BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
2770 (Monning)
Hearing Date: 8/12/2010 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 (FTB) 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
Pilot program
- audits or investigations $150 $300
$300General/
Special*
- violations (revenue) Unknown increase in penalty
revenue General
* Special funds within the Labor and Workforce Development
Agency, the Department of Consumer Affairs, General Funds within
FTB and the Employment Development Department and federal funds
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STAFF COMMENTS: SUSPENSE FILE. AS PROPOSED TO BE AMENDED.
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
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.
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AB 2770 (Monning)
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.
As proposed to be amended the bill would generally read as
follows:
a) Effective January 1, 2011, a pilot program shall be
established within the Swimming Pool and Spa construction
industry. The pilot program shall sunset on December 31, 2016.
The participating agencies in the pilot program shall
incorporate existing resources for enforcement of this program.
(b) The Labor Commissioner or his or her designee from the Labor
and Workforce Development Agency Employment Development
Department (EDD), in consultation with the Franchise Tax Board,
Department of Justice, Department of Insurance, and the Economic
and Employment Enforcement Coalition (EEEC) Labor and Workforce
Development Agency, shall, by July 1, 2011, develop and
implement an appropriate set of standards criteria that, if met
by an employer, will trigger a recommendation for an audit or
investigation by appropriate state tax authorities of employers
in violation of this chapter, Chapter 1 (commencing with Section
200) of Part 1, or Chapter 1 (commencing with Section 1171) of
Part 4. The set of standards criteria shall take into account,
among other things, the severity and number of violations
committed by an employer enforcement tools, including but not
limited to, reported workers compensation exemptions and the
ratio of building material purchases to reported labor costs.
The Department shall develop these criteria in consultation with
industry representatives.
(c) After July 1, 2011, the Labor Commissioner or the EEEC,
whichever of the two has authority over the investigation
through which it was discovered that the standards developed in
subdivision (a) have been met, EDD shall take all of the
following actions
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AB 2770 (Monning)
with respect to an employer who has met those standards when any
violation specific to this section has occurred:
(1) Notify the appropriate state tax authorities; each time
the set of standards is met by an employer.
(2) Provide the appropriate state tax authorities with the
name of the employer and all relevant and necessary information
regarding the violations; and
(3) Make a recommendation to the appropriate state tax
authorities that the employer be audited or investigated.
This analysis estimates a minimum of three positions would be
needed to implement an effective pilot program.