BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      



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          |SENATE RULES COMMITTEE            |                   AB 766|
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                                 THIRD READING


          Bill No:  AB 766
          Author:   Monning (D), et al.
          Amended:  4/26/11 in Assembly
          Vote:     21

           
           SENATE LABOR & INDUSTRIAL RELATIONS COMM  :  6-0, 06/08/11
          AYES:  Lieu, Wyland, DeSaulnier, Leno, Runner, Yee
          NO VOTE RECORDED:  Padilla

           ASSEMBLY FLOOR  :  65-8, 05/19/11 - See last page for vote


           SUBJECT  :    Public works:  payroll records

           SOURCE  :     Author


           DIGEST  :    This bill requires that the payroll records that 
          each contractor and subcontractor makes available for 
          inspection to specified entities be exempt from the 
          requirement that certain personal identification 
          information be removed.  Specifically, this bill requires 
          that payroll records provided to the following agencies not 
          be marked or obliterated to prevent disclosure of an 
          individual's name, address, and social security number:  
          (1) an agency of the Joint Enforcement Strike Force on the 
          Underground Economy; (2) a law enforcement agency 
          investigating a violation of law by the awarding body; (3) 
          the Division of Apprenticeship Standard; and (4) the 
          Division of Labor Standards Enforcement. 

           ANALYSIS  :    Under existing law, workers employed by 
                                                           CONTINUED





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          contractors or subcontractors in the execution of public 
          works contracts over $1000 must be paid the 
          state-determined prevailing wage.  The Division of Labor 
          Standards Enforcement within the Department of Industrial 
          Relations is the government agency primarily responsible 
          for the enforcement of prevailing wage requirements on 
          California public works projects.  

          Existing law requires each contractor and subcontractor 
          performing work on a public works project to keep accurate 
          payroll record showing the name, address, social security 
          number, work classification, straight time and overtime 
          hours worked each day and week, and the actual per diem 
          wages paid to each journeyman, apprentice, worker, or other 
          employee.  Among other things, existing law regarding 
          payroll records does the following: 

          1.Authorizes various individuals and entities, including 
            representatives from the Division of Labor Standards 
            Enforcement and the Division of Apprenticeship Standards 
            of the Department of Industrial Relations, to inspect 
            certified copies of such records under certain 
            conditions.

          2.Requires that any copy of such records made available to 
            the public or a public agency must be marked or 
            obliterated to prevent disclosure of an individual's 
            name, address and social security number.  The name and 
            address of the contractor awarded the contract or the 
            subcontractor performing the contract shall not be marked 
            or obliterated.

          This bill requires that the payroll records that each 
          contractor and subcontractor makes available for inspection 
          to specified entities be exempt from the requirement that 
          certain personal identification information be removed.  

          Specifically, this bill requires that payroll records 
          provided to the following agencies not be marked or 
          obliterated to prevent disclosure of an individual's name, 
          address, and social security number:

          1.An agency of the Joint Enforcement Strike Force on the 
            Underground Economy;







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          2.A law enforcement agency investigating a violation of law 
            by the awarding body;
          3.The Division of Apprenticeship Standard; and
          4.The Division of Labor Standards Enforcement. 

           Background
           
          In October 1993, Executive Order W-66-93 was issued 
          establishing the Joint Enforcement Strike Force on the 
          Underground Economy (JESF) to combat the underground 
          economy through coordinating enforcement activities among 
          various entities.  The Legislature subsequently added JESF 
          to state law. 

          The JESF is a partnership with representatives from the 
          Employment Development Department (EDD), the Department of 
          Consumer Affairs, the Department of Industrial Relations, 
          the Department of Insurance and the Office of Criminal 
          Justice Planning.  Other agencies that are not part of the 
          administration, but are also participants in the JESF are 
          the Franchise Tax Board, the Board of Equalization, and the 
          U.S. Department of Justice.

          The focus of the JESF has been to target, among other 
          industries, auto body repair, bars and restaurants, 
          construction, garment manufacturing, public works, and 
          janitorial services.  JESF is authorized to form joint 
          enforcement teams.  Since the formation of JESF three joint 
          enforcement efforts have been implemented: the Employment 
          Enforcement Task Force, the Construction Enforcement 
          Project, and the Janitorial Enforcement Project.    

          The Director of EDD is the chairperson of the strike force 
          and EDD is designated as the lead agency of the JESF.  The 
          program is administered through the EDD's Underground 
          Economy Operations program.  Any employee of the agencies 
          that participate in JESF are authorized to issue Labor Code 
          citations and penalty assessment orders to employers found 
          in violation of the law.

           Comments
           
          EDD is charged with investigating businesses that avoid 
          paying payroll taxes, many of which are part of the 







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          underground economy.  EDD defines the "underground economy" 
          as a term that refers to those individuals and businesses 
          that deal in cash and/or use other schemes to conceal their 
          activities and their true tax liability from government 
          licensing, regulatory, and taxing agencies.  The 
          underground economy allows some employers to gain an unfair 
          competitive advantage over businesses that do comply with 
          the law and forces the law abiding businesses to pay higher 
          taxes and expenses.   

          According to EDD, a February 2005 report,  California's Tax 
          Gap,  prepared by California's Legislative Analyst's Office, 
          estimates California's income tax gap to be $6.5 billion.  
          Reports on the underground economy indicate it imposes 
          significant burdens on:  (1) the State of California, (2) 
          businesses that comply with the law, and (3) workers who 
          lose benefits and other protections provided by state law 
          when the businesses they work for operate in the 
          underground economy.  According to the author, the State 
          Controller's office estimates that 11 percent of taxes owed 
          in California go uncollected, and another three percent are 
          collected only through state enforcement.

          Although there are different entities conducting 
          enforcement efforts, the state does not currently have a 
          coordinated system of enforcing its tax and labor laws.  
          Thus, despite the clear nexus between employers that 
          violate both sets of laws, there is no formal process to 
          ensure that the enforcement efforts of one department are 
          reflected in the work of another.  This lack of 
          coordination is worsened by the limited enforcement 
          resources available in California. For example, the past 
          several decades, labor law enforcement has been on the 
          decline. Between 1980 and 2000, California's workforce grew 
          48 percent, but the Division of Labor Standards Enforcement 
          staffing levels went down 7.6 percent. 

          This bill gives enforcement agencies that are a part of 
          JESF, and other specified agencies, access to unmarked or 
          unobliterated copies of certified payroll records on public 
          works projects in order to target the underground economy. 

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  No   
          Local:  No







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           SUPPORT  :   (Verified  6/9/11)

          California Labor Federation

           ARGUMENTS IN SUPPORT  :    According to the author's office, 
          California's underground economy is thriving.  Because 
          business in the underground economy is conducted outside 
          the bounds of state law, businesses operating there are 
          able to gain an unfair advantage over their law-abiding 
          competitors by flouting labor laws and ignoring their tax 
          obligations to state and local governments.  The author 
          argues that violations of labor and tax laws often go hand 
          in hand. Every time an employer fails to pay a worker 
          minimum wage, ignores overtime pay requirements, or simply 
          pays in cash under the table, the state loses revenues from 
          income and payroll taxes that fund the unemployment 
          insurance system, paid family leave, disability insurance 
          and vital state general fund programs.

          According to the author, Employment Development Department 
          analysis of IRS data has found that California's 
          underground economy is worth between $60 and 140 billion a 
          year.  

          As the state faces a multi-billion dollar budget deficit, 
          increased collection of already-owed taxes should be a top 
          budget priority. The author argues that, unfortunately, the 
          state does not currently have a coordinated system of 
          enforcing its tax and labor laws. Thus, despite the clear 
          nexus between employers that violate both sets of laws, 
          there is no formal process to ensure that the enforcement 
          efforts of one department are reflected in the work of 
          another.

          This bill provides a tool to help state agencies involved 
          in enforcement of underground economy activity to 
          coordinate their limited financial resources for increased 
          enforcement results without having to individually 
          reconstruct a case for prosecution.  The author believes 
          that the anticipated result will be significantly greater 
          compliance by business owners doing business in California, 
          as well as increased monies collected for the California's 
          General Fund.







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           ASSEMBLY FLOOR  :  65-8, 05/19/11
          AYES:  Achadjian, Allen, Ammiano, Atkins, Beall, Bill 
            Berryhill, Block, Blumenfield, Bonilla, Bradford, 
            Brownley, Buchanan, Butler, Charles Calderon, Campos, 
            Carter, Cedillo, Chesbro, Cook, Davis, Dickinson, Eng, 
            Feuer, Fletcher, Fong, Fuentes, Furutani, Galgiani, 
            Gatto, Gordon, Halderman, Hall, Harkey, Hayashi, Roger 
            Hernández, Hill, Huber, Hueso, Huffman, Jones, Knight, 
            Lara, Bonnie Lowenthal, Mendoza, Miller, Mitchell, 
            Monning, Morrell, Nestande, Olsen, Pan, Perea, V. Manuel 
            Pérez, Portantino, Skinner, Smyth, Solorio, Swanson, 
            Torres, Valadao, Wagner, Wieckowski, Williams, Yamada, 
            John A. Pérez
          NOES:  Donnelly, Beth Gaines, Hagman, Jeffries, Logue, 
            Mansoor, Nielsen, Norby
          NO VOTE RECORDED:  Alejo, Conway, Garrick, Gorell, Grove, 
            Ma, Silva


          PQ:nl  6/9/11   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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