BILL ANALYSIS Ó
SB 816
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Date of Hearing: June 29, 2016
ASSEMBLY COMMITTEE ON ELECTIONS AND REDISTRICTING
Shirley Weber, Chair
SB
816 (Hill) - As Amended 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:
a) Requires a member of the BOE who knows or has reason to
know that he or she received a contribution or
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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, 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.
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
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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
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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.
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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.
2)Board of Equalization Background: Established in 1879 by a
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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.
3)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
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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.
4)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.
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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.)
5)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
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bill could exacerbate that problem.
6)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
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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.
7)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.
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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.
8)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.
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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
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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
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