1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 REPORTER'S TRANSCRIPT 8 SEPTEMBER 12, 2012 9 10 SPECIAL PRESENTATION 11 DEPARTMENT OF FINANCE 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Reported by: Juli Price Jackson 27 No. CSR 5214 28 1 1 P R E S E N T 2 3 For the Board Jerome E. Horton of Equalization: Chairman 4 5 Michelle Steel Vice-Chairwoman 6 7 Betty T. Yee Member 8 9 George Runner Member 10 11 Marcy Jo Mandel Appearing for John 12 Chiang, State Controller (per 13 Government Code Section 7.9) 14 15 Joann Richmond Chief, Board 16 Proceedings Division 17 Randy Ferris Chief Counsel 18 19 20 ---oOo--- 21 22 23 24 25 26 27 28 2 1 INDEX OF SPEAKERS 2 3 Name Page 4 Chris Hill 5 Department of Finance 4 6 7 Iris Yang, Attorney 8 City of Apple Valley 8 9 10 ---o0o--- 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 3 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 SEPTEMBER 12, 2012 4 ---oOo--- 5 MR. HORTON: Good morning, Members. Let us 6 call the meeting of the Board of Equalization to order. 7 Ms. Richmond, what is our first item? 8 MS. RICHMOND: Good morning, Mr. Chairman and 9 Members. The first item on today's agenda is a special 10 presentation. We have a report from Chris Hill, who is 11 with the Department of Finance. 12 MR. FERRIS: Good morning, Members. Randy 13 Ferris, Chief Counsel. 14 I'm here with Chris Hill from the Department of 15 Finance's Local Government Unit. And he's here to give 16 a presentation on AB 1484 and certain potential 17 administerial obligations that the Board of Equalization 18 may have with respect to the local tax distributions. 19 MR. HORTON: Thank you very much, Mr. Ferris. 20 Welcome, Chris -- Mr. Hill, we appreciate your 21 attendance here today and the information that you will 22 share. 23 ---o0o--- 24 CHRIS HILL 25 DEPARTMENT OF FINANCE 26 ---o0o--- 27 MR. HILL: Good morning, thank you. Chris 28 Hill, Department of Finance. 4 1 Assembly bill 1484 was passed subsequent to the 2 legislation which eliminated redevelopment agencies. 3 And one of the things that AB 1484 does is that -- it 4 has two mechanisms are that of particular import to the 5 Board of Equalization. 6 The first one regards what we call the July 7 true-up payment. And these were payments that were due 8 last -- two months ago. And, essentially, a very high 9 level description of it, these payments were intended to 10 recapture from the successor agencies to the former 11 redevelopment agencies monies that were owed to cities, 12 counties, schools and special districts for the first 13 six months of the 2012 calendar year. 14 And the calculations were performed by the 15 County Auditor Controllers, using numbers provided by 16 the Department of Finance in terms of the authorized 17 expenditures that successor agencies were allowed to 18 spend for that period. And then the County Auditor 19 Controllers calculated how much the successor agencies 20 owed and sent them a bill. 21 And to the extent that a successor agency 22 didn't pay the billed amount, AB 1484 stipulates the 23 Department of Finance can request that the Board of 24 Equalization withhold sales and use tax distributions 25 from the city that operates the successor agency in an 26 amount equal to the amount that's owed to the cities, 27 counties, schools and special districts. 28 And all that to say that we had 27 successor 5 1 agencies that failed to remit the appropriate amount. 2 And we worked with them and we came to a resolution with 3 26 of them where we accepted less than the amount that 4 was calculated by the Auditor Controller on account of 5 various -- various -- they basically presented their 6 fiscal books and said, "We have insufficient money to 7 pay the bill amount." And that convinced us that we 8 would accept an amount less than what was owed. 9 There is one city, however, the City of Apple 10 Valley, where we have yet to come to a successful 11 conclusion. We're still working with them. 12 But it's possible that, beginning in November, 13 that the Department of Finance could request that sales 14 and use tax be withheld from the City of Apple Valley. 15 And also we are in litigation with the -- with Apple 16 Valley, as well. 17 The other mechanism in AB 1484 that impacts the 18 Board of Equalization is that AB 1484 requires the 19 successor agencies to remit the unencumbered cash 20 balances of the former redevelopment agencies to the 21 County Auditor Controller for distribution to the 22 affected taxing entities. 23 To the extent that a successor agency does not 24 comply with this, the Department of Finance can request 25 that the Board of Equalization withhold an amount equal 26 to what the County Auditor Controller -- equal to what 27 the audit has determined that the successor agency owes 28 to the affected taxing entities. 6 1 This wouldn't come into effect until probably 2 next year. So, this is something that's a little 3 farther down the horizon, but we just wanted to mention 4 that as well because it also impacts the Board of 5 Equalization. 6 MR. HORTON: Thank you very much. Discussion, 7 Members? 8 Member Runner. 9 MR. RUNNER: I was contacted -- or know that -- 10 I think Apple Valley was going to be here. 11 Is there somebody representing Apple Valley? 12 Can I -- 'cause my understanding that it -- that there 13 was a court decision that was made -- did I -- in last 14 the week or so in regards to that particular issue? 15 MR. HORTON: One second, Mr. Runner. 16 Can we ask the representative from Apple Valley 17 to come forward as a potential witness? 18 MR. RUNNER: Just to clarify -- 'cause here -- 19 what I'm concerned about then is -- is if we get in 20 between, for instance, a request from the Department of 21 Finance, at the same time there may have been a court 22 decision in regards to a stay or some -- something that 23 may kind of be in there. 24 So, I'm kind of wondering what the mechanics of 25 that are. I don't have a lot of the detail. I just 26 know that -- that this is an issue that at least is 27 bubbling out there. 28 MR. HILL: Sorry. I'm am not aware of the 7 1 current status of the litigation. 2 If there were a court order enjoining us from 3 exercising the sales and use tax withhold, then we would 4 certainly obey that court order. 5 But I'm not aware that one has been issued to 6 date. 7 MR. RUNNER: Let me -- is there an update that 8 we would have? 9 ---o0o--- 10 IRIS YANG 11 ---o0o--- 12 MS. YANG: Yes, thank you very much for 13 allowing me to speak. I'm Iris Yang with the law firm 14 of Best Best & Krieger, just down the street. 15 We represented the town of Apple Valley. We 16 sought and received a preliminary injunction from a 17 Superior Court judge in Sacramento enjoining the 18 Department of Finance from seeking any penalties against 19 Apple Valley. 20 We have been in some discussions. I'm 21 surprised that Mr. Hill says he's not aware of the 22 outcome of the litigation or, at least -- or the status 23 of the current preliminary injunction. 24 We -- the town of Apple Valley received a 25 letter prior to the issuance of the court's order 26 requesting that the town make the true-up payment within 27 thirty days or possibly face withholding of its sales 28 tax. 8 1 On August 31st the court issued its minute 2 order granting the preliminary injunction in full. I 3 have copies of the court's decision deposit if you would 4 like to have them. 5 I have -- the Deputy Attorney General who 6 represented the Department of Finance in the litigation 7 certainly is aware of the court's order. She signed a 8 stipulation agreeing to the form of the order. 9 The General Counsel of the D. O. F. is 10 certainly aware of this order as well. 11 So, I think this is one of the problems that 12 we've had with the Department of Finance is that there 13 are people within the Department who are not fully aware 14 of what is going on. I know it's a complicated area. 15 There are a lot of issues to deal with. 16 But, in any event, a preliminary injunction has 17 been issued against the Department of Finance. 18 MR. RUNNER: My only concern in the midst of 19 that, since we are kind of -- only have a -- we have -- 20 I guess you would think of an administerial role in the 21 legislation to just withhold. 22 Actually, I think we do more than withhold, I 23 think we actually withhold and send it somewhere, don't 24 we? 25 MR. HILL: That comes under the ladder 26 mechanisms that would come into effect next year, after 27 the due diligence review audits are performed. 28 And there could be a mechanism for distributing 9 1 to the effect a taxing entity's amount of sales and use 2 tax equal to the amount that the audits -- 3 MR. RUNNER: So, at this point, the request 4 that we may get from Finance would be to what? 5 MR. HILL: To basically just hold -- just hold 6 the sales and use tax until such time as the amount that 7 has been calculated by the Auditor Controller is paid. 8 MR. RUNNER: And I guess what I would be 9 concerned about if we caught in between and, hopefully, 10 you all are communicating -- because I would hate for us 11 to be in a position where we're -- where we're 12 withholding, you know, a sales tax that's due to -- to a 13 city and there's already -- and there's an injunction. 14 MR. HILL: No, we certainly -- we certainly 15 would not -- 16 MR. RUNNER: Okay. 17 MR. HILL: -- proceed if there were a court 18 order. 19 MR. RUNNER: Okay. 20 MR. HILL: And that order just hadn't come down 21 to the unit level yet. 22 MR. RUNNER: Okay, okay. So, and I -- and I 23 guess -- I guess I would ask for our folks that -- our 24 Chief Counsel to insure that before we take that step 25 that we have -- we've actually then explored to make 26 sure that something hasn't come down to your unit by the 27 time it -- it ends up happening. 28 MR. FERRIS: Absolutely. And the Board of 10 1 Equalization, to my knowledge, was not named in the 2 Apple Valley proceeding. 3 MS. YANG: That's correct. 4 MR. RUNNER: So, therefore, we're not -- 5 that -- for that reason, we don't have notification, 6 right? 7 MR. FERRIS: Correct. 8 MR. RUNNER: So, we depend on these other folks 9 to notify us. 10 Okay, thank you. 11 MR. HORTON: Member Yee. 12 MS. YEE: No. I just had my question answered 13 about Finance's response to the injunction. 14 That's fine. 15 MR. HORTON: Okay. Well, Mr. Hill, thank you 16 very much for appearing before us as well as Miss Yang 17 from Apple Valley. We certainly appreciate that. 18 From the Board of Equalization's perspective, I 19 think we all agree with Mr. Runner that we should be 20 participating partners in the process. 21 And it appears that everyone came to the table 22 in agreement to -- in full cooperation in that regard. 23 So, I don't think the Board has any other 24 issue, given our administrative function in this 25 process, and look forward to working with all parties to 26 facilitate the objective of the legislation. 27 MR. HILL: Thank you. 28 MS. YANG: Thank you very much. 11 1 REPORTER'S CERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, JULI PRICE JACKSON, Hearing Reporter for the 8 California State Board of Equalization certify that on 9 SEPTEMBER 12, 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 11 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: October 15, 2012 17 18 19 ____________________________ 20 JULI PRICE JACKSON 21 Hearing Reporter 22 23 24 25 26 27 28 12