1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 5901 GREEN VALLEY CIRCLE 3 CULVER CITY, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 FEBRUARY 24, 2015 10 11 12 13 ITEM F 14 PUBLIC HEARINGS 15 ITEM F3 16 PROPERTY TAXES - STATE ASSESSEES' PRESENTATIONS ON 17 CAPITALIZATION RATES AND OTHER FACTORS 18 AFFECTING VALUES 19 20 21 22 23 24 25 26 27 REPORTED BY: Kathleen Skidgel 28 CSR NO. 9039 1 1 P R E S E N T 2 3 For the Board Jerome E. Horton of Equalization: Chairman 4 5 Sen. George Runner (Ret.) Vice Chairman 6 7 Fiona Ma, CPA Member 8 9 Diane L. Harkey Member 10 11 Yvette Stowers Appearing for Betty T. 12 Yee, State Controller (per Government Code 13 Section 7.9) 14 Joann Richmond 15 Chief Board Proceedings 16 Division 17 For Staff: Ken Thompson Chief 18 State-Assessed Properties Division 19 20 ---oOo--- 21 Speaker: Peter Michaels Attorney 22 23 24 25 26 27 28 2 1 5901 GREEN VALLEY CIRCLE 2 CULVER CITY, CALIFORNIA 3 FEBRUARY 24, 2015 4 ---oOo--- 5 MR. HORTON: Ms. Richmond. 6 MS. RICHMOND: Our next public hearing is 7 Item F3, Property Taxes State-Assessees' 8 Presentation on Capitalization Rates and Other 9 Factors Affecting Values. 10 And we do have a public speaker. 11 MR. HORTON: Members, we have a couple of 12 speakers. Madam Clerk, I have notification of just 13 one, Mr. Peter Michaels, attorney in law. Is there 14 another? 15 Any other speakers, we would ask at this 16 time that you come forward, please. 17 Hearing none, we will take the report from 18 the Department, then hear from our speaker. 19 MR. THOMPSON: Good afternoon. I'm Ken 20 Thompson, the Chief of the State-Assessed Properties 21 Division. 22 Every year we meet at this time to allow 23 state assessees, in a public hearing, to give input 24 to the staff regarding capitalization rates and 25 other factors affecting state assessments. 26 Staff is here to answer any questions that 27 the Board might have. 28 MR. HORTON: Thank you very much. 3 1 Welcome to the Board, Mr. Michaels. 2 MR. MICHAELS: Thank you. 3 MR. HORTON: You have three minutes to make 4 your presentation. 5 ---oOo--- 6 PETER MICHAELS 7 ---oOo--- 8 MR. MICHAELS: Thank you. Thank you. 9 My name is Peter Michaels, and I'm here 10 today on behalf of 46 state assessees, including 11 local exchange telephone companies, long distance 12 telephone companies, wireless telephone companies, 13 gas and electric utilities, pipeline companies and 14 railroads, and independent power producers. And we 15 already have been working closely with Mr. Thompson 16 and his staff in anticipation of their 17 recommendations for 2015 for state assessees. 18 The deadline for filing our annual returns, 19 however, is not until this coming Monday. Actually 20 Sunday. But so we haven't filed our returns yet. 21 None of the state assessees have, and those returns 22 will be filed during the month of March. So at that 23 point we'll focus more sharply on valuation-related 24 matters. 25 So this is always a platform that we're 26 grateful to have, but it's premature to make any 27 substantive points, so we're really diving into the 28 deep end because we haven't filed our return, let 4 1 alone focused on possible areas of difference or 2 discussion. 3 But, as I mentioned, we have been 4 anticipating some of the topics we will be 5 addressing during the spring with Mr. Thompson and 6 his staff, and we're in constructive ongoing 7 discussions with staff. 8 MR. HORTON: Thank you very much. 9 Discussion, Members? 10 Member Harkey. 11 MS. HARKEY: Thank you. Is there a -- the 12 PUC has a cap rate and the staff is recommending a 13 cap rate. Is there anything yet established? 14 MR. MICHAELS: Yeah, this might be a topic 15 that Mr. Thompson could speak knowledgeably to. 16 The Public Utilities Commission does 17 conduct a cap -- cap rate study. And it does so 18 every three years. And that study is significant 19 for four, for a small segment of the companies that 20 you assess. 21 And perhaps Mr. Thompson could speak 22 authoritatively on the differences, but one is done 23 for rate-making purposes by the Public Utilities 24 Commission, whereas yours, here by the State Board 25 of Equalization is done for property tax valuation 26 purposes under the Revenue and Tax Code. 27 But let me defer to Mr. Thompson's 28 expertise on the point. 5 1 MR. THOMPSON: We give great weight to the 2 Public Utilities Commission and their determination 3 of costs of capital for rate-making. Our rates are 4 very close for those four or five companies that go 5 to the PUC for the blessing of their cost of capital 6 for the rate cases. But we have 425 state assessees 7 and the PUC only sets rates for electric and water 8 companies. Telephone companies, railroads and 9 pipelines don't have regular rate cases. So we 10 still need to do those cost of capital analysis for 11 all the companies for which we use the income 12 approach to value. 13 MS. HARKEY: And so for the companies that 14 are calculated by the PUC, do you use that value, or 15 do you use -- 16 MR. THOMPSON: Our rate is very close to 17 their rate. It's just -- it's just slightly above 18 because we use -- in our rate is what is a factor 19 for floating, flotation costs that is -- the PUC 20 allows that in their rate-making and not as part of 21 their cost of capital study for property tax 22 purposes. We use flotation costs in the rate, so 23 there's just a small difference. 24 MS. HARKEY: Okay. 25 MR. HORTON: Further discussion, Members? 26 Hearing none, the Board will receive and 27 file. 28 Thank you very much for your presentation 6 1 today, both you gentlemen. We look forward to your 2 continued cooperation in determining these values. 3 MR. MICHAELS: Thank you very much for 4 having us. 5 ---oOo--- 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 7 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 February 24, 2015 I recorded verbatim, in 10 shorthand, to the best of my ability, the 11 proceedings in the above-entitled hearing; that I 12 transcribed the shorthand writing into typewriting; 13 and that the preceding pages 1 through 7 constitute 14 a complete and accurate transcription of the 15 shorthand writing. 16 17 Dated: June 12, 2015 18 19 20 ____________________________ 21 KATHLEEN SKIDGEL 22 Hearing Reporter 23 24 25 26 27 28 8