BILL ANALYSIS Ó
AB 1508
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Date of Hearing: April 22, 2015
ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT
Roger Hernández, Chair
AB 1508
(Assembly Member Roger Hernández) - As Amended March 26, 2015
SUBJECT: Underground economy: policy adviser
SUMMARY: Requires the establishment of an independent policy
advisor for the underground economy, as specified.
Specifically, this bill:
1)Requires the Governor to designate an independent chief policy
adviser for the underground economy.
2)Specifies that the adviser's responsibilities shall include,
but not be limited to, the following:
a) Monitoring the state's existing underground economy task
forces and interagency partnerships to ensure that they are
organized efficiently.
b) Evaluating whether any task forces and partnerships
should be eliminated or restructured to improve
effectiveness.
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c) Evaluating whether existing task forces and partnerships
have sufficient resources and whether gaps or overlaps
exist in combating the underground economy.
d) Reviewing enforcement staffing and funding levels and
developing recommendations to adequately fund enforcement.
e) Developing recommendations to eliminate barriers that
prevent task forces and partnerships from being fully
effective.
f) Leading a strategic planning process to develop
performance outcomes for combating the underground economy.
3)Requires the advisor, on or before than January 1, 2017, to
submit a report to the Governor and the Legislature that
summarizes the adviser's findings and recommendations, with a
particular emphasis on any recommended administrative or
legislative changes.
FISCAL EFFECT: Unknown
COMMENTS: According to a recent Little Hoover Commission
report, the underground economy encompasses any unlawful or "off
the books" activities conducted by businesses or individuals
that create an illegal and unfair business environment, put
employees at a disadvantage or in harm's way or cheat government
agencies out of taxes. Examples of these activities include
working without required permits or licenses, not complying with
regulated mandatory processes, evading taxes and operating
without proper insurance. Others include underpaying employees,
underreporting numbers of employees, inaccurately reporting
employee hours or wages and allowing unsafe working conditions.
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Underground economy operators, in short, gain a competitive
advantage with a business model of cheating and cutting corners.
With this advantage, they undercut prices of law-abiding
business operators, gradually undermining them. Allowed to run
unchecked, they feed a downward economic spiral in which
licensed, legitimate businesses lose bids and customers, then
downsize and lay off employees.
The University of California, Los Angeles, Labor Center
estimates that state government loses $8.5 billion annually in
tax revenue to the underground economy. The Franchise Tax Board
estimates the annual revenue loss at approximately $10 billion.
These billions of dollars represent revenue uncollected for law
enforcement, higher education, freeway maintenance or lower tax
rates for people and businesses.
California state government agencies have attempted for decades
to limit the many dimensions of the underground economy. The
state's taxing and labor agencies occupy the front lines of this
fight. But a wide range of other agencies also play key or
supporting roles and often work collectively within underground
economy enforcement task forces.
Because the underground economy is multifaceted, enforcement
actions conducted through multi-agency partnerships are natural
and effective.
Four major state-level task forces focus on the underground
economy. The Labor Enforcement Task Force and the Joint
Enforcement Strike Force primarily focus on labor violations.
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Two more recently established task forces, the Revenue Recovery
and Collaborative Enforcement Team and the Tax Recovery and
Criminal Enforcement Task Force focus on identifying and
prosecuting criminal tax evasion.
Recent Little Hoover Commission Report
In March 2015, the Little Hoover Commission released a report
entitled, "Level the Playing Field: Put California's Underground
Economy Out of Business."
That report made a number of findings and recommendations.
Among these, the Commission found that although numerous
government organizations focus on tackling the underground
economy, no one is directly in charge. Hardworking government
employees do their best to combat the problem, but often without
adequate resources or the data or equipment to effectively do
their jobs.
There are four major state task forces focused on the
underground economy, but it is not clear, overall, what the
outcomes have been. The Commission recommended the Governor
appoint an independent leader, in consultation with state
leaders who have jurisdiction over the underground economy, with
clear authority to untangle any overlaps in responsibilities,
bridge silos and move efficiently toward results. The Commission
recommended that this leader should report back on
administrative or legislative changes needed to overcome the
obstacles.
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Changes Proposed by this Bill
Consistent with the recommendation from the Little Hoover
Commission report, this bill requires the Governor to designate
an independent chief policy advisor for the underground economy.
The advisor's responsibilities shall include, but not be limited
to, the following:
Monitoring the state's existing underground economy task
forces and interagency partnerships to ensure that they are
organized efficiently.
Evaluating whether any task forces and partnerships
should be eliminated or restructured to improve
effectiveness.
Evaluating whether existing task forces and partnerships
have sufficient resources and whether there are no gaps or
overlaps in enforcement of the underground economy.
Reviewing enforcement staffing and funding levels and
developing recommendations to adequately fund enforcement.
Developing recommendations to eliminate barriers that
prevent task forces and partnerships from being fully
effective.
Leading a strategic planning process to develop
performance outcomes for combating the underground economy.
This bill also requires the advisor, no later than January 1,
2017, to submit a report to the Governor and the Legislature
that summarizes the advisor's findings and recommendations, with
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a particular emphasis on any recommended administrative or
legislative changes.
ARGUMENTS IN SUPPORT
The Little Hoover Commission supports this bill, as it
implements one of the Commission's key recommendations from the
March 2015 report.
The California Pool & Spa Association supports this bill,
stating that their members face a competitive disadvantage to
the unlicensed or non-compliant contractors who perform work for
a much cheaper cost as a result of skirting labor, insurance,
and tax requirements. An unfair playing field undermines state
laws that protect consumers and workers, harms tax-abiding
businesses, and defrauds the state of significant tax revenue.
REGISTERED SUPPORT / OPPOSITION:
Support
California Professional Association of Specialty Contractors
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Plumbing-Heating-Cooling Contractors Association of CA
Little Hoover Commission
California Pool & Spa Association
Opposition
None on file.
Analysis Prepared by:Benjamin Ebbink / L. & E. / (916) 319-2091