1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 August 23, 2011 10 11 12 13 ---oOo--- 14 BUSINESS TAXES COMMITTEE 15 PUBLIC COMMENT 16 ASSEMBLY MEMBER TIM DONNELLY 17 ASSEMBLY MEMBER BRIAN JONES 18 ---oOo--- 19 20 21 22 23 24 25 26 27 REPORTED BY: Kathleen Skidgel 28 CSR NO. 9039 1 1 P R E S E N T 2 For the Board Betty T. Yee of Equalization: Chair 3 Jerome E. Horton 4 Member 5 Michelle Steel Member 6 George Runner 7 Member 8 Marcy Jo Mandel Appearing for John 9 Chiang, State Controller (per Government Code 10 Section 7.9) 11 Diane G. Olson Chief, Board Proceedings 12 Division 13 Board of Equalization staff: Randy Ferris 14 Legal Department 15 Speaker: Assembly Member Tim Donnelly Assembly Member Brian Jones 16 ---oOo--- 17 18 19 20 21 22 23 24 25 26 27 28 2 1 INDEX OF SPEAKERS 2 NAME PAGE 3 Assembly Member Tim Donnelly 4 4 Assembly Member Brian Jones 6 5 ---oOo--- 6 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 TUESDAY, AUGUST 23, 2011 3 ---oOo--- 4 MS. YEE: Before we move to next item in the 5 Business Taxes Committee, I want to, um, just move to a 6 period of public comment. We have two members of our State 7 Assembly who are here today. I'd like to recognize them 8 and have them come forward. I know their time is limited. 9 If I could call up the Honorable Brian Jones and 10 the Honorable Tim Donnelly. 11 Good morning, gentlemen. 12 ASSEMBLY MEMBER JONES: Good morning. Thank you. 13 MS. YEE: Sure. If you'll formally introduce 14 yourself for the record. And you'll have three minutes 15 each. 16 ASSEMBLY MEMBER DONNELLY: All right. Good 17 morning. I'm Assembly Member Tim Donnelly. Thank you, Mr. 18 Chair and Board, for taking the time to meet with us and 19 listen to what we would like to present. 20 We've submitted a letter regarding the -- what 21 we're calling the fire tax. Some people are calling it the 22 Cal Fire fee. And I know that there's a lot of strong 23 opinion right now on taxes. And I want to just get you to, 24 perhaps, think about it in a different way because you guys 25 are going to be the Board that's going to implement this. 26 And at a time when the people's faith in government's at an 27 all-time low, I think it is incumbent upon all of us to 28 respect the will of the people. 4 1 We all watched when Controller Chiang went out on a 2 limb and essentially cut off pay to the legislators. And I 3 was in favor of that -- my wife wasn't as much, but -- 4 because it was the right thing to do, because it respected 5 Prop 25. 6 And we're now sitting here with a tax that was $150 7 per structure; now it looks like it's been negotiated down 8 to 90. But the amount isn't the point. The point is that 9 it says that it's for fire services, and yet, according to 10 our own Constitution, the California Constitution, Article 11 XIII D subsection (b) states that "no fee or charge may be 12 imposed for general services, including but not limited to, 13 police, fire, ambulance or library services." 14 So right there on its face it's unconstitutional 15 because it's only being collected on certain people. And 16 it's being collected for a general service that should be 17 available to the entire public and will be available to the 18 entire public. 19 Cal Fire is not going to stop at the border of the 20 SRA area and not render mutual aid; we all know that. 21 On December 6 of 2010 I took an oath to uphold and 22 defend the Constitution of the United States and the 23 Constitution of California. And I know that each one of 24 you did when you were elected. And so I am asking you to 25 take that chance and step out there on behalf of the 26 people, because this isn't about whether or not this tax is 27 just, whether this tax is needed. This tax has nothing to 28 do with the services. The point that's really at question 5 1 today is whether or not we're going to respect the will of 2 the people. 3 We govern by the consent of the governed. The 4 difference between a banana republic and a constitutional 5 republic is respect for the rule of law. And I think you 6 guys have a unique opportunity, and I would implore you to 7 step up and say, look, we're not going the collect this 8 tax. We think it is illegal and unconstitutional. And 9 as -- and as those who have sworn to uphold the 10 Constitution, we're just going to say no and tell you guys 11 you need to go back to the drawing board. 12 Right now the tax is supposed to collect $25 13 million at a cost of 12 and a half million. So we're going 14 to get 50 percent of the monies, but that isn't the 15 compelling reason. The compelling reason is to do what is 16 in the best interest of every Californian. And if we don't 17 stand up for the rule of law and if we don't stand up for 18 our constitutional republic, we're in danger of losing it. 19 Thank you. 20 MS. YEE: Thank you very much. 21 Please. 22 ASSEMBLY MEMBER JONES: Good morning. I'm Brian 23 Jones, Assembly Member from the 77th Assembly District 24 which is the eastern portion of San Diego County, from the 25 U.S.-Mexico border, Imperial County border and the 26 Riverside border. 27 As you're aware, last month the governor signed 28 AB 29 X1 as part of the budget deal, which mandates the 6 1 collection of a fire tax on roughly one million structures 2 in California. This was done by a majority vote of the 3 legislature. And unfortunately, my colleagues in the 4 legislature and the governor have put the Board of 5 Equalization in a very precarious position as my colleague 6 Assembly Member Donnelly's kind of outlined. 7 And kind of what my goal is here this morning -- 8 and I'll have my staff follow up with some documentation of 9 the questions that I want to pose this morning. And, 10 Members, I appreciate very much you fitting us into your 11 schedule today and giving us the opportunity to speak with 12 you and, um, honoring that. And the purpose of my 13 questions this morning are not to put you on the spot. I 14 know that you are very much trying to deal with this 15 legislation as we are. 16 So the purpose of my questions this morning are to 17 pose to you -- and then maybe if you have answers this 18 morning to them, that would be fantastic. If we need to 19 follow up, you know, later on as your staff has time to 20 process them, I certainly understand. My purpose this 21 morning is to get them on the record and if you have -- if 22 you are able to answer them this morning, that would be 23 great. 24 The first question I have is, how broad is the 25 Board's authority in implementing this tax program? 26 MS. YEE: Do you want to just, um, pose all of your 27 questions, then -- 28 ASSEMBLY MEMBER JONES: Sure, that would be great. 7 1 MS. YEE: Okay. 2 ASSEMBLY MEMBER JONES: And then if any of you want 3 to jump in at any point in time, that would be fine as 4 well. 5 MS. YEE: All right. 6 ASSEMBLY MEMBER JONES: Has it been -- has it been 7 decided how exactly the Board will collect the tax? 8 How constrained, with respect to statute, is the 9 Board as it pertains to this particular issue? 10 Probably very important to the folks in my district 11 are, how might the Board handle the issue of double 12 taxation? And the reason for that question is many folks 13 in my district -- I represent the rural area of San Diego 14 County -- live in fire districts that on their own have 15 already voted, as citizens of their fire district, to tax 16 themselves, either by a parcel tax or property tax, to pay 17 for the services that are available in their area and to 18 supplement the SRA and the resources that the state pays 19 for. 20 Assembly Member Donnelly mentioned the cost of 21 implementation. This is very concerning to me in that it's 22 been rumored that the cost of implementation is anywhere 23 between $12 million and $25 million. And the news 24 yesterday from the governor and the legislature is the 25 total revenue of this program's only going to be $25 26 million. 27 So we're looking at potentially spending every 28 dollar we raise in revenue in the process of collecting 8 1 that revenue. And I would argue that it's probably even 2 going to cost more because there's going to be an element 3 of our citizenry that's just going to refuse to pay this 4 tax, and then the Board of Equalization is going to have to 5 figure out how they're going to regulate that and require 6 people to comply. 7 My last question is, do you have any concerns with 8 the program's constitutionality and the fact that it's 9 circumvented Proposition 26, which was just recently voted 10 in, in last November, which sought to prohibit the 11 legislature from using loopholes to raise taxes by 12 disguising them as fees and, therefore, circumventing the 13 constitutional requirements for passing higher taxes? 14 I do not believe that this passes constitutional or 15 ethical muster. It wrongly labels the tax as a fee and 16 also doubles taxes -- double-taxes residents by combining a 17 new state responsibility area fees with current local fire 18 district assessments. 19 And again, I thank you. And if -- if maybe your 20 staff or if any of you are able to address any of these 21 this morning, that'd be great. But again, I will follow up 22 with a letter so that you'll know what was asked this 23 morning. 24 MS. YEE: Okay. Actually, getting those questions 25 in writing would be very helpful. 26 ASSEMBLY MEMBER JONES: Okay. 27 MS. YEE: We don't engage in kind of a Q and A here 28 with respect to public comment. But I think your 9 1 questions, if you could submit them in writing, certainly 2 the ones that suggest some legal response, we can certainly 3 respond to those. 4 ASSEMBLY MEMBER JONES: Right. 5 MS. YEE: Comments, Members? 6 Mr. Runner. 7 MR. RUNNER: I just have a couple. 8 Yeah, I think you'll find, um, just like at the 9 legislature, that this Board is not of the same opinion on 10 this issue and -- which I think often times makes these 11 issues difficult and controversial. I have questions about 12 the constitutionality and the intent as to how this was put 13 into place. 14 The clarity that I think we need to try to figure 15 out, though, and that is, I think, in -- maybe I can ask 16 our chief counsel at that point to just kind of respond a 17 little bit, in that -- in that in the fact that there is 18 a -- there's a disagreement in regards to 19 constitutionality, at this point, as a board, help us -- 20 could you quickly just remind us, and maybe to the Members, 21 what our responsibility is when it comes to the issue of an 22 issue becoming constitutional or not in regards to 23 differing opinion. 24 MR. FERRIS: Right. The California Constitution 25 also provides that the Board can't refuse to enforce a duly 26 enacted statute under the theory that it's unconstitutional 27 until such time as the Court of Appeal tells the Board that 28 it's unconstitutional. 10 1 So we do have a duty to implement it -- 2 MR. RUNNER: Okay. 3 MR. FERRIS: -- until such time as the Court of 4 Appeal instructs us otherwise. 5 MR. RUNNER: Thank you. So to that end, I don't 6 know if the Members can tell us, where is this in that 7 process? Is there current litigation? Is this being dealt 8 with in that way in order to help provide us that tool? 9 ASSEMBLY MEMBER DONNELLY: Oh, there's certainly 10 going to be litigation -- 11 MR. RUNNER: Okay. 12 ASSEMBLY MEMBER DONNELLY: -- the minute that 13 somebody gets the bill and then becomes a plaintiff. 14 MR. RUNNER: Okay. Okay. And then let me just 15 follow up with one other question. That is, in regards to 16 the issue of the implementation aspect, because we are -- 17 and this is just one that I'm not -- maybe just for 18 information. 19 As we would be then the -- again, I'm not sure we 20 would be described as the implementers. We actually are 21 the collectors. 22 MS. YEE: Administer the fee. 23 MR. RUNNER: And so then, therefore, that's kind of 24 the role that the legislature assigned us. But in that 25 regard then, help me understand the issue of the appeal 26 process. Because I -- I'm unclear as to the appeal 27 process. If there is dispute in regards to an individual 28 in regards to this issue, do we become the appellate board 11 1 for those? Or how does that reflect back on the fact that 2 we are just the collectors but not the implementers of the 3 regulation? 4 MR. FERRIS: My understanding -- and I'm not a 5 complete authority on this, but -- 6 MR. RUNNER: I don't think any of us are. 7 MR. FERRIS: The appeal process is governed by Cal 8 Fire. 9 MR. RUNNER: Okay. 10 MR. FERRIS: We will -- they may submit appeals to 11 us, but we will refer them to Cal Fire and we won't have 12 direct appellate authority, administrative appellate 13 authority. 14 MR. RUNNER: Ultimately then, we would not be in 15 the -- in the appeal process at all in terms of a dispute 16 that would -- I mean, I get the issue of the fact it would 17 originate with Cal Fire. But ultimately, in regards to 18 the -- to a billing itself, would an individual then 19 ultimately have the ability to come before the BOE in 20 regards to that appeal or not? 21 MR. FERRIS: If somebody else in this room knows 22 more than I do about this, I welcome them to come join me. 23 MS. YEE: I can speak. 24 MR. FERRIS: But my understanding is the Board will 25 not -- 26 MS. YEE: Yeah. Mr. Runner, the way this has 27 worked, we have several other revenue programs where we 28 have a relationship with -- 12 1 MR. RUNNER: Mm-hmm. 2 MS. YEE: -- the agency that sets the policy. And, 3 uh -- and we are the collectors. 4 MR. RUNNER: Right. 5 MS. YEE: In this instance, I would imagine, just 6 as it was with respect to the water fee enacted a few years 7 ago, we essentially would be getting a list of who we would 8 bill from Cal Fire. 9 MR. RUNNER: Right. 10 MS. YEE: And that's pretty much the extent of our 11 responsibility. We're billing them. 12 MR. RUNNER: Okay. That's what I'm just 13 clarifying, if there's -- 14 MR. FERRIS: Appeals may come to us in writing. 15 MS. YEE: It may, but -- 16 MR. FERRIS: And then we will refer them to Cal 17 Fire -- 18 MS. YEE: Exactly. 19 MR. FERRIS: -- and they don't come back. 20 MS. YEE: That's right. 21 MR. FERRIS: That's my understanding. 22 MS. YEE: That's right. 23 MR. RUNNER: Okay. Thank you. Again, just trying 24 to clarify what our role in this is. 25 MS. YEE: No, I understand. Thank you. 26 Ms. Steel. 27 MS. STEEL: I want to clarify a little more. So if 28 it goes into the litigation, what happen? Do we still to 13 1 have collect? 2 MS. YEE: We do -- 3 MS. STEEL: No? 4 MR. FERRIS: Well, it would depend on whether or 5 not the court, the trial court enjoined us to stop. 6 MS. YEE: Yeah. 7 MS. STEEL: So when -- 8 MR. FERRIS: A court -- a trial court could tell us 9 to stop and then we would have to stop. But in terms of 10 whether or not we would completely stop, a Court of Appeal 11 has to tell us it's unconstitutional. 12 So a court can tell us -- a trial court could tell 13 us to hold things in abeyance while the litigation is 14 proceeding. 15 MS. STEEL: Well, this is really amazing. This 16 fire tax, as Assembly Members just told us that it's 17 illegal, just passing by majority to begin with; and 18 second, double taxation; and third, there's about 850,000 19 home owners have to pay. 20 This is totally not just double taxation, but, you 21 know, we have certain areas that, you know, you 22 representing have over 27 percent unemployment rate right 23 there and we are asking them another burden, to pay extra 24 taxes for, you know, what they are not really getting out 25 of. 26 So this is totally ridiculous. And then, you know, 27 we have to collect those taxes. Just doesn't make any 28 sense. You know, hopefully that, you know, somebody's 14 1 going to stop there and then, you know, we don't have to do 2 it. 3 And then cost versus revenue, that's another thing 4 that, you know, we are actually spending more. It -- it 5 doesn't make any sense to bring more money and hurting 6 taxpayers at this point. 7 MS. YEE: Yeah. 8 MS. STEEL: So thank you very much for coming 9 out. 10 MS. YEE: Thank you, Ms. Steel. 11 Thank you, Assembly Members Jones and Donnelly. 12 We -- if you could submit your questions in writing. 13 ASSEMBLY MEMBER JONES: Sure. 14 MS. YEE: Obviously the ones that we can respond 15 to, we will do so. But we will obviously stay tuned with 16 respect to any legal challenges on the fee itself. 17 ASSEMBLY MEMBER DONNELLY: Thank you for your time. 18 ASSEMBLY MEMBER JONES: If I can just add or close 19 with, again, I appreciate your time. I believe that 20 Mr. Chiang has shown incredible leadership in the past by 21 acting independently of the governor and the legislature. 22 As duly elected officers of the state, I know that 23 you also have the citizens' best interests in mind as you 24 stand for election. And I'm hoping -- my hope is that you 25 are not under the same pressures that the legislators are, 26 from the governor and from the special interests, and that 27 you will look at this -- uh, this issue on its own and 28 judge wisely from there. 15 1 MS. YEE: Thank you very much, Mr. Jones. 2 ASSEMBLY MEMBER JONES: Thank you. 3 MS. YEE: Thank you. 4 ASSEMBLY MEMBER DONNELLY: Thank you for your 5 time. 6 MS. YEE: Thank you both very much. 7 ---oOo--- 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 16 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 August 23, 2011 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 16 13 constitute a complete and accurate transcription of the 14 shorthand writing. 15 16 Dated: August 30, 2011 17 18 19 ____________________________ 20 KATHLEEN SKIDGEL, CSR #9039 21 Hearing Reporter 22 23 24 25 26 27 28 17