A troubled California tax agency that has resisted almost 90 years of calls for its dissolution is on the brink of changes that would make it a sliver of itself.
In a sweeping overhaul announced by top Democrats, the Board of Equalization would lose its high-profile mandate as California’s tax court and shed almost 90 percent of its 4,800 employees.
The work would continue and the employees would keep their jobs, but most of them would move to a new revenue department that would report to the Governor’s Office. Tax disputes would be settled by civil service administrative law judges instead of elected members on the Board of Equalization.
State Controller Betty Yee, the longest-serving member of the board, announced the plan Monday morning. It’s part of a budget deal endorsed by Gov. Jerry Brown, Senate Pro Tem Kevin de León and Assembly Speaker Anthony Rendon that would take effect July 1 if it’s approved.
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They crafted the plan in the wake of a March audit that showed elected members had inappropriately intervened in the tax agency’s daily operations, created a climate of fear among some civil servants and allowed questionable accounting that misallocated tax revenue.
More audits are in the works, including one digging into allegations of nepotism at a tax agency that collects more than $60 billion a year in revenue.
“We think that this is what is going to be demanded by the public,” Yee said. “They want a fair tax body, and the arguments for doing this is to respond to all we have learned, and we are going to continue to learn with the audits coming in.”
Brown in April sanctioned the board by suspending its hiring and purchasing authority. He called for an investigation into the board from Attorney General Xavier Becerra and he asked legislative leaders to respond to the audit by this month.
The plan does not eliminate the Board of Equalization. The tax board has a handful of responsibilities that are described in the state Constitution and removing them would require a ballot measure. One of its core responsibilities is ensuring the property taxes are collected fairly across the state.
But the board has grown significantly from its creation in 1879. A report from the Legislative Analyst’s Office last week showed that it spends just $27 million out of its $670 million budget on programs that are required by the Constitution. It oversees dozens of tax and fee programs, from cannabis taxes to fire fees.
In the overhaul, the board would continue to have four members elected from geographic districts. They’d become advocates for taxpayers but lose their authority to investigate complaints.
Republican leaders and some taxpayer advocacy groups criticized the plan. They favor the board’s current authority, which allows businesses to contest audits and other government decisions by appealing to elected members.
Each of the board members represent about 10 million Californians in four districts that tend to elect two Republicans and two Democrats. The state controller, elected statewide, is the fifth member.
Republican Board of Equalization member George Runner called Yee’s proposal a “last minute budget power grab.”
“Unfortunately, many of the suggested BOE ‘reforms’ are nothing but thinly disguised attacks on taxpayers’ rights, including the right to meet with elected officials and the right to appeal taxes without the expense of going to court,” said Teresa Casazza, president of the California Taxpayers Association which has some of the state’s largest corporate taxpayers on its board.
Yee’s proposal also met resistance from one Democratic lawmaker who wanted lawmakers to take a different approach. Assemblyman Sebastian Ridley-Thomas, D-Los Angeles, submitted a bill that would largely leave the tax agency intact but monitor it with an inspector general.
He bristled at the inclusion of Yee’s proposal in a budget bill that would go to a vote this week.
“In an attempt to rush drastic changes in must-pass legislation, the administration missed an opportunity to engage thorough public process. Taxpayers, local governments, employee organizations, and the fourth estate deserve better from the state of California,” Ridley Thomas said.
The Board of Equalization is the only elected state tax board in the country. It was created to address a perception that landowners in mining counties in the foothills had bribed assessors in the 19th century, shifting tax burdens to agricultural counties.
Good government commissions have called for its elimination since 1929, describing it as “duplicative” of other revenue-collecting departments and a host for inherent conflicts of interest because its elected members respond to complaints from business groups that may give them campaign contributions.
In recent years, news outlets including The Bee have revealed questionable donations that appeared to benefit elected members, campaign contributions that were bundled in a manner that disguised their volume and an expensive renovation of a board member’s office that cost taxpayers $130,000.
“What we’ve seen is a picture of dysfunction,” Assembly Budget Chairman Phil Ting, D-San Francisco, said on Monday.
Other top Democrats quickly endorsed Yee’s plan. Treasurer John Chiang, a former chairman of the Board of Equalization, said the changes were necessary in part because the tax agency had become “mired in self-inflicted chaos and scandal.”
Board of Equalization member Fiona Ma, who requested three outside audits into the agency, also said she supported the overhaul.
“It’s time for fundamental reform at the BOE and that means no-nonsense transparency and accountability to the public,” she said.