Californians Looking For Florida Homes Due To New Tax Law

By now you probably know that the 2017 Tax Act significantly limited the deduction of state and local taxes against your federal income.  For most Americans — particularly ones in low-tax states or states with no income taxes — these new rules will have little effect on your life.  For high-income individuals in high-tax states, they will suffer dearly from this policy.  There has been speculation of how many will relocate.  How bad will the impact be to the states they are leaving?  That is another question.

We do not know how many people will leave states like New York, Connecticut or California.  We do know that the states they will potentially leave will be severely impacted because the high-earning taxpayers pay a significantly high percentage of the income taxes in these states.

This question hit me square on when I had a chance to interact with a hedge fund operator in a semi-business occasion.  He found out I was a CPA specializing in taxes and he immediately launched into a discussion about how the tax law was going to hit him. He is getting hit two ways because his federal income is going to be taxed at higher tax rates due to the new carried interest rules.  Also, the voluminous taxes he pays the state of California will no longer be deductible. He told me everyone he knew spent their Christmas break looking for houses in Florida – a no income tax state. …

Click here to read the full article from Townhall

California is collecting so much of your money it can’t save it all

California’s swelling budget reserves are approaching a point where the state by law can’t save any more money ‑ but don’t expect a tax rebate.

The state is quickly filling up its so-called rainy day fund, the budget stabilization account voters created in 2014 when they passed an initiative that forced lawmakers to save money in flush years. Gov. Jerry Brown’s budget proposal puts the state on pace to fill it with $13.5 billion by July 1, 2019, but the milestone could come even sooner.

By law, the fund can only hold 10 percent of the state’s projected general fund revenue as a hedge against the cuts that would come in a recession. Any additional revenue has to be spent on infrastructure.

If the revenue keeps pouring in, Legislative Analyst Mac Taylor told senators earlier this month they’ll have a lot of options. The money “will be there for you do whatever you want to do with it, build reserves, tax cut, whatever you want to do.”

But, in one of those only-in-California budget formulas, filling the rainy day fund presents a different kind of problem for legislators. …

Click here to read the full article from the Sacramento Bee

Public Radio Admits: Trump Tax Cut Good for Middle & Low Income in California

donald-trump-3A story by Southern California Public Radio station KPCC last week appeared to admit that President Donald Trump’s $1.5 billion tax reform is best for middle and lower income households.

During the months leading up to the tax cut, public radio and television railed away that Republican tax reform would be a massive giveaway to the wealthy, paid for by the middle and lower households. KPCC public radio reported polling that only one in three voters supported the bill.

Citing the supposedly non-partisan Congressional Budget Office (CBO), PBS News Hour gravely warned that all taxpayers with annual incomes under $75,000 would become tax losers over the decade long life of tax reform. Individuals with $1 million incomes were predicted to receive an immediate $59,615 a year tax cut windfall, while poor Americans making less than $20,000 per year would suffer losses that would grow from $48 in 2019 to $788 a year by 2027.

But CBO has had dismal track record estimating public spending and government deficits. CBO in 2010 infamously presented a 36-page financial justification to Speaker of the House Nancy Pelosi assuring that Obamacare would reduce federal deficits of $143 billion over the next decade. By 2012, the CBO was estimating that Obamacare’s spiking healthcare insurance premiums would increase the deficit by another $820 billion.

KPCC recently engaged Los Angeles-based H&R Block to break down what the Trump “tax changes have in store for a group of Southern Californians,” ranging from “low-income grad students to highly paid professionals.”

Based on 2016 tax returns, H&R Block found that the impact of tax reform resulted in:

  1. LOW INCOME = grad student Christine Vega, earning $23,446, would receive a refund increase of $400;
  2. MEDIAN INCOME = Megan and Marlee Malone-Franklin, who together made $69,192 by operating a small business called Hero Birth Services, received a tax cut of $1,497;
  3. UPPER INCOME = Rosa Castro earned $140,468 as a board administrator at the Metropolitan Water District and received a tax increase of $4,076; and
  4. TOP 1 PPERCENT EARNERS = Mary Ellen and Mark Glackins, making a mid-six figure income as corporate executives, received a tax cut of only $1,919.

The main reason that the upper and highest income households received very small tax cuts in comparison to the lower and median income households is the former’s legal gaming of the tax code by upper income earners, who could take huge amounts of deductions to lower the effective tax they paid drastically.

In 2016, Castro took $57,875 in itemized deductions, and the Glickins took $103,627 in itemized deductions. But deductions for state and local income, sales and property taxes is now capped at $10,000 under the new rules, plus deductions of unreimbursed job expenses were terminated. In 2018, Castro will lose about $22,584 of her federal deductions and the Glickins will lose $59,408 in deductions.

H&R Block’s Aaron Martinez said that although critics claimed that Trump’s tax reform would only benefit the rich: “The new rules don’t always give much back to highly paid workers in a state like California. They pay higher state income taxes than residents in other states, and now their ability to deduct those taxes will be capped.”

This article was originally published by Breitbart.com/California

IRS could easily block Democratic scheme to increase CA tax deductions

Tax formDemocratic state lawmakers’ interest in pursuing an unprecedented plan to minimize the hit that California’s high-income residents face because of the federal tax overhaul’s $10,000 cap on deductibility of state and local taxes may be losing momentum – undermined by strong warnings from Treasury Secretary Steven Mnuchin, who oversees the Internal Revenue Service, and by a new analysis that says the IRS could easily squelch the maneuver.

Senate President Pro Tem Kevin de Leon, D-Los Angeles introduced Senate Bill 227 early this month. It would allow the estimated 6 million Californians who itemize their federal income taxes to effectively continue to write off state and local tax deductions in excess of $10,000 by allowing them to pay their state taxes to a state charitable foundation, the California Excellence Fund.

Tax experts note that states have long allowed tax deductions for charitable donations and say de Leon’s ploy is protected by the fact that tax laws are traditionally subject to stricter interpretation than most federal laws because of concerns that a rogue IRS could target individuals or companies it didn’t like.

Democratic lawmakers embraced de Leon’s proposal, saying the move would allow the 6 million state taxpayers who itemize deductions to save an average of more than $8,000 a year.

Washington Post: California shows how to take on Trump

But after Washington Post coverage of the legislation asserted it could create a “national boilerplate for skirting Trump tax changes,” the Trump administration took notice of what California was up to.

Politico reported that Mnuchin called the proposal in California and similar proposals in other high-tax states “ridiculous.” Mnuchin emphasized that the IRS was allowed to decide what qualifies as an IRS-recognized charity.

“Let me just say again from a Treasury standpoint and IRS, I don’t want to speculate on what people will do, but I think it’s one of the more ridiculous comments to think you can take a real estate tax that you are required to make and dress that up as a charitable contribution,” Mnuchin told reporters at the White House. He described the ploy as an obvious attempt by states “to evade the law.”

Mnuchin’s comments were backed up in a report by the Washington, D.C.-based Tax Foundation.

“This proposal, while interesting, is fairly obviously in violation of existing law and jurisprudence,” wrote veteran tax analyst Jared Walczak. “Just because the IRS has not consistently cracked down on some minor efforts here and there does not mean it would turn a blind eye to a concerted effort to contravene the tax code by providing a contribution in lieu of taxes program.”

Walczak warned state lawmakers that when it comes to de Leon’s Senate Bill 227, the IRS could readily thwart it under precedents that allow it to block deductions for charitable donations if the agency concluded there was no “charitable intent” to the donations.

Given that de Leon and other backers of the bill have openly described it as being designed to reduce Californians’ payments to the U.S. Treasury, lawyers defending the bill if it became law and was rejected by the IRS would face a difficult task: making a plausible case that a “charitable donation” that was undertaken with the goal of reducing an individual’s or family’s tax obligations meets the requirements set by the IRS for allowable charitable deductions.

The latest IRS overview of which deductions are allowed – Publication 526, released in 2016 under the Obama administration – doesn’t seem to allow such self-serving deductions.

It says that for a donation to qualify for a deduction, it must be “made without getting, or expecting to get, anything of equal value. … Qualified organizations include nonprofit groups that are religious, charitable, educational, scientific or literary in purpose, or that work to prevent cruelty to children or animals.”

This article was originally published by CalWatchdog.com

Higher taxes aren’t the solution to California’s problems

Californians are some of the most taxed people in the country, yet it never seems to be enough for those who want more of other people’s money.

California has among the highest per capita tax burden and some of the highest income, sales and gas tax rates in the country. It’s no surprise the Tax Foundation ranked California’s business tax climate 48th in the country last year.

This extensive system of taxation puts California on track for a state government general fund budget of nearly $132 billion in the coming fiscal year, which begins July 1. That’s up from an enacted general fund budget of $102 billion in 2007-08.

Rather than taxing and spending ourselves into prosperity, however, California continues to lead the nation in poverty, finds itself in the grips of a housing crisis, produces some of the most abysmal educational outcomes in the nation and even after pension reforms in 2012 will remain buried in pension obligations for decades to come. …

Click here to read the full article from the Orange County Register

These ballot initiatives could be headed your way in November

Voting BoothsDirect democracy can be an exhausting business.

This year civically engaged Californians will be expected to have informed opinions about affordable housing and park funding, how best to divvy up cap-and-trade money, how to spend the state’s new gas tax money, and when new voter-approved laws ought to be enacted.

And those are just the measures on the ballot so far.

Joining those five—all of which come referred from the Legislature and most of which are destined for the June ballot—are the citizen-backed proposals, which must compete for spots on the November ballot. More than 40 have already been cleared to be passed around the state gathering signatures, while another dozen await the go-ahead from the state attorney general.

What’s on the menu this year? It’s still too soon to say for sure, but here are some major themes and a few examples of what you can expect to see:

Fiscal Fixers

California pioneered fiscal populism with voter-approved constitutional amendments like Prop. 13. So it wouldn’t be a California election without at least a few voter-backed proposals that take a blow torch to the state tax code.

  • Lower Taxes:

Last year, the Democrats kicked off the legislative session by passing a $5 billion-plus transportation plan, funded with new fuel and vehicle fees. There’s a reason they chose to raise the gas tax as far from election day as possible.

Now two initiatives have been proposed in response: One, backed by San Diego Republican Carl DeMaio, would require voter approval for this and all future fuel and vehicle tax hikes. The second, supported by Republican gubernatorial candidate Travis Allen, would simply repeal the fuel and vehicle fees. The DeMaio initiative has made more progress so far, but either way, the California GOP’s political good fortune in 2018 may rest on anti-gas tax fervor.

In the meantime, it’s an election year so expect another fight about property taxes. Prop. 13, California’s original tax revolt initiative, caps the rate that property taxes can increase on a particular homeowner from one year to the next. The longer a homeowner stays in an appreciating house, the stronger the incentive to stay put and keep your low taxes, even if downsizing or relocating might be more practical. The California Association of Realtors has proposed a solution: change the California Constitution to allow older or disabled homeowners to take a portion of their lowered property tax base with them when they move.

The Howard Jarvis Taxpayers Association, named for the father of Prop. 13, has proposed a simpler way to lower taxes: give qualifying homeowners and renters a $500 tax credit.

  • Higher Taxes:

While the Realtors push for an expansion for Prop. 13, a growing coalition of progressives will soon be campaigning for a partial rollback. This proposed initiative would strip the benefits of lower property taxes from certain industrial and commercial properties and use the additional revenue to fund schools.

The Service Employees International Union-United Healthcare Workers has proposed a more straightforward source of revenue: hike taxes on millionaires by 1 percent and channel the money to hospitals serving low income Californians.

Nuclear options

For those who believe our politics are dysfunctional, and compromised beyond repair, these initiatives propose a new start for California.

  • Decentralization:

Republican gubernatorial candidate John Cox has a vision to blow up the Legislature. That is, he wants to increase the number of legislators from its current 120 to roughly 12,000 with each lawmaker representing 5,000 to 10,000 Californians. Cox, who has already submitted the required number of signatures for the measure, believes the “neighborhood legislature” would make representatives more accountable and less beholden to outside campaign cash. Still, this small army of lawmakers would vote for 80 assembly members and 40 state senators to send to Sacramento, thus obviating the need to convert the state capitol building into a football stadium.

Or if 12,000 subdivisions of the state is too many, how about three? Tim Draper, the Silicon Valley venture capitalist who unsuccessfully campaigned in 2014 to split California in six, is now pushing for a more modest three-state solution. Under the proposal, the state would be divided into Northern California, California, and Southern California.

  • Separation:

The 2018 election is rapidly approaching, but many California progressives are still recovering from 2016. Thus, two nascent initiatives that would push the state toward a clean break from the other 49 states. One proposalwould call for a Constitutional Convention where California would submit a legal pathway to possible independence. The other, a constitutional amendment backed by Bush-era anti-war activist Cindy Sheehan, would declare the state’s intent to become an “autonomous nation.” It is unclear how likely it is that either measure will make it onto the ballot.

Money Measures

This is where lawmakers and interest groups come to the voter, hat in hand, asking permission to borrow a bit of extra money. Voters decide whether the new investment is worth the extra debt—though historically, voters have seen more benefit than cost. Since 1986, Californians have approved $9 in fresh borrowing for every $10 requested of them.

  • New money for green things:

Last fall, lawmakers passed a bill to put a $4 billion borrowing planon the ballot. If approved, the borrowed money will fund a variety of natural resource projects: building new parks in low income neighborhoods, remediating soil and wetlands around the Salton Sea, revamping aging dams and levees, and funding grants to adapt to climate change. Voters will review the plan in June.

Conservation groups are gathering signatures for a $8.9 billion initiative exclusively to improve and expand water infrastructure—from drinking water to flood management to ecosystem restoration.

  • New money for housing:

Remember the package of housing bills the Legislature narrowly passed at the end of last session? One major component was a $4 billion bond measure placed by the Legislature on the November ballot. Roughly $3 billion would be slated for new affordable housing construction and $1 billion for below-market home loans for veterans.

  • Also in the running…

Two more bond measures were submitted last month: One plan would borrow $1.5 billion to fund new buildings and other improvements at children’s hospitals. The other would borrow $2 billion to fund cleanup of mold, asbestos, and lead at homes and schools.

Patch Ups

Sometimes legislators need to tie up legislative loose ends or keep promises made to political allies. Here’s the place on your ballot where the sausage gets made.

  • Legislative sweeteners:

When Democrats sought to renew the state’s cap-and-trade program last summer, they needed the votes of a few moderate Republicans. Under cap and trade, the state restricts greenhouse gas emissions and auctions off the right to pollute. Democrats offered an assurance to the GOP holdouts by putting a new constitutional amendment on the ballot: Any cap-and-trade auction revenue raised after 2024 would require the approval of two-thirds of both the Assembly and Senate before it could be spent, making Republican involvement more likely. In June, voters will decide what that assurance is worth.

Second, the gas tax. Earlier last year, when Democrats raised the tax on gasoline along with other vehicle fees to pay for road and transit improvements, they also passed a ballot-bound constitutional amendment alongside it. If approved by the voters, it will create a budgetary “lockbox” for the new gas tax money that can be tapped only for transportation projects. Putting this measure on your June ballot was intended to inoculate the transportation bill against future political attack. It didn’t.

  • Constitutional tweaks:

Unless otherwise specified, if a ballot measure gets over 50 percent of the vote on election night, it becomes law the following morning. But what if a vote is too close to call? Or called incorrectly only to be changed after absentee ballots are counted? This amendmentreferred by the Legislature, also up in June, would delay the enactment of new voter-approved laws until five days after the Secretary of State has called the result.

Workarounds

For special interest groups, the California ballot is a second chance. If you failed to convince enough lawmakers to advance your agenda during the legislative session, why not try the voters? At the very least, mounting a credible initiative campaign is a good way to force your political adversaries to the bargaining table.

  • Another shot at health reform:

Last year the SEIU-United Healthcare Workers failed to convince lawmakers to pass two bills that would have placed new pricing and staffing requirements on the state’s for-profit dialysis clinics. While the union tries to revive those efforts, they’ve launched a measure that would require clinics to pay payers (namely, health insurance companies) back for any charge more than 115 percent of the statewide average cost of care. Note that this is all happening as the union tries to organize the state’s dialysis clinic technicians.

A bolder health initiative campaign proposes to set up a health care fund exempt from the spending caps and revenue sharing requirements that constrain other areas of the budget. Most budget experts argue that this is a necessary first step before the Legislature can pass a state-run, single-payer health insurance program—an effort that was put on hold in the Assembly last year.

  • Another shot at the labor code:

From the other side of the political spectrum, three similar initiative proposals—still in the early signature gathering stage—take aim at the Private Attorneys General Act. Ever since the law was enacted in 2004, giving workers the right to sue their employers on behalf of the state for alleged labor code violations, business interests have argued that it gives too much power to workers and their attorneys to sue over minor infractions. Last year, three bills to weaken the law failed to gain traction. Each circulating initiative would make it more challenging to bring cases and less profitable for the attorneys who bring them.

  • Another shot at housing:

For more than two decades, California cities have been barred from passing rent control ordinances—rules that restrict the ability of landlords to raise rents. The state’s ever-increasing cost of living has put pressure on lawmakers to change that. They resisted last year, but 2018 brings fresh opportunities—a new bill in the Legislature and a proposed ballot initiative that would repeal the ban on rent control.

New Rules

California is often caricatured as the state hogtied with red tape—often applied by voters at the polls. Here are a few possible new ones, along with one regulatory rollback.

  • For companies:

In case those 10,000-word Terms and Condition policies don’t offer you the assurance of privacy, this measure would give consumers the right to learn about the kind of personal data a company is gathering about them or selling to third-parties. It would also prevent companies from discriminating against those who ask, either by denying them equal service or charging higher prices.

Another proposed initiative from the Humane Society of the United States would tighten regulations on livestock treatment—requiring farmers to provide a certain amount of floor space for confined cows, pigs, and chickens.

  • For workers:

In 2016, the California Supreme Court held that security guards in California cannot be considered on-call when on breaktime. Last year some Democrats in the Assembly unsuccessfully attempted to a pass a law that would guarantee undisturbed rest and meal time for ambulance drivers and technicians too. Now the industry is punching back with a ballot measure that would explicitly exempt them.

Of course, there are more.

To date more than 60 measures have been submitted to the attorney general’s office. Beyond those listed above, they include proposals to loosen felony sentencing guidelines, tighten felony sentencing guidelines, repeal the California’s “sanctuary state” law, tax estates to fund college aid, pay public school teachers more, defund public schools, change the state’s voting rules for primaries, criminalize abortion, and decriminalize magic mushrooms.

Would-be reformers and repealers have until late April to get their signatures in order for the November ballot.

This article was originally published by CalMatters.org

To Avoid Trump Tax Reform, California Dems Want to Convert State Taxes to Charitable Contributions

Tax formCalifornia’s Democrat-controlled state government wants to re-classify state taxes as charitable contributions to avoid the new $10,000 cap on state and local tax (SALT) deductions in President Donald Trump’s new tax reform.

For decades, California Democrats have demanded higher and more progressive tax rates as a social justice cure to address income inequality. But they are appalled that President Trump’s Tax Cuts and Jobs Act progressively hurts the state’s highest income earners by capping SALT deductibility.

Gov. Jerry Brown called limiting SALT deductibility to about an upper middle-class income level as “evil in the extreme,” and hissed at Trump’s Republican allies for “acting like a bunch of Mafia thugs.” California Senate President Pro Tem Kevin de León (D-Los Angeles) snarled, “Republicans in Washington have once again zeroed in on California to punish us and make our state the single biggest loser in their reckless tax scheme.”

California is the most populous state, but only has the fourth-highest percentage of residents that claim SALT deduction, at 34.5 percent. The Golden State’s “per-filer” average SALT deduction is a middle-class $12,682. But due to rich coastal and multi-property owners, California has the highest “per claimant” SALT deduction of any state, at $36,802. For California’s rich, tax reform means an effective increase in state taxes.

De León is promising to introduce legislation next week that would allow California’s highest income earners to continue deducting 100 percent of state and local taxes over the $10,000 limit by renaming them charitable contributions.

Final negotiations between the U.S. Senate and House versions of tax reform maintained deductions for actual charitable contributions to support popular programs to support poverty relief, non-profit schools, and the arts.

But IRS Publication 526, which defines what qualifies for federal charitable contribution deductions, specifically allows deductions for “federal, state, and local governments, if your contribution is solely for public purposes (for example, a gift to reduce the public debt or maintain a public park).

It is not clear that California’s gambit would pass the test — but Democrats may try.

This article was originally published by Breitbart.com/California

Split Roll Tax Proposal Bad for Jobs and the Economy

property taxThe California League of Women Voters and other advocates of a split-roll property tax system filed an initiative December 15 that would increase property taxes on California employers by an estimated $11.4 billion per year.

A tax increase of this size will lead to higher consumer prices for goods and services we use every day. In addition to dramatically increasing the cost of living, this misguided measure would drive employers out of California, taking middle-class jobs and future career opportunities with them.

The measure is targeted specifically at California-based employers, and thus would make the Golden State less competitive with other states for jobs and investments. It would add a new section to the California Constitution that would, beginning with the 2020-21 budget year, require commercial and industrial property to be frequently reassessed at full market value.

Proposition 13, approved overwhelmingly by voters in 1978, established an acquisition-value assessment system for the property tax, setting the property tax rate at a maximum of 1 percent, and limiting the amount a taxpayer’s assessed value can increase to 2 percent annually. Under Proposition 13, property also is reassessed when new construction occurs.

Before passage of Proposition 13, taxpayers paid property tax based on county assessors’ opinion of value. Proposition 13 removed subjective opinions and guesswork from the property tax system.

Voters rejected a split-roll measure on the same ballot as Proposition 13, and have rejected several subsequent split-roll proposals.

Since passage of Proposition 13, opponents have claimed that business property receives an unfair benefit from the law. However, state data shows that at the time of Proposition 13’s passage, business properties paid approximately 58 percent of the total property tax burden, while today they pay approximately 62 percent of the property tax burden.

The Legislative Analyst’s Office studied this issue and reported last year:

“Residential, commercial, and industrial properties appear to be turning over at relatively similar rates. … (T)he rate of turnover for residential (including homeowners and rented residential properties) and commercial and industrial properties across the state is relatively similar in recent years. … Comparing the frequency of reassessment across property types in Los Angeles County … suggests that residential properties are not reassessed – and therefore do not turn over –more frequently than commercial and industrial properties. In addition, in San Diego County a typical commercial and industrial property was last reassessed ten years ago, compared to 14 years ago for residential property. This suggests residential properties turnover slightly less often, which increases the tax benefits to these properties.”

resident of the California Taxpayers’ Association.

This article was originally published by Fox and Hounds Daily

A quick look at some of the biggest tax changes for Californians

Congressional Republicans are framing their tax cut bill as a Christmas gift that will give Americans an average tax cut of $2,059. For Californians, especially in the wealthier areas along the coast, the situation isn’t as clear cut.

When the measure comes up for a vote in the House on Tuesday morning, it’s expected to pass along party lines. At least two Republicans say they will join Democrats in the California delegation to oppose the plan because they fear it will hurt their constituents’ bottom line.

Here’s a quick look at what some of the biggest changes in the tax bill might mean for average Californians.

State and local tax deduction, standard deduction and new tax brackets

A third of California taxpayers take an average state and local tax deduction of $22,000. But the GOP bill will cap the deduction going forward to $10,000.

For many Californians who deduct their state and local taxes on their federal return, this would amount to a tax hike. …

Click here to read the full article from the Los Angeles Times

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