California: Lawmakers may finally be motivated to re-vamp the Board of Equalization

Last month, in our article addressing the California State Board of Equalization’s (BOE) mismanagement, we described a March 2017 evaluation by the California Department of Finance, Office of State Audits and Evaluations, which revealed that the BOE has failed to promote an operational environment that provides fair, effective, and efficient tax administration.

Now that various stakeholders have had the chance to digest the evaluation’s import, they are calling for action. In mid-April, Governor Jerry Brown sent a letter to the board, which Bloomberg made available on-line later in the month, announcing that he was taking the following actions:

• Suspending the Board’s authority to make decisions in the areas of personnel, contracting and technology, until further notice.
• Convening legislative leaders to identify statutory changes - and enact them by June 2017 - that will address the problem.
• Coordinating investigations into employee complaints and the potential misuse of state resources.

The Bloomberg piece reported that lawmakers were aghast by the dysfunction, and are now considering not only banning communication between elected board members and the taxpayers who are appealing their assessments, but breaking up the board entirely.

Adding to the outrage is the fact that the board continues to violate certain state rules. For instance, one practice that the evaluation criticized involves shifting staff that should be engaged in revenue-generating activities, like auditing, to perform non-revenue generating activities, like outreach. State law requires the Board to get approval from the Department of Finance, and notify lawmakers, before it moves revenue-generating staff around, but according to some board managers, the shifting-without-approval-and-notification is still going on.

Also in late April, the Legislative Analyst’s Office (LAO) presented Options for Reforming the State Board of Equalization In its report, the LAO acknowledged that the “fundamental problem—board members’ conflicting roles—is not new,” as evidenced by a discussion of such conflicts in the 1949-50 budget bill.

Possible solutions

Among its solutions, the LAO posed the following, which could take place under the existing structure:

• Removing district-specific duties from the California statute that requires each board member to “investigate” the BOE’s tax administration within the district that elected him or her.
• Vesting powers in the board as a whole, not in individual members.
• Restricting individual board members’ interactions with agency staff.
• Prohibit board members from interfering with tax administration and personnel decisions.
• Limiting the board’s power over executive staff.
• Maintaining physical separation between board members and agency staff by relocating Board members into a single state-owned space when their current leases expire.

In addition, the LAO suggested these options for making major changes:

• Limiting the board’s administrative duties
• Removing the board’s appellate duties
• Consolidating tax agencies
• Amending the state constitution to make the board appointed rather than elected—or simply to eliminate the board altogether

Ultimately, the LAO asserts that these measures could transform the existing structure, which has created the long-standing conflicts in the first place.

How did we get here?

The Sacramento Bee discussed why Californians have tried, but failed, to kill the board for 90 years. One reason is that “it’s a favored landing spot for termed-out lawmakers, friendly to big business and virtually unknown to most Californians.”

There have been good reasons all along for trying. Asserted a former UC Davis professor of law, there are now “at least three tax-collecting agencies and that leads to a lot of administrative overlap. There [are] a lot of inefficiencies in California tax administration coming out of that.” And according to the late congressman William Bennett, in 1985, “[y]ou can’t have a situation where tax collectors are soliciting campaign contributions from taxpayers.”

Some think that the needed transformation is now afoot. Based on all the evidence and information available, combined with Gov. Brown’s actions, Sen. Jerry Hill thinks that “lawmakers likely would be more open to reorganizing the state’s tax-collecting agencies.”