1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 5901 GREEN VALLEY CIRCLE 3 CULVER CITY, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 OCTOBER 25, 2011 10 ITEM P OTHER ADMINISTRATIVE MATTERS 11 ITEM P1 EXECUTIVE DIRECTOR'S REPORT 12 1. CROS PROJECT UPDATE AND ACTIONS 13 14 15 16 17 18 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 3 For the Board Jerome E. Horton of Equalization: Chairman 4 Michelle Steel 5 Vice-Chairwoman 6 Betty T. Yee Member 7 George Runner 8 Member 9 Marcy Jo Mandel Appearing for John 10 Chiang, State Controller (per Government Code 11 Section 7.9) 12 Diane G. Olson Chief 13 Board Proceedings Division 14 15 For the Staff: David Gau Deputy Director 16 Property and Special Taxes 17 Eric Steen Project Director 18 Liz Houser 19 Deputy Director Administration 20 21 ---oOo--- 22 23 24 25 26 27 28 2 1 2 5901 GREEN VALLEY CIRCLE 3 CULVER CITY, CALIFORNIA 4 OCTOBER 25, 2011 5 ---oOo--- 6 MS. OLSON: Our next item is P1.1, CROS 7 Project Update and Actions. 8 MR. HORTON: P1.1. Members. 9 MR. GAU: Yes, David Gau -- 10 MR. HORTON: Oh. 11 MR. GAU: -- Deputy Director of the Property 12 and Special Tax. 13 I'll take that as a cue anyhow. 14 MR. HORTON: Well, welcome aboard, Mr. Gau. 15 MR. GAU: David Gau, Deputy Director of the 16 Property and Special Taxes Department with the monthly 17 CROS update. 18 First of all, what I would like to do is, uh, 19 introduce and welcome Mr. Eric Steen, the Board's newly 20 appointed Project Director. It's all of his second day, 21 but I thought I -- you know, he should come down and, 22 uh, appear here with me and, um, get a feel for it. 23 So, um, Eric will offer a couple comments at 24 the end of my report as well. 25 MR. HORTON: We have some questions here. 26 MR. GAU: I'd just like to note that we've been 27 in touch with the Department of General Services, uh, 28 during the course of last month or so, in a few weeks, 3 1 to -- in an attempt to get further clarification on the 2 confidentiality and the conflict of interest issue. 3 Um, as we sit here, a memo is being drafted by 4 our Legal Department, uh, to provide the legal 5 background and some guidance, uh, on vendor contact and 6 communication. So hopefully that will, uh, be to your 7 offices by the end of this week. 8 The, uh -- we're also planning on training our 9 executive staff as well as offering that to the Board 10 Members. That should begin around the week of November 11 7th. So your offices will be contacted, uh, to avail 12 you to that as well. 13 Um, in the meantime, the CROS core team members 14 have received the in-house confidentiality training. 15 Um, we've signed our conflict of interest statements. 16 Um, and we've also been advised not to have any vendor 17 contact at our level at this point in time. And 18 obviously these are just measures to help ensure the 19 integrity of the CROS project. 20 Um, that's really it. I was just going to 21 offer Eric a brief moment if he would like to make 22 comment as well. 23 MR. HORTON: Please. 24 MR. STEEN: Members, Mr. Chairman, um, thank 25 you very much for the opportunity to be a part of this 26 effort. I'm very much honored and privileged to be 27 here. Look forward to doing something significant for 28 the Board, for the State of California, for the 4 1 taxpayer. 2 Um, one of the first things I'd like to do is 3 set up meetings with each of you to discuss your 4 interest in the effort and your requirements; make sure 5 those are addressed in the ultimate solution. Um, and 6 I'll do everything I can to ensure an accelerated 7 progress as well as a quality solution. 8 So, again, thank you very much. 9 MS. YEE: Mr. Chairman. 10 MR. HORTON: Discussion, Members. Member Yee. 11 MS. YEE: Thank you. 12 Welcome, Mr. Steen. And thank you, Mr. Gau, 13 for the update. 14 Question -- and I appreciate the, uh, memo 15 forthcoming with respect to confidentiality and conflict 16 of interest issues. As a general matter, would you say 17 that the time has come for each of us, as members, to 18 cease vendor contact? 19 MR. GAU: I think that, uh, that that is the 20 issue that's being addressed right now. And I think 21 there's, uh -- 22 MS. YEE: As you know, they're circling the 23 wagon. So it's just -- 24 MR. GARDNER: Yes, they are. Yes, they are. 25 And, um, I think there's a -- there's an abundance of 26 caution kind of, uh, feeling at this point. Um, but 27 again, uh, I'll be anxious to see the legal analysis 28 myself. 5 1 MS. YEE: I think much of why that's happening 2 is, um -- and, for me, I'm unsure about what the, um, 3 allowable engagement is now that the FSR has been 4 approved, and certainly there was some recommendations 5 that came back, um, associated with the FSR, um, how 6 that gets communicated back to the vendors. 7 And I think much of the contact that I'm 8 getting is seeking my perspective with respect to how 9 we're going to look at those, and I -- I'm not equipped 10 to comment on that. 11 MR. GAU: Right. 12 MS. YEE: But has there been engagement back to 13 the vendor community? 14 MR. GAU: What I can -- because I have as well. 15 And what I have -- the way I've conducted myself is just 16 to offer, uh, what is publicly available. 17 MS. YEE: Mm-hmm. 18 MR. GAU: Um, we have the, uh, letter from the 19 California Technology Agency. We have the, uh, 20 Feasibility Study Report. 21 MS. YEE: Mm-hmm. 22 MR. GAU: We have the -- these reports which 23 are posted on the Web as well as the video. 24 So, uh, my -- what I have done previously was 25 to steer them in that direction. 26 MS. YEE: Okay. Is there a way, perhaps maybe 27 on our Web site, to consolidate all these public 28 documents? 6 1 MR. GAU: I'm sure there is, yes. 2 MS. YEE: Okay. Okay. 3 MR. GAU: We've done that with other 4 projects -- 5 MS. YEE: And we can direct -- 6 MR. GAU: -- and we certainly could with the 7 CROS project. 8 MS. YEE: We can direct the vendor community 9 there? 10 MR. GAU: Mm-hmm. 11 MS. YEE: Just to -- 12 MR. GAU: Certainly. 13 MS. YEE: Great. Thank you. 14 Thank you, Mr. Chair. 15 MR. HORTON: Okay. 16 Further discussion, Members? 17 MR. RUNNER: Just quick. 18 MR. HORTON: Mr. Runner. 19 MR. RUNNER: Quick follow-up. In, um -- in 20 some of the discussions that I've had with some of 21 the -- some of the, uh, folks who have been in projects 22 over at FTB and people who've been overseeing it in that 23 program, um, there was a -- there has been some concern 24 in regards to the ability and the amount of due 25 diligence that can often times be performed when it is 26 that we're trying to find that line -- 27 MR. GAU: Yes. 28 MR. RUNNER: -- as to when it is that you can 7 1 no longer communicate to vendors. 2 Um, and I guess -- I guess I'm -- can you back 3 up just a bit now? When you say there's been training 4 and obser -- who -- who has rendered the opinion in 5 regards to that discussion in regards to staff having 6 discussions with vendors at this point? 7 MR. GAU: Uh, that has been, um, one of the 8 employ -- people that we have had that's been in contact 9 with our legal staff who's also been on a project in one 10 of the other agencies to, uh, basically give her 11 experience at the Franchise Tax Board on that matter. 12 So to say that it is, uh, what our Legal 13 Department has opined, I can't say that as of yet 14 because I don't have the opinion -- 15 MR. RUNNER: Okay. 16 MR. GAU: -- or the memo from them yet. But, 17 again, I think what I earlier, kind of out of an 18 abundance of caution, how our staff should behave, in 19 what manner, that is the direction at this time. Again, 20 being, uh, maybe, overly cautious. 21 MR. RUNNER: Okay. 22 MR. GAU: But I, you know, rather that than -- 23 MR. RUNNER: Okay. Just clarifying. So there 24 hasn't been a -- there has not been a legal opinion 25 rendered in regards to our involvement in regards -- 26 either ours or staff's involvement. 27 MR. GAU: I have not -- I do not have a written 28 opinion. 8 1 MS. YEE: Although there are some general 2 guidelines from General Services with respect to that 3 process. 4 MR. GAU: Then they have had those -- those are 5 the discussions that they've been having currently. 6 MR. RUNNER: Right. And I -- yeah, I 7 understand General Services has some -- has some general 8 guideline out there. 9 MR. GAU: Right. 10 MR. RUNNER: But in regards to a legal opinion, 11 either from General Services or from our staff, we -- we 12 haven't gotten that yet. So right now then the place 13 that we're at right now is we've create -- we've 14 determined an operational, uh, direction right now which 15 is no -- no -- no vendor contact, is that -- 16 MR. GAU: I would say yes at our level, yes, we 17 have. 18 MR. RUNNER: And now what we're awaiting for 19 right now is our legal opinion. 20 MR. GAU: That's correct. 21 MR. RUNNER: Okay. I got it. Thanks. 22 MS. HOUSER: To follow up, Mr. Runner -- 23 MR. RUNNER: Yeah. 24 MS. HOUSER: -- that will be based on input 25 from the Department of General Services. 26 MR. RUNNER: Right. 27 MS. HOUSER: This is the Department of General 28 Services' procurement, um, so they -- they will be very 9 1 involved on helping provide direction and clarification 2 of their understanding of -- of what exactly is 3 allowed. 4 MR. RUNNER: Right. Gotcha. 5 MR. HORTON: Members, we are in the preliminary 6 stages of making this determination. Arguably, the 7 procurement process starts at -- depending on your 8 perspective of the law and your perspective of where you 9 are in the process relative to the finality of the 10 procurement process, entering into the procurement 11 process, the point of no return, I would say, is at the 12 point that the procurement process sort of begins. 13 The FSR is still open-ended to -- to some 14 degree. But, uh, it is in the best interests of all of 15 us, the Members as well as our team, to -- to follow the 16 directions of DGS who is currently of the opinion that 17 we are in the procurement process. 18 Until such time that that can be resolved, uh, 19 and that we can provide our team members further 20 direction, this procurement, if you will, is so 21 complicated and so involved and it's almost like a 22 living document at this point that, quite frankly, I 23 don't know the value of my involvement or any other 24 Member's involvement other than just to have a 25 meet-and-greet sort of conversation. But I certainly 26 would encourage us not to engage. And to the extent 27 that we do have meet-and-greets, that we qualify those 28 meetings to disclose that we are not -- this is not for 10 1 the purpose of engaging in any way, in form or fashion, 2 in the procurement process. But -- and at a minimum, 3 that we await the advice of our Executive and Legal 4 team. 5 MR. RUNNER: Real quick question. 6 MR. HORTON: Mr. Runner. 7 MR. RUNNER: Again, in some of my discussions 8 with some of the processes that have been done in 9 other -- with the other agencies, um, it seems to me 10 that often times the process you end up going through is 11 a, um -- you know, is a, um, FSR and then you move then 12 from there -- from that point to a formal request for 13 proposal. 14 MR. GAU: Correct. 15 MR. RUNNER: Um, some I've heard have gone for 16 some -- another step in between, uh, which is a request 17 for information. 18 MR. GAU: Yes. 19 MR. RUNNER: Which then allows for then 20 additional discussions at that point to clarify then 21 your request for proposal. Is -- 22 MR. GAU: Right. There are a couple ways of 23 doing that. That is one way. The other way that's also 24 being considered is where you come down to a -- a -- 25 a -- I'll call it a short list of vendors that have 26 basically prequalified. And then you can engage in some 27 confidential discussions with them that those questions 28 and answers are masked or made confidential to the other 11 1 parties as well that may be interested in the project. 2 So that you can have that back and forth -- you know, 3 they can query staff about what did they mean by a 4 certain requirement in the proposal. And, uh -- but 5 that is, again, shared on a confidential basis with 6 other potential vendors as well. 7 So that's also kind of a way to get more 8 information, more interaction or more communication. 9 MR. RUNNER: Okay. And so we haven't 10 necessarily decided -- so that could be a path that we 11 go down -- 12 MR. GAU: That's correct. 13 MR. RUNNER: -- if we feel like there is 14 potential information out there that we -- that we want 15 to glean. 16 MR. GAU: Yes, I think that is what is being 17 contemplated. Correct. 18 MR. RUNNER: Okay. Okay. Thank you. 19 MR. HORTON: Further discussion, Members? 20 Thank you very much for the presentation. And, 21 again, on behalf of the Board, welcome aboard. 22 MR. GAU: Thank you. 23 MR. HORTON: You can take these questions with 24 you. 25 ---oOo--- 26 27 28 12 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 October 25, 2011 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 pages 1 13 through 12 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: November 8, 2011 17 18 19 ____________________________ 20 KATHLEEN SKIDGEL, CSR #9039 21 Hearing Reporter 22 23 24 25 26 27 28 13