Black Markets

Hypocritical Contractors Behind Intrusive New Law

Red tape is driving some workers underground, so already-licensed workers are calling for even more red tape.

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SACRAMENTO — California employers often complain about excessive regulations, unannounced visits to job sites by inspectors and large fines for small infractions, but the state's contracting industry successfully lobbied the legislature to pass a punitive bill to crack down on its lower-cost competition.

Last week, Gov. Jerry Brown signed into law S.B. 315, which gives the Contractors State License Board "free access to all places of labor" during certain "strike force enforcement activities" to check on the licensing status of contractors. This gives the state broader power to investigate job sites.

The new law also imposes hefty fines on handymen who advertise construction jobs that cost, in total labor and materials, more than $500. It had been illegal for unlicensed contractors to accept jobs that exceed that modest limit — but nothing explicitly stopped them from advertising their ability to perform larger jobs. The law closes that "loophole."

Previously, contractors who worked with a suspended license faced administrative penalties. But S.B. 315 — authored by Sen. Ted Lieu (D-Torrance) at the behest of the contracting board — calls for their criminal prosecution. The end result could be more incarceration at a time when the state is looking for ways to minimize it.

"These new tools will make a difference when it comes to going after anyone who takes advantage of consumers by working without a license or cheating to compete with licensed contractors who follow the rules," according to the contracting board's spokesman.

Is it really "taking advantage" when a contractor freely enters into a contract with a homeowner? Lieu said he wants to halt the "underground economy," but there's no way law enforcement can stop such practices any more than it can stop other underground activities (narcotic sales, prostitution, etc.). A thriving underground economy often is a sign of problems in the above-ground economy.

An obvious problem here may be the occupational licensing laws themselves, which are more about protecting established businesses from competition (and maintaining a cadre of state enforcement agents) than about protecting consumers. That's why some states, such as Texas, are reducing these licensing rules.

"Occupational licensing denies or makes it more difficult for the working poor to get on the rungs of the ladder of success," said former Irvine Republican Assemblyman Chuck DeVore, now vice president of the conservative Texas Public Policy Foundation. "There's no evidence these licensing schemes do anything other than drive up the cost of labor by restricting the supply."

According to the official Senate analysis of S.B. 315, "The California Landscape Contractors Association states that … unlicensed persons unfairly compete with legitimate contractors who must, as a condition of being licensed, fully comply with voluminous labor, tax, workers safety and bonding laws. Compliance typically adds 15 to 20 percent to the cost of performing construction work." That's a tacit admission that its goal is to level the playing field.

The state licensing board recently sent out a press release showcasing its sting operation that captured 15 people in Santa Monica. The men are accused of trying to get hired to paint an apartment without having a license, which can be costly and time-consuming to obtain. (This approach seems odd given the state's largely hands-off approach to unauthorized immigration, and such immigrants often rely on unlicensed contracting work to earn a living.)

"One study of national trends found that occupational licensing programs reduce the rate of job growth by 20 percent," according to a report by Texas gubernatorial candidate Greg Abbott, a Republican. I recently received bids for a small construction project from licensed contractors — and their prices were so far beyond those of the unlicensed guys that I just skipped the project. Those dollars won't ever be spent on labor or materials.

I understand the licensed contractors' frustration given how hard it is to compete with those who have a lower cost structure. But by lobbying for new rules on others rather than for less red tape for everyone, they have lost any right to seriously complain about any additional regulations future legislatures impose on them.