Nepotism scandal embroils recently gutted state tax board

Tax formSACRAMENTO – The California Board of Equalization was stripped of most of its powers over the summer, after a series of audits and news reports exposed myriad spending, accounting and management problems. But the renamed, and greatly diminished, tax agency continues to be the source of state audits and troubling scandal.

The latest comes in a special investigation report published last week by the State Personnel Board, an agency charged with enforcing California’s civil-service-related statutes. The report, prompted by anonymous complaints about the BOE’s hiring practices, found that the agency “has a large number of employees who have personal relationships with other BOE employees and work in the same department or division.”

The findings could lead to the dismissal of three state employees. It also poses deep challenges for the agency and its successors. Approximately 90 percent of the BOE’s 4,767 employees will continue doing their existing jobs under the auspices of a new Department of Tax and Fee Administration, which handles tax collections, and a new Office of Administrative Hearings, which will adjudicate tax disputes between businesses and the state.

The State Personnel Board’s survey found that 835 of these employees – comprising 17.5 percent of the former BOE’s work force – have “personal relationships” with other staff members. The board defined such relationships as “associations with individuals by blood, adoption, marriage, registered domestic partnerships or cohabitation.” The survey, the personnel board cautioned, did not capture the entire workforce, so that percentage could be higher or lower.

The numbers don’t tell the entire story, however. The report detailed several specific examples that were investigated as part of the audit, and which provide details about how such questionable hiring takes place.

In one investigated case, auditors looked at allegations that a tax consultant expert in BOE member George Runner’s office “used his position of influence to encourage the hiring of his son.” The son later voluntarily resigned the position. The report argued that “employees acted in bad faith by not intending to observe the spirit and intent of civil service laws” because the hire apparently “was the result of preselection.”

In another investigated case, the personnel audit found that the daughter of an assemblyman was allowed to submit an application for a public-information officer position even though her application was submitted after the deadline had passed. It stated that Board of Equalization Member Jerome Horton and his chief of staff had pushed for the daughter’s hiring even though “she received the lowest rating for the interview by both interview panel members.”

The Sacramento Bee identified the assemblyman as Jim Cooper, D-Elk Grove. The audit argued that the appointment was not made in good faith and called for “corrective action.” Horton told the newspaper that he was simply trying to assure that the assemblyman’s daughter was treated fairly – and didn’t learn of the hire until after the fact.

In a third case, the audit argued that the “voluntary demotion of an employee” from an information-officer position in the Sacramento office to an office technician in the New York office was improper. The report states that “the evidence overwhelmingly supports a finding” that the person’s transfer “violated civil service merit principles and the law.” That case involved BOE Member Diane Harkey and her office. The report called for the employee’s dismissal.

In yet another instance, the report found that a job applicant, whose spouse also worked for BOE, was hired for a position even though he had “not waited the requisite six months between exams.” The audit called for his appointment to be voided.

The report pointed to the significance of these specific incidents. Officials “observed that the culture of BOE was one in which board members and their staff and executives were perceived as having significant influence and power over civil service personal matters” and that “favoritism or perceived favoritism toward employees having personal relationships with other employees had a dispiriting and stressful impact on overall employee morale.”

The State Personnel Board report also found that the BOE engaged in a hiring rush right before the governor’s pension-reform law went into effect, as the Bee explained. The “findings identified deficiencies in 23 of the 27 recruitment packages reviewed” and deemed those 23 appointments to be “unlawful” for a variety of reasons, according to the report.

The new California Department of Tax and Fee Administration prohibits nepotism, which it describes as “favoritism by those with power or influence to appoint, employ, promote, advance or advocate for relatives or persons with whom they have personal relationship.” It states that this situation “is antithetical to merit-based personnel system.”

The rules are clear. And the report offers several specific correctives. The big question now is how the state will handle the broader matter – that such a large number of employees in its tax bureaus have “personal relationships” with other employees.

In his November 13 letter to the State Personnel Board, the tax agency’s director Nick Maduros largely concurred with the report’s findings, but said the agency is working on developing a “more complete and accurate picture of the extent of employee personal relationships moving forward.” He will work with the state human resources agency, CalHR, “to develop a corrective action plan” for relationships that run afoul of the new anti-nepotism policy.

In the meantime, the personnel board’s executive officer, Suzanne Ambrose, told the Bee that she expects more anonymous tips from other state agencies. This could be just the tip of a broad state-governmental scandal that goes much deeper than the dealings of a now-gutted tax agency.

Steven Greenhut is Western region director for the R Street Institute. Write to him at sgreenhut@rstreet.org.

This article was originally published by CalWatchdog.com

The hidden costs of gas-tax legislation

gas prices 2For the last three weeks this column has focused on both the policies and politics of the $5.2 billion annual transportation tax increase. In the unlikely event that some have forgotten — or were on another planet — the taxes include a substantial hike in the car tax as well as a 12 cent increase in the gas tax.

However, as one might hear in a low-budget, late-night television ad, “But wait, there’s more!” Specifically, the gas-tax hike which politicians tell us is 12 cents per gallon — which is bad enough — in actuality could be as high as 19 cents gallon. How is that possible?

The explanation is a bit complicated but important to understand. It involves a convoluted process known as the “gas tax swap” passed by the Legislature and implemented by the California Board of Equalization in 2010.

The gas tax swap eliminated the state sales tax on gasoline and replaced it with what was supposed to be a revenue-neutral per-gallon excise tax. This made it more legally defensible for the state to repay Proposition 1B transportation bond debt when California was in the midst of recession. The BOE was tasked with adjusting the numbers every year in a “backward looking” process so that California would collect no more revenue from the excise tax than it would have collected from the sales tax had it not been eliminated.

But here’s the kicker: The tax hike just jammed through the Legislature in less than one week by Senate Bill 1 contains a provision that, beginning in July of 2019, adjusts the base excise tax to what it was in July 2010 when the gas tax swap started. Currently, the excise tax on gas is 27.8 cents a gallon. But in July of 2010 it was 35.3 cents a gallon. So as it stands right now, that’s a seven cents per gallon increase, on top of the new 12 cents per gallon tax.

To read the entire column, please click here.

Jon Coupal is president of the Howard Jarvis Taxpayers Association.

Controversial New Program Will Track Your Driving — For Tax Purposes

carpool-laneAs state drivers’ changing habits undermined roughly a hundred years of gasoline taxes, California officials debuted a controversial new pilot program designed to make up the difference.

“The state of California is looking for 5,000 volunteers this summer for an experiment with potentially major pocketbook ramifications,” the Sacramento Bee noted. The so-called California Road Charge pilot program, proposed by the state Legislature, has tasked “Caltrans and other transportation officials to set up a nine-month test to see what it would be like if drivers paid for state road repairs based on how many miles they drive in their cars or trucks rather than how many gallons they buy at the pump.”

Aiming for a July start and a nine-month run, the program “already has a list of 4,300 people who are game,” according to Next City. “Participants will continue to pay the pump tax, but receive simulated monthly statements detailing how much they would pay under a road usage system.”

Losing gas

With gas prices, gas taxes and gasoline usage all sinking, lawmakers have labored to settle on a different way to collect revenue from road usage. “In California, drivers now pay 30 cents per gallon, plus 18 cents a gallon in federal tax,” the San Francisco Chronicle reported.

“Not only are politicians averse to raising the tax — which hasn’t been bumped up since 1994, with polls showing extreme distaste from voters — but also the continuing rise in fuel efficiency and the boom in electric vehicles ensure the steady evaporation of revenues even as more cars roll up more miles on the road. Gas taxes are expected to bring in $4.5 billion this fiscal year, 16 percent less than last year and 21 percent less than in 2014. Projections call for revenues to drop another 6.5 percent in the coming year.”

Just last month, regulators signaled the shifts to come by throwing their weight behind a further drop in the gas tax. “California drivers will pay 2.2 cents less per gallon of gasoline, starting in July, after a divided Board of Equalization voted to cut the excise tax,” according to U-T San Diego.

“‘Lowering the rate is the right thing to do and I’m sure Californians will welcome this reduction,’ board vice chair George Runner said in a statement after the agency voted 3-2 to pass the reduction that was recommended by BOE staff.”

Making the transition

From a regulatory standpoint, moving toward a per-mile tax would offer an additional advantage — a relatively smooth and seamless transition from a logistical and bureaucratic standpoint. Of the four vendors recruited to track mileage in the new pilot program, three “are already providing bonus services to fleet managers based on vehicle data,” according to Techwire.net.

“Azuga currently offers fleets a device they plug straight into a vehicle’s OBDII computer — a standard component in all vehicles made after 1996. Aside from automatically reporting mileage back to fleet managers, the computer is what alerts drivers to specific problems in the engine and can also offer information about what’s going on under the hood,” the site noted. “Two of the other companies signed up to track the mileage of participants in California’s test program, Intelligent Mechatronic Systems and EROAD, offer similar services. The fourth vendor, Arvato Mobility Solutions, will manage the accounts.”

Although privacy advocates have expressed skittishness and dismay, many Californians have grown accustomed to their driving habits being monitored electronically. California Road Charge will offer “the option to allow the state to monitor their in-vehicle computer, tracking where they go so they aren’t charged for the use of private or out-of-state roads,” Next City noted. “Recognizing that many will see this as an intrusion on their privacy, the state is testing other ways to collect this data, like periodic odometer reading verifications. California will also experiment with offering drivers weekly or monthly ‘all-you-can-drive’ passes.”

This article was originally published by CalWatchdog.com

CA lowers gas tax

As reported by The Hill:

California is lowering the amount of money drivers in the state will have to pay at the pump to help pay for transportation projects, The Associated Press reports.

The California Board of Equalization has voted to lower the state’s excise tax on gas purchases from 30 cents per gallon to 27.8, according to the report.

Drivers in California are charged an additional 10.62 cents per gallon in other taxes on their fuel purchases, according to the American Petroleum Institute (API).

California’s fuel levy is collected on top of an 18.4 cents per gallon federal gas tax that is charged to all drivers in the nation to fill the federal government’s transportation funding coffers. …

Click here to read the full article

Air Board Asks Courts to Create New Tax

carbon-tax-1In a landmark case before the Third District Court of Appeal, the California Air Resources Board (ARB) recently argued for creation of an unprecedented tax doctrine that could raise billions of dollars in new revenues. The ARB described the new revenue not as a tax or a fee (or any other recognized revenue-raising mechanism), but as a “byproduct” of a regulatory program.

The case, California Chamber of Commerce v. California Air Resources Board, challenges the legality of the cap-and-trade auction ARB set up as part of its program to reduce greenhouse gas (GHG) emissions to meet goals outlined in AB 32, the climate change law.

CalChamber is arguing that (1) the ARB exceeded the authority the law granted it by reserving GHG allowances to itself and auctioning those allowances to GHG emitters to raise revenues, and (2) such an auction is a “tax” requiring a two-thirds vote of the Legislature, which was not obtained.

(CalChamber is not challenging AB 32 or the cap-and-trade mechanism itself, because the goals of AB 32 can be achieved effectively using cap and trade. In fact, the efficacy of cap and trade to meet the GHG reduction goals would be unaffected in the absence of the auction.)

The lawsuit aims to prevent the powerful regulatory agency from expanding its reach beyond the boundaries set by the Legislature, and to maintain the integrity of the revenue-raising rules of Proposition 13. But the ARB has raised the stakes even higher by suggesting that the revenues raised by the auction are neither taxes nor fees.

The auctions so far have raised nearly $1.6 billion in revenues that have been deposited into state coffers. The Legislative Analyst has estimated the auction will raise tens of billions more dollars by 2020.

The ARB instead claims that the auction is a legitimate exercise of its regulatory powers and that the billions in new revenues are “incidental” to that regulation. In fact, the ARB flatly states that the auction was not enacted for the purpose of increasing revenues; therefore, it is not a tax.

The Air Board had previously acknowledged that the auction revenues resided comfortably within the state’s tax system, and as “a non-distortionary source of proceeds” could be used “as a substitute for distortionary taxes such as income and sales taxes.”

The lead doctrine on determining whether a charge is a fee or a tax is the California Supreme Court decision in Sinclair Paint v. Board of Equalization. The court held that a regulatory fee is legitimate if (1) there is a reasonable relationship between the amount charged and the burdens imposed by the fee payer’s operations; (2) it is not used for unrelated revenue purposes; and (3) the remedial measures funded with the charge are caused by or connected to the fee payer’s operations. Lacking any of these factors, the charge is a tax.

Since it is apparent that the auction cannot meet these criteria, the ARB dismissed Sinclair’s relevance, stating that the “requirements that govern fees are not useful for reviewing other exercises of the police power.” Even though the ARB claims the revenues are incidental to a regulatory program, it declined to label them as “fees.”

In other words, the ARB has asked the court—in the case of fees imposed for regulatory purposes—to disregard the leading doctrine on regulatory fees.

To be sure, there are charges that government legitimately imposes that are neither fees nor taxes which fit comfortably within the Proposition 13 rubric: special assessments and development fees for infrastructure, charges for goods and services, fines and penalties for law breaking.

But the ARB has sought refuge in none of those time-tested revenue constructs. Instead, it has asked the court to invent a new, unique category of non-tax, non-fee, non-assessment, non-penalty, non-service charge that fits the auction revenue system.

The ARB is seeking a safe harbor for revenues “incidental to regulation” that it claims are not regulatory fees, and which will generate tens of billions of dollars for new spending programs that somehow are not taxes. In fact, next year the revenues from auctions will be one of the largest sources of state revenues—and bound to grow as the ARB allocates even more allowances to itself.

CalChamber has vigorously disputed this new doctrine, calling it “unprecedented, undemocratic and amorphous.” Proposition 13 and the Sinclair decision have limited and rationalized tax and fee doctrine for 37 years, setting out the rules that balance operational flexibility with accountability.

The Court of Appeal will hear oral arguments in this case later this year.

 is president of the California Foundation for Commerce and Education

Originally published by Fox and Hounds Daily

Michelle Steel’s Chance

After the 2012 presidential election, politicians, pundits and pollsters were obsessing over the staggering 71 percent of the Hispanic vote that President Obama received. What many ignored was the fact that there was an even more incredible figure about a racial group that had, until recently, voted Republican. That group is Asian Americans, giving Obama 73 percent of their vote on Election Day.

In Orange County, Republicans are trying to change that. One of those Republicans trying to change this status quo is Michelle Steel, currently the highest-ranking Republican constitutional officer in California and candidate for Orange County’s Second Supervisorial District.

Born in South Korea, Steel came to the United States and received degrees from Pepperdine and USC. While studying at Pepperdine, she met Shawn Steel while taking tennis lessons at the Ambassador Hotel. He noticed her because “she looked like she could really hit that ball and slam it well.” Soon after that first encounter at the tennis courts, they started dating.  Her now-husband, Shawn Steel is a former Chairman of the California Republican Party and currently serves as California’s Republican National Committeeman. Married in 1981, they settled in Palos Verdes and, then, Orange County with their two children, Cheyenne and Siobhan.

While in college, Steel worked at her mother’s clothing store. She had to support her mother, who didn’t speak English. And because her parents were hard-working small business owners, Steel has “always been about family values, smaller government and not accepting government handouts. I’m a first generation immigrant, and as a first generation immigrant, I had to be a Republican.” These conservative values would be put into great effect as CA government policies often attempt to abuse small business owners.

Steel’s mother encountered these abusive policies and regulations when she owned her clothing shop. The Board of Equalization accused her of cheating the state out of her taxes, and knowing that it would be impossible for her to fight the government and win, Steel explained, “My mom paid the taxes she didn’t owe, along with the penalty and interest on top of it.” Seeing this direct abuse by the government, Steel became actively interested in politics. “I can’t just sit at home and be a housewife. I wanted to be a bridge” between the people and their representatives in government.

At first, Shawn tried to keep her from going into politics, attempting to protect her. But he could not hold back her desire to help small business owners and implement the conservative values her experiences have instilled in her.

Her first political position was an appointment by then-mayor of Los Angeles, Richard Riordan, to the Los Angeles Fire Commission. And in the years following, she secured positions on multiple national boards including the President’s Advisory Commission on Asian Americans and Pacific Islanders.

After she was elected to the Board of Equalization, which is the state agency in charge of taxation, she saved California taxpayers $42 million in 2007 alone. Last year, she returned over $200 million back to the taxpayers through her efforts at BOE. Representing more than 8 million people — a quarter of California’s population — she has stood in defense of the taxpayer when it comes to pocketbook issues and has tried to save the people of California from abusive taxation by the government. Her experience on the BOE would be a worthy asset to her as supervisor because, as Steel points out, she “works with taxpayers. I work with them individually. Looking at the budget, I know how to save.”

This contrasts with her opponent, Assemblyman Allan Mansoor, who Steel claims “has always been about public offices and never really worked in the private sector.” Because of her prior experience, Steel knows “how the private sector is trying to survive” under the weight of California’s massive amount of taxes and regulation. Assemblyman Mansoor, who has held elective office for the past 12 years, “was the one who raised taxes” on his fellow Californians according to Steel.

As the country’s highest-ranking Korean American elected official and the highest-ranking Republican woman in California, Steel knows how to reach out to both women and minorities, two groups with which Republicans need to make serious inroads. “The Republican Party is changing. We need to learn how to relay our message because we are not really good at that,” as exhibited in recent elections. Her endorsements from countless Republican officials, conservative organizations, and community leaders demonstrate the confidence people have in her and what she is capable of accomplishing for her constituents.

Steel’s life story, her conservative beliefs, and her appeal to both women and minorities represent a bright light in, what could be, a fading future for the Republican Party. Hopefully, voters will see that and elect Michelle Steel, the taxpayer’s advocate, as Orange County Supervisor.

Tyler Warman is a junior attending Hillsdale College, where he studies politics and classical education. Tyler can be reached at twarman@hillsdale.edu.

‘Disadvantaged’ counties fight for cap-and-trade dollars

In the fictional town of Lake Woebegon, all of the children are above average. But in the real world of California, all of the counties are disadvantaged.

Or so it seemed at a recent California Air Resources Board meeting as officials from all over the state poor-mouthed their districts to gain a share of cap-and-trade funds set aside for “disadvantaged communities.”

Cap and trade is one of the main greenhouse-gas-reduction components in the implementation of AB32, the Global Warming Solutions Act of 2006. It’s projected to raise $832 million in the current fiscal year that will be doled out to various state agencies.

Senate Bill 535, passed in 2012, mandates at least 25 percent of cap-and-trade spending must benefit disadvantaged communities, with at least 10 percent going to projects located in those communities.

CARB, which implemented and administers the cap-and-trade program, identifies “disadvantaged communities” based on their California Environmental Protection Agency CalEnviroScreen score. Each of the state’s 8,000 census tracts are scored from 0 (least disadvantaged) to 100 (most disadvantaged), based on 12 pollution and environmental factors and seven population characteristics and socioeconomic factors.

The most disadvantaged communities are generally those with the highest levels of pollution and the poorest population. They are predominantly in the agricultural Central Valley from Sacramento to Bakersfield, along with urban pockets in the Bay Area, Los Angeles and San Diego.

“CalEnviroScreen shows clearly what we in the San Joaquin Valley know all too well: that many of our communities are among the most disadvantaged in the state,” said Fresno Mayor Ashley Swearengin,  as quoted in a CalEPA press release. “By reinvesting funds in areas of the state with high pollution levels, California is demonstrating its commitment to a cleaner and more prosperous future for all.”

In the November election, she is running for state controller as a Republican against Democrat Betty Yee, a member of the state Board of Equalization.

Angry

But not so fast, said numerous officials and advocates who spoke at CARB’s recent hearing on the issue. Particularly angry was CARB member and San Diego County Supervisor Ron Roberts, who produced a map:

San Diego affordable housing tracts, censusColor code:

  • White indicates an area is not that disadvantaged
  • Dark purple marks the more disadvantaged areas.
  • Light purple indicates intermediate areas.

Roberts didn’t like the CalEnviroScreen white coloration on the southern end of his county near the Mexican border. “Where those two freeways come together in that white zone is the busiest border crossing in the world,” he said.

Interruption

As Roberts was talking, CARB Chairwoman Mary Nichols interrupted, “You don’t have a hard time convincing me. You need to go take this argument to CalEPA.”

“The fact that’s not a bright purple, it is disadvantaged in every way, shape, or form,” said Roberts.

Nichols again interrupted, “All I can tell you is –“

“Let me finish,” said Roberts. “The EnviroScreen may be good for some things, but this is being missed. That whole area should be bright purple, not just the white. The fact that it’s not, should signal somebody that the model we have is not accounting for what’s happening on the ground. There is no way that I can support something that basically ignores the situation like this.

“That’s one of our most impacted areas in the whole county, for certain, and it’s one of our lowest income areas. This is a miscarriage of justice. And you talk about environmental justice, and there is none in that map right there.”

Northern California

There is also disadvantaged disgruntlement from officials at the other end of the state. Alan Abbs, the Tehama County air pollution control officer, is concerned  his county’s census tracts are in the 25-30 percent most disadvantaged ranking, although the cutoff for funding might be at the 20 percent most disadvantaged level.

“Tehama County as a whole has a population with a median household income 33 percent below the state median,” Abbs told the board. “We have the highest asthma rates in the north state. And like any county in California, we have pockets that are significantly less well off than other pockets. So at the outset, I would urge the board to consider going beyond the 20 percent level when you’re looking at disadvantaged communities.

“When we look in the future about how rural areas of California are going to be receiving funds through cap and trade, especially when fuels get added into cap and trade [starting in 2015], I think we’ll find out a lot of rural areas of California are going to be [left] out, even though the residents in those areas are going to be paying into the program through higher fuel costs.”

Also concerned that the CalEnviroScreen rankings may not provide the whole picture, particularly in rural areas not in the Central Valley, was Tehama County Supervisor Bob Williams, representing the Rural County Representatives of California.

“CalEnviroScreen multiplies pollution burdens by the social and economic characteristics of the community, basically eliminating areas of the state with good air quality from being defined as disadvantaged communities, no matter their socioeconomic status,” said Williams.

“Using strictly the CalEnviroScreen as a source for recognition could potentially eliminate a minimum of counties from consideration, including counties such as Lake, Modoc, Plumas, and Lassen. If you’ve been to those counties, you would be hard pressed to deny they have disadvantaged areas.

“RCRC recommends that additional flexibility be allowed so local jurisdictions can demonstrate that a community smaller than a census tract can meet the definition of a disadvantaged community. Rural areas cannot compete in many AB32 programs because projects usually cost more to complete in more remote areas. Being excluded from the disadvantaged community designation all but eliminates these counties from access to funds.”’

Sympathetic

Nichols was sympathetic to their concerns. “We do understand this issue about rural areas, which undoubtedly are among the poorest of areas within the state of California, but are not the ones that fit the criteria of being impacted the most in terms of multiple sources of pollution,” she said.

“And we agree that it’s not just an issue of fairness. It’s an issue of addressing opportunities that are there to do things that could ultimately benefit all of us when it comes to reducing greenhouse gas emissions. So we want to make sure that there is a way to appropriately recognize and make sure there are funds flowing to rural communities in the overall AB32 cap-and-trade spending program.”

But advocates for poor urban areas aren’t keen on spreading the disadvantaged money around to less disadvantaged areas. They want the most disadvantaged communities, particularly those with minority populations, to get most of the money.

“I think all of us here understand that historically low-income communities of color have been disproportionately burdened with pollution, which remains true today,” said Bill Magavern with the Coalition for Clean Air. “So we have the opportunity now to go a little ways towards redressing that inequity, that environmental injustice, with some of the funds that are available.”

Monika Shankar, representing Physicians for Social Responsibility-Los Angeles, argued for “a ranking system to prioritize investments in communities with the greatest needs. For example, many of the census tracts in the top 5 percent score markedly worse than the next set of census tracts in the top 6 to 25 percent. And we need to be cognizant of that.”

Also in favor of concentrating the money where it’s needed most was Marybelle Nzegwu, a Public Advocates attorney representing the SB535 Coalition.

“We would like to see the guidelines at least provide guidance that scoring and ranking should prioritize certain types of projects, should prioritize projects that benefit the most disadvantaged communities, should also prioritize projects that provide the most benefits in the most significant way,” she said.

CARB voted 9-1 (with Roberts voting no) to adopt the disadvantaged communities spending guidelines outlined in their staff report. They also agreed to send a message to CalEPA that they feel there are some discrepancies in the CalEnviroScreen map ratings they would like addressed.

This article was originally published on CalWatchdog.com