1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 JANUARY 25, 2017 10 11 12 ITEM P 13 OTHER ADMINISTRATIVE MATTERS 14 ITEM P6 15 ADMINISTRATION DEPUTY DIRECTOR'S REPORT 16 1. 2017-18 GOVERNOR'S BUDGET 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: Chris Holtz Chief 17 Business Management Division 18 David Gau 19 Executive Director 20 ---oOo--- 21 22 23 24 25 26 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 JANUARY 25, 2017 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; Item P6.1 8 2017-18 Governor's Budget. 9 MS. MA: Okay. I see Mr. Holtz will be 10 making this presentation. 11 MR. HOLTZ: Good afternoon, Chair Ma and 12 Members. I'm Chris Holtz. I'm the Chief of the 13 Business Management Division. 14 Today we'll just update you on the progress 15 of the Governor's budget proposal and the budget 16 change proposals that were approved for the -- for 17 the Board of Equalization. 18 The Governor introduced his budget proposal 19 on January 10th, and the fiscal year 2017-18 budget 20 for BOE includes 4,799 positions and $688.4 million 21 in funding. 22 The majority of program funding continues 23 to come from the General Fund at 338.5 million. 24 Directly billed reimbursements from local 25 governments and other departments provide 26 $197 million in funding. 27 To summarize the budget change -- change 28 proposals that were approved for BOE, probably the 3 1 most visible would be the Proposition 64, uh, 2 proposal on the Adult Use of Marijuana Act, made 3 to -- made the recreational use of cannabis legal to 4 people over the age of 21. In addition, Prop 64 5 makes it legal to sell and distribute cannabis as a 6 regulated business, beginning on January 1st of next 7 year. 8 The Governor included $52.2 million for the 9 regulation of cannabis in the budget year to fund 10 regulatory activities, processing of licenses, and 11 enforcement. Of this total amount, the budget 12 provides the BOE 1.1 million and 1.9 positions in 13 the current year and 5.4 million in 22 positions in 14 the budget year, to implement and administer two new 15 taxes on marijuana, notify businesses of the new tax 16 requirements, and update its Information Technology 17 Systems to register businesses and process tax 18 returns from retail sales. 19 The California Health Care Research and 20 Prevention Tobacco Tax Act, Prop 56, passed by the 21 voters la- -- in November of 2016 increases the 22 excise tax on cigarettes and tobacco products, 23 effective on April 1st of this year. 24 This tax also, uh, is applicable to 25 eCigarettes. The budget provides BOE with 26 $6.9 million and 40.9 positions in 2017-18, the 27 budget year, to implement and enforce the $2 per 28 pack increase in the excise tax on cigarettes and 4 1 eCigarettes. 2 In addition, the budget provides $286,000 3 to administer the Cigarette and Tobacco Products 4 Licensing Program provisions that passed in the 2016 5 special session, which requires the BOE to implement 6 new license requirements, including annual rather 7 than one-time license renewal fees and expansion of 8 the definition of "tobacco products." 9 The budget provides $30 million, 10 17.2 million of that in General Fund, and 65.4 11 positions for the implementation phase of the CROS 12 Project. The Board approved an $85.2 million 13 contract with FAST Enterprises on August 30th of 14 last year to complete the project. And those 15 payments are also included in these proposals. 16 Finally, the budget provides $1.2 million 17 and 3.1 positions this year and $837,000 and 6.3 18 positions in the budget year, to implement and 19 administer a new legislative -- legislatively 20 implemented fee on consumers and manufacturers of 21 lead acid batteries beginning April 1st of this 22 year. 23 And with that, I'd be happy to answer any 24 questions that you had on the budget. 25 MS. MA: I have some questions. 26 MR. HOLTZ: Mm-hmm. 27 MS. MA: So this new cigarette tax includes 28 eCigarettes? 5 1 MR. HOLTZ: Yes, it does. 2 MS. MA: And have we been doing a report or 3 study in terms of what the potential income will be 4 on the eCigarette side? 5 MR. HOLTZ: I believe the potential 6 revenue, we've been relying on LAO figures on that. 7 I don't have the revenue figures here with me, but 8 I'd be happy to get those to your office. 9 MS. MA: But we're -- BOE is gonna be 10 authorized and administered to collect the tax? 11 MR. HOLTZ: That's correct. 12 MS. MA: And currently, as I understand, 13 the eCigarettes -- are there any regulations on 14 where they can sell it? 'Cause, as I understand, 15 there's no regulation, so they could sell it at 16 anywhere. The could sell it at, you know, 17 manicurist's spots, you know, barber shops, um, you 18 know, your car dealership. I mean, these are gonna 19 be regulations that will restrict where people can 20 buy eCigarettes. 21 MR. HOLTZ: I believe that any new 22 regulations are still in -- in flux. But the -- any 23 existing regulations, I don't believe that there 24 have been any changes to the existing regulations on 25 that. 26 MS. MA: And so who on our staff is going 27 to be the point person for this? 28 MR. HOLTZ: That is a -- a good question. 6 1 I don't have that programmatic information, but I'll 2 defer to program. 3 MS. MA: Okay. Mr. Gau. 4 MR. GAU: Yes. I would refer to 5 Mr. Richard Parrott, Administrator. 6 MS. MA: Okay. 7 MR. GAU: He's the Chief in the Special 8 Taxes area. 9 MS. MA: Um, so this is kind of an 10 interesting new area. 11 MR. GAU: It is. 12 MS. MA: And maybe we can put it on the 13 agenda for a future meeting to talk about 14 eCigarettes and kind of the whole scope and, you 15 know, what the new legislation means and whether 16 there's parameters around it. Because it's going to 17 be, I think, very hard for us to audit eCigarettes. 18 Um, we'd have to go to every single -- I don't know 19 how the permit works and who can get it. If there's 20 a permit that needs to be, um, you know, taken out. 21 Who can sell it, who can't sell it? Where? Are 22 they going to have to pay, presumably, the sales tax 23 on it as well? So anyone who sells it would have to 24 have a sales, uh -- take out a seller's permit? I'm 25 not sure on this whole -- 26 MR. GAU: Right. We -- and we have done a 27 special notice. I don't have it in front of me. 28 MS. MA: All right. 7 1 MR. GAU: But we'll get that to the 2 Members. But it does distinguish, because 3 electronic cigarettes and the, um -- the, uh, fluid 4 for them, the nicotine part of that, is something 5 new. And the devices themselves, you know, are not 6 subject to -- as long as they're sold separately. 7 But if they're sold with the nicotine or the 8 nicotine on its own, that is where the, uh -- the 9 tobacco products -- the cigarette tax comes into 10 play on that. 11 So, we will put that -- we will -- we'll 12 work with the Chair's office and schedule it for a 13 meeting if you would like and also provide the 14 Members with the information that we are sharing 15 with the industries. 16 MS. MA: Okay. And then for the Prop 64, 17 the new cannabis revenues, who is -- is it 18 Mr. Parrott also -- 19 MR. GAU: Yes. Mr. Parrott -- 20 MS. MA: -- preparing the estimates? 21 MR. GAU: Yes. And Susanne Buehler, Deputy 22 Director, and Richard Parrott, the Chief in that 23 area, have both been working point on with those 24 matters. 25 MS. MA: And for the Governor's budget, was 26 it our shop that provided the numbers or was it the 27 LAO? 28 MR. HOLTZ: I believe it was the LAO that 8 1 provided the -- the revenue numbers. 2 MS. MA: Okay. So it could -- it may or 3 may not be right. Right? Where it's an estimate 4 based on -- 5 MR. HOLTZ: It's the best estimate at this 6 time. 7 MS. MA: Okay. So we will be providing 8 input and giving those numbers probably in the 9 future once we start issuing those licenses. 10 MR. HOLTZ: Yes. 11 MS. MA: Okay. All right. 12 Any other questions? 13 MS. HARKEY: Thorough. 14 MS. MA: Okay. Thank you very much. 15 There's no action item on this, right, Ms. 16 Richmond? 17 MS. RICHMOND: No. Update only. 18 ---oOo--- 19 20 21 22 23 24 25 26 27 28 9 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 January 25, 2017 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 9 constitute 14 a complete and accurate transcription of the 15 shorthand writing. 16 17 Dated: February 16, 2017 18 19 20 ____________________________ 21 KATHLEEN SKIDGEL, CSR #9039 22 Hearing Reporter 23 24 25 26 27 28 10