1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 NOVEMBER 16, 2010 10 11 12 13 14 15 ADMINISTRATION DEPUTY DIRECTOR'S REPORT 16 (ITEM P5) 17 18 19 20 21 22 23 24 25 26 27 REPORTED BY: Kathleen Skidgel 28 CSR NO. 9039 1 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 2 P R E S E N T 3 4 For The Board Betty T. Yee of Equalization: Chair 5 Jerome E. Horton 6 Vice-Chair 7 Barbara Alby Acting Member 8 Michelle Steel 9 Member 10 Marcy Jo Mandel Appearing for John Chiang 11 State Controller (per Government Code 12 Section 7.9) 13 Diane G. Olson Chief 14 Board Proceedings Division 15 For 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 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 NOVEMBER 16, 2010 4 ---o0o--- 5 MS. YEE: Next item, please. 6 MS. OLSON: Our next item is P5, Administration 7 Deputy Director's Report. 8 MS. YEE: Okay. 9 MS. HOUSER: Good morning, Madam Chair and Members. 10 I'm Liz Houser, Deputy Director Administration. With me 11 today is Amber Van Alstyne. 12 Remediation work at the 450 N Street headquarters 13 location continues. There are three floors remaining to be 14 remediated. The project is on schedule for close-out in 15 March of 2011. 16 BOE's experiencing delays with the recently 17 modernized elevators where they stop on multiple floors 18 unnecessarily. BOE has discussed this issue with DGS and 19 their contractor Thyssen Krupp who have committed to 20 improve service on this project. We do thank everyone for 21 their patience as the elevator issues are investigated and 22 hopefully resolved. 23 The move of approximately 300 employees to the 24 third headquarters annex at Opus 160 Promenade Circle in 25 Natomas is scheduled to begin next month. Moves will be 26 completed by December 20th. BOE has asked DGS to explore 27 the option of expanding to additional leased space within 28 the Opus Complex to accommodate new positions received in 3 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 the 10/11 budget. 2 Are there any questions on facilities? 3 My next item is an update on the 2010/11 budget and 4 the BOE's 11/12 budget proposals. If it pleases the Board, 5 I will take questions at the end of the presentation. 6 If you'll direct your attention to the screen, I 7 have a brief presentation. 8 For the 10/11 budget there were four BCPs, two 9 chapter bills and an active trailer bill language that were 10 incorporated into the final budget which impacted BOE. 11 For this presentation all figures provided are the 12 second year cost and revenue estimates which will provide 13 projections for a full year. Benefit to cost ratios are 14 also based on a full year estimate. 15 The protecting state revenue BCP restored the 16 portion of funding that was vetoed from BOE's 09/10 budget 17 equivalent to one day furlough per year. The associated 18 costs are approximately $13.4 million. Revenue is 19 estimated as 88 million. The benefit to cost ratio is 6.5 20 to one. There are no specific positions tied to this BCP. 21 The increased revenue through agricultural 22 inspection station tax leads BCP increased voluntary tax 23 compliance and collection of unpaid taxes through a 24 cooperative agreement with the California Department of 25 Food and Agriculture that has their border station 26 inspectors copy and forward information on goods being 27 transported into California to BOE for follow-up with the 28 purchaser. It provides for the permanent continuation of 4 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 the program in Needles, California and temporarily expands 2 the program to Yermo, Hornbrook and Truckee for a two-year 3 period. The associated costs are approximately $6 million. 4 Revenue is estimated as 4.4 million. The benefit to cost 5 ratio is 7.4 to one. The positions will be located in 6 Sacramento headquarters and the Riverside district office. 7 The insuring fuel tax compliance BCP will protect 8 and enhance the tax base of the transportation taxes 9 program by reducing tax evasion and increasing compliance. 10 The program is two-fold. Continuing participation in the 11 joint operations center, JOC project, for national fuel 12 compliance and addressing the ongoing workload for the 13 international fuel tax agreement. The associated costs are 14 approximately $530,000. The JOC brings in $900,000 in 15 federal grant funds over a three-year period, and the IFTA 16 component safeguards $3 billion in annual federal matching 17 funds. The positions will continue to be located in 18 Sacramento headquarters and the West Sacramento offices. 19 The enhancing tax compliance BCP has been approved 20 for an early start as of October 1st, 2010. It has four 21 components: Collection program enhancement, the alcohol 22 beverage tax audit program, high intensity financial crimes 23 area, and the Southern California appeals and settlement 24 office. 25 It will expand the audit and collection programs as 26 a result of an increasing number of productive audit leads 27 and collection cases that without increased staffing could 28 not be addressed. These resources will allow for 5 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 participation in the high intensity financial crimes area 2 task force which will contribute to collection efforts and 3 provide for a Southern California appeals and settlement 4 office to accelerate revenues, address a growing workload, 5 improve taxpayer interactions, and increase efficiency. 6 The associated costs are approximately $10.7 7 million. Revenue is estimated at $94.1 million, and the 8 benefit to cost ratio is 8.8 to one. The enhancing tax 9 compliance positions will be located in these offices. 10 Effective July 1st, 2010, the fuel tax swap 11 legislation reduced the state portion of sales tax applied 12 to gasoline by approximately six percent and increased the 13 excise tax imposed, including existing floor stock, by 14 approximately 17.3 cents per gallon. Effective July 1st, 15 2011 an additional 1.75 percent sales tax will be applied 16 on diesel fuel and a corresponding decrease will be made to 17 the excise tax rate on diesel fuel of approximately four 18 cents a gallon. Annual adjustments are included to 19 maintain revenue neutrality. 20 The associated costs are approximately $1.3 21 million. Revenue is to remain neutral due to the 22 offsetting increases and decreases in sales tax and excise 23 tax rates. The positions will be housed at 450 N Street. 24 The use tax line in trailer bill SB858 reinstates 25 the provisions that provide for the separate line on the 26 Franchise Tax Board income tax returns for use tax 27 reporting that expired on December 31st, 2009. The annual 28 cost of approximately $250,000 are already included in 6 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 BOE's budget. Revenue is estimated at $11 million 2 annually. 3 The collection cost recovery fee as part of trailer 4 bill SB858 authorizes BOE to collect a fee on any person 5 that fails to pay overdue taxes. The associated costs are 6 $218,000. Revenue is estimated as $18 million. The 7 benefit to cost ratio is 82.6 to one, and the positions 8 will be located in Sacramento. 9 Now we have our 11/12 budget change proposals. For 10 the 11/12 fiscal year, the Department of Finance is 11 considering three budget change proposals and has approved 12 an early start in the 10/11 fiscal year for enhancing tax 13 compliance. 14 The state-wide compliance and outreach program 15 requests the permanent establishment of the program to 16 identify and register entities that are actively conducting 17 business in California and selling tangible personal 18 property without a seller's permit. The associated costs 19 are approximately $14.1 million. Revenue is estimated at 20 68.2 million. And the benefit to cost ratio is 4.8 to one. 21 The positions will continue to be housed in these office 22 locations. 23 The enhancing tax compliance BCP, as mentioned 24 earlier, was approved for an early start in the 10/11 25 fiscal year. 26 The State Board of Equalization offices of the 27 future BCP request resources to allow BOE to work with DGS 28 to hire consultants, to outline our office of the future, 7 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 requirements which will be used in the next step to 2 relocate BOE's entire headquarters operation into one 3 campus. The estimated costs are $150,000. 4 The headquarters rent increase BCP serves as a 5 placeholder in the event that the State Treasurer's office 6 sells bonds to pay off the loan on the headquarters 7 building. The estimated costs are approximately $2.3 8 million. 9 Are there any questions on the budget update? 10 MS. YEE: Questions, Members? 11 Just one comment if I may. This is really a 12 comment. 13 We heard recently about the newly identified budget 14 gap for the current year and the next fiscal year. And I 15 just want to be mindful that as we're looking at budget 16 change proposals that we are sensitive to, obviously, the 17 larger fiscal environment and appreciate, obviously, the 18 ongoing work that our staff is continuing to do, both with 19 respect to the work in the field and here at headquarters, 20 to continue to be sure our tax revenues are administered 21 and collected. 22 This just relates to the Scoop program. I just 23 wanted to say one thing about that. This Board did take 24 action on that proposal. And what I would like to see 25 happen, because I do think, given the gap of the magnitude 26 that's been identified by the legislative analyst's office, 27 that this Board will be very, very fortunate to escape any 28 further cuts. But -- and I think this Board has been 8 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 very -- as a body, has been very aggressive about trying to 2 protect the resources of this organization. 3 I do want to look at particularly the positions 4 that we've authorized for establishing permanently for this 5 particular program. I think these are positions that will 6 be targeted in the future to be redirected for other new 7 mandates that may be coming from the legislature. So I 8 want to just put that out there because we have to be 9 smarter about the resources that we've been given, and I 10 want us to anticipate, obviously, a still very challenging 11 fiscal environment going forward. 12 MS. HOUSER: Thank you. 13 My last item is an update on contracts. Any other 14 questions? 15 MS. YEE: Any other comments on budget? Okay. 16 MS. HOUSER: My last item is an update -- 17 MR. HORTON: Oh. 18 MS. YEE: Mr. Horton, please. 19 MR. HORTON: The collection fees, does that number 20 include the impact of the outstanding accounts receivables? 21 MS. HOUSER: I can speak briefly to that, then I'll 22 ask someone from SUTD to come up. 23 My understanding from this number is that this is 24 the estimated number that assessing the collection fee as 25 outlined in the mandate, what the amount would be that 26 would be assessed, shall we say. Some of that will go 27 straight into the accounts receivable and become additional 28 debt that we'll need to collect. 9 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 I do have Jeff McGuire here from Sales and Use Tax 2 who can probably correct me. 3 MR. MCGUIRE: I believe the question was, was that 4 applied to our existing accounts receivable, and the answer 5 is yes. 6 MR. HORTON: Yeah. I would ask that we segregate 7 that out so that you isolate the two, so that there's a 8 clear delineation of what the expectations are, what we 9 expect to derive from this, collect from this, and what we 10 anticipate as a result of our historical knowledge of 11 accounts receivables not necessarily being collected. 12 Because of the environment that we're in, at the 13 end of the day I want to be able to set forth that the 14 Board of Equalization is a revenue-generating agency, and 15 therefore should have the authority and somewhat autonomy 16 to do our job and the resources necessary to be able to do 17 that. And that's going to be tied to revenue. 18 And so I would not want to have the discussion 19 later on down the road about you proposed this, but it 20 didn't reach that objective and one of the reasons were -- 21 was known to you in advance, and that was that these fees 22 would never be collected, a percentage of them. I don't 23 know what the percentage is. But let's see if we can 24 segregate that in a way that it is clear, not only to the 25 public, but to the legislature and to our own staff as we 26 use this as a tool of evaluating our performance as we go 27 forward. 28 MS. YEE: Thank you, Jeff. Thank you, 10 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 Mr. Horton. 2 MS. HOUSER: My last item is an update on the union 3 agreements and the status of the furlough. 4 BOE has employees in eight of the 21 bargaining 5 units. The exclusive representatives for these eight units 6 are SEIU, CASE, PECG and IUOE. 7 The Schwarzenegger administration has reached 8 agreements for new contracts with SEIU and IUOE. The IUOE 9 agreement was ratified and became effective with a 10 September 2010 payroll -- pay period. The SEIU agreement 11 has been ratified and will be effective with the November 12 2010 pay period. PECG and CASE have not reached tentative 13 agreements with the administration. 14 Approximately 95 percent of BOE's employees are 15 represented by SEIU and will be subject to the provisions 16 of the agreement. The duration of the SEIU agreement is 17 July 1st, 2010 to July 1st, 2013 and the IUOE's agreement 18 duration is July 1st, 2010 through July 1st, 2012. 19 There are many items covered in these comprehensive 20 agreements, however, there are a number of changes that 21 impact employee compensation in the current agreement, 22 including employees in the miscellaneous and industrial 23 first tier and safety retirement categories will have their 24 share of the retirement contribution increased by three 25 percent, effective with the November pay period. 26 All newly hired employees will be subject to the 27 pre SB400 retirement formula of two percent at age 60 from 28 the current formula of two percent at age 55. Newly hired 11 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 safety members will be subject to the pre SB400 formula of 2 two percent at 55 rather than 2.5 percent at 55. 3 The final compensation for retirement purposes for 4 the new employees will be based on the highest 36 5 consecutive months rather than the highest 12 consecutive 6 months of compensation. This provision will be effective 7 January 15th, 2011 and impact all hires on or after that 8 date, but does not impact existing employees. 9 A 12-month personal leave program that provides one 10 day of unpaid leave per month which reduces pay by 11 approximately 4.62 percent. The PLP has no cash value and 12 may not be cashed out upon separation. The PLP does not 13 impact retirement calculations. 14 Effective July 1st, 2013, all represented 15 classifications shall have the maximum salary range of the 16 class increased by three percent. Lincoln's Birthday and 17 Columbus Day are no longer state holidays. 18 Employees will receive two professional development 19 days each fiscal year. Payroll for employees covered by 20 the agreement would be continuously appropriated for the 21 term of the contract which protects employees from minimum 22 wage payments in the event of future budget delays. 23 The provisions of the IUOE agreement were 24 substantially the same to SE -- as SEIU, except that the 25 employee contributions to retirement will increase by five 26 percent, and the maximum salary of their classification 27 will increase by five percent, effective January 1st, 2012. 28 The excluded and exempt pay program which includes 12 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 supervisors and managers is consistent with the provisions 2 of the SEIU agreement and was effective November 2nd, 2010. 3 BOE employees will be subject to the provisions of this pay 4 program. 5 The BOE is exempt from the furloughs as outlined in 6 Governor's executive order S1210. However, we are not 7 exempt from the provisions of bargaining unit agreements 8 which calls for one day per month personal leave program 9 and the other compensation changes I've just covered. 10 For departments who are subject to the furlough, 11 employees represented by bargaining units that do not have 12 a tentative agreement in place will continue to be 13 furloughed. 14 This concludes my presentation. I'll be happy to 15 answer any questions you may have. 16 MS. YEE: Thank you, Ms. Houser. And thank you for 17 clarifying that these agreements all differ with respect 18 to, you know, time frames and -- but I do want to say, just 19 seeing the ratification of a number of these agreements, I 20 think state employees are definitely stepping up and really 21 doing their share in terms of helping the state's budget 22 situation. Thank you. 23 Other comments, Members? 24 MR. HORTON: Yes, Madam Chair. 25 MS. YEE: Mr. Horton. 26 MR. HORTON: I just wanted to sort of commend the 27 SEIU leadership for their foresight. We're now facing an 28 additional $26 billion deficit. This contract in effect 13 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 stays that for SEIU employees within the State of 2 California. 3 And we're asking them, our employees, as many 4 entities are requesting to do more with less, to continue 5 to maintain and continue to do the exceptional work that we 6 do everyday. And during these tough times, you know, I 7 just wanted to say thank you to all of the employees of the 8 Board of Equalization for the work that they do, and to 9 share that I fundamentally believe that the future of the 10 State of California, we will play an important role in that 11 process. 12 And state employees overall, we get a bad 13 reputation during this last campaign process. But I can 14 assure you that each of the Members of the Board of 15 Equalization represented you well and shared the sentiments 16 that state employees are supreme, in a number of ways, and 17 they should receive distinction and honor. 18 When you have a problem on the highway, it's the 19 state employee that will come to your rescue. If you're 20 sick in an area where it's governed by the State of 21 California, it's a nurse or a state nurse that will come to 22 your rescue. If there's a fire, it's a state fire 23 department that will come to your rescue. 24 State workers are a viable, valuable resource in 25 the State of California, and cutting them and stripping 26 them of any of their compensation is untolerable from my 27 perspective. But it's a reality that we face. And so to 28 that extent, thank you all. 14 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 MS. YEE: Thank you, Mr. Horton. 2 Other comments, Members? 3 All right. Thank you, Ms. Houser, very much. 4 MS. HOUSER: Thank you very much. 5 (The matter concluded at 12:16 p.m.) 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 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 REPORTER'S CERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, KATHLEEN SKIDGEL, Hearing Reporter for the 8 California State Board of Equalization certify that on 9 November 16, 2010 I recorded verbatim, in shorthand, to the 10 best of my ability, the proceedings in the above-entitled 11 hearing; that I transcribed the shorthand writing into 12 typewriting; and that the preceding pages 1 through 15 13 constitute a complete and accurate transcription of the 14 shorthand writing. 15 16 Dated: December 17, 2010 17 18 19 ____________________________ 20 KATHLEEN SKIDGEL, CSR #9039 21 Hearing Reporter 22 23 24 25 26 27 28 16 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333