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 SEPTEMBER 27, 2016 10 11 12 ITEM P 13 OTHER ADMINISTRATIVE MATTERS 14 ITEM P6 15 ADMINISTRATION DEPUTY DIRECTOR'S REPORT 16 1. NORWALK DISTRICT OFFICE RELOCATION 17 18 19 20 21 22 23 24 25 26 27 REPORTED BY: Kathleen Skidgel 28 CSR NO. 9039 1 1 P R E S E N T 2 3 For the Board 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: Edna Murphy Deputy Director 17 Administration Department 18 Chris Holtz Chief 19 Business Services Division 20 David Gau 21 Executive Director 22 23 ---oOo--- 24 25 26 27 28 2 1 5901 GREEN VALLEY CIRCLE 2 CULVER CITY, CALIFORNIA 3 SEPTEMBER 27, 2016 4 ---oOo--- 5 MS. MA: Okay, next item, Ms. Richmond. 6 MS. RICHMOND: Our next item is P6, the 7 Administration Deputy Director's Report; P6.1 8 Norwalk District Office Relocation. 9 MS. MURPHY: Good morning -- 10 MS. MA: Good morning. 11 MS. Murphy: -- Chairwoman Ma and Members. 12 I'm Edna Murphy, Deputy Director of Administration. 13 And with me today is Mr. Chris Holtz, Chief over the 14 Business Services Division, who will be requesting 15 your approval for a facility relocation. 16 MS. MA: Okay, Mr. Holtz. 17 MR. HOLTZ: Thank you, Board Members. I -- 18 I am here to briefly update you on the status of the 19 BOE Norwalk District Office relocation to Cerritos 20 and to ask that we move forward with this project. 21 The BOE has been in the current Norwalk 22 facility for 22 years. Extensive negotiations with 23 the current lessor in Norwalk were unsuccessful, and 24 office overcrowding in that facility has become 25 critical. 26 In 2002, staffing levels were at 132 27 positions, and today staffing is at 179. 28 The current space of slightly under 29,000 3 1 square feet has exceeded the minimum capacity level 2 set by local building codes and is no longer a safe 3 environment for BOE or the tax-paying public it has 4 been elected to serve. 5 DGS is in the final preparation of a lease 6 at the new location in the City of Cerritos. The 7 projected space is 36,592 square feet and will meet 8 projected capacity levels. However, new language in 9 the 2016 Budget Act requires notification and 30-day 10 review by the Chair of the Joint Legislative Budget 11 Committee. Specifically, Provision 4 states that 12 the BOE shall not construct, lease, rent, acquire, 13 or otherwise contract for any new or expanded office 14 space and shall not relocate any of its offices 15 unless such an action is approved in advance by the 16 Department of Finance and the JLBC. 17 We continue to work closely with DGS and 18 the Department of Finance to not only identify best 19 practices and space requirements for future office 20 space, but also streamline the process and be as 21 transparent as possible regarding practices and 22 policies. 23 Therefore, we request your vote to approve 24 the relocation from the Norwalk site and the 25 approval of the final lease negotiations by DGS for 26 the BOE so that we can begin the provision for 27 approval process with the Legislature. 28 And I'd be happy to answer any questions 4 1 you have. 2 MR. HORTON: Move approval, Madam Chair. 3 MS. HARKEY: I -- 4 MS. MA: Okay. I have a couple questions. 5 Can you just talk about the history of how 6 long it takes to, you know, relocate this office, 7 'cause it just didn't happen yesterday, right? So, 8 I think it's good for everyone -- 9 MS. HARKEY: Right. 10 MS. MA: -- to hear what the process was, 11 how long it's taken, and kind of the steps to get to 12 us to where we are today. 13 MR. HOLTZ: Right. 14 DGS has been in negotiations for moving 15 this -- or not for moving, but for renewing the 16 lease on this facility since December of 2011. And 17 from 2011 to 2014, the negotiations with the lessor 18 were not successful. 19 BOE intended to fund all the tenant 20 improvements at Norwalk, including carpeting, 21 painting, build-outs, um, but those negotiations 22 fell through. Negotiations then began on finding an 23 alternative site and the Cerritos site was chosen. 24 And DGS estimates that once approval is 25 given, then it would be through the course of 2017 26 that the move would take place. 27 MS. MA: And so once we vote here, is the 28 next step to go to the Department of Finance or have 5 1 we been working with the Department of Finance? 2 MR. HOLTZ: We've been working with the 3 Department of Finance over the -- over the course of 4 the last couple of months. The next step is to work 5 with them to issue a letter to the Joint Legislative 6 Budget Committee. And then they would have 30 days 7 to review and to approve. And we have discussed 8 with Finance and staff that we don't see any major 9 obstacles with that process. So we anticipate 10 everything to go smoothly. 11 MS. MA: Okay. 12 Ms. Harkey. 13 MS. HARKEY: Isn't it the case that this is 14 not new property; this is -- this is a relocation 15 and we're not acquiring new real estate, we're just 16 moving from one to another, from an older building 17 that is in serious -- needing of serious repairs, to 18 a building that -- where we have a nice facility, 19 it's updated, it's to code and what we need. 20 MR. HOLTZ: That's correct. This is a move 21 to a newer facility, to a newer lease space. 22 MS. HARKEY: And what happens with the 23 place -- with what we're leaving? Does that lease 24 expire? 25 MR. HOLTZ: That lease expires, yes. 26 MS. HARKEY: Okay. Thank you. 27 MR. HORTON: Madam Chair. 28 MS. MA: Ms. Stowers. 6 1 MS. STOWERS: I just wanted to comment that 2 I appreciate the fact sheet. I believe you guys are 3 going to be sharing this fact sheet with external 4 parties. It provides a lot of detailed information 5 on the move, and just want to say good work and 6 continue on that path when you're looking to move to 7 a different location. 8 MR. HOLTZ: Thank you. 9 MS. MA: Mr. Horton. 10 MR. HORTON: Thank you, Madam Chair. 11 Members, I think also, DGS should be 12 commended for their work over the years. This is a 13 very lengthy process, primarily because the initial 14 step was to renegotiate and try to stay in the 15 current location. 16 It's a prime location. Prime location of 17 public -- public transportation, it's near our 18 Settlement and Appeals branch. It's also near voter 19 registration and a number of other city and state 20 locations. 21 So it is a prime location and the desire 22 was to try to stay there. The lessor was just not 23 cooperative, even to the extent that DGS agreed to 24 pay for many of the repairs instead of having the 25 lessor do so. They just refused to do so. And this 26 particular office is one of the highest traffic 27 offices in the State of California. It, uh -- and 28 it's one of our largest as well. 7 1 It's good news to the employees that will 2 be working there. The parking at the Cerritos 3 office is free. 4 I got a call about 11:00 o'clock last night 5 crying about the parking, from folks. And so we had 6 to figure that out rather quickly. So good news in 7 that regard. 8 And the other issue that I want to sort of 9 discuss with the Board, or share I guess, is that 10 the notion of relocating a existing branch office or 11 district office is a very complicated process 12 irrespective. Just doing that takes time. It takes 13 a lot of energy, and there has to be legitimate 14 reasons because we're dislocating our employees and 15 redirecting our customers. And so it's inherently 16 not something that we seek to do. 17 And in that regard, when the Board is 18 relocating an office, having it come before us only 19 serves to feed into the notion that something might 20 be empirically, inherently challenging with these 21 relocations. I don't think, though, those are the 22 issues. And, quite frankly, I think staff should go 23 forth to -- on relocations, go forth to -- although 24 we don't anticipate any in the next few years, but 25 go forth to the Department, DOF, and work out the 26 arrangements and move it forward through this 27 legislative process until we can assure the 28 Legislature about the integrity of this 8 1 particular trans- -- these particular types of 2 transactions. 3 And, quite frankly, I would defer to the 4 Executive Director to handle, but -- because every 5 time it comes up here, we're just feeding into the 6 notion that something is fundamentally flawed, and 7 it's just not. 8 MS. HARKEY: So I -- 9 MS. MA: Ms. Harkey. 10 MS. HARKEY: I'm -- I'm confused. So you 11 would like relocations not to come before the Board, 12 or you would like them to come before the Board when 13 they're finalized and been through the process? 14 What is it that you're wanting? 15 MR. HORTON: Thank you, Member Harkey, for 16 the question. 17 I would like to -- I believe the Executive 18 Director should be empowered to negotiate this with 19 the Department of Finance, take it forth after the 20 Department of Finance has signed off, letters 21 drafted. 22 Quite frankly, I would actually defer to 23 the Chair to kind of sign off on it. But if you 24 want to bring it back before the Board in a timely 25 sort of manner, then so be it at that point that 26 it's already been negotiated. 27 Our history over the last 30 or 40 years 28 when it -- first, relocations have been rare for the 9 1 Board of Equalization. But when it did occur, such 2 as with the San Diego office and the, uh -- now the 3 Norwalk office, and I think two others over the last 4 few decades or so, it has been something that we did 5 not necessarily look forward to and -- and took 6 quite a bit of deliberation and effort on the part 7 of all of us to accomplish that objective. And I 8 just don't particularly want to feed into the notion 9 that there is something flawed with this process, 10 but -- 11 MS. MA: Mr. Runner. 12 MR. RUNNER: Yeah, I'm just trying to 13 review. I -- I can't remember. Maybe the Executive 14 Director can remind us. We've had this discussion 15 in regards to facilities and approvals of facilities 16 and what is it -- I think it was, um -- I think 17 it's -- I think it may be included in the ED's 18 responsibilities in regards to what we do versus 19 what the ED does. 20 Was that -- wasn't that added? 21 MR. GAU: It was, correct. I was just 22 pulling -- I brought that with me, the conferring 23 powers. 24 MR. RUNNER: Yeah, the conferring powers. 25 MR. GAU: So I could just read quickly that 26 provision. It's subdivision (d) of the conferring 27 powers document that was approved by the Board at 28 the May 25th Board meeting. And it reads: 10 1 "Execution of any and all leases with 2 respect to real and personal property. The 3 Executive Director shall regularly report 4 on significant changes to the use of 5 existing lease space and, prior to 6 execution of such documents for any new 7 office space for a Member, the direct -- 8 the Executive Director shall obtain 9 approval of that Member, and Board approval 10 for all new office space." 11 MS. HARKEY: So -- 12 MR. GAU: So the interpretation that we 13 had, or that I had currently was that even a 14 relocation under the current conferring powers would 15 require the process we went through. However, I 16 think Member Horton has -- 17 MR. HORTON: Madam Chair, if I may. 18 MS. MA: Mr. Horton. 19 MR. HORTON: I don't see this as a new 20 transaction. 21 MR. GAU: Right. 22 MR. HORTON: I mean this is simply moving 23 staff from either, you know, one desk space, one 24 environment to -- to another. It doesn't expand our 25 footprint. There's nothing new about that. 26 MR. GAU: Right. 27 MR. HORTON: In fact, there's absolutely 28 nothing new about this transaction except for the 11 1 area now. 2 And so as long as the Executive Director 3 has entertained the -- the normal requirements, the 4 executive orders by the Board in the past as far as 5 locating staff within 25 miles of their current 6 location, getting that sign-off from the staff and 7 the convenience for the staff, as well as the 8 convenience for our customers, the California 9 taxpayers, um, and the Executive Director signs off 10 on that, I would not define this as something that 11 is new -- 12 MR. GAU: Yeah. 13 MR. HORTON: -- uh, to the Board. 14 MR. RUNNER: Well, I -- well -- 15 MS. MA: Can I just say that, um, you know, 16 I think given the level of scrutiny right now by the 17 Legislature, it's better to be more transparent than 18 less. And to the extent, you know, this has been in 19 the process, we're having a public discussion, we're 20 asking questions from the Board Members, I think it 21 is appropriate to hear it today, right? 22 Maybe going forward, you know, when all of 23 the relationships are a little bit more solid and, 24 you know, little more transparent, then maybe we 25 don't need to have these conversations here at the 26 Board. 27 But I do think it is helpful for us to know 28 what's happening within the agency, whether it's a, 12 1 you know, purchase or, you know, move. It is going 2 to cost money. It is going to cause disruption. 3 You know, we don't want to hear it in the press. We 4 don't want to hear it from, you know, staff members. 5 And so, to the extent that we can all be on the same 6 page at the same time, you know, I really appreciate 7 hearing it all here at the public meeting. 8 And, you know, people do watch at our 9 agency. They are watching our, uh -- our meetings. 10 They like to know as well when there are changes and 11 that we are actually vetting it and asking the 12 appropriate questions and having the appropriate 13 personnel here to answer those questions. 14 So, I would just say I appreciate this at 15 this time understanding what is happening, you know, 16 with our offices. 17 MR. RUNNER: Yeah, I -- I -- I tend to 18 agree in the sense that there's a couple things that 19 I think. I think we are at a unique time and I 20 think being more transparent and visible is a -- is 21 a good thing. I don't think it has anything to do 22 with anybody not doing their jobs or doing something 23 that's inappropriate. I think it's just the fact 24 that it's visible. 25 And I also believe that one of the issues 26 we need to remind ourselves is when we -- when we -- 27 when we take an action on that or we get a report on 28 that, I think just as important, or maybe even more 13 1 important than the report that we're getting, is 2 that becomes then a public discussion. It's on our 3 PAN. It is -- so that then if there's ever a 4 question that comes up later -- "Gee, who saw this? 5 What was that?" -- it's not only the Board that saw 6 it, but the public saw it. It's the Legislature 7 that saw it because they get copies of our -- 8 So at that point I think it protects us, I 9 think, in a way. And I think it protects the Board. 10 I think it protects the executives in that -- in 11 that process. 12 So that's why I think, for right now I 13 think the current process is a good process. I 14 don't want to kind of get into this nuancing between 15 whether "new" means a new kind of space that's never 16 been used before or whether "new" is something that 17 was -- was a similar space but now is in a new place 18 and so that doesn't count. To me that's a little 19 too nuanced and I'd get a little nervous about 20 that. 21 MR. HORTON: Madam Chair, if I may. 22 MS. MA: Mr. Horton. 23 MR. HORTON: I mean I concur with, uh -- 24 with both comments relative to the transparency and 25 the public discussion. 26 The concern is can we -- is that that 27 transparency, that public discussion, shall take 28 place, should take place. But when it comes to 14 1 relocation, that there should be certain expediency 2 and at least resolving all of the issues relative to 3 the Department of Finance. 4 And so the recommendation was, is that the 5 Executive Director go forth to the Department of 6 Finance, uh, have that discussion to deliberate on 7 all of the issues, all of the technical issues, all 8 of the timing issues. Then bring it back to the 9 Board for a public discussion. 10 Often times the Board hearings and any 11 delay in this process is just, you know, could -- 12 could very well attribute to additional cost. We 13 have the same level of transparency, the same level 14 of discussion. We're just more expeditious in 15 resolving any potential concerns or discussion with 16 Department of Finance. 17 Now what happens is, is that the Board will 18 approve this or not approve this today. The 19 Executive Director would go forth with the 20 Department of Finance. If there's any glitches in 21 that process, then those glitches will come back 22 before the Board again and there will be another 23 discussion. And then they'll go forth again. 24 I'm not anticipating that, and I want to 25 commend staff for being -- their foresight in having 26 those initial discussions. But it is just part of 27 the process that if there is any concern, I 28 certainly want those concerns vetted in the public 15 1 as well. 2 And so don't necessarily see the resolution 3 of this issue at this point of discussion, but see 4 that the resolution, or further resolution, we're 5 further down the stream, uh, closer to, uh, 6 executing this lease after the Department of Finance 7 has kind of seen all the facts, evaluated the 8 proposal, and then decided that they're supportive 9 of it and they're going forth to write the letter. 10 Before that happens, bring it back to the Board, 11 we'll sign off. 12 Generally speaking from a timing 13 perspective, I think that would be more expeditious. 14 I think it would be more transparency because now 15 the public will be included in the discussions with 16 the Department of Finance and what's going to go 17 forth to the Legislature. That discussion can take 18 place, which can't take place now. Uh, now there 19 would be -- that discussion, that process would not 20 be part of this public process at all. 21 So if there's any concerns on Department of 22 Finance, you know, it just gets mitigated or 23 resolved and they move forward. Or, they end up 24 bringing it back again, which is another bite at the 25 apple, another delay. 26 But I'm okay either way. It doesn't 27 really -- I don't think it really changes anything. 28 I just think the process that I'm recommending 16 1 actually provides for greater transparency and 2 greater awareness of the entire process. 3 MS. MA: Thank you. 4 Ms. Harkey. 5 MS. HARKEY: I think that what Mr. Horton 6 is -- is discussing is merely a matter of timing; at 7 what point do you bring it to us? Do you bring it 8 to us while you're still negotiating? Or do you 9 bring it to us after DOF has signed off and you've 10 gone through, uh -- and you've gotten all the 11 approvals you need? 12 Um, did bringing it here, did this slow up 13 your process or slow up the lease-signing? Is there 14 any problem with -- with this particular -- I mean 15 we don't do this that often. So did this create a 16 lag? 17 MS. MURPHY: What happened was, is that we 18 already had Norwalk in the process. And so the 19 lessor in Cerritos was working with us because they 20 were well aware of the new provisional language that 21 we had. 22 So we established a steering committee 23 between BOE, DGS and Department of Finance that 24 we're going to be meeting monthly to kind of discuss 25 how we're going to do this since this is new 26 provision. As a part of that initial meeting is 27 when we identified that this contract could be at 28 risk and that we needed to kind of get it back on 17 1 track. 2 So we did vet this through the Department 3 of Finance in advance to ensure that they were on 4 board with the direction that we were moving for the 5 relocation, and they've committed to that at this 6 point. 7 MS. HARKEY: Okay. We don't -- we don't 8 want to be -- I mean if you have to wait, like, five 9 weeks or whatever to get it -- or six weeks to get 10 it on a Board hearing, we don't want to be holding 11 up a lease process. 12 So I think, um -- I think that's more to 13 Mr. Horton's point is there -- there was a 14 specific -- this is a problem. So we don't want to 15 lose this lease. We're in the middle of it. 16 And so I think, rather than adjusting new 17 or re-lease or whatever, since it doesn't happen 18 often, maybe the, uh -- maybe the ED could come to 19 us at an early point and say at what point -- Board 20 Members, do you mind if we get this going and then 21 we'll bring it to you on -- you know, once we're at 22 this process. I don't think there's anything in 23 your powers that say that it has to be at a certain 24 time. 25 MR. RUNNER: Huh-uh. 26 MS. HARKEY: Where you have to keep 27 bouncing back and forth. 28 So maybe -- maybe if there's another 18 1 relocation in the mix somewhere, that you just bring 2 it to us and let us know it's happening and ask us 3 at what point we want to see everything. You can 4 always fill us in in between. But at what point do 5 we want it at a public hearing, because we don't 6 want to take a risk of losing a lease opportunity 7 that's already been negotiated. 8 MS. MURPHY: Absolutely. 9 MR. RUNNER: Yeah. 10 MS. HARKEY: Okay? 11 MS. MURPHY: Mm-hmm. 12 MS. HARKEY: Do you understand that, 13 Mr. Gau? 14 MR. GAU: I think so. Just bring it to you 15 early just to get the, uh -- kind of the -- 16 MS. MA: Earlier is better. 17 MR. GAU: Huh? Pardon me? 18 MS. MA: Earlier is better. Just 19 bringing -- 20 MR. GAU: Earlier is totally better. 21 MS. MA: -- it on our radar. 22 MR. GAU: Right. Because we don't want 23 to -- we want to -- unless -- people we're working 24 with on negotiations, we want them to know we're 25 committed to a negotiation. 26 MS. HARKEY: Right. And you can bring it 27 to the Board Members individually just to keep us up 28 to speed -- 19 1 MR. GAU: Sure. 2 MS. HARKEY: -- like you do on just a 3 regular report, your ED report, and you come around 4 to our offices and we chat. 5 MR. GAU: Yep. 6 MS. HARKEY: Just let us know what's going 7 on. 8 MR. GAU: Will do. 9 MR. HORTON: Yeah, I would -- 10 MS. HARKEY: Thank you. 11 MR. HORTON: Madam Chair. 12 MS. MA: Mr. Horton. 13 MR. HORTON: I would agree with that. And 14 I do want to commend staff for -- again, for the 15 foresight in anticipating this and basically getting 16 Department of Finance to sign off anyway. And -- or 17 not sign off, but as close as you can to -- to a 18 approval. So, thank you very much for your 19 diligence in that area. 20 Also, thank you for looking out for the 21 staff, the employees over there. 22 MR. GAU: Yes. 23 MR. HORTON: You know, one slip up and next 24 thing you know I get 11:00 o'clock calls. 25 No offense to the person that called. 26 MS. HARKEY: Okay. 27 MS. MA: Okay. Is there a motion or a 28 second to adopt staff recommendation for this item? 20 1 MR. HORTON: So moved. 2 MS. STOWERS: Second. 3 MS. MA: Mr. Horton moves, Ms. Stowers 4 seconds, to adopt staff recommendation on Item P6.1. 5 Without objection, motion carries. 6 ---oOo--- 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 21 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 September 27, 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 21 constitute 14 a complete and accurate transcription of the 15 shorthand writing. 16 17 Dated: October 12, 2016 18 19 20 ____________________________ 21 KATHLEEN SKIDGEL, CSR #9039 22 Hearing Reporter 23 24 25 26 27 28 22