1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 JUNE 14, 2016 10 11 12 13 14 ITEM P 15 OTHER ADMINISTRATIVE MATTERS 16 ITEM P1 17 EXECUTIVE DIRECTOR'S REPORT 18 2. LEGISLATIVE BUDGET AND CONFERENCE COMMITTEE 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 of Equalization: Fiona Ma, CPA 4 Chairwoman 5 Diane L. Harkey Vice Chair 6 Jerome E. Horton 7 Member 8 Sen. George Runner (Ret.) Member 9 Yvette Stowers 10 Appearing for Betty T. Yee, State Controller 11 (per Government Code Section 7.9) 12 Joann Richmond 13 Chief Board Proceedings 14 Division 15 For Board of 16 Equalization Staff: David Gau Executive Director 17 Edna Murphy 18 Deputy Director Administration 19 20 ---oOo--- 21 22 23 24 25 26 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 JUNE 14, 2016 4 ---oOo--- 5 MS. MA: Ms. Richmond, next item? 6 MS. RICHMOND: Our next item on the agenda 7 is Item P1.2 Legislative Budget and Conference 8 Committee. 9 MS. MA: Okay. Mr. Gau. 10 MR. GAU: Yes, good morning again. 11 MS. MA: Please introduce yourself for the 12 record. 13 MR. GAU: David Gau, Executive Director, 14 with Ms. Edna Murphy, Deputy Director of the 15 Administration Department. 16 We are here this morning to give you an 17 update on the budget as it stands. Ms. Murphy's 18 going to preview the Budget Change Proposals, and 19 I'll talk briefly a little bit about the -- some of 20 the Joint Legislative Budget Committee items as 21 well. 22 MS. MURPHY: Good afternoon, Chairwoman Ma 23 and Members. I'm Edna Murphy, Deputy Director of 24 Administration. 25 My first item is a presentation on the 26 fiscal year '16-'17 Budget Change Proposal and 27 Spring Finance Letters for the Board of 28 Equalization. Please note that all BCPs and Spring 3 1 Finance Letters have been approved by the 2 Legislature. 3 The first proposal is the Fire Prevention 4 Fee. We were approved for 1.4 million for the 5 conversion of 8.6 limited-term positions to 6 permanent and 7.2 position equivalent and temporary 7 help to continue process and mandated work 8 associated with the Fire Fee. 9 The next proposal is our Appeals Division 10 Business Tax Program and Settlement workload. We 11 were approved for 5.1 million for the conversion of 12 22 limited-term positions to permanent and 8 13 additional limited-term positions in fiscal year 14 '16-'17 to address the increased workload associated 15 with the Appeals Division's Business Tax Section and 16 Settlement Program. 17 Our next proposal, we was approved for the 18 continued funding of $296,000 in federal funds to 19 permanently establish two expiring limited-term 20 positions to participate in the Joint Operation 21 Center for the National Fuel Compliance Project. 22 The next proposal is our Spring Finance 23 Letter for the Regional Railroad Accident 24 Preparedness and Immediate Response Program. We 25 were approved for 821,000 and 2.4 positions in 26 '15-'16, 475,000 and 1.3 positions in '16-'17, and 27 278,000 and 1.3 positions in '17-'18 to administer 28 the provision of Senate Bill 84. The Senate Bill 84 4 1 authorized a new fee to be imposed on owners of the 2 25 most hazardous materials commodity at the time 3 that the hazardous materials is transported by 4 loaded rail cars in California. 5 Our next proposal is the May revision for 6 AB 1717, which is the Prepaid Mobile Telephony 7 Services Surcharge. We requested 3.7 positions and 8 1.3 million in '16-'17 and 2.3 positions and 188,000 9 in '17 and '18 and ongoing to continue process 10 mandated workload associated with AB 1717. This 11 proposal was approved with funding changes to 12 limited term through January of 2020, which is the 13 expiration of the legislation. 14 And then, last, our proposal is the May 15 revision for CROS that requested 17.5 million and 43 16 positions in '16-'17 to ensure that the Centralized 17 Revenue Opportunity System Project has the resources 18 to begin the implementation phase. 19 The Assembly approved this proposal with 20 additional project oversight by the Department of 21 Technology and the Department of Finance, and the 22 Senate approved it with one year of funding and 23 reduced the budget bill language authority for the 24 Department of Finance to augment the project from 25 5 million to 3 million. 26 And that is the informational update on our 27 BCPs and Spring Finance Letters. 28 MR. GAU: And -- 5 1 MS. MA: So -- 2 MR. GAU: Oh, I was just going to add the 3 Assembly Budget Action Committee items and where 4 those ended up. 5 MS. MA: Okay. I do have question. 6 So how many employees are we talking about 7 for next year? 8 MS. MURPHY: Additional employees? 9 MS. MA: Yeah. 10 MS. MURPHY: So the overall -- and I have 11 the total change -- the overall augmentation of 12 positions for current year is -- well, this will be 13 budgeted for '16-'17 -- is 95.9 positions. 14 MS. MA: So where are they all going to 15 sit? 16 MS. MURPHY: In this building, majority of 17 them. 18 MS. MA: Oh. 19 MS. MURPHY: Because a majority of the 20 augmentation is for CROS, and so they'll be here. 21 We already have the 22 limited-term positions, so a 22 lot of the changes are limited-term to permanent, 23 which we already house those positions existing. 24 MS. MA: Okay. 25 MS. MURPHY: So the limited-term that's 26 being made to permanent, we already house those 27 positions currently. 28 MS. MA: Okay. 6 1 All right. Any questions? 2 MR. HORTON: Just a comment. 3 MS. MA: Mr. Horton? 4 MR. HORTON: Thank you, Madam Chair. 5 Thank you for the report. I also wanted to 6 commend Ms. Amy Kelly for going forth on the 7 Settlement Division, explaining that, meeting with 8 the Finance Committee, going through that entire 9 process of explaining why the settlement and appeals 10 is so very important, that we're in the position to 11 accelerate and resolve those cases. Because in 12 doing so it increases the flow of revenue to the 13 State of California, it minimizes the appeals 14 process, and she's done an exceptional job of 15 managing that team and moving it forward and we're 16 extremely pleased with that. 17 It probably should be larger than what it 18 is, you know. The concerns expressed by the 19 Legislature and others about the increase in appeals 20 is not going away. We audit on a three-year basis, 21 and so the impact of the economy has -- we have yet 22 to see because of these changes, and it's 23 anticipated that the State may very well be headed 24 towards another recession. 25 And so these issues just aren't -- simply 26 aren't going anywhere. And the State is getting 27 larger. The number of business that we interact 28 with is getting larger and the underground economy 7 1 is growing exponentially, which really contributes 2 significantly to this appeals problem and concerns 3 as corporations begin to close and file bankruptcy 4 and so forth. 5 And so, pleased that it was that the 6 limited terms were put in place. Thank you, guys, 7 you did a fabulous job. But let's -- maybe we ought 8 to start documenting early. Maybe we ought to start 9 having conversation with the Legislature early about 10 the settlement process, and Department of Finance as 11 well. We're still understaffed in that area if you 12 look at the numbers. And so let's see if we can 13 continue to try to strengthen the BOE in that 14 area. 15 MS. MA: Okay. 16 MS. STOWERS: Chairwoman? 17 MS. MA: Ms. Stowers. 18 MS. STOWERS: Yes. 19 So, Ms. Murphy, was that three BCPs or five 20 BCPs that were approved? 21 MS. MURPHY: It is a total of three BCPs, 22 one Spring Finance Letter, and two May revisions. 23 MS. STOWERS: Thank you very much. 24 I, too, want to thank you, Ms. Murphy, and 25 your Budget Officer, Steve Mercer, for all your 26 dedication you did during this budget process. I 27 know it was a tough time. 28 I came down to your office frequently and I 8 1 saw you and Steven working together. I listened in 2 on some of the conversations that you were having 3 with the Department of Finance staff. And I just 4 really would like to -- and even some of the 5 conversations you had with the Franchise Tax Board 6 on this next topic -- and I'd really like to commend 7 you guys for working together as a team. I feel 8 that you did an excellent job. 9 MS. MURPHY: Thank you. 10 MS. MA: Ms. Harkey. 11 MS. HARKEY: I, too, think you did a great 12 job. I mean what we started with and what we ended 13 up with, kudos to you. Everybody, I think, pitched 14 in very well and I really appreciate your, you know, 15 firmness in tightening up the numbers. 16 The one thing before we -- on the appeals 17 and settlements, I think we need to be sure we've 18 got our accounts accurate because I know sometimes 19 there are mult- -- there are duplicate accounts, 20 depending on where the process is. 21 So if we could have the departments look at 22 that, and maybe we could set up where we track one 23 taxpayer with one account number. Because there was 24 a change, I think, that took place in '13, 2013, 25 that allowed an extra box to be checked off so you 26 could set up -- you know, Did you want to go to 27 settlement? And if you did, then I believe 28 sometimes they were like one got it -- for appeals 9 1 got a number and settlement got a number, and we 2 need to be sure we're not double counting when we do 3 our -- when we do our reports. 4 MS. MURPHY: Okay. 5 MS. HARKEY: Thank you. 6 MS. MA: Mr. Runner. 7 MR. RUNNER: Just a quick question. On 8 the -- again, and I -- I just want to also add on 9 that I appreciate the all-hands-on-deck response to 10 getting things together in short order and 11 availability to both us and the Legislature in 12 regards to dealing with the issues and the questions 13 before us and before them. 14 The added positions, the 90-some net or 15 90-some positions, is that net of the 11 positions 16 that got swept out? 17 MS. MURPHY: This is -- this is before they 18 swept the positions. 19 MR. RUNNER: Okay. Okay. I just wanted to 20 make -- 21 MS. MURPHY: So this was just tied directly 22 to the -- right. 23 MR. RUNNER: So we did actually lose some 24 then also in that process, correct? 25 MS. MURPHY: Right. So when we go back to 26 our complete baseline of our positions -- 27 MR. RUNNER: Right. 28 MS. MURPHY: -- we lost 11 positions. 10 1 MR. RUNNER: Gotcha. Okay. I just wanted 2 to make sure that we had that as a part of that. 3 And, again, and I -- and I want to only 4 bring that up only because it seems to me that, as I 5 looked at the justification for those, there seemed 6 to be -- I think their term was redundant positions. 7 I'm not sure if that adequately describes the 8 positions. It seemed to me what they actually were 9 driving were those that were seemed to be vacant 10 over a long period of time. 11 MS. MURPHY: Correct. 12 MR. RUNNER: Which I think comes back to 13 our issue, which is an importance of creating a 14 staffing plan that helps us understand our 15 vacancies, the number of vacancies we need to hold 16 so that we can articulate that better and then also 17 then we can be strategic in where we hold those 18 vacancies. 19 So I think that's my observation in regards 20 to some of that. Thanks. 21 MS. MURPHY: Thank you. 22 MS. MA: And I'd also like to thank the all 23 hands on deck. I know this was not an easy process. 24 The Legislature, you know, requires a lot of 25 information and they want it when they want it. 26 We need to prepare better next year, 27 understanding what their concerns are, so that all 28 of the documents are updated for next year so that 11 1 when they ask, we're ready. 2 We kind of know what the questions are now 3 and so also want to thank -- I know Michele 4 Pielsticker was also heavily involved in this whole 5 process as well, so I just want to thank everyone 6 for working together to get the Legislature what 7 they wanted so that we're able to move forward with 8 our BCPs. 9 Anybody else? 10 Okay. Well, thank you very much. 11 This is also an informational item, and so 12 there's no vote. 13 ---oOo--- 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 June 14, 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: June 27, 2016 18 19 20 ____________________________ 21 KATHLEEN SKIDGEL, CSR #9039 22 Hearing Reporter 23 24 25 26 27 28 13