BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 576
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          Date of Hearing:  April 9, 2013
          Counsel:       Sandy Uribe


                         ASSEMBLY COMMITTEE ON PUBLIC SAFETY
                                 Tom Ammiano, Chair

             AB 576 (V. Manuel Pérez) - As Introduced:  February 20, 2013
           
           
           SUMMARY  :  Establishes a pilot program to create the "Centralized  
          Intelligence Partnership" (partnership) consisting of specified  
          agencies to collaborate in combating those engaged in the  
          underground economy.  Specifically, this bill  :  

          1)Makes legislative findings relative to the size of the  
            underground economy in California (estimated to be between $60  
            billion and $140 billion) and its threat to the health of the  
            state's economy, business community, workers and the stability  
            and fairness of the tax base.

          2)Defines "underground economy" as "the activities of  
            individuals, businesses, or other entities that knowingly and  
            intentionally use practices designed to conceal illegal or  
            fraudulent activities that negatively impact legitimate  
            businesses, workers, and consumers, as well as deprive the  
            state and local governments of vital resources."

          3)Declares legislative intent to enhance existing efforts to  
            combat the underground economy by collaboration among state  
            entities through the newly-created partnership.

          4)Establishes the partnership as a pilot program.

          5)Includes the Employment Development Department (EDD),  
            Franchise Tax Board (FTB), and State Board of Equalization  
            (BOE) in the partnership.

          6)Allows the California Health and Human Services Agency,  
            Department of Consumer Affairs, Department of Industrial  
            Relations, Department of Insurance, Department of Justice, and  
            Department of Motor Vehicles to participate in the pilot  
            program in an advisory capacity to the partnership.

          7)Requires each of the six advisory agencies to notify the  








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            appropriate taxing agency if a violation is discovered in the  
            normal course of investigation that would result in increased  
            tax revenues to the state.

          8)Establishes an advisory committee to the partnership comprised  
            of one representative from each of three the participating  
            entities, appointed by and serving at the pleasure of the  
            entity's head, to provide guidance to and advice on the  
            activities and operations of the partnership.  Also allows  
            each agency participating in an advisory capacity to provide a  
            representative to the advisory committee.

          9)Requires the advisory committee to meet as needed, but at  
            least quarterly.

          10)Tasks the advisory committee with deciding which agency shall  
            house the partnership's processing center.

          11)Requires the partnership to do all of the following to combat  
            illegal underground operations: 

             a)   Provide a central intake process and organizational  
               structure to document, review, and evaluate data and  
               complaints.  

             b)   Establish a processing center to receive and analyze  
               data, share complaints, and research leads from the input  
               of each impacted agency.

             c)   Provide participating and nonparticipating agencies with  
               value-added investigative leads where collaboration  
               opportunities exist for felony-level criminal and civil  
               investigations.

             d)   Provide that each participating and nonparticipating  
               agency retain jurisdictional authority over whether to  
               pursue partnership strategies or collaborative  
               investigative leads.

             e)   Document and provide data analysis, analytic data  
               findings, referrals, collaborative opportunities, outcomes,  
               emerging evasion trends, lessons learned, as well as  
               additional enforcement, administrative, and legislative  
               opportunities.









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          12)Specifies that the scope of activities and projects to be  
            undertaken shall be consistent with the amount of funds  
            appropriated by the Legislature.

          13)Allows the partnership to hire an administrative staff.

          14)Allows duly authorized representatives of members of the  
            partnership and the agencies participating in an advisory  
            capacity to exchange intelligence, data, documents,  
            information, complaints, or lead referrals for the purpose of  
            investigating illegal underground operations.

          15)Prohibits any member or ex-member of the partnership, or any  
            agent employed by a member of the partnership, or any person  
            who has obtained such knowledge from any of the above, from  
            divulging any information in a manner not allowed by law.   
            Information shall retain its confidential status and shall  
            remain subject to specifically enumerated confidentiality  
            statutes guiding each agency.

          16)Requires the partnership to report on or before July 1, 2015,  
            and annually thereafter, to the Legislature and to each  
            participating-member entity on its activities and  
            accomplishments. 

          17)Requires the partnership to submit a report to the  
            Legislature on or before December 1, 2017, detailing the  
            number of leads or complaints it received, the number of cases  
            investigated or prosecuted either in civil or criminal court,  
            and any recommendations for modifying, eliminating, or  
            continuing operations of the partnership.

          18)Sunsets the partnership on January 1, 2019, and repeals it as  
            of that date unless a later-enacted statute extends it.


           EXISTING LAW  : 

          1)Provides that all property is taxable unless otherwise  
            provided by the California Constitution or the laws of the  
            United States.  (Cal. Const., Art. XIII, sec. 1.)

          2)Establishes the BOE which administers sales and use taxes,  
            excise taxes, special taxes, and the state's fee programs.   
            (Cal. Const., Art. XIII, sec. 17.)








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          3)Allows taxes on or measured by income to be imposed on  
            persons, corporations, or other entities as prescribed by law.  
             (Cal. Const., Art. XIII, sec. 26.)

          4)Contains various provisions criminalizing tax evasion.  [See  
            e.g. Revenue & Taxation Code Sections 7152-7153.5 (false and  
            fraudulent returns regarding sales and use taxes), 19701 et  
            seq. (income tax evasion).]

           FISCAL EFFECT  :   Unknown

           COMMENTS  :   

           1)Author's Statement  :  According to the author, "At a time when  
            California has been reducing and in some cases eliminating  
            funding for vital public services, it is estimated the state  
            loses up to $8 billion a year in tax revenue due to the  
            effects of the state's prolific underground economy, currently  
            valued at between $60 and $140 billion. While the impact of  
            the underground economy on the state is extensive, the state  
            lacks a coordinated effort among its various agencies to  
            tackle the underground economy

          "AB 576 will address the problem by establishing a California  
            Intelligence Partnership between nine state agencies to enable  
            the sharing of information and investigate leads.

          "A collaborative, strategic, targeted and focused effort to  
            combat the underground economy would create a synergy among  
            the various enforcement agencies, increasing the state's  
            effectiveness in recapturing revenue lost to businesses  
            operating illegally in the State of California.

          "As such, AB 576 will create a Centralized Intelligence  
            Partnership (CIP) between nine member agencies including the  
            Board of Equalization, the Franchise Tax Board, the Employment  
            Development Department and California Department of Justice.   
            Each duly authorized representative of the partnership would  
            be allowed to exchange intelligence, data, documents,  
            information, complaints, or lead referrals for the purpose of  
            investigating illegal, underground operations.  Information  
            obtained by the CIP would retain its confidential status and  
            would be subject to all the existing confidentiality statutes  
            guiding each agency."








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           2)Existing Efforts  :  There are currently existing efforts to  
            combat the underground economy.

              a)   Joint Enforcement Strike Force on the Underground  
               Economy  .  In 1993, Governor Wilson signed Executive Order  
               W-66-93, establishing the Joint Enforcement Strike Force  
               (JESF) on the Underground Economy.  The executive order was  
               subsequently codified in 1995.  (See Unemployment Insurance  
               Code Section 329.)  The JESF, chaired by the EDD director,  
               is responsible for developing and sharing information  
               necessary to combat the underground economy.  The JESF also  
               works to improve the coordination of enforcement  
               activities, and to develop methods to target the  
               enforcement resources of participating agencies.  The JESF  
               is empowered to form joint-enforcement teams when  
               appropriate to utilize the investigative and enforcement  
               capabilities of its members.  (See EDD Web site  
               )  In addition to the EDD, the formal membership of the  
               JESF is comprised of the Department of Consumer Affairs,  
               the Department of Industrial Relations and the Department  
               of Insurance. The FTB, the BOE and the Department of  
               Justice are each encouraged, under existing law, to  
               participate in JESF activities. 

              b)   The Labor Enforcement Task Force  .  The Department of  
               Industrial Relations also works to combat the underground  
               economy in California through its Labor Enforcement Task  
               Force (LETF).  In this joint effort between state agencies  
               and affected communities, information and resources are  
               shared to ensure workers receive proper payment of wages  
               and are provided a safe working environment.  In addition,  
               the Labor Enforcement Task Force works to ensure that  
               California receives all employment taxes, fees, and  
               penalties due from employers.  The Labor Enforcement Task  
               Force is comprised of the Labor and Workforce Development  
               Agency, the Department of Industrial Relations, the EDD,  
               the Contractor's State Licensing Board, the California  
               Department of Insurance, the BOE, the Bureau of Automotive  
               Repair and the Department of Justice.  (DIR Web site  
               ) 

            It is unclear whether the partnership created by this bill  








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            supplants the JESF and LETF since most of the same  
            participants are involved.

           3)Argument in Support  :  The  California Chamber of Commerce   
            writes, "Businesses that operate in the underground economy  
            gain an unfair advantage over law-abiding employers by  
            conducting their operations outside the parameters of the law.  
             Such bad actors either underpay or completely neglect to pay  
            required taxes, licenses, insurance, or wages.  By unlawfully  
            reducing their expenses, these businesses undercut legitimate  
            businesses that in good faith comply with required laws.  Many  
            compliant businesses are unfortunately forced to shut down due  
            to this unfair competitive advantage, further impeding  
            California's economic recovery.

          "Estimates of the size of the underground economy vary, ranging  
            from $60 billion to $140 billion per year in California.  The  
            Franchise Tax Board and the Board of Equalization estimate  
            that an average of $10 billion owed in corporate, personal,  
            and sales and use taxes goes uncollected in California each  
            year, with unreported and underreported economic activity  
            responsible for the vast majority of that total.

            "The underground economy is a costly burden on the state's  
            economy, harming legitimate businesses and taking important  
            state resources that could be put to better use.  The  
            organizations listed below support legislation like AB 576  
            that improves coordination among state agencies to enforce  
            existing labor, Cal/OSHA, workers' compensation and tax laws,  
            as well as agency initiatives to identify and eliminate  
            barriers to enforcing existing rules."

           4)Prior Legislation  :

             a)   SB 1185 (Price), of the 2011-12 Legislative Session,  
               created the "Centralized Intelligence Partnership" as a  
               clearinghouse for multiple agencies to collaborate to  
               prosecute violators engaged in illegal activity as part of  
               the underground economy.  SB 1185 was held on the Assembly  
               Appropriations Committee's Suspense File.

             b)   Senate Bill 1490 (Johnston), Chapter 1117, Statutes of  
               1994, codified the JESF on the Underground Economy under  
               the Employment Development Department.









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           REGISTERED SUPPORT / OPPOSITION  :   

           Support 
           
          California Chamber of Commerce
          California Chapter of American Fence Contractors Association
          California Construction and Industrial Materials Association
          California Farm Bureau Federation
          California Fence Contractors Association
          California Framing Contractors Association
          California Manufacturers and Technology Association
          California Statewide Law Enforcement Association
          Engineering Contractors Association
          Flasher Barricade Association
          League of California Cities
          Marin Builders Association

           Opposition 
           
          None
           

          Analysis Prepared by  :    Sandy Uribe / PUB. S. / (916) 319-3744