BILL ANALYSIS Ó
SENATE COMMITTEE ON
BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT
Senator Jerry Hill, Chair
2015 - 2016 Regular
Bill No: AB 1508 Hearing Date: June 22,
2015
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|Author: |Assembly Member Roger Hernández |
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|Version: |March 26, 2015 |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant|Mark Mendoza |
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Subject: Underground economy: policy adviser.
SUMMARY: Requires the establishment of an independent policy advisor
for the underground economy, as specified.
Existing law:
1) Establishes an enforcement division in the CSLB and requires
the unit to rigorously enforce the Contractors Law
prohibiting all forms of unlicensed activity. (Business and
Professions Code (BPC) § 7011.4 (a))
2) Provides that persons employed as enforcement representatives
in the enforcement division and designated by the Director of
DCA are not peace officers, are not entitled to safety member
retirement benefits, and do not have the power of arrest.
However, they may issue a written notice to appear in court
for misdemeanor violations of the Contractors Law. (BPC §
7011.4 (b))
3) Authorizes CSLB enforcement division to have free access to
all places of labor when participating in the enforcement
activities of the Joint Enforcement Strike Force on the
Underground Economy (JESF). (BPC § 7011.4 (c))
4) Authorizes an unlicensed contractor to advertise for
construction work only if the advertisement states that he or
she is not licensed. (BPC § 7027.2)
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5) Makes it a misdemeanor for an unlicensed contractor to
advertise for construction or work of improvements or act in
the capacity of a contractor. Imposes specified civil
penalties, including fines and imprisonment against the
unlicensed contractor and authorizes CSLB to cite the
unlicensed contractor. (BPC § 7028)
6) Provides that it is a misdemeanor for a person to engage in
the business or act in the capacity of a contractor if he or
she has a suspended license for failure to pay a civil
penalty, to comply with an order of correction, or to resolve
all outstanding liabilities, as specified. (BPC § 7028).
7) Exempts from licensure and regulation those who perform work
with an aggregate contract price under $500, but does not
exempt those who split work into multiple contracts to avoid
the $500 limit. (BPC § 7048)
8) Requires CSLB to initiate a disciplinary action against a
licensee within 180 days of receipt of a certified copy of
the Labor Commissioner's finding of a willful or deliberate
violation of the Labor Code by a licensee. (BPC § 7110.5)
9) Establishes the JESF to coordinate efforts in targeting tax
evasion and cash-pay violations, and authorizes the sharing
of investigative and enforcement capabilities between JESF
participants. (Unemployment Insurance Code § 329)
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.
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b) Evaluating whether any task forces and
partnerships should be eliminated or restructured to
improve effectiveness.
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: This bill is keyed "fiscal" by Legislative Counsel.
According to the Assembly Appropriations Committee, "General
Fund costs in the range of $150,000 to $200,000 for the chief
policy advisor to monitor and evaluate the taskforces and
interagency partnerships as well as submit a report to the
Legislature as specified."
COMMENTS:
1. Purpose. The Author is the Sponsor of this bill. According
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to the Author, "AB 1508 requires the Governor to designate an
independent chief policy advisor for the underground economy,
consistent with the recommendation from the Little Hoover
Commission report."
2. The Underground Economy. 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.
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
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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.
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.
3. 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.
4. Arguments in Support. According to the California Pool and
Spa Association , "the California Pool & Spa Association
represents the thousands of employees from all segments of
the industry that are required to sign and abide by a code of
ethics before becoming members. An unfair playing field
undermines state laws that protects consumers and workers,
harms law-abiding businesses, and defrauds the state of
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significant tax revenue."
SUPPORT AND OPPOSITION:
Support:
California Pool and Spa Association
California Professional Association of Specialty Contractors
Pacific Association of Building Service Contractors (PABSCO)
Plumbing-Heating-Cooling Contractors Association of California
(CAPHCC)
State of California Auto Dismantlers Association (SCADA)
The Little Hoover Commission
Opposition:
None on file as of June 16, 2015.
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