BILL ANALYSIS Senate Appropriations Committee Fiscal Summary Senator Christine Kehoe, Chair 392 (Florez) Hearing Date: 5/11/2009 Amended: 4/21/2009 Consultant: Bob Franzoia Policy Vote: Jud 5-0 BP&ED 8-0 _________________________________________________________________ ____ BILL SUMMARY: SB 392 would authorize a limited liability company (LLC) to render contractor's services. This bill would require a contractor LLC to maintain a specified insurance policy or place on deposit or escrow specified amounts. Because this bill would impose various fees on LLCs that apply for and obtain a contractor's license, this bill would increase the amount of revenue deposited in the Contractors' License Fund, thereby making an appropriation. The provisions of this bill would become operative on January 1, 2011. _________________________________________________________________ ____ Fiscal Impact (in thousands) Major Provisions 2009-10 2010-11 2011-12 Fund LLC contractor licensing $5,397 $5,295Special* option License fees ($14,000) ($14,000) Special* Secretary of State Unknown costs; supported by existing reg-General Istration process * Contractors' License Fund _________________________________________________________________ ____ STAFF COMMENTS: Current law prohibits a LLC from rendering professional services unless expressly authorized in statute. A LLC combines the limited liability protections afforded to corporations with the favorable tax advantages of partnerships. Under current law, a corporate contractor license is renewed biennially at a cost of $300. This analysis assumes those renewals would instead be processed as the new LLC licenses. The timing of the transition from license renewal to license application and issuance may create problem between the new workload associated with processing the LLC licenses and cash flow from the LLC license revenues. This analysis estimates the decrease in corporate licenses and a reduction in associated workload and the increase in LLC licensing and the higher licenses fees will fully offset any one time or ongoing costs. The Registrar of Contractors has the responsibility for receiving evidence of security for claims. That security is: (1) Liability insurance of not less than $1,000,000. (2) Maintain in trust or bank escrow, cash, bank certificates of deposit, US Treasury obligations, bank letters of credit, or bonds of insurance or surety companies for payment of liabilities of not less than $500,000. (3) A combination of 1 and 2. Page 2 SB 392 (Florez) The cost to process and maintain the liability policies is unknown and not reflected in the costs noted above. The CSLB is estimating it would charge current application and issuance fees ($250 application fee and $150 issuance fee) for each application submitted for an LLC license. As of May 1, 2009, the CSLB has more than 72,000 active corporate contractor's licenses. Estimating that 70,000 corporate contractor's licenses would want to convert to LLC licenses during the next two year license renewal period, revenues would $14,000,000 in 2010-11 and in 2011-12. Revenues would decrease to $10,500,000 annually beginning 2012-13.