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Calif. targets 'underground economy' of off-the-books hiring, pay

January 3, 2012 12:00:00 AM PST
The state of California targets an "underground economy." Agencies are going after businesses that pay employees in cash, avoiding workers compensation insurance and withholding taxes. The state's going high-tech to crack down on those employers.

The Contractors State License Board of California has videotaped numerous sting operations where they catch businesses operating without a license and hiring workers under the table -- meaning those businesses aren't paying payroll taxes, workers compensation 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 per year 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, it really needs to go the legitimate contractors," said Brad Diede, Calif. Professional Association of Specialty 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 a lot of people and cheating the state," said Calif. Labor Agency Secretary Marty Morgenstern.

"They pay money under the table because they don't want to pay taxes," said "Jose," a day laborer.

The crackdown is not popular among day laborers like Jose, who wouldn't give his last name. Off-the-books jobs are the only ones they can get in this economy.

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

The nonpartisan Legislative Analyst's Office pegs the new budget deficit at $13 billion next fiscal year. So getting the underground economy to pay up will help solve about half of that.