Title of Regulation: 18VAC50-22. Board for Contractors Regulations (amending 18VAC50-22-100, 18VAC50-22-140, 18VAC50-22-170, 18VAC50-22-250).

Statutory Authority: §§ 54.1-201 and 54.1-1102 of the Code of Virginia.

Public Hearing Information:

March 13, 2009 - 10 a.m. - Department of Professional and Occupational Regulation, 9960 Mayland Drive, Board Room 3, Richmond, VA

Public Comments: Public comments may be submitted until April 17, 2009.

Agency Contact: Eric L. Olson, Executive Director, Board for Contractors, 9960 Mayland Drive, Richmond, VA 23233, telephone (804) 367-2785, FAX (804) 527-4401, or email contractors@dpor.virginia.gov.

Basis: The proposed regulatory action is mandated by the following sections of the Code of Virginia. To comply with these statutes, the board evaluates its current and projected financial position, and determines the type of fees and amounts to be established for each fee that will provide revenue sufficient to cover its expenses.

1. § 54.1-113 (Callahan Act) authorizes regulatory boards to adjust fees levied by it for certification or licensure and renewal thereof so that the fees are sufficient but not excessive to cover expenses.

2. § 54.1-201 describes each regulatory board’s power and duty to "levy and collect fees for the certification or licensure and renewal that are sufficient to cover all expenses for the administration and operation of the regulatory board and a proportionate share of the expenses of the Department…"

3. § 54.1-304 describes the power and duty of the director to "collect and account for all fees prescribed to be paid into each board and account for and deposit the moneys so collected into a special fund from which the expenses of the Board, regulatory boards, and the Department shall be paid…"

4. § 54.1-308 provides for compensation of the director, employees, and board members to be paid out of the total funds collected. This section also requires the director to maintain a separate account for each board showing moneys collected on its behalf and expenses allocated to the board.

5. § 54.1-1102 of the Code of Virginia provides the authority for the Board for Contractors to promulgate regulations for the licensure of contractors in the Commonwealth. The content of the regulations is left to the discretion of the board, but shall not be in conflict with the purposes of the statutory authority.

Purpose: The intent of the proposed changes is to increase licensing fees for regulants of the Board for Contractors. The board must establish fees adequate to support the costs of board operations and a proportionate share of the department’s operations. By the close of the current biennium, fees will not provide adequate revenue for those costs.

The Board for Contractors provides protection to the safety and welfare of the citizens of the Commonwealth by ensuring that only those individuals and firms that meet specific criteria set forth in the statutes and regulations are eligible to receive a contractor or tradesman license. The board is also tasked with ensuring that its regulants meet standards of conduct that are set forth in the regulations. Without adequate funding, complaints against regulants, brought to the attention of the board by citizens, could not be investigated and processed in a timely manner. This could provide an opportunity for a dishonest contractor, waiting for action to be taken by the board, to continue to work, harming additional citizens.

The Department of Professional and Occupational Regulation receives no general fund money but, instead, is funded almost entirely from revenue collected through applications for licensure, renewals, examination fees, and other licensing fees. The department is self-supporting, and must collect adequate revenue to support its mandated and approved activities and operations. Fees must be established at amounts that will provide that revenue. Fee revenues collected on behalf of the boards fund the department’s authorized special revenue appropriation.

The Board for Contractors has no other source of revenue from which to funds its operations.

Substance: The existing regulations are being amended to increase the fees applicable to several licensing items as follows:

The fee for Class C initial licensure is increased from $150 to $200.

The fee for Class B initial licensure is increased from $175 to $225.

The fee for Class A initial licensure is increased from $200 to $250.

The fee for the declaration of a designated employee at the time of application is increased from $40 to $80.

The Virginia Transaction Recovery Fund assessment remains $25.

The fee for Class C renewal is increased from $110 to $175.

The fee for Class B renewal is increased from $150 to $200.

The fee for Class A renewal is increased from $165 to $225.

The Virginia Transaction Recovery Fund assessment is $50.

The fee for Class C reinstatement is increased from $260 to $375.

The fee for Class B reinstatement is increased from $325 to $425.

The fee for Class A reinstatement is increased from $365 to $475.

The Virginia Transaction Recovery Fund assessment is $50.

The fee to change a designated employee is increased from $40 to $80.

The fee to change a qualified individual is increased from $40 to $80.

The fee to add a classification or specialty designation is increased from $40 to $80.

Issues: The primary issue for the proposed fee increase is the department’s statutory requirement to comply with the Callahan Act.

Further issues to be addressed as regulations are developed include:

The Callahan Act required DPOR to review each board’s expenditures at the close of each biennium, and to adjust fees if necessary. The Board for Contractors is expected to incur a deficit of $579,707 and a Callahan Act percentage of -3.5%.

The regulatory review process generally takes a minimum of 18 months, and so it is essential to consider fee increases now, before the deficit increases to the amount greater than previously anticipated. To avoid increasing the deficit the new fees will need to become effective by the beginning of the 2010 biennium. Otherwise, the board’s deficit will increase to the point that the new fees would be inadequate to provide sufficient revenue for upcoming operating cycles, which could result in the board having to consider additional fee increases in the near future.

The advantage of these changes is that the regulatory program will be able to continue to function in order to protect the public. The disadvantage is that these changes will increase the cost of the license to the regulated population; however, the impact of these changes on the income of the regulated population should not be of a great significance compared to their level of income.

The Department of Planning and Budget's Economic Impact Analysis:

Summary of the Proposed Amendments to Regulation. The Board of Contractors (Board) proposes to amend its regulations for contractors to increase fees.

Result of Analysis. There is insufficient information to determine if benefits outweigh costs for these proposed regulatory changes.

Estimated Economic Impact. Board of Contractor regulations set fees for initial licensure, renewal of licensure and for reinstatement of licensure for Class A, B and C contractors.

Currently, Class C contractors must pay $150 for initial licensure and $110 biennially for license renewal. Any licenses not renewed within 30 days of license expiration must be reinstated. Class C contractors who must reinstate their licenses are currently subject to a $260 fee.

Currently, Class B contractors must pay $175 for initial licensure and $150 biennially for license renewal. Class B contractors who must reinstate their licenses are currently subject to a $325 fee.

Currently, Class A contractors must pay $200 for initial licensure and $165 biennially for license renewal. Class A contractors who must reinstate their licenses are currently subject to a $365 fee.

The Board proposes to increase all of these fees in order to cover anticipated program revenue deficits. The Department of Professional and Occupational Regulation (DPOR) reports that the Board has incurred increased expenses for enforcement activities, information systems development costs and application processing/customer support services.

The Board proposes to increase the fee for initial licensure of Class C contractors to $200 (from $150), increase the renewal fee to $175 (from $110) and increase the reinstatement fee to $375 (from $260). Also under these proposed regulations, the fee for initial licensure for Class B contractors will increase to $305 (from $175), the Class B renewal fee will increase to $200 (from $150) and Class B reinstatement fee will increase to $425 (from $325). The Class A initial licensure fee will increase to $330 (from $200), the renewal fee will increase to $225 (from $165) and the Class A reinstatement fee will increase to $475 (from $365).

The Board also has other miscellaneous fees, for change of designated employee, change of qualified individual and for addition of classification or specialty, which are increasing under this proposed regulatory action. These fees are currently all set at $40; the Board proposes to double them to $80.

DPOR reports that these fee increases will allow investigation of complaints against regulated entities to continue to be carried out in a timely fashion; absent these fee increases, DPOR reports, the public might be adversely affected by contractors who continue to work after a complaint is filed but before their cases are adjudicated. To the extent that possible customers for contractors rely on the Board for information about whom to hire (or, more importantly, whom not to hire) a slow down in complaint investigations would likely lead to questionable contractors being hired. To the extent that possible customers rely on private sources of information, such as references from trusted friends or family or information from the Better Business Bureau, any bad effects of a slow down are likely to be partially or completely mitigated.

The possible benefits of these proposed regulations must be weighed against the adverse impact that these fee increases will have on contractor businesses in the Commonwealth. For healthy, full-time contractor businesses, these fees will likely be absorbed and at least partially passed on to customers who will likely pay slightly higher fees for contracting work. These fee increases may, however, serve as the tipping point for some marginally profitable and/or part-time contracting businesses so that fewer individuals choose to renew their licenses. Entry into this field will also likely decrease slightly on account of the higher proposed initial licensure fees.

Additionally the Board proposes to eliminate a fee listing for the water well exam, since it is no longer applicable to contractors, and add a statutory $50 Recovery Fund assessment to regulatory language for renewal fees and reinstatement fees. Since it appears that contractors were already subject to the Recovery Fund fee, adding this fee to the proposed regulations will not increase costs but will add clarity for contractors who might have been confused about what they had to pay for renewal or reinstatement of licensure.

Businesses and Entities Affected. These proposed regulations will affect all licensed contractors in the Commonwealth. DPOR reports that the Board currently licenses 101,714 contractors and tradesmen (whose fees are increasing in a separate proposed regulatory action).

Localities Particularly Affected. No locality will be particularly affected by this proposed regulatory action.

Projected Impact on Employment. This regulatory action is likely to slightly decrease the number of licensed contractors doing business in the Commonwealth.

Effects on the Use and Value of Private Property. To the extent that this proposed regulatory action increases the cost of maintaining a contracting business, profits for some businesses may slightly decrease. Any businesses that do experience a decrease in profits will also likely experience a corresponding decrease in their value.

Small Businesses: Costs and Other Effects. Most, if not all, licensed contractors in the Commonwealth qualify as small businesses. All of these small businesses will have to pay the proposed higher fees discussed above to continue operating.

Small Businesses: Alternative Method that Minimizes Adverse Impact. In general small businesses will benefit from agency actions that look toward cutting agency costs, when doing so will not adversely affect their mission, rather than raising fees.

Real Estate Development Costs. To the extent that licensed contractors are involved with real estate development, this regulatory action is likely to slightly increase real estate development costs in the Commonwealth.

Legal Mandate. The Department of Planning and Budget (DPB) has analyzed the economic impact of this proposed regulation in accordance with § 2.2-4007.04 of the Administrative Process Act and Executive Order Number 36 (06). Section 2.2-4007.04 requires that such economic impact analyses include, but need not be limited to, the projected number of businesses or other entities to whom the regulation would apply, the identity of any localities and types of businesses or other entities particularly affected, the projected number of persons and employment positions to be affected, the projected costs to affected businesses or entities to implement or comply with the regulation, and the impact on the use and value of private property. Further, if the proposed regulation has adverse effect on small businesses, § 2.2-4007.04 requires that such economic impact analyses include (i) an identification and estimate of the number of small businesses subject to the regulation; (ii) the projected reporting, recordkeeping, and other administrative costs required for small businesses to comply with the regulation, including the type of professional skills necessary for preparing required reports and other documents; (iii) a statement of the probable effect of the regulation on affected small businesses; and (iv) a description of any less intrusive or less costly alternative methods of achieving the purpose of the regulation. The analysis presented above represents DPB’s best estimate of these economic impacts.

Agency's Response to the Department of Planning and Budget's Economic Impact Analysis: The agency concurs with the response to economic impact analysis performed by the Virginia Department of Planning and Budget.

Summary:

The proposed amendments (i) increase fees for initial licensure and license renewal and reinstatement of Class A, B and C contractors; (ii) eliminate the water well examination as it is no longer applicable to contractors; (iii) add the Virginia Transaction Recovery Fund assessment required by § 54.1-1119 B of the Code of Virginia; and (iv) increase fees for a designated employee change, a qualified individual change, and the addition of a classification or specialty.

18VAC50-22-100. Fees.

Each check or money order shall be made payable to the Treasurer of Virginia. All fees required by the board are nonrefundable. In the event that a check, money draft or similar instrument for payment of a fee required by statute or regulation is not honored by the bank or financial institution named, the applicant or regulant shall be required to remit fees sufficient to cover the original fee, plus an additional processing charge set by the department:

Fee Type	When Due	Amount Due
Class C Initial License	with license application	$150 $200
Class B Initial License	with license application	$175 $305
Class A Initial License	with license application	$200 $330
Declaration of Designated Employee	with license application	$40
Qualified Individual Exam Fee	with exam application	$20
Class B Exam Fee	with exam application ($20 per section)	$40
Class A Exam Fee	with exam application ($20 per section)	$60
Water Well Exam	with exam application	$40

Note: A $25 Recovery Fund assessment is also required with each initial license application. If the applicant does not meet all requirements and does not become licensed, this assessment will be refunded. The examination fees approved by the board but administered by another governmental agency or organization shall be determined by that agency or organization.

18VAC50-22-140. Renewal fees.

Each check or money order should be made payable to the Treasurer of Virginia. All fees required by the board are nonrefundable.

In the event that a check, money draft, or similar instrument for payment of a fee required by statute or regulation is not honored by the bank or financial institution named, the applicant or regulant shall be required to remit fees sufficient to cover the original fee, plus an additional processing charge set by the department:

Fee Type	When Due	Amount Due
Class C Renewal	with renewal application	$110 $175
Class B Renewal	with renewal application	$150 $200
Class A Renewal	with renewal application	$165 $225

Note: A $50 Recovery Fund assessment is also required with each renewal.

The date on which the renewal fee is received by the Department of Professional and Occupational Regulation or its agent shall determine whether the licensee is eligible for renewal or must apply for reinstatement.

18VAC50-22-170. Reinstatement fees.

Each check or money order should be made payable to the Treasurer of Virginia. All fees required by the board are nonrefundable. In the event that a check, money draft, or similar instrument for payment of a fee required by statute or regulation is not honored by the bank or financial institution named, the applicant or regulant shall be required to remit fees sufficient to cover the original fee, plus an additional processing charge set by the department:

Fee Type	When Due	Amount Due
Class C Reinstatement	with reinstatement application	$260* $375*
Class B Reinstatement	with reinstatement application	$325* $425*
Class A Reinstatement	with reinstatement application	$365* $475*
*Includes renewal fee listed in 18 VAC 50-22-140.

Note: A $50 Recovery Fund assessment is also required with reinstatement.

The date on which the reinstatement fee is received by the Department of Professional and Occupational Regulation or its agent shall determine whether the licensee is eligible for reinstatement or must apply for a new license and meet the entry requirements in place at the time of that application. In order to ensure that licensees are qualified to practice as contractors, no reinstatement will be permitted once one year from the expiration date of the license has passed.

18VAC50-22-250. Fees.

Each check or money order should be made payable to the Treasurer of Virginia. All fees required by the board are nonrefundable. In the event that a check, money draft, or similar instrument for payment of a fee required by statute or regulation is not honored by the bank or financial institution named, the applicant or regulant shall be required to remit fees sufficient to cover the original fee, plus an additional processing charge set by the department:

Fee Type	When Due	Amount Due
Change of Designated Employee	with change form	$40 $80
Change of Qualified Individual	with change form	$40 $80
Addition of Classification or Specialty	with addition application	$40 $80

FORMS (18VAC50-22)

Contractor Licensing Information, 27INTRO (8/07).

Trade-Related Examinations and Qualifications Information, 27EXINFO (8/07).

License Application, 27LIC (rev. 8/08).

Class C License Application (Short Form), 27CSF (rev. 8/08) insert date).

Additional License Classification/Specialty Designation Application, 27ADDCL (rev. 8/07) insert date).

Change of Qualified Individual Application, 27CHQI (rev. 8/07) insert date).

Change of Designated Employee Application, 27CHDE (rev. 8/07) insert date).

Changes of Responsible Management Form, 27CHRM (eff. 8/07).

Experience Reference, 27EXP (8/07).

Certificate of License Termination, 27TERM (8/07).

Education Provider Registration/Course Approval, 27CONTEDREG (eff. 4/08).

Education Provider Listing Form, 27EDLIST (eff. 4/08).

Financial Statement, 27FINST (eff. 8/07).

Additional Qualified Individual Experience Reference Form, 27QIEXP (eff. 8/07).