1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 REPORTER'S TRANSCRIPT 8 JUNE 9, 2009 9 ITEM P OTHER ADMINISTRATIVE MATTERS 10 P3 DEPUTY DIRECTOR'S REPORT 11 C3 2009/10 BUDGET UPDATE, FULOUGH PLAN AND LAYOFFS 12 ---o0o--- 13 14 15 16 17 18 19 20 21 22 23 24 25 Reported by: Juli Price Jackson 26 No. CSR 5214 27 28 1 1 2 P R E S E N T 3 4 For the Board Betty T. 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 G. Olson Chief, Board 14 Proceedings Division 15 16 17 ---oOo--- 18 19 20 21 22 23 24 25 26 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 JUNE 9, 2009 4 ---oOo--- 5 MS. HOUSER: Thank you. 6 My next item is an update on the 2009/10 budget 7 and the Governor's furlough program. 8 At the June 3rd budget Conference Committee, 9 the administration presented a proposal to consolidate 10 to the Board of Equalization, Franchise Tax Board and a 11 portion of the Employment Development Department into 12 the Department of Revenue reporting to Governor. 13 The Department of Revenue would have a 14 Secretary of Revenue with Cabinet status, who would be 15 appointed by the Governor. The proposal recommends that 16 organizational units and incumbent staff would transfer 17 to the personnel and operational control of the new 18 department on January 1st, 2010. 19 In addition, it is recommends that the 450 N 20 Street building would be the responsibility of the 21 Department of Revenue and that the remaining BOE staff 22 be moved to a new facility on the Franchise Tax Board 23 campus. 24 Lastly, the proposal envisions consolidating 25 payment processing, taxpayer records and identification, 26 business auditing, filing enforcement, collection 27 activities, administrative services and taxpayer contact 28 resources. The administration has also provided draft 3 1 legislation which would amend Government Code 15705.05 2 to enact this proposal. 3 The Conference Committee referred these items 4 to the Revenue & Tax Policy Committee for review. This 5 hearing is scheduled for June 10th at 1:30 p. m. It is 6 our understanding that the key elements which will be 7 examined include whether the proposal provides budgetary 8 savings, improves efficiency or services, or -- and 9 provides for independent oversight. 10 Margaret Shedd is here from our Legislative 11 Division to discuss testimony we are preparing in 12 response to those elements. 13 MS. YEE: Thank you very much. 14 Ms. Shedd? 15 MS. SHEDD: Thank you. My name is Margaret 16 Shedd with Legislative Division. 17 It's my understanding that the Senate Revenue & 18 Taxation Committee intends to have the Department of 19 Finance present the Department of Revenue proposal and 20 have the Legislative Analyst's office make comment on 21 the proposal. They are not asking for testimony from 22 any of the three tax agencies at this time. 23 However, if asked for comments, I would note 24 that the Department of Finance proposal does create a 25 Department of Revenue would not at the outset 26 consolidate any processing or functions of the tax 27 agencies. It would, however, change the method of 28 governance for the tax agencies in California by folding 4 1 those tax agencies under the Governor, that -- with the 2 Secretary of Revenue reporting directly to the Governor. 3 Without specifics, this proposal does not 4 address the California immediate budget issues, but 5 rather appears only to address the governance issue. 6 With respect to the consolidation of functions 7 and processes, I would like to note that the Board of 8 Equalization's already taken the lead with the Franchise 9 Tax Board and the Employment Development Department to 10 identify specific incremental processes that may be 11 conducive to consolidation to organize the capacities 12 and achieve the efficiencies. 13 We are currently also working with the 14 Department of Motor Vehicle and the Office of Chief 15 Information Officer to examine opportunities to 16 consolidate common processes and functions. Some of 17 these areas that we are looking at are the tax return 18 process, call centers, printing, mailing and the 19 electronic capture of documents. There is several other 20 collaborative consolidation efforts that we were already 21 undertaking. These include the return processing 22 efficiency project. This is the project that's 23 contained in the Governor's May revision, the 24 partnership is with the Board of Equalization and EDD 25 for EDD to process over 1 million voucher payments 26 remitted by the Board of Equalization's taxpayers. It 27 would accelerate $2 billion in revenue annually. This 28 effort is through the reduction in the average number of 5 1 days it takes to deposit the checks through the mail. 2 The project results in a general fund savings, which 3 then requires no new funding. 4 The second item that we are working on is with 5 the EDD and FTB and is to share an extensive amount of 6 valuable data and have longstanding cooperative 7 partnerships. In this effort to enhance our data 8 sharing capabilities, the agencies have formed a Joint 9 Agency Information Sharing team. The main goals of this 10 is to insure that the new technology projects continue 11 to further our current data sharing abilities, that they 12 are consistent and compatible with the directions set by 13 the State Chief Information Officer and, when it is 14 deemed appropriate, given risks and resources to pursue 15 a more integrated approach to accessing data from each 16 other. 17 The third item of the collaborative effort is 18 that we have developed with FTB and EDD a tri-agency 19 collection exam. This consolidates the three agencies 20 entry level collector exam into a single exam. The 21 three agencies have also consolidated their recruitment 22 efforts. While these are mostly focused at auditor and 23 collector classifications, because they're the most 24 common, we also are giving out information on the other 25 classifications at these recruitment events. 26 Another area of collaboration is the Board and 27 the FTB are working collaboratively for the collection 28 of the State's use tax. The FTB has a line on the State 6 1 income tax return to enable taxpayers to report their 2 use tax on the State income tax return and it's also 3 incorporated instructions in the income tax 4 instructional booklets to better educate taxpayers on 5 the use tax reporting obligations. 6 Fifth is the three agencies have worked 7 together for a more simplified approach for taxpayers 8 requesting to satisfy their tax debts through the 9 Offers-in-Compromise program through one common form. 10 And through combined efforts the streamline and improve 11 taxpayer resources and educational programs, the three 12 agencies and the IRS have created the Tax Service Center 13 website with a goal of one stop tax help. 14 Finally, the Board of Equalization has voted 15 last month to sponsor a legislative proposal to 16 authorize the sale or lease of this building at 450 N 17 Street and includes requirements for two studies to look 18 into the potential for co-housing Board of Equalization 19 on the FTB campus and, 2, the identification of 20 functions that could be performed jointly by BOE, FTB 21 and EDD. This language is for possible inclusion in a 22 budget trailer bill and it has been delivered to the 23 Budget Committees. 24 Are there any other questions? 25 MS. YEE: Okay. Thank you, Ms. Shedd. 26 Questions, Members? 27 I wanted to just take the temperature of the 28 Board to see if we wanted to submit anything formally to 7 1 the legislature in response to the Governor's 2 consolidation proposal? 3 We are doing a lot and I think we should 4 certainly showcase what we are doing, but I guess I'm a 5 little perplexed still at the proposal because there are 6 no timelines associated with it, no plan, certainly no 7 identification of benchmarks that we could use for 8 analysis of any attendant costs and/or savings. 9 But -- so, I feel like we're still speaking on 10 very general terms, but, more importantly, there is an 11 expectation that by January 1st the governance of our 12 tax agencies will look different. 13 And I have no idea what that means for our 14 taxpayers in California. 15 Any thoughts about submitting anything? 16 MR. LEONARD: Madam Chair? 17 MS. YEE: Yes. 18 MR. LEONARD: I think your earlier comments 19 that you put in writing, listing all of the things we 20 are doing that will result in savings, efficiencies, 21 better service to taxpayers is what we should really 22 influence. 23 I think our -- I share some of your -- I share 24 a lot of your concerns about governance, but I think our 25 Board's position on that might be seen as self-serving 26 to the extent that people think that we're just reacting 27 because our authority is threatened as opposed that we 28 don't think it's a good idea or something. 8 1 But the focus on the efficiencies and the 2 things -- whatever governance they end up doing, there 3 are things among our tax agencies that we can do better 4 and smarter and more cost effective and even enhance 5 service to taxpayers along the line doing it. We should 6 continue to push for that, because you are right, if 7 they just -- if they just rearrange the chairs and 8 create a Secretary and the cabinet and have no plan or 9 direction to that Secretary to combine units in an 10 effective way, then we really -- I don't think we've 11 accomplished a lot. 12 It might happen on its own over 20 years or so, 13 because the Secretary might have some leadership, but to 14 me, the legislature, if they're going to do this, should 15 give some direction that if we really want to combine 16 agencies that the mission should be better service, more 17 cost effectiveness as we do so. 18 MS. YEE: Okay, thank you. 19 Dr. Chu? 20 DR. CHU: Well, the thing I find disturbing is 21 the fact that there isn't any cost estimate. Because 22 you're talking about consolidating the -- well, 23 certainly with the FTB and the BOE, the two agencies 24 that are revenue producing. 25 So, what -- what advantage does this give us? 26 I want to see that. And also, you know, the FTB 27 operates independently now of the Governor and this 28 would incorporate them under the Governor. Even though 9 1 they have to work together, obviously, because of the 2 finances, but I wonder about that too. 3 MS. YEE: Yeah, the Franchise Tax Board as a 4 department is a member department of the State Consumer 5 Services Agency, but this would do away with the three 6 member board, yes, in terms of its policy and function. 7 Okay. Well, let me suggest this: I would like 8 to see some kind of submission, because -- and 9 certainly to the extent that the Policy Committee is not 10 going to entertain testimony, I would like to use the 11 opportunity for any written submission to showcase what 12 we are doing. And certainly I think the list that you 13 have articulated, Ms. Shedd, is impressive and certainly 14 moves towards looking at consolidation in part and, 15 eventually, maybe in whole down the road. 16 But I don't want to be so bold as to think that 17 we don't want to embrace the administration's proposal, 18 that's not the point. The point is we have to be 19 thoughtful about how to carry it out. And to the extent 20 that it's lacking on details, maybe we could help at 21 least orient the thinking about how to move forward on 22 more joint efforts. 23 If that's acceptable to the Members, I will 24 propose that. 25 And the hearing is tomorrow? 26 MS. SHEDD: Tomorrow, yes. 27 MS. HOUSER: Yes, tomorrow, 1:30. 28 MS. YEE: Okay, very well. 10 1 Thank you very much. 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 11 1 MS. HOUSER: I have a couple more items. 2 MS. YEE: Yes. 3 MS. HOUSER: There have been no changes in the 4 status on the Governor's furlough plan. 5 In the area of the layoff, as we discussed last 6 month, over 5,000 employees were issued SROA surplus 7 notices. The Department of Personnel Administration is 8 holding a job fair this week, on June 11th, at Cal Expo 9 here in Sacramento to assist in placing these employees 10 in vacant positions. BOE plans to participate by 11 attending and recruiting candidates to fill our existing 12 vacancies. 13 We did receive one more -- another -- one more 14 Governor's executive order, yesterday, May 8th -- 15 June 8th. Executive order S0909 regarding contracts for 16 goods or services during the 2008-09 fiscal year. We've 17 been notified that BOE is a constitutional office, it's 18 subject to this order. However, we have asked our 19 program managers to review all pending purchases for 20 goods and services to insure that they either support 21 mission critical functions or assist in the collection 22 of revenues. 23 BOE continues to carefully monitor our spending 24 and make reductions wherever possible. 25 This concludes my presentation. I'll be happy 26 to answer any questions. 27 MS. YEE: Okay. Questions, Members? 28 MR. LEONARD: Madam -- 12 1 MS. YEE: Mr. Leonard? 2 MR. LEONARD: -- Madam Chair, I appreciate that 3 the order doesn't apply to us and I think that's 4 appropriate and correct. Nevertheless, for our own 5 budget purposes, if you get requests for surges of 6 purchasing in the next 20 days, I would urge you to look 7 at them with full criticism. I do not want units, in my 8 opinion, using up budget authority that they 9 theoretically have, knowing the situation outside this 10 room -- or inside this room, too I suppose -- that's 11 taking place. We can't ignore it. 12 MS. HOUSER: We did send instructions to the 13 program managers earlier today asking them to look at 14 all pending requests and determine whether or not they 15 meet mission critical or assist with the collection of 16 revenues and then to notify us which requests should be 17 canceled. 18 MR. LEONARD: Great, thank you so much. 19 MS. HOUSER: And we'll be reviewing them in our 20 shop with the Executive Director also. 21 MR. LEONARD: Thank you. 22 MS. YEE: I have one last question -- with 23 respect to State employees, there is the layoff of the 24 5,000 or -- 25 MS. HOUSER: Correct. 26 MS. YEE: -- positions we have, then the 27 furlough issue and the Governor's proposal for a 28 5 percent across the Board pay cut as well. 13 1 Do you know how the administration is 2 contemplating implementing those? 3 MS. HOUSER: We're still waiting for additional 4 information from the administration. 5 Right now in regard to the furlough, the 6 executive branch is still participating in the two day 7 per month furlough. The SEIU agreement has not left the 8 legislature, so, that has not been approved. So, 9 they're still on the two day per month furlough. 10 For the constitutionals, we're still under 11 appeal of the court decision. So, we're still declining 12 to participate in the furlough. 13 Our understanding that the additional 5 percent 14 cut that is being proposed is just a salary cut and that 15 that would be budget trailer bill language, that was the 16 latest -- 17 MS. YEE: Legislation? 18 MS. HOUSER: -- that's the latest we heard. 19 I have not seen an executive order requiring 20 the 5 percent. So, we -- that's what we had heard on 21 it, but we have not received a pay letter or additional 22 instruction. It was just an additional 5 percent pay 23 cut. 24 The layoffs for those areas, the people have 25 already been given their notice. So, that has already 26 been triggered and the 120 day process is what is going 27 right now. So, the rest of the departments are stepping 28 forward and trying our best to place those employees. 14 1 But for the 5 percent pay cut, as I said 2 before, that was -- that's a straight pay cut, not a 3 furlough day or a PLP day. 4 MS. YEE: I was -- I just wasn't clear about 5 how that would be implemented, whether it was going to 6 be through what I think is normally the channel for 7 looking at salary reductions, is through the bargaining 8 process or whether it will be legislation? 9 MS. HOUSER: The process I am familiar with is 10 the bargaining process also. But we -- it seems to be 11 outside of that. 12 I do know there -- we hear they're continuing 13 to bargain, but -- I don't -- we have not received any 14 status to show any forward movement. 15 MS. YEE: Okay, thank you. 16 MS. HOUSER: Thank you. 17 MS. YEE: Any other questions or comments for 18 Ms. Houser? 19 Thank you very much for your report. 20 MS. HOUSER: Thank you. 21 ---o0o--- 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, JULI PRICE JACKSON, Hearing Reporter for the 8 California State Board of Equalization certify that on 9 JUNE 9, 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 15 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: FEBRUARY 3, 2010 17 18 19 ____________________________ 20 JULI PRICE JACKSON 21 Hearing Reporter 22 23 24 25 26 27 28 16