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 13 14 15 ITEM R 16 BOARD MEMBER REQUESTED MATTERS 17 18 19 20 21 22 23 24 25 REPORTED BY: Kathleen Skidgel 26 CSR NO. 9039 27 Jillian M. Sumner 28 CSR NO. 13619 1 1 P R E S E N T 2 3 For the Board of Equalization: Diane L. Harkey 4 Chairwoman 5 Sen. George Runner (Ret.) Vice Chair 6 Fiona Ma, CPA 7 Member 8 Jerome E. Horton Member 9 Betty T. Yee 10 State Controller 11 Joann Richmond Chief 12 Board Proceedings Division 13 For Board of 14 Equalization Staff: David Gau Executive Director 15 Amy Kelly 16 Acting Chief Counsel 17 Brenda Fleming Chief Deputy Director 18 19 ---oOo--- 20 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: Okay. Ms. Richmond, next are 6 the R items. 7 MS. RICHMOND: So next is Item R, Board 8 Member requested matters. 9 MS. HARKEY: Members, I -- I have requested 10 that we add this item to the agenda, not only just 11 because of what we're trying to respond to now. But 12 I think that whenever a Member has something they 13 want to put on the agenda, we ought to have a spot 14 for it such that after it gets reviewed by, you 15 know, Legal and the ED and maybe the Chair has 16 reviewed, but they have to have -- we have to have a 17 place that we can communicate because we're so -- 18 different areas of the state and we meet once a 19 month. We phone call periodically. But, you know, 20 it's really kind of difficult to keep connected on 21 the items that I think we all might have as 22 important. 23 So I've asked this to be -- and I'm really 24 glad I did -- for this particular hearing. 25 I have tried to put together my concept 26 of what -- 27 MR. RUNNER: Can I, real quick? 28 MS. HARKEY: What? 3 1 MR. RUNNER: I'm going to ask -- because, 2 again, we have three items that are in this, under 3 this R item. And as I looked at them, 4 organizationally, I would like to see Controller 5 Yee's go to the front of the discussion because it 6 is a broader discussion -- 7 MS. HARKEY: Okay. I -- 8 MR. RUNNER: Hang on just a minute. 9 A broader discussion on governance. 10 The other two Members have some governance 11 but then also a lot of other things in it. So I -- 12 I actually think that order-wise if we move Member 13 Yee's issue to the first part of the discussion it 14 may help us then get through those other ones. 15 So I would like to move that we go ahead 16 and move Member Yee's governing policy issue to the 17 first of the items to be discussed under R. 18 MS. HARKEY: Well, I have a question on 19 that. Are you going to do an up-down vote? 20 MR. RUNNER: On what? 21 MS. HARKEY: On -- on the policy. 22 MS. YEE: There is no policy. 23 MS. HARKEY: Or on the -- are we going to 24 do a yes or no vote on the item? 25 MR. RUNNER: Maybe. 26 MS. YEE: On which item? 27 MS. HARKEY: Okay. I -- I'm very concerned 28 because we're getting into a lot of issues in that 4 1 item and I'd like to kind of go through these bit by 2 bit. Because Member Yee has a broad policy, but it 3 does encompass a lot of other issues. 4 I'd like to get some votes so that it would 5 help us as we go through her proposal. I think it 6 might make it a lot easier as to know where the 7 direction is. I have a -- I have a. -- 8 MS. YEE: Madam Chair -- 9 MS. HARKEY: Yes. 10 MS. YEE: -- may I, please? 11 I'd like an opportunity to provide context 12 for what I've put forth. It's not a proposal. It 13 is a -- it is a set of guidelines for how to develop 14 a single document governance policy for the Board, 15 which actually encompasses a lot of what you and Mr. 16 Horton have put forth before us. 17 To me, there's a hierarchy of how we ought 18 to think about this. And, uh -- and I think if -- 19 and I appreciate Mr. Runner's suggestion that we 20 take up the third item first. I will tell you, if 21 you want to go in the order of the agenda, I likely 22 will not weigh in on anything because to me they're 23 out of place without the discussion of a broader 24 governance policy that this Board desperately needs 25 in a single document that could incorporate items 26 one and two in this agenda item. Because part of 27 what I'm suggesting is that then Executive Director 28 would create an ad hoc committee that would come 5 1 back to us and could incorporate what you and Mr. 2 Horton have suggested as parts of this governance 3 policy. 4 We don't have -- we have all kinds of 5 things throughout this organization that govern what 6 this Board does and how we conduct our business. 7 But there is not anything that is in a single 8 document that guides how we conduct our business, 9 how we view our role, how we view the roles and 10 responsibilities of, um, certainly the Chair, Vice 11 Chair, Committee Chairs. And I think with respect 12 to the need for one, it is -- it's just -- it's just 13 needed to create Board Member oversight and 14 accountability and hopefully greater efficiency and, 15 more importantly, just transparency for the 16 public. 17 MS. HARKEY: Okay. I'm -- let me just -- 18 let me just -- I have no problem with taking your 19 item. I do have a problem with taking your item bit 20 by bit because I think that some of the items are 21 covered in what we're raising here and we can have a 22 broader discussion. 23 One of the points that you've made very 24 appropriately is that the Members do not run the 25 agency. But we do have oversight responsibility. 26 And to the extent that we don't -- we don't have any 27 kind of reporting, what really started the CSEA 28 audit and everything else was the SCO audit that 6 1 came out in 2015 that brought forth some 2 deficiencies and started kind of the ball rolling. 3 And my question has always been when I got 4 here, I don't know how it is that a Board oversees 5 an agency with very little reporting. We were not 6 getting any staff reports or issue papers. Board 7 Members were all pulling at -- at the agency staff 8 for one thing or another. And I think the agency 9 staff kind of felt that, well, if they just made the 10 Board Members happy, they could do what they wanted 11 to over here, and then it kind of all crashed. 12 I don't think it was anyone's intent. I 13 think it was just the way that we were kind of 14 operating that, uh, you know, the ED and the 15 previous EDs and other people had just, you know, 16 kind of operated with the Board, which is I think 17 we're trying to separate here that we have some 18 oversight. But don't -- but we need tools to have 19 the oversight, which is what my points are, the 20 tools to have the oversight. 21 We also got -- got, uh -- I've got memos 22 here and whatnot on the communications with staff. 23 You know, the one -- well, there are -- there are a 24 lot of particular issues that were addressed, one of 25 them being the code, Government Code, the ex parte 26 communication in Government Code 15623. It seems 27 that everybody's doing 15623 in a different manner, 28 and I think that that's the problem more than the 7 1 actual, uh -- the actual setting -- setting of a 2 policy. 3 I'd like us to have one way that Board 4 Members communicate, either on an issue or not. I'd 5 like to know if we do wish to have ex parte 6 communication, at what level? How do we want to 7 handle it? 8 My staff was operating with Randy Ferris's 9 memo and found out that we really weren't -- I mean 10 that nobody else really was, rather, I should say. 11 And it just got very confusing. 12 And so we got -- we got a letter to 13 Assemblyman Ting's office stating that, you know, 14 Members were interfering here and here and here. 15 And then we got -- we had other -- other letters 16 going out. We've had people, you know, not -- not 17 really understanding how to communicate. 18 So that's one issue I really want to ferret 19 out in this hearing. And I want the time to do that 20 because I think it's a key issue. 21 MR. RUNNER: Can we -- can we get back into 22 the discussion, though, in regards to Member Yee's 23 item being the first on the agenda? 24 MS. HARKEY: If -- if we can go through 25 15623 -- I'm still in Chairing here and I know you 26 guys don't want to -- don't really want to do it 27 this way. But I'm afraid that what will happen is 28 we'll get off into -- because I've got Member Yee's 8 1 items all lined out. I've gone through all of them. 2 And they are very, very -- 3 MR. RUNNER: Let me try it again. I'll 4 make a motion that we move Member Yee's item to the 5 first of the discussion and then build off of that. 6 MR. HORTON: Madam Chair, if I may? 7 MR. RUNNER: I'll make that motion. 8 MS. MA: Second. 9 MS. HARKEY: I don't -- can -- 10 My -- you know, this is one of the problems 11 that we have is with the Board. I got -- I got 12 criticized for not managing the meetings. And now 13 that I'm trying to manage the meeting, I'm being 14 criticized for managing the meeting. 15 So, you know -- and Member Yee has a 16 distinct section in there as to what is part of the 17 Chair and the Vice Chair and I'm not doing any of 18 those items. I'm just sticking to our basic letting 19 everybody have kind of -- you know, manage 20 themselves, providing that we stay in some kind of 21 order. 22 And I understand that we want to get to 23 that item, but I do want to get to my items very 24 much because they are oversight items. They're 25 oversight items that we need. And the 15623 needs 26 to be discussed; it is very important. We've had 27 people accused of violating a statute, when in fact 28 the only violation in statute is if they don't do 9 1 something, if we don't investigate. 2 So I need to know if we want investigatory 3 powers. I think this Board needs to -- needs to 4 decide if they want that and at what level and how 5 it gets done. 6 There's been no policy, really, before. 7 I think we also -- the staff on the Senate 8 side are very concerned with ex parte 9 communications. And I think we need to understand 10 that, too. 11 MR. RUNNER: I think those are all 12 important -- 13 MR. HORTON: Madam Chair, if I may. 14 MR. RUNNER: -- but I think at this point 15 we've got a motion that we can go ahead and dispense 16 of. 17 MR. HORTON: Madam Chair, may I speak? 18 MR. RUNNER: And that will allow us to go 19 forward. 20 MS. HARKEY: Yes, you may. 21 MR. HORTON: Thank you. 22 Members, I don't think it -- I don't think 23 it matters whether we take Member Yee's proposals up 24 first, second or last. I'm okay with taking 'em up 25 first. 26 The, uh, the governance issue of the Board 27 of Equalization or the need for the Board of 28 Equalization to even have a discussion about 10 1 governance is inherent in what the challenge is 2 before us. There are existing governance issues. 3 The issues that Member Yee has articulated in her 4 documents, they currently exist within this agency. 5 They have guided this agency for the last 6 hundred-and-some years. 7 Her point that they are not consolidated in 8 one given area, I don't think that's going to change 9 people's perception of how they should govern. But 10 I don't see they will cause any harm either, to -- 11 to do that, other than many of the governance issues 12 are not germane to Members. They're -- they're 13 germane to the executive staff. One of the reasons 14 that the agency, the Members confer the power to the 15 Executive Director is to give the Executive Director 16 the authority to manage this agency. The mere 17 notion that Members somehow should be participating 18 in that is part of the inherent challenge that we 19 currently face. 20 And so I think it's wise that Members are 21 educated about -- about the various provisions out 22 there, in the Executive Director's Protocol and 23 Procedures Manual, the Rules of Tax Appeals, the BOE 24 Code of Ethics, BEAM, Board Executive Assistant 25 Manual; all of which, at least on our read, these 26 various governance issues currently exist. And we 27 are restating the status quo to the extent of the 28 one item that seems to -- that is uniquely different 11 1 than anything that we currently do. 2 So to the extent that we're able to discuss 3 that, it may be helpful because apparently there may 4 be some misunderstanding about what currently exists 5 and what the current protocols are. And it's what 6 the current -- what is currently actually happening, 7 it is dissemination of incorrect, inaccurate, 8 misleading information that has caused many of the 9 distorted presumptions that are out there in the 10 general public. 11 So there may be some wisdom in having that 12 discussion. 13 MS. HARKEY: Member Yee. I yield the 14 floor. 15 MR. HORTON: Let me -- let me -- let me 16 conclude though, Madam Chair, if I may. 17 But there's also a lot of wisdom in 18 addition to discussing the status quo as it is 19 reflected in various different documents, with the 20 exception of the one or two items. There is a need 21 to deal specifically with the issues that are before 22 us, not necessarily just the issues in the 23 Department of Finance evaluation. I think the 24 legislative analyst has put forth concerns. Members 25 of the Legislature has put forth concerns. And I 26 think those concerns are very, very specific and 27 that we ought to deal with them specifically after 28 we get past, you know, dealing with the status quo 12 1 as it exists in various different documents and 2 maybe consolidating into one document. 3 But it, for me, Members, it is the 4 enforcement and the compliance of the existing 5 provisions and existing law that we need to 6 establish some parameters around, if you will. 7 So, Madam Chair, thank you. 8 MS. HARKEY: I relent. Go ahead. Thank 9 you. 10 MS. YEE: First of all, let me just say I 11 really am disappointed by the tenor of this 12 discussion. I think we're all here trying to do 13 better in terms of how we govern ourselves. 14 And uh -- and let me just be clear, I do 15 want to see a single public document that describes 16 our Board governance policy. But this is not about 17 the status quo. This is about having a place where 18 for any member of the public they can refer to a 19 policy that sets out some clear expectations about 20 our roles and responsibilities. And they are 21 scattered throughout different types of documents. 22 This has been spurred by the fact that there has not 23 been clarity with respect to some of these policies. 24 And I appreciate, Madam Chair, that you 25 want to bring clarity to some of these policies, and 26 I'm happy to engage in that. What I am not prepared 27 to do today is to sit here on the fly and try to 28 decide it. What I wanted to do with the guideline 13 1 was to identify the range of issues that ought to be 2 incorporated into a Board governance policy. 3 I sit on 70 boards and commissions as 4 Controller and I can tell you a governance policy is 5 essential in terms of how members work with one 6 another, what the public can expect with respect to 7 our oversight responsibilities and how we're 8 accountable to them. 9 And we don't have that single document here 10 at this Board. And given all that we've been 11 criticized for over the last period of months, I 12 think it's essential that we develop one. 13 At this point, to Mr. Runner's point, Board 14 Member Runner's point, I'll wait my turn. But I can 15 just say that I'm not in disagreement with what 16 people want to do. If we're all about improving 17 upon the governance of this Board, I'm all in. But 18 if we're about trying to hide the ball any further 19 with respect to where we find authorities to, you 20 know, govern the actions that each of us take with 21 respect to carrying out our duties that may not be 22 consistent among the five of us or four of us, then 23 we have a problem. 24 MS. HARKEY: Okay I -- I am never one to 25 hide the ball. And I -- I think that that was maybe 26 not the best choice of words. 27 What I'm trying to do and what I would like 28 to do is to take this in an orderly fashion and to 14 1 address some of the -- if we don't correct ourselves 2 with what has been raised at the -- at the 3 Legislature -- and I've listened to those hearings, 4 I've watched the tapes, I've been there -- if we 5 don't correct ourselves on some of the issues where 6 we can have some oversight, which are the issues 7 that I'm raising -- I don't mind the governance 8 policy. 9 Quite honestly, I think it's good to have a 10 broad policy that everybody kind of understands 11 whose in what chair. But the problem we've had is 12 everybody's getting out of their lane. And so I 13 totally agree with you, we need to stay in our lane. 14 But what I do want to be sure is that we 15 address these issues, and I've certainly provided 16 plenty of data to address the issues I have and get 17 some votes on it. Because otherwise, we're going to 18 be regulated by the Legislature if we can't -- if we 19 can't govern ourselves, and I think we can. I think 20 with some oversight capacity we can govern 21 ourselves. 22 We are an elected board. Like I said, no 23 different than a Board of Sups; it's very, very 24 similar. But we have to -- we staff and we have to 25 set some kind of expectations what we'd like to see. 26 And on these areas where we have been criticized is 27 where I'd like to have votes. 28 So I don't want anyone to make decisions on 15 1 the fly. I do want to have some votes on these 2 items and your policy to the extent that it is -- it 3 is broad, and I've reviewed it all, I'm all 4 supportive of it. And you can -- you may go first 5 if you'd like. I will interject because as you see 6 I have my grid and I will be happy to comment based 7 on your policy if you'd like. 8 MS. YEE: Madam Chair, perhaps the way to 9 approach this, I'm happy to go through the 10 guidelines of the proposed outline of the policy 11 that I've put forth. And I'm happy to stop where we 12 have issues that are raised that you feel we need to 13 address. That was really how this was laid out, was 14 for that purpose. 15 But -- and I'll defer to my colleagues as 16 to whether you feel prepared to make decisions today 17 about how to clarify some of the issues that have 18 been raised. 19 I wanted some time, because I don't believe 20 we're the only holders of information and data and 21 experience around how to inform this policy. I also 22 think staff has some information that might help 23 guide us as well, given the, uh -- some of the 24 internal work that they've done to try to respond to 25 concerns as well. So I wanted to give staff that 26 opportunity, certainly our Executive Director. 27 So if you may -- if I may, I would be happy 28 to walk through it and then just see where these 16 1 issues intersect with both your item and Mr. 2 Horton's items, if that makes sense. 3 MS. HARKEY: That's fine. 4 MR. HORTON: Madam Chair, if I may. I 5 don't -- why don't we just take it up separately? 6 I mean -- these -- these -- these 7 governance -- the governance of the Board of 8 Equalization is currently compiled in Publication 9 No. 72 where everyone can -- and the summary of our 10 constitutional authority exists in BEAM. And 11 they're in separate places for specific reasons. 12 And so the Board is saying to itself, "We 13 want to establish governance policy for the Board." 14 Well, these governance policy -- and then in another 15 statement we say, "Well, we don't want to govern the 16 agency." 17 If we don't want to govern the agency, then 18 the governance policy is for the agency. And our 19 role is as a collective body and to be aware of 20 those and to be supportive of that effort. And to 21 the extent that we can drive any deviations for 22 those policies should be driven to the Board for 23 discussion. 24 I mean the -- the Executive Director 25 Protocol and Procedures Manual speaks to issues 26 relative to -- to that. Rules of taxation and 27 appeals, which is something different. The legal 28 opinions that oversee governance, which is as we -- 17 1 as I look at the proposals, Member Yee -- I mean I 2 appreciate it, don't get me wrong. I appreciate the 3 effort, and I think it's -- I think we need to do 4 that. And so I think that education needs -- needs 5 to take place. 6 But -- and I think the education needs to 7 take place for the executive team and as well as for 8 the Members so that we're aware. But how the 9 Members govern themselves is established in the 10 constitution. It's established in a number of other 11 bodies that says how we should govern ourselves 12 individually. And to the extent that there's 13 deviation from that is where I think we ought to 14 specifically address that. But out of my 15 appreciation and deference -- 16 ---oOo--- 17 18 19 20 21 22 23 24 25 26 27 28 18 1 ---oOo--- 2 MS. YEE: All right. And let me just 3 clarify, this is a Board Governance Policy. So this 4 is about how we conduct our business, um, and 5 hopefully have a policy that can -- that would be 6 clear about our oversight and our accountability. 7 So the document begins with some basic 8 governance principles that I don't think are unique. 9 But really the first substantive section relates to 10 the roles and powers of the Board. 11 And I think, Madam Chair, this is where I 12 do believe a discussion of the Members' 13 investigatory powers is provided in Government Code 14 Section 15623 ought to be addressed, should be an 15 explanation that -- I mean, from my perspective, 16 that Members are, under that authority, that Members 17 facilitate but not direct an outcome. 18 And that the standards that were outlined 19 in the prior Chief Counsel's May 16th, 2016 memo, 20 that requires Members to facilitate a constituent 21 concern by coordinating efforts with the appropriate 22 Assistant Chief of Field should be adopted. 23 In addition, I think as we look at how we 24 address -- and I still do this as a Statewide 25 Officer, to the extent that I receive them -- but 26 with respect to constituent concerns, to utilize the 27 Taxpayers' Rights Advocate and the Executive 28 Director when facilitating constituent matters. 19 1 And then in terms of carrying out our 2 investigatory powers, that we ought not have direct 3 communication with rank-and-file staff who are 4 responsible for conducting audits and compliance 5 activities. 6 That has to be a bright line in my mind. 7 Nor should we participate in meetings between 8 taxpayers and managers and supervisors, or rank and 9 file, about any matter that might be pending. 10 So I think this is a place to address that 11 Government Code Section, Madam Chair. I know that's 12 been a -- 13 MS. HARKEY: Thank you. That's fine. I'm 14 glad we're getting to this. Thank you so much. 15 Okay. I do agree we should be 16 facilitating, not directing or speaking. That was 17 in my letter. 18 And I do, you know, if we get concurrence 19 on that -- first off, I guess I'd like to ask 20 if the Members agree that we should continue with 21 our investigation authority in our districts as such 22 is currently allowed under Government Code 15623, 23 and with that -- with the caveat that 15623 is 24 violated if we do not investigate. 25 And so do Members agree that that's a good 26 code? 27 MR. RUNNER: I think it's essential. It's 28 the law, for one thing. And so I do believe, 20 1 indeed, that is what is our -- what is our function 2 currently. 3 And I have found, again, in the 4 conversations that we've had in the past in regards 5 to this item, have been specifically addressed with 6 the memo that was put out in May 16th last year to 7 give guidance at that point. 8 We've -- you know, our office has sought to 9 live within that. We've had numerous conversations, 10 you know, throughout the year about that and about 11 how to fit in when it is; when we're in, when we're 12 out. You know, I don't think there will always ever 13 be a, you know, a -- a -- you know, conversations go 14 different ways. So sometimes they go sideways and 15 you get into areas that you all the sudden start 16 being, you know -- you're not in the right area and 17 you've got to back off of that. 18 There might be times when you thought you 19 were right, and then there needs to be a place then 20 for corrective action. I don't mean corrective 21 action. There needs to be a place for corrective 22 dialogue when all of a sudden, you know -- and 23 oftentimes it's not us. It may be a staff member 24 that all of a sudden wanna -- wanna feel on some 25 issue. And we need to be able to then bring that in 26 and talk about that. 27 But I think basically the issue of 28 investigating under the Government Code 21 1 Section 1562 -- 623 is essential. I think it's the 2 law. And I think the memo that I would like to see 3 then incorporated into clarify that is just to go 4 ahead and blend in that memo by our previous 5 Chief Counsel into the -- into the governance plan 6 that we're talking about. 7 I think it should be included in any 8 governance plan, but obviously we're talking about 9 this one. So that's where I would be on that 10 issue. 11 MS. HARKEY: Is that to be incorporated 12 into a governance plan, or is that to be a policy 13 memo? 14 MR. RUNNER: I think it's a governance 15 plan. I think it has to do with what our role and 16 authority is. I think it's fundamental. 17 MS. YEE: Mm-hm. It is. 18 MS. HARKEY: Thank you. 19 Yes. 20 MS. MA: I definitely agree on the role of 21 Board Members. But we were told when we got elected 22 and got a memo from Randy Ferris, I believe, that 23 said we are supposed to work through our Assistant 24 Chief of Fields regarding any constituent issues, 25 and that he was the one that's supposed to interact 26 with the staff. 27 And then if there were, you know, other 28 issues that were not resolved, we were supposed to 22 1 meet with the Executive Director and try to have the 2 Executive Director meet with the Chief of Fields and 3 the staff. 4 And I think that's what we've been trying 5 to do instead of directly calling any of our 6 district administrators or any of the auditors 7 directly. That's been our understanding in terms of 8 what the protocol is supposed to be when we get 9 constituent inquiries. 10 MS. KELLY: That's correct. You've been 11 following the memo. 12 MS. MA: Thank you. 13 MR. RUNNER: Can I clarify something? 14 I think sometimes we get confused -- not 15 confused. I think there's an area that kind of 16 we -- I think we end up dabbling in, which has to do 17 with constituent services versus investigation. 18 I'll just give you an example of one that's 19 the best way for me to think about it. And I've 20 talked to Chief Counsel about this specifically and 21 to the ED, because we've talked through this, "Hey, 22 what about this one?" 23 I'm in Lancaster, and a friend of mine that 24 owns a steakhouse, and he owns a cafe, and he's 25 gonna sell his cafe down the street. And his escrow 26 is set to close on Friday, and he needs a tax 27 clearance. So he says, "Hey, George, I need a tax 28 clearance. I've got to close this escrow on 23 1 Friday." 2 My discussion with him is very specific. I 3 said, "Okay. Hey, listen, why don't you call my 4 office." 5 My office then got in contact with the 6 local district office to the people who then do tax 7 clearances, just to say, "Hey, how are we doing on 8 that item?" The guy says, "Hey, we're doing fine. 9 It's all set. It will be done, and it will be 10 closed." 11 I had him call the guy, close the loop; it 12 all closed, everything worked fine. 13 Now, I don't interpret what we should be 14 doing is calling Chief of Field, Assistant Chief of 15 Field or the ED to check on a tax clearance. To me, 16 that's just normal constituent services. 17 I think when we start dealing with the 18 issue of dealing with the Assistant Chief of Fields, 19 we're -- at that point, it seems to me in my head, 20 we're talking about audit issues, we're talking 21 about things like that. 22 Can I get a word from Chief Counsel on 23 that? 24 MS. KELLY: Right. So what the Board may 25 want to consider is that what the May 2016 Chief 26 Counsel memo addresses is substantive issues. We're 27 getting involved in audits, you're getting involved 28 in "how is a case being handled." And I think what 24 1 you're addressing are process issues. 2 MR. RUNNER: Mm-hm. 3 MS. KELLY: "Is there a delay?" "Does 4 taxpayer need something sped up?" 5 So the Board might want to consider carving 6 out simple process questions as being an area where 7 Board Member staff can talk more directly with 8 supervisory and direct staff -- 9 MR. RUNNER: And, again, I think you're 10 right. I'm not sure how to carve that out. But, 11 again, the lines can be very close. 12 For instance, my staff member could have 13 done it wrong. My staff member could have said, 14 "This tax clearance, it needs to go to the top of 15 the pile, and it needs to get done first." 16 That's crossing the line at that point. 17 That's directing as opposed to just then basically 18 facilitating. 19 And, again, I think you're right. I think 20 if we can understand that what we have in this memo 21 here is dealing with things that are in process, 22 things that are in audit, that kind of relationship. 23 Now, that doesn't mean there's not an 24 inappropriate way even to do constituent services. 25 Right? 26 Again, we could do constituent services 27 wrong. One of the issues that I think helps fix 28 that -- because I don't think we can ever get a memo 25 1 that's so clear that everything gets done -- I think 2 what would help clarify that is whenever a Board 3 Member does even a constituent service inquiry, that 4 that's communicated -- when we would do it, we would 5 communicate to either identified person Chief 6 Counsel and say, "Hey, my office called such and 7 such office, and we checked on a tax clearance." I 8 think that's an appropriate communication for us to 9 keep people in the loop. 10 But I also think it's appropriate, then, 11 for the person I'm working with to run that up the 12 organizations too. "Hey, Board Member Runner's 13 office called me today. They're checking on a tax 14 clearance." And just run that up. Because then if 15 the line is crossed -- again, somebody in my office 16 could do it wrong. And if somebody in my office did 17 it wrong, I need that communicated up the 18 organization too, and said, "Hey, one of your staff 19 members really screwed up here." 20 And so I think it needs to be -- I think 21 the communication needs to be up the organization 22 too. And I know the ED and I have talked about that 23 as a -- as a -- as a procedure that I think is 24 important that way to keep everybody aware of what's 25 communicated, how it's communicated, and if it's 26 communicated correctly. 27 MS. KELLY: What you're talking about are 28 those two pieces of the puzzle. The first piece 26 1 being what is facilitation versus direction, and the 2 other piece being that staff understands that when 3 they're contacted, the contact needs to go up to a 4 supervisor, up through the chain if there's a 5 problem. 6 MS. YEE: Can I -- 7 MS. KELLY: Oh, Ms. Yee, can I -- I wanted 8 to just read a sentence of the memo that speaks to 9 this. 10 MS. YEE: Yeah. 11 MS. KELLY: And that is, the investigatory 12 powers under Government Code Section 15623 do not 13 empower individual members to give direction 14 regarding how any particular constituent concern 15 should be resolved. 16 That goes to what you're speaking. 17 MS. HARKEY: I think that's really 18 important. 19 The other point that I would like to 20 clarify in this memo, if we're gonna accumulate 21 this, I would like this memo to be sure that it does 22 state that when matters of administrative appeals 23 process, the investigatory powers, therefore, when a 24 matter is an administrative appeals process, which 25 can be any time after petition, which is a lot of 26 times when we get a phone call as to, "Can you help 27 us?" or "What can you do?" as I understand from my 28 staff. That the individual members -- the 27 1 investigatory powers of the individual members must 2 be held in advance to avoid interfering with the 3 adjudicatory function. 4 I'd like some clarity on that in that we 5 don't vote, we don't make a decision, we don't tell 6 them what's possible, but we are able to at least -- 7 once somebody gets a billing, we are able to at 8 least work with them. And this seems to indicate 9 that we can't. And we need to be able to ask 10 questions. 11 So how do you -- how do you envision that? 12 MS. KELLY: Well, once you have -- once a 13 case is in petition and forwarded through the 14 appeals process, for any one Board Member to put 15 their finger on the scale and alter it, alters the 16 case as it comes before the five-member Board. 17 So the effect is that one Board Member has 18 shaped the appeal that now comes before the 19 five-member Board. And that's what we want to 20 avoid. 21 MS. HARKEY: And a lot of times these cases 22 don't even come here, because they get resolved. 23 We -- just an example the other day -- just 24 give you an example of something that came before my 25 staff. Somebody got a billing for a million-three 26 based on an audit. The first audit, and the audit 27 that they had previous used the wrong taxpayer 28 information. And they got through that, and they 28 1 corrected all that. 2 But then the next auditor took that same 3 error percentage, carried it forward, billed him a 4 million-three. And then they were continuing to 5 defend their right to bill them based on erroneous 6 information. This happens. And if we had been able 7 to talk to them -- they're obviously in the petition 8 process. If we had been able to talk to them -- a 9 million-three is a lot of money to most people. And 10 we were, I think, able to get some resolution at a 11 very low level, which does help. 12 It saves money, time, effort and doesn't 13 raise these issues from going to the governor's 14 office or going somewhere else when we truly find 15 some errors like this. 16 And it's not -- most of our auditors do a 17 good job, but some of these things get through, and 18 there's quite a few of them. Because these are old. 19 They're old items. And other times it's right after 20 the petition. 21 So I do think we need to have some way that 22 we can interact, maybe not that we make a decision, 23 but we have to be able to ask question. Because 24 many times the department pulls it. They just pull 25 it. If we go through our ACOF, and he does his 26 thing and speaks to the appropriate people -- we 27 don't ever go down to the auditors. We don't do 28 that. But we do go to the ACOF on something like 29 1 this. And there needs to be clarity, otherwise we 2 have tons of these. 3 Member Horton. 4 MR. HORTON: Thank you. 5 MS. HARKEY: Chief Counsel, can you -- can 6 you respond on that, and then we will -- 7 MS. KELLY: Well, to hold your 8 investigatory duties in advance, you would not be 9 contacting on those, and those would go through the 10 appeal process would be the next step to catch those 11 errors. 12 MS. HARKEY: That's a pretty -- 13 MR. RUNNER: Let me give you another one of 14 my examples. Okay. This happened very early in our 15 time here. We got a call from somebody who had a 16 mine up in Modoc County, and they were audited, and 17 they got a bill for a million dollars. 18 They were using red dye diesel incorrectly. 19 They were using it on a public road. They didn't 20 know it was a public road because it was dirt. The 21 escaped tax that was missed by the State of 22 California was $8,000. 23 So they called our office, said, "Hey, what 24 do we do? We want to fix this, but we don't want 25 get a million dollar fine." 26 So they called our office. I would not 27 feel comfortable saying to them, "You're going to 28 have to appeal this, and maybe in three years you 30 1 can get this worked out." 2 Here's what we did. What we did was called 3 over to Chief Counsel, and we called over to other 4 folks, and we had a meeting. And we said, "Hey, can 5 you guys interpret this?" We never -- never talked 6 to the auditor. "Can you interpret this law that's 7 being interpreted for this formula? Because, man, 8 this just doesn't sound right to be able to come up 9 with a million dollar error for an $8,000 escaped 10 tax." And it got worked out. 11 So we did engage, but we engaged, not at a 12 long ways from the auditor, but we engaged with 13 Chief Counsel, with the ED, and probably some -- oh, 14 Special Taxes, David, actually, wasn't it? 15 It was David back there in Special Taxes. 16 And it got worked out correctly. 17 So I would hate to think that our only 18 alternative would be to call and talk to somebody 19 and say, "Oh, by the way, I'll see you in three 20 years when you appeal." 21 Again, it would be crazy to call the 22 auditor and say, "You guys screwed up, you need to 23 lower this." That would be wrong. So I think 24 that's the clarification that I would want to have 25 too. 26 MS. HARKEY: We get a lot of these. 27 Member Horton. 28 MR. HORTON: Madam Chair, the issue before 31 1 us is misconceptions at every level where Board 2 Members' staff may have a misconception of what the 3 rules are. Staff may have a misconception of what 4 the rules are in all -- all throughout the agency. 5 And this one word, "investigation," is creating some 6 problems. 7 I think we strike that word and change it 8 to advocate. And that the Members should only be 9 advocating through the proper channels for, um -- 10 for any issue, whatsoever, in which we have to 11 address. And at the high possible level, we can 12 appreciate that objective. 13 The Deputy of Business Tax, anything 14 related to Business Tax that a constituent has a 15 concern with, I can have a conversation directly 16 with that Deputy who reports to the Executive 17 Director, and I don't have to go up three or four 18 different chains. They meet on a weekly basis, they 19 can express, "Member Horton has a concern in this 20 particular area" Constituent services, Taxpayers' 21 Bill of Rights Advocate is responsible as -- that 22 deals with that. 23 We need a specific policy that restricts 24 Members ability to go beyond a particular line, and 25 that line would be at the highest possible level. 26 And so a process by which we advocate, if we 27 establish that, I think there will be a level of 28 clarity. 32 1 There also needs to be a process in which 2 we can have some sort of compliance. And I think 3 the Issue Paper process where when staff, it -- it 4 -- it believes that this is inconsistent with 5 existing policy, that that gets driven through -- 6 upward through the process to the Board for some 7 consideration. So if there is a deviation by anyone 8 in the agency, there's a deviation from this 9 investigation or these particular rules, that 10 deviation gets reported up to the process and then 11 some level of enforcement. 12 So I would go as far as, Members, to 13 suggest legislation that amends 15623 and strikes 14 the word "investigates," and replaces it with "the 15 authority to request and to advocate for," and then 16 direct the agency to establish a process by which 17 that advocacy can take place mostly effectively. 18 I don't -- I've been -- I have worked for 19 the agency 22 years at every level, and I don't see 20 a need to have to go beyond that particular line. 21 We get constituent inquiries, we refer them to the 22 agency, and the agency works up and down the chain 23 of command, goes to the appropriate person, talks to 24 the Chief of Field, and they resolve it. Oftentimes 25 we just get a note that has been resolved. 26 I have a level of experience with taxation 27 and so forth that I could engage, but I've chosen 28 not to because I don't feel that that's my role. If 33 1 we're talking about the role of the Members, that's 2 not my role. That's why we have a Chief Counsel. 3 That's why we have a Deputy over the district and 4 over the field. We have a Deputy over Special Tax. 5 The structure is in place for that mere reason. 6 And, realistically, it is crossing that 7 line that has caused these problems or perception of 8 a problem, and, you know, where -- won't necessarily 9 get into that. 10 So I would recommend we -- either we do 11 legislation to strike the word "investigation," and 12 replace it with "advocacy." That way it's clear to 13 the world. There's never no future 14 misinterpretation. 15 Every eight years Board Members change. 16 And if you look at the history, Board Members have 17 interpreted this "investigation" in different ways 18 over the years to give them a lot more power than 19 they really have. Which I believe was anticipated 20 when the legislation was first passed. 21 So strike that, then direct staff to 22 develop a channel where Members can advocate in 23 various different areas, constituent services as 24 well as policy changes, as well as investigative 25 activity, which should be the Chief Counsel, 26 constituent service Taxpayers' Bill of Rights 27 Advocacy, directly to the different agencies. I do 28 not see a need to go beyond that, and to be 34 1 effective as a -- as a Member. 2 MS. HARKEY: Member Yee. 3 MS. YEE: Thank you, Madam Chair. 4 I'm glad we're having this conversation. 5 Certainly to the extent this Government Code Section 6 remains intact and not appealed by the Legislature, 7 we do need to clarify it I think. My interest is 8 in, really, consistency across all the districts. 9 And, um, I think the memo of May 16th, 2016 is a 10 great attempt at doing that. 11 It's not to say we don't, you know, 12 continue to try to resolve our constituent concerns 13 that are raised. I do take a little bit of an issue 14 with the use of the word "advocacy." Because we 15 have a Taxpayers' Rights Advocate. 16 I think to the extent some of these matters 17 may work their way up before the Board in terms of 18 appeal, I think the -- the use of the word 19 "advocacy" just doesn't seem appropriate. 20 I will say that we have a lot of tools at 21 our disposal. We really do. Starting with 22 Assistant Chief of Fields to the Taxpayers' Rights 23 Advocate, to Executive Director's office to Chief 24 Counsel, I mean, they are all really there to serve, 25 not only this institution, but all of us when we 26 have constituent matters. Because that is our bread 27 and butter business, and that is taxpayer service. 28 All I think I'm really trying to do in 35 1 terms of the "Roles and Powers of the Board Section" 2 is to get some clarity around the investigatory 3 powers. And I do believe there's some agreement 4 about Members facilitating and not directing 5 outcomes. There's some agreement that the May 16th, 6 2016 memo is, in fact, a response to how we can get 7 some consistency relative to how we deal with these 8 issues. 9 But really what I'm trying to avoid here 10 is -- and I'm glad to hear that none of you are 11 doing it -- but just no reach in to rank-and-file 12 staff or to managers and supervises who are in the 13 middle of a pending auditor compliance issue. And 14 that we just don't go there as Board Members. 15 MS. HARKEY: That's very correct. I would 16 like to state that I would be willing to accept what 17 you just said as a motion. But I would like to 18 get -- direct staff to find a policy for once 19 something has been -- once something has been 20 petitioned by a policy for inquiry, something that 21 we could follow there. Because we don't want to 22 just let these go. 23 I think Member Runner would agree and I 24 think Member Ma as well, some of -- some of these 25 things are so obvious to be problems that it's -- 26 it's a little bit embarrassing that they get brought 27 to your attention. 28 So I would like to adopt this memo as 36 1 guideline, May 16th memo as guideline. And to have 2 staff come back with some further clarification or 3 a -- for the Board to review as to how we might 4 communicate in situations such as I've raised and 5 Member Runner has raised, and how we are to do that. 6 We used to have a protocol for Members as 7 to who you call over what, and I understand we 8 haven't renewed that in a long time. And maybe 9 that's the answer that we have protocol as to who we 10 call. 11 That used to be in, I believe, the BEAM, 12 maybe -- no, where was it? It was in personnel. We 13 had an old one and new one that never got 14 approved. 15 MS. KELLY: Board Member binder. 16 MS. HARKEY: Board Member binder. 17 So that's where we got it in the Board 18 Member binder stuff. And it was never approved. 19 MS. YEE: Can I suggest something on that 20 issue, Member Hark -- Madam Chair? 21 It seems to me when it's at the stage of 22 petitions and not knowing what the ultimate outcome 23 would be of those matters, that I see a role for the 24 Taxpayers' Rights Advocate. It's neutral; it's 25 independent; it's not going to effect this really, 26 it'll mean more offices having a handle there. And 27 then leave it to the advocate to figure out how to 28 really get to an outcome of that, that may minimize 37 1 or just even eliminate the need for that to continue 2 through the appeal's process. 3 But I just think that might be an 4 appropriate way. I've actually utilized the 5 Taxpayers' Rights Advocate in those situations. 6 MS. HARKEY: We have utilized them in a lot 7 of situations, the only -- the problem that I have 8 is that we are elected, and these people call our 9 offices. And I feel like I don't want to just toss 10 them off. I'd rather have some interface with it if 11 it's in conjunction with the Taxpayers' Rights 12 Advocate. 13 But I would like to be able to go -- I 14 would like to be able to go to -- or have my staff 15 go to a specific Department head or whatever and 16 have them inquire directly. And maybe, you know -- 17 how do you want to structure this? 18 ---oOo--- 19 20 21 22 23 24 25 26 27 28 38 1 ---oOo--- 2 MR. HORTON: There's a lot of wisdom in 3 Members engaging at that higher level and having 4 that discussion. And -- and one would argue that 5 it's part of their constitutional authority to do 6 so, responsibility to -- to share that sentiment. 7 It is when you go down below that level. 8 And Members, let me just, um -- uh, so I 9 mean I -- I support staff coming back with a process 10 that further defines, gives a better understanding 11 of how we interface with these different, um, units 12 or individuals, taxpayers' rights advocate. How do 13 we engage with them? How do we engage with Chief 14 Counsel when there is some investigative activity 15 that may need to take place? And how we engage with 16 the Deputy Director of Business Taxes and Special 17 Taxes as well. Establishing that as a higher level. 18 But still, Members ought to be able to engage. 19 But, Members, I want to stay away from, um, 20 the status quo. And I say that because the 2016 21 memo -- there are eight memos on this subject 22 matter, dating back on 2004, that say basically the 23 same thing. And every time the memo has come out 24 has been pursuant to the need to have greater 25 enforcement of some deviation from it. 26 So it's been more of a reminder. And it 27 all falls back on Members or -- or interpretation of 28 this term "investigate." Now, we can talk 39 1 semantics. You can say "advocate." You can say 2 whatever you want. But clearly "investigate" gives 3 a connotation that you have far more authority than 4 the authority that we're establishing from a 5 protocol perspective. 6 And -- and so maybe if -- I would venture 7 to say that the Legislature's prepared to repeal 8 this or change that term of "investigate" because it 9 gives the -- as I said earlier, the connotation of 10 giving you far more authority. And we've had 11 Members sitting up here on the dais articulating 12 that it gives them more authority than just 13 advocating. 14 So being realistic here, that 15 "investigation" term has given some pause to staff 16 and has created some challenges over the years, 17 dating back to 1999. 18 So, um, I welcome, you know, Chief Counsel 19 and Executive Director coming back with a process 20 that establishes that in a term. But I also think 21 we need to either define, to say, "This is the 22 definition of 'investigative authority' in these 23 various different areas." And I would suggest that 24 we do legislation to strike it. 25 MR. RUNNER: Yeah, I -- I'm not supportive 26 of that. I think -- and I don't think it really 27 solves the issue before us. 28 Here's what I think. I -- I think that, 40 1 again, we're talking about some things that are 2 items in petition, and this is a good discussion for 3 us to have. Um, I'm okay with the concept that -- 4 and, again, this is as I think through how we've 5 acted, um, typically this is the way we've acted. 6 The -- the discussions are either -- are usually 7 with the Assistant Chief of Field, or prior to that 8 it was with the Chief of Field, and then it would 9 always be with the Deputy Director whose area it 10 was, and usually Chief Counsel at that point. To 11 me, those are all a long ways from the -- from 12 the -- from the Auditor. They're a long ways from 13 the Auditor. 14 MR. HORTON: Not in the petition process, 15 Mr. Runner. 16 MR. RUNNER: Well, hold, hold -- 17 MR. HORTON: In the petition process, 18 that's a direct contact with the -- with the 19 decisionmakers. 20 MR. RUNNER: No. Hold -- hold -- 21 MR. HORTON: In the petition process, the 22 petition's held as the -- 23 MR. RUNNER: We -- we allow the taxpayer to 24 have direct contact with them. 25 MR. HORTON: No, I'm saying Members. In 26 the petition process, Members, we don't nec -- we 27 don't have a need to deal with those that closely 28 associate ourselves with that process. 41 1 MR. RUNNER: Well, hold on. How do you 2 deal -- how do you deal with those examples that we 3 just gave then? 4 MR. HORTON: I would suggest that you deal 5 with it through -- through legal counsel. 6 MR. RUNNER: Well, we -- we -- we -- 7 okay. 8 MR. HORTON: And it's in petitions. And 9 that you have a discussion with Chief Counsel and 10 Chief Counsel directs -- takes the appropriate steps 11 to evaluate and assess that. 12 And, I would also -- 13 MR. RUNNER: Well, again. Okay, hold on. 14 MR. HORTON: You asked me a question. 15 MR. RUNNER: This was my time, my 16 discussion and then you come back and answer. 17 The -- the -- the issue that I have is, is 18 that oftentimes we can have a discussion with the 19 Chief Counsel, but usually when these take place we 20 have the Chief Counsel and then we have the Deputy 21 Director, whoever's there, too, who oversees that 22 area -- because Chief Counsel doesn't -- um, who 23 then has that -- has that discussion. 24 So, to me, it's an appropriate -- it's a 25 long ways from the taxpayer -- excuse me, a long 26 ways from the Auditor. It's a long -- we're -- 27 we're usually dealing with some -- some 28 interpretation of law in regards to, "Is this right? 42 1 Is it being applied correctly?" And it allows me to 2 also have at least a dialogue with my taxpayer. I'm 3 not -- I can't -- I just don't wash my hands and 4 say, "Taxpayer, I'm sorry I can't talk -- we can't 5 talk about this." 6 It -- it -- it's really no different -- in 7 one sense it's not a lot different than items that 8 are coming before us on appeal. When somebody comes 9 actually before us on appeal and we're looking at 10 what's coming before us, we'll have conversation, 11 again, at this point with Appeal, these folks 12 obviously are with the Department, and with the 13 Chief Counsel, and we'll talk about whether or not 14 some things were looked at correctly as this is even 15 coming before us. So we already have -- we have 16 dialogue like that on the items that are even coming 17 before the Board. 18 MR. HORTON: Yeah. 19 MR. RUNNER: So -- so I -- I think alls 20 we're trying to do is identify at least a way for us 21 to touch the issue without us influencing 22 inappropriately and, as I think as the Chief Counsel 23 said, putting our thumb on the scale. 24 MR. HORTON: Well -- 25 MR. RUNNER: To me, that is -- that is the 26 real issue. 27 MR. HORTON: May I respond? 28 MR. RUNNER: Yeah. 43 1 MR. HORTON: The -- the Deputy Director of, 2 let's say, Sales and Use Tax -- 3 MR. RUNNER: Right. 4 MR. HORTON: -- has the responsibility to 5 the district field office and so forth. And he's 6 part of that -- he's part of that process of the 7 audit, the assessment, the review and so forth. 8 Once it leaves the Deputy Director and is 9 going into Appeals, it goes to a separate unit. It 10 now goes to the Appeals Unit, which is responsible 11 for overseeing and interacting with the Deputy 12 Director and all of his -- all of his particular 13 staff members. 14 So now the Appeals Unit has that appeal and 15 to go to the Deputy Director at that point is -- 16 creates an imbalance, in my mind. And so at that 17 point that the Appeals Unit has it, the Appeals Unit 18 reports directly to the Chief Counsel. And what 19 better person to have a discussion about the law 20 than Chief Counsel? 21 Now, I mean, I guess if you were to have a 22 discussion with the, uh, the Chief over the Appeals 23 Unit, that might be better suited to have that 24 discussion at that point. And I also believe that 25 Members ought to have the right, and they -- just 26 like anybody else, to have a discussion with the 27 taxpayers directly and to use whatever knowledge 28 they to have give consultation -- I mean not 44 1 consultation, but thoughts at that level. But 2 engaging with the agency at the Deputy Director, 3 that's part of the audit process. That whole unit 4 conducts the audits. 5 The unit that conducts the appeals is a 6 separate unit. And if we are going to have -- 7 discussing protocol, if we're going to have some 8 interaction, I would suggest that that interaction 9 start at the head of the Appeals Unit, which happens 10 to be the Chief Counsel and then disseminates itself 11 down, or maybe the Chief Counsel's direct under the, 12 uh -- under the person -- what's that -- 13 MS. KELLY: The Assistant Chief Counsel. 14 The Assistant Chief Counsel of Appeals. 15 MR. HORTON: Assistant Chief Counsel of 16 Appeals, a direct conversation with the Assistant 17 Chief Counsel of Appeals, that keeps the 18 Members direct -- keeps the Members -- that 19 separates the Members from the entire audit 20 process. 21 MR. RUNNER: Are we -- 22 MS. HARKEY: Okay. Let me -- let me just 23 run something by you guys, um, because we're all 24 kind of saying the same thing with the exception 25 of -- of what we do in this instance. And I've got 26 something to offer here, because I think that we all 27 in agreement that we want to keep 15623; is that 28 correct? We all agree we need investigatory powers? 45 1 MR. RUNNER: Not Jerome. 2 MS. HARKEY: I know, not Jerome. But, 3 um -- okay. 4 Let me just make -- let me just make a 5 suggestion that we keep 15623, and that we use, or 6 facilitate -- clarify the implementation with the 7 memo from Randy Ferris, dated May 16, 2016, to the 8 Board. But that we would like to clarify that 9 investigative duties of Members don't cease because 10 a constituent matter has been petitioned. Members 11 should be permitted to ask staff to respond to 12 inquiries anywhere in the process except with 13 respect to settlement. 14 MR. HORTON: Well, that's the status quo. 15 I'm not-- 16 MS. HARKEY: Just a minute. 17 Members' offices do not and should not 18 direct outcomes. Members do need to engage with 19 appropriate agency staff with knowledge of the 20 issues on constituent matters that are in the 21 petition process, warranting investigation of the 22 administration enforcement or operation of the laws 23 and the Member's district. And because a conclusion 24 or result is not directed or mandated upon staff, 25 there is no interference in the five-member Board's 26 ultimate adjudicatory role in that manner. 27 We're not making a decision. We are just 28 merely engaging with the key staff member, whoever 46 1 that would be. Because the rest of the memo works 2 beautifully, is how I think everybody kind of 3 operates. 4 The issue is when some of these -- some of 5 these cases come -- they're not even scheduled for 6 an agenda yet. They're way out, sometimes several 7 years. And to let people lie fallow is probably not 8 what we would want to do being that we're elected 9 and we have constituents. And also, just, I'm 10 thinking on a -- on a process, from the Board's 11 standpoint, you don't want all these complaints 12 circling around. We'd rather just -- if they could 13 be resolved at the lowest level, that saves time, 14 money, effort and reputation. 15 I think the Board as a whole does a good 16 job. We just have some of these issues that are 17 problematic. And if we can get resolution or get 18 them resolved, I'd like to do so. 19 MR. HORTON: What we might be able to do 20 Members, if I may -- 21 MS. HARKEY: Excuse me. Just a minute. I 22 think -- I think -- 23 MR. HORTON: Member Yee. 24 MS. HARKEY: I think -- yes. Did you have 25 a comment? 26 MS. KELLY: I was wondering, did -- in your 27 motion, did it include the direction once a petition 28 is filed that contact between Board Members and 47 1 Department staff is at a certain level? Did I miss 2 that? 3 MS. HARKEY: Yeah. Just, you know, that 4 Members' offices do not direct outcomes and should 5 not direct outcomes. Members do need to engage with 6 appropriate agency staff. 7 MS. KELLY: That's what my question is. 8 MS. HARKEY: And we can decide what that 9 is. 10 MS. KELLY: Yeah. 11 MS. HARKEY: With knowledge on the issues 12 and constituent matters that are on the petition 13 process warranting investigation. 14 So if we -- if we have that level of 15 protocol for the certain CEAs that are responsible, 16 if our -- our -- one of our staff members, such 17 as our -- because I have people that are from Board 18 of Equalization, you know, skilled in tax and law. 19 If they contact that person directly and discuss it 20 with them, that it's not a problem. Because a lot 21 of times that just gets resolved, gets pulled off, 22 and we don't -- I mean we don't deal with it anymore 23 because the person in charge, the CEA level in 24 charge says, "Yeah, I see that. We're fine." 25 MS. KELLY: Mm-hmm. Yeah, it's helpful to 26 have it at that higher level. 27 MS. HARKEY: Yeah, the higher level. 28 MR. RUNNER: Higher level -- see, when I 48 1 say -- when I think "higher level," I think the 2 Deputy Chief of Staff -- excuse me, the Deputy Chief 3 of Field. Because then you're away from any 4 particular office. 5 MS. KELLY: The further you are away, the 6 less you're -- 7 MR. RUNNER: Right. 8 MS. KELLY: -- directing and the more 9 you're facilitating. 10 MR. RUNNER: Right. So that's where I -- 11 if I was -- you know, when you say appropriate staff 12 there, that, in my head, that's where I go. 13 MR. HORTON: Well, before we do a -- before 14 we do a motion, Members, let me just encourage -- I 15 think Member Yee made references -- because -- let 16 me encourage that we sort of have staff develop 17 something that sort of codifies what we're trying to 18 say. Because when you -- when you discuss appeals, 19 the higher level's a different level. When you 20 discuss audit, the higher level's a different level. 21 When you discuss special tax, you know, and it's not 22 CEAs. And so I think we may benefit from their 23 wisdom. 24 MR. RUNNER: Yeah. 25 MR. HORTON: And just articulating that 26 it's the highest level within that area of concern. 27 If it's an audit, then whatever that highest level 28 it would be in my mind, the Deputy of Sales and Use 49 1 Tax or Special Tax. If it's a constituent matter, 2 the highest level would be the taxpayers' advocate. 3 And this, I don't think that this should 4 preclude Members from having discussions directly 5 with their constituents and providing direction 6 there or having that higher level participate in 7 that process. I think that makes sense. It's just 8 when you go beyond that. Again -- 9 MS. HARKEY: I have a suggestion, see if 10 the Assistant Chief of Field might be the starting 11 point? 12 MR. HORTON: No. 13 MR. RUNNER: Actually, I'm okay, I'm okay 14 with the thought that -- we've had a long 15 discussion. 16 MS. HARKEY: If we could just get your -- 17 MR. RUNNER: Let me just get an opinion 18 here. I think we've all gathered around the May 19 16th memo as a -- as a starting point. I think that 20 seems to be a general -- that seems to be a general 21 agreement. 22 It seems to me that there's -- there's been 23 enough discussion here about examples, about 24 contacts and whatnot that I -- I -- I do feel like 25 the staff can come back with some guidance for us on 26 this issue as to -- as to the proper level. But I 27 think we can at least begin with that as a -- the 28 May 16th memo as a base and then ask the staff to 50 1 come back to us with some suggestions and with that. 2 I think that gets us through this issue. 3 MS. HARKEY: I would really like to hear a 4 motion that way. 5 MS. YEE: I'll -- I'll make a motion. 6 MR. RUNNER: Okay. And I'll second that. 7 MS. HARKEY: Second. And that the staff -- 8 MS. YEE: Actually, I'd like to state the 9 motion in this form: To the extent the Government 10 Code section 15623 remains the law -- 11 MR. RUNNER: Mm-hmm. 12 MS. YEE: -- I would move that we adopt the 13 May 16th, 2016 memo. 14 MR. RUNNER: Mm-hmm. 15 MS. YEE: To, uh -- 16 MS. HARKEY: Codify. 17 MS. YEE: -- essentially further -- to 18 clarify the implementation of that code section. 19 MR. RUNNER: And ask staff to come back. 20 MR. HORTON: Member Yee. 21 MS. YEE: And then direct staff to come 22 back with, um, a recommendation as it relates to 23 those matters, whether they be in the petitions 24 process or any other. 25 MR. RUNNER: I second that. 26 MR. HORTON: Would you also entertain some 27 further definition of the term "investigate"? 28 MS. MA: No. 51 1 MS. YEE: Yeah, I've been sitting here 2 thinking about another term, Member Horton, and I -- 3 MR. HORTON: Not really looking for a term, 4 but more a definition in some body, I prefer in law. 5 And I prefer striking it altogether and putting a 6 definition as to what it means there, which can 7 probably be accomplished with five or six words. 8 But short of that, that we direct Chief Counsel 9 to -- to come up with a definition of what that 10 investigation now means as a result of this 11 discussion among Members as to what -- you know, 12 this new revelation. 13 MR. RUNNER: I don't think you need a 14 definition of investigatory. I think what you 15 need then is the guidelines. 16 MS. YEE: I -- I think -- I don't think the 17 word matters. Because what I'm looking for is what 18 do we have in place as a policy that will ensure 19 consistency statewide, and where there are -- 20 there's a sufficient enough direction with respect 21 to how these matters get -- get handled. 22 MR. HORTON: Okay. 23 MS. HARKEY: Okay. Is there -- 24 MR. HORTON: Let me then, Members, let me 25 also suggest that we take a look at some sort of 26 compliance process to -- for staff to establish a 27 process by which if there is a deviation from this, 28 there's a means in which to -- to ensure compliance 52 1 wherever that might be, the appropriate level. And 2 that there's a -- there's a process by which, in the 3 compliance process, a process by which when there is 4 a deviation or there is a need for, a sense of a 5 need to deviate from existing policy that that -- 6 that deviation gets driven to the Board for a 7 decision. It's not just set out there. So that 8 staff is advised that whenever they feel that 9 there's a deviation or that the initial step might 10 be to discuss that deviation with the appropriate 11 person, not being able to resolve that, that it's 12 moved through the process to the Board through an 13 issue paper for some resolution. And that the Board 14 Members have that as a tool. Staff has that as a 15 tool. And management has that as a tool. And it 16 creates a stop gap short of repealing 15623 17 altogether. 18 That creates a stop gap I believe that 19 there is a level of enforcement that will bring 20 about compliance. Because, realistically Members, 21 this is not the first rodeo with this. In 2004 22 Board Members went through the same thing, made 23 exact same decision. Okay, we got a memo, we're 24 going to adhere to that memo. In 2000 -- 2004, 25 strike that. 26 In 2005, they proceeded to break the memo, 27 you know what I mean. And then it was issued again 28 in 2008. Issued again -- I mean eight different 53 1 times this same memo has of some rendition of this 2 memo has been issued and the Board has said, "We're 3 going to comply with it." 4 And -- and without these checks and 5 balances in place, the internal controls in place 6 that gives some level of enforcement, some level of 7 compliance, and some level of clear definition to 8 all who -- who are subject to this, we're -- we're 9 saying something that lacks enforcement, lacks 10 compliance, and can be altered by the next 7 Members 11 who decide to change it. 12 MS. HARKEY: Yeah, here. I had a -- we had 13 a motion, we had a second. And I know there's 14 subject to more debate. But I'd like to see if we 15 can get that rolling. 16 Member Yee made a motion. Member Runner 17 supported it. This was comment after the motion. 18 But I don't want the motion to get muddied. 19 MR. HORTON: Could -- could you repeat the 20 motion? 21 MS. HARKEY: So if we could -- is there 22 objection to the motion? 23 MR. HORTON: I'd like to hear the motion 24 again. 25 MS. YEE: Okay. The motion I made was to 26 the extent that Government Code section 15623 27 remains the law, that we adopt the process as 28 outlined in the May 16th, 2016 memo for how that 54 1 section would be implemented. And then direction to 2 the staff to come back to us with recommendations as 3 relates to matters that are presented to Board 4 Members that are in the petitions process, help us 5 to handle those. 6 MS. HARKEY: Thank you. That's 7 beautiful. 8 MR. RUNNER: That's good. 9 MS. HARKEY: Okay. So any -- any objection 10 to that? Okay. Such will be the order. No 11 objection. 12 ---oOo--- 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 55 1 ---oOo--- 2 MS. YEE: Next -- and actually, just let me 3 ask Madam Chair, so as we go through each of these 4 items, now some of these are placeholders, and I 5 don't think warrant a discussion among us. But part 6 of why I had put together the set of guidelines was 7 to then have Mr. Gau and a team essentially fill in 8 the pieces from other sources where these policies 9 may exist. To the extent that there's additional 10 input that can be provided by Mr. Gau and his team, 11 we would welcome that as well. 12 So essentially the role of Chair and Vice 13 Chair, I think that's articulated somewhere. We can 14 incorporate that here. If we want to entertain 15 further discussion on that, I think we would wait 16 until we see what would come back to us. 17 Delegation to the Executive Director, we 18 just had an item that speaks to the conferring of 19 powers to the Executive Director. I don't think we 20 need to raise that again. 21 The Code of Ethics is the ethics statement 22 that's described in BOE's publication 336. Again, 23 just trying to pull it into this policy so it's in 24 one place that's available to the public. 25 Communication protocol for Members and 26 their staff with the Executive Director, the Chief 27 Counsel, CEAs, managers and supervisors, rank and 28 file, FTB and BOE attorneys presenting before the 56 1 Board, tax and fee payers coming before the Board. 2 This speaks to how the Board operates with respect 3 to communication with all parties and carrying out 4 our duties, and obviously all communication to be 5 conducted with respect, without intimidation or 6 harassment. 7 But the protocols, I think, are things that 8 are probably somewhat articulated or informally 9 articulated in other -- in different places. 10 So, Ms. Kelly, I think we can probably pull 11 from different places there as well. 12 MS. KELLY: Yes. 13 MS. YEE: Okay. 14 MS. MA: Ms. Yee, can I add -- can I just 15 add, when you talk about stability and courtesy, not 16 only Board members, but I think it should be 17 extended to our staff, you know, our Chief of Staff 18 perhaps -- 19 MS. YEE: Yes. 20 MS. MA: -- or anybody that is under our 21 control, they should also be treating everyone with 22 stability and courtesy. 23 MS. YEE: Respect without intimidation or 24 harassment, yeah. 25 MS. HARKEY: Okay. I'm trying to figure 26 out -- you went through your whole program and 27 there's a lot in here. 28 MS. YEE: Uh-huh. I'm just kind of walking 57 1 through the key elements to see -- 2 MS. HARKEY: If we can take it piece by 3 piece and see if there's any -- like section by 4 section, I think it might help us get through it 5 just a little bit easier. We just took out a couple 6 big sections which were important, and we voted on 7 those. 8 MS. YEE: So I'm essentially skipping to, 9 um, we just finished "Roles and Powers of the 10 Board," "Role of Chair and Vice Chair," we have 11 that articulated already. 12 MS. HARKEY: "Roles and Powers of the 13 Board," you have a discipline section in there. 14 What is your thought on that? 15 MS. YEE: The discipline section I have, 16 um -- 17 MS. HARKEY: Section 7. 18 MR. GAU: -- 7(a)(2). 19 MS. HARKEY: I put out a memo because I'm 20 wanting to understand how this is done by other 21 Boards, what the criteria are. 22 And so with that, I'll turn it over to you. 23 I don't know if you got my memo today. I'm not sure 24 if it went out today or yesterday. 25 MS. YEE: I do have the memo. 26 MS. HARKEY: I just have some questions. 27 I'm trying to figure out where we fit in. 28 MS. YEE: Sure. The legal authority with 58 1 respect to the discipline of elected members resides 2 in Government Code Section 15606. 3 MS. HARKEY: Okay. And what would be the 4 criteria? What would you envision here? 5 MS. YEE: I think it's just really based 6 on the facts and circumstances of the particular 7 situation. 8 And I'm going to turn to Ms. Kelly on this, 9 because we haven't had a lot of experience on this. 10 MS. KELLY: If the Board desires, "Robert's 11 Rules of Orders" addresses this in section 61, 12 "Discipline of Members." 13 So there's a lot of guidance in there for a 14 body to address member conduct, whether the 15 conduct's at meetings or outside of meetings. 16 MS. HARKEY: What I'd like to see is come 17 back to us with some kind of document that pulls 18 from all of those. I did not have time to go 19 through every document, so these are my questions. 20 And I don't know what the Legislature does. What is 21 a violation? 22 My questions are real simple. I just want 23 to be sure we're clear and consistent and, you know, 24 that we -- I know we concensure for -- obvious for 25 some cause, but I'm not sure how we really do this. 26 So I want to be sure we're real clear on this. 27 So maybe in this section we can have -- 28 make a motion that staff come back with some kind of 59 1 outline or guideline to implement discipline of a 2 Member if the Member fails to meet the Board 3 standards, so we can know what -- what is really 4 available to us. And keep it -- and be sure that we 5 keep it consistent. And it doesn't become, you 6 know, something that becomes personal. 7 MS. KELLY: Okay. Will do. 8 MR. HORTON: Madam Chair, if I may. 9 MS. HARKEY: Yes. 10 MR. HORTON: Let me -- as I indicated with 11 many of these, they exist in existing law. And so 12 as the current law exists, that there is some sort 13 of investigating process determination dual -- dual 14 process that occurs in this. 15 The one thing I do not want to see is the 16 hurling of accusations based on subjective criteria 17 or misinformation or incomplete information and so 18 forth. That it leads -- that exposes the agency to 19 potential defamation and slander as a result of 20 these. 21 I mean, part of the challenge that we have 22 is that, you know, politics cause these various 23 different communication or misinterpretations and so 24 forth. And we need to be careful not to engage in 25 that activity in any way. 26 And whatever policy is put forth, that that 27 process, that policy provides for a process of 28 evaluating those terms. Otherwise, Members can now 60 1 currently say whatever they want to say, and they 2 can, you know -- you can't sensor a Member and 3 prohibit a Member from exercising their 4 constitutional duties to their constituents and so 5 forth. 6 You can't vote, you can't do this. But to 7 the extent that there's an admonishment, I think 8 there's a lot of value in that when it has merit, 9 when it's proven to have merit. There's a lot of 10 value in that process, a lot of risk in that process 11 as well, exposing the agency or the individuals who 12 are making such statements to litigation 13 themselves. 14 MS. HARKEY: I think it's really important, 15 too, that we look at this as being legislated. You 16 are elected to represent constituents, but elected 17 people have a certain responsibility to represent. 18 And so I think we have to have more than 19 just Robert's Rules, we need to understand how that 20 interplays. Which is why I want a legal memo to 21 let -- you know, because we can't deny someone their 22 constituent representation. 23 As I understand it in the Legislature, 24 you've got your -- you had your constituents, you 25 had DOJ or FBI or somebody else, you know, or FPPC 26 was watching all these things. And this is what I 27 want to know is, how do you do this with an elected 28 person? And that's my big -- 61 1 MR. RUNNER: My thoughts on censorship -- 2 or on censoring a Member is that it's a pretty 3 typical, normal, parliamentary activity. You know, 4 clubs have it, groups have it. It's not like it's a 5 legal issue. It's not legally binding. There 6 really is no due process. It's just an action that 7 a Board can take within itself about a Member or 8 Members, for that matter. And that I think we're 9 not to get hung up on the fact that this is a legal 10 action that has exposure. 11 Again, "Robert's Rules of Order" sets out 12 guidelines that is typical for these sort of things, 13 and it's basically about self-governance. It's 14 about holding each other accountable in that 15 process. 16 So, again, I don't want to make the 17 standards so high that somehow it can never be 18 incorporated, but I do believe at times the Board 19 has -- now can a Board go crazy with it? Can a 20 local government go crazy with it? Can a 21 not-elected Board or an elected Board go crazy with 22 it? Yeah, they can. They can misuse it. 23 And at that point then it's gonna be up to 24 that discussion. It's gonna be if somebody uses it 25 inappropriately, it becomes a political issue, then 26 it becomes part of the public discourse. But I 27 think there's an important step here in regards to 28 accountability that -- that it's okay. 62 1 So I don't have any problem, again, as the 2 Chair suggested, giving this back to the staff to 3 review what are proper procedures for this activity 4 of censorship when it comes to an elected Board. 5 And, again, I don't think the elected Board 6 has anything to do with it. I think it's about any 7 Board, as I understand, can -- can -- can deal with 8 this. 9 Again, we don't have the ability to take 10 away a vote. We don't have the ability to do any of 11 those kinds of things. 12 MS. HARKEY: That's just what I want to 13 know. 14 Yes. Yes. 15 MS. YEE: I think when you look at the 16 various authorities, there is pretty good guidance 17 with respect to how we can proceed here. And the 18 issue here is really if any one of us fails to meet 19 our own standards of conduct, and we're holding each 20 other accountable. 21 MS. HARKEY: Okay. 22 MR. HORTON: And I think it's appropriate 23 for this not to elevate to such a higher level as 24 far as being documented. The inherent challenge is 25 -- is that if it elevates itself as a result of a 26 discussion, the debate, as a result of the action 27 taken by Members, so I think it's important that 28 whatever communications that return to the Board, 63 1 that it also incorporates a standard by which we 2 avoid those actions. 3 I mean, three Members of the Board can 4 censor two Members of the Board, and those two can 5 turn around and censor the three. Then, again, 6 we're, again, out in the public discord. And that's 7 really what the intended purpose of it is, because 8 it has no other real binding authority over a 9 particular Member. It's just shifting it from -- 10 from intelligent discussion among this body, to now 11 having this public discussion about, "Well, they 12 censored this Member or they censored -- and the 13 Member turned around and censored the Members back. 14 You know, um -- anyway. 15 MS. HARKEY: Okay. I just -- I just would 16 like some clarity. I would like to know what 17 resources there are and what pertains to it. I 18 think that can come back to us. 19 MR. RUNNER: Again, I think it's important. 20 And I'm thinking that that's what the Board up there 21 is asking for. I want to make sure we all 22 understand that. 23 MS. HARKEY: Right. Just asking for a 24 little guidance. 25 The next issue or the question that I have 26 is "Approved Board Delegations," and what does that 27 apply to? I need some clarity on that. 28 Member Yee. 64 1 MS. YEE: This is kind of executive Board 2 reporting relationships. So in my mind the 3 reporting relationships among the executive staff 4 are all to the Executive Director. The Executive 5 Director is the only director to report to the 6 Board. 7 MS. HARKEY: So Board delegations is it -- 8 that's -- 9 MS. YEE: It's consistent with what we just 10 decided on. But it also speaks to, again, 11 streamlining Board communications with the executive 12 staff so that it be somewhat coordinated. Well, 13 actually, coordinated through the Executive 14 Director. 15 MS. MA: Which section are we on? 16 MS. YEE: We're on Section 9; IX. 17 MS. HARKEY: VII, No. 10, approved Board 18 delegations. 19 MS. YEE: I'm sorry. I thought you were in 20 the large section of delegation. 21 MS. MA: Can I -- can I just add to VIII, 22 No. 4, it says, "Convene and conduct Board meetings, 23 controlling the process." Maybe managing and 24 controlling? 25 MS. YEE: I'm sorry. Say that again. 26 MS. MA: So Item VIII, 4, this is regarding 27 the -- 28 MS. HARKEY: This is a different subject. 65 1 We were talking about Board delegations. Now Ms. Ma 2 would like to go through role. 3 MS. MA: I thought we were going section by 4 section. 5 MS. YEE: Approved Board delegations, we 6 just did with respect to the Executive Director. 7 MS. HARKEY: Okay. So then we're going 8 into Section 8, "Role of the Board Chair and Vice 9 Chair." 10 And Member Ma. 11 MS. MA: I would just say, Item 4, it says, 12 "Convene and conduct Board meetings." Should it be 13 managing and controlling? 14 MS. HARKEY: I tried to control up here, 15 and that's impossible. 16 MS. YEE: I guess this speaks to -- I don't 17 know, I'm just going to say this, because I think we 18 may have some difference of opinion relative to the 19 role of the Chair, which is a tremendous 20 responsibility for anyone in that seat. It is 21 really managing the proceedings. I would put 22 managing instead of -- 23 MR. RUNNER: I think managing is a good 24 word. 25 MS. YEE: I mean, this is the role of the 26 Chair. You're the first among equals, and you've 27 got a whole lot more work and responsibility, for no 28 added benefit. 66 1 MR. HORTON: Madam Chair. 2 MS. HARKEY: Yes, Member Horton. 3 MR. HORTON: As much as I appreciate this, 4 Members, we're dealing with semantics here. And 5 these roles of a Chair and so forth, they have 6 existed for hundreds of years, 135 years. So what 7 we may need is an education of the body as to what 8 currently exists, so we are in compliance with what 9 currently exists in the various different bodies of 10 law and policies and procedure. 11 I don't think it's wise for the agency 12 to -- for the Board to perceive that we're creating 13 something new that doesn't exist. 14 I agree with Madam Controller that we're 15 putting it in one centralized place. I agree that 16 the discussion serves to be informative to the 17 Members as to what currently exists. 18 And the unfortunate thing is that 19 discussion is among us as opposed to among the 20 experts who could come back and tell us what 21 currently exists in law, and what the current law 22 says. And then if we want to deviate from that, 23 manage the Board versus facilitate the meeting. 24 The Chair is a facilitator. They can't 25 manage these individual Members up here. Out of the 26 courtesy of the Members, they defer to the Chair, 27 which is an appropriate process. But the Chair is 28 just a facilitator to facilitate the actions of the 67 1 Board, the discussions of the Board, and the 2 management of the agenda, the flow of the 3 information. 4 We step beyond that, you're giving one 5 Member more authority than the other Members have. 6 And I've never really seen that as being 7 appropriate. 8 But, you know, maybe there's -- maybe 9 someone can define this term "manage" as to -- 10 MR. RUNNER: It's just managing the process 11 of the Board. 12 MS. YEE: Madam Chair. 13 MS. HARKEY: Yes. 14 MS. YEE: I -- I -- I can appreciate this 15 is a little bit painful for some of us, but I'm just 16 going to say this. We're ultimately accountable to 17 the public and the taxpayers of the state. We're 18 all elected, and I think we take that responsibility 19 very seriously. I've heard it from each of you in 20 that regard. 21 I really don't give a crap where these 22 policies are, but they're going in a single document 23 for public transparency. It's the least we can do. 24 And I don't care if there was a memo prior 25 to May 16th, 2016, we never had any Board discussion 26 about any of the prior ones. We're putting it in 27 the sunshine now. That's a great thing. Sunshine 28 is a beautiful thing. 68 1 And I don't want to get into semantics 2 here. I didn't even want to go through this process 3 to begin with here. All I was trying to do is 4 provide a framework that we then could have some 5 additional direction. 6 And I appreciate, Madam Chair, that you've 7 had tremendous input in this. And I really value 8 that, because I think we're giving further direction 9 to the staff. 10 I wanted the staff to come back with to us 11 with a framework for what a single policy could look 12 like. And, again, I'm not going do decide on a 13 final policy here today -- policy document here 14 today. I'm more than willing to give input. 15 We've got a Legislature that's about to 16 take action with respect to the future of this 17 Board, and I have no idea what the outcome of that 18 will be. So we're kind of shooting in the dark a 19 little bit there. 20 But I do think at the very least, given all 21 of the serious concerns that have been raised, and 22 audits and evaluations and other things that are 23 surfacing, I mean, I don't know how we sit here and 24 not think this is not necessary. 25 MS. HARKEY: I -- I would just like to -- 26 let me just stop this. Because I think we are 27 dealing with this. I really appreciate you bringing 28 all of these things forward. I think staff will get 69 1 back to us with these issues. 2 I think the importance of what we're doing 3 here is to try to respond to some of the 4 Legislature's concerns, and show them that we are 5 taking some action. 6 So I understand. I think we had a 7 suggestion for managing the process. Managing or 8 facilitating, probably doesn't matter. I don't want 9 to mix words. 10 We definitely -- the Chair does not control 11 the process. And so I think managing or facilitate 12 the process of Board deliberations is probably a 13 good word. 14 Moving -- if we could move onto Section 9, 15 "Delegations to Executives and Board Reporting 16 Relationship." 17 MR. HORTON: Madam Chair, point of 18 clarification. Let me be clear -- 19 MS. HARKEY: Excuse me, Member Horton -- 20 MR. HORTON: -- consolidating -- 21 consolidating existing policy in one place, if that 22 place is perceived to provide greater access or 23 greater sunshine, I'm okay with that. That's not my 24 point. My point is the presumption that they don't 25 exist. And that facilitating -- 26 MS. YEE: I don't think anybody ever said 27 that, Mr. Horton. 28 MS. HARKEY: Okay. Excuse me -- excuse me, 70 1 Member Horton, you've already said that. I'm sorry, 2 but I want -- I want to redirect this, so that we're 3 not here back and forth. I'm really sorry, this 4 time I'm going to try to manage the process of 5 deliberations, because I think we're getting off 6 base. 7 Nobody is saying anything contrary. So I 8 think we're okay with those other items. 9 We've got Item 9. And staff will be back 10 with this document. Item 9, "Delegation to the 11 Executive, Board Reporting Relationships." 12 Now, one section that I have is the 13 Executive Director is a direct report to the Board. 14 I would also like to insert that the Chief Counsel 15 is also direct report to the Board. 16 And so I would like to know if there's any 17 objection to doing that. 18 MS. YEE: I have an objection. 19 MR. RUNNER: No. 20 MS. HARKEY: You do or -- 21 MR. RUNNER: No. 22 MS. YEE: Yes, I do. 23 MR. RUNNER: Oh. 24 MS. HARKEY: Okay. Excuse me. 25 Okay. Member Yee. 26 MS. YEE: There's no question the Chief 27 Counsel serves the institution of the Board as well 28 as the five-member Board. 71 1 In terms of the direct report, I think that 2 report should be to the Executive Director. 3 MR. RUNNER: Oh, I see what you mean. 4 MR. HORTON: Yeah, I would agree. 5 I mean, having more than one person report 6 to the Board, inherently means those two people have 7 to get together and decide what they're going to 8 report to the Boards. The appropriate chain of 9 command would be to have the Executive Director 10 report directly to the -- 11 MS. HARKEY: Do you have any other comment 12 on that? 13 MR. RUNNER: No, I -- 14 MS. HARKEY: I think we do exercise a lot 15 of discretion with the Chief Counsel. And Chief 16 Counsel often facilitates items and does work 17 closely with the ED. 18 I merely want to be sure that there's some 19 kind of an independence there, because, you know, 20 sometimes Members -- Members just need that little 21 bit of extra flexibility, or staff does, or somebody 22 does. To have a Chief Counsel that's -- that really 23 is -- I mean, our big problem has been -- what we've 24 had an issue with is that we both -- Ms. Ma and I 25 have, you know, wanted the Board to be a bit more 26 protected. 27 And I think we've kind of got that -- that 28 issue raised that we feel like, you know, we 72 1 need -- we need someone that's not just -- not just 2 looking at tax policy, but is actually looking at 3 interactions in the Board and protecting the Board 4 from doing anything that might be illegal that they 5 might not be aware of, or from sitting in and 6 manning the closed sessions carefully. 7 And there's just been a lot of issues in 8 these past two years that have come up that have 9 been questions that I don't have answers to, but I 10 would hope that Chief Counsel could -- could work on 11 my behalf as an elected person and provide me with 12 guidance. 13 So however that works, um, if -- I would 14 like to have it be a direct report to the Board. 15 But if I don't count to three, that doesn't happen. 16 MR. RUNNER: I don't think it's 17 necessary. 18 MS. HARKEY: Okay. Nobody thinks it's 19 necessary? Okay. 20 MS. MA: I'm with you. But if the Board 21 feels like, and the Members who have been there feel 22 like that reporting works, I mean, I just feel like 23 we haven't been protected quite enough -- 24 MS. HARKEY: Right. 25 MS. MA: -- since we've been here and had 26 the confidence that our legal counsel has been 27 protecting us. 28 So -- but if you guys feel -- you guys have 73 1 been here longer. 2 MS. HARKEY: I don't have any problem with 3 it, because ultimately they have to get along. They 4 have to go for one policy. 5 MS. YEE: I guess, Madam Chair, that speaks 6 to -- I always found it very odd that we don't ever 7 take the opportunity to talk about the expectations 8 that we have of our higher level executives before 9 we actually go out and recruit. 10 I mean, if there's concerns about not being 11 quite protected from any potential exposure, then I 12 think we've got to confer with the Executive 13 Director about what those instances are so we can 14 get those issues addressed and be mindful of those 15 when recruiting for Chief Counsel. 16 MS. HARKEY: We did a pretty thorough 17 recruitment process. We all reviewed it. We really 18 needed somebody to operate that way. So I think -- 19 I think we have honed it in, we just don't have 20 anybody. We're looking at a variety of candidates. 21 MS. MA: Right. 22 MS. HARKEY: And that will come to the 23 floor. But I -- I just wanted to know on that. 24 MR. HORTON: Madam Chair -- 25 MS. HARKEY: I like the -- so we're just 26 going to leave that alone -- leave that one alone. 27 And then we can move to the Board will 28 annually evaluate the performance. I do raise a 74 1 question with this, because I believe it was 2 explained to me by our Chief Counsel that, you know, 3 the ED is, in fact -- the ED, as it is right now, 4 can be terminated without cause under Government 5 Code Section 15604. The Board may appoint its 6 secretary, which is the ED, and prescribe the 7 enforcement of his duties. The ED and secretary 8 shall hold office during the pleasure of the Board 9 and shall receive such compensation the Board 10 subscribes. 11 The Board will then apply such expert and 12 clerical assistance as it deems necessary in the 13 performance of the powers and duties. 14 And then the Board may modify or reduce the 15 duties of the powers of the ED without cause at any 16 time. And that's the conferring powers. 17 All previous counsels, you know, have 18 advised against placing anything in writing as far 19 as an evaluation, because then that brings in cause. 20 And so my question is, if we do that, if we 21 evaluate -- we've frequently spoken just in 22 sessions -- not in session, but one on one. Mr. Gau 23 would come around and say, "How am I doing?" And 24 I'd say, "I think you're doing great, but I need you 25 to do this, this and this." 26 And that's kind of a loose evaluation, but 27 I think that -- I'm really concerned with creating 28 cause, because then we get into a whole 'nother 75 1 avenue if we formally evaluate. 2 So I don't know if you think, Member Yee, 3 if you're thinking of a formal evaluation or 4 something that's loosely defined, but that is the -- 5 the ED is the person who we deem to run the agency. 6 And if Members are not happy with the way it's 7 running, I don't want to get into having the causal 8 situation. 9 Because we have had a previous ED that, um, 10 you know was asked to be replaced by -- by, um, 11 David -- Mr. Gau. And I don't think -- I know we 12 did not show cause. We did not give reason in that 13 instance. And there were legal reasons -- 14 MS. YEE: Madam Chair, I don't think this 15 discussion is appropriate. What I'd like to do is 16 to just talk about what I meant by this provision. 17 MS. HARKEY: Oh, okay. Fine. 18 MS. YEE: Which is that I do believe there 19 needs to be a process outlined for evaluating the 20 performance of the Executive Director. It could be 21 as formal or as detailed or as general, and more 22 broad brush than -- as you want. 23 But there has to be a mechanism for really 24 providing input as to whether the Executive Director 25 is meeting the expectations. 26 MS. HARKEY: It's generally done by 27 resolution of the Board, resolution to confer 28 powers, I think, is where we do powers, and we state 76 1 what we want. And we have in the past I think just 2 kind of discussed it one on one or in a closed 3 session. 4 MS. YEE: And some models that I think are 5 really effective -- and there are a whole range of 6 models out there. And this is where I want staff to 7 bring back examples of what could work. Obviously 8 to try to achieve the best performance of any 9 Executive is really clear expectations at the 10 offset, so the Board can set those, certainly with 11 the Executive Director, at the outset. There should 12 be room for the Executive Director to provide us 13 with a self-evaluation. 14 So essentially taking the major roles and 15 duties of the position and having the Executive 16 Director provide his or her assessment of their 17 performance with respect to meeting those difference 18 roles and responsibilities. 19 Having that presented to the Board, more 20 than likely, in closed session. And then having the 21 ability to provide some -- some feedback. 22 And that's kind of an essential outline of 23 an evaluation process. The form in which that takes 24 can be -- can be, as I said, as formal or as 25 detailed as you'd like. But there should be a set 26 mechanism for how that evaluation takes place that 27 does also include a self-evaluation by the 28 incumbent. 77 1 MR. RUNNER: I -- I think having a 2 broad -- a broad statement like that in this 3 document is good. I think when it comes down to how 4 it is actually done could be a different discussion. 5 But I think it's important for the Board, 6 but I also think it's important for the ED. So I 7 would feel like that's an important line just the 8 way it is without much more detail, as that can be 9 dealt with later. 10 MR. HORTON: What the -- what is the 11 Chief Counsel's opinion on the cause issue? 12 MS. KELLY: The devil's in the details. 13 And so the process Ms. Yee has outlined sounds like 14 it's workable. 15 MS. HARKEY: Okay. I just know that if you 16 show cause then you have a whole 'nother -- what 17 happens if you were to show cause? I mean, if you 18 were to put something in writing or you're not 19 agreeing, what happens in that circumstance? 20 MS. KELLY: Well, if there's a lawsuit, it 21 can affect the weight of evidence. It depends on 22 what is shown. 23 MS. HARKEY: And what happens if the -- if 24 the ED comes in and provides his list of his 25 accomplishments and his self-evaluation, how does 26 that interact? 27 MS. KELLY: That would not impact the Board 28 or Board Members at all. 78 1 MS. HARKEY: So that might be very 2 workable. 3 MS. KELLY: Mm-hm. 4 MR. HORTON: The annual evaluation is a 5 good thing, but the self-evaluation is also 6 important. And I think that that would include more 7 -- a quarterly -- or not to set a time frame, but to 8 set a self-evaluation that includes conversations 9 with the Members periodically about individual 10 assessments of, not necessarily overall performance, 11 because oftentimes it's not an overall assessment. 12 Sometimes it's an assessment on a particular set of 13 circumstances that may -- may be not satisfactory. 14 And whereas if you look at it overall, it's a wholly 15 different picture. 16 So in that assessment, theoretically, 17 should lend itself to modification of policy, 18 modification of procedure, or some action being 19 taken by the Executive Director that may be able to 20 address those concerns. 21 MS. HARKEY: Okay. I would like to add, I 22 think Mr. Gau comes around our offices every week, 23 or picks up the phone if I'm done in Southern 24 California. We discuss his tick off of items, we 25 discuss concerns with me. If I have any evaluation 26 issues, I will let him know at that point that, you 27 know, what I think I'd like to see happen going 28 forward. 79 1 He also did come around in six months and 2 ask us if we wanted him to continue. I think was 3 the phrase at that point. And I think we all gave 4 him the kudos. And then -- or at least I know I 5 did. I think that was individual. 6 And then, you know, he did one year come 7 back with his list of his items checked off as what 8 he thought he was supposed to be doing, and what he 9 had accomplished. And so, you know, I think that's 10 probably pretty thorough. 11 I think Mr. Gau takes care of himself 12 pretty well in that regard. He wants to know where 13 he is. He checks the temperature and does relay the 14 issues to us. Which is what you would expect of an 15 ED. I mean, he's like the CEO of a major company 16 with 5,000 employees. And you don't expect -- I 17 mean, stockholders don't like them, they're out. I 18 mean, that's the way it works. 19 And Mr. Gau seems to be able to keep his 20 finger on the pulse and know, you know, the 21 questions to ask and know where to go to get the 22 resolutions. And I'm not -- I'm not seeing that he 23 really needs an evaluation more than just, you know, 24 "How are you doing," and -- and, you know, "Do you 25 want me to stay," is kind of the way it's been put 26 to me. 27 ---oOo--- 28 80 1 ---oOo--- 2 MS. HARKEY: Okay. Okay, the next -- 3 "The Board will have ready access to 4 all executives, and such access will be 5 coordinated by the Executive Director." 6 Now, are you meaning that to be in the form 7 of our protocol? Or are you just saying that we 8 call David's office for everything in the executive? 9 Okay, go on. 10 MS. YEE: This could be a protocol that the 11 Executive Director can put in place with respect to 12 how he's kept in the loop with respect to access to 13 all of his executive team. 14 MR. RUNNER: Yep. 15 MS. HARKEY: Okay. Okay, the next item 16 that I have a question on is, um -- it's -- turn the 17 page to number -- let me see, where are we? Let me 18 get the number here. It's -- 19 MR. RUNNER: Ten. 20 MS. HARKEY: -- ten. And number C, 21 question on agenda item. 22 MS. YEE: Uh-huh. 23 MS. HARKEY: Individual Board Members 24 should direct questions regarding specific agenda 25 item to the Executive Director. Or do you mean 26 through the protocol, or how do you mean that? 27 MS. YEE: Um, I -- I think -- well, part of 28 what I'm trying to avoid here is any potential 81 1 violation of Bagley-Keene. 2 MS. HARKEY: Right. 3 MS. YEE: So with all of us being -- I mean 4 I view the Executive Director and the Board Chair's 5 relationship to be pretty much joined at the hip. 6 So if there are Board Member inquiries, they should 7 go through the Executive Director, which then will 8 be resolved with the Board Chair. 9 MS. HARKEY: Okay. And I guess I -- I 10 guess I'm confused because we have questions that -- 11 when -- when we, um -- this gets into the ex parte 12 part of this. 13 When we get -- and I think Member Runner's 14 staff does the same thing -- when we get items that 15 are coming to the agenda, my staff kind of tees them 16 up and we try to contact to be sure that -- I think 17 we contact the, uh, the appellant. 18 MS. YEE: I see. 19 MR. RUNNER: Nothing to do with the 20 hearing. 21 MS. YEE: No, no. 22 So I guess a couple things. 23 MS. HARKEY: Okay. 24 MS. YEE: And maybe this needs to be 25 clarified. 26 So if it's questions specifically just 27 about the agenda -- 28 MS. HARKEY: Okay. 82 1 MS. YEE: This is what I was referring to 2 here. If it's questions about specific items on the 3 agenda that are -- 4 MS. HARKEY: About the Board agenda. 5 MS. YEE: Okay. But if it's related to an 6 appeals matter, I do have some thoughts about 7 that. 8 MR. HARKEY: Okay. Real good. 9 MR. HORTON: Is this placing an item on the 10 agenda, or the agenda after it's gone to the PAN? 11 MS. YEE: I think it's all of the above 12 with respect to the agenda itself. 13 MR. HORTON: Okay. 14 MS. HARKEY: Yeah, so that we -- 15 MR. RUNNER: But we have a process for 16 placing on the -- on the agenda, too. 17 MS. YEE: Mm-hmm, which involves the 18 Executive Director. 19 MR. RUNNER: Mm-hmm. 20 MS. HARKEY: Right. Okay, that's clear. 21 Um, H. 22 MS. YEE: Uh-huh. 23 MS. HARKEY: Individual Board Members are 24 not to become involved in operational management -- 25 which is true -- and should not participate in 26 routine staff meetings or other staff activities 27 unless specifically requested by the Executive 28 Director. 83 1 MR. RUNNER: Mm-hmm. 2 MS. HARKEY: Um, has that been a problem in 3 the past? Because I'm just -- I'm just questioning 4 what the -- you know, if we had -- if there was 5 something coming up that was a particular interest 6 to a Member, they could not participate? Or if like 7 in the instance when everybody came down to Irvine, 8 I came in to welcome them and sat, just to observe, 9 just to listen to what they were talking about. I 10 really learned a heck of a lot about the way the 11 Board operated. 12 And then, you know, that was -- that was 13 one day. But I did -- I did enjoy just coming. 14 They were coming to my district, and it was nice to 15 see northern California, southern California and all 16 the people sitting together. 17 Now, I did not get invited to that. I did 18 tell David I was going to attend. But is that 19 like -- I mean, do I request an invite? Or how does 20 it get denied. I just -- I think the more we know 21 about the agency, the better equipped we are to, 22 uh -- better equipped we are to oversee and kind of 23 understand the way it works. 24 MS. YEE: Yeah, I mean I think this is 25 another one where the Executive Director can develop 26 a protocol. I mean the line I'm trying to draw here 27 is no Board Member involvement in the operational 28 management of the organization. 84 1 MS. HARKEY: Yeah, I think -- I think we've 2 got -- we're very clear on that. 3 MS. YEE: Now, in terms of routine staff 4 meetings, I think those should be -- if you're 5 interested in going to a staff meeting, those should 6 be at least -- I mean I think the Executive Director 7 should be notified in advance just so there's some 8 knowledge of that happening. 9 MS. HARKEY: Yeah, very much. And so 10 should we say, just change that to in routine staff 11 meetings or other staff activities unless -- unless, 12 uh, uh, requested of the Executive Director? Or 13 something like that? 14 MS. YEE: Unless advance notice is provided 15 to the Executive Director. 16 MS. HARKEY: Yeah, advance notice. 17 MR. HORTON: Madam Chair. 18 MS. HARKEY: Because I -- I think they are 19 very inform- -- very informative. 20 MR. HORTON: I don't -- I don't see a need 21 for Board Members to attend the Executive Director's 22 staff meetings and so forth. They're in those 23 meetings discussing governance, policies, a number 24 of different issues. 25 If we want to go there and do a meet and 26 greet, we can certainly arrange a meet and greet. 27 But to be part -- for an individual Member to be a 28 part of the executive team's discussion, I think is 85 1 inappropriate. And I think it -- it -- it adds 2 further to the, um -- to the discomfort of -- 3 discomfort of the staff to have a Member in the 4 meeting when they're trying to discuss issues that 5 are related to the agency. 6 The results of those issues will be 7 articulated to the Members. We will learn of that. 8 They ought to have the freedom to meet among 9 themselves, to make the decisions, to share their 10 thoughts and their advice relative to that. And 11 when necessary, when appropriate, then it comes to 12 our level. 13 Again, we are stepping beyond that line 14 that I don't think is necessary. 15 MS. YEE: I -- I'm perfectly happy with 16 that. I thought what Member Harkey was looking at 17 was, um, certainly things in her district. 18 MS. HARKEY: Advanced notice to the 19 Executive Director, I think works for me. Because I 20 don't -- I don't go around here and go into the 21 building and attend staff meetings. But I think if 22 there's a big function and there's a lot of people 23 involved, I'd like to go by. 24 And I also like to hear -- I mean a lot of 25 times the information is very useful to me because 26 I've not been raised in the BOE. And it was very 27 useful just to sit and observe. And I've had my, 28 uh -- my, uh, district administrators thank me for 86 1 attending 'cause they felt at least I was concerned 2 and I was listening to some of the issues they had. 3 So -- so those, you know, broader meetings 4 I would like to at least be able to notice the 5 Executive Director that I'd like to attend. Surely 6 if he has an objection, he would let me know. But I 7 don't -- I -- the problem I have with just putting 8 it in here is that if I happened to show up I'd be 9 admonished somewhere. 10 MS. YEE: No. 11 MS. HARKEY: They probably don't want to do 12 that. 13 MS. YEE: Madam Chair. 14 MS. HARKEY: Yes. 15 MS. YEE: Let me suggest that we leave the 16 provision as-is because there will be communication 17 between you and the Executive Director. And if 18 there's consent for you to attend the meeting, then 19 that will -- 20 MS. HARKEY: Pro advance notice, or -- 21 or -- 22 MS. YEE: No. Leave it as-is, unless 23 specifically requested. Because you're going to 24 make a request of the Executive Director if you want 25 to be a part of the meeting. 26 MR. HORTON: Members, let me -- let me 27 express my objection to that. I don't -- again, I 28 don't think it's appropriate for -- I think it's 87 1 appropriate for Members to -- to go by and do a meet 2 and greet to the extent that they're having a 3 gathering. 4 To the extent they're talking about issues 5 that are germane to their district, I think it's 6 appropriate for Members to participate. But a staff 7 meeting that staff is having, I don't think it's 8 appropriate for Members to -- to -- to participate 9 in that process. And so that's my objection to 10 that. 11 MS. HARKEY: Well, I -- I will disagree on 12 that one item because I just really don't feel like 13 there should be such intimidation or separation. We 14 ultimately -- 15 My feeling is this, is that when somebody 16 says "BOE," they look at the Board Member and they 17 think that we kind of know what's going on in the 18 agency. And to the extent that I'm not offending or 19 interrupting or getting involved, I think I ought to 20 be able to at least hear what's going on in these 21 big, huge division-policy-type meetings. 22 General staff meetings, you know, I 23 wouldn't even consider, uh, unless I had a specific 24 issue and then I would request. 25 So I would -- I would like to change that 26 just for some clarity if you don't mind. 27 MR. RUNNER: Language adjudicatory. 28 MS. HARKEY: You know, other activities 88 1 unless a request is made to the Executive 2 Director. 3 MS. YEE: Made and approved. 4 MS. HARKEY: Yeah, well, I guess he can 5 approve, but he reports to the Board. So I think 6 that's -- 7 MR. RUNNER: Attend staff meetings or other 8 staff activities unless -- 9 MS. HARKEY: Unless a request -- unless a 10 request is made to the Executive Director. And that 11 way -- that way he would know because -- 12 MR. HORTON: What would be the purpose of 13 attending those meetings? 14 MS. HARKEY: Oh, I've just done a few and 15 I've enjoyed them. And I've always -- David has 16 always known I was coming and it was okay. 17 MR. RUNNER: You know, I -- I -- I guess, I 18 just think there's a difference between -- and, 19 again, I think if something is inappropriate or the 20 kind of meeting is not then the ED needs to say, 21 "Hey, not this one." 22 But at the same time almost look at like 23 a -- like a school board member. You know, a school 24 board member ought to be able to go in and sit in a, 25 uh -- 26 MS. HARKEY: Meeting. 27 MR. RUNNER: -- a meeting of the principals 28 of that -- that -- that the district is having. 89 1 That doesn't mean you're directing anything. It 2 doesn't mean you're doing -- you're just -- you're 3 just there because you are elected. You know, 4 you're not -- you're not there -- and I think -- I 5 think it is inappropriate, A, to just show up. 6 MS. HARKEY: Right. 7 MR. RUNNER: I think it's inappropriate to 8 participate. And I think it's appropriate to get 9 permission to ensure that that's a proper place and 10 time to be. 11 But the idea that saying somehow it's 12 wrong, I just -- I hurdle -- I kind of hurdle with 13 it. 14 MR. HORTON: Well, the problem has been, in 15 the past, Members, is that you attend these -- 16 Members attend these meetings. I don't attend these 17 meetings. I don't see a need to attend a meeting. 18 I don't attend staff meetings. 19 But the executive team staff meetings, if I 20 walk in there I apologize and I walk out. Because 21 if you're just sitting there and you're just 22 listening, then I guess you're not directing 23 anything. 24 But if a Member sits in a staff meeting and 25 then engages in any way, shares an opinion in any 26 way, with that -- in that staff meeting, they are 27 now shaping policy, indirectly they're shaping 28 policy. And that's the perception that the staff is 90 1 going to have. 2 Um, you know, it brings into -- to memory 3 when I first learned about this is I was on the city 4 council and I came into -- to a council meeting 5 about 8:00 o'clock in the morning and I didn't see 6 any of the executive team members there. And so I 7 went upstairs and I said to my chief staff, I said 8 "Where are all the executive team members? We need 9 to have a time clock." 10 The next day I came back, they had a time 11 clock and everybody -- all the executive members 12 were upset because they weren't there because they 13 stayed up until 1:00 o'clock the next morning -- the 14 previous morning at a council meeting. But me just 15 saying that among staff altered an entire process. 16 And realistically, we have had processes that have 17 come through a different process than an issue paper 18 where Members' opinions have been heard aside from 19 the collective body articulating our thoughts. 20 And if you're going to visit, it's a 21 different thing. If you're not saying anything and 22 you're just sitting there, it's a different thing. 23 But I don't know what purpose you serve if you're 24 not there to share your thoughts. 25 But that's my objection. 26 MS. YEE: Madam Chair. 27 MS. HARKEY: Yeah, Member Ma has a 28 question. 91 1 MS. MA: Can I just say like I -- I kind of 2 agree that Board Members and their staff really 3 shouldn't be sitting in your staff meetings. 4 Our ACOF reports back regularly with things 5 that the agency's doing, either changes in policy 6 or, you know, things that he's -- he's not happy 7 with in terms of policy changes. And then we would, 8 you know, call David and say, "Hey, is this true? 9 Did you guys change the policy?" You know, why did 10 you do this? Or, you know, thank you for bringing 11 this up and moving this forward. So I mean, that's 12 how we communicate. 13 But I do agree if a Board Member wants to 14 come and say hi because you're in the district, 15 that's fine. But I just think it's different if 16 you're like sitting in the meeting with them for the 17 entire time. I just think it sends a different 18 message that the Executive Director is not the one 19 necessarily in charge, that the Board Member is kind 20 of seeing -- overseeing or, you know, trying to be 21 part of management. Which I think is what this 22 whole governance document is about, is how do we 23 separate ourselves from the day-to-day operations so 24 that we don't -- you know, so we're not seen as 25 overseeing and managing the Executive Director and 26 the day-to-day. 27 MS. HARKEY: Okay, I understand. I 28 understand that. I just -- I just don't want it so 92 1 codified such that if I drop in, I've got a 2 violation somewhere. 3 I want to be sure we're really clear that 4 if a request is made to the Executive Director, if 5 you want to say a request is made and approved by 6 the Executive Director, that's fine, too. If that 7 makes everybody comfortable. 8 I just want to be sure that if I know 9 something's going on in my district I can stop by. 10 If I have a question on a certain policy item -- 11 I can't even imagine that I would do it -- but that 12 I could -- Mr. Gau says, well, we're discussing that 13 at a staff meeting if I could come by and hear the 14 discussion. 15 For me, it's more educational. You know, 16 it's very educational for me to see what the 17 policies are, how they're -- how they're being 18 applied, what the discussion is. You know, it's 19 just, it's very educational. 20 And so if I had an issue or something I 21 would want -- it could be made and approved by the 22 Executive Director. But I don't want it to be that 23 I really couldn't go. And that's how I read this. 24 So if you wouldn't mind to adjust that, I 25 would be fine with it. 26 MR. RUNNER: What was the language again? 27 MS. HARKEY: It's just, you know, unless a 28 request is made and approved by the Executive 93 1 Director. 2 MR. HORTON: Point of clarification. Stop 3 by, say hello. 4 MS. HARKEY: Sometimes it's -- 5 MR. HORTON: If you engage in the policy, 6 was that added in? Or just stop by, say hello, and 7 meet and greet and -- or actually engage in the 8 discussion that's taking place at the staff meeting? 9 MS. HARKEY: Member Horton, not everything 10 is black and white. Sometimes you're -- 11 MR. HORTON: I'm just asking. 12 Ms. HARKEY: Sometimes you're listening to 13 something that's pertinent that you want to hear. 14 Other times you're just stopping by and saying hi. 15 But I don't usually stop by and say hi unless I know 16 Mr. Gau is going to be there and he can say, "Hi. 17 Here's Diane. Hi, how are you?" 18 But if I -- if there were something that I 19 wanted to find out about and he was having a meeting 20 and I asked him if I could attend, I wouldn't want 21 not to be able to attend. 22 And I think this is very prohibitive, and 23 that's all I'm saying. I think that you can make -- 24 make a request, have it be made and approved by the 25 ED. That way he's on target. He knows what you 26 want to come in for. It's no surprises. 27 Like I said, when they do the big division 28 meeting down in Irvine, I was there for day one in 94 1 the morning. And there was a lot of great topics 2 discussed. My district administrators came over and 3 said, "Thanks so much for sitting in. We're really 4 happy when you just don't just do a fly by, that you 5 actually care enough to sit here and listen." 6 I mean, you know, I think it has some value 7 with -- with it. But I did not -- I did not input 8 at the meeting. I did not bring -- I just observed 9 and I listened because there's just a lot going on 10 at this Board and there's a lot of decisions being 11 made and it was very educational for me. 12 MR. RUNNER: I think at this point I'm good 13 with the language. I think we just need to decide 14 if there are three people who are good with it. 15 MS. HARKEY: Are you -- 16 MR. RUNNER: People who want to stay with 17 it. 18 MS. HARKEY: Okay. 19 MR. RUNNER: I'm good with your language. 20 MS. HARKEY: With my language, if a request 21 is made and approved of the Executive Director. 22 MR. RUNNER: I think at this point we just 23 need to decide. 24 MS. HARKEY: Are we okay? Is there a 25 motion to accept that? Are we okay, Betty, Ms. Yee? 26 MR. RUNNER: Okay. 27 MS. HARKEY: Thank you. 28 MR. HORTON: No. 95 1 MS. HARKEY: Okay. 2 MR. HORTON: Note my objection to that. I 3 don't see a need for Board Members -- 4 MS. HARKEY: Okay. 5 MR. RUNNER: We're okay. 6 MR. HORTON: -- to be -- 7 MS. HARKEY: Objection noted. 8 MR. HORTON: -- at staff meetings. 9 MS. MA: This does not include PDD days, 10 right? PDD is not a routine meeting. 11 MS. HARKEY: Not PDD. 12 MR. GAU: No. 13 MS. HARKEY: PDD is different. 14 MR. GAU: And I think if -- with the 15 language that was adopted you're agreeing to it 16 would be up to me to decide whether it was 17 appropriate for that Member to attend or not, 18 depending on the content of the agenda. 19 MS. YEE: Right. 20 MR. GAU: You know, again, an executive 21 team meeting or department head meeting probably 22 wouldn't want -- because, again, I'm look -- I want 23 to be balanced and fair to the Board, right? So I 24 don't want -- you know, I want to make sure that 25 whatever we're saying if it was something that was 26 policy-related or -- or something that was going to 27 come here, that you all be a part of that. 28 And the other thing I guess is, you know, 96 1 we got to make sure we got three people wanting to 2 come to a meeting and I gotta have advance notice of 3 that as well. 4 MS. HARKEY: You have to coordinate. 5 MR. GAU: I think if you allow me to make 6 the decision on -- or maybe stop by and say, "Hi," 7 like you had mentioned, do a greeting. So it'll -- 8 it'll depend on the issue. 9 MS. HARKEY: Okay. 10 Inquiries or correspondence addressed to a 11 Board Member which the Board Member wishes to direct 12 to staff for response or assistance in the 13 preparation of response should be forwarded to the 14 ED. 15 Is that specific, or is that via a 16 protocol? 17 MR. RUNNER: Actually, doesn't -- doesn't 18 this really -- isn't this now fit under our Randy 19 Ferris memo and our discussion there? 20 MS. YEE: I think -- I think some of it 21 does. But this is -- again, just kind of trying to 22 streamline this process. I think in the past, um, 23 correspondence has gone to different places. But -- 24 MS. HARKEY: Okay, um -- 25 MR. RUNNER: I just want to make sure this 26 isn't in conflict with what we -- 27 MS. HARKEY: Yeah. Should we maybe, um -- 28 should we maybe see -- refer to policy. 97 1 MS. YEE: Why don't we have the staff try 2 to reconcile this with the policy. 3 MR. RUNNER: Right. 4 MS. HARKEY: Okay. 5 MS. KELLY: Okay, we can reconcile. 6 MR. GAU: We have a practice around -- 7 MR. RUNNER: Right. 8 MR. GAU: -- this type of issue -- 9 MR. RUNNER: Right, yeah. 10 MR. GAU: -- that we follow. 11 MS. HARKEY: Okay. I think, I think I got 12 through everything that I had specific questions on 13 with regard to -- yes, I did. I did. 14 So the next thing that I'd like to discuss, 15 if the Board would, uh, would allow, would be -- 16 ex parte communications were greatly discussed in 17 the Senate. And I think their understanding of 18 ex parte and our function, what I heard from Senator 19 Roth is that, you know, we -- in essence, we should 20 hold pretrial conferences because I think his -- his 21 idea of what we do is more on, you know, a judge 22 concept. 23 And there are five of us and we do have 24 constituents, which makes it just a little bit 25 different. And also I think a lot of our cases drop 26 before they ever come to appeal, which -- which is 27 obvious by our agenda today. We had a lot of cases 28 on the agenda and they got resolved and disappeared. 98 1 And I think -- I like to think that a lot 2 of that is through our relationship with Appeals 3 where we will try to ferret out some of the issues. 4 Because we -- in my office we communicate with 5 everyone that has an appeal, just to see if they 6 understand the process, do they have anything else 7 to add. If there's anything new, we go back to 8 Appeals. We review the -- the audits. We review 9 everything for any kind of errors or anything else. 10 We'll go back to Appeals, as I understand. 11 I don't do this myself, but we go back to Appeals. 12 We ask Appeals to look at some other considerations, 13 something that we've seen or noted. 14 And we will also -- a lot of times you get 15 people that are -- are very inexperienced. They 16 don't have counsel. They're scared to death, and 17 they don't even know how to prepare or what to bring 18 to the conference. And we will help guide them, and 19 then we will submit the information to Appeals. 20 And many times these cases roll off, they 21 get diminished considerably. All of the -- any 22 errors are gone. A lot of these cases are 10 years 23 old or more. Auditors are gone. Policies are, you 24 know, applied sketchily, or the law is not 25 consistent. 26 So I really -- I don't mind disclosing that 27 we do this. But I -- you know, it's a big issue 28 with them. Ex parte seems to be a very big issue in 99 1 the Legislature. 2 Okay. Well, what I'd like to do is 3 establish a process. Because what we do is, you 4 know, how do you disclose ex parte? I think we 5 could disclose ex parte at the beginning of each -- 6 each Board hearing if we chose to. And just 7 disclose that we have met with a variety of, 8 whatever, taxpayer, or we've talked to, or our staff 9 has talked to. 10 I know this is going to come up -- or I'm 11 pretty sure this is going to come up in the 12 Legislature, which is why I'm bringing it up. 13 How do the Members want to handle this? 14 MR. RUNNER: My concern with it -- again, 15 ultimately I guess I don't mind the idea of a log. 16 I just don't know how useful that is and what 17 problem we're trying to solve. But ultimately I 18 don't think you can do a disclosure in the sense 19 before a meeting, because there may be 20 communications that we may have with somebody in 21 appeal that may not be coming up at that meeting. 22 So we'd be disclosing or it may not ever come up. 23 So we may have participated in it and then it never 24 came up in the meeting. 25 Um, I also -- I mean, I guess conceptually 26 I have an issue in that -- in that I kind of feel 27 like the only people, if I -- I think it's important 28 for me to talk to the taxpayer. I feel like if I 100 1 don't, I'm only talking to the government. So 2 that's part of my -- my -- my big -- my broader 3 concern. And I think for the most part, oftentimes 4 we end up dealing with people who are just, they're 5 just -- they're afraid, they don't know, and so we 6 end up reaching out to them to try to help them feel 7 comfortable in their process. 8 So I don't know. I -- I just, I don't -- I 9 wish I felt that -- I know there's some discussion. 10 I don't know if it's a problem. If it's a problem 11 that's as easily solved and you keep a log and 12 somebody can always ask you who you talked with, 13 that's fine. But, you know, I -- at the end of the 14 day, I just don't think a lot of people are 15 interested and I talked to somebody about some, you 16 know, $5,000 -- less than that -- $2,000 issue they 17 had. Usually this comes up when we're dealing with 18 really big items and, you know, somebody -- and they 19 want to know how often we talked with and who we 20 talked with about some big item. 21 And so I worry about then any kind of pause 22 we do, interrupting an important dialogue that we 23 have with the average small taxpayer who all of a 24 sudden finds himself in a discussion. 25 MS. YEE: Madam Chair. 26 MS. HARKEY: Yes, Member Yee. 27 MS. YEE: I wanted to get some clarity here 28 because it's a practice that I'm not ever engaged 101 1 in. But am I hearing that each of you actually 2 reaches out to taxpayers -- 3 MR. HORTON: No. 4 MS. YEE: -- around the agenda? 5 MS. HARKEY: We do. 6 MR. HORTON: Not me. 7 MR. RUNNER: Yes. 8 MS. HARKEY: And -- and -- and -- and we 9 resolve things quickly. 10 MS. YEE: So -- so, let me -- let me -- I 11 have really grave concerns about this. I mean 12 process is one thing. And if it's clearly -- if 13 it's about navigating an appellant through a 14 process, we have Board Proceedings that can do that. 15 MS. KELLY: That's right. 16 MS. YEE: And I really am -- I mean this is 17 making me very uncomfortable that that's kind of the 18 level of engagement with taxpayers. Because I do 19 think, to Ms. Kelly's point earlier, that does kind 20 of shape kind of the appeals experience then for the 21 appellant. 22 Now, if it's something about getting things 23 resolved, I mean I think part of what Board 24 Proceedings ought to be doing is certainly letting 25 the appellant know -- up until the time of their 26 oral hearing they can pose questions, they can make 27 whatever inquiries about their case. 28 I know that when I sat as a District Member 102 1 there were a lot of concerns with respect to, um, 2 inquiries around income tax appeals. And I think we 3 developed a process that actually worked to where if 4 there was any request for additional information 5 from taxpayers that we would -- that -- that arose 6 out of a Board Member inquiry, then that request and 7 the response to it had to be shared with all parties 8 of the appeal. I mean I think that's a model we 9 could do for other types of appeals as well. 10 This -- this -- this notion that you're 11 proactively contacting taxpayers doesn't seem right 12 to me. 13 MS. HARKEY: We get -- well, maybe Member 14 Runner can explain it, because we have tons of 15 little, large, in-between. We -- we clarify the 16 issues. I mean I know we have Board Appeals that -- 17 I mean or -- or Board -- excuse me, what was it 18 called? 19 MR. GAU: Board Proceedings. 20 MS. HARKEY: Board Proceedings that does 21 that, but they're not as -- I mean, it's not as 22 one-on-one. 23 We actually, in my office, they call and 24 they ask them if they're prepared. We want to 25 understand their argument. 26 MS. YEE: But that -- but that's the 27 hearing process. 28 MS. HARKEY: Well, it is if -- if 103 1 they're -- if everything's totally in front. But 2 otherwise, all we get -- all we get is just staff 3 work, and staff supports staff, generally speaking. 4 We come in and we actually get -- you know, 5 we will find errors in audits and whatnot. And then 6 we go back to Appeals and they will -- they will 7 correct or do whatever they're supposed -- whatever 8 they do if they agree or they don't agree. 9 MR. HORTON: Members, I think that's 10 overstepping the line a little bit in my opinion. 11 The Board established a process where 12 Board -- Board Appeals -- I mean Board Proceedings 13 actually proactively contacts the taxpayers to make 14 sure that they understand the process, that they've 15 been advised about the settlement process, that 16 they've been advised about the hearing process. 17 They go through that entire explanation as to what 18 their options are as far as the appeals process. 19 Having -- I -- I -- I don't -- I don't 20 agree with that. Contacting every taxpayer, having 21 a discussion about their audit and then contacting 22 Appeals as a result of that discussion is -- I think 23 that's stepping over the line, in my opinion. 24 MS. HARKEY: Well, that's -- that's not 25 exactly what we do though. 26 MR. HORTON: Okay. Here's what -- I mean I 27 would -- I would suggest that -- the Board has 28 existing policies. They have a policy of disclosing 104 1 any additional information that may have been 2 provided in our communications with our taxpayers, 3 which I encourage, communication with your 4 taxpayers. They have a policy of disclosing any 5 information that may be determinative to the 6 appeals, to all of the parties, so that all of the 7 parties are aware. Because if we have a 8 conversation with Appeals and the Department is not 9 privy to that conversation, then the Department 10 has -- then there's evidence that's provided to 11 Appeals that the Department's not aware of, which is 12 why we stay out of that. 13 And so -- and if we provide that additional 14 information to Appeals, with Appeals having the 15 responsibility to make sure that all parties to the 16 discussion has that information as well, I think 17 that kind of addresses the problem where you have 18 the inequity in the process. 19 MS. HARKEY: We include Department and 20 Appeals in everything that we ask. They're all well 21 aware. We're not like -- not like we're sneaking 22 around or trying to form a resolution. We're just 23 trying to clarify the issues. A lot of these 24 taxpayers are very inexperienced, and -- and they 25 really don't know or they're afraid or they don't 26 have the information. 27 Yes, Ms. Ma. 28 MS. MA: Okay. So, um -- so on appeals, we 105 1 do, if we have questions, we do try to contact the 2 agency first. Franchise Tax Board will not talk to 3 you. You need to put your request in writing. 4 Sometimes it's kind of late because we -- you know, 5 we're reviewing the cases, um, sometimes at the last 6 minute again. The BOE attorneys will respond to us 7 and try to give us the information. If not, we may 8 try to call the taxpayer for it. Could be like a 9 prior tax return. It could be, you know, a 1099 10 that they got or a W-2. 11 I also agree with Ms. Harkey that the 12 appeals process is not independent. And so the 13 information that we get, like those stacks and 14 stacks and stacks of documents that we get are all 15 from the BOE, based on the attorneys, based on the 16 Appeals and the Appeals attorneys, or the ones that 17 review the cases and are the ones that sit here and 18 adjudicate the case. 19 And so it is not helpful to just go with 20 those type of documents. If a taxpayer wants to 21 meet with us, we will meet with the taxpayer. And 22 I'm fine to disclose to, you know, this Board, if 23 you want, if we met with the taxpayer or the 24 representatives. 25 I think ten minutes on, you know, on the 26 presentation, ten minutes on the state and then five 27 minutes on rebuttal is not necessarily enough time 28 to get to the issues, especially when taxpayers, as 106 1 you have seen, they're very nervous. They're 2 nervous. They don't want to talk. They cry. 3 They're -- you know, they're just not experienced 4 with this process. 5 It's not really an equal process for the 6 taxpayers all the time, especially for the little -- 7 the smaller taxpayers that don't have legal counsel, 8 cannot afford legal counsel. 9 So that's been our process in the past. 10 Doesn't matter whether we met with them, I still 11 vote against them here at the -- at the hearing. 12 But I do think if taxpayers wants to meet with us, 13 that we are open to meeting with them and hearing 14 their side. 15 ---oOo--- 16 17 18 19 20 21 22 23 24 25 26 27 28 107 1 ---oOo--- 2 MR. RUNNER: You know, it's interesting 3 because I've -- I've had plenty of taxpayer meetings 4 that they've initiated, and they come and tell me 5 about their meetings they've had with you. 6 MS. YEE: No. No. I don't actively call 7 people on the agenda. 8 MS. KELLY: Can I clarify -- 9 MR. RUNNER: Yeah. 10 MS. KELLY: -- the rule? 11 MR. RUNNER: What's the rule? 12 MS. KELLY: So it's the rule for Tax 13 Appeals -- 14 MR. RUNNER: Yeah. 15 MS. KELLY: -- 5523.8, Communication with 16 Board Members. 17 MR. RUNNER: Uh-huh. 18 MS. KELLY: The Board Members shall remain 19 accessible to their constituents, their subordinates 20 of governmental agencies, and taxpayers at all times 21 in order to execute the constitutional and statutory 22 duties. 23 Therefore, such persons are an authorized 24 representative, including members of the State Bar, 25 may contact Board Members or Board Member staff at 26 any time, including all matters involving such 27 persons as awaiting an oral hearing before the 28 Board. 108 1 MR. RUNNER: Okay. 2 MS. KELLY: So that's the distinction 3 whether -- here that we're talking about, is whether 4 you're reaching out or whether you're responding to 5 constituents. 6 MR. RUNNER: Okay. So I guess we've 7 established the fact the contact is okay. 8 MS. KELLY: Mm-hm. 9 MR. RUNNER: The question is who initiates 10 it. And I'll tell you why I believe it's important 11 for us to initiate it at times. Because it's the 12 most sophisticated taxpayer who understands to 13 contact us; it's the least sophisticated taxpayer 14 who isn't represented professionally who sometimes 15 has the greatest need in order to dialogue. 16 So I guess -- I guess I'm understanding the 17 line now, but, boy, I would feel like in order to 18 get before this Board successfully you have to be 19 represented, you have to know the ropes, you've got 20 to do all those things. And if you're somebody with 21 a $500 appeal or $5,000 appeal, you don't know that. 22 So at the end of the day, the issue would 23 be if we had to call the taxpayer for a question, 24 and say, "We read this. I'm not sure about this. 25 Tell us about this." 26 Man, I tell ya, that disadvantages the 27 taxpayer if all the sudden I can't do that for, 28 again, for the poor guy who owes us $1,000. 109 1 MS. KELLY: There are provisions for both 2 Franchise Income Tax and Sales and Use Tax appeals 3 for the Board Members to request additional briefing 4 or information. And that's coordinated through 5 Appeals Division and through the Chief of Board 6 proceedings. So there are processes for doing 7 that. 8 MR. HORTON: We may be confusing the 9 various different activities. So maybe there's 10 clarification on activities. Because I don't see -- 11 if a taxpayer contacts a Board Member to discuss an 12 issue, I think it's appropriate for the Board Member 13 to represent their constituent under 5523 -- 14 MS. KELLY: That's correct. 15 MR. HORTON: -- .8, I think that's 16 appropriate. If a Board Member has an issue about a 17 particular appeal as a result of discussion with 18 their staff, and they want to reach out to the 19 taxpayer and ask them particular questions, I don't 20 necessarily see an issue with that. I think that I 21 don't have a problem with disclosing that either. 22 It's when that information or that discussion is not 23 equitably distributed and shared. 24 And so if that information is something 25 that has not been previously briefed where 26 additional discussions are taking place that have 27 not been previously briefed, that should be 28 disclosed to all the parties. 110 1 Disclosing that you had the -- had the 2 meeting -- I'm with Mr. Runner. I mean, I don't 3 mind having a log. I don't know the value of it, 4 but I think there is a value in insuring that there 5 is equitable deliberation where all parties are 6 privy to the information that arises out of any of 7 this -- any of these processes. 8 MS. HARKEY: I would totally agree with 9 that. I think most of the issues that we deal with 10 actually get resolved and then sent on to the Board 11 Members, or get reviewed and sent on to Board 12 Members because an adjustment is made by the 13 Department or something, or case is actually 14 withdrawn, or we get a lot of 30/30/30s up here. 15 But I think we'd have a lot more of them if we just 16 took people in and heard their story. And I don't 17 think that's our point. 18 We want to be sure that if there's 19 anything -- that we get good quality cases, that 20 they're -- that they're sound, that everybody knows 21 what page they're on as far as the law as much as 22 you can. And that, you know, any errors on the part 23 of the Board or the Department are corrected before 24 they get here. 25 And that would be -- that would show up, 26 because a lot of times they -- the Board staff will 27 say that they need this and this and this 28 adjustment. Well, many times that does come from a 111 1 Board Member kind of review, and so it's all made 2 apparent to everybody. 3 You know, there's nothing sneaky about this 4 or misleading. It's merely trying to help some 5 people that really -- most of them just can't -- 6 they don't have help, and they're afraid. That's a 7 big thing. 8 MR. HORTON: Well, I think we have to 9 be -- we have to be careful. 10 I mean, I agree what you're saying, but I 11 think we have to be careful when we get -- when 12 we -- when our participation draws a conclusion when 13 it's in the appeals process. 14 And when a decision is made while it's in 15 the appeal's process as a result of a discussion 16 with one Member, all four other Members may totally 17 disagree with that analysis of that -- of that 18 discussion. And I don't know, maybe that is 19 something that is -- 20 MS. HARKEY: No, it's not. I think you're 21 misunderstanding. 22 MR. HORTON: Well, maybe that is something 23 that appeals has to sort of work through. If the 24 matter is in appeals, and there's a discussion with 25 a Member that causes Appeals to take a different 26 direction and it comes out, maybe that ought to go 27 to Chief Counsel or someone to make a determination 28 as to whether or not that intervention by the Member 112 1 has -- has -- has resulted in a conclusion in the 2 appeals process that is preserved for the 3 five-member body. 4 MS. HARKEY: It's not -- it -- Member 5 Horton, it's not ever that results in a conclusion. 6 We merely bring up -- as I understand it, 7 my staff will bring up data or point out flaws in 8 the analysis and say, "What do you think about 9 this," you know -- 10 MR. HORTON: I think that's -- 11 MS. HARKEY: -- "Do you agree or do you not 12 agree?" And I don't think there's any real 13 pressure -- on our part I know there's no pressure, 14 because we just do our homework. 15 And then if -- if -- if they prepare me for 16 the casework, and if there's no adjustment or 17 nothing's made, then at least I have my advice from 18 my staff. And that's when I will bring it back to 19 Appeals up here and do this in a full forum. 20 So it's not -- there's nothing underhanded 21 about it, and there's nothing forceful. Because a 22 lot of times we just raise our issues here at the 23 Board hearing and -- but it does require some 24 investigation. 25 MR. HORTON: I think that's most 26 appropriate, Madam Chair. I'm just simply saying 27 that Appeals ought to have a level of discretion to 28 kind of make that determination. 113 1 MR. RUNNER: Can I -- 2 MR. HORTON: And, um, so I don't -- we have 3 discussions with the taxpayer. As a result of that 4 discussion, we have discussions with Appeals, and we 5 encourage -- with the purpose of them now sharing 6 that information, and then make whatever decision 7 you're going to make, as a result of you kind of 8 going through whatever process. 9 Because they may have missed something. 10 And I think it's beneficial. I think some of the 11 work that Members have done in this regard has been 12 -- have been extremely helpful. Because it has 13 helped resolve issues. 14 But I also think in some cases it has 15 impeded the process. So we just have to be -- my 16 encouragement is that Appeals makes the final call 17 as to -- and if there's any information that is -- 18 that they feel is determinative over their decision, 19 that needs to be disclosed to everybody. 20 And then as a result of that, it falls off 21 the calendar, it falls off the calendar. That's 22 what Board Proceedings does. They call the taxpayer 23 and say, you know, "Here are your options," and all 24 the sudden it falls off the calendar. Because the 25 taxpayer's been properly advised. 26 MR. RUNNER: I think this is an important 27 discussion because it goes to the core sometimes how 28 we try to deal with our taxpayers. 114 1 And I don't know if we want to come to 2 conclusion here on this discussion. I would suggest 3 that maybe what we do is we ask Chief Counsel ED to 4 review the processes that each Member is using. 5 Just so that we're all on the same page, just to see 6 what Members are doing. 7 And at that point, come back with some 8 guidelines. Which would then be the proper -- 9 suggested proper protocols when we're dealing with 10 taxpayers. 11 I think that at least gives us some 12 thoughts there to start to work with. Because, 13 again, a lot of it may be in the tone and the 14 understanding. 15 You're right, it's wrong for us to contact 16 taxpayers and get them on the phone and say, "Hey, 17 look, I want to know what it is, I want to vote for 18 your deal. Tell me all about where I should help 19 you." 20 MS. HARKEY: We don't do that. 21 MR. RUNNER: That's not what we're talking 22 about. And I think that's -- there's some protocols 23 that maybe should be in place in order to ensure 24 that the contacts are correct, that they are not -- 25 they are not leading to a conclusion. And maybe 26 disclosure is a part of that. 27 But I think maybe -- maybe just to -- maybe 28 you can meet with each of the Members and see what 115 1 their protocols are right now and see where there 2 could be danger and where there isn't. 3 MS. HARKEY: I do believe that most -- most 4 things are run through Appeals. Appeals does either 5 adjust, not adjust, whatever. And all that 6 information is made known to the Board Members. 7 Is -- there's nothing that we know coming into a 8 meeting that they don't know. We do communicate 9 everything. We try resolve everything at the low 10 level. And, generally speaking, it works pretty 11 well. 12 But I do -- I do -- I am concerned with the 13 ex parte understanding. And I don't mind disclosing 14 at the beginning of a meeting. And I think we would 15 all be aware who -- our staff could let us be aware. 16 So I think that's more of a point that I 17 wanted to be sure that we at least thought about 18 doing, because I know that the -- not everyone 19 understands how the Board operates and how the 20 Members operate. 21 And I think that the Legislature has really 22 stuck on ex parte from a variety of reasons, one 23 being that they think that maybe we're being unduly 24 influenced, and it tends to make it sound seedy. 25 And our ex parte communications aren't just with big 26 taxpayers, they're with the little guy that needs 27 some help along the way. 28 And I think that's how it's being looked. 116 1 So I have no -- I don't -- 2 MR. RUNNER: Is that okay to have staff -- 3 MS. HARKEY: Yeah, have staff -- have staff 4 and ED require or figure out how we ex parte -- how 5 we disclose ex parte communications. 6 MR. HORTON: Members, I would suggest that 7 we codify the existing Board policy of disclosing 8 any information that may be determinative of the 9 transaction, and allow the Appeals unit to make that 10 determination as to whether or not that information 11 is determinative, and that it should be disclosed. 12 And that we codify that in the Rules of Appeals. 13 I do believe, like many things we've 14 discussed, this is existing Board policy. But 15 codifying it in the Rules of Appeals makes it clear 16 to everyone involved. 17 The other thing under ex parte 18 communications, Members, that I'd like to suggest is 19 that one of the problems is that the public may not 20 be aware of the final decision that Members, what we 21 have made as a body, because the information 22 is indiff -- as Member Yee has articulated relative 23 to BEAM -- the information about our decisions are 24 in different bodies of policy or areas. 25 The hearing summary report summarizes what 26 we are about to discuss, what we have discussed is 27 set aside the hearing summary. 28 The agenda items provides all the 117 1 agenda-related items, and so forth. 2 The motion, you have to go back to the 3 minutes in order to see the motion and the final 4 decision. 5 Let me suggest we codify that in one spot 6 on the Web site so that any taxpayer, any time they 7 want, can go and take a look at the -- the basis for 8 discussion, the ultimate decision, ultimate motion, 9 the dollar amount that was involved, and they can 10 see it all in one spot. 11 Because, currently, taxpayers have advised 12 even myself -- I've asked for this information some 13 time ago. And I've received it in a timely fashion, 14 and that's not my point. But the point was it took 15 a while for even our agency to accumulate that 16 information so that we would know the overall 17 decisions made by the Board on individual cases. 18 MS. HARKEY: Okay. 19 MS. MA: My office tracks all the cases. 20 But you're right, it's probably not as transparent 21 as it should be. 22 And I don't know if there's a way in the 23 cases to link the case, because, you know, the votes 24 or the dollar amounts may be misleading. But when 25 you hear the case, because that's a lot of -- they 26 don't understand, "How can you vote this way, it's 27 millions of dollars or like $50." 28 But, still, I think if you listen to the 118 1 case, it helps tell the story of why the case went 2 the way it did perhaps. If it was a split vote or 3 was it unanimous. 4 MS. KELLY: Can I ask a clarifying 5 question? 6 MS. HARKEY: Sure. 7 MS. KELLY: With respect to Franchise 8 Income Tax cases, are you asking for the -- the 9 amount of an assessment as a result of a Board 10 decision to be determined? Because that's quite 11 complicated. It's like running a tax return. So I 12 don't recommend that that's the case. 13 MR. HORTON: I don't understand the 14 question. 15 MS. KELLY: Um, you're talking about 16 resulting changes in an original recommendation on 17 one schedule. I just want to confirm you're not 18 talking about amounts. 19 MS. HARKEY: I think just the cases and the 20 Board votes. 21 MS. KELLY: Okay. 22 MS. HARKEY: And then Ms. Ma would like the 23 case actually linked. 24 MS. KELLY: Okay. So we're linking the 25 minutes and hearing summaries. 26 MR. HORTON: And why is it you feel that 27 the amounts are so complicated to disclose? 28 MS. KELLY: In a Franchise Income Tax case, 119 1 if the Board decides one issue for a taxpayer, 2 you're not going to know the amount -- the resulting 3 amount due, because you have to then change the tax 4 return, which is what Franchise Tax Board does. 5 MR. HORTON: I got you. 6 With exception of the FTB cases, the Sales 7 and Use Taxes and the other cases are clear, we know 8 the amount right away, we should disclose that. 9 And to the extent that we can -- I -- I 10 appreciate the complexity of trying to wait until 11 Franchise Tax Board now goes and makes the 12 adjustment, and coming back and then disclosing it. 13 But at some point that information should 14 also be provided, maybe on a quarterly basis or 15 something after we get -- we do eventually get the 16 information exactly how much that decision -- how 17 much it affected a dollar value. 18 So to the extent that we have the 19 information in a timely fashion, we disclose it; 20 when we don't, we don't. When we get it, we 21 disclose it. 22 MS. HARKEY: Okay. Members, I'm going to 23 call for a five-minute break, if you don't mind. 24 MS. YEE: Can we come back to this issue 25 after the break? I just have a few comments. 26 MS HARKEY: Yeah. Yeah. Sure. 27 (Whereupon a break was taken.) 28 MS. HARKEY: Thank you for that little 120 1 break. It was very, very helpful. 2 I just have another item. I'm big on Issue 3 Papers. I want to know what staff recommendation is 4 to things. I want them to bring us Issue Papers and 5 discuss items, and give us their best guess, their 6 best recommendation on things and allow us some 7 discussion. 8 And some of the Issue Papers that I'm 9 concerned with are staffing models, facilities 10 master plan, and a comprehensive agency mail 11 education outreach budget. 12 Those are three Issue Papers I would like 13 staff to prepare. Because I think we keep getting 14 into -- or we've had some issues on -- on 15 facilities. We may require additional facilities, 16 facilities changing as we go forward. I think staff 17 is probably well-equipped to know what we might need 18 in the future. And then the Board members can 19 decide yay, nay, something different, something else 20 they'd like. But I think it would be nice to have 21 that. 22 And these are just kind of oversight tools 23 to help us. 24 MR. RUNNER: What were those three again? 25 MS. HARKEY: These three would be 26 facilities master plan, a staffing model for the BOE 27 staff, all of the staff. 28 MR. RUNNER: We have a staffing model right 121 1 now for -- 2 MS. HARKEY: For district. 3 MR. RUNNER: -- for dis -- for field. And 4 what you're talking about, then, is establishing a 5 better -- or establishing a staffing model for -- 6 MS. HARKEY: For -- for the headquarters 7 and others, so that there's a little equity here. 8 Because we get asked all the time, "Well, 9 how did they get this," and, "Why did they get 10 that?" And we kind of need to be able to respond. 11 MS. MA: Can we include out of state? I 12 don't know how many people are in out-of-state 13 offices. 14 MS. HARKEY: Out of state would be good. I 15 just -- I think -- 16 MR. RUNNER: What was the third one? 17 MS. HARKEY: The last one was a 18 comprehensive agency mail outreach budget. These 19 are separate categories. We limited one category, 20 and there's other categories. And I think we need 21 to kind of -- I was surprised to know that External 22 Affairs does this, Outreach Services does this, 23 Agency Mail does this. And they all kind of 24 fluctuate. And I don't -- 25 MR. RUNNER: I think this will be good to 26 get. 27 ---oOo--- 28 122 1 ---oOo--- 2 MS. HARKEY: Okay. I'd like to know what 3 they do and what the recommendation is and -- 4 because I don't want taking from one pot to the 5 other. I want to be sure we know who's on first. 6 And I just, I think we got, we -- the last, 7 uh -- the report I got, you know, it was a lot of 8 money spent on agency mail. And I think -- I 9 believe staff was doing a lot of first class mail 10 when it could have been third. And I think we 11 could've saved a heck of a lot of money. I think 12 they've changed their processes now. 13 But there's just -- I was shocked at some 14 of the -- the mail budget. So I just would like to 15 get a review because I think we're ultimately 16 responsible. And I don't want to be blamed for 17 spending all this money on mail from my district 18 when it's not my mail to begin with, but mail from 19 my district, and then find out that it's really a 20 lot pricier than I had thought. 21 MR. RUNNER: We got three people -- I think 22 we got three Members, at least three Members that 23 agree on those things. 24 MS. HARKEY: Okay. So -- 25 MR. HORTON: Well -- 26 MS. HARKEY: Is that -- I'm making a motion 27 for those items. 28 MR. RUNNER: Or just, without objection. 123 1 MS. HARKEY: Without -- is there any 2 objection to that? 3 MR. HORTON: Just discussion, Members. No 4 objection, Madam Chair, but discussion. 5 MR. GAU: If I may just add, we will look 6 at, you know, how we can best cue those up and bring 7 those to the Members -- 8 MR. RUNNER: Mm-hmm, mm-hmm. 9 MR. GAU: -- based on timing and issues and 10 so on. 11 We have 'em and we will get it in line to 12 bring back to the Board. 13 MS. HARKEY: Okay, real good. Thank you. 14 Because I think these are issues that respond to our 15 oversight and let the -- let the Legislature know 16 that we're trying to do our job here. 17 MR. RUNNER: Yep. 18 MR. GAU: Okay. 19 MR. HORTON: Madam Chair. 20 MS. HARKEY: Yes. 21 MR. HORTON: The facilities master plan, 22 Mr. Gau, is that something that we normally do? I 23 mean my understanding is it's the normal process. 24 MR. GAU: It is. You know, the, uh -- the 25 Department of General Services, and they also do 26 kind of a cyclical -- and they update it. They have 27 a five-year one and then they kind of roll it 28 forward. 124 1 MR. HORTON: So your goal is to bring that 2 to the Board? 3 MR. GAU: I think we -- I think we should. 4 And as far as, you know -- that's part of our office 5 sighting and planning and what are we -- where are 6 we going with our offices. That's kind of what I 7 hear you're asking for. And that's what I think 8 we're -- 9 MR. HORTON: I mean over the last 20 years 10 I believe we've brought the facilities -- 11 MR. GAU: Yes. 12 MR. HORTON: -- master plan to the Board -- 13 MR. GAU: We have. 14 MR. HORTON: -- for the Board's approval, 15 for the Board's consideration. And so we're going 16 to continue to do that. 17 MR. GAU: Right. 18 MR. HORTON: The comprehensive agency mail 19 and outreach budget, let me -- just for 20 clarification that I think I personally need is to 21 clarify what is considered Board agency activity as 22 opposed to Board Member activity? 23 We were asked to take a look at some 24 activities in the district. And, quite frankly, 25 we've been under the impression that the outreach 26 activity is agency activity and so should be -- and 27 given the Legislature's recent separation of the 28 Board's budget from the agency's budget, I think we 125 1 need to have some clarity as to what falls under the 2 Board's budget and the agency budget. 3 And I, for one, don't want to have a 4 separate budget that is controlled by myself. I 5 don't see the need for it. I think that if we 6 provide that clarification with -- in consideration 7 of the Taxpayers' Bill of Rights, which says that 8 every taxpayer should get the same level of 9 education throughout the state, not district by 10 district, throughout the state, and some variation 11 based on the needs in those particular districts, 12 that will establish a benchmark or a starting point 13 for Members to provide that insight into what 14 additional education is necessary, they believe 15 might be necessary in their -- in their district. 16 The education -- and you can put it in 17 broad categories: The education of new taxpayers, 18 one; expert outreach; speakers bureau and expert 19 outreach. Constituent services in broad categories 20 where the agency has made a determination that this 21 level of education is going to occur throughout the 22 entire state and that this is going to be an agency 23 function. 24 The perception that business tax seminars 25 for new businesses is somehow a Member's function, 26 even though the Members participate, with the 27 separation of our budget I think there needs to be a 28 level of clarity there. 126 1 The other -- in determining this budget, I 2 think it's important to try to look at past 3 practices to determine what is the most effective 4 way of communicating to your constituents that -- 5 and that effectiveness would be measured by how 6 many -- how many constituents you're actually 7 reaching and how many constituents you're actually 8 educating as a result of that activity. Which takes 9 us back to the whole Provision One discussion, which 10 I think is important, but we'll have that later. 11 MR. GAU: So I believe our plan is to have 12 the education outreach plan coming back to the Board 13 in June, I believe. 14 MR. RUNNER: Mm-hmm. 15 MR. GAU: And so we will try to the 16 incorporate what we can -- what we've heard here 17 today as well. 18 MS. HARKEY: Okay, thank you. 19 MR. GAU: This will be for the '17-'18 20 year. 21 MS. HARKEY: Right. 22 MR. GAU: We're bringing that plan forward 23 to the Board for your consideration next month? 24 MR. RUNNER: Yep. 25 MR. HORTON: Well -- let me just make sure. 26 MR. GAU: Okay. 27 MR. HORTON: That plan will include the 28 agency's recommendation as to what the agency has 127 1 determined is a necessary level of education of all 2 taxpayers -- 3 MR. GAU: Right. 4 MR. HORTON: -- in every district. 5 MR. GAU: Right. 6 MS. HARKEY: And then from there we can add 7 a -- and what's the most effective way to accomplish 8 that. All right. I'm good. 9 MS. HARKEY: Okay. I have a question to 10 ask of the Board. It is getting late and we can 11 resume. We have Member Horton's items, I think, are 12 remaining. Would he like to have more time and take 13 them up tomorrow? We can take them up then with a 14 lot of thought and process because our day is very 15 light. Or would the Board like to continue? 16 You know, I'm neither one way or the other. 17 Member Horton? 18 MR. HORTON: I'm open to the desire of the 19 Board. 20 Many of these items have been -- some of 21 them have been discussed. Mine would be just in a 22 little more detail. And I can't see the clock, so I 23 don't know what that means as far as time. But what 24 time is it up there? 25 MS. HARKEY: It is 5:20. 26 MR. RUNNER: 5:20. 27 MR. HORTON: Okay. 28 MR. RUNNER: We can do it in the morning. 128 1 MR. HORTON: Okay. Let's -- 2 MR. RUNNER: Can I -- yeah. 3 MR. HORTON: Let's make it later in the 4 morning, if we could. 5 MS. HARKEY: Well, we -- we start at 9:00. 6 Unfortunately, that is the time that we're scheduled 7 to be here is at 9:00. And we do have some cases, I 8 think at least one. 9 MS. MA: One. 10 MS. RICHMOND: We have one. 11 MS. HARKEY: We have one case. So, um -- 12 MR. RUNNER: We got time. 13 MS. HARKEY: We will have some time after 14 that case to get into your items in detail and just 15 kind of circle back. 16 So I would like to recommend that we 17 adjourn this -- this portion of -- of this section 18 of the meeting and that we come back tomorrow. 19 MR. RUNNER: Before we do that, I have a 20 question. 21 MS. HARKEY: Not adjourning the meeting. 22 MR. RUNNER: Well, no, actually before 23 adjourn this portion. 24 MS. YEE: Recess. 25 MS. HARKEY: Recess this item, I guess. 26 MR. RUNNER: Yeah. Well, I guess part of 27 the issue's I'm not sure what the Controller's going 28 to be doing tomorrow. I assume the Controller's 129 1 probably not here. 2 To that end -- and, again, as I looked at 3 the rest of the list of things that we're going to 4 discuss, it seems that many of them are a lot of 5 operational issues. 6 MS. YEE: Mm-hmm. 7 MR. RUNNER: And I'd like to see if we 8 can -- not -- not come to conclusion, but at 9 least -- at least give direction to the staff in 10 regards to the governance plan. 11 And so my desire would be -- let me try 12 this -- that we use the Controller's governance plan 13 as a framework, and ask the ED to come back for 14 final adoption. And in that -- also within the 15 motion is including the discussion and the motion 16 that we had with the May 16th memo. And also what 17 would be included is the clarity of the discipline 18 policy that was also discussed pretty specifically 19 in regards to the governance policy or governance 20 plan. 21 So I'd like to at least get us to 22 accomplish that. And then we could come back and 23 talk about these other things. And quite frankly, 24 if something else gets thrown into the governance 25 plan, we can still throw that in tomorrow. But I'd 26 like to at least come to conclusion on that as an 27 adoption of a framework. 28 MS. YEE: Yeah. 130 1 MS. HARKEY: Yeah, I think I would -- I 2 would support that. I think that's a good -- that's 3 a good framework. 4 MR. RUNNER: I'll make the motion. 5 MS. YEE: Can I just -- 6 MR. RUNNER: Is there a second? 7 MS. YEE: I'll second that motion -- 8 MR. RUNNER: Okay. 9 MS. YEE: -- if I could just also add, as 10 the staff works to compile all of the, um, thoughts 11 from today, and maybe potentially more to come 12 tomorrow, I would really like to task the Executive 13 Director to create a broader team to look at some of 14 these issues, because I think we can be informed by 15 some of the internal involvement with some of these 16 issues as well. 17 So I'm looking at, David, potentially your 18 consulting with a team that includes the Chief for 19 Internal Audit. Remember the Legal Division that's 20 well versed on Roberts Rules of Order, Board 21 Proceedings' Conflict of Interests Open Meeting Law. 22 Someone who's maybe a non managerial representative 23 from Field Operations, because I think there's some 24 experiences there that could inform something that 25 we may have missed. 26 Certainly additional input from the 27 Members. We're going to be ruminating, I'm sure 28 after today. There may be some other thoughts 131 1 there. But I think the Member and -- Members and 2 our staff ought not be involved in kind of this next 3 wave of where you're just starting to pile all this 4 information and to have it be further informed by 5 some internal -- internal stakeholders as well. 6 MR. GAU: So what kind of -- clarified time 7 frame. Because this sounds like a pretty 8 significant workload. 9 MS. YEE: Yeah. 10 MR. GAU: And, you know, our PAN for June 11 is coming right upon us -- 12 MS. YEE: Yeah. 13 MR. GAU: -- like next week. 14 MS. YEE: I'm thinking probably the July. 15 MR. GAU: So -- 16 MS. HARKEY: What -- what do you -- you 17 want a lot of outside clarification for the policies 18 that we're putting forward? 19 MS. YEE: No. I'm just saying that this -- 20 no, no, no. I think we got a lot today. So we're 21 starting with the framework I brought in. We ran 22 through each of the sections, Madam Chair, and you 23 and others provided input. 24 I have one more item I want to provide 25 input on before we adjourn for today -- or recess 26 for today. But that to take this framework now, 27 staff has heard a lot to now fill in the pieces of 28 what the policy would look like. But to have that 132 1 policy further informed by internal involvement with 2 some of these issues, which is why I'm suggesting 3 maybe the Chief of Internal Audit, non managerial 4 field, because I do think a lot of these issues have 5 been rolling around and people are looking for 6 clarification. And I want to be informed by some of 7 the experiences that the staff throughout the 8 organization have had. But I'm going to leave it to 9 you, David to create this ad hoc group that can 10 help, you know -- 11 MR. GAU: Okay. 12 MS. YEE: -- and put some -- 13 MS. HARKEY: Okay. So we could, we could 14 potentially, I think, June would be a little bit 15 hardpressed. 16 MS. YEE: I think July. 17 MS. KELLY: I recommend August. 18 MS. YEE: August? 19 MS. KELLY: Mm-hmm. 20 MS. HARKEY: Let's -- let's -- let's get a 21 report on July, like a status -- 22 MS. KELLY: Okay. 23 MS. HARKEY: -- in July. 24 MR. GAU: Okay. 25 MS. YEE: Okay. 26 MS. HARKEY: And then have something in 27 August. 28 MS. YEE: Okay. And then, Madam Chair -- 133 1 MS. HARKEY: Sure. 2 MS. YEE: I want to revisit something with 3 respect to the ex parte communications, if I could, 4 for part of the consideration. 5 And I appreciate what my colleagues are 6 doing in terms of trying to help appellants navigate 7 the process. But I would like to just have some 8 examination or review of the Board Proceedings role 9 in all of that. Because there is taxpayer contact 10 by Board Proceedings. And I have always thought all 11 along -- and I've seen -- and I witnessed them do 12 that -- that they do a nice job of really making 13 taxpayers comfortable before they come into this 14 forum. 15 And if there's more that needs to be done 16 at that end, I'd prefer it to be done at that end 17 than have kind of individual Members reaching out 18 with respect to additional information. And that's 19 not to say we don't do our due diligence on cases 20 that come before us. But to the extent that we find 21 things that we want to pursue, I would suggest that 22 we streamline any further inquiry or work on that 23 through the Appeals Division, as we do with income 24 tax matters, so that all parties are aware of it, 25 and those inquiries do then get coordinated by the 26 Appeals Division. 27 MR. RUNNER: Inquiries -- an example? 28 MS. YEE: So if you're looking at a 134 1 particular audit of a business tax case -- 2 MR. RUNNER: Right. 3 MS. YEE: -- and something rises to the 4 level of where you want to make an inquiry. And 5 I've, on occasion, asked to look at the audit 6 papers. 7 MR. RUNNER: Right. 8 MS. YEE: So that might be an inquiry. But 9 to just have that all streamlined through the 10 appeals process. So in other words, it's not -- and 11 have it be noted as such. I just think having a 12 process like that where it's predictable, known. 13 You all kind of do what you need to do in terms of 14 contacting taxpayers, but there's at least like this 15 known process that any Board Member inquiry, that 16 all parties are aware of it. 17 MR. RUNNER: I -- I -- I guess I'm not 18 comfortable right now with the idea of going through 19 Appeals for dealing with individual taxpayers who 20 may have a question or an issue. 21 I'd like to continue the path that we went 22 down -- what they asked for, and that is inquir- -- 23 talk to the Members right now. See what they're 24 doing. See where we could be exposed. And then we 25 can come back and talk about that. 26 Because, again, I am concerned about the, 27 again, the unsophisticated taxpayer who doesn't know 28 how to present themselves here with their case and 135 1 is just nervous and worried. And I get the fact 2 that -- that -- that Board Proceedings reaches out. 3 But they don't reach -- they reach out in terms of 4 just process. And at times it's the information 5 that sometimes the taxpayer just needs to know, that 6 they need to talk about this or that, or we'll ask 7 them a question and then we -- 8 So I just think -- again, I'd rather not 9 make the discussion -- decision right now as to 10 whether or not we have to go through Appeals on this 11 stuff. I think that's a later decision once we try 12 to identify how Members right now are dealing with 13 taxpayers. 14 MS. YEE: All right. Then I'll just put 15 that proposal forward as an option for how we might 16 be able to deal with it down the road. 17 MR. RUNNER: That can be included, sure. 18 MS. HARKEY: That's fine. Thank you. 19 Okay. So, staff, you have clear direction? 20 MS. KELLY: Yes. Thank you. 21 MS. HARKEY: You're comfortable? Okay. 22 Good. That's always important to wrap up, be sure 23 everybody knows what page you're on. 24 MS. KELLY: Mm-hmm. 25 MS. HARKEY: Okay. So now we go to the 26 next item, which is -- Ms. Richmond, we've got -- 27 Ms. Yee has an item. 28 The next item is Organization of the Board. 136 1 The Board will review and update, as necessary, the 2 roles of the Chair and Vice Chair. 3 Now we kind of did that in your -- 4 MS. YEE: You just did it. 5 MS. HARKEY: -- in our analysis. 6 MS. YEE: Yes. I appreciate you allowing 7 the framework to guide us. 8 MS. HARKEY: Okay. And the -- the next 9 item is the current Board committees. Did you have 10 more comments on that? Do you want to establish -- 11 MS. YEE: Well, I would like the staff to 12 come back and really vet the possibility of looking 13 at establishing a standing governance committee. 14 MS. HARKEY: Hmm. That would be good. 15 MR. RUNNER: Uh-huh. 16 MS. HARKEY: And that might -- that might 17 go along with my request of getting some kind of 18 overall -- overall health of the agency to Board 19 Members on an annual basis. I am not sure, I think 20 it was one of my first issues that I raised is, How 21 do we know where we stand? And I do -- I do think 22 that, you know, just getting shocked by an audit -- 23 we have a good internal auditor now, I believe. 24 We'll get some early warning signs. But the bottom 25 line is, is we kind of need an overall -- 26 I was getting -- when I first got here, I 27 got internal audit on this, internal audit on that, 28 internal audit -- and putting it all together and 137 1 knowing actually where we are is very difficult when 2 you're not getting like a CAFR or something that 3 really tells you the health or the state of the 4 agency. 5 So I'm not sure if that's through an 6 Executive Director report annually where he reports 7 on the audits that have been done and the status of 8 them and lets everybody know. Because when you're a 9 new Member and you're coming in and then you walk 10 into a problem, it's kind of not fair. You kind of 11 want to know. 12 MS. MA: Diane? 13 MS. HARKEY: Yes. 14 MS. MA: So -- so I agree with you, because 15 when we first came in, I had the same problems 16 getting real good budget numbers out. And then when 17 the audit came out, the Controller's audit, I asked 18 for an audit and budget committee to be established. 19 The attorney at the time sent me an email saying 20 that he didn't think it was necessary. And I'm 21 digging that up right now. 22 But given everything that's been happening, 23 I think it would have been helpful to have a 24 committee to review the audit as well as the budget. 25 Because we still don't have good -- I don't feel 26 like I have a good understanding of what's really 27 happening here at this agency in terms of all of 28 the -- the financial, you know, considerations 138 1 that's happening. 2 And so I am supportive of having more 3 committees that actually do look at this and have an 4 opportunity for us to review and to bring out those 5 numbers. Because we seriously haven't had a 6 discussion on -- on many of these issues the last 7 two and a half years. 8 MS. HARKEY: That's a good idea. 9 MR. HORTON: Madam Chair? 10 MS. HARKEY: Yes. 11 MR. HORTON: This is actually good news. I 12 mean much of which was part of the recommendations 13 that we put forth even though we're going to discuss 14 them tomorrow. And hopefully we adjourn soon. But 15 the, uh -- appreciate that. 16 The -- the governance committee, I just 17 want to make sure because my recommendation on the 18 governance committee is that it not be a Board 19 committee. That the Board governance committee be 20 made up of the Chief Counsel, Internal Auditor, 21 Chief Deputy Director, to assist the ED in assuring 22 compliance. 23 Again, the separation of -- of duties 24 between the Board Members acting individually versus 25 collectively. I mean we've had committees where 26 items have been moved individually to the Board, 27 which is appropriate, I guess. But the governance 28 committee should be an agency committee headed up by 139 1 the Executive Director with those three individuals 2 that I would recommend. The budget and finance 3 committee, I think, is extremely important and my 4 recommendation is that we have experts under -- 5 under the ED who will assist in moving to assure 6 that information is properly communicated. 7 One of the larger issues that we have, from 8 my perspective, is just not providing accurate, 9 correct, comprehensive information to the control 10 agencies as well as to the Legislature. 11 I've met with -- I don't know how many 12 legislators to discuss these issues, including the 13 Governor, a sidebar with the Governor's office, a 14 sidebar with the Governor himself. And, like, "What 15 is all of this?" 16 And I think the, uh -- the dissemination of 17 accurate, correct, comprehensive information and 18 responding in a timely fashion when any potential 19 falsehoods may exist that we respond effective. Not 20 that it's intentional. I don't know that it's 21 intentional on anyone's part. But to the extent 22 that we can get the truth out and convey that would 23 be important. 24 And a Board governance -- I mean a Board 25 finance committee, I know it exists. Like many 26 other things we are discussing, it exists. But when 27 you -- when the Board, uh -- establishes it, it 28 becomes a public awareness that this committee 140 1 exists. And the expectations of that committee is 2 to be able to gather or provide periodic reports to 3 the Board, to the Legislature, to the control 4 committees and have the appropriate individuals on 5 there. And on the governance committee, I think 6 it's just as important to have that committee there 7 so that individuals who have concerns -- staff, 8 Board Members and so forth -- have a place in which 9 they can report those concerns and those concerns 10 can be addressed. 11 I don't feel that Board Members ought to be 12 leading that, those two efforts. Once we've 13 established a policy, we ought to let the policy 14 folks enforce it. 15 MS. YEE: Madam Chair. 16 MS. HARKEY: Yes. 17 MS. YEE: I'm sorry I wasn't clear. I was 18 asking the staff to put into the mix the 19 establishment of a Board governance committee. 20 Which means we're constantly looking at how we can 21 improve the way that we do our job, serve taxpayers, 22 any educational needs that we feel like we have, 23 individually or collectively. It's all about how we 24 can be the most effective board possible. 25 I think it was evidenced today that there 26 are some needs and I just want there to be an 27 ongoing presence where we are able to just 28 self-monitor ourselves in terms of just always being 141 1 up on our skills and up on our ability to carry out 2 our duties. 3 So I really do think there is a role for a 4 Board governance committee. What Mr. Horton is 5 suggesting with respect to where -- you know, kind 6 of a forum or a place where staff may go, I think is 7 also appropriate. And I would -- I would agree that 8 should not be with the Board. I don't consider that 9 governance. I would probably look at that as 10 something different. 11 With respect to a finance committee, I 12 think we can potentially even look at some 13 reconstitution of some existing committees, because 14 I can look at finance and administration kind of 15 going hand in hand, and really expanding customer 16 service to be more taxpayer services more broadly. 17 So I mean there's a whole host of things, 18 but I would ask for staff's best recommendations on 19 all of those. 20 MR. HORTON: Yeah, I would too. 21 MS. HARKEY: Yes. 22 MR. HORTON: One last statement, if I may, 23 Member Ma. 24 The Board governance committee, as far as 25 the Board, is this five-member Board. 26 MS. YEE: Mm-hmm. 27 MR. HORTON: And, uh -- 28 MS. YEE: But we never talk about it. 142 1 MR. HORTON: And a process by which we can 2 talk about it. The Board governance committee, 3 under the ED, drives that through an Issue Paper to 4 the Board -- 5 MS. YEE: No, no, no. We drive it. 6 MR. HORTON: Member Yee, may I finish? 7 MS. YEE: Yes. 8 MR. HORTON: -- drives the issues that 9 they're aware of to the Board. Unfortunately, the 10 Board, there are a number of restrictions on the 11 Board being able to communicate, have conversations 12 with the -- with the public. Much of these concerns 13 are actually brought forth by staff. Much of it 14 they're actually aware of it well before I am. And 15 to the extent that I am aware of it, we drive it to 16 the Board through a policy by establishing something 17 on the agenda that the Board Members can discuss 18 governance, or each Board Member knows how to get 19 this information to the agenda so they can discuss 20 it. 21 I'm not -- it's just having a separate 22 committee from this body headed up by one or two 23 individuals, again, feeds into that separation when 24 this body should be able to discuss the governance 25 of the Board on a regular basis. If you want to, 26 put it on the agenda on a regular basis, we decide 27 to discuss it or not. And when an issue comes up we 28 ought to be able to raise that issue through the 143 1 agenda process so that all the Members can discuss 2 it. 3 The ongoing effort of assessing this agency 4 should be that of the Executive Director and its 5 team in assessing the ongoing governance activity, 6 as an auditor may have a concern about a deviation 7 from a governance at the lowest level may have a 8 concern; Board Members aren't going to be aware of 9 that. Bagley-Keene sort of prohibits us from having 10 those collective conversations. Where we have those 11 conversations is here, as a collective body, as 12 we've had today. 13 MS. HARKEY: Okay. Excuse me. Member Ma 14 had a question. 15 MS. MA: Yeah. So since Member Horton 16 brought this up, the internal governance committee? 17 MR. GAU: We have an internal audit 18 committee. 19 MS. MA: Audit committee. And how -- 20 MR. GAU: But we also have a -- we have 21 established, in this last year, a governance 22 committee -- 23 MS. YEE: Governance council. 24 MR. GAU: -- governance group as well. 25 MS. MA: Okay. So the audit committee -- 26 MR. GAU: Process. Uh-huh, yes. 27 Ms. MA: -- um, since you brought that up, 28 I know -- I think when we started there were like 144 1 seven people on the committee and they were all the 2 executive management team. And then it was 3 decompressed -- 4 MR. GAU: It was. 5 MS. MA: -- to, like, three people that 6 made decisions. For example, on internal audits, 7 like who gets audited or where the audit staff is 8 going to be directed. 9 And, honestly, I'm not really comfortable 10 with that system. There's no checks and balance. I 11 think especially when you're talking about, you 12 know, resources or internal audits, that there 13 should be someone from the outside also listening in 14 to make sure that there's no, um -- that it's fair, 15 that you're taking into consideration all the facts 16 and circumstances and perhaps not, you know, 17 targeting certain members or districts. That 18 really, you know, disturbs me in terms of how that 19 committee was operating. 20 But maybe we can have that discussion at 21 another time. 22 MR. GAU: Okay. 23 MS. MA: But I know that that committee, 24 that audit committee, you know, makes very important 25 decisions. 26 MR. GAU: It does. 27 MS. MA: It does. 28 MR. GAU: And three of us are here, right 145 1 here, that are part of that committee. 2 MS. MA: Well, I know, but -- 3 MS. HARKEY: Don't we get a report from 4 what are scheduled audits? Don't -- don't you 5 report -- 6 MR. GAU: We are -- yes, Sara has -- Ms. 7 Sheikholislam has put together a matrix of all of 8 our audits that are currently pending, if that's 9 what you're -- 10 MS. HARKEY: Right. And don't you have 11 ones that -- ones that -- I don't know. Kasara's 12 been so busy with all of the -- 13 MR. GAU: Yes. 14 MS. HARKEY: -- other audits. But she's 15 supposed -- when she gets to internal audits, will 16 she not provide us with a -- a list of what it is 17 she intends -- 18 MR. GAU: Yes, a plan. 19 MS. HARKEY: And audit -- a plan. And that 20 would come before the Board, would be the audit 21 plan. 22 MR. RUNNER: Is it? 23 MR. GAU: It hasn't in the past. 24 MS. HARKEY: It hasn't. I thought that it 25 had. 26 MR. GAU: I don't believe that it has. 27 MR. HORTON: Well -- well, bringing an 28 audit plan before the Board in a public discussion 146 1 may actually, you know, sort of have some 2 impediments to the audit. 3 MS. HARKEY: To the audit. Okay. I 4 thought -- I thought we reviewed some kind of plan 5 of something going forward of areas that were going 6 to be examined. But if not, then my mistake. 7 MR. GAU: What she'll typically do is put 8 together a risk assessment. And that risk 9 assessment will identify areas where -- and it's 10 scientifically based, a little bit too. But it 11 really -- it's where you -- where you might have 12 some exposure as an agency. And then you want to 13 make sure that you target or you spend time in the 14 audit area there. So she -- 15 MS. HARKEY: I guess my question though is, 16 Member Ma wants, you know, wants to have some input 17 into the audit, and I'm trying -- I'm trying to 18 think of what level we do get informed about where 19 issues are. I mean, you know what -- what -- I mean 20 I think that's her question. She's -- 21 MR. GAU: I hear that. And we will -- let 22 us go back and really look into that. 23 MS. HARKEY: Okay. 24 MR. GAU: What we have done in the past is 25 when the audits are completed, they are published, 26 and copies of the audits come out and that we post 27 or that, you know -- 28 MS. HARKEY: Right. And then -- 147 1 MR. GAU: -- we make sure that those are 2 aware -- available to everyone. 3 But as far as the plan goes, that has been 4 more of an internally -- generated through the 5 committee plan, as far as what they're going to 6 spend the resources looking at. 7 MS. HARKEY: Okay. Real good. 8 MR. HORTON: Let me just -- 9 MS. HARKEY: The only time -- 10 Just a minute, please. 11 So the only time we really get notified is 12 when it's done, and then it's kind of a public 13 document. 14 MS. MA: Maybe. 15 MR. GAU: I'd say that's been more of the 16 history, yes. 17 MS. HARKEY: Okay. Is there -- what -- 18 what, specifically, Member Ma, did you -- do you 19 have any idea what specifically you're requesting? 20 Are you requesting a direction? I'm not sure. 21 MS. MA: No, I just think, you know, in 22 terms of transparency and accountability there 23 should be someone that's not within the -- just the 24 core three people making these decisions. 25 I don't know who -- how you can improve 26 that system, but -- 27 MR. GAU: Okay. 28 MS. MA: -- I think in the past -- Mr. Gau 148 1 understands what I am talking about. I don't think 2 it's happening right now. But to prevent, you know, 3 the future from reocurring, depending on who the 4 leadership team, it is important that we have faith 5 in this one committee that's making these important 6 decisions. 7 MR. GAU: We -- if I may offer, we'll go 8 look at best practices throughout and see if there's 9 anything that we can bring back or suggest as far as 10 improvements in our -- in our internal audit 11 process. 12 MS. HARKEY: And -- and ultimately it's the 13 ED. 14 MR. GAU: Yes. 15 MS. HARKEY: It's under the ED's purview. 16 So I think, you know, that's where -- that's 17 probably where the complaint needs to go, and I 18 think -- but he will look into it. 19 So we want -- 20 MR. HORTON: I don't -- 21 MS. HARKEY: A standing -- a standing 22 government committee. 23 MR. RUNNER: Yeah. Governance. 24 MS. HARKEY: Governance committee. 25 MR. HORTON: One second, Madam Chair. 26 MS. HARKEY: Governance, not government. 27 MR. HORTON: Madam Chair. 28 MS. HARKEY: Just a minute, please. 149 1 MR. HORTON: Madam Chair. 2 MS. HARKEY: I'm trying -- excuse me, 3 Member Horton, I'm trying -- 4 MR. HORTON: Listen, Madam Chair. Every 5 Member's had an opportunity to speak to this 6 issue. 7 MS. HARKEY: Yes. You have, too. 8 MR. HORTON: Well, let's take another shot 9 at it. 10 I'm not interested in participating in the 11 internal audit committee in any form or fashion. 12 Let me be clear about that. I don't want -- I don't 13 think it should be publicly discussed as to what the 14 process is. I think -- I mean as to who you're 15 going to -- what you're going to do. I think that 16 is again, under the privy of the Executive Director 17 and his team to establish that. 18 I would encourage, you know, some 19 consideration of -- you know, of the concerns that 20 Members have from a policy perspective. We ought to 21 be able to communicate those concerns and then allow 22 the agency to handle the internal audit process. 23 I wasn't all that excited about terminating 24 the internal auditor, but I didn't have enough 25 information to really make one call, one way or the 26 other. 27 And so I don't want to participate in that 28 process. I think they ought to have a level of 150 1 autonomy and independence from this body and report 2 directly to the Executive Director. 3 MS. HARKEY: Okay. That's how -- that's 4 how it is set up. They do report to the Executive 5 Director. 6 So I just want to be clear -- 7 MR. HORTON: That's not what we're asking 8 for. 9 MS. HARKEY: I just want to be clear that 10 what we -- what we have requested -- what Member Yee 11 has requested is a standing governance committee. 12 MR. RUNNER: Mm-hmm. 13 MS. HARKEY: And she wants staff to review 14 potential for that, how it would work, how it might 15 operate. 16 We want staff to come back to us with some 17 kind of a concept as to how we, as a board, would be 18 able to understand the overall health of the agency, 19 either through a grouping of audits or some kind of 20 report that's annual from the ED. 21 And we want to get a little -- we want to 22 further understand any potential issues with 23 internal audit. And you'll get back to Members as 24 appropriate. 25 MR. RUNNER: And -- and I think I heard a 26 request, and I think it ought to be looked at again, 27 in regards to a standing finance committee, too, in 28 that process, too. 151 1 And I think we can review all our 2 committees, see what's appropriate, see what can be 3 updated. I think those would all -- that would be 4 an appropriate discussion to have. 5 MS. HARKEY: Okay. Let's -- why don't we 6 put on the next -- on the next Board agenda, put 7 "review of committees." We can do that on the next 8 Board agenda, just kind of review them. 9 We can look at these two, come back with 10 any comments on the ones that you've been requested 11 to review and perhaps make recommendations. And 12 then we can just look at all of them. Because some 13 of them tend to have a little bit of broad reach 14 that reaches in the administration of the actual 15 board. 16 So I think we need to segment what we do 17 here. So I agree. 18 Okay, next item. 19 ---oOo--- 20 21 22 23 24 25 26 27 28 152 1 ---oOo--- 2 MS. HARKEY: You may elect a new Chair or 3 Vice Chair. 4 Are we done? Okay. 5 Thank you, Members. It's been an honor to 6 serve. And this has been quite a meeting. I'm 7 really pleased that everybody -- everybody put so 8 much work into this. And it was, as you might 9 understand, very stressful to organize it, to be 10 sure that everyone got heard. 11 And I do appreciate Member Horton agreeing 12 to postpone his to tomorrow. 13 And thank you, each and every one of you. 14 It's been really, I think, a great -- great effort. 15 And I would like to see us move something forward 16 with a report of what we did here to the 17 Legislature, so they know what we are able to govern 18 ourselves as constitutional elected officials, and, 19 therefore, it may help us out a bit with our 20 perception. 21 Okay. Thank you. And with that -- 22 MS. RICHMOND: Excuse me, Chairwoman -- 23 MS. HARKEY: Yes. 24 MS. RICHMOND: -- Harkey, I understand that 25 the motion was not totally taken care of. 26 MS. HARKEY: What was the motion? Which 27 one? I'm sorry. 28 Member Yee, did you have a complete motion? 153 1 MS. YEE: On the governance -- 2 MR. RUNNER: My motion on the -- on the -- 3 MS. RICHMOND: For the governance plan. 4 MS. HARKEY: On the Governance Committee. 5 I don't know. I think -- I think we just stated -- 6 MR. RUNNER: I don't think we had a motion. 7 I think we just had a -- 8 MS. HARKEY: A request -- 9 MR. RUNNER: Yeah. 10 MS. HARKEY: A request that staff come 11 back. And I made a motion -- I guess I did make a 12 motion -- 13 MR. RUNNER: Oh. 14 MS. HARKEY: -- to include -- make a motion 15 to have the staff come back to the next hearing and 16 we'll review, actually, all of the committees. 17 MS. YEE: Actually, I think prior to that, 18 Madam Chair, there was -- Mr. Runner made a motion 19 that the framework I presented incorporated -- I 20 guess we didn't -- 21 MS. HARKEY: Okay. Let's do that. 22 MR. RUNNER: I'm sorry. 23 MS. YEE: Incorporate the May 16th, 2016, 24 um -- 25 MS. KELLY: Chief Counsel memos. 26 MS. YEE: -- Chief Counsel memo. 27 MR. RUNNER: Okay. 28 MS. YEE: And then I guess to include the 154 1 -- 2 MR. RUNNER: Discipline issues. 3 MS. YEE: -- discipline issues. And then 4 the direction to the Executive Director to a 5 subdivision ACOF team to provide further information 6 insights to the provisions framework. 7 MR. RUNNER: That was the motion? 8 MS. YEE: Yeah. So status report in July 9 with potential adoption in August. 10 MR. HORTON: I believe for August -- 11 MS. HARKEY: You made the motion. Member 12 Runner made a second. 13 MS. YEE: Staff report July, potential 14 adoption in August. 15 MS. HARKEY: Is there -- is there any 16 objection to that? 17 MS. MA: No. 18 MR. RUNNER: No. 19 MS. HARKEY: No? Okay. 20 Such will be the order. We're losing 21 track. 22 I am tired. I don't know about y'all. But 23 I do so appreciate it. Thank you very much. We 24 will recess until tomorrow at 9:00 a.m. 25 ---oOo--- 26 27 28 155 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 11 proceedings in the above-entitled hearing; that I 12 transcribed the shorthand writing into typewriting; 13 and that the preceding pages 3-18, 39-55, 81-107 and 14 123-152 constitute a complete and accurate 15 transcription of the shorthand writing. 16 17 Dated: June 13, 2017 18 19 20 ____________________________ 21 KATHLEEN SKIDGEL, CSR #9039 22 Hearing Reporter 23 24 25 26 27 28 156 1 REPORTER'S CERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, Jillian M. Sumner, Hearing Reporter for the 8 California State Board of Equalization certify that 9 on May 23, 2017 I recorded verbatim, in shorthand, 10 to the best of my ability, the proceedings in the 11 above-entitled hearing; that I transcribed the 12 shorthand writing into typewriting; and that the 13 preceding pages 19-38, 56-80, 108-122 and 153-155 14 constitute a complete and accurate transcription of 15 the shorthand writing. 16 17 Dated: June 12, 2017 18 19 20 ____________________________ 21 JILLIAN M. SUMNER, CSR #13619 22 Hearing Reporter 23 24 25 26 27 28 157