California Governor Calls for Investigation of Tax Board

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By Laura Mahoney

Gov. Jerry Brown (D) called on the California Department of Justice to investigate the state-elected tax board’s possible misuse of state funds and asked the Legislature to adopt new rules for the board’s operation by June in the wake of a scathing state audit.

In a letter to the State Board of Equalization’s five members released late April 13, Brown also suspended the board’s authority to handle personnel, contracting or technology until further notice.

Brown said the breadth and depth of allegations in the audit about board member interference in tax administration and potential personnel violations prompted his response.

“Californians count on the board for the fair and efficient administration of sales and use tax revenue and other revenues to fund key services,” Brown said. “The board exists to serve the public, and the report highlights the extent to which it has fallen short.”

Brown asked the Department of Justice to coordinate with the Department of Human Resources in its investigation into employee complaints and the potential misuse of resources.

Board Members Respond

Four of the board’s five members told Bloomberg BNA April 14 they see the governor’s actions as a chance to restore public trust in the tax agency.

“Based on my two years here, I have found and come to the conclusion that we must put in place real checks and balances, accountability and a willingness to be transparent,” member Fiona Ma (D) told Bloomberg BNA in an email. “The Board/Executive Management Team now needs to address past transgressions and corrective action.”

Ma asked Brown March 29 to appoint a public trustee to oversee the agency in response to the audit, and State Controller Betty T. Yee (D) asked lawmakers and the governor the next day to strip the SBOE of most of its duties.

Yee, who serves as the fifth member along with four members elected by geographic district, also welcomed the governor’s action.

“I am pleased to see Governor Brown taking steps to increase BOE oversight and make needed statutory reforms,” Yee said. “These changes will increase accountability and keep board members from mismanaging state resources and shift their focus to better serving taxpayers,”

Greater Confidence

SBOE Chair Diane Harkey (R) said she sees the investigation as an opportunity to fix issues so the SBOE can be better equipped to fairly and efficiently administer tax programs.

“While no one looks forward to a DOJ investigation, my hope is that it will give the governor, the Legislature and the public greater confidence in the BOE going forward,” Harkey told Bloomberg BNA in an email.

Member George Runner (R) said the governor’s call for an investigation isn’t surprising and reinforces his belief that the board members must fix their problems.

“Most of the members first found out about these things in the audit,” Runner told Bloomberg BNA.

Member Jerome Horton (D) didn’t immediately respond to a request for comment April 14.

Threats to Staff

Lawmakers requested the audit from the Department of Finance’s Office of State Audits and Evaluations (OSAE) last year, and it was released March 30. In addition to finding the elected board members intervene in daily operations of the tax agency, the audit also found some members use staff to promote personal events and threaten senior managers if they don’t go along.

Auditors also concluded the elected tax board members are violating the California Budget Act by moving revenue-generating staff such as auditors to other duties such as staffing outreach events without getting approval from the Department of Finance and notifying lawmakers.

Bloomberg BNA has covered many of the issues raised in the OSAE’s audit, including board member Horton’s use of tax agency funds and staff at outreach and promotional events with few ties to the tax agency’s mission. The events are largely funded with charitable contributions that he has requested from companies with business before the board to a nonprofit organization founded by his wife.

More Audits

More audits of the SBOE are scheduled to come out in the next few months, including one from the State Personnel Board into potential violations of hiring and staffing rules at the tax agency and another from the Department of General Services into the agency’s procurement practices.

The SBOE has scheduled a closed session for April 17 to discuss personnel matters and potential litigation, although further information about the board’s plans for the meeting aren’t publicly available.

The board is expected to discuss the audit at its next public meeting April 25-26. Runner said he has already requested that the agenda include a moratorium on all conferences until:

  •  an agency-wide plan is approved by the board,
  •  a process is created to approve events for which more than five SBOE employees are asked to attend,
  •  there are clear rules for redirecting staff to other duties, and
  •  there is a clearance process for production of videos and webinars.
Lawmakers have already begun discussing the audit in hearings on the tax board’s budget. The next hearing is scheduled for April 20 before the Senate Budget Subcommittee on State Administration.

To contact the reporter on this story: Laura Mahoney in Sacramento, Calif., at LMahoney@bna.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bna.com

For More Information

Text of Brown's letter is at http://src.bna.com/nW9.

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