BURDENSOME REGULATIONS FOR

SMALL BUSINESSES

Here are some of the regulations that some California small businesses are dealing with:

***  For us the biggest hassle is the DLSE Garment Manufacturers License.   They are basically charged with enforcing an industry problem (sweatshops) that have all left California.  So now they pretty much regulate very small production facilities - 1 or 2 employees.  Ours with 14 sewers is well above average. 

Aside from the fact that this regulation is not needed and is redundant with other workplace regulations, my biggest gripe with them is they are completely inept at processing licenses.  In 10 years of filing I've had my application accepted only one time without being returned for "mistakes". The "mistakes" are always on their end.  I've been told twice that an LLC check showed we were late paying taxes.  Both times they claimed they "must have entered our llc # in wrong".  Once I was told, and I kid you not, that I put "N/A" in a box that didn't apply for me.  They told me the instructions specifically require "NA".  The other common problem is that I need to have the IRS send them a letter saying we are paying our taxes promptly.  This never runs smoothly with each agency blaming the other for the mistake:  IRS-"we mailed it"  DLSE-"we never got it".  ugh!

I really believe they do this to keep their caseload heavy so that budget cuts don't fall on them.  But really, a large state department charged with sweatshop enforcement in 2011 using 1980 technology?

Oh, and they only accept certified checks for the fee. Ours is currently $1000.

***  The restricted drug/chemical list is overbroad and not geared for a biotech world. And vendor approvals and questionnaires for State Agencies and Universities (both within Cal and overall ) are absurd sometimes and don’t relate at all to the products that we sell.

***  We got two citations for our sterilizing solution.  The first one said that it was cloudy.  A second one said that we didn't have any at all.    They can't have it both ways.

 This particular inspection was the work of an incredibly over zealous inspector and in fairness, some of the citations were dropped by somebody else at the Board without us even having to appeal.

 Again, I believe occasional inspections are ok and reasonable when they deal with safety issues.  However our experience has been that they are completely arbitrary and subjective and more about revenue enhancement than public safety.

***  I've recently had a run in with the Board of Barbering and Cosmetology board.  I know this is just one of probably hundreds of similar boards.  If they all operate in a similar way they need to seriously be pared back.

 Although there is a good reason for inspections, particularly in the nail salon side of our industry, I am convinced that their main reason for being  now is to generate revenue.  In our latest inspection, we were cited for such ridiculous things as a piece of tissue on the bathroom floor, a license in the wrong place (it had passed inspection in the same place for 16 years) etc.  We were cited for cloudy sterilizing solution and then for no sterilizing solution.   Each of these items is a minimum of $100 up to $500 per item.  Our total in this one salon was over $2,200 for absurd items.

 That's the kind of over regulation and borderline harassment that makes me wish I were in another state. I'm sure this happens in other California industries also.

***   I believe the most formidable obstacle to small businesses raising equity capital is the prohibition against general solicitation. It represents a “catch 22” for startups and early stage companies, particularly minority and women owned businesses, since it prohibits the issuer from contacting even accredited investors (whom the securities laws deem not needing the protection of the securities laws other than the antifraud rules) unless the issuer has a pre-existing relationship with each investor, or retains a registered broker-dealer to act as placement agent for the issuer.

 Since the founders of small companies do not belong to the country clubs or private clubs (such as your Bohemian Club or Pacific Union Club) which are replete with accredited investors, and are too small to attract registered broker-dealers, they are absolutely blocked from raising equity capital that is the fuel for growth and job creation.

 Our SB875, California Accredited Investor Exemption bill, solves this problem by permitting unrestricted general solicitation for small offerings (up to $1,000,000 per year) as long as all of the investors are accredited investors. This exempt offering is specifically sanctioned by the SEC in Rule 504(b)(1)(iii) amended by the SEC in 1999.

 With 4 ½ million Californians either unemployed or underemployed, is there any justification for such a restrictive regulation that chokes off capital for small business, even from accredited investors who are deemed to be sophisticated wealthy investors?

 ***  OT after 8 hours.  Logging breaks/ forcing employees to take breaks when they do not want them.  Keeping everything pc/ lawsuits/ discrimination claims.

 ***   Franchise registration/disclosure requirements.  the Department of Corporations always drags its feet in getting the renewals processed (furloughs etc.) so there is a period of time for which we cannot sell franchises… Most frustrating when you are trying to close a deal.

.       ****   Franchise filings and renewal process. Nutritional Information.  Tip credit.

******     The DMV is now auditing agents and brokers for this information. It is a summary of a 53 page handbook  and list the requirements of agents and brokers because we obtain drivers license information.

·         What privacy policies has the organization established with respect to the collection, use, and retention of DMV information?

·         Do you have a written information security program or policy?  If yes, please provide a copy of the policy.

·         Identify the locations, systems, and methods for storing, processing, transmitting, and disposing of DMV information

·         Please describe your procedures in the event of a security breach.

·         How are employees with access to DMV information trained in privacy protection?

·         Do you maintain an Information Security Statement (DMV Form INF 1128) for each employee authorized to access DMV records (If yes, please provide us with copies of these statements).

·         Do you have a list of inactive or terminated employees that had access? (If applicable, please provide us with a copy of this listing).

·         How many computer terminals are capable of making inquiries? Where are they located?  Are the terminals secured when unattended?  Explain how they are secured.

·         Your terminals that access DMV records should display a “warning banner” containing some variation of the following admonishment:  “WARNING:  Unauthorized access or misuse of data may result in adverse action and/or criminal prosecution.”  Does this banner display?

·         Do you keep a log of all inquiries made?  If yes, provide log.

·         Describe access controls on computer systems containing DMV information to prevent access by unauthorized staff or other individuals.

·         How often are passwords required to be changed?  How are password changes initiated?

*** This applies to telecom carriers who offer stand-alone long distance or prepaid calling card services:

 4. Registration license holders must obtain a performance bond equal to or

greater than 10 percent of intrastate revenues reported on the Commission’s User

Fee Statement during the preceding calendar year or $25,000, whichever is

greater. The performance bond must be a continuous bond (i.e., there is no

termination date on the bond) issued by a corporate surety company authorized

to transact surety business in California, and the Commission must be listed as

the obligee on the bond. Within 90 days after the effective date of this Decision,

all registration license holders must submit an Information-Only advice letter to

the Director of the Communications Division containing a copy of the

registration license holder’s executed performance bond.

 Although I was able to get my members exempted because they are certificated vs. registered carriers, I have received calls from many of these small independent long-distance carriers indicating that despite good faith efforts to obtain a performance bond, no one is even willing to give them one.  The PUC adopted the requirement based on a state Comptroller audit and legislative changes that resulted from the audit.  Given the low-risk nature of providing these types of services, it certainly seems unnecessary and burdensome, especially since there is an additional requirement to keep an additional $25K cash in reserve. 

*** Re: multiple permits. Just a little thing, but…My job is primarily to assist new businesses with accounting systems and operations, and when I instruct a new retailer in Oakland on the various registrations they must do, it is overwhelming to them! On top of the Sec of State, then the IRS and FTB, then there’s the EDD, BOE, city, county, and with Oakland’s registration there’s often a separate zoning permit that one must do.

*** How about the environmental fee that is charged to businesses based on the number of employees that they have.  The state claims that each employee will use a certain amount of cleaning chemicals and other hazardous materials and that the fee is to offset the environmental impact of such activities.

***

The Ca. Dept. of Real Estate (DRE) is the State regulatory agency charged with the enforcement of the mortgage financing provisions of the Federal SAFE Act 0f 2009, which has to do with new federal licensing regulations of mortgage loan originators (mlo’s). I and my mortgage association are in agreement and support 95% of it, we’re good with individual licensing, and wish it were extended to employees of federally chartered banks, they are exempt because they have better lobbyists and more money.

Anyway, the DRE has determined that persons (99.9% women) who perform loan processing services for mlo’s as an independent business (independent contractor), rather than for 1 mlo as an employee, have to have a DRE Broker’s license, and a full Federal and State NMLS (National Mortgage Licensing System) licenses. A loan processor is an administrative, back office position that has nothing to do with loan origination, or dealing with consumers, they almost never do. Most loan processors never had any DRE license at all, it was never required, much less a Broker’s license. To get a Broker’s license requires taking 7 college level courses just to be eligible, demonstrate 4 years in the Real Estate business, take 2 test prep courses, then take a really hard test with a 65% failure rate. I agree with the requirements by the way, it should be hard, BUT not for loan processors. Additionally 45 credit hours of continuing education are required every 4 years, and costs almost $1000 or more for courses and test fees.  For the NMLS license, you have to take 20 hours of coursework to be eligible to take the Federal test, and there is also a State Test, and it costs an mlo in excess of $500.00 in courses and fees to be eligible to take those two tests. I’m into it almost $2000., for the fees and costs required for me and my business for both to be licensed. The federal test has a 40% failure rate, and the state about the same.

None of this makes any sense, does not protect the consumer, is discriminatory against women and small businesses. Small brokers like me working with these independent contractors because we can’t afford to hire one full time on staff, have been very adversely affected because so many of them have been driven out of business, or worse, underground. 

The individual states have a good bit of leeway in interpreting and enforcing the federal regulations, and the DRE is excessive in these requirements to the detriment of almost everyone, and benefit of no one.

***  The California Coastal Commission was established by the voters and the Legislature in the 1970s.  It's purpose was described then as protection of the coast and ensuring that there would be adequate public access to coastal areas and beaches.  It's become, however, a nightmare, adding another independent and uncoordinated review process to the already burdensome red tape mill needed to develop property in California.     Remember that this process is imposed on top of all the other local requirements for development.

*** In a nutshell the regulations are both state and local.  Before we can even consider opening a new location we have to build a new kitchen facility.  The cost of that exceeds $500,000 with about $190,000- 200,000 of that as a direct result of over regulations.

Here are just a few of those we suffer from:

1. 'eco' venting with special filters that only 2 companies manufacture, so no competition and pricing out of this 'world'

2. grease traps versus grease capture -- mandating a certain level of plumbing and structure (opening up foundations, walls and roofs then closing them up through permits)

3. ADA regulations in excess of usual and customary, because now our industry is a target of small-unethical law suits/extortion which the state has not addressed with relief

4. parking spaces --  we can not move into better, more affordable locations because of a formula they use (even if we are 1 space short) and the larger parking lot locations know this and charge us excess rent because they know we are 'over a barrel'

We are fabulous tenants, great business citizens, but PLEASE so many mandates without flexibility is killing all small businesses.

For example, we want to trap grease as it clog our drains and cost us enormous amount of money, time and closure if we do not take care of this issue. However, the way in which the state mandated this solution for EVERYONE makes it so we have no flexibility in solving this in a more cost effective method and the way they 'reward' cities with monies to institute this has made them the zealot and have stacked local regulations on top of the state mandates.

***  Well, the restrictions on the glues is KILLING our business.  WE are in the lamination business and , for the first time in almost 50 years, stuff is de-laminating on us.   We cannot find any kind of suitable alternative and, in fact, some of the limited glues we are allowed to use are carcinogenic and seem far more toxic than the ones that worked better that we were previously allowed to use. 

 Meanwhile, I watch these huge barges from China constantly  leaving their carbon footprint here just to dump off a bunch a cheap granite countertops which are known to contain granite.  These will end up in OUR landfills, not China's.  

 So why is CAlifornia overally restricting our own manufacturing companies and basically cutting us off at the knees? This in the midst of a recession- actually, I call i a true depression.  

 Meanwhile we allow cheap imported goods from China to further deteriorate our businesses- goods which are harmful and deadly, not just to the consumer, but also having long term effects on our environment. 

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