Even as costs on Most Goods have Skyrocketed, Public Works Contractor Registration Fees have not Changed since 2017, and Penalties assessed on Contractors who Steal from Workers have not changed in over a decade.
Sacramento: A new policy brief produced by Northern California Construction Industry Compliance—one of the state’s leading construction industry watchdogs– has concluded that if the penalties charged to non-responsible contractors found to have violated state labor laws on public works projects had increased with inflation over the past ten years, they would have generated more than $7.3 million in additional state revenues. This would have been enough to fund forty new positions at the state’s chronically under-resourced Division of Labor Standards Enforcement, which already returns more than $1.11 to in penalties and worker restitution for every $1 of public investment. The brief also found that if public works contractor registration fees, which have not increased since 2017, were pegged to inflation, it would yield millions of dollars in additional funding each year for the state’s Public Works Enforcement Fund.
Read the Brief, ”Penalty Reform, How California’s Public Works Enforcement Agency Could Better Protect Workers and Taxpayers.”
“As California faces mounting budget pressures it is important to assess whether the government agencies tasked with safeguarding taxpayer dollars and holding lawbreakers accountable are delivering a sufficient return on investment,” said the brief’s author, Dr. Larissa Petrucci. “In the case of the Department of Labor Standards Enforcement, while it is clear that the agency’s work more than pays for itself, its current formula for determining registration fees for public works contractors and penalties charged to firms who break the law have lagged behind inflation. This failure has not only shortchanged taxpayers by millions of dollars, it has left the agency under-resourced for its task of policing a massive public construction market.”
The brief notes that over the last decade alone, California’s $47 billion public works construction market has grown by 37%, with state and local investment up 41% and revenues for the state’s ten largest construction contractors increasing by 42%. While this suggests abundant opportunities for the state’s more than 36,000 registered public works contractors—the brief notes that it also creates ample opportunities for unscrupulous contractors to cheat workers and violate the law. Research has shown that nearly one in six California construction workers experiences some form of labor abuse—principally wage theft—and that each incident costs taxpayers at least $3,000.
“While prevailing wage and financial transparency rules that govern contracting offer an important foundation for safeguarding workers and taxpayers, under-resourced enforcement agencies, low penalty amounts can effectively incentivize contractors to misclassify workers, underpay them, and pocket the savings,” Petrucci added. “The point of assessing financial penalties against non-responsible contractors is to ensure such illegal conduct is not rewarded.”
The last time California increased penalty amounts against contractors found to have violated state prevailing wage or contractor transparency laws was in 2012. Petrucci noted that had increases been pegged to inflation since this last adjustment, the state’s Department of Labor Standards Enforcement would have generated enough revenue to fund 40 new enforcement positions over the past decade. Similarly, she noted that a similar inflation adjustment to the state’s Public Works Contractor Registration Fee (PWCR), which has been stuck at $400 since 2017, would generate as much as $6.8 million in additional revenues annually.
“State public works and labor enforcement agencies are guardians of taxpayer dollars that hold lawbreakers accountable and return millions of dollars to taxpayers and workers each year,” Petrucci concluded. “Nevertheless, it is clear that these agencies lack the resources necessary to expeditiously and vigorously pursue every case where laws have been broken. As lawmakers face tough budgetary choices and the prospect of cuts to vital services, it is clear that reforms that would modernize the formulas used to fund vital state enforcement agencies would be a fiscally responsible step forward that boosts protection for workers, taxpayers, and law-abiding contractors alike.”
NorCal Construction Industry Compliance (NCIC) is a joint labor management organization committed to paving the way to a level playing field for contractors and workers by promoting equitable contracting, and ensuring compliance with all applicable state and federal labor laws governing the construction industry.