Massive shake-up of state tax board

Overhaul strips the agency of powers as officials scramble to form new department.

After its publicly elected five-member board was accused of mismanagement, Gov. Jerry Brown has stripped the agency of most of its powers and duties.

SACRAMENTO — In a move that triggers the most dramatic shake-up of the California Board of Equalization in its 138-year history, Gov. Jerry Brown signed legislation Tuesday that strips the scandal-plagued state tax collection agency of most of its powers and duties as officials scramble to create an entirely new department by July 1.

The board is the target of an investigation by the state Department of Justice, and its members and employees have been accused by auditors of mismanagement that included putting $350 million in sales taxes in the wrong accounts and improperly interfering with decisions to open field offices and transfer staff.

“The board exists to serve the public and the [audit] report highlights the extent to which it has fallen short,” Brown said recently in announcing plans for the shake-up.

The only elected tax board in the country, the panel is responsible for collecting $60 billion in taxes annually for the state. Four of the members are elected by districts, receiving annual salaries of $142,577, while the fifth member is the state controller.

The governor signed a bill that pares the state board from 4,800 workers to just 400 employees. The other staff engaged in the collection of sales and excise taxes will be shifted to a new California Department of Tax and Fee Administration, according to Marybel Batjer, secretary of the California Government Operations Agency.

The elected, five-member Board of Equalization also will cede its role hearing taxpayer appeals to a new Office of Tax Appeals, leaving the board with a narrower task that includes setting rates for gas taxes and pipeline levies and making sure counties fairly assess property taxes.

Freed from having to be impartial in judging appeals, the board can help individual taxpayers with tax disputes navigate the bureaucracy.

The intent of the overhaul, Batjer said, is “to guarantee impartiality and equity and efficiency of tax appeals” and to “ensure fair tax collection statewide.”

The Board of Equalization was established by a constitutional amendment in 1879 and was named after its responsibility to make sure county property tax assessment practices were equal or uniform throughout California.

Editorial boards and government improvement groups have been calling for an overhaul or for dissolving the powerful board since 1929, when some tax duties

were transferred to what is now the state Tax Franchise Board.

In 1949, the state Legislative Analyst’s Office called for major changes, citing “below maximum” revenue management and complaining that having elected board members exert personal control meant there was not uniform policy.

Gov. Pete Wilson sought unsuccessfully to merge the two tax boards in the 1990s. It also survived a push by Gov. Arnold Schwarzenegger to “blow up the boxes,” which included changing the tax system.

With each of the four members elected by district and representing more than 9 million Californians, the panel members have proved adept until now in heading off challenges to pare their power. The next election is in 2018.

This year, the audit by the Department of Finance struck a chord when it discovered board members were undermining the executive director and transferring tax collections staff to direct parking and crowd control at conferences that boosted the members’ standing in the community.

The winner in the shakeup is the governor, who will see his administration expanded by the new department.

Anticipating the governor’s action, officials already had started work to create a new state department by July 1 that will operate within Batjer’s agency.

The new department will be headed by a director appointed by the governor and confirmed by the state Senate. Brown also will appoint a chief deputy and chief counsel.

“The recruitment is underway,” Batjer said, adding, “the transition will continue after July 1, obviously. Not every I will be dotted and T crossed between now and July 1. We will do our mighty best to do the most important things before July 1.”

Board members are complaining there already are glitches. Board Vice Chairman George Runner said the way the law was written to restrict the number of district offices might force the closure of some existing field offices. In his case, he may need to close a constituent service office in Lancaster, since his district office in Sacramento overlaps with the board headquarters.

“It makes it obviously difficult for my staff to meet with constituents,” Runner said, adding that he is talking to legislators about clarifying the issue.

The new department will stay in the existing Board of Equalization headquarters in Sacramento, as will most of the employees.

Batjer also has until Jan. 1 to set up a new Office of Tax Appeals that will hear the appeals currently handled by the board. The new office will be managed by the appointed director and chief counsel and include three panels of administrative law judges to be hired through a competitive civil service process.

Setting up that office will take time, so taxpayer appeals will still be heard by the elected board until Jan. 1.

Three of the five elected board members oppose the change, even though they acknowledged that some reform was needed after the audit.

They argued that elected board members can be held more accountable for decisions in tax appeals than can appointed administrative law judges.

“There are some screwy things that happened and some decisions that were made that need to be changed and need to be corrected,” Runner said. “That doesn’t mean you blow up taxpayers’ abilities to go to their peers when they have tax concerns.”

The transition to new agencies is happening at a time when the state attorney general’s office has begun interviewing agency employees as part of an investigation to determine whether there has been criminal misconduct.

Batjer said she has been “informed” about the investigation but does not think it will be disruptive to the already difficult task of creating new state agencies. “I am not concerned that it will,” she said.

Board Chairwoman Diane Harkey has supported other reforms but said the overhaul “will kill the BOE and taxpayer rights.”

Board member Jerome Horton also opposed the change.

“This bill has nothing to do with the BOE procurement or taxpayer event issues recently in the news; instead it replaces the current adjudicatory process with bureaucrats, with no accountability to the voters,” he said.

‘The board exists to serve the public and the [audit] report highlights the extent to which it has fallen short.’ — Gov. Jerry Brown