Vol. XIV, No. 40
December 21, 2001

BOE APPROVES LIMITED DISASTER PROPERTY REASSESSMENTS FOR 9/11 LOSSES

• Technology Transfer Agreements. The Business Taxes Committee approved for public notice and hearing a proposed regulation on technology transfer agreements that implements the Supreme Court’s decision in Heather Preston v. State Board of Equalization. The court ruled in April that the transfer of a copyright with a right to use the copyright is not subject to sales tax (See Caltaxletter of April 9, 2001).
  
  Proposed Regulation 1507 clarifies how this sales tax exemption will be applied and defines terms. On one issue in dispute, the board rejected language submitted by Gray Cary Ware & Freidenrich LLP, providing that an exempt “technology transfer agreement” includes agreements that conveys the “right” to make and sell a product or use a process that is subject to the copyright interest. Board staff had suggested the exemption be limited to sales for the “purpose” of reproducing and selling property subject to the copyright.
  
  Board staff argued that the Gray Cary et.al proposal would include the sale of pre-written software in the sales of a business, even though the software was for internal use. Also opposing the Gray Cary version was Allison Pratt, representing the California Tax Reform Association, who said it goes beyond the Heather Preston decision.
  
  Proponents argued that statutory language of the exemption uses the phrase “right to make and sell.” On December 20, by a 4-0 vote (with Ms. Mandel, on behalf of Dr. Connell, abstaining, the board rejected the Gray Cary version. The action reversed a vote a day earlier that had approved the Gray Cary language. Board members said the earlier vote was a “mistake.”
  
  The board also rejected a last-minute attempt by the American Electronics Association to delete a statement in the proposed regulation that reads “a technology transfer agreement does not mean an agreement for the transfer of pre-written software as defined in Regulation 1502.”
  
  Board members said the objection should have been raised during “interested parties” meetings, rather than at the hearing. Staff was instructed to work with AEA to develop a memo or possible future regulation on the issue.

• Fremont General Appeal is Denied. In a decision not to be cited as precedent, the board on December 20 denied the petition of Fremont General, appealing the FTB’s denial of an interest expense deduction relating to dividends.
  
  The appellant, commercially domiciled in California during the relevant period, and its subsidiaries, conducted various business enterprises, including insurance services.  Because regulatory restrictions prohibited the borrowing of funds by one of the subsidiary insurance companies, appellant raised funds through the issuance of certain debt instruments and contributed a portion of those funds to the capital of the insurance subsidiary.  Although appellant and its subsidiaries were allegedly part of the appellant’s unitary business, the insurance subsidiaries were excluded from the combined report pursuant to the FTB’s Legal Ruling 385 (declaring insurance company affiliates not a “taxpayer” for purposes of the combined report).  Appellant deducted dividends received from the insurance subsidiary under Section 24410 that were derived from California-source income.  Appellant also deducted interest expenses associated with the debt instruments appellant issued under Section 24344.
  
  Citing Great Western Financial Corp. v. Franchise Tax Board, (1971) 4 Cal.3d 1, the BOE held that Section 24425 applies to disallow interest expenses deducted by a parent allocable to dividends from its subsidiaries that are “not in the measure of the tax.” 
  
  The taxpayer did prevail on one issue. In the calculation by the FTB of deductible interest expenses that should be disallowed for 1985, the board agreed with the taxpayer that the calculation was incorrect because the FTB had the burden of proof of showing its “new method” of determining deductible interest and did not satisfy its burden.

• Sales on Indian Reservations. The Business Tax Committee decided that amendments to Regulation 1616, relating to sales on Indian reservations, be published for a formal public hearing. The “Klehs-Andal” amendments propose to remove the requirement that Indian retailers collect a use tax on meals, food and beverages sold on reservation eating and drinking establishments and to remove use tax collection requirements on personal property sold that “has reservation-based” value.
  
  Staff had recommended no change in the regulation, pointing out the U.S. Supreme Court has ruled that taxes imposed on non-Indian customers buying taxable items at reservations are legal. Staff estimates the change will reduce tax revenue by $4.3 million.

• Customer Services Division Chief. Jerri Dale has been named to head the board’s Customer Service Division, replacing Delena Bratton, who went to Washington D.C.

• Board Rejects Bid to Hear Appeal in Closed Session. The board rejected a request by a taxpayer to hold a hearing in closed session on the appeal of a pipeline assessment. Attorney Peter Michaels (Cooper, White, and Cooper) said the law requires a closed session to prevent the disclosure of confidential information. He added that the Appeal of All American Pipeline LP was based on information that could not be disclosed in public session. Thomas Gilbert, the assistant treasurer for the pipeline, said he gave his word to third parties, in order to get information on oil reserves, that he would not make it public. Mr. Klehs said, “Sometime you make a promise that’s impossible to keep.”
  
  Chief Counsel Bayer said that the law for confidentiality only covers information on the property tax statement and information requested by the board. He added that Revenue and Taxation Code Section 743 requires the hearing to be a “public hearing.” The board accepted the information in writing and ruled that it be sealed. The case was taken under submission.

• Board/Assessor Meeting. The annual Board meeting with assessors was relatively uneventful. Presentations were made on the Board’s Property Taxpayers’ Bill of Rights Report, legislation, the Williamson Act and the state’s fiscal crisis.
  
  Rose Marie Kinnee, from the Legislative Division, said that so far the board has agreed to sponsor the following property tax bills in 2002: (1) change the amount of supplemental assessments that the assessor can cancel from $20 to $50 in revenue; (2) clarify the portability of the disabled veteran’s exemption; (3) revise filing requirements for the Indian low-income housing exemption, and (4) clarify that base-year transfer provisions, as they relate to mobilehomes, include the land value of the park.
  
  In a discussion of the Property Taxpayers’ Bill of Rights report, taxpayer right’s advocate Jennifer Willis said current issues include: (1) better taxpayer education; (2) development of better assessor web sites, and (3) changes in assessment appeals forms. Bob Reinhard, of the Rights office, identified these emerging issues: (1) allowing persons who missed deadlines for change-of-ownership or new construction exclusions to file for the exclusion prospectively and (2) permitting the grandparent-grandchild change-of-ownership exclusion in some cases when the “parent” is still alive, such as when a step-parent is in jail.
  
  Mr. Klehs suggested that the Board/Assessor meeting be merged with the Assessors Annual Conference and be held at the same time. Outgoing Assessors’ Association President John Winner said he would like to have the joint meeting at the Assessors Annual Conference. He also said he was pleased to see a renewed dialogue between assessors and Cal-Tax.
  
  Santa Clara County Assessor Larry Stone urged the board to treat all speakers before the board with respect.
  
  In response to a question on why the board declined to file an amicus brief in the Orange County 2 percent assessment increase case, BOE Member John Chiang advised assessors “to be careful what you ask for.”

• Resale Certificates. The board approved change in Sales Tax Regulation 1668, relating to resale certificates and sent the changes to the Office of Administrative Law for final approval. The regulation establishes a presumption that resale certificates were issued in good faith. After the hearing on October 24, the regulation was placed in the 15-day file due to amendments that clarify that sellers may use any verifiable method of establishing a sale for resale, when the seller has not timely obtained a resale certificate. This includes “XYZ letters.”

• Manufacturer Rebate: Impact on Sales Tax. Staff’s request to notice a public hearing on sales tax Regulation 1671.1, relating to the impact of manufacturers rebates on sales tax, was deferred to next April. Ms. Mandel said Controller Connell was “not happy” with the staff report. The Controller wants evidence of the impact on the grocery industry and other retailers.

• Timber Yield Tax. The board set the timber yield tax rate for 2002 at 2.9 percent, the same rate that has been adopted each year for the last 22 years. It also approved timber harvest values, as recommended by the Timber Advisory Committee, with one minor change.

• Property Taxpayers Bill of Rights Hearing. At this annual hearing, a homeowner from Thornton (San Joaquin County) complained that the local reclamation district used the weighted vote provision of Proposition 218 to shift an assessment from large landowners to small homeowners. She also said the engineer who determined the benefit was not objective. Mr. Andal asked staff to look into the matter.

LEGISLATORS FACE CONFORMITY ISSUE

When California legislators return to work on January 7, after a nearly four-month recess, they will immediately be faced with the need for fast action to conform California law with federal changes to retirement tax provisions.

Earlier this year, Congress passed the “Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001” that increases all the contribution and benefit limits for qualified retirement plans, and makes a number of administrative changes. A Californian putting the new federal limit of $3,000 into a traditional IRA would violate the state’s $2,000 limit, thus putting at least $3,000, and perhaps even the entire account, into jeopardy of state taxation.

The chairs of the Senate and Assembly tax policy committees have solicited input from interested parties, requesting alternatives to conformity. The retirement investment conformity provisions will be amended into existing legislation with Senate leadership planning to expedite a full EGTRRA conformity bill, authored by Senate Revenue and Taxation Committee Chair Jack Scott. An early January hearing is planned.

Probably enhancing chances of passage and gaining Governor Gray Davis’ signature are new cost estimates from the Franchise Tax Board. With enactment assumed after June 30, estimates for education, individual retirement account (IRA) and pension issues total $44 million in 2002-03, ranging up to $59 million in 2004-05.

Earlier estimates pegged the cost of conformity to about $50 million in the budget year and hundreds of millions of dollars in subsequent years. Such a hit on the state treasury was enough to sound alarms in the governor’s Department of Finance, as well as in the halls of the Capitol where majority Democrats are usually hostile toward anything that reduces government revenues.

The FTB revised estimates of revenue losses were substantially lower reflecting a significant shift of revenues as a result of the changes in federal tax law without state conformity. Educational IRA revenue loss estimates also were substantially reduced.

Cal-Tax, in a response to Senator Scott and Assembly Member Ellen Corbett, said that conforming “completely and quickly to the most recent federal changes … is absolutely critical for California employers and employees. Non-conformity, or even partial conformity, is simply not an acceptable option for California taxpayers.” Because so much of California tax law has fallen out of conformity with federal law, Cal-Tax also urged the Legislature to devote more attention to broader conformity efforts after four years of missed opportunities.

The American Benefits Council, a national trade association for companies concerned about all aspects of the employee benefits system, also has called for California conformity to EGTRRA. “This nonconformity creates confusion for workers who want to take advantage of these savings opportunities and limits the tax incentives to save.”

Further, the council said: “California’s nonconformity is indicative of a broader problem in which approximately 15 to 20 other states demonstrate nonconformity with EGTRRA. Nonconforming state income tax codes such as California’s may impose significant costs and burdens on employers, hindering the effort to comply with the retirement savings provisions of EGTRRA.”

Gina Rodriquez, Sacramento editor for Spidell Publishing Inc., also responding to the request for input to the policy committees, said: “We believe that there is no alternative to conforming the federal pension provisions. There is too much at stake for the common, everyday worker and employer if California fails to follow federal law in the pension area. … We believe that anything short of full conformity to the 2001 changes to the federal pension rules will hurt millions of Californians by denying them pension benefits and subjecting middle and lower-income taxpayers to a hidden tax increase.”

Assembly Revenue and Taxation Committee Chair Corbett, quoted by Stockton Record Capitol Bureau Chief Will Shuck, said, “It could be that people in California just don’t have the benefit of federal law. If the budget weren’t in crisis, it would be easier to deal with. But that’s not the situation, so it’s going to be tough.”

JUDGE SAYS FTB EMPOWERED STAFF TO DENY TAXPAYER PETITION

LAWSUIT SEEKS TO EXPAND PROP. 13 ASSESSMENT CASE TO L.A. COUNTY

BUDGET CRISIS UPDATE: “CAST WIDE NET,” SAYS LAO; NO TAX HIKES, SAYS DAVIS; BORROW BIG, SAYS ANGELIDES; PENSION SYSTEM TO RESCUE? CASH-FLOW PROBLEMS – WILL HISTORY REPEAT?

• Governor Gray Davis told cities and counties on December 19 that the budget will not be balanced on their backs; that he would not divert nearly $4 billion back to the general fund that is earmarked to pay local government for loss of vehicle license fee (car tax) revenue. He also said he would not propose an increase in the car tax – or any tax – in the 2002-03 budget that he presents on January 10.

• The governor and California Public Employees’ Retirement System administrators agreed on a complex deal that saves the state $1.29 billion by restructuring the employer (taxpayer) contributions into the $144 billion CalPERS system. In exchange, retirees stand to get bigger pensions when inflation erodes their pensions’ purchasing power by 20 percent, instead of 25 percent in the old system. According to the Sacramento Bee report (December 20), the Davis administration has the option to cancel the deal if the economy bounces back and the $1.29 billion isn’t needed. Pension officials say the reduced state contribution would not jeopardize the fund or its members. Then-Governor Pete Wilson reduced the state’s employer contributions to CalPERS in the early 1990s, but lost a court battle over it. The difference now, pension officials say, is Governor Davis, in an emergency closed-door meeting, offered the system something of long-term value in return for the short-term budget help.

• State Treasurer Phil Angelides wants the state to go on a borrowing binge, reported Los Angeles Times columnist George Skelton on December 20. Mr. Angelides wants a building boom to stimulate the economy and feels the state can afford to sell $25 billion in construction bonds over the next five years, taking advantage of interest rates that are at a 25-year low. The treasurer said he wants all $25 billion in bond proposals to appear on the statewide ballot next November. He also wants to allow local government to be able to borrow and raise taxes – with a majority vote instead of two-thirds – for bond authorization.

• State general fund expenditures exceeded revenues by $10.7 billion in November, according to a cash flow report from Controller Kathleen Connell. The December 10 report said this gap is substantially larger than the $5.06 billion problem estimated by the state for the 2001-02 budget.

JUDGE: SACRAMENTO COUNTY UTILITY TAX VIOLATES PROP. 62

CANDIDATES JOCKEY FOR MARCH PRIMARY BALLOT

JUDGE DENIES LABOR BID TO BLOCK PROP. 35

LEGISLATIVE COUNSEL: INITIATIVES REDUCING CITY TAXES GO ON NEXT CITY ELECTION BALLOT

Legislative Counsel Bion Gregory, in a December 11 opinion written by Stephanie Ramirez-Ridgeway, concluded that initiatives that reduce or repeal local taxes are to be placed on the ballot at the city’s next regular election, not the next statewide election.

In opinion No. 24170, issued to Senate Local Government Committee Chair Tom Torlakson, she noted that the law (Section 1405 of the Elections Code) reads that county initiatives are to be on the “next statewide election,” and, for cities and districts, initiatives are to be placed on the ballot at the “jurisdiction’s next regular election.”

Ms. Ramirez-Ridgeway wrote, “The use of the possessive apostrophe in the second sentence of subdivision (b) of Section 1405 with reference to the jurisdiction provides additional evidence that the Legislature intended that local initiatives be placed on the ballot for the next election held by the local jurisdiction, not for the next general election occurring therein.”

For example, if a city election is in November of 2002, a tax-cutting initiative would have to be placed on the November ballot, not the March 2002 statewide primary election ballot.

Ms. Ramirez-Ridgeway also wrote that Proposition 218 (Article XIIIC, Section 3) validates the use of the initiative to repeal a local tax but is silent on the timing of the election.

nevada tax study group to consider “split roll” property tax

A task force studying Nevada’s tax structure decided at a December 12 meeting in Carson City, to review a broad list of potential revenue sources – including a split roll property tax. According to an Associated Press report of the meeting, only a personal income tax (which Nevada does not levy) is off the table.

Other ideas include a lottery, various taxes on business, admission fees, etc. Mike Sloan, executive at the Mandalay Bay Casino in Las Vegas, made the motion for a broad study scope.

Carole Vilardo, representing the Nevada Taxpayers Association, urged the task force to look at expenditures. Edward Duffy, representing the Nevada Seniors Coalition, said expenditures are out of control and tax revenues have increased 73 percent more than the state’s population.

The next task force meeting is scheduled for January 16. Its recommendations will be submitted to the 2003 Nevada Legislature.

FTB HEARS TAXPAYERS AT CULVER CITY MEETING

At its annual “Taxpayer Bill of Rights” hearing, held this year in Culver City on December 13, the Franchise Tax Board heard suggestions for legislation and complaints about agency activities.

Al Shifberg-Menchen, representing the California Society of Enrolled Agent, testified in favor of conformity. He also presented a letter from Gina Rodriquez, Spidell Publishing’s Sacramento editor, suggesting that a line be placed on tax returns for payment of use tax liability and pointing out a drafting error in the teachers’ tax credit.

Marvin Klotz, an enrolled agent, charged the FTB’s with an unconstitutional application of Revenue and Taxation Code Section 17145, relating to the exemption of management company dividends, if 50 percent of its assets are obligations where the interest is exempt from state taxation.

An expected presentation on the Ceridian issue did not materialize.

Meeting notices were sent out on December 4 and some observers suggested the meeting violated the state’s open meeting laws (which require 10 days notice).

DEPARTMENT OF FINANCE: NO AUTOMATIC TRIGGER TO INCREASE CAR TAX

The 67.5 percent reduction in the car tax appears out of reach of legislators who would take it away to help balance the state budget next year. But that doesn’t mean they won’t try, especially if they can figure a way to avoid putting the issue up to a super-majority vote requirement in the Legislature to make Californians pay more each year when they register their motor vehicles.

Although at least some high-ranking Democrats in both houses of the Legislature seem determined to give it a whirl, because of the state’s fiscal problems, the fact that 2002 is an election year probably puts a tax increase out of reach. They’d love to find a way to have the tax go up without having to vote on it, and some have mentioned such a possibility.

Cal-Tax questioned sources in the Legislature and the Davis administration as a result of published speculation that a mysterious trigger mechanism might exist that could increase the tax without action by the Legislature or governor. That’s simply not the case, the sources said.

Governor Gray Davis’ Department of Finance, currently in an all-out blitz to reduce state spending in the face of a projected $8 billion to $14 billion shortfall in revenues over the next 18 months, won’t be targeting the car tax, also known as the vehicle license fee (VLF).  In fact, the governor has not put any plan to raise taxes on the table for discussion.

With respect to increasing the car tax, the governor told reporters on December 19: “I don’t see any need to do that at this time. We haven’t completed the budget process, but I believe I can present a budget that does not require a tax increase.”

On December 18, two Democrats unveiled their plans to raise the tax with legislation in 2002, but Capitol observers believe such an effort faces strong Republican opposition and little chance of gaining two-thirds votes as required for a tax increase. Assembly Member Carole Migden (a San Francisco Democrat who is running for the State Board of Equalization in 2002) wants to temporarily roll back the fee reductions to the full 2 percent rate that existed prior to 1998. She has allies in Senate President Pro Tem John Burton, as well as Senator Dede Alpert. Senator Alpert, a San Diego Democrat, announced plans to introduce a bill to permanently restore the car tax at 2 percent of value.

Ms. Migden was quoted in the San Francisco Chronicle: “Maybe I’m misreading the public, but I think people would be more than happy to throw back a few bucks to help working families, vaccinate kids and provide quality schooling.” If she had her way, the owner of a $20,000 car would pay a $400 annual license fee, instead of the $130 under current law.

The Democrat in the corner office (Davis) and outnumbered legislative Republicans probably will carry the day on this issue, as a two-thirds vote tax increase cannot pass without Republican votes and the governor would likely send an election-year message to fellow Democrats that he doesn’t want to raise taxes.

The only way the car tax could be raised or lowered is through passage of a statute, Sandy Harrison, spokesperson for the governor’s Department of Finance, told Cal-Tax on December 12. He said the department’s position is that there is no automatic trigger that would take effect based on a flow of revenues, or lack thereof.

Senior legislative staff concur that the 1998 law, although cloudy and difficult to understand, would not allow the tax to go up without a vote of the Legislature. And if it is a tax hike, two-thirds of the Senate and Assembly must be in support. Ms. Migden indicated that she wants to figure out a way to somehow temporarily rescind the tax cut with a simple majority of legislative support instead of two-thirds.

Insufficient monies appropriated to backfill local governments for loss of VLF revenue would result in an increase in the tax, according to a provision in law. However, reducing the amount that the state appropriates to make up for local governments’ billions of dollars in losses of VLF revenue would be part of the budget act. The budget bill requires two-thirds approval of the Legislature.

The Chronicle was the third newspaper in recent weeks to raise the question of whether the car tax reduction is at risk as policy-makers seek to balance the budget in 2002. Assembly Member Jenny Oropeza, a Long Beach Democrat designated to chair the Assembly budget committee next year, was quoted as saying she hoped that an automatic trigger would increase the tax without legislative action. However, Ms. Oropeza conceded that without an automatic trigger, the tax is not likely to be raised. “Everything is on the table, and it needs to be,” she told the Stockton Record (November 29). “But I don’t think creating new taxes is something that’s going to be very likely.”

A spokesperson for Assembly Speaker Robert Hertzberg said the speaker believes everything should be on the table but has not taken a position on the concept of increasing the car tax.

The Sacramento Bee quoted Senate Republican Leader Jim Brulte: “Raising taxes during a recession is like putting leeches on a sick patient. Penalizing working families is not the right approach.”

TAX BREAKS FOR MOVIE-MAKERS? PICTURE IS CLOUDY

Hollywood movie-makers have urged state policy-makers to make California more competitive in its tax treatment, but the deteriorating economy creates a cloudy picture, reported the Los Angeles Times (December 6).

Two Assembly select committees, one on entertainment and the arts and the other on the state’s film future, held a hearing at the Los Angeles Center Studios. There were suggestions to give productions sales tax rebates and enlarge an existing state program of up to $300,000 in rebates to help cover police and fire-protection costs, permit fees and location fees.

Meanwhile, The Times reported December 13 that a new study commissioned by Raleigh Studios of Manhattan Beach found that in 2000, about one-third of all feature films made in North America – 36 movies with budgets of more than $5 million – were shot in Canada. The increased production of big budget films in Canada has coincided with the Canadian government’s approval of “generous” tax credits starting about three years ago, according to the study released on December 12.

At the December 5 legislative hearing, the Milken Institute reported that 26.5 percent of the productions developed in the United States were filmed in foreign countries in 1998, twice what it was in 1990. Of the locations outside the United States, 82 percent were shot in Canada, where the budget of a $40 million film could be cut by 25 percent.

The Times also reported that speakers complained that there was too little data available on the entertainment industry, because economists don’t always agree on what jobs to include, so the state lists 141,000 jobs within Los Angeles County in the industry, but the county’s Economic Development Corporation estimates the number at 242,000.

On another side of this debate are Canadian film officials who say the cost of California’s runaway production has to be put in perspective, according to a report in the Toronto Globe and Mail (September 15). Total production in Canada represents about 3 percent of the value of the U.S. film industry, the newspaper reported. Further, the director of the B.C. Film Commission, Mark DesRoches, said the province did $1.2 billion in film business, whereas Southern California did $28 billion. “It’s a drop in the bucket,” he said, maintaining that the weak dollar is far more important than government subsidies in luring films to Canada.

The newspaper said that, according to critics, the cheaper dollar and lower wages are more important to film-makers than the Canadian government’s 11 percent tax rebates and individual provinces’ 12 percent rebates. Pressure on U.S. federal and state governments to intervene has grown since last January’s release of a U.S. Department of Commerce finding that runaway film production costs the U.S. economy more than $10 billion a year.

YOUR TAX $$$ @ WORK

WHIFF OF CULTURE IN VENTURA. Seed money of $100,000 was appropriated by the Ventura City Council on December 10 to a controversial public arts project next to the Ventura Sewer Plant. When finished, the project is estimated to cost $750,000. Proponents argue that the project will attract visitors to a scenic wetlands area, according to the Ventura County Star (December 12). Critics say the proposal stinks and question spending hundreds of thousands of dollars on a project next to a sewer plant. Council Member Sandy Smith responded, “Who cares? We’re not taking it out of the general fund.” Council Member Neal Andrews, who voted against the project, said the city should explore to see if there is a better use of funds dedicated to arts and culture.

SPORTS SUITS COST TAXPAYERS. Gone are the days when students voluntarily accept the risks when they go out for sports. Taxpayers are now footing schools’ legal costs of defending sports-related damage suits. Two recent examples:

In Union City (Alameda County), the father of a Logan High School sophomore is seeking $1.5 million in punitive damages due to his son’s removal from the varsity basketball team. According to the Hayward Daily Review (December 11), Lynn Rubin (the father) said the family changed its schedule to be compatible with varsity practice. His suit also charged that the coach did not consult with the parents prior to cutting the boy. Mr. Rubin said he calculated the amount of damages based on potential lost wages from a professional basketball career.

In Rialto (San Bernardino County), the mother of an Eisenhower High School freshman quarterback is suing the district on the basis that the district did nothing to discipline a student who broke her son’s jaw on the practice field. According to the Inland Valley Daily Bulletin (December 12), Janice Parker, mother of the player, is seeking damages for current medical expenses for the broken jaw from an alleged assault by another player. Despite the injury, the son played on the team but missed the first three games. Ms. Parker said the motive in filing the suit came in part from the fact she didn’t get an apology from the district.

STATE TRADE AGENCY MAY BE WASTEFUL, SAYS AUDIT. Lack of a strategic plan causes the state Bureau of Audits to conclude that the state’s Technology, Trade and Commerce Agency is disorganized. As a result, it could be missing opportunities and therefore wasting taxpayer dollars, State Auditor Elaine Howle reported December 10. She said the agency “lacks an effective way to demonstrate that it is wisely using the more than $200 million spent on its programs each year.” Agency Secretary Lon Hatamiya disagreed that such a plan is even needed, saying a one-size-fits-all planning approach wouldn’t work for an agency that must constantly adapt to changing circumstances. One problem, he said, has been unfilled positions in the agency. The Mexico office was understaffed and without a director for about a year, the report said. The audit notes that that agency abandoned efforts to develop a strategic plan after twice hiring consultants to do the work. The audit was requested by Assembly Member Sarah Reyes, chair of the Assembly Committee on Jobs, Economic Development and the Economy. She acted on complaints from business that the agency wasn’t working cooperatively.

AUDIT HITS VETERANS AFFAIRS DEPARTMENT. The Bureau of State Audits, in a report issued in December, found problems with the Department of Veterans Affairs cash management, to wit: Since the state Department of Health Services decertified the Barstow home in July 2000, this home lost $5.7 million in federal and state funds through June 2001.“The department lacks an understanding of the data in its system, in addition to adequate tools and resources, to allow it to effectively manage the fiscal operations of its veterans homes,” the report stated. The department responded that efforts were under way to regain certification of the Barstow home.

DEPUTIES WANT MORE BENEFITS; WRITE FEWER TICKETS. Perhaps it can be called a ticket-writing strike, but sheriff’s deputies in Ventura County decided to hit their employer in the pocket book while they demand expanded retirement benefits. In the first five days of December, deputies wrote 22 tickets, compared to 407 in the first five days of November. It was unclear how many thousands of dollars local governments were losing in fines, reported the Ventura County Star (December 13). County officials, meanwhile, say they can’t afford the $100 million it would cost to apply a richer retirement plan retroactively for all safety employees. Deputies who now retire with 50 percent of their combined compensation want to be able to retire after 25 years on the job at age 50 with 75 percent of their combined pay and benefits. An analysis by the Los Angeles Times, reported November 19, found that a 55-year-old Ventura County deputy with 30 years on the job can retire under existing rules and take home $69,000 in annual retirement pay, or 106 percent of wages. The deputies’ union plan would give the same officer a $79,000 annual pension, or 122 percent of base pay, the newspaper reported.

LAND DEAL DOUBLE DIPPER? Sonoma County’s Open Space District approved $8 million in cash and tax benefits to preserve 19,000 acres of grazing land near Lake Sonoma. That was five months ago, reports the Santa Rosa Press Democrat (December 14). Now, the managing partner of the Cooley Ranch property, Crawford Cooley, by preserving the same property under a new state program, might get an additional $3.3 million, but the state wouldn’t really be getting anything that isn’t already happening with the county deal, the newspaper reported. A majority of the Board of Supervisors sees nothing wrong with the property owner gaining the additional tax benefit from the state, and the property owner believes the preservation offer can qualify for the state deal as long as an application is filed before escrow closes on the county transaction. Land already protected would not qualify for the state program, according to the state’s Wildlife Conservation Board, where an official declined to comment on the Cooley case as no application had yet been filed. Mr. Cooley told the newspaper he was unaware of the state benefit until after the county’s offer was accepted last July, and “I’m not asking for anything that anyone else wouldn’t be entitled to.” Spencer Flournoy of the Sonoma County Taxpayers’ Association: “It sounds like a double-dip to me. It seems totally wrong. He’s been paid once by the county Open Space District; now he wants the state to pay him again for the same easement. I don’t understand why anyone would support this.”

ALAMEDA COUNTY CONSIDERS $150,000 TO BUS FAMILIES TO SEE CHILDREN IN JUVENILE HALL. Alameda County supervisors are considering providing bus service to the new juvenile hall in Dublin, so families can see their kids. The cost: $150,000 a year, plus $375,000 to buy a new bus. The new detention center is scheduled to be built in 2005, and the county wants to have a transportation plan in place before then (Oakland Tribune, December 14).

MORE LAWYERS? Los Angeles City Attorney Rocky Delgadillo says he can save the city from some of its soaring workers’ compensation and liability costs if the City Council will let him hire more lawyers. The Daily News reported December 14 that Mr. Delgadillo, who took office last July 1, wants an improved accounting system to help the city collect as much as $15 million in debts, and more attorneys to crack down on workers’ comp fraud. The city’s comp costs have risen from $97 million last year to about $110 million this year. “Our attorneys are each handling 400 cases. If we hire five more attorneys, we can reduce that to 200-250 cases and the experience elsewhere has been that each attorney can save the city $400,000.” He wants to hire additional investigators and equip them with surveillance vans. Julie Butcher, business manager for the Service Employees International Union local, questioned the need for more attorneys.

EXCESSIVE RECESSES? According to the Daily News (December 6), the Los Angeles City Council is being criticized for taking too much time for recesses and taxpayer-funded travel. The council was in recess the first week of December because three of its members attended a national convention, the newspaper reported. By the end of the year, council members will have taken off about six weeks in six months for recesses and travel. At $133,000 a year, Los Angles’ council members are the highest paid of any city in the nation.

S.F. ELECTION: $29 PER BALLOT. The price of Democracy is steep in San Francisco, where the December 11 run-off election for city attorney attracted 70,244 voters out of 453,961 who were eligible. It cost taxpayers $29 per vote to put on the $2 million election. The 15.47 percent turnout was the lowest in at least the last 30 years. The San Francisco Chronicle (December 13) reported that the newly elected Dennis Herrera was “swept” into the city attorney’s office with about 36,400 votes.

SCHOOLS CHIEF MOONLIGHTS WHILE ON MEDICAL LEAVE. The superintendent of the beleaguered Orchard School District, whose doctors says he is too sick to perform his duties as superintendent, has been well enough to teach two introductory education classes a week at San Jose State University. The Mercury News reported (December 12) that Terry Jones’ actions are not illegal, according to state education officials, and they do not violate district policies or his $133,000-a-year contract. The newspaper said others raised questions ethics. The one-school district has been declared in a state of fiscal crisis and, before Mr. Jones went on medical leave, the district was criticized for buying a $79,856 BMW (which it is trying to sell) and a $468 Cartier fountain pen for the superintendent’s use. State auditors have been investigating a $1.6 million deficit in the district’s $5.7 million budget.

MONTEREY COUNTY SHERIFF. Why are there eight candidates for sheriff of Monterey County, easily the largest field vying for any elected office in the county? The Carmel Pine Cone, in its December 14-20 issue, took a look at the contest and found that “the stakes – thousands of dollars a year for life in extra retirement benefits – are extremely high for the candidates and their supporters inside the department.” Reporter Kirstie Wilde notes that the sheriff’s job is referred to as the “brass ring” by many in the department. She notes that the current sheriff, had he retired in 1998 as an investigator, would have received $37,500 per year in retirement pay. By winning the sheriff’s job, she wrote that the man will be able to retire at 90 percent of the sheriff’s salary ($130,000), or an annual raise of $79,500 until he dies. Plus three chiefs of staff and an undersheriff will be able to retire at $99,000 annually – a raise of $50,000 a year over what they stood to get as investigative sergeants.

LAX PR PACT. The Los Angeles Times (December 18) reported that the commission that runs the Los Angeles International Airport has agreed to extend the $9 million contract of a public relations consultant with close ties to Mayor James K. Hahn. The newspaper reported that the commission of the mayor’s political appointees took the action despite the continuing financial crisis facing the airport as a result of the September 11 terrorist attacks. The contract extension, worth $1.5 million to Winner & Associates, requires City Council approval, and the council on December 18 postponed action until January 15, 2002. The Times noted that Chuck Winner hosted three fund-raisers for Mr. Hahn earlier this year and that he and some of his employees gave more than $20,000 of their own money to the campaign. Commission staff had axed the contract, but commissioners had it reinstated in the budget. Critics, reported The Times, questioned the need for the PR contract after the new mayor scrapped an airport master plan that had been developed by former Mayor Richard Riordan. The Winner contract also was lambasted by Times columnist Steve Lopez, who noted that “taxpayers might as well have stacked that $9 million on the tarmac and set it ablaze. The LAX expansion plan has been dumped since September 11, the airport is $127 million in the hole and hundreds of employees have been thrown out of work. They should have gone into PR.” Mr. Lopez wrote that one Winner subcontractor told Times reporters Jennifer Oldham and Jeffrey Rabin that so little work was involved that he felt “truly guilty” getting paid. He told the reporters that “it would be your dream contract.”

S.F. SCHOOLS CHIEF GETS $33K CHRYSLER. From the Chronicle’s Matier and Ross column of December 19: San Francisco Schools Superintendent Arlene Ackerman is driving a $33,000-plus 2002 Chrysler 300M sports sedan that is “as loaded as you can get,” according to the sales manager at the dealership in Colma (Sun roof, leather upholstery, CD changer, premium sound system). The muckrakers say there’s no question the schools chief needs wheels, but given the district is so poor through neglect and misspending by her predecessors, can’t she get by with something less? Since coming to the district last year, she had been driving the 1994 Buick LeSabre she inherited from predecessor Bill Rojas. She makes $212,000 a year, and a purchased or leased car is in the contract.

POTPOURRI: SYMPOSIA, SIGHTINGS, SALUTES & SNAFUS

MERCED COUNTY EYING TRANSPORTATION SALES TAX. A 0.5 percent sales tax for transportation in Merced County is gaining momentum. The Merced County Association of Governments’ governing board voted to recommend county supervisors place the measure on the November ballot, the Merced Sun-Star reported December 21. The tax is estimated to generate $200 million over 20 years.

SAN JOSE FACES BUDGET DEFICIT. San Jose faces a $30 million budget deficit next year, the San Jose Mercury News reported today (December 21). The deficit is partly self-inflicted, as the council this week voted a $5.5 million pay hike for police. The city also terminated a lease early for a popular restaurant near the airport (The 94^th Aero Squadron), putting nearly 50 people out of work just before Christmas. The restaurant will be replaced by a cement batch plant.

FBI PROBES S.F. ASSESSOR CONTRACT. The FBI has launched a preliminary inquiry into a contract awarded by San Francisco Assessor Doris Ward to a political consultant, the San Francisco Chronicle reported December 18. According to the newspaper, it obtained a June 6 memo from veteran consultant Claude Everhart suggesting that “fewer dollars will have to be spent on your campaign” if he were put on the public payroll. On July 15, she hired him with a no-bid, $48,750 contract to perform community outreach and recommend improvements in the assessor’s office. According to the newspaper, the contract runs through January 31 and he had so far been paid $22,500. Mr. Everhart told the Chronicle that he isn’t billing the city “in any way to do any political work.” Assessor Allen said: “No City Hall dollars are used or were used by Claude Everhart for my campaign.” City Controller Ed Harrington said his office has initiated an audit of the contract after receiving a “whistle-blower’s” complaint. The Chronicle also reported (December 20) that it obtained records showing Dr. Ward used public funds to help pay for a newsletter that she mailed with a political fund-raising appeal for her re-election campaign. Both Dr. Ward and Mr. Everhart denied any wrongdoing, and inserting the newsletter into a political mailer was legal because the consultant gave the city a 50 percent discount on the cost of its preparation. Yesterday, Ms. Ward said she made a mistake using public funds to pay for a newsletter mailed to voters as part of her reelection campaign and said she would return $563 to the city. She asked voters to forgive her. Richard Hongisto, a candidate for the job, said he didn’t buy her story that it was a “mistake.” (San Francisco Chronicle, December 21)

DESERT HOT SPRINGS GOES BANKRUPT. The city of Desert Hot Springs on December 18 filed for bankruptcy protection under Chapter 9 of the federal bankruptcy code. According to the Palm Springs Desert Sun (December 20), a $3 million judgment in a discrimination case triggered the surprise action. Mayor Matt Weyuker said, “We do not have the money to pay this debt.” The U.S. 9^th Circuit Court of Appeals had held the city owes $3 million to low-income housing developers, stemming from a 1990 action rejecting a proposal to build a low-income mobilehome park. In a 1999 retrial, the judgment was reduced to $1. However, a federal appellate judge reinstated the full $3 million. Under bankruptcy, the city will be able to remain incorporated and continue to provide services, city attorneys said. City Council members said they all agreed with the decision. “You can’t squeeze blood from a stone,” said Council Member Mary Stephens.

OAL APPROVES BOE’S EMERGENCY AIRLINE REGULATION. The Office of Administrative Law on December 14 approved BOE emergency property tax regulation 138, exempting from property tax certain airplanes stored in California. In order to qualify, the planes must also be maintained when they are in the state (See Caltaxletter of December 7).

DAVIS SUSPENDS PESTICIDE TAX. In a December 13 press release, Governor Gray Davis said his one-year suspension of the state’s pesticide mil tax will save farmers about $1 million. That’s how much the state Department of Food and Agriculture’s portion of the tax raises in a year. The governor said the tax can be rolled back because of the department’s prudent management of existing funds. The department is entitled to three-quarters of a tenth of a cent for every dollar spent in the wholesale market for agricultural pesticides. The tax rollback does not involve the mil tax imposed by the California Department of Pesticide Regulation.

TAX INITIATIVE IN CIRCULATION. The Secretary of State’s Office on December 17 cleared another initiative for circulation. Seeking a spot on the November ballot is Gerald Meral’s plan to reallocate 30 percent of certain state revenues collected on motor vehicle sales or leases. Instead of going into the state’s general fund, the sales and use tax would go into a new Traffic Congestion Relief and Safe School Bus Trust Fund. The fund would benefit transportation programs, including specific freeway interchanges, mass transit improvements, and provide “safe” school buses. The Planning and Conservation League’s Meral has until May 16 to collect 419,260 valid signatures.

OAL APPROVES FTB CLEARANCE CERTIFICATE REGULATION. The Office of Administrative Law has approved Franchise Tax Board changes to Regulation 19513, relating to tax clearance certificates. Currently, tax clearance certificates are required when the value of an estate exceeds $400,000 and the proceeds of the estate distributed to any one individual exceed $100,000. The amendments increase the threshold from $400,000 to $1 million and $100,000 to $250,000. The regulatory change, which became effective yesterday (December 20), is expected to reduce the number of requests from estates for tax clearance certificates.

HARRISON’S “TAXMAN.” By way of the Notable & Quotable feature of the Wall Street Journal are the lyrics of “Taxman,” written for the Beatles in 1966 by the late George Harrison:

Let me tell you how it will be

There’s one for you, nineteen for me

‘Cause I’m the taxman

Yeah I’m the taxman

Should five percent appear too small

Be thankful I don’t take it all …

(If you drive a car) I’ll tax the street

(If you try to sit) I’ll tax your seat

(If you get too cold) I’ll tax the heat

(If you take a walk) I’ll tax your feet …

Don’t ask me what I want it for

(Ah, ah, Mr. Wilson)

If you don’t want to pay some more

(Ah, ah, Mr. Heath) …

Now my advice for those who die

(Taxman!)

Declare the pennies on your eyes

(Taxman!)

‘Cause I’m the taxman

Yeah I’m the taxman

And you’re working for no one, but me

(Editor’s Note: How much, if anything, will California’s “tax man” collect from the Harrison estate?)

BARNETT LEAVES SDCTA. The San Diego County Taxpayers Association’s executive director since December 1994 – Scott Barnett – is the new president and CEO of the Lincoln Club of San Diego. Mr. Barnett left the taxpayer group earlier this month and starts his new job on January 2. The Lincoln Club promotes business issues and supports pro-business Republicans for public office.

VENTURA ASSESSOR OPPOSES BENEFIT ASSESSMENT FOR OPEN SPACE. Ventura County Assessor Dan Goodwin last week came out against a proposed benefit assessment tax to preserve open space. County officials are considering such a proposal, according to the Ventura County Star (December 12). If approved, he said the tax will turn up on low-value parcels previously exempt from property tax, and on bills of mobilehome owners for the common areas they share, for example. Supervisor Judy Mikels, who represents Simi Valley and Moorpark, supported the tax at first but is now critical of the idea. A campaign poll showed 58 percent of homeowners in her district oppose it. Forming the open-space district will require state legislation, which has not yet been introduced.

S.F. FACING BUDGET DEFICIT. San Francisco is facing a possible budget shortfall of $175 million for 2002-03, according to analysts in Mayor Willie Brown’s office. The San Francisco Examiner reported December 13 that analyst Ben Rosenfield attributes the deficit to increasing labor costs locked in by recent contracts ($75 million) and a lack of economic growth ($100 million).

MANTECA PUTS PART OF HOTEL TAX ON BALLOT. The portion of Manteca’s 9 percent hotel tax that was not approved by voters as required by Proposition 62 (of 1986) has been placed on the March ballot in a last-minute action of the City Council on December 7. Voters will have a choice of keeping the tax at 9 percent (by voting yes) or reducing it to 5 percent (by voting no). According to the Modesto Bee (December 8), Malma Nicholson, who spearheaded the effort to repeal the city’s utility user tax, urged council members to place the issue before city voters. (Editor’s note: Manteca means “butter” in Spanish.)

DEL NORTE BUDGET GAMBLE LIKELY TO FAIL. Del Norte County supervisors’ gamble of adopting an unbalanced budget with hope that the state would make up the difference (see Caltaxletter of October 26) appears to have backfired. County Administrative Officer Jeannine Galatioto met with state budget officials and said, “It does not look hopeful.” The Eureka Times Standard also reported on December 11 that in order to bring down expenditures, the county will be examining various budget cuts over the next few weeks.

KLEHS CHARGES WESTLY WITH INEXPERIENCE. Campaigning for state controller in Eureka, State Board of Equalization Member Johan Klehs charged his primary election opponent Steve Westly has not previously held public office. According to the Eureka Times-Standard, he said, “I do have one great advantage. I have years of experience that directly relate to my job. My opponent in the primary has none.” He also said he anticipates getting Governor Gray Davis’ support.

SETENCICH DENIED NEW TRIAL. The 9^th U.S. Circuit Court of Appeals has rejected former Assembly Speaker Brian Setencich’s request for a new trial on charges that he cheated on his taxes (Sacramento Bee, December 14). Mr. Setencich was convicted last year of looting his campaign funds and understating 1996 income by $19,300. The former Fresno City Council member, now manager of San Francisco’s 911 response system as an appointee of Mayor Willie Brown, said he is inclined not to appeal further. He maintains his innocence, but the circuit court said in its brief ruling that there was sufficient evidence to uphold the conviction.

TAX SHARE PLAN SHUNNED. The Sacramento Area Council of Governments (SACOG) has first voted to oppose AB 680 (Steinberg), a bill that would require local governments to share some of their sales tax revenue. However, the six-county council wound up taking no position because backers of the plan invoked SACOG’s special weighted voting provision for the first time in 20 years, according to the Sacramento Bee report (December 14). With the city and county of Sacramento getting extra votes based on population, the outcome wasn’t enough to endorse the legislation but it was enough to assure that no opposition motion could carry. This was portrayed as a victory of sorts for Sacramento Democrat Darrell Steinberg, the bill’s author, but others predicted that the call for a weighted vote will create hostility and distrust toward the city of Sacramento. Before the vote, Roseville Mayor Claudia Gamar said, “The proof of the pudding will be whether you listen to the smaller areas, or whether you ask for a weighted vote and say, ‘We don’t care what you say, we’re going to shove it down your throat.’” The current version of the bill would deal only with growth in sales tax revenue, dividing it into thirds. One-third would go throughout the region, based on population. One-third would stay in the jurisdiction where it is collected. The other third would stay in the region where it was collected but only if 10 percent of new housing is affordable, homeless shelter is provided development is promoted in established neighborhoods.

VENTURA COUNTY VOTERS TO DECIDE BUSINESS TAX. Ventura County supervisors are asking the county’s voters next March to continue the county business license tax in the unincorporated area. The tax, which has been levied since 1991, was not submitted to voters for approval, as required by Proposition 62 of 1986. One of the changes in the tax is a reduction of harsh penalties for businesses that miss payment deadlines.

TAXES ON GAS SEVENTH HIGHEST. California ranks seventh highest among states in taxes it imposes on a gallon of gasoline, according to a USA Today survey published December 11. Statewide gasoline and sales taxes on gasoline in this state amounted to 25.94 cents per gallon (and this does not include sales taxes imposed by certain localities). The dubious honor of being number one falls to New York at 31.5 cents per gallon. Alaska was 50^th at 8 cents per gallon and Georgia 45^th at 11.9 cents per gallon. This helps explain why gasoline is always cheaper in Georgia than in California.

WORKERS’ COMP INITIATIVE. Big labor is pushing an initiative drive for the November ballot that would increase California workers’ compensation benefit levels to a national standard and increase them annually to reflect inflation. The initiative was submitted to the attorney general for title and summary in early December by Gnesa Duncan, wife of the former Tosco refinery worker who was injured in a 1999 refinery fire. The California Labor Federation and California Applicants Attorneys Association are primary backers of the petition drive to raise the maximum temporary disability payment from $490 to $651 weekly. Initiative efforts were vowed by labor leaders after Governor Gray Davis vetoed labor-backed benefit increases in each of the past two years.

COMING UP

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