Texas Attorney General Candidate Barry Smitherman on Employee Misclassification and Energy Production

As the Texas Republican Primary now kicks into full gear in the sprint to the March 4th Primary Election, Texas Attorney General Candidate, Barry Smitherman (currently Chairman of the Texas Railroad Commission), sat down again with TexasGOPVote to discuss some of the issues that will be faced by the next Attorney General of Texas. Employee misclassification is an issue that affects thousands of Texans. It is the practice performed by some companies attempting to cheat the system by classifying workers as independent contractors rather than employees to avoid higher costs and gain an unfair competitive advantage over companies who use ethical and legal employment practices.

The IRS and Texas Workforce Commission have very clear rules about when workers can be classified as independent contractors versus being employees of the company. If they are employees, companies must deduct and match payroll taxes, pay workmans compensation insurance, pay unemployment insurance taxes, and follow labor laws regarding overtime pay. When companies classify workers as independent contractors, they bypass those expenses.

I asked Smitherman about his thoughts on this issue and what role the Texas Attorney General should play in helping to enforce the existing laws of Texas regarding employment issues.  

"As the Chairman of the Railroad Commission," Smitherman began, "we want to make sure that everybody whos in the oil and gas industry and the pipeline industry knows the rules and every participant has to comply with the rules. As you said, if one company doesnt have to meet a particular safety requirement, that company can have a competitive advantage because their cost of goods sold is cheaper. Same way with electricity."

"When I was Chairman of the PUC [Texas Public Utility Commission]," he continued, "we were always concerned that a company coming into the industry to sell electricity or to generate power, if they did not have to comply with our rules, then they too would have a competitive advantage, which cheats out the companies that are trying to do it right... Thats why we have rules at a football game and a basketball game. Its because we want to make sure that the best company, the one that does it correctly, that does it the best, that abides by the rules, is the one that wins."

"So as the next Attorney General," Smitherman concluded, "I will be very vigilant and diligent in making sure that companies obey the rules. The AG doesnt write the rules, but we must enforce the rules, so we must enforce is fairly. And as a side part of that, as you accurately pointed out, the state is cheated from revenue by companies that inaccurately characterize their employees and moms that are on child support and dads that are on child support are also cheated out of that revenue stream that they need."

Under Texas law, new employees must be registered with the Texas Attorney Generals Child Support Collection Division to ensure that parents who are obligated to pay child support are meeting these obligations. When companies misclassify their workers as independent contractors, this does not happen and a "black market" can be created where deadbeat parents can hide from supporting their children. In addition to hurting the children, the custodial parent is often forced onto welfare and other government subsidies leaving taxpayers to foot the bill of the parent who is hiding from their responsibility.

I asked Smitherman what role the Texas AG should play and if there should be stricter enforcement of these laws to reduce the cost to taxpayers and get parents the support they need for their children. 

"Absolutely," Smitherman replied. "Again, we dont write the rules. We take the rules as they, and we will enforce them equally, and well enforce them diligently. One of the things that makes America such a great place to live and work is that we are a country that follows the rule of law. What makes our economy work the best is everybody follows the rules, and when you follow the rules, if youre the best company with the best product at the best price, you get the most business. If you cheat, you should be punished."

Houston, in particular, has a high demand for skilled labor. Particularly in the construction industry. A sustainable workforce is critical to meeting the needs of employers in this growing economy. However, companies that cheat the system to gain an unfair competitive advantage, make it difficult for legitimate companies to train and promote their workers. Things that help workers increase their skill and thereby increase their wages create a better standard of living for Texas workers and their families.

"We have a great demand in this city and across Texas for skilled labor," Smitherman stated. "Not everyone is going to be a doctor or an attorney like me, but we have an opportunity to provide a great wage, a great living for people who want to be in the trades, who want to work in the oil and gas field, who want to work in the trucking field, pipeline, construction, everything that goes with building something, and we need to build a lot of stuff, not just in Houston, but across our states."

"So as a result of that," he continued, "we have to make sure were getting talented people that see this as a career that they can build upon, make enough money so they can support their families. Theres plenty of work. We are one of the few places in America where our economy is booming. A lot of it has to do with oil and gas, which of course it what we oversee at the Railroad Commission, but we cant have an opportunity where if I cheat or I break the laws, I somehow get more business than the guy who is trying to run his company correctly."

We switched gears to talk about the growing energy economy of Texas. As Chairman of the Texas Railroad Commission, Smitherman has a front row seat to both observing and leading this critical part of the Texas economy.

"Were in Houston today, and there was an article on the front page of the Houston Chronicle yesterday that talked about Texas meteoric increase in oil and gas production. In fact the Federal Department of Energy has estimated that were producing well in excess of 2 million barrels a day of crude and liquids. At the Railroad Commission, we calculate it a little bit differently, but lets just call it 2 million barrels a day. That is more than we have done in the last couple of dozen years. In fact, you would have to go back to the early 70s to find production larger than what we have now, and at the Railroad Commission, we have tried to do our part to enable the industry to produce all this liquid and produce all these great paying jobs. One of the things we had to do was reduce the turnaround time on permits."

"When I arrived there almost 2.5 years ago," Smitherman continued, "it was taking weeks, and in some cases months, to process an oil and gas drilling permit. Now were doing it in 3 days. We will issue more drilling permits this year than we have since 1985. So we dont want to be the hold up. We want to make sure that were empowering the industry to do it quickly and to do it safely. Were also doing it with less taxpayer dollars in the Railroad Commission than we did in the biennium before I got there. We are using money generated from the industry by paying fees and assessments and so that relieves the Legislature from having to appropriate us any tax dollars so those tax dollars can be used for some other endeavor."

AG Candidate Barry Smitherman with the Board of the Downtown Houston Pachyderm Club 

Smitherman spoke today in Houston to the Downtown Houston Pachyderm Club today where he re-emphasized the importance of having an Attorney General for Texas that understands the oil and gas capabilities of Texas and who already knows how to fight the over-reaching Obama Administration as he is already doing at Texas Railroad Commission Chairman.

During the interview above and at the Pachyderm Club meeting, I asked Chairman Smitherman about the differentiation between him and his two opponents.  One of those key experiences is that Smitherman has executive branch experience.  He is the only person in Texas history to have been chairman of both the Texas Railroad Commission and the Texas Public Utilities Commissions.

Because of this, Smitherman knows from day one how to run a state agency and keep the budget in mind. "In my personal office," Smitherman explained, "Ive kept my budget flat. In fact, we have not increased our personal expenditure in my chairmanship office over the last 2 years, even though some , and a think even a couple of my competitors have raised the amount that is being used to run their personal offices. Weve held it flat. All of my employees are happy to have a job and theyre happy to keep what theyre making at the same level."

"Most people dont realize," he continued, "the AGs office has over 4,200 employees in 96 offices around the state with a half a billion dollar a year budget. You need someone who is an experienced leader to go in and make sure were spending our money wisely, we have the right people on the right seats. I dont think either of my competitors has ever led anything close to size and complexity of the Railroad Commission, which is a $100 million a year budget and 725 people. So when were spending taxpayer dollars to run the AGs office, you need a leader who knows how to do it, and Im that guy."

At the Pachyderm Club meeting today, Smitherman spoke about and answered questions about the role of the AGs office in child support collection.  One area where this can be improved upon is in the enforcement of employee classification laws ahead. He shared that his first priority as AG will be to create a new border security task force and that right behind that he will look at ways of making child support more efficient so that parents can get their funds and deadbeat parents can be more effectively tracked down. He pledged to reducing some of the cost to taxpayers by outsourcing some of these efforts where appropriate.

Ballot by mail applications start going out in 16 days and early voting begins in about 6 weeks.  The primary is coming and it is coming fast. I urge you to get out to meetings where these candidates are speaking and ask them the tough questions you need answers to in order to make an informed decision. Independent voters, the Republican primary is where most, if not all, of the decisions for statewide offices will be made. Express your voice in Texas government. Come out and vote!

TRANSCRIPT OF INTERVIEW WITH BARRY SMITHERMAN:

TexasGOPVote Political Commentator Bob Price: Were back again with the Chairman of the Texas Railroad Commission, Barry Smitherman. Commissioner, welcome back. 

Texas Railroad Commission Chairman Barry Smitherman: Thank you Bob, great to be here. 

Bob Price: Youre moving forward in your run to be our next Attorney General in the great state of Texas.  

Barry Smitherman: I am. Were actively campaigning. The campaign is going well. and its an exciting time to be in Texas.  

Bob Price: I wanted to talk to you about an issue that weve been working on at TexasGOPVote for quite some time now and that is in regards to companies that are basically cheating the system, misclassifying employees as independent contractors, when in reality, they meet the rule requirements to be employees. This not only creates an unfair competitive advantage, an unlevel playing field for all businesses to work in, but it creates loss of revenue for the state of Texas, loss of revenue to mothers who are dependent on child support, and things like that. Tell us a little bit about your thoughts on this issue and how we can work with the Attorney Generals office to try to fix some of these problems. 

Barry Smitherman: Im glad you brought this up because every enterprise requires a set of rules that are predictable, transparent, and dont change from one party to another. As the Chairman of the Railroad Commission, we want to make sure that everybody whos in the oil and gas industry and the pipeline industry knows the rules and every participant has to comply with the rules. As you said, if one company doesnt have to meet a particular safety requirement, that company can have a  competitive advantage because their cost of goods sold is cheaper. Same way with electricity. When I was Chairman of the PUC, we were always concerned that a company coming into the industry to sell electricity or to generate power. If they did not have to comply with our rules, then they too would have a competitive advantage, which cheats out the companies that are trying to do it right, so every enterprise and every competition. Thats why we have rules at a football game and a basketball game. Its because we want to make sure that the best company, the one that does it correctly, that does it the best, that abides by the rules, is the one that wins. So as the next Attorney General, I will be very vigilant and diligent in making sure that companies obey the rules. The AG doesnt write the rules, but we must enforce the rules, so we must enforce is fairly. And as a side part of that, as you accurately pointed out, the state is cheated from revenue by companies that inaccurately characterize their employees and moms that are on child support and dads that are on child support are also cheated out of that revenue stream that they need. 

Bob Price: This creates a real black market economy, where people are basically going in there and hiding from the collection efforts. In the past, the Attorney Generals office has been very involved in tracking down "deadbeat parents." Its a very important part of the agencys responsibility. So, do you think this is something that could be moved forward to create a stricter enforcement? 

Barry Smitherman: Absolutely. Again, we dont write the rules. We take the rules as they, and we will enforce them equally, and well enforce them diligently. One of the things that makes America such a great place to live and work is that we are a country that follows the rule of law. Now, the President doesnt really understand this. He thinks that he can give special companies that have done things for him, special dispensation. like not having to comply with Obamacare for example, or other allowances, but that leads to a third world economy where depending on who you know or what you do, you can get special privileges. What makes our economy work the best is everybody follows the rules, and when you follow the rules, if youre the best company with the best product at the best price, you get the most business. If you cheat, you should be punished.  

Bob Price: Thats really what I think a lot of the business people, particularly here in Houston, where we have a booming construction industry, companies are competing in the marketplace. Theyre trying to build viable career fields where the construction and manual labor markets are seen as an honorable profession where you have a career path, and you have an opportunity to grow and build your family, build your business, and all of that is being undercut by people who are literally cheating the system, trying to save a few bucks here and there, and I think we need to crack down on that a little bit.  

Barry Smitherman: We have a great demand in this city and across Texas for skilled labor. Not everyone is going to be a doctor or an attorney like me, but we have an opportunity to provide a great wage, a great living for people who want to be in the trades, who want to work in the oil and gas field, who want to work in the trucking field, pipeline, construction, everything that goes with building something, and we need to build a lot of stuff, not just in Houston, but across our states. So as a result of that, we have to make sure were getting talented people that see this as a career that they can build upon, make enough money so they can support their families. Theres plenty of work. We are one of the few places in America where our economy is booming. A lot of it has to do with oil and gas, which of course it what we oversee at the Railroad Commission, but we cant have an opportunity where if I cheat or I break the laws, I somehow get more business than they guy who is trying to run his company correctly.  

Bob Price: Now speaking of the Railroad Commission, I heard a report this week in the news about just how huge the increase in production is in natural gas here in Texas, particularly down the Eagle Ford Shale area. One of the things that the Attorney General has to do in the state of Texas is run a big state agency. Youve done that, not once but twice, running state agencies. Talk about the energy industry and how as running the agency that oversees that, youve managed to grow that business.  

Barry Smitherman: Well were in Houston today, and there was an article on the front page of the Houston Chronicle yesterday that talked about Texas meteoric increase in oil and gas production. In fact the Federal Department of Energy has estimated that were producing well in excess of 2 million barrels a day of crude and liquids. At the Railroad Commission, we calculate it a little bit differently, but lets just call it 2 million barrels a day. That is more than we have done in the last couple of dozen years. In fact, you would have to go back to the early 70s to find production larger than what we have now, and at the Railroad Commission, we have tried to do our part to enable the industry to produce all this liquid and produce all these great paying jobs. One of the things we had to do was reduce the turnaround time on permits. When you come to the Railroad Commission to get a drilling permit, you need to have that permit processed quickly. When I arrived there almost 2.5 years ago, it was taking weeks, and in some cases months, to process an oil and gas drilling permit. Now were doing it in 3 days. We will issue more drilling permits this year than we have since 1985. So we dont want to be the hold up. We want to make sure that were empowering the industry to do it quickly and to do it safely. Were also doing it with less taxpayer dollars in the Railroad Commission than we did in the biennium before I got there. We are using money generated from the industry by paying fees and assessments and so that relieves the Legislature from having to appropriate us any tax dollars so those tax dollars can be used for some other endeavor. In my personal office, Ive kept my budget flat. In fact, we have not increased our personal expenditure in my chairmanship office over the last 2 years, even though some , and a think even a couple of my competitors have raised the amount that is being used to run their personal offices. Weve held it flat. All of my employees are happy to have a job and theyre happy to keep what theyre making at the same level.  

Bob Price: Well I think these are some very important issues that the voters need to think about when theyre considering the primary election thats coming up in March. They need to look at all the candidates and not just some particular aspects of their record, but their entire record and see what the qualifications are that theyre looking for in Attorney General and how that candidate matches up. 

Barry Smitherman: Well most people dont realize the AGs office has over 4,200 employees in 96 offices around the state with a half a billion dollar a year budget. You need someone who is an experienced leader to go in and make sure were spending our money wisely, we have the right people on the right seats. I dont think either of my competitors has ever led anything close to size and complexity of the Railroad Commission, which is a $100 million a year budget and 725 people. So when were spending taxpayer dollars to run the AGs office, you need a leader who knows how to do it, and Im that guy.  

Bob Price: Well we have an example of that at the federal level. The President of the United States had never managed anything before. Hed been a legislator. Hed never managed any business of any kind, and weve seen what happens when someone without any experience tries to hire executive positions and midlevel positions and the quality of decisions that they make in that process.  

Barry Smitherman: The Obamacare rollout has been a total disaster. I dont think the President could run a lemonade stand if it were given to him. What weve tried doing at the Railroad Commission and the PUC is to make our employees believe that our industries that we oversee could go somewhere else to get the service of they didnt come to us. Instead of thinking of ourselves as a monopoly where we have these industries captive so that we could treat them badly if we wanted to. I say treat them like a customer. If you could walk down the street and get your drilling permit from someone other than the Railroad Commission of Texas, how would you conduct your business at the Railroad Commission, and the response is improve customer satisfaction, friendliness, engaging with the industry, not always giving them exactly what they want, but moving the process along quickly in a very professional way, responding back quickly, and that philosophy starts at the top. It has to come from the leader who says this is the way were going to conduct this agency. 

Bob Price: Well Chairman, thank you for coming in and taking the time to talk to TexasGOPVote again. Id like to get back with you on a couple of other issues, and well continue on through the campaign.  

Barry Smitherman: Thank you.