1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 REPORTER'S TRANSCRIPT 8 MAY 27, 2009 9 10 11 ITEM I TAX PROGRAM NONAPPEARANCE MATTERS 12 13 ---o0o--- 14 15 16 17 18 19 Reported by: Juli Price Jackson 20 No. CSR 5214 21 22 23 24 25 26 27 28 1 1 2 P R E S E N T 3 4 For the Board Betty T. Yee of Equalization: Chair 5 6 Judy Chu Vice-Chair 7 Bill Leonard 8 Member 9 Michelle Steel Member 10 John Chiang 11 State Controller 12 Diane G. Olson 13 Chief, Board Proceedings Division 14 15 16 ---oOo--- 17 18 19 20 21 22 23 24 25 26 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 MAY 27, 2009 4 ---oOo--- 5 MS. OLSON: Our next item is I1, property tax 6 nonappearance matters. 7 MS. YEE: Item I1, let's see -- I think there 8 will probably be some discussion with respect to a 9 couple of these, but let's take them up individually, if 10 we could? 11 ---O0O--- 12 I1(1) GOLDEN STATE WATER COMPANY 13 ---o0o--- 14 MS. YEE: Sub item 1, Golden State Water 15 Company, is there a motion? 16 DR. CHU: Move the staff recommendation. 17 MS. YEE: Okay. Motion by Dr. Chu to adopt the 18 staff recommendation for I1, sub item 1, Golden State 19 Water Company. 20 Is there a second? 21 MR. CHIANG: Second. 22 MS. YEE: Second by Controller Chiang. 23 Without objection, that motion carries. 24 ---O0O--- 25 I1(2) PACIFIC BELL TELEPHONE COMPANY 26 ---o0o--- 27 MS. YEE: Second sub item, Pacific Bell 28 Telephone Company, I think on this item, Mr. Thompson, 3 1 if you would, could you just maybe provide with us a 2 little bit of context and foundation for what's before 3 us? 4 MR. THOMPSON: Yes, of the items on the an 5 audit report, leasehold improvement, possessory interest 6 and the federal unclaimed items are agreed to and not an 7 issue. 8 At issue is the $245 million related to the 9 replacement cost less depreciation of general support 10 assets and conduit systems. This relates back to the 11 petition process and the Appeals hearing that we held in 12 December of 2005. 13 And at that time the company asked us to 14 address the issue constant life versus vintage life. 15 Constant life being the same remaining life for all 16 assets in the class; vintage life being a life dependent 17 upon the age and recommending that we change the 18 assessment from the constant life method to the vintage 19 life method. 20 The matter was received by the staff just the 21 day before the Board hearing. We were unable to review 22 the process in detail. That was provided later to us. 23 At the petition, the Board adopted a reduction 24 constant life $446 million approximately, for Pacific 25 Bell and directed the staff to audit the result. 26 We initiated that audit after -- afterward and 27 at issue is the -- is the adjustment for the general 28 support and conduit systems that were not included in 4 1 the Pac Bell's proposed adjustment and, therein, lies 2 the interpretation. 3 Staff is -- direction really came from the 4 transcript. And from that transcript we audited the 5 class. We found out that the representation that the 6 replacement cost less depreciation per the AUS appraisal 7 was actually not as represented. It was the staff 8 number for those particular items, again the general 9 support and conduit systems that were listed on there. 10 And there's where the -- this interpretation occurred. 11 And upon the audit, our recommendation was if 12 we would have that had information at the time our 13 recommendation would not have been for 446 million, it 14 would have been 245 million less than that. 15 And we're asking consideration for that at this 16 time. 17 MS. YEE: Okay. Questions or comments Members? 18 Mr. Leonard? 19 MR. LEONARD: The question I have is as we did 20 all this auditing is are we -- are we using the same 21 vintage or constant methodology across all classes of 22 equipment or are we -- are we distinguishing classes and 23 applying a different methodology? 24 MR. THOMPSON: Mr. Jackson? 25 MR. JACKSON: The -- for the audit, we're 26 applying the same methodology because in the audit we're 27 using their study as the basis for a starting point for 28 them all. 5 1 MR. LEONARD: And which methodology are you 2 applying? 3 MR. JACKSON: That's the vintage method that 4 was presented in the 2005 replacement cost. 5 MR. LEONARD: And you are doing that across all 6 items? 7 MR. JACKSON: Correct. 8 MR. LEONARD: Not just audit, everything? 9 MR. JACKSON: That's -- that is correct. 10 MS. YEE: So, vintage across all property 11 categories. 12 And then what about the competition component? 13 MR. JACKSON: The competition component is the 14 component that is -- that was presented at the Appeals 15 hearing for those, I think, 17 accounts as we have come 16 to know them as. 17 And that is the information that they've 18 applied. It is their calculation of their vintage 19 without competition. 20 They are now bringing forth a second 21 calculation of the -- of those 17 accounts. 22 MR. LEONARD: Okay. I guess I heard it 23 differently that those accounts that were not in contest 24 at our last hearing were not taken with a vintage 25 methodology, but with constant. 26 And when the issue was reopened with the audit, 27 that -- that they were switched to vintage. 28 Is that what you're telling me? 6 1 MR. JACKSON: There is -- there were 17 2 accounts that were adjusted through the appeal. That 3 was the calculation of the 446 million. 4 And the other accounts were taken from what 5 staff had calculated as the value. And that was 6 supposed to be constant methodology. 7 We are now in the audit. We have now moved 8 those other accounts to the vintage methodology from 9 their study that developed the 245 million. 10 MR. LEONARD: So, in conclusion, you believe 11 we're being consistent in the application of 12 methodologies across all accounts? 13 MR. JACKSON: Yes. 14 MR. LEONARD: Thank you. 15 MS. YEE: Okay. Other questions, Members? 16 Okay. Hearing none, is there a motion? 17 MR. CHIANG: Actually, I have a question. 18 MS. YEE: Yes, Controller? 19 MR. CHIANG: The poles were a big issue, you 20 know, over many, many of the assessments, how is the 21 treatment for this particular year? 22 MR. THOMPSON: My recollection is that the 23 poles -- while the briefing covered the pole issue, 24 although the pole issue was not stressed during the -- 25 by my re-reading the transcript, I believe we used a 26 pole replacement cost of $2700 for the 2005 unit 27 valuation. 28 And I don't believe that the pole -- the poles 7 1 were an issue during the audit. 2 Mr. Jackson, were the poles covered in the 3 audit? 4 MR. JACKSON: No, the poles were not covered in 5 the audit. 6 MS. YEE: Okay. Other questions? 7 Dr. Chu? 8 DR. CHU: So, I just want to clarify. 9 So, on the night of the hearing, or the day 10 before the hearing, that's when the AUS study was 11 presented? And that's when there was the -- that 12 Pacific Bell said that they -- that they could justify 13 the $443 million reduction? 14 However, when you audited, you found that there 15 was an inconsistent application of the methodology in 16 terms of Pacific Bell's own usage of the vintage method? 17 MR. JACKSON: Well, we had had the study, the 18 AUS study, we had had throughout the valuation season. 19 The night before the hearing we received 20 another calculation, which supposedly adjusted 21 competition from their number. And that's what we 22 received was that calculation, the day before the 23 hearing. 24 And it was representative as being the AUS 25 study. And what we determined was some of those 26 accounts were not from the AUS study, they came from our 27 calculations of the valuation. 28 DR. CHU: So, it was a mix of different 8 1 methodologies? 2 MR. JACKSON: That's what we determined, yes. 3 DR. CHU: And now you're being consistent with 4 only the AUS study methodology? 5 MR. JACKSON: For all accounts, yes. 6 MS. YEE: Okay. Mr. Thompson, if I could have 7 you reiterate then, based on such application, what is 8 your recommendation at this point? 9 MR. THOMPSON: The staff recommendation is to 10 adopt the escape as we have recommended in the -- on the 11 total of 200 -- excuse me, $267,600,000 of value, when 12 the penalty and interest is added it comes up to 13 381,777,000. 14 MS. YEE: All right, thank you. 15 Is there a motion? 16 DR. CHU: I'll move the staff recommendation. 17 MS. YEE: Okay, motion by Dr. Chu to adopt the 18 staff recommendation. 19 Is there a second? 20 I will second that motion. 21 Discussion? 22 Let's call the roll. 23 MS. OLSON: Ms. Yee? 24 MS. YEE: Aye. 25 MS. OLSON: Mr. Leonard? 26 MR. LEONARD: Pass. 27 MS. OLSON: Ms. Steel? 28 MS. STEEL: You know, actually, I want to 9 1 recuse from the participation because this vote was back 2 in December 2005. 3 So, I pass. 4 MS. YEE: Okay. 5 MS. OLSON: Dr. Chu? 6 DR. CHU: Aye. 7 MS. OLSON: Mr. Chiang? 8 MR. CHIANG: Can we put this over for ten 9 minutes? 10 MS. YEE: Okay. Why don't we -- we'll come 11 back to this item. 12 We'll go ahead and withdraw the vote on this 13 and we'll entertain another motion. 14 Thank you. 15 ---o0o--- 16 I1(3) OMINIPOINT COMMUNICATIONS, INC. 17 ---o0o--- 18 MS. YEE: Next item is sub item 3, OmniPoint 19 Communications, Inc. 20 Is there a motion? 21 DR. CHU: Move to adopt the staff 22 recommendation. 23 MS. YEE: Okay, motion by Dr. Chu to adopt the 24 staff recommendation. 25 Is there a second? 26 MS. YEE: I'll second that motion. 27 MR. LEONARD: Question? 28 MS. YEE: Mr. Leonard? 10 1 MR. LEONARD: It's my understanding the staff 2 recommendation regarding the penalty is now to abate? 3 MR. THOMPSON: To abate the penalty, yes. 4 MS. YEE: Yes, okay. 5 MR. LEONARD: Thank you very much. 6 MS. YEE: Okay. Motion by Dr. Chu, second by 7 Yee. 8 Without objection, that motion carries. 9 ---o0o--- 10 I1(4)(a) AT&T CALIFORNIA 11 I1(4)(b) VERIZON WIRELESS 12 I1(4)(c) VERIZON CALIFORNIA 13 ---o0o--- 14 MS. YEE: Sub item 4a, b and c, AT&T 15 California, Verizon Wireless and Verizon California. 16 Is there a motion? 17 DR. CHU: Move to adopt the staff 18 recommendation. 19 MS. YEE: A motion by Dr. Chu to adopt the 20 staff recommendation. 21 Is there a second? 22 I will -- 23 MR. LEONARD: Second. 24 MS. YEE: Second by Mr. Leonard. 25 Without objection, that motion carries. 26 ---o0o--- 27 I(5) BOARD ROLLS OF STATE-ASSESSED PROPERTY 28 ---o0o--- 11 1 MS. YEE: Then sub item 5, we have Board roll 2 changes for 2005, 2006, 2007, 2008. 3 Is there as motion? 4 MS. STEEL: So moved. 5 DR. CHU: Move. 6 MS. YEE: Motion by Ms. Steel, second by 7 Dr. Chu. 8 Without objection, that motion carries. 9 (Whereupon unrelated proceedings were heard.) 10 ---o0o--- 11 I1(2) PACIFIC BELL TELEPHONE COMPANY 12 RECALL 13 ---o0o--- 14 MS. YEE: Okay, Mr. Chiang, are you ready to 15 return back to the item? 16 MR. CHIANG: Yes. 17 MS. YEE: Okay, very well. 18 Let us return to sub item 2 under item I1, 19 Pacific Bell Telephone Company. 20 Further discussion on this? Questions? 21 Okay, is there a notion? 22 DR. CHU: Move to adopt the staff 23 recommendation. 24 MS. YEE: Okay, motion by Dr. Chu to adopt the 25 staff recommendation. 26 Is there a second? 27 Let me second that motion. 28 Please call the roll. 12 1 MS. OLSON: Ms. Yee? 2 MS. YEE: Aye. 3 MS. OLSON: Mr. Leonard? 4 MR. LEONARD: Pass. 5 MS. OLSON: Ms. Steel? 6 MS. STEEL: Pass. 7 MS. OLSON: Dr. Chu? 8 DR. CHU: Aye. 9 MS. OLSON: Mr. Chiang? 10 MR. CHIANG: Aye. 11 MS. OLSON: Mr. Leonard, you not participating 12 or just passing? 13 MR. LEONARD: I'll vote aye. 14 I do have a question to the Chair, though. 15 MS. YEE: Yes, Mr. Leonard? 16 That motion carries. 17 MR. LEONARD: Are there are appeal -- there re 18 appeal rights on this, because it seems to me now that 19 we're agreeing on the methodology, we're just 20 disagreeing on the math. 21 And if there is appeal rights, then maybe we 22 could have two sets of calculators sit down together and 23 calculate. 24 MS. YEE: Mr. Thompson, you want to give us a 25 sense of what happens? 26 MR. THOMPSON: Yes, the -- the assessee has 50 27 days to file a petition for reassessment of the audit 28 escape assessment. And at that time the petition 13 1 process would start. 2 However, I would commit that I could get 3 together with the company prior to that time so we could 4 narrow down the issues and probably make it a more 5 efficient process, if they do intend to file a petition. 6 MS. YEE: Okay, very well. 7 MR. LEONARD: Thank you. 8 MS. YEE: Thank you. 9 Thank you very much. 10 Ms. Olson? 11 MR. CHIANG: Ken? 12 MR. THOMPSON: Yes? 13 MR. CHIANG: I would like to have you talk to 14 the company about pole issues. 15 MR. THOMPSON: Thank you. 16 MS. YEE: Very well, thank you. 17 Ms. Olson, does that complete our 18 constitutional functions? 19 MS. OLSON: That completes all of the items. 20 MS. YEE: Thank you very much, Mr. Controller. 21 ---o0o--- 22 23 24 25 26 27 28 14 1 REPORTER'S CERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, JULI PRICE JACKSON Hearing Reporter for the 8 California State Board of Equalization certify that on 9 MAY 27, 2009 I recorded verbatim, in shorthand, to the 10 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 pages 1 13 through 14 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: July 13, 2009 17 18 19 ____________________________ 20 JULI PRICE JACKSON 21 Hearing Reporter 22 23 24 25 26 27 28 15