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Bill Leonard - Contributor

Bill Leonard is a Member of the State Board of Equalization

A Week Under the Dome...
Capitol Christmas tree, PERS, Election, Tax Amenesty, Christmas Tamales..

[Bill Leonard] 12/14/04

O Christmas Tree

Welcome back to the Legislature. I remember the excitement and high hopes of swearing-in day. As part of the day’s celebrations, I invite legislators and all guests to step out to the west front of the State Capitol to admire the state Christmas tree. Its presence is a testimony to the tenacity and perseverance of one legislator, the late Senator Pete Knight. Senator Knight demanded the change in title from “ holiday tree” to “Christmas tree” for years, but he was ignored by Gray Davis. Before he died and during the recall election, Senator Knight made this request of Arnold Schwarzenegger: “When you are Governor, I want you to light the Christmas tree and quit this phony political correctness of calling it a holiday tree.” The Governor-to-be made that promise and last week he kept that promise to his deceased friend.

PERS Board Needs Counseling

It was widely reported last week that Sean Harrigan, union advocate and president of California’s Public Employees Retirement System (CalPERS) since 2003, got the axe. Harrigan and State Treasurer Phil Angelides (who also serves on the board) saw themselves as chief-harassers of American companies that failed to implement their brand of enlightened liberalism. Harrigan was perceived as using his power to punish supermarkets that fought with labor unions. However, the Constitution describes the role of the PERS board differently (Article XVI, Section 17b):

“The members of the retirement board of a public pension or retirement system shall discharge their duties with respect to the system solely in the interest of, and for the exclusive purposes of providing benefits to, participants and their beneficiaries, minimizing employer contributions thereto, and defraying reasonable expenses of administering the system. A retirement board's duty to its participants and their beneficiaries shall take a precedence over any duty.”

Clearly, the board's duty to the participants in the PERS retirement system is to maximize the returns of the fund and defray costs to the program. But Angelides and his allies on the board have corrupted this duty to justify the crude wielding of the PERS fund as a hammer to beat on companies that do not share their politics. This is a sick perversion of what they are supposed to be doing. Over the past three years, the PERS fund has lost $27 billion and needs $2.7 billion this year from the general fund because of the clownish antics of Harrigan, Angelides and their allies on the board. I am surprised that state employee unions are not up in arms about it.

Harrigan was quoted last spring saying, “All we're asking companies to do is align themselves with those they serve -- shareholders.” If Orwell were alive today, he might applaud this newspeak of the Brave New World.

More Post-Election Thoughts

Twelve proposals were put on the November 2004 ballot by initiative petition. Five of them passed. Commentators used to explain the reason for going to the ballot box with an idea was because the legislature was unresponsive to the public’s wishes, but now it is much more complex than that. When you consider that the legislature introduced some 5000 bills and passed 1100 of them, your chances of getting a new law passed is much better going directly to the people. On top of that, the latest round of so-called campaign finance reform has changed the dynamics of the ballot box. Since contributions to candidates are limited, the money flows elsewhere. Contributions to initiatives are not limited, so campaign cash ends up in those coffers. A related dynamic is the role of political consultants. They can affect policy change by electing officials or by passing ballot measures. Candidates can be hard to manage with spouses who refuse to stay on message or skeletons that do not stay in closets. Thus, to the political professional, initiatives are much less of a headache and have a greater chance of success. There is already a great deal of attention focused on the initiatives for 2006, and what really makes the initiative community drool is the prospect of the Governor calling a 2005 special election.

If You’re Out of Business, Consider Amnesty

The Board of Equalization is proceeding to implement the new amnesty law. I suspect the real agenda of the legislature was not to help taxpayers who are in trouble, but to find a way to increase penalties on taxpayers who violate tax rules. However, there may be one area where amnesty might work. Closed or non-operating corporations, limited partnerships, and LLCs often forget to file dissolution and other formal close-out paperwork with tax authorities and the Secretary of State, so they continue to accrue the $800 minimum tax, plus penalties. The Board has heard many cases that involved closed businesses, as well as charities and other non- profit associations. If you were once involved with an entity that incorporated, or became a limited partnership, or was an LLC, it would be worthwhile to make sure that it was shut down properly. Amnesty relieves certain penalties when the tax is paid. Applications must be filed between February 1, 2005, and March 31, 2005.

Taxing Your Christmas Tamale

A memo sent to the Board’s district administrators earlier this year was a reminder to our sales tax auditors about a product that becomes more popular as the holidays approach. It was a reminder that the corn husks and banana leaves used to wrap tamales are subject to sales tax. The husks and leaves are not edible and are discarded before the tamale is eaten. Since they are not for human consumption, they are taxable when sold to the consumer. So if you are planning to make a batch of tamales this Christmas season, prepare to open your pocketbook a bit wider when you buy the supplies. CRO




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