The Quentin L. Kopp Conflict of Interest Act of 1990 requires a member of the State Board of Equalization who has received a contribution or contributions within the preceding 12 months in an aggregate amount of $250 or more from a party or his or her agent, or from any participant or his or her agent, to, prior to rendering any decision in any adjudicatory proceeding pending before the board, disclose that fact on the record of the proceeding. A member is prohibited from making, participating in making, or in any way attempting to use his or her official position to influence, the decision in an adjudicatory proceeding pending before the board if the member knows or has reason to know that he or she received a contribution or contributions within the preceding 12 months in an aggregate amount of $250 or more from a party to the proceeding, or his or her agent, or from a participant in the proceeding or his or her agent, and the member knows or has reason to know that the participant has a financial interest in the decision. The act also requires a party to, or a participant in, an adjudicatory proceeding pending before the board to disclose on the record of the proceeding any contribution or contributions in an aggregate amount of $250 or more made within the preceding 12 months by the party or participant, or his or her agent, to any member of the board. A person who knowingly or willfully violates any provision of the act is guilty of a misdemeanor.

The Quentin L. Kopp Conflict of Interest Act of 1990 requires a member of the State Board of Equalization who has received a contribution or contributions within the preceding 12 months in an aggregate amount of $250 or more from a party or his or her agent, or from any participant or his or her agent, to, prior to rendering any decision in any adjudicatory proceeding pending before the board, disclose that fact on the record of the proceeding. A member is prohibited from making, participating in making, or in any way attempting to use his or her official position to influence, the decision in an adjudicatory proceeding pending before the board if the member knows or has reason to know that he or she received a contribution or contributions in an aggregate amount of $250 or more from a party to the proceeding, or from a participant in the proceeding the member knows or has reason to know has a financial interest in the decision. The act also requires a party to, or a participant in, an adjudicatory proceeding pending before the board to disclose on the record of the proceeding any contribution or contributions in an aggregate amount of $250 or more made within the preceding 12 months by the party or participant, or his or her agent, to any member of the board. A person who knowingly or willfully violates any provision of the act is guilty of a misdemeanor.

This bill would delete reduce the $250 contribution limitation and instead apply to $100, applying the above-described disclosure and disqualification provisions if a board member receives any a contribution in the amount of $100, or more from a party, agent, or participant, as provided.

By extending the application of the criminal sanctions of the Quentin L. Kopp Conflict of Interest Act of 1990, this bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

The Quentin L. Kopp Conflict of Interest Act of 1990 requires a member of the State Board of Equalization who has received a contribution or contributions within the preceding 12 months in an aggregate amount of $250 or more from a party or his or her agent, or from any participant or his or her agent, to, prior to rendering any decision in any adjudicatory proceeding pending before board, disclose that fact on the record of the proceeding. A member is prohibited from making, participating in making, or in any way attempting to use his or her official position to influence, the decision in an adjudicatory proceeding pending before the board if the member knows or has reason to know that he or she received a contribution or contributions in an aggregate amount of $250 or more from a party to the proceeding, or from a participant in the proceeding the member knows or has reason to know has a financial interest in the decision. The act also requires a party to, or a participant in, an adjudicatory proceeding pending before the board to disclose on the record of the proceeding any contribution or contributions in an aggregate amount of $250 or more made within the preceding 12 months by the party or participant, or his or her agent, to any member of the board. A person who knowingly or willfully violates any provision of the act is guilty of a misdemeanor.

This bill would delete the $250 limitation and instead apply the above-described disclosure and disqualification provisions if a board member receives any contribution from a party, agent, or participant, as provided.

By extending the application of the criminal sanctions of the Quentin L. Kopp Conflict of Interest Act of 1990, this bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Date of Hearing: August 10, 2016

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez, Chair

SBPCA Bill Id:SB 816

Author:(Hill) – As Amended Ver:August 8, 2016

Urgency: No State Mandated Local Program: Yes Reimbursable: No

SUMMARY:

This bill requires the Board of Equalization (BOE), by January 1, 2018, to analyze and report on the impact on the board and on contributors to the board of lowering, from $250 to $100, the campaign contribution threshold that triggers conflict of interest requirements for members of the under the Quentin L. Kopp Conflict of Interest Act of 1990 (Kopp Act).

FISCAL EFFECT:

Minor one-time costs to the board to analyze and prepare the report.

COMMENTS:

1. The Kopp Act (named for former Senator Quentin Kopp) prohibits a member of the BOE from participating in an adjudicatory proceeding if the member knows, or has reason to know, that he or she received contributions totaling $250 or more in the 12 months prior to the proceeding from a party, participant, or agent of a party or participant, as specified. Members are permitted to participate in the decision, however, if they return the contribution within a specified time period. The argument for enacting the Kopp Act was that the BOE should be subject to rules similar to those that applied to appointed boards and commissions (under the Levine Act) because of the BOE's quasi-judicial role as the appellate body for state tax appeals. Unlike the Levine Act, the Kopp Act is not part of the PRA, and is neither administered nor enforced by the FPPC.
2. Purpose. Prior to the most recent amendments, this bill reduced the Kopp Act threshold from $250 to $100, thus matching the minimum contribution amount that is reportable under the state's campaign finance laws. The amendments instead require the board to assess the potential impact of such a change.
3. Related Legislation. AB 1828 (Dodd), which eliminated the $250 Kopp Act threshold and expanded the conflict of interest provisions to apply to contributions made in the three months after a proceeding before the BOE and to include behested payments aggregating $5,000 or more, was held on this committee's Suspense file in May.

Analysis Prepared by: Chuck Nicol / APPR. / (916) 319-2081

6Date of Hearing: August 3, 2016

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez, Chair

SBPCA Bill Id:SB 816

Author:(Hill) – As Amended Ver:April 26, 2016

Urgency: No State Mandated Local Program: Yes Reimbursable: No

SUMMARY:

This bill lowers, from $250 to $100, the campaign contribution threshold that triggers conflict of interest requirements for members of the Board of Equalization (BOE), under the Quentin L. Kopp Conflict of Interest Act of 1990 (Kopp Act).

FISCAL EFFECT:

Additional costs for BOE members to track contributions under the lower conflict of interest threshold and one-time administrative costs for the BOE to notify taxpayers, participants and agents of the revised threshold and to amend corresponding regulations will be minor and absorbable.

COMMENTS:

1. The Kopp Act (named for former Senator Quentin Kopp) prohibits a member of the BOE from participating in an adjudicatory proceeding if the member knows, or has reason to know, that he or she received contributions totaling $250 or more in the 12 months prior to the proceeding from a party, participant, or agent of a party or participant, as specified. Members are permitted to participate in the decision, however, if they return the contribution within a specified time period. The argument for enacting the Kopp Act was that the BOE should be subject to rules similar to those that applied to appointed boards and commissions (under the Levine Act) because of the BOE's quasi-judicial role as the appellate body for state tax appeals. Unlike the Levine Act, the Kopp Act is not part of the PRA, and is neither administered nor enforced by the FPPC.
2. Purpose. This bill reduces the threshold Kopp Act threshold from $250 to $100, thus matching the minimum contribution amount that is reportable under the state's campaign finance laws. In support, BOE President Fiona Ma states, "these are reasonable restrictions that will strengthen public confidence that the Board decides cases based on facts and the law, independent of inappropriate influence."
3. Strategic Disqualification Under the Kopp Act. Under the BOE's Regulation 5550, any three members of the BOE constitute a quorum, except in specified circumstances, and a majority of the quorum is required to approve or disapprove taxpayer appeals and other matters. As a result, if two members of the BOE are disqualified under the Kopp Act from participating in a proceeding, it would take only two of the remaining three members to reach a decision in the proceeding. The fact that disqualifications due to the Kopp Act can reduce the number of votes necessary for the BOE to reach a decision has led to concern that parties and participants can strategically disqualify members of the BOE from certain proceedings by making campaign contributions of $250 or more to those members.
4. Opposition. BOE Member Jerome Horton is opposed to lowering the threshold, arguing in part that "It subjects a subset of small businesses, who previously participated in the political process, to civil and criminal penalties in Government Code section 15626(i) and violates their due process if they fail to report even minimal amounts (or in-kind donations) aggregating to $100 within 30 days of making the contribution."
5. Related Legislation. AB 1828 (Dodd), which eliminated the $250 Kopp Act threshold and expanded the conflict of interest provisions to apply to contributions made in the three months after a proceeding before the BOE and to include behested payments aggregating $5,000 or more, was held on this committee's Suspense file in May.

Analysis Prepared by: Chuck Nicol / APPR. / (916) 319-2081

Date of Hearing: June 29, 2016

ASSEMBLY COMMITTEE ON ELECTIONS AND REDISTRICTING

Shirley Weber, Chair

SBPCA Bill Id:SB 816

Author:(Hill) – As Amended Ver:April 26, 2016

SENATE VOTE: 32-3

SUBJECT: State Board of Equalization: members: contributions.

SUMMARY: Lowers the campaign contribution threshold that triggers the conflict of interest requirements for members of the Board of Equalization (BOE) under the Quentin L. Kopp Conflict of Interest Act of 1990 (Kopp Act) from $250 to $100.

EXISTING LAW:

1. Limits, pursuant to the Kopp Act, the ability of a member of the BOE to participate in an adjudicatory proceeding that involves a participant or party who contributed $250 or more in the preceding 12 months to that member, as follows:
   1. Requires a member of the BOE who knows or has reason to know that he or she received a contribution or contributions totaling $250 or more in the last 12 months from a party, participant, or agent of a party or participant, to an adjudicatory proceeding before the BOE, to disclose the fact on the record prior to rendering a decision on the proceeding.
      
   2. Requires a party or participant in an adjudicatory proceeding before the BOE to disclose on the proceeding's record any contribution or contributions of $250 or more made in the last 12 months by that party, participant, or his or her agent to any member of the BOE. Provides that when a "close corporation" is the party or participant, disclosure only applies to the majority shareholder.
      
   3. Prohibits a member of the BOE from making, participating in making, or otherwise attempting to use his or her official position to influence, a decision in an adjudicatory proceeding if the member knows or has reason to know that he or she received a contribution or contributions totaling $250 or more in the last 12 months from a party, participant, or agent of a party or participant, and if the member knows or has reason to know that the participant has a financial interest in the decision, as specified. Permits a member to participate in a decision under the circumstances described above if the member returns the contribution within 30 days from the time that he or she knows or has reason to know about the contribution and the adjudicatory proceeding.
      
2. Provides that a knowing or willful violation of the Kopp Act is a misdemeanor. Prohibits a person convicted of a misdemeanor under the Kopp Act from being a candidate for any elective office or from acting as a lobbyist for a period of four years, as specified, unless the court determines at the time of sentencing that this provision should not be applicable. Provides that in addition to other penalties provided by law, a violation of the Kopp Act is punishable by a fine of $10,000, or three times the amount the person failed to disclose or report properly, whichever is greater. Requires prosecution for a violation to be commenced within four years after the date of the violation.
   
3. Creates the Fair Political Practices Commission (FPPC), and makes it responsible for the impartial, effective administration and implementation of the Political Reform Act (PRA).

FISCAL EFFECT: According to the Senate Appropriations Committee, pursuant to Senate Rule 28.8, negligible state costs.

COMMENTS:

1. Purpose of the Bill: According to the author:

SB 816 ensures that contribution amounts above $100 dollars to Board of Equalization members are subject to the BOE’s existing disclosure and recusal rules.

As Board President Fiona Ma stated in her support letter: "these are reasonable restrictions that will strengthen public confidence that the Board decides cases based on facts and the law, independent of inappropriate influence."

And BOE Member George Runner wrote in his support letter:

"SB 816 will not create a burden for Board Members since contributions are currently tracked."

The bill is supported by California Common Cause and the California Public Interest Research Group.

Ensures that [BOE] members comply with disclosure and recusal procedures for contributions received in the previous 12 months over $100 instead of just those over $250. Prevents BOE members from voting on cases if they’ve received a $100 contribution or greater from that entity within the previous 12 months. Allows BOE members to return the contribution if they don’t want to be recused from the case.

Current law contains a loophole that allows individuals with business before the BOE to contribute to BOE members at levels below $250 without triggering disclosure and recusal rules.

As an example, a BOE member’s reelection campaign committee last year received 45 contributions of $249 each from executives, attorneys and other employees of a tax consulting firm totaling more than $11,000.

Another BOE member received 25 contributions of $249 each from employees of the same tax consulting firm.

California's five-member [BOE] is the only elected tax commission in the nation. It collects sales, property and use taxes, acts as the state's tax court in settling disputes, and assesses public utility and railroad properties. Four board members are elected by districts; the state controller is the fifth member.

1. Board of Equalization Background: Established in 1879 by a constitutional amendment, the BOE is composed of four members elected by districts and the State Controller, and was initially charged with responsibility for ensuring that county property tax assessment practices were equal and uniform throughout the state. Currently, the BOE also administers the sales and use tax, locally-imposed transactions and use taxes, several excise taxes, and more than 30 other fee programs, and considers all appeals under these laws and programs. Additionally, the BOE hears appeals from Franchise Tax Board actions. The BOE is the only elected tax board in the country.
2. Kopp Act: Under the PRA, campaign contributions generally cannot be the basis for a disqualifying conflict of interest. There is one exception—the Levine Act—which was enacted in 1982 as a response to reports that members of a state agency sought to raise money from individuals and entities that had permit requests pending before the agency.
   
   The Levine Act is narrowly drafted to apply only to decisions made by agencies with membership that is not directly elected by voters, and only to proceedings involving licenses, permits, or other entitlements for use. Proceedings of a more general nature and with broader applicability are not covered by the Levine Act. The Levine Act expressly provides that it does not apply to the Legislature, the BOE, or constitutional officers.
   
   In 1990, the Legislature approved and Governor Deukmejian signed SB 1738 (Roberti), Chapter 84, Statutes of 1990, a comprehensive ethics reform package that enacted new legislative conflict of interest rules, banned honoraria and limited gifts to public officials, and imposed new post-government employment restrictions on former public officials, among other provisions. One provision of SB 1738 established the Kopp Act—so named because those provisions originally were contained in legislation authored by then-Senator Quentin Kopp. The Kopp Act—which was modeled after the Levine Act—prohibits a member of the BOE from participating in an adjudicatory proceeding if the member knows or has reason to know that he or she received contributions totaling $250 or more in the 12 months prior to the proceeding from a party, participant, or agent of a party or participant, as specified. Members are permitted to participate in the decision, however, if they return the contribution within a specified time period. When the Kopp Act was being considered, the author argued that the BOE should be subject to rules similar to those that applied to appointed boards and commissions under the Levine Act because of the BOE's quasi-judicial role as the appellate body for state tax appeals. Unlike the Levine Act, the Kopp Act is not part of the PRA, and is neither administered nor enforced by the FPPC.
3. Aggregation Rules and the Kopp Act: Pursuant to regulations adopted by the BOE to implement the Kopp Act, when an agent of a party or participant appears before the BOE, any contribution made by that agent is aggregated with any contributions made by the party or participant for the purposes of determining whether the $250 threshold has been met. Furthermore, if the agent is an employee or a member of a law, accounting, consulting, or other firm, or a similar entity or corporation, both that employee or member and the entity or corporation itself are considered to be agents of the party or participant, and their contributions are aggregated for the purposes of determining whether the $250 threshold has been met. Contributions from individual employees of a firm, entity, or corporation are not aggregated, however, for the purpose of determining whether the $250 threshold has been met, except where those employees appear before the BOE as an agent.
   
   In arguing for the need for this bill, the author references two situations in which members of the BOE received multiple contributions of $249 from employees of a tax consulting firm. Because the firm itself appears not to have made any contributions to the members of the BOE within 12 months of the time that its employees made their contributions, and because the contributions made by multiple employees of a single firm are not aggregated for the purposes of the Kopp Act, any of the employees who had made contributions could have appeared before the BOE as an agent to a party or participant without triggering the Kopp Act's recusal requirements in the subsequent 12-month period unless the party or participant that the firm was representing had made contributions to the member of the BOE. (According to an article in the Los Angeles Times that discussed those contributions, the firm in question did not appear before the BOE in the year following the contributions. As a result, even if the contributions had been in amounts of $250 or more, the disqualification rules in the Kopp Act would not have been implicated by those contributions.)
4. Strategic Disqualification Under the Kopp Act: Under the BOE's Regulation 5550, any three members of the BOE constitute a quorum, except in specified circumstances, and a majority of the quorum is required to approve or disapprove taxpayer appeals and other matters. As a result, if two members of the BOE are disqualified under the Kopp Act from participating in a proceeding, it would take only two of the remaining three members to reach a decision in the proceeding. The fact that disqualifications due to the Kopp Act can reduce the number of votes necessary for the BOE to reach a decision has led to concern that parties and participants can strategically disqualify members of the BOE from certain proceedings by making campaign contributions of $250 or more to those members. To the extent that the Kopp Act is actually being used to strategically disqualify members in proceedings, this bill could exacerbate that problem.
5. Arguments in Support: In support of the previous version of this bill, which would have eliminated the $250 threshold that triggered the Kopp Act's conflict of interest requirements, thereby making the Kopp Act applicable to adjudicatory proceedings that involves a party, participant, or agent who contributed any amount to a member of the BOE in the preceding 12 months, California Common Cause wrote:

The [BOE] is the only elected tax commission in the nation; it is also unique in that it not only administers tax programs, but also adjudicates individual tax disputes as an appellate body. To ensure commissioner impartiality in tax disputes, state law requires a member of the [BOE] to recuse himself or herself from hearing the appeal of any party who has contributed $250 or more to [a] member’s campaign in the prior twelve months. This recusal limit, which is lower than the campaign contribution limits to a member of the [BOE], helps to ensure that members do not have a conflict of interest or the appearance of a conflict of interest as they adjudicate tax claims.

However, recent news reports have called into question the effectiveness of the current recusal rules. Tax firms have avoided the recusal limits by having multiple employees give just under the limit; individually, no one has triggered the recusal rule, but in the aggregate their contributions far exceed it. According to a 2015 Los Angeles Times report, dozens of employees of Ryan LLC, a tax preparation firm whose clients often have business before the board, have given just under the recusal limit to two board members. For example, 45 employees each gave $249 to one member, causing the total contribution from Ryan employees to exceed $11,000. This tactic of coordinated firm giving circumvents the recusal limits and undermines the clear spirit of the law.

1. Arguments in Opposition: In opposition to this bill, BOE Member Jerome Horton writes:

SB 816 sets the following poor public policy precedents:

It lowers the $249 contribution limits in the 1991 Kopp Act to $100, disregarding constitutional requirements for an inflation adjustment and violates the Equal Protection Clause of the Fourteenth Amendment, as clarified by the Supreme Court in Davis v. Federal Election Commission, 554 U.S. 724 (2008).

It subjects a subset of small businesses, who previously participated in the political process, to civil and criminal penalties in Government Code section 15626(i) and violates their due process if they fail to report even minimal amounts (or in-kind donations) aggregating to $100 within 30 days of making the contribution.

It increases the potential for tax cheats to “game the system” and Members to avoid voting based on nominal contributions – practices that have occurred under the current contribution limits: e.g., BOE voting records show the state lost $33 million on 2-1 votes in two cases due to disqualification of two Members in 2005.

It does not apply to judges whose contribution limits are $1,500, despite the fact that their decisions have finality and a precedential impact on the same set of citizens, while BOE Members, by law, do not.

It violates U.S. Supreme Court decisions issued in the past 25 years, which determined that reducing contributions limits to extremely low levels, based on mere perception, without evidence of any quid pro quo conflicts, violates the free speech, equal protection, and due process rights of citizens who wish to participate in the election process.

1. Related Legislation: AB 1828 (Dodd), eliminates the current $250 campaign contribution threshold that triggers the conflict of interest requirements under the Kopp Act, and expands the Kopp Act to apply to campaign contributions made after a proceeding, and to behested payments, as specified. AB 1828 was approved by this committee on a 4-3 vote, but subsequently was held on the Assembly Appropriations Committee's suspense file.

REGISTERED SUPPORT / OPPOSITION:

Support

Board of Equalization Member Fiona Ma (prior version)

Board of Equalization Member George Runner (prior version)

CALPIRG (prior version)

California Common Cause (prior version)

Opposition

Alhambra Chamber of Commerce

Board of Equalization Member Jerome Horton

California Small Business Association

Cerritos Regional Chamber of Commerce

Gardena Chamber of Commerce

Glendora Chamber of Commerce

Greater Los Angeles African American Chamber of Commerce

Inglewood Airport Area Chamber of Commerce

Los Angeles County Business Federation

National Association for Equal Justice in America (prior version)

Norwalk Chamber of Commerce

Valley Industry and Commerce Association

West Hollywood Chamber of Commerce

Analysis Prepared by: Ethan Jones / E. & R. / (916) 319-2094

 THIRD READING  

Bill No: SB 816

Author:

:

Vote:

SENATE GOVERNANCE & FIN. COMMITTEE: 5-0, 3/30/16

AYES: Hertzberg, Nguyen, Beall, Lara, Pavley

NO VOTE RECORDED: Hernandez, Moorlach

SENATE ELECTIONS & C.A. COMMITTEE: 3-1, 4/19/16

AYES: Allen, Hancock, Hertzberg

NOES: Anderson

NO VOTE RECORDED: Liu

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

SUBJECT:

SOURCE: Author

DIGEST: This bill lowers the thresholds in the Kopp Act, the conflict of interest statute that applies to the Board of Equalization (BOE), from $250 to $100.

ANALYSIS:

Existing law:

1. Enacts the Quentin L. Kopp Conflict of Interest Act of 1991, also known as the Kopp Act, which applies several conflict of interest measures to BOE members, including:
2. Requiring members who know or who have reason to know that they received a contribution or contributions totaling more than $250 in the last 12 months from a party, the party’s agent, any participant, or the participant’s agent, to a proceeding before BOE, to disclose the fact on the record prior to rendering a decision on the proceeding.
3. Requiring parties or participants in adjudicatory proceedings before BOE to disclose on the proceeding’s record any contribution or contributions exceeding $250 made by a party, the party’s agent, any participant, or the participant’s agent to any member of the Board within the last 12 months. However, when a “close corporation” is the party or participant, disclosure only applies to the majority shareholder.
4. Prohibits members from making, participating in making, or otherwise attempting to use his or her official position to influence, the decision in any adjudicatory proceeding where the member received a contribution or contributions from a party, the party’s agent, any participant, or the participant’s agent, to a proceeding before BOE within the previous 12 months, so long as the member knows that the participant has a financial interest in the decision. However, a member can participate in a decision under the circumstances described above so long as the member returns the contribution.
5. Provides that violations of the Kopp Act are punishable as a misdemeanor, but requires prosecutions to be initiated within four years of the date of the violation. Any person convicted is subject to a fine up to the greater of $10,000 or three times the contribution, and cannot serve as an elected official or lobbyist for four years following the time for filing a notice of appeal has expired, or all possibility of direct attack in the courts of this state has been finally exhausted, unless the court at the time of sentencing specifically determines that this provision shall not be applicable.

This bill:

1. Lowers all of the Kopp Act’s threshold amounts from $250 to $100, thereby requiring BOE members to disclose contributions above $100 from contributors with proceedings before BOE, and prohibiting them from participating in those proceedings for a 12 month period following the contribution. Contributors with a proceeding before BOE would additionally have to disclose on the record of the proceeding any contributions to BOE members of more than $100.
2. Makes grammatical and conforming changes.
3. Provides that no state mandated local program reimbursement is necessary.

Background

In 1850, the Legislature first directed county assessors to tax property; however, assessors in different counties often applied different tax rates and methods of assessment. The California Constitution of 1879 created the five-member BOE, composed of four members elected by district and the State Controller, to equalize rates and assessment practices among counties. In 1910, voters amended the Constitution to direct BOE to value property owned by railways, companies selling gas and electricity, or telephone companies. The Constitution additionally allows the Legislature to authorize BOE assessment of property owned or used as “public utilities.” BOE also administers the Sales and Use Tax, locally-imposed transactions and use taxes, several excise taxes, and more than 30 other fee programs, and considers all appeals under these laws and programs.

When the Legislature created the Bank and Corporation Franchise Tax in 1929, instead of directing BOE to collect the tax, it instead established the Franchise Tax Commissioner to do so. A three-member Committee consisting of the State Controller, Director of Finance, and the Chair of BOE appointed the Commissioner. The Legislature granted to BOE appellate review functions over the Commissioner’s actions, and chose to retain this same structure when it enacted the Personal Income Tax in 1935. In 1948, the Legislature replaced Commissioner with the Franchise Tax Board, consisting of the same three officials charged with appointing the Commissioner. BOE considers more than 1,000 appeals per year for all of its programs, and appellants and their representatives make contributions to BOE candidates.

Existing law also creates the Fair Political Practices Commission (FPPC), and makes it responsible for the impartial, effective administration and implementation of the Political Reform Act (PRA). Prior to 1991, the Political Reform Act’s conflict of interest provisions didn’t apply to BOE members. In that year, the Legislature enacted SB 1738 (Roberti), an omnibus political reform bill which included the Kopp Act.

SB 816 ensures that a party, agent, or participant who contributes significant amounts, but breaks them up into several smaller contributions to avoid the $250 threshold, triggers the Kopp Act’s conflict of interest provisions. This bill responds to recent news reports where 45 employees of tax consulting firm Ryan, LLC, donated $249 each to one BOE member, and 25 employees donated the same amount to another BOE member. However, this bill’s change only applies to direct contributions, because of current law’s ambiguous application to donations from Political Action Committees. Soon after the Kopp Act was enacted, BOE’s chief counsel opined that a contribution exceeding the $249 limit to the State Controller by a political action committee controlled by a corporation with a valuation issue before the board did not disqualify the recipient board member from voting on the question, stating that “a political action committee does not come within any of these definitions (“party,” “participant,” or “agent”).

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

SUPPORT: (Verified 5/10/16)

BOE Chair Fiona Ma

BOE Member George Runner

California Common Cause

California Public Interest Research Group

OPPOSITION: (Verified 5/10/16)

BOE Member Jerome Horton

ARGUMENTS IN SUPPORT: According to the author, “California's five-member Board of Equalization is the only elected tax commission in the nation. It collects sales, property and use taxes, acts as the state's tax court in settling disputes, and assesses public utility and railroad properties. Four board members are elected by districts; the state controller is the fifth member. SB 816 ensures that Board of Equalization (BOE) members comply with disclosure and recusal procedures for all contributions received in the previous 12 months instead of just those over $250. The measure prevents BOE members from voting on cases if they’ve received a contribution from that entity within the previous 12 months. Current law contains a loophole that allows individuals with business before the BOE to contribute to BOE members at levels below $250 without triggering disclosure and recusal rules. As an example, a BOE member’s reelection campaign committee last year received 45 contributions of $249 each from executives, attorneys and other employees of a tax consulting firm totaling more than $11,000. Another BOE member received 25 contributions of $249 each from employees of the same tax consulting firm.”

ARGUMENTS IN OPPOSITION: According to BOE Member Horton, “According to the author this measure has no legal, factual, or evidentiary basis and no real problem it seeks to resolve. Rather, it is based on a false perception created by a few news articles. The measure effectively discriminates against citizens, residents, unions, and other who seek to exercise their constitutionally protected rights to support candidates and measures in the election process without jeopardizing their right to an administrative hearing before BOE because their contribution creates a conflict. It will severely restrict the freedom of speech rights of citizen or resident who contribute to BOE members and the State Controller by disqualifying that member from hearing their appeal, while leaving unrestricted the rights of citizens or residents contributing to judges, commissioners, legislators, and other elected constitutional officers, which is tantamount to a violation of due process and ‘equal protection under the law.’”

Prepared by:

5/11/16 15:12:46

**** END ****

SENATE COMMITTEE ON

ELECTIONS AND CONSTITUTIONAL AMENDMENTS

Senator Ben Allen, Chair

2015 - 2016 Regular

Bill No: SB Hearing Date: 4/19/16

Subject: State Board of Equalization: members: contributions

DIGEST

This bill reduces to zero the current $250 threshold for campaign contributions that triggers conflict of interest requirements for Board of Equalization (BOE) members under the Kopp Act.

ANALYSIS

Existing law:

1. Limits, pursuant to the Kopp Act, the ability of a member of the BOE to participate in an adjudicatory proceeding that involves a participant or party who contributed $250 or more in the preceding 12 months to that member, as follows:
2. Requires a member of the BOE who knows or has reason to know that he or she received a contribution or contributions totaling $250 or more in the last 12 months from a party, participant, or agent of a party or participant, to an adjudicatory proceeding before the BOE, to disclose the fact on the record prior to rendering a decision on the proceeding.
   
3. Requires a party or participant in an adjudicatory proceeding before the BOE to disclose on the proceeding's record any contribution or contributions of $250 or more made in the last 12 months by that party, participant, or his or her agent to any member of the BOE. Provides that when a "close corporation" is the party or participant, disclosure only applies to the majority shareholder.
   
4. Prohibits a member of the BOE from making, participating in making, or otherwise attempting to use his or her official position to influence, a decision in an adjudicatory proceeding if the member knows or has reason to know that he or she received a contribution or contributions totaling $250 or more in the last 12 months from a party, participant, or agent of a party or participant, and if the member knows or has reason to know that the participant has a financial interest in the decision, as specified. Permits a member to participate in a decision under the circumstances described above if the member returns the contribution within 30 days from the time that he or she knows or has reason to know about the contribution and the adjudicatory proceeding.
5. Provides that a knowing or willful violation of the Kopp Act is a misdemeanor, and provides that in addition to other penalties provided by law, a violation is punishable by a fine of $10,000, or three times the amount the person failed to disclose or report properly, whichever is greater. Requires prosecution for a violation to be commenced within four years after the date of the violation.
   
6. Creates the Fair Political Practices Commission (FPPC), and makes it responsible for the impartial, effective administration and implementation of the Political Reform Act (PRA).
   
7. Prohibits a person, other than a small contributor committee or political party committee, from making any contribution totaling more than $7,000 to any candidate for BOE, and prohibits candidates from accepting a contribution that exceeds that amount. Requires the FPPC to adjust this limit in January of every odd-numbered year to reflect any increase or decrease in the Consumer Price Index, and requires those adjustments to be rounded to the nearest $100.
   

This bill:

1. Lowers the campaign contribution threshold that triggers the conflict of interest requirements under the Kopp Act from $250 to $0. Thereby providing that a contribution of any amount acts as a trigger.
   
2. Makes other conforming changes.

BACKGROUND

Board of Equalization: Established in 1879 by a constitutional amendment, the BOE is composed of four members elected by districts and the State Controller, and was initially charged with responsibility for ensuring that county property tax assessment practices were equal and uniform throughout the state. Currently, the BOE also administers the sales and use tax, locally-imposed transactions and use taxes, several excise taxes, and more than 30 other fee programs, and considers all appeals under these laws and programs. Additionally, the BOE hears appeals from Franchise Tax Board actions. The BOE is the only elected tax board in the country.

The Kopp Act: Under the PRA, campaign contributions generally cannot be the basis for a disqualifying conflict of interest. There is one exception - the Levine Act - which was enacted in 1982 as a response to reports that members of a state agency sought to raise money from individuals and entities that had permit requests pending before the agency. The Levine Act is narrowly drafted to apply only to decisions made by agencies with membership that is not directly elected by voters, and only to proceedings involving licenses, permits, or other entitlements for use. Proceedings of a more general nature and with broader applicability are not covered by the Levine Act. The Levine Act expressly provides that it does not apply to the Legislature, the BOE, or constitutional officers.

In 1990, the Legislature approved and Governor Deukmejian signed SB 1738 (Roberti, Ch. 84, of 1990), a comprehensive ethics reform package that enacted new legislative conflict of interest rules, banned honoraria and limited gifts to public officials, and imposed new post-government employment restrictions on former public officials, among other provisions. One provision of SB 1738 established the Kopp Act - so named because those provisions originally were contained in legislation authored by then-Senator Quentin Kopp. The Kopp Act - which was modeled after the Levine Act - prohibits a member of the BOE from participating in an adjudicatory proceeding if the member knows or has reason to know that he or she received contributions totaling $250 or more in the 12 months prior to the proceeding from a party, participant, or agent of a party or participant, as specified. Members are permitted to participate in the decision, however, if they return the contribution within a specified time period. When the Kopp Act was being considered, the author argued that the BOE should be subject to rules similar to those that applied to appointed boards and commissions under the Levine Act because of the BOE's quasi-judicial role as the appellate body for state tax appeals. Unlike the Levine Act, the Kopp Act is not part of the PRA, and is neither administered nor enforced by the FPPC.

COMMENTS

1. According to the author: Current law contains a loophole that allows individuals with business before the Board of Equalization to contribute to BOE members at levels below $250 without triggering disclosure and recusal rules.
   

California's five-member BOE is the only elected tax commission in the nation. It collects sales, property and use taxes, acts as the state's tax court in settling disputes, and assesses public utility and railroad properties. Four board members are elected by districts; the state controller is the fifth member. SB 816 ensures that BOE members comply with disclosure and recusal procedures for all contributions received in the previous 12 months instead of just those over $250. The measure prevents BOE members from voting on cases if they’ve received a contribution from that entity within the previous 12 months.

1. Political Committees. SB 816 will ensure that a party, agent, or participant who contributes significant amounts, but breaks them up into several smaller contributions to avoid the $250 threshold, triggers the Kopp Act’s conflict of interest provisions. The measure responds to recent news reports where 45 employees of tax consulting firm Ryan, LLC, donated $249 each to one BOE member, and 25 employees donated the same amount to another BOE member. As a result, the measure will likely add transparency to BOE proceedings in the form of increased disclosures from BOE members and contributors. However, the bill’s change only applies to direct contributions, because of current law’s ambiguous application to donations from Political Committees, commonly known as PACs.
   
   Soon after the Kopp Act was enacted, BOE’s chief counsel opined that a contribution exceeding the $249 limit to the State Controller by a PAC controlled by a corporation with a valuation issue before the board did not disqualify the recipient board member from voting on the question, stating that “a political action committee does not come within any of these definitions [“party,” “participant,” or “agent”]. Laura Mahoney with Bureau of National Affairs, now held by Bloomberg News, found evidence of the political influence of PACs in BOE cases in her August, 2010 work, “Campaign Contributions and the BOE: A Special Report.” The report selected a sample of BOE cases and found in those disputes with $250 or less in contributions tied to them, the taxpayers won 30 percent of the time. In cases with between $250 and $16,000, the winning percentage rose to 53 percent. At the level of $16,000 to $50,000, the success rate was 75 percent. For cases where contributions were between $50,000 and $137,000 - the top level - the success rate was 88 percent.
   
2. Strategic Disqualification Under the Kopp Act: Under the BOE's Regulation 5550, any three members of the BOE constitute a quorum, except in specified circumstances, and a majority of the quorum is required to approve or disapprove taxpayer appeals and other matters. As a result, if two members of the BOE are disqualified under the Kopp Act from participating in a proceeding, it would take only two of the remaining three members to reach a decision in the proceeding. The fact that disqualifications due to the Kopp Act can reduce the number of votes necessary for the BOE to reach a decision has led to concern that parties and participants can strategically disqualify members of the BOE from certain proceedings by making campaign contributions of $250 or more to those members. To the extent that the Kopp Act is actually being used to strategically disqualify members in proceedings, this bill could exacerbate that problem. However, a BOE member could respond by returning the contribution within 30 days from the time that he or she knows or has reason to know about the contribution and the adjudicatory proceeding.

RELATED/PRIOR LEGISLATION

AB 1828 (Dodd) makes similar changes to the Kopp Act, but also applies its provisions to behested payments in aggregate of $5,000 or more. AB 1828 recently passed out of the Assembly Elections and Redistricting Committee and has been referred to the Assembly Appropriations Committee.

PRIOR ACTION

POSITIONS

Sponsor: Author

Support: Fiona Ma, Board of Equalization Chair, and Member Second District

George Runner, Board of Equalization Member First District

California Public Interest Research Group

California Common Cause

Oppose: Jerome Horton, Board of Equalization Member Third District

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SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Robert M. Hertzberg, Chair

2015 - 2016 Regular

State Board of Equalization: members: contributions

Eliminates the current $250 threshold that triggers conflict of interest requirements for BOE members under the Kopp Act.

Background

In 1850, the Legislature first directed county assessors to tax property; however, assessors in different counties often applied different tax rates and methods of assessment. The California Constitution of 1879 created the five-member Board of Equalization (BOE), composed of four members elected by district and the State Controller, to equalize rates and assessment practices among counties. In 1910, voters amended the Constitution to direct BOE to value property owned by railways, companies selling gas and electricity, or telephone companies. The Constitution additionally allows the Legislature to authorize BOE assessment of property owned or used as “public utilities.” BOE also administers the Sales and Use Tax, locally-imposed transactions and use taxes, several excise taxes, and more than 30 other fee programs, and considers all appeals under these laws and programs.

When the Legislature created the Bank and Corporation Franchise Tax in 1929, instead of directing BOE to collect the tax, it instead established the Franchise Tax Commissioner to do so. A three-member Committee consisting of the State Controller, Director of Finance, and the Chair of BOE appointed the Commissioner. The Legislature granted to BOE appellate review functions over the Commissioner’s actions, and chose to retain this same structure when it enacted the Personal Income Tax in 1935. In 1948, the Legislature replaced Commissioner with the Franchise Tax Board, consisting of the same three officials charged with appointing the Commissioner.

BOE considers more than 1,000 appeals per year for all of its programs, and appellants and their representatives make contributions to BOE candidates. Prior to 1991, the Political Reform Act’s conflict of interest provisions didn’t apply to BOE members. In that year, the Legislature enacted SB 1738 (Roberti), an omnibus political reform bill which included the Quentin L. Kopp Conflict of Interest Act of 1991, also known as the Kopp Act. The Kopp Act applied several conflict of interest measures to BOE members, including:

• Requiring members who know or who have reason to know that they received a contribution or contributions totaling more than $250 in the last 12 months from a party, the party’s agent, any participant, or the participant’s agent, to a proceeding before BOE, to disclose the fact on the record prior to rendering a decision on the proceeding,
• Requiring parties or participants in adjudicatory proceedings before BOE to disclose on the proceeding’s record any contribution or contributions exceeding $250 made by a party, the party’s agent, any participant, or the participant’s agent to any member of the Board within the last 12 months. However, when a “close corporation” is the party or participant, disclosure only applies to the majority shareholder.
• Prohibits members from making, participating in making, or otherwise attempting to use his or her official position to influence, the decision in any adjudicatory proceeding where the member received a contribution or contributions from a party, the party’s agent, any participant, or the participant’s agent, to a proceeding before BOE within the previous 12 months, so long as the member knows that the participant has a financial interest in the decision. However, a member can participate in a decision under the circumstances described above so long as the member returns the contribution.

The Kopp Act provides that violations are punishable as a misdemeanor, but requires prosecutions to be initiated within four years of the date of the violation. Any person convicted is subject to a fine up to the greater of $10,000 or three times the contribution, and cannot serve as an elected official or lobbyist for four years following the time for filing a notice of appeal has expired, or all possibility of direct attack in the courts of this state has been finally exhausted, unless the court at the time of sentencing specifically determines that this provision shall not be applicable. The author wants to delete the current $250 amount, thereby applying the Kopp Act’s provisions to BOE members regardless of the amount of the contribution.

Proposed Law

Senate Bill 816 deletes the Kopp Act’s $250 threshold, thereby triggering its provisions whenever a BOE receives a contribution in any amount. The measure also makes conforming changes.

State Revenue Impact

BOE states that SB 816 does not directly affect state or local revenues.

Comments

1. Purpose of the bill. According to the author, “California's five-member Board of Equalization is the only elected tax commission in the nation. It collects sales, property and use taxes, acts as the state's tax court in settling disputes, and assesses public utility and railroad properties. Four board members are elected by districts; the state controller is the fifth member. SB 816 ensures that Board of Equalization (BOE) members comply with disclosure and recusal procedures for all contributions received in the previous 12 months instead of just those over $250. The measure prevents BOE members from voting on cases if they’ve received a contribution from that entity within the previous 12 months. Current law contains a loophole that allows individuals with business before the BOE to contribute to BOE members at levels below $250 without triggering disclosure and recusal rules. As an example, a BOE member’s reelection campaign committee last year received 45 contributions of $249 each from executives, attorneys and other employees of a tax consulting firm totaling more than $11,000. Another BOE member received 25 contributions of $249 each from employees of the same tax consulting firm.”

2. PACs. SB 816 will ensure that a party, agent, or participant who contributes significant amounts, but breaks them up into several smaller contributions to avoid the $250 threshold, triggers the Kopp Act’s conflict of interest provisions. The measure responds to recent news reports where 45 employees of tax consulting firm Ryan, LLC, donated $249 each to one BOE member, and 25 employees donated the same amount to another BOE member. As a result, the measure will likely add transparency to BOE proceedings in the form of increased disclosures from BOE members and contributors. However, the bill’s change only applies to direct contributions, because of current law’s ambiguous application to donations from Political Action Committees. Soon after the Kopp Act was enacted, BOE’s chief counsel opined that a contribution exceeding the $249 limit to the State Controller by a political action committee controlled by a corporation with a valuation issue before the board did not disqualify the recipient board member from voting on the question, stating that “a political action committee does not come within any of these definitions [“party,” “participant,” or “agent”]. Laura Mahoney with Bureau of National Affairs, now held by Bloomberg News, found evidence of the political influence of PACs in BOE cases in her August, 2010 work, “Campaign Contributions and the BOE: A Special Report.” The report selected a sample of BOE cases and found in those disputes with $250 or less in contributions tied to them, the taxpayers won 30 percent of the time. In cases with between $250 and $16,000, the winning percentage rose to 53 percent. At the level of $16,000 to $50,000, the success rate was 75 percent. For cases where contributions were between $50,000 and $137,000—the top level—the success rate was 88 percent.

3. Strategic disqualification. The Kopp Act requires BOE members to disclose contributions, and prohibits them from making, participating in making, or otherwise attempting to use his or her official position to influence, the decision in any adjudicatory proceeding where the member received a contribution or contributions from a party, the party’s agent, any participant, or the participant’s agent, to a proceeding before BOE within the previous 12 months. However, taxpayers can use this restriction to their advantage when combined with BOE Regulation 5550, which provides that a majority of a three-member quorum can act on a case if other members or the Controller’s representative are absent or disqualified by the Kopp Act. Robert Wood described this strategy in his January, 2010, column in Tax Notes, which may have been deployed in BOE’s 2-1 decision in the matter of Argonaut Group, Inc. 287738, a corporation tax case heard in January, 2009. In that case, a contribution from an appellant disqualified the Controller’s representative under the Kopp Act, and the BOE Chair was unable to attend the hearing. After hearing the case, one BOE member made a motion to put the case over for one day to allow the Chair, but it failed for lack of a second. The two remaining members then approved the taxpayer’s appeal on a 2 to 1 vote. While SB 816 expands the Kopp Act’s application, in so doing, the measure may also make strategic disqualification easier.

4. One of a kind. Generally, states follow one of two models to resolve tax disputes. Some states allow taxpayers to appeal disputes between taxpayers and revenue collection agencies to courts, similar to the United States Tax Court’s review of IRS decisions, while others place the appellate authority with the agency that collects the tax. BOE is the nation’s only elected tax dispute resolution board, which allows taxpayers to directly interact with elected board members regarding the merits of their cases, but can result in decisions which don’t adhere to legal precedent, according to legal experts. SB 816 would expand the Kopp Act to apply to a potentially larger set of actors before the board; however, whether it will reduce the actual or perceived political influence over the adjudication of tax disputes in California is unclear. More than ten years have passed since the last legislative effort to reform this model, such as the Tax Court proposed in AB 2472 (Wolk, 2003). The Committee may wish to consider whether alternative models to adjudicate state tax disagreements may be superior to BOE.

5. Related legislation. AB 1828 (Dodd), makes similar changes to the Kopp Act as this bill, but also applies its provisions to so-called behested payments, where elected officials ask groups and individuals to contribute to the member’s preferred charity. That measure is currently awaiting hearing in the Assembly Elections Committee.

6. Double-Referred. The Senate Rules Committee referred SB 816 to the Governance and Finance Committee and the Elections and Constitutional Amendments Committee.

Support and Opposition

(3/24/16)

Support: BOE Member George Runner, California Common Cause, California Public Interest Research Group.

Opposition: BOE Member Jerome Horton.

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