1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 5901 GREEN VALLEY CIRCLE 3 CULVER CITY, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 FEBRUARY 23, 2016 10 11 12 13 14 15 PUBLIC HEARINGS 16 F2 STATE ASSESSEES' PRESENTATIONS ON CAPITALIZATION 17 RATES AND OTHER FACTORS AND PROCEDURES AFFECTING 18 FISCAL YEAR 2016-17 PROPERTY VALUES OF CALIFORNIA 19 PUBLIC UTILITIES, RAILROADS, AND PIPELINES 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 16 Division 17 For Board of Equalization Staff: Ken Thompson 18 Chief State-Assessed Properties 19 Division 20 Bradley Heller Tax Counsel IV 21 Legal Department 22 ---oOo--- 23 Speaker: Peter Michaels 24 Attorney Peter Michaels Law Firm 25 26 ---oOo--- 27 28 2 1 5901 GREEN VALLEY CIRCLE 2 CULVER CITY, CALIFORNIA 3 FEBRUARY 23, 2016 4 ---oOo--- 5 MR. HORTON: Ms. Richmond. 6 MS. RICHMOND: Our next matter is Item F2, 7 Property Taxes - State Assessees' Presentations on 8 Capitalization Rates and Other Factors Affecting 9 Values. 10 And we do have a speaker for this item. 11 MR. HORTON: Thank you. 12 As the tax- -- I mean as the Department 13 comes forward, we would invite Mr. Peter Michaels, 14 Peter Michaels Law Firm, to come forward as well. 15 We'll take the presentation from our staff and then 16 the testimony from Mr. Michaels. 17 MR. THOMPSON: I'm Ken Thompson the Chief 18 of the State-Assessed Properties Division. 19 This is the first opportunity under Board 20 role for assessees and other interested parties to 21 present comments to the Board in a public setting 22 regarding capitalization rates and other matters 23 affecting State assessment. 24 MR. HORTON: Thank you very much, 25 Mr. Thompson. 26 Mr. Michaels, at your convenience, 27 please. 28 ---oOo--- 3 1 PETER MICHAELS 2 ---oOo--- 3 MR. MICHAELS: Thank you, sir. 4 MR. HORTON: You have three minutes. 5 MR. MICHAELS: Sir. Ready? Thank you. 6 I'm here today on behalf of 45 State 7 assessees, roughly; those include telephone 8 companies, gas and electric utilities, independent 9 merchant, electric power producers, pipeline 10 companies and railroads. And the -- as is annually 11 the case, this hearing takes place before the 12 taxpayers, the State assessees, actually file their 13 annual returns; those returns are due next Tuesday, 14 March 1st. 15 So, we have had a number of preliminary 16 discussions with Mr. Thompson and his staff, I'd say 17 weekly discussions with Mr. Thompson and his staff, 18 in anticipation of this year's value 19 recommendations. And you'll also undoubtedly recall 20 that we haven't had any hearings before the Board in 21 a number of years, thanks to the collaborative 22 efforts with Mr. Thompson and his staff. 23 So it's premature for us to raise any 24 substantive or valuation issues. However -- and I 25 did discuss this in advance with Mr. Thompson -- I 26 did want to flag one topic of likely future concern. 27 Earlier this year the Board of Equalization 28 held an interested parties meeting on a business tax 4 1 issue, federal areas, Regulation 1616, which is code 2 for Native American tribal land. And interestingly, 3 the position that the Board staff took -- and this 4 is a work in progress, so this is just an 5 overview -- as I recall was that, as the discussion 6 unfolded, if there's a Starbucks, for example, at a 7 Native Ameri- -- at a casino on tribal land, it 8 should, under certain conditions, be subject to 9 tribal sales tax rather than State sales tax. 10 And I may be slightly butchering, but for 11 purposes of this discussion about property tax, 12 that's probably good enough. So a Starbucks at a 13 casino subject to tribal tax. 14 So someone raised the question, well, what 15 about a Starbucks across the street from the casino, 16 also on tribal land, shouldn't that be treated the 17 same? And that, in turn, led to a discussion about 18 property tax because some of the principles that we 19 were examining in the context of sales or business 20 taxes lead right into jurisdiction over assessment 21 and whether it's preempted by tribal sovereignty or 22 not. 23 So this federal -- and a number of the 24 Native American tribal representatives and their 25 lawyers raised issues or mentioned property 26 taxation. Now, many -- most of these State 27 assessees that I represent, many of them have 28 substantial property holdings, power plants and the 5 1 like, telecom infrastructure, on tribal land. And 2 sooner or later it is likely that this Board will 3 confront whether or not it has jurisdiction or if 4 the tribe has preemptive authority over facilities 5 on tribal land. So I flag that. 6 Mr. Heller, who's here in the room, I think 7 has -- is one of the lead Board attorneys on the 8 federal areas of business tax side. So I certainly 9 don't want to distort or misrepresent anything he's 10 said. But this is an issue that will bleed into 11 property tax, both at the State and local level, and 12 will bleed into State assessment sooner or later. 13 MR. HORTON: Thank you. 14 Discussion, Members? 15 Member Harkey. 16 MS. HARKEY: Have you had a -- a -- has the 17 administration weighed in on any of this? Because 18 I'm thinking that the tribal issue is not just a 19 localized BOE issue. I think there are compacts and 20 other things that are signed, negotiated by the 21 Governor, and that I would think the 22 administration's representative would be -- probably 23 need to be weighing in pretty heavily. 24 MR. MICHAELS: This is a national issue 25 that most recently was triggered by or prompted by 26 regulations that were adopted by the Bureau of 27 Indian Affairs in Washington D.C. 28 MS. HARKEY: Recent res- -- recent 6 1 regulation? 2 MR. MICHAELS: Recent regulations. They 3 were -- they took effect in January of 2013. So 4 that's pretty recent in this -- for these purposes. 5 And there are court case -- there have been court 6 cases in Florida, in the State of Washington. There 7 is one here in California, the Agua Caliente tribe 8 in Riverside County. 9 So the -- there are legal issues, 10 certainly, that the courts will address, and it 11 sometimes takes a while for those issues to be 12 finally resolved. But it is an issue of national 13 significance for every state, and the question is 14 whether the new Bureau of Indian Affairs regulations 15 establish exclusive tribal jurisdiction over 16 transactions and assets on tribal land, and thereby 17 preempt any State or local assessment. And that 18 would be county property tax, as well as State 19 property tax if, ultimately, the tribes are held to 20 have exclusive preemptive jurisdiction. 21 MS. HARKEY: Well, thank you. I appreciate 22 you coming before this body because I have been 23 questioning as to, you know, where -- where all this 24 is coming from. And now you're the first person in 25 all of my conversations that tells me that there was 26 something done in 2013 by the Bureau of Indian 27 Affairs that has triggered kind of a reaction. And 28 so I appreciate it, because I've been asking since 7 1 I've been on the Board, you know, What are we doing? 2 How are we handling this? 3 MR. MICHAELS: I'll be happy to forward to 4 your staff, and staffs of any of the Board 5 Members. 6 MS. HARKEY: I would think -- I would think 7 maybe our executive team, too, because I have -- 8 MR. MICHAELS: Yeah, and Mr. Thompson is 9 well aware of this and we've talked about it now for 10 a couple years, since -- 11 MS. HARKEY: We probably just haven't 12 connected with you, because I have been asking. 13 There's been a variety of little things that have 14 come up. 15 In my district I have a lot of tribes, and 16 there's some little things have come up and I'm 17 going, Where are these coming from? You know, 18 What's the genesis? Why are we -- why are we 19 addressing these now? And this is the first time 20 I've heard about this 2013 and whatnot. 21 So, I'd appreciate whatever information you 22 can provide us. 23 MR. MICHAELS: And, you know, the 24 interested parties meeting to which I referred that 25 took place in January had a very strong turnout of 26 representatives of tribal interests. So then you -- 27 MS. HARKEY: I wasn't there. So I don't 28 know why, but I wasn't there. 8 1 MR. MICHAELS: I think someone from your 2 staff might have been there; pretty sure. 3 MS. HARKEY: They may have been, but I have 4 not received this -- this -- I never knew what the 5 genesis was and I've been asking. So I do 6 appreciate it. Thank you. 7 MR. HORTON: Member Runner. 8 MR. RUNNER: Yeah. Just kind of another 9 step on that. You know, I know -- I know that on 10 the local levels they're dealing with this and you 11 got the lawsuit -- or you got the Assessor and Agua 12 doing their -- you know, doing their legal thing in 13 regards to trying to find out in regards to their 14 issues with their local property tax. 15 Have we run into that at all? Have we had 16 any issues at all in regards to our State assessees 17 that are on -- that are on tribal? 18 MR. THOMPSON: It has been raised. The 19 difficulty of the issue is complicated by the fact 20 that the railroads, the pipelines, and the -- and 21 electric companies and telephone infrastructure was 22 laid out prior to these tribal agreements and the 23 recordkeeping just is not there for the companies if 24 there was an exemption from property tax to identify 25 those assets. 26 MR. RUNNER: In those particular -- in 27 those particular lands. 28 MR. THOMPSON: Yes, because consider the 9 1 fact that railroads and pipelines, they -- they -- 2 they extend -- 3 MR. RUNNER: Right. 4 MR. THOMPSON: -- all across southern 5 California, and so definitely are on tribal lands. 6 MR. RUNNER: And where we could run into an 7 interesting issue and that is actually then 8 negotiations that would go on in, say, the placement 9 of a power plant, right? 10 MR. THOMPSON: Yes. 11 MR. RUNNER: And then all of a sudden 12 it's -- 13 MR. THOMPSON: And -- and further 14 complicating the issue is many tribes are 15 considering making investments in property of this 16 sort. 17 MR. RUNNER: Right. Right. Okay, thank 18 you. 19 MR. MICHAELS: They're investing in wind 20 farms. 21 MR. RUNNER: Right. 22 MR. MICHAELS: They're investing in solar. 23 They're doing joint ventures with utility 24 companies. 25 MS. HARKEY: Just -- just as a comment, 26 that may be one way of getting power to southern 27 California. So I'm not going to knock their -- 28 their creative -- creativity. But what I do, I'm 10 1 happy really that we got -- that I got clued in as 2 to where this is all coming from. Thank you. 3 MR. MICHAELS: Thank you. 4 MR. HORTON: Thank you. 5 Just wanted to -- to sort of point out 6 another -- one of the potential challenges is, is 7 some of the reservations have what they call a 8 checkerboard situation where, if you've ever seen a 9 checkerboard where you have the black and red, well, 10 the black is owned by the tribe, the red is owned by 11 the State. And so when it comes to power lines, 12 either going under or over, it really creates a huge 13 challenge in trying to figure all this out. 14 The place -- the place where this will 15 ultimately be resolved is the Federal Government as 16 it relates to the sovereignty issue, in my mind, and 17 I certainly would encourage we take a look at that. 18 But wanted to also share that the location of the 19 casino has absolutely nothing to do with it. Its 20 proximity to the casino, it's more in actually being 21 on the -- 22 MS. HARKEY: On the land. 23 MR. HORTON: -- on the land itself that's 24 owned by the tribe, if that's helpful. 25 MR. MICHAELS: Mm-hmm. 26 MR. HORTON: All right. Thank you very 27 much for your presentation. The Board will receive 28 and file. Unless there's anything else, 11 1 Mr. Thompson, would like to share. 2 MR. THOMPSON: Nothing. 3 MR. HORTON: All right. 4 MR. MICHAELS: Thank you. 5 MR. HORTON: Thank you. 6 ---oOo--- 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 12 1 REPORTER'S CERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, Kathleen Skidgel, Hearing Reporter for 8 the California State Board of Equalization certify 9 that on February 23, 2016 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 12 constitute 14 a complete and accurate transcription of the 15 shorthand writing. 16 17 Dated: April 5, 2016 18 19 20 ____________________________ 21 KATHLEEN SKIDGEL, CSR #9039 22 Hearing Reporter 23 24 25 26 27 28 13