California Contractors State Licensing Board prepares emergency fee increases as it fears insolvency

The California Contractors State Licensing Board (CSLB) is preparing to vote on an emergency renewal licensing fee increase because of mounting losses that threaten the organization’s viability.

CSLB documents outlining the need for the increase say the board will run out of funds within months and be unable to conduct disciplinary investigations and hearings without the increase beyond regular statutory levels.

“The filing of this emergency rulemaking is necessary to avoid the imminent shutdown of the Contractors State License Board’s (Board) enforcement activity, the impending insolvency of the Board, and the resulting serious harm to the public and their property,” CSLB says in its Title 16 filing. “The Board is experiencing reduced license renewals, significantly increased expenditures, a structural budget imbalance (between revenue and expenditures), and a rapidly declining Contingent Fund (i.e., “savings account”) that will immediately impact the Board’s ability to continue its enforcement efforts and severely limit the performance of its core licensing, examination, investigative, and public outreach functions.”

The proposed fee increase, to be voted by on by the CSLB board on Dec. 12, will increase the biennial fee from $360 to $450, $50 higher than the $40 increase that would be allowed under non-emergency rules.

The CSLB outlines several reasons for the budgetary shortfall in its filings:

Since July 2017, the Board’s costs have increased significantly (more than $9 million) and most, if not all, were unforeseeable and/or nonexistent at the time the Legislature authorized the Board to increase its fees to the current statutory caps. The following is an analysis of the Board expenditures over the last three fiscal years and the projected figures for FY 2019-20, broken down into several categories.

• For FY 2016-17, the total expenditures were $63,473,443, broken down to $34,233,961 for personnel services, $19,378,375 for operating expenses, $6,656,107 for enforcement, and $3,205,000 for external costs (e.g., statewide pro rata, pension payments, Fi$Cal).

• For FY 2017-18, the total expenditures were $68,651,631, broken down to $36,219,316 for personnel services, $21,461,080 for operating expenses, $7,010,235 for enforcement, and $3,961,000 for external costs (e.g., statewide pro rata, pension payments, Fi$Cal).

• For FY 2018-19, the projected total expenditures are $72,550,000, broken down to $39,500,000 for personnel services, $20,285,000 for operating expenses, $8,000,000 for enforcement, and $4,765,000 for external costs (e.g., statewide pro rata, pension payments, Fi$Cal).

• For FY 2019-20, the projected total expenditures are $73,459,000, broken down to $42,577,000 for personnel services, $16,162,000 for operating expenses, $9,169,000 for enforcement, and $5,451,000 for external costs (e.g., statewide pro rata, pension payments, Fi$Cal).

These projections represent a 1% increase over FY 2018-19. Of the $9 million increase in costs since FY 2016-17, the most significant operational increases occurred in the following areas:

• $5.2 million in personnel services (e.g., increased staffing, salary, benefits, pay raises, retirements).

• $1.5 million in external state operation costs (e.g., statewide pro rata, pension payments, Fi$Cal). These costs are beyond the Board’s control and are issued statewide by various control agencies as mandatory charges that funds must absorb.

• $1.3 million (approximately) in enforcement (e.g., Attorney General’s Office and Office of Administrative Hearings).

• $1 million (approximately) in operating expenses.

The filing says that the CSLB collects about 75 per cent of its revenue from license fee renewals. It proposes increases for renewals, as well, for home improvement salessperson registration (biennial, from $75 to $95) and for inactive contractors licences (quadrennial from $180 to $250) but doesn’t propose other increases at this time.

It anticipates the fee increases will raise annual revenues by $3,823,055, mostly from an active contractor population of 67,886.

Without the increased fees, CSLB says:

Current fiscal year (FY) 2019-20 projections indicate that the Board will over-expend its appropriated resources if major and critical consumer protection programs, such as enforcement, are not curtailed. Ultimately, this would lead to the Board ceasing all disciplinary case proceedings as soon as July 2020 once it has expended its appropriation for those expenditures. By ceasing disciplinary proceedings, the Board will be unable to forward cases to the Attorney General’s office for discipline, which include the most egregious violations of the Contractors’ State License Law that lead to license suspensions, probation, and license revocations. The Board will further be forced to cancel all denial and disciplinary hearings with the Office of Administrative Hearings that are scheduled months in advance, thus delaying the adjudication of the most serious cases of consumer harm and property damage and allowing dangerous contractors to continue contracting.