New State Law Gives Amnesty to Unlicensed Contractors

California is about to embark on a major, yearlong effort to lure an army of rugged--albeit illegal--entrepreneurs in the contracting trades into the licensed fold.

No one knows just how many roofers, plumbers, cabinet-makers and other tradespeople of unmeasured competency are breaking the law by doing business without a license. One state official guessed that there might be 90,000 or as many as 250,000.

“They’re the underground economy,” said David R. Phillips, a Southern California deputy for the Contractors State License Board, charged with regulating California’s 200,000 licensed contractors. “They don’t have offices. . . . If a consumer gets ripped off, there’s no place to reach them.”

Many of the unlicensed contractors prefer to be paid in cash to avoid creating a paper trail that could reveal that they don’t pay payroll or personal income taxes, which many of them don’t.

$800-Million Revenue Loss

This translates into an annual revenue loss of as much as $800 million, estimated Mark Ashcraft, executive assistant to a multi-agency task force, including the contractors board, formed last May by Gov. George Deukmejian to target individuals and businesses not paying California taxes.

Reacting to this revenue loss and mounting consumer complaints, a statewide amnesty program will be initiated on Jan. 1 to induce unlicensed contractors to step forward. Officials are forecasting that 46,000 of them will take advantage of the forgiveness period.

However, even John Maloney, the contractors board’s chief executive, acknowledges that this might be an optimistic forecast given how difficult it has been in the past to persuade unlicensed contractors to obey the law.

Typically, the unlicensed painter, roofer, plumber or any one of 38 other trades requiring state contractors permits is a loner operating out of his or her home or the back of a pickup truck.

‘I’m Not a Crook’

In interviews, few viewed themselves as blatant lawbreakers.

“In my heart, I’m a working man,” said an unlicensed Santa Ana contractor who specializes in cement work. “I do a nice job. I’m not a crook, sir.”

An Antelope County concrete worker said he pays his taxes and operates similarly to any other contractor--except that he doesn’t have a license. “My conscience doesn’t bother me,” he said. “I don’t feel I’ve shafted anyone.”

Indeed, several of these ubiquitous tradespeople said they were performing an important function--providing relatively inexpensive work for customers on a budget.

They can do this because their overhead usually is low. For example, most don’t buy insurance or bonds that protect them from lawsuits or allow consumers to recover some money when a job goes awry.

This situation causes their licensed competitors to bitterly complain that unlicensed craftsmen have an illegal edge in bidding for work. Finally, this year, the industry successfully lobbied for a crackdown.

More of an Ultimatum

The new law, whisked through the Legislature without dissent and signed by the governor last September, appears, though, to be more of an ultimatum than a pure amnesty.

In effect, it warns unlicensed contractors that the current problem-laden system will be tolerated for just one more year, from Jan. 1, 1987, until Jan. 1, 1988. After that, underground tradesmen will be stripped of any qualifying experience that now allows them to take the state licensing exam, and they’ll face steep fines.

Up to this point, contractors board officials reflect, few unlicensed contractors have been voluntarily coming forth to take the test unless they are caught and fined.

Actually, said contractors board investigator Larry McNeely, having a license is a two-way street: It allows consumers to retaliate against unprincipled contractors, but it also allows the contractor to go into court if a consumer withholds payment for a job. Without the license, the tradesman “has no standing in court,” he said.

Qualifying Experience

The new law appears to extend an irony in the current statute.

Current law allows unlicensed contractors to gain qualifying experience to take the state test by working for other contractors who themselves are breaking the law by not holding a valid license. The new statute doesn’t change that.

Shelby Cecchettini, legislative liaison for the contractors board, said this quirk in the new law will be the subject of “house-cleaning legislation” next year.

She said the philosophy has been that “a lot of employees don’t know if their boss is licensed, so don’t screw the employee.”

Another catch in the new law, which could make some unlicensed individuals think twice about identifying themselves, is the fact that there are now about 1,200 outstanding arrest warrants for contractors operating in California without a license, accumulated over the last three years, according to McNeely.

‘A Helluva Dilemma’

Should an unlicensed contractor venture forward to take the test next year and the contractors board’s computer picks up an arrest warrant on the individual, then that person could be subject to a potential penalty, he said.

“It’s a helluva dilemma,” McNeely said.

The new law’s author, Sen. John Doolittle (R-Citrus Heights), suggested that he is less concerned about any dilemma the law creates for unlicensed contractors than he is about rewarding the lawbreakers.

“I find it ironic that the (contractors board) condones illegal activity as an avenue to legitimacy,” he wrote to contractors board Chairman Benny Young Yee last August. “I am unable to think of any other profession that allows such access.”

Although the one-year forgiveness approach appears to have the support of most lawmakers and members of the contractors board, it has also drawn fire from critics who predict that it will only make underground contractors dig in further.

Critic of New Law

“I’m not so sure they (the Legislature) have done anything here except make a lot of money for licensing schools” that profit from preparing individuals for the state test, said contractors board deputy Phillips.

Al B. Conahan, a former plumber who owns a contractors school in Woodland Hills, doesn’t believe that he is going to make a fortune because of the new law, however. His reasoning and criticism stem from his perception that it will take a lot longer than a year to get the amnesty message out to thousands of unlicensed contractors.

“It will not be enough time to let people know, to motivate them to act,” he said. “It’s an unfair law.”

Even the law’s author, Sen. Doolittle, doesn’t particularly like the approach, but he said it is the best he could design to correct what he views as a bad situation. “It was a political judgment to minimize opposition so as to arrive where we are to punish the crooks.”

‘A Do-Nothing Board’

Doolittle had sharp words for the contractors board.

“They are a do-nothing board,” he charged, “a board that for years has floated along. There’s been a demand for them to do something and they’ve looked the other way.

“I’m tired of having law-abiding constituents in the contracting community who can’t compete” with unlicensed contractors, Doolittle said.

Contractors board investigator McNeely said Doolittle’s remarks were unfair.

“We have a tremendous demand on us,” McNeely said. “We’re doing as good a job as we can do right now.”

Actually, according to contractors board figures, although consumer complaints have fluctuated in recent years--a product of building activity--the level of fines imposed by the agency against unlicensed contractors has consistently risen, from 550 in the 1982-83 fiscal year to 1,790 in 1985-86.

1-Year Deadline

The new law allows unlicensed contractors to come out of their workshops without fear of being fined--as they can now--and take the state’s licensing test, but for just one more year.

Under current law, unlicensed contractors who show four years experience within the last 10 years are qualified to take the state test, an all-day, two-part multiple choice exam on the contracting business, contracting law and questions on their particular speciality, whether it is wiring a house or fixing a toilet. Applicants have three chances to pass the test in a calendar year.

Two of the required four years of experience are waived for a college degree. One of the remaining two years of experience must be completed at a journeyman level.

On passing the test, contractors pay $300 for their first license and then a $200 renewal fee every two years. During the amnesty period, this won’t change. The only caveat is that non-licensed experience must have been gained before Jan. 1, 1987.

Start From Scratch

After Jan. 1, 1988, unlicensed experience gained before Jan. 1, 1987, won’t be accepted anymore. At that point, unlicensed contractors will have to start from scratch on building up their four years of experience to qualify for the state test.

If that isn’t enough of a lure to make unlicensed contractors come forward, another motivating factor could well be an increase in the fines they will face after the amnesty period. Under current law, it is a misdemeanor in California for someone to contract for work costing more than $200, including labor and materials, which includes most jobs. The contractors board also can impose a civil penalty up to $3,000.

After Jan. 1, 1988, the misdemeanor penalty, punishable by up to a $2,000 fine and/or six months in jail (a penalty not often imposed), will remain on the books unchanged. But the top civil penalty for unlicensed activity will rise to $4,500 from $3,000.

With this in mind, the contractors agency forecast in a news release last October that “the board anticipates an additional 46,000 applications (from unlicensed contractors) during the amnesty period.”

Asked about this projection, contractors board chief executive Maloney said the projection was a bit optimistic.

On the other hand, Maloney said, the new law would give his agency “an opportunity to see what we can flush out of the undergrowth,” which he suspects could amount to as many as 250,000 unlicensed contractors.

Faulty Logic, Unfair

Noting that the Doolittle legislation appropriated $724,000 for more staff, Maloney asserted: “I’m going to make the damn thing work.”

No one disputes Maloney’s commitment, but some forecast that the new law is predicated on faulty logic and, worse, is unfair.

John Lazzara, a painter by trade and a former painters union official who is labor’s representative on the 13-member contractors board, is one of those critics. Lazzara doesn’t think an unlicensed contractor should have to start building experience anew after Jan. 1, 1988, to qualify for the test.

“If my four-year experience is good during the amnesty period, why isn’t it good after the amnesty period?” he asked rhetorically. “Experience is experience.”

Indeed, that may have been what the Legislature had in mind when, in 1982, lawmakers threatened to withhold funds from the contractors board unless its top professional, Maloney, relented on a get-tough policy toward unlicensed contractors.

Maloney had announced that unlicensed experience would no longer count toward qualifying to take the state contractors exam. But lawmakers, particularly those representing large minority populations, feared that this policy would hurt their constituents. So they retaliated.

Funding Threatened

Maloney was faced with a situation where, if he didn’t relent and allow unlicensed contracting experience to count toward taking the test, his agency would go unfunded and, conceivably, out of business.

So he gave in.

“Then these same people who held our budget hostage changed their views,” said contractors board liaison Cecchettini in reference to the new law.

So did the contractors board, which opposed the Doolittle bill earlier this year.

Motivating the legislative and board flip-flop was mounting pressure from licensed contractors who thought that their unlicensed competitors, who didn’t have to pay state fees or meet other overhead obligations, had an economic advantage that allowed them to underbid on jobs.

“I got mad,” said Steve Hoagland, an executive with R. K. Hoagland & Sons, a home builder, and Ham Drilling, a water well drilling firm, both based in the Northern California community of Pittsburg.

Hoagland, 29, said he brought together a group of contractors and union officials to fight in Sacramento for a get-tough law, and then led the lobbying effort for it. “I believe 75,000 (unlicensed contractors) will come into the mainstream and the consumer will come out the winner,” he predicted.

Assemblywoman Gwen Moore (D-Los Angeles) certainly hopes so.

“I learned my lesson,” Moore said in recalling a bad experience she had last summer with an unlicensed contractor whom she hired to build a concrete block wall for a house she owns in Sacramento.

Job Was Botched

Moore said she contacted the fencing contractor through a local newspaper ad, didn’t check to see if he was licensed and paid him $3,000 to do the job. Unfortunately, she said, she was in Los Angeles when the job was done, and it wasn’t until she returned to Sacramento that she found the job was botched.

The fence was so crooked, Moore recalled, “you got seasick looking at it.” She had to hire another fencing contractor--a licensed one--to correct the flaws.