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 14 ITEM P 15 OTHER ADMINISTRATIVE MATTERS 16 ITEM P1 17 EXECUTIVE DIRECTOR'S REPORT 18 19 20 21 22 23 24 25 26 27 REPORTED BY: Kathleen Skidgel 28 CSR NO. 9039 1 1 P R E S E N T 2 3 For the Board 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 18 ---oOo--- 19 20 For Staff: Michele Pielsticker Chief 21 Legislative and Research Division 22 Mark Durham 23 CEA Research and Statistics 24 Division 25 26 ---oOo--- 27 28 2 1 5901 GREEN VALLEY CIRCLE 2 CULVER CITY, CALIFORNIA 3 FEBRUARY 24, 2015 4 ---oOo--- 5 MR. HORTON: Ms. Richmond, what's our next 6 matter? 7 MS. RICHMOND: Our next item is 8 Administrative Matter. Item P1 under the Executive 9 Director's Report, the 2015/16 Excise Tax Rate 10 Adjustment for Motor Vehicle Fuel and Diesel Fuel, 11 the Fuel Tax Swap. 12 MR. HORTON: Thank you. And welcome to the 13 Board. Please introduce yourself for the record. 14 MR. DURHAM: Good morning, Mr. Chairman. 15 My name's Mark Durham, and I'm with the Board of 16 Equalization, the Research and Stat Section. 17 MS. PIELSTICKER: And I'm Michele 18 Pielsticker, Chief of the Legislative and Research 19 Division. 20 I'd like to start the presentation by 21 providing a history of the fuel tax swap. And then 22 I will turn it over to Mr. Durham to explain the 23 calculation and provide the staff recommendation. 24 So the fuel tax swap was enacted in March 25 2010 via AB x8-6 and SB 70. The purpose of the swap 26 was to provide flexibility in how the state uses its 27 tax -- uses its taxes on fuels for the state 28 spending needs. 3 1 The use of the revenues from the gasoline 2 sales taxes were not permitted to pay debt service 3 on transportation bonds, but fuel excise tax 4 revenues could be used to do so, and so the swap 5 lowered the sales tax and increased the excise tax 6 accordingly. 7 The impact on transportation funding was as 8 follows: It provided $491 million from fuel excise 9 tax revenues to pay debt service on highway and road 10 bonds in 2010/11; provided 762 million in one-time 11 loans from fuel excise tax revenues to the General 12 Fund in 2010/11, for a total of approximately 13 1.6 billion for General Fund relief in 2010/11 and 14 $727 million more in 2011/12; and it provided 15 ongoing -- $1 billion ongoing General Fund relief. 16 Now, the purpose of the diesel fuel swap 17 was to partially backfill gasoline sales tax funding 18 that would have flowed to the public transportation 19 account to subsidize inner city rail prior to the 20 swap. 21 In November 2010, Propositions 22 and 26 22 were enacted. Proposition 22 restricted the state 23 from being able to use fuel excise tax revenues for 24 General Fund relief. Proposition 26 required a 25 two-thirds vote even for revenue neutral bills as 26 the fuel tax swap bill was. Absent legislative 27 action, a large portion of the $1.6 billion in 28 General Fund relief assumed in the 2010/11 Budget 4 1 Act would be undone, and ongoing General Fund relief 2 would also have been undone. So in March 2011 the 3 Legislature re-enacted the fuel tax swap in AB 105. 4 The purpose of AB 105 was to provide 5 General Fund relief and compliance with Propositions 6 22 and 26. The impact on transportation funding in 7 those bills -- in that bill was to provide General 8 Fund relief of $1.7 billion. That would direct 9 truck weight fee revenues of 900 million annually to 10 fund debt service on transportation bonds and loans 11 to the General Fund and direct non road improvement 12 revenues of $78 million to be used for 13 transportation bond debt service. And also, it 14 would maintain local transit operation funding at 15 approximately $350 million annually. 16 Finally, AB 105 directs excise tax revenues 17 to the state highway account to hold harmless the 18 transportation programs that would otherwise receive 19 the weight fee revenue. 20 And I will now turn it over to Mark Durham 21 to describe the staff recommendation for the rate. 22 MR. DURHAM: So the current law requires 23 the Board of Equalization to determine the excise 24 tax rate for motor vehicle fuel and for diesel fuel 25 on an annual basis. And this is commonly referred 26 to as the fuel tax swap. 27 The Legislature requires the Board to adopt 28 a revenue neutral excise tax rate for each ensuing 5 1 fiscal year by March. The models take into account 2 the current state-wide fuel prices and consumption 3 to forecast for the next fiscal year, plus looking 4 back one year to reconcile or what we call a "true 5 up" for the over/under difference between the 6 forecasted price and gallons consumed to the actual 7 prices and gallons consumed. 8 For motor vehicle fuel, the fuel swap 9 eliminates the General Fund portion of the sales and 10 use tax and raises the excise tax rate with the 11 intent, by estimation, of raising the identical 12 amount of revenue. 13 For diesel fuel, the fuel tax swap 14 increases the sales and use tax by 1.75 percent and 15 requires the Board to adjust the 18 cents per gallon 16 since that the amount of revenue raised, again by 17 estimation, is unchanged. 18 For motor vehicle fuel, staff recommends 19 that the Board set the excise tax rate for the 20 period July 1st, 2015 through June 30th, 2016 at 21 28.5 cents per gallon, which is a decrease of 7.5 22 cents from the current rate of 36 cents. 23 For diesel fuel, staff recommends that the 24 Board set the excise tax rate for the period July 25 1st, 2015 through June 30th, 2016 at 13 cents, which 26 is an increase of 2 cents from the current rate of 27 11 cents. 28 And I'm available for any questions. 6 1 MR. HORTON: Discussion, Members? 2 MS. MA: Yes. 3 MR. HORTON: Member Ma. 4 MS. MA: Thank you, Mr. Durham. 5 So, you know, according to the memo 6 prepared on February 6th, it seems that you started 7 with the Governor's Department of Finance revenue or 8 excise tax estimates based on their January 2015/16 9 budget. 10 MR. DURHAM: Correct. 11 MS. MA: And then you made a further 12 adjustment based on the Global -- Global Insight 13 estimates back in January to reduce it an extra 14 whatever. 15 MR. DURHAM: Two cents. 16 MS. MA: Cents, yeah, 2 cents. 17 So, what I am asking at this moment -- I 18 think a lot has changed in the last month even. I 19 think, according to what I read yesterday, AAA gas 20 prices for the 20 -- gas prices for the last 28 days 21 has increased a total of 27 cents per gallon. It's 22 kind of the longest streak, since last spring, it 23 seems that gas prices are trending upwards. 24 There was also a recent incident at the 25 refinery in Torrance. And last time there was a 26 fire in Benicia, in 2012, prices actually soured to 27 about 88 cents in two months because of that. 28 And I'm just wondering, you know, based on 7 1 these new information, since you provided the memo, 2 how do you feel about your estimate and whether you 3 feel the trends are going to continue and whether 4 there's going to be an impact due to the Torrance 5 incident last week. 6 MR. DURHAM: Okay. First off, what we do 7 is we get the Department of Finance estimates. We 8 usually get that in November, early December. And 9 since that time, through January, prices dropped an 10 additional 15 percent. 11 So what we do is we do an estimation. We 12 usually go through the -- the -- we usually use the 13 February estimate. That actually dropped even 14 further by about -- I think it was about another 20 15 cents. So we stuck with the January only because we 16 needed to get the memo out, and we feel more 17 comfortable with the January one. 18 Talking about the -- the fires, the 2012 19 Benicia fire, it did increase it. That happened on 20 October 6th, 2012, and prices during the week jumped 21 about five-and-a-half percent. We looked at the -- 22 the most recent fire in Torrance and that jumped 23 about seven-and-a-half percent. 24 When you talk about the prices jumping up 25 about 80 cents, the other thing was October 8th 26 there was a huge shortage of production, and that 27 actually increased the price 10 cents. So it wasn't 28 just the fire from the Benicia fire, but it was a 8 1 combination of the Benicia fire, plus the, uh -- the 2 shortage in production. 3 However, towards the end of the year, on 4 August 6th, the average price was about $3.92. By 5 December 30th, it had -- it'd fallen back down to 6 $3.60. So there's about a 32-cent decline since 7 both of those incidents occurred. 8 Looking forward, we saw that the average 9 price is about $3.01. But we also need to remember 10 that we need to strip out the excise and the state 11 sales tax. So our estimate of $2.66, if you strip 12 out the -- the -- those -- the excise and state tax, 13 it's about 2.65, is what the current price would be. 14 So as far as our estimate, we feel pretty 15 confident at the 2.66. 16 MS. HARKEY: Um, I -- 17 MR. HORTON: Further discussion, Member 18 Harkey. 19 MS. HARKEY: Thank you. Sorry. 20 This room is a little bit different. 21 I -- I read through your analysis and 22 I've -- I've checked around. The Governor's budget 23 called for 5.5. That's what he was projecting. But 24 you're saying that the Governor's budget was based 25 on last year's figures, which they have to do 26 because they have to get something out in October or 27 November, was it? 28 MR. DURHAM: I think they used the November 9 1 prices. 2 MS. HARKEY: November prices. 3 And I seemed to recall that last year at 4 this time when the tax was increasing, it was kind 5 of deemed that, you know, the BOE should in fact do 6 this because it's our role to keep things level 7 based on a projection. 8 You're comfortable with the 9 seven-and-a-half cents. I am, too, only because I 10 think taxpayers -- you know, when it goes up, we're 11 charged with that and when it goes down, we ought to 12 give them credit for that. 13 I do understand that shop and stip programs 14 which are state construction, there's a lot of 15 pressure right now because they want to level out 16 the funding so that they can plan. And I -- I 17 understand that. 18 But I feel like a rollup here is more 19 ministerial once we get the data. We cannot just 20 decide willy-nilly what we -- what data we want to 21 pick and choose. 22 So going with that, this is probably a 23 question you can't answer. But I -- I, quite 24 honestly, would like to see, since the swap was used 25 to increase cash flow to the state during the 2010 26 crash, I'd like to see the whole thing reversed so 27 that we could get back to where we were, so we 28 wouldn't be stuck in this bind of either increasing 10 1 and taking state funds or decreasing -- or 2 decreasing and taking state funds and increasing and 3 taking taxpayer dollars. I think our consumers are 4 a little bit confused over this tax. 5 What is your opinion on the level of 6 clarity of the analysis that you've provided us? 7 MR. DURHAM: This is -- I can say that this 8 is a complex calculation. There's a lot of 9 variables. And the biggest variable is the gas 10 price. But you also have to look in, you know, 11 consumption. You also have to look at, like you 12 mentioned before, the reconciliation of the true-up. 13 And those are the three biggest components. And I 14 could see where it could potentially be confusing. 15 MS. HARKEY: Thank you. 16 MR. HORTON: Further discussion, Member 17 Runner. 18 MR. RUNNER: Yeah, just to clarify a 19 number. The 2.66 number was -- was, uhm, without 20 all tax, without FIT, excise tax and state? 21 MR. DURHAM: No, sir. The 2.66 includes 22 the federal excise tax. It does not include the -- 23 MR. RUNNER: Okay. So it includes the 24 federal excise tax. 25 MR. DURHAM: Correct. 26 MR. RUNNER: So -- so the number that we 27 would be looking at in comparison would be the 2.66 28 plus then the recommended, uhm, adjustment. 11 1 MR. DURHAM: Yes, sir. 2 MR. RUNNER: Uhm, at that point. 3 MR. DURHAM: Correct. 4 MR. RUNNER: Okay. 5 Uhm, you know, I -- I -- you know, I think 6 Member Harkey touched on it. But I think, you know, 7 the fact is that I think one of the challenges 8 that -- of course we -- the challenge we have before 9 us is how to deal with this information in trying to 10 move forward with gas prices and gas tax. 11 The bigger problem, I think, Californians 12 have is they end up with a system that is just 13 irrational when it comes to them to be able to 14 actually recognize what the amount of tax is when 15 they pull up to the gas pump. 16 And, you know, I think -- you know, I've 17 written on some issues on this. But, you know, the 18 fact is there was a day when you would drive up to 19 the gas pump, on the gas pump was a sticker, the 20 sticker said excise tax fed this much, excise tax 21 state this much, and this much sales tax is applied. 22 And so you knew exactly what it was. 23 In addition to that, then -- then the -- 24 the cost of your gas or the effect of tax on the gas 25 would adjust immediately. When it is that there 26 would be a -- a increase in the cost of the gas 27 going to the pump, then there was an immediate 28 adjustment to that because excise tax stayed the 12 1 same, both federal and state and then the sales tax 2 adjusted accordingly to the -- to the amount of 3 sale. So there was an immediate knowledge to the 4 taxpayer. 5 Right now I defy any -- and I think we 6 struggle right now with this crazy formula. And I 7 know I think for all of us, we -- we've spent a lot 8 of time trying to figure out the formula and what it 9 means. So to the average taxpayer out there, 10 there's no way they understand what the issue is and 11 how much tax they actually pay on a gallon of 12 gasoline, which I think is symptomatic of a big 13 problem. That is, I think clarity of tax is 14 essential for taxpayers. 15 And I think the thing that bothers me in 16 the process is this is a -- this -- this was a 17 one-time event to try to transfer some money that 18 the state needed back five years ago. And now for 19 the last five years and continue into the future 20 until it changes, we're still going to keep going 21 through this exercise because of a one-time event in 22 adjustment. 23 So I struggle with that in terms of it's 24 the policy of it. That being said, the law gave us 25 responsibility. I, for one, once we deal with this, 26 would like to consider another issue to which I 27 think we ought to have a discussion about and that 28 is whether or not it's even appropriate for the BOE 13 1 to make this adjustment. If it is indeed as 2 ministerial as -- as -- you know, as Member Harkey 3 points out -- 4 And, quite frankly, we are engaged with 5 Finance when we come up with these numbers, correct? 6 MR. DURHAM: Correct. 7 MR. RUNNER: Then I just question why it is 8 Finance just doesn't promote these numbers and then 9 actually act on this as a part of their ministerial 10 duties? They do this in other capacities. And so 11 why it is that we can't then change the law to 12 actually reflect how this is really done, I think is 13 something that we need to consider. 14 On top of that, I do believe that there 15 ought to be a broader solution, and that is trying 16 to make sure there's clarity in regards to the tax 17 itself. And that is the whole swap ought to be put 18 away and go back to a system that, again, fully 19 funds -- I think the problem is we still want to 20 fully fund the cost of the road issues that we have 21 before us. But at the same time, taxpayers deserve 22 the knowledge of how their money is being spent and 23 where it's -- and how it is being collected. And 24 right now I think that's a very hazy issue. 25 So, again, I think we can question the 26 formulas. We can say, How much is it? How should 27 we chisel off a little here? Is this the assumption 28 that we're making? If we did it in this month, 14 1 would it be better if we made it in the last month? 2 But the point is, it's all going to be a bit of 3 guesswork. And as a result of that, the formula 4 has, for us, the responsibility of not only 5 projecting forward but also then of truing up when 6 it is that we have to deal with it the next year. 7 And, uh -- and so I -- I have a question 8 that I'd like in terms of procedure. Because I'd 9 like to make a motion, actually, that we adopt 10 recommendations 1, 2 and 3 that is set before us. I 11 don't think there's any issue with us taking all 12 these up at the same time. 13 MS. HARKEY: I'll second. 14 MR. RUNNER: So my motion would be to adopt 15 staff recommendation 1, 2 and 3. 16 MR. HORTON: There's a motion to adopt 17 recommendation 1, 2 and 3. Second by -- made by 18 Member Runner. Second by Member Harkey. 19 Discussion, Members? 20 No discussion. 21 Members, I -- I -- I just want to sort of 22 share my thoughts relative to this, just to -- 23 because of the lack of clarity as it relates to the 24 taxpayer. 25 When I got off work yesterday around 26 8:45 -- unfortunately -- p.m., I found that my car 27 was -- was empty and I just was praying that I could 28 get to the gas station on time. 15 1 And I made it to the gas station. And I 2 pulled up and I got confused and got on the wrong 3 side. Got out to pump the gas and the gas tank 4 wasn't on this side. I had to go around and turn 5 around and get to the other side. 6 And so I'm -- I'm confused, I'm tired, and 7 I decide to look at the cost of gas, and then I 8 became angry. You know what I mean. So I'm 9 confused, tired and angry, and I look and it's $3.07 10 a gallon. And I'm like, wow, what does that mean? 11 And so, to Mr. Runner's point, I'm one of 12 those confused taxpayers out there that would like 13 to have a little clarity here. And then, you know, 14 of course, I knew that the $3.07 did not include the 15 sales tax and the excise tax, and it was probably 16 right around $2.66 now, as the current price. 17 And so that caused me to kind of -- kind of 18 say, well -- I think it's important what Michelle 19 provided us today and that's the history of this. 20 Conceptually what the Legislature sought to do was 21 to free up some funds, to take funds from one 22 category and place them over into another category 23 so they could use them to deal with the budget 24 deficit, to backfill the transportation fund, 25 basically. 26 And so they called upon the Board of 27 Equalization to keep this swap going. And 28 theoretically, it is revenue neutral. It really 16 1 doesn't have an effect. You raise one side and you 2 lower the other side. So at the end of the day it's 3 revenue neutral, but that is a very complicated 4 thing for folks to understand when you're raising or 5 lowering the tax. 6 So a couple of questions of Mr. Durham. 7 The true-up, can you tell us how the true-up comes 8 about and how is it determined? 9 MR. DURHAM: Yes, sir. So the true-up is 10 based on looking back one year. When we do a 11 forecast, it's -- it's really ruling a three-year 12 period. We're in the current year; we forecast for 13 the out year; and then we also have to go back and 14 we do a true-up the previous year to reconcile or 15 true up what the, uh -- the forecast -- the 16 difference between the forecast and the actual 17 prices are. 18 MR. HORTON: So in -- in layman's terms, 19 what are you doing? 20 MR. DURHAM: What we're doing is we're -- 21 we're kind of making up the difference, seeing what 22 the difference is. 23 MR. HORTON: Based on what? 24 MR. DURHAM: Based on the forecast and the 25 actual prices. 26 MR. HORTON: So based on the forecast going 27 forward or the previous forecast? 28 MR. DURHAM: It's -- it's -- for example, 17 1 for this year we're -- we're looking at -- we're 2 going back one year to last year, seeing what the 3 prices were and we're actually truing up those 4 prices. 5 MR. HORTON: So you have actual data -- 6 MR. DURHAM: Correct. 7 MR. HORTON: -- that you use? You're not 8 estimating? 9 MR. DURHAM: No. We have the actual -- 10 well, we have the forecast and we have the actual 11 data and we're subtracting those -- 12 MR. HORTON: Okay. 13 MR. DURHAM: -- to figure out what the 14 actual difference is. 15 MR. HORTON: And of the seven-and-a-half 16 percent, just quantify that for me. 17 MR. DURHAM: So out of the 18 seven-and-a-half -- well, actually out of the 19 ten-and-a-half cents -- 20 MR. HORTON: Ten-and-a-half, yeah. 21 MR. DURHAM: -- 2.6 cents is considered the 22 true-up portion of it. 23 MR. HORTON: So that -- the 2.6 cents is 24 based on actual -- given the estimate going forward, 25 but primarily actual information. 26 MR. DURHAM: Correct. 27 MR. HORTON: Okay. The other half, the 28 projection, tell me how that comes about. 18 1 MR. DURHAM: So it's a forecast like we 2 talked about earlier. It's -- it's taking -- 3 MR. HORTON: Now, when you say forecast, 4 you're -- you're estimating. 5 MR. DURHAM: Correct. 6 MR. HORTON: Based on future events, future 7 activities, what will happen in the future. 8 MR. DURHAM: What we're doing is we're 9 taking the forecast and price from Global Insight. 10 They're -- they're using Britoil prices that, you 11 know, the price per barrel, and they're looking 12 forward to see what the prices will be. So we're 13 using that data. 14 And I believe the Department of Finance 15 uses the same source, the Global Insight. 16 MR. HORTON: And did that take in 17 consideration that our country's on the brink of 18 war -- 19 MR. DURHAM: That, I don't know. 20 MR. HORTON: -- with countries that very 21 well could cause the gas prices to go through the 22 roof? Did they take that in consideration? 23 MR. DURHAM: Uh, I'm not sure, sir. 24 MR. HORTON: No, you're sure. Did you take 25 that into consideration? 26 MR. DURHAM: Well, I'm not exactly sure 27 what their -- how they come up with their forecasted 28 prices. 19 1 MR. HORTON: You know, the last time we did 2 this adjustment, we actually raised the excise tax, 3 and it disturbed me then. 4 I mean -- well, the last time we didn't. 5 Two years ago is when we got into all the 6 controversy. And that time we tried to explain to 7 the taxpayer and to the media that this is just an 8 offset; it wouldn't have a major effect on gas 9 prices. 10 And we said that sometime in March. And 11 then when the adjustment took place, everyone said 12 gas prices are going to go through the roof because 13 the Board of Equalization did X, Y and Z. And you 14 know what happened? Come June, prices went down 15 despite the action that the Board of Equalization 16 take -- took, proving that there's so many different 17 issues that affect gasoline prices. This is not one 18 of them. 19 But yet still, you know, I agree with 20 Mr. Runner that, because this is a budgetary 21 consideration that was made back in 2010, the 22 consideration -- the trouble that they started back 23 in 2010 still exists. And if there was a budget 24 shortfall, we would be faced with other types of 25 adjustments. 26 And so I somewhat agree with Mr. Runner, we 27 might want to sponsor legislation to -- not 28 necessarily Department of Finance, but turn it back 20 1 over to the Legislature to -- to give it some -- 2 give someone some consideration to take into 3 consideration the policy aspect as it relates to the 4 budget and whether or not the General Fund should 5 backfill the transportation. Because if we use a 6 baseline of 2010 and the prices go through the roof, 7 the General Fund gets a windfall because they get -- 8 they -- and when they get the windfall, they should 9 pass that windfall back on to the taxpayers and 10 lower their prices. But that doesn't happen. I 11 mean it hasn't happened. It's been one of the 12 concerns of many consumers. 13 But it is here. And, you know, I'm not one 14 to shy off responsibilities. I happen to enjoy 15 taking those things on if they give it to me. But 16 if -- if they're asking where it should be right -- 17 rightly placed, I would agree with Mr. Runner in 18 that regard. 19 My concern, Members, is that we are on the 20 brink of war and there are a number of other 21 considerations that these numbers don't necessarily 22 reflect. And so if we're wrong, guess what happens 23 next year? We raise the tax next year if we're 24 wrong. 25 If for some reason the price of gasoline is 26 higher than $2.66 plus all the additives next year, 27 then we have to go back to the taxpayer and say, 28 well, we're going to raise the excise tax. And the 21 1 same arguments -- I guarantee you, the same 2 arguments that put in place today to lower 'em won't 3 be in place a year from now to raise 'em. 4 So I think we should be conservative in our 5 estimate. We should be responsible and do our best 6 to spread this out over a longer period of time to 7 minimize the burden on taxpayers, so that the 8 taxpayers next year are not faced with having a tax 9 increase. 10 Because what happens, Mr. Durham, if the 11 President is right, Congress is right, and they go 12 to war and all of a sudden the prices go up? Just 13 one -- just one example. I can give you two or 14 three other reasons why the price might go up, but 15 let me just deal with the most severe one that's 16 facing our country. 17 What happens if it goes up to $4; what do 18 we do next year as far as the true-up? 19 MR. DURHAM: Well, then we've 20 undercollected. So the true -- the true-up could 21 potentially be more. 22 MR. HORTON: And what happens if it goes 23 down? 24 MR. DURHAM: Then the opposite would 25 happen. 26 MR. HORTON: So, Members, I recommend that 27 we spread this out over a period of time, that we 28 actually make the adjustment on the sales tax 22 1 somewhere around what the Governor's estimate was. 2 Or if in fact it is $3, somewhere around 6 cents. 3 And then spread that out over a larger period of 4 time. 5 I think it is responsible, conservative, 6 and I think it sort of protects the taxpayer from 7 future tax increases from this mistake, in my mind, 8 that was made back in 2010. 9 But we have a first and a second on the 10 floor. 11 Member Harkey and then Member Runner. 12 MS. HARKEY: I -- I just -- if I could just 13 comment. I would agree with you if we were putting 14 the money into some kind of reserve fund to another 15 mechanism to smooth out the taxing for the 16 consumers, but we are not. We're going to be 17 spending it. And just like we raised it last time, 18 now we're not willing to lower it and based on the 19 same model, same projection model. 20 So I would like to see us go along with the 21 motion. I know if we don't have the three, we won't 22 have the three. I understand what you're doing 23 because the Governor's budget will be impacted. But 24 I would really like to urge the Governor to unwrap 25 this and let everybody get back to normal. 26 I think it's, uh -- we -- we did a lot of 27 things. I was in Legislature from 2008, right at 28 the crash. I got elected in November of 2008. And 23 1 we went through five all-night, over 30-hour budget 2 sessions within the first two years. They were back 3 to back to back, filling billion-dollar holes. It 4 started out with I think 46 billion, and the 5 smallest we ever had to deal with was about 20, 6 which I think was the subject of one of these and -- 7 of this legislation that allo- -- that -- that 8 changed the mechanism for the -- for the tax. 9 And I can tell you there was a lot of 10 confusion. It was not -- it's not -- anything that 11 took place from 2008 to 2010, quite honestly, should 12 not be continued. It was all done for a reason, to 13 plug a hole. And we're -- we've got, I think, a 14 little bit more discipline right now at the state 15 financially. We're -- we're improving, but I think 16 that, you know, the dollars in people's pocket and 17 the tax -- I mean the tax on gasoline is a huge 18 driver for what people have as discretionary income. 19 And -- and I think we ought to do the best we can 20 for them and urge some kind of reversal of this 21 in -- in the near future. 22 I don't like administering and not having 23 control over a policy, but actually just 24 administering it. And I think the BOE gets stuck 25 with a lot of that. 26 The reality is that if the Legislature 27 wants to increase the tax, they should be voting on 28 it. But, you know, getting 41 votes and another 21 24 1 votes to increase gas tax is not going to be a 2 popular move, so that's why this is over at the BOE. 3 And so now we get forced with looking at projections 4 that go back, go forward, pick a date, and we've 5 done that for the last -- since 2010. And I really 6 think that -- well, just say again, it needs to be 7 reversed. 8 I would like to support what we've used in 9 the past, which is the estimate given by staff. I 10 don't want to politicize this. I'd like to just see 11 us do what we're supposed to be doing or what we 12 should -- what we're advised to do in this because I 13 don't have the projection data. And I'd -- I'm not 14 going to even guess what the price of oil will be at 15 the end of this year. 16 So -- and I would like to see the 17 fluctuations at the pump. When I'm -- when it's 18 cheaper, I get a benefit. When it's not -- but 19 that's not what we do in California. 20 So thank you. 21 MR. HORTON: Member Runner. 22 MR. RUNNER: Yeah, I'm -- I'm not sure that 23 I would agree that the crisis in the Middle East is 24 any worse today than it was a year ago, two years 25 ago or five years ago. And, you know, so I don't -- 26 you know, I think it's always been volatile. 27 The thing that has changed a great deal is 28 that this country is -- is, uh -- is, uh, supplying 25 1 much more of its own oil, which is one of the 2 driving forces as to why it is that we have lower 3 prices. That is -- that is the thing that is one of 4 the key issues in regards to this discussion in 5 regards to price. It's not how much we import now. 6 It's basically how much -- how much we end up 7 supplying for ourselves. So that -- that has been a 8 significant change over the last three, four years. 9 You know, so, again, I -- I think the other 10 thing we need to remind ourselves is when we talk 11 about true-up, that means we overcollected from 12 taxpayers. That means every time the taxpayer went 13 to the pump and pumped their gas, they paid more tax 14 than they should have. And now we're having to true 15 that up. We're having to give money back to them 16 for that. And so that's what that's about, because 17 we overcollected, we estimated too low. So that's 18 part of the true-up issue that we've got. 19 The other side of that in regards to the 20 future and that is I think our responsibility, as I 21 understand the law, is to come up with a -- with a 22 justified estimate. We have to have a rationale for 23 our estimate. And so -- and I don't believe the 24 Governor's budget that was done back in November and 25 December prepared that. 26 What they did is they did a projection, 27 because that's what the Governor's budget in January 28 is, a projection. Just like right now the 26 1 Governor's budget is under his -- his total revenue 2 collections, according to the LAO, is a billion to 3 $2 billion low. That's because back when they made 4 those projections, that's what they thought it was 5 going to be. 6 The -- the same thing when they projected 7 this particular part in their budget, that's what 8 they thought it was going to be. Since then, we 9 have worked with Finance, correct? 10 MR. DURHAM: Correct, yes. 11 MR. RUNNER: So -- so the -- the numbers 12 that we have before us are from Finance, the 13 Governor's Finance. And so to act like the Governor 14 has different numbers than us just is really not the 15 case. These are numbers that come out of the 16 Governor's shop in regards the finance, based upon 17 the formulas, correct? 18 MR. DURHAM: Well, what we did, we -- we 19 just updated the prices. 20 MR. RUNNER: What's that? 21 MR. DURHAM: We just updated the prices to 22 the January prices, correct. 23 MR. RUNNER: Right. Right. But again, the 24 numbers in regards to the formula for future, we 25 used the same projections? 26 MR. DURHAM: Well, for the future, for the 27 forecast -- 28 MR. HORTON: The methodology is the same. 27 1 MR. DURHAM: Correct, sir. The methodology 2 is the same. What we do is we just update to the 3 current prices. They used the November price. We 4 used the January price. 5 MR. RUNNER: Right. And so we actually use 6 then prices that were -- 7 MR. DURHAM: A little lower. 8 MR. RUNNER: -- a little lower. And again, 9 that was because then that's where the prices were 10 at that time, and they used the higher prices back 11 then. 12 MR. DURHAM: Exactly. 13 MR. RUNNER: And again, and -- and we have 14 given them our estimates. 15 MR. DURHAM: Correct. 16 MR. RUNNER: Okay. So again, this is not 17 done in any kind of a -- it's very clear. It's 18 exactly the same timing as we did last year. I get 19 nervous when all of a sudden we say, well, let's use 20 the base -- this time we're going to use the base of 21 November as opposed to using the base of January 22 because somehow the numbers are skewed. I think 23 that's a wrong manipulation on our part. 24 I don't like the fact that we -- that we 25 have to estimate gas prices. But I certainly don't 26 like the idea that we are flexible as to what month 27 we're going to choose to use in order to then to 28 change the outcome; and I think that's exactly what 28 1 we would be doing in the -- in this case. 2 So, you know, again, I get the fact that if 3 prices change in the future and they go -- and they 4 go up, we're going to end up with a true-up and 5 we're going to end up dealing with it and we're 6 going to have the issues before us. That's what's 7 fundamentally wrong with this process. 8 And I do believe we need to go back to the 9 Legislature and talk about what's fundamentally 10 wrong with this process. But at the same time, I 11 think we're going to -- you know, using -- using the 12 same process we had before, using the same months 13 that we had before -- and, again, I think we all 14 relate to the idea of incidental issues that happen 15 in gas prices, whether it's a refinery that goes 16 offline or whatever, but that always happens and it 17 always gets readjusted back to what the -- what the 18 norm is. 19 And so I certainly feel like this makes 20 sense for us to go with the recommendation. And I 21 just question what our basis is if we don't do that, 22 other than the fact that we're just choosing to go 23 back to a different date; I guess that would be the 24 rationale. 25 MR. HORTON: You know, part of the 26 confusion the taxpayers have is the fact that, you 27 know, we sort of contribute to that. 28 And just for clarification, not my views 29 1 one way or the other, I just want to clarify a 2 couple things. And I think it's important that the 3 taxpayer and that we all understand that when the 4 Legislature did this, when they passed this, both 5 republicans and democrats voted for what they 6 referred to as a revenue neutral transaction, 7 meaning that at the end of the day, whether it goes 8 up or down, there's a corresponding adjustment that 9 makes it revenue neutral. So that neutrality, what 10 happens with the neutrality in the calculation at 11 the pump is that it really doesn't have an effect on 12 the gas prices. 13 And it's a little confusing, and I get 14 that. So the true-up is not reflective of anyone 15 overcollecting taxes from anybody, yet alone the -- 16 the taxpayers. 17 Mr. Durham, can you sort of tell us whether 18 or not -- I don't want you to tell us -- I don't 19 want to put you on the spot here, but I'm trying to 20 figure out how to get the facts out here. 21 The true-up, is it reflective of an 22 increase or decrease in the price at the pump for 23 the consumers? 24 MR. DURHAM: Well, the true-up is not -- 25 the main purpose of the true-up is to look at the 26 difference between the forecasted price and the 27 actual prices. If you forecasted high, then you've 28 overcollected. If you've forecasted low, then 30 1 you've undercollected. 2 MR. HORTON: On -- on one side or the 3 other. And so you're true-uping to adjust for the 4 increase on one side. You're true-uping on the -- 5 on the excise tax to adjust upward. So net at the 6 end of the day, it's a net zero net revenue neutral 7 effect. 8 MR. DURHAM: That's the intent of the 9 calculation. 10 MR. HORTON: Okay. 11 MR. RUNNER: Mr. Chair. 12 MR. HORTON: Yes. 13 MR. RUNNER: I got to -- again, that is the 14 total calculation. And the total calculation isn't 15 to affect so that the taxpayer's paying the same 16 amount of tax that they did back when this was done, 17 correct? 18 MR. DURHAM: Correct. 19 MR. RUNNER: Okay. It's to adjust to the 20 prices that would be changed. So the fact is, the 21 taxpayers do pay more tax if -- or less tax, 22 depending upon the price of gasoline. 23 MR. DURHAM: Yes. 24 MR. RUNNER: Okay. So -- 25 MR. HORTON: Well, I mean that's -- 26 MR. RUNNER: So -- hang on. 27 MR. HORTON: That's a circular statement. 28 That's true regardless. 31 1 MR. RUNNER: Well, again -- but so -- 2 again, I think we need to clarify this because when 3 we do a true-up, it is because we overcollected; our 4 estimate was not correct last year. 5 MR. DURHAM: Yes. 6 MR. RUNNER: And as result of that, we have 7 to then compensate back to taxpayers by lowering 8 their price. So -- 9 MR. HORTON: For the -- for the purpose of 10 neutralizing the effects. 11 MR. RUNNER: Well, again, it's two sides of 12 it. That's -- but we overcollected on the previous 13 year, so that's what that side of the calculation 14 is. 15 And again, it does have a difference on the 16 pump. I don't think any -- I never heard anybody in 17 terms of the -- in terms of the sales business in 18 gas or at the pump say, "Hey, you know, you can 19 raise taxes or lower them. It doesn't make any 20 difference. We'll charge the same at the pump." 21 Tax affect -- tax rate has effect at the 22 dollar -- at the pump. And, again, there's other -- 23 I agree there's other things that go into it. You 24 know, how much gas is a gallon, how much -- what's 25 happening in refineries and all this. But you 26 can't -- it would be tough to say, "Oh, you can 27 lower gas prices all we want -- or tax all we want 28 and it'll never affect anybody at the pump." Of 32 1 course it will. And so I think that's the issue. 2 MR. HORTON: I think -- I think the key, 3 Mr. Runner, is that there's two sides to it. I mean 4 I could get on one side and make the exact same 5 argument, and I would. I mean if I looked at the 6 side -- the side of the actual true-up where the 7 sales tax revenue went up and the excise tax revenue 8 went down by virtue that the excise tax is computed 9 on the gallonage as opposed to the sales tax which 10 is computed on the price, so when the price is 11 adjusted the sales tax income revenue is affected, 12 given that consumption, if we -- if we assume that 13 consumption is consistent. 14 And so I can make that same argument, but 15 we can't isolate or bifurcate this discussion 16 because they're all-inclusive. We have to look at 17 both sides as the Legislature did when they went 18 through their calculations. Because the Legislature 19 wouldn't have been able to pass that legislation if 20 it wasn't revenue neutral. 21 MR. RUNNER: The -- the only thing this 22 discussion points out is how hard it is to 23 understand this process. 24 MR. HORTON: Yeah. 25 MR. RUNNER: And how outrageous it is for 26 us to be -- I'm just trying to debate it -- when it 27 is the taxpayers are the ones that have to actually 28 pay it. 33 1 MR. HORTON: Member Harkey. 2 MS. HARKEY: I'd just like to say I 3 believe -- and correct me if I'm wrong -- but 4 revenue neutrality deals with the total tax. It 5 doesn't deal with the -- with the actual price of 6 the gas. It deals with the total tax needs to be 7 revenue neutral. 8 MR. HORTON: Right. 9 MS. HARKEY: And that's why we make that 10 adjustment. So it is the tax that we're actually 11 looking at because we swapped sales tax for excise 12 tax. 13 MR. HORTON: Right. 14 MS. HARKEY: So the purpose is to keep that 15 revenue neutral, not to keep the price at the pump 16 the same, but to keep that tax revenue neutral, what 17 it would have been had we not done that. 18 And so -- 19 MR. HORTON: Correct. 20 MS. HARKEY: -- I don't believe that -- 21 that we can make an argument that, you know, people 22 that pay -- I mean consumers are -- aren't concerned 23 with the total tax at the pump. And -- and I do 24 think that, you know, we have a calculation in 25 place. It is the best working data that we have, 26 and we accepted it last year. There was a split on 27 the vote, but we accepted it last year. 28 I think we ought to go forward and accept 34 1 it this year because it's actual -- it's actually 2 the best recommendation we have for how to keep the 3 tax part revenue neutral. 4 So minus being able to reverse the whole 5 thing, you know, I'm just hard pressed here. 6 Thank you. 7 MR. HORTON: Thanks. 8 I mean the beauty of this discussion is 9 that if it goes up next year, we will probably be a 10 5-0 because last year it -- it was just a majority 11 who actually -- 12 MR. RUNNER: That is the dilemma. 13 MR. HORTON: Yeah. So -- so the argument 14 shifts, you know what I mean. And what I'm looking 15 for -- 16 MS. HARKEY: I wasn't here. 17 MR. HORTON: -- is for us to have an 18 argument that reflects both sides of the 19 transaction, that reflects the totality, the 20 holistic approach of dealing with this. Because we 21 have to -- we have to be somewhat concerned about 22 the overall impact. We can't look at one side and 23 say, okay, it's going up so I disagree, I'm not 24 going to vote for it. It's going down, I agree and 25 I'm going to use the other side of the circular 26 discussion in order to justify my actions. 27 And so I am good with that, believe me, 28 because that's what we do. That's -- but as a 35 1 policymaker, it concerns me that we're not trying -- 2 not us -- and this goes to Mr. Runner's point -- is 3 that there should be a fix. And in my mind the fix 4 is to be able to look at this over a longer period 5 of time. And basically what I'm suggesting is, is 6 that we project over a longer period of time and -- 7 and shifts this -- and so as it relates -- 8 I want to go back to the notion that we 9 are -- we do have somewhat of a reserve because 10 we're not collecting the money. We're not getting 11 it and we don't have to put it anywhere. We're 12 just -- we're just not collecting it. And so, 13 therefore, nobody's paying it. 14 And the Governor's budget -- the Governor's 15 budget was based on what they thought the numbers 16 were at that particular time when they made the 17 estimate. We're making the estimate. Our number 18 is -- is effective what date? 19 MR. DURHAM: It was in January. 20 MR. HORTON: In January. We're now in -- 21 we're projecting for January what it will be in July 22 based on -- 23 MR. DURHAM: Actually, for the next 18 24 months. 25 MR. HORTON: Based on the data received in 26 the last 18 months, of which -- 27 Just -- just another question sort of came 28 to mind. 2016, the sales tax altogether, the 36 1 increase in sales tax relative to Proposition 30 2 will sunset, will go away, which will have affect on 3 this whole calculation, correct? The sales tax goes 4 down, the sales tax revenue on gasoline will 5 correspondingly, assuming consumption stays the 6 same, will go down. 7 MR. DURHAM: I -- I need to go back and 8 look at that. 9 MR. HORTON: Well, just think about it for 10 a second. If the sales -- this is based on sales 11 tax. This is based on a sales -- current sales tax 12 rate. 13 If that rate in itself goes down, it's 14 going to have affect. It's kind of like X plus Y. 15 MR. DURHAM: We're looking at the -- we're 16 looking at the forecasted price. And the forecasted 17 price in this calculation is the biggest 18 component. 19 MR. HORTON: And -- but your forecasted 20 price is what? 21 MR. DURHAM: Is 2.66. 22 MR. HORTON: Okay. 23 MR. RUNNER: Absent tax, absent tax. 24 MR. HORTON: And so -- and so you're saying 25 the tax rate has no affect whatsoever on your 26 forecast? 27 MR. DURHAM: I'm sorry. Repeat the 28 question? 37 1 MR. HORTON: Repeat it? 2 The sales tax rate has no affect on your 3 forecast. 4 MR. DURHAM: Correct. 5 MS. PIELSTICKER: Not on the price 6 forecast. 7 MR. DURHAM: Not on the price -- 8 MS. PIELSTICKER: But just on the 9 calculation. 10 MR. DURHAM: Well, on the calculation, yes, 11 it does. 12 MR. HORTON: It does. 13 MS. HARKEY: Well, I -- 14 MR. DURHAM: On the diesel side. 15 MR. HORTON: That's my -- that's my point. 16 I mean the whole notion of revenue neutrality is 17 sales tax/excise tax. When one goes up, one goes 18 down. 19 MR. DURHAM: No, no, no. If we're talking 20 about the sales tax and excise tax, it's the -- it's 21 the price. 22 MR. RUNNER: Yeah. 23 MR. DURHAM: The sales tax and the excise 24 tax do not have any -- for this calculation, like I 25 said, we're looking at -- at the price of the 26 forecasted price because the forecasted price is 27 without the sales tax and without the excise tax. 28 MR. HORTON: Okay. Let me -- let me -- let 38 1 me walk through this then. 2 When you have a forecasted price, in order 3 to determine how much sales tax revenue was 4 collected, you take that forecasted price and you 5 multiply it times what? 6 MR. DURHAM: So when we look at the 7 foregone revenue, we do take the sales tax rate at 8 five percent. 9 MR. HORTON: And you do what with it? 10 MR. DURHAM: We multiply the forecasted 11 price times the gallons, projected gallons, times 12 the sales tax rate, to get that foregone gallons. 13 So it does have a slight affect on that, correct. 14 MR. HORTON: Okay. Now we're closer. And 15 I don't want to keep going through it to get us even 16 closer to what just the reality is. 17 Okay. So I think we got enough of the 18 facts on the table. 19 And now, for -- to Member Ma. My 20 apologies. 21 MS. MA: Thank you very much. 22 I would agree with my colleagues that, you 23 know, we created this fuel tax swap to solve a 24 problem due to the great recession and also, you 25 know, the Schwarzenegger, you know, debt legacy that 26 we inherited when I got to the Legislature. 27 But be it as -- as it may, I think we all 28 feel like perhaps the Department of Finance is the 39 1 best place to make these decisions. 2 At the BOE we are auditors, we are 3 collectors. We can give statistics about past and 4 current data, but we are not forecasters here at the 5 BOE. And here we are asking, you know, Members to 6 forecast, as well as you, Mr. Durham, and some of 7 your members, to forecast what you think the gas 8 prices are going to be, using the same statistics 9 and factors that the Governor's office used. 10 But I did have a conversation with the 11 Governor's Department of Finance experts, the people 12 who, you know, put together these numbers for the 13 January budget. Two factors, as we discussed, 14 right: Consumption, which is not very volatile and 15 they used a flat assumption; and the second one was 16 prices, which is the wild card in this -- in this 17 calculation. 18 And they did use the late November, early 19 December forecast, you know, numbers at that time, 20 the current trends, the occurrences, all of these 21 Global Insight and other, um -- um, you know, 22 economic revenue estimators. And they actually used 23 an average of $3.28 to $3.40, using quarterly 24 averages for the 2015 to 2016. And that's how they 25 came up with their $3 a gallon. 26 Today's rate, today's rate is about that 27 price, right, $3 a gallon. 28 So I am actually very comfortable if we are 40 1 talking about using, you know, a realistic rate, 2 something that is reasonable, realistic, doesn't 3 avoid this big spike. Obviously 7.5 cents is a big 4 spike and every cent that we decrease directly 5 affects transportation and highways and roadways, 6 all the highway funds as well. 7 And so I am actually very comfortable using 8 the Governor's estimate of $3 a gallon. We can see 9 it's $3 a gallon today. I think that is realistic 10 and that is reasonable. And so that is what I would 11 be supporting today. 12 So not a decrease in 7.5 cents, but 13 actually a 6 cent decrease to the $3 gallon that the 14 Governor actually projected in his January revise, 15 January budget. 16 So yeah. So I would go with a substitute 17 motion to decrease the excise tax to -- by 6 cents, 18 which would leave a $3 per gallon -- 19 MR. HORTON: I'd -- 20 MS. MA: -- tax. 21 MR. HORTON: -- second the substitute 22 motion. 23 Further discussion, Members? 24 MR. RUNNER: The substitute -- actually the 25 motion -- let me clarify. The motion was 26 accepting -- 27 MR. HORTON: Seven -- 28 MR. RUNNER: -- 1, 2 and 3. I believe the 41 1 discussion there was all about item 1. 2 MS. MA: Yes, yes. 3 MR. RUNNER: So let me ask a question in 4 regards to this. If we -- if we go ahead and do 5 that, if the -- what is the intent? 6 If we use -- again, the Governor went back 7 to -- to -- to use the November gas prices, correct? 8 So -- and -- and all our discussion here about the 9 November gas prices has been about gasoline. 10 What do we know about the Governor's 11 projected prices when it came to diesel back then? 12 Because again, I'd -- I'd be hesitant to move 13 forward and say, okay, let's go ahead and use the -- 14 use the Governor's budget and the November prices on 15 gasoline, but let's use the January issue when it 16 comes to the issue of diesel. Does that make sense? 17 So do we know what that would -- what the 18 effect on diesel would be if we went ahead and used 19 that date? 20 MS. MA: I did not have a conver- -- I did 21 not talk to the Governor's office about the diesel. 22 I was really concerned about the excise tax, and 23 so that's what I -- 24 MR. HORTON: Members, I would recommend 25 that we go to staff and see if they can assist us 26 with that. 27 I would also share that I actually believe 28 that our staff is more competent than the Department 42 1 of Finance's, or equally. But it's just a 2 projection in that concur that, you know, the number 3 used is what I saw at the pump today, in February, 4 $3. 5 But anyway, I don't want to get into a 6 conversation. 7 MR. RUNNER: My question is still the same 8 in regards to -- 9 MR. HORTON: Mr. Durham, do you have an 10 answer? 11 MR. DURHAM: I do. So the Department of 12 Finance's for diesel, they had a excise tax rate 13 reduction of 12.5 cents; and when you round that, 14 it's 12 cents. And then ours is 13.3; so when you 15 round it, it's 13. 16 MR. RUNNER: So if we use the Gov- -- so 17 help me get down to what that means in regards to 18 change. 19 MR. HORTON: What's the differential? 20 MR. DURHAM: So, uh, the -- the difference 21 would be -- well, a penny. 22 MR. RUNNER: A penny. A penny lower or 23 penny higher? 24 MR. DURHAM: Well, we're using 13, they're 25 using 12-and-a-half. 26 MR. HORTON: A penny lower. 27 MS. HARKEY: So it's a penny lower. 28 MR. DURHAM: Penny lower. 43 1 MR. RUNNER: So instead of a -- instead of 2 a increase of 2 cents -- 3 MS. HARKEY: It's 1. 4 MR. RUNNER: -- for diesel, it would be an 5 increase of 1 cent? 6 MR. DURHAM: Correct. 7 MR. HORTON: Somewhere around. 8 MR. RUNNER: I just want to -- I just want 9 to -- I just want to get -- 10 MR. HORTON: That's not exactly 1 cent, but 11 it's close. 12 MR. RUNNER: Yeah, I mean-- 13 MR. HORTON: Okay. I just did it quickly 14 in my head. I'm sorry. 15 Member Harkey. 16 MS. HARKEY: Can we bifurcate this since 17 we're talking about -- if we -- if we were to 18 withdraw the first motion -- I know there's a 19 substitute on the floor -- but if we withdraw the 20 first and just vote on one at a time, would that 21 be -- I guess -- 22 MR. HORTON: You can. 23 MS. HARKEY: Mr. Chair, let's -- 24 MR. HORTON: Member -- Member Harkey would 25 like to bifurcate items 1, 2 and 3, Members. 26 MS. STOWERS: Chairman Horton -- 27 MR. RUNNER: I'll withdraw the motion so 28 that we can do that easily. 44 1 MR. HORTON: The motion's withdrawn. 2 Approved by the second. 3 MS. STOWERS: Chairman Horton -- sorry. 4 MR. HORTON: Member Stowers. 5 MS. STOWERS: Is it possible, before we 6 vote, if staff could do a spreadsheet and a 7 calculation that we can look at during a recess 8 today? 9 MR. HORTON: At your request, we'll make it 10 so. 11 MR. RUNNER: A spreadsheet -- can you 12 clarify what we're asking staff to do? 13 MS. STOWERS: I want to see how the numbers 14 are crunching out. I'm more visual. I mean you're 15 talking about it may be a decrease of 1 cent on 16 diesel as opposed to 2 cents. I'd just like to see 17 the numbers. 18 MR. HORTON: Okay. Um -- 19 MS. STOWERS: Or we can vote. We can go -- 20 we can go vote. 21 MR. HORTON: No, no, no. We will 22 accommodate. 23 To staff, how long would it take you to 24 make this calculation? 25 MR. DURHAM: Well, actually I have the 26 Department of Finance's spreadsheet here. 27 MR. HORTON: Okay. Can you tell us -- can 28 you provide us with a copy of that? 45 1 MR. DURHAM: Sure. 2 MR. HORTON: Now. Please. Didn't mean to 3 be bossy, my apologies. 4 Members, we'll take a five-minute recess. 5 The Board will return in five minutes. 6 MR. RUNNER: Okay. 7 (Recess taken.) 8 MR. HORTON: Members and guests, let us 9 reconvene the meeting of the Board of Equalization. 10 The maker of the original motion withdraw 11 the motion to allow the subsequent motion to be on 12 the floor. Subsequent motion made by Member Ma. 13 Second by Horton. 14 Discussion, Members. 15 MR. RUNNER: Just to clarify, that was only 16 on item 1? 17 MR. HORTON: Only on item 1. Bifurcating 18 item 1, 2 and 3. Would suggest that, if possible, 19 we take up 2 and 3 together, but would defer to the 20 Members' request. 21 So item 1, Members, further discussion? 22 Member -- 23 MS. STOWERS: Just can you restate the 24 motion for clarity, please? 25 MR. HORTON: Maker of the motion? 26 MS. MA: Yes. So -- 27 Am I on? Hello. 28 Okay. So my motion was to use the 46 1 Governor's budget number. So I believe the Governor 2 used 30.5. And I'm amenable to rounding it up, if 3 that's your methodology, for the diesel tax as 4 well. 5 MR. DURHAM: Yes. They used 30.5. 6 MR. HORTON: If you were to round that 7 up. 8 MR. DURHAM: If we were to round it up, if 9 we used the price of $3, actually that would round 10 it to 12 cents as opposed to 12-and-a-half cents. 11 So there's a half a -- half a cent difference 12 between the Governor's budget and rounding it up. 13 MR. HORTON: And the -- so the 14 differential? 15 MR. DURHAM: The differential would be -- 16 well, let me just kind of run -- staff's 17 recommendation would be 10-and-a-half cents for the 18 excise tax. Department of Finance had a 19 12-and-a-half cents; and if we rounded it, it would 20 be 12 cents, if we rounded it to $3 or went to $3. 21 MS. HARKEY: So what would be -- 22 MR. HORTON: We need you to speak in terms 23 of the layman's view of this and what happens. 24 MR. RUNNER: What happened to the 25 7-and-a-half cents? 26 MR. HORTON: I get it, you know, but -- 27 MS. MA: Yeah, what happened to the 28 7-and-a-half cents? 47 1 MR. DURHAM: Oh, I'm sorry. 2 MR. HORTON: So we need you to kind of tell 3 the complete story if you will. 4 MR. DURHAM: Okay. So the Department of 5 Finance, it would, uh -- it would be excise tax rate 6 of 5 -- a reduction of 5.5 cents. 7 MS. HARKEY: Rounding up to 6? 8 MR. DURHAM: Rounding up to 6. 9 MR. HORTON: And on the diesel? The same 10 methodology used in diesel? 11 MR. DURHAM: Correct. Well, the 12 methodology for diesel is they're -- 13 MR. HORTON: No, not the, the methodology 14 proposed by the Member which is relative to rounding 15 up and using the Governor's numbers, what would it 16 be? 17 MR. DURHAM: 13. 18 MR. HORTON: Okay. And that is, compared 19 to yours? 20 MR. DURHAM: 13. 21 MR. HORTON: Same. Okay. 22 MR. RUNNER: Which is 2 cents -- 23 MR. DURHAM: Correct. 24 MR. RUNNER: -- increase. 25 MR. HORTON: Member Stowers. 26 MS. STOWERS: I'm happy. I'm good. 27 MR. HORTON: You're good? Okay. 28 Further discussion, Members? 48 1 Hearing none. None? 2 MS. HARKEY: No, we're -- we're voting on 3 the first item. 4 MR. HORTON: First item. 5 Ms. Richmond, please call the roll. 6 MS. RICHMOND: Mr. Horton. 7 MR. HORTON: Aye. 8 MS. RICHMOND: Ms. Harkey. 9 MS. HARKEY: Aye. 10 MS. RICHMOND: Mr. Runner. 11 MR. RUNNER: Aye. 12 MS. RICHMOND: Ms. Ma. 13 MS. MA: Aye. 14 MS. RICHMOND: Ms. Stowers. 15 MS. STOWERS: Aye. 16 MS. RICHMOND: Motion carries. 17 MR. HORTON: To the second item, Members, 18 discussion? We've discussed it quite a bit, but we 19 certainly -- 20 MR. RUNNER: I'll move item 2. 21 MR. HORTON: Member Runner moves item 2. 22 Second by Member Ma. 23 Without objection, Members, such will be 24 the order. 25 Item 3, Members. Motion by Member Runner. 26 Second -- 27 MR. RUNNER: Nope, nope, nope, nope, nope. 28 MR. HORTON: No? Okay. This is an 49 1 auction, Mr. Runner, you do something like this 2 (indicating). 3 Discussion, Member Runner. 4 MR. RUNNER: I'm just not making the 5 motion. 6 MR. HORTON: Oh, you don't want to discuss 7 it. 8 MR. RUNNER: And I take it -- and I do not 9 like the idea of arbitrarily choosing months. And 10 so for that reason, I will be voting against this 11 particular item. 12 MR. HORTON: Okay. All right. 13 MR. RUNNER: Oh, I'm sorry. Let's see. 14 MR. HORTON: This -- you want to -- 15 MR. RUNNER: No, no, no. 16 I may have gotten my two -- 17 MS. HARKEY: This is jet fuel. 18 MR. RUNNER: I thought one of them was the, 19 uh -- let me just double check on what I just did. 20 Can you -- let me ask staff go ahead and 21 identify the purpose of item 2. 22 MR. HORTON: Let me -- let me get a motion 23 first. 24 MR. RUNNER: Actually, I need to go back to 25 item 2 for a moment. 26 MR. HORTON: Okay. 27 MR. RUNNER: Because I was -- I was 28 thinking one is the issue of the March 1st date. 50 1 MR. HORTON: Member Runner moves to 2 rescind. 3 MR. RUNNER: I got number 2 and number 3 4 confused. 5 MR. HORTON: Member Runner moves to 6 rescind -- 7 MR. RUNNER: There we go. 8 MR. HORTON: -- the vote on item 2. 9 MR. RUNNER: There you go. 10 MR. HORTON: Second by Member Harkey. 11 Without objection, Members, such will be 12 the order. 13 The motion is on the floor to adopt -- 14 MR. RUNNER: Item 2. 15 MR. HORTON: -- item 2. 16 Is there -- Mr. Runner made the motion so 17 we need a new motion, Members. 18 MR. RUNNER: Right. 19 MR. HORTON: Is there a new motion? 20 MS. MA: Motion. 21 MR. HORTON: Member Ma moves to, uh -- 22 MR. RUNNER: Yeah. 23 MR. HORTON: -- to adopt the Governor's 24 recommendation with the same methodology used on 25 item number 1. Second -- 26 Is there a second? 27 MS. STOWERS: Second. 28 MR. HORTON: Second by Member Stowers. 51 1 Objection or discussion? 2 Discussion, Members? 3 MR. RUNNER: Objection. 4 MR. HORTON: Objection noted. 5 Ms. Richmond, please call the roll. 6 MS. RICHMOND: Mr. Horton. 7 MR. HORTON: Aye. 8 MS. RICHMOND: Ms. Harkey. 9 MS. HARKEY: No. 10 MS. RICHMOND: Mr. Runner. 11 MR. RUNNER: No. 12 MS. RICHMOND: Ms. Ma. 13 MS. MA: Aye. 14 MS. RICHMOND: Ms. Stowers. 15 MS. STOWERS: Aye. 16 MS. RICHMOND: Motion carries. 17 MR. HORTON: Now to item number 3, Members, 18 is there a motion? 19 MR. RUNNER: I'll move. 20 MR. HORTON: Member Runner moves to adopt 21 staff recommendation. 22 MR. RUNNER: On Item 3, let me just clarify 23 that is a -- a, uh -- 24 Let me wait for a "second." Was there 25 a "second" on that? 26 MS. MA: Second. 27 MR. RUNNER: Okay. 28 MR. HORTON: Second by Member Ma. 52 1 MR. RUNNER: And just to clarify, that is 2 to help adjust some dates in order to -- on the -- 3 on the prepayment? 4 MR. DURHAM: Yes, sir. 5 MR. RUNNER: Okay, thank you. 6 MR. HORTON: Good? 7 Motion by Member Runner. Second by Member 8 Ma. 9 Without objection, Members, such will be 10 the order. 11 Thank you very much, Members. This 12 discussion that we had is just indicative of the 13 need -- need to -- to have the Legislature fix what 14 they broke, you know, and so that -- because they're 15 actually in a better position to make budgetary -- 16 MR. RUNNER: Mm-hmm. 17 MR. HORTON: -- decisions. Because 18 ultimately what we've done, they could unwind by 19 some budgetary action of some legislation and so 20 forth. 21 So the overall picture over there -- not 22 unwind technically as far as our actions, but 23 counter it by some other subsequent action. And I 24 think it's extremely important that we put forth the 25 truth as it relates to the revenue neutrality and 26 the ultimate price that someone pays anyway. 27 MR. RUNNER: To that item, Mr. Chair, real 28 quick. 53 1 MR. HORTON: Yes, Mr. Runner. 2 MR. RUNNER: I'd like to at least ask the 3 Legislative Chair to consider, if they think that 4 would serve a purpose -- 5 MR. HORTON: Discussion. 6 MR. RUNNER: -- a position in regards to 7 either whether or not this would be best to go to 8 Finance in terms of that, or whether or not we would 9 actually make a greater recommendation with the 10 Legislature to review the whole gas tax swap and 11 whether or not it's -- it's relevant and the right 12 thing to do in the future. 13 MS. MA: Great. I would love to take that 14 up. 15 MR. RUNNER: Okay, thank you. 16 MR. HORTON: All right. Fabulous. 17 Mr. Durham, Ms. Pielsticker, thank you so 18 very much. Very well done. 19 ---oOo--- 20 21 22 23 24 25 26 27 28 54 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 54 constitute 14 a complete and accurate transcription of the 15 shorthand writing. 16 17 Dated: March 12, 2015 18 19 20 ____________________________ 21 KATHLEEN SKIDGEL, CSR #9039 22 Hearing Reporter 23 24 25 26 27 28 55