1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 REPORTER'S TRANSCRIPT 8 JANUARY 25, 2017 9 10 11 12 13 14 CUSTOMER SERVICES & ADMINISTRATIVE EFFICIENCY 15 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 of Equalization: Sen. George Runner (Ret.) 4 Chair 5 Fiona Ma, CPA Member 6 Diane L. Harkey 7 Member 8 Jerome E. Horton Member 9 Betty T. Yee 10 State Controller 11 Joann Richmond Chief 12 Board Proceedings Division 13 14 For Board of Equalization Staff: Mark DeSio 15 Deputy Director External Affairs 16 17 ---oOo--- 18 19 20 21 22 23 24 25 26 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 JANUARY 25, 2017 4 ---oOo--- 5 MS. MA: Controller Yee is here for the 6 item that we will call out of order. 7 MS. RICHMOND: Yes. 8 MS. MA: Yes. Okay. Ms. Richmond, please 9 announce the next item. 10 MS. RICHMOND: Our next item on the agenda 11 is Customer Service and Administrative Efficiency 12 Committee. Mr. Runner's the Chair of that 13 committee. 14 Mr. Runner. 15 MR. RUNNER: Um, thank you. And we will 16 call to order the, uh -- the Customer Service and 17 Administrative Efficiency Committee. This is a 18 discussion in regards to the, uh -- the outreach 19 plan. 20 And I think we have some staff that are 21 prepared to go ahead and start with the 22 presentation. 23 MR. DESIO: Yeah. Thank you, Chairman 24 Runner and Board Members. 25 Good morning. My name is Mark DeSio, and 26 I'm the Deputy Director of External Affairs. 27 For your consideration and approval today 28 is the Board of Equalization's Statewide Education 3 1 and Outreach Plan. 2 The Board of Equalization is committed to 3 helping all Californians understand and comply with 4 the state's tax laws. The Harris-Katz California 5 Taxpayers' Bill of Rights mandates that the BOE 6 "develop and implement a taxpayer education and 7 information program" which must, among other things, 8 reach out to newly registered taxpayers, including 9 mailings, written communication, small business 10 seminars, taxpayer educational materials, and 11 continuing education programs targeting common areas 12 of noncompliance and explaining tax compliance in 13 simplified terms. 14 One of our Strategic Management Plan goals 15 is to maximize voluntary compliance with 16 objective -- with the objective to enhance our 17 understanding of taxpayer needs and expectations and 18 continually improve our education and outreach 19 efforts to help taxpayers comply. 20 In previous years the Education and 21 Outreach Plan was presented on a calendar year. 22 This year and going forward, staff recommends 23 shifting to a fiscal year. The plan before you 24 today is intended to support agency-wide outreach 25 activities for the remainder of this fiscal year. 26 We intend to present the fiscal year 2017-18 plan to 27 the Board in May. 28 As the Board directed at its December 4 1 meeting, this plan includes an allocation of funds 2 for regional outreach activities. Staff recommends 3 an allocation not to exceed 800,000 for the 4 remainder of this fiscal year. This allocation is 5 based on historical trends and is intended to 6 support outreach activities such as printing, 7 postage, and venue costs. The allocation would be 8 managed by the External Affairs Department. 9 Additionally, this plan includes 10 information on innovative new solutions that focus 11 on serving the maximum number of people in the most 12 efficient manner and also documents the recent 13 Board-adopted policy on VITA outreach. 14 We plan to continue to look for additional 15 efficiencies and innovative new education and 16 outreach solutions. 17 With your approval, we will proceed with 18 the education outreach efforts planned for the 19 remainder of the fiscal year and bring the fiscal 20 year 2017-18 plan to the Board in May. 21 That concludes my presentation, and I'm 22 happy to answer any questions that you may have. 23 MR. RUNNER: Okay. Questions that we may 24 have. 25 MS. YEE: Comment. 26 MR. RUNNER: Member Yee. Controller Yee. 27 MS. YEE: Thank you, Mr. Chairman. 28 I, um, have a couple comments. One, I 5 1 first want to just say that I support this construct 2 of, um, having a, uh -- an allocation that would be 3 then divided among the, uh, Board Members for 4 priorities in their districts for education and 5 outreach. 6 I just wanted to speak a little bit about 7 the amount because, um -- so over the, uh, course of 8 the entire fiscal year, we're talking about 9 $1.6 million? 10 MR. DESIO: Correct. 11 MS. YEE: Okay. That's a lot of outreach 12 money. 13 MR. DESIO: It's comparable with, uh, the 14 past years. 15 MS. YEE: And what you included in this 16 was, uh, print, postage, travel, venue costs, other 17 related costs, uh -- and, uh -- 18 I mean I think part -- part of the 19 problem's that we haven't had the best tracking of 20 these costs. But, um -- but given that you 21 incorporated all those based on kind of past year, 22 did that include all of the VITA-related events as 23 well? 24 MR. DESIO: Uh, yes, it did. 25 MS. YEE: And why aren't we backing those 26 out pursuant to the discussion we had at the last 27 meeting? 28 MR. DESIO: Come again, please? 6 1 MS. YEE: So -- so, I guess we weren't 2 going to like have, uh -- each Member can prioritize 3 whether VITA is something they want to allocate 4 their -- a portion of their amount to, right? 5 MR. DESIO: Correct. 6 MS. YEE: So -- but as an agency, when 7 we're developing the overall budget for the Members, 8 why are we including the VITA in the overall cost? 9 MR. DESIO: Well, um, the VITA -- I see 10 your point. The VITA in the past was included in 11 our historical data. 12 Going forward, my understanding is that we 13 could also subsidize VITA if it's part of, say, a 14 business seminar, a business tax seminar, or a 15 business resource seminar, or an event that we're 16 already putting on. We could -- we could do posters 17 around that. We could, uh, do some advertising 18 around that, it's my understanding. 19 So you're right, the historical trend, um, 20 is going to be higher than going forward with VITA 21 costs. 22 MS. YEE: So I guess, Mr. Chairman, I would 23 like to see if we can bring this amount down. I 24 mean, this is Member prioritized outreach with this 25 allocation -- 26 MR. DESIO: Right. 27 MS. YEE: -- on top of what the agency 28 outreach would be. 7 1 MR. DESIO: Well, it's -- it -- yes. 2 MS. HARKEY: No. 3 MR. DESIO: It's -- 4 Yes, ma'am. 5 MR. RUNNER: No, go ahead. Go ahead and 6 answer the question. 7 MR. DESIO: Well, it will be allocated to 8 the External Affairs Department. And it's kind of 9 like what we do now in terms of we let quarterly, we 10 let the Members know what they're spending in terms 11 of postage, mailing for their events that they have. 12 We would like to track this allocation the 13 same way, except monthly. 14 MS. YEE: Mm-hmm. 15 MR. DESIO: Let Board Members know, you 16 know, you've spent X amount this month. 17 MR. RUNNER: Maybe just to clarify real 18 quick. I -- and, I don't know, maybe this is where 19 the question was. 20 MR. DESIO: Yeah. 21 MR. RUNNER: But this would include then 22 the business, um, small business seminars. 23 MR. DESIO: Yes. 24 MR. RUNNER: This would include the 25 nonprofit seminars. Which, again, I'm not sure if 26 Controller Yee sees those as Member specifically 27 driven or agency driven. 28 MS. YEE: I guess that's my question, is 8 1 that -- is this -- is this the full complement of 2 all outreach? 3 MR. DESIO: It is the full complement. 4 MS. YEE: Okay. So there's no additional 5 kind of outreach division costs. So this would be 6 the entire budget for outreach -- 7 MR. DESIO: Yes. 8 MS. YEE: -- for the division? Okay. 9 MR. DESIO: Yes. For the External Affairs 10 Division, yes. 11 MS. YEE: Right. Okay. All right. 12 Uh, so this budget then, the entire budget 13 would then be allocated to Members. 14 MR. DESIO: To External Affairs. 15 MS. YEE: To External Affairs for working 16 with Members. 17 MR. DESIO: Correct. 18 MS. YEE: Okay. So let's say if it is 19 800,000 for this half year -- 20 MR. DESIO: Yes. 21 MS. YEE: -- is it contemplated that that 22 allocation would be then for all outreach for that 23 six-month period that would then be driven by 24 Member's priorities? 25 MR. DESIO: Well, yes. But I would like to 26 say that working with me, I have outreach managers 27 in each division. 28 MS. YEE: Mm-hmm. 9 1 MR. DESIO: And they're called the outreach 2 leads. And so, for example, in Mr. Runner's 3 district we have James Barrett. And I -- and I can 4 list all of the different people. And I sit down 5 with them biweekly. And we develop at the beginning 6 of the calendar years, the way it has been, a 7 schedule of events that we're going to do. 8 And so we prioritize the things that the 9 Members want to do, the things that work well with 10 External Affairs. So that's how we set our 11 priorities, and that's how things are budgeted in 12 tandem with the -- with the Member offices. 13 MS. YEE: Okay. That makes sense. 14 MR. DESIO: Yeah. 15 MS. YEE: So two things I want to be sure 16 of -- 17 MR. DESIO: Yes. 18 MS. YEE: -- with this. So one, I 19 appreciate and want to give Members flexibility in 20 terms of prioritizing outreach needs in their 21 district; that makes sense to me. 22 What I don't want to discourage or kind of 23 get the agency down the path of is lacking 24 consistency in terms of how we do outreach -- 25 MR. DESIO: Right. 26 MS. YEE: -- from an agency-wide 27 perspective. And I also don't want to discourage 28 the development of more web-based and other flexible 10 1 tools for outreach. 2 MR. DESIO: Yes. 3 MS. YEE: And so I would hope that over the 4 course of the years to come this number goes down in 5 terms of actual event-related hard-mail-related type 6 of outreach. 7 And so I'd like to see some kind of 8 strategic, you know, direction about where this is 9 going and that we're not going to be approving a 10 $1.6 million allocation every year for the same. 11 MR. DESIO: Yes, ma'am. 12 MS. YEE: Okay. So that's -- 13 MR. RUNNER: Okay. 14 MS. YEE: -- my concern. 15 And then I would like to kind of entertain 16 potentially taking that 800,000 down. Because if 17 VITA was included in the overall mix of this and 18 we're gonna treat VITA a little bit differently in 19 terms of having Members fold that in to anything 20 else they're doing, I think it may warrant taking 21 this down by 200,000. 22 MR. RUNNER: Um, okay. Let me -- let me -- 23 real quick, let me just make some overall comments 24 in regards to the report in the committee in regards 25 to that. 26 I think -- I think it's very important for 27 us as a Board to move forward with some parameters. 28 I think we are under some appropriate scrutiny in 11 1 regards to these issues, and I think it's then, I 2 think, important for us to respond. 3 And, um -- and so I think it is -- I think 4 it is vital for us to have this discussion, give 5 some kind of parameters that we all then feel like 6 we can accomplish in that process. 7 I'm a little concerned about taking down 8 the number arbitrarily because, again, I -- I don't 9 know what percentage of those dollars were used for 10 VITA. I think -- and so I think what we do have 11 before us is the opportunity. And that is, since 12 this is a six-month opportunity, I think what we 13 have is the ability for us to go forward with this 14 kind of an issue and then come back then in, I 15 think, May; is that what I understand? 16 MR. DESIO: Yes, sir. 17 MR. RUNNER: Come back in May then with a 18 more definitive report as far as how these dollars 19 were spent and then can make a better decision in 20 regards to dollars going forward. So I think we can 21 accomplish that in that regard. 22 And indeed, if -- if indeed then as we know 23 the VITA dollars are not going to be then used as a 24 part of these discussions, then in theory those 25 dollars -- the $800,000 will be used less, and 26 therefore we'll have a more exact number going 27 future into the next year. So I think that that 28 accomplishes that. I'm just concerned about being 12 1 arbitrary in regards to the amount. 2 MS. YEE: Yeah. Mr. Chairman, if I may. 3 No, and I'm open to that. I guess what I would then 4 ask for is some way of -- and, uh, maybe -- May may 5 be too soon to get this. But, um, certainly how the 6 dollars were used. But it would be great to put 7 some sort of evaluation mechanism in place. 8 MR. RUNNER: I think -- I think the May 9 report should include as up-to-date use of this 10 current period as we could factually put together. 11 And I think -- and I think it would be easy because 12 at that point we may come to May, but we also though 13 know what the expenses are going to be for the rest 14 of the year, you know, through June because these 15 are all -- these are all budgeted items that are -- 16 that are planned. 17 So, even though things may not have taken 18 place in the month of June, we -- we will know what 19 the costs are going to be throughout the whole 20 six-month period, correct? 21 MR. DESIO: Correct. 22 MR. RUNNER: Okay. So I think -- and I 23 think that the report coming back in May needs to be 24 inclusive of that. 25 MR. DESIO: Yes. 26 MR. RUNNER: Okay. 27 MS. YEE: Okay. 28 MR. RUNNER: Okay. 13 1 Member Harkey. 2 MS. HARKEY: Um, I'm just a little bit 3 puzzled because I have never directed outreach. 4 We have, um -- it doesn't come from the 5 Member office. 6 MR. DESIO: Right. 7 MS. HARKEY: We may make suggestions as to 8 where we think we need to do some outreach, but 9 that's all done through the Department. We do not 10 have a Member budget. I don't budget these things. 11 We do for the Board-wide, we have a budget 12 for outreach. And that's Board budget. So I think 13 the events for every Member are already planned 14 through the year, which is why I would be kind of 15 opposed to VITA or no VITA, to cutting it now. 16 Because I think the IO staff and the outreach people 17 have already got their programs in place and we can 18 see 'em on the website -- 19 MR. DESIO: Correct. 20 MS. HARKEY: -- you know, what we're 21 having, when we're having it, and where we're having 22 it. 23 That being said, if -- you know, this 24 last -- this last two years we went into areas where 25 the Board had never been, into underserved areas. 26 We were heavy in Chula Vista, which the Board had 27 really never had outreach programs in, for some 28 reason, you know. And we were also -- we went into 14 1 El Centro. We went out to Riverside quite a bit. 2 We're trying to hit the areas where we have 3 a lot of small businesses. And because my district 4 had not really -- you know, I mean I think Orange 5 County had a lot of -- lot of events, but it was the 6 district -- the allocation of the district dollars 7 right now for -- for -- or the -- the outreach 8 dollars for the district have been throughout all 9 four of the counties on a regular basis. 10 So we kind of had a lot of catch-up to do. 11 And in those outreach programs, like I said, in 12 Chula Vista, in Poway, in those areas, we've had 300 13 people show up. They really want the information. 14 So I think we're doing a good service. And 15 I don't -- I don't -- but I did not direct that. We 16 said, you know, "Have we been to these areas?" 17 And the outreach staff, who reports through 18 Mr. DeSio, said, you know, "No, we can do that." 19 And so we -- that's how we organized it. 20 And I did not personally show up at all of those 21 events. I picked a few here and there when I was in 22 town, but I did not show up. 23 So I don't consider this a Board Member 24 budget. I'm not sure how we're gonna allocate that 25 because I don't direct the IO staff, I don't direct 26 the outreach staff. That's not what I do. They 27 are -- they report through the Board. They are 28 Board staff, um, not my staff. 15 1 And so, um -- and as for the VITA, I think 2 when we did VITA in our district what I saw about 3 the VITA outreach was predominantly done with the 4 use tax or other -- or put in with other -- other 5 programs. 6 Now, I know there's been some question as 7 to whether the staff is used or not. We thought 8 that staff was not used, you know, for, um -- was 9 not -- was not, uh, you know, taking their personal 10 time to do tax returns and whatnot, or taking their 11 BOE time to do tax returns. I'm not sure how all 12 that's worked out, but I think we've got that pretty 13 well squared away at the last meeting. 14 So I understand everybody's concerns here, 15 but what I want -- I think I need to stress, and I 16 want to stress particularly for the press that's 17 going to come out on this that we do not do 18 outreach. And I don't think there's any Board 19 Member up here that does the -- that does their own 20 outreach. I consider my own outreach to be my 21 campaign mail. But I don't consider it to be when 22 I -- when we have a small business seminar. 23 So, you know, that's Board business. 24 That's educational. When we have a nonprofit 25 seminar, that's Board business. 26 Um, and so, you know, other than my name 27 being up there as being a Board Member, it's not, 28 you know -- 16 1 So that's -- that's just the points I want 2 to make. I just want to be sure that there's a -- 3 there's a clear understanding as to who -- who 4 handles the events, who gets these events approved, 5 who goes through Legal. 6 I don't do that. I don't do any of that. 7 I don't approve the -- the posters. I don't approve 8 any of that stuff. So I just want everybody to know 9 that, that that's -- that's the fact. It really is 10 handled through the Board, through Mr. DeSio -- 11 Mark. 12 MR. DESIO: DeSio. Yeah, Mark's good. 13 MS. HARKEY: Mark's good. Through Mark and 14 his people in each of the districts who then have 15 their people out in the district. That's how we 16 handle it, so -- 17 MR. DESIO: And if I could just respond, 18 Ms. Harkey, just to be candid. I'm used to working 19 with budgets. And when I arrived, there was no 20 budget for External Affairs. So I'm trying to put 21 that in place. 22 MS. HARKEY: Okay, good. That's a goody, 23 and that's good what's come out of this. 24 MR. DESIO: Yeah. 25 MR. RUNNER: Member Horton. 26 MR. HORTON: Thank you, Chairman Runner. 27 Members, what might be helpful here is a -- 28 if the agency was to provide more of a historical 17 1 perspective on outreach. 2 I believe, if they were to do that, they 3 would find that, uh, prior to the district liaison 4 and the expansion of the outreach unit, that the 5 districts spend somewhere around -- in 2009 and 6 2008 -- $41 million in staff time in order to do the 7 basic sales and use tax classes, the electronic 8 filing classes. There are probably somewhere around 9 four different sets of classes. 10 We spearheaded the sales and use tax class 11 in district -- I don't know what the district number 12 at the time, but it was under the leadership of Matt 13 Fong, and it was continued through the rest of the 14 Members. 15 And so what the districts would do is they 16 would conduct, on a monthly basis, sales and use tax 17 workshops for new permittees. Those workshops would 18 include an entire marketing program. They would 19 include staff dedicated to developing the -- 20 developing, planning, and presenting the marketing 21 program. And they would do it on a monthly basis. 22 So if you were to take a district similar 23 to District 3, what you would find would be is that 24 the districts are conducting, let's say on average, 25 three classes a month. That's 36 classes per 26 district, a month, including advertising, outreach 27 and so forth. This is just your basic sales and use 28 tax class, your new permittee class, and electronic 18 1 filing and so forth. 2 Um, and if you had five districts, that 3 would be somewhere around 180 classes in the 4 districts. And the cost was quite high back in -- 5 in those period of times when that was occurring. 6 The Board, historically -- and the other 7 historical data that I think might be important for 8 the agency to verify and to report out is the -- the 9 budget associated with marketing and outreach and 10 education prior to electronic filing. 11 Prior to electronic filing, we would send 12 out permits, returns, to every taxpayer; 1.3 million 13 on the average would receive a document. They would 14 also receive notice of changes in the law. They 15 would receive notice of changes in policy and so 16 forth. And that information was expensive and was 17 reinforced, uh, by classes that would take place 18 that I mentioned before, which in 2008 was somewhere 19 around $41 million as opposed to what we're looking 20 at here. And the -- the marketing and outreach was 21 almost 300 times more than what's currently 22 occurring. 23 With the implement of the district liaison 24 program and the awareness that electronic filing 25 took place, the Board had to make a decision how do 26 we continue to educate our constituencies about the 27 32 different tax and fee programs that we administer 28 and the various different requirements that the 19 1 Legislature had placed on the Board pursuant to the 2 BCPs. Which is another area I would encourage the 3 Department to take a look at, is to reconcile the 4 outreach to the Budget Change Proposals that we put 5 forth to the Legislature. 6 Most recently the Legislature's allocated 7 $5.3 million for outreach in the medical marijuana 8 and marijuana field, $5.3 million. And this budget 9 doesn't necessarily reflect those efforts. 10 And so there are some seven or eight BCPs. 11 Well, we've told the Legislature that we're using 12 these positions and we're using these funds to do 13 education and outreach. And so whatever we put 14 forth as a budget, I think there's a level of wisdom 15 being cons- -- that that should be consistent with 16 what we've told the Legislature in that regard. 17 The new marketing strategy, if you will, 18 accomplished a couple things. One, instead of doing 19 180 to 260 different workshops, the districts now do 20 16. Instead of having on an annual basis where you 21 would have somewhere around 4600 people attend these 22 workshops, you could now have up to 3500 people 23 actually register for one workshop because the Board 24 of Equalization adopted what I thought was a wise 25 strategy, was to enhance the product to such a way 26 that the consumers would be interested, more 27 interested in participating. Providing them 28 information not only on the Board of Equalization, 20 1 but the Franchise Tax Board, Employment Development 2 Department, Insurance Department and so forth is 3 what these seminars currently do. And so using the 4 economy of scale, we were able to actually reduce 5 the cost. 6 The other historical data that we might 7 want to present to the Board and accumulate is the 8 cost of facilities. During that time, prior to my 9 arrival and soon after, but it stopped, the agency 10 would actually use hotels in order to conduct 11 these -- some of the conferences. A conference was 12 conducted at the Long Beach sports arena and so 13 forth, which was relatively expensive. The agency 14 entered into an agreement with the Legislature and 15 the state and others to use state facilities, which 16 significantly reduced the cost of presenting 17 education and outreach. 18 And the other thing that I think the agency 19 did that was a lot of wisdom in it was in their 20 marketing they also included an educational 21 component. So the individual that received the 22 information would be educated about much more than 23 just coming to the event; i.e. the VITA initiative 24 educates the taxpayer about use tax which is due, 25 educates the taxpayer about the sales and property 26 tax exemption, which based on historical data 27 given -- presuming a hundred percent compliance, the 28 VITA program currently prepares tax returns in the 21 1 state of California for somewhere around 2 280-plus-thousand individuals. Of which previously 3 they were not necessarily reporting their use tax. 4 But if they were to be educated about use 5 tax, presuming a hundred percent compliance, you're 6 talking about generating $3 million additional 7 revenue for the state of California just on use tax 8 alone. And the cost associated with that, and 9 particularly in District 3 as far as the mailing is 10 concerned, and I can't recall, but I think it was 11 like 30,000 or 40,000. I don't know what the number 12 is. But the benefit from it is huge. 13 And I think the inherent challenge as far 14 as the public's concerned is that we're not giving 15 the public all of the information, making it as 16 transparent as possible. 17 With all of this in mind, I really don't 18 believe any funds should be allocated to the 19 Members. I don't think the Members ought to have 20 any control over these budgets whatsoever. 21 MS. HARKEY: No. 22 MR. HORTON: None. I think that we should 23 establish a process by -- and I believe the process 24 is in place, but obviously there are some that 25 don't. But a process that says, let's determine 26 if -- if this meets -- whatever you're doing, if it 27 meets the requirements, the legal requirements in 28 order to do it. 22 1 Is there a governmental purpose? Is it 2 consistent with our mission? Is there a return on 3 the investment? If we do that, our people 4 attending, which is an indication of the desire and 5 the need. And what you will find is the new way 6 of -- the way the Board has been doing over the last 7 three years, as far as marketing, the attendance has 8 increased almost 300 percent, as opposed to the 9 business and use tax classes where you would have 15 10 to maybe 50 people attend. Now the sales and use 11 tax classes, you got anywhere from a hundred to 12 three to 400 people attending. 13 So it's actually more efficient and 14 effective and that the agency should be making this 15 decision, you know, through the office, the outreach 16 element, reviewed by Legal and approved by the 17 Executive Director on the basic legal parameters as 18 to whether or not it meets all the criteria 19 necessary. 20 And we as a Board should set those 21 policies, give that direction, which I believe we've 22 already done. I mean I don't believe that -- I 23 believe that every -- at least all of the classes 24 that I've seen, the outreach that I've seen has a 25 direct tie to the agency, there is a legal 26 assessment that says it meets all the legal 27 requirements, and all of the allocations has been 28 approved by the Executive Director or his designee, 23 1 which might even be go down to the district 2 administrator who actually makes these decisions. 3 The presumption that Board Members are 4 making the decisions, you know, the Board Members 5 have a policy oversight influence, you know. And so 6 that's where the restriction needs to be placed, in 7 my opinion. 8 And so I don't -- I mean 800,000, I don't 9 know. I don't think -- I don't think the work has 10 been done in order to -- in order to justify one 11 number or another. I don't think the criteria has 12 been set in order to have the internal controls and 13 the transparencies necessary in order to assure the 14 public that this is legal, that these events are 15 within certain requirements and that they meet 16 certain conditions. And I think that's where the 17 agency -- the Board, as the policy makers should 18 go. 19 Now I could run off quite a bit of more 20 history on this stuff as to the costs associated 21 with it. Some of it we're currently still doing, so 22 I agree with the Controller; there needs be to 23 continuity and consistency because I believe the 24 Taxpayers' Bill of Rights requires that. Requires 25 that at some level there is some consistency in what 26 we're telling our constituency and the benefit of 27 the education that we're providing to the 28 constituencies should be somewhat consistent 24 1 throughout the Board. 2 And I believe that has -- has occurred 3 through evolution because every -- every district 4 does the basic sales and use tax classes. Every 5 district does the nonprofit classes. Every 6 district -- there's certain components that are just 7 district-wide, state-wide-type activities. 8 Some business resource seminars may be 9 bigger than others, may provide more of a variety 10 than others. But the basic fundamental premise and 11 the foundational lesson that is taught, or 12 encouraged if you will, is compliance with the sales 13 and use tax laws and the other laws of the state of 14 California. 15 Let me just close, because I -- I'm just 16 basically saying we need to do the homework in order 17 to provide the historical perspective and all of the 18 facts so that people can make a decision about this. 19 Um, and the other thing that I think we 20 might want to consider as an agency is we may want 21 to consider reaching out to the Franchise Tax Board, 22 EDD, the Insurance Commission, Internal Revenue, who 23 all partner with the Board of Equalization at these 24 events and maybe entering into an MOU. Because even 25 though there are -- an extreme amount of 26 efficiencies in what we currently do, in my mind, 27 uh, maybe they need to -- because they participate 28 and they benefit as well. Or, we discontinue and we 25 1 begin to educate them. 2 The -- the policy decision, at least the 3 policy decision as I see, is that the Board of 4 Equalization administers $61 billion in tax and 5 revenue, of which 97-plus percent is self-reported. 6 And why does that occur? Well, it occurs for all 7 the other reasons that things occur; you got 8 enforcement and you have education. 9 You take away education, well, there's a 10 question as to whether or not the self-compliance is 11 going to occur. 12 We have almost -- I don't know the number, 13 but there's like a hundred thousand, 500,000 new 14 permittees, opening up and operating every year, who 15 just have to be educated. If you looked at just the 16 new permittees that are being educated, opening up 17 over the next six months, you're almost talking 18 about $2 in education per, uh -- per new permittee. 19 I don't know what these numbers are. I do 20 know that there should be a process by which we take 21 a look at all the data, and this should be a Board 22 outreach plan, a statewide outreach plan, that's 23 been approved by Legal, signed off by the 24 administration. The Board looks at it from a policy 25 perspective. 26 MR. RUNNER: Let me -- 27 Thank you. 28 Let me just a couple of quick observations. 26 1 Um, you know, I -- I -- I get the idea that it 2 should be a Board -- you know, that -- that -- 3 that -- that, um, outreach is generally, in general, 4 Board driven, uh, and -- and I get that. And 5 hopefully it is. 6 But the reality is, is that we have unique 7 Board Members who choose to reach out to their 8 districts differently. Um, I'll give you an 9 example. 10 I have a very big district. I choose to do 11 mail. I did a mail dealing with seniors on tax 12 issues, property tax and some -- and some -- and 13 some other tax issues dealing with other tax that we 14 deal with. I did a big mail. I got 40,000 15 responses from it. So I chose to reach out to 16 people in that way, unique to my district, um, and 17 I'm fine with that. 18 And I -- but I chose not to do other 19 things. Other Members have chosen to do specific 20 seminar, you know, like a port seminar or, you know, 21 touching women with power. Whatever those are, they 22 chose to do that as their unique outreaches. 23 I think that's good because it gives each 24 Member the unique ability for us to respond to our 25 constituents how we think we need to do. 26 On the other side of that, I do think we 27 need parameters. I get the idea we want to be 28 legal. Hopefully everything we do is legal. But 27 1 there is a finite amount of money out there. And so 2 just the idea of just getting -- being legal doesn't 3 necessarily mean that we should be able to just then 4 just do it. 5 So I -- I -- I believe, at least this is a 6 first attempt to put some -- put some parameters 7 together. I think it is an important time for us to 8 do that. I think it is -- I think I especially then 9 feel like the six-month issue is good because then 10 it gives us a really short time to come back and 11 evaluate in order to see if we're going down the 12 right track. 13 So, I -- I -- I do believe that there is 14 place for us to each be accountable to each other 15 and to the organization and -- and take 16 responsibility there. 17 So, again, I -- and, again, I can -- I mean 18 maybe other Members do it differently. But, you 19 know, when -- when I say I think I need a seminar in 20 Big Bear because we don't go there, that's me 21 directing. I'm involved with that. Now I'm 22 involved with it because I think it's the right 23 place to go because my constituents, I believe, need 24 to be touched there. So I -- I am engaged in that 25 process of helping help direct priorities in that 26 way; and I think it's appropriate. 27 So I'm very comfortable, again, with this 28 as a -- as a -- as a first start, as a guideline. I 28 1 think we need to find an amount of money. I don't 2 know if this is the exact one. I think the way it 3 was done was at least reasonable, looking back at 4 the past and coming up with that number. So I think 5 there's some -- it wasn't just brought out of the 6 air. There's some reasonableness as to how it was 7 done. 8 So, I would hate for us not to take action. 9 MR. HORTON: Well -- 10 MR. RUNNER: And that would be my point. I 11 think -- 12 Go ahead, then Member Yee. 13 MR. HORTON: Just a point of clarification. 14 Let me be clear. Uh, I, too, acknowledge the 15 uniqueness in the various different districts. And 16 I think that the Members' input should be part of 17 that process. 18 Certainly not the dominant factor. It's 19 not "you have to do it" and so forth. But it's part 20 of the process. 21 The Members -- and I concur, uh, with the 22 efforts of Member Runner because of his geographical 23 district is so broad which requires -- which creates 24 a different dynamic as it relates to being able to 25 gather people together. And so -- and have been 26 supportive of that. 27 But that is, to the extent that we are 28 providing our advice, to the extent that we are 29 1 providing our input, as with the constituents in 2 mind, uh, I think that's a huge, huge value to do 3 that. 4 Uh, the, uh -- what the dollar amount 5 should do -- should be, I quite honestly don't know. 6 I think that's a determinative factor based on, 7 uh -- based on what we've told the Legislature we're 8 gonna spend outreach and education funds on. 9 Because, you know, I plan on doing some marijuana 10 outreach and education that's not necessarily listed 11 in this six-month period of time, and maybe some use 12 tax and some other stuff that is part of the BCPs. 13 I -- I -- I -- I'm supportive of it. I 14 don't want the Members to believe that, one, this is 15 not a start, but I believe it's just more of a 16 process that needs to be established; two, that the 17 Members are not involved in providing advice and 18 input and direction. We should be involved. 19 We're elected officials that represent nine 20 million individuals, more than 21 different 21 senators, and whose -- you know, whose outreach and 22 education effort of any other statewide agency 23 that's in this process, it's just different but the 24 amount is still there. 25 So, uh, it's a process that I'm 26 recommending that says -- has our input. And then 27 based on that input of the Members -- if I may, 28 Mr. Runner, just use your example, not to point it 30 1 out -- Big Bear, uh -- in my case, what's that 2 island, channel island? 3 MR. RUNNER: Mm-hmm. 4 MR. HORTON: I need to go and do 5 something there. 6 MR. RUNNER: Catalina. 7 MR. HORTON: I haven't. But I recommend 8 it, and here's the basis for it. I've got 9 constituent complaints, constituent inquiries. I've 10 got X number of taxpayers over there. I've got new 11 permittees. It goes through this process. 12 And this is what currently happens. I call 13 up the Department, make my recommendation. 14 Department goes to Legal. Legal makes an 15 assessment: It's within governmental purpose; you 16 know, it meets the core values of the agency. Goes 17 to the Executive Director. 18 In fact, the Executive Director recently 19 called and said, "Hey, Horton, there's a outreach 20 effort in your district that is X amount. What do 21 you -- what do you think?" 22 I said, "I think it's too high." 23 He said, "Well, I think it's too high, too, 24 and I'm going to reject it." 25 Well, he should have that prerogative 26 because we've -- we've given him that authority. 27 So let me -- so that's -- I'm okay with 28 starting somewhere, but I'm just -- I'm just 31 1 suggesting that staff goes back and do the research. 2 Because at some point someone other than the Board 3 of Equalization is going to take a more in-depth 4 look at these business sales and use tax classes and 5 you'll find that a lot of hours are allocated to 6 those, a lot of time is allocated to that. 7 And so -- and then there's outreach 8 associated to that, that's not included in the 9 budget. Someone's going to take a look at the BCPs. 10 Well, we've told the Department of Finance that 11 we're going to do -- we're going to do some outreach 12 and education in this area and it's not included in 13 your outreach and education budget, so where did 14 that money go? What'd you do with that staff? 15 And that whole reconciliation is going to 16 take place at some point. And I'm just saying that 17 this is a limited presentation to what the reality 18 is and we ought to allow staff the time -- 19 MR. RUNNER: Mm-hmm. 20 MR. HORTON: -- to go back and do their due 21 diligence to make that presentation, not only to the 22 Board but also to the public. 23 MR. RUNNER: Controller Yee. 24 MS. YEE: Thank you, Mr. Chairman. 25 First of all, I agree with you. I think we 26 need some parameters established. And, uh -- I mean 27 from my perspective, I think this construct is 28 essential to be able to track our costs. I mean 32 1 it's been a problem. It's the subject of an audit. 2 And I sure would like to think that this agency is 3 the most accountable for taxpayer dollars. So I 4 really think having this construct is essential. 5 Uh, practically speaking, I think Members 6 do drive the outreach. I mean, you can't say that 7 you don't. You know the needs in your district. 8 You know where we need to be to educate taxpayers. 9 And Ms. Harkey just identifying where 10 they've been underserved, that's -- I applaud you 11 for putting your priority there because we need to 12 touch them. But you're identifying that for the 13 outreach staff, and I do think Members have a better 14 pulse on where in their districts outreach may be 15 the most effective. 16 So I like the idea of having the 17 allocation. It's something that can be easily 18 tracked. It, frankly, forces us to prioritize. I 19 mean I don't get any of this, but it forces my 20 colleagues to prioritize. And I think there's just 21 a better accountability all around with respect to 22 use of those dollars. 23 Now, Mr. Horton raises some interesting 24 points about other strategies that could be used and 25 I hope this is part of the whole evaluation of the 26 effectiveness of what we're pursuing relative to 27 outreach over time and we build that into the 28 evaluation. 33 1 Are there better partnerships in which we 2 can accomplish outreach? Are there new tools that 3 need to be developed? 4 Uh, we're not going to be able to get away 5 from, I think, hard mail because several of the 6 Members do represent remote areas of the state. So, 7 you know, part of the evaluation is looking at how 8 do we do this better going forward? But we have to 9 be able to be accountable for every dollar that we 10 spend on outreach. 11 And practically speaking, if we don't have 12 an allocation per Member, um, and leave it up to the 13 agency, you're all going to be directing the 14 outreach staff in some way, whether it's just to 15 identify an area where something may be needed and 16 it puts the priority then back on the staff, which I 17 think is how we got into this debacle in the first 18 place. 19 Um, so I think we need some parameters. 20 They're well defined here. It's not to say this is 21 what sticks in perpetuity, but it's a start. And, 22 um, I do hope that the evaluation can be robust in 23 terms of really getting some metrics around 24 effectiveness. 25 Attendance is a measure, but I'm not sure 26 it's a measure of effectiveness. And, frankly, 27 effectiveness is more long-term relative to 28 compliance. And, um -- and I like the idea, because 34 1 we used to do this, of bringing in other tax 2 agencies and kind of doing a one-stop-shop where in 3 some areas it might be, you know, a good idea to 4 have them all -- all the agencies represented, and 5 to provide education. 6 So, all kinds of options, but I think, 7 first and foremost, how are we going to be 8 accountable for our outreach activities and the 9 dollars associated with them? And, uh, I'm only 10 suggesting that we do an even allocation short of 11 being able to really hear on the dais, on the spot, 12 identifying priorities in each district. But maybe 13 through the evaluation process that can be informed 14 as well going forward. 15 MR. RUNNER: Is there a motion in there? 16 MS. YEE: That is a motion. I do move 17 the -- that we, um -- I guess it's a staff 18 recommendation. Right? And, uh, with a report back 19 in May on the effectiveness. 20 MR. RUNNER: Okay. Is there a second? 21 MS. HARKEY: I -- I -- 22 MR. HORTON: I would second that, uh, Madam 23 Controller. But would also ask that the 24 comprehensive report come back to the agency so that 25 the agency has as much information as it can 26 possibly have in order to be able to develop a 27 comprehensive outreach that is -- encompasses of the 28 variables that I put forth. 35 1 MR. RUNNER: Okay. And that will be the 2 intent as we -- our committee works with this to 3 bring it back in May, that will be the intent of the 4 committee. 5 Okay. There's a motion and a second. 6 Member Harkey. 7 MS. HARKEY: I would just like to say one 8 thing. I have no problem with allocating on a 9 district, but I really hesitate to have it be Board 10 Member Harkey's budget because I do not control it. 11 MS. YEE: It's not a Board budget, Board 12 Member budget. 13 MS. HARKEY: So if it's -- if it's -- I 14 have here in the thing a "Member budget." I would 15 like to see a "district budget," if that's how we 16 want to do it, rather than a "Member budget" because 17 I don't control the funds. 18 And, as you said, David called you, you 19 asked -- I mean this is all done without me. 20 MR. RUNNER: Mm-hmm. 21 MS. HARKEY: I merely go -- my staff is out 22 in the district, and they go, "Well, why don't we go 23 down here and why don't we go there?" And that's 24 the extent of our involvement. 25 MR. RUNNER: Yeah. 26 MS. HARKEY: And if they have the budget 27 for it, then they can -- they can facilitate it. 28 MR. RUNNER: I think that's a good point. 36 1 And I think in future -- in reference to it and in 2 the plan itself, if we can refer to it as a district 3 allocation. 4 MS. YEE: District allocation. 5 MR. DESIO: Yes, Mr. Chair. 6 MS. HARKEY: Yes. 7 MR. RUNNER: Okay. Okay. 8 MS. HARKEY: That would make me very 9 happy. 10 MR. RUNNER: Okay. 11 MS. YEE: That's fine. 12 MR. RUNNER: Other discussion? 13 Okay. Any objection? 14 MR. HORTON: Rule. The motion -- 15 MR. RUNNER: The motion has been seconded, 16 right? 17 MR. HORTON: And ruled. 18 MS. RICHMOND: Yes. 19 MR. RUNNER: Okay. 20 MS. HARKEY: And with the -- 21 MR. RUNNER: -- the action. 22 All in favor -- all in favor of the motion? 23 Any objection? 24 MS. HARKEY: No. 25 MR. RUNNER: Okay. Motion carries. 26 Thank you. Thank you. 27 Okay. I'll turn this back over -- oh, we 28 will now adjourn this committee and turn it back 37 1 over to the Chair. 2 ---oOo--- 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 38 1 REPORTER'S CERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, Kathleen Skidgel, Hearing Reporter for 8 the California State Board of Equalization certify 9 that on January 25, 2017 I recorded verbatim, in 10 shorthand, to the best of my ability, the 11 proceedings in the above-entitled hearing; that I 12 transcribed the shorthand writing into typewriting; 13 and that the preceding pages 1 through 38 constitute 14 a complete and accurate transcription of the 15 shorthand writing. 16 17 Dated: February 8, 2017 18 19 20 ____________________________ 21 KATHLEEN SKIDGEL, CSR #9039 22 Hearing Reporter 23 24 25 26 27 28 39