BILL ANALYSIS                                                                                                                                                                                                    

                              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

          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.

          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,  


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                  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  

           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:


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           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.

           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  


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          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.

             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,  


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              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  

             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  


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              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:                            |                           |
          Sponsor: Author

           Support: Fiona Ma, Board of Equalization Chair, and Member  
                   Second District
                    George Runner, Board of Equalization Member First  
                    California Public Interest Research Group
                    California Common Cause
           Oppose:  Jerome Horton, Board of Equalization Member Third  

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