AB 1963, Leslie: Post-Veto OptionsLegislative CommitteeThis material is for discussion purposes only and has NOT been approved by the Legislative Committee, Executive Committee or the Board of DirectorsIssue: What action, if any, should C.A.R. take in response to the governor’s veto of C.A.R.-sponsored legislation to repeal the so-called “degree broker” license law?Options: 1. Do Nothing2. Request the Commissioner to change and clarify by regulation what its interpretation of the exception to experience requirements means by a 4-year degree which “included specialization in real estate.”3. Bring an Office of Administrative Law challenge to the existing interpretation of B&P 10150.6 as an unauthorized regulation.4. Bring suit seeking a court determination that agrees with C.A.R’s interpretation of “specialization in real estate” and seek to have the court enjoin the granting of broker licenses without actual experience. 5. Sponsor a re-introduction of AB 19636. Sponsor new legislation to define “specialization in real estate”.Status/Summary: Over the years, DRE has interpreted language in Business and Professions Code Section 10150.6 to allow an applicant for a broker license to avoid the usual requirement for two years experience as a salesperson if the applicant has a 4-year degree – even if the degree is unrelated to real estate. More than half of new broker applicants now come inthrough the exception rather than by demonstrating experience. In 2006 C.A.R sponsored AB 1963 (Leslie) to change the licensing law by eliminating the “degree broker” outright. The bill passed both houses of the legislaturewith nearly unanimous votes. After the close of the legislative session, the governor vetoed the bill and cited a lack of demonstrated need as his justification.Discussion:Business and Professions Code Section 10150.6 requires all applicants for a brokers license (in addition to 8 broker education courses and exam passage) to demonstrate a valid salespersons license and two years full time experience in general real estate. However, the section also allows the commissioner to grant the license to an applicant without experience that demonstrates “graduation from a four-year college or university course, which course included specialization in real estate” or to approve an application for recognition of equivalent education and experience.DRE has adopted policy to approve 4-year degree holders for the broker exam if they demonstrate that they have also passed the course work required for a broker's license. Such a requirement does not actually appear in the statute. However, the Commissioner is empowered to approve petitions for recognition of equivalent education and experience. Essentially, the degree is being treated as a standardized equivalency application, without the need for a formalized application. Interestingly, a 2-year degree is granted half credit (excusing the applicant from only one year of experience), even though the practice is not set out in statute. DRE will still accept petitions for equivalency (with the appropriate application and fee), regardless of academic background.During 2005, the Committee received background materials summarizing the various combinations of qualifications that allow an applicant to be eligible for the broker license. In September 2005 the Committee considered more detailed materials in regard to imposition of an experience requirement, and received the report of the Business Practices Task Force.The Sponsored bill – AB 1963. The Legislative Committee followed the recommendation of the Task Force approved a motion that called for C.A.R. to sponsor: “[L]egislation or regulation to impose 2 years of real estate experience and education requirements upon anyone who would practice independently or manage/supervise other licensees.”Note that the recommendation and eventual motion is broader thansimply changing the DRE policy so as to more closely follow the wording of B&P 10150.6. The sponsored legislation did not attempt to define a “course” of study with a “specialization” in real estate – instead, AB 1963 (as called for in the motion) simply eliminated the so-called “degree broker” application option. The veto of the bill has made other approaches less viable.The Veto Message. The Governor stated in hisveto message:Existing law allows a real estate broker applicant to qualify for a license either with two years experience as a salesperson or with a four year college degree. AB 1963 would repeal the ability of a person to qualify for a realestate broker license with a college degree, removing a provision of law that has been in existence for over thirty years. Although the Department of Real Estate has seen a significant increase in the real estate licensee population, it does not appear that newly licensed "degree" brokers pose any more of a risk to the public compared to those brokers who qualified for licensure based on experience. Given this fact, it appears placing further impediments on those seeking to start a business and work independently is not warranted.The veto message is instructive on several points:First, the governor seems to be under the impression that DRE is properly applying the wording of the existing statute, even though C.A.R lobbying of the bill was critical of the existing approach.Second, the governor accepts the DRE analysis that the fact that degree-brokers are not disproportionately represented in DRE discipline reports means their lack of experience is not a problem forconsumers.Finally, the governor sees new licensees as creation of new jobs and new businesses, and is prepared to veto any attempt by the industry to “raise the drawbridge” or “pull up the ladder” and restrict new entry into the business.The Options.Do Nothing. Accepting the status quo obviously requires no additional effort, but is not consistent with existing policy to seek a more professional licensee population. Postponing another confrontation on the issue, at least in the near term, is not inconsistent with pursuing other policy options.Request new DRE Regulatory Interpretation. As a regulatory entity, DRE can only act within its statutory authority, and apply the law. It is not clear how the existing “degree broker” interpretation of Sec. 10150.6 came about, but a reasonable reader can only come away with the conclusion that the grounds for the existing policy is, at best, ambiguous. C.A.R. could formally request that DRE re-examine its interpretation of “specialization in real estate” and apply it (as was probably originally intended) to mean a 4-year degree with a major or minor in real estate. Staff is unaware of any such real estate degree programs; although it has become common in recent years for students to in effect customize their majors. The real difficulty may be in finding sufficient courses to count toward such a major.Whether or not new real estate degrees are viable, a fair reading of the statute would still accomplish the policy goal of the C.A.R. Task Force. Namely, a degree holder with a major in political science or music or zoology would still have to get real experience before being eligible for a brokers’ license.Unfortunately, the governor’s endorsement of the existing interpretation in his veto messagemakes it more difficult for the DRE to back away from it. None the less, an appropriate request to re-examine the regulations may open the door to a more appropriate interpretation. Staff could be directed to draft supporting materials and make such a request of DRE.Challenge the DRE at OAL. One of the functions of OAL (Office of Administrative Law) is to review and disallow unauthorized or so-called “underground” regulations. Since the DRE interpretation is not a new regulation, it would take an affirmative complaint to put the matter before OAL. An OAL challenge will involve an adversarial administrative process. If thereis interest in a request for re-examination of the regulations at DRE, that approach should be pursued first, as the agency will be unlikely to concede the issue once it is locked into a litigation posture in OAL.While C.A.R. has enjoyed a cooperative relationship with the department, the degree of cooperation may be limited during a period in which the agency is forced to actively defend against a C.A.R. challenge. Is changing the degree broker rule sufficiently valuablethat it makes the risk worthwhile?Sponsor a Re-Introduction of AB 1963. C.A.R. could sponsor a second attempt at the legislation in 2007-2008. However, it is not realistic to assume that passage will be assured, or that the votes will be as favorable as with AB 1963. With a firm opposition from the administration, DRE and the administration will be opposed from the day of the bill’s introduction. Regulator (DRE) opposition will undermine the bill’s credibility and may result in party-line opposition votes from Republicans in both houses.Even if a new governor is elected in November 2007, administrative agencies will be slow to change policy. If the same governor is in place when the bill passes, the same result (a veto) seems likely.Sponsor New Legislation to Change the Degree-Broker Rule. It is possible that legislation clarifying the requirements for a degree broker (e.g. real estate classes as part of the curricula, internship programs providing the equivalent of sales experience, or special training in management and supervision) could sidestep some of the problems that accompany a simple re-introduction. Defining a real estate-specific course of study is essentially the legislative version of the option above proposing clarifying regulation for DRE. It is possible that DRE might even be cooperative (certainly more cooperative than it would be as a defendant in a lawsuit); even if it does not see itself as legally authorized to make the desired regulatory correction on its own.Bring a Lawsuit. If DREis indeed overstepping its authority, a court action could be brought seeking a determination as to what B&P 10150.6 actually means (a request for declaratory relief) and/or seeking an order from the court (e.g. injunction) directing DRE to follow thelaw. Like any legal action, the suit is likely to be time consuming and not calculated to enhance the esteem in which the defendant holds the plaintiff. In other words, is the change in the rule worth the sacrifice of a good working relationship with the department?Should a decision on this option be deferred until after other options have been tried and failed?On an overall basis, how important is this rule to C.A.R.? On a comparative basis, how important isthis issue to C.A.R. next to issues like continuing education reform and nickname regulation?