California: Proposal aims to eliminate direct contributions to tax commissioners

In the Golden State, the five-member California State Board of Equalization is the entity responsible for tax administration. Established by a constitutional amendment in 1879, it is the only tax commission in the country for which board members are elected. The state controller serves a four-year term in a statewide capacity, while each of the other four commissioners, who also serve four-year terms, are from one of four equalization districts.

The board administers over 30 tax and fee programs that generate the revenue necessary to run the state. In fiscal year 2013-14, the latest year for which an annual report is available, the board collected and distributed $60.4 billion; this constitutes over 30 percent of all state revenue for the fiscal year. The total cost of operations was $578 million, or 93 cents for every $100 of revenue collected.

The board “partner[s] with businesses, large and small, to improve our roads and our schools, to invest in law enforcement and our environment, and to provide access to other critical services.” To do this, Board engages in the following activities:

• Interpreting and applying tax and fee laws correctly, consistently, and fairly.
• Collecting and allocating revenues as required by law.
• Assessing and allocating state-assessed property values as required by law.
• Educating and assisting taxpayers and feepayers to comply voluntarily, while minimizing their compliance burden.
• Providing high-quality customer service, using well-qualified staff and state of the art technology.
• Achieving program objectives at the lowest possible cost.

In light of the relationship that the tax commissioners have with their constituents, as well as their direct influence over tax assessments, collections and dispute adjudications, it is not surprising that California lawmakers are now considering making it impossible for board members to receive direct campaign donations from certain donors. As currently written, the bill, SB-816, prohibits any commissioner, prior to rendering a decision, from receiving any contributions in the preceding 12 months from a party or his or her agent, or from any participant or his or her agent, in any adjudicatory proceeding pending before the board.

If a contribution has been made in the 12 months prior to a decision, the member must disclose it and either recuse themselves from participating in the decision or return the donation within 30 days of learning about the contribution. As the law currently stands, members must take such actions only when the contribution exceeds $249.

Recent reporting by the Los Angeles Times suggests that this legislation is necessary, if not sufficient, to prevent corruption, or at least the appearance of it. For example, last November the paper revealed that just two days after the board gave SpaceX millions in tax exemptions, the rocket and space technology firm donated $7,500 to a nonprofit business that the wife of the board president, Jerome Horton, founded – upon Horton’s request.

And last May, just prior to the primary election, 25 employees of the tax consulting firm Ryan LLC each gave $249 to the campaign of board vice president George Runner. The firm's workers also made 45 such contributions to Horton for last year’s election. These left both commissioners free to vote on proceedings in which such workers of Ryan LLC participated even though acceptance of the donations created the impression of a quid-pro-quo.

The November LA Times piece pointed out that Runner does not oppose the new law; he does not like the presumption that $249 creates a biased response. Horton declared that campaign contributions have no effect or influence on how he votes. In an early January article, the LA Times quoted Horton as saying that he supported the concept, but would "wait to see” if the bill will apply to secretaries, clerks and others who do not represent firms in board dealings and “if the same restrictions will apply to judges and the Legislature.”

Regardless of whether SB-816 passes, there are other ways of sidestepping the donation cap: by giving through political action committees, or to board members’ outside projects.