BILL ANALYSIS �
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|SENATE RULES COMMITTEE | SB 1185|
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THIRD READING
Bill No: SB 1185
Author: Price (D)
Amended: 5/29/12
Vote: 21
SENATE GOVERNANCE & FINANCE COMMITTEE : 9-0, 4/11/12
AYES: Wolk, Dutton, DeSaulnier, Fuller, Hancock,
Hernandez, Kehoe, La Malfa, Liu
SENATE GOVERNMENTAL ORGANIZATION COMM. : 13-0, 4/24/12
AYES: Wright, Anderson, Berryhill, Calderon, Cannella,
Corbett, De Le�n, Evans, Hernandez, Padilla, Walters,
Wyland, Yee
SENATE APPROPRIATIONS COMMITTEE : 7-0, 5/24/12
AYES: Kehoe, Walters, Alquist, Dutton, Lieu, Price,
Steinberg
SUBJECT : Centralized Intelligence Partnership:
underground operations
SOURCE : Board of Equalization
DIGEST : This bill (1) creates a multiagency partnership
consisting of specified state entities, to be known as the
Centralized Intelligence Partnership, to collaborate in
combating illegal underground operations by, among other
activities, providing a central intake process and
organizational structure, with an administrator and support
staff, to document, review, and evaluate data and
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complaints; (2) creates an advisory committee, comprised of
one representative from each entity in the partnership, to
provide guidance on the activities and operations of the
partnership; (3) requires the advisory committee to the
partnership to determine the appropriate agency to house
the processing center for the partnership; (4) authorizes
duly authorized representatives of members of the
partnership to exchange information for the purpose of
investigating illegal underground operations; (5) requires
the partnership, starting on or before July 1, 2014, to
annually report to the Legislature and entities
participating in the partnership on its activities; (6)
requires an additional report to be filed with the
Legislature by December 1, 2016, to include the number of
complaints received by the partnership and cases
investigated or prosecuted, as specified; and (7) sunsets
on January 1, 2018.
ANALYSIS :
I. Underground Economy . The California Constitution
establishes the Board of Equalization (BOE) as a
five-member board composed of four members elected by
each district plus the State Controller. Currently, BOE
administers sales and use taxes, excise taxes, special
taxes, and the state's fee programs. Retailers collect
sales taxes from customers when they purchase tangible
personal property, and remit those taxes quarterly to
BOE.
The Franchise Tax Board (FTB) is a three-person board
comprised of the State Controller, Director of the
Department of Finance, and Chair of the BOE. FTB
administers the Personal Income Tax and Corporation Tax
Law, and collects debts on behalf of state and local
agencies. FTB may issue forms necessary to administer
the taxes. Employees and others receiving payments
reconcile amounts previously withheld with actual tax
due when filing their annual tax returns with FTB.
State law additionally directs:
The Employment Development Department (EDD) to
administer the Unemployment Insurance Fund, the
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Disability Insurance Fund, and the Employment
Training Fund, and collect deposits from employers
for these funds as well as personal income tax
withholding.
The Department of Insurance (CDI) to administer
and collect the Gross Premiums Tax, assessed on
insurance companies.
The Department of Motor Vehicles (DMV) to
administer and collect vehicle license and
registration fees, regulate the sale of vehicles, and
protect consumers purchasing vehicles.
The Department of Industrial Relations (DIR) to
regulate workforce safety, administer the worker's
compensation program, and enforce most labor laws.
The Department of Justice (DOJ) to adequately and
uniformly enforce the state's laws, and represent the
people of the State of California in legal matters.
The Department of Consumer Affairs (DCA) and its
member bureaus, boards, and commissions generally
serve to protect California consumers, regulating
more than 100 business and 200 professional
categories, including barbers and cosmetologists,
dentists, and contractors, among others.
The Health and Human Services Agency (HHS)
oversees departments that provide Medi-Cal and
In-Home Supportive Services, among others.
In 1994, Governor Pete Wilson signed executive order
W-66-93, creating the Joint Economic Strike Force (JESF)
to address the problem of the underground economy. The
JESF is led by the EDD and housed within its Underground
Economy Operations, and also consists of the Labor
Commissioner's Office, the DCA, the Office of Criminal
Justice Planning, the FTB, the BOE, and the DOJ, and was
codified by the Legislature (SB 1490, Johnston, 1994).
The JESF publishes an annual report documenting its
efforts.
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In 2005, Governor Arnold Schwarzenegger's 2005-06 Budget
established the Economic and Employment Enforcement
Coalition (EEEC), housed in DIR, and comprised of
investigators and auditors from DIR's Division of Labor
Standards Enforcement and Occupational Safety and
Health, together with EDD, DCA, and the Contractors
State License Board (CSLB). The United States
Department of Labor also participates in the coalition,
which states that it is "collaborating for vigorous and
targeted enforcement against unscrupulous businesses.
EEEC aids in leveling the playing field while restoring
competitive advantage to law abiding businesses and
their employees." Governor Brown renamed the EEEC the
DIR Labor Enforcement Task Force (LETF), effective
January 1, 2012. DIR launched a new collaborative
effort between state agencies to combat illegal business
practices and improve California's business environment.
LETF's primary partners are EDD, the CSLB, BOE, and the
Bureau of Automotive Repair, with collaboration by the
Department of Insurance, the Attorney General, and local
district attorneys.
Additionally, EDD operates the Questionable Employment
Tax Practices Program, initiated in 2007, which is a
collaborative effort between EDD and the Internal
Revenue Service (IRS). A memorandum of understanding
between IRS and EDD provides for information exchange.
II. Confidential Information . State law generally prohibits
unlawful disclosure or inspection of any income tax
return information except as specified in law. Criminal
sanctions, including possible imprisonment for violation
of income tax confidentiality, apply to BOE personnel
convicted of unlawful disclosure or inspection of tax
records. Other state agencies also have statutes
restricting use of information for administrative
purposes, and apply criminal misdemeanor or felony for
unauthorized uses.
This bill enacts the Centralized Intelligence Partnership
Act, and requires it to:
1. Provide a central intake process and organizational
structure to document, review, and evaluate data and
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complaints.
2. Establish a processing center to receive and analyze
data, share complaints, and research leads from the
input of each impacted agency.
3. Provide participating and nonparticipating agencies with
value-added investigative leads where collaboration
opportunities exist for felony-level criminal and civil
investigations.
4. Provide that each participating and nonparticipating
agency retain jurisdictional authority over whether to
pursue partnership strategies or collaborative
investigative leads.
5. Document and provide data analysis, analytic data
findings, referrals, collaborative opportunities,
outcomes, emerging evasion trends, lessons learned, as
well as additional enforcement, administrative, and
legislative opportunities.
The Partnership includes the HHS, DCA, DIR, CDI, DOJ, DMV,
EDD, FTB, and the BOE.
This bill establishes an advisory committee comprised of
one representative from each of the above-listed entities,
appointed by and serving at the pleasure of the entity's
head. The committee shall meet as needed, but at least
quarterly. The committee shall decide which agency shall
house the partnership's processing center.
This bill allows duly authorized representatives of members
of the partnership to exchange intelligence, data,
documents, information, complaints, or lead referrals for
the purpose of investigating illegal, underground
operations. Any member or ex-member of the partnership, or
any agent employed by the partnership, or any person who
has obtained such knowledge from any of the above, shall
not divulge or make known any information in a manner not
allowed by law. Information shall retain its confidential
status and shall remain subject to specifically enumerated
confidentiality statutes guiding each agency.
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The Partnership shall report to the Legislature on or
before January 1, 2016, specifying:
1. The number of leads or complaints the Partnership
receives,
2. The number of cases investigated and prosecuted through
criminal or civil action, and
3. Recommendations for modifying, eliminating, or
continuing the operation of the Partnership.
This bill sunsets the partnership on January 1, 2018, and
is of that date repealed.
Comments
According to the author:
I authored Senate Bill 118 at the request of Board of
Equalization Chairman Jerome Horton to combat the
underground economy. According to the California Chamber
of Commerce the "underground economy" is a term that
refers to individuals and businesses that deal in cash
and/or use other schemes to conceal their business
activities. In doing so, they escape their true tax
liability, responsibilities to employees, government
licensing, regulatory and taxing agencies. The
underground economy hurts legitimate businesses, creates
an enormous tax gap and hurts all California due to the
loss of revenue. The Board of Equalization (BOE)
estimates that the State of California losses about $8
billion dollars annually in tax revenue due to the
underground economy. This revenue is needed to fund
critical programs such as education, public safety,
infrastructure and social services. Given the need to
eliminate the underground economy in order to support
legitimate businesses and fund critical programs to
improve the quality of life for Californians this bill
must be immediately approved by the Legislature and
Governor.
SB 1185 will establish a Centralized Intelligence
Partnership among nine state entities in order to share
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information, resources and best practices to reign in on
the underground economy. While there have been numerous
efforts and attempts to reign in on the underground
economy they have not been successful because of the lack
of coordination and collaboration among state agencies.
Combating the underground economy is a difficult task and
it takes teamwork and the elimination state agencies
working only in functional silos.
The Centralized Intelligence Partnership would include
the following state entities: Board of Equalization,
Franchise Tax Board, Health and Human Services Agency,
Department of Consumer Affairs, Department of Industrial
Relations, Department of Insurance, Department of
Justice, Department of Motor Vehicles, and the Employment
Development Department. According to the Board of
Equalization's revenue estimate with the enactment of SB
1185 the Centralized Intelligence Partnership will
increase the BOE investigations of underground economy
activities by 120% of its 2010-2011 figures. In its
first year the Centralized Intelligence Partnership is
estimated to yield $15 million dollars in tax revenues
for the state.
SB 1185 is a win-win for California. This legislation
addresses the underground economy by establishing a
multi-agency partnership among state agencies. Given
chronic budgets deficits the state faces on an annual
basis we must reign in on the underground economy that
robs our state if the vital resources needed to fund
programs so that our residents can thrive and prosper.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee, as it
relates to the prior version of the bill:
Unknown increased staffing costs to each of the
participating state entities, likely in the range of
$500,000 to $1 million in total for BOE, FTB, and EDD to
provide staff and resources to the Partnership (General
Fund). Additional staffing costs, likely in the range of
$200,000 to $500,000 beginning in 2013-14, to hire an
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administrator and staff to the Partnership.
Additional increased staffing costs in the range of
$300,000 annually (General Fund and various Special
Funds) to require participation of six additional state
entities in the Partnership in an advisory role (up to
1/2 PY each).
Significant cost pressures to hire additional
administrative, investigative, and enforcement staff
among the participating entities upon full implementation
of the Partnership (General and various Special Funds).
These costs would likely be mitigated by future revenue
gains resulting from increased enforcement activities.
Estimated costs in the range of $750,000 to establish and
house the Partnership's processing center (General Fund).
Unknown future revenue gains, likely tens of millions of
dollars annually beginning in 2014-15 (General Fund),
related to enforcement actions and increased tax
collections. A portion of the revenue gains could be
offset by revenue losses to the extent Partnership
activities supplant existing revenue-generating
enforcement efforts among the participating entities.
Unknown costs or savings related to the impact on
existing enforcement staffing levels within each of the
participating entities (General and various Special
Funds).
SUPPORT : (Verified 4/24/12) (per Senate Governmental
Organization Committee analysis - unable to reverify at
time of writing)
Board of Equalization (source)
California Association for Health Services at Home
California Building Industry Association
California Chamber of Commerce
California Grocers Association
California Healthcare Institute
California Manufacturing and Technology Association
California Spa & Pool Industry Educational Council
California Statewide Law Enforcement Association
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California Taxpayers Association
Cities of Carson , Gardena, Hawthorne, and South Gate
Construction Industry Legislative Council
Culver City Chamber of Commerce
Fullerton Chamber of Commerce
Los Angeles Area Chamber of Commerce
Southwest California Legislative Council
AGB:mw 5/29/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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