BILL ANALYSIS Ó SENATE COMMITTEE ON ELECTIONS AND CONSTITUTIONAL AMENDMENTS Senator Ben Allen, Chair 2015 - 2016 Regular Bill No: SB 816 Hearing Date: 4/19/16 ----------------------------------------------------------------- |Author: |Hill | |-----------+-----------------------------------------------------| |Version: |1/4/16 | ----------------------------------------------------------------- ----------------------------------------------------------------- |Urgency: |No |Fiscal: |Yes | ----------------------------------------------------------------- ----------------------------------------------------------------- |Consultant:|Frances Tibon Estoista | | | | ----------------------------------------------------------------- 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: a) 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. b) 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, SB 816 (Hill) Page 2 of ? 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. c) 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. 1) 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. 2) Creates the Fair Political Practices Commission (FPPC), and makes it responsible for the impartial, effective administration and implementation of the Political Reform Act (PRA). 3) 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: SB 816 (Hill) Page 3 of ? 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 SB 816 (Hill) Page 4 of ? 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. 2) 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, SB 816 (Hill) Page 5 of ? 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. 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. 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 SB 816 (Hill) Page 6 of ? 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 ------------------------------------------------------------------ |Senate Governance and Finance | 5-0 | |Committee: | | ------------------------------------------------------------------ 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 -- END --