1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 TRANSCRIPT OF PROCEEDINGS 9 OCTOBER 28, 2015 10 11 12 13 14 ITEM P 15 OTHER ADMINISTRATIVE MATTERS 16 ITEM P1 17 ADMINISTRATION DEPUTY DIRECTOR'S REPORT 18 1. BOE BUDGETS AND STAFFING UPDATE AND ACTIONS 19 20 21 22 23 24 25 26 27 REPORTED BY: Kathleen Skidgel 28 CSR NO. 9039 1 1 P R E S E N T 2 3 For the Board Jerome E. Horton of Equalization: Chairman 4 5 Sen. George Runner (Ret.) Vice Chair 6 7 Fiona Ma, CPA Member 8 9 Diane L. Harkey Member 10 11 Yvette Stowers Appearing for Betty T. 12 Yee, State Controller (per Government Code 13 Section 7.9) 14 Joann Richmond 15 Chief, Board Proceedings Division 16 For Staff: Edna Murphy 17 Deputy Director Administration 18 Wayne Mashihara 19 Chief Field Operations Division 20 Shari Miura 21 Tax Counsel III Legal Department 22 23 ---oOo--- 24 25 26 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 OCTOBER 28, 2015 4 ---oOo--- 5 MR. HORTON: Good morning, Members and 6 guests. Let us convene the meeting of the Board of 7 Equalization Informational Workshop presented by Ms. 8 Edna Murphy and team. 9 Please come forward. 10 MS. HARKEY: Is that your whole team? 11 MR. HORTON: Yeah, what happened to the 12 team? It just isn't enough seats for all of you; is 13 that how it works? 14 All right. 15 MS. MURPHY: Good morning, Chairman Horton 16 and Members. I'm Edna Murphy, Deputy Director of 17 Administration. 18 First, let me thank you for this 19 opportunity to present this informational workshop. 20 Over the last six years, the BOE has done some 21 outstanding work that includes the implementation of 22 eServices, AB 155 Use Tax Nexus, Tax Gap 23 Initiatives, State-wide Compliance and Outreach 24 Program, and Fire Fee, just to name a few. 25 Many of these programs were during a time 26 when the State of California was in a serious fiscal 27 crisis. Both the administration and the Legislature 28 look to BOE to help close the gap. Now that our 3 1 fiscal climate has improved, we look forward and are 2 excited about what is on the horizon. 3 As legislation is discussed in the area of 4 cannabis, motor vehicle fuel and electronic 5 cigarettes, we want to take all the lessons learned 6 from the past and position BOE for even greater 7 success in the future. 8 We can't really have a discussion about BOE 9 without addressing our revenue. We are pleased to 10 report that during fiscal year '14-'15 our revenue 11 collection is estimated to be 60.5 billion, up 3.3 12 billion from the previous year. This represents tax 13 collected for sales and use tax, special tax and 14 fees, and property tax. The revenue we collect and 15 distribute is critical to maintaining the State and 16 local government programs that benefit our 17 communities today and in the future. 18 In addition, we broke the chart out by 19 voluntary compliance and non voluntary compliance. 20 Our definition of voluntary compliance is the 21 assumption or principle that taxpayers will comply 22 with tax laws and, more importantly, accurately 23 report. The processes that we have in place to 24 assist that compliance includes but is not limited 25 to our eServices that are made up of our eRegister, 26 eFile, and ePay, as well as our outreach and 27 educational seminars and our return processing. 28 Our non voluntary compliance refers to our 4 1 enforcement activities that includes audit, 2 collections, investigations, and inspection. 3 The next slide shows two charts: The first 4 being accounts by equalization district, and the 5 second is the Field Operation Department staffing 6 level by equalization district. 7 As you can see, the percentage of the staff 8 to account almost equate, but there are a number of 9 factors that are considered in our staffing model, 10 such as the size of the company and the type of 11 industry. 12 We have two staffing models: The audit 13 staffing model and the compliance staffing model 14 that identifies recommended staffing level using 15 existing number of personnel years for each district 16 office based on various workload factors. 17 Certain positions and classifications are 18 considered fixed and do not get reallocated. 19 Examples would be our cashiers, reception staff, and 20 escrow staff. 21 The audit staffing model used the 22 candidacy file which means accounts are coded by 23 difficulty and stratified by the potential of 24 non compliance. The compliance staffing model uses 25 the number of AR billings and cases and 26 delinquencies. Consistent workload thresholds are 27 used for all districts to distribute existing PYs. 28 While BOE is not under the administration, 5 1 our operating funding is and requires the approval 2 process outlined by the Department of Finance and 3 the Legislature. Historically, BOE's budget has 4 been what we call a category budget, which means 5 that we get our appropriation by personal services 6 and operating expense and equipment. This chart 7 shows that BOE has always stayed within our 8 respective allocation for both categories. 9 Another significant point to make about 10 this chart is that it represents funding for both 11 the General Fund and Special Fund. More 12 specifically, the $6.3 million savings you see in 13 '14-'15 represents $3.8 million for Special Funds 14 and $2.5 million for General Fund. 15 Effective this year, BOE is now in a 16 program budget, which means we have the ability to 17 move funds between personal services and OE&E. 18 While this definitely provides us with more 19 flexibility, it does require more management 20 oversight, internal controls, and transparency. We 21 have already begun to put policies in place to 22 ensure that we continue to manage within our 23 appropriation. 24 However, we do face some challenges. Let 25 me first start by explaining that all positions are 26 funded at mid-step through the budget process. This 27 is done based on the expectation that we will have 28 employees above the mid-step and employees below the 6 1 mid-step and that overall it will balance out. 2 However, the BOE has a large number of 3 employees that are above the mid-step. This is good 4 because we have a lot of seasoned and knowledgeable 5 employees who stay because they enjoy working for 6 the BOE. 7 However, the managers and supervisor have 8 to balance, not filling vacancies to ensure they do 9 not exceed their respective funding allocation. 10 This is further complicated by the fact that we have 11 an aging workforce and retirement cashouts are 12 funded with our existing appropriation. 13 We currently have 1,665 employees over the 14 age of 50; that equates to 34.4 percent of our 15 workforce. While we know that it is not unique to 16 BOE but to all State agencies, we want to be 17 proactive to start addressing this issue. 18 The BOE has been very strategic in 19 balancing our vacancies with our use of our temp. 20 help blanket. Specifically for the implementation 21 of Fire Fee, we had to utilize permanent 22 intermittent staff to ensure that we met all 23 legislative mandates and implementation deadlines. 24 As we move forward, we continue to move employees, 25 where appropriate, from the blanket into vacancies. 26 As of October we are down to 165 employees in the 27 blanket, of which only 30 are permanent. 28 As I close, I want to thank the Board and 7 1 Ms. Bridges for allowing me to present at this 2 special workshop and leave you with some action 3 items, or better yet some go-forward strategies for 4 the operation. 5 Action 1, as previously indicated, as an 6 organization, we need to identify the specific 7 positions that we will hold vacant to ensure that we 8 can cover the gap between staffing above the 9 mid-step and the retirement cashout. 10 Action 2, look at workload metrics for BOE 11 to assist in process improvement. 12 Action 3, consider strategies that allow 13 the BOE to expand its operation to provide even 14 greater efficiency in leveling the playing field for 15 the California businesses. This may include options 16 to consider, optimizing our staffing levels with the 17 objective of providing even greater service to our 18 permit holders. 19 Action 4, develop and revise operational 20 policies and guidelines to ensure internal controls 21 are adequate and effective. 22 And Action 5, look at opportunities to 23 develop operation reports for transparency and 24 executive management decision. 25 This concludes my report and I am available 26 for any questions. 27 MR. HORTON: Thank you. 28 Discussion, Members? 8 1 Member Ma. Nope? 2 Member Runner. 3 MR. RUNNER: All right. Get situated here. 4 Thank you. Thank you, Edna, for this. 5 It's very helpful. And I appreciate also the 6 specific issues that you've followed up on in 7 regards to some of our issues and discussions that 8 we kind of wanted to identify. 9 Let me -- let me just kind of start with a 10 couple of observations. 11 Let me see where I am here. 12 Okay. Let's -- let's start with the, uh -- 13 the mid -- the chart about mid-step and -- and those 14 over. Just to clarify -- 15 MS. HARKEY: Are you talking about the pie 16 graph? 17 MR. RUNNER: The pie graph, yes. 18 MS. MURPHY: Mm-hmm. 19 MR. RUNNER: Just to clarify, this is -- 20 this is not an unusual issue for a State agency. 21 MS. MURPHY: Not at this time, no. 22 MR. RUNNER: Right. I mean we've -- we 23 deal with this, but so does a lot of other State 24 agencies -- 25 MS. MURPHY: Correct. 26 MR. RUNNER: -- in regards to the fact 27 of -- of -- over the -- you know, over the mid-step. 28 And then the challenge then is in the budgeting 9 1 process. You know, as you said, when the budget 2 comes out and it's budgeted at the -- you know, at 3 the mid-step. And so therefore it appears then in 4 the -- in kind of the macs -- the macro view is that 5 the State is carrying a bunch of vacancies. 6 And, you know, it's interesting, I spent 7 four years in dealing, you know, Budget Vice Chair 8 over in the Assembly, and it was during a time that 9 at times when we were trying to figure out where to 10 get some money, right? And so you'd have these 11 collective amount of State vacancies. You know, 12 there'd be like -- I don't know -- 20,000 of them or 13 50,000 of them, right? Right, right. 14 And you'd have 50,000 State vacancies and 15 then when you wanted to -- when you wanted to then 16 somehow balance the budget, the Legislature would 17 then go ahead and say, "Okay, let's go ahead and cut 18 all the vacancies." When, in reality, that really 19 didn't accomplish anything because the vacancies 20 weren't filled because the money wasn't there. 21 But what you had is you had -- but you 22 still had an amount of money that was, in theory, 23 assigned to every vacancy. 24 And so it's interesting to me that as I 25 think back and as we were going through these 26 dialogues, you know, that was ten years ago now, the 27 fact is that it was almost more budget magic than it 28 was reality. Because you'd be cutting positions 10 1 and therefore cutting vacancies, and in theory then 2 saying, "Oh look, we can go ahead and now take off 3 our books a hundred million dollars because we got 4 these vacancies." But, in fact, that hundred 5 million dollars was being spent on the other 6 employees. 7 And -- and so in this particular issue, I 8 think the bottom line, and I think you brought it 9 out and I appreciate that, is our response to this 10 then is that we have to carry ongoing vacancies. We 11 can't staff up all the positions to which we have 12 been allocated. And, um -- and so that becomes -- 13 and so in theory what we end up doing is we end up 14 having to do the same job based upon how many people 15 we said we needed to do the job, because that's how 16 we got the positions. 17 MS. MURPHY: Mm-hmm. 18 MR. RUNNER: But we don't have all the 19 people to do the job because we have to maintain 20 these vacancies in order to not go over budget. 21 And in fact actually, parenthetically, I'd 22 like to put -- one of the things I asked you for, 23 because I think it's important for everybody to 24 understand because, again, people think, well, where 25 are -- where -- you know, this idea of where are 26 these employees over the mid-line? 27 MS. MURPHY: Mm-hm. 28 MR. RUNNER: And -- because in theory I've 11 1 had people say, well, they're all at headquarters or 2 they're all out in the field. And -- and what you 3 had given to me -- and I don't know if the other 4 Members have gotten a copy of this, but it -- but it 5 is really helpful to me. And that is, in the 6 district out in the field we were 27 percent over 7 the mid-line and 73 percent -- I mean, excuse me, 27 8 percent under the mid-line and 23 -- or 73 percent 9 over the mid-line. 10 MS. MURPHY: Over, correct. 11 MR. RUNNER: And then actually in -- in the 12 non-field we were 31 percent below the mid-field and 13 69 percent above the mid-field. 14 So, I mean, the reality is we're pretty 15 close, but actually we're -- we're actually more 16 over the mid-line in field than we are at 17 headquarters. Is that a fair -- 18 MS. MURPHY: Correct. 19 MR. RUNNER: Not by a lot, but I mean 20 that's -- that's -- it's not like it's a dramatic 21 change, but I think that's important for people to 22 understand. Because, again, if somebody looked at 23 the whole chart, they'd say, yeah, it's all those 24 folks over there that caused -- that make this the 25 problem. 26 That being said, I think -- and the other 27 thing I appreciate that I know Field has done, Wayne 28 and whatnot, in developing, and it's one of the 12 1 things that I appreciated over the last couple years 2 was a -- the staffing model was a bit of a black box 3 for a while. And I appreciated the fact that in 4 the -- in the last couple years there's been a 5 little more transparency and knowledge as to how we 6 came up with the field staffing model. And -- 7 because I think that's a good -- and that's 8 important and it's a good justification as to why we 9 do. 10 And so, one of the things that's 11 interesting to me is that in the field we've got 12 this staffing model and it's based upon very, very 13 specific information, right? You know, the number 14 of accounts, complexity of accounts, you know, the 15 delinquency issues. And because of all of this, we 16 need X amount of people to do these jobs. And so 17 that's how we -- we have that in the field. 18 What we don't have is we don't have that 19 evaluation for the rest of the BOE. We don't have 20 an evaluation to say, "How many people do we 21 actually need in this department based upon what the 22 load is?" 23 What we have -- we really don't have that 24 internal evaluation inwardly in regards to these 25 other areas. And -- and I think especially that's 26 going to be important when we talk about maintaining 27 vacancies. Because at the end of the day we have to 28 decide where those vacancies are. And I think you 13 1 actually made that as one of your points. 2 MS. MURPHY: Mm-hmm. 3 MR. RUNNER: Because I'm concerned, and you 4 rightfully pointed it out, because if you don't 5 identify where those vacancies are, then it's kind 6 of like we have this number of vacancies -- and let 7 me just pick a number -- 200. So you need to 8 maintain 200 vacancies. Well, if you don't know 9 where they are, then -- then when somebody in the 10 field wants to hire somebody, you got to -- we got 11 to decide whether or not that's one of the 200 12 vacancies we can't fill at that time, depending upon 13 where we are. When in fact that might be the most 14 important place for us to fill. 15 And so I think the idea of -- of 16 identifying where those vacancies need to be placed 17 strategically for our mission is going to be really 18 important. And of course the other issue about 19 vacancies is the vacancies assume a certain salary, 20 but not everybody makes the same salary. 21 MS. MURPHY: Right. 22 MR. RUNNER: So we can hold a vacancy, for 23 instance, in a -- in a Tax Tech and it's worth, you 24 know -- I don't know -- 30 grand. 25 MS. MURPHY: Right. 26 MR. RUNNER: But yet we can also hold a 27 vacancy in somebody else's -- in a position that is 28 a very highly paid individual and it could be a 14 1 hundred grand. So therefore the fact is, depending 2 upon what position you hold in the vacancy, is going 3 to determine how many vacancies you actually have to 4 hold. 5 MS. MURPHY: Correct. 6 MR. RUNNER: So I really appreciate and I 7 think we need to do that kind of evaluation in terms 8 of saying, okay, how is our staffing model 9 outside -- we've done it in the field. How do we do 10 staffing model inwardly in regards to these other 11 areas to determine that? And then how do we then 12 prioritize where these vacancies have to go? 13 I think that's going to be a -- an 14 important step as we now implement the -- the issues 15 that are here. 16 The other thing I appreciated then and I 17 asked you for because, again, when we talk about 18 the -- the number of dollars that are surplus -- or 19 savings or reverted. I think I -- when we talk I 20 always like -- savings makes me sound like I've got 21 the money in the bank. 22 MS. MURPHY: Right. 23 MR. RUNNER: I don't have this money in the 24 bank. It now belongs to the General Fund, and so 25 that's why I prefer the word "reverted." 26 And I appreciated the fact -- because I was 27 concerned that maybe some of our savings or reverted 28 was a result of being, for instance, understaffed in 15 1 Special Taxes but overstaffed in General Fund. 2 MS. MURPHY: Mm-hmm. 3 MR. RUNNER: And it's clear in your 4 presentation, in your -- in your work that, no, we 5 actually reverted money in both of those categories. 6 MS. MURPHY: Both categories, right. 7 MR. RUNNER: Which is important because 8 obviously we can't move money back and forth, and -- 9 and so therefore the balance of that reversion is 10 important to me. 11 So, anyhow, that's my thoughts and comments 12 right now and there may be more. Thanks. 13 MR. HORTON: Thank you, Mr. Runner. 14 MS. MURPHY: Thank you. 15 MR. HORTON: Member Harkey. 16 MS. HARKEY: Hi. Thank you so very much. 17 I'm really, really pleased with this. It was -- I 18 think it was really important with the new Board and 19 with transferring operations to the field and 20 budgets to the field that we all, at least 21 understand where we're starting from. And some of 22 the decisions that were made in the past and the way 23 that we had to balance our budget in the -- in the 24 lean times, you know. 25 And my biggest thing, I think, the 26 eye-opener was that PYs did not actually mean bodies 27 in seats. They were dollar allocations, and I think 28 that was very important for the whole Board to 16 1 understand and for everybody out in the audience to 2 understand that you might have PYs, but those are 3 your dollar allocations. And if, in fact -- if in 4 fact you've chosen to promote and have increases and 5 that's over the mid-point, then that's taking from 6 part of the PY. 7 And I do believe, isn't it true that 8 every -- if there's a COLA adjustment or something, 9 that that adds a -- on the Governor's budget, adds a 10 certain PY allocation? 11 MS. MURPHY: So when we get like the 2.5 12 percent, that was an adjustment to all of the PYs 13 that we have. So it was kind of a budget 14 adjustment, a technical adjustment that we did when 15 we got the funding. But it's funding tied to that 16 adjustment. 17 MS. HARKEY: Okay. Thank you. 18 MS. MURPHY: Mm-hmm. 19 MS. HARKEY: Okay. To get more specific, 20 the audit model uses a candidacy file. Accounts are 21 coded by difficulty and probably stratified by 22 probability. And I have a question because, you 23 know, I understand the difficult cases could be 24 stratified in the districts such that there was 25 always a need for more PYs at higher -- and higher 26 level PYs. 27 And so, are we using candidates for PYs or 28 actual selected cases, audited selected cases that 17 1 the districts are doing? 2 MR. RUNNER: Here comes the expert. 3 MS. HARKEY: Here comes our expert. 4 MR. RUNNER: Here comes the team. 5 MS. STOWERS: Yeah. 6 MS. HARKEY: The team. 7 Could you announce yourself? 8 MR. MASHIHARA: Good morning, Members. 9 Thank you. 10 Yes, for the candidacy pool, yes, we do 11 take the -- 12 MR. HORTON: My apologies. Could you 13 introduce yourself for the record? 14 MR. MASHIHARA: Oh, yes. My name is Wayne 15 Mashihara. I'm the Chief for the Field Operations 16 Department. 17 So, yes, for the candidacy pool, yes, we do 18 take the pool of candidates that are eligible and 19 each district that has the responsibility or had 20 conducted the audit for that account would be given 21 the -- let's say, workload credit for that 22 respective account that would be under their 23 jurisdiction or -- or the audit candidacy that they 24 would be eligible for. 25 MS. HARKEY: So it's by candidacy, not the 26 actual selection of audits that the district would 27 make? 28 MR. MASHIHARA: That is correct. 18 1 MS. HARKEY: Okay. That might be something 2 we might want to look into. 3 MR. MASHIHARA: Mm-hmm. 4 MS. HARKEY: Because as, you know, I'm just 5 thinking as we start looking at complexity of 6 accounts, we could conceivably have one district 7 just doing all of their more difficult accounts and 8 another district being very strategic and saying, 9 "I'm going to do a couple this time, a couple that 10 time, a couple this time," and that way, you know, 11 they keep the difficulty and the higher level PYs 12 always available. 13 I just -- we need to kind of look at that 14 and see if we can't work on that a little bit going 15 forward. 16 MR. MASHIHARA: Well, certainly, yeah, I 17 would -- yeah, always be watching and mindful to 18 look at those things, but let me give a further 19 explanation. 20 The candidacy pool is taken at a point in 21 the past. So a district would not be able to, let's 22 say, going forward -- 23 MS. HARKEY: -- stratify. 24 MR. MASHIHARA: -- to try to strati- -- 25 well, I mean every district probably would be 26 selecting at those higher stratified levels because 27 typically the candidates in the -- that are larger, 28 more difficult, you know, have better potential. So 19 1 they would be always doing that. 2 But for them to specifically try to, let's 3 say, target a year, that would do no effect on the 4 staffing model because the candidacy pool that they 5 were aiming for would be a point in the future, 6 whereas the candidacy pool that we have used for 7 doing the allocations based upon the workload is in 8 the past. So they could not touch that or change 9 that. And then I would think most districts would, 10 you know, just do the work. And, you know, I would 11 be, you know, surprised that they would try to, you 12 know, target a specific area. 13 MS. HARKEY: I'm never surprised. Okay, I 14 want that understood. I'm never surprised. I just 15 want to be sure that -- 16 MR. MASHIHARA: Sure. 17 MS. HARKEY: -- when we're doing our 18 allocations, because I do think that, as Senator 19 Runner brought up, you know, we're going to want 20 from the Board some suggestions as to how we 21 allocate going forward. Because we have split this 22 up from Headquarters to Field, and I don't want 23 there to continue to be the, you know, Headquarters 24 getting the advantage; no, Field's got the 25 advantage. We're all -- I want to be sure we 26 understand exactly. 27 And as Members need different help in their 28 districts, you want to be sure we're -- we're 20 1 allocating. So I think it's important to at least 2 look at, and I thank you for your explanation. 3 You told us how many people are actually 4 still in the blanket. For the future, could we find 5 out, just for the Board or whatever, where they're 6 actually located? 7 And I think it would be very helpful to 8 know, by the district and by headquarters, how many 9 vacancies we have to maintain in order to balance 10 the budget at the end of the year. And I think Mr. 11 Runner brought up maybe we need a staffing model for 12 departments. 13 And, like I said, I want -- I will want to 14 know from staff some recommendations as to what our 15 options would be from the Board for hiring -- making 16 hiring choices in the future. Because since 17 everybody's not going to be able to fill their 18 vacancies, the Board will probably need to decide 19 how that is split up, how we see the needs, how to 20 allocate the available PYs with the monies 21 available. And the grades of the positions, like, 22 you know, where -- in the -- in the district, as 23 well as in headquarters, what are -- I call them 24 salary-grades. I'm not sure what we term them at 25 the BOE. But the salary-grade, the level. What are 26 those levels, so that we know what would be 27 available. 28 And if there was -- oh, can we break down 21 1 the O&E budget for the field as well as the -- as 2 well as the headquarters? 3 And I think that's it for right now. I 4 just know we're going to have some future engagement 5 on this, and I want to be sure that we're all kind 6 of prepped for what we may need to analyze going 7 forward. 8 Thank you very much. You've been very, 9 very good. I appreciate all the input into this, 10 and the work and the effort. And you did it very 11 timely, Ms. Murphy. I think it was only a couple 12 weeks ago that you were asked to get it done. And 13 you have made the rounds with, I think, the Members' 14 offices and actually for this presentation. So I 15 thank you very much. 16 MS. MURPHY: Thank you, with my team. 17 MS. HARKEY: Yeah, with your team, you 18 definitely have a team, great, great people. 19 Thank you. 20 MR. HORTON: Member Stowers. 21 MS. STOWERS: Just a couple quick 22 questions. 23 As far as the audit model, do we take into 24 account or do we factor in new permittees so that we 25 can get to them sooner than later to make sure that 26 they're understanding the rules? Because I don't 27 know, a lot of time we get hearings and it's the 28 first-time audit but they've been in business for 22 1 quite some time. And I've always thought that the 2 goal was to get out there and conduct an audit as 3 early as possible so that we have the opportunity to 4 provide education. That is the goal. 5 MR. MASHIHARA: Well, the candi- -- the new 6 permittees would be the candidacy pool, but it would 7 be, you know, a change in our work practices because 8 I mean we do actually go out there and we do do 9 these consultations. But on an ongoing basis, you 10 know, our bread-and-butter work is pretty much in 11 the audit area. 12 I mean we could, in future models, take 13 into consideration if there is a growing share to 14 factor that in and try to, you know, do a workload 15 adjustment for that in a future staffing model. 16 MS. STOWERS: I'm really interested to see 17 how it could work. I'm not saying to do it. But it 18 would be interesting to see if we can get that -- 19 that education out as soon as possible so that they 20 don't continue making mistakes. 21 MR. MASHIHARA: Yes. 22 MS. STOWERS: Thank you. 23 And then my other question is to Ms. 24 Murphy. You gave us a pie chart showing 71 percent 25 over the mid-step, and we have an aging workforce. 26 So what's our succession planning? 27 MS. MURPHY: So we, um -- we have developed 28 our internal succession plan and we've provided it 23 1 for CalHR for approval. 2 So some of the things that we're doing is 3 we're trying to document a lot more of our 4 procedures, we're looking in areas where we see that 5 we have employees that may be close to the 6 retirement age and we're trying to do transition 7 strategies and training to make sure that that 8 knowledge is kept within the organization. 9 We have started some work. There's still a 10 lot of work that needs to be done. As I mentioned 11 before, because we're talking about 34.4 percent of 12 our workforce, that's huge. And so we're continuing 13 to work in that area as well. 14 MS. STOWERS: Thank you. 15 MR. HORTON: Member Ma. 16 MS. MA: So, thank you. You know, when I 17 first started this job back in January, we had a 18 budget problem. And I know that you, Ms. Bridges 19 and Ms. Murphy came in and briefed me on some of the 20 corrective actions for 2014 to 2015, which was no 21 new hires, no promotions or promotions in place, no 22 new out-of-class assignments, no classification-out 23 upgrades, no paid overtime. And then effective 24 January 29th the BOE would suspend the work of 25 retired annuitants, permanent intermittent employees 26 and a couple of other categories. 27 And I think you all did a great job in 28 following the corrective action. And I think it 24 1 worked by putting some controls into the -- into our 2 expenses. 3 But then we were told in July that we, 4 hopefully, would, you know, fix the budget problem 5 and that we would be able to hire more people. And 6 that's what, you know, I went out to all of my 7 offices to say, you know, yes, we should be better 8 in the next fiscal year, we'll be able to hire. And 9 like Wayne, Mr. Hash- -- 10 MR. MASHIHARA: Mashihara. 11 MS. MA: -- Mashihara just said, the audit 12 is the bread-and-butter of the operations, right? 13 So having people out in the field -- auditors, you 14 know, collectors, compliance folks -- I think should 15 be the priority. And I know a lot of my district 16 administrators, they've been applying, putting in 17 applications for more field personnel, and we've 18 only, I think, been able to hire four new people. 19 But in the meantime, you know, I've been 20 trying to understand the staffing model. How many 21 staff each office gets, are we going to get more in 22 the future, the whole thing. And I think that's why 23 we're here is because, you know, understanding that 24 there is vacancies that we can't fill, you know, 25 some of the attrition issues. 26 And so, you know, I appreciate in August -- 27 August 12th I finally got a, you know, proposed 28 total of how many employees are in each district, 25 1 you know, the proposed total, and then the changes 2 in terms of how many staff we are going to lose. 3 And I -- and I think that needs to be better 4 communicated to the field. You know, it's very 5 demoralizing when we tell them that they're going to 6 be able to hire more people and then they are 7 rejected for their proposals. 8 So I think that communication needs to be 9 better -- you know, better communicated to everyone. 10 Like my district, we're going to lose 16 people; 11 where are they going to come from, right? And I 12 know there's going to be a whole realignment and 13 that is the proposal. So I think we need to better 14 prepare everyone and communicate. 15 I also have been concerned because we've 16 been missing the DOF forecast in terms of 17 collections. Just in this fiscal year, July, August 18 and September, we have not met the DOF forecast 19 projections, and that's what also prompted me to ask 20 when are we going to hire more people? If that is 21 how we generate the revenues in our agency, we have 22 to be able to hire more people so we either meet the 23 forecast or we need to let the Governor's office 24 know that we're not going to meet the forecast. So 25 for the last, you know, three months we have not met 26 the forecast and that kind of concerns me. 27 Also, in terms of, you know, the recent 28 hiring, I know we got a list of recent hires as of 26 1 July 1st, and it seemed that the proportion was 2 headquarters heavy. And I know that there's some 3 explanation to that in terms of some are Special 4 Funds. But, again, you know, if we're going to be 5 hiring, we need to communicate to folks, are they 6 Special Funds or are they, you know, needed? Why 7 are they needed in certain positions versus out in 8 the field? 9 So I'm just happy -- thank you, Ms. Harkey, 10 for, you know, for asking for this. Thank you for 11 the administration for providing more information. 12 But I think, you know, if we're gonna -- if we're a 13 tax collection agency, we should be focused on 14 hiring more people in the field to do what is 15 mission critical for our agency first and foremost. 16 So that's just my -- my two cents about my 17 last ten months here. And, you know, I appreciate 18 more information and data that's been provided so 19 that I can better explain, you know, to the staff in 20 the districts why they're not getting any additional 21 support. And they need to be able to adjust their 22 workload as well, instead of waiting and, you know, 23 backloading a lot of, you know, the cases. If we're 24 not going to get the support then, you know, we're 25 going to have to figure out how to, you know, 26 address the current cases that are out there and, 27 you know, different types of audits that are going 28 to continue. 27 1 So I appreciate the ongoing communication 2 and -- and -- and information. I would just 3 encourage us to do more communication, more 4 transparency, you know, provide us with more data so 5 that we also understand what's going on and 6 communicate better to our field. 7 MR. HORTON: You know -- 8 MS. MURPHY: I've taken down all of the 9 requests. 10 Mr. HORTON: Well, here, let -- I guess 11 you're trying to take it all in. So let me -- let 12 me share some thoughts here. 13 First and foremost, I think it's 14 important -- I mean I think what Member Runner and 15 the Members have brought out is important because 16 what -- what -- what I hear them saying is, is that 17 we want a very balanced approach, that we're 18 balancing all of the workload, all of the issues 19 that exist for the agency and then we begin to 20 prioritize those issues based on the priorities 21 established by the Legislature as well as the 22 mission of the Board of Equalization. 23 But the reality is, I mean to the district 24 as well as the headquarters and so forth, that 25 really gets us closer to the -- to the -- to the 26 concept of the one BOE and because we're just one 27 fundamental organization. We're not divided into 28 different -- different districts versus Sacramento. 28 1 It's not a competitive thing. 2 I -- and so I think the suggestion to begin 3 to look at the workload, look at the intricacies of 4 the positions and so forth is very wise to be able 5 to provide that information so that decisions can be 6 made on a collaborative, collective sort of basis, 7 if you will. 8 And then to -- to -- to have a further 9 discussion about direct versus indirect costs of the 10 Board of Equalization. The -- the -- the workload 11 analysis that takes place in the district, a lot of 12 that also takes place in determining positions in 13 Sacramento as well. 14 You know, in going through the BCP process, 15 for example the call center, it's a very extensive 16 evaluation as to how many PYs are established there. 17 Fire fees, another evaluation of 18 determining. Investigation, another complete 19 evaluation based on performance and another 20 efficiency measures occurs there. And I think it's 21 important that we share that information and at the 22 same time position -- because in sharing the 23 information, you actually position the Members to 24 prioritize in their mind, or to participate, if you 25 will, in the prior- -- in prioritizing those issues. 26 At the same time, I think you have that 27 unified effort, a unified discussion among the 28 district expertise and wisdom with those that occur 29 1 here in Sacramento. And what we make -- what may 2 come out of that is some of the strategies that 3 Member Stowers has suggested, Member Harkey, and 4 Member Runner has suggested that we can look at more 5 efficiency. So instead of looking at the 6 organization as if though the glass is half full, 7 let's take a look at the other half and see if we 8 can fill it up. 9 You know, we've asked Wayne and Mr. Smith 10 to take a look at, at what point do we reach 11 diminishing returns? And at what point should we 12 actually be -- instead of trying to -- trying to 13 deal with the blanket and the vacancies and so 14 forth, should we be going forth to the Legislature 15 and asking for additional positions? And is there a 16 greater efficiency that could occur? 17 Member Harkey and Member Runner have 18 suggested strategies such as initial consultation 19 and expanding our consultation effort for first-time 20 audits, where -- where an auditor or compliance 21 person would actually go out and assist them in 22 complying without a liability. And so they're able 23 to make their appropriate corrections and then begin 24 to adjust. 25 Managed audits is another way of should we 26 be looking at doing additional managed audits which 27 reduces the -- the labor force or the workload but 28 increases the efficiency of the organization. 30 1 So, I think there's a huge value in us 2 beginning to look at this organization from a 3 holistic perspective. And particularly, if we're 4 looking at it to try to say, is -- is the glass half 5 full and can we fill it up? You know, can we 6 increase compensation to our employees? And what 7 that -- what is that strategy to accomplish that? 8 And what is the argument that we can put forth? 9 As we know, the Governor and Legislature 10 primarily interested in revenues. Are you 11 generating the revenues? And this is one of the 12 most productive agencies around. But maybe we need 13 to change that -- that dialogue and to incorporate 14 in the discussion about revenues, the compliance 15 aspect of it. 16 The organization generates $60 billion on 17 the compliance side. And so to have more auditors 18 actually out there assisting with initial 19 consultation, increases the compliance, and 20 particularly, with the ever changing policies that 21 the Legislature is constantly asking us to do. 22 The other thing that I think is helpful in 23 the BCP process, it allows the Members now, you 24 know, when we're knowledgeable and aware of it, we 25 can become advocates for the BC -- historically, the 26 Board of Equalization has not had the significant 27 advocates that exist up here today. And to be able 28 to go forth and advocate for a larger BCP, you know, 31 1 and a BCP that I say is a pregnant BCP, one that can 2 deliver -- that can result in additional positions 3 ultimately, can result in promotional opportunities, 4 because to the extent that the Legislature doesn't 5 allow us to necessarily provide raises to our 6 employees, what we can do is figure out an upper 7 mobility strategy that allows us to provide those 8 promotional opportunities which creates additional 9 vacancies, allows us to bring in the interns and -- 10 and satisfy the need for many of our employees to 11 have additional compensation, have additional 12 staffing and so forth. 13 All of this comes about by just having that 14 information available. I know that staff is doing a 15 lot of this. I know that some of what I'm saying is 16 not necessarily new. I know that there are studies 17 out there that Mr. Smith is doing and others are 18 doing in order to begin to position the Board to 19 make the argument for additional positions, that 20 these additional positions will actually create 21 increased efficiency for the organization. 22 So to that degree, you know, I commend the 23 entire team for all that you're doing and that you 24 will continue to do. Thank you for your leadership. 25 Thank you, Ms. Bridge, as well. But I 26 think there may be some other questions as we go 27 through. 28 Ms. Harkey. 32 1 MS. HARKEY: Hi. I would like to kind of 2 take off on what the Chairman said. 3 In -- I think -- I think we also need to 4 look at areas where there's a lot of employment in 5 outside employment and there's very few other 6 opportunities for our BOE employees. 7 In Sacramento it's -- it's a government 8 town, and you guys can shop around to different 9 agencies. You have, like, a lot of flexibility up 10 here to still work within the -- the government 11 structure. 12 I think in San Diego in particular, and 13 even in Irvine, we lose people. We have 'em for a 14 couple years and then give 'em a good footing, and 15 then industry takes 'em off, you know. And so then 16 we're starting again with a brand new person or 17 trying to fill -- fill a vacancy. 18 And so I would almost say that, as we get 19 into this, I would like to see about maybe trying to 20 figure out where -- where it is that you've got, you 21 know, either a higher cost of living factor or 22 something else. 23 I mean this is not anything we can do 24 immediately, but I do think it is -- it is areas 25 that we can approach the Governor with because I 26 know the companies and the individuals and also the 27 administrators, the experienced people are the ones 28 that bring in the dollars quicker and know where to 33 1 cut, not to waste time, know how to maneuver. 2 Although we don't get most of our income from audit 3 in the district, that's -- the audit team is very 4 important and -- and the collection team is very 5 important. 6 Most of ours is from, as you've shown on 7 the graph, from voluntary compliance, which brings 8 the point what the Chairman was saying and what 9 Senator Runner was saying about the initial, just 10 first time audit. 11 But I do think -- I do think there's a 12 value. And one of the reasons we probably have a 13 lot of people over the mid-range, and I'd like to 14 see us, like I said, figure out where those mid -- 15 where those over mid-range people are actually 16 located is because I think if you have an 17 experienced person, your return on your investment 18 is a lot greater than taking -- constantly churning 19 and people off the street. 20 This is a highly technical professional 21 position. These are not just clerical jobs. 22 They're technically highly educated, trained people, 23 and I think it makes it different than a lot of 24 other agencies or services that government provides 25 that we have to have really highly technical, 26 educated, trained people. Not that they're not 27 everywhere, but I think you have to have CPAs, tax 28 attorneys, things that can draw -- areas that they 34 1 can draw a lot of money on the outside. 2 And so I think we need to, as we go 3 through, we need to evaluate certain positions for 4 what our -- what our real competition is for 5 retaining the -- the key people. 6 MR. HORTON: Member Ma. 7 MS. MA: Yeah, I just want to add on to 8 Chairman Runner, and Ms. Harkey as well, about the 9 whole structure in terms of pay equity. Even 10 amongst the audit and compliance there's a 11 disparity. Starting salaries are very low compared 12 to other government agencies. Even the IRS, I 13 think, pays higher than we do. And then, of course, 14 you know the counties, some of the counties are 15 paying higher, so they're attracting some of our 16 employees. Regional differences, I think, is very 17 important for some of, you know, the, uh -- the 18 district offices. 19 And so I'd really love to see what the plan 20 would be to try to equalize, you know, some of, you 21 know, the salaries to hire the people that we need 22 and then also to retain the folks who have been 23 here, you know, ten-plus years and encourage them to 24 stay. 25 So that is, you know, something that I hope 26 we'll be working on in the next, you know, quarter 27 or the next year, to see whether we can help in 28 that. 35 1 Like you said, you know, we've got, you 2 know, people here who have relationships in the 3 building. I think we need to see the studies that 4 are out there. I'm sure they've changed a lot in 5 the last five years and, you know, what is -- what 6 are people paying, you know, in the private sector 7 versus, you know, the different government sectors 8 that we can actually go and advocate on behalf of, 9 you know, of our agency. 10 So I look forward to working with you on 11 that and, you know, would love to, maybe at the next 12 informational hearing, actually talk a lot about 13 this because this is something that I think we're 14 all concerned about. 15 MR. HORTON: So maybe we can set up another 16 hearing to talk about -- maybe bifurcate these 17 issues so that we can spend more in-depth time on 18 it. 19 In 2002, I did legislation to try to create 20 that parity. And thanks to Ms. Bridges and so 21 forth, we've been able to kind of create a little 22 bit of parity on the entry level for the compliance 23 folks, entry level compliance folks, entry level 24 auditor folks, those who come in with degrees and so 25 forth. 26 But there's still more work that we can do. 27 But part of the challenge in having that dialogue 28 with the Legislature was, is -- is -- is the 36 1 distinction between -- well, when -- when -- when 2 utilizing income budget strategies, base budget 3 strategies, what happens is, is that the greater 4 income for the organization is on the compliance 5 side. 6 And so the efforts on the compliance sides 7 are actually more justified than the efforts on the 8 audit side in the minds of individuals who will look 9 at the audit side and say, "Well, it generates 10 $700 million," and relative to the 59 billion that 11 is generated by itself. 12 So that -- that whole dialogue, I think the 13 Members here can kind of begin to shape a 14 conversation that might be successful in the 15 Legislature as to the benefit. If you take away -- 16 if you take away the audit staff (music playing) -- 17 excuse me. 18 If you take away the audit staff, then the 19 59 billion goes down significantly. As -- and with 20 the discussion about the Department of Finance, you 21 know, my response to the Department of Finance is, 22 "Give us more auditors, give us a greater staff, and 23 give us salary increases and we'll meet your 24 projections." 25 And so, I think it's -- I think it's 26 important that we begin to -- to -- to continue -- 27 that we continue these conversations and that we 28 also be careful about, you know, how we approach the 37 1 relative budget strategies and utilizing them. And 2 at the same time the fix activity that occurs, 3 sending out the permits, printing and so forth, 4 those are relatively fixed. They're sort of 5 determinate upon the number of permits that we have, 6 which has gone up. But the ones that have some -- 7 some distinctions on the BCPs that we're issuing in 8 doing those analysis, I think we have a little 9 flexibility there. 10 So, Mr. Runner. 11 MR. RUNNER: Yeah, real quick. 12 I want to -- I want to go back to that one 13 chart regarding the blanket positions and the 14 vacancies real quick. I just had a follow-up 15 question on that. Because I think you -- I think -- 16 did I hear you say that we currently are at 165? 17 MS. MURPHY: Correct. 18 MR. RUNNER: And that we thought we'd be -- 19 and only 30 of those are full-time. 20 MS. MURPHY: Correct. 21 MR. RUNNER: But how many of those -- by 22 definition of what belongs -- what is appropriate 23 blanket, how many positions should we have in the 24 blanket? 25 MS. MURPHY: So there -- there's no magic 26 number. But one of the things that we were really 27 focused on was, first, getting all of the permanent 28 people out of the blanket. 38 1 MR. RUNNER: Right. 2 MS. MURPHY: So after we take that out, 3 there are -- there's always going to be people in 4 the blanket and rightfully so; they should be there. 5 MR. RUNNER: Right. 6 MS. MURPHY: And so, then that was going to 7 be our second evaluation. 8 As mentioned earlier, we've done an 9 excellent job in reducing the number of retired 10 annuitants that we have here. And so, I think what 11 we'll start to see is that once we get past that, 12 we'll see that we're now maintaining appropriate -- 13 MR. RUNNER: Well, let me -- 14 MS. MURPHY: -- positions. 15 MR. RUNNER: Okay. Let me ask on that 16 then. 17 MS. MURPHY: Mm-hmm. 18 MR. RUNNER: Because I think, is there a 19 specific allocation we have for the blanket? 20 MS. MURPHY: Yes, there is. 21 MR. RUNNER: Okay. And if we remove 22 that -- those 30 permanent, are we within that 23 allocation? 24 MS. MURPHY: I would have to verify that. 25 MS. HARKEY: You can do that at the end. 26 MS. MURPHY: I can -- I can do that, yes. 27 MR. RUNNER: Okay. You can just tell me 28 later. Because, again, I think our goal should be 39 1 to get within the proper allocation. Right? I mean 2 I don't really care how many people are in the 3 blanket. I just wanted to make sure we're -- we're 4 not over -- 5 MS. HARKEY: As long as they're not coming 6 from your district. 7 MR. RUNNER: -- that we're not overspending 8 the blanket. 9 MS. MURPHY: Right. 10 MR. RUNNER: That would be the -- that 11 would be the objective. 12 MS. MURPHY: I -- I can verify that. 13 MR. RUNNER: So I think that would be the 14 issue that would be helpful to me. 15 You know, the other issue that I would like 16 to maybe throw out to the Members here, and that is 17 I think we've all talked about the fact that we want 18 to make sure that the vacancies are placed in the 19 right place, that we -- that we want to make sure -- 20 and it's a known, you know. Again, so that, you 21 know, all of a sudden somebody in the district 22 office needs to hire somebody and that's right now 23 where we're going to hold the vacancy. But we don't 24 have a real rational idea as to why we're holding 25 the vacancy there. 26 And so I think -- and, again, since we're 27 talking so much about efficiency, customer service, 28 I would like to go ahead and suggest, and see if the 40 1 Members would be okay with it, that we actually 2 since we have a committee that does Customer Service 3 and Efficiency, that we would help work with you, 4 and Mr. Gau particularly because I think he's the 5 one who works with us in our -- in our committee, to 6 kind of work with that model in terms of trying to 7 see where it is that we hold vacancies and whatnot. 8 And then we could come back then as a committee as a 9 whole and -- and talk with them in that regard. 10 Because I think I'd like to split that out 11 separately then from a -- another, you know, 12 informational hearing. I'd like to kind of -- 13 because that to me is a pretty significant issue for 14 us as to where we hold those, how we deal with 15 them. 16 MS. HARKEY: I -- I -- I would just opine 17 that I'd rather have it at an informational hearing 18 and then maybe move it over. I -- because I don't 19 want to be, all the sudden find out -- 20 I mean, it's going to take a little while 21 to go along, to get -- to figure this out, to do -- 22 because we've asked for models, for staffing models, 23 for headquarters. And I think that's all part of 24 it. 25 So, rather than just shoving it off into 26 your committee, I'd kind of like to do this 27 step-by-step so that we could -- we could at least 28 gather the same information before you get it, if 41 1 that would be okay? 2 MR. RUNNER: Well, again, I -- I -- again, 3 I think that the end result is we want to get -- we 4 want to get to an end result. 5 MR. HORTON: I think -- 6 MS. HARKEY: Right. 7 MR. RUNNER: You know, and so I think -- 8 and so, again, I -- if you're envisioning at the 9 informational committee to have at the next 10 informational meeting a recommendation that includes 11 a staffing model, where we're going to hold our 12 vacancies -- 13 MS. HARKEY: No, just -- just some more 14 detail, more suggestions. This is all new, and I 15 know that they're busy working. But what I don't 16 want to do is have it get way down into a committee 17 and then all of the sudden at a Board hearing get 18 presented with something that I really have to do 19 some background work on. 20 And so I'd like to just kind of go a little 21 slower -- 22 MR. RUNNER: Okay. 23 MS. HARKEY: -- and be sure I understand -- 24 MR. RUNNER: Again, just to make it clear, 25 any -- again, anything that happens in a Board 26 meeting or in a committee should be fully vetted 27 with Members prior to a Board meeting. So, again -- 28 MS. HARKEY: Yeah, but -- 42 1 MR. RUNNER: That's okay. 2 MS. HARKEY: That's why this is -- 3 MR. RUNNER: Again, if there is consens- -- 4 I just want to get to the -- I just want to get to 5 the end of it. 6 MR. HORTON: Members, Members. 7 MS. HARKEY: This isn't a hearing. It's a 8 workshop. 9 MR. HORTON: I know, I know. 10 MR. RUNNER: I just wanted to get to the 11 end of it in order to make sure that we are actually 12 working toward an end result, because there is a 13 timeliness issue to this. 14 MR. HORTON: Maybe I could -- 15 MR. RUNNER: Right now -- right now we are 16 having people who need to hire people and they don't 17 know if they can hire them. 18 MS. HARKEY: Right. 19 MR. RUNNER: So I -- I think that there's a 20 timeliness issue to which we need to actually start 21 working with this. And the problem is, the sooner 22 we get to a solution, the better off we know when -- 23 who not to hire and who to hire in that process. 24 So that's my concern. And, you know, if 25 the Members feel like they want to have another 26 informational hearing to get more information, 27 that's fine. But ultimately, we've got to be able 28 to help give direction in terms of helping to know 43 1 where these priorities are. 2 MS. HARKEY: Okay. I -- I -- 3 MR. HORTON: Yeah, I think the -- the 4 benefit of the -- the benefit of this hearing is 5 that, even though the committee hearings are open to 6 the public and so forth, we have an opportunity now 7 to be -- to include the district administrators and 8 all of the folks that kind of participate. 9 The other challenge in putting this 10 particular budget into a committee is, is that -- is 11 the dichotomy of the issues. You have program 12 issues. You have fixed. You have budgetary issues. 13 You have issues that really may not have a whole lot 14 to do with customer service. It has more to do with 15 the Business Tax Committee and a little bit more to 16 do with the Legislative Committee as it relates to 17 the BCP and the legislative process. 18 And so, being able to combine those, what 19 we may be looking for in order to get there is 20 having staff begin to go to work on this 21 immediately, you know, taking a look at -- taking a 22 look at the organization as one BOE and -- and -- 23 and identify the priorities that exist in selecting 24 and appointing positions. 25 And then I think you hear different 26 opinions and probably need to vet that out by having 27 individual discussions with the Members as to where 28 the priorities are. One being priority on audit, 44 1 the other being priority on self-compliance and 2 those types of issues. 3 Audit, I think, is a very important 4 function, otherwise I wouldn't have did it for 22 5 years; but it's not the only function of this 6 organization. 7 Compliance is extremely important. The 8 work that happens in the print shop is very, very 9 important. The work that happens at the 10 receptionist desk is extremely important to this 11 organization. 12 Many people folks are like the face of this 13 organization as we begin to make these priorities. 14 I, for one, have always prioritized based on the 15 $59 billion and not the 700 million generated by the 16 organization. Because when we -- when we do that, 17 we put ourselves at an inherent disadvantage in the 18 legislative process. 19 The legislative process says, well, you're 20 like police officers and you're just making sure 21 that people report properly. We're much more than 22 that as an organization. 23 And so maybe a more deliberative, inclusive 24 process. Or maybe we should bifurcate it and just 25 deal with different issues. But this has been, I 26 think, extremely helpful for me to hear from the 27 Members. And maybe an opportunity to actually hear 28 from the rest of your team might be helpful as well. 45 1 So, Member Ma. 2 MS. MA: I agree. I think this has been 3 very helpful just so that, you know, folks can kind 4 of hear what's really going on, not just maybe from 5 me or, you know, memos or, you know, rumors. 6 And so I think, you know, these 7 informational hearings are very, very, very 8 productive. And I would like to say, since we do 9 have issues, maybe we could think about doing it 10 every month after the Board meeting, to talk about 11 vacancies, to talk about staffing models or levels, 12 whatever the issue is. Because I think the more we, 13 you know, have these open communication dialogues 14 with everyone, our district -- you know, I see my 15 district administrators sitting here. Now they hear 16 what's going on. And we need to also push out the 17 information, you know, the data that we're getting 18 as well so it's not just us, you know, that see the 19 concerns, but it's everyone. As one BO -- one BOE, 20 we're all working together, but we can't work 21 together unless we all have the same information to 22 work off of. 23 So, you know, I think this was a great 24 idea, a great first hearing. And because of 25 Bagley-Keene issues and others, I think this 26 workshop model kind of works with us. I think, you 27 know, people are understanding a little bit better. 28 You know, we can monitor or adjust expectations in 46 1 the field just so that everybody is one BOE. 2 So I appreciate everyone being here and, 3 you know, everyone working together and the Board 4 Members also, you know, Ms. Harkey, you know, 5 suggesting this because I think this is very, very 6 helpful. 7 MR. HORTON: Member Harkey. 8 MS. HARKEY: Hi. This is from my City 9 Council days when we used to have to have some 10 decisions on how to run the city. And you can't do 11 that with more than one Member if you may have to 12 vote on something because of Bagley-Keene. So we 13 have this open hearing where we can all talk back 14 and forth, and each Member can hear the same 15 information at the same time. 16 And that's so important because if I'm 17 talking to this one, I have to remember what I said 18 to this one before I talk to that one. And it gets 19 very confusing. 20 So I think this is really a good -- good 21 conversation to be having here in the public. And I 22 look forward to doing more workshops because I think 23 it's the only time we can really ferret these out 24 and I get to hear what everybody's saying, you know, 25 and what their concerns are. 26 Thank you. 27 We'll have one next month. 28 MS. STOWERS: I -- I agree with everybody. 47 1 I think it's great just to have the workshops, have 2 it on the agenda. 3 I'm not sure if we need to put it in a 4 committee or establish a new committee. Maybe 5 someone can head another committee or someone who 6 doesn't have a committee. 7 MS. MA: You want to head a committee? 8 MR. HORTON: Yeah. Hey, from a process 9 standpoint, let me encourage staff to review the 10 tape, take each comment by the Members and drill 11 down on it from an informational basis. Some of the 12 things that I may have shared, you may be able to 13 enlighten me on, and certainly I look forward to 14 that. 15 Then begin to -- to share that information 16 with each individual Member and -- and I think that 17 will give staff some direction, or your team some 18 direction, on how to best facilitate and make this 19 thing happen and bring it forth at the next 20 informational hearing. 21 But I do concur with Member Runner relative 22 to some of -- and Member Ma, relative to some of the 23 misconceptions out there as it relates to what's 24 happening in one district versus another district 25 and so forth, and Sacramento versus -- versus the 26 district. 27 And we've had these issues for 35 years, to 28 my knowledge. So now is a good time to begin to 48 1 address those publicly. And let's see if we can get 2 it done as soon as possible. Maybe a meeting, a 3 briefing with all the -- through the Assistant Chief 4 of Field, with the Chief of Field, with all the 5 district administrators, so that they become more 6 aware. And then move that information up to us, so 7 we're using our best and brightest minds in this 8 organization to give the Board Members the best 9 advice and guidance that you can possibly give us. 10 Comment? 11 MS. MURPHY: I was going to say, it sounds 12 like I have a new assignment. 13 MR. HORTON: Mr. Mashihara. 14 MS. HARKEY: Do you need a PY? 15 MR. MASHIHARA: We're good. 16 MR. HORTON: All right. Thank you very 17 much. The BOE Budget Informational Hearing is -- 18 Oh, we're not. Oh, boy. 19 MS. MURPHY: So, next we will have Shari 20 Miura from Legal to do an overview on procurement. 21 MS. MIURA: Good morning, Mr. Chairman and 22 Members of the Board. My name is Shari Miura. I'm 23 from the Legal Department, and I'm here to give you 24 an overview of the procurement process and highlight 25 some important areas. 26 I'm going to explain the process in three 27 sections: One is the overview; secondly, the 28 safeguards for the process; and finally, I'll 49 1 explain best practices. 2 So the common scenario is that BOE has a 3 business need, and staff might say, "Hey, we need a 4 contract." But in Legal we say, "Whoa, you know, 5 there's a legal process for that and the process has 6 a certain procedure." 7 So, number one, there's other agencies that 8 oversee the process, and most contracts require 9 competitive bidding. The State procurement process 10 for procuring goods, services, information 11 technology, real estate, public works, that's 12 governed by the Public Contract Code and the 13 Government Code. 14 These statutes provide the authority for 15 State agencies, such as the Department of General 16 Services or the Department of Technology, to 17 establish procedures and policies through the State 18 Administrative Manual and the State Contracting 19 Manual. 20 The type of procurement vehicle such as 21 Requests for Proposal, an RFP, or DGS managed 22 leveraged procurement which they call Master 23 Contracts, those types of vehicles are designed to 24 accommodate the type of service or the type of good 25 that the BOE needs. Depending on the total amount 26 of the contract, further approvals by General 27 Services or the Department of Technology may be 28 required. So the contract is not fully valid until 50 1 those approvals are obtained, if they are 2 required. 3 So these statutes and the rules, the 4 procedures and policies governing the procurement 5 process are designed to protect the State's best 6 interests. The competitive bidding process to 7 contract for goods or services is the basic 8 foundation to protect those interests by, number 9 one, keeping a fair playing field for all interested 10 vendors; number two, providing for the best value 11 and the best quality of service or good for the 12 contracting agency; and, number three, eliminating 13 favoritism or bias in order to give all qualified 14 businesses an equal chance at competing for State 15 contracts. 16 So next are -- I'm going to explain the 17 safeguards that are in place for the procurement 18 process to protect the integrity of the procurement. 19 There's a prohibition against conflicts of 20 interests, there's a need for confidentiality, and 21 there's a civil service requirement. 22 So first, the Government Code prohibits 23 State officers and employees from having a financial 24 interest in any contract. And, also, there's a 25 prohibition from accepting gifts or any items of any 26 value from contractors or potential contractors; 27 that's in the Government Code. Such activities are 28 also prohibited by the BOE's Conflict of Interest 51 1 Code. 2 Secondly, there's a need for 3 confidentiality. The confidentiality safeguards 4 ensure that the procurement process is not 5 compromised and it maintains its integrity. It's 6 important for the procurement's details to be kept 7 confidential by representatives of the Board, 8 especially when there's an act of procurement, such 9 as when the BOE is creating an RFP or after the RFP 10 is publicly posted and the BOE is waiting for 11 vendors to submit the proposals, it's important to 12 keep any details, even if they seem innocuous, it's 13 important to keep those confidential. 14 Such as, any offhand remark, even for a 15 comment on the previous contractors, such as, "Oh, 16 that contractor never answered his phone," or "We 17 weren't able to get the add-on that we wanted." 18 Those sorts of remarks can be incorporated into a 19 vendor's RFP and used for a competitive edge in that 20 proposal, just to strike that certain cord in any 21 evaluation team member who is -- might be apt to be 22 influenced in that sort of way. So, those sort of 23 details should be kept confidential in order to keep 24 the procurement fair. 25 Finally, there's a civil service 26 requirement for services contracts. One of the 27 safeguards from the State is that agencies are 28 required to hire within civil service. There are 52 1 exceptions set out by the Government Code, in 2 section 19130, for exceptions to contract out for 3 services. 4 So each contract for services must meet 5 this Government Section Code 19130 threshold to 6 authorize contracting out. 7 The State employees' unions, however, are 8 authorized to file contract challenges in front of 9 the State Personnel Board if the unions feel that a 10 certain contract has not met this threshold. The 11 State Personnel Board can make a decision based on 12 either written arguments or an oral hearing and can 13 invalidate that contract. 14 So maintaining the procurement process also 15 helps to avoid bid protests which, if a contract is 16 protested before award, can delay the start of the 17 services. And, ultimately, if the bid protest is 18 upheld by DGS, the contract can be cancelled. That 19 would mean a delay in the start of services, the 20 contract is void and the RFP most likely will need 21 to be revised and reposted for another round of bids 22 to be submitted. 23 Last, but not least, with going through 24 these administrative remedies, a vendor could file 25 suit alleging unfair practices against the agency. 26 So best practices: Be aware that most 27 contracts should be and must be competitively bid; 28 be aware of giving inside information and avoid such 53 1 a practice; being mindful that the process, to be 2 fair to all parties, it takes time; and protect 3 yourself and the agency from procurement's pitfalls 4 by seeking advice from Legal whenever appropriate. 5 This concludes my general overview of the 6 procurement process. I'd be happy to answer any 7 questions. 8 Thank you. 9 MR. HORTON: Member Runner. 10 MR. RUNNER: Yeah. I appreciate that and 11 it's a good overview, but here's -- I guess I'm a 12 little taken aback in that I have no materials here. 13 And I guess I actually didn't know that 14 this was -- I mean I saw it on the agenda, but there 15 are other things on the agenda I knew were taken 16 off. 17 So I guess what I'd like to -- to encourage 18 if we're going to have these -- as we have these in 19 the future, that we bring materials and that we have 20 the opportunity to be pre-briefed. Because actually 21 some of the materials that you'd talked about would 22 be very helpful to us to have talked about, like 23 with my staff in a pre-briefing, in order for us to 24 answer questions and try to -- try to get down to 25 the root of the issue. 26 Because we -- because, quite frankly, I do 27 have some procurement questions. I'm just not 28 prepared for them right now. 54 1 So, anyhow, if we could kind of maybe -- 2 maybe if you could maybe come back -- or not come 3 back to the hearing, but maybe we can set up a time 4 for my office after this, with the materials and 5 whatnot and we could kind of go through the 6 procurement; that would be helpful to me. 7 Thanks. 8 MS. MIURA: Certainly. 9 MR. HORTON: Member Ma. 10 MS. MA: Yes. I have some general 11 questions, I guess. 12 How do we -- do we RFP all contracts? 13 MS. MIURA: No. Certain contracts are 14 subject to Requests for Proposals, and some are -- 15 it depends on the amount. It depends on what you're 16 trying to procure, and it depends on if there's a 17 Master Contract that DGS manages. 18 So it depends on the case. 19 MS. MA: Okay. So I'm not going to talk 20 about DGS contracts that they manage because I 21 assume they have some sort of process. I'm really 22 trying to figure out what our process is here. 23 So when you say there has to be a certain 24 amount, what is that amount threshold? 25 MS. MIURA: There's a threshold of $5,000 26 and under, which are -- those sorts of contracts can 27 be informally bid and an RFP is not necessarily 28 needed. 55 1 And then there's a threshold of $50,000 and 2 over. And I'm talking for non-IT services in 3 particular, that those are normally competitively 4 bid. And contracts in that amount need to go to DGS 5 for approval. 6 MS. MA: Okay. So any contract over 7 $50,000 has to go to DGS. 8 MS. MIURA: For non-IT services -- 9 MS. MA: For non-IT services -- 10 MS. MIURA: -- contracts. 11 MS. MA: -- for approval. 12 And so what happens between 5,000 and 13 50,000? 14 MS. MIURA: Well, those are -- again, it 15 depends on if you're talking about a service or a 16 good or IT. But usually between those amounts you 17 can -- there's several procurement vehicles: An 18 RFP; what's called an invitation for a bid, which is 19 not as complex as an RFP and that, when you're 20 inviting vendors to bid, it can be either a low 21 amount wins or a combination of experience and the 22 costing can win. Those are two vehicles. 23 MS. MA: So anything between 5,000 to 24 50,000 has to go through an RFP or an invitation for 25 bid? 26 MS. MIURA: Right. Depending on the 27 service that you need, usually it does have to 28 get -- go through a bid. 56 1 I'm being careful about that because there 2 are some narrow exceptions for bidding where it's 3 based on the type of service, such as outside legal 4 contracts, anything to -- that involves litigation. 5 And there's -- there's other certain subvention 6 contracts for the public need. There's certain 7 exceptions to competitive bidding, but they're very 8 narrow. 9 MS. MA: So are these contracting 10 procurement rules on our website someplace? So if a 11 vendor wants to bid on a contract, for example, they 12 can go to a certain page on our website and 13 understand how to -- I mean, do we have a database 14 that we send out to invite bidders? Or do you have 15 to post on, you know, some media, like -- I'm just 16 trying to figure out if -- 17 MS. MIURA: There is. 18 MS. MA: -- people are interested, how do 19 they know the contracts are let? 20 MS. MIURA: There's sort of an electronic 21 bulletin board on DGS's website. Because DGS is the 22 oversight agency for procurement, they have all -- 23 everything that you've mentioned, Ms. Ma, is on the 24 DGS website for interested contractors, interested 25 vendors, how to qualify. Those types of postings 26 are on the DGS website. 27 MS. MA: Okay. And then so do we have a 28 DBE requirement or a preference for certain -- I 57 1 don't know -- local vendors, small vendors? 2 MS. MIURA: Yes. There's -- that also is 3 overseen by DGS, the DVBE and the small business 4 certifications are provided through the DGS office. 5 And for BOE's procurements, there can be 6 DVBE or small business incentives for certain 7 contracts. And the Procurement Division here at BOE 8 will make that determination as to which contract is 9 appropriate for those incentives. 10 MS. MA: Okay. And then who is on the 11 procurement team here that makes these decisions on 12 contracts? 13 MS. MIURA: It -- it would be in the 14 procurement office. There are several chiefs there. 15 So on one side there's the Goods Procurement; on the 16 other side there's Contracts for Services. Joseph 17 Gee has been appointed the Chief of that Procurement 18 Division. 19 MS. MA: Okay. So maybe in another hearing 20 when you come back, you know, we kind of would like 21 to know the processes, just to make sure that, you 22 know, everything is being followed and we understand 23 all of the processes. 24 And then what, if there's confidentiality 25 requirements, like what is subject to the Public 26 Records Act? 27 MS. MIURA: In -- in the Government Code, 28 generally public agencies that generate documents, 58 1 everything is public unless there's an exception in 2 Government Code section 6254. 3 So there are exceptions to the Public 4 Records Act. It depends on the statutory 5 category. 6 MS. MA: Okay. Those were my initial 7 questions. 8 MR. HORTON: Further discussion, Members? 9 It might be helpful as well to share with 10 the Members the body of law which created these -- 11 these various different criteria that exists and to 12 the extent the control agency actually has oversight 13 over our procurement process. 14 The other thing is, the Members' engagement 15 in that process and the extent in which we can or 16 cannot engage. 17 Further discussion, Members? 18 Thank you. Thank you very much. We 19 certainly appreciate your presentation. Very calm 20 and deliberative -- 21 MS. MIURA: Thank you. 22 MR. HORTON: -- and did an excellent job. 23 We appreciate it. 24 MS. MIURA: Thank you, Mr. Chairman. Thank 25 you, Members. 26 MR. HORTON: Yes. Yes, we appreciate it. 27 I'm with Mr. Runner, I don't know if I can 28 follow the agenda, but are we there? Ms. Murphy? 59 1 MS. MURPHY: I just have one quick last 2 item. 3 MR. HORTON: Go right ahead. 4 MS. MURPHY: And I'm going to ask Ms. 5 Melissa Shelton to please stand. 6 Melissa has worked for BOE for the last 7 eight years. It's with heavy hearts that she's 8 leaving us to go work for EDD. She will be moving 9 from the Budget area to the HR. 10 She has been instrumental in my three years 11 of being here. We're really talking about a star. 12 So when we talk about our employees going above and 13 beyond, I think Melissa Shelton definitely 14 demonstrates that. There's not a task that I've put 15 in front of her that she hasn't been able to 16 deliver. 17 So I just wanted to use this opportunity to 18 just wish her well and let her know that her BOE 19 family will always be here. 20 MS. HARKEY: I just met her. 21 MR. HORTON: Oh. Oh, how nice. Yay. 22 (Applause.) 23 MR. HORTON: Melissa, I'm sorry to inform 24 you, I had discussions with the Director of EDD and 25 you will be staying. Welcome -- welcome to the BOE. 26 Those flowers go right to your desk. 27 No. 28 MS. HARKEY: You won't like it there as 60 1 well. 2 MR. HORTON: That's not a family over 3 there. 4 Excuse me, EDD. 5 But thank you so very much for your service 6 over the -- over the short period of time that we've 7 had to -- to -- to be engaged with you. The 8 exceptional of stepping forward whenever called 9 upon, you know, when there's a line, most people 10 step back. You step forward and that's always 11 appreciated. Some people step back. 12 Anyway, thank you. We much appreciate it. 13 On -- we notice here a discussion about the 14 facilities, BOE facilities? 15 Okay. Maybe we'll incorporate that. 16 To all of those who are listening in the 17 Legislature and so forth, we -- we can be more 18 efficient with a more efficient building. 19 Anyway, thank you very much. We much 20 appreciate it. The Board of Equalization is hereby 21 adjourned. 22 ---oOo--- 23 24 25 26 27 28 61 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 October 28, 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 61 constitute 14 a complete and accurate transcription of the 15 shorthand writing. 16 17 Dated: January 14, 2016 18 19 20 ____________________________ 21 KATHLEEN SKIDGEL, CSR #9039 22 Hearing Reporter 23 24 25 26 27 28 62