California Office Debate Exposes Tax Administration Variations

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By Laura Mahoney

May 9 — Four elected California State Board of Equalization members are exposing disparate approaches to tax administration within the boundaries of their districts as they try to satisfy lawmakers who are questioning the amount of office space they have around the state.

Lawmakers—frustrated that the board has vague rules for adding and managing office space—are asking the SBOE to provide details about the purpose and cost of offices for members and their personal staff as well as field offices for auditors, customer service and other tax administration functions.

“It appears to me that this is a situation where the board members decide they want to have an office somewhere and poof, there's an office,” Sen. Richard Roth (D), chair of a subcommittee that oversees the SBOE budget, said at a recent hearing. “If you want three of them, you get three of them. If you want four of them, you get four of them.”

Stronger Policies Needed

In public statements and in interviews with Bloomberg BNA, the four SBOE members who are elected based on geographic districts acknowledge they need stronger policies and have pledged to tackle the issue at their next board meeting on May 24.

At the same time, the members are questioning whether taxpayer treatment varies between districts and whether the office locations are based on taxpayer need or political boundaries.

Member Jerome Horton (D), who served as board chair for five years until February, faces criticism for locating his personal Sacramento SBOE office in a 21st-floor suite in July 2015 and furnishing it with $130,000 in designer furniture. The Sacramento Bee reported in April on Horton's glass-enclosed office that some agency staff call “Jerome's aquarium.” It isn't clear who reviewed or approved the lease and furniture purchase .

With the spotlight on him, Horton said at the April 26 SBOE meeting that he wants the board to discuss two different “philosophies” when it comes to office locations: one philosophy that offices in each member's district should be located based on political boundaries of those districts; and the other that offices should be located based on need and workload.

Horton said he subscribes to the second philosophy.

Horton canceled a May 9 telephone interview with Bloomberg BNA to discuss his concerns.

Nothing is Equal

SBOE Chair Fiona Ma (D) told Bloomberg BNA in an April 29 interview that, in theory, the offices should be located based on need, but said she has learned since joining the board in January 2015 that tax policy isn't administered in the same way across district boundaries. Her district stretches down the California coast from the Oregon border to Santa Barbara County.

“It would be nice if all of us had the same mentality,” she said. “Nothing is equal at the Board of Equalization.”

Ma, who has been chair since February, said auditors in Horton's Los Angeles and Ventura County district are much more aggressive than in others and are too focused on how much money they can bring in.

Ma said she doesn't want her constituents to go to offices in Horton's district.

Ma and members George Runner (R) and Diane Harkey (R) said they don't tell auditors how to handle their work, but if they get complaints or concerns from taxpayers, they ask their staff members to look into it. As elected officials, they have a duty to oversee issues that arise in their districts, they said.

“It's proper to have accounts assigned by district,” Runner told Bloomberg BNA May 2. “It's an issue of representation. Those are the people who voted for me.”

Subjective Reasons

Harkey told Bloomberg BNA May 3 that the board members operate under the same rules and regulations, but because tax policy can be subjective, some senior staff members may find “a subjective reason to facilitate something for a taxpayer.”

Such decisions aren't up to the board members, she said. Harkey said sets the policy goal—to keep people employed and keep businesses open—and doesn't get involved in most taxpayer matters, but will meet with taxpayers if they ask.

“I can only speak for me,” Harkey said. “If they're cheating and they're lying, throw the book at them. But if they're trying, when you have flexibility, use it.”

The SBOE is the only elected tax board in the country, presenting members with the roles of serving constituents, administering tax and fee programs, and adjudicating tax disputes. The State Controller serves as the fifth member, along with the four members elected by district. Controller Betty Yee (D) who served as a member of the SBOE for nine years before being elected to the statewide post, wasn't available for an interview with Bloomberg BNA on May 11 or 12.

Broad Look at SBOE

Questions from Roth and his counterparts on the Assembly budget subcommittee about the SBOE's office expenses and policies are part of a larger look they are taking at the tax agency, including its conflict-of-interest rules and its skyrocketing backlog of settlement and appeals cases (88 DTR H-1, 5/6/16).

According to information the SBOE staff provided May 6 to the Senate budget subcommittee that Roth chairs, Horton's district holds the highest number of taxpayer accounts at 253,899. Ma and Harkey come in second and third with 235,891 and 224,564 accounts, respectively. Harkey represents Orange, San Diego, Imperial and Riverside counties and part of San Bernardino County.

Runner, who represents inland counties from the Oregon border to most of San Bernardino County, has the largest district but the lowest number of taxpayer accounts at 183,455.

The number of SBOE offices throughout the state has decreased from 57 in 1990 to 21 from 2010 through 2015, according to the SBOE. However, legislators in recent budget oversight hearings questioned why several new offices opened in recent years that are as close as 20 miles from existing offices, especially because overall foot traffic at SBOE offices has dropped 40 percent in the past five years.

Ma, Horton and Harkey each have five agency offices within their districts, and Runner has six. In addition, each has a personal office in their districts and in Sacramento.

New Boundaries

Redrawn political boundaries that took effect Jan. 1, 2015, prompted some recent office changes, Runner told Bloomberg BNA May 2.

A dilapidated Van Nuys office in Horton's district became part of Runner's district. The SBOE closed the Van Nuys office and split the duties of that office into new offices in Rancho Cucamonga (Runner's district) and Glendale (Horton's district), Runner said. Those two offices are 50 miles apart.

The new Rancho Cucamonga office is 20 miles from a Riverside office in Harkey's district, and the Glendale office is 23 miles from a West Covina office in Horton's district.

At a May 12 hearing, Roth's Senate budget subcommittee approved a proposal to require the SBOE to provide a comprehensive review of its office space needs and usage by Feb. 1, 2017. The committee staff noted in the proposal that the board's current office space approval process “lacks clarity and may be ambiguous.”

The Legislature's intent is to minimize the total amount of space the SBOE uses and to aim for all board members to house their Sacramento offices within the agency's headquarters building. The building is currently overcrowded and is riddled with maintenance problems, prompting the board members to move to other buildings in recent years.

Looking Ahead

The budget proposal will likely be in a final budget package the Legislature must send to Gov. Jerry Brown (D) for his signature before the start of the next fiscal year on July 1.

At the May 24 SBOE meeting, the board plans to discuss the location of its offices, as well as whether members are involved in the hiring of civil service employees and the procurement process, at Horton's request. Harkey said she wants the board to review new office space plans.

“If something happens in one district it does tend to reflect on all of us in one way or another,” Harkey said April 26.

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 Tuck at rtuck@bna.com

For More Information

The Senate budget subcommittee's proposal is at http://src.bna.com/eYI.