For years, small businesses throughout California have been targeted in shakedown schemes from plaintiff attorneys threatening lawsuits over seemingly trivial violations of the state’s Proposition 65 toxic chemical notification law.

The attorneys send out violation notices saying business owners could be liable for hundreds of thousands of dollars in penalties unless they call to discuss settlement terms, which usually involve cutting a check to the law firm for $5,000 or $10,000. The typical violation? Failure to post enough toxic chemical warning notices.

Repeated attempts by the Legislature to reform the 1986 voter-approved proposition and rein in these frivolous lawsuits have had limited effect. Now, state Attorney General and U.S. Senate candidate Kamala Harris is taking a stab at the problem. Late last month, she proposed capping the amount of settlement payments and requiring payments to law firms be earmarked for actually resolving the violation or for a specified public health benefit.

“These regulatory changes will help restore public confidence that Proposition 65 is used for its proper health-protective purposes and not abused for private gain,” Harris said in a statement announcing the regulatory changes. But will the changes actually work?

Just maybe, said one local attorney who has represented business owners targeted with Proposition 65 violation notices.

“The proposed regulations do impose some restriction on settlement payments and provide needed judicial oversight over the settlement process,” said Pasadena attorney J.T. Fox. “I think these are beneficial changes that could deter litigation abuse and increase accountability.”

The regulations are now up for public comment and will go before the state Office of Administrative Law next month for a final up-or-down decision.

Meanwhile, even as the state moves with one hand to give beleaguered small-business owners a minor victory, it’s moving with the other hand in a direction that could make things worse for them.

The state Office of Environmental Health Hazard Assessment is considering lowering the concentration of lead that would trigger the posting of Proposition 65 chemical warning notices, among other things.

“Increasing the number of required warning notices will surely increase litigation,” Fox said.

Lobby Day

Last week, Los Angeles Area Chamber of Commerce executives and members trooped over to Los Angeles City Hall for their annual lobby day, typically a morning full of speeches from city officials and presentations of the chamber’s agenda.

This time, two points topped the chamber’s to-do list: extending the gross receipts tax cut for professional and other businesses in the highest tax category as well as trying to head off legislation requiring developers to provide and fund affordable housing set-asides in their projects.

“We made the request to add on another three years of gross receipts tax reduction for those paying the top rate,” said Ruben Gonzalez, the chamber’s policy director.

The top rate this year is $5.07 for every $1,000 in gross receipts, but earlier this year the City Council passed a three-year rate reduction that will bring the rate down to $4.25 by 2018. The chamber is pushing for the cuts to continue for another three years, bringing the top rate down to about $3.50 by 2021.

The chamber is also seeking to prevent the City Council from enacting a so-called inclusionary zoning ordinance, which would require developers of new residential projects to include a certain percentage of units that meet federal affordable housing standards or pay an equivalent fee into the city’s Affordable Housing Trust Fund.

A California Supreme Court ruling in June upheld San Jose’s inclusionary zoning ordinance, greatly increasing the likelihood that, after several aborted attempts, the City Council will move to adopt an inclusionary zoning ordinance next year.

“We don’t want to rush into inclusionary zoning,” Gonzalez said. “Rather, the city would find that it will be more successful in boosting housing supply by helping developers’ projects pencil out.”

He said that doesn’t necessarily mean that the city must subsidize housing projects.

“Regulations already on the books and a very long planning process make it too expensive for many developers to build projects here – with either affordable or market-rate housing,” Gonzalez said. “That’s what needs to change.”

Local Biz Appointments

Two local business leaders have been appointed to a statewide panel looking at tax reform: Tracy Rafter, chief executive of the Los Angeles County Business Federation (BizFed) and L.A. economic development consultant Larry Kosmont, who is BizFed’s advocacy co-chair.

California Controller Betty Yee appointed the pair to her Council of Economic Advisors, which is tasked with evaluating various tax reform proposals. Earlier this year, the Legislature briefly considered, then tabled, state Sen. Robert Hertzberg’s plan to restructure the state’s tax system by reducing corporate taxes and extending the sales tax to most services.

“We are excited to work with leaders from all over the state on pressing tax reform issues,” Rafter said.

Staff reporter Howard Fine can be reached at hfine@labusinessjournal.com or (323) 549-5225, ext. 227.

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