BILL ANALYSIS
AB 2770
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 2770 (Monning)
As Amended August 18, 2010
Majority vote
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|ASSEMBLY: |58-17|(June 1, 2010) |SENATE: |24-3 |(August 25, |
| | | | | |2010) |
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Original Committee Reference: L. & E.
SUMMARY : Establishes a pilot program related to the underground
economy.
The Senate amendments :
1 Limit the provisions of the bill to a pilot program directed
at the swimming pool and spa construction industry.
2)Designate the Employment Development Department (EDD) as the
lead agency to develop and implement the pilot program, in
consultation with other state entities, as specified.
3)Provide that the set of criteria developed by EDD shall take
into account enforcement tools, including but not limited to,
reported workers' compensation exemptions and the ratio of
building material purchases to reported labor costs.
4)Require EDD to develop these criteria in consultation with
industry representatives.
5)Add a January 1, 2017, sunset date for the provisions of the
bill.
EXISTING LAW :
1)Establishes the Joint Enforcement Strike Force on the
Underground Economy (JESF) to combat the underground economy
and to report to the Legislature by June 30 of each year.
JESF is a partnership involving the EDD, the Division of Labor
Standards Enforcement, the Department of Consumer Affairs, the
Franchise Tax Board (FTB), the State Board of Equalization,
and the United States Department of Justice.
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2)Designates the Director of EDD as the chairperson of JESF and
authorizes employees of any of the agencies that participate
in JESF to issue Labor Code citations and penalty assessment
orders to employers found in violation of the law.
3)Establishes the Economic and Employment Enforcement Coalition
(EEEC), which consists of investigators from the Division of
Labor Standards Enforcement (DLSE), the Division of
Occupational Safety and Health (DOSH), the EDD, the
Contractor's State License Board, and the United States
Department of Labor (DOL).
AS PASSED BY THE ASSEMBLY , this bill:
1)Required the Labor and Workforce Development Agency (Agency)
in consultation with the FTB and the EEEC to develop and
implement a set of standards that, if met by an employer,
would trigger a recommendation for a tax audit or
investigation of employers violating state laws regarding
wages, hours and working conditions.
2)Required the Labor Commissioner (LC) to take specified actions
to facilitate audits and investigations of employers who meet
the standards required by this bill after July 1, 2011.
3)Stated related findings and declarations to the underground
economy.
FISCAL EFFECT : According to the Senate Appropriations
Committee, a minimum of three positions would be needed to
implement an effective pilot program, with an annual cost of
$300,000 in future years. These costs may be offset by an
unknown increase in penalty revenue.
COMMENTS : According to the author, California's vast
underground economy is thriving. According to EDD analysis of
IRS data, California's underground economy is worth between $60
and $140 billion a year. Because business in the underground
economy is conducted outside the bounds of state law, businesses
operating there are able to gain an unfair advantage over their
law-abiding competitors by flouting labor laws and ignoring
their tax obligations to state and local governments.
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The author argues that violations of labor and tax laws often go
hand in hand. Every time an employer fails to pay a worker
minimum wage, ignores overtime pay requirements, or simply pays
in cash under the table, the state loses revenues from income
and payroll taxes that fund the unemployment insurance system,
paid family leave, disability insurance and vital state general
fund programs.
FTB and the Board of Equalization estimate that an average of
$8.5 billion in owed corporate, personal, and sales and use
taxes go uncollected in California each year, with unreported
and underreported economic activity responsible for the vast
majority of that total. The State Controller's Office estimates
that 11% of taxes owed in California go uncollected, and another
3% are collected only through state enforcement.
The author notes that as the state faces a multi-billion dollar
budget deficit, increased collection of already-owed taxes
should be a top budget priority. Despite the clear nexus
between employers that violate both sets of laws, there is no
formal process to ensure that the enforcement efforts of one
department are reflected in the work of another. This lack of
coordination is worsened by the limited enforcement resources
available in California. For the past several decades, labor
law enforcement has been on the decline. Between 1980 and 2000,
California's workforce grew 48%, but the DLSE staffing levels
went down 7.6%.
The author argues that with such constrained enforcement
capacity, the state should do all it can to maximize the impact
of the enforcement activities that are taking place. This bill
allows them to do this, while building on the work of the EEEC
and without being unnecessarily prescriptive. This bill is
necessary to better leverage limited state resources, encourage
compliance with state labor laws, and maximize state revenues by
collecting funds otherwise lost to the underground economy.
This bill is supported by the Spa & Pool Industry Council
(SPEC), who states that employers operating in the underground
economy hurt everyone, the state loses billions of dollars each
year in tax revenues, workers are forced to go without basic
employment protections, and law-abiding businesses are
confronted with unfair competition from scofflaw competitors.
SPEC states that, as legitimate employers working in the pool
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and spa industry in California, they support the efforts of this
bill to target those employers that operate in the underground
economy in flagrant violation of the law, and not employers that
commit minor or inadvertent violations of existing law.
Analysis Prepared by : Ben Ebbink / L. & E. / (916) 319-2091
FN:
0006034