75B - LOCAL BUSINESS PREFERENCE ORDINANC

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Local Business Preference Ordinance March 5, 2012 Page 2 A Study in Phoenix, Arizona by the economic consulting firm Civic Economics found that when using a local vendor, 33.4 percent of the total contract revenue remained in the community compared to only 11.6 percent when using a national vendor'. Fora $100,000 contract, this results in an additional $21,800 dollars staying in the local economy in addition to the initial contract amount. A similar study from Austin, Texas found that for every $100 dollars spent locally, $45 dollars remained in the local economy, compared to only $13 dollars spent at a "big box" vendor2. Another study by the Center for Economic Research and Education of Central California found in the City of Fresno that while the proposed local preference program would cost the City $243,565 in higher contract amounts, it would result in over $3.3 million dollars in output via multiplier effects in the community3. 3. Induced effects - Induced effects are the increases in household income as a result of both the direct and indirect effects. Increases in household income have been found to modify spending patterns and increase consumption. In these ways, the benefits to the City of awarding a contract to a local business extend beyond the value of the initial contract. While the exact value of multiplier effects are difficult to predict, various studies regarding local sourcing of materials, supplies and services have found a consistent increase in the amount of money that remains in the local economy when a local vendor is utilized. This increase in money has also been correlated with increases in employment, as well as taxable transactions for the City. The City has for many years used a one percent bid preference for Santa Ana businesses. The rationale for this preference is that the City receives one percent of the sales tax captured on taxable sales, which offsets the costs. Recent analysis by the Finance and Management Services Agency indicates, however, that this preference amount has had little or no effect on the actual number of Santa Ana businesses becoming the lowest bidder and thus being awarded City contracts. DISCUSSION Sections 421 and 422 of the City's Charter outline purchasing regulations and requirements for Public Works and Non-Public Works contracts and thus structure how local preference can be implemented (Exhibit 1). A review of the City's charter language by the City Attorney's Office has concluded that local preference may not be given for Public Works construction involving "the erection or improvement of public buildings, streets, drains, sewers or parks." Contracts involving maintenance and repair of these facilities would be eligible for a preference. In addition to charter restrictions, several funding sources including Caltrans, HUD, State and Federal grants contain language that precludes the use of a local preference. Given these limitations, the proposed local preference program will apply to all contracts and bids not otherwise restricted by the funding source, the City charter, State or Federal law. 1 Dan Houston, "Procurement Matters: The Economic Impact of Local Suppliers," Civic Economics (November 2007). 2 Dan Houston and Dr. Michael Oden, "Big Box Retail and Austin: An Independent Review," Civic Economics (October 2004) 3 Dr. Antonio Avalos and Dr. Edward Birdyshaw, "Assessing the Economic Impact of a Local Preference Ordinance in the City of Fresno," Center for Economic Research and Education of Central California (January 2007). 75B-2