More Oversight for Labor Compliance Companies

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State regulators are cracking down on third-party companies that contract with government agencies to enforce labor laws on public works projects performed by private contractors.

For years, only a handful of third-party labor compliance companies operated in the state, acting on behalf of some public agencies to make sure that public works contractors were complying with prevailing wage and overtime pay laws and reporting injuries to state regulators, among other things. The idea was to free up government supervisors to focus on other aspects of the projects, such as whether the contractor was meeting specifications and staying within budget.

Since labor compliance programs generally weren’t required for most public works projects in past decades, the third-party companies were few in number and relatively easy for the state Department of Industrial Relations to track. But, in recent years, as voters approved billions of dollars in bond measures for schools, highways and other public infrastructure, labor compliance programs multiplied. At the same time, the standards were loosened to qualify as a compliance contractor, opening up the field to hundreds of companies.

“All these companies became very hard to track and we started to notice that there were some bad apples, companies that weren’t actually enforcing the labor laws,” said John Duncan, director of the state Department of Industrial Relations.

Under the reforms, the process that public sector agencies use to award contracts to labor compliance companies will become more stringent, while the companies themselves will be required to furnish contract worker payroll records to the state more frequently.

The regulations also require labor compliance companies to make weekly construction site visits, something that drew concern from Pasadena-based Solis Group, an engineering and construction consulting firm. In testimony to the Department of Industrial Relations, Solis Group representative Sofia Espinoza said such frequent site visits could make the compliance process “disruptive and intrusive.” She said that the site visits for major projects should be monthly, but unannounced.

Pending expected approval from the state Office of Administrative Law, the regulations could take effect as early as November.


Dry Cleaners Get Break

Dry cleaners throughout the state are poised to get a break from state tax collectors: They won’t have to pay sales taxes to the state for most alteration services.

Under existing state tax code, dry cleaners do not pay sales taxes to the state, while tailors who alter new clothes do pay sales taxes. However, considerable confusion had arisen over the years about how to treat alteration services at dry cleaners.

The state Board of Equalization last week approved some amendments to the tax code clarifying when dry cleaners must pay sales taxes on alteration services.

In its clarifying statement, board staff had determined that the businesses do not have to pay sales taxes to the state if alterations are a small part of their income.

However, if dry cleaners derive more than 20 percent of their revenue from alteration services, then they must pay sales tax on those services.


Anti-Fraud Hit

The real estate downturn has taken another toll in L.A.: a cutback in funding for prosecution of real estate fraud. And it comes as complaints of mortgage and other types of real estate fraud have skyrocketed.

The Los Angeles Police Department’s real estate fraud unit has had its funding cut 35 percent in the 2008-09 fiscal year that began July 1. The unit gets most of its funding from a real estate transaction fee, and with the number of transactions down 30 percent to 50 percent in the 2007-08 fiscal year, that means less funding.

As a result, the LAPD’s funding request of $847,000 for the 2008-09 fiscal year up from $667,000 in actual funding for the 2007-08 fiscal year was slashed to $437,000. That would provide about 75 percent of the funding for five detective positions. The initial request would have fully funded these positions plus overtime and travel pay.

In 2007, the fraud unit opened 60 cases totaling $35 million in losses, and made 24 arrests stemming from investigations it conducted, according to a letter from Police Chief William Bratton presented last month to the Board of Police Commissioners.




Sales Tax Hike

The state Board of Equalization has sent out notices to retailers in the city of South Gate reminding them that on Oct. 1, the sales tax rate in that city increases 1 full percentage point to 9.25 percent.

The tax hike, intended to plug a budget shortfall and prevent budget cuts to basic city services, was overwhelmingly approved by voters in June, by a 73 percent to 23 percent margin.


Staff reporter Howard Fine can be reached at [email protected] or at (323) 549-5225, ext. 227.

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Howard Fine
Howard Fine is a 23-year veteran of the Los Angeles Business Journal. He covers stories pertaining to healthcare, biomedicine, energy, engineering, construction, and infrastructure. He has won several awards, including Best Body of Work for a single reporter from the Alliance of Area Business Publishers and Distinguished Journalist of the Year from the Society of Professional Journalists.

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