1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 FEBRUARY 28, 2012 10 11 12 13 14 15 LEGISLATIVE COMMITTEE 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 5 Michelle Steel Member 6 7 Betty T. Yee Member 8 9 Marcy Jo Mandel Appearing for John 10 Chiang, State Controller (per Government Code 11 Section 7.9) 12 Diane G. Olson 13 Chief Board Proceedings Division 14 15 16 For the Department: Margaret Shedd Chief, Legislative and 17 Research Division 18 19 Randy Silva Business Taxes 20 Administrator III, Investigations 21 22 ---oOo--- 23 24 25 26 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 FEBRUARY 28, 2012 4 ---oOo--- 5 MS. OLSON: Our next item is the Legislative 6 Committee. Mr. Horton is the Chair of that committee. 7 Mr. Horton. 8 MR. HORTON: Thank you, Ms. Olson. 9 The Legislative Committee is hereby called to 10 order. 11 Members, we will turn it over to Margaret Shedd 12 and her team, uh, to go over the items on the agenda. 13 MS. SHEDD: Thank you. Good morning, uh, 14 Mr. Chair and Members of the Committee. 15 Uh, as you may recall, on January 11, 2012, the 16 Board of Equalization Legislative Committee voted on a 17 4-to-0 vote, with Mr. Runner abstaining, to adopt the 18 concept and amend our proposal to create a Centralized 19 Intelligence Partnership to combat the underground 20 economy, which is authorized to provide for a 21 centralized intake center for collection, review and 22 analysis of information related to complaints, 23 prosecutions and arrests pertaining to illegal 24 underground operations and require those participating 25 agencies to share pertinent information and data with 26 each other. We were also to develop legislative, uh, 27 intent language to provide for the details related to 28 the governance and staffing needs of the partnership. 3 1 Uh, on February 22nd, SB 1185 was introduced by 2 Senator Price. It contains many of these components. 3 Um, a couple differences. It does provide for an 4 advisory committee, um, which is not really a 5 governance. It was sort of thrown in at the 6 recommendation of legislative counsel who was assigned 7 to draft it. But it would provide guidance and advice 8 to the partnership. Um, it would be comprised of one 9 representative from each of the entities participating 10 in the partnership. And -- who will be appointed by the 11 head of the entity and serve at the pleasure of that 12 appointing authority. 13 However, the partnership does retain, um, the 14 responsibility for the organizational structure and also 15 each participating and nonparticipating agency does 16 retain jurisdictional authority over where to pursue 17 partnership strategies or collaborative investigative 18 leads based on the direction of their respective 19 governing, uh, structures or available resources. 20 Um, so the other deviation is that the 21 centralized intelligence agency, as drafted, would, uh, 22 be housed with the Department of Justice. But I'd like 23 to emphasize that this is still conceptual. Uh, it's a 24 work in progress, and that we have 30 days before the 25 bill can be heard in its first committee. So we will be 26 working with all the participating agencies to flush out 27 where is the proper place to house this, um, operation. 28 MR. HORTON: Thank you. 4 1 Members? 2 Member Yee. 3 MS. STEEL: Just -- oh, okay. No, go ahead. 4 MS. YEE: Okay. 5 Uh, thank you, Mr. Chairman. 6 I, uh, first want to um, just, uh, thank you 7 Mr. Chairman for your leadership on this issue, and very 8 happy to see a bill address, uh, increase in the State's 9 capacities to combat the underground economy. 10 Um, I want to just be sure as we move forward 11 that -- I truly believe this agency has the capacity to 12 really take a leadership role. And, uh, I was a little 13 surprised to see, um, the Department of Justice, uh -- 14 and I know they -- they're going to house the processing 15 center, which makes sense with respect to its data 16 capacity. But the whole point of this centralized 17 partnership was really to, um, share information, to 18 really provide a coordinated effort where there would 19 be, um, I think a lead entity to essentially, um, do 20 triage and to be sure these leads are being addressed 21 appropriately by the, uh, right State agency. 22 Uh, I would just ask that moving forward that, 23 uh, certainly we continue to have the cooperative, uh, 24 discussions that we've been having with the other State 25 agencies, but not to lose sight that I believe that we 26 really have a strong capacity here at this organization, 27 at the Board of Equalization. 28 Um, we've had a history of working with many of 5 1 these other agencies. Uh, we have the investigative 2 capacity. Uh, I think we have a pretty good sense of 3 what's worked and what hasn't worked in the past, uh, 4 relative to this whole underground economy, uh, problem. 5 And, uh, I -- and I realize this is now legislation that 6 is somewhat out of our hands and is up the street. But, 7 uh, I just really would emphasize that we not lose sight 8 of what we can offer to, uh, further this -- this 9 effort. 10 MR. HORTON: Thank you. 11 Member Steel. 12 MS. STEEL: Just question that are we going to 13 get advisory members from each department, and then 14 there's a four people permanent positions that we are 15 asking? I -- I -- it was not really clear when I was 16 reading it, so -- 17 MS. SHEDD: Okay. There is no appropriation 18 or, uh, mandate in the bill. But I think what we are 19 thinking is that there would be five core staff that 20 would be, um, staff to all the participating agencies -- 21 MS. STEEL: Okay. 22 MS. SHEDD: -- that would run the intake 23 center. And then each of the nine participating 24 agencies would then lend two positions, investigative 25 positions, to the partnership on a loan basis. 26 MS. STEEL: So is it nine? So how many people 27 you talking about here? 28 MS. SHEDD: There's nine agencies. 6 1 MS. STEEL: Nine agencies. 2 MS. SHEDD: So that would be eighteen. 3 MS. STEEL: So two people each. So eighteen 4 plus five permanent positions. 5 MR. SILVA: Eighteen redirected from the 6 agencies. Two from each agency and then five core 7 staff. 8 MS. STEEL: So it's going to be 23 altogether? 9 MR. SILVA: That's correct. 10 MR. HORTON: And how many of them are on loan 11 to the agencies? Did they absorb any cost? 12 MR. SILVA: The, uh, concept was that each 13 agency would loan two, with the thought being that one 14 is always present in the intake center. 15 MS. STEEL: Okay. 16 MR. SILVA: So more of a rotational basis. 17 MR. HORTON: And the agencies are absorbing 18 that cost? 19 MR. SILVA: Yes. That's the concept. 20 MR. HORTON: Okay. 21 MS. STEEL: Okay. Thank you. 22 MR. HORTON: I concur with Member Yee relative 23 to the capacity, experience and background. The Board 24 of Equalization has the capacity. We have the 25 experience. And, as a result of going through this 26 process and interfacing all the different agencies, 27 we've also developed the -- the knowledge as to what the 28 capacity of each agency is now, uh, which is a very 7 1 important component of the initial investigation, 2 research, analysis and so forth, is to be able to 3 determine which department would be best suited in order 4 to address the particular issue at hand. Um, and as a 5 result of our investigation activity, as it relates to, 6 uh, cigarettes and a -- and a number of other issues 7 over the years, we've also developed the intellectual 8 and systemic structure capacity in order to deal with 9 this. Um, and so I think that would be very helpful. 10 We're one of a few offices that actually has 11 out-of-state capacity as well, with offices in New York, 12 Chicago and Texas and interfacing, uh, throughout the 13 state with various different -- different states and 14 governments which I think is -- will be extremely 15 important, uh, as we move forward. 16 So to the extent that, uh, it's involving an 17 investigation, the research, the analysis of the data, 18 development of the statistic strategy, it will be 19 well-suited to hear at the Board of Equalization, but at 20 the same time we want to be open and respectful of the 21 other agencies, um, as we go through this process and, 22 uh, sensitive to their financial challenges that they 23 have from a budgetary perspective and allocating 24 resources towards this. 25 We believe that -- or I believe that it will 26 create, uh -- uh, a additional workload for a number of 27 these agencies eventually, and they will need additional 28 staff in order to address that workload. Uh, and based 8 1 on the information provided by our economist, Robert 2 Ingenito, uh, we believe it will generate revenue from 3 the Board of Equalization, significant revenue from the 4 Board of Equalization, Franchise Tax Board, EDD and all 5 the different agencies. 6 I want to stress the, uh -- the, uh, 7 distinction between this and the other task force out 8 there. Many of our existing task forces are doing a 9 yeoman's job as it relates to labor violation and then 10 to the extent that there is a coordinating -- or I mean 11 a combining tax violation. Uh, this is for -- the focus 12 here should continue to be as it is; and that is tax 13 evasion. And tax evasion on the criminal side, uh, 14 where you have organized crime engaged in tax evasion 15 intentionally, not the fraudulent side or the regular 16 taxpayer side. So, when we have situations where 17 taxpayers have made human errors, um, then that's 18 something that's handled by normal, um -- um -- um -- 19 um, capacity of the agency. 20 And so as we go forward with these 21 investigations, we want to focus and make sure that 22 we're clear in articulating that our intent here is to 23 go after criminal, uh, tax evasion that is part of the 24 underground -- underground, uh, economy. 25 Thank you. I've got a slight cold so things 26 aren't processing. 27 Is that helpful? 28 MS. SHEDD: Mm-hmm. 9 1 MR. HORTON: Okay. Um, I think we can actually 2 come up with some legislation, some language that 3 distinguishes the two. The AG's office has a vital role 4 when it comes down to prosecution of these criminals. 5 And certainly that aspect of the -- of the, uh, Central 6 Intelligence Partnership should be controlled and 7 managed by her, as it would be constitutionally, I 8 believe. But we can bifurcate the two somehow in the 9 legislation. 10 What do you think, Ms. Shedd? 11 MS. SHEDD: Yes, I think that's a very good 12 idea. And we can certainly, you know, bring that up 13 when we have discussions with the participating 14 agencies. 15 MR. HORTON: I also want to say the author is 16 very -- uh, very, uh, supportive of the entire -- what 17 the entire Board wants to see. And so very receptive 18 and, uh -- uh, has indicated that he is supportive of 19 the thoughts of the entire Board and can't wait until we 20 finish finalizing the legislation so we can move it 21 forward. 22 Thank you. 23 MS. SHEDD: Thank you. 24 MR. HORTON: Um, Members, that concludes the 25 Legislative Committee. Thank you so very much for your 26 report today. 27 ---oOo--- 28 10 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 February 28, 2012 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 10 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: March 12, 2012 17 18 19 ____________________________ 20 KATHLEEN SKIDGEL, CSR #9039 21 Hearing Reporter 22 23 24 25 26 27 28 11