with DGS and institutions of higher education with
procurement autonomy, shall conduct a vendor outreach training program throughout the
Commonwealth. Such training shall include instructions on how to obtain certification
from DSBSD as well as registration with and research through the DGS’s central
electronic procurement system. The training should encourage SWaM participation and
help businesses overcome identified barriers.

Executive Branch Agencies shall review the efficacy of implementing other small
business enhancement tools and processes, such as:

e Unbundling contracts;

e Relaxing the requirement for mandatory attendance at pre-bid meetings;
e Expanding time to respond to small purchase solicitations; and

e Streamlining the paperwork required of small businesses.

All Executive Branch Agencies shall include updated SWaM regulations and/or
guidelines to reflect the requirements of this Executive Order in purchasing manuals,
regulations, and guidelines.

Executive Branch Agencies shall actively recruit small businesses to seek certification
from DSBSD, to register on DGS’s central procurement system, and to compete for state
procurement opportunities.

VDOT, for road and bridge construction, and DGS, for construction, shall develop
guidelines to be used by Executive Branch Agencies in making construction mobilization
payments to businesses when reasonable and necessary to facilitate contract initiation.

The Virginia Economic Development Partnership (VEDP) shall send DSBSD its regular
report to the Secretary of Commerce and Trade on new economic development
announcements of business activity in the Commonwealth, including those
announcements in which VEDP provided an administered economic incentive. Such
report will enable DSBSD to ascertain in a timely manner what opportunities the activity
may bring for Virginia’s SWaM businesses.

Each Executive Branch Agencies shall designate a SWaM equity champion to ensure
equity in the solicitation of procurement proposals/bids and awarding of contracts.

DSBSD, in collaboration from DGS, VITA, and institutions of higher education with
procurement autonomy, shall develop equity in procurement trainings for agency heads,

5
presidents of institutions of higher education, and senior managers with procurement
oversight. Such training shall be completed annually.

10. DSBSD and DGS may coordinate with the Virginia Association of Counties, the
Virginia Municipal League, and the Virginia Association of Govemmental Purchasing to
identify opportunities for state and local government entities to collaborate in order to
maximize procurement equity for small businesses.

Reporting Kequirements

1. Cabinet Secretaries shall monitor their agencies’ and higher education institutions’s
spending with all certified small businesses and meet with the Governor, or his
designee, quarterly to discuss the agencies’ performance. DSBSD shall develop a
standard reporting format for such purposes, The report shall include information on
purchases made from all certified small businesses. In addition, the Secretary of
Commerce and Trade will assess overall state performance and report quarterly to the
Governor.

Each Cabinet Secretary shall evaluate the performance of their agencies and institutions
of higher education in implementing these directives. DSBSD, in cooperation with each
Cabinet Secretary, shall provide quarterly reports to the Secretary of Commerce and
Trade regarding the Commonwealth’s progress in enhancing opportunities for SWaM
businesses. The reports shall delineate the Commonwealth’s spending in detail by
SWaM category and agency.

2. Executive Branch Agencies with procurement responsibilities shall review practices,
procedures, and proposal evaluation criteria to identify and remove barriers or
limitations to SWaM participation. A section on “barriers or limitations” shall be
included in annual Executive Branch Agency SWaM plans. SWaM plans shall be
developed and submitted to DSBSD by September 1. DSBSD shall submit the annual
SWaM Plan Compliance Report to the Secretary of Commerce and Trade on October 1
of each fiscal year.
Effective Date of this Order

This Executive Order rescinds and replaces Executive Order 20 (2014), issued by
Governor Terence R. McAuliffe and shall be effective upon its signing and shall remain in full
force and effect unless amended or rescinded by further executive order.

Given under my hand and under the Seal of the Commonwealth of Virginia, this 3 day
of July 2019.

Ralph S. Northam, Governor

Attest:

Kelly Thomasson, Secretary of the Commonwealth
Virginia Minority Business Commission

The Virginia Minority Business Commission (the Commission) was created by Item 27.10 of
Chapter 1289 of the Acts of Assembly of 2020. The Commission was made up of seven
legislative members and six nonlegislative citizen members, all appointed by the Speaker of the
House of Delegates and the Senate Committee on Rules. The membership of the Commission
was as follows:

Legislative Members

* Delegate Luke E. Torian (Chair)

* Senator Jennifer A. Kiggans (Vice-Chair)

* Delegate Suhas Subramanyam (Chair of Subcommittee #1)
¢ Senator Lionell Spruill, Sr. (Chair of Subcommittee #2)

¢ Senator J. Chapman Petersen

* Delegate Kelly K. Convirs-Fowler

* Delegate Jason S. Miyares

Citizen Members

* Tiffany Boyle

* Candice Carter

¢ Dr. Trina Coleman
« Tom Gibson

* Joe Miller

* Kelvin Perry

Staff support for the Commission was provided by Committee Operations for the House of
Delegates and the Virginia Division of Legislative Services (DLS), which included the following
personnel:

House of Delegates, Committee Operations

* Cheryl Wilson, Deputy Clerk
* Noah Brooks, Operations Clerk

Virginia Division of Legislative Services

* Jessica Budd, Senior Attorney
* Connor Garstka, Senior Attorney

The Commission held seven meetings, including subcommittee meetings, during 2021. The
Commission's website provides access to meeting summaries and all presentations delivered to
the members. The Commission met on the following dates:

* January 7, 2021

* April 19, 2021

* June 7, 2021 (Subcommittee #1)
* June 10, 2021 (Subcommittee #2)

Page 2 of 5 ~ mM Virginia Division of Legislative Services
* July 29, 2021 (Subcommittee #1)
* September 27, 2021 (Subcommittee #2)
* October 12, 2021

Executive Summary

At its first meeting, the Commission elected Delegate Luke E. Torian as chair and Senator
Jennifer A. Kiggans as vice-chair. DLS staff outlined the objectives for the Commission as
identified in its enabling legislation:

(i) evaluating the impact of existing statutes and proposed legislation on minority
businesses;

(ii) assessing the Commonwealth's minority business assistance programs and
examining ways to enhance their effectiveness;

(ii1) providing minority business owners and advocates with a forum to address
their concerns;

(iv) developing strategies and recommendations to promote the growth and
competitiveness of Virginia minority-owned businesses; and

(v) collaborating with the Department of Small Business and Supplier Diversity
(SBSD) and other appropriate entities to facilitate the Commission's work and
mission.

The Commission discussed these goals and how best to accomplish them. After considering the
members' input, Delegate Torian stated he would work with DLS staff to put together a work
plan. At its next meeting, Delegate Torian divided the Commission members into two
subcommittees. Each subcommittee was assigned more detailed tasks, with the purpose of
accomplishing the objectives in the enabling legislation. Subcommittee #1, chaired by Delegate
Suhas Subramanyam, focused on business program and data collection review and had the
following assignments:

(i) reviewing and recommending revisions to HB 5002 for possible endorsement
by the Commission for the 2022 legislative session;

(ii) cataloging existing women-owned and minority-owned business support
programs and services at the state and local levels;

(iii) reviewing current methods used to collect and review data for these programs
and exploring whether the data can be used to determine if the program is
successful; and

(iv) recommending changes to existing programs and services and for the
collection and use of data.

Subcommittee #2, chaired by Senator Lionell Spruill, Sr., focused on business support and
outreach enhancement. It had the following tasks:

(i) reviewing obstacles to women-owned and minority-owned businesses (WaMs)
obtaining government contracts while holding forums to allow public comment
from WaMs regarding the obstacles they face;

(11) exploring the adequacy of outreach and engagement efforts of state, regional,
and local government entities, in particular with Hispanic and other minority
communities and new WaMs;

(iii) exploring the use of mentorship programs and the feasibility of establishing a

UL I Virginia Division of Legislative Services Page 3 of 5
comprehensive business mentorship program in the state; and
(iv) generally reviewing methods for increasing WaM participation.

Each subcommittee met twice. Subcommittee #1's first assignment was to review HB 5002. It
received a comprehensive review of HB 5002, as well as SBSD's 2020 disparity study, which
provided the legal foundation for the legislation, from Secretary of Commerce and Trade Brian
Ball. Subcommittee #1's next task was to catalog WaM support programs. The subcommittee
received presentations from the Joint Legislative Audit and Review Commission (JLARC) and
SBSD on state government programs. DLS staff, working with Commission members, compiled
a comprehensive catalog of state, local, and private support programs for WaMs. Third,
Subcommittee #1 was directed to review current methods for collecting data on the performance
of WaM support programs. Jill Kaneff of the Northem Virginia Regional Commission and
Elizabeth Hughes of the Community Foundation for Northem Virginia presented to the
subcommittee on their 2021 report, Supporting Virginia's Minority-Owned Businesses. They
remarked that, although they collected data while compiling their report, they believe there is a
need for centralized data collection, and they submitted a letter to the subcommittee with ideas to
improve data collection. DLS staff corroborated the lack of a centralized data collection
program. The Subcommittee's last task was to recommend changes to existing data collection
programs. Because of the lack of data collection programs, the common recommendation on this
point was to increase data collection efforts.

Subcommittee #2 was directed to review the difficulties WaMs face in public procurement. The
subcommittee received testimony from community members and subcommittee members on
obstacles they experienced and ideas for removing them. Next, the subcommittee was charged
with evaluating the adequacy of existing outreach efforts. Howard Pisons, executive director of
the Small Business Financing Authority (SBFA), presented to the subcommittee on the agency's
outreach efforts to businesses seeking financial assistance. The subcommittee's third objective
was exploring the use of mentorship programs. The subcommittee received testimony about the
effectiveness of mentor-protégé programs in helping to develop startup WaMs. Lastly, the
subcommittee was directed to generally review methods for increasing WaM participation.
JLARC presented on the effectiveness of SBFA's lending policies in encouraging the growth of
WaMs.

After the subcommittees completed their work, the full Commission met in October to discuss its
progress. Delegate Subramanyam and Senator Spruill delivered reports to the Commission that
reviewed their tasks, as assigned by the work plan, and explained how each subcommittee
accomplished them.

Delegate Torian informed Commission members that the enabling legislation required the
Commission to submit an annual report by November 1 but also authorized it to continue its
work after the report deadline. He directed staff to prepare and submit the report and then invited
members to submit specific legislative proposals for the Commission to consider at its next
meeting. He requested that the members identify the appropriate state agencies to implement
solutions suggested by Commission members.

Page 4 of 5 UL .. Virginia Division of Legislative Services
For more information, see the Subcommittee's website or contact the Division of Legislative
Services staff:

Connor Garstka, Senior Attorney, DLS
cgarstka@dls.virginia.gov
804-698-1869

TIM. virginia Division of Legislative Services Page 5 of 5
Minority Business Commission

Possible Policy Proposals

¢ Enhance financing tools for new businesses. Increase funding for Virginia’s Small
Business Investment Program, which guarantees a ROI for friend and family investments in
a new business. Or, create a new program within the Virginia Small Business Financing
Authority to invest or lend to companies that are less than 2 years old through a loan or a
line of credit.

* Use grant programs to increase women and minority (WaM) business certification.
Require any state agency and any locality that distributes grant funds to businesses to ask
whether the recipient is a WaM, and if so, require the WaM to apply for certification as a
condition of receiving grant funds.

° Direct SBSD to create a mentorship pilot program. The program could be
business-to-business, subject-matter-expert-to-business, or both. The pilot program
could include any of the following elements:
- Require participants in SBSD’s existing Scaling4Growth program to act as
business-to-business mentors for new pilot (Scaling4Growth is an application-based
program in which SBSD educates WaMs about how to reach the next business
development stage)
- Examine providing a procurement preference to businesses that agree to be
mentors
- Pilot the program in a GO VA region with an active small business development
project with seed funding to match businesses with mentors
- Other state mentorship programs rely on volunteers and a computer program
interface for businesses to connect with volunteer mentors

* Expand SBSD reach through community and state agency partnerships. Direct SBSD to
partner with community organizations (like faith based centers) to promote their programs
and services to individuals, especially immigrant populations, and direct all agencies to
cross promote SBSD’s services where appropriate. A liaison position at SBSD could help to
support this work.

* Direct DGS and SBSD to develop guidelines to encourage unbundling for contracts of
$3 million or more. This policy is already encouraged by Executive Order 35.

¢ Require prime contractors’ bids to identify subcontractors and the amount of
compensation to be paid to them. Explore the potential of requiring prime contractors to
pay subcontractors at least the amount stated in the bid, which may help ensure that
subcontractors don’t absorb the effects if the prime contractor tries to cut costs to win the
bid.

¢ Require prime contractors to pay subcontractors before Virginia pays the prime
contractors. WaMs, which are earlier in the process of business development, frequently
have liquidity problems. Requiring prime contractors to pay subcontractors quickly could
help WaMs with cash flow.

* Use procurement to increase WaM business certification. Amend the Public
Procurement Act to require any bidder to identify all WaM subcontractors that would be
included in the bid, and to provide WaM application materials to subcontractors.
Alternatively, could require the contractor to get the subcontractor to apply. The
government entity that receives this information would then be required to forward the
information to SBSD, which could make efforts to recruit uncertified businesses and help
them complete their certification applications.

* SWaM Plans. (JLARC Recommendation) Require SBSD to provide meaningful feedback to
agency SWaM plans, and amend the Code to require agencies certify their SWaM plans
every year.

* Require localities to use BPOL as a data collection tool and to submit data to SBSD, and
require SBSD to aggregate and report this data. Could be initiated as a pilot program. For
those localities that impose a BPOL tax, direct them to require businesses to report WaM
status, whether they're WaM-certified, their industry, and year-over-year revenue changes.
Localities would submit this information to SBSD, which would aggregate and anonymize it,
then compile it in an annual report.

¢ Require a disparity study every 5 years. Amend the Code to require Virginia complete a
disparity study every 5 years. Currently, Virginia’s approach is ad hoc.

* Create clear SWaM goals for the state. JLARC Recommendation) Make procurement goals
for SWaM businesses clearer for state agencies.

¢ Measure business growth of WaM businesses involved in procurement. Require SBSD to
develop a plan to collect annual revenue and sales data from WaM certified businesses and
assess the growth of businesses involved in state contracting versus those are not.

¢ Allow contractors to submit bids digitally. (Submitted by Delegate Subramanyam.) For
some contracts, bids must be prepared and delivered in hard copy to the relevant public
body. This antiquated methodology means that businesses have to devote time to
physically preparing bid packages, rather than perfecting their bids. This can be especially
difficult for small businesses, who lack separate staff to fulfill these administrative tasks.
The Commonwealth should work to amend eVA to allow public bodies to conduct in-take
for their procurement requests and provide updates to the bidders about the evaluation of
their bids. Given the need to adapt policies to limit in-person contact during the pandemic,
agencies may be more receptive to this change now than they-may have been in the past.
DGS would implement this policy.

* Restrict set-aside contracts to only small business bidders. (Submitted by Delegate
Subramanyam.) Governor Northam’s Executive Order 35 requires agencies to formulate
policies and procedures for a set aside program for small businesses, requiring purchases
up to $100,000 for goods, nonprofessional services, and construction, and $80,000 for
professional services to be set aside for award to SBSD-certified small businesses when the
price quoted is fair and reasonable. Furthermore, purchases up to $10,000 are set aside for
micro-businesses. However, if a larger business submits a bid that is more than five percent
less than the lowest bid submitted by a small business, then the Commonwealth can award
the contract to the larger business. The General Assembly should act to ensure that
contracts set aside for small and micro-businesses are restricted to those bidders. This
idea would be implemented by DGS.

¢ Require prime contractors to publish their subcontracting opportunities on eVA.
(Submitted by Delegate Subramanyam.) As ideally presented in the Virginia Public
Procurement Act (the VPPA), Virginia works with well-known, qualified vendors and
contractors for business solicitation to ostensibly reduce prices. The problem is that
building this network of historically favored big contractors comes at the cost of smaller,
minority-owned and women-owned firms, putting them at a disadvantage before they even
bid on projects. Virginia requires that contractors on projects greater than $200,000 make
a good-faith effort to reach out to SWaM businesses, but those requirements are
oftentimes vague. This proposal suggests amending the VPPA to require prime contractors
post their subcontracting opportunities on eVA. Contractors under this framework would
be required to post subcontracting opportunities on eVA to attract SWaM businesses.
Second, the state can update the SWaM and DBE registry to include information on
previously completed contracts and work experience to fill service gaps and serve as a
pipeline for SWaM businesses to become prime contractors. DGS would implement this
policy proposal.

* Penalize firms that fail to meet SWaM subcontracting requirements. (Submitted by
Delegate Subramanyam.) Currently the Department of Small Business and Supplier Diversity
assigns points for RFP bids for categories including: Qualifications and Relevant
Experience; Capabilities, Skills and Capacity; Approach and Methodology; Financial
Proposal and lastly; Participation of Small Businesses and Businesses Owned by Women.
Improving prime contractor qualification should either increase the points awarded for
SWaM participation under the subcontract or assign negative points for poor past
performance. This way, bid solicitation reflects not only the work provided by the
contractor, but also a continual evaluation of state standards. DGS would implement this
idea.

* Direct SBSD to work with community groups and universities to improve the reach of
the agency. (Submitted by Delegate Subramanyam.) In addition to county economic
development authorities and local chambers of commerce, there are numerous
organizations formed to support WaM businesses, including the Northern Virginia Black
Chamber of Commerce, Virginia Asian Chamber of Commerce, and the Virginia Hispanic
Chamber of Commerce. Virginia also has many colleges and universities that could be
tapped to provide services to entrepreneurs in their communities. Some university-run
programs, like George Mason University’s Mason Enterprise Center, already exist. The
Mason Enterprise Center provides counseling and training to entrepreneurs in their region
to aid them in running and growing successful businesses. By working with these
organizations, SBSD could expand the reach of existing programming and have a source of
continual feedback about the needs and challenges of SWaM businesses in Virginia. SBSD
would implement this policy.

¢ Work with organizations such as the Community Foundation for Northern Virginia to
gather more data on minority owned businesses across the Commonwealth. (Submitted
by Tiffany Boyle.) This idea could be implemented by the Minority Business Commission or
SBSD.

* Construct a program to allow citizen business owners on the MBC access membership
to the Virginia Chamber of Commerce and other relevant statewide entities. (Submitted
by Dr. Trina Coleman.) Additionally, the MBC could partner with the regional Chambers of
Commerce to allow minority businesses membership at reduced rates.

* Create a spin-off of the Scaling4Growth program for minority businesses that have not
reached the revenue requirements for the existing program. (Submitted by Dr. Trina
Coleman.) SBSD would implement this policy proposal.
Virginia Minority Business Commission

Subcommittee #1 Business Program and Data Collection Review

Catalogue of State and Local Women-Owned and
Minority-Owned (WaM) Business Support Programs and Services

State Government Programs

Program: Department of General Services; Public Body Procurement Workgroup

Location: Statewide

Website: https://dgs. virginia. gov/dgs/directors-office/procurement-workgroup/

Description: Brings together several agencies (including SBSD, VITA, VDOT, and several
others) to jointly review proposed procurement legislation. One of its areas of focus is how to
achieve Virginia’s discretionary spend goals for SWaMs.

Program: Department of Housing and Community Development, Community Development
Block Grant, COVID-19 Small Business Recovery Assistance

Location: Statewide

Website: https://www.dhcd.virginia.gov/sites/default/files/Docx/cdbg/cdbg-small-business-
recovery-assistance.pdf

Description: Funded by the CARES Act, this program issues grants to local governments, which
then provide financial assistance to small businesses impacted by COVID. Each locality may
receive up to $500,000 to distribute, but if its program will serve at least 30% WaMs, it may
receive a higher grant of up to $800,000.

Program: Housing Development Authority

Location: Statewide

Website: https://www.vhda.com/about/Planning-Policy/Pages/LIHTC-QAP.aspx

Description: One of the programs Virginia Housing administers is the federal Low-Income
Housing Tax Credit program (under by §42 of the Internal Revenue Code). Virginia Housing’s
Qualified Allocation Program (QAP) governs how the program operates. The Board has
proposed changes, not yet finalized, that would award additional points to a tax credit applicant
if it uses minority contractors. The agency also has a Minority Business Advisory Council to
advise Virginia Housing on how to integrate minority partners.

Program: Department of Small Business and Supplier Diversity, Business Development and
Outreach Services

Location: Statewide

Website: https://www.sbsd.virginia. gov/business-development-and-outreach/

Description: SBSD’s BDOS division carries out the agency’s function of outreach to the
business community. The division is subdivided into five regional programs (Southwest,
Central-West, Hampton Roads and the Eastern Shore, Central-South, and Northern Virginia). It
serves as a central network that connects WaMs with potential buyers, chambers of commerce,
and other businesses. It helps form relationships between WaM entrepreneurs, who are in the
early stages of business development, and established WaM businesses, which can serve as
mentors. The division provides consultations (over 700 per year) with individual WaMs and
helps them complete SWaM certification applications. In partnership with private and local
government organizations, the division conducts seminars on steps in the procurement process,
like registering in eVA (the state’s procurement marketplace), obtaining SWaM certification, and
identifying potential clients.

Program: Department of Small Business and Supplier Diversity, Rebuild Virginia
Location: Statewide

Website: https://www.governor.virginia.gov/rebuildva/

Description: Funded by the CARES Act and ARPA, this program issues grants to small
businesses impacted by COVID. SBSD reports that about one-third of grants have gone to
WaMs.

Program: Department of Small Business and Supplier Diversity, Scaling4Growth

Location: Statewide

Website: https://www.sbsd.virginia.gov/s4g/

Description: Provides a six-month educational program designed to help SWaMs grow their
business. The program helps businesses evaluate their business model, and develop in such areas
as procurement, social media, and human resources.

Program: Department of Small Business and Supplier Diversity, Small Business Financing
Authority

Location: Statewide

Website: https://www.sbsd. virginia. gov/virginia-small-business-financing-authority/
Description: The SBFA offers loans to businesses, nonprofits, and local economic development
authorities and provides credit enhancements to banks that lend to them. Further, the SBFA
helps businesses attract equity through its equity incentive grant program. While the SBFA is
aimed at small businesses generally, like many of SBSD’s programs, it provides assistance to
small WaMs.

Local Government Programs

Program: Minority Business Program

Location: Charlottesville

Website: https://cvilleminoritybusinessprogram.org/

Description: Registers WaMs with the city for the purpose of increasing their access to
procurement spending. Provides one-on-one consultations to persons interested in starting a new
business or growing an existing business. Helps administer the Business Equity Fund, which is a
loan program for existing City businesses that are owned by individuals who are considered
socially disadvantaged. Hosts an annual Minority and Women Business Expo, which provides an
opportunity for minorities and women owned businesses to share their products and/or services
with the City.
Program: City of Charlottesville Minority Business Commission

Location: Charlottesville

Website: https://www.charlottesville.gov/982/Minority-Business-Commission

Description: Composed of 8 members (five citizens appointed by the City Council, the City's
Minority Business Development Coordinator, the City's Minority Procurement Coordinator, and
one City Councilor) and serves in an advisory capacity to the City Council regarding (1) the
City’s efforts in promoting the startup of minority-owned businesses in the City and the growth
and expansion of existing City minority-owned business and (ii) the City’s continuing efforts to
encourage the participation of businesses, and in particular those certified by the SBSD, in City
contracts, among other topics.

Program: Minority Business Office

Location: Hampton

Website: https://hampton.gov/1653/Minority-Business-Office

Description: Performed a disparity study of the city’s procurement. The program registers local
businesses to enhance procurement from WaMs.

Program: Northern Virginia Regional Commission; Minority-Owned Business Working Group
Location: Northern Virginia (including Arlington, Alexandria, Dumfries, Fairfax, Herndon,
Loudoun, Falls Church, Leesburg, Prince William, Manassas, Manassas Park, and Vienna)
Website: https://www.novaregiondashboard.com/covid19-economic

Description: The working group studied the impact of COVID on small businesses in Northern
Virginia. It focused on the acute risk to minority-owned businesses, and recommended how
local governments can respond and help businesses recover.

Program: Office of Minority Business Development

Location: Richmond

Website: http://www.richmondgov.com/MinorityBusinessDevelopment/index.aspx
Description: Provides financial assistance, mentorship programs, and education on business
development.

Program: Shenandoah Community Capital Fund (SCCF); Business Bootcamp

Location: Staunton

Website: https://stauntonfund.org/business-support/

Description: Funded by AT&T, this program provides grants to WaMs. It also runs an 8-week
course that focuses on the skills of business modelling, understanding pricing, and projecting
cash flow.

Program: Minority Business Council

Location: Virginia Beach

Website: https://www.vbgov.com/government/departments/finance/mbc/Pages/default.aspx
Description: Provides training and workshops for WaMs, and conducts initiatives to increase
procurement from WaMs.
Private, Nongovernmental Programs

Program: Open for Business Loan Fund

Location: Richmond region (Richmond, Henrico, Hanover, Chesterfield, Powhatan, Goochland,
Ashland, Petersburg, Hopewell, Colonial Heights, and New Kent)

Website: https://www.vacommunitycapital.org/our-impact/open-for-business-loan-fund
Description: Funded by Wells Fargo, the Open for Business program provides an aggregate of
$1 million in low-interest loans to WaMs. Generally, loans range from $50,000 to $250,000 with
an interest rate of 3%. The program also provides technical assistance and consulting.

Program: Black BRAND (Business Research Analytics Networking and Development)
Location: Hampton Roads

Website: https://blackbrand. biz/

Description: Serves as Hampton Roads’ regional Black Chamber of Commerce. Mission is to
promote group economics through professional development and community empowerment. Has
a mentorship program. Hosts, in conjunction with Norfolk State University Innovation Center,
the Incubation Network, and Portsmouth Partnership/Bloom Coworking, the 12-week B-Force
Accelerator Program focused on growing Black-owned businesses.

Program: Old Dominion University, Institute for Innovation & Entrepreneurship, Women's
Business Center

Location: Norfolk

Website: https://www.odu.edw/iie/wbc

Description: Offers education, counseling, networking resources and entrepreneurial training to
women across Hampton Roads.

Program: National Association of Women Business Owners - Richmond Chapter

Location: Richmond

Website: http://nawborichmond.org/

Description: The NAWBO Richmond Chapter is a due-based organization that hosts various
programs that are designed to create business opportunities within the community, build strategic
alliances through partnerships and networking, educate the public about women-owned
businesses, influence public policy, and promote leadership within the civic and business
communities. The NAWBO Richmond Chapter holds monthly meetings and hosts events such as
the Women of Excellence Awards.

Program: Women in Defense - Greater Hampton Roads Chapter

Location: Hampton Roads

Website: https://www.widghr.org/

Description: Provides events and programming, including strategic networking, education, and
career development, to help women establish and achieve professional goals in national defense
and security contracting.

Program: Hispanic Chamber of Commerce of Coastal Virginia
Location: Hampton Roads
Website: https://www.hcccova.org/
Description: Serves to strengthen the Hispanic community throughout Coastal Virginia through
economic, cultural, and social empowerment. Serves as the principal resource and advocate for
the joint promotion of Hispanic businesses, consumers and organizations.

Program: Charlottesville Regional Chamber of Commerce - Business Women's Round Table
Location: Charlottesville

Website: https://www.cvillechamber.com/bwrt/

Description: Holds monthly meetings for Chamber members and non-members featuring
networking opportunities and leadership seminars.

Program: Charlottesville Regional Chamber of Commerce - Minority Business Alliance
Location: Charlottesville

Website: https://www.cvillechamber.com/mba/

Description: Holds monthly meetings for Chamber members featuring networking opportunities
and leadership seminars.

Program: Virginia Asian Chamber of Commerce

Location: Statewide

Website: http://aabac.org/

Description: VACC is a certified IRS 501(c)(6) nonprofit business organization. Provides
members with access to career and business development opportunities, industry luncheons,
procurement networking events, mentoring programs, legislative advocacy, and small business
development growth guidance and technical assistance.

Program: Carolinas-Virginia Minority Supplier Development Council

Location: Virginia, North Carolina, South Carolina

Website: https://cvmsdc.org/

Description: Non-profit membership organization that brings together Minority Business
Enterprises and major corporations, financial institutions, government agencies, and universities
to enhance minority business development.
Commonwealth of Virginia
September 14, 2020

Report to the Governor and the General Assembly of Virginia

Operations and Performance of the
men mall Busin U

COMMISSION DRAFT

JLARC

JOINT LEGISLATIVE AUDIT
AND REVIEW COMMISSION
Joint Legislative Audit and Review Commission

Delegate Kenneth R. Plum, Chair
Senator Janet D. Howell, Vice Chair

Delegate Terry L. Austin
Delegate Betsy B. Carr
Delegate M. Kirkland Cox
Delegate Eileen Filler-Corn
Delegate Charniele L. Herring
Senator Mamie E. Locke
Senator Jeremy S. McPike
Senator Thomas K. Norment, Jr.
Delegate Robert D. Orrock, Sr.
Delegate Mark D. Sickles
Senator Lionell Spruill, Sr.
Delegate Luke E. Torian

Martha S. Mavredes, Auditor of Public Accounts

JLARC staff

Hal E. Greer, Director

Justin Brown, Senior Associate Director
Lauren Axselle, Project Leader

Sarah Berday-Sacks

Christine Wolfe

Information graphics: Nathan Skreslet
Managing Editor: Jessica Sabbath

JLARC Report 537

©2020 Joint Legislative Audit and Review Commission

jlarc.virginia.gov
Contents

Summary
Recommendations & Policy Options

Chapters

Vil

. Overview of the Department of Small Business and Supplier Diversity 1

. SBSD Management and Programs

1
3. Virginia Small Business Financing Authority
4. SWaM Goal and Plans

5

. Virginia’s Small Business Definition

Appendixes

A: Study mandate

B: Research activities and methods

C: Summary of prior external reviews of SBSD

D: Literature review of effectiveness of small business
support programs

E: VSBFA programs

F: Supplemental small business definition analyses

G: Agency response

Appendix — Online only

H: Impact of industry-specific small business definition

7
23
37
45

59
61
73

76

78
81

86
Summary: Operations and Performance of the
Department of Small Business & Supplier Diversity

WHAT WE FOUND

SBSD has addressed many of its administrative and staffing problems

SBSD has made substantial improvements since it was created in 2014 (by combining
two separate agencies and adding the Virginia Small Business Financing Authority).
Creating a new organizational structure and new processes takes time, and SBSD has
made good progress. Over the last few years, SBSD has addressed financial problems
identified in previous audits by the Auditor of Public Accounts and worked to improve

its information technology systems. SBSD has also
filled vacant staff positions, and its staff turnover is
now similar to other state agencies. Staff in most di-
visions reported to JLARC they are satisfied with key
aspects of their job and SBSD’s leadership and or-
ganizational culture.

SBSD is certifying businesses faster, but
processes can still be improved

Processing times have improved for all types of
SBSD certifications, in part because of its new online
application system. For example, small business cer-
tifications were processed 49 percent faster in 2019
than in 2017. All small, micro, women-owned, or mi-
nority-owned certifications were processed faster
than the 60-day goal, a substantial improvement from
2017.

WHY WE DID THIS STUDY

In 2018, JLARC approved a study resolution directing
JLARC staff to review the operations and performance of
the Virginia Department of Small Business and Supplier
Diversity (SBSD).

ABOUT THE DEPARTMENT OF SMALL BUSINESS
AND SUPPLIER DIVERSITY

SBSD was created in 2014 to promote the growth and
development of small, minority-owned, and women-
owned businesses (SWaM). SBSD facilitates the state’s
SWaM initiatives, which includes certifying businesses,
and collecting annual SWaM plans and spending data
from agencies to monitor their expenditures with SWaM
businesses. SBSD also provides loans and other financ-
ing through the Virginia Small Business Financing Au-
thority and offers business assistance programs.

However, businesses could benefit from having more information about the applica-
tion and appeals processes. SBSD made almost 17,000 follow-up requests for 10,000
applications in 2019. Follow-up requests are often necessary because some businesses
are unclear about the information they need to submit and the reasons for submitting
it. In addition, many businesses ate confused about the reasons why they can appeal

if SBSD has denied their application.

SBSD’s certification processes are generally fair and have led to mostly accurate deter-
minations, but the appeals process is unnecessarily limited. The appeals process is
available only to businesses seeking recertification. Businesses seeking a new certifica-
tion for the first time cannot appeal SBSD’s decision. This limitation appears to lack
any policy basis and was put in place to limit the SWaM certification division’s work-

load.

Commission draft
i
VSBFA is now responsi-
ble for two new COVID
relief programs that will
award more than $80 mil-
lion to businesses. Most
funding for these pro-
grams is through the fed-
eral CARES act.

The Rebuild VA grant
program will provide
nearly $71M to busi-
nesses in non-essential
industries.

VSBFA also received
$10M for a COVID loan
program.

Summary: Operations and Performance of the Department of Small Business & Supplier Diversity

VSBFA’s shortcomings prevent it from fully achieving its mission

VSBFA can play a key role in helping small businesses obtain financing, which is now
critical given the COVID-19 pandemic’s impact on small business sales and operations.
However, VSBFA has not been meeting most key criteria for effectiveness (table). For
example, VSBFA is not loaning an adequate proportion of available funds to busi-
nesses. In the last three years, the vast majority (92 percent to 76 percent) of available
loan funds were not used across VSBFA’s six loan programs (figure). Loan applications
also declined, dropping by half from 2017-to 2018 and continuing to decrease in 2019.
VSBFA’s fund utilization and loan applications have increased slightly in 2020.

VSBFA is not meeting most criteria for effective program administration

VSBFA
Criteria fulfillment
Adequate proportion of available funds loaned to businesses (e)
Goals for and tracking of loan and grant program utilization e)
Regular targeted outreach to businesses and banks =)
Written policies that establish appropriate risk standards for loans ©
Standardized tool to consistently assess applicant risk ©
Regular monitoring of processing times, loan decisions, and outstanding loan health e)
Adequate board expertise to evaluate all loan applications (=)

VSBFA’s loan fund utilization and applications declined in 2018 and 2019

Number of applications

145 $33.0M
130 $31.1M

| 76% | Unused funds

54% .
55% ' 92% 90%
46%
45% pve) Used funds
2016 2017 2018 2019 2020

SOURCE: JLARC analysis of VSBFA loan disbursement data, annual financial balance sheets, and applications data.
NOTE: Years shown are state fiscal years.

VSBFA also lacks written policies on risk standards for loans and a standardized tool
for staff to assess applicants’ repayment risk. Without policies and a tool to govern
loan decisions, VSBFA has tended toward caution and generally been too conservative

Commission draft
ij
Summary: Operations and Performance of the Department of Small Business & Supplier Diversity

when making loan decisions. This is inconsistent with the authority’s mission to pro-
vide gap financing to businesses who may not be eligible for private bank loans.
VSBFA’s loan default rate is much closer to private banks than federal financing pro-
grams. Four of five banks interviewed described VSBFA as too risk averse. One bank
noted that “after several unsuccessful attempts to partner, I just gave up on having the
VSBFA as an option.”

The lack of consistent leadership likely contributed to VSBFA’s operational shortcom-
ings, but a new director is now in place. VSBFA had five permanent or acting executive
directors in three years. Several staff emphasized the adverse impact of inconsistent
leadership, with one noting “this revolving door of leadership has caused the team to
continually reset priorities.’ VSBFA’s current executive director was hired in October
2019. He has a lending background and is viewed positively by staff and the board.

Procurement spending with SWaM businesses is substantial, but
approach to SWaM goal and planning has limitations

Though the executive branch has not reached its goal to award at least 42 percent of
discretionary procurement spending to SWaM-certified businesses, agencies procure a
substantial amount of goods and services from SWaM-certified businesses. Agencies
purchased more than $2 billion in goods and services from certified SWaM businesses
in FY19, making up about one-third of applicable state procurement spending.

However, the 42 percent goal for procurement spending through SWaM businesses is
not realistic or achievable for many agencies. In FY19, agency spending through SWaM
businesses ranged from 4 percent to 87 percent. Sixty percent of agencies fell short
of the 42 percent goal. More than half of agencies responding to a JLARC survey
found it extremely, very, or difficult to achieve the 42 percent goal. This is primarily
because agencies’ abilities to make purchases from SWaM-certified businesses vary
substantially depending on the types of goods and services they need.

Furthermore, the SWaM plans agencies are required to develop are of limited value
for many agencies. Less than half of agencies agreed that their SWaM plans helped
maintain or increase their SWaM expenditures. The plans include some useful infor-
mation but do not define specific strategies for agencies to increase spending with
SWaM businesses. Historically, SBSD has given agencies little to no feedback on their
SWaM plans.

Some certified businesses are much larger than most others, and
business size varies substantially by industry

Most certified businesses in Virginia are much smaller than the state’s current defini-
tion of small business (a maximum of 250 employees or $10 million in average gross
receipts). As ef April 2020, the median certified small business employed 14 people
and reported about $3.2 million in annual gross recetpts—both well below the maxi-
mum allowable thresholds to be classified as a small business. Virginia’s small business

Commission draft
iil

Meetings to discuss
SWaM spending. Staff
from SBSD and the gov-
emnor's office have begun
holding group meetings
with agencies to empha-
size the importance of
achieving the SWaM goal
and discuss SWaM
spending.
Summary: Operations and Performance of the Department of Small Business & Supplier Diversity

definition is important because the state’s set-aside program requires agencies to use a
micro business (a maximum of 25 employees and $3 million in gross receipts) for
purchases up to $10,000 and a small business for most purchases up to $100,000, un-
less there are no micro or small certified businesses that meet the purchase requite-
ments.

Some certified businesses in Virginia are substantially larger than most. For example,
the top 5 percent of certified small businesses by size reported more than $25 million
in average gross receipts (which is currently allowable because a business must only be
at or below either the employee or gross receipt maximum thresholds.) In contrast to
Virginia, some states require a business to be at or below both employment and gross
receipt thresholds.

There are also considerable differences across industries that limit the usefulness of a
single definition of a “small” business. One of the largest businesses in a given indus-
try might be among the smallest in another industry. Virginia’s small business defini-
tion applies the same to all businesses regardless of industry. In contrast, the federal
government and several states use size definitions that vary by industry.

Virginia could consider changing its small business definition to narrow the size
definition generally, or develop specific size definitions by industry. These options
would have varying impacts on currently certified businesses, SBSD’s administrative
operations, and agencies’ ability to procure goods and services through small
businesses. When considering any changes, it may be prudent for the state to consider
the results of a pending study of whether there are disparities in procurement oppor-
tunities for minority- and women-owned businesses. If evidence of disparities is
found, the state could consider adjusting its preferences for the state’s set-aside pro-
curement program to include female or minority ownership.

WHAT WE RECOMMEND
Executive action

e Provide businesses with more information about the SWaM certification
application and appeals processes

e Allow SWaM businesses who have been denied a new certification to ap-
peal SBSD’s decision

e Set annual utilization goals for smal] business loan programs that consider
factors such as credit conditions and available loan funding, and track and
report how much of available funding is being used

e Develop formal loan risk policies and implement a standardized risk as-
sessment tool to govern loan application decisions

e Require VSBFA staff to develop an improvement plan and provide peri-
odic progress reports to the board

Commission draft
iv
Summary: Operations and Performance of the Department of Small Business & Supplier Diversity

e Institute a more meaningful SWaM plan development and review process
that focuses on agencies’ strategies to improve SWaM spending

POLICY OPTIONS FOR CONSIDERATION

e Develop agency-specific SWaM spending goals that are ambitious, but
mote realistically achievable based on each agency’s procurement needs

e Amend the Code of Virginia to narrow the definition of small business to
exclude larger businesses currently eligible for certification

e Amend the Code of Virginia to define small business based on industry or
industry groupings

e Authorize an executive branch workgroup to consider whether and how to
adjust the state’s procurement preferences and small business definition us-
ing the results of the 2020 disparity study and JLARC study

The complete list of recommendations and policy options is available on page vii.

Commission draft
Vv

Policy options for con-
sideration. Staff typically
propose policy options
rather than make recom-
mendations when (i) the
action is a policy judg-
ment best made by
elected officials—espe-
cially the General Assem-
bly, (ii) evidence suggests
action could potentially
be beneficial, or (iii) a re-
port finding could be ad-
dressed in multiple ways.
Summary: Operations and Performance of the Department of Small Business & Supplier Diversity

Commission draft
vi
Recommendations & Policy Options: Operations and
Performance of the Department of Small
Business & Supplier Diversity

JLARC staff typically make recommendations to address findings during reviews.
Staff also sometimes propose policy options rather than recommendations. The three
most common feasons staff propose policy options rather than recommendations are:
(1) the action proposed is a policy judgment best made by the General Assembly or
other elected officials, (2) the evidence indicates that addressing a report finding is not
necessarily required, but doing so could be beneficial, or (3) there are multiple ways in
which a report finding could be addressed and there is insufficient evidence of a single
best way to address the finding.

Recommendations

RECOMMENDATION 1

The Department of Small Business and Supplier Diversity (SBSD) should post precer-
tification webinars or videos on its website that describe the application process, in-
cluding the documents required, the purpose of each document, and the specific in-
formation SBSD requires in each document. (Chapter 2)

RECOMMENDATION 2

The Department of Small Business and Supplier Diversity (SBSD) should amend its
regulations to provide a right of appeal to small, women-owned, and minority-owned
businesses who have been denied a new certification if their basis for challenging the
decision is that SBSD made a mistake in denying their application. (Chapter 2)

RECOMMENDATION 3

The Department of Small Business and Supplier Diversity should clarify its appeals
process by revising denial letters and adding information to its website to more clearly
describe the (i) circumstances and grounds to appeal a certification decision or seek a
waiver, (ii) processes a business must follow, and (ii) documentation to provide when

filing an appeal or seeking a waiver. (Chapter 2)

RECOMMENDATION 4

The Department of Small Business and Supplier Diversity should improve business
awareness of and accessibility to its business assistance events and counseling sessions
through (i) developing and implementing a coordinated written marketing plan and (ii)
providing on-demand written materials and recorded webinars on its website. (Chapter
2)

Commission draft
vil
Recommendations & Policy Options: Operations and Performance of the Department of Small
Business & Supplier Diversity

RECOMMENDATION 5

The General Assembly may wish to consider including language in the Appropriation
Act directing the Department of Small Business and Supplier Diversity (SBSD) to
develop and submit a detailed improvement plan for the Business One Stop. The plan
should include the following for each statutory requirement: (i) a description of the
purpose and benefit to small businesses, (ii) the cost of fully implementing and main-
taining the requirement, (iii) the resources needed beyond those currently available to
implement and maintain the requirement, and (iv) SBSD’s recommendation as to
whether the requirement should be kept. The plan should be provided to the House
Labor and Commerce, and Appropriations committees; and Senate Commerce and
Labor, and Finance and Appropriation committees no later than November 1, 2021.
(Chapter 2)

RECOMMENDATION 6
The Virginia Small Business Financing Authority Board should set annual utilization
goals for loan programs that consider factors such as credit conditions and available
loan funding. (Chapter 3)

RECOMMENDATION 7

The Virginia Small Business Financing Authority Board should direct staff to regularly
track and annually report the percentage of loan and grant program funds that are
utilized or awarded. (Chapter 3)

RECOMMENDATION 8

The Virginia Small Business Financing Authority should develop, submit to the Vir-
ginia Small Business Financing Authority Board for consideration and approval, and
then implement internal policies that will govern loan application decisions and estab-
lish an appropriate risk standard that adequately reflects the public mission of the
authority. (Chapter 3)

RECOMMENDATION 9

The Virginia Small Business Financing Authority should develop, submit to the Vir-
ginia Small Business Financing Authority Board for consideration and approval, and
then implement a risk assessment tool to calculate the potential risk of loan applicants.
(Chapter 3)

RECOMMENDATION 10

The Virginia Small Business Financing Authority should institute a process to conduct
a risk-based review of outstanding loans at least annually and report the results to the
Virginia Small Business Financing Authority Board. (Chapter 3)

Commission draft
viii
Recommendations & Policy Options: Operations and Performance of the Department of Small
Business & Supplier Diversity

RECOMMENDATION 11

The Virginia Small Business Financing Authority should add a requirement to formal
loan participation agreements with banks that banks report support loans with a high
risk of default as soon as they are identified. (Chapter 3)

RECOMMENDATION 12

The Virginia Small Business Financing Authority should set a goal that establishes an
expected timeframe for processing loan applications and track and report how long it
takes to process each loan application and the proportion of applications meeting the
goal. (Chapter 3)

RECOMMENDATION 13

The General Assembly may wish to consider requiring the majority of citizen mem-
bers of the Virginia Small Business Financing Authority Board to possess small busi-
ness lending experience. (Chapter 3)

RECOMMENDATION 14

The Virginia Small Business Financing Authority (VSBFA) should develop a program
improvement plan that addresses deficiencies, including low fund utilization; lack of
loan approval policies; absence of a risk tool for loans; and lack of monitoring, track-
ing, and reporting on loans and fund utilization. The plan should be presented to the
VSBFA board and transmitted to the House Appropriations and Senate Finance and
Appropriations committees, and the secretary of commerce and trade no later than
June 30, 2021. (Chapter 3)

RECOMMENDATION 15
The governor should revise Executive Order 35 to direct the Department of Small
Business and Supplier Diversity GS BSD) to develop and implement a more meaningful

SWaM plan development and review process focusing on strategies and substantive
SBSD feedback to agency staff. (Chapter 4)

RECOMMENDATION 16

The Department of Small Business and Supplier Diversity should develop and main-
tain information about effective strategies agencies can use to increase their SWaM
expenditures and provide agencies with guidance on how to implement the strategies.

(Chapter 4)

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ix
Recommendations & Policy Options: Operations and Performance of the Department of Small
Business & Supplier Diversity

Policy Options to Consider

POLICY OPTION 1

The Department of Small Business and Supplier Diversity could refer businesses seek-
ing general business assistance to larger federal programs and offer more events and
counseling sessions on Virginia-specific certification and contracting topics. (Chapter
2)

POLICY OPTION 2
The Department of Small Business and Supplier Diversity could offer the Scal-
ing4Growth program in each region of the state and to more businesses. (Chapter 2)

POLICY OPTION 3

The Virginia Small Business Financing Authority could expand microloan program
eligibility to startup businesses through a pilot program for the purpose of assessing
the demand for, and viability of, offering such loans. (Chapter 3)

POLICY OPTION 4

The governor could direct each state agency to set ambitious, but achievable, SWaM
procurement spending goals that account for (1) the availability of certified SWaM
businesses to provide the goods and services the agency procures and (ii) the agency’s
ongoing and upcoming new procurements. (Chapter 4)

POLICY OPTION 5

The General Assembly could amend §2.2-4310 and §2.2-1604 of the Code of Virginia
to change the small business definition to businesses that have no more than 250 em-
ployees and gross receipts of no more than $10 million. (Chapter 5)

POLICY OPTION 6

The General Assembly could amend §2.2-4310 and §2.2-1604 of the Code of Virginia
to change the small business definition by reducing the number of employees and
gross receipts that a business may have to qualify as a small business. (Chapter 5)

POLICY OPTION 7

The General Assembly could amend §2.2-4310 and §2.2-1604 of the Code of Virginia
to direct that a small business definition be developed for each industry, with thresh-
olds for number of employees or gross receipts, or both, that are based on the size
characteristics of Virginia businesses in that industry. (Chapter 5)

POLICY OPTION 8

The General Assembly could amend §2.2-4310 and §2.2-1604 of the Code of Virginia
to direct that a small business definition be developed that is set at 50 percent of the
federal small business definition for each industry. (Chapter 5)

Commission draft
X
Recommendations & Policy Options: Operations and Performance of the Department of Small
Business & Supplier Diversity

POLICY OPTION 9

The General Assembly could amend §2.2-4310 and §2.2-1604 of the Code of Virginia
to direct that a small business definition be developed for groupings of industries
based on size and types of goods and services state agencies purchase. (Chapter 5)

POLICY OPTION 10

The General Assembly could consider authorizing in the Appropriation Act an exec-
utive branch workgroup to consider whether and how to adjust the (i) state’s procure-
ment preferences for businesses (including women and minority ownership if the dis-
parity study concludes doing so may be permissible), and (ti) state’s definition of small
business. The workgroup could be required to submit proposed legislative changes to
the House General Laws Committee, Senate General Laws and Technology Commit-
tee, and Small Business Commission by November 1, 2021. (Chapter 5)

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xi
Recommendations & Policy Options: Operations and Performance of the Department of Small
Business & Supplier Diversity

Commission draft
xii
1 Overview of the Department of Small
Business and Supplier Diversity

In 2018, the Joint Legislative Audit and Review Commission (JLARC) approved a
study resolution that directed JLARC staff to review the operations and performance
of the Department of Small Business and Supplier Diversity (SBSD). As part of this
review, JLARC staff were directed to evaluate the staffing, performance, spending, and
management of SBSD, including the Virginia Small Business Financing Authority
(VSBFA); assess the efficiency and effectiveness of SBSD’s business certification pro-
grams and economic development and outreach programs; and compare the state’s
definition of “small business” to federal and other state definitions. (See Appendix A
for study resolution.)

Several previous state reviews identified shortcomings in SBSD’s core functions. For
example, a 2016 JLARC review of state contracting found that SBSD had a backlog of
certification applications and did not effectively prioritize certifications. The review
also found that businesses were dissatisfied with several aspects of the certification
process. In addition, 2016 and 2017 Auditor of Public Accounts audits found that
SBSD lacked clear policies and procedures for its staff and insufficient reporting prac-
tices for its financing programs. (See Appendix C for a list of previous external reviews
of SBSD.)

To address the study resolution, JLARC staff interviewed agency staff, VSBFA board
members, staff from state and federal agencies that SBSD interacts with, and stake-
holders, including groups representing small businesses. Staff surveyed businesses that
have participated in at least one of SBSD’s certification, business assistance, or financ-
ing programs; SBSD staff; and state agency procurement staff. JLARC staff also re-
viewed and analyzed certification data, state agency procurement data, data about busi-
ness employment and revenue growth over time, and VSBFA financial data. (See
Appendix B for a detailed description of research methods.)

SBSD supports growth and competitiveness of
small, women-, and minority-owned businesses

The legislature created SBSD in 2014 by merging the Department of Business Assis-
tance and the Department of Minority Business Enterprise. The VSBFA was also
merged into SBSD. VSBFA operates as a division within SBSD but works through a
separate board to approve loan decisions.

SBSD’s mission is to enhance growth opportunities for Virginia’s small, women-, and
minority-owned (SWaM) businesses. One way SBSD fulfills its mission is by certifying
businesses seeking to sell goods and services (e.g., professional, non-professional, and

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1
JLARC’s 2016 “Review of
the Development and
Management of State
Contracts” assessed
state procurement prac-
tices, including state
spending on purchases
set aside for small busi-
nesses, and the impact of
the state’s 20 percent
small business criterion
for requests for pro-
posals. One of the re-
view's unimplemented
recommendations is for
the General Assembly to
direct the Department of
General! Services and
SBSD to determine
whether the 20 percent
small business criterion
requirement should be
adjusted or eliminated.

Chapter 1: Overview of the Department of Small Business and Supplier Diversity

construction) to the state through the state’s SWaM program (Figure 1-1). SBSD cer-
tifies several types of businesses, including SWaM businesses and economically disad-
vantaged businesses for the U.S. Department of Transportation’s Disadvantaged Busi-
ness Enterprise (DBE) program.

Certified businesses can pursue state contracts through each agency’s procurement
process, and those that meet the state’s “small” or “micro” business definitions are
eligible for procurement preferences. SBSD helps implement these policies by main-
taining a list of certified businesses so agencies can identify businesses that sell the
goods or services they need to purchase. SBSD also tracks the state’s progress toward
the state’s SWaM goal. The governor has set a goal for executive branch agencies to
awatd at least 42 percent of discretionary procurement spending to certified small
businesses, including those that are women- and minority-owned. SBSD also collects
SWaM plans from agencies each year describing their projected spending with SWaM
businesses and tracks how much agencies spend with SWaM businesses through an
online SWaM expenditure dashboard.

FIGURE 1-1
SBSD plays a key role in the state's SWaM initiatives

Types of certified
businesses that
sell to state

Preferences for e

S8SD certified
Business SBSD B busi
‘ andatory
e == = Small business set aside.
Micro business (for certain Governor's
purchases) 42% SWaM
application to 0 sell goods eee ut encourage:
become certified or services to Minority-owned
state agencies Bo ee

SOURCE: JLARC analysis of Executive Order 35 (2019) and § 2.2-4310 of the Code of Virginia

NOTE: Procurement preferences include set asides where purchases up to $10,000 are set aside for SBSD-certified
micro businesses (up to 25 employees and $3 million in gross receipts), and purchases up to $80,000 for profes-
sional services and up to $100,000 for goods, nonprofessional services, and construction are set aside for SBSD-
certified small businesses (up to 250 employees or $10 million in gross receipts).

Another key part of SBSD’s responsibilities is offering programs and services directly
to businesses. SBSD provides several services to support businesses, including financ-
ing through VSBFA loans and grants. SBSD also provides business assistance services,
such as counseling and training, to help businesses become established and grow.
Moreover, SBSD administers a Business One Stop website intended to help businesses
identify relevant resources and complete state registration requirements in one place.

Providing assistance to SWaM businesses can benefit the businesses and the state
economy. SWaM businesses may not have the same access to resources as larger busi-
nesses, and supporting SWaM businesses helps them compete with other businesses.
Research literature indicates that providing assistance to small businesses generally has
a positive effect on business outcomes, such as increased employment and sales, which

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Chapter 1: Overview of the Department of Small Business and Supplier Diversity

improve businesses’ likelihood of survival (Appendix D). Researchers have not, how-
ever, determined conclusively which type of assistance is most helpful. Supporting
small businesses can also have positive economic impacts on the state because these
small businesses ate collectively responsible for a large portion of state jobs and reve-
nue.

Virginia is one of few states to have a single agency dedicated to supporting small
businesses and improving supplier diversity in state procurement. Surrounding states,
including Maryland, North Carolina, and Tennessee, provide small business services
through separate agencies instead of one centralized agency. The District of Colum-
bia, though, has a centralized agency that provides certification, financing, and busi-
ness assistance to small businesses. In addition, the majority of states administer their
federal transportation business certification programs through their state departments
of transportation, rather than through a dedicated small business agency such as
SBSD. Some states, such as Maine, lack certification programs or procurement set-
asides altogether.

The COVID-19 pandemic’s negative economic impact increased the need for govern-
ment assistance to small businesses, including the services provided by Virginia’s
SBSD. Stay-at-home orders and closure of “non-essential” businesses halted certain
small business activities in April, May, and June 2020. During this time period, the
federal government offered loans and grants to small businesses to help them remain
viable and avoid substantial employee layoffs. In Virginia, this is resulting in increased
interest in VSBFA financing programs and the creation of a new grant program. SBSD
also has experienced additional demand for some of its other programs during the
COVID-19 pandemic.

SBSD employs 40 staff across five divisions and

receives about $7M in funding

SBSD employs 40 full-time staff to carry out its responsibilities. The agency is led by
a governor-appointed director and is organized into five divisions—four program di-
visions and one administrative division (Figure 1-2). Each of the program divisions
administers multiple programs with distinct purposes and eligibility criteria. For exam-
ple, the SWaM certification division is responsible for administering seven types of
business certifications. VSBFA is responsible for administering nine small business
loan, bond, and grant programs. The largest portion of SBSD staff (28 percent) work
in certification-related positions in the SWaM and DBE divisions. Most agency staff
work at its main office in Richmond, with the exception of several regionally based
staff who facilitate financing programs or provide business assistance.

SBSD received approximately $6.8 million in funding from state and federal sources
in FY20. Almost two-thirds of SBSD’s funding in FY20 ($4.2 million) was from gen-
eral funds and about one-fourth ($1.6 million) was from Commonwealth Transporta-
tion funds for the DBE certification program. The remainder was special funds for

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3

SBSD was scheduled to
receive a budget in-
crease in FY21 and FY22
($370,000 and $740,000,
respectively). This funding
would have been used to
fund seven new positions,
including two SWaM cer-
tification officers, three
business assistance staff,
one marketing/public re-
lations position, and one
data analyst. These funds
were removed from the
budget in August 2020.
Most SBSD services are
provided to businesses
free of charge, with
some exceptions. If a Vir-
ginia business is seeking
certification in another
state that requires a site
visit, SBSD will conduct
the site visit for a $75 fee.
VSBFA charges a fee for
some financing programs,
like the bond conduit
program, which has a
$1,000 application fee.

Chapter 1: Overview of the Department of Small Business and Supplier Diversity

VSBFA’s small business financing programs. Only a small portion of SBSD’s activities
are funded through fee revenue because most services are provided to businesses free
of charge (sidebar). Over half of SBSD’s funding (54 percent) is spent on staff salaries
and benefits.

FIGURE 1-2
SBSD consists of five divisions that certify and support small businesses

Chief of Staff Policy advisor

Business Small, Women, Disadvantaged Virginia Small ——
Development and Minority-Owned Businesses Enterprise Business Financing A z 7
and Outreach Business Certification Certification and Authority Authority Board
(6) (5) Outreach (10) (8) u

Administration
and business
assistance

(8)

SOURCE: JLARC analysis of SBSD organization chart and agency documents.
NOTE: Disadvantaged Business Enterprise is a federal program affiliated with the U.S. Department of Transportation.
Business assistance services are provided through SBSD’s Business Development and Outreach division.

Various federal, state, and local entities assist small,
women-, and minority-owned businesses in Virginia

SBSD operates programs with missions similar to many other federal, state, local, or
private programs. The federal government, in particular, has several large programs
that primarily offer financing, certification to become eligible for certain programs, or
business assistance.

Many organizations in addition to VSBFA provide financing to small businesses. For
example, the federal Small Business Administration (SBA) offers direct loans and loan
guarantees for small businesses. Similarly, the Virginia Economic Development Part-
nership offers financing (especially grants), some of which may go to businesses that
happen to be small or owned by women or minorities. Some localities operate loan or
gtant programs for small businesses, or issue bonds to provide long-term financing to
promote economic development by encouraging manufacturing, industrial, and gov-
ernmental and commercial enterprises to locate in the locality. There are many private
banks and non-profit organizations in Virginia that provide financing to small busi-
nesses.

In addition to SBSD’s certifications, SBA offers certifications that businesses can ob-
tain to receive federal procurement preferences. SBA has defined employment or rev-
enue thresholds under which a business can receive preferences in federal procure-
ments. SBA has used self-certification for some certifications in the past but is phasing

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Chapter 1: Overview of the Department of Small Business and Supplier Diversity

out the self-certification process because many ineligible businesses were being certi-
fied (sidebar).

In addition to SBSD’s business assistance programs, SBA also funds organizations that
provide business assistance to help business owners start and grow their companies.
For example, SBA funds and operates 27 Small Business Development Centers in Vir-
ginia, which provide counseling and training to help small business owners start or
expand. These federal centers worked with nearly 9,000 Virginia businesses in 2019.
SBA also funds six Procurement Technical Assistance Centers (one statewide and five
regional) to help businesses compete in government procurements.

There are also state agencies with which SBSD coordinates on governmental require-
ments or policy. For example, SBSD’s maintenance of the Business One Stop website
requites coordination with the State Corporation Commission and the Department of
Professional and Occupational Regulation, which set licensing or other requirements
for businesses. SBSD also works with the Department of General Services and Vir-
ginia Information Technologies Agency on developing and administering certain state
procurement policies.

Commission draft
5

Two federal studies
found problems with
self-certification pro-
grams. A March 2019 re-
port by the Government
Accountability Office
found that about 40 per-
cent of women-owned
small businesses (WOSB)
certified by SBA in its au-
dit sample were ineligible
for the program. The
SBA‘s Office of Inspector
General reviewed the
WOSB program in June
2018, and found 50 of 56
sole-source contracts (89
percent) did not meet all
of the criteria for the pro-
gram.
Chapter 1: Overview of the Department of Small Business and Supplier Diversity

Commission draft
6
2 SBSD Management and Programs

SBSD faced significant challenges that hindered agency performance and operations
when the General Assembly merged two previous agencies to create SBSD (sidebar).
SBSD’s director had to establish a new agency mission, leadership team, organizational
structure, and policies and procedures. SBSD faced challenges common when starting
a new agency and inherited several programmatic challenges from the previous agen-
cies (including a backlog of certification applications and inadequate IT systems). In
addition, many key staff positions were vacant, including nearly all positions in the
business assistance function.

Two of the agency’s key services are certifications to help businesses compete for
public procurement dollars and business assistance services. SBSD handles certifica-
tions for the state’s procurement programs and the U.S. Department of Transporta-
tion’s Disadvantaged Business Enterprise (DBE) program. The agency also offers
counseling and events to help encourage business growth and maintains the state’s
Business One Stop website, which is intended to be a single source of government
requirements and information for businesses.

Services provided by business assistance agencies like SBSD have become increasingly
important during the COVID-19 pandemic. Many small business owners have faced
dramatic drops in revenue, which could continue with uncertainty surrounding the
pandemic. As a result, more small businesses will likely seek SBSD services, and these
services need to be administered effectively and efficiently.

SBSD has made significant operational and staffing
improvements in recent years

SBSD has implemented several major operational improvements since it was created
in 2014. SBSD implemented an electronic certification portal in 2017 that allows busi-
nesses to submit certification applications online, which helped staff automate the
certification process and eliminate the previous backlog of nearly 2,000 certification
applications. SBSD also streamlined the SWaM recertification process by requiring
submission of fewer documents. SBSD is currently in the process of implementing a
new IT system for its financing programs that will automate the application process
and collect additional data for reporting. As a result of recent improvements, the ma-
jority of staff reported through a JLARC survey (sidebar) that the agency’s processes,
practices, and technology allow them to efficiently and effectively do their jobs. In
addition, the Auditor of Public Accounts made no negative findings in its 2019 audit
of SBSD’s policies and procedures, information security, risk management and payroll
function.

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7

SBSD's two predecessor
agencies were the Vir-
ginia Department of Busi-
ness Assistance, which
housed general business
assistance and hosted the
Small Business Financing
Authority, and the De-
partment of Minority
Business Enterprise, which
handled certification de-
signed to encourage sup-
plier diversity in state
procurement.

JLARC’s survey of SBSD
staff was sent to all SBSD
employees. All employees
responded to the survey.
The survey asked ques-
tions about staff satisfac-
tion with various aspects
of their workplace and
whether SBSD senior
leadership effectively
manages the office.

(See Appendix B for more
information about this
survey.)
A VSBFA loan officer left
VSBFA on August 27,
2020, making one of
VSBFA's three loan officer
positions vacant. This po-
sition is essential to
VSBFA’s ability to admin-
ister its loan programs. As
of early September,
VSBFA had not yet adver-
tised the position.

Chapter 2: SBSD Management and Programs

SBSD has also filled vacant staff positions, and its staff turnover rate is now relatively
low. SBSD filled vacant certification and business assistance positions (sidebar).
SBSD’s staff turnover rate (including retirements) was 15 percent in FY20, down from
24 percent in FY17. SBSD’s turnover rate is comparable to the median turnover rate
actoss all agencies statewide (13 percent) and similarly sized state agencies (14 percent).

Staff are largely satisfied with key aspects of their job, their division, and the manage-
ment of SBSD. Over 85 percent of staff reported being satisfied with their job and
with SBSD/VSBFA as an employer through a JLARC survey. This is similar to or
higher than other agencies recently reviewed by JLARC. Similarly, over 75 percent of
staff provided positive feedback about the clarity of their job role, how their talents
are used, the level of collaboration across and within divisions, SBSD’s culture, and
senior leadership’s communication of agency goals and objectives to staff.

A few staff cited concerns related to their compensation and workload, but evidence
suggests these staff concerns may not require immediate attention. Nearly 40 percent
of staff disagreed that their salary is reasonable through a JLARC survey. Yet, only
one out of 17 staff who left SBSD since 2017 cited compensation as a factor contrib-
uting to their decision to leave. SBSD previously had difficulty filling finance staff
positions because the salaries for these positions were lower than comparable positions
in the private sector, but SBSD raised the starting salary for these positions. In addi-
tion, staff in several divisions reported having too much work; however, staff only
worked an average of 72 hours of overtime per person in FY19 (an additional one to
two hours per week). This additional time was heavily concentrated among four staff
(three in the certification divisions and one in the administration division worked more
than 70 percent of the total overtime hours).

Certifications are timely, fair, and accurate, but
businesses need clarity on document requirements
and increased access to appeals

One of SBSD’s primary responsibilities is certifying businesses so they can participate
in the state’s SWaM procurement program and federally funded state transportation
projects. These certifications can help businesses that may face economic disad-
vantages compete for state procurements. To evaluate SBSD’s certification function,
JLARC reviewed the timeliness and fairness of the agency’s certification process and
the accuracy of certification determinations.

SBSD administers seven types of certifications and processes an average of 10,000
applications each year. Most certifications (91 percent) are for small, women-owned,
and minority-owned (SWaM) businesses (Table 2-1). Some businesses are only certi-
fied as small and/or micro, but 55 percent of certified small/micro businesses also
have a minority-owned or women-owned certification. About 45 percent of SBSD’s
certifications are new certifications that go through the full application process, and

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8
Chapter 2: SBSD Management and Programs

55 percent are recertifications that go through a streamlined process. SBSD is the pre-
dominant business certification entity for Virginia state government, though other en-
tities also offer some certifications necessary for state contracting (sidebar).

TABLE 2-1
SBSD offers four types of SWaM certifications and several others
% of
Certification # certified certified
type Certification requirements in 2019? businesses °
SWaM certifications
Small 250 or fewer employees or $10M or less in gross receipts 10,486 40%
Micro 25 or fewer employees and $3M or less in gross receipts ¢ 6,058 23%
9
Minority 4 Controlled, and at least 51% owned, by one or more 3,843 15%
minority individuals
Women Controlled, and at least 51% owned, by one or more women 3,616 14%
Other certifications
DBE Controlled, and at least 51% owned, by a socially and 2,066 8%
economically disadvantaged individual
Disabled Owned by a service-disabled veteran certified by the AS 2%
veteran ® Virginia Department of Veterans Services °
Brapleyment Small or micro business that provides community-based
__,.__ employment services to individuals with disabilities
organization
TOTAL 26,496

SOURCE: JLARC staff analysis of SBSD certification data (2019).

NOTE: ? Businesses that hold multiple certifications are listed in each category. ® Numbers do not sum because of
rounding. © Annual gross receipts averaged over a three-year period. ¢ Historically Black colleges and universities
(HBCUs) can also be certified by SBSD and are counted in the minority certification category. Currently, three HBCUs
are minority certified. © This is not a separate certification, but a “status” in the SWaM vendor database.

Some certifications, including “small” and “micro” certifications, make a business eli-
gible to receive preferences in the state procurement process. According to SBSD,
Virginia procurement law prohibits businesses with other certifications, including
“women-owned” and “minority-owned” certifications, from receiving procurement
preferences (sidebar), but agencies are encouraged to purchase from them to increase
the state’s SWaM spending. About 12 percent of the businesses that sold goods and
services (including construction) to the state over the last decade were SWaM certified.

SBSD’s certification process generally follows three main steps: (1) application sub-
mission, (2) application review, and (3) decision and notification (Figure 2-1). The ap-
plication submission step requires businesses to complete an application and submit
documents such as tax returns, resumes, and business ownership documents through
an online certification portal. Once the information is received, a SBSD certification
officer reviews the application and decides whether to approve it. SBSD has an internal
goal of 60 business days for processing SWaM applications, which is similar to other
states and external certification entities. Federal DBE regulations require applications

Commission draft
9

Other certification
entities include the U.S.
Small Business Admin-
istration (for 8a and
women-owned busi-
nesses), WBENC (for
women-owned busi-
nesses), and NMDSC (for
minority-owned busi-
nesses). SBSD recognizes
businesses with these
certifications, but they
cannot participate in the
state's procurement set-
aside. Federal certifica-
tions are free like SBSD’s
certifications, but WBENC
and NMSDC charge be-
tween $350 and $1,250.

The Virginia Public Pro-
curement Act requires
race and gender neutral
procurement practices
unless the governor has
authorized enhancement
or remedial measures. A
disparity study is cur-
rently under way to de-
termine if race and gen-
der conscious policies are
necessary and appropri-
ate.
Chapter 2: SBSD Management and Programs

to be processed within 90 days of receiving the required information (unless busi-
nesses ate notified of an extension).

FIGURE 2-1
SBSD's certification process has three main steps
1. Application submission 2. Application review 3. Decision and notification
Approved
. SBSD (final)
Business
documents @
(e.g., corporate
bylaws) Tax returns _ Approved

(preliminary)

@ I CS SBSD certification officer reviews Secondary
ee He applications for: aas® 5BSD ae > cameeepeale
Business fp G &) Se = Busi ppli

Ownership Number of Revenue a =

Proof of Resume Not Not a = = .
citizenship employee approved Approved @ | Business takes
(preliminary) ae > no action

Additional information requested and provided (if needed)

SOURCE: JLARC staff analysis of SBSD certification documents and interviews with SBSD staff.
NOTE: ? For SWaM certifications, the SWaM director reviews all denials and a sample of approvals. The DBE division uses a process whereby
each application is reviewed by another DBE staff member.

Certification processing times have decreased, but staff often need to
follow up with businesses to request more information

SBSD is processing applications much faster than it used to and has reduced the num-
ber of applications that exceed its processing goals. The agency has primarily accom-
plished this through converting the application process to an online system and
streamlining certain processes. Since 2017, average processing times have decreased
across all certification types. For example, SBSD processed small business certifica-
tions 49 percent faster in 2019 than in 2017 (Figure 2-2). No small, micro, women-
owned, or minority-owned certifications took longer than the 60-day goal to process,
a substantial improvement from 2017 when 2,052 took longer than 60 days to process.
SBSD also processes DBE applications faster than in 2017; the average processing
time of 72 days in 2019 was quicker than the federal goal of 90 days. There are still,
though, some DBE applications (99 in 2019) that take longer than the 90-day goal.

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Chapter 2: SBSD Management and Programs

FIGURE 2-2
SBSD is processing certification applications much faster since 2017
2019 Goal 2017
Small 49% faster O
Micro 45% faster O
Women-owned 53% faster O
Minority-owned 51% faster Y
0 20 40 60 80 100 120 140

Average processing time (in days)

SOURCE: JLARC staff analysis of SBSD data (2017-2019).
NOTE: The time it takes SBSD to process applications for disadvantaged business enterprises, service disabled vet-
eran-owned businesses, and employment service organizations also decreased over time.

While applications are processed faster, certification staff often have to request more
information or documentation during the application process, which frustrates busi-
nesses. There were almost 17,000 follow-up requests for 10,000 applications in 2019.
SBSD follow-up requests are often needed because some businesses are unclear about
the information they need to submit and the reasons for submitting it, according to
staff. For example, business owners are required to submit their resume, which SBSD
uses to validate the business owner’s experience and control of the business. Business
owners sometimes submit resumes without adequate information or detail for SBSD
to use.

Some businesses expressed confusion about the information required for their certifi-
cation application and dissatisfaction with follow-up requests from SBSD. About one-
fourth of businesses that responded to a JLARC survey (sidebar) disagreed that it was
easy to understand the information they needed to submit. Multiple businesses com-
mented on the lack of clarity about required information or the extent of follow up.
One noted: “It seemed that every time I submitted what was requested I got another
request to submit something else, requiring more work.” Another remarked: “More
precise instructions about the documents and information needed for submission, and
where to get them so they would be accepted, would be helpful.”

SBSD staff have used various methods to try to inform businesses about the certifi-
cation process and documentation requirements. SBSD offers SWaM certification
workshops and one-on-one sessions to answer questions about certification, but few
businesses participate in these events. SBSD’s website has a list of documents that
businesses are required to submit, but this list does not describe the purpose of each

Commission draft
11

JLARC's survey of
businesses was sent to
approximately 23,000
businesses that recently
participated in SBSD pro-
grams; a total of 918
businesses responded (4
percent). The survey
asked questions about
the application process,
approval decisions, effec-
tiveness, and awareness
of SWaM certifications,
DBE certifications, financ-
ing programs, and busi-
ness assistance programs.
(See Appendix B for more
information about this
survey.)
Some entities encour-
age businesses to par-
ticipate in precertifica-
tion meetings, webinars,
or other online infor-
mation sessions before
applying. The National
Minority Supplier Diver-
sity Council strongly en-
courages businesses to
attend a monthly in-per-
son precertification brief-
ing 30 days before they
apply to review the appli-
cation process and docu-
ments required. Other
states (including Florida,
West Virginia, Illinois, and
Washington) have videos
on their websites to ex-
plain the certification pro-
cess.

Chapter 2: SBSD Management and Programs

document. SBSD previously had a precertification webinar available online that cov-
ered the certification process and documentation requirements, but it removed the
webinar because of a contractual issue with the webinar vendor.

To reduce the follow up required with businesses, SBSD should maintain precertifica-
tion webinars or videos on its website. These should describe the SWaM and DBE
application processes, with a particular emphasis on the documents required, the pur-
pose of each document, and the specific information each document should include.
Several other states and third-party certifiers offer (but do not require) businesses to
participate in precertification webinars or videos (sidebar). SBSD could strongly en-
courage businesses to view the webinar(s) or video(s) before applying (or even require
them to attest that they have viewed them as part of their application, depending on
the additional burden that would add to the application process).

RECOMMENDATION 1

The Department of Small Business and Supplier Diversity (SBSD) should post precer-
tification webinars or videos on its website that describe the application process, in-
cluding the documents required, the purpose of each document, and the specific in-
formation SBSD requires in each document.

Certification process is rigorous and decisions are mostly accurate

SBSD’s certification process has several elements in place to ensure that SWaM and
DBE certification decisions are accurate and the process itself is fair to businesses.
Businesses generally perceive the certification process as fair and determinations as
accurate, according to a JLARC survey.

The process for zvéfza/ certifications is designed to help SBSD make accurate decisions.
A business must submit tax returns and business documentation (e.g., corporate by-
laws) to prove it meets the necessary ownership, revenue, and employment require-
ments. SBSD staff review SWaM applications to reach an initial certification decision.
The SWaM director then reviews all applications that were not approved and a subset
of approved applications to ensure accuracy. DBE applications are reviewed inde-
pendently by two certification staff members. When necessary, certification staff re-
quest and receive OAG assistance on unique or complex ownership situations.

SBSD’s process for recertifying SWaM businesses also is designed to ensure accurate
determinations, though it has been streamlined to ease the burden on businesses. Busi-
nesses ate required to submit fewer documents to recertify because documents sub-
mitted during the initial certification process (including documents to prove the busi-
ness meets ownership requirements) are retained in the online certification portal. To
ensure the business still meets certification requirements during recertification, SBSD
requires businesses to submit updated tax documents showing they still meet the size
requirements and an affidavit verifying there have been no substantial changes to the
business since initial certification.

Commission draft
12
Chapter 2: SBSD Management and Programs

To test the accuracy of SBSD’s certification determinations, JLARC reviewed the re-
ported employment and revenue of approximately 10,500 currently certified busi-
nesses and found that nearly 100 percent of those approved met the requisite employee
or revenue thresholds. The review did find, though, 27 businesses (less than 1 percent)
certified as micro that were actually larger than the micro business threshold. SBSD
indicated that certification staff mistakenly applied the small business threshold—ta-
ther than the micro business threshold—to these businesses and are in the process of
correcting the errors.

Certification process is fair, but appeals process is not available to all
businesses and is not well understood

The certification process has several attributes to ensure fairness. SBSD gives busi-
nesses the opportunity to provide additional information during the application review
process and does not deny an application outright if a business provides inadequate or
incorrect information. Most certification applications are approved. The denial rate is
less than 5 percent for SWaM certifications and about 10 percent for DBE certifica-
tions.

Businesses that are denied SWaM recertification or whose certification is revoked can
appeal on the ground that SBSD has made a mistake in reaching its decision. SBSD
has held appeals hearings for seven SWaM certification denials since mid-2019, none
of which were overturned. (Appeals of DBE certifications are handled by the US.
Department of Transportation, sidebar.)

The appeals process has several positive aspects. A different SWaM certification staff
member reviews appeals than the staff person who originally reviewed the application.
Appeals are decided by an internal staff committee, which holds an appeals hearing
where the business can present its case. Additionally, a business has the right to be
represented by an attorney in the proceeding.

However, the appeals process is not available to businesses who are denied a new cet-
tification. This limitation appears to lack any policy basis and instead be for the pur-
pose of limiting the SWaM certification division’s workload.

SBSD should allow all businesses that have been denied SWaM certification—includ-
ing businesses that have applied for a new certification—the opportunity to appeal
SBSD’s decision. Denials for new certifications should follow the same process as de-
nials for recertifications. Businesses denied new certifications should be able to submit
an appeal to SBSD’s appeals committee and request an appeals hearing. Allowing new
certification applicants the ability to appeal should not substantially increase the vol-
ume of appeals because of SBSD’s low denial rate. Additional efforts to educate busi-
nesses about grounds on which they can make an appeal should further help to keep
the number of appeals low. To implement this change, SBSD may need to coordinate
with OAG staff and would need to amend its regulations as necessary.

Commission draft
13

The U.S. Department of
Transportation handles
DBE certification ap-
peals. Denied firms may
file an administrative ap-
peal within 90 days from
the date of denial. Only
three DBE decisions out
of 17 appeals (and nearly
3,200 applications) have
been overturned in the
past 10 years.
Chapter 2: SBSD Management and Programs

RECOMMENDATION 2

The Department of Small Business and Supplier Diversity (GBSD) should amend its
regulations to provide a right of appeal to small, women-owned, and minority-owned
businesses who have been denied a new certification if their basis for challenging the
decision is that SBSD made a mistake in denying their application.

In addition to the appeals process, SBSD has a waiver process for businesses whose
applications were denied. This process is for businesses that have new information for
SBSD to consider and want to reapply earlier than the required six-month waiting
period. The SBSD director decides whether to grant a waiver.

Some businesses that are denied certification appear confused about the appeal and
waiver processes. SBSD sends a letter to denied businesses that describes them, but
the processes remain unclear to some businesses. For example, some businesses do
not understand the basis on which they can appeal a determination or the difference
between the appeal and waiver processes.

SBSD has made recent efforts to clarify the waiver and appeals processes, which seem
to have reduced some of the confusion that businesses have experienced with these
processes in the past. For example, SBSD had received no waiver requests until August
2019 when SBSD revised its denial letters to include the waiver option. As a result, at
least 31 businesses submitted waiver requests from September 2019 to January 2020.
Beginning in 2020, SBSD also clarified the reasons for which a business can appeal a
denial with the 30 businesses that had appealed. After receiving this clarification, 23
of these businesses withdrew their appeal.

Despite SBSD’s attempts to clarify these processes, some businesses remain confused
about the reasons they can apply for an appeal or waiver. Consequently, SBSD should
provide businesses with more information on the appeals and waiver processes to fur-
ther reduce confusion and improve transparency. SBSD should clearly describe the
reasons businesses can file an appeal or seek a waiver, eligible applicants, the differ-
ences between appeals and waivers, and the types of documentation businesses should
provide in each case. This information should be more clearly described in SBSD’s
denial letters and added to SBSD’s website.

RECOMMENDATION 3

The Department of Small Business and Supplier Diversity should clarify its appeals
process by revising denial letters and adding information to its website to more clearly
describe the (i) circumstances and grounds to appeal a certification decision or seek a
waiver, (ii) processes a business must follow, and (ii!) documentation to provide when
filing an appeal or seeking a waiver.

Commission draft
14
Chapter 2: SBSD Management and Programs

Business assistance services are generally useful but
could be more accessible and targeted

SBSD’s business assistance division works directly with businesses to help them de-
velop and grow. Staff provide three types of services: group events, one-on-one coun-
seling sessions, and an intensive training program called Scaling4Growth (Table 2-2).
The Code of Virginia requires SBSD to “provide technical and management assis-
tance,’ which gives SBSD broad discretion over the topics covered and delivery
method of services. Business assistance services are currently provided by five region-
ally based staff.

TABLE 2-2

SBSD offers several types of business assistance services

Program Description Participants (2019)

Events Group training or networking events open to mul- 2,423
tiple businesses (e.g., webinars, conferences).

Counseling sessions One-on-one consulting sessions where SBSD staff 786

provide personalized assistance to businesses (e.g.,
help registering a business, pursing certification)
in-person or through a phone call.
Scaling4Growth? 6-month business development course with ~ 16 32
businesses, a trained course instructor, and stand-
ardized curriculum.

Total 3,241

SOURCE: JLARC interviews with SBSD and analysis of SBSD data.

NOTE: Aside from Scaling4Growth, participation counts are non-unique. For example, a business attending two coun-
seling sessions and one event will be counted three times. * Scaling4Growth was created by Interise, a national or-
ganization

Events and counseling sessions are helpful, but use is hindered by lack
of awareness and similarity to other programs

SBSD offers state contracting and general business information through its events and
counseling sessions. The majority of SBSD events and counseling sessions cover state
government contracting topics, particularly SWaM certification and the state’s procure-
ment system. For example, in a May 2020 counseling session, SBSD staff explained
which documents a startup owner needed to submit for the SWaM certification appli-
cation and how to search the state’s procurement website to find contracts relevant to
her industry.

SBSD also offered events and counseling sessions on general business topics, rather
than Virginia-specific topics. In 2019, one-third of businesses attended events that
covered general business topics such as sales, starting a new business, business financ-
ing, or succession planning. Similarly, 21 percent of the counseling sessions that SBSD

Commission draft
15
Chapter 2: SBSD Management and Programs

conducted in early 2020 covered general business topics such as marketing, starting a
new business, and business funding sources.

Businesses that participate in SBSD’s events and/or counseling sessions generally con-
sider them useful. About two-thirds of the businesses responding to JLARC’s survey
question on events and counseling sessions agreed the information provided was help-
ful. Several Virginia business groups interviewed spoke favorably about SBSD’s events
and counseling sessions and reported that these services are beneficial for their mem-
bers.

Business participation in events and counseling sessions varies, but SBSD’s business
assistance services are generally under-utilized. SBSD staff report that events are rarely
filled to capacity and that they do not maintain waiting lists. Lack of awareness and
similarity to other services offered by larger organizations each contribute to low uti-
lization.

Many businesses are unaware SBSD offers events or counseling sessions. Over half
of businesses responding to a JLARC survey said they had not participated in SBSD’s
events or counseling sessions because they were unaware of or had insufficient infor-
mation about them. The president of one business group said: “I don’t think the word
is out there about SBSD’s business assistance services.” Currently, marketing efforts
are ad hoc and vary by region. For example, business assistance staff in some but not
all regions regularly email previous business participants about upcoming events. How-
ever, SBSD recently started television advertisements and sending staff to business
conferences to increase awareness.

Several federally administered or supported organizations are much larger than SBSD
and provide similar services (Figure 2-3). For example, two SBA programs—Small
Business Development Centers (SBDCs) and SCORE—provide a variety of general
business assistance through statewide networks. These entities specialize in these ser-
vices, and their staff have professional backgrounds or receive detailed training on
these topics. Moreover, they have far greater capacity; the Virginia chapter of SBDC
has 37 full-time equivalent staff, compared with SBSD’s five. SBA’s statewide SCORE
and SBDC programs served six times as many businesses as SBSD through counseling
and events in 2019.

Commission draft
16
Chapter 2: SBSD Management and Programs

FIGURE 2-3
SBSD and several federal providers offer general business assistance
Virginia SBSD Vv v v Vv
Small business development centers yY Y oY
SCORE v Y
Procurement technical assistance centers wv v

SOURCE: JLARC analysis of federal program websites and interviews with SBSD and federal program staff.
NOTE: Checkmarks indicate the provider's primary specialties.

SBSD could narrow focus of business assistance services and should
improve its marketing and accessibility

SBSD could improve its business assistance by narrowing its focus to Virginia-specific
content and increasing awareness and accessibility of its programs. SBSD business
assistance staff indicated they specialized in their knowledge of state government,
which was also the most common reason for receiving referrals. These staff are also
uniquely positioned to assist businesses with state contracting and certification because
SBSD also administers SWaM certifications and works with state agencies to increase
SWaM procurement.

Several other states, such as North Carolina and Kentucky, have more intentionally
identified roles for their business assistance staff that avoid overlap with other general
business development programs (sidebar). Several national experts and Virginia busi-
ness groups identified by JLARC also noted that helping businesses navigate state con-
tracting and certification is SBSD’s specialty. These groups said SBSD’s state govern-
ment expertise is not commonly available elsewhere, in contrast with general business
development services offered by larger federal and other organizations.

SBSD could discontinue offering general business assistance that businesses can ob-
tain in many other places and instead refer businesses to larger organizations with
more scale and expertise. Doing so would allow SBSD to build on its core competency
and comparative “niche” offering events and counseling sessions focused on Virginia-
specific topics related to certification and contracting,

POLICY OPTION 1

The Department of Small Business and Supplier Diversity could refer businesses seek-
ing general business assistance to larger federal programs and offer more events and
counseling sessions on Virginia-specific certification and contracting topics.

North Carolina's staff
only provide referrals and
responses to quick turn-
around inquiries, while
Kentucky's staff focus on
entrepreneurs (not all
small businesses).

If SBSD refined its offerings, the agency can then more effectively market and im-
prove the accessibility of its programs. SBSD’s marketing and public relations efforts

Commission draft
17

Policy options for con-
sideration. Staff typically
propose policy options
rather than make recom-
mendations when (i) the
action is a policy judge-
ment best made by
elected officials—espe-
cially the General Assem-
bly, (ii) evidence suggests
action could potentially
be beneficial, or (iii) a re-
port finding could be ad-
dressed in multiple ways.
Other state agencies
serving small busi-
nesses, such as the Vir-
ginia Department of Gen-
eral Services and the
State Corporation Com-
mission, have posted vid-
eos and explanatory doc-
uments online about
website functions (e.g.,
registering a business
name, submitting bids) in
addition to having cus-
tomer service staff for di-
rect communication with
businesses.

Chapter 2: SBSD Management and Programs

should include the development of an integrated, written marketing plan for SBSD’s
business assistance. The plan should establish SBSD’s strategy for increasing awareness
of its programs among businesses and specify the types of businesses staff will con-
tact, the marketing methods staff will use, and which staff will conduct the outreach.
SBSD had planned to create a new marketing/public relations staff position in FY21,
but the funding for this position was removed from the budget in August 2020. Cur-
rent SBSD staff could draft a marketing plan, but additional staff may be needed to
conduct planned business outreach activities as funding becomes available. To leverage
existing state resources, the plan should cover key groups across the state that assist
small and disadvantaged businesses (e.g., local chambers of commerce and startup
support organizations). The Virginia Economic Development Partnership and North
Carolina’s economic development agency (which includes small business programs)
both create annual marketing plans. VEDP’s most recent plan identified industries and
stakeholders to target, while North Carolina’s plans specify outreach to localities with
low use of its programs the prior year.

SBSD should also make these improved services more readily accessible to businesses.
Experts emphasize the importance of making business assistance services available in
a variety of platforms and formats to meet businesses’ diverse preferences. Most of
SBSD’s services currently require real-time attendance to access information. For ex-
ample, SBSD only shares training documents directly with event participants; it has
not made these materials available on its website. Posting more information online as
other state agencies do (sidebar) would maximize the number of businesses served
and could decrease the time staff spend answering common questions.

RECOMMENDATION 4

The Department of Small Business and Supplier Diversity should improve business
awareness of and accessibility to its business assistance events and counseling sessions
through (1) developing and implementing a coordinated written marketing plan and (i)
providing on-demand written materials and recorded webinars on its website.

Scaling4Growth seems beneficial for businesses but is not widely
available

In contrast with SBSD’s events and counseling sessions, Scaling4Growth is a longer-
term, intensive program. Scaling4Growth is administered by SBSD, but services
through the program are provided through a private company under contract to SBSD.

Participating businesses provided positive feedback about SBSD’s Scaling4Growth
program. All previous or current Scaling4Growth participants (11) who responded to
a JLARC survey viewed the program as useful and informative and expressed overall
satisfaction. Metrics tracked by Scaling4Growth indicate preliminary evidence of ben-
efits for businesses that participate in the program. For example, businesses that par-
ticipated in the program in 2018 reported creating three new jobs and growing their
revenue by 44 percent, on average. (No analysis has been done to determine whether

Commission draft
18
Chapter 2: SBSD Management and Programs

this growth was the result of Scaling4Growth or how Scaling4Growth participants’
growth compares to other businesses.) The national organization overseeing Scal-
ing4Growth programs (Interise) views SBSD as a committed and successful adminis-
trator. One participant remarked that the Scaling4Growth “program has helped me
become better focused and goal oriented for successful outcomes. We are now in a
position to actually push our own growth.”

Only a small number of businesses have been able to participate in Scaling4Growth
because of the program’s location and limited capacity. SBSD is currently the only
entity that administers the Scaling4Growth program in Virginia. SBSD has hosted
Scaling4Growth in three regions since it began in 2016. It was held four times in the
Richmond area, once in Hampton Roads, and once in Northern Virginia. Additionally,
each six-month cohort is capped at 16 businesses. The COVID-19 pandemic
prompted several temporary changes to the program. For example, the seventh and
eighth cohorts have been offered virtually and statewide. SBSD plans to continue this
approach with the next cohort to ensure businesses’ safety during the pandemic.

Businesses’ ability to participate in Scaling4Growth could be improved if SBSD of-
fered the program statewide on a permanent basis. SBSD could accomplish this by
rotating locations of each cohort or by continuing to offer the program virtually. If
the number of qualified businesses who apply for Scaling4Growth exceeds the num-
ber of cohort spots, SBSD could also consider operating two cohorts concurrently.
This expansion could increase the cost of Scaling4Growth by about 40 percent. Scal-
ing4Growth has a much higher cost-per-business than SBSD’s counseling and events
because SBSD pays a third party to facilitate the program.

POLICY OPTION 2
The Department of Small Business and Supplier Diversity could offer the Scal-
ing4Growth program in each region of the state and to more businesses.

Virginia's “Business One Stop” website is not
comprehensive and lacks key functionality

Starting a business requires registrations and applications with several government en-
tities. Businesses can benefit from a “one stop” resource for all their registration re-
quirements, which can help them understand and comply with governmental require-
ments for registration, according to national experts and Virginia business groups.
Without a one-stop resource, businesses may attempt to complete actions in the wrong
order (e.g., registering for a tax ID before receiving a State Corporation Commission
ID), overlook applicable permits, or make detrimental decisions such as selecting a
costlier business structure than needed.

Commission draft
19
Of Virginia's six neigh-
boring states and the
District of Columbia, only
two states operate one
stops for new business
registration that incorpo-
rate multiple agencies.
Kentucky's One Stop in-
cludes two state agencies,
and West Virginia's One
Stop includes three state
agencies; neither are inte-
grated with local or fed-
eral agencies.

New businesses may be
required to register with
multiple government
agencies: the federal IRS,
several state agencies
(State Corporation Com-
mission, Department of
Taxation, relevant regula-
tory agency, such as the
Department of Profes-
sional and Occupational
Licensing) and local gov-
ernment (for zoning and
business permit), de-
pending on the busi-
nesses’ size, industry, and
other characteristics.

Chapter 2: SBSD Management and Programs

SBSD is responsible for overseeing the state’s Business One Stop (one stop) website,
which is intended to serve as a “single access point” for starting a new business. Vir-
ginia is one of a few states in the region that attempts to provide a comprehensive
website for required business registrations (sidebar). One stop websites are designed
to simplify business startup requirements, but they are complex to develop and can be
resource-intensive to adequately maintain over time.

Business One Stop website fulfills few of its statutory requirements
and lacks functionality

SBSD is not fulfilling most statutory requirements for Virginia’s Business One Stop
(Table 2-3). The Code of Virginia outlines several required functions that the Business
One Stop does not offer, one of which is an in-house “comprehensive” application
for new business registration (sidebar), enabled by SBSD “exchanging” information
with other agencies. Rather than meeting the requirement as intended, the website
merely provides links to other agencies’ websites. Businesses must start over at each
agency website, requiring a business to interact separately with each website and pro-
vide similar or identical information across the various sites.

Some of the site’s information sources are incomplete, absent, or are not adequately
maintained. For example, the link to the Department of Professional and Occupa-
tional Regulation licensing has not worked, and the local governments contact list for
permitting was blank as of June 2020. (SBSD fixed both of these problems as of
September 2020, but several other links remain inaccurate.) The website currently ref-
erences some resources at agencies such as the Department of Environmental Quality
and SBA, but omits programs such as VEDP’s Virginia Jobs Investment Program, the
Center for Innovative Technology’s equity funds for startups, and the Virginia Depart-
ment of Housing and Community Development’s Virginia Main Street program. Re-
source links are categorized by business growth stage, but many do not reference spe-
cific programs. Additionally, the website contains some outdated language (e.g.,
references to SBSD’s previous agencies).

Comparatively few businesses use the website. Business groups and state agencies de-
scribed the Business One Stop as “cumbersome” and “not very intuitive,” and at least
two SBSD staff members refrain from referring businesses there. In 2019, only 2 per-
cent of businesses (2,111) began registering their businesses through the Business One
Stop out of the 93,065 businesses that registered with the state.

SBSD leadership acknowledge the lack of compliance and indicated they have chosen
to focus on improving other SBSD programs before addressing issues with the Busi-
ness One Stop. SBSD’s business assistance division is technically responsible for the
website, but no single SBSD employee has full responsibility for it. Rather, responsi-
bilities are spread across staff in several divisions. This lack of designated responsibil-
ity has likely contributed to a lack of focus on fulfilling legislative intent.

Commission draft
20
Chapter 2: SBSD Management and Programs

TABLE 2-3

Business One Stop is not fulfilling statutory requirements

Code of Virginia requirement SBSD fulfillment
Create a “comprehensive application” containing basic information (e.g., ad- O

dress) thus “eliminating the need to repeatedly provide" this information

For approved applications, provide a “comprehensive permit that incorpo-
rates the endorsements for individual permits”

“Develop and administer a computerized system program capable of storing,
retrieving, and exchanging permit information”

Provide “a customized to-do agency checklist” with applicable applications
and government requirements @

“Allow a business owner to submit electronic payment” for application, with
an exemption for veterans

Serve as a source of “information and pertinent factors of interest and con- °
cern” for businesses

SOURCE: JLARC analysis of §§ 2.2-1617, 2.2-1605, review of SBSD website, and interviews with state agencies.
NOTE: Statutory requirements for the Business One Stop website were implemented in 2008, although the exact
language has changed over time. * House Bill 1221, which passed in 2020 and takes effect in FY21, specified the
following government requirements to be included in this list: “sales tax and unemployment tax requirements,
workers’ compensation insurance requirements, and postings required by the Virginia Department of Labor and
Industry and the U.S. Department of Labor.”

SBSD is in the process of attempting to improve the Business One Stop website and
fulfill legislative intent. However, doing so likely will require substantial resources.
SBSD receives $500,000 in appropriations annually for the Business One Stop and
currently has $705,000 in additional funding from user fees that can be used for im-
provements. Additional funding may be needed, as an informal quote obtained from
a vendor that administers another state’s Business One Stop website estimated that
improvements to Virginia’s website could cost several million dollars per year.

SBSD has begun working with the website’s new host vendor and state agencies to
identify flaws with the website. The agency has also drafted an improvement plan;
however, the plan does not include improvements needed to fully comply with the
Code of Virginia. For example, the plan does not commit to covering all professional
and local licenses or to providing businesses with a “customized to-do” list of gov-
ernment requirements. SBSD agency staff have said they plan to integrate State Cor-
poration Commission (SCC) registrations into the Business One Stop, but it is not
explicitly specified in their written improvement plan. Recent legislation directed the
Business One Stop and SCC to adapt their systems to exchange information electron-
ically (sidebar).

SBSD needs to work with the General Assembly to determine which of the current
legislative requirements for the One-Stop remain legislative priorities and the resources
needed to meet those requirements. The General Assembly may wish to require SBSD
to submit an improvement plan that includes the following for each statutory One-
Stop requirement: (i) the purpose and benefit to small businesses; (ii) the cost of fully
implementing and maintaining the requirement; (iii) any additional resources (both

Commission draft
21

SB 1137 (2013) required
full integration between
the One Stop and State
Corporation Commis-
sion's “processes and
forms” by June 2018.

HB 237 (2018) extended
the previous deadline for
full integration to January

2020.
Chapter 2: SBSD Management and Programs

funding and staff) needed to implement and continue to meet the requirement; and
(iv) SBSD’s recommendation whether the requirement should be kept. SBSD may
need to issue a Request for Information to obtain cost estimates for meeting the vari-
ous requirements.

RECOMMENDATION 5

The General Assembly may wish to consider including language in the Appropriation
Act directing the Department of Small Business and Supplier Diversity (SBSD) to
develop and submit a detailed improvement plan for the Business One Stop. The plan
should include the following for each statutory requirement: (i) a description of the
purpose and benefit to small businesses, (11) the cost of fully implementing and main-
taining the requirement, (iii) the resources needed beyond those currently available to
implement and maintain the requirement, and (iv) SBSD’s recommendation as to
whether the requirement should be kept. The plan should be provided to the House
Labor and Commerce, and Appropriations committees; and Senate Commerce and
Labor, and Finance and Appropriation committees no later than November 1, 2021.

Commission draft
22
3 Virginia Small Business Financing Authority

The Virginia Small Business Financing Authority (VSBFA) is technically part of SBSD
but operates somewhat separately from the rest of the agency. VSBFA has its own
executive director (who reports to the SBSD director) and a board that makes final
decisions about the agency’s financing programs. VSBFA consists of eight staff, in-
cluding the executive director, a chief credit officer, three loan officers, and three ac-
counting and administrative personnel.

VSBFA operates several financing programs to support businesses. Three of VSBFA’s
programs provide direct loans, which ate underwritten and administered by VSBFA staff
(Table 3-1). VSBFA also provides three support /oan programs, through which VSBFA
encourages banks to loan to small businesses by committing financial assistance to the
banks if the loans are not repaid. VSBFA also offers grants and conduit bonds. All of
VSBFA’s programs serve small businesses except conduit bonds, which primarily serve
large businesses and large non-profits (sidebar). (For more information about VSBFA’s
individual financing programs, see Appendix E.)

TABLE 3-1
VSBFA primarily provides direct and support loans, and grants

VSBFA plays a facilitating
role for the conduit
bond program, in which
private bond purchasers
provide funding to the
business or nonprofit
who repays them over
time. VSBFA’s primary
bond responsibilities in-
clude hosting public
bond hearings during
VSBFA board meetings
and approving the bonds.
VSBFA facilitated three

Number a el ata id conduit bonds in 2019

businesses funding used totaling $658 million

_ Program served » (FY19) ($ Thousands ) :
Direct loans 15 $965
Microloan 12 198
Economic Development Loan Fund 2 742
Child Care Financing Program 1 25
Support loans 9 2,039
Loan Guaranty 5 1,698
Capital Access 4 4
Cash Collateral 0 337
Grants 44 830
Small Business Investment Grant 41 824
Small Business Jobs Grant # 3 6

SOURCE: JLARC analysis of VSBFA data (FY19).

NOTE: Programs as shown above do not distinguish by funding source. For example, the Economic Development
Loan Fund includes federal and state-funded loans. *The Small Business Jobs Grant was eliminated during the 2020
GA session through House Bill 1505. * The number of businesses served reflects the number that were approved for
funding (due to limited data), which can differ from the number that received funding

VSBFA exists “to provide financial assistance to small and other eligible businesses in
the Commonwealth by providing loans, guarantees, insurance and other assistance to

Commission draft
23
VSBFA is now responsi-
ble for two new COVID
relief programs that will
award $80.3 million to
businesses. Most funding
for these programs was
provided through the
federal CARES Act.

The Rebuild VA grant
program will provide
$70.7M to businesses in
non-essential industries
that have less than $1.5
million in revenue and 25
or fewer employees.
VSBFA began accepting
applications in August
2020.

VSBFA also received
$10.2M for a COVID loan
program. VSBFA is cur-
rently designing the pro-
gram and is not yet ac-
cepting applications as of
early September.

Chapter 3: Virginia Small Business Financing Authority

small and other eligible businesses, thereby encouraging the investment of private cap-
ital in small and other eligible businesses in the Commonwealth.” The General Assem-
bly created the VSBFA because small businesses often face difficulty receiving financ-
ing since they are riskier investments than larger businesses, and small loans are not as
profitable for banks. Financing challenges can be exacerbated for small businesses that
are women- or minority-owned, as these businesses may lack established connections
to capital. In addition to VSBFA, the federal government, some local governments,
and nonprofit organizations administer financing programs for small businesses.

VSBFAss financing programs have become especially important to assist small busi-
nesses that have been negatively affected by the COVID-19 pandemic. Many busi-
nesses are currently experiencing unprecedented operational challenges, such as in-
creased costs or decreased consumer demand, and may need additional capital to
address these challenges. Experts predict commercial banks may become mote restric-
tive with business lending, making VSBFA a critical funding source for small busi-
nesses. In this environment, it is especially important for VSBFA to operate its financ-
ing programs efficiently and effectively, particularly as staff begin administering two
new COVID relief programs (sidebar).

Operational shortcomings have prevented VSBFA
from fully achieving its mission

VSBFA has not been meeting most key criteria necessary to effectively administer
financing programs and meet its legislative mission (Table 3-2). VSBFA is not en-
suring that an adequate portion of available funds are loaned to businesses or set-
ting goals for utilization. VSBFA also lacks written policies that establish appropri-
ate risk standards for loans and a standardized tool for staff to consistently assess
applicants’ repayment risk, which has impeded full achievement of VSBFA’s mis-
sion to serve small businesses most likely to face financing challenges.

TABLE 3-2
VSBFA is not meeting most criteria for effective program administration
VSBFA

Criteria fulfillment

Adequate proportion of available funds loaned to businesses

Goals for and tracking of loan and grant program utilization

Regular targeted outreach to businesses and banks

Written policies that establish appropriate risk standards for loans

Standardized tool to consistently assess applicant risk

Regular monitoring of processing times, loan decisions, and outstanding loan health

Adequate board expertise to evaluate all loan applications

SOURCE: JLARC interviews with experts and VSBFA staff, review of literature on small business financing programs
and VSBFA policies.

Commission draft
24
Chapter 3: Virginia Small Business Financing Authority

The lack of consistent leadership likely contributed to VSBFA’s operational shortcom-
ings. The authority has had five permanent or acting executive directors in three years.
After VSBFA’s long-time executive director departed in 2017, the agency’s chief credit
officer became the acting director for nine months (while also still performing the
chief credit officer duties). The next two executive ditectors served for short time
periods; a permanent executive director served from June 2018 to July 2019, while an
acting executive director served from August 2019 to September 2019. Turnover in
the executive director position left VSBFA without consistent leadership and hindered
any potential initiatives to increase loan utilization and develop standardized policies.
Several staff emphasized the adverse impact of inconsistent leadership, with one not-
ing “this revolving door of leadership has caused the team to continually reset priori-
ties.’ VSBFA’s current executive director was hired in October 2019 and has been in
the position for nearly one year. He has a lending background and is viewed positively
by staff and board members.

VSBFA programs are beneficial, but low lending
levels limit assistance provided to businesses

JLARC’s 2018 review of “Workforce and Small Business Incentives” found that
VSBFA’s gran¢ programs had a moderate benefit to the state economy (e.g., growth in
jobs and income), and its 4am programs (even though they are not targeted to high
growth businesses) have moderate to high economic benefit when considering the rel-
atively low cost to the state (sidebar). The VSBFA loan programs can play a key role
helping businesses receive loans they otherwise would not have been able to obtain.
The 2018 review also noted that VSBFA loan programs appeared to be warranted in
Virginia, particularly during and immediately following the Great Recession. The need
for these programs may be greater as the economic effects of the COVID-19 pan-
demic continue to be realized.

During this 2020 review, stakeholders similarly pointed to the positive impact VSBFA
programs can have. All businesses responding to a JLARC survey reported that receiv-
ing the funding was helpful (sidebar). Stakeholder groups and state agencies described
VSBFA staff as knowledgeable and responsive. Additionally, several banks highlighted
the ease of VSBFA’s paperwork and processes compared with financing programs
from the US. Small Business Administration (SBA).

Public entities like VSBFA, which provide gap financing to small businesses, must bal-
ance two goals: helping small businesses access capital and being prudent stewards of
public funds. Public financing authorities may find it difficult to achieve both goals
because one can jeopardize the other (sidebar). Government-sponsored small business
loan programs typically consider higher-risk loans than those approved by commercial
banks. However, avoiding unreasonably high-risk loans is necessary to protect state
dollars and ensure that outstanding loans are repaid to fund future loans.

Commission draft
25

JLARC's 2018 “Workforce
and Small Business In-
centives” made seven
recommendations re-
lated to VSBFA. Several
have been partially imple-
mented or fully imple-
mented, and two are not
yet implemented: (1) es-
tablishing a scoring sys-
tem for the Small Busi-
ness Investment Grant,
and (2) establishing job
creation standards for
certain VSBFA loans. (For
more information see Ap-
pendix C.)

JLARC survey of
businesses was sent to
approximately 23,000
businesses that recently
participated in SBSD pro-
grams; 918 businesses re-
sponded (4 percent). The
survey asked questions
about the application
process, approval deci-
sions, effectiveness, and
awareness of SWaM certi-
fications, DBE certifica-
tions, financing programs,
and business assistance
programs. (See Appendix
B for more information
about this survey.)

Other public finance
programs have strug-
gled with adequately
deploying funding. A
JLARC review in 2000
found that the Virginia
Housing Development
Authority held overly high
fund balances because it
was retaining funds at the
expense of making loans
to households not served
by the private market.
The recently eliminated
Small Business Jobs
Grant was not heavily
used in recent years. In
contrast, the Small Busi-
ness Investment Grant
was fully used in FY18
and FY19 after its eligibil-
ity criteria was broadened
by the General Assembly.

Chapter 3: Virginia Small Business Financing Authority

VSBFA did not award most available loan funding to businesses in
recent years, and loan applications have declined

The Code of Virginia tasks VSBFA with providing financing, yet in 2018 and 2019 the
authority used only a small amount of available funding. VSBFA’s loan programs used
only 10 percent of their available funds in FY19, leaving 90 percent of available fund-
ing unused (Figure 3-1). Similarly, VSBFA used only 8 percent of its available funds in
2018. These unused loan funds—$28 million in total—represent a lost opportunity
for businesses. Usage has begun to rise in 2020 but is still comparatively low at 24
percent.

Usage varied by loan program, but three programs used less than 5 percent of available
funding in FY19. (See Appendix E for more information about funding utilization for
specific programs.) Low utilization was reported as a “weakness” by the federal US.
Economic Development Administration (EDA) during its most recent review of
VSBFA’s EDA program. Utilization of grant programs has been mixed (sidebar).

Over the last few years, the trend in loan applications has mirrored the trend in utili-
zation (Figure 3-1). VSBFA received 145 applications in 2017, but applications steadily
declined the next two years, with applications dropping by half from 2017 to 2018.
Applications rose slightly in 2020, but remain far below 2016 and 2017 levels.

FIGURE 3-1
VSBFA’s utilization rate and number of applications received have declined in
recent years

Number of applications

145 $33.0M
$31.1M

130

$25.7M

$22.8M 76% Unused funds

$19.3M 67
54%
55% ‘ 92% 90%
46%
Used funds
2016 2017 2018 2019 2020

SOURCE: JLARC analysis of VSBFA loan disbursement data, annual financial balance sheets, and applications data.
NOTE: Years shown are state fiscal years. Amounts reflect the amount of funding loaned out of the amount of fund-
ing available, by program. Utilized amounts do not account for funding that VSBFA has committed to providing in
the future but has not yet disbursed because commitments are subject to change. (See Appendix B for more infor-
mation on utilization and application receipt calculations and Appendix E for more information about utilization
levels for specific programs.) Favorable credit conditions may have contributed to declining number of applications

Commission draft
26
Chapter 3: Virginia Small Business Financing Authority

Credit conditions, which have been favorable in recent years, can have a big impact on
the need for government financing programs. Fewer small businesses need govern-
ment financing programs when financing is readily available through private lending
markets. The number of businesses unable to obtain financing decreased 17 percent
between FY16 and FY19, according to the Federal Reserve’s annual small business
credit survey (sidebar). However, VSBFA experienced a much larger decrease in lend-
ing during the same time period; loan applications decreased 53 percent between FY16
and FY19. The magnitude of VSBFA’s decrease suggests additional factors beyond
credit conditions.

Even with favorable credit conditions, though, many small businesses still need help
accessing financing. The same Federal Reserve survey also found that 30 percent of
small businesses nationwide reported needing financing in FY19. Demand for small
business financing exists even with positive credit conditions because some barriers to
obtaining financing are not dependent on the economy. For example, private banks
may not provide small business loans because loans for small amounts are unprofitable
or the businesses lack sufficient collateral. In late 2019 and early 2020 (prior to the
COVID-19 pandemic), access to capital was cited as a top challenge for small busi-
nesses by several Virginia business organizations.

Lack of cohesive outreach leads to low awareness among businesses
and banks

VSBFA staff engage in outreach efforts, but their approach is not well planned or
coordinated. VSBFA requires staff to conduct a minimum number of outreach events
annually, and staff report on their outreach weekly, such as attending business events
and reaching out to banks. However, VSBFA has not established a cohesive plan that
identifies specific business groups or banks to contact. Without a formal plan, staff
conduct outreach ad hoc and largely work with the same businesses and banks.

Effective marketing to businesses who may need loans is essential, but many busi-
nesses ate unaware of VSBFA. An evaluation of federally funded loan support pro-
grams highlighted “effective, focused, and continuous marketing efforts” as “critical”
to success. Of businesses that participated in a SBSD program but never applied for
VSBFA financing, 51 percent cited lack of awareness or information about VSBFA’s
programs as the reason. Business groups interviewed by JLARC staff were often un-
aware of VSBFA’s loan programs. Moreover, a substantial portion of VSBFA’s loans
go to businesses that have already received VSBFA loans. Since FY15, at least 22 per-
cent of VSBFA’s direct loans were to businesses that had previously received VSBFA
loans.

Effective marketing to banks is also essential. Three of VSBFA’s six loan programs
depend on bank participation, and banks play a key role in referring businesses they
are unable to serve to VSBFA. Banks interviewed by JLARC staff emphasized the

Commission draft
27

The annual Federal Re-
serve Small Business
Credit Survey uses a na-
tional non-representative
sample of businesses with
fewer than 500 employ-
ees. Businesses “unable
to obtain financing” con-
sists of those awarded
none of requested loans
or some of requested
loans, or those that did
not apply for a loan be-
cause they assume they
will be denied.
Chapter 3: Virginia Small Business Financing Authority

need for VSBFA to regularly communicate with them so they understand and remem-
ber to use its programs. In FY19, VSBFA approved support loans through only five
of 127 (4 percent) banks in the state.

SBSD’s agency wide marketing plan (discussed in Chapter 2) should specifically ad-
dress VSBFA’s programs. The plan should specify which entities staff will contact,
covering key groups across the state that assist small and economically disadvantaged
businesses. For example, VSBFA staff should market loan programs to local economic
development entities (whose partnerships are crucial to the EDA loan program) and
community banks who are not federal SBA lenders.

Recent staffing shortages contributed to low lending levels

Staff shortages contributed to low usage of VSBFA loan programs in recent years.
Staff vacancies track closely with decreases in loan utilization over time. In 2016,
VSBFA used 46 percent of its funding. But for the next two years, staff shortages
hindered its ability to make loans because it had only one loan officer. Two of VSBFA’s
three loan officer positions were vacant for extended periods of time; one was vacant
from October 2017 to September 2019 (23 months) and the other was vacant from
September 2018 to February 2020 (18 months). All three loan officer positions were
filled for only six months, because one loan officer left in August 2020. This new va-
cancy is likely to reduce the number of loans VSBFA is able to make, unless it is quickly
filled. SBSD previously had difficulty filling loan officer positions because the salaries
were less than for comparable positions in the private sector, but SBSD raised the
starting salary for loan officers.

VSBFA management and board do not set loan and grant utilization
goals or sufficiently track lending levels

VSBFA does not set performance goals for loan and grant utilization rates. Without
goals on loan program usage, the agency cannot clearly identify the extent to which
programs ate underutilized.

VSBFA does not currently track loan program utilization of available funds. While
administrative staff track disbursements for new loans and repayments of outstanding
loans, this information is only used for internal accounting purposes. VSBFA does not
track the amount of remaining funding available for new loans, a metric that is essential
to strike the appropriate balance between achieving its mission to serve small busi-
nesses and maintaining an adequate reserve.

Several board members and VSBFA staff said that utilization goals and loan usage
data would help inform their work. One explained that the amount of funding remain-
ing for a specific program could assist in deciding whether to approve or deny appli-
cations when the decision is difficult. Another stated:

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28
Chapter 3: Virginia Small Business Financing Authority

“It’s very concerning to me that we have funding sitting there that is not being
utilized...If I knew how much we had to lend, our outreach activity would be
much more assertive.”

Several agencies similar to VSBFA regularly track their loan and grant usage, and some
establish goals for using a specific percentage of available funding. For example, the
Virginia Resources Authority annually calculates the percentage of available funds it
uses for certain loan programs and aims to loan 100 percent of available funds. Simi-
larly, the Center for Innovative Technology (a state-funded nonprofit) sets annual goals
for the amount of funds awarded by its startup equity programs, and its board reviews
progress against these goals and remaining funds quatterly. In addition, VSBFA should
regularly monitor economic conditions that could affect demand for VSBFA’s loan
programs, as recommended by JLARC’s 2018 review of economic development in-
centives.

RECOMMENDATION 6

The Virginia Small Business Financing Authority Board should set annual utilization
goals for loan programs that consider factors such as credit conditions and available
loan funding.

RECOMMENDATION 7

The Virginia Small Business Financing Authority Board should direct staff to regularly
track and annually report the percentage of loan and grant program funds that are
utilized or awarded.

VSBFA could increase use of microloan by allowing startup businesses
to participate

VSBFA is the only state agency that offers loans specifically to startup businesses, but
businesses less than two years old are not eligible for its microloan program. (The
Center for Innovative Technology makes equity investments in new businesses but
only in certain industries.) VSBFA’s other programs served 76 startups (27 percent of
businesses receiving financing) in the last five years, but these programs tend to pro-
vide higher loan amounts than the microloan. Other similar loan programs, such as
SBA’s microloan program and the only neighboring state with a direct microloan, are
available to startups. Eligibility does not mean automatic approval, as startups need to
demonstrate sufficient repayment likelihood in the same manner as other applicant
businesses.

Startup businesses find it particularly challenging to obtain financing from the private
sector, according to national experts and Virginia business groups, such as the Virginia
Chamber of Commerce. Startups lack the years of tax and financial records that banks
use to assess businesses and are likelier to fail than long-established businesses. VSBFA
could broaden the eligibility criteria for its microloan program to allow startups to
participate. Including startups would help VSBFA increase the support it provides to

Commission draft
29
Policy options for con-
sideration. Staff typically
propose policy options
rather than make recom-
mendations when (i) the
action is a policy judg-
ment best made by
elected officials—espe-
cially the General Assem-
bly, (ii) evidence suggests
action could potentially
be beneficial, or (iii) a re-
port finding could be ad-
dressed in multiple ways.

Chapter 3: Virginia Small Business Financing Authority

businesses in need and may also enable staff to fully use microloan funds. To avoid
overly high exposure to tisk, VSBFA could review additional information to assess
startups’ likelihood of repayment. For example, Center for Innovative Technology
staff research the startup’s industry and the owners’ backgrounds. To further reduce
risk, VSBFA could first extend microloans to a small number of startups through a
pilot program and report the results of the pilot, including any delinquencies or de-
faults, to the VSBFA board after all the pilot loans end (maximum of four years).

POLICY OPTION 3

The Virginia Small Business Financing Authority could expand microloan program
eligibility to startup businesses through a pilot program for the purpose of assessing
the demand for, and viability of, offering such loans.

VSBFA lacks lending policies that set appropriate
risk standards and adequate loan oversight

An effective loan program requires sound and clearly defined risk management poli-
cies, an effective risk assessment tool to evaluate loan applications, and reliable loan
oversight. For public loan programs like those administered by VSBFA, risk manage-
ment policies should give programs the flexibility to extend loans to higher risk appli-
cants who are not able to qualify for loans in the private market. A program also needs
to be able to systematically assess the risk of each loan application. To mitigate the
tisk of loan defaults, outstanding loans should be monitored to ensure that proactive
steps can be taken to prevent or minimize repayment losses.

Lack of formal loan risk policies and risk assessment tool have
contributed to confusion and overly conservative loan decisions

The VSBFA board, leadership, and staff share a general understanding of the agency’s
mission and the factors that should be considered in assessing risk. However, VSBFA
lacks clear written policies or a defined risk tool for systematically assessing and ap-
proving loan applications.

Without standard definitions of acceptable risk to govern loan decisions, VSBFA has
tended toward caution, with a loan default rate closer to private banks than federal
financing programs. Nearly all of the businesses that received loans repaid their loan
in full between 2015 and 2020, and VSBFA lost only $619,000 through loan defaults
across all loans. In FY19, the loan programs lost 1 percent of the amount of active
loans. This rate is substantially below one federal benchmark and close to that of pri-
vate banks. The federal EDA sets a maximum loss threshold of 10 percent for the
loan program it funds with VSBFA and with other lenders. The average private bank
reports losses of 0.25 percent.

VSBFA’s comparatively few loan defaults or losses suggests that the authority could be
making loans to businesses with a higher default risk. Because of its mission to provide

Commission draft
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Chapter 3: Virginia Small Business Financing Authority

gap financing to businesses who may not be eligible for commercial loans, VSBFA
should be more risk tolerant than private banks. Four of five banks interviewed by
JLARC described VSBFA as too risk averse, which undermines the value of partnering
with VSBFA on higher risk loans. VSBFA staff cited several instances when they
deemed a loan sufficiently creditworthy, only to have the loans ultimately disapproved
by management for being too risky.

In addition to contributing to an overly risk averse approach, the lack of standard risk
policies also contributes to confusion by banks. One bank noted that “after several
unsuccessful attempts to partner, I just gave up on having the VSBFA as an option.”
Another wrote to VSBFA that:

"In the last couple of years I have referred three borrowers to your group, all of
which were declined due to poor credit quality ... The last deal we referred, you
declined because the credit quality was too good ... I am very confused about
your goals in helping small business.”

VSBFA also lacks a standardized risk assessment tool to collect information and assess
the potential risk of loan applicants. Staff analyze loan applications and sometimes
conduct additional research, but loan decisions are left to the subjective judgment of
the loan officers. According to one expert, “that is a problem...There are all sorts of
opportunities for bias to creep in.”

Without standard risk policies and an assessment tool, loan officers cannot predict
whether their loan application decisions will be approved or denied by management.
This unpredictability has contributed to low staff morale and made it harder to main-
tain good working relationships with banks.

Other state agencies and private banks use risk assessment policies and tools to stand-
ardize financing. For example, the Virginia Economic Development Partnership has a
tool to assess the risk of businesses that apply for economic development grants. The
Virginia Resources Authority has a tool to annually assess the risk of localities with
outstanding infrastructure loans. Most commercial banks, including some small Vir-
ginia banks, also use risk assessment tools to quantify applicants’ risk level and policies
to govern their decision-making. These policies and tools add consistency to approval
decisions, while retaining the flexibility to incorporate staff expertise and extenuating
circumstances.

VSBFA should better define its risk tolerance for loan programs through written risk
policies that govern lending decisions. Policies should articulate how much risk VSBFA
is willing to take to provide gap financing to businesses and circumstances where
providing financing would not fulfill this mission. Supplemental policies should also
be developed that specify the impact of other factors on loan decisions, such as the
number of jobs created or location in an economically distressed region.

These policies should be developed in conjunction with a designated risk assessment
tool. The tool should list the categories used to assess an individual business’s repay-
ment risk (e.g., cash to debt ratio, credit score) and result in an aggregate risk rating.

Commission draft
31
Chapter 3: Virginia Small Business Financing Authority

The risk assessment tool would likely include many of the same assessment categories
across VSBFA’s loan programs, but this tool should also contain additional categories
as needed for specific programs (such as adding an assessment of the business plan
for microloan startup applicants).

Given the VSBFA board’s role in the approval of loan applications, it needs to play an
active role in the development and approval of the risk policies and an assessment
tool. VSBFA could consider seeking outside expert assistance to select or develop its
tisk assessment policies and tool.

RECOMMENDATION 8

The Virginia Small Business Financing Authority should develop, submit to the Vir-
ginia Small Business Financing Authority Board for consideration and approval, and
then implement internal policies that will govern loan application decisions and estab-
lish an appropriate risk standard that adequately reflects the public mission of the
authority.

RECOMMENDATION 9

The Virginia Small Business Financing Authority should develop, submit to the Vir-
ginia Small Business Financing Authority Board for consideration and approval, and
then implement a risk assessment tool to calculate the potential risk of loan applicants.

Monitoring outstanding loans would help VSBFA prevent and prepare
for losses

As VSBFA sets lending standards and potentially provides riskier loans, the authority
needs to better monitor outstanding loans. VSBFA is not regularly monitoring out-
standing loans, which can help loan programs reduce the risk of financial loss, accord-
ing to the FDIC and a national association for economic development financing. Mon-
itoring consists of reviewing businesses’ repayment history and information about
their financial strength, such as financial statements, to identify and proactively help
struggling businesses. Loan administrators can take proactive actions such as reducing
the interest rate, connecting businesses to technical assistance, or preparing for default
by reassessing the value of collateral. Banks typically review outstanding loans on a
regular basis, focusing on loans above a certain size and with higher risk.

VSBFA regularly monitors businesses’ monthly repayments but does not currently
monitor the financial health of businesses with outstanding loans. Of the three direct
loan programs, VSBFA staff collect financial documents for outstanding loans in one
program, but do not use this information to identify problems that could adversely
affect businesses’ ability to make loan repayments. For the three loan support pro-
grams, VSBFA relies on banks’ monitoring of businesses but explicitly requires banks
to notify VSBFA of major adverse changes in borrowers’ conditions for only one of
these programs. Moving forward, more businesses will likely have difficulty making
loan payments because of the COVID-19 pandemic. Furthermore, the CARES Act is

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32
Chapter 3: Virginia Small Business Financing Authority

funding two new programs for VSBFA to administer. Therefore, the need for proac-
tive monitoring of outstanding loans is especially important now. VSBFA staff have
expressed concern with the current lack of monitoring of outstanding loans. One
noted that “we don’t know where our landmines in our portfolio are right now. That
concerns me.”

VSBFA should implement an outstanding loans monitoring process to proactively
identify loans with a significantly deteriorating likelihood of repayment. For direct
loans, VSBFA’s monitoring process could initially reflect the risk level assigned to loans
at approval, and loan officers could update risk levels based on the results of periodic
reviews of business health. For support loans, VSBFA should require banks to report
loans under specified circumstances, such as those identified by bank staff as finan-
cially deteriorating or repeatedly delinquent. The results should be provided to the
board regularly. Three members said they wanted to see more loan program perfor-
mance metrics. The Virginia Resources Authority has a monitoring process that
VSBFA could use as a model where staff annually rate outstanding loans as poor,
adequate, or strong (based on multiple subjective and quantitative factors) and report
the information to its board in summary form.

RECOMMENDATION 10

The Virginia Small Business Financing Authority should institute a process to conduct
a risk-based review of outstanding loans at least annually and report the results to the
Virginia Small Business Financing Authority Board.

RECOMMENDATION 11

The Virginia Small Business Financing Authority should add a requirement to formal
loan participation agreements with banks that banks report support loans with a high
tisk of default as soon as they are identified.

VSBFA does not monitor application processing
timeliness and loan decision patterns

Timely loan approval and fund disbursement can be critical for businesses. Equipment
purchases and order fulfillment can depend on the availability of capital, and appli-
cants may need to pursue funding from an alternative source if rejected by VSBFA.
Additionally, timely communication with banks is important for productive working
relationships.

Evidence suggests VSBFA’s approvals and fund disbursements are not always timely,
but insufficient data makes it difficult to calculate average loan processing times. Staff
record loan dates inconsistently, so the timing of application processing and fund dis-
bursement cannot be calculated. Businesses’ perceptions overall about the timeliness
of VSBFA’s decision are largely positive, but a few businesses that responded to a

Commission draft
33
Chapter 3: Virginia Small Business Financing Authority

JLARC survey reported that VSBFA’s decisions were not timely. Many loan applica-
tions wait a month for approval by VSBFA leadership, and half of loan disbursements
occur at least two months after approval, according to VSBFA staff. Delays can also
be caused by the need for larger projects to receive board approval. While two banks
were satisfied with VSBFA’s timeliness, one bank described multiple instances of not
receiving responses from staff about potential loans.

VSBFA should regularly report key metrics related to the timeliness of its processes
and application decisions. Key metrics should include the time it takes VSBFA to no-
tify applicants of a decision after receiving a complete application and the time be-
tween VSBFA’s application approval and disbursement of funds. Similar to SBSD’s
certification divisions, VSBFA should set timeliness goals and publish its performance
compared to the goals in the agency’s annual workplan document. VSBFA is currently
implementing new software that should enable regular tracking of performance, ac-
cording to management, but the software had not been implemented as of July 2020.

RECOMMENDATION 12

The Virginia Small Business Financing Authority should set a goal that establishes an
expected timeframe for processing loan applications and track and report how long it
takes to process each loan application and the proportion of applications meeting the
goal.

VSBFA board could use additional lending expertise

and should oversee loan program improvements

The VSBFA board is composed of nine members appointed by the governor and
confirmed by the General Assembly, as well as the state treasurer and SBSD director.
At each board meeting, members review staff recommendations for loan and bond
applications and make the final approval or denial decision through a vote. The board
conducts in-depth reviews of loans above $500,000 (for which its approval is required)
and abbreviated reviews of loans below that amount.

Board members were actively engaged in reviews of bond and loan applications during
board meetings observed by JLARC. The board is scheduled to meet monthly, but
almost half of its 2019 meetings (five of 12) and 2020 meetings (three of eight prior
to September) were cancelled. As COVID-19 emerged, the board switched to virtual
meetings. The board affirmed staff recommendations for all loans reviewed during
2019 meetings, but members asked detailed questions of staff and business applicants.
For example, board members asked about business challenges or projected job reten-
tion rates cited in the application materials. The board sometimes imposes conditions
on approved loans, such as requiring a business needing better financial recordkeeping
to contract with an accountant.

All board members currently possess relevant small business experience as required in
the Code of Virginia but could use additional lending expertise to help review loan

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34
Chapter 3: Virginia Small Business Financing Authority

applications. The ability to interpret financial information, such as balance sheets and
tax records, is crucial for the board’s ability to assess the repayment risk of a business.
According to one member, most members feel uncomfortable considering the credit-
worthiness of applications because of lack of related expertise. Requiring the majority
(at least five) of board members to have loan expertise would be prudent and would
mote closely align VSBFA’s board with another state board that supports businesses
(sidebar). Five out of nine board members currently have some lending experience,
but statutory requirements do not require board members to have loan expertise.

RECOMMENDATION 13

The General Assembly may wish to consider requiring the majority of citizen mem-
bers of the Virginia Small Business Financing Authority Board to possess small busi-
ness lending experience.

Finally, making the needed improvements at VSBFA and accommodating the addi-
tional funding being allocated to help small businesses during the COVID-19 pan-
demic will be challenging. The scope and scale of improvements recommended in this
chapter represent substantial changes. These improvements are even more essential
because of VSBFA’s new role to implement the state’s COVID grant program (“Re-
build VA”) and a new COVID loan program. In August 2020, VSBFA began reviewing
applications for grants of up to $10,000 for up to 7,070 eligible businesses (for a total
of $70.7 million). Also in August 2020, the federal EDA provided $10.2 million for
VSBFA to implement a new COVID loan program. As of early September, VSBFA
was developing eligibility and loan size requirements for this new loan program.

VSBFA should develop an improvement plan to effectively address key deficiencies
outlined in this chapter. This plan should address low fund utilization, lack of loan
approval policies, lack of a risk tool, and lack of tracking, monitoring, and reporting.
The plan should identify the sequence of the needed improvements and set reasonable
timeframes in which the improvements can be made. The plan should be submitted
to the VSBFA board, the General Assembly, and the secretary of commerce and trade.
VSBFA should report quarterly to the VSBFA board on progress in meeting key mile-
stones until the improvements have been fully implemented.

RECOMMENDATION 14

The Virginia Small Business Financing Authority (VSBFA) should develop a program
improvement plan that addresses deficiencies, including low fund utilization; lack of
loan approval policies; absence of a risk tool for loans; and lack of monitoring, track-
ing, and reporting on loans and fund utilization. The plan should be presented to the
VSBFA board and transmitted to the House Appropriations and Senate Finance and
Appropriations committees, and the secretary of commerce and trade no later than
June 30, 2021.

The Virginia Innovation
Partnership Authority,
the oversight board for
the Center for Innovative
Technology (CIT), re-
quires citizen board
members to have spe-
cialized expertise. For ex-
ample, two members
must be partners in ven-
ture capital funds, two
members must have ex-
perience acquiring or
commercializing intellec-
tual property, and two
members need experi-
ence in entrepreneurial
development. CIT staff
report that this require-
ment helps ensure that
board members provide
informed oversight.

Commission draft
35
Chapter 3: Virginia Small Business Financing Authority

Commission draft
36
A SWaM Goal and Plans

Through Executive Order 35 (2019), the governor set a goal for the state to award at
least 42 percent of discretionary procurement spending to certified small businesses,
including those that are women- and minority-owned. The executive order directs
spending to exceed the 42 percent goal. While SBSD does not set the SWaM goal,
SBSD works with agencies to help them achieve the goal. Each agency is required to
submit a SWaM plan to SBSD each year describing how much it will spend with nine
different categories of businesses (sidebar) and the types of activities the agency un-
dertakes to meet the goal (Figure 4-1). Agencies designate one or more staff members
to serve as “SWaM Equity Champions.” These individuals are responsible for the
agency’s SWaM program and are typically members of agency procurement staff.

SBSD tracks each agency’s spending toward the SWaM goal through a spending dash-
board. SBSD also works through each secretary and the governor’s office to meet with
agency heads and other staff to emphasize the importance of achieving the goal. For
example, SBSD hosts meetings with different groups of agencies each month to dis-
cuss SWaM spending. There are no penalties for agencies that do not meet the goal,
though agencies that fall short are reported to the administration and periodically dis-
cussed in cabinet meetings.

FIGURE 4-1
The governor, agencies, and SBSD play a role in state’s SWaM initiatives

Governor’s
42% SWaM
procurement

goal

SBSD tracks SWaM
spending via dashboard

Agencies develop SWaM
procurement plans

SBSD collects agency
SWaM plans

SOURCE: JLARC analysis of Executive Order 35 (2019) and § 2.2-4310 of the Code of Virginia.

Commission draft
37

Categories of businesses
in agency SWaM plans
include: (1) small, (2) mi-
cro, (3) women-owned,
(4) minority-owned, (5)
service-disabled veteran,
(6) employment service
organization, (7) federal
8a, (8) federal service dis-
abled veteran, and (9)
economically disadvan-
taged women-owned
business.
Setting realistic goals is
considered a best prac-
tice for supplier diver-
sity programs. CVM So-
lutions (a supplier
diversity data, software,
and management solu-
tions firm) states that
goals should be “specific,
measurable, and achieva-
ble... if key stakeholders
in your program's success
view the goals as
unachievable, your pro-
gram will likely lose inter-
nal support.”

Chapter 4: SWaM Goal and Plans

The state has implemented several policies, such as agency SWaM plans, to try to in-
crease SWaM procurement and meet the 42 percent goal. In addition to this goal, the
state has procurement preferences for small and micro-certified businesses. These set-
asides require agencies to make small purchases from small and micro businesses. (See
Chapter 5 for JLARC’s analysis of the small business definition.)

SWaM program has benefits, but procurement goal
is challenging for many agencies to achieve

The Code of Virginia directs state agencies to establish programs to procure goods
and services through SWaM-certified businesses in accordance with the governor's re-
quirements, though the code does not set specific SWaM goals or percentages. Previ-
ous governors and Governor Northam have signed executive orders that establish
specific SWaM spending goals for agencies to achieve. The state has had a SWaM
spending goal since at least 2004, when a goal of 40 percent was established. Governor
McAuliffe raised the goal to 42 percent in 2014 and Governor Northam has kept it at
42 percent.

42 percent goal not based on analysis of achievable spending with
SWaM businesses, and executive branch has not reached goal

The 42 percent SWaM procurement goal does not appear to be based on an analysis
of a reasonably achievable level of SWaM expenditures by agency. In addition, it is
above Virginia’s highest recorded level of SWaM spending (39 percent) in the last dec-
ade. A lack of analysis could lead to an unrealistic goal, which may have some adverse
impact on agencies’ commitment to trying to meet it (sidebar). Many agencies ex-
pressed confusion about the rationale for the 42 percent goal and how it applies spe-
cifically to their agency. Nearly 40 percent of agencies reported it was not clear to them
why the goal was set at 42 percent.

Despite the substantial state efforts to promote procurement with SWaM businesses,
the executive branch has not met the governor’s SWaM spending goal in the last decade
(though agencies came close in FY11, FY15, and FY16). During the last 10 fiscal years,
spending with SWaM businesses fluctuated between 31 and 39 percent (Figure 4-2).
In FY19, agencies in aggregate made 34 percent of their discretionary expenditures
with certified SWaM businesses. (Agencies’ discretionary spending with SWaM busi-
nesses decreased to 33 percent in FY20, but this decline may be at least partially at-
tributable to the COVID-19 pandemic.)

Commission draft
38
Chapter 4: SWaM Goal and Plans

FIGURE 4-2
Executive branch SWaM spending has varied from 31 to 39 percent (FY11-FY20)

100%
90
80
70
60
50
40
30

Governor’s goal

26 Agency procurements from
10 certified SwaM businesses

0

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

SOURCE: JLARC analysis of data from the Commonwealth Spend Report and SWaM spending dashboard.

Agencies’ abilities to meet the state’s SWaM goal vary, and the
majority report difficulty achieving the goal

Each agency’s SWaM procurement spending varies widely. In 2019, agencies’ SWaM
expenditures varied from 4 percent to 87 percent of their discretionary expenditures.
Moreover, the majority (60 percent) of agencies fell short of the 42 percent goal in
FY19, including several of the state’s largest purchasers (e.g., Virginia Department of
Transportation, Virginia Tech, University of Virginia, Virginia Information Technol-
ogies Agency, and Department of Corrections). More than half (56 percent) of agen-
cies expressed difficulty in achieving the 42 percent goal (Figure 4-3). This includes
one-third that reported it was extremely or very difficult.

There are two primary factors why agencies’ percentages of SWaM procurement
spending vary so significantly and why some agencies have more difficulty meeting the
42 percent goal than others. First and foremost, agencies purchase a variety of goods
and services, some of which may not be offered by SWaM-certified businesses. Some
agencies primarily purchase goods or services that ate readily available from SWaM-
certified businesses. Other agencies purchase a large portion of goods or services in
industries that have few certified SWaM businesses. For example, several higher edu-
cation institutions have large contracts for specialized research materials and out-
sourced dining services. Some state agencies dedicate a large portion of spending to
contracts for specific computer systems or consulting services. These procurement
needs may make it impossible for certain higher education institutions (especially larger
research institutions) and agencies to meet the 42 percent goal. Agencies can work
with large vendors to subcontract to small businesses to increase their percentage of
SWaM spending, but this is not possible for all types of purchases.

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39
Chapter 4: SWaM Goal and Plans

FIGURE 4-3
SWaM purchasing varies widely across state agencies, with the majority unable
to meet the 42 percent goal (FY19)

100%
90
80
70
60

2 Governor's goal = 42% | Met goa!

0
State agencies

Agency survey responses i 56% 1

Agency achievement of 42% goal, overall, fsx | 20% | 23% | 35% 10%

for SWaM procurements?
Extremely Very cape Somewhat Not
difficult difficult Difficult difficult difficult

SOURCE: JLARC analysis of data from the Commonwealth Spend Report (FY19). JLARC survey of state agency SWaM
champion (2020).

In addition, the number and size of agency procurements vary each year, which can
affect an agency’s opportunity to procure goods or services from SWaM businesses in
a given year. For example, an agency with no large procurements in a particular year
and only small ongoing purchases may be able to allocate a high percentage of its
procurement spending to SWaM businesses with a small or micro certification through
the set-aside program. In contrast, an agency with a large upcoming procurement that
cannot be fulfilled by a SWaM-certified business may only be able to direct a low per-
centage of procurement spending to these businesses.

To address the challenges that some agencies face in meeting the goal, the governor
could consider implementing SWaM spending goals for individual agencies that are
mote realistic for them to achieve. Two main considerations to set more realistic SWaM
goals for each agency could be: the extent that certified SWaM businesses provide the
types of goods or services they procure and the variability in procurement needs, in-
cluding known upcoming procurements. Developing agency-specific SWaM goals that
take into account these considerations would be a substantial administrative undertak-
ing. However, it is likely the only way for many agencies currently unable to achieve
the 42 percent goal to have a realistic SWaM procurement goal.

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40
Chapter 4: SWaM Goal and Plans

POLICY OPTION 4

The governor could direct each state agency to set ambitious, but achievable, SWaM
procurement spending goals that account for (i) the availability of certified SWaM
businesses to provide the goods and services the agency procures and (it) the agency’s
ongoing and upcoming new procurements.

Executive branch spending with SWaM-certified businesses is
substantial and benefits certified businesses

While the executive branch has not met the governor’s SWaM procurement goal, state
spending with SWaM certified businesses is substantial and has increased in recent
years. Agencies procured more than $2 billion in goods and services through SWaM-
certified businesses in FY19. This represented about one-third of applicable state pro-
curement spending included in the eVA system (Virginia’s online procurement system)
and has increased by about 15 percent during the last five years.

Businesses report that SWaM certification helps them win contracts, and this was
confirmed by JLARC analysis (sidebar). More than 70 percent of SWaM-certified
businesses responding to a JLARC survey said certification helped them secure state
contracts or other contracts. Similarly, a longitudinal quantitative analysis found that
median sales per business were roughly 20 percent higher after SWaM certification.
The positive effect is largest for businesses with lower levels of sales ($4,000 or less
per quarter).

Businesses also reported nonmonetary benefits from certification. Many businesses
reported that SWaM certification improved their image and marketing opportunities.
Over two-thirds of newly SWaM-certified businesses said they would pursue
recertification.

Outside of the state procurement process, though, JLARC found no evidence that
SWaM certification leads to business growth. JLARC analysis found no evidence that
SWaM-certified businsses had more employees after becoming SWaM certified. There
was also no evidence that these businesses paid more in total wages (a proxy for
revenue). This may be because, for many businesses, state procurement contracts
represent a comparatively small percentage of their total business. For example, for
SWaM certified businesses that sold to the state over the last decade, sales to the state
equated to only 6 percent of the business’s total wages paid.

SBSD should give agencies more assistance to
identify and implement effective SWaM strategies

Regardless of whether each agency’s SWaM procurement goal remains at 42 percent,
agencies need to identify and implement workable strategies to maintain or increase
spending with SWaM businesses. Ideally, agencies’ SWaM plans would detail these

Commission draft
Al

Policy options for con-
sideration. Staff typically
propose policy options
rather than make recom-
mendations when (i) the
action is a policy judg-
ment best made by
elected officials—espe-
cially the General Assem-
bly, (ii) evidence suggests
action could potentially
be beneficial, or (iii) a re-
port finding could be ad-
dressed in multiple ways.

JLARC analyzed whether
preferences have an
effect on business
growth. JLARC obtained
data about businesses
from SBSD, the Depart-
ment of General Services,
and the Virginia Employ-
ment Commission. Staff
combined this data by
business identifier to con-
duct longitudinal and
comparative analyses.

See Appendix B for more
detail on these analyses.
Chapter 4: SWaM Goal and Plans

strategies to increase their spending with SWaM-certified businesses and make pro-
gress toward their goal. Moreover, agencies that are especially effective might be able
to raise their goals over time.

SBSD is fulfilling its minimally required role in the SWaM plan process

SBSD’s role in the SWaM plan process is relatively narrow. The Code of Virginia grants
the governor authority to set a SWaM spending goal and requires each agency to de-
velop a plan to meet the governor’s goal (but does not specify the contents or format
of the plan). The Code directs each agency to submit its plan to SBSD but gives no
further authority or direction to SBSD regarding what to do with those plans. Execu-
tive Order 35 provides more direction to agencies about their SWaM plans and directs
SBSD to provide training to agency heads and procurement staff related to “equity in
procurement.”

SBSD fulfills these responsibilities related to the SWaM plans and training. SBSD de-
veloped a template for agencies’ annual SWaM plans and collects completed plans and
spending data each year. SBSD maintains the state’s interactive SWaM Dashboard web-
site, which tracks spending with SWaM-certified businesses over time. SBSD also holds
periodic meetings with groups of agencies to share information about SWaM procure-
ment and provides training to agency SWaM representatives. For example, SBSD in-
structs agency staff on SWaM requirements and how to use the SWaM Dashboard to
track their SWaM expenditures.

SWaM planning process should be more meaningful by focusing on
effective strategies and more substantive role for SBSD

As required, SBSD collects agency SWaM plans but does not regularly review or pro-
vide feedback on them. SBSD has one staff person who helps agencies submit their
SWaM expenditures and monitors agency progress toward meeting the goals. How-
ever, the agency does not have a dedicated full-time staff position to review SWaM
plans. Consequently, none of the agencies that responded to a JLARC survey reported
receiving feedback from SBSD on their SWaM plan. One agency said: “TI have never
gotten comments from any administration. You just send it in and get a confirmation
it is received... I don’t know if anyone really reads them.”

Moreover, many agencies do not find the SWaM plans helpful or influential on their
procurement activities. Less than half of state agencies that responded to a JLARC
survey (41 percent) said the SWaM plan was helpful. The majority of agencies ex-
pressed either no opinion (42 percent) or disagreed (17 percent) that the plan helped
them maintain or increase their SWaM expenditures. This may be partially explained
by the SWaM plan template, which requires providing mostly descriptive information
and focuses on prior activities and accomplishments rather than specific strategies to
encourage SWaM procurement in upcoming years. Many agencies (59 percent) also
reported spending more time on their SWaM plans in recent years.

Commission draft
42
Chapter 4: SWaM Goal and Plans

A more meaningful SWaM planning process should be developed and implemented,
which focuses more on strategies agencies can use to improve SWaM spending and
has a more substantive role for SBSD. Current SWaM planning requirements are con-
tained in Executive Order 35 (2019), which would need to be revised.

To improve the written SWaM plans, the template should focus more on strategies
agencies will implement to procure goods and services from SWaM businesses and
meet their SWaM goals. For example, an agency could try to identify certified busi-
nesses they have not purchased from previously or uncertified business that provide
the goods and services they need. These businesses could then be targeted through
specific outreach and marketing activities. Strategies should reflect an agency’s ongoing
and known upcoming procurements.

The SWaM plan could be made less burdensome for agencies by removing certain
requirements or requiring the plan to be submitted less often. Descriptive information
currently collected through the plan—particularly information on past activities—
could be removed. Strategies for meeting SWaM goals may not change significantly
each year (especially if there are no new upcoming procurements); therefore, agencies
could be required to submit SWaM plans to SBSD less frequently, such as every two
or three years.

SBSD could have more substantive interactions with agencies by reviewing their
SWaM plans and providing specific feedback on their proposed strategies for SWaM
spending. This feedback would include suggesting strategies that may be more effec-
tive or changing strategies that have not been effective. SBSD staff could also meet
with agencies one-on-one to discuss their SWaM goals and strategies and advise them
on effective strategies, which several agencies said would be beneficial.

To inform discussion of effective strategies, SBSD staff should research and compile
information agencies can use to increase SWaM spending and develop guidance on
how agencies can implement these strategies. California provides agencies with best
practices for the implementation of its small business and disabled veteran procure-
ment program (sidebar).

RECOMMENDATION 15

The governor should revise Executive Order 35 to direct the Department of Small
Business and Supplier Diversity (SBSD) to develop and implement a more meaningful
SWaM plan development and review process focusing on strategies and substantive
SBSD feedback to agency staff.

California has compiled

best practices to support

the inclusion of small

businesses and disabled

veteran-owned busi-

nesses in state procure-

ment. The best practices

are for several catego-

ries, including:

e Bids/contracts

e Executive/management
support

e Business outreach

° Training

RECOMMENDATION 16

The Department of Small Business and Supplier Diversity should develop and main-
tain information about effective strategies agencies can use to increase their SWaM
expenditures and provide agencies with guidance on how to implement the strategies.

Commission draft
43
Chapter 4: SWaM Goal and Plans

Current SBSD staff can begin developing effective strategies to help agencies increase
SWaM spending. SBSD may, though, need to hire additional staff to provide agencies
with one-on-one assistance and feedback on their SWaM plans as funding becomes
available. SBSD was scheduled to receive funding for three new business assistance
staff positions and one data analyst that could have helped improve the SWaM plan-
ning process. Funding for these positions was removed from the budget in August
2020.

Commission draft
44
5 Virginia's Small Business Definition

As noted in Chapter 1, the state has a longstanding policy to give preference to busi-
nesses defined as small or micro when awarding state contracts. The last several gov-
ernors have issued executive orders supporting small businesses. The current Execu-
tive Order 35 (2019) requires procurements under certain amounts to be “set aside”
for small and micro businesses that are certified by the Department of Small Business
and Supplier Diversity (SBSD). Businesses are eligible for these preferences if they
meet the state’s small or micro size requirements (Figure 5-1).

FIGURE 5-1
Certified small or micro businesses can benefit from procurement “set asides”

Procurement preferences
for SBSD certified businesses

Types of certified businesses
that sell to state agencies

x ; Mandatory set aside
Small business
ak 7 $ 250 employees or < $100K or $80K
$$$ $ $10M gross receipts
*, Micro business — a des tory set aside

< 25 employees and

$ < $3M gross receipts

Discretionary, but encouraged

- Included in procurement criteria
- Prime contractors to develop

—~ SWaM plans

Women-owned

SOURCE: JLARC analysis of § 2.2-4310 and §2.2-1604 of the Code of Virginia and Executive Order 35 (2019).

NOTE: The state’s definition for "small business” is established in § 2.2-4310 and §2.2-1604 of the Code of Virginia.
The state’s definition for “micro business,” as well as the small and micro procurement preferences, are established
in Executive Order 35 (2019). Businesses are required to submit a small business subcontracting plan for all pur-
chases above $100,000. Several other types of certified businesses sell to state agencies but are not included in
the figure (e.g., disadvantaged business enterprises).

State procurement set-asides have included only small/micro businesses because un-
der current law the state may not have race- and gender-specific procurement prefer-
ences (sidebar). The current legal standard, which has been established through court
opinions, requires states to have conclusive evidence that minority and women-owned
businesses have faced discrimination in contracting to include them in procurement

Commission draft
45

Court cases that set
standards for race- and
gender-specific procure-
ment preferences
include: Richmond v.
Croson (1983, U.S. Su-
preme Court) and Coral
Construction V. King
County (1991, Ninth Cir-
cuit). Croson established
that race-conscience pro-
grams need firm evidence
of past discrimination,
and Coral Construction
set a similar standard for
gender-specific pro-
grams. (Many additional
cases have shaped the le-
gal history of this topic.)
Vast majority of Virginia
businesses would be
considered small under
Virginia's definition.
Nearly all (99 percent)
Virginia businesses meet
the employment thresh-
old, and 98 percent might
qualify under the revenue
threshold (using total
wages as a proxy for
gross receipts because of
data limitations).

See Appendix B for more
information.

Chapter 5: Virginia's Small Business Definition

preferences. Virginia previously conducted two assessments (referred to as “disparity
studies”) of women- and minority-owned business participation in state contracting
in 2002 and 2009. The assessments found that only a small portion of state contracts
are awatded to women- and minority-owned businesses, but neither study found the
necessary evidence of discrimination to create race- or gender-specific procurement
preferences.

SBSD hired a consultant to conduct a new disparity study that is scheduled to be com-
pleted in late 2020. If this study finds substantial disparities in opportunities for
women and minority-owned business, the state would have the ability to provide pref-
erences specifically for these businesses.

Substantial number of procurements are set aside
for small/micro businesses, many of which are very
small

A substantial amount of the state’s procurements go to small or micro businesses.
Executive Order 35 requires agencies to use a micro business for purchases up to
$10,000 and a small business for most purchases up to $100,000, unless there are no
small or micro certified businesses that meet the purchase requirements. The vast ma-
jority of state purchases are small and fall within the set-aside parameters for micro
businesses (87 percent) or small businesses (7 percent). Because large contracts fall
outside the parameters of the set-aside program, only about 16 percent of state pro-
curement spending occurs through these set-asides.

Much of the state’s procurement activity is with small businesses that are much smaller
than the maximum size allowed under Virginia’s small business definition. For exam-
ple, 50 percent of all certified small businesses employed 14 people or fewer, and re-
ported $3.2 million or less in annual gross receipts (Figure 5-2). Seventy five percent
employed 38 people or fewer and reported $7.1M or less in gross receipts. In fact,
more than half (58 percent) of all the state’s certified small businesses were actually
micro businesses with a maximum of 25 employees and $3 million in annual gross
receipts.

Virginia businesses more broadly (including non-certified businesses) are also relatively
small, according to data collected by the Virginia Employment Commission. Conse-
quently, the vast majority of businesses in the state would meet Virginia’s small busi-
ness definition based on the employment and revenue requirements (sidebar).

Commission draft
46
Chapter 5: Virginia’s Small Business Definition

FIGURE 5-2
Most certified businesses are well below the maximum size thresholds in
state’s small business definition

Employment 1S to 38

3to14

1to2 39 to 115

115+ Employees

Businesses
First 5% 6% to 26% to 51% to 76% to Last 5%
25% 50% 75% 95%
Percentiles
Gross receipts $713.3K $3.3M

to $3.2M to $7.1M

$7.2M to
$25.4M

$31.4K to
$713.2K

$31.3K

or less $25.4M +

Businesses

First 5% 6% to 26% to 51% to 76% to Last 5%
25% 50% 75% 95%
Percentiles

SOURCE: JLARC analysis of SBSD data on certified small businesses (as of April 2020).
NOTE: Categories may not sum due to rounding for graphical simplicity.

State could change small business definition but
should consider potential impacts

The size at which a business is defined as “small” is ultimately a policy judgment for
the General Assembly. This is underscored by the wide variation in how other states
define small business. JLARC found that at least 25 other states have a small business
definition. Though nearly all use measures of employment and revenue (as does Vir-
ginia), other states vary substantially in the number of employees and amount of rev-

Commission draft
47
Chapter 5: Virginia’s Small Business Definition

enue they use to define a business as small (see Appendix F for comparisons of Vir-
ginia’s definition to other states and additional information about small business defi-
nitions.)

The remainder of this chapter presents a series of policy options for consideration if
the General Assembly wishes to change the current small business definition. Each
option includes a description of the potential impact on certified businesses, agencies’
procurement activity, and SBSD’s administration of the small business certification
program.

State could change definition to exclude comparatively larger
businesses from obtaining certification

Though many certified businesses are very small, some certified businesses generate
substantially more gross receipts than most other certified businesses. Of the nearly
10,500 SBSD-certified small businesses, 610 businesses exceeded the gross receipts
threshold but still were below the employment threshold (which is allowable because
small businesses must have 250 or fewer employees OR $10 million or less in gross
receipts).

Some of these businesses far exceed the $10 million threshold for gross receipts. The
top 5 percent of certified small businesses exceeded $25 million in annual gross tre-
ceipts—two-and-a-half times the revenue threshold of $10 million. One certified
small business reported $397 million in annual gross receipts. Comparatively fewer
businesses (12 business) exceeded the employment threshold.

Smaller businesses have asserted that it is unfair to be considered in the same size
category as businesses that are much larger. Businesses in the smallest 25 percent of
certified businesses (two or fewer employees and $713,200 or less in gross receipts)
likely experience more difficulty competing for state contracts than businesses in the
largest 5 percent of certified small businesses (115 or more employees and $25 million
or more in gross receipts). One business commented to JLARC that “the small {defi-
nition] for number of employees...makes it very difficult for us to compete with the
larger companies even though they are classified small.”

If the General Assembly wants to narrow the small business definition, one approach
would be requiring businesses to meet both the employee and revenue thresholds or
lowering both thresholds. JLARC staff have presented two policy options for state
legislators to consider that are more restrictive than the current small business defini-
tion. These options would narrow the definition to different degrees and have varying
impacts on the state’s ability to procure services through the set-aside program. Both
options would have a relatively low administrative and fiscal impact on SBSD’s certifi-
cation operations.

Commission draft
48
Chapter 5: Virginia’s Small Business Definition

Requiring small businesses to be under both the employment and gross receipts
maximums would exclude comparatively large businesses

The least complex option is to require a business to be no larger than both the em-
ployment AND gross receipts maximum thresholds. This approach was proposed
through HB 1134 during the 2020 General Assembly session (sidebar). Several other
states require businesses to meet both employee and revenue thresholds, including
Pennsylvania and Delaware. Changing Virginia’s definition to require businesses to
meet both thresholds would reduce the number of certified small businesses by 6 per-
cent, making an estimated 622 currently certified businesses ineligible for small busi-
ness certification. These are primarily businesses that exceed the gross receipts thresh-
old but still fall below the employment threshold. More than one-third of the
businesses (220 businesses) that would no longer qualify as small are in construction-
related industries. While potentially disruptive for individual businesses, the procure-
ment spending could potentially be shifted to other businesses. Agencies could likely
also (at least in the near term) end up purchasing fewer of their goods and services
from certified businesses.

Some of the businesses excluded under this option are women-owned or minority-
owned. About one-quarter of the businesses (140 businesses) excluded through this
option are businesses currently certified as women-owned and/or minority-owned.
While these businesses could still be certified as women- or minority-owned, they
would be removed from the pool of businesses that agencies could use for the set-
aside program.

This option would exclude several businesses on the margin that are just above the
definition threshold (which also occurs with the current definition). For example, one
currently certified business has 255 employees and $3.4 million in gross receipts. An-
other business has five employees and $10.1 million in gross receipts. Both of these
businesses would not be eligible for small business certification under this option.

SBSD could implement this approach with minimal administrative burden and no ad-
ditional funding (Table 5-1), especially if this change would apply only to new or recer-
tified businesses. Applying this change to all existing businesses as of a certain date
would require a one-time effort by SBSD certification staff to review current certifi-
cations and communicate with affected businesses. SBSD would need to implement
minor updates to the certification portal to reflect the new definition.

POLICY OPTION 5

The General Assembly could amend §2.2-4310 and §2.2-1604 of the Code of Virginia
to change the small business definition to businesses that have no more than 250 em-
ployees and gross receipts of no more than $10 million.

HB 1134 (2020)

proposed requiring small
businesses to have 250 or
fewer employees AND
$10M or less in annual
gross receipts.

Policy options for con-
sideration. Staff typically
propose policy options
rather than make recom-
mendations when (i) the
action is a policy judg-
ment best made by
elected officials—espe-
cially the General Assem-
bly, (ii) evidence suggests
action could potentially
be beneficial, or (iii) a re-
port finding could be ad-
dressed in multiple ways.

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Chapter 5: Virginia's Small Business Definition

Lowering current employee and gross receipts thresholds for small businesses
would exclude comparatively large businesses

The General Assembly could exclude comparatively large businesses from small busi-
ness certification by reducing the current employee and gross receipts thresholds. Ul-
timately, it is difficult to objectively determine the maximum employment and revenue
thresholds that should be used to define the state’s small businesses. States’ small busi-
ness definitions vary widely (see Appendix F), and there is no broadly established
standard for what constitutes a small business or established methodology for devel-
oping a definition. Consequently, developing a new definition will inevitably involve
an element of subjectivity along with any analytical framework used.

The lower employment and revenues thresholds are set, the greater the number of
currently certified businesses that would be excluded. For example, the state could
adopt employee and gross receipts thresholds that reflect 75 percent of currently certi-
fied businesses. Presently, 75 percent of certified small businesses have 38 or fewer
employees and $7.1 million or less in gross receipts. Lowering the small business def-
inition to reflect these thresholds would remove 13 percent (1,329) of currently certi-
fied businesses. Construction-related industries would be the most heavily affected
because these businesses make up approximately 31 percent of the businesses (410
businesses) that would no longer qualify as small. About one-third of the businesses
(456 businesses) that would be removed are currently certified as women-owned
and/or minority-owned and would no longer be part of the pool of businesses that
agencies could use for the set-aside program.

Alternatively, if the state wished to exclude fewer businesses, it could adopt employee
and gross receipts thresholds that reflect 95 percent of currently certified businesses.
Presently, 95 percent of certified small businesses have 115 or fewer employees and
$25.4 million or less in gross receipts. Lowering the small business definition to reflect
these thresholds would remove 3 percent (306) of currently certified businesses.

Ultimately, any modification to the current threshold should reflect how much the
state wishes to narrow the current definition. (See Appendix F for more information
on potential business size thresholds.) Narrowing it should put smaller businesses in a
stronger position to compete for state business. However, lower thresholds could
make it more challenging for state agencies to procure needed goods and services
through the SWaM program or to find businesses that meet set-aside requirements.
For example, at least 674 currently certified small businesses that won state procure-
ments since the beginning of 2019 would no longer be eligible for certification if def-
inition thresholds were set at 38 employees and $7.1 million in gross receipts. Some
spending could temporarily be shifted to larger businesses in the near term though
reallocation to new small businesses could potentially occur over the long term.

Regardless of the thresholds used, SBSD could implement this approach with rela-
tively minimal administrative burden and no, or relatively little, additional cost (Table
5-1). However, the effect on SBSD operations would depend on how quickly the new

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50
Chapter 5: Virginia’s Small Business Definition

requirements were implemented and how many businesses are affected. Phasing in the
new thresholds over time as new businesses are certified would require comparatively
little administrative effort. If currently certified businesses were removed at the same
time, SBSD would likely need to temporarily hire additional staff to help decertify
businesses. SBSD would need to implement minor updates to the certification portal
to reflect the new definition.

POLICY OPTION 6

The General Assembly could amend §2.2-4310 and §2.2-1604 of the Code of Virginia
to change the small business definition by reducing the number of employees and
gross receipts that a business may have to qualify as a small business.

TABLE 5-1
Impact of options to reduce “outlier” businesses based on size

Certified SBSD

businesses operations impact

removed Administrative Fiscal #
Require small businesses to meet both the -622 Lo $0
employment AND gross receipts maximums (-6%) w
Lower employee and gross receipts 4,329 $0 to $50K
thresholds for small businesses (-13%) Low fcnertints)
(75" percentile) © ‘

ipt.
Lower employee and gross receipts 306 $0 to $50K
thresholds for small businesses Low .
(-3%) (one time)

SOURCE: JLARC analysis of SBSD data on certified small businesses (as of April 2020) and fiscal impact statements.
NOTE: 2 Table reflects potential! fiscal impact to SBSD, but there may also be fiscal impacts to the Department of
General Services, Department of Accounts, and other entities depending on how changes to the definition are
structured. » Reflects reduction of current definition to the 75" and 95" percentiles for illustrative purposes, but
sizes could be reduced to different thresholds.

State could develop and adopt size thresholds based on industry

The size of Virginia businesses varies significantly based on industry, according to data
on Virginia’s businesses. Although Virginia businesses have a median of 14 employees,
there can be substantial differences in business size within and across industries (Table
5-2). For example, construction businesses report having between one and more than
8,100 employees. In contrast, florists report having between one and 135 employees.
This means that all florists would qualify as a small business, but many construction
businesses would not. Similarly, a construction business may employ hundreds of peo-
ple and still be comparatively small in its industry, while a data processing company of
the same size may be among the largest in that industry.

Commission draft
51
Industries vs. goods and
services procured.
Adopting definitions for
the hundreds of indus-
tries defined by SBA
would in many cases have
little practical effect be-
cause the state does not
procure any goods or ser-
vices from certain indus-
tries. Understanding how
this would play out,
though, is complicated by
the fact that currently
agencies only categorize
the goods or services
they procure by the Na-
tional Institute of Govern-
ment Purchases codes.
These codes do not
cleanly align with the na-
tional industry codes, pri-
marily because busi-
nesses often sell many
types of goods and ser-
vices.

Chapter 5: Virginia's Small Business Definition

TABLE 5-2
Number of employees can vary substantially by Virginia industry

Minimum Median Maximum
Construction (highway, street, & bridge) 1 15 8,106
Management consulting services 1 2 6,006
Data processing and hosting 1 2 1,535
Florist 1 4 135

SOURCE: JLARC analysis of Virginia Employment Commission data (2019).
NOTE: Employee data reflects fourth quarter of 2019. Data excludes part-time employees. Employee counts may
be low if businesses misclassify employees an exclude them from full-time employee counts.

To compensate for the variation in employment among industries, the federal govern-
ment and several other states vary their small business definition thresholds by indus-
try. In contrast, Virginia’s small business definition applies equally to all businesses
regardless of their industry. A one-size-fits-all approach “is inappropriate to define the
small business segment of each and every industry,’ according to the U.S. Small Busi-
ness Administration (SBA). Consequently, the SBA has developed more than 1,000
individual industry-specific definitions based on employment levels or gross receipts.
Depending on the industry, allowable employment levels range from 100 to 1,500 em-
ployees, and allowable gross receipts ranged from $1 million to $41.5 million.

However, simply adopting SBA’s small business definitions may not have the desired
effect in Virginia. The vast majority of SBA’s industry-specific size definitions allow
more employees and gross receipts than Virginia’s current definition. Under the SBA’s
definitions, 75 percent of the industries (778 industries) have employment or gross
receipts maximums above Virginia’s current definition. Applying these standards to
Virginia businesses would allow substantially more businesses to qualify as small. SBA’s
definitions have high thresholds because national and global businesses compete for
federal contracts and are included in the dataset SBA uses to set its employment and
gross receipts thresholds.

Adopting SBA’s industry-specific definitions and replacing state certifications with fed-
eral small business certifications could also be challenging. Multiple federal certifica-
tions have a small business requirement and use the SBA’s definitions (e.g., 8(a) certi-
fication, women-owned small business certification, service-disabled veteran-owned
small business certification). However, federal certifications also have ownership cri-
teria, some of which are not race or gender neutral. Accepting federal certifications
could raise the same legal issues that Virginia’s ongoing disparity study is reviewing.

JLARC staff have identified three options that use industry-specific size standards but
address these concerns. These options would replace Virginia’s one-size-fits-all defini-
tion with thresholds that vary among industries (sidebar). They would have varying
impacts on the state’s ability to procure services through the set-aside program. Each

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52
Chapter 5: Virginia’s Small Business Definition

option would have a relatively high administrative and fiscal impact on SBSD’s certifi-
cation operations, depending on how they ate implemented. (These options may also
have a fiscal impact on the Department of General Services, Department of Accounts,
or other state entities, depending on how changes to the definition ate structured.)

Setting industry-specific size standards as a percentage of Virginia business size
would account for industry differences but be administratively burdensome

To account for variations in business size across industries, the state could adopt state-
specific small business definitions for each of the 1,037 industry codes in the North
American Industry Classification System. The state could use Virginia-specific data
collected by the Virginia Employment Commission to assess the range of employment
levels of Virginia businesses in each industry and set a definition that excludes the
largest businesses in each industry. Similar to the federal government, the state may
want to measure business size for some industries through gross receipts; however, the
state does not currently collect this information for all businesses.

Similar to the previous policy option, setting a specific target percentage for the small
business definition in each industry is subjective. For example, if all definitions were
set at 75 percent of Virginia business employees, 96 percent (996 out of 1,037 industries)
would have employment maximums that drop below the current 250-employee thresh-
old. Only 41 industries (e.g., department stores, poultry processing, and carpet and rug
mills) would have employment maximums increase above 250 employees. (See Appen-
dix H online for more information on the potential impact of state-specific small busi-
ness definitions by industry.) Given the anticipated drop in employment thresholds for
many industries, a portion of businesses that are currently small/mictro certified would
no longer be eligible (sidebar).

This option could allow the state to better target its small business definition (and
related procurement preference opportunities) to smaller businesses, but lowering the
definition size for most industries could make it more difficult for agencies to procure
goods and services from certified businesses and achieve their SWaM goals.

There would also be a high administrative burden on SBSD to implement this option.
SBSD (and/or another state agency) would need to establish the initial definitions for
each industry and verify that they accurately reflect Virginia businesses every few years.
SBSD would need to program new definition categories into its certification software
and train staff on the new definitions. SBSD would also experience an increase in
questions and follow-up requests from businesses in the short term until businesses
develop an understanding of the new definitions (Table 5-3).

POLICY OPTION 7

The General Assembly could amend §2.2-4310 and §2.2-1604 of the Code of Virginia
to direct that a small business definition be developed for each industry, with thresh-
olds for number of employees or gross receipts, or both, that are based on the size
characteristics of Virginia businesses in that industry.

Data inconsistencies and
limitations. Because of a
variety of data Jimitations
and inconsistencies be-
tween state and federal
datasets, counting the ex-
act number of businesses
that could be affected by
these options is not pos-
sible. To provide some in-
sight into the impact on
businesses of certain op-
tions, JLARC merged VEC,
SBSD, and federal data to
estimate how many dif-
ferent industries could be
affected.

See Appendix H (online
only) for more information
about how industries
could be affected under
each option.

Commission draft
53
Analysis of adopting 50
percent of SBA size
standards included only
industries with employ-
ment thresholds. Some
SBA definitions have
gross receipts thresholds,
but data on the gross re-
ceipts of Virginia busi-
nesses was not available.

HB 1892 (2019) & HB
1650 (2020)

proposed different small
business employee and
gross receipts maximums
for six industries (whole-
sale, manufacturing, re-
tail, service, construction,
and architects/engineers).
Employee maximums
ranged from 30 to 100
employees; gross receipts
maximums ranged from
$2M to $15M. The bills
also proposed disqualify-
ing businesses dominant
in their industry from
procurement preferences.

Chapter 5: Virginia's Small Business Definition

Setting industry-specific size standards at 50 percent of SBA size standards
would account for industry differences but increase small business size
thresholds for many industries

The state could also adopt state-specific small business definitions for each industry
by applying a standard reduction factor (e.g., 50 percent) to current SBA size standards.
A reduction factor would be necessary because many SBA size thresholds are larger
than both Virginia’s current definition and many size measures for Virginia specific
businesses. Colorado has implemented this approach.

Implementing small business definitions for each industry at 50 percent of the SBA
definition would expand Virginia’s current definition in most cases. In fact, Virginia’s
employee size threshold would increase above 250 employees for 310 of the 505 in-
dustries in which SBA uses employment size to define small businesses (sidebar). The
size threshold would stay the same for 112 industries and decrease for 83 industries.

This option would account for ditferences in size across industries but ultimately alow
more businesses to be certified as small, which may be inconsistent with the intent of
having a small business program. It would, though, likely make it easier for agencies
to procure goods and services from SWaM-certified businesses because more busi-
nesses would qualify (but still have to apply for certification).

There would be a high administrative burden on SBSD to implement this option.
SBSD (and/or another state agency) would need to establish the initial definitions for
each industry and verify every few years that this remains a reasonable basis for defin-
ing small business in Virginia. SBSD would need to program the new definition cate-
gories into its certification software and train staff on the new definitions. SBSD would
also experience an increase in questions and follow-up requests from businesses in the
short term until businesses develop an understanding of the new definitions (Table 5-

POLICY OPTION 8

The General Assembly could amend §2.2-4310 and §2.2-1604 of the Code of Virginia
to direct that a small business definition be developed that is set at 50 percent of the
federal small business definition for each industry.

Developing cross-industry size standards for groups of industries would help to
account for industry differences but may not fully account for size variation

The state could identify industry groups based on common size characteristics and
types of goods and services sold to the state, and establish separate small business size
standards for each group. This option is consistent with legislation proposed during
the 2019 and 2020 General Assembly sessions (sidebar) and is less administratively
complex than the two previous options to address variation in each industry. However,
grouping industries can reduce the benefits of an industry-specific approach because
there can be substantial differences in size between industries within a group.

Commission draft
54
Chapter 5: Virginia's Small Business Definition

Maryland uses this approach and sets different size definitions for six industry groups
(wholesale, retail, manufacturing, service, construction, and architectural/engineering).
According to staff from Maryland’s Office of Small, Minority, & Women Business
Affairs, these groups allow them to account for the different size of businesses in these
industry categories and better target their procurement preference to businesses that
need support. The size thresholds for each industry grouping were developed in part-
nership with business representatives rather than by using data reflecting the size of
Maryland businesses.

Adopting cross-industry size standards similar to Maryland’s would account, to some
extent, for difference in business size across industries and would likely reduce the
number of businesses that could be eligible for certification in Virginia. All Maryland
size thresholds are smaller than those in Virginia’s current small business definition,
except for Maryland’s revenue maximum for service industries ($10 million), which is
the same as Virginia’s. The number of currently certified businesses that would be-
come ineligible is dependent on how the industries are grouped and the thresholds are
set; therefore, the specific number is unknown. Assuming the size definitions adopted
were similar to Maryland’s, agencies would have fewer SWaM businesses from which
to purchase goods and services, at least in the near term.

This option would be less administratively complex than the two previous industry-
specific options but would still have an administrative and fiscal impact. SBSD (and/or
another state agency) would need to establish the initial definitions for each industry
grouping, potentially working in partnership with various industry groups. Depending
on how many groupings are used and how much of what the state purchases is in-
cluded, there could be considerably less effort associated with developing size defini-
tions for groupings rather than all industries. Additionally, SBSD would still need to
program new definition categories into their certification software, train staff on the
new definitions, and respond to questions from businesses about the new definitions

(Table 5-3).

POLICY OPTION 9

The General Assembly could amend §2.2-4310 and §2.2-1604 of the Code of Virginia
to direct that a small business definition be developed for groupings of industries
based on size and types of goods and services state agencies purchase.

Commission draft
55
Chapter S: Virginia’s Small Business Definition

TABLE 5-3
Impact of options to adopt industry-specific small business definitions
Industries with SBSD
definition operations impact
lowered or raised Administrative Fiscal #
Develep industyy-speriiicsizg -996 industries > : $300K to $S00K
standards set at a percentage of . . High F
ra ; : +41 industries (one-time)
Virginia business size
Develop industry-specific size -83 industries $300K to $500K
standards set at 50% of federal : : High :
P +310 industries (one-time)
size standards ¢
Develop cross-industry size standards
for several industry groups based on Unknown Medium F
(one-time)

what agencies purchase
SOURCE: JLARC analysis of Virginia Employment Commission data (2019) and U.S. Small Business Administration
size standards for small businesses.

NOTE: ? Table reflects potential fiscal impact to SBSD, but there may also be fiscal impacts to the Department of
General Services, Department of Accounts, and other entities depending on how changes to the definition are
structured. ° If the 75" percentile of Virginia business was adopted as the employment maximum for all industries,
at least 27 percent of certified small/micro businesses (2,865 businesses) would become ineligible for small/micro
certification. This percentage would likely be higher, as industry data were unavailable for 40 percent of certified
small/micro businesses (4,319 businesses). © 112 industries would have an employment threshold that remains at
250 employees.

Disparity study could inform consideration of small
business definition and procurement preferences

The disparity study could have implications for state procurement policy if the results
allow the state to consider female and minority ownership in its set-asides for state
procurement. The state could choose to change its current set-aside program to add
minority and/or female ownership to its procurement set-asides, which currently are
based only on business size.

Although Virginia cannot currently designate procurement preferences based on fe-
male and minority ownership, the state still procures a substantial amount from these
businesses. Currently, 55 percent of certified small or micro businesses are also owned
by a minority or woman. Only 6 percent of certified businesses are certified as women
of minority-owned only, potentially because the state’s procurement set-asides are
based on size instead of ownership.

To adequately consider potential changes, the General Assembly could create an exec-
utive branch workgroup after the disparity study is completed. There may be less value
in creating such a workgroup, though, if the disparity study reaches the same conclu-
sion as prior studies that the state cannot have preferences based on ownership.

The workgroup membership could consist of the:
e governor’s chief of staff or designee;

¢ secretary of commerce and trade or designee;

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56
Chapter 5: Virginia's Small Business Definition

e SBSD director or designee;
¢ Department of General Services director or designee;

e Virginia Information Technologies Agency chief information officer or de-
signee;
© attorney general or designee;

e local government representatives; and

® interested small, women-owned, or minority-owned businesses from different
industries.

The workgroup could be charged with considering the results of the disparity study
along with the information and options included in this chapter. The workgroup could
consider whether and how state procurement preferences and the state’s small business
definition should be changed. Staff from key state agencies including SBSD, the De-
partment of General Services, and the Virginia Information Technologies Agency
could identify the fiscal impact of proposed changes and draft a plan for implementing
proposed changes. The Office of the Attorney General could assess the legality of
proposed changes. The workgroup could submit proposed legislative changes to the
General Assembly for consideration prior to the 2022 legislative session.

POLICY OPTION 10

The General Assembly could consider authorizing in the Appropriation Act an exec-
utive branch workgroup to consider whether and how to adjust the (i) state’s procure-
ment preferences for businesses (including women and minority ownership if the dis-
parity study concludes doing so may be permissible), and (11) state’s definition of small
business. The workgroup could be required to submit proposed legislative changes to
the House General Laws Committee, Senate General Laws and Technology Commit-
tee, and Small Business Commission by November 1, 2021.

Commission draft
57
Chapter 5: Virginia’s Small Business Definition

Commission draft
58
Appendixes

Appendix A: Study mandate

Review of the Department of Small Business and Supplier Diversity
Authorized by the Joint Legislative Audit and Review Commission on December 10, 2018

WHEREAS, the Virginia Department of Small Business and Supplier Diversity (SBSD) was created
in 2014 by consolidating the powers and duties of the Department of Business Assistance and the
Department of Minority Business Enterprise; and

WHEREAS, the mission of SBSD is to enhance growth opportunities for Virginia’s small businesses
to prosper through increased revenue and job creation thereby raising the standard of living for all
Virginians; and

WHEREAS, SBSD was appropriated $7.3 million in FY19 and $6.8 million in FY20, of which
approximately 60% is from general funds; and

WHEREAS, SBSD developed an agency workplan for 2018 establishing agency goals, objectives,
and performance metrics; and

WHEREAS, SBSD administers the Commonwealth’s business certification programs, including the
Small-Woman-owned and Minority-owned Businesses (SWaM) program, which is designed to
improve state procurement opportunities for SWaM businesses, and the Disadvantaged Business
Enterprise program, which is designed to increase the participation of disadvantaged business
enterprises in projects funded by the U.S. Department of Transportation; and

WHEREAS, SBSD’s Virginia Small Business Finance Authority (VSBFA) promotes economic
development by administering loan and loan assistance programs for small businesses, not-for-prof-
its, and economic development authorities that may not be able to obtain financing from conven-
tional private sources, such as commercial banks; and

WHEREAS, VSBFA administers two economic development grant programs, the Small Business
Investment Grant Program and the Small Business Jobs Grant Program, which awarded over $1
million in grants in FY17 and which recent legislation sought to transfer to the Virginia Economic
Development Partnership; and

WHEREAS, SBSD’s Business Development and Outteach Services Division provides programs
designed to assist entrepreneurs and business owners in obtaining the information and resources to
establish and grow their businesses; now, therefore be it

RESOLVED by the Joint Legislative Audit and Review Commission (JLARC) that staff be directed
to review the operations and performance of the Department of Small Business and Supplier
Diversity. In conducting its study, staff shall (i) determine whether SBSD’s operations are focused
on the topics that will most effectively support and accomplish its mission; (ii) evaluate the staffing,
performance, spending, and management of SBSD, including the VSBFA; (iii) assess whether
SBSD’s business certification programs and related processes are efficiently and effectively adminis-

Commission draft
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Appendixes

tered; (iv) determine whether SBSD is the most suitable state agency to administer the state’s busi-
ness certification programs and assist businesses with the state’s procurement processes; (v) com-
pare the definition of “small business” used by SBSD to federal and other state definitions; (vi) as-
sess the effectiveness of SBSD’s economic development and outreach programs in assisting
applicable businesses; (vil) assess the need for SBSD programs and assistance to temporarily or per-
manently facilitate individual businesses; (viii) evaluate whether other state agencies could more ef-
fectively administer SBSD’s economic development and outreach programs; and (ix) review the
scope and scale of programs in other states designed to assist similar businesses. JLARC shall make
recommendations as necessary and review other issues as warranted.

All agencies of the Commonwealth, including the Department of Small Business and Supplier
Diversity, the Virginia Department of General Services, and the Virginia Economic Development
Partnership shall provide assistance, information, and data to JLARC for this study, upon request.
JLARC staff shall have access to all information in the possession of state agencies pursuant to § 30-
59 and § 30-69 of the Code of Virginia including all documents related to proceedings or actions of
the Virginia Small Business Financing Authority board of directors. No provision of the Code of
Virginia shall be interpreted as limiting or restricting the access of JLARC staff to information pur-
suant to its statutory authority.

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Appendixes

Appendix B: Research activities and methods

Key research activities performed by JLARC staff for this study included:

e interviews with SBSD and VSBFA staff, VSBFA board members, other Virginia and fed-
eral agencies, Virginia businesses and banks, subject-matter experts, and other states;

e observations of business counseling sessions and trainings;

e surveys of businesses that have participated in SBSD programs, SBSD staff, and state
agency SWaM representatives;

e analysis of SBSD certification data, SBSD staff turnover data, VSBFA financial data, state
agency spending and procurement data, Virginia business size data, and other state small
business definitions;

e case file review of a sample of approved and denied VSBFA applications; and

e areview of documents and literature, including research literature on effective practices
for assisting small businesses; past studies of SBSD; and SBSD documents, such as agency
policies and procedures, staff position descriptions, and staff training schedules.

Structured interviews

Structured interviews were a key research method for this report. JLUARC staff conducted over 100
interviews with individuals from a variety of agencies and organizations. Key interviewees included:

e SBSD/VSBFA staff and VSBFA board members;

e other Virginia state agency and federal agency staff;

e Virginia businesses, banks, and economic development organizations;
e subject-matter experts in Virginia and nationally; and

e staff from other states.

SBSD/VSBFA staff and VSBFA board members

JLARC staff conducted 37 interviews with 20 staff from SBSD and VSBFA, including the directors
of all major divisions and several staff in each division. Staff conducted multiple interviews with the
agency director and chief of staff, the VSBFA director and chief credit officer, and the directors of
the SWaM Certification, DBE Certification and Outreach, and Business Development and Outreach
divisions to understand the agency’s programs and recent and planned improvements. Interviews were
also conducted with staff in each division to understand the services provided by each division; the
work processes used to carry out each division’s primary responsibilities; and staff perspectives on
SBSD’s mission, challenges, and work culture. Interviews were also used to clarify the meaning of
SBSD data.

JLARC staff also conducted interviews with four VSBFA board members, including the board chair-
man. These interviews were used to understand board member responsibilities and engagement, per-
spectives on VSBFA staff and programs, and loan and bond approval processes.

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61
Appendixes

Other Virginia state agency and federal agency staff

JLARC staff conducted 25 interviews with staff at 18 Virginia state agencies. These interviews were
conducted for a range of purposes:

e to obtain information on how other agencies work with SBSD on the certification pro-
gram, JLARC staff interviewed the Virginia Department of Transportation, Department
of Aging and Rehabilitative Services, and the State Council of Higher Education for Vir-
ginia;

e to obtain perspectives on the state’s SWaM procurement program and other procurement-
related issues, JLARC staff interviewed procurement staff at the Department of General
Services and Virginia Information Technologies Agency, and SWaM representatives at the
Board of Accountancy, Virginia Tech, and the Department of Treasury;

e to learn about the Business One Stop, JLARC staff interviewed staff at the Department
of Professional and Occupational Regulation and the State Corporation Commission;

e to understand their role in, and perspectives on, VSBFA’s loan and bond programs,
JLARC staff interviewed staff at the Department of Treasury and Department of Social
Services;

e to discuss agency data availability for potential JLARC analyses, JLARC staff interviewed
staff at the Virginia Employment Commission, Department of General Services, and De-
partment of Taxation;

e to discuss various aspects of SBSD operations, JLARC staff interviewed staff at the Audi-
tor of Public Accounts and Department of Human Resource Management; and

e to learn about effective approaches for administering financing and business advisory pro-
grams, JLARC staff conducted interviews with the Virginia Economic Development Part-
nership, Department of General Services, Department of Housing and Community De-
velopment, and Virginia Resources Authority. Staff also interviewed the Center for
Innovative Technology (a state-funded nonprofit) for the same purpose.

Staff also conducted interviews with the deputy secretary of commerce and trade to learn more about
the administration’s policy goals for assisting small businesses and perspectives on the state’s small
business definition.

JLARC staff conducted interviews with federal agency staff: three interviews with the Small Business
Administration and one interview with the Economic Development Administration, which is part of
the U.S. Department of Commerce. These interviews were conducted to learn about federal programs
for small businesses, to get their perspectives on which programs and interventions are most effective
for small and potentially disadvantaged businesses, and to understand how federal partners work with

SBSD.

Virginia businesses, banks, and economic development organizations

JLARC staff interviewed four organizations that represent small, women-, or minority-owned busi-
nesses in Virginia: Metropolitan Business League, National Association of Women Business Owners
(Richmond chapter), National Federation of Independent Business, and Virginia Chamber of Com-
merce. The purpose of these interviews was to obtain businesses’ perspectives on SBSD programs

Commission draft
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Appendixes

and issues affecting small, women-, and minority-owned businesses. Staff also conducted a group
interview with three business owners from the heavy construction industry to hear their perspectives
on their interactions with SBSD and the effectiveness of SBSD programs.

Staff conducted five interviews with representatives from the financial industry, including five Virginia
banks and the Virginia Bankers Association. The purpose of these interviews was to identify typical
and best practices for small business lending programs and banks’ perspectives on the value and ad-
ministration of VSBFA’s programs.

Finally, staff conducted a group interview with staff from the Virginia Economic Developers Asso-
ciation and seven local economic development staff to discuss local programs for small businesses
and their perceptions of SBSD’s programs.

Subject-matter experts in Virginia and nationally

JLARC staff conducted interviews with 16 subject-matter experts, including individuals from the
Kauffman Foundation, Aspen Institute, Council of Development Finance Agencies, Milken Institute,
Mason Enterprise Center, National Conference of State Legislatures, and the Capital Region Minor-
ity Supplier Diversity Council. These interviews covered many different topics based on the expertise
of the individual, but most interviews addressed best practices for small business programs.

Other states

JLARC staff conducted interviews with staff from Kentucky, Maryland, North Carolina, and Tennes-
see to discuss their small business loan programs. Staff interviewed staff from Kentucky and North
Carolina to discuss their small business advisory programs, and staff from Maryland to discuss their
small business definition.

Observations of business assistance sessions and VSBFA board meetings

JLARC staff observed three one-on-one counseling sessions between SBSD staff and businesses.
These sessions were conducted over the phone, and JLARC staff listened to the sessions with the
permission of the businesses. The purpose of these observations was to learn about challenges expe-
rienced by small businesses and the types of assistance provided by BDOS staff. JLARC staff also
observed one Scaling4Growth session and three BDOS webinars on eVA, entrepreneurship, and Scal-
ing4Growth (information session).

JLARC staff also attended and observed five VSBFA board meetings to assess board members’ level
of engagement and to learn about the types of information provided by staff to the board and the
approval process for loans and bonds. Three of these board meetings were held virtually because of
the COVID-19 pandemic.

Surveys

Three surveys were conducted for this study: (1) a survey of businesses that participated in SBSD
programs, (2) a survey of SBSD staff, and (3) a survey of state agency SWaM representatives.

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Survey of businesses

JLARC administered an electronic survey to businesses that have participated in SBSD programs since
2015. (Participation was defined to include businesses that applied for SBSD programs, including
those that were approved and denied.) If a business participated in the same program multiple times
(e.g., applied for a new SWaM certification and recertifications), the survey asked about the business’s
most recent experience. If a business participated in multiple different programs (e.g., applied for SWaM
certification and participated in business counseling) the survey only asked about one program to
reduce the time burden on businesses during the COVID-19 pandemic. The team originally planned
to administer the survey in March 2020, but postponed the administration to the April/May timeframe
because of the COVID-19 pandemic, which negatively affected many of the businesses the survey
was distributed to.

The survey covered the following topics:

e SWaM and DBE certification processes (including the documentation requirements, time-
liness, fairness and accuracy, and usefulness of certification);

e appeal and waiver processes for denied SWaM applications;

e effectiveness of SBSD financing programs (including the documentation requirements,
timeliness, fairness, accuracy, usefulness of financing, and use of other financing sources);

e effectiveness of SBSD business advisory programs (including satisfaction with advisory
program, convenience, and usefulness of the program); and

e reasons for not participating in other SBSD programs (such as lack of knowledge of pro-
grams).

The survey was distributed electronically to approximately 23,000 business. JLARC received 918 re-
sponses, for an overall response rate of 4 percent. JLARC could not send the survey to businesses
without email addresses in SBSD/VSBFA’s records. Nearly all programs had emails for at least 98
percent of businesses, with the exception of counseling sessions (31 percent of businesses had miss-
ing emails) and VSBFA programs (44 percent of businesses had missing emails).

Survey of current SBSD staff

JLARC staff administered an electronic survey to all 37 full-time staff at SBSD. (SBSD’s director,
VSBFA’s executive director, and SBSD’s chief of staff were given copies of the survey to review but
were not asked to complete it.) Survey topics included: staff’s perspectives on their roles and respon-
sibilities, satisfaction levels, workload, compensation, division operations and coordination, IT systems
and security, and agency leadership and organizational structure. The survey also asked staff about the
impact that the COVID-19 pandemic has had on their work and the businesses they serve. JLARC
received responses from all SBSD staff members, for a response rate of 100 percent.

Survey of state agency SWaM representatives

An electronic survey was administered to the SWaM representatives in 132 Virginia state agencies. If
an agency had multiple representatives, the survey was sent to one representative to ensure one re-
sponse from each agency. Survey topics included: agency perspectives on their ability to meet the
state’s 42 percent SWaM procurement goal, usefulness of the agency SWaM plan, and adequacy of

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assistance provided by SBSD in completing the SWaM plan and helping agencies meet the 42 percent
SWaM goal. Eighty-one agencies responded to the survey, for a response rate of 61 percent.

Data collection and analysis

Several types of data analyses were performed for this study, including analyses of:

e SBSD business certification data;

e SBSD staff turnover data;

e VSBFA financial data on loans and grants;

e the impacts of SWaM certification on state contracts and size of certified businesses;
e state agency spending and procurement data;

e Virginia business size data; and

e data on small businesses definition levels in the federal government and other states.

Certification data (Chapter 2)

SBSD provided JLARC staff with several data analyses in response to a data request submitted by the
team, including total number of certifications by type; average time to process applications, by type;
number of applications that exceeded SBSD’s processing goal; and number of appeals and waivers.
JLARC staff used this data to calculate basic statistics on SWaM and DBE certifications. JLARC staff
also analyzed detailed data on each certification application since 2015. Analyses conducted with this
data included: descriptive statistics on the number of certified businesses by size and number of ap-
plications that were approved and denied. Moreover, business-level certification data was used to as-
sess whether currently certified micro and/or small businesses meet the employment and gross re-
ceipts size requirements and how changes in the small business definition could impact the population
of currently certified micro and/or small businesses.

SBSB staff turnover data (Chapter 2)

JLARC staff calculated the rate of SBSD staff turnover between FY13 and FY20 using data from the
Department of Human Resource Management. Two types of turnover rates were calculated: (1) all
turnover and (2) voluntary turnover. The rate of a// staff turnover included staff retirements, layoffs,
removals, resignations, and transfers (e.g, out-of-state service or to an exempt agency). The rate of
voluntary staff turnover included staff resignations and transfers. To benchmark SBSD’s staff turnover
rates, JLARC staff reviewed the statewide staff turnover rate across all state agencies (FY20) and
compared SBSD’s turnover rates with other similarly sized state agencies with between 15 and 100

employees.

VSBFA financial data on loans and grants (Chapter 3)

JLARC staff used VSBFA data on loans and grants to conduct several analyses. Staff analyzed the
utilization ratios of VSBFA loan and grant programs (see Appendix E for program-level data by fiscal
year); identified trends in loan application decisions; and calculated the amount of funds lost by
VSBFA when businesses fail to repay their loans.

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Loan utilization

JLARC staff developed a methodology for calculating utilization ratios because VSBFA does not reg-
ularly report this information. This methodology was informed by discussions with VSBFA staff,
Auditor of Public Accounts staff, and a national expert on small business lending, JLARC’s method
focuses on the amount of new funds given to businesses each year. Each year’s utilization ratio was
calculated as follows:

Amount of new loans used by VSBFA
Amount of funds available for new loans

Utilization ratio =

JLARC calculated loan utilization ratios for VSBFA’s three direct loan programs (microloan, Economic
Development Loan Fund, and Child Care Financing Program) and three support loan programs (Loan
Guaranty, Cash Collateral, and Capital Access) for FY16 to FY20. Three programs—the microloan,
state-funded Economic Development Loan, and Loan Guatanty—have a combined utilization ratio
because they have the same funding source. JLARC requested FY20 data before the fiscal year had
concluded, so the amount used in FY20 calculations excludes the last 18 days of the year.

The definition of the amount of new loans used varies by loan program. For VSBFA’s three direct loans,
the amount spent equals the amount of money given to businesses once the loan is finalized. For
VSBFA’s three support loans, the amount used equals the amount of money temporarily reserved by
VSBFA internally or at the banks once the loan has been approved, and not the total value of the loan
provided by the bank. Specifically, the amount used for the Loan Guaranty program is the share of
the loan that VSBFA guarantees. The amount used for the Cash Collateral and Capital Access pro-
grams is the amount of funds VSBFA deposits into banks’ reserve accounts. JLARC staff defined the
amount used as the amount of money reported “disbursed” by VSBFA, which can differ from the
amount of money approved in a given year. The amount disbursed is not applicable to the Loan
Guaranty Program; therefore, staff used the amount of loans reported as “closed” by VSBFA.

JLARC staff calculated the amount of funds available for new loans each year using two steps. First, JLARC
staff identified the preliminary amount available on the last day of the prior fiscal year. For all pro-
grams except the Loan Guaranty Program, this amount equals the “subtotal cash & investments” on
the balance sheet provided by VSBFA. For the Loan Guaranty Program, the amount available depends
on a statutorily set formula. VSBFA provided annual Loan Guaranty Program reports that contained
the net funds available for new loans each year. Second, the amount of securities lending funds (if
any) was subtracted from those preliminary amounts to calculate the final “amount available.” Securi-
ties lending funds are held by the Virginia Treasury (as part of a statewide program for agency funds
exceeding the amount protected by federal deposit insurance) and not immediately available to
VSBFA. Only the Capital Access and federal Economic Development Administration (EDA) pro-
grams had securities lending funds. JLARC’s method did not include expected repayments as available
funding. Repaid funds in one year would appear in the “cash and investments” for the next year, so
the current method already accounts for repayments that actually occur. Also, repayments occur
throughout the year so they are not available to VSBFA for the whole year.

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While JLARC’s method intentionally defined the amount used as the amount of money for finalized
loans, an alternative method would be considering “committed funds” as well. Committed funds are
loans approved and legally promised by VSBFA but not yet disbursed by the end of the fiscal year.
For example, VSBFA may be waiting for mandatory closing documents from the business. JLARC’s
method excluded commitments because they sometimes reflect loans that are eventually cancelled
before any money transfers, and commitments that were disbursed in another fiscal year would be
captured in that year’s utilization data. However, when VSBFA makes the commitment it believes that
the loan will occur and reduce the amount of available funds, which is one reason to include commit-
ted funds in utilization rates for the year in which they occur.

To offer an alternative calculation, JLARC staff calculated utilization ratios in a manner that considers
committed funds to be equivalent with actually used funds. In this method, the amount used each year
is defined as the amount actually used p/ws the amount committed. For the amount of commitments
per program per year, JLARC used data provided by VSBFA. (An exception is FY20, for which VSBFA
only provided commitments for the federal EDA program. However, that program typically has a
much larger amount of commitments compared to other programs.) The method for calculating the
amount available per year does not change in this alternative method. This alternative method in-
creases the utilization ratios somewhat compared to JLARC’s primary method because it increases the
amount that is loaned (Table B-1). However, VSBFA’s loan utilization ratio remains below 40 percent
in the last three years, regardless of the method.

TABLE B-1

Considering commitments to be loans increases VSBFA’s loan utilization ratio
Method 2016 2017 2018 2019 2020
Primary (Ignores commitments) 46% 45% 8% 10% 24%
Alternative (Considers commitments
equivalent to used loans) 52 66 a 29 33
Percentage point difference 6 20 29 20 9

SOURCE: JLARC analysis of VSBFA data.

Grant utilization

Grant utilization rates for FY15 to FY20 were calculated with data provided from the Department of
Planning and Budget (DPB). Similar to loans, grant utilization was defined as the amount of grants
provided in a given year divided by the amount of funds available for the grant. DPB’s data for the
amount of grants provided for a given year may reflect grants that were approved in that year or prior
years, because businesses must provide documentation of meeting grant requirements before receiv-
ing the funds. The amount of funding available for each grant was calculated as the amount of funds
at the beginning of the fiscal year (because the funds are non-reverting) p/us additional funding from
the annual budget p/us interest accrued mus amounts given up by VSBFA due to statewide savings
initiatives plus/minus transfers to or from other soutces.

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The amount of funds available to VSBFA can change throughout the year, depending on the timing
of events such as receiving appropriations and transferring money between grant funds. Therefore,
grant utilization rates should be considered an approximation.

Application decisions

JLARC staff calculated the number of loan applications, the frequency of application decision out-
comes, and the reasons for withdrawals and denials using VSBFA’s application data. VSBFA’s data
included 595 loan applications between July 2015 and June 2020. JLARC reviewed VSBFA’s comments
for each application to count the number of withdrawals, denials, or approvals. (LARC was unable to
categorize the decision type of four cases due to insufficient or missing information.) Next, JLARC
staff counted the number of withdrawals and denials that contained a recorded reason for VSBFA’s
decision. This analysis was limited to FY19 and FY20 applications available in VSBFA’s data. (It is
possible that additional information about VSBFA’s decision was available in the application’s case
file.) Finally, JUARC staff counted the number of recorded reasons that cited the creditworthiness of
the applying business, such as insufficient cash flow to repay the loan or poor credit history.

VSBFA noted two reasons why analysis of its application data will not be fully accurate. First, the date
provided does not have a consistent definition. For example, it might be the date that staff first spoke
to an interested business or the date that the business submitted a loan application. Second, the spread-
sheet is not limited to actual applications received by VSBFA. Sometimes, inquiries from businesses
that don’t result in an application are included on the spreadsheet.

Loss rates

The amount of money lost by VSBFA when a business fails to repay its loans depends on several
factors. The amount lost by VSBFA depends on the time that has passed since the loan; the longer
this time period, the lower the remaining amount owed by the business. For direct loans, the amount
of money that a business does not repay equals the amount of money lost by VSBFA. For support
loans, the amount of money lost by VSBFA depends on the details of the loan program and transac-
tion. For example, in the Loan Guaranty Program, the bank and VSBFA agree on the share of the
bank’s loan amount that VSBFA will guarantee, and the maximum is 75 percent. The lower VSBFA’s
share for a particular loan, the lower the amount it will lose if the business defaults.

To calculate the amount of VSBFA losses, JLARC staff used an extract of VSBFA’s disbursed loan
database that included information on the timing and amount of losses. This extract included all loans
for which losses occurred between FY15 through FY20, regardless of when the loan was made. (Data
for FY20 is missing the last few weeks of the fiscal year, because of the timing of JLARC’s data
request.) This amount consists of charge-offs for VSBFA’s direct loans and claims by banks for
VSBFAs support loans. It is calculated net of recoveries collected from the businesses, such as collat-

eral sales.

To calculate the share lost by VSBFA in FY19, JLARC staff followed the standard industry method-
ology of comparing the amount of losses occurring in a given time period with the amount of active
outstanding loans at the end of that time period. The 0.25 percent loss rate reported by commercial

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banks derives from a survey by the Consumer Bankers Association and Small Business Financial Ex-
change about the third quarter of CY 2019.

Impacts of SWaM certification on state contracts and size of certified businesses (Chapter 4)

JLARC staff conducted analyses to estimate the effects of SWaM certification on firm sales and em-
ployment growth. Both analyses used a pre-post approach, comparing outcomes for firms before they
became SWaM certified to outcomes for the same firms after certification. Regression models were
used to control for other factors that could influence the outcomes, including time trends.

Impact of SWaM certification on sales to state agencies

Because Virginia governors have encouraged state agencies to purchase goods and services from
SWaM-certified firms through a series of executive orders, certification could increase a business’s
likelihood of selling goods and services to state agencies. To test this hypothesis, JUARC staff obtained
data from eVA, the state procurement information system used by all state agencies and maintained
by the Department of General Services. The data included all purchase orders in eVA from 2010
through the first half of 2020, and included the date of purchase, the dollar amount, the type of good
or service purchased, the agency purchasing the good or service, and an identifier uniquely identifying
the selling firm.

The analysis was restricted to 6,700 firms that were SWaM certified, had sales in eVA, and had at least
four quarters of data before certification and eight quarters of data after certification. The basic anal-
ysis compared a firm’s sales per quarter before and after certification, to look for evidence that firms
increased their sales to state agencies after they became certified. The sales data in eVA are very
skewed: although most sales per firm per quarter were less than $5,000 (and many were less than
$1,000), a small percentage of firms had sales of more than $1 million in a quarter. Further, most
firms had some quarters with zero sales in eVA. To reduce these effects in the data, quantile regression
was used to estimate impacts on median quarterly sales per firm (and on the 60", 70", 80", and 90"
percentiles). As a test of the robustness of results, a separate ordinary least squares regression model
was estimated using the natural log of average quarterly sales per firm. Similar models were used to
estimate impacts on the average number of purchase orders in eVA per quarter per firm, in part
because this outcome was less skewed than sales data. The evidence consistently showed an increase
in the dollar value of sales and the number of purchase orders to state agencies after firms became

SWaM certified.

Impact of SWaM certification on firms’ total employment

Even if SWaM certification increases a firm’s sales to state agencies, it may not have a significant effect
on the firm’s total sales if state government sales make up a small proportion of the firm’s total sales,
and if SWaM certification does not increase sales to purchasers other than state agencies. To estimate
the effect of certification on firms’ growth, JLARC staff obtained data from the quarterly wage record
system maintained by the Virginia Employment Commission (VEC). The data included the number
of employees per quarter from 2010 to 2019, total wages paid, and a unique firm identifier. The total
number of employees and total wages were used as a measure firm growth.

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SWaM-certified firms in the VEC data were identified by matching to SBSD data. Of the 43,000 firms
that were SWaM certified in the first quarter of 2010 and the first quarter of 2020, a little over half
(about 22,000) were found in VEC quarterly data. The analysis was restricted to about 3,000 firms
that first appeared in VEC data at least four quarters before they were SWaM certified and that could
be followed in VEC data for at least eight quarters after certification. As with the eVA data, the basic
analysis compared a firm’s employment per quarter before and after certification, to look for evidence
that firms increased their number of employees after they became certified. Like the data on sales in
eVA, the number of employees in VEC data is skewed, with many firms having only one employee in
some quarters and other firms having several hundred. To account for this skewness, quantile regres-
sion models were used (for the 50", 75", and 90" percentiles). Similar models were used to estimate
impacts on total wages paid. As tests of the robustness of results, a number of alternative models
were estimated, including: estimates by industry; the natural log of employees; estimates by initial firm
size; and ordinary least squares regression. The results were consistent across models and outcomes:
the analysis found no evidence that SWaM certification increased either the number of employees or
total wages paid.

Taken together, the results of the analyses of sales in eVA data and the number of employees in VEC
data suggest that SWaM certification helps firms increase their sales to the state through eVA but does
not have broader impacts on firms’ employment. Other interpretations of the results are possible,
however, because the two analyses were based on different samples of firms.

State agency spending and procurement data (Chapters 4 and 5)

JLARC staff analyzed data on total expenditures with SWaM businesses between FY10 and FY20.
Data was accessed through SBSD’s SWaM Expenditure Dashboard. Data was used to determine the
portion of expenditures through SWaM and non-SWaM businesses statewide, by secretariat, and by
state agency. Data was also used to assess whether the state met the governor’s SWaM goal each fiscal
year, both statewide and by state agency.

In addition, staff analyzed procurement data reflecting all state purchases between 2010 and the first
half of 2020. Data was provided by the Department of General Services and included all purchases
conducted through the state’s electronic procurement system (eVA). JLARC staff used procurement
data to estimate the proportion of purchases conducted through the state’s small business and micro
business set-aside procurement preferences. Staff also used the data to identify the types of good and
services the state has purchased over time through SWaM and non-SWaM businesses.

Small business definitions in other states and the federal government (Chapter 5)

JLARC staff compiled a list of small business definitions in other states by reviewing the websites for
all 50 states and the District of Columbia. The goal was to find a definition in each state that was
comparable to SBSD’s definition for the small business certification program. Staff were able to find
comparable definitions for 25 states. Several states did not have a definition because they do not have
procurement or certification programs for small businesses.

JLARC staff also reviewed the small business definitions used by the U.S. Small Business Administra-
tion, which include over 1,000 definitions for individual business industries. Business industries are
represented by the North American Industry Classification System (NAICS) codes. Each industry has

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a small business definition that includes a maximum level of business employment or average annual
receipts.

Case file reviews

JLARC staff reviewed the case files of 21 loans and two grants. The loan files were selected by JLARC
to represent different loan programs, time periods, outcomes (approve, deny, withdraw), and involve-
ment of VSBFA staff (Table B-2), while the grant files were selected randomly. Depending on the
program, the case files included documentation of the business’s application, bank’s application and
internal assessment, investor’s application, VSBFA staff’s memo, and communication between
VSBFA, businesses, and banks. For approved applications, JLARC reviewed whether the business met
program eligibility criteria. For denied applications, JLARC assessed if the reason for denial was justi-
fiable. For all loan applications, JLARC reviewed VSBFA staffs’ and/or the bank’s assessment of busi-
ness repayment risk.

TABLE B-2
JLARC reviewed a diverse sample of loan case files
Program VSBFA decision Application year Staff
P Is: 9 2017: 1
ovals: was
At least one file from 5 of Sees ° 2018: 4 7 distinct
Denials: 5 ha 3
6 loan programs @ Withd Is: 7 2019: 12 individuals
ithdrawals: naan

SOURCE: JLARC analysis of VSBFA application data.
NOTE: ? Capital Access Program applications were not included by VSBFA on the spreadsheet used by JLARC to select samples.

Document reviews

JLARC staff reviewed a wide variety of documents to inform its study of SBSD, including:

e SBSD statutes and regulations;

e internal SBSD documents, including agency policies and procedures, program applica-
tions, employee work profiles, formal agreements between SBSD/VSBFA and other enti-
ties, letters and other outreach to businesses, and examples of weekly staff productivity
reports;

e asample of Virginia state agency SWaM plans;

e previous reviews of SBSD, including a 2016 JLARC review of state contracting and a
2018 JLARC economic analysis of small business grant and loan programs, Auditor of
Public Accounts financial and procurement audits, and a review of SWaM certification by
the Office of the State Inspector General;

e reports commissioned by SBSD, including A Disparity Study for the Commonwealth of Vir-
ginia, 2011, conducted by MGT Consulting, and SWaM and DBE Certification Programs: In-
pacts and Pokey, 2018, conducted by Virginia Commonwealth University;

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federal agency program descriptions and policies, such as the Federal Deposit Insurance
Corporation’s examination manual, Small Business Administration standard operating pro-
cedures, and Economic Development Administration requirements;

literature on best practices for small business financing and advisory services and compila-
tions of existing programs published by organizations such as Council of Development
Finance Agencies, Center for Regional Economic Competitiveness, Milken Institute, and
RAND;

descriptions of other states’ small business programs;

descriptions of certification processes and procedures used by outside certification enti-
ties; and

research and program publications on the effectiveness of various small business interven-
tion programs.

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Appendix C: Summary of prior external reviews of SBSD

SBSD (including VSBFA) has been subject to 16 reviews by external entities since the agency was created in 2015 (Table C-1). Reviews have
assessed various functions, including SBSD’s business certification program, “small business” definition, and financing programs (incentive grants
and loans). Over half of the reviews were financial, internal control, or procurement audits of SBSD and VSBFA conducted by the APA. No
external entities have reviewed SBSD’s technical assistance programs or bond programs, or conducted a comprehensive assessment of SBSD’s

organizational management.

TABLE C-1
SBSD has been the subject of multiple external reviews since FY15

Key recommendations

Entity that

Vear(s) performed

Type of review conducted review Programs reviewed
Internal controls for significant

Internal Controls Review SBSD activities (such as payroll,
and Audit FY19 APA HR, & information security)
Review of small business in-
centives at state agencies FY18 JLARC — VSBFA loan and grant programs
Sensitive Systems Audit FY18 VITA IT systems
Virginia SWaM & DBE Certifi- SWaM and DBE certification pro-
cation Programs: Impacts & grams and Virginia's small busi-
Policy 2018 VCU ness definition

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No findings/recommendations were issued for SBSD

Add minimum wage requirement to Small Business Jobs Grant

Add scoring system for Small Business Investment Grant, collect per-
formance metrics, strengthen recapture provision

Link program funding to regular review of market conditions
Establish job creation standards for loan programs and track employ-
ment outcomes

Provide role-based security training to appropriate personnel
Develop a continuous monitoring program for vulnerabilities
Develop IT security plans for each application

Have users acknowledge policy adherence

SWaM certification application processing times are out of compli-
ance with agency regulations

Virginia‘s small business definition may allow non-target businesses to
realize program benefits
VSBFA Federal Grants Audit

Oversight Review
Procurement Review and
Audit

ARMICS review to evaluate
agency-wide and transac-
tional internal controls

SWaM Certification
Performance Audit

Payroll Audit (Review Period
FY16)

Internal Controls Audit (Re-
view Period FY16)

FY18

Oct. 2017 —
Mar. 2018

FY17

FY17

FY17

FY17

FY17

APA

Federal
EDA

APA

Third-party
vendor

OSIG

APA

APA

Appendixes

VSBFA Economic Development
Cluster federal program

Economic Development Loan
Fund program

Procurement internal controls &
operations

Agency risk management &
internal control standards

Certification program

Payroll program

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Using the SBA definition of small business for SWaM certification
would (1) increase the pool of certified businesses by 10% (in-state
would increase by 0.55%, out-of-state would increase by 99.6%), (2)
increase the estimated economic impact of SWaM spending by just
0.2%, and (3) make the certification process more cumbersome for
businesses and SBSD staff

Requiring SWaM businesses to meet both size and revenue require-
ments would decrease the pool of certified businesses by 18%.

Create additional policies and procedures for Economic Development
Federal Loan Program

VSBFA’s program scored a "B" overall, with A being the best and C be-
ing the worst possible scores.

Strengths included the amount of available funding compared with
the starting amount available, default rate, formal plan, portion of in-
come spent on administrative expenses, and cost per job. Weaknesses
included the financial audit findings, timely and complete reporting,
longevity of leadership, and fund deployment.

No written management recommendations were issued for SBSD
Update and develop additional agency policies and procedures
Address need for additional staff

Establish budget tracking for the agency

Enhance reporting of SWaM compliance

Maintain historical SWaM vendor data

Perform a certification division compensation study

Research the feasibility of instituting a fee structure

Improve controls over terminated employees

Update and develop additional agency policies and procedures
Perform post certification activities

Update and develop additional agency policies and procedures
ARMICS not in compliance for FY16

Monitor IT contractor performance using VITA form

Review user access for internal applications
Independent Assessment of
VSBFA Audits & Transfers,
and SBIG & SBJGF

Development and Manage-
ment of State Contracts in
Virginia ?

VSBFA Financial Audit

FY17

2016

FY15, FY16,
& FY17

Appendixes

Third-party
vendor

SBSD certification and
JLARC — procurement programs

VSBFA financial records
APA & operations

Evaluate the capital requirement for SBJGF

Market the SBJGF to differentiate from VJIP

Assist with determining if weighted criterion for SWaM needs adjust-
ment

Prioritize small business certification over W/M

Send notifications to businesses ahead of expiration

No recommendations in FY16 and FY17

Improve controls over financial reporting process (FY15)

Strengthen controls over off-CARS disbursements (FY15)

SOURCE: JLARC analysis studies and reports of SBSD.

NOTE #SBSD was part of a larger review of state contracts; 4 of the 30 recommendations pertained to SBSD.

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Appendix D: Literature review of effectiveness of small
business support programs

JLARC staff reviewed existing research literature on the effectiveness of programs that support small
businesses. The purpose of this review was to identify: (1) whether programs that support small busi-
nesses have been shown to promote positive business outcomes (e.g., employment growth, revenue
growth, and business sustainability); (2) what types of programs are most effective (e.g., business cer-
tification, financing programs, and business assistance); and (3) whether specific design elements im-
prove program effectiveness (e.g., specific eligibility criteria, program staff training, and duration).

JLARC staff established several parameters to ensure that all research reviewed was relevant. Specifi-
cally, the review was limited to studies conducted after 2000 (with a focus on studies after 2010) and
in geographic locations within or similar to the United States. The review was also limited to studies
that assessed programs supporting sma// businesses, though the size of businesses considered “small”
varied. Some studies focused on certain types of small businesses (e.g., small manufacturing busi-
nesses), while others assessed programs that helped various types of small businesses.

In total, JLARC staff identified and reviewed two meta-analyses and 20 academic studies on the ef-
fectiveness of programs that support small businesses. The majority of studies found evidence that
providing assistance to small businesses has a positive effect on business outcomes (e.g., business
employment, sales, survival, etc.). The citations for the studies reviewed are below.

“Evidence Review 2: Business Advice.” June 2016. What Works Centre for Local Economic
Growth.

“Small Business Assistance Programs in the U.S.: An Analysis of What They Are, How
Well They Perform, and How We Can Learn More.” September 2008. RAND Insti-
tute for Civil Justice working paper series.

Academic studies

Armstrong, Craig E., Craig, Ben R., Jackson III, Wiliam E., and Thomson, James B. 2010. “The
importance of financial market development on the relationship between loan
guarantees for SMEs and local market employment rates.” Federal Reserve Bank of
Cleveland, Working Paper No. 10-20.

Bertoni, Fabio, Marti, Jose, and Reverte, Carmelo. 2019. “The impact of government-sup-
ported participative loans on the growth of entrepreneurial ventures.” Research Pol-
icy, Volume 48, Issue 1, pp. 371-384.

Brown, J.D. and Earle, J.S. 2017. “Finance and Growth at the Firm Level - Evidence from
SBA Loans.” The Journal of Finance, 72(3): 1039-1080.

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76
Appendixes

Brown, J.D. and Earle, J.S. 2012. “Do SBA loans Create Jobs? Estimates from Universal
Panel Data and Longitudinal Matching Methods.”

Chandler, Vincent. July 2012. “The economic impact of the Canada small business financ-
ing program.” Syall Business Economics, Vol. 39 Issue 1, pp. 253-264.

Conroy, Tessa; Low, Sarah A.; Weiler, Stephan. Jul. 2017. “Fueling Job Engines: Impacts of
Small Business Loans on Establishment Births in Metropolitan and Nonmetro
Counties.” Contemporary Economic Policy, Vol. 35 Issue 3, pp. 578-595.

Cortes, Bienvenido S. and Yao Ooi, Zheng. 2017. “The Impact of SBA Lending Activity on
Micropolitan Statistical Areas in the US Southeast.” The International Journal of Business
and Finance Research, v. 11 (2) pp. 1-8.

Krishnan, Karthik; Nandy, Debarshi K.; and Puri, Manju. 2015. “Does Financing Spur Small
Business Productivity? Evidence from a Natural Experiment.” Review of Financial
Studies, Society for Financial Studies, vol. 28(6), pp. 1768-1809.

Lee, Yong Suk. Jan. 2018. “Government guaranteed small business loans and regional
growth.” Journal of Business Venturing, Volume 33, Issue 1, pp. 70-83.

Lewis, Grant. Dec. 2017. “Effects of federal socioeconomic contracting preferences.” Sail
Business Economus, Vol. 49 Issue 4, pp. 763-783.

Lipscomb, Clifford A.; Youtie, Jan; Shapira, Phillip; Arora, Sanjay; and Krause, Andy. 2017.
“Evaluating the Impact of Manufacturing Extension Services on Establishment
Performance.”

McFarland, Christiana, and J. Katie McConnell. 2013. “Small Business Growth During a Re-
cession: Local Policy Implications.” Economic Development Quarterly 27.2: 102-113.

Mole, K. F et al. Jan 2011. “Broader or deeper? Exploring the most effective intervention
profile for public small business support.” Exvironment and Planning A. volume 43, pp.
87-105.

Monnard, Alexandre; Leete, Laura; and Auer, Jennifer. 2014. “The Evaluation of the U.S.
Small Business Administration's Regional Innovation Cluster Initiative.”

Rupasingha, A., & Wang, K. 2017. “Access to capital and small business growth: evidence
from CRA loans data.” Ayznals of Regional Science, 59(1), 15-41.

Schwartz, Michael. December 2011. “Incubating an I]lusion? Long-Term Incubator Firm
Performance after Graduation.” Growth and Change. Vol. 42 No. 4, pp. 491-516.
Simpson, Mike; Tuck, Nicki; and Bellamy, Sarah. 2004. "Small Business Success Factors: The

Role of Education and Training." Education Training 46.8/9: 481-91. Web.

Solomon, George T:; Bryant, Andrew; May, Kevin; and Perry, Vanessa. 2013. “Survival of the
fittest: Technical assistance, survival and growth of small businesses and implica-
tions for public policy.” Technovation, Volume 33, Issues 8-9, pp. 292-301.

Tingvall, Patrik Gustavsson and Videnord, Josefin. Aug. 2018. “Regional Differences in Ef-
fects of Publicly Sponsored R&D Grants on SME Performance.” Swa// Business Eco-
nomics, pp 1-19.

Young, Andrew T.; Higgins, Matthew J.; Lacombe, Donald J.; and Sell, Briana. Oct. 2014. "The
Direct and Indirect Effects of Small Business Administration Lending on Growth:
Evidence from U.S. County-Level Data." National Bureau of Economic Research
Working Paper No. 20543.

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Appendixes

Appendix E: VSBFA Programs

VSBFA operates several loan programs. All programs primarily serve small businesses, but each pro-
gram has a different purpose and design (Table E-1). For loans, “small business” is defined as meeting
at least one of the following criteria: (1) less than or equal to $10 million revenue for each of the last
three years, (2) less than 250 employees, or (3) less than or equal to $2 million net worth (unless
otherwise stated).

VSBFA also administers one grant program (a previous grant program was eliminated in 2020) as well
as a conduit bond program (Table E-1). The conduit bond program contains several legally distinct
types of bonds (e.g., industrial development bonds) and primarily serves large businesses and non-

profit organizations.

TABLE E-1

VSBFA has eight financing programs that primarily serve small businesses

Program

Description

Direct loans

Microloan

Economic
Develop-
ment Loan
Fund

Child Care
Financing
Program

For direct loans, VSBFA determines the loan terms, provides the funds to the business, and re-
ceives repayments from the business.

Provides small loan amounts.

Business must be small and operating at least two years.

Maximum amount of the loan is $10,000, but rises to $25,000 if the business provides
a referral from an entity where it received business advisory services.

Interest rates are 6%. State-funded.

Promotes economic development, particularly in economically distressed areas of the
state.

Recipients must be one of the following: (1) Virginia economic development entities,
(2) businesses engaged in specified industries (e.g., renewable energy, technology),
(3) businesses that previously derived 15% or more of their revenues from defense-
dependent activities and can demonstrate economic hardship related to defense
downsizing. Businesses must be small and create or save full-time jobs through the
loan.

Minimum amount is $50,000; maximum is the lesser of $500,000 or 40% of project
cost (but higher for economically distressed localities).

Interest rate is 75% of the prevailing prime rate (the amount that commercial banks
use for strongest business clients) when the locality is involved, but varies when the
loan is directly to a business. Applications that don’t meet federal Economic Develop-
ment Administration requirements for federal funds can be approved by VSBFA us-
ing a state funding source.

Finances health, safety, and educational improvements by child care centers and
family home providers. Administered on behalf of the Virginia Department of Social
Services, which funds the program through a federal grant.

Maximum is $150,000 for child care centers and $100,000 for family home providers.
Interest rate ranges between 0 and 4%, but temporarily reduced to 0% for all provid-
ers because of COVID.

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Support loans

Loan
Guaranty

Cash
Collateral

Capital
Access

Direct grants

Small
Business
Investment
Grant

Small
Business
Jobs Grant

Conduit bonds

Appendixes

Banks determine the loan terms (e.g., interest rates), provide the funds to the business, and re-
ceive repayments from the business. VSBFA’s role is to commit financial assistance to the banks
if the loans are not repaid. Bank and VSBFA must mutually approve loans.

Allows commercial bank to reduce lending risk to small businesses.

Recipient must be a nonprofit or a small business.

Maximum amount is lesser of $750,000 or 75% of bank's loan. VSBFA provides no
funds to bank unless business defaults. State-funded.

Supplements a business's inadequate collateral, if business otherwise demonstrates
sufficient cash flow.

When loan is approved, VSBFA places funding in loss reserve account at participating
bank; the funding is reserved for that particular loan.

Initially funded by the U.S. Treasury's State Small Business Credit Initiative.

Mitigates banks’ risk in lending to small businesses. Businesses must be small.
Maximum across all loans approved for a particular bank is $500,000.

VSBFA places funding in loss reserve account at the participating bank; the funding is
available for all Capital Access loans by the bank. Banks put matching funds into the
same account.

Initially funded by the U.S. Treasury's State Small Business Credit Initiative.

Encourages private capital investment in small businesses. Businesses must be small
(i.e, no more than 50 employees in Virginia and $5 million annual gross revenues).
Cannot be a sole proprietorship or have obtained more than $5 million in aggregate
gross cash proceeds from the issuance of its equity or debt investments. The investor
cannot be a professional investor.

An eligible investment is cash equity or subordinated debt.

Grant amount is the lesser of 50% of the investment or $50,000, with a lifetime maxi-
mum per investor and annual maximum per business.

Offsets some costs of hiring new employees.

Eligible businesses must be small (i.e. no more than 50 employees and $3 million in
average annual revenues), create at least 5 new jobs within two years of first hire, pay
minimum entry wage at least 1.25 times the federal minimum wage (with exceptions
of high unemployment areas), make a new capital investment of at least $50,000, be
in specified industries, and have 35 percent of revenues from out-of-state.

Approved businesses can receive between $500 and $2,000 per new job.

Eliminated by the General Assembly in 2020.

VSBFA is the “conduit” between a business or nonprofit wanting a bond to finance a
project and the tax-exempt bond market. Federal law defines projects that are eligi-
ble.

VSBFA assists with administrative tasks such as publishing notices about the bond,
and hosts the mandatory public hearing at its regular board meetings. Bonds ap-
proved by VSBFA’s board are also reviewed by the Office of the Attorney General,
Virginia Treasury, and governor.

Business/nonprofit is fully responsible for repaying bondholders. VSBFA's involvement
allows bondholders to avoid federal taxes on interest payments.

VSBFA charges a conduit bond application fee of $1,000 and an annual fee of 0.1%
of outstanding principal amount.

SOURCE: JLARC review of Code of Virginia; VSBFA policies and applications; and interviews with VSBFA staff.
NOTE: The table lists the primary eligibility requirements and program characteristics; it is not exhaustive.

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VSBFAs utilization rate has varied across programs (Tables E-2 and E-3). The program utilization
rate is the share of money used for a particular program out of the amount of money available. JUARC
calculated annual utilization rates for each loan and grant program. (See Appendix B for detailed ex-
planations of the calculation methodology and assumptions.)

TABLE E-2

Loan utilization by program and fiscal year
Program 2016 2017 2018 2019 2020°
State-funded programs # 80% 123% 15% 23% 21%
Child Care Financing Program 4% 6% 1% 1% 3%
Federal Economic Development
Loan Fund 30% 5% 0% 2% 37%
Cash Collateral 1% 145% 83% 12% 5%
Capital Access 93% 21% 10% 4% 36%
Total 46% 45% 8% 10% 24%

SOURCE: JLARC analysis of VSBFA data.
NOTE: ® State-funded programs consist of the Loan Guaranty Program, microloan, and state Economic Development Loan Fund. They
are combined because VSBFA can transfer funds between programs. » 2020 data is limited to spending through June 12, 2020.

TABLE E-3

Grant utilization by program and fiscal year
Program 2015 2016 2017 2018 2019 20202
Small Business Investment Grant 6% 17% 58% 100% 100% 54%
Small Business Jobs Grant 19% 14% 13% 9% 1% 100%
Total 14% 15% 32% 55% 52% 56%

SOURCE: JLARC analysis of Department of Planning and Budget data.
NOTE: 2 $712,082 was transferred from the SBJG to the SBIG in FY20. Without that transfer, the SBIG’s deployment rate would have been

100% and the SBJG’s deployment rate would have been 8%.

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Appendixes

Appendix F: Supplemental small business definition analyses

Virginia currently defines a small business as having up to 250 employees OR up to $10 million in
gross receipts averaged over the three previous years. Some certified small businesses are also eligible
to be certified as micro businesses, which can have up to 25 employees. AND up to $3 million in gross
receipts averaged over the three previous years.

This appendix provides additional information to help inform discussions about Virginia’s small busi-
ness definition. The following topics are covered:

e Virginia’s small business definition compared to definitions used by other states and the federal
government and

e the size of Virginia businesses (including those that are currently certified as “small” or “mi-
cro” and Virginia businesses more broadly).

Compared with other states, Virginia’s small business definition allows for more
employees and does not vary by industry

JLARC identified 25 other states (including the District of Columbia) that have a small business def-
inition. (Some of these states have multiple small business definitions for different industries.) JLARC
compared Virginia’s definition to the definitions used in these 25 states to benchmark current employ-
ment and gross receipts thresholds.

The US. Small Business Administration’s (SBA) industry-specific small business definitions were also
reviewed and used for benchmarking. The SBA has over 1,000 definitions for different industries (or
sub-sectors), each with an employment or revenue component.

Virginia's small business definition compared to other states’ definitions

Like Virginia, all 25 states with small business definitions used the number of employees and/or some
form of business revenue (e.g., gross receipts or gross sales) to define small businesses. States use
widely varying employment or revenue thresholds to define small businesses. Georgia, for example,
defines a small business as having 300 or fewer employees, while Wisconsin defines a small business
as having 25 or fewer employees. The District of Columbia defines a business as small (in certain
industries) if it has up to $300 million in revenue, while Louisiana defines a business as small if it has
up to $1.5 million in revenue.

Some states require that business do not exceed both employment and revenue thresholds to be con-
sidered small, while others require that businesses do not exceed only one threshold. For example,
Pennsylvania, Delaware, Florida, and California use “and” in their definitions and require a business
to meet both employment and revenue thresholds. Other states including Maryland, West Virginia,
Georgia, Alabama, Wisconsin, and Arizona, use “or” in their definition and require businesses to meet
only one of the thresholds.

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Virginia’s small business definition has a higher employee threshold than many other states, but its
revenue threshold is stmilar (Figure F-1). The median of other states with definitions is 100 employees;
Virginia’s definition allows 2.5 times as many employees. Virginia’s revenue threshold of $10 million
is more in line with the median revenue allowed by other states, which is $9 million.

In contrast with Virginia, several other states have small business definitions that differ by several
industry groups. For example, Indiana, Maryland, the District of Columbia, New Jersey, Indiana, Or-
egon, and Nevada have varying definitions for several broad types of industries (e.g. retail, manufac-
turing, construction). Oregon, New Jersey, and Nevada have separate definitions only for the con-
struction industry. Most of these states do not have as many industry definitions as the federal
government, except Colorado, which defines small business at 50 percent of the federal SBA defini-
tions for over 1,000 industries.

FIGURE F-1
Virginia’s small business definition allows more employees than other states,
but Virginia’s revenue threshold is comparable

300 $35M
200 25
150 au
15
100 ————— Median
50 - 5
0 0
Employment Revenue or

proxy

SOURCE: JLARC staff analysis of information collected from other state websites and documentation about small business programs and
definitions.

NOTE: Includes the District of Columbia and 25 states, including Virginia. The District of Columbia allows up to $300 million in revenue for
certain industries. This outlier data point is not shown for scaling purposes.

Virginia's small business definition compared to the federal SBA's industry-specific definitions

Virginia’s small business definition does not differ by industry like the federal government’s definition.
Across industries, the Small Business Administration’s allowable employment ranges from 100 em-
ployees to 1,500 employees, while allowable revenue ranges from $1 million to $41.5 million. Most of
SBA’s industry definitions exceed Virginia’s current small business definition thresholds. Specifically,
more than 75 percent of the SBA industry definitions (760 industries) have employment thresholds
above 250 employees or gross receipts thresholds above $10 million.

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Appendixes

Vast majority of Virginia businesses are substantially smaller than definition’s
maximum thresholds

JLARC staff compiled many data points about the size of Virginia businesses. Summary statistics
were generated to show the size distribution of businesses that are currently certified as small by the
Department of Small Business and Supplier Diversity (GBSD). As of April 2020, SBSD had about
10,500 certified small businesses, more than half (58 percent) of which were also certified as micro
businesses.

Additionally, summary statistics were generated to show the size distribution of Virginia businesses
more broadly (including certified and non-certified businesses). According to data collected by the
Virginia Employment Commission, there were about 187,000 active businesses in the state at the end
of 2019. (This excludes some businesses, including small sole proprietorships and other businesses
that are outside the purview of the Virginia Employment Commission.)

These data points about certified small businesses and Virginia businesses more broadly can be used
to determine the proportion of businesses that fall under certain size thresholds, as well as the pro-
portion of businesses that significantly exceed size thresholds. This information can inform discus-
sions about potential changes to the small business definition.

Size of certified small businesses in Virginia

Data shows that many certified small businesses in Virginia are fairly small in terms of employment
and gross receipts (Table F-1). Fifty percent (the median) of certified small businesses had no more
than 14 employees and $3.2 million in gross receipts. Seventy-five percent of certified small businesses
had no more than 38 employees and $7.1 million in gross receipts.

TABLE F-1
Most certified small businesses have low employment and gross receipts

Percentiles, by size
5th 10th 25th 50th 75th 90th 95th

Small certification
Employees 0 1 2 14 38 eT 115
Gross receipts ($) 31,383 110,744 713,207 3,236,540 7,140,396 16,341,692 25,453,499
Micro certification
Employees 0 0 1 2 5 11 16
Gross receipts ($) 4,680 13,474 63,220 286,273 843,224 1,672,591 2,179,480

SOURCE: JLARC analysis of SBSD business certification data (as of April 2020).

The vast majority of certifted small businesses (94 percent) are below Virginia’s small business defini-
tion thresholds for both employment and revenue. The remaining 6 percent of businesses qualify as
“small” because they are below the maximum threshold for employment or revenue—but not both.
Of these businesses, the vast majority are below the employment threshold but considerably above
the revenue threshold (Figure F-2).

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Appendixes

Although most certified small businesses are very small, because businesses must be below only one
threshold, a small subset of businesses are certified but have substantially more revenue or employees
than most other certified businesses. For example, one certified small business has fewer than 250
employees but $397 million in annual gross receipts. Similarly, a certified small business has less than
$10 million in revenue but 1,900 employees.

FIGURE F-2
Some certified small businesses exceed the revenue threshold but still qualify under the
employment threshold

Revenue

$20M
18 '

,

i

} Employment
14 | threshold
12

e., ° ' Revenue
threshold

150 200 250 300

SOURCE: JLARC analysis of SBSD certification data (as of April 2020).

NOTE: Out of 10,488 certified small businesses, 12 businesses exceeded the employment threshold, and 610
businesses exceeded the revenue threshold. For scaling purposes, extreme outliers have not been shown in
this graph. There are 247 businesses with more than $20M in revenue and 9 businesses with

more than 300 employees not shown in the graph.

Size of all Virginia businesses

Most Virginia businesses are small when measured by employment and total wages (Table F-2). Fifty
percent (the median) of Virginia businesses had no more than three employees and $100,422 in total
wages (a proxy for gross receipts, due to data limitations). Seventy-five percent of Virginia businesses
had no more than nine employees and $336,605 in total wages.

Most businesses in Virginia would likely meet the size parameters of Virginia’s current definition of
small business if they sought certification. Nearly all (99 percent) Virginia businesses would meet the
employment threshold of Virginia’s current small business definition (250 employees), and 98 percent

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Appendixes

might qualify under Virginia current gross receipts threshold ($10 million) using total wages as a proxy
for gross receipts.

According to businesses that responded to JLARC surveys in 2016 and 2020, many businesses that
are eligible do not pursue small and/or micro certification because of lack of awareness, the admin-
istrative burden of applying, and uncertainty that it will help them compete for contracts.

TABLE F-2
Most Virginia businesses have low employment and total wages

Percentiles, by size

5th 10th 25th 50th 75th 90th 95th
Virginia businesses
Employees 1 1 1 3 9 28 59
Total wages ($) 7,200 12,997 30,000 100,422 336,605 1,162,303 2,742,321

SOURCE: JLARC analysis of Virginia Employment Commission data on Virginia businesses (as of 2019),

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Appendixes

Appendix G: Agency response

As part of an extensive validation process, the state agencies and other entities that are subject to a
JLARC assessment are given the opportunity to comment on an exposure draft of the report. JLARC
staff sent an exposure draft of the full report to the Department of Small Business and Supplier
Diversity and the Secretary of Commerce and Trade. JLARC staff also sent relevant sections of the
report to the Department of General Services.

Appropriate corrections resulting from technical and substantive comments are incorporated in this
version of the report. This appendix includes a response letter from the Department of Small Busi-
ness and Supplier Diversity.

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Ralph S. Northam

Governor
R. Brian Ball Department of Small Business and Supplier Diversity Tracey G. Wiley
Secretary of Commerce & Trade Director

September 4, 2020

Mr. Hal Greer

Director

Joint Legislative Audit and Review Commission
919 East Main Street

Suite 210]

Richmond, Virginia 23219

RE: Virginia Department of Small Business Supplier Diversity and Virginia Small Business Financing Authority
Response to JUARC Report — Operations and Performance

Dear Mr. Greer:

We appreciate the opportunity to provide written response to the draft JUARC report regarding Operations and
Performance and want to thank the JUARC team that conducted the study for their work. Having reviewed the report we
have the following comments on the recommendations affecting programs administered by the Virginia Department of
Small Business and Supplier Diversity (SBSD) and Virginia Smal] Business Financing Authority (VSBFA):

Recommendation #1 —

Response: The agency recognizes the benefit of precertification webinars and has recorded and posted a new
webinar on its website that describes the SWaM certification process, the documents required and their purpose, and the
information required in the documents.

Recommendation #2 ~

Response: The agency agrees that businesses applying for certification initially who may have been denied
erroneously should have the right to appeal. Therefore, the agency will implement a policy that allows businesses denied
initial certification the opportunity to appeal if the company believes the denial was made in error.

Recommendation #3 —

Response: While denial letters already include information that outlines the (i) circumstances and grounds for
businesses to appeal the decision or seek a waiver; (ii) processes a business must follow for filing an appeal or seeking a
waiver; and (iii) the documentation businesses should provide when filing an appeal or seeking a waiver, the agency has
added more information to the denial letters in an attempt to more clearly describe these points.

While this information is already included in the denial letters sent to businesses, the agency has also added this
information to its website to inform businesses of the right to file an appeal or seek a waiver. The information generally
describes the circumstances in which appeals and waivers are available remedies and the process for seeking each.

Recommendation #4 —

Response: While the agency uses a variety of means to market and promote the assistance and development
programs offered we agree, a written marketing plan would add value to that process. The agency also sees the value in
recording and posting program materials so businesses can view that information at their convenience.

Recommendation #5 —

Response: The Business One Stop application has never met the statutory requirements outlined in Code. To
meet the statutory requirements the system and the agency would need to be resourced differently. The system as
intended would need to share data and financial information between a number of local and state entities requiring
cooperation, security protocols, and advanced system functionality. True one stop applications, as documented in the
study, require a great deal of funding and coordination to be successful. The agency agrees a study should be conducted

101 N. 14" Street, 11th Floor * Richmond, Virginia 23219 » (804) 786-6585 * Fax (804) 786-9736
and presented to the General Assembly to determine if the scope of the one stop should be scaled back or if additional
funding should be appropriated to ensure the one stop meets its statutory requirements.

Recommendation #6—

Response: The Authority sets annual goals for loan volume, private sector leverage (the amount of bank debt closed
with our credit enhancement programs and bond program), and job creation and retention, which are all mission essential.
Although informal, fund utilization and market conditions are always planning considerations for setting these goals.
Therefore, a formal loan to fund utilization ratio/goal shall be established, monitored and reported to the Board.

Recommendation #7—

Response; The Authority shall create a “Dashboard” to report meaningful performance and mission metrics to
the Board at least annually. The percentage of loan and grant program funds that are utilized or awarded shall be included
in the Dashboard.

Recommendation #8—

Response: In accordance with the direction and approval of the Board a Loan Policy Manual (Manual) shall be
developed to establish standardized lending guidelines and to document acceptable credit risks, terms and conditions, and
generally accepted practices for the primary purpose of making direct loans to small businesses and economic development
authorities and provide credit enhancement programs to encourage community financial institutions to make loans to small
businesses.

Recommendation #9 -

Response: Risk assessment shall be governed by the Loan Policy Manual. The Manual shall reflect the level of
risk that is acceptable to the Board of Directors and should provide clear and measurable underwriting standards that enable
the Authority's lending staff to evaluate all relevant credit and risk factors.

Recommendation #10 -

Response: A Risk Classification System shall be a component of the Loan Policy Manual. VSBFA recognizes
that lending involves varying degrees of risk, which must be identified, managed and monitored through established risk
rating standards. The ability to accurately risk rate the loan portfolio will enable the Authority to identify and monitor high-
risk credits and ensure appropriate risk management in order to make informed portfolio decisions and provide risk profiles
to the Board.

Recommendation #11 —
Response: The Authority agrees that banks should report high-risk loans and will add that to the participation

agreement.

Recommendation #12 -
Response: The Authority shall establish timeframe guidelines for processing loan applications for each type of

loan, and shall monitor the loan process time for each loan category and credit enhancement program that it offers. However,
the timeframe that is subject to measurement shall begin at the point where the lender has received all of the required and
requested documentation to assess the loan request, author the credit memorandum, and present it to management for
approval. This timeframe is likely to vary widely due to the different size and nature of the opportunities offered in each
loan or credit enhancement category.

Recommendation #13 -
Response: The Authority’s Board represents the constituency that we serve, which are small business owners

across the Commonwealth. They are invaluable proponents of programs, such as ours, that provide equitable distribution of
capital to the small businesses that are often unsuccessful in garnering support from public sector financing. We also believe
the Board should have social, ethnic and gender diversity, which it strives to balance when considering candidates presented
by the Office of the Governor (OG) the final board appointment decision maker. Given that this recommendation is outside
of the control of the Authority or the Agency, we recommend this be a policy consideration not a recommendation.

Recommendation #14 -
Response: The Authority recognizes the benefits of developing a program improvement plan that addresses the
deficiencies outlined in this report and shaJl present such pian as directed by June 30, 2021.
Recommendation #15 —

Response: While the agency agrees there is value in working with each agency in the Commonwealth individually
to establish agency specific SWaM spend goals this would be difficult with the staffing and resources currently available.
There are over 200 agencies that would need support to develop and execute these plans. This change in strategy would
also need to be approved and implemented by the Governor.

Recommendation #16 —

Response: As noted in Recommendation 15, the Agency agrees there is value in assisting other agencies with the
development of strategies that would increase SWaM spend but this would require additional staff and resources than is
currently available within the agency.

Option #1 —

Response: The Agency’s Business Development and Outreach Services team already refers small businesses to
appropriate business resource partners whose niche is in areas not covered by our agency. As noted in the study, the
majority of business counseling sessions conducted by the outreach team is related to SWaM Certification, eVA
registration, or technical assistance in finding a targeted market within state government.

Option #2 -

Response: The Agency agrees that offering the program statewide has been extremely successful and will
continue with that model. The current licensing agreement for the program limits participation to ensure adequate
support. The agency would have to purchase additional licenses to offer the program to additional participants, which
could be cost prohibitive unless additional resources are allocated to the program.

Option #3 -

Response: The Authority agrees that expanding the microloan program to start-up firms using a pilot model has
merit. However, lending to start-up firms increases risk exponentially and could result in program losses that impede the
Authority’s ability to lend in that program. A grant program could be more impactful for small business startups and an
option that could be confidently supported and implemented.

Option #4 —-

Response: Although a consistent statewide aspirational goal of 42% for all agencies seems fair at first glance, it
may not be realistic for each agency. Some agencies are constricted in their discretionary spend because of dynamics
beyond their control. It may be more effective if each agency has its own aspirational, but achievable, SWaM goal. This
however, would require additional staff and resources for the Agency to implement.

Options #5, 6, 7, 8 and 9-

Response: These options all relate to the proposed change of the small business definition. The Agency would
like to highlight that some of these options introduce complexities into the certification process that will lengthen the
certification processing timeframe and introduce confusion for businesses applying for certification. Some of these policy
options would need to be evaluated to determine their impact on the small business community as well as the actual
program parameters to be used. While some have less impact than others each will require retraining of staff, changes to
Agency technology, and rebranding to the business community. Lastly, it is worth noting that any change to the
certification process or smail business definition without subsequent changes to the application within the procurement
process may not have the intended effect.

Option #16 —
Response: The Agency agrees that developing a workgroup to evaluate the results of the Disparity Study, being
conducted currently, could help to determine if changes in procurement policy, specifically set-asides for SWaM

businesses, are warranted and how those changes, if necessary, would be implemented.

ely,

cey Wiley
DSBSD Director
|
|
|

JILARC. VIRGINIA.GOV

919 East Main Street Suite 2101 Richmond, VA 23219
PORTSMOUTH

PUBLIC SCHOOLS

SHINING BRIGHTER TOGETHER

FACT SHEET - HOUSE BILL (HB) _1404 - 2024 SESSION

HB 1404 Department of Small Business and Supplier Diversity: Small Business
Procurement Enhancement Program and Women-owned and Minority-owned Business
Procurement Enhancement Program established:

e HB 1404 - Introduced in the 2024 General Assembly by Delegate Jeion Ward (Chief
Patron) and Delegate Luke Torian (Co-Patron), codifies Executive Order (EO) 20:
Advancing Equity for Small, Women and Minority-owned Businesses, issued by
former Governor Terence McAuliffe on 1/11/2014 and Executive Order (EO) 35:
Advancing Equity for Small, Women, Minority and Service Disabled Veteran-
owned Businesses in State Procurement, issued by former Governor Ralph
Northam on 7/3/ 2019, to address the egregious disparity in the State procurement
contracting program.

e The bill establishes the Small Business Procurement Enhancement Program within
the Department of Small Business and Supplier Diversity (SBSD), with a statewide
goal of 42% utilization in discretionary spending for all small businesses in
procurement orders, prime contracts and subcontracts; and a target goal of 50%
subcontracting to certified businesses, when the Prime Contractor is not a small
business.

e The bill provides that executive branch agencies and covered institutions increase
their SWaM business utilization rate by 3% per year until the target goal of 42% is
reached or if they cannot do so, to implement achievable goals to increase their
utilization rate.

e The bill contains a SWaM set-aside up to $100,000 for the purchase of goods,
services and construction by executive branch agencies and covered institutions.

e The bill also requires SBSD to conduct a Disparity Study every 5 years with the next
study due no later than January 1, 2026.

e The bill amends the Virginia Public Procurement Act to allow localities to establish

purchase procedures not requiring competitive sealed bids or competitive

negotiations for single or term contracts for the purchase or lease of goods, services,
insurance or construction.

BACKGROUND

e The egregious disparity in the State procurement contracting program has been
documented by two (2) independent consulting firms, hired by the State Department
of Minority Business Enterprise (DMBE) in 2004 (Warner Administration) and the
State Department of Small Business and Supplier Diversity (SBSD) in 2010 (Kaine
Administration), 2011 (McDonnell Administration) and 2020 (Northam
Administration), to conduct studies to determine if inequities exist in the State
procurement contracting program that adversely affects Disadvantaged Businesses,
which includes, by Federal definition - White Women and Minority-owned Businesses
(Blacks, Asians, Hispanics, Indians and other ethnic groups).

The 2004 Disparity Study revealed that Women and Minority-owned Businesses
only received 1.27% or only $64 million statewide, of over $5 billion in contracts
issued annually to the private sector by the State.

The 2010 Disparity Study did not show any significant progress made by the State
to correct the disparity in the procurement contracting program, with Women and
Minority-owned Businesses only receiving 1.50% or $75 million of over $5 billion
in contracts issued annually to the private sector by the State.

EO 20 and EO 35 are the only tools used by the State, to date, that have positively
impacted the State’s procurement contracting program for Women and Minority-
owned Small Businesses, resulting in an increase from $75 million annually -
statewide - to $3.1 billion out of $20 billion in contracts, issued by the State, in the 4
years after it was issued (2014-2018); and up to $8.7 billion out of $32 billion in
contracts, issued by the State, over the last 4 years (2019-2022).

While the State has not reached the recommended 32.8% goal for contracts issued to
Women and Minority-owned businesses, based on availability and usage, contained
in the 2020 Disparity Study, Virginia is heading in the right direction.

The problem is Executive Orders can be removed by an incoming Governor, which
made codification of EO 35 essential to ensuring continued progress for all Small
Businesses in the Commonwealth. HB 1404 eliminates this problem and ensures
discrimination does not occur in State procurement contracting.

Businesses seekang to benefit from the program must be SWaM certified by the
Virginia Department of Small Business and Supplier Diversity (SBSD).

This new initiative is a race and gender neutral program.

House Bill 1404 will work for all small businesses in Virginia by increasing the
aspirational goal for SWaM spend to 42% and enhancing set asides currently in
place.

We urge the members of the Public Body Procurement Work Group to recommend
supporting HB 1404 as approved by the 2004 General Assembly.

Sources: U.S. Census Bureau, U.S. Department of Commerce, 2018. Note: The 2020 Census data for each category is
not available at this time. State Disparity Study Recommendations, 2004, 2010 and 2020; MGT of America, Inc., BBC
Research; Virginia Department of Small Business and Supplier Diversity.
2020 COMMONWEALTH OF VIRGINIA DISPARITY STUDY
PREPARED BY BBC RESEARCH & CONSULTING — JANUARY 2021

FY 2014 MBE: $ 260,593,692.38 4.65% Non-SWaM Spend $3,783,514,210.29
WBE $ 267,279,755.57 4.77%
SBE $1.291,694,839.02 23.05%

FY 2015 MBE $312,871,773.96 5.56% Non-SWaM Spend $3,579, 179,365.24
WBE $327,85 1,671.96 5.82%
SBE $1,409,619,811.10 25.04%

FY 2016 MBE $396,159,934.33 5.88% Non-SWaM Spend $4,113,846,435.03
WBE $396,934,901.80 6.09%
SBE $1,612,196,234.00 24.73%

FY 2017 MBE $310,365,091.52 6.08% Non-SWaM Spend $4,567,903,793.29
WBE $287,605,725.41 4.35%
SBE $1,480366,966.40 22.37%

FY 2018 MBE $385,696,383.60 5.88% Non-SWaM Spend $4,491 ,311,518.45
WBE $312,891,142.67 4.77%
SBE $1,372,237,305.30 20.91%

TOTAL MBE SPEND $1,665,686,895.59 5.4% of Total Spend
TOTAL WBE SPEND $1,592,563,197.41 5.1% of Total Spend
TOTAL M/WBE SPEND $3,258,250,093.00 10.5% of Total Spend
TOTAL NON-SWaM SPEND $§ 20,535,755,322.30 66.4% of Total Spend
TOTAL SBE SPEND §$ 7,166,115,155.82 23.2% of Total Spend

Total SWaM and NON —SWaM spend $ 30,930,102,551.73

The recommended Goal, based on availability and utilization, according to BBC Research,
for the Commonwealth for M/WBEs is 32.8% or $9,279,030,765.51 of the Total Spend for
goods and services.

Note: Figures were taken from the Commonwealth of Virginia’s web site (sbsd.virginia.gov) Quick Links; Expenditure
Dashboard reports of the Cotmmonwealth’s spending for the fiscal years, 2014 through 2018.
APPROVED Meeting Minutes

Public Body Procurement Workgroup

Meeting # 3
Wednesday, August 21, 2024, 1:00 p.m.
House South Subcommittee Room, 2" floor
General Assembly Building
201 North 9" Street, Richmond, Virginia 23219

The Public Body Procurement Workgroup (the Workgroup) met in-person in the House South
Subcommittee Room in the General Assembly Building in Richmond, Virginia, with Sandra
Gill, Deputy Director of the Department of General Services (DGS), presiding. The meeting
included with approval of the previous meeting minutes, presentation on HB 1404 by
Gwendolyn S. Davis, public comment on HB 1404, Workgroup requested presentations on HB
1355, public comment on HB 1355, discussion of preliminary findings and recommendations on
HB 1355, public comment and discussion on SB 492, and discussion by the Workgroup
members. Materials presented at the meeting are available through the Workgroup’s website.

Workgroup members and representatives present at the meeting included Sandra Gill
(Department of General Services), Verniece Love (Department of Small Business and Supplier
Diversity), Joshua Heslinga (Virginia Information Technologies Agency), Lisa Pride (Virginia
Department of Transportation), Jason Saunders (Department of Planning and Budget), Patricia
Innocenti (Virginia Association of Governmental Procurement), Kimberly Dulaney (Virginia
Association of State Colleges and University Purchasing Professionals), Andrea Peeks (House
Appropriations Committee), Mike Tweedy (Senate Finance and Appropriations Committee),
Leslie Haley (Office of the Attorney General), and Rebecca Schultz (Division of Legislative
Services).

I. Call to Order; Remarks by Chair
Gill called the meeting to order and moved into the second agenda item.
II. Approval of Meeting Minutes from the August 21, 2024 Workgroup Meeting
Heslinga made a motion to approve the meeting minutes from the August 21, 2024,

meeting of the Workgroup. The motion was seconded by Love, and unanimously
approved by the Workgroup.
IV.

Presentation on HB 1404

Gwendolyn Davis, M/WBE Administrator with the Portsmouth Public Schools presented
HB 1404 to the Workgroup and asked for support of the bill in its current form, stating
that she requested the bill. Davis explained that Senator Louise Lucas requested the first
disparity study in 1997 and provided two handouts while informing the Workgroup that
HB 1404 codifies executive orders that have been issued, noting the first executive order
was issued in 2014 by Governor McAuliffe. Davis stated that with the executive orders,
DGS and other agencies stepped up and the numbers went up for women and minority
spend from $75 million to $3.1 billion spend.

Davis explained that the bill creates the small business procurement enhancement
program within the Department of Small Business and Supplier Diversity (DSBSD). She
stated that in 2004 MWBE’s received only 1.26% of spend and the 2020 disparity study
reported that spend should be at 32% instead of 11%, adding that the issue has been
studied so much and now they want to see action. Davis explained that during the
pandemic business owners in the 757 were impacted and have not recovered so the
General Assembly needs to act, stating that the numbers don’t lie. She explained that the
disparity study is good for about five years and needs to be redone to determine progress.

Davis stated that the bill has been vetted by many administrations and the Office of the
Attorney General for years and it is one of the best pieces of legislation, sharing that the
numbers are not aspirational, that they are concrete, which is needed to make progress in
Virginia. Davis shared that business owners have told her that they had to leave the state
because they are not getting the help that they need. She shared that she believes the 42%
is achievable. Davis continued her remarks pointing out that the bill assures prompt
payment which is important because a lot of business owners say it takes 90-100 days
before they receive payment. The bill also addresses the set asides for WM businesses up
to 100K for the purchase of all goods, services, and construction but does not include
transportation because that has not been studied. Davis stated that the bill requires
subcontracting plans, sharing that in procurement when verifying a subcontracting plan a
lot of times subcontractors do not know that their names are included on the plan, so
that’s why the plan is important. The bill allows local governments to establish purchase
procedures that don’t require competition for a single term contract. Lastly, the bill
requires DSBSD to conduct a disparity study every five years because that’s the only way
we will know if we are doing business with all qualified businesses available.

Public Comment on HB 1404
Public comments in support of HB 1404.

The first stakeholder to comment was Tonya Poindexter of the Northern Virginia Black
Chamber of Commerce. Poindexter said that she wants to ensure that her members
receive the resources they need and many members say that they go through the
procurement process for state contracts and are unable to get through the process and
unable to achieve their goals of getting a state contract. She concluded her remarks
expressing support for this bill as it stands and says it will help her members achieve their
goals of getting state contracts.

The second stakeholder to comment was Samuel Wiggins, the CEO of Virginia Minority
Chambers. Wiggins shared his support for the bill and explained that when a minority
business applies for a state contract and sees that their SWaM certification has been
reduced to bonus points, that is disheartening. He shared that prior experience is asked for
in procurements and if you don’t have prior state experience then it drives you to the
private sector or federal government because they have better programs.

The third stakeholder to comment was Loranna Justine who expressed support for the
bill.

Public comments in opposition.

The first stakeholder to comment was Chris Stone, past chairman for the Hampton Roads
Chamber of Commerce. Stone said that they are not against the bill but have concerns
about two aspects. The first concern is about codifying the 42%, explaining that
executive orders are flexible, and codifying will remove the flexibility requiring the
General Assembly to make any adjustments. The second concern is the definition of
small business, sharing that the definition has not been updated since 1960 and no one
knows where it came from. Stone said the way the definition is written, it allows
companies to have up to 250 employees with unlimited revenue while still being
classified as a small business. Stone shared that in 2018 DSBSD conducted a study with
the Virginia Commonwealth University (VCU) and concluded that the definition of what
a small business needs to be updated and made consistent with today’s business
environment. He shared that in 2020 JLARC conducted a study recommending that the
small business definition be changed as well and pointed to page 63 of the report. He
concluded his remarks stating that the current definition does not help small businesses
and asked for consideration on amending the small business definition.

The second stakeholder to comment was Melissa Ball, a member of the Small Business
Commission and a local small business owner. Ball said she supports initiatives that
promote and help level the playing field for minority owned, women owned, and small
businesses allowing them to participate in the procurement process, adding that it is very
important to health of Virginia’s economy. Ball stated that the addition of the micro
business definition did the opposite of what it was intended to do; by codifying the micro
business definition, it removed many of the small businesses from the process and
implements a one size fits all approach that only looks at businesses headcount. Ball said
that small businesses that are transactional were impacted by the micro business
definition, sharing that her business was impacted by the micro business definition which
caused her company to be placed the same category as Staples. She added that micro
businesses contact her to purchase products from her company then the micro business
sells to the Commonwealth, which results in the Commonwealth paying double or triple
the cost of the item. Ball shared other commodities that this occurs with, such as police
safety items, wildlife trail cams, tools, and maintenance supplies. She concluded her
Vi.

remarks by agreeing with Davis that the federal government has a lot to offer on this
subject and that we should consider the SBA approach to size and numbers for small
businesses.

Presentations on HB 1355

The Workgroup received a presentation from Nathan Moberley of the Office of the
Attorney General (OAG). Moberley shared that the primary concern is ambiguity with
respect to the definition of accessibility. He explained that the bill defines accessibility as
alignment with federal Section 508 Standards and Section 255 Guidelines adopted
pursuant to 29 U.S.C. § 794d and 47 U.S.C. § 255. Moberley explained that the two
statutes implement two different standards to accommodate disabilities and both are
potentially in conflict with one another and referencing both could make it difficult for
covered entities to interpret the standards that apply to them. (Moberley provided his
comments in writing after the meeting. They are available on the PWG website.)

Public Comment on HB 1355
Public comments in support of HB 1355.

The first stakeholder to comment was Barbara Sunder with the University of Virginia
(UVA), representing VHEAP. Sunder shared with the Workgroup that she works with
students with disabilities daily, and supports HB 1355. She stated that everyone will be
impacted by the Title II ADA update and shared that the bill does two things that Title II
does not. First, it addresses outdated state code that has not kept up with the changing
technology world. Second, it provides structure and outlines a plan for how public
entities can begin the uphill battle towards compliance. She explained that Title II sets the
mandate but falls short on providing concrete guidance on how to achieve these goals.
HB 1355 gives public entities a framework and allows pushback to vendors who fall
short on accessibility.

The second stakeholder to comment was Teri Morgan with the Virginia Board for People
with Disabilities. Morgan expressed support for HB 1355, adding that the new ADA rules
go into effect April 2026 which gives the opportunity to create a framework for agencies
and organizations to demonstrate that Virginia understands the importance of
accessibility for all.

The third stakeholder to comment was Ann Flippin with the Autism Society of Central
Virginia. Flippin shared that there are gaps and expressed the importance of the bill for

their community and ensure that Virginia has accessible technology for all.

There were no comments in opposition, in part support/in part opposition, or neutral.
VIL.

Discussion on HB 1355, Preliminary Findings and Recommendations

The Workgroup began discussion on the information received regarding HB 1355.
Saunders commented that a recommendation could be made to conform the state law to
Title II of the ADA requirements for now, and after the implementation of Title II of the
ADA in April 2026, the General Assembly can determine if additional changes are
needed to Virginia’s accessibility standards. Innocenti and Gill both expressed support
for the recommendation. Peeks requested that the recommendation include the same
entities that are required to adhere to the Title II of the ADA.

Innocenti stated that when bringing the state into compliance with the federal
requirements, it would be helpful to determine the priority of compliance and if first the
outward facing systems and applications should be addressed. Peeks sought clarification
as to whether or not outward facing systems would include systems used by students, to
which Innocenti confirmed that students would be included. Gill asked if the federal
government defines outward facing systems or if that is a definition that would be new.

Gill asked the Workgroup to consider a recommendation to change the reporting
requirements, which currently requires reporting to the Secretary of Administration
(SOA), because stakeholders have indicated that the reporting is not being done. She
recommended that reporting go to the General Assembly instead of the SOA and that the
reporting requirements be expanded to include noncompliant websites and fiscal impact
to obtain compliance. Heslinga added that expanding the reporting in that way will make
it more impactful as the current reporting pertains only to instances where the
accessibility clause is excluded. Dulaney asked who would be responsible for the
reporting, to which Gill responded with an example for consideration that SCHEV could
report for Higher Education, DOE for local public schools, etc. Saunders replied that it
would be good to have an entity be responsible for facilitating the reporting instead of
having each covered entity submit individual reports.

Innocenti recommended that lines 131-141 of the bill should be removed to not
incorporate consequences as the procurement process provides the Commonwealth the
authority to address any nonperformance issues that may arise. Peeks clarified that it is
not being removed entirely as it exists elsewhere, it’s being removed because the
procurement process allows contractors to be held responsible, and, if in breach of
contract, the Commonwealth can debar.

Heslinga recommended that the parts of the bill that designate an accessibility
coordinator and the grievance procedure be addressed. He shared that most organizations
have a designated person to handle ADA matters, and in the engrossed bill, it is not
specific about making the accessibility coordinator contact information easily available
and is permissive about designating an accessibility coordinator, then on lines 183 a
grievance procedure is incorporated. Heslinga stated that the accessibility coordinator
information should be easy to identify and readily available, however the surrounding
language regarding the grievance procedure should be removed. Tweedy added that it
VIII.

IX.

XI.

would be helpful to clarify that when contacting the accessibility coordinator that the
barrier to accessibility be provided.

Peeks added that once the general alignment with the federal regulations is made, it
would be helpful to know the additional requirements in the bill that do not align with the
federal requirements.

Innocenti pointed out to the Workgroup that OAG identified issues with the bill using
acquisition and procurement interchangeably and the Workgroup may wish to address
that.

Gill did a review of the recommendations the Workgroup offered and directed staff to
compile into formal recommendations for review at the next meeting.

Public Comment on SB 492
No public comment.
Discussion on SB 492

Gill asked the Workgroup if there is any additional information needed to help facilitate
the discussion to develop preliminary recommendations for SB 492. Hearing none,
Heslinga shared his understanding of the bill, explaining the desire to ensure that child
labor and oppressive labor are not used in the production process for electric vehicles.
Heslinga stated that there are also other areas in which child labor or oppressive labor
may be used, so it should be a policy decision on narrowing it to electric vehicles or
applying to all. Gill confirmed his understanding and pointed to existing terms and
conditions utilized through the procurement process, such as the drug free workplace
term and condition, as an example for ensuring contractors are not using child labor or
oppressed labor. Gill directed staff to compile this into a formal recommendation for
review at the next meeting.

Discussion
No additional discussion.
Adjournment

Gill adjourned the meeting at 2:00 p.m. and noted that the Workgroup’s next meeting is
scheduled for September 4, 2024 at 10:00 a.m.

For more information, see the Workgroup’s website or contact that Workgroup’s staff at
Appendix C: September 4, 2024, Meeting Materials

This appendix contains the meeting materials from the September 4, 2024, Workgroup meeting.
1. Agenda

2. Meeting Materials
3. Approved Meeting Minutes

20
Public Body Procurement Workgroup

https://dgs.virginia.gov/dgs/directors-office/pwg/

Meeting # 4
Wednesday, September 4, 2024, 10:00 a.m.

House South Subcommittee Room, 2" floor
General Assembly Building
201 North 9 Street, Richmond, Virginia 23219

AGENDA
I. Call to Order; Remarks by Chair
II. Approval of Meeting Minutes from the August 21, 2024 Workgroup Meeting
III. Presentation on HB 1524
The Honorable Alfonso H. Lopez
House of Delegates
IV. Public Comment on HB 1524
V. Public Comment on Draft Recommendations on HB 1355
VI. Finalize Recommendations on HB 1355
VII. Public Comment on Draft Recommendations on SB 492
VIII. Finalize Recommendations on SB 492
IX. Public Comment on HB 1404
X. Discussion on HB 1404

XI. Discussion

XII. Adjournment

Members
Department of General Services Department of Small Business and Supplier Diversity
Virginia Information Technologies Agency Virginia Department of Transportation
Department of Planning and Budget Virginia Association of Government Purchasing

Virginia Association of State Colleges and
University Purchasing Professionals

Representatives
Office of the Attorney General House Appropriations Committee
Senate Finance Committee Division of Legislative Services

Staff
Killeen Wells, Deputy Director of Communications
Jessica Hendrickson, Director of Policy and Legislative Affairs, DGS
Kimberly Freiberger, Legislative Analyst, DGS
APPROVED Meeting Minutes

Public Body Procurement Workgroup

Meeting # 4
Wednesday, September 4, 2024, 10:00 a.m.
House South Subcommittee Room, 2™ floor
General Assembly Building
201 North 9" Street, Richmond, Virginia 23219

http:/ dys. virginia.gov/dgs/directors-effice/pwg

The Public Body Procurement Workgroup (the Workgroup) met in-person in the House South
Subcommittee Room in the General Assembly Building in Richmond, Virginia, with Sandra
Gill, Deputy Director of the Department of General Services (DGS), presiding. The meeting
included with approval of the previous meeting minutes, presentation on HB 1524 by Delegate
Alfonso H. Lopez, public comment on HB 1524, public comment on draft recommendations for
HB1355, and public comment and finalization of draft recommendations for SB 492. Materials
presented at the meeting are available through the Workgroup’s website.

Workgroup members and representatives present at the meeting included Sandra Gill
(Department of General Services), Verniece Love (Department of Small Business and Supplier
Diversity), Joshua Heslinga (Virginia Information Technologies Agency), Lisa Pride (Virginia
Department of Transportation), Jason Saunders (Department of Planning and Budget), Patricia
Innocenti (Virginia Association of Govemmental Procurement), Kimberly Dulaney (Virginia
Association of State Colleges and University Purchasing Professionals), Andrea Peeks (House
Appropriations Committee), Mike Tweedy (Senate Finance and Appropriations Committee),
Leslie Allen (Office of the Attorney General), and Rebecca Schultz (Division of Legislative
Services).

I. Call to Order; Remarks by Chair

Gill called the meeting to order and moved into the second agenda item.
II. Approval of Meeting Minutes from the August 21, 2024, Workgroup Meeting
Heslinga made a motion to approve the meeting minutes from the August 21, 2024,

meeting of the Workgroup. The motion was seconded, and unanimously approved by the
Workgroup.

Ill. Presentation on HB 1524
The Honorable Delegate Alfonso H. Lopez presented HB 1524 to the Workgroup. He
began by giving some background, stating that in 1990 SB 101 enacted a tax credit for
recycling equipment purchased for fixed facilities. That code was updated in 2015 to state
that due to the move towards more economically and sustainable asphalt paving
techniques used on the roadway, this expensive equipment was not eligible for tax credits
under the current code. Lopez said he introduced HB 1524 during the 2024 Session to
create a tax credit for such machinery to alleviate this issue. He explained that the issue
goes beyond the machinery to the large stockpiles of Recycled Asphalt Pavement (RAP).
Lopez explained these stockpiles keep growing, even though they could be used in
asphalt mixes to make a quality product. Lopez said he requested the Workgroup and
DEQ to work in conjunction to study his bill ahead and to expand the study to look at all
of the challenges associated with using higher levels of RAP.

Lopez then described the issue in more detail, stating that as of August 2024, Virginia
contractors have an excess of 5 million tons of RAP stockpiled at facilities. The most
concentrated amount is in northern Virginia with 1.9 million tons. Fredericksburg has
358,000 tons, Richmond has 810,000, Hampton Roads has 612,000. He continued, saying
that the recycling machinery in question aids in creating what is know as cold mix or CM
asphalt, which is combined through a process that does not use heat. These CM mixes
(called CIR and CCPR) are more sustainable than conventional mixes because they use
fewer carbon emissions and allow for 100% use of RAP.

Lopez explained the limitations of using RAP-—cost of machinery, availability of RAP,
which is concentrated in mostly urban areas, and Virginia Department of Transportation
(VDOT) project requirements. Lopez said VDOT does not allow for the use of CIR or
CCPR on most construction/reconstruction projects.

In summary Lopez highlighted the problems: there are big stockpiles of RAP across the
commonwealth; there are a lack of VDOT projects allowing the use of RAP in the form
of cold mixes, which is inhibiting; and landfills across Virginia do not accept RAP due to
the potential for burning. He then proposed some solutions to consider. He suggested new
construction, reconstruction and rehabilitation projects must be bid with the option for a
base mix asphalt produced at a conventional plant or a cold plant recycling (CCPR) and
for rehabilitation and corrective maintenance, projects must be bid with the option for
convenient deep mill or with cold in-place recycling (CIR). Lopez furthered there would
be a cost savings for contractors and VDOT’s procurement process. He also touched on
environment benefits due to the reduced need for virgin materials, decreasing the carbon
footprint, and the environmental benefit of reduced need for transporting materials to and
from a project site.

Lopez pointed out the I-81 southbound project, stating that three sections of that project
used recycled material, and it showed a 50%-70% energy reduction and a 40%-70%
reductions of global warming potential when compared to conventional pavement. He
said the I-64 project showed a 25%-40% energy reduction and a 15%- 40% reduction in
global warming potential.
IV.

Lopez stated in Virginia we allow 30% to 35% RAP, and Virginia is using 27.8%, but
there are a number of other states including Maryland, West Virginia, Tennessee, North
Carolina, and Florida, that are allowing higher percentages like 40% in Florida and
Georgia. He said Virginia could be catching up to these other states and taking advantage
of the benefits. He briefly touched on how there were a significant number of
international projects that were taking advantage as well in China, Japan and India.

Lopez said he has been in conversations with different environmental groups to flag
issues, but they have not come up with any. He said that he has researched it himself and
that the general consensus is that it is safe. The net emissions are less depending on how
long the recycled road lasts. He divulged that there was less information on runoff.
However, he said, several studies looked at using it unbound as gravel and that it is
generally safe. He explained the Federal Highway Administration and most sources think
in-place recycling is safe environmentally with possible upside of decreased carbon
emissions, having been used since the 1970s. Lopez said he did not find during his
research that the leaching of contaminants was a concem, and in fact most studies said
that the runoff dissipates in the soil.

Lopez finished his presentation by posing a question; “what it comes down to is do we
think it is beneficial enough for a tax credit or some other modification of the legislation
from last year.” He addressed the Workgroup saying he wants their help in determining
what are the things that are not being thought about that should be.

Public Comment on HB 1524
Below are the public comments in support of HB 1524.

The first stakeholder to comment was Trenton Clark, president of the Virginia Asphalt
Association who was in support of the bill. Clark said that he and the association had
been working with Delegate Lopez since last year to bring forth this bill. He explained
that Virginia Asphalt Association is the nonprofit trade association for Virginia’s paving
industry, with over 130 members and over $3 billion in business a year. He underscored
that the reason for this legislation is because the original bills only applied to fixed
facilities. He went further saying while we do a lot of advanced recycling, none of that
equipment is eligible for a tax credit because it has to be at a fixed facility. Clark said as
Virginia is moving forward with a cleaner economy, in-place recycling will be a key part
of that because it saves on money and has environmental savings through mixing on site,
not having to transport it and the process of not having to use heat. Clark said that the
Virginia Asphalt Association has been working with VDOT and the Virginia
Transportation Research Council for a decade to increase the amount of RAP in mixes by
doing thorough research and pilot projects to make sure a quality product can be
provided. He further commented that contractors are drowning in RAP in the urban
crescent, and that this bill will address that by letting the asphalt community increase the
amount of RAP used in mixes. He said the bill will help Virginia move forward with
quality, economical and environmentally friendly mixes.
Vi.

The second stakeholder to comment was Buzz Powell, a retired professor from Auburn
University with a long-standing research relationship with VDOT and technical director
of the Asphalt Pavement Alliance. He was in support of the bill. Powell ran the NCAT
Test Track at Auburn University which encompasses two thirds of U.S. states. They
studied asphalt mixes that were composed of half recycled asphalt with positive results.
That research led to many states allowing more recycled milling in their hot mix. Powell
stressed that the key to the mix is the glue that binds it all together. He explained that in
his research they tested a 30% VDOT mix to a 45% RAP version of that same mix with
equivalent performance. From the southeast to as far north as Minnesota, the recycled
mixes had positive performance results. He went on to say that there is potential to reduce
carbon and cost by a third by using these techniques.

The third stakeholder to comment was Paul Tarsovich, the CEO and executive vice
president of Slurry Pavers, who expressed support for the bill. He emphasized that using
special recycling equipment increases efficiency and helps the environment. Tarsovich
said that this bill is about being good stewards of the planet. He also touched on the
economic benefits, explaining there would be more equipment purchases, more
employees, more roads at a cheaper cost and a better use of tax dollars. He finished by
urging the workgroup to support the bill because it will reduce waste, reduce the use of
urgent materials, and it will provide a great product for the commonwealth.

The fourth stakeholder to comment was David Horton with Virginia Paving Company.
He expressed that he was in support of HB 1524 because his company operates in
Virginia urban areas (Hampton Roads, Fredericksburg and northerm Virginia) and they
have a substantial amount of RAP. He said it is a valuable product that ends up getting
wasted and that we should be putting it back in the roadways. He further stated that his
company is pressured and also wants to decrease their carbon footprint and that this bill
would help them achieve those goals.

The fifth stakeholder to comment was Gordon Dixon with the Virginia Transportation
Construction Alliance who expressed support of the bill as written. He emphasized the
amount of research available and the need to have the right people at the table helping to
guide and make decisions for this bill. He applauded VDOT for being one the leading
users of RAP across the country.

There were no comments in opposition, in part support/in part opposition, or neutral.
Public Comment on Draft Recommendations on HB 1355
There were no public comments in support, opposition, in part support, in part opposition

or neutral to HB 1355S.

Finalize Recommendations on HB 1355
Gill announced that Delegate Tran reached out to the Workgroup and asked that the
Workgroup abstain from voting on finalizing the bill today, as Delegate Tran was not
able to be in attendance. Gill said the Workgroup will finalize the recommendations and
take vote at the next meeting.

Jessica Hendrickson, who is on the Workgroup staff, then read the draft Recommendation
1 of HB 1355 aloud to the Workgroup: “The Workgroup recommends that General
Assembly consider amending Chapter 35 of Title 2.2 to require compliance with Title 2
of the American with Disabilities Act for all covered entities and that after the federal
deadline of April 2026 to comply with the federal standards then the General Assembly
should determine if additional requirements should be added to the code.”

Saunders stated the regulations that have come out from the Department of Justice came
through the federal registrar and are not specifically from Tittle 2. He then asked if the
Workgroup needed to reference the CFR in the recommendation so that the bill is in
compliance with the most recent regulations. Gill concurred.

Heslinga asked if the Workgroup wanted to reference specific regulations or if the
Workgroup should use less specific language such as “in compliance with applicable law,
including Title 2 of the American Disabilities Act and associated regulations.”

Gill concurred but said they will come back to this point once the Legislative Services
member returns.

Hendrickson read Recommendation 2, “The Workgroup recommends that the General
Assembly consider amending Chapter 35 of 2.2 to add public schools to the definition of
public entity.”

Saunders asked a clarifying question of if the DOJ regulations include school divisions
under those regulations as a covered entity. When hearing yes, he asked for confirmation
that the Workgroup’s recommendation would be consistent with amending state statute as
we set in Recommendation 1.” Gill replied that he was correct.

Hendrickson then read Recommendation 3, “The Workgroup recommends that General
Assembly consider amending Chapter 35 of Title 2.2 to prioritize outward facing systems
and applications.”

Heslinga poised a question to Workgroup Chair Gill, asking if the recommendation
should be more general and about guidance rather than a specific amendment to the
statute because he does not think anyone is questioning that the biggest impacts would be
prioritized first. He continued that consistency with federal law is important and asked if
the Workgroup were to add a prioritization that is not consistent with federal law if that
introduced an inconsistency. He suggested the recommendation say, “The General
Assembly charge stakeholder agencies with providing guidance about how to prioritize
systems and applications.”
Peaks seconded Heslinga’s suggested change, adding that it could be the General
Assembly’s preference and that she liked the idea of a creation of a policy.

Dulaney asked if the Workgroup should consider any type of an exemption or under
$10,000 threshold for prioritizing in Recommendation 3.

Saunders asked if the federal law requires a doJlar threshold.

Gill said that she did not think there was a threshold in the federal law and said she did
not think they should include one in this recommendation but deferred to the Workgroup.

Heslinga suggested that a dollar amount could be dealt with in a policy.

Tweedy added that it could clarify in the recommendation that the policies would be
consistent with federal law and regulations.

Gill pivoted, asking Shultz, with the Division of Legislative Services, to opine on
Recommendation 1, asking if it would be appropriate for the recommendation to say not
just being in compliance with Title 2 of the American Disabilities Act, but also including
the Code of Federal Regulations and the Federal Rehabilitation Act as appropriate. Shultz
confirmed that would be acceptable.

Hendrickson read Recommendation 4, “The Workgroup recommends that the General
Assembly consider amending Chapter 35 of Title 2.2 to expand the reporting
requirements by covered entities on non accessible technology to include 1. identifying
non accessible technology, and 2. estimating the fiscal impact of bringing such
technology into compliance. Additionally, the General Assembly should consider
requiring covered entities to report to their appropriate executive branch agencies such
information on an annual basis and that agencies report to the General Assembly rather
than the Secretary of Administration. And it provides an example of local public schools
to the Department of Education.”

There were no comments to Recommendation 4.

Hendrickson read Recommendation 5, “The Workgroup recommends that the General
Assembly consider amending Chapter 35 of Title 2.2 to require that covered entities
publish in a clear, easily accessible area on their website who should be contacted when
an accessibility barrier is identified.

Peaks asked if it were possible to have a policy where agencies were required to respond
or have a process to respond to the contact. She shared drafted language for the
VIL.

recommendation, “And that agencies develop an internal process to expediently seek
remedy to the identified concern.”

Gill said it would be incorporated into the recommendation.

Hendrickson then read Recommendation 6, “The Workgroup recommends that when
amending Chapter 35 Title 2.2, the General Assembly not include the following the
grievance procedure language which is found in lines 183 to 189 that is found in the
engrossed version of the bill because other federal and state laws already provide
procedures for remedies or 2, specific contractual penalty or consequence language like
found in lines 133-141 of the engrossed bill because public bodies already have the
authority to address noncompliance with law or with contract provisions.”

Heslinga asked the Workgroup if procedurally that recommendation should be separated
into two recommendations. The Workgroup agreed to draft them into two
recommendations.

Public Comment on Draft Recommendations on SB 492

There were no public comments in support, opposition, in part support, in part opposition
or neutral to SB 492.

Finalize Recommendations on SB 492

Hendrickson read the Recommendation 1 for SB 492, “The Workgroup recommends that
the General Assembly consider amending Chapter 43 of Title 2.2 explicitly prohibit the
use of forced labor and oppressive child labor by requiring that public bodies include in
public contracts a provision requiring contractors to agree that the contractor and its
subcontractors and suppliers shall not employ or use forced labor or oppressive child
labor in the performance of their obligations under the contract.”

Innocenti asked if the qualifier “oppressive” needed to be included. Gill said that it could
stay in, and the General Assembly could make the decision to include it or not. Shultz
agreed.

Heslinga brought to the Workgroup’s attention if a $10,000 threshold should be included
as part of this recommendation. Gill asked if instead of a dollar threshold, would it be
appropriate to include language “in every written solicitation.”

Dulaney pointed out that this is currently included in the general terms and conditions on
any state contract.
Shultz added that the Workgroup needs to consider what level of knowledge for which
the contractors should be responsible. She suggested language of “no known child labor.’

2

Staff amended the Recommendation | to include Shultz’s language. The final
recommendation read as follows: “The Workgroup recommends that the General
Assembly consider amending Chapter 43 of Title 2.2 to explicitly prohibit the use of
forced labor and oppressive child labor by requiring that public bodies include in public
contracts a provision requiring contractorscertify that the contractor and its
subcontractors and suppliers have no knowledge of the use of forced labor or oppressive
child labor in the performance of their obligations under the contract.”

The Workgroup voted in support of SB 492, 7-0.
IX. Public Comment on HB 1404

There were no public comments in support, opposition, in part support, in part opposition
or neutral to SB 1404.

X. Discussion on HB 1404

Gill asked the Workgroup members what additional information would be helpful as the
group moves into final recommendations for the bill.

Dulaney asked for data on the percentage of SWAM spend per agency over the last 10
years, as well as data on the micro-certification, specifically how many micro businesses
have lost certifications due to exceeding the defined threshold since that category was
defined in 2014. She also asked for data on the SWAM population and numbers of micro
and small businesses.

Heslinga expressed interest in the 2020 JLARC report recommendations and how many
of those recommendations have been incorporated into law or are reflected in this bill or
are outstanding.

Dulaney asked for a presentation on the current workflow of the small/micro business
certification process.

Gill asked for the Department of Small Business and Supplier Diversity and staff to
research the definitions of small business.

XI. ~~ Discussion
No additional discussion.

XII. Adjournment
Gill adjourned the meeting at 11:13 a.m. and noted that the Workgroup’s next meeting is
scheduled for September 17, 2024, at 1:00 p.m.

For more information, see the Workgroup’s website or contact that Workgroup’s staff at
pwe@dgs.virginia gov.
Appendix D: September 17, 2024, Meeting Materials

This appendix contains the meeting materials from the September 17, 2024, Workgroup meeting.
1. Agenda
2. Meeting Materials
3. Approved Meeting Minutes

Al
Public Body Procurement Workgroup

Meeting #5
Tuesday, September 17, 2024, 1:00 p.m.

House South Subcommittee Room, 2" floor
General Assembly Building
201 North 9 Street, Richmond, Virginia 23219

AGENDA
I. Call to Order; Remarks by Chair
II. Approval of Meeting Minutes from the September 4, 2024, Workgroup Meeting
UI. Public Comment on HB1355
IV. Finalize Recommendations on HB 1355
V. Presentation on HB 1524
Brandon Bull, Director of Division of Policy
Department of Environmental Quality
VI. Presentation on HB 1524
Michael Fitch, Ph.D., Director, Virginia Transportation Research Council
Virginia Department of Transportation
VII. Public Comment on HB 1524
VIII. Discussion on HB 1524
IX. Presentation on HB 1404
Verniece Love, Deputy Director
Department of Small Business and Supplier Diversity
X. Public Comment on 1404
XI. Discussion on HB 1404
XII. Discussion
XII. Adjournment
Members
Department of General Services Department of Small Business and Supplier Diversity

Virginia Information Technologies Agency Virginia Department of Transportation
Department of Planning and Budget Virginia Association of Govemmment Purchasing
Virginia Association of State Colleges and
University Purchasing Professionals

Representatives

Office of the Attorney General House Appropriations Committee
Senate Finance Committee Division of Legislative Services
Staff

Killeen Wells, Deputy Director of Communications, DGS
Kimberly Freiberger, Legislative Analyst, DGS
DRAFT Meeting Minutes

Public Body Procurement Workgroup

Meeting #5
Wednesday, September 17, 2024, 1:00 p.m.
House South Subcommittee Room, 2" floor
General Assembly Building
201 North 9" Street, Richmond, Virginia 23219

http:/ dgs. virginia. gov/dgs/directors-office/pwg.

The Public Body Procurement Workgroup (the Workgroup) met in-person in the House South
Subcommittee Room in the General Assembly Building in Richmond, Virginia, with Sandra
Gill, Deputy Director of the Department of General Services (DGS), presiding. The meeting
included with approval of the previous meeting minutes, public comment from the Honorable
Delegate Kathy Tran on HB 1355, followed by the Workgroup voting in support of finalizing the
seven recommendations to HB 1355, presentations by Virginia Department of Transportation
(VDOT) and Virginia Department of Environmental Quality (DEQ) on HB 1524, public
comment on HB 1524, discussion on HB 1524, a presentation by Virginia Department of Small
Business and Supplier Diversity (DSBSD) on HB 1404 and discussion on HB 1404. Materials
presented at the meeting are available through the Workgroup’s website.

Workgroup members and representatives present at the meeting included Sandra Gill
(Department of General Services), Verniece Love (Department of Small Business and Supplier
Diversity), Joshua Heslinga (Virginia Information Technologies Agency), Lisa Pride (Virginia
Department of Transportation), Jason Saunders (Department of Planning and Budget), Patricia
Innocenti (Virginia Association of Governmental Procurement), Kimberly Dulaney (Virginia
Association of State Colleges and University Purchasing Professionals), Michael Jay (House
Appropriations Committee), Mike Tweedy (Senate Finance and Appropriations Committee),
Leslie Allen (Office of the Attorney General), and Rebecca Schultz (Division of Legislative
Services).

I. Call to Order; Remarks by Chair
Gill called the meeting to order and moved into the second agenda item.
Il. Approval of Meeting Minutes from the September 4, 2024, Workgroup Meeting
Saunders made a motion to approve the meeting minutes from the September 17, 2024,

meeting of the Workgroup. The motion was seconded, and unanimously approved by the
Workgroup.
HI.

IV.

Public Comment on HB 1355

The Honorable Delegate Kathy Tran spoke to her patron bill, HB 1355. She expressed
her sincere appreciation to the Workgroup for the time and attention they have given HB
1355 and emphasized the importance of increasing access to government services and
educational programs to all Virginia citizens. She stated she believes the
recommendations the Workgroup have made will help make progress for individuals with
disabilities, working towards the day when every Virginian is able to access resources
and services available to them.

She then shared thoughts on the Workgroup’s drafted recommendations. She said on
Recommendation 1, the new WCAG version 2.1 AA was not released until after the 2024
Legislative Session adjourned, so she very much appreciated the time that the Workgroup
took to assess those new federal regulations and how they will affect Virginia. She stated
that she agreed with the Workgroup that the new ADA Title 2 standards should be
incorporated as well.

On Recommendation 2, she thanked the Workgroup for specifically recommending that
the General Assembly add local school districts as a covered entity, because, she said, it
will help ensure students with disabilities are able to fully participate in their classrooms.
She added it will reduce the time teachers have to devote to making separate lesson plans
for children with disabilities.

For Recommendation 6, Tran said she accepted it but focused her attention to the
inclusion of Recommendation 5, which she said is important, as well as a feedback loop
so that the public and covered entities can work together to address inaccessible
technologies that remain. Tran added that Recommendation 5 would augment that
collaboration.

Tran mentioned an Accessibility Conformance Report that was not in the Workgroup’s
recommendations, saying she hopes the General Assembly and the Workgroup will
recognize this report is integral to the bill because it gives a roadmap to compliance.

Lastly, she suggested that higher education entities be included in the same
implementation timeline as state governments. She said in her conversations with higher
education, they relayed that’s the timeline they were looking at nationally as well. She
then thanked the Workgroup once more for their efforts.

Finalize Recommendations on HB 1355

Gill asked Workgroup staff member Killeen Wells to read each recommendation aloud,
after which the Workgroup would vote on each recommendation.
Wells read Recommendation 1 of HB 1355 aloud to the Workgroup: “The Workgroup
recommends that the General Assembly consider amending Chapter 35 of Title 2.2 to
require compliance with the Americans with Disabilities Act (ADA), the Code of Federal
Regulations and the Federal Rehabilitation Act as appropriate for all covered entities and
that, after the federal deadline of April 2026 to comply with the federal standards, then
the General Assembly should determine if additional requirements should be added to the
Code.” The Workgroup voted in support of Recommendation | of HB 1355, 7-0.

Wells read Recommendation 2 of HB 1355 aloud: “The Workgroup recommends that the
General Assembly consider amending Chapter 35 of Title 2.2 to add public schools to the
definition of covered entity.” The Workgroup voted in support of Recommendation 2 of
HB 1355, 7-0.

Wells read Recommendation 3 of HB 1355 aloud: “The Workgroup recommends that the
General Assembly charge stakeholder agencies with providing guidance on how to
prioritize systems and applications.” The Workgroup voted in support of
Recommendation 3, 6-0, with DPB abstaining.

Wells read Recommendation 4 of HB 1355 aloud: “The Workgroup recommends that the
General Assembly consider amending Chapter 35 of Title 2.2 to expanding the reporting
requirements by covered entities on non-accessible technology to include: (i) identifying
non-accessible technology, and (1i) estimating the fiscal impact to bring such technology
into compliance. Additionally, the General Assembly should consider requiring covered
entities to report to their appropriate executive branch agency, such information on an
annual basis to, and that agency report to the General Assembly, rather than to the
Secretary of Administration. (like Local Public Schools to the Department of
Education).” Allen commented that there is an extra “to” in this language that was not in
the minutes. Wells struck the “to” and the comma following. The Workgroup voted in
support of Recommendation 4, 6-0, with DPB abstaining.

Wells read Recommendation 5 of HB 1355 aloud: “The Workgroup recommends that the
General Assembly consider amending Chapter 35 of Title 2.2 to require that covered
entities publish in a clear, easily accessible area on its website who should be contacted
when an accessibility barrier is identified and that agencies are required to develop
procedures to review the identified concern and respond to individual(s) submitting the
concern.” The Workgroup voted in support of Recommendation 5, 7-0.

Wells read Recommendation 6 of HB 1355 aloud: “The Workgroup recommends that,
when amending Chapter 35 of Title 2.2, the General Assembly not include grievance
procedure language (like that found in lines 183-189 of the engrossed version of HB
1355), because other applicable federal and state laws already provide procedures for
remedies.” Heslinga suggested, to align with Delegate Tran’s comments, that the
following language be added to the end of this recommendation: “and this is addressed in
Recommendation 5.” The final wording for Recommendation 6 was read as follows: The
Workgroup recommends that, when amending Chapter 35 of Title 2.2, the General
Assembly not include grievance procedure language (like that found in lines 183-189 of
the engrossed version of HB 1355), because other applicable federal and state laws
already provide procedures for remedies, and this is addressed by Recommendation 5.”
The Workgroup voted in support of Recommendation 6, 6-0, with DPB abstaining.

Wells read Recommendation 7 of HB 1355 as follows: “The Workgroup recommends
that, when amending Chapter 35 of Title 2.2, the General Assembly not include specific
contractual penalty or consequence language like that found in lines 133-141 of the
engrossed version of HB 1355 because public bodies already have the authority to
address noncompliance with law or with contract provisions.” The Workgroup voted in
support of Recommendation 7, 6-0, with DPB abstaining.

Presentation on HB 1524

Brandon Bull, the director of the Division of Policy at the Virginia Department of
Environmental Quality presented on HB 1524. He stated that DEQ has no position on the
bill since it is an executive branch agency, but said he was pleased to share some
technical observations and feedback with the Workgroup.

Bull referenced Speaker Don Scott’s letter asking the Workgroup, in consultation with
DEQ, to look at HB 1524 and look at six specific questions. ‘Bull said three of those
questions are beyond the scope of DEQ’s purview, but his presentation focuses on the
other three questions.

He then listed the questions from Speaker Scott’s letter, the first of which pertained to
avenues to provide funding via tax credits/incentives to expedite the acquisition of
asphalt recycling machinery and equipment on project sites by contractors. The fourth
question was about the environmental impacts of increased Recycled Asphalt Pavement
(RAP) percentages, and the sixth question was about the use of repurposed waste
material, such as tires, in asphalt.

Bull addressed question one by explaining that DEQ is involved in existing programs that
provide tax credits or tax-exempt status to encourage the use of recycling or using
pollution control equipment. He talked about four programs that DEQ thought might be
helpful in generating ideas about what to consider when looking at HB 1524. He said
DEQ administers an income tax credit for recycling equipment, and that HB 1524 was .
modeled after this program. This existing program is pursuant to section 58.1-439.7 of
the Code of Virginia, and it provides, “an income tax credit for the purchase of
machinery or equipment used predominantly in or on the premises of manufacturing
facilities or plant units which manufacture, process, compound or produce items of
tangible personal property from recyclable materials within the commonwealth and for
machinery and equipment used predominantly in or on the premises of facilities that are
predominantly engaged in advanced recycling.” Bull furthered that this existing
exemption is focused on machinery and equipment that is located on site at the facilities,
so it does not include the mobile equipment talked about in HB 1524. This income tax
credit can be claimed by either an individual or corporate income tax and is set at 20% of
the original total capitalized cost. Bull said DEQ’s role in administering the program is to
certify that the equipment is being used for what it is claimed.

The second program Bull talked about is a property tax exemption for recycling
equipment facilities and devices. He said this program is pursuant to section 58.1-3661 of
the Code of Virginia. In this program, local governments have the option to partially or
fully exempt DEQ certified recycling facilities and equipment from property taxes. Bull
explained that again, this exemption is focused on things at a fixed location. DEQ
administers this program through a form to apply for certification, and once certified,
then depending on their locality they could qualify for a local tax exemption, explained
Bull.

The third program Bull mentioned is a tax credit for waste motor oil buming equipment.
Pursuant to section 58.1-439.10 of the Code of Virginia, the tax credit is for 50% of the
purchase price paid for equipment used exclusively for burning waste motor oil at a
facility that accepts waste motor oil from the public. Bull went on to explain that unlike
the other tax credit program he had mentioned, this credit must be used in the year the
purchase was made. DEQ once again certifies that the equipment qualifies for the tax
credit.

The fourth program that Bull shared with the Workgroup is a tax exemption for pollution
control equipment in facilities. Pursuant to section 58.1-3660 of the Code of Virginia,
pollution control equipment is a separate class of property and is exempt from state and
local taxation and retail sales and use taxes also do not apply, he said.

He summarized DEQ administers four existing programs, some are for tax credits, and
some are for tax exemptions, and in all of the programs, DEQ’s role is to certify the
equipment meets the definition or eligibility.

Bull then turned to Speaker Scott’s fourth question in the letter about the environmental
impacts of increased RAP percentages. He said he understands that much of the
discussion at the previous Workgroup meeting was about increasing percentages of RAP.
He went on to say that doing this would decrease the amount of RAP that is stockpiled
throughout the commonwealth and put it to beneficial use. Bull said that without more
information, DEQ could not quantify how much RAP would be reduced. He continued
that based on DEQ’s understanding of what is proposed, it would eliminate the need to
transport RAP back to a plant, which would in turn reduce emissions. However, he said
DEQ could not quantify that based on the information they have now. He addressed the
discussion at the last meeting about using less heat to mix the RAP, saying again that less
heat would lead to less energy and that would lead to environmental benefits, but without
more detailed information, DEQ is not prepared to quantify that either.

He then turned to question six from Speaker Scott’s letter, and stated DEQ currently
manages a tire waste user reimbursement program. The purpose of the program, Bull
said, is to provide incentives in the form of direct payments to people who beneficially
reuse waste tires. He further stated that the program does include reimbursement for
VI.

making a product such as rubberized asphalt using waste tires. Bull explained that the
number of waste tires generated in the Commonwealth of Virginia per year is about 6.5
million, using data from the past five years. And of that number, 5.9 million have been
reused over the past five years; however, that data is skewed. From the past two years,
which is more accurate data, Virginia has been reusing only 3.8 million of the 6.5 million
waste tires. So, there is a waste tire issue in the Commonwealth of Virginia, he
concluded.

There were no questions, and with that Bull concluded his presentation.

Presentation on HB 1524

The Workgroup then tumed their attention to the next presentation on HB 1524. Dr.
Michael Fitch, the director of Virginia Department of Transportation’s Research Council,
began his presentation stating he would not speak directly to the language in HB 1524,
but he said he would address several points in the Speaker’s letter regarding the bill.

Fitch presented four takeaway points:
e VDOT is a national leader in the use of high RAP.
e VDOT is a national leader in RAP research.
e VDOT is leading a study quantifying the environmental impacts of high RAP
pavement.
e VDOT is evaluating the use of other recycled material (ground tire rubber,
recycled plastics.)

Fitch spent some time on VDOT’s current use of RAP. There are three different layers in
the asphalt structure that are measured for RAP. For pavement year 2022, the average
usage was 29% for the top layer (maximum possible was 30%), 29% for the second layer
(maximum was 30%) and 33% for the bottom layer (maximum was 35%). So VDOT was
just under the maximum amount they could use. To put it in perspective, Fitch said that
the national average was at 22%, and VDOT was well above that percentage in usage.
Fitch then showed where Virginia fell as far as usage between states.

According to VDOT data, the commonwealth came in fourth in terms of total RAP usage
for 2022. The three states in front of Virginia were Florida, Idaho and Georgia. Fitch
noted that VDOT is cautious to make changes to the RAP mix percentages because
Virginia is the third largest state DOT in the country. The other two larger—North
Carolina and Texas—have lower RAP usage than Virginia. Fitch divulged that VDOT
spends $800 million a year in pavement maintenance, so the implications are large.

Fitch moved on to his next point explaining how VDOT is a leader in RAP research. He
said VDOT has completed 25 recycling reports, and it has implemented 27
recommendations from those reports. Fitch continued that VDOT researchers have
authored over 40 journal articles and received numerous grants for the continued research
of recycling.
VI.

Fitch made a point to distinguish the difference between in-place RAP and mixing RAP
at a fixed facility. He said they have done research on in-place recycling and those results
have been positive, but they need to be separated out from the results of fixed facility
recycling.

Fitch said there are 12 sites where VDOT is researching high RAP content (above 30%)
for durability and performance. Three of those sites were paved in 2013/2014, and the
rest were paved in 2019/2020. They expect to complete most of the research in 2026. He
finished this point saying that to use higher percentages of RAP, VDOT must have
developed a specification based on the performance of the mix.

Fitch touched on environmental impacts of RAP stating that there are significant
environmental benefits. He added that it is not as clear what the benefits of a high RAP at
a fixed facility would be due to the transportation involved. VDOT has received a
national grant to begin documenting the environmental benefits from 30% RAP, said
Fitch, and the reason VDOT was given that grant is because this information is not
widely known. He said VDOT has put in for another federal grant where, if they received
it, they could start benchmarking data on even higher percentages of RAP. He stressed
the importance of the longevity of the higher RAP material, so as not to take away from
the environmental benefits.

The last subject Fitch touched on was the use of other waste products (ground tire rubber
and recycled plastics). VDOT is monitoring ground tire rubber in asphalt. Fitch said it is
an expensive and difficult process, and so they are looking at a dry process that would be
less expensive. VDOT has also recently put down test areas of recycled plastics and are
monitoring those as an additive to asphalt pavement.

Fitch ended by saying VDOT is pushing the envelope in research and is leading a
national study to quantify the impacts of high RAP.

Gill questioned if the 12 research sites were for in-place RAP or all happening at a
facility. Fitch responded that they were all from a facility. He made the distinction that
VDOT does have over 400 miles of in-place recycling projects that they have put down
and are monitoring as well. Gill then asked when the results from the climate grant are
due. Fitch said he believed in 2026. Heslinga asked for confirmation that VDOT is
researching the ask for higher RAP and is doing so under agreed upon timelines and will
have more data soon. Fitch confirmed that was correct.

Public Comment on HB 1524

Charles Craddock, vice president of Superior Paving Central Division and president of
the Old Dominion Highway Contractors Association, spoke in support of HB 1524. He
said that incentives given to companies for equipment purchases for recycling would be
well received. He continued that Virginia is behind the times in the percentages of RAP
allowed in asphalt mixes. He stressed the research done by NCAT showed that increased
VIII.

IX.

percentages of RAP in asphalt mixes can be done without reducing the quality of the
product. He went on to say that his company put down higher percentage RAP mixes for
testing at Virginia Tech and that both the 40% RAP mix and the 60% RAP mix have
performed well. He said the Old Dominion Highway Contractors Association openly
welcomes a partnership with VDOT and other regulating agencies to do what is right for
the taxpayer and most importantly for the environment.

Trenton Clarke, president of the Virginia Asphalt Association, spoke in support of HB
1524. He said that the Virginia percentage of RAP is pretty much in line with North
Carolina. He said last week that six contractors were asked by VDOT about running 40-
50% RAP, and he said the contractors had some concems about the specification because
it is different from what we have been working with. It will be a company-by-company
basis on how they move forward. He said he applauds VDOT reaching out. He stressed
that companies need the assurance that there will be continued need for higher RAP to
invest in the time and equipment to produce it. Clarke said that the Virginia Asphalt
Association is interested in both the monetary and environmental savings related to this
bill. He said it was time to implement based on what we know, which has been studied
for the past two decades.

No one spoke in opposition or took a neutral stance to the bill. This concluded public
comment for HB 1524.

Discussion on HB 1524

Gill asked if there was any additional information that the Workgroup would like staff to
gather for the next meeting in relation to HB 1524. The staff will talk about potential
recommendations at the next meeting, she said.

Mike Tweedy noted the existing similar tax credit and asked if the Workgroup could get
further details from the Virginia Department of Tax on if that credit was fully utilized.

Presentation on HB 1404

Verniece Love, deputy director of the Department of Small Business and Supplier
Diversity, presented on HB 1404. Love gave a quick overview of SBSD, including its
mission to help small businesses start and grow in Virginia.

She then responded to a question asked in the last meeting, saying that as of June 30,
2024, over 14,000 businesses were certified SWAM businesses. She added that it is
important to note that businesses can be certified in multiple categories, so the numbers
may overlap, and the total number of businesses will not match exactly. She delved
further, explaining that of those SWAM businesses, a little over 13,000 are small
businesses, just over 8,000 are certified micro-businesses, Just over 6,200 are minority-
owned businesses, approximately 5,600 women-owned businesses, 3,300 disadvantaged
business enterprises and 810 service disabled, veteran-owned businesses.

Love then walked the Workgroup through the DSBSD electronic certification portal for
businesses, which was launched in 2017. The processing time can take up to 60 business
days she said, and the certification is valid for five years. Recertification is a streamlined
process where previous business documentation is saved for ease of recertification.

She then talked about the three disparity studies that have been done—in 2002, 2009 and
2020. DSBSD currently has an RFP out in eVA for another disparity study which will be
completed in 2026. The three disparity studies show an increase in women and minority-
owned businesses with only 1.27% percent of businesses falling into this category in the
2002 study, 2.82% in the 2009 study and 13.3% in the 2020 study.

Love gave an analysis of the dollar amounts spent, showing that in FY2023, the
Commonwealth of Virginia spent over $2.9 billion with SWAM businesses. Of that $2.9
billion, she said, approximately 6.06% was spent with women-owned businesses and
6.77% was spent with minority-owned businesses. She drew attention to the chart that
showed over the past three years, the spend with SWAM businesses has increased.

Next, Love provided information about the 42% goal, in which she is referring to the goal
for the Commonwealth of Virginia to spend 42% of total annual spending with SWAM
businesses that was increased from 40% in 2014 by Governor McAuliffe. In the past 10
years, the closest the Commonwealth of Virginia has gotten to the goal occurred in 2016,
at 36.9%, and in 2015 at 36.42%. The other years, the percentage has fluctuated around
the low 30" percentile range.

Love mentioned that she provided a copy of the JLUARC study recommendations and
pointed out DSBSD’s response to recommendation four of that study, saying that the
agency pointed out that it is hard for agencies to meet the 42% goal, based on contracting
and spend. She said DSBSD recommended the SWAM goal be based on each specific
agency based on each agency’s spend and contracting habits, rather than an overall goal
for the commonwealth.

Love relayed the small business definition as defined in the Code of Virginia: “ ‘Small
business’ means a business that is at least 51 percent independently owned and controlled
by one or more individuals, or in the case of a cooperative association organized pursuant
to Chapter 3 of Title 13.1, as a nonstock corporation, is at least 51 percent independently
controlled by one or more members, who are U.S. citizens or legal resident aliens, and
together with affiliates, has 250 or fewer employees or average annual gross receipts of
$10 million or less averaged over the previous three years. One or more of the individual
owners or members shall control both the management and daily business operations of
the small business.”

Love noted that the current definition is an “either or” situation, allowing for multi-
million-dollar businesses to be certified as small businesses because they have less than
250 employees. She noted that every year since she has been doing the work (since 2010)
there has been a bill introduced to change the small business definition, but it has not
happened yet. She highlighted a few past recommendations, including changing the “or”
in the small business definition to an “and” which would require businesses to meet the
gross receipts limit and the employee limit in order to qualify. She divulged another
recommendation has been to go with the federal definition as defined by the Small
Business Administration, but she said the SBA definition is industry-specific and is based
on federal contracting. She urged that this might not be the best definition for Virginia to
adopt because it is not Virginia-specific. Lastly, she said, the federal definition goes by a
different set of codes than the ones used in Virginia. In the JUARC study it was
recommended that Virginia research and come up with industry-specific limits, explained
Love.

In conclusion, Love shared that DSBSD/VSBFA have implemented 15 of the 16 JUARC
recommendations. The only one that has not been implemented is Recommendation 5,
which is based on a website called Business One Stop. The point of that website was for a
business to be able to go to it and register for every procurement, license, set up tax
accounts, and all the things they need to do to operate in one place online. In order to set
up that website system, it would cost $1.2 million up front and another $4.7 million over
four years for maintenance and license renewals. So, it was deemed to expensive to do
this recommendation and the website now has information on where to go for businesses.

Love asked if there were any questions. Heslinga said that the JUARC 2020 study talked
about there being substantial variation in agency ability to make SWAM purchases based
on the goods and services, and in the bill the General Assembly passed this past Session,
it seems to respond to that by saying the disparity study currently being conducted by
DSBSD evaluate the differences between categories of goods and services. He asked if
any prior disparity studies went that in-depth about the differentiation of categories of
goods and services. Love responded, no, that the prior studies have simply looked at the
availability of SWAM vendors and the amount of state contracting.

Gill asked if Love could clarify that the results of the disparity study being done now
won’t be complete until 2026. Love said that is correct, the study will begin January 1,
2025, with the report being due January 1, 2026.

Gill followed up, stressing the confusion associated with the goal. She said she thinks
there has been confusion for years as to whether it is a Commonwealth of Virginia goal
or an agency goal. And she asked if this bill was silent to addressing that and asked if it
may create some confusion to that point. Love agreed.

Gill asked Love if she could gather information on what other states are doing, if they
have industry-specific limitations like Maryland or how they are handling it. She asked
specifically for bordering states. Love said of course she could present that information at
the next meeting. Love added that it was also important to note that there are some states
that have certification reciprocity, for example, in the Code of Virginia we have a clause
that prohibits businesses from certain states that do not allow Virginia businesses to

10
XI.

XII.

XIII.

participate in their program from participating in the Virginia program. She used D.C. as
an example because those businesses are not allowed to participate in the Virginia
SWAM program because their program does not allow Virginia businesses to participate.
And we do this, she explained, because we don’t want to put Virginia businesses at a
disadvantage.

Dulaney asked if the SWAM goal vs. actual numbers included all spend for all agencies
across the state, and clarified by asking who is included. Love responded that yes, it is an
aggregate number for all spend of all executive branch agencies across the
Commonwealth of Virginia.

Public Comment on HB 1404
There was no public comment in support or opposition of HB 1404.

Chris Stone, the past chair for the Hampton Roads Chamber of Commerce, spoke in
general terms about HB 1404. He brought a study to share with the Workgroup that was
done in 2018 by DSBSD and VCU and a synopsis of the JUARC recommendations. He
pointed out where in the study one could find information on the small business
definition and said that the study also covered what other states were doing. He stated
that the study says that Virginia is way out of alignment with our neighboring states on
the definition of small business, especially as it pertains to the size of a business. He
concluded by saying he would like to get the definition more aligned with the current
business climate because, “the question before you is why would a company of 250
people and unlimited revenue need special consideration for public procurement?”

Discussion on HB 1404

Gill asked if there was any additional discussion or any additional information the
Workgroup members would like to see at the next meeting regarding HB 1404. She said
that JLARC will be presenting at the next meeting, and she will ask them to © speak to
Appendix F in their report when they present.

Love followed up saying she has the VCU study in the electronic format and she would
be happy to send that around electronically to the Workgroup. Gill thanked her and said
that would be appreciated.

Discussion

No additional discussion.

Adjournment

1]
Gill adjoumed the meeting at 2:27 p.m. and noted that the Workgroup’s next meeting is
scheduled for October 8, 2024, at 1:00 p.m.

For more information, see the Workgroup’s website or contact that Workgroup’s staff at

12
Appendix E: October 8, 2024, Meeting Materials

This appendix contains the meeting materials from the October 8, 2024, Workgroup meeting.

1. Agenda

2. Meeting Materials
a. Department of Small Business and Supplier Diversity Presentation on HB 1404
b. Joint Legislative Audit and Review Commission Presentation on HB 1404
c. Virginia Commonwealth University Virginia SWAM & DBE Certification

Programs: Impacts & Policy Report
3. Approved Meeting Minutes

22
Public Body Procurement Workgroup

https://dgs.virginia.gov/dgs/directors-office/pwg/

Meeting # 6
Tuesday, October 8, 2024, 1:00 p.m.

House South Subcommittee Room, 2 floor
General Assembly Building
201 North 9" Street, Richmond, Virginia 23219

AGENDA

Call to Order; Remarks by Chair

If. Approval of Meeting Minutes from the September 17, 2024, Workgroup Meeting
III. Public Comment on HB 1524
IV. Discussion on HB 1524, Preliminary Findings and Recommendations
V. Presentation on HB 1404
Verniece Love, Deputy Director
Department of Smal! Business and Supplier Diversity
VI. ‘Presentation on HB 1404
Justin Brown, Senior Associate Director
Joint Legislative Audit and Review Commission
VII. Public Comment on HB 1404
VIII. Discussion on HB 1404
X. Adjournment
Members
Department of General Services Department of Small Business and Supplier Diversity
Virginia Information Technologies Agency Virginia Department of Transportation
Department of Planning and Budget Virginia Association of Govemment Purchasing

Virginia Association of State Colleges and
University Purchasing Professionals

Representatives

Office of the Attorney General House Appropriations Committee

Senate Finance Committee Division of Legislative Services
Staff

Killeen Wells, Deputy Director of Communications, DGS
Kimberly Freiberger, Legislative Analyst, DGS
The Virginia Department of Small
Business and Supplier Diversity

| VIRGINIA DEPARTMENT OF
7 SMALL BUSINESS & SUPPLIER DIVERS!
Small Business Definition

Current definition as defined in the Code of Virginia, § 2.2-1604:

"Small business" means a business that is at least 51 percent
independently owned and controlled by one or more individuals, or in the
case of a cooperative association organized pursuant to Chapter 3 (§ 13.1-
301 et seq.) of Title 13.1 as a nonstock corporation, is at least 51 percent
independently controlled by one or more members, who are U.S. citizens or
legal resident aliens and, together with affiliates, has 250 or fewer
employees or average annual gross receipts of $10 million or less averaged
over the previous three years. One or more of the individual owners or
members shall control both the management and daily business operations
of the small business.
rene
sv=—=...« Washington, DC

Local Business Development

A Certified Business Enterprise (CBE) is a business headquartered in the District of Columbia and certified by the Department
of Small and Local Business Development (DSLBD). Businesses with CBE certification receive preferred procurement and
contracting opportunities.

*The principal office of the business must be physically located in the District of Columbia
*Chief Executive Officer and highest-level managerial employees of the business enterprise must perform their managerial

functions in their principal office located in the District;

*Meets one of the four following standards:
* More than 50% of the employees of the business are residents of the District; or
* The owners of more than 50% of the business enterprise are residents of the District; or
* More than 50% of the assets of the business, excluding bank accounts, are in the District; or
* More than 50% of the business gross receipts are District gross receipts.

An SBE is a subcategory within the CBE program. A business must be certified as a local business enterprise to be considered
for this subcategory. The Department of Small and Local Business Development (DSLBD) determines eligibility based on the
applicant's averaged annualized gross receipts for the 5 years preceding certification. DSLBD uses the SBA’s size

standards and DSLBD’s limits to determine eligibility. In addition to the SBA standards, the chart below signifies the industry
limits used by DSLBD to determine eligibility. Please visit D.C. Code § 2~218.32 for more information about the SBE category.
sv=—=.. Washington, DC

Local Business Development

SBE Industry Limit

Construction, Heavy (Streets and Highways, Bridges, etc.) $23M

Construction, Building (General Construction, etc.) $21M

Construction, Specialty Trades $13M

Goods & Equipment $20M

General Services $19M

Professional Services, Personal Services SSM

(Hotel, Beauty, Laundry, etc.)

Professional Services, Business Services S10M

Professional Services, Health & Legal Services 510M

Professional Services, Health Facilities Management S19M

Manufacturing Services $i0mM

Transportation & Hauling Services $13M

Financial Institutions
Je GOVERNOR'S OFFICE OF SMALL,
MINORITY &
WOMEN BUSINESS AFFAIRS Gi ry Gi ni

SBR Program Eligibility Standards (COMAR 21.11.01.06)

For the purposes of a Small Business Reserve Procurement, a small business is a for-profit

business, other than a broker, that meets the following criteria:

A. It is independently owned and operated;

B. It is not a subsidiary of another business;

C. It is not dominant in its field of operation; and
D. Either:
at GOVERNOR'S OFFICE OF SMALL,
MINORITY &
WOMEN BUSINESS AFFAIRS @ | ry re | n

(1) With respect to employees:

(a) Its wholesale operations did not employ more than 50 persons in its most recently completed 3 fiscal
years;

(b) Its retail operations did not employ more than 25 persons in its most recently completed 3 fiscal years;
(c) Its manufacturing operations did not employ more than 100 persons in its most recently completed 3

fiscal years;

(d) Its service operations did not employ more than 100 persons in its most recently completed 3 fiscal years;
(e) Its construction operations did not employ more than 50 persons in its most recently completed 3 fiscal
years; and

(f) The architectural and engineering services of the business did not employ more than 100 persons in its
most recently completed 3 fiscal years; or
JR GOVERNOR'S OFFICE OF SMALL,
MINORITY &
“t WOMEN BUSINESS AFFAIRS Ma ryl re | al d
(2) With respect to gross sales:
(a) The gross sales of its wholesale operations did not exceed an average of $4,000,000 in its most recently
completed 3 fiscal years;
(b) The gross sales of its retail operations did not exceed an average of $3,000,000 in its most recently

completed 3 fiscal years;
(c) The gross sales of its manufacturing operations did not exceed an average of $2,000,000 in its most

recently completed 3 fiscal years

(d) The gross sales of its service operations did not exceed an average of $10,000,000 in its most recently
completed 3 fiscal years;

(e) The gross sales of its construction operations did not exceed an average of $7,000,000 in its most recently
completed 3 fiscal years; and

(f) The gross sales of its architectural and engineering operations did not exceed an average of $4,500,000 in
its most recently completed 3 fiscal years.

Note: If a business has not existed for 3 years, the employment and gross sales average or averages shall be
the average for each year or part of a year during which the business has been in existence.

nd. P br- m.
General Services

©
Tennessee

Governor's Office of Diversity Business Enterprise (Go-DBE)

Eligibility guidelines for all diversity categories:

*Business must be independently owned and operated.

*Must be a for-profit business that serves a commercially useful function.

*Business must be in operation for a minimum of two (2) years to qualify for certification.

Small Business Enterprise (SBE)

A business that is a continuing, independent, for-profit business which performs a commercially useful
function and has total gross receipts of no more than ten million dollars ($10,000,000) averaged over a three-
year period or employs no more than 99 persons on a full-time basis.

dbe-certification.html
NORTH CAROLINA

sBEy North Carolina

SMALL BUSINESS
ENTERPRISE PROGRAM

NCSBE Certification

The NCSBE Program was developed to provide access to contract opportunities that allow small businesses
to compete against others that are comparably positioned in their industries and markets; as well as
participate in department contracts if they meet the eligibility standards.

NCSBE Program Eligibility: Any small business meeting the Program standards outlined below is eligible to
participate in the NCSBE Program. The standards are as follows:

*The business must be headquartered in North Carolina.

«The business’ annual net income does not exceed $1,500,000, after cost of goods sold is deducted.
*The business must have 100 or fewer employees.

«The business must be organized for profit.
South? Carolina

SMBCC South Carolina

of Small and Minority Business

Eligibility requirements for certification as a MBE are per 19-445-2160 of the South Carolina Procurement
Code Regulations and Title 49, Part 26 of the Code of Federal Regulations (CFR). In order for afirm to be
certified, it must be found to be asmall independent business owned and controlled by a person or persons
who are socially and economically disadvantaged. The following factors will be considered in determining
whether the applicant is eligible for certification:

Small Business

The applicant firm must be an existing “for profit” business. It must also meet the federal definition of a small
business based on its primary SIC/NAICS code, as described by the US SBA, and must not exceed the small
business size standard established for it’s particular line of work.

Disadvantaged owners must be US citizens and meet the federal definition of socially and economically
disadvantaged as defined by 49 CFR 26.67. Presumptive groups include “women, Black Americans, Hispanic
Americans, Native Americans (including American Indians, Eskimos, Aleuts and Native Hawaiians), and Asian
Pacific Americans. Personal net worth of a disadvantaged owner cannot exceed $1.32 million.

s://smbcc.sc.gov/applications
Georgia defines a small business as one which is independently owned and operated and must have either fewer
than 300 employees or less than $30 million in gross receipts per year. Georgia does not have a Small Business
Enterprise (SBE) designation or certification requirement. Companies may ‘self-report’ to designate themselves as
a small business through the GA Department of Administrative Services (DOAS) through the Supplier Registration /
Team Georgia Marketplace where you can select your organization’s classifications.

https: rgia.org/s -business/start/certificatio
D e
wes) Florida

The Office of Supplier Development (OSD) issues applicable state certification and recertification for Florida-based
woman-, veteran-, and minority-owned small businesses.

Your business must meet the following eligibility requirements:

*Be legally registered to do business in Florida as a for-profit organization (registration through the Department
of State).

*Be based in Florida.

*Be owned and managed by a resident(s) of Florida.

*Be 51% owned and managed by a woman, veteran, or minority who is a U.S. citizen or permanent resident
alien.

*Be currently engaged in commercial transactions.

*Be registered in MyFloridaMarketPlace (MFMP).

*Have a net worth of less than $5 million.

*Have 200 or fewer full-time permanent employees.

*Have a professional license, if required by the industry, in the name of the woman, veteran, or minority
business owner.
1) VIRGINIA DEPARTMENT OF

Thank you!

Willis Morris, Agency Director

Verniece Love, Deputy Director

Department of Small Business and Supplier Diversity
101 N. 14t* Street, 11" Floor

Richmond, VA 23219

(804) 786-6585

sbsdesbsd.virginia.gov

www.sbsd.virginia.gov
JOINT LEGISLATIVE AUDIT
AND REVIEW COMMISSION

JLAKC

December 1, 2021

JLARC review (September 2020):
Department of Small Business & Supplier Diversity

Small Business Commission
JLARC reviewed SBSD* and released report in
September 2020

= SBSD’s business certification process had become more timely and
determinations were accurate, but appeal right was limited

= VSBFA was not fully achieving mission of helping small businesses
access financing and lacked lending policies that set appropriate risk
standards

= State agency procurement spending with SWaM-certified businesses
was substantial, but majority of agencies did not achieve governor’s
42% goal

= Most of the state’s procurements went to businesses much smaller
than size allowed under Virginia’s definition, but some relatively large
businesses were also eligible

*SBSD = Department of Small Business & Supplier Diversity

JLARC e
Status - Business certification & assistance

Post precertification webinars or videos on its website that Implementation

Certifleation describe the application process in progress

Provide a right of appeal to small, women-owned, and
Certification minority-owned businesses denied a new certification if Implemented
SBSD made a mistake

Revising denial letters and add information to website to

Certification ; Implemented
more clearly describe appeals process and req'ts
Business Improve business awareness of and accessibility to its Implementation
assistance business assistance events and counseling sessions in progress
. Develop and submit a detailed improvement plan for the
Business Business One Stop Implemented
One Stop p

*As of spring 2021 (JLARC tracks legislative implementation each Session and asks agencies implementation status annually)

JLARC (3)
Status - SWaM planning

Develop and implement a more meaningful SWaM plan

Not implemented
development and review process

Develop and maintain information about strategies agencies
can use to increase their SWaM expenditures

Implemented

*As of spring 2021 (JLARC tracks legislative implementation each Session and asks agencies implementation status annually)
JLARC also proposed 10 policy options for
consideration

= 5 options related to changing the state’s small business definition
used to determine procurement preferences

= ‘1 option for VSBFA to develop a pilot program to test expanding the
microloan program to include startup businesses

= 2 options related to SWaM spending & goals

JLARC (5)
In this presentation

Small business definition
SBSD certifies businesses, most of which were
small, micro, minority-owned, or women-owned

Certification # certifications % certifications
(2019) (2019)*
Small 10,486 40%
Micro 6,058 23%
Minority-owned 3,843 15%
Women-owned 3,616 14%
Other** 2,493 10%

*Numbers do not sum because of rounding.

** Other includes = disadvantaged business enterprises (DBE); service-disabled veteran-owned
businesses, and employment service organization

JLARC
Most certified small business are very small,
except for several “outlier” large businesses

= Median size of certified small business =
= 14 employees
= $3.2 million in annual gross receipts

=» 94% of certified small/micro businesses have
< 250 employees and < $10M gross receipts

= 6% (623) were “outliers” that exceed either the
maximum employee or gross receipt thresholds

= Maximum # employees = 1,900
- Maximum gross receipts = $397M
All but 5% of certified businesses had fewer than
115 employees

Employment 15 to 38

3 to 14

1to2 39to115

115+ Employees

Businesses
First 5% 6% to 26% to 51% to 76% to Last 5%
25% 50% 75% 95%
Percentiles
15% of certified businesses reported less than
$7.2M in gross receipts

Gross receipts $713.3K $3.3M
to $3.2M to $7.1M

$31.4K to
$713.2K

$31.3K

or less $25.4M +
Businesses
First 5% 6% to 26% to 51% to 76% to Last 5%
25% 50% 75% 95%
Percentiles

JLARC @
Policy options: State could exclude comparatively
larger “outlier” businesses from certification

Policy option Certified SBSD SBSD
businesses admin fiscal

removed impact impact

Require small businesses to meet both the -623 Low $0

employment AND gross receipts thresholds* (-6%)

Lower employee and gross receipts 306 $0 - $50k

thresholds for small businesses (3%) Low (one time)

(Example: 95" percentile) °

Lower employee and gross receipts 4,329 $0 - $50k

thresholds for small businesses (-13%) Low (one time)

(Example: 75" percentile) :

* HB 1134 (2020) proposed this approach to Virginia’s small business definition.
Business size can vary substantially depending
on industry

ee # Employees
Construction

(highway, street, & bridge) ts naa
Management consulting services i 2 6,006
Data processing and hosting 1 9 1,535
Florist 1 4 135

Source: Virginia Employment Commission data (2019).

JLARC (13)
Federal government and several other states
have industry-specific small business definitions

= U.S. SBA has 1,000+ industry-specific definitions
= Employment thresholds between 100 and 1,500
= Gross receipts thresholds between $1M and $41.5M
= /5%(7/8) industries larger than VA’s definition

= CO sets size at 50% of U.S. SBA definitions

= MD, NJ, IN, OR, NV, and DC use industry group-specific
definitions
Policy options: State could develop and adopt
size thresholds based on industry

Policy option

SBSD
admin
impact

SBSD
fiscal
impact

Employee
threshold
(+/-)

Develop industry-specific size _996 industries $300K -
standards set at percentage (75%) of ; : High $500K

VA business size (one-time)
Develop industry-specific size . . $300K -
standards set at 50% of SBA size ee neUstTeS High $500K

+310 industries

standards (one-time)
Develop cross-industry size standards , $50K
for several industry groupings Unknown Medium (one-time)
“Disparity study” results could inform potential
changes to definition or procurement preferences

“.Minority- and woman-owned businesses
considered together exhibited a disparity index of 41
for contracts and procurements that the Commonwealth
awarded during the study period,
indicated substantial underutilization.

Moreover, all individual racial/ethnic and gender groups
showed substantial disparities on that work.”

Source: BBC Research & Consulting, study released January 2021

JLARC Gi)
Policy option: Consider broadening preferences
to include more than business size

= The General Assembly could consider authorizing an
executive branch workgroup to consider whether and how
to adjust the

= (i) state’s procurement preferences for businesses (including
women and minority ownership based on the findings of the
2020 SBSD disparity study)

= (ii) state’s definition of small business

= The workgroup could be required to submit proposed
legislative changes to the House General Laws Committee,
Senate General Laws and Technology Committee, and
Small Business Commission
In this presentation

SWaM goal & plans
Governor, agencies, and SBSD each play a role in
state’s SWaM initiatives

O
= i

Governor’s
42% SWaM
procurement
goal

Agencies develop SWaM SBSD collects agency SBSD tracks SWaM
procurement plans SWaM plans spending via dashboard
SWaM program helped certified businesses win
state contracts

= Agencies procured over $2 billion through SWaM-
certified businesses (FY19)

= Purchases with SWaM-certified businesses increased
~15% over last five years

= Median sales increased ~20% for businesses after
SWaM certification

= Businesses reported non-monetary benefits of SWaM
certification (e.g., improved image)

JLARC (21)
State agencies’ SWaM spending ranged from 4
to 87 percent; majority did not meet the goal

100% |
50 |
80
70
60

30 | Governor's goal = 42% Met goal

Did not
“0 | meet goal 40%
60%

> wlll

State agencies

JLARC (22)
Each agency’s SWaM goal achievement affected
strongly by unique procurement needs

= Asking each agency to meet the same 42% SWaM
goal does not account for key factors

= Some goods/services agencies purchase generally
not offered by many SWaM-certified businesses

= Example: specialized research materials

=" Number and size of procurements highly variable
for some agencies

JLARC (23)
SWaM planning process had not historically helped
agencies find workable strategies to meet SWaM goal

=" SBSD held meetings with different group of agencies
each month to discuss SWaM performance

= SBSD collected agency SWaM plans but did not
regularly review plans or provide feedback

= Majority of agencies surveyed disagreed (or had no
opinion) that SWaM plan was helpful
Policy option: Agency-specific goals

= Direct each state agency to set an ambitious, but
achievable, SWaM goal that accounts for the

= (i) availability of SWaM-certified businesses that sell
goods or services the agency procures and

= (il) agency’s ongoing and upcoming procurements

JLARC (25)
Questions? / Comments?

Justin Brown, Associate Director

Lauren Axselle, Project Leader

http://jlarc.virginia.gov/ (26)

(804) 786-1258
~THIS PAGE INTENTIONALLY LEFT BLANK -
Prepared for:

VIRGINIA DEPARTMENT OF SMALL BUSINESS AND SUPPLIER DIVERSITY

Prepared by:

SARIN ADHIKARI, Ph.D.
KIM HA, M.SC.
FABRIZIO FASULO, Ph.D.
MIKE MACKENZIE, MURP

Designed and Formatted by:

JEFF CRAWFORD, WILDER FELLOW

Prepared at:

L. DOUGLAS WILDER SCHOOL OF GOVERNMENT AND PUBLIC AFFAIRS
CENTER FOR URBAN AND REGIONAL ANALYSIS

AT VIRGINIA COMMONWEALTH UNIVERSITY

AUGUST 2018

921 W. Franklin Street © PO Box 842028 e Richmond, Virginia 23284-2028

(804) 828-2274 © www.cura.vcu.edu
-THIS PAGE INTENTIONALLY LEFT BLANK -
ACKNOWLEDGMENTS

The Wilder School's Center for Urban and Regional Analysis is grateful to Tracey Wiley and Jennifer Mayton at the
Virginia Department of Small Business and Suplier Diversity (DSBSD) for their leadership and support throughout
this project. Thanks also to DSBSD Staff for their help in providing the data and information needed for this study.

ABOUT THE WILDER SCHOOL

The L. Douglas Wilder School of Government and Public Affairs at Virginia Commonwealth University informs
public policy through cutting-edge research and community engagement while preparing students to be
tomorrow's leaders. The Wilder School's Center for Public Policy conducts research, translates VCU faculty
research into policy briefs for state and local leaders, and provides leadership development, education and
training for state and local governments, nonprofit organizations and businesses across Virginia and beyond.

ABOUT CURA

The Center for Urban and Regional Analysis (CURA) is the economic and policy research center of the L.
Douglas Wilder School of Government & Public Affairs at Virginia Commonwealth University. The Center serves
stakeholders and organizations at all levels of focus, providing information systems support, program impact
analysis, public policy evaluation, targeted investment models, and strategic plans to state agencies, regional
and metropolitan organizations, planning districts, cities, counties and towns, as well as businesses and non-
profit organizations.
CONFIDENTIAL DRAFT: NOT FOR CIRCULATION
CONFIDENTIAL DRAFT: NOT FOR CIRCULATION

The Commonwealth of Virginia has sought to level the playing field for small businesses bidding on state
contracts through a certification program for Small, Wwomen-owned, and Minority-owned businesses (SWa-M).
In addition to set asides for goods and services up to $100,000 that require state agencies to accept fair bids
from SWalM-certified businesses, the Commonwealth has set a target of 42 percent of all state discretionary
procurement spending to go towards SWalV-certified businesses.

Virginia's Department of Small Business and Supplier Diversity administers SWaM certification by determining
whether applicants meet the program's requirements:

1. A small business may have no more than 250 employees or annual gross receipts greater than $10
million.

2. A women-owned business must be at least 51 percent owned and controlled by one or more women.

3. A minority-owned business must be at least 51 percent owned and controlled by one or more minority
individuals.

A similar certification program for federally-funded contracts—rather than state-funded—follows similar but
slightly different requirements. The Disadvantaged Business Enterprises (DBE) program allows small businesses
and businesses owned by historically disadvantaged groups to certify and compete for federally funded projects.
The DBE program follows similar rules for disadvantaged groups—it includes women-owned and minority-owned
businesses. However, the definition of a small business depends on the industry in which the business operates.
The DBE definition of small business places different standards in both size and gross receipts on businesses
according to their NAICS classification. This definition comes from the U.S. Small Business Administration (SBA).

The DSBSD also administers DBE certification in Virginia.

This report seeks to provide DSBSD with an understanding of the SWaM and DBE programs’ recent trends,
participant impacts, and economic impacts. It also tests whether changes to the definition of “small business”
might have benefits for Virginia businesses and the economy overall. The following represent major findings:

e Between 2014 and 2017 Virginia agencies did not meet the 42 percent SWaM spending goal. However,
the state met a 40 percent target (the state target prior to a 2014 executive order increasing it to 42
percent) in 2009 and 2010. SWaM spending since the introduction of the 42 percent target has averaged
34.3 percent.

e Most SWaM spending between 2007 and 2017 went to small businesses without women or minority
ownership. Small businesses received an average of 25 percent of the state's discretionary procurements
between 2007 and 2017 compared to 5.4 percent for minority-owned businesses and 5.1 percent for
women-owned businesses. This is procurement driven since Virginia has a small business program.

e Asurvey of program participants (n = 1,475) found that more than one-third of respondents saw increases
in their annual revenues after receiving SWaM or DBE certification.

e More than half of minority-owned business respondents who reported an increase in annual revenues
after certification saw revenue increases of more than 20 percent.

e Minority-owned business respondents placed greater emphasis on the importance of the SWaM program
than other business types.

e SWaM businesses appear to experience annual revenue increases at rates greater than all Virginia small

‘iin L. Douglas Wilder School of I

Government and Public Affairs
CONFIDENTIAL: NOT FOR CIRCULATION

businesses experience growth in annual sales receipts.

Experience in the SWaM program plays an ongoing role in helping businesses successfully bid for state
contracts. Survey respondents with more than two years of experience with the program reported
receiving at least some revenue from state contracts at a far higher rate than respondents with two
years of experience or less.

Of the three sub-categories of businesses studied here, small businesses appear to work with SWaM/
DBE-certified sub-contractors and suppliers at a greater rate than women-owned or minority-owned
businesses. This is likely due to procurement being race and gender neutral.

SWalM-certified businesses have an annual economic impact of $3.6 billion, including $146 million in
state and local tax revenues.

State spending with minority-owned SWaM businesses have a higher economic multiplier (1.58) than
small SWaM businesses (1.53) and women-owned SWaM businesses (1.43).

Using the SBA definition of small business for SWaM certification would increase the pool of certified
businesses by 10 percent. However, Virginia SWaM businesses would only increase by 0.55 percent.
Out-of-state SWaM businesses would increase by 99.6 percent. Adoption of the SBA small business
definition would increase the estimated economic impact of SWaM spending by just 0.2 percent.

Additionally, adopting the SBA definition would require additional paper work and staff time to evaluate
each of the 1,031 industry types using industry specific certification criteria, which will increase
certification costs to DSBSD.

Currently, any small business that meets the criteria of less than 250 employees “OR” less than $10
million in gross receipts averaged over the three years are eligible tor SWaM certification. Requiring
SWaM businesses to meet both size “AND” revenue requirements would decrease the pool of certified
businesses by 18 percent. SWalM-certified Wholesale Trade and Manufacturing sector businesses would
shrink by more than 90 percent.

Although the program has struggled to meet the absolute goal of 42 percent, the share of discretionary
spending going to SWalV-certified businesses has consistently remained above 30 percent over the past
10 years. Projections suggest the program could increase its performance by adopting the SBA definition
of small businesses. However, that increase would stem largely from out-of-state businesses ineligible
under the current definition. In this regard, even though the program goals would be met, the economic
impact of the additional spending would not be realized within the Commonwealth.
In 2006, then-Governor of Virginia Tim Kaine signed Executive Order 33 directing state agencies to strive to
make 40 percent of purchases from small businesses. A small business tn the executive order is defined as any
Virginia business with 250 employees or fewer or having gross receipts of $10 million or less (averaged over the
previous three years). The definition explicitly includes women-owned and minority-owned businesses that meet
the small business definition. In 2014, then-Governor Terry McAuliffe signed Executive Order 20, increasing the
Commonwealth's small business spending goal to 42 percent.

The primary objective of this initiative is to advance small business goals for the state to remain competitive
among its peers. The Commonwealth expects to realize the objective by spurring creativity, promoting economic
justice, and encouraging procurement participation by small, women-owned, and minority-owned businesses.
Although the executive order does not set special goals for women-owned and minority-owned businesses, It
specifically mentions that these businesses, among others, are categorized as small business if they meet the
required criteria. Women- and minority-owned business may obtain SWaM certification without meeting small
business criteria.

Existing research suggests employment patterns among minority-owned business dramatically differ from
those of non-minority firms. Research findings on small business employment consistently reveal a pattern in
which minority-owned businesses primarily employ minority workers, while non-minority firms primarily employ
non-minority workers. The disparities in workforce composition by race are largely attributed to network hiring
inclination, wherein, small business firms rely on family-based networks to hire employees (Bates, 2008; Simms
& Allen, 1997). For non-minority (white) small business owners, these networks primarily consist of other white
workers. Likewise, family-based networks for black business owners primarily consist of other black workers.

Given the nature of network hiring, in which the availability of small business jobs are in part a function of the
race of the hiring owner, expanding opportunities for minority businesses also expands minority employment
opportunities. Multiple studies demonstrated that African American-owned businesses employed a predominately
African American workforce (Bates, 1994; Boston & Ross, 1997; Simms & Allen, 1997). Additionally, these
black-owned businesses were more likely than white-owned businesses to recruit low-income minority workers
(Bates, 1994; Simms & Allen, 1997).

The Center for Women’s Business Research, in partnership with the National Women's Business Council and
Walmart, undertook a 2009 study to determine the economic impact of women-owned businesses nationwide.
The methodology used in the study determined the economic impact of privately held firms in which women
held 51 percent or more of ownership. According to research findings, 28.2 percent of all businesses, nationally,
are women-owned. These businesses were found to contribute $3 trillion annually to the US economy, or 4.2
percent of all revenue (Center for Women's Business Research, 2009). Additionally, women-owned businesses
contributed 23 million jobs, or 16 percent of total US employment. These findings highlight the substantial
impact of this market sector.

Similarly, a study in 2017 found that women’s entrepreneurship has been on the rise in the United States for
the last two decades, with an estimated 11.6 million women-owned businesses in 2017 employing nearly 9
million people and generating about $1.7 trillion in revenues (American Express, 2017). The report also identifies
women-owned businesses in Virginia as having considerably increased their economic clout and employment
over the 20 year period from 1997 through 2017

The Virginia Department of Small Business and Supplier Diversity (DSBSD) certifies Small, WWomen-owned, and
Minority-owned (SWaM) businesses and administers the SWaM program to achieve the 42 percent goal set
forth by the 2014 executive order. SWaM certification is principally limited to Virginia businesses; however, an
out-of-state business that meets the required criteria can apply for SWaM certification if its home state has a
reciprocal policy that allows Virginia small businesses to compete for procurement contracts In that state.

DSBSD also certifies Disadvantaged Business Enterprises (DBE) in Virginia. DBE is a Federal program designed
to increase participation of small, disadvantaged businesses in projects funded by the US Department of
Transportation and other federal sectors. To qualify as a DBE, a business’ majority-owner (the person who
owns 51 percent of the business and oversees its day-to-day operation} must be socially and economically
disadvantaged. To be regarded as socially disadvantaged, the majority-owner must belong to a minority or
historically disadvantaged group, including African American, Hispanic, Native American, and women business
owners. Persons with disabilities and others may be determined as socially disadvantaged on a case-by-case
basis. The economic disadvantage goal requires that the majority-owner’s personal net worth not exceed $1.32
million. Finally, a DBE must be certified as a small business. However, this definition of small business differs
from that of the SWaM program.

The DBE program requires firms meet the small business definition set by the federal Small Business Administration
(SBA). The SBA sets different size criteria—both in gross receipts and in number of employees—for different
types of businesses. However, Virginia businesses that plan to participate in the procurement process with
Virginia agencies that do not receive federal transportation funds do not need to get DBE certification.

Besides SWaM and DBE, DSBSD also administers certification for programs that include Employment Service
Organizations (ESO), Historically Black Colleges and Universities (HBCU), Service Disabled Veterans (SDV), and
Micro Businesses. Additionally, the Business Development and Outreach Services (BDOS) division of DSBSD
provides consultation and resources to enable small businesses in Virginia to grow, create jobs, and strengthen
the state's economy.

Virginia’s small business set-aside policy currently requires that purchases below an established threshold be
procured from businesses certified as “small” or “micro” businesses. The 2014 executive order expanded
the small businesses set-aside from $50,000 to $100,000 for goods and non-professional services (and up to
$50,000 for professional services). The executive order also set-aside all state procurements under $10,000 for
qualifying micro businesses. The order defines a micro business as a certified small business with fewer than 25
employees and three-year average gross receipts less than $3 million.

Although the state’s small business set-aside is race- and genderneutral—only small or micro business
certification is required to qualify for the small business set aside—contracts with women- and minority-owned
small businesses are encouraged, so long as their prices are considered fair and reasonable.

Many public policies are driven by a recognition of and desire to address societal inequities. In the case of
SWaM/DBE certification program, the objective is to empower small, women- and minority-owned businesses
by providing them a level playing field to compete for the Commonwealth's procurement spending among other
businesses of similar sizes. The accountability of such policy rests upon how the players are selected—the
credibility of the certification criteria, the achievement of specified goals, and the overall effect of the program
in empowering small businesses in the Commonwealth. At the operational level, the basic accountability metric
is to make sure that 42 percent of the state's discretionary procurement spending is happening through SWaM
or DBE certified businesses. This keeps the target simple and the outputs easy to measure. However, the
fundamental objective is much larger than simply achieving a numerical benchmark. The program's effectiveness
may be understood by answering the following questions:

e Are more state contracts—and state procurement dollars—flowing to certified small, minority, and
women-owned businesses as a result of the initiative?

e Has the program encouraged small business entrepreneurship and generated new employment and/or
growth in wages?

e What is the program's economic impact on Virginia‘s economy?

In an attempt to measure the effectiveness of the SWaM/DBE certification program, DSBSD solicited professional
research services from the Center for Urban and Regional Analysis (CURA) at Virginia Commonwealth University’s
L. Douglas Wilder School of Government and Public Affairs. CURA developed a customized methodology and
economic modeling too! to evaluate and analyze the program's effects on certified businesses and its economic
impact in the Commonwealth. Those findings are documented in the proceeding sections of this report.

Center for Urban and
Regional Analysis 3
Following a review of relevant published literature documenting findings from similar programs in other states,
CURA used a combination of quantitative and qualitative methods to conduct the analysis. The results are
divided into four parts.

1.

Historical trends and numbers in SWaM certification: Using historical data on discretionary spending for
the past ten years, CURA identified business certification trends by business type to analyze changes
in certification and spending over time. Further, employment and spending trends for all Virginia small,
women-owned, and minority-owned businesses—SWaM certified and non-certified—were obtained
from the Census Bureau's Survey of Small Businesses. These trends were compared with the
employment and spending trends of certified SWaM businesses to examine if certification correlates
with greater spending, employment, and wages for these businesses.

SWalW\ participant perspectives: CURA conducted an online census of SWaM business owners to
understand the impact of certification from the perspective of program participants. A randomized
sample of businesses were chosen for interviews, providing a more detailed understanding of the
intangible benefits realized by SWalM-certified businesses as well as their experiences with the
program and its administration.

Economic impact: CURA esimated the economic impact of the SWaM certification program using
economic input-output models informed by the data and analysis conducted in the prior two sections.
The models were analyzed using the state-of-the art IMPLAN Pro software.

Policy alternatives: Finally, researchers at CURA separately applied the two different smal! business
definitions—SWaM and SBA—to a sample of Virginia businesses to measure the difference in eligibility
totals under the two definitions. DSBSD currently uses a small business definition based on the criteria
set forth by the Governor's executive order for SWaM certification. However, DBE certification follows
the SBA definition. CURA has evaluated the economic and administrative impacts if DSBSD were to
adopt the SBA definition of small business for SWaM certification. CURA also investigated how SWaM
eligibility would grow or shrink if the current small business criteria, which requires businesses meet
one of two size conditions, were changed to require both size conditions.

| | | | a a a | Bue ro
CHAPTER 1: VIRGINIA SWaM

& DBE CERTIFICATION TRENDS

As described in the introduction, the Virginia Small, Women-, and Minority-Owned ("“SWaM") procurement
initiative aims to expand business opportunities for SWaM businesses by directing state agencies to seek out
SWalM-certified businesses for state contracts. The Commonwealth has set a procurement spending target of
42 percent with SWaM businesses.

The Disadvantaged Business Enterprise (DBE) certification program is a Federal program aimed at helping small
businesses owned by women and miniorities to participate in projects with federal funding. Although the DBE
initiative is a federal program, it is administered by state and local agencies. The DSBSD administers both SWaM
and DBE certification in Virginia.

SMALL BUSINESS TRENDS

The average number of businesses that received SWaM Certification from FY 2000-2017 are delineated in Table
2.1. These figures represent approximate values, based on unofficial DSBSD records’. Data for some individual
years remains uncertain; however, a long-term growth trend is evident. In FY 2000-2004, the average number of
SWalM-certified businesses was 232. From FY 2000 — 2009, the number of certified businesses increased and
decreased with volatility. By the period of 2005-2009 the average number of certified businesses was around
8,000. This figure was more than 30 times the average total number of certified businesses from FY 2000-2004.
For the next several years, the number of certified businesses experienced strong growth (9 to 14 percent
annually), until it peaked at more than 20,437 in FY 2010-2014. The number of certified businesses has, in the
2015-2017 period, declined to approximately 14,890 accounting for about a 27 percent drop from the previous
period.

TABLE 2.1: AVERAGE NUMBER OF SWAM-CERTIFIED BUSINESSES (FY 2000-2017)

FISCAL YEAR TOTAL MBE WBE SBE DBE*
2000-2004 232 176 71 - 40
2005-2009 7897 1,669 2,533 1,726 114

2010-2014** 20,437 De SiG) 6,575 8,712 1,209
2015-2017 14,890 4,367 3,672 6,851 1,869

Denotes amount not included within total

** Data was not available for FY 2011, 2012, and 2013
Note: As these are average values grouped by year for totals and programs the totals will not accurately sum.

In addition to being SWalM-certified, a business is assigned to one of three main certification types: Minority
Business Enterprise (MBE), Vvoman Business Enterprise (WBE), and Small Business Enterprise (SBE). While
an individual business may qualify for multiple certification types (e.g., Small and Woman Business Enterprise),
each business in this report has been assigned to only one designation based on the following hierarchy: MBE,
WBE, followed by SBE. For example, a small, woman-owned business would be considered both a WBE and
SBE, but would be marked as aWBE to avoid double counting.

As shown in Figure 2.1, SWaM businesses from FY 2000-2004 were comprised largely of MBEs (greater than 55
percent). Since FY 2005, the proportion of MBEs has remained steady, ranging from 23 percent to 36 percent.
The proportion of WBEs between FY 2000 and FY 2014 hovered around 32 percent. The proportion of SBEs was
21 percent in the 2005-2009 period which increased about 42 percent in 2010-2014 and went further up to 46

1 As DSBSD does not keep official records on the total number of certified businesses for each year, these figures were aggregated (with the
assistance of DSBSD staff) from a variety of sources, including DSBSD emails and internal reports. As a result, there are some years in which data
was not available (FY 2011-2013}. These figures represent approximate values for the specified time periods.

@ Center for Urban and
percent in the 2015-2017 period. A portion of the large percentage jump between 2005-2009 and 2010-2014
can be attributed to a campaign by Virginia Commonwealth University and other large colleges and universities
under the direction of former Governor Kaine to encourage existing vendors towards certification. Also, the
program evolved from a minority-owned business program to a woman-owned business program, then finally to
a program that included small business.

As stated previously, DSBSD certifies both SWAM and DBE certifications. The percent of SWaM businesses
also possessing DBE certification has ranged from 7 percent in 2000-2014 to about 12 percent in 2015-2017 Even
though there is some drop in percentage points, the real numbers have consistently increased as evidenced
from the information in Table 2.1.

The US Census Bureau conducts a Survey of Business Owners (SBO) every five years. Data from this
survey indicates the number of Virginia women-owned businesses grew by 23.0 percent and minority-owned
businesses by 33.8 percent from 2007 to 2012 (see left columns in Figure 2.2)—rates far greater than the overall
small business growth rate of 2.3 percent. However, SWalM-certified small businesses grew by 56.1 percent in
the same period. Similarly, SVWvaM-certified women-owned and minority-owned businesses increased at rates
greater than natural growth would suggest, increasing by 36.2 percent and 96.2 percent, respectively. In short,
SWaM certification rates increased faster than business formation rates.

FIGURE 2.1: PERCENT OF SWAM BUSINESSES, BY CERTIFICATION TYPE (FY 2000-2017)

80%
70%

60%

50%
40%
30%
20%
10%
0%
2000-2004 2005-2009 2010-2014 2015-2017

MBE 76% 28% 25% 29%

m WBE 24% 43% 32% 25%

SBE 29% 43% 46%

Note: Data for 2000-2004 for SBE didn't exist; as there was no small business program at that time
The amount of discretionary spending going towards SWalM-certified businesses increased significantly in FY
2008 by 85 percent from $1 billion to $1.9 billion and by 11 percent in FY 2009 to $2.1 billion. Since then, SWaM
spending has remained around $2 billion, with the exception of FY 2014, when it decreased to $1.8 billion, and
FY 2016, when it increased to $2.4 billion. Discretionary spending going towards MBEs showed strong growth
from FY 2008 to FY 2012, averaging 42 percent annual growth. In FY 2013 and 2014, MBE spending had two
consecutive years of contraction. MBE spending increased in FY 2015 and 2016 by more than 20 percent each
year and decreased in 2017 by 23 percent. WBE spending has seen generally positive growth, averaging 22
percent annually, with the exception of FY 2014 and 2017, when it decreased by more than 20 percent. Except
for FY 2008, SBE spending has not experienced the same strong growth as the other certification categories.

Overall, SWaM spending experienced a 106 percent growth in the same period, SBE spending (88 percent),
WBE (147 percent), and MBEs have experienced the strongest growth since FY 2007 increasing by 195 percent
from $103 million to $305 million. SWaM-certified businesses—particularly MBEs and WBEs—appear to have
made significant gains in participating in state procurement as a share of total discretionary spending.

As noted in the introduction, the 2004 Executive Order No. 33 established a 40 percent goal of discretionary
spending to go towards SVVaM businesses from 2006 to 2013, and 2014 Executive Order No. 20 increased the
target to 42 percent of discretionary spending. As seen in Figure 2.3, the 40 percent goal was achieved in FY
2009 and FY 2010, when the percent of discretionary spending awarded to SWaM businesses reached 41.9
percent and 41.8 percent, respectively. FY 2009 and 2010 marked slow growth years In which public spending
was severely impacted by a global recession. In FY 2011, SWaM spending (39.3 percent) was just short of the
40 percent goal and has continued to decrease as a share of total spending. Since the signing of Executive Order
No. 20 in 2014, the share of discretionary spending going to SWaM businesses has fallen short of the 42 percent
goal, ranging from 31.3 percent to 36.9 percent and averaging 34.3 percent.

FIGURE 2.3: PERCENT OF DISCRETIONARY SPENDING, BY SWAM & NON-SWAM (FY 2007-20017)

80.0%
70.0%
60.0%
50.0%
30.0%
20.0%
10.0%
0.0%
2007. ~—-2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
SWAM % Non SWAM % ——E.O. No.33 E.O. No.20

To overcome the annual variations in discretionary spending, CURA compared average spending between 2007
and 2009 with average spending between 2014 and 2017 The results are presented in Figure 2.4. The data
suggests total discretionary spending going to SWalM-certified businesses increased by about 13.4 percent
during this period. Non-minority and non-women owned small businesses continue to receive more than two-
thirds of total discretionary spending on SWaM businesses. However, the shares of spending going to minority-
owned and women-owned businesses increased by about 35 percent and 51 percent the same period. Although
MBEs andWBEs remain a small subset of SWalM-related discretionary spending recipients, their representation
is improving.
Further analysis of discretionary spending by certification type is shown in Figure 2.5. A much larger percent
of discretionary spending has gone towards SBEs than other types of SWaM businesses. The percentage
ranges from 20 percent to 31 percent, with an average of 25 percent. MBEs and WBEs have similar shares of
discretionary spending, ranging from 3 percent to 7 percent; however, MBEs have a slightly higher average of
5.4 percent vs 5.1 percent for WBEs. This is likely due to procurement laws in Virginia being race and gender
neutral.

FIGURE 2.4: AVERAGE INCREASE IN DISCRETIONARY SPENDING IN PROCUREMENT
THROUGH SWAM CERTIFIED BUSINESSES, 2007-2017

$2,500 +13.4%
$2,159
$2,000 SLS04 +4.0%
$1,499
$1.500 $1,444
$1,000
434.9% +51.3%
$500 31
$-
Total (2017$) Minority(2017$) Women(2017$) Smal! Business(2017$)

Average 2007-2009 Average 2014-2017

FIGURE 2.5: PERCENT OF DISCRETIONARY SPENDING, BY CERTIFICATION TYPE (FY 2007-2017)
35.0%

30.0%

0.0% “5007 | 2008 | 2009 2010 | 2011 | 2012 | 2013 2014 | 2015 | 2016 | 2017
MBE 2.6% 5.4% 54% 6.7% 6.5% 7.0% 4.7% 47% 56% 6.1% | 4.6%
FWBE 29% 41% 54% 57% 5.9% 54% 6.0% 48% 58% 61% | 43%
"SBE 20% 29% 31% 29% 27% 23% 24% 23% | 25% 25% 22%

Center for Urban and
CHAPTER 2: PROGRAM

PARTICIPANT PERSPECTIVES

CURA designed and implemented a survey to gain insight from certified businesses that could not be gleaned
from existing data, including trends in revenues and employment. The survey protocol began with questions about
business characteristics (e¢.g., industry and size), followed by sections on business performance, employment,
sub-contractors, suppliers, community engagement, and demographic information about the majority owner. At
the end of the survey, respondents were given an opportunity to provide comments or questions regarding the
survey, the SWaM/DBE program, or DSBSD in general.

From these respondents, CURA interviewed a random selection for a deeper understanding of their businesses
and how they interact with and utilize the SWaM and DBE programs.

CURA administered the online survey in August and September 2017 The survey was distributed to all SWalM-
and DBE-certified businesses with valid email addresses per DSBSD records as of June 2017 In total, 14,766
SWaM- and DBE-certified businesses were invited to participate. Of those, 2,033 businesses responded for a
statistically significant response rate of 13.8 percent. Of these responses, 1,475 completed the survey in its
entirety for a final response rate of 10.0 percent. The following discussion of survey results provides a synthesized
understanding of the data. Full and detailed data tables, as well as a copy of the survey protocol, can be found
in the Appendix.

SURVEY RESULTS

Descriptive statistics of the survey sample are presented in Table 3.1. Compared to the overall study population
(SWalM-certified businesses as of August 2017), the respondent pool is comprised of more Virginia businesses,
more women-owned businesses, fewer small-businesses, more DBEs, and has fewer employees.

TABLE 3.1: CHARACTERISTICS OF SURVEY SAMPLE

Number of businesses 13,718 1,475
Located in VA 81% 87%
Located outside VA 19% 13%
MBE 33% 34%
WBE 21% 38%
SBE 46% 28%

DBE** 14% 26%

* Study population ts defined as SVVaM-certitied businesses as of August 2017
** Denotes amount within total

MAJORITY OWNER DEMOGRAPHICS

The survey sought understanding of the demographic characteristics of majority owners of the responding
businesses. In terms of race/ethnicity, 64 percent of majority owners identified as Caucasian, followed by
African American (22 percent), Asian American (7 percent), and Hispanic American (4 percent) (see Figure 3.1).
Most respondents identified the majority owner's gender as female. A plurality of respondents had owners with
graduate/professional degrees (34 percent), followed by bachelor’s degrees (32 percent), associate's degrees
(22 percent), and high school/GED equivalent (12 percent).
FIGURE 3.1: MAJORITY OWNER DEMOGRAPHICS

ae | 1% _1%
0%

4.8%

Asian American

Virginia
* Maryland himia
* North Carolina Cayeasian
"Hispanic American
"Georgia Native American
Sther Other
86.8%
A) BUSINESS LOCATION, BY STATE B) MAJORITY OWNER ETHNICITY
12.4%
High school, GED
equivalent
"Some college,
associate's
Female degree
53.0% =Male a oe
Graduate,
professional
degree
C) MAJORITY OWNER GENDER D) MAJORITY OWNER EDUCATION

BUSINESS CHARACTERISTICS

While the SWaM certification program is largely aimed at benefiting Virginia businesses, it also allows businesses
from other states to apply for certification. These other states must have small business diversity programs that
do not preclude Virginia businesses from applying or participating in bids for agency contracts. Given this, a
question was included in the survey to gain insight into the respondent’s business location. Regarding location
of the business, 87 percent of businesses surveyed indicated that they were located in Virginia (see Figure 3.1.A).
For businesses located outside of VA, Maryland, North Carolina, and Georgia had the highest frequencies.

Figure 3.2 illustrates NAICS categories that best describe respondents’ business sectors. As can be seen,
respondents represent a diverse set of businesses. The sectors with the most significant representation are
Professional, Scientific and Technical Services (30 percent), Other Services (except Public Administration) (19
percent), and Construction (15 percent). Together, these three sectors constitute more than 64 percent of the
respondents. These sectors are followed by Retail Trade, Wholesale Trade, and Manufacturing. The 18 remaining
NAICS sectors represent less than 3 percent of businesses each, and they have been aggregated in the “Other”
category. This category constitutes 17 percent of all businesses (see Figure 3.2).

Figure 3.3 illustrates the distribution of years in which respondents were first certified. Approximately half of

respondents first obtained certification in 2013 or later, indicating that many respondents have five or fewer
years of experience participating in SWAM/DBE-certification programs.

Center for Urban and
FIGURE 3.2: TOP SIX NAICS CATEGORIES REPRESENTED BY SURVEY SAMPLE

Professional, Scientific, and Technical

Services

30% ss Other Services (except Public

Administration)
4% F
* Construction

5% : * Retail Trade
Wholesale Trade
9%

Manufacturing

Other*

15%

The Virginia SWaM certification program recognizes the federal DBE? certification program. SWal-certified
businesses often also have DBE certification. As shown in Table 3.2, 74 percent of surveyed businesses report
having only SWaM certification, while 2 percent report having only DBE certification. Factoring in businesses
with dual certification, 98 percent of respondents reported having SWalM-only or SWam and DBE certification,
while 26 percent reported having DBE-only or SWaM and DBE certification. This 26 percent representation
of DBE-certified businesses is higher than DBE figures for August 2017 (14 percent) as well as the historical
average (10.5 percent) (see Table 3.1 and Figure 2.1).

FIGURE 3.3: YEAR OF FIRST CERTIFICATION

2017 10%

2016 15%
2015 11%
2014 9%

2013 5%

2012 8%

2011 6%

2010 7%

2009 5%

2008 5%

2007 5%

2006 5%

2005 5%

2004 4%

2003 0%

0% 2% 4% 6% 8% 10% 12% 14% 16%

TABLE 3.2: CERTIFICATION TYPE

RESPONDENTS PERCENT

SWAM only 1,098 7%
DBE only 26 2%

Both 351 24%
TOTAL 1,475 100%

2 Where businesses that applied for DBE are eligible for SWaM, but they still need to apply and get evaluated as per SWaM guidelines.
BUSINESS PERFORMANCE

To understand how the SWal-M certification program may have impacted business performance, the survey
included several questions about annual revenues. When asked how their annual revenues changed since
becoming SWaM/DBE-certified, 37 percent of respondents indicated their revenues increased, 7 percent
indicated they decreased, and 55 percent said they remained the same (see Figure 3.4). Disaggregating these
results by certification type, it appears that woman-owned businesses experienced more favorable revenue
trends relative to minority-owned and small businesses. A higher proportion of woman-owned (42 percent)
and small businesses (39 percent) observed an increase in annual revenues, compared to minority-owned
businesses (32 percent). Regarding decreases in annual revenues, the differences between certification type
groups are minimal: nonetheless, a slightly smaller proportion of woman-owned (6.7 percent) and minority-
owned (73 percent) businesses experienced a decrease relative to small businesses (7.8 percent). Furthermore,
a smaller percentage of businesses owned by women (51 percent) and small businesses (54 percent) observed
no change in revenues relative to minority-run businesses (61 percent).

FIGURE 3.4: HOW HAVE YOUR ANNUAL REVENUES CHANGED SINCE
BECOMING SWAM/DBE-CERTIFIED?, BY CERTIFICATION TYPE (N = 1475, 496, 415, 563)

70.0%
60.0%
50.0%
40.0%
30.0%
20.0%

10.0%

il Increased = Remained the same
All 37.2% TA% 55.4%
® Minority 31.7% 7.3% 61.1%
=Women 41.9% 6.7% 51.3%
* Small 38.7% 7.8% 53.5%

Of those respondents reporting an increase in revenues, the majority (53 percent) reported an increase of 1 to
20 percent, while a small minority (18 percent) reported an increase of 21 to 40 percent. Disaggregating these
results by Minority-owned, Woman-owned, and Small, Figure 3.5 indicates that while a smaller percentage of
MBEs observed an increase of 1 to 20 percent or 21 to 40 percent (47 percent and 13 percent, respectively),
compared to WBEs and SBEs, more MBEs experienced larger relative gains in annual revenues, compared to
their counterparts. Specifically, across the higher increase ranges (41 to 60 percent and up) a higher proportion
of MBEs were consistently represented (26 percent), compared to WBEs (18 percent) and SBEs (15 percent).
Again, WBEs indicated positive trends in revenue gains and were well represented in five out of six ranges
relative to the other certification groups. These results suggest that while fewer IMBEs reported an increase in
annual revenues subsequent to certification, those MBEs experiencing gains were more likely to observe gains
upward of 40 to 100 percent compared to WBEs and SBEs. In addition, woman-owned businesses appear to
perform well relative to SBEs and MBEs, not only in terms of a higher percentage reporting increases, but also
being well-represented across most percentage increase ranges relative to other certification groups.

MORE THAN 10%

DOUBLED SALES

RECEIPTS

fm) Center for Urban and =
FIGURE 3.5: BY HOW MUCH HAVE YOUR ANNUAL REVENUES INCREASED SINCE BECOMING
SWAM/DBE CERTIFIED?, BY CERTIFICATION TYPE (N=549, 157, 174, 219)

70.0%

60.0%

50.0%

40.0%

30.0%

20.0%

1-20% 21-40% 41-60% 61-80% 81-100% more than 100%

All 52.5% 18.2% 10.2% 3,8% 4.0% 11.3%
® Minority 46.5% 13.4% 14.0% 5.1% 6,4% 14.6%
@ Women 51.7% 19.0% 11.5% 4.0% 4.0% 98%
® Small 57.3% 21.1% 6.4% 2.8% 2.3% 10.1%

Of the 37 percent of certified business that experienced a revenue increase, about 47.5 percent of respondents
said that their annual revenues have increased by more than 20 percent. The Census Bureau's Survey of Business
Owners? data shows that small businesses in the Commonwealth experienced a 5 percent increase in sales
between the years 2007 and 2012, suggesting SVVaM and DBE participants experienced annual revenue growth
well in excess of the broader universe of small businesses in Virginia. The increase in the total value of sales
receipts for all small businesses (SWaM and non-SWa™M) is presented in Figure 3.6. Although sales receipts and
revenue are separate metrics, an increase in sales receipts can be considered to directly affect an increase in
revenue, assuming that business operating costs are constant across the samples.

FIGURE 3.6: PERCENT CHANGE IN SALES RECEIPTS FOR ALL SMALL BUSINESSES
IN VIRGINIA BETWEEN 2007 AND 2012

60%
50%
40%

30%

20%

0%

x

Not Important Slightly Important Moderately Important Important Very Important
All 11% 18% 15% 23% 33%
= Minority 8% 9% 12% 22% 48%
®"Woman 13% 20% 16% 21% 29%
Small 13% 25% 17% 24% 21%

SWalM-certified women- and minority-owned business may reap the greatest gains compared to similar firms
statewide. About 48 percent of SWaM certified women-owned businesses with increases in revenue reported
annual revenues increased by more than 20 percent, and about 40 percent of SWaM certified minority-owned
businesses reported increases had increases greater than 40 percent. Both SWaM certification categories
outpaced sales receipts growth of women-and minority-owned small businesses statewide (see Figure 3.6).

Honing in on the six NAICS categories with the largest representation in the sample (Professional, Scientific, and
Technical Services; Other Services except Public Administration; Construction; Retail Trade; Wholesale Trade;
and Manufacturing), CURA examined the change in annual revenues by industry (see Figure 3.7). Wholesale

3 The Census Bureau sales data has been measured between 2007 and 2012. About 50 percent of the survey respondents received certification
before 2012. The time frames for the Census data and the survey data partially overlap with each other. This is the closest comparison available
between SWaM businesses and all small businesses in Virginia.

4 All dollar amounts are converted to 2017 constant dollar value using the CPI inflation factor published by the Bureau of Labor Statistics.
Trade exhibited the highest proportion of businesses (45 percent) reporting an increase in annual revenues and
the smallest proportion indicating a decrease (5 percent). Respondents from the Retail Trade sector had the
second highest percentage of businesses stating an increase (43 percent), but also had the highest percentage
reporting a decrease in annual revenues (12 percent). In general, businesses outside of these six categories
reported revenue increases with less frequency; only 32 percent of businesses grouped in the Other category
indicated an increase. Those identifying as Professional, Scientific, and Technical Services, as well as Other
Services (except Public Administration) had the lowest percentages of businesses indicating an increase in
annual revenues (36 percent and 35 percent). Roughly 5 to 7 percent of respondents in each sector reported
decreases in annual revenues.

FIGURE 3.7: CHANGE IN ANNUAL REVENUES, BY TOP SIX NAICS CATEGORIES
70%

60% Professional, Scientific,

and Technical Services

50% ™ Other Services (except
Public Administration)
| = Construction
40% }
™ Retail Trade
30% t |
® Wholesale Trade
20% |
Manufacturing
10% L | Other
0% LU U |

Increase Decrease Remain the Same

Other includes Transportation and Warehousing; Educational Services; Health Care and Social Assistance; Information (i.e. publishing, journalism,
telecommunication, library, etc.); Accommodation and Food Services; Management of Companies and Enterprises; Arts, Entertainment, and Recreation;
Finance and Insurance; Agriculture, Forestry, Fishing and Hunting; Utilities (i.e. electric, gas, water, sewage); Administrative and Support and Waste
Management and Remediation Services; Public Administration; Real Estate Rental and Leasing; Mining

As SWaM/DBE-certified businesses age into the program, one would expect to see state agency contracts
grow as a share of annual revenues. Accordingly, respondents were asked about the percentage of their annual
revenues coming from contracts with a Commonwealth of Virginia agency prior to becoming SWAM/DBE-
certified as well as presently. Approximately 59 percent of respondents reported having no revenues from Virginia
agencies prior to certification. Another 32 percent indicated Virginia contracts accounted for 1 to 20 percent of
company revenues (see Figure 3.8.A). The percentage of respondents reporting zero dollars in business with
Virginia agencies reduced 14 percent after becoming certified.

The percentage of respondents reporting that none of their annual revenues are attributable to state agency
contracts after certification—45 percent—raises questions, given the purpose of certification. One possible
explanation is that these businesses have only been certified for a few years and have not yet learned how
to leverage the SWaM certification or how to navigate the state contract bidding process. Roughly half of
respondents reporting no revenue from state contracts indicated that they were first certified in 2015 or later,
while 76 percent of respondents with at least one percent of revenue reported their first certification before
2015. Although other factors may be at play, it appears that experience with the SWaM certification program is
in an important factor in successfully bidding for and receiving revenues from agency contracts.

Disaggregating these results by certification type, Figure 3.8 shows that a much lower proportion of minority-
owned businesses (21 percent) received at least some revenue from state contracts than women-owned (40
percent) and small (61 percent) businesses. All certification types saw the proportion of businesses reporting

@ Center for Urban and
zero percent of revenue from state contracts before certification decline by roughly 14 percentage points after
certification. There does not appear to be significant variation in the share of respondents reporting higher levels
of state contract-based revenues after certification by certification type: all increased by similar intervals. These
results suggest that while a smaller proportion of minority- and woman-owned businesses receive revenues
from state contracts, the certification program benefits the different groups—in terms of relative gains to annual
revenues—more or less equally.

FIGURE 3.8: CONCENTRATION OF REVENUES COMING FROM VIRGINIA AGENCY CONTRACTS PRIOR TO
CERTIFICATION AND CURRENTLY BY CERTIFICATION TYPE

A) ALL B) MINORITY
70.0% 90.0%
80.0%
60.0%
70.0%
0,
500% 60.0%
40.0% 50.0%
30.0% 40.0%
30.0%
10.0% 10.0% Yj
“4.20% 21-40% 41-60% 61-80% 81-100% 0% 1-20% 21-40% 41-60% 61-80% 81-100% 0%
Before 32.1% 4.1% 1.9% 1.6% 1.6% 58.6% sBefore 13.7% 2.2% 1.4% 1.8% 1.6% 79.2%
After 39.1% 7.1% 3.1% 2.8% 3.5% 44.5% BAfter 21.2% 5.6% 2.2% 2.8% 2.4% 65.7%
C) WOMAN D) SMALL
70.0% 70.0%
60.0% 60.0%
50.0% 50.0%
G
40.0% Z 40.0%
Y
30.0% Y 30.0%
Y
20.0% j 20.0%
Y
10.0% y 10.0%
0.0% af we wlA a GY 0.0% | mA wn 7A — A 4
i 21-40% 41-60% 61-80% 81-100% 0% 1-20% 21-40% 41-60% 61-80% 81-100% 0%
mBefore 29.6% 3.6% 1.9% 1.7% 2.9% 60.2% EBefore 50.3% 6.2% 2.3% 1.4% 0.7% 39.1%
wAfter 34.9% 7.2% 3.9% 3.4% 5.3% 45.3% @After 57.9% 8.2% 3.2% 2.5% 3.0% 25.2%

The survey also attempted to explore the extent to which businesses are dependent on SWaM/DEE certification.
Survey participants were asked to rate the importance of the SWAM/DBE program as a factor in the decision to
start their business. More than 50 percent of respondents indicated that it was not important, while 30 percent
indicated that it was important or very important (See Figure 3.9). Minority-owned business respondents placed
the greatest importance on the program, with 46 percent of respondents describing the program as important
or very important. Woman-owned businesses followed with 28 percent of respondents. Small businesses placed
the least importance on the program, with just 17 percent describing it as important or very important and 65
percent describing it as not important.
FIGURE 3.9: HOW IMPORTANT OF A FACTOR WAS THE SWAM/DBE PROGRAM IN YOUR DECISION
TO START YOUR BUSINESS? BY CERTIFICATION TYPE (N=1,474)

70%

60%

50%

40%

30%

20%

a Not Important Slightly Important Moderately Important Important Very Important
All 51% 9% 10% 12% 18%

§ Minority 33% 10% 12% 15% 31%
® Woman 54% 9% 10% 12% 16%
= Small 65% 9% 8% 10% 7%

When asked how important their participation in the SWaM/DBE program is to the long-term viability of their
business, 33 percent of all respondents described it as very important, 23 percent described it as important, and
15 percent described it as moderately important (see Figure 3.10). Nonetheless, when asked if their business
would exist if it was not participating in the SWaM/DBE program, a large majority of respondents (85 percent),
indicated ‘Yes’

FIGURE 3.10: HOW IMPORTANT IS YOUR PARTICIPATION IN THE SWAM/DBE PROGRAM TO THE LONG-TERM
VIABILITY OF YOUR BUSINESS? BY CERTIFICATION TYPE (N=1,474)

60%
50%
40%
30%
20%
: Not Important Slightly Important | Moderately Important Important Very Important
All 11% 18% 15% 23% 33%
™ Minority 8% 9% 12% 22% 48%
=Woman 13% 20% 16% 21% 29%
= Small 13% 25% 17% 24% 21%

Once again, minority-owned business respondents tended to rate the certification program’s importance much
higher than other certification types. A much higher proportion of MBEs (71 percent), compared to WBEs
(51 percent) and SBEs (45 percent), view their participation in the SWaM/DBE programs as very important or
important to the long-term viability of their business.

@ Center for Urban and
EMPLOYMENT
Several survey questions addressed the effects of TABLE 3.3: WORKFORCE DESCRIPTIVE STATISTICS

certification on employment. Table 3.3 outlines workforce [AVERAGE |

descriptive statistics, related to number of employees, full-

.; Number of employees 16
time, part-time, and disadvantaged groups. Respondents =
employ, on average, 16 workers—75 percent full time and LEU! Lime 75%
25 percent part time. Respondents reported an average of | Part time 25%
31 percent of employees as members of a minority group, | Minority 31%
40 percent as women, and 4 percent as service-disabled | \\joman 40%
veterans. Service-disabled veteran 4%

When asked how employment has changed since

becoming certified, 21 percent of respondents indicated employment increased, while just 5 percent indicated
that it decreased. The large majority (74 percent) indicated that employment remained unchanged. Employment
trends were not significantly affected by certification type (Figure 3.11). Of respondents reporting an increase
in employment, the average business grew by 14 persons. For those businesses reporting a decrease in
employment, the average decrease was 8 employees.

FIGURE 3.11: HOW HAS YOUR BUSINESS'S EMPLOYMENT CHANGED SINCE BECOMING
SWAM/DBE-CERTIFIED? BY CERTIFICATION TYPE (N=1,475)

90%

80%

70%

60%

50%

40%

30%

20% ie

10% ==

ae Increased oe Remained the Same
All 21% 5% 74%

= Minority 17% 3% 79%
B\Woman 23% 5% 72%
* Small 22% 6% 72%

When asked how the average salary of employees changed since becoming SWaM/DBE-certified, 27 percent of
respondents said that it increased, while only 4 percent said that it decreased. The majority of respondents (69
percent) said the average employee salary remained unchanged (see Figure 3.12). Among those who reported
an increase in average employee salary, 76 percent indicated that the average salary increased by 1 to 20
percent, and another 14 percent indicated It increased 21 to 40 percent. Responses differed by certification type
(Figure 3.13). Around 35 percent of small businesses and 28 percent of woman-owned businesses reported an
increase in average employee salary, but only 18 percent of minority-owned businesses reported an increase.

Many factors influence an employer's decision to increase employee salaries, and respondents were asked to
rank five factors by their impact on increased wages from 1 (most important) to 5 (least important). Minority-
owned, woman-owned, and small businesses all attributed wage increases primarily to improved employee
productivity. MBEs ranked improved financial standing due to SWaM certification as having a greater impact
than inflation, making MBEs the only group to rank the program‘s impact higher than another option. Woman-
owned businesses ranked cost of living adjustments as the second most important factor, over promotions.
FIGURE 3.12: CHANGE IN AVERAGE EMPLOYEE SALARY SINCE CERTIFICATION, BY CERTIFICATION TYPE

80.0%

70.0%

60.0%

50.0%

40.0%

30.0%

20.0% |

pu, Increased sDereesed Remained the same
All 27.3% 3.5% 69.2%

™ Minority 18.3% 3.4% 78.2%
®Woman 28.0% 3.6% 68.4%
= Small 34.8% 3.4% 61.8%

FIGURE 3.13: PERCENT CHANGE IN AVERAGE SALARY SINCE CERTIFICATION, BY CERTIFICATION TYPE

90.0%

80.0%

70.0%

60.0% }

50.0%

30.0%

20.0%

10.0% a |

‘ 1-20% 21-40% 41-60% 61-80% 81-100% more than 100%

All 76.2% 14.1% 47% 1.7% 2.0% 1.2%
® Minority 68.1% 15.4% 8.8% 4.4% 2.2% 1.1%
®"\Woman 73.3% 14.7% 5.2% 0.9% 4.3% 1.7%
® Small 81.6% 13.3% 2.6% 1.0% 0.5% 1.0%

SUB-CONTRACTORS & SUPPLIERS

SWaM businesses may behave differently than the average business in working with sub-contractors and
suppliers. As noted in the introduction and, in greater detail, the Appendix, published research indicates that
small businesses rely on family networks in business practices, resulting in an inherent disadvantage for women,
racial and ethnic minorities, and other historically disadvantaged groups.

The survey probed respondents’ work with sub-contractors and suppliers before and after certification.
Approximately 19 percent of respondents indicated the number of sub-contractors they worked with increased
since becoming certified (see Table 3.4), Of the 997 respondents that reported having sub-contractors, 46 percent
indicated that they sub-contracted with other SWaM/DBE-certified businesses. A greater share of respondents,
69 percent, indicated that at least some of these sub-contractors were located within the Commonwealth of
Virginia.

Git) ' Center for Urban and
TABLE 3.4: SUB-CONTRACTORS

ALL MINORITY WOMEN SMALL
NUMBER % NUMBER % NUMBER % NUMBER %
since becoming SWaM/DBE-certified, has the number of sub-contractors you work with increased?
Yes 278 18.8% 93 18.8% 87 21.0% 98 174%
No 719 48.7% 261 52.6% 180 43.4% 277 49.2%
N/A 478 32.4% 142 28.6% 148 35.7% 188 33.4%
Total 1475 496 415 563

Disaggregating this by certification type, the results differ from what literature would suggest. Small business
respondents reported working with other SWaM/DBE-certified sub-contractors at a greater rate than both
woman- and minority-owned businesses (see Figure 3.14). Approximately 55 percent of SBEs, 48 percent of
WBEs, and 33 percent of MBEs worked with sub-contractors that were SWaM/DBE-certified. The same pattern
followed for sub-contractors within the Commonwealth, with 81 percent of SBEs, 71 percent of WBEs, and 55
percent of MBEs having Virginia based sub-contractors (see Figure 3.15).

FIGURE 3.14: WHAT PERCENTAGE OF YOUR SUB-CONTRACTORS ARE SWAM/DBE-CERTIFIED?
BY CERTIFICATION TYPE

70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%

0.0%

All
™ Minority
Small

50.0%
45.0%
40.0%
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%

5.0%

0.0%

All
™ Minority
=Women

0%

1-20% 21-40% 41-60% 61-80% 81-100%
54.6% 30.0% 5.8% 5.0% 2.4% 2.2%
66.7% 20.6% 5.6% 3.1% 1.4% 2.5%
51.7% 31.5% 6.0% 6.0% 3.0% 1.9%
45.1% 37.9% 5.9% 6.1% 2.9% 2.1%

FIGURE 3.15: WHAT PERCENTAGE OF YOUR SUB-CONTRACTORS ARE LOCATED IN VIRGINIA?
BY CERTIFICATION TYPE

0% 1-20% 21-40% 41-60% 61-80% 81-100%
31.2% 22.5% 4.7% 4.5% 6.1% 31.0%
44.9% 24.3% 3.7% 2.8% 4.0% 20.3%
29.2% 20.6% 5.6% 4.9% 7.1% 32.6%
19.5% 22.1% 5.1% 5.9% 75% 40.0%

® Small
The weighted average of responses indicates that approximately 11 percent of respondent sub-contractors
are SWaM/DBE certified and 38 percent are located in Virginia (Figure 3.16). For minority-owned businesses, 9
percent of sub-contractors are SWaM/DBE certified and 26 percent are located in Virginia—the lowest results
of all groups. Approximately 12 percent of woman-owned businesses’ sub-contractors are SWaM/DBE-certified
and 41 percent are located in Virginia. Lastly, 13 percent of SBE sub-contractors are SWaM/DBE-certified and 48
percent are located in Virginia.

FIGURE 3.16: SUB-CONTRACTORS: ESTIMATED WEIGHTED-AVERAGE™ (%), BY CERTIFICATION TYPE %

60.0

50.0

40.0

30.0

20.0

°° SWAM/DBE Certified "Located in VA

All il Pat 38.4
"MBE 88 26.3
"WBE 12.0 40.8
"SBE 12.9 48.3

* The survey respondents represented an unequal proportion of small, minority-owned, and women-owned businesses. Weighted average was
calculated to accurately represent the reported sub-cuonlractor’s certification types.

A higher number of respondents reported having suppliers (1,126) than sub-contractors (997). Of respondents
with suppliers, 47 percent indicated that at least some of their suppliers were SWaM/DBE-certified, with 35
percent reporting that 1 to 20 percent were certified. Nonetheless, a large majority of respondents (74 percent)
reported at least a portion of suppliers were located in Virginia. The pattern of suppliers by respondent certification
type follows that of sub-contractors, with 56 percent of SBEs, 50 percent of WBEs, and 34 percent of MBEs
indicated a portion of their suppliers were SWaM/DBE-certified (see Figure 3.17). In terms of suppliers’ location,
for those having suppliers, 84 percent of small businesses, 72 percent of woman-owned businesses, and 64
percent of minority-owned businesses indicated that at least some percentage of their suppliers were located
in Virginia (See Figure 3.18).

FIGURE 3.17: WHAT PERCENTAGE OF YOUR SUPPLIERS ARE SWAM/DBE-CERTIFIED? BY CERTIFICATION TYPE

90.0%
80.0%
70.0%
60.0%
50.0%
30.0%
20.0%
10.0% i []
; 1-20% 21-40% 41-60% 61-80% 81-100% more than 100%
All 76.2% 14.1% 4.7% 1.7% 2.0% 1.2%
® Minority 68.1% 15.4% 8.8% 44% 2.2% 1.1%
® Woman 73.3% 14.7% 5.2% 0.9% 4.3% 1.7%
Small 81.6% 13.3% 2.6% 1.0% 0.5% 1.0%
FIGURE 3.18: WHAT PERCENTAGE OF YOUR SUPPLIERS ARE LOCATED IN VIRGINIA? BY CERTIFICATION TYPE

40.0%
35.0%
30.0% |
25.0%
20.0%
15.0% |
10.0% |
0.0% '
0% 1-20% 21-40% 41-60% 61-80% 81-100%
All 25.8% 31.1% 9.1% 7.3% 9.9% 16.8%
® Minority 36.0% 28.2% 7.6% 6.8% 6.2% 15.2%
®Woman 27.9% 30.6% 10.5% 5.1% 9.2% 16.7%
Small 16.4% 33.7% 95% 9.1% 13.2% 18.1%

A weighted-average of respondent suppliers indicates that 10 percent of all respondent suppliers are SWaM/
DBE-certified. For SBEs, WBEs, and MBEs, this figure was 11 percent, 9 percent, and 8 percent, respectively.
Approximately 32 percent of all respondent suppliers are located in Virginia. Small businesses, woman-owned
businesses, and minority-owned businesses have 37 percent, 31 percent, and 27 percent of their suppliers in
Virginia, respectively (see Figure 3.19).

FIGURE 3.19: SUPPLIERS: ESTIMATED WEIGHTED-AVERAGE (%), BY CERTIFICATION TYPE

40.0
35.0
30.0
25,0
20.0
15.0
10.0
a8 SWAM/DBE-Certified Located in VA
All O15 359)
® Minority "6 26.8
Small 11.1 36.7
COMMUNITY ENGAGEMENT

To appreciate how SWaM businesses impact their communities, survey respondents were asked to indicate any
types of community engagement in which their businesses or employees were involved. While there are many
ways for a business to engage with its community, the most commonly cited methods of involvement among all
respondents were volunteering (47 percent), donating (46 percent), supporting a local charity (42 percent), and
being involved in local associations or clubs (40 percent) (see Figure 3.20). Overall, 77 percent of respondents
reported involvement in at least one form of community engagement.
FIGURE 3.20: COMMUNITY ENGAGEMENT, BY CERTIFICATION TYPE

90%

80%

70% |
60%
|
50%
40% |
30% I
20% j
10% |
| I |

Mentoring Donations ena Local Clubs Res aa Scholarships Peper Local Sports, Charity Volunteering} Other None 9
Al | 27.1% | 45.6% | 22.8% 39.8% 21.7% 29.1% 9.5% | 25.6% 174% | 42.0% | 468% | 0.9% | 225% | 769%
["Minority | 375% | 38.9% | 256% | 32.9% | 22.4% 28.6% | 11.1% | 238% | 10.1% | 33.7% | 48.2% | 1.4% | 260% | 728% |
“Woman | 27.2% | 42.4% | 24.6% | 431% | 243% | 31.1% | 123% | 280% | 16.4% | 43.4% | 496% | 1.0% | 20.2% | 79.8% |
“Smal 17.6% | 53.8% 18.8% 433% | 19.0% | 27.9% | 5.9% | 25.2% | 245% | 48.3% 43.5% | 0.5% | 21.1% | 78.3%

A slightly higher percentage of woman-owned businesses (80 percent) reported being involved in a form
of community engagement, compared to small (78 percent) and minority-owned (73 percent) businesses.
Furthermore, relative to their small and minority-owned counterparts, more WBEs are involved in volunteering,
community events, community boards, local initiatives, and scholarships. Meanwhile, a higher percentage of
SBEs are involved in donating, charity, local clubs, and local sports. MBEs are more involved in mentoring and
community education.

SUCCESS STORIES AND PROGRAM FEEDBACK

Phone interviews with a handful of SWaM businesses allowed CURA to gain deeper insight into how businesses
viewed the process of certification and its impacts. DSBSD representatives provided a list of potential success
story candidates (53 in all). In an effort to provide perspectives from a diverse group of businesses, CURA
sought to interview businesses from different distinct regions within Virginia, as well as businesses that were
minority-owned, woman-owned, and represented diverse business sectors. Interviews took place in October
and November 2017 and lasted approximately 30 minutes each.

The interview process conducted for this study allowed CURA to gauge participant views on potential changes
to SWaM certification criteria. Interviewees were generally opposed to the idea of making the definition more
inclusive, saying it would make competition for contracts more difficult. The goal should be, “to help the little
guys,” as one participant put it.

However, the focus of these conversations was mostly centered around perceived community impacts. Interviews
produced personal stories about businesses, communities, and the human impacts of some SWaM participants.
The following success stories capture the various ways SWaM vendors contribute to their communities and
the Commonwealth as a whole, including through tax revenues, job creation, workforce development, and
community engagement.

The SWaM certification program is intended to support diversity among Virginia Agency suppliers, but the
program also contributes to the economic benefit of the Commonwealth. By helping small, woman- and
minority-owned businesses compete for state agency contracts, the program supports the sustained economic
viability of Virginia businesses and generates business tax revenues for the Commonwealth (i.e. corporate

@ Center for Urban and
income tax revenue and sales tax revenue) that otherwise might go to businesses outside Virginia. For example,
Bill Puckett, the president and owner of Lynchburg Camera, a retail imaging equipment and supplies store in
downtown Lynchburg, said the SWaM program has been important in keeping his business afloat. Since its
establishment in 1938, Lynchburg Camera has endured significant market changes. In particular, the brick and
mortar establishment faces competition from internet retailers such as Amazon, B&H Photo, and Adorama.
Puckett says that prospective customers increasingly have a tendency to use Lynchburg Camera as a Showroom,
ultimately purchasing the products from other online retailers. Fortunately, revenues generated through contracts
Puckett attributes to the SWaM program have helped to make up for much of that lost business. Local factors,
such as construction outside of Puckett’s downtown establishment, have deterred foot traffic. Puckett says
the store is thankful for continued SWal-related business to smooth out sales revenues. With an estimated
15 percent of revenues coming from SWaM specific sales, Lynchburg Camera values the stability the SWaM
program provides. The SWaM program has played an important role in keeping Lynchburg Camera in business,
and the business gives back in the form of tax revenues through corporate income taxes, gross receipts taxes,
and sales taxes—taxes that would otherwise be foregone if sales went to major online retailers located outside
Virginia.

SWaM businesses also support job creation in the Commonwealth. Gerald Burr, Jr. is the President & CEO
of Canterbury Enterprises, LLC, a general contractor for commercial and multifamily housing in Chester. The
company, which has been in operation for over 13 years, has grown its workforce from 3 to 24 employees.
Prior to the recession, Canterbury reached a peak of 30 employees. In addition to creating jobs, Mr. Burr has
been able to increase salaries. Burr says improved access to bidding opportunities on state agency contracts
played a role in the increase in salaries. Canterbury has also played an important role in working with Virginia
sub-contractors. Burr estimates that his firm works with 50 to 100 sub-contractors, 75 percent of whom are
SWaM/DBE-certified and all of which are located in Virginia. Canterbury encourages sub-contractors without
SWaM/DBE certification to become certified in an effort to increase the overall capacity of SWaM businesses
and create more opportunities for SWaM businesses. To aid in the SWaM certification process of its sub-
contractors, Burr says Canlerbury mentors other businesses and gives them points of contacts. Burr estimates
they have encouraged 15 to 20 firms to pursue SWaM Certification.

SWalM businesses also have a positive impact on development through training programs, thus generating
income tax revenue for the Commonwealth. For example, Strategy US is a minority- and woman-owned, small,
micro business, owned by wife and husband, Bhavna and Jatinder Chandook. The couple operate a consulting
firm specializing in information technology training for higher education institutions such as George Mason
University. In addition to its training programs, the company offers reduced tuition for unemployed individuals.
According to Mr. Chandook, the company has aided individuals facing homelessness. One individual found
employment within two months of entering a training program and, by the end of the program, was negotiating
for a raise. Chandook reports that 14 participants with reduced tuition have found jobs with an average starting
salary of $84,000. The students’ prosperity often leads to a chain reaction, according to Chandook, and the
individuals go on to help family members achieve economic well-being.

SWaM vendors also play an important role in community engagement. Veronica Musie runs a small catering
business called Vera's Catering. Musie provides catering for small gatherings and large corporate and private
events. She established her business in 2016 and became certified in 2017, As a new participant to SWaM, the
company has received a few contracts, and Musie expressed confidence in acquiring more as she learns how to
bid on contracts. Ms. Musie also operates a nonprofit organization for women affected by breast cancer called
Alpha Breast Cancer Support Service. The organization arranges meetings, luncheons, and an annual fundraising
walk to raise awareness and provide survivors with support services. Support has included providing rides to
women who need to commute to receive treatment as well as financial support for groceries, rent, or child care.
Musie and her two part-time employees volunteer with the organization 10-20 hours a week. A survivor herself,
Musie is originally from Ethiopia. Her experience has driven her to provide support for other women so they do
not have to go through the process alone.
CHAPTER 3: ECONOMIC IMPACT

This section of the report details the economic impact generated on the Commonwealth's economy, as well
as in each Metropolitan Statistical Area (MSA), through discretionary spending with small, minority-owned, or
women-owned businesses. In addition to empowering SWaM businesses throughout the Commonwealth, the
SWaM/DBEE certification program channels spending towards thousands of Virginia businesses, which in turn
generates additional impact throughout the economy through the spending of suppliers, sub-contractors, and
their employees. '

This section will also compare the economic impact, in terms of multiplier (i.e. total economic impact for each
$1.00 spent), of spending through different business ownership types, including non-SWaM businesses. The
differences in the multipliers are primarily a function of the industrial structure of each group (that is, which
industries or NAICS codes are represented), but they provide a useful snapshot to understand how the
Commonwealth's discretionary spending impacts its own economy.

METHODOLOGICAL NOTE

This report uses economic input-output analysis to illustrate the impact of the discretionary spending happening
through SWaM-certified businesses. An input-output model measures the economic impact of an activity or
entity by looking at the spending that goes into the activity, modeling the resultant economic output in dollars,
and feeding those dollars into the model as an input for economically linked business sectors.

Economic linkages may be best described as an interconnected network, from suppliers and manufacturers to
retailers and customers. The entire network is connected in a very specific pattern. When one industry increases
or decreases production, it sends a pulse that is felt in other parts of the network, forwards and backwards.
That change affects the supply and demand for materials, labor, and goods. Economic impact models, like the
one created for this study, contain information on how the network of industries is structured, so the effect of a
change in production in one industry can be estimated throughout the economy.

To estimate the impact of the SWaM/DBE certification program, CURA used !MPLAN ProTM software to prepare
and customize an economic model for the Commonwealth of Virginia as well as a model for each of the state’s
ten MSAs. IMPLAN is a regional input-output computer modeling system used by economists to estimate the
effects of spending and policy actions. In this case, IMPLAN was used to estimate the economic effects that
take place as goods and services are purchased in connection with procurements towards small, women-owned
and minority-owned businesses.

The IMPLAN model divides economic activity into three components—direct, indirect, and induced effects—
and sums them to derive a total economic impact (See Table 3.1).

TABLE 3.1: IMPLAN IMPACT DEFINITIONS

IMPACT TERM DEFINITION

The initial expenditures, or production, made by the industry experiencing economic
change

The effects on local interindustry spending through backward linkages (which track
industry purchases backward through the supply chain)

The results of local spending of employee wages and salaries for both employees of

the directly affected industry and the employees of the indirectly affected industries
ource: Frances Day - “Principles of Impact Analysis & TMPLAN Applications

Direct Impact

Indirect Impact

Induced Impact

1 It must be noted that the Commonwealth would have purchased those goods and services regardless of the businesses certification status.
However, it is necessary to understand what the economic impact of this spending is, and how it compares—in terms of multiplier—with the rest of the
discretionary spending procurements towards non certified businesses.

&® Center for Urban and
DIRECT EFFECTS are expenditures made to SWaM/DBE-certified businesses. This initial spending causes
ripple effects (also known as “multiplier effects”) within the study area. These additional effects are
called indirect and induced impacts.

INDIRECT EFFECTS are “supplier” effects. Businesses (Such as professional services or general contractors) that
receive money from the original purchases must also buy additional goods and services to accommodate
the new demand. As purchases are made from other firms, the economy is stimulated further.

INDUCED EFFECTS are generated by changes in household expenditures. When companies receive additional
business because of the direct and indirect effects, they meet the new demand by hiring additional
workers or paying existing employees more to work longer hours. As a result, these employees will have
more money to spend on the goods and services that they buy within the study area.

The direct, indirect, and induced effects are estimated for labor income, value added, economic impact, and
employment impact. These components are defined below:

e LABOR INCOME: The wages and salaries paid to local employees of firms as well as an estimate of the
value of benefits earned by these workers. Labor income also includes payments received as income by
freelance employees.

e ECONOMIC IMPACT: The overall economic effects on the region, which can be viewed as the total additional
output generated by rehabilitation, are equal to the value added plus intermediate expenditures. Consider
the economic impact as the value of change in sales or the value of change in production.

¢ EMPLOYMENT: The number of total jobs in the study area, including full-time and part-time employees,
supported by the new economic activity.

CALCULATING THE ECONOMIC IMPACT — DATA PREPARATION

Spending data was obtained from the Commonwealth of Virginia's SoendCompass Dashboard. All discretionary
spending transactions were downloaded for calendar year 2015.2, The more than 1.29 million transactions
were then grouped and summed by unique tax identification number to calculate the amount of discretionary
spending received by each business.* In CY 2015 (see table 3.2), we estimate that 43,596 businesses provided
discretionary spending-related services and products to Virginia agencies for a total spending of $6.17 billion.
Of those businesses, 6,827 were SWAM-certified and 36,769 were not SWaM-certified (“non-SWaM”"). This
data suggests that in CY 2015, approximately 35 percent* of certified businesses were able to leverage their
certification and convert It into revenues.

TABLE 3.2: DISCRETIONARY SPENDING SUMMARY FOR CY 2015
SWAM-CERTIFIED NON-SWAM

BUSINESSES BUSINESSES

Spending

Number of businesses receiving Virginia 6,827 36,769 43,596

procurements

Spending in Virginia $2,132,742,162 $2,040,055,852 $4, 172,798,013

Leakage (Spending Out of State) $250,933,216 $1,750,502,680 $2,001,435,897
2 Procurement spending on SWaM business varies from year to year. Calendar year 2015 was chosen for the economic impact analysis because

it closely represented the average spending for the period 2010-2017, thus making it a ‘typical year’. The economic impact thus calculated can be
considered to be close to the average annual impact resulting from the certification program.

3 For a more detailed summary of the data preparation process, see the Appendix.

4 We estimated the number of certified businesses for CY 2015 (19,242) by averaging the number of certified businesses for FY 2014 (21,316)
and FY 2015 (17,168). 6,820/19,242*100 = 35%
However, not all discretionary spending happens in Virginia. The spending data was therefore reduced to reflect
only the spending that took place in the Commonwealth, as transactions outside Virginia are considered leakages
in the economic impact model. After accounting for these leakages, both in SWalM-certified businesses, as
well as in non-SWaMs, the total amount considered for this analysis was almost $4.2 billion, of which $2.13
billion spent through procurements with SWaM certified businesses, and $2.04 billion spent on other Virginia
businesses. It should be noted how most of the leakage happens through non-SWaM businesses, while — as
expected — most of the SWaM-certified businesses receiving contracts from the Commonwealth are Virginia
businesses.

In order to calculate the economic impact of this spending, the following data points were identified and/or
calculated:

e At state level, total amount of discretionary spending paid to both SWaM-certified and non-SWaM
businesses, by NAICS code and — just for the SWaM businesses — disaggregated by certification type

e For each Virginia MSA, total amount of discretionary spending to SWaM-certified businesses, by NAICS
code and disaggregated by certification type

e For both sets of data, identification of the appropriate IMPLAN sector code for each sixdigits NAICS
code.

Table 3.3 shows the breakdown of the discretionary spending (both in dollar value and as a percentage of the
total) to SWaM-certified businesses located in Virginia.

TABLE 3.3: TOTAL SPENDING TO SWAM BUSINESSES, BY NAICS CODE

NAICS SWAM
SPENDING

SPENDING

DEFINITION

Center for Urban and
Regiona! Analysis

SWAM TOTAL $2,105,114,291

NON-SWAM TOTAL $2,037,781,895

GRAND TOTAL $4,142,896,186

Source: SpendCompass Dashboard, Commonwealth of Virginia

11 Agriculture, Forestry, Fishing And Hunting $2,180,168 0.1%
21 Mining, Quarrying, Oil And Gas Extraction $5,988,491 0.3%
Ord Utilities $3,503,821 0.2%
23 Construction $1,050,572,846 49.3%
31-33 |Manufacturing $68,841 534 3.2%
42 Wholesale Trade $167,987,.440 719%
44-45 |Retail Trade $125,543,522 5.9%
48-49 | Transportation And Warehousing $109,166,783 5.1%
51 Information $4,652,787 0.2%
52 Finance And Insurance $1,143,736 0.1%
53 Real Estate Rental And Leasing $9,409,458 0.4%
54 Professional, Scientific, And Technical Services $326,503,251 15.3%
Bb Management Of Companies And Enterprises $57,457 0.0%
56 Administrative And Support And Waste Management And $174,958,355 8.2%
Remediation Services
61 Educational Services $1,896 358 0.1%
62 Health Care And Social Assistance $11,220,148 0.5%
71 Arts, Entertainment, And Recreation $658,638 0.0%
72 Accommodation And Food Services $20,447872 1.0%
81 Other Services (Except Public Administration) $20,381,626 1.0%
ECONOMIC IMPACT RESULTS

Tables 3.4 and 3.5 show the economic impact generated by discretionary spending procurements through
SWalM-certified businesses.

In CY 2015, the $2.13 billion in discretionary spending for goods and services provided by SWalV-certified
businesses generated a total economic impact of more than $3.6 billion, which means that each $1.00 of
discretionary spending generates a total economic impact of $1.69. The total impact includes $1.38 billion
in Virginia employee paychecks for all affected industries, distributed to the 25,375 jobs generated directly,
indirectly, and through induced spending. In addition, state and local jurisdictions see revenues of more than
$146 million. The federal government collects approximately $315 million as a direct result of this portion of

discretionary spending.

TABLE 3.4: ESTIMATED IMPACTS OF DISCRETIONARY SPENDING PROCUREMENTS WITH
SWAM-CERTIFIED BUSINESSES, CY 2015

DIRECT INDIRECT INDUCED TOTAL
Economic Impact $2,051,853,664 $721,783,307 $856,485,214 $3,630,122,184
Labor Income $843,786, 704 $267,615,806 $274,278,376 $1,385,680,886
Employment impact 15,188 4241 5,946 25,375
(number of jobs)
Tax Impact
(state and local) $146,348, 284
(federal)
ource: Estimates developed on USBSD data by the Center tor Urban and Regional Analysis at VCU, using IMPLANProlM. Inflation adjustments made

using the U.S. Bureau of Labor Statistics’ “Consumer Price Index for All Urban Consumers”
Note: All dollar values are in 2018 Dollars

In the same calendar year, $2.04 billion of the Commonwealth's discretionary procurements went towards the
purchase of goods and services from non-certified businesses.

e $3.6 billion in total economic activity (or impact), including almost $1.4 billion in salaries for Virginia
employees.

e More than 25,000 jobs supported by the direct and indirect impacts of discretionary spending in Virginia.

e $146 million in state and local taxes, and $315 million in federal revenues.
Table 3.5 details the top ten industries by employment impact. SWal-certified businesses tend to focus on
construction, retail, and non-professional services (e.g. services to buildings, employment services).

TABLE 3.5: ESTIMATED EMPLOYMENT IMPACT BY SWAM CERTIFICATION, FIRST 10 INDUSTRIES
SWAM BUSINESSES

PERCENT
OF TOTAL
EMPLOYMENT

TOTAL

INDUSTRY EMPLOYMENT

Construction of new highways and streets 2658 11.2%
Maintenance and repair construction of nonresidential structures 1913 8.1%
Landscape and horticultural services 1081 4.6%
Wholesale trade 1062 4.5%
Retail - Miscellaneous store retailers 965 41%
Architectural, engineering, and related services 911 3.9%
Employment services Aa 3.3%
Services to buildings 761 3.2%
Truck transportation 697 2.9%
All other food and drinking places 588 2.5%
All other industries 13,962 59.1%

using the U.S. Bureau of Labor Statistics’ “Consumer Price Index for All Urban Consumers”

Note: All dollar values are i 2018 Dellars

As mentioned in Chapter 1, in addition to receiving the SWaM certification, each business is assigned one or
more ownership types: MBE (minority business enterprise), VWWBE (women’s business enterprise), and SBE
(small business enterprise). We assigned each business a single ownership type based on a hierarchy: MBE
first, then WBE, and finally SBE. These assignments were necessary to calculate separate economic impact
estimates for each category. The results are presented in table 3.6, and the differences among them are, for the
most part, a reflection of the spending amounts for each ownership type.

TABLE 3.6: ESTIMATED ECONOMIC IMPACT BY OWNERSHIP TYPE (CY 2015)
EMPLOYMENT

ECONOMIC

IMPACT

LABOR
INCOME

IMPACT
(NUMBER OF JOBS)

TAX IMPACT
(STATE AND LOCAL)

TAX IMPACT
(FEDERAL)

MBE $512,304,677 $209,655,409 Waal! $20,675,046 $46,500, 189
WBE $459,664,513 $188, 799,069 3,684 $20,511,537 $42,839,376

ource: Estimates developed on DSBSD data by the Center tor Urban and Regional Analysis at VCU, using IMPLANProlM. Inflation adjustments made
using the U.S. Bureau of Labor Statistics’ “Consumer Price Index for All Urban Consumers”

Note: All dollar values are in 2018 Dollars

However, the multipliers presented in Table 3.7 offer a little more information on which ownership has the most
relative impact.® Minority-owned businesses generate the highest multiplier (1.58), while small businesses have
a slighter lower multiplier (1.53), and women-owned businesses show the lowest multiplier (1.43).

5 As for the considerations made on the SWaM Vs non-SWaM analysis, these differences are largely due to the spending distribution among
the different industrial sectors of each ownership type, rather than any specific characteristic connected to the ownership type. The multipliers for each
of the SWaM sub-groups are lower than the multiplier of all combined SWaM spending because of the economic backward and forward linkages that
each model includes {i.e., multipliers are unique to the economic linkages of each sub category and are not additive in nature).

@ Center for Uroan and
TABLE 3.7: ECONOMIC MULTIPLIER FOR SMALL, WOMEN-OWNED, AND MINORITY-OWNED BUSINESSES
0 RSHIP ONO

MBE 1.58 For every $1.00 spent in MBE, there is a total impact of $1.58
WBE 1.43 For every $1.00 spent in WBE, there is a total impact of $1.43
SBE 1.53 For every $1.00 spent in SBE, there is a total impact of $1.53

Source: Estimates developed on DSBSD data by the Center for Urban and Regional Analysis at VCU, using IMPLANProTM.

ADDITIONAL CONSIDERATIONS TO THE ECONOMIC IMPACT RESULTS

As explained earlier, the impact differences among the different type of SWvaM ownership (as well as for SWaM
and non-SWaM businesses) are largely due to differences in spending distribution among the different industrial
sectors for each group. However, information and analysis from the survey described in Chapter 2 and a review
of existing literature may offer Some understanding of how other variables and circumstances have influence—
marginal or otherwise—on any of the spending types (direct, indirect or induced) and, therefore, the multiplier.
To this end, it is useful to consider the following:

e Literature shows that minority business owners tend to hire minority employees. Although the social
and economic impact of this type of informal employment policy might escape the view of statistics and
numbers, the communities where these businesses operate likely reap the benefits. Such employment
practices likely increase diversity in workforce participation—one of the goals of the Virginia SWaM
certification program.

e Similarly, when comparing SWaM-certified businesses with non-SWaM businesses, literature suggests
that the former tend to hire and do business locally to a greater degree than their non-SWaM counterparts.
Although the economic impact and the multipliers are indeed very similar, much of the difference may
be attributed to industrial structures. One may assume that, should SWaM and non-SWaM businesses
have identical industrial structures, SWaM businesses would tend to have a higher impact on both state
and regional economies because their business networks and models favor regional and state linkages.

e Survey results of SWalM-certified businesses show that in comparison with minority-owned businesses,
women-owned businesses, and smal! businesses rely more on local and SWalM-certified sub-contractors
and suppliers. In terms of economic effects, this should translate to a higher impact generated by the
discretionary spending with the businesses belonging to those two ownership types. This suggests that
the difference in those multipliers might realistically be smaller than what has been calculated.

e Finally, while the economic impact model did not include spending taking place outside Virginia, it is very
likely that firms from out of state that received procurements from and operate in the Commonwealth
spend a portion of their operational budgets (in terms of suppliers, sub-contractors, and even employees)
within the Commonwealth. This creates an additional economic impact, both at state and regional
levels, that the described economic impact estimates can't capture. The estimates in this report remain
conservative.

SWaM BUSINESSES HAVE A
HIGH IMPACT ON THE STATE'S ECONOMY

DUE TO BUSINESS NETWORKS WITH
STRONG REGIONAL LINKAGES
IMPACTS ON VIRGINIA’S METROPOLITAN STATISTICAL AREAS (MSA‘)

The economic impact of discretionary spending with SWal-certified businesses within each of Virginia's MSAs
may be estimated using similar methods to the above state estimates. Transactions that took place during CY
2015 were grouped by unique tax identification numbers to calculate the total amount of state discretionary
spending received by each business for the year. A total amount of spending for each sixdigits NAICS code
(industrial sector) was calculated for each of MSA based on the locations of the noted businesses. This data was
then entered in customized IMPLAN models that CURA built for each MSA. Table 3.8 shows the amount of state
discretionary spending with SWalM-certified businesses in each MSA.

TABLE 3.8: SUMMARY OF DISCRETIONARY SPENDING WITH SWAM-CERTIFIED BUSINESSES BY MSA

MSA DISCRETIONARY SPENDING
Blacksburg MSA $25,693,551
Charlottesville MSA $36,053,199
Harrisonburg MSA $8,933,652
Bristol MSA , $12,153,858
Lynchburg MSA $78,531,574
Richmond MSA $674,912,279
Roanoke MSA $68,345,662
Hampton Roads MSA $399,432 ,104
Northern Virginia MSA $584, 733,682
Staunton MSA $29,286,862
Winchester MSA $8,662,432

ource: Mirgima Department o D Diversity D , Hampton Roads, Northern Virginia, and Winchester MSAs are
defined as only the Virginia portions of the entire MSA.

Table 3.9 details the economic impact generated by discretionary spending taking place in each MSA.

TABLE 3.9: ESTIMATED REGIONAL IMPACTS OF SWAM SPENDING BY MSA
EMPLOYMENT

(NUMBER OF JOBS)
Blacksburg MSA $37,853,492 $13,075,568 294 $1,268,110
Charlottesville MSA $55,882,028 $18,112,750 378 $1,908,690
Harrisonburg MSA $13,571,971 $4,213,387 100 $490,958
Bristol MSA $17,080,199 $5,826,484 132 $778,265
Lynchburg MSA $105,033,737 $36,564,857 864 $5,295,800
Richmond MSA $1,231,697,606 $465,931,615 8,417 $52,366, 150
Roanoke MSA $115,447,990 $37571,528 809 $5,277691
Hampton Roads MSA $43,345,481 $14,733,486 352 $1,816,897
Northern Virginia MSA $650,124,831 $230,670, 184 4,839 $26,091,041
Staunton MSA $930,892,148 $395,003,761 6,157 $37,510,327
Winchester MSA $7,107,503 $2,453,866 61 $286,806

Source: Estimates developed on DSBSD data by the Center for Urban and Regional Analysis at VCU, using IMPLANProTM. Inflation adjustments made
using the U.S. Bureau of Labor Statistics’ “Consumer Price Index for All Urban Consumers” Note: All dollar values are in 2018 Dollars

6 From the OMB Glossary: [An MSA is] a geographic entity delineated by the Office of Management and Budget for use by federal statistical
agencies. Metropolitan statistical areas consist of the county or counties (or equivalent entities) associated with at least one urbanized area of at least
50,000 population, plus adjacent counties having a high degree of social and economic integration with the core as measured through commuting ties.

@ Center for Urban and
When examining the MSA-level impacts, it is important to keep the following points in mind:

1. The values for economic impact, employment impact, labor income, and state and local tax revenue that
are estimated for Virginia are greater than the combined impacts from the 11 MSAs. When examining
each region of the state, any spending that takes place outside of the MSA is considered leakage from
the local economy and is not considered for the regional impact analysis. In the state model, however,
spending anywhere in Virginia contributes to the estimated impacts. There are more opportunities for
expenditures to occur within the borders of Virginia than there are within each MSA.

2. Smaller MSAs will experience greater leakage of spending outside the MSA. Local businesses in a small
MSA will likely have a greater share of suppliers outside the MSA than businesses in a larger MSA, thus
creating leakages in the indirect and induced stages of spending. Therefore, the overall MSA-level impact
of state discretionary spending with SWalM-certified businesses in small MSAs will be smaller.

3. Impacts are not estimated for spending that happened with businesses that are located outside
established MSAs.
CHAPTER 4: POLICY SCENARIOS USING
ALTERNATIVE DEFINITIONS OF SMALL

BUSINESSES

The success of a business empowerment program largely depends upon its administrative effectiveness in
achieving the intended objectives. This requires both simplicity and robustness in the criteria used to certify these
businesses. Simple and easy certification requirements reduce transaction cost for the participating businesses,
while robust methods discourage unnecessary competition from non-target businesses.

In addition to the SWaM program, DSBSD also administers certification for the Disadvantaged Business
Enterprise (DBE) program in Virginia. The SWaM and DBE programs combined have grown from 3,000 certified
vendors in FY2005 to 16,000 in FY2018, according to internal documents. The growth—over 400 percent—
represents a significant increase in administrative responsibilities. In the same time, staffing increased from 7 to
13 employees, or about 86 percent. As a result the SWaM certification application volume has exceeded current
agency resources.

Within that context, this section explores alternative criteria to define small businesses and compares the pool
of SWaM certified businesses under two scenarios: one using the small business definition adopted by the
federal Small Business Administration, and another using a modified version of the existing criteria.

The DBE program uses certification criteria defined by the USDOT, which uses the SBA definition of small
businesses. DBE is the federal government's certification program for small and minority-owned businesses
(including women-owned) seeking priority in contracts that use federal funds. To be certified for the DBE
program, businesses are required to meet ownership and size criteria set by the SBA. The owner must belong
to a disadvantaged group, and the size of the business must fall below a certain number of employees or gross
receipts, depending on the industry (NAICS categorization is used).

According to the Virginia Administrative Code (7 Va. Admin. Code 8 13-20-155), any Virginia business receiving
DBE certification is eligible for the SWaM program . Additionally, the Code of Virginia gives the DSBSD Director
the power to “mandate SWaM certification without any additional paperwork to any small, women-owned,
or minority-owned business that has obtained certification under any federal certification program.” (Va. Code
Ann. 8 2.2-1606). Table 4.0 summarizes the specific eligibility requirements, the similarities, and the differences
between the SWaM and DBE programs.

Both SWaM and DBE programs require businesses to meet two basic criteria: the size of the business and the
race, ethnicity, or gender of the primary owner. The SWaM program has a fixed size threshold of 250 employees
or $10 million in average gross receipts (3-years). The DBE program requires that the number of employees
and annual gross receipts meet specific criteria based on the NAICS classification of the business. The size
criteria vary from 100 employees in wholesale-related businesses to 1,500 employees in selected mining and
manufacturing-related businesses. The criteria for annual gross receipts also vary from $0.75 million for farming-
related businesses to $38.5 million for finance, insurance, leasing, aerospace and military weapons, hazardous
waste disposal, and selected sports entertainment-related businesses. SBA has a separate size and receipts
requirements for 1,031 different NAICS industries.

The SWaM program does not define disadvantaged groups, as the DBE program does. Instead, it extends
certification to only those businesses that are defined as micro, small, women-owned, minority-owned, ESO,
HBCU, or federally certified within a program that has third party verification. DBE expands ethnicity and race
criteria (Social disadvantage) to include a maximum threshold for personal net worth (economic disadvantage).
SWaM eligibility requirements are simpler and easier to verify. However, the expansive definition of small

f Center for Urban and
business in SWaM may allow non-target businesses to realize the benefits of the program. For example, a
professional firm with fewer than 50 employees can have annual turnover substantially higher than a labor
intensive manufacturing firm with 500 employees. Some firms can achieve higher levels of output by keeping
their employment level at the minimum and outsourcing portions of their work to sub-contractors and still
maintain a small footprint. Other businesses that depend on seasonal employment might be able to minimize
their averages and still meet the eligibility criteria.

The SBA definition used for DBE certification takes a more granular approach in defining small businesses by
using NAICS classification. While it increases the accuracy and robustness of the eligibility calculations, it almost
certainly creates additional work for the certifying agency. DSBSD has already seen a steady increase in its
certification workload without an equal increase in staff.

To evaluate alternative small business classification criteria, CURA conducted a comparative estimate of the
number of eligible businesses under two hypothetical scenarios:

¢ The SWaM program adopts SBA small business definition

e The existing SWaM definition is changed from “less than 250 employees OR less than $10 million in
gross receipts” to “less than 250 employees AND less than $10 million in gross receipts”

TABLE 4.0: CERTIFICATION CRITERIA FOR VIRGINIA’'S SWAM PROGRAM AND THE FEDERAL DBE PROGRAM

PROGRAM VIRGINIA SWAM PROGRAM FEDERAL DBE PROGRAM
Target Small, women-owned, minority-owned, Small, owned by a member of a disadvantaged
Businesses | veteran owned, and ESO group (women, minority, disabled, veteran)

SBA definition based on size standards and
gross receipts for businesses by 6-digit
Definition Business with less than 250 employees OR NAICS category. Depending eit the NAICS
ff classification, size standard varies between
of Small average annual gross receipts of $10 million or ;
Business less averaged over the previous three years pee re) tae Snniey ses. ong PIgss Lecelpts
vary from $0.75 million to $38.5 million
(separate criteria have been developed for
1,031 different industry types)
Definition Majority owner of the business (owns Majority owner of the business (owns
a 51% stakes and controls the day to day 51% stakes and oversees the day to day
of Minority- : . :
management of the business) is a member of | management of the business) is a member of
Fuaiaees one of the identified minority race or ethnic one of the identified minority race or ethnic
groups groups
Definition Majority owner of the business (owns Majority owner of the business (owns 51
of Woman- | 51 % stakes and controls the day to day % stakes and oversees the day to day
Owned management of the business) is identified as | management of the business) is identified as
Business a woman a woman
Criteria for
Personal Not Applicable Under $1.32 million
Net Worth
SCENARIO-1: ADOPTING SBA SMALL BUSINESS DEFINITION FOR THE SWAM PROGRAM

In order to maintain accuracy in comparison we used the 2007 PUMS sample data from the Survey of Business
Owners (SBO) and applied both the current SWaM and SBA rules to get the results’.

Table 4.1 presents the results of SWaM and SBA small and minority business definition on the selected sample
of Virginia businesses based on the calendar year 2015 certification data. In CY 2015, 19,242 businesses qualified
for SWaM certification using the existing criteria of “less than 250 employees OR gross receipts of less than
$10 million.” Applying the SBA rule increased the total pool of certified businesses by roughly 10 percent. Of
the 21,205 businesses estimated to be certified under the SBA definition, 17363 are from Virginia and 3,842
are from other states. This scenario suggests that only 45 additional businesses from Virginia will be added to
the pool, whereas an additional 1,918 businesses from out-of-state will get certification—effectively doubling
the number of certified out-of-state businesses. Both definitions use the same criteria for women-owned and
minority-owned businesses, and there are no difference in the qualified percentages in those categories.

TABLE 4.1: NUMBER OF BUSINESSES CERTIFIED UNDER SWAM AND SBA RULES

BUSINESS ESTIMATED INCREASE IN NUMBER OF ELIGIBLE

LOCATION AVERPERCENT. CHANGE BUSINESSES IF SBA DEFINITION IS ADOPTED
Virginia Businesses 0.30% 45
Out-of-State Businesses 99.60% 1,918

10.20%

Table A4.1 in the appendix presents, by NAICS code, the comparison of businesses qualifying under the SWaM
definition and the SBA definition. The increase in number of certified businesses using SBA definition is more
pronounced in the following sectors:

Accommodation & Food

Construction

Professional, Scientific, and Technical Services
Administrative and Support and Waste Management
Health Care and Social Assistance

Businesses related to sectors such as Real Estate Rental and Leasing, Information, Finance and Insurance,
and Manufacturing also see modest increases in certification when using the SBA definition. However, as
mentioned earlier, most of this increase is due to out-of-state businesses. Table 4.2 on the following page
presents the difference in the number of certified businesses within Virginia. Even though the overall average
increases by less than a percent between the two definitions, some reshuffling of certification by business type
is evident in our findings. Most notably, some of the existing businesses in the Retail Trade sector will no longer
be eligible for the program, a reduction in small businesses would reduce the pool of competitors for remaining
eligible businesses, such as women and minority owned businesses.

Adopting the SBA definition will substantially increase participation of businesses in Professional, Scientific, and
Technical Services, and Administrative and Support Services—two of the largest sectors with a higher percentage
of women-owned and minority-owned businesses. Conversely, the conversion negatively impacts businesses in
the Retail Trade sector which has high percentages of women-owned and minority-owned businesses in Virginia
and constitutes about nine percent of the current pool of SWalM-certified businesses. If fully adopted, the SBA
definition will have modest positive impact on the participation of businesses owned by disadvantaged groups.

It would considerably increase the participation of out-of-state businesses.
1 This is the most recent public use micro-data sample that has information on the number of employees, gross receipts, and ownership by

gender and ethnicity. PUMS data has the NAICS classification of the businesses at 2- digit level. However, the SBA size standards are presented at the
6-digit level. CURA team used the 2015 Quarterly Census of Employment and Wages to calculate the percentage of businesses in Virginia at 6-digit level
and used that percentage to calculate the weighted averages for the SBA size requirements. The average values were used in determining business
eligibility for comparison. Only the rules for small, minority-owned, and women-owned business were compared; the personal net worth criteria was not
considered in this comparison. The SBA and SWaM rules applied to this sample allowed CURA to calculate the percentage of businesses that qualified
under each criteria. The percentages were applied to the 2015 SBO estimate of Virginia businesses and the DSBSD's 2015 calendar year certification
data to estimate the current number of businesses in each category.

Center for Urban and
TABLE 4.2: COMPARISON OF BUSINESS ELIGIBILITY USING EXISTING SWAM AND SBA SMALL BUSINESS
DEFINITION (IN-STATE BUSINESSES)

f # ( : D
OD : BE

11 Agriculture, Forestry, Fishing and Hunting 34 $2,180,168 34 0
14 Seas Quarrying, and Oil and Gas 7 $5,988,491 17 0
xtraction
22 Utilities 4 $3,503,821 4 0
23 Construction 1373 $1,050,572,846 1,381 8
31-33 | Manufacturing 387 $68,841,534 393 6
42 Wholesale Trade 732 $167.987,440 732 0
44-45 | Retail Trade 864 $125,543,522 863 -1
48-49 | Transportation and Warehousing 298 $109, 166,783 299 1
51 Information 121 $4,652,787 123 2
52 Finance and Insurance 11 $1,143,736 11 0
53 Real Estate and Rental and Leasing 78 $9,409,458 80 ]
5A race Scientific, and Technical 931 $326,503,251 840 9
55 Let of Companies and 3 $57457 9 0
61 Educational Services 38 $1,896,358 33 0)
62 Health Care and Social Assistance 112 $11,220,148 113 1
71 Arts, Entertainment, and Recreation 19 $658,638 19 0
72 Accommodation and Food Services 171 $20,447872 177 6
81 rid bate i epee 463 $20,381,626 463 0

TOTALS $2,105,114,291

Note: Table A4.1 in the appendix presents the comparison of business eligibility for both in-state and out-of-state businesses
SCENARIO-2: MODIFYING EXISTING SWAM SMALL BUSINESS CRITERIA

As discussed in Scenario 1, the SWaM program uses simple certification criteria to encourage small, minority-
owned, and women-owned businesses to participate in the State’s procurement contracts. As mentioned earlier,
there is a possibility that the inclusiveness of the SWaM definition of “small” may extend program benefits to
non-targeted businesses. Businesses that can maintain a small employee footprint by sub-contracting or keep
employment averages low by hiring and firing on a seasonal basis can meet the “less than 250 employees”
criteria, even if they surpass the $10 million gross receipts threshold. The reverse is also possible. We examined
changes to the certification pool using an “AND” instead of “OR” in the existing criteria. That is, requiring
businesses to meet both number of employees and gross receipts criteria. Table 4.3 presents the comparison

of the number of businesses under the two scenarios.

TABLE 4.3: COMPARISON OF CY 2017 BASED ON NUMBER OF QUALIFYING BUSINESSES FROM SAMPLE DATA

USINGEXISTING USING NUMERICAL PERCENT
“AND” RULE DIFFERENCE DIFFERENCE

BUSINESS TYPE SWAM DEFINITION
(“OR” RULE)
SWaM Certified Businesses in Virginia 19,242 18,084 -1,158 -6%

Adopting “AND” in place of “OR” removes an estimated 6 percent of businesses from the existing pool of
certified SWaM businesses. The number of women-owned and minority-owned businesses remain the same, as
the ownership rule is not affected. Table A4.2 in the Appendix presents the breakdown by NAICS classification.
By changing the criteria from “OR” to “AND,” about 17 percent of businesses in the Wholesale Trade sector, and
about 11.5 percent of businesses in the Manufacturing sector become ineligible. The conversion from “OR” to
“AND” also causes 5.6 percent Retail Trade businesses and 4.3 percent of Professional, Scientific, and Technical
Services businesses to lose eligibility. An average of about three percent of businesses in the Transportation and
Warehousing, and Information sectors will also will also become ineligible. The following business sectors are
not affected by the change:

Agriculture, Forestry, Fishing and Hunting
Utilities

Management of Companies and Enterprises
Arts, Entertainment, and Recreation

By comparison, adopting “AND” in place of “OR” in the existing small business definition would result in a
substantial number of Manufacturing and Wholesale Trade-related businesses becoming ineligible for the SWaM
program. These two sectors represent less than 10 percent of all businesses currently certified. Similarly,
adopting the “AND” rule also removes a substantial number of businesses in the Retail Trade, Professional
Services, and Construction sectors. Together, they equal about 39 percent of all businesses currently certified
under the SWaM program. These sectors also account for about 33 percent of women-owned and 29 percent of

minority-owned businesses in the Commonwealth.

The differences between the “AND” and “OR” scenarios, for Virginia businesses organized by two-digits NAICS
code, is shown in Table A.4.2 in the appendix.

i) Center for Urban and
MINIMAL ECONOMIC IMPACT FROM THE ADOPTION OF SBA DEFINITION

Using the results of the SBA scenario simulation, CURA built a statewide economic model with a new set of
data reflecting discretionary spending that would take place through the expanded poo! of SWaM-certified
businesses.

In CY 2015, the number of businesses receiving discretionary spending was 6,827 — approximately 35 percent of
the total businesses certified during that period. Of these 6,827 businesses, an estimated 6,218 were licensed
in Virginia. Assuming that under the SBA scenario the same proportion of businesses received procurements
from the Commonwealth, we would have 7422 small, minority-owned or women-owned businesses engaged
in contracts with the Commonwealth?.

Obviously, such a small increase in certification numbers of only 0.5 percent from the current spending
scenario—doesn't produce an appreciable difference in the economic impact estimates. As shown in Table 4.5,
the economic impact metrics (employment, labor income, and total economic impact) of discretionary spending
through SWaM-certified businesses using the SBA criteria are almost identical to those calculated under the
current scenario. This means that the adoption of the SBA criteria wouldn't produce any significant difference in
the impact of SWaM discretionary spending on the Commonwealth's economy.

ISSUES WITH ADOPTING THE SBA DEFINITION

Changing the state's definition of a small business to the federal definition used by the SBA would make the
certification process more cumbersome for the small business community as well as the DSBSD staff. Because
the SBAs definition is based on NAICS codes and a business's primary industry, the certification staff would
have to evaluate each business's eligibility for each NAICS code that it requests.

In order to determine a business's primary industry and the NAICS codes that the business qualifies for, the SBA
considers the distribution of receipts, employees, and costs of doing business among the different industries in
which business operations occurred for the most recently completed fiscal year. SBA may also consider other
factors, such as the distribution of patents, contract awards, and assets. Since this is not part of the current
review process, it would require a business to submit more paperwork in order for DSBSD to determine the
business's primary industry and proper NAICS code.

In addition, it would lengthen the processing time for SWaM applications. With more paperwork being required
and having to review the business's eligibility for each NAICS code, it will take the certification officer a longer
time to review all documentation and make a proper eligibility determination. Currently, the average time to
review a SWaM application is 1-2 hours. Depending on the number of NAICS codes that a business is requesting,
it could take the certification officer an additional 1-2 hours to review the application.

Furthermore, the size standards are usually updated by the U.S. Census Bureau every five years. Due to changes
in the economy, the size limits for each NAICS code could change each time the U.S. Census Bureau completes
a study. The size standards have been increased every five years since 1997 This would require DSBSD to stay
aware of the changes as they occur and to constantly train staff to ensure that they are using the most updated
standards.

Using the federal definition of a small business would also require a change in technology for DSBSD and
other state agencies and organizations such as eVA and Cardinal. These systems currently use codes for small
businesses that are not compatible with the NAICS system. In order to change to NAICS codes, these agencies
would have to update their technology and systems.

Lastly, changing to the federal definition of a small business would make the SWaM program slightly larger,
which would likely lead to an influx of applications to DSBSD. The current staffing level of the certification

2 However, only the spending taking place in Virginia is considered. Out-of-state businesses and relative spending were not included in the
analysis, and the total number of Virginia-based businesses (6,243) under this scenario is only 30 more than the current scenario. As described earlier in
this chapter, the increase under the SBA scenario would be mostly in the out-of-state businesses.
division could not handle an influx in applications. This would create another backlog of applications and cause
the processing times to increase significantly.

Overall, the application process would require more paperwork, more scrutiny, longer processing times, and a
change in technology if the small business definition is changed to that of the federal government.

On the other hand, changing the Commonwealth's small business definition to consider gross receipts and
number of employees versus gross receipts or number of employees (the AND/OR scenario), would cause little
to no impact on the certification process for the small business community or DSBSD staff. Businesses would
not be required to submit any additional paperwork, and the processing time frame of 60 business days would
remain the same. DSBSD staff training would be necessary to ensure that certification officers are evaluating
the firm based on both gross receipts and employees instead of one or the other.

@ Center for Urban and
The SWaM certification program has been designed and implemented to empower minorities and women and
to provide small businesses with business opportunities. While the program is essentially measured on the
hard metric of 42 percent of discretionary spending across all agencies going to SWaM businesses—a metric
that has proven a difficult target to reach—CURA explored additional metrics and features to obtain an overall
understanding of the program's effectiveness in addressing its overarching goals.

Although the program has yet to achieve the 42 percent target, DSBSD internal data show other important and
positive effects that have resulted from the programs:

The program has encouraged women and minority participation. Certification numbers show positive
participation trends since the program's inception in 2000.

While SWaM discretionary spending has remained relatively constant since 2009 (approximately $2
billion), the distribution among ownership types has seen a steady increase in spending going towards
both minority-owned and women-owned businesses.

In addition, the research team was able to gauge how the program is positively impacting SWaM businesses
and the regions in which they operate. A survey of program participants offered a rich picture of SWaM's impacts
beyond what data and the economic impact estimates tell:

@

A significant percentage of respondents (37 percent) have experienced revenue growth since becoming
certified—significantly more than observed in the analysis of sales receipts for non-SwAM businesses
(only 5 percent experienced an increase).

The program is an important factor in business creation and stabilization: 40 percent of respondents
deem the SWaM certification program moderately important or very important in their decision to start
their business. More than 70 percent consider the program moderately to very important for the long-
term viability of their business.

In CY 2015, the $2.13 billion in discretionary spending for goods and services provided by SWaM-certified
businesses generated a total economic impact of more than $3.6 billion, which means that each $1.00 of
discretionary spending generates a total economic impact of $1.69.

The program seems to show positive “trickle down” effects on the state economy and on the target
populations that the program aims to serve. Between 9 and 11 percent of SWaM businesses suppliers
and sub-contractors are also SWal/-certified businesses, and between 32 and 38 percent of them are
located in Virginia.

These community and economic impacts were confirmed by the business owners interviewed by the
research team. Each interviewee produced a personal story about their contribution to their community
and the Commonwealth's economy through tax revenues, job creation, and workforce development.

Finally, SWaM businesses value the communities where they operate. More than three in four survey
respondents state that their company participates in at least one form of community engagement among
those presented in the survey.

Center for Urban and
Regional Analysis 41
ADOPTING THE SBA DEFINITION

REVIEW OF POLICY SCENARIO 1 [ADOPTING SBA FEDERAL DEFINITION]

The overall in-state percentage of SWalV-eligible businesses under an SBA-based definition of small businesses
would remain almost the same compared to the existing pool. However, overall makeup of businesses by
industry would shift. Under the SBA definition, a significant number of additional businesses in service sectors—
primarily professional services and administrative Support—as well as in manufacturing sectors would become
SWaM-eligible. At the same time, many businesses in wholesale and retail sectors would become ineligible. A
change in definition would require additional paperwork and burden on the applicant and increased review time
by DSBSD staff delaying the certification process. More businesses would be introduced into the vendor pool
but 99.6 percent of newly added businesses would be from outside of Virginia. This would be detrimental to the
Commonwealth's economy.

REVIEW OF POLICY SCENARIO 2 [CHANGING CURRENT DEFINITION FROM ‘OR’ TO ‘AND‘}
On the other hand, analysis indicates converting the existing SWaM small business definition from employees
OR gross receipts to employees AND gross receipts would significantly reduce the number of businesses

eligible for the program, potentially diminishing the share of discretionary spending going to SWaM businesses.
This change would have little to no impact to the application process or DSBSO staff.

42 ee.
APPENDIX: REFERENCES

American Express. (2017). The 2017 State of Women-Owned Businesses Report. New York City: American
Express - Open.

Bates, T. (1994). Utililization of Minority Employees in Small Business: A Comparison of Nonminority and Black-
Owned Urban Enterprises. The Review of Black Political Economy, 23(1), 113-121.

Bates, T. (2008). The Urban Development Potential of Black-Owned Businesses. Journal of the American
Planning Association, 227-237.

Boston, T., & Ross, C. (1996). Location Preferences of Successful African American-Owned Businesses in
Atlanta. Review of Black Political Economy, 337-357.

Pordeli, H., & Wynkoop, P (2009). The Economic Impact of Women-Owned Businesses in the United States.
McLean: Center for Women’s Business Research.

Simms, M., & Allen, W. (1996). Is the Inner City Competitive? The Review of Black Political Economy, 213-219.

@ Center for Urban and
Regional Analysis 43
APPENDIX: TABLES

TABLE A2.1: NAICS CATEGORIES REPRESENTED BY SURVEY SAMPLE

Professional, Scientific, and Technical Services 447 30.3%
Other Services (except Public Administration) 281 19.1%
Construction 221 15.0%
Retail Trade 135 9.2%
Wholesale Trade Fp 5.2%
Manufacturing 62 4.2%
Educational Services 35 2.4%
Health Care and Social Assistance 35 2.4%
Transportation and Warehousing 35 2.4%
Information (i.e. publishing, journalism, telecommunication, library, etc.) 29 2.0%
Accommodation and Food Services 25 1.7%
Management of Companies and Enterprises 21 14%
Arts, Entertainment, and Recreation 19 1.3%
Finance and Insurance 14 0.9%
Agriculture, Forestry, Fishing and Hunting 10 0.7%
Administrative and Support and Waste Management and Remediation Services 8 0.5%
Utilities (i.e. electric, gas, water, sewage) 8 0.5%
Public Administration 6 0.4%
Real Estate Rental and Leasing 4 0.3%

44
TABLE A2.2: SURVEY QUESTIONS AND RESULTS - BUSINESS REVENUES

How have your annual revenues (including all revenue streams) changed since becoming SWaM/DBE-

certified?

Increased 549} 372% [37 cure 174] 41.9% 218 38.7%
Decreased 109 74% 36 13% 28 6.7% 44 718%
Remained the same 817} 55.4% 303 61.1% Zs 51.3% 301 53.5%
Total 1475 | 100.0% 496} 100.0% 415} 100.0% 563 100.0%
By how much have your annual revenues increased since becoming SWaM/DBE-certified?

1-20% 288] 52.5% 73| 46.5% 90} 51.7% 125 573%
21-40% 100} 18.2% 21 13.4% 33] 19.0% 46 21.1%
41-60% 56] 10.2% 22 14.0% 20 11.5% 14 6.4%
61-80% 2A 3.8% 8 5.1% i 4.0% 6 2.8%
81-100% 22| 4.0% 10 6.4% 7 4.0% 5 2.3%
more than 100% 62] 11.3% 23 14.6% 17 9.8% 22 10.1%
Total 549 | 100.0% 157] 100.0% 174] 100.0% 218 100.0%
By how much have your annual revenues decreased since becoming SWaM/DBE-certified?

1-20% 41} 376% 6 16.7% 13] 46.4% 21 47.7%
21-40% 29} 26.6% 14} 38.9% 7| 25.0% 8 18.2%
41-60% 20} 18.3% 7 19.4% 3} 10.7% 10 22.7%
61-80% 11} 10.1% 4 11.1% 3] 10.7% 4 9.1%
81-100% 8 73% 5 13.9% 2 71% 1 2.3%
Total 109 | 100.0% 36] 100.0% 28| 100.0% 44 100.0%
Prior to becoming SWaM/DBE-certified, what percentage of your business’s annual revenues came from
contracts with a Commonwealth of Virginia agency?

0% 864} 58.6% 393] 79.2% 250} 60.2% 220 39.1%
1-20% 474| 32.1% 68] 13.7% 123] 29.6% 283 50.3%
21-40% 61 4.1% 11 2.2% 15 3.6% 35 6.2%
41-60% 28 1.9% 7 14% 8 1.9% 13 2.3%
61-80% 24 1.6% S) 1.8% uy 1.7% 8 1.4%
81-100% 24 1.6% 8 16% 12. 2.9% 4 0.7%
Total 1475 | 100.0% 496} 100.0% 415} 100.0% 563 100.0%

of Virginia agency?

Currently, what percentage of you

r business's annual

revenues comes from contracts with a Commonwealth

0% 657| 445% 326 65.7% 188} 45.3% 142 25.2%
1-20% 576\}, 39:1 % 105 21.2% 145} 34.9% 326 579%
21-40% 104 71% 28 5.6% 30 12% 46 8.2%
41-60% 45} 3.1% 11 2.2% 16 3.9% 18 3.2%
61-80% 42 2.8% 14 2.8% 14 3.4% 14 2.5%
81-100% 51 3.5% 12 2.4% Ze. 5.3% ite 3.0%
Total 1475 | 100.0% 496} 100.0% 415} 100.0% 563 100.0%
TABLE A2.3: ANNUAL REVENUE TRENDS, BY NAICS CATEGORY

Mining 3 2 | 67% 1 33% | 0 0%
Utilities (i.e. electric, gas, water, sewage) 8 5 | 638% | 0 0% 3 | 38%
Administrative and Support and Waste Management and 8 4 50% 0 0% 4 | 50%
Remediation Services

Real Estate Rental and Leasing 4 2) DOWGal, 0% 2 | 50%
Wholesale Trade 77 35 | 45% | 4 5% |38] 49%
Accommodation and Food Services 25 11 | 44% | O 0% | 14] 56%
Retail Trade 135 58 | 48% | 16] 12% | 61] 45%
Management of Companies and Enterprises 21 9 | 43% | 3 | 14% | 9 | 43%
Construction 221 93 | 42% | 14] 6% 52%
Manufacturing 62 23 | 37% | 4 6% | 35] 56%
Professional, Scientific, and Technical Services 447 1162] 36% | 33] 7% 56%
Finance and Insurance 14 5 | 36% | O 0% 9 | 64%
Other Services (except Public Administration) 281 97 | 35% | 17 | 6% 59%
Transportation and Warehousing 35 Too Is 9% |21]| 60%
Agriculture, Forestry, Fishing and Hunting 10 3 | 30% | 0 0% 7 4 70%
Educational Services 35 10 | 29% | O 0% |25]| 71%
Information (i.e. publishing, journalism, telecommunication, 29 8 28% 1 3% 20 | 69%
library, etc.)

Health Care and Social Assistance 35 9 | 26% | 9 | 26% | 17 | 49%
Arts, Entertainment, and Recreation 19 2 11% 2 11% | 15] 79%
Public Administration 6 0 0% 2 | 33% | 4 | 67%
Total 1,475
46 &..
TABLE A2.4: IMPORTANCE OF SWAM/DBE CERTIFICATION TO BUSINESS

How important of a factor was the SWaM/DBE Program in your decision to start your business?

Not Important 750} 50.8% 162] 32.7% 223 53.) % 365} 64.8%
Slightly Important 136 9.2% 48 9.7% 36 8.7% 52 9.2%
Moderately Important 146 9.9% 59 11.9% 40 9.6% 47 8.3%
Important 181] 12.3% 73| 14.7% 51 12.3% 57} 10.1%
Very Important 262} 178% 154] 31.0% 65 15.7% 42 7.5%
Total 1,475 496 1 415 1 563 1
How important is your participation in the SWaM/DBE program to the long-term viability of your business?
Not Important 169} 11.5% 39 79% 56 13.5% 74) 13.1%
Slightly Important 268} 18.2% 46 9.3% 84 20.2% 138] 24.5%
Moderately Important 224} 15.2% 61 12.3% 65 15.7% 98} 174%
Important 332] 22.5% 111] 22.4% 88 21.2% 133] 23.6%
Very Important 482} 32.7% 239} 48.2% 122 29.4% 120} 21.3%
Total 1,475 1 496 1 415 1 563 1
Would your business exist if it was not participating in the SWaM/DBE program?

Yes 1255] 85.1% 392} 79.0% 356 85.8% 506} 89.9%
No 64) 43% 27 5.4% ZA 5.1% 16 2.8%
Not sure 156} 10.6% 77| 15.5% 38 9.2% 4) 73%
Total 1,475 1 496 1 415 1 563 1
Gi) Center for Urban and 47

Regional Analysis
TABLE A2.5: EMPLOYMENT AND SALARY TRENDS, BY CERTIFICATION TYPE

How has your business

s employment changed since becoming SWaM/DBE-certified ?

Increased 304 21% 85 17.1% 950 22.9% 124] 22.0%
Decreased 73 5% 17 3.4% 20 4.8% 35 6.2%
Remained the same 1,098 74% 394} 79.4% 300} 72.3% 404 71.8%
Total 1,475 100% 496 100% 415 100% 563 100%
How has the average salary of your employees changed since becoming SWaM/DBE-certified ?

Increased 403 273% el 18.3% 116} 28.0% 196 34.8%
Decreased 51 3.5% 17 3.4% 15 3.6% 19 3.4%
Remained the same 1,021 69.2% 388} 78.2% 284] 68.4% 348 61.8%
Total 1,475 100% 496 100% 415 100% 563 100%
By how much has the average salary of your employees increased since becoming SWaM/DBE-certified?
1-20% 307| 76.2% 62 68.1% 85| 73.3% 160 81.6%
21-40% 7 ieee 1416 14 15.4% 17| 14.7% 26 13.3%
41-60% 19 4.7% 8 8.8% 6 5.2% 5 2.6%
61-80% 7 1.7% 4 44% 1 0.9% Z 1.0%
81-100% 8 2.0% 2 2.2% 5 4.3% | 0.5%
More than 100% 5 1.2% 1 1.1% 2 1.7% 2 1.0%
Total 403 100% 91 100% 116 100% 196 100%
48 te.
A2.6: SURVEY QUESTIONS AND RESULTS - SUB-CONTRACTORS

Since becoming SWaM/DBE-certified, has the number of sub-contractors you work with increased?

Yes 278 18.8% 93 18.8% 87 21.0% 98 174%
No 719 48.7% 261 52.6% 180 43.4% 277 49.2%
N/A 478 32.4% 142 28.6% 148 35.7% 188 33.4%
Total 1475 100% 496 100% 415 100% 563 100%
What percentage of all your sub-contractors are SWaM/DBE-certified?

0% 544 54.6% 236 66.7% 138 51.7% 169 45.1%
1-20% 299 30.0% 73 20.6% 84 31.5% 142 379%
21-40% 58 5.8% 20 5.6% 16 6.0% 22 5.9%
41-60% 50 5.0% 11 3.1% 16 6.0% 23 6.1%
61-80 % 24 2.4% 5 14% 8 3.0% 11 2.9%
81-100% 22 2.2% 9 2.5% 5 1.9% 8 2.1%
Total 997 100% 354 100% 267 100% 375 100%
What percentage of the sub-contractors you work with are located within the Commonwealth of Virginia?
0% 311 31.2% 159 44.9% 78 29.2% 73 19.5%
1-20% 224 22.5% 86 24.3% 3}5) 20.6% 83 22.1%
21-40% 47 4.7% 13 3.7% 15 5.6% 19 5.1%
41-60% 45 4.5% 10 2.8% 13 4.9% 22 5.9%
61-80% 61 6.1% 14 4.0% 19 71% 28 7.5%
81-100% 309 31.0% 72 20.3% 87 32.6% 150 40.0%
Total 997 100% 354 100% 267 100% 375 100%

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A2.7: SURVEY QUESTIONS AND RESULTS - SUPPLIERS

What percentage of your business's suppliers are SWaM/DBE-certified?

0% 594 52.8% 243 66.0% 148 50.3% 203 43.8%
1-20% 388 34.5% 87 23.6% 109 371% 192 41.4%
21-40% 75 6.7% 18 4.9% 22 15% 35 15%
41-60% 39 3.5% 11 3.0% 7 2.4% 21 4.5%
61-80% 17 1.5% 2 0.5% 6 2.0% Qg 1.9%
81-100% 13 1.2% 7 1.9% 2 0.7% 4 0.9%
N/A 0.0% 0.0% 0.0% 0.0%
Total 1126 1 368 1 294 1 464 100.0%
What percentage of your business’s suppliers are located within the Commonwealth of Virginia?

0% 291 25.8% 133 36.0% 82.0 279% 76.0 16.4%
1-20% 350 31.1% 104 28.2% 90.0 30.6% 156.0 33.7%
21-40% 103 9.1% 28 76% 31.0 10.5% 44.0 9.5%
41-60% 82 713% 25 6.8% 15.0 5.1% 42.0 9.1%
61-80% 111 9.9% 23 6.2% 27.0 9.2% 61.0 13.2%
81-100% 189 16.8% 56 15.2% 49 16.7% 84 18.1%
N/A 0.0% 0.0% 0.0% 0.0%
Total 1126 1 369 1 294 1 463 1
50 tt.
TABLE A2.8: SURVEY QUESTION AND RESULTS - COMMUNITY ENGAGEMENT

Mentoring 399 271% 186 375% 113 272% 99 176%
Donations 673 45.6% 193 38.9% 176 42.4% 303} 53.8%
Community Education 336 22.8% 127 25.6% 102 24.6% 106} 18.8%
Local Clubs 587 39.8% 163 32.9% 179 43.1% 244} 43.3%
Local Initiatives 320 21.7% 111 22.4% 101 24.3% 107 19.0%
Community Events 429 29.1% 142 28.6% 129 31.1% 157| 279%
Scholarships 140 9.5% 65 11.1% 51 12.3% as 5.9%
Community Boards 377 25.6% 118 23.8% 116 28.0% 142] 25.2%
Local Sports 256 174% 50 10.1% 68 16.4% 138] 245%
Charity 620 42.0% 167 33.7% 180 43.4% 272| 48.3%
Volunteering 691 46.8% 239 48.2% 206 49.6% 245} 43.5%
Other 14 0.9% 7 14% 4 1.0% 3 0.5%
None 332 22.5% 129 26.0% 84 20.2% 119} 21.1%
Community Engagement 1134 76.9% 361 72.8% 331 79.8% 441 78.3%
Total N* 1475 496 415 563

ote: * Respondents could select more than one type of community engagement; thus 'N’ values do not equal lotal N, nor ¢

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TABLE A2.9: SURVEY QUESTION AND RESULTS - LOCATION OF BUSINESS (STATE)

Virginia 1,280 86.8%
Maryland 71 4.8%
North Carolina 29 2.0%
Georgia 17 1.2%
Pennsylvania 12 0.8%
New Jersey 9 0.6%
South Carolina 7 0.5%
Texas 7 0.5%
Missouri 6 0.4%
New York 6 0.4%
Massachusetts 4 0.3%
District of Columbia 3 0.2%
Illinois 3 0.2%
Indiana 3. 0.2%
Michigan 3 0.2%
Ohio 2 0.2%
Washington 3 0.2%
Nevada 2 0.1%
Wisconsin 2 0.1%
California 1 0.1%
Deleware 1 0.1%
Kentucky 1 0.1%
Nebraska 1 0.1%
South Dakota 1 0.1%
Total 1,475 100.0%
TABLE A4.1: COMPARISON OF BUSINESS ELIGIBILITY USING EXISTING SWAM AND SBA SMALL BUSINESS
DEFINITION ( IN-STATE AND OUT-OF-STATE BUSINESSES)

11 Agriculture, Forestry, Fishing and Hunting 105 116 1 10.2%
21 Mining, Quarrying, Oil and Gas Extraction 53 59 6 12.2%
22 Utilities 12 14 1 9.9%
23 Construction 4249 4671 422 9.9%
31-33 | Manufacturing 1198 1335 138 11.5%
42 Wholesale Trade 2265 2463 197 8.7%
44-45 | Retail Trade 2674 2934 260 9.7%
48-49 | Transportation and Warehousing 922 1016 94 10.2%
bit Information 374 414 39 10.5%
52 Finance and Insurance 34 37 3 10.1%
63 Real Estate Rental and Leasing 244 271 26 10.8%
5A Professional, Scientific, and Technical 572 9842 270 10.5%
Services
55 Management of Companies and 6 - 1 12.4%
Enterprises
56 Administrative and Support and Waste 9021 2256 935 116%
Management and Remediation Services
61 Educational Services 102 113 10 10.2%
62 Health Care and Social Assistance 34y 382 35 10.2%
71 Arts, Entertainment, and Recreation 59 65 6 9.9%
72 Accommodation and Food Services 529 589 59 11.2%
81 Other Services (except Public 1433 1575 442 99%
Administration)
TABLE A4.2: COMPARISON OF BUSINESS ELIGIBILITY USING “OR” AND “AND” SCENARIO FOR THE EXISTING

54

SWAM SMALL BUSINESS DEFINITION. (NOTE: DSBSD CURRENTLY USES THE “OR” CRITERIA)

11 Agriculture, Forestry, Fishing and Hunting -0.4%
a Mining, Quarrying, Oil and Gas Extraction] -12.6%
22 Utilities -3.0%
23 Construction -5.8%
31-33 | Manufacturing -11.5%
42 Wholesale Trade -16.8%
48-49 | Transportation and Warehousing -2.5%
51 Information -2.8%
52 Finance and Insurance -1.9%
53 Real Estate Rental and Leasing -1.6%
5A Be eee Scientific, and Technical A3%
55 Sonne of Companies and 5A
56 Administrative and Support and Waste 30%
Management and Remediation Services
61 Educational Services -0.9%
62 Health Care and Social Assistance -1.6%
71 Arts, Entertainment, and Recreation -0.4%
72 Accommodation and Food Services -2.0%
31 —— (except Public 0.5%
TABLE A4.3: PERCENT DISTRIBUTION OF WOMEN-OWNED AND MINORITY-OWNED BUSINESSES BY NAICS

54 Professional, Scientific, and Technical Services 175% 14.7%
44-45 | Retail Trade 15.6% 13.9%
81 Other Services (except Public Administration) 11.1% 11.8%
62 Health Care and Social Assistance 10.3% 9.0%
53 Real Estate Rental and Leasing 18% 5.2%
56 oe ete pee med and Waste Management and 76% 6.5%
23 Construction 4.2% 6.6%
71 Arts, Entertainment, and Recreation 4.2% 3.0%
61 Educational Services 3.4% 2.5%
52 Finance and Insurance 3.3% 4.2%
31-33 | Manufacturing 3.1% 2.3%
42 Wholesale Trade 3.1% 3.2%
48-49 | Transportation and Warehousing 2.8% 8.6%
72 Accommodation and Food Services 2.6% 4.8%
51 Information 2.2% 3.0%
11 Agriculture, Forestry, Fishing and Hunting 0.6% 0.4%
a5) Management of Companies and Enterprises 0.2% 0.2%
22 Utilities 0.1% 0.2%
21 Mining, Quarrying, Oil and Gas Extraction 0.1% 0.1%
APPENDIX: SURVEY ——

56

Virginia Department of Small Business & Supplier Diversity

Virginia Small Business and Supplier Diversity Survey

Introduction

The Virginia Department of Small Business and Supplier Diversity (SBSD) has requested the Center
for Urban and Regional Analysis (CURA) at Virginia Commonwealth University (VCU) to conduct an
economic impact study of the Small, Women-owned, and Minority-owned (SWaM) as well as the
Disadvantaged Business Enterprise (DBE) certification programs on participating businesses. As a
part of the research, CURA will administer the following online survey.

The survey, which will take approximately 10 minutes to complete, contains questions pertaining to
your business’s performance, employment, sub-contractors, suppliers, and community
engagement. All information collected will be kept strictly confidential. Responses will be analyzed
and reported only in aggregate (totals). No individuals or companies will be identified in the
published results. Any information that could identify you or your business will be stored
separately and will not be associated to your email or your business name.

Your participation in this survey is important as it will inform SBSD‘s future policy and
programming.
Virginia Department of Small Business & Supplier Diversity

Virginia Small Business and Supplier Diversity Survey

General

* 1, Business name

* 2. Which of the following best describes your business sector?

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Virginia Department of Small Business & Supplier Diversity

Virginia Small Business and Supplier Diversity Survey

General

* 3. In what year was your business established?

* 4. In what year did your business first become SWaM/DBE-certified?
Virginia Department of Small Business & Supplier Diversity

Virginia Small Business and Supplier Diversity Survey

* 5, What is your business's SWaM certification number?

* 6. Is your business certified as SWaM, DBE, or both?

SWaM

C) DBE

C) both SWaM/DBE

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Virginia Small Business and Supplier Diversity Survey

General

* 7, How many employees do you currently have?

Full-time |

Part-time
Virginia Department of Small Business & Supplier Diversity

Virginia Small Business and Supplier Diversity Survey

Business

* 8. How have your annual revenues (including all revenue streams) changed since becoming SWaM/DBE-
certified?

C) Increased
i) Decreased

C) Remained the same

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62)

Virginia Department of Small Business & Supplier Diversity

Virginia Small Business and Supplier Diversity Survey

Business

* 9, By how much have your annual revenues increased since becoming SWaM/DBE-certified?
1-20%
21-40%
41-60%
61-80%
81-100%

more than 100%
Virginia Department of Small Business & Supplier Diversity

Virginia Small Business and Supplier Diversity Survey

* 10. By how much have your annual revenues decreased since becoming SWaM/DBE-certified?

21-40%
(_) 41-60%
() 61-80%

81-100%

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Virginia Department of Small Business & Supplier Diversity

Virginia Small Business and Supplier Diversity Survey

Business

* 11. Prior to becoming SWaM/DBE-certified, what percentage of your business's annual revenues came
from contracts with a Commonwealth of Virginia agency?

0%
1-20%
21-40%
41-60%
61-80%

81-100%

* 12. Currently, what percentage of your business's annual revenues comes from contracts with a
Commonwealth of Virginia agency?

0%
1-20%
21-40%
41-60%
61-80%

81-100%
Virginia Department of Small Business & Supplier Diversity

Virginia Small Business and Supplier Diversity Survey

Business

* 13. How important of a factor was the SWaM/DBE program in your decision to start your business?

Very Important
Important
Moderately Important
Slightly Important

Not Important

* 14. How important is your participation in the SWaM/DBE program to the long-term viability of your
business?

Very Important

Important

Slightly Important

Not Important

* 15. Would your business exist if it was not participating in the SWaM/DBE program?

Yes
No

Not sure

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Virginia Department of Small Business & Supplier Diversity

Virginia Small Business and Supplier Diversity Survey

Employment

* 16. How has your business's employment changed since becoming SWaM/DBE-certified?
7 Increased
C) Decreased

C) Remained the same
Virginia Department of Small Business & Supplier Diversity

Virginia Small Business and Supplier Diversity Survey

Employment

* 17. By how many people has employment increased since becoming SWaM/DBE-certified?

* 18. What percentage of the employees identified in the previous question fall under the following
employment categories?
Total must equal 100; e.g. Full-time 65, Part-time 35

Full-time

Part-time

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Virginia Department of Small Business & Supplier Diversity

Virginia Small Business and Supplier Diversity Survey

Employment

* 19. By how many people has employment decreased since becoming SWaM/DBE-certified?
Virginia Department of Small Business & Supplier Diversity

Virginia Small Business and Supplier Diversity Survey

Employment

* 20. How many of your total employees fall under the following categories?
Please answer in terms of number of employees; also, please consider that some employees may fall
under multiple categories.
Minority (e.g. Asian,
African American,

Hispanic, Eskimo/Aluet, — =
Native American)

Woman

Service disabled veteran [ |

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‘Virginia Department of Small Business & Supplier Diversity

Virginia Small Business and Supplier Diversity Survey

Employment

* 21. How has the average salary of your employees changed since becoming SWaM/DBE-certified?
Increased
Decreased

Remained the same
Virginia Department of Small Business & Supplier Diversity

Virginia Small Business and Supplier Diversity Survey

Employment

* 22, By how much has the average salary of your employees increased since becoming SWaM/DBE-
certified?

1-20%
21-40%
41-60%

‘ 61-80%
81-100%

more than 100%

* 23. Please rank the following factors in terms of impact on increased wages from 1 to 5 (with 1 being most
important and 5 being least important) without repeating any numbers.

A .

, Increase in the cost of living

' Increase in employee productivity

<>

' Promotion

<>

Improved financial standing of company due to SWaM/DBE certification

<>

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Virginia Small Business and Supplier Diversity Survey

Sub-Contractors

The following section contains questions regarding your business's sub-contractors. A sub-
contractor is a person or business firm contracted to do part of another business's work.

* 24. Since becoming SWaM/DBE-certified, has the number of sub-contractors you work with increased?
Yes
No

Not applicable (my business does not work with sub-contractors)
Virginia Department of Small Business & Supplier Diversity

Virginia Small Business and Supplier Diversity Survey

Sub-Contractors

* 25. What percentage of all your sub-contractors are SWaM/DBE-certified?
0%
1-20%
21-40%
41-60%
61-80%

81-100%

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Virginia Department of Small Business & Supplier Diversity

Virginia Small Business and Supplier Diversity Survey

Sub-Contractors

* 26. What percentage of the sub-contractors you work with are located within the Commonwealth of
Virginia?

() 1-20%
(_) 21-40%
() 41-60%

61-80%

C) 81-100%
Virginia Department of Small Business & Supplier Diversity

Virginia Small Business and Supplier Diversity Survey

Suppliers

The following section contains questions about your company's suppliers. A supplier is a person or
entity that provides something needed such as a product or service.
e.g. A company that provides microprocessors to a major computer business.

* 27. What percentage of your business's suppliers are SWaM/DBE-certified?
0%
1-20%
21-40%
41-60%
61-80%
81-100%

Not applicable (my business does not have suppliers)

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Virginia Small Business and Supplier Diversity Survey

* 28. What percentage of your business's suppliers are located within the Commonwealth of Virginia?

() 0%

C) 1-20%
(_) 21-40%
() 41-60%

61-80%

C) 81-100%
Virginia Department of Small Business & Supplier Diversity

Virginia Small Business and Supplier Diversity Survey

Community Engagement

* 29. Is your business or its employees involved in any of the following? (select all that apply)
[| Business/ entrepreneurship mentoring
[ ] Community education
Local associations or clubs
Local initiatives
[] Participating in, sponsoring, planning or hosting community events
Scholarship fund
Serving on community boards
Sponsoring a local sports team
Supporting a local charity
Volunteering
None of the above

Other (please specify)

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78 5

Virginia Department of Small Business & Supplier Diversity

Virginia Small Business and Supplier Diversity Survey

Demographic

* 30. In which ZIP Code is your business located?e.g. 23284

* 31. What is the majority owner's race/ethnicity?
“~~ Asian American
African American
Caucasian
Hispanic American
Eskimo and/or Aleut

Native American

Other (please specify)

* 32. What is the majority owner's gender?
Male

Female

* 33. What is the majority owner's highest level of education?
High school, GED equivalent
Some college, associate's degree
Bachelor's degree

Graduate, professional degree
Virginia Department of Small Business & Supplier Diversity

Virginia Small Business and Supplier Diversity Survey

Comments

34. Feel free to provide any comments or questions you may have regarding this survey, the SWaM/DBE
program, or SBSD in general.

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APPROVED Meeting Minutes

Public Body Procurement Workgroup

Meeting # 6
Tuesday, October 8, 2024, 1:00 p.m.
House South Subcommittee Room, 2" floor
General Assembly Building
201 North 9 Street, Richmond, Virginia 23219

http:/ dgs.virginia.gov/dys/directors-office/pwg

The Public Body Procurement Workgroup (the Workgroup) met in person in the House South
Subcommittee Room in the General Assembly Building in Richmond, Virginia, with Sandra
Gill, Deputy Director of the Department of General Services (DGS), presiding. The meeting
included with approval of the previous meeting minutes, Workgroup discussion on drafting
recommendations for HB 1524, followed by, presentations by Virginia Department of Small
Business and Supplier Diversity (DSBSD) and the Joint Legislative Audit and Review
Commission (JLARC) on HB 1404 and Workgroup discussion on HB 1404. Materials presented
at the meeting are available through the Workgroup’s website.

Workgroup members and representatives present at the meeting included Sandra Gill
(Department of General Services), Verniece Love (Department of Small Business and Supplier
Diversity), Joshua Heslinga (Virginia Information Technologies Agency), Lisa Pride (Virginia
Department of Transportation), Jason Saunders (Department of Planning and Budget), Patricia
Innocenti (Virginia Association of Governmental Procurement), Kimberly Dulaney (Virginia
Association of State Colleges and University Purchasing Professionals), Andrea Peeks (House
Appropriations Committee), Mike Tweedy (Senate Finance and Appropriations), Leslie Allen
(Office of the Attorney General), and Rebecca Schultz (Division of Legislative Services).

I. Call te Order; Remarks by Chair
Gill called the meeting to order and moved into the second agenda item.
II. Approval of Meeting Minutes from the September 17, 2024, Workgroup Meeting
Joshua Heslinga made a motion to approve the meeting minutes from the September 17,

2024, meeting of the Workgroup. The motion was seconded, and unanimously approved
by the Workgroup.

HLL. Public Comment on HB 1524
There was no public comment either in support or opposition or neutral stance to HB
1524.

Discussion on HB 1524 Preliminary Findings and Recommendations

Sandra Gill said the Workgroup would move into discussion on HB 1524. She reminded
the members that the Department of Taxation had been asked to come and present and
that they could not present at the Oct. 8 meeting, so they will be presenting at the Oct. 22
meeting. Thus, she asked that the Workgroup pause on drafting anything associated with
funding or tax credits until after the Department of Taxation presentation. Gill then
reminded the Workgroup that in the letter from the member, the Workgroup was tasked
with studying five items related to the bill:

e Increasing the percentage of RAP,

e Cost savings to the Commonwealth of Virginia,

e Environmental impacts,

e Durability and safety,

e And the use of repurposed waste materials.

Gill summarized that the Workgroup heard amazing presentations from the delegate,
industry leaders who said that VDOT is a national leader around the topic of RAP, DEQ
and VDOT. She said the Workgroup heard from the industry that VDOT currently has
specifications around the use of RAP, allowing up to 35% RAP and that VDOT uses on
average, 29%. Gill also mentioned that she thought it was particularly interesting that
there are 12 VDOT pilot projects that are assessing and gathering information around the
five items listed in the delegate’s letter. After the summary she asked for any additional
input or comments from the Workgroup.

Hearing none, Gill moved forward proposing a possible recommendation that the General
Assembly would request VDOT to report on the above-mentioned items in 2026 when
she said she believes the analysis will be complete on the 12 pilot projects. She asked
Lisa Pride with VDOT to verify that timeframe, and Pride did. Gill asked the Workgroup
for any thoughts on that recommendation.

Heslinga stated that it sounded good to him because the bill as he understands it, does not
upset the work that VDOT is currently doing in the field. Therefore, it would make sense
for VDOT to report its findings to the General Assembly in 2026 so that those findings
could be considered at that time.

There was no other comment. Gill articulated the proposed draft recommendation once
more, saying that the Workgroup is proposing to move forward with the
recommendation: “The General Assembly consider requiring VDOT to report out in 2026
regarding the 12 pilot programs which address the five items in the bill to include but not
limited to: the use of recycled asphalt mixes, the cost savings to the commonwealth, if
applicable, where in-place asphalt recycling occurred, the environmental impacts, and the
durability, safety and longevity of pavement services built with higher percentage of
RAP.”

Jason Saunders noted a technical consideration that Gill referenced the bill, when the five
items came from the delegate’s letter and not the bill. Gill thanked Saunders for that
correction and re-read the proposed recommendation, switching out “bill” for “the
Speaker’s letter.” The Workgroup agreed to move forward with that recommendation and
vote on it at the next meeting.

“The General Assembly could consider requiring VDOT to report out in 2026
regarding the 12 pilot programs which address the five items addressed in the
Speaker’s letter to include but not limited to: the use of recycled asphalt mixes,
the cost savings to the commonwealth, if applicable, where in-place asphalt
recycling occurred, the environmental impacts, and the durability, safety and
longevity of pavement services built with higher percentage of RAP.”

Gill said the Workgroup would be hearing from the Department of Taxation regarding
avenues to provide the funding via tax credit and how the existing tax credits have been
used.

Presentation on HB 1404

Verniece Love, Deputy Director of the Department of Small Business and Supplier
Diversity (DSBSD) gave a presentation on HB 1404. She reminded the Workgroup that
at the last meeting she gave a presentation on the certification process for small
businesses and the small business definition. She said she was asked at the last meeting to
provide additional information on neighboring states and how they define small business.

She asked the Workgroup members to let her know if there are any states she did not
include on which they would like this information. She said she focused on states along
the east coast from Maryland down to Florida.

First, she reminded everyone what Virginia’s small business definition is explaining that
it is 250 employees or fewer OR average gross receipts of $10 million or less averaged
over the previous three years.

Love then moved to Washington D.C.’s definition, highlighting that their program is for
industry firms only, and the businesses have to be located in the District of Columbia by
meeting one of four standards: more than 50% of the employees of the business are
residents or the District; or the owners of more than 50% of the business enterprise are
residents of the District; or move than 50 % of the assets of the business, excluding bank
accounts, are in the District; or more than 50% of the business gross receipts are District
gross receipts. They have what they call the Certified Business Enterprise program which
is similar to Virginia’s program. They are different designations under their CBE
program for which a business can qualify. Small Business Enterprise is a sub-category
VI.

under their CBE program. Their size standards are based on a five-year average as
opposed to Virginia’s three-year average. Additionally, Love pointed out that like the
federal SBA, they use industries, but they do not use the federal SBA definition, they
have their own with each industry having their own limits.

Love then moved on to Maryland, summarizing that they have different designations
within their program like their Small Business Reserve Program which requires
businesses to be for profit, independently owned and operated, not a subsidiary, not
dominant in its field of operation and either employee limit or gross receipts. But they
have it broken out by industry as well.

Tennessee was next in Love’s presentation. Love explained that Tennessee has a
stipulation that the business must be in business for at least two years before it can
qualify for the certification. She said for their size standards, the businesses can have no
more than $10 million averaged over the past three years or no more than 99 full-time
employees.

North Carolina, Love said, requires that the small business must be headquartered in NC,
and their annual income cannot exceed $1.5 million. They can have no more than 100
employees in order to qualify. She pointed out a North Carolina caveat that the do deduct
cost of goods sold when they are calculating the gross revenue for the companies.

Next Love highlighted South Carolina, saying that they do not certify just a small
business. They certify small businesses that are owned by women or minorities. The use
the SBA definition for the small business portion, and they require to owners to be
socially, and economically disadvantaged individuals as defined by the federal definition.

Love presented on Georgia next, saying they do not have a formal certification for small
businesses but allow businesses to self-certify as small businesses. They consider
businesses with less than 300 employees and less than $30 million in gross receipts as a
small business. So, their definition is even broader than Virginia’s.

The last state in Love’s presentation was Florida. She said Florida is like SC where they
do not certify a small business, the owners must be women, minorities or veterans. They
do consider size when they are certifying—200 or fewer full-time employees. The
business must be based in Florida.

There were no questions, and with that Love concluded her presentation.

Presentation on HB 1404

The Workgroup turned their attention to the next presentation on HB 1404 from the Joint
Legislative Audit and Review Commission (JLARC) about a study they did a few years
ago on the operations of DSBSD. Justin Brown began the presentation on the JUEARC
2020 study, highlighting the findings that came from the study. The findings included:
SBSD’s business process has become more timely and the appeal right was limited,
VSBFA was not fully achieving the mission of helping small businesses access financing
and lacked lending policies that set appropriate risk policies, state agency procurement
spending with SWaM-certified businesses was substantial but didn’t hit the 42% goal,
and most of the state’s procurements went to businesses much smaller than Virginia’s
definition of small business.

There were several recommendations that JEARC made based on this study and of those
recommendations, DSBSD implemented or is in the process of implementing six of the
seven recommendations.

Brown pointed out that JUARC also proposed 10 policy options for consideration in this
report. Five of the options related to changing the state’s small business definition, one
option was for VSBFA to develop a pilot program to test including startup businesses in
the microloan program, and two option were related to SWaM spending and goals.

Brown then handed the presentation over to his colleague Lauren Axselle, who went into
a quick overview of the small business definition, the 2019 data on the number of small,
micro, minority-owned, women-owned and other businesses. She pointed out that most of
the small businesses (94%) that were certified, were in fact much smaller than the
Virginia definition.

She then dived into policy options. The first of which was to require small businesses to
meet both the employment and gross receipts thresholds. This would cut 6% (623) of
certified businesses based on the 2019 data. Two more examples to narrow the definition
that Axselle touched on were to lower the employee and gross receipts thresholds to the
95" percentile (this would cut 3% of the certified businesses) or to the 75" percentile
(which would eliminate 13% of certified businesses).

Axselle’s next slide talked about how the size of the business can vary significantly
between industries. The federal government and several other states have industry-
specific small business definitions. Then JUARC looked at how Virginia compared to
other states on the definition and what JLUARC discovered was that Virginia’s definition
allows more employees than other states, but the revenue threshold was comparable. So
JLARC included a policy option to develop and adopt thresholds based on industry. This
would require a lot of administrative work and would be a one-time fiscal impact.
Axselle talked about one more policy option which was to consider broadening
preferences to include more than business size.

She then shifted the presentation to focus on the effectiveness of the SWaM program. As
of 2019 data, agencies procured over $2 billion through SWaM-certified businesses.
Median sales increased approximately 20% for businesses after becoming SWaM-
certified. Businesses also reported non-monetary benefits to being certified such as an
improved image. However, the majority of agencies (60%) did not meet the 42% goal
and there was a broad range of SWaM spending from 4% to 87%. Axselle explained that
VIL.

there were several reasons for this. Some goods and services are not offered by many
SWaM vendors and the number and size of procurements vary greatly between agencies.

Axselle’s next slide outlined how the SWaM planning process historically did not help
agencies meet the SWaM goal. Another option JUARC suggested was to direct each state
agency to set an ambitious but achievable SWaM goal that accounts for the agency’s
procurements and the availability of SWaM businesses for their specific goods and
services. This concluded the JUARC presentation.

Heslinga asked JUARC where the 42% goal came from. Axselle said the number did not
seem to have a clear origin. Brown said it bounced around a few executive orders and
Aselle followed up saying that there were some years when the percentage that was
achieved was higher, but not in the last few years. Gill said when staff summarized the
executive orders, there seemed to be some confusion as to whether the 42% was the goal
of the Commonwealth as a whole or of each agency. Gill then reminded the Workgroup
that they need to take that into consideration when reviewing this bill.

Jason Saunders asked if someone could remind the Workgroup of what goes into
discretionary spend and how it is measured. Love explained that agencies look at their
budget and take out certain items like utilities, mandatory source contracts and things of
that nature. After those items are taken out, what agencies are left with is their
discretionary spend. Gill asked if Love could provide the different categories that are
exempt from discretionary spending, and Love said that yes, she could provide those.

Kim Dulaney asked if we have any data on what other states’ goals are and how they
stack up against the 42% Virginia goal. Love said there is data on that, and she can
provide that information. Love said most other states have goals around women and
minority-owned spend.

Public Comment on HB 1404

Gwendolyn Davis of Minority Women Business Advisory Committee spoke in favor of
the bill. She read comments from the chair of the committee, Laquisha Atkinson, who
thanked the delegate who brought forth the bill and expressed the need to promote
minority and women businesses. She thanked the committee, the governors who have
supported this small business goal and the General Assembly.

Brandon Robinson with Associated General Contractors of Virginia said he has a neutral
position on the bill but wanted to bring up a few questions for consideration. One, he
said, is the realism of a 42% goal and the ability to be able to achieve that goal. Robinson
also pointed out the availability of small, women and minority-owned businesses play a
part in being able to achieve that goal. Two, he said his association has heard antidotally
about the difficulties of getting SWaM certified and that there isn’t a whole lot in the bill
that speaks to helping businesses with this process. Three, Robinson pointed out, there is
some language about disbarring contractors that can’t live up to an aspirational goal, and
he said AGC thinks that is a big mistake to use on a goal such as this one. Robinson
concluded by saying that the goal should be ambitious, achievable and that support
should be provided for small businesses.

William Bullock, a contractor living in the City of Richmond, spoke in support of the bill.
He said he wants to see the state spend money with minority and African American
contractors in the state. He said this is important because there is a lot of poverty in the
state right now, people are suffering, and the money is not being spread around. He
expressed that is hard for small businesses to compete at the lowest price on projects
against big businesses.

Julianne Hammond on behalf of National Federation of Independent Businesses (NFIB),
Virginia’s small business trade association and the largest one in the nation. She opposes
codifying the executive order because it locks it down and takes away the flexibility. She
explained that some of the solutions presented are limiting in nature. She said the goal is
to increase participation of small businesses, so creating more defined limits seems
counter to the overall goal. Additionally, she continued, if Virginia is going to look at
increasing certification, shouldn’t it be done in discretionary fields so that it is compared
apples to apples and not apples to oranges. This would be a much better way to figure out
who is available in those fields. She added that if there is any way that Virginia could
automatically accept small businesses that have already qualified at a federal level, this
would make it much easier on the small business owners, so that they don’t have to get
certified nationally and again at the state level.

Chris Stone, past chair of the Hampton Roads Chamber of Commerce said he was here to
tell his personal experience with the 42%. He said he does not believe the 42% is a one
size fits all approach. Stone said he is a licensed engineer who was appointed by
Governor Northam to sit on the DPOR licensure board architects, engineers, land
surveyors, interior designers and landscape architects. He has served eight years on this
board and what he learned is that you can’t get a four-year accredited degree from any
HBCU in Virginia. So, there is no pipeline for minorities to even become a small
business in these fields, if they don’t offer that at HBCU. This is one example of how we
need to expand opportunities for minorities so that they can start businesses.

Discussion on HB 1404

Gill asked if there was any additional information that the Workgroup would like staff to
gather for the next meeting in relation to HB 1404.

Heslinga said there is one thing he wanted to clarify. The bill as it was passed in 2024
had a reenactment clause. However, should the GA introduce a new bill in 2025, then
unless that new bill was given a reenactment clause, that bill would take effect. In other
words, if we recommended changes, and the GA took those changes and passed a new
bill with those included, it would not delay the effectiveness of whatever legislation may
pass. Schultz concurred that Heslinga was correct in his statement.
Gill said the bill as introduced last year defined SWaM business as a small, a small
women-owned, small minority-owned or small service-disabled veteran owned. So, the
small SWaM business set aside is still for small business, regardless of if they are women
or minority-owned, correct, she asked. Schultz confirmed she was correct.

Gill then confirmed with Love that she would be available to provide additional
information about the procurement programs. Love said yes and confirmed that the
Workgroup wanted exemptions from discretionary spend and the goals from other states
and how those compare to Virginia’s 42% goal. Gill said that working with VITA and
DGS, she would like to know how that ties to procurement.

IX. Discussion

No additional discussion.

X. Adjournment

Gill adjourned the meeting at 1:53 p.m. and noted that the Workgroup’s next meeting is
scheduled for October 22, 2024, at 1:00 p.m. and announced that an additional meeting
had been added to the calendar for Wednesday, November 6 at 1 p.m. in the same
location.

For more information, see the Workgroup’s website or contact that Workgroup’s staff at

pwe@dgs.virginia.gov.
Appendix F: October 22, 2024, Meeting Materials

This appendix contains the meeting materials from the October 22, 2024, Workgroup meeting.
1. Agenda
2. Meeting Materials
a. Department of Small Business and Supplier Diversity Presentation on HB 1404
3. Approved Meeting Minutes

23
Public Body Procurement Workgroup

https://dgs.virginia.gov/dgs/directors-office/pwg/

Meeting # 7
Tuesday, October 22, 2024, 1:00 p.m.
House South Subcommittee Room, 2™ floor
General Assembly Building
201 North 9" Street, Richmond, Virginia 23219

II.

IV.

VI.

VIL.
VIII.
IX.

X.

Department of General Services

AGENDA
Call to Order; Remarks by Chair
Approval of Meeting Minutes from the October 8, 2024, Workgroup Meeting

Presentation on HB 1524
James Savage, Policy Development Director and

Ryan Cunningham, Senior Policy Analyst
Department of Taxation

Public Comment on HB 1524
Finalize Recommendations on HB 1524
Presentation on HB 1404

Verniece Love, Deputy Director

Department of Small Business and Supplier Diversity

Public Comment on HB 1404
Discussion on Possible Recommendations for HB 1404
Discussion

Adjournment

Members

Virginia Information Technologies Agency Virginia Department of Transportation

Department of Planning and Budget

Virginia Association of State Colleges and
University Purchasing Professionals

Representatives

Office of the Attorney General House Appropriations Committee

Department of Small Business and Supplier Diversity

Virginia Association of Government Purchasing
Senate Finance Committee Division of Legislative Services

Staff

Killeen Wells, Deputy Director of Communications, DGS
Kimberly Freiberger, Legislative Analyst, DGS
Set-Aside Award Priorities

SMALL BUSINESS & SUPPLIER DIVERSITY

2% of the Commonwealth’s spend should be with certified SWaM
usinesses

% of the Commonwealth’s spend should be with certified SDV
usinesses

ficro Business Set-Aside Award Priority (under $10,000)
e Micro business
e Small business
°* Open to all

mall Business Set-Aside Award Priority ($10,000 up to $100,000)
¢ Small business (including micro businesses)
* Open to all

Jlicro and small businesses shall have a price preference over
ioncertified businesses as long as the bid of the certified

nicro/small business does not exceed the low bid by more than 5%.

www.sbsd.virginia.gov
sv=—=... Washington, DC

Local Business Development

A Certified Business Enterprise (CBE) is a business headquartered in the District of Columbia
and certified by the Department of Small and Local Business Development (DSLBD).
Businesses with CBE certification receive preferred procurement and contracting
opportunities.

Businesses with CBE certification receive preferred procurement and contracting
opportunities. The District directs spending to these DC-based businesses that support and
contribute to job creation and the city tax base, which in turn results in a much stronger local
economy. Each agency must exercise its contracting and procurement authority, including an
agency that contracts or procures through the Office of Contracting and Procurement (OCP).
In addition, it must meet, on an annual basis, the goal of procuring and contracting 50
percent of the dollar volume of its goods and services, including construction goods and
services, to Small Business Enterprises (SBEs).
* 2 &
Department of Small and
Local Business Development

Washington,

CBE Category Proposal Points
Local Business Enterprise 2
Small Business Enterprise 3

Disadvantaged Business

. 2
Enterprise*

Development Enterprise Zone

Resident-Owned Business
Longtime Resident Business

Veteran-Owned Business
Enterprise

Local Manufacturing Business
Enterprise

Equity Impact Enterprise

DC

Bid % Price Reduction
2%
3%
Bat GOVERNOR'S OFFICE OF SMALL,
MINORITY &

q

WOMEN BUSINESS AFFAIRS

Small Business Reserve (SBR) Program

Over 20% of all open solicitations are designated to Certified Small Businesses, providing access to over $500
million in state-funded contracts and receiving payments directly from the state as a prime contractor.

Under state procurement law, the SBR Program directs participating agencies/departments to spend at least

20% of its fiscal year procurement expenditures with Certified Small Businesses. Once a solicitation has been
designated as “SBR,” an award can only be made to a Certified Small Business.

Small Procurement Category 1 Sourcing Project: Less than $5,000
Small Procurement Category 2: More than $5,000 but not more than $15,000.

Small Procurement Category 3: More than $15,000 but not more than $50,000, and, if a construction

procurement by the Department of General Services or Department of Transportation, not more than
$100,000.
at GOVERNOR'S OFFICE OF SMALL,

MINORITY &

; Maryland

WOMEN BUSINESS AFFAIRS re | ry re | n
Minority Business Enterprise (MBE) Program

Current regulations set the MBE Program's statewide aspirational goal at 29% across 70 participating
agencies and departments.

https://zomdsmallbiz.maryland.gov/Pages/mbe-Program.aspx

Veteran-Owned Small Business Enterprise (VSBE) Program

Maryland’s VSBE Program provides contracting opportunities on state-funded procurements for qualified
veteran-owned small businesses. Designated agencies and departments are directed to spend at least 3% of
the dollar value of their procurement contracts with certified VSBE firms.

https://gomdsmallbiz.maryland.gov/Pages/VSBE-Program.aspx
General Services

©
Tennessee

Governor's Office of Diversity Business Enterprise (Go-DBE)

Each agency is given an annual goal by category: MBE, WBE, DSBE, SDVBE, and SBE. Go-DBE monitors
agencies’ efforts to achieve diversity in contracting throughout the year. Go- DBE uses spend history, current
procurement opportunities, and other methods from each agency to establish diversity spend goals for the

following fiscal year.
Department of

= General Services

© Tennessee

es : Finance & Administretio
Agriculture : 2

14.40% -
Financial Institutions
Board of Regents 45.53% Gincreleaiees

Children’s Services 14.21% Health

Commerce & Insurance 4.43% Higher Education (C
Correction 4.75% Human Resources
Human Services

Intellectual & Developmental Disabilities
Education 10.08% Labor & Workforce

Environment & Conservation 12.00% tal Health and Sut e Abuse
Military
Revenue
Safety & Homeland Security
SBC/Capilal Projects
TennCare
Tennessee Bureau of Investigation

Economic & Community Development 14.56%

Tennessee Bepartment of Transportation

Tennessee Wildlife Resources Agency
Tourist Development

TRICOR

University of T

Veterans Services

dbe-certification. html
Texas

HISTORICALLY UNDERUTILIZED BUSINESS (HUB) PROGRAM

The statewide HUB Annual Utilization Goals are often referred to as “HUB Goals” and are based on expenditures by
procurement categories for the state agencies and state universities. Statewide HUB has set the following goals for
total statewide expenditures with HUBs:

11.2% for heavy construction other than building contracts;

21.1% for all building construction, including general contractors and operative builders’ contracts;
32.9% for all special trade construction contracts;

23.7% for professional services contracts;

26.0% for all other services contracts; and

21.1% for commodities contracts.

moptroll
New Jersey

Current Set-aside Initiatives

The State of New Jersey currently has two contract set aside programs - a 25 percent set aside for certified Small
Business Enterprises and a three percent set aside for Disabled Veteran Owned Business Enterprises.

The state aims to award 25% of its contracts and purchase orders to small businesses.

https://www.,nij.gov/treasury/revenue iness-cert-pro }
New York

Highest MWBE utilization rate in the country (32.3%)
Overall state goal of 30% MWBE utilization

The Office of Contractor and Supplier Diversity (“OCSD”) implements Empire State Development’s (“ESD”)
Minority- and Women-owned (“MWBE”) Program (from NYS Executive Law Article 15-A) and Service-Disabled
Veteran-owned Business (“SDVOB”) Program (from NYS Executive Law Article 17-B) by setting MWBE and SDVOB
project goals and monitoring compliance for all ESD projects.

All ESD construction projects over $100,000 and all consulting, services and commodities projects over $25,000 will
be reviewed for applicability under the MWBE and SDVOB programs. Based on OCSD’s analysis, MWBE and/or
SDVOB goals may be established.

https:
" 3) VIRGINIA DEPARTMENT OF

Willis Morris, Agency Director
Verniece Love, Deputy Director

Department of Small Business and Supplier Diversity
101 N. 14t4 Street, 11 Floor

Richmond, VA 23219

(804) 786-6585

sbsdesbsd.virginia.gov

www.sbsd.virginia.gov
APPROVED Meeting Minutes

Public Body Procurement Workgroup

Meeting # 7
Tuesday, October 22, 2024, 1:00 p.m.
House South Subcommittee Room, 2™ floor
General Assembly Building
201 North 9 Street, Richmond, Virginia 23219

The Public Body Procurement Workgroup (the Workgroup) met in person in the House South
Subcommittee Room in the General Assembly Building in Richmond, Virginia, with Sandra
Gill, Deputy Director of the Department of General Services (DGS), presiding. The meeting
included with approval of the previous meeting minutes, presentations by Virginia Department
of Taxation (TAX) on HB 1524 and Virginia Department of Small Business and Supplier
Diversity (DSBSD) on HB 1404, Workgroup discussion on recommendations for HB 1524, a
vote on one recommendation for HB 1524, and Workgroup discussion on recommendations for
HB 1404. Materials presented at the meeting are available through the Workgroup’s website.

Workgroup members and representatives present at the meeting included Sandra Gill
(Department of General Services), Verniece Love (Department of Small Business and Supplier
Diversity), Joshua Heslinga (Virginia Information Technologies Agency), Lisa Pride (Virginia
Department of Transportation), Jason Saunders (Department of Planning and Budget), Patricia
Innocenti (Virginia Association of Governmental Procurement), Kimberly Dulaney (Virginia
Association of State Colleges and University Purchasing Professionals), Andrea Peeks (House
Appropriations Committee), Mike Tweedy (Senate Finance and Appropriations), Leslie Allen
(Office of the Attorney General), and Rebecca Schultz (Division of Legislative Services).

I. Call to Order; Remarks by Chair

Gill called the meeting to order and moved into the second agenda item.

II. Approval of Meeting Minutes from the October 8, 2024, Workgroup Meeting

Jason Saunders made a motion to approve the meeting minutes from the October 8, 2024,
meeting of the Workgroup. The motion was seconded, and unanimously approved by the

Workgroup.

Il. Presentation on HB 1524
Ryan Cunningham, Senior Policy Analyst with Virginia Department of Taxation,
presented on the Recyclable Materials Processing Equipment Tax Credit. He shared that
this credit is a nonrefundable individual and corporate income tax credit valued at 20% of
the purchase price of machinery and equipment predominantly used in or on the premises
of a manufacturing facility of plant which manufactures, processes, compounds, or
produces items of tangible personal property from recyclable materials for sale OR
facilities that are predominantly engaged in advanced recycling. The limits to the credit
include 40% of the taxpayer’s income tax liability and an annual aggregate cap of $2
million. Additionally, there is a 10-year carryover period for unused tax credits.

Cunningham then gave a brief history of the tax credit and the different iterations it has
gone through. Next, he showed a graph of the credits requested and claimed per fiscal
year, pointing out that every year, the requests have exceeded the aggregate cap.

He then talked about the similarities and differences between the HB 1524 tax credit and
the Recyclable Materials Processing Equipment Tax Credit. Cunningham they are very
similar but the main difference is the equipment that can qualify for the credit. HB 1524
would allow equipment used to reclaim, recycle or reprocess existing asphalt materials
for pavements and roadways to qualify for the credit. Previously, these types of devices
did not qualify because they were not located on site at a facility. The limits between the
two tax credits are very similar—they both have the 40% of the taxpayer’s income tax
liability and the 10-year carryover period for unused tax credits. However, HB 1524 has
an annual aggregate cap at $3 million, instead of the $2 million for the Recyclable
Materials Processing Equipment Tax Credit. The other difference is that the HB 1524 has
an effective date of 2025-2030, and the Materials Processing Equipment Tax Credit is set
to expire in 2025, unless extended. This concluded the presentation and Cunningham
asked if there were any questions.

Mike Tweedy, Senate Finance and Appropriations, asked if there was a bill in this past
Session to extend the Recyclable Materials Processing Equipment Tax Credit.
Cunningham answered that there was not. He then asked if the people claiming the
existing credit are all doing asphalt or if others outside the asphalt industry are claiming
the credit as well. Cunningham replied that he does not know everyone who claims the
current credit, but he did say not a lot of companies are claiming the current credit (15-25
taxpayers) and that it is not so much asphalt as it is traditional recycling materials.

Andrea Peeks, House Appropriations Committee, asked for Cunningham to confirm that
there was not any crossover between the two credits. Cunningham said he was not aware
of any crossover, but explained there might be some asphalt recycling, but it would all be
done on site instead of mobile. She followed up, asking if Cunningham had any sort of
gauge for the demand for the HB 1524 tax credit and why it would need to have a
different threshold than the first one. Cunningham said he does not have a lot of data on
that. He suggested having someone from the industry speak to how in-demand the credit
is and how much it would cost because that is a big driver of deciding on the threshold
amount.
IV.

Public Comment on HB 1524
Sandra Gill said the Workgroup would move into public comment of HB 1524.

Trenton Clark with Virginia Asphalt Association spoke to provide some context around
Tweedy and Peeks’ questions. He said the reason for this legislation is because as of now,
the equipment has to exist at a fixed facility, it can’t be mobile. So a lot of the equipment
that would be covered under HB 1524, is work that would be done out on the project site.
He explained further, saying that as the industry moves to a more sustainable economy, a
lot of our work is being done out in the field, so recycling is happening in the field. This
cuts down on the trucking costs. He then addressed Peeks’s second question about cost,
saying that most of this equipment cost between % of a $1 million and $3 million+.

Peeks asked if it would work to expand the existing bill to include the type of work
covered as onsite work too. Clark said there was some discussion around that last year
and it was decided to keep them separate because of the different natures of the bills.

Clark finished by thanking the Workgroup and saying he thinks this will have a positive
impact on the public.

Finalize Recommendations on HB 1524

Gill announced the Workgroup would move into finalizing recommendations for HB
1524. She pointed attention to the drafted recommendation in the meeting materials and
said the Workgroup would vote on that recommendation today and discuss any others.
Gill then asked if there were any additional comments to the drafted recommendation and
if the Workgroup would like it read aloud. Lisa Pride, VDOT, said she had an additional
comment but would express it after the recommendation was read aloud.

Killeen Wells, staff, then read the drafted recommendation aloud: “The Workgroup
recommends that the General Assembly consider a section | bill to require the Virginia
Department of Transportation (VDOT) to report in 2026 on the analysis and study of
their pilot projects that have already begun as part of continuous improvement

efforts. VDOT's Transportation Research Council is leading these 12 pilot projects at
various locations throughout the state to determine the performance of mixes with RAP
contents higher than currently allowed in VDOT specifications.”

Pride said she had one edit, to put “(December of 2026” to clarify the timing of when in
2026. Gill said staff would incorporate that change of December 1, 2026, since reports
are due on the first of December. Verniece Love, DSBSD, had one follow up
clarification. She asked if the report was to be done by December of 2026 or if the pilot
projects were to be completed by that time. Pride said that the projects would be
completed throughout the year and the report due at that time. The Workgroup voted in
support of the recommendation, 6-0 with DPB abstaining.
VI.

Gill then asked if there were any other recommendations the Workgroup wanted to bring
forth for discussion. She reminded the Workgroup that they had paused on item one in
Speaker Scott’s letter until they heard from the Department of Taxation. She asked if
there were any suggestions, now that they had heard from Tax, for item one. Heslinga
said he had a recommendation, that was really broken out into two parts.

Heslinga said, “The General Assembly should consider (i) continuing the current tax
credit until VDOT completes its pending pilot studies in 2026 and reports on them, and
(ii) implementing any altered or expanded tax credit language to coincide with any
changes that may be made after the pilot studies.”

Gill said she had a question for the Department of Taxation. She asked, “If we were to
include in our report that the Workgroup would recommend that the General Assembly
consider extending the current tax credit are the funds available or the revenue stream to
fund those tax credits available?” Cunningham said his understanding is that in the
revenue projections they always assume the extension of all expiring tax credits so that
funding would already be baked in, we would assume the General Assembly is going to
extend this tax credit as well.

Love questioned, “So extending the current tax credit still does not solve the issue that
the recycling that happens off site and not at the facilities would not be eligible, right?”
Gill replied that is correct. She then clarified that Heslinga’s second recommendation was
aimed at addressing thc in-place credit. Heslinga responded that he’s trying to address
two things in his recommendations from the presentations. One is that there will be a gap
in time between the expiration of the current tax credit and when VDOT is done with its
pilot study in December of 2026. So given the long history of the current tax credit, it
seems appropriate to continue it until there is some clarity from the VDOT report about
future direction. The second part, he explained, was to address the issue of trying to
coordinate with the data VDOT develops through their pilot project study, so that
decisions can be made with that data in mind.

Gill asked if there were any additional comments on those two recommendations and if
the Workgroup wanted to vote during this meeting on them or at the next meeting.
Heslinga said he would be fine withholding the vote until the next meeting. Gill agreed,
saying they will be brought forward for a vote at the next meeting.

Presentation on HB 1404

Vemiece Love, Deputy Director of the Department of Small Business and Supplier
Diversity (DSBSD) gave a presentation on HB 1404. She reminded the Workgroup that
at the last meeting she was requested to bring forth some more information around the
small business goal in Virginia and other states. She said she provided additional
information included in the Workgroup’s packets, and that she was asked to speak to the
discretionary spend and exemptions, so she included the DOA reportable object codes
and an additional handout about what discretionary spending is and how it is determined.
With that, she began her presentation. Love restated the Commonwealth of Virginia’s
goal is 42% for SWaM spending. She added that Virginia also has a 3% spending goal
with certified veteran-disabled businesses. Next she covered that Virginia’s set-asides are
gender neutral and that we have micro-business set-asides (any purchase under $10,000)
and small business set-asides ($10,000 to $100,000). Love also pointed out that micro
and small businesses shall have a price preference over noncertified businesses as long as
the bid of the certified micro/small business does not exceed the low bid by more than
5%.

Next, Love began covering other states, with the first being Washington D.C. D.C. has a
CBE program that has a variety of categories included. They have a goal of procuring and
contracting 50% of the dollar volume of goods and services, including construction goods
and services, to Small Business Enterprises (SBEs). They award points to businesses
based on the categories.

Love moved on to Maryland next, stating that Maryland has a Small Business Reserve
(SBR) Program for spend with small businesses. Over 20% of all open solicitations are
designated to Certified Small Businesses. They have three categories: less than $5,000,
$5,000-$15,000, and more than $15,000 but not more than $50,000. If there is a
construction procurement, it should not exceed $100,000. Maryland also offers a
Minority Business Enterprise Program with an aspirational goal of 29% spend and a
Veteran-owned Small Business Enterprise Program with a goal of 3%.

Love outlined Tennessee next. She said in Tennessee, each agency is given specific goals
by category—_MBE, WBE, DSBE, SDVBE and SBE. These are monitored by the
Govemor’s Office of Diversity Business Enterprise, which is the office that sets these
goals per agency, factoring in spend history, procurement opportunities, etc.

In Texas, explained Love, there is the Historically Underutilized Business (HUB)
Program, which has annual goals for different industries, and they are based on
expenditures for the state agencies and state universities.

She explained that in New Jersey there are two contract set-aside programs. One is a 25%
set aside for certified Small Business Enterprises, and the other is a 3% set aside for
Disabled Veteran-Owned Business Enterprises. Furthermore, the state aims to award 25%
of its contracts and purchase orders to small businesses.

Love finished her presentation overview of states with New York, which she said has the
highest MWBE utilization rate in the country at 32.3%. The overall state goal for MWBE
utilization is 30%. The Office of Contractor and Supplier Diversity sets the MWBE and
SDVOB project goals and monitors them. This concluded her presentation, and she
opened it up for questions.

Heslinga asked where the cardinal categories and codes came from. Love said they come
from the Department of Accounts website, and DSBSD is required to keep the list on its
website as well.
VII.

VIL.

Rebecca Schultz, Legislative Services, asked if the Texas HUB program was geared
toward small businesses or women and minority-owned businesses. Love clarified that it
is women and minority-owned businesses.

Gill asked if the subcontracting was prime awards or all-inclusive subcontracting. Love
said she did not know.

Public Comment on HB 1404

There was no public comment for HB 1404.

Discussion on Possible Recommendations for HB 1404

Gill opened the meeting to Workgroup discussion on possible recommendations for HB
1404. She said she had a few notes based on the many presentations given by Love and
the public and stakeholder testimony. She mentioned the topic of the definition and the
questions around the goal being codified and the question of whether it is a
Commonwealth of Virginia goal or an agency goal. She reminded the Workgroup that the
Disparity Study currently underway is different from previous disparity studies because it
is looking at small and micro-businesses in relation to the commodities that the
commonwealth is buying. She continued saying that the Workgroup has heard there need
to be some technical amendments, that other states have made remedial plans based on
outcomes of their own disparity studies that are specific to women and minorities. She
questioned: “If the disparity study shows a need for a remedial or enhancement plan
around women and minorities, if we codify the bill as it is today, would we have
challenges in implementing that?” Gill said she would like to discuss that a little bit.

Love said she agreed with Gill and that the Workgroup could look at it two ways. Either
you could say that the 2020 Disparity Study showed disparity and that recommendations
were made from that study to implement programs and remedial measures to address the
disparities, and you could use that data. Or, she continued, you could wait until the new
disparity study report comes out in 2026 and make recommendations based on it.

Rebecca Schultz with DLS asked to make a few comments. She said that the bill in its
current form is doing a lot of different things, so as the Workgroup thinks about and goes
forward with recommendations to make sure they are clear on what the goal of the bill is.
She said the bill will likely need to be a brand-new draft. She then highlighted all the
different things the bill does—sets up a new enhancement program, sets up a new
division within DSBSD—she thinks there may be some difficulty in implementation. She
brought up what the Workgroup wants to do around the definition of small business. She
asked if the division is supposed to be geared for women and minorities? Do we want a
program? Do we want a division? She said getting some clarity on the focus of the bill
would be a good place to start.
Gill asked Verniece to speak to the questions around the division. Verniece said based on
her understanding, the division was to be created to implement whatever measures or
programming to enhance the utilization of women and minority-owned businesses in
state procurement contracting. So that division would be working directly with our state
agencies, she clarified, to help them set their goals and source and find small women and
minority-owned businesses.

Gill said her interpretation of the bill was to codify EO35. She clarified that the bill is
different from EO35 in that it creates a new definition of small SWaM business and
currently the VPPA does not contain that definition. So if the bill is to move forward,
those type of amendments would need to happen, said Gill. Gill stated that the intent as
she understood it, was that it was a small business enhancement plan, as opposed to doing
anything specific for women or minority businesses.

Schultz followed up that in regard to the definition in the bill, she said it could be added
but does not appear to be any different than the definition of SWaM, so adding that into
the procurement code is a decision that will need to be made on whether it is necessary.

Gill said that an appropriate recommendation would be for the General Assembly to
consider if reintroducing the bill, that they address the technical amendments to remove
potential interpretation conflicts of definitions.

Schultz responded that as technical amendments, she could go ahead and make those
changes to make those definitions between the VPPA and DSBSD terms the same, and
she thinks it would be a good idea.

Gill asked if there were any other amendments. Heslinga responded that he would
recommend that we consider that future changes/legislation continue to take into account
the differences between state agencies and their procurements. We have seen in the
JLARC report that it is significant, he said.

Gill restated his thoughts asking, “the General Assembly should consider setting a goal in
code and providing clarity if it is a Commonwealth goal or an agency goal and base it on
the commodities that they buy?”

Heslinga said that the federal government does it by agency and that different states also
have different ways to do it. He said the phrasing he would use is, “future SWaM
legislation take into account differences between state agencies and what they procure.”
Gill added, “and the commodities.”

Schultz suggested that the new division being set up in this bill would perhaps be a good
place to include this language.

Patti Innocenti pointed out that in enactment clause 3, it requires DGS to provide
recommendations prior to the delivery to the disparity study, and she suggested altering
the timing of that so that the disparity study could influence the recommendations. Gill
suggested doing a similar recommendation as was just done for HB 1524.

Kim Dulaney pointed out that the fiscal impact of higher education was not taken into
consideration, and she would like to see it be considered. So, one of the recommendations
should be to review the fiscal impacts to higher education since they will be included in
the bill, confirmed Gill. Mike Tweedy added that maybe the recommendation is a request
that DPB gather information from the institutions with fiscal impact.

Gill followed up with Dulaney asking her to provide the fiscal impact to us, so we can
include it as an attachment and use it to draft the recommendation language.
IX. Discussion

No additional discussion.

X. Adjournment

Gill adjourned the meeting at 1:50 p.m. and noted that the Workgroup’s next and final
meeting is scheduled for Wednesday, November 6 at 1 p.m. in the same location.

For more information, see the Workgroup’s website or contact that Workgroup’s staff at

pwg@dgs.virginia.gov.
Appendix G: November 6, 2024, Meeting Materials

This appendix contains the meeting materials from the November 6, 2024, Workgroup meeting.
1. Agenda
2. Meeting Materials
a. HB 1404 Final Recommendations
3. Approved Meeting Minutes

24
Public Body Procurement Workgroup

https://dgs. virginia. gov/dgs/directors-office/pwg/

Meeting #8
Wednesday, November 6, 2024, 1:00 p.m.
House South Subcommittee Room, 2” floor
General Assembly Building
201 North 9" Street, Richmond, Virginia 23219

II.

IV.

V.

VI.

VII.

Department of General Services

AGENDA
Call to Order; Remarks by Chair
Approval of Meeting Minutes from the October 22, 2024, Workgroup Meeting
Public Comment on HB 1524
Finalize Recommendations on HB 1524
Public Comment on HB 1404
Finalize Recommendations for HB 1404
Discussion
Adjournment

Members

Virginia Information Technologies Agency Virginia Department of Transportation

Department of Planning and Budget

Virginia Association of State Colleges and
University Purchasing Professionals

Representatives
Office of the Attorney General House Appropriations Committee
Senate Finance Committee Division of Legislative Services
Staff

Killeen Wells, Deputy Director of Communications, DGS
Kimberly Freiberger, Legislative Analyst, DGS

Department of Small Business and Supplier Diversity

Virginia Association of Govemment Purchasing
Public Body Procurement Workgroup
Recommendations for HB 1404

Recommendation 1: The Workgroup recommends that the General Assembly consider not
reenacting Chapter 834 enacting Clause 1 in the upcoming session and consider a section
1 bill to require the Virginia Department of Small Business and Supplier Diversity to report
on December 1, 2026, on the outcome of the disparity study currently being performed as
required by 2024 Acts of Assembly Chapter 834 enacting Clause 4. This disparity study
differs from previous studies in that it expanded to study the availability and utilization of
small and micro-owned businesses in addition to previously studied women-owned and
minority-owned businesses. It also specifically looks at the utilization and differences
between categories of state procurement, such as by the types of goods and services
needed or procured by state agencies.

Recommendation 2: The Workgroup recommends that the General Assembly consider
directing a study of the small business definition before codifying any enhancement plan.
The Workgroup further suggests that the General Assembly direct the study to be based
explicitly on Virginia business with the intent of benefiting Virginia businesses, similar to
the policy the state of Maryland implemented. Additionally, the General Assembly, as part
of the study, could consider directing Virginia Department of Small Business and Supplier
Diversity, in collaboration with the Department of General Services, Virginia Information
Technologies Agency and Virginia Department of Transportation, to review the DSBSD
certification processes, including outreach practices. Finally, the Workgroup recommends
that the General Assembly consider incorporating this recommendation into the disparity
study report.

Recommendation 3: The Workgroup recommends that the General Assembly consider not
codifying a goal for the utilization rate of small SWaM businesses. An accurate goal for
utilization cannot be set until the current disparity study is complete. The study being
performed should provide data by commodity, detailing availability, participation and
utilization. This will enable the Commonwealth of Virginia to establish a more appropriate
goal. Additionally, if the General Assembly studies and changes the definition of a small
business, the goal will need to be reevaluated once it is implemented.

Recommendation 4: The Workgroup recommends that if the General Assembly intends to
reenact Clause 1, then the General Assembly may consider technical amendments to
address the concerns mentioned in the Workgroup meetings. Items discussed included
confusion over terminology and conflicts with existing definitions found in the Virginia
Public Procurement Act.
DRAFT Meeting Minutes

Public Body Procurement Workgroup

Meeting #8
Tuesday, November 6, 2024, 1:00 p.m.
House South Subcommittee Room, 2™ floor
General Assembly Building
201 North 9 Street, Richmond, Virginia 23219

http://das. virginia. gov/dys/directors-office/pwe,

The Public Body Procurement Workgroup (the Workgroup) met in person in the House South
Subcommittee Room in the General Assembly Building in Richmond, Virginia, with Sandra
Gill, Deputy Director of the Department of General Services (DGS), presiding. The meeting
included with approval of the previous meeting minutes, Workgroup discussion on
recommendations for HB 1524, voting on two recommendations for HB 1524, Workgroup
discussion on recommendations for HB 1404, voting on recommendations for HB 1404, and
public commentary about the Workgroup’s recommendations on HB 1404. Materials presented
at the meeting are available through the Workeroup’s website.

Workgroup members and representatives present at the meeting included Sandra Gill
(Department of General Services), Dr. Jo’ Wanda Rollins-Fells (Department of Small Business
and Supplier Diversity), Joshua Heslinga (Virginia Information Technologies Agency), Lisa
Pride (Virginia Department of Transportation), Charles Quagliato (Department of General
Services), Patricia Innocenti (Virginia Association of Governmental Procurement), Kimberly
Dulaney (Virginia Association of State Colleges and University Purchasing Professionals), Mike
Tweedy (Senate Finance and Appropriations), Leslie Allen (Office of the Attorney General), and
Rebecca Schultz (Division of Legislative Services).

I. Call to Order; Remarks by Chair

Gill called the meeting to order at 1:01 p.m. and moved into the second agenda item.

II. Approval of Meeting Minutes from the October 22, 2024, Workgroup Meeting

Kimberly Dulaney commented that on the fiscal impact for higher education mentioned
in the meeting minutes. She said she assumed there was information available on that
topic, but there was not. So, she will not be providing that information.
Hl.

lV

Vi.

Kimberly Dulaney made a motion to approve the meeting minutes from the October 22,
2024, meeting of the Workgroup. The motion was seconded by Lisa Pride and
unanimously approved by the Workgroup.

Public Comment on HB 1524

There was no public comment on HB 1524.

Finalize Recommendations on HB 1524

Sandra Gill directed the Workgroup members’ attention to the drafted recommendations
provided in their meeting materials packets and asked staff member Killeen Wells to read
the first of the two recommendations drafted.

Wells read draft Recommendation 2 for HB 1524 aloud: “The Workgroup recommends
that the General Assembly may consider continuing the current tax credit until VDOT
completes its pending pilot studies in 2026 and reports on those pilot studies.” Gill asked
if there were any edits or changes to the recommendation and Heslinga pointed out that
the “may” was superfluous. Staff struck the “may” wording from the recommendation.
The Workgroup voted in favor of the recommendation, 6-0, with DPB absent.

Wells read draft Recommendation 3 for HB 1524 aloud: “The Workgroup recommends
that the General Assembly consider implementing any altered or expanded tax credit
language, including RAP in-place equipment, to coincide with any changes that may be
made after the completion of the pilot studies.” The Workgroup voted in favor of the
recommendation, 6-0, with DPB absent.

Gill thanked everyone in the Workgroup and all stakeholders who presented on HB 1524.

Public Comment on HB 1404
Gill announced the Workgroup would move into public comment for HB 1404.

Local businesswoman Melissa Ball thanked the Workgroup for their efforts on HB 1404.
She urged the Workgroup to consider using the federal small business standard in
Virginia. She explained that the federal size standards are based on number of employees
or revenue based on the category. She said in Virginia, her business is not able to
participate under the Virginia categories. She thinks the federal standards will provide
more economic development and inclusivity of the minority and women-owned
businesses that have been excluded.

Finalize Recommendations for HB 1404
Gill prefaced the finalization of recommendations of HB 1404 by saying that the
Workgroup developed draft recommendations over the past two weeks via email
exchange. She invited discussion of the recommendations.

Josh Heslinga pointed out a superfluous comment in the fourth line from the bottom of
the first recommendation. Staff struck out this comma.

Lisa Pride asked if the Workgroup needed to provide clarity to the General Assembly on
the benefits mentioned in Recommendation 2 of HB 1404. Gill explained that Verniece
Love will provide additional information on the Maryland study and that information will
be incorporated in.

Wells read Recommendation | aloud: “The Workgroup recommends that the General
Assembly consider not reenacting Chapter 834 enacting Clause 1 in the upcoming session
and consider a section | bill to require the Virginia Department of Small Business and
Supplier Diversity to report on December 1, 2026, on the outcome of the disparity study
currently being performed as required by 2024 Acts of Assembly Chapter 834 enacting
Clause 4. This disparity study differs from previous studies in that it expanded to study
the availability and utilization of small and micro-owned businesses in addition to
previously studied women-owned and minority-owned businesses. It also specifically
looks at the utilization and differences between categories of state procurement, such as
by the types of goods and services needed or procured by state agencies.” The
Workgroup voted in support of the recommendation, 6-0 with DBP absent.

Well read Recommendation 2 aloud: “The Workgroup recommends that the General
Assembly consider directing a study of the small business definition before codifying any
enhancement plan. The Workgroup further suggests that the General Assembly direct the
study to be based explicitly on Virginia business with the intent of benefiting Virginia
businesses, similar to the policy the state of Maryland implemented. Additionally, the
General Assembly, as part of the study, could consider directing Virginia Department of
Small Business and Supplier Diversity, in collaboration with the Department of General
Services, Virginia Information Technologies Agency and Virginia Department of
Transportation, to review the DSBSD certification processes, including outreach
practices. Finally, the Workgroup recommends that the General Assembly consider
incorporating this recommendation into the disparity study report.” The Workgroup voted
in support of the recommendation, 6-0 with DPB absent.

Wells read Recommendation 3 aloud: “The Workgroup recommends that the General
Assembly consider not codifying a goal for the utilization rate of small SWaM
businesses. An accurate goal for utilization cannot be set until the current disparity study
is complete. The study being performed should provide data by commodity, detailing
availability, participation and utilization. This will enable the Commonwealth of Virginia
to establish a more appropriate goal. Additionally, if the General Assembly studies and
changes the definition of a small business, the goal will need to be reevaluated once it is
Vil.

implemented.” The Workgroup voted in support of the recommendation, 6-0 with DPB
absent.

Wells read Recommendation 4 aloud: “The Workgroup recommends that if the General
Assembly intends to reenact Clause 1, then the General Assembly may consider technical
amendments to address the concerns mentioned in the Workgroup meetings. Items
discussed included confusion over terminology and conflicts with existing definitions
found in the Virginia Public Procurement Act.” The Workgroup voted in support of the
recommendation, 6-0 with DPB absent.

Discussion

Gwendolyn Davis spoke to the Workgroup’s approved recommendations for HB 1404.
She said these recommendations are asking women and minority-owned businesses to
wait again. She explained that the state has already commissioned multiple disparity
studies, and they all say the same thing. Davis said they don’t think the recommendations
are fair. She said that the 42% number was based on what agencies recommended and the
disparity studies. She furthered that the definition of small business has nothing to do
with the bill. She continued that women and minority-businesses should have the same
opportunities as other businesses and these recommendations do not help them. She
finished with saying she hoped the recommendations will be reconsidered.

Adjournment

Gill adjourned the meeting at 1:20 p.m. She thanked the Workgroup members and staff
for their time and resources.

For more information, see the Workgroup’s website or contact that Workgroup’s staff at

pwg@dgs.virginia. gov.


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