BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 450 N Street, Room 121 Sacramento, California REPORTER'S TRANSCRIPT JANUARY 27, 2010 ITEM P5 OTHER ADMINISTRATIVE MATTERS ADMINISTRATION DEPUTY DIRECTOR'S REPORT 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 Jerome E. Horton 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: Liz Houser 16 Deputy Director of Administration 17 18 ---oOo--- 19 20 21 22 23 24 25 26 27 28 2 1 INDEX 2 ITEM NO. Page 3 P5.1a, Facilities Update 4 4 P5.1b, Site Selection 6 5 P5.2a, 2009/10 Budget Update 8 6 P5.2b, Governor's 2010/11 Budget Update 16 7 ---oOo--- 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 3 1 ITEM P5.1a 2 Sacramento, California 3 January 27, 2010 4 ---oOO--- 5 MS. OLSON: The next is P5, Administration 6 Deputy Director's Report. 7 MS. YEE: Okay. 8 MS. HOUSER: Good morning, Madam Chair and 9 Members. I'm Liz Houser, Deputy Director of 10 Administration. My first item is the Facilities Update. 11 The remediation work at the 450 N Street 12 continues and earlier this month, during the remediation 13 of the 21st floor, the Department of General Services 14 reported finding mold growing on the back of the carpet 15 and on the concrete flooring. 16 The mold growth was spread throughout the floor 17 and DGS was unable to determine the -- the source of 18 moisture. 19 BOE has historically reported strong odors on 20 the 21st floor and this may help explain the source. We 21 are working through Hygiene Technologies International 22 to ensure BOE's normal protocols are followed for 23 cleaning and testing the area. 24 DGS has indicated the extra work required on 25 this floor will result in a three-week delay in their 26 repair schedule. 27 Several minor leaks were reported from this 28 week's storms. Doors on the south and west side of the 4 1 23rd floor along the balconies experienced minor leakage 2 due to water not draining off of the balconies. 3 We also had four to five curtainwall leaks that 4 McGinnis Chen, our -- the contractor observed and are 5 now developing a plan to address these needed repairs. 6 I would be happy to answer any questions you 7 have on the facility. 8 MS. YEE: Thank you, Ms. Houser. Questions, 9 Members? 10 MS. STEEL: Did we move everybody out of 21st 11 floor? 12 MS. HOUSER: As we're -- yes, Ms. Steel, as 13 we're doing the floor-by-floor remediations our standard 14 procedure is we have everyone off of the floor before we 15 turn it over to DGS. So we had no employees on the 16 floor. This was during their remediation of the floor. 17 So we no -- none of our employees on the floor. When 18 the mold was discovered on the back of the carpet the 19 entire floor was put under containment. So the floor's 20 under full containment until they're able to address the 21 problem. 22 MS. YEE: Thank you, Ms. Houser. 23 ---oOo--- 24 25 26 27 28 5 1 ITEMP5.1b 2 MS. HOUSER: My next item is an update on the 3 headquarters annex locations which will accommodate six 4 to seven hundred employees who will move in three 5 groups. 6 Two leases have been signed and the tenant 7 improvements are under way for these sites. Spring and 8 summer moves are anticipated. 9 We continue to work with DGS to secure a 10 suitable location for the third group. DGS reported 11 yesterday that the primary site we were considering has 12 withdrawn from negotiations. But additional sites have 13 come on to the market, which we are actively pursuing. 14 We are hopeful for a winter of 2010 or Spring 15 of 2011 move for this last group. 16 We are also continuing to work on developing 17 BOE's campus of the future. We first must address the 18 situation with the 450 N Street building. BOE sponsored 19 legislation via AB 151, which will provide DGS the 20 authority to explore options to sell or lease the 21 building. 22 This bill has passed both the Assembly Business 23 and Professions and Appropriations Committees. The next 24 step in this process will be a fiscal impact study 25 prepared by a third party consultant, which will examine 26 the market value of the building, the cost to sell the 27 building and the costs associated with moving -- moving 28 BOE out of the building and a backfill tenant in. 6 1 This report will aid the Legislature and the 2 Administration in determining whether the building 3 should be sold or retained and whether BOE should be 4 moved to a new site or remain in the building. 5 The Legislative consultants have expressed an 6 interest in seeing this report and agree that the 7 information is needed to assist in their decision 8 process. 9 BOE is working with the Department of General 10 Services and the Department of Finance to develop the 11 scope of work for this study, we -- and we anticipate 12 releasing a bid document by mid-February to contract for 13 an independent consultant to repair the -- prepare this 14 report. 15 We are asking for the report to be completed no 16 later than June 15, 2010. Margaret Shedd of the 17 Legislative Division is here and we are available to 18 answer any questions you may have on these issues. 19 MS. YEE: Thank you, very much. 20 Questions, Members? 21 Let me just applaud Ms. Shedd and Ms. Houser 22 for really shepherding that bill through. We're really 23 pleased with the level of support that we've been 24 receiving from the Legislature. 25 Thank you. 26 ---oOO--- 27 28 7 1 ITEM P5.2a. 2 MS. HOUSER: My last item is an update on the 3 budget. The Governor's proposed budget for the 2010-11 4 fiscal year was released on January 8th. 5 The proposed budget allocates $473 million to 6 BOE, including funding to reinstate $13.5 million in 7 personnel services funding, which was vetoed from the 8 '09-'10 budget. We estimate this funding will generate 9 $88 million in revenues, of which $52 million is General 10 Fund. 11 Continue $530,000 in funding for the Joint 12 Operation Center project for the National Fuel 13 Compliance and the IFTA program through the conversion 14 of three limited term positions to permanent and 15 extension of two limited term positions for another 16 three years. 17 Expand the Agricultural Inspection Tax Leads 18 program by converting the 16 limited term positions to 19 permanent and adding an additional 42.5 permanent 20 positions, for a total cost of $6,681,000, of which 4.4 21 million is General Fund. 22 This program is projected to generate $36.9 23 million in revenues, of which 24.4 is General Fund. 24 Stephen Rudd, Chief of Field Operations from 25 SUTD is here to answer any questions you have on the 26 impact of this expansion. 27 Would you like to go over that issue first 28 since the Governor's proposed budget was different than 8 1 what we had put in on a BCP? 2 MS. YEE: Yeah. 3 MS. HOUSER: I'll stop there and then go to the 4 other items. 5 MS. YEE: Yeah, why don't we stop there if, Mr. 6 Rudd, you could update us on the differences, and we may 7 have some input. 8 MR. RUDD: Yes. Stephen Rudd, Sales and Use 9 Tax Department. The proposal was Alternative 2 in the 10 BCP that we submitted. Our original proposal was to 11 just continue the program as is at the one facility. 12 We received contact from the Department of 13 Finance as an interest in the expansion to the other 14 locations. They asked us to provide additional revenue 15 and costing information for those locations. 16 We also have inquiries from the LAO's office on 17 their questions regarding this. And it seems to be more 18 of a proposal that is coming from the Department of 19 Finance and we're being responsive to that. 20 The studies or the information that we have 21 indicates that several of the facilities operate on 22 major highways, have similar operation status and CDFA 23 indicates they give us truck traffic information and we 24 use that to sort of project based on the types of 25 merchandize that's traveling through those locations. 26 An additional three sites that we think have enough 27 activity and enough of the type of operations that would 28 be suitable for expansion, if it was so desired by the 9 1 Board and by the Legislature. 2 So, as of now we're just being responsive to 3 their questions and continuing to look at the -- you 4 know, the new -- latest data that we can on, you know, 5 truck traffic and other information to be responsive to 6 those questions. 7 MS. YEE: Okay. I guess let me go back -- 8 could you describe what the actual proposal is in the 9 Governor's budget? 10 MR. RUDD: The proposal that is in the 11 Governor's budget is for expansion from the one site to 12 a total of four locations -- 13 MS. YEE: Uh-huh. 14 MR. RUDD: -- basically with the contracts that 15 we have with CDFA to collect data from trucks passing 16 those four additional locations to the Board staff, who 17 would then research and contact people for -- might need 18 seller's permits or have Use Tax and liabilities for 19 items that they're shipping into California. 20 And we basically exchange information with -- 21 between the two agencies to follow up on those leads. 22 So it's part of the Tax Gap initiative that we had. 23 And the pilot was a three-year pilot and we 24 took the data that we got from the Needles location and 25 analyzed that to put forward the proposal to maintain 26 the Needles location, but this is an expansion of that. 27 The -- the three additional locations are on 28 main arteries into the State of California. Highway 5. 10 1 Highway 80. And Highway 10. 2 So, we are just looking at -- at the larger 3 facilities. 4 MS. YEE: Okay. And do we have concerns with 5 what the costs and revenues are that are reflected in 6 the proposal? 7 MR. RUDD: I don't know that we have concerns. 8 We think we can do the work for what we've indicated the 9 staffing that we needed, and we do think that there will 10 be adequate leads. 11 It's -- the only concerns that we have are 12 those that were expressed by the Board in terms of 13 expansion of the staffing and at this time that's -- 14 that was (inaudible). 15 MS. YEE: Okay. Thank you. 16 Mr. Leonard. 17 MR. LEONARD: I didn't hear your answer on 18 revenue. I thought she asked revenue, also. 19 MR. RUDD: On -- on the revenue side we have 20 not seen or we don't believe that there's going to be 21 any significant change. We have seen about the truck -- 22 truck traffic information be somewhat similar to what it 23 has been. And -- and based on the data we have, not -- 24 not that it's extensive, I certainly would think that if 25 we had more data we'd probably feel much -- much 26 stronger about it. 27 But I think we feel comfortable that we've 28 estimated conservatively what we think we can attract 11 1 and follow up on from our leads that we anticipate 2 getting based on a -- a truck traffic volume. 3 MR. LEONARD: The reason I was asking, it 4 strikes me these other locations are not as all 5 weather -- 6 MS. YEE: Right. 7 MR. LEONARD: -- as Needles. And I don't know 8 what the truck traffic is. Maybe Food and Ag. can give 9 you a count, but my -- my rough guess is serving the 10 Southern California market all weather is probably a lot 11 more trucks than -- 12 MR. RUDD: Uh-huh. 13 MR. LEONARD: -- trying to come over 80 to 14 Northern California, or coming down 5. So I would think 15 you might have some fixed costs to -- to staff the 16 contract with Food and Ag. but have a lot less trucks to 17 actually inspect and review the manifest. And -- 18 MR. RUDD: That is correct, there is 19 differences in truck traffic information for the four 20 locations. It does differ by locations and the Southern 21 routes are higher numbers. The road between Las Vegas 22 and -- and L.A. is heavily traveled -- 23 MR. LEONARD: Right. 24 MR. RUDD: -- and has much greater traffic than 25 5 out of Oregon. We've accounted for that in terms of 26 our ratios of our estimates of the number of leads that 27 we think we'll get from those locations. And -- and -- 28 MR. LEONARD: Is that -- 12 1 MR. RUDD: -- adjusted for that. 2 MR. LEONARD: Is that Finance's revenue 3 numbers, based on that? 4 MR. RUDD: They've -- 5 MR. LEONARD: I don't want them over-promising 6 and then criticize us if we don't deliver. 7 MS. YEE: Right. 8 MR. RUDD: They've -- 9 MR. LEONARD: I'm skeptical to begin with, you 10 all know that. But -- 11 MR. RUDD: Right. 12 MR. LEONARD: -- I don't want the rest of you 13 to be in hot water because they pick a number out of a 14 hat. 15 MR. RUDD: Well, they've -- I haven't seen any 16 numbers other than what we've estimated for them. I 17 haven't seen a separate number. I think what they're 18 adopting is what's in our proposal, and that number was 19 a conservative estimate on our part. We would like to 20 make that number. 21 MR. LEONARD: Okay. 22 MR. HORTON: Madam Chair. 23 MS. YEE: Yes, Mr. Horton. 24 MR. HORTON: I've had conversations with the 25 Teamsters and the trucking association, and as you 26 probably know they're very much interested in this -- 27 what they term bandit truck drivers traveling in and out 28 of California. 13 1 To the extent that one of the executives 2 actually mentioned that they were considering in order 3 to possibly enhance our oversight in this area, 4 possibility of a fee on the existing truckers. 5 I'd like to at some point explore those 6 conversations. Not that I'm fee conscious, but if there 7 is a way -- I mean if the existing pilot and testing has 8 proven that there's a problem here, and there is 9 additional revenue due to the State, and typically when 10 that's a problem that means that legitimate operators 11 are being put at a disadvantage. And they're interested 12 in assisting us in leveling the playing field, we might 13 want to entertain their discussions with them about 14 that. 15 MR. RUDD: Well, that's a subject that's 16 somewhat different than Use Tax or Sales Tax and we 17 would be more than happy to, you know, see what 18 information they have and give it to the right people. 19 As of now, we're -- this contract we have, CDFA 20 conducts all the operations at the facilities and we 21 don't have any people on site for those activities. 22 So as of right now we don't have a presence at 23 any of the incoming CDFA facilities. 24 MR. HORTON: Yeah. Okay. 25 MS. YEE: Okay. Thank you. Thank you for the 26 report. I just wanted to be sure that we had confidence 27 we could attain certainly with the proposals 28 contemplating. So it sounds like we're feeling -- 14 1 MR. RUDD: With the contract, yes. 2 MS. YEE: Okay. Very well. Thank you, Mr. 3 Rudd. 4 ---oOo--- 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 15 1 ITEM 52.b. 2 MS. HOUSER: Then I'll proceed. The Governor's 3 budget also contained a BCP submitted by the California 4 Emergency Management Agency, Cal EMA, which would create 5 a fund through a surcharge on commercial and residential 6 fire and multi-peril insurance policies. 7 Cal EMA has made preliminary contact with BOE 8 to explore the feasibility of our involvement along with 9 the Department of Insurance in the collection of this 10 surcharge. 11 This was after the budget was released that the 12 contact was made. Discussions are under way with the 13 Department of Finance and Cal EMA to determine BOE's 14 possible role, time lines for implementation and 15 resources needed. And of course we'll provide 16 additional information to the Board as we see how this 17 develops. 18 MS. YEE: Great. 19 MR. HOUSER: BOE submitted five other proposals 20 that were not included in the budget. The 21 headquarters -- the BOE headquarters facility 22 place-holder for $250,000 was denied, but we are 23 continuing to pursue remedies via AB 151. 24 The 450 N Street building deficiency BCP for 25 $2,680,000 was denied due to DGS's withdrawal of their 26 companion BCP. We will continue to work with DGS and 27 Finance to determine their plan to fund these needed 28 fire, life and safety repairs. 16 1 The San Diego District office facility BCP for 2 $840,000 -- $845,000 was denied. We are continuing to 3 work with DGS and the Sales and Use Tax Department to 4 explore alternatives to address this need. 5 The ramp down of the 1 percent sales tax BCP 6 for $871,000 was denied. BOE will have to redirect 7 funds internally to address these costs. 8 Defending State tax revenues in litigation BCP 9 for $687,000 was denied. Instead the Governor's 10 proposed budget includes a statewide plan to confer 11 legal services to billable status or fee for service. 12 This proposal redirects $53.9 million from the 13 Department of Justice to the departmental clients 14 budgets, of which BOE is one. 15 We will continue to work with Finance and the 16 Department of Justice to ensure BOE's business needs are 17 met through this process. 18 The budget also recommended a number of 19 statewide employee compensation reductions in 20 anticipation of the ending of the furlough program. 21 These include an additional 5 percent salary savings 22 which would result in a $449.6 million statewide budget 23 reduction. 24 Constitutional offices will be excluded from 25 this additional salary savings due to prior budget cuts. 26 A 5 percent employee reduction effective July 1 -- 27 employee compensation reduction effective July 1st, 2010 28 and a 5 percent increase in the employee contribution to 17 1 CalPers' retirement plan. 2 It is unclear how these two employee 3 compensation changes would be accomplished so we do not 4 know if BOE will be impacted at this time. 5 An additional 5 percent employee salary 6 reduction could be triggered if the Federal funding 7 proposed in the budget does not materialize. 8 Other statewide initiatives of interest to BOE 9 include funding of $66.1 million for the State 10 Controller's office to continue the implementation of 11 the 21st Century project. This project will replace the 12 existing statewide employment history, payroll, leave 13 balance accounting and position control systems. 14 Funding of $10.7 million for the FI$Cal System, 15 which is an integrated statewide financial system, which 16 will provide realtime fiscal data to decision-makers. 17 BOE will be included in the first wave of implementation 18 for both of these new systems. 19 This concludes my presentation. I will be 20 happy to answer any questions you may have. 21 MS. YEE: Thank you very much, Ms. Houser. 22 Yes, Ms. Steel. 23 MS. STEEL: Just quick, for San Diego District 24 office, first of all that they pulled off the carpets 25 and they couldn't find any asbestos. That's what I 26 found out. 27 And second thing is I thought that EDD needs 28 more -- you know, more offices, so we can -- maybe we 18 1 can give to that the office space and then, you know, we 2 can move to another space. 3 That's what I heard for both. 4 MS. HOUSER: Yes, Ms. Steel, I -- I went and 5 visited the San Diego facility and I've had some 6 followup meetings with the Asset Management Group 7 over -- 8 MS. STEEL: Right. 9 MS. HOUSER: -- at DGS, and -- and there's 10 several things going on in the San Diego building. 11 There -- there was some work going on when we 12 were there on the third floor -- 13 MS. STEEL: Uh-huh. 14 MS. HOUSER: -- for the office of 15 Administrative Hearings to do some rehabilitation work 16 where they were able to remove their carpet and put new 17 carpet down. They had -- they had a different type of 18 carpet than we have. So when their carpet was pulled up 19 it doesn't pull up the floor tiles. And it's the glue 20 behind the floor tiles that has the asbestos. 21 So they were able to replace that -- that 22 carpet without risk of -- of releasing friable asbestos. 23 Our carpet was a different type of carpet lay that was 24 then repaired by cutting and gluing the carpet down, 25 which when they tested it it made it -- it pretty much 26 impossible to remove the old carpet without pulling up 27 those floor tiles. 28 So each floor on that building seems to have a 19 1 different approach to it. It's -- it's been there since 2 1963 so there's been a lot of creative redecorating, 3 shall we say, in the building, so it's -- it's -- it's 4 very inconsistent throughout the building. 5 But in our meetings with the Asset Management 6 Group they indicated that they're in the process, the 7 actual request for quotes process, to -- to sell that 8 building. And their plan does not include rehabbing 9 that building or keeping that building there. 10 So it doesn't seem to be a good choice for BOE 11 to spend a lot of time and money to try to replace our 12 carpet under full asbestos containment for a building 13 that -- that DGS's Asset Management Group is projecting 14 the entire group could be out of in as early as two or 15 three years, based on what they're working on. 16 MS. STEEL: So they're going to keep the same 17 carpet with the duct tapes for -- 18 MS. HOUSER: We're working right now to try to 19 come up with a solution that would allow our people to 20 move out sooner than that. So we're working with Sales 21 and Use Tax to -- to look at what's the right 22 programming and location for our folks in San Diego. 23 So even if we had a situation where we may have 24 to continue to pay rent for a short time period at both 25 locations, it may still be more cost beneficial for us 26 to do that than to spend $200,000 on carpet and then 27 have to pay moving costs again. 28 So we're working right now to have a proposal 20 1 that we could present to your office, and we hope to 2 have that -- I'm hoping within the next 30 days. And 3 with your approval then we can move forward with -- with 4 an -- an alternative plan. 5 MS. STEEL: Thank you. 6 MS. HOUSER: You're welcome. 7 MS. YEE: Thank you, Ms. Houser. 8 Do you have any questions, Members? 9 Thanks for your reports. 10 MS. HOUSER: Thank you. 11 MS. YEE: Okay. 12 ---oOo--- 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 21 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 January 27, 2010 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 21 13 pages constitute a complete and accurate transcription 14 of the shorthand writing. 15 16 Dated: March 12, 2010. 17 18 19 20 ____________________________ 21 BEVERLY D. TOMS 22 Hearing Reporter 23 24 25 26 27 28 22