Staff Misuse Raises Questions About California Tax Board

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By Laura Mahoney

The California State Board of Equalization is undermining its own claims about the effectiveness of its tax programs because members are improperly hiring and assigning staff to jobs not related to collecting tax, according to a state audit.

The final March 30 audit from the Department of Finance Office of State Audits and Evaluations about misuse of staff at the board injects doubt into the board’s operations as its own data show its cost-benefit ratio has been declining over the past 15 years. Data in its most recent annual report show the agency collects $108 for every $1 it spends on administration of its tax and fee programs, compared to about $135 for every $1 spent in 2002.

The SBOE collects about $60 billion a year, mainly from the state’s sales and use tax, making its programs the second largest source of state revenue behind the personal income tax. It also administers more than 30 other tax and fee programs. The five-member board is the only elected tax board in the country.

Hearings in April

Lawmakers requested the audit, which also found that elected board members intervene in daily operations of the tax agency, use staff to promote personal events, and threaten senior managers if they don’t go along. The audit will be the subject of legislative hearings in April.

Its findings prompted Board Member Fiona Ma (D) to ask Gov. Jerry Brown (D) March 29 to appoint a trustee to oversee the SBOE. State Controller Betty T. Yee (D), who serves as an ex officio member of the elected board, went further March 31 to ask lawmakers and the governor to strip the SBOE of its tax administration duties (see related story, this issue).

The final audit was released to lawmakers late March 30, but obtained by Bloomberg BNA in draft form March 24. The OSAE’s findings are unchanged between the draft and final version, which adds the SBOE’s official response and a brief evaluation of the SBOE’s response from the auditors.

Budget Act Violations

Auditors from the OSAE concluded the elected tax board members are violating the California Budget Act, which requires that they get approval from the Department of Finance and notify lawmakers before they move revenue-generating staff such as auditors to other duties. The tax board also doesn’t keep track of staff hours or calculate the amount of lost revenue resulting from employees being redirected.

The violations skew the required information the board must provide to lawmakers under the Budget Act each year about costs and lost revenue collections due to those reassignments, the auditor said. Without accurate information about staffing, the Legislature can’t assess the effectiveness of the SBOE’s existing compliance efforts or be sure the tax agency’s cost-benefit ratios are accurate, the audit said.

Work for Board Members

Most of the redirected staff highlighted in the audit were pulled from revenue-generating activities to work directly for board members, sometimes on activities with minimal ties to the board’s tax mission, according to the audit.

“Despite having dedicated staff and operating budgets of $1.5 million, some board members routinely supplement their staff by redirecting revenue generating staff to perform non-revenue generating board member activities, including outreach activities,” the audit said.

Auditors also faulted the SBOE for providing generally inaccurate or inconsistently compiled information mandated under state budget rules that compounded the agency’s failure to account for employees shifted away from revenue collection. For example, the SBOE’s budget report to lawmakers for the 2014-15 fiscal year contained an error in a spreadsheet formula that overstated staff hours in its audit program by 86 percent.

“Although BOE submits its supplemental annual reports timely, when performance reports contain errors, the reports’ usefulness as a tool for decision makers is diminished,” the audit report said. “Additionally, without clearly communicating significant fluctuations or methodology changes, the reports may not allow readers to fully assess the effectiveness of BOE’s audit and compliance efforts.”

Cost-Benefit Decline

Based on data in the SBOE’s own annual reports examined by Bloomberg BNA, its revenue collections have been falling compared to the amount of money it spends each year. The annual reports are separate from the budget reports the tax agency provides to the Legislature, but contain data on overall spending and revenue necessary to calculate the agency’s alleged cost-benefit ratio.

In the 2014-15 fiscal year, the most recent year for which an annual report with the relevant data is available, the agency took in about $108 for every $1 spent.

With the tax agency claiming 96 percent of its collected revenue comes from voluntary tax payments, its enforcement efforts to collect what isn’t paid voluntarily brought in $4 for every $1 spent, according to the 2014-15 annual report.

Compliance Efforts

Compliance programs included in Bloomberg BNA’s examination are auditing, collections of delinquent taxes, use tax coordination with other jurisdictions, and a program through which the SBOE makes direct contact such as letters and door-to-door visits with businesses in targeted areas around the state to ensure they are complying with licensing and tax collection rules.

By comparison, in the 2001-02 fiscal year, the SBOE took in almost $134 for every $1 spent, with its enforcement efforts bringing in $4.80 for every $1 spent. In 2004-05, before the recession, the agency’s revenue ratio peaked at $148 collected for every $1 spent overall and $5.30 for every $1 spent on compliance. The ratio has been declining since then even as state revenue has been on the rise.

SBOE Revenue vs. Spending(based on SBOE annual reports)
Fiscal YearTotal Revenue ($billions) Total Expenditures ($millions) Revenue per $1 of Expenditures
2001-02 $41.9 $312.0 $134.3
2004-05 $49.9 $337.4 $147.9
2014-15 $60.5 $561.3 $107.7
‘Deep Dive’ Needed

Yee told Bloomberg BNA March 31 that it is difficult to know if the SBOE’s data is correct, and she hopes the Legislature takes “more of a deep dive” into it.

“I think getting accurate information has been challenging,” she said.

Yee serves on the board as a statewide officer alongside four other members who are elected by geographic district. She also served as a board member for 10 years representing one of those four districts.

Hearings on oversight and budget at the SBOE are scheduled for April 5 in the Assembly and April 20 in the Senate.

Lawmakers have required SBOE to report on the use of its staff assigned to revenue-generating duties since 1999, when the California State Auditor found the agency had redirected 127 of 250 new audit positions the tax agency gained in the preceding eight years to perform support work, not audits.

Between 2002 and 2011, lawmakers added reporting on revenue and costs of moving audit and compliance staff to other duties, audit selection methods, and cost-benefit analysis of its programs to the list of information the tax agency must provide each year as part of the budget process.

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

To contact the editor responsible for this story: Ryan C. Tuck at

For More Information

Text of the audit is at

Text of the SBOE's most recent annual report is at

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