The federal Workforce Innovation and Opportunity Act of 2014 provides for workforce investment activities, including activities in which states may participate. Existing law contains various programs for job training and employment investment, including work incentive programs, as specified, and establishes local workforce investment boards to perform duties related to the implementation and coordination of local workforce investment activities. Existing law requires local workforce investment boards to spend a minimum percentage of specified funds for adults and dislocated workers on federally identified workforce training programs and allows the boards to leverage specified funds to meet the funding requirements, as specified. Existing law authorizes a credit of up to 10% of that funding minimum for leveraged funds, which include Pell Grants and employment training panel grants.

This bill would expand the types of services to which leveraged funds may be applied to include supportive services and would expand the types of leveraged funds that may be applied to the 10% credit, described above, to include specified federal, local, state, and private funds.

Existing law generally entitles employees to one days rest in 7 and prohibits an employer from causing his or her employees to work more than 6 days in 7. Existing law prescribes exceptions from these restrictions, including in a case of emergency and when work is performed in the protection of life or property from loss or destruction. Existing law also permits an accumulation of days of rest if the employment reasonably requires that the employee work 7 or more consecutive days.

This bill would make nonsubstantive changes to these provisions.

 THIRD READING  

Bill No: AB 1508

Author: Roger Hernández (D)

Amended: 3/26/15 in Assembly

Vote: 21

SENATE BUS, PROF. & ECON. DEV. COMMITTEE: 9-0, 6/22/15

AYES: Hill, Bates, Berryhill, Block, Galgiani, Hernandez, Jackson, Mendoza, Wieckowski

SENATE APPROPRIATIONS COMMITTEE: 5-2, 8/27/15

AYES: Lara, Beall, Hill, Leyva, Mendoza

NOES: Bates, Nielsen

ASSEMBLY FLOOR: 77-2, 6/1/15 - See last page for vote

SUBJECT: Underground economy: policy adviser

SOURCE: Author

DIGEST: This bill requires the Governor to designate an independent policy adviser for the underground economy.

ANALYSIS:

Existing law:

1. Establishes an enforcement division in the Contractors State License Board (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. Authorizes the 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))
   
   

3. Authorizes an unlicensed contractor to advertise for construction work only if the advertisement states that he or she is not licensed. (BPC § 7027.2)
   
   

4. 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)
   
   

5. 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. Specifies that the adviser’s responsibilities shall include, but not be limited to, the following:

1. Monitoring the state’s existing underground economy task forces and interagency partnerships to ensure that they are organized efficiently.

2. Evaluating whether any task forces and partnerships should be eliminated or restructured to improve effectiveness.

3. Evaluating whether existing task forces and partnerships have sufficient resources and whether gaps or overlaps exist in combating the underground economy.

4. Reviewing enforcement staffing and funding levels and developing recommendations to adequately fund enforcement.

5. Developing recommendations to eliminate barriers that prevent task forces and partnerships from being fully effective.

6. Leading a strategic planning process to develop performance outcomes for combating the underground economy.

2. Requires the adviser, 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.

Background

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.

This bill aims to implement the Commission’s recommendations.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

According to the Senate Appropriations Committee, this bill will result in General Fund costs, likely in the low hundreds of thousands of dollars annually, to establish a chief policy adviser, evaluate the various task forces and partnerships, and submit a report to the Legislature.

SUPPORT: (Verified 8/29/15)

California Pool and Spa Association

California Professional Association of Specialty Contractors

Pacific Association of Building Service Contractors

Plumbing-Heating-Cooling Contractors Association of California

State of California Auto Dismantlers Association

The Little Hoover Commission

OPPOSITION: (Verified 8/29/15)

None received

ARGUMENTS IN SUPPORT: Supporters state that an unfair playing field undermines state laws that protects consumers and workers, harms law-abiding businesses, and defrauds the state of significant tax revenue.

ASSEMBLY FLOOR: 77-2, 6/1/15

AYES: Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang, Chau, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gipson, Gomez, Gonzalez, Gray, Grove, Hadley, Harper, Roger Hernández, Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Perea, Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood, Atkins

NOES: Chávez, Gatto

NO VOTE RECORDED: Gordon

Prepared by: Mark Mendoza / B., P. & E.D. / (916) 651-4104

8/30/15 19:27:53

**** END ****

SENATE COMMITTEE ON APPROPRIATIONS

Senator Ricardo Lara, Chair

2015 - 2016 Regular Session

AB 1508 (Assembly Member Roger Hernández) - Underground economy: policy adviser

This bill meets the criteria for referral to the Suspense File.

Bill Summary:

AB 1508 would require the establishment of an independent policy advisor for the underground economy, as specified.

Fiscal Impact:

This bill would result in General Fund costs, likely in the low hundreds of thousands of dollars annually, to (1) establish a chief policy advisor, (2) evaluate the various task forces and partnerships, and (3) submit a report to the Legislature, as specified.

Background:

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 reduce revenues relative to what would be owed under current law. Examples (1) include working without required permits or licenses, (2) not complying with regulated mandatory processes, and (3) 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. The Board of Equalization’s Research and Statistics Section has estimated 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.

The State currently has four major task forces focused on the underground economy, but their overall progress is unclear. 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. In March 2015, the Little Hoover Commission released a report entitled, "Level the Playing Field: Put California's Underground Economy Out of Business," which made a number of findings and recommendations. One of these recommendations was the establishment of a chief policy advisor for the underground economy. Specifically, 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 better combat the underground economy.

Proposed Law:

This bill would require the Governor to designate an independent chief policy adviser for the underground economy. Specifically, this bill would do the following:

• Specify the adviser’s responsibilities, including monitoring and evaluating the state’s existing underground economy task forces and interagency partnerships to ensure that they are organized efficiently and to determine whether they should be restructured or eliminated to improve effectiveness. Moreover, the bill would require the advisor to assess whether resources are sufficient; including review of enforcement staffing and funding levels.

• Require 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.

Staff Comments: The bill as currently drafted does not give guidance concerning whether the policy advisor would be staffed to perform the required workload. Providing staff to the advisor would result in further increased General Fund costs of hundreds of thousands of dollars annually.

Given that (1) the bill would require the newly created position to report to the Legislature on January 1, 2017, but (2) the bill does not contain a sunset, it is unclear whether the intent of the bill is to continue the existence of the advisor past that point in time. Staff notes that, with respect to the evaluative work required of the policy advisor concerning recommended administrative or legislative changes to improve efforts to curtail the underground economy, this workload is likely one-time in nature.

-- END --

SENATE COMMITTEE ON APPROPRIATIONS

Senator Ricardo Lara, Chair

2015 - 2016 Regular Session

AB 1508 (Assembly Member Roger Hernández) - Underground economy: policy adviser

This bill meets the criteria for referral to the Suspense File.

Bill Summary:

AB 1508 would require the establishment of an independent policy advisor for the underground economy, as specified.

Fiscal Impact:

This bill would result in General Fund costs, likely in the low hundreds of thousands of dollars annually, to (1) establish a chief policy advisor, (2) evaluate the various task forces and partnerships, and (3) submit a report to the Legislature, as specified.

Background:

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 reduce revenues relative to what would be owed under current law. Examples (1) include working without required permits or licenses, (2) not complying with regulated mandatory processes, and (3) 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. The Board of Equalization’s Research and Statistics Section has estimated 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.

The State currently has four major task forces focused on the underground economy, but their overall progress is unclear. 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. In March 2015, the Little Hoover Commission released a report entitled, "Level the Playing Field: Put California's Underground Economy Out of Business," which made a number of findings and recommendations. One of these recommendations was the establishment of a chief policy advisor for the underground economy. Specifically, 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 better combat the underground economy.

Proposed Law:

This bill would require the Governor to designate an independent chief policy adviser for the underground economy. Specifically, this bill would do the following:

• Specify the adviser’s responsibilities, including monitoring and evaluating the state’s existing underground economy task forces and interagency partnerships to ensure that they are organized efficiently and to determine whether they should be restructured or eliminated to improve effectiveness. Moreover, the bill would require the advisor to assess whether resources are sufficient; including review of enforcement staffing and funding levels.

• Require 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.

Staff Comments: The bill as currently drafted does not give guidance concerning whether the policy advisor would be staffed to perform the required workload. Providing staff to the advisor would result in further increased General Fund costs of hundreds of thousands of dollars annually.

Given that (1) the bill would require the newly created position to report to the Legislature on January 1, 2017, but (2) the bill does not contain a sunset, it is unclear whether the intent of the bill is to continue the existence of the advisor past that point in time. Staff notes that, with respect to the evaluative work required of the policy advisor concerning recommended administrative or legislative changes to improve efforts to curtail the underground economy, this workload is likely one-time in nature.

-- END --

SENATE COMMITTEE ON

BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT

Senator Jerry Hill, Chair

2015 - 2016 Regular

Bill No: AB 1508 Hearing Date: June 22, 2015

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)
   
   

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:

   1. Monitoring the state’s existing underground economy task forces and interagency partnerships to ensure that they are organized efficiently.

   2. Evaluating whether any task forces and partnerships should be eliminated or restructured to improve effectiveness.

   3. Evaluating whether existing task forces and partnerships have sufficient resources and whether gaps or overlaps exist in combating the underground economy.

   4. Reviewing enforcement staffing and funding levels and developing recommendations to adequately fund enforcement.

   5. Developing recommendations to eliminate barriers that prevent task forces and partnerships from being fully effective.

   6. 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 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 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 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.

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 1508

Author:(Roger Hernández)

As Amended Ver:March 26, 2015

Majority vote

SUMMARY: Requires the establishment of an independent policy advisor for the underground economy, as specified. Specifically, 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:

   1. Monitoring the state’s existing underground economy task forces and interagency partnerships to ensure that they are organized efficiently.

   2. Evaluating whether any task forces and partnerships should be eliminated or restructured to improve effectiveness.

   3. Evaluating whether existing task forces and partnerships have sufficient resources and whether gaps or overlaps exist in combating the underground economy.

   4. Reviewing enforcement staffing and funding levels and developing recommendations to adequately fund enforcement.

   5. Developing recommendations to eliminate barriers that prevent task forces and partnerships from being fully effective.

   6. 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: 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: In March 2015, the Little Hoover Commission (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.

The California Pool & Spa Association supports this bill, stating that their members face a competitive disadvantage to the unlicensed or non-compliant contractors who perform work for a much cheaper cost as a result of skirting labor, insurance, and tax requirements. An unfair playing field undermines state laws that protect consumers and workers, harms tax-abiding businesses, and defrauds the state of significant tax revenue.

There is no opposition on file to this bill.

Analysis Prepared by: Ben Ebbink / L. & E. / (916) 319-2091 FN: 0000571

Date of Hearing: May 6, 2015

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Jimmy Gomez, Chair

ABPCA Bill Id:AB 1508

Author:(Roger Hernandez) – As Amended Ver:March 26, 2015

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill requires the Governor to designate an independent chief policy adviser for the underground economy. Specifically, this bill:

1. Specifies the adviser’s responsibilities, including monitoring and evaluating the state’s existing underground economy task forces and interagency partnerships to ensure that they are organized efficiently and to determine whether they should be restructured or eliminated to improve effectiveness. Further, requires the advisor to assess whether resources are sufficient; including review of enforcement staffing and funding levels.

2. 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:

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:

Purpose. There are currently four major state-level task forces that 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.

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.

According to the author, consistent with the Commission's recommendations, this bill requires the Governor to appoint an independent chief policy advisor for the underground economy. Further, the bill requires the advisor to submit a report to the Governor and the Legislature that summarizes findings and recommendations, with a particular emphasis on any recommended administrative or legislative changes.

Analysis Prepared by: Misty Feusahrens / APPR. / (916) 319-2081

Date of Hearing: April 22, 2015

ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT

Roger Hernández, Chair

ABPCA Bill Id:AB 1508

Author:(Assembly Member Roger Hernández) – As Amended Ver:March 26, 2015

SUBJECT: Underground economy: policy adviser

SUMMARY: Requires the establishment of an independent policy advisor for the underground economy, as specified. Specifically, 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:

   1. Monitoring the state’s existing underground economy task forces and interagency partnerships to ensure that they are organized efficiently.

   2. Evaluating whether any task forces and partnerships should be eliminated or restructured to improve effectiveness.

   3. Evaluating whether existing task forces and partnerships have sufficient resources and whether gaps or overlaps exist in combating the underground economy.

   4. Reviewing enforcement staffing and funding levels and developing recommendations to adequately fund enforcement.

   5. Developing recommendations to eliminate barriers that prevent task forces and partnerships from being fully effective.

   6. 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: Unknown

COMMENTS: 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 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.

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.

Changes Proposed by this Bill

Consistent with the recommendation from the Little Hoover Commission report, this bill requires the Governor to designate an independent chief policy advisor for the underground economy.

The advisor's responsibilities shall include, but not be limited to, the following:

• Monitoring the state's existing underground economy task forces and interagency partnerships to ensure that they are organized efficiently.

• Evaluating whether any task forces and partnerships should be eliminated or restructured to improve effectiveness.

• Evaluating whether existing task forces and partnerships have sufficient resources and whether there are no gaps or overlaps in enforcement of the underground economy.

• Reviewing enforcement staffing and funding levels and developing recommendations to adequately fund enforcement.

• Developing recommendations to eliminate barriers that prevent task forces and partnerships from being fully effective.

• Leading a strategic planning process to develop performance outcomes for combating the underground economy.

This bill also requires the advisor, no later than January 1, 2017, to submit a report to the Governor and the Legislature that summarizes the advisor's findings and recommendations, with a particular emphasis on any recommended administrative or legislative changes.

ARGUMENTS IN SUPPORT

The Little Hoover Commission supports this bill, as it implements one of the Commission's key recommendations from the March 2015 report.

The California Pool & Spa Association supports this bill, stating that their members face a competitive disadvantage to the unlicensed or non-compliant contractors who perform work for a much cheaper cost as a result of skirting labor, insurance, and tax requirements. An unfair playing field undermines state laws that protect consumers and workers, harms tax-abiding businesses, and defrauds the state of significant tax revenue.

REGISTERED SUPPORT / OPPOSITION:

Support

California Professional Association of Specialty Contractors

Plumbing-Heating-Cooling Contractors Association of CA

Little Hoover Commission

California Pool & Spa Association

Opposition

None on file.

Analysis Prepared by: Benjamin Ebbink / L. & E. / (916) 319-2091