California targets revenue lost "under the table"

January 3, 2012 12:00:00 AM PST
In a budget environment when the state is looking for every dollar, officials are going after $7 billion in lost revenue caught up in the underground economy.

The state says too many business in California are cutting corners to make money. A new task force is hoping to make a dent in the underground economy.

"This is a classic example of somebody who's going to pay under the table cash," said Rick Lopes with the Contractors State License Board.

The Contractors State License Board has videotaped numerous sting operations where they catch businesses operating without a license and hiring workers under the table, meaning they aren't paying payroll taxes, workers' comp insurance or contributing to unemployment benefits like legitimate businesses and pocketing that money instead.

California's underground economy, which includes the landscaping, restaurant, farming and construction industries, is estimated to cost the state $7 billion in lost revenue.

Shadow operators offering cheaper services have became more popular during the recession, and the construction trade says the undercutting needs to stop.

"All across the state, they're complaining about how what little work is available out there in construction today," said Brad Diede with the California Professional Association of Specialty Contractors. "It really needs to go the legitimate contractors."

For the first time, several state agencies from the Employment Development Department to the Department of Industrial Relations are exchanging information to crack down on the underground economy. They hope 2012 will recoup much of that lost $7 billion.

"By using these statistics, using data, we figure we can get the real violators, the ones who are causing big trouble, cheating lots of people, and cheating the state," said California Labor Agency Secretary Marty Morgenstern.

"They didn't pay under the table because they don't want to pay taxes," said day laborer Jose, who chose not to give his last name. The crackdown is not popular among day laborers like him. Off-the-books jobs are the only ones they can get in this economy.

"I think it's going to be bad," he said. "It's not good for us."

The non-partisan legislative analyst pegs the new budget deficit at $13 billion next fiscal year, so getting the underground economy to pay up would solve half of that.


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