Death of California Board of Equalization: SB 86 and AB 102

MEMORANDUM

Date:               June 13, 2017

To:                   Members, California State Legislature

From:              Diane Harkey, Chairwoman, State Board of                                 Equalization

Subject:           OPPOSITION to SB 86 and AB 102

BACKGROUND

Senate Bill 86 and AB 102 drastically change the way California has administered and collected numerous taxes and fees for the last 138 years. The Board of Equalization has four elected members, the State Controller serving as the fifth member, 4,700 employees, and hundreds of thousands of permit holders who provide over $60 billion (or 1/3) of California’s revenue. The Board of Equalization to date has taken concrete steps toward addressing the issues facing the agency and believes that more time should be given for the benefit of all California taxpayers.

KEY POLICY CONCERNS

Decisions of This Magnitude Do Not Belong in a Budget Bill 

Legislation enacted by the California Legislature is fully discussed and vetted through the committee process and a full floor vote in both the Assembly and Senate. SB 86 and AB 102 offer a sweeping change to one of government’s core functions – tax collection – through the budget process. In this process, there is little to no opportunity for public comment. As discussed below, the Legislature only has until midnight on June 15 to enact a budget bill. This leaves an important policy decision with far reaching consequences in a rushed position. Policy issues of far reaching importance should receive, and deserve, the benefit of the full committee and floor vote process. For these reasons, SB 86 and AB 102 should not be included in the 2017 budget. More time should be allowed for a deliberative process where taxpayers and legislators have a better opportunity to fully weigh the issues concerning the Board of Equalization.

Disruption to Revenue Collection

The revenue collected and administered by the Board of Equalization helps to pay for many of the things Californians rely on including our roads, public safety personnel, and our school system and teachers. Because this bill shifts core BOE responsibilities to a new body with a very short time frame to adjust, disruption to these programs and California’s budgetary schema could face delays, setbacks and disruption to the detriment of Californians. As noted above, giving this policy more time for deliberation, public comment and review could ensure that Californians and their government bodies which serve them do not face any unforeseen hardships as a result of a new tax collection and administration system.

Investigatory Powers

The ability for elected board members to inquire about tax issues before the BOE is a critically important function enshrined in statute per Section 15623 of the Government Code. SB 86 and AB 102 would remove this function as of July 1, 2017, less than three weeks from today. As noted above, the Board has taken steps to ensure that Board Members do not direct a conclusion or request a result be mandated in a tax matter before the Board. The ability to investigate per Section 15623 is an important tool for elected Board Members for two key reasons. First, it ensures taxpayers have an avenue if any abuse is occurring. Second, it strengthens the relationship between elected Board Members and the agency by ensuring an open line of communication.

Administrative Law Judges (ALJ)

Californians have a strong form of appellate recourse with the Board of Equalization because its Members are elected by taxpayers. This ensures that Board members are responsive to taxpayer concerns by working directly with agency civil servants to ensure that every taxpayer is heard, educated and assisted. The people of California need and deserve this important option when facing a complicated and often frightening tax issue. Solving taxpayer issues at the lowest possible level is a unique customer service goal the Board is proud of. It is an idea that can be embraced by any consumer in a daily commercial transaction. With respect to the many hardworking Administrative Law Judges in California, this transfer of appellate power is an untested method for tax administration and dispute resolution in our state.

The Board Has Already Taken Action

The BOE is a quasi-judicial body with members duly elected every four years. As a deliberative body of constitutional officers, the Board can and has set internal policies to strengthen its mission of ensuring taxpayers voluntary comply with paying their taxes for the good of the State of California.

The five elected members of the Board of Equalization have taken action in response to an evaluation from the Department of Finance Office of State Audits and Evaluations and the accompanying media interest. In order to fully address the evaluation, the Board came together to proactively address each concern. Each Board decision was conducted at a regularly scheduled meeting open to the public.

What follows below is a brief summary of actions taken by the Board which acknowledge needed changes with real solutions. By working together, the Board can continue to serve the best interests of the State of California through encouraging voluntary compliance and providing education to taxpayers.

1. Disciplinary system for Board Members that fail to meet Board standards of conduct;
2. Members may inquire but not provide direction as to how any particular concern was or should be resolved;
3. Members may not at any time during the petition process, direct a conclusion or request a result be mandated;
4. Limit Board hiring decisions to the Chief Counsel and Executive Director;
5. Governance Policy to be adopted at the July 2017 hearing;
6. Annual Review Report from the Executive Director to the full Board.

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