BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON
          BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT
                              Senator Jerry Hill, Chair
                                2015 - 2016  Regular 

          Bill No:            AB 1175         Hearing Date:    June 8,  
          2015
           ----------------------------------------------------------------- 
          |Author:   |Ridley-Thomas                                         |
          |----------+------------------------------------------------------|
          |Version:  |April 14, 2015                                        |
           ----------------------------------------------------------------- 
           ---------------------------------------------------------------- 
          |Urgency:  |No                     |Fiscal:    |Yes              |
           ---------------------------------------------------------------- 
           ----------------------------------------------------------------- 
          |Consultant|Mark Mendoza                                          |
          |:         |                                                      |
           ----------------------------------------------------------------- 
          
          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 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.  (Business and  
             Professions Code (BPC) § 9800 et seq.)

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

          3) Establishes the Home Furnishings and Thermal Insulation Act,  
             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 § 19000  
             et seq.)








          AB 1175 (Ridley-Thomas)                                 Page 2  
          of ?
          
          
          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 § 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.  


          
          FISCAL  
          EFFECT:  This measure has been keyed "fiscal" by Legislative  
          Counsel.  According to the Assembly Appropriations Committee  
          analysis, dated May 4, 2015: 
          1)If fees are raised to the statutory maximum proposed in this  
            bill, the Bureau of Electronic and Appliance Repair (BEAR)  
            fund and Home Furnishings, and Thermal Insulation (HFTI) fund  
            (both special funds) would receive a combined increase in  








          AB 1175 (Ridley-Thomas)                                 Page 3  
          of ?
          
          
            revenues of $1 million in 2016-17, and $1.65 million on-going.  



            Without a fee increase, the BEAR fund is projected to go  
            insolvent in Fiscal Year (FY) 2019-2020, and the HFTI fund is  
            projected to go insolvent in FY 2017-18.  The Bureau receives  
            no General Fund support, relying solely on fees set by statute  
            and collected from licensing and renewal fees.  The fees are  
            currently at the statutory cap for the majority of licenses,  
            except those excluded from this bill.


          2)One-time minor and absorbable IT costs of approximately  
            $5,000.


          3)One-time minor and absorbable costs to DCA to adopt  
            regulations and increase fees.


          
          COMMENTS:
          
          1. Purpose.  The Author is the sponsor of the 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. Bureau of Electronic and Appliance Repair, Home Furnishings,  
             and Thermal Insulation.  The Bureau, which is housed within  
             the DCA, licenses and regulates over 40,000 related  
             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  








          AB 1175 (Ridley-Thomas)                                 Page 4  
          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.

          3. 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  
             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  








          AB 1175 (Ridley-Thomas)                                 Page 5  
          of ?
          
          
             consumers. 

          4. 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  
             and renewal, which will impact companies trying to legally  
             continue their business operations.  

          5. 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  








          AB 1175 (Ridley-Thomas)                                 Page 6  
          of ?
          
          
             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.

          6. 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  
             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.
             
          7. Arguments in Support.  According to the  Natural Resources  
             Defense Council  , "Fee increases are needed 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."
          

          SUPPORT AND OPPOSITION:
          
           Support:  








          AB 1175 (Ridley-Thomas)                                 Page 7  
          of ?
          
          

          American Home Furnishings Alliance  (AHFA)
          Business and Institutional Furniture Manufacturers Association  
          (BIFMA)
          Center for Environmental Health (CEH)
          Natural Resources Defense Council 

           Opposition:  

          None on file as of June 2, 2015. 


                                      -- END --