1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 MAY 23, 2017 10 11 12 ITEM P 13 OTHER ADMINISTRATIVE MATTERS 14 ITEM P1 15 EXECUTIVE DIRECTOR'S REPORT 16 1. ORGANIZATIONAL UPDATE 17 18 19 20 21 22 23 24 25 REPORTED BY: Jillian Sumner 26 CSR NO. 13619 27 Kathleen Skidgel 28 CSR NO. 9039 1 1 P R E S E N T 2 For the Board of Equalization: Diane L. Harkey 3 Chair 4 Sen. George Runner (Ret.) Member 5 Jerome E. Horton 6 Member 7 Fiona Ma, CPA Member 8 Yvette Stowers 9 Appearing for Betty T. Yee, State Controller 10 (per Government Code Section 7.9) 11 Joann Richmond 12 Chief Board Proceedings 13 Division 14 For Board of Equalization Staff: David Gau 15 Executive Director 16 Chris Holtz Chief 17 Business Management Division 18 19 20 ---oOo--- 21 22 23 24 25 26 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 MAY 23, 2017 4 --oOo--- 5 MS. HARKEY: Ms. Richmond, our next item. 6 MS. RICHMOND: Our next item is Item P, 7 Other Administrative Matters, Item P1 is the 8 Executive Director's Report, Item P1.1, 9 Organizational Update. 10 MR. GAU: Good morning, Chairwoman Harkey, 11 Honorable Members. 12 David Gau, Executive Director, and I'm here 13 to provide you with an organizational update on 14 several high-level issues that the -- we are working 15 on. 16 First, with respect to Legislative Budget 17 Hearings, the Administrative Department continues to 18 work with the Department of Finance on the use of 19 vacancies to fill Budget Change Proposal resource 20 requests. 21 As of last Thursday, the BCP Swap, as it's 22 known, has been approved by both the Legislative 23 Budget Subcommittees. The Budget Subcommittee also 24 voted to establish a new item for each of the four 25 Board Members with re -- within the Board of 26 Equalization's budget authority. 27 And this afternoon, staff will be attending 28 Assembly Budget Sub 4 Hearing where several items are 3 1 on vote only. And with various cannabis-related 2 Budget Change Proposals, those will be heard. 3 Mr. Chris Holtz will be providing additional 4 detail on these items next under the Administrative 5 Department's Deputy Director's Report. Under the 6 Department of Finance, OSAE, or Office of State 7 Audits and Evaluations, BOE staff has prepared a 8 Corrective Action Plan to result in the findings 9 identified in the OSAE evaluation. 10 Among other things, the Corrective Action 11 Plan addresses compliance with Provision One of the 12 Budget Act, addresses loan positions, strengthens 13 controls around outreach activities, makes proper 14 adjustments to the supplemental annual report, and 15 ensures procedures are documented and implemented. 16 Executive Management Team is also evaluating 17 improved methods for BOE staff to report abuses of 18 resources and other inappropriate behavior that may 19 be occurring. 20 Due to the complexity of the proposed fund 21 allocation adjustment, the OSAE evaluation indicated 22 that further review of the adjustment was required. 23 And on May 11th, an interest conference was held with 24 the OSAE auditors. 25 The purpose of the audit is to complete the 26 assessment of BOE's revised Correction Act -- 27 Corrective Action Plan related to the Controller's 28 office review, the proposed allocation adjustment, 4 1 and any fiscal matters that may come to their 2 attention. 3 And then staff has also been in contact with 4 the State Controller's office to notify them of the 5 progress we've made to date on our Corrective Action 6 Plan, and our continued efforts to resolve any 7 remaining issues. 8 Under Provision One, BOE staff has 9 researched the use of resources to determine 10 compliance with Provision One of the Budget Act. The 11 staff analysis discovered that out of our over 4,800 12 BOE employees, fewer than 30 are designated 13 incorrectly. And that's either on revenue or 14 non-revenue position classifications. 15 The Executive Management and staff in the 16 Department of Finance are currently working on 17 correctly aligning resources to comply with Provision 18 One of the Budget Act. And BOE staff also plans to 19 meet with the Department of Finance after passing of 20 the Budget Act to evaluate and formalize a method to 21 manage a report on Provision One positions. 22 In addition, the Board of Equalization and 23 Department of Finance will meet to discuss the issue 24 of how much time revenue positions are allowed to 25 spend on such activities as training, staff meetings, 26 taxpayer education, professional development and 27 special projects. 28 Under the CROS Project, recruitment efforts 5 1 to refill the CROS Project Director are underway, the 2 vacancy, which will be at the CEA level. The 3 recruitment package is currently routing through and 4 for approval, and we estimate that it'll take four, 5 possibly five months' time frame to complete the 6 hiring process, factoring in Cal HR approval. 7 And then lastly is for cash acceptance. As 8 you're aware, the Field Operations Department now has 9 a procedure in place for all field offices to process 10 cash payments as we continue to seek a long-term 11 statewide solution. And I'm keenly aware of the 12 urgency to implement a more permanent and 13 taxpayer-convenient solution, as we anticipate 14 increases in cash payments next year. 15 As such, I've asked our Facilities 16 Management Branch and Field Operations Department to 17 work together in identifying suitable Board of 18 Equalization cash-acceptance sites that may be 19 separate from our current field offices. 20 The Field Operations Department has also 21 been in contact with local government agencies to 22 discuss possibly partnering at secure locations in 23 which to accept cash. And then I've also instructed 24 staff to look into an independent third party to 25 further assess the security of our field offices. 26 And, lastly, in order to ensure statewide 27 adherence to our current no-cash policy and related 28 hardship exemption, I will be requiring at least one 6 1 district office in each Equalization district, at a 2 minimum, to accept cash at the office and ensure a 3 timely process in each banking day. 4 And, additionally, for the safety of our 5 employees and taxpayers, all offices accepting cash 6 will be required to utilize our agreement with the 7 California Highway Patrol to have a uniformed officer 8 on site during these transactions. 9 I will continue to report on the progress of 10 these efforts and seek your approval to proceed as 11 needed. 12 That concludes my report, and I'll be happy 13 to answer any questions the Members may have. 14 MR. HORTON: Question, Madam Chair. 15 MS. HARKEY: Yes, Member Horton. 16 MR. HORTON: Thank you, Mr. Gau. I 17 appreciate your presentation. 18 On the acceptance of cash, one office, the 19 Board has developed, I think, a -- fairly decent 20 security measures to protect the -- protect the staff 21 as well as the employees and folks who come to the 22 Board of Equalization. 23 It's also my understanding that we're 24 doing -- we've asked an outside contractor; is that 25 true? 26 MR. GAU: We are in the process -- we have 27 not yet asked for that, but we are in the process of 28 identifying that to happen, yes. 7 1 MR. HORTON: And do you anticipate that the 2 recommendations will be implemented at each one of 3 these sites? 4 MR. GAU: That is to be seen, I guess, based 5 on how the evaluation comes out. I think that part 6 of what we're looking at is what's the relative 7 security needs of your offices. We need to have a 8 uniform approach to that, a statewide approach to 9 that, so hopefully that study could balance all of 10 that. 11 And I think the incumbent thing to do for 12 safety at this point would be to utilize the 13 California Highway Patrol in the interim, too. 14 MR. HORTON: Okay. I've also expressed 15 concerns about the employees who are participating in 16 the receipt of the cash. Their security and whether 17 or not they should be -- there should be additional 18 compensation for them, or additional security 19 measures for them. And particularly that they could 20 very well be, you know, a target if, in fact, 21 something was -- an issue was raised. 22 We've heard stories about bankers and 23 tellers being -- their families being kidnapped and 24 them being forced to participate in criminal 25 activities. 26 Given the level of potential criminal 27 activities associated with this product, I would like 28 to have your -- or someone analyze that to determine 8 1 if, in fact, the staff should be appropriately 2 compensated, or if there should be additional 3 compensation, and if there should be additional 4 security measures for the individuals who actually 5 participate in the acceptance of the cash. 6 Time allowed for training, negotiating with 7 the Department of Finance, let me express my 8 appreciation for doing that. A lot of confusion over 9 this whole Budget Act thing. Quite frankly, it's 10 been a learning lesson for -- for many of us dating 11 back to 1999 when the first audit was -- these types 12 of audits took place in 1999. 13 As a result of that, came out of mass 14 confusion about where the Board of Equalization's 15 positions were here or there, and so forth, and 16 trying to account and provide accurate information at 17 that time. So the Budget Act sort of evolved out of 18 that. So it's pleasing to hear that we are now going 19 to address that. 20 And at the same time, I think part of the 21 challenge, Mr. Gau, is that -- I don't know that 22 folks really understand the Board of Equalization. 23 And they understand -- they see us as a taxing 24 agency, when, in fact, we audit less than one percent 25 of our entire universe. 26 We have a budget of $560 million that 27 generates $1.3 billion. Out of the $62 -- somewhere 28 thereabouts -- billion that's reported to the Board 9 1 that's administered by this agency, which puts 2 greater emphasis -- and I only share this -- I know 3 you know all this data, but I want to make sure this 4 information is shared with the Department of Finance, 5 and that the public is aware of the 98 percent 6 compliance rate that the Board of Equalization has. 7 And that that 98 percent compliance rate is directly 8 attributed to our -- one of our greatest enforcement 9 tools, and that's education. 10 Enforcement certainly does it's job. It 11 generates the 1.3 billion. But without the 12 compliance, the self-compliance, which is at 13 98 percent, we, the state, could be suffering a 14 significant loss if that compliance rate was to drop. 15 Let's hypothetically say the compliance rate 16 dropped 10 percent. That's a $6 billion loss, if 17 taxpayers all of the sudden are confused, they don't 18 necessarily concur with the law, they don't fully 19 understand the law. So I think it's, you know, 20 important that we emphasize the importance of 21 education as a pool, as -- as actually being 22 revenue-generating. 23 The concept that tax administration is not 24 revenue generated is -- I think is flawed. The 25 concept that education is not revenue generation is 26 flawed. And I think the numbers will -- will -- 27 reflect that that is the case. 28 The other -- so that sort of stresses 10 1 another important point that I think is important 2 that we began to do as an agency is make sure that 3 everyone is aware of the history of this agency. And 4 we're -- we position ourselves to provide accurate, 5 complete and comprehensive information, not only to 6 the control agencies, but everyone who asks about 7 this. 8 And because part of the challenge we're 9 facing is, in my opinion, is just not getting that 10 information out in a timely fashion, not providing 11 the accurate information. And part of that may be 12 attributed to the high turnover that we have in our 13 Executive Team, and the need to provide that ongoing 14 education internally as well as externally. 15 Thank you very much for your report. 16 MR. GAU: Thank you. 17 MS. STOWERS: Madam Chair. 18 MS. HARKEY: Yes. 19 MS. STOWERS: I just wanted to speak on the 20 cash policy. I just wanted to let you know that 21 Controller Yee definitely supports your approach of 22 requiring at least one dist -- one office within each 23 district to accept cash. 24 And we also look for and hope that one day 25 soon we can have a consistent statewide policy with 26 respect to cash acceptance. 27 MS. HARKEY: Yes, Member Runner. 28 MS. MA: Ditto. 11 1 MR. RUNNER: Yeah, let -- quick -- a couple 2 quick things. 3 One is, yeah, I think it's important that we 4 establish at least one office. But I -- I think I'd 5 also like to see a timeline as to when it is that 6 we'll be adding additional offices. 7 Because I think we -- we do suffer under an 8 inconsistent policy. And I think that a timeline is 9 important, then, to identify how it is that that can 10 be done. Because even though we have one office in a 11 district, that means oftentimes there's a lot of 12 miles between how you travel to get to those places. 13 In addition, I think, as you've pointed out, 14 even when we have all of our offices doing it, 15 sometimes we may have areas of the state that are 16 impacted by that industry. And we need to be 17 creative as to how it is that we need to then find 18 places of deposit for those businesses. 19 I'm thinking in particular, Humbolt County, 20 some of those places where -- so I appreciate the 21 desire to um -- to -- to partner with agencies up 22 there who are in the same issues that we have in 23 regards to cash issues. 24 I would like to -- I'm not -- I don't agree 25 in regards to some of the comment in regards to 26 trying to deal with compensation. I'll tell you why. 27 My office has been taking cash for the last 28 number of years successfully. It's worked out fine. 12 1 I don't know -- and in that process, I don't recall 2 any issues that have come up in any of the 3 negotiations with unions in terms of identifying that 4 as a negotiable audit. 5 It would seem to me that if indeed that's 6 the case and that's the issue, then we should let 7 that process take the normal path when it is that we 8 have compensation issues. I don't think we should 9 initiate the compensation discussion. I think that 10 should be initiated, then, by representatives of the 11 union in order to identify those issues. 12 So that would be my thought on the issue. 13 And so I'm not exc -- I'm not supportive of the idea 14 of going out and trying to figure out what a new 15 compensation model should look like for places that 16 take cash. Let that take its natural path as we deal 17 with compensation for employees. 18 MS. HARKEY: Member Ma. 19 MS. MA: I just want to add on that as 20 you've heard in the Legislative Hearings that there 21 are areas that are gonna be more impacted by the new 22 legislation and the fees, and the permits that are 23 gonna be required. 24 So I hope you're taking that into 25 consideration and working with the other agencies who 26 obviously are not equipped to take the cash, but 27 having a, like, overall statewide policy for who can 28 and can't and how, and, you know, make sure it's 13 1 accessible and people aren't driving around the 2 state, you know, with a lot of cash. 3 MR. GAU: If I may respond. 4 Obviously, this is not just a Board of 5 Equalization issue. And I think especially in some 6 of the remote areas, that's what we are trying to 7 identify. And kind of a -- or ease or priority or 8 cost even is, you know, are there, first of all, any 9 financial institutions in the area that we can 10 partner with and use that kind of process? Are there 11 county facilities where they may already be taking 12 cash? 13 And then we can partner with them and maybe 14 have staff go up there at designated periods for 15 when, you know, reports are due. And they can work 16 out of an office up there that already has the safety 17 measures. A lot of them are in courthouses where 18 there are higher levels of security. 19 So those are partnerships that we would love 20 to -- and then ultimately, I guess, another option 21 would be could we find space that we could use on a 22 periodic basis or part time to just have BOE and 23 staff go up there and work? 24 Again, depending on when the time -- 25 reporting time frames are to have it staffed. So 26 we're kind of looking at those three offices -- 27 options. And especially in the remote areas. 28 MS. MA: Thank you. 14 1 MS. STOWERS: Madam Chair. 2 MS. HARKEY: Yes. 3 MS. STOWERS: Sorry. It's more of kind of a 4 clarification on what Mr. Runner was saying and what 5 Mr. Horton was saying regarding a difference in pay. 6 MR. GAU: Mm-hm. 7 MS. STOWERS: I just want to understand that 8 if there was a difference in pay raise, that that 9 would be something that, at least from Mr. Runner's 10 point of view, should be presented, raised by the 11 union. And would that be similar to how the union 12 negotiated a pay differential for the Tax 13 Technicians, um, -- was a pay difference based on the 14 work that they were doing with respect to the Call 15 Center, or with respect to Field Operations? Would 16 it come in that kind of a negotiation package? 17 MR. GAU: That -- that would seem to be 18 correct, yes. 19 MS. STOWERS: And so have -- have we 20 received anything like that so far? 21 MR. GAU: Not to my -- not that I'm aware 22 of, no. 23 MS. STOWERS: Okay. Thank you. 24 Then I kind of -- I do agree with Mr. Runner 25 on that point that if there is a need for a pay 26 differential, then it really should be raised through 27 the union representatives. 28 MR. GAU: And, again -- 15 1 MS. HARKEY: Okay. No. One person at a 2 time, please. 3 MS. STOWERS: I'm -- I'm finished. 4 MS. HARKEY: Can you respond? 5 MR. GAU: No -- I was just going to say 6 depending on some of the options, I guess, you know, 7 if we went to remote locations or stuff like that, it 8 would -- you would have to be seen, I guess, if you 9 go into an area that we're not doing right now, or 10 some kind of a new methodology. Maybe something more 11 would come out of it. But I think the process you 12 described would be accurate. 13 MS. STOWERS: Okay. Good. Thank you. I 14 appreciate that. 15 MS. HARKEY: Thank you. 16 MR. HORTON: Madam Chair. 17 MS. HARKEY: Yes. 18 MR. HORTON: May -- may I clarify, Members, 19 the request was to um -- was to, um -- to analyze, to 20 take a look at the situation. It was not a directive 21 to go out and provide compensation increases to 22 individuals. 23 Whenever the agency imposes -- and I'm not 24 saying we are. Whenever the agency imposes 25 additional duties that have additional circumstances 26 or that have additional concerns by the agency as far 27 as safety issues, as far as responsibilities that may 28 deviate from the current functionals and duty 16 1 statement that currently exists, it is -- it is the 2 agency's -- agency is part of that process that the 3 Members have mentioned is for the agency to do an 4 assessment to determine if their acts of requiring 5 employees to do something different, if there is -- 6 I'm not saying there is or not. I'm simply saying it 7 would be wise for us to look at and do that analysis. 8 If there is something different to make that 9 determination and to engage that process, we're not 10 to wait when we are the initiators of a deviation 11 from duties and performance. 12 Now, and I think there's just a lot of 13 wisdom in doing that analysis, making that 14 determination if that exists. And if that is -- if 15 those duties are currently consistent with our 16 current memorandum of understanding with various 17 unions. 18 And at that point, if we deem that we've 19 protected the agency, that we've covered all of those 20 particular requirements, then we stand out. I mean, 21 if someone -- and I just think there's wisdom in us 22 going there. 23 MS. HARKEY: Thank you. 24 I have -- I have some comments. I'm 25 entering in here. 26 I appreciate your presentation and 27 understand your dilemma. I've listened to all of the 28 hearings at the Legislature, and it seems like the 17 1 BOE is the only potential source that anyone ever 2 thinks of is not accepting the tax receipts and the 3 deposits. And I think we have found many avenues to 4 do that. But I think the rumor mill is that we're 5 just not. 6 And I went to speak to DOF, and they're very 7 concerned because they need the revenues. There's 8 kind of a misconception that we're not collecting, 9 and, in fact, we are collecting through a variety of 10 means. 11 And so trying to clarify that. They are 12 also -- DOF is also very concerned, because once the 13 initiative Prop 64 passed, I guess the BOE made some 14 determination -- legal determination not to collect 15 on medical anymore. And the DOF felt that they were 16 shorted in their budget line item because of that. 17 It was a, you know -- very upsetting to 18 them. And I think I spoke to Ms. Buehler and 19 asked -- gave her a heads up. And so she, I think, 20 was going to clarify that it was really de minimis. 21 It wasn't a large amount of money. And that -- 22 because they're under the -- the misperception, I 23 believe, that we're not collecting taxes on 24 marijuana. And we are. We are in every -- every 25 avenue. 26 The difference is, is that -- and I think 27 what Mr. Mashihara explained is that we collect, 28 like, 80 percent, I believe, in other means, and we 18 1 don't necessarily want to be getting a ton of cash in 2 excess of that. We want people to continue to use 3 other means. 4 So more to that point, I do believe that 5 once we say we're all gonna have to take cash, why 6 would a company, any company, incur an expense of 7 figuring out how to get the money to us if they can 8 just bring it to us? 9 So there's gonna -- there's gonna -- we're 10 deferring an expense of theirs and putting it on 11 ours, which I think -- I think is going to cost us 12 some funds. And I think that needs to be very much 13 communicated that we may, in fact, need additional 14 staff. 15 What level is it that is actually counting 16 the cash in the districts? Do you know the -- 17 MR. GAU: I believe that typically is a 18 Tax Technician level. 19 MS. HARKEY: Tax Tech level? 20 MR. GAU: Yes. 21 MS. HARKEY: Okay. And so those are, you 22 know, depending on how many are in each office or in 23 a big major district office, it would -- it would 24 definitely impact the work flow. And I think that 25 needs to be -- that needs to be considered, because 26 it just takes a lot longer when you're dealing with 27 lots of cash. 28 Also, the overall -- I believe that come 19 1 January of '18 -- which is why there's pressure on us 2 to get this moving -- that we're gonna see a lot of 3 it and big amounts. 4 So I have suggested to Mr. Gau that he 5 figure out, you know, what determination, anything 6 under 50 comes into whatever office for safety 7 reasons or whatever. But if you're doing big 8 amounts, you're bringing in duffel bags. And you've 9 got a couple hundred -- 300,000 of cash, I think that 10 needs an added level of security. 11 And so I have asked him to please consider 12 under what circumstances what security we would need 13 for continuing large cash payments, and what kind 14 of -- I mean, maybe there were a few facilities for 15 the big large players that really can, you know -- 16 can initiate the travel and the protection. 17 And then maybe there's smaller items. I 18 thinker Member Ma and I talked about something 19 being -- like the DMV, I guess Colorado uses the DMV, 20 and um -- for small -- for small items just to be 21 able to come in at certain times. And we can share a 22 window. Or maybe the kiosk that has been talked 23 about. I don't want to see these ideas go down the 24 tubes, because they're very important. 25 I think the problem that we have with the 26 kiosk right now is that it doesn't do for all 27 entities. But the Controller seems to like the kiosk 28 because it immediately reports, gets into our 20 1 account, and then, in fact, is picked up by whatever 2 the banking facility is that provides the kiosks. 3 MR. GAU: So their offer referred to as 4 Smart Safes. And so that is part of -- as the -- I 5 think part of even the Treasurer's Cannabis Working 6 Group is looking, and -- and they've been having 7 multiple meetings around the state, and hear from 8 vendors that do come forward and explain what they 9 are trying to offer in this -- in this area. 10 But what you did say at the last oversight 11 meeting that I was at, or the cannabis banking 12 meeting, that was exactly the issue, or was one of 13 them, is that they -- it was kind of a sole deposit 14 source kind of system. At least the one person that 15 was talking about. 16 And it seems like if you're going to try to 17 do it across, maybe different tax and fees, local, 18 state, you know, fees, then it's gonna have to have 19 the capability to maybe take more than one. 20 If you're gonna have a central depository 21 for cash that's across agencies, now, if it was just 22 an onsite to a BOE location, then -- then it would be 23 specific to us, and we probably wouldn't have to have 24 that capability. 25 But these are the things that we are 26 continuing to look at. And January is coming, so -- 27 MS. HARKEY: What would it take to get a -- 28 a -- like a trial on one of these in a BOE location? 21 1 What would it take to do that? Do you know? 2 MR. GAU: Well, typically, sometimes we 3 start with what they call an RFI, Request for 4 Information, which we had done previously. 5 Let -- let me -- I don't have all the detail 6 on that, but let me take that back and -- and 7 reinvestigate that. 8 MS. HARKEY: Because I know these are 9 through -- legitimate institutions do business with 10 the State of California. And I know that there's 11 other kiosks out there that are through private 12 vendors that I've heard many in the industry say they 13 don't want to give them their money and get a card. 14 They're concerned about it not being legitimate. 15 MR. GAU: Right. 16 MS. HARKEY: But this would be a legitimate 17 way. And I think this would alleviate some of the 18 safety concerns and whatnot. 19 Have we got new -- have we contracted with 20 armored cars? 21 MR. GAU: Yes, that is, um -- that is 22 pending in the approval process right now. We -- we 23 have agreement -- we have the -- we're looking for it 24 to come back from the vendor. And so it's on its, 25 like, last leg of approval. 26 MS. HARKEY: Okay. And as far as the 27 security -- the outside security, or just, you know, 28 assessing the sites, I think with the smaller 22 1 amounts, that's -- you know, we've been able to 2 implement certain locations. 3 But with the anticipation that this is going 4 to go kind of big in '18, what is the time frame I'm 5 getting a -- you know, for various levels, like, you 6 know, if you're bringing a small amount, you know, 7 but if you're doing -- if you're consistently 8 bringing in large amounts or you're attracting large 9 players -- and the reason I say this is Southern 10 California is -- Member Horton knows -- LA is one of 11 the biggest markets for this. They have some big 12 players. 13 And I know there's some large -- really 14 large grows spots in Southern California out more 15 towards the desert. But that's Adelanto, and some 16 other places that have really -- gonna have huge, 17 huge quantities, and probably even huge distribution. 18 So I'm just trying to think, you know, if 19 you're -- if you're dealing with the ma-and-pa, or 20 the cottage industry, it's one thing; but if you're 21 dealing with the large players, it's another. 22 And maybe we could find the -- I mean, I 23 know -- Colorado has one statewide. But they only 24 have five million people, one statewide. So what are 25 their -- what is their infrastructure? Who did they 26 use? How did they -- because they seem to be having 27 success with theirs. 28 And I don't think we have to recreate the 23 1 wheel. I think we have to have an immediate solution 2 for January, which you have. But we also have to -- 3 we have to keep these things going. And, you know, 4 so whatever we can get. 5 And I don't think these are out of the -- 6 the staff report. Staff did an Issue Paper -- 7 MR. GAU: Yes. 8 MS. HARKEY: -- several months ago trying to 9 explore all our options. The Board approved of that. 10 And I don't -- what I don't want to see is one Member 11 or another Member changing that all unless we bring 12 it back to the Board, and the Board says from a staff 13 report -- if you bring us back another staff report, 14 we say, "We don't want to look at anything else but 15 one thing." I think we need to look at everything 16 here statewide. 17 MR. GAU: And I would agree. And I think 18 that I plan to -- this will -- I plan to make this 19 probably a monthly report on my Executive Director 20 report. And a lot of the input that I received today 21 will go back and hopefully bring you, if not before 22 that, the answers at least at the next meeting. 23 MS. HARKEY: Okay. Real good. But stay -- 24 stay within your staff report until -- or your Issue 25 Paper until such time as the Board changes direction, 26 I think would be advisable. Otherwise, you'll be 27 going off in tangents all over. But I think you 28 have -- I think you have a good plan. 24 1 As for the CHP onsite, that is an excellent 2 idea. I -- I think that that's -- we're having 3 trouble sharing facilities. FTB doesn't want us to 4 share. You know, they're not feeling really 5 comfortable about the amounts of cash that we might 6 be bringing in. 7 So I think we're not out of line in taking 8 extra precautionary note here. Getting something on 9 the ground, but not rushing to -- before we know 10 exactly what the impact's going to be. The more 11 facilities and whatnot that we build out, the more 12 cost. 13 And maybe there will be in the future some 14 sort of -- I think there's 20 states that have some 15 form of -- is it recreational marijuana? And 16 there's, like -- there's several that have the 17 medical that will be having the same kinds of 18 problems. 19 I do see changes coming at the federal 20 level, even though this current administration is 21 banking. I think once -- I don't think there's any 22 way to legitimize an industry without banking. 23 And I think through banking you can require 24 books and records, and you can track it, and you can 25 audit it, and you can call in FBI, you can call in 26 whatever you need for those sorts that you don't want 27 in. I think without the banking, we're kind of stuck 28 in a money laundering situation, which we have to be 25 1 very careful of here at the State, and also whatever 2 goes with it. 3 So I do see a change coming. I don't -- I 4 don't think -- I don't think you can keep not banking 5 this industry. 6 But I do want to be sure that; No. 1, we're 7 not encouraging more cash than we need to; and, 8 No. 2, that we are providing safety; and that, No. 3, 9 per the Issue Paper that we approved, that we are 10 looking at all our options, and that we understand 11 that even though this is statewide, we have 12 different -- I mean, what works in San Francisco 13 might not work in -- in Imperial. What works -- you 14 know, I mean, we're a big state. We've got many 15 little areas that we need to consider. 16 And so the cottage industry versus the 17 large, how we handle it, and how we charge for it. I 18 do think, you know, there's going to be a cost here, 19 and I'm hoping the administration understands that. 20 I think they will once -- once everybody -- I don't 21 think anybody understands what it means to take cash 22 in. Everybody talks about you just take it to the 23 teller with it. But this is big. This is really a 24 little bit different. 25 And I think we need to have a full-on 26 presentation, because they think it's easy, and it's 27 not. You have to have two people; they have to stay 28 with it; you have to store it; you can't leave it. I 26 1 mean, you know -- 2 MR. GAU: You need strong internal controls, 3 yes. 4 MS. HARKEY: Strong internal controls, 5 supervision, extra people. You have to be able to 6 store it, you have to be able to have it taken out. 7 You know, there's just a lot that goes with this. 8 And, you know, any kind of, you know, metal 9 detectors and stuff, is that part of the 10 consideration as well? 11 MR. GAU: It is -- we have discussed it. I 12 don't know that it's on any plan right now. 13 MS. HARKEY: We just have to be careful. 14 MR. GAU: Yes. 15 MS. HARKEY: Because those who are carrying 16 the money are usually armed. And BOE employees are 17 not. So -- and not supposed to be. There's not 18 supposed to be any arms in any state buildings. 19 MR. GAU: Correct. 20 MS. HARKEY: So I think we have a lot of 21 issues. But I'm happy that you're moving forward. 22 Thank you for the CHP. 23 MR. GAU: Thank you. 24 MS. MA: I have -- 25 MS. HARKEY: Yes. Sure. 26 MS. MA: Thank you. 27 So thank you for bringing up the pilot 28 projects, because we have been trying to do pilot 27 1 projects in our district, whether it was accepting 2 cash through kiosk, whether it was faster cash 3 counters connected to internal computer system so 4 that people wouldn't have to touch the cash so many 5 times. 6 And it's been a little bit frustrating to 7 tell you the truth. And I think Mr. Gau understands 8 that it hasn't been met with robust enthusiasm. And, 9 therefore, I'm glad you talk about pilot projects, 10 because we've been trying to do it for two years now. 11 And somehow it always gets road-blocked. And, you 12 know, there's time issues, there's research. I don't 13 know what happens, but I know that -- I'm glad that 14 you're saying it. Because I think we all need to be 15 saying that more in terms of moving this issue faster 16 and quicker. 17 Technology is obviously a problem because 18 these cash counters are dumb cash counters pretty 19 much, and they just count the cash. But you still 20 have to touch the cash three times before you even 21 put it in the safe. 22 Versus if we had systems that you counted 23 and that actually went into the computer system that 24 actually could, you know, credit, you know, taxpayers 25 and count, that would be able to print out the bank 26 deposit slip, everything would be done so much 27 quicker and in a safer manner. 28 And, you know, I welcome if you haven't seen 28 1 this process, you should go and see how this process 2 is and why it's taking so much more time. Because I 3 think our agency should be investing in this type of 4 technology moving forward if we are really going to 5 be serious about being efficient and effective and 6 quick, and protecting our employees and getting 7 people in and out as quickly as possible. 8 And the third thing is our cannabis 9 treasurer -- 10 MR. GAU: Mm-hm. 11 MS. MA: -- Chiang is leading the Banking 12 Cannabis Stakeholder meeting. We've had four 13 meetings to date. We will have two more as part of 14 the plan six. There are 15 different stakeholders as 15 part of this group, including all of the state 16 agencies, Franchise Tax Board, EDD, our agency, um -- 17 MR. GAU: The League of Cities, counties are 18 on there. 19 MS. MA: League of Cities, Insurance 20 Commissioner -- 21 MR. GAU: Banks. 22 MS. MA: -- banks. The Attorney General is 23 on there. And it is the hope that there is going to 24 be some sort of path or light for this industry and 25 for the agencies. 26 Because right now, like you said, nobody 27 knows what to do. They're not willing to take the 28 risk perhaps. They're not -- you know, the State, 29 1 they don't understand where the State is going to 2 come in and actually protect folks. You know, if we 3 are doing some more creative type of tax deposits. 4 So stay tuned. We have two more meetings 5 and hopefully we'll get a little more guidance from 6 all the stakeholders in terms of how much we want to 7 move out there as a State given that we have passed, 8 you know, 215 and Prop 64. That if the Federal 9 Government does not act, the State must act. And we 10 will act. And we will act in a coordinated manner 11 with all of the state agencies, hopefully, supporting 12 the new direction as well as all of the other 13 stakeholders that are sitting on that Banking 14 Stakeholder Cannabis Group. 15 MR. GAU: Yeah. 16 MS. HARKEY: Let me just ask something here, 17 Member Ma. Would you be willing to support a pilot 18 program, really important, and if you got information 19 on this -- I thought this was being handled through 20 the Treasurer and how everybody is involved, but 21 nobody is doing anything. And, you know, I'm a 22 person of action. Let's get it done. 23 Would you support maybe a letter sent out by 24 staff supported by the Board that called for a pilot 25 program such as you described -- such as you 26 described with a kiosk of whatever to be implemented 27 somewhere that it could be, you know -- wouldn't have 28 to be in a large facility, but something somewhere 30 1 where it might get a test run? 2 I think a letter from the Board saying, 3 "Hey, we want to do this," you know. And the staff 4 could draft something that kind of explains it, and 5 get it to the Governor, get it to the Legislature. 6 Let them know that it's not just cash coming through 7 the door, there are other options, but nobody seems 8 to be moving on them. 9 And I think because we're getting -- it's 10 being dumped on us almost. I don't know why. But it 11 is. It's a state problem. But it's being dumped on 12 us. I think some leadership, you know, advising that 13 we would like to implement a pilot program, where 14 we'd like to implement it, what method we'd like, and 15 just let's get it rolling. I mean, figure it out. 16 MS. MA: So I think the pilot programs are 17 really internal to help us deal with just our Board 18 of Equalization taxes. I think now because of 19 Treasurer Chiang's stakeholder meeting, I think it's 20 probably wise for us to wait until after the sixth 21 meeting, because it may be bigger, right? All of the 22 tax agencies now are collecting cash. They all 23 understand the pending problem, plus the new agencies 24 that have to permit and license. 25 So I think we should just wait until the 26 sixth meeting before we propose a solution. Just 27 because it's -- it's now got everybody's attention, 28 everybody is at the table now. 31 1 And I don't really want to do a pilot 2 project just for our agency if we are going to be 3 empowered to collect more cash for the other agencies 4 potentially. 5 MS. HARKEY: Okay. I understand that. So 6 when is the sixth meeting? 7 MS. MA: Um, the next meeting is probably 8 gonna be July will be the last meeting. 9 MS. HARKEY: July. Okay. I would like to 10 make a motion that for the July Board hearing, which 11 will be incidentally in Irvine, that the staff come 12 back to us with a report, full support on the 13 Treasurer's meeting. 14 And maybe Member Ma can join in on that 15 since you're participating. 16 And to report on that, and to report on any 17 potential for pilot programs. And be sure they get 18 the level of visibility that they need. Because I 19 think if you can take it -- so I'll just -- I'd like 20 to make a motion to that. That you report on the 21 sixth meeting of the Treasurer's Cannabis Banking 22 Stakeholders meeting, provides us with their 23 progress, let us know what options are available to 24 us, and let us know what -- when and where we could 25 start a pilot program and with what support. 26 MR. RUNNER: I can certainly be supportive, 27 and I'll second that. The only concern I have is 28 that I don't think it can happen in July. 32 1 MS. MA: Yeah, I think August is probably 2 more realistic. 3 MS. HARKEY: Well, I'd -- let's do report in 4 August -- I mean, report in July, and then come back 5 and repeat. 6 MR. RUNNER: Well, if the meeting is -- last 7 meeting is in July, there's no -- there's no way for 8 them -- 9 MS. MA: We don't have a date right now. 10 MS. HARKEY: Okay. Well, you couldn't give 11 a report? 12 MR. RUNNER: Well, but -- you -- 13 MS. HARKEY: Okay. 14 MR. RUNNER: I thought you wanted some -- 15 some ideas and some -- in order to make a decision. 16 MS. HARKEY: Right. Well, I think Member -- 17 I mean, I think Mr. Gau is attending, are you not? 18 MR. GAU: I have been attending the 19 meetings, correct. 20 MS. HARKEY: So in the meeting, the July 21 cannabis meeting comes before -- 22 MR. GAU: I don't have my calendar. I'm not 23 sure of the date. 24 MS. MA: The date hasn't been set yet. 25 MR. RUNNER: It could be well within our ten 26 days of a meeting, and we can't even get -- 27 MS. HARKEY: Okay. Well, I'm not -- I'm 28 asking for almost a Board report. I just -- I don't 33 1 necessarily want a public, you know -- he doesn't 2 have to publish a document. But I'd like a report. 3 And if -- if we are -- are you gonna give 4 monthly reports on this anyway? 5 MR. GAU: I would anticipate because of the 6 significance of this issue that I will be, as part of 7 my Executive Director report, making every month some 8 progress statement on the banking for the cash 9 acceptance. 10 MS. HARKEY: Okay. Then I'll move to August 11 or -- or earlier Board Meeting if convenient -- 12 MR. GAU: Okay. 13 MS. HARKEY: -- or if -- if available. My 14 motion. 15 MR. HORTON: Members, I don't know that we 16 need a motion. I would just directing the Executive 17 Director to come back with a report. 18 MS. HARKEY: I -- I would like a motion only 19 because it's a -- it's a -- it's a directive. We 20 make a motion from the Board, and then it's -- it's 21 carried out if we have a motion. 22 If we're just talking, it seems like we all 23 have to follow up individually. So I would like a 24 motion. 25 MS. MA: I second. 26 MS. HARKEY: And got a second? 27 MR. RUNNER: Second. Yeah. 28 MS. HARKEY: Okay. Is there any objection? 34 1 Okay. Such will be the order. 2 MR. RUNNER: I have one other point on the 3 discussion, following up. 4 You know, I think -- I did realize that when 5 we were on the compensation issue, that we weren't 6 talking about the issue of actually going out and 7 figuring out the compensation. That it wasn't -- and 8 by giving raises. That we were doing an analysis. I 9 don't think we should do the analysis. I think that 10 is a -- that is a -- that is indeed an on option that 11 we need to be looking at when it is that it comes 12 forward with our union. 13 I think that's especially important because, 14 again, we already have cashiers. We already take 15 cash. This is not new to the BOE. So I don't think 16 it's outside the realm. 17 The only thing that's unique may be the 18 amounts. Again, that ought to be a discussion, then, 19 that ought to flow that way rather than us answering 20 a question before it's asked. So I'm not supportive 21 of the -- 22 MS. HARKEY: Member Runner, that was not a 23 motion, that was a suggestion. And I think that's 24 the difference. That's why I like to make a motion. 25 MR. RUNNER: I want to make sure -- here's 26 what I want to make sure, though, I don't want to 27 make sure -- I want to make sure that staff doesn't 28 feel like they've gotten a direction to do 35 1 something. 2 MS. HARKEY: They didn't get a motion. They 3 will always observe and take it into consideration. 4 MR. RUNNER: Well, I just want to make that 5 clear, there was no -- there was no -- there was no 6 Board direction to do an analysis. 7 MS. HARKEY: Member Horton. 8 MR. HORTON: That wasn't what I was going to 9 talk about, but I still think there's a whole lot of 10 wisdom in -- in -- in -- in allowing Legal to make 11 that determination. And I personally would defer to 12 the Legal Department and personnel to take a look at 13 it as opposed to -- I don't really have any personal 14 opinions about it one way or the other. I just think 15 it's wisdom to do that. 16 But I do want to -- Mr. Gau, where are we 17 with the BCP on all of this? 18 MR. GAU: The BCP for cannabis? 19 MR. HORTON: Cannabis -- 20 MR. GAU: That is being heard this afternoon 21 in the Assembly Sub 4 Committee. 22 MR. HORTON: And how much are we projecting 23 the cost of providing the security and addressing all 24 the issues that we've been able to identify thus far? 25 MR. GAU: Um, I don't have that in front of 26 me. I think we put some kind of language -- and I 27 don't know if there's anybody here in the audience 28 with me that can step forward. 36 1 But I want to say in the BCP there was some 2 provisional language that we put that there could be 3 cost -- more cost to come as a result of implementing 4 Prop 64. 5 MS. HARKEY: Here he comes to the rescue. 6 Mr. Ross, thank you -- Holtz, rather. 7 ---oOo--- 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 37 1 ---oOo--- 2 MR. HOLTZ: Thank you. Chris Holtz of 3 the -- Division Chief of the Business Management 4 Division. 5 We do have, within the Prop 64 BCP, $400,000 6 to begin facility improvements that would improve 7 security for cash acceptance, and that's all within 8 this year's BCP. 9 The BCP is being heard before the Assembly 10 this afternoon, and the Senate plans on having a full 11 Senate Budget Committee hearing on Prop 64. 12 MR. HORTON: Any additional PYs in it? 13 MR. HOLTZ: For security, no, we are 14 still -- 15 MR. HORTON: Staffing? 16 MR. HOLTZ: We're still developing the 17 entire plan -- 18 MR. GAU: Right. 19 MR. HOLTZ: -- for, uh -- for security. 20 MR. HORTON: Any additional staffing? 21 MR. HOLTZ: There is additional -- excuse 22 me -- there is additional staffing in the BCP. We 23 have, in the current proposal we have 3.9 positions, 24 and in addition to that 16.1 vacant positions that we 25 are redirecting toward Prop 64 workload. 26 MR. HORTON: The, um -- the Chairwoman 27 mentioned the potential misconception of, uh -- of 28 the revenue generation that the agency generates. 38 1 When the medical cannabis passed, there was 2 a lot of confusion about how do we register it, how 3 do we identify it? Constitutional prohibition, 4 constitution five, self-incrimination and all of 5 that. 6 Are we planning, is the agency planning on 7 providing a projected revenue report? I've seen 8 these reports during Proposition 64 that we're going 9 to collect a billion dollars in new revenue -- and 10 let me share why. 11 I think it's important that we provide the 12 public and the Department of Finance with what our 13 best projection as to what the revenues will be. So 14 if there are shortcomings, it's not attributed to the 15 administration or anything that the Board of 16 Equalization has done and has failed to do as alluded 17 to in reference to the medical marijuana activity. 18 So -- I mean there are different projections 19 out there. The LAO, $1 billion. I've seen 20 projections that say $5 billion. I've seen 21 projections that indicate a 40 percent noncompliance, 22 irrespective of what the -- the Board of Equalization 23 does. 24 I think it's -- I would suggest that we put 25 together some sort of report, call it what you will, 26 that deals with the projected revenue, projected 27 noncompliance, and what measures are going to be 28 necessary in order to address the noncompliance issue 39 1 that we all know is going to exist. So that there is 2 a -- there is a -- a point or a base point where the 3 public, as well as Department of Finance, can expect 4 their revenues based on this analysis. And at the 5 end of the day if those revenues don't come in, 6 they're not necessarily attributed to -- to the 7 agency, not necessarily performing, but more 8 attributed to either the lack of resources for the 9 agency to perform and to accomplish the objectives 10 that the State has put forth. 11 MS. HARKEY: Would you -- would you consider 12 making a motion, because I think that would be a 13 good -- and who -- who would you want this analysis 14 to be brought to the attention of? So be specific in 15 your motion. 16 Because I think it's very important, 'cause 17 I think there's a lot of -- lot of rosy scenario as 18 to what we're going to be bringing in. And I think 19 the Board has actually done a very low, you know, 20 low-ball calculation. And if people are expecting 21 billions and they end up with, you know, a few 22 hundred thousand or a couple million -- I mean few 23 hundred million rather than billions, I think there's 24 going to be some problems. I think the point's very 25 well taken. 26 MR. HORTON: Well, Madam Chair, I thank you 27 for that opportunity, but I -- I -- I would actually 28 defer to -- to the Executive Team and management 40 1 to -- to determine what that report should look like. 2 The overall overarching issue that I want to 3 address is don't want any misconceptions about what 4 the revenue is projected by the Board of 5 Equalization, what the noncompliance will be exists. 6 There are -- based on all the studies I've 7 looked at, there are two different -- two different 8 categories of noncompliance: 9 One is taxpayers who are noncompliant for 10 the reason because the federal government it's still 11 a federal criminal activity; and so they're partially 12 compliant in order to be in compliance with the State 13 and to have you register, but also partially 14 noncompliant because if they report the full amount, 15 then they're compliant on every level, it increases 16 the probability of the federal government possibly or 17 enforcement of some sort; 18 Then there is the category of just plain 19 criminals that are not going to comply. They're not 20 going to register because their sales of cannabis is 21 directly tied into other criminal activities: Human 22 trafficking, prostitution, gun ringling and so forth. 23 And so those operations that exist, I don't 24 know the degree of that, I don't profess to be an 25 expert up here. But I do -- there is evidence of 26 such based on what's happening throughout the state. 27 There's report after report that says these are 28 significant issues that should be considered. 41 1 So if -- if the agency is -- if there is any 2 misconceptions out there, I don't know that there 3 are. I believe there are some confusions about what 4 the revenue will be. I believe there are some 5 confusions about what noncompliance will be as a 6 result of this passing. And I think to the extent 7 that we have the expertise, we ought to do our best 8 to try to clear that up. 9 MS. HARKEY: Okay. Then I'm -- I'm going to 10 just throw something out here because I don't want 11 this to evolve into just total discussion. 12 I really think that these are action items, 13 and that if staff gets direction from the Board so 14 that they can proceed, they have some clarity and 15 they don't do one Member's request, another Member's 16 request, another Member's request. I think it's 17 supposed to be Board. 18 And I -- I really think this is an important 19 issue, and so I would like to see you come back to us 20 with some kind of report, if you wouldn't mind, 21 because I know we've done it. 22 MR. GAU: Right. So what I would like to 23 offer is the -- the chance, the opportunity to go 24 back and talk to the program experts and our research 25 group and just to honestly see what we can do, what's 26 feasible to bring to the Board as far as information, 27 a lot of what was articulated here this morning, and 28 provide the Board with that information. So -- 42 1 MS. HARKEY: Would you do that at the next 2 hear -- or the next Board meeting? 3 MR. GAU: My only concern -- I -- I -- my 4 only concern is the PAN is coming so quick -- the 5 Public Agenda Notice deadlines. To do the full 6 report might be difficult. 7 MS. HARKEY: By July. 8 MR. GAU: July, yeah. 9 MS. HARKEY: Give us an update -- 10 MR. GAU: So let me -- 11 MS. HARKEY: -- and July will be a report. 12 MR. GAU: -- do what we -- 13 Yeah, July is more feasible. 14 MS. HARKEY: Okay. 15 MR. RUNNER: Yeah, I think it would be great 16 to get an update and analysis based upon our 17 experience -- 18 MR. GAU: Okay. 19 MR. RUNNER: -- we've seen in collections -- 20 MS. HARKEY: Okay. 21 MR. RUNNER: -- in order to see at least 22 where we land on the projections in regards to 23 revenues. 24 MS. STOWERS: Yeah. 25 MS. HARKEY: So that's a motion. 26 MS. STOWERS: Madam Chair, if -- 27 MS. HARKEY: I'll make a second. 28 MR. HORTON: Wait, wait, wait. 43 1 MS. HARKEY: Go ahead. 2 MS. STOWERS: I just wanted to make one 3 comment. I think it with be a useful report, and 4 hopefully you guys could look at some of the other 5 states that do have recreational -- because I have 6 seen some of their data -- and reflects what they 7 projected and what they collected and do an analysis 8 on them was it low collection because of the rate or 9 low collection for other reasons if -- if you can 10 retrieve that data. 11 MR. GAU: Certainly. We'll look into that 12 as well. 13 MS. HARKEY: Okay. Thank you. 14 MR. GAU: Yes. 15 MS. HARKEY: So Member Runner made a great 16 suggestion, alternative motion. I second it. 17 There's no objection, so July we see you. 18 MR. GAU: Very good. 19 MS. HARKEY: Thank you. 20 MR. HORTON: Madam Chair, let me add -- 21 MS. HARKEY: I do have one more question 22 here. I have some questions. And I'm sorry, and 23 then I'll let you out of the hot seat. 24 MR. GAU: That's okay. 25 MS. HARKEY: DOF evaluation. 26 MR. GAU: Mm-hmm. 27 MS. HARKEY: You said there was a Corrective 28 Action Plan -- 44 1 MR. GAU: Yes. 2 MS. HARKEY: -- that you were submitting. 3 May we see it? Since it's about us. 4 MR. GAU: I have a draft of it. And what 5 we've done, we've been -- we've had meetings on this 6 and I checked -- I asked for a copy this morning 7 before I came down here because it's still being 8 worked on. And what we've been trying to do is 9 identify what area of the agency -- 10 So, yes, as soon as it is in that kind of 11 shape, I will share it. And it should be -- 12 shouldn't be that much longer. 13 MS. HARKEY: Okay, real good. I'd like to 14 see it before it leaves. 15 MR. GAU: Yeah. 16 MS. HARKEY: Before it gets out the door. 17 MR. GAU: It wasn't, uh -- it was really an 18 internal, incumbent upon us to take, uh -- 19 MS. HARKEY: To take action. 20 MR. GAU: -- action, corrective action. And 21 so, yes, we will share that. And we have spent many 22 hours going through it in detail, identifying what 23 area of the agency should be responsible for whatever 24 the evaluation write-up dealt with. 25 MS. MA: Right. 26 MR. GAU: So different parts of the agency. 27 So we've been doing that and we will share that. 28 MS. MA: Okay, thank you. And thank -- and 45 1 I want to thank Julia in particular for -- Julia 2 Findley for responding to the Controller. She was 3 holding off 'til she had everything in order and she 4 did respond to the Controller. So hopefully that -- 5 that settled a lot of issues of nonresponse 'cause -- 6 Thank you. 7 MS. STOWERS: Just -- just on that, may I? 8 MS. HARKEY: Sure. 9 MS. STOWERS: On that Corrective Action Plan 10 that you're going to share with the Members, is that 11 for informational purpose only or is that on a 12 three-day review and you'll be seeking our approval 13 before you submit it? 14 MS. HARKEY: Probably informational. 15 MR. GAU: Yeah. 16 MS. HARKEY: But if you get pushed back -- 17 MR. GAU: I think this is -- this is 18 incumbent upon us to -- 19 MS. STOWERS: I thought that too, but I 20 didn't want to say that. 21 MR. GAU: It -- I think it would be -- as 22 Executive Director's Corrective Action Plan for the 23 OSAE evaluation, and I would put -- I would put it 24 under a cover memo to the Members as more 25 informational and here's what we're doing to address 26 the evaluation. 27 MS. STOWERS: I agree with that. 28 MS. HARKEY: Okay, thank you. 46 1 MR. HORTON: One second. 2 MS. HARKEY: What? 3 MR. HORTON: Let me just encourage the, 4 um -- the agency to make sure that we articulate our 5 existing policies, procedures, governing approval 6 process and the process in which these concerns have 7 gone through. 8 Part of the challenge that I think that the 9 agency is facing is the misconception that these 10 policies don't exist and the misconception that these 11 particular -- some of the transactions in question 12 didn't occur. The misallocation, for example, of the 13 $47 million, the misconception that that was never 14 corrected and it was never resolved and that there 15 aren't checks and balances in place that address 16 those particular issues. 17 And so I think it's fundamentally important 18 that we articulate our existing policies, our 19 existing approval process, the existing BEAM, legal 20 and so forth, opinions and so forth, and that we get 21 the facts out there. We get the truth out there as 22 to how that currently exists because we can't 23 correct -- we can only correct things that we've 24 actually, where there's a need for a correction. 25 I believe that there are many of the 26 existing correction activities, if you will, are 27 currently in place, they just need to be enforced. 28 So -- 47 1 MS. HARKEY: Okay, thank you. 2 MR. GAU: Understood, thank you. 3 MR. HORTON: Thank you. 4 MS. HARKEY: All right. Thank you very much 5 for your report. Thank you, Mr. Holtz. And we'll be 6 talking to you. 7 MR. GAU: Thank you, Members. 8 ---oOo--- 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 48 1 REPORTER'S CERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, Jillian Sumner, Hearing Reporter for 8 the California State Board of Equalization certify 9 that on May 23, 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 37 14 constitute a complete and accurate transcription of 15 the shorthand writing. 16 17 Dated: July 18, 2017 18 19 20 ____________________________ 21 JILLIAN SUMNER, CSR #13619 22 Hearing Reporter 23 24 25 26 27 28 49 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 May 23, 2017 I recorded verbatim, in 10 shorthand, to the best of my ability, the proceedings 11 in the above-entitled hearing; that I transcribed the 12 shorthand writing into typewriting; and that the 13 preceding pages 38 through 48 constitute a complete 14 and accurate transcription of the shorthand writing. 15 16 Dated: July 18, 2017 17 18 19 ____________________________ 20 KATHLEEN SKIDGEL, CSR #9039 21 Hearing Reporter 22 23 24 25 26 27 28 50