Asm. Ling Ling Chang

Sacramento once again has its eye on the sharing economy.

This year, state lawmakers have targeted ride-sharing companies and short-term accommodation services for more regulations that, some fear, could kill the burgeoning industry. But, at least one state lawmaker has embraced the mantra: “sharing is caring.”

Republican Assemblywoman Ling Ling Chang of Diamond Bar has introduced legislation that would rewrite the state’s travel policy to guarantee state workers have the right to use sharing services while traveling on government business. That means on the next business trip to Los Angeles, a state worker could ditch the corporate hotel chain in favor of Airbnb, or upgrade the big yellow taxi for an Uber.

“The sharing economy is becoming a part of our everyday lives,” Chang told CalWatchdog.com. “I see it as a growing market in California that is creating jobs and making our lives better, which is a win-win.”

Chang added, “We should be embracing these new markets and one way to do that is to allow state workers to take advantage of their cost-saving benefits.”

Bill could saves taxpayers millions

Technically, there’s nothing in state law that prevents an agency or department from approving travel reimbursements for sharing services. Chang says that her measure is a pro-active effort to keep state policies current with new innovations in the marketplace.

“By allowing state employees to use the sharing economy, California is leading by example and embracing innovation,” Chang explained. “Too many times state bureaucracies punish these new entrepreneurs because they don’t understand them. If it doesn’t fit into the status-quo, 20th century regulatory scheme, there seems to be a desire to push them into that old system.”

Last year, the University of California initially banned reimbursements for travel expenses incurred with sharing services. That led to a public outcry with some Democratic politicians calling for the UC system to modernize its travel policies.

“Sharing economy companies offer consumers more choices at often less cost than comparable services offered by traditional vendors,” Lt. Governor Gavin Newsom, a member of the UC Board of Regents, wrote at the time. “Prohibiting U.C. employees from using services that cost less is simply bad for the university’s bottom line.”

Eventually, the UC system backed away from its ban. Chang’s bill encourages the UC system to follow the state’s lead in embracing sharing services.

Internet Association, Natural Resources Defense Council back bill

The $15 billion sharing industry is expected to grow to $335 billion over the next decade, in part, because it saves consumers money. Sharing services are commonly cheaper than traditional travel businesses. According a legislative analysis of the bill, home-sharing services can save consumers as much as 50 percent compared to conventional lodging options.

With more than 271,000 active state employees, a shift by state government to more sharing services could help save taxpayers money. Chang’s office says that state employees have been reimbursed approximately $110 million in travel-related expenses over the last three years.

The bill has picked up key support from the Internet Association & Natural Resources Defense Council, which believe it will help the environment and save taxpayers money.

“AB229 recognizes the value of the emerging sharing economy and how it could be used to reduce state costs relating to travel,” the Internet Association wrote in support of the bill. “Providing the ability for state employees to use sharing economy services and receive reimbursement would increase the number of safe and reliable options available to employees when they travel on state business.”

AB229 sailed passed the State Assembly on a 74-0 vote.

Sen. Ben Hueso attacks ride-sharing services

But not everyone in Sacramento is ready to embrace the idea. The bill has run headlong into opposition from one state lawmaker that has consistently opposed the new sharing economy.

“This industry, two years ago was operating illegally,” state Senator Ben Hueso, D-San Diego, said in reference to the ride-sharing industry during a committee hearing earlier this month. “This is a bill that is largely unnecessary, but it is setting a statement, saying, ‘The state of California is endorsing this mode of travel and encouraging this mode of travel over others.'”

Hueso, whose family is in the taxi cab business, has become the Legislature’s biggest critic of ride-sharing. Yet, even he could benefit from the new services. Last summer, Hueso was arrested for driving under the influence just hours after he voted for legislation that one ride-share executive feared “would literally spell the end of the ride-share industry.”

The reactions ranged from praise for improving treatment of Uber drivers to alarm about the perceived stifling of a booming new niche industry to a third camp which described the California decision as being less important than most believed. Here’s a sampling.

A New York Times analysis framed the ruling as being a pivotal moment for labor in the 21st century:

Companies like Uber and its rival Lyft, and Instacart, a grocery delivery service, have long faced questions about whether they are creating the right kind of employment opportunities for both the economy and for workers. The technology companies have contended that their virtual marketplaces, in which people act as contractors and use their own possessions to provide services to the public at the touch of a smartphone button, afford workers flexibility and freedom.

 

Yet labor activists and others have said such roles — with people working as freelancers and having little certainty over their wages and job status — are simply a way for companies like Uber to minimize costs, even as they maintain considerable control over drivers’ workplace behavior . …

 

The classification of freelancers is in dispute across a number of industries, including at other transportation companies. And the debate is set to escalate as the number of online companies and apps like Uber and others rises. Venture capitalists have poured more than $9.4 billion into such start-ups — known as on-demand companies — since 2010, according to data from CB Insights, a venture capital analysis firm, spawning things like on-demand laundry services and hair stylists.

 

”For anybody who has to pay the bills and has a family, having no labor protections and no job security is at best a mixed blessing,” said Robert Reich, former secretary of labor and a professor of public policy at the University of California, Berkeley. ”At worst, it is a nightmare. Obviously some workers prefer to be independent contractors — but mostly they take these jobs because they cannot find better ones.”

Concern that it will inhibit tech startups

But in Media Nama, a popular English-language website focusing on India’s tech economy, writer Riddhi Mukherjee worried about the implications of the California ruling were it copied worldwide:

[Many online] services started of as startups [sic], and the option to bring on board contractors and vendors to provide the service on the ground allowed them to become an Uber or Flipkart. If the California Labor Commission ruling were to become binding, and if online services that act as Intermediaries are forced to directly employ all contractors/vendors, then startups with limited capital will not be able to enter similar businesses. Competition will decline, smaller merchants will find it difficult to find buyers, and they will be negatively impacted.

One writer for the Silicon Beat blog was similarly concerned:

The California Labor Commission ruled that Uber drivers are employees, proving that the agency knows nothing at all about technology. If this ruling becomes the standard government reaction to companies that engage in the sharing economy, there will be no sharing economy of which to speak. …

 

Basically, the ruling is saying that, because Uber doesn’t want you to show up in a rusting hulk that might break down on the way to airport, you are an employee. And basically, the commission is saying that if I rent my house for a weekend on AirBnB, that makes me an employee of AirBnB.

 

Granted, the commission is quick to point out the ruling only applies to Berwick and isn’t “policy.” But you can bet every Uber driver will be gathering Jiffy Lube receipts at this point and filing a similar claim. You can also bet that courts and other labor commissions will be looking at cases like this.

 

Well, if Uber drivers are “employees,” one can make the argument they are owed benefits, insurance, and all other things that usually apply to a full-time employee. If everyone who is a major participant in the sharing economy is considered an “employee,” the business model simply doesn’t work.

Professor: Single ruling has little effect on big picture

But a labor law specialist interviewed by Atlantic Online challenged the idea that the California ruling would have a clear, dramatic effect.

Sam Estreicher, a professor of labor and employment law at NYU School of Law says that while the ruling is important, the fate of Uber and other ride-sharing companies and their contractors and employees may be decided more slowly, on a state-by-state basis, and hinge heavily on the interpretation of labor laws within those jurisdictions. In some places that may mean finding a midway point between employee classification and the current policy, which largely absolves the company of responsibility for its drivers.

Estreicher says that beefed up regulations that bring the companies into compliance with similar, non-sharing-economy companies in each state might be a plausible solution.

Uber is appealing the Labor Commission ruling.

Whether you’re planning a weekend trip to Napa Valley or the family’s spring getaway to Disneyland, non-traditional accommodation services, such as Airbnb, provide travelers with a range of lodging options — from small studio apartments to luxury cabins. The service is widely popular with solo travelers that can use a person’s spare bedroom and families that can rent an entire home, rather than multiple hotel rooms.

“Airbnb hosts share their spaces in 190 countries and more than 34,000 cities,” the company, which was founded in 2008, explains on its website. “All you have to do is enter your destination and travel dates into the search bar to discover distinctive places to stay, anywhere in the world.”

But it won’t be that easy if one state lawmakers gets his way. State Sen. Mike McGuire, D-Healdsburg, plans to introduce legislation that would require Airbnb hosts to abide by a complicated maze of outdated local ordinances and mimic big corporate hotel chains in collecting transient occupancy taxes.

In some cities, Airbnb and other short-term rental services would be halted altogether, costing consumers more for accommodation and benefiting the bottom line of corporate hotel chains.

Local government revenue grab

McGuire has yet to put the specifics of his proposal into the text of Senate Bill 593, which currently references the Motor Vehicle Fuel Tax Law. However, he says that a new state law “will empower communities to protect the quality of life of their residents by upholding local ordinances that protect against the degradation of neighborhoods, or in some cases, not allowing vacation rentals based off of local Online Vacation Rental Businesses (OVRB) ordinances.”

“Where vacation rentals are legal, this legislation will provide cities and counties the tools they need to collect bed taxes which help build stronger neighborhoods,” McGuire said in a recent press release. “Where vacation rentals are illegal — the bill prohibits the online platforms from making the rental.”

He’s already lined up a long list of supporters from local governments that would see a boost in tax revenue.

“The California State Association of Counties (CSAC) greatly appreciates Senator McGuire’s leadership in making sure local communities have the ability to regulate on-line hosting platforms,” said CSAC Executive Director Matt Cate. “In particular, we support the Senator’s legislation to ensure cities and counties can collect transient occupancy taxes that fund critical services in our communities.”

Transient occupancy taxes are imposed by local governments for “the privilege of occupying” a lodging for 30 days or less. In some jurisdictions, this “invisible tax” is spent in ways that benefit big hotel chains and tourism-based businesses, such as infrastructure improvements near the hotels. Individual hosts with just one property are unlikely to see any benefit from the tax revenue.

Outdated local ordinances written before Airbnb

Many local ordinances governing short-term rentals, originally drafted to combat seedy motels, establish unreasonable or impractical burdens on hosts who are just trying to make ends meet. In San Diego, the city’s current regulations require hosts to obtain hard-to-get permits and secure additional parking in order to rent a spare bedroom.

“Hosts who rent rooms in their homes on a short-term basis would need either a neighborhood use permit or a conditional use permit, depending on the neighborhood in which they live,” explained Voice of San Diego’s Andrew Keatts. “The city’s own data, however, shows a resident can plan on waiting about a year to get one of those permits.”

Hosts that refuse to comply face threats and intimidation from local government officials. That’s what happened to a 70-year-old Burlingame woman who, according to the Voice of San Diego, was ordered to stop renting rooms in her home or face a daily fine of $2,500.

Bill would give local governments personal information

McGuire’s proposal also could put hosts in jeopardy of identity theft or home burglaries. His proposal would require hosts to disclose personal information, including their address, number of nights with visitors and amount paid by the guest to cities and counties in a manner that is “similar to the way hotels” do it. Such disclosure of personal information to city and county employees on insecure local government computer systems could put hosts at risk of identity theft.

Even secure state and federal government systems are vulnerable to attack by hackers. Last March, the California Department of Motor Vehicles announced it was investigating a possible data breach for credit card payments from Aug. 2, 2013 to Jan. 31, 2014. According to KPCC, the responsibility for the data breach rested with an “outside vendor they (DMV) use to process online credit card payments or from the credit card companies themselves.”

Earlier this month, the online security experts at KrebsOnSecurity shared a horror story of a taxpayer who had his tax refund stolen due to vulnerabilities at the federal government’s online tax system at IRS.gov.

“The IRS’s process for verifying people requesting transcripts is vulnerable to exploitation by fraudsters because it relies on static identifiers and so-called ‘knowledge-based authentication’ (KBA) — i.e., challenge questions that can be easily defeated with information widely available for sale in the cybercrime underground and/or with a small amount of searching online,” the security firm warned taxpayers.

In addition to online vulnerabilities, local government employees would have access to a list of unoccupied homes, a list of easy prey for burglars.

A December 2014 report by State Auditor Elaine Howle detailed numerous cases of “theft of state funds, waste of public resources, improper headquarters designation and improper travel expenses, dishonesty, incompatible activities, and other violations of state law.”

The legislation regulating Airbnb and other services also sets up another battle between California’s new high-tech companies and local governments similar to that involving Uber, Lyft and other ridesharing companies.

The state, which remains the global center of such start-ups, is being forced to work out compromises. Gov. Jerry Brown brokered one last September between the ridesharing companies and local governments influenced by powerful cab companies.