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 --