It's the Holy Grail of reformers and politicians, a seemingly oxymoronic two-word phrase that prompts cynics to sneer and fans the faint hopes of taxpayers:

"Government efficiency."

From the outset of his administration in fall 2003, Gov. Arnold Schwarzenegger's rhetorical arsenal has consistently featured calls for making California's government leaner, more responsive and more citizen-friendly.

Even in the midst of the state's ongoing budget mess, Schwarzengger has continued his call for consolidating some state agencies and eliminating others.

In his revised budget proposal last month, the governor outlined changes for more than three dozen boards, departments and commissions, ranging from the Bureau of Naturopathic Medicine to the Bureau of Home Furnishings and Thermal Insulation.

"Let us use this crisis as an opportunity, as an opportunity for great changes, lasting changes," Schwarzenegger told a joint legislative session on June 2. "Let's think long-term and lay a new foundation for California's future."

Good intentions aside, however, making government efficient can be a taxing task. Take, for example, the task of taxing.

California's tax collection system has evolved as the state has added taxes to its revenue base over the years.

An amendment in the 1879 state constitution created the Board of Equalization (BOE). Its four elected members (plus the state controller) were charged with "equalizing" property assessments. In the 1930s, the board was assigned oversight of the newly created state sales and use taxes.

Currently it also administers fuel, alcohol, tobacco and other taxes, and sits as the appellate body for business and personal income tax appeals.

The Franchise Tax Board (FTB) was created by the Legislature in 1929 to oversee the collection of "franchise" taxes imposed on banks and corporations. When the state income tax was begun in the 1930s, the FTB was assigned oversight of it.

The board, which is governed by a troika consisting of the controller, the director of the governor's Department of Finance and the chairperson of the BOE, also acts as the collection agency for delinquent fees owed other state agencies.

A product of the Great Depression, the Employment Development Department (EDD) was born in 1936 to run California's unemployment programs. It's charged with collecting payroll taxes.

Cumulatively, the three agencies have a work force of more than 18,000, and spend about $2 billion a year in the collection of about $106.5 billion in tax revenue.

In their place, Schwarzenegger has proposed merging the FTB with most of the BOE and part of the EDD to form the DOR: Department of Revenue.

The new department's director would be appointed by the governor, and would likely be housed in a new state building.

In addition to collecting taxes, the new department would consolidate technology systems, taxpayer records and enforcement actions.

The BOE would stay in business to hear tax appeals, and the EDD would continue to do everything it does now, except oversee payroll taxes. The FTB would disappear.

Versions of the proposal have surfaced periodically since at least 1949, when it was recommended by the Legislative Analyst's Office.

"These kinds of suggestions often come up when we're in the soup," observed Sen. Lois Wolk, D-Davis, at a Senate committee hearing on the idea last week.

While there has been little outright opposition to the plan, there's been little enthusiasm for it either, outside the administration.

"I'm a little perplexed at the proposal," said BOE chairwoman Betty Yee, "There are no timelines associated with it, no plans … there's an expectation that by Jan. 1 the governance of our tax agencies will look different, and I have no idea what that means."

The plan has also raised a host of other questions: How could a department, run by a governor's appointee, be as publicly responsive as agencies governed by elected officials?

How realistic is it to expect an executive branch agency to provide unbiased tax system information to legislators?

How much money would be saved?

Why fix something that doesn't appear to be broken?

"Let us admit that it (the current system) is an odd governance structure," said Lenny Goldberg, executive director of the California Tax Reform Association. "I can't tell you why this structure has worked, but it has worked."

Mark Hill, the program manager for the Department of Finance and the administration's point person on the proposal, acknowledged that the change would be an evolutionary one that would take months, and maybe a few years, to complete.

"The governor has proposed a variety of reorganizations. with the idea of streamlining and making government more efficient," Hill said. "The public clearly expects us to do that."

Schwarzenegger isn't alone in his quest to create efficiency in the face of economic chaos.

Senate President Darrell Steinberg, D-Sacramento, suggests that even if government efficiency steps don't save much money in the short term – and, relatively speaking, they don't – taking them now might help convince a highly skeptical public that California's elected leaders aren't just wasting perfectly good oxygen.

"Part of what we hope to do in getting through this crisis is to begin, emphasis on begin, to restore some confidence with people," Steinberg said. "People are not going to gain confidence until they see we are doing everything we can with the money that we have."

But in the absence of the immediate savings of large numbers of taxpayer dollars, convincing the public that cutting some state agencies while creating new ones will make government more efficient could prove to be a tough sell.

"If they just rearrange the chairs, and create a secretary in the Cabinet and have no plan or direction," said BOE member Bill Leonard, "then I don't think we will have accomplished a lot."

Call Steve Wiegand, Bee Capitol Bureau, (916) 321-1076.