Will Latest California Board of Equalization Audit Finally Produce Reform?

Will Latest California Board of Equalization Audit Finally Produce Reform?

The cloud over California’s Board of Equalization (BOE) grew darker recently after the Department of Finance released its audit on March 30, 2017. The agency was already struggling to explain a 2015 audit that revealed the misallocation of $47.8 million in sales tax revenue.

The BOE is now in full “crisis mode,” according to Executive Director David Gau. It seems that periodic unflattering audits have a way of reigniting this decades-old debate. However, the real question remains: Will the most recent audit cause lawmakers to intervene or has the BOE been “scared straight” into reforming itself?

California’s state constitution established the Board of Equalization in 1879, originally to ensure that county property tax assessments were equal and uniform. Authority has expanded to include sales and use taxes, special taxes, and tax appellate programs. (The separate Franchise Tax Board collects the state’s income and business taxes.)

A series of recent audit findings has led to BOE critics charging that the agency’s management of its revenue portfolio is anything but fair, effective, and efficient. The 2017 audit report highlights the misallocation of staff and resources to projects of individual board members that are self-serving and outside the agency’s mission. Reporting of “loose accounting” and lax office policies for salary advances and vendor payments snowballed into redirecting $343 million between 2011 and 2013 to correct fund imbalances. As a data point, the “education and outreach” expenditures nearly tripled since 2010 from $920,000 to $2.96 million. These tax dollars were spent on large conferences and events that were arguably only tangentially connected to tax policy outreach.

As of April 25, the BOE’s board approved a temporary ban on funding for large-scale conferences to review practices and develop new policies for outreach activities.

The BOE’s growing number of critics argue that the agency accomplished its original mandate of “equalizing taxes among counties” long ago. Betty Yee, the State Controller , proposed that the BOE be stripped of its authority to administer anything over and above its 1879 mandate of property taxes and tax appellate programs. San Francisco board member Fiona Ma requested direct intervention from Governor Brown (D) to appoint a public trustee to manage the BOE. State Senator Richard Roth of Riverside proposed a reduction in the executive function of board members to limit board interference with daily operations. Roth further suggested that an inspector general position be established so that employees of the BOE have a way to report misconduct. Some critics are calling for the agency’s dissolution.

In 2009, then-Governor Schwarzenegger (R) championed an idea to combine all three tax-collecting departments into one entity. This idea crumbled under the sheer weight of each department’s size. Merging agencies with different systems, technology, and more than 9,000 employees would be a logistical nightmare.

If California lawmakers are successful, they’ll leave the BOE a mere shell of its former self. The proposal would eliminate the BOE’s role as California’s tax court and would reassign 90 percent of its staff to a new revenue department reporting directly to the governor’s office. Whether the pressure is internal or external, it seems California’s Board of Equalization can no longer avoid restructuring.


Published at Thu, 15 Jun 2017 16:28:13 +0000