BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
2770 (Monning)
Hearing Date: 8/2/2010 Amended: 4/13/2010
Consultant: Bob Franzoia Policy Vote: L&IR 4-1
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BILL SUMMARY: AB 2770 would require the Labor Commissioner, in
consultation with the Franchise Tax Board and the Economic and
Employment Enforcement Coalition (EEEC), to develop and
implement standards that, if met by an employer, would trigger a
recommendation for an audit or investigation by appropriate
state tax authorities of employers in violation of statutes
relating to employee wages, hours, and working conditions.
After July 1, 2011, this bill would require the Labor
Commissioner or the EEEC to take actions to facilitate audits
and investigations of employers who meet the standards required
by this bill.
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Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12 2012-13 Fund
Develop and implement Up to $100 Special*
referral standards
Implementation
- audits or investigations Up to $590Up to
$440 Special*
- violations (revenue) Unknown,
potentially sig- General
nificant increase in revenue
* Special funds within the Labor and Workforce Development
Agency, the Department of Consumer Affairs, and federal funds
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STAFF COMMENTS: This bill meets the criteria for referral to the
Suspense File.
The EEEC Web site notes the EEEC was created as a multi-agency
enforcement program consisting of investigators from the
Division of Labor Standards Enforcement, Division of
Occupational Safety and Health, Employment Development
Department, Contractors State License Board and US Department of
Labor. The Web site also notes the primary emphasis of the EEEC
is to combine the enforcement efforts of the agencies and deploy
as many investigators into the field as possible.
The Board of Equalization and the Franchise Tax Board estimate
that an average of $8.5 billion in owed corporate, personal, and
sales and use taxes go uncollected in California annually, with
unreported and underreported economic activity responsible for
the vast majority of that total. The Controller's office
estimates that 11 percent of taxes owed in California go
uncollected, and another 3 percent are collected only through
state enforcement.
The Department of Industrial Relations indicates this bill would
result in costs to (1) add the referral standards to its
investigation protocols, (2) include referrals in investigation
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AB 2770 (Monning)
reports, (3) track referrals, and (4) train its investigators.
These estimates assume that about one half of its 9,000
inspections will result in referrals. Preliminary information
on the number of investigations the EEEC has referred to the BOE
or the FTB is unclear. EDD's Underground Economy Group, which
is included in the EEEC, will occasionally partner with the FTB,
and on a more frequent basis with the BOE, on sweeps of interest
to both agencies.
These costs would be offset in part, or in whole, by increased
penalty revenues depending on the focus of the audit activities,
which would be directed, presumably, at the cases that have the
potential for the greatest return of tax revenues.
The EEEC reports that, since 2005-06 there have been 1,096 lead
referrals and 1060 audits or investigations completed. The
total liability assessed is approximately $56 million with an
average of $286,000. The total of unreported wages is
approximately $345 million and the number of misclassified
workers identified is approximately 16,900.
This bill is similar to AB 875 (Koretz) 2005 which was vetoed by
the Governor with the following message:
This bill calls for the development of an unnecessary set of
standards. The Labor and Workforce Development Agency already
has the authority to coordinate enforcement efforts related to
the underground economy. Additionally, this bill is duplicative
of efforts currently underway by the Economic and Employment
Enforcement Coalition, an inter-agency task force focused on
enforcement activities. This year's budget includes $6.5
million and 62 personnel years for coordinated enforcement of
the underground economy by these entities.
This bill is also similar to AB 2879 (Leno) 2008 which was held
on the Suspense File.