Gutting of state tax agency is under way
Board of Equalization changes coincide with criminal investigation
SACRAMENTO — A proposal to gut California’s tax collection agency sits on Gov. Jerry Brown’s desk, but the state is already moving forward with parts of the overhaul, which would shift 90 percent of the agency’s responsibilities to two new state departments.
The drastic changes to the state Board of Equalization coincide with a state Department of Justice criminal investigation into allegations board members may have misused public funds.
The 138-year-old tax board is made up of four elected members and the state controller, and oversees tax and fee collection that generates $60 billion a year, or nearly a third of the state budget.
But lawmakers have for years criticized the board as being dysfunctional, and lost their patience this year. They
held hearings at the Capitol and ripped into the board’s management. The agency, they contend, lost the public’s trust due to poor accounting, including failure to send counties the accurate amount of sales tax owed, and questionable spending on events seemingly unrelated to collecting taxes.
Last week, lawmakers abruptly drew up and passed a bill that strips the board of nearly all its power. Brown is expected to sign the bill.
Lawmakers stopped short of abolishing the board, which would require a constitutional amendment and voter approval. So, the board, long a cozy landing ground for termed-out politicians, will continue to exist.
And, despite the problems, an independent commission this week approved a 3 percent raise for board members, who will now make $147,000 a year.
“This has been an issue documented for decades,” said Assemblyman Phil Ting, D-San Francisco, who spearheaded the Board of Equalization reforms. “These proposals have been talked about for years and years and years. This predates any current board member and many of the executive staff today. It demonstrates this is a systemic problem where the board is playing way too many roles that at times conflict with each other.”
Under the planned reforms, the board members would see their jobs drastically reduced. The board would continue to oversee duties enshrined in the state Constitution — ensuring that property taxes assessed by counties are fair and equitable, assessing taxes on insurers and collecting taxes on alcohol. Any changes to those responsibilities would require voter approval.
However, the vast majority of the board’s responsibilities would be moved into two new departments. More than 30 tax and fee programs — such as sales taxes, fees on the purchase of new tires and taxes on tobacco, cannabis and gas — would be moved into a newly created California Department of Tax and Fee Administration on July 1.
The agency’s administrative functions, like budget and technology, would be moved to the new department.
The board also would no longer oversee tax appeals.
Currently, taxpayers who disagree with a Board of Equalization finding about how much they owe in taxes can contest the decision with an appeal, which is heard by the elected board.
Under the changes, a new independent tax court would be created and filled with administrative law judges to hear appeal cases. Taxpayer appeals would be heard by a panel of three judges instead of the elected board members beginning Jan. 1.
The vast majority of the more than 4,000 workers at the Board of Equalization would continue to do the same job at the same desk, which should lead to little disruption to taxpayer services, said Marybel Batjer, Brown’s secretary of government operations, who has been overseeing the transition.
Batjer said she met with staff at the tax agency on Monday to answer questions about the changes and ease concerns.
“We are doing a lot of planning and preparation,” Batjer said.
Some critics of the Board of Equalization are questioning whether the state will still need the elected board once most of their responsibilities are removed.
“I think the time for an elected board has come to an end,” said Betty Yee, a Board of Equalization member and state controller. “California is the only state that has an elected tax body.”
Voters would have to approve a constitutional amendment to abolish the board. Yee said the proposal on Brown’s desk is a good starting point. Removing politicians, who aren’t required to have a background in tax policy, would ensure taxpayers are treated fairly and consistently, regardless of their political clout, Yee said.
“This is a major reform,” said Yee, who pushed similar changes earlier this year.
Another board member, former Assemblywoman Fiona Ma, also endorsed the changes, while board members George Runner and Diane Harkey, both former lawmakers, have opposed the proposal, calling it government overreach. Board member Jerome Horton did not return an email seeking comment.
Runner, a Republican, said the elected tax officials are still needed to advocate on behalf of the people they represent. He said the reforms are actually a power grab.
“You have an executive branch of the governor’s office that has for years wanted to control all revenues,” Runner said.
Horton has repeatedly been singled out for questionable behavior as a board member.
A 2015 Bloomberg News story found organizations made more than $700,000 in charitable donations at Horton’s request — a practice known as behest payments that are reported to the state’s Fair Political Practices Commission. The payments were mostly made to or through nonprofit organizations tied to Horton’s wife, the news organization reported.
Last year, the Sacramento Bee reported that Horton and his staff outfitted his Sacramento high-rise office with $130,000 in designer furniture, paid for with public funds.
Lawmakers pointed to long waits for taxpayers to get resolutions to their appeals, and the governor’s Department of Finance office found the agency misallocated tens of millions of dollars without explanation. The finance office audit also found in March that Horton regularly reassigned public employees to work for him, including on events that had little to do with the board’s operations.