Reform Spotlight: Contractor Trades Licensing

Specialty contractor licenses account for about a third of the occupations we study in License to Work—33 occupations in all—as well as a third of the changes in licensing requirements observed since 2017. ¹  The changes in these fields were widespread, with 35 states changing at least one contractor license. And yet the most substantial improvements, as previewed above, were concentrated in two states: Utah and Arkansas.

These two states made education and experience reductions to 50 licenses, representing more than a quarter of such improvements across all licenses. And their reductions were sizable as Utah eliminated yearslong experience requirements and Arkansas substantially reduced them. As a result, their reforms were significant drivers of the reductions in days lost observed since 2017, accounting for nearly 60% of the decrease across all 102 occupations.

Specifically, in 2017, Utah eliminated a two-year experience requirement as well as all exam requirements for 33 specialty contractor licenses. ²  At the same time, it added five hours to an existing 20-hour business and law course. ³  These reforms brought Utah closer to states like Washington that (as discussed in Alternatives to Licensing) require only registration for specialty contractors and have no education, experience or testing requirement. They are also the reason for the state’s large improvements from 13th to 49th in our burden ranking and from 14th to 26th in our combined ranking.

Arkansas’ reforms involved larger decreases but still left sizable burdens in place. As part of the Arkansas Contractors Licensing Board’s ongoing review of contractor license requirements, the state in 2017 reduced its five-year experience requirements to one year for 15 specialty contractor occupations and to two years for two others. ⁴  These requirements still exceed those of other states, including Utah, but they represent large burden reductions and helped improve Arkansas’ burden ranking from 7th to 29th and its combined ranking from 3rd to 9th.

Outside of these two states, Arizona eliminated experience requirements for four specialty contractor licenses for aspirants who pass a new trade skills exam. ⁵  The exam option is reflected in our data as it is now the least burdensome route to licensure in the state. ⁶

Since 2017, a few states have moved in the opposite direction. West Virginia added one-year experience requirements to four HVAC contractor licenses. Massachusetts added three years of experience for residential insulation contractors. ⁷  And Georgia raised the experience requirement to become a pipelayer contractor from three to four years.

Aside from education and experience, several states eliminated exams. In addition to Utah, Louisiana removed one exam for 14 licenses, Florida for 11, Michigan for seven and Mississippi for one. ⁸ Utah legislator Mike Schultz, who sponsored his state’s reforms, explained the rationale for eliminating trade exams: “All the trade exam was,” he said, “was a way to kind of keep people out of the industry and make it hard because it was a hard test. . . . I don’t think government should be in the business of picking winners and losers. I think that ought to be the consumer.” ⁹ However, other states elected to add exams. For example, in addition to Arizona, Alabama and West Virginia added one exam for three licenses each, and Nevada for two licenses. ¹⁰

As with our overall findings, the requirement type that saw the most change by far was fees, and these generally increased. Fees increased for 325 contractor licenses while falling for 189. Most notably, Oregon raised fees for commercial and residential landscape contractors by $335, to $1,065. On the other hand, Arizona, Louisiana and Utah made large fee reductions, as did Oregon for contractors other than landscapers, resulting in a small overall decline in average fees for contractors of about $7.

While specialty contractors saw a great deal of change to license requirements, they saw very little in the way of delicensing. Since 2017, one contractor license has been eliminated: a license for residential painting contractors in Michigan. In 2018, the state removed “painting and decorating” from the definition of its “maintenance and alteration contractor” license, thus sparing residential painting contractors from 14 days of training (a 60-hour course), an exam and $294 in fees. ¹¹  No new contractor licenses have been created.

The changes of the past five years illustrate that reform is possible. In addition to reducing and removing licensing requirements, another avenue for trades reform involves exempting some contractors from licensure. In many states, contractors only need a license for jobs worth more than a minimum contract size set by law. Lower-value jobs are exempt. Such contract size thresholds are illustrated for residential contractors in Figure 13. Appendix B offers greater detail, including for commercial contractors, who typically have higher thresholds.

Since 2017, two states have substantially changed their exemption thresholds. ¹²  As part of a sweeping licensing reform effort in 2020, the Florida Legislature raised the threshold for 17 of its 19 contractor licenses from $1,000 to $2,500. ¹³  Although a welcome improvement, this is still a very low threshold of which few contractors can likely take advantage. Better is West Virginia’s 2021 reform, which raised the state’s residential contractor threshold from $2,500 to $5,000 and its commercial threshold from $2,500 to $25,000. ¹⁴

Figure 13: Residential Contractor Exemptions

Most states that license residential specialty contractors exempt jobs below a set—often small—contract value