BILL ANALYSIS                                                                                                                                                                                                    

                                                                     SB 816

                                                                    Page  1

          Date of Hearing:  June 29, 2016 


                                Shirley Weber, Chair

          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  


                                                                     SB 816

                                                                    Page  2

               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  


                                                                     SB 816

                                                                    Page  3

            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  

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


          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  


                                                                     SB 816

                                                                    Page  4

               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  

               "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. 


                                                                     SB 816

                                                                    Page  5

               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  


                                                                     SB 816

                                                                    Page  6

            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  

          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  

          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  


                                                                     SB 816

                                                                    Page  7

            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.


                                                                     SB 816

                                                                    Page  8

          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  


                                                                     SB 816

                                                                    Page  9

            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  


                                                                     SB 816

                                                                    Page  10

               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  

               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. 


                                                                     SB 816

                                                                    Page  11

               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.



                                                                     SB 816

                                                                    Page  12



          Board of Equalization Member Fiona Ma (prior version)

          Board of Equalization Member George Runner (prior version)

          CALPIRG (prior version)

          California Common Cause (prior version)


          Alhambra Chamber of Commerce

          Board of Equalization Member Jerome Horton

          California Small Business Association

          Cerritos Regional Chamber of Commerce


                                                                     SB 816

                                                                    Page  13

          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  

          Norwalk Chamber of Commerce

          Valley Industry and Commerce Association

          West Hollywood Chamber of Commerce

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


                                                                     SB 816

                                                                    Page  14