City Council
December 3, 2024
AGENDA REPORT
TO: Honorable Mayor & City Council FROM: Councilmember Carroll Fife Council District 3
SUBJECT: Amending L/SLBE Program
Certification Requirements
DATE: November 21, 2024
RECOMMENDATION
Councilmember Fife Recommends That The City Council Adopts An Ordinance Amending Oakland’s Local And Small Local Business Enterprise (L/SLBE) Program (Ordinance No. 13814 C.M.S.) To Amend Certification Requirements In Response To The Needs Of Oakland’s Business Community, Including But Not Limited To (1) Removal Of Headquarter Requirements; (2) Modification Of The Definition Of “Substantial Presence”; And (3) Clarifying Amendments For Program Administration, As Set Forth In Exhibit 1 Attached Hereto
EXECUTIVE SUMMARY
The City’s Local and Small Local Business Enterprise (“L/SLBE”) Program was established in 2001 to support and build Oakland’s small business community . The Program has since been amended several times to better meet its intended goals and objectives, including creating greater economic opportunities for residents and businesses by providing City contract bidding opportunities, especially for those that have been placed at a disadvantage in the past . While the City has taken great strides, small businesses, particularly minority contractors, have shared that the L/SLBE Program’s current headquarters requirement and definition of “substantial presence” is restrictive, limiting business growth and access to diverse contracting opportunities outside of the City of Oakland. Local Business Ente rprises (LBEs), particularly small and midsized LBEs, have shared that despite having an Office in Oakland for several years, they cannot compete for City contracts because they do not have 20% of their company-wide workforce, or 50 employees, working out of their Oakland Office. To address these concerns, incentivize more businesses to (re)locate operations to Oakland, expand the pool of qualified L/SLBE businesses, and to foster small business growth and expansion of contracting opportunities , this Ordinance would amend Ordinance 13814 C.M.S. to remove the headquarter requirement s from the SLBE, VS LBE, NFP/SLBE, and SBA-LBE certification categories ; (2) modify the definitions of “substantial presence” and “office”; and (3) clarify amendments for program administration.
Honorable Mayor & City Council
Subject: Amending L/SLBE Program Certification Requirements Date: November 21, 2024 Page 2
City Council
December 3, 2024
BACKGROUND / LEGISLATIVE HISTORY
On December 18, 2001, the City Council adopted Ordinance No. 12389 C.M.S., which authorized Oakland’s Local and Small Business Enterprise (L/SLBE) Program. Ten years later, on December 20, 2011, the City Council adopted Ordinance No. 13101 C.M.S. amending Ordinance No. 12389 C.M.S., to, among other things, change business size standards for small local business enterprises (SLBEs).
The L/SLBE program was put in place with the intent of equitable contracting practices to ensure more small, local business participation to provide greater economic opportunities, stimulate economic development, and to strengthen the Oakland economy. However, the 2017 Draft Disparity Study, which analyzed the City’s contracting practices from 2011 through 2016, found the Local Business Enterprise -certified African American businesses lost $42.9 million in City contracts during the study period. Furthermore , African Americans comprising 16.51% of available businesses in construction, were awarded only .32% of contracts by percent of dollars.
On February 24, 2021, the City Council adopted Ordinance No. 13640 C.M.S., which, among other adjustments to the Local and Small Local Business Enterprise (L/SLBE) Program, amended local business certification criteria. The most notable change to L/SLBE ce rtification criteria included further defining “substantial presence” to include an Oakland headquarters requirement or a substantial employment impact in Oakland demonstrated by having either twenty percent (20%) of the total company workforce, or a minimum of 50 employees working in Oakland.
On May 4, 2021, the City Council adopted Ordinance No. 13647 C.M.S., which further amended the L/SLBE program for clarity and consistency. In implementing the new certification criteria pursuant to Ordinance No. 13647 C.M.S., staff discovered inconsistencies in the L/SLBE program certification provisions. These clerical errors, led to the denial of new LBE certification and LBE certification renewal applications for all firms not headquartered in Oakland. To address these concerns, Council adopted Ordinance No. 13814 C.M.S. on October 1, 2024, amending Ordinance No. 13647 C.M.S. to make revisions and corrections to the certification requirements in Oakland’s L/SLBE Program.
These various amendments to the Program over the years show that this is inte nded to be a responsive program that takes into consideration and addresses the concerns of small business community as they arise. With the understanding that addressing disparities and creating opportunities for more businesses is imperative , continuing to refine the Program is critical to helping firms adapt to an ever challenging economic and business environment.
Honorable Mayor & City Council
Subject: Amending L/SLBE Program Certification Requirements Date: November 21, 2024 Page 3
City Council
December 3, 2024
ANALYSIS
Over the years, the City has had extensive stakeholder engagement around possible amendments to L/SLBE Program, including two years of meetings through the Contracting Disparity Action Team (CDAT), a survey designed to inform CDAT discussions, a townhall listening session, focus groups, targeted interviews, and numerous formal/informal complaints. Furthermore, the District 3 Councilmember has had on -going conversation with small firms, particularly minority contractors to ascertain ways to improve the L/SLBE Program. The proposed revisions are responsive to recent feedback from numerous businesses that have expressed concerns with both the headquarters requirement and the definition of “substantial presence” as captured in the City’s current L/SLBE Program certification criteria, shown in Table 1 below.
TABLE 1: CITY’S CURRENT L/SLBE PROGRAM CERTIFICATION CRITERIA Certification Categories Certification Criteria
1. LBE:
Local Business Enterprise
1. Must have a substantial presence in the Oakland
geographic region as defined by:
a. Headquartered (Primary Office location) within
the Oakland geographic region (City of
Oakland); or
b. Either twenty percent (20%) of the total
company workforce or a minimum of 50
employees must work in the Oakland office; or
c. Headquarters must be located in a commercial
office with a lease agreement signed 12-months
prior to submitting the certification application;
or
d. home-based office whereby a valid business tax
certificate is in place 12 months prior to
submitting the certification application.
(Additional minimum certification criteria: Fixed
Home-based offices should have the owner(s) residence
as the business' sole headquarters);
2. Fully operational with a valid business tax certificate for at least twelve (12) consecutive months;
3. Operations and employees must occur in fixed office
space;
4. Current permits, and current on fines and fees owed;
5. Valid documents certifying business operations ( i.e. contracts, bills, etc.)
6. Registration in the City’s iSupplier system.
Honorable Mayor & City Council
Subject: Amending L/SLBE Program Certification Requirements Date: November 21, 2024 Page 4
City Council
December 3, 2024
Please Note Temporary Provision for Local Certified firms impacted by COVID-19:
To the extent that Local Certified Firms were impacted by COVID, including if, operating offices were closed, and functions moved to home offices, local Oakland certified firms’ certification status will be reenacted. This exception shall be valid up to si x months after Oakland’s local state of emergency is removed.
2. SLBE
Small Local Business Enterprise
1. Last most recent three years of tax returns.
2. Three-year average gross receipts must fall at or below 20% of the SBA’s size standard for the relevant industry sector.
3. Headquartered in Oakland or Home-based office
whereby a valid business tax certificate is in place 12 months prior to submitting the certification application. (Additional minimum certification criteria: Fixed
Home based offices should have the owner(s) residence
as the business' sole headquarters);
4. Fully operational with a valid business tax certificate for at least twelve (12) consecutive months;
5. Operations and employees in fixed office space;
6. Current permits, fines and fees;
7. Valid documents certifying business operations (e.g. contracts, bills, etc.)
8. Registration in the City's iSupplier system.
3. VSLBE
Very Small Local Business
Enterprise
Same as SLBE certification criteria, plus,
1. Fully operational for six consecutive months.
2. Average annual gross receipts at or below $375,000.
3. Headquartered in Oakland.
4. LPG /LBE
Locally Produced Goods/LBE
Same as LBE certification criteria, plus:
1. Business must manufacture goods within the Oakland
geographic boundaries.
2. Business must present proof of sales.
3. Business must possess the current permit and license(s) required to conduct a manufacturing operation in an area zoned as industrial.
5. NFP/LBE
Not for Profit Local Business
Enterprise
Same as LBE certification criteria, plus:
1. Business must produce documentation of non-profit
status.
6. NFP/SLBE
Not for Profit Small Local
Business Enterprise
Same as SLBE certification criteria, plus:
1. Business must produce documentation of non-profit
status.
7. SBA-LBE Same as LBE certification criteria, plus:
Honorable Mayor & City Council
Subject: Amending L/SLBE Program Certification Requirements Date: November 21, 2024 Page 5
City Council
December 3, 2024
Small Business Administration-
Local Business Enterprise
1. Satisfies the size standard as published by the Small Business Administration’s (SBA) definition of a “small
business.”
2. Headquartered in Oakland.
In response to the concerns raised by the L/SLBE community, the proposed changes, as shown in Table 2, remove headquarter requirements from the SLBE, VSLBE, NFP/SLBE, SBA-LBE categories and modifies the definition of substantial presence. Furthermore, for simplicity and clarity, the amendments also include moving “additional minimum certification criteria” from this section of the L/SLBE program manual to the glossary as part of the substantial presence definition. Finally, the COVID-19 provision in the LBE criteria, which is tied to Oakland’s local state of emergency, is removed because the local state of emergency is no longer in effect. The substantive amendments being proposed are shown in the attachment labeled “L/SLBE Program Manual Amendments with Redlines.”
TABLE 2: PROPOSED AMENDED CERTIFICATION CRITERIA
Certification Categories Certification Criteria
1. LBE:
Local Business Enterprise
1. Must have a substantial presence in the Oakland
geographic region as defined by:
a. A commercial office location within the Oakland
geographic region (City of Oakland).
a. An office space owned or leased by the local
business, in an established, non-portable building
where work is carried on of a clerical,
administrative, and professional or production
nature directly pertinent to the business being
certified. A temporary location, or movable
property, or one that was established to oversee a
project such as a construction project office does
not qualify.
b. If the office space is owned by the business, the
business must submit documentation showing
ownership for at least 12-months prior to
submitting the certification application.
c. If the office space is leased, the business must
submit a lease agreement signed at least 12-
months prior to submitting the certification
application.
d. The business must have a valid City of Oakland
business tax certificate and have been fully
operational in the City of Oakland for at least 12
consecutive months prior to submitting the
certification application.
Honorable Mayor & City Council
Subject: Amending L/SLBE Program Certification Requirements Date: November 21, 2024 Page 6
City Council
December 3, 2024
OR
b. A home-based office location within the Oakland
geographic region (City of Oakland).
e. A residence where regular work is carried on of
a clerical, administrative, and professional or
production nature directly pertinent to the
business being certified. The residence must be
where employee(s) physically work and manage
the business operations.
f. The home-based office must be the business
owner’s primary residence, as shown on federal
tax returns, Voter Registration Card, or other
supporting documents.
g. The home-based office must be the business’s
center of operation, as shown on federal tax
returns or billing documents.
h. The business must have a valid City of Oakland
business tax certificate and have been fully
operational in the City of Oakland for at least 12
consecutive months prior to submitting the
certification application.
2. Current permits, and current on fines and fees owed;
3. Valid documents certifying business operations (i.e. contracts, bills, etc.)
2. SLBE
Small Local Business Enterprise
Same as LBE certification criteria, plus:
1. Last most recent three years of tax returns.
2. Three-year average gross receipts must fall at or below 20% of the SBA’s size standard for the relevant industry sector.
3. VSLBE
Very Small Local Business
Enterprise
Same as SLBE certification criteria, except:
1. Fully operational for six consecutive months.
2. Average annual gross receipts at or below $375,000.
4. VSLBE
Very Small Local Business
Enterprise
Same as LBE certification criteria, plus:
1. Business must manufacture goods within the Oakland
geographic boundaries.
2. Business must present proof of sales.
3. Business must possess the current permit and license(s) required to conduct a manufacturing operation in an area zoned as industrial.
5. NFP/LBE
Not for Profit Local Business
Enterprise
Same as LBE certification criteria, plus:
1. Business must produce documentation of non-profit
status.
Honorable Mayor & City Council
Subject: Amending L/SLBE Program Certification Requirements Date: November 21, 2024 Page 7
City Council
December 3, 2024
6. NFP/SLBE
Not for Profit Small Local
Business Enterprise
Same as SLBE certification criteria, plus:
1. Business must produce documentation of non-profit
status.
Updated Definition of Substantial Presence
As proposed, substantial presence in the Oakland geographic region is defined by the existence of a bona fide local office in accordance with the following criteria:
1) A commercial office location within the Oakland geographic region (City of Oakland). a. An office space owned or leased by the local business, in an established, non - portable building where work is carried on of a clerical, administrative, and professional or production nature directly pertinent to the business being certified.
A temporary location, or movable property, or one that was established to oversee a project such as a construction project office does not qualify. b. If the office space is owned by the business, the business must submit documentation showing ownership for at least 12 -months prior to submitting the certification application.
c. If the office space is leased, the business must submit a lease agreement signed at least 12-months prior to submitting the certification application. d. The business must have a valid City of Oakland business tax certificate and have been fully operational in the City of Oakland for at least 12 consecutive months prior to submitting the certification application.
OR
2) A home-based office location within the Oakland geographic region (City of Oakland). a. A residence where regular work is carried on of a clerical, administrative, and professional or production nature directly pertinent to the business being certified.
The residence must be where employee(s) physically work and manage the business operations.
b. The home-based office must be the business owner’s primary residence, as shown on federal tax returns, Voter Registration Card, or other supporting documents. c. The home-based office must be the business’ s center of operation, as shown on federal tax returns or billing documents.
d. The business must have a valid City of Oakland business tax certificate and have been fully operational in the City of Oakland for at least 12 consecutive months prior to submitting the certification application.
Additionally, for purposes of both commercial and home-based local offices, substantial presence is further clarified as follows:
Honorable Mayor & City Council
Subject: Amending L/SLBE Program Certification Requirements Date: November 21, 2024 Page 8
City Council
December 3, 2024
• The local office is not merely a sham operation set up by a non-local business for the purpose of gaining L/SLBE certification.
• The local office contains all fixtures and/or equipment, including but not limited to, as appropriate, computer(s), software, copy machine(s), furniture, vehicle(s), tools, appliances and/or machinery necessary to operate the business for which the certification is sought.
• The local office contains all space necessary to operate the business for which certification is sought, including but not limited to, as appropriate, office space, warehouse space, parking, yard area and/or shop area.
• The local office must be the main office for assigned personnel who conduct a full range of the business’ activities out of the local office, including but not limited to, as appropriate, professional, clerical and/or administrative staff assigned and dedicated to the local office, as necessary, to operate the business for which certification is sought.
• An arrangement for the right to use office space in the City of Oakland on an “as needed” basis where there is no office exclusively reserved for the business does not qualify as substantial presence.
A fixed distribution point may qualify if it is a non -portable warehouse or an outside shipping yard owned or leased by the local business, where shipping, receiving and the owner and employees regularly and exclusively conduct distribution of goods and commodities on behalf of the business.
These proposed amendments are intended to maximize opportunities for the City’s L/SLBE businesses both in the City of Oakland and in surrounding jurisdictions. Small businesses, particularly minority contractors, continue to have very limited resources , and these proposed changes are structured to encourage business growth by increasing access to diverse contracting opportunities wherever the City’s businesses can be competitive. Construction work, in particular, is transient , and small businesses , just like larger businesses, need access to contracting opportunities in the broader region in order to succeed.
Requiring an “office” in Oakland ensures businesses maintain substantial presence in the City, while also incentivizing businesses to locate operations in Oakland in order to compete for City contracts. In addition to facilitating healthy competition and high quality goods and services for the City, the proposed changes will increase the overall L/SLBE pool , create additional job opportunities, and stimulate the local economy.
The proposed amendments will also provide clarity to help the efficiency of program administration, including removal of outdated language regarding the legislative history of the program, removing references to outdated contracting requirements and forms, and authorizing the City Administrator or designee to adopt rules and regulations consistent with and necessary for the implementation of the program
DWES has confirmed their ability to operationalize these amendments and closely monitor the impact of these changes and will provide a full report and recommendations to the City Council one year after the new Program is effective, in January 2026.
Honorable Mayor & City Council
Subject: Amending L/SLBE Program Certification Requirements Date: November 21, 2024 Page 9
City Council
December 3, 2024
FISCAL IMPACT
This Ordinance has no anticipated fiscal impact.
PUBLIC OUTREACH / INTEREST
As mentioned above, The District 3 Office as well as DWES have had on-going communication with small businesses , particularly minority contractors regarding proposed amendments to the L/SLBE certification criteria. This proposal is drafted to address the needs expressed by these businesses.
COORDINATION
This legislation was drafted in collaboration with the Department of Workplace and Employment Standards (DWES) and Office of the City Attorney.
SUSTAINABLE OPPORTUNITIES
Economic: The proposed changes will help to expand opportunities for more small, local businesses to participate in the City’s procurement process, which in turn revitalize the local and reginal economy.
Environmental: There are no direct environmental impacts associated with this proposal.
Race & Equity: The majority of the City’s certified L/SLBE firms are minority -owned. These changes are intended to support these existing minority -owned firms by creating more opportunities to succeed in public sector contracting both in the City of Oakland and other jurisdictions.
Honorable Mayor & City Council
Subject: Amending L/SLBE Program Certification Requirements Date: November 21, 2024 Page 10
City Council
December 3, 2024
ACTION REQUESTED OF THE CITY COUNCIL
Councilmember Fife recommends that the City Council adopt an Ordinance Amending Oakland’s Local And Small Local Business Enterprise (L/SLBE) Program (Ordinance No. 13814 C.M.S.) To Amend Certification Requirements In Response To The Needs Of Oakland’s Business Community, Including But Not Limited To (1) Removal Of Headquarter Requirements; (2) Modification Of The Definition Of “Substantial Presence”; And (3) Clarifying Amendments For Program Administration, As Set Forth In Exhibit 1 Attached Hereto.
For questions regarding this report, please contact Rediat Bayeh, Policy Director for Councilmember Fife, at [email protected].
Respectfully submitted,
Councilmember Carroll Fife
District 3