Capitol Alert

Criminal investigation targets California tax board leaders

Tax board boss says his job was threatened

David Gau, executive director of the California Board of Equalization on April 20, 2017 told a Senate budget subcommittee that his job had been threatened, presumably by an elected official. Video courtesy of the California Senate.
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David Gau, executive director of the California Board of Equalization on April 20, 2017 told a Senate budget subcommittee that his job had been threatened, presumably by an elected official. Video courtesy of the California Senate.

Investigators from the California Attorney General’s Office are interviewing civil servants in a probe that may lead to civil or criminal penalties against public officials at a state tax agency that is being disbanded this month.

Public employees, both civil servants and executives, at the Board of Equalization have been interviewed by investigators from the state Department of Justice in recent weeks, tax board spokesman Mark DeSio said. He declined to identify who was interviewed.

Investigators also may be looking at the agency’s elected board members.

A March audit from the Department of Finance reported that elected board members had inappropriately intervened in the agency’s daily operations, misused public resources by reassigning civil servants to different jobs and created a climate of fear among some state workers who worried about crossing them.

Board member Fiona Ma and representatives for board members Diane Harkey and George Runner said no one from their offices had been interviewed by the Attorney General’s Office. State Controller Betty Yee, also a member of the board, has not been interviewed by the Attorney General’s Office, her spokeswoman said. Board member Jerome Horton said in an email that he was aware of the Attorney General’s investigation. “We welcome the opportunity to cooperate with them,” he wrote.

State law includes several provisions that could be used to prosecute elected officials for misusing their offices. Penalties include civil fines or jail time.

One bans elected officials from using public resources for political events and is punished by civil penalties.

Another prohibits them from using their positions for personal gain. One more code bars public officials from knowingly misusing taxpayer money.

The scope of the Department of Justice investigation is not yet clear. Gov. Jerry Brown requested it in April, citing the Department of Finance audit.

Since then, the Attorney General’s Office has not disclosed whether it had launched an investigation.

Don Heller, a former federal prosecutor, said some of the recent reports on the Board of Equalization suggest there may be merit to a criminal investigation at the tax agency.

He said the FBI and the IRS might have better resources to carry out that kind of investigation. DeSio and representatives for the the board members said they had not been contacted by federal agents. The FBI would not say whether it is investigating the Board of Equalization.

In 2015, Bloomberg News reported that major California businesses, such as AT&T and Space Exploration Technology Corp. (SpaceX), had contributed to a nonprofit organization founded by Horton’s wife. The donations are reported to the Fair Political Practices Commission as so-called behested payments, meaning charitable contributions that are requested by an elected official.

“You’re talking about a lot of money in behested payments,” Heller said. “It may turn out to be nothing except a lot of dollars, which may give the appearance of impropriety.”

The Legislature last week voted to break apart the Board of Equalization, moving to strip it of almost all of its power.

Lawmakers cited the reported misconduct of board members when they voted to diminish it. They sounded especially troubled by reports that civil servants had felt threatened by board members.

In April, Board of Equalization Executive Director David Gau told a Senate committee that someone had threatened him. He did not name the source of the threat. He reports directly to elected board members.

“He feared for his job and did not know where to turn to,” said Sen. Richard Roth, D-Riverside. “The executive director could not manage operations because of interference by members of the BOE.”

The state is creating two new departments to take over the tax agency’s work.

One, the Department of Tax and Fee Administration, is expected to open on July 1. It’ll be responsible for more than 30 tax and fee programs that the Board of Equalization manages, such as tobacco taxes and fire prevention fees.

The other, an Office of Tax Appeals, would be created by Jan. 1. It is intended to be a tax court staffed by administrative law judges.

Some state employees will continue to work for the Board of Equalization. It has a handful of responsibilities that are described in the state Constitution, and it will retain those programs.

Marybel Batjer, Brown’s secretary of Government Operations, met with Board of Equalization employees on Monday to describe the changes. The Board of Equalization has a regularly scheduled public meeting on Tuesday where officials also may discuss the reorganization.

Assembly Budget Chairman Phil Ting, D-San Francisco, favors an overhaul of a tax agency called the Board of Equalization. Its recent scandals, he says, make a case for a new approach.

Adam Ashton: 916-321-1063, @Adam_Ashton. Sign up for state worker news alerts at sacbee.com/newsletters.

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