BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                    AB 1175


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          Date of Hearing:  April 21, 2015


                   ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS


                                Susan Bonilla, Chair


          AB 1175  
          Ridley-Thomas - As Amended April 14, 2015


          SUBJECT:  Bureau of Electronic and Appliance Repair, Home  
          Furnishings, and Thermal Insulation.


          SUMMARY:  Increases the statutory fee cap by approximately 25  
          percent for each license type under the Bureau of Electronic and  
          Appliance Repair, Home Furnishings, and Thermal Insulation,  
          except as specified.


          EXISTING LAW:


          1)Establishes the Bureau of Electronic and Appliance Repair,  
            Home Furnishings, and Thermal Insulation within the Department  
            of Consumer Affairs (DCA), and places the Bureau under the  
            supervision and control of the DCA Director.  (Business and  
            Professions Code (BPC) Section 9810)

          2)Establishes the Electronic and Appliance Repair Dealer  
            Registration Law, and provides for the licensure and  
            regulation of electronic and appliance repair dealers and  
            service contract sellers and administrators.  (BPC) Section  
            9800 et seq.)

          3)Establishes the Home Furnishings and Thermal Insulation Act,  








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            and provides for the licensure and regulation of  
            manufacturers, sellers, importers, upholsterers, and  
            sanitizers of home furnishings, including upholstered  
            furniture and bedding and thermal insulation.  (BPC Section  
            19000 et seq.)

          4)Establishes the following licensure categories, including  
            initial and renewal licensure fees for each of those license  
            types: appliance service dealers; electronic and appliance  
            service dealers; service contract sellers; service contract  
            administrators; joint service contractors and electronic and  
            appliance service dealers, as specified; custom upholsters;  
            bedding retailers; furniture retailers; bedding and furniture  
            retailers; importers; furniture and bedding manufacturers;  
            furniture and bedding wholesalers; furniture and bedding  
            supply dealers; sanitizers; supply dealers; and thermal  
            insulation manufacturers.  (BPC Section 9873, 19170)

          THIS BILL:


          1)Increases by approximately 25 percent, licensure fees for the  
            following license types: appliance service dealers; electronic  
            and appliance service dealers; service contract sellers;  
            service contract administrators; joint service contractors and  
            electronic and appliance service dealers, as specified; custom  
            upholsters; bedding retailers; furniture retailers; bedding  
            and furniture retailers; importers; furniture and bedding  
            manufacturers; furniture and bedding wholesalers; furniture  
            and bedding supply dealers; sanitizers; and supply dealers.


          2)Prohibits the Director of the DCA from adopting any regulation  
            to increase any fees for electronic and appliance service  
            dealers and service contractors licensing categories before  
            January 1, 2017. 


          3)Makes conforming changes.  








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          FISCAL EFFECT:  Unknown.  This bill is keyed fiscal by the  
          Legislative Counsel.   


          COMMENTS:


          1)Purpose. This is an author-sponsored bill.  According to the  
            author, "The last time the Bureau's licensing fees were raised  
            in statute was 1978 for the electronics and appliance  
            industries and 1998 for the home furnishings and thermal  
            insulation industries.  The Bureau's operational costs have  
            continually increased with its expenditures, and it is  
            projected the Bureau will be in deficit in Fiscal Year (FY)  
            2017-18, if revenues are not increased.  The Bureau has worked  
            diligently at minimizing operational costs and streamlining  
            its processes for optimum cost savings, but continued resource  
            and overhead costs have reached a level where increased  
            revenues are necessary to sustain the Bureau."


          2)Background.  The Bureau, which is housed within the DCA,  
            licenses and regulates over 40,000 businesses, including  
            businesses that engage in the repair of electronics and  
            appliances; the sale and administration of service contracts;  
            and the manufacture, sale, and repair of home furnishings and  
            thermal insulation.  The Bureau also inspects businesses and  
            conducts investigations; researches and develops standards  
            for, and tests, home furnishings and thermal insulation  
            products; handles consumer complaints; and initiates  
            disciplinary action against businesses that violate statutory  
            or regulatory requirements.


            Initial and Renewal Licensure Fees.  The Bureau's fees are  
            currently at the ceiling for the majority of licenses, except  
            for thermal insulation manufacturer fees which are below the  








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            statutory fee cap, which are excluded from the bill.  In  
            addition, fees have been at their statutory caps and have not  
            been raised in over a decade.  According to the author,  
            statutory fee caps have not been raised since 1978 for the  
            electronics and appliance industries and 1998 for the home  
            furnishings and thermal insulation industries.  Since the last  
            fee increase, operational costs have increased in all areas  
            and the Bureau's budget is facing challenges.  


            If fees were increased annually with the rate of inflation,  
            based on the U.S. Consumer Price Index (CPI) to be slightly  
            less than three percent a year, fees would be nearly 50%  
            higher than they are right now.  According to the author,  
            these fees are used to support the Bureau's staff of 43  
            employees, in addition to operational expenses, for  licensing  
            and registering businesses; inspecting businesses; ensuring  
            compliance with laws and regulations; handling consumer  
            complaints, conducting investigations; testing products to  
            ascertain if they meet the required standards; conducting  
            research and developing standards; educating applicants and  
            licensees; and initiating disciplinary action against  
            companies who commit egregious violations.  


            One particular area that has recently received widespread  
            attention under the Bureau's jurisdiction is the changes to  
            the regulation of flame resistance performance tests for  
            furniture.  Existing law requires all upholstered furniture  
            that is sold to California consumers to be fire retardant.   
            California is the only state with a residential upholstered  
            furniture flammability standard.  The Bureau recently updated  
            this standard in 2013 (Technical Bulletin 117-2013) and  
            Senator Leno recently passed legislation (SB 1019, Chapter  
            862, Statutes of 2014) that the Bureau is currently  
            implementing in regard to chemical content disclosures to  
            consumers.  










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            Fund Condition.  As a Special Fund agency, the Bureau receives  
            no General Fund support, relying solely on fees set by statute  
            and collected from licensing and renewal fees.  The Electronic  
            and Appliance Repair program and the Home Furnishings and  
            Thermal Insulation program each operate with their own budgets  
            and their own funds.  There is no mandated reserve level for  
            the Bureau; however, the DCA Budget Office has historically  
            recommended that smaller programs maintain a contingency fund  
            slightly above the standard three to six months of reserve.   
            Maintaining an adequate reserve of at least six months  
            provides for a reasonable contingency fund so that the Bureau  
            has the fiscal resources to absorb any unforeseen costs, such  
            as costly enforcement actions or other unexpected client  
            service costs. 


            The Bureau expects the Electronic and Appliance Repair (EAR)  
            Fund to have 6.8 months in reserve in Fiscal Year (FY)  
            2015/16, 4.9 months in reserve in FY 16/17, 2.9 months in  
            reserve in FY 2017/18, dropping below the recommended three  
            month reserve, 0.7 months in reserve in FY 2018/19, and a  
            deficit of $446,000 in FY 19/20.  The Bureau expects the Home  
            Furnishings and Thermal Insulation (HFTI) Fund to have 3.6  
            months in reserve in FY 15/16, 1.4 months in reserve in FY  
            2016/17, dropping below the recommended three month reserve,  
            and a deficit of $403,000 in FY 2017/18, which would grow to a  
            deficit of $1.521 million dollars in FY 2018/19 and to a  
            deficit of $2.745 million dollars in FY 2019/20.  





            Without a fee increase, the Bureau will face a deficit in FY  
            2017/18 for the HFTI Fund and in FY 2019/20 for the EAR Fund.   
            According to the Bureau, a deficit will result in curtailed  
            services, which will delay the handling of consumer  
            complaints, limit the number of disciplinary actions that  
            could be adjudicated, and delay the timeframes for licensure  








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            and renewal, which will impact companies trying to legally  
            continue their business operations.  





            Increased Costs to the Bureau.  According to the Bureau, the  
            increase in expenditures over time is attributable to a  
            general increase in costs, for example, for retirement and  
            medical benefits and overhead expenses.  In addition, in the  
            past several legislative sessions, the Bureau has been charged  
            with new responsibilities.  One of these changes was SB 1019  
            (Leno), Chapter 862, Statutes of 2014, which required the  
            Bureau to partner with the Department of Toxic Substances  
            Control (DTSC) to establish a program for the testing of  
            chemical flame retardants in upholstered furniture to  
            determine whether they comply with a new labeling requirement.  
             This testing is costly, and in addition to the Bureau's  
            responsibility to reimburse the DTSC for these tests, the  
            Bureau is required under existing law to pay the full  
            wholesale cost of any tested upholstered product if the  
            product is in compliance with labeling and other requirements.  
             As this legislation was being developed, stakeholders were  
            informed that the Bureau's current fund condition could not  
            support the establishment of such a robust testing regime. The  
            increase in fees provided for in this bill, however, will  
            allow the Bureau to successfully implement such a testing  
            program, which will enable the Bureau to carry out its  
            statutory mandate of consumer protection.





          3)Related Prior Legislation.  AB 2740 (Bonilla), Chapter 428,  
            Statutes of 2014, subjected the powers and duties of the  
            Bureau of Electronic and Appliance Repair, Home Furnishings,  
            and Thermal Insulation (Bureau) to review by the appropriate  








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            policy committees of the Legislature as if these provisions  
            were scheduled to be repealed on January 1, 2019, and  
            requested the Bureau to report back to the committees on  
            specified issues by July 1, 2015.



          


          ARGUMENTS IN SUPPORT:


          According to the  Natural Resources Defense Council  , "Fee  
          increases are need in order to ensure that [Bureau] has the  
          resources to continue ensuring compliance with regulations,  
          conducting testing and investigations, and educating businesses,  
          all of which are critical to consumer protection?.[Bureau] has a  
          history of working effectively with stakeholders and we expect  
          that it will continue to do so to ensure that the fee increases  
          meet resource needs with minimum negative impact on businesses."


          ARGUMENTS IN OPPOSITION:


          None on file.


          REGISTERED SUPPORT:





          Natural Resources Defense Council 











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          REGISTERED OPPOSITION:


          None on file. 




          Analysis Prepared by:Eunie Linden / B. & P. / (916) 319-3301