1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 MARCH 25, 2015 10 11 12 13 14 15 LEGISLATIVE COMMITTEE 16 17 18 19 20 21 22 23 24 25 REPORTED BY: Kathleen Skidgel 26 CSR NO. 9039 27 Juli Price Jackson 28 CSR NO. 5214 1 1 2 P R E S E N T 3 4 For the Board of Equalization: Fiona Ma, CPA 5 Chair 6 Jerome E. Horton Member 7 Sen. George Runner (Ret.) 8 Member 9 Diane L. Harkey Member 10 Yvette Stowers 11 Appearing for Betty T. Yee, State Controller 12 (per Government Code Section 7.9) 13 14 Joann Richmond Chief 15 Board Proceedings Division 16 17 For the Department: Michele Pielsticker Chief, Legislative and 18 Research Division 19 Ken Thompson Chief, State-Assessed 20 Properties Division 21 22 23 ---oOo--- 24 25 26 27 28 2 1 INDEX OF SPEAKERS 2 SPEAKER PAGE 3 Peter Williams Deputy AG 4 Attorney General's Office 7 5 Roxanne Gould President 6 RGGR 35 7 Andrea San Miguel Legislative Aide 8 California Assembly District 80 47 9 Tim Taylor Lobbyist 10 Airlines for America 89 11 Eric Miethke Senior Partner 12 Nielsen Merksamer 90 13 Kathryn Rees Lobbyist 14 PPA for Southwest Airlines 91 15 Marc Tonnesen CAA President 16 California Assessors' Association 93 17 Neil Najjar 18 Los Angeles County Assessor's Office 95 19 20 ---oOo--- 21 22 23 24 25 26 27 28 3 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 MARCH 25, 2015 4 ---oOo--- 5 MR. HORTON: Ms. Richmond, our first item, 6 please? 7 MS. RICHMOND: Good morning, Chairman and 8 Members. Our first item on today's agenda is the 9 Legislative Committee. Ms. Ma is the Chair of that 10 committee. 11 Ms. Ma. 12 MS. MA: Okay. Thank you, Members. We are 13 going to hear all of the items on the Legislative 14 calendar in order, with the exception of AB 1157 and 15 SB 661 which we will hear together. 16 And if Members will indulge me, why don't 17 we put it at the end, after we discuss all the other 18 bills, and then we'll discuss the two airline bills. 19 Michele -- Ms. Pielsticker, first bill? 20 MS. PIELSTICKER: Thank you. The first 21 item is Suggestion 4-5 related to direct sellers and 22 electronic return filing, as well as prepaid MTS 23 surcharge deposit and allocation. The source is the 24 Legal Department, Property and Special Taxes 25 Department and Administration Department. 26 Under existing law, a surcharge is imposed 27 on amounts paid by every person in the state for 28 intrastate telephone communication service and VoIP 4 1 service that provides access to California users of 2 the "911" emergency system. 3 The prepaid Mobile Telephony Services 4 Collection Acts impose a prepaid MTS surcharge and 5 local charge on each prepaid consumer as a 6 percentage of the sales price of each retail 7 transaction at the point of sale. 8 The MTS Collection Acts distinguish between 9 a seller and a direct seller of Mobile Telephony 10 Services. The proposed law clarifies that direct 11 sellers must file electronic returns when paying the 12 emergency telephone user surcharge as do other 13 sellers subject to the MTS surcharge. It also 14 clarifies the amounts paid by direct sellers subject 15 to the MTS surcharge, and that they shall be 16 deposited into the State emergency telephone number 17 account in the General Fund. And it specifies the 18 manner in which nondirect seller prepaid MTS 19 surcharge collections are allocated and 20 appropriated. 21 This bill -- this proposed bill makes the 22 prepaid MTS surcharge easier to administer and 23 allows BOE to obtain timely and accurate information 24 from direct sellers. 25 MR. HORTON: Move support. 26 MS. HARKEY: Second. 27 MS. STOWERS: Second. 28 MS. MA: Take a vote? 5 1 MR. RUNNER: Sure. Oh -- 2 MS. MA: Okay. Moved by unanimous 3 consent. 4 Next item. 5 MS. PIELSTICKER: The next item is up for 6 Board position, and it is AB 160 by Assembly Member 7 Dababneh. The sponsor of this bill is BOE Member 8 and Chairman Jerome Horton. 9 Under existing law, we have a mechanism for 10 asset forfeiture for, among others, those who engage 11 in a criminal profiteering activity if that act may 12 be charged as one of over 30 offenses, such as 13 robbery, arson, murder, pimping, child pornography, 14 forgery and the like. 15 For forfeiture to apply to criminal 16 profiteering, existing law requires that the 17 defendant be currently facing prosecution for one of 18 approximately 30 specified offenses and that the 19 prosecution establish a pattern of criminal 20 profiteering activity which includes at least two 21 criminal acts, not isolated, organized crime and -- 22 and -- and to have occurred within ten years. 23 This bill, among other things, as it 24 relates to the BOE adds tax fraud under the sales 25 and use tax, cigarette and tobacco products tax, and 26 diesel fuel tax laws to the list of crimes eligible 27 for asset forfeiture as a criminal profiteering 28 activity. 6 1 The second portion of this bill is cleanup 2 to AB 2681 to include all of the identified -- or 3 all of the counterfeiting offenses identified in law 4 within the provisions. 5 MS. MA: Any other speakers? 6 ---oOo--- 7 PETER WILLIAMS 8 ---oOo--- 9 MR. WILLIAMS: Sorry. I'm Peter Williams. 10 I'm with the Attorney General's Office. And I'm the 11 prosecutor for the TRaCE Task Force which is 12 primarily financially sponsored by the Board of 13 Equalization. 14 At the request of Chairman Horton, I 15 drafted this law and I'm here to answer any 16 questions that any of the Board Members may have 17 about AB 160. 18 MR. RUNNER: Move to support. 19 MS. MA: I do have a question. 20 MR. RUNNER: Okay. 21 MS. MA: This is the bill that said that 22 the prosecuting agency has the ability to start 23 asset forfeitures, seizures, right? 24 MS. PIELSTICKER: Right. 25 MS. MA: And my question was who is -- 26 what's the definition of a prosecuting agency? 27 MR. WILLIAMS: Well, the -- the prosecuting 28 agency, that actual term is already defined in the 7 1 statute and we didn't change that with AB 160. 2 Right here, as it stands right now, 3 prosecuting agency is defined as the Attorney 4 General or the District Attorney of any county. 5 Now, again, this is -- to be clear, this is 6 criminal seizure and criminal forfeiture. This 7 doesn't touch or affect in any way the Board of 8 Equalization's own civil remedies or administrative 9 remedies with respect to forfeitures or the tax 10 assessments or those type of procedures. 11 MS. MA: Okay. 12 MS. HARKEY: I have a question. 13 MS. MA: I'm sorry. 14 MS. HARKEY: Thank you. 15 Can you explain -- this is -- 16 MR. HORTON: I'll second it for the 17 record. 18 MS. HARKEY: Okay. I'm sorry. Second for 19 the record. 20 Can you explain, the forfeiture occurs 21 prior to actual conviction? Or how does that -- how 22 does that work? 23 MR. WILLIAMS: Okay. So, you have a right 24 to be sort of confused by the way that the current 25 law stands. 26 We have, in the State of California, a 27 fairly robust statutory structure for narcotic 28 seizures and forfeitures. That's not what this bill 8 1 is. This has nothing to do with narcotics seizures 2 or the money related to narcotic seizures or 3 property related to narcotics seizures; all the 4 things you see in the newspaper. That's not what 5 this bill is. 6 This is the only statute really outside of 7 the world of narcotics that deals with any kind of 8 asset forfeiture or seizure. So the way that it 9 works, typically, under this law, at least as it was 10 meant to work, is you have to make an arrest first 11 or you have to -- the statute says "begin a criminal 12 proceeding" which is generally considered the filing 13 of a Complaint along with -- with a -- in 14 conjunction with an arrest. 15 At that point and only at that point can 16 you actually seize funds. That is, if you're there 17 at the time of the arrest and there's cash in the 18 house or there's cash in the business, you can seize 19 that. Or if you know ahead of time where their bank 20 accounts are, you can freeze those, you put a 21 temporary restraining order so nobody can touch 22 those. That is the actual quote/unquote seizure of 23 the property. 24 The forfeiture is a legal term. That is 25 where the actual custody of the property's 26 transferred from the person, the criminal, to the 27 government. The seizure simply grabs it and 28 preserves it during the criminal -- the pendency of 9 1 the criminal proceeding. Once the person is found 2 guilty, if the person is found guilty, and those 3 proceeds can be traced to the criminal activity by 4 which he was charged and convicted, then there is 5 the quote/unquote forfeiture proceeding which is a 6 transfer of the ownership of the -- of the property. 7 MS. HARKEY: Okay. That -- that is my -- 8 my concern is the seizure part prior to an actual 9 conviction because these can take several years. 10 And so I'm very concerned with allowing that extra 11 authority, causes me great pause. Especially since 12 it's any -- I mean if it's just the AG is one thing. 13 But we've got any -- any District Attorney; is that 14 correct? 15 MR. WILLIAMS: Well, I'm -- I'm not a 16 hundred percent -- well, I understand your concern, 17 first and foremost. 18 MS. HARKEY: And again, too, though what -- 19 what is the precursor to this? How many -- do they 20 have to have had convictions within one area -- 21 within -- within what time frame? I think there 22 was a -- if you can just explain it. 23 MR. WILLIAMS: There has to be a pattern of 24 criminal activity; that is to say, there has to be 25 at least two of the same kind of criminal activity. 26 Generally speaking, it's going to be fraud-related. 27 We -- there is a procedure that if you 28 seize assets that aren't related to criminal 10 1 profiteering -- in other words, that's not money 2 that this person made off of a crime, that's 3 money from -- that's grandma's money that happens to 4 be in his account, too. There is a procedure by 5 which that person can immediately appeal to the 6 court or petition the court and show, hey, that's my 7 money. That's not Mr. Criminal's money. And then 8 we have to give that money back. That procedure is 9 built right into the statute as it already exists 10 and, frankly, any asset forfeiture statute. 11 We don't have -- again, there's no civil 12 forfeiture proceeding here like there is in the 13 world of narcotics where you can actually grab a 14 boat because you found drugs on it. We don't have 15 that. We got to show that the boat is purchased 16 because they defrauded the State of California out 17 of $2 million in taxes. In fact, that's the only 18 business this guy has is criminal business, so we 19 know that any money in his bank account is criminal 20 profit. 21 So that is the mechanism as it exists. And 22 there are safeguards in there for innocent third 23 party's money or even bad guy's money that happens 24 to be earned legitimately. It happens. 25 MS. HARKEY: Okay. Yeah, yeah. I get it. 26 I get it. 27 MS. MA: Mr. Runner. 28 MR. RUNNER: I think the line that I think 11 1 everybody's wanting to be careful with and that is 2 that, um -- that -- that is -- that number one, 3 that's not abused by -- by an agency. And number 4 two, I think the other side of that is that in this 5 process that somebody who is engaged in the criminal 6 activity then seeks to then move those assets. 7 MR. WILLIAMS: Yes. 8 MR. RUNNER: Right? I mean that's the 9 concern. 10 MR. WILLIAMS: That is exactly the point. 11 That is exactly the concern, yes. 12 MR. RUNNER: So that's the -- that's the 13 issue that we have to weigh between the two; and 14 that is, ensure that there's not abuse, but also 15 ensure that in this process as somebody's going 16 through this, they don't have the ability to go sell 17 the boat or move the money or all those other kinds 18 of issues and, therefore, not have that -- that 19 asset available to the taxpayer when the fraud 20 or when -- or when -- when the criminal activity 21 took place. 22 MR. WILLIAMS: I think that's a fair 23 statement of the situation as it exists. 24 The abuse issues -- in California, there's 25 a statutory set of ethical guidelines that guide law 26 enforcement on what they can seize, what they cannot 27 seize, when they should do it, when they shouldn't 28 do it. 12 1 We don't have the same problems that you 2 see in other places in the country with some of 3 these semi egregious seizures, in my opinion. 4 That's not really a California problem, and that 5 certainly is not a problem outside the world of 6 narcotics because we don't really have any power to 7 seize anything right now because this statute was so 8 poorly written. That is the whole purpose of this 9 statute is to fix it. 10 You start with the premise that we are not 11 okay with people making money off of crime. And if 12 you start with that premise that we are not okay 13 with people making money off of crime, everything 14 flows from that base. And that is really what the 15 amendment of this statute is -- is for. 16 The statute was there to say, hey, this 17 shouldn't be a -- a part of business that you can 18 make a killing. And these guys make a killing. I'm 19 out there, I see 'em. These tobacco tax, sales tax, 20 income tax, those are the ones that we come across 21 all the time. 22 There's no way to get that -- there's no 23 way to do asset forfeiture in any real clean manner 24 or really any manner at all here in the State of 25 California. And I think that it was -- that this 26 statute was meant to allow that, but it was so 27 poorly written that we can't do that. 28 MR. RUNNER: Thank you. 13 1 MR. HORTON: Madam Chair. 2 MS. STOWERS: I just have one question. 3 MS. MA: Ms. Stowers. 4 MS. STOWERS: If you're doing an arrest and 5 you're at the place of business or a home and you 6 seize cash and the individual's found not guilty and 7 the cash is returned, is that returned with 8 interest? 9 MR. WILLIAMS: Yeah, the -- the short 10 answer is there is no statutory procedure for that. 11 I think a smart law enforcement agency would put 12 that in some kind of escrow account that was 13 interest-bearing so that if the person is found 14 innocent and you have to return the cash, you don't 15 also have to give them -- well, whatever the measly 16 interest rate you'd get anyway, but you don't want 17 to have to have to pay them any extra. 18 And that would actually be up to a judge's 19 discretion to say, yes, you also get interest in 20 addition to having your money returned. I think it 21 would be prudent to put it in -- as long as 22 you -- as long as that money -- first of all, when 23 that money's seized, it's actually seized as 24 evidence of a crime. If you can have some agreement 25 with the defense side that we're going to put this 26 in an interest-bearing account and it's not going to 27 somehow dilute the evidentiary value of that cash, 28 then that would be what I would do. 14 1 Now, for money that's already in bank 2 accounts, you just leave it in the bank account. 3 You just make sure nobody can touch it and that's 4 where it stays during the pendency of the criminal 5 proceedings. So if it was an interest-bearing 6 account before, that's where it stays. If it 7 wasn't, then the person wasn't going to get interest 8 on it anyway. If that makes sense. 9 MS. STOWERS: Yes. Thank you. 10 MS. MA: Okay. Any other questions? Any 11 comments from the public? 12 Okay. There was a motion and a second. 13 Members? 14 MS. HARKEY: I'm -- I'm laying off. I'm 15 just not -- 16 MS. MA: Okay, should we just take a vote? 17 MR. HORTON: Madam Chair. 18 MS. MA: Yes? 19 MR. HORTON: Um -- 20 MS. HARKEY: I just -- I'm very 21 uncomfortable with the seizure prior to conviction. 22 I understand why they want to do it, and I'm just -- 23 I -- it makes me very uncomfortable. 24 And so I'm maybe just one up here, but 25 that's -- you know, I'm very, very -- I would just 26 like to see the back end of this tightened up as 27 well, the return procedure -- process. 28 You mentioned leaving the funds in the bank 15 1 account where they were, but the reality is that 2 bank account may be continuing and ongoing for other 3 family members, other things. And so I'm just -- 4 I'm very confused with how -- how this works. 5 I'm all for locking up whatever is -- is 6 under, you know -- whatever profiteering is made 7 with criminal activity. And the fact that you said 8 it was evidence is probably the strongest point you 9 made with me. I can understand that. 10 I'm just -- I'm just a little 11 uncomfortable, and I'd have to just study this 12 further, speak with my law enforcement groups that I 13 have not had the opportunity to do before I could 14 get behind it. I'm not saying I won't, but I just 15 want to research this a little bit more. 16 MR. WILLIAMS: And without -- you know, I 17 don't want to bore you again with the details of 18 how -- 19 MS. HARKEY: You're not boring me at all. 20 MR. WILLIAMS: Well, all right. With how 21 third parties get their money back, innocent third 22 parties, and this happens; the procedure is there, 23 it is used, and it's used effectively. And at the 24 end of the day, most law enforcement -- and I think 25 I can speak pretty comfortably about that -- they 26 don't want to take innocent people's money. What 27 they want to do is take criminal profits. 28 We have nothing to gain by taking innocent 16 1 people's money because that doesn't deter any future 2 criminal activity. The idea is you should not be 3 able to make money off of crime in this state. And 4 right now you can, because this statute is so poorly 5 worded that nobody uses it. And when I say nobody, 6 I mean almost nobody. I tried to use it three weeks 7 ago when we did a seizure and an arrest and I had to 8 withdraw my petition because after looking at it 9 again, it didn't match with the facts of -- of our 10 seizure and I had to withdraw my petition. 11 That person is going -- is -- he may end up 12 going to jail, but he's also profited by his crime. 13 And that is the sole motivation behind the amendment 14 to this statute. 15 MS. HARKEY: And so he's out now? He's not 16 arrested and held. He's out, until trial. 17 MR. WILLIAMS: He is out on bail. 18 MS. HARKEY: And is the bail sufficiently 19 high that -- 20 MR. WILLIAMS: The bail is set by a court 21 schedule. Generally speaking, that's not -- that's 22 out of my hands. I go and I look -- 23 MS. HARKEY: Okay. 24 MR. WILLIAMS: -- at the court schedule and 25 they say, for this crime we get this bail, for this 26 crime we get this -- this kind of bail. And 27 that's -- it was low enough that I don't believe he 28 spent more than two hours in jail. 17 1 MS. HARKEY: Okay, I -- thank you. 2 MR. HORTON: Madam Chair, I share the same 3 concerns and -- and would share with the Board that 4 this is -- in -- in current law, there are 33 or 34 5 different crimes in which this applies. 6 And so in the criminal world what happens, 7 ours is somewhat incidental to the other criminal 8 activities via prostitution, drug smuggling, gun 9 smuggling and so forth. The Board of Equalization's 10 criminal activity taxation is somewhat incidental. 11 And so what happens is, in that process, 12 after they have -- they're in the process of 13 criminal investigation for these other 33 crimes, 14 the Board of Equalization is there and participating 15 and in that participation, because of the -- I don't 16 want to characterize it, but the -- because this 17 aspect is not included in the law, then we're not 18 protecting, able to protect the interests of 19 California taxpayers as it relates to taxation. 20 And unfortunately, currently, criminals 21 that are committing these other 33 crimes are 22 allowed to get away with also evading the tax, and 23 thereby is the term that crime does pay when you 24 evade taxes. 25 So I would -- if that's helpful. Because I 26 had the same concerns initially. But in going 27 through the analysis of this, we're just secondary 28 to the other criminal activities that exist. 18 1 MS. MA: So, I do have a question. So, 2 when you talk about the process for the two, it has 3 to be two pattern of criminal penalty, two cases of 4 fraud, found by either a D.A. or the Attorney 5 General? 6 MR. WILLIAMS: Well, it's at least two 7 incidents of criminal profiteering. And then, 8 again, criminal profiteering, as the Chairman just 9 mentioned, is actually 33 separate different -- 10 separate crimes. 11 So you've got to find at least two of those 12 and that there's some money that they gained as a 13 result of those crimes. That would be a pattern of 14 criminal profiteering. But you have to have at 15 least two, that is correct. 16 MS. MA: So now we implement this bill, 17 then taxes now are going to be one of the 33. 18 MR. WILLIAMS: They will be number 34 is 19 what we are generally calling the underground 20 economy type crimes, which are all the taxes, 21 payroll, all of the Board of Equalization taxes, all 22 of the FTB's taxes; those will be number 34. That 23 is one part of the amendment. 24 The other part, which is, quite frankly, 25 equally important is cleaning up the definition of 26 organized crime which also has to be found. So you 27 got to find a pat -- you have to find the crime. 28 You got the find two crimes. Then you have to say 19 1 that it's part of organized crime; that's the third 2 element, and that's really where it gets messy 3 because organized crime is so poorly defined that 4 not only do I want to include all the underground 5 economy crimes in sort of the predicate offenses, 6 but I need to clean up the element called organized 7 crime in order that not only can our office use it, 8 but any District Attorney's office can use it. 9 MS. MA: And so what is the definition now, 10 under this bill? 11 MR. WILLIAMS: Are you ready for this? 12 Definition of organized crime means crime that is of 13 a conspiratorial nature, and that is either of an 14 organized nature and seeks to supply illegal goods 15 and services such as narcotics, prostitution, 16 loan-sharking, gambling and pornography; or that, 17 through planning and coordination of individual 18 efforts, seeks to conduct the illegal activities of 19 arson for profit. Hijacking, insurance fraud, 20 smuggling, operating vehicle theft rings, fraud 21 against the beverage container recycling program, or 22 systematically encumbering the assets of business 23 for the purpose of defrauding creditors. 24 It also is goes on to consider street gangs 25 and those involved in personal ID theft as part of 26 organized crime, which sounds -- well, I -- let me, 27 real briefly, and I don't want to take up all of 28 your time. This is what the -- this is what 20 1 California -- the California District Attorney's 2 Association says about it: 3 This is the most complex and difficult 4 requirement of the California criminal profiteering 5 statute in that there must be a nexus to organized 6 crime. Although the term organized crime conjures 7 images of the mafia and Columbia drug cartels, the 8 California definition is more expansive, as I just 9 read to you. And they conclude that this section is 10 bewildering to most practitioners. 11 It's absolutely bewildering because you 12 have here a list of 33 predicate offenses. But then 13 this organized crime definition jumbles up another 14 11 of them that you have to somehow match up with 15 one of those 33. And you can't mathematically or 16 practically, in most -- in most instances. 17 I've confused you, I see. And -- and -- 18 MS. HARKEY: I was just wondering how we 19 clear up organized crime. 20 MR. WILLIAMS: -- you should be confused 21 because every single person that has to deal with 22 this statute is confused and that's why no -- no law 23 enforcement office uses this asset forfeiture 24 statute. 25 MS. MA: So you think by us passing this -- 26 this bill and including sales tax, that more law 27 enforcement agencies are going to be able to seize 28 assets? 21 1 MR. WILLIAMS: Yes. Because, not only does 2 AB 160 add the underground economy crimes to it, it 3 also cleans up the definition of organized crime. 4 MS. HARKEY: And what does it clean it up 5 to? Read me what it's going to be. Because I don't 6 have the entire bill here with me. We did have it 7 earlier. We had an analysis. 8 MR. WILLIAMS: I have the bill as it 9 currently stands. And I caution that it's still 10 under discussion with the author's office. 11 But this is -- this was my attempt at 12 changing "organized crime." I got rid of all the 13 examples. And it just says: 14 "Organized crime means crime that has 15 both the following characteristics: A 16 crime is of a conspiratorial or organized 17 nature or involves the planning and 18 coordination of individual efforts and it 19 seeks to supply illegal goods and services 20 or conduct illegal activities that involve 21 fraud or deceit for monetary gain." 22 That's now -- that would be, if I were king 23 of the world, the definition of organized crime. 24 MS. MA: So how does this relate to RICO 25 or, you know, terrorist threats and other 26 definitions in other codes? 27 MR. WILLIAMS: Well, I'm not sure it does. 28 RICO is, of course, the federal version and that was 22 1 what this was originally -- this State version was 2 supposed to be modeled after. In fact, the State 3 version was called the little RICO statute. Other 4 than the word "RICO," they have nothing in common. 5 The federal RICO statute has no definition 6 of organized crime. You don't have to go find that 7 definition of organized crime. Not only that, you 8 get 155 different crimes where, if you profit from 9 one of those 155 different crimes and you can show 10 more than one of them, then you have a RICO -- you 11 have a RICO -- the ability, under the federal RICO 12 statute, to seize assets. 13 So it is simpler. It's cleaner. It's far 14 more expansive than the State version. Again, this 15 was supposed -- our -- our version was supposed to 16 be modeled after it. It got so muddled up that it 17 is now not used. It's essentially a dead letter of 18 the law. 19 MR. HORTON: I mean for -- Madam Chair, for 20 clarification, the definition you read is existing 21 law? 22 MR. WILLIAMS: I'm sorry? 23 MR. HORTON: The definition that you read 24 earlier is existing law, correct? 25 MR. WILLIAMS: The one that I wanted or the 26 one I read before that? 27 MR. HORTON: The one you read, along with 28 all of the -- 23 1 MR. WILLIAMS: That crazy one I read before 2 that, that's -- 3 MR. HORTON: -- the convoluting, so 4 forth. 5 MR. WILLIAMS: That is the existing law as 6 it stands. 7 MR. RUNNER: Madam Chair, quick question. 8 MS. MA: Yes, Mr. Runner. 9 MR. RUNNER: Just -- just a procedure 10 question here. And that is -- and we often times 11 find ourselves in these situations as we begin to 12 look at a bill in its beginning. And we've all been 13 there and know that often times the bill that ends 14 up at the end isn't like the bill that ends up in 15 the beginning. And -- and -- and then we're being 16 asked to take a position on a bill the way it is 17 right now. 18 And so, just to clarify, I think it's going 19 to be important that as -- if we were to move 20 forward and, uh -- and support any of these bills, I 21 think it's going to be important then that our Leg. 22 folks keep us posted if there is concerns -- some of 23 the concerns that we would have are not either 24 addressed or it changes as that bill moves forward. 25 So that we always have the ability to say, "Ooh, 26 this is not what it is when we voted on it." 27 And I think that's particularly clear in 28 regards to if indeed, for instance the discussion 24 1 we're having, if the seizure aspect, the forfeiture 2 aspect of it becomes more robust, that's going to be 3 of particular concern. Not that it would or 4 wouldn't, but again, we don't have -- once -- once 5 something happens in the process, we don't know 6 where it's going to end up. 7 So I just would like to ensure that if 8 indeed we move forward, with any of these kinds of 9 bills, if indeed that our Leg. folks might 10 understand if there's significant change, that -- 11 that we would have these brought back to us to 12 review as to whether or not we should continue with 13 the support. 14 MS. MA: So you bring up a good point, 15 Mr. Runner, because a lot of times, you know, when 16 it goes to the second House, it significantly 17 changes, even the contents. It could be a -- 18 MR. RUNNER: It can change altogether. 19 MS. MA: Could be it got an amend. So, 20 yeah. I mean and I now have reservations, like Ms. 21 Harkey, based on your testimony. I don't understand 22 all of these laws well enough to know, you know, 23 what the impacts are and adding taxes to this list 24 of 33 and matching it up with the 12. 25 So I'm going to stay off the bill as well 26 right now until I feel a little bit more 27 comfortable. 28 MR. RUNNER: Let me ask, is it possible in 25 1 this particular bill right now -- again, there seems 2 to be some amendments going on with it, right? If 3 maybe then once we see how it -- what gets amended, 4 what's going to happen, because it's probably not 5 going to a committee until, what, later -- 6 MR. WILLIAMS: April 7th. 7 MR. RUNNER: April 7th? 8 MR. WILLIAMS: Mm-hmm. 9 MR. RUNNER: That maybe we would then be 10 able to come back at it. I mean -- 11 MS. MA: It's in the first House, so -- 12 MS. HARKEY: Yeah, I would -- I would love 13 to support it in its final version if it's what I 14 think it is, because I think you've explained it 15 pretty well. 16 But I found one time when I had signed onto 17 something early, it ended up being something I 18 didn't want to be on. And, unfortunately, it was 19 done; my name was on it. 20 So I'm a little concerned with the -- the 21 legislative process as I understand it and as I 22 experienced it. And it doesn't -- I mean it's -- 23 it's no -- nothing for -- towards your intent. It's 24 just that I know how these bills get worked as they 25 go through. 26 And so we've got some questions. You want 27 some amendments, and I would appreciate if you would 28 keep me posted, my office posted, on anything that 26 1 you procure and give us a time to look at that 2 because I won't say I won't -- I won't eventually 3 support it. I just -- I'm not comfortable right now 4 because I know it's going to be changed. And I 5 appreciate your amendments; I mean I do. I'd like 6 to see those. 7 MR. WILLIAMS: I mean I presume this is the 8 same problem that you guys would have with any kind 9 of bill that you're -- that you're trying to 10 support, that could change. 11 MS. HARKEY: Yeah, but some of them are 12 fairly -- 13 MR. WILLIAMS: Some might be less or more 14 innocuous than others. 15 MS. HARKEY: -- or more milk-toast. 16 MR. WILLIAMS: And I will, you know, leave 17 the communication parts of the bill to Michele 18 and -- and her Leg. unit. But I will certainly be 19 in touch with them. 20 MS. HARKEY: Thank you. 21 MR. HORTON: Members, a potential option -- 22 because, as Mr. Runner pointed out and Member Ma 23 pointed out, the legislative process is very fluid 24 and can change, as we all know. 25 An option of the Members is to support the 26 bill in concept. Many of the legislative matters 27 that are coming before us will wharf and change. 28 The airline matter, for example, will wharf and has 27 1 a potential of changing by virtue of the -- the 2 initial concept. 3 So I present that to the Members just as an 4 option to support it in concept, which basically 5 means that conceptually the Board is supportive of 6 it, but we want to watch it as it goes through the 7 process to make sure that it doesn't deviate or 8 doesn't cause any pain or any discomfort in any of 9 the Members. 10 MR. RUNNER: I -- I -- I actually, I 11 believe we've talked about this before. I don't 12 like supporting bills in concept because I think 13 that then it becomes very unclear in regards to what 14 our perception of the concept is. 15 You know, and so I -- I -- I am -- at this 16 point I think we just need to decide whether or not 17 we're ready to support this bill the way it is or 18 whether or not we want to see the amendments in 19 print. 20 I'm comfortable with the direction and 21 where the bill is and the direction it's going. But 22 I think we need, as a Board, I think needed to see 23 if there's enough -- if -- if indeed it would be 24 better off -- it seems to me I'm hearing questions 25 from Members as to whether or not this might be 26 better off to see I think the amendments in print, 27 see what it actually looks like, get a clear 28 evaluation of it, then come back and deal with this 28 1 next month, might be the cleaner path. 2 MR. HORTON: Members, I submit to the 3 Members any time there's a discomfort on the part of 4 the Members, I would concur because of the potential 5 of having -- being on a position on something that 6 they disagree. 7 I am supportive of this as it is. I think 8 it's going in the right direction. I think it 9 serves to solve some significant problems for the 10 recording industry and many of the manufacturers out 11 there that are faced with having their products 12 infringed upon as indicative of the support of the 13 bill, but understanding of my colleagues and their 14 concerns. 15 MR. RUNNER: Yeah, I -- I think the concept 16 is pretty clear. I think it's a good -- I mean I 17 think what we don't want is somebody who's done a 18 criminal activity, clearly done a criminal activity. 19 They have acquired some assets as a result of that. 20 They get arrested, and then they go out and sell 21 those and move that money around, and all of a 22 sudden there's -- they've indeed benefited 23 financially. 24 I think conceptually that is -- we need 25 to -- we need to figure out how to fix that. 26 MR. HORTON: Yeah. 27 MR. RUNNER: And, um -- and I think at 28 this point I guess we're just unclear as to how to 29 1 do that. 2 So I'm fine with removing my motion right 3 now and -- 4 MR. HORTON: Same here. 5 MR. RUNNER: -- putting this on an agenda. 6 And, uh -- and, you know, it might be good for 7 some -- even some of our local district attorneys to 8 have some conversation with Members in regards to 9 this, how they could use this too, to help them. 10 MS. MA: Yeah. So I'd like to take that 11 next month just to talk to my local law enforcement. 12 MS. HARKEY: Yeah. 13 MR. HORTON: Okay. 14 MS. MA: And Mr. Williams, as well, just to 15 get a better understanding of what's really 16 happening out there. 17 MR. WILLIAMS: If you call me back, I'll 18 show up. 19 MS. HARKEY: Thank you. 20 MR. WILLIAMS: Thank you, you bet. 21 MS. MA: Thank you. 22 Okay. Ms. Pielsticker, next item. 23 MS. PIELSTICKER: Our next item is AB 203. 24 And I would request permission to have the Board 25 hear AB 203 and SB 250, also at the same time -- 26 MR. RUNNER: Language is the same. 27 MS. PIELSTICKER: -- as they are identical 28 bills. 30 1 MS. MA: Okay. 2 MS. HARKEY: Okay. 3 MS. PIELSTICKER: Under existing law, we 4 have an annual fire prevention fee assessment that 5 is due and payable to the BOE 30 days after the 6 assessment. The amount assessed becomes final at 7 the end of the 30-day period unless a taxpayer files 8 a petition for redetermination within that period. 9 If a feepayer fileS a timely petition for 10 redetermination, all legal collection actions are 11 held until CalFire's final determination. 12 This bill extends from 30 to 60 days the 13 time by which the annual fire prevention fee 14 assessment is due and payable as well as the time 15 period in which to file a petition for 16 determination. 17 The revenue impact is -- impact is 18 estimated at $498,000 revenue loss. However, we 19 continue to evaluate that number. And this is 20 sponsored by Board Member Runner. 21 MR. HORTON: Move adoption, Members. 22 MS. HARKEY: Second. 23 MS. STOWERS: Second. 24 MR. HORTON: Let me -- Madam Chair. 25 Let me share with staff that I disagree 26 with the revenue amount and for the following 27 reasons: That there's innate compliance with -- 28 with this -- with this measure just by virtue of the 31 1 outreach and the awareness over a period of time. 2 And so the compliance factor as it increases, 3 compliance increases, the penalties and interest on 4 a natural decrease. And so that is something that 5 would happen irregardless of us extending it 60 6 days. 7 Arguably, the extension would minimize 8 the -- the accounts that would be under appeals and, 9 therefore, reduce the time and effort of the Board 10 of Equalization, enabling us to resolve it, allowing 11 additional time to mitigate and resolve the issues 12 prior to it going through the appeals process. So 13 in fact we would see a savings there. I would 14 encourage staff to consider those -- 15 MR. RUNNER: Right. And we're following up 16 with staff on those very issues. 17 MR. HORTON: Okay. 18 MS. MA: Okay. Any public comments? 19 Seeing none. 20 Any more Member comments? 21 Seeing none, by unanimous consent. 22 Next item. 23 MS. PIELSTICKER: Our next item is AB 405 24 (Brough), sponsored by the author. 25 Existing law requires the BOE to impose 26 interest on late tax and fee payments and to pay 27 interest on tax and fee overpayments when the 28 overpayment is not intentional or due to 32 1 carelessness. 2 The law specifies that late payment rate is 3 based on the IRS rate plus three percent, and the 4 overpayment rate is based on 13-week treasury bonds 5 auctioned. 6 Until July 1, 2015 the late payment 7 interest rate is six percent annually and the 8 overpayment interest rate is zero percent and has 9 been since July 1st, 2009. 10 This bill requires the BOE to grant 11 interest on overpayments using the same rate as 12 imposed on late payments. The BOE has supported 13 this measure in the years past. 14 MS. HARKEY: Move -- 15 MS. PIELSTICKER: And the revenue impact is 16 $3.5 million revenue loss for fiscal year 2015-'16, 17 increasing to 30.1 million for fiscal year 18 '18-'19. 19 MS. HARKEY: I'll move it. 20 MS. STOWERS: Second. 21 MS. MA: Any other comments, public 22 comment? Members? 23 MR. HORTON: One comment, Madam Chair. 24 We've introduced the bill, you know, as a 25 way of continuing to echo our concerns about the 26 inequity that exists in debit -- debit/credit 27 interest. We may want to see if there's a way to 28 get past the appropriations because it always gets 33 1 held up at appropriations. And so in sending the 2 message, maybe we can also consider some 3 possibilities of offsetting interests within the 4 audit which we currently do. 5 Maybe a deferred interest calculation where 6 we actually defer it to offset against future 7 liability wherein the State may not take such a -- a 8 hit financially. We may be able to move it and 9 provide some relief to those who have a claim for 10 refund and end up with a credit. 11 MS. MA: Okay. But you're still in favor 12 of the -- 13 MR. HORTON: Yes -- 14 MS. MA: -- bill? 15 MR. HORTON: -- in support. 16 MS. MA: Okay. 17 So hearing no further questions, motion has 18 been moved and seconded by unanimous consent. 19 Next item. 20 MS. PIELSTICKER: Next item is AB 582, the 21 Entrepreneur Partnership Act of 2015. This bill 22 establishes the Entrepreneur Partnership Pilot 23 Project Act of 2015 to create an executive-on-loan 24 program within the BOE to utilize private sector 25 executive expertise to help make BOE practices more 26 streamlined and accessible. 27 The BOE's Executive Director could appoint 28 a maximum of five persons during any calendar year 34 1 to voluntarily serve the BOE as a small business 2 expert. 3 The Executive Director is required to 4 accept applications and establish procedures for 5 compliance with the program by March 1st, 2016. 6 And I have with me Ms. Roxanne Gould -- 7 MS. MA: Ms. Gould. 8 MS. PIELSTICKER: -- representing the 9 sponsor of the bill. 10 ---oOo--- 11 ROXANNE GOULD 12 ---oOo--- 13 MS. GOULD: Good morning. My name's 14 Roxanne Gould, representing Dell. 15 This concept came out of Michael Dell, who 16 was an entrepreneur himself, a few years ago decided 17 after 30 years he wanted to have fresh eyes looking 18 at the company to -- to identify inefficiencies, 19 redundancies, the relationship that Dell had with 20 its customers and ways to help small businesses and 21 entrepreneurs grow and thrive. 22 His experience was so successful that he 23 created something called Dell Center for 24 entrepreneurs. He now has hundreds of entrepreneurs 25 where he's committed $130 million to date to try to 26 assist them in -- in getting -- navigating 27 government bureaucracies, dealing with just how to 28 outreach to their customers, dealing -- enhancing 35 1 technology and using it to its greatest 2 efficiencies. 3 Since then, four states have adopted 4 entrepreneur-in-residence bills; the U.S. Food and 5 Ag. Department and U.S. Customs and Immigration 6 have. And last year City of Los Angeles 7 incorporated an entrepreneur-in-residence program. 8 So what this bill is basically doing is 9 it's, we believe, making a statement. It's starting 10 with the Board of Equalization and giving you access 11 to up to five entrepreneurs to look at ways to be 12 creative within the department, look at your 13 relationship with your customers. 14 There's -- there's no mandate. It's really 15 someone who wants to give back, who thinks outside 16 of the box and might be able to look at the 17 functions of the Board in a more creative way and 18 offer insights and possible suggestions. 19 MS. MA: Members? 20 Ms. Harkey. 21 MS. HARKEY: I have a problem with this 22 bill; not because of its intent, but because of the 23 data that we deal with which is confidential tax 24 information. 25 These individuals that you're purporting -- 26 I mean I understand Dell. They're publicly traded. 27 I don't think they're dealing with confidential tax 28 information of multiple -- or of, you know, 36 1 statewide individuals. 2 And I'm just concerned because I would -- I 3 would support something that maybe a Board Member, 4 or they apply to the Board Members and maybe we 5 bring somebody into our district and thereby limit 6 their access to computer and stuff. But have them 7 work on a base -- like a -- you know, have a meeting 8 with our district director, see where the audit 9 policies are going and see -- I would support 10 something like that because that's something I think 11 I could use. 12 I'm just a little concerned with having 13 this -- having people roll in and roll out with the 14 level of secured data that we're supposed to have 15 and the task at hand. I'm sure there's some good 16 ideas they would have. And I think that we are 17 elected to do that. We're elected to represent our 18 constituents, taxpayers and the other constituents 19 in the district. But mostly what we deal with is 20 taxpayers. 21 And I do a lot of constituent outreach and 22 services simply because there are issues that we 23 probably should be addressing or updating. And so I 24 would support that at an individual Member level. 25 I've just got a problem with saying, "Okay, come on 26 in and work for a year. And here you go, and give 27 us your greatest and best ideas." 28 I think it needs to be a little bit more 37 1 refined. 2 MS. GOULD: I appreciate the concern, and I 3 think it's definitely a work in progress. The 4 bill's going to be heard April 21st. It would be 5 entirely up to you on determining what information 6 you gave the person access to or where you assigned 7 them to focus. 8 I don't know the Board's internal process 9 really, but I'm assuming you grant certain levels of 10 access of information to certain levels of 11 employees, and it would be entirely up to you on 12 determining where you want to direct them and what 13 information you want to provide them access to. 14 MS. MA: So, Ms. Gould, why don't you talk 15 a little bit about the other programs at the U.S. 16 Food and Ag. and Immigration. For example, like 17 they come in, they work full-time, or they issue a 18 report, they have meetings. What does that process 19 look like? 20 MS. GOULD: And much -- the way I just 21 described it is up to you. It's up to your 22 discretion whether you want them to be full-time, 23 whether you want them to report directly to the 24 Executive Director, whether you want them to report 25 to the Board, who manages them. 26 And you basically -- you could give them 27 free rein or you could say, look at our -- our 28 portal that people access to communicate with us and 38 1 tell us if that's efficient, if it's working for our 2 customers or the citizens of California. 3 It's -- it's -- really, it's a blank slate 4 on you identifying where you want to direct them and 5 how much you want them to focus or how broadly you 6 want them to look. 7 MR. HORTON: Thank you, Madam Chair. 8 There are a number of entities that 9 currently do this: The Little Hoover Commission; 10 Member Ma has a commission, Advisory Commission; the 11 Executive Director has an Advisory Commission; we 12 have the State Auditors that oversee the Board of 13 Equalization. We've got a bunch of legislators over 14 there who wants to give us direction periodically. 15 MS. HARKEY: We have a lot -- lot of 16 watchers. 17 MR. HORTON: And -- but, you know, there's 18 a value to this. It is just -- there's always a 19 value. It's just, why not do it internally? Why do 20 we need legislation in order to do this? 21 MS. GOULD: And I would say you actually 22 don't. 23 MR. HORTON: Or -- my apologies. Why not 24 expand something that we're already doing under the 25 direction of the Board, so the Board makes a 26 decision that the Board wants to focus on a 27 particular project and then expand it? 28 MS. GOULD: Well, to answer your question 39 1 about whether you need legislation, you don't really 2 need legislation. And so I don't mean to sound too 3 touchy-feely, but in a way you're making a statement 4 in embracing the entrepreneurial spirit. 5 In our experience -- and Michael Dell had 6 been running his business for 30 years and he 7 decided these folks that are -- they're just -- 8 they're wired differently. They think differently. 9 They're more creative, entrepreneurial. 10 MR. HORTON: Yeah. 11 MS. GOULD: And so, by their very nature, 12 they're going to look at things in a different way. 13 And I don't know that I would think that 14 Little Hoover Commission or other government 15 entities are going to look at things the same way 16 these folks do. They -- you know, they -- they 17 start businesses, they're successful, they sell 18 them, they move on, they start new businesses. 19 They're always solving problems. They're always 20 looking at ways to reinvent the wheel and make it 21 better, and that's where we think we could add 22 value. 23 MR. HORTON: Yeah, my brother was a CFO for 24 Dell for five years until he went off to start his 25 own business, and he's wired differently. And so I 26 agree. 27 I mean, I've -- I've had the good fortune 28 of speaking to some of these individuals and their 40 1 insight could be helpful. Why not have the bill be 2 applied to State government in general and suggest 3 that they -- they sort of pattern themselves after 4 the efficiency of the Board of Equalization? 5 MS. HARKEY: Quite honestly. 6 MS. MA: Mr. Runner. 7 MR. RUNNER: I -- I -- I have -- I guess my 8 question is, running a specific bill that has to do 9 with the BOE that we can do ourselves. You know, I 10 mean I just wonder -- I just don't -- number one, I 11 don't like running, you know, kind of being involved 12 in a bill that we're running down the street that 13 the first thing the Legislature says to somebody 14 who's presenting is, "Can't they do this now?" And 15 there's never a really good answer back for that. 16 And so, I mean, I'm open to the idea. I 17 think conceptually it makes sense. I think having 18 outside eyes coming in, people who think differently 19 looking at procedures and process is a really good 20 idea. 21 I guess at this point I'm almost more 22 compelled to say, "Hey, let's explore this idea 23 internally and decide how we can have conversations 24 with -- with the folks who are seeing this, who have 25 done it successfully, and then help us decide if we 26 want to then look at this for ourselves. 27 I feel like -- I get concerned when we go 28 down the street and ask them to do this to us, 41 1 because I'm not sure what else they might do to us 2 in this process of running the bill. 3 And -- and so I think we need to kind of be 4 convinced at that point -- and I think conceptually 5 it's a good idea -- as to how this would actually 6 work, and we would control it, and we could then set 7 up the guidelines for the concerns that we have for 8 confidentiality, and we have control of that whole 9 process. 10 And, like I said, it really is -- again, as 11 a legislator -- former legislator, it always is an 12 embarrassing question when somebody says, "Can't you 13 do this now?" And you've got to explain why you're 14 running a bill and -- and, you know, we can't very 15 well. 16 So I think that would be my concern in 17 regards to kind of moving forward. The concept I'm 18 really open to. And, quite frankly, I would offer 19 to actually take this concept up in our -- in our 20 committee because that's kind of the role of our 21 committee within this process is to look at 22 efficiencies, how our -- how our -- how we operate, 23 and kind of look at this as to whether or not this 24 is something we should apply and look at. 25 MS. MA: Right. And I agree with Ms. 26 Harkey, like I would love to have an 27 entrepreneur-in-resident in my office. So send him 28 over. We don't have to, you know, pay them -- 42 1 MS. HARKEY: Send one down to So Cal. I 2 have space. 3 MS. MA: Yeah. I have space, too, in my 4 San Francisco office. 5 MS. GOULD: Are you interested in having 6 the bill amended to do that; to instead reflect 7 having them in your offices as opposed to the Board? 8 MS. HARKEY: I -- I don't think I can 9 sponsor legislation. Because once it gets over 10 there, it'll change and then it will become a BOE -- 11 You know, I mean we're -- we audit, collect 12 and -- certain taxes and fees that the Legislature 13 assigns to us, other than our constitutional mandate 14 of the county -- county assessors and the 15 state-assessed property. But other than that, we're 16 doing what we are told to do by the Legislature via 17 legislation. We don't create ways to do things. 18 They tell us what to do. We create ways to 19 implement what task we've been assigned. 20 So this is kind of like -- this -- maybe 21 this should be a bill to have the entrepreneurs come 22 in to the Legislature and -- and review what their 23 bills are and what they're actually doing to the 24 economy, rather than look at the collectors and 25 auditors group that we're tasked with doing and 26 auditing us. 27 So that would be my suggestion. I see 28 bills fly out of there constantly that are killing 43 1 your industry. That's the focus of your 2 entrepreneur group and that should be the focus of 3 your entrepreneur group with the Governor's office 4 and everyone else. Because these things don't 5 happen by accident; they get contrived by people who 6 have probably never worked in your industry or maybe 7 even never worked in an industry at all. 8 So that's my experience and that would be 9 my suggestion for the legislation. I'm in your camp 10 a hundred percent, but I think this is -- the 11 arrow's pointed in the wrong direction. 12 MS. GOULD: And to be clear, this wasn't 13 directed at BOE because we thought there were flaws 14 in BOE. We thought it was a place to start, to make 15 a statement, to use it as a model to replicate 16 elsewhere. 17 MS. HARKEY: Yeah. Yeah, I know. 18 MS. GOULD: And so to your point, it's 19 not -- 20 MS. HARKEY: We need to make a statement 21 across the street, I think. 22 MS. MA: Well, I think the Governor's 23 office has certain agencies that maybe could use a 24 little bit of entrepreneurial spirits. I'm just -- 25 MR. RUNNER: You're going to suggest DGS 26 right now or -- 27 MS. MA: Are you reading my mind? 28 So, anyway -- 44 1 MS. HARKEY: We have a building here. 2 MS. MA: So I don't see the will to support 3 the bill right now. But, you know, if things change 4 with the bill, we're open to talking with you. 5 MR. RUNNER: And we would be -- we would 6 offer, if you want to come follow up with us, talk 7 about how it is we might take -- spend a little bit 8 of time on this in our Customer Service Committee to 9 see if there's a way for us to internally take a 10 look at it too. 11 MS. GOULD: I think that's -- 12 MS. HARKEY: I would like to have somebody 13 in the district, to be honest, I think it would be 14 really good for my auditors and whatnot. 15 MS. MA: Me too. 16 MR. HORTON: Madam Chair, if I may. 17 I would also share that the Board of 18 Equalization could be an example for this. 19 MR. RUNNER: Mm-hmm. 20 MR. HORTON: I mean our rulemaking process 21 basically does that, you know, seek ideas and 22 interests in the things we do. The regulatory 23 process, the Business Tax Committee, the Customer 24 Service Committee, all of the committees that we've 25 established seek input from others outside of the 26 industry. 27 And then the external committees, I mean we 28 have issues such as the intellectual property and so 45 1 forth, the Board goes directly to the industry, 2 right to Silicon Valley to say, you know, give us 3 some ideas on how to deal with this. It is just 4 inherent in what we do. 5 So maybe you guys can mock what we do and 6 suggest everyone else follow us. Anyway -- 7 MS. MA: Thank you. 8 MS. STOWERS: I have one. 9 MS. MA: Oh yeah. Ms. Stowers. 10 MS. STOWERS: I just want to say I agree 11 with all the other comments. I think we can do it 12 internally. We can seek a third party to come in 13 and look at the operation as a whole, headquarters, 14 our district. 15 I also have concern with taxpayer 16 confiden- -- taxpayer confidentiality. 17 MS. MA: Okay. 18 Thank you, Ms. Gould. 19 ---oOo--- 20 21 22 23 24 25 26 27 28 46 1 ---oOo--- 2 MS. MA: Okay, next item, Ms. Pielsticker. 3 MS. PIELSTICKER: The next bill is AB 717, 4 sponsored by the author. And it would exempt from 5 State sales and use tax diapers designed, 6 manufactured, processed, fabricated or packaged for 7 use by infants and toddlers. 8 The annual State local revenue loss from 9 this bill would be $46.7 million. 10 MS. MA: Okay. 11 MS. HARKEY: Move the bill. 12 MS. MA: We have a -- we have Ms. Andrea 13 San Miguel -- 14 MS. SAN MIGUEL: Yes. 15 MS. MA: -- from the office of 16 Ms. Gonzalez. 17 ---oOo--- 18 ANDREA SAN MIGUEL 19 ---oOo--- 20 MS. SAN MIGUEL: Yes, Assembly District 80. 21 MS. MA: Yes, Assembly District 80. 22 Thank you, Ms. Miguel -- San Miguel. 23 MS. SAN MIGUEL: Okay. Well, thank you for 24 having me. 25 So, as stated, the legislation would exempt 26 diapers for babies and toddlers from sales and use 27 taxes. 28 It's a very bipartisan piece of 47 1 legislation, which would benefit all Californians, 2 especially those that are impacted by regressive 3 taxes usually. 4 And we've estimated that if it were to pass 5 that the average family would save approximately a 6 month's worth of diapers, up to $100 a year, 7 depending on the cost per month for that family. 8 And Assembly Member Gonzalez introduced 9 this so that the tax code could really recognize the 10 economic and health necessity of affordable diapers 11 in the state. 12 An inadequate diaper supply has unhealthy 13 consequences for the child and for their parents and 14 really for the economy, which is what we've been 15 looking at. 16 There are three main ways that we see 17 diaper need cost in the State. The first is 18 essentially access to day care. And access to day 19 care equals people being able to stay and get to 20 work. So, most day care options, especially those 21 that relate to CalWORKS, do require that parents 22 make diapers available every day, up to ten per day, 23 which can become really cost prohibitive. 24 There is also a study by the National 25 Institute of Health that identified child care as 26 the No. 1 barrier to entering the work force for 27 single mothers. 28 The -- one of the other ways is that 48 1 reusing or using fewer diapers than are actually 2 needed, which is something that at this point that 3 has been studied and documented, can very easily 4 lead to things like diaper rash, skin infections, 5 urinary tract infections. And it's -- it's actually 6 in peer-reviewed documents at this point, that 7 there's correlation with -- excuse me -- 8 with increased doctors' visits and emergency 9 department visits. And the implications on State 10 medical dollars are clear there. 11 There is also an issue of children missing 12 out on day care services. And early education has 13 been documented as more than doubling a child's 14 likelihood to attend higher education. So, there is 15 also concern about future work force here. 16 The -- the main problem is that diapers 17 are not available. There's no relief for that item 18 through anything else related to nutrition and 19 health, such as CalFresh, WIC or Medi-Cal, despite 20 their necessity. 21 There are very few nonprofit resources as 22 well for diapers. There's a national diaper bank 23 network, but looking -- you know, looking around, 24 they're nowhere near as common as food banks and it 25 is a resource that is hard to find through 26 nonprofits. 27 So, AB 717 really just seeks to bring 28 diapers up to, you know, in the same category as 49 1 food and prescription drugs, other necessities that 2 are also exempt from sales and use tax. 3 So, if anyone has any questions, I will be 4 happy to take them. 5 MS. MA: Question. So, six states also 6 exempt diapers from sales tax? 7 MS. SAN MIGUEL: Yes. 8 MS. MA: I'm wondering -- I know this is 9 for infant diapers, how about for adult diapers? 10 MS. SAN MIGUEL: That's -- there, I 11 believe, are two within that that also exempt adult. 12 But I don't have the numbers in front of me. 13 It's -- it's a separate -- a separate issue 14 when you look at it on a state -- on a state by 15 state comparison. There some that exempt them. 16 There is also Connecticut that decided to include 17 feminine products in their legislation that they are 18 bringing forward shortly after we introduced our 19 legislation to make diapers sales tax exempt. 20 But there -- you know, when you get down 21 into the dollar amount and the type of legislation, 22 they're really not usually bundled together. 23 MS. MA: Question, Mr. Horton. 24 MR. HORTON: Thank you, Madam Chair. 25 I'm supportive of the bill and the concept. 26 You did an excellent job of presenting, by the way. 27 The concern I would have would be maybe 28 there should be a carve-out for North West, that's 50 1 the baby for the Kardashians. 2 Maybe we should consider an amendment that 3 limits it to the AFDC qualifications. And I think 4 that furthers the purpose of the bill. 5 MS. STOWERS: Madam Chairwoman? 6 MS. MA: Ms. Stowers. 7 MS. STOWERS: I too like the concept, but 8 I'm -- I think you said it, but I must have missed 9 it, for those who are in need, do they or do they 10 not get some type of financial assistance to buy 11 diapers? 12 MS. SAN MIGUEL: No, no. And that's part 13 of what led us to this issue and led Assembly Member 14 Gonzalez to again introducing legislation on diaper 15 need beginning last year, as well as among -- you 16 know, WIC dollars are only for food. Medi-Cal does 17 not touch diaper need. And then also CalFresh 18 cannot be used for diapers. 19 MS. STOWERS: So, WIC is for women and 20 children. CalFresh is food. I thought there was 21 something else to provide financial assistance for 22 families. 23 MS. SAN MIGUEL: Well, there is direct 24 funds provided through CalWORKs and those family 25 grants. 26 So, the legislation last year was to 27 increase the amount of direct funding given to 28 families because of diaper need. But we've rerouted 51 1 and really want to bring attention and assistance to 2 the issue to the entire state with the sales tax 3 aspect. 4 MS. STOWERS: I do like the concept, but I 5 think it should go -- should be more limited in 6 scope. 7 And I don't see how we can do a limit in 8 scope when it's going to be involving retail and 9 how -- what the consumer can verify, you know. 10 That's my concern, it's going to be 11 administration -- an administrative nightmare. 12 Seems more should go back to CalWORKs, that agency, 13 to provide them with assistance for their diaper 14 needs as opposed to a statewide exemption. 15 MR. HORTON: Madam Chair, if I may? 16 There's a -- there's a way to address this. 17 I mean, there is a current system of internal 18 control through the AFDC process, where they have 19 the EDBT -- EDB -- EDB something, EBT cards. 20 And, so, individuals would have to present 21 that card at retailer establishment, which, in and 22 of itself, means they met certain qualifications. 23 Kim Kardashian wouldn't have one of those, 24 so, therefore, she wouldn't qualify. She is a 25 friend, so, no offense, Kim. 26 So, we can -- we can monitor it. I mean, 27 there's an existing system that we can play off of, 28 if that would be the will of the author and the 52 1 Legislature to have such a limit. 2 MS. SAN MIGUEL: Not to take the attention 3 or time off of 717, there is actually a separate 4 piece of legislation that is more similar to what 5 you're describing that we're also pursuing. 6 But really the target of this is addressing 7 that diapers are expensive for, as you've mentioned, 8 nearly everyone. It's really -- we've -- you know, 9 and the national statistic is up to $100 a month for 10 diapers, especially for infants. 11 And, so, you look at the State -- the 12 statewide effect of those living paycheck to 13 paycheck and who are not involved in any of these 14 subsidy programs, they're also still struggling and 15 pinching pennies with necessary -- the necessary 16 costs of just diapers. 17 Really, the foundation of it is that we can 18 consider diapers to be a health need. And it has -- 19 the need has economic implications as well as work 20 force issues. 21 And we'd like to be able to effect 22 affordability for those outside of those programs as 23 well. 24 MR. HORTON: But if it goes outside of the 25 programs, it also the risk of being a windfall for 26 diaper manufacturers. 27 MS. SAN MIGUEL: At this point it applies 28 to all diapers manufactured for toddlers and 53 1 infants, so, it would not. 2 MR. HORTON: I mean, without -- without a 3 threshold where there is a cut-off, everyone who can 4 afford diapers, who don't have the economic 5 challenges that the individuals you articulated do, 6 will now get a tax credit. 7 Because then we do run into the 8 administrative challenges of being able to monitor, 9 control and so forth. 'Cause now anyone can walk -- 10 any and everyone would walk in and be able to 11 purchase -- this item would be exempt. 12 MS. SAN MIGUEL: Right. 13 MR. HORTON: That's the goal of the author? 14 MS. SAN MIGUEL: Is to reduce the purchase 15 cost for diapers for Californians. 16 MR. HORTON: In its current form then I 17 couldn't support it. 18 MS. MA: Can I just clarify, that when you 19 have -- 20 MS. SAN MIGUEL: Sure. 21 MS. MA: -- an EBT card and you use that, 22 you buy certain products and the tax is reduced or 23 is it tax exempt? 24 MS. SAN MIGUEL: I do not have that detail. 25 MS. MA: Okay. 26 MR. RUNNER: Madam Chair? 27 MS. MA: I have one more question. 28 Ms. Pielsticker, you also threw out a 54 1 number out there as potential revenue loss. 2 Is this based on real purchases of diapers 3 in the last year or a certain fiscal year or is this 4 just an estimate? 5 MS. PIELSTICKER: It's based on an estimate 6 of total baby -- sales of baby diapers in 7 California, which is 552.2 million. 8 MS. MA: So, it's actual diaper sales and 9 then use like an average sales price? 10 MS. PIELSTICKER: Yeah. 11 MS. MA: A percentage, okay. 12 MR. RUNNER: I'm going to -- 13 MS. MA: Mr. Runner. 14 MR. RUNNER: -- try to come at this from a 15 little different perspective. 16 No. 1, I like the bill. I would sign onto 17 the bill. Be glad if we haven't already sent a 18 letter. 19 Here's what my concern is, and that is, I'm 20 not sure it's in our best interests to start picking 21 and choosing bills that are going to come -- that 22 are in the Legislature that had to deal with tax 23 change, whether going up or down. You know, I think 24 that's a policy discussion down there. 25 I think individually we can take positions. 26 And I think we've even seen it illustrated here, 27 there are some Members who would sign onto the bill 28 the way it is; there's probably other Members that 55 1 say, 2 "Well, if you added some kind of an 3 income issue, then I could sign onto it." 4 And I think that that's what you would 5 find. And I just -- I'm a -- I'm concerned that if 6 we go down this path, there is always a lot of bills 7 being introduced, some of them to give tax credits 8 and lower tax and others to raise tax. And I'm 9 concerned that that would be, all of a sudden, a 10 position we'd be in. And I'm not sure we want to be 11 in that position. 12 And I think individually we want to do 13 that, but as a Board, I'm not sure it's the wisest 14 thing for us to do. 15 MS. MA: And then as I spoke to 16 Mr. Chairman, I think that's been the practice of 17 the Board, is if there is consensus, then we would 18 support it as a Board. 19 And if there wasn't, we are free to go and 20 take action as we see fit as an individual Member, 21 but not -- 22 MR. RUNNER: Right. 23 MS. MA: -- representing the Board. 24 MR. HORTON: Madam Chair, I would -- I 25 mean, I would -- I would agree and disagree with 26 Mr. Runner, respectfully. 27 I mean, I think the Leg. Committee's 28 role -- part of the role is to begin to shape tax 56 1 reform to the extent that we can. 2 I concur that in doing so, we should have 3 somewhat of a consensus. But to the extent that we 4 can shape tax policy, I think we ought to 5 participate in that process. 6 So, in concept, I could support the bill, 7 but noting my reservation because conceptually it is 8 a tax policy of providing relief to those who need 9 it the most and is -- I think it's part of the 10 Governor and the Legislature overall objective to 11 focus on addressing this issue, one of the greatest 12 threats to our economy, and that's poverty. 13 So -- but the author seems to -- seems to 14 want to make it broader, anyway. 15 MS. MA: Okay. So, Members, any more 16 comments? 17 So, I don't hear unanimous support or 18 motion and second. 19 So, we're going to move on to the next 20 item. Thank you so much. 21 MS. PIELSTICKER: The next item is Senate 22 Bill 24, Hill. It's related to e-cigarettes. 23 The existing license, Cigarette and Tobacco 24 Products Licensing Act, requires the BOE to 25 administer a statewide program to license cigarette 26 and tobacco products, manufacturers, importers, 27 distributors, wholesalers and retailers. 28 The law requires a retailer to have a 57 1 license to sell cigarettes and tobacco products in 2 the State for each retail location that sells such 3 products. 4 The Stop Tobacco Access to Kids Enforcement 5 Act, or the STAKE Act, as it is otherwise known, 6 established a statewide enforcement program to take 7 action against businesses that illegal sell -- 8 illegally sell tobacco to minors. 9 The California Department of Public Health 10 administers the STAKE Act, which requires the BOE to 11 suspend or revoke a retailer's licensing act license 12 upon a third, fourth or fifth STAKE Act violation 13 and impose a $250 civil penalty. 14 This bill revises the license -- the 15 Cigarette and Tobacco Products Licensing Act to 16 require the licensure of electronic cigarettes' 17 retailers. 18 The bill also requires the BOE to suspend 19 or revoke a retailer's Licensing Act license for 20 STAKE Act violations that involve e-cigarettes. 21 The revenue impact of this bill is 22 undeterminable. 23 MR. HORTON: I move we support the bill. 24 MS. MA: We have a motion. 25 Do we have a second? 26 MR. RUNNER: No. I have a question 27 first. 28 MS. MA: Okay, Mr. Runner. 58 1 MR. RUNNER: My question is, is there an 2 unintended consequence here? 3 If we -- if we end up with, again, the 4 obligation to do investigations using those -- those 5 funds and -- we're already oftentimes defending 6 ourselves against groups like First 5. 7 And, so, I'm just trying to figure out if 8 this now, all of a sudden, another obligation that 9 we're taking on? 10 I don't know if Chief Counsel can -- if 11 somebody can answer. I'm not -- you know what I 12 mean? Are we actually taking on an investigation 13 process, to which then we have limited resources for 14 that could then cut into other kinds of -- of -- 15 raise our costs and, therefore, create less revenue 16 for those things that come out? 17 So, that's my question. 18 MS. PIELSTICKER: In answer, we are adding 19 to the obligations that we have under the Cigarette 20 and Tobacco Products Licensing program. 21 The funding for that program is spread to 22 the funds that benefit from the cigarette and 23 tobacco products tax. 24 MR. RUNNER: Right. 25 MS. PIELSTICKER: And that is -- their 26 costs are spread in proportion to the revenue that 27 they receive, roughly. 28 MR. RUNNER: All right, okay. 59 1 MS. PIELSTICKER: So, if -- as -- if this 2 bill adds to the cost of the Cigarette and Tobacco 3 Products Licensing program, the cost to the 4 benefiting funds would also increase. 5 MR. RUNNER: So, therefore, their revenues 6 that we would move -- that they would get would go 7 down? 8 MS. PIELSTICKER: To the extent that we 9 pull costs out of revenue, yes. 10 MR. RUNNER: And where else -- and we would 11 have to do that. And I think that, to me, is a 12 concern. 13 So, that's -- that -- Members, that's my 14 concern. My concern is that there's an unintended 15 consequence there. 16 I understand where he wants to go, but 17 again, if we've got -- if we've got a finite amount 18 of money and all that money then gets charged 19 against those programs, in terms of our 20 investigations, this program doesn't bring in any 21 revenue. 22 MS. PIELSTICKER: It does bring in some 23 revenue. 24 MR. RUNNER: Some, but not enough to cover 25 the costs of the investigations? 26 MS. PIELSTICKER: It's not really self -- 27 MR. RUNNER: Right. Therefore, then those 28 beneficiaries are going to get less money. 60 1 And we already know we're trying to figure 2 out how to deal with that successfully and trying to 3 explain that right now with groups like First 5. 4 MS. STOWERS: Madam Chair. 5 MS. MA: Ms. Stowers. 6 MS. STOWERS: First, I'd like to second the 7 motion first. 8 Also, the -- I agree that there may be an 9 increase in costs, but that the Act itself in 10 limiting e-cigarettes in the hands of minors, in my 11 opinion, is more important that they can't get to 12 it. 13 And also, I'm not really sure about this 14 one, but the -- the retailers of cigarette and 15 tobacco products are they the same retailers of 16 e-cigarettes? So, we'll be using the same 17 resources? So that when we're out doing inspections 18 for cigarettes and tobacco, if the e-cigarette 19 product is there, it's going to be taken care of 20 then? 21 So, we don't have to add on additional 22 investigators or additional auditors to look at 23 this? 24 MS. PIELSTICKER: In many instances 25 e-cigarette retailers will also be cigarette and 26 tobacco product retailers. 27 I would have to defer to the program as to 28 the extent to which that provides a cost offset. 61 1 MR. HORTON: Madam Chair. 2 MS. MA: Mr. Chair. 3 MR. HORTON: Thank you, Madam Chair. 4 I mean, there's -- there's always the -- 5 the economic benefit for some reason that we don't 6 take into consideration in evaluating these -- 7 these -- these programs. 8 When -- when you take -- there's a -- 9 there's X number of consumers out there that are 10 consuming this product. And, so, in the case of 11 when you have counterfeit products or products being 12 sold illegally, for whatever reason, then we're not 13 getting the tax on it anyway. 14 And, so, if you take that out of the 15 system, theoretically those individuals continue to 16 consume, but now they have to go and purchase from 17 legitimate operators. 18 So, thereby, we actually increase the sales 19 by legitimate operators who are not operating in the 20 underground economy in either collecting or not 21 reporting the tax. 22 And I think we ought to give that some 23 consideration in evaluating the revenue -- the 24 potential revenue loss associated with this. 25 Then to the extent that that provides a 26 benefit to the industry that actually sells these 27 products, because the individuals who are selling it 28 illegally are not part of mainstream. And, so, 62 1 we're policing the industry for legitimate 2 operators, as we do with many underground economy 3 operators. 4 If you have a car dealer that is located -- 5 to a car dealer that is not recording or paying the 6 sales tax, then theoretically when they discontinue 7 selling, the sales of cars continue. People still 8 buy. And, so, we're protecting the legitimate 9 operators. 10 To the extent that that does occur, maybe 11 there's a calculation that could take place that 12 could assign some benefit cost to offset the cost to 13 First 5. 14 The other inherent danger, Madam Chair, is 15 that the -- the increased enforcement in protecting 16 minors and so forth, reduces -- you know, reduces 17 consumption, which, in effect, is a good thing until 18 you start thinking about the economics of it. When 19 you reduce consumption, the economics of it, First 5 20 gets less funding. 21 But, theoretically, this program -- these 22 types of programs have served to -- to do that, 23 reduce funding, increase -- protect legitimate 24 operators, increase cash flow or increase sales and 25 revenue to the State. 26 So, I would encourage the author to 27 consider those variables as it goes through and see 28 if he can negotiate something with the industry, as 63 1 we did with AB 71, to have an offsetting revenue 2 source, even though I think it would be nominal. 3 MS. MA: I just have one question. So, 4 where is the $1 -- the $100 fee per retailer? 5 MS. PIELSTICKER: Yes. 6 MS. MA: Where does that money go? 7 MS. PIELSTICKER: That goes into the 8 compliance fund which funds the Cigarette and 9 Tobacco Products Licensing program. It's a one-time 10 fee for retailers. 11 And then distributors and wholesalers pay 12 annually a thousand dollar fee. 13 MS. MA: Okay. Ms. Harkey. 14 MS. HARKEY: We -- I'm -- my concern is 15 with the declining revenues to the First 5. I've -- 16 we have just been through that. I've been through 17 that for the last three years with the First 5 group 18 coming to my office in the Legislature and now at 19 the BOE. 20 We also just went through a -- kind of a 21 grilling, so to speak, in the Rev. and Tax Committee 22 and First 5 was kind of the impetus as to why we 23 were charging so much to administer programs. 24 Before I would support anything I would 25 like to be sure that we've got -- I understand or 26 I've heard we have other ballot initiatives coming 27 before us, maybe as soon as '16, to -- that will 28 limit the amount that the Board or the State can use 64 1 for administration, which again is going to hit 2 First 5. 3 And because whoever -- First 5 has no 4 limitations on what we can charge to implement the 5 programs and if they're all under the same 6 program -- so, this is -- I'm -- I'm just a little 7 nervous about impacting the existing programs we 8 have with First 5, and without knowing what's coming 9 down the pike on the others, and if they are going 10 to have limits on revenue and the voters pass them, 11 we've got a problem. 12 We can't be running at a deficit here. And 13 I'm just very concerned that we keep adding to that. 14 I think there's maybe another way to do this, such 15 that it is self-fulfilling or self-supporting. 16 I do appreciate the need to get -- you 17 know, to be sure that minors are not engaging in 18 this because this is truly not a -- it's not an 19 unharmful behavior. And I think we need to somehow 20 regulate that. 21 If we could -- I don't know, if it was just 22 auditing existing sellers of cigarettes that might 23 offer e-cigarettes, I think the cost would be a lot 24 lower. 25 The problem is that we've got some 26 underground stuff going on and we will encourage 27 underground if that's the way we structured it. 28 So, I'm -- I've got some reservations about 65 1 sponsoring it right now, but I would love to watch 2 as it goes forward and encourage Mr. Hill to work 3 with First 5 and see what will keep them at least 4 solvent because they're continually losing revenue. 5 MS. MA: Any other comments by Members? 6 I do think this is a new industry, this 7 whole e-cigarette industry. And it is evolving. 8 There is very little regulations, very 9 little taxes except the sales tax at the retail 10 level. 11 I am supportive of Mr. Hill's efforts to 12 try to attack these and also all the other efforts 13 to put the appropriate warnings for minors. 14 The e-cigarette manufacturers are using 15 Hello Kitty, for example, to advertise to consumers. 16 And I don't know if we respond as adults to Hello 17 Kitty, someone responds to Hello Kitty. 18 MS. HARKEY: We do. 19 MS. MA: So, some people do -- some people 20 do. 21 MS. HARKEY: I like Hello Kitty. 22 MS. MA: And, so, I just want to put out 23 that we did a study on this that we released 24 yesterday, if anybody's interested in some of the 25 findings, but I am supportive of Mr. Hill's bill. 26 So, do we take a vote? 27 MR. RUNNER: Sure. 28 MS. MA: Okay. So, let's take a vote. 66 1 MR. RUNNER: This is a -- this would be to 2 support the bill, right, not to sponsor? 3 MS. MA: To support, yes. 4 Mr. Horton. 5 MR. HORTON: Madam Chair, if I may offer to 6 the colleagues again, the support in concept, and 7 direct staff to share the concerns relative to 8 First 5 and seeing if that could be addressed -- 9 MR. RUNNER: Yeah, I -- 10 MR. HORTON: -- I might be amendable. 11 MR. RUNNER: -- I mean, I would actually be 12 fine with the bill as long as the bill costs covered 13 the cost of enforcement. 14 Because the problem is if the -- if it does 15 not, then there is no way that this does not send 16 less money to First 5. 17 So, I mean, that's -- that's, to me, a 18 pretty -- again, it's -- I know there is other bills 19 to create -- to create licensing and other kinds of 20 things. And if it was double joined to one of those 21 bills, you know, so that it wasn't a stand alone 22 bill at that point, it actually -- and it was 23 actually related to the revenue side so you could 24 actually then know. 25 But it's -- again it's -- we all sit down 26 with those First 5 people all the time, who say, 27 "How come our money's going down?" 28 And it's -- and it's actually bills like 67 1 this that makes their money go down. 2 And, so, again, conceptually, I get it. If 3 they would make it so that it truly covered the cost 4 of enforcement. 'Cause remember what's going to 5 happen, if we end up -- we have two other choices. 6 You know, again the idea of capping 7 enforcement is an interesting idea, but what that 8 means is if the general fund doesn't help us pay for 9 it, then what we do is less enforcement. We don't 10 go into the hole on enforcement. 11 And, so, what happens is we just have less 12 enforcement. Well, what happens if you have less 13 enforcement? 14 In theory, you're going to have less 15 revenue in that process. So, I think that's the 16 hitch that I have in that process. 17 Yet, but -- 18 MR. HORTON: Madam Chair, if I may? 19 Actions that cause the consumption of 20 cigarettes to go down is the goal of First 5. 21 And because -- instead of doing it through 22 advertising, we're doing it through direct 23 enforcement and taking tons of the illegal products 24 off the street. Effectively we're doing the same 25 thing. 26 And the un -- the unfortunate reality is 27 the more effective we are, the less challenged 28 First 5 is going to be. 68 1 I'm supportive of those programs as well. 2 But the Board of Equalization is a 3 revenue-generating agency. Shutting us down is like 4 shutting down Vegas, you know. 5 And, so, taking revenue away from our 6 administration and so forth -- I mean, we're part of 7 the administrative arm of government and, so, thus 8 be it. But there's a corresponding negative impact 9 to our economy, if so. 10 The Board generates somewhere near 11 $60 billion, which is a significant portion of the 12 revenue for the State of California. And I don't 13 think we can leave that aspect out of that. 14 It's a good thing to -- to protect 15 legitimate operators. It's a good thing to take 16 illegal products off the street. It's a good thing 17 for kids to consume less. The unfortunate reality 18 of those three good things is some of these programs 19 are going to get less money 'cause people are 20 consuming less cigarettes. 21 Seems to me that's the ultimate goal, 22 but -- so, I'm supportive. 23 MS. MA: Do we have accurate revenue 24 estimates? 25 I mean, this is a growing industry, right? 26 We know that. And would you be adding the $100 fee 27 to each retailer that sells cigarettes, for example, 28 because there is usually that nexus that if they're 69 1 selling cigarettes, they're usually selling the 2 e-cigarettes as well. 3 But other outlets could be selling it as 4 well, not necessarily selling cigarettes, but this 5 is an alternative -- bars -- I don't know, other 6 types of retail stores. I mean, it's hard to -- 7 MS. PIELSTICKER: It's hard to know at this 8 point. 9 MS. MA: -- estimate, yeah. 10 MR. RUNNER: So, we have no cost estimate 11 for what it's going to cost us to implement this 12 program? 13 MS. PIELSTICKER: We do not. We do know 14 that the benefiting funds from the Cigarette and 15 Tobacco Products Tax Act had about $8 million in 16 cost that are spread to them currently over and 17 above them what the program funds for itself. 18 That's what we do know. 19 We don't have an actual cost estimate for 20 this bill, nor do we have an actual revenue estimate 21 at this time. 22 MR. RUNNER: And this is a responsibility 23 that comes directly to the BOE? 24 MS. PIELSTICKER: Yes, it is. 25 MR. RUNNER: Right. Again, I don't know 26 why -- again, I don't know why we wouldn't, at 27 least, have the threshold to say, 28 "Hey, if you want us to do 70 1 something, make sure we have all of 2 the money to do it." 3 MR. HORTON: Yes. 4 MR. RUNNER: And especially when we don't 5 even know how much money it's going to cost us. 6 So, again, I think if our -- again, I don't 7 have any problem with the concept, as long as part 8 of this understanding is that we must be able to be 9 fully reimbursed for the cost of administration 10 enforcement of the -- of the concept. 11 I mean, I'd hate for us all of a sudden, 12 you know, two years from now have to send down a BCP 13 for 3 PYs, because all of a sudden this program 14 costs us more than we had anticipated and we think 15 we need to get some reimbursement. 16 If we have -- if we want it, we need to get 17 it when the bill's done, not now. 18 MR. HORTON: Madam Chair, I would amend the 19 motion to move support in concept, given the caveats 20 expressed by Member Runner. 21 MS. MA: Yeah. 22 MS. STOWERS: Second. 23 MS. MA: Okay. There has been a motion and 24 a second. By unanimous consent, support in 25 concept. 26 MR. RUNNER: With the idea of full 27 reimbursement. 28 MS. MA: With the idea of full 71 1 reimbursement. 2 MS. PIELSTICKER: For clarification -- 3 MS. HARKEY: If the bill is amended. 4 MS. PIELSTICKER: -- so, would it be 5 support if amended to provide adequate funding for 6 the program? 7 MR. RUNNER: Yes. 8 MS. PIELSTICKER: Okay. 9 MS. MA: SB 433, next item. 10 MS. PIELSTICKER: SB 433, Berryhill, as 11 proposed to be amended. This is jointly sponsored 12 by Board Members Ma and Runner. 13 It would require the Department of Finance, 14 instead of the Board of Equalization, to determine 15 the annual excise tax rate adjustment for motor 16 vehicle fuel, diesel fuel under the fuel tax swap 17 provisions. 18 MR. RUNNER: I would move that we sponsor 19 this bill. 20 MS. MA: Second. 21 Ms. Harkey -- Ms. Harkey. 22 MS. HARKEY: I knew there would be a motion 23 and a second. 24 Let me tell you my concern with this, the 25 only time we actually hear about this fuel tax swap, 26 which was a product of our recession and the need 27 for money, is when it comes to this Board, 'cause 28 we're either lowering the rate or -- or either 72 1 raising the rate or lowering the rate. 2 And it gets a lot of political play, but it 3 brings back to the forum of why we have this to 4 begin with. 5 I would like to see the whole concept get 6 reversed and -- 'cause we're not in the tank any 7 more. We're not flush, but we can -- we need some 8 more local transportation dollars. And this is 9 where this came from. 10 And, so, I would like to see the whole 11 concept reversed. And my concern is that if it goes 12 under DOF, we'll never hear about it again and it 13 will never be reversed. 14 So, I do have concerns with this. I think 15 it's probably where it needs to go if it's going to 16 continue to be a program. 17 But, yeah, we have two Board Members 18 sponsoring individually. You know, you can assume 19 there's a motion and a second for it. And probably 20 we will have the rest, but I don't know. I'm just 21 stating my concerns with this. 22 So, you know, the Board's will be done. 23 But I'm -- I'm very concerned that if this actually 24 happens we'll never hear about it again. 25 MR. RUNNER: I agree. 26 MS. MA: Mr. -- 27 MR. RUNNER: I agree with the concern in 28 regards to the whole thing should be unwound. I 73 1 think -- I think we probably all agree on that -- 2 that issue. 3 In fact, I met with a group of 4 transportation leaders yesterday afternoon on this 5 very issue. And I know one of issues that we're 6 going to be moving forward with is getting from the 7 LAO what is the process to unwind. 8 Now, obviously, we can't unwind it. That's 9 a legislative issue. But I think I certainly agree 10 with the concept that -- that it needs to be 11 unwound. It's bad policy. 12 And -- but at the same time, it just -- I 13 think it -- it provides, I think, an illusion of 14 involvement right now that does not exist with BOE. 15 It provides an illusion for a decision. 16 And I think that's the challenge that I 17 have. 18 MS. HARKEY: Like the fire tax. 19 MS. MA: Yes, and, so, -- so, I agree. I 20 think, you know, in foresight we should have put 21 a -- it's a sunset, like a five-year sunset and 22 looked at this type of -- 23 MR. RUNNER: When the swap was? 24 MS. MA: -- for the tax swap. But 25 unfortunately, we didn't have that foresight and, 26 so, every year the BOE is kind of put into a 27 position to act as an economist. 28 And we are clearly not economists here. We 74 1 are tax collectors, tax auditors, collectors, but 2 not economists. 3 And, so, having the Department of Finance 4 make the decision four times a year, eight times a 5 year -- you know, the Governor's office is looking 6 at the budget continuously. He has to put out the 7 January budget. He has to put out, you know, the 8 March and the May revised, and then, finally, you 9 know, goes before the Legislature to sign the bill 10 in June. And then the process starts all over again 11 all year along. 12 So, I'm very supportive of this -- this 13 bill or this concept. In a perfect world we would 14 probably go back to the direct collection of sales 15 tax on the consumer at the pumps, which is very 16 simple and easy to -- easy to collect and remit and 17 use for transportation like it was intended to. 18 But given that nobody has proposed that 19 bill yet, I think that this is the best that we have 20 in this session. 21 MR. HORTON: Madam Chair. 22 MS. MA: Mr. Horton. 23 MR. HORTON: Thank you, Madam Chair. 24 The -- you know, I sort of share the same 25 public policy concerns. 26 The one unique thing about the Board of 27 Equalization is that we serve in a quasi-judiciary, 28 but a unique role of having an administrative 75 1 function in addition to the public policy, by virtue 2 that we are elected individuals, a unique function 3 that doesn't exist anywhere in the nation. 4 And, so, when it comes to issues of this -- 5 it is rightfully placed, I think, with the 6 Department of Finance to come up with a 7 determination and come up with a number. 8 But to the extent that public policy issues 9 have to be taken into consideration, the only place, 10 other than the Legislature to do that, is at an 11 elected body, which would be the Board of 12 Equalization. 13 So, I sort of struggle with this going back 14 and forth. I have some reservations about having an 15 academic -- academic body make decisions that have 16 some public policy implementations. 17 But, it's another one of those things where 18 conceptually I think the discussion has to take 19 place. We've got to discuss the solution. And this 20 may end up being an amend that actually solves the 21 problem as articulated by Madam Chair and 22 Mr. Runner. So, I believe it should be discussed. 23 I share the concerns about public policy 24 and that we should be making those decisions as long 25 as there's a public policy component associated with 26 the decision. 27 MS. MA: Anything? 28 MS. STOWERS: I'm okay. 76 1 MS. MA: Okay. I do believe that the 2 Governor's budget is a very public process, more 3 public than some other budgets in the State. But, 4 so be it. 5 So, there's a motion and a second. 6 Should we take vote? 7 MR. HORTON: And -- 8 MS. MA: What is the motion? 9 MR. HORTON: -- in concept? 10 MR. RUNNER: To sponsor the bill. 11 MS. MA: In concept or -- 12 MR. RUNNER: Well, it's hard to -- I mean, 13 the bill is pretty specific, you know, in regards to 14 the issue of moving it from BOE to -- to -- the bill 15 is very -- pretty specific in regards to moving it 16 from BOE to Department of Finance. 17 I think that the background of all this is 18 the fact that we don't like the whole system. And I 19 think there needs to be a deal with that. I 20 don't -- I think individually or as a group or 21 however we want to deal with it -- moving it or 22 going back to the old form is certainly something I 23 think we can be supportive. 24 But this just says, 25 "Hey, if the process is going 26 to continue -- if the gas swap is going 27 to continue, the Department of Finance 28 is a better place where this happens." 77 1 Simply because it only gives, I think, 2 the public an illusion that we actually have control 3 over something, when we really don't. 4 And that's -- put it over there, but let's 5 work behind the scenes and do what we can do to 6 change it. 7 So, the motion is still -- it's hard -- I 8 don't know what it would be to support the bill in 9 concept 'cause the bill is so specific in regards to 10 what it wants to accomplish. 11 MS. MA: Okay. So, let's put up for a 12 vote. 13 Ms. Richmond, you want to call the roll? 14 MS. RICHMOND: Ms. Ma. 15 MS. MA: Aye. 16 MS. RICHMOND: Mr. Horton. 17 MR. HORTON: I pass -- abstain. 18 MS. RICHMOND: Pardon me? 19 MR. HORTON: No. 20 MS. HARKEY: I'm abstaining. 21 MS. MA: They're both abstaining -- 22 abstain, abstain. 23 MR. HORTON: No, mine -- 24 MS. MA: You're no? No. 25 MS. HARKEY: Mine will be a no too then. 26 MS. RICHMOND: Ms. Harkey. 27 MS. HARKEY: No, I don't -- 28 MS. RICHMOND: Ms. Harkey, you're no? 78 1 MS. RICHMOND: Mr. Runner. 2 MR. RUNNER: Aye. 3 MS. RICHMOND: Ms. Stowers. 4 MR. RUNNER: Aye. 5 MS. STOWERS: Clarification, we're talking 6 sponsoring the bill? 7 MS. MA: Supporting. 8 MR. RUNNER: The motion was to support. 9 MS. MA: Support. 10 MR. RUNNER: Excuse me, the motion was to 11 sponsor. 12 MS. MA: Oh, sponsor? 13 I'm good with sponsoring. 14 MR. RUNNER: So -- 15 MS. STOWERS: Just -- 16 MR. RUNNER: -- but, actually, you know -- 17 well, we're in middle of a vote. 18 MS. STOWERS: The motion is to sponsor? 19 MR. RUNNER: Yes. 20 MS. STOWERS: I'm -- I'm a no for 21 sponsoring. 22 MR. RUNNER: I hear you. I get you. 23 So, cast the vote. 24 MS. STOWERS: So, no. 25 MR. HORTON: Members, I would make a 26 substitute motion to -- to support the bill in -- 27 MR. RUNNER: I'll second, if that's what it 28 is you want. 79 1 MR. HORTON: -- I'm sorry, Members. 2 I mean the motion would to be to support 3 the bill in -- and I still believe support the bill 4 in concept, because I think it's a debate and 5 discussion that needs to take place. And it serves 6 as a catalyst or a stimulus to have that discussion 7 about this needs to be fixed. 8 For that purposes, I think we -- you know, 9 it's hard not to when I've got two of my colleagues 10 moving, so -- 11 MS. HARKEY: I would like to offer a 12 substitute motion to that. 13 The vote -- 14 MR. HORTON: Nobody seconded mine. So, 15 roll it out. 16 MS. HARKEY: -- okay. I'd like to offer a 17 substitute motion that would support the bill, 18 providing there is a provision for a sunset clause 19 to be amended into the bill on the -- on the gas tax 20 swap. 21 MR. HORTON: Oh, same thing. 22 MR. RUNNER: Well -- 23 MS. HARKEY: Otherwise, the concept -- 24 MR. RUNNER: -- the difficulty with that is 25 that -- 26 MS. MA: -- is to work with the author. 27 MS. HARKEY: Yeah, we do. 28 MS. MA: Well, we can work -- okay. 80 1 So, why don't we just work with the author 2 and see whether can address some of the concerns 3 here and then bring it back next month? 4 How's that? 5 MR. RUNNER: Yeah, let's do that. 6 MS. HARKEY: Okay, all right. 7 MS. MA: Next bill, Ms. Pielsticker. 8 MS. PIELSTICKER: Excuse me, the next bill 9 is SB 480 by Senator Pan. 10 Under existing law personal property used 11 in a trade or business is subject to property tax. 12 The assessor values the personal property each lien 13 date at its current fair market value. 14 Personal property intended for rent in the 15 regular course of business, such as heavy equipment, 16 that is not rented on the January 1 lien date, is 17 exempt from taxation for the upcoming fiscal year, 18 which is July 1st to June 30th. 19 That property is regarded as exempt 20 business inventory on that particular day, even if 21 the property is rented in the regular course of 22 business for the other 364 days of the year. 23 This bill, in lieu of personal property 24 tax, imposes a .75 percent tax on a renter of 25 qualified heavy equipment and requires the BOE to 26 administer the tax. 27 MS. MA: We have no speakers on this. 28 Members. 81 1 MS. STOWERS: Chairwoman. 2 MS. MA: Ms. Stowers. 3 MS. STOWERS: So, this would be a new tax 4 program for us? 5 MS. MA: Yes. 6 MS. STOWERS: Do we have costs of 7 implementing a new program? 8 MS. PIELSTICKER: We would have significant 9 costs to implement and administer the program, but 10 we don't have those costs identified at this time. 11 MS. STOWERS: I'm concerned with 12 implementing a new program at this time with the 13 discussion of tax reform. 14 I'm also concerned with not knowing the 15 cost to implement. 16 MS. MA: I'm wondering if we have any 17 estimates on the loss of revenues due to the current 18 way that these properties are assessed and whether 19 we have any revenue estimates based on this new 20 method, potentially, in terms of collecting tax 21 as -- as we go? 22 MS. PIELSTICKER: I guess we do. The 2013 23 legislative analyst's office report suggests that 24 property tax on rental equipment would like generate 25 between 20 million to 25 million annually. 26 And revenue from the proposed tax in fiscal 27 year 2016-17 is estimated to be about 22.8 million. 28 So, in terms of just revenue it's fairly 82 1 neutral. 2 MS. MA: Meaning this new -- if we -- if we 3 assessed the .75 percent -- 4 MS. PIELSTICKER: If we substituted the 5 current system for the -- 6 MS. MA: -- existing one, it would bring in 7 approximately $22.8 million? 8 MS. PIELSTICKER: Correct. 9 MS. MA: But we don't know how much it 10 would cost to administer the program on our side? 11 MS. PIELSTICKER: That is correct. 12 And just for clarification, the BOE usually 13 will do a very rough range of costs when the bill is 14 in the first house, and then a detailed cost 15 estimate is done in the second house. 16 Given the extensive resources that are 17 required internally to put together a cost estimate, 18 we want to make sure that the bill will proceed to 19 the second house before spending those resources to 20 do a detailed cost estimate. 21 MR. HORTON: Madam Chair, my other concern, 22 Members, is that we're shifting from property taxes 23 to sales taxes and they have two different pots that 24 they drop the revenue into. 25 And, so, we're faced with -- especially 26 given that the revenue is so closely similar -- 27 we're faced with this whole equalization and swap 28 thing to make sure that the local municipalities who 83 1 benefit from property taxes are kept whole because 2 the sales tax goes directly into the general fund. 3 And, so, there's a question about how do we 4 back fill the negative impact on local government? 5 I understand they attempt to do that, but, 6 if, in fact, there is a baseline for revenue for the 7 local government and that changes by virtue of just 8 the industry changes -- and God willing and the 9 creek don't rise, we become a manufacturing state 10 again -- then that would be a concern as well as 11 keeping the Board of Equalization whole as it 12 relates to our administrative costs as well. 13 And then is the shift of responsibilities 14 from the County Assessor to the Board always creates 15 some concerns as well. The concern is is that there 16 is a pay differential which exists between our 17 assessors -- oh, no, that's not the case here -- 18 strike that. 19 Yeah, it's just -- my overall concern is 20 making sure that local government remains whole, the 21 Board of Equalization remains whole. And if this is 22 truly a more efficient way to do so, then 23 theoretically the revenue would be there to 24 accomplish those objectives. 25 MS. MA: Mr. Runner. 26 MR. RUNNER: I mean, I'm -- again, if 27 indeed there -- make -- there is a policy sense for 28 how to re-do how it is that this equipment is taxed, 84 1 that's fine. And that makes sense. 2 The only issue that I'm concerned about is 3 that if it puts the burden back on the BOE to have 4 to do that, we should be -- our costs should be 5 fully covered. 6 So, I think that that would be my concern 7 with the bill and, that is, before, I think, we 8 should support or sponsor, whatever we're going to 9 be doing, I'd hate for us to be again supporting a 10 bill that then inadvertently we end having a cost 11 due. And we've got to figure out how to pay for it. 12 I think our language ought to be very 13 clear. We'll support the bill if, indeed -- and 14 again if that's the desire of the Board -- just 15 because it makes sense in regards to a tax policy 16 discussion. But we need to make sure that our costs 17 are fully covered in that process. 18 MS. MA: Ms. Pielsticker, was there any 19 discussion about the equalization between the local 20 and the State now because of this change in 21 collection? 22 MS. PIELSTICKER: Well, what would occur 23 would be that we would administer the tax and then 24 allocate it back to the locals. 25 MS. MA: Based on what? 26 MS. PIELSTICKER: Based on how we currently 27 allocate -- pardon me, I will have to get back to 28 you on that. 85 1 MR. HORTON: So, I think a portion of this 2 would be sort of treated as a -- as a transit tax or 3 a local tax, wherein -- which, quite frankly, I have 4 some constitutional concerns about, but, you know, I 5 would leave that up to the Legislature and somehow 6 allocate a portion back. 7 The concern is that a shift in -- a shift 8 in industry in those percentages can very well 9 change if the market changes itself and cause local 10 government to get less than what they would have 11 been if they'd kept the program at the assessors' 12 level and the inherent challenge of having, 13 basically, a fundamental local program -- local tax, 14 local assessment -- not have the benefit of the 15 local -- local control, when, in fact, there is no 16 statewide concerns. 17 When there is a statewide concern, I 18 believe, you know, the State should engage and see 19 if we can come up with a statewide solution. 20 MS. MA: Any other questions? Okay, do I 21 hear a motion? 22 No motion. 23 Okay, let's move on to the next one. 24 MR. RUNNER: Let me, just for 25 clarification, again just so that we understand what 26 our role is in the process, right now as the bill 27 moves forward, it actually has a responsibility for 28 the BOE, right, in it -- within it? 86 1 MS. PIELSTICKER: Right. 2 MR. RUNNER: And, so, one of the -- one of 3 our engagements, even though we don't take a 4 position on this bill, is that the engagement from 5 the BOE and from your office then is help them 6 understand our costs. 7 And we continue to give them language and 8 those kinds of issues in regards to -- to the bill, 9 how it would be implemented, how it could be 10 implemented successfully -- even though we don't 11 take a position on the bill, correct? 12 MS. PIELSTICKER: That is correct. 13 MR. RUNNER: Okay, thank you. 14 MR. HORTON: Member Runner, we could make a 15 motion to request that amendment. 16 MR. RUNNER: I think we -- that's our 17 normal procedure. That's our normal process. 18 MS. PIELSTICKER: That is our normal 19 process. And if you like, I could describe the 20 types of costs that would be tallied. 21 MR. RUNNER: In this bill? 22 MS. PIELSTICKER: The types of costs that 23 the BOE -- 24 MR. HORTON: We would -- 25 MS. PIELSTICKER: -- would incur. I don't 26 have a number, but I could explain -- 27 MR. RUNNER: I don't need any more 28 discussion on this bill. 87 1 I'm just saying in general I think it's 2 good for us to understand that we are going to 3 engaged in this bill. 4 MS. PIELSTICKER: Yes, we will. 5 MR. RUNNER: Okay. 6 MR. HORTON: All right. 7 MS. MA: Okay, so, let's keep moving on. 8 The next bill, Ms. Pielsticker. 9 MS. PIELSTICKER: The next bill is AB 1157 10 and SB 661. 11 AB 11 -- 12 MS. MA: A number of speakers? Please come 13 up and do we have enough spots? 14 Okay, thank you very much. I'll have the 15 guests introduce themselves before they speak. 16 Ms. Pielsticker, if you could please read 17 the items and give your introduction. 18 MS. PIELSTICKER: Yes, AB 1157, Nazarian, 19 would extend for five years the existing aircraft 20 valuation methodology with the lead County system 21 used to assess aircraft. 22 And SB 661 would transfer the assessment 23 responsibility for commercial air carrier-owned 24 personal property from local County assessors to the 25 State of Board of Equalization. 26 It also specifies that aircraft presence in 27 California will be measured in the second full week 28 of January. 88 1 MS. MA: Okay. So, who -- how you do we 2 take them? 3 Should we do SB 661 first? Or how do 4 you -- there is two bills, right? 5 So, let's go AB 661. Who's here to speak 6 on AB 661? 7 Eric Miethke, Tim Taylor, Kathryn Rees and 8 Marc Tonnesen is who I have. 9 So, Eric or Tim? 10 ---oOo--- 11 TIM TAYLOR 12 ---oOo--- 13 MR. TAYLOR: Yeah, hi. Tim Taylor 14 representing Airlines for America, which is the 15 major association of legacy carriers in the country. 16 We are seeking essentially to swap out the 17 current lead County system. We believe it is 18 dysfunctional and not working properly. 19 And we are -- of course, we believe that 20 part of the problem stems from not the system 21 itself, as the way it was created, but the way it is 22 currently being administered. 23 Right now there are 45 pending lawsuits 24 that apply to what we believe is the misapplication 25 of the economic obsolescence deduction, which is 26 mandated by statute. 27 This is not countenanced in SB 661, the 28 economic obsolescence deduction, but it is a driver 89 1 and a motivating factor in why we are seeking to go 2 to a centralized environment in the BOE. It has 3 caused a lot of consternation within the industry. 4 I want to also state that in no way are the 5 airlines in 661 -- and we are the sponsors of the 6 bill, by the way -- we're not in any way seeking any 7 reduction in our tax obligation whatsoever. 8 We are simply seeking predictability, 9 efficiencies and to streamline the process. 10 And with that I'd like maybe, perhaps Eric 11 Miethke to add. 12 ---oOo--- 13 ERIC MIETHKE 14 ---oOo--- 15 MR. MIETHKE: Good morning, Madam Chair and 16 Members, Eric Miethke of Nielsen Merksamer 17 representing Airlines for America as well. 18 Just quickly, a couple of things, I am here 19 primarily to answer any questions that you might 20 have on the legality or constitutionality of SB 661. 21 I can tell you quickly, I've looked at 22 it and Leg. counsel has looked at it and agrees that 23 the -- at least one, if not two sections of the 24 constitution that would allow the Board to or the 25 Legislature to assign this assessment responsibility 26 to the Board. So, we think it is fully 27 constitutional to do so. 28 Adding on to that, I would submit that the 90 1 Board of Equalization is the appropriate place for 2 this to be done. The Board has great familiarity 3 with mobile transportation equipment. They assess 4 railroads. And they assess private rail cars -- 5 similar problem, tangible personal property 6 moving -- moving in multiple jurisdictions, how do 7 you come up with a value for that? 8 The Board, I think, maybe uniquely 9 qualified to do that. 10 And just the one third and final point in 11 passing, that most other states do centrally assess 12 aircraft fleets. California is the outlier at this 13 point. Many -- many states consider them to be a 14 full utility and label them as such. So, just that 15 is a final thought. 16 So, that's additional reasons why we are in 17 support of the bill. And I'm here to answer, again, 18 any questions you may have on the legal side of 19 it. 20 MS. MA: Ms. Rees. 21 ---oOo--- 22 KATHRYN REES 23 ---oOo--- 24 MS. REES: Kathryn Rees with Public Policy 25 on behalf -- sorry, Public Policy Advocates on 26 behalf of Southwest Airlines. 27 I'm mostly here to answer questions, but to 28 assure you that we are very supportive of the Board 91 1 of Equalization being the central repository for 2 assessment. 3 California is one of four states that 4 differ from the rest of the country. Three of those 5 other states have but one airport. Obviously, we 6 have many more than one airport. 7 We're looking for predictability, 8 reliability, uniformity and efficiencies. When we 9 are talking about the filing of multiple suits, the 10 kinds of suits that are going on right now, they are 11 not just Southwest. They're United. They're 12 American. They're Envoy -- I'd never heard of that 13 airline before. They're Sky West. They're Air 14 Tran, which is now part of us. 15 So, when we've had to file, we file in 16 multiple jurisdictions. They've now been 17 consolidated and will be heard in Orange County. 18 But they all relate to the obsolescence 19 application during the years of 2002, I want to say, 20 through 2009. There were two years in there where 21 the obsolescence formula would not have applied 22 legitimately, but then along came 2009. So, that is 23 the year that we are looking at right now. 24 So, we really -- in the end, we view this 25 kind of an exercise to be very costly for counties, 26 to be very costly for airlines. It would be nice to 27 be able to go one place and articulate whatever 28 concerns and issues we have, appeals where we need 92 1 to appeal, litigate where we need to litigate or be 2 able to rely on one entity that can assess us 3 accurately and according to those -- that language 4 prescribed by law. 5 So, for those reasons we are strongly 6 supporting this measure. 7 MS. MA: Okay, Mr. Tonnesen. 8 ---oOo--- 9 MARC TONNESEN 10 ---oOo--- 11 MR. TONNESEN: Good morning, Board Members, 12 and I appreciate the opportunity to speak. 13 Marc Tonnesen, I am the current President 14 of the California Assessors' Association and the 15 Solano County Assessor. 16 With me today is Neil Najjar, with the LA 17 County Assessor's office. And he would be able to 18 provide technical assistance. 19 The CAA opposes this bill. We feel the 20 proposed move of airline assessments to the BOE is 21 unnecessary and not in the best interests of the 22 State or local governments. 23 Some of our concerns with this bill include 24 it eliminates the lead County program, which 25 provides consistency and simplification and has 26 served the industry and assessors for well over ten 27 years. 28 The bill eliminates mandatory audits. 93 1 These audits have, in recent years, identified 2 millions of dollars in additional taxable property 3 that had not been reported to assessors. 4 Third, the bill does not proscribe a 5 valuation methodology. The lack of a methodology 6 will introduce fiscal uncertainty for the local 7 recipients of property tax revenue. And there is no 8 predictable expectation of how the values of the 9 airline property will be assessed. 10 And, lastly, the bill would set a new 11 precedent for the assessment of personal property in 12 California. 13 No other form of business personal property 14 is treated in this manner. This would set a poor 15 precedence and it would beg the question, what 16 should -- what shouldn't the personal -- the 17 personal property of other businesses with a 18 statewide presence be assessed by the Board of 19 Equalization? 20 We ask your Board to join us in opposing 21 this bill. And, again, Mr. Najjar is in the 22 audience should you have technical questions. 23 Thank you. 24 ---oOo--- 25 26 27 28 94 1 ---oOo--- 2 MS. MA: Okay. Questions, Members? 3 Oh, staff? Any staff rebuttal or -- 4 MR. HORTON: Present? 5 MS. PIELSTICKER: Oh, I -- 6 MS. MA: I think she just presented. 7 MS. PIELSTICKER: I presented. 8 MR. HORTON: Oh, sorry. My apologies. 9 MS. HARKEY: I'll start. 10 MS. MA: Okay. Ms. Harkey. 11 MS. HARKEY: I hear -- my -- my confusion 12 with the opposition from Los Angeles County is 13 why -- what differs, this sort of method of 14 transportation, from other methods of transportation 15 that cross county lines such as railroads? I 16 understand it's not on a fixed property, but you're 17 still going from airport to airport to airport, all 18 within the State of California. What -- what 19 differs? What -- what makes this different from 20 other transportation such as -- 21 MR. TONNESEN: And I would need to defer to 22 Mr. Najjar on that question. He's in the 23 audience. 24 MS. HARKEY: Sure. 25 ---oOo--- 26 NEIL NAJJAR 27 ---oOo--- 28 MR. NAJJAR: Good morning. I'm Neil 95 1 Najjar, again with Los Angeles County Assessor. 2 I don't have to acknowledge to answer that 3 question, but I would say it's not deemed a public 4 utility in the State of California. And by Revenue 5 and Taxation Code, it's assessed as "all other 6 personal property" currently. 7 MS. HARKEY: Right, I understand. I think 8 that's what this is trying to change, this bill's 9 trying to change. 10 I'm -- I'm just really confused as to why 11 we wouldn't do this at the Board. We do have 12 multiple counties involved. That was our -- that 13 was our whole purpose back in the 1800s for why we 14 were made a board, was to equalize assessments 15 between the counties on property tax. 16 This would seem to me to have -- follow 17 along the same lines as a railroad, as cable, yeah, 18 and -- and other items that are -- that we're 19 currently dealing with that county by county by 20 county there are issues with. 21 The litigation process is always a concern 22 for me. 23 MR. NAJJAR: You know, I'd like to just -- 24 MS. HARKEY: The -- sure. But the county 25 courts are affected by this because you're filing in 26 multiple counties and we're constantly being 27 apprised of the lack of court funding, trial court 28 funding. So you're constantly filing motions and 96 1 other things. And then it eventually gets 2 consolidated in one county, or it did in this point, 3 and the county itself. 4 So, if you could address some of those 5 concerns. 6 MR. NAJJAR: Two things. This has -- this 7 process has already came about in 2005. And back 8 then we had this issue with 9/11 and the 9 inconsistencies of the valuation from county to 10 county. And that's where the -- the concept of a 11 lead county came about. And it addressed a lot 12 those issues because back then this property was -- 13 the industry did propose to go to the State. And we 14 came up with this concept of a lead county to where 15 values would be consistent statewide. And it has 16 worked -- had great success, in my opinion, for the 17 last decade. 18 In regards to the -- you know, the 19 inconsistencies from county to county, that really 20 eliminated that process because now in the process 21 all values that are applied to airlines county by 22 county statewide are equalized. We have a 23 centralized fleet concept and everything's valued 24 equally. 25 From the litigation side of it, you know 26 even if it does go state-assessed, the counties are 27 still obligated to assess other property, like 28 possessory interest and real property. They will 97 1 not eliminate that burden. The taxpayers will have 2 to file in each county as well. 3 MS. HARKEY: Okay. To the opposition or 4 the supporters. 5 MR. MIETHKE: And I apologize, I'm still in 6 the midst of a pretty bad cold, so I apologize. 7 MS. REES: You better not give it to me. 8 MR. MIETHKE: Okay then. 9 Should be the least of your worries. 10 The -- let me just respond to a few of 11 those. There's a little bit of revisions history, I 12 think, here. Going back, way back before the bill 13 that changed to the lead county system, you had 14 multiple counties assessing the same fleet of 15 airplanes. 16 In other words, if it was a single carrier, 17 like Southwest, the same airplane fleet would be 18 assessed in every county in which they landed, in 19 essence. That was completely crazy. 20 MS. REES: Differently. 21 MR. MIETHKE: So what we proposed 22 originally was, again, to have the Board essentially 23 assess that because it made sense to do with -- 24 because every county, in essence, has to have a full 25 appraisal staff to assess the same fleet of 26 airplanes, which makes no sense at all if you're 27 trying to effect any sort of efficiency in 28 government, right? Why have multiple staffs in 98 1 multiple cities, in essence valuing the same 2 airplanes for the same -- for the same property 3 owners? 4 Well, now, you have different problems 5 introduced by a lead county system. I think there 6 was some willingness to give it a try, that was part 7 of an overall effort to try to -- to come to a 8 compromise at least to see how it would work. The 9 theory was -- is that you would have a lead county 10 who, at least as to any one carrier, would assess 11 that fleet for that one carrier. But you still have 12 multiple counties doing different fleets for 13 different carriers. 14 So, again, you still have that multiple -- 15 multiplicity of staff at the local level all, in 16 essence, doing the same thing. It could easily be 17 centralized and -- and centralized in a single step. 18 And moreover, you get improved uniformity because 19 you have the same people looking at differences 20 between airlines, between air carriers, where you 21 don't have that under the -- under the lead county 22 system. 23 So there -- this -- the version of why the 24 system came into being that we have today will be 25 perhaps forever shrouded in some mystery. But I 26 will say that the arguments in favor of 27 centralization, I think, are indisputable. 28 You do have -- your staff does have 99 1 familiarity with very complex properties and, again, 2 mobile transportation equipment of this type. And 3 so it would seem to me that that's a good reason to 4 go forward. 5 MS. REES: If I might add, too -- 6 MS. HARKEY: Yes. 7 MS. REES: -- adding onto what Mr. Miethke 8 said, many of us worked very hard, through the good 9 offices of Chairman Horton ten years ago, to really 10 try this great experiment to see if it could work, 11 how it would unfold, and then later with Ms. Ma with 12 the sunset. 13 We've arrived at a point now that, at least 14 from the standpoint of the company I represent, they 15 are looking for a system that is simpler. They are 16 not engaged in tax avoidance at any level, but they 17 want a simpler, less costly system by which to 18 conform to the tax obligations here. 19 So when I talk to my tax guy or who 20 represents Southwest, his -- the greatest 21 frustration he articulates is, good heavens, we have 22 this disagreement. We believe that the formulas for 23 a period of time were not applied correctly. You go 24 through this appeals stuff, then you have to file in 25 every single county that you fly. So hence, you end 26 up with 42 or 45. 27 Would it not be simpler to have to report 28 taxation to one entity and then, if there's a 100 1 dispute, file once? You come to the same hearing. 2 You come to the same outcome, but you don't have to 3 expend extraordinary manpower and hours and 4 attorneys' fees and venues in an attempt to arrive 5 at whatever outcome. 6 I mean, we absolutely really are focused on 7 efficiency, uniformity of application, adherence to 8 whatever the tax law is going to be, in a way that 9 is efficient for you who collect, as well as for we 10 who pay. 11 MS. MA: Mr. Najjar. 12 MR. NAJJAR: I'd like to just comment on 13 the -- the lawsuits that they've mentioned on 14 several occasions. 15 You know, back in 2005 when the Horton bill 16 went through, there was an adjoining settlement 17 agreement, a statewide settlement agreement. And 18 the purpose of that agreement was to settle all 19 outstanding litigation from the effects of 9/11 up 20 to 2004. And that was executed by all affected 21 counties statewide, as well as all air carriers 22 statewide. 23 And within that agreement was language that 24 detailed the calculations that were prescribed in 25 statute and what was essentially, you know, executed 26 and, you know, agreed to by industry. 27 And that process has worked for over ten 28 years. And last year they filed -- most of their 101 1 filings, legal filings, are claim for refunds in 2 counties because they didn't administer their, you 3 know, process through the county appeals system. 4 They only filed in one county, in our county, and 5 they were denied at the Board. And I think it's 6 just an exercise to try to support their cause to go 7 to the State, in my humble opinion. 8 MS. REES: We would respectfully disagree. 9 And in our particular carrier's case, the settlement 10 had to do with embedded software as you recall. 11 MR. NAJJAR: Mm-hmm. 12 MS. REES: And it had nothing to do with 13 anything else. 14 MS. MA: Okay, thank you. We can talk 15 about lawsuits after. 16 I think Mr. Runner has some questions. 17 MR. RUNNER: I'll -- I'll go ahead and 18 first start with a motion to sponsor this bill. 19 MS. HARKEY: I'll second. 20 MR. HORTON: I would -- 21 MS. HARKEY: Oh, go ahead. 22 MR. HORTON: I would be supportive of that 23 but would like to -- 24 MR. RUNNER: Yeah. And then let me make a 25 couple comments real quick. 26 In regards to the discussion of personal 27 property in regards to what the BOE does, let me 28 just go to Mr. Thompson real quick. 102 1 Private rail cars that we do, personal 2 property? 3 MR. THOMPSON: Yes. 4 MR. RUNNER: Okay. So we do do some 5 personal property already. I think we need to kind 6 of get that clear, that this is -- that's not a new 7 involvement that the Board has. 8 You know I think -- I think the issue of 9 continuity makes sense. I think it is confusing at 10 times; I think the lawsuit issues point that out. 11 And, you know, I do believe that we have both the -- 12 again, if you go back and look at when our -- when 13 we do assessed properties, again, it moves pretty 14 smoothly. You don't see a lot of appeals. You 15 don't see a lot of issues. 16 And so I think at that point we -- I think 17 that indicates that we do it pretty good and we do 18 it with some pretty good -- pretty big players out 19 there. And so I think that -- I think that 20 indicates I think we've got both the capacity and 21 the track record, I think, to -- to do it 22 efficiently and effectively. 23 MR. HORTON: Madam Chair. 24 MS. MA: Mr. Horton. 25 MR. HORTON: Thank you, Madam Chair. 26 I'm supportive of it conceptually because 27 of the experience that we had ten years ago in 28 trying to negotiate a settlement of those lawsuits, 103 1 the outstanding lawsuits. It, you know, was a 2 laborious process to bring all the players to the 3 table and try to figure that out. And we currently 4 have these multiple lawsuits and these concerns 5 which -- which tells me that we have to sort of try 6 to figure out a way to bring some resolution to 7 those issues. And I think the legislative process 8 is probably the best place to do that. 9 But in saying that, it concerns me that 10 there is no formula in the bill. And there should 11 be something prescriptive to make sure that the 12 State is kept whole theoretically. It's not a 13 question. Theoretically. 14 The mandatory audits, I think, you know, 15 is an -- is an issue that needs to somewhat be 16 addressed in the valuation methodology, which is 17 similar to what we went through before. It's 18 nothing new, but it's currently not necessarily in 19 the bill. 20 The other concern is just the historical -- 21 I mean the reality of the cost of administering and 22 shifting the cost again from the county to the Board 23 of Equalization. Being understanding of something 24 I'd like to address, but maybe not in this bill, is 25 the parity issue as it relates to the compensation 26 to our appraisers and the compensation of the county 27 appraisers is much higher, so it's going to be 28 really difficult to recruit adequate folks and so 104 1 which creates a learning curve issue as well as a 2 cost issue as it relates to PYs for the State. 3 Which inherently, we need to make sure that we 4 recoup that administrative cost because it's not 5 something we can absorb. And I don't think that 6 either party wants to add additional revenue to the 7 equation. 8 And shifting from the county, by virtue 9 that the State has no jurisdiction over the county, 10 we can't absorb their staff. Their staff is going 11 to continue to work on different things even though 12 they're not working on this. And the only way to do 13 that is to incorporate that somewhat in the bill. 14 But this is one of those issues even -- I 15 mean when -- when Member Ma was carrying the bill, 16 it took a real statesman to address all of the 17 different issues out there. I remember her going 18 through that process and doing a yeoman's job in 19 that regard. 20 And so, all of that says to us that if you 21 have -- says to me rather, you have these lawsuits, 22 you have these disputes by virtue that you're here, 23 you have a Cool Hand Luke situation. And I may be 24 aging myself. But what Cool Hand Luke said was, 25 "What we have here is a failure to communicate." 26 And the place to try to get this done, hopefully, is 27 in the Legislature. 28 But with those caveats, I would be 105 1 supportive of continuing the conversation. 2 MS. MA: Ms. Stowers. 3 MS. STOWERS: Well -- 4 MR. HORTON: And -- and my apologies. 5 Madam Chair, if I may. This is not an LA issue by 6 the way. 7 MR. NAJJAR: No. 8 MS. REES: Yeah. 9 MR. HORTON: This is all these counties. 10 MS. STOWERS: It sounds to me originally 11 you guys were communicating with this lead county 12 assessment -- lead county system. That method was a 13 step in the right direction of communicating. But 14 for some reason there's a breakdown of communication 15 right now. That's just my observation. 16 But that being said, I'm not in a position 17 to agree with support or sponsor. 18 MS. MA: You're not in a position? 19 MS. STOWERS: Not. 20 MS. MA: Okay. I do have a couple 21 questions. For some of us who are new here, perhaps 22 someone on staff can kind of take us to -- from 1879 23 where we assessed flumes, railroads -- what were the 24 other four? -- aqueducts. Help me someone. There 25 were like four things that were in the initial 26 statute to today, where now the State is the State 27 Assessee for certain type of assets. 28 Who can tell me what the State currently is 106 1 assessing, the BOE, as the State Assessor? 2 MR. THOMPSON: Okay. We -- we assess 3 pipelines that cross county lines. In addition to 4 those types of properties, we also assess electric 5 generation facilities that are -- that are -- fall 6 under the definition of "qualified." And then we 7 assess all the property, certain kinds of companies 8 that are numerated in the Constitution, Article XIII 9 Section 19, which are gas and electric companies, 10 telephone companies, regulated railroads, private 11 car companies. 12 I think I've -- I've -- also wireless 13 telephone companies. So everything that falls under 14 the definition of telephone. 15 MS. MA: And the law has evolved because 16 these assets cross multiple county lines, or what is 17 the -- 18 MR. THOMPSON: Actually -- actually if 19 we -- historically, if we go back to the 1930S when 20 regulation became the policy across the United 21 States where the regulatory bodies like the 22 California Public Utilities Commission became 23 enabled to -- to regulate electric and telephone -- 24 and not only regulate but also make sure that they 25 were able to be spread out across the State where 26 they were needed. That is when the assessment of 27 these types of companies went away from a gross 28 receipts tax and became a situs base tax with the 107 1 Board of Equalization. Because to ensure 2 equalization across the State with one filing, with 3 one place to go for administration, it just -- it 4 just made sense. 5 There are other States that don't do it 6 that way; Texas and Florida are -- are good examples 7 of that, and they have a much more problematical 8 administration metric than California does. 9 MS. MA: And what types of mandatory audits 10 do these companies have that are assessed by the 11 BOE, state-assessed? 12 MR. THOMPSON: We do not have a mandatory 13 audit statute for state-assessed property. 14 Historically, we only started to audit these 15 companies in 1977, 1978 with a Budget Change 16 Proposal that allowed us in the -- what was then the 17 Valuation Division to start auditing these 18 companies. 19 And some of these companies -- we have an 20 audit staff, we do audits. Some of these companies 21 don't require audits within the period. It just 22 would not be economically feasible to do that 23 because the return is not there. They are audited 24 by other agencies and -- and we haven't found that 25 be to productive. 26 However, we do audits, they're just not 27 mandatory. And -- and we try to take our audit 28 resources and apply them where they're most 108 1 effective, to make sure that the counties get all 2 the revenue that they are -- that they're entitled 3 to, but also to ensure that the companies are 4 reporting properly. And some companies report -- 5 overreport because they're just not conversant with 6 California tax law. 7 MS. MA: And then how many airports do we 8 have now and in how many counties in California? 9 MR. TAYLOR: About 28 major commercial 10 airports. 11 MS. MA: How many counties? 12 MR. TONNESEN: 15 -- 13 MS. REES: I don't know. I'd have to count 14 them on my fingers. 15 MR. TAYLOR: 11? 16 MR. NAJJAR: It's 11, 12 counties. 17 MS. MA: 11 or 12. Okay. Those are my 18 questions. 19 Any other? No questions? 20 So there was a motion and a second. 21 MS. RICHMOND: Ms. Ma, excuse me. 22 MS. MA: Yes. 23 MS. RICHMOND: I've just been informed that 24 we just received a letter from American Airlines and 25 we're making copies for the Members and the staff. 26 MS. MA: Okay. 27 MR. RUNNER: Good to know. 28 MS. MA: Good to know. 109 1 MR. NAJJAR: One comment I'd like to 2 make. 3 MR. HORTON: Madam Chair. 4 MS. MA: Yes, Mr. Horton. 5 MR. HORTON: Let me just ask, is there a 6 solution to this? I know the solution is 7 centralized -- 8 MR. MIETHKE: Yes. 9 MR. HORTON: -- and I get it. And I get 10 the cost savings and all of that other issue. I 11 also understand the concerns that -- that have been 12 addressed. 13 The lead agency program, I'm under- -- I'm 14 hearing that it's not working, you know. And so 15 what's the problem? 16 MR. TAYLOR: What is the problem with the 17 lead county system? 18 MR. HORTON: Right. 19 MR. TAYLOR: Well, the -- the problem is 20 the administrative appeals process, the problem is 21 mandatory deductions not being made in compliance 22 with -- with the law. There are -- 23 MR. HORTON: Redundancy, the 24 inconsistency. 25 MR. TAYLOR: The redundancy, the 26 inefficiencies. All of those kind of things, I 27 think, really put an anvil around the lead county 28 system at this point the way its being 110 1 administered. 2 MR. HORTON: County assessors, how do you 3 fix that? 4 MR. NAJJAR: I mean, I'd -- I -- in my 5 opinion, the lead county concept did correct that. 6 The statutory language states that an airline can 7 file all their statements to the lead county. It's 8 in statute. And they choose not to use that. They 9 actually file in every county. But a air carrier 10 that comes -- flies into California and can file all 11 their statements, ground property, etcetera, into 12 the lead county. 13 Now, keep in mind, that an airline that 14 flies into an airport just doesn't have aircraft. 15 They have ground property, leasehold fixtures, you 16 know, fuel, fuel, you know, storage facilities. So, 17 you know, I think it's a very complex property to 18 assess. And for it to go to the State, it will 19 still not take away the assessment liability from 20 the local county. They will still have to file 21 property in each county where there is a presence. 22 And I think that's the main point to be made here. 23 And the burden of it going to the State 24 would open up the possibility of -- of double 25 taxation because who's going to, you know, 26 communicate from the State to a local county in 27 each -- to each local county in the State as to 28 where -- what property should be assessed, what is 111 1 personal property, what is not. So it does open up 2 some issues as well. 3 MR. HORTON: Let me ask the industry -- 4 Madam Chair, let me ask the industry, is the 5 industry prepared to -- to develop a prescriptive 6 formula that addresses all these -- these issues? 7 I mean the ground property issue, to some 8 degree I think it's somewhat of a red herring, but 9 it does create -- it does create -- it is a 10 responsibility that doesn't go away, you know, 11 unless -- 12 The Board has dealt with this with the 13 railroad industry, and we came up with a very, very 14 prescriptive formula that was extremely tight. And 15 it made life a lot easier for everyone. And if that 16 prescriptive formula was applied to this particular 17 industry, then the assessors could simply just 18 follow that formula. 19 The -- the concern I have here is, is that 20 why not -- I mean, I -- I thought the law that was 21 done five years -- extended five years ago, ten 22 years ago, was good law and should have been 23 followed by everyone, which is part of my concern. 24 MR. NAJJAR: It absolutely was. And I 25 think that that lead county concept and what was 26 created was a prescribed valuation methodology at a 27 very conservative level, a valuation level of the 28 wholesale, you know, value level. 112 1 MR. HORTON: Not the interrupt you, but are 2 you guys prepared to come up with a prescriptive 3 formula that kind of narrows things down? 4 MR. TAYLOR: A prescriptive methodology, 5 we'd be happy to. The reason that we did not in 6 this bill -- we actually contemplated doing it 7 initially, exactly applying the prescriptive formula 8 that is currently in statute to you. We thought it 9 would be better if the BOE had a little more leeway 10 in determining what fair market value was. We think 11 that you're going to get to the same place, but we 12 didn't want to necessarily tie your hands in how you 13 got there. But we would be happy to do that. 14 MS. REES: To go back and -- 15 MR. MIETHKE: Are you -- 16 MR. HORTON: Just like we got these 17 concerns about the fuel tax swap and all of that, I 18 mean you've got a big house over there called the 19 Legislature. Let's have them come up with 20 something. 21 MR. MIETHKE: Well, if you -- Mr. Horton -- 22 and I may be misinterpreting what you're saying or 23 he may have been misinterpreting what you're saying. 24 Are you suggesting something more akin to what we 25 did with the railroad cars? 26 MR. HORTON: Yes. 27 MR. MIETHKE: The car day type of a tax? 28 MR. HORTON: Yes. 113 1 MR. MIETHKE: Where you're in essence 2 departing from the general notion of fair market 3 value and just coming up with more or less saying 4 this is how we're going to set the taxation of this, 5 period, and it's more formulistic than it is based 6 on -- 7 MR. HORTON: Well, I actually think -- 8 MR. MIETHKE: -- different indicators of 9 value? 10 MR. HORTON: My apologies. But I actually 11 think the current formula should work -- 12 MR. MIETHKE: Correct. 13 MR. HORTON: -- and is prescriptive enough. 14 And maybe some -- some -- some oversight of the 15 Board -- greater oversight of the Board of 16 Equalization to make sure that there is equalization 17 throughout the district and some means of mitigating 18 these lawsuits might, you know, might be more 19 effective. 20 But again, this is a dialogue that -- that 21 I really think ought to take place in the 22 Legislature which is why I'm supportive because 23 reasonable minds can disagree. And when you get 24 over there, you'll be able to deal with those 25 issues. And particularly when the Chairs of both 26 committees seem to share the same concerns, I doubt 27 if they'd let a generic bill get out of their 28 committee. 114 1 MR. TAYLOR: We'd be happy to support that. 2 And we -- we don't really mind the current 3 methodology. What we don't like is the sort of 4 unilateral decision to knowingly not apply it. So 5 even the existing formulation would work for us 6 within the rubric of central assessment. 7 MR. TONNESEN: And if I may, Mr. Horton, 8 earlier you asked for a solution to this. The 9 California Assessors' Association solution is your 10 next item, which is AB 1157 which basically extends 11 the sunset of the current statute. 12 MS. MA: Well, yes. 13 MR. RUNNER: Status quo. 14 MS. MA: I mean, we hear -- we see -- we 15 hear there's problems, right? I mean there's 28 16 major airports in 11 to 12 different counties; and 17 it's not being applied equally all the time, 18 otherwise we wouldn't be sitting here with 45 19 different lawsuits, right? 20 So something has to be done, is what I 21 think the Chair is saying, is in theory the concept 22 should be working but it's not working. And going 23 back and just, you know, supporting Nazarian to 24 extend the sunset with the same problems that are 25 going to continue is not really the solution, I 26 think is what he's getting at. 27 And so how is everyone going to get 28 together? And if this system is working, the 115 1 counties are applying it and we're not facing 2 lawsuits and time and energy, you know, disputing 3 what the lead county is doing if the lead county is 4 doing the thing that they should be doing in the 5 first place so that we don't have to sit here. 6 MR. TONNESEN: I understand. 7 MR. NAJJAR: Ms. Ma, you know, I think in 8 concept the current statute has worked. I mean, I'm 9 hearing from industry that they like the valuation 10 methodology. The only issue that has come up is the 11 economic obsolescence, and it is a very complex 12 read, even in the statute. And we have talked about 13 revising that portion of it. 14 MS. REES: Actually, for the record, we 15 would find the current methodologies to be something 16 that we agree to. They are not necessarily related 17 to fair market value. They are contrived. They do 18 take -- they take an airline or pricing guide that 19 was never intended to be a fair market value 20 assessment tool. 21 Other States do -- that do the APG, do APG 22 less 20 or APG less 30. We did agree to APG less 20 23 here, but that still is a price higher than what 24 most of us buy our fleet. It was not designed to be 25 a benchmark for fleet purchase. It's designed for, 26 you know, that rock star that wants to buy a 27 personal airplane. 28 It doesn't take into account other two 116 1 major factors -- or the three major factors that 2 normally go into fair market value assessment that 3 most people -- I mean, Member Ma, I mean you're very 4 familiar with general accounting principles. I'm 5 told by our tax people there are general assessment 6 principles that in the universe of assessment are 7 very accepted standards. 8 So what I'm saying is that we have two 9 methodologies that are built into the statute: One 10 we're not in love with but we accepted; the second 11 one was supposed to have been applied during times 12 of, I guess I would say, economic distress. Those 13 kinds of factors that impinge on our ability to do 14 what we do that are beyond our control. 9/11 was 15 not the only one of those factors. 16 We are finally just now coming into a cycle 17 where we're beginning to see the kinds of revenues 18 but still not what our expectations would be at a 19 time when we have massive debt in terms of fleet 20 replacement and environmental compliance and all 21 sorts of things. 22 So I -- I don't want there to be an 23 impression that somehow we've got some windfall tax 24 deal in this State. We don't. But we do and have 25 complied over this last decade. And where we're 26 very sorely distressed, some of it our -- we didn't 27 catch ourselves. But where we're sorely distressed 28 is the obsolescence which is the second of the 117 1 methodologies to be chosen, it's very formulaically 2 driven. You plug in numbers. You don't guess. And 3 if you plug in the right numbers, you'll get the 4 right answer. 5 The numbers that were plugged in were 6 incorrect for those years. 7 MR. HORTON: Madam Chair. 8 MS. MA: Mr. Horton. 9 MR. HORTON: I think I get this. You know, 10 we dealt with this issue with the utility industry 11 maybe about six years ago. And it's this concept of 12 economic obsolescence that maybe it's time that the 13 industry sort -- I mean that the -- that the 14 assessors take a look at the -- the economic 15 obsolescence that's just created by economic 16 pressures, not only 9/11 but the competitive 17 pressures and so forth which actually reduces the 18 cost or the valuation of an airline. 19 You know, a airplane is just not worth as 20 much as it used to be worth when you've got 21 increased competition alone, significant increased 22 competition, gas price, fuel prices increase and so 23 forth. 24 But -- and so maybe -- maybe that's the 25 crux of this issue. And as Madam Chair sort of 26 indicated, maybe you guys ought to fix that 27 somehow. 28 MS. REES: For us, first, is getting to a 118 1 place where filing is simpler, where executing is 2 simpler, where things are centralized and 3 streamlined. 4 MR. HORTON: Okay. 5 MS. REES: Then we start talking about 6 whatever else we need to talk about. 7 MR. HORTON: Mr. -- 8 Madam Chair, may I? 9 Mr. Thompson, can you come up with how much 10 it's going to cost us to -- to do this? 11 MR. THOMPSON: Well, the costing of this 12 is -- is dependent on if there's a formula, if 13 there's not a formula. I can tell you -- 14 MR. HORTON: I think everyone agrees 15 there's going to be a formula somewhere. 16 MR. THOMPSON: Okay. This -- I would -- 17 without more information from the county, I 18 couldn't -- the counties that are doing this right 19 now, I don't think costing would be -- would be that 20 much of a problem. My guess would be six positions, 21 that -- that based on what we're doing now and to 22 add another eight billion, $9 billion of value to 23 the roll and process it properly and allocate those 24 values back to the county, we're -- we're going to 25 need about six extra positions; that would be my 26 guess. 27 But historically, going back to 1995 before 28 we fixed the railroad problem, we lost 30 percent of 119 1 our tax that we collected to litigation. And 2 without a formula, it is really not a workable thing 3 for us -- 4 MR. HORTON: I get it. 5 MR. THOMPSON: -- to do. 6 MR. HORTON: Litigation increases. 7 MR. THOMPSON: But my -- but my big issue 8 is -- in putting this into place, would be 9 sufficient time to -- to find the people who would 10 come to work for us, train them. 11 MR. HORTON: We forget that. 12 MR. THOMPSON: At this -- at these salary 13 levels, it would be a difficult thing to do. And 14 plus, to implement this, if this is signed in 15 September, I probably -- I probably would not be 16 able to implement it until lien date 2017, is an 17 issue. 18 MR. HORTON: Maybe you add a salary 19 increase for our appraisers, so we can be 20 competitive. 21 MR. THOMPSON: Yeah. 22 MR. HORTON: Add the auditors and 23 compliance right along with it. Not this bill. 24 MR. THOMPSON: But -- but -- but -- 25 MR. HORTON: It's the reality we deal 26 with. 27 MR. THOMPSON: We have history. In 2003, 28 we got 40 electric plants, for us to assess, where 120 1 we couldn't use the metrics that we'd used before to 2 assess electric property. And we were not given any 3 additional staff. And it was very difficult for us 4 to not only put our most experienced staff on those, 5 but also to backfill those positions. And then we 6 went through an appeal season that was -- that 7 almost broke our back because we had over a hundred 8 appeals filed. 9 So we know what it takes to implement a new 10 tax. It's not an easy thing to do, and -- and we 11 need to have those factors addressed. 12 MS. REES: Mr. Horton, I think -- 13 MR. HORTON: Thank you, Madam Chair. 14 MR. RUNNER: Madam Chair. 15 MS. REES: -- we can help you with that. 16 MR. RUNNER: Madam Chair. 17 MS. MA: Mr. Runner. 18 MR. RUNNER: Yeah. And I would assume at 19 this point that, again, if we were to move forward 20 with the sponsorship, that the -- that the, um -- 21 the industry would then understand their need to 22 conform to our concerns in order for us to indeed 23 fulfill the responsibilities that would be in that 24 bill? 25 MR. TAYLOR: Absolutely. 26 MS. REES: Absolutely. 27 MR. RUNNER: Thank you. 28 MS. MA: Okay. So there was a motion and a 121 1 second to support -- 2 MR. RUNNER: Sponsor. 3 MS. MA: -- sponsor in concept. 4 MR. RUNNER: Again -- 5 MR. HORTON: I don't know how we do 6 that with -- 7 MR. RUNNER: Again, you know, the bill is 8 the bill. And I think what we're talking about, if 9 you're talking about the concept moving it to -- 10 from -- from a decentralized assessment through 11 the -- to the -- to the assessors, to a centralized 12 assessment with the BOE, the answer is, yeah, that's 13 the concept and the bill. 14 MS. MA: But we're also hearing that 15 there's difficulties without precise metrics on how 16 to do the valuation. That we do not want to -- if 17 the bill passes, the BOE now has to -- to assess and 18 then we're trying to figure out what we're assessing 19 on. Like we really need specifics so that we don't 20 avoid this economic obsolescence, you know, formula 21 that may or may not work. They may or may not use 22 it. I mean, it really has to be very prescriptive; 23 that's what I'm hearing. 24 MR. RUNNER: Madam Chair, let me just see 25 if I can clarify though in terms of -- I mean there 26 would be two ways to do that, right? You could 27 either put it in the bill itself, and so there's a 28 formula that would be done in the bill. Then that 122 1 would then go through the process of the 2 Legislature. Or it could be the role of the BOE to 3 work and establish whatever that process is. 4 MR. TAYLOR: Right. 5 MS. REES: That's correct. 6 MR. RUNNER: You could do it either way. 7 MR. MIETHKE: You could do it by -- excuse 8 me. 9 MR. RUNNER: Through the regulatory -- we 10 could -- 11 MR. MIETHKE: As a rule. 12 MR. RUNNER: We could do it as a rule 13 through the regulatory process. 14 MR. MIETHKE: You could do it like the oil 15 and gas properties. 16 MR. RUNNER: So at the end of the day, we 17 would end up with something. 18 MR. TAYLOR: Right. 19 MR. RUNNER: I think it's much debate as to 20 whether or not we let the Legislature set the 21 standard or whether or not we believe -- 22 MS. REES: Correct. 23 MR. RUNNER: -- we could do it better. I 24 think that's an interesting discussion to have, but 25 it could be done either way. And it would seem to 26 me one thing we can assure ourselves is we would not 27 be absent of a process. 28 MS. REES: That's right. 123 1 MR. RUNNER: It's either the Legislature 2 will do it or we will do it through the regulatory 3 process. 4 MR. HORTON: Madam Chair, if I may. 5 I'm an advocate for the Legislature doing 6 this, for a couple -- couple reasons. I mean the 7 obvious reasons, but the other is is through the 8 rulemaking process we're just opening ourselves up 9 for more lawsuits. 10 I mean, down the road if -- if the courts 11 doesn't have direction, statutory direction, and 12 they just have this rulemaking process, then we've 13 got the issue of issuing letters to the assessors to 14 comply with the rule. And if they don't comply with 15 the rule, I would imagine the assessor's going to 16 take this to court and try to overturn the rule, and 17 by virtue overturn the legislation because it -- it 18 isn't prescriptive. And so we're just opening 19 ourselves up for a much larger group of lawsuits. 20 MR. RUNNER: Madam Chair, I'm just ag -- 21 I'm agnostic on the issue whether or not the 22 Legislature does it or we do it. 23 If -- if it begins the concern of the Board 24 that we would like to work with a bill -- with the 25 industry -- 26 MS. MA: Sponsor. 27 MR. RUNNER: -- as sponsors to help develop 28 a formula that would be in the legislation, I 124 1 certainly would assume that would be part of the 2 direction in the motion that we're making. 3 MR. HORTON: Okay. I'm good. 4 MS. MA: Good on that? Okay. 5 Motion and a second. 6 We do have one dissent, so perhaps we can 7 take a roll call. 8 MS. RICHMOND: Ms. Ma. 9 MS. MA: Aye. 10 MS. RICHMOND: Mr. Horton. 11 MR. HORTON: Aye. 12 MS. RICHMOND: Ms. Harkey. 13 MS. HARKEY: Aye. 14 MS. RICHMOND: Mr. Runner. 15 MR. RUNNER: Aye. 16 MS. RICHMOND: Ms. Stowers. 17 MS. STOWERS: No. 18 MS. RICHMOND: Motion carries. 19 MS. MA: Thank you. 20 I think we have one more. Don't we have a 21 Senate Resolution 18? 22 MS. PIELSTICKER: We have AB 1157, as well, 23 that has not yet been addressed. 24 MS. MA: Oh, AB 1157. 25 MR. HORTON: Move support. 26 MS. STOWERS: Second. 27 MS. HARKEY: What's that one? 28 MS. MA: That's an Nazarian, too. 125 1 MR. RUNNER: Uh, yeah. 2 MS. MA: For the five year. 3 MR. RUNNER: There was this -- 4 Before we go down that path, I would think 5 it would be wise for us just to stay off of that 6 bill in light of the fact that we're actually 7 sponsoring a bill that does it a different way. 8 Now, if this bill -- if this bill fails in 9 its process, then I think we're going to have to 10 come back and address the issue whether or not we 11 support the old system going forward or whether or 12 not we move to the wild west again; I think we 13 probably wouldn't want to do that. But it seems to 14 me that it would be kind of an interesting mixed 15 message if we actually sponsored one bill and 16 supported another. 17 MS. HARKEY: Yeah, I'd just like to lay 18 off. 19 MS. STOWERS: I'm consistent. 20 MR. RUNNER: Yeah, you're right there. 21 You're okay. 22 MR. HORTON: I -- I feel myself being 23 consistent as well because it's the overall debate, 24 because I'm just simply saying that the discussion 25 needs to take place and it needs to take place in 26 the Legislature. And these bills, they're not in 27 concrete. 28 The unfortunate part is you've got two 126 1 different authors and I would certainly encourage 2 the industry to pull those two authors together as 3 part of the resolution to get this thing solved. 4 And hate to have -- hate -- hate to have a 5 situation, for whatever reason, the first bill we 6 can't come up with a solution in a timely manner 7 given the deadlines and then all of a sudden this 8 thing dies for lack of a sunset. 9 So I think we need to have parallel tracks 10 in dealing with this. 11 MS. HARKEY: I -- I -- I just have a 12 question on that. If we don't sponsor the second 13 bill or don't support the second bill, the Nazarian 14 bill, does it necessarily die in the Legislature? 15 MR. HORTON: No. 16 MR. RUNNER: No. 17 MS. REES: Not at all. 18 MS. MA: Our name is just not listed -- 19 MR. RUNNER: Yeah, yeah. 20 MS. MA: -- as a supporter or opponent. 21 MS. HARKEY: Yeah, and that's why I think 22 where we're going with one. And I understand that 23 we want something to cover us, but I think that 24 might have happen anyway? 25 MR. RUNNER: Right. 26 MS. HARKEY: So -- 27 MS. MA: And I would anticipate if we're 28 going to support a bill, Ms. Pielsticker will be 127 1 there at the dais. To the extent -- 2 MS. HARKEY: We could always -- 3 MS. MA: -- I'm available, I will be there 4 as well, to explain our position. 5 MR. HORTON: Okay. I'm still supportive of 6 it, for that same reason. I mean, I just think it's 7 a dialogue that needs to take place. And the more 8 discussion the better. 9 MR. TAYLOR: And just for the record, the 10 association is neutral on the Nazarian bill for the 11 reasons highlighted really by Mr. Runner. 12 MS. MA: So -- so I'd like to just stay off 13 for a month and see whether we can work this out. 14 Because I think it sends mixed messages to the 15 Legislature if we're on both bills. 16 MR. RUNNER: Okay. 17 MS. MA: But with the backup, obviously. 18 And we can come back and add our names later. 19 MR. HORTON: All right. I'm good. 20 MS. REES: Thank you. 21 MS. MA: Thank you. 22 Anymore bills? 23 MS. PIELSTICKER: No. 24 MS. MA: That's it. Okay. 25 MS. PIELSTICKER: That concludes my 26 presentation. 27 MS. HARKEY: Quit a session. 28 MS. MA: We are going to adjourn the 128 1 Legislative Committee. 2 Back to you. 3 ---oOo--- 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 129 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 March 25, 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 46 and 95 14 through 129 constitute a complete and accurate 15 transcription of the shorthand writing. 16 17 Dated: May 8, 2015 18 19 20 ____________________________ 21 KATHLEEN SKIDGEL 22 Hearing Reporter 23 24 25 26 27 28 130 1 REPORTER'S CERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, JULI PRICE JACKSON, Hearing Reporter for 8 the California State Board of Equalization certify 9 that on March 25, 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 47 through 94 14 constitute a complete and accurate transcription of 15 the shorthand writing. 16 17 Dated: MAY 8, 2015 18 19 20 ____________________________ 21 JULI PRICE JACKSON 22 Hearing Reporter 23 24 25 26 27 28 131