U.S. Probing State Tax Board’s Breaks to Donors

Times Staff Writers

Federal authorities are investigating the State Board of Equalization’s pattern of awarding huge tax breaks to corporations that make thousands of dollars in political contributions to the board’s members, The Times has learned.

The U.S. attorney’s office in Sacramento began looking into the board’s activities in May, a Justice Department source said. On Friday, FBI agents spent two hours talking to Robert H. Gustafson, a Board of Equalization tax specialist who later said in an interview that investigators are interested in linking campaign money with votes cast by board members. Gustafson is one of three top staff aides, who along with a board member, recently met individually with FBI agents, according to tax board sources.

The Board of Equalization probe has paralleled the federal investigation into alleged Capitol corruption but is not a part of the FBI’s sting operation involving the use of undercover agents and a phony shrimp-processing firm, the Justice Department source said.

One board member, former Democratic state Sen. Paul B. Carpenter, has already been named as a target of the FBI sting investigation in connection with his activities as a legislator. A former top aide to Carpenter, John Shahabian, was among the first to be implicated in the sting and later became an FBI informant after he left Carpenter’s Senate office.


Carpenter, who was elected to the Board of Equalization in 1986, is at the center of the board investigation, Gustafson said.

“Their interest is in Carpenter,” Gustafson said Friday, shortly after being interviewed by the FBI. “I would say there is an interest in the others if there is anything available, but (Carpenter) was the main thrust.”

Carpenter declined Friday to make any comment, a spokesman said.

When Carpenter began serving on the five-member Board of Equalization in January, 1987, he joined with members Conway H. Collis, a Democrat, and Ernest J. Dronenburg Jr., a Republican, in slashing property tax assessments for many companies that contributed to their campaigns, records show.


$223,159 in Contributions

State records show Carpenter has received $223,159 in contributions since becoming a board member last year. Collis has raised $756,388 and Dronenburg $36,350 since January, 1987, records show.

Members elected to the Board of Equalization usually remain in the $85,402-a-year position until they choose to retire. In the 109-year history of the board, only four incumbents have been known to lose election bids.

The board is charged with assuring that uniform assessment practices are followed by the state’s 58 counties and administers state and local sales taxes as well as various state and local use taxes.


Aides said Collis was on a plane late Friday and would have a comment on the investigation Monday. Dronenburg could not be reached for comment Friday.

4 Officials Interviewed

At least four officials at the tax board recently were interviewed by FBI agents, according to sources at the board. They are Democrat William M. Bennett, the only board member who does not accept contributions; Gary J. Jugum, assistant chief counsel; Gordon P. Adelman, staff counsel, and Gustafson. Bennett and Jugum declined to confirm their interviews with the FBI.

The board’s fifth member, State Controller Gray Davis, a Democrat, has abstained from participating in votes involving companies from which he has received campaign contributions.


Adelman, who spoke to FBI agents Monday, said investigators inquired about specific tax cases regarding major utility firms, BKK Corp. and several gasoline companies. Authorities were also interested in any involvement board members had with three bills considered by the Legislature this year, Adelman said. The bills dealt with tax assessments for the cable television, cellular telephone and utility industries.

Sting Targets

The measures were introduced by Assemblywoman Gwen Moore (D-Los Angeles) and Assemblyman Frank Hill (R-Whittier), two of four current legislators who have been named as targets in the FBI sting operation.

“They had pretty much the whole story,” Adelman said. “I couldn’t add too much.”


In the case involving BKK Corp., the waste disposal firm won a $292,834 tax break last year when the board overruled its staff and decided that the waste handled by the firm was not hazardous and thus not subject to the state hazardous substances tax law. Carpenter, Collis and Dronenburg voted for the tax reduction in April, 1987. Since 1984, BKK has given $16,300 to Carpenter and $5,350 to Collis, according to records.

Last year, the tax board set the total property assessments for eight major utility firms at $57.8 billion--nearly $2 billion below the recommendations of its staff. The reductions, according to county assessors, meant a loss of about $20 million in tax revenues last year for county and city governments.

The same eight utilities, which include Southern California Gas Co., Southern California Edison Co. and General Telephone Co., had contributed $32,200 to Carpenter, Collis and Dronenburg since 1986, records show.

3 Votes Needed


The three votes needed to approve the reductions on the five-member board were cast by Carpenter, Collis and Dronenburg. Bennett voted against many of the reductions and Davis abstained.

In one case, the board last year set the assessment value for Pacific Gas & Electric Co. at $16.4 billion--$600 million under its staff’s recommendation and $500 million below the level submitted by PG&E; officials. The company has given about $2,500 to Carpenter and $950 to Collis since 1986, records show.

The PG&E; decision prompted county assessors and lawyers throughout California to criticize the board for ignoring its staff experts and allowing money to influence its decision-making process.

“Politics and favoritism have no place in tax matters,” Los Angeles County Assessor John Lynch said. “The perception of the State Board of Equalization at the present time is one of favoritism toward certain taxpayers. . . . We think there has been a definite downslide in the proficiency and professionalism of the board. We think they should be above politics, not involved in politics.”


Susan R. Roff, the legal counsel for Butte County, said, “If the state board is allowed to make decisions while taking campaign money, then we ought to go about changing (the law) because counties are broke, and we are being cheated out of decent tax bases.”

Drove to Capital

In May, Roff and Plumas County Counsel Robert Schulman alerted the U.S. attorney’s office in Sacramento to the pattern of board members casting favorable votes for companies that contributed to their campaigns. Roff and Schulman said they drove to Sacramento to register their opposition to the way the board sets utility assessments without explaining the basis for their decisions. Schulman said he was not allowed to speak at the board meeting.

During a break in the meeting, the two county counsels said they met with an assistant U.S. attorney. They said they gave the federal prosecutor a list of contributors and board decisions. The prosecutor expressed interest in the case and attended the tax board meeting later that day, according to a Justice Department source.


The source said that the assistant U.S. attorney developed the case and turned it over to Justice Department officials overseeing the FBI sting operation.