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Task Force on Underground Economy releases report Posted by on

The Joint Task Force on the Underground Economy in Massachusetts, formed by Executive Order of Governor Deval Patrick last year has issued its annual report.

Highlights include more than $1.4m recovered, more than 400 agency investigations and a cooperative relationship developed between 17 state agencies that now work on the Task Force.

Rhose Island contract meeting Sat Posted by on

Members of Carpenters Local 94 in Rhode Island will hold a meeting to vote on current contract proposals on Saturday, June 20 at 9:00 am. The meeting will be held at Local 94's union hall at 14 Jefferson Park Road in Warwick.

The union and contractors had agreed to a two-week extension of the previous agreement, effective June 7. That extension will expire on Sunday, June 21. If members do not approve a new contract, they will vote to strike all commercial construction and heavy/highway sites beginning Monday, June 22.

Erlich testifies at hearing on Underground Economy Posted by on

Mark Erlich, Executive Secretary-Treasurer of the New England Regional Council of Carpenters testified this morning at a hearing of the state's Joint Task Force on the Underground Economy. The hearing was held at Bunker Hill Community College and was the setting for the release of the group's first annual report on the Underground Economy. His presented the following testimony"

My name is Mark Erlich and I am the head of the 22,000 member New England regional Council of Carpenters.

I want to start by thanking Governor Patrick for establishing this task force 15 months ago in order to shine a light on our commonwealth??s growing underground economy.

Some 20 years ago, a number of construction employers began to label their employees as "independent contractors", thereby avoiding legally obligated tax payments and costly workers compensation premiums in order to cut costs and gain a competitive advantage.

By the late 1990s, the economic boom increased demand for workers in the Massachusetts building industry, and our region witnessed an influx of immigrant workers, many of whom were undocumented.

Employers who had been willing to cheat through misclassification now realized they could take advantage of this new workforce. They simply began to pay in cash, off the books and under the table. In many parts of our industry, particularly the private non-union construction sector, this approach has become standard practice and the current recession has only exacerbated the situation.

Construction is a straight-forward business of labor and materials. Since materials are generally the same for all bidders, companies can only undercut one another with higher productivity or lower labor costs. But if a company can cheat the state and federal government as well as insurance companies--and get away with it--they have successfully gamed the system.

How bad is the problem? It??s impossible to measure precisely because much of this economic activity is unreported. One study claimed that the shadow or underground economy in the US grew by 28% between 1990 and 2003. a 2005 Bear Stearns report suggested that the overall underground economy was nearly $3 trillion a year, nearly 9% of our GNP.

What is the impact? You will hear testimony from contractors who will explain that they cannot compete on such an un-level playing field. Last year, an area drywall contractor informed his workers that he was putting them back on the books after years of misclassifying them as independent contractors as a result, wages were cut by 30%--a figure that I believe constitutes a "fraud index."

The impact on state and federal revenues is even more severe. the current estimate of the "tax gap" is $290 billion and an IRS spokesman says 30% of this is attributable to misclassification. The GAO suggests misclassification reduces federal income tax revenues by up to $4.7 billion. And these staggering numbers only reflect payments by employers who are still filing some form of paperwork. Losses from those who keep a workforce completely off the books cannot even begin to be measured. at a time of massive federal and state budgets deficits, we are cutting crucial public services while these dollars remain largely uncollected.

But there is also a human side of this public policy crisis. Companies that cheat on taxes and workers compensation premiums are more likely to cut corners and expose their workers to unnecessary risks and dangers. A New York study reported a 40% increase in construction fatalities in 2006 compared to the previous five years, a spike that the authors attributed to practices in the underground economy.

Oscar Pintado is an example. This 27 year old died on a 450-unit residential project in Woburn. The builder, AvalonBay communities, a giant Virginia-based development firm, had been cited by OSHA for failure to meet fall protection standards on other projects. Pintado fell 45 feet down an elevator shaft as he stepped on and broke a piece of sub-standard particle board. Pintado worked for National Carpentry Contractors, a large framing contractor that claims it has no employees -- just 150 independent contractors. National Carpentry told OSHA inspectors that Pintado worked for an entity that did not exist and whose alleged owner conveniently disappeared and has not been located since the fatality. Pintado was, of course, paid in cash and, therefore, his family was not eligible for any benefits or compensation.

Until this situation is corrected, taxpayers and legitimate companies will continue to pay an enormous price for wanton law-breaking. And there are also the thousands and perhaps millions of Oscar Pintados working on construction sites in this country. Some are citizens, some are here illegally, but all of them are invisible victims of this nation??s shadow economy.

Those of us who live and work in Massachusetts are fortunate that we have a governor and an attorney general who understand this issue and have made heightened enforcement of the commonwealth??s laws a priority.

The current economic climate only makes the need for action in this arena more urgent. With construction unemployment over 20% and projects few and far between, the impetus to cheat is heightened in order to gain an edge in today??s brutally competitive environment.

Finally, we should remember that funds for enforcement in this arena should not be cut because the additional revenues that are collected for the commonwealth far outweigh the expenditures on enforcement staff.

Underground economy press Posted by on

Later this morning, the Joint Task Force on the Underground Economy is scheduled to be release it's first annual report at a field hearing in Charlestown. Some details about the effort were reported in a story in the Boston Globe yesterday.

Last night, WBZ-CBS4 in Boston did a piece on the underground economy and it's impact on Massachusetts' workers and economy. Kurt Englesen, owner of union woodframe company Northwing Construction pointed one of the non-financial problems of the underground economy, lack of safety protections. The story can not be embedded on our site, but is viewable online here.

It was also covered by 90.9 WBUR, Boston's NPR affiliate.