MATT FONGS ACCOMPLISHMENTS AS A MEMBER OF THE STATE BOARD OF
1. Abolishment of Franchise Tax Board Penalty
I spearheaded the abolishment of a $5,000 penalty imposed by the
state's other tax agency, the Franchise Tax Board (FTB). Under a
California law that has now been repealed, the state required
corporations, large and small, to report a lot of detailed information
about the corporation to the FTB.
The information was used to calculate the state's tax rate for
banks! In other words, it had nothing to do with the tax bill for the
reporting corporations. If no report was received, the FTB hit the
business with a $5,000 bill.
Many small corporations did not understand all of this and
thought they had met their obligation by turning in their normal tax
return. Despite the fact that the law had been repealed, the FTB
continued to collect the penalty.
After I met with Glenn Rigby, the FTB's chief legal counsel, the
FTB reviewed these cases with an eye for basic fairness. As a result of
this review, the FTB dropped all but two cases.
2. Lower Property Tax Assessments for Homeowners and Businesses
With the crisis in California's real estate market during the
last four years, the values of many homes have declined below the
original purchase price. Under Proposition 8, property tax bills must be
lowered when home values drop below the Prop. 13 base year assessment.
Local property tax assessors, however, continued sending out tax bills
based on the purchase price.
One of the Board's statutory duties is to oversee county
assessors in the application of state property tax law. In this
capacity, I have called for local assessors to review all assessments of
homes and businesses to determine if property is being overassessed. As
a result, most assessors have instituted mass reappraisal methods that
have meant lower property tax bills for thousands of Californians.
3. Prop 172 -- More Money for Police and Firefighters
At a press conference with Assemblyman Richard Mountjoy in April
of 1994, I called for county supervisors to abide by the spirit of Prop.
172. When voters went to the polls in November of 1993, they were asked
if they wanted more money for public safety -- for sheriff departments,
police departments and firefighters around the state.
When the money started rolling in, however, the revenues were
diverted to other programs. One county even used the money for raises.
With the help of county sheriffs such as Cois Byrd from Riverside, Tom
Clark from Kings and Sherman Block from Los Angeles, we were alerted to
4. Local Sales Tax Allocation
The Board of Equalization collects and distributes to cities and
counties the local sales tax. When no specific location is identified
with a sale of property, the Board staff uses a formula to allocate the
tax. Unfortunately, this formula sometimes discriminates against cities
that have manufacturing operations within their limits. When one city
discovered the formula would work against them in the location of a new
manufacturing plant, the new plant was almost located elsewhere.
By working with the BOE staff and John Austin of Municipal
Resource Consultants, I was able to work out an equitable formula that
recognized the services the city would provide for the new plant.
Fortunately for everyone, the new plant was built and is providing new
jobs for Californians.
5. Consolidation of the Administrative District Offices in the
Fourth District in Los Angeles
To save taxpayer dollars and improve service to taxpayers, I
initiated a reorganization of the administrative district offices in my
district in the greater Los Angeles area. Working with Burt Oliver, the
Board's executive director and other top management staff, a project was
designed to consolidate five district and two branch offices into four
district offices by January, 1995.
The consolidation of these offices will save taxpayers $1 million
every year. At the same time, the new locations will offer improved
service to taxpayers.
6. Tax Fraud Squad
The underground economy and tax evasion cost honest taxpayers
hundreds of millions of dollars each year. During my tenure on the
Board, I have led efforts to reclaim these tax dollars from tax cheats
and lessen the burden on legitimate businesses.
I have worked with legitimate diesel fuel retailers and
wholesalers such as Giant Truckstop operator Jim Caldwell and Ontario,
California 76 Truckstop operator Marty Sandercock to fight unfair
competition from criminals who are selling below standards fuel to
truckers. These criminals also cheat the state by collecting state tax
and pocketing the money. About $50 million is stolen every year.
I have called on law enforcement agencies to work with the Board
to crackdown on smugglers of cigarettes who are evading almost $50
million of state taxes annually. With cigarette tax up to 37 cents per
pack, there is a tremendous incentive to sell the cigarettes and pocket
the tax. These criminals put legitimate cigarette distributors such as
David Sato, president of Sato Distributing Company, at an enormous
competitive disadvantage, undercutting prices by four dollars a carton.
Through a revolving door, unstamped cigarettes shipped out of California
come right back through Mexico in trucks, trailers and car trunks. The
lost revenue reduces state funding for breast cancer research,
tobacco-related school and community health education and tobacco-related
To combat this underground economy and tax evasion, I led the way
to establish a Special Enforcement Team, our "fraud squad," to fight tax
fraud. A team of 50 auditors now monitors keys areas of the state --
auditing suspected tax cheats instead of hassling legitimate dealers and
screening potential new sellers of diesel fuel and cigarettes. As a
result of these efforts, millions of dollars are in the process of being
collected and the Board already has begun prosecution of some of these
7. Response to Civil Disturbance in Los Angeles and the Northridge
After the April 29, 1992 Los Angeles Riots, I lobbied for Board
staff's participation in the 10 Disaster Application Centers that were
being set up after the national disaster declaration by the states Office
of Emergency Services and the Federal Emergency Management Agency. Board
staff, working at nine of the disaster centers, answered visitors
questions and provided information on the tax relief programs available
to businesses (extensions of the due date to file various tax returns,
reduced property assessments, and refunds for alcohol and cigarette taxes
paid for unmarketable goods). The Board also helped taxpayers, free of
charge, replace certain crucial financial records that were lost.
I pushed for the same Board involvement after the Northridge
earthquake. Tax deadlines were extended for quake victim and Board
employees worked until late hours helping taxpayers restore lost business
records, file extensions and complete tax returns. I also offered L.A.
County Assessor Kenny Hahn the use of BOE property tax staff to help
process applications for tax exemptions for earthquake damaged property.
8. Efficient Government and Budget Cuts
Soon after I joined the Board, I discovered that the Board's
executive director had no way to measure the performance of the staff and
the agency. Since the director "had not received any complaints," the
assumption was that everyone was doing a good job.
Working with the Director and the top management team, statistics
were developed and are now used to evaluate performance of an agency with
4,000 employees and a budget of over $200 million. I have also begun to
use these performance measures in my own district offices in Los Angeles.
Using these performance measures, Board staff has discovered
budget "fat" amounting to almost $7 million. For the 1993-94 budget
year, voluntary reductions totaling $2.7 million were made. Voluntary
reductions also were made in 1992/93. The Board gave back $3.3 million
of its budget. In addition, $1.8 million of spending was redirected to
other more effective Board programs.
9. Customer Service
Taxpayers are the Boards customers. In fact, nearly 75,000 visit
the seven offices in Los Angeles a year. As such, under my leadership,
the Board has worked to increase service to its customers. In my
district, the amount of time taxpayers wait for service has been reduced
drastically. In the Hollywood office two years ago, 53 percent of the
taxpayers waited more than 10 minutes for service. Today, that number
has been reduced to 19 percent. In 1991, one of five taxpayers that
walked into the Torrance office waited an incredible 40 minutes before
being helped! Today only one in 100 taxpayers wait that long.
In addition, when I took office, taxpayers were waiting too long
before they had their tax appeal heard by the Board members. The
combination of this slow process and an ever increasing number of appeals
had resulted in an enormous number of cases waiting to be heard. I
initiated an effort through my staff to track cases in the
petitions/appeals unit of the agency. My staff and I have worked with
Les Sorensen, the Board's chief legal counsel, to use this tracking
system and reduced the backlog significantly.
Finally, I have established the Committee on Rules of Practice
before the Board. Through this committee, I am in the process of
rewriting the rules to make them simpler to understand, provide
uniformity between tax programs of the Board, and reduce the time needed
to appeal a taxpayer's case and get a decision from the Board members.
10. Settlement of Major Litigation Has Saved the State and Counties
Billions of Dollars
Utilities Settlement -- Through an effort I initiated as chairman
of the Board's State Assessment Property Committee, almost 30 utility
companies settled $2 billion in property tax claims with the state and
all 58 counties. The settlement saved the counties $1 billion in refunds
to the utilities. According to the counties, these refunds would have
bankrupted seven California counties.
The settlement required a unique cooperative effort between the
state, counties and utility companies. Never before has such a
settlement agreement been entered into by these parties. This could not
have happened without the help of people such as Contra Costa County
Administrative Officer Phil Batchelor, Los Angeles County Counsel DeWitt
Clinton, Santa Clara County Counsel Steve Woodside, Tony Smith from
Southern California Edison, Jim Barnes of Pacific Bell and many others.
As a result of the settlement, utility companies dropped all
litigation and all their claims for refund from the counties. In
exchange, a valuation method was agreed upon which will provide the
counties with a stream of revenue that will not be challenged during a
time when they are struggling with their budgets.
In August 1993, the Los Angeles County Board of Supervisors
presented me with a resolution commending my efforts in achieving this
Settlement With Cellular Carriers -- Also through the State
Assessed Property Committee, the Board settled potentially costly
litigation with cellular carriers in the state. These companies had been
unfairly assessed for property taxes in the past by the Board and had
been successful in the beginning stage of litigation against the Board.
Through negotiations which I initiated, the Board and the cellular
companies agreed upon a fair assessment methodology for their property.
Aerospace Case -- As a result of a California Court of Appeal
decision, state and local governments are required to repay some $400
million in sales tax illegally collected from Southern California
aerospace firms. A large portion of these sales tax refunds belong to
the U.S. Government which reimbursed the aerospace firms for their sales
In an initial effort, I proposed a settlement program that would
allow the state and local governments to repay the claims over a extended
period. I opened discussions between representatives of the aerospace
industry, such as John Brown of Hughes, Sheridan Cranmer of Litton
Industries and Jim Worley of TRW; representatives of California cities,
such as Lloyd de Llamas of Hinderleiter-de Llamas; and the BOE. The
federal government and the aerospace firms agreed to this approach and
the Board has successfully settled the claims.
11. Tax Advisory Group
With my colleague on the Board, Ernie Dronenburg, I established
the Board's Tax Advisor Group. This is a blue ribbon committee made up
of the best and brightest tax professionals representing taxpayers all
over California. Tax professionals from industry represented Intel and
Advanced Micro Devices, Texaco and ARCO, Taco Bell and Dole Foods,
Southern California Edison and San Diego Gas and Electric. Some of the
best law firms and accounting firms were represented: Morrison and
Foerster, Pillsbury, Madison & Sutro, O'Melveny & Myers, Price
Waterhouse, KPMG Peat Marwick, Deloitte & Touche and Arthur Andersen.
We gathered these individuals together to identify problems with
Californias tax policy and administration from the taxpayers' point of
view and to formulate solutions for these problems. The issues discussed
with the group are the issues that are giving California a bad name for
business and are helping to drive employers out of the state. As a
result of these meetings, Ernie and I are working with staff to:
Reduce the time it takes for a taxpayer's tax
appeal to be heard by the Board, correct problems with California's
unitary tax system;
Make California's taxation of retirees more
Do away with the Board's "secret law" and open up
legal interpretations and other internal documents to taxpayers so there
will be no surprises when the auditor shows up at a taxpayer's business;
Publish more of the Board's decisions on
interpretations of tax law;
Work with Board staff and local county assessors
to agree on property tax treatment of hi-tech manufacturing equipment and
Although all of these projects may not be completed by the end of
my term, we have made significant progress in expanding access to the
Board's appeal process and in clarifying and improving tax administration
12. Lego International Red Team
When Lego began talk of building a family park in Southern
California, no one realized how important state tax issues would be. As
a member of the Governor's red team, I brought together Lego
representatives and the Franchise Tax Board to discuss the company's
concerns with California's unitary tax system. Through the discussions
with the FTB and with legislative reforms signed by the Governor we were
able to convince Lego to invest $100 million in their Carlsbad,
return to the main page
The material included in this voter guide is archived and will not be updated. Please visit the California Voter Foundation's homepage for the most current information and resources.
© California Voter Foundation 1994, 1995, 1996, 1997 & 1998