BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 450 N Street, Room 121 Sacramento, California REPORTER'S TRANSCRIPT FEBRUARY 3, 2009 ITEM P3c2 OTHER ADMINISTRATIVE MATTERS DEPUTY DIRECTOR'S REPORT ADMINISTRATION BUDGET UPDATE 2008/09 AND 2009/10+ Reported by: Beverly D. Toms No. CSR 1662 1 1 2 P R E S E N T 3 4 For the Board Betty Yee of Equalization: Chair 5 Judy Chu 6 Vice-Chair 7 Bill Leonard Member 8 Michelle Steel 9 Member 10 Marcy Jo Mandel Appearing for John 11 Chiang, State Controller (per Government Code 12 Section 7.9) 13 Diane Olson Chief, Board 14 Proceedings Division 15 Board of Equalization Staff: Ramon J. Hirsig 16 Executive Director 17 Liz Houser Deputy Director 18 Anna Brannan 19 Technology Services Department 20 21 ---oOo--- 22 23 24 25 26 27 28 2 1 2 INDEX OF SPEAKERS 3 4 Speaker: Page 5 BOBBIE SMITH 10 6 ---oOo--- 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 3 1 Sacramento, California 2 February 3, 2009 3 ---oOO--- 4 MS. HOUSER: The next item on the 5 Administrative Deputy calendar is an update on the 6 furlough proposal. Our Executive Director, Mr. Hirsig, 7 is prepared to brief you on this item. 8 MS. YEE: Okay. 9 MS. HOUSER: Mr. Hirsig. 10 MS. YEE: Mr. Hirsig and then we'll hear from 11 our public speaker. 12 MS. HIRSIG: Madam Chair, Members, at the 13 Board's January 22nd meeting I presented an update on 14 the Governor's Executive Order which proposed furloughs 15 beginning February 2009. 16 It was my recommendation at that time that we 17 respectfully decline to participate in the Governor's 18 program since it would adversely impact our ability to 19 generate revenue for the State. 20 Following that meeting I sent a memo to the 21 Department of Personnel Administration explaining that 22 the Board as an independent Constitutional organization 23 and revenue-generating agency is opting not to 24 participate in the furlough program, but rather 25 identifying potential savings similar to those that 26 would be achieved through the furlough program. 27 Last Friday, January 30th, I received a call 28 from the Governor's office informing me that the 4 1 Governor has chosen to move forward with the furlough 2 process for all State employees, including organizations 3 headed by Constitutional officers. 4 I requested additional time so I could discuss 5 the directive with you. I was told the pay letter, 6 which has not yet been released, would be available on 7 February 4th. 8 Because we have not seen a pay letter from DPA, 9 and because the situation remains very fluid at this 10 point, a pay reduction for all State employees may be a 11 possibility even without participation in a furlough 12 program. 13 I was also told by the Governor's office that 14 they leave the selection of the method of implementation 15 to the Board provided it was consistent with one of the 16 options presented in the DPA letter dated January 9th. 17 That letter provided three options. Closing down on 18 first and third Friday of each month. 19 A second one, employees taking two furlough 20 days of their choice per month. 21 The third was for employees to accrue two 22 furlough days per month and when feasible within the 23 next two years following that furlough program to take 24 those days. 25 Implemention of any of these options will 26 result in a reduction in each employee's pay of 27 approximately ten percent to be seen on February 27th in 28 the 2009 paycheck. 5 1 Given the fluid nature of pending budget 2 solutions, DPA's ongoing negotiations with the labor 3 unions, the potential for further Court action, it is my 4 recommendation that the Board continue to hold the 5 course we have set at this time. 6 This means, first, employees will continue to 7 report to work each day while we continue to look for 8 budgetary savings equivalent to that of those furloughs. 9 Secondly, should BOE ultimately be forced to 10 participate in the furlough program, I would have the 11 Executive team develop a number of options on how best 12 to implement the process. 13 It's important to note that should the Board 14 subsequently be forced to participate at the direction 15 of the Courts, each employee would likely accrue two 16 furlough days for the month of February. 17 If you have any questions, I would be happy to 18 answer them. 19 MS. YEE: Thank you. Dr. Chu. 20 DR. CHU: Well, I'm glad to hear you say that 21 we should stay the course because I want to reiterate 22 the comments that I made last month in taking a strong 23 stand against the furlough for BOE employees. 24 I think it's incredibly counterproductive to 25 apply this furlough particularly to the BOE. 26 Furloughing our staff would reduce State tax collections 27 by a net of $213 million over the 17-month period and it 28 would reduce State tax collections by a net of -- of -- 6 1 well, that would -- that would mean actually 128 million 2 in reduced General Fund revenues. 3 So not only is -- is this hurtful to the -- to 4 the employees, but it's terribly counterproductive to 5 the resolution of the State budget. 6 And I think it's really important to keep in 7 mind that the issue of whether the Governor has the 8 authority to furlough employees of other Constitutional 9 officers was not really the one before the Court last 10 week. That the ruling of the Superior Court in 11 Sacramento was on a separate issue and it was rejecting 12 the position of several State employee unions that the 13 Governor's Executive Order was illegal and therefore 14 that the State Controller had a ministerial duty to not 15 follow the order. 16 Prior to last week's ruling, the Governor's 17 office encouraged but didn't require the Constitutional 18 Officers to comply with the furlough order but now the 19 Governor has changed course, and is attempting to assert 20 authority over the employees of other Constitutional 21 Officers. 22 But if you look at it, he doesn't have the 23 legal authority to do so. 24 So, I think we should continue to assert our 25 position that the furlough does not apply to our 26 employees and if it is imposed on our staff against our 27 will, well, we will have to revisit the issue. 28 MS. YEE: Mr. Hirsig, to follow up on Dr. Chu's 7 1 comments, with which I concur, the next step would be, 2 if we were to stay the course, to notify the Controller 3 of such? 4 MR. HIRSIG: Yes, Madam Chair. 5 MS. YEE: Okay. Other comments? Mr. 6 Leonard. 7 MR. LEONARD: I want to join with your -- your 8 comments and Dr. Chu's. I -- I -- it's difficult but I 9 think we can generate ten percent savings in this 10 agency. But the idea of putting the burden on our 11 employees to absorb all the savings in their personal 12 budget is -- is just -- just wrong as good public policy 13 and to the extent that we have a choice in that matter 14 to say let's -- let's not shrink our employees but 15 shrink the agency during a budget crisis that we should 16 choose that option to do so. 17 And I also think it's important for this Board 18 to assert its Constitutional authority, and if that's 19 unclear in other offices around the Capitol, then we may 20 have to present it in a courtroom. 21 The idea that the University of California has 22 greater independent status than this Board of 23 Equalization is just -- just shocking to me on -- on 24 much weaker Constitutional ground. And as was pointed 25 out by Dr. Chu, the -- the Court ruling did not even 26 discuss us or this agency; it only discussed the fact 27 that we have delegated the bargaining of pay for our 28 employees to the Department of Personnel Administration, 8 1 a delegation that I suppose if we really wanted to we 2 could withdraw and delegate with our -- or negotiate 3 with our employees directly if we so chose, and assert 4 our constitutional authority in other areas. 5 The fact that we cooperated in one years ago I 6 don't think forfeits the authority that's in the 7 Constitution. 8 MS. YEE: Very well. Thank you, Mr. Leonard. 9 Ms. Smith. 10 ---oOo--- 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 9 1 BOBBIESMITH 2 MS. SMITH: I want to thank you very much for 3 continuing to decline to participate. I firmly believe 4 that it is something that should be determined during 5 contract negotiations between the unions and DPA. And 6 that the Governor overstepped his authority. And I 7 appreciate the fact that you are acknowledging that and 8 continuing to look out for the employees here at BOE. 9 MS. YEE: Okay. Thank you very much. 10 Any other comments or questions, Members? 11 Having heard all this, let me just reiterate my 12 direction then to notify the Controller immediately of 13 the Board of Equalization not participating in the 14 furlough program. 15 And as we had discussed at the last meeting, as 16 Mr. Leonard has reminded us, it will be challenging but 17 we should continue our work in terms of identifying 18 savings elsewhere to meet the anticipated target. 19 And -- and please involve our employees in that 20 regard. 21 MR. HIRSIG: Yeah. 22 MS. YEE: I think they have ideas that could be 23 helpful here. 24 MR. HIRSIG: Yes, Madam Chair, we'll move 25 forward with that immediately. 26 MS. YEE: Thank you. 27 Thank you very much. 28 Okay, next item. 10 1 ---oOo--- 2 MS. HOUSER: Thank you. My next item is on the 3 Governor's proposed 2009/10 budget. The Legislative 4 Analyst's office released its analysis of the Governor's 5 general governmental budget proposals. It included 6 comments and recommendations on administrative tax 7 processes that BOE is working with the -- working with 8 the LAO to respond to. 9 A brief summary and link to the report were 10 provided to your offices last week, and we will continue 11 to update you as more information becomes available. 12 The LAO continues to review our 2009/10 BCPs 13 which will be discussed in prehearings and we will brief 14 you as we receive more information from them. 15 And, finally, I'm requesting the Board's 16 approval of two Spring finance letters. The first is 17 the return processing efficiency finance letter, which 18 requests $2,512,000 and 4.5 new positions for the 19 2009/10 fiscal year to suppport our efforts to 20 transition to a paperless environment. 21 The monies and positions will support a variety 22 of efforts, including developing a partnership with the 23 Employee Development Department to process payment 24 vouchers and checks filed by BOE taxpayers. Addressing 25 information security issues resulting from sharing 26 confidential data with EDD. And internal work necessary 27 to prepare for the transition to a digital environment. 28 The funding is comprised of 1,468,000 in 11 1 General Fund; 259,000 in Special Funds, and $785,000 in 2 reimbursements. 3 Are there any questions on this finance letter? 4 MS. YEE: Okay. Questions, Members? 5 Mr. Leonard. 6 MR. LEONARD: I'll -- I'll make the motion 7 whenever you're ready. I support the finance letter but 8 would note that we probably have a backup plan that if 9 this is part of their ten percent that we want to hold 10 or delay or give back, that we -- you know how to make 11 it work. 12 As important as -- as making more efficient our 13 return processing is, this is -- this is new money 14 request and new staff that -- that if we're having to 15 cut ten percent in the current year in the budget year, 16 wouldn't affect anybody currently to delay it. Other 17 than continue to be less efficient than we know we can 18 be. But it -- it should be on our list. 19 MS. YEE: Okay. Any comments to that -- Ms. 20 Houser -- Ms. Brannan. 21 MS. HOUSER: I have Anna Brannan here with the 22 Technology Services Department to address any questions 23 on that. 24 MS. BRANNAN: Certainly we can include that as 25 part of -- of delaying this effort if that's the wish of 26 the Board. But I would encourage the Board to support 27 this proposal because it does make our return processing 28 more efficient. 12 1 Part of this proposal, even though we don't 2 have the numbers in the proposal, it will help 3 accelerate between $1 to $7 billion in revenue. It will 4 also increase interest earnings, reducing the amount of 5 time it takes to deposit checks from four days to one 6 day. 7 And I think in the long term we will see 8 potential savings as a result of these efforts. 9 MS. YEE: Okay. 10 MR. LEONARD: So moved. 11 MS. YEE: Okay. Motion by Mr. Leonard, second 12 by Dr. Chu. 13 Okay, great. 14 Without objection, that motion carries. Thank 15 you. 16 ---oOo--- 17 MS. HOUSER: Next is the Special Taxing 18 Jurisdiction's finance letter which requests $2,306,000 19 and 22.5 positions for the 2009/10 fiscal year to ensure 20 that BOE has sufficient resources to effectively and 21 efficiently administer the increased workload generated 22 by the 52 new special taxing jurisdictions. 23 The funding is comprised of $570,000 in General 24 Fund and 1,736,000 in reimbursements. 25 Randie Henry is here today from the Sales and 26 Use Tax Department to answer any questions you may have 27 on the STJs. 28 MS. YEE: Okay. Questions, Members, on this 13 1 proposal? 2 Okay, hearing none, is there a motion? 3 Oh, Mr. Leonard. 4 MR. LEONARD: I'll be happy to make the motion. 5 Just a comment that it may be time to revisit the 6 discussions with the analysts in local governments as to 7 whether the reimbursement of the administrative fee for 8 us collecting this tax is appropriate. 9 MS. YEE: Yes. 10 MR. LEONARD: This is -- this is draining our 11 resources. And 52 new special districts at one time is 12 just phenomenal to me. It will make our sales tax 13 return that our million retailers have to fill out to be 14 as long as a telephone book in -- in the not too distant 15 future. 16 And that's not going towards the paperless 17 filing as quickly as we might like. 18 MS. YEE: Yeah. And there is really a General 19 Fund impact to the extent that -- 20 MR. LEONARD: Yes, there is. 21 MS. YEE: -- that this workload is not 22 addressed. 23 Okay. Other comments? 24 Hearing none, is there a motion? 25 MR. LEONARD: So moved. 26 MS. YEE: Mr. -- 27 DR. CHU: Second. 28 MS. YEE: Motion by Mr. Leonard, second by Dr. 14 1 Chu. 2 Without objection, that motion carries. 3 Thank you. 4 MS. HOUSER: This concludes my presentation. 5 MS. YEE: Thank you very much, Ms. Houser. 6 ---oOo--- 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 15 1 REPORTER'S CERTIFICATE. 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, BEVERLY D. TOMS, Hearing Reporter for the 8 California State Board of Equalization certify that on 9 February 3, 2009 I recorded verbatim, in shorthand, to 10 the best of my ability, the proceedings in the 11 above-entitled hearing; that I transcribed the shorthand 12 writing into typewriting; and that the preceding 15 13 pages constitute a complete and accurate transcription 14 of the shorthand writing. 15 16 Dated: February 11, 2009. 17 18 19 20 ____________________________ 21 BEVERLY D. TOMS 22 Hearing Reporter 23 24 25 26 27 28 16