The 2021-22 Budget: State Board of Equalization

analysis full gutter The 2021-22 Budget: State Board of Equalization FEBRUARY 2021 Background Restrictions Imposed in 2017 Changed BOE’s relies upon CDTFA for most of its specialized Hiring Process. In 2017, the administration and administrative functions, including human the Legislature responded to the State Board of resources (HR). Equalization’s (BOE) organizational problems with COVID-19 Derailed Request to Return major actions, including: Delegations. In November 2019, BOE submitted • Loss of Delegations From Department of a formal request to the State Personnel Board Human Resources (CalHR). In April 2017, (SPB) to consider restoring its HR delegations. Governor Brown suspended the authority The issue remains unresolved due to the that CalHR had delegated to BOE to make COVID-19 emergency and related workload personnel decisions. With these delegations disruptions. suspended, CalHR is heavily involved in BOE’s BOE Has Had a High Vacancy Rate. hiring process. BOE’s overall vacancy rate in 2017-18—the • New Organizational Structure. Later in 2017, first fiscal year under the new organizational the Legislature passed two laws—AB 102 structure—was 14 percent, similar to many state and AB 131—that transferred most of BOE’s departments. By 2019-20, the vacancy rate programs, budget, staff, and facilities to the had grown to 32 percent. The most recent data newly created California Department of Tax available (September 1, 2020) indicate that BOE and Fee Administration (CDTFA) and Office of has 50.6 vacant positions—a vacancy rate of Tax Appeals (OTA). Under this structure, BOE 26 percent. LAO Comments Vacancies Have Had Negative Effects. Governor’s Proposed 2021-22 Appropriation BOE has described many examples of negative 30 Percent Higher Than 2019-20 Spending. consequences of its high vacancy rate, including: Due primarily to the vacancies noted above, BOE spent just $24.5 million of its $31.3 million • Outdated information in assessors’ General Fund appropriation in 2019-20. The handbooks. Governor’s proposed 2021-22 appropriation for • Delays in approving claims for the welfare BOE is $31.8 million—30 percent higher than the exemption. amount spent in 2019-20. At the same time, the • A backlog in the Legal Entity Ownership Governor’s proposal holds BOE’s position authority Program. constant at 192.6 positions. Implicitly, the proposed • A case management backlog for the appropriation seems to anticipate a large decline in Taxpayers’ Rights Advocate. the vacancy rate. 2021-22 LAO Budget Series 1 analysis full gutter BOE Involved in Implementation of workload (2.3 PYs) related to those rules. The Proposition 19. In November 2020, voters passed substantial changes made by Proposition 19—and Proposition 19, which changes certain property any forthcoming implementing statutes—will create tax rules pertaining to (1) inherited properties additional one-time and ongoing workloads for and (2) certain homeowners who move from one BOE. Although the administration has presented home to another. Prior to Proposition 19, the state the Legislature with a budget change proposal already had special property tax rules for some (BCP) for CDTFA’s Proposition 19 implementation of these situations, and BOE has an ongoing activities, it has not done so for BOE. Questions for Legislature to Consider Why Has BOE Had So Many Vacancies? Our seems quite high given the 2.3 PY workload for inquiries have not indicated a broad consensus existing laws in this area. among BOE, CDTFA, CalHR, and the Department How Can the Legislature Reassert Its Role of Finance regarding the main drivers of BOE’s in Determining BOE’s Budget? The lack of a high vacancy rate. We suggest that the Legislature Proposition 19 BCP seems to suggest that BOE engage in further discussions with these entities plans to cover the new workload by redirecting regarding the sources of this problem and potential existing resources, with no augmentation remedies for it. or reduction to its budget. An exact match What Vacancy Rate Should We Expect in between the Proposition 19 workload and the 2021-22? BOE’s overall vacancy rate has declined resources available for redirection seems like a noticeably from its 2019-20 peak. That said, the highly improbable coincidence. We suggest that Governor’s proposed 2021-22 appropriation would the Legislature consider ways to compel the make sense only if the Legislature anticipates administration to provide more information and further large declines in the vacancy rate. We see better justifications for its proposed appropriation no reason for the Legislature to appropriate funds for BOE. For example, the Legislature could that BOE cannot spend. consider a 2021-22 appropriation higher than What Resources Will BOE Need for Its $24.5 million (the 2019-20 spending amount) but Existing Duties? As noted above, BOE’s lower than $31.8 million (the Governor’s proposal). vacancies—and the closely related underspending The administration could then submit a 2022-23 of its budgetary appropriation—have had a variety BCP justifying any proposed increases relative to of negative effects. A 2021-22 appropriation that 2021-22. allows for some growth in actual spending could Should the Legislature or the Administration help BOE address some of these problems. That Change BOE’s Hiring Process? Our discussions said, the problems do not seem severe enough to with BOE and with the administration have raised a justify a 30 percent increase in spending. variety of potential explanations for BOE’s struggles What Resources Will BOE Need for to fill its vacant positions. As the Legislature learns Proposition 19? Proposition 19 is another reason more about this problem, it could consider whether for the Legislature to allow for some growth in changes potentially could make BOE’s hiring BOE’s spending. In response to our inquiries, process more efficient. Possibilities include: BOE has provided a Proposition 19 workload • Restore BOE’s HR Delegations From estimate roughly corresponding to 18 PYs in CalHR? This administrative decision could 2021-22, including 16 PYs ongoing. Proposition 19 have significant implications for a variety undoubtedly creates new workload for BOE, of legislative decisions regarding BOE. particularly during the initial implementation period. Accordingly, we encourage the Legislature to That said, the ongoing portion of BOE’s estimate monitor the situation. 2021-22 LAO Budget Series 2 analysis full gutter • Reconsider the Statutory Relationship Legislature consider the advantages and Between BOE and CDTFA? As noted above, disadvantages of having CDTFA play this role CDTFA currently performs various specialized as compared to other options, such as the administrative functions on behalf of BOE, Department of General Services. including HR functions. We suggest that the LAO Publications This report was prepared by Seth Kerstein, and reviewed by Brian Uhler and Carolyn Chu. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. 2021-22 LAO Budget Series 3