California State Board of Equalization (BOE) Chairwoman Betty Yee spoke with BOMA San Francisco Government and Public Affairs Committee members yesterday about the State's economy, California's tax reform efforts and the BOE. The following are the highlights:
- California is in uncharted economic territory. Chairwoman Yee stated that in previous years, California relied on two sectors to pull the State out of an economic downturn: residential housing and consumer spending. Neither sector is helping the State in the current recession.
- Yee mentioned that the UCLA Anderson School of Management has forecast a turnaround in the California economy by the end of 2009. This turnaround will be concentrated mostly in Southern California through 'green' technology development and multi-family housing construction--due mostly to local government's push for more dense development and availability of financing.
- Unemployment and the lack of job creation will continue to be systemic problems for California. There will be some job growth in the education sector, but the State will stay within 11-13% unemployment and maybe as high as 20% for the foreseeable future.
- The State saw the first full-scale decline of property taxes this year, which came in below projections. Property taxes are the primary funding source for constitutionally protected K-14 funding. Yee stated that any shortfall in funding from property taxes must be offset from the General Fund.
Tax Reform Efforts
- According to Yee, the question now is: 'how [does California] raise a buck without tax increases?' The Chairwoman suggested accelerating the personal withholding tax revenue collections and requiring the currently estimated quarterly payments to be front-loaded and made in three payments.
- Yee stated that the State tax system is broken; the budget process is not conducive to fixing this problem. The Chairwoman suggested that California needs systemic, long-term budget changes, e.g., requiring a majority vote (as opposed to the current 2/3rds vote requirement), and more transparent budget negotiations in Sacramento that allows for increased public input (not via 'Big 5' meetings behind closed doors, as has become the norm).
- Yee spoke about a number of reform efforts: The Commission on the 21st Century Economy, which is studying ways to restructure the tax system in the State; California Forward; and the Bay Area Council's push for a state Constitutional Convention (click here for a time line). All of these efforts will be looking at reforming the so-called 'third rail' of California politics, Proposition 13.
- Yee supports the need to revisit Proposition 13 with the goal of restoring local authority for funding to school districts and minor infrastructure projects. The Chairwoman feels that any reform of Prop. 13 should not only focus on commercial properties, but on the entirety of all the state's assessed property types.
- With regard to the Commission of the 21st Century Economy's charge to recommend a fairer and more stable tax system, Yee rhetorically asked: 'Who should bear the tax burden?' High wage earners? The middle class? Business? Commercial property owners? Everyone has an idea, and it's usually includes not taxing themselves. She also mentioned an earlier interest in a 'flat tax' by Commission members was abating as no legislator wants to 'tax the poor'.
California State Board of Equalization
- Please click here for BOE's history.
- The Board of Equalization collected $53 billion in sales and use taxes and fees in 2009 used to support state and local services.
- The BOE, which is charged with sales tax administration, also has oversight jurisdiction over the 58 California County Assessors, and interprets the tax laws for local jurisdictions.
- The Agency does a lot of outreach with the taxpaying business community. In fact, the BOE is here to help businesses in California that may be behind on their tax payments. The Agency can help to set up a payment plan and/or extend their Offer in Compromise program. Please click here for contact information.
Emerging Issues at the BOE
- The BOE is working to close a $40-50 million department budget gap for FY 2009-10. The Agency is not requiring furloughs, and has cut costs in other areas through belt tightening. However, she predicted there would be cutbacks at the agency's call centers and a lengthening of their dispute resolution services for tax delinquencies that may result in slower tax collections.
- There is a proposal on the table to consolidate the 3 tax agencies in California into a massive Department of Revenue: the Employment Development Department, the Franchise Tax Board, and the BOE. Yee opposes this idea and said she believes it would affect customer service. In her words, 'what would the taxpayer's experience be?' More specifically, how can you consolidate these three departments when they currently can't even (electronically) talk to each other? Plus, there are no funds available to purchase and install new computer systems.
- The BOE is in the process of shortening the time to complete tax audits. Currently, an audit takes 4 months to 3 years depending on the size of the business. The BOE has a commitment to complete a complex audit in 2 years with a focus on records and a team audit approach.
- The BOE is analyzing any impact to the state budget that may result from a flat tax, if one is proposed ultimately by the 21st Century Commission.
- California needs to adapt to new technology that can help make government agencies more efficient. Of all the agencies in California, the DMV is the only department that is ahead of the curve on this issue. The larger problem is the cost and resistance to change from employee unions. California just doesn't have the money to spend on technology.
- With regard to the State budget, less than 2% of funds are not constitutionally obligated and are truly discretionary.